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Altabancorp (NASDAQ: ALTA)
Q3 2020 Earnings Call
Oct 29, 2020, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Altabancorp's Q3 Earnings Conference Call. [Operator Instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to turn the conference over to Mark Olson, Chief Financial Officer. Please go ahead.

Mark K. Olson -- Executive Vice President and Chief Financial Officer

Thank you, Amy, and good morning. Thank you for joining us today to review our third quarter financial results. Joining me this morning on the call is Len Williams, President and Chief Executive Officer of Altabancorp; and Judd Kirkham, Chief Credit Officer at Altabank.

Our comments today will refer to financial results included in our earnings announcement and investor presentation released last night. To obtain a copy of our earnings release or presentation, please visit our website at www.altabancorp.com. Our earnings release contains forward-looking statements. All statements other than statements of historical fact are forward-looking statements. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and beyond the control of the Company. We caution readers and listeners that a number of important factors could cause actual results to differ materially from those expressed in or implied or projected by such forward-looking statements. These forward-looking statements are intended to be covered by the Safe Harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date they are made and we assume no duty to update such statements except as required by law.

I'll now turn the call over to Len. Len?

Len E. Williams -- Chief Executive Officer and President

Thank you, Mark. Good morning, and welcome to our call. I'm grateful for this opportunity to meet with you and I hope you and your loved ones are healthy and safe. We reported solid earnings in the third quarter, demonstrating the strength of our organization to respond to difficult economic conditions. Our associates and clients have adjusted to this unusual environment as we continue to focus on addressing our clients' financial needs. We provided a substantial financial relief to our clients through the participation and government programs as well as our own payment relief programs and we expect to participate with additional funding for SBA PPP loans if passed by the federal government.

We will continue to work with our clients to provide financial solutions to assist them on their path to recovery as we all work to overcome the current hardships. I'm incredibly proud of how our associates have responded to the pandemic and how quickly and dramatically altered how and where we work. We've seen strength and leadership emerge through this unprecedented business twist. Our technology team has continued to focus on addressing the needs of our associates, many of whom are still working from home. While we continue to ensure that we protect our clients' electronic assets. Our sales force continues to connect with our clients to ensure that we offer financial solutions and assistance wherever and whenever possible.

While we rapidly deployed our back office support areas we did so in a safe and secure environment. We continue to ensure appropriate data security as our operations shifted to a new delivery methods. We continue to focus on the safety and stability of our associates and their families through the allocation of technology and resources to ensure that a majority of our associates are able to continue to work from home. We've also enhanced cleaning protocols for our office spaces and branch locations to ensure that our associates and clients feel safe when they visit us.

The State of Utah has developed the COVID-19 transmission index, which categorizes level of transmission as high, moderate or low. Each county receives a rating every week. The Company's COVID-19 pandemic response plan directly correlates to the States transition index. The counties where our branches are located presently have a transmission index of moderate or high. As a result, all of our branch lobbies are available by appointment only while our drive through windows remain open. To ensure the safety of our associates and clients, we require masks to be worn in all branch locations and in our back office locations when associates are unable to socially distance from other associates.

Approximately, 60% of our workforce remains working from home and we'll continue to do so until the transmission index in the corresponding county moves to low. At the outset of the public health crisis we responded swiftly to our clients' needs, including by actively participating in the small business administration Paycheck Protection Program or PPP. Since the inception of the program we have funded over $85 million in PPP loans helping over 330 regional small and medium-size businesses. We have subsequently filed 62 applications or 19% of the borrowers for forgiveness with the SBA, totaling $19 million, and have to date received loan forgiveness on 15 loans totaling just under $1 million. Thus far, we have not received a denial on any forgiveness applications submitted to the SBA. We are participating in the PPPL facility offered by the Federal Reserve to fund our SBA PPP loans and receive regulatory capital relief for such loans. We expect to have most of our SBA PPP loans processed for forgiveness by the end of the second quarter 2021.

We also offered a temporary loan payment relief program to borrowers impacted by the COVID-19 pandemic. We extended payment relief to 415 businesses and 108 individuals totaling approximately $320 million or 18.5% of total loans, excluding SBA PPP loans, to address borrower's cash flow challenges. To-date, the deferral period has ended for 237 borrowers or 45% of loans deferred totaling $128 million. This leaves 284 borrowers or 55% for loans totaling $191 million still on deferral. There are only four borrowers with small balance loans totaling $70,000 who have not made a loan payment for 30 days or greater after their payment deferral agreement has expired.

To-date, we have not entered into any redeferral agreements. Since these loans were performing loans that were current on our payments prior to the COVID-19 pandemic, these modifications are not considered to be troubled debt restructurings pursuant to applicable accounting and regulatory guidance. However, we do expect a small percentage of clients who have or had deferral agreements to be renewed and converted to TDRs. It is important to note that average deposit balances for clients who either apply for payment relief with us or who have had loan payments made by the SBA increased -- deposit balances increased $98 million or 363% to $125 million from the first quarter to the third quarter of 2020. In particular, we have seen that many of our borrowers who requested payment deferments have held on to their cash that would have otherwise been used to make their monthly payments. We anticipate these additional funds held by these clients will provide cash flow so they will be able to resume making payments on loans after their deferral periods. Approximately 15% of borrowers who requested a loan deferral continue to make their monthly payments through their deferral period.

Our overall asset quality trends have improved throughout 2020 and charge-offs across our portfolios have remained relatively low. We expect to see asset quality trends begin to deteriorate and charge-offs to increase beginning in 2021 as the positive effects of the government stimulus and loan payment relief programs come to an end. We believe our allowance for credit losses is adequate to cover our current expected losses. However, we will continue to monitor closely macroeconomic conditions and the overall performance of our loan portfolio to determine if we should adjust our expectations for credit losses.

Over the past 24 months, we've communicated each quarter our efforts to fortify our balance sheet based on our perspective that we were at the end of an economic cycle and wanting to be prepared for an economic turnaround. While we certainly did not anticipate that the economic downturn would be the result of a pandemic, our strong balance sheet provides safety and security to our stakeholders. We believe our balance sheet strength is reflected in the level of allowance for credit losses held by us and our strong regulatory capital position.

In addition, our focus to reduce loan concentration at our ADC and commercial real estate portfolios and the tightening of our overall underwriting standards over the past couple of years will help to mitigate the negative effects pandemic may have on our loan portfolio. Lastly, our strong liquidity position provides us the flexibility to grow aggressively as the economy recovers.

Evaluating our loan portfolio, approximately 20% of our portfolio is in business sectors that could potentially be impacted by the COVID-19 pandemic. These business sectors include retail, assisted living or nursing home facilities, hotels and motels, restaurants and arts, entertainment and tourism and recreation. The vast majority of these loans are secured by real estate and our commercial and industrial loan exposure is small. We're fortunate to operate in one of the strongest states in the nation from an economic perspective.

Utah's economy has consistently performed better than most states and the nation as a whole. The unemployment rate for the nation was 7.9% at September 30th, while the unemployment rate for the state of Utah was 5%, which is the sixth lowest unemployment rate in the nation. Nationally, total jobs decreased by 6.4% year-over-year at September 30th, while Utah jobs decreased 0.9%. This is the second lowest year-over-year job change of any state in the US. Despite the negative effects the pandemic has had on the overall year-over-year change in jobs, in Utah, at the end of the third quarter, construction jobs actually increased 6.6% year-over-year, which we believe is a leading indicator of the beginning of an economic recovery here.

Utah continues to experience net [Technical Issues] particularly during the pandemic as individuals and families are able to work from home for an extended period. We believe that Utica will continue to outperform other states and the nation as a whole as we recover from the negative economic effects of the pandemic.

Lastly, COVID-19 fatality rate in Utah was the lowest of any state in the nation. If we believe, we'll also mitigate the negative effects of the pandemic. Despite the onset of the pandemic, we reported a net income of $11.3 million for the third quarter of 2020 compared to $10.3 million for the second quarter of 2020 and $11.1 million for the third quarter of 2019. Diluted earnings per common share were $0.60 for the third quarter of 2020 compared with $0.55 for the second quarter and $0.59 for the third quarter of 2019.

Annualized return on average assets was 1.47% for the third quarter of 2020 compared to 1.52% for the second quarter and 1.88% for the third quarter a year ago. Annualized return on average equity was 12.6% for the third quarter compared with 12.1% for the second quarter and 13.8% for the third quarter a year ago.

The Board of Directors declared a quarterly dividend payment of $0.15 per common share. The dividend will be payable on November 16th, 2020 to shareholders of record as of November 9th, 2020. The dividend payout ratio for earnings for the third quarter of 2020 was 24.9%. This continues the over 50-year trend of paying dividends by the company.

I will now turn the call back to Mark to discuss more specifically our financial performance for the three and nine months ended September 30th, 2020.

Mark K. Olson -- Executive Vice President and Chief Financial Officer

Total assets grew $731 million or 30% year-over-year to $3.2 billion at the end of the quarter, which is primarily the result of the significant increase in total deposits. Total deposits increased $615 million or 29% to $2.72 billion at September 30th. Non-interest-bearing deposits increased $261 million or 34% to $1 billion at September 30th compared with the same period a year earlier. And interest-bearing deposits increased $354 million or 27% to $1.68 billion at September 30th compared with the same period a year earlier.

Non-interest-bearing deposits to total deposits increased to 38% at September 30th compared with 37% a year earlier. The increase in total deposits is primarily the result of both governmental and bank relief programs and businesses and consumers actively conserving cash to try to counter the negative economic effects of the COVID-19 pandemic. We anticipate that total deposits will decline throughout the remainder of the year and throughout 2021 as borrowers begin to make payments again on loans where payments were deferred and as cash reserves are used by both businesses and consumers to address shortfalls in income resulting from the pandemic.

Loans held for investment grew $22 million or 1.3%, $1.7 billion at September 30th as compared with $1.68 billion a year earlier. Quarter-to-date average loans increased $11.6 million or 0.7% to $1.69 billion for the third quarter compared with $1.68 billion for the same period a year ago.

Loans held for sale increased $12.3 million or 63% to $31.9 million at September 30 because of the increased mortgage loan volume from our mortgage banking division, the allowance for credit losses increased $11 million or 36% to $41.5 million at September 30 compared to a $30.5 million for the same period a year ago. The allowance for credit losses to total loans held for investment was 2.45% at September 30 compared with 1.82% at September 30, 2019.

Removing $84.6 million in SBA PPP loans and $77.5 million in government guaranteed balances from the denominator, our ACL to adjusted loans increases to 2.7%. Lastly, if we add the remaining $3.6 million in accretable discounts to allowance for credit losses, our total loss coverage ratio for outstanding non-guaranteed loan amounts is 2.9%. Nonperforming assets decreased $6.9 million at September 30, compared with $8.8 million at December 30, 2019. Non-performing assets to total assets were 0.22% at September 30 compared with 0.37% at December 30, 2019.

Cash and liquid investments securities grew $688 million or 104% year-over-year, through $1.35 billion or 42% of total assets at September 30. Shareholders' equity increased $37.6 million or 11.6% to $360 million at September 30 compared to $323 million a year earlier. The increase was primarily from net income earned during the intervening periods, change in accumulated other comprehensive income resulting from the change in the fair value of our investment securities portfolio and due to a decline in overall interest rates and then cash dividends paid to shareholders.

The Company's leverage capital ratio was 10.87% at September 30 compared with 12.64% and September 30, 2019. Total risk-based capital ratio was 19.13% at September 30 compared with 17.88% at September 30, 2019. The Company's regulatory capital ratios were negatively impacted by the adoption of ASU 2016-13 or CECL and the Company's election to take the full impact of such adoption against this regulatory capital ratios during the first quarter of 2020.

Turning to the income statement, pre-tax pre-provision income was $15 million for the third quarter compared with $16.6 million for the same period a year earlier. For the year, pre-tax pre-provision income declined point $3.1 million or 6.3% to $45.5 million compared with $48.5 million for the same period a year ago. The decline in pre-tax pre-provision income was primarily the result of lower net interest income and higher non-interest expense offset by higher non-interest income primarily from mortgage banking activities. Net interest income decreased $2.4 million or 8.5% to $26 million for the third quarter compared to $28 million for the same period a year ago. The decrease is primarily the result of net interest margins narrowing 152 basis points to 3.52% for the same comparable periods.

The narrowing of net interest margin is primarily the result of the Federal Reserve reducing benchmark rates to almost zero and an increase in the average amount of lower yielding cash and investment securities held by us stemming from average core deposits, increasing $592 million or 30% for the same respective periods, offset by average interest earning assets increasing $696 million or 31% to $2.9 billion for the same comparable periods. The percentage of average loans to total average interest earning assets decreased 58% for the third quarter compared with 76% for the same period a year earlier. Please keep in mind that if our balance sheet only had 15% of its interest earning assets held in cash and investment securities and our current liquidity was allocated to loans based on the third quarter yield, our net interest margin would have been 4.6%.

Yields on interest earning assets declined 171 basis points to 3.74% for the third quarter compared with 5.45% for the same period a year earlier. The declining yields on interest earning assets is primarily the result of the average amount of cash and investment securities held by us increasing $684 million or 128% to $1.22 billion for the same comparable periods with the yield on cash and securities declining 70 basis points to 1.49% for the third quarter compared with 2.19% for the same comparable periods. In addition, the yield on loans declined 112 basis points to 5.37% compared with 6.49% for the same comparable periods.

Average loans outstanding increased $11.6 million or 0.7%, to $1.69 billion for the same comparable periods. The cost of interest bearing liabilities decreased 32 basis points to 0.38% for the third quarter, compared with 0.7% for the same period a year earlier and is primarily the result of the cost of interest bearing deposits decreasing 32 basis points, to 0.38% compared with 0.7% for the same period a year ago. Total cost of funds decreased 20 basis points to 0.25% for the third quarter compared to 0.45% for the same period a year ago.

Acquisition accounting adjustments, including the accretion of loan discounts and fair value amortization on time deposits added 7 basis points to our net interest margin for the third quarter. Year-to-date, net interest income decreased $4 million or 4.8% to $78.8 million compared with $82.8 million for the same period a year earlier. The decrease was primarily the result of net interest margins narrowing 150 basis points to 4.04% for the same comparable periods. For the year, the percentage of average loans to average interest earning assets decreased to 65% compared with 79% for the same periods the year earlier. For the year, yield on interest earning assets declined 130 basis points to 4.32% compared with 5.62% for the same period a year earlier. The declining yields on interest earning assets is primarily the result of the average amount of cash investment securities held by us increasing $464 million or 103% to $915 million for the same comparable periods, with the yield on cash and securities decreasing 38 basis points to 1.28% for the same comparable periods.

In addition, the yield on loans declined 80 basis points for the same comparable periods and the average loans outstanding increased $7.4 million or 0.44% to $1.69 billion for the same comparable periods. Total cost of interest bearing liabilities decreased 25 basis points to $0.47% for the year compared to 0.72% for the same period a year earlier. The decline is the result of the cost of short-term borrowings decreasing 228 basis points to 0.35% as well as the cost of interest bearing deposits decreasing 24 basis points to 0.48% compared with 0.72% for the same period a year ago.

Total cost of funds decreased 16 basis points to 0.31% for the year, compared with 0.47% for the same period a year ago. Acquisition accounting adjustments, including the accretion of loan discounts and fair value amortization on time deposits added 9 basis points and net interest margins for all of 2020. Moving to provision for credit losses, we did not record any provision for credit losses in the third quarter compared with $2.1 million for the same period a year earlier, which was calculated under the prior incurred loss methodology. The provisions for the current and preceding two quarters reflect expected lifetime expected credit losses based on the current conditions and the potential effects from forecasted deterioration of economic metrics due to the COVID-19 pandemic based on the outlook as of September 30, 2020.

The decrease in provision for credit losses in the third quarter compared with the same period a year earlier, is due primarily to an $11 million or 60% decline in loans individually evaluated for expected credit losses to $7.4 million and the related allowance for credit losses of $4.4 million. This was offset by $49 million or 3% increase in loans collectively evaluated for expected credit losses to $1.6 billion and the related allowance for credit losses of $37.1 million. We incurred net charge-offs of $1.2 million for the third quarter compared with net recoveries of $0.3 million for the same period a year ago. Provision for credit losses was $2.8 million for all of 2020 compared with $5.8 million for the same period a year earlier, which is calculated under the prior incurred loss methodology. We incurred net charge-offs of $2.1 million for all of 2020 compared with net charge-offs of $0.6 million for the same period a year ago.

Non-interest income increased $1.7 million or 37% to $6.1 million compared -- for the third quarter compared with $4.5 million for the same period a year earlier. The increase was primarily due to a $1.7 million or 82% increase in mortgage banking income to $3.9 million compared with $2.1 million for the same period a year ago, which is the result of higher volume and wider margins on loans sold, which was favorably impacted by an increase in mortgage banking loan refinances as overall interest rates declined. For the year, non-interest income increased $4.6 million or 40% to $16 million compared with $11 million for the same period a year earlier. The increase in non-interest income was primarily due to $3.4 million or 67% increase in mortgage banking income and a $1.4 million gain on the sale of investment securities.

We expect to continue to see improving non-interest income as we expand our mortgage banking operations both in Utah and the surrounding states and reap the benefit of a significant investment in the technology used by our mortgage operations from an operational efficiency and enhanced client experience perspective. Non-interest expense was $16.9 million for the third quarter compared with $16.1 million for the same period a year earlier. Our efficiency ratio was 52.9% for the third quarter compared with 49.2% from the same period a year ago. For the year, non-interest expense was $49.3 million compared with $45.7 million for the same period a year earlier.

Our efficiency ratio was 52% for the year compared with 48.5% for the same period a year ago. The increase in non-interest expense both for the three and nine months ended September 30th was primarily the result of higher salaries and associated benefits resulting primarily from higher incentive payments, particularly in the mortgage banking division. In addition, we incurred higher data processing expenses due to the investments made in new technologies for the mortgage banking division, the commercial banking division, including cost for our cloud-based commercial loan origination application, including automated processes for smaller ticket commercial loans, costs for the implementation of a Salesforce CRM solution and cost for a new cloud-based commercial client treasury management solution and cost for new cloud-based construction budget, draw and inspection management solution for both commercial and consumer clients.

We expect to continue to make significant investments in new technologies to enhance the overall client experience and to empower our clients to transact more business on our mobile platforms to lower the overall cost of our operating platform and to become more scalable as we aggressively evaluate acquisition opportunities. Non-interest expense also increased from higher marketing and advertising expenses as we continued our efforts to improve overall brand recognition in the regional markets in which we operate.

We anticipate overall interest rates to remain near zero for the foreseeable future. As a result, we continue to review our overall operating costs to determine how we can better leverage our platform while retaining our high touch client experience. We anticipate making changes over the next several quarters to improve our overall operating leverage.

Income tax expense was $3.7 million for the third quarter compared with $3.4 million for the same period a year earlier. The effective tax rate was 24.6% for the third quarter compared with 23.2% for the same period a year ago. For the year, income tax expense was $10.3 million compared with $10.1 million for the same period a year earlier. For the year, the effective tax rate was 24.1% compared with 23.7% for the same period a year ago.

I'll now turn the call back to Len. Len?

Len E. Williams -- Chief Executive Officer and President

Thank you, Mark. I'm very proud of our team and how they've handled the pandemic. Our top priorities through this has been the safety and soundness of our associates and of the bank. We believe we've built a fortified balance sheet that will withstand the negative effects of the pandemic.

Lastly, we have focused on providing financial relief to our impacted clients. It's our goal to provide as much assistance as we can to our clients to support them through this crisis.

Thank you for joining us today. And at this point, I will turn the call back to the moderator to open up the lines for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question today comes from the line of Andrew Liesch. Please proceed with your question

Andrew Liesch -- Sandler O'Neill & Partners LP -- Analyst

Hey. Good morning, everyone.

Len E. Williams -- Chief Executive Officer and President

Hi, Andrew.

Andrew Liesch -- Sandler O'Neill & Partners LP -- Analyst

Hi. Question on the margin here. Just curious where new loans were being added, like what was the average rate on the new production for this quarter?

Mark K. Olson -- Executive Vice President and Chief Financial Officer

For the quarter? It was -- let me just look it, was around -- just around 5% overall.

Andrew Liesch -- Sandler O'Neill & Partners LP -- Analyst

Okay. So new loans being added around 5%, I would imagine securities being added around 1% and cost of funds around 25 basis points. So, maybe just funding all of that together, I mean, should we -- I mean, it's like the margin will still be under some pressure but should I begin to flatten out a few basis points lower from here?

Mark K. Olson -- Executive Vice President and Chief Financial Officer

Yeah, I think we're pretty much at the bottom, Andrew, as we look and forecast into the future. We expect as we grow that our loan portfolio into next year that our margins will start to widen. With the level of cash and investment securities we have, obviously we've been negatively impacted and margins have certainly narrowed. But, yeah, we think we're kind of at the floor at this point.

Andrew Liesch -- Sandler O'Neill & Partners LP -- Analyst

Okay, that's very helpful. And then, obviously some pretty solid loan growth here this quarter. What -- anything specific driving that? And I guess, I'm not sure if this pace is repeatable in upcoming quarters, but how is the pipeline heading into the fourth quarter, maybe even the next year as well?

Mark K. Olson -- Executive Vice President and Chief Financial Officer

Heading into the fourth quarter, a lot depends on the weather here and so far so good. It's usually a slower quarter. But that said, over the last couple of years, we have kind of enhanced our credit process. We've tightened up in a couple areas and we actually have moved out a very large number of close to $80 million in relationships. And frankly, our production this year is over last year. So, we think we've cleaned up the balance sheet and cleaned up the credit portfolio to the point where we don't think we'll have those reductions going forward. So that in its own right gives us a boost and we're seeing the effects of that now.

Andrew Liesch -- Sandler O'Neill & Partners LP -- Analyst

Okay. That's great color. Thanks for taking the questions. I'll step back.

Mark K. Olson -- Executive Vice President and Chief Financial Officer

Thank you. Good talking with you.

Len E. Williams -- Chief Executive Officer and President

Thanks, Andrew.

Operator

Your next question comes from the line of David Feaster with Raymond James. Please proceed with your question.

Mark K. Olson -- Executive Vice President and Chief Financial Officer

Good morning, Dave.

David Feaster -- Raymond James -- Analyst

Good morning, everybody.

Len E. Williams -- Chief Executive Officer and President

Hey, David.

David Feaster -- Raymond James -- Analyst

Pardon me.

Len E. Williams -- Chief Executive Officer and President

How are you?

David Feaster -- Raymond James -- Analyst

Doing well. Doing well. Thank you. You guys -- appreciate all the color in the release about being able to drive operating leverage in the comments on the call. All the while retaining your high touch experience -- before your high touch client experience. You've done a great job with investments to keep ahead of the competition, doing Ceno [Phonetic] and some of the other automation initiatives. It sounds like there is more on the back. I guess, as we look forward contemplating these additional investments and inflationary pressures, how do you think about the opportunity to reduce costs and drive that operating leverage that you reference?

Len E. Williams -- Chief Executive Officer and President

We'll both attack that one, but it's a tough one. Because we're committed to a high touch front-end and to technology. We think that's the answer to the space we're looking at. What is that, that small to mid-size enterprise business owner. And as we do that, we bring in the technology, but we have not taken the full benefit of the efficiencies of those that technology. We're still kind of high on the back end support piece of that, but we're working through this quarter and next quarter. I think we'll be in pretty good shape there.

Now, we may also see some increases. It should be offset by revenue as we continue to expand, particularly our commercial lending platform in Salt Lake County where we have 1% or less market share. We think this is a good opportunity to market with some of our larger competitors backing off and going less high tough. We think we're going to be able to want to track some talent and to attract clients with that. So we may see a little bit of an expense push as we continue to build our commercial lending capacity in Salt Lake County.

Mark K. Olson -- Executive Vice President and Chief Financial Officer

Yeah. My comment with respect to that David is, obviously the best way to do that is to grow volume and expand the portfolio overall. And to the extent that we're able to do that and certainly we're seeing the pipelines improve, that's the way to do it. But if the growth isn't there, then we are going to have to find a way to be more efficient on the back-end and make that platform more efficient overall. So -- but we told to get it. As we look into the future, we don't see rates rising for a while. And as a result, we really need to be efficient there.

The other thing -- and we have always said that in our releases that we're aggressive in looking at acquisitions. And to the extent that we can acquire other banks, that will help lever the platform as well. So, we're looking at everything and we want to lower those costs as our margins are low. I do want to go back to the fact that if we take the liquidity we have and move that into loans, our yields are going to be kind of in the 90 percentile of all banks. So we're comfortable where we're at and we think we've got great opportunities to grow.

David Feaster -- Raymond James -- Analyst

Okay. That's good color. And then, we hear a lot of banks talking about affords us like balance sheet. You guys are really hitting me of that at this point, just giving the reserve levels and excess capital. And I think it really affirms your strategy over the past couple of years to paying for something like this. I guess, how do you think about your past here, maybe what lessons have you learned that can help position you even better going forward? And maybe just how do you appreciate the commentary about improving the shrinking run-off some loans and improving the credit profile, but just how do you plan to leverage the balance sheet going forward to take advantage of the market and your positioning in it?

Len E. Williams -- Chief Executive Officer and President

First and foremost, we're in position to grow. And again, our conservative nature says that some of those deposits will probably drop off as businesses begin to reinvest. So that will change composure [Phonetic] actually increase our capital position from a percentage perspective if that happens. But the capital management part of this is a very important part of ours and of the boards. And not knowing, we've talked about acquisitions for a couple of years as well. It's been a few years since we've done one. And we think that's going to open up. And hanging onto a little bit of excess capital and managing through that is the mindset today. We continue to look at buybacks. We did increase the dividend a couple of cents. We'll keep that at the high end, I believe, of our stated range.

So, right now, the capital question comes quite -- comes up quite a bit. And we feel we were in a position to act in the best interest of the shareholders. And our best action is through growth. And that's what we've got to focus on.

Mark K. Olson -- Executive Vice President and Chief Financial Officer

And Dave, the other comment -- the other comment I would make is, Len mentioned, we expect that by the end of the year our overall volume will be over $1 billion. And with that, you can see how short the duration is. And we talked about that all the time. Our duration is very short and so we're turning the portfolio over quite quickly. But now that we feel that if we've kind of cleaned up the balance sheet as best we can and eliminated that $80 million of credits that we felt that we needed to let go, there should just be some natural growth there just in doing that, even if we don't increase anything at all from what we're doing today.

But having said that, when you look at it, the money centered banks in particular are really -- their lenders have been told no more new business. And so, we think that puts us in a great opportunity to go in and expand and grow premium clients that are going to have strong credit. And that will help us grow overall.

David Feaster -- Raymond James -- Analyst

Okay. That's good color. And then, just kind of following up on some of those comments on the capital deployment opportunities, obviously organic growth is at the top of the list. Saw the dividend increase kind of, like you said, toward the top end of the range. We've talked about M&A. But at current prices, I'd argue that given your current valuation in the profitability profile, the best deal that you could do is your own stock. I guess, how do you think about capital return and buybacks? I believe you've got a buyback in place. I mean, do you plan to be active in the short run or do we need to have more visibility into credit before you start becoming more active?

Mark K. Olson -- Executive Vice President and Chief Financial Officer

There is a big unknown out there on the credit. So far things look good. We're glad to be in Utah. We're grateful for what our Chief Credit Officer has done to enhance the color of that portfolio. But there is a big unknown hanging out there as well. We're well aware of the capital position and the way to maximize that and share it with the investment community. But there isn't now we want to make sure in place for. We also look at -- you're seeing a lot of buybacks now in the market, but banks are trading at 80% to 90% of books that are doing most of that. We're back up to that, pushing that 120% to 130% range. And while I'm with you, I think given how much we're earning and building that capital continually, we do intend on leveraging it through growth first organically second acquisition and then hold a little bit to see what happens on the credit portfolio. We talk about it every quarter in our Board meetings. It continues to intensify. And as things stabilize, we'll probably see more, more action on that buybacks approval we have hanging out there.

David Feaster -- Raymond James -- Analyst

Okay. That's helpful. Thanks everybody.

Mark K. Olson -- Executive Vice President and Chief Financial Officer

Thank you so much.

Len E. Williams -- Chief Executive Officer and President

Thanks, David.

Operator

Your next question today comes from the line of John Rodis with Janney. Please proceed with your question.

John Rodis -- Janney Montgomery Scott -- Analyst

Good morning, guys.

Mark K. Olson -- Executive Vice President and Chief Financial Officer

Good morning, John.

Len E. Williams -- Chief Executive Officer and President

Hi, John.

John Rodis -- Janney Montgomery Scott -- Analyst

Just a follow-up, maybe a different way on expenses. You were $16.8 million, $16.9 million for the quarter. Is there anything -- is that a good run rate or is there anything we should sort of back out given the various -- just given the different moving parts that were in the quarter as far as initiatives and stuff like that?

Mark K. Olson -- Executive Vice President and Chief Financial Officer

Yeah. I think that's probably a good run rate as it stands right now. I mean, we think we've got to be invested in technology and we do have some additional areas that we're looking at investing in. And so, yeah, I think that's probably a good run rate for now.

John Rodis -- Janney Montgomery Scott -- Analyst

Okay. Thanks, Mark. As far as -- you guys have been growing the securities portfolio obviously just given the lack of loan growth up until this quarter. How should we think, because I think last quarter on the call, you said the securities portfolio could trend down some, but it was up a little bit this quarter. How should we think about that going forward?

Mark K. Olson -- Executive Vice President and Chief Financial Officer

Yeah. When we said that, we honestly felt that we started seeing some outflows in deposits. And so, as a result, we would stop reinvesting. But so far, that trend has not reversed and that continues to grow. And so long as it continues to view that, we just can't sit on cash at 9 basis points. And so, we're going to have to kind of manage accordingly. I hate buying securities, particularly where we're at from a margin perspective. But we want to earn some yield and any investment we make certainly is going to be an amortizing security. So we get the cash back and can use that as the loan book growth. So I don't want to do it, but if the deposits continue to grow, we've got to do something.

John Rodis -- Janney Montgomery Scott -- Analyst

Okay. But I guess you said in your prior remarks and your prepared remarks, you thought deposits would trend down through next year, right?

Mark K. Olson -- Executive Vice President and Chief Financial Officer

Right. And to the extent that that happens, then yeah, we will completely discontinue buying securities commensurate to whatever the outflows are.

John Rodis -- Janney Montgomery Scott -- Analyst

Okay. Makes sense. As far as you guys talked about building out the mortgage platform and expanding and actually expanding that. How should we sort of think about, I mean, certainly mortgage has been strong for all banks this quarter and last quarter. I would still think, is it still fair to assume that even with the expansion that mortgage trends down from the third quarter level or just talk about those dynamics and how much is the slowdown or expected slowdown you can offset with expansion?

Mark K. Olson -- Executive Vice President and Chief Financial Officer

Yeah. The timing for these mortgage rate drops have been phenomenal for us. We reorganized and hired a new leader for that mortgage division about a year ago, who has taken us to a whole new level and improved margins. So, he has been very aggressive in his budgeting. As a matter of fact, even through this year, he is just now getting to where is on target. So very, very aggressive and knows the business well. So I would -- the other point with the mortgage business is, he's build to where it's scalable. The bulk of the increased expenses are incentive based. So it will scale with volume.

That said, in a prior life, he actually managed locations across the country. We're staying in the Intermountain West in our footprint, but we do have some expansion opportunities. It's becoming a pretty well known platform and a pretty high performing well known group to where we've not had a big problem attracting talent. So, we hope that offsets a good piece of it as the market does slow. Again, on the plus Intermountain West, if you're looking at Utah, Idaho, Arizona, that's where we're seeing all the growth from the strapped states on the West Coast predominantly.

John Rodis -- Janney Montgomery Scott -- Analyst

So, Mark or Len, as far as the mortgage, is it all digital expansion or do you -- or will you actually open some physical locations?

Len E. Williams -- Chief Executive Officer and President

Yeah. Mostly we can do it from home. We will have some officers on the street outside of the market, but the whole application and delivery process is digital.

John Rodis -- Janney Montgomery Scott -- Analyst

Okay. Okay. And then, I guess, as far as if mortgage slows down, the impact to expenses, is it for each dollar of revenue that goes down? Just do expenses go down by roughly $0.50 or how should we think about that?

Len E. Williams -- Chief Executive Officer and President

Yeah. We don't have that ratio right now. But Mark, do you...

Mark K. Olson -- Executive Vice President and Chief Financial Officer

Yeah. I think what we've seen is kind of a three-to-one. So for every $3 of revenue decline, we see $1 expense reduction.

John Rodis -- Janney Montgomery Scott -- Analyst

Okay. Good. And then, Len, just a follow-up on your comment on M&A and you certainly talked about your interest in doing deals and obviously being patient that makes the most sense. But can you remind us from a market standpoint, obviously Utah probably makes the most sense. But as you talk about the Intermountain region, what markets are you potentially interested in from an M&A standpoint?

Len E. Williams -- Chief Executive Officer and President

Yeah, I'd say contiguous states in the Intermountain West. And I would probably skip Nevada on that discussion. There's just not much there. But as you look across Southeastern Idaho, Western Wyoming, Western Colorado and Northern Arizona, that's really where we are and where we feel we can manage well. A lot of it has been an interesting time with particularly some of the smaller community banks being public, we get to look at our valuation every day. A lot of these smaller non-public organizations, we haven't hit the realization and the value banks have gone down. So I think there is going to be a period of time while they understand that reality. And then, the other issue is, right now going in and doing diligence on a loan portfolio probably wouldn't treated fairly either because we don't know what's going to happen with the market. So they probably we discount a little bit much. So I don't expect much in the fourth quarter, but I'm hoping by the first -- late first, second quarter next year, we start having a little more meaningful discussions along that line.

John Rodis -- Janney Montgomery Scott -- Analyst

Okay, super. Thanks for the thoughts, guys. Thank you.

Len E. Williams -- Chief Executive Officer and President

Thank you, John.

Operator

[Operator Instructions]Your next question comes from the line of Jeffrey Rulis with DA Davidson. Please proceed with your question.

Jeffrey Rulis -- DA Davidson -- Analyst

Thanks, good morning.

Mark K. Olson -- Executive Vice President and Chief Financial Officer

Good morning, Jeff.

Len E. Williams -- Chief Executive Officer and President

Hi, Jeff.

Jeffrey Rulis -- DA Davidson -- Analyst

Question on the -- Len, you mentioned the charge-offs expectation to increase in '21, I think broadly an industry expectation, and I think an industry question is with CECL, we've set up the system where effectively you do charge that down if it's been built. You had a little reserve charge down in the quarter. Trying to get a sense for, does that accelerate I guess based on your comments, you've got a pretty stout reserve and could we, I guess it's implying an acceleration of that charge down in to '21, assuming loss content is within projection, but any thoughts around that dynamic?

Len E. Williams -- Chief Executive Officer and President

Yeah, I'll provide a little bit more color on this quarter's or excuse me last quarter's charge-offs. It really happen to be one deal, which we are expecting some recovery from. But it was a C&I contractor, kind of a mismanagement issue and that charge-off amount was virtually about one deal. So we are not -- we're monitoring the portfolio on rate changes pretty tightly right now. And we have been moving some of the hotels and some of the highly volatile industries with COVID to that watch to substandard range but yet, we haven't seen enough band in the portfolio to really be able to predict it.

Right now, we don't see much more hanging out there. And I will say while it falls in line with the comments that we think they're going to go up, it was a bit of an anomaly in the third quarter with one deal driving it. So I don't have a great prediction, it's just kind of going along with the market, thinking we haven't seen the impact, the negative impact of the market yet from a charge-off perspective.

Mark K. Olson -- Executive Vice President and Chief Financial Officer

To add to your point, we've set up those reserves for expected losses and as those losses come to fruition, we will be lowering the reserve overall, because our expectation of losses in the portfolio will be down and therefore we're not going to need to reprovide as those expectations become reality. So we don't view it as -- we're always going to have this very large reserve that's kind of out of that align with our peers. We did that because we're conservative and as the losses incurred, we will reduce reserves accordingly.

Jeffrey Rulis -- DA Davidson -- Analyst

Got it. Thank you. And maybe Len, we've had a few months now, I guess interested in your thoughts on the brand acceptance of the work you've done there. I know that that's a longer-term play, and it's got implications for kind of years down the road, but just wanted to get your sense for how that's played in the markets so far?

Len E. Williams -- Chief Executive Officer and President

Yeah. And as I mentioned, loan volume actually is up, deposits are up, you can attribute to a lot of things. The branding has been good. Internally, we've been able to do, particularly the acquisitions, we've had the last few years. Actually I can even go back to Louise's State Bank acquisition several years ago. It really has united that group. So we're seeing some very positive internal support of the brand and the clients are still trying to understand, many -- not clients, but the market is still trying to understand if the other banks got bought or if this is the way what it is. So we're still explaining that, hey, we're the same people. We just rebrand and then put us all together and unified the organization. So it's been positive. We've heard positive press. We're spending a little bit more money for market awareness as we anticipated and it's in our budget. But so far so, so good, Jeff.

Jeffrey Rulis -- DA Davidson -- Analyst

Okay. So coming in places, but first step is, now it sounds like positive momentum. So that's all from me. Thank you, guys.

Len E. Williams -- Chief Executive Officer and President

Thank you so much.

Mark K. Olson -- Executive Vice President and Chief Financial Officer

Thanks, Jeff.

Operator

And there are no further questions in queue at this time. Let me turn the call back to the presenters for any closing remarks.

Len E. Williams -- Chief Executive Officer and President

All right. Thank you. I'd like to thanks our moderator for the support here, and thank you all for joining us. Stay safe and if any of you have individual questions don't hesitate giving us call. We appreciate you coming. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 55 minutes

Call participants:

Mark K. Olson -- Executive Vice President and Chief Financial Officer

Len E. Williams -- Chief Executive Officer and President

Andrew Liesch -- Sandler O'Neill & Partners LP -- Analyst

David Feaster -- Raymond James -- Analyst

John Rodis -- Janney Montgomery Scott -- Analyst

Jeffrey Rulis -- DA Davidson -- Analyst

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