Good day, everyone, and welcome to the earnings call for Western Alliance Bancorporation for the third quarter 2020. Our speakers today are Ken Vecchione, President and Chief Executive Officer; and Dale Gibbons, Chief Financial Officer. You may also view the presentation today via webcast through the company's website at www.westernalliancebancorporation.com. The call will be recorded and made available for replay after 2 p.m. Eastern Time, October 23, 2020, through November 23, 2020 at 9 a.m. Eastern Time by dialing 1 (877) 344-7529 and entering passcode 10148637. The discussion during this call may contain forward-looking statements that relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements contained herein reflect our current views about future events and financial performance and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from historical results and those expressed in any forward-looking statements. Some factors that could cause actual results to differ materially from historical or expected results include those listed in the filings with the Securities and Exchange Commission. Except as required by law, the company does not undertake any obligation to update any forward-looking statements. Now for the opening remarks, I would now like to turn the call over to Ken Vecchione. Please go ahead.

Thanks, operator. Good afternoon, and welcome to Western Alliance's third quarter earnings call. Joining me on the call today are Dale Gibbons and Tim Bruckner, our Chief Financial Officer and Chief Credit Officer. I will provide an overview of our quarterly results and how we are managing the business in this current economic environment, and then Dale will walk you through the bank's financial performance. Afterwards, we will open the line to take your questions. I'd like to focus on 3 trends that define our third quarter results and will continue into the future: robust balance sheet growth; provision reflecting asset quality and consensus outlook; and strong net interest income and PPNR that continue to build capital. The combination of these variables generated record net income of $135.8 million and EPS of $1.36, each up more than 45% versus the prior quarter and exceeding our pre-pandemic performance in 2019. The flexibility of Western Alliance's diversified business model was again demonstrated this quarter as our deep segment and product expertise enabled us to actively adapt our business in response to the changing environment and continue to achieve industry-leading profitability and growth while maintaining prudent credit risk management. Total loans grew $985 million for the quarter to $26 billion, and deposits increased $1.3 billion to $29 billion, reducing our loan-to-deposit ratio to 90.2%. Our loan growth continues to be concentrated in low-loss asset classes such as warehouse lending, which accounted for over 100% of the loan growth and 56% of the deposit growth and $267 million in capital call lines, where the risk/reward equation is heavily skewed in our favor. The impact of this strategy will be seen near term in our reduced provisioning expense and longer term in lower net charge-offs. We are encouraged by our expanding pipeline as clients have…

Thanks, Ken. Over the last 3 months, Western Alliance generated record net income of $135.8 million or $1.36 per share, which is up 46% on a linked quarter basis. As Ken mentioned, net income benefit reduction in provision expense for credit losses to $14.7 million, primarily driven by stability in the economic outlook during the quarter and a release of specific reserves associated with the fully resolved credit. Net interest income grew $18.3 million year-over-year to $284.7 million, but declined $13.7 million during the quarter, primarily a result of changes in prepayment assumptions on PPP loans that impacted fee accretion recognition. The SBA's interim final rule published in August more than doubled the amount of time that people have to receive forgiveness on their loans. And coupled with the systems delay in forgiving -- forgiveness request processing, we now expect that forgiveness processes to be elongated and the average time the loans will be outstanding is projected to double as well. As a result, using the effective interest method, we reversed out $6.4 million of the fees recognized in Q2 and overall PPP fee recognition has been extended. This is purely a change in timing impacting NIM, but with no change to cumulative fee revenue ultimately recognized from this program. The $43 million we already received will simply be booked to income more slowly than our original expectations. Net interest income was impacted in Q3 as a result of this timing change by $10.6 million. Noninterest income fell $700,000 to $20.6 million from the prior quarter. We benefited from a recovery of an additional $5 million in mark-to-market loss on preferred stocks that we recognized in the first quarter. Over the last 2 quarters, we've recovered 80% of that $11 million original loss. Finally, noninterest expense increased $9.3 million as…

I would now like to briefly update you on our credit risk mitigation efforts and the current status of a few exposures to industries generally considered to be the most impacted by COVID-19 pandemic. Throughout the quarter, Tim Bruckner and the credit administration team led ongoing focused portfolio reviews by risk segment to monitor credit exposures and performance against cash budgets, operating plans through the liquidity trough. We are not waiting for deferrals to run out to make rate changes or effect remediation strategies. If borrowers are not performing against defined operating plans or determined to not have a sufficient through-cycle liquidity, we downgrade them now to substandard and enact remediation strategies to ensure the best outcomes. We do not hold loans in SMs, special mention, for a time to eventually downgrade. And as a result, special mention-graded loans slowly migrate to classified or substandard. These facts and daily conversations with our people and our clients help me feel confident that our credit mitigation strategy and early approach to proactively manage our risk segment is bearing fruit and puts Western Alliance in a strong position to come out on the other side of the pandemic in better shape than our peers. In our $500 million gaming book, focused on off-strip, middle-market gaming-linked companies, total deferrals were reduced from 37% of the portfolio to only 4%, and as of today, it's 0, as our clients are now open for business and are performing at or above their reopening plans. The $1.3 billion investor dependent portion of our technology and innovation segment has continued to benefit from significant sponsor support for technology firms best positioned to succeed in this COVID environment and an active fundraising environment as well. Since March 2020, 65 of our clients have raised over $1.7 billion in capital,…

[Operator Instructions] Our first question comes from Brad Milsaps of Piper Sandler.

Dale or Ken, I just wanted to make sure I understood kind of all the moving parts around the balance sheet. It sounds like a lot of the growth that you saw at the end of the quarter was mortgage warehouse related, which can obviously be very volatile, and end of the quarter, can be very different than the average. As you go into the fourth quarter, is your expectation that you're going to be able to replace that if it does wane a little bit with other types of loan growth? You also mentioned that you also just expect deposits from that in the warehouses to go down, so you'll get some liquidity bleed there as well. Just want to understand kind of what the moving parts would be within average earning assets as you go into 4Q with kind of everything you talked about.

Yes. So mortgage warehouse had a great quarter, as you can see by the results. They are increasing market share simultaneously as our warehouse lending clients increase their activity or see increased activity. So we're getting a 2 for 1, and that's why you saw the increase -- the large increase in loan balances this quarter. Q4 is traditionally a little lighter, and so we're just sticking to our Q4 analysis or historical viewpoint that loan growth there will be less. And yes, our model is designed such that we can replace loan growth there with other loan growth around the company. And that's why we're giving you the $600 million to $800 million range for Q4 loan growth. And also the same for deposits. They lose some of their deposits in Q4 as taxes are paid.

Brad, I would also say that we have a senior loan committee that meets weekly that approves the largest credits in the company. And the activity level of loans coming in from the line to that committee, which is loans above $15 million, has really stepped up significantly over the past couple of months compared to where we were, say, in the second quarter. And so we're -- we think we're seeing broader strength in other classes of loan credit. And at the same time, on the deposit side, despite what we think may happen on -- in terms of the warehouse lending piece, we're seeing some -- increase in some of these other channels as well that I think are going to bear fruition in the fairly near term.

Yes. Just to add to Dale, I mean we're seeing strength in capital call business. We're seeing strength in the CRE business certainly around the industrial side, where they're -- we're doing a lot of deals for distribution centers. And then tech and innovation is seeing a lot of new opportunities as well.

And maybe just a follow-up on the loan growth. Where are kind of new loan yields coming on the books? I know you mentioned a spot rate of 4.50%, but kind of curious where new production is coming on. And then can you talk a little bit more about the impact of the acquisition that you made? How much you paid? Kind of what's the incremental benefit you kind of see over the next 6 to 12 months?

Sure. So in terms of -- yes, that spot rate is really a spot on in terms of kind of where the numbers are. So the actual loans that have come on have been about 5 basis points higher yielding than what the average was, and I think that's kind of reflected there. Again, we have a lot of discipline in our team in terms of putting in floors. So let's suppose somebody makes a loan at L plus 3 or L plus 3.5, well, we'll define in the loan docs that L is -- L can't go below 1% in that situation. That's a really common structure for us. So the floor is active on the first day. And that's how we're able to sustain new originations really right on top of the current yield.

So I'll take the second half. Galton, first, we didn't pay much money for it at all, all right? And it's a mortgage business that specializes on buying non-QM loans from warehouse lenders. And so non-QM mortgages have a slightly different feature than standard agency paper. They sometimes offer interest-only features or they have more self-employed borrowers. But they underwrite to very low LTVs in the 67% to 68% range, and the paper carries higher yields than the standard agency paper. So standard agency paper could be like 2.25%, and these yields will be 3.25% to 3.5%. The acquisition came with 12 people, 4 salespeople and 8 operations people, and it provides us with a dedicated sales force and servicing operations. So this will allow us to ramp up our residential purchase volume while improving customer service with knowledgeable experts. It provides cross-selling opportunities to the Galton customer base. Galton has 100 warehouse lenders that they work with, 30% of which is an overlap with us, but the other 70% will allow us to offer warehouse lending lines and then remove mortgages off of the warehouse lending line onto our balance sheet if they fit our credit box. We've seen Galton in operation for a couple of years. We've probably seen over 1,000 mortgages that they've underwritten. So we have a real sense that their approach to credit mirrors ours. And we think the big impact here will be seen middle of next year as this thing continues to ramp up, and we bring them into the fold here. So where we were doing residential mortgages, either bulk purchases or forward flow agreements off the side of our desk, meaning other people had other responsibilities, we now have a dedicated team to do this, and that's -- knowledgeable people, and that's what excites us about this opportunity.

Our next question comes from Chris McGratty of KBW.

Dale, I just wanted to make sure I got the fourth quarter guide accurately. I was writing pretty quickly. The 3.90% -- I believe, Ken, you said 3.90% margin, is that a fully loaded margin with the impact of the fees from the PPP?

Correct. Yes, the $6.9 million level that we show on that 1 page. So rebounding from the second quarter, but much lower than what we had -- rebound from the third quarter, but lower than we had in the second.

Okay. And based on the balance sheet, the comment was fourth quarter reported all in net interest income higher than second quarter reported, right?

Yes.

Okay. Great, in terms of the growth strategy, can you just size up how big the warehouse is in the capital call book?

Yes. So the warehouse book is $3.9 billion and capital call is $737 million. Getting to your question, Chris, yes, no, we see that we have kind of stability here. We have an opportunity to continue to sustain earning asset growth. So we believe we can -- even if there were margin pressure in 2021, that we have got the growth trajectory that we can sustain increases in net interest income.

Got it. Understood. And if we look -- maybe one more on just the mix of the earning assets. If we look at the mix between cash and securities, it's, call it, roughly 20% of earning assets, is that the same -- is that the proportional mix you'd expect of the balance sheet going forward, maybe toggling between cash and securities, 20%?

Well, I think we can take our cash down to something in kind of the low to mid hundreds of millions. We think that's really kind of the floor for us. And so we're up at $1.9 billion. That gives us a fair amount of room. And the Federal Reserve, I mean, it's not a criticism, but they pay 10 basis points. So we think that the -- we know liquidity is abundant these days at banking companies, but we think that actually garnering more relationships, and even if they're flat or even slightly negative in terms of price, and obviously, they crush the margin because you get a big balance, that's 0 spread or something like that, but we think that's going to bode well in the future as we come out of this situation. And as Ken mentioned, with Galton Funding among other channels where we've got opportunities to really grow safely on the credit side.

Okay. And then the investment portfolio, Dale, just -- is that just kind of -- you solve for that based on the deposit -- I mean, how are you thinking about the size of the bond book?

Yes. I think the bond book had actually -- I don't know that it's got a lot of room. I think we're comfortable with our loan-to-deposit ratio in the 90s. So that's going to drive some of the investment securities portfolio. But we've got a couple of billion dollars -- $2.5 billion of mortgage-backed securities in there that are yielding 100, 150 less then if we buy, we think, similar risk credit with low LTV first mortgages. So there's a possibility that after we sop up our current liquidity through residential and other channels that maybe we don't need to grow the MSR book anymore, and that could become a smaller proportion of the balance sheet in aggregate.

Got it. And then last one, if I could, just everyone's topic on taxes. Anything meaningfully different in your tax structure and strategy today, if we got a tax increase that the same math opposite direction wouldn't work next year?

Yes. So I mean, I think you could -- the proportion holds pretty well. So even though our tax rate may be lower than some others, you're basically looking, if you're going to 28% and you were at 21%, that's a 33% increase in the tax rate. If you take our tax expense, say, for the third quarter, which was $30 million and say, "Gosh, if that were to go into effect, our tax recognition expense would be up -- for this similar quarter would be about $10 million higher, about 1/3 higher."

Our next question comes from Michael Young of Truist.

I was kind of curious, it sounds like there's an effort to grow the balance sheet maybe with some more residential but -- or warehouse. But I was kind of curious just about the trade-off between growing the balance sheet in some of those more nonrelationship-oriented areas versus maybe just looking at a share buyback program and a larger proportion? So just kind of growing balance sheet versus returning capital and how you guys are thinking about the trade-off between the 2?

Yes. I would argue that we do have relationships. And what we're doing is with each warehouse lending customer, we have a warehouse lending relationship. We could have an MSR relationship. We can have note financing relationships. They provide deposits to us, and they also provide us with a go-forward flow on residential mortgages. So don't think about the relationship as the end customer in their home, think of it as the mortgage servicer which controls a lot of business. And we see an opportunity now. There is dislocation in the market with a number of mergers, and also, I'd just say, poor performance that we're coming in with higher -- high-touch customer service that we're getting business that's coming to us, and we're not having to struggle to bring that business in. So that to us is very important, and that's what's driving the balance sheet growth. We're not trying to buy mortgages for mortgages sake. It's really the warehouse lenders and those relationships that we have with them.

In terms of the repurchases, I mean, where we are with this is we can sustain a balance sheet growth. And while we don't have an eye to being opportunistic in terms of share price, we think the long-term value creation is from expanding the franchise.

Okay. That's fair. I appreciate it. And then maybe just on credit, have you all actually foreclosed on or liquidated any of the hotel assets or any other CRE assets that have given you any more confidence or anything, any color you could provide on those books?

There's been no liquidation, no foreclosures. The hotel book is, given its circumstances, performing okay. 45% of the book has a debt service coverage ratio above 1%. 45% is below it. And then we've got a few construction loans. So we don't have a debt service coverage ratio on that. You can see hotel occupancy coming back to 50%. That's about where our hotels are tracking to the national averages. Again, when we underwrote these hotels, we underwrote good liquid sponsors that had the ability to call on capital from their LPs, and they did that to enter into many of the 3 plus 3 or 6 plus 6 deferral relationships. Tim, do you want to say anything else?

Yes. I think it's important to remember, we started this dialogue, particularly with hotel, in February. We've brought together the segment. We've put dynamic leadership, some of our senior-most executives, in place. And we've maintained that dialogue around liquidity, operating performance and forward-looking capital plans. That has allowed us to be way out ahead of problems that arise here. So we've got strong sponsorship, we've got an active dialogue, and we're seeing good progress towards stabilization.

Our next question comes from Gary Tenner of D.A. Davidson.

I just wanted to ask on the mortgage acquisition that you talked about earlier, day 1, are there any other -- is the revenue coming off that purely the mortgages that you put on balance sheet? Or are there any -- is there any other associated revenue or fees, anything that would be related to that?

No. No, it comes off of the revenue -- comes off of the mortgages put on balance sheet. And we've been just integrating the team over the last 3 weeks or so. So we're not looking for any mortgages to begin to hit the balance sheet maybe for another 2 or 3 weeks.

Okay. And Dale, you may have alluded to this when you talked about kind of balancing the investment portfolio against the resi book. You've been hanging around in the kind of 9.5% plus or minus in terms of residential loans. Where would you take that bogey to now that you've got this other kind of stream of product coming in?

Well, I think it's got a lot of runway in front of it. I don't have a number for you for where it might stop. But as you know, a typical bank, that number is going to be about triple that concentration level, which is -- even with the growth rates that we're talking about, augmented with Galton and what we've been doing before, geez, I mean, if we could take it to 20% on a growing balance sheet, that's going to be a substantial increase in the balances outstanding. So I think we've got years for this thing to run. We think it's a strong asset class to be in. We think the rates work now. We've been, as you know, asset sensitive or really now kind of asymmetric, and this balances that out as well. So we think it's a good place to be. It's a lower risk-weighted asset category, and we're one of the smallest out there in terms of relative exposure.

Our next question comes from Brock Vandervliet of UBS.

Dale, I guess, if you could talk about -- you touched on this in your prepared remarks, I guess, in terms of the deposits, how much of those do you think you can kind of hold on to going forward? What's the volatility of the deposit mix at this point?

Well, I think there's -- I think it's good, but there's 2 areas that I want to keep my eye on. One of them is, I'll call it, PPP deposits. So we took $1.8 billion of loans that we made and we deposited into these accounts. And we track how much money is still there, and that number is still over $1 billion. And it's like -- well, is that going to get burned somehow at some point in time? Maybe that's a little bit lazy because we're in this kind of no rate environment. So we want to keep our eye on that piece of the thing. And then the second piece is kind of the mortgage warehouse area. Obviously, it's been a torrid pace of refinancing. That's going to increase volumes generally. And so I think is there a space for kind of take a breather in that scenario? Now my read of what's transpiring is while maybe the refi business is going to temper to some degree, there's still a lot of people that are eligible for refi in terms of putting themselves in a lower area. So is there some air that could come out of that? I think there is. What do we have? Well, we've talked about our 2 business lines that are deposit generating. Those both did run into a little bit of a sidetrack because of the pandemic. They -- each of them benefits from kind of in-person contact for development of personal relationships with these enterprises that they service. We think that's coming out of it now. We think those pipelines look strong also. Ken mentioned the tech and innovation space. And one of our competitors was fairly bullish in terms of what that outlook is like, and we would second that assessment. So while we may see softness in a couple of these categories that have been really powerful in 2020, we think we've got hand offs that we can make to kind of sustain the realized performance in 2021 to some of these new areas.

Got it. And separately, just on the Galton acquisition and the non-QM, and that encompasses many different flavors of mortgage origination, is this generally paper that just doesn't quite check the agency box or is it more of a heavier credit component to it? And I guess separately, what's the step-up from vanilla agency origination? What's the step-up in rate with this paper?

Yes. It just doesn't check the box for the agencies, and the step-up in paper is about 1%.

Our next question comes from Timur Braziler of Wells Fargo.

Starting with efficiency, it seems like NII has seemingly reached a bottom here in the third quarter and should start improving in the fourth quarter. As we look ahead, should we expect a similar level of operating leverage, whether it's 2 to 1 or 3 to 2 as we've seen in recent years? Or does the current rate environment present enough challenges where it's likely going to be lower than that for the foreseeable future?

I think we can sustain where we are in terms of the operating expense level. So yes, we think the margin is fairly stable even if rates kind of stay at this level for maybe in perpetuity for certainly an extended period of time. And then our expenses running at around $0.40 relative to the revenue we bring in, we think that's pretty sustainable as well. So we had some volatility in the second quarter for a variety of reasons. We talked about -- really, it underscores that we're looking at the third quarter of 2020 as really being a pretty good baseline. I know some of you have commented or looked at that we had these -- we had this gain from securities gains, kind of a recovery of about $5 million in the third quarter, which, of course, we did. But in my view, I don't back that out in terms of what a run rate is because I'm offsetting that with the reversal we had in PPP kind of going forward. So we think the revenue is a good base to come from. We think the expense base is a good base from which to grow. But again, holding in at kind of the low 40s on efficiency.

Okay. And then I just want to make sure I'm thinking about deferrals correctly. So the $1.1 billion of deferrals that are rolling off in the fourth quarter, how much of that was part of the 6 plus 6 program? And for those loans, is it now that the liquidity that was collected as part of the initial deferral process, is that now kicking in for another 6 months? Or is that entire balance going to be moving into performing status essentially?

Yes. So I mean they prepaid. I mean -- so before they got 6 months of deferral, they prepaid another 6 months. And this was what we recommended that they do because it takes them out until second quarter of next year, which -- you can -- different assumptions in terms of when we get out of this. But with therapeutics and, I think, vaccines are just, frankly, pretty close around the corner that I think by that point in time, the -- what we're -- these entities, these -- those hotels are going to be able to benefit from kind of relaxed social distancing. And so they prepaid it all. So, yes, they are paying as agreed because they're dipping into basically a control account that is making the principal and interest debt service as they come off of deferral.

Okay. And is that around 50% that 6 plus 6 of that? Or is it going to be a smaller amount that's -- of that $1.1 billion?

Well, of those that are coming off in the fourth quarter, it's predominantly the 6 plus 6 because they were done -- I mean, we did some that were 3 plus 3. Those typically came off mostly in the second -- in the third quarter, right? The fourth quarter, those -- the 6 plus 6s that were done in the second quarter of this year.

Okay. And then one last one for me. Just looking at the technology sector, another strong quarter of growth, but I noticed that the allowance for that sector declined on a linked quarter basis. Was that the specific reserve release that you spoke of? Or was there something else going on in that portfolio that drove a linked quarter reduction in allowance?

No. That was part of it that drove the decline in balances was a reserve release on an asset that we were able to get off our books and we were happy to get off our books.

Our next question comes from David Chiaverini of Wedbush Securities.

A couple of questions for you. And the first one is a strategic question on mortgage warehouse with it now $4 billion of loans, and you addressed a little bit about this with the deposit discussion. But I was curious because some investors have expressed concern generally about seasonality and volatility around the mortgage warehouse business. Can you talk about how you're viewing that business and addressing that volatility over time as we look ahead?

Yes. So we thought this was -- again, if you look at kind of the business lines with which we can select from and which to grow, this was a great time to go into mortgage warehouse. The balance -- the demand was strong, the quality is excellent. And because of the cycle where we are and interest rates after the FOMC actions, it's a robust growing area. So yes, I mean, I don't think that what's going on there is sustainable long term. If rates start to rise, I think it's going to come down significantly. Although the purchase market is pretty active still, and that maybe has more lengths to it and less cyclicality. But in any event, I mean, it's just -- I think it's just a good example of, hey, we can go here because this is safe, this has activity, this is something where we can move to in the immediate time frame that we did that basically earlier this year. If that pulls back in 2021, which I think is a reasonable probability, like I mentioned, we're looking at our -- the things that are coming to our credit committee, and they're strong and they're diversified. And we think that that's where we can kind of pivot to as this may one wane a bit.

Let me just add. First, remember that while we have $3.9 billion sitting out there in loans, we have almost an equal amount, $3.6 billion, sitting out there in deposits. So it's a great strength of deposit growth for us, and so I think that's important to remember. The other thing is when we say warehouse lending, you got to remember, that includes MSR lending, that includes note financing and warehouse lending, right? So it's a combination of all those things. So we do have some other levers to pull when we're dealing with some of our clients.

Great. That's really helpful color. And then shifting gears. You mentioned about the potential for reserve releases looking out over the next few quarters or towards the maybe middle or end of 2021. But nonetheless, I was curious, do you have a target reserve-to-loan ratio in mind?

We don't because it's so dependent on each particular asset type. So that number has -- as we've grown in these categories that are about 1/3 of our balance sheet now that got little to 0 loss, mortgage warehouse, public finance, capital call lines, residential mortgages, resort finance, as those kind of have become a larger proportion, that number is going to fall. And so I think you need to look at it more on a category-by-category basis. I mean if you look back to kind of what a standard, normal situation might be, if you take where numbers were as of 12/31/19 before this pandemic started and then add in the overlay that was done at the beginning of this year for the adoption of CECL, which front loads provisioning, as everyone is well aware, that number is -- was about 1% number for us in terms of reserve level. I think in a more kind of benign environment and less uncertainty, I think you kind of go back to that level with that mix. If the mix is lower, I think that number could even fall further.

Our next question comes from Andrew Terrell of Stephens.

So most of my questions have been asked and answered at this point. I did just want to touch on the increase in compensation this quarter. Was there included in that number any type of catch-up from prior quarters that we would see fall out of the 4Q run rate?

Yes. That's exactly it. As we moved closer to our performance targets, we caught up for the first 2 quarters as well.

Okay. That's helpful. And then maybe just a bigger picture question. Fees to, I guess, overall revenue are consistently just around the mid-single-digit range. If we're in a lower-for-longer interest rate environment, are there any thoughts to potentially growing out any specific offerings in the fee income base?

So we're always looking at that. As you know, we're very low. We lead the industry in many different categories. We do not lead the industry in fee income. And so we are working on a few things. I would say they're going to be marginal at this point. There's nothing that's going to move the needle as we look towards 2021. So we're a spread business. And for us, it's important for that balance sheet growth to occur. Good asset quality, of course, that will negate some of the lower funding -- lower interest rate environment. But remember, we're able to get floors on our loans, and 78% of our loans have floors. And so the impact to us on a NIM basis will not be as great.

Our next question will come from Jon Arfstrom of RBC.

Is it maybe -- I think everything's pretty much been covered. But touchy-feely philosophical question for Tim or Ken. I kind of look at this, and you're making more than you were pre-pandemic. Your returns are -- return on intangibles is almost 20%, but stock crossed 30%. So the gap is probably credit concerned. Do you feel like we're all overreacting to that? Or should we expect some kind of a surge in losses over the next few quarters that doesn't seem like you're indicating, but are we missing something here?

The short answer is yes. I mean if you piece through everything we said today, we said that the baseline of earnings for Q3, $136 million this quarter, is going to be the baseline going forward for the upcoming quarters into 2021, assuming at this point the same provisioning of about $15 million. Now we don't see large losses on the horizon. We don't see charge-offs rising dramatically. It's hard to find them in our book of business at this point. So even our provision may be a little high and certainly would be a little high if the consensus economic forecast is changed to be more favorable for the vaccines and what have you and more states opening up after the election. So I think that the -- a lot of investors, I'll say it that way, overreacted to what they thought our losses could be, all right? Almost $10 billion of our book is in really, really low-loss categories. And as I said, we don't see the losses coming our way. And we're feeling good about where our net interest income is going to be in Q4, and we're feeling good that the baseline for earnings is what you see this quarter. Okay. Well, thank you all for attending the call. We look forward to speaking to you in the fourth quarter. And everyone, enjoy their weekend.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.