Q1 2020 Earnings Call

Good day, and welcome to the home bancshares first quarter 2020 conference call. All participants will be in listen-only about should you need assistance, please signal a specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press star to the one on a touch-tone phone number question, please press star to please note today's events is being recorded.

I would not like to turn the conference over to Donna Townsville director of investor relations, please go ahead.

Thank you, Rocco's welcome to the home bancshares 2020 first quarter earnings release and first-ever social distancing conference call. I am Donna's household director of investor relations and on behalf of the home team. I would like to thank you for your continued support of our company and especially during such uncertain times today from their respective quarantine location. You will hear from Tracy French our president and CEO of Centennial Bank Brian Davis our Chief Financial Officer Kevin Hester Chief learning officer, Chris Bolton presidential CFG, John Marshall president of shorter Premier Finance Steven Tipton Chief Operating Officer and wrapping up. The comments will be our founder and chairman John Allison long as you can imagine. Everyone has a lot of information to share. So I will turn the call over to Tracy French to get us started. Thank you.

We've gone from a very vibrant and booming economy just 45 days ago to a time of uncertainty. I remember meeting John Houston and the home thing share teams ate Home Bank share team 18 years ago back in 2001 when the bank I was asked to help with other time of uncertainty.

I've had a good fortune with the company and we've gone through some other times of a certainty like in 2009. There's one thing for certain home bancshares in Centennial Bank is the right place to be during these times are board of directors our management team some of which you will hear from in just a moment work and represent this company or the right ones and times like this wage. It brings out the best of all of us. Our management team has been proactive in getting out in front of this uncertainty the $1,900 plus Bankers that made our bank one of the best in the nation in performance is now making us one of the best in the best in the business and customer service.

Watch our team over the past six or seven weeks has been remarkable. The focus on taking care of customers is gone above and beyond everyone's expectations all while taking care of our fellow teammates.

Our business continuity team kicked off into gear at the end of February and our group for in motion. The first week of March they were out in front of what was mostly unknown at the time to give you just a few examples Our IT department made it possible for over one thousand of our staff members to be able to work from home in a short period of time or Treasury Department separated is a group among other Bank locations in order to be safe and to continue to take care of our customers needs without missing a beat simply. Wow. It was amazing to watch them leading group do what they have done over the past Thirteen Days with the PPP program. I could go on and on but I believe you all get my point.

Thanks. Arneson.

Little business. Our customers are essential to Our Success our business continuity plan has been tested in the past with hurricanes. And we even had a tornado blow right through our locations in Jonesboro a couple of weeks ago while yes, we've had made some adjustments along the way on the Fly Centennial Bank is not missed a beat in our daily operations team taking care of our customer.

The core results that you hear from Johnny in a moment. We're very very very strong. Our company is well-capitalized our liquidity as well positioned for these times suck Uncle team has been working weeks in getting in front of this potential need of liquidity are lending team and staff and others have been countless hours to assist all needs. Our risk management groups are managing our risk and our board is active and engaged with their responsibilities all while staying safe.

It's fair to say the financial world is working together more than ever today. I'm not sure the number of hours a week along with Saturdays and Sundays off time discussing the situation. Yes, lots of Sunday afternoon conference calls with Bankers across the country pulling together to assist on banking issues. I would like to thank Lori with the Arkansas Bankers Association Alex with the Florida Bankers Association Rob with the American Bankers Association and Brent with the midsize Bank correlation for all their valuable assistance over the past month.

Also want to thank the Federal Reserve Bank Arkansas State Bank Department, which are our primary Regulators for their support efforts the communication that they have given us over the past month with own company, and it will make all of us feel better with the way all of us are working together during this time. The results will be very impressive. Thank you Tracy agree with you since in your bank is a great place to be right now now we will hear from Brian Davis for updates on our Nim and Cecil implementation is Donna today. I would like to offer that interest margin impact of our adoption of Cecil on January 1st liquidity and Castille, let's start with margin. The first quarter was another solid quarter of net interest income and net interest margin on a tax-equivalent basis. We recorded net interest income of 141 billion for q1 2020 compared to a hundred phone number.

1.1 million forty four 2020 the first quarter net interest margin was 4.22% compared to 4.24% for the fourth quarter. I'd like to see some color on the two basis point decline in the margin.

First the accretion income for the fair value adjustments recorded and purchase accounting with 7.6 million during q1 compared to 9.1 million during Q4 for decrease of 1.5 million. This decreased are nem by 4.5 basis points.

second

From the fourth quarter of 2019 to the first quarter of 2020. We experienced a $671,000 decrease and investment premium amortization as a result of changes in prepayment speeds this decreased investment premium amortization positively impacted the net interest margin for the quarter ended March 31st, 2020 by two basis points off my last Leon margin during q1 2020 event interest income was $558,000 compared to a vent interest in, $549 for Q4 2019. That's there was not any impact for the linked quarter comparison related to prevent interest income.

Let's change the Cecil.

On January 1st, 2020 the company adopted system did the adoption the opening balance for the allowance for credit losses is increased $44 million.

The new Cecil accounting standard price for both a discount and an allowance for credit losses to be recorded on loans during an acquisition. This is commonly referred to as the double accounting.

During q1 we completed the acquisition of four hundred million of loans from LH Finance.

As a result we recorded I 6.2 million dollar loan discount and a nine point three million increase in the allowance for credit losses for the double accounting for this acquisition.

During q1 2020 we recorded 86.8 million of total credit loss expense. This expense is comprised of the following components investment Securities faithful double accounting for LH. Please hold on for vision and see some covid-19 loan provision.

We recorded $842,000 for credit losses on investments related to our sales tax bonds with lower coverage ratios. The Cecil double accounting firm a finance was 9.3 million. The normal Cecil long provision was approximately five million and the Cecil covid-19 loan provision was approximately 71.7 million our seasonal provisioning model is significantly tied projected unemployment rates as a result of covid-19. The unemployment rate projections significantly increased from January 10th to the end of March 2020, which resulted in the seventy one point seven million provision related to covid-19.

Additionally Cecil requires a liability for unfunded commitments this quarter. We increased our liability for unfunded commitments by 7.8 million. This expense is primarily related may impact from covid-19.

Next let's go to liquidity.

Covid-19 began its Onslaught to the economy my funding team to determine actions. We should take for example our policy states. We should always have it a minimum of fifty million in are fed cash balance. Normally this bounces around a hundred million and one of our first Sunday meetings are in the covid-19 prices and made the decision to increase our Target balance is the fed the 250 million. We have continued to invest those targeted balance. And today we have six hundred and fifty million of cash at the Fed.

Item is we do plan to use the p p p l s program to find the pp Loans review the P PP l f as an attractive funding option at 30 basis-point month plus using the PPL Apple gave us regulatory relief for our regulatory leverage Capital ratio.

speaking of capital employed with a few remarks on Capitol

our goal in home buying shares just to be extremely well capitalized and pleased to report the following strong capital information for q1 2020. Our Tier 1 capital is 1.5 billion total risk-based Capital was 2 billion and risk-weighted assets were 12.7 billion as a result. The leverage ratio was 10.8% which is 1017 percent above the well capitalized Benchmark of 5%

Common Equity tier one was 11.6% which is 78% above the well-capitalized Benchmark of 6.5%

Tier 1 Capital was 12.1% which is 52% above with a well-capitalized benchmark of 8% The total risk-based Capital was 15.8% which is 58% above the well-capitalized Benchmark of 10% But that said I will turn the call back over to Donna.

Thank you Brian with Cecil and covid-19. The accounting world just got a little bit more interesting. Huh. Now for much anticipated update on our loan portfolio. We will hear from Mister Kevin. Thanks Donna just a short time ago. We were talking about the prospect for organic loan growth and the best asset quality numbers that we could remember how quickly things can change. I have several topics to cover today and I'll start with loan deferrals. We developed a loan referral program in 2017 in response to Hurricane Irma in the keys. And again a 2018 response to Hurricane Michael and the Panhandle in both cases. The numbers were significant for the geographic reach of the event affecting over 40% of the loans in the keys region.

And the fact that over 10% of the loans of the Panhandle region, if both of those circumstances most borrowers were able to go back on P and I payments after 198 apartment with a very odd needing more than a second 90 days.

While the two recent Florida hurricane events, do not match the portfolio wide reach of the covid-19 event. The fact that this was the leader dies to us allowed us to put in place quickly leading a study of bandwidth to tackle other effects of the pandemic as of last Friday. We had roughly 2,500 loans totaling just over two billion dollars or 18% of the loan portfolio in some sort of Department with the vast majority consisting of a 90-day full Department.

geographically

It has the largest percentage deferred at 30% of their loan balances followed by Florida at 24% and Arkansas at 20% ccfg and short have fared much better early on at 5% and 6% respectively loans over ten million dollars total $540 or 26% or the deferral towed home.

From an industry standpoint based on naics codes lessors of real estate had the highest number of 701 million to Ferd but that number was similar to the overall average at 20% of the the balances next to the combination and food service at $493 billion. This makes up 63% of the overall balance in that next code Healthcare would be 3rd at $1,057 billion. And that's 35% of the overall balance.

A review of our construction projects over $20 shows that accepting six projects that have been stopped in the New York City area. All of our projects are still moving forward and we do not see any issues on those credits at this time. Obviously the link this event could affect stabilization on projects at or nearing completion. So we'll have to continue to review the bulbs for additional interest carry on those in the six New York projects that are impacted by the work stoppage. They are either complete multi-family or early stage with nothing in the mid stages, which we think is a positive.

Between the deferral balances of two billion dollars and the construction balances of 1.9 billion. That's about 35% of our loan portfolio based upon our history with the deferral program in the past. We expect that the remainder of the portfolio will pay as agreed. We will be monitoring the portfolio closely for Rising past dues and the normal symptoms of portfolio strips dead.

The scope and reach the covid-19 is unlike anything we've ever experienced. So as the governmental response hurricanes result in physical damage and insurance is attempt to replace the physical damage and said the economic damage. This event will not create physical damage. So insurances are not useful here, but the government response is unprecedented for a plus-minus standpoint. Our current summer hours are going to defer around $28 each quarter that they are deferred but we have already entered over 800 million dollars into our PPP workflow and have spent properly one hundred percent of that will be forgiven for borrowers month.

In our experience, it's always difficult to know how disaster will affect asset-quality until you get months into the event itself which with each of the cat CAT5 hurricanes. It's Julie a year before you can really determine what the lasting effect of the event would be. This event will be even harder to assess because no one can even tell you when it will be over or how the recovery will look how much will depend on the behavior of individuals postcode. But and no one knows how people were will respond in a post covid-19.

We believe this is in.

Extremely strong number that will serve us well as we head into the remainder of this covid-19 event.

Brian discuss these lands remarks, but I believe it's quite possible that the Cecil models using drivers that correlate to losses experienced in the past. Well, not necessarily result in a better estimate of future life in this event because this is in in the related responses are nothing like anything we've ever experienced the significant provision driven by the sudden Spike of those primary drivers could reverse itself off if the recovery is tightly

Next important topic to discuss is the paycheck Protection Program guidance from the government on how to implement has been slow and prone to change. However, they set very high expectations on the banks of the performer in spite of all the challenges around PTP. I'm very proud of the process that we built in less than a week and the progress we've made and working through an unprecedented volume of applications. We had very large group of employees who have worked tirelessly to try to get this money out to our customers about one-third of our employees are involved in some way in this process along with their other job responsibilities. We've been alive for two hundred eighty two hours. And as of this morning, we've accepted over 5,500 loan applications totaling as I said over 800 million dollars. We've obtained SBA loan numbers for over thirty percent of these applications and are currently clearing nine hundred plus applications per day through the SBA.

Funding has begun in Earnest this week with an average loan size currently around $160,000 and dropping due to the delaying of the lower balance sole proprietor loans to begin a week after larger corporate levels.

We understand that the banks of the facilitators of what it's largely expected to be a grant rather than alone. And this program is intended to depend in large part on the representations of the borrower. However, I am still taking many normal ending precautions to try to detect potential fraud and to ensure validity of the notes. This includes activities such as the active confirmation of loan requests within the region as a customer and confirmations of certificates of good standing for corporate bars.

Circling back to the industry discussion initiated earlier in the discussion of the federal balances. It seems appropriate to discuss Hospitality exposures at March Thirty One completed hotel properties reflected the balance 806 million dollars consisting of a hundred ninety-one properties with 13520 rooms.

The average loan amount corporate completed property was four point two million dollars, which is $60,000 for key. The completed portfolio has a weighted average.

And a weighted average debt service coverage ratio of 1.58 times. These balances are primarily centered and select service properties in the Marriott Hilton Hyatt and H T flag this totals 25% of the properties and number but 42% of the rooms and fifty percent of the balance is at 404 million with a weighted average LTV a 60% at a weighted average dead service coverage ratio of 1.54. There's a secondary concentration and independent properties, which is 71 properties, totaling $163 or 20% of the balances month. However, 47% of these balances are in the Florida Keys where loyalty programs are much less important these independent properties perform even better is a hole with a 51% weighted average TV and a 1.79 weighted average debt service coverage ratio.

Geographically 40% of the balances are in Florida followed by Arkansas at 16% taxes at 11% Oklahoma at 9% in California at 6%

From an overall perspective our loan portfolio of just over 11 million dollars is 47% cre which is down slightly over previous years as a result cre concentrations have reduced its life over recent years with an overall concentration at quarter-end. It's 279% of capital the construction bucket has fluctuated between ninety and one hundred percent of capital and recent quarters, but stands off and 1% at quarter in

Yes at quality numbers for the quarter remained very strong with mpaa's at 0.45% and MPL that 0.54% 2 basis points and four basis points quarter-over-quarter wage actively. The slight increase is a result of a couple of loans in the Southeast Florida region that have moved to non-accrual. We think that the larger of the two will work out once we get outside that the current code Avenge the amounts of coverage of non-performing loans doubled from 186% to 370% do the large provision added the first quarter past dues increase wage basis points quarter-over-quarter in large part due to the two credits mentioned above but at .69% there in a Range consistent with previous three quarters.

As I said the beginning of my remarks, these are not the topics that we expected to be discussing today. But I very proud of our Bankers for the way that they have contributed to the role that the banks are to play in this event. And I believe that we're not prepared to adjust to the effects that this event will have going forward with that. I'll turn it back over to data. Thank you Kevin that was very informative and it's obvious that you are entire Landing staff busy. So very good job to all of those involved for making this happen for our customers, but next we're going to hear from Chris Bolton with our c c f g division, Louisiana and good afternoon to everybody loan balance is a c c f g grew by approximately 10% during the first quarter increasing by $174 million dollars to just / 1.75 billion dollars. This growth was a result of continued organic growth throughout the quarter and approximately two hundred eighty million dollars to pay off and pay Downs with the majority of these in the first 2 months of the quarter with that said we have received seventy million wage.

To paid out and send the first two weeks of it.

Majority of which were expected in late March, but were delayed due to the shutdown.

Looking ahead. We would expect to see a slow down and pay off during Q2 as more borrowers will either exercise their extension options or delay there planned early payoffs on the origination side while we continue to evaluate potential opportunities. I do expect overall production to be impacted as deals are delayed or put on hold for the coming months until we have less uncertainty. Well we were together today. I thought it'd be a good opportunity to remind everyone about the makeup of our portfolios in total. We have a hundred and four credits with an average balance of $17 approximately 74% of those outstandings our commercial real estate office with the remainder in C&I credits.

We segment the C and I booked into three primary loan categories the first being structured facilities, which are generally borrowing base driven and these account for $200 billion or 42% to see an eye out for things. We have seven facilities with an average balance of $29. The next two categories are single asset exposures. The second is broadly syndicated loans, which is 33 / off the balances in the third category being middle-market loans, which account for 25% of the balances. We have thirty-eight single credit positions with an average balance of $7. Generally. We have good spread across Industries with most Industries accounting for 10% or less of our exposure.

In commercial real estate in average commitment of $35. We've always been a low leverage short-duration lender and this is evident with our average LTV of 39% We have no credits with an LTV above 60%

In theory, we have three primary products the first structured multi-asset facilities which account for 28% of the balances the second single asset Bridge loans which account for 42% of balances wage. And then the third is construction loans which account for 30% of balances in construction. A majority of R22 credits are in early-stage and on average we funded approximately 36% of our total commitments in construction.

We have limited exposure to hotel at 7% of our portfolio and Retail at 3% off your concentrated in areas where we have offices 42% of our portfolios in the New York metro area. 34% is on the west coast, primarily, California specifically Los Angeles and San Francisco are off 6% in Florida and 3% in taxes, the remainder of the assets 15% or spread across various states with most of these in National multi-asset facilities today. I only had a handful of request for Relief. These requests have largely been to allow a deferred amortization or smaller refilling a payment reserves. For instance three months instead of six months the benefit of a smaller focused low leverage portfolios that were able to work with our bars and a detailed and collaborative nature to ensure that the best outcome despite these unprecedented disruptions.

Thank you for your attention and Donna.

I'll hand it back to you.

Thank you, Chris. Now John Marshall will provide an update on Shore Premiere and the acquisition of Finance.

Thank you, Donna and good afternoon. I suppose the first quarter of 2020 has been the most entertaining Premier finances joining Centennial Bank in the summer of 2018 month. Certainly. The highlight of the porter was the acquisition by Centennial Bank of Finance from People's United Bank at the end of February to include $410 of consumer and Commercial assets position make strategic sense for the bank and for short Premier because of the similar nature of our business models common risk policies practices and risk appetite off a substantial increase in our interest earning assets without the attendant fixed overhead expenses has already created Financial benefits as we scaled a specialty Finance unit. Let's consider some numbers understanding that some of these are preliminary and others are estimates.

Julio we have just over eight hundred million dollars a Consumer loans average FICO score is $775 monthly payment reserves on average or $65 months.

250 million roughly $140 million in the quarter in over $940 million. So the units performance should have positive implications for the bank overall.

Is Kevin mentioned 6% of our customers have availed themselves of a 90-day payment relief program in April May and June interest continues to approve and the balance is will be added to the end of each note in partnership with our boat Builders a similar program has been made available to each of our dealers for their for plan inventories to postpone principle. It's up to 90 days. In this case though interest continues to accrue and is still collected each month or dealers are seasoned through multiple economic cycles and our floor plans had purchased recourse back to each of the boat Builders a retail buyers have strong credit profiles and their liquidity and income resilience May insulate them from some of the vagaries of the pandemic wage option. We're experiencing in the economy will continue to monitor the portfolio closely on that positive note of optimism. Let me conclude my remarks and return the conversation back to you.

Thanks, John. And now Stephen Tipton will share with us about our cost of funds and repricing Activity. Thank you Donna. I will get some color on deposit activity with effort some Trend a few additional details on the balance sheet today. We saw strong deposit growth again in the first quarter of 2020 with the total increase of $237 a month. We're seeing that Trend continue through the month of April as well as Brian mentioned we are being mindful of liquidity levels and these uncertain times but our teams have done a great job getting deposit rates in line with the market.

rates were

Downward in February, but that certainly accelerated with the combined 150 basis points reduction by the fomc and the month of March total deposit costs in q1 took $20 or eighty five basis points down ten basis points from the previous quarter given the FED Cuts in March. I think it makes sense to discuss more recent numbers home cost in the month of March was 75 basis points and based on recent activity. I would expect to see April come in at 60.60 basis points are possibly less.

Well Tom deposits and not been a significant funding source for our company currently one point nine billion dollars or 17% of our total deposit. We will have opportunity to reprice as those mature month. We have over four hundred million dollars maturing in Q2 twenty-twenty and over 1.4 billion of the total maturing in the next 12 months with an average yield of approximately 1.6% Today. We will see Improvement in these funding costs fairly quickly.

Switching the loan. We saw total production of 730 million dollars in cute 120 with a little over four hundred and fifty million dollars coming from the Community Bank football game and $235 million coming from ccfg payoff volume was lower than the previous two quarters at 561 million, but in line from a year ago,

I would also like to give a little color on the variable rate components of the loan portfolio is we have mentioned in the past the ccfg loan portfolio of approximately one point seven billion dollars is agreeable rate with the vast majority tied to one month Libor adjusting monthly as of March 31st, approximately $890 million dollars or 51% of those balances were protected by floors the Community Bank and Shore portfolios consists of approximately 1.6 billion dollars in variable rate balance has set off a just over the next six months.

Nearly $900 million dollars of these balances are tied to Wall Street Journal Prime as the index with the balance tied to Libor and other various indices as of March 31st over $825 million dollars or 52% of these balances are now protected by floors.

I would like to close my comments as others have mentioned to thank all of our nearly two thousand employees for their effort and energy over the past 30 days are human resources team Electronic Banking and treasury Services areas deposit operations and credit operations have done a tremendous job supporting our staff so they can support the customer more most recently bought a customer care center and Retail staff and the volume of calls. They are receiving related to the economic impact payments that began yesterday. Finally as Kevin mentioned the effort to stand up the PPP Loan program has been immense with operational leaders technology teams lenders and loan assistance working around the clock at around the weekend to serve their customer. Thank you to all in with I'll turn the call back over to Donna. Thank you Stephen. Well as you have heard this quarter has no doubt been busy and interesting so for Thursday.

General thoughts on our quarter. We will now go to our chairman John Allison. Thank you Donna like

Free report very very interesting. Good afternoon. We wish you all good health and we wish recovery for a country.

Special thanks to our team our lending team. They taking the bull by the horns. They didn't back up. They never quit and watch Kevin go through some rough times there as we're working with SGI. He didn't Panic he just kept pushing forward. I'm very proud this exceptional group of people and I thought it was about 25% of our team working on PPP, but I now find out it's almost a third of our people and many of these people they never worked on the loan side before and they just jumped in to help because they understand the importance many banks are really doing an amazing job and it very well, but the good thing about Community Banks as we know our customers. I was watching T and the lady called into a major bank trying to find out some information. You couldn't remember exactly the name. She didn't have a relationship and that's what community banking means and I think it'd be interesting when this is over to see how much money was put out by Community Bank speaking of teamwork.

It's really wonderful to see the fed the treasury, which is headed by a businessman. Just thought I'd throw that in the State Bank Department SDA and even Congress working together for the benefit of our economy Republican Senate has LED and the Democratic house has reluctantly followed. But after we got the Kennedy Center funded that was real important to get that done. We got corporate cooperation from the and I mean also say we got few DS I need to so that was another Plus.

Once we got the cooperation for the Democrats as very needy American Business people stood by the sign and what's the sideshow regardless of have happened? The program appears to be a huge success. So successful. We need to reload the funds because we're running out of money and I heard today we may have avoided run out of money Kevin's team as he said earlier. I'm using at about 13 days 5500 loans and over $875 million dollars and they're still coming in.

Let's go to the court. The first quarter of 2020 will certainly go down as one of the most bizarre quarters in history. It's certainly is the strangest of my 50-year business career choice 2018-2019 in the first quarter 2020 will make you wonder what could possibly happen now in 2018 the FED nearly blew up the entire country would be consistent and fluish rate increases and Report. The only rational explanation is that they needed Drive powder in the event of a downturn in the economy or maybe a pandemic I said that haha, but

Then they continued on with their statements that they were going to be two more increases in 2019. After tilting the company the country towards a recession that they had been revised the same to a pause and next was to reductions or 25 basis Points each that was done to prevent a recession and then here comes off and you know the story though. Let me say that 2018 and 2019 in the first quarter of twenty-twenty have certainly been a Cram Course and asset-liability management page added that the confusion of the new clown act in town called Cecil these over educated fools and turned a simple process into an expensive and a complicated may I have a, believe believer that if it can happen it will happen if our responsibility to take care of our employees. Our customers are shareholders in our communities wage.

Sir, I think we've done.

A good job of honoring that social responsibility discipline has been the strength of this company. Was it Jamie dimon? It said the hardest thing for a CEO wage is not to do the silly thing. He sees other CEOs do it.

There are a lot of weight seals in this country and they will listen to some of the kind of the squeaky wheel gets greased and some of their people complain once in a while and the next thing you know, the package price down like a double barrel shotgun and does silly stuff in the marketplace. It takes real commitment and guts to stay the course because anyone can take them but easy route at the end of the day the week CEO has has not helped his people and he's been disloyal to shareholders. Remember we used to say to us was growth broke broke. I told you it was not the right time. This was not the kind of growth in the market that was prudent to put our shareholders money into I had said that late in the cycle. There were several months chasing few deals, which led the high-leverage little race longer terms. I called it the race to the dumbest the long time.

Sure, if we're totally driving the bus or cause most of the loan officers in that market were pretty weak.

There is no right way to do the wrong thing. There is a time to hold them in a time to fold them. We chose to hold them tight. We take what the market gives us and don't push the envelope as it has turned out. I think we've made the right decisions as tough as it was not the match the silliness of the market we held them and I'm damn glad we had we did wage. There is no substitute for experience. I did not see this one coming, but you remember we started building additional capital in nineteen just in case there was a downturn Thursday. We know we remember you placed a pending is not the same as Kevin said, however,

We are in Hurricane mode, which is the closest experience. We have to a total disaster.

We had two category five strikes as Kevin said, and Michael in the Florida Keys and Michael and panel and we are we're following the hurricane process. That was extremely successful successful for us during those disasters. We deferred those that needed the assistance for 30 60 90 or a hundred eighty days provided additional permission for those who deserve financing or refinancing and if you remember the losses were minimal we expect the same in this process. The insurance company here is US Treasury

The difference today from 08 and 09 is it nobody had any money in their deals back in those days 95% financing 100% financing anymore. It was a way it was the way business would done. It was another race to the dumbest much harder to walk away today because our customers have maidens of dollars in equity in their deals wage. Then in the midst of the pandemic with thousands of people dying and hundreds of thousand people infected and Americans locked in the home their homes, the accounting clown show me with the new circus act kosice total disregard for the mess. They've created a create an uncertainty in the market the circus Jenny should have never been allowed to get out of the bottle. No disrespect to accountant. The program was created by a bunch of accountants who probably have never run a business in their lives.

they account for

What others do that's why they call them the Cannons now, they're creating a new industry to solidify their position forever in the space of banks while creating for banks hundreds of millions of dollars of additional expense to pay for the Barnum & Bailey All Season. The rational thing to do was to look at how Banks maneuvered through the worst economic cycle in Eighty years and received properly.

Pretty simple a 1/2 to 2.2% reserve has been sufficient for us while making specific allocation reserves when warranty however, this doesn't cost much and not create much distraction. Guess what after all the costs all the distractions all the people all the monitoring modeling and the reserve getting hit with an additional 1 million dollars due to unemployment for the month. I reserve came out of two point zero one. You cannot make this stuff up asset-quality. I think our Hospitality team will be fine.

Maybe some will take a little time. We met refinance some of our customers. But remember that ninety-eight percent of our hotel book has so much Equity that will be in a position to help them off. My other problem is needed each situation is different, but we know our customers in 08 and 09 as I said earlier. Nobody had any equity in the deal so they could just walk with that shit left the port a long time ago.

Thanks balance sheet should be in the best shape they've ever been and if they're not shame on them. We had a large customer in in about 10. It came to us. He had a large loan and he put He put it on the 7-year amortization and was paying a hundred percent of what his Revenue past year was coming in to pay for that long. Well, he was about three and half four years into that when economic problems have only took some of these rentals out of the business and he needed some help but think about he had all that Equity that we simply put him on ten years and never look back. So I think equity in this situation will be extremely important and home has lots of equity in their deals. I I like our book club or a long rope perspective. You heard Kevin's report on PPP so short time that's going to be strong. I think the new new mainstream sending will be the next step and we have some people who qualify wage.

Glad it didn't qualify for VPP, bye-bye.

We suspended BuyBacks when the president made navigate Apartments about 5 bucks.

With the stock market hitting all-time lows. We're damned if we bad back and we're damned if we done.

With the SEC allowing these algorithms to determine when it's time to file the shorts on without regard to the small shareholder. It appears to me that are running the small guy out of the month wealthy investor and someone have a lot of respect for it. So that fixes in the big guys are in charge. Where is where is the SEC after nine-eleven? They present evidence shorting on financial stuff and reinstated that up to the Europeans have had the rule in effect. They about a month ago. They put it in the SEC could at least try and protect people for just short and companies into Tennessee deposits as saving said get solid growth on that dividend solid as we can see today.

you know in order to bring some sanity sanity back to the Walmart Market, maybe we needed an adjustment and thinking we did not need a

And damage to make it happen certainly bring those who won the stupid award back to reality decision as to maintain conservative discipline of this company and will continue to pay our dog. I suspect that not all banks are in the same strong Capital position as home yesterday couple that with the strength of the earnings power, which has been best interests for years and the knowledge and the ability to recognize opportunities plus experience to know how to turn week banks in the top performers. This could be our turn off if the recovery becomes a long you or an L. There will be many opportunities.

Where there's something bad there's something good just find it. We may not be good at everything but we're pretty good at picking good opportunities, and we certainly have the capital to play the game off again a special thanks to David Carter. Kevin Hester random are 11:00 to Regional presidents loan assistance plus the new recruiting people that came in amazing across thousands of loans hundreds of million dollars. If not a billion in spite of the coding covid 19 and the $95 million-dollar Cecil circus. We would have a nice excuse me. We would have surprised the street with $0.43 and almost $71 billion dollars an hour range. That's about what we've learned reporter for the last couple of years. So solid performers continues.

Before I go to questions, so we go to questions. Do you have any comment anybody leave anything else that they wanted to say that they wish they'd said?

We'll give it back to you. And you can do whatever you need to do. Okay, so we appreciate that Rocco. I think we are good for questions.

Thank you. Well now begin the question-and-answer session you ask a question. You may press star one on your touch down. If you're using the speaker phone pick up your handset before pressing the keys off to enjoy your question, please for a starving to please hold. What would hold for questions?

And today's first question comes from Joe FedEx the hubby group, please go ahead.

Afternoon, everyone Hey Joe. Hey, John, even anything I'm trying to figure out is if you you know, you look back to your history. You guys have always taken decisive action or what you've always been real concern. I remember going back to when you guys took the big charge years ago all in one quarter and that took care really of all the credit issues you had from 08 from what you can see today. Is that what you guys did here with the 72 million per month for the virus. Did you clear the decks? Do you think he got it all or is this potentially just the tip of the iceberg or is it maybe somewhere in the middle of those two extremes, you know?

We've never been here before Joe. We didn't after evaluating the quarter. We as things got worse at the end of the month. We looked at Moody's at March Thirty one. And then we looked at Moody's April 10, and we took the email as worse. You're right. We were going to get it behind us if we can get it behind us. We took the April ten numbers which were twelve and half percent unemployment. I believe was the numbers. So that was I think we I think we took as much of it as we could rationally take and hopefully we got ahead of it. We I think Brian Davis may have have some additional numbers. I think we wouldn't even I think Brian a rented a little farther than that. I didn't think it was necessary. We maybe we're known for over killing. I can't answer to you. I can't tell you right now that we've over killed this month.

we have we

Thank I like a book about as well as as I've ever liked the book. I think we're in as good a shape with our asset quality and as our capital and earnings power issue. We've been ever so I let Brian Brian you want to pick up on that and tell what else you did on the when you looked at that? Yes, I sure will. Mr. Allison Joe we Mister Austin is correct for the movie analytics. We had a twelve-point five-per-cent unemployment factor which accounts for about 70% of our overall Cecil calculations, you know, we we project out a few quarters and you know it can can I say that this is it? No, can I say we will have a much better forecast life? No, but can I give you a little color we had 12.5% for the upcoming quarter and then it kind of went back down to 9% for the next 3 quarters if that's the way it turns out.

Then that will probably be a good amount for a long long 2% going forward for the rest of the year. We did run kind of a worse scenario cuz there's no guarantees that this is going to get better or there's no guarantee. It's going to get worse. But let's assume it gets worse and let's assume that the unemployment factors go to 20% and then instead of leveling out at 9% It goes to 15% for a while. That would have caused us to have an additional increase in our credit losses. And for example, you know, we're at 2:58 today and allow it go into a 20% and then down to a 15-15 would take us to about $350 million and needed allowance month. So we think we're in good shape. We've got plenty of capital. We did a break the bank scenario, which said what happens if we just had for example, where does it take wage?

To get to the point where we no longer or well capitalized and all of our ratios and it was almost a billion dollars of loss before the banks total risk-based Capital ratio fell below 10% off. There's a little color on where we stand Joe. It's really helpful guys. So Brian, I guess the way that summarize it is another call the difference between the two twenty-eight and the 350 is wage the additional provisioning if we go to that 20% unemployment then settle in at fifteen. That is correct. And and Johnny or Brian is also at what point does the dividend come into consideration and then you suspended the share approaches, but you know at the 350 and needed allowance, is that the comfortable and maintain the dividend or you kind of look at the dividend along the way?

I I think actually that it'll be cheaper for me to remain married because if I cut the dividend I'm probably going to have to do a stock split cuz my life depends on that territory money. She owns about a million shares of Peace So, I think it would be I think it'd be better off to pay the dividend. So as we see it today, we think we may be in solid. We we have suspended BuyBacks because the president said there was a dislike. I was thinking there maybe a bank program that comes out at some point in time and those thoughts continued to buy stock might be eliminated from it. So that's really the reason I can't hardly stand not going in there with both feet today and just buying all the stock we can get our hands on but God will and I don't I can't tell you that we're going to stay out of the market cuz it's so tempting to get in and buy the stocks.

Yeah, you did.

Change the color Johnny forgetting for a minute how The Regulators make it classify loans and stress test. You know, what is the Johnny stress does look like here meaning the way you look at things. How do you suck it the risk for the company that our own mind what worries you the most, you know, you said Hospitality wasn't at the top of your list of concerns. You know, what is the thing that that tops the list right now? I've never ever biggest losses in our history of being sick. I'll worry about I worry about it. I'm seeing I I just never been I've never been a scene Islander. I know The Regulators have pushed and given credit for seeing over the years and I just never have been a big seeing Islander. We don't have a huge book of c and I I think Chris has got a book of what he say $500 is what I think in that range in seeing eye, but I think that's probably the same, you know, I really actually and I'm feeling good about our position. I hope I'm not foolishly feeling good about it, but I

I think this company is in is is well. The banks have had ten years to build a fortress balance sheets. Most of them had those that hadn't shame on them. You know those that did the the low rate high-leverage stuff shame on them. We didn't do it was difficult not to do it a lot of times when our people see that we held the course. We didn't do the silly stuff and I couldn't be happier with with the sustainability of what I believe this book book is so the Johnny call is I like what I'm like our book.

Okay, and then Johnny you were one of the first to see the benefits from the failed Bank opportunity last time around you alluded to the U and the L and your comments if we get into that type of recovery. What is your name tell you as to when the right time to go on offense will be could it be this year or still you? Think everyone stays hunkered down for the rest of this year?

It depends on what they've done in the past and how many of them on the stupid award. So, you know that some people are going to everybody's not going to get through this cleaner with one fell back. I think last week for last smile 100 and something million dollars, but I I sent to a friend of mine I said there's a it started so I've got my eye out. I think they'll be some that'll have some particular. Those are having an oil I calls a problem. I think energy have problems going to be some some real problems there. I think that's maybe a major problem. We don't have much of that and Chris got a little and we got 16 million something made with our our credit we've had for about ten years, but I think that could be a problem for a lot of people and I I'm not sure you're not going to see it happen later in this month will be will be will be aggressive when that happens.

So could this be your pivot to Texas opportunity like in the wait with with Florida?

Could be it could be if there's an opportunity there. I don't know where the opportunity is, but it'd be a great pivot opportunity. I don't know. I don't know if Tracy's ready to pack it. He left for three years. We send him to floor crazy here ready to go back man, man ready to get out of the office or quarantine. That's not the same got a couple more thousand guys. How should we think maybe for Kevin? How do we think about the revenue contribution from PPP here? Is there any added expense in terms of people or anything else and they Kevin do you have the breakdown a PPP loans and fifty buckets? And then you said 160 was the average but if you could bucket it out for us we can kind of back of the envelope with the what the potential revenue is here.

Yeah, I don't have.

The brake they don't have the breakdown with me as far as the revenue contribution. They'll definitely be a revenue contribution our our accounts instead of these are going to be you know accrued over the life alone. So, you know, depending on how much it it gets forgiven and how much we have to carry for 24 months, you know that there's a lot of uncertainty there as to when it will be contributed and there are some additional costs because we're going to have to do have a lot of people working overtime and and putting a lot of time into Iraq and and still have much more to go between now and the end of the funding and then the end of the Forgiveness phase of this. So it's a little too kind of like a lot of this is a little too easy to determine how much contribution there's going to be. We had we like we didn't get them all funded. We had about eight or nine hundred maybe a thousand that didn't get funded before birth.

Ran out of money hope that I'll reload that and and and we can go again, but you can do the math. The majority of them were less than $350 and there were like forty four hundred thousand approximately 4,400 of them that we have s p a numbers on they were all funded yet. But we have about 4,400 we had some thoughts and in some that were seven hundred eight hundred thousand, but the majority of them were $350,000 below so, you know what the numbers on that is, but we always want to know the the FED interest-rate on though. So it was good. We went from a half a point all the way up to 1% So, okay. And the last one for me Johnny, you know, you eluded the text we talked about, Texas and when you did the Florida deals you stayed in a concentrated area. You didn't hop all around the southeast to see your failed Bank deals or whatever. Will you look to do the same thing? Could you look to do the same thing in Tech coach?

Which we think about this is you'll be opportunistic and maybe Louisiana or Oklahoma or some other areas are on the radar or do you have your eye on a specific geographic area you would focus on well, we like we like the franchise and that's what we're able to do in Florida. We'd like to do that again to say we wouldn't step outside of that and take a look as you know, last time Regulators really want us to build in Georgia. And we never took charge it. We just stayed hitched to us in Florida and built that built the franchise in Florida, which worked out well for us and maybe they'll be one or two in that market that offers the most of the banks in pretty good shape, but it could be one or two in that market that got hurt they did we'd be aggressive after those but I think I think Tracy has a cowboy hat and a pair of cowboy boots. So if he needs, you know, he doesn't have a big belt. Buckle Joe. We need to get him more and we can send him to, Texas.

Do you have a great day? Thanks. All right, next question today.

Hey, thanks. Good afternoon guys wanted to start y'all gave some great color about the hotel loan portfolio. But how long do you have an outstanding Zen the restaurant food service business?

Greatest Kevin, I don't have it broken down. I mean that that makes code we gave some some numbers on you know about four hundred ninety-three million jobs in in a 788 million dollar balance that includes the hotels to I mean, we don't we don't have a huge restaurant exposure, you know, it would be things in our local markets. We don't have a you know, a group or division that focused on that that type of lending so it would be the, you know, the normal customer base that we have within our own markets.

All right, that that's helpful. And then maybe a question for Chris Paul. Chris is you look at you know, your loan book. What's the area that you think we'll see the most stress just giving them a backdrop?

Hey Brady, it's Chris. You know the most immediate stress will be on the high side your lending on cash flow and cash flow is is drying up over the last Thursday. So from an immediacy standpoint, it's C and I just cuz your lending on cash flow and with regard to see re we just don't have a lot of just don't have a lot of cash assets. Right? I mean, we you're doing construction or Bridge or what have you. So you've got a lot of duration built-in and we have payment Reserve so we haven't seen a lot of stress yet in the CRV book. We think over the course of the day, you know, six to nine months. You'll start to see some things shake out to cetera but a lot of multi-family a lot of mixed-use. We we think that weather's pretty well if you can build in duration, so from my point of view on Syria table in duration and and and getting people where they should be at these low LTS with a lot of cash in the deals and a lot of payment reserves you should be able to to weather for a while, you know the portfolio

For withstanding recession. I don't think any portfolio is built for withstanding a shutdown. And so as we move from shut down towards the aftermath of that. I think the cre works pretty well, but we were staying focused on my right now. All right, that's helpful. Then the last question for me. I guess either Brian or Steven but as you look at the net interest margin to held in gray box score to the coordinate was actually up a little bit but you know with the new backdrop, you know, we're back to zero fed funds and belonging to the curve is a lot lower. How do you think the margin transmission how far do you think it could go down?

That'd be Steven.

Hey Brady are Falco models. They get kind of tell you what the alcohol model show and then what we're seeing, you know on a on a daily basis down 100 scenario was about a 6% contraction to and then it's pretty linear 3% on down 50 down 100 down $200. So, you know, we think the model shows somewhere in the office in the ninth the 10% down range on a down 150, which is where we're at today. Yeah, my comments, you know said and we're seeing today that funding costs are are you know, we're able to to get down a little quicker maybe than what we've seen in in in past rate typing Cycles. So yeah, I don't caution how much optimism that there but I mean, I think we have seen that uh able to to get funding costs down a little better and then we've had just over the last over the last three or four months as the variable rate loans have changing.

We've had several hundred million.

And hit floors and and become protected. So yeah, the Investment Portfolio will re prices as it does but we're we're working it daily. First was a big big day for us. We had a lot of adjustments on April 1st. I started looking at the first nine days of the month of this month and was quite surprised at the reduction in interest expense. So the team's done really a good job of reducing that interesting. I am pretty pleased with that and we got as Steven said in his remarks. He got about 400 pricing this quarter and about a billion for four thousand over the next twelve months. So they've worked it pretty hard Tracy attack too early and it's so far so good when you see those brackets around in search of job.

This month compared to last month and they're becoming big numbers you that's pretty good.

Great. Thanks for the color guys. Thanks.

Our next question comes from Steven Skelton, please. Go ahead.

I got a second one doing we're good Stephen.

It's good, but glad to talk to you in these crazy times. Appreciate it. I appreciate the color you guys gave around some of these loan deferrals and I don't know if I missed it. But do you have any break between what that looks like on maybe are ready mortgage or consumer type of standpoint versus commercial loans Kevin. I don't have I don't have a breakdown from commercial to residential standpoint. I mean our residential book is not it's not huge I can yeah, I can try to figure that out for you if you'd like for me to call. Okay, and then I'm kind of curious just I've heard differing views from different banks and just what the accounting treatment could be for these loans, you know after the the 90-day period the time and if you the the extend the maturity or modify the loans further would they theoretically become tdrs at that point in time? And is that an expectation that you have at the end of these dead?

forgiven.

Well, it's not an issue we've had in the past in the 2 hurricanes. And obviously it was you know, not as as material to the to the bank as a whole the numbers we had there. They are, you know going to be going off but I don't anticipate from what I've read so far. I don't I don't Envision that a second 90 days is going to trigger a TDR at this point. I think they're going to give us some some flexibility on this. I think it was when that part of the legislation that part of it that as I read that we wouldn't have tdrs would keep a record of of the mount and the numbers that we've deferred over a period of time as we did in the Perkins. We got hit in the hurricane, but as I understand it these we're not going to create TL we ask we got called by our Senator and we ask that that might be classifications changed on the loans and that we're not have tdrs after we did kind of Summer nine-eleven wage.

At that time we asked for some of that same same Grace it worked out fine. If you remember they didn't classify hotels after nine-eleven. We ask for that same.

He's not classify hotels. So I think The Regulators are going to be going to work with with us as well as as we everybody's cooperate together to get through this Thursday.

Okay makes sense. And then when you think about loan growth for the for the rest of the year, I mean obviously like you said you guys have been pretty conservative on that front for the last twelve or eighteen months and and thank you know is really proven you right here today and I'm just wondering how you guys view with the rest of this year could look like I mean, would you expect it to look like 2019 or further reductions off balance is even possible there or or will PPP and you know draw Downs of lines on the ccfd book kind of profit things up in your mind. I'll take a piece of that let Kevin off, you know, the you know, the Main Street Landing looks interesting to us. I think that's got some real potential to help some people in the marketplace some of our customers larger customers didn't qualify for PPP qualify for Main Street Landing and I'm not sure all the details of that are out yet or not. We'll probably at some point in time after we get through a PPP switch over some people.

Some are playing switch over here early to move on Main Street Landing because we think that that could that could really help some companies out there that that need help because it's I mean, it's a full program first your interest and principal or deferred we have to keep 5% the government takes 95% of that. So that has some real appeal for us going forward in the future. So we'll continue. We haven't backed up on loans. We've we've asked the question with our own officers when they took an executive my own have you talked to your customer lately? Have you talked to him since this pandemic hit is is he still thinking clearly? Is he still going forward he appears to have the money to be able to do what he wants to do is have you checked with him. So we just kind of weird being a little more cautious about what what could possibly go wrong with him as far as underwriting run right exactly. Like we always owned a dead.

We do more. Maybe we'll maybe we look more. I don't know Kevin. What would you say? Well certainly, you know from a financial statement perspective are guarantors and our sponsors. You have that statements even 3 years old. It's been 3 months old. It's too old. So we're you know, we're having to reassess the current current numbers and current values of things what projects are doing. So it's Johnny's right? We're not changing our own writing but we do have to take into account what's going on in in this particular situation and see what kind of effect that might have on on a project on a bar over. So, you know, I think Johnny said it we're still going to we're still open for business. We're going to keep doing what makes sense and I think that's been our what we've always done whether the Acquisitions or blending or whatever we do. We we take the the opportunities that we have in this could create an opportunity and some places Chris, you know can can say the same thing about his his book of birth.

And what he's doing so well, we'll continue to look at things that in a prudent matter and do it maybe.

So what we see that's happening in the market today.

I just add to that. I mean the payoff the payoff now are certainly going to be less and we're seeing that come across so that's been part of our not growing as much and with all the birth of our customers probably in a position today could be some opportunities to advance some funds to help them through whatever times they go through now and there probably won't be as much pay Downs over the near future wage. So we're all gets back right again. So long does have an opportunity well and you're going to have nothing else happens, you're going to have over six hundred billion + PPP loans that are going to come on in the second quarter and probably go off in the third and fourth quarters.

So you're going to have you're going to have some noise just because of that program by itself.

Makes sense. And then as it pertains to the c c f g book a business and I think of Chris if I heard you correctly said maybe two hundred eighty million to pay off and then net growth was around $168 million so that 448 million time doing that Master. Right? Was that new production is that predominately draw Downs on the facility lines? And and can you give us an idea of maybe for the book as a whole? How much were you guys are in in in a percentage of line utilization or unfunded commitments? And what what could get drawn down on?

Yeah, happy to yeah, generally, you know, the the quarter was was really A Tale of Two cords, right? January February was pretty normal activity that you'd expect. We don't have a lot of faith in the first two months generally anyway, and then you had new production a little bit and a lot of draws on on the construction facilities as they go through their work and Thursday and then we had some some activity on our single or on our multi-asset facilities as well in terms of the the sort of the idea of drawing down on lines. I think you'll potentially remember that in our real estate portfolio. Our facilities really aren't lines there at our sole discretion. So new assets can be added but they're each individually underwritten and they're done at our sole discretion. So there really isn't lines to draw down on because it's off line. It's more of a guidance facility. We have seven facilities in the C and I space as I mentioned those are more borrowing base facilities, and so they do have a ability birth.

Call down on lines if if they have if they meet the meet the criteria and having the following base, we did see sixty million dollars of drawers on on lines in the cni spaced out of those seven credits. Um, and then we had 15 million of that payback actually the first week of April. So that's a pretty small part of our uh of our business and we do generally see those facilities in lines in the space draw down at the end of a quarter anyway, so I would have expected some of that to draw down. I think we got more of that drawn down in the in at the end of the March just giving that a number of people wanted to be able to draw down and show they had liquidity and then after that I assume they they pay that back a little bit as as we've seen I would generally expect going forward will continue to see construction draws as those projects progressed though. We do expect there to be certain delays and they'll move a little bit slower and then and then we'll sort of see where new production leads. We've we've never really been hungry for growth and we've always sort of Taken where what we see in the month.

Didn't evaluate that I would say we were continue.

In to evaluate opportunities, we probably look at those, uh a little bit differently today and we're still we're still out there. We're still looking for opportunities and we're going to be helpful to our customers and a month and former clients and friends and and such but we're taking a look at those each individually and I think they'll be opportunities to come out of that. But I also think there's a lot of things that were being done right now that just don't make sense.

Got it, very helpful. Thanks for the time guys, and I hope when we talk next quarter. It's it's much more normal conversation. Thanks, David.

For next question today comes from John Armstrong with RBC Capital markets, please. Go ahead. Thanks. Good afternoon. Hey, John follow-ups here. Even a Brian just back on the assumptions that you use for the provision for the quarter. There's a five million phone number that you referenced which, you know the ordinary Cecil provision. I guess my question is if we're if we're sitting here and we're you know around 12 and half percent of employment 3 months from now is that kind of number that we should look at for your second quarter provision just the way you know the way it sits today.

I'd like that. Yes, that is correct. That 5 million dollars is we're still at the 3.6% unemployment rate. That would have been what our provision would have been.

Good and then I guess the other thing big picture on how how would you guys like us to think about performing Trends? It sounds like you feel like you captured.

Maybe the most most of the potential pain in terms of your reserve levels now, but is it is it fair to assume that? We are going to see a pretty material jump and non-performers, but I feel like you have the the Lost content covered your current reserves if that makes sense. We're not going to say a huge jump in non-performers because they're the month so you're not going to see that and Kevin said it may be as it was in the Huracan. It's not a hurricane, but it's going to be treated similarly and I'm glad that I had the experience of the Huracan because we'll we were deferring those people at this point in time. You know, some of them will probably have to refinance out of out of the problem. Maybe maybe at some point in time. We did that in the keys. We had to help some people get out of the problem. They got out of the problem without any without any loss to us. So I don't I don't think you might see a sponge.

A little small spot but I mean we're too far in these people. In the meantime. We're talking to them where they are what they're doing and kind of it really depends on what the economy does and it how quickly, this is comes back it is and you got I mean we're we're going to be writing checks for six hundred eighty million dollars to do these customers as well, you know over the course of the next week or two that you know, that's something you don't normally it's not something that we've ever seen. So it's it's really very hard to try to determine what we think not not accruals will look like the deferrals and that 608 million or or a big a big help.

So we didn't we didn't have that. We didn't have that in the her cuz we just defer done. I mean we knew the customers and we just deferred them and as they got their insurance tax or fought with insurance company. We took off one by one the situation is what they needed what we could do to help and and they all worked out. I don't we lose any money and very very little is not sure that's the closest thing that I know to compare it to John. I think that contends I just did this money for this be a to write. I mean if Congress will fact and put some more money out there for the small business that takes them and us as well. Yeah, you can have the Stevens right if if if Congress acts and we get some more more money out there to business. That'll be great. But you can also have a Main Street lending loan and a PPP loan so we can do both.

And just a just following up on a couple of comments you made just that you talked about the firm the referrals and you're saying it's 25 or loans are about 2 billion. Where do you expect that to go or do you feel like you've contacted everyone that would take advantage of a deferral?

I think that if it's been increasing it slowed down a little bit last week and we had a couple of hundred million one day this week. So I mean there's still some there's still some trickling in long as we go forward. I think that pace, you know, the the determination of what that pays looks like we'll be determined by what this you know, how long this event last, you know, there's discussions of beginning to open up some things and you think Arkansas would certainly be part of that. I don't know about Florida and how that affects, you know, what the individual plans look like with those, you know, the those plans will have a lot to do with whether another 90-day deferral is needed or not. And I would not be the worst the worst thing in the world. I mean, we we saw in the Hurricanes, you know a second one for some folks was needed and and

That wasn't a big issue when they were able to get back to you know, get their properties repaired and get back to full full employment and full business same thing out here. It's not physical damage, but if they're able in six months to come back to to full employment in full, you know full revenue or somewhere close to that these young girls will be a big part of that.

Well, you thinking about maybe the key is some come back or stuff mm cars so far trying to get in the keys. I mean the keys will come back fairly rapidly. I think I think people have been cooped up long enough. You know, when you think about the Marine business we have that's really a plus to be in the Marine busy. It is the only thing that families can really do like ride a bicycle together. I guess they walk through the neighborhood together maybe but I'm just back from the keys and bolts are everywhere in the keys and families. They're they're staying six eight ten feet the bulb that sat beside but the families were out in the box and there's boats going everywhere fuel stations are open. I heard some of them Miami were closed but I understand you get fuel donate or Club. So I mean that recreational activity is still alive and that's a real Plus for us on the Marine side.

They think about the keys in 2018. I mean the the the hurricane that hit down there was as impactful on that geography.

As as disco videos on the entire country as a whole and it took them, you know, six months to a year to to get back where they needed to be and at the time of this event they were doing as well as as they've ever done. I mean by the folks that that we talked to they were having, you know, some of em years. So there's there's no reason that that couldn't happen on a larger scale here just depends on you know, none of us know whether that's going to be a m a v a u or an owl

Okay. Thanks for all the help. I appreciate it.

Thanks, John.

Our next question comes from Michael Rosen Raymond James, please go ahead. Hey guys. Thanks for taking my questions most have been answered. But I wanted to follow up on on John's question in sorts if this you know, it does seem like there's going to be some behavioral changes to say the least, you know, as it relates to the wage tax from from college. If I were to look at your loan portfolio outside of the obvious things like Leisure hospitality and stuff like that what percentage of your loan book club do you feel would be at risk from like the large Gatherings, you know, not really happening as much at least in the kind of nearer term, you know, things like that. What what other Industries should we be thinking about? Do you have a rough guide for what percent is the loan book could potentially be impacted? Thanks.

I guess we outside of leisure and Hospitality I think Marines fine.

I'm not I'm not a fan never been a fan of seeing eye but you know, we got to see and it's we don't have a lot of it though energy energy may be a problem. I mean a $19 Barrel oil that's got to be a problem. Even our company that owns us about 16 million. It's been with us for ten or twelve years. They've cut back substantially and

They sold their Hedges and picked up about thirty million paid the banks down. So I think energy probably is.

It's very suspect at this point Kevin. You got you know, there would have to be some you know, some service type industries that you're you know, your gyms you're you know things where people congregate and in mass or and you know, where they wouldn't were social distancing really doesn't work. You know, those are probably related a lot to real estate. And so that real life could probably be repurposed. But at this point we've not identified specifically anything, you know, any types of Industries like that. We haven't gone through exercise yet. Okay, so maybe just all those categories that you mentioned you have a sense for for what they, you know comprised as a percentage of total ounce.

Say that again. I'm sorry. I didn't hear you.

Say that again, please yell all those categories from oil to you know, all the troubles that you Hospitality Leisure stuff. If you just add all the ones that you mentioned together, what does that represent as a percentage of total loans? Just trying to size the the the problem potential problem bucket.

I mean you got eight hundred in hotels and you got we got 16 million and oil change. Yes.

Chris I'm calling to you there. I don't and you might get a little color. I think you said I think you said Chris said some of the projects have been slowed down or stopped or something a little color on that too if you would. Okay. Sure. Yeah on on energy Johnny. We have a we have a facility with fifty million dollars of exposure on T. But it's across say it's across a number of credits across about I think about sixty credits in there. So it's it's pretty Diversified and it's a it's a facility against other other loan. Now, we have a little bit of protection on that one as well these downside protection. We had moved out of some of our single credit names and energy into this facility and we keep the energy at 10% or less of our portfolio. It's generally about 15% of the overall economy, but we keep that under represented and and we're continuing to monitor that but we feel okay about it right now as as it relates to the projects dead.

We have six projects in New York that are stalled or or sorry that are on hold right now or or have been stopped by work order under New York, New Jersey and and Connecticut but really fast New Jersey effectively all construction has been has been stopped. And so we would expect that to restart this summer. We had three of the six or effectively complete and so they're really waiting on the city offices to reopen so that they can get their those are multifamily credits and then we really had three that just started and so a short delay here isn't going to have a meaningful impact for their ability to care about such would just pushes it back a little bit further. All of our other construction projects are actually continuing albeit some of them a little bit more slowly because they're in geographies where there have not been stopped recorder's office on on construction. And so we expect them to maybe move it a little bit slower Pace, but they are all active and continuing and we're we're monitoring and updating those weekly.

Okay, maybe just one follow-up for me. Just just back to the unused the commitments. How much is outside of Chris's group? And then what is the utilization rate on that and and has that God has had those draw Downs, you know slow to some of the, you know into the into April's some of the other larger Banks of mentioned. Thanks.

On the construction side. I mean those other than the six projects that Chris was talking about in in New York. Our projects have continued to to progress. There's been really no I'm not I'm not I'm not aware of any significant delays in the in the in the construction process itself of anything outside of those six.

All right. Thanks for taking my questions about the any other segments. We do have a you know in our CRV book. We we break it down by collateral code and took those is a when we consider single-purpose building its kind of a catch-all for anything outside the major asset classes and we have got about seven hundred fifty million in there. And if you look at the the permits back lateral code that would have the a higher percentage. It's up around the same percentage deferred as the hotel portfolio. So if you want to pick up another page of real estate loans that you know will certainly keep an eye on it's probably that one just because of the percentage of deferrals that are in there.

Great, how you doing? Color Thanks goes. All right. Thanks. Thank you. Appreciate it. Would love to stay healthy.

Our next question comes from Brian Martin the Jani, please go ahead. Hey guys. Hey Brian. Hey, just one question maybe for Brian and if you go back to your comments just about if you went off, you know, worst case scenario on the unemployment where if it goes to twenty and then settles if fifteen, you know that additional add for the provision that you guys would anticipate, you know, is that likely you know, when do you likely make that decision? You know, I guess what employment rate do you have? You know, what date of the unemployment rate you have to see? I mean would it likely be a 2 Q events and kind of get everything in front of you or just how do you think that reserved build unfold I guess is Ultimate what I'm getting at home if needed for Brian. I mean, it would probably follow similar to what we did this quarter. You know, we were using the Moody's Analytics forecast economic forecast and Thursday. We would look to see where we are at June 30th when we're at June 30th, which maybe a couple of days into July we would see what the forecast is if if things have gotten a lot worse and the unemployment is down.

Up at 20% and that's the likely scenario if things have improved then that would not be the case, but it would be right at the end of the quarter when we'd make that decision. Okay, that's helpful. And it may be just one for Steven on the mileage and just even big picture on the margin if you think about that 9 to 10% hit if you had the hundred fifty basis point emergency Cuts here by the Box in that seemed like it would translate to you know, I don't know somewhere around Thirty or thirty five basis points, but given your comments on where the cost of deposits were and how you know, the success you're having and bringing those down if it's around sixty basis points and not not sure what you're you're seeing on the new loan yield, but would you expect that 9 to 10% to possibly be a little bit better, you know as things unfold if if you're able to get positive Stone, you know, like you're suggesting just trying to get some context of how to think big picture about the margin.

Yeah, I think so. I mean, I think if you got to pick up pick a side up of 10% I mean, I think you know, there's some uncertainty around investment in a reinvestment rate. But you know, there's a floor somewhere on loans in terms of where we put new credit on the book outside of the PPP program. So, I mean, I think that lends itself that you know, a potentially be a little a little better than that, but it's yeah go back to its we're working it every day and you know, but also mindful of liquidity and other things during these time and the level, you know, like Brian mention the level of cash were holding will you know, maybe an offset to some of that?

Right. Yeah.

Look at the last nine quarters. Look at them. Look at the margin for the last nine quarters. I mean, we work very very hard at it off in spite of all the crisis craziness that's gone on in this Marketplace. We've held our margin. So I mean within reason one of the best in the country, I would say so long. I mean Steven thinks is going to might go down 10% on. I don't believe that I mean, I don't I don't believe that he's probably right at the model says that but I don't believe. I think I think this company with they've done Tracy and still they've done a great job on cost of funds. I mean, they've really brought that down and he brought it down in a hurry. So I think there's still some more room back to come so and we're still writing in the high fours. So I'm pretty optimistic. Yeah. Okay. That's that's why I was taking away from you know, the comments about the funding's being made 60 bath.

Points in April, so it seems like it would be better. So that is helpful and just maybe one last one just on the the expense levels, you know, I guess this current level around sixty nine or seventy million, you know with all of the of the things in the people working overtime, I guess is that kind of a good Baseline to think about as we enter second quarter Reserve, you know something that would really wrap it up or you know adjust its significance as we think about it given all the you know, the initiatives on the PPE and other events you talked about

This this is Tracy Stevens looking we're looking at each other. Like you hit the nail. Is it going to take some Personnel to do this extra work and that'll be no problem. If that's the case, but there shouldn't be anything outside normal what we're seeing today, you know, if we will always try to improve it as what we can can do and I think once this uncertainty settles down we'll be able to make adjustments that need to be made throughout the company to take care of the customers in different ways potentially. So yeah, I think the love seventy-five or low seventies run-rate fine. Yeah, hopefully by the Mars and do you understand what I'm saying? That's xpp and if the yield on the P. Really be good. I mean they take us out and eight ten twelve weeks that that's like it's scheduled to do and you'll see a pretty good yield kick there. So I guess it brightens that go in birth.

If that that'll go into interest income, correct. That is correct. Yeah, I was going to ask you Brian. That was my other question was just you know that the impact of the PPE that obviously that you know the loan rate that you've got and then you've got the fees the fees are going to go through the the the income line. Is that is that the way you think about that? That is correct. You're supposed to account for that the same as you would origination they so, you know, we could get four or five percent, you know extra that would could potentially amortize over 12 weeks. It'll be a margin. Yeah, six and larger.

Yep. Okay. That's all I had.

As I appreciate it. Thank you.

I don't know question today comes from not only is Stevens, please go ahead. Hey guys, just hey, good afternoon. Just want to follow up on some of the commentary that that you had on the loan deferrals off. I'm curious on the loan deferrals. How much of these are from Centennial Bank reaching out to the customers versus the customers reaching out to the bank then if you have any stats on that or just some general commentary on that. I think it's a a healthy combination of both. I think, you know, our our lenders are out talking to they're not out but they are walking to their customers and I think their customers are calling the bank to find out what the bank can do for them. So I think it's a it's definitely a two-way conversation. Okay, and then on the pack p p program how many of these customers you're working with our our current customers versus how many are our new customers? Just trying to get better idea. Is this a this an opportunity dead?

Build new relationships for the bank so virtually all of the first this first pass is existing customers or a a new customer that's out of a relationship that we already had that maybe they Bank part partly somewhere else and they brought us all of it. So almost all of this is related to an existing relationship. Then the next Raj if there's more than we certainly could and would be open to opening it up to do business. And that's there aren't from what I've been hearing. There are many banks that were doing that. Everybody was was keeping it to existing customer. Okay, and then we get there. We were so busy. I mean, it's teams were almost twenty-four hours a day for

10 days, I mean they just couldn't get there. I mean we would like to reach out and picked up some outside customers, but we had to take care of our own first sure now understood and then I guess going back to the Marine loan portfolio. I'm curious how you think about the risk profile of these loans on one hand. These are high net-worth customers with good credit scores that can afford larger ticket item down but on the other hand, these are discretionary purchases that are probably seeing some lower valuations. So I'm curious what your thoughts are on just the risk profile of this portfolio.

Well, it's the same risk profile of the first one hundred million if we bought and it is the only recreational activity that I can do and if being in Florida recently and in the keys is any example of families in their boats because they can do it. I mean, they they're sitting in the office. They can ride a bicycle a walk around the block I guess but they're getting out in their boats. So, you know, it is the recreational activity. That is that everybody can do I think before some number one voters are pretty serious about their votes to start with and if they can get their family out of the house and get them in a cage get them out at at let them have a big day. I think that's a hell of a plus form and I I haven't seen what I've seen in Florida. I'd say the likelihood of birth.

Want to give them up the boat is is slimming.

None. Yeah, that'll be some probably but we're not seeing it. Well, I mean, I think if you look at you know six percent so far, you know the same. Comparing it against portfolio 6% deferred out a short compared to 18% on the the entire portfolio. I think tells you what our customers are thinking where they're at right now. They're certainly willing and able to continue to to pay the full p&i payment and you need to your point of having, you know, the customers with with high-net-worth and took away today. They have the wherewithal to withstand this short-term adjustment in what the the value might be in their in their asset. They're not going to worry about that short-term change if we come out of this and and the values come back up then that's you know, they've got the the ability to withstand that

Got it. Okay guys, that's that's all for me. Thanks to the color. And thanks for all the great details on this call. You guys are very helpful. So I appreciate it. Thank you. Thank you man. God I don't as Fortune comes from John house with the oil, please. Go ahead. Are you guys quick quick technical on the p p p or you at? We're not funded yet are we took closed but not funded or or we still awaiting loan closing. I'm just curious like personal as well as investment. So he's one of going through the SBA into the life lock this morning. We we were slowly. Slowly we were heavily focused on trying to get as much through the portal as we could. We are funding the same thing is, you know, it's

It's going it's not going as as well as we like forward to it is happening and we're moving people from the SBA process. Now that the funding process to help them ramp up and and get them out the door, but we definitely are closing and that that is increasing by the day.

It sounds like you're ahead of the game. I appreciate it. Good for you.

I think would you say the sba's done more loans? And what did you say Kevin? I think they said fourteen years worth of loans in 14 days. Yeah, they did fourteen years worth of loan the 14 days so you can imagine it'd be some hiccups. Thanks John appreciate it and I think that is all the questions that we have. That is correct, sir. I'm just wrap up and we'll hang up. Thank you for thank everyone for the support. It was a long meeting today. There was a lot to cover. I can understand all the questions and hopefully we had had the answers. So we feel about things at home bancshares and look forward to some opportunity. It may be a little you know, Cecil was instituted to try to put some stability in the reserve program. It may look like a yo-yo here for the next two or three years. It certainly didn't add stability to add lots of uncertainty to the market. So and you know,

as I watch CNBC and

Financial Network, they said JPMorgan put six point three billion in for bad loans. Well, JPMorgan didn't put 6.3 be in for bad loans, they put 6.3 back in there cuz they had to precisely so this is all the world's not panicking world is not panicking in saying that that it's the end of the world. It is the fact of life Cecil hit this crazy program headed this time right in the middle of this and everybody's giving credit to the fact that we got bad loans. Well, that's not the case. That's not the fact that all the fact is fact, it's the face of problem that's causing all the disruptions. So anyway, a lot of that. I think we'll have better news and 91 days or look forward to talking to you and thanks for your support.

Hey you service. This concludes today's conference. Call. Have a wonderful day.