Q1 2020 Earnings Call

Good day, and welcome to the people of Utah Bancorp. First quarter earnings conference call. All participants will be in a listen-only mode. Did you need assistance? Please do a conference 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 * then 1 on your touchtone phone to withdraw your question, please press * then two, please note this event is being recorded. I would now like to turn the conference over to Mark Wilson Chief Financial Officer, please go ahead.

Thank you and good morning. Thank you for joining us today to review our first quarter financial performance joining me this morning on the call is len Williams President Chief Executive Officer for people's you top off. Our comments today will refer to the financial results included in our earnings announcements and investor presentation released last night to obtain a copy of our earnings release or presentation. Please visit our website at www.ge.com our earnings release and investor presentation contains forward-looking statements. All statements other than statements of historical facts are forward-looking statements such statements involve inherent risks and uncertainties many of which are difficult to predict and Beyond the control of the company. We caution readers that a number of important factors could cause actual results to differ materially from those expressed in or implied or projected by such forward-looking statements.

These forward-looking statements are intended to be covered by the Safe Harbor for forward-looking statements provided by the private Securities litigation Reform Act of 1995 forward-looking statements Pico name of the date. They are made and we assume no duty to update such statements except as required by law. I'll now turn the call over to Len Williams lent. Thank you more good morning. And thank you for joining the call Thursday before our prepared remarks. I'd like to acknowledge and thank the healthcare Professionals for their tireless and selfless efforts in the front lines to help those infected with the covid-19 virus thoughts and prayers are with them and with their families impacted by the pain and demek. I'd also like to express my gratitude for the bank's leadership team in the mini Associates who've adjusted their lifestyle dramatically to continue to be there for our clients and the communities we serve.

Included with the 8K we filed yesterday is not only our first quarter earnings release but also a presentation that highlights our response to the covid-19 pandemic the the efforts made to assist our clients the business sectors in our loan portfolio that may be the most impacted by the pandemic and the strength of our balance sheet to withstand the potential negative effects shutting down the economy may have on our clients and us we will be speaking to both the earnings release and the presentation on this call.

As events began to unfold with the health risks of covid-19. Our immediate concern was the Health and Welfare of our dedicated Associates. We immediately executed on our pandemic response team operated into our business continuity plan. The response effort has been the largest coordinated project undertaken by the bank and I'm incredibly proud of how our Associates responded to the challenge seen strength and Leadership emerge through this unprecedented business twist some key aspects of our Readiness response include identifying and isolating high-risk exposures initiating social distancing eliminating all corporate travel for us and our vendors and dispersing those who already had secure remote access to our systems. We then significantly increase the number of Associates who were able to work remotely which included the procurement of approximately a hundred additional desktops along with a Compaq.

Headsets and video equipment this effort to reduce the density of our operations facility was a significant task which our information technology department performed admirably completed it in just a couple of weeks this dispersion included departments that we have typically not considered working remotely including our loan processing Department customer care service and even our central processing group what we rapidly deployed our back office support teams. We did so in a safe and secure environment, we continue ensure to ensure appropriate data security and our operations as our operations shifted the new delivery method methods.

The other area of focus was a retail and Commercial branches. We wanted to ensure that we could provide our clients with essential services including access to cash loans in the ability to to move money off. We instituted a Daily Review of all cash activities whether held in the branches or ATMs, we plan to continue to monitor such activities until we're back to normal operation on a positive note. We've seen deposits grow to an all-time high during this process.

By the middle of March we determine that for the safety and best interest of our Associates clients and communities. We would close our Branch lobbies and transact day-to-day business. Primarily Thursday drive up Windows or the in the branch by appointment only these changes to our business were to ensure that we were following government mandates related to social distancing and to protect and support our Workforce many of whom were balancing the demands of the work environment with other issues such as care the care of school-aged children who had been sent home to ensure that our clients needs to address relationship managers made phone calls to their clients. In addition. We ask Personnel from our branches who are now working remotely to reach out to our customer base to ensure that their needs were being met as well as to assist any client in the use of our mobile or online banking sites for their day-to-day banking activities while we hope that the birth

this environment becomes easier as the number of

With nineteen cases P. We are prepared to continue to operate the bank in a safe and sound manner for quite some time now. I'd like to discuss our support page some that we're offering to our clients. We immediately instituted a borrower.

Just our business and consumers during the pandemic today. We've offered assistance to approximately four hundred commercial borrowers who have requested forbearance of payments of approximately 15.9 million dollars on 340 million of outstanding loan balances.

The average monthly payment amount is approximately $7,500 per loan and the average deferment. Has been 5.1 months. The total amount of the payments deferred is fifteen point nine million dollars. We offered assistance to approximately $880 consumer borrowers who have requested for thousands of payments on approximately 1 million dollars of outstanding loan balances.

And we've also implemented deferment options to mortgage clients. We serve Us in accordance with the Fannie Mae guidelines.

We are participating in the small business administration paycheck Protection Program. As of yesterday. We have processed approximately 225 applications, totaling $6,000 million dollars, which we expect to have fully funded by early next week. We also referred any overflow request to offend Tech firm to assist those businesses. We could not complete their applications or their process. I believe it's important to note that the SBA is processed.

Fourteen years worth of loans and less than 14 days an incredible accomplishment.

We've also processed approximately 50% of our annual loan growth objective in 14 days. The percentage of our balance sheet that we have assigned to the s b a p p p p is greater on a percentage basis than what most of the money center banks have allocated. We plan to participate with additional funds provided to this program by the federal government. There are some steps were taking including eliminating service charges on various transaction and the suspension of foreclosures on mortgage loans and other actions that makes sense in today's environment next. I'd like to discuss the credit quality of our loan portfolio in our balance sheet position over the past 24 months. We have communicated each quarter our efforts to fortify our balance sheet based on the perspective that we were at the end of an economic cycle and wanting to be prepared for an economic downturn.

While we certainly did not anticipate that the economic downturn would be the result of a pandemic. We believe that our balance sheet strength provides Safety and Security to our stakeholders as we work through the negative effects shutting down the economy to mitigate the health risks associated with the covid-19 pandemic.

Our balance sheet is reflected.

In our our adoption of Cecil are applying the full impact of Cecil to our regulatory Capital ratios at the end of the first quarter which provides Clarity of our regulatory Capital position 3 is our maintenance of primary liquidity through continued deposit growth secondary liquidity through holding high levels of cash and liquid investment Securities and tertiary liquidity through pledging our loans and investment Securities with the F H, L B & R and finally are focused to reduce loan concentrations in our ADC and Commercial Real Estate portfolios as well as placing limits on specific collateral types.

with 30% of our

Satori options to take the impact of the adoption of Cecil to regulatory Capital over a three or five-year period in summary we elected to adopt fully Cecil home and we elected not to report loan modifications directly related to the pandemic as troubled debt restructuring going forward and we have taken the full impact of the adoption of Cecil against our regulatory, as of the end of the quarter.

We believe that we're one of the smallest institutions to adopt peaceful. In fact, there have been other Banks larger than us that have already announced their first quarter results and they've now said that they have delayed adoption of this accounting guidance. We believe the steps we have taken to provide taken provide transparency regarding our adoption of diesel and the impact of such adoption has on our overall Capital position.

Our allowance per credit losses increased 15.3 million dollars or 59% of 41.3 million dollars at the end of the first quarter compared with a year earlier age allowance for credit losses to Total loans increased 62.5% to 2.51% at the end of the quarter compared with 1.55% a year ago with shareholders Equity increased thirty eight point eight million dollars or 12.9% to $340 at March 31st, 2020 compared with the same period a year earlier than average Capital ratio was 12.74% at the end of the quarter compared with 12.7% in March 31st, 2019. Our our first quarter results in clubs impact of the adoption of peaceful, risk-based capital is 18.6% at the end of the quarter compared with 16.9% at March 31st, 2019.

Tangible Equity plus allowance for credit losses totaled $350 or 21.5% of total loans held for investment at March 31st, 2028 which provides overall total credit protection for both expected and unexpected credit losses in our loan portfolio.

With respect to Cecil. We adopted ASC 326 using the modified retrospective method for all Financial assets measured at amortized cost and off-balance-sheet credit exposures.

Results for reporting periods beginning after January 1st, 2020 are presented under ASC 326 while prior. Amounts continue to be reported in accordance with previously applicable gaap. We adopted AFC 326 using the perspective transition approach for financial assets purchased through an acquisition or business combination loans that were previously wage applied as PCI and accounted for under a S V 3 10:30 where we classified as PCD loans in accordance with new standard. We did not react asked whether PCI loans met the criteria of PCP loans as of the date of adoption.

On January 1st, 2020 the amortized cost basis for PCD loans was increased by one point five million dollars to reflect the addition of ATL the remaining non credited your account will continue to be accreted into interest income over the remaining life for the portfolio for non-pc loans. We increased ACL by two point six million dollars using the same methodology used for originated loans with an offset the shareholders Equity net of applicable taxes, the remaining credit and non-credit discount for non PCD loans will continue to be accreted into interest income over the remaining life of the portfolio the be a credible discount a non P C D Loans was three point 1 million dollars at the end of the course and provide additional credit protection to our overall loan portfolio. If we had this incredible discount to our ACL total credit protection for a current expected credit losses is 43

point six million dollars or

2.65% of total loans at the end of the quarter.

We increased ACL by five point four million dollars or 17% to reflect the change in accounting methodology for Cecil the cumulative tax affected impact to Total shareholders' Equity wage, six point seven million dollars or 2%

We use the weighted average remaining maturity or the warm method adjusted for prepaid payments to calculate Cecil at the end of the first quarter be adjusted duration used in the Cecil model for the loan portfolio was approximately 1.6 years to the extent that that the duration of a loan segment was less than one year. For example our ABC loan portfolio. So we increased the duration to at least one year the unadjusted duration of our portfolio is approximately 1.4 years. We use a ten year time Horizon from June 2008 through 2017 as our proxy for a normal economic cycle to be evaluate our historical credit loss experience the average historical loss rate for this ten year period in our current loan portfolio mix was 0.64%

We use peer group information for for loan portfolio segments that that to the extent we didn't have any historical last experience or if our loss experience was limited.

We applied qualitative factors that provide approximately one standard deviation of credit loss experience above the mean for the economic cycle. Which we evaluated by loan segment.

Turning to liquidity total deposit screw $171 or 8.7% to 2.1 billion dollars at March 31st, 2020 compared with the same period a year earlier long as we continue to manage aggressively our overall liquidity position, non-interest-bearing deposits increased $81 or 12.4% $737 at the end of this quarter compared to the same period a year earlier an interest-bearing deposit increased eighty nine point six million dollars or 6.9% to 1.39 dollars at the end of the quarter off with the same period a year earlier non-interest-bearing deposits to Total deposits was 34.7% as of March 31st, 2020 compared with Thirty 3.6% a year earlier.

Cast and liquid investment or liquid investment Securities grew 243 million dollars or 50% to $735 at March 31st, 2020 compared with a rep earlier cash and investment Securities were 30% of total assets at the end of the first quarter.

Loans held for investment declined 34.4 million dollars or 2% to 1.64 billion at March 31st, 2020 compared to the same period of your earlier.

We've talked about this before we focused on reducing our loan concentrations and our ADC portfolio as well as our overall commercial real estate concentration ADT loans to Total Capital declined from 159% at March 31st, 2018 to 82% at March 31st, 2020 commercial real estate loans to Total Capital declined from 294% to 203% for the same respective.

low in our lower

During our loan concentration and limiting our portfolio for certain collateral types has made it more difficult to generate net loan growth. But we believe is appropriate given our perspective that we were at the end of a credit cycle non-performing assets decreased to six point six million dollars at March 31st, 2020 compared with eight point eight million dollars at the end of the year non-performing asset total assets were 0.26% at the end of the first quarter compared with 0.37% at the end of the last year net income was ten point eight million dollars for the first quarter of 2020 compared with eleven point seven million dollars a month for the fourth quarter of 2019 and 10.5 million dollars for the first quarter of 2019 diluted earnings per common share were $0.57 for the first quarter of 2020 compared with 61 wage for the fourth quarter of 2019 and $0.55 for the first quarter 20/20 is len mentioned. Our return on assets was 1.8% for the first quarter of 2020 compared with 1.9% for the fourth quarter wage.

At 1.95% for the first quarter of 21 2019 annualized return on average Equity was 13.1% for the first quarter of 2020 compared with 14.1% for the fourth quarter of 2019 and 14.4% for the first quarter of 2023 tax provision income was 14.8 million dollars for the first quarter of 2026 with 16.3 million dollars for the fourth quarter of 2019 and 15.3 million dollars for the first quarter of 2019. The decline in pre-tax pre-provision income was primarily result of our net interest margin and higher non-interest expense.

The first quarter net interest income increased 0.3 million dollars or 1.2% to 27.2 million dollars compared with twenty six point nine million dollars for the same trait of your earlier life is primarily the result of average interest-earning assets increasing 223 million dollars or 10.8% to 2.3 billion dollars for the same comparable. Offset wage net interest margin narrowing fifty basis points to 4.79% for the same comparable periods. Scenario net interest margin is primarily the result of the Federal Reserve reducing Benchmark rates near zero and an increase in the average amount of lower-yielding cash and investment Securities held by us stemming from average core deposits increasing $122 million dollars off or 10% for the same respective.

The percentage of average loans to average interest-earning assets decreased to 73.4% for the 3 months ended March 31st, 2020 compared with 81.52% for the same period a year earlier yields on interest-earning assets declined 56 basis points to 5.17% for the first quarter compared with 5.73% for the same period a year earlier the decline in yields on interest during the assets is primarily the result of averaged amounts of cash investment Securities held by us increase 220 million dollars or 57% to $600 for the same comparable periods with the yield on cash and securities increasing four basis points to 2.25% for the same comparable periods. In addition yields on loans declined 32 basis points for the same comparable periods and average loans outstanding increased wage.

point eight million dollars or zero

To 3% the one point six eight billion dollars for the same comparable.

For the first quarter cost on interest-earning deposits decreased 8 basis points 0.64% compared with 0.72% for the same. A year ago, The first quarter total cost of funds decrease 7 basis points to 0.42% compared with 0.49% for the same period a year ago.

For the first quarter acquisition accounting adjustments including the creation of loan discounts and amortization of premiums and discounts on time deposits. That is 16 basis points of net interest margin month. We expect our net interest income and then it's just margins to continue to be adversely impacted in future periods, because of the Federal Reserve lowering Benchmark rates to near zero for the first quarter provision for loan losses wage $7 compared with 1.6 billion dollars for the same period of your earlier for the first quarter, we incurred net charge-off of zero point three million dollars compared with net charge-off 0.9 million dollars for the same period a year ago the decrease in provision for credit losses in the 3 months ended March 31st, 2020 is due primarily to a decrease in charge off and no loan growth quarter-over-quarter.

Where the first quarter non-interest income was three point seven million dollars compared with 3.3 million dollars for the same period of year ago. The increased here was primarily due to a zero point three million dollar increase in Mortgage Banking income resulting from higher loan volume on refinance mortgages, which is primarily from a lower interest rate environment for the same comparable comparable periods month for the first quarter not interest expense was sixteen point two million dollars compared to a fourteen point nine million dollars for the same period of your earlier for the first quarter. Our efficiency ratio was 52.2% compared with 49.3% for the same period of year ago the increase in on interest expense for the 3 months ended March 31st, 2020 was primarily the result of higher salaries and Associated benefits resulting from higher incentive payments and higher marketing and advertising costs associated with the rollout of the new brand. These higher amounts are partially offset by lower FDIC premiums due to the application job.

Small Banks assessment credits for the first quarter income tax expense was three point four million dollars compared with 3.3 million dollars for the same period of year ago for the first part of the effective tax rate was 23.9% compared with twenty 3.8% a year earlier.

Awesome to call back till then. Thanks Mark.

We find ourselves in challenging and uncertain times as we navigate the effects of shutting down the economy to mitigate the impact of the covid-19 pandemic throughout this crisis. Our primary concern has been the Safety and Security of our Associates. I'm very proud of our team and how they've effectively handled the crisis. Our next priority was the safety package soundness of this bank. We believe that we build a fortified balance sheet that will withstand the negative effects of the pandemic and our other concern is our focus on providing relief efforts impacted clients. It's our goal to provide as much assistance as we can to our clients to support them through this crisis appreciate you all joining the call today this time. I'll turn it back to the moderator wage in the lines for questions.

Thank you. We will now begin.

The question and answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press star then to the first question today comes from Jeff Davidson, please go ahead.

Thanks. Good morning morning Jeff. Hi, Jeff Lynne, maybe just to start I wanted to thanks for the detail on the reference 90% of the portfolio and then you've detailed, you know retail assisted living and and and so forth right with those would those fall in order of magnitude in terms of retail being the largest and then diminishing from there they would and even those in that are off retail supported. So I'm not or excuse me. They're real estate supported the bulk of them with with some decent Equity positions in it. But you know, it's a big unknown out there. We've been concerned about retails transformation to online and I think this pandemic may have just said that up a bit. So that's why we spent the time.

Getting into the portfolio and trying to find out exactly where the issues might be and you know, we'll see where it takes us. But yeah that information we continue to dive into it as well and Jeff percent of the for the I'm sorry. Go ahead. I was just going to ask it as a percent of the portfolio then if I could just like retail if it's not being your largest is that 5% of loans or what? What is your largest single exposure there or I mean just in that category?

I bet the the loan size are you is that what you're asking in that classification? So you've got the portfolios at risk retail makes up part of the portfolio 5% 10% Okay 10% Yeah, if you look at the investor presentation on page fourteen, you can see that $160 is retail related to age sixty-five million is is a assisted living in nursing homes. 58 is hotel motel 16 is restaurants and 11 and 1/2 is Arts entertainment in record. Got it. Okay. Got you. Thanks. Go ahead I was going to make is even before the pandemic we had spent a lot of time putting caps on each of area of collateral type that we had and and Retail certainly was a an area that we had limited the amount of capital. We were going to allocate and have a club.

Managed down new business based on the amount of capital we wanted to set aside for each category. So we've been working in that. Well well before the pandemic came out

Right. Okay. Thanks and and maybe the another question on well, she's still related. I I guess it start the question by more of a statement of you know that I guess the day one Mark and and two and half percent of loans Reserve. This is one of the highest I've seen I guess the question would follow on is sort of nitpicking on I guess the day too or the provision being I guess small. I mean, you've got a you've got a significant day one number but then the day too I guess on a relative standpoint seems Seems lighter, but that I mean it's all-encompassing. So question being asked if the provision is a real-time view of Cecil through the first quarter, you know, maybe explain that level wage.

What we could expect to see then if if we sort of play out as you know, the credit environment that you've assumed stays in line or or perhaps even better. What does that provision do ahead? That's nice. No. No, it's a great question. And and I guess you've got a I would suggest looking at in in contact from where we you know came from as as Lynn mentioned, you know, we we've been preparing for a downturn for two years. And with that we have been set a deciding reserves given our our concerns on how long the economics I closed in and and so, you know, we've been looking at and and and even pre Cecil and setting aside reserves on anchored anchored Los peces based off of you know, our expectation of losses and then in in the portfolio and so as I mentioned, you know, you look at it the 4th at ten year cycle. That we're looking at from a wage.

Some perspective. Our annual wage loss rate was 0.64% So not not significant now obviously ugh extending that amount based on, you know, the the duration of the portfolio so long, you're taking your 64 basis Points Plus or X 1.6% that tells you kind of the the the mean of the loss experience in the portfolio that we have based on the mix that we have Thursday anything above that is really related to our our estimate of a downturn in the economy. And and certainly we we viewed that as you know needing additional reserves with respect to that. The reason for lower Provisions in the first quarter really were a function of first just not any charge offs and then second the loan portfolio actually declining rather than increasing quarter-over-quarter. So it's difficult to set aside additional reserves when your portfolio is going down given kind of where we're at on on a economic perspective where do wage

The economy is now.

You know what's going to happen going forward is I think difficult for all of us to to Really determine and and certainly as we look at, you know, economic data thus far other than you know, the the phone number of folks who are now filing for unemployment. There hasn't been a lot of metrics to be able to look at it and assess what's going to happen in the future. But you know, we we will continue to monitor each month and see you know, weird friends are going and and determine adequacy going to go forward basis, but there's not a lot of information given, you know, where we stand in the pandemic to to know what's going on with you know, Jeff along that same line. We knew coming into reporting time how the company had fared on

An earnings perspective and we went through the portfolio and saying, you know, these earnings are are pretty high. There's if there's an opportunity if we think we're off right now is the time we ought to take that and fund it and we just couldn't justify putting any more in at this point. We'll continue to watch it going forward. As you said, it's one of the higher but I'm concerned going forward is why we identified 19% of the portfolio the longer this lasts, the more real estate will be impacted. The more real estate is impacted. The more will be impacted. So we're watching closely.

Great. Thanks. And maybe one last topic is is on the expense side. I wanted to kind of catch up with you know, a lot of moving pieces with the the macro climate but your own sort of Investments that the the brand rebranding efforts trying to get a timing of so, there's internal right expensive then maybe external forces on working remotely the expense run rate this quarter. How do you see that sort of plan out for the year that that involves a lot of things but do we curb a lot of the brand rebranding costs and and other Investments wage just to kind of walk us through there if you could

Yeah, we've already done that. Actually. The first The First Cut is in the marketing area. We've taken a pretty significant haircut to our budget. We are trying to help our as many employees as we can through this process. We've committed to continue to pay people for 60 days from when this started and then we've got to reevaluate the business model and what's happening out there as well. There are we're watching expenses very closely. However, this quarter we did have some significant equipment purchases most of its small equipment. So I'm not sure what the the timeline for depreciation on those will be I think it would be pretty short. So yeah, it's going to be a hard one to predict because we have had expenses with people moving off site we have we're hoping we cover that with the marketing saves and some of the others but we recognize we've got some expense opportunities to to focus on here dead.

To work down, but we don't have a number for you.

Drop the other comment I would make is and and and your question is really good one. The other area that we are working on is is kind of the technology purchases and and and implementation. We've we've gone through all the the projects that we had budgeted for for the year and to the extent that we can find a way to delay and and and defer we're doing that and and you know where we need to age the you know kind of getting ahead of the curve from a technology perspective. We're going to spend we're still invest in those monies, but we're we're really looking at Cost savings there as well. So we're looking at every dollar that we can to kind of dog was given the the reduction in revenues.

Okay, so just a frame that up. I mean 16.2 million in interest expenses quarter. You want to try to hold the line given the moving pieces or Thursday is curb additional growth. Uh, broadly speaking. How would you catch that?

I probably couch it in Mark. You can speak to this quarter, but I don't think you'll see a ton of change until quarter three and four because we're well into this one and there's some extraordinary first purchased a quarter of expenses know I I wouldn't you know, we're going to try to maintain that level and and and reduce where we can for sure.

Thanks guys. I'll step back.

The next question today comes from Andrew lease of Piper Sandler, please. Go ahead.

My guys, how are you? Good Andrew, how are you? Good. Thanks. Just want to focus on the on the margin here. Just like the the security wage increase in the yield. They're just kind of curious what you guys were adding during the quarter to support the the increase in the yield.

Sure. Well and let me just say first that you know, give him kind of what was going on the repo Market in the fourth quarter. We we held onto a lot of cash and and you know wash gets through those issues and make sure there was no issues for us. And then in the first quarter, we we purchased about two hundred thirty-five million dollars of investment Securities a pretty much all in mortgage-backed Securities. We we wanted to have you know by advertising security. So we get the cash back as quick as we can so we can redeploy it into the loans long as our our loan portfolio grew. You know, we're we're looking at kind of across the band. We we bought fifteen twenty and thirty or mortgages. We we bought Jeff Bose and conventional. I mean any anywhere that made sense and we could buy it at a good price. We were we were doing it. You can see kind of the Improvement it gave birth.

Overall yield on the investment Securities portfolio, you know, we're actively looking at that. I mean obviously with rates continue to go down there's there's potential for you know higher wage payments and and so we're we're trying to make sure that we're staying as short as we can. What's your appetite for four more and mortgage-backed securities purchases given the environment right now.

boy

We will probably buy, you know as much as as little as we can but you know, you look at it. If you're buying short-duration or shorter duration, you know, fifteen twenty years to Thursdays. I mean, we look at it right now and given the the portfolio size of our investment Securities portfolio. We're probably got to get a hundred twenty million dollars coming back to us just this year alone. So we are going to need to reinvest those funds to the extent that you know, the loan portfolio doesn't grow and and so we'll do that and we'll probably you know end up with yields north of 2% but probably not more than that off, you know, and this is going to be a this is going to be an interesting quarter with that. Anyways with these PPP loans coming on and being funded well utilize cash for that but if all things work, well that'll be out in less than two quarters. We'll see how that works. So we've we've held a little excess there and then we also going into April wage.

We've had our largest loan back logger pipeline. Uh, since I've been here which has been a couple of years whether or not that translates into deals now with the economy shifting. We don't know yet. So we'll know a lot more at the end of this quarter.

Gotcha. So you kind of alluded to it in your prepared comments and trying to being downloaded just given the Fed rate Cuts, but it's one opportunities. Are you seeing on the on the funding side to offset some of that that it as well?

Well, as you know, if you look at the numbers, you know, our our overall cost of funding is is you know, it's it's hard to get much more out of it having said that we you know, we monitor every week, um kind of what the markets doing and and we've taken some pretty big cuts in rates, uh, you know, as long as we look at it each week, but we're we're getting close to the bottom, but honestly, I think if you go back and look I think our bottom was like thirty basis points, you know over the last several years, so there's a little bit there but not a ton. Okay. Thanks to you covered on my other other questions.

Thanks, Andrew. Thank you.

The next question comes from David Buster of Raymond James, please. Go ahead.

Hey, good morning. Good morning, Dave. Welcome. Thank you. Thank you appreciate the commentary on the size of the pipeline heading the day. So that's that's terrific. Just curious. What's the composition of that? And I guess what are you hearing from clients? What's the pulse of the market? And ultimately, I mean, how do you think about loan growth here? Exclusive of the PPP program? I mean, do you think that you could CNET grown near-term given the size of the pipe or maybe some continued to shrinkage? Yeah. It's hard. It's hard to give much guidance on it. You know, we have been holding down and slightly up of late, but it's relatively immaterial, you know with a one what do we have a 1.4 year duration of a girl portfolio things are spinning pretty quickly. We would end, you know, I'm encouraged by the pipeline, but I'm discouraged by the potential future so I don't know how much money.

paid off and and really what

To predict what the economy, you know will stay in business will stay helping our clients best we can and we've got a fortified balance sheet to endure and improvised turns through this thing, but it's hard to predict.

Okay, that's helpful. I just so it sounds like what's that one of the positive areas? We've certainly seen this is on the construction site. I mean much of the construction and Utah took a lot of construction demand continues to you know, they're continuing to work on projects et cetera. So, you know, hopefully there's some some opportunity there, but we'll we'll see.

Yeah, so just taking taking the commentary may be flattish Lone Grove combined with the commentary before on on the provision expense. I mean, it sounds like if we are expecting, you know, not much balance sheet growth combined with, you know, maybe some of the T reading economic factors that go into the Cecil model, you know, they're probably not much in the way of Reserve build that you're expecting in the second and third quarter.

Yeah, you know, I wish I could say what that's going to look like. You know, we we believe we're adequate right now, but you know, it's it's hard to know given the the number of people that are unemployed and how quickly does, you know do states reopen and and and business get back to business. So, you know, we're going to monitor it closely but yes, you're right. I mean, you know, I don't I'm going to see significant loan growth and and with that there's you know, and it's only going to be replenishment of charges quite honestly, you know in a normal if if things were normal, I would say to expect a little loan growth and see the reserves go up a little based on where we are today. I totally agree with Mark's comments. We we feel we're well covered now, we're well covered for what we feel may happen, but there's a big unknown out there.

Yeah, that makes sense. And then just last one for me just on on the PPP program. You've got $65 million, but you know just kind of job applications coming today. And you know, I guess expectations going forward what kind of fee income could be generated in just what's the relationship with the fintech from are you are you they just processing fees or are you referring the loan to them? Yeah, we're basically referring them to them it with us, you know, we've dedicated amount of an amount of the balance sheet to do that Thursday. We have the cash. So there's no sense for us borrowing through the FED window to do that. We've got capacity to manage what we've said we could take on but outside of that. I think it becomes a big Club service issue that we just don't have the resources. So we have sent probably three times the applications through this fintech a name.

They own them.

Uh, there there's a small little referral fee that really amounts to nothing. You won't even see it. But it's it's a tough process, you know, the banks have been asked to distribute a lot of money over a short period of time with limited instructions and we've as I mentioned earlier after our employees our top priority is keeping this Bank safe, and we know what we can handle beyond that. I think it jeopardizes relationships even more than it would be if we couldn't do it up front. So we're we're trying to take care of our clients at the best we can and through US dead ends on what happens with the second round everything we have in has been processed and through us. So we're just waiting for the SBA to open up again, and then we'll process through them a trans process and see what happens at this point. It's almost going to look like a lottery and then on the other hand, you know, we've had several process but my understanding is this Vin Tech. Yep.

They just who we views they were the only one to come to the table initially. And and with that I think they've had about 2,000 or 1700 applications of ours times Thursday by 70 because my understanding when we went on there were seventy other Banks already in the queue. So there's the percentage they're able to process or we're going to have to deal with some of that too.

Okay, he's last Quick one for me. You know you talked about the request on about 20% of your your book as in March 30th. How's that shredded those far in the second quarter and are there any industry concentrations or anything interesting that you've noticed in those it's been interesting because our chief credit officer anticipating this put a program together in a plan where we've actually got a worksheet off on what was Cash Flow before what's causing the need to extend. When do you anticipate being out and then we're not going to increase payments. We will extend duration of these deals for a few months. So it is really a deferment and a lot of companies that that you know, we're just not sure but here's where we are cash flow work. So we made the decision based on a little bit of a knowledge of the clients versus this isn't going to be able to pay now it'll never be able to pay those would have been different decisions that we'd had to work through another way. So they're good. Yep.

Clients, we feel good about what we've done and and we know them I'd say the same thing for most of the PPP loans with us. If something happens with the program some of these ends up and Loans. We're going to be okay with that because they're good clients.

That's helpful. Thanks guys. Thank you. Thanks, David.

Again, if you have a question, please press * then 1 the next question today comes from John please go ahead.

Morning, guys. Hey John, John. Hope you guys are doing well. Very good crazy crazy times. It really is. It really is the the neat thing he knows is we're seeing some special things happen where we're seeing some Superstars emerge out of this. We're seeing leaders lead we're seeing Solutions Creative Solutions that you're coming up. So I just continued to try to look at the good that's coming out of this and and the growth we've all had like many of us being through the, you know, the hyperinflation and the late seventies and early eighties and interest rates where they were and we survived that and then the the the fall of the market in eighty-seven, you know, we figured our way through that the tech bust nine-eleven the Great Recession off. This one is totally different and new and we're seeing totally different new creative ways to work through it that I think will help frankly help business in the industry grow, but it is painful for now wage.

Learn a lot about people in bad times. So you do absolutely

Just mark on the PPP loans. What's the average fee on that? Is it around? Probably 3% give or take.

Yeah, that's that's about right. Yep, maybe a little bit more than that to be honest with you because we limit it to where we're not taking the 1% We're keeping them under two million. Okay? Okay. Then it's just back to your comment on the Securities portfolio. So it sounds like it sounds like you probably keep it around this elevated level for the foreseeable future. Is that is that the right tail light bulb? That's right. And then yeah and then just on the margin, you know directionally you said down and and I know you don't give formal guidance, but if I go back a few years to win rates were based off of 0 and you guys were a smaller company back then but the margin was sort of $450 ish. Is that sort of the right way to think about it?

Yeah, I think I think the only difference there would be that at that time. I don't think we had as much in cash in security. So that that has a negative effect. I mean we're we have a large amount of you know, 30% of the balance sheet in in the lower yielding product. So that that is going to have a negative effect as well.

Okay, so then in theory could be below the 350 level or 450. I'm sorry. Yeah, can you say what the margin was for the month of March?

I can't I don't I don't actually have it in front of me. I don't know. Okay, that's that's okay. Okay, maybe it's too early for this. But as far as you know, these guys are in a pretty good position, you know, you've built the reserve. What about I know there's a lot of uncertainty but m&a opportunities that could could emerge from from this situation. You know, John that's a that's a great question and great point. I think over the over the past couple of years is we've been trying to prepare and shift and manage the balance sheet a little bit. It is always been a top-of-mind. It continues to be top-of-mind. I I don't know what the answer is. I don't know what ShakeOut will come we do keep in contact with the potential opportunities throughout our region and we are in position to to support that so, you know, I would hope we would be able to help somebody out and and frankly help.

Our team and Bank grow it it's on our mind, but I don't think it's on a whole lot of sellers mind right now. It's how do we get through this PPP and survive through the quarter, and then maybe those discussions will pick up a little bit more. You know, I hear you. Okay. Thank you guys. Be safe. Thank you. You too.

The next question is a follow-up from Jeff Davidson, please go ahead.

Yeah, just a couple quick housekeeping items marked FDIC premium expected to return and and that would be about what is that about 90,000 a quarter?

Yeah, I think it's a little higher than that. Just look at the go back to the first quarter. Whatever that amount is that that will be what will be running at. But yeah, we're we're done with the assessments will be awfully expensive going forward and then on the margin, what was the accretion impact this quarter in last so you got ten a ten basis points increase reported. Was there any sort of accretion? What were the levels of benefit?

It was 16 basis points this quarter and and it you know, we've got a combination of two things. It's just the normal amortization of that a credible discount off that you you know, we'll have each quarter but then to the extent that we have a loan payoff that we had, you know credit discount on that full amount comes into income when when the loan paid off and and and in the first quarter we did have a uh, a loan that paid off that had a pretty good amount of discount on it. So that comes into income when the loan goes away.

So what was the total benefit in in the fourth quarter versus the 16 basis points this quarter, you know, I don't have that in front of me. I think it was around 12 basis points, but I don't know for sure.

Okay, I did for me. Thanks. Thanks, Jeff. Thank you.

Is there a no further questions this concludes our question-and-answer session? I would like to turn the conference back over to Lynn Williams for any closing remarks.

Well, thank you very much, and thank you all for joining us. We know this has been an interesting. We're in an interesting time. It would be a lot more fun to celebrate the success of the quarter, but that's old-fashioned now and and onward to Q2 here as we try to negotiate through some new times. So thank you for joining us. Love to also thank the employees the associates who join a call we missed you guys here stay safe, and we'll talk again soon. Thank you.

Circumference is now concluded. Thank you for attending today's presentation. You may now disconnect.