Q1 2020 Earnings Call

Dead dead dead. Welcome to the Seacoast first quarter earnings conference call. My name is James and I'll be your operator for today's call at this time. All participants are in a listen-only mode later. We will conduct a question-and-answer session during the Q&A session. If you have a question, please press star one on your phone before we begin. However, I have been asked to direct.

Attention to the statement contained at the end of the press release regarding forward-looking statements Seacoast will be discussing issues that constitute forward-looking statements within the meaning of the majority's and exchange act and their comments today are intended to be covered within the meaning of that act. Please note also that this conference is being recorded and I'd like to turn the call over to mister Dennis Hudson chairman and CEO Seacoast Bank Mr. Hudson, you may begin

Thank you operator and thanks to all of you for joining us this morning. As we provide. Our comments will reference the first quarter 2020 earnings slide deck which can be found at Seacoast banking with me. This morning is Chuck Schaefer our CFO and CEO. Oh Jeff Lee Chief digital officer Tracy Dexter corporate controller Jeff Walker corporate Treasurer and David how to how to Shell our chief credit officer. I'm going to start on slide for

I'd like to open the call by expressing my very sincere appreciation to the Seacoast team for their hard work over this last six weeks given the incredible challenge that came with covid-19 RC Coast Associates have performed and an outstanding manner showing their pride in the organization and delivering excellent support and appreciation for all of our customers month. We've had a significant portion of our employee base from multiple disciplines within the company working 24/7 on the paycheck Protection Program over the last four weeks. I had many customers approached me and expressed their sincere gratitude for the service. That's because the Seacoast team has provided and I just want all of you to know I couldn't be more proud of your effort in the results month that you're producing in the good work that you're doing for our customers.

I will start by sharing some of the actions we've taken to respond to the health-related and economic implications of this crisis.

We've approached this challenging environment knowing that we are uniquely prepared and four key ways first our business continuity program, as you know, we have a long history of operating in this state and non-state that's prone to hurricanes and other weather events as a result. We were able to quickly mobilize our business continuity program and adapt those activities to this unique challenge.

Our teams shifted to working remotely with minimal disruption with over 60% of our Associates now working remotely. We implemented safety protocols for those whose work requires them to be physically present like staggering shifts and distributing work over multiple sites. All of our branches have remained open to support our communities with Lobby appointments and drive-thru access off and we're doing that safely with enhanced cleaning protocols and protective supplies for our staff.

The second way we are uniquely prepared for this challenge is our proficiency and digital Technologies. We have spent years as all of you know, investing in digital tools and capabilities of our customers to transact online or through their mobile devices are call centers are equipped with ivr and chat type features and our loan platforms are now. All all of these Investments have allowed us to deliver uninterrupted service for our customers and have allowed us to provide meaningful support quickly to connect our small business customers with e s p a s p p p program

During the first round we processed 8889 units for around $388 million in PPP loans off with our teams working 24/7 over just 17 days for round two. We have received over 2,000 applications and and again have been working 24/7 to process Easy Loans. We've made tremendous progress and will continue to receive applications.

Third reason that I think we're uniquely ready for this crisis is our relationship based approach. Our communities have been affected in many ways off have supported our customers with payments referral programs and by waiving fees to help them better manage through the financial implications of this. We have a deep understanding of our communities, but none of us knows exactly how how these circumstances are going to evolve. We will continue to manage credit decisions carefully and help support the economic are recovery of our communities from a position of strength and forth and finally our long-standing commitment to maintaining a fortress balance sheet and strong Capital levels is proved to be extremely important allowing us to safely navigate this pandemic and support our communities.

and before I turned

For the call to Chuck. I thought I'd make a few comments about the outlook for Florida new cases in Florida peaked quickly in early April and now appear to be headed down and that's even with significant increases were seeing and testing across the state hospitalizations in Florida have been much lower than many expected in our Hospital Systems have handled the added caseload much more easily than expect many of our hospitals are now actually facing layoffs due to lower demand and are lobbying our governor to allow resumption of elective surgeries, which I think is going to happen pretty quick.

Overall, the experience of Florida has been far more muted than in other regions of the country Florida's population makes us as olivino the third largest state in the country having surpassed New York visor a couple of years ago. We have three vibrant major Metro areas each with populations that range from three to six million people and our average age actually excuse more towards the elderly population and yet we rank among the lowest States in terms of covid-19 100,000 people.

If these Trends hold we are hopeful that Florida maybe one of the earlier states to come back online for many of our businesses.

Now like to turn the call over to Chuck who will provide a little more detail about our results in the first quarter so truck. Thank you Jenny. I would also like to express my sincere appreciation for the Seacoast team in their hard work on PPP the actions taken by the Sea Coast team over the last six weeks have truly been remarkable to watch and I too couldn't be more proud to serve alongside this team helping our customers in this challenging environment the teamwork 24/7 work effort and overall commitment to assisting customers is must been nothing short of remarkable.

Or directing your attention now to first-quarter results will turn to slide five net interest income increased one point four million. Sequentially the net margin increased knowledge basis points to 3.93% excluding accretion on acquired loans and that is from margin increased by 3 basis points quarter-over-quarter, the yield on loans increased one basis point wage security is increased 13 basis points, primarily the result of high levels of pay downs and both portfolios during the quarter to agency MBS Securities prepaid results in a creation of 716000 favorably impacting the security Shield by 22 basis points and the net art and that interest margin by 4 basis points.

The cost of deposits declined by 4 basis points in late in the quarter. We aggressively reduced deposit rates. The full benefit of this action will be realized in the coming quarter.

Also late in the quarter and we began strategically increasing broker deposits the supplement our liquidity position given the unknown impact of covid-19 on business and economic conditions would look forward to the second quarter the unfavorable impact of our margin from this conservative positioning will be partially offset by fees collected on PPP loans.

and moving

I'll be on the second quarter. If the economic situation improves we would expect the brokered and other wholesale funding to mature which will benefit the margin.

We remain cautious and guiding be on these comments given that Dynamic market conditions other than to say we anticipate maintaining a prudent posture as circumstances warrant.

Moving forward one slide to slide six adjusted non-interest income was fourteen point seven million an increase of zero point eight million or 6% from the previous quarter and grew 1.8 1.5% from the prior-year.

Mortgage Banking fees total 2.2 a million a record quarter reflecting a vibrant residential refinance market. And the first quarter of 2020 was also strong quarter for our wealth management team with forty-four million and new assets under management leading to a record 1.9 being an income and an increase of 28% year-over-year.

Looking forward to the second quarter. We expect Mortgage Banking volumes to continue to remain healthy as a result of continued refinance activity. However, we do expect the company's interchanging comes to be negatively impacted by lower spin volume at the impact of stay-at-home orders have dampened consumer consumption.

Moving one slide forward to slide seven adjusted 900 expense total of 41 and 1/2 million, which was in line with the prior quarters range of guidance increasing zero point four million compared to the prior salaries and employee benefits increased seven point four million on a combined basis compared to the fourth quarter of 2019 2.2 million of this was acquisition-related and the rep increase is a result of a successful recruitment strategy focused on bringing in season Bankers as well as a return of payroll taxes and 401k contribution expenses and the reactivation of phone calls all in line with the prior-year seasonality. This quarter also included zero point three million in bonuses for retail Associates, whose hard work supporting our branches and call center jobs, and they're keeping critical functions operating smoothly through the pandemic.

We saw an increase in legal expenses data processing and marketing expenses during the quarter. Mostly related to the acquisition of the First Bank of the Palm Beaches in total merger-related charges across all categories were four point six million for the second quarter of 2020. We are modeling adjusted 9-inch expense to be approximately 43 and 1/2 by 44 and 1/2 million, excluding. The amortization of intangible assets was this project 1 and 1/2 million per quarter. This guidance includes additional temporary staffing expenses associated with supporting increased resource demands for the p p program and our call center.

Moving to slide eight. I'd like to highlight our continued improvements in generating operating leverage with managed overhead in a focused on growing Revenue the adjusted efficiency ratio increased sequentially to 54% in line with prior-year seasonality and was the expected outcome of 401k payroll tax and other compensation expenses increasing during the first quarter of the year. We continue to sustain a strict and proactive cost control discipline while ensuring that we do not impede on Revenue growth.

turning

Now to slide nine total new Loan Production was 323 million compared to $587 million in the prior quarter reflecting the seasonally slower first quarter in a central slowing of origination is late in the quarter as the potential impact of covid-19 on General economic conditions became apparent the acquisition of the First Bank of the Palm Beaches added another page forty-seven million resulting in net loan growth in the quarter of 2.3% and growth year-over-year of 10%

Seacoast began accepting applications from customers on Friday April 3rd for the paycheck to paycheck protection program established by the cares act in the first round of funding Seacoast is processed over 1689 applications providing over $388 million in funding to its customers. The average loan size was $228,000. And the average fee earned was 3.54% generating an estimated 13 million loan fees as an SBA preferred lender will continue our focus on helping customers access the program in the second quarter.

Looking at our loan pipelines our commercial pipeline was down 38% to 171 man at the end of the quarter resulting from the intentional slowing of production due to deteriorating economic conditions associated with covid-19. Given the uncertain Outlook. We are focused on serving current strong relationships with liquidity strong balance sheets and debt service coverage ratio, they can support significant stress and the consumer in consumer. The pipeline is up 25% to 29 million and the residential category pipelines were up 128% the eighty-seventh reflecting the impact of a still vibrant refinance Market a significant majority of the Residential Mortgage volume will be sold in the secondary Market.

Turning the slide ten. We intend to continue to manage our credit exposures and our robust Capital position prudently. We are confident that are established conservative posture wage entering this environment will serve as well.

Our portfolio is broadly distributed across various asset classes with the larger portions of the portfolio being owner-occupied commercial real estate representing 20% of the portfolio mobilized income-producing commercial real estate representing 26% and residential real estate making up 29% of the portfolio over 80% of our commercial portfolios secured by real estate office with borrowers. They have meaningful equity in their Investments and lower loan-to-value use the average loan-to-value for the commercial portfolio secured by real estate is 50%

We have managed our portfolio to keep construction and Land Development loans and commercial real estate loans well below regulatory guidance and March 31st that represented 32% off 181% of risk-based Capital respectively. This is a conservative position and lower than most in our peer group.

Okay.

Went out we have no exposure to syndications no shared National credits and no mezzanine Finance lending our loan portfolios diverse and it's broadly distributed across categories above average commercial loan size of 375,000. Our Consumer Portfolio has an average credit score a 756 a Residential Mortgage portfolio has an average credit score to 7:17. And our home equity line of credit portfolio has an average average credit score of 771 the average LTV our loan to value of our home equity for home equity line of credit Palm. It's 59% with 40% of that portfolio being in first lien position and turning to slide 11 and 12 diversification across Industries and collateral types has been a critical tenant of our strategy.

The largest exposure in our cren construction portfolio when aggregated is office building representing only 13% of the portfolio the average loan size in this office with Foley. It was $573,000 and the average loan-to-value is 59% 60% of this portfolio is classified as owner-occupied this price includes medical accounting engineering Healthcare veterinarians, and other like type professionals the remaining 40% of the soft office portfolio is stabilized income-producing investment properties.

The second our second largest segment is retail real estate representing 9% of of total loans the average loan size in our retail portfolio is 1.3, man, and the the loan-to-value is 54% Our restaurant exposure is is limited only 45 million and is distributed amongst quick-serve and full-service restaurants and our Hospitality portfolio is only a hundred fifteen million with an average loan size of three point three million both the restaurant and Hospitality portfolios are primarily secured with real estate with home loan to value of 55%

The largest exposure in our commercial and financial category is holding companies owned by high-net-worth and ultra-high-net-worth individuals for aircraft and Marine vessels representing only 3% of the portfolio. The rain the remainder is spread across multiple Industries with no concentration above 2%

We have no direct exposure to the cruise line industry casinos or the amusement park Industries.

Turning to slide 13 and the Securities portfolio of the composition of the portfolios remain relatively consistent over the past three years credit spreads increased sharply and March and the Federal Reserve or stepped in to purchase bonds and multiple asset classes lack of liquidity and some asset classes including some of our c l o s as led to lower Market pays the Tsar clo book a significant credit support and collateral and all our investment-grade and comprised of broadly syndicated loans. The portfolio breaks down is 39% AAA 49,000 double-a and 12% a graded bonds. We believe the decline in market value is not credit related and expect these values to recover over the holding. As Market liquidity returns.

turning

Like Fourteen and fifteen deposits outstanding increased 303 million sequentially including $174 million from the First Bank of the Palm Beaches acquisition. The cost of deposits was lower by 4 basis points come back to the prior quarter and ended the quarter of 57 basis points, non interest-bearing demand deposits represented 29% of the deposit franchise, and as a reminder transaction accounts represent 50% of our deposit money, we believe our talk the deposits will continue to decline moving into the second quarter.

Turning the slide sixteen and Seventeen on January 1st 2020. We adopted the Cecil methodology for estimating allowances for credit losses.

The adoption resulted in an increase to the allowance of twenty one point two million and then additional reserve for unfunded commitments of 1.8 million the after-tax effect on retained earnings with a decrease of 16.9 million.

The overall Reserve estimate it March 31st is 85.4 million or 1.61% of total loans.

We utilize the moodies Baseline economic forecasts as a March 31st. And we also considered a more severe downturn would be a possibility the Baseline for cats mm a v-shaped recovery with a profound drop in second-quarter GDP in an unemployment rate of 8.7% in the second quarter based on the shutdown of many businesses, then a strong recovery in the second half of the year with the unemployment rate is six and a half percent exiting 2020.

We also looked at the more we we looked at the assumptions and the more severe scenarios and developed adjustments to our estimate leading to further provisioning for the reasonable possibility that the characteristics of the downturn might be a more unfavorable than the Baseline scenario and could be sustained over a more extended.

Obviously the pandemic and its impact on the as the as the pandemic and its impact on the economy continued to evolve in the duration and severity of the effects. Not are not fully yet known and the full benefit of the governmental Support Program still yet to be realized the allowance coverage ratio could increase or decline as we move through the remainder of the year.

Turning the slide eighteen asset-quality trench to the first quarter remain strong with net charge-offs for the quarter under one man. Non-performing loans were down slightly classified criticized Assets in a minimally from 30% 9 percent of risk-based capital to and the prior quarter to 3% 11% of risk-based capital in March 31st.

And turning to slide 19. It shows are well-managed and prudent liquidity position cash total of 315 million and increase of $190 million from December 31st and June 31st, 2020. The company had available unsecured lines of credit of 160 million and lines of credit under Linda Boyle collateral value of 1.2 billion additionally the Compaq Securities and Loans, totaling 1.7 billion at March 31st that are available for collateral for potential borrowings brokered CDs told the $598 million with an average rate of 1.3% off 1.34% in a weighted average maturity of 90 days.

starting in mid-april the Federal

Reserve is offering term funding with a fixed rate of thirty five basis points to unpledge PPP loans, if we expect to potentially utilize this program.

And turning to slide twenty our Capital position or remain strong our commitment to maintaining a fortress balance sheet is served to generate strong Capital levels and positions us for resilience in the current environment.

Tangible book value per share was $14.42 an increase of 11% over the prior year despite a dip this quarter primarily the result of the adoption of Cecil tangible Thursday. Well, according to tangible asset ratio was 10.7% a quarter in and has ranked amongst the highest in our peer group The Tier 1 Capital ratio was 15.5% and the total Capital ratio was 16.5% in March 31st, 2020. Each of these ratios increased quarter-over-quarter.

And to wrap up on flight Twenty-One over the last three years. We've achieved a compound annual growth rate. As I said in tangible Book value of 11% The quarter-over-quarter decline was the result of the adoption of Cecil and the allowance building to one prior to the emergence of covid-19. We were well on track to achieve our vision twenty-twenty performance targets exiting 20 20 range of the return on tangible assets and officially ratio Targets on the prior quarters of 2019 changes in the outlook for the economy as a result, the covid-19 will affect the achievement of these targets looking for though. It is difficult to predict to what extent we intend to continue to carefully manage our operating efficiency maintain our prudent credit oversight and a robust correct position.

Although the business and economic impacts a covid-19 present challenges to the operating environment. We are confident that are established conservative posture entering this uncertain. Will Service as a result. He progresses. We look forward to the questions. I'll turn the call back to any

Thank You Chuck and operated with the police to take a few questions

Very good. We can begin our question-and-answer session. If you have a question, please press star one on your phone. If you wish to be removed from the questions, you may press the pound sign or the hash key if you were using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star one on your phone.

And our first question comes from David feaster.

Hey, good morning, everybody. All right, David David. I just wanted to start on the on the PPP program. I appreciate the commentary on the number of applications that you've got in the second round with respect that those are smaller dollars. I guess how do you think about the volumes potentially in the second round? And then are you focused on existing clients only or are you looking at this as an opportunity to acquire new customers? And then finally how active they have back of the Palm Beaches or Freedom Bank been in in the program as well expect you to have happy to answer the question in the second round at least as of this month and we processed over another $2,000 and have a hundred forty-seven million with each hand numbers are overall volume of applications has been right around $2,526 applications that we thank God it's the system holds today will likely get through that we've been focused primarily on our current customer base. That was our our objective here as we move through the through the through the Thursday.

P p program and we wanted it.

Take care of customers take care of their needs before we thought about handling prospects. So at least to date it's been nothing but it's been solely a focus on current customers month and obviously First Bank of the Palm Beaches was part of the Seacoast program. So they were they were part of those numbers and have contributed and everything. I've heard from the Freedom Bank team is they've been heavily engaged and gotten through all their customers as well and they're doing a great job. So we we are incredibly proud of the team. I think we are very aggressive to reaching out to customers and the team is work 24/7 through basically four weeks straight through the nights and weekends and it's been our number one priority to help get it as capital in the hands of our customers and we we've been proud to serve in the team is performed marvelously.

That's terrific and is are you able to use this program as a way to you know, maybe drive additional wallet share ask for a more the relationship Drive some deposits that I guess I you know as deposit continue to come in, especially with the PPP program and everything and you know, it challenging loan backdrop, I guess. How do you think about utilizing excess liquidity in in your overall thoughts there? Yeah. I think just generally on liquidity obviously the the the environments Dynamic and there's a lot going on. So we're going to be prudent and disciplined and a cute a conservative approach to put it as we move through this. We have built up liquidity on the balance sheet, and that's something we'll carry and if you know there becomes a wage Clarity starts to emerge on where this is headed, obviously some of that liquidity could be reversed back out of the balance sheet and and invested in either investment security issue loans, but for now we're building liquidity and Care phone number.

Watching the environment. I think we've done a really good job of building out. What we think is a very prudent ladder of of funding in that in that area and we've done in such a way where we can bring it back down, you know fairly quickly and so we'll just have to see how the how this all plays out. But in the meantime, we thought it was really important to to to be very conservative when it came to you know, making sure we had proper liquidity.

Okay, and then are you are you able to use the be programmed to to drive, you know additional wallet share with the clients and additional deposit you get more the whole relationship, you know, our Focus has been on existing customers and I think I've received just tons of calls from existing customers around this issue and there's been a lot of appreciation Express for how what a great job our folks have done and in responding to this, uh, you know, we we we think as we move forward that could be a a good possibility for us. I think it's enabled us to strengthen our relationships, you know, we had very strong understanding of all of our clients and that's allowed us to really strengthen those relationships and that's absolutely right as we move forward. You know, we we we woke her, you know, depending on how those funds last whether we would accept applications from potential new clients. And the only thing I'd add to that is I think this is provided a new job.

Good environment for not only Seacoast, but for Community Banks in general to show the value that we bring to customers.

To the relationships. We have the knowledge and understanding of our customers is far greater than large Banks and you know, the Community Banks have really been able to shine through this progress through this through this process.

Okay, that's helpful. Last one for me. Just curious on the the technology and the data analytics. I guess how has the data analytics helps you navigate this kind of environment and secondarily I guess with with the increased digital adoption from your clients is that allows you to accelerate some efficiencies or created any other opportunities for you? Okay, David. I'll take that. I think you know the the the data side obviously very important to us as we got into to this to this event. I think having the deep understanding of the customers being able to analyze we should proactively reach out to how we rank order who were reaching out to you gotta imagines a lot of volume. We have to consider and how we staged that and the data is fundamental whether it's on the credit side or whether it's on the customer and off-site. So that proved very important as we were thinking about how to efficiently get through all that we had in in front of us in terms of the digital adoption members. It's been nothing short of astounding, you know, all the work that we've done that birth.

It's really paid off in Spades. And in this kind of event where we've remained close with our customers, even though our branches, you know are only open for drive-through and appointment only but those digital channels have surged. We stayed close with customers and so it's really positioned us quite well as as we're working through this thing.

Okay. Thanks guys, David David.

Our next question is from Steve Moss.

Good morning, guys as we think about, you know business activity here going forward. I mean, obviously you slowed production here with kind of just wondering any any color in terms of just kind of where you think you're thinking about loan balances in your term. Yeah. I think I think the approach of the moment has been only to focus on current relationships wage and we're taking care of current deeper relationships we have where we have customers with the balance sheets lots of liquidity the ability to handle downside stress and so given that obviously that's going to slow sort of loan growth as we move forward out Beyond guidance of that seems hard to provide given the dynamic nature of the environment, but that's you know, we're obviously carefully watching the general economic backdrop and we remained prudent and disciplined as we move through this.

I appreciate that and then you know just going in to leave a little bit here in terms of the hotel motel exposure. I know it's small, but I was just wondering what are the loan to values their debt service coverage in the same thing with you, you're you know entire construction portfolio. Don't think that one dude. Sure. Yeah, this is David Harbour shelf. Thanks for the question. So you're off the talent of the exposures pretty conservative to begin with our loan to values when we go into these properties is typically around, you know, low 70s percent today or overall portfolio is about 63% loan-to-value on a disservice coverage basis. That's really tough to say, you know in the near-term several of them are very strained with regard to overall performance. We have completed a stress test against every asset to the portfolio and they can whether pretty hefty annual downside stress and we'll just see how long this cycle lasts and when they wage

back on their feet we have

Been working with those customers all the PPP program and some other programs to help them with the assistance and we're pretty feeling pretty good about their performance and long-term prospects. So on the back side of the cycle. Yeah. The one thing I'd add to that is given the low loan-to-value is in that portfolio both the restaurant and the hotel those sponsors obvious have heavy investments in that and the majority of the those ones are scared of Real Estate.

Okay, great. I guess if you have the loan-to-value xanh restaurant, that would be helpful. And then the the 295 million in construction to please.

Do you have the restaurant David the overall portfolio for restaurants was in the I don't have that right in front of me. I just have the total Hospitality book. Yeah, we'll send it to you Steve and I'll send you the construction as well. I don't have that in front of me either but I will mention to you on the construction portfolio. It's $295 a month. Obviously well below regulatory guidance around concentrations to Capital and the largest category in that construction book is 89 million, which is actually loans to age division little residential borrowers for building homes. So even out of that 295 889 is not really necessarily commercial construction or even Builder lines. It's actually individual lines to the construct home. So it's a very conservative construction portfolio.

I appreciate that color. And then in terms of just funding costs here, you know just bearing liabilities came down eight bits, you know, obviously pretty aggressive rate Cuts here. I'm sorry if I'm if I'm just wondering just how much should we look for? You know that bucket to decline here. Yeah, he gives and takes there's probably the best thing I can give you is, you know, we brought in some additional wholesale and brokered funding to support liquidity given the environment on on the flipside the cost of deposits will go down probably into the high 30s as we move into the coming course, but there'll be some puts and takes their around how much liquidity we keep on the balance sheet.

Okay, I appreciate all the color. Thank you very much guys.

Our next question is from Steven scouting.

Hey guys, how you doing today?

Check out there with it's it's hard to say and I know you don't want to give any specific guidance per se. I don't think but in terms of how the name is performing maybe relative to the office the guidance in the last K. I think it was down 1.5% with a hundred basis point move. Can you talk maybe a little bit relative to that number how you think you're performing and give us a song idea of of when you think you can see the floor in your name if if you have any inside of that? Yeah, and then the probably the best guys thinking because obviously the nin has some pressure with race fall and a hundred fifty basis points and putting on some excess liquidity. I will mention that, you know, sixty percent of our loan book is fixed. And so that's beneficial and that helps support as well as the the the the deposits the other sort of uh, sort of variable there that's going to play into this is how much of the PTP income gets recorded over the coming months. It's hard to to get a sense of that because we don't know off.

Going to be for month window that that income gets recorded.

For 7 month window, but you know, I I think you know and then we'll move downward as we move forward but how much downward it moves is hard to judge given all the all the variability here. It's going on. Okay and on the Securities book, I know that was a 13 bucks. And you said something that was on three payments would is that kind of a one-time jump or would you expect that to happen but smaller level it was really driven off of refinance activity in the other line mortgage Market both commercial and mortgage and I think we'll continue to see how may be financed actually J. You have anything you'd had to that even though we're two agencies Securities that about $700,000 prepayment penalty of discount earned. So they're kind of one-offs. But you know, you don't typically don't know where to what to expect there. Those are lumpy given the falling rates and the underlying refinance off.

Market is it potentially will continue to see stuff like that come through it as well as they drove higher accretion on the loan book and I'll remind you that we have a pretty good-sized purchase discount that still exists in the loan book that if refinance activity remained strong, we would probably see some of that come through but that also would be dependent on how much credit is available to commercial borrowers to refinance in this month and then thinking about loan growth expectations. Obviously, give good data on the pipeline. I'm wondering what you expect to see wage and wise what you're seeing from customers, maybe, you know in the month of April and really if you even want to see any longer at this point in time or would you you know kind of tighten your boxes on underwriting just too long to keep loans from them disproportionately and then your turn. Yeah. That's a good that's a great question and we'll just have to carefully look look at answering that question as we kind of roll forward over the new age

Couple of months. Yeah, what I would say is we're going to be very disciplined as we move to this. And very very thoughtful and and that's that's probably the best guidance. We can give you at this point see and we're going to have to wait a couple other things play out here over over the coming quarters, but for now, it's a very conservative point of view. Okay, and then last thing not a big delay, I think you mentioned maybe a two-month potential delay and the freedom not feel anything specific that's driving that or just regulatory slow down from Apria. We're we're fully approved. It's just the difficulty of trying to close the transaction with the operational team being under work work from home orders as well as the technology providers having the same constraints. So it's more of a a technical issue that's causing the delay just having the amount of people available and and not just imagine we've got more or less all hands on deck with the PPP program. A lot of those folks are the same folks that would be working on the integration teams. And uh as we look for a job.

That was just very very difficult to imagine how we could do both at the same time. And PPP program is obviously critical.

For our customers and so that took priority over over the acquisition.

Yep makes a lot of sense. Thanks guys for all the information. Thanks to you.

Our next question is Christian Melnick. I'm sorry Christopher apologize.

Hey guys, good morning, Chris Marin. I just wanted to ask the roadmap for the Deferred assets and kind of how you see that playing out there any new deferrals that are likely and then what's the road map to how they kind of move on or even you know, uh get to a classified criticize status?

David do you want to talk about how maybe how we decisioned things going on deferral? Sure. Yeah, so we have some certain criteria, you know, we looked at our overall customer base. Um, but you know, we had criteria for payment performance or general basis. They had to be current for the last fifteen months a performance. So in good standing with the bank, we would certainly ask customers to describe what type of strain they were encouraging with regard to the code, please as well as just making some rational decisions based on performance capacity in granting them and we have granted deferrals to allow been a strong good customers that are in certain business factors that were taking a cautionary position early on in this cycle. We have seen deferrals paper down over the last several weeks wage.

I think is really driven by some of the more strength customers seeking the PPP program loans to help them through this difficult period of time so every customer we've had a discussion we had Friday. In some cases if they didn't quite have good performance. We would ask for financial information give the a quick just reviewed before rendering a final decision. So we feel pretty good about the customer base that's in that portfolio and the the different periods are anywhere from just a month or two to a full three or four months and more based on something that criteria guidance has come out from The Regulators. Only thing I would add is we were pretty aggressive and reaching out to our customers as you know, the analytics work that we've done really helps us identify customers that we think could be a team and really, you know based on the industry and and the like and so we were very I think you know strategic and really targeted our our outbound wage.

In a way that you know was is designed to really increase our knowledge about what's really happening out there writing at this moment from our customers and just to reiterate you know, if if you if you if you made a request, you know, we we had a really deep conversation with you about why this makes sense and so forth. So, you know, we fully expect that as we get through the month and Emma canned conditions change and you know things open up, you know, we'll see all those loans come back online and so forth then probably be dealing with a small subset of issues and we'll just deal with it as we get to it, but we're pretty confident about about that.

So that's that's great.

And I guess that implies that really if you did not qualify for a deferral that that's already picked up in your your you know, substandard and special mention data for this quarter, right? Yeah exactly, right F16. Okay. And then on what triggers any reversal of Interest I guess loans have to go non-accrual or become a TDR which doesn't sound like that's a second quarter event that I'm just curious if you think some of them head that way or is that a low likelihood from what you can tell it's low likelihood right? Now. Those are all on deferral we expect them all to come back on making payments today. We're accruing it's just like we normally would and unless something materializes between now and when they come back on deferral that would cause them to cope past due and result in a grading change that would move them towards non-accrual but we don't expect that and as David mentioned we the we were very proactive and reaching out to customers to help them access that program over a period of time and you know when you look at our birth

Book being is diversity as it is and is distributed as it is and not being in some of the higher risks of classes. We feel good where we're we're we're a touring Miss. And you know our reserve and and Cecil reflects a qualitative component roughly over roughly 37 basis points on top of our quantitative component reflecting the risk of birth the Baseline scenario, so that qualitative Reserve in combination with capital and the proactive work we did around deferrals. We think we are very well positioned given the environment room.

Great. Thanks for all the background than just one last clarification Chuck. You mentioned the 147 on round two. That's a separate figure from what you've been around one. That's correct. That's correct. Okay, great. Just working fine. Thanks for everything. Right? Thank you, Chris.

All right.

Think that operator the we don't have any further questions. I guess just like to thank everybody for attending today, and we look forward to updating you next quarter.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating you may now disconnect.