Q1 2020 Earnings Call
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Thank you Brian.
Okay. So the your host his fingers you are in the main conference in every one isn't listen what else is admission what's involved right now.
Perfect. Thank you Daniel.
Welcome everybody all Dan This is Jeff do all Ceos Heritage financial.
Ordinary sorry for the next step on the phone call apparently we asked for a hosted calling Gotta general call Fortunately and.
In today's environment, where a lot more flexible than we used to be so hopefully you've had some trying to work on your email is while we got straight down on our Ed I'm going to jump into our presentation and then we will open up for questions at the with me in the room.
Our John Hanson, our Chief Financial Officer.
It's early our Chief Credit Officer, and Bryan Mcdonald is our Chief operating officer is and by extension.
At one of our remote locations this morning.
Our earnings release went out this morning pre market and hopefully you have had the opportunity to review it prior to the call.
Please refer to the forward looking statements in the press release.
Well it goes without saying this is been a heck of a corner for our country our communities and the banking industry. We started out the first two miles to the quarter seeing some nice growth in our pipeline some positive progress the credit quality as result of our active portfolio management.
We also successfully launched our new heritage direct Treasury management platform.
Obviously things quickly change tend to see 19 pandemic accelerated.
Our pipeline began to decrease and the management team dusted off our pandemic plant.
In Washington, and Oregon, we have an operating and staying at home status since the third week in March.
Our robust regional economy isn't a self induced coma and all that we have managed to flatten occur we expect a revival of our economy to take some time.
Fortunately the governors in Washington, and Oregon are talking about a staged approach to a restart.
As an essential service, we continued to operate the bank with very little interruption to our customers early in March we opted to close our branch lobby to most customer traffic and operate through our drive through facilities, all but nine of our 62 locations have drive through capabilities, which made the.
Transition that much easier.
That's a move serve to keep both employees and customers sake. We continue to operate in this manner and we are now just beginning to plan for phase for a phased approach to reopening some lobby in the next couple of months.
We're also able to implement a remote work environment for many ways approximately 60% of our employees now have remote capability and we have about 325, we're fully remote at this time.
It is important to note that even with the lobbies closed people working remotely we continue to add deposit relationships and make select new laws.
In parallel with securing our lobbies and our people we launched a loan modification program for all loan types to provide relief to our customers.
And we also began a review of our underwriting parameters in light of the new conditions.
After that we became completely absorb SP a peak he program and getting the stimulus money to customers who need it.
Fortunately, we have seen good success with our PPP program and at this point. We believe we have serves the needs of our customer base.
Even though we even though we expect the banking industry will experience credit quality deterioration as recently as a result of the Cninety impact we believe area as well.
Outperformed the industry median similar to our experience in the last downturn.
Longstanding culture is focused on serving of underwriting active portfolio management and avoidance of long concentrations, which will pay off.
By keeping kind of losses at manageable levels.
We will cover all this in more detail as we move to Don Hinson, who will take a few minutes to cover our financial results include any color on our corporate operating metrics our core operating metrics.
Specific comments about credit quality and seasonal.
Thank you Joe.
Our reported diluted earnings per share for Q1 was 33 cents.
Which is down from 47 cents.
Q4 2019.
The decrease earnings was due mostly to an increased provision for credit losses.
The unfavorable impact to earnings was partially offset by much lower effective tax rate coupon.
This was due to a combination of factors, including lower pre tax income, while increasing tax exempt income instruments.
And Im wondering indoor discrete item do the carriers that allowing us to carry back.
Acquired banks net operating loss.
Our stable net interest margin also helped earnings this quarter.
Interest margin expanded to 4.06% compare to.
There are 2% <unk> fourth quarter 2000.
Moving onto the balance sheet net loan balances.
Increased 73 million in Q1.
Oh got about 3 million was due to increases utilization rates brokering lines of credits.
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Deposits increased 35 million Q1, while maintaining the same percentage of non maturity to total cost of 88.6%.
We continue to maintain very strong balance sheet liquidity.
At quarter end, we maintain combined credit facilities at the federal home loan Bank Federal Reserve Bank 972 million.
That's that's been like other banks totaling 140 million.
In addition, we have Unpledged securities totaling 728 million.
Broker deposits currently making up 25 basis points.
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Our loan deposit ratio was 83.4% we continue our longstanding strategy operating.
Well, she blow leverage, which we believe will service well through our current economic situation.
We've also been approved to use the feds PPP liquidity facility in conjunction with our people.
Regarding credit quality, we have significant decrease of 10.4 billion or 23% nonaccrual loan balances coupon.
This improvement was due mostly from agricultural frontline of $6.8 million, which makes it the bank.
This is part of the 20 million dollar relationship discussed at length in the Q3 in Q4 earnings calls, which you parsonage partially charged off in Q4.
We still have $12.4 million and real estate <unk> relationship, which we believe our will secure.
These homes will stay on nonaccrual status until we see a history of payments on them.
Additionally, we received payment on a commercial business relationship 2.3 million, which was also not across the us.
Our net charge offs Q, what really 417000. This was a decrease from 1.9 million in Q4.
Recovery Q1 93000.
Same accurately ship it was charged off in Q4.
This recovery was offset by other commercial charge offs were 2 million Q1.
Well, it's it's a problem loans increased 14 billion.
Q1, due mostly to formally for loans downgrade. The special mention as result of see uniting and they lost downgrade to provide additional oversight.
Central part loans would have decreased quarter over quarter without the scene lighting additions.
We're carefully monitoring our exposure to high risk industries trends.
Our commercial exposure to high risk categories.
Its role to low includes following restaurants 85 million or 2.2%.
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Hotels hundred 24 million or 3.2% total portfolio.
Recreation Entertainment, which includes bowling fitness centers and other music related businesses of 37 million or about 1%.
Ill.
In addition, we're monitoring all remaining loan types carefully.
What turned out to cope with my team really loan modifications.
At the end of Q1, we it might have quite a 136 commercial loans for a total of approximately $80 million, putting a culmination of interest only deferrals on amortizing term loans and full payment for us.
Almost all modifications were for 90 days.
Subsequent to quarter and through April 27.
We bought a flight 615 commercial loans.
Total of approximately $350 million, partially 60% interest only 40% full payment deferrals.
Well consumer loan modification number are higher than on the commercial loan portfolio. The dollar amount of consumer loan modifications at less than 10%.
Commercial commercial modifications, we're taking a conservative approach to risk rating and only leaving modified loans at their pre pandemic risk ratings, but it's clear that the operating entity will quickly return was pre pandemic performance.
At March 31, we have downgraded 39 loans totaling $36 million in response to pandemic related issues.
Most of our see 19 qualifications are being downgraded to watch and were not included all numbers.
Our expectation for the next round of modifications as it will see deterioration of burst in building out sometime substandard.
Moving on to Cecil.
The total day, one impact on allowance for credit losses was $5.5 billion.
Oh point 8 million for the allowance on loan balances 3.7 million for the allowance of unfunded commitments.
The stay one increasing the allowance for credit losses on loss was partially mitigated by approximately 1.9 million.
Previously allowance.
Related to December 31 piece, you had loans at reclassified to loan discounts to be created as part of the Cecil fermentation process.
The provision for credit loss on loans, a Q1 was $10 million.
Or is 26% increase from the post they want allowance for credit loss on walls.
This provision was partially offset by a $2 million reversal of allowance on unfunded commitments due to lower unfunded balances at the end of Q1.
At the end of Q1, the allowance for credit losses on loans increased 1.33% of total loans from 0.96%.
I was at the end of Q4.
As a result of this increase in the allowance decrease in nonaccrual loans, the allowance to nonaccrual loans decreased one point.
Sorry pardon, 39% at the end of Q1 from 81% at the end of Q4.
I quickly go over some seasonal model assumptions we use.
We just don't late March Oxford economics multiple forecast.
Due to the rapidly changing environment, we added additional expected losses to the allowance for certain at risk industries, such as restaurants hotels and recreation.
We also reviewed the impact of the Federal Reserve banks 2020, <unk> early stress scenario, which calls for increased U.S. employment rates severe cold recession, Olivia stress on corporate debt markets and CRT.
Oh, we do not use a scenario our final Cecil calculation, our allowance as of March through one was the krill oil equivalent of using 60% likelihood of.
The feds severely stressed scenario and a 40% likelihood of late March Oxford economics forecast.
We'll continue to monitor the forecasts and economic conditions based on what has occurred.
At quarter end, we're likely to have elevated provisions for the remainder of 2020.
Moving on to net interest margin, we had an increase.
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This occurred prior primarily due to a change in the mix on earning assets higher percentage of loans and lower percentage and overwrite interest earning deposits.
Loan yields did not decrease as much as might have been expected due to some recapture previously reversed interest on nonaccrual loans and the funding of higher earnings.
Commercial construction loss during the quarter.
As previously expected cost us Pocs began to decrease in Q1, dropping two basis points to 37 basis points.
Although we didn't experience NIM compression in Q1.
150 basis points rate cuts in March.
The significant downward pressure in NIM starting in Q2.
This pressure is expected to be partially mitigated this year by the yields on the PDP wells.
Noninterest expense increased 1.3 million from Q4 levels due mostly to increases in comp and benefits and marketing expenses.
Both of these expense categories tend to jump in Q1 perky for.
Comparing year over year or overhead ratio improved to 2.70% Q1, 2.79% in Q1 2019.
We do expect overall expense levels to increase Q2, and Q3 due mostly to increase costs associated with the implementation of a 10 year Treasury management system.
And the completion of our usage of the credit for quarterly FDIC premiums.
And finally, moving on the capital we remain well capitalized for all regulatory capital ratios further or TC ratio remained strong at 2.2% at the end of Q1.
During Q1, we repurchased 796000 shares putting one repurchase plan starting another one on March 12.
On March you tank, we suspended our buyback program and we better understand the impact.
The current economic situation, our long term capital levels.
Yesterday, the board declared a 20% dividend, which is unchanged from the prior quarter. Although we have no plans to cut or see start dividends. At this time, we will be monitoring on a quarterly basis, our capital position and ability to pay future dividends.
Bryan Mcdonald want to have an update on loan production MPP piece does.
Thanks, Don as Jeff mentioned in his opening remarks, we saw good momentum in the commercial loan pipeline and production levels in January and February.
Before being heavily impacted in early March by Cnineteen, which then caused us center customers to shift our focus.
For the quarter, our commercial teams closed 167 million in new loan commitments very similar to the volume closed in the first quarter of 2019.
The commercial loan pipeline ended the first quarter at 506 million up 30% compared to the fourth quarter and up 13% compared to the first quarter of 2019.
Subsequent to quarter and we have seen many customers put capital projects expansion plans and bank transitions on hold and were now anticipating the actual loan volume close from this pipeline will be much lower.
Gross loans increased 84 million during the first quarter, a 9% annual rate due to lower levels of prepayment and payoff activity and a higher utilization rate on operating lines of credit.
See utilization rate on our commercial loans increased by 6% during the quarter contributing 30 million to grow at a loan prepayments and payoffs or 68 million lower than what we experienced in the fourth quarter.
Subsequent to quarter and the utilization rate has trended down to levels more in line with utilization rates, we have been experiencing over the last few years.
Consumer production during the first quarter was 47 million the same as the fourth quarter of 2019.
And up from 40 million closed in the first quarter 2019.
Moving on to interest rates.
Our first quarter interest rate for new commercial loans was 4.24% decrease of 19 basis points from 4.43% last quarter.
In addition, the average first quarter rate for all new loans was 4.46% up one basis point from 4.4 or 5% last quarter.
The mortgage department close 26 million of new loans in the first quarter of 2020 compared to 52 million last quarter and 22 million in the first quarter 2019.
The mortgage pipeline ended the quarter at 54 million versus 15 million last quarter and 27 million in the first quarter 2019.
The growth in the pipeline has to do a spike in refinance activity caused by the drop in long term rates.
Refinances made up 70% of the pipeline at quarter end.
Finally, I'd like to cover the banks participation in offering loans under the SP, a paycheck protection program.
At the end of the first quarter, we started preparing to launch our fulfillment of P.P. loans. After the President signed the cares Act in the law on March 27.
Our application package was made available to customers on Friday April Threerd, and we went live processing applications on Monday April six.
We're very fortunate to have a very experienced SP team here at heritage, having been a preferred Sps 70 lender for many years.
Pretty critical in design, the requirements and workflow that the PPP.
In addition, we benefited from having internal I take capabilities to stand up a fulfillment and reporting system for SPP lending during the weekend of April 4th and fifth.
The system allowed us to organize ourselves see in real time, our volumes at each process step and ship work between several hundred staff members, many of whom we're working remotely and working extended hours.
This allowed us to fulfill over 2800 applications in the first phase a funding with an average loan amount of 244000.
Most important to US we were able to process the pull backlog of customer PPP applications received during the first round of funding being left only with a small number of unprocessed applications. When SP finding was exhausted on the morning of April 16th.
These applications were fully process when the second round of funding went live on Monday April 27th and we continue to process new applications.
We processed PPP applications exclusively for our customers until we are current our backlog and processing new applications within a few hours or receipt.
After achieving this level of process efficiency, we opened up the process to know and perspective customers.
We anticipate net many new relationships will result from our ability to help them with their SP APTP application.
I'll now turn the call back to China.
Thank you Brian.
We feel very good about our performance in light of the overlay of Cnineteen, we have successfully and safely to address the needs of our employees customers and the communities we serve.
It was particularly important for us to be able to perform at a high level in support of PPP as result of adding I T development capability to the team two years ago, we were able to stand up and automated platform in a matter of days.
We believe this capability provided us with the competitive advantage in our markets.
Well, we have not seen notable deterioration in loan portfolio and a loan portfolio. We expect to see stay at home actions continue to take its toll on the asset at risk industries.
We will need to get beyond the PPP funding and the modification deferral period.
Before we begin to see the damage.
We agree with others that businesses will suffer to shocks back to back and immediate and in most cases total revenue shutdown that transitions to a recession with very slow revenue growth.
This is a different set of parameters that we have ever seen before and we are not sure how it will play out as the economic resuscitation gets under way in our footprint.
We are pleased with our performance and progress in the first quarter. Despite the challenges from sea 19, and a rapid decrease in interest rates. We believe heritage is well positioned to navigate these challenges and we will continue to benefit from our core deposit franchise and conservative credit culture on.
Maintaining our focus and net interest margin and expense management. Furthermore, the robust liquidity and capital position on our balance sheet provides us with the solid foundation to suggest the challenges and take advantage of opportunities.
As I said earlier, we're pleased with our performance to date and immensely proud of our team for their performance during this difficult time.
The conclusion of our prepared comments, so Daniel maybe we can open up a line to.
Answered questions.
Absolutely.
Ladies and gentlemen, if you'd like to ask the question. Please press one than zero on your telephone keypad.
Let me assure all your question anytime Bay repeating the one zero command if we're using a speakerphone. Please pick up the handset before pressing the numbers. Once again, if you have a question you May press. One then zero at this time and one moment for the first question. Please.
Yes.
And we do have a question for the line Jeff. Louis Your line is now open.
Hi, Jeff.
Thanks, Good morning show.
To the margin does on the <unk>.
How much was that how much did the interest recovery add to the poorly six.
Reported and what was core I guess, if you quarter to quarter.
I think that a couple of beefs tenacity, not a lot, but it does help some.
But again I think that again, we didn't feel the impact of that all the rate cuts.
Hello.
You know we.
So late in March.
A lot about.
This quarter I'm often alongside.
Just because our cost deposits will not be able to drop as fast as our loan balances our long range.
Okay. So you know it's for one pool to.
And.
You talked about I think in the release about deposit lag or pricing that's more of a kind of the balance of.
The next couple of quarters.
Again, maybe an acceleration of some some.
Question, given the rate cuts didn't have it a lot of time intact.
Orders or you're correct, correct again about oh quarter of our.
Those are fully floating.
So just thinking about 150 basis points now some of them.
For us going on but even when they when they get rewritten it's year on their honor anniversary.
Level to get rewritten the more so you'd have to run a floor and Alec.
Changes there.
The loan gets renewed.
Got it.
To the to the credit side, the the AG and seen I credits brought out of non accrual I think I recall those were.
Somewhat one off issues, but trying to see if there's any related hope that others cure that are that are similar or with a true.
Singular credit issues.
I don't think that there's an overlay to all of those loans. That's that's specific to the group I think they're all individual issues.
We.
Our always work in the portfolio, we talk about that all the time, Jeff and.
I think that.
We're hopeful that we'll see progress, especially we've already seen.
And on the you mentioned should see an eye downgrades. It I don't know if you've got a percentage or just a broad terms the the group over those that have deferrals or.
PPP.
Support.
Any idea on that.
Well, there's clearly a customers in the PPP program.
We're happy to see participating.
The deterioration that was related to co bid, which was a series of what I would catch characterize as larger loans.
Moving into the.
Problem loan category.
Our.
Obviously larger got attention sooner.
And they're part of that category of at risk loans, specifically most of it as hotels.
And it was just an exercise on our part to start taking action on some of them sooner than later.
Great and when one last one if I could just that.
It would be the maybe for Don the true up on that reserve to loans that went 23. If you work to include.
Credit marks Additionally.
Jeff I'm not quite excellent question.
Or the acquired a credit discounts that maybe Joe reserves to loans that 123, but did you have a an additional.
Balance that that would exceed that reserve level.
Well I think we had 1.9 billion that we switched over.
Okay that effectively went away there's none of them. Yes. So went went from allowance basically into discount told me. That's one reason why normally we see a balanced decrease the accretion percentage.
Goes down.
Overall to the O'neill's stayed the same this quarter.
Because we read through in another that amount another $1.9 billion, it's not going into credit as opposed to being part of the allowance.
[music].
Great. Okay. Thanks, I'll step back.
Thanks, Jeff.
And we have a question trying to line up Mr. Matthew Clark Your line is open.
Hi, good morning, guys.
Morning.
On the the Cecil.
Adjustment this quarter using.
Late March forecast with things.
Obviously deteriorating in April I know that forecast was pretty dire but.
Hi, this is there.
Is it fair to assume that we'll see some additional reserve build here in the second quarter before maybe even a third too but before you start to kind of use that reserve to realize.
<unk> yeah the losses.
Yeah, I think that's gone I think that.
Well secured to see that.
Okay all right.
Expect higher higher reserves throughout this year I think that Q2, and probably Q3 will be probably I'm guessing the high points to really depending on what happens right. It's hard to predict what's going to happen.
Long term and how long, it's it's all going to go on for but.
Right now I would expect.
Continued high levels of reserves.
[noise] per quarter over the next couple of quarters at least.
Okay, and then on the high risk exposures, the restaurants hotels Recreation Entertainment can you give us a sense for the underlying LTV isn't debt service coverage ratios there and.
And yeah, maybe average loan size and.
And whether or not there's any other.
Industries that you might be concerned about that others have talked about like.
Like health care senior living facilities schools churches things like that.
Yeah. This is Dave Sperling.
The the high risk industries. We've identified obviously include restaurants hotels as Jeff mentioned recreation fitness centers, but we've also got enough list.
Some dental our dental.
Borrowers and also churches.
If that answers your question.
How much in terms of exposure there. So those two other kind of course.
The exposure on the other categories are fairly low.
The largest exposures in hotels restaurants behind that.
And I mean hotel exposure was.
What was at 119 million I believe.
In restaurants is about 84.
No. So those are the predominant high risk categories.
Okay, and the underlying LTV, even coverage ratio there you have them.
On the on the.
On the real estate side of things are ltvs tend to be pretty conservative weighted average.
In the portfolio is about 55% to 60%.
Okay.
Okay, and then on just on the P. P P.
Program can you give a sense for the average loan size there.
How much might still be in the pipeline could you.
I'm not sure if you already mentioned that and then how you might be modeling that whether or not you're just assuming that.
Most of it will come and go by the end of the third quarter or do you feel like you're going to fair to stick around longer.
Hi, Matt.
We want to start and then I'll follow yes, sure I got through the.
Oh sure corridor and are not recorded for the first tranche.
Funded.
Well the 687 million.
Average price average was up to 44.
And again, Oh, because those were.
Under 350, and and treat trees 54 again.
I would say.
Effect, if you break it out further under 100000 was about 5.4%.
100 to 351.2 and a half.
After the half the loans balance, we're obviously entry 50 into.
Million and then.
18.5% were over to 2 billion. So those are the funded piece and then we still have.
Getting we're still getting other items through our applications through them Nesbett funded but they've been approved and Oh, we're up to around.
Our applications right now and that we think we'll get through it's about 885 million.
And then perhaps the overall average, though with including all of that down about 220, so that the.
The loan sizes and going down overtime.
And but.
That's a real kind of putting on probably another 200, and the second tranche and ask them right now.
Brian you want anything to that no that's right on.
[noise] okay.
But it is it fair to assume a 3% origination fee on average not five.
I think its can be higher than that because again.
About half of it is half of the loans are between the 352 to get the three and only.
About 19% is.
Over 2 million, so it'll be it'll be between.
Hi, three and four.
Okay got it.
Okay and then.
Maybe just the spot rate on on deposit costs at the end of March behind it.
It was it was lower I think it was.
Closer to 35 basis points.
Yes, the spot rates so we.
We keep dropping the rates.
And.
And as market.
Okay, and then just a good tax rate to use getting a lower level of income going forward.
Well [laughter].
Depending on our income levels as far as effective tax rate similar we didnt have the the discrete item it be closer to 13%.
But again a lot more.
The tax rate itself will depend on a pre tax income going forward.
But because again we dark.
[music].
Our.
Tax or Perm tax items that are are used for that calculation.
Actually grew a little bit and Q1 so.
Okay, great. Thank you.
And we other question from the line of Jackie Bohlen. Your line is no than please.
Good morning, jamming of Eva and good morning.
Hi.
One quick follow up on the PPP in terms of the new customers. So that the additional roughly 200 million that your processing through the second round is that all new customers or do you have I sum that carried over from the first round I just wanted to make sure that I'm clear on that.
I think this brand we had just the inflow so.
So stuff that maybe it was taken you know after eight o'clock the night before if round one ran out and then we had.
You know a certain number of incomplete applications that hadnt been able to be process. So.
And then of course.
Between the time that closed and the time the second round of funding opened we had additional customers that came in applied.
During that period of time so.
You know our daily flow the last few days as Ben you know maybe somewhere in the neighborhood of 100 applications then.
And you know it's different day to day, but it's more of a mix of prospects and customers versus you know of course, all customers. When we went into phase one. So there is still customers in there along with.
Prospective customers that time, we've been calling on.
Okay.
And then in terms of these new customers I you. What do you think the likelihood is that you could bring other when you.
Other pieces of their portfolio in both loans and deposits over Q after things begin to normalize again.
Yeah, we're we're already seeing that Jackie we didn't go into it you know what the requirement around that but we're seeing a number of customers be opened to talking to us about other banking services as a result of doing the PPP long form it's a little early.
But we're already seeing you know customers being opened to moving additional business to us.
Okay.
Where are you actively marketing these customers meeting where these you know perspective customers that you have in reaching out to in hopes of the taking their business or were these uh huh.
She was coming in looking for a long.
They were predominantly prospects that our bankers had been calling on.
Previously so.
In many cases for many years you know everybody has their prospect list and actively calling so as they finished up handling the needs of their existing customers to applications. They hadn't Hanmi then turn their attention too.
You know for the prospects they had been calling on to see a fun to see if we can help them with the PPP alone.
Okay.
Great. Thank you.
I just one last one and then I'll step back in terms of the Treasury management system I haven't I know I think from La where that's roughly a million dollars an added expenses anywhere I first off is that still an accurate number and second with any of that included in one Q or will that all flowing into Q really.
I didn't get that million as an equal number now and that jacking, that's gone up some implementation of costs.
To be more than we initially a hot I think we probably have another.
I think another million or million or million, one left and we did about thinking about 4000 in Q1. So.
But that should be done by end of Q3 renting millionaire million one.
Jackie wanted the issues, we faced into what we launched in the first quarter.
And the first wave of customers a were handled quite well actually and then cnineteen hit so.
Well, we had to do with shift our waves of customers to double up the next wave later in the year, so that we should get past.
Well, we were dealing with the last eight weeks so that.
Just presented additional costs, because we had to reset our arrangement with the vendor that's helping us through that process.
Okay.
That's helpful and not that 400000 number is that an annualized number.
No that wasn't numbering in Q1.
Thank you then we'll have another one another.
1.1 billion I think left over the next two quarters.
Okay and that sort of 400000 is not annualized but the 1.1 million is.
On 1 million.
About $1 million is what's left to be spent over the next two quarters.
Oh, okay.
Got it.
Okay I.
Thank you that's all.
Thank you.
And we have a question for the line of Mr. Gordon Macquarie. Your line is dolphin.
[noise] gardening.
Hey, how are you guys.
Or better now that the phone systems working [laughter] Dawn I wanted to clarify comment you made earlier.
You for monolithic modified loans.
You.
You were you downgraded if you did you didnt feel like they could return to pre Cove bid levels of performance is that correct.
Yeah. This is Dave we had a bias towards taking credits to watch, but in those instances, where the borrower and client was more likely to return quickly to pre pandemic performance. We left those at the at their original risk rating.
Okay and do you have the ratio of what watch loans at this point versus I guess March 30 Onest versus December.
I don't have the those numbers handy, but I know there was in the first quarter in March there was kind of spike in watch credits due to the downgrades that were.
Model.
The result of modifications.
Okay.
But those did not flow into potential problem loans. So I guess, the 18 million or so cove. It related potential problem loans are are there was going to be able to be subject to modifications.
It was kind of outliers those were some credits that.
The two predominant ones were destination hotels, and they presented more risk.
We thought a normal modification would would present so we did take those down to a special mention and became.
Details.
Okay.
And do you have the mix of modification or how much of the modifications you had were related to the the higher risk portfolio is that you identified.
Don't have that breakout, but as as was mentioned earlier there was it was oh kind of an even split between interest only on amortizing and Oh payment deferrals, but don't have to break out by industry.
Okay.
And then Brian I think I heard all new loan originations were up one basis points of for 46, I guess, what drove what drove what do you feel like drove that was it increased credit spreads or did the.
Construction utilization a drive that higher was that kind of abnormal.
You know it just most of the course production just pre trade pre predated the big drop off in rates, So Don mentioned, the fed rates dropping but.
Of course, you know the federal home loan bank indexes that that tend to mirror. The treasury rates of course higher you know we saw those fall off so it was really the mix of loans and then just the fact that the quarter just didn't capture most at a downward rate movement we've seen.
Okay, and then last one for me is how you guys are thinking about funding that the P.P.P. loans they come on the balance sheet.
Well.
As I mentioned, we're all signed up but though.
And to use their liquidity facility.
For that we haven't started doing that yet we haven't needed it and.
But one thing because that you know we.
Got a lot out there and they're going to purchase deposit account, but really nothing.
Or not much has been spent yet.
Pretty recently, so but as I've money spent and we need the funds will oh.
Start to.
Pledged those two that facility and take those funds from that facility.
As a reminder, that 35 basis points and.
No.
Non recourse on borrowings.
All right I appreciate it thank you.
Thanks Gordon.
And there are no further questions at this time.
Thank you Danielle I think then we're ready to wrap up this quarter's earnings call. We thank you all for your time on your patience as we got our call underway.
We appreciate your support and your interest in our ongoing performance. So we look forward to talking with many of you over the coming weeks.
Thank you and goodbye.
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