Q1 2020 Earnings Call
Greetings and welcome to depend to Bank group first quarter 2020 earnings call.
This time, all participants will be in listen only mode.
Reis question answer session will follow the formal presentation.
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At this time I'll turn the conference over to the poll Langdale Senior Vice President and director of corporate development shall I know you may begin.
Good morning, everyone I pull langdale senior Vice President and director of corporate development for Independent Bank Group and I would like to welcome you to the independent Bank Group first quarter 2020 earnings call. We appreciate you joining us the related earnings press release, a slide presentation can be accessed on our website at <unk> Dot Com I would.
I'd like to remind you that remarks made today may include forward looking statements. Those statements are subject to risks and uncertainties that could cause actual and expected results to differ we intend such statements to be covered by safe Harbor provisions for forward looking statements.
Please see page six of the text in the release or page two of the slide presentation for our Safe Harbor statement. All comments made during today's call are subject to that statement. Please note that if we give guidance about future results that guidance is a statement of management's beliefs at the time to statement has made me assumes no obligation to publicly update guidance and this call we will discuss a number of.
Financial measures considered to be non GAPP under the Fccs rules reconciliations of these financial measures to the most directly comparable GAAP financial measures are included in our release I'm joined this morning by David Brooks, Our Chairman CEO and President Dan Brooks, Our Vice Chairman and Chief Risk Officer, and Michelle Hickox Executive Vice President and CFO at the.
Ended their remarks, David will open the call to questions with that I'll turn it over to David.
Thanks, Paul Good morning, everyone and thank you for joining us on todays call.
Before we discuss your operating results I'd like to take a moment to address the current environment. Most importantly, we hope you and your loved ones are well.
The krona virus pandemic has had a significant and widespread effect on a daily lives in our economy.
During these difficult times, we've focused our efforts on supporting the health safety and welfare of our employees customers and communities.
As the pandemic unfolded, we quickly adapted our operations protect the health and safety your employees, while remaining available to support our customers rather banking needs.
And in the midst of the significant market disruption our bankers work one on one with our customers to find solutions to work through the crisis.
I'm, especially proud of how our company is participating in the SP, a paycheck protection program.
As of today, we've received SB authorization for over $730 million in volumes to over 4600 of our small business customers Needless to say I'm thankful for our incredible teams who as always.
Been willing to roll up their sleeves and put in hard work in the face of adversity.
The much uncertainty remains about the unfolding crisis, our company remains in a position of strength to help our customers weather. The storm bank capital ratios remained strong and we maintain ample liquidity both on our balance sheet and through access to substantial contingent liquidity resources.
While we are encouraged by the results of recent stress testing on our loan portfolio. Our teams will remain vigilant in identifying and addressing risk while working with our borrowers to minimize the economic dislocation, resulting from the cobot 19 pandemic.
This disciplined approach has served us well for over three decades and earned our company reputation for maintaining resilient credit quality through difficult times and with that.
I'll turn the call over to Michelle who will provide operating results for the quarter as well as some color on our securities deposits and liquidity positions.
Thank you David good morning, everyone.
Please note that slide six of the presentation include selected financial data for the quarter.
Our first quarter adjusted net income was 43.4 million or dollar one per diluted share compared with 52 million or dollar not seen per diluted share for the first quarter last year.
56.8 million or dollar 32 per diluted share for the linked quarter.
Net interest income was 123.2 million in the first quarter up from 121.7 million in the first quarter 2019, and down from 128.1 million in the linked quarter.
The decrease from the linked quarter is primarily due to less loan accretion income and lower average correspondent banking mortgage warehouse loan balances.
The net interest margin was 3.76% for the first quarter compared to 3.81 per cent for the linked quarter and 4.05% for the first quarter last year.
The five basis point decrease in the NIM from the linked quarter was primarily due to lower loan accretion income for the first quarter.
The NIM, excluding all purchase loan accretion decreased one basis point from the linked quarter to 3.48% as we were able to offset decreases in loan yields with lower funding costs.
Total noninterest income was 14.5 million a decrease of 3.7 million compared to the linked quarter. This reflects decreases of 1.3 million in mortgage banking revenues, an 820000 in other noninterest income.
Recall that the linked quarter included a 1.3 million dollar gain on sale of the trust business in October of 2019.
Mortgage banking revenues of 2.5 million in the first quarter 2020 was negatively impacted by market volatility, which resulted in a hedging derivative loss of 1.6 million compared to 675000 dollar loss in the linked quarter.
Total noninterest expense was 74.4 million for the first quarter of 2020 I.
Decrease of 12.2 million compared to the first quarter of 2019, and a decrease of 6 million compared to the linked quarter.
The decrease in the prior year is primarily related to a decrease of 14.4 million in acquisition related expenses as the guarantee acquisition closed in the first quarter last year.
The decrease from the linked quarter is related to a 3 million dollar separation expense paid to a former executive in the fourth quarter as well is decreased acquisition expenses of 4.5 million that were incurred when the Texas capital in Maui was announced in December.
First quarter non interest expense was also impacted by higher depreciation and property tax expense related to our new corporate headquarters.
Professional fees related to the acquired litigation was higher than expected by 300000 more than was incurred in Q4 2019.
Consulting expense was also elevated by approximately 650000 related to compliance project that was completed in March.
In addition, FDIC insurance increased by 758000 from the linked quarter and 504000 from first quarter 2019, due to the transition to the large bank assessment calculation.
Well I've not seen shows our deposit mix and cost total deposits were 11.9 billion as of March 31st 2020.
Deposits remained stable during the first quarter. Despite significant decreases in rates paid on term deposits in index fund accounts. The average cost of interest bearing deposits was 129 basis points down 13 basis points from the first quarter of 2019 and down 12 basis points from the linked quarter.
Slide 20 shows the detail of our investment portfolio.
The company's indefinite portfolio consist of a diversified mix of liquid low risk securities designed to help bolster liquidity and manage interest rate risk securities and cash comprised 13.1% of assets as of March 31st 2020.
Capital ratios are presented on slide 21.
Capital levels are strong at 8.94% total capital to tangible assets and a 12.05% total risk weighted capital ratios.
That concludes my comments I will turn it over to Dan to discuss the loan portfolio.
Thanks, Michelle good morning.
Overall loans held for investment not including mortgage warehouse purchase loans grew at 3.4% annualized rate to $11 billion at March 31st 2020, compared to 10.9 billion at December 31st 2019.
Mortgage warehouse purchase loans average 547.3 million for the quarter.
From 575 million for the quarter ended December 31st 2019.
The decrease from the linked quarter was due to continued volatility in the mortgage markets, resulting from the Caribbean 19 pandemic.
Slide 12 shows the composition of our loan portfolio or commercial real estate portfolio.
As of March 31st 2020, commercial real estate makes up 49.5% of loans, which has declined from 50.4% and the linked quarter.
And 53.3% in the first quarter 2019.
Our theory book is well diversified and types of collateral with the largest segments in office and retail.
Slide 13 further breaks down the retail theory portfolio by property type.
Our retail portfolio is an extremely granular book of 1048 loans of which 94.2% or collateralized by properties located in our company's markets in Texas and Colorado.
Average loan size in the retail portfolio as of March 31st 2020 is one point sixmillion.
In light of the current environment, we thought it would be appropriate to provide additional information relating to segments of our loan portfolio potentially impacted by the co. Good pandemic on slides 15 and 16.
Our credit teams have performed stress tests on potentially impacted segments. The most test encourage us that the portfolio will hold up well during this period of turmoil.
While there will undoubtedly be impacts from the co bid 19 pandemic.
We will be deliberate and actively managing our risk and working with our borrowers to ride out the storm.
To that end, we've been granting deferrals on a case by case basis, and providing other accommodations where appropriate across our footprint to help those borrowers that are experiencing temporary dislocations from the shelter in place orders and overall reduced economic activity.
Through today, we granted deferrals to approximately 6% of our loan customers.
Additional detail regarding our hotel motel exposure can be found on slide 15.
And all our hotel motel exposure is 432.3 million as of March 31st 2020.
91.3% of these loans are collateralized by properties located in either Texas, Colorado.
Additionally, 78.9% of these loans are on branded limited service hotels and predominantly suburban markets.
We have limited exposure to the most impacted segments of the industries, such as resort and conference hotels.
Hotel Motel book is conservatively underwritten with an average loan to value of 57.3%.
And a 5 million dollar average loan size.
All of our hotel loans are made to proven operators.
And fully 95% of the book is backed by either personal recourse for corporate guarantors.
Slide 16 contains details regarding our energy book.
As of March 31st 20 tuning our energy loans were hundred 81.5 million or 1.6% total loans held for investment excluding mortgage warehouse purchase loans.
Our energy book is mostly comprised of recently underwritten NPV loans.
Reduction roughly 46% of loans are secured by oil and liquids, while 54% is secured by natural gas assets.
The majority of our MP borrowers have hedging in place and those borrowers that do not have hedges in place that provided personal guarantees.
Over the last month, we have conducted rigorous stress testing of our energy portfolio, assuming $25 oil for the next two years.
And we've been pleased to confirm that the stress tests do not indicate material losses under this scenario.
Overall, our credit quality metrics remain strong with total nonperforming assets remained stable at 31.6 million or 0.2% of total assets at March 31st 2020, compared to 31.5 million, 4.21% a total assets.
At December 31st 2019.
Net charge offs were <unk>, 0.05% annualized for the first quarter 2020.
Paired with 0.02% annualized in the linked quarter.
Charge offs increased over the linked quarter due to the charge offs totaling 1.3 million related to commercial real estate credit and energy credit.
As allowed by the Cures Act, we elected to defer the adoption of seasonal.
And our allowance and first quarter 2020 provision were calculated using our historical incurred loss model.
Provision for loan loss expense was 8.4 million for the first quarter, an increase of 6.8 million over the linked quarter.
The increase from the linked quarter represents increased general provision for economic factors related to cope with 19.
Previously mentioned charge offs and a $2.8 million specific reserve.
Once csos adopted effective January Onest 2020, we expect the day, one increase to the reserve to be $80 million.
This includes 22 million for purchase credit deteriorated loans.
We estimate that the provision expense for the first quarter would not have been substantially different under seasonal.
These are all the comments I had related to the loan portfolio. This morning, so with that I'll turn it back over to David.
Thanks, Dan.
The challenges presented by the Cobot 19 pandemic are unprecedented that said we remain confident that the approach that has served us well for three decades conservative credit culture disciplined underwriting and efficient operations will allow us to face these challenges head on.
But the main reasons, Dan and Michelle just described.
We remain very confident in the strength of our balance sheet.
Our footprint encompasses for the country strongest markets Cross, Colorado, and Texas, having great customers and great markets has helped us deliver strong return on assets and return on equity metrics and consistently grow earnings per share tangible book value per share and are annual dividend, while no bank would be immune to the economic turbulence that lies ahead.
We believe our bank is well positioned weather the storm and emerge in a position of competitive strength.
In the meantime, we will continue to roll up our sleeves and do the hard work I can't think our teams enough for their resolve tenacity and dedication and being there for our customers and communities. During this crisis as community bankers are prosperity is closely linked with those we serve.
And we worked tirelessly to remain a source of strength to our customers.
And communities, both through this crisis and well into the future.
Thank you for taking the time to join US today, we'll now open the line to questions operator.
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One moment, please so we pull for questions.
Thank you. Our first question comes from the line of not only with Stephens. Please proceed with your question.
Hi, Thanks, Good morning, guys.
Hey, good morning, Matt.
Wanted to start with diesel and what else can you tell us about the decision to delay seed for a limitation what were the major factors that drove this and specifically.
Well the decision impact at all about the pending ammo we banks.
Hey, Matt This is Michelle and you know we were working really hard on RC. So model through the end of last year, we did make some significant adjustments to it right at the end of the year in and when we got the option to defer adopting it and you know that we were trying to get our first call.
Our closed with when.
Ladies economic forecast you know they were sending went out every day and weren't sure how that how that would be impacted by the stimulus and ultimately decided we were more comfortable recording a provision using the model that we have been using historically and feel comfortable with you know that the deferral is not ideal because we will have to take it.
Back to one one at some point.
But that we feel really we really felt more comfortable with that model in recording a provision using our current model rather than cease all and then having an opportunity to see how this kobin pandemic and the economy plays out there in Q2 in Q3.
Okay understood. Thank you for that and then.
David I respect that there's some may make comments you can make around that the pending ammo. We I'm trying to appreciate the when the merger was announced back in December I.
I think the estimated loan mark was around $200 million and obviously that was just the estimated landmark and the world's changed anthem considerably. So can you just talk about the macro changes and how that could impact.
The credit Mark and the right Mark for this or that the them away.
Sure Matt.
Continuing to assess the impact of the cobot 19, and all the rapidly developing and really unprecedented economic and market events were dealing with.
Comment on Texas capital, but as far as independent Bank goes we never capital ratios liquidity and asset quality all remain strong and as described by Dan and Michelle in our in our comments.
Okay.
And last question for me a I think we're still waiting on the final S. Four filing that would include the the date for the upcoming shareholder vote. When should we expect that filing not to beat to be finalized.
Uh huh.
We don't currently we have an update on timing of the transaction, which obviously depends on your regulatory and shareholder approvals and other factors that are outside of our control.
You know.
We continue to focus on running the bank year.
These are difficult times and I know.
We and Texas capital of continue to focus on taking care of our customers and our employees in our communities at this time, so I don't have an update on the timing Matt.
[noise], Okay I'll hop back in the queue. Thank you guys.
Thanks.
Our next questions from the line of Brad Milsaps with Piper Sandler. Please proceed.
Hey, good morning, guys.
More breadth Brad.
I know, there's a lot of moving parts of this quarter, but David or Dan just kind of curious if you could add a little bit more color on.
Kind of what the process wasn't kind of reviewing.
The the commercial real estate book.
Kind of how you handled the deferral requests just any additional color around.
You know due diligence you did stressing against that book to do you feeling more comfortable what's kind of where you settled out on.
Your provisioning this quarter.
Hi, Brad This is Dan good morning.
As it relates to our book.
Review, we have always ongoing on a commercial real estate continued this quarter.
Specifically evaluating each of the asset classes that we think certainly are showing more stress across the nation, including it in Texas.
And based on the stress testing we did on that there was no additional provision that was created specifically in this quarter for that I.
I think we'd give us some good detail in our slide deck as it relates to some of those buckets hotel motel retail CRT and then again further commentary there on energy as we always give you.
Specifically on the the retail theory book.
I saw some granularity there.
And.
I think we also provided some comments and then related to the deferrals and specifically on that Brad I think important to note in our case we.
Since last our customers to come to us and asked for a deferral as opposed to providing a blanket deferral out there for credits.
And the importance of that I think as we just want to know story. So when they came and said hey, I'd like to have a payment deferral. We said telling your story. So we can understand what kind of stress you're under and then based on that.
Fairly standard would've been a 90 day deferral, which.
Was allowed to give them time to work through the immediate issues that they had.
I'm not sure but to answer your question come back to me if you have.
No. That's helped why do you feel like the pace of deferral requests have has begun to slow.
It has slowed we had an initial push of them and while there's still some trade going in the bulk of those seem to have already come through.
Great and then maybe a follow up question for Michelle Your core NIM held in a really well this quarter I'm just kind of curious you know what opportunities you see on the deposit side of things and so.
Sort of your outlook for the NIM maybe excluding.
The impact of the PPP bonds.
Yeah, so related to the NIM and our our deposit cost actually were stable from fourth quarter through February until fat cat rates again, and then I will tell you we have significantly lowered rates on our product suite took took away our promotional C.D. that we had had out there.
I like this morning, so for front since March our to our funding costs have dropped about 30 basis points that we've seen really good success, there and lowering funding cost.
I think on the other side, though on assets, while we were seeing a decreasing yields from earlier in first quarter.
That really is sort of slowed down at this point, just given the economic environment not likely to give up pricing relative to what's going on so.
Next the PPP, because you're right that will cause our NIM to be really lumpy, probably mostly in Q3, I think our NIM will be stable it could even be up a few basis points. Brad you know if what's happening currently continues through the quarter.
Great. Thank you I'll jump back in Q.
Hey, Thanks, Brett.
The next questions from the line of Michael Rose with Raymond James. Please proceed with your question.
Hi, guys. Thanks for taking my questions I'm, just wondering to go back to the so the Maui.
When you when you guys announced that you guys sort of mid 2020 close just given the impacts of the pandemic could that be pushed out a little bit essentially.
[noise], Michael we filed the initial drafted the S. Four in the regulatory applications and I just don't have any further update you at this time on what the timing might be on the on the proposed a previously announced merger.
Okay.
Maybe just switching a credit.
The comments on the stress test of the energy portfolio, which is which is good to hear.
Can you give some color around maybe some of the other stress categories like hotel motel, specifically and.
No what some of the stress test metrics that you ran their look like both under the incurred model and what it could mean potentially under Cecil. Thanks.
Yes, Michael this is Dan.
Let me talk about just the hotel motel book, we stressed occupancy as you can imagine and all the revenues there coverages that they would have.
I think it's important to note on that portfolio that it has been built with.
A very granular process as we do on all of our series. So average loan size is smaller.
It's always been important to us to have cash equity upfront as opposed to appraise equity that's absolutely. The case in that book as well all of those credits were performing well prior to co. Good the vast majority those 90 plus percent have meaningful guarantees in place with.
Capacity.
The overall.
Debt service coverage on that portfolio was strong before some of those a few of them I think will suffer but most will come through just fine. So we expect no material losses in that portfolio.
As it relates to the retail Siri as I already commented the same there a strong cash equity 93% of those credits are.
I have guarantees on.
Again that portfolios performed extremely well.
Prior to.
Co bid as you recall, there I think as we indicated in the deck. There's over 1000 loans in there. The average size is one point sixmillion.
All of them are in our footprint and all the operators have been in business for a long time and so therefore, we expect that those will will do fine as well.
There are payment deferrals and of course in both of those categories, but.
Hopefully that gives you a little more color.
Yes over the 6% deferral rate I mean is it mostly in those categories.
I would say its broad across the whole spectrum of a.
Real estate loans that we have.
I would say retail cfouri clearly has a higher percentage in there.
You are in the twenties, 22% I think is the average that we have in there the hotel motel book as you would expect based on the fact that most of the hotels in the U.S. or shut down.
As a much higher percentage closer to 50%, which is not unexpected given the current environment.
Okay, and maybe what just one final one from one from me I'm just around the <unk> the cod the commentary or language in the press release around the potential goodwill write downs and we've seen at least one other bank I take a goodwill impairment charge. This quarter. So it just walk us through a the thought process for not doing it. Thanks.
Said that comment in the press release on I. Appreciate you asking that question. So I wanted to point that out.
We felt like given where our stock price was you know there was a trigger to evaluate our goodwill and we have had a third party valuation done at this point that currently indicates that we do not have goodwill impairment.
Our auditors had not completed all of their procedures to get fully signed off as of yesterday. So.
It's it's not completed so it's provisional at this point you know it is a possibility that they could come back with questions or changes in and that we could end up recording goodwill as at March 31st.
Good will impairment I mean.
Got it alright, thanks for taking my questions.
Thanks, Michael one other thing.
Regarding your question, Michael and I think earlier to mass initial question around Cecil and why we chose to keep the third loss model this quarter versus Cecil.
And then your follow on question, Michael which was I think pertaining to you.
How much different are our loan loss provision could have been in the quarter under cecil versus versus the incurred loss and we have run our.
Model side by side for this quarter and the actual Cecil charge was right on top of the incurred loss model charge for this quarter. So there was no material difference for this quarter now obviously, we'll watch that as Michelle said, we understand why do you know at some point, we're just deferring this and not to come back and make the.
Injuries.
But right now.
As I understand it and Michelle Dan good can comment but.
It was the proposed Cecil charge under our current model was right on top of the be incurred last month.
Thank you.
The next questions from the line of Brady Gailey with KBW. Please proceed with your question.
Hey, Thanks, Good morning, guys good more brain.
One more question on the Cecil delay I was wondering if this is an opportunity you guys to potentially close the CCBI merger and then adopt Cecil and that would allow you to put the Steve So mark on the new combined.
But I mean it effectively this could this potentially be away for you to put an additional mark on the.
CCBI is acquired loan balances as well or does the seasonal marks still have to be.
As of the economic backdrop on January one.
I would you say that that really didn't have any impact on our decision to defer adopting celebrating.
Okay, and then maybe just bigger picture David.
A lot has changed in the last four or five months since you announced the GCB ideally hub.
Oil rates coded I mean, there's a walk the top and maybe just give us your updated thoughts on how you view, both the positives and the risks of the pending TCV our merger.
Hi, Thanks, Brady I just.
Unfortunately don't have any update this morning on the.
Previously announced merger with Texas capital, we are as I mentioned earlier continuing to assess the impact of cobot are you on our on our balance sheet and on our income statement at this time and just can't comment on Texas capital.
Okay, Alright, thanks, guys.
Thank you as a reminder to ask a question see me press Star one.
Next questions from the line of Michael Young with Suntrust Robinson Humphrey. Please proceed with your question.
Hey, good morning.
Well Michael.
Burnouts one more question regarding the merger, but it is from the IB TX perspective, I'm just curious if the shareholders were to vote down.
Or not approve the merger on on your side of the equation would the 150 million be required to be paid to Texas capital.
Really have no comment on that at this time.
Michael appreciate the question, but.
We did the transaction is subject to as I said, a moment ago shareholder approval and regulatory approvals, which are in process and really don't have an update on timing or status are really our view of it.
Okay I was just trying to ask procedurally, but.
I guess bigger picture just on capital.
You know kind of looking at levels now and then looking forward at potential growth opportunities that are out there, especially with warehouse balances are likely to be pretty strong into Q. Just wanted to get an update on for the how you're thinking about growth relative to capital at this point.
In the cycle.
Yeah, we had three point.
So with Dan 3.4% growth.
For the quarter, excluding the warehouse, Michael and that feels to us like a pretty good.
Rate of growth in that 3% to 5% range maybe for this year just knowing what we know now it's obviously very hard to predict what you know what things going to look like over the next few months. The one thing I think that you.
Okay.
On offense, if you will and will enable to getting market share.
By having a clean balance sheet in clean credit we've avoided.
Struggles with the regulators in terms of problem credit and being in the penalty box. So to speak. So we have in these opportunities in the past at least have provided us really good opportunity to grow relative to our peers and we expect that to be the case this time as well.
Okay.
Maybe just one last one I I don't know if you have a breakdown of the reserve on the few kind of specifically called out a loan books hotel motel retail in energy.
[noise], Yes, I know there are no specific reserves against a those books that you mentioned there Internet energy you have a specific one that we added this quarter for 2.8 million on one specific credit which is a long time classified loan we've had.
And we just added some there but as it relates to the retail theory. The hotel books. There are no specific reserves or extra allocation whatever added this quarter, which the general reserve against synergy, though it's a 4% is the reserves on the energy book at this point.
But but theres been no build of the general reserves I guess above the just kind of normal book for hotel motel or retail at this point right.
Not at this point not specifically for though I mean, we did build a general reserve to for the overall right and then they the economy that I wouldn't say with specifically allocated to any of those portfolios. Yeah. The $8.6 million charge, we took this quarter, Michael or I'm, sorry point $3 million charge for loan loss upper.
Division related to some of the specifics Dan spoke about but also a general bill for the coated 19 stress on the portfolio that that we were seeing both under the incurred loss and Cecil model and you know is we think about it going forward. We we've been talking about a lot and Dan and his team have really been doing the hardware.
Work to inform the discussion, but we expect right now today, we expect slightly elevated.
Loan loss reserves over the next three to six seven quarters.
Depending on how slowly how quickly how slowly we come out of this or how quickly that economy recovers, but you know we're at this time as Dan said, which the granularity of our portfolio. We don't expect those large.
Charges from quarter to quarter, Yeah, We'll we'll we'll we'll slowly build the reserve as we as the models indicate we need to but you.
We had it adds up to date put anything specific side for the hotel motel rains other books I.
I think the other thing to note is that our day one charge for Cecil is $80 million and so had we adopted cease all the reserve would've been about a 1.25% in total loans at the end of the corridor, which we will have to do at some point so.
Right, So we're operating or that.
While we haven't adopted season, we're obviously paying close attention to what it does and what it says one in a quarter percent. Yeah. We feel good about that from historical standpoint, where we've had typically around 1% between our reserve in any marks on acquired loans generally been in that 90 to 110.
Bips now with Cecil we'll have a starting point year, but 125 and could go up from there we if we see the need.
Okay. Thanks.
Hey, Thanks, Mike.
Our next questions from the line of not only with Stephens. Please proceed with your question.
Hey, Thanks for taking my follow up won't wanted to ask about operating expenses, a pretty noisy in the first quarter I I believe you estimated that the core number in one key was around.
$73 million once you remove the noncore items can you provide a outlook over the next few quarters on that core Opex number. Thanks.
So what I would say, Matt is that and that doesn't expenses for first quarter were elevated I think about a million and a half and that's still primarily due to professional fees. If you noticed that line item was up significantly even from Q4, which was already got significantly.
And we do know there is some nonrecurring related to that compliance project that started in the fourth quarter ended in March and then the acquired litigation fees have been outsized in fourth quarter, and then first quarter and the outlet for that expense should go down.
Significantly we do know at least in Q2 that well because everybody had to stop traveling and doing deposition. So and so I I still think that that you know 71 to 72 million and that I got into at the end of Q4 is still a good run rate when you pull out those expenses.
Got it.
Okay. That's that's helpful and then circling back to the retail portfolio you guys gave us some great new details there a that it seems like the media has picked up on went collections from tenants with very low in April.
Are there any details you can share with us about the the rig collections within your retail portfolio.
Yeah, Matt I think you know the percentages of rents collected we don't have a a stat that I can provide to you here clearly the fact that we've had request for payment deferrals. In this book as I mentioned earlier is an indication that the if you were a non essential business and you.
Ed to shut your doors for some weeks here.
You can expect it those tenants went back to their landlords today can you help me out here and so there are some rent abatements well we have seen is interesting in many cases the rent is not.
Waived, but it's been deferred and so they'll give them.
90 day period here or whatever period, depending on that specific tenet and then they're taking adding it back in about a year from now and allowing them to just add to whatever would've been the normal rents. Some portion of that so it is a future obligation of that tenant when they return to more normal times as an exchange.
For helping them right now so but I don't have a stat on and I think you can expect that many have more asking for some assistance, particularly if they were a non essential.
In other cases, where you had essential businesses still operating there there's still paying but.
Does that help you.
Yeah. That's that's helpful. I appreciate that I guess as a follow up.
The retail portfolio, obviously, a little bit larger independent bank versus some of your peers and it sounds like it's at the core competency something you guys have done for a while any more background you can give us is at this.
Always been something core at the bank with its picked up an acquisition any more history, you can give us on.
On the the retail portfolio within the bank.
Yeah, you bet you know we've been in that business for a long time, Matt and have worked closely to a with our borrowers and our bankers who been at this a long time to structure. These in a way that are built to last certainly recessions and would expect.
As I said earlier based on that and based on.
The cash equity in the guarantee that we have and the kind of performance we've seen in the past.
The capacity of those guarantors to support their deals we fully expected these will will.
Perform well certainly there'll be a slowdown here as we're seeing now but expect him to be that and we have been added long time. So this is not a something that was acquired through an acquisition.
Okay. Thank you.
You bet.
Thank you.
This concludes that question answer session and I'll turn the floor back to management for closing remarks.
[noise] if there are no further questions. We will conclude the call I really appreciate everyone's interest in a independent bank group today and I Hope you have a great day be safe, but.
Thank you. This concludes today's conference just you may disconnect. Your lines at this time. Thank you for your participation.