Q1 2020 Earnings Call
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Hi.
[music].
Chief Financial Officer. Please help you know called earnings when these in this mornings presentation are available on the Investor Relations page onto the website I don't do you still feel itself you thought he.
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<unk> optimal sound quality before we begin pinnacle goes not provide earnings guidance or forecast.
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Thank you find by asked if you regulation G.
Hey presentation of the most directly comparable GAAP financial measures and a record finish it up and non-GAAP measures. So that comparable GAAP measures will be available pinnacle financial website at www Dot Pete and ask Pete dotcom with that.
I'm now going to turn the presentation over to Mr. carry Turner being a false president and CEO.
Thank you.
Oh.
Good day.
Got a lot of information cover today.
The topic.
Oh got lot informational.
Same pandemic impact our response to it.
Ladies and both right.
Got color commentary on our adoption of seasonal stuff.
Or.
I'm much more in depth and.
Uh huh.
Okay.
Good morning.
Jamie, including a deep that need to be a gene I would expect is whether or not I don't worry advances Atlanta market. We remain excited about so I'll try to move quickly.
On every formerly called for a good number year, our financial bag, primarily in called it gives a view of our long term focus.
Execute.
Right.
For many are focused on that made you then bag.
I came back they make their responses.
Obviously newsworthy items and honestly in our first wrap this presentation, we let them back some bandini.
That's true then.
Now all investors over the last number year guarding items like our ability to drive revenue producers gather moguls toward above Lauren called bonds and growing the income.
As long term care, all right, so well Uh huh.
19 pandemic in great detail, we just felt like they did innovation began where we left all dropped off a brief insights into underlying magic former spot impacts.
Oh no material you then sees our decisions and actions been both both an aggressive.
Inconceivable to me that though from basis I guess that.
When 2020 years old.
Been about earnings in 2020.
They do ultimately have been about building earnings run rate for 2021 and so.
It's our intent to execute on fundamentals that produce long term shareholder value well adopted more defensive posture in early stages of bad debt me in order to best position ourselves for turned more normal run rate as we head into 2021, so forth danger, Oh, the scope disclosure, we always so yeah.
Hey.
But today I want to move quickly the non-GAAP measure golf honestly bar.
These are the things that we're managing yes, a total revenues were up in the corner and up 10.8% year over year I think that's consistent with large volume revenue <unk>, we've been adding over the last several years model works of course, when they need P. S. One quarter was 39 cents.
Primarily impacted by the elevated vision in response to become and Debbie a will review then they don't just few minutes and then thanks, Nate Yes chart you can see pre provision net revenue grew 2.8% lane for north of 11% on annualized basis, and that's a really important measure when considered first.
Paul or building, one store, but secondly, our ability to elevate our earnings run rate and 2021.
Well in Bob volume growth, namely during the quarter and the kinds of core deposits. It was our largest road for ever.
Ladies primarily straight animals, the internal it says that we placed on government love for deposits over the last six nine months no doubt both loans and deposits right backlog building, where did the light or their numbers would suggest that loan volume wouldn't man.
Slightly better than what we then if I didn't indicate the problem is a this thing would have been very strong and way down of our plans expectations and general Oh asset quality strong both npis classified assets were flattish net charge offs jumped up horses lump it or both.
No that involve the for any length of time, our charge offs are generally lumpy.
And this chart there you can see since the last then the borders men 20 basis points or higher.
Well review that greater detail shortly and.
Hi in fact harsh George all where they were not coming later on Oh, sorry, 30000, but summary for I think right formats on the fundamentals Com wasn't present reserve Bill primarily in response to the uncertainty surrounding.
And then let me turn it over to Herring bought a little more color commentary on or before we begin to examine.
The impacts of offended.
Thanks, Terry and good morning, everybody loan growth was solid for the quarter end of period loans increased by 600 million. During the quarter was about 250 man attributable to commercial loan growth with most of those we believe in response to the pandemic bar commercial borrowers as a result organic loan growth, we believe within a 350 million dollar.
Our range for the quarter results and about 7% annualized loan growth, which we believe is admirable given the environment.
Now deposits as drew mentioned it was a big deposit workforce and appeared deposits up almost 23% <unk> core deposits are up 22% over December 31st.
Point as many of you know we modified our annual cash incentive plan incorporate a core deposit growth in rate component.
First quarter was a great work from core deposit growth as we sit today, we think our modification is working well more on incentives lighter when I talk about expenses.
Next to the usual update to our loan pricing won't spreads held up really well in the first quarter. So we're pleased to see that whole spreads will continue to hold in the second core.
Impacting first quarter lob were long youre, absolutely spread of lobby that bonds I will spend a lot of time in the first quarter pricing below that bonds and beginning of March level was around 40 basis points lessons have been set substantially all of our alarm or loan repricing first month March was negatively impact.
Going into the second quarter. We finished March at three by 8% on LIBOR loans with a lot more well above that bonds were anticipating a lot more will work its way south towards best bonds. So we will see absolute yield compression a lot more credits in the second or a modest amount. It just depends on how quickly how far are lot more moves during this time.
Pork.
It seems like you spent a long time since we talked about deposit betas, we do believe our relationship managers do a bang up job managing our deposit cost in this right department and the negotiated right. We've achieved 117 basis point decline as June of 2019, our relationship managers were very much into right environment in our prepared to have more.
Discussion are quite nice about rate decreased.
At a minimum we should experienced decreases the CD rates for the next couple of quarters as repricing occurs all things considered overall deposit rich should be down in the second quarter.
A busy swag at some important information as we head into the second quarter.
I'm chart on the top left goes back to 22007 and tracks our NIM in relation to fed funds parted ways. We all know we've operated in a zero rising rate environment. Before so this is nothing really that news. The chart reflects the longer to zero rate environment last for better our NIM performed substantially all of US dealt with we're headed towards zero raising the bar.
And the pandemic put along when in those sales and certainly increased speed. It took to get there looking forward. We've got several issues impacting first quarter now and then also impacts like importantly, no.
Impacting the GAAP NIM is obviously purchase accounting, which is shown in the chart at the top right. We recognize approximately 7.4 million of discount accretion in the first quarter, who knows where we'll end up for the full year. My bet that there will be left in the 23 million, we're projecting given payment deferrals mellow right Department that said, we believe we had a solid quarter from them.
After considering the impact of purchase accounting.
The bottom chart detailed the impact of our hedges as well as hedge on winds at our recent liquidity bill carrying the shrinkage in LIBOR spreads that I mentioned earlier will be an increase in revenues from a lot more low four we still have on balance sheet. This for last four about another four and a half years as the chart indicates for increasing the value as.
A lot more continues to fall.
Recently, we have about 1.2 billion in client floors that are currently in the money will also become more valuable should lot more continue to Paul. We've also added quite a bit of liquidity to our balance sheet and the tend to add more in the second quarter as we possibly evaluate pandemic. We've got ample sources of liquidity to fund our franchise, but we believe that was bridge.
On this additional with wood.
Good morning to Bill will likely result in more net interest income in second quarter, but will also result in some NIM compression.
We always have the option to reduce this liquidity during 2020.
Into recovery comes more in view.
As Terry will cover more deep in detail in a minute of significance in the impact of the TPP lending program TPP wasn't incredible three four weeks round of your significant resource allocation a lot of blood sweat and tears Muslim very dedicated associates, but if it happens like it's supposed to happen, we'll definitely soften the financial blow the pain.
We're also developing strategy around the main street program currently identified those borrowers that might be well suited for but the main street, there's no PPP.
Now see I'm, telling all we really briefings were more than $70 million fourth quarter up more than 3% of the same quarter and 29 team BSG contributed approximately 59 million, which was slightly less than we anticipated, but more on bankers healthcare group segment.
Our other fee businesses had a strong first quarter with residential mortgage leaving the way of approximately 76% year over year mortgage had a great first quarter correlating not only with drops in long term rights, but also with increases in the number of mortgage origination.
Again, great markets are very helpful. With this line of business the national residential mortgage market is going through some strategic issues that presents what's difficult to speculate overall this is headed into how it might impact us. We just believe we haven't best board renovations in our markets are there to help close to get through the current uncertainties.
Wealth management had a big quarter and brokers as they operate in much the quarter with record market Haas and we may be one of the first one of the few financial institutions in the countries are considered trust.
Growth engine.
All in all supervise the quarter for us.
So now briefly on expenses salaries up largely due to increased personnel this quarter compared to last board as a flat in case, where throttling back or hiring focus will focus on Atlanta, which Terry will discuss in a second critical revenue powers, rather franchise as well as critical support personnel, we produced as we've reduced our hiring plans.
By 40% and 20 point.
Our incentive accruals at 50% at quarter end as I mentioned, principally the fog phone and worked well for us in the first quarter. We will continue to track the as opposed to see what happens the rest of the year. We concluded 50% was up was better right now, but suffice to say given first quarter results made claims left break our way for the best hole.
Last quarter, I mentioned that our 2020 expense run rate should approximate a mid single digit increase over Fourq you might teams results slight modification with our belief that our expense run rate should now be less than mid single digits for 2020.
I will go into this more on the next slide we've incurred in the first quarter, a 5.2 million dollar lending related costs related to our building of our off balance sheet reserves as a result of adopting seats.
So we're not expecting that amount to repeat next quarter granted the absolute level of our unfunded commitment local determined that so the length of death, the pandemic could play a critical part of where we are at the end of the second quarter and the length of the at the end of second quarter.
Now, let's see.
I've got a lot to say here. So hopefully we can produce what we have to say about these one futures.
No. We're all weary this topic.
At the top slot as our rendition of a table that we've seen several presentations so far this earnings.
Are they want allowance ended up at 67 basis points, which we believe is consistent.
With the guys given for several quarters.
We have slightly more than $10 million in charge offs during the quarter due in large part to the partial charge off from a CNR credit that was criticized going into the pandemic and with pandemic finds itself in need of equity sport sooner than anticipated, which is working on and our specialist asset folks.
Have a reasonable degree of confidence it will eventually receipt.
One of the first things our entire special assets grew did in light of a pandemic, we'll spend more than a week as a group going back through every special asset credit at the specifically address the impact of a pandemic our criticized classified loans.
Okay, great comfort in the judgment of our special assets, saying this is not there first rodeo.
Lighter tail, we'll also discuss how we've dug into hotels restaurants et cetera.
In other segments of our loan portfolio for the quarter charge offs in a 20 basis points and other real estate increased to 2.4 million.
After provision to run right Theres, obviously much judgment involved in all of this but all other conditions being equal our provision would have been at the table indicates in the $14 million range again you'd have to assume our net charge offs within the same has never had a pandemic not occurred. So there is lot of guesswork.
The allowance for loan losses on an apples to apples basis, we think would have been under 69 basis point range at quarter end.
Now isn't totally unrelated permit.
Based on modeling push we feel like we've been concern here, we've taken in a lot of relevant inputs and observations inferior allowance that takes into consideration a wide variety of factors. We do use a third party source for our economic projections, which uses national level forecasting metric.
And so second third party, we use for asset liability modeling. So hopefully there's some synergy advanced by using the same board metrics.
There are four economic scenarios in our model ranging from optimistic baseline the pessimistic to severe probably not too dissimilar to the more major adverse and severely adverse nomenclature that we've heard about Inc. conference call thus far.
In comparison to previous relations by other banks. This quarter. We've also weighed the various mariner scenarios with the most adverse scenario with the most adverse scenario, having a weight of 25% and the optimistic being only six.
The difference is allocated basically evenly between baseline pessimistic.
As to economic projections anticipated unemployment seems to get a lot of attention with our severe scenario ramping up to more than 20% and the fourth quarter of this year and averaging almost 90% for all 2021 with 4% unemployment returning five years from now in 2024.
As the GDP, our severe bottled Ross GDP by 25% and the third quarter. This year with a rebound the current GDP at 2022.
I assume all this points to a U shaped recovery.
Our reasonable as the portal period is around 18 months. So our calculations are weighted to a time periods that incorporates the bottom the and then incorporates the front end of the recovery, but another taking account the eventual return to some degree of norm.
Back to the top chart on slide off balance sheet reserved not something what routinely talks about in my opinion I believe its accounting on steroids.
$16 million Koranic Roddick balmy involves expense this quarter significantly higher.
And what we've booked in our history that amount represents the anticipated loss content of the unfunded loan portfolio should alone which would be funded ultimately result in the last.
Most of loans should this reserve of seeing all lines of credit, which are very short in Missouri.
All banks consider one on that for their layoffs at the end of quarter, plus $16 million and the off balance sheet reserve. So our allowance for credit Kroll credit losses around 1.17%.
Just a quick note seasonal has been in development at pinnacle for over three years more money to vendors that off your acknowledge and likely significantly more expensive thousands of hours spent about 10 to 15 layers of our firm and getting the standard adopted.
As an expensive accounting standard and its middle Slog I want to spike of brining in there we get us at this point.
I wish I could give them a troubling and tell them. Their work is done but we all know there's always more work coming.
The Big question asked thus far this earning season, but no self respecting CFO will answer is where we have more provision at the analyst second quarter.
There are a blooming in assumptions at play here, but obviously, our sat group worried Hello.
We will get updated economic projections, and we will take the pulse for borrowers throughout and at quarter end.
Organic loan growth the impact of the cares Act and other government programs losses will have to be considered.
Many factors are outside our control such as the development may have hours government imposed restrictions on trade and trial and the information that may come to light with increased debt.
There's obviously a lot and think about this year.
Our best play right now is to use our models decide largely around economic projections, so thermoforming appropriate all else maybe.
Like I said I think we've been concerned here.
A 100 million dollar provision as a significant investment for pinnacle into this into a period of this much uncertainty as more than 20 top our usual provision run rate and results in an allowance of more than two times, where we were at year end.
Posted great session. The term green shoots became popular.
There's a lot of discussion today about restarting income.
Pete So other programs that make up the care Sac and whatever comes next has to have positive impact. So we remain optimistic not only about the markets, where we operate but in our business model and the 2500 associated with more to come.
As Terry mentioned this management team a second operating position to get totally behind as quickly in an effort to getting as much clarity as we can about our run rate going into second half of 2020 and into 2021.
Now some comments on capital.
First we did redeem about $80 million of sub debt early in the quarter that were home over issuances from previous markers. We also acquired about 1 million shares of TNF the earlier in the quarter.
We've now suspended our buyback program, so we getting more clarity as to the width and depth. The pandemic, we're not likely to remain approximately 130 million a bank sub debt that was previously planned butler's for redemption in the summer.
Additionally, we currently anticipate maintaining our dividend for the foreseeable future.
Lastly, we did experience tangible book value accretion during the quarter as our management remains focused on this matter.
Capital ratios did experience some dilution by 20 to 30 basis points.
This quarter back to levels more consistent with about a year ago.
Our 100 300 ratios were basically flat with the fourth quarter.
Our participation in the PPD program shouldn't impact regulatory ratios once those funds are fully funded in the second quarter.
The company cash is sufficient carry about six four quarters of dividends and debt service.
Basically we feel good about our capital obviously credit will be the driving force behind any changes to our previous statements like probably every investment banker listening as Paul we too have been conducting stress testing and burned down analysis using multiple scenarios, we've incorporated great recession loss rates the pass off rates historical charge off rates and others.
Scenario.
It's way too early in this crisis to conclusion, our seasonal and stress testing outgrew is accurate, but we walk away from our stress testing feeling that are very strong with that our capital is strong and we will need to diluted common shareholders. As a result was saying that.
That's why it's movement not inconsistent with what other bankers are talking about on conference calls the PPP program will be significantly impact in the second quarter and Terry will discuss that just a few seconds. All in all its steady as she goes right now the last few weeks have from some of them as well as all bankers.
Challenges.
We couldn't be prouder of our couldn't be prouder or 2500 Pinnacle associates. Our goal today is to support our clients, particularly our borrowers all the while making sure that we are making prudent credit decisions. We're here to provide our class the capital they need to weather. The storm. So that they initially are able to thrive in short order.
With that I'll turn it back over to tier.
Okay. Thank Barry in my view isolate NAFTA inputs to the pandemic Q1 was an excellent quarter for us in terms operating fundamentals, but obviously by the end of quarter, we were concerned with protection protecting our associates, our class our communities and our shareholders I can't tell you how proud I am with leadership.
And the aggressiveness viral response as you can say on this timeline, we actually activated our pandemic response team on January Thirtyth as just 10 days. After the first known case in the U.S. and signed a world Health organization declared a global health emergency.
We had already done ordering slide like hand, sanitizer before we had the first cases of community spread in the U.S. and early ARPU Cameron Street business travel inventory in the personal travel plans of ourselves just as we entered into the spring break season, and communicating with associates and class by health safety prior to the world.
Organization, declaring pandemic on March 12, we limited meetings and events that less than 15.
That was three days before the CDC to debt then any great no more than 50 and well before subsequent safer at home ordered by a number of governors and our footprint suggested Lindsay gatherings less than 10, which of course, we can glad with on March 18, I believe we will want to the first in our footprint to convert all options to drive through only.
Because we already had great big percent of our back office associates working from home and our March Twentyth, we rolled out a relatively aggressive loan deferral program to assist in fact as borrowers.
Talk more about that here and just a few minutes.
I don't want to round out to each of these actions and so many about an hour commonplace, but it does appear to me that our team was very bold in his decision, making and on the front end virtually all these issues and.
All these things in fact as associates in class have.
And worked well and we believe our clients and ourselves it's been well protected in fact today you have only three confirmed cases firm wide.
Two natural one in Memphis.
As it relates to date and our class I would say, we aggressively reach that glass to make whereby if I'm from program in general our unfurled restructured for 90 days with an ability for a second 90 days should bar where needed with no further documentation.
You say on the left this slide total deferred balances were roughly 16% and not surprisingly were concentrated in hotels restaurants dinnertime.
Let me based discuss your loan from utilization some dissolved views it as sparingly as possible I'm not the critical that approach at all.
I.
See some merit, but are they wouldn't be player. Our approach has been the opposite it's been our intent to help our glass build as much liquidity is possible not knowing the depth and duration of the pullback.
And of course as Harold mentioned, then goes most impactful for clients and most consuming effort. Prior farm over the last three weeks has been the payroll protection program. We received roughly two and I have billion dollars in apps and we're all from hedge gain sta approval for $1.8 billion.
In other words, we were able to straight roughly 70 to send requested funds.
Well I look at it based on the asset size of our from compared to commercial banking asset nationally.
And a saving and even distribution of the $349 billion in funding we would have been expected to distribute about 490 million. We've made we handled roughly three and half the four times, our share and while I'm incredibly proud of that and all the subjects. This from many.
Work literally night and day the skills needed. They did any of our glances deserved funding were unable to receive it and so as you might get as we've been lobbying Congress did right thing and refund the program by at least another $250 billion.
In the event they do it's our desire to see every one of our eligible glass get funding they need and will dedicate ourselves that effort, regardless of the time and effort required to do it just a couple of the observations on the obviously the largest number loan comes from come from the smallest businesses almost 31 times more.
Or smaller loans.
Approved then and SDN in other words in the that's the lowest tier less than 350000, we had 31 times more of those than the ones that were in its highest tier greater than $10 million.
Fee income associated with all that volume of loans.
That was part of this the first $349 billion allocation translates to roughly $50 million and the they can be recognized over the short lived those loans as a maple down payment on the special loan loss provisions made this quarter.
Our intent to be a successful on a second round doesn't Congress doesn't the.
Rape on that program, we have as many applications yet to be process as we processed in the first phase.
Let me say that payroll. Thank you program because it was significantly under funded in terms of the man, but most banks across the country in a position under serving clients very few bites consequence, right and get all asset they receive process before finding ran out and course deal one of those businesses.
Then get funded and then you may feel like your body language down regardless of how herculean effort was to get approved by the is the day.
We took just under 13000 applications as I mentioned, Dublin doesn't have a billion dollar who get 1.8 billion of that a pretty.
Our associates. Thank you know in addition to the funding we had to.
Get our class prepared beforehand on very short notice it big work in nine day to get decision to advise and middle class.
Prior to apply once that we're committed by the is the eye on April the third it was our genuine desire to get all our classes in front of the Q recognized banks would like to be filing for scarce resource.
It's hard to believe that stand up to new systems in a matter of days the process all that volume understand but glasses didn't get funded frustrated and we are to honestly. Our associates continued to work all weekend trying to ensure that those unfunded apps or in a position the launch in the event.
I understand what it should and authorizes additional funding.
Five frustrated by those who didn't get funded for the most part our work to advise and look after our clients stood out versus our competitors and then widely praised among our clients and then the local press.
It is obvious but now they're probably know bars that won't be impacted in some way by cope with 19, but clearly there segments like Redmond, Telltale retail and entertainment that will be most impacted so I've asked Tim uses our chief credit officer ride a deeper dive into those.
Most of our portfolio.
Thank you Karen good morning, everyone.
Credit perspective first quarter 2020 was a continuation of our solid performance for metrics such as past too.
Nonperforming assets classified assets and net charge offs as Terry mentioned earlier, we did experience can increase in net charge offs from 10 to 20 basis points.
Despite was the result of the single credit that was directly impacted by Cobiz 19.
Absent this credit our net charge offs would've been inline with prior quarters.
Little more color on that credit later.
Before I get into the following slides first a few overarching comments.
What we don't know, we're starting to use when economic conditions will stabilize.
Largely depends on flattening of the pandemic curve.
How high unemployment ultimately gets and whether the rebound is V shaped or a U shaped curve.
What we are focused on today are those things, we can do to help our borrowers and minimize loan defaults.
Our strategy is the best offense is a good defense.
You've all heard Terry paying many times over we hire experienced bankers you know their clients.
The same principle as always held true as we've grown our credit team.
We only higher very experienced senior credit officers. We currently have 24 senior credit officers and their average tenure is 28 years for years of experience.
We have our senior credit officers paired with our financial advisers in virtually every one of our markets credit officers go on client and prospect calls with financial advisor.
Further rounding our credit discipline is our credit analyst team of 96 employees.
Our Friday being less have an average of 20 years of experience.
We believe are largely unique line credit model of partnering experienced credit talent right next to the banker will service well during these difficult times.
Here's what pinnacle is doing to address cope with 19 challenge.
Payment referral program, we provided deferrals for real estate seen islands and consumers approximately 3.2 billion.
We proactively reached out to clients and the most impacted areas of our loan book.
Streamlined 90, plus nine payments deferral.
For commercial increased clients requesting a second 90 day extension. We built this survey tool to help us collect and quickly aggregate client responses to targeted questions.
We believe payment deferrals or a proven step to help our clients bridge to the other side of Coca at 19.
Second.
Hey, check protection program loans.
As you just heard Terry discussed Pinnacle received approximately 13000 applications totaling roughly 2.5 billion and obtained FDA approval on just north of 6000 applications totaling roughly 1.8 billion.
We believe the additional dollars to our clients will help them better endure this difficult time.
Third.
Enhanced monitoring strategies to produce more real time data on severely impacted segment.
The next few slides will briefly cover several of the segments, most obviously impacted by coking.
But taking a step further to understand Covance impact we partnered with an industry research firm I have a score.
Hi, this in a team from pinnacle work to stratify, the Redskin RC Night book.
We took I. This is time proven historical quantitative metrics.
Industry risk level and trend of risk.
Combined a qualitative overlay for impacted social distancing.
Product results in the stratification of our Cnine book into categories have highest risk high risk medium low and lowest.
We will use this stratification to target to time and energy where the risk levels are high.
Pinnacle is continued its approach and building a well balanced in granular portfolio. We've maintained our discipline regarding concern because house limits for pre segments as well as we're seeing an eye sub segments.
The Pie chart on the right provides a quick glance of these segments that have been most impacted by co bid.
And then relative size to our loan book.
Here's an attempt to be as transparent as possible rewarding regarding our loans to the hospitality industry.
Chemicals approach a blending two hotels sponsors and are well capitalized and have a long history of successfully operating hotels has served us well.
As of March 31st we only had one nonperforming healthcare alone of 3 million.
This was an ASP among that was originated by bank that bank of North Carolina had acquired years ago.
A few items on the page to draw your attention to include weighted average LTV of 50%.
We have provided payment deferrals for 74% to provide and flexibility.
Hospitality projects, our finance largely in our geographic footprint.
Many of our hotel sponsors are also very large depositors with pinnacle.
The second slide on our hotel book will provide detail about our 10 largest hotel loans.
Some noteworthy details to point out include.
81% of our exposure is in the Hilton.
Mary.
Holiday Inn in high.
We believe this brand identity will better position this position our portfolio.
As you can see in the chart a conservative Ltd position on these 10 largest.
Most of our hotel exposure is limited service.
No luxury or resort brands.
Only 18% of our hospitality book has not maturities in 2021 in 2022.
Hopefully by these days the impact of cope it will subside.
This next slide.
Provides details of our restaurant book a groups together exposure to commercial real estate developers, who leads the restaurants.
As well as loans directly to restaurant operators.
So no noteworthy point conclude this segment is less than 3% of our loan book.
Pop to exposures are to well no public companies, who operate restaurants. These two relationships represent 30% of our loans to restaurant operators.
The listing on the far right illustrates approximately 25% of our total retail book is being right repay from revenues.
Seven well known restaurant brands.
As of April 15th 44% of our book has executed payment differ.
This slide will provide details of our retail loan book.
A groups together exposure to commercial real estate developers, who lease to retail stores.
As well as clients that operate the retail business together, they represent 11% of our loan book.
Some noteworthy details include no small exposure.
For our pre term loans.
Only 22 are greater than 10 million.
I would be 22 12 are the grocery anchored centers.
31% of our single tenant, 31% our single tenant averaging just 1 million to tenants like dollar general tractor supply 711 in bojangles'.
These are open.
To very granular book with over 800 loans, averaging just a million and a half.
For our pre construction loans, only six loans greater than 10 million.
Thanks to our grocery anchor.
39% apart construction loans are built to suit.
Okay.
This slide will provide some details into our entertainment music lung book.
We have one financial advisors that specializes in lending to the music publishing industry.
Very experienced with the strong contacts throughout the industry.
Most of our loans are in that music publishing space.
Finance the acquisition of song catalogs.
Each catalog is makeup of thousands of wells season diversified songs that are stable from an earnings standpoint.
Average LTV.
Under 50%.
Revenue from a catalog is generated primarily from terrestrial radio and strain.
To a lesser degree sink revenues generated from songs.
And catalogs you can film TV commercials in general licensing.
Only a limited amount of Colgate pressure to revenue was anticipated.
People will continue to string their music, but fewer bars and restaurants plane songs may impact sank revenue.
All loans have appropriate lung loan covenants that permit close monitoring.
Notably Pensacola had only one loan to a concert promoter it was $2 million line with very modest usage.
As we discussed on the call we had one partial charge off in the first quarter of 2020.
The music team had just one talent agency are we client.
Due to cash liquidity reasons. This relationship was transferred to our special assets team during late fourth quarter 2019.
Significant equity was injected into the company in early 2020.
Yes, curing no liquidity issue.
Ben Kallo, it hit and revenues completely stopped.
We do not anticipate any further loss on this credit.
Now, let me turn it over to Harold to provide some similar analysis for BHP and our belief about how April weathered the storm.
Thanks, Jim I've got several charts here on the issue, but I want to move pretty quickly from the top left chart on this slide weve shown on several occasions.
Our opinion is that there has been no loosening, but actual tightening of credit standards at BSG and through all of that volume growth volume growth has been exceptional.
The quality of BHP borrows has improved steadily from the early years of the from they continue to refine their scorecards and increased quality of borrowing base as you know they've ramped up sophistication on credit process as they continue to aim at segments that have high quality borrowers.
Perhaps the bottom right chart may be the most powerful chart I have to offer related to BHD steadily improving credit quality as you look at some losses, Bob vintage losses continue to level out in earlier month since origination thus pointing towards a lower loss percentage over the life of the borrowing base.
Recent pandemic related events will likely calls these lines to point upward, but the quality of the borrowing base in our opinion is much higher than the borrowing base I'm just a few years ago.
Now more on historical charge offs in reserve build there. These are prolongs the play sold to their network of key banks. The Green Bar show. The currently they've got about $2.8 billion in credit with banks, who acquired loans.
Hard launch of annual loss rate, while the Blue line on the chart detailed recourse accrual as a percentage of outstanding loans with these other bank.
They've been keeping a recourse reserved for subsys losses in the mid to high for us over the last few years basically constant with annual losses as many of you know because she's been building their balance sheet, thus maintaining more loans on our books with the eventual goal of issuing debt securities collateralized by these balance sheet loan to deposits from the strategy in our view BSG is creating a.
A more diversified revenue stream and as well as creating another funding source with the securitization technique.
That said during the first quarter Banshee elected to pull back on this training to sell more loans the auction platform, thus generating more revenue during the first quarter, but doing it by generating enough revenue to significantly increase their recourse observed substitution as we all entered into the spirit of uncertainty their business flows have provided in the ability to increase was observed in strengthening our balance sheet core.
Additionally, this year has taken a slightly more conservative position with our outbound sales and marketing they are purposefully electing to aim at more higher FICO scores at origination and backed away from adding any new.
Professional classifications through their portfolio at this time.
Continue to evaluate this position for the foreseeable future.
I agree this is some fairly granular data, but I feel it's really important we're not going to go through in a detailed in our opinion portion a well diversified loan portfolio and may or may be helps eliminate some preconceived notions that BSG adjust Vince.
Sure absolutely important to their franchise accounted for 11% of Outstandings at the bottom toward detailed non medical book that is growing faster than the medical book and represents approximately 14% of total outstanding as of April 5th told deferrals represented about 10% of the total book that number is currently running at about 13%.
So it slowed somewhat these deferrals were part of the cooperation of the purchasing bank. So BG has been working with not only the borrowers, but the banks to help the bars to get through the impact of the pandemic.
Quick sophomore comment about after talking our friends at bankers Healthcare group Dennis lead the group as expected with a 35% unfurl right BSG talks to these Dennis they have learned that Dennis or Halem below merged development and rescheduling non emergency procedures and the summit.
As a result, Dennis Dennis will need to start working six days a week on restart to keep up with the demand I don't know about chief accountant. This is not fun, but given the current economic climate I'm going to look forward to same up Dennis on a Saturday and the very near future.
We've shown this slide before the green bars on the left chart represent originations in the pent up with more loans being funded which is the result of enhanced analytics and more sophisticated marketing platform with a tailwind of pushing more to the auction platform. The first quarter was a great portable origination, but also business flows are strong and should help us hit as we head into the second quarter.
The blue bars are the loans on gain on sale has been reported as these loans are placed with bankers with gain wholesale revenues being generated.
The blue bars increase in the first quarter's results their decision to send more loans off balance sheet and build reserves Alas play from Pinnacle's perspective.
Gold bars represent the loans held up BSG on its balance sheet for which BSG will collect interest income.
Once somebody a restart occurs and the credit markets appear more liquid then all balance sheet strategy will be back on the radar.
For me the auction platform is probably the most valuable component of beasties unique gain on sale model currently they have more than 1000 banks in their network their funding platform as a lot well and very liquid spreads during the first quarter with some of the best in the history of BSG as you know the issues management spends a great deal of time on making sure that this platform has.
Ample liquidity and ready in is ready to acquire more loans at a competitive price.
Lastly for bags healthcare group, they have pulled back or estimates by a modest amount for 2020.
Those were all this is going to end up so much uncertainty as it stands currently their business flows going into second quarter, our strong as they are our borrowers out their meeting their products and our marketing engine is aimed right at higher quality borrowers in the traditional segments. The BSG has significant experience underwriting.
The auction platform is liquid and spreads have been a positive for bankers healthcare group.
Pinnacle remains excited about our investment and look forward to watching our friends at least you step up during this time with that I'll turn it back over to turn to wrap up.
Thank you Carol quickly as yard Merrell earlier in concert with generally adopted more defensive stance were substantially flow when our recruitment effort for the seeable future along with associated expense Bill with the exception of Atlanta, We continue to believe that opportunity Atlanta is a once in a generation opportunity.
And the timing is perfect indirect impacts of coated like social did see nice floor to some extent that R&D associated plant recruiting success breeds confidence that we stress ahead.
And here's why we see.
So much opportunity.
In Atlanta. This is Greenwich data from both the Nashville, and Atlanta markets recovered businesses with annual revenues from one to 500 million and meet the cross hairs represent the main performance across each market and so above average performers are of the horizontal line into the rise of vertical line.
Seems maybe delve rainiest fusion would maybe you get to the northeast corner as quickly as possible as you see what we've done in Nashville is just that.
We have capitalized on relatively poor client satisfaction among clients in the largest banks in the market. Those had the most share has the greatest vulnerability clearly in Nashville, we were at the right place at the right.
Now I'd like to start on right Atlanta, I want to make two observations first of all you'll notice that cross payers and Atlanta would suggest that average satisfaction among clients as banks in Atlanta is generally less strong than international in other words, Atlanta is less competitive in terms of client satisfaction and more important.
Really all of the biggest banks, who possess the vast majority of our business clients in Atlanta suffer from below average per section of the service quality and are therefore extremely vulnerable. It is really an unusual opportunity.
As a reminder, this is slab covered last time finding picture by aspirations there I'm not going reviewed again since nothing has really changed.
And as you can see here, we've been extremely busy over the last 12 13, we haven't pretty well hired our completed initial team has mentioned earlier I do space and things like social business is may slow our recruiting them, let them just a little bit but at this point, we're extremely encouraged by the responses bankers that we're talking to there so in an effort summary.
As our plan for moving forward and this pandemic in general it's our intent to move from offense today advance to slow our investment in growth until the stolen been weather and environment. Once again conditions are unusual ability to take share from the larger unwieldy banks that said I believe our aggressive division revenue producers.
Over the last two years, who were still in the earlier stages of consolidating their client base should result in ongoing growth, albeit at a slower pace and hopefully put us in a position to elevate 2021 earnings run rates faster than figures will continue to manage those things that produce long term shareholder value will remain.
And in a more defensive posture until we more clearly see that the duration pandemic and its impact specifically, we've increased liquidity and we'll continue to do so in Q2, we've elevated our loan loss allowance may blood and although we don't tend got our dividend is that we're still in the capital preservation mode suspended.
In our share buyback and retaining sub that we had previously intended to redeem for the first time since the great recession.
Low in our recruitment hiring and effort devoted Smith build that goes with it and to enable us to maximize pre provision net revenues as an important ex aspects of our businesses posture, operator, we'll stop there to take questions.
Thank you Mr. garner the floor is now open for your question.
I'd like to ask the question at this time, Please press star one on your Touchtone phone.
I will be given preference here in the queue I know.
Dan We do sell you pose your question, but just took up your handset to provide optimal sound quality.
And our first question comes from Jennifer Demba with Suntrust. Please go ahead.
Thank you.
Good morning, Jeff.
First you mentioned.
So higher.
Hello can you. Please please proceed.
With all those as well.
Okay.
42% of your.
And with quest to deferrals that.
Hi.
You talked about.
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Please.
<unk>.
Hello.
Jennifer This is can use to your question was breaking up was the question.
We've had 44% of payment deferrals from restaurants.
Are you asking what the deferral rates on the other segments had ban.
Yes.
Okay well.
Don't have all the different segments with deferral rates. We did include the deferral rights for these key categories.
But I don't have at my fingertips for the different.
Segments.
Jennifer as you say there the deferral rates are concentrated in those segments given that you've got an overall, 60% for right as opposed to very elevated deferral rate in.
Those highly impacted sites.
Oh.
Can you just possible.
What you're thinking.
Funding.
That's correct.
Kevin or sorry.
Thanks.
Yeah. That's great question. Thank you I think we're encouraged by.
An offensive posture it looks like in the state of Tennessee, The state in Georgia in the state of South Carolina. Those are you know a principle.
Operating areas for for our firm.
Rob Mackay heap of.
Chairman and my partner here is active.
On the Governor Tennessees.
Fourth figure out how to reopen the economy as well as the city of Nashville, and so it looks to me that you don't get an aggressive restart.
And as I said, Tennessee, Georgia and.
Floor skewed in South Carolina, I think we think there so what does that mean to us.
Thank you.
You ought to anticipate that will work not this number to the presence guidelines. Another word the sort of got a phase three opening and it's based on watching the decline in cases, and then stepping back in and escalating the.
Progress from there I think you'll see the same thing in the state I know the state of Tennessee that we've got a rapid opening in some places slower opening in the more urban markets like.
Davidson County.
Shelby County, Hamilton County, Knox County, and settlement County, which is up and drive cities. So again.
Pinnacle will then be a function of that and we'll do the same thing we sort of expect to phase reopening as you know weve kept all our branch offices fundamental our branch offices open with drop through service. So there's not a huge service degradation, but we will stagger is we've already begun.
Build in the reopening kits and we'll use.
Shields for tellers uptake of shields, not dissimilar to what you've seen some of the grocery stores.
There are variety of things that are included in this block, it's we're building to actually reopened.
On full service basis.
Thank you for <unk>.
All right.
All right. Our next question comes from Jared Shaw with Wells Fargo Securities. Please go ahead.
Hi, good morning, everybody. Thanks.
Great detail.
You broke out.
Maybe first.
But we've seen so far in April is there.
Expectations for thinking so different scenarios score.
Does that too early to tell for sure.
Hi.
Good.
Well.
Yes, Jared just Harold you know I don't think will be what changes you're waiting just right now.
We'll probably beginning a new economic projections then in short order and then we'll likely get some more before the into the quarter.
So we'll just have to see what those look like but you know as it sits right now went up plan on change in those weightings.
Okay.
Yes.
Okay.
Incentive comp store.
But the flowing through the incentive comp or is there something like eight fourth.
Correct.
The provision.
Yes, I'm not sure I got all your question, we're having a bad connection today, but.
Thank you were trying to trying to ask a question around our provision and how it correlates with incentives is that correct. That's correct, yes, alright data.
Currently the the white incentive program would work is we don't have any kind of exception for provision expense. So that would be that would be included in our.
However, we ultimately end up with respect to the instead of blood.
Okay.
Yes.
And we look the recourse obligation that's on slide 33.
Think of that similar to the.
Okay.
Experts.
Based on actual.
Okay.
The.
Quest.
Yes, I think so.
Excuse me the recourse accrual is there for eventual substitution risks that may exist in the portfolio that's been sold the communion banks.
And so it is forward looking at its tough to kind of cover whatever that future loss rate may be as of March 31.
Okay, and then to keep their interest.
That's just didn't.
Q2, beside just a little bit deferral.
Now BSG is not subject to Cecil So a lot they were those community bank.
Loans would be included enough with up a kind of a similar thought process as the loans that are all of the agencies balance sheet.
So the way BSG looks at the loans off balance sheet is the way they look at it for low loan balance sheet theres substitution risk and that's just merely.
In lieu of credit risk for the levels that are all the balance sheet. If the did I answer your question Derek.
Uh huh.
Sure.
Oh.
That's geared to three I think if I understand the question.
The the loans that are on banks balance sheet, therefore subject to those substitution.
We'll be treated like any other.
My assets made in the deferral.
Is looked at differently for those loans than it would have been passed as it relates to the yards and therefore.
They should put back those kind of thing.
Okay.
That's exactly what thanks.
Okay and our next question comes from Stephen Scouten with Piper Sandler. Please go ahead Steven.
Hey, good morning.
Good morning warning.
Well there.
Yes. It is yeah, I'm not sure to that everybody's questions or break it up so it's not you is that something between you and us so.
Okay I'll try to keep it short.
Can you talk about how much.
Hi, and Eagle.
Yes.
No.
And your patient.
And next thing.
Good.
Yeah, I think that number somewhere in that 2 billion dollar range as far as what's left to draw.
But.
Harold.
I think as it relates to line utilization it goes up and down and today. The line utilization would be at a lower level than it was at quarter end et cetera.
In April is the 250 million has come back to like one a yes.
Is that what you're asking Steven.
Thank you Bill.
Coming back.
No you gave me the recall please.
You.
The level of reserve for would be the equity.
Speak.
Yeah that reserve is about 2%.
Okay.
I guess my would be so much.
It's.
About 3%.
Why would it be less than the reserve for the sub.
The replacement substitute specs per community bank loans.
That's a quite yet.
Yeah.
I think what they're doing it they're looking at it first of all this prepayment losses in the off balance sheet book.
So if if alone prepaid they reimburse the bite for that.
And with the loans on balance sheet, they havent recognize the prepayment gains.
Okay. So that's all right.
Okay.
Thanks for me.
Okay.
And with extended.
I know you gave a lot.
I think the reserve.
But you're exposed.
Oh.
Okay.
But the bulk of expectations.
The only 30 basis points you put in the Brett.
Got it maybe ended up.
Cycle.
In the given full or potentially just.
Great.
There was there that might screen.
Peter is auto parts of it but.
All right well I've been looking at several disclosures regarding.
Regarding Cecil and the allocation of the reserves.
I think by large.
The credit card books are getting closer to 9% to 10%.
I've not seen many disclosures yet on what the C and I will see our E books.
Maybe.
Allocated.
For our peers.
But as it sits right now the way our models work.
That the allocation foresee an i. I think you mentioned 1.3 seems to be reasonable.
Okay. Thanks for the color I appreciate it.
Thank you. Our next question is from the line of Tyler Stafford with Stephens. Please go ahead, sorry, then.
Hey, Good morning, guys can you hear me okay.
Yeah. We debuted last few led unclear down perfect I I've got a couple more on on BHP, if I can and well I guess first thanks for all the details in the slide deck last night I think that was extremely helpful and much appreciated.
And I appreciate the earlier comment around spreads around BHP in the first quarter remaining strong and.
The demand there is still being you know I think record levels, but I guess later on in the quarter uneven so far into the second quarter have you seen any decline in the willingness of those thousand or so downstream banks to buy beach cheap paper more more recently.
Tolerant.
Email this morning from Mount Crawford, the CEO at BSG I think he's the believe it is April will be as strong as it's ever been.
Their paper is still in strong demand and so it looks like going in the second quarter. This far.
Phd will hold.
If I could I can follow back up on Steve Scouts question regarding the reserve between allow us and recourse obligation. The allowance also includes joint venture loans, where they share, though they share of the credit risk with the bank and so that that does dilute.
The on balance sheet reserves.
So anyway, I know I kind of mixed Jeff there was a couple of couple of responses, but.
Did I get to your question Tyler Yeah, I think so I guess I'm just trying to understand how the dynamic with BHP and the purchasing banks are going to play out this year I mean, if default rates do begin to accelerate.
What happens to the demand from those purchasing banks and Conversely, I guess bhs willingness to make those banks hole with losses.
I think what they'll do it continually model.
There are scoring models they they've told us that they tweak those models a little bit their aimed at higher FICO scores currently.
And as when they're not getting into any kind of new discipline. So they won't have to introduce new disciplines to the banks.
And our track record has always been to substitute so I don't think they really feel.
But they will have that much difficulty getting a BHP along the Gulf to the approval process downstream into the banks.
I think what BSG is going to have to do that may be a little more of a challenge within this year is found those higher costs higher caliber borrowers to satisfy their business flows and so thus far that seems to be working just fine.
Hey, Todd let me give you a comment.
If you know I think maybe your answers your questions unknowable might be so I'm not trying to say I know this is that still play out but.
Belief is that if you go back to what the way that model works, what their didnt generate high quality asset that a lot of banks in this country served markets that don't produce.
That high quality, an asset nor any acceptable volume and so my belief is a lot of those smaller community banks will continue to buy the pipe goes it's the best.
Asset alternatives, they have and their experience as you know is having gone through 19 years here No bank is advertising dollars loss on those credits there are highly regarded credits by these smaller banks in smaller markets. So I don't know answer and I can't guarantee what's not happen, but my bet is.
Is that by doing that work will hold up very well.
Yes, no I appreciate that Terry and I guess, what we're just Oh I'm trying to figure out as if as we enter a recessionary environment and losses out of out of that paper potentially accelerate dramatically does does the liquidity dry up anything stop buying a paper or just beach G continue to make those banks whole as they have.
Historically have to keep that high quality aspect of that paper, but.
Take on significantly more losses, and less profitability to do so.
And again I.
I I hear your line clear that you may not know that answer and how it's all going to play out I think that's just what we're trying to figure out. So maybe just just lastly from me then.
Given that said in terms of battles comment about how now April is trending so far.
What's the underlying or I guess drag on behalf of cheese net earnings growth. This year is it.
Less gain on sale margin that assumption for higher put back risk or losses, what what's what's ultimately driving that that lower net earnings growth.
Thank you maybe all of that but primarily I think what they're trying to do is get prepared.
For maybe additional recourse bills as well as maybe some pullback on business flows.
I think they they reduced their guidance to us all where they think they're loans will end up for the year. So I think it's a little bit of all of that.
But I still think they'll be they'll they'll weathered the storm pretty well.
Okay and then just lastly from me on expenses just a clarification question. The earnings release talked about low to mid single digit expense growth relative to 2019, the slide deck talks about low to mid single digit expense growth relative to Fourq 19 annualized it's about a $20 million. So difference so I'm just.
Just curious what the baseline that we should be thinking about if it is 14 19, annualize, which is 522 million of baseline expenses.
As for Q2 thousand 19, okay.
Alright, Thanks again, guys I appreciate all the color.
Thanks, Tom.
Thank you and ladies and gentlemen, this right a better sound quality before you state. Your question, please turn down or Oh your computer speakers.
Again, just turned down or off your computer speakers unnecessary mines or if you have a question just this star then one.
And our next question is from Kathryn Miller with KBW. Please go ahead.
Thanks, Good morning can you hear me.
Yes, yeah. Thanks.
Okay, all right Christian on the TPP program, great to see how active you work can you help us think about how to model that 50 million MTS.
Mr Me, we'll see most of it in the second quarter I'm, assuming most of it turns into a green light.
Just one on geography do you expect to come in the margin or in Steve and then also how how are you thinking about how much of that will come into second quarter personal trail off of the lack of black book.
That's a great question I wish I knew all answers to it but were much lower and modeling is the revenue to come in.
Some of the late second quarter and some into the light early third quarter and about 75% of loans being.
Call. It forgivable, and then recognition of the fees over the remaining 20% to 25% over the next call it you're a half after that.
Now, we we've asked a lot of people about how their modeling it and there we can't really give a strong consensus is one way or the other but that's so that's kind of where we we've taken a first stab on collections that revenue.
Oh, it's funny pay here.
Go ahead.
Yes go ahead.
As far as fees or margin.
I think right now we're leaning towards a fee recognition, but we'll wait to see what.
The account lets say about that it may be it may be a margin thing I think.
I'm not really sure right now division to be totally positive Jeff.
Okay, but to your margin and your fee guidance does not include anything from the keep Craig Robinson.
That's right.
Okay perfect.
And then on on your reserve build it any way to think about.
How much of your reserve build came from the.
Higher risk category that you broke out he gave notice that 20% of your book is in the.
Retail CRT hotel restaurant can we think about how much of the incremental provision. We saw this quarter came from just the portfolio Dover.
Just simple as that remember Paul.
Yeah, I don't think we know.
When we ran the models it was against the way the modeling works and forgets call report categories.
So we don't have it allocated within the models.
To the various nyack codes.
Like that.
Hi, Thanks.
Thank you for all of the disclosure left thank you for helpful.
Thank you.
Thank you. Our next question comes from Steven Alexopoulos with JP Morgan. Please go ahead.
Hey, guys good morning, because.
[laughter].
Pretty depressed.
Thank you.
Yeah, Hey.
Willing.
Smaller community banks to purpose.
Okay. That's helpful give us.
Payments for what's going on.
Chris.
I don't I can you go back to that one more time. It was like right wants to know is the the age G.
Demand would be exceed our changes from.
Corresponded banks diminished as a result deferral activity well they feel that there's still able to flex every loan.
They send the auction to all these community banks are still high demand.
With respect of auction platform and so there's a lot a bit traffic all the website board. So they don't really are seen any diminishment in the appetite for that credit.
Got it okay.
On the 20% higher risk you called out.
Back to Mike.
What do you have to preserve against PD lone each of the four seconds.
Yeah, we don't we don't have that we don't have that the degree of specificity.
The seasonal models are built around call report categories, and so we don't have a broken down into the individual Nymex.
And what we tried to do on the slide deck. This morning was aggregate exposure.
Through various products. So we've got CNR exposure CRT exposure all considered within those individual slides.
So we can't really we can't really differentiator our allocate.
The seats the loss exposure assigned to those.
Okay, and then finally protein.
So it looks like it does your top 10 blockers hotel.
Sorry.
You mentioned three corporate center.
Alright.
What do you.
Right.
Right.
[laughter] payments this girl.
Thanks.
Hi, I understand that I think the question.
Do we have all the deferrals that we're having quarter, we'd hearing from our borrowers about their ultimate ability to.
Right.
No.
This is Ken Houston, I'd say that it's still early I think our conversations with clients about payment deferrals will pickup in earnest in early may as they start approaching the 60 day.
With any of the clients that wanted another 90 day deferral will be asking for a fair amount of information from them.
With the purpose of trying to determine how much of the.
Portfolio may not make it versus those that are simply one did but at this moment, we don't really have feedback from clients on deferrals, when they might be able to make payments.
Great. Thank you.
Yes.
Thank you.
Yeah.
Operator are there any more questions.
Hello, operator.
Are there any more questions.
Right.
Alright, well, let me off my apologies very difficult time line been able to here and were little uncertain as to where we are right now, but we're we're not hearing any questions and so I would just thank you for joining US again, our view is that.
We had a really solid quarter.
Operating well fundamentals and we think weve been aggressive in bold in our responses to the government pandemic, including our.
Loan loss allowance build so thank you very much appreciate you being here.
Okay.
So last question from Brian Martin.
Good morning.
Ladies and gentlemen, thank you for participating in todays conference.
We apologize for the technical difficulties you may now disconnect.
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