Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to equal Bancorps first quarter 2020, <unk> earnings Conference call. At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question during the session you'll need to press star one on your telephone as a reminder, today's program is being.
Recorded I would now like to introduce your host for todays program Charles Livingston, Chief Financial Officer. Please go ahead.
Thank you Jonathan Good morning. This is Charles money, then Chief Financial Officer at Eagle Bancorp.
For the again the presentation I would like to remind everyone that some of the comments made during this call maybe considered forward looking statements.
Form 10-K for the 2019 fiscal year, our quarterly reports on form 10-Q, and current reports on form 8-K identifies certain factors that could cause the company actual results to differ materially from those projected any forward looking statements made this morning. The company does not undertake to update anymore.
Looking statements as a result of new information or future events or developments. This morning's commentary will include non-GAAP financial information.
The earnings release, which is posted in the Investor Relations section of the company's website and five wouldn't be FCC contains reconciliations of this information to the most directly comparable GAAP information.
Our periodic reports are available from the company or online on the company's website or the FCC website.
I'd like to remind you that it is our policy not to establish what the markets any earnings margin or balance sheet guidance now I would like to introduce Susan real to president and CEO of Eagle Bancorp.
Thanks, Charles before I begin my formal remarks, I wanted to mention that can Williams, our chief credit Officer. It's also here with us and we'll all be available later.
[noise] I would like to begin by extending our best wishes to all our shareholders and others on this call.
During this time the great stressing concerns related to the Covitz, 19th pandemic, which is impacting our whole world.
Disease has changed the way, we live and certainly the way we do this.
I would like to give you a brief summary of how Eagle Bank has responded to the challenges presented by this environment.
In late February when we realized the potential severity of covert 19, we started taking steps to protect the safety and health of our customers employees and the community.
We immediately enhanced our system capabilities for remote access within 10 days.
We had over 50% of our staff working remotely from their phone.
During that period, we increased the sanitization of our facilities to enhance the safety for our employees.
Coming on site.
In all situations, we have followed CDC guidelines and local government authorities prior to federal plans kicking in we establish the Eagle Bank relief program to allow for additional paid leave for our employees and worked with care for us to improve the medical coverage.
Covert 19 related matters.
We continue to monitor the spread of covert 19 in the Washington Metropolitan area, and we'll take steps as appropriate to foster the safety and health of our employees and their families.
We closed 14 of Iowa 20 branches.
And left six open.
Drive through access to offset the necessary services to maintain a high level of service, we enacted outreach programs to walk to our customers to encourage them to facilitate use of our online and mobile banking services and ensure that customers new how do reach us.
Ultimately.
We worked with hours vendors to make sure that the appropriate technology what's available.
For example for one customer we had 37.
Deposit terminals delivered and installed within three days, we contacted our borrowing customers to assess how they would doing and to discuss the need for loan modifications where appropriate.
We have assessed the risk and exposure is in our portfolio and will discuss those later in our call.
To support our small business customer base. The bank is participating in the Cures Act Paycheck protection program, which offers S. P. Eight guaranteed forgivable loans to small businesses to fund payroll and other costs. The administrative aspects of this program has proven to be very.
Difficult and initially our processing systems had trouble keeping up with demand.
We can we enhanced our processing capability and today, we have approved approximately $107 million of loans through this program. We are focused on being responsive to our customer needs as expected. The additional funding for this program and.
And we'll be able to better handle the additional funding for this program if approved.
During the last six weeks, we have relied on our communications technology and other systems to support our business operations as we have really puts them to a test as a group we have adapted to the use of meetings conducted through teleconferencing and video conferencing.
Core processing and backup systems reacted very well to the fund Astrue wire transfer disruption incident in late March and we have the framework in place to hold of virtual annual meeting with our shareholders in may.
Given the impact that the covert 19th pandemic has had on the economy. We have spent quite a bit of time assessing the risk in the whole loan pool in our loan portfolio for those business sectors hit the hardest by the downturn.
Of our Teradata total loans of 7.8 billion, we have 761 million for 9.7% of the portfolio.
Loans to firms in the accommodation and food service industry.
And another 90 million for 1.1% in retail trade.
There has been global concern about rent payments and so note that 2.4 billion was 31% of our portfolio is comprised of income producing theory lines and another 971 billion or 12% of the portfolio in owner occupied.
She artery loans.
We would also note that these two loving types had been better performing segments of our loans booked during previous economic and credit down cycles.
During this period of uncertainty our board of directors has been attentive to matters that would affect risk to our employees customers and the stability and outlook of the company under the board's guidance, we have them responses to regulatory guidance and enhanced reporting federal lunch.
<unk> mandates and actions, including loan for parents provisions and stimulus legislation.
We don't have a crystal ball. However, we are confident of our ability to.
To work through the coming challenges for two reasons, one is our strong capital position and profitability, which should allow us to work through the current credit cycle and the second is our market position as one of the leading community banks in the Washington, D.C. Metropolitan area.
Federal government has created a major city list program intended to restart the national economy, and our past experience from previous federal stimulus programs is that a significant percentage just the funds from the new government efforts.
Say here in the Washington Metropolitan area.
This region is currently and we believe is likely to remain the fifth largest regional economy in the U.S.
Now I would like to turn the discussion to the Companys financial results for the first quarter of 2020.
For the quarter, we reported net income of 23.1 million as compared to 33.7 million for the first quarter of 2019 earnings per share basic and diluted were 70 cents per share as compared to 98 cents.
Earnings per share basic and diluted for the first quarter of 2090.
A straight up comparison of the earnings for the two periods is it really meaningful because each period had some major unusual items.
The results for the first quarter of last year included a nonrecurring charge of 6.2 million, 13% 13 cents per share for compensation expenses related to the retirement of our former CEO and the results for Q1 of 2020.
They include significant additions to loan loss reserves related to adoption of the new accounting standard known as Cecil.
This new accounting methodology had as expected a significant impact on results for the first quarter.
The Cecil methodology was adopted as of January one 2020, and the resulting day, one adjustments, which would charge you see stockholders' equity were in increasing the general allowance for credit losses of 10 point Sixmillion and an increase of 4.1 million.
And she's a reserve for unfunded commitments during the first quarter of 2020, we have made additional provisions to both the general allowance and the reserve for unfunded unfunded commitments totaling 16.4 million.
Those additional provisions.
Two thirds can be attributed to cope with 19 matters.
We continue to monitor the portfolio for potential losses due to the economic turmoil from the covert 19th to pandemic since mid March we have them reviewing individual credits to assess hell volatiles held the volatility economy is impacting their cash flows.
An ability to service their debt.
As of April 16th we had reviewed and approved loan modifications to 234 loans totaling 298 million.
The net result of all of these factors was an increase in the allowance for credit losses from <unk>, 0.98% of total loans at December 31, 2019 to 1.2 or 3% of total loans at March 31st.
The adoption of the C., so accounting standard and related provision hadn't had a negative impact on pretax income of about 12.1 million for the first quarter of 2020.
With that said I would state that we are pleased with the results of the first quarter during which we saw continued growth in total loans total deposits and they stable net interest margin continued solid asset quality and continued strong efficiency and productivity.
In addition to the C. so related adjustments the other major items impacting the quarterly earnings was a continuation of an elevated leap level of legal expenses. The net interest margin was 3.49 per cent for the first quarter and was the same as the mark.
In in the fourth quarter.
2019.
We were pleased to see this leveling off after several quarters of degree of decreases from the level of 4.02% in the first quarter of 2019.
During the first quarter of 2020 loan yields decreased by 11 basis points to an average of 5.07 per cent for the period importantly, we were able to significantly reduce our deposit costs by pushing down money market and C D rates in line.
With the fed.
The fed moves during the quarter.
The cost of interest bearing deposits decreased by 17 basis point to 1.52% for the quarter, while many of our competitors did not have just deposit rates as much we moved aggressively in anticipation and in response to short term break reductions.
By the federal reserve and successfully reduced our deposit rates and out at our aggregate cost of funds, which was 1.6% for the first quarter of 2020.
The net interest margin was impacted by two other factors during the quarter.
The first item had a negative effect on the margin was what's the more than sufficient.
On balance sheet liquidity, we held during these uncertain times. The result was that we had about 200 million in excess liquidity invested with the federal reserve as they reduced rates to near zero.
The average loan to deposit ratio for the quarter was 99.4%.
On the other hand, our cost of funds in March and continue to benefit from our ability to maintain average demand deposit accounts at 29.5% of total deposits.
Our high level of D.A. deposits continues to be a major strength of the bank.
We continue to have strong credit quality statistics for the first quarter of 2020 net charge offs annualized would 12 basis points of average loans for the quarter decreased from a level of 19 basis points for the first quarter of 2019.
And 16 basis points for the fourth quarter of two of 2019.
Nonperforming assets increased by 5 million during the quarter due to the addition of two pieces of Oreo property acquired through foreclosure at March 31st nonperforming assets as a percentage of total assets were 55 basis points as compared to 50 basis.
As points.
A year ago, and 56 basis points at December 31, 2019.
Nonperforming loans at quarter end were 47 million and as a percentage of total loans were 60 basis points as compared to 56 basis points at March 31, 2019, and 56 basis points at December 31 2019.
As mentioned the allowance for credit losses was 1.23% of total loans at the end of the first quarter due primarily to the Cecil and covert 19 related adjustments.
Overall credit quality remains solid at March 31, 2020 coverage ratio was 205% of nonperforming loans as compared to 174% at March 31, 2019 and 151%.
At December 31, 2019 at these levels, we believe the bank is adequately reserved.
For the first quarter 2020 average loan balances were 8.7% greater than in the first quarter of 2019.
We achieved loan growth during the first quarter of 2020 of 200 295 million or about 3.9%.
Average loan balances for the quarter with 2% higher than during the fourth quarter of 2019, the largest increases during the quarter. We're in she and I loans in income producing sheorey loans, while we saw a decrease in construction loans since March 3rd.
Anyone T cells and the 19, we have grown our see an eye loans by 11% and income producing siri loans by 13%.
While out our construction loan portfolio has remained flat at just about a million a significant portion of the growth and see United lending in the quarter was due to advances under the lines of credit as clients added to their liquidity positions in March in response to covert 19 really.
He just matters.
We estimate that affects that about half of the loan growth during the first quarter 2020.
Was attributable to this activity our low our loan pipeline continues to look promising but demand for new loans, it's hard to determine due to the uncertainty caused by the pandemic.
On a period and basis total deposits grew by 917 million during the first quarter of 2020.
While average deposits experienced a slight decrease of 20 million I would deposit balances saw significant fluctuations during the first quarter of 2020.
While balances were seasonably low.
Early in the quarter, we saw significant increases in February and March as many of our customers accumulated cash in response to the pandemic and the volatile equity market average deposits for the first quarter of 2020 were 7.7 billion.
Little changed from the fourth quarter 2019, but exhibiting a healthy annual growth rate of 10% as compared to the first quarter in 2019.
Noninterest income was 5.5 million for the quarter as compared to 6.3 million in the first quarter of last year, a 13% increase.
The decrease in revenue was attributable primarily to the lesser gains on the sale of residential mortgages.
As an otherwise very strong quarter of residential mortgage loan originations and sales volume in 2020 was negatively impacted by hedging losses due to the dislocation in the market pricing of mortgage backed securities.
Net investment gains were slightly lower at 822000 for the first quarter of 2020 as compared to 912000. So the same period in 2019.
The efficiency ratio was 43.83% for the first quarter of 2020 as compared to 43.87 per cent for a year ago and 39.71 person in the fourth quarter of 2019.
The higher efficiency ratio in the first quarter 2020 was attributable to both reduced level of revenue due substantially to low interest rates and a higher level of legal fee expenditures related to the previously disclosed governmental investigations.
And to our defense of the previously disclosed class action lawsuits.
While we are all grappling with the uncertainty caused by the Cove at 19 pandemic. We are cautiously optimistic about the long range prospects for the Washington Metropolitan area.
At the end of 2019, we had the fifth largest regional economy in the United States with a gross regional product of 541 billion.
The Fuller Institute at George Mason University recently released their analysis on the effects of the pandemic, which indicates that if our local areas shut down for 90 days the impact on the regional economy would be a reduction teachey RP of 1% or five point.
$4 billion this year and that the growth rate, which returned to its normal level of about 2% growth in 2021.
As with the national level because damage locally.
Would be to the restaurant and hotel sectors. So we will continue to closely monitored those exposures in our loan portfolio.
Our board is committed to maintaining a financially sound well capitalized institutions, we have done that over the last four quarters as see additions to retained earnings from our combined prop continues crop profitability have been offset by the effect of adopting the Cecil standard.
And by the share repurchases made prior to our recent suspension of the repurchase program.
The boards will continue as to assess the impact of the Cove at 19 pandemic on the regional economy, and our asset quality statistics in considering any potential capital I'm, sorry, any potential capital related actions.
We are proud that even with all of the challenges we have addressed over the last fourth quarters. Our company has earned 132.3 million and net income.
During that same period, we have returned to our shareholders 128 million through cash dividends and share repurchases and have increased the tangible book value per share by 11% to $33.54.
At March 31, 2020, the total risk based capital ratio was 15.69% as compared to 16.20% at December 31, 2019, and 16.22% at March 31 2000.
And then 19.
The tangible common equity ratio moved from 12.59% a year ago, 10.90% at March 31, 2020. These levels are well above peer averages and regulatory well capitalized levels.
We appreciate the support of our shareholders and those of you on this call I would like to remind you that our our annual shareholders meeting will be held on on a virtual basis at 10 am on me third may 21st we hope that many of you are able to participate instructions on how.
To register for the meeting were included in our proxy, which was published on April six that concludes my final remarks, we would be pleased to take any questions at this time [noise].
Ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and he'd like to move yourself from the Q. Please press the balance sheet.
First question comes from line of Erik Zwick from Boenning and Scattergood. Your question. Please.
Hi, good morning.
[laughter].
Oh, given that the internal reviews by your special compliance and audit Committee have concluded should that be interpreted as a sign that you'd expect to government investigation could also be nearing its conclusion.
We we continue to engage with government investigations, and it's still impossible to predict the outcome and the resolution the timing or anything that said I will offer my opinion.
As each quarter proceeds we believe we are that much closer to resolution of these matters is my understanding and belief that these investigations are proceeding expeditiously and then a professional manner.
I understand we are making efforts to come to complete to the extent feasible to document production phase of the investigation cycle.
We are hopeful that these efforts may permit us to lower outside counsel expenses during a potential summer low before picking up again.
For emphasis these observations on my opinions and that's my General Counsel has warned me.
It's impossible to predict the pace the direction or outcome of government investigations, but I thought it would be helpful to share some of that.
Thanks, Susan I appreciate that color there Oh with regard to the too high and properties that you for closed on where these newly completed projects really they seasoned properties. The sponsors trying to sell and I guess, how long are the band for sale on do you see any other similar properties in your portfolio odd that could be experiencing stress.
Hi, This is Chad Williams, there really aren't.
Significant similar properties in the portfolio one of the properties.
Our both single family residential properties one of them just finished historic restoration and is very high and.
That being said whether.
Salable in a quick turnaround during the current.
Corona virus era.
It's difficult to say, we are well within margined appraised values, so feeling fairly comfortable with that I think that timing is more difficult to call. The other property is also in Washington, D.C. One is in Georgetown one is on envious.
Well.
Mass Avenue.
The wind and George town.
Isn't older but very large property.
On that property.
Has not been renovated so that property is that.
A reduced value to the first one I was speaking about but again there.
Expensive properties and it's not exactly a great time to be.
Realtors be taking people around to look at houses so it could take awhile to disposition them, but I am comfortable with the carrying values.
Understood and just one last question for me and I'll step aside the construction portfolio today about approximately $1.1 billion can you provide some color into diversification in terms of that.
<unk> and you said those properties by industry type how far long construction is and what percentage is.
The construction still ongoing today. Thank you.
Well in terms of ongoing construction I can give you stratification.
Crops different property types I can tell you that there has not been at this point disruption and construction. It's been considered on a central service. So there haven't been any issues with slow downs on projects.
That doesn't mean that there couldn't be it in the future or that there couldn't be supply chain issues in the future, but for right now the construction portfolio is performing exactly as we expected.
About 25% of that its multifamily.
About 20% is mixed use.
Of about 16% in residential condominiums about 15% in single family.
Offices around 10% hotel is a little under 5%.
And retail is less than 5.2%.
So overall, we're pretty comfortable with where we are as you know for the last several quarters, we've been talking about how we then de emphasizing.
Construction and our portfolio and.
I've been thinking about it in terms of a likely recession in the first part of 2021, obviously the timeline on that as been thrown out for bid of a loop with current buyers, but I think that we are confident that what we have in the Q will be finished and will be finished according to do.
Your original anticipated.
Timeline.
Thanks for taking my questions.
Are they.
Thank you. Our next question comes from a line of Steve <unk> from GE Research. Your question. Please.
Hey, guys good morning.
I wouldn't I.
I wanted to ask you about the the PPP a disclosure so no Susan you talked about 107 million a balance just wondering if maybe you could tell us how many loans that was and you know kind of what the makeup of that was like were most of these two existing clients or new clients and then.
Maybe if you can just give us a sense of how many applications. There were that one on filled pauses, where one of the program run out of the money.
The first round I would have to be.
I would have to say that it is not was not a stronger performance on the bank side. As we had hoped we had a difficult time, bringing us to sum up and automated system up the average size with the loan that we have proved was about $250000.
We have fruit somewhere around 200, it was very good mix, primarily for smaller businesses and it was about 100 and a $10 million.
Those are approximate numbers, we are very geared up and have been working round the clock to get prepared should there be an additional funding approval.
We expect that to happen and we have been working around round the clock to get more applications ready to present as are many many banks doing the same thing. So we we expect to have a better performance and.
No guarantees at this point since we are not given any guarantee on money will be the money will be set aside for us.
So.
Hopefully that answers your question.
Oh, Yeah. That's that's very helpful. Okay, and then I wanted to ask about the loan.
Floors.
I appreciate the disclosed in the press release I just wasn't true is that referring to and this quarter or is that now into April and may be wondering if you. If you could give us kind of in education about the size of the balance is affected by floors at each point in time.
Yes so.
Thanks, [laughter] I'm sorry, Steve This is Charles the its great question, obviously, a lot of that fed movement took place in March but resets don't typically take place until the beginning in the month so.
End of quarter those floors loans at four were about 2.2 billion.
You know sitting here in the late late April probably closer to 2.8 billion.
And that's out of you know a total loans with forces.
What is the right around three 3.1 billion.
So most of the loans with floors will be at floors.
Uh huh.
Okay very helpful. And then just one more for me I know you talked about increasing the provision allowance increasing the allowance to 1.23% of outstanding.
Based on C. saw non surge is your own us richness of credit performance. Just wondering how comfortable are you guys feel about that level now versus how you felt on March 31st one though so.
I think our.
Comfort level has materially changed there is a great deal of.
Uncertainty still on when businesses will be operating again, but the various tools that weve.
Been able to employed working with our borrowers I think give me a fair amount confidence that were not likely to see.
A significant near term change if we were looking at what you know the seasonal model is driven awesome forecast, including unemployment numbers. So if there's a significant change in the forecast it's brought about over the next quarter.
Next couple of quarters that could cause the allowance too.
Grow just impossible to tell at this 0.1 element that we want to make sure I. Appreciate it is certainly the resiliency of the DC Metro relative.
To the rest of the nation obviously.
He is.
The somewhat of a disproportionate recipient of a lot of the relief past federal level. So that is accounted for.
Our modeling and it's something that we.
Actually we consider going forward.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Catherine Mealor from KBW. Your question. Please.
Thanks, Don just to follow up question on the returns and this diesel build this quarter can you talk a little bit about some of your baseline economic assumptions that you use to build the reserve further this quarter and then how you're thinking about maybe how some of those scenarios may have changed since quarter end.
Right. So we actually utilized an economic forecasts published by the Wall Street Journal.
And again as I mentioned previously made adjustments based on the local DC metro performance through crises.
So that that economic forecast is actually published on April 10.
So again not a lot of change today from then so.
What we determined is in looking at the unemployment again as Dan mentioned, a significant driver in our Cecil model.
The unemployment rate nationally that was forecasting that and in that survey.
[music].
We we.
Measured that again.
Performance in difficult times, specifically looking at the period between 2008 2012.
Of the.
Relative difference between.
Local unemployment rate versus the national unemployment rate it looks like.
He sees on point, where he was about 60, 65% of the national unemployment rate performing better than those scenarios. So that was really again, a significant driver of of the quantitative aspect to the seasonal model and.
Not much has changed in the last call. It 12 13 days.
Okay. That's really helpful. Thank you.
Then did to the hotel portfolio can you just give us a little color in that portfolio, maybe talk about some of your larger credit in that book, maybe that the percentage of that book that's on payment deferral currently.
And just any of any kind of and maybe how much of that portfolio kind of luxury hotels versus you eliminate surface wagon tell thanks.
Okay, and I, Catherine extra and Haiti.
Hey.
I will tell you that we have had too.
How loans that are on deferral right now.
Total exposure for those two hotels is about $85 million.
Got it certainly is part of the 90 day deferrals that we're working.
Working.
I think we've chosen not to go with the hundred 80 day.
Charles except in the case.
Making payments.
There are couple of lung.
Leading one specifically that's in construction, that's an assay a five or four alone we haven't seen any interruption.
Yeah.
Construction I think probably the largest loan that we've discussed the time or too I is a hotel that's located and.
College Park, Maryland is presently closed as far most hotels. It is not currently deferred but I estimate there are alternate sources for making payments, but I would guess with a crystal ball that there will be or class at some point for differ.
Well there again, we'll be looking at probably a 90 day deferral or interest only situation there.
A number of.
Our customers have asked for a deferral of the principal portion of the payment as opposed to entire payments. So we're looking at that on a case by case basis.
And much will depend on how fast things turn around in terms of back to work, although I do think most folks including me expect hospitality to lag on the recovery.
What was the balances that College Park hotel loan.
100 million.
And that the largest credit in that portfolio, yes.
<unk>.
Okay, Great and then one lastly for a control on the margin.
Or give us any.
Any color around deposit costs at quarter end, just to kind of give a sense as to where we are going into second quarter and.
You can we see the same kind of magnitude of drop in second quarter I always something on all the path.
Sure. Thank Katherine so we made our move obviously is a seasoned alluded to in her remarks and in the month of March our top tier money market right now it's around 30 basis points.
So I would expect to see a little bit of benefit from that going forward as we said much higher for the first two months of the quarter.
Hopefully that's that provide some help but yeah we.
You know, we felt pretty encouraged by the fact that.
Again cost of funds declined 11 basis points quarter over quarter right right along with those the loan like the loan yields and I think it's also hopeful that to to consider the fact that we have been able to maintain.
The 30% and Deejays.
Even with with our growth.
Over the quarter so.
Yeah, I think we should we should see some assistance there also.
We're talking about the margin.
No we didn't know the additional liquidity that we experienced in the first quarter. We did have a run up as again a lot of our customers saw or made the decision to move to cash.
To the extent that some of those customers start to get more comfortable with the operating environment. The path forward you can certainly see some of that cash start to normalize again and that would certainly in order to the benefit of the margin.
Great Okay.
Sounds great. Thank you so much.
Thanks, Kevin.
Thank you. Our next question comes on line of Christopher Marinac from Janney Montgomery Scott. Your question. Please [laughter]. Thanks. Good morning wanted to continue on the kind of credit questioning of the previous so folks and if we look big picture at all the deferrals that you have against you guys. We add the 100 million dollar ball hotel balance agendas.
Described are kinda now pushing 400 million or 5% of portfolio should we kind of consider those kinda clouzot criticized loans and does that go into the reserve build for the quarter or would you kind of reassessed based on where those go and I guess also Jane if you could just update us on general classified and criticized update.
At the end of March.
Sure.
We do pay.
Report that consists of all modifications and segregated by industry and they certainly get a much higher level of scrutiny.
They have not been assets 331 downgraded in the portfolio that will change as individual credits are evaluated going forward.
I think you'll probably see more pushed into a watch category.
I don't know that they'll get to special mention or beyond and less their underlying pre existing credit issues. So we're following the accounting advice that we've been given and staying on top of that I think the overlay really based on economic condition.
This is what drove the additions to the reserve none of the.
Modifications really deal with substandard.
Properties in fact, we haven't modified anything that's classified or criticized that with all that would result in a T.D.R. as opposed to the safe Harbor for these current virus modification I think we're pretty comfortable enough scale in terms of [noise] what.
And.
Our substandard and doubtful categories, we're looking at pretty much flat levels on a modest increase and they're a mixed bag. Most of it is secured by real estate, whether its residential or whether its commercial.
Real estate, we have a number of.
Restaurants that we've pushed into that category. There are a couple of.
Specialized.
Please I medical type facilities.
That we're also looking out.
Although they haven't had.
As at the end of March and the most recent financials any a particular [noise].
[noise] problem meeting the covenants in their alone.
We are.
Harshest about going forward and our monitoring everything very closely we've expanded the credit departments capacity for modifying.
Oh, I'm, sorry for monitoring the loan portfolio and bringing in additional seasoned professionals to assist us in that process and I think we've.
Really tried to be very proactive in reaching out to each of the customers in any impact it industry.
And see what we can do to assist in went longer term plans. We can put in place we don't expect cereal.
Deferrals.
These types of customers and I just said, Chris did you know as as those additional resources are monitoring these credits and provide any kind of a downgrade to those credits that that also will flow through our Cecil model and should be reflected in our reserve going forward.
Okay. So some of that get reflected in the next kind of filing for the 10-Q or do you already have that determine the terms of where the final watching special budget substandard figures are.
We do you already have that deterrent for 331.
That.
It's based on the.
Financials of the company.
And if there was a problem with.
Any of those companies at March 31st they would've been downgrade it.
Right now we're focused on anyone that had a deferral for 90 days is working with us on a long term.
Plan, and we would expect to remediate a credit weakness and those loans and add enhancements as needed in return for any future concession the bank might consider.
Okay, Great. That's all very helpful. Now just to clarify when you have a watch rated credit that is not considered criticized.
Right Okay.
Okay.
Perfect and then just a quick follow up for Charles on on liquidity, how did that change in the quarter and just kind of roughly where are you today with kind of Unpledged securities and FHLB access and just a quick update.
Sure, Yes, so we.
We again, we saw a significant influx of of on balance sheet liquidity towards the end of quarter today. Our average all availability is at about 1.36 billion.
We've got you know through again fed funds lines access to networks like from inquiries when we buy.
And.
You know there insured network deposit network another call it 1.3 billion or so and availability.
There.
Great. Thank you very much for all the background. This morning.
Sure. Thanks, Thank you.
Thank you. Our next question comes from the lineup Brody Preston from Stephens, Inc. Your question. Please.
Good morning, everyone I hope everybody is doing well.
Hey, I'm wondering.
Right.
So I just want to stick with the liquidity right now and always will there be that stuff here, but you know just given the uncertainty with coal. Good you know you said you're sort of maintain some excess liquidity on the balance sheet with the sad due to uncertainty here.
Just wanted to give us some front, we could see you maintain sort of excess liquidity levels or you know throughout the remainder of the year just given the.
Certainty.
Yeah.
Again, as I mentioned that to Chris.
Do I do believe we've got sufficient liquidity, both on and off balance sheet to meet the needs of of deposits in any additional funding needs. We may see throughout the year I can certainly see maintaining a sort of building them out.
Beyond what would be in an otherwise normal operating environment, given given concerns over coated so that is.
Intentional and somebody that's just thinking or customers and and then moving to cash, though you know to the extent that they move out of cash.
Then that would be again, a more intentional decision to draw down on some of the availability that we have but I feel fairly comfortable where we are today and.
Again, the more clarity we get in terms of the outcome of that goes in 19 and they're making.
That that more certain well, we can all be in terms of our liquidity position.
Okay, so that interest bearing deposits and short term investment by that goes up you know <unk> 904 million and change you know for the quarter or is that sort of trends and I'm always quarter or is that remaining you know around those levels.
Yeah again, we have seen.
Certain.
Certain customers.
Certainly getting getting a little bit more comfortable with the state of things and moving away from a little bit away from cash, but I want to me give me any forward looking statements on on that.
Okay.
Okay, and then you guys were pretty aggressively with the deposits, but you mentioned that others have not just one didn't know if you can give us any color as to why others haven't been reducing rates as aggressively as you have.
You know it's hard for me that to get getting ahead of the competition My best guess might be that you know they want to maintain an effort for.
To gain market share and kind of an uncertain time, but I'm I'm not quite sure because it made all the since in the world for us to so to manage our our money costs down aggressively when when the rest of the world. It would be short term rates in the fed.
Okay, and then you mentioned that about half of the loan growth. This quarter was due to increased log utilization just wanted to know if you can give us what utilization rate was I was at 331.
Don't have that off offhand.
In that that about half of the the growth is about $160 million are so above and beyond what we normally.
We see.
I.
I think that's something I can follow up with for you and.
Okay sure.
Uh huh.
Oh no work.
And then.
The the deposit flows you saw.
Understand that you had some clients are going to cash was that was up a number of clients or is that like one or two or three big clients, what sort of moved to cash to student savings in money market growth was.
I've often.
Yes, there was some some larger customers nobler function kind of a financial intermediary capacity, it's all a lot of that love that inflow.
Okay, and then as we can promote stress testing the portfolio of you have you run any stress tests on the portfolio. A you know so so far if so could you.
You know maybe give us an inkling is.
You know what some of the primary metrics look like in terms of cumulative losses and stuff like that.
I think we've run stress test every quarter and this quarter will probably be running some specific to the industry segments, where most concerned about.
But all of the stress tests that we've run on.
Income producing commercial real estate and on construction have come back in pretty good shape, we would show that on an interest only basis about 84% of the portfolio.
Still continue to perform if we had a drop.
10% and Uh huh.
Income and increase.
2% in interest rates.
So oh, we're going to be tweaking that with less or increase in interest rates and more of a decline in income.
Okay. Okay.
Okay, and then to us click ones from me the sponsored the other two lots are high and properties that are had been repossessed you have any more loans for the sponsor.
I'm sorry.
Yep.
Sponsor.
Hi.
A very strong sponsor very strong.
Okay.
Hi deposit or.
Okay and then.
About the I'm, sorry, <unk> typically about what was what was moved Oreo or just general <unk> I I just wondered if you had any more exposure to the specific sponsor and if so how you felt about the exposure.
[noise] sponsor on the Oreo property correct, Yeah, I'm, sorry, I misunderstood I thought you were asking about the sponsor on the hotel property on me.
The sponsor on the two high end properties.
Is.
Not hugely experienced in that market and that was probably one of his bigger issues I can you put too much money into the houses and ask for too much money. When he has some lifted.
We're at a much more reasonable number one we do that.
It's difficult to predict whether we'll see a recovery on those are not but that does we also were put in motion months ago. It was pre corona virus and the foreclosures occurred in January.
Depending upon how long this last will.
See what were ultimately able to.
Produced but the current carrying value I'm very comfortable with.
Okay and then the last one Susan you understand the uncertainties in impossibility at predicting the timing of the resolution to the investigations, but just wanted to clarify that its it sounds like you all are still in the document production phase of the investor.
In addition is that fair to say.
We are still we believe we're at the end of it but we are still in that phase.
Okay.
Thank you very much or everyone for all the color I appreciate it.
Thanks Yankee already.
Thank you.
The question and answer session based program I'd like they had the program back to season real President and CEO for any further remarks.
Now I'd like to at this time bank all of you for participating and look forward to speaking to you again in July.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
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