Q1 2020 Earnings Call
[music].
Greetings and welcome to they can't see our holdings Inc. earnings conference call for the fourth quarter 20 Twond.
Yesterday after market close the company distributed its first quarter earnings press release.
There was anyone on the call who is not received a copy you may access it.
On the company's website www Q CRH dot com.
In addition, the company has concluded a supplemental slide presentation with carbon 19 related disclosure that you can refer to during the call.
You can also accessed the slides on the website.
With us today from management, our Larry Helen CEO, and caught Keppel, President COO and CFO.
Management will provide a brief summary, the financial results and then we will open the call for questions from analysts.
Before we begin I'd like to remind everyone that somebody information management will be providing today falls under the guidelines a forward looking statements as defined by the Securities and Exchange Commission.
As part of these guidelines any statements made during this call concerning the company's hopes beliefs expectations and predictions of the future are forward looking statement.
Actual results could differ materially from those projected.
Additional information on these factors that's included in the company's FCC filings, which are available on the company's website.
Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute or the most directly comparable GAAP measures.
This press release available on the website contains the financial another quantitative information to be discussed today.
As well as the reconciliation of the GAAP to non-GAAP measures.
As a reminder, this conference is being recorded and won't be available for replay through may 13th 2020.
Starting this afternoon approximately one hour after completion of this call.
It will also be accessible on the company's website.
At this time about now I'll turn the call over to Mr., Larry Hamling Act you see our holdings.
Thank you operator, yankton, ladies and gentlemen, and thank you for taking the time to join us today.
I will start the call with a company update in a brief word regarding your first quarter performance.
Todd will follow with additional details on our financial results.
As a country, where in the midst of an unprecedented challenge what the cold with my team to impact.
And our thoughts or were those who are most affected by the crisis.
Especially our health care providers and other first responders, we're on the front minds.
I also want to thank all of our employees, both corporate and across our banks in leasing company for coming together as a team to support each other our clients and our communities during these difficult times.
As a company our business continuity plan has been fully implemented.
And our people remains healthy and working with many working remotely from home.
We continue to serve our clients across our branches with all locations remaining open and offering banking services through drive up and limited lobby access. In addition, our online and mobile banking platforms are increasingly important channels for our customers in this period of social distancing.
It remains difficult to predict the ultimate impact that the pandemic will have on our clients because its depth and duration are still unknown.
However, we are well capitalized as strong liquidity and continue to be dedicated to serving our clients.
We believe that our philosophy of putting clients first combined with local decision, making is the best way to serve our markets. During these uncertain times.
We have season credit teams at all charters that have great experience in dealing with significant economic downturns and we're all committed to helping our clients whether this storm.
As part of this effort, we are proactively rolled out our loan relief program that allows impacted clients to deferred payments and preserve cash and liquidity.
To date more than 1900 of our clients have been granted some form of relief totaling roughly 440 million of loans and leases.
Additionally, our lending teams have been actively enrolling many existing and new small business clients into the SBA Paycheck protection program, which is intended to provide much needed capital and liquidity to many of our commercial and nonprofit clients.
As of the end of last week, our banks received approvals from the SPJ to fund 1300 loans totaling $333 million.
Our teams accomplish this with an extraordinary effort no very short amount of time.
We are confident that this hard work and ongoing effort will build goodwill with both new and existing clients and translate into expanded relationships in the future.
It is too soon to determine the full impact that the slowdown may have on our asset quality.
We have provided some supplemental information about our commercial loan portfolio that lays out the exposures, we have to borrowers in certain impacted industries.
As you can see on slide six our direct exposure to the three primary at risk industries of hotels restaurants, and entertainment represents approximately $135 million or roughly 3.5% of our total loans.
Most of our hotel exposure is in our local markets rather than in major metropolitan markets, which we believe as a positive.
In addition, the majority of our hotel loans are mid scale and economy properties.
And we also have virtually no direct exposure to the energy where aviation industries in our portfolio.
As shown on slide 10.
We have a meaningful commercial real estate loan portfolio of both investor and owner occupied mortgages.
A portion of that portfolio consists of general retail properties typically strip shopping centers, serving local communities.
We have only one traditional shopping mall, along with an extremely strong sponsor.
Our total commercial real estate exposure to the general retail segment is just over $200 million or less than 6% of our total loan portfolio.
Our view is that the economic impact of the cobot 19 pandemic will be transitory.
And that it should not result in a material long term or permit decline in commercial real estate values.
Now a word about our first quarter results.
The public health crisis did impact our results in the form of lower loan growth and an increased provision for loan losses.
However.
Our overall credit quality remained excellent and we were solidly profitable during the first quarter.
Our liquidity and capital levels remained strong.
We believe that we will emerge from these challenges as a stronger company.
Having supported our communities with emergency assistance programs and exceptional service, which continues to bolster our reputation.
We are well positioned to pursue our long term goal of profitable growth and value creation, both organically and through strategic acquisitions.
With that.
I will turn the call over to Todd for further discussion on our first quarter results.
Thank you Larry as I review, our first quarter financial results.
We'll focus on those items were some additional discussion is warranted.
I'll start with our loan growth.
As Larry noted our loan growth for the quarter was impacted by the slowdown in economic activity caused by the Covidien 18 pandemic.
Loan production slowed significantly in March and that trend has continued into the second quarter.
We also experienced several large payoffs during the quarter, which had an impact as well.
During the quarter growth in commercial real estate loans was largely offset by declines in all over loan categories.
Due to the inherent uncertainty regarding the duration of the pandemic, we're not in a position to be able to accurately forecast expected loan growth for the full year. Therefore, we are withdrawing our previously announced targeted range for organic loan growth.
With respect to deposits, we generated very strong deposit growth this quarter.
Total deposits increased by 259 million or 6.6% on a linked quarter basis with increases across all categories.
We were pleased to see our core deposits increased by 133 million with 53 million of that amount representing noninterest bearing deposits.
As our deposit growth was well in excess of our loan growth, we significantly increased our on balance sheet liquidity.
Our capital ratios were impacted by several atypical factors this quarter first as we disclosed in our press release, we did repurchase 101000 shares of our common stock during the quarter at a total cost of 3.8 million, which reduced TCV by eight basis points.
Second our AOCI I was reduced by $5.5 million during the quarter for mark to market adjustments on interest rate caps on certain liabilities and interest rate swaps on our trust preferred securities, which reduced CE by 12 basis points.
Finally, our balance sheet was inflated at the end of the quarter by Mark to market growth. That's on our commercial loan swap portfolio totaling 101 million and the previously mentioned excess liquidity of 136 million.
Which further reduced our Tc he by 19 basis points and 25 basis points respectively.
As the impact of folded 19 on our economy became clear in mid March we suspended our stock repurchase program and our focus is on preserving capital and growing tangible book value.
Additionally, we believe the dilutive PCU impact of the Mark to market adjustments on our interest rate caps and swaps reached a peak in the first quarter and will not be as impactful on our capital ratios in future quarters.
Now turning to earnings net interest margin was a real positive for us this quarter.
As we mentioned on our fourth quarter earnings call, we were well positioned to benefit from a flat to down short term interest rate environment as our balance sheet was modestly liability sensitive.
We benefited once again in the first quarter as interest rates move lower and our deposit cost declined at a faster pace than the yield on our interest earning assets.
The decline in funding cost was partially offset by lower yields on our loans as well as the build up in excess liquidity, resulting in adjusted NIM, excluding acquisition related net accretion increasing seven basis points to 3.50% up from 3.43% in the fourth quarter.
Significantly outperforming our guidance of a two to four basis point increase.
As we look forward, we are well positioned to continue to benefit from reductions in our cost of funds as higher cost wholesale funds and retail Cds continue to reprice sharply lower which will positively impact our funding costs.
Additionally, we would expect to put a portion of our enhance liquidity to work throughout the quarter. However, despite our efforts to increase our credit spreads and maintain our loan pricing. We will continue to see downward rate pressure on our loan portfolio due to the continued decline in LIBOR, particularly in March therefore.
Given these factors taken together, we expect to see further improvement in our core net interest margin in the second quarter, but are not prepared to provide specific basis point guidance at this time.
Now turning to our noninterest income, which was down modestly in the first quarter. We did experience another strong quarter of swap fee income, which came in at 6.8 million for the quarter at the high end of our guidance range. In addition, our wealth management fees were 4 million for the quarter up slightly from the prior quarter.
The pipeline of loans that are specialty finance group remains healthy and our expectations for swap fees within SSG as well as within our banks also remains robust.
As a result, we still expect to hit our targeted range of 24 to 26 million for the full year of 2020 for this source of fee income.
Now turning to our expenses after adjusting for a couple of noncore items, our noninterest expenses were down meaningfully from the fourth quarter one of the larger components of the sequential decline was our salaries and employee benefits expense, which is down 5.7 million quarter over quarter.
This was due to the sale of RV and T. In November of 2019, as well as reduced accruals for bonus and incentive compensation on a linked quarter basis.
As a reminder, our compensation philosophy is to have a larger component of compensation in the form of performance incentives and smaller base compensation, which results in a higher degree of variability in total compensation to better align with our financial performance.
As such our compensation levels were down during the quarter based on lower earnings due to higher provisioning and lower loan growth.
Our overall asset quality continues to be solid while we did experience as linked quarter increase in nonperforming assets in the quarter. It was primarily due to one lending relationship.
With respect to our loan loss provisioning for the quarter, we determined that it was appropriate to defer implementing cecil and to continue to use our existing incurred last methodology.
This decision was based on several factors first there continues to be a significant amount of uncertainty regarding the implementation of Cecil.
Second the current pandemic already creates a highly uncertain environment for determining future credit losses, which makes for a very poor time to adopt a new methodology.
Finally, we're very comfortable with and have a high degree of confidence in our existing incurred loss methodology as it successfully sauce through the 2008 to 2011 recession.
Our provision for loan and lease losses totaled 8.4 million for the first quarter up from 1 million in the prior quarter. The increase was primarily due to changes in our national economy, and local economy qualitative factors in response to the deteriorating economic conditions created by the.
Well the 19 pandemic.
Both of these factors are currently at the same level that they represented at December 30, Onest of 2008.
As a result of this increased provisioning our allowance for loan and lease losses represented 1.14% of total loans at the end of quarter.
When you include the unamortized discount on acquired loans represented a 131 basis points of total loans.
Because of the uncertainty regarding the severity and duration of the economic fallout caused by the Corona virus, we're not going to be providing forward guidance on future provisioning.
Our effective tax rate for the quarter came in at 14.4%. The rig was lower on a linked quarter basis due to the lower earnings and the resulting higher mix of tax exempt revenue.
I'd like to wrap up my comments by reinforcing what Larry noted earlier about our preparedness to manage through this unprecedented economic shock created by the covert 19 pandemic.
Our capital levels remain strong and we have abundant liquidity, we stand ready to continue to help our clients in our communities whether this crisis and we're blessed to have incredible people throughout our entire company to help us do sell.
We look forward to win this crisis passes into when the economy shifts into a recovery mode.
We believe we will emerge from this a stronger organization well position to continue our growth and shareholder value creation strategies.
With that let's open up the call for your questions operator, we're ready for our first question.
Thank you we will now begin the question and answer session. Please ask your question. Please press Star then one on your touched on SAP because I draw. Your question. Please press Star then cash our first question today will come from Damon Delmonte with KBW. Please go ahead.
Hey, good good morning, everyone hope everybody is doing doing well during these challenging times.
Thanks for first first question just with regards to the participation in the PPP.
Do you have an expected average rate our fee that you guys will receive for for the origination activity.
Yes, Damon this Larry I'll take that one.
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First of all since quarter end and because the PPP.
Program open back up just new last.
36 hours or so.
We funded some additional loan since then so our number of PPP loans is now.
Just over 1500.
Up from the number that we gave you would.
Just yesterday, we just looked at yesterday.
Our total loan amount now is a little over 350 million.
The average loan fee per loan is going to be about 3%, so a little bit over $11 million.
In addition, I would say that the.
We have basically caught up.
With the vast majority of our clients. There's a few dangling deals that are we might be requiring information from our clients to submit yet, but we are basically caught up at this point.
And.
So we feel really good about the way we've helped our clients during this transition.
Got it okay.
Good color. Thank you.
And then with respect to the the loan deferral in some some color on the.
The number of loans and then the dollar amount what is the breakout between commercial and consumer mortgage loans.
Yes, the vast majority of the dollars are in the commercial sector.
And.
Sure and flip to my numbers here.
And so.
[noise], because we're a highly commercial bank the vast majority of the dollars in the commercial sector.
The only place where we'd have a real.
Maybe skewing of the data data there Damon is that it in the sectors that we talked about hotel in restaurants.
We do have an increase of people looking for loan deferrals in those sectors.
So in our hotel space.
We've received deferrals on 24 of 32 Hill Hotel property properties.
And that represents about 58% of the dollars in that space.
On the restaurant side of things, we've gotten referral Rick deferral requests for 30 out of 88 restaurant loans.
Which represented 41% of the total dollars that we had in that space.
Got it okay. So the deferral activity really and in those areas was high.
Other than that it was fairly broad based and no real consistent.
Meaningful trends that were different.
Got it okay. That's helpful.
And then just one more quick question Todd I think in your prepared remarks, he said that.
Given pipelines and expectations, you're sticking with the 24 to 26 million for the swap fee income.
And I just want to mix I'm not misreading the press release, because a press release that thought that youre pulling back your previous announced targeted range for full year swap fee income. So I just want to make sure that the 26 24, 22nd is still accurate.
It is Damon good catch since the press release was finalized Larry and I huddled up with.
Our folks it et cetera.
He and the banks and determined that based on the pipelines for swaps we.
I want to go ahead and reaffirmed that guidance, we feel more confident about it now than we did crafting the press release that we wanted to go ahead and do that.
Okay. That's that's helpful because that.
As a very big component of your your non interest income so glad to see that there's some clarity there.
Thanks very much that's that's all it ahead for now I'll step back out thank you.
Thanks, David.
Our next question today will come from May 10, Ray Hyper Sandler. Please go ahead.
Okay. Good morning.
Good morning.
Just going back to David's question just around.
The loan portfolio that you guys earmarked as perhaps more rich just given the ongoing pandemic just curious of the roughly $400 million. So you will you guys expect to fund.
You guys investments for what proportion of those funds or go into those more at risk lines.
As outlined in the slide deck.
Yes made good question.
If you looked at the PPP loans that are going to hotels.
It's $37 million.
Out of the total and restaurants, it's $14 million out of the total.
So meaningful dollars, but not a huge percentage of the total.
Okay.
That's helpful.
And then.
Changing gears, a little bit on operating expenses on so you know.
Came down meaningfully lower like you alluded to Todd.
Just curious as we kind of think about the run rate going forward and assuming you know your guys as guidance for swap revenue for the remainder of this year kind of pans out.
Maybe thinking about the operating the absolute level of operating expenses over the next quarter that some of that clarity at this point with everything going on.
Sure Nate.
We're pretty confident that we're going to be in a 31 to 33 million range. When you strip out some of the non core expenses here in Q1.
It was about 30.7.
And somewhere in a range of 31 to 33 would to be via.
Pretty good range for a total noninterest expense Q2 through Q4, it will depend on.
Ultimate level of profitability and production as we said in our scripted comments, we tend to have higher degrees of that risk compensation, we like that because it aligns well with shareholder returns.
At a 31 to 33 would be a good proxy for that.
Okay very helpful.
No it's difficult to predict where the core margins going to trend.
On a basis point percentage basis point basis to your point Todd.
I guess.
Given that we had them, but hopefully in the quarter, which I imagine should nice impact to your guys is funding costs more so in the second quarter.
But I guess I'm just curious just how we should expect loan yields to trend within that context, just given that seems like there's a lot of your floating rate loans already at floors falling those buttons and just kind of how we should think about overall security reinvestment rates and yields relative to what we saw in first quarter.
Sure need to the big moving parts for us or on a positive.
Note are going to be a full quarter of the benefit of the rate reductions in March.
Thats really going to help us of course with cost of funds. We are going to work really hard to put some of this liquidity enhance liquidity to work I will tell you that only gotten more significant here at least through April we continue to see some.
Fairly significant growth in core deposits, which is always a good thing, but we're gonna have to work hard to put that work.
We are really pushing hard on credit spreads trying to maintain credit spreads and pricing discipline.
Going against that of course would be floating rate, we do have about.
Close to a third of our floating rates are with floors and it hit the floors.
So that's helping a little bit we're actually pivoting a little bit better to a more balanced.
Our to say ourselves, but we are pretty optimistic about margin were just a.
Fair amount hesitant to providing specific basis points guidance. So those are some of the bigger moving parts for us we feel good about margin.
Feel like it should continue to expand.
Probably the biggest wildcard is going to be how effective we are putting some of this liquidity to work.
Understood.
Makes them appreciate that color. Thank you just us one more on Bates.
I think there was a.
Line in the press releases says you guys took a goodwill impairment charge related to the pending sale abates I'm just curious if that that grew and just maybe how we should think about overall wealth management revenue.
Maybe in the second quarter, just given the volatility that we've seen recently in the equity markets.
Sure and a great question, we have reached an agreement to sell base given our exit from the Rockford market.
Didnt any longer makes sense for us to continue to own the based company. So we reached an agreement to.
To sell.
I would not expect that to close until very late second quarter or perhaps there.
That will impact go forward revenue, but candidly.
We've been pretty close to breakeven overall on that part of our business because we weren't able to get the integration savings with RV and T that were originally planned so not much if any bottom line impact there.
We did see a reduction of about 15% and eight you win.
On a linked quarter basis, so assets under management trended, 15% lower based on market.
If this persists for a bit right now, we're expecting about 8% to 10% reduction in wealth management revenues overtime that will be exclusive of the base impact and just as a reminder, Bates gross revenues about 3 million here. So.
By Q3 will be dropping off that 750 per quarter from base and we can see an 8% to 10% decline in wealth management.
Court wealth management.
That makes sense.
Yes, absolutely.
Helpful and just to clarify that those moving pieces within states and wealth management that reflected in that expense guidance. You gave between 31 and 33 going forward really for the remainder of this year supportive, yes, yes, okay.
Okay, Great I'll step back I appreciate guys, taking the questions. Thank you.
Thank you Dave.
Our next question will come from Terry Mcevoy <unk>.
<unk>. Please go ahead.
Hi, good morning.
Good morning, Terry.
Just to start with your called strategy around PPP a lot of banks. It just focused on their current clients on you guys just taking the opportunity to I guess at 176, new clients, just maybe talk about where those clients that just werent, having success with their primary bank and then.
Just the just your overall kind of understanding in comfort around from new clients. You haven't worked within the past do you think that opens the door for such as using broad and hop you've dealt with that.
So Terry I'll I'll take the first crack at that one and let Todd follow on if he's got additional comments first I would say these were all.
Potential clients in our existing markets. So we were familiar with the companies.
And we perceive this is a once in a.
Lifetime opportunity too.
Build relationships so about as of today about 15% of the PPP loans we've done.
Our for people, where we weren't their primary bank.
And most of them, where non borrowing entities or companies or individuals.
That may be had.
Honest relationships with us or no relationship that we've been calling on for years.
And so for US this was an opportunity to.
Build their relationships with companies that maybe didnt need us that much in the past because most of more non borrowers and it was just.
Two inconvenient to move their deposit relationships from us so when we get through this.
We think this will actually help us from a core funding standpoint from a treasury management standpoint from a wealth management fit standpoint, and we have been opening.
Deposit accounts at a record pace.
Because of the relationship that we've been building on the PPP side.
So really no concerns about fraud, because these where people that we knew in each of our markets before this all started.
Yeah, Jerry just to.
Echo Larry's comment I would characterize these is not random new clients, but targeted new clients. These were.
Clients that were owner wish list a this was a great opportunity to help them in a.
Kind of need for them. The vast majority of these would be coming from U.S. banking wealth. So another continued part of our playbook to be more agile and nimble than they can be in most cases. This was a result of.
S bank or wells, not being able to get through the program the way we work.
Terry one other thing I'd conversation this morning, with the local head of our.
Economic development organization in our community locally.
And he basically said.
Your reputation has been greatly enhanced in the last few weeks because of how we handle this so it's been a really good thing from a.
You know reputation in our markets.
Thanks, It's good to hear and then as a follow up but Todd I respect your kind of comments about not wanting to talk about I think to put loan loss provision line. Because my question is the economy's change since the end of the quarter and as you think about the to qualitative factors that go into your reserves if the quarter ended today with that allowance to loan.
Ratio move higher like it did here in the in the first quarter.
Yes, Hi, Jerry that's that's a really really great way to ask us to give a little more guidance.
Provisioning, congratulations but [laughter].
I think I think it's fair to say, we expect provisioning to remain robust here.
We are not giving guidance because like everyone else, we don't know the ultimate severity and duration of this pandemic.
The longer it goes on in the more severe it is obviously the larger the provisioning will likely be we feel good about our incurred loss model. It did see us through the recession and find form we think we performed well in the recession, we expect to animal.
So we do expect provisioning to continue to build we think we took out a real nice.
Cut data here in Q1, given the high degree of uncertainty. We think are incurred loss model allows us to do that.
A little more accurately and with a little.
A little more history, and so we ramped up our national economic factor to the same level. We had at 12 31 of over eight when it was pretty clear we're going to have a recession. Our local economic factors were also increased roughly those levels.
And so now going forward, it's going to be what kind of information, we're getting from our clients and hearing about their performance.
There will be a little more clarity at the end of Q2, but I don't think anyone expense.
Credit metric issues to show up for some time, so if we're going to rely on the credit metrics to drive that provisioning.
Thats, just not going to happen here, we expect to stay out in front of.
Provisioning and continue to build the allowance and or Larry If you got any comments you might want to provide some more color.
Terry the way I've talked about it with maybe your employees as Theyve asking the last week or so.
My synopsis of this is all banks US included we're at the beginning of.
A cycle, where we've got increased provisioning.
And we won't be at the end of this until we have some clarity on what's going to happen with the pandemic.
Great. Thank you both and thanks to everybody who help put the the presentation together on the on the additional disclosures. So thank you.
Thank you next year.
Our next question will come from Jeff for Olin D.A. Davidson. Please go ahead.
Thanks, Good morning.
Turning to couple just a couple of follow on on the.
Expenses Todd.
I'm, assuming the kind of the core number you backed out the the acquisition and dispose disposition costs. So you know close to 700000 is that the figure that.
Backs out of stated versus your there what do you sit 30 point.
Evan or something like that.
Correct, yes, okay gotcha.
And then on the on the margin do you have a do you have a march of the month of March margin.
Good.
Let us know on.
Actually I think we're we're not going to provide a march only number certainly it was better than the average for the quarter.
Really a lot of moving parts in terms of dramatic liquidity build and the benefit of those rate cuts. So I'm not really comfortable parson March out at this point, but it certainly was better than the average for the quarter.
That's helpful.
Then lastly on credit the one relationship added was that tipped over through sort of co vid related pressures or kind of a pre existing.
Weakening and any sort of type that you could you could discuss about that relationship.
Yeah It was a.
Jeff It was really unrelated it was basically.
Bad financial reporting.
That was in accurate.
And when we discovered that the financial information, we'd been receiving didn't really represent a true facts us. We knew we had a problem. So would you elected to charge off.
And the type it.
What type of loan was it that industry production it was a construction business.
Great and so unrelated because there is still the construction.
Industry in our markets has been.
Really very solid so far.
Construction projects continue to move forward.
Both on the commercial and residential side.
So you know as of.
A couple of days ago, certainly the anecdotal evidence is still that that business is pretty solid.
Gotcha Okay.
And just the last one the.
The differing on C.. So adoption, presumably you you had quite a bit into the work done in the quarter.
Do you do you have a comparable reserve level, if you were to adopt and then.
Such on timing of when that may occur.
Yes, Jeff I'll answer the last one first and that is a timing is really going to be dependent on.
Everyone sorting out what the carriers act meant to imply.
Getting some better guidance from the FCC and trying to get them and fast be and everyone on the same pace. So.
I'm reluctant to speculate on timing.
We will be continuing to track and disclose.
Cecil So I'm comfortable.
Given everyone. This number it will likely be in some form in our Q here soon but right now at the fed the day, one would have been at adjustment of a little over 7 million board above are incurred loss methodology and that number is growing too.
Well over 10 million.
At the end of the first quarter. So right now that would be the difference between seesawing incurred loss at 331.
Great. Thanks, that's it for me.
Thank you.
I cannot keep I'd like to ask the question. Please press Star then one.
Question today will come from Brian Martin Janney Montgomery. Please go ahead.
Hey, guys. Good morning, I appreciate all the this they help on the slide deck you guys put in place as very helpful. So.
Morning, Brian.
Right, Yeah, just maybe one from me Todd on the back to the PPP for just a moment.
The benefit you guys will realize spend that can you just give us any thought and how youre.
Expecting that to kind of play into the income statement here over the next couple of quarters or any thought on that would be helpful.
Yeah sure Brian right now that 11 million roughly in fees. Our expectation is maybe 50% of that like come through earnings by the ended the year.
Fair fair amount of uncertainty of course around how much of that will be forgiven and those loans forgiven in those fees recognized early on but right now were ballparking around 50% of that a with the remainder coming over the remainder of the two year period.
Okay, so spread out and then the other half in 21 is spread out by quarter is how you're thinking about it today.
Correct, probably the best guess, we would have at this point yeah got it. Okay. That's helpful and then medium Brian books, but I'm sorry, Brian one other point of clarity, we're not well it's possible. We did start recognizing some of that in the second quarter. It weren't uncharted territory. So it's probably more likely it's the third and fourth quarter. This year before it really stop.
Arts.
Okay. That's helpful. And then just on the fee income for a minute Todd just two things the.
The wealth management decline with that it I guess you with the Trapani Lam is that any decline on an annual basis from 2019 levels or was it more off the first quarter run rate on that well just kind of how we're thinking about it.
Yes, Brian that was actually a reduction in 80, you want them on a linked quarter basis. So 12, 31 19 to 331 for me.
Right I guess, how as refract referencing the 8% to 10% I thought I thought there and you end drop was 15, maybe I missed her that and then the revenue impact us eight eight to 10.
Correct. If this persist so again our revenue in Q1 was actually very static compared to Q4, but if if this persist we would expect on an annualized basis somewhere around 8% to 10% drop and run it.
Gotcha, Okay. That's clarified thanks, Todd and then are there any other fee income lines that have been that should be or you're expecting to be impacted by the pandemic that we should think about prospectively.
Of consequence, I guess, you know today, but thinking about.
Hi, Brian I'll start you know certainly one thing that we'll probably see is.
Oh interchange income and overdraft income.
I'd expect those that go down maybe 10 or 15% because people are.
In this economy are actually.
Using their debit and credit cards last so that means it probably overdraw little less than we've got a little less interchange income.
So it's not huge but that's probably one space, where we will see something.
Okay, and then or just the last one from me Todd just on the margin I appreciate the all the color this quarter. The just the core margin. When you we set that next quarter to what level, it's going to be what's your expectation b.
At least right now that directionally, it would kind of be flattish or up a little bit snare flattish or down just beyond second quarters reset.
It goes to just how we should be thinking about that.
Sure I think fairly static with a slight to upward bias is how we would.
Talk about that Brian we got.
Yeah, certainly Q2 would likely have more upside than longer term you know with the fed action there at the end of the first quarter.
We expect to certainly to some nice benefit from that here in Q2, they're likely out a powder at this point and so in Q3 to four probably a little more static.
Okay. That's helpful and last one was just the tax rate Todd given the change this quarter any thought on yeah, I guess, a future how we should be thinking about the future.
Yeah. So so that moves a fair amount based on the mix of tax Alex.
Income versus taxable and so in a quarter, a with large swap fees and low provision that rate tends to move higher like we had the fourth quarter and in periods, where we have more.
Normal swaps and large provision and tax.
Taxable streams of revenue and net income or a lower than that rate's going to be lower so somewhere in a 14 to 19 basis points winning probably.
Right. Okay, Alright, that's all I had I appreciate it thanks so much.
Thanks, Brian Thank Brian.
Ladies and gentlemen, this will conclude our question and answer session. At this time I'd like to turn the conference back over the Larry Hamling for closing remarks.
Thank you operator.
I would like to thank all of you for joining our call today, we hope everyone remains healthy and safe. During these challenging an interesting times have a great day, and we look forward to speaking with you again soon thanks.
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