Q1 2020 Earnings Call

What would the bank seven-course first-quarter earnings call before we get started? I'd like to highlight the legal information and disclaimer on page 21 of the investor presentation those who do not have access to the presentation management is going to discuss certain topics that contain forward-looking information which is based on Management's beliefs as well as assumptions made by information currently available to management. Although management believes that the expectations reflected affected in such forward-looking statements are reasonable. They can give no assurance that such expectations will prove to be correct such statements are subject to take risks uncertainties and assumptions including among other things the direct and indirect effect of economic conditions on interest rates credit quality loan demand liquidity and monetary and supervisory policy of banking Regulators. Should one or more of these risks materialize or should underlying assumptions prove incorrect actual results. May differ materially from those expected. Yep.

so please note that this conference call contains certain references to non-gaap financial measures you can find reconciliations of these non-gaap Financial Majors to get financial measures and they K that was filed with the commission me this morning representing the companies on sales call we have Brad Haynes chairman Tom Travis president and CEO JT Phillips Chief Operating Officer Jason Estes chief petty officer Kelly Harris Chief Financial Officer and Henry Lipkin Field General Counsel with that I'll turn the call over to Tom Travis

Thank you. Thanks for joining us today. We Begin by acknowledging the pain that's inflicted upon our fellow citizens and Country. Especially our friends in places like New York have been a hit especially hard we support and appreciate the efforts being made all across the country, especially the work of our medical professionals and first-time offenders, and we stand together to defeat and overcome the terrible pandemic. It truly is a terrible time. It's also wonderful to see so many aspects of American exceptionalism coming together government policies the treasury Department the SBA the USDA the state banking Department the Federal Reserve everyone working closely with citizens in the private sector were grateful for everyone's efforts.

I'd like to take a moment to

Congratulate and thank the bank Seventeen members for their tireless work. We truly have an exceptional company our plan to work remotely was put in place very quickly and is functioning very well our operations and it groups have us working seamlessly. We're very proud of their efforts. I also want to thank Jason Estes our chief credit officer and the entire centralized credit function, they quickly and professionally enabled us to handle loan modifications in the new PPP loans and a very efficient manner last but not least our lenders and their support staff and every location have done an excellent job, and I personally have received many calls and emails from customers Thanking us and frankly non-customers who bank at large Banks, but who had asked us for how long the strength of community banking is revealing itself yet again.

We are certainly aware that in a matter of weeks our country change from a vibrant and booming economy. The one with severe economic stress after all is said and done we expect to experience the month sudden and severe recession in the modern history of our country. There is no consensus on how far we will fall and no one has ever predicted or encountered the speed at which GDP and unemployment office have been negatively impacted. We also know that this pandemic induced stress has caused an immediate and severe liquidity crunch, which is now morphed into a credit crisis wage. What is very important to remember is this stress began as a liquidity event not underlying credit issues unlike 2008 when the banking system was burdened with excessive or especially when you included off-balance-sheet items the industry entered into this. With extreme strength.

Clearly challenges are everywhere. Our industry will face increase credit risk margin pressure stress to our customers and team members and additional threats related to it intrusion wage cyber crimes regardless, we remain very focused on our credit book liquidity Capital levels, extensive discipline and internal operations. We have closely analysed are extreme stress scenarios and are using those in conjunction with our deep transactional knowledge. That's what guides us. We are comforted most of the thorough involvement between experience credit Executives who work with lenders and their customers are stress scenario is very severe and if it materializes we remain confident of our Revenue stream and the shock absorption capability of earnings and capital. This is why we expect to continue to pay our dividend. However, we will watch very closely as we move through the next week's in few months. We will continue to provide time.

Quality information, but we also know events are unfolding and happening at a rapid pace. So it will take continuous effort. Now. Let's move into our data. Our Focus will be on pre-tax pre-provision earnings and how that combines with our already strong Capital cushion to provide strength to our already strong balance sheet reflecting back to the Dodge Journeys call. We were very excited about 20 20, which was largely due to our strong loan pipeline some of which had already been booked our projected loan growth for the first quarter did in fact occur there for our results reflect what we had anticipated a very solid quarter our pretax pre-provision income was very high and consistent with our faith in our slide deck. We have highlighted one of the great strengths one of our great strengths our wide profit. Margin. It rapidly adds to our already robust Capital levels birth.

or even with the

Uncertain future we are comforted that we will continue to add to our Equity cushion. We are very proud of our strength in this area and The Current financial Market of investment of shoot-first-ask-questions-later. Let's start with a refresher on Bank seven and how we were built on tried-and-true fundamentals. We're a company that provides commercial banking services to companies in their own know. In fact 98% of our loans are commercial purpose loans. We deliver the products and services using a branch light model Bank 7 and its Bankers are very close to customers. We're relationship Bankers not transactional transactional Bankers. We have virtually no participation or shared National credits. We have Decades of successful improving credit that is enabled us to avoid meaningful losses. We typically stay away from the high end or speculative loan transactions focusing more on the blue collar market segments wage.

Is prevalent throughout our loan book and that is one of the contributing factors to our historically net charge low net charge-offs. Essentially. It is more of a needs-based loan book knowledge. You can easily glean that when you review our home construction loan metrics and our Hospitality loan book, we consistently maintained a strong Nim those factors combined with our superb efficiency ratio and revenue per employee metrics to produce those wide margins and consistently strong profits, which provides are healthy shock absorption cushion off. The result is high levels of capital with 98% of our Capital being tangible capital good old-fashioned common stock and retained earnings. I would also add that we were debt-free.

In addition, we also maintain very strong on balance sheet liquidity. So now let's take a minute and review just a few of those fundamental components and we'll start with capital. We entered into this pandemic induced period of uncertainty with very high levels of capital inclusion our slide deck or two very important illustration one that illustrates a significant factor in the capital and the other being a comparison of our pretax pre-provision run rate as compared to 192 of the smaller exchange-traded Banks. You can see our mom are far better again, not only did we enter the current crisis would heavy Capital levels are strong margin rapidly adds to our Capital base much faster than most other Banks.

We are very mindful that the near-term future is full of uncertainty. Nonetheless. We remain confident in our Capital strength the combined efforts from government the FED private page three customers and teammates will enable us to successfully work through the upcoming month and prevent us from experiencing a negative impact to our Capital base. Our confidence is first off by the fact that none of the shares owned by our insiders have been sold. Not one share. We have far more at stake in this company than anyone else now, if we move into another primary component our net interest. Margin, we constantly maintain an excellent Nim as highlighted in our January call. The fourth quarter name was very strong and we had expected that strength to carry into twenty twenty years. However, none of us anticipated the sharp and sudden decline in interest rates looking forward into the rest of the year the industry and Bank seven will experience downward pressure on them.

With most of the pressure appearing in the latter part of the Year. Nonetheless. We still expect

To maintain turn in within historical ranges. And remember we achieve that by being disciplined with our floors. In fact based on the most recent Fed rate cut 92% of our loans are either fixed or already at their floors. Our customer relationships are strong and deep in our customers know we are reliable partners and when absolute borrowing rates are this low wage, there is less pressure from them to lower rates. We also did not allow lenders to negotiate lower rates or floors without executive management involvement and oversight each customer requesting a radar or reduction is logged into a spreadsheet maintained by the finance department and each request is evaluated by the lender and executive management for the first quarter. We had $55,000 of loans, which is 7% of the portfolio that was repriced downward at an average repricing downward of 82 basis points and remember during this time the FED drop off.

By 150 basis points. So now let's spend a minute on liquidity Bank 7 is historically maintained very good liquidity. Typically holding between 75 million and 125. Need the cash at the bed, which is a very substantial amount of money for a company our size. And we continue to operate in that manner this pandemic induced stress clearly began as a liquidity event, which quit quickly morphed into a systemic credit crisis having said that this clearly is not your father or grandfather is liquidity crisis off and fed interventions or unprecedented far-reaching spread across the board and those sections combined with a fully entrenched digital electronic currency system have clearly called the market for the consumer segments the ability to instantly and seamlessly provide funds to pay for goods and services have significantly reduced consumer Panic, which is a good thing as consumer.

Sentiment is fragile, but will be critical to help the economy recover after all 70% of GDP is consumer spending lawmakers the treasury Department of State banking department and the FED have demonstrated their commitment to provide multiple backstops to the entire monetary system and that is added stability to the markets. In fact, when you look at the facts most recent data, it is quite revealing on a year-over-year basis commercial loans are up in the 25% range pretty much unprecedented. You may ask how the loan growth relates to liquidity and that is due to many companies drawing on credit facilities and simply re depositing the money into the banking system that same data shows annualized deposit growth on a over your basis. That is also in the double digits the strongest anyone can remember the FED actions and US government programs are temporarily propping up the economy and ironically the liquid

This is quickly abated as evidenced by so much money that's ended up in the US banking system on top of all that the global flight to safety is caused International liquidity to flow into the world banking system with liquidity being sufficient. The long hard work of economic recovery will soon begin I would argue it's already begun. Another tool to support liquidity is the new Faith facility for our PPP loans, which we are utilizing and taking full advantage of and that allows us to preserve our liquidity for normal banking needs.

the last but not least is

Equality, we're mostly an uncharted waters. However, there are a few moments in history that can help us understand what a recovery might look like. We can refer to the devastating floods in Houston. Even a such as Hurricane Katrina in those cases the insurance industry provided a major backstop compared to today when the government programs and tax policy, which will be the primary drivers to help with recovery. We realize this pandemic is far-reaching and different nonetheless. We remain confident that our asset quality will remain relatively strong as our underwriting principles and long-time relationships have always carried us through the toughest of times. Our confidence is also based on one primary underlying assumption, which is at the pandemic adduced induced stress is a near-term medium-term event with America returning to a more normalized environments sooner rather than later clearly a longer period of continued stress will cause or would cause great job

Uncertainty in our complete economic recovery will largely depend on how long it takes the country and its citizens to emerge from their homes and get back to work in their lives. Even when that occurs. There should be a new normal which no one can yet predict but it is certain that consumer behaviors will change which will benefit some Industries but harm others. Therefore we expect an uneven recovery one key factor and strength of banks that must be remembered is our strategy of loaning into more of the blue-collar types of projects in segments essentially a more needs-based segment you break especially see that by reviewing the stratification data within the hospitality and cre segments experience has taught us that economic downturns typically hit the more leverage and higher and segments especially hard. We also know that past recessions have revealed the strength and what we call the cycle down segments of the economy. We're very confident of our loan book being mindful of the high table.

Scrutiny surrounding credit quality. We have provided enhance reporting our energy hospitality and segments are enhanced reporting was provided with a view towards maintaining customer privacy issue as well as being aware that competitors also review materials. So with that being said, let's ask Jason SSR Chief credit officer to walk us through the cracks. Thank you Tom with all due respect to the pandemic and the challenges in the world today. We had a really strong first-quarter in our loan book our credit metrics in line with recent results. We had minimal past due loans no charge off and a reduction in our npas. We also have a nice shift in our loan mix as we continue to decrease the internet portion of the portfolio which now stands at 12% versus 18% of balances a year ago and this trend is expected to continue. The largest increase was to our birth.

Book as we've successfully added.

several clients several large clients

now is the much of month of March progressed our markets began to be impacted by the pandemic being in the middle of the country. It was a little slower than on the coast.

Our first loan modification related to the pandemic was done on March 15th. And at the end of the quarter, we only had twenty-five loans that had been modified. I like to dive in a little bit to slides 11 and 12 in the slide deck related to our Hospitality portfolio. We all know that safe was impacted quickly by the pandemic a long-term. We remain confident in our borrowers our underwriting in the market with within which we loaned money the initial feedback from our customer base about a month ago was a dog we had dropped all the way down the 5 to 10% in many cases more recent reports are that they are already experiencing improved occupancy levels with the majority of properties off of ours reporting that occupancy rates are already involved 30% 10 of our 34 operating properties reports that the last 10 days they've operated above 50% off.

Let's see now full recovery for this industry is expected to take two to three years on average. Our operators need about 50% occupancy in order to amortize their debt off. I believe the recovery to 50% occupancy will take much less than two to three years.

As Tom stated we remain committed and confident in the segment in our loan portfolio overall now shifting to the energy industry. We have continued to reduce our monthly exposure and are well-positioned to handle any losses that may materialize from this sector as we presented on slide 13 Bank seven has been actively reducing our energy ending activity for over a year because the the industry was already dealing with a price and Supply driven slow down. Now the pandemic has destroyed demand and the ending of Devastation is being well documented the energy energy recovery will be slower and it appears that there will be a lasting impact on companies and the industry overall consistent with prior quarters. We continue to experience migration with in the service industry portfolio.

Our borrowers in the service segment now, they've been through many cycles, but this one appears to be more severe at least going into it.

Within our portfolio the e&p and Midstream segment continue to perform at a high level in spite of current pricing conditions.

I was also like to add briefly on our commercial real estate portfolio, you know, our construction portfolio concentration has been at multi-year lows over the past couple of quarters. We continue to focus on low to moderate priced homes and also expect to see a reduction in our hotel construction activity as projects are delayed while the economy recovers our exposure to retail land and lots is is minimal and will continue to be that way and with that. I'd like to hand it back over to Tom. Thank you Jason a good report on on the on the credit side of the bank. So as we move forward consumer sentiments going to be the key to the recovery, people are simply not going to venture out unless they feel same this recovery will be different for that reason over the past decades the gradual conversion of our economy into a service-based consumer-driven economy is highlighting how critical

consumer sentiment will be to the

Recovery, it also happens to be why modeling is more difficult. As older metrics just are not as reliable a good reminder of that is that manufacturing now only accounts for approximately 11% of our GDP compared to 70% of GDP from consumer spending. Our Focus will continue to be on our fundamentals will continue to produce pre-strike pre-tax provisioner to create that strong Foundation. Our branch light model is held up very well in the social distancing environment. It was not a big adjustment for our customers and staff. We're not saying it was business as you age, but we were able to easily adapt we've always been very close to our customers. We have been very proactive talking to them making sure they know we're here for them our strength too deep customer relationships and interaction that's been obvious to us into them and will continue to do so, we also know the government stimulus programs and flexibility on future tax rates and measures will contribute to help us the emerge and more FAQ.

Recover and we'll stay abreast of all those items. We also will pay extra attention to our digital platform system up time has been good and generally speaking is withstood unparalleled traffic spikes. We will evaluate redundancies and system reliability metrics as we know that many people are now accessing the digital offers offerings and stressing our platforms. So I woke up we would also like to say that we're seeing green shoots begin to emerge there are flows of capital seeking opportunities. We intend to be vigilant but also pay close attention to smoke opportunities. In fact, we have a few opportunities right now that are very strong and very safe in these times being Nimble yet prudent with additional long-term customer opportunities, especially with companies that have worked with large Banks inexperienced lackluster responses related to the PPP process. It's just a really good opportunistic time that is going to quickly emerge one exam.

We could use it. We haven't yet as the new Main Street lending program, but we'll we'll evaluate as they go forward. So wrapping up. We thank you for your time, and we'll open it up with any questions you may have.

Thank you. We will now begin the question-and-answer session. If you would like to ask a question. You may press * then 1 on your touchtone phone. If you're using a speakerphone, please bring your handset before pressing the keys to withdraw your question, please press * then two at this time. We will pause momentarily to assemble the roster.

And the first question comes from Kaylee with KBW. Hey, good afternoon guys.

Hello.

So BuyBacks were notable in the quarter. Do you still have excess Capital with tangible common Equity at around 10% How are you all thinking about my back's going forward?

Brady we've been consistent that our view of stock repurchases is based on two factors first whether the price is a bargain and second is it consisted of our long-term goals which balance shareholder returns and having adequate Capital available for expansion future expansion, as you know, we've commented that we've historically we've seen many companies buy back stock view of boosting EPS not necessarily based on buying at a bargain price essentially more of a short-term perspective. And we've also said that we understand that people are encouraged to follow that time type of program, but our strategy is different. And so when this turmoil began we observed a severe price drop and we knew our strong earnings and capital cushions were sufficient wage. So we began executing on that strategy. So with that being said specifically to your question, we're not going to deviate from that perspective and that wage

Gee, we don't have.

Have a specific number in mind. We don't have we don't have predetermined expansion plans right now, but we feel really good about our company where it is and JT made a comment the other day regarding opportunities and we feel like that the Best Buy we could make whether you know looking at buying a bag has our own stock, right?

All right. That's that's fair. Then you mentioned your your activity with the P3 plan from the SBA. Let me just update if you how much how many people have you done so far. I think most banks are enjoying roughly a 3% fee on on those loans. Is that roughly the fee that you guys are expecting here?

Yeah, so the first way we we put on about $45 million of funding is related to the Triple B program and and our our life expectancy generation. I believe it was around 2.9. So really close to him on with your your 3% estimate from from others.

All right, and then lastly, just the hospitality portfolio. I mean, it's it's notable with you guys at a little over 20% I appreciate all the same colors around the LTS and you know what the vacancy can can go to excetera, you know, I mean just bigger picture, you know, it's just a portfolio off. So you are concerned about over the next few months or do you think even with a you know a shelter in place for another couple of months, you know, this this book would still perform relatively, okay.

Yeah, I expect this book to perform relatively. Okay to use your words, you know, we're we're confident in these borrowers. They've got lots of operating history and pulled kind of the pin biggest groups and there wasn't none of them had less than 23 years of experience. And so they're in this for the Long Haul and so are we I would say to Brady that that the you cannot underestimate the drive to Market component compared to the Gateway cities like the coast of East and West coasts and and you you're already seeing there will be many many more people that will get in the car off will drive to certain places and we've got that Leisure limited-service. It's not business convention hotels. It's not dependent on people coming in from International truck.

And when you when you think about that you can you can easily see that the portfolio is going to do much better. And as Jason said in his comments off, I think it was nine properties. I forget the percentage 1/3 or so ten their ten properties out of thirty four or five that we have that are already above 50% off and its people that say I can't go anywhere Texas is opening up and so let's go to Dallas for the weekend or let's do this or and so that's our that's our portfolio and I would I would add on page twelve when you when you talk about concern and you go down that road to whether people want to speculate know if it's 90 days or six months before we're back to pick a number seventy percent occupancy 60 look on page twelve and you know, we have a 62% loan-to-value ratio dead.

And so if you think about it.

determines 70% of our exposures of Dallas-Fort Worth area which is a drive to Market so just a typical Hotel it's a Hampton Inn in the Dallas metro area and the property is worth five million dollars and the bar roses 3.1 million and so are we worried if there's a 90-day to six-month temporary hiccup to their cash flow absolutely not and this is an example of of the Dynamics of a combination of more of a blue-collar perspective and the dynamic marking that we're in especially the the drive-thru segment now one one final comment I'd make I read a piece this morning that that there's there's a lot of belief out there wage at the America's national parks are going to be really really busy because people are going to want to get in their cars and go cross-country and do things and and so it's another example birth

The Importance of Being a drive to Market and a Leisure and combination market and not business commissioner Gateway cities like the coast

got it. That's very helpful. Thanks, Tom.

Thank you. And the next question comes from a Don't Even Stevens.

Hey, thanks guys. How are you?

But you mentioned and prepared remarks that the overall level of loan deferments and modifications was pretty modest as of March 31st. You do you anything anything more recently as far as the the modifications or or deferments that you can disclose in the portfolio, especially around the hotel and energy segments.

Yeah, I'll go I've got overall portfolio details and then you know, I'll touch a little bit on the the other two segments but overall through the 28th of April, which was today. There is the two days ago approximately 10% of our total notes have been modified now, they represent about 30% of our outstanding loan balances and that's two-thirds made up of the hospitality segment. So, you know of the operating properties just the program was and all of these modifications that we've done have been two to three months of either interests only or two to three months of no payments. And so in that group that the vast majority of that is the hospitality segment.

Got it. Okay, that's that's helpful. And then within the hospitality segment anywhere there any past dues or any potential problem loans wage for March. Do you trying to appreciate if there any kind of laggards in the portfolio? That could be a it could be hit especially hard giving it. They were already hurting beforehand, right? There was a property that was approximately 30 days past due going into the the problem and or the pandemic I shouldn't say the problem the pandemic.

and did that

Loan qualify for a modification under or I should ask you this way under the current regulatory guidelines that loan qualify to the modified without penalty. It it does it does and we'll see what happens with that one property. The owners are working on a few different options. So we'll we'll see but yes, it qualifies got it. And then on the energy portfolio, can you just review what the what your expectation is of the size of that book? I mean, do you expect that to shrink as as some of these loans amortized over over time or you expect it to remain a similar-sized? Just curious what your expectations are

My expectations are that the existing portfolio would shrink somewhat throughout the year but have to be careful here. Remember through the last downturn we were presented with several opportunities that made sense for us to extend credit and the overall I expect energy to make up less of our portfolio long term. It would not surprise me if we're opportunistic and have a few really nice opportunities that make long-term sense to extend credit.

Okay, got it. And then I guess switching over on on thinking about the margin and and with the FED actions in March. I'm curious what your thoughts are about the keeping that core margin extra fees above the the low end in that range that we've discussed before which I think is around 450 to 460.

We think we're going to be within our historical ranges. What what what is it the low point the last 5:30. I mean, we think we're going to be within historical rates just

And can you clarify this historical Rangers? I was thinking 4:52 for $6, but it was there something below that that it could be at temporarily.

If you looked at the men page or pages that out there 2016 it was for $37 for calling in if I remember right? Hey Jay. Yeah, it was for Thursday.

Got it. Okay, that's that's helpful. And then you just closed some good stuff in the deck around the construction book, especially around single-family construction and developments and and a lot of exposure and it seems like a pretty pretty small amount, but I'm just curious. How do you typically underwrite those loans in terms of loan to values and not going to cost?

On the wonderful word family houses. That's one hundred percent centered in Oklahoma City and Dallas Metroplex is and so standard 80% loan-to-value age those Builders. I'm trying to think I think we have one Builder that's new to our portfolio and the past year, but that was banked by lenders that work out for that worked at other institutions and it work with the bar or previously. So we really kind of have a stable group of builders that we support and and it's a segment that we don't have any significant concerns within that portfolio.

And what are the policies around the the lot and the Land Development loans?

In general we don't do much of that but the the policies are 75% loan-to-value Max, but I would give you specific data points, but there's really not enough in there to create a meaningful statistic to quote you. I mean are are typically the developments that we do would be for larger home builders that we bank that are building their own inventory to to chew up over, you know, a think in terms of two years, maybe three years Max for their absorption, but typically it's going to be 12 months the 24 months of absorption and there's a specific end-user. It's more of a means to an end. Not really a product that we go out and Market.

Okay. Yeah, I know appreciate it's definitely smaller size. So I definitely appreciate that on the energy book. I think you guys answered all my questions wage grade disclosures there on slide 13. I appreciate you guys giving us some updated stuff around how you guys have you the risk of that portfolio. So great great stuff. Thank you God. Thank you. Thank you, and the next question comes Nathan race with Piper. Jaffray.

Afternoon guys just going back to the energy but not to beat a dead horse. But just curious if you guys can remind us how that portfolio Fair during the week 2015 2016 downturn and just maybe how that portfolios changed and composition. It sounds like you guys have been able to you know on board some new clients in the wake of that disruption that we saw five or six years ago. So just curious, you know, how you guys look at the portfolio today person back then it just kind of help the book generally perform from a policy perspective during that period. Yeah, if I could bring that we we lost $10,000 in the history of the bank on that charge off to the energy book and then far as what happened between 14 and 16 time. We were opportunistic, but they were very short term in and out transactions while people were accumulating properties and so it was in and out in and out and then I would say yep.

Finally the the one significant change compared to 2014 15 and 16 is we have like a little bit more in Midstream than we did back then.

Yeah, super helpful appreciate that time and then just going back to the United growth in the quarter. Obviously fairly strong. Just curious maybe how much of that was line of credit draws, or is it just kind of typical blocking and tackling taking share?

Yeah, virtually, none of it was line of credit draws.

Okay, got it coming on.

Okay, it's great to here and then just you know General thoughts and just kind of the general lower to Middle Market Commercial pipeline. Obviously, you know some macro slow down and headwinds on that front, but just curious how you guys kind of think about that overall book growing. I imagine to your point maybe energy and Hospitality slows a little bit along with construction some places, but generally speaking how you guys see the loan pipeline today and that should kind of the trampoline out into the net growth of the back half of this year as well. You know, if I could take that one, it's it's quite interesting because you really into some people's psyche and I I liken it to walking on a frozen pond you think the ice is thick or it's getting thick and you know, how far do you want to venture out? And so we have this long experience and we have this great confidence and we like our book and we like our our markets and we see opportunities birth.

but honestly, there aren't that many people that are interested in asking and there are as I said earlier, there are people that that are more opportunistic and and they're starting to appear but it's certainly not not a choice, you know, a large a large group of people and and so I think that that's going to evolve over the next four to six weeks and it goes back to off the virus and the testing and was it going to look like in four to six or eight weeks and do people feel safe enough in our you know, our model works and we're going to be there Thursday when people are ready, but we really are keenly focused on opportunities, especially, you know, not to pick on the larger Banks however dead

We have some some really interesting. I wouldn't say horror stories. But clearly the the larger Banks just didn't get it done the way the community banking segment down in that is already created opportunities for us with really good groups. Not desperate people not people that don't know what they're doing. But people that are that are really strong and so we would we would say that any meaningful growth I would imagine would be later in the year.

Got it. That's super helpful and then kind of along those lines, you know core deposit growth was pretty strong in the quarter and you know, it sounds like you guys see some good opportunities in front of you to continue to take share as well. Just curious if you expect that to also translate into pretty solid core funding growth. Um, you know, the next few Quarters at least just given some that disruption that you spoke to Tom. Yeah, we would think we would think I should continue the way it has in the government programs have been very helpful to the entire country.

Right and then so I guess along those lines, you know, you know with you know with us at dealer rates and a lot of your loan books. I think you spend ninety percent at floors that's floating wage. Is there the potential that we could see some margin expansion the back half of the year just as that core deposit growth unfold and you're able to maybe run out some power costs sources of funds.

I I it would be really nice but I don't think anybody in the room is predict predicting margin expansion. I'm JT or Kelly or no? Yeah, I'm sorry just to clarify on the second quarter, but perhaps later on in the year.

No, I think when things become more normalized, I think you could see the other side of the coin and that would be people pushing and saying kind of getting our rates lowered.

Okay, gotcha. And again really appreciate all the disclosures in the deck super helpful, but just to clarify on the hospitality and hotel books you may allude to this. But what was the most wage? I keep the zero rate on average across the portfolio as you have it today.

yeah, so what we have is

of the 34 that were operating over the last 10 days. I didn't average it. I went through and did different brakes of There Were Ten that were above 50% and then um,

Two-thirds so two-thirds is 34, you know, whatever that math works out to be. I can't remember what it was but I just have my notes with Me 2 2/3 to call it roughly 20,000 a little more were operating above 30% So between 30 and 50 or between more than 30 and then ten of those were above 50%

Okay, and that's all the $43 total hotels for the $43 total that includes under construction non-operational. And so when am talking about operating properties, that's the 34 property set.

Understood. Okay. I appreciate the clarification and thanks again for all the color guys and take my questions.

Certainly. Thank you. Thank you. Thank you and the next question comes with two lines management. Hey guys congrats on the strong results and said, thanks for holding disclosure.

Thank you. So I guess first question. You mentioned that most of your hotel sponsors only need 45 to 55% occupancy to advertise their loans. I guess. My question is what ADR is embedded in that assumption. Is it is it based on 2019 ER?

We it's it's historical and we tend to gravitate towards rev far and so and I don't have a red part number either way just to say that under normal typical environments the we we spend we spend a lot of time when we make alone. We do a stress test before I make a loan and we make these assumptions. But when this pandemic it we went out to the top five that we have and these gentlemen have been in this business for in between twenty and forty years and second generation and some of them on 50 property some have 20 and and and and we specifically said where do you need to be?

just give it

The number to reach Debt Service and the answer was depends on if it's a limited super limited-service, uh, call it a Motel 6 type property or quality in it was it was 45% and then if you get up to a call it a Hampton Inn or a Marriott Courtyard. It was 55% and it was consistent across the board and so in their what they're basically saying is in a typical environment, even if they only have 50% of the hotel occupied they could drive enough of a room rates and create enough of a revpar to make Debt Service.

Okay.

And and that's one of the that's one of the reasons. It's it's a very interesting parallel. It's very similar to make seven in in our slide deck. We had pointed out on page through the one of the great strengths of banks 7 is our margin fat margins compared or wide margins. I should say compared to two other Banks wage that's data. That's just irrefutable data. Well, our customer base is very similar. These are not people that are highly leveraged or people that are in properties with a lot of Staff that's a very wide margins. And so there's much less pressure on them to run at seventy or eighty percent occupancy. There's there are similarities there.

Got it. Thanks. Thanks for the caller. And then my other question is on the floor. So I think you said that ninety 2% of your book is now at a rate for floor after the hundred fifty basis points off of reductions. Uh, do you know what that number was? What percentage of the book was already at a rate floor prior immediately prior to the most recent round of rate cuts.

I guess like kind of end of February.

Kelly has that number was 83% prior to the rate cut.

Prior to this the fifty basis point break up. That is already 83. Okay. Thanks a lot.

Thank you. And once again, please press star and then run if you would like to ask a question.

All right. Is there nothing more at the present moment? I would like to return the for the manager on for any closing comments.

No, we appreciate the involvement. Today. We're excited to move forward and cautiously optimistic that we're going to all get past this terrible condition that we're in and out of work together. And we appreciate anyone that's along for the ride with us and we're keeping all of our money in this not all of our money, but we're substantially invested in this company and we haven't sold any so Monday we're we're excited to move forward Brad. Do you have any comments good y'all did a great job. Okay. Thank you.

Thank you, Miss.

For today's conference call. Thank you for attending today's presentation, you know disconnect your lines.