Q1 2020 Earnings Call
Thursday
good morning, and welcome to the origin Bancorp Inc. Q1 earnings conference call. All participants will be in listen-only mode. Should you need to see assistance, please signal a conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask question to ask a question. You may press star and one on your touch-tone phone to withdraw your question, please press * then two. Please note this event is being recorded. I would now like to turn the conference over to Chris reigelman, please go ahead your recording cannot be made at this time, please press star zero for assistance.
Good morning, and thank you for being with us. We issued our earnings press release yesterday afternoon a copy of which is available on our website along with the slide presentation that we were referred to during this presentation am referring to slide two of our slide presentation which includes our Safe Harbor statements regarding forward-looking statements in the use of non-gaap financial measures.
For those joining by phone, please note. The slide presentation is available on our website at ww.w.
Please also note that our Safe Harbor statements are available on page six of our injuries. I with the SEC yesterday all comments made on today's call are subject to the safe harbor statement. There's a presentation and earnings release.
I'm doing this morning by ordering a Bancorp chairman president and CEO drakemill our Chief Financial Officer Steve Raleigh president of Origin bank Lance Hall our chief risk Officer Jim Chronicle and our chief credit and banking officer Preston more after the presentation will be happy to address any questions you may have.
At this time to call is yours direct. Thank you Chris and good morning. And you listen to our Earnest calls in the past and had conversation with our team members, you know that it origin week about a company that is different that is responsive. That is Nimble. We are a company that delivers for our employees our customers communities and shareholders and Prides itself on our culture changed over the past month and half those claims and statements have been tested like never before in our team has delivered. Well, we'll get into specifics of our first quarter numbers and the impact of the covid-19 pandemic. I want to start off by noting how proud I am delete an incredible organization was extraordinary people who in these tough times have not wavered in their commitment to our company our culture our customer in our core values across our company. There has been a can do attitude and because of that are banking facilities remain open for drive-thru business and scheduled appointments and many of odd.
people are working around the clock at home because
Can you to service our customers? We are helping small businesses with SBA Loans, and we are actively working everyday to meet the responsibilities. We have as a resource for our customers and our communities during this crisis. Certainly, these are challenging times and I don't want to diminish the challenges that our industry are people in our country have faced and will continue to face and coming months. But I've seen what we can do when faced with such challenges and I am confident in our ability to manage through these trying times prior to the financial results on page 3 of our presentation went to the quarter was just over six billion in total assets off at income for the quarter with $753,000 down 12.1 million for the linked quarter. The decline was driven by increase in provision expense of 16.2 million from the prior quarter provision expenses dated during the forecasting nature of Cecil in the economic uncertainty surrounding impact of covid-19 are pre-tax pre-provision earnings for the quarter was 18.9 million a 3 month.
Percent increase only link quarter and prior-year quarter basis diluted earnings per share was $0.03 per quarter in our efficiency ratio continue to decline ending the end of the month 65.7% down 84 basis points from the linked quarter. I'll turn it over to Lance provide more details on my covid-19 response.
Thanks, right. There's a tremendous amount of focus within our organization that Bankers understand that we have unprecedented opportunity to make a difference in the lives of our employees clients and in our communities throughout the state of Louisiana have experienced hyper Capital levels of positive pivot cases, and I wanted to put that into context at this time the markets we sort of across North Louisiana have not been impacted at the level of the New Orleans metro area and other parts of south Louisiana. We're also monitoring cases within our Texas and Mississippi markets on a daily basis. You can see on Slide Five some of the steps you've taken over the past 45 days to respond to the pandemic.
The health and safety of our employees and customers has been our top priority and based on that. We took the step of activating our pandemic response plan as Greg mentioned are dropped these remained open and we're handling appointments on a one-on-one basis as needed throughout all our markets. They have also successfully managed our employees who are able to work remotely.
One of our main goals throughout this process has been to consistently communicate internally and externally to our stakeholders. Our Bankers have done a great job say any contact with our clients on a regular basis, but also utilize email our website and social channels to effectively communicate.
Another key step we took was establishing an internal s b a payment protection plan taskforce to work to prepare us for the increase in volume associated with delivering this program in a meaningful way to our club communities that during these uncertain times. Our reason for being was very clear. It would be up to us in our industry to be the conduit to provide much-needed relief a lot of small businesses from the onset of changing economic conditions. It has been our desire to be proactive in our approach to supporting our community. Our initial response came in the form of conversations are Bap having with our clients related the forbearances.
Lot, 6 provides a detail of how we have supported our clients.
With paint damage including a breakout of our covid-19 related forbearances. Also, this guy just became available from the US Treasury and the SBA related to the paycheck Protection Program. Our team responded quickly and delivering more than 480 million dollars and learned to approximately 1700 customers throughout our markets until the programs Farnsworth fully exhausted.
We have to make that approximately 39,000 employees of our clients will be positively impacted by the efforts of our bankers.
Why do you watch our team has responded during this time is a reflection of our core purpose and our underlying belief that we are trusted advisors.
Our economy is being a sudden and abrupt impact from the effects of the covid-19 pendant. We appreciate that. Our investors had further Clarity on the makeup of our loan portfolio speaks to the Augusta location within our credit book 55% of our loan portfolio is comprised of c and I owner-occupied construction and development and owner-occupied Commercial Real Estate as well as our Chicago Warehouse business a testament to our commitment to the businesses that drive economies within the communities. We serve I'll turn it over to Jim Crowell our chief risk officer to take a deeper into selected sectors of our portfolio.
Thanks Lance.
You will turn your attention to slide eight walk you through a deeper dive into the sectors of our loan portfolio that we believe are more sensitive to the covid-19 effect on the economy both in the near an inner future sectors. We looked at total approximately 22% of our loan portfolio at quarter-end and included Healthcare retail shopping restaurants Transportation package and hotels
The first segment broken out is Healthcare, which represents eight and a half percent of the total portfolio at quarter in we further broke down to portfolio and provide additional data on each sub-sector for healthcare month. We currently have total commitments of 431 million with 382 million outstanding the allowance allocated to the Health Care sector is 9 million of which 5.8 million is attracted to Assisted Living non-performing loans, total 11.4 million a quarter in of which ten point two million was attributed to assisted living as well. I'd like to point out that the pass these as well if non-performing loans in the Assisted Living segments are primarily driven by single relationship, which has been previously disclosed excluding this one relationship that were no past due date of the remainder of the assisted-living segment in addition the 1 million and non-performing loans and all other health-care also represents a single relationship, which has been previously reported and it's amazing.
Contributed to the level of past dues for this segment within Healthcare.
10:00, we provide additional information on our retail shopping portion of our portfolio this segment represents 4.7% of our loan portfolio with 59% consisting of loan supported by National Credit tenants, the non-performing loans in the cre retail store segments represents a single credit that was placed on non-accrual during the first quarter of this year overall debt service coverage for the retail shopping sectors are sound at 1.41 times while overall loan to values are low at 36%
11:00, we have a snapshot of our restaurant sectors which accounted for 3% of our loans held for investment. You can see we have no past dues and no non-performing loans as of March Thirty One.
Moving to slide 12 we provide information on Transportation sector. We have broken down the sector into three sub-sectors where you can see our exposure to the airline industry is just over 20 million off the 4.9 million in non-performing loans in the airline's sub-sector is a single relationship that has been non-performing for quite some time and it's also the sole contributor past dues in this subject.
A fly 13. We have a break down of energy credits which represent only 1.9% of our total portfolio. We have no direct exploration and production exposure off our energy portfolio as to the non-performing balance. And Energy Services is comprised of one relationship that has been reduced from an exposure of over forty million several years ago to the current remaining balance of only two point three million.
Moving on to slide 14 or hotel portfolio it totals 1.4% of loans held for investment and historically perform. Well is evidenced by no non-performing loans are past two years as a quarter in
The last thing I want the covers on slide fifteen, you can see over the last five quarters settler of our asset quality ratios are shown they have either remained stable or improved over that time at the end of March are ratio of classified loans to Total loans was at 1.67% actually loans did increase to 1.14% at quarter-end. However, upon review of or do loans approximately ten million. We're essentially administrative past dues as our Bankers were focused primarily on covid-19 related for balances and SBA loan request. These loans not standing order in past dues would have been less than 1%
At the bottom of the slide, we have some information on reserve for the quarter. You can see that our day one impact on Cecil was just over one point two million the economic situation in q1 began to age. They stabilize through the pandemic. We adjust our economic forecast incorporate a sharp increase in unemployment and a decline in the overall US economy during the year twenty-twenty contributing to age Seventeen point three million increase in our reserved for the quarter. We will continue to evaluate any updated economic indicators or drivers as we move throughout the year.
Well, it's difficult to predict the long-term impact of covid-19 at the situation is rapidly evolving. We continue to actively monitor the impact of covid-19 on our business always customer and the general economy both nationally and in the markets we serve I'll turn it over to Steve now.
Thanks Jim as we look at net interest income and name on slide sixteen. You could see our net interest income is down from a quarterly. Hi in third quarter of 2019 with 784000 higher than in the prior year first quarter additionally margin has compressed 36 basis points from the first quarter 2019 to the first quarter twenty-twenty. The margin compression has been caused by the sensitive balance sheet on the same time here at loan yields have declined 43 basis points from 5.28% to 4.85% And the cost of interest-bearing deposit Barnes have declined fifteen basis points from 1.20% to 1.05%
You will notice that our cost of interfering too.
Justin Barnes did not decline as much as close of interest-bearing deposit storing the most recent quarter. This was due to the issuance of seventy million dollars insubordinate that during February off our interest at 4.25% for the first five years.
The next slide shows are an asset sensitive profile quarter and in the mix of exposures to indexes as it pertains to loan yields approx 44% of our loans are fixed at quarter-end package, which includes about $265 million dollars of Libor arms that are not coming out of their initial fixed rate. Until at least 2020 one without that allocation of armed. The fixed-rate loans would account for 38% of the loan portfolio quarter-end. The percentage of variable rate loans has increased compared to December 31st due primarily to the significant increase. We saw in mortgage Warehouse lines of credit in the quarter, which are all variable rate loans.
Aside from these changes. We are pretty well aligned with our Park order fixed floating mix of loans.
518 or nine inches Revenue was up from prior quarter and from the prior-year first quarter. We continue to have about 20% of revenues in the nine inches Slide the biggest drawback to increase in non-interest income was Insurance commissions and fees as we have mentioned before this revenue is seasonal in the first quarter typically has some larger contingent income and profit sharing distributions off.
Mortgage Banking Revenue was down in the first quarter due to loss of value and I'm SRS prepayments accelerated during the due to refinance activity. We saw an increase in gain on loan cell phone doing the first quarter to partially offset some of the MSR right down at March 31st. We had a robust mortgage funding pipeline, which will Fund in the second quarter.
I will briefly talked to an expensive one slide nineteen expense management continues to be a focus of ours as we have stayed in the past nine inches expense came in just over $36 for the quarter back from the December quarter. Next Lance is going to take us through the deposit Trends. I want to talk about our deposit growth strategy.
You can see our average deposits have grown by merely 485 million in the last year or over 12.5% as we've talked in the past Louisiana continues to supply a low-cost deposits off with markets in Texas as I look back over the last 18 months or so and I think about where we were from a deposit cost perspective and early 2019. The market for deposits was highly competitive Federal Reserve cut right to the third quarter and we knew we had to quickly and aggressively address deposit cost do utilize that sensitivity we end of the first quarter 2020 with 95 basis points of total deposit, 24 basis points off our five quarter hi of 119 basis points.
The top right of slide 21. We have a time deposit maturity schedule where you can see our time deposit book, which is about 17% of our total deposits is really short there seemed time to pause his right knee or below 1% in many of our markets, which should help us reduce our total time deposit costs of 188 basis points.
Okay, so call production has been around 9 maturity deposits from June 2019 to March 2020 at Bankers have cut our run rate deposit costs contribution on nearly two-thirds of our deposits. Over 40% The majority of these Cuts came in March. So we should see a meaningful reduction in deposit cost in the second quarter due to these efforts. We also have some deposits that are indexed package that have yet to come down as drastically but with the recent decline in Market rates, we expect those to come down from mid 1% range has the fifty basis points or less in the first half of the second quarter now, I'll turn it back over to Drake.
Thanks Lance Onslaught 22. You can see the detail on our current liquidity position during the first quarter and where we ended at March 31st at quarter in we had / 2.2 billion in primary and secondary liquid sources available and our cash on hand increase the profit 270 270 million largely due to additional short-term Federal Home Loan Bank advances a three hundred million. We are confident in our liquidity position wage and availability to fund future loan growth as we look at our Capital Trends on slide twenty-three. I want to point out our increase in total capital on the top right of the page. This was driven by the 7th step that offering at the bank level that we completed in February while we did repurchase our shares during the first quarter. We suspended buyback activity as we begin to develop a better understanding of the pandemic and the potential impact. It could have on businesses in our economy heading into any type of downturn capital comes front and center. We've worked hard to stay focused on maintaining healthy levels of capital as evidenced by wage.
Subject offering our company is positioned well from the capital perspective and we'll be very mindful of steps. We take moving forward lastly our strategic focuses on four primary areas. Number one is that the health and safety of our employees is Paramount and this has been our priority as this pandemic begins our Bankers on the front lines providing assistance to our customers and communities and will continue to take necessary steps enable them do their job safely and effectively number two is a support we can provide our customers and communities as I said at the beginning of this call. Our teams have had an incredible attitude and done an incredible job of providing support to our customers and communities and this will be at the Forefront of what we continue to do as a company our ability to deliver for our stakeholders during this time will strengthen our relationships and reputation markets we serve and pave the way for our countries and communities recovery. Our third focus is balance sheet protection during the quarter. We took steps to enhance on balance sheet liquidity and bolster our Capital position his birth.
Play we've had sound asset quality management and as important now more than ever finally expense management remains a top priority. This has been a major Focus for us. It is emphasized for other during these times are faith will continue to be disciplined and we'll look for ways to effectively manage our cost structure throughout the year based on where we are in this pandemic and the current economic situation. I would be misguided if I indicated we could model that's over the next few months, but we were watching developments on a daily basis and will respond to the situation progresses. I am confident in our company and our ability to manage through this situation. Our team has responded in incredible ways and will continue to represent the values and culture that have been with us for over a century. I'll open up for questions now.
Thank you. We will now begin the question-and-answer.
Recession to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.
I appreciate everyone taking the time of day to be on the call and I would like to ask for your patience as our team is practicing social distancing and it's important that our team stays healthy. We are in different locations. I will quarterback the call take the majority of the questions and from there pinpoint those that can best answer your question. So I appreciate the patience with it with us.
Our first question comes from Matt only with Stephens, please go ahead. Hey great. Thanks and and good morning. And and first off thanks for all the the great details in the South Orange release and and slide deck some really good disclosures on your various asset classes. So I appreciate all that data. I want to start on on loan growth and try to get more details behind what what drove the strong growth in the first quarter. It looks like a lot of it was from mortgage. But even if I exclude the mortgage still very strong and so what else help drive that growth in the first quarter and I understand it's it's tough to have much of a crystal ball given the circumstances. But what are your expectations around the the balance sheet growth over the next few quarters. Thanks. Matt mortgage. Warehouse was 167 million of that growth. We actually had
About $92 million in Houston North Texas was about fifty million and then Louisiana came in about forty million with with Mississippi been flat. So we saw a pretty robust pipeline across our foot of that that was really touched on all sectors. It was you know outside a mortgage Warehouse. It was like we had seen going through most of time if we move forward certainly when you start thinking about underwriting credits today, the playing field has significantly shifted and and so we are focused on our on our customer base that we have today those credits that we know extremely. Well. We also have a pipeline of clients and customers that we have worked with for a number of quarters attempting to build business relationships with them. We are getting some of those opportunities now, but again, we're we're looking at our concentrations are areas of concerned off.
Away from some of those areas and really focusing on our core competencies, which we think is going to continue to drive decent loan growth overall.
Okay, that's that's helpful drag and then one of the investor concerns is is that we hear more recently it is the footprint of origin and the potential indirect impact of energy within your various markets and think the perception is that from some investors is that all of Louisiana all of Texas have quite a bit of indirect exposure to energy. So I'm curious how you would respond to the indirect impact to your various Market concern the matter want to start off with with Louis and obviously as we promoted ourselves for a number of ever since we we went public network focused on the I20 quarter in Louisiana, which we know very well obviously been here for years and find that the economy has significantly shifted more to a technology cyber driven type of technology. I mean economy more so than energy now there is certainly still dead.
Indirect concerns that we have in that market but we're seeing this Market hold up pretty good as you can see with growth in Louisiana from not only alone, but deposit a deposit side where Louisiana is doing what it's done for years low-cost deposit growth. So as we shift our concerns, I think that the market that we are most concerned about is the name is the Houston Market more so than the DFW and and for that reason I'm going to ask Preston more to give us a little insight, you know, press has a career-long houstonians has had significant success in those markets are pressing. If you would give them a little color on the concerns we have in the potential impact that energy has on the Houston Market.
Thank You Drake, good morning Matt morning, I know you asked about indirect I'm going to apologize I'm going to start off with direct exposure because obviously this is something we're closed monitoring. Excuse me. We feel very fortunate that our direct exposure is limited or one 8.5% of total loans.
We have a very experienced team in here in Houston led by Carmen Jordan. I think we have at least three lenders that I could think of with over 20 plus years Energy Services experience and number two more that have 15 years plus years. So we have a very experienced team. We take a very conservative approach both from a leverage kind of a cash flow leverage standpoint Zone a 2.75 times and from a collateral standpoint as you saw from the slide deck about 57% of our facilities are working capital. And then finally I would say these are long-time relationships that have been through Cycles before several cases. We have good sponsors a lot of cases. They're still access to Capital which is important wage tell you here in Houston. There's a saying, you know, what's the solution to $12 oil and the answer is $12 oil. It is an industry that ever time does write itself but to get to your birth.
That question. Yes with that is something we're off.
So concerned about a monitoring. We are looking at the spillover effect how it might spill over into real estate both residential and Commercial. I would just tell you the people that I talked to in the industry rightly or wrong are very focused on kind of the next six months and there seems to be a fair amount of I'll say hope I guess at this point from a supply standpoint that you would see the market addressed and then from a demand standpoint that you would also start to see as economies come back and we get rid of these stay at home and stay in place orders that you would see demand start to pick up to but it is something we're monitoring closely.
Started back to you Drake Thank you pressing that I would say that you know, we as we have always discussed. We're Boutique in nature and private banking in Houston with long-term relationship. I think that's been the strength notice in the Houston Market and DFW and the surrounding area very experienced teams that are dealing with customers have dealt with for a number of years. And I think that when you look at that poor town in Texas, it's it's down the Fairway from the standpoint of where I core competencies lie, really pleased with way multi-family holding up in those markets and and overall still think off the Dallas economy will continue as we get through this and next six months to be one of the shining stars of our of our footprint. Now as we go into Iraq, Mississippi, obviously there we have a team that is steeped in relationships that they think the number of years similar to to most of them are cats, but we again Thursday
Feel very good about the diversification lack of concerns that we have for some of the other areas of the portfolio like we say and and I would also like to discuss with just a second when you look at what we disclosed from the sectors that are concerning from a from a covid-19 perspective. We went ahead and included Healthcare which was 8.5% and transportation, which is 2.7. If you look at the areas that I see most often discussed hotels images restaurant and retail shopping that's 11% of our portfolio and it's well worth it after the footprint. So at this point in direct exposure, I really like the way I balance sheet looks and his and feels at this point obviously Clarity is going to come back in the second quarter, but we we have we have stressed and tested and continue to look at those portfolios. And and today feel pretty decent about where we where we stand.
Okay. Thanks for the details Drake. And I guess my last question is is just around the provision expense obviously elevated in the first quarter and we're seeing that across the border from all your peers and the allowance levels had a nice jump at the first quarter. Can you talk more about the assumptions that that you use to to justify the higher provision expense? And and that's where we stand a day. Do you think it's reasonable to assume another significant provision expense in in 2 q and continued Bill to the allowance off any commentary around that thanks. Yeah, and I am going to turn over a Lancer part of that question turn it over again because Jim is done significant amount very proud of Jim's work around with those assumptions and what model based he used as you can imagine unbelievable amount of discussion and strategy around that but I do feel that what we are attempting to age.
is based on what we know when the first through the first quarter and into the first
A couple of weeks of the second quarter is to try to address the best we can and provide ourselves with adequate coverage. Now certainly clarity as I said earlier is going to come in the second quarter more so and it would make sense that we could potentially see additional Reserve after we get more clarity, but we certainly would not attempt to try to get that behind us and not drag this out to balance of of twenty-twenty but you know, so so we I would at this point expect that we would see additional reserves going into the second quarter. I don't know that I can sit here and say for the level with all the first quarter, but Jim if you wouldn't mind, please address the question as far as the assumptions and and I thank you Drake. Good morning, Matt just to kind of start you if we indicated we did increase our allowance about Seventeen million the vast majority of Thursday.
Million was directly covid-19 as we looked at our portfolio. In fact, the Lost migration section of our of our allowance did not really a change at all which speaks to the the soundness of our portfolio going into this pandemic. So so that means it's really all in queue factors. And as we looked at any loans that were individual evaluated we currently have about 35 pools and our model and we do use third-party economic forecasts is a significant driver and in that allocation, I would say the primary third-party economic data we use was from Moody's Analytics and we looked at the various scenarios and based on that review. I would I would summarize it this way map that we kind of lean toward that we will believe have a deeper recession in q1 and Q2, you know partial to modest rebound later this year in Q3 dependent upon birth.
How successful the opening up of America that press and referred to earlier also as far as looking out beyond that, we really think that's going to be dependent upon how quickly we can get them call me back opened up and and quite honestly the possible recurrence of covid-19 during the normal flu season as far as some specifics Peak unemployment. We offer 13% range in in this quarter in the second quarter of 2020 peak-to-trough GDP could be down 6% to 9% and then return a full employment really stretching out the 2023 to 2025. So we increase once we ran those assumptions through our model, obviously all the economic assumptions were considered a major risk within the model and that drove the 17 million dollar increase in the allowance, which was wage.
About a 45% increase in the overall allowance from our day one Cecil calculation.
Okay, guys. Thanks for the update. I appreciate it.
Our next question comes from William Wallace with Raymond James, please go ahead.
Thank you morning Drake good more widely. I understand you had a 60th birthday this week. Happy birthday to you. Yeah, and and I apologize. If I'm been running the question you asked you would have definitely been included. Thank you for that. I might just send you something on my own.
We talked a little bit about this this Cecil assumptions, maybe since we were just on that with Jim on the line, I'm kind of curious if if you're kind of thing, but they really kind of partial rebound and and full unemployment not until 2023 to 2025. If we start seeing losses elevating in the fourth quarter or early next year. Do you think that you'd actually be able to use your Cecil reserves against those losses or do you think you'd have to to maintain the reserves where they are off with unemployment remaining so so high and and your models and and maybe is there a flipping point where you can use the reserves versus maintain them against lawsuits?
No, well from from our discussions and strategies that certainly early on to try to build so we can't use those reserves as we get more clarity around wage. You know, it's it's tough to sit here and think about full unemployment twenty-three to twenty-five and the impact that has on certain sectors. Now, we're fortunate that we we we're not as I should be consumer-driven credit card driven those type of things, but I know the impact of the consumer buying power and how that impacts your your portfolio but you look at some of those areas that are impacted directly through that. I feel very good about the portfolio make up. So I'm going to answer your question like as we're going to try to build through these quarters so we can utilize that reserved.
Okay. Okay. Thank you. All right. Let's have a few questions on that interest March and then I'll then I'll hop out and let somebody else asked questions. So let's just let's kind of worried about PPP secondary. If I were to look at your first quarter net interest margin and then based on the commentary around the March reduction in deposit pricing. Can you can you maybe help us get a sense as the the the amount of nym pressure you would anticipate in the second quarter, exclusive of of the PPP program. I want to want everyone to understand the way we're managing PPP is we've almost set up like a sub Bank out there that drives the asset and the funding mechanisms and the incoming fee less than that and and to the bank. So we we're going to do most of our calculations and model is going to be without PPP cuz we certainly plan to if there's an opportunity to exit those quick wage.
Possible. So at this point based on what we know and and I will say we're extremely active on the deposit side and also the floors.
Perspective on loans as we go forward and at this point I'm going to give you an idea that for every quarter cut. We see between five or six basis points them compression and that's you know, obviously based on also the diminishing Libor so that way we we continue to model that out think that we can hopefully have better luck as we're seeing early in in in this quarter some active deposit strategies around there to reduce the impact of that overall. But at this point we just that's that's what we expect.
Okay, so so on the on the high end that could be as much as six basis points x 6 you're saying for every twenty-five basis point cut. Is that is that what I cut off? That's correct? Okay, and I knew that she would go to the high end instead of the low end on that. Do you think you could beat the the the four phases Point level with with what you're doing on the south side and and let's assume that Libor doesn't know about.
It's going to be extremely difficult. I would say that certainly our teams are are active. You know, one thing that we do have to be concerned about through this process. We can get super aggressive but there's also a liquidity, you know strategies that we move forward and they certainly don't want to process self out of of seeing the deposit go to support the loan growth. We have coming in the pipeline. So that's what makes me pause about feeding at 4 at 4 basis points recorded. Okay. Thank you. And then on the funding that with the feds facility
At this point we are not but we plan once we wrap up the second round. I mean at this point we have let's say five hundred loans in the pipeline represents about $58 million. So that'll put us about let's say five hundred twenty five hundred thirty million in in the deal at this point. So we will see if we have some federal Home Loan Bank maturities coming up that are based at approximately 35 basis points. So that puts us in outside of the dividend rebate that we get from Thursday July the federal Home Loan Bank, we can offset that with PLS and I think that's the way we're going to drive it and find it.
Okay. Okay. Thanks. And then lastly on the PPP assuming you put these back to the SBA the forgivable portion. Are you going to run that see those fees through net interest income not going to treat it as held-for-sale and run it through non-interest income a lot of a lot of discussion around that what we what we're focused on right now is getting this. I mean you can imagine. Yeah. We took a very aggressive approach day one when we went with a manual process. We have a hundred and thirty people that are at have access into into thoughts. Are you trying to keep me out my mind went blank there for me to eat trans. So we've been very active in a manual process and that's why we're successful first round. So all our people are focused on that. Once we get this behind us Steve myself the Chase Anderson the teams going to sit down and look at what the what the best route is for us to structure that for the for the benefit of the without. Yep.
Kind of thinking it's blue margin, but we'll we'll see how that will see what's best for us when we go through that process.
Okay. Thanks. And then just the last question.
Housekeeping Steve mission is remarks to the dollar amount of the MSR right down I missed it. Could could you repeat that?
I stayed you handle that real quick.
Sure, we had a breakdown.
hold on one second it was
Two point two point four million. Okay. Thank you very much. I'll step out and let someone else asked questions. Appreciate it.
Our next question comes from Brady gaily, please. Go ahead.
Okay. Thanks. Good morning, guys.
So, you know you talk about expense management, as you know, one of the kind of focuses right now. I know before we talked about expenses growing around 4% this year, but you know get given the headwinds that are coming up on margin and you know elevated provision levels. How are you thinking about expense management now and what what do you think can be gone on the expense side?
Right. I'm I'm I feel like I'm I'm dancing around questions this morning. And I'm I'm not it's we are looking that's probably a month plus right. Now. You saw when I discussed the for strategic focuses. We are looking at every single thing we can do postpone. Any type of project are even as the country opens back up. You won't see us from a travel standpoint anything else and I'm not going to sit here and say it can be flat but we're certainly pushing towards that direction because we think that there's opportunities. Where are even looking at things. You know, how does the country come back together? What does it mean from a branch footprint standpoint? And the utilization of those is there a cost opportune a cost-cutting opportunities there? But yeah at this point we feel like that that could potentially be flat to up 2% and certainly that's going to be dictated by the depth of severity of this as we move forward.
My concern there if is and that's why I don't want to say this is what I think we can do. If we do get into a protracted situation to see credit deterioration and something weird collection expense legal expense and those type of things that can certainly drive up those numbers and that's why I'm cautious at this point.
All right. That's that's helpful. Thanks for all the color on the sides. That was very helpful. When you look on slide a look at those six categories that make up 2% You know, which of those categories do you think will be most problematic for origin as we go throughout the rest of the year, you know what century we're breaking those down and you know at this point we feel this is going to sound odd. We feel very good about our hotel and restaurant portfolios retail shopping is is we feel pretty decent about this point transportation. We need some clarity around that especially from the standpoint of you know, the overall portfolio with the converse is a barge activity that type of stuff Healthcare especially assisted living is probably where I would say, not Healthcare overall, but assisted living the portion of that
is
My my my concern at this point how that holds up because we have some of those properties that are ramping up and are they going to continue to be able to ramp up or are we going to see a stock number? So at this point the percentage of healthcare that that that is assisted living is is my My overall concern from the energy perspective and by-the-way assisting as you can see on page eight nine is 31% of that Health Care portfolio the energy we at this point because of the type of structure may have on those and and the 57% that's operating lines. We feel pretty good about that is going to be an area of concern and how and how it holds up a very good sponsors, Jordan our team experienced and and feel that that those relationships are very good hands. All right, and then lastly for me, you know, I know you raised the subject not necessarily wage.
BuyBacks or more just to have some cash around in case you're successful at getting the m&a deal and given the backdrop. Is it safe to assume that m&a is on pause for you guys. Absolutely and you know certainly are continuing to stay close to to those relationships. We have we actually reached out and offered assistance on PPP for insiders and those type of things. We want to continue drivers relationships, but what that's all the table and and and look I'll just say this at this point worrying about our own shop. I'm somewhat pleased that I didn't have two or three jobs had to deal with right now. So I you know the for us the subject was timely it it's certainly gives us a cushion and gives us some comfort that we can navigate through this.
Great. Thanks for the call guys.
Our next question comes from Brad Millsaps with Piper Sandler, please. Go ahead.
Hey, good morning guys morning Brad.
Would Echo the comments on the disclosure really really great. Thanks for all of that. Just a couple maybe follow-ups for me. Maybe just to follow up on on the PPP program The Reserve an expense discussion Drake would you know as as those origination fees role in would you maybe imagine, you know, maybe allocating some of those either to you know, higher expense accruals as you describe our store, you know, possibly dropping some of those fees and the reserve have you guys kind of thought through any of that yet where you are in discussions with that and like I'm going to tell you we going to take a small percentage of those fees and and because you know, obviously incentives are all the tables and those type of things but I I'm I'm going to take care of some of our employed that ever worked overtime and really dead I look at as sustainability for these businesses in these people work and and they they didn't work because they thought they were going to get incentives but a small small percentage that I was going to go to them.
And I do think that that's going to give some Firepower to to bolster reserves and do some other things that we can all set to move expenses.
Secondly on the slide where you talk about the I think it's like six where you've got the level of forbearance that you guys granted during the quarter. Can you talk a little bit about that process? Um, you know kind of how you work with borrowers or you know, is it more if if they made the inbound call you just went ahead and granted it and then you know, you're going to kind of re-evaluate and in ninety days and then maybe a follow-up to that any sense for you know, kind of the hit rate, you know on the PPP loans versus those loans that what the forbearance did the PPP money get to those, you know, maybe get stressed borrowers. Did you have a sense of that yet? I know you kind of you know, I can see the categories but you know just kind of curious if you know that the the actual you know, PPP loans matched up with with the guys that asked for for mayor. Yeah, and listen, this would be I feel like I'm hogging the call here and Lance Hall are present CEO of the bank when I tell you this Thursday.
Dividual took plans and responded to these companies from before and we started early matter of fact, I had discussions with the Federal Reserve early on before you guys came out about restructured debt and and how they would handle that because we got busy early putting these and I will tell you that for me there's as much a psychological aspect of this to manage these businesses and keeping them in the game versus giving up and and filed bankruptcy and so early on we got aggressive contact my customers Lance Hall and his team just did an awesome job. So I'm going to ask a question around forbearances and PPP and where that money actually Direction it went lamps. Yeah. I think he tried to set it right one of the things we pride ourselves on Mondays are closed. We got our relationship. So I think you know why while it's a mutual conversation and obviously we are taking inbound calls. I would say that we made a tremendous amount of outbound outbound calls to really work with these Club.
And a lot of ways recent forbearance preservation of portfolios Drake Made It Right drink is pounded to all of us the entire time the psychological effect on these clients to make sure that they understand the support that's behind me. So we were we were aggressive on that. I think it turned out to be about 17% of our loan books on your second question. I would say I don't have a percentage but I would say the vast vast majority of these clients also have PPP obviously depending on their size but I would say our clients have been incredibly well supportive and I think the Loyalty we're going to build on the back end is going to be you know, one of the things we take pride in as we talked about the number of notes and we talked about we really had our focused on the amount of employees of these of these businesses that were supporting Iraq and from just you know, we talked a lot of here about what our why is mean the fact that we've been able to support over forty nine thousand employees of these businesses means a lot to him.
That's helpful. It may be the final question. I know it's probably too early. But do you guys have any, you know early, you know censor The Regulators that you know, the forbearance, you know might be granted Beyond, you know, this ignition off, you know, ninety days. Just just kind of curious, you know, if you have had any of those conversations and you know kind of what what that Outlook might be.
Okay, great. And then
Yeah, I'll say this and and you know, there's thirty-six years you've gone through cycles and you've dealt with Regulators. I couldn't be more pleased and proud of our relationship with our Regulators life support and the attitude of a regulator. Most of you don't know this but during the middle of this we were in the process of a full-blown safety and soundness exam and Thursday. We we had the pleasure in the opportunity to be able to deal with our Regulators on a daily and ongoing basis during the early, you know steps of this process and I found out that the ability and and I was even there was even a comment to me drag your value of your company's going to be gauged on what you do for these businesses and how you keep them going. I felt that I am extremely supportive and the belief that another 90-day. And on these Regulators are warning us to do what we have to do to keep this this economy moving.
Great. Thank you guys.
As a reminder, if you would like to ask a question, please press * then 1.
Okay. Well, I can't say how much I appreciate the support of our investors and our end and our partners in in during this time and I can assure you that we are focused on Thursday at Lance and I see here our networks are in this company and everything we have so I can assure everyone out there that we are working diligently to make sure that we do the right things and stay focused on a best for this company before thank you for your time. And I appreciate the relationship with each one of them. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Thursday