Q1 2020 Earnings Call

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Thursday

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Come and show positive Trends in many key areas.

We had a good stability in our core operating net interest margin, which is glued to the impact of Interest recoveries and loaned accretion as we have been able to effectively offset the price by reducing our costs of deposits.

Our fee income continues to be strong a strong source of Revenue as we saw a significant increase in Mortgage Banking revenues due to demand for refinancing or wealth managers Revenue all she increased over the prior quarter despite the volatility in the market that pressured assets under management. Obviously the big development during the first quarter was the covid-19 pandemic Thursday. We are fortunate at many of the markets that we operate in have been among the areas of the country least impacted by covid-19 Montana and Wyoming have been very effective in managing to spread of the virus and rank among those states in the country in terms of infection per capita.

Early this week Montana starts the process of opening up the economy back up, which is very encouraging Wyoming never had a stay-at-home order in place, but did like a large Gatherings through the end of April and now the governor is looking at options to loosen those restrictions likewise South Dakota never had a stay-at-home order. It has been in the news for lunch break of the virus at a pork processing facility, but that is in the eastern portion of the state and we have all of our presidents in the western part of the state, which really hasn't been impacted much.

Idaho and Oregon have seen a bit higher impact, but nowhere near some of the harder hits states in the country. The governor Idaho has announced a phased approach to project their economy that begins today. The one state of our footprint that has been impact quite a bit is Washington.

But we have only a small portion of our employee base and Loan portfolio in the western portion of the state that has been hit the hardest.

While a relative basis, we probably haven't experienced the same impact other banks around the country. We've certainly seen the negative effects of the pandemic to one degree or another across our mom and I want to say that I'm very proud of our leadership team and our employees for their incredible effort during this difficult time.

As a threat of covid-19 accelerated we quickly made adjustments in our operating operations to protect the health and safety of our employees and our customers approx 60% of our employees are now working from home and we have closed all of our bank branch hobbies and reduced operating hours to limit exposure for both employees and clients. We have made significant Investments to enhance our technology infrastructure over the past years and this has enabled us to officially transition our employees to a rope work environment without losing productivity off and the ability to handle the increase usage of our digital banking platform by our clients approx 72% of our retail clients now utilize our digital platform, which is up 9% from this time last year.

To assist our employees. We have put a number of new programs in place. We have continued to pay our employees who need to be absent due to covid-19 either the care for themselves or a loved one without having to lose their own vacation time. We have updated our medical plans to eliminate the coinsurance payment but covid-19 testing and we have expanded our first relief employee assistant fun. So that employees experiencing Financial challenges due to the covid-19 can apply for additional support. Our foundation is also double matching contributions to that fund money in terms of our assistance for clients. We recognize that there are folks out there who are really suffering and we wanted to make sure that we provide the support. They need to make it through this difficult time by waiving fees and early withdrawal opinions as appropriate.

Bar Bar hours. We are working with our clients to consider deferring loan payments and accepting interest-only payments for a certain period of time including considering waiving fees for deferral wage for Residential Mortgage customers. We are offering forbearance plans that allow for reduce mortgage payments or no mortgage payments for a period of three to six months to date we have Grandma and it froze at approximately 1 billion of commercial and cre loans and 45 million of Consumer loans and and approved the hundred thirty million of forbearance request on Residential Mortgage why we're green some little modification to commercial clients. Our primary means support is providing them with access to the SB a paycheck Protection Program.

the Investments we have made to adapt our lending to be scalable and this

They arrived process over the past years served as well and getting up and prepared for the PPP application process.

As a result during the first wave of funding we were able to get more than 6,600 6,800 applications approved for approximately 1 billion in loans in a gave the companies. We were helped through the access that funding represented more than 107,000 employees in our markets in total. We received the project and fees from the first batch of PPP funding during the first round. We focus on just helping our existing clients over the past couple of weeks. We have expanded our process to attract new clients that have opened up deposit accounts with the bank so we can perform our due diligence these clients will be part of the applications that we process during the second wave of funding.

Any updated investment presentation that we published we have provided quite a bit of detail around our loan portfolio and individual segments and I want to spend a few minutes discussing a some of the key takeaways as a general comment about our loan portfolio. We have not seen a meaningful down draw down on our credit lines since the crisis started which we believe is a representative of two things the strength of our borrowers and the lack of need to build up liquidity and The Limited disruption. They have seen in their businesses looking at our exposure wage Industries or loan types. We we have $369 million in outstanding loans to the hotel industry. We represents 4.1% of our total loans. It's a struggle with more than 80% of the underlying properties being flagged hotels and we have an average of under 48% as of March 31st wage.

And 1% of this portfolio was impaired. We have $483 billion in loans, which represents 5.4% of our total loans and March 31st, just to offer 3% is portfolio was impaired as we have mentioned in the past. The largest segment is portfolio is beef cattle ranching and farming and within this segment. Most of the birth bar was raised feeder cattle which are less than a year old and they get sent to the feedlots in mid in the midwest usually in the fall. So while there is some disruptions of be processing our customers are really at the beginning of the supply chain, and that won't have a really meaningful impact on them. Unless those plants stay closed for a very long period of time.

Our mall and Retail trade exposure is only about 1% of our total loans would almost none of these loans being in the criticized category as of March 31st, as I mentioned in the past. We have a steady reduced our exposure into the oil and gas industry and it now represents just one half of a percent of our portfolio wage and only four million of those loans are impaired as of March 31st, and lastly I want to provide some information around our indirect portfolio which primarily consists of loans for both of those in RVs. It's a high-quality portfolio in which approximately 50% of origination is a FICO score is above 750 and approximately 85% have a good score is above 700

We are strong in.

We have consistently seen a delinquency rate that is well below our peer group in this business and since the crisis started we have increased our collections effort which has brought the delinquency rate by 23 basis points during the month of April and I think our experience in April is a good example of the point. I touched on earlier in our markets are people are worth we're going back to work and they can make it again. They can make their payments. So we feel very comfortable with this portfolio and it should continue to perform better than the same type of loan. No other parts of the country and at this point, I'm going to turn the call over tomorrow see so she can provide a little more detail on our financials Marcy. Go ahead. Thanks Kevin a good morning everyone as I walked off our financial results unless otherwise noted all of the prior. Comparisons will be with the fourth quarter of 2019. I'll begin with our income statement.

Our net interest income decreased Five Point 1 million dollars from the prior quarter partially due to a one point four million dollar decrease in accretion income. The remaining decrease was primarily attributable to one last day in the quarter and a lower level of earning assets.

On a reported basis our net interest margin decreased four basis points to 3.9% in the first quarter, excluding the impact of Interest recoveries, and Loan accretion are operating that in June was unchanged at 3.77% Our cost of funds declined 7 basis points from the prior quarter, which helped to offset the pressure on our earning asset yields.

We still have some opportunities to further reduce our cost of funds as our CDs mature and renew it lower rates. We have $766 million dollars in CD's or 68% of the life of that will mature by the end of the year and these deposits carry a weighted average rate of 1.48%

The CD reprising will help us continue to offset some of the pressure on our net interest margin from the decline and Loan yields resulting from the recent Fed rate cuts for the second quarter. We expect our net margin to be flat as we're able to fund a large portion of the PPP loans with our excess liquidity that was parked in overnight funds any accelerated fees as a result of loan forgiveness wage should be accretive to our margin, but this probably will not impact the second quarter.

Moving to non-interest income we saw an increase of 6.5 million dollars quarter-over-quarter to forty three point seven million dollars.

The increase was almost entirely due to higher Mortgage Banking Revenue this increase offset. The seasonal decline. We normally see in the payment services Revenue which was further impacted by decreases in transaction volume in the last half of March related to covid-19.

All of our other major fee generating areas were relatively consistent with the prior quarter.

mortgage

Banking Revenue increased by five point five million dollars from the prior quarter due to higher demand for refinancing our mix of production for new purchases and refinancing was just about fifty-fifty this quarter off our new digital mortgage application portal continues to make a nice contribution as we closed about seven million dollars of loans or about 6% of our purchase activity through this Channel and a quarter off right now our online process accepts only purchase originations, but starting in May it will be opened up to refinancings which should help generate additional volume through this channel.

We continue to see Strong Mortgage origination activity heading into May although we do expect it to taper off as we approach the end of the second quarter and as the man for refinancing begins to drop off in terms of our other fee income areas will probably not have the seasonal pick up that we typically get in our payment services Revenue as we expect consumer spending to remain seated until the issue fully opens up again, moving to total non-interest expense. We had no Acquisitions expenses in this quarter compared with 700,000 acquisition-related expenses, excluding acquisition-related expense are non interest expense increased eight point three million dollars from the prior quarter. This was primarily due to the impact of seasonally higher wage tax expense higher FDIC Insurance following the credit that was recognized last quarter a 2.9 Million Dollar impairment to mortgage servicing rights due to higher prepayments Pig.

Resulting from the increase in refinancing and lastly lower quarter-over-quarter gains on the sale of other real estate properties.

Well, we are always mindful of expenses with the revenue pressures resulting from the current environment. We are tightening our expense control even more particularly around discretionary spending like advertising reduce travel expenses and reduce training costs business travel has stopped for all of our employees and we are still not allowing outside vendors to come into our facilities required meetings, whether for business or training or still continuing virtually in a very effective manner for these reasons, we expect our non-interest expense to be lower in the second quarter off.

Now moving to the balance sheet. Our total loans were just about flat from the end of the third quarter increases in our commercial real estate and construction loans were offset by small declines in our other portfolios. One thing we did not see this quarter were large draw Downs on unused lines many of the other banks have mentioned as our unused line usage remained steady in terms of our loan line were down a bit from pre-crisis levels. The macro uncertainty has impacted demand and many borrowers are opting to focus on applying for PPP loans are utilizing other Federal language program.

our total deposits decreased 98 million

Dollars from the end of the prior quarter. This was due to a decline in non-interest bearing deposits from commercial customers along with decreases in time deposits. These decreases were partially offset by increases in interest-bearing demand and savings deposits.

Moving to asset quality. We saw a slight increases in most problematic categories our non-performing assets increased fourteen point two million dollars more than half of which was attributable to the reclassification a purchase credit impaired loans due to our adoption of Cecil our past due loans increased 15.6 million dollars, but approximately half of that amount came off a week after the quarter end the slip into past due status was due to issues with title companies and delays and getting documentation recorded due to covid-19.

In our presentation, we've included a couple of slides to discussing our documents Cecil and I'd like to touch on a few two main pieces of information while the cares act allowed us to consider adoption at this late date. We determined it was best to stay the course that said it's been a pretty interesting time to adopt a new loan loss. Methodology are Cecil model was built on a platform and considers an 11 year look-back period of our historical data as a result of adopting Cecil, we increase our allowance for credit losses on January 1st by 32.3 thousand dollars or about 44% to consider the lifetime loss in our portfolio loan.

This amount includes a 2.3 million dollar which was attributable to off-balance-sheet commitments as required under Cecil, which is included in other liabilities.

In the first quarter, we increased our allowance by an additional twenty six point 1 million dollars to consider the potential impact of covid-19 on our portfolio within the Cecil model. We use the money Baseline forecast as a March 27th, which it seemed contraction in our economy during most of the year with expansion beginning in the fourth quarter along with higher levels of unemployment through 2022. We also considered other economic factors as noted within our investors to develop our qualitative adjustment to the allowance.

At this time, it's hard to determine the severity of the impact of this medical crisis on our economy today. We believe that this increase in our allowance is reflective of the known covid-19 impact portfolio, but the full extent will remain to be seen there are many variables that make it impossible to project the ultimate impact on the portfolio from the positive benefit of all the stimulus being injected into wage economy to the negative impact if there were to be a second outbreak.

Our credit quality is as strong today as it's been throughout the history of our company as you'll note on our investor deck the size of our loans are relatively small and spread across the diverse Geographic and Industry base wage. We spent the last four years improving our credit culture our operational processes and developing a discipline around resolving problem assets as such we believe we are well-positioned to handle the next Thursday.

I'll wrap up by touching.

No provision expense. We had 3.1 million dollars of net charge-offs during the quarter or 14 basis points of average loans on an annualized basis are provision expense was $29, which is comprised every 29.2 million dollar adjustment to the allowance offset by a decrease in liabilities of point two million dollars for off-balance-sheet commitments. And with that. I'll turn it back over to Kevin Kevin.

Thanks Morrissey. I'm going to wrap up with a few comments about our ability to manage through this crisis.

Although no one knew that 2020 we would see an emergence of a global pandemic. It demonstrates the value of our conservative approach that we've always used to manage the bank. I spoke in a number of times over the past few years about how we refused to compromise our underwriting criteria in order to generate loan growth, even though the economy has been relatively healthy over the last several years. We just don't believe in ever straying from our disciplined approach. Our goal is to maintain a fortress balance sheet with strong asset quality based on conservative underwriting criteria a high level of reserves excess capital in ample liquidity by doing. So we're always prepared to manage through any downturn in the economy and protect the interests of all our stakeholders our clients our employees and our shareholders accordingly. We believe we are well-positioned to whether this current storm and continue to enhance the value of our franchise over dead.

Long-term I've been in banking for a long time and this situation is way different than any of us had ever seen before we can't anticipate how long the slow down my last where what speed folks might get back to work. The good news for our injuries. See is that under unlike the financial crisis caused by the Great Recession. We have a great opportunity to be part of the solution advances in technology are letting our clients interact with our Bankers in an efficient and safe Manner and allowing us to be highly productive and continue to provide exceptional service under extraordinary circumstances.

As we've indicated we have plenty of capital and liquidity to manage through this crisis from the from a Capital Management standpoint. Our priorities will be maintaining sufficient Capital to provide credit for clients and support economic activities in our Market as well as maintaining our quarterly cash dividend. The dividend is relatively a small claim on our capital and we should be well supported by continued operating earnings.

For the time being we are suspending activity on our stock repurchase program and we're evaluating this decision as conditions warrant in equivalent quarters Arab app. I'm extremely proud of the first interstate team.

They have demonstrated concern for each other and taking care of their teammates. They have gone the extra mile to ensure we meet the needs of our clients and our communities and you heard me say before I have the best banking job in America. I also think I have the best team in America.

They proved in.

To be reliable resilient and responsive to this very tough period of time so with that I'll open the call for questions.

Thank you. We will now begin the question-and-answer session. Excuse me to ask a question on a touch-tone phone. If you're using the speaker phone pick up your handset before pressing the fees. So which are you a question, please press * then two days first question cultural Jared Shaw and Wells Fargo Securities, please go ahead.

Good morning, everybody orange, Eric.

Yeah first I guess yeah. Thanks for the for the detail. This is a great slide back really really helps us as we're as we're looking at stuff. So appreciate the the time and effort you put into that. I guess just starting on on asset quality when we look at at the qualitative factor in put um, I'm assuming one that that increased the provision over the Baseline and can you just give us a sense of how much that that increased over what the Baseline would have been? Otherwise on the key one provision?

The most of the increase on in for the day too for the first quarter that was a result of the qualitative factors walk. Okay, but so your your qualitative factors became more severe than the moodies Baseline, is that correct?

That's correct. Okay, and then you know if we if we look at I hear you saying that you know, Montana is getting ready to reopen, you know, if we get to the summer in the tourism.

You know attendance isn't as strong as as expected how how sensitive are your customers I guess so they to the do any potential slowdown in age and says we look through the summer, you know, when should we be looking for sort of warning signs with with that?

Yeah, I would say the warning signs are probably going to show up, you know going into the third quarter if we see anything but as you know, Montana, you know, one of our biggest industry is just tourist industry. So, you know, we're hoping that you know, we'll get back to that. You know, it's interesting that you know during this whole pandemic. There's a lot of people from New York around the country that are hiding out in Montana the staysafe. So I I think it's it's safe here and and people might come here because it is one of the safer places the United States song.

Okay, thanks. And then on the exposure, you know on the on the protein side of those customers that out. So as we as we move through the years we still see some type of a a log Jam in the in the sand the the chain there do they hedge at all, or is that not really an industry? Can Edge? I I don't think many people had just that they're they're they're kind of stuff. They I think they just ride with it. So yeah, it could have an impact if if prices stay down, but we could we could ask that question. I you know off the top of my head. I don't I'm not sure I have the largest one of the largest cattle producers is the is the Scott family and I don't think they had juror so they they they put out about eleven to twelve thousand head of cows a year. So I don't think they hedge their portfolio. So but good question we get back to you look into that.

okay, and then

I on m&a I know obviously that's that's not a priority at this point given everything but it is something that you know is is off the table for months or quarters or years. I guess what would have to happen for everybody to to get any comfort to seeing a deal deal happen in the future?

do you give us an update?

I think things would have to settle down to have something come about I mean a lot of the bankers that you know were maybe thinking about partnering something they they've been really busy with trying to help their clients during this period of time so talks have really stalled but I think you know talks could continue if things stabilize and when that page that time comes about I don't know but I think that you know, I I think Christ is always kind of separate the wheat from the chaff. So people who did really well are going to you know do well and I think people who had a hard time we're going to think harder about continually to be independent.

Okay, great. Thanks. Thanks for the Colorado Trump off.

Good morning. Good morning, Jeffrey Jeff.

Wanted to kind of a follow-on on just the return to open businesses more on the you know Less on tourism, but just it's kind of the businesses that you work with trying to get a sense for if you've had conversations about, you know, their thoughts on on return of of some normalcy of of business. Would you think it's sort of a kind of a phased-in or sort of foot traffic is is minimized but kind of give us a sense for the conversation you've had about just the local businesses and how they foresee that that return

Yeah, I would tell you if it was up to Montana as they would they would act like this thing is over and saying would Wyoming I think the thing is is that their time back on on some of the stuff. I mean, you know part of it is that people post wear masks and stuff, but I will tell you the compliance that is about 0 and so I am I think it's just going to it's going to be slow at first and then it's going to be pick pick up in in some of the states that were in time will tell I it's hard to predict what's going to happen. But I guess if you really look at what's going on in in in Billings, which is largest city in Montana. It's getting pretty close back to normal. I mean and you know, I'm I'm surprised the amount of people that are in in the various establishments and stuff. So I I would say if it continues the way it's going then it's going to get back faster than wage.

Expect I mean, Yellowstone County.

Which is where billions is we the last three days we've had zero cases new cases in in the county and most most of my Panna the counties never even a case. So it's really the biggest area. Montana was Gallatin Valley and that's the Bozeman Big Sky area and due to the fact that you know, people probably brought it from out of town when they were trying to sneak out in in in Montana, but besides that I I think a lot of the areas are going to turn back to normal, I think even Idaho, the biggest areas impacted in Idaho was Sun Valley again people going through their second homes or something and bringing the virus, but I I think people are are are waiting to get back and if you look out it's it's getting back to pretty close to normal.

Got it. Okay. Thanks. And I think Marcie you mentioned on over on that half of that was a r e class of a PCI, but that leaves about another I guess seven million or so any any sense of what industry it was that in and and do you think any of that was driven by kind of covid-19 tipped over from that or was that a pre-existing issue? I don't recall the industry, but I can tell you that it was a pre-existing condition and it was not covid-19. We have seen a cold dead related pressure on our portfolio as of today as a date.

Okay on on a credit perspective. I mean they're yes got it. Okay, then maybe one last one month to pull out the crystal ball hear your comment on the margin in the second quarter appreciate that. I guess thoughts are positioning for the for the second half if she could frame up sort of how you think you've managed the puts and takes obviously PPP will will be a bit of a an impact but kind of the core birth and expectations kind of Leverage. You can pull in the second half just frame in that up would be helpful. Thanks. So so I would say in terms of lowering deposit costs further back up for the CD run off that will see that we've kind of you know our powder dry there. So I mean our powders all spent there. And so the biggest benefit we're going to see is from the pig.

AP loans and the acceleration of some of those deferred fees and I think that the acceleration of the Deferred fees will drive our margin higher as we head into the second part here yet. So I'll give you my purse. I think the margin you know, like Marcie says going to be flat to if if we have some you know, some of those loans to pay off earlier could be up in a second quarter, but pretty much flat but in third-quarter all bets are off it probably could go north really fast because of all those fees being recognized. I think we return to a maybe a normal run rate in the back and you know, what we're hoping for is, you know new new growth from the addition of a of a lot of corporate customers. We we were very fortunate in the in the process Thursday. We brought a lot of new customers into the bank and when I hope that they moved their relationship over to us, they they were very dissatisfied by many of the institutions and the first birth

We were able to pretty much take care of all of our customers so that the second round we pretty much.

Just open it up to take care of other Banks customers and you know, I'll just give you an example. We normal normally open about five hundred corporate relationships a month wage. We open we had 2,000 come in in the in the month of March well above our normal thing. So we we believe that what we have done with regard to taking care of the people are communities that hopefully that will translate into a lot of additional customers.

Thank you.

I have a question today comes from Jackie Bola jbw please go ahead.

Hi, Kevin. Hi, Marcie. Hi Jackie, just to continue on that line of questioning. So you said that was 2,000 new customers in March. Do you do you have a cellphone if that velocity continued into April? We don't have the numbers in April but I would say I would actually say probably picked up because that's when we really started taking care of wage and it's going to pick up even more do the fact that you know, we we we did some with just open little accounts and then you know did their loans and there and they I mean I I have never received so many letters from customers in the communities, you know talking about how we we help them through this difficult time. It's it's been very humbling to the fact that our countries have done such a wonderful job. So I I do think it's going to translate into two more additional customers. I mean, the letters all said that I got and I just got a lot of them which normally only get wage

Complaints and there's none of those coming through on this program, but I would tell you that it's it's going to take time for the move the whole relationship over but I mean just the likes of Wells fell down and fell down and and banner fell down and and you know, just a uncle and stuff like that. I mean we had we had some times where we they came in applied for loans. We were helping cuz they couldn't get it through their own bank and then we'd call a customer up a while. We put it through but it's already been approved at at Banner and and and they're like, well, we're getting more information from you guys than our own bank about our our loan process. So I thought it was interesting. We'd that happened in a number of different institutions. So I mean, that's the take out that one but you know, it's it's our employees just did an unbelievable job.

Great know. I I mean so my my expectation from this is that as we return to the new normal, you know relative to growth you would otherwise expect you could see a little lift and both, you know, certainly in deposits and it loads in the longer-term from these new relationships. Is that fair? That's fair to say that's why I'm hoping that the fourth quarter we have those new relationships and as long, you know things start rolling off that are abnormal that will be supported with more core banking relationships.

Okay. Okay, and I want to make sure that I understood the comments on your timing expectations. So at this point you're not expecting to see much of those accelerated fees and two Q you're expecting that to really suck you today right that down correctly. That's correct. Okay, and the Deferred fee you're referring specifically to PPP. There's not some other accelerated pay off a portfolio that you were referencing rate. That's correct. Okay. Okay, and then just one last one for me and then I'll set back in terms of more of a housekeeping item down. The MSR impairment was that part of the usual evaluation of MSRP just given the environment in the rates or was that something very unique and specific to the first quarter?

So that's just it's just every core. We look at it.

Thing is is that the just the speed of a prepayment you have that in value your msrs and add that that speed of prepayment comes down. We might actually reverse some of that, It might come back to us in the future.

Okay. Okay. I just I just wanted to clarify since I the the geography of the extent. Okay. Thank you.

That's

I don't know question today comes from Jordan McGuire Stevens, please go ahead. Good morning. Lauren cord Marcy. I was hoping you could reconcile something for me. So I ask your name guidance was for flat next quarter. Even where you're you're not expecting those accelerated fees from PPP to come in, right? Is that correct? Okay, so so the the replacement overnight funds into you know 1% PPP, that's enough that's going to be enough of a lift to offset any kind of loan repricing. I I guess could you just run through the the loan portfolio repricing so you have the the 1% that you're earning on those plus your advertising is deferred fees.

You know and you know through the term and so and then they accelerate when they get forgiven or paid are paid down. So between the amortization from the fees which goes off to interest income and the the 1% earnings because we're finding that with you know overnight funds that were at 10 basis points so quickly quick story these loans the PPP loans with the fee will will actually yield about 3%

because under fast 91 you capitalize those fees and amortized over the life of the loan and then when they pay off you get the remainder comes into income immediately.

Okay, okay.

All right and Marcie, could you walk through the just loan repricing Dynamics? What kind of floor protection do you have at this point?

You bet and so, you know 51% of our loans remains floating and of those that 51% which is about four point six billion dollars billion of those have floors and of those that have floors 81% have hit their floors. So we only have about a hundred and eighty six million dollars that have not hit their floors.

Okay, great. Thank you. And then margin sorry the mortgage fees up pretty significantly but the volumes were down and I guess that implies a gain on sale wage. That's much higher than I I would have thought they would have been it. Was there anything noisy in that that contributed to that number volume for actually?

I guess I'm looking at the the slide deck and it looks like volumes were.

We're down. Okay, how much were volumes up quarter-on-quarter? Oh quarter of a quarter. They they may not have been up quarter-over-quarter where I was giving you first quarter last year. So yeah, we did have some increase in our gain on sale. Margin. I don't know that and in the reason for that is because the volumes were coming and so we we had to start up in the price of slow down volume. Yeah, so that's why we got a better margin.

Okay, so so nothing like

MSR benefit or anything like that? Okay, and how we're margins trending so far in April, I guess may now

just flat training in a mate.

Okay flat compared to the first quarter. Yes. Okay, and then just last thing could you within the payments? Can you quantify the what type of drop-off you saw dead relative to January and February?

It was just in the last two weeks in payment services revenues and it fell off. It felt pretty substantially. Well, I'll get back to you on that. Okay. Thank you.

Thanks. Next question, please. Go ahead.

Hey, good morning.

I help you.

First one for me just on the on the deferral activity the billion dollars of commercial deferrals. I guess what percentage of those are going to get PPP or have received PPP Louis XIV.

Fourteen percent of the deferrals and there's overlap of 14% or 14%

Right and then with the round two and and the wave of new customers coming to you. Are you requiring a requiring them to have a deposit account initially or is that something you just expect to get overtime? No initial deposit account, but it takes time for people to move corporate operating Council over so

Okay, and then can you quantify the purchase discount at the end of the first quarter so we can gross-up the reserve for the mark?

I don't I don't understand the question you what was the question the purchase purchase accounting discount on your books that you know your your reserve

that kind of goes away with Cecil I mean we're still advertising that yeah into into income but it it isn't a a factor anymore we we took the whole loan portfolio under Cecil without any consideration for you know I mean there's there's just not that same

Dr. It okay and then on the just thinking about Loan Production and kind of the opportunities that exist out there. I know you guys have tightened standards over the years in certain segments. Have you made any additional tightening since the pandemic emerged or and you see opportunity just for you know good business out there. Just trying to get a sense for whether or not you're tightening the reins further or not know we're not trying to raise any further. We're going to stay with our same criteria, but I will tell you that right now. There's not a lot of people, you know, I'll borrow a lot of money for expansion there. Everybody's pretty much in the same camp to you know, seeing you know, where this is all going to go. So, you know, people are still doing business, but I don't there's not a lot of people out borrow a bunch of money to expand their businesses at this juncture.

Yep, understood and then just a couple of minor items.

Wealth management revenues based on price in terms of the fees that they they're tied to the last quarter end in terms of the Mark. Is that right?

Yeah, we could we could see a little bit of pressure on our wealth management revenues. Yes. Okay, and then just the tax rate going forward given a lower level of income. Yeah, that's probably right around 22%

Okay. Thank you.

I don't know question, please. Go ahead.

Good morning. Thanks for taking the question.

I just wanted to start on on asset quality. I mean the recession appears less severe in your markets, which is great. But 12% of borrowers are still in forbearance. And there's probably 70 impact from the club team. But are they asking for Relief out of conservatives and or how do you expect that figure to trend from Fairly elevated level? I I think that's what most people came in just to to to ask forbearance not because their financial trouble I just it was a rush to the door to get something like that just to the easy they might be ahead. And so I I I don't think a lot of us for Bears are due to the fact that people are you know, that was really a a visible issue right now that they think they had the opportunity so they took it and I think the same thing with the PPP loans a lot of people took the opportunity to get loans quickly. So I

I don't see anything right now. That's kind of the tip of the iceberg, but time will tell.

That is helpful. Then maybe shift into that interesting, very encouraging Trend with new acquisition and and understand the muted underlying demand and off and puts and takes in the margin line. But overall you feel you're going to be able to grind out spread income growth from here.

You know, we've been pretty consistent that but you know, it's one of those things that we talked to our lenders about all the time, you know, trying to kind of maintain, you know, consider the environment consider the credits you're you're doing again because we have some smaller borrowers we're able to kind of do a little bit better, you know, you know, we're trying to keep you know, you know credit spreads are or widening as you you even look at corporate debt out there. So, you know, we're trying to educate our our lenders that you know credit spreads even though home environment as well. That credit spread should be high and especially during this period of time of a pandemic the credit spread should be really high. So, you know, we're I would not do that at first of the customers came in and they were talking about refinancing to a lower rate and we stopped that real quick because of you know, the education of credit spread. So I I think we're going to hold the line on that wage.

And if we do any more lending, we're going to try to keep credit spreads. Hi until such time. We understand what this environment is going to pan out.

out to be

that's fair and just one last one expenses obviously costs our seasonally higher in the first quarter and you're you're flexing on savings. But how do you expect the expensive or from a quarterly perspective to progress through the year?

So it should come down a little bit. I think you know initially we gave guidance between ninety seven and ninety-eight million dollars rented a quarter. We expect that we will be able to bring that down a little bit as we get into this quarter in the remainder of the year until at least things get back to normal.

I mean, I think we could give you you know, the thing is you back out the the MSR adjustment. We're pretty much right on the mark that we say we're going to be and normally. The higher court and that's a higher court or so, we believe that we should do better from from that standpoint going forward.

Very helpful. Thanks for taking the question. Thank you. And I'd like to turn it back over to the manager.

And thank you for your questions. As always we welcome calls from our investors analyst. Please reach out to us. If you have any follow-up questions. Thank you for turning in tuning in a day and be safe and healthy, and I look forward to talking to you in the future. Thank you.

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