Q1 2020 Earnings Call
That's my yeah, they're matching the fee up with the loan on a per loan basis and then you know kind of baking it into the yield. I guess. It's a little show up. Got it. Okay, that's helpful. And then just want to just want to go back Gary. You said you're at 5% alone. So right now expect to get up to you know about 6% just given what's in the pipeline. So that's that's about one point four billion you all I guess in a slide that you're starting the 90-day deferrals for these customers, but you know fast be on The Regulators are sort of given the way up to a hundred and eighty days deferral periods. You expect to go there for the bulk of these loans or are you seeing you know, I guess like if you could give some color on the type of bar or is it taking a bath and you seeing a mix between, you know bars and some bars that are pretty strong and you know, maybe just want some extra extra liquidity.
Thursday
good day and welcome to the FNB Corporation first quarter 2020 quarterly earnings call all participants will be in listen-only mode. Should you need assistance, please signal a constant specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions.
We we are seeing that in and what what I can tell you is a significant piece of the significant percentage of the commercials borrowers, which we've offered interest-only payments to essentially deferring the principal only or a full deferral we are we are very much have a on the interest-only side of that equation. So the borrowers are choosing, you know north north of 70% of the time to pay the interest and just defer the principal. So, you know, I think that speaks to the the quality of the borrower and and the portfolio that I'm looking for deferrals here. I think they are looking for, you know to preserve cash and the Pharaohs are available. So they're taking advantage of that appropriately dead.
Please note. This event is being recorded. I would not like to turn the conference over to Matt Lazaro, please go ahead. Thank you. Good morning, everyone and Welcome to our earnings call this conference call wage and B Corporation and the reports filed with the Securities Exchange Commission often contain forward-looking statements and non-gaap financial measures. Non-gaap Financial measures should be viewed in addition to it. Not as an alternative for a report prepared in accordance with gaap reconciliations of gaap to non-gaap operating measures to the most directly comparable gaap financial management are included in our presentation materials. And then our earnings release. Please refer to these non-gaap and for law statement disclosures contained our earnings release related presentation materials in our reports and registration statements filed with the Securities and Exchange Commission and available on our corporate website a replay of this call will be available until April 30th in a gas tank will be posted to the about us investor relations shareholder Services section of our corporate website. I will now turn the call over to Vince delete chairman presidency.
As far as the hundred eighty days concerned we will we will support borrowers that need it for an additional 90 days. So, you know, we will we will be working with those borrowers as we go forward. I would expect you know, the the restaurant industry would be an industry that would need an additional 90 days as potentially that hotel industry as well. So Friday early, I think they're they're going to be heavily focused there.
Good morning, and Welcome to our earnings call on today's call. I'd like to address three key topics first. I'll begin by providing an update on how we are navigating our business through the covid-19 pandemic while supporting our employees customers communities and shareholders. Secondly. I'd like to briefly comment on a few points about our first quarter financial performance. And finally, I'd like to revisit several key strategic initiatives and programs.
Okay.
Trim color and you know, I guess the reason I'm I'm asking is just like, you know, I'm trying to gauge whether or not you would expect to see a significant increase in your accrued interest receivable line item, which just based on the fact that seventy percent of your commercial borrowers are continuing, you know are often for IL. I'm assuming if you don't expect to see your accrued interest receivable move significantly higher.
Our company's existing pandemic preparedness plan and ongoing pandemic exercises enabled FMB to stay at the front of this escalating prices dating back to 2018 with our management team went through a pandemic simulation and collaborated with our business continuity team to develop a formal pandemic response plan during this process. The same thing was thoroughly evaluated and ultimately formed the foundation of the comprehensive plan currently in place additionally our ongoing commitment to invest in our digital change in technology played a critical role in our ability to provide convenient banking options for our customers who are not able to leave their homes.
Absolutely capitalized. It's right. Right? No. No, we don't.
Okay. Yeah, just cuz I guess I'm wondering like some of these borrowers like you know where you're accruing interest or maybe you're not necessarily receiving it, you know, that would be capitalized off balance maybe on the back end, but I'm assuming that that would flow into accrued interest receivable in the interim, correct?
our investments in technology
Also enabled us to build and establish an automated process to handle nearly 15,000 business applications for the SBA paycheck Protection Program in just one week's time our efforts resulted in approving and processing 75% of those applications in the first round of funding representing 2.1 billion in long. We anticipate processing remaining applications during the second round of funding.
Well not if you're capitalizing it if you're capitalizing it, it becomes part of the loan balance.
Okay.
Packing it on to the end of the growing interest on a higher balance over a period of time. That's right. That's tomorrow. It is smaller but is a small piece but it's it's higher. Yeah. Okay, and you have you mentioned the you know, the the current month would be 66% of the 2018 D fast, you know just severe loss scenario. So that that severe law sort of fits too about five hundred and twenty million bucks. Just doing the map. Is that a one year of Boston area or is that spread out of a multiple years and that and that stress test
As I mentioned when phase one of fnb's Technology initiative called clicks two bricks began. We had previously introduced online appointment setting and were able to quickly make a choice covid-19 content and offering available in our solution centers.
We tapped into the strength of our established communication channels for both customers and employees keeping both audiences informed of any update.
So that's over nine quarters the way you do the stress test that's cumulative losses over at 9 quarter.
Our employees response to this crisis has been exceptional their professional compassionate positive and resilient attitudes have been a bright light in helping each other our customers and our communities while navigating these unprecedented times.
So it sounds like just based on that and just given what the VPN our run rate is that you know, you wouldn't even need to dip into the reserve cuz you know ppnr would more than cover the losses. Is that fair to say?
Protecting the health safety and financial well-being of our employees remains critical as we find ways to address any impact to their health or the health of their family. For example, that would be provided our team with up to 15 days paid leave and also expanded our existing paid caregiver lead program additionally to assist with any possible hardships resulting from the coronavirus FM be provided a special assistance payment to essential employees working on the front line and in our operations areas who ensure that our customer continue to receive vital Financial Services.
I'm not sure. I'm following you Brody. Can you restate that? Yeah, like you're in our levels are more than adequate at that level over that time to cover those losses. If you provision for it every month, you wouldn't necessarily need to dip into the reserve.
Oh, I see what you're saying. Yeah. Well, it depends on how the economy plays out and let's hope yeah, yeah, right and you mentioned an interesting life mobile deposits being up forty percent in the last two weeks. And I know that the situation is fluid, but that's a pretty pretty big number and so I just wanted to better understand is anything happened in the last month or so months that's changed by your thinking about your flood-prone. Are there any geographies where customer behavior and surprise you in terms of mobile adoption during this time frame or you hadn't previously considered Branch cutting and now he's thinking about it.
We also leveraged our it infrastructure by making accommodation to give employees the ability to work remotely where appropriate the date we have approximately 2,200 colleagues working remotely which represents about half of our Workforce and largely non-retail position.
Well, we we've cut a lot of branches. In fact, we cut 16 leading up.
This capability also speaks to our investment in technology and it infrastructure as we focus on our communities the f&b foundation committed to provide 1 million in response to covid-19 benefiting food banks and providing Essential Medical Supplies, many of our employees began reaching out to our clients and our communities to provide support that are Pittsburgh headquarters fnb's vendor management team has been using our vetting process to assist Allegheny County and quickly researching new vendors offering medical supplies and services to combat covid-19.
Up to this, you know, we probably would have left them open that we not already gone down the path what I'm what I'm finding. What's interesting is that we're still seeing, you know about 65% of the normal volume in the branches from a transaction perspective. So what that's telling me is that while people are willing to to use remote capture and that's remote capture end-to-end. So that could be small businesses, you know, instead of going to the branch using their device in their office. It's mobile people using their mobile device like I mentioned and we increase the limits to permit off checks to flow through there, you know, I would expect and what we've witnessed is a number of customers that may have been older than weren't using our online and mobile products are now signing up for life. So, you know, we're walking them through it in the branches. So I I would expect add option of those products to be accelerated, you know, we're dead.
With respect to our retail branches, we have focused on drive up services and closed our lobby reverting to appointment only practices which are supported by the appointment setting capability off with two bricks platform. As you can imagine the Monumental commitment of our leadership team and employees to operate in this challenging environment required to sustain 24/7 effort home. I'd like to commend our employees for the actions. They've taken to execute and abide by our safety measures while continuing operations with these key priorities and actions in place. Let me edit and comment briefly on our first quarter performance.
Significantly reduce the number of branches. I think we're getting to the point where you know, the version of those branches is good. And you know, if we continue to suck at this rate without making some sort of capital investment in the delivery Channel, it will begin to erode our ability to grow so we and we're looking at that. That's what I mean by that is we're going to have to be strategic about closures who may have to build a new facility and take to out in an area where we can accommodate and cuz a consolidation but it requires, you know, capex spend. That's that's where we are. I think in the evolution of of Branch closures
given all the tasks
Send in a noisy quarter or underlying core performance remains solid our philosophy is to maintain our approach to risk-management to varying economic cycles and serve as the primary capital projects to our clients.
Well, that's like many banks would be subject to a difficult economic environment this philosophy and the actions we have taken to strengthen our balance sheet and reduced risk in a good position FNB. Well as we move through the current crisis.
Okay, and then a couple of real quick, the other thing I will mention is we also saw a significant uptick in itm transactions, obviously, so, you know, what about forty items, you know, the interactive teller machine where you can actually speak to a human being cash a check down to a penny. They've been the utilization on those has increased in the last several weeks again, you know, the more comfortable consumers become using these devices in the equipment. I think that bodes well for the future of in terms of utilization which could lead to more efficiency in the branches from an HR perspective. So there's other ways to look at it.
Looking at The Quarters result gaap EPS the $0.14 included fifteen cents of bottom-line impact from significant items primarily related to covid-19 and the adoption and implementation of Cecil and the corresponding Reserve built under these macroeconomic conditions.
Offline results were solid as Revenue increased to more than three hundred million driven by strong loan and deposit growth and positive results across our fee based businesses average commercial loans group $225 million or 6% as we saw activity picked up in late March particularly in cni with growth of 17% I'll note there was limited impact to average balances from anticipated liquidity drops.
But it's a good question. I appreciate the question. Thank you. Yeah one last one for me just with capital. I'm just assuming the BuyBacks are on hold. I'm sorry if you said that wage.
Compared to the first quarter of 2019 average deposits increased 5% with growth in non-interest bearing deposits of 7% leading to an improved funding off the net interest margin expanded to 3.14% supported by strong loan growth a 7 basis-point Improvement in total cost of fund and higher accretion level compared to the prior quarter.
The buyback is on hold. I think Vince mentioned is prepared comments. We acquired about 25 million dollars worth of shares prior to everything off imploding and then we we put it on hold to preserve capital.
All right.
Great. Thank you very much. Everyone. Yep. Okay. Thanks, bro. Thank you.
Fundamental Trends in non-interest income were strong with capital markets revenues of eleven million setting another record in the first quarter insurance and Mortgage Banking income also had strong Undead performance due to the significant shift in in the interest rate environment. Our non-interest income includes 7.7 million of impairment on mortgage servicing rights, excluding changes in SMS our valuation Mortgage Banking income totaled 6.7 million up more than 50% from the first quarter of 2019 with significant deadlines moving forward.
Our next question comes from Brian Martin with Janney Montgomery, please go ahead. Hey, good morning guys. Hey, how are you? Most of my stuff's been covered? But just so I could be I just uh on the back of the PPP for just a minute Gary ER I guess maybe Vince. I'm sorry the, you know, if you talk about the 3% rate and you talk about you know, the two point 1 billion did not understand the you know, what you're talking about as far as when the benefit is realized or how you guys are thinking about it just given there's not a lot of disclosure on it or how you're going to do that, you know, if you take 3% and you're talking $60 off and and you kind of as you recognize that the next couple of quarters are just kind of what you guys are thinking about. Can you give any sense for just how that sixty million just on the on the fee part not the spread part wage. If you're thinking about it today would flow through, you know from a you know, high-level perspective, you know, how much of the benefit you know in the second and third quarter or third and fourth quarter.
On a core basis expenses remained stable compared to the fourth quarter and disciplined expense management will continue to be a top priority as we move Beyond this crisis.
Vincent Gary will provide more detail on the implementation of Cecil and additional details on the financial and their remarks with that. I'll turn the call over to Gary.
Thank You Vince and good morning everyone we closed out the first quarter of 2020 with our credit portfolio remaining in a satisfactory position in the midst of the correct Global challenges that have come as a result of covid-19
Yeah, it would come in over the two years Brian absent, you know, once it's forgiven then you would bring in whatever is left. It's it's counter for loan by loan. So basically the home or you quoted the 60-ish which is what the mass would work out to be. It just gets spread over over the two-year period which is the the life of the loans, you know the state of life of the loan. I guess I should say and off earlier is that you know, the way the process we expect it to work, you know, the the loans are not going to be forgiven until you get into the third quarter when they would get paid off and then we would bring whatever is left on. Each loan is forgiven you would bring that in to income during the third quarter.
the first
The adoption of the Cecil accounting standard which is a communicated last quarter brings additional changes to the reporting of credit quality metrics. I will also review the steps. We are taking to monitor the book and manage. The emerging risks are continuing to meet the credit needs of our borrowers and the communities in which we operate off. Let's now review or first quarter results.
Okay, so I quote it like a 2.2 and a quarter percent kind of, you know, all in yields that we would have is what was kind of baked in for the second quarter.
The level of delinquency at March Thirty One totaled 1.13% up 19 basis points over the prior quarter and included a temporary uptick in early-stage a majority of which has already been brought current.
Got you. Okay, that's helpful. And then just on the you know, I guess as it relates to the balance sheet and capital. I mean Gary you talked about the loans you saw the you know the assets you sold over the last couple of years. Is there anything I guess you would consider I guess is that a something you guys are thinking about now any other asset sales, you know here going forward or is that not really something you're thinking about today? You know, we both are constantly looking at the balance sheet Ryan and we don't have anything positioned at all that we have any interest in selling at this point. That being said we're always looking at the mortgage portfolio. So if there would be anything it would it would just be a normal type of mortgage pull that would be sold but nothing other than that and it would be a challenge. I mean we so often those portfolios during a more robust time. So I think you know and we were able to get out of those exposures in most cases at a premium and I you know I go back.
Npls and Oreo total of 64 basis points and nine basis point increase linked quarter. This increase does not reflect credit deterioration, but rather changes in non-accrual reporting moving from the former PCI pool counting to the new Cecil standard.
net charge-offs remained low as 5.7 million for the quarter or ten basis points annualized
provision expense for the quarter totaled $48 million dollars of which $38 million relates to a reserve billed for adverse macroeconomic conditions tied to covid-19.
The ending Reserve stands at 1.44% up fifteen basis points compared to our day one Cecil reserve of 1.29% providing npm coverage of 256% at quarter-end.
I reflect back on the calls and I know we were under tremendous pressure to grow Revenue. But you know Gary made the Strategic decision to exit certain classes asset classes. You took a Potala T was a large component of those loans that were sold, you know, and they were past credits in many instances. So we I think we've taken a big bite out of the Apple in terms of risk management and you know, if you look back getting out of Regency, you know, moving away from certain mortgage products that we decided to sell off at the credit portfolios the acquired portfolios that had a heavy concentration and and hospitality and other areas that that you know, we didn't have an appetite for we packaged and sold and we sold them at a time when you know, you could you could get gain on the sale because the there was more certainty at that time credit spreads were narrower. Yeah, the other thing I would change.
It's worth noting that inclusive of an amortized loan discounts are. Ending Reserve represents 66% of our 2018 D fast severe birth adverse scenario charge-offs.
Our teams have been working tirelessly over the last several weeks meeting with borrowers reviewing credits tracking performance metrics and administering government-backed lending programs as part of our response to the covid-19 crisis. We entered the crisis with our credit portfolio in a position of strength due in large part to our Core Credit philosophies that I have discussed with you before including consistent underwriting ProActive Management of risk attentive and aggressive workout and a balanced asset mixes spanning or entire footprint.
around that Brian is
Workout team. We've we've really strengthened it over the course of the last two two and half years and they have been doing some tremendous work moving assets off the books that we want off the books and we're we're seeing that continued today. So we're we're benefiting from that as well. And and that's something that is is a core focus of the company and will continue to be okay. No that's helpful and it looks like a great move. So just the last one for me was just on the back part just two questions that I hear you right? I know the service charges were down this quarter, but you would expect them to go down further and just if you gave any color on just giving the market conditions kind of how you're thinking about the wealth of the Trust bank today, if that's also, you know comes Under Pressure you already saw some of that you're seeing any of that.
We have taken many actions over the last several years to maintain a lower risk profile to position our book to withstand various economic cycles and adverse conditions similar to those we are currently experiencing.
Over the last four years we have sold approximately seven hundred million dollars in loans to proactively D risk the balance sheet a large portion of which were higher risk acquired Lounge that we were able to move off the books at a financial benefit to the company.
Also historically limited our exposure to highly sensitive Industries like travel and Leisure food and accommodation and energy with exposure to these three Industries remaining very low totaling only 3.8% of our loan portfolio.
Last part and I'll go back to the forecast. Go ahead. Okay. All right. I can I guess what I would say, you know, the guidance that we have there is just expecting kind of corn on interest income to be stable, you know from from where we were except for the the week or service charges. I mean, you know, we do expect we've seen some, you know, increased waivers not a big number. I mean less than a million dollars that we've seen in say the first four weeks of this so there there's some impact there and then there's just less activity. So the the comment was at you know expecting to see week or service charges on the deposit transactions, just so you know that will kind of run against what's happening in the other businesses, you know, we're still looking for a strong contributions. You know, when you you look at the knowledge to think of slides that that we have in the debt. I mean we can see, you know, the the movement up year-over-year and versus the the fourth quarter, you know and Trust Insurance Securities commissions Capital markets was all very strong. I mean the percentage growth dead.
As it relates to release programs we were able to quickly mobilize our credit teams to review and approve payment deferral plans for qualified borrowers which today totals approximately 6% of our loan portfolio.
As an SBA preferred lender. We have also been working diligently to support our small business borrowers in securing PPP financing that is fully backed by the SBA.
The volume and key performance metrics for these relief programs are monitored daily through a specialized set of reports developed in response to covid-19.
Using our holistic Credit Systems. We have been tracking daily utilization rates deferral activity PPP loan volume and borrower impact assessments which are broken down further to allow us to monitor our credit portfolio by line of business loan product geography and Industry.
You know versus both fourth quarter. And first quarter year ago is is up very nicely and you know, we've invested in those businesses. We've continued to build out the teams there. So, you know, I think those contributions are have been, you know, very important to mitigate the interest rate impacts and then mortgage we would expect to without an MSR impact this quarter. We would expect that number to kind of come back to a normal normal good solid level in December, but from an earnings from an earnings perspective. If you're if you're speaking about net asset values declining because of the overall market decline, I would not expect that to be meaning of life or material. Yeah. So on and earnings perspective, let's say, you know, it's not going to be home. Okay, that's all I had guys. I appreciate all the color of the details in the in the release today.
In addition to expanded analytics. We have also leveraged our existing allowance and DFAS Frameworks to conduct scenario analysis and stress-testing including select loan portfolios.
All of the actions taken will help us manage through the challenging conditions faced by the industry today.
Above all I would like to take a moment to recognize our team of bankers and credit support staff for all of their hard work and dedication to help meet the credit needs of our customers homes and communities during this challenging time will continue to draw on the leadership and experience of our credit and banking teams to manage through this challenging environment as well have in past Cycles. I will now turn the call over to Vince Calabrese our Chief Financial Officer for his remarks.
No, thank you. Thanks, Brian.
This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Well, first of all, I'd like to thank everybody for the thoughtful questions. Yeah. I hope you found the information valuable. We tried to provide additional information on the credit portfolio so that everybody could have a better understanding of how we ran our our our model or what methodology we were using to run our model where our exposures could potentially be. I think we're in a pretty good place and I I appreciate everyone thoughtfulness Allison questions, and I just hope that everybody stays safe and we'll look we'll look to see you next time. So next quarter. Hopefully, we'll have more clarity on where we stand economically. So, thank you very much. Take care.
Thanks, Gary and good morning everyone today. I'll cover our results for the first quarter and provide an update on the current environment.
As noted on slide nine first-quarter gaap EPS totaled $0.14 which includes fifteen cents a significant items.
E ratio ended March at 7:36 reflecting 16 basis points of Cecil adoption impact and another fifteen basis points for the 48 million of after-tax items.
These significant items are listed in the reconciliation tables with the biggest piece being the covid-19 related Reserve bill of $38 million during the first quarter.
We used a
pandemic driven recessionary scenario and evaluating the macroeconomic projections
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Let's start with a review of the balance sheet on slide 14.
Linked quarter average loan growth total $278 billion or 5% annualized attributable to commercial growth of 6% and consumer growth of 2% The average commercial growth includes less than one percentage point annualized for covid-19 related increases in commercial line utilization that occurred in the month of March.
Continuing on the balance sheet slide on a linked quarter basis average deposits were relatively flat is normal seasonal outflows impacted average balances on a year-over-year basis off average deposits. We're up 1.2 billion or 5.2%
From an overall liquidity standpoint. We are comfortable with our current position including the benefit of opportunistically accessing the debt Capital markets to raise three hundred million in holding company liquidity very attractive spreads on February 20th.
We also executed a portion of our previously announced share repurchase program buying back 2.4 million shares prior to March twelfth representing 0.7% of our total shares outstanding.
Turning to the income statement on slide fifteen net interest income totaled $230 million up 6.2 million or 2.7% from last quarter.
The net interest margin expanded 7 basis points the 314 driven by solid average loan growth lower cost of funds and higher discount accretion levels now that we are in a cup.
During the first quarter the higher discount accretion offset the pressure on variable rate loan yields given the significant decline in the short end of the Curve.
On the funding side the total cost of funds decrease 7 basis points to 101 from 108 reflecting lower borrowing costs as well as a shift in funding mix and a 10 basis-point reduction in the cost of interest-bearing deposits.
Flight 16 and 17 provide details for non-interest income and expense there continues to be strong performance and capital markets Mortgage Banking insurance and trust God. Well as for operating non-interest income as a whole is Vince noted earlier. We are consistently receiving positive contributions from our fee-based businesses, which diversifies our Revenue base and help see the impact of a volatile interest rate environment.
Looking at the first quarter not interested in come total 68.5 million a 7.4% decrease from last quarter due mainly to the impact from the 7.7 million Ms. Are in fact given the moon down and interest rates, excluding the impairment non-interest income increased 2.2 million or 3% with capital markets posting a record eight point 1 million increasing 29% from the fourth quarter driven by strong origination volume.
Turning to slide 17 not interest expense on a run-rate basis remain stable compared to fourth quarter levels. This excludes two million of expenses associated covid-19, 8.3 million of Branch consolidation costs and 5.6 million of expense related to changes in retirement Provisions for new grants under our long-term program that do not affect the total cost of the grants but do affect the expense recognition timing.
Bank shares and franchise taxes increased one point seven million reflecting the recognition of a 1.2 million state tax credit in the prior quarter and higher year end 2019 Bangkok all levels while other increases and decreases essentially offset each other.
Efficiency ratio equals 59% compared to 56% as the other unusual or outsized items increase the current quarter's efficiency ratio by over three percentage points.
Garden guidance TL book we shared in January is no longer relevant given the impacts of the covid-19 pandemic on the overall economy and the uncertainty around the length of time. It takes to recover however in the spirit of transparency into our short-term forecasts, we are providing our current directional outlook for the second quarter of 2020 on slide eighteen based on what we know today, which is subject to change given the very fluid situation. We are all managing through
We expect second-quarter net interest income to decline mid single-digits from first quarter levels as the net interest margin reflects a full quarters impact of the current interest rate levels off.
We expect average loan balances to be up mid-to-high single-digits reflecting higher March Thirty One Spot balances and 2.1 billion of PPP loans from the initial phase of the program that are expected to fund during the quarter.
The second phase of the program would be additive to these figures as we strive to accommodate all of our customers that want to participate we expect expenses to be flat from the court level of $178 million this quarter we expect our core fee Trends to continue from solid levels in the first quarter which service charges expected to decline to covid-19 impacts on certain products and services.
We expect the effective tax rate to be around 20%
With that I will turn the call back to Vince.
Thanks, then I'd like to touch on several initiatives that stand out as we move forward in January. We launched our new interactive website designed with enhanced functionality wage creates a One-Stop shopping and interactive digital experience online appointment setting a streamlined account opening process and deploying interactive teller machines throughout our footprint are just a few of the functionalities that are clicked two bricks digital strategy affords us.
combined with
Network of nearly 40 itm and 550 ATMs and our robust award-winning mobile application. We are well-positioned to continue to provide service to our country through multiple channels and meet their needs during this time of social distancing and economic challenges. We've invested heavily in our mobile and online platform, which is critical during a time-limited operation in the physical channels. Mobile deposits are up more than 40% in the last two weeks of March compared to the year ago. And pre covid-19. First quarter of FNB will continue to build out or digital capabilities as previously planned.
Protect our customers and communities from economic disruption was one of the first Banks to develop a structured deferral program and announced several measures to support customers who may be enduring Financial hardships and we're directly impacted by covid-19 furthermore. We instituted an outreach program and activated an outbound calling initiative contact thousands of customers across all business units during the crisis ensuring their needs were being met. We also continue to participate in the previously mentioned page check Protection Program and Elevate and evaluate other covid-19 related federal government relief programs to determine their suitability for our customers and communities.
Regarding our Outlook liquidity and overall Capital position. We consistently run stress test for a variety of economic situations including severely adverse scenarios that have economic conditions like current conditions.
Under these scenarios are regulatory Capital ratios remain above the threshold and we are able to maintain appropriate liquidity level demonstrating our ability to continue to support all of our constituents under stressful Financial conditions as we gain more clarity on this evolving Health pandemic and the resulting challenging economic environment. We will continue to update you off key business drivers and expectations.
In closing I'd like to express how proud I am of our team's efforts during this very difficult time to identify new and creative ways to connect with those in need, This is an unprecedented time for our nation and our industry. Our mission has always been to improve the quality of life in the communities. We serve now more than ever we must work together to support those impacted by this Public Health crisis as such I want to again say thank you to our employees and all those serving on the front line in our communities who are making a difference as we navigate through this together.
We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys.
Joy your question, please press * then two.
At this time, we will pause momentarily to assemble our roster.
My first question comes from Jared Shaw with Wells Fargo Securities, please go ahead.
Good morning, guys.
Sporting Goods
first on the on the margin you walk us through some of the some of the moving parts that you look out into second choice. I would think that you know with the strong growth and PPP that that would offset some of the pressure in second-quarter, I guess maybe on the PPP or you account for those fees or do you anticipate to account for those fees through nii? And then what is the the Blended rate on the two point 1 billion that you have there?
Sure, I can make a few comments Jared. So just kind of walking through the outlook for for the net interest income going forward, you know, as we've talked about in the past, you know, the changes month Libor and pride have a significant impact on our net interest income and margin if you look at where average live where was for the last couple of quarters in projection for this quarter. It was 184 Thursday the 4th quarter 168 in the first quarter and projected to be around 70 on average for the second quarter.
You know, we have eight point five billion in libor-based loans in another two point nine its prime based. So the projected moved down, you know, obviously impacts those loan portfolios now offset in the fact, you know, we continue to reduce the rates on our interest-bearing deposit cost as we've talked about, you know, we're projecting another 33 basis point reduction in the second quarter from first quarter levels off and then we will have benefits as you mentioned from the the triple P program as we fund this quarter now the two point 1 billion, you know, you'll have our average fee rate. We're estimating around 3% is how that would kind of calculate it out when you go through the tearing, you know, the spread is 65 basis points. So kind of kind of in all in margin is around two to two and a quarter for those loans. The way we're going to account for is you put them on the loan system kind of loan by loan. So it's a created in over two year. And then once the loans are forgiven and paid off.
You would bring in the the remainder of the the fees, you know into interest income at that point in time.
And then lastly the last piece I would comment on too is just the you know, the accretion that we had this quarter running through and kind of a seasonal environment versus the preseason environment. So it was about Seventeen million. This quarter is up about seven million from from the fourth quarter. So, you know that contributed to the first quarter. I don't expect it to be quite at that level in in a quarter, but I don't know cuz it's a function of prepayments and with under the Cecil County. There's a lot more variables that that get factored into that with prepayments being a big contributor. So I still expect it to be a meaningful contributor in the second quarter of just not quite at that as high as that 17 million. If you looked at the last third and fourth quarter of last year, we were running, you know, ten to twelve basis points from accretion. It's probably will run rate subject to change based on what happens with prepayments during the quarter.
Jared a couple of other points on the PPP program are of the 15,000 applications that we brought in. We have had a kind of originated average loan size of about $180,000 over on the lower end of the Spectrum in terms of size. We have more small businesses coming through that that pipeline may still have you know, 25% that are still out there that total is about, you know, 650 million that we processed and are ready to be processed in round two once the funds are available and we would expect some additional fundings on top of that just in the spirit of transparency. We've also funded about ninety percent of the two point 1 billion already.
So they're they're closed and on the books.
On the loan growth this quarter. Did I hear you? Right did you say that there was only one per-cent of the growth was from increased line utilization off or was my utilization went up 1%
No, it was 1% on average. Right? So the line utilization occurred later in March that we would have had. So on average the it's 1% of the 5% growth that I mentioned. The average balance goes down. I can I can add to Avengers comments. There are our usage was running around 42% little over 42% prior to the covid-19 packed. It peaked at just under 47% As you know business is built some cash positions. We're already back down to 43.8% So it's really getting back to a normalized level at this point. But we we really don't have a significant amount of large corporate exposure, you know essentially was funded up either to talk to, you know, put put liquidity on on their balance sheet or two back up commercial paper offerings. We don't have a tremendous amount of that in our portfolio. So the the liquidity
Drawers were much lower than what others would have reported.
And then just finally for me.
the
Sorry the on the deferral. She said that's 6% of total bones are in deferral. Are you seeing any concentration in either category of loan or geography?
Right now right now. We're at about 5% and we expect with the pipeline to be at about 6 or just a touch over 6% based on the pipeline that we have in terms of in terms of those deferrals. We're seeing those in the industries that you would expect restaurant travel tourism. Those books are very small dog from our perspective as we've strategically really not had a focus on lending into that space as we've talked in in the past. So, you know, it's in a concentrated kind of there and if you look at the dispersion of deferrals, it's it's all you know, it's it's pretty similar across the loan types in terms of percentage of the bulb size of the portfolio. Right. I mean, it's ranging around 2 and 1/2 to 2 to 2.9% is pretty much where it is, right? So it's pretty consistent. We're not seeing a spike in wage.
particular area
Okay. All right. Thanks. Yep. Thanks Jared.
Our next question comes from Frank schiraldi with Piper Sandler, please. Go ahead morning. Just curious on if you can give any more detail Gary on around stress testing. And you know, if we sort of think about the Baseline Outlook page how Los expectations stack up to the last cycle 20809 at the at the Legacy Bank, I guess, you know excluding Florida come back then.
Which is lining? Yes, you know Frank what I what I would say to you that you have been very proactive in and strategically about the balance sheet over the last number of years. Like I mentioned earlier and we're coming off some very solid charge-off levels over the last 18 months. Naturally the world has changed we expect you know, that consistency in the underwriting that we talked about with with you all the time on the front end to play a meaningful role, you know, as we go forth here, you know, in terms of in terms of charge-offs all banks are going to experience credit deterioration as is typical in any downturn and and this one is home either severe this point in our last stress test. We we remained well capitalized and expect to be able to fully execute our business plan from a from a charge-off standard wage.
Under those adverse scenarios and to the extent that the forecasted economic conditions are under under the Cecil methodology are worse covid-19 conditions are at this point that we used at March twenty seventh day. So we're we're using some very current covid-19.
On fmb's performance our our net charge-offs over average loans back historically Gary. Maybe you could comment on that. I mean, it does exclude Regency and Thursday portfolio that we divested. Yeah, so, you know back back in the 2009 and 10
great.
Recession that we all experienced a number of years ago on page thirteen, you see fnb's performance through that cycle. This is basically the the core bank at that point in time. It did exclude. It does exclude Florida and Regency has those portfolios are are now no longer a part of the company's balance sheet off, you know that consistent underwriting that we we had in place back then remains today and we do expect it that will allow us to perform, you know better than the industry as a whole as as this cycle moves moves through itself.
Okay, and then just back to the the margin and then nii guide for two Cubans. Sorry. Does that include any accretion came in and I expectations or I don't know have you left yourself enough, you know wide enough. Um Range there just curious know it would include my comment earlier about kind of tend to 12 basis points. If you look at the third and fourth quarter kind of run rates, which were pretty Cecil. I would expect that to be kind of more normal run rate next quarter right off again. It's a function of prepayment though your payments end up being. Hi again. We would have more right. I think that's kind of it's kind of a reasonable number. I would say Frank and I truly won't know until you kind of kind of odd plays itself out. But but there's definitely that kind of 10 to 12 in there for the for the second quarter of that's baked into our our number and then also I should clarify to that, you know, we mentioned mm
Billion in the triple P activity, you know that's on the books for 2 months of the quarter. So you don't have to one you have two thirds of that just just from a modeling standpoint and that's included in the number into the Target. But I guess it wouldn't be included as if if they are only on the books for two months. Well, I guess it's late in the court. So you don't have anything from the dead the 3% being accelerated because some of the stuff's going to be forgiven. Nothing like that is in 2 q. No. No, it's just what it it would include his normal accretion found that 2-year time frame. It's going to probably not forgiveness process. Probably going to get you through June 30th. I would say there's going to be a problem. I would expect it would get you beyond June 30th Frank. So you're probably looking at the third quarter event. They're starting with us with the Forgiveness items to go through so I don't have any acceleration of that fee in my number Frank. It's just kind of a general appreciation for two years.
And then just finally what is your expectation for Libor and this guidance? Is it just sort of steady-state from here?
So I mentioned in my earlier comments that you know, 70 basis points is kind of what we're projecting. I mean, we're in the I think we're in the fifties right now. So for the quarter on average, you know seventy we start a little bit higher so that's what's baked into our numbers. That's all right. Thank you. Sure.
Our next question comes from Michael Young with SunTrust, please. Go ahead.
Hey, good morning. When does start morning we're going to start maybe Gary would just be the additional covid-19 Reserve that you put up this quarter. I just talked about sort of the assumptions that went into that, you know, the macroeconomic assumptions and then he waiting's that you used or management overlays to arrive at that number. I can I can give you an overview of that. We're using the pandemic recession scenario where we see significant deterioration in the economy upfront wage with slight Improvement later in the year and then a continued economic weakness throughout 20-21. We're not taking into account in in our life analysis any of the government stimulus programs around our modeling. So there's no benefit from any of that we review and in coorg
It really about a dozen variables just like we always have in the past modeling scenarios that we continue to run and those variables include a few examples of give you such as the dial housing consumer confidence levels GDP and unemployment or you know a number of the examples they're dead. But that's that's really what's driving driving our models and and the analysis that we've done around the portfolio.
And you know, I would assume that was time-stamped kind of end of end of March so, you know conditions maybe have worsened a little bit since then if we stay on, you know, kind of a similar trajectory that would require more reserved build potentially next quarter. Just depending on where we stand.
Well, we we we we continue to run these scenarios. We've we've run them as as as recent as the last couple of days based on the update again. Our our motto was run as of the March 27th time frame. And as of as of our most recent run with the updated data, it's really not a material difference albeit slightly, but nothing material.
Based on you know, just just simulated models that were running.
Okay, and Gary, you know, I think you've done a great job, you know on on flight on the slide here breaking out kind of all the sensitive Industries etcetera. Are there any you know areas that we should be particularly watchful of or that you think, you know may have more in your term risk than others whether it be, you know, less less liquidity less cash or more Thursday really impacted collateral.
Yeah, I I would.
I would say that from from an industry standpoint naturally restaurants are severely impacted hotels are severely impacted energy is in a tough spot right now also being impacted. You know, these are these are some of the categories, you know, specific hotels in the energy. We do have a small restaurant book and some very good clients that are that, you know, we stopped lending into the hotel space four and half years ago. It was a strategic decision and it's proven to be a very good one. We got some assets as we've talked in the past from the Acquisitions. We have faith that portfolio and and not being active in lending into that at all. As for energy. I mean, you can see by the slide deck. I mean, we're not an energy lender. We got a few Club.
that are a very sound and as well as a few publicly traded entities there that continue to perform well, but you know, those are the industries that I would be initially concerned about as as we're in the early stages here and with all the uncertainty that