Q1 2020 Earnings Call
Good morning, and welcome to United Community Banks first quarter 2020 earnings call hosting the call today, our chairman and Chief Executive Officer, Lynn Harton, Chief Financial Officer, Jefferson Harralson, Chief Banking Officer, Rich Bradshaw, and Chief Risk Officer, Rob Edwards.
Today's presentation today include references to operating.
Pretax pre credit earnings and other non-GAAP financial information, where these non-GAAP financial measures United has provided a reconciliation to the corresponding GAAP financial measure in the financial highlights section of the earnings release as well as at the end of the Investor presentation. Both are included on the web site at <unk> Dot.
Com copies of the first quarter's earnings release and Investor presentation were filed last night on form 8-K, with the FCC and a replay of this call will be available in the Investor Relations section of the company's website at U.C.B. I dotcom.
Please be aware that during this call forward looking statements.
He made by representative of United any forward looking statements should be considered in light of risks and uncertainties described on page three of the company's 2019 form 10-K as well as other information provided by the company it's filings with the FCC and included on its website at this time I will turn the call over to.
<unk>.
Good morning.
Normally I prefer to have a short earnings call and just let the numbers speak for themselves.
This quarter, obviously the numbers don't tell the whole story, it's almost spend a bit more time on some other topics. So please just bear with me a few minutes.
On page three of the deck with how I'm viewing our.
Spots to the covert crisis.
Fundamentally I'm, focusing all our employees, our customers and our risk management processes.
Employees and customers because they are the drivers of our long term value post crisis.
Risk management, because that's what's going to drive our ability to come out of the crisis shaped to take advantage of the.
Entities, we expect.
My support for those areas comes from our comprehensive pandemic plan and our board governance.
As a note on slide four we've got an extraordinarily strong board, including three members who are actually active senior execs at major U.S. banks during the last crisis.
Their knowledge and challenge to the management team along with the rest of our board to an additional three of whom lived through the crisis as United Board members continues to provide the right balance of oversight and support as we make our plans.
On slide five have also been pleased that the thoroughness in responsiveness of our business continuity plan owners.
Both put our plan in place quickly and to make adjustments as need dictates.
Turning to our focus areas on slide seven through non I outlined several steps we've taken to support our teams currently we have 54% of our branch teams working remotely and we have the ability to scale that up to 88%.
If needed.
I also describe some of the other actions we've taken to make our teams understand that they are valued supported and safe during this time.
One of these initiatives as our share of the good program you will see highlighted on slide eight where we encourage our teams to share encouragement with one another and with our customers and.
Speaking of customers starting on slide 11 were being flexible and proactive in payment deferral options.
We know we are good underwriters, we know how to select customers. So our goal is to support and bridge as many of them as possible to the recovery phase.
That's one reason we committed early it'd be a leader with a P.P.P. broker.
Our team was able to get approval for almost 7000 loans totaling more than $960 million before the program ran out of funding.
In context, this equals more than 14% of our existing commercial loan portfolio.
This was a tremendous effort involving hundreds of people across the bank I don't want to.
As the entire United team for going all in to support each other and our customers.
We've also stepped up customer communication, we're adjusting fees changing limits all with the goal of supporting our clients and living our brand promise to be the bank the service Bill.
You know this is actually one of the most energizing and rewarding times my.
Career to be a banker our teams can see more clearly than ever how they are making a difference.
This will pay off in the long term and as you can see on slides 12, and 13, we're actually seeing to pay dividends today as we look at digital engagement across the board site traffic is up substantially active online and mobile banking.
Europe more customers continue to open a deposit accounts on line and.
And our social media connections are growing rapidly as well.
As we look at risk on slide 15, we're relying on our three risk principles. When you arrive at a crisis is generally unexpected and the risk you enter a crisis with is the risk your.
Going to live with there's really no time to make major adjustments.
So we've tried to manage with a through the cycle approach in Milan avoiding concentrations. So it was not bet the bank, taking only the risk we believe we understand and having a culture that reward speaking up and addressing problems realistically.
Speaking of risk Jefferson why.
Do you cover some of our portfolio statistics, and then our performance numbers for the quarter and after that I'd like to come back for just a quick look forward before we open it up for questions. Thank you Len.
This quarter I make a change and starting with loans and credit on page 17, our ending balance of loans was up $122 million.
From 12, 31 or 6% annualized.
$122 million about 60 million came from draw activity.
These draws came in the middle and at the end of March at the beginning of the stress, but have been stable throughout April and into this week, our commercial loans the commitments ratio move to about.
67% from 63% at year end withdrawals.
Well I mentioned, we have $961 million, the P.P.P. loans coming onto the Q2 balance sheet, which represents about 14% of our existing commercial book.
As far as funding goes we expect a significant portion of the P.P. people and will be funded this.
Okay and early next week.
We expect to use a mix of available cash the P. P. P liquidity facility and perhaps some FHLB funding as well depending on timing.
And our initial planning we are estimating that 70% of the P.P.P. loans will be for given to the borrower within six months.
Okay.
Credit side, we have booked approximately 900 million dollar term loan deferrals as a friday or about 10% of our loan book.
The $900 million deferrals about $169 million comes from that lead us to give you. Some transparency later in the deck, we have some additional information on the vetoes seaside.
As well as our restaurant hotel and senior care portfolios that we are carefully monitoring.
Typically our restaurant book and our hotel book, each separately make up about 3% alone or about 6% in total and again in the back there was some more detail on these exposures and if he does makes up about 8.5% our loan book.
And we did execute a 22 million dollar so I'm going to be just loans in February at a 6% game. Rob is here to talk more about our credit in the queue and if you like but our credit philosophy is that we are very selective and the customers we choose and believe they will fare better than most we're also very disappointed on the size of our individual exposures and.
The selective on the size of each book relative to capital on page 18, we look at our credit for the quarter, our net losses in the quarter were higher than we had been running at $8.1 million, an annualized at 37 basis points and losses.
The main driver of the increase net charge offs. It was a 6.4 million dollar loss.
On a single alone the 6.4 million dollar loan was in our leveraged loan book of which we have about $73 million left the company was into pulmonary medical testing business. It had significant private equity money behind it but struggled the p. walked away in a company subsequently failed.
All right, let's turn to page two of.
Allowance for credit losses on page 19, we adopted Cecil on January 1st and we declined on the opportunity to go back to the incurred a loss method.
The first quarter, we posted a loan loss provision of $22.2 million.
Our allowance for credit losses is up 19% from January Onest and up 35%.
From year end in terms of dollars our allowance for credit losses was up $14 billion from January Onest and up about $23 million from year end.
I want to share with you a little bit of how we're thinking about Cecil we believe the future as unknowable and that the models are based on historical economic correlations, but neither we nor.
Anyone else has seen an environment like this one.
Throughout the quarter, we considered and ran many scenarios and stressed our input and assumptions and of course, we will continue to do so as a public health crisis continues to play out.
Moving to page 20 capital before I talk about the numbers I'll talk about strategy for a bit as a pandemic became increasingly apparent.
Aaron we stopped our buybacks and begin reviewing our contingency plans and read running or capital and liquidity stress models, and we feel comfortable with where we are a capital ratios were flat in the quarter and up about 40 to 50 basis points from last year.
Moving to page 21, again I will mention that we just don't know how long this environment is.
Going to last or how bad this is going to good but we do believe they were coming into the cycle from a position of strength the come into the cycle with more capital than our peers.
We also come into the cycle with about 20% more profitability than peers as measured by pretax pre provision our away in Q4.
I would also argue that we are more liquid than our peers with our 81% loan to deposit ratio and with almost no wholesale funding in place we have a lot of flexibility on the balance sheet.
We also have very strong core funding with 33% of our deposits, India and the first quarter and we have one of the lowest cost.
Part of bases in the southeast.
Moving onto our net interest income results we had.
150 basis points of rate cuts in March that affected the ended the quarter. So we had about two months of what I would call a normal quarter and the crisis started impacting our March numbers, our net interest income grew 7% annualized and our NIM.
<unk> increased by 14 basis points.
This increase had to help of an unusual amount of accretion in the quarter accretion income moved to $7.6 million in Q1 from $3.4 million last quarter and added 15 basis points to the NIM versus last quarter and contributed 26 basis points in total the.
Switched to Cecil had the initial impact of shortening the time frame of which we accrete alone specifically now be accrete to their contractual maturity versus the expected resolution date, which was off and longer.
We have $15 million left to accrete to the margin and we are expecting $3 million to $3.5 million next quarter, depending on prepayments or.
About 10 basis points, excluding accretion our core NIM was down only one basis point versus last quarter to 3.81% and the Eni itself was down 2% versus last quarter.
Our core NIM benefited from the run off and sale of our low yielding indirect portfolio last quarter that help them by about three basis.
We also had some positive remix on the funding side with strong core deposit growth and shrinkage in average Cds, we had more than $165 million of D.A. growth that more than funded our $112 million of loan growth all and our cost of funds moved to 95 basis points from 103 basis points last.
Quarter or down about eight basis points.
Let's talk a little on our philosophy and culture of risk here, we had been de risking our securities portfolio and balance sheet for two years that waste.
We sold and let ourselves run off from a peak as high as about $330 million. In 2017, we also ran off our indirect auto portfolio.
Folio to zero a portfolio that peaked at around 440 million also in 2017.
We maintained our liquidity with our low 80% loan to deposit ratio. We also de Levered, our balance sheet since 2018, freeing up capital and liquidity as we ran off about $700 million and FHLB borrowings.
From its peak in 2018, the combination of these things also took Archie from the low 9% range two years ago, 10.2% this quarter.
Moving onto page 23, and fee income the first quarter is typically our weakest quarter for fee income being seasonally slower for both SPJ and mortgage.
Our fee income was down 4 million from last quarter, but it was also up $5 million from a year ago quarter at $25.8 million.
That's a crisis said when we sell a sharp drop in rates and turmoil in the markets, including significant illiquidity in certain asset classes throughout the quarter, our lock volume was over $800 million in the quarter.
Okay, well above our previous record.
With the refi environment, we get to write down the value of our mortgage servicing asset by $4.3 million as expected of life of our loan service shorten dramatically. All said it was a great quarter for mortgage.
As I mentioned and as I know you are aware, there was volatility and illiquidity at times and.
The credit markets this quarter that of course affected the gain on loan sold line item that you see at $1.7 million.
In February we sold $22 million that maybe this loans at a 6% game usually in Q1, you will see us with about $1 million or so and SP a loan sale gains, but we elected not to sell this quarter, because the pricing narrowed and we.
Referred to hold them.
For Q2, and the rest of the year, we're not expecting that beat us loan sales, but we will be monitoring market conditions moving to expenses briefly total expenses were down $800000 versus Q4, excluding merger charges.
And with that I'll pass it back to Atlanta to conclude our prepared remarks.
Thank you Jefferson.
Clearly the shut down his calls the most serious economic stoppage of our lifetimes combined with the most massive government intervention in history, and we simply don't know at this point, what the ultimate ramifications for our customer base will be but I do believe and I want to close my prepared remarks with this we will be able to.
To accelerate many of our long term goals as we execute over the next several quarters.
The investments, we've made and technology will show results and we're already seeing how we can digitize our business even more quickly than we imagined.
Branch delivery system will be able to be improved more rapidly as well.
Our.
And we'll be strengthened as service and connection will stand out in this environment.
And by the way, we just found out late yesterday that we were recognized by JD power for having the highest retail banking satisfaction in the southeast for 2020.
Thats the six Tom in the past seven years, we've received that.
Her which is a truly amazing testament to our team and how they live our brand out every day.
And finally, we believe that M&A opportunities post crisis will likely increase for the type of service oriented banks, we like to partner with.
And speaking of M&A on slide 26, I have a few comments.
Comments about our seaside acquisition.
Which we announced right before the code crisis began.
As we have progressed our decision to partner with seaside has only been reinforced we're in constant contact with their team and that Tom together continues to prove similarities up our cultures.
We both remain focused on serving our clients.
And I believe that both during and after the crisis, we will be better together and with that I'd like to open it up for questions.
You asked a question we need to press star one on your telephone Taylor draw your question Chris Uptown.
And as a reminder, please refrain from putting your phone on.
Speaker during the acuity in order to maintain background noise at a minimum.
And our first question comes from line of Brad Milsaps from Piper Sandler May begin.
Hey, good morning, guys.
Turning.
Jefferson you guys did a nice job.
Hanging on to the net interest margin this quarter in light of everything happened why didnt happen in late March just.
Curious if you maybe had spot rate or maybe loan yields and.
Deposit costs. If you ended the quarter, just trying to get a sense of directionally kind of.
What kind of pressure might be on the horizon.
Yes.
Might get back to you on the spot right, we'll talk about the margin a little bit thank them or margin will be a directionally down one we had unusual amount of accretion. So she probably have yet to 26 basis points. This quarter the run rate's, probably closer to 10 basis points, so thinking maybe down.
15 from the accretion piece of it.
The and a LIBOR rate has been irrationally, hi hasn't moved fed funds and so we have $3 billion on LIBOR allowance I would expect that to come down even went out.
Well.
No our rate cuts obviously.
We have a very significant.
A number of Cds coming due at high prices, we have $300 million at 190. So you should see a continuation of the cost of funds.
Moving down.
So is extraordinary moving parts of timing of PPP inside so not giving and you didnt ask for a specific margin guidance, but I can't get back to you.
So what I think the spot rates are for the yields and the cost.
Okay, great that that would be helpful. And you brought up PDP for a moment I think you noted in the slide deck that you thought kind of most of your loan growth would just be kind of limited to that program.
You guys had tremendous production again this quarter.
I didn't necessarily translate to a lot a net growth, but would you back away from kind of where we are now kind of your mid single digit kind of loan growth. Excluding the TPP program or do you think there's opportunities for you guys and take advantage of out there given as strong as your capital it all the liquidity at kind of being a better seat and most banks.
So Brad this is rich you bring up a great question.
So number one we are being cautious and very selective however to your point, we do see an opportunity. There are a lot of long term strong companies out there and we really feel like the big banks are going to take their eye off them, that's a great opportunity for us well.
Look for those companies to demonstrate the impact of covert 19 on them now and on the future and what they are action plan is providing they can do that we'd be supportive of those request.
You might want to talk about the hires you made in the first quarter as well well sure. So a couple of things.
On that are normally we'd be leading off with that [laughter], but it's a different world we were extremely Ah Ah.
Successful in Q1 of lift out and Atlanta, we lifted out a a team leader Craig Dowdy and for Crms commercial relationship managers out of Suntrust.
And we also and I say centrus because put it in perspective, we have one from BB and T. Altruistically. They came a though that was the makeup and very excited they came on very late in March and they brought on deals and deposits right away and they've also jump in on or PPP program. So from that perspective, we're excited about what.
They would they bring to the table.
Okay, Great and maybe one final one Jefferson would you expect the kind of weighted average beyond the PDP lines to be around 3% for you guys. That's in the ballpark.
Okay, Great I'll hop back you. Thank you.
And our next question will come online.
Jennifer Demba.
Suntrust's may begin.
Hey, This is Bryan Keane go up.
Hi, Steve as you disclosed the flow rate or the navideas portfolio, but I was wondering what the deferral rates per initially were for the broader pool.
Yes.
So so this is rob so if you go to the back of the.
Let's go to the back of the deck, there's we've broken out it's a deferral rates.
Talk some about restaurants and hotels.
So weve listed some of those.
And then also senior care is at the back the package. So that's probably a good place to start and then maybe just I would break out for your kind of the overall bank is that a right around 9% deferral rate and the Vitesse is around 22%. So that's that's probably kind of within those maybe.
Five different categories, that's a good way to think about it.
Okay, whether in the other sectors that stood out once you've seen.
No you know there's a there's a variety of different numbers, but those are the ones that that you know what of course, when we put.
The deck together that we got focused on and seem to be some of the high watermarks and then of course, the new beat us ones. A separate we've listed also if you're if you look at a page 28, we've listed the top five sector deferral rates afforded to beat us specifically there.
Okay.
And then one more question as far as your its most of this test results. How they always are loan losses are now compared to losses are season nodes.
Well, it's a great question and thanks for asking that we've had.
Front, so many I mean.
We've run stress test of.
Of.
The last cycle, we run stress test specifically to our losses are often in the last cycle we run.
Various see CCAR stress test so.
We've run I don't know 2020 different probably capital stress.
Yes.
And but we do feel like we have we have very significant capital and for it for any reasonable Kate butane to run stress hats I'm looking at the new Moody's.
Results, but we feel comfortable for a capital is.
We believe that for almost any reasonable loss scenario.
Our capital as a as fine.
Alright, thanks, very much of the code.
And our next question is not from the line Tyler Stafford from Stephens, maybe again.
Hey, guys good morning.
Hey, I wanted to start on fees.
Jefferson.
So I guess, what do you expect the impact of the PPP.
I guess distraction to.
To to be on the just the normal SP a gain on sale revenue over the near term to be.
Yeah, my past that over to rich on.
Yes, sure out there we hadnt exist.
Being pipeline rolling into Q2, obviously, a 95% of the effort right now is focused on PPP.
I will say that the secondary market has come back a little bit from first quarter about half. The buyers are active in the ranges in gain on sale or one of those six.
The 107 currently.
And we did not sell loans that you noticed probably in the first quarter and.
And we had $25 million originations there is a bit of a backlog for <unk> for Q2.
Okay. So you would expect to sell Sta loans, but not in the various ones correct. Okay.
And.
Why not sell.
One of you just loans at this point did I just I don't know what the market will be a friend of either <unk> or just kind of watch the.
Watch the market watch the credit markets and see where the bid might be that's a good thing about having flexibility on your balance sheet that we cannot hold these loans. If we want to we have been selling loans.
Late last year in early this year at that 6% game.
No what that gain would be a now and if we and stuff. So for now we're going to cut plan on holding them enough again continues to be in that.
Hi, <unk>, 5% to 6% range, we may consider it a also think of it another way, we have 8.5% of our loans and no.
That's right now we're going to add at least a billion dollars for <unk> for.
PPP loans for some short period of time are going to add seaside in there too so that percentage of eight and a half is going to come down a decent amount. So we have a lot of room to get to that 10% level as well so we're not.
So that's how we're thinking.
Got it by we May sell but we don't need to for our 10% and I was going to add we were expecting another good performance for mortgage right.
And back on the V., that's just the natural condition of what's going on is the other volume's down about 30%.
Anyway, a and they're really looking at her to come as an opportunity to.
<unk> up credit quality. During this time, there's a lot of a their competitors as Jeff said don't have a balance sheet.
So are we expect volume to be down anyway, we expect credit quality be up.
In terms of the new originations so that's part of it as well Okay. That's helpful.
Maybe sticking with Davita.
This do you know how much of that portfolio today that equipment is idle right now versus being actively used [noise].
Probably the best measure that would be or the deferral piece and you can see in there in the deferral segments would be what you would expect you know fitness.
So in a beauty salons for example, you know obviously they can't operate and so.
But you know, there's there's still seeing a fair amount of a activity I mean, a weather landscapers weather short haul trucks or.
So it's their business is still operating and businesses need.
Need equipment and this is essential use equipment. So.
It's hard to give what there what we're doing on the deferral side is we've got an automated portal set up to request a deferral on in contact in the clients and request in the first refer deferral is for 90 days.
But during.
Tom we're requesting a touch payments so.
You know small payment just to kind of keep contact to keep keep keep engaged with the client and we're just taking a wait and see I mean, because they obviously these are customers they won't want to be back in business. They want to open back up.
But in many cases.
So they've got to get the government to allow him to open back up and our expectation is honestly that is where you're at the end of the 90 days you had lot of those will be deferred again and will.
Probably increase those touch payments and it's just going to be bridge and those are those clients back into a to recovery, Okay and I do appreciate all the.
Sales around the Didnt have you just kind of break down by deferment in hotels and restaurants in the back.
And and I guess, maybe just shifting over to my last question.
I totally appreciate that you guys are entering this recession recessionary environment with a significantly higher capital position than than most of your peers.
But as I sit back and look at the reserve ratio that you guys built two of 99 basis points, and then kind of add up some of the different portfolios that you laid out in your DAC of Nikitas at 8.5% the hotels at three restaurants at 3% senior care at five and then I think retail serious somewhere around 3.5% and then.
You gave us some syndicated credits and leverage a detailed it looks like around 25, 26% of the total portfolio are just some of these type hotbed type portfolios.
And I'm not trying to apply that you guys are under reserve, but I'm just trying to better understand what went into your Cecil.
Relation and assumption.
In.
Well I guess why do you feel comfortable that 99 basis points at least especially relative to some of your other peers that at least so far have built reserves a little bit higher at this point.
Yes, so Tyler it's Rob I would say couple of things. One is you do have to.
Understand it I think Jefferson mentioned it in his comments.
I think he said it appropriately. So the models are built off of correlations from past experience and so we're in a situation where just as you look at the models.
You have to.
Understand that that there may be a moments of disconnect.
But I would say this also were also usually you get like one set of scenarios from we use Moody's for the economic forecast usually get one a month and we're now in a situation, where we're getting one a week and.
So it's it's keep in mind Cecil is built off of what you think is going to happen in the future and based on what happened in the past and its because of the element of deferral and government stimulus. It really is a challenge to to know for sure.
It is going to happen or in the future. We at quarter end, we kind of looked at it and ER and said you know we are in the hotel space, but we're in it at a 50% loan to value with some really strong operators with strong liquidity, we feel good about that.
We are in the.
Leveraged loan business, but we're in it in a very small way at $70 million.
And while it is leveraged its generally leveraged at less than four times.
And that's based on commitments not based on Outstandings most of ours would come way down when if you'd measure what.
I called true leverage which is the the outstanding.
To cash flow outstanding debt to cash flow. So I feel we don't have so we have.
That 70 million I would say is negligible and the portfolio and then we don't have any oil and gas exposure. So I feel really good.
About the.
Components that we mentioned mentioned and then also good that some of the components. The other folks are having to talk about are not in the and the book at all.
Okay. That's that's very helpful. Maybe just one more on that could you provide what the new Cecil reserve for then viewed as portfolios.
So.
It's 15 million.
50 million perfect Alright, thanks, guys I appreciate it.
Your next question comes from the line of Kevin Fitzsimmons from D.A. Davidson you may begin.
Hey, guys good morning Warner.
So.
You mentioned a few times Jefferson.
He could you just kind of walk through how we should.
We expect the noise to occur the next few quarters. So I would suspect that a lot of banks of talking about the second quarter. We'll have elevated expenses you all have the higher average balances because malone's, you'll have a dilutive impact.
To the margin because the 1% kyrie on those loans, but then whether whether occurs in late second quarter when it occurs third quarter.
I have the origination fees come through which I think come through the margin, but I think some companies are having a come through the income. If you can just talk to some of that.
Yes, I think are on the fees that we earn here will come through the margin.
Thank you for the for the second quarter I think you laid it out.
Very well, we're not expecting any respect and to amortize that fee over the two years of the long and as I mentioned in the prepared remarks to think about 70% of the.
These.
So we'll be forgiving within six months that kind of gets you write to that end a third early fourth quarter that you'll see some of these fees are starting to come in so I would expect that you would get kinda <unk> one eight other fee.
Roughly in Q2, and you have good kind of 70% of those.
Split between.
Q3 in Q4.
Just how I'm thinking about it currently.
On expenses.
We are where it would probably run <unk> overtime expenses now I don't think it's going to be super meaningful Onyx on the expense line I do expect our expenses to be a flat to down.
Going forward I don't think that the PPP, you're going to really.
See that by itself and the a and the expense line.
Okay, Great and then one just follow up on the allowance ratio. So on Tyler's question. So I know.
From.
The acquisitions, there's obviously been loans that are.
That are mark that you know you're typically assets out there in but now with with a post piece of world.
I would suspect that that's all been adjusted.
I wanted to just clarify because I know you said at one point you guys adopted c., so, but I thought I thought I heard you set up.
Another point, but you delayed the impact of it so I just wanted to clarify that.
Well, we adopted we declined to a delay.
Correct.
And.
And it was there another question on their own as far as obviously you saw.
Just on the allowance ratio whether it was.
Andy.
Kind of.
Caveat or clarifying points to make based on past Doctor.
On that when we're looking at it persisted.
That's the bring over of the that's why I. If you go back to our Q4 deck I think the number that we brought over from acquisitions in the three and a half million range.
So button, but you're right cabin all that's been as a part of the transition from incurred loss to see so you do.
Bring over that purchase a that purchase discount goes away from effectively it's sort of is hitting and subtracted from the loans and.
Now it's it's it's a on the purchase credit impaired it's part of the allowance and it was a <unk> I think the number was around 3 million that we brought over and you maybe thinking a little bit on the accretion side that I mentioned that we have $15 million of purchase accretion that we're still running through.
And what price.
Got it okay. That's all I had thanks.
And our next question comes from the line now Michael Rose from Raymond James You May begin.
Hey, guys, sorry, if you addressed this I got on late but mortgage piece was was really good this quarter. If you back out the MSR.
The impact from both quarters, he's giving an update on kind of where pipelines are today and maybe a what you'd expect from a mix in a in a volume perspective, as we move through the second quarter. Thanks.
Hi, this is rich so they mortgage we expect to continue to have a strong Q2.
You are based on the pipelines. So we feel good about that I will tell you that we are being cautious and in terms of our.
Folio, what we put on our books non government, we have tightened up the credit criteria, increasing FICO scores and reducing a maximum loans.
Sizes.
Okay, and then maybe just one follow up I think you mentioned earlier in the call that you brought on another team and you expect to be opportunistic.
What areas would you expect to be opportunistic as I assume some of those at risk portfolios would would be deemphasized at this point, so I I guess.
Where do you see the greatest opportunities as you look out the next couple of quarters and maybe if you can size it. Thanks.
Well, it's a it's interesting as rich again I'd. It's interesting. So there's certainly aren't gonna be opportunities and I would say I'm not you're not going to think him. So unusual answer but the P.P.P. thing has given us a.
Real opportunity so the big banks have not come out all that favorable in many of our in a rural areas. The smaller banks don't have the PPP program. So we're getting just a lot of feedback that and actually not just feedback people are moving accounts right now because they feel better about what we've been able to do in this program and come through for the.
Communities that we serve.
Yeah, because this really as you said, Michael I mean, we've we've put a.
Clearly a pause on all these highly affected areas and is there was really just kinda core seeing a long term companies that.
Really we're seeing the opportunity with its hard it's hard to size it.
But it's it's a real thing and we're seeing it every week.
Got it so generally on the small business right. Okay. That's helpful.
Thanks for taking my questions guys.
Thanks.
Thank you enter next question comes from line of Catherine Mealor from KBW may begin.
Thanks.
Good morning.
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I'm just a quick clarification on Bakken Davita Vicki.
When you mentioned that origination volumes are down would you expect to continue to grow new Venus balances from here.
I'll start with that I do so for.
The visa applications are down so we would expect lower originations.
That said now we are not selling levied Islam adds a little bit we're not planning on selling anyway, and if you just wants to add a little bit to the balances I would expect a oh yeah.
Slight positive growth in the Buda balances throughout the year.
Okay great.
And then you also mentioned that then Adidas diesel reserve its 50.
It's a 15 million <unk>, what would that compared to yearend.
Yeah. So Catherine this is Rob it was a it was really up from 12 and a half to.
15.
Got it.
Okay, Great. That's done there was no questions were answered thank you.
And our next question comes from a line of Christopher Marinac from Janney Montgomery May begin.
Thanks, and thanks for all the detail both on the call as well as on the disclosures.
Rob if we go back to the 900 million deferrals kind of company wide. How do you consider bad the Big picture should we think about it's kinda, but the fact, though criticized number and that those loans kind of get worked out from here that number comes down or with a 900 million grow just curious how you think about it in a big picture.
So.
[laughter] anecdotally I think it's interesting to think about an i. I, there's and there's a numbers way to think about it and then there's a real life way to think about it and you may have heard a that the Georgia.
Governor opened a Georgia back up for business and.
The day after that happened we were on the phone with some regulators that live in Atlanta, and they were talking about how they are a one guy said his daughter, another Guy said his wife, a as soon as the order was lifted they all reached out to the beauty salon to make their reservations to get into a crank those businesses.
He is back up so.
It's hard to say, Chris I mean, I don't want to be evasive, but I think a you know people are ready to get out there. We're sensing a wave here in the Carolinas and in the southeast of people ready to kind of get back to normal and <unk>. So it's hard to say that you know some percentage of these.
People to add deferrals, Yeah, we said everybody home and told them not to go and a there's clearly a pent up demand for these businesses people are going to go back out to eat they're going to get their hair cut it's a they're going to start traveling again and so it's it's just really hard to have any element of predictability around it because I mean, it's clearly it as well know.
This is not a bar where specific I've got a problem I can't run my I'm I'm, a bad manager of my business. This is a broad economic shutdown. So we're not looking at deferrals in the normal way I mean, if we were not looking at these at this point as Tdrs.
We're we're supportive of.
Of clients differ in their payments, we know they want to get back into business.
I think that's where as it comes to the reserve and all these other things. We've just got to see some of those data work its way back out to see to see what really really happens and again, we'd like to be more definitive, but but it's just not.
A normal environment. If you think about unemployment rising like it is but yet a unemployment benefits covers probably is you know for most people 70, 80% of what they're making we're seeing very few mortgage and he lock deferrals.
Which would you would normally expect to see problems exist or stop start.
They are so we're we're obviously very I'm trying to stay very close to these clients. So that we understand what's going on with them, but we're not viewing them as a special assets by any means at this point.
Gosh, that's very helpful. I appreciate that a lot and then just a follow up as it pertains to the.
He is it possible or even likely that you would take some type of expense accrual just against those fees that they particularly a couple of months from now as they start to come in on forgiveness I'm. Just curious on if they you know legal reserve were just on anticipate expenses to set aside though would make sense.
Yeah, Chris that's a that's great question, it's something we've been thinking about it.
A little bit.
It is a nice.
As it is nice earnings that we should come in a lot in second half of the year and there is room to set aside.
Possibly illegal reserve or possibly some provision are really anything it's just a it'll add to the profitability in a short term way and the second half of the year. So.
We haven't decided what to do with that if anything but there is that there is that ability to do so and we will look more into it the third and fourth quarter.
Sounds great. Thanks for all the time this morning.
Thank you I'm not showing any further questions at this time.
All right well great well thank you.
All for joining the call. We appreciate your support your interest a great questions and we will look forward to talking again soon I have great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating may now disconnect.
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