Q1 2020 Earnings Call
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Good day and welcome to the Renaissance Corporation 2020 first quarter earnings conference call and webcast. All participants will be in listen-only mode should need assistance. Please signal conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions. Please note this event is being recorded phone now like to turn the conference over to Kelly Hutchinson, please go ahead.
Good morning, and thank you for joining us for Renasant corporations 2020 first quarter webcast and conference call participating in this call today or members of Renaissance executive management team before we begin many of our comments during this call will be forward-looking statement which involve risk and uncertainty. There are many factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements, obviously the impact of the covid-19 pandemic the federal state and local measures taken to arrest the virus as well as all of the follow-on effects from this pandemic situation are the most significant factors that will impact our future Financial condition and operating results other factors include but are not limited to interest rate fluctuation regulatory changes portfolio performance and other factors discussed in our recent filings with the Securities and Exchange Commission, including our recently filed earnings release, which has been posted to our corporate site renasant.com.
Under the investor relations Tab and the news and Market data section furthermore, the covid-19 pandemic could magnify the impact of these factors on us. We undertake no obligation. We specifically disclaim any obligation to update or revise forward-looking statements to reflect changed assumptions the occurrence of unanticipated events or changes to Future operating results over time in addition some of the financial measures. We may discuss this morning, maybe non-gaap Financial measures a Reconciliation of the non-gaap measures to the most comparable gaap measure can be found in our Journeys release and now I will turn the call over to Renasant Corporation executive chairman, Robin McGraw. Thank you Kelly. Good morning everyone and thank you for joining us today. We ordinarily begin earning a conference call with a robust discussion of our financial highlights from quarter, but we would be remiss not to remark on the pandemic that is quickly spread across the globe and comment on its effect on each of our stakeholders dead.
We'll discuss our preparedness and specific response in Greater detail later in the prepared remarks, but it's worth highlighting that our highest priority at this time is to support the health and well-being of our employees are closed in our communities while continuing to implement our growth strategy in this new operating reality the selfless efforts of our entire team at every level and across our footprint to provide essential banking service and meet the needs of our clients during these challenging times have been truly remarkable and we commend their service and loyalty to the company and to our communities. There is no doubt that covid-19 outbreak material impact on our first quarter results our net income for the quarter was two million dollars which represents basic and diluted earnings per share of $0.04 our net income included two point two million bucks after tax expense specifically attributable to the pandemic these expenses reduced our diluted EPS by 4 cents.
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You know uncertainty remaining and because we cannot accurately predict the depth and the length of the economic impact resulting from the pandemic and the government's response to it during the first quarter. We re-recorded additional twenty six point four million dollars in provision for credit losses and added three point four million dollars to our Reserve unfunded commitments in addition to the impact of covid-19, which includes our enhanced provision. We recorded a negative valuation adjustment to our mortgage servicing rights of six point nine million dollars or an after-tax basis, which reduce our diluted EPS. Yes by 12 cents looking through the impact covid-19 of the pandemic and these other items on our results. We had a solid first-quarter and our results reflect our teams commitment to cooperation to the bank. Our team is continue to execute on our growth strategy while at the same time remain prepared and focused on growing our low-cost deposits during the first quarter we suspend birth
Stock repurchase plan in response to the pandemic prior to the suspension. We repurchased $2,445 for a common stock at a weighted average price of $30. There is a pre-purchase availability left under the program which will remain in effect until the earlier of October of 2020 or the repurchase of the entire amount of common stock authorized to repurchase the board. We're committed to maintaining a strong capital and acquitted to position while also serving the needs of each verse stakeholders during this uncertain time. We believe our continued efforts to effectively manage to growth and profitability of our Core Business in light of the economic pressures. We Face will continue to preserve shareholder value. Now, I will turn the call over to our president and chief executive officer Mitch wage to discuss in Greater detail. This quarter's Financial results in the impact from the covid-19. Demek Mitch. Thank you Robin. I'll let go Robbins remarks on the efforts of birth.
Team and response to the pandemic one of our core values States. We are dependent on and responsible to each other and will it all times work together as one team as one team our employees across our entire footprint and throughout our banks back office functions have provided critical services to our clients am experiencing the economic impact of the pandemic. We are and have remained throughout open for business hour employees efforts in recent weeks are the reason for this they have been truly extraordinary and we applaud their service and commitment. Our team has been incredibly Innovative and flexible in this rapidly changing environment, but we were also prepared in late February and light of reports from abroad about their spread of covid-19 our senior dog.
senior management team begin meeting
To candlelight and Implement plans on how we would navigate and a pandemic in our markets and shortly thereafter in early, March our pandemic Planning Commission was activated these Senior Management and pandemic committee meetings focused on the steps necessary to provide a central banking services in a pandemic environment while at the same time ensuring the health and well-being of our employees and our clients and also promoting Community efforts to limit the transmission of the disease wage first and foremost. Our employees are our primary asset. We took immediate steps to support the health and well-being of our team members by implementing alternative Staffing models such as splitting and relocating staff within our markets or enabling a large portion of our employees to work remotely.
For those team members who cannot perform their duties from home, we have been creative and proactive in procuring and distributing facial coverings and self sanitizing products across our footprint and have maintained nightly enhance cleanings in each of our facilities. We've taken seriously the guidelines set forth by the CDC month with respect a social distancing and prevention of workplace exposure and have continuously implemented the recommended strategies and procedures to help slow the transmission of the disease beginning March twenty. We closed our Branch lobbies to regular traffic all drive-throughs at our branches remain open and our mobile and online banking products provide alternative means for our clients to satisfy many of their banking needs.
Any transactions requiring access to Branch Lobby or by appointment only our decision to reopen our lobbies and fully returned to prepend emack operating procedures will take into account the best interest of all of our stakeholders. We have provided special benefit assistance to ease any concerns of our employees who have been impacted by this pandemic where they're due to personal exposure family illness school closures or other disruption in childcare. Also, if an employee's hours are reduced you to a rotating schedule or limiting Branch access. The employee is compensated based on his or her normal work schedule. This is provided Mutual Security and assistance as Thursday available workers remain on call to facilitate operations.
In addition to the steps we have taken to assist our employees. We have been proactive in participating in the paycheck Protection Program to help provide relief to small businesses both those that were existing clients as well as new relationships during the first phase of the program. We approved over 1 billion dollars in loans to our small business clients and proceeds of which will be used to keep their workers employed in the short-term. We also expect to participate in the federal reserve's Main Street Landing Page, although we anticipate are fun or lending under this program will be more limited and targeted to existing commercial clients.
to provide
Necessary and direct relief to our consumer and Commercial borrowers. We established loan deferral programs that allow qualifying clients to defer principal and interest payments woke up to 90 days to qualify bar must have suffered economic hardship as a result of the pandemic but not have been more than 30 days past you and we're all show current on insurance and tax payments prior to requesting relief, as of the date of this release total deferred balance is approx 15% of our outstanding balance at March Thirty One with much of the deferrals and heavily impacted Industries such as Hospitality restaurants and entertainment will discuss our credit off during processes and asset quality metrics in Greater detail later in our remarks.
But our intent with these relief programs is to provide capital and liquidity preservation for our bar is over a longer-term. Therefore. Therefore we were pro-active in reaching out to our bars that could benefit the most from these programs.
Our response to the pandemic is not limited to our commitment to our employees and our customers part of our mission is to be a good citizen in our communities, and we've made Target need an intentional efforts to support the needs of our communities across our footprint. We provided meals to under-served students at local schools. We purchase gift cards from Lubbock restaurants and gifted them to health care and other front-line workers our commitment to our communities extends far beyond providing essential Banking and Financial Services wage, although much of our time and effort in recent weeks have been focused on the immediate needs of our clients and our employees. We have not lost sight of our strategic plan change and growth of our core operations. We closed the quarter with total assets of 13.9 billion dollars as compared to 13.4 billion December 3119.
Total loans help or investment were nine point eight billion dollars at the end of the quarter as compared to nine point seven billion dollars at December Thirty One nineteen representing annualized that loan growth on a linked quarter basis of just over 3% Our teams focus on growing low-cost deposits to fund. Our growth has remained steadfast total deposits. We're up two hundred million dollars from the previous year end with growth and non-interest bearing deposits accounting for ninety million dollars of that growth regardless of old right environment, non-interest-bearing deposits will enhance the core profitability of the company and will continue to be the preferred source of funding for our growth.
We should not.
That is volatility emerged during the quarter. We increased our own balance sheet liquidity by approximately four hundred million dollars through short-term advances from the federal home loan Banks. This excess liquidity is reflected in cash and short-term Investments on our balance sheet at March Thirty One in addition to the excess on balance sheet liquidity at the end of the quarter. We have two point eight billion and availability at the federal Home Loan Bank over 100 million of fed fund lines with other Banks and $500 million of unpack Securities these sources provide an additional three point four billion in additional liquidity while the long-term economic impacts from the pandemic are still very much uncertain. We remain committed to meeting the needs of our clients and staying Nimble in this rapidly changing environment. We are optimistic about Thursday.
On both sides of our balance sheet and we reinforce our commitment to profitable growth without sacrificing credit quality. Now turn the call over to chief operating in financial officer Kevin Chapman for additional discussion of our financial results and the impact from our adoption of Cecil Kevin. Thank you mention. Good morning every month for the first quarter. We reported net interest income of 106.6 million dollars, which was down two million dollars quarter-over-quarter a credible yield recognized on purchase loans and interest income collected whole problem loans was down 1 million.
1 million dollars from the prior quarter County for over half of the decrease in net interest income reported net interest margin was 3.75% for the first quarter of 2028 as compared to 390 for the fourth quarter of nineteen or core margin decreased ten basis points over the same. The decrease the decrease in core margin was primarily driven by the decline in that that yields as long-term and short-term rates fell during the quarter.
During the first quarter we began to take aggressive action to continue to reduce our interest-bearing deposit rates while we did see the cost of deposits decreased by 4 basis points during the first quarter. We we continue to expect to see a decrease throughout 20 20 with over two billion dollars of time deposits and money market.
Deposits maturing over the next four quarters. We are confident in our ability to reduce these rates in order to mitigate the pressure on our on our asset yields non-interest income continues to be a source of income for us representing over 25% of our total revenues.
Non interesting, was fairly consistent on a linked quarter basis as we discussed in previous quarters. I'll remind everyone that are year-over-year comparison of non-interest income continue to be impacted by limitations on our on our interchange fees imposed by the Durban amendments which reduced our fees and commissions line item three million dollars during the first quarter of this year and the same amount for the third and fourth quarter of last year.
in the first quarter of
We recognize the valuation adjustment on a mortgage servicing rights of approximately 9.6 million dollars on a pre-tax basis.
Related to mortgage. Although we recognize the valuation adjustment. The first quarter was another strong quarter for a mortgage operation to interest rates remained low and our mortgage production increased during the month are locked volume was one point nine billion dollars driving gross Mortgage Banking income excluding the MSR valuation adjustment of 25.1 million breaking are walking down refinance volume accounted for approximately 58% of production during the first quarter compared to 41% for the previous quarter of ending December.
Non-interest expense increased quarter-over-quarter by $19. The increase is attributable to a combination of several factors first salaries and employee benefits expense increased five point five million dollars on the linked quarter basis. The increase was was largely driven by an increase in mortgage commissions and incentives of 5 and 1/2 million dollars related to The increased mortgage production and income during the quarter and also a cruise for employee benefits of 2 and 1/2 million dollars provided in response to the covid-19 pandemic.
The increase in other non-interest expense was driven by a couple of factors first. We increased the provision for our unfunded commitments of three point four million dollars due to the provisioning provisioning bill during the during the first quarter. We also experienced an increase in FDIC assess. It's a 1.2 million dollars do the exhaustion of certain credits that we had received last year off additionally other non-interest expense increased due to volatility and deferred loan origination calls as a result of decreased Loan Production during the quarter when compared to the fourth quarter of 1980 at March 31st, 2020 our asset quality metrics remain stable and our average average net charge-offs. Our annualized net charge-offs for three basis points of average loans for the quarter month and we have yet to see any unusual Trends in our non-performing loans as the pandemic began to spread across the globe and its arrival in the United States became imminent. We evaluated our portfolio phone number.
Concentrations and Industry exposures that we thought were most likely to be adversely affected affected and we proactively reached out to our clients and these sectors to understand how their business activities might be contacted while we are monitoring all loan categories with a with a heightened level of attention and could argue that every category should be at some level high risk and concern that we identified for long categories specifically Hospitality Restaurant entertainment and certain sectors of the retail trade Industries as having higher concern.
In connection with our earnings release filed with the Securities and Exchange Commission. We have furnished supplemental or supplementary information on each of these industries and provide a credit metrics and National statistics. As of April 23rd. It is worth mentioning that our exposure to each of these industries on an individual basis is less than 10% of our entire portfolio and our exposure to these industry's Collective life is just over 15% We mentioned previously that we offered relief programs to are qualified commercial and consumer customers and we were tracking these deferrals by industry and Loan type wage as of April 23rd 60% of our Hospitality portfolio was deferred under the program along with 42% of our restaurant portfolio 46% of our entertainment portfolio took 30% of our retail trade portfolio.
To reiterate the criteria.
These programs are made available to borrowers who were in good standing prior to the pandemic, even though we focused in on these specific portfolios because we cannot accurately predict the impact of the Panthers and the related economic interaction economic Interruption may have on our bars in any sector We are continuing to monitor all asset categories for signs of deterioration.
As of January 1st. We adopted Cecil on the date of adoption be increased our Lounge for loan losses by forty two point five million dollars and are reserved for unfunded commitments by ten point four million dollars off our resulting allowance as of day one approximated 98 basis points.
With the economic uncertainty still remaining as a result of the viruses impact and and even after considering the offsets due to the government stimulus packages and the internal relief efforts were providing to our customers. We believed it to be prudent to bolster our reserves in response to the uncertainty. And therefore we recorded a provision for credit losses of two point six million dollars for the quarter and increased our reserved under commitments about 3.4 at the end of the quarter our Lounge to Total loans represented 1.23% of total loans and 240 basis points of non-performing loans.
From a capital standpoint or adoption of Cecil reduced retained earnings by 35.1 million dollars. We have elected to take advantage of transitional relief offered by the Regulatory Agencies and therefore red regulatory Capital ratios during the force first quarter are not impacted by the adoption of Cecil as of March 31st, 2020 all of our companies regulatory Capital ratios, exceed the missions required to be well-capitalized and for any further information on our financials. I'll refer you to our press release or specific number for additional specific numbers or ratios. Now Robin, I'll pass the call back to you. Thank you Kevin and closing. We began the second quarter with a great deal of uncertainty. We are unable to accurately predict the long-term impact that the virus and other broad economic shutdown issues will have on our Chef stakeholders, but our commitment to the Safety and Security of our employees to the understanding and then meeting the needs of our clients and being a good citizen. Our communities will support our success through this cycle.
They provide value to our shareholders now Jason. I'll turn the call back over to you in a thank you will now begin the question-and-answer session to ask you a question. You may press star than one on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two first question comes from a Jennifer Demba from SunTrust, please go ahead.
Good morning. Good morning. I could you talk about what you're seeing in terms of reopening efforts in your primary Market wage.
Yeah, Jennifer, this is Mitch. And you know I come in at earlier. We're open for business. I think in that being with those things that I described that we put in place as we went through the month of March and you know relative to banking we see people consistent in in that regard it varies across our footprint the degree at which others are returning. I think ultimately that is really defined by the consumer and and those that are using those services and as we are in our company, we we see that people are continuing to be cautious and following the CDC guidelines and certainly that's what we will do as a company that we continue to focus on our employees and our clients, but as you know across our five states, it's somewhat varies, but we see people continuing to be off.
very cautious
As we work our way through the pandemic that's not fully defined at this point. Jennifer is Kevin. I live at a comment when we we left of the activities in our lobby. We did that on March 20th. And and that was before any Governor or any mayor issued an executive order to do so to Mitch's point. We didn't close. We just change the access to the to the branch Lobby throughout this. We've seen digital and Technology adoption to increase exponentially Mobile deposit through up two or three times. The the rate of Zelda a moment is up are P2P solution a treasury management team continued to a phenomenal job as they did last year of having high success rates in our commercial clients of Treasury management products electronic banking. So all of that is a business is still going on and it's just not being done in the lobby. We enhance the capabilities of the drive-thru so that birth
But anything other than checking your safe deposit box could be done through the drive-thru would be done digitally and and I make the comment about closing the branches before any executive order because I know there's a lot of conversations out there at least in the south east of of states or municipalities considering dates to reopen we're going to reopen that much like we did when we elected to office closed the lobbies. We're going to reopen the lobbies based on when we feel comfortable that it's safe for our customers and employees to do so and off but also would say we never closed the the the banking capabilities of of any of our clients and in fact throughout this. We may have enhanced them by empowering them to do their own own banking outside of the branch and Jennifer to Kevin's point. It's very clear our investments over the years in technology and the enhancement of our digital capabilities. We're certainly recognizing Thursday.
Is during this time and and I believe I mean we're hearing the same from our clients. We're simply doing business, but we're delivering that product and service Kevin's Point differently off.
Did you talked about the economic assumptions you made with your provision for the first quarter and also to talk about what kind of expense control you might be looking at over the next few years. Thanks.
We will thank you. So just looking at the the assumptions we used and the great thing about assumptions. Is that every time we make them over the last 45 days the market changes so quickly Thursday. We were humbled how quickly we could be wrong in our assumptions, but hopefully what we ended with on our on our forecast was what they high level of unemployment that unemployment would peak of the year at about 30% and then start to improve their after we're not assuming a v-shaped recovery. We're shooting assuming more of a a u-shape. We are founding just from a economic forecast GDP growth to be negative over the next twelve months and and again a week a week you too with the opportunity to start rebounding some as we get into the later half of the year.
On the expense controls everything is in place as relates to expense control. And so I want to mention a couple of things on salaries and employee benefits. Although we did a lot of the last year. So I think that mass the effort that we were doing on salaries and employee benefits to reduce that calls. You saw that somewhat in in q1, where if you backed out just the the increase in mortgage an increase in salaries employee benefits directly attributable to mortgage salaries were flat and then if you if you back out the overtime or the accruals that we made for the accommodations that Mitch mentioned on the covid-19 salaries and employee benefits are actually down. We will continue to have a heightened focus on reducing expenses the north came in other non-interest expense with the fact, we report our reserve for unfunded commitments in other liabilities. We don't include it in the allowance for loan laws. And as a result the provisioning that three point four million, we view as a credit cost not necessary.
An operating costs that contributed to it. The biggest swing was in the ninety one last quarter. We had net net growth of I think thirteen fourteen percent maybe maybe higher this quarter. It was 3% So the swing and that was directly correlated to the growth. We think that looking forward that levels out and non-interest. This is actually come down a couple of million dollar other non-interest expenses comes down a couple of million dollars as the growth rate normalizes in the current environment aside from that month.
Every expense within the company is up for review. And also I think we we've learned that that we can operate in a different business model different banking model and so forth. I think not this is not that we want to go through this but this I think has opened our eyes to the level of change that we as a company can absorb and react too quickly. And I think that's a mindset. We're going to carry me out of this pandemic. If we ever return to a normal operating environment. We are going to resist the urge to return to normal Jennifer. I want to add this as well in relation to expense and as you know, we were very opportunistic and adding some very strong talent to an already strong team in the past several quarters that continued this course, we we had twelve editions, but also we have been saying that we are very disciplined in managing expenses and making sure that people are accountable.
When producing so during the quarter with those twelve editions, we also had 1414 just in that relationship manager area that exited the contract either from retirement, but certainly from accountability where you know, we hold people to certain expectations. So we actually to Kevin this point just in a managing expenses actually in the quarter just in relation to relationship managers. We saw a pretty good decrease in in salary expense. So while we remain opportunistic, we also remain very make sure we're accountable in managing those expenses as we operate in a new environment.
So much.
Thank you.
The next question comes from Michael Rose from Raymond James, please. Go ahead.
Hey guys, how are you?
Wanted to start on you know, I know it's it's it's a tough topic but you know on the loan growth, you know, you guys had obviously brought on a bunch of new hires off the pipelines you guys previously, you know, we're targeting some some pretty robust growth numbers, you know in part because of those those new hires and the pipelines that they were building, you know, I know it's hard to kind of look out at this point, but any nearer term expectations for you know, what we could expect, you know for loan Banks sure my colon and you're correct. It's hard to predict. But let me let me start with what we're seeing currently in the pipeline reflect on our production and I talked about the results that we're saying seeing out of the additions and course with with Jennifer's question. I just commented on the accountability around expenses and expectations.
Current pipeline currently is $177 million, if you know comparing that to where we begin the prior quarter it was 240. If I look at the pipeline mid March, it was more in the 250 range probably two hundred and early April April. So considering the pandemic we've still got a good but cautious deal flow and that Pipeline and that that's across the markets and our business lines will probably talk about triple p in the moment. There's no triple P dollars in that pipeline is I referred we originated over a billion dollars in triple p and 13 days. That's that's 6 months worth of production in 13 days. So during this month time period that I'm reflecting on Pipeline that business occurred. So at $177 million like say we continue to see good deal flow if you break that wage.
My region about thirteen percent in Tennessee, 14% Alabama, Florida Panhandle 16% in Georgia and Central Florida thousand percent in Mississippi and forty 46% in our corporate and Commercial Business lines looking at production and then we'll kind of reflect going forward would do the extent that is prudent to do that today. But looking at the prior quarter, we have production of 516 million dollars that compares to over eight hundred million in the prior course, you will remember in that quarter. We had some pull through late in December. So at 5:16 considering the time of year that that was good preparation that compares the $374 million the prior year same. So the 516 produced about 11% loan growth and not acquired dead.
and which
About $214 million which resulted in about 3.3% net growth or eighty million dollars for the quarter. If you look at that production, it sounds much like our page on we we saw again across all geographies particularly in the corporate commercial areas almost 15% of that production came from the new hire. So we continue to see good production good investment. And again good good Geographic production. I keep referring to an already strong team. We're just simply continue to hit on many different cylinders. If you take the pipeline of 177 Lounge that would should result in non purchase outstanding in 30 days increase of about 48 million again, if you look at that type pipeline across the quarter dead.
That would indicate production and the five hundred to five hundred and fifty million range, which would or should equate to load a mid-single annualized growth. However, is you began the conversation until we begin to see sustained resolution of the pandemic. It's very difficult to give that guy. Certainly that could be less may be more depending on the duration of of you know of what we continue to see develop
No, and I certainly appreciate it. It's challenging but that is that's fantastic color. Maybe just one follow-up, you know, as it relates to the triple P program, you know, maybe mechanically wage. If you can let us know what the expected fees are that you'd expect to generate from at least round one of the 1 billion and then if that's going to flow through either nii in the name or fee income and then finally if if you can give some some thoughts on on the margin. Thanks. Sure. So before I talked about tax and accounting and margin I want to make a comment that somewhat related to Triple P that mission mentioned that goes back to the hiring and one thing that we found in the triple P program is that we were able to walk we were able to provide service to to customers that weren't our customer at the beginning of triple P program that we think one that customer over because their their access to the home.
Company, they were using access triple P program couldn't beat their capabilities or at that time may not have even been participating in the triple P program and I use that as an example because we're seeing signs where some of our customers are being not our customers but customers are being left in the Lurch because of their financial institution reacting to the current economic environment and there and find that provides us an opportunity to to win clients. It also provides us the opportunity to win additional talent and so as we see the opportunity for good talent Thursday, we're probably going to move on that talent that they get displaced because again, what's happening is where they are. They're not able to meet the needs of their customers and that's the common theme that led to our hiring strategies ten years ago as well as the lead to our strategy over the last nine months. It seems like that might continue to play out. And so I would just add to mention, we may we may still be dead.
opportunistic in the hiring
If good talent gets displaced on the triple p a little bit early to tell what the what the gross fees are I'll just tell you we've been average we've been averaging or estimating what the issue could be and let's just call it somewhere between that's just called it 3% on a gross fee. We don't have a number yet on what what the agent fee would be related to that long. But we're just from from day one. We just assumed an average fee of 3% and that's been our guide and and that that firms up will provide additional Clarity around that going forward with the accounting of it is is again, it's my favorite topic. This quarter's has 91. It's a fee that's going to be deferred and so it'll be recognized over the life of the loan and but we expect these loans to be pretty short short lives. And so that I don't I don't think all that income comes in and they single quarter it's going to be spread out of a multiple birth.
Some probably being recognized in Q2 with another with a with another bulk of it being recognized in Q3 and Q4. But it's it's a it's income that's going to be earned over a couple of quarters. I don't have an estimate as to how much is not going to be forgiven and they roll into a loan we built our program off of the assumption that this this this is a program that customers need we want to provide this to them. We want to we want to be there conduit to access this capital in this program and we're going to build it for it to be a bridge for the next 2 and 1/2 months with all of them qualifying for forgiveness and not not rolling this into a lower rate loan. That's how we built the program. I suspect the majority of the majority of the program vast majority of the programs going to adhere to that may be some residual pulled of the loan portfolio that turns into a 1% loan. That wasn't our ultimate concern. It's not the best yielding asset. We recognize that but the the access yep.
For the program is really our primary concern the fees are going to be recognized over the next two to three quarters and and it will flow through margins. So it will will provide some noise to margin as Thursday through the noise that causes we we we still have a hundred fifty. We have a full quarter impact of a hundred fifty basis point cut that occurred in late March and that's going to that's not a negative negatively impact core margin and reported. Margin we're estimating that to be about eight to ten basis points for next quarter. And then after that, who knows what the what the rate environment is as to what the volatility in margin is on a go-forward basis, but we are anticipating some more margin compression next quarter.
That's all very helpful. I guess. Thanks for all the color.
Again, if you have a question, please press * then 1 the next question comes from Stuart Lots from KBW, please go ahead.
Guys, good morning morning Stuart.
Kevin new get started on your life through the decision to you know count for the reserve for unfunded commitments through non interest expense, you know, I think a lot of fun basement we've seen reports so far. It's kind of lump that into the provision so I would just let the, you know, kind of went that process and how much more until you guys expect around that, you know under Cecil and you know as the pipeline changes the next couple of quarters sure. So let's just let's start off with just the geography as to where that flows through and we've had a reserve fund funding commitments for my book is not Cecil didn't create that it's always had something small impact on interest expenses and and that that Reserve is always been another liability. That's just historically how we accounted for it and I believe that's dead.
Consistent with what the accounting literature requires. I'm not aware of a change under Cecil that requires it that requires done funding commitment to be in quote unquote the allowance for loan laws, but we can go back and check value ate that and if we need to adjust the geography of it, we we challenged and and researched how the how that the unfunded commitment should be reported came to that conclusion on our own but then we also saw there was inconsistencies in some of the reporting of companies. And so that that's why we elected just to keep it where we where wage had been which was historically and other liabilities with the expense flowing through other non-interest expense as it relates to going forward. It will create as long as it stays in other other non-interest expenses about volatility in that line item and I do think though if you look at the correlation between the provisioning that we that we had during the quarter that give birth
A good guideline as to the impact on potential non-interest extent as it relates to the unfunded commitments. I don't know exactly what that ratio is. But that gives you a good correlation of the choices ship between the provisioning and how that affects unfunded commitments at least in a credit environment. Now if we have a period where we have a significant increase in commitments, then that with a significant increase in loan balances funded loan balances that may cause some disco relation, but the non interest expense will be affected by any reserved build unless unless of course change the the the reporting of that is showing as a troop provisioning expense.
Thanks for all the details are maybe one follow-up. I know you guys give some color on from the other items that were buried in the other non-interest expense. Okay, as we think about a core obviously there's a lot of volatility in that quarterly basis, but just trying to kind of hammer down a run, of course, you know operating expense run-rate to to drive forward from here and if we backed out that three and a half million related to The Reserve from 20 commitments as well, as you know, some of the name for the reservation costs, you know, how are you guys thinking about the expense, you know, the cord run rate going to two Q. Yeah. So we if you take if you take the current the current Court other non-interest expenses, which I think was roughly call it 20 million back out three and half million for the credit cost Associated for unfunded commitments. What what we believed
That that that number comes down a couple of million on a quarterly basis as far as ninety-one normalizes this quarter as well as we Implement cost-cutting measures.
That line item has a lot of discretionary expenses in it. And that's that's where our focus and effort is going to be is on that and so take take you one as a baseline back out the credit cause I'm funding commitments. And then our expectation is that number comes down a million or two with normalization of fast 91
and cost-cutting measures
great. Thanks for taking my questions.
Yeah, no more questions in the queue. This concludes. Our question-and-answer session. I would like to turn the conference back over to Robin McGraw for any closing remarks. Hey Jason. We appreciate your time and interest and runs not Corporation and look forward to speaking with you again next quarter. Thank you.
The conference has now concluded thank you for attending today's presentation. You may now disconnect.
Dead dead dead.