Q1 2020 Earnings Call
Good day everyone. Welcome to the first internet Bank earnings conference call for the first quarter of 2020. Chef participants will be in listen-only mode. Should you need assistance, please sing the conference specialist by pressing the star key followed by zero after today's presentation. They'll be an opportunity to ask questions to ask a question. You may press start and one on the touch-tone phone to withdraw your question, please press start them too. And please note that today's event is being recorded. I would now like to turn the conference over to Larry Clark from Financial profiles Incorporated, please go ahead Mister Clark.
Thank you operator good day everybody and thank you for joining us to discuss first internet bank or financial results for the first quarter of 2020. The company issued its earnings press release yesterday afternoon, and it's available on the company's website at ww.w. First internet Bancorp. In addition. The company has include a slide presentation that you can refer to during the call. You can also access the slides on the website.
joining
Yesterday from the management team our chairman president and CEO David Becker and Executive Vice President and CFO. Ken Lubbock. David will provide a company update and wage and we'll discuss the financial results. Then we'll open the call up to your questions before we begin. I'd like to remind you that this conference call contains forward-looking statements with respect to the Future performance and financial condition the first internet Bancorp that involve risks and uncertainties various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the company's SEC filings, which are available on the company's website.
The company disclaims any obligation to update any forward-looking statements made during the call additionally management May refer to non-gaap measures which are intended to supplement but not substitute the most directly comparable gaap measures the press release which is available in the website contains the financial and other quantitative information to be discussed today as well as the reconciliation of the gaap to non-gaap measures this time. I'd like to turn the call over to David.
Thank you. Larry. Good afternoon, everyone and thank you for joining us today as we speak with you today. The Public Health crisis confronting our country is of course at the Forefront of our thoughts. Our top priority in this unprecedented environment is a health of our team customers and all of our stakeholders our sincerest best wishes go out to the patients and families fighting the fact that the covid-19 as well as the healthcare professionals and other First Responders who are leading the charge to combat this pandemic the Hallmark at first internet bank has always been our team Wireless Collective effort to achieve strong results for our shareholders customers in the communities in which we operate now more than ever that commitment will guide us as we work to ensure our clients continue to receive exceptional service. We have an opportunity to help our economy by helping the people who drive a weather this storm.
First we have fully implemented our company-wide business continuity plan so that we may continue to conduct our business while keeping our employees and clients safe and healthy. We are off alternative work practices including work from home options. And approximately 60% of our Workforce is currently working remotely. For those of you who are continuing to come into the office, We have certain teams working in shifts and are placing greater distance between employees. We are also conducting most of our meetings to telephone or online channels.
As a relationship Banking Company founded to serve customers with digital Solutions. We have adjusted well to this new reality. In fact while we have had to make some adjustments to how we operate as a month digital institution without branches the channels through which we Services service our customers. They're not have to change on the Fly Like many others in the industry.
Respect to our customers. We are working with all who are affected by this crisis to provide guidance and help assess their options. We have contacted borrowers across several business lines and provides payment deferrals too many of them. As of last Friday. We have extended payment relief on 361 million loads across our two point nine billion dollar loan portfolio representing up 13% of our total loans. We have granted the vast majority of these payment deferrals to commercial customers on the consumer side. We have received payment deferral request from about 300 borrowers this represents about $17 million or about 3% of our $540 billion dollar consumer loan portfolio, which includes single-family residential ages and our consumer specialty line.
Additionally, we actively supported the small business administration paycheck Protection Program to date we have worked with our clients to get 286 loans approved by the F T J with aggregate balances of $45 as of close of business last night $253 of those loans have been dispersed for a total of 42 million $237 800. Excuse me, 237-800-2096 and they earned on those who are little over one point five million dollars.
This is use these funds primarily to cover payroll can qualify to have a loans forgiven by the federal government and we are continue to work with clients and preparation of additional funding being allocated to be programmed by the federal government our expansion into small business banking prior to this crisis positioned as well to help the industry execute on this program and support business owners across the country. We expect that when we emerge from this downturn we will see an increasing level of active lending and deposit Gathering opportunities in the small business Arena. This is an important component of our long-term strategy. We have recruited proven professionals and strong leadership over the past year and we have ambitious plans to build out our SBA in small business presence for years to age.
Our full Suite of products and consistently high level of service will be exactly what recovering businesses in emerging entrepreneurs will need. When we at the country come out of the coronavirus imposed down now, I will provide some high-level color on our top three lending lines of business and their exposure to the Fallout from the Public Health crisis these three Linden areas account for about 68% of our total loan.
As you know a large, especially Linden area single tenant lease financing where we provide commercial real estate mortgages to investor and single-tenant properties. Overall. We feel very good about this business our loan portfolio consists of over six hundred and eighty high-quality properties Diversified across both in geography and Industry. We entered this line of business years ago and a funded over one point four billion dollars in loans, which currently average about one point four million per property with only right one right now in that time frame we tribute this excellent track record to our high credit underwriting standards, which include reviewing the credit-worthiness of the power the value of the property and the financial strength of the tenants. We require a substantial Equity question for each loan as evidenced by our average loan-to-value at 50% nearly, all of these loans include a level of personal record and require on bulb.
statement reporting to monitor problem
And financial Trends in addition many of these properties are located outside of major metropolitan areas, which in these times is likely very positive that being said many tenants in this sport package are experiencing diminished sales and other Financial setbacks do too broad scale government restrictions put in place to combat the pandemic as well as general social distancing and quarantining buy off the population tenants are increasingly requesting various forms of rent concessions from the landlords who are our borrowers as a result. We expect a number of payment the federal programs to increase in this area as well. As of last Friday. We have approved 90-day deferred payment deferrals to just over 1% of our single tenant lease borrows told me that about twelve million and bath given what we believe to be a reasonable case scenario. We expect that about 25% of our single tenant leaves borrowers will need some form of payment deferral.
It is important to know and one of the conditions for approval of a deferral program. This is where the borrow to have made its equal payment. We were pleased to see that all of our single-tenant borrow the full payment in a timely manner The Only Exception being the one relationship that has been on non-accrual status.
Our health care financing business is another major area of lending for us this $372 portfolio more than 90% of our borrowers are dental practitioners. Am Dennis are experiencing short-term cash-flow challenges following guidance from the American Dental Association to close their offices during the covid-19 pandemic the length of time and they must remain closed or open only for emergency procedures is uncertain at this point many of these borrowers are seeking relief in the form of payment deferrals and participation in the s b a n a p p program. This is a very granular portfolio as the average size loan is just over six hundred thousand dollars and all loans are secured by business assets including real estate and someone says and each of these ones also have personal guarantees.
Due to the impact of the crisis on this particular industry. We have contacted all our Healthcare financers Finance borrowers and it offered sixty or ninety-day payment deferral program to date. We have received and processed tutorials for approximately 75% of these Borrowers.
Now turning to our third area of concentration or Public Finance business which consists of over six hundred million in total loan. This group provides a range of credit solutions to government and nonprofit entities for a variety of their needs including short-term Bridge financing infrastructure Improvement projects Economic Development and Equipment financing with this portfolio is primarily concentrated in the midwest with Indiana, Michigan and Ohio representing over 60% of this portfolio historically. This has been a very strong portfolio for us. We've never had a delinquency or a law. However, virtually all local and state municipalities are expected to experience and short-term cash-flow challenges due to delayed payment dates and a Slowdown in the economy due to the pandemic that being said regional and local governmental agencies have several options to help navigate today's difficult Financial.
What circumstances public?
Both traditional Market Solutions as well as programs designed by the US and state government developed specifically to deal with the economic Fallout. For instance in the state of Indiana. We're 55% of our outstanding balances reside the Indiana Bond Bank has significantly expanded in advance funding program to assist any Indiana municipalities that life experience financial difficulties as a result of the pandemic. We are monitoring the states who we have a preference to see if they would have similar conduit programs.
In addition the Federal Reserve has announced the municipal liquidity facility to provide liquidity to State and local authorities affected by the pandemic. The facility will end up to five hundred billion dollars to eligible municipalities with each state acting as a conduit to administer the program for municipalities that fall below the population requirement for direct assistance with the date. We have had no bars in this portfolio indicate that they will have a problem making their payments or need any type of payment deferral June and July are by far our largest payment month. So remains to be seen how well how many will need assistance from a versus tapping into one of the several federal and state following options that are available. However, we remain very optimistic about our Public Finance portfolio.
In conclusion, we are keenly focused on monitoring and responding to needs and our current car sales in the near-term by helping clients bridge the gap to a recovery. We are both helping the countries and boosting our reputation and ways that will deepen connection with existing clients and bring new business to the bank over the long term. And as you've as you have heard me say many times are pigs our greatest asset in our Vital to our long-term success and when it get acknowledged the entire first internet 19 for the Devotion to our customers and their hard work as we navigate through a Jungle Out of This pandemic their dedication and efforts are very much appreciated our country.
During challenging time. There is a great deal of work that lies before all of us, but I'm confident that the first internet thing team will rise to the occasion with that. I'd like to turn the call to discuss our financial results for the quarter. Thanks David. We are pleased with our first quarter performance as we delivered net income of six million dollars and I'll wage earnings per share of $0.62 despite a higher provision for loan losses due primarily to building the allowance for loan losses. Our earnings increased year-over-year is David Moss and our focus is on supporting our clients colleagues and communities to allow us to emerge from this crisis even stronger.
The balance sheet was relatively flat and average earning assets declined slightly in the quarter do mainly the lower loan and average cash balances as of such a result was in line with expectations for only modest balance sheet growth over the course of the Year loans outstanding at the end of the first quarter total two point nine billion dollars a decrease of 71 million months or 2.4% from the fourth quarter commercial loans were stable as declines in Public Finance and single-tenant Lease financing balances offset strong growth in health care Finance Loans off as well as the modest growth in small business lending and construction balances Consumer loans fell by $94 billion dollars or 15% compared to the fourth quarter due primarily to our previous life on sale of a pool of consumer mortgages.
We sold a total.
For 191 million dollars of loans during the quarter which included the $91 pool of Residential Mortgages that included seasoned lower-yielding loans the mark remain strong for the high-quality loans. We originated as we sold 94 million dollars of Public Finance and single-tenant Loans at solid premiums. Additionally, we sold 5.6 million dollars of SBA 7A guaranteed loans before the market closed in late March in total. We recognize the gain of one point eight million dollars from our loan sale activity in the first quarter wage increase from 1.7 million in the fourth quarter.
Moving on to deposits total deposits at the end of the first quarter totaled 3.2 billion an increase of $25 billion dollars were almost 1% from the fourth quarter with money market deposits increased $144 or 18% to 931 million and now make up 29% of our total deposits from 20% one year ago. This growth was largely offset by declines of 120 million and ten million in higher-cost CDs and brokered deposits respectively off during the first quarter the cost of funds related to interest bearing deposits decreased by 11 basis points the cost of money market deposits fell by 18 basis points long as we reduced our pricing successively in the fourth quarter and early in the first quarter in April, we lowered the rate another ten basis points, which will benefit deposit costs going forward dead.
The cost of CDs in broker deposits decreased by 4 basis points as new CD production rates remain well below the rates on the cheering CDs additionally a shift in the departure of makes from CDs. The money market accounts favorably impacted deposit cost.
During the first quarter new CDs came on at a weighted average cost of 1.52% Whereas maturing CDs rolled off at 2.57% off spread of over one hundred basis points. We expect this trend to continue as the weighted average rate unscheduled CD maturities during the second quarter is 2.59% wage. Additionally we have approximately 1.2 billion dollars of CDs in broker deposits maturing at a weighted average cost of 2.45% over the next twelve months off vs. Current production that is in the range of 115 to 120 basis points.
Turning to net interest income and net interest margin net interest income on both the Gap and fully taxable-equivalent basis declined compared to the linked quarter as a declined and took a seat you driven by lower short-term rates following the Federal Reserve rate Cuts more than offset funding cost reductions net interest margin declined to basis points from the fourth quarter of a fully taxable-equivalent basis, the fully taxable-equivalent next net interest margin of 1.65% came in a bit below our estimate due primarily to the lower than anticipated yields on earning assets compared to a linked quarter lower deposit cost positively impacted the net interest margin by 9 basis points and a larger Securities balance a daily basis points. However, lower loan balances in yields reduce the net interest. Margin by 7 basis points and lower yields on cash balance has provided an additional five dead.
two points of pressure
Other factors had a collective negative impact of 2 basis points on the net interest margin given the current interest rate environment and the uncertainty of the covid-19 crisis. It is hard to forecast what made interest margin will look like over the remainder of the Year lower deposit costs will certainly provide a benefit and our long-term fixed rate loan portfolio should provide some stability wage decline in short-term rates and historically low long-term rates will have an impact on asset yield additionally while we have discussed in the past our goal to run off excess liquidity just the uncertainty of the pandemic crisis probably warrants maintaining higher levels of cash in the balance sheet, which we now expect to do until we are past the crisis.
Turning to non-interest income. Our direct-to-consumer mortgage business has experienced strong is experiencing strong demand helped by the decline in interest rates during the quarter the low range in the technology enhancements. We have made to the platform provide our mortgage business with the potential to remain a solid performer going forward. However, the ultimate impact of the pandemic on the economy in general and aspects of the mortgage process specifically could provide some volatility if it lingers for an extended period of time related to gain on sale Revenue over the long term, we anticipate higher SBA related fees based on our plans to continue building out this business line as both production levels, and the servicing portfolio grow is a little difficult to forecast 2020 performance as the secondary Market has slowed down and some near-term regulatory uncertainty exists with the seven a program in the wake of the paycheck protection off.
Program however, our expanding team will continue to increase its origination volume and if necessary, we will free up capacity on the balance sheet to portfolio the loans.
With respect to not interest expenses the increase of $900,000 from the fourth quarter was due primarily to a $600,000 increase in salaries and employee benefits and a $3,000 increase in loan expenses the increase in salaries and employee benefits expense was due primarily to seasonality a full quarter of personnel additions and mortgage of compensation and the increase in loan expenses was due mainly to administrative costs related to non-performing loans turning to asset-quality the provision for loan losses in the first quarter was one point five million dollars compared to $500,000 for the fourth quarter. The linked quarter increase was due primarily to the increase in the allowance for loan losses as well just in qualitative factors to reflect the uncertainty in the economic environment.
As a reminder, we are exempt from implementing Cecil until 2023.
That charge of $400,000 were recognized during the first quarter of 2020 resulting in net charge-offs to average loans of six basis points compared to four basis points in the fourth quarter. The charge is were primarily in the consumer portfolios and also included one small balance cni credit non-performing loans increased by $700 in the first quarter to seven point four million. However, the ratio of non-performing loans to Total loans remained relatively low at 26 basis points, which was a 3 basis points from the fourth call.
projecting future credit line
This is challenging is they will be significantly influenced by the severity and duration of the covid-19 induced economic downturn. We want to work with clients impacted by the crisis in Iraq be part of the solution rather than the problem with this in mind and is David noted earlier. We introduced a voluntary payment deferral program. We also actively supported our small business customers with their applications for loans through the sba's paycheck Protection Program David reviewed our larger loan portfolio portfolios earlier highlighting the strengths and wage resiliency of those asset classes. But I also wanted to touch on our exposure to highly impacted Industries within our commercial loan book as noted in the presentation. We have exposure to restaurants through Thursday 10 in portfolio while the nature of this crisis is unlike any other this portfolio is held up. Well under the annual stress-testing we perform which includes a severe stress scenario dead.
Excluding the single tenant and Health Care Finance portfolios. Our exposure to impacted Industries is fairly minimal at about 2.8% of the entire loan book and it's important to note that we have no exposure to Airlines cruise ships oil and gas multi-family and other hi Pak high-impact Industries.
With respect to Capital or overall Capital levels remain healthy do to balance sheet actions. We have taken to manage and preserve Capital are tangible common Equity to tangible assets ratio deal with the 7.22% in the first quarter from 7.33% in the fourth quarter primarily due to the increase in the unrealized loss on cash flow Hedges that flow through accumulated other comprehensive income. These Hedges are interest rate swaps. We used to create long-term fixed rate funding as rates declined sharply this quarter the mark-to-market valuation of these Hedges continue to decline as well tangible book value per share was down slightly this quarter as well again, driven largely by the valuation of the cash flow Hedges. However, on a year-over-year basis tangible book value per share is up over $2 per share or over 7%
Overall regulatory Capital ratios at the holding company and the bank remains strong and we have more than sufficient on balance sheet liquidity supplemented by access to multiple funding source, the manage the potential economic impact of the covid-19 crisis as David said these are challenging times and there's a lot of work that lies before us. However, I'm confident that when this crisis passes We Will We Will We Will emerge from it and a stronger company with that. I will turn it back to the operator so we can take your question.
We will now begin the question-and-answer session who asked 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 key to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.
Our first question is from Nathan raised from Piper. Jaffray. Go ahead. Good morning or afternoon rather good afternoon question tender David boom back to send comments around stress-testing the portfolio under a severe adverse scenario. I'm just curious if you guys could share maybe kind of what you're kind of internal analysis suggests from maybe a loss content or charge off perspective in that type of scenario. Just giving what you guys do today across the portfolio.
Yeah, we we have third-party stress testing performed on several of our loan portfolios our our larger portfolios and I would say when we look at, you know, kind of modern stress and severe stress. Um, you know, the Lost content is is fairly much in line with you know, what the reserve levels we have individual may have those loan portfolio individually at that at that single-tenant portfolio level.
Which is probably which is you know in the neighborhood of you know, a hundred basis points or so.
Okay understood. So I got within that context any thoughts on kind of just how you guys see you're reserved tracking over the next couple of quarters maybe as a percentage of loans off or just any way to kind of frame-up what you guys are seen as you sit here today in terms of where you seem sufficient Reserve levels offices of very fluid environment. So it's obviously difficult to ascertain just any thoughts or maybe how you guys do the reserve turning over the next quarter or two. Yeah, I would say probably had a little more granular detail than I would but we obviously shrunk slowly a little bit here in the first quarter. We will stay somewhere in the in the same balance. It is today or not or potentially continue to shrink it over the course of the year. So we all just stood are factors and put back a million and a half dollars in the first quarter which was more than we needed to but we we wouldn't some covid-19 factors to reserve for Thursday.
Pumpkins almost five points, I think in the total balance of the account we anticipate at least doing that amount. If not more over the course of the next couple of quarters off of depends on how the loan shake out. For example, the dental portfolio did have a lot of very high percentage that ass could ask for the department. But as long as their doors open, I myself personally I miss my check up on waiting to get a new appointment and get back in those guys had will be a short-term Crunch and we think they'll be back to business and and running great as long as the state start to open up again. So too early to tell at the current time. We love the fact that the portfolio everybody in the portfolio made their evil one page where you know, we've spent a lot of time Steve Harrell Chief credit officer. All the division leaders have reviewed the portfolio stop the bottom individually by loan, and yep.
we really think we're in as good a shape as we could be for kind of the unknown consequences of what this quarantine in in restriction is going to
That's great color. I appreciate that. And if I could just ask I appreciate all the commentary and detailing the slide back as relates to those industry exposures that are maybe more impacted by covid-19 off and I guess I'm just curious, you know, based on the balances that you guys have outlined on page Thirteen the slide deck. Do you guys have a sense for what amount of PPP loans? If you're putting her that having the pipeline will be directly off toward These Bars that you guys outline on that slide probably have that dead. It's probably not handy. I mean, I think in fact further back in the deck on the SBA side, we we kind of break out the uh, the PPP recipients that the the false we did loans for 5 bar or type. I would say probably that within that cni number probably.
A fair amount of those impacted by the you know, those directly impacted by the pandemic were a fair portion of those that are in that bucket of violence just a little bit of color to this. If you go back to the Chart that's on page thirteen, maybe take a look at the small business lending side off and I I'm going to screw up the anachronism. I think if n a c i f code or naics code whatever it is the full service restaurants hotels in the small business lending side of the page the federal government came out with a 90-day deferral on those loans in the very beginning of the crisis because obviously they were the first to close and the heavily impacted wage and they have now come back on all of our 7 a loans. So literally all Thirty million here for the next six months. The federal government is going to make full payment of principal and wage.
On those loans, so these folks should be in great shape to come out the back side of this is Ken said this like towards the end of the deck that shows that break out all of those all those years. We did although some banks are getting in trouble for it. We followed the rule of servicing our customers. So literally all of those loans in the one area in that category kind of that doesn't appear on this sheet because construction workers are still going we have some construction companies that applied to bars that jump in on the PPP program, but I would say this is an off-the-cuff number will validate to get it back to you have questions. What I would say 76 to 70% probably ended up with folks that are on this sheet. So it off was a great program for us and it was a hundred percent current customer focus so understood and if I could just ask one more dead.
again, appreciate all the details of the
Flight deck on the health-care books specifically Dental of those recourse loans, generally.
Recourse, we have personal guarantees on all those loans. Most of them are either practice acquisition or the real estate of the dental Community wage in it over three years to date. We'd never had a delinquent account and have not had any losses whatsoever in the portfolio actually before we got into our current Club days. We had purchased a portfolio from a New England bank of I think it was about thirty-five million and Loans five six years ago and that portfolios Down to Georgia a few million today and I think we've had a total of $15,000 in losses out of it. So these are extremely strong credits great credit profiles great debt service coverage great equity in the business has a strong operators outside of the fact that the doors are locked now, except for emergency procedures. We have total faith that as soon as they're the doors opens up opens up they will wage.
Back in business and running strong against so we're real confident that portfolio is pretty rock-solid.
Okay, great. Thank you for all the color. I will set back. Thank you.
Our next question is from Michael perrito from Pei BW. Go ahead. Hey guys. Good afternoon. Hey, Mike took you in like how we're doing. All right, hang it in. It. Sounds like you guys are doing the same. Yeah.
Yeah, well it was I appreciate the the time with everything going on all the disclosures. It's all very helpful. So thank you. I wanted to spend a few more minutes on credit. I guess first off as we think about this single-tenant leasing portfolio. Is there any historical context whether your own or or or peer analysis that you guys have done on kind of how this or similar type of portfolio performed maybe like during during the period of Greater stress mean obviously the loss rates the last ten years or so up in low, but you know, there hasn't really been a lot of credit events going on the last decade or so since since that was just curious if they have any kind of contact that would be helpful. They're the only contacts that I have four in Michael is kind of second-hand obviously, you know, some of our investors are large insurance companies name STL product is a Mainstay in their Investment Portfolio now generally there in larger dollars and we are but again, if you you think about the focus the restaurant the quick-service, yep.
Chakabars, obviously, we have Bob Evans and red lobsters are only two really full service chains that we have out here, but it's been a tremendous portfolio bag. And as we have talked to those investors over the years about the bank, they're all excited that we're in the portfolio. They love the quality of it and I will tell you we closed on a Thursday close to forty million dollars of that portfolio. I'm like the last day of the quarter. So I think that goes back to the strength in in quality of our assets. We sold a hundred million on the consumer side of things we sold about 45 million in the municipal lending side during the first quarter and then we closed to actually a second time purchaser took the portfolio right at the very end of the quarter. So we're pretty comfortable that this is a great quality product. We have seasoned investors. Most of our investors have real estate background Ed.
It's not like they're just, you know, coming up and buying a Dollar General store for the hell of it.
They've got good understanding of the industry and play and as we stated we underwrite them first and we've have a lot of folks that have a carrying capacity and we've had individual units go dark over the years and we never had a collection issue or problem. The individual investor was able to carry the property until they got a release to somebody else. So, you know, I'm starting to open up obviously the faster than some of these can get back into business the better, but I think we're we're in pretty confident that we're in solid shape on the STL. The bottom
Shuffle Dave, thanks. And then as I look at the slide fourteen the the percent of balances with deferrals when I and I think about the additional Reserve you guys put up in the corner. I mean, there's any of that kind of specific allowance against the credits that are deferring payments or is it really just general at this point and there's nothing being specifically held against your clients that are in a position of deplorable. Yeah. It's just a hundred percent General at this point. And if you take a look at this sheet on fourteen you go up to health care that's $290 million out of 360 million. So the reality of it we take them out. We've only deferred seventy million on a three billion dollar portfolio. The consumer has been phenomenally strong in the mortgage area and on the consumer lending side of things and I really is that Healthcare one that's a little out of center now, but they were one of the very first hit and we we actually went to them with a deferral program up front and we had about eighty percent of our wage.
Counts take advantage of it.
Has has picked up since the end of the quarter relative to these numbers that have been disclosed all the numbers disclose here are as of last Friday.
Oh, I see that on the bottom here. I apologize as of April 17th. Okay, great. So I wanted to transition a couple more so it sounds like I'm hearing you guys correctly. I just want to confirm that I am you know, the balance sheets track from here. Is it the balance sheet might actually shrink a little bit in a hope of of you know building aiding the bills Capital while also, you know, making sure deposit growth is steady to to that there's that way there's plenty of liquidity even if it's at the expense of the marginal little bit is that kind of a fair summarization spot on okay and then just says we think about the um the PPP program. I'm sorry if I missed it, but did you guys mention what type of fees you expect from from that forty-five million? I think it was and and also I mean, do you have any idea of what the pipe what those numbers would look like roughly if if this second wave of funding comes through I mean, I'm sure you have a backlog of applications. It seems like most do a job.
Any idea on what that figure would look like? Yeah. Tell you Michael the the actual figure I have it right here in front of me on what we have close to date and actually funded 268 loans refunded 253 of them for forty two point two million dollars and the fees earned on the dispersed month-to-date or 1525000 month $887.48. So just a little over a million and half dollars we have in pipeline today that either because of lack of documentation or play that phone number did not get through. We've got just shy of a hundred applications in process just a little bit under $10 million dollars about another 25% We reopen when it became fairly clear. We did a soft opening of our application portal about 48 hours ago and we've got another 30 new inquiries to go along with it. So, yep.
do you hope to have all of our
It's all 96 that we're in process locked and loaded. I think this round of funding then when it comes out is going to go very very quickly. They opened up at the very tame and literally within the last few hours of the person p p p program too into it to square PayPal some of the big send tech companies to go after some of the micro businesses that they deal with and I can tell you they have thousands of applications pending and ready to go when this portal opens. So we literally are staged with the 90 applications that we have ready to go. All we have to do is apply for an Eatery and number so we've got them lock loaded and we should probably come away with another ten million. So one of the questions and concerns another whether you caught in Ken's commentary, but they have tied all of the funding for the SBA program into this second wave of birth.
Kilo, so if they do Advanced 100% of this PPP money as everybody anticipates they will there is nothing left for funding traditional seven eight loans between now and the end of the. So over the last 72 hours when we caught that kind of structure issue in the PPP portfolio, we've taken all of our 7 a loans that we have in the pipeline that we'd anticipate could possibly close between now and July 1st, and we've applied for a neat ride number and locked funds for those loans. So we don't wind up here in seventy-two hours with no opportunity for the balance of the year. So we've been monitoring this thing with a magnifying glass from the minute it started in in the last two hours. We really prompt ourselves to one take care of and 7/8 business and to be prepared for some additional loans under the PPP program.
Got it. And then just lastly do you expect expenses to kind of remain elevated Ken in this next quarter here? I mean, I'm sure there's a lot going on behind the scenes and off and there's there's you know, it's the right thing to do what I'm sure there's a cost to it. I mean, is that a fair assumption or or do you think there's some relief that can come through in the next quarter?
I I don't I mean there there might be a little bit of relief but I wouldn't say a ton. I mean we we have the the headcount increase cuz we did again. We we absorbed quarters impact of the 1st, Colorado sb18. We brought on board last quarter plus we've continued to build out new clothes and that's Pack videos. So there's probably not a lot of relief in that that's that headcount number, you know, some other things I I would expect to be able, you know, I think the like for example loan expenses were up this quarter that was more due to dealing with the sense of administrative costs related to the one single tenant property we have on non-accrual so that number is probably come down, but I think it it's probably
more of a stable number
Maybe a little bit of Leverage to go down, but I wouldn't say a whole lot.
Like the obviously first quarter, we have a a bunch of biking and stuff tax stuff that pops kind of blow up the salary a little bit to one of the other things that we're doing in the course of the covid-19. Say we got 60% of our people working from home that's increased our cost. A lot of our employees did not have sufficient bandwidth at home. So we've got the hotspots with picking up some communication charges. We bought close to an additional fifty laptop. So people can run from home. So we had some kind of one-off incidental costs during the first quarter and just the play of the split operations obviously add some concerns and play. We paid a fair amount of overtime for people to get some of our staff to get through the SBA crunch that we had in the ten days of the PPP program. So there's somewhat off and we're doing some things to kind of support the community and and folks here in town. We bring in lunch breakfast one, two, three times a week to the staff that's coming into Jersey.
The office to help the local Merchants out and programs. We've made a gift that I think we kicked out a press release a week or so ago here in Central, Indiana and Hamilton and Jake is kind of our backdoor. We gave a grant of $250,000 to the impact fund which is working with the Indianapolis chamber of the help basically do micro loans to minority-owned businesses in the two County area here that are in really really Dire Straits with the anticipation that they're going out his lungs but really they're grants and gifts to try and help these folks stay alive. So we've got some extraordinary expenses in here that covered side I can tell you it it's not going to go up significantly, but I it's kind of pointed out. I don't know that it's going to drop significantly particularly in the next 60 to 90 days.
Very helpful guys. Listen, thank you for for everything and and stay well and talk more soon. Thank you. All right. Thanks you.
And to ask a question, please. Press * then 1 next question is from George Sutton from Craig and Hallam. Go ahead.
Thank you. Hi guys, I would like to add my appreciation on the slide deck. I think it's really well put together. So I want to ask a fairly simplistic question. But relative is the referral programs if you were assumed I had $1000000 Loan in a 3% interest rate and I got a 90-day deferral what I just want to be clear what the economics to you in that program. What is the resultant loan balance? Um, and what what kind of Interest costs would I have from there?
Well on our side with the deferral programs, we still earn interest on that even though you're not paying the loan because we're not again we're off. We're just deferring the payment. So we as as the financial institution we continue to earn the interest on it the way that those payments are treated kind of varies by loan type, you know based upon the the structure of our loans, like for example, if it's single-tenant what what we've been doing with those is that would take the the unpaid principal and interest and we add that to the balloon payment that's due on maturity in the health care Finance business. What we do is we take those payments and we add them to the back end of the loan. So there's there's kind of some different nuances in in how the cash payments are are handled but dead.
certainly earn interest throughout the deferral
. So it's in effect like a picking treatment of the payments.
Payment in, I see what you're saying. Yeah, I guess you could think about it like that. Yeah, that's that's that's an interesting way to think about it. But yes, yeah, I mean we're obviously not receiving cash but we are earning interest on it and we ultimately will receive the cash. It's just really a timing difference if the things that we did maintenance in the beginning about some of the stress stuffing and stuffing we went through our whole portfolio and absolutely everyone of our loans and our portfolio did not make a payment for 90 days. The cost of us is $257. So one of the reasons for keeping the elevated cash flows can set our earnings are still there. We're just not getting the cash. So if you know the saying takes a left turn and gets really crazy over the next 45 days and goes up and not have to bump up. You know, I've talked to all the other Bankers on twice a week home calls with the CEOs of all the banks here in the state of Indiana and has a general. I think most of the banks are deferring suck.
And the range of low-end is probably 5% high-end I've heard is about 17% of their loans. So, you know if we had it for a hundred percent of the loan and it went absolutely nuts off fifty-seven million in cash it would cost those over 90 day. So we're well, we're going to get nowhere near that number but that was one of the factors we used in deciding to hang onto a little extra cash at the current time. All right. I just knocked on wood for you just to be quick so I can pack of your loan discussion. You mention a hundred million in apps that were in process. Are you are you conflating those or those separate? I'm just want to be clear what you've brought from that pipeline into the mix.
Oh, the seven eight loans have we pushed through? I'm sorry. That was not a hundred million, but I don't think it said if I did that's no no, you mentioned there's a hundred million and perhaps in process where this second for ten million. Sorry. That's what I meant. Okay, but are we back after but that is not inclusive of the 7 a loans that are in process. That's what I'm trying to correct. That's absolutely correct the 7 a loans that where when it got numbers on. I'm going to get that to be Club ten million dollar portfolio ten billion in loans that we think might close between now and June thirtieth that we kind of stepped up the process to make sure we had funds allocated for him.
So your last question gather?
Go ahead politics last question relative to the PPP economics. I'm being told there's a fair amount of monitoring of these that is going to be required. The the SBA isn't really going to be the monitor very effectively are their economic benefits for you in doing that.
Yes, and no, hopefully the gist of the program in this truly. You probably heard it a hundred times from everybody you've talked to this is a plane being built while it is flying off without question and nobody has any idea how to help that they're going to land this plane yet. Uh, we have we were as of last Saturday it was before we finally got home support an FBA the what the loan documents should look like and they had sent from a date of approval to actually dispersing the funds. It was originally as seven day window that email last Thursday got changed on Fridays and 10 days. So we will meet that window of time for all the ones that we got approved. We will get him dispersed within the ten day window where the the customer won't get the loan. There has been absolutely no play other than the fact that the eight-week window of time to determine your first job.
And this amount starts the day you receive the van and that's absolutely the only thing we've got today George about how to you know, run this program forward how to apply. We don't even know directly back to build SBA at the current time for The Upfront feet suggesting that the bank all eyes on the other day is just put together a spreadsheet send them the bill and see what happens. So they took this program is being defined if you take a look at it the FDA and the last 10 days has done more business than they've done in the last fourteen years put together. So it is a total cluster and you have to be determined how much monitoring it activity is going to take out the other side. But if all things work as everybody helped people go back to work off 60 90 days from now, they go back in and get a fair amount of the loans or a covered and reimbursed given forgiveness is given on the loom balances dead.
Then we'll we'll do okay on the program if this stretches on until six months cluster will probably break even but it's one of those things we felt it was the right thing for us to do whether we made money off or not. We had to try and help the business community.
Got it. I've heard a little differently. It's like a rock. It's like building a rocket ship after it was launched. But the same having lived for the last fourteen days. I'd agree with that analogy. That's that's better than an airplane. Thanks guys. Thanks George. Our next question is from Nathan Ray from Piper. Jaffray. Go ahead. Yeah, I think just a follow-up can any thoughts on just the tax rate going forward?
Boston the tax rate going forward I would say, you know, they're you know, some of it is going to depend on on the level of you know mortgage Revenue that comes in and it's all highly dependent on the proportion of tax-exempt Revenue to total revenue. I mean this quarter we had we we picked up the benefit of uh, a change in tax laws of result of the cares act that was offset by a little bit by expense associated with Equity compensation investing events, you know, I probably say it it's probably closer to the Reagan in the fourth quarter than it is in in the rate that that we had currently here. So probably six seven to 9% effective rate.
Okay understood. Thanks again.
This concludes our question-and-answer session. I would now like to turn the conference back over to mr. David Becker for closing remarks.
Well guys, I know this is some crazy crazy times that we're living through today. Nothing in history to tell us or at least for the folks that are on the call today. I guess we could go back to the Spanish Flu in 1918 and off maybe draw some analyses to what's going on in the world today, but it has been tremendously crazy times. I want to thank all of you. We've had a chance to talk to several of you directly over the last few weeks, and you have questions. Feel free to reach out to us. Thank you for joining the call today. We hope every month remains healthy and safe during these challenging times and we hope to talk to you again. Thank you very much for your participation today.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.