Q1 2020 Earnings Call

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Thursday

Good morning, welcome to Smart Financial first quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please sing a conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press * then 1 on your touchtone phone to withdraw your question. Just press * then two. Please note that this event is being recorded. I would now like to turn the conference over to Miller Welborn chairman, please go ahead.

Thanks, Kate. Good morning. And thanks for joining us today for our queue 12020 earnings call joining me today or Billy Carroll our CEO and president Robert Sinskey CFO and rent Jordan our chief credit officer. But we get started a I'd like to refer all of you to page two of our deck for the normal and customary disclaimers and forward-looking statements comments. Please take a minute to review these. Um, I'd also like to start today by just saying thanks and that's not a trivial or cursory. Thanks, but a very sincere thanks to month will groups of people first. Our team of Associates here at smartbank have put an incredible efforts over the last 60 days and it's appreciated to our clients for their patience is we've juggled hours of operation and a multitude of business challenges and also to our shareholders and investors for your continued patience and confidence in this team here smartbank dead.

All of you, thank you. Thank you several highlights. I'd like to touch on and then I'll turn this over to billing to jump in some of the details first our net interest income for the quarter was up a million and half dollars strong interest income also earnings for the quarter. We're very strong. We're very proud of the earnings. We have our lunch road. We had ninety nine million dollars of origination this quarter for a net $54 in Orlando organic loan growth 11% annualized loan growth wrong for the quarter. We closed our Progressive transaction on March 1st, great to have that team on board and finally our asset quality remains, very strong with npas. It's just $31 bills, we're poised and not just weather this storm but to be stronger as a result of it and also to gain market share in the quarters ahead as we have real life.

The ton of businesses that are markets that other Banks either didn't help or wouldn't help would just be process with that. I will turn it over the ability to Dig Inn. Thanks Miller off some macro level color on the quarter and then I'm going to hand it over to Ron and then on the rat to take a deeper dive into both the financials and the portfolio first a very solid quarter for our company would continued steady organic growth on top of closing our Progressive Financial Group dealer both of which will continue to benefit our financial metrics moving forward to progressing transaction is a great addition and solidifies our presents for us the Upper Cumberland region in Middle, Tennessee and provides great density Edition between Knoxville and Nashville msa's.

Will be converting and rebranding this team in early bank and are excited to get them integrated. Obviously the start.

Twenty-twenty has been overshadowed by covid-19 enter fine and are Smart Financial team has really stepped up in handle this situation unbelievably well referencing Pages five and six of her slide deck. I'm not going to walk through all of this, but we thought it was important for you to see what we've been tackling over the last several weeks after this pandemic took shape. We've been handling this crisis with a great process coupled with a great passion for a client Associates in communities. There are some great detail on a slide. So please take an opportunity to review but bottom line we've handled this just as Miller and I are bored and our shareholders would have expected very very well.

As with most of their peers these last several weeks have been a lot about the paycheck protection or PPP Loan Production rat will walk through this in a life more detail in a second but unbelievable work from your team in this program producing over 1,600 loans, totaling $239 just in around 1 a.m. We have used this program is a great opportunity to help our clients their communities and our company and we've excelled all all fronts looking at the round one pool of $350 of Bangkok size would have had a fair share number somewhere around fifty million dollars. We did almost five times that amount just a phenomenal amount of Hustle by our smartbank team going to transition now into a few numbers first is we reported. We had a four-point $3000000 net operating income quarter which included about two and half million.

Encoded related Reserve bill, but Ron will speak to more than just a moment and a 2.7 million dollar earnings quarter related to gaap. Net income that equates to $30.19 respectively fully diluted share transitioning into the deck. I'll touch on slides eight and nine as we took the opportunity to prudently build them serve with the uncertainty in our economic environment. I wanted to focus on slide a pre-tax pre-provision numbers for a better measure of our steady growth. It shows here a really nice quarter-over-quarter Trend and outside of the covid-19 related Reserve bills are right on track slide 9. You see margin holding really? Well despite rate Cuts during the quarter as well as the flat efficiency rep as we look to get the progressive integration done here within the next couple of months. So all-in-all results that we're really proud of and I'm going to stop there more turn it over to rod.

For a dive into the financials and then he'll hand it to rent to jump into portfolio and credit and then I'll close with a few additional comments. So Ron. Thanks Bill. Good morning. Everyone has Billy had mentioned wage. Well, what what an eventful quarter in the midst of all this chaos our teams continue to remain focused on the Progressive acquisition and scheduled conversion next weekend. Let's start with slide off balance sheet Trends as you can see, we have continued our steady ramp along with our Legacy growth the progressive transaction provide us with three hundred million in assets approximately 196 million in loans or $270 in deposits are tangible Book value had increased 8% year-over-year in comparison with the prior quarter and due to the acquisition. We did see a slight decrease in our tangible Book value, which was modeled and anticipated and we are looking forward to continue offered moving in our book value.

moving on to

You shouldn't come on slide 11:00. We continue to have increases in our average earning assets and liabilities as our company grows, which includes one month of progressive. We've had another solid quarter of net interest income and net interest. Margin our net interest income for the current quarter was 22.7 million and increase of one point five million from the prior link quarter our tax equivalent net interest. Margin. The current quarter was 3.90% compared to excuse me to compare it to 3.84% for the prior link order a decline of six basis points. Let me give you some colors of the components for our interest earning assets. Are you than average loans is 5.35% for the current quarter compared to 5.36 for the fourth quarter loan yields less decreased speeds for the current quarter was 4.98% compared to 5.07% for the fourth quarter a nine basis-point decrease. This decrease was primarily due to Market competition dead.

And to a lesser extent the FED emergency rate cuts.

While setting this this decrease was the impact of accretion accretion for the current quarter totaled 1.8 million an increase of $465,000 from the prior quarter and added over six points of view up to the loan portfolio accretion for the quarter was escalated due to the closing of a loan pool which caused any remaining discounts within that pool to be immediately recognized currently off and controller consists of approximately 37% variable rate loans or slightly over 800 million of which 640 million of these have floors at the end of the quarter. We have a we have like four hundred million of these loans that hit the floors.

We will continue to experience a decline in loan yields as we move forward into the second quarter as we see the full effects of the March rate Cuts then expecting to see some stabilization after that.

Security investment portfolios have also experienced a climbing yields due to the current interest rate environment. This negatively impacted our margin 5 to 6 basis points.

Gary interest-bearing liabilities are just bearing deposits cost decreased 19 basis points to 1.10% for the current quarter and our overall total cost of deposits decreased fifteen basis points, 2.91% during the quarter. We shifted 100 million out of broke deposits into more advantageous wholesale funding provided by the f h o b and the FED discount window overall. We still see opportunities for further rate reductions largely in our time deposit portfolio. We have approximately 25% of our time deposits both retail and brokered maturing and reprogram during the second quarter.

Given the right move given the moving of rates from the FED Cuts our pricing committee did an awesome job and lowering our cost of funds and our money market and CD portfolios and we should see our deposit cost trending further downward during the second quarter going forward are forecasted. Margin for the second quarter is 3.55 3.60% which includes an estimated ten to Fifteen basis points of accretion off and moving on to slide twelve operating non-interest income. We had a great cord for operating non-interest income. We experienced over 30% increase from the prior link quarter in over 65% increase when compared to the first quarter of 2019 operating non-interest income to average assets reached 44 basis points a nice increase from our prior quarter off some of the component highlights Mortgage Banking as expected for q1 has said all type production levels of 584000 due to the current low-rate environment. We have a strong pipeline. Yep.

but we met

Encounter some headwinds with the covid-19 slow down our Investment Services income increased over 65% when compared to the prior quarter primarily from strong production and benefiting from 2015 hiring that was done. Our new arrival to knowledge is income is Insurance commissions as part of the progressive acquisition. We have acquired an insurance agency that Services the footprint of Middle Tennessee. We are excited to have the opportunity to extend Insurance officer offerings to our entire smartbank footprint and look forward for this to be a meaningful non-interest income component in the future going for our forecast for the second quarter is having non-interest income at 42 basis points of average assets or three point 1 million.

I'm sorry 13, you'll find our operating expenses for the sake of time. I'll keep this slide at a high level. Our operating expenses have remained steady with some time during the current quarter primarily from the progressive acquisition and to a lesser extent overall growth of the company. Additionally when compared to the prior quarter be mindful that during the fourth quarter of 2019. We had various tax credits that were recorded and not repeated during this quarter.

Going forward we should see additional efficiencies after the second quarter from the completion of progressive course system conversion and integration at the Smart Bank overall are not just our knowledge expenses were in line with our internal expectations going forward our forecast for the second quarter of having dhanush expenses around 17 and 1/2 to 18 million, which salary and benefit expense approximately 10 a.m. To 11 million.

Before we progress forward to the next slide. Let's touch base then income taxes.

During the current quarter. We took advantage of recognizing some nol carryforward that were made available as part of the Care exact legislation passed during March. These characters were available from a few of our pre-owned no positions for the quarter. Our effective tax rate was 19.6% going forward our forecast for the second quarter is for our effective tax rate to be in the 20 to 22.5% Arena our next slide fourteen gives details on our deposits.

On the bar chart to the right you'll see that our deposits have experienced overall steady growth with Progressive being the primary driver of growth for the current quarter deposits ended the quarter at 2.5 billion our deposit mix remained relatively stable with non-interest-bearing demand accounts making up over 18% of our deposits. The lower left portion of this slide shows our cost of total deposits off decreasing fifteen basis points from the linked quarter and decreasing 19 basis points year-over-year as I previously mentioned will have opportunities to move our cost of deposits further downward, but that's the way I'm handing slides over to Retro return our chief credit officer to go over loan and credit related info Brett. Thank you. Ron beginning Onslaught 15, you will see that we finished the first quarter with a portfolio addition profile that has been very consistent for several quarters our overall loan portfolio grew by approximately $240 for the quarter as Miller mentioned earlier. We realize fifty-four million dollars a month.

that loan growth organically with

Minder attributed to the completion of our acquisition of progressive Savings Bank in Tennessee our loan Vick stayed pretty consistent. Even after the merger would Approximately 80% of the portfolio in real estate secured loan. No further broken down as 22% in consumer real estate 22% in owner-occupied commercial real estate and 37% and non-owner-occupied Commercial Real Estate assets. We ended the quarter of capital ratios of 87% and 274% in the respective regulatory guidance segments still very manageable consistent with our positioning in recent years and well below the regulatory guidance levels off overall solid quarter performance LED primarily by the merging in of a very complimentary portfolio from Progressive savings that help diversify or geography and improve the granularity of our portfolio with a post-merger home alone size of approximately $205,000.

Moving on to slide number 16 as Billy mentioned earlier and as our counterparts throughout the industry will attest to covid-19 event has been a considerable challenge to manage through and has created significant disruption in the normal daily life of many of our corporate and consumer class as well. As our bank itself at the beginning of the event our management team, sat down with our regional credit and production leads and identify the sequence of the portfolio. We felt might be most at risk to This covid-19 Disaster the result of that discussion identified five industry segments or subsets of our portfolio. We felt were at the highest risk of impact shown here on slide sixteen represented not only 18% of the portfolio the typical operating profile of businesses in these areas. We felt presented considerable risk of both near-term severity and longevity of recovery from this Interruption. Just requiring some higher over the next several weeks and months to more closely monitor performance and expectations. However, we still feel confident in our Outlook because throughout the recovery cycle over the past several years we have, Kentucky.

To maintain several key fundamentals in our portfolio management efforts such as maintaining a diversified portfolio both geographically and across segments requiring hard upfront Equity positions at origination real estate transactions strong Market level leadership of both Sales and Credit with longtime Market familiarity conservatively structured long transactions for term amortization and Covenant maintenance package or portfolio Physicians both regionally and hold bank with an average loan size of approximately $209,000. We believe these key factors will success will make successfully managing through this event considerably more positive for our company as we referenced earlier in the presentation. We proactively compiled a series of payment modification options that we made available to class very early in the life cycle of this event in an effort to provide us calming effect on the near-term challenges as possible. Our lending teams reached out to clients in these aforementioned segments as well as other larger exposure relationships to offer words of encouragement and to let them know Thursday.

It was here to help them in every way possible. This allowed us to very early on identify clients with direct impact of their business operations as well as those who are beginning to see some negative impact and expecting things to worse an effing closings and stay-at-home orders expanded as you can see on slide Seventeen as the closures mounted across our primary three-state footprint the volume of requests for pay off assistance increased significantly and by April 24th. Our number of accommodated transactions have grown to 629 with total balances outstanding of $509 or roughly 21% of our total portfolio as expected hospitality and Food Services clients have led the way in modifications representing approximately 5% and 3% of loan portfolio balance disrespectfully. We believe that are proactive assistance to our clients early on coupled with those portfolio management characteristics. I mentioned previously will assist us in working through this exposure position successfully.

the other component of the covid-19

See the bill that is utilized considerable resources and significant time and focus has been the implementation of the paycheck Protection Program segment of the cares act knowing that everyone on the call is intimately familiar with the program and its purpose and intent I won't bore you with another dissertation and just go into our banks involvement in the program. We viewed participation in the program as a significant opportunity to assist our clients our community and our company and shareholders looking at slide eighteen as of the completion of the first round of PPP funding commitments smartbank had processed and closed roughly 1,700 loan application, totaling $239 million dollars of the applications. We processed our primary three-state footprint of Tennessee, Florida and Alabama represented roughly 95% of total applications authorized wage processed 493 applicants combined across the five key impacted industry segments are mentioned earlier for just under 30% of the total applications. Ironically. We processed at least wage.

Application in each of the twenty primary naics code description segments the mix of the loan amounts generated approximately nine million dollars in fees to the bank a very tiring yet rewarding experience team and we began submitting another five hundred plus applications on Monday when the second phase of PPP funding commenced We are continuing that process today and are cautiously optimistic. We wage most of these applications submitted in the second phase. Obviously, the code sent has made predicting future credit metrics results challenging but as you can see on slide nineteen through the end of the first quarter our office performance continue to track strong and positions us with a very sound base. Our NPA ratio was 2.31% of total assets at quarter end up slightly from the Q4 2019 level based primarily on the edge of other real estate assets acquired through the the progressive savings merger, but still about half a peer set net charge-offs for the quarter of a 0% and Below pair as well our allowance measured .63% off.

The key one 2020 and coupled with our remaining fair value discounts on the acquired loan portfolio, which total about one point three times our allowance balance. Our quarter-end position provides us a very strong support to potential increases in credit risk metrics that may arise in the aftermath of the cobit event. Now, I'm going to turn it back over to Ron to talk a little more about the reserve position Ron. Hey, thanks rat. Let's touch base and I'll Reserve slide twenty-eight there's much detail on this slide. We wanted to include some tabular information relating to our originated and acquired loans as well as the corresponding allowance of discounts. Excuse me, a reminder that we are on the occurred loss model for the current quarter our allowance for loan losses increased by three point two million or 31% from the prior link quarter this increase include an additional two point five million associated with the economic factors caused by the covid-19 pandemic.

Focusing on The Bold right-hand columns are overall Lounge the total loans increased 2.63% overall discount to acquire loans was at 3.33% off and with the combination of the allowance and discounts or overall coverage total loans is that 1.43% we feel our coverage is at reasonable levels at March 31st, and our allowance for loan loss is trending appropriately with all that said we have recorded an appropriately-sized provision this quarter and we'll expect to record similar amounts as or if needed going forward.

moving on to select

He won this gives us a current snapshot of our Capital position over the last year. We continue to maintain a solid Capital position during 2019. We initiated our first name David end and during the first quarter of 2020. We started repurchasing our company shares from the open market.

During the quarter our acquisition of progressive had mental impact on our Capital ratios fast forward to today as as we took advantage of the share buyback opportunity. We are not currently active in buying back our shares at this point. We have also just declared another regular quarterly dividend to our shareholders as of March 31st, 2020 our current capital position remains strong and off of The well-capitalized Benchmark with our strong Capital ratios, as well as our outstanding credit quality. We are well-positioned to move forward into the covid-19 environment.

Moving on the slide twenty-two liquidity we decided it was prudent to bolster our unbalanced sheet liquidity by significantly increasing our cash positions and increasing our overall balance funding sources. We also intend to fund the majority of the payroll Protection Program loans with the feds PPL facility. We we view this as an ideal funding match, it provides relief or regulatory leverage ratio and lastly our earnings profile and slide twenty-three some good information here, but let's focus on the third bullet our overall revenues continue to increase quarter-over-quarter you over a year we continued we continue to provide sound building blocks as our company grows with that. I'll hand it back over to billing. Thanks Ron appreciate it guys to summarize of another quality quarter for us the and as you heard Rhett discuss, we've got a really good handle on the portfolio and the team will closely monitor birth.

Stay in contact with our clients as their economies all start to restart. We feel good about it won't book conservative ltvs season solid borrowers the pace of the recovery will determine you know, how that will play out how long we will need to play a little more defense than we normally would but that said we will continue to evaluate opportunities in this environment one opportunity. Was it in we've touched on a couple of times the PPP opportunity was a tremendous one for us are quick response to the request not only from our clients, but for a number of the number of prospects that we had been courting has been a real positive force in and should yield some great new relationships. I can't tell you how proud I am of this team here in the comments from our clients. I'm seeing social media posts about how our hard work made the difference of whether they kept their staff on payroll. You know, it's Times Like These when you solidify yourself as the bank and a market and wage

I think we did that in a big way in a bunch of hours are company is positioned very well to handle the current environment and Excel as our markets restart, so I'll stop right there, and we'll be open it up for some questions. We will now begin this and answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker, please pick up your handset before pressing the keys to withdraw your question, please press star then to find we will pause mom and tell them to assemble our roster.

This question is from Simmons from d a Davidson. Go ahead.

Hey, it's Kevin Fitzsimmons guys. How are you? How are you? Good good. So listen, I appreciate all the detail and all the and and I do acknowledge the you know, the different basis that some companies are using for measuring and calculating the reserve right? There's there's some bigger companies using and adopting Cecil you guys are not subject to that and I don't blame you for for not rushing into a job that but I'm just curious about like internally your own thinking about this weather, you know, given given how folks are so focused on reserves and capital as opposed to earnings. Did you really debate or wrestle with the the the subject of using more of your Healthy pre-tax pre-provision income to bolster that was

Just recognizing that optically your reserve ratio looks low, right you you did make the point that when you when you take into account, um, the the purchase discount that takes it up to a certain level and that's just I think a factor of how you your company's been built up right with active m&a but was that I'm just curious if if they were a lot of money back and forth on whether to put a bigger qualitative factor in their deploy more of that earnings to get that up as opposed to you know, I guess the approach is more of like we're we're going to base it quarter-by-quarter going forward based on what we see more in the near term in front of us. Thanks Kevin. I'll take that and then I'll flip it over to Ron may give some some colors, right? Yeah. I mean, obviously there was discussion around the covid-19. Portion of that that this last quarter, you know to me and birth

The consensus around are table was you know, we obviously we want to recognize the fact that there's something going on. But but there is still so much to be determined. And yeah, we could have we met I added more to it but from our standpoint and Ron would get into the detail related are calculation and our qualitative factors. We felt like at this time, what we did was prudent I obviously could have done more obviously with the capacity the income Tailwinds that we're going to have throughout the remainder of the year, you know, we'll have the ability to do more if needed wage feel like it was appropriate to to overload in a time where we really don't know what the what the the next month or two will hold so, you know to just fight back it up. Yeah, and I think you know, you might you might see it's just kind of the analysis piece of how we how we measured it. I mean Kevin, we you know, this was a challenging discussion, you know, the occurred Los model was not meant to predict what had happened.

Cecil did so when we came to quarter-end. We were we were hamstrung by what do we report versus what we know is going to happen. We did take the opportunity.

Need to to take advantage of more of the current unemployment GDP growth inflation information and kind of what was going on in our in our forecast. But you know it was you had a healthy debate and you know, obviously we expect our qualitative factors to increase through this quarter not knowing will they will not knowing where they're going to end up by the end of the year, but you know, I don't know if you need to know the pieces. I know you're familiar with the incurred long-lost model. But yeah that we had a we we had a very healthy debate on this topic.

And I guess the way we should look at it at the end of the day is your just it's it's being kept in capital versus being transferred to the reserve. Right which is effectively is what Cecil Cecil ducks at this point in the the cycle. Um, yeah, you know and at least you know, you got you you look up a lot off of the financials that I do the ones I looked at, you know, it's just different takes I think for us. Yeah, we at the end of the day we feel feel feel strongly about their ability to to manage Facebook for this especially with you know, the the guidance we've been given the ability we've had to do some things through The Regulators to with some of these deferrals and interest-only wage. Yeah, there's just so much uncertainty as to really how quickly the economy will restore. We just didn't think it was prudent to overload the reserve and we don't serve the positive aspects of the PPP Monday to Thursday.

But your point yeah, it's it's in capital. And and and as we said we should have a a nice earnings Tailwind this year with with some of the fee income. We've been able to kind of anticipation accumulating through these programs. So we've got the ability to add more as in when needed, you know in coming to just to finalize some of our comments on this is that we started with the lower base wage are quite are quite excuse me our credit quality and the historical losses are so low, even though we're we're not as a percent of portfolio similar to a lot of the banks, but we started from a much lower point. So we you know again, we we feel comfortable on the amount we put in for this quarter.

No, that's that's a good point Ron. That's that's a fair point. You guys mentioned a couple of times PPP is the way we should be thinking about this is the balances flow into average loans and second quarter or they flow out and third quarter diluted to the margin in second-quarter and then just a fee. Have you guys figured out whether or you going to have a fee come in walk through the margin most likely in third-quarter maybe into fourth quarter. Is that how you see a plan out? We're looking at a cabinet. I think we will it'll definitely go through the margin and I'm probably more practical. It's probably to be fourth-quarter event. I think the overloaded with SBA and everything else. We're kind of looking I think fourth quarters probably more appropriate than third month at this point.

Okay, and and Ron real quick, I think.

You would said the margin guidance for second-quarter. 355-2360. Could you what what's the core margin versus contribution to? Oh, did you say ten to fifteen years and fifteen? Yes. Yes, sir is is included in there? Yes, it is. Got it. Okay. Thank you guys.

Next question is from fetty Strickland from Jenny Montgomery Inn, Scott. Go ahead morning guys.

Just curious. How did the pearls transition out in Into You Know full password credits and deteriorated criticized. I guess we may need to see to make that move. You know, you look at and are you going to be looking a lot of these deferrals of June Thirty will we see more of a re-evaluation third-quarter? Just kind of wondering what the timing of that is. I know there's some regular guidance there too. But he just elaborate you want to jump it on that one sure be happy to 30. We we basically took the approach of clients that requested modification is due to the covid-19 the way our internal risk rating of alignment is setup. We have a a watch category that we really have specifically in position for what we call short-term events. Um, uh a typical type transactions that that maybe creates some some I guess question as to 2.

Credit risk and so we've taken the position as as each client that we have talked with has requested a modification. We placed those into our watch category for purposes of tracking down and we are implementing a program with our relationship managers and our Regional Credit teams, basically to all clients that have requested modifications commercial clients that is down to basically do a a monthly check in and we'll be updating some information at the account level and then reviewing that in our in our monthly, uh credit management team.

Gotcha, that's helpful. And just one more for me. Just think about the new business opportunities. You know, you guys said PPP led to some of that. Is there any more color you can check on that? It's some of that coming from frustration do some customers who went to Big Banks and weren't able to get any traction with them on t p is that driving some some of the new customer relations. Just wanted to get a little more color on that as well. Yeah, that's exactly it. You know, we've we this was really just a great opportunity for us on a number of those fronts. Like I said, there's a lot of the larger banks in particular just really struggled to get a lot of clients into a pipeline early. And so where are team Greg Davis our chief want to put together an outstanding Prospect ask that that that mobilized the team of about 25 of our staff members that just started working right out of the gate and so we were able to confidently go and get people in their pipeline so dead.

Where were they may have ran into a wall?

Or didn't have a couldn't get a contact at at one of the larger Banks. We were able to say yes, we would we would take that take that application and and that really that really continued patience for that 10-day process during around 1 and we were very successful. We were able to get really all of our clients that had completed packages through and around 1 plus a number of these prospects and Thursday the same thing around too. It's funny just while we were sitting here. I got an email that came in from a from a a Knoxville CPA that we were helping a client of theirs yesterday and got him into got him off line got a processed. Um and uh just a reply to her to me about thanks so much can't believe how quick you you are worth to to get these things handled from now on. I'm referring all of our clients to smartbank. So it's it's really just that type of of of of information that we're getting really across.

So I think a lot of it is and and it's probably I think I know a lot of banks did a good job with this program. I just think we we really took advantage of it as a as an opportunity to talk show how we can do business and I think it'll pay some nice dividends. I think it's a perfect example of what a good Community Bank can and should do great way for us to talk show our markets a bank is big enough to make a difference but small enough to give that personal service and you know, we're not afraid to work, you know, twenty-four-seven and and push these thoughts they weren't going home at five six seven 8:00 at night and then and it it it will dividends for us down the road. We got quite a few of our non-client applicants in our Market areas came from referrals from our class that we had helped. So it goes a long way as well getting that getting that vote of confidence from the customers of our bank that we took care of them and such a fine way that yep.

Referred those that weren't making with us at the time.

Got it. No, that's great. Thanks for the call guys. Appreciate you taking my questions. Thanks.

Again, if you want to ask a question, please press * then 1 our next question is from from home D group. Go ahead.

morning, guys

Hey Billy, just and Miller. I guess well, everybody just on t p and then you just kind of touched on it again, you know, the banks I've seen is it seemed to have been all over this most of them had like a relative either fintech or took a logical or digital advantage or they were very active with the FDA previously as a preferred lender you're saying it was more of a quicker response an ability to mobilize more quickly was off at it or with the other aspects to this that really drilled the result. Just trying to kind of get a handle on it cuz it is just such an outlier in terms of the success. You guys have had compared to other Banks really of any size Joe Walsh now, we we were we we've done some we're an SBA preferred lender. We have not we've done a fair amount of that work. We did not have the automated on-line systems. I'll tell you how long it's just flat hustle. That's it. I mean is there folks jumped on this team of twenty five fifteen plus hour days for ten straight days. I mean, I think we took East or south

Like that was it and and there's going to be some I mean I Greg Greg state in it, but just just hustle really was the difference.

In that it just really working their tails off to get those things through the not going to talk against you the VIN taxes. We obviously looked intact but you know, we we looked at a couple of those and did some analysis and just decided the other internal problems and Buster tales and and it's just downright hustle. We weren't we weren't looking to really we wanted to keep this and we did we kept it within our Market we kept it when their client base. We didn't really talk to go outside of her Zone. We use this to help her client and then they also help help help some folks that we wanted to be our clients and that's really where we put one hundred percent of the focus is from 9 to 2 is is well, I you know, we really use this use this one. I had a number of relationships and some friends with some non-profit groups here and in our East Tennessee, I'm in that lot of smaller non-profits that just couldn't figure out how to get into the pipeline and the first round and I have a couple of those folks reached out to me that were spread. I think we picked up 30 or 40 really dead.

Quality small non-profits here in East Tennessee that that we got into a pipeline. So we're also trying to build a lot of community Goodwill on this and helping some of these businesses and nonprofits that just didn't have a a mechanism to try to help them too. So a lot smaller a lot more granular in the second round, but I think we're we're probably building a lot of Goodwill here in this second round as well.

Okay. No that's helpful. And then guys is a simpler way to think about the PPP impact, you know, roughly a 3% net yield on the overall balance and then the Fairway to model it is to maybe assume that roughly three-quarters of balance is Forgiven, which means if it's brought into income this year is that I know that's whatever you say is not necessarily. I'm going to take as a prediction from our standpoint though. Is that kind of a a fair of the model of it this point? Yeah, we kind of we're kind of looking at it. Yeah, 3% fair. I think we're I'm not sure we'll get the 75. We're kind of looking at 70% So you're right there. So yeah, I think that is fair but maybe 70% again. I don't I don't know if we'll hit that 75% Mark, but we'll see.

Okay, and then last one for me on the provision for what? It's worth what you all did seems largely consistent to me with the others that haven't adopted diesel. So I'm not sure there's a valid comparison at all with larger Bank of adopted Cecil and the size provisioning May took so I guess so with these deferrals and the guidance from The Regulators though. There were hearing it could be extended beyond the initial phase here. So you all might not see and all the other dances. So doctors might not see problem assets, you know, enter into the problem stays until late this year. So specifically, can you give us some help on what are the key factors? You'll probably be looking to that'll guide your Reserve building over the course of this year. You know, we use we use the national National Economic forecasts. As I said inflation GDP growth unemployment. That's that's going to be the fast-moving one. They're all rated. There's a there's a nominal an aggregate rep.

We used for those and then we compare it to our local forecast to make sure they're in line. If there's any Delta's we will take care of that and then we jump into our our loan portfolio.

Civics whether it's you know concentration loaned value changes any type of again loan deterioration, uh, and some of the regulator if there's any other choice your factors that come into play. So all those are just a few of the components we use but it's it's not one item that's going to drive our allowance. It's it's just a a homogeneous amount of other guy called other qualitative factors that are rated so, you know, it will obviously, you know, next quarter it will go up or qualitative factors the amount of Reserve now, we're it goes from them. I guess. It's meant to be seen

Okay, and what was the date Ron roughly where you had the cutoff to determine the key factors for the for the first quarter? Yeah, we did use 3:31. We probably got into a little bit of a place like our unemployment rate. There. We use is 5.1% a little bit higher so really slightly right after the end of the quarter cuz we had to close up and and and go forward with the national. I don't even know where the national unemployment rate is today. It's probably north of that. But so I would say a week after first week of April.

Okay. Got it. Thank you.

Thanks, Joe.

At this time, we have no more questions. So it concludes our question-and-answer session. I would now like to turn the conference back over to you for closing remarks.

Thanks the intake we appreciate you joining today. I will say and again what great energy we have is a team lots of effort and all our departments. We're continuing to be engaged and involved with our clients, but helping a ton of small businesses in our market, and I can't emphasize enough appoint line made earlier about tangible Book value and growing 8% year-over-year. We feel like that's very strange will we will continue as a team and as a board come to work and strengthen this company every day. That's not most days or some days, but every day we're going to get up in the morning, but this Bank stronger, and we appreciate you joining us today and talk to you soon.

This is now concluded. Thank you for attending today's presentation. You may now disconnect.