Q1 2020 Earnings Call

On which they're made to be.

Extent like that Financial measures are discussed on this call comparable gaap measures and reconciliations can be found in Horizons April 29th news release which is available on this website horizonbank.com prize and also published an investor presentation on Wednesday afternoon, and it is available on the company website with information that will be addressed this morning representing Horizon. Today is Chairman and CEO Craig's light as well as Executive Vice President and CFO Mark Secor president gymnastics and Executive Vice President and chief Commercial Banking Officer Dennis, this time, I would like to turn the conference over to mister Dwight.

Thank you. Grant and good morning. We appreciate the listening audience joining us for Horizons. First earnings call Horizon was contemplating the initiation of an earnings call in late 2028. However, as you can imagine the covid-19 National Emergency is celebrated our plans Verizon issue its first-quarter earnings release and supplemental deck on Wednesday, April 29th are comments that today will closely follow the supplemental slide Deck with our focus and Horizons response to covid-19 first-quarter financial results and other key areas of operations team at the conclusion of our comments will open up the call for a question-and-answer session now to discuss Horizons response to covid-19.

You know this National Emergency moved quickly the first covid-19 case the United States was reported on January 20th and soon thereafter on January 31st, the United States Secretary of Health and Human Services declared a public health emergency in on March 13th of the United States declares a National Emergency conserving covid-19. We are now in day 48-month this National Emergency amazing how fast things have gone?

Verizon Banks team response is National Emergency has been Sanam phenomenal. We mobilized our management team in February to review our existing pandemic plan including preparation for the safety and well-being of our employees or customers and Community this early review of our pandemic plan helped our managers to better prepare for what was to come.

The duty to provide a safe working environment for employees and customers is always Paramount in our discussions on March 12th. We implemented a business travel ban for all employees shortly thereafter and Thursday, we limited access to our offices and lobbies to by appointment only and effective March 24th, the governors of Michigan and Indiana implemented the Statewide emergency brake stay at home.

The response by your employees does National Emergency has been incredible. This is best evidenced by the fact that all offices and departments remain open for business and are fully staffed Verizon Banks quit imitation of social distancing with approx 42% of our employees working at remote locations the quick expansion of the number of call center locations from 3 to 4 to better serve our customers handle the increase in call volume expansion of our interactive teller machines also known as I teams to provide extended banking hours for our customers and the long hours put forth by armed and operational teams to manage record mortgage and Commercial loan volume. So thank you to all of our employees for their amazing work to serve our customers.

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Sup, little slide deck you will see a slide that states, Indiana and Michigan or on the right side of Chicago. This is always been one of my favorites slides in our investor deck.

Prior to covid-19. We were experiencing population growth related to Illinois residents looking to move to Indiana and Michigan to avoid high taxes and other burdens associated with living and doing business in Illinois.

Ghost covid-19 are hospitals, especially those located along the border of Chicago are seen a large influx, Illinois patients. In addition. Second homes owned by Illinois Club located in Indiana and Michigan are fully occupied that they seek safety from dense. Urban living being located in the right side of Chicago is even more relevant today as people sick environments and opportunities to lower their cost of living Verizon bank is located on the right side of Chicago slide, six reflects our current footprint in the state of Indiana and Michigan in similar to the rest of the United States. Our markets are experienced and Rising covid-19 cases. We are hopeful that the Curve will start to bend in our Governors will continue to move forward with their plans to reopen as of today that it appears at Indiana will reopen before, Illinois and, Michigan

Verizon is well-positioned going into this National Emergency in addition to solid earnings strong liquidity and being well-capitalized which you will hear more about later this morning from our Chief Financial Officer of leadership team has collectively more than two hundred years of banking and related field experience. We have managed through multiple recessions our board of directors provide sound oversight wage as a group. They are well-diversified inboard ten-year demographics experience and skill sets.

Verizon team is completed 14 Acquisitions and 11:00 to normal Market expansions over the past sixteen years. And therefore we know what it means to work hard to get the job done in to adapt to ever changing conditions.

Slide nine exhibits Verizon's customer Centric and multiple multi-channel Delivery Systems, which have been resilient during this time and helped deliver to our customers the level of service home grown to expect even during the current stay at home environment.

Flight and speaks to Horizon strength of our non Branch delivery channels terms of delivery channels have been an integral part of our long-term strategic plan for some time as a March thirtieth two thousand twenty 68% of our accounts are active users or online and Mobile Banking platforms not surprising during the first quarter of 2024 Rising digital transmissions in call center volume increased by 35 and 32% respectively or the fourth quarter of 2019. Verizon Branch transactions continued decline you to customer migration to digital banking channels in Horizons efforts to consolidate offices.

To conclude my comments. I'd like to focus and slide 11 titled multiple revenue streams diversifies risk Verizon has included this slide in our best your presentation since the Great Recession this page represents management philosophy to diversify revenue streams manage concentration risk and balance Revenue during counter economic Cycles today. Verizon's mortgage origination volume is bust in offsets headwinds related to pressure on net interest margin and slow loan growth in addition Horizon balance sheet mix of Investments consumer and mortgage and Commercial loans off further diversifies credit risk and helps him manage net interest margin during a period of declining interest rates.

Verizon is well-positioned going into the state of emergency.

How to give you an update in our first quarterly results in liquidity management is my pleasure to introduce you are Chief Financial Officer Mark Secor mark, thank you Craig.

I went to Briefly summarize some of our first quarter results, which we believe underscore the strong position. We put ourselves in headed into the current environment. For those of you following on our slide deck. I will begin on slide 13.

Many of you know, we believe an important measure of our profitability is Cornett income which excludes gain-on-sale investments in Bully death benefits. According to income for the first quarter was eleven point two million dollars down from the trailing fourth quarter of 2019 primarily due to the 8.6 million dollar of credit loss expense.

Or deleted earnings-per-share was $0.24 down from the fourth quarter of $0.41 per share.

Pre-tax pre-provision income was 21.8 million for the first quarter compared to twenty two point eight million for the fourth quarter of 2019. This decrease was primarily due to One Life today in the first quarter and a slight drop in the margin along with an increase in non-interest expense.

In the twenty twenty bonus accrual based on the current level of earnings.

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managing net interest margin overtime to keep it stable through various interest rates Cycles is key to maintaining earnings.

Pricing disciplines in place allow for quick reaction as the market rates move on both assets and funding and to help manage the margin in times when the market is more volatile cuz we remain in this low-rate environment. There will be pressure on asset yields as a new and term product will be at lower rates.

However, it's partially offset. This additional deposit repricing will come from the time deposits and long-term debt roll off.

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the interest rate bearing deposit rates have been lowered reflect the current overnight discount rate. The average cost of interest-bearing accounts for the first quarter was 53 basis points.

Just show the quick reduction to these costs for the month of December 2019. The average cost was 61 basis points for the month of March 2020. It was 38 days as long as rates were lowered during the month.

I stated earlier at the end of March interest rate interest-bearing accounts were priced at rates post the last recession.

24% of our deposits are in CDs, the opportunity for additional pricing will be in this portfolio over the next several quarters as CDs mature.

The average remaining term for the CV portfolio is 9.8 months.

Flight 16 Horizon maintains a strong Capital position going into the next. Significantly stronger than in 2007 and 2008 Dodge with the implementation of Cecil.

We paused on share repurchases and would consider a possible cap arrays for future optionality in these uncertain times.

We are committed to maintain the quarterly shareholder cash dividend. In fact, we currently have cash at the holding company to sustain 10 quarters of fixed costs including dividends.

Management has been diligent in performing Capital stress testing to ensure Horizon maintains adequate capital and remain strong and arrange of scenarios from mild to extreme. This is dead order to determine what action plans would need to be taken in these scenarios.

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liquidity and liquidity management are key to a standing an economic downturn Verizon has a strong liquidity position starting with a 1.1 billion dollar Investment Portfolio with this portfolio is 20.6% of total assets at March twenty twenty higher than peer median of 15.1%

having access to liquidity on a daily basis to manage cash need is part of liquidity management currently approximately three-fourths of our Municipal Securities and Investment Portfolio wage to the Federal Reserve Bank discount window for immediate access as the SRV is the only institution that accepts Municipal Securities as collateral.

With fed fund lines available borrowing at the fhlb and the pledge of Municipal Securities Horizons currently has immediate availability of approximately $800 million of additional liquidity.

In addition, we are participating in the frbs program to fund PPP loans as we originated.

The security portfolio is manage for liquidity and holds high quality Investments. The largest segment of the portfolio are municipal Securities, which are complied comprised almost entirely of General obligation or essential service bonds. The remaining Investments are federal agency products, except for a small portfolio of highly rated corporate product.

flight 18

the details to the cares act in the potential delay to see if the word discussed a lot of debate and discussion about what was best for the company took place regarding the implementation of Cecil were ready to implement Cecil, but also had our prior incurred model prepared based on the final guidance. We determined to move forward with the planned implementation of Cecil.

The severity and the breadth of the pandemic was not fully known at the time of adoption but economic forecasts were not positive. So at January 1st are modeling determined the need for a Dodge Charge to equity of 19.8 million dollars having significant having a significant portfolio of acquired performing loans it created 37% of this charge and the negative economic Outlook at the beginning of the year also contributed.

We also transferred 2.8 million of acquired loan discounts to the allowance purchased credit impaired loans that are now classified as purchased credit deteriorated Lounge.

This was a hundred and 28% increase to the previous allowance of 17.7 million.

Now moving forward to the first quarter the credit last expense the knowledge of a global pandemic and shut down had to be included in the model in a short time analysis of our loan portfolios and those loan categories expected to have the most immediate impact. We're looked at in detail more on this will be discussed later in the call.

Based on moving our models forward-looking calibration to current highest levels and additional allocation for specific risk categories. The credit loss expense in the first quarter was 8.6 million.

With these allegations the allowance per credit loss was at 1.3% of total loans at the end of March and with the additional acquired loan discounts for performing purchased credits, the allowance wage loss and acquired loan discounts to Total loans with it. 1.74%

For some additional comments on our strong asset quality as well as mortgage and consumer banking. I would like to introduce our president Jim.

Thank you, Mark. Good morning.

I'd like to spend a little time talking about Horizons consumer and mortgage portfolios. We feel we have a strong and conservative credit culture and over all these portfolios are expected to perform relatively. Well, the consumer is being supported by the government with stimulus checks and state and federal unemployment averaging $900 a week along with mortgage and consumer and extension programs.

The level of deterioration will depend on the duration of the pandemic and lingering impacts. It will have in our economy.

If you turn to.

I'd like to talk about the characteristics of our consumer portfolio.

We are predominantly a secured lender with less than 1% of our Consumer Portfolio being unsecured.

95% of the portfolio is considered Prime credit with over 80% having a credit score of 700 or greater.

And only 5% of the portfolio is considered subprime with the credit score less than 640.

We rescore the entire Consumer Portfolio on an annual basis. This data is based on the customers most recent rescore.

On the equity side. We limit the CLTV on home equity lines of credit and Equity term loans to 89.9%

and we only lend within our Branch footprint in the states of Indiana and Michigan.

We had strong asset quality when the crisis hit and as of March 31st delinquent loans over 30 days were just under a half a 1% for nine months. Npa's were at point six zero.

We are receiving requests for payment extensions and the average consumer extension is for a 60-day period through April 24th consumer extensions represent 2.6% of our portfolio balances.

I need to slide 21 a retail mortgage portfolio.

The mortgage of the majority of our new mortgage Court production is sold on the secondary Market roughly 70% year-to-date.

Majority of our portfolio is owner-occupied property and located within our Branch footprint rental properties total less than 1% of the overall portfolio.

Our portfolio loans are underwritten to Fannie Mae guidelines and require full documentation, including verification of employment income and assets.

And any loan to value that exceeds 80% We require private mortgage insurance with the exception of our specialty doctor program and some CRA products.

97% of the portfolio is considered Prime with credit scores of 670 or greater and 71% have a credit score of 700 or greater.

With only 3% of the portfolio has a score less than six seventy which the industry considers to be a non Prime loan.

We have taken steps to tighten underwriting guidelines where warranted and made pricing adjustments to compensate for increased risk.

Our end investors continue to tweak their underwriting guidelines, which Horizon immediately has adopted.

And as with the consumer portfolio the mortgage portfolio also had a strong asset quality at March 31st with delinquent loans over 30 days at 108% off npa's were at one point three seven and other real estate owned six properties totaling $336,000.

Offering deferments for our mortgage customers an average of 90 days for portfolio loans and up to a hundred and eighty days for loans that were servicing for others Home Mortgage deferments represented 4.5% of our portfolio balances.

Those are the highlights of the consumer and mortgage portfolio. And now it's my pleasure to introduce Horizons Executive Vice President and chief Commercial Banking Officer Dennis Coon Dennis dead. Thank you, Jim. Good morning, everyone.

I'd like to provide some additional insight into Horizons commercial loan portfolio as well. As our response to covid-19. Verizon is a traditional Community Bank offering a standard lineup of commercial loan products through a highly experienced group of lending professionals the dispersed throughout our Indiana and Michigan Footprints, we our relationship driven primarily a secured lender and typically require recourse to the owners of a business or the sponsors of a project.

Please refer to 22 which will provide an overview of our diversification within the commercial portfolio by both type and geography.

From a geographical standpoint 59% of our commercial loans have been originated through our Indiana offices.

Well, 40% are michigan-based. The remaining 1% is in Ohio Columbus more specifically.

with an Indiana Indianapolis represents our largest single Market

followed by Northwest Indiana our Legacy market then Lafayette and Fort Wayne

In Michigan, our largest market is Kalamazoo, which is followed by Grand Rapids Midland and Lansing. Our concentration of loans in large-cap growth markets has been a strategic priority in recent years and should assist in the post covid-19 recovery.

By broad category non-owner-occupied commercial real estate accounts for 54% of commercial loans while the owner-occupied commercial real estate and cni portfolio. They represent a combined 46%

Next if you please move to slide 23 and 24, you'll see a more granular view of our portfolios.

Within the non-owner occupied category our largest concentration by type is multi-family.

followed by retail hotels and office

with regard to the owner-occupied real estate and cni portfolios. No category exceeds 5% of total commercial loans.

believe this information demonstrates a well-diversified portfolio both geographically and by type

No, please refer to slide twenty-five.

Mark Secor provided an overview overview of our Cecil adoption as well. As our first quarter credit loss expense. I'd like to provide some additional insight into our special allocation of seven million dollars, which was near equally split between the hotel and restaurant portfolios.

two categories immediately impacted by the covid-19 measures initiated by the states

with regard to the hotel portfolio this category represented $135 million outstanding at quarter-end or 3.6% of our total bank loans.

We have a very strong metrics in this category in spite of the challenges being faced 31 properties financed with nineteen relationships home of the experienced operators and very well known to us.

We have a solid loan to value of approximately fifty percent across the portfolio.

in the portfolio also includes

select service and close proximity to interstates are predominant.

Borrowers have been very open and communicating with us. We've we're doing additional analysis weekly with break-even information provided but in addition we have provided modifications to many of these clients and they have accessed the SBA PPP Loan program as well.

The issue at this point will be how long things last with regard to the executive orders and ultimate reopening.

With regard to the restaurant portfolio that that total $65 million dollars or just under 2% of our total bank loans that group's match up with thirty-five million and out standings to full service establishments.

With another thirty 1 million to limited-service restaurants.

fruitful service category includes an additional seven point five million of loans with guarantees

and it also has a number of ours who are successful long time operators of 1 or more locations.

The Limited service portfolio is comprised of borrowers operating National chains the names of which are very recognizable.

Within that category our discussions with our borrowers have indicated a an approximate range of twenty to thirty percent drop in their life, which is typically putting them near break-even performance.

Dorkly that group The Limited service has been the first to recover.

and

our estimates of exposure soul in the end our estimate of our exposure in the restaurant category really comes down to a larger number of smaller loans to India and then operators.

Additional categories we are closely monitoring include non-owner-occupied retail and lessors of residential multi-family.

Verizon's assisting our clients impacted by covid-19 through to primary initiatives first loan modifications second SBA payroll protection package at the same time. We continue to entertain conventional loan requests with our borrowers with regard to modifications.

Most have been for approximately two-thirds actually have been interest only extensions the balance principal and interest deferrals.

Borrowers must be less than 30 days delinquent at the time of the extension.

75% of our modifications have been to borrowers in the in the only excuse me in the owner-occupied real estate and see and I for four wheels with a balance of 25 per month in the non-owner-occupied commercial real estate category.

You would prefer to slide twenty-six, please. You'll see an overview of RS be a PTP experience today. This is captures around 1.

Where we receipt where we received and processed over 1,700 applications.

totaling $280 million dollars

9 / 95% of the requests that we submitted were approved during round one.

And seventy 5% of those approved were for $150,000 or less.

We are participating in round two of PPP.

As well and thus far we are generally seeing lower demand and a smaller average dollar size.

I'd like to recognize the incredible effort of our employees in this effort as many of worked evenings and weekends for weeks. Their work is making a difference for our customer our communities.

Again Horizon entered this. And strong position was sound asset quality and a history of withstanding numerous challenges.

We will continue to act prudently and in accordance with sound banking practices while helping our clients recover from this unprecedented event.

Thank you for your time and I'll back to you Craig.

Thank you Dennis for the detailed disclosures our last slide displays and isosceles triangle at the Pinnacle is employees the most important aspect of any business the next to offer our customers and Community these three points around the middle of the triangle that represents shareholders at Horizon We Believe to deliver shareholder value that we must first deliver on the 3.6 employees customers in community. But we do that. Well, we will continue to retain and build market share and brand awareness a strong brand builds long-term shareholder value off the near-term and during this National Emergency. Our immediate focus is to support our employees customers and Community, but the shareholders is about building and preserving tangible Book value and protecting dividends, right? There's a long history of uninterrupted interrupted dividend payments even during the Great Recession.

Verizon bank looks forward to adopting to the new Norms whatever they may be as we prepare for the opportunities that will emerge from this National emergency. Thank you, and we'll now turn it back over to the moderator. Is she?

We will now begin the question-and-answer session. Ask a question. You may press * then 1 on your touchtone phone. You're using a speakerphone. Please pick up your handset before pressing the issue. You would like to withdraw your question, please press * then two.

We asked participants that they may ask one question with one follow-up return after which they're welcome to re-enter the Q we will now pause momentarily to assemble our roster. Remember to ask a question. It is star and one.

Our first question will come from Nathan race with Piper Sandler, please go ahead.

Hi guys, good morning. Hope everyone is doing well. And I really appreciate all the added disclosures in the slide deck.

I was hoping that maybe just start on credit you guys obviously performed fairly well relative to peers during the Great Recession between 2000 and 2011. So just curious if you guys earlier today and it's addressed maybe what you guys have anticipate in a stress scenario. And you know, I'd be curious to hear some of the underlying economic assumptions within that scenario am going forward.

Thanks for the question and everyone's doing well thank goodness in our Cecil model are econometrics that we use our leading indicators Michigan in Indiana indicators. Chicago fed Midwest economic index and some other factors including the unemployment claims which we were looking at here in the month of March time. You know, some people are comparing that to the Moody's twelve miles. They've issued in Moodle Moody's is focusing primarily on unemployment rates, which is kind of a lagging indicator of our model that we benchmarked. The last fifty years to other recessions has a directional alignment with the history of our economy. So if you guys are econometrics regarding the portfolio is we feel good about the asset-quality in the mix the concentrations about who knows what's going to happen and how long the stay at home.

Orders are going to make me.

In place, that's a difficult question to answer going forward.

You said that's helpful and just curious, you know putting in context kind of what you're hearing from borrowers. I think to some loan modification request and phone know if I called the total number across the entire portfolio. If you have that and then along those lines just curious what the amount of my line of credit draws that you guys have seen recently perhaps late in the quarter or of those far-off you

Is Jim can you talk about the modifications and we'll talk about the scene I port for.

The consumer mortgage side I highlighted in the slides, but the on the mortgage overall, it was four and half percent of the portfolio in on the consumer. It was 2.6% of the portfolio as far as lying utilization on the consumer home equity lines of credit and personal lines of credit. We have not seen any uptick this point in time.

In regarding line utilization. It's been very limited. It's been flat hardly any growth both home equity as well as commercial lines of credit off Dennis. You want to talk with the modifications sure on the modifications again, I gave you a little bit of context from the standpoint of types of modifications in interest only in a painful payment deferrals are our first line has been typically interest-only for 90 days. So across our commercial portfolio. We've granted a $350 million in loans that have been

Modified that represents 9.1% of our total outstandings for the bank. What dates that through the 24th or what? Yes, that's good. So we're giving you a fairly current information a Nathan through April 24th, which may not compared to other releases that have come out.

Just I want to talk with the restaurants briefly here. We're seeing you know, the mass migration into our marketers Illinois residents in there for our restaurants are really surprisingly doing pretty well with a takeout pick up orders, which was a pleasant surprise, but that's an anecdotal, film and just Dennis again, uh with regard to commercial line usages Craig mentioned we at through the first quarter we saw really no uptick against our December line utilization. So it's it's then that's been somewhat surprising and we're closely monitoring it on a daily basis in our borrowing base of Life credit. We're in sync. We had one margin account that was out of sync. They brought in additional collateral now, they're back in alignment with the borrowing base up in the margin accounts. So so far the tracking has gone well,

We did have one construction loan that we elected not to continue to build out with the borrowers agreement.

They just broke ground and we thought that that's not too heavy undeveloped property. So that was a mutual agreement.

Okay, great. I'll step back and appreciate all the color and I can particularly speak to going into Indiana these days from Chicago just given, you know, all the shelter-in-place requirements here as well. As long as long as your point break. So I appreciate the color like seeing guys.

Again, if you'd like to ask a question it is * then 1 * then 1 to ask a question.

Our next question will come from Sam solid with retail, please go ahead.

Yeah, taking the call and glad to hear that everybody safe and doing well so far initial question here is it looks like the liquidity position is quite strong with them around a billion and securities and cash on slide sixteen. You mentioned potentially doing a capital r a i was wondering if you could provide some more color around use of funds and whether that would be a debt or Equity, right?

yes Salem Sam thanks for asking the question and I hope everyone is doing well in your family as well the question on Capital raised we are contemplating in investigating a capital reason it would be first sub debt or preferred we have no plans issue, at this current pricing which I think you can expect we don't we're not sure if we're going to do it or not it's just it's under investigation as we always look at our Alternatives I think with additional Capital gives us optionality Fork out of this recession that could be very powerful in the offensive in the meantime it also helps support possibly the unknown one of what's going to happen during this Cove in nineteen month old virgin see so we're not sure we're going to do it yet but we thought we should disclose that it is being discussed and we've always

Review it regularly at our board meetings. Look at our Capital stack and you know, we could use additional sub debt indoor 1902 prefer. Thank you for your question.

That makes sense. I appreciate the update one quick follow-up along the lines of the stock buyback program. Obviously a good chunk was repurchased in q1. So a pause with this uncertainty. It seems to make sense. Do you have any feel you know, given all the uncertainty what the timeline might off like on getting the buy back program back up and running?

No, it's it's you know with the additional Capital should give us more power as another part of the optionality with Access Cab wage coming out of this National Emergency. So it will always be reviewed on a regular basis. But right now we can't give you a estimate that will be reopen. Thank you. Jeff understandable. Appreciate it.

Our next question will come from Brian Martin Montgomery, please go ahead. Hey, good morning guys. Glad to hear you're well.

Good morning, Brian. Thank you Brian. Hey, just maybe one or two things for me Mark. Maybe if you could just touch on the impact of the of the rate cuts and just appreciate the disclosure on you know, the funding, you know going a bit lower here and working hard on getting those repriced just kind of the full impact of the rate cuts on the core. Margin. You know, how much of that was in the current quarter and then how much you know, you see if you could give some thought and how how the how that impacts flows through in the second quarter with the full impact.

Yeah, thank you Brian. We stated in the remarks that the month of March we were at 3038 East this point and funding costs. So just mathematically we that was mid mid month really that some of that came through and take a look at post-recession credit or funding cost back in 2012 12ish. Our our entire transactional portfolio was seventeen to nineteen basis points. So that that would be what we were back at that point and then it's dead, you know, obviously there's a lag in the CDs that will get some more additional benefit but there's also a lag in assets as they continue to reprice on the on the

a maturing or the new product

right just to give you a little color extremely impressed with how the funding committee treasury management team. Led the market down and there was two rate cuts by the Federal Reserve Bank and March the 50 then the 100,000 Point reductions and we probably both like the next day. So our funding committee treasury management team. We're very active a lot of the other Banks were wagging within our markets. So I did a good job, right? Okay, that's helpful. And so Mark, I guess it just one last and the margin if it was down, you know, the core module was down about six basis points. If we were to think that that can't come back up shut up, you know, third of what what would come or is it maybe a little bit less given the actions you're taking the mitigate that on the funding side, you know, if you think two thirds more of that would come through and you know the full quarter but part of that long as you're suggesting on the funding side.

Yeah, I think your assumptions right on the funding side. Just based on the 61 basis points for the for the quarter. So yeah. Okay. Perfect. Thank you. And then just the last two things just the the fee income in the quarter you talked about some of the impacts from covid-19 would do you expect that to happen is continued or I guess what areas do you expect to continue to be impacted by that until we get a little bit more clarity on the duration of this. I think you mentioned I thought it was a service charges and one other area of public area that had to climb maybe wealth.

Yeah.

I think you're going to see it in overdraft just because there's going to be less activity. There's not people out shopping. So that that's one area. I think we're going to see it off and an interchange income just because it's going to be less activity happening and that's that's just our assumptions. Although you saw just a little bit of it coming into the fourth quarter.

Okay, so a little bit more to come possibly.

Yeah, yeah. Okay. And then last one for me was just on the PPP program. If you can just give a little bit of thought on how you guys are expecting to how that's perform and just kind of how we, you know view that coming through the p&l in in the coming quarters.

Brian the with our average loan size and the 150,000 range are are average fees for the quarter or off like 3.6%

We will amortize those fees in over the 24 months lifetime of the loan. Our loans do start payments after the 6 months interest moratorium. And so they advertise years months 7 to 24 as a whole. I think most banks have adopted that same amortization schedule. We're not aware of any significant advisory fees that would reduce that at the current time and keep on tracking that this program has been changing daily. And so we have a better fuel as we

Get into the quarter. Thank you. Okay. Thanks Greg. I appreciate the call guys. Thanks so much.

Our next question will come from Nathan race with Piper Sandler, please go ahead. Yeah, I think just a couple of follow-up questions. I apologize if you guys touched on it in the prepared remarks earlier, but I'm taking m p l as in the quarter any particular color on that front.

I'll be a relatively small.

As you said it was pretty pretty small from the standpoint of total increase. It was centered in the commercial loan portfolio. There was some movement both ways. We had several credits Thursday we came to resolution but also added a couple totally unrelated one was a manufacturer one was a service business office. And so so no, we don't nothing that we see a in general across the portfolio totally unrelated.

Okay, but that's helpful. And then just on the tax rate going forward Mark any any kind of color expectations where that's going to run back to perhaps?

Yeah, you you it's basically the the same calculations that we would use but as the income pre-tax income comes down or came down from the extra pack visioning the impact of our tax-free Investments and other benefits obviously impacts the tax rate. So I think you can just change it from where we are now to where maybe we were last quarter to try to get a schedule of where it would be depending where you come out with your net income per quarter.

Okay.

And then just out of creation expectations. I know that will be impacted by Cecil going forward, but I think it was a little elevated in the first quarter relative to the fourth quarter of last year. So just just walk around just overall excretion expectations going forward.

Yeah, it'll probably be impacted slightly Nate just because we moved the two point eight million into the allowance so that that will get recognized so long, but I don't I don't foresee any changes from our past and that's what I've always look at the past history of of how it goes. I know it gets chunky here and there but using an average of what we've seen is still the best the best scenario.

That's what I figured. I just wanted to clarify and then maybe just last and securities portfolio with the PPP funding that you guys are doing thus far in the quarter. Do you expect on that with maybe some extra security in the bond book or already kind of expect the Securities portfolio on an absolute basis to remain relatively static over the next few quarters just likely just given them some kind of temporary nature that the PPP loans will be on the balance sheet.

You're onto a good point. We we can't we're not going to just be able to pledge all of them and get all the funding immediately because we would be selling cash and I do not want to sell money in this environment. So we're going to be monitoring it closely and you have until September 30th to take advantage just lending fund from the fed. And we also have the opportunity that we're looking at to pledge them to the discount window also so that we can do it more of a an opportunity to get in and out of it and it's not a term product with the actual PPP loan. So we're going to just manage that funding as we need them based on different opportunities that they're providing us.

Understood. Okay. That's all I had. Thanks again for taking the follow-ups.

This will conclude our question-and-answer session like to turn the conference back over to mr. Dwight for any closing remarks.

Thank you for the callers and listeners to or participate in our first earnings conference call and we look forward to our next call in July. In the meantime. If you have any questions or comments about the company, please feel free to call me or Mark Secor at any time. We always answer our phones and returned our phone calls. So thank you for participating today, and we'll talk to you in July. Have a good day.

This concludes our conference call. Thank you for attending today's presentation. You may now disconnect.