Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Bank Financial Corporation first quarter 2020 earnings Conference call.
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I would now like to hand, the conference over to your speaker today.
<unk> Morgan danger, Chairman and CEO, Sir you may begin.
Good morning, welcome to the first quarter 2020, Investor Conference call, we weren't necessary planning on having a.
Gold this time, but given events with cobot 19, we thought would be best to update all information and be ready to answer questions.
At this time, our 10 quarter, our guard trade form 10, Qs on file our five quarter supplements on file and we also update at the corporate profile for 2020 also on file.
And at this point is all filings are complete we'll be ready to take your questions. After a forward looking statement is right.
The remarks made at this conference May include forward looking statements within the meaning of section 21 E. Other Securities Exchange Act of 1934, we intend to all forward looking.
These statements to be covered by the Safe Harbor provisions contained in the private Securities Litigation Reform Act of 1995, and our including this statement for purposes of invoking the safe Harbor provision.
Forward looking statements involve significant risks and uncertainties and are based on assumptions that.
May or may not occur there often identifiable by use of the words believe expect intend anticipate estimate project plan or similar expressions.
Our ability to predict result, or the actual effect of our plans and strategies is inherently uncertain and actual results.
They differ significantly from tells predicted.
For further details on the risks and uncertainties that could impact our financial condition and results of operation.
Please consult the forward looking statements declaration and the risk factors. We have included in our reports to the FCC.
These risks and uncertainties.
You should be considered and evaluating forward looking statement.
We do not undertake any obligation to update any forward looking statement in the future.
Now I'll turn the call over to chairman and CEO of Morgan danger.
Oh, thank you.
At this moment, we're not showing any calls in the.
You.
So let me just spoke is little bit on recent activity and some priorities for the remainder of the quarter.
First off a is we put in our.
Corporate profile and had some additional information in the 10-Q.
We've been working with borrowers throughout the West a 30 days.
So unlimited forbearance agreements, where the focus there is to help borrowers managed through disruptions in their cash flows are due to stay at home orders, Illinois seems to be the most affected it started earlier and and the orders or rather extensive.
Other markets seem to be somewhat less affected.
The forecast there is we'll continue to see activity on that principally in the commercial real estate area.
Obviously, the storefronts in CLO business closures are gonna have a significant impact and those tenants inter related issue there specifically.
In Illinois, a were all of our commercial real estate is located.
Our real estate taxes, we have a number of cases right now on smaller loans, where the real estate tax payment. The escrow payment every month can be double what the principal and interest paid minutes.
So the borrowers have enough in common.
So to handle interest and and one borrowers that I have no problem, making the brooksville payment, but the real estate taxes are entirely different matter and that is compounded by the fact that recently and Cook County, there was a change administrations. Yeah. There were reassessments of commercial property a yesterday in one case, we looked at a customer weather.
Our taxes doubled in the space of one year, so they're already dealing with a rather substantial a hit to their income on the taxes are obviously the disruption of the rental income is making it harder. So we'll develop some additional flexibility for them.
Probably look at a.
Figuring out a way to.
Make a second lien loan for the escrow payments when it comes time to make the real estate tax payments that way, they're not incurring penalties.
In excess expenses for delinquent, Texas, obviously, it's a lean priority play for us and work with them as needed.
Not every borrower will need that but the real estate tax situation a in the northern Illinois market, whether its lake County, or Cook County, and especially in some of the low in modern come census tracts in South Cook County, where tax rates can be 510, 15% took the property a those customers might need a little bit of additional assistance.
Beyond the limited forbearance agreements.
Next as we work with a commercial lease and commercial finance customers, usually the limited forbearance agreement seem to be working fine where appropriate based on the equipment. We're also making sure that we have some principal neighbor.
It is nation component in.
Or possibly due to wrap it obsolescence, but where possible, we're making sure that we keep principal payments coming in.
So far that seems to be working I'm sure there'll be cases, where they just want to do interest only for a period, but we are mindful of that and we're watching them on a case by case basis.
And on health care, a as we said in our filings.
The hospitals and the care providers, obviously are having a couple of different things happen to them. A first just disruption in normal business operations, they've got more expenses for care more intensive care equipment costs for care or.
Hi are now you know a personal protective device or might be a dollar you know a quarter ago and now it's $6. So all those things are just little more expensive than they're going through faster.
Also in the case for hospitals and even in some of the residential care facilities. The margins are changing obviously elective surgeries.
Deferred that is starting to change now we're seeing some markets open up to the hospitals and surgery centers opening up again to a two surgeries. So that condition will start to fix itself residential care. Some of that there are some of the <unk> patients that would normally be refer to a facility are staying in the house.
Capital or even at home.
Until the facilities are ready to take on new patients. Obviously some of those are higher risk facilities to begin with so there's not as much demand at the moment so their billing cycles.
There were a bit and cycles will extend their margins be compressed a bit.
But our loan structures and our.
Tenants provide flexibility to work with them. So we'll be putting in some more frequent borrowing base monitoring to help them out on unbilled receivables and to deal with the fact that their pay worse, maybe stretching out the remittance cycles.
So that'll be the priority for the second quarter is to keep working with people.
The portfolios, but if people performed per their forbearance agreements.
We should come out of the second quarter hopefully.
With reasonable collections, we were speaking to one borrower yesterday's collected 97% of as rents on his apartment building.
It is actually looking around for see people, who may not be able to.
Holder buildings and he is building a war chest. So there will be some opportunities at the end of this but right now we've got to get through the second quarter, hopefully more markets open up, Illinois will probably be among the last to open up a they're already talking about extensions into June.
So that's a situation that continues to unfold.
Second priority will be continuing to execute execute the business plan, we see good demand in the corporate and governmental space yesterday alone. We saw about $10 million of of new lease opportunities that should close between now and July 2020.
The governmental space continues to do well plenty of money so.
Our to fund the equipment that may change as state budgets change, but right now most of our transactions are either at the school level locally or at the for remote learning for example.
We're at the federal level. So so far so good there and we actually did our first middle market transaction yesterday, we hope that closes here in the next.
60 to 90 days, so middle markets, especially on the board.
And other than that real estate lending as they said we are continuing to qualify new opportunities.
We're seeing new transactions about two thirds of on will close in about a third or either being canceled or postpone into third quarter. So we will.
I see some payoffs, but we will see some deals close.
But just not at the same volume we are looking at say 45 days ago. There are certain borrowers who want to make sure the sellers collect the rents.
And do not want to get themselves in the middle of an issue with existing leases and collectability.
We talked about health.
We are ready a little bit.
We will see some some activity in that portfolio.
As far as use more of their commitments to fund a cash flow gifts.
And after that capital management.
We were active in the SEC in the first quarter a little over 200000 shares we have a round three.
It and some thousand shares left in the current authorization.
We would expect to continue to utilize that authorization during the second quarter, particularly given where things are trading and as we get to the end of the second quarter as we seek conditions are unfolding.
The board is certainly going to be looking at extending that authorization.
Nation.
But we want to see where we are at the ended the quarter operationally, where we are on collections of interest how the forbearances are working out but obviously it these trading levels the share repurchase programs fills should be a part of our capital management.
We have plenty for now.
But at these price.
If we just continue to pay out that we did at first quarter, we pick up a few more shares for the same dollars than than we would have in first quarter. So.
It's certainly accretive to shareholders. It's an important part of the program at this point Didnt expect this opportunity, obviously, but let's do let's take the most of it as we can.
So I think thats a the.
Thanks for now looks like there's one question. So lets proceed.
Thank you and as a reminder, ladies and gentlemen to ask the question. Please press Star then one at this time. If your question has been answered where you'd like to remove yourself from the Q. Please press the pound cake. Once again that star then one to ask a question.
And now first question comes from Ross Haberman from our L.A.H. investments your line is open.
We are well.
Really so far so going on our side how are you.
Good.
Just a question could you.
I didn't have a chance to read the Q2 yet.
Sure hospitality exposure restaurants hotels motels, either in dollars percentage.
Our loan portfolio. Please thanks.
Little color, if you want to shed some light if there is hotels.
Lags or mom and pops. Thanks.
Oh, well to short answer all those things are less than one.
The total loan portfolio, we put that on the corporate profile. So when you take a look at that you'll see a.
Historically, that's the Netherlands have been a focus for ours, so they're just not a material exposure.
We have decided that kind of specialty use property.
Isn't really for us present too much volatility.
And there were plenty of competitors there that like that product. So we left the market to them.
Just a follow up and what do you think is your most exposed category or risk.
Your loan portfolio today, if if you have negligent negligible exposure there.
You know.
I think it's a hard thing to characterize given the fact that the Kobin 19 impact is very widespread when this first started you would think that supply chain exposure to China was your biggest concern and less than a month that changed to hospitality and travel and leisure.
And now it's virtually everything.
It's probably easier thing to answer what isn't affected by it but all told you know I would have to say that the commercial real estate borrowers, where it's a smaller it's a strip mall.
Community shopping area, maybe a small office.
Those are the ones, where the rent payments are going to be tough to make.
Especially if it goes on longer than say a month right. I mean, most most tenants were paid up through March.
But then.
You get to April and and no revenues whatsoever.
Sure and they have other expenses to make.
Thats become tough now we're talking about closing, Illinois.
Through most of me.
Well, there's another month.
And into June.
So I would have to say that principally because the commercial estate exposure is in is in that.
Northern northeastern Illinois in the in the whole market.
And because of the severity of the business closures.
And because of the impacts of expenses.
Real estate taxes.
On those properties that would be the one that you'll probably see the most of that would be of the most concern.
Some some borrowers and some tenants or maybe able to you know do partial operations curbside delivery and things like that.
But many are not.
Just closure after closure after closure, so I'd have to say all things considered.
The commercial real estate portfolio is probably got the most.
Exposure to the ongoing impact of the cobot 19 business closures.
It's just a hard thing for people to manage especially if it's a smaller operation with only two or three or four store fronts and if they're all close there's just not much more the borrower can do it's one thing to keep a couple of months of liquidity reserves and it's another thing to shut the.
Whole thing down for an entire quarter.
Then you're going to be on most people's capacity to manage through something like that.
Given that.
Why don't you think you are more generous on your allowance for the core corner.
Within your within Europe.
Latitude I'd say.
I think the.
A triple a mail service.
We have a a methodology that looks at economic conditions, both favorable and unfavorable.
And generally speaking when you you affect the type of stay at home orders, both in Illinois and nationwide.
First off people are getting.
Laid off you look at unemployment.
And unemployment statistics have been terrific the last three weeks.
So that was probably the biggest single factor was unemployment. The next biggest factor after that would have been business disruption.
This is by the way why our commercial real estate portfolio was decline over the.
The years.
We felt that retail had its challenges to begin with.
With the growth of online and other types of competitors.
So is this wasn't a focused portfolio for us to begin with and.
His point, we're kind of grateful that that decision was made.
But theres no question that.
The apartments with stay at home orders unemployment have a risk factor there.
And even more so the commercial real estate portfolio.
No again, the apartments as employment recovers people go back to work.
Should experience some recovery these are people that need a home affordable.
Housing projects.
So as employment recovers hopefully relatively rapidly than that risk factor diminishes, just as rapidly commercial real estate could see a longer recovery period.
Just one unrelated question that greatly appreciate your time your allowance was 70 basis points give a goal in terms of getting that up to one.
Like many.
Similarly sized.
Thanks with your similar book of business. Thank you.
Yeah, I Wouldnt say that our book of business is similar to other banks other banks have construction loan portfolios other banks have considerably more exposure to hospitality commercial real estate.
So I think you have to look at each portfolio on its own right off the bat our portfolio has approximately $180 million worth of investment grade leases.
So again I think the the inherent quality of the portfolio going into cobot 19 and.
And the distribution and diversity in the portfolio.
As a key distinction between us and other people.
So as we don't in the service specific goal other than to monitor the impacts to the economy.
Follow our methodology and adjust to reality and I think when you saw that size of a.
Vision.
In the first quarter it wasn't because any of our asset quality metrics changed that was solely a forward looking recognition of what could happen to us and that we'll see how the performance goes in the second quarter with respect to forbearance agreements and stay at home orders and we'll run the same model ends at the end the second.
Quarter, and see where it leaves us.
Thanks, and best of luck.
Thanks, you too.
Thank you and our next question comes from Brian Martin from Janney Montgomery. Your line is open.
Hey, good morning Morgan.
Good morning, Brian Hope, you're well, yes same to you.
Yes.
I wanted to ask Morgan just related to that last question. You said your exposure to just specifically what was less than 1%, maybe I didnt catch that in the in the queue or if you said I know you think you said hotels restaurants and was there anything else. It's included in your total less if you look if you look on page eight of our 2020 corporate profile.
File you will see commercial loan concentrations by industry, yes, and at the bottom of the you'll see hospitality restaurant and oil and gas collectively are less than 1% of total loans. Okay. Perfect. I appreciate that Morgan and then I guess, maybe your comment that you made as far as areas you feel arm.
Maybe possibly more at risk with the shutdowns.
The other retail in the smaller businesses you just mentioned how big a component of the loan book, our though as I guess those seem to be something you highlighted so just.
For those stand today.
Well commercial real estate is around 130 135 million plus or minus.
So, it's obviously, what about 10% 11% of the total loan portfolio little over.
Mostly concentrated exclusive to concentrate industry cargo.
Average loans.
Our fairly small.
About 50 million of that this.
You will find all the detail on page 12 of the.
Corporate profile, but about $53 million retail about $20 million as mixed use another 13 million his office building.
In the non owner occupied the component of that.
And again relatively small.
Loans.
Average is probably under a million there's a handful there are over 1 million.
[music].
But most of them are smaller centers that we've had for awhile. So notionally.
If this is a roll the short term phenomena valuations will hold its really just may helping people manage through the current.
And including dealing with the tax environment that as you probably know Brian There's no announcement from the state or Cook County on deferring the payment of real estate taxes, they seem to want their money on time.
So people are having to manage through that so that's where I would say go into the earlier question to your question.
It's.
Not been a portfolio, we wanted to grow for underlying economic reasons that left us any reasonably good shape to deal with us, but we're still going to have to deal with what's left.
Okay Gotcha, and just your comment about the kind of your assumptions for how the reserve build this quarter and kind of what you just articulated I mean, I guess the unemployment.
Placement rate just in general what what are you guys assuming in that kind of what's built into that assumption for the reserve build this quarter and yes, I guess, how could it change if you look look out one quarter I guess what are the what could necessitate a larger reserve a possible larger reserve build next quarter and just whatnot.
It would be helpful. Well I think first of all we are we are a preemptive in our assessment of unemployment. So we already made a pretty adverse assumption.
I'd have to get into each and every submarket to give you a precise answer and I think thats, probably beyond the scope of the call and probably something.
We're going to want to deal to deal with on a detailed basis, but right off the bat.
We pretty much looked at the scale it was available and in Illinois, we pegged it to the to the far end of the scale.
It was pretty evident to us that Illinois was going to for whatever.
And that saw.
Take of relatively extreme measure closures and therefore unemployment.
It's also the case that Illinois has a less diverse economy than other places.
And therefore hospitality trade for example, closing conventions and things like that we're obviously going to take their toll unemployment.
In Illinois to a greater extent than other places say like Dallas or Denver.
Our Florida exposure is mostly Tampa.
It's not Orlando. So again it has some impact on tourism, but Florida closed later and they will open sooner. So I think our view of this is the.
Reserve build for first quarter was pretty preemptive.
Certainly.
You can see unemployment still having an impact in second quarter, especially if the unemployment statistics outside of Chicago deteriorated materially further.
But if they don't if they just go.
Some.
We might have a covered but I think Chicago and the commercial real estate side will be the key drivers of what happens in second quarter and.
And after that.
Possibly looking at the commercial lease in commercial equipment finance portfolio.
Those trends credit spreads are already coming in for.
Example, but they widened out considerably.
We will have to look at that too, but if you want to look at one key factor, it's going to be Chicago unemployment.
Followed by.
Non Chicago unemployment, followed by commercial estate followed by.
Commercial finance and equipments pretty much on the non investment grade.
Yes, Okay, and I guess I would just ultimately getting up like you said Morgan Big picture the unemployment, you're assuming maybe isn't that 9% to 10% range or did you go to the end or could be 15 to 20 at least in your initial kind of look here probably more in the 9% range I really can't quote you a number the model here number variables in it so but let's let's face.
You know, it's when we when we pegged at all the way the left and of our scale.
That was taken a rather significant hit to where it was and if we have to adjust the scale further.
That we that meant that.
Double digit unemployment for an extended period of time was likely I don't know.
On to be there, but we'll have to look at it when we get to the other quarter and see what's appropriate gotcha. Okay. Thanks, Morgan and then maybe just if you I know you spoke earlier when I joined a couple of minutes late but just your assessment of kind of the growth initiatives you outlined back in February if you could just touch on.
What's changed relative to.
The current economic environment versus when you actually laid that out in kind of your outlook as it pertains to kind of loan growth.
Yes.
I think really we should start with loan underwriting.
But.
Fortunately the the direction we took.
Still has some.
Some viability to it the.
Corporate side.
On the governmental side in particular of equipment finance.
We will continue to perform particularly on the federal side, we had a good start in the first quarter on that we continue see activity in that.
The changes to the environment for example, we just.
Did a.
Good sized transaction for a local school district.
They are equipping for remote learning.
And so you'll see some demand that you wouldn't otherwise obscene audits some of these changes.
So I think continued activity in the corporate and governmental side.
We looked at $10 million of new transactions just yesterday.
Secondly, the middle market side, there are still good strong middle market companies that are operating they have to do equipment replacement.
We do have some growth opportunities that the possible that some weaker competitors may leave the market.
Now there.
You have to look at looking at historical EBITDA rose and their line usage and doing a forward projection on what you think their cash available for debt services.
So you have to be a little more conservatively underwriting, but there are ways to mitigate that was security deposits and some other credit mitigants that would help the less so you get there.
Their project going and then build in a little liquidity in case, there is a future disruption.
Small ticket is also viable there's activity in the market.
The challenge there is quite a bit of that activity is based on historic historical payment and scoring models. So the notion of past performance.
As indicative of future performance.
I think that is going to need some changes we've already been discussing internally.
Again, the borrower liquidity.
And sustainability of operations is important so maybe a little less waiting on history historical little more waiting on confirming current payment.
Cassidy.
And after we make those adjustments will also see how comp competitors are adjusting to the market.
But we expect to release small ticket later this quarter.
Probably won't be as aggressive in our our growth goals as we were at the beginning of the year as we feel out market conditions.
But.
It's still going to be a component of our approach so.
From a volume perspective, corporate and governmental will certainly be the largest piece followed by middle market and I would expect will probably you just do less than small ticket, but we still want to get out there and we're start working in the market.
Focusing on the higher quality.
Communities.
But it's probably a little too early to see how the market is going to adjust to the new normal yet.
And we'll know more about that by the time to get the third quarter as I said on real estate.
Still activity in the market, but we have seen transactions either cancel or defer.
Mostly on the purchase side.
People want to see if the sellers are going to collect the rents that they said.
Or if they don't then obviously there could be a price change in the property.
We are seeing some borrowers getting ready to look for opportunities in the markets. So we're still seeing some.
Cash out refinances, which are sustainable.
Our low leveraged transactions with with borrowers have excellent equity positions and cash flows.
But we're confirming.
The receipt of rents on a monthly basis before those funds.
So one deals closing soon but they have to show us the may rents that we have to verify all the may rents were collected before we'll go any further.
And as I said on the health care side, we'll continue to see some growth. They are not as much new business is helping borrowers managed through cash flow tightness. So more expanded use of the commitments we have.
I'm sure, we'll see a couple of expanded commitments to for example hospitals.
They need a little more availability than they.
We have to work through HUD on those.
And then the less or side, we'll continue to see opportunities there that will be a function of how capital investment functions. During the rest of the year there will still be some.
First quarter was good.
But we're not seeing quite the same of volume of new.
Curries and draws.
In the second quarter I suspect that might just resuming the third quarter fourth quarter they'll be obviously, a natural delay here.
If there is further.
Destruction of demand over the next 60 to 90 days than that forecast could change. So I think it's just going to take a little longer to get things done.
Some things like small ticket are gonna have to be reassessed and adjust the underwriting models.
So but were the entire framework of what we're trying to do is still intact. It might have to be modified it'll probably be delayed a little bit but it made sense, then it'll make sense again.
The the sooner we get out of this the better it will be.
Okay. So I think just big picture Morgan from a volume standpoint, fewer looking at whatever 10, 10% to 15% loan growth. If we just scale that back some for the year and just kind of pushing it out that's probably the best way to think about.
How things are going to play out here at least maybe maybe minimal growth then.
Kind of the second quarter, and then kind of building thereafter.
I'm a high level standpoint that.
I'd say that without being able to assign a specific number to this I would say that's reasonable the yes.
It's just not going to be is robust we said to begin with that it was going to be a second half issue and I very much.
I still think Thats the case.
You could see some bright spots like you said in health care, you a little more line availability than normal.
But yes, the activity that would have been in smack in the second quarter is now going to be late second quarter to early third quarter and then the whole thing looks like it could get pushed out 60 to 90 days.
The theme is still intact, we just have to see how the demand demand performs.
Okay and can you just talk about I guess from the just as it relates to kind of at the same same benefit I I guess would assume holds on the fee income component of.
The real estate division in kind of what they were going to producing.
The quarter I guess is it's a small part of that the revenue stream, but just any I guess a delay there as well on that benefit.
Yes, I think so we still have some transactions in the pipeline.
The capital markets went through.
I would say quite a bit of correction in terms of their pricing and underwriting.
For example.
Sample.
Products that had no liquidity reserves or replacement reserve suddenly had replacement reserves for 12 months for 18 months and that just did not work for some borrowers.
Whether those get relaxed overtime.
As a possibility.
I don't know if they get eliminated but that's one thing underwriting commercial real estate transactions, obviously, we'll probably have a second or third look at it.
And even Fannie and Freddie.
On the apartment side might.
Might be pausing here.
So I'd say part of that is borrowers.
Not necessarily wanting to proceed with higher leverage transactions and the and the capital markets of lenders are also stepping back a little bit. So if those conditions recover over the next 45 to 60 days, then again, you'll see more activity in third and fourth quarter. If they don't recover if this is the new normal.
So then that projection is probably going to need to be revised.
More or less permanently it's it's really a function up to the borrowers want to go ahead with.
Transactions at these pricing levels with the additional reserves and how much appetite there are for uncertainty in the capital markets and usually there is not they securitize.
Those transactions there rated they're priced and if there are material uncertainties, usually the transaction slowdown or stop and that is what we've seen in the last two to four weeks.
As credit.
Credit spreads come in is stay at home orders expire.
And as things start returning to normal.
People want to get volume back into their business plans have you could see it recover rather quickly.
Gotcha, Okay, and then just from a margin or dollars of net interest income standpoint, it sounds as though growth as a muted here in the short term given the liquidity you have on the balance sheet, meaning the margin is.
I guess when you factor in that but the rate cuts. It it's probably a second half event when you start to see a little bit more traction in the margin going higher and maybe it's a little bit flatter here in the short term is that yes I think.
I think thats, a fair set of assumptions or at least a viewpoint I.
I will say one one.
The thing that was not there the last time, we spoke is the actions by the federal reserve.
We're precipitous, but they also change the game in terms of deposit repricing.
So we will probably get a little more help on the reduction of interest expense.
Than we would've otherwise so.
There is some benefit there.
It doesn't quite match the scope of what happened on for example, the commercial lines of credit and reducing the interest income on just cash for the balance sheet.
But it is a helpful factor.
So yeah I would generally agree with your statement other than to say, we'll get a little more benefit out of repricing deposits on.
It would have otherwise.
Okay, and I guess anything you had kind of talked about targets more get I guess, it's premature to think that I guess, what you were looking at previous when we look at dollars have net interest income or just kind of run rates as you get later in the air Yes, I guess it.
All of it will be.
Haircut relative to what you initially forecast going I think if youre getting somewhat of the $50 million to $53 million range, it's going to be lower than that.
I guess as given the situation with that with Covance.
Well you start to your question to ask if it was premature and my response is that it's premature.
[music].
Okay.
Okay.
We would hope to get where we want to go but it's premature to say, whether we will or not.
Yes, Okay, Alright, and then how about just from a credit standpoint, just kind of going back to that for a minute I mean, the I guess the areas that is outside of that.
The retail in the small business is there.
Another area, you're you're focused on our I guess or you would highlight relative to potential stress with covance, if the if the closures extend out.
No I don't believe so I think we covered it pretty well in.
In the various disclosures and the profile.
I would just simply say that given the scope of what's happening.
Almost anything is possible things that wouldn't normally be an issue could be an issue.
Oh, and it's given our diversity.
We're protected against.
You know any big concentrations in most categories, but almost anything could pop up.
Just the scope of the disruptions whether its trade into Europe and people were just supplying things that docs or in transport of some kind of services businesses of.
Different kinds, it's it's just breathtaking how much disruption there has been and in some cases destruction of demand. So I. It's I think we've highlighted the risks as best we could for you.
I would certainly say that there could be things that pop up along the way almost you would have to expect.
Things will pop up along the way.
But for in some ways diversity as our protection, but it also diversity makes it hard to predict.
But I will to say that to the extent that our diversification helps us it's because our exposure on a national basis.
And diversifying the.
Folio out of northern Illinois is likely to help us more than it'll hurt us. So we're hoping that that's the case as time goes forward and as these markets open up South Carolina is restarting, Florida is starting to look at restarted Colorado, apparently is going to start reopening as soon as Monday.
Texas is already working on it.
And remember in Texas, our exposures are primarily in the Dallas area.
So that's a very highly diversified economy as they'll start to push ahead in recovery.
Then the the opportunity or the chance of surprises if you will or for.
The developments diminishes rapidly and we would certainly look forward to that.
Okay, and just to the capital for many you mentioned about the buyback and what remains and possible looking at I guess fair to think that if you. If you complete the current repurchase plan this quarter Thats fair to think about it that when you wouldn't anticipate.
Ill.
Having approval for a new one until after you get through.
The second quarter is that.
That team I don't open I don't want to go that far I'd say simply that one we always like to have availability to the market.
Two.
Given the current price.
Renewing the share repurchase program makes sense.
Exactly how much we do is also a function of how much there isn't in the market.
But we if we start running low I'm sure we're going to have some consideration of extending it how much and for how long and at what levels.
Those are the variables that.
We're going to have to weigh the board's going to have to way and look at it over the next.
One to four months.
But given these conditions, we want to be in the market as much as feasible. It just makes sense.
So we're going to have to balance all the interest to do that but it is still a key part of our capital management.
Okay, and then maybe just lastly, just on the expenses I guess given.
So the possible decline in revenue here less revenue than initially expected I guess as are there any initiatives any expense front that you can do to kind of come back some of that or mitigate some of that or just kind of what are your thinking on there.
You know if possible.
People that we would.
Take a view towards fixed expense reductions if this appears to be more permanent world.
But we have pieces in place with their new real estate bankers with the new lease bankers.
And on the assumption that we're going to see.
Our recovery of market conditions, so they can execute their business plans.
Or develop new ones.
Consistent with market conditions.
These are very good people that we brought aboard and we want to give them time to succeed if market conditions permit so in the very short term.
I wouldn't necessarily expect.
Just to do much.
We're also going to be investing in new people in the middle market space, we've been having conversations with candidates.
For the obvious reasons that among other things, we can't really interview people and wrap stuff up.
That's delayed but not necessarily deferred we would still like.
The production in the and the key people we need.
We're also going to be adding some resources on the deposit side.
Putting in new stronger capabilities on commercial Treasury services.
That fit our asset generation model.
So for all those reasons in the short run.
Pretty much going to manage expenses the way we have.
One thing, though that we're keeping an eye on is how the current environment changes customer behaviors and on the deposit side.
More and more customers are getting used to remote banking, we put in some new capabilities with docusign and electronic transaction.
And just to cut down the number of trips they had to go to the branch.
See how successful those are we're able to transact more business through the drive ins and naturally we're seeing even greater demand for bank by phone in online than we did before so.
When you take those those changes in customer.
Sure and obviously, we were already working towards contact list and mobile App for payments I think the and part of this environment will accelerate that demand and the customer preference so things like ATM machines ATM debit cards.
Brands service hours, the scope of the facilities as we see that.
And change and if it becomes the new normal then there may be some opportunities on the infrastructure in the fixed cost side to make some improvements and that would probably help us to reduce overall expenses and still keep customers really happy.
Got you, Okay, and remind me Morgan I don't think.
Yes.
Participating in the PPP program or is that not something youre.
Using at this point of participating and yes. We did we are we did participate in the PPP. We are participating the PPP we are.
Expecting that the House will act on Thursday in the program will come back line.
On Friday.
As we noted in the overview it took a while for for the SB eight to get us into the system.
We were already approved approved seven a lender, but you have to reactivate credentials and add people and we waited a long time for SP to get through their backlog.
But we now have you know about 1000 people in the system.
We had applications pending that are ready to process. So we're organizing their process now.
It's going to look a lot like black Friday at Walmart at six am.
On Friday morning, So, we're actually going to be using our time zone diversity to start the process.
When it opens.
And then we will continue to go through our focus was primarily on our are smaller businesses.
And and we will continue that focus going forward.
Okay. So you would expect some contribution but it's maybe just a little bit later, because youre late to participate or late to get approval to participate.
Okay.
Are you seeing contribution in terms of fee income Brian is at the point is that yes.
Yes from from a revenue standpoint, the contribution is you find those loans.
At a 1% rated certainly won't do much on the on the interest income side.
And as of last night I confirmed with the SBA.
Hey that they havent quite figured out how the fee income is going to work. So I'm sure, we'll maintain that accrual, but when we get the cash as a whole another thing.
Gotcha, Okay, I think that answers everything had Morgan I appreciate all the color.
You're welcome thanks for your inquiries and be safe.
You too.
Thank you and again, ladies and gentlemen to ask your question. Please press Star then one now.
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The conference back over to employee engagement for any closing remarks.
Well we piece.
I appreciate all the questions and interest we wish everyone to be safe.
We all hope that we get out of this sooner rather than later for everyone's benefit and enjoy as spring and early summer as best you can and I'm sure we'll be speaking to you in the third quarter.
Ladies and gentlemen, thank you for participating in.
This conference. This does conclude the program you may all disconnect everyone have a wonderful bank.
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