Q1 2020 Earnings Call
Without automatically being a TDR.
The first category or bucket consists of those customers who were impacted by the virus.
But our back off and running and don't need any further work.
The second category as those customers, who may still be struggling a bit but 90 days was not quite enough to resume of full payment schedule.
The examples of retail center that lost some tenants.
Our have some tenants that are struggling that seek another 90 day extension to either replace those tenants are healthier theyre tenants get bye.
While we will do is evaluate the relationship and the customers as we reached the end of the deferral period review a plan for the next 90 day period for the customer and if the plan makes sense, we will do.
For another 90 days if necessary.
At this point, we will also be evaluating interest only periods use of game.
Guarantor funds strength of location and other factors that may put this property in a temporary stress situation versus a more long term workout.
The third category is highly stressed customer category. These customers, whose businesses are not that helped by the deferral are on the wrong track and which.
Right.
Stressed.
We will move those customers will work out status, we will devise a workout plan that is individualized to their specific business and take the appropriate provisions are markdowns as may be appropriate.
We will not know until the shelter in place restrictions are lifted what real effect the shutdown may have cost.
We must see what damage the floodwaters have caused to be able to do a real assessment other damage and no better what our time frames our for repair.
Our markets are resilient.
And we'll try to resume normalcy quickly if history is our guidance.
As of the fall in oil and gas prices, along with the spread of that because well Corona virus. The first quarter included a major fall in oil and gas prices are market.
Markets have.
I understand that every few years, we will get a new mark on oil and gas and a new alignment.
And reset of the industry.
While we not though is that the oil and gas industry is not going away.
The question is what the new pricing supply and demand factors will be here and how the industry will reshape itself to deal with these factors the oversupply of product is substantial and the demand is weak.
We think it will be sometime in 2021 before we see any real resurgence.
In the oil markets.
We have never been having energy lenders as our do does our total direct and indirect exposure to oil and gas is approximately 7.2 person.
Set of our gross loan portfolio.
There is no question that low oil and gas prices impact our region, but Texas can be painted with a broad brush when it comes to oil and gas.
While energy companies contribute significantly to the Houston's GDP.
Economy in Houston has become much more diverse over the last three decades, and several industries contribute to the economy's growth and diversification.
Major industries, where employment include energy healthcare.
Our large port manufacturing education, petrochemical and finance.
However, we will need.
And to see the cloud of the Colorado virus lift before we can truly evaluate the impact.
Joe will address our oil and gas exposure more specifically later in this presentation, which will give you a better idea of how we look at our exposure.
As to lower the low interest rate environment.
Next I want to cover our actions with respect to the low interest rate environment. We're in today, we began dropping our interest rates in late November.
Just over at November 29 team since November 2019, we continue to monitor interest rates on our deposit accounts and our competition and reduced our rates in March and late in the quarter as the federal reserve continued to lower rates.
We feel our deposit accounts are competitively priced in today's rate environment.
We continue to have a stable deposit base with approximately 43%.
Of our deposits in non interest bearing demand deposits and 92% of our deposits being core.
While the amount of our deposits may be influenced by the coming quarters in part by the impact of the Corrado virus along with traditional seasonality.
Our deposits are continuing to hold strong.
With push out of the IRS payments and the Corrado virus effect, we have not seen our normal early year withdrawals and deposits have held fairly steady deposit. However, it is likely that those IRS payments come due.
Later in the year, we will see some additional withdrawals and possibly a slow slowness in our deposit build that we usually see during the half half of the year.
As to our loans, we are working to maintain our rate and underwriting discipline, we began tightening our underwriting last June.
Given the intensity of the political climate going into the presidential election.
Along with the downward pressure on interest rates and the uncertainty around the near term recession.
We have worked over the years to maintain our focus on building a quality loan portfolio, which we think as evidenced by our credit quality metrics that Joe will touch on later in this call.
Currently we have 54% of our loans in variable rate loans with floors, ranging from 3% to 6%.
And most in the 4% to 5.5% range to go along with 40% 46% of our portfolio in fixed rate loans.
Our net interest margin remains strong at 4.06 for the first quarter.
With competition, the Corona virus the stress in the market. We think we will continue to see some downward pressure on the margin compressing slightly over the next few quarters.
As for Cecil.
We adopted Cecil effective January one 2020, which resulted in an initial 874000 dollar increase in our reserve. We also increased our liability relating to the allowance for unfunded commitments as a result of the accounting change by $2.9 million. The initial move to see so result.
And in a net reduction of our retained earnings of approximately $3 million when tax effective.
At the end of the quarter, we had an additional increase of approximately $5 million and our allowance for credit losses, including the reserve against our unfunded commitments. The reserve Bill was primarily driven by the impact of the Corona virus and the decline in oil and gas prices. Although we did not have a specific increase.
These and classified loans, we did have an increase in several economic variables associated with our Q factors for the seasonal model.
The increase to our allowance for the quarter was a result of waiting certain of our qualitative factors around current local and national economic forecasts. For example, we increased our risk level for our current local economic conditions based on the impact of the economic shutdown relating to the Corona virus.
Combined with the negative effects on the local economy of oil and gas prices.
Our risk factor relating to the national economy for the next year increased as a result of an assumes sharp decline in the economy with a U shaped recovery that occurs within a one year period with less of an impact in year two of our forecast.
That said we are.
These are weightings and forecasts and we still have unknowns, including how government fiscal and monetary actions.
I will impact the economy, and Howard referral programs will impact our losses.
Like all we will continue to evaluate the circumstances and changes as we move forward.
With that I will with that lead in I'll, let I will turn this over to Ted I get our CFO.
Thank you Bob will move into a discussion of the results of operations for the quarter.
Earnings for the first quarter.
2020 were significantly impacted by the provision for credit losses of $5.0 million.
As increasing the provision for credit losses for the first quarter 220.
It was primarily the impact of coated 90, the drop in the price of only gas.
Local and national economies and also on current reports have.
Forecast as expected credit losses.
The company reported net income of $7.5 million.
30 cents per diluted share for the quarter ended March 31, 2020 compared to.
12.6 million or 50 cents per diluted share for the quarter ended December 31.
2090.
And Tim $5 million or.
42 cents per diluted share for the quarter ended.
31090.
And then there was $75 million for the quarter.
He is in March 31, 2020, which was a decrease of $2.9 million or 21 point, we've told you want.
0.1% compared to the quarter ending March 31 2019.
Primarily due to decrease in the provision for credit losses during the first quarter.
Frequently net revenue was $14.5 million.
For the quarter ended March 31 2020.
Paired too.
15.4 million for the quarter ended December 31.
And 14.2 million for the quarter ended March 31.
18.
Net interest income was $33.2 billion for the first quarter 2020, compared to 33.3 million.
For the first quarter of 2019 net interest income decreased 1.1 million during the first quarter of completely compared to first quarter, we 90.
The yield on interest, earning assets trended downward from the first quarter plenty 90.
0.47% to 4.56% for the first quarter of 2020.
The raising interest bearing deposits fluctuate within a narrow band.
You know narrowband during these periods the cost of interest bearing liabilities was <unk>, 0.94% for the first quarter of 20 to 20.
0.95% for the first quarter 2090.
Gildan many assets decreased.
And the cost of interest bearing liabilities have not decrease to the same expense.
Just calls compression of the company's net interest margin limitx tax equivalent basis.
To 4.06% for the first quarter of 2020.
Down from four point.
Six for the first quarter fully 90.
Although competitive pressures of cost.
Because the cost of interest bearing deposits not to drop in tandem decreases in market rates. They remain a local local source of funds.
As compared to other sources of funds such as debt.
The provision for credit losses was 5.0 million for this quarter compared to 1.1, new to the first quarter 2090.
The increase as we said in provision for first quarter was primarily due to the impact of coded 90, the dropping price of oil and gas prices.
Incurred forecast as expected credit losses.
Noninterest income was 4.3 million for the first quarter weekly.
And three and a half the knows for the first quarter between 80.
The interest decreasing noninterest income during the first quarter as compared to the first quarter Threenineteen resulted from.
$955000 swapped origination fees on three swap agreements originally due to first quarter 42000.
Non interest income noninterest expenses 20 people on the from the first quarter fleet, we compared to 22.6 me.
For the first quarter of 29.
The decrease in non interest expense of $496000 between first.
Fourth we 20 in first quarter squeeze 19 was primarily due to lower professional and directors fees.
Dominantly legal fees and lower regulatory fees, partially offset by increased salaries.
Visits as result of annual salary increases.
A few increased employee headcount on full time equivalent basis.
Legal fees, which are a part of performs loser after fees were lower during these three months ended March 31.
When you 20 compared to.
The quarter ended March 31090, primarily due to lower legal fees incurred in the banks responding in cooperating with an investigation mathiesen regarding advice compliance with the bank secrecy Act and anti money laundering laws and regulations.
Thank you for legal fees related to this investigation of $256000 $1.1 million is a three months ended March 31st.
First 2020 and 2090, respectively.
Global regulatory fees are lowering the first quarter 40000 compared to.
First quarter 2019, primarily due to an FDIC deposit assessment credit received in 2020.
Income tax expense was 1.9 million for the first quarter 2020, compared to 3.6 for the first quarter 2018.
Our effective tax rate.
It was 19.85% for first quarter.
2020.
Versus 19.86% for the prior year quarter.
The differences between the federal statutory rate of 21% for the effective rates were primarily related to tax exempt interest is bank on that bank owned life insurance.
Moving to our balance sheet total assets were 3.4 billion at the end of March 31020, compared to 3.5 billion.
Decemberthirty one 2019.
This was a decrease of 53.9, the primarily DC.
And 80 740 million decrease the cash cash equivalents, partially offset by an increase in loans of $32.5 million.
As of March 31, 2020.
Loans, excluding loans held for sale were $2.7 billion, an increase of $32.5 million or 1.2% compared to.
2.6 billion at December 31090.
Increasing loans was primarily due to organic growth increased capital leases existing customers.
Non performing assets.
Which include non accrual loans loans that are occurring over 90 days past due foreclose loans remained low relative to total assets at 1.4 million.
For 0.4%.
Of assets as March 31, 2020.
$937000 per 0.03% of total assets at December 31, 2019.
The company has certain loans, which is a restructure due to the bars financial difficulties recorded investment in trouble.
Net restructuring was 50.9 million an 8.9 the as of March 31, 2020 through December 31 2019.
The company expects that the number troubled debt restructurings may increase during 2000, Italy's due to the impact of covered 90.
And dropping prices of oil and gas.
The company adopted a issue 2016, dash 13, which related to the seasonal.
Which was effective January one 2020.
As well the allowance for credit losses for loans was increased $874000 and the liability related to credit losses for unfunded commitments increased $2.9 million.
This all resulted in a net reduction to retain earnings of $3 million effective January one 2020.
The allowance for credit losses was 31 40 million or 1.17% of total loans at March 31, 2020, compared to 25.3 million.
0.96 total loans at December 31, 2019.
The increasingly allowance for credit losses for loans is primarily due to the impact acute covered 90.
In the.
Price of oil and gas during the first quarter.
These factors will result in is approximately increased 2.21%.
The allowance for credit losses, as a percentage of total loans.
Liability ASO associated with the allowance for credit on credit losses for unfunded commitments was $3.7 million at March 31, 20, Italy compared to $378000 at March 31090.
As of March 31, 2020, the carrying them out of the company securities totaled $234 million compared to 231.3 areas.
As of December 31090.
This increase of $2.8 billion a 1.2%.
Amortized cost decreased 2.3 million as a result of maturities sales calls and tight paid hounds, which outpaced purchases.
Unrealized gain.
As a security portfolio was 8.1 million at March 31, 2020, compared to a net gains of 3.0 meeting at December 31 2019.
This increase of 5.1 million was due to changing market interest rates.
Total deposits.
As of March 2031, 2020 were $2.8 billion.
A decrease of 60.2 million or 2.1% compared to December 31090.
Non interest bearing deposits.
As of March 31, 2020 were 1.2 billion or an increase of $10.7 million for point.
9% compared to December 31.
The 19th.
Total interest bearing accounts.
Account balances as of March 31, Tonys. When you were 1.6 billion a decrease of 70.8 million or 4.2% from December 31.
2019, the changes in deposits for the December 31, 2019 to March 31 are due to normal fluctuations in normal customer activities.
The ratios average non interest bearing deposits. The average total deposits was 41.8% for the three months ended March 31, Twentytwenty and 43.3% for the year ended December 31, 29 teeth.
Concerning borrowings company has a loan agreement with Frost Bank.
$30 billion revolving line of credit.
There were no outstanding borrowing is line.
At March 31, 2020 in the company's is not drawn this line during the quarter ended March 31, 2020, or the year December 31, 2019, the federal home loan home loan Bank allows the company to borrow a blanket floating lean status collateralized by certain loans.
The borrowing capacity available under this agreement was $1 billion. Both at March 31, Twentytwenty in December 31 2019.
FHLB advances outstanding totaled $50 million, both at March 31, 2020, and December 31, 20, United team.
These borrowings were long term basis.
There were no borrowings under this agreement during the three months ended.
On March 31 2020.
The company also maintains for federal phone launch fed funds lines of credit the commercial banks that provides the company the availability to borrow up to $75 million for no outstanding borrowings under these lines of credit as of March 31, and December 31.
Total shareholders equity increased.
536.9 million as of March 31, Twentytwenty compared to.
535.7 million as of December 31, 2090 decrease.
Of 1.2 million primarily to turn.
Quarter income of 7.5 million, a 4.0 million increase in other comprehensive income.
And $557000 the stock compensation expense, partially offset by 5.4 million paid to repurchase.
Shares of our common stock $3 million.
Due to the implementation of seasonal and two and a half million dollars of dividends paid to common shareholders declared years in 2020.
During the three months ended March 31, 2020, the company repurchased 240445 shares under our share repurchase program.
At a price of 22.29 cents per share.
Which areas were retired and return to the status of authorized but unissued.
At March 31, 2020, and marks in December 31, 20, and I see the company and the bank or in compliance with all regulatory capital requirements at the Bank holding company and bank levels is bank was classified as a well capitalized.
For purposes of the FDIC prop corrective action regulations.
Now, let me turn it over to our Chief Credit Officer, Joe West It will discuss certain aspects of our loan portfolio.
Thank you Ted let me speak a bit to our loan portfolio starting with slide eight.
As Tim noted for the first quarter, our low 40.678 billion versus $2.647 million at the end of December 29 chain, an increase of 1.2% our portfolio yield was down from Q1, 49 chain will yield a 5.13% versus 5.48%.
Largely the result of a drop in the prime right over the prior 12 months for the quarter commercial industrial loans were up 3% commercial real estate up 4% construction and development up 6% on the for family down 1% in multifamily down 4%.
At 331, we had approximately 54% of our loan portfolio with variable rates and the majority of the set of their right floor. If it was a REIT for president.
At the end of the first quarter, approximately 71% of our variable rate portfolio have floors and maturity distribution of fixed rate over the fixed rate portfolio provides for 71% maturing within five years of available to reprice.
Our credit quality remains strong through the first quarter assay for 6.2 million at Q1 0.8 versus 2.9 million.
Q4 19.
Classified credits write a substandard rewards for 51 million at Q1 20 versus 29 million in Q4, nine King increase a substandard loans was due primarily to one relationship moving from special mention a substandard.
Troubled debt restructurings increased 6 million over Q4 non king.
Six classified loans requested and we see.
KOVA knocking related payment deferrals in late Q1 20.
Thank our net recoveries of 300000 from previously charged off loans in Q1 20 versus net charge offs of 200000 Q4 noticing.
Slide 13 access for our oil and gas exposure I think different execution of quantify the oil and gas exposure differently from each other we quantify our direct.
Oil and gas exposure slows the entity with more than 50% of this revenue.
Related to the well head on the ground or attractive oil and gas. This includes any activity product or service related to the oil and gas industry, such as exploration and production drilling downhole equipment, our services oilfield services machine shops offer compressors that the well midstream company the midstream service companies.
Our indirect oil and gas or those to the entity with a much trio portions like 20, 50% of this revenue from the type of company defined as Greg examples good equally trucking companies machine shops, commercial real estate withdrawing us on oil and gas field.
Our oil and gas wells continue to downward for from Q1 last year Q1. This year for total falling from 12 31 by approximately 5.5 million largely because of loan pay offs.
Slide 14 sets forth the components of our oil and gas wells on the makeup of oil and gas flow portfolio.
Turning to slide 15, as Bob mentioned earlier in the call our thoughts and our work with our customers on the TPP program.
And we'll talk about how we're doing.
And working deferral in light of all that's going on.
It's a touch older.
PPD program during the first phase we made 1378 logo in aggregate principal amount of approximately 287 million. Our estimated gross fee is 9.5 million before taking into account recall, we have occurred with technology and process into high volume that we incurred a.
Have also been working applications in the second phase on the program.
With respect to.
Payment deferrals generally upon customer request, we give consideration to a payment deferral, we gather updated credit information request at the borrower completed questionnaire describing to covert 19 impact on the business operations, our credit staff reviews request and supporting data to determine if TDR recognize.
Sure as appropriate.
Deferral requests as review committee of lenders credit staff, a senior management.
The typical deferral, we are seeing of or request for 90 days or full payment deferral.
At the bottom of slot 15, you'll see that as of for 21 20 the bank.
Prove deferral requests for loans totaling 466 million or about 17.4% of our total portfolio at March 31.
The largest component of our deferrals has been in our commercial real estate category and the majority have been approved since the end of the core.
Slide six thing, we'll give you more deficit to Tyson load, we have approval deferrals on the deferral deferred payment amounts.
If you if you look at slide 16, you'll see a break out of what we think are the elements of our portfolio most sensitive to the overnight team bars, we failed commercial real estate oil and gas convenient stores hotels and restaurants.
Well as higher risk elements of the cost of approximately 27% of US total loans at March 31.
Slide 17 also sets forth information regarding referrals for this group, which comprised 47% of all deferrals.
For this group the deferred loan totals are.
Retail commercial real estate 108 million hotels 51 million.
Restaurants, 32 million oil and gas 6 million.
The venue stores 23 million.
Let me turn it over to our controller, Jos Manuel who will discuss certain aspects of our adoption of Cecil credit provision made during the fourth.
Thank you Joe.
Have you turn to slide 18 year see a breakdown of our allowance for credit losses associated with our loan portfolio.
As Bob Franklin mentioned earlier, we adopted Cecil effective January 120 20.
Which resulted in an initial 874000 dollar or 0.3% increase and our allowance for credit losses.
We also increased our liability reserve related to our allowance for credit losses on unfunded commitments.
As a result of the accounting change by net $2.9 million.
This also had a associated increase of 100, sorry, 809000 on our deferred tax assets, which resulted in a net reduction through retained earnings of $3 million upon adoption.
Additionally, we increased our allowance by 4.7 million as a result of the impact of coated 19, and a decline in oil and gas prices during the first quarter.
As well the impact to our local and national economic forecast as part of our forecasting methodology. We have utilized the final March Moody's baseline scenario forecast, which considers both the kogan 19 impact and the economic stimulus.
As Bob noted at the on outside of this call our risk factors relating to the national economy for the next year increased as a result of and assumed a sharp decline in the economy with a U shaped recovery that is expected to occur within one year period.
But with less.
An impact in year two of our forecast.
The allowance for credit losses for loans was 31.2 million.
Or approximately 1.17% of total loans at March 31st 2020, compared to 25.3 million or 0.96% total loans at December 31st plenty 19.
And 24.6 million or 0.97% of total loans at March 31, 2019.
These factors resulted in an approximate increase of point to 1% to our allowance for credit losses as a percentage of floating loans.
Slide 19 sets out our allowance for credit loss related to our unfunded commitments at the end of Q1 20 Tony.
This liability is associated with expected credit losses on our unfunded commitments or off balance sheet exposures.
Balance at March 31st was $3.7 million compared to 378000 at December 31st plane 18, and March 31st 2019.
The increase was primarily due to the adoption of diesel as previously mentioned.
And the impact encoded 19, and oil and gas price declines as discussed previously.
The economic impact from cover the 19 and oil and gas prices resulted in an approximate increase.
0.08% to the liability associated with the allowance for credit losses, as a percentage of total availability of those unfunded commitments.
Our commercial and industrial and commercial real estate classifications carry both the larger its largest balances of our allowance which represent point fee for 6.36% of our total loans at the end of Q1.
Additionally, due to our strong capital position and more than adequate capital ratios as Mr. Tiger previously mentioned, we have opted out of the election to transition the seasonal impact and to our regulatory capital based on recent final an interim role as posted by the federal agencies.
With that I turn it back over to Bob Franklin.
Thank you Josh.
In conclusion.
Although they are still many unknowns in front of our company, we do feel that we're well prepared to deal with the impact of the Corona virus.
The decline in the oil and gas prices in the current rate environment.
Our liquidity and capital ratios are strong we are a bank that has worked hard to maintain discipline and building quality relationships that resolved and quality deposits and loans.
We have recent experience and muscle memory from dealing with natural disasters in our communities. Many of the mechanics are the sang.
We believe that while impacted our Texas markets remain good business friendly markets, our markets and customers are resilient and ascent, assuming we are on track to get back to some semblance of normalcy and then coming month in the coming weeks, we are well positioned to work with our customers and communities and also the.
Take advantages of opportunities that may present themselves.
As of today with our governor is launching two phases.
We are opening up some of the businesses in our communities.
Yes.
Starting on Monday, and then.
Phase two starts on May 18, which would be the majority of the of the businesses. So we still have some corona virus overhang.
As we get back to work.
But the city Houston is starting to get back to work.
With that I'll open it up to questions and Shentel there.
If you could do that for us.
Thank you at this time, ladies and gentlemen.
Please press star one of your telephone keypad again that is I want to ask your question.
System on the second topic today last.
And your first question will come so Matt Olney Stephens.
Good morning, guys I.
Hi, Matt.
Thanks for taking my question and thanks for all the great information and the and the deck and on the call. This morning spin.
Quite helpful.
I want to start with the.
The capital base there at the bank, obviously very strong capital, which is very nice to have during these uncertain times and in the past we've talked about various strategies to deploy the excess capital.
Where we sit today I'm curious to understand what the updated view is.
Of capital and potential deployment. Thanks.
Sure Matt.
We havent changed our view much we're going to continue our plan to continue with our dividend.
And we constantly look at what level of dividend, we should be paying look at that on a quarterly basis.
Second evolve we are still.
We still would like to see our bank.
Doing M&A.
Continue in M&A, but.
It's it's something that today, we don't look we don't think is is going to happen, but possibly in the near future. There may be some things that that would allow us to do that depending on how some of these folks come out of the Corona virus and and some of the other things wed.
Sometimes shocks to the systems allow.
M&A activity to pick up a little bit when peoples that may have been reticent to sell their banks before.
May have a different view today.
We did have a buyback and in place we pull that back just to be conservative around.
Not knowing what the future might bring however.
We will consider.
Reinstituting that buyback over time.
F.
The economy gives us a signal that we feel comfortable and doing that.
So we're going to continue in the same way to manage our our capital the way that we.
Now we have we understand that we built up quite a bit of capital. It's times like these that we we we feel.
That it gives us some advantage.
And going forward so.
We feel very strong that we're in a very good position to weather or whatever storm is ahead of us.
There's still a fog around those corrado virus.
And until the fog layoffs I don't think anybody can tell you exactly where.
Where we are but it doesn't feel like.
Theres been nearly as much strain as people might think out there.
But I think the pace that has got to be difficult for Paypal to to try to assess until this corrado virus fall moves off as what the impact of oil and gas was Gonna Bay.
We know that.
It's going to be difficult for oil and gas companies, especially anybody thats above ground.
And so we'll just have to take.
That is it as it comes but.
The Houston economy is used to these resets and it will get through this reset again.
And I think probably each one each time. They we go through these it seems to get back to normal CLL quicker than the next the last so.
But thats, how we intend to look at.
At the at our capital.
Okay. Bob that's that's helpful. And then you mentioned the energy piece and you guys broke out the direct impact versus the indirect impact and gave some good examples in the press release. So I think that's that's helpful.
I'm curious between the indirect and direct.
How should we be thinking about the risk profile of each one of those is it simply about.
Duration and the indirect impact would be.
Would it come into focus the longer we stay here at these current prices.
Just kind of curious what the indirect impact and how you guys think about.
When that could be when they could come into focus from a risk profile standpoint for the bank.
Well as the trickle down effect of of the oil prices and what it does to starting with the majors and then trickling down all way through to the Guy that works in this machine shop.
That happens to be a tenant in one of our projects that we financed.
These are the effects that what level of business and how fast. These guys can move to do something else with that machine shop or whatever the other.
Business had might might have most of ours is indirect most of our exposure in that category as indirect.
But I think it's just as we think about at most of it is kind of what half what is the real effect of the oil and gas around the greater Houston economy, and the markets that we're in.
This this oil and gas pieces, a little bit different.
Than the past.
And in looking at something were so oversupplied.
And then you cut demand off totally.
We're not sure exactly what the effects of that are going to be and you're already seeing some a larger majors start to restructure even contemplate bankruptcy.
And the farmers so that they can actually restructure what they have.
So it's all a reset.
But we know.
If somebody is a tenant and one of our industrial buildings.
We have the opportunity to re tenant that that building.
The values are still relatively their depends we could get a whole reset of depending on how.
How difficult it is for people to come back.
And after this corrado virus so.
I don't think anyone can tell you yet exactly what the values are on those cash flows of those cash flow strange.
Until we know what the tenancy is going to be and a lot on the strip centers retail centers out there so.
As we look to see what the vacancy rates are going to be how many people are going to reopen their businesses.
I think to some degree we've seen ourselves.
This last month has felt like six months or years has felt so long and it's really not been that long and saw it appears to us at many of these small businesses are going to come back and going to reopen.
But when it's just very hard to assess that today. So we'll see what happens after after the far less and where we are.
But if we come back and its five or 10% vacancies versus 50% vacancies, they're certainly going to be a difference in the way that we value those properties. So.
Hi, long winded answer of all that.
No that's that's great commentary.
Appreciate that and on the loan growth front.
It was some nice loan growth and the first quarter, but as you mentioned in prepared remarks lots of headwinds emerged late in the quarter between kind of Iris and lower energy prices. So.
At this point, given the pipeline and given kind of the macro uncertainty how are you thinking about loan growth in 2020 for the bank.
Yeah well.
We're certainly not being aggressive and trying to bring in new laws for when we can't really assess risk.
I think until it's clear that we can clearly assess the risk of a new credit.
Going to be very cautious around around that so.
The other side of this is payoffs have slowed down so will mean, we're not getting the pressure for the on the bottom side nearly as much but.
I think we're going to be fairly cautious around new credits until we can better assess what the risks far out there.
Okay. Thanks, guys.
Thank you.
Hi, good ladies and gentlemen is asking how do your question first I won.
And your next question will cost a lot of Brad Milsaps with Piper sentiment.
Hey, good morning, guys.
Hi, Brad.
I appreciate all the detail that to you guys. It gives this quarter just curious.
Yes, you updates on Dallas.
What you're doing there.
To see what added with the virus is probably slowed things down a bit but im sorry, I missed earlier, but just kind of curious.
Kind of what's going on with your expansion efforts there.
Well that you know Dallas is still small.
I think.
Sometimes you go and do something and everything that can happen to your happens to isn't built.
Bill fail and.
Had some issues and continues to have issues. We do have a we have a good crew in Dallas and they're doing a great job and we made some good loans in Dallas last year.
But we havent been able to expand up there the way we'd like to and then we have corona virus and everything else moment just in one thing after another but we're still looking for opportunities.
We would like to do.
Some M&A up there possibly.
And maybe this gives us some opportunities and maybe not but.
And we also would like to hire some additional folks up there and we we had been talking to some people before this corona virus kind of came in and everybody's kind of changed or.
And your outlook on things.
But.
We're going to continue to expand up there I mean, we want we need we need to have a presence there and.
Right now its is very small.
We are going to continue to try to expand that.
Great and same question on Slide 12, you guys touched on.
The construction and development book some during your comments, but.
Just kind of curious if you could off a little more color there and maybe what's going on with some of the bigger projects are they continuing to push forward you still got over.
800 million of commitments out there kind of relative to that 558 million outstanding.
Just kind of curious your thoughts on how quickly those draw up and then is there a market more markets for those to kind of move on into the more permanent market given what all is going on.
Yes, Brad this is Joe.
We will.
Review our activity in our.
Our construction management Department.
Look at the low withdraws over the last three months and into April and our draws have remained.
Very constant and further numbers of brawls. So our construction activity is continuing the.
Filters have not.
Slowed down that much.
Activities people are continuing to finish their products.
Project, rather and bringing forward so it's.
The quality little bit of the uncertainty is the the leasing market. When you get these get completed in mortgage.
So there's quite a bit of fog around what that is but they havent slowed down the road construction projects have installed out or anything like that is continuing to.
Advance on their construction loans.
And then maybe maybe specifically to the to the multifamily community development pieces.
It is what's going on as slow that down further or does that is that impacted in any bigger way than any other pieces of the of the portfolio might be.
No I don't think so the though those projects are continuing to.
To build out.
The that.
Just to give an example, there's no there's been no request for deferrals in that group that is in the metrics all over the whole uppermost remain strong. So we see those continuing forward and actually the warm.
Stronger piece to the overall portfolio. So we've been.
I'm pleased with how that formed in the current environment.
Great. Thank you guys.
Thank you.
Your next question what comes from the line of Brady gaming with KBW.
Hey, Thanks, good morning, guys.
Hi, Brad.
So when you look at the activity.
With the ASP VP of 287 million in phase one.