Q2 2020 ServisFirst Bancshares Inc Earnings Call
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Good afternoon, and welcome to the surface first Bancshares' second quarter earnings Conference call.
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Please note. This event is being recorded I would now like to turn the conference over to Davis Mange, Vice President of Investor Relations. Please go ahead.
Good afternoon, and welcome to our second quarter earnings call, we will have Tom Broughton or CEO, but toshi, our CFO and Henry Abbott, our Chief credit officer, covering some highlights from the quarter and then we'll take questions.
I will now cover our forward looking statements disclosure.
Some of the discussion in today's earnings call May include forward looking SEC [noise].
Actual results may differ from any projection shared today due to factors described the most recent 10-K 10-Q filings.
Forward looking statements speak only as of today. They are made Servisfirst assumes no duty to update with that I'll turn call over [noise].
Thank you divested good afternoon. Thank you for joining our call.
I'll talk a little bit about him give you a brief overview the second quarter.
It was a store border in many many aspects in many regards in.
The first and most obvious thing that struck me about financial statement as we ended the quarter the Haas level quantity.
That we've ever I had in the company by far the motion improvement.
In any one quarter with one and a half billion dollars and new deposits.
We did close over $1 billion in Triple play SB eight loans to almost 5000 borrowers.
We have seen the the market share reports and among the.
Loans greater than $150000 or service first had a number one market share in both at the state, Alabama and in Birmingham, I, usually don't make self congratulatory statements on this call.
<unk> results speak for themselves, but we do think that is a good sign for the future and that we have strong relation ships with the owner managed privately held companies in the state of Alabama, and or the rest of our footprint. So we think theres good opportunity to grow our bye.
Those opportunities that we see there.
Also from a historic standpoint, it was largest decline in line utilization.
In any quarter with a decline from 49% to 40% line utilization, which that is the huge amount of drop we saw attributed lot of it to the pay downs to the triple picked from the trip pay facilities.
Loans to the borrowers lines as well as I think people just being conservative in cautious and pay it down the road glide, where they are able so it shows the strength of our company.
That in turn led essentially led to decline in loans of about $275 million.
We would have had additional loan growth in the quarter of $275 million, if we're not saying that decline in line utilization.
Most of our triple fee income in the quarter was was offset by one time expenses, but will be talking about that.
In a few minutes.
We did see.
Good bit of improvement in all of our asset quality metrics in the quarter with reductions above npis and very low pasties, Henry average cone discussed a good bit more.
In terms of asset quality in a few minutes I know that's a topic certainly during the.
They make and the recession, we've had over the last few months.
Talking about loan deferrals, that's obviously, a hot subject of huge interest today.
Our loans deferrals peak at the end of May at $1.24 billion.
Those deferrals as of July 15th.
Fallen.
About over 90%.
To a current level of $127 million, we expect further.
Declines from layer over the next several weeks.
So we feel good about where we are Henry Abbott and eyes, well it can address any.
Questions you have about loan deferrals in our future policy.
Our 90 day loan pipeline that is down about 20% from the first quarter, which is certainly something you would expect.
To see.
Given the the given the cover not Tina Thanks, a lot of.
People hit the pause button on projects, we are seeing more moving forward over the last few weeks.
So thank you will improve our total pipeline, including loans greater than 90 days is consistent with the.
At March 31 ended the quarter. So we think we'll we'll see it get back to normal over the next couple of months.
We did make additional loan loss provision.
In the core it would pull us in line with our Cecil model.
So we can talk about that is as you. Additionally, a questions that you have.
It also of note there alone.
Loan loss reserve in equity exceeded a billion dollars for the first time in our history for the first option were certainly proud of that.
Rich that milestone.
I would not go ask January Abbott, if you will give us an update on the effects of pandemic on certain industries and general credit quality update Kenner. Thank you Tom.
Thanks loan portfolio has continued to perform well in the second quarter. Despite the economic impact as Kevin 19 at the ended the quarter past due to decreased by $2.8 million from the first quarter and nonperforming assets decreased by roughly $12.7 million.
Pat the total loans were 13 basis points, and NPK were 26 basis points per quarter.
30% decrease in NPK was primarily driven by a settlement in reached on our largest nonperforming asset.
I'm pleased to say, we had no more exposure related to that credit and part of our second quarter charge offs were really related to exiting it.
As a reminder from prior comment the bank has a well diversified loan portfolio and both geography and industry classification.
Surely as granular and we have no major concentrations within industry credit.
We initially to a three month approach to deferral and are assessing future deferrals proactively to assess the borrower current financial status.
At the end of May we had roughly 15% of our portfolio in some form of a deferral by comparison at July 15th as Tom mentioned, we were down to $127 million in loan roughly 75 unit.
I had some clients severely covered and back to the industry, who needed additional deferrals and we have and will continue to underwrite their ability to repay the debt in the current operating environment to date, we have granted roughly $60 million than second deferral.
As documented by this trend is our expectation that the overwhelming majority of our client who had the deferral will or have already returned to normal pain.
Slide deck, we have posted highlight some of the comments I'm about to make in more detail has laid out on slide four we're not a large hotel lender has noted by hotels being less than 2% of our loan portfolio. The majority of our hotels flag and none or oriented toward conventions over the workstyle accommodations over.
Our 83% of our hotel portfolio is not on a deferral and none are currently on the watch list.
Restaurant exposure is noted has less than 3% of our portfolio retail theory consist of $270 million and loan or 3.5% of the loan portfolio. The average loan size, it's less than $2 million in this segment.
Well established bars that we have long standing relationships with.
We continue to proactively assess our loan portfolio in these more cobot impacted industries as well as others to ensure we are taking appropriate measures as necessary.
As referenced by Tom Prior comment we've seen an uncharacteristic drop in commercial line utilization is my speculation. This is driven by TPP line, helping provide our borrowers additional liquidity and this decrease in utilization helped shows the continued strengthen our commercial loan portfolio.
We're continuing to utilize our proven incurred loss methodology for calculating our a triple well and delayed the sequel Cecil implementation. However, with second quarter, we increased our loan loss reserve to support the reserve has provided by our see some model as our intent to continue to run parallel models.
As I've said 30, our reserve was 1.1, though as is but when excluding triple PD Lone we're actually had a 1.26%.
Thank you Hendry, but first use now going give a financial update but.
Thanks, Tom Good afternoon.
Net interest margin from the second quarter was 3.3, 20% versus 3.58% from first quarter.
Adjusting for that.
Average triple pay loan balance.
Hundred $86 million.
Triple pay interest income and two point Sixmillion and triple pay loan fees net interest margin was 3.47.
Also adjusting on the increase in average fed funds, so balance of 358 million undesired core net interest margin was 3.44%.
The remaining net deferred triple pay deferred fees or 28.9 million that breaks down into phase of 31.1 million and deferred Fas be 91 expenses related to the triple eight loans of 2.2 million.
As far as future improvement to our interest expense, we have CD maturities over the remainder of 2020.
247 million the average right and 1.67.
We expect majority of they see needs to reprice at 0.7% or by oil.
And we are also reviewing our special right you guys.
Another factor, we have 50 million.
Brokered Cds that mature in August and the right on most Cds is 1.67.
A reminder, we have no accretion income related to acquisitions.
Kwitny.
Tom touched on this fed funds so.
When we started finding the Trump pay loans in April was 600 million and the funds excess funds at the end of June were 1.44 billion.
For our noninterest income we added six new banks in the second quarter.
To the American Bankers Association credit card referral program.
Credit card income and net income was one point fourmillion into second quarter versus 1.7 million in first quarter.
The stand on our purchase cards decreased by four may and the second quarter and the spend on the business credit cards decreased by 9 million and we think Thats our majority that's related to the.
Good.
Merchant services fee income.
The income in 2020, so far is 234000.
We expect that to improve because year to date 29 team was 249000 and we have two options that are dedicated to sell in the service.
Mortgage banking income.
It's half million dollars to the quarter. Its 2.1 billion in the second quarter versus 1.1 million in first quarter.
Also we purchased a lot more cap on about five or cap in the second quarter 300 million notional amount of mark to market adjustment and the second quarter.
Was negative 252000, the strike price for that cap is 0.5%.
A reminder, we did not sell any government guaranteed loans should generate noninterest income.
Non interest expense a triple pay expenses for the quarter were 3.2 million.
2.5 million of that was bonuses and overtime.
Oh, sorry expenses.
The quarter increased 703000.
And that had to do an updated appraisals.
Credit.
Total producers were down a net of six producers year to date, we had 130 dine at end of 29 team.
And 133 at the end of June.
Total employees were down four we had 506.
End of 20, not team and five owed to at the end of June.
Capital banks tier one leverage ratio was 9.90%.
At June Thirtyth.
And then tax update.
Corner that tax rate for 2020 is 20.95.
21.22 without stock option tax credits or 136000.
Second quarter 20, not team it was 20.74.
21.15 without stock option credits a 186 out.
Year to date Twentytwenty is 19.95.
21.26 without stock option credits or 1.2 million and year to date 20, not taking it was 20.15.
21.23 without stock option credits 958000.
Correct, you're right from the remained at this years, 22%.
This concludes my comments I'll turn program back over to shop.
Thank you.
Just a few things before we take take questions and one thing I'd like to.
Comment on US is from a standpoint of economic improvement we've seen it greatly exceeded any I think almost any economist expectations.
I would agree with most of that are currently thinking that we're going to need a couple of two or three years to get back to full employment economy, and I do think that community banks in our country will play a major ROE and helping us get create the jobs necessary to get back to full employment and I think also I think the political mood is such that they rack.
Knives that the community banks are necessary.
In our country, whether you're Democrat or Republican I think they recognize that at this point in time.
As I say last quarter, we do see significant opportunity for growth. Although this is Matt Damon.
You know from a liquidity standpoint, I was fully expecting that we would need to draw on our triple B.
Liquidity facility at the fed by the second or third week of April and.
Yes.
Meanwhile, our liquidity has improved by one and a half billion dollars in the quarter.
Which you know my hope was that certainly that the triple pay money would prove to be much like hurricane money.
For banks that have been affected by hurricanes up sort of call the hurricane money because of.
The money comes in and it it might change hands, but it's still stays in the banking system into say hopefully station and our buy.
We're one our customers might have gotten a money they did their employees that made it to other vendors those vendors put the money back into buying so we'll continue to enjoy those deposits at least for the time being.
We do think was having high liquidity with excellent credit quality will position us well. If we go forward. The rest of this year in 2021, and we'll be glad to answer your questions. You have thank you.
We will now begin a question and answer session.
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At this time, we will pause momentarily to assemble our roster.
And our first question comes from Kevin Fitzsimmons of D.A. Davidson. Please go ahead.
Hey, good evening everyone.
Hey are again.
Good I'm good listen.
Hi.
I'll, probably start out with a very top level one on PPP, it's obviously very lumpy and.
And it affects several different areas in terms of average balances the bridge the origination fees and maybe when you touched on that but I think.
Last quarter, you guys had talked about maybe that flowing to the the noninterest income line, but looks like it's flowing through the margin line like.
The other banks and then.
In terms and then in terms of that impacted the margin just if you're looking out over the next few quarters, how should we be modeling PPP. It.
If you were us thanks.
Yes.
Big final guidance on the accounting for that came out in June.
No. So we have set it up to be deferred over the term to 24 month term, so will accrete that into income over the.
24 month term so it's a 1.3 million a mark that we accrete.
It would be 1.1 million actually I'm not happy net out the.
Deferral for the deferred FASB.
Hey expense.
That.
Is that what you're looking for kind of a monthly or quarterly totals.
Yeah that that'd be helpful. I guess, but are you.
What would you be expecting in terms of the forgiveness and.
These fees hitting you know a lump sum fashion like we did it seemed like we were all thinking about a quarter ago that we would.
Wake up and third or fourth quarter and you have these loans getting forgiven in.
It's coming in a lump sum fashion, yes, I think we're still waiting on.
I don't guidance on that from the SPJ.
If I had to take a guess I would say probably they November I.
I would think before all that settled and we get get the get our funds back from SBO, Matt, but that's just to.
I guess, maybe Tom Adam Adam Kevin I don't have a form yet we couldn't apply for or.
You know forgiveness today, if we wanted to.
We do have a positive carry on these loans. So we were not.
Again, we thought our liquidity would be such that we'd be into the fed window.
By now, but we haven't touched it.
And are looking for home for liquidity trying to find investments to buy.
Instead so.
Now.
Let's say they come out with it in August and we start the forgiveness processing.
Yep September we apply. So then you are saying they've got 60 days to pay us it might come.
It might come as early as October bit might come as light is November December you know is well before and we underwrote.
The idea behind 100% around alone that we own a triple play loans is that they would all be forgivable loans. So we may end up with.
Some small amount of money.
But I can't imagine it would be more than.
2030, $40 million of money left out and Triple B loans. After the forgiveness period does that give you a good enough answer Kevin or a good yeah.
I guess so the the the simplistic way to think about it is that you guys were entering 2021. The TPP balances are gone off the balance sheet. The origination fees are mostly.
Realized depending on how we model betting and.
And then maybe if you could just touch on the margin I know last quarter you said.
Yeah, I hope the core margin would stay about the.
The level of March, which I think was 360 and I know, we have lumpiness from PPP, but I guess the excess liquidity was the big.
Drag there on the Threesixty versus the 344 is that how to think about yeah, yeah because.
You know, it's going well today.
From when we started funding to triple pay the liquidity is up a billion dollars were 1.6 billion today and excess funds over 600 million when it started.
And with the thought and bugged would the thought process there be that.
As triple B winds off that excess liquidity winds off as well and you see.
Shrinkage net you know some some shrinkage the balance sheet from that but your percentage margin would go up in term.
Yeah, you know the biggest key is increasing our loan production. We've we spent a lot of time in the second quarter on the triple paid loans and we know we have to increased loan production. So it really depends on the loan production side more than anything what happens.
Clarity lists.
I would think so right.
No I mean, that's kind of what we're hoping for yes.
One of these triple B.
Loan proceeds that are clearly still in our buying run off is a good question I don't I certainly don't have the answer Kevin It's my first Bandini.
Mine too right I took enough time. Thank you very much. Thank you Jackie.
Our next question comes from Brad Milsaps of Piper Sandler. Please go ahead.
Hey, good evening guys.
Hey, Brett.
Hey, I'm talking about you guys had some nice improvement in nonperforming loans looks like that you know deferrals are headed into right direction.
Just curious you guys you talked about maybe criticized or classified classified loans friends that out you know kind of might be gone the background.
Sounds like you're really pretty encouraged about that the credit outlook is that you could tell but.
Just just any trend there would be helpful.
Yeah, you know, we I think we've added.
One significant credit this quarter that it is up it's not only the list of.
Credits, we highlighted in the slide deck, but it is a.
Clearly affected by code and not take a specialty transportation.
Company. This Colm just don't have issues into late we get get behind the the pandemic get a vaccine so.
Yes, probably that number one credit that we've added and I'll Henry would you add anything else to that statement I mean, I think you know we're assessing the portfolio, but that's been the one one big item that's been impacted that.
Yeah and take longer to come back.
But there's no big change in the level of criticizing classified loans from from from June 30 from March 31.
Oh, I wouldn't say any outside of that one credit no no material.
Hey, guys.
Got it got it Okay and then a.
But just kind of wanted to quickly follow up on expenses.
You had that you and a half a million dollars in bonuses that were paid in the second quarter that presume wouldn't be there in the third but then I just wanted to confirm the the Fas 91 cost that you expect I think 2.2 million going forward, you know 2.4 million.
Until the second quarter.
Did you get the benefit of all those deferred cost in the second quarter or is that the piece that the 200000 or so that's going to accrete and over that over the 24 months just want to make sure I'm kind of clear on that the puts and takes of the extent bought out on this quarter.
Yeah, I know, we took 2.4 as a credit people 4 million as a credit against salaries and benefits and then that plus the.
Hi Fi accretion all that is a lot all that nets to the interest income, but that will go against the margin once that.
Accretes or Amortizes Bakken income over 24 months.
So you got a net yeah no as you've got a between the two it you had 28.9 million net between the phase in the deferral and that 28.9 would have 22 months well create.
And the income.
Understood, but the that that the Fas 91 that you incurred in second quarter that essentially offset the bonus payments. So in other words.
Third quarter, Oh, right, I think where you're getting there you're going to stay relatively flat.
Yeah, Yeah, 2.5 million of expense offset by the 2.4 hundred deferral in salaries and benefits.
Okay got it as David does he have a net spread have the net number.
The net income number.
I think I'll never was $1.4 million all triple B in the second quarter.
Yes, thank hoist talking about is that 2.5 in bonuses and overtime minus what she deferred and fast growth in salaries I thought maybe he was trying to arrive in an area that run out and all that helping get there sorry, yeah. Yeah. Yeah, Yeah, Yeah, I know you're right. That's helpful. And then did that the difference. It I think you said 4.1 million feet.
This quarter.
Or 2.6 million feet, and 4.1 million until the difference would be the coupon in the fees is that right.
[noise] no way. So we took 2.6 may and see so 1.3 million.
A month is what would differ.
From a figure.
Okay.
Got it alright, Oh, they follow up you, but I think thanks I appreciate it.
Okay, Yeah, I'm could be so if you you might be as well right Ed.
Yeah, Yeah pulled up the off on all this bad.
Deferral business is very confusing I look at as a very straight bar we took.
You know almost $5 billion or the triple B money into income and then we had expenses.
That offset it and we had a 1.8 million pre tax.
And he take taxes that we had a million for net income for the quarter all triple B.
No. This is after we you know we thought we were had a clear I understand and Ohio. The that we could take all the triple B.
Fee income and in the second quarter, but obviously that changed dollars.
We cannot change their opinion on where we were what we thought will serve the opinion.
It's not a typical origination fee, we don't look at it as I as I I didn't think it should be characterized as a typical origination fail.
Yeah, I guess the best so going forward, you'll have a gross 3.3 million a quarter.
In net.
Net differ off the phase and the deferred FASB, so that will come into income each month. Your expense side goes away all the triple pay expenses were recorded in second quarter.
So going forward, you'll have that 3.3 million that shows up in margin.
Until those loans pay out.
Got it got it I understood. So about three about 3.39 quarter until the agent if they if you score assuming they get to.
Yeah, I'm with you okay.
Thanks, guys I really appreciate it.
Thank you Brad.
Our next question comes from Argentina, which Oh Jarislowsky Fraser. Please go ahead.
Good evening guys.
Yeah, you are you.
That's very well.
I have a couple of questions. My first one is on competition.
Are you kind of seeing competition pull back maybe the big banks, which usually tend to you know in these times and sometimes those give opportunities for someone like us to grow our using that dynamics play out.
Oh, yes, we are in different you know, especially.
Primarily one thing is on multifamily construction projects that they were pulling back in the pricing has strengthened in fact, we've seen pricing strengthen across the board during the pandemic in every area, we're not saying intense price competition that we saw prior to the fan Jamie you still see some there's some paper.
The has gotten a memo, yes that the world changed a bit a few bikes typically smaller bikes that haven't gotten a memo on the world is change so but we we are seeing.
Optician pullback, we do see.
We did a lot of triple play loans for.
Customers of other bikes Durant, they pay and they me.
Without understanding that we would they would move their bank into us.
Oh, and we've also had a lot of companies contact us that are unhappy with the buying they did their critical thing loan through their old buying but they won't too.
Go through the forgiveness of period, where they're all buying before they changed mines, which is certainly understandable out I would do that myself. So we do see opportunities there aren't you.
Okay. Okay. That's helpful.
And I guess, it's good that pricing is getting better because you know.
The fed rate cuts I mean, debenture pricing can off certain that a little bit on <unk> I can't afford them back to have a good margin.
My second question is on our losses. So you know I'm kind of pleasantly surprised but I'm also that keep confused so it's been understanding this when I look back to your provision line I don't see an efficient in U.S.
But when I look out you know provisions, which other big box, that's taking what other peers, Oh, which we have no taking big lesions. So I'm curious.
This.
Back specific that do you know we have what tighter credit or is it because of the segment of the customer be out in that segment to assist stronger.
And I'm not talking about just garbage related losses, which I didn't hotels in dress styles, I'm, just talking about losses, which happening that assumption, which we don't even see today, but you know a back with Martin about can say that if I see my son going through a decision I expect a certain number up losses and I don't know viscous moving to go back up but I'm just kind of provision I tried.
Now and keep it there so it's been understanding you know where do we what do we think about dot.
You are asking a good question. We certainly don't you know I don't I can't speak to other bikes and their provision, but you know we're not in a lot of the heavily affected industries to a great degree certain we're not we have minimal energy exposure or you know restaurant and hotel exposure is is it certainly we have probably.
But more than you won't right now, but we certainly have you know well managed exposure in those industries.
I've maintained since the pandemic started that the the customers that are going to suffer are not necessarily ones on the affected industries, they're going to be the weight customers in every industry.
And I think that's playing out is that people are the weight players.
Oh are you know.
Not doing well and as I say last call you know it it might surprise A.J.C. Penney got in financial trouble no. Because they were you know I think the the peak of there.
As a rate title was 1000 grade school.
I'm 65 years old so it's been a long time since they've been a Bible company. So.
We see you know we think weve adequately.
No.
We are providing for more than our model calls for we're matching our Cecil model in terms of provision. We don't have a lot of consumer exposure. We don't have any energy exposure and those are certainly to areas, where you see is a big provisions Bob.
Best I can tell from some of the larger bikes out to look at their financial statements.
The quarterly financials, and I don't know Henry would you add any Henry Avatar, Chief Credit Officer, if you could add anything to that.
Yeah, Thank Clarence Pouncey, our Chief operating officer, I mean, I'd say that if you look at what we reserve in the second quarter 2019, and I'm I'm just for roughly $5 million and this quarter, we put in $10 million. So I mean, weve doubled from where we're a year ago.
So we're certainly reserved and as Tom mentioned, you know, we put more than our model and as my comments were earlier, where it or excluding ppt. One 1.25 important to say sauna reserves were we think we're adequately reserved with what we have.
Clarence for Jay I'll, just say that.
We're now leveraged lender, we don't have you leverage loans.
We are very small position up shared national credit it sounds to companies that we know without footprint that we know leadership, we have deposit relationship with.
It's you know around $50 million of shared national credits.
So low position there relative to the overall portfolio.
Is that.
Thank you Yeah. That's had its thank you very much. Thank you.
Our next question comes from William Wallace of Raymond James. Please go ahead.
Thanks, Good evening, guys, Hey, well.
Hi, So I'm I was.
Surprised at how well your deferrals have have improved and and if I'm reading that table on slide five correctly.
It would appear that the majority of your deferrals are coming off the floor. The deferral period is even over and I am I reading that correctly.
Go ahead, Henry no I mean, they're not coming off before the deferral period is over so that no I wouldn't agree with that statement, but once someone is through their three months of no payment.
We are then taking them off deferral unless we're in discussions with them regarding the second deferral said that the table should show that progression decreasing based on the fact that that next payment due from that borrower would be a full payment which would be owed.
Oh, Okay gotcha. So so are you.
Are you in conversation.
And with with all these customers that you feel confident that.
1 billion or so and loans that that are coming off deferral between now and the middle of August are actually going to pay or less conversations ongoing.
We've already we've had over yeah, we've had over a billion.
Come all come off.
Were down 127 million.
As of July but.
It sounds like there's little bit they've already decided wildly.
Yeah.
What's the slide deck had 140 to 145 million and that was early draft and it got out there, but the actual numbers are not much different there's 127 million in July 15, Silimed deferral.
Keep going wallet.
Well I guess I'm looking at the 531 balance of 1.248 billion.
Which was 45 days.
From July 15th such I guess I'm trying to figure out is how so much is come up.
So you see these guys they're off for all Q4 815 is that gave me give him some white collar in January so so for instance that unit if someone started the deferral on April 5th Okay. So they didnt make an april 5th payment because they wanted to for a long once again the vast majority. These were principal only said.
They continue to make interest payment, but if someone was on a deferral for April 5th makes it June 5th and then they make their to lock that payment there off deferral and and in reality there off deferral after that junior fit okay and it because it becomes June six their net payment at the true paint they're out of the deferral come June.
Six if their payment due on June fit and we then deferred you know principal or that was a full payment deferral.
Yeah. So so is it fair just to say that then if they came up before they were they could if they could have not paid the June payment.
As of July pain right.
It's supposed to 90 day deferral.
If they were off of this report that means that they they there next payments owed is a full payment or interest whatever whatever it was that yet and we also had a lot it yeah.
Go ahead, well, okay, well I sort of so all of that one whatever billion has made their payment since they're different material yes.
They are officially not going to go to two and 180 day.
Overwhelming majority yeah.
And also Wally.
I add that a number of customers.
Fairly significant number got a fruitful deferral and then continue to make their violence.
They weren't where they counted into these numbers.
They were counted as deferral.
Okay.
Okay Fair enough if it's a loan does go for customer does go to a 180 day deferral period, well you got to downgrade that loan.
We're certainly anyone who's asking for a second deferral. It it's not an automatic downgrade, but at the same time, it's something we're looking very hard and in most cases it would be downgrade at that point in time, but were taken on case by case Kate basis in evaluating you know repayment.
Okay, well bore in some cases, there might be asking for a second deferral because liquidity.
Position you know you know what some of the medical providers that whole thing that of playing their business fall off that we you know we feel pretty comfortable most of them will.
Resumed normal.
Presume all normal operations here and you know you only put off putting in a new if so long.
So we shall we say those returning to normal wallet.
Okay. Thank you and then when we had to last conference call and we and it seems like it in your prepared remarks, Tom that the credit has held up better than you would've anticipated in the last call.
I read what you guys were saying as.
The <unk> the accelerated loan fees from the TTP would be used to build the reserves to account for economic environment. Do you still anticipate that that you would be building. Your reserves are aggressively over the coming couple of quarters or given what you're seeing do you think that that's.
Now you're more likely to book those fees as these ones I forget.
You know I still tight the posture today that the it'll be you know we're probably.
The vast majority of that I would expect to add loan loss reserve for just for you know the unknown in the future Wallace just I don't want to.
Exactly.
I think it's too early to declare victory. So when we get that money will probably.
To further basketball coming into the loan loss reserve.
Okay. Thank you that's very helpful.
So it's been it's been kind of it and interesting couple of months to see the how the headlines have shifted from.
All is fine to all is not just fine as it relates to the spread of the disease and now you're seeing states starting to slow down the reopening processing you operate in some markets that are seen some some pretty significant growth in the disease and some of those states that European or.
Starting to change their opening schedule I'm curious, it's early I understand but I'm curious if you.
Having early read aligned on how that's impacting your customer base in some of those markets that you operate in that are kind of seeing more severe spread.
Yeah My take.
Yes, Henry hub in Clarence to to chime in but I don't.
Say any significant deterioration from from the the Paul's Reopenings in our most of our <unk> you know if they're manufacturer in the construction business. They never say never slow down much some of the manufacturers do construction never slowed in the south.
Like it did in the North sea so.
We were not we don't have a lot exposure to you know obviously, there's you know good business people figure out how to adapt to.
To make money you know restaurant, where does it go business some of them or many of them or cash flow positive in many of the.
The fast food fast casual are doing quite well. So I don't think theres a significant you know hit the pause button on the these states reopen it I don't see of a big.
Big fall off in economic activity animal Henry D Oar Claire.
Yeah, I mean, I agree with Tom and that they've they've already had to to make their changes to their business model to adapt and whether they thought things were going to get better quicker or not as a different story, but they've they've already kind of had to rightsize, what they're doing at some level and you know now well thing there.
Yeah, changing a little bit that there they had already made their changes until I think most of the businesses or you know continued to perform.
Hello.
Okay, Great and then just one kind of just to maybe put some dollars to an earlier question around the expense line, so netting out the.
The deferred expense adjustment and the bonuses it sounds like it if we just use the GAAP number pretty expansive $28.8 million that that's probably a good baseline so to work off of.
In our models and assuming that that Stephen is true what is what is service first dealing.
To to manage expenses and investments et cetera.
In light of you know some potential pressures that could be coming down the pike.
Well, we've already been doing it Wally you know we win.
Good Katherine you know salary increases for this year, we won't bear a lot of proved this year, but it will bear fruit next year I'm certainly headcount control, we're looking hard at every body.
And every department tried to cap expenses, where where possible certainly charitable contributions anything there's controllable we're trying to control what you know as closely as we can to.
Obviously, there's a lot of noise right now and where the Triple B expenses, you know what everybody you know that.
Everybody that we I asked to you know when needed help from old Triple B, our vendors they saw was common.
And they charge the big price and you know we thank all of our Triple B B expenses are behind us except for we are dependent on one.
Class action lawsuit.
Oh agent, they use or number of them around the country and where defendant along with a number of revised on a case of Pensacola, Florida.
Yeah.
So putting that together it sounds like you're saying that you think there's probably some room for some some improvement on that expense line. Yeah, we yeah, we do and waiting.
We're proud of our efficiency ratio got 32% this quarter, which bank as well.
Probably one of the better in the industry. So.
But as far as absolute.
No. It the expenses don't look good after this quarter from obviously.
The answer is.
Yeah.
Okay. Thanks, guys. That's all I had I appreciate your time.
Our next question comes from Kevin Swanson Husky Group. Please go ahead.
Hi, guys.
Thank you yes.
[laughter] questions answered I think we probably quite a bit here I'm just wondering.
Quick follow ups.
And then make results kind of question the balance sheet over 10 billion.
I'll just comment where do you kind of see that's taking on Rugrats go forward basis and does it change any is kind of your longer term expansion plans.
Yeah, I was surprised somebody was going to ask that question.
You know the hurricane money as I call. It you know is here to stay how much is here to stay where we fall back below.
You know 10 billion I, probably don't think so it will come under large buying supervision. After two quarters of a while we were really already have we been I examiner teams have been pretty preparing us for over a year now to become a a large bike and certainly in the control.
How they manage us and how they regulators so were we think we're.
Getting close to where like that they need us to be from that standpoint, but.
No I didn't answer all your question I missed something in there Kevin what was it.
Oh does it change any of your longer term expansion plans.
No you know we're still.
Talking to people, but right now during the pandemic you know most people are looking to make a change as you might imagine before you know formidable standpoint, we don't have large we're talking to one group.
Pretty good sized ready for production production people actively right now, but usually we have three or four what we're talking to in any given time, most don't don't work out but yeah. We usually have three or four we're talking to at a time so.
I would say activities off a little bit from that standpoint.
And of course, we you know we.
The first few weight to the pandemic, we weren't looking to make any.
Big changes in our.
Business plan or business model, we were.
Take care of our client focused really on taking care of our clubs. So I'd number one.
Well, we do anything else.
Thanks.
I appreciate.
Ill M&A is nothing on the radar for a while in terms of I guess that priority list, but it seems like you guys is currency has held up quite a bit better than than most out there.
And maybe there's some banks that aren't surviving through the process as well.
Does that does those conversations seed help at all or is it still you know obviously organic first.
Well, we will be willing to but we saw almost say where the economy is going.
Our sales I don't know Henry to the due diligence on a loan portfolio very well the day of another by Kindle.
I don't think he would wont relish the thought of doing that so probably went a little bit more time for a little clarity for the dust to settle.
Yeah David.
Yeah that makes sense, yeah I appreciate it and then maybe just one final one I think.
Thank you last time, we spoke there was some idea that the PPP loans can be sold off I think we've seen a few banks do that you pick that option that's still under consideration or is it seem like you're going to hold these through kind of the whole period now.
Well, we're gone ways, all that there would be it forgiveness process.
Yeah, Okay, and we thought we would be it the fed liquidity window by the second or third week of April and that we'd be out of money.
And to have minimal liquidity in the bike instead of record levels from liquidity.
So you know and we thought that the SBK forgiveness process would be much farther all there. It is today they don't even have a form designed yet.
They say, they're coming with a form or in the next few weeks so.
We thought that we had a timeline, where we would have all the loans forgiving in off the books by the end of gene So I guess.
Perhaps I was naive in dealing with the government to think that we would half of that sort of oh, well efficient timeline in terms of forgiveness for but you know we had a time I worked out where the loans the customers would have earned.
The payroll would have been done they could have applied for forgiveness by the second or third week of gene we'd have a tender and we've had customers a lot I ask and say hey, we'd like to get this does that will you know there's not a form discounts. They send us. The forgiveness formed doesn't mean is forgiven that if not forgiven until they asked me a re pays us.
The money.
With interest and they have 60 days to do so so you know the company's July they get it off their balance sheet, but but now we still see the vast bulk of these loans, but again, considering the fact that we do have a positive carry every month on these loans I mean, what percent is not much.
But as better than the 10 bips weren't in it's a it's a bit.
You know Branom SOVEST is 10 times at a mile. So and we've not been rushing out about a lot of new investments right now we kinda, we'll see where this liquidity settles you know the hurricane money how much of the stakes not much of it leaves. So there are lot of unknowns I think most banks with any you know given a lack of clarity.
<unk>.
In the economy, keeping large liquidity makes a lot of Sachin.
Yes festival lot options on the other side of this in terms of our ability to to to just to make acquisitions to grow.
Well, we'll be able to do what we won't do we think there'll be a lot opportunities for the bank on the other side of it. So we're we're still extremely optimistic we just don't have the timeline down Oh when's the pandemic Gopi over I don't have no the answer that question.
Domain.
Yes, I appreciate it that's great. Thanks, a lot but further questions.
Thank you.
This concludes our question and answer session. The conference has now concluded as well. Thank you for attending today's presentation and you may now disconnect.
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