Q3 2020 Great Western Bancorp Inc Earnings Call
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I would now like to turn the conference over to yourself art head of Investor Relations. Please go ahead.
Thank you and welcome everyone to our call this morning.
Joining the call and sharing prepared marks we have Mark <unk>, President and Chief Executive Officer, Peter Chapman, Chief Financial Officer, Steve Yose, Chief Credit Officer, and also with us for particularly pretty keen on a portion we have dog bass, our chief operating officer.
Pardon Canary Chief risk officer.
Before getting started we'd like to remind you that today's presentation may contain forward looking statements that are subject to certain risks and uncertainties that could cause the companys actual future results materially differ from those discussed.
This is especially true on the current environment with extreme uncertainties stemming from the covert 19 pandemic.
Please refer to the forward looking statement disclosures contained in the presentation.
On the company's website as well as periodic SEC filings for full discussion of the company's risk factors.
Additionally, any non-GAAP financial measures discussed in this conference call are only provided to assist you in understanding great Western's results and performance trends and should not be relied upon as a financial measure of actual results.
Reconciliations for such non-GAAP measures are appropriately reference and included what's in the presentation.
I would now like turn the conference over to Great Western Bancorp's, President <unk>, Chief Executive Officer, Mark Bracco Mark. Please go ahead.
Thank you Sarah and good morning, Thank you for joining the call.
I hope that you along with your family and co workers are doing well and staying healthy.
I'm excited to be leading my second earnings call. That's the CEO of great Western Bank.
Before we jump into the financials I first would like to update you on our current operating environment.
We have reopened 140 of our 175 branches.
And we're pacing the return of our support employees to our admin locations.
Most of our core markets have experienced a quicker rebound in reopening in business activity as evidenced by the Google Mobility chart on slide two.
[music], we established a onetime P T L cash out option to provide financial support to our employees during these challenging times.
We increased contributions to our making life great Grant program committing additional funds to support our impacted communities.
And even with our modified operating procedures, we continue to provide exceptional customer service to our clients.
As you move to slide three I want to share information on key conservative steps, we've taken to address our asset quality, while repositioning the bank as we manage through this pandemic.
Our initial objective is to bolster our credit risk management.
We heard Steve Yose as our Chief Credit Officer on May 11 to this year.
Having Steve and his 35 years of experience joined the bank was a critical first step in repairing our credit risk culture.
We've partnered with Protiviti to have them perform a third party review of all credits greater than 5 million, along with smaller credits and select segment.
Just to ensure these loans are properly risk rating that we are using consistent underwriting criteria and that we have reasonable appraisals.
Our enhanced risk rating system is running in parallel with our historical process, but has enabled us to better understand current portfolio performance as well as assisting us in evaluating our potential Cecil built.
[noise] second we continue to take conservative in measured actions, we reduced our dividend this quarter to one said to be protective of capital.
We continued to be deliberate with our loan loss reserve after our significant build last quarter, resulting in a 2.06 coverage ratio, excluding P.P.P. loans and before our Cecil implementation on October one on October one.
Okay.
Our initial round of loan modification deferral requests related to Kobin amounted to 16.6 of total loans.
For a second round deferral modification requests we implemented a discipline process to make sure we're having the right conversation with these clients.
As of this call our numbers are 59 customers.
For 257 million in total loans for second round, new or extended deferral requests.
The number of principal and interest deferrals for round two is tracking lower at approximately 30% compared to 65% in round one.
That said, it's still early in the process and we will continue to monitor deferral requests closely.
Our third focus has been to increase our specialization through a realignment of our organization to business line segments.
We will ensure that we have the right skills and the right expertise decked against the appropriate industry.
We have appointed Eric Bauer, a season to AG banker to lead our agribusiness division and a renewed way.
Our retail business has been centralized under current suffered.
Our priority will be to implement a simplified retail delivery model that will drive core deposit growth and deeper relationships with our consumer clients, along with continuing to drive down our deposit costs.
We have segmented our treasury management business to better support our commercial clients and to create a greater awareness for non interest income opportunities.
Historically, great Western Bank has processed all of our commercial loans, regardless of size and complexity the same way.
It is highly inefficient to this end we have established a new small business center of excellence that will leverage technology to enable us to need fewer resources to originate and monitor our loans at the same time significantly improved the customer experience and allow us to better manage our risk.
I'm optimistic about these enhancements and look forward to the positive impact they will have on our results.
Now for insight on our financial performance I would like to turn the call over to our CFO P. Chapman Pete Thanks, Mark and good morning, everybody I'm just to start with this quarters net income of $5.4 million was driven by $53.3 million pre tax pre provision income, which was $2.8 million or 6.6%.
Above the prior quarter.
Now looking at revenue net interest income was $108 million, an increase of 4.2% from the prior quarter. Within this result interest expense declined $9.6 million, obviously sort significant drop.
In deposit costs and also a favorable mix impact from inflows of large volumes of low cost deposits from <unk> government stimulus programs.
This was offset by 5.4 million older declining interest income due to low yields on assets also included within interest income was P.P.P. line income of $4 million at a 3.1% yield.
Adjusted NIM contracted only eight basis points to 3.47% as a 36 point basis point decline in loan yields will largely offset by 34 basis point decline in deposit funding costs, which represented a 50% declining the cost of deposits for the much from the March quarter.
Our investment portfolio, so declining yields which contributed to a four basis point decline and also there was a two basis point decline in NIM from P.P. lending.
One portfolio yield is getting some support from almost 5 billion a fixed lines, yielding Fox, 4.38% 2 billion of lines that have hitting floors, averaging 4.56% and a billion dollars in variable loans that were reprice below 90 days, yielding 4.55% in combination. These lines will make up about 80% of L. loan portfolio.
Excluding PPP.
Well most provision expense of $21.6 million was below the $271.8 million in the prior quarter does that include the significant quality deep over the life related to code that unwrap incurred loss methodology, which increased reserves, 80%, 87% in the March quarter.
Related to credit charges, we realized an additional credit charge of 21.9 million those on a CDK credit that is a line held at fair value. The nature of this item is similar to a loan loss provision how are the credit fair value adjustments Passthrough noninterest income in the income statement.
Now looking at non interest income net loss of $11.7 million includes that credit charge mentioned above excluding fair value items non noninterest income was $14.1 million for the quarter. This was half a million dollars lower than the prior quarter due to a 1.5 million dollar reduction in overdraft fees low wealth management income while mortgage banker.
Net income was a positive a $2.4 million, which was an increase of $1.3 million as a result of some strong seasonal performance in that part of the business.
<unk> expenses was $67 million for the <unk> quarter compared to $66 million in the prior quarter, which excludes the goodwill impairment realized during the March quarter. The increase was driven by small number of nonrecurring items, which we feel were proactive in measured actions in this environment.
Salaries and benefit costs, what caused you to one off items, including the payout of P.T. O off the two employees for $1.1 million and severance severance costs of about $1.6 million, which were partly offset by lower incentive based compensation.
Consulting fees were high by approximately <unk> million dollars the largest driver of which is a third party review of L. loan portfolio, which mark touched upon earlier.
In addition, there were $2.2 million as an increase in unfunded commitment reserve costs stemming from paydown activity credit lawns, causing unfunded balances to inquiries.
These increases were offset by 3.5 million dollar decline in Oreo costs on expenses like the severance realized in this caught up well we can take action that will cause a short time increase in expenses, but realize benefit over the longer term, we'll continue to do so given the current environment.
Moving on to capital our capital position held flat this quarter with total capital of 12.9% and common equity tier one capital of 10.6% a tangible common equity was eight point onto <unk>, a decrease of 9.3% from the prior quarter.
Excluding the P. P. P lines that ratio would actually increased to 9.4% tangible book value per share improve said that it $20.98 up from $20 an 84 in the prior caught up and $90.94 in the prior year.
As much as mentioned, we did declared the dividend of one cents per share for the quarter ending 30 June 2020, which is a reduction from the prior quarter recognize dividends are key focal point now decision reflects protecting capital position in this current environment well, we're confident capital levels remained strong with so much uncertainty related to code benign, we're being cautious and maintaining.
Capital is the current levels given the environment.
We'll continue to monetize the impact of code benign and considered dividends win in this context in subsequent quarters should the environment come more clear.
One growth was $621 million, primarily related to PPP loans during the quarter non PPP lines contracted by $102 million Makoto, mainly due to loan pay downs, and but AG and Cnine offset with 100 and city $2 million of growth in the commercial real estate portfolio.
Posits rose $11.2 billion, which was almost 1 billion dollar increase driven by inflows from PPP proceeds in consumer consume a stimulus receipts.
Within that growth that mix improved significantly, including an 83 million dollar reduction in time deposits and a 619 million dollar increase in noninterest bearing deposits.
Now looking at the charts, you'll see a without a chart on slide seven which highlights acute a few key segments, namely hotels AG and health care I'll now hand over to at Chief Credit Officer, Steve Yose to expand alone upon those segments, along with discussing asset quality and also elaborate AG elaborating.
On the some credit issues stays got impressed us obviously.
Well, thank you Pete.
And just a short amount of time since joining on May I've been able to get a solid understanding of the organization the team and the portfolio.
I am confident stating that we have a good mix of challenges and opportunities.
I'm very excited to be a part of it I'll discuss some of the key initiatives. We are implementing now and also cover some key results.
I'd like to begin my commentary by sharing a few key actions and initiatives related to how we're going to improve our asset quality.
We're taking steps to improve more risk focused and create a more unified credit risk culture, as an organization and to the new risk rating system was effectively developed and enhances our ability to manage the portfolio special mention category is a key stage in category one loan show deterioration on the nine.
Point granularity within our patch ratings will help prioritize credit risk activities and lift our overall monitoring and management by providing.
A better early warning indicator on three create an enhanced credit policy to provide a risk focused approval process. The requires further approval elevation for higher specialized industries, our risk based hold limit the <unk> leverages, the new risk rating system.
Focused a more accountable credit approval process.
I see these steps to be an opportunity to lift our overall risk accountability by relying differently on certain roles and resetting expectations. They also fit with the overall strategy Mark touched on earlier I'm looking forward to the impact they'll have on this organization and on asset quality.
Regarding key asset quality results for the quarter, we did experience some deterioration in key metrics as we're getting even more active at working through our problem loans.
One hotel credit one senior credit credit moved to non accrual, which moved Nonaccruals up 274 million, while challenge before coal bed troubles were amplified by coal, but impacts in recent months. Additionally.
One of the senior care loans, just mentioned plus another smaller senior care loan contributed to our increase in the substandard category.
Josh annualized continue to trend flat with 0.37% for the quarter end points grew 3% for the nine months year to date.
As a new Chief Credit Officer, I was pleased to see the great Western Bank took its conservative step last quarter to increase its loan loss reserve, which ended up a 1.54% of total loans, excluding PPP and the total coverage ratio, 2.06% of total loans excluding PPP.
I'm also happy with the development of the new loan risk rating system and its implementation.
October Onest this risk rating system will bring greater granularity on objectivity and to our risk approach. Additionally, it will provide an enhanced early warning indicator of issues in our loan portfolio not only will a line of criticized loan structure special mention will be a more useful and migrating problem loans out of watch.
And the nine point scale for past launch will allow better management and smoother migration.
As we've said we will also adopt Cecil on October Onest, what our new fiscal year begins.
Well, we have more calibration to do current estimates are for our current reserves to increase between 40 and 60% based on the current quarter. This would increase the pro forma allowance to loans to 2.7% to 3% well should crude which could increase further if the economic environment shows a week.
Our outlook.
For a quick update on PPP loans, we have provided more than 4600 loans for approximately $724 million, which is about 7% of our total loans.
As Mark mentioned earlier loan modifications for the Roche first round ended up being 16.6% of total loans at just under 1.7 billion was.
The three top segments being hotels entertainment and food and drink.
Two thirds were pn either for almost the rest as interest only or extensions and non and forbearance. So far we've approved 257 million in request for a second deferral amongst 57 customers.
March and April one request were coming on we approve the majority of the requests in line with the industry by granting most deferrals will for large majority a 90 days regardless of the during the first round, but for the second round, we're more focused on reviewing current financials projected financials and collateral values. Additionally.
We are using the information to support credit rating decisions to assure timely and accurate risk ratings.
As Pete mentioned, we have a diverse portfolio.
With me being new and looking over the portfolio the segments I'm focused on and detailed given their size and also the potential risk and the current environment, our hotels diversified AG and health care.
The AG portfolio has been covered in great detail in earlier earnings calls, but I want you emphasized the diversity of the book to the extent that referring to it as just AG is an over generalization. It is a diversified portfolio the diversify the diversity across AG sub segments helps manage cycle Chris.
The geographic diversity helps manage location risk.
And overall the sector helps manage against economic cycles that don't always correlate with the general economy.
Supply chain has also improved and has largely been restored milk prices are seeing some of their highest values on both national and export demand have ramped up corn and soy brings you're doing extremely well.
Progress in our footprint exceeding national averages.
Now turning to the health care portfolio. It is a key segment in our portfolio as well.
Some consider healthcare to be vulnerable the toll bid and some do not.
We have had a few problem loan surface in the past few quarters on certain relationships, but nothing widespread with any sort of common issue, we're relatively balanced across senior care assisted living and retirement communities skilled nursing hospitals, and other health services and social assistance.
We have about 44 relationships and senior housing 46, and skilled nursing and 33 on hospitals. Therefore, it is easier to engage with borrowers and identify potential risk migration.
This stage, we have eight relationships totaling 101 million this classified.
Hotels, we discussed hotels last quarter, given this suddenly impact from cobot.
The portfolio is 90% within our footprint with 200 relationships and hotels spanning 130 cities top cities include rapid city and Sioux Falls in South Dakota, Colorado Springs, and Denver in Colorado, Omaha, Nebraska endpoint, Iowa, These make up 30% of the book.
Hotels loan port.
Well, Joe loan portfolio average loan to value is 61% with 84% of the relationships flag and the remainder inconceivable hotels boutique am resorts, 72% of the portfolio received some form of payments deferral in the first round and currently 10% has received a second round deferral, we have only one really.
One ship over 1 million rate in sub standard I expect more relationships to migrate to special mentioned on substandard should the current environment remain unfavorable.
We don't do them all of these portfolios to have outsized risk to co bid of these I'd say hotels senior care and skilled nursing are showing higher segment risk along with restaurants and entertainment segments.
We remain proactive managing and identifying risk migration and the rest of the portfolio.
As I stated at the beginning of my comments, we have put into place credit risk focused strategies to address our asset quality challenges, which also provide a significant opportunity for us now back tomorrow.
Thanks, Steve.
As I mentioned last quarter, our top priority after ensuring the safety of our employees and communities is improving our asset quality and I'm proud to say that this quarter. We have made good progress with Steve support and guidance. We have identified areas and may policy changes that will make a meaningful impact in improving our credit quality and culture.
In conjunction we're taking conservative and measured steps to protect capital and to better understand our portfolio and to realign our organization to have greater specialization.
And while I realized that we have work to do I am energized about what I have learned in my first four months, but the bank and for what I see for great Western Bank in the future.
At this point I will now have time for a question and answers operator.
We will now begin the question and answer session. Please limit it to one question.
To ask a question we May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys.
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At this time, we'll pause momentarily to assemble our roster.
Our first question comes from Jeff Woolen with da Davidson. Please go ahead good morning, Jeff.
Thanks, Good morning.
I suppose that take the topic of just on the.
The provision is she saw related I guess, the do you have the dollar spread between the current reserve and at that Cecil assumption as of today, and I guess, what I close that gap sooner.
And then lastly, just the.
Kind of the provisioning level or we off the peak of two Q and in that adjustment you expect the adjustment largely to be day, one accounting versus kind of flowing through that supervision. Thanks.
Yes, Jeff So a couple of things in there obviously, so if you take just our current allowance and gross that up by the 40% to 60%, but that's sort of the dollar value.
Provision.
In terms of current levels of provisioning oil, we might let Steve Yose talk to sort of what what he's seeing in the portfolio this quarter.
And then just thirdly in terms of day, one versus date too.
Obviously the advantage we have in adopting Cecil is sort of what now in the pandemic. So certainly we've got the ability we would hope to take more on day, one rather than day to Jeff unless there is a significant deterioration in the environment during that December quarter. When we adopt a one off type of which is little far out to be able to predict that but.
In terms of sort of provisioning and sort of current quarter stage, certainly, we're not giving guidance, but just what you're seeing in the portfolio as well as I stated in my remarks, I was pleased to see the large provision if your new Chief Credit Officer, you want to make sure we're well reserved in last quarter, we did take a big prevention and this quarter. We also took a fairly sizable provision.
Mark mentioned, the Protiviti exam that we're doing outside examiners coming in we're looking at our entire portfolio, what the fine tooth comb as far as dealing with the risk ratings are making sure we have everything.
Risk rated.
I would say correctly as we implement Cecil on day, one so I'm very confident that the reserves will show on legal day, one which which also include.
The impact of coal that would would indicate that our provisioning I think would item off would be lower but I would assume it would be.
Let's shift.
Okay. Thank you.
Thanks.
The next question comes from John aren't strong with RBC capital markets. Please go ahead.
Excellent. Thank John Thanks, Good morning, everyone.
Good morning, Let's go out the question another way.
Cecil.
[music].
I guess hypothetically, if we're sitting here in six months.
Quarter of seasonal was adopted.
You are saying that.
50% higher reserves.
Should capture.
Life of loan losses.
Based on what you're seeing today.
At a fair way.
Summing all this credit.
I would say so based on what we know now just based on the current environment. So obviously, we don't know what's going to roll forward in six months, but based on now Greg Yes, I would say that that's why when I talk about the way we're regarding the portfolio the granularity of our risk rating as well as the environmental factors looking at colder than the other.
Things on the economy, that's all part of the analysis, we're putting on for the.
For the.
So that takes into account anticipation will next six months, there's a lot of uncertainty. So that's why it's a hard question to answer.
Okay.
Just I guess the bigger question on the dividend.
From an outsiders to cutting the dividend twice enrolled two quarters and going to apparently.
You know signal something maybe a little more ominous.
And I've looked at Cecil Reserve.
The.
The next six months is manageable for your company, but to see the dividend go to a penny a share I just want to.
You want a little more detail in terms of thought process around at white ticket to apparently.
Yes, certainly John on credit is stressed it certainly manageable. Thanks.
Yes look.
We would hope side. So I think is a couple of factors playing into that John obviously, as we will going as all banks moved into the process, we entered with more elevated levels of Npis.
Yes, certainly a lot of those industries, such as AG, which probably out directly related to coated but it's undeniable. We ended the process with higher npis.
Certainly there's a high degree of uncertainty around.
The environment looking forward.
To your point, while capital levels remain strong while the outlook for Cecil abuse to be manageable. We just felt it was prudent at this time the the amount of of capital in itself from a dividend perspective is is is not.
The largest amount of money, but we just saw just with the outlook being so uncertain as appropriate for us given given where we are John.
Alright, thank you.
Okay that's true.
The next question comes from Andrew Lynch with Piper Sandler. Please go ahead.
Good morning, everyone.
Morning.
Question on on expenses I recognize there, maybe some onetime items and salaries and benefits.
And maybe the consulting fees Duncan can you at this pace, but it also sounds like some other technology upgrades and enhancements that you're making along the way.
What's a good level of operating expenses to build off for this upcoming quarter and then how do you see that trending throughout fiscal 2021.
Yes, certainly.
From a baseline perspective as you you picked up Andrew it's probably couple of million a one off site in there this quarter. So hopefully we'd be a little lower on a run rate basis.
Looking at cost base, though and as I said in my comments. If there is the ability to to pull forward. Some expenses. It will help us in 2020 will sit 2021, we'll certainly take the opportunity to do so but in the absence of that it maybe a little lower than this quarter and in terms of the outlook for 21 way going through a pretty heavy strategic planning process at the moment so.
Probably refresh guidance as we as we move forward to next quarter in terms of what that tick investment looks like.
We believe it's manageable, but we're just doing the thing to look at the moment to to go through that process that will be able to give you a little bit more data next quarter.
Okay.
Thanks for taking my question.
Thank you.
The next question comes from Damon Delmonte with KBW. Please go ahead.
Hey, good morning, guys. Thanks for taking my question I'm just wondering.
Peter if you could give a little bit.
Insight into the expectations for the core margin just given some of the the trends you're seeing this quarter with additional liquidity and where the interest rate.
Saving up.
Yeah look we were really pleased with the margin this quarter Diamond you always sort of held up a little better than a lot of others. So.
The next quarter, we'll certainly not seeing the pressure on deposit costs. So.
We think we've still got a little bit of room to move there I.
I think the uncertainty on margin to this next quarter is just how PBP income will flow through so we had about $4 million that this quarter and just depending on how really the.
Pre pays all the way that sorry of that might affect margin. This quarter. So that that's probably the biggest wild caught that.
That probably is that is the one that it's a little bit hard to forecast at this moment time.
Okay, Great and back at this time, just a quick follow up on that point about the PPP.
What are your expectations for forgiveness over the next few quarters, you think it any more of a.
Fiscal fourth quarter fiscal first quarter that.
It depends on how quickly the DSP a piece comes up comes up and running but SNC is it's probably.
The the fourth.
On the quarter, so the December quarter, and moving into 2021 Diamond is is out sense, but yes, certainly that's just.
Based on where we sit now it.
But there's been a what today to say how long the the PPP stuff starts to all the SP I stopped sorry.
To come up and running but probably back half back into this year I would say.
Great. Thanks for taking my question.
Okay.
The next question comes from Janet Lee with JP Morgan. Please go ahead.
Morning.
Morning.
I've a question on.
Portfolio I appreciate all the color you provided on slide so the x. substandard loans and Nonaccruals were relatively flattish this quarter. So given the strengthening in commodity prices and Ben and I change as you mentioned do you think a negative credit migration and portfolio. It soon it's now.
Sort of behind you I should we start.
Have you can meet start expecting to see problem at credit experiencing positive migration to pass fading in the coming quarters I understand that we can't really Friday, I guess, a singular. Thanks, Jackie can provide more details by sub segments that will be great. Thanks.
As I remember my remarks, we see milk prices, improving and we actually see.
In our stress portfolio when AG.
Significant improvement as far as debt coverage ratios.
They all are cash flowing firmly while we're being very careful as far as how we're looking at the risk ratings are those so I'm anticipating that as we get a year and statements from our clients on as we see commodity trends at least staying stable.
To your point, we're hopeful.
Proving our.
Our asset quality metrics within the AG portfolio. So that's one part of our portfolio I do see potential improvement, we're taking a cautious approach. There are some we could probably upgrade today, but we just wanted to confirm what the uncertainty on the environment the market prices and all those type of thing. So that is one area just to your point that we do anticipate improving.
Quality.
Thank you.
The next question comes from Perry Mcevoy with Stephens. Please go ahead.
Hi, good morning, everyone.
Hey, Terry.
Sorry to go back to seasonal but Pete I was just wondering what is the phase in process going to be in terms of the capital impact, there's some decisions or flexes internally that you can take I believe.
That will impact capital overtime.
Yeah, we haven't formalize, yes, those get carry in terms of exactly.
Which helps in we'd tight but certainly in this environment any to fairly can take to help capital levels will be one will look pretty seriously at so yet to finalize but but most likely one of the deferral options.
Thank you and.
Then a follow up the third party engaged certain parts of the loan portfolio how much did they get much of the portfolio did they review in the last quarter.
And I'm just trying to each.
How come you could be in this current quarter, if they haven't looked at all them previously.
Good morning, Terry This is carlin.
The in this last quarter they have looked at about 20% of what they were scheduled to review, which we will but for 930.
Our fiscal year end, we will review about between 66 and 70% of our portfolio.
There are about 20% complete.
Thank you.
Thanks, Sir.
This concludes our question and answer session I would like to turn the call I just one more one more that's just sorry, sorry, I did not see that problems that are.
Well, let me announced.
David long.
With Raymond James has the next question. Please go ahead.
Made it by the skin trying to be thanks for [laughter].
I just I just wanted to drill down a little bit more on the on the hotel portfolio to understand the risks there little bit better.
Can you provide any color on the occupancy rates that you're seeing.
Well I would.
I don't know.
Just anecdotally if you looked at our footprint to Mark's point.
We have a lot of states that have opened up significantly and so for example, parts and Nebraska definitely on the.
Parts of South Dakota, we see really high vacancy rates some weekends close to 100%, 80% and then of course areas like Arizona and some of the other areas are very weak where occupancy is more than 30% to 40%. So it's really a mix across the board.
I also want to emphasize that 85% of our hotel book does have guarantees of some shortly the personal or corporate some of those are very stronger on t.. So even though the hotels might be struggling we do have a core book that does have strong guarantees or porter.
For those will continue to hold up but it really is across the board just depending upon location. The ones that are struggling to bolster the business hotels those that are tied to business travel and so we've seen vacancies quite low on those especially for example in Omaha and areas, where we see more business travel like number.
Got it and I would I see that you guys have.
For a lot deferrals on a big portion of that portfolio. My my gut is telling me that there will be participating in brown too.
Well a lot of those hotels, but the good question I was after the second 90 day, if it gets to that point what happens at that point. If you get passed the 180 days of deferrals have you guys talked about that are had discussions with your accountants are regulators or what you need to do with those credits after 180 days.
Well, if you look at the well I made in my statements. The Soc around we're looking at a more disciplined approach in other words were talking now to those customers. We're asking look now what is your plan what can we take additional collateral those that are stronger guarantors maybe they.
Got to put more money on 12 were also.
Looking at the risk rating of those so we anticipate while all the AG portfolio will hopefully show improving asset quality trends, we do anticipate this hotel portfolio showing some deterioration.
In certain markets and.
So we are looking to most clearly and frankly.
We do have some relief up to six months, but if we do go longer than that on deferrals. We will have to look at potential tdrs and some of those portfolios I can't tell you, which ones. Those are at this point, but it is something that we will be looking yet and we will take a conservative prudent.
Our view of the risk rating of the portfolio.
Got it I appreciate the color. Thanks, a lot guys. Thanks again for taking my question.
Thank you.
This concludes our question and answer session.
I would like to turn the conference back over to Mark Marinko for any closing remarks.
Thank you operator and again just thank you to all of you for joining the call. This morning.
We can provide additional information or answer answer any other questions. Please let us know otherwise stay safe and have a great day. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.