Q2 2020 Equity Bancshares Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the second quarter 2020 equity Bancshares Inc. earnings Conference call.
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I'd now like turn the conference over one of your speakers today Mr. Christian of article Sir. Please go ahead.
Good morning, and thank you for joining equity Bancshares conference call, which will include discussion and presentation of our second quarter 2020 results.
Presentation slides to accompany our call are available by a PDF to download at Investor Day equity Bank Dot com.
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Please don't find one including important information regarding forward looking statements from time to time, we may make forward looking statements within today's call and actual results may vary. Following the presentation. We will allow time for questions and further discussion. Thank you all for joining us with that I'd like to turn it over an equity Bancshares, chairman and CEO Brad Elliot.
Good morning.
Thank you for joining the equity bancshares' second quarter.
2020 earnings call.
I'm joined today by Greg Kossover, our Chief operating officer.
Eric Newell, our Chief Financial Officer.
Great Mayo, our Chief Credit Officer, and our General Counsel Brett LIBOR.
The CFO transition.
Greg to Eric has gone smoothly.
Eric has adapted well to our platform.
An integrated effectively with our teams.
Well, Greg has began his duties in credit and operations.
I'm excited for both of these gentlemen.
And all the teams that equity bank.
Greg Anderson has continued to provide great leadership to the teams in our regions and each department of the Bank has worked hard and remain focused during one of the busiest periods in our history.
Also.
Huber has led our successful PPP program.
And other important strategic initiatives.
I want to take this opportunity to once again express my appreciation to the employees equity bank.
For their dedication to our mission.
In what continues to be a crazy time.
Please continue to be safe.
Your families safe.
[music] on the call today, Greg will walk us through our second quarter results.
Eric will discuss our balance sheet heading into the second half.
The year.
Greg Mail will provide an in depth work into our loan portfolio and I will provide thoughts.
On how we are positioning the company for the future.
As you may have read.
We closed a 42 million dollar subordinated debt offering in the second quarter.
We've used the proceeds to fully pay down our bank stock now.
Which we utilized in the first quarter by putting $20 million of capital into the bank.
And also for stock repurchases.
I view, the sub debt as opportunistic tier two capital.
Allowing us to grow the balance sheet either organically.
Or acquisitive only.
It also provides some flexibility should we reengage and purchasing our shares back in future quarters.
Greg Please take us through the second quarter.
We once again had a solid quarter in core earnings with earnings per share adjusted primarily for normalized loan loss provision and PPP fees.
Ultimately 60 cents per share essentially on top of our original recall that street expectations of 61 cents per share.
Stated he asked for the quarter were 11 cents and the key pro forma adjustments were won the estimated impact of PPP interest income provided a net benefit of $935000 offset slightly by about $250000 indirect cost to produce.
To purchase accounting discount accretion was less than our normalized run rate hurting earnings by an estimate of $400000.
The recognition of PPP loan fees helped earnings approximately $1.036 million.
The provision for loan losses was originally forecast at $900000. However, we provided $12.500 million in furtherance of our positioning for the possibility of cobot 19 related credit weakness this represents $11.6 million more provision than anticipated.
Compensation expense had a Fas 91 benefit of approximately $900000 for the deferral of expense to produce PPP loans.
And that total of all these is approximately 7.4 million after tax which is about 49 cents per share. This added to our stated vps of 11 cents per share arrives at the pro forma EPS of 60 cents per share.
Our net interest margin as stated was 3.49%.
When adjusted for normalized purchase accounting accretion and to remove PPP impact was about 3.69%.
Normalize yield on loans was 5.07% with normalized coupon on loans at 4.71% at June Thirtyth.
You want securities was 2.18% down from 2.49% in the first quarter, mainly due to bond premium amortization overall normalize yield on assets was 4.24% versus 4.61% in Q1.
Cost of deposits were 63 basis points down from 109 basis points in the first quarter and cost of federal home loan Bank advances was 82 basis points down from 160 basis points in the first quarter as we once again took advantage of the lower interest rate environment to reprice liabilities downward.
Total cost of interest bearing liabilities was 71 basis points in Q2 as compared to 118 basis points in Q1.
Summarizing the improvement in normalized net interest margin to 3.69% from 3.62% in Q1 does from the benefit of a more significant drop in cost of liabilities 47 basis points, then assets 36 basis points in the second quarter.
Noninterest income at $5.7 million was 400000, better and Q1 and better than our expectations of 5.4 million with service charges in fees down primarily from lower NSF fees that debit card income and mortgage banking fees were both up we also had a mark to market adjustment on swaps.
Run through other income in Q1, which did not occur in Q2.
Noninterest expense adjusted $832000 for a fast 91 salary benefit less PPP cost was $24.8 million from the corner better than our expectations by $450000 and better than Q1 by $100000. There were no other significant.
Outliers in operating expenses.
Our income tax rate was 22.7% for the quarter bread.
Yes.
Greg Mail will lead a discussion.
Of our loan portfolio in a few minutes.
Given the increase in unemployment and concern for the overall economy.
We feel it continues to be important to provide for our loan loss allowance.
Through qualitative measures.
Our loan book continues to be stronger than I expected 90 days ago.
As our borrowers adjusted their environment.
Many of our borrowers are not needing a second 90 day payment deferral.
And many have successfully utilize the paycheck protection program.
As we evaluate request for the second 90 day payment deferrals.
We expect a borrower to be trending in the right direction.
We're able to reasonably project that their future performance merits that really.
Eric Please take us through.
The June 30 balance sheet.
Our balance sheet remains in excellent shape with excess liquidity strong capital low costing liabilities.
Survey of loan to deposit ratio of approximately 82% adjusted for TPP balances.
Our total primary and secondary liquidity stays in excess of 2.1 billion and our capital ratios, but PPP balances adjusted out at the bank or 9.81 for site for tier one leverage.
And 14.37% and total risk based capital.
Bancshares tier one leverage at 9.41 per se.
Yes.
Tangible assets at the point people for side.
Excluding the outstanding PPP was 373 million at June Thirtyth, our loan balances have decreased quarter over quarter by 74 million.
Of the 2.4 billion outstanding loans, approximately 52% our variable rate.
77% have reached their floor.
The dollar amount of loans left to reprice approximately matches the remaining Cds repricing on a liability side.
I expect our net interest margin without TPP declined slightly in the next two quarters to about 3.5% to 3.55%.
As Greg stated, we have been aggressively provisioning for the uncertainty because at 19 recession.
And at June Thirtyth are a triple L plus purchase discounts stand at 1.81% of loans not including the insured PTP ones.
We once again ran our probable incurred model and we'll continue to be ready for Cecil implementation.
Net year to date charge offs are a low 590000 or four basis points of loans annualized.
Our investment Securities portfolio is 840 million at June Thirtyth down 71 million from December.
We have Onboarded 10, hassle very experienced portfolio manager and Treasury professional as part of the equity Bank finance team and he is helping lead the team and a safe and diligent process to maintain our securities portfolio.
Ongoing review of our municipal portfolio, which represents 15% of our investments continues to show no emerging concerns.
Our philosophy, a prudent risk management continues to prevail, particularly in this environment and I do not yes, Steve deviating from this approach.
On the liability side of our balance sheet. Our total deposits grew 287 million with 248 million growth and non interest bearing deposits.
While TPP contributed to this growth we improved the mix of our deposits with time deposits, representing 21% of a total at June thirtyth down from 20%, 26% linked quarter.
As mentioned earlier, we closed on 42 million of sub debt and use the proceeds to pay down or bank stock no freeing up capacity for opportunities present themselves.
We anticipate being able to modestly leveraged up the balance sheet to utilize these funds.
We did not purchase any of our shares in the second quarter, but that remains an option for the company.
Today, we have repurchased 716477 shares with another 383523 currently authorized to repurchase right.
As I discussed on our first quarter call lending in retail teams here at equity Bank did a fantastic job utilizing the paycheck protection program to assist our borrowers as a program intended.
We have $373 million on our books at June 30.
And we had about.
182 million pay off after origination.
This represents over 3000 loans.
It helps to keep employed over 90000 workers.
As I will turn the call over to our Chief Credit Officer, Craig Mail to discuss our loan portfolio.
I went to mention that Craig Anderson, and I have been spending time in our regions visiting our locations and our customers.
I've been excited by what we have heard and experienced as we visited these locations.
As I have traveled to four of the eight distinct regions in the past two weeks.
You get a very positive vibe when you're in our communities.
And you see what business is actually being conducted.
We're excited to be operating in places that 120 days ago were considered less glamorous than destination places like New York City.
But today are open for business.
Greg.
Like last quarter, we want to provide transparency into our loan portfolio in the dynamics we're experiencing.
Many of the indicators, we are seeing are better than I would've thought 90 days ago.
These include a smaller overall utilization rate for the second 90 day deferral.
We have been proactively meeting with our customers and him and have done a deep dive.
Evaluations of borrowers seeking second 90 day deferral.
Only if we believe.
The borrower qualifies have we've been granting the second deferment period.
Slide 10 shows our payment deferrals by segment.
At June 30, our loan portfolio totaled 2.8 billion.
For 34 million dollar allowance.
Of the 2.8 billion approximately 373 million isn't PPP loans.
Leaving about 2.4 billion in traditional loans.
We've included many of the same basic slides for our loan portfolio as we did in the first quarter and today I will focus on some of the key aspects and remain of primary interest at June 30.
The Pie chart on slide nine looks very similar to March 30, 114 family as their largest category.
Greg will now walk us through our horse hotel portfolio.
Hotels on slide 11 represent $273 million or 11% of our loans. The top 20 loans in the portfolio comprised $211 million for 77% of this segment of our portfolio and have an estimated loan to value of 54%.
We stated on the Q1 call that our hotel operators are very experienced and skilled and adapting to change.
We have discussed with them how they have changed your operations, which includes sourcing new customers such as medical and governmental workers associated with cobot operations teaching hours of front desk staffing reduced made services closing off portions of buildings altering their pricing models and of course, reducing staff.
Slide 11 also shows in the lower right hand corner revenue per available room, where revpar for a portion of our portfolio, which is the key income statistic for hotels.
As shown on slide we have also indicated an estimated sample breakeven revpar under current revised operations.
As indicated hoteliers are finding ways to achieve breakeven shown by the Red line.
Very short recovery period by reducing costs and hustling to grow Revpar the grey line.
He take away is proactive management on cost and mining new sales favors the skilled and seasoned operators, which we believe includes our borrowers.
Many of our hotel owners elected to take PPP fines and use payment deferrals, we're closely monitoring their operations and many have been able to preserve some cash for when the deferral period sunsets Greg.
As discussed in prior quarters, the banks AG portfolio is well diversified between protein and cash grain in spread across the bank for state footprint of Kansas, Missouri, Arkansas, and Oklahoma in a majority is secured by real estate.
Construction and land development loans are down from Q1 due to the successful completion multiple projects.
In the migration to permanent financing.
Our restaurant portfolio shown on slide 12 has performed quite well.
As the majority is in the QSR space, which has fared well in the current environment.
As many dining rooms of closed or been interrupted carry out and drive through have performed well.
The bank works with experienced strong franchisees.
Who have had successful track record owning multiple locations.
The majority of these assets are showing positive cash flow and do not need the second 90 day payment deferral.
The banks total retail exposure is 206 million or 8% of total loans as shown on slide 12.
Delineated by segment.
The largest segments in the retail portfolio include automobile dealerships.
Retail strip centers movie theaters retail stores and convenience stores.
Our automobile dealerships have shown above average sales in the second quarter.
The banks retail strip centers are primarily located.
Our community markets.
I agree anchored by an owner.
The theater owners recede TPP funds and are currently own deferment.
They are seasoned entrepreneurial operators with diversity in their holdings in the loans are secured by real estate equipment.
And Cds in the bank.
The convenience stores, we finance have seen minimal adverse impact from coated 19.
The bank has 135 million or 6% of the portfolio and manufacturing and machine shops as indicated on slide 13.
Aircraft related manufacturing makes up 63 million in is comprised of seven relationships.
The aircraft industry has been adversely impacted first by the Boeing 737, Max grounding.
In compounded by the current a virus.
Our customers are also impacted by these dynamics.
We continue to believe these companies have solid experienced management teams.
We have proactively address the issues you have solid balance sheets.
Good liquidity.
In ownership with access to additional capital if needed.
None of these credits has become classified.
As stated on prior calls.
The bank maintains no direct exposure to oil and gas exploration.
Limited related exposure to oil and gas.
And limited exposure to medical in assisted living.
Each of these segments represent less than 1% of our portfolio.
One of my New responsibilities is working with Greg Mayo and Fad than high on on the resolution of special assets. These two guys and their teams have consistently kept our special assets very low we entered this uncertain phases the credit cycle in good shape.
Our net charge offs in the quarter were $590000, representing an annualized rate of four basis points.
Oreo was flat for the year, given the Q1 provision of $900000 specific to Oreo in our ratio of classified assets and total bank regulatory capital is 21.2% flat from 12 31 19, Eric.
Before we had the presentation for Brad to close I'd like to point out several key facets of our financial position.
As discussed earlier, our capital remains very strong even without the recent subdebt raise and our pre provision earnings have been strong only because we have been aggressively providing for the triple health of our earnings that below expectations.
Our deposit in retail team have done extremely well to grow non interest bearing deposits, helping to reduce cost of funds and drive more customers and associated revenue streams into the bank.
Our liquidity is outstanding with significant excess capacity at the FHLB and we have also tested our federal reserve bank capacity in the second quarter, although non his outstanding at June 30.
As Greg discussed our NIM expanded in the second quarter and with our remaining loans scheduled to reprice equaling about the same and time deposits, we expect core NIM to be relatively stable in the upcoming quarters, maybe declining mildly depending on fees in coupons on newly originated loans Brad.
With all the talk around credit administration.
And the uncertainty caused by Cobrand make team.
I don't want our origination and retail teams efforts.
To be overshadowed.
Yes.
I'll be some tough days ahead for everyone in banking and all industries.
But we continue to produce high quality loans and as we stated earlier, our non interest bearing checking accounts are up on both numbers.
Ed dollars.
We have been fully open and operating since early may at all our locations.
And we have had very limited inconvenient to our daily operations from the Corona virus.
We also remain fully prepared to adjust our operations should the environment dictate.
I also believe their credit culture, which has been both entrepreneurial.
And conservative performs well in this type of environment.
We have been originating loans in the second quarter to some very qualified healthy customers.
I think were poised.
To bake new customers through the main street lending program.
Which provide high quality customer opportunities that will help us to continue to grow our balance sheet.
We've avoided growth for the sake of growth in recent periods.
And I think that will serve us well.
Upcoming quarters.
Our recent capital raise coupled with an excellent team and the growth of our platform to include all Treasury Trust and wealth management services along side, our traditional banking offerings makes me very excited for the future.
We're happy to entertain questions at this time.
Ladies and gentlemen, again, if you have a question at this time. Please press Star then one.
If your question asked and answered English dream of yourself from the Q. Please press the pound.
Our first question comes from the line, Jeff All us with D.A. Davidson. Your line is open. Please go ahead.
Thanks, Good morning.
Hey, Jeff Thorning.
A question on that.
World percentage, what is that correct what percent of loans on deferral.
So Jeff those were all deferred in the.
Second quarter, so they haven't hit their 90 day.
Mark yet so the number hasn't changed from what's reported.
26% has reported and coming down from there.
Okay, Yes, just some of the discussion on the.
Yes, as you're approaching.
Extension discussion sounds like you've already had a few or or as I just figured maybe you've you've already peak God deferral and that's that's coming in but maybe that's just expectation.
Yes, we definitely picked on deferral and and so we've had discussions our lenders have had discussions with all of their.
Borrowers that are on deferral and.
So the discussions are coming in that many of them or not.
Position a longer that they would want or need.
Have a deferral.
Yes.
I guess is.
What's the average.
Referral timeline.
That group is that.
Dear or greater.
So we we went out with.
Offering a 90 day deferral. So we had a group of them that we did interest only for that we had that we did interest only for them for six months, which was about 108 million very important 95 million $95 million that we did interest only.
On on them.
There are paying the interest, but not the principal payments so.
In that bucket there is that group, but the rest of him were offered no more than 90 days.
Okay.
Got it.
Switching gears a bit in that in the service charge.
Line item.
Yes, just interested and how that trended in the quarter. My guess is early on that was disrupted and given some of your commentary about sort of branches all open.
Has that come back later in the quarter and I guess expectations for that line item as as that was north of 2 million a quarter.
Not too long ago, just wanted to see how.
That's restoring.
From your perspective.
Yeah your thoughts are correct Jeff.
In SSP first of all transactions were much slower at the beginning of Q2, and then that dynamic was NSF fees went down substantially.
By about half I think.
Given the amount of liquidity.
In customer accounts for from.
Unemployment and things like that.
It has come back to starting to come back to normal.
Those declines were offset by more debit card income as people were continuing to spend with their debit cards. So although in assets are down debit card transactions or an interesting dynamic and.
The guidance for overall.
Non interest income.
For Q3, and it's going to be.
$6.1 million I think for Q3.
It's a good number to use for total non interest income.
Great.
Greg.
Yeah, we actually saw us we actually saw a 70% decline at the low point on overdraft fee income.
Got it.
Okay and then just.
Outstanding sort of peak.
Franchise Entertainment credit.
I want to wrap my hands around.
The process sounds like you've had.
Franchise sales and momentum continues to be positive I guess.
Just trying to clarify how that comes out of non accrual is it is it accruing a portion of that or is it.
What needs to occur what's the tipping point for that to come off with non accrual.
So so.
Currently it's listed as a TDR.
So it has not accruing interest.
And sort of once a TDR it stays at TDR until.
It it leaves the bank.
And so even though the asset itself is performing pretty well in this environment.
Great carry out and delivery I mean pizza has done well in this in this whole cobot thing.
The credit itself is reducing principal without accruing interest.
Okay.
And the expectation on whilst content continues to be modest for that.
Yes, yes.
The expectation, Jeff it's still too.
Have that companies sell.
You want to see any Brett.
Yes.
Moving for well under the circumstances cut staff and then utilize the PPP program. They have had other nearly 70 franchisees and sold more mostly of the delivery and carry out.
Type stores, which you expect the just spend a lot of volatility in the southern states, where they're located with all the covert fits and starts they reopen.
And the rules change but.
Basically the it's kind of business as usual I think the at last discussion whether they were at about 50% of their prior years.
Sales, which is.
Mostly delivering carry out although some other entertainment stores have open back up with it.
With restrictions.
Okay. Thanks, guys appreciate it.
Thank you and our next question comes from the line as Terry Mcevoy with Stephens. Your line is open. Please go ahead.
Thanks, Good morning, everyone.
Hi, good morning, Terry.
So I think it's Brad you mentioned $182 million of P.P.P. loans paid off after origination.
I'm just wondering how did that impact or were there was that the forgivable component and if so I don't think the systems are open yet to kind of submit that to treasury did did a piece of that then run through net interest income and yes, a follow up question. There what was the yield on the P.P. loans last quarter.
So I'll take the first there's three questions. There I think the first one is we had.
Several groups.
That didnt want the scrutiny that was being that was coming from.
The political side and we're private equity owned in some of their ownership in the private equity didn't want to be front page news in the Wall Street Journal, So they elected to pay those off.
Our work and pay off those loans at any time, even with the SBH not accepting.
Repayment applications from forgiveness. So none of those loans were forgiven those were just paid off by the customer on those loans. The only income. We received was the 1% interest income we did not receive the fee income on those originations.
And then.
The second question, Greg is that is the.
What's the impact on yield right, yes, so that the.
As an interesting question Terry.
The yield components as you know or the 1% coupon plus the origination fee.
And as you know the origination fee is getting deferred over the life of the of the loans and so.
Our.
Coupon was 1% we did recognize into.
Net interest income.
Fees of about 1 million 36, according to our Fas 91 accretion so.
The impact on on margin was somewhere around in total probably 15 basis points.
Gotcha.
And I guess, just looking at hotel restaurant retail the three portfolio as you call out they all have caught 70 basis points of.
Deferral rates out of those three what do you have the largest reserve for if you have an allocated reserve against those three and I guess directly of trying to figure out in your mind, where do you see the greatest loss content today.
Well, we're still we're still principally.
Reserving on a general basis, Terry as opposed to an allocated basis for the credits its all going into general reserve.
That's a tough question to answer we feel pretty good about our hotel portfolio as you know Weve bank.
Really sophisticated and well seasoned hoteliers and as we have shown on slide 11, I think it is they're working hard to get back to break even the doing lots of good things and so is there a risk there yes.
But we haven't identified.
In any material significant risk got the credit level.
And the same is true on restaurant and retail more restaurant.
Portfolio is is very much QSR, they're doing pretty well in this environment.
So.
We're still.
Cautiously optimistic that.
Things are going to turn out okay.
Just to.
I'd answer that question, Terry a little more in depth in that.
The.
And we could be dead wrong three years from now, but I don't think we're going to be our our hotels are performing.
And are going to continue to perform because we have really good operators on top of that we finance people that had low leverage.
You remember.
The majority that portfolio has an average leverage balance of about 54%. So they've got working capital in those.
They also we also have verified and many conversations with them are sitting on.
Large sums of cash that we'll get to they're going to help them operate as they try to re ramp those hotels back open again, so we don't in the restaurant portfolio.
You know.
We're lucky better than good honestly from the standpoint of we don't have a lot of full service restaurants like almost none that we can think of but.
The quick service restaurants, with the drive throughs in the markets that we've been in are up 20% to 30% in sales and a lot of them are up more than that and net profit.
So thank you book a lot of a lot as one on deferral early on because we just they didn't know how they're going to make your payments because everything just shut down immediately.
One of those are not going to go.
They're not media deferral for the second period, and they're actually doing extremely well.
Understood.
Thank you both appreciate it.
Thank you Terry.
Thank you and again, ladies and gentlemen, if you wish to ask a question at this time. Please press Star then one.
Our next question comes from the line Michaels.
Peter to pay per true.
KBW. Your line is open. Please go ahead.
Well close enough I guess, how you guys doing.
Well good Mr potato.
A couple of questions on expenses, that's great sorry, if I missed the but you mentioned that the 900000 I'll defer to origination cost way to PPP.
Just wanted to clarify so with no new loan originators that will not impact the run rate going forward and is there anything else. We should consider as we kind of think of the launch spot for third quarter non interest expense.
Yes it today.
Yes, right on and.
We've done a scrub of normalized expenses.
Coming out at June and I think that non interest expense is going to be in that 24.7 25.0 range all in non interest expense Q3.
And as we think about to cost of the bank longer term.
Yeah, obviously challenging market environment, you know it sounds like your markets you know.
Has fared up a bit better, but but I still imagine to certain degree you're seeing some consumer behavior trend away from some of your branches, even if it's more modest maybe than other parts of the country or just.
Are you guys had a point, yet where you're starting to think about kind of your overall franchise expense base and maybe what opportunities could be to help kind of improved profitability and in a lower rate environment has that conversation you guys, you're starting to have or or or is it still early just given some of the credit uncertainty. That's you know demanding.
Out of your time I'm sure.
Yes, it's a conversation that we always have Michael were down.
Year over year.
Same period were down 35 ft East from last year at this time, so it's something that we always look at and evaluate.
And always try to be more efficient.
From a branch location standpoint, we just closed three branches in May.
All of those costs.
I will be out in this quarter so.
Go forward basis.
Those three won't be in impacting our numbers. So we're continuing evaluating those types of things.
I would tell you that were also up a net.
This year were up and net 1500 retail checking accounts.
The driver on that is that our folks in our markets have actually been doing a good job of attracting business from other financial institutions.
One is because of the launch of the Q2 product. So we've got a really good digital platform.
And that's really helped us.
In the other aspect is weve.
We've just got a really good job on a marketing side.
It really pushing.
That marketing and I think we're going to be able to grow the branch facilities that we currently have in almost every market that we have.
That's helpful Bride and had the deep process. So you know work.
Maybe some of your employees working remotely or some some more the PPP program, putting a lot of stress on your systems. I mean has have you guys seen anything you own during this kind of forced to experiment here. The last three months that there's kind of left you to believe that you know or legibly, rather that there could be some some updates or things you want to add it to you.
Your digital infrastructure or do you guys feel like the path you were on its very adequate and kind of that the experience of the pandemic. Thus far as has has validated that for you.
Yes, the investment we made last spring.
As really played out for us and Weve you know it has forced us to push forward.
Things on electronic count opening and those types of products that we weren't fully utilizing yet they were they were being rolled out but not.
As fast as we roll them out over the last 90 days, so that sped up some things.
So there's some efficiencies that come from that from a process standpoint, and I think there will be in some learnings from all of this Michael it's a customer expectation differences from this that will all learn as an industry on how to be more efficient.
But.
At this point, it's a it's a tad early but.
You know, we're always one that digs in and tries to figure out how you know how we can maximize the the revenue and make sure that we're looking at at both ends of the spectrum on both revenue and cost side.
Make sense appreciate and then just just lastly in your prepared remarks, you guys mentioned on the sub debt that you no longer term, maybe it could be used for share repurchases and not going ask you. When that is good but I do want to ask is what needs to happen do you think to get there is it just simply more clarity on the credit or or it's a more complicated than.
You know what kind of our some of the key things we should think about that could make you guys more comfortable and in deploying more capital externally.
Well.
Mike we suspended the repurchase in at the end of Q1.
Believing it was absolutely the right thing to do to preserve capital but.
It is part of its credit part of its also.
You know if we think we have excess capital.
And we don't see.
You know a lot of.
Hey merger opportunities, we've got that that capital to work somehow and.
As you know repurchasing shares as one of the safest ways to do that and so Brad nine Eric will be examining that in Q3 in Q4 and at the moment in time that we feel we need to deploy capital with board approval will begin repurchasing shares.
I would tell you Michael it will be a standing line item on our on our board agenda.
For every board meeting.
Dan.
Let's see I really appreciate the color, thank you and stay well.
Thanks.
Thank you and our next question comes from the line of Andrew Liesch with Piper Stanley. Your line is open. Please go ahead.
Thanks, Good morning, everyone.
Oh I agree.
Hi, just if you follow up questions for me.
The pizza franchise loan that's on to the remember I remind us how what's the dollar amount.
Got it right now.
13.8.
Okay. Thanks.
And then b.
Nonperformers went up.
About 10 million or so is there any detail you can provide regarding that change.
Yeah, we had one credit in the see an ice space, where the owner had a really significant medical issue had a stroke in is.
He will tell bed.
Got pan between the bed in the nightstand for a long time like think 24 hours.
And when he recovery he survived but doesn't have full capacity necessarily to run the business. The way that he was running at before so he is cooperating with us.
As the business liquidate and.
We put it on non accrual and when a businesses and liquidation.
Just to eight sub standard which is classified.
Not an adversarial situation, it's a liquidation situation and that's what you're seeing in those numbers.
Okay, but collateral the type of collateral that it is itself it should be self liquidating.
And so.
It will self liquidate over.
An 18 month period.
And so it will just wind down over that timeframe.
But should do it.
Ratably as the deposits come in through AC Ages.
So the deposit strictly hit their account.
And we sweeping pay down the line.
Got it sounds like a pretty well reserved for this credit.
Right.
And then just related to the PBP loans that are still outstanding.
How long do you expect them to remain on the balance sheet. You think are going to be all fully paid down by the end of the year or.
Some customers that they retain them for the full linked to that of the term.
So we will have a few customers that are able to get there.
Franchises back open again these were not our.
These are customers that we originated that were not currently our customers.
A couple of them.
And they.
Have had some protraction and being able to get their restaurants honestly back open again in the markets. They operate so I think it'll take them at least this year to be able to utilize the PBP funds.
And so they'll care there'll be a few of that carry over the next year. So lets think I think it's less than 20% that will carry over into next year and not and not be paid off this year.
Great.
That covers all my questions I'll step back.
Thank you Andrew.
Yes.
Thank you and I'm showing no further questions at this time and I would like to turn the conference back over to Mr., Brad Elliott for any further remarks.
Yes, so one of the things that we probably missed some of our remarks is.
On the on the deferrals, we took a proactive approach with our customers. We did not to for a customer that we felt like wasn't going to make it that we talked about the customer that's in liquidation mode. We didn't put them in deferral. We evaluated that said it was time to move forward with that that liquidation process so customers.
We've put in deferral or what we consider very good operators.
And we look at the deferral as a way to help them utilizer cash and to save cash vacant Reramp. After the markets open back up again, so we look at our we look at our deferred loans as some of our stronger customers and ones that we think are going to do well after the markets open back up again so.
Although we have a strong percentage in that bucket, we think that percentage.
Finally, as customers that are going to do well do through through this period and after this period. So we appreciate everybodys interest. If you have questions. Please give us call. Thanks for your time today.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may now disconnect everyone have a great day.
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