ServisFirst Bancshares Inc
NYSE:SFBS
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ServisFirst Bancshares Inc
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Good day, and welcome to ServisFirst Bancshares First Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Davis Mange, Investor Relations Manager. Please go ahead.
Thank you, Allie. Good afternoon, and welcome to our first quarter earnings call. We’ll have Tom Broughton, our CEO; Bud Foshee, our CFO; and Henry Abbott, our Chief Credit Officer, covering some highlights from the quarter and then we’ll take your questions. I’ll now cover our forward-looking statements disclosure.
Some of the discussion in today’s earnings call may include forward-looking statements. Actual results may differ from any projections shared today, due to factors described in our most recent 10-K and 10-Q filings. Forward-looking statements speak only as of the date they are made and ServisFirst assumes no duty to update them.
With that, I’ll turn the call over to Tom.
Davis, thank you, and good afternoon, and welcome everybody to our call. My comments will be a little bit longer than normal, because these are interesting times we’re in today with a pandemic. It seems like the first quarter was a long time ago, so much has happened over the course of the ensuing days. I guess, we talk a little bit about the pandemic. We activated our pandemic plan on March 2.
I remember the first time we – the regulators we need to have a pandemic plan, I thought less about the silliest thing I’ve ever heard in my life. It turns out somewhat the FDIC was right and I was wrong. And we – of course, we all thought that it was just going to be a bad flu season that would – there was a way to make it through. And I’ve always believed that we give all the employees a free flu shot and we’re not going to have a flu epidemic. It was sort of my plan, but plans get – go awry bit here during the pandemic.
But what we found really is, we had an excellent plan, thanks to our Chief Risk Officer, Mark McVay. We had an excellent plan. Our focus has been on employee safety. Employee and customer safety are – number one is employee safety, number two is customer safety.
What we found is that a branch light technology heavy business model works very well during a pandemic. Our business model was made for a pandemic. It’s one of our regional CEOs said, he said “I’m so happy that I’m managing one office instead of the 34 branches at my old bank I used to work with.”
So it is much easier to only manage. We have some 22 offices. And in many cases, we – obviously, doing like most people, we’ve gone to drive in only. We have very limited in person contact. We are rotating – a number of our people are rotating – we’re 50% work from home where possible. We’re all the day in this conference room – large conference room, this larger conference room than normal. So that we can all be socially distant six feet apart.
Also, our second focus has been on serving our clients and our community’s needs. And we received very positive feedback from all of our clients. I’ll go in a little bit more detail. Sort of our stance, when you’re facing an unknown threat, you want to be as conservative as possible, and that’s what we’ve tried to do in every case of how we’ve managed the business since March 2. We’ve tried to be as conservative as possible.
Certainly, we don’t change anything. We don’t need to change and try to serve our customers’ needs. That has been our total focus, is serving employees, keeping employees safe and serving our clients’ needs.
Henry Abbott, who is our Chief Credit Officer, he is going to talk in a few minutes a little bit more about our asset quality focus and give you a lot of details on that. We put a deck out this afternoon, I think, all the analysts have. It is on our website, a supplemental deck and it’s on the SEC website as well. It’s not a very big deck as I’m glad to say.
I remember when I was a young credit analyst at AmSouth Bank, and I went to an Executive Officer’s office and he handled me a credit file that was about six inches thick. I still remember, it was a department store called City Stores out in New York. Obviously, I don’t remember when it was a Shared National Credit or we had a direct relationship.
And I stared that thick credit file and the executive said, “Tom, you need to understand that the quality of credit is inversely related to the thickness of the credit file. He said a very good company has a very thin file.” So I’m glad to say that we’re a good company and we have a thin deck that we posted out there today with a little bit more information. Henry will go over in a few minutes.
But I want to give a few high-level comments on asset quality. Henry is going to talk about the loan categories that are of interest to investors. We will, I would say that we – everybody says, they underwrite better than other banks, everybody says that, of course, we say that, but everybody says that.
We do have minimal consumer exposure, less than 1% of our portfolio is consumer. I know that there are areas of interest, obviously, restaurants, hotels and things, but you just don’t – a recession causes problems with weak players in every industry. It does not matter what industry it is.
You’re going to be – for example, if you’ve got some big apartments that are not well underwritten and they’ve got a lot of tenants that lose your jobs, you’re going to have some problems with something like that. So it does expose all weak players in all industries. I don’t – you can hear anything you want to hear about what economists are saying that it’s going to happen to the economy over the next few quarters.
I’ve been looking, if anybody has got a list of economists that have gotten rich from doing accurate forecast, I wish somebody would e-mail me the list of this on this call today. I’d love to have that, but I don’t know of any. If there’s a list, I’d like to know. I will say that charge-offs – just common sense will tell you they’re going to be elevated a bit over the next – I don’t think anytime soon.
I remember during the 2008 recession what was created was homebuilders, AD&C. But now we have some so bad, they started creating in 2007. We were ahead of the recession. But I remember, they’d come in and they kind of say, “You need to make us a large unsecured loan or we’re going to throw you the keys.” So we’d say, we’ll hand us the keys and they hand you the keys and walk out. This isn’t like that.
We’ve had – it’s been very calm with the customers. I think, they’ve – some have asked for loan extensions, and Henry is going to talk about – cover that in more detail. But yes, I’ve kind of been surprised to who’ve asked for the loan extensions is, it’s people that are in really strong financial shape.
I think they’re just a lot of them are very conservative. It’s mainline churches, who are not reliant on the collection plate for their revenue, most of the money is sent by check or by automatic debit. Dentist, other medical professionals, endodontists, dermatologists, those sort of people have all asked for extensions as well. So I don’t – we don’t expect any long-term credit issues or repayment issues in most of those sort of people.
So – and the last thing I’d say on asset quality is, we’re not a deal bank. We’re a relationship bank. We know our customers well. We don’t have deals all over the United States with some random deals. So we are – they’re in our footprint for the most part and we feel really good about our customer base.
I’m going to talk about deposit growth for a minute. We’ve seen really solid deposit growth in the first quarter. And year-to-date, our liquidity continues to grow. We have not seen a surge in line usage. We don’t have any of those type of customers. You read about it the big banks either, a lot of credit usage surge.
In fact, our line utilization was exactly the same at March 31 as it was at December 31 within like 48.8 versus 48.2. So there’s almost no change there whatsoever. We did see very strong deposit growth during the last recession from customers looking for a good strong bank, and we see this is shaping up to be much the same.
Talking about loan price and Bud is going to talk about our margin improvement in a minute. But loan pricing today is much more rational than it was just a few weeks ago. We have made the decision to implement minimum pricing in early March. So our minimum pricing has been strengthened a good bit is. It is sort of interesting. So the commercial customers will call to say, they – well, they read the interest rates have dropped and they will know they can – we can redo their loan at a lower rate.
Well, no, the only borrower who’s borrowing cost has dropped is United States government. In almost everybody else, including most countries in the world, their borrowing costs have gone up. So we straightened them out on – from that standpoint that there’s not – we’re not in the business of cutting rates.
So I might be surprised. People might go back to doing silly things a little quicker than I think. But I don’t think we’re going to see any margin pressure in the immediate future. I think customers today are more focused on access to credit. The cost is low, is still low, and I think that’s just going to be remain the same for at least the balance of the year.
I’m just going to talk a minute about profitability. We put in our press releases that our first quarter pre-tax pre-provision return on assets was 2.49% in the first quarter, which is obviously one of the best in the industry. Our dividend and payout has been in the mid-20% range of earnings. We’ve had a lot of questions in the past about, “Why don’t you buy your stock back?” So I always answer, well, I read a lot of studies and insiders never know when is the best time to buy stock back that stock can always get cheaper.
So you feel foolish if you’d bought it back at a higher price. And we’ve gotten the questions about what are you going to do with all your excess capital? And I always say, “Well, it might be nice to have one of these days.” And also we’ve gotten questions about why we don’t buy – why we hadn’t been buying banks with all our excess capital? And our answer has always been that bank stocks might get – might – prices might get cheaper at some point.
So I’m very happy. We don’t have to do any goodwill impairment assessments today on any banks we bought. And I’m also happy that we don’t have to wonder about the asset quality of the banks we just bought. So our policies have served us well when a pandemic hits.
Just going to talk for a minute about the PPP program. Paycheck is a tongue twister for me, I call it PPP SBA program. I’ve never been – we’ve never had a big – we’ve done SBA loans and certainly, we want to meet our CRA commitment, Community Reinvestment Act commitment to small businesses in our communities and that’s very important to us. And that’s why we do SBA loans, but we’ve never looked at SBA loans as a line of business.
I know a lot of banks, the way they’ve made it through the recession was, they would do a lot of SBA loans and sell off the guaranteed portion and book for profit, and that’s what kept them alive. I learned pretty early in my career, I didn’t want to be a big SBA lender. Typically, what I’d see is, when the democrats were in office, they’d want us to make a lot of SBA loans. And then when the republicans came in office, they will try to figure out how to avoid the guarantees on the loans we’ve made when the democrats were in office.
So I got enough for that business pretty quickly and didn’t want to decide that was not something we wanted to do. Despite having said that, we decided to participate in the program to support our customers and our communities that need the support. Paul Schabacker is one of our executive officers here in Birmingham ramped up our program, did an outstanding job of – we made about six months worth of loans in two weeks period of time, I think, was 3,300 – little over 3,300 loans, totaling $914 million that we have closed and funded.
In the PPP program in Round one, I understand, I think Round two is probably coming over the next few days possibly. It’s been an interesting time we have people working 24/7, except for Easter Sunday, trying to get all these loans booked and funded. And very few cases, we – excuse me, we had a few that we didn’t get done and typically was just because our clients didn’t have had not given us all the information.
Everybody has all the information they’ve given to us. And we might have, I think, we just made mistake on maybe two or three that we didn’t get done. But anyway, I’m very proud of our team. One thing is interesting is, I think, our production – our loan officers have a greater appreciation today for our credit and operations people than ever before. It’s truly been a team effort and I’m proud of what they’ve done to get those loans closed.
If we put in our slide deck that we expect the vast bulk of those loans to be forgivable loans and we will – they will be off our books. We expect them to be off our books before the end of the second quarter. If we need liquidity, as I’ve mentioned earlier, has been strong. If we need any additional funding, we will go to the Fed in excess that we’ve filled out the paperwork for the PPP loan facility at the Fed, if that’s necessary. But I’m not at all sure that we’ll need to do that.
Due to the high demand, we did focus on existing clients and we did not – we made an attempt to first prioritize the smallest clients first thinking that they would need the help. But we just ended up – we just did it randomly. And in terms of that’s the only way it worked is to do it in that manner.
The expenses are quite high. I kind of learned that during a pandemic, everything costs more, except all the catering we did. For our employees, we were catering as many as three meals a day for a lot of our employees for a good chunk of the time. And that’s the only thing we got a good deal on, because the restaurants all needed business right now. But everything else costs a lot of money.
So we do expect that we’ll – the program will be profitable in the second quarter. And we think it’ll make a nice addition to our loan loss reserve in the second quarter with – what the net profit above. We paid a lot of overtime and we paid a lot of incentive pay in terms of, I call it, piece rate. We paid piece rate fees to get a lot of this done over the course of a 24-hour period.
We had – you couldn’t – when we started, we only had maybe what we call seats at the SBA. We had three seats when we first started inputting loans. We tried to get as many seats as we could, but we just didn’t get them approved by the SBA. So I think, we ramped up over the course of a few days from three seats to eight seats to 19 seats to 29 seats and we got it done. All these loans are being closed, funded. They’ve all signed by DocuSign. We got them all done.
At the end of the day, besides our overtime and incentive pay that we’ll pay, we’ll – it’ll be a little noisy in the second quarter for the analysts to decipher in terms of all that. And we will keep a reserve knowing that my thoughts on if any issues down the road, we’re going to keep a reserve for any contingencies on those type of loans.
I’m going to ask Henry Abbott now to talk a little bit more about asset quality. Henry?
Thank you, Tom. And looking at the ServisFirst footprint, I’m cautiously optimistic as the economy reopens and viewing heat maps and other data points that lay out impacted COVID-19 areas thus far, the majority of our markets are in low impacted areas.
We’re not in the Northeast or some more heavily concentrated COVID-19 impacted communities. No one is immune to the broad impacts of the pandemic, but we should be well-positioned as our markets reopen. We have a well diversified loan portfolio in both geography and industry classifications. The portfolio is granular and we don’t have any major concentrations within industry codes.
We’ve always prided ourselves on being a well rounded commercial and industrial, or C&I bank versus a bank that focuses on CRE transactions or as targeted industry calling officers. Greater than 55% of our loan portfolio is to C&I operating companies, and this is through owner-occupied real estate loans, equipment loans, lines of credit.
We have a very low exposure to SNCs, as they represent only $65 million in current balances on a total loan portfolio of $7.5 billion, which is less than 1%. The SNCs we are involved in are because we have a direct relationship with those borrowers.
To date, we’ve had no major downgrades within the portfolio as a result of COVID-19. At the end of the quarter, past due decreased by $7 million from year-end and non-performing assets decreased by $3 million from year-end.
As Tom mentioned, we have a slide deck on the website, and I’ll cover some of that in more detail here. Page four lays out areas of interest to investors. We’re not a large hotel lender, and hotels only constitute roughly 2% of our portfolio and the overwhelming majority of those are flagged hotels and none are oriented towards conventions or resort style accommodations.
Restaurant exposure is noted at less than 3% of our portfolio, oil and gas is less than 1% of our portfolio. Retail CRE consists of $267 million in loans, which is 3.5% of our loan portfolio. The CRE loans are to well-established borrowers who have longstanding relationships with at this bank. The average loan size in this segment is less than $2 million.
Our AD&C portfolio to capital is 55%, which is well under the regulatory guideline of 100%. Our income-producing portfolio, which is non-owner-occupied commercial real estate is 236% of our capital, which is well under the regulatory guidance of 300%.
Within our income-producing commercial real estate portfolio, we don’t have any major market concentrations, the highest one being Alabama, that accounts for just under 10% of our loan portfolio.
Given the guidance from regulators and FASB, we’ve agreed to provide COVID-related deferrals to clients who have requested some form of payment relief. We have taken a three-month approach to these deferrals and we’ll assess future deferrals in the coming months. The deferrals requested, the vast majority have been principal only relief and the borrowers are continuing to make monthly interest payments. On Page 5 of the PowerPoint presentation, we lay out the industries of these deferrals.
Given the uncertainty with the financial impact of COVID-19, we chose to retain our proven incurred loss methodology for calculating our ALLL and delayed CECL implementation.
With that, I’ll turn it over to Bud.
Thank you, Henry. Good afternoon. First, our net interest margin. Our margin increased from 3.47% in the fourth quarter to 3.58% in the first quarter. Tom have talked about our strong growth for loans in the first quarter. We grew $307 million, deposits grew $302 million. Our variable rate loans were $3.1 million at March 31 and $1.2 billion of those loans were at their floors rates, or 40% of our total variable rate loans at the end of March.
Based on our March 31 balance sheet, our consolidated margin was 3.64%. Also our total deposit cost was 0.55 as of March 31. For the future NIM, we expect it to remain north of 3.60% in the second quarter, exclusive of PPP loans. A reminder, we have no accretion income related to acquisitions and there were no other major income or expense items that impacted the first quarter earnings.
Liquidity. Our investment portfolio is 8.5% of our total assets. The portfolio is available for any liquidity needs. We have a very vanilla portfolio, government agency mortgage FAS, Alabama munis with an A or better underlying credit rating, treasuries, agencies, bank senior and sub-debt, and an average life of the portfolio is 3.4 years.
For non-interest income, we added 70 banks in the first quarter through our American Bankers Association credit card referral program. Mortgage banking income slow in first two months. And then in March, we had fee income of 525,000, while they had to do with the two Fed rate cuts in March. Also, a reminder, we do not sell any government guaranteed loans to generate non-interest income.
For non-interest expense, our ORE expenses increased $498,000. That was due to updated appraisals on to credits. Payroll taxes increased by $380,000, primarily related to incentives that were paid in January, and our 401(k) contribution match increased $229,000 related to incentives.
Net producers had five that left in the first quarter and we added three. And as we’ve mentioned in our fourth quarter call, we’ll have a new expense control initiative for 2020. We’ll continue to look at our costs, working with our vendors to control that, which you’re going to see the impact of that in 2021 as opposed to 2020.
Our loan loss provision, our first quarter net charge-offs were $4.8 million, $3.7 million of which was loans that were previously impaired, and we continue to be proactive with our problem credits.
Capital, our bank Tier 1 leverage ratio was in excess of 10% at March 31. So we had very good ratio. Taxes, our year-to-date tax credit – tax rate for 2020 was 18.8%, 21.3% without the stock option tax credits in the first quarter of $1.1 million. The 2019 year-to-date rate was 19.5% and 21.3% less stock option credits of $772,000. We project the tax rate for the remainder of 2020 to be 22%.
And that concludes my comments, and I’ll turn it back over to Tom.
Thank you, Bud. I’ll finish – before we take questions, I’ll finish by saying that we do see a lot opportunities on the horizon. We see a lot of opportunities with customers that had an unsatisfactory experience at their existing bank, some large banks and some regional banks. And you might guess with some of the people that put caps on how much they were going to due and they have a very unsatisfactory experience there with their existing bank.
So we are in the process of onboarding some new customers. We see a lot more opportunity down the road. We are mindful of the current economic conditions with any new request and evolves credit. We certainly – deposit accounts is pretty simple, being with any – anything involves credit, we’re stress testing any new loan request in light of the current economic conditions.
In summary, I really like where we are today. The positives far outweigh the negatives. We have the capacity to bring home a lot of new clients and we intend to thrive not survive through this pandemic. And we – we’ve shown we can adapt to a new environment and do very well.
So we also got a chart out there on – page on digital banking opportunities. We – we’re seeing much greater adoption today than ever before of scanners, as well as mobile banking. So our business model is working very well given the current conditions.
We’ll now turn it over to and take questions. Davis?
We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Kevin Fitzsimmons with D.A. Davidson.
Hey, good evening, guys.
Hey, Kevin.
Hey, Kevin.
I recognize upfront how fluid this is and all the uncertainty. But can you give us any idea to how you think about further reserve building off of this quarter, so as we look forward in the next few quarters? Because I’m just interested there, how that debate went amongst you all in terms of – you made reference to the very strong pre-tax pre-provision profitability you had and whether would – did you entertain the thought of using even more of that to be aggressive more than you even thought, what you can see now just to try to get beyond – get more of it in the rearview mirror. And just – that’s a long winded way of saying how should we think about provisioning going forward?
Hey, that’s an interesting question, Kevin. We would – obviously, if we thought we needed more money, we would put more money in there. Now that’s – the clear answer is, if we felt necessary to do that, we would have done so. So, again, we like our customer base. We feel good about our customer base.
I mean, obviously, there’s going to be some pain with some of the restaurants, for example, restaurants, hotels, have some pain. But we listed for you our existing balances. On the watch list on that day, we’ve had no downgrades as a result of COVID-19. It takes a time for things to play out.
But again, by the way, I’ve seen some analysts estimating what the fees are going to be on the PPP and they’re estimating a little on the high side. And I say, I hesitant to give our average, because an average is not a good number. It is misleading, because – when you have a lot of $2,000 and $10,000 loan request, and you average those, we end with some very large ones, that might be $2 million, $5 million, that sort of thing.
You get some strange average that people are trying to run off of. I know that’s not what you asked, Kevin. I just mentioned that for all the analysts on the call that everybody seems to be a little high. But we think we’ll have an opportunity to make – anything we think we’ll need, we can do in most of it in the second quarter, Kevin.
Okay, great. One quick follow-up. On the subject of loan growth, it was very strong this quarter. And I know I think traditionally in past years, the loan growth has been on the light side and early in the year and then it really kicks in, in the back-half of the year. And you mentioned that it really wasn’t a surge in people drawing the lines. So was it just more of the PPP loans being on the books? Was it just pent-up loan demand from last quarter, if anything to attribute that to?
I could – we had a couple of bank holding company loans closed. They were pretty good size, good solid companies. We had a marine, oil and gas customer payoff and they went permanent in the fall. And I came back in with another vessel with us this quarter, which is the best part of our oil and gas exposure is one – not vast part, but the biggest one is a vessel that’s leased on a long-term lease to a major oil company. So – but those probably three credits distorted the numbers upwards, Kevin, that makes any sense.
Okay, that’s great. Thanks, guys. That’s it for me.
Our next question comes from Tyler Stafford with Stephens.
Hey, good afternoon, guys.
Hey, Tyler.
Hey, Tyler.
Hey, I had a question also to start on the allowance. And I saw on the release that you added a new pandemic qualitative factor to the allowance. How much did that new pandemic qualitative factor add to the allowance and reserve build this quarter?
Yes, this is Bud. I don’t know if we have that here and I both sitting, I don’t know if we have that specific amount in front of us.
Okay.
We’d have to go back and look.
Okay. That’s fine.
But other factors also played into like GDP growth, change in prime continuing to decrease, I mean, there were other factors also that drove it.
So maybe let me ask it this way. Do you have a good frame of reference we can think about for what the reserve build would have been if you had adopted CECL?
Yes. It – early in the quarter, Tyler, this is Tom, actually. Early in the quarter, the difference – first of all, we look at CECL in two or three different ways. But we start from the stance, if you’re going to be as conservative as possible, you don’t change anything, but you don’t need to change. We got enough going on.
And what we’ve had going on is this SBA PPP program and has been kept us extremely busy. And then we’ve had all their requests for people looking for loan extensions, because the regulators announced to the world that they could gather them. So we’ve had a handful, primarily with PPP loans. But – so we look at it on a couple of different ways.
First of all, don’t change anything you don’t need to change. Early in the quarter, the difference between the two models was negligible. As of – because of deteriorating economy due to COVID-19, at the end of the quarter, we had to put in another $8 million due to the COVID-19 – on the CECL model, so it’s not a meaningful – not a really a meaningful amount.
And so, we also think there’s some chance that I’m told, I don’t know what Congress is going to do, but I’m told there’s some chance that on a bipartisan basis, they might decide to kill. CECL is so important. If you already adopted, it’s going to be a bit difficult to unwind. And so, we thought the best thing to do was to just take a conservative stance and don’t do anything new.
Yep. Okay. So if you had adopted CECL, the incremental 331 provision would have been an additional $8 million?
Yes.
Okay. All right. Got it. Thanks. I appreciate the details in the release around the deferrals from COVID-19 and the major industries impacted. Do you just have what the total amount of loans that were deferred as of 3/31, or?
Go ahead, Henry.
Yes. So as of 3/31, total balances deferred was 700 – excuse me, $574 million. And that was about 5%, or less than 5% of our customers in terms of units. So $575 million as of the end of the quarter.
Perfect.
And again, this isn’t 80 different industries and I look down the list and most industries get down to – there might be $1 million in each industry for the last 51, or $2 million of each industry that’s, I don’t look at those as vulnerable on the credit side, for the most part.
There are people being – they’re large mainline churches again, They’re people being conservative. They think they’re being conservative by asking for – and we think we’re being conservative, because we didn’t do any six-month deferrals and we only did three months of principal deferral.
Okay. All right. Thanks for that. And then on the prior slide, just around the portfolio is potentially impacted by the pandemic. I appreciate all the new disclosures and details here. I guess, I was a little surprised that there were zero dollars of hotels and motels on the watch list. And I was wondering if you could maybe walk through why there would be no – none of those bounces on the watch list?
We are selective with our hotel lending. We’re traditionally looking at low loan-to-value type hotels. At this time, none had been downgraded and all were performing loans at the end of the quarter and all still are.
Okay. All right, that’s helpful. And then maybe lastly, Tom, did I hear you say that you provided three meals a day for all of your employees?
No, not every day, but in many cases, we did. That’s why I think we got a good deal on was the catering. We were running there full time, except for Easter Sunday, we were running. The first weekend we had to roll it out. We had to run as close to 24/7 as we could and…
Good on you for doing that. That’s pretty great. That’s all my questions. Thanks.
Thank you, Tyler.
Our next question comes from Graham Dick with Piper Sandler.
Hey, guys, good evening. I’m on for Brad Milsaps.
Hi, Graham.
So kind of just following up on the portfolios, you guys disclosed in the slide deck. Within restaurants, I know it’s just under 3% of your total loans. But would you mind giving a little info on like the composition of that segment? Is it mostly quick service or weighted towards casual dining?
This is Henry. So on a true loan balance perspective, $145 million, of that $226 is full service. Under that is in more limited service, so that represents another $60 million. And within that category, we did add bars as well. And so that’s also another category, but breakdown is primarily full service and limited service under that.
Okay, great. That’s very helpful. And then kind of following up with the loan growth question. It’s obviously going to be relatively on policy time being, while you guys are working through PPP and COVID continues to kind of pause client activity. But how do you guys think about loan growth at the other end of this thing? Maybe is there a light at the end of the tunnel? Do you think you might be able to get close to picking up where you left off, or you expect to take sometime to ramp back up to that low double-digit rate you guys had in 2019?
We see an abundance of loan opportunities, Graham, in spite of the fact that our people – we’ve taken them all off the road. We’re not making calls. Obviously, took them off airlines pretty early on, compared to and we were on the conservative side, we had a lot of national teams around the company when we told people they get off the road. And once they got off an airline, don’t come to office for 14 days.
We took a very conservative approach, but we see an abundance of loan opportunities out there and we feel like we can be as we could – again, we can see strengthen our loan pricing. We see better opportunities later in terms of where we are, because there are certainly less banks that are able to make loans today than they were just literally a couple of months ago.
Got it, great. That’s really helpful. That’s it for me today, guys. Thank you guys very much and congrats on the quarter.
Yes. I would say, Graham, to answer your – a lot of people have hit the pause button on projects, which is just kind of common sense that if you’ve got a project underway, a lot of people have hit the pause button for a few months just to let all the dust settle a little bit.
Our next question comes from Kevin Swanson with Hovde Group.
Hey, guys.
Hey, Kevin.
Hey, Kevin.
Obviously, the multiple in the stock has held up well compared to others. And despite your guys’ strength this quarter and kind of the outlook, it looks like there are definitely some banks who don’t come out of this unscathed. Prior to COVID, you guys set up well organically with all the M&A going on in your back – backyard and some of the hiring you’ve done. But is there any change in thinking around being an acquirer, now the multiple seems to be stronger on a relative basis and kind of where you guys sit?
We want – obviously, we want to get on the other side of the dust storm, Kevin. But obviously, it’s much more interesting today than it was just literally a few weeks ago. THE prices are substantially better than I would think than if people are even – once the M&A starts back up, which might be, it might be six months. I mean, I would guess it would be six months before we see any activity. But certainly, we’d be willing to entertain it at the lower level of pricing that we see today.
Okay, thanks. And then the last one is appreciating the significant uncertainty, like you mentioned, remains. Have you guys thought about any changes to kind of credit structure and underwriting policies, given what we’ve learned so far in the impact? Kind of, obviously, it changed quite a bit after the Great Recession, but just curious if this has kind of refreshed any kind of credit process in your mind?
Well, again, we’re going – any new request, we’re focused on our existing clients, and that’s what we should be focused on today. But on any requests, we’re putting an extra step stress test on it. As one of our executives, Greg Bryant in Tampa said, that’s what we did during 2008 to 2012 in Florida as we put an extra test – stress test on any loan request, so it makes perfect sense.
So we – now we – I’ve always said we need to make the same loan decision. When the stock market is going up 5,000 points or going down 5,000 points, we need to be emotionless on making a good sound underwriting decision and it shouldn’t vary at all. So, the same underwriting standards apply and we want to deal with good people and good quality people.
Okay, great. Thanks, guys.
Thank you.
Our next question comes from William Wallace with Raymond James.
Thanks. Good afternoon, guys.
Hi, Wallace.
On CECL real quick, the decision to delay it, were you guys delaying and operating under the assumption that when you do adopt that you’re going to have to go back and restate your results?
Well, I mean, we – this is Bud. Yes, I mean, we know we will have to restate once we implement. If that comes to pass in 2020, we will have to do that.
And what kind of expense does it add to go back and do that? Is that a [Multiple Speakers]?
Well, I mean, we’re doing parallel. I mean, we’re doing our incurred loss and CECl. We’ll do that each quarter. So…
So you have all the results right there. So theoretically, shouldn’t be too expensive?
Right, right.
Okay. On the expense side, is there any way – there’s a lot of commentary in your preamble, Tom, about the expenses being pretty hard to gauge and generally being up. Can you maybe just help us get a sense of what we might be looking at for the next couple of quarters on the run rate basis understanding that, I guess, this quarter will be higher, given the PPP activity?
Yes. The expenses, in general, are trending down. I mean, we expect to see all our expense initiatives, we expect to see most results in the second-half of 2020 and 2021. So we’re certainly – we’re more glad than ever. We put in some expense controls, given the current economic environment. But I just made it’s just going to be a little noisy. We’ll have a heightened expense in a number of categories because of the PPP program.
Now, having said that, it’s still going to be a profitable program, Wally. So it – but it will be a little bit of margin distortion. And when we talk about margin, we exclude out any effect from the PPP – the taking $914 million loans that earned 1%, and exclude that from the margin. That’s why we’re going to look at it and think you will look at it that way as well.
Yes. Okay. And that’s probably a good segue to think about the fees related to PPP. I understand that, when you’ve got a few loans that are bigger in that 1% fee range versus a ton of loans that are smaller in that 5% range, are we – would you suggest that we’d be better off modeling closer to that 1% range, or do you think…
No, I say people…
…midpoint in the 3% range?
I’ve seen – yes, I’ve seen people modeling as much as 4%, something 3.5% to 4%, would seem a little high to me. But I don’t know what those banks – it runs the gamut. We got 2,000 – we got $1 million, $2,000 and $10,000 loan request. And those customers, they need the help. They need it more than people with a big money. So we’re – those paperwork just as important to us as a big customers. But yes, I think you’re on track, Wally, with 3 range.
Okay, okay. And then my last question, on the loan deferrals, I belief you gave the number $574 million at 3/31. Would you be willing to share what that number is today?
Sure. Yes, today…
Well, today is…
…through part of last week, I guess…
Yes.
…through April 14, the number is $988 million through, I guess, through the first-half of April, so.
Okay. And I mean, are you continuing to see a pretty high volume of requests coming through?
Yes, I think I think it slowed down and in part now that people have some PPP funds. As Tom said, we were able to accommodate overwhelming majority of our customers, so they now have some more capital to make payments on loans. I think the volume has slowed down whether that’s related to them getting PPP money or our bankers working on PPP loans at the same time, I can’t tell you, but it is slowing.
Okay. On PPP part two, which looks like it could be a possibility how many applications have you received that, that you didn’t – weren’t able to get through before they ran out of money? In other words, how much do you already have in the pipeline that you could take advantage of should there be a part two?
It’s not not a huge. Wally, we got most of them knocked out, but it’s in the $20-odd-million range, I think, is the loans that we had in the pipe when it shutdown. And, of course, we’ve added loans to the $5 million, $6 million from people that are not – we, again, prioritize our existing clients, but then we’ve added clients from other banks, trying to help people that had a bank. Some banks didn’t participate in the program and you find out it’s kind of amazing to me, but anyway, we’re trying to help people.
Yes. Okay. I’ll step out. Appreciate the responses. Thank you.
Thank you, Wallace.
Our next question is a follow-up from Tyler Stafford with Stephens.
Hey, thanks for taking the follow-up. Just one more quick one for me on the margin. I appreciate the two Q outlook of relatively stable in the 3/31 total deposit cost. Do you have what the spot loan yield rates were at 3/31 as well?
No, Tom, I want to say it was 460, but I’ll e-mail it to you.
Okay. But the expectation is with, I think, it was 55 basis points of total deposit costs at 3/31. The total margin in the second quarter ex-PPP should be 360-ish. Is that what you said?
Yes. I mean, we still think exclusive of PPP, we’d still be at 360. Yes, what I’ve got is the total loan yield for March, so that’s before all the re pricing and Fed cuts and all that. So I’ll have to find out what the yield was at the end of March. I’ll e-mail it to you. I’ll e-mail that to your, buddy.
Okay.
And again, Tyler, where our goal is to strengthen loan price and it’s going to take time. I mean, it doesn’t happen. Certainly, we will have an opportunity in May/June renewal season and then, obviously, we have more to your lines of credit than we used to in those days. So we see opportunity to strengthen loan pricing.
Yes. No, it will be impressive if you guys can hold the margin flat in two Q after 150 bps of cuts in March, so that will be impressive to see them. Thanks, guys.
Thank you.
This will conclude our question-and-answer session, as well as today’s conference call. Thank you for attending today’s presentation. You may now disconnect.