Eagle Bancorp (NASDAQ:EGBN) Q1 2020 Earnings Call

0:00 Ladies and gentlemen, thank you for standing by and welcome to Eagle Bank Corpus First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Charles Livingston, Chief Financial Officer. Please go ahead. Thank you, Jonathan. Good morning. This is Charles Levingston, Chief Financial Officer at Eagle Bancorp. Before we begin the presentation, I would like to remind everyone that some of the comments made during this call may be considered forward-looking statements. Our Form 10-K for the 2019 fiscal year, our quarterly reports on Form 10-Q, and current reports on Form 8-K identify certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made this morning.

1:00 The company does not undertake to update any forward-looking statements as a result of new information or future events or developments. This morning's commentary will include non-GAAP financial information. The earnings release, which is posted in the investor relations section of the company's website and filed with the SEC, contains reconciliations of this information to the most directly comparable GAAP information. Our periodic reports are available from the company or online on the company's website or the SEC website. I would like to remind you that it is our policy not to establish with the markets any earnings, margin, or balance sheet guidance. Now I would like to introduce Susan Riel, the President and CEO of Eagle Bancorp. Thanks, Charles. Before I begin my formal remarks, I wanted to mention that Jan Williams, Our Chief Credit Officer is also here with us, and we'll all be available later for questions.

1:57 I would like to begin by extending our best wishes to all our shareholders and others on this call during this time of great stress and concern related to the COVID-19 pandemic, which is impacting our whole world. This disease has changed the way we live and certainly the way we do business. I would like to give you a brief summary of how Eagle Bank has responded to the challenges presented by this environment. In late February, when we realized the potential severity of COVID-19, we started taking steps to protect the safety and health of our customers, employees, and the community. We immediately enhanced our system capabilities for remote access. Within 10 days, We had over 50% of our staff working remotely from their homes.

2:51 During that period, we increased the sanitization of our facilities to enhance the safety for our employees who were coming on site. In all situations, we have followed CDC guidelines and local government authorities. Prior to federal plans kicking in, we established the Eagle Bank Relief Program, to allow for additional paid leave for our employees and worked with CareFirst to improve the medical coverage for COVID-19 related matters. We continue to monitor the spread of COVID-19 in the Washington metropolitan area and will take steps as appropriate to foster the safety and health of our employees and their families.

3:40 We closed 14 of our 20 branches and left six open with drive-through access to offer the necessary services. To maintain a high level of service, we enacted outreach programs to our customers to encourage and facilitate use of our online and mobile banking services and ensure that customers knew how to reach us remotely. We worked with our vendors to make sure that the appropriate technology was available. For example, for one customer, we had 37 remote deposit terminals delivered and installed within three days. We contacted our borrowing customers to assess how they were doing and to discuss the need for loan modifications where appropriate.

4:31 We have assessed the risk and exposures in our portfolio and will discuss those later in our call. To support our small business customer base, The bank is participating in the CARES Act Paycheck Protection Program, which offers SBA-guaranteed forgivable loans to small businesses to fund payroll and other costs. The administrative aspects of this program have proven to be very difficult, and initially our processing systems had trouble keeping up with demand. We enhanced our processing capability and to date we have approved approximately $107 million of loans through this program. We are focused on being responsive to our customer needs as expected. The additional funding for this program and we'll be able to better handle the additional funding for this program if approved.

5:33 During the last six weeks, we have relied on our communications technology and other systems. to support our business operations as we have really put them to a test. As a group, we have adapted to the use of meetings conducted through teleconferencing and videoconferencing. Our core processing and backup systems reacted very well to the Finaster wire transfer disruption incident in late March, and we have the framework in place to hold a virtual annual meeting with our shareholders in May. Given the impact that the COVID-19 pandemic has had on the economy, we have spent quite a bit of time assessing the risk in our loan portfolio for those business sectors hit the hardest by the downturn.

6:26 Of our total loans of $7.8 billion, we have $761 million or 9.7% of the portfolio in loans to firms in the accommodation and food service industry, and another 90 million, or 1.1%, in retail trade. There has been global concern about rent payments, and so note that 2.4 billion, or 31% of our portfolio, is comprised of income-producing CRE loans, and another 971 million, or 12%, of the portfolio in owner-occupied CRE loans.

7:11 We would also note that these two loan types have been better performing segments of our loan book during previous economic and credit down cycles. During this period of uncertainty, our board of directors has been attentive to matters that would affect risk to our employees, our customers, and the stability and outlook of the company. Under the Board's guidance, we have been responsive to regulatory guidance and enhanced reporting, federal and state mandates, and actions including loan forbearance provisions and stimulus legislation. We don't have a crystal ball. However, we are confident of our ability to work through the coming challenges for two reasons.

7:59 One is our strong capital position and profitability. which should allow us to work through the current credit cycle. And the second is our market position as one of the leading community banks in the Washington, D.C. metropolitan area. The federal government has created a major stimulus program intended to restart the national economy and our past experience from previous federal stimulus programs is that a significant percentage of the funds from the new government efforts will stay here in the Washington metropolitan area. This region is currently, and we believe is likely to remain, the fifth largest regional economy in the U.S.

8:45 Now I would like to turn the discussion to the company's financial results for the first quarter of 2020. For the quarter we reported net income of $23.1 million as compared to $33.7 million for the first quarter of 2019. Earnings per share, basic and diluted, were 70 cents per share as compared to 98 cents of earnings per share, basic and diluted, for the first quarter of 2019. A straight-up comparison of the earnings for the two periods isn't really meaningful because each period had some major unusual items. The results for the first quarter of last year included a non-recurring charge of $6.2 million, 13 cents per share, for compensation expenses related to the retirement of our former CEO. And the results for Q1 of 2020 include significant additions to loan loss reserves related to adoption of a new accounting standard known as CECL.

9:59 This new accounting methodology had, as expected, a significant impact on results for the first quarter. The CECL methodology was adopted as of January 1, 2020, and the resulting day one adjustments, which were charges to stockholders' equity, were an increase in the general allowance for credit losses of $10.6 million. and an increase of $4.1 million to the reserve for unfunded commitments. During the first quarter of 2020, we have made additional provisions to both the general allowance and the reserve for unfunded commitments, totaling $16.4 million. Of those additional provisions, about two-thirds can be attributed to COVID-19 matters.

10:53 We continue to monitor the portfolio for potential losses due to the economic turmoil from the COVID-19 pandemic. Since mid-March, we have been reviewing individual credit to assess how the volatile economy is impacting their cash flows and ability to service their debt. As of April 16, we had reviewed and approved loan modifications for 234 loans totaling $298 million. The net result of all of these factors was an increase in the allowance for credit losses from 0.98% of total loans at December 31, 2019 to 1.23% of total loans at March 31.

11:38 The adoption of the CECL accounting standard and related provision had a negative impact on pre-tax income of about $12.1 million for the first quarter of 2020. With that said, I would state that we are pleased with the results of the first quarter during which we saw continued growth in total loans, total deposits and a stable net interest margin, continued solid asset quality and continued strong efficiency and productivity. In addition to the CECL-related adjustments, the other major item impacting the quarterly earnings was the continuation of an elevated level of legal expenses. The net interest margin was 3.49% for the first quarter and was the same as the margin in the fourth quarter of 2019.

12:46 We were pleased to see this leveling off after several quarters of decreases from the level of 4.02% in the first quarter of 2019. During the first quarter of 2020, loan yields decreased by 11 basis points to an average of 5.07% for the period. Importantly, we were able to significantly reduce our deposit costs by pushing down money market and CD rates in line with the Fed. The Fed moves during the quarter. The cost of interest bearing deposits decreased by 17 basis points to 1.52% for the quarter. While many of our competitors did not adjust deposit rates as much, we moved aggressively in anticipation and in response to short term rate reductions by the Federal Reserve and successfully reduced our deposit rate and our aggregate cost of funds, which was 1.06% for the first quarter of 2020. The net interest margin was impacted by two other factors during the quarter.

14:04 The first item had a negative effect on the margin, was the more than sufficient on-balance sheet liquidity we held during these uncertain times. The result was that we had about $200 million in excess liquidity invested with the Federal Reserve as they reduced rates to near zero. The average loan-to-deposit ratio for the quarter was 99.4%. On the other hand, our cost of funds and margin continue to benefit from our ability to maintain average demand deposit accounts at 29.5% of total deposits. Our high level of DDA deposits continues to be a major strength of the bank.

14:53 We continue to have strong credit quality statistics for the first quarter of 2020. Net charge-offs annualized were 12 basis points of average loans for the quarter, decreased from a level of 19 basis points for the first quarter of 2019, and 16 basis points for the fourth quarter of 2019. Non-performing assets increased by $5 million during the quarter due to the addition of two pieces of Oreo property acquired through foreclosure. At March 31st, non-performing assets as a percentage of total assets were 55 basis points, as compared to 50 basis points a year ago and 56 basis points at December 31, 2019.

15:48 Non-performing loans at quarter end were 47 million and as a percentage of total loans were 60 basis points as compared to 56 basis points at March 31, 2019 and 56 basis points at December 31, 2019. As mentioned, the allowance for credit losses was 1.23% of total loans at the end of the first quarter due primarily to the CECL and COVID-19 related adjustments. Overall credit quality remained solid. At March 31, 2020, the coverage ratio was 205% of non-performing loans as compared to 174% at March 31, 2019, and 151% at December 31, 2019.

16:42 At these levels, we believe the bank is adequately reserved. For the first quarter of 2020, average loan balances were 8.7%, greater than in the first quarter of 2019. We achieved loan growth during the first quarter of 2020 of 295 million, or about 3.9%. Average loan balances for the quarter were 2% higher than during the fourth quarter of 2019. The largest increases during the quarter were in C&I loans and income-producing CRE loans, while we saw a decrease in construction loans.

17:34 Since March 31, 2019, We have grown our C&I loans by 11% and income-producing CRE loans by 13%, while our construction loan portfolio has remained flat at just about a million. A significant portion of the growth in C&I lending in the quarter was due to advances under the lines of credit as clients added to their liquidity positions in March in response to COVID-19-related matters. We estimate that about half of the loan growth during the first quarter of 2020 was attributable to this activity. Our loan pipeline continues to look promising, but demand for new loans is hard to determine due to the uncertainty caused by the pandemic.

18:28 On a period-end basis, total deposits grew by $917 million during the first quarter of 2020, while Average deposits experienced a slight decrease of $20 million. Our deposit balances saw significant fluctuations during the first quarter of 2020. While balances were seasonably low early in the quarter, we saw significant increases in February and March as many of our customers accumulated cash in response to the pandemic and the volatile equity markets. Average deposits for the first quarter of 2020 were $7.7 billion, little changed from the fourth quarter of 2019, but exhibiting a healthy annual growth rate of 10% as compared to the first quarter in 2019.

19:27 Non-interest income was $5.5 million for the quarter, as compared to $6.3 million in the first quarter of last year, A 13% increase. The decrease in revenue was attributable primarily to lesser gains on the sale of residential mortgages as an otherwise very strong quarter of residential mortgage loan originations and sales volume in 2020 was negatively impacted by hedging losses due to the dislocation in the market pricing of mortgage-backed securities. Net investment gains were slightly lower at $822,000 for the first quarter of 2020 as compared to $912,000 for the same period in 2019. The efficiency ratio was 43.83% for the first quarter of 2020 as compared to 43.87% a year ago and 39.71% in the fourth quarter of 2019. The higher efficiency ratio in the first quarter 2020 was attributable to both reduced level of revenue due substantially to lower interest rates and a higher level of legal fee expenditures related to the previously disclosed governmental investigations

20:58 and our defense of the previously disclosed class action lawsuits. While we are all grappling with the uncertainty caused by the COVID-19 pandemic, we are cautiously optimistic about the long-range prospects for the Washington metropolitan area. At the end of 2019, we had the fifth largest regional economy in the United States, with a gross regional product of $541 billion. The Fuller Institute at George Mason University recently released their analysis on the effects of the pandemic, which indicates that if our local areas shut down for 90 days, the impact on the regional economy would be a reduction to GRP of 1% or $5.4 billion this year, and that the growth rate would return to its normal level of about 2% growth in 2021.

21:59 As with the national level, the biggest damage locally would be to the restaurant and hotel sectors, so we will continue to closely monitor those exposures in our loan portfolio. Our Board is committed to maintaining a financially sound, well-capitalized institution. We have done that over the last four quarters as the additions to retained earnings from our continued profitability have been offset by the effect of adopting the CECL standard and by the share repurchases made prior to our recent suspension of the repurchase program. The Board will continue to assess the impact of the COVID-19 pandemic on the regional economy and our asset quality statistics in considering any potential capital-related actions We are proud that even with all of the challenges we have addressed over the last four quarters, our company has earned $132.3 million in net income. During that same period, we have returned to our shareholders $128 million through cash dividends and share repurchases and have increased the tangible book value per share by 11% The Tangible Common Equity Ratio

23:54 moved from 12.59% a year ago to 10.90% at March 31, 2020. These levels are well above peer averages and regulatory well-capitalized levels. We appreciate the support of our shareholders and those of you on this call. I would like to remind you that our annual shareholders meeting will be held on on a virtual basis at 10 a.m. on May 21st. We hope that many of you are able to participate. Instructions on how to register for the meeting were included in our proxy, which was published on April 6th. That concludes my final remarks.

24:40 We would be pleased to take any questions at this time. Ladies and gentlemen, if you have a question at this time, please press star then 1 on your touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue, please press the balance key. Our first question comes from the line of Eric Zwick from Booney and Scattergood. Your question, please. Hi, good morning. Good morning, Eric. Given that the internal reviews by your special compliance and audit committee have concluded, should that be interpreted as a sign that you'd expect the government's investigation could also be nearing its conclusion? We continue to engage with government investigations, and it's still impossible to predict the outcome and the resolution, the timing or anything.

25:34 That said, I will offer my opinion. As each quarter proceeds, we believe we are that much closer to resolution of these matters. It is my understanding and belief that these investigations are proceeding expeditiously and in a professional manner. I understand we are making efforts to complete, to the extent feasible, the document production phase of the investigation cycle. We are hopeful that these efforts may permit us to lower outside counsel expenses during a potential summer lull before picking up again. For emphasis, these observations are my opinions, and as my general counsel has warned me, it's impossible to predict the pace The Direction or Outcome of Government Investigations.

26:25 But I thought it would be helpful to share some of that. Thanks, Susan. I appreciate the color there. With regard to the two high-end properties that you foreclosed on, were these newly completed projects or were they seasoned properties the sponsor was trying to sell? And I guess how long have they been for sale? And do you see any other similar properties in your portfolio that could be experiencing stress? This is Jan Williams. There really aren't significant similar properties in the portfolio. One of the properties are both single-family residential properties. One of them just finished a historic restoration and is very high-end.

27:15 That being said, whether It's saleable in a quick turnaround during the current coronavirus era. It's difficult to say. We are well within margined appraised value, so feeling fairly comfortable with that. I think the timing is more difficult to call. The other property is also in Washington, D.C. One is in Georgetown. One is on Embassy Row, Mass Avenue. The one in Georgetown is an older but very large property and that property has not been renovated. So that property is at a reduced value to the first one I was speaking about.

28:10 But again, they're expensive properties and it's not exactly a great time to be for realtors to be taking people around to look at houses. So it could take a while to disposition them. But I am comfortable with the carrying values. Understood. And just one last question for me and I'll step aside. The construction portfolio today at about approximately $1.1 billion, can you provide some color into diversification in terms of the intended end use of those properties by industry type, how far along construction is, and what percentage Is the construction still ongoing today? Thank you. Well, in terms of ongoing construction, I can give you stratification across different property types. I can tell you that there has not been, at this point, disruption in construction. It's been considered an essential service, so there haven't been any issues with slowdowns on projects.

29:14 That doesn't mean that there couldn't be in the future or that there couldn't be supply chain issues in the future. But for right now, the construction portfolio is performing exactly as we expected. About 25% of it is multifamily. About 20% is mixed use. About 16% in residential condominiums. About 15% in single family. Office is around 10%. Hotel is a little under 5%. And retail is less than 0.2%. So overall, we're pretty comfortable with where we are.

30:01 As you know, for the last several quarters, we've been talking about how we've been de-emphasizing construction in our portfolio and have been Thank you. Thank you. Our next question comes from the line of Steve Comrie from G Research.

30:48 Your question, please. Hey, guys. Good morning. Morning. I wanted to ask about the PPP disclosures. I know, Susan, you talked about $107 million of balance. Just wondering if maybe you could tell us how many loans that was and, you know, kind of what the makeup of that was. Like, were most of these two existing clients? or new clients, and then maybe if you can just give us a sense of how many applications there were that went unfilled before when the program ran out of money. The first round, I would have to say that it was not as strong a performance on the bank side as we had hoped. We had a difficult time bringing a system up, an automated system up.

31:44 The average size of the loan that we approved was about $250,000. We approved somewhere around 200. It was very mixed, primarily for smaller businesses, and it was about $110 million. Those are approximate numbers. We are very geared up and have been working around the clock to get prepared should there be an additional funding approval, which we expect that to happen. And we have been working around the clock to get more applications ready to present, as are many, many banks doing the same thing.

32:29 So we expect to have a better performance. And no guarantees at this point, since we are not given any guarantee the money will be set aside for us. So hopefully that answers your question. Yeah, that's very helpful. Okay. And then I wanted to ask about the loan floors. I appreciate the disclosure in the press release. I just wasn't sure. Is that referring to end of quarter or is that now in April? and maybe wondering if you could give us kind of an indication about the size of the balances affected by floors at each point in time.

33:15 Yeah, so thanks, Eric. I'm sorry, Steve, this is Charles. It's a great question. Obviously, a lot of the Fed movement took place in March, but resets don't typically take place until the beginning of the month. So at the end of the quarter, those floors, the loans at the floor were about $2.2 billion. You know, sitting here in the late April, we're probably closer to $2.8 billion. And that's out of, you know, a total loan with floors of, I want to say, right around $3, $3.1 billion. So most of the loans with floors will be at floors, you know, by the end of this month.

34:04 Okay, very helpful. And then just one more from me. I know you talked about increasing the provision allowance, increasing the allowance to 1.23% of outstanding based on CECL and then sort of just your own estimation of credit performance. Just wondering how comfortable you guys feel about that level now versus how you felt on March 31st when that was set. I think our... Comfort level has materially changed. There is a great deal of uncertainty still on when businesses will be operating again, but the various tools that we've been able to employ working with our borrowers I think give me a fair amount of confidence that we're not likely to see a significant near-term change. If we were looking at what the CEPA model has driven off some forecasts, including unemployment numbers, so if there's a significant change in the forecast that's brought about over the next quarter, next couple of quarters, that could cause the allowance to grow.

35:29 Just impossible to tell at this point. One element that we want to make sure is appreciated is certainly the resiliency of the D.C. metro relative to the rest of the nation. Obviously, D.C. is somewhat of a disproportionate recipient of a lot of the relief that's passed at the federal level. So that is accounted for in our modeling and something that we want to make sure that we consider going forward. Okay, thank you very much. Thank you. Our next question comes from the line of Catherine Miller from KBW. Your question, please. Thanks. Just a follow-up question on the reserve and the CECL bill this quarter.

36:16 Can you just talk a little bit about some of your baseline economic assumptions that you used to build the reserve further this quarter and how you're thinking about maybe how some of those scenarios may have changed since quarter ends? Right, so we actually utilized an economic forecast published by the Wall Street Journal, and again, as I mentioned previously, made adjustments based on the local D.C. metro performance through crises. So that economic forecast was actually published on April 10th, so again, not a lot of changed today from then.

37:04 So what we determined is in looking at the unemployment, again, as Jan mentioned, a significant driver in our CECL model, looking at the unemployment rate nationally that was forecasted in that survey, we measured that against DC's performance in difficult times specifically looking at the period between 2008 and 2012 of the relative difference between D.C.'s local unemployment rate versus the national unemployment rate. It looked like D.C.'s unemployment rate was about 65% of the national unemployment rate, performing better in those scenarios.

37:51 That was really, again, a significant driver of the quantitative aspect of the CECL model. Again, not much has changed in the last, you know, call it 12, 13 days. Okay, that's really helpful. Thank you. And then digging into the hotel portfolio, can you just give us a little color in that portfolio, maybe talk about some of your larger credits in that book, maybe the percentage of that book that's on payment deferral currently, and just any kind of, and maybe how much of that portfolio is kind of luxury hotels versus, you know, limited service black hotels. Thanks. Okay. Hi, Catherine. It's Jan. Hey, Jan. Hey. I will tell you that we have had two hotel loans that are on deferral right now.

38:44 Total exposure for those two hotels is about $85 million. So that certainly is part of the 90-day deferrals that we're working with. I think we've chosen not to go with the 180-day deferrals except in the case of SBA loans where the SBA is making those payments. There are a couple of loans, including one specifically that's in construction that's an SBA 504 loan. We haven't seen any interruption with that construction. Probably the largest loan that we've discussed a time or two is a hotel that's located in College Park, Maryland. It is presently closed, as are most hotels. It is not currently deferred, but I estimate there are alternate sources for making payments.

39:49 But I would guess with a crystal ball that there will be a request at some point for a deferral there. Again, we'll be looking at probably a 90-day deferral or interest-only situation there. A number of our customers have asked for a deferral of the principal portion of the payment as opposed to entire payments. So we're looking at that on a case-by-case basis. and much will depend on how fast things turn around in terms of back to work, although I do think most folks, including me, expect hospitality to lag on the recovery. Great.

40:34 What was the balance of that College Park hotel loan? $100 million. Is that the largest credit in that portfolio? Yes, it is. Okay. And then maybe one last one for Charles on the margin. Can you help us or give us any color around deposit costs at quarter end, just to kind of give us a sense as to where we are going into second quarter, and can we see the same kind of magnitude of drop in the second quarter that we've been seeing from all the past couple? Yeah, sure thing, Catherine. So we made our move, obviously, as Susan alluded to in her remarks, in the month of March.

41:19 Our top tier money market rate now sits around 30 basis points. So I would expect to see a little bit of benefit from that going forward as we sat much higher for the first two months of the quarter. Hopefully that provides some help. But yeah, we felt pretty encouraged by the fact that Again, cost of funds declined 11 basis points quarter over quarter, right along with the loan yields. I think it's also helpful to consider the fact that we have been able to maintain close to 30% in DDAs, even with our growth over the quarter. So yeah, I think we should see some assistance there.

42:14 Also, while we're talking about the margin, we did note the additional liquidity that we experienced in the first quarter. We did have a run-up as, again, a lot of our customers saw or made the decision to move to cash. To the extent that some of those customers start to get more comfortable with the operating environment and the path forward, you can certainly see some of that cash start to normalize again, and that would certainly endure to the benefit of the margin. Great. Okay. Sounds great. Thank you so much. Thanks, Catherine. Thank you. Our next question comes from the line of Christopher Maranek from J.

43:01 Montgomery. Scott, your question, please. Hey, thanks. Good morning. I wanted to continue on the kind of credit questioning of the previous folks, and If we look big picture at all the deferrals that you have, I guess if we add the $100 million hotel balance that Jan just described, you're kind of now pushing $400 million or 5% of portfolio. Should we kind of consider those kind of quasi-criticized loans, and does that go into the reserve bill for the quarter, or would you kind of reassess based on where those go? And I guess also, Jan, if you could just update us on general classified and criticized data at the end of March. Sure. We do take a report that consists of all modifications and segregated by industry and they certainly get a much higher level of scrutiny.

43:58 They have not been, as of 3-31, downgraded in the portfolio. That will change as individual credits are evaluated going forward. I think you'll probably see more pushed into a watch category. I don't know that they'll get to special mention or beyond unless there are underlying pre-existing credit issues. So we're following the accounting advice that we've been given and staying on top of that. I think the overlay really based on economic conditions is what drove the additions to the reserve. None of the modifications really deal with substandard properties. In fact, we haven't modified anything that's classified or criticized.

44:52 That would result in a TDR as opposed to the safe harbor for these coronavirus modifications. So I think we're pretty comfortable on that scale. In terms of what's in our substandard and doubtful categories, we're looking at pretty much flat levels of modest increase, and they're a mixed bag. Most of it is secured by real estate, whether it's residential or whether it's commercial real estate. We have a number of restaurants that we've pushed into that category.

45:37 There are a couple of specialized quasi-medical type facilities that we're also looking at, although they haven't had, as of the end of March and the most recent financials, any particular problem meeting the covenants in their loans. We're cautious about going forward and are monitoring everything very closely. We've expanded the credit department's capacity for monitoring the loan portfolio and bringing in additional seasoned professionals to assist us in that process.

46:29 really tried to be very proactive in reaching out to each of the customers in any impacted industry and see what we can do to assist and what longer-term plans we can put in place. We don't expect serial deferrals for these types of customers. And I just add, Chris, that as those additional resources are monitoring these credits and provide any kind of downgrade, To those credits, that also will flow through our CECL model and should be reflected in our reserve going forward. Okay. So will some of that get reflected in the next kind of filing for the 10-Q, or do you already have that determined in terms of where the final watch and special mention substandard figures are?

47:19 We do already have that determined for 331. That... is based on the financials of the company, and if there was a problem with any of those companies at March 31st, they would have been downgraded. Right now, we're focused on anyone that's had a deferral for 90 days is working with us on a long-term plan, and we would expect to and many more. And then just a quick follow-up for Charles on liquidity.

48:18 How did that change in the quarter and just kind of roughly where are you today with kind of unpledged securities and FHLB access and just a quick update? Sure. Yeah. So, again, we saw a significant influx of on-balance sheet liquidity towards the end of the quarter. Today, you know, our FHL availability is at about $1.36 billion. We've got, you know, through, again, Fed Funds lines, you know, access to networks like Promontories, One Way Buy, and, you know, their insured network deposit network, another call it $1.3 billion or so in availability there.

49:06 Great. Thank you very much for all the background this morning. Sure. Thanks. Thank you. Thank you. Our next question comes from the line of Brody Preston from Stephen Think. Your question, please. Good morning, everyone. I hope everybody's doing well. Hey, good morning. Hi. So I just want to stick with the liquidity right now. I know we sort of beat it to death here, but, you know, just given the uncertainty with COVID, you know, you said you sort of maintained some excess liquidity on the balance sheet with the Fed due to uncertainty here. Just wanted to get a sense for if we could see you maintain sort of excess liquidity levels, you know, throughout the remainder of the year, just given the heightened uncertainty. Yeah, you know, again, as I mentioned to Chris, I do believe we've got sufficient liquidity both on and off balance sheet to meet the needs of depositors and any additional funding needs we may see.

50:07 throughout the year. I could certainly see maintaining a certain elevated amount above and beyond what would be in an otherwise normal operating environment given concerns over COVID. Some of it is intentional, and some of it is us just banking our customers and then moving to cash. So to the extent that they move out of cash Then that would be, again, a more intentional decision to draw down on some of the availability that we have. But I feel fairly comfortable where we are today. And, again, the more clarity we get in terms of the outcome of the COVID-19 pandemic and the more certain we can all be in terms of our liquidity position.

50:58 Okay. So that interest-bearing deposits and short-term investments line item is that? You know, the $904 million and change, you know, for the quarter, is that sort of trended down post-quarter or is that remaining, you know, around those levels? Yeah, again, we've seen, you know, certain customers certainly, again, getting a little bit more comfortable with the state of things and moving away from, a little bit away from cash, but I don't want to make any forward-looking statements on that. Okay. Okay, and then, you know, you guys moved pretty aggressively with the deposits, but you mentioned that others had not. I just wanted to know if you could give us any color as to why others haven't been reducing rates as aggressively as you have.

51:48 You know, it's hard for me to get in the head of the competition. My best guess might be that, you know, they want to maintain an effort for, you know, to gain market share. in kind of an uncertain time, but I'm not quite sure because it made all the sense in the world for us to manage our money costs down aggressively when the rest of the world did with short-term rates in the Fed. Okay. And then you mentioned that about half of the loan growth this quarter was due to increased line utilization. Just wanted to know if you could give us what the utilization rate was as of 231. I don't have that offhand, but, you know, again, about half of the growth is about $160 million or so above and beyond what we normally would see.

52:49 I think that's something I can follow up with for you. Okay. All right, that'll work. And then, you know, the deposit flow that you saw, you know, I understand that you had some clients who were going to cash. Was that a number of clients, or was that like one or two or three big clients that sort of moved to cash just because the savings and money market growth was high-popping? Yeah, it was some larger customers, you know, who are, you know, functioning in kind of a financial intermediary capacity. It saw a lot of that inflow. OK. And then as we think about stress testing the portfolio, have you run any stress tests on the portfolio so far? And if so, could you maybe give us an inkling as to what some of the primary metrics look like in terms of cumulative losses and stuff like that?

53:51 I think we've run stress tests every quarter. The quarter will probably be running some specific to the industry segments we're most concerned about, but all of the stress tests that we run on income-producing commercial real estate and on construction have come back in pretty good shape. We would show that on an interest-only basis, about 84% of the portfolio would still continue to perform if we had a drop of 10% in income and an increase of 2% in interest rates.

54:41 So we're going to be tweaking that with less of an increase in interest rates and more of a decline in income. Okay. Okay, and then two last quick ones from me. The sponsor, you know, you have the two ultra-high-end properties that have been repossessed. Do you have any more loans to the sponsor? I'm sorry? Do you have any more insights into the sponsor, especially with the high-end real estate? A very strong sponsor, very strong. Okay. High depositor. Okay, and then... I'm sorry, Brody, were you asking specifically about what was moved to Oreo, or just generally?

55:33 No, I just wanted to know if you had any more exposure to this specific sponsor, and if so, how you felt about the exposure. The sponsor on the Oreo property? Correct. I'm sorry, I misunderstood. I thought you were asking about the sponsor on the hotel property. On the... The sponsor on the two high-end properties is not hugely experienced in that market, and that was probably one of his bigger issues. I think he put too much money into the houses and asked for too much money when he had them listed. We're at a much more reasonable number when we do that.

56:22 It's difficult to predict whether we'll see a recovery on those or not, but those wheels were put in motion months ago. It was pre-coronavirus, and the foreclosures occurred in January. So depending upon how long this lasts, we'll see what we're ultimately able to produce, but the current carrying value I'm very comfortable with. Okay, and then last one. Susan, you understand the uncertainty and the impossibility of predicting the timing of the resolution to the investigations, but just wanted to clarify that it sounds like you all are still in the document production phase of the investigation.

57:11 Is that fair to say? We are still – we believe we're at the end of it, but we are still in that phase. Okay. Okay. Thank you very much, everyone, for all the color. I appreciate it. Thank you. Thank you. Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Susan Riel, President and CEO, for any further remarks. I'd like to at this time thank all of you for participating and look forward to speaking to you again in July. Thank you, ladies and gentlemen, for your participation in today's conference. This does include the program. You may now disconnect.

57:56 Good day.