BFIN - NASDAQ

Ladies and gentlemen, thank you for standing by, and welcome to the BankFinancial Corporation First Quarter 2020 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today. Mr. F. Morgan Gasior, Chairman and CEO. Sir, you may begin.

Good morning. Welcome to the First Quarter 2020 investor conference call. We weren't necessarily planning on having a conference call at this time, but given events with COVID-19, we thought it would be best to update all information and be ready to answer questions. At this time, our 10-quarter -- our Form 10-Q is on file, our 5-quarter supplement is on file. And we also updated the corporate profile for 2020 also on file. And at this point, as all filings are complete, we'll be ready to take your questions after our forward-looking statement is read.

The remarks made at this conference may include forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. We intend all forward-looking statements to be covered by the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of invoking these safe harbor provisions. Forward-looking statements involve significant risks and uncertainties and are based on assumptions that may or may not occur. They are often identifiable by use of the words believe, expect, intend, anticipate, estimate, project, plan or similar expression. Our ability to predict results or the actual effect of our plans and strategies is inherently uncertain, and actual results may differ significantly from those predicted. For further details on the risks and uncertainties that could impact our financial condition and results of operations, please consult the forward-looking statements declarations and the risk factors we have included in our reports to the SEC. These risks and uncertainties should be considered in evaluating forward-looking statements. We do not undertake any obligation to update any forward-looking statements in the future. And now I'll turn the call over to Chairman and CEO, F. Morgan Gasior.

Thank you. At this moment, we're not showing any calls in the queue. So let me just focus a little bit on recent activity and some priorities for the remainder of the quarter. First off, as we put in our corporate profile and had some additional information in the 10-Q, we've been working with borrowers throughout the last 30 days or so on limited forbearance agreements, where the focus there is to help borrowers manage through disruptions in their cash flows due to stay-at-home orders. Illinois seems to be the most affected. It started earlier, and the orders are rather extensive. Other markets seem to be somewhat less affected. The forecast there is, we'll continue to see activity on that principally in the commercial real estate area. Obviously, the storefronts and cloud business closures are going to have a significant impact on those tenants. And a related issue there, specifically in Illinois, where all of our commercial estate is located, our real estate taxes. We have a number of cases right now on some smaller loans, where the real estate tax payment, the escrow payment every month can be double what the principal and interest payment is. So the borrowers have enough income and reserves to handle interest. And one borrower said, I have no problem making the principal payment, but the real estate taxes are an entirely different matter. And that is compounded by the fact that recently in Cook County, there was a change in administrations, and there were reassessments of commercial property. Yesterday, in one case, we looked at a customer where their tax has doubled in the space of 1 year. So they're already dealing with a rather substantial hit to their income on the taxes. Obviously, the disruption of the rental income is making that harder. So we'll develop some additional flexibility for them. Probably look at figuring out a way to make a second lien loan for the escrow payments when it comes time to make the real estate tax payments. That way, they're not incurring penalties and excess expenses for delinquent taxes. Obviously, it's a lean priority play for us and work with them as needed. Not every borrower will need that, but the real estate tax situation in the Northern Illinois market, whether it's Lake County or Cook County and especially in some of the low and moderate-income Census Tracts in South Cook County where tax rates can be 5%, 10%, 15% of the property, those customers might need a little bit of additional assistance beyond the limited forbearance agreements. Next, as we work with commercial lease and commercial finance customers, usually, the limited forbearance agreements seem to be working fine. Where appropriate, based on the equipment, we're also making sure that we have some principal amortization component in possibly due to ramp in obsolescence. But where possible, we're making sure that we keep principal payments coming in. So far, that seems to be working. I'm sure there'll be cases where they just want to do interest-only for a period, but we are mindful of that, and we're watching them on a case-by-case basis. And in health care, as we said in our filings, the hospitals and the care providers, obviously, are having a couple of different things happen to them. First, just disruption in normal business operations. They've got more expenses for care -- more intensive care equipment costs for care are higher now. A personal protective device might be $1 a quarter ago and now at $6. So all those things are just a little more expensive, and they're going through them faster. Also, in the case of hospitals and even in some of the residential care facilities, the margins are changing. Obviously, elective surgeries have been deferred, that is starting to change now. We're seeing some markets open up to -- the hospitals and surgery centers opening up again to surgeries. So that condition will start to fix itself. Residential care. Some of the patients that would normally be referred to a facility are staying in the hospital or even at home until the facilities are ready to take on new patients. Obviously, some of those are higher risk facilities to begin with. So there's not as much demand at the moment. So their billing cycles, their remittance cycles will extend, their margins may compress a bit. But our loan structures and our covenants provide flexibility to work with them. So we'll be putting in some more frequent borrowing base monitoring to help them out on unbilled receivables and to deal with the fact that their payors may be stretching out the remittance cycles. So that will be the priority for the second quarter, is just to keep working with people, monitor the portfolios. But if people perform per their forbearance agreements, we should come out of the second quarter, hopefully, with reasonable collections. We were speaking to one borrower yesterday. He's collected 97% of his rents on his apartment building, and he's actually looking around, perceive people who may not be able to hold their buildings and he's building a war chest. So there will be some opportunities at the end of this. But right now, we've got to get through the second quarter. Hopefully, more markets open up. Illinois will probably be among the last to open up. They're already talking about extensions into June. So that's a situation that continues to unfold. Second priority will be continuing to execute the business plan. We see good demand in the corporate and governmental space. Yesterday alone, we saw about $10 million of new lease opportunities that should close between now and July of 2020. The governmental space continues to do well, plenty of money so far to fund the equipment. That may change as state budgets change. But right now, most of our transactions are either at the school level locally or at the -- for remote learning, for example, or at the federal level. So far, so good there. And we actually did our first middle market transaction yesterday. We hope that closes here in the next 60 to 90 days. So middle markets is officially on the board. And other than that, real estate lending, as I said, we are continuing to qualify new opportunities. We're seeing new transactions, about 2/3 of them will close, and about 1/3 are either being canceled or postponed in the third quarter. So we will still see some payoffs, but we will see some deals close. But just not at the same volume, we will be looking at, say, 45 days ago. There are certain borrowers who want to make sure the sellers collect the rents and do not want to get themselves in the middle of an issue with existing leases and collectibility. We talked about health care already a little bit. We will see some activity in that portfolio as borrowers use more of their commitments to fund cash flow gaps. And after that, capital management. We were active in the first quarter, little over 200,000 shares. We have around 300-and-some-thousand shares left in the current authorization. We would expect to continue to utilize that authorization during the second quarter, particularly given where things are trading. And as we get to the end of the second quarter, as we see how conditions are unfolding, the Board is certainly going to be looking at extending that authorization, but we want to see where we are at the end of the quarter, operationally, where we are on collections of interest, how the forbearances are working out. But obviously, at these trading levels, the share repurchase program still should be a part of our capital management. We have plenty for now. But at these price levels, if we just continued the payout that we did in first quarter, we pick up a few more shares for the same dollars than we would have in the first quarter. So it's certainly accretive to shareholders. It's an important part of the program at this point. I didn't expect this opportunity, obviously. But let's do -- let's take the most of it as we can. So I think that's the briefing for now. It looks like there's 1 question, so let's proceed.

[Operator Instructions] And our first question comes from Ross Haberman from RLH Investments.

Just a very brief question. Could you lay out -- I didn't have a chance to read the Q yet, your hospitality exposure, restaurants, hotels, and hotels either in dollars or percentage of your loan portfolio, please? And a little color, if you want to shed some light, if there is hotels flags or mom-and-pops?

Well, it's a short answer. All those things are less than 1% of the total loan portfolio. We put that in the corporate profile. So when you take a look at that, you'll see historically, that's -- none of those have been a focus for ours. So they're just not a material exposure. We have decided that kind of special use property isn't really for us, presents too much volatility, and there were plenty of competitors there that like that product. So we left the market to them.

What do you -- just a follow up then, what do you think is your most exposed category or risk in -- of your loan portfolio today, if you have negligible exposure there?

I think it's a hard thing to characterize given the fact that the COVID-19 impact is very widespread. When this first started, you would think that supply chain exposure to China was your biggest concern. And in less than a month, that changed to hospitality and travel and leisure. And now it's virtually everything. It's probably an easier thing to answer what isn't affected by it. But all told, I would have to say that the commercial real estate borrowers, where it's a smaller -- it's a strip mall, community shopping area, maybe a small office, those are the ones where the rent payments are going to be tough to make, especially, if it goes on longer than, say, a month, right? I mean most tenants were paid up through March. But then, you get to April, and no revenues whatsoever, and they have other expenses to make, rents become tough. Now we're talking about closing Illinois through most of May. Well, there's another month and into June. So I would have to say that principally because the commercial estate exposure is in the Northern -- Northeastern Illinois in the home market and because of the severity of the business closures and because of the impacts of expenses, like real estate taxes on those properties, that would be the one that you'll probably see the most -- that would be of the most concern. Some borrowers and some tenants may be able to do partial operations, curbside delivery and things like that. But many are not, just closure after closure after closure. So I'd have to say, all things considered, the commercial real estate portfolio has probably got the most exposure to the ongoing impact of the COVID-19 business closures. It's just a hard thing for people to manage, especially, if it's a smaller operation with only 2 or 3 or 4 storefronts. And if they're all closed, there's just not much more that the borrower can do. It's one thing to keep a couple of months of liquidity reserves, and it's another thing to shut the whole thing down for an entire quarter, then you're getting beyond most people's capacity to manage through something like that.

Given that, why -- why don't you think you were more generous on your allowance for the quarter within your latitude, I might say?

I think the ALLL analysis, we have a methodology that looks at economic conditions, both favorable and unfavorable. And generally speaking, when you affect the type of stay-at-home orders, both in Illinois and nationwide, first off, people are getting laid off, you look at unemployment. And unemployment statistics have been horrific the last 3 weeks. So that was probably the biggest single factor, was unemployment. The next biggest factor after that would have been business disruption. This is, by the way, why our commercial real estate portfolio has declined over the years. We felt that retail had its challenges to begin with, with the growth of online and other types of competitors. So this wasn't our focused portfolio for us to begin with. And at this point, we're kind of grateful that, that decision was made. But there's no question that the apartments with stay-at-home orders, unemployment have a risk factor there, and even more so, the commercial real estate portfolio. Now, again, the apartments, as employment recovers, people go back to work, should experience some recovery. These are people that need a home, affordable housing projects. So as employment recovers, hopefully, relatively rapidly, then that risk factor diminishes just as rapidly, commercial real estate could see a longer recovery period.

Just one related question. And again, I greatly appreciate your time. Your allowance was 70 basis points. Do you have a goal in terms of getting that up to 1%, 1.5%, like many similarly sized banks with your similar book of business?

Yes. I wouldn't say that our book of business is similar to other banks. Other banks have construction loan portfolios. Other banks have considerably more exposure to hospitality, commercial real estate, restaurants. So I think you have to look at each portfolio on its own. Right off the bat, our portfolio has approximately $180 million worth of investment-grade leases in it. So again, I think the inherent quality of the portfolio going into COVID-19, and the distribution and diversity in the portfolio is a key distinction between us and other people. So we don't necessarily have a specific goal, other than to monitor the impacts to the economy, follow our methodology and adjust to reality. And I think, when you saw that size of a provision, in the first quarter, it wasn't because any of our asset quality metrics changed. That was solely a forward-looking recognition of what could happen to us. And then we'll see how the performance goes in the second quarter with respect to forbearance agreements and stay-at-home orders, and we'll run the same model in -- at the end of the second quarter and see where it leaves us.

And our next question comes from Brian Martin from Janney Montgomery.

See, I wanted to ask, Morgan, just related to that last question, you said your exposure to just specifically, what was less than 1%? Maybe I didn't catch that in the Q? Or if you said, I think you said hotels, restaurants, and was there anything else that's included in your total less than 1%?

If you look at Page 8 of our 2020 corporate profile, you'll see commercial loan concentrations by industry. And at the bottom of that, you'll see hospitality, restaurant and oil and gas collectively are less than 1% of total loans.

Okay. Perfect. I appreciate that, Morgan. And then, I guess, maybe your -- the comment that you made as far as the areas you feel are maybe possibly more at risk with the shutdowns, the retail and the smaller businesses you just mentioned. How big a component of the loan book are those? I guess, those seem to be something you highlighted. So just where do those stand today?

Well, commercial real estate is around $130 million, $135 million, plus or minus. So it's obviously, what, about 10%, 11% of the total loan portfolio, a little over, mostly concentrated. It's exclusively concentrated in Chicago. Average loans are fairly small. About $50 million of that, this will -- you'll find all the detail on Page 12 of the corporate profile. But about $53 million is retail, about $20 million is mixed-use, another $13 million is office building in the nonowner-occupied component of that. And again, relatively small loans. Average is probably under $1 million. There's a handful that are over $1 million. But most of them are smaller centers that we've had for a while. So notionally, if this is a relatively short-term phenomena, valuations will hold. It's really just helping people manage through the current disruption, including dealing with the tax environment. As you probably know, Brian, there's no announcement from the state or Cook County on deferring the payment of real estate taxes. They seem to want their money on time. So people are having to manage through that. So that's where I would say, going to the earlier question, to your question, it's not been a portfolio we wanted to grow for underlying economic reasons, it left us in a reasonably good shape to deal with us, but we're still going to have to deal with what's left.

Okay. Got you. And just your comment about the -- kind of your assumptions for kind of the reserve build this quarter and kind of what you just articulated. I mean I guess, the unemployment rate, just in general, what are you guys assuming in that -- kind of what's built into that assumption for the reserve build this quarter? And I guess, how could it change if you look out 1 quarter, I guess, what are the -- what could necessitate a larger reserve or possible larger reserve build next quarter and just what not would be helpful?

Well, I think, first of all, we are preemptive in our assessment of unemployment. So we already made a pretty adverse assumption. I'd have to get into each and every submarket to give you a precise answer, and I think that's probably beyond the scope of the call and probably something that we're going to want to deal with on a detailed basis. But right off the bat, we pretty much looked at the scale that was available. And in Illinois, we pegged it to the far end of the scale. It was pretty evident to us that Illinois was going to -- for whatever reasons it saw take a relatively extreme measure on closures and therefore, unemployment. It's also the case that Illinois has a less diverse economy than other places. And therefore, hospitality, trade, for example, closing conventions and things like that, were obviously going to take their toll on unemployment in Illinois to a greater extent than other places, say, like Dallas or Denver. Our Florida exposure is mostly Tampa, it's not Orlando. So again, it had some impact on tourism, but Florida closed later, and they will open sooner. So I think our view of this is the reserve build for first quarter was pretty preemptive. Certainly, you could see unemployment still having an impact in second quarter, especially if the unemployment statistics outside of Chicago deteriorated materially further. But if they don't, if they just go up some, then we might have it covered. But I think Chicago and the commercial real estate side will be the key drivers of what happens in second quarter. And after that, possibly looking at the commercial lease and commercial equipment finance portfolio, those trends -- credit spreads are already coming in, for example, but they widened out considerably. We'll have to look at that, too. But if you want to look at 1 key factor, it's going to be Chicago unemployment, followed by non-Chicago unemployment, followed by commercial real estate, followed by commercial finance and equipments, pretty much on the noninvestment-grade side.

Yes. Okay. And I guess I was just ultimately getting it, like you said, Morgan, big picture, the unemployment you're assuming maybe is in that 9% to 10% range? Or did you go to the end or it could be 15% to 20%, at least in your initial kind of look here, probably more in the 9% to 10% range?

I really can't quote you a number. The model has a number of variables in it. So -- but let's face it. It's -- when we pegged it all the way to the left end of our scale, that was taken a rather significant hit to where it was. And if we have to adjust the scale further, that meant that double-digit unemployment for an extended period of time was likely. I don't know if we're going to be there, but we'll have to look at it when we get to the end of the quarter and see what's appropriate.

Got you. Okay. And then maybe just -- if you -- I know you spoke earlier, I joined a couple of minutes late, but just, your assessment of kind of the growth initiatives you outlined back in February. If you could just touch on if -- what's changed relative to the current economic environment versus when you actually laid that out in kind of your outlook as it pertains to kind of loan growth?

Yes. I think really, we should start with loan underwriting. But fortunately, the direction we took still has some viability to it. The corporate side and the governmental side, in particular, of equipment finance will continue to perform, particularly on the federal side. We had a good start in the first quarter on that. We continue to see activity in that. The changes to the environment, for example, we just looked at a good-sized transaction for a local school district, they are equipping for remote learning. And so you'll see some demand that you wouldn't otherwise have seen out of some of these changes. So I think continued activity in the corporate and governmental side, we looked at $10 million of new transactions just yesterday. Secondly, the middle market side, there are still good, strong middle market companies that are operating. They have to do equipment replacement. They do have some growth opportunities, that's possible that some weaker competitors may leave the market. Now there, you have to look at looking at historical EBITDAs and their line usage and doing a forward projection on what you think they're cash available for debt service is. So you have to be a little more conservative in the underwriting, but there are ways to mitigate that with security deposits and some other credit mitigants that would help the lessee get their project going and then build in a little liquidity, in case there's a future disruption. Small ticket is also viable. There's activity in the market. The challenge there is, quite a bit of that activity is based on historical payment and scoring models. So the notion of past performance is indicative of future performance. I think that is going to need some changes. We've already been discussing them internally. Again, borrower liquidity and sustainability of operations is important. So maybe a little less waiting on historical, little more waiting on confirming current payment capacity. And after we make those adjustments, we'll also see how competitors are adjusting to the market. But we expect to release small ticket later this quarter. Probably won't be as aggressive in our growth goals as we were at the beginning of the year as we feel out market conditions. But it's still going to be a component of our approach. So from a volume perspective, corporate and governmental will certainly be the largest piece, followed by middle market. And I would expect we'll probably just do less in small ticket, but we still want to get out there and we're -- start working in the market, focusing on the higher quality opportunities. But it's probably a little too early to see how the market is going to adjust to the new normal yet. And we'll know more about that by the time we get to third quarter. As I said, on real estate, still activity in the market, but we have seen transactions either cancel or defer, mostly on the purchase side. People want to see if the sellers are going to collect the rents that they said or -- and if they don't, then obviously, there could be a price change in the property. We are seeing some borrowers getting ready to look for opportunities in the market. So we are still seeing some cash out refinances, which are sustainable for low leverage transactions with borrowers have excellent equity positions and cash flows, but we're confirming the receipt of rents on a monthly basis before those fund. So one deal is closing soon, but they have to show us the May rents, and we have to verify all the May rents were collected before we'll go any further. And as I said, on the health care side, we'll continue to see some growth there. Not as much new business is helping borrowers manage through cash flow tightness, so more expanded use of the commitments we have. I'm sure we'll see a couple of expanded commitments to, for example, hospitals who may need a little more availability than they have. We have to work through HUD on those. And then the lessor side, we'll continue to see opportunities there, that will be a function of how capital investment functions during the rest of the year. There will still be some. First quarter was good. But we're not seeing quite the same volume of new inquiries and draws in the second quarter. I suspect that might just resume in the third quarter or fourth quarter. There'll be obviously a natural delay here. If there's further destruction of demand over the next 60 to 90 days, then that forecast could change. So I think it's just going to take a little longer to get things done. Some things like small ticket are going to have to be reassessed and adjust the underwriting models. So -- but the entire framework of what we're trying to do is still intact. It might have to be modified, it'll probably be delayed a little bit, but it made sense then, it will make sense again. The sooner we get out of this, the better it will be.

Okay. So and then just big picture, Morgan, from a volume standpoint, if you were looking at whatever, 10% to 15% loan growth, if we just scale that back some for the year, just kind of pushing it out, that's probably the best way to think about how things are going to play out here, at least, maybe minimal growth in kind of the second quarter and then kind of building thereafter, just from a high level standpoint? That seem fair.

I'd say that -- without being able to assign a specific number to this, I would say that's reasonable, the -- it's just not going to be as robust. We said it to begin with that, it was going to be a second half issue, and I very much still think that's the case. You could see some bright spots, like I said, in health care, a little more line availability than normal. But yes, the activity that would have been in smack in the second quarter is now going to be late second quarter to early third quarter. And then the whole thing looks like it could get pushed out 60 to 90 days. But the theme is still intact. We just have to see how the demand performs.

Okay. And can you just talk about, I guess, from the -- just as it relates to kind of the same benefit, I guess, would assume holds on the fee income component of the real estate division and kind of what they were going to produce in the quarter? I guess, it's a small part of the revenue stream. But just any, I guess, a delay there as well on that benefit.

Yes, I think so. We still have some transactions in the pipeline. The capital markets went through, I would say, quite a bit of correction in terms of their pricing in underwriting. For example, products that had no liquidity reserves or replacement reserves suddenly had replacement reserves for 12 months, for 18 months. And that just did not work for some borrowers. Whether those get relaxed over time is a possibility. I don't know if they get eliminated, but that's one thing, underwriting. Commercial real estate transactions, obviously, will probably have a second or third look at it. And even Fannie and Freddie on the apartment side might be pausing here. So I'd say, part of that is borrowers not necessarily wanting to proceed with higher leverage transactions, and the capital markets lenders are also stepping back a little bit. So if those conditions recover over the next 45 to 60 days, then again, you'll see more activity in third and fourth quarter. If they don't recover, if this is the new normal, then that projection is probably going to need to be revised more or less permanently. It's really a function of do the borrowers want to go ahead with transactions at these pricing levels with the additional reserves and how much appetite there are for uncertainty in the capital markets. And usually, there is not. They securitize those transactions. They're rated, they're priced. And if there are material uncertainties, usually, the transactions slow down or stop, and that is what we've seen in the last 2 to 4 weeks. But as credit spreads come in, as stay-at-home orders expire and as things start returning to normal, people want to get volume back into their business plans, you could see it recover rather quickly.

Got you. Okay. And then just from a margin or dollars of net interest income standpoint, it sounds as though, if growth is a little muted here in the short term, given the liquidity you have on the balance sheet, maybe the margin is, I guess, when you factor in, that with the rate cuts, it's probably a second half event when you start to see a little bit more traction on the margin going higher, and maybe it's a little bit flatter here in the short term. Is that...

Yes, I think that's a fair set of assumptions or at least a viewpoint. I will say one thing that was not there the last time we spoke is the actions by the Federal Reserve were precipitous, but they also changed the game in terms of deposit repricing. So we'll probably get a little more help on the reduction of interest expense than we would have otherwise. So there is some benefit there. It doesn't quite match the scope of what happened on, for example, the commercial lines of credit and reducing the interest income on just cash on the balance sheet, but it is a helpful factor. So yes, I would generally agree with your statement, other than to say, we'll get a little more benefit out of repricing deposits than we would have otherwise.

Okay. And I guess, anything -- you'd kind of talked about targets, Morgan. I guess, is it premature to think that, I guess, what you were looking at previous, when we look at dollars of net interest income or just kind of run rates as you get later in the year. I guess it's -- all of it will be a haircut relative to what you initially forecast? I mean I think if you were getting somewhere in the $52 million, $53 million range, it's going to be lower than that, I guess, as -- given the situation with COVID?

Well, you started your question asking, if it was premature, and my response is that it's premature.

Yes. Okay.

We would hope to get where we want to go, but it's premature to say whether we will or not.

Yes. Okay. All right. And then how about just from a credit standpoint, just kind of going back to that for a minute. I mean the -- I guess the areas that is outside of that, the retail in the small business, is there another area you're focused on, or I guess -- or you would highlight relative to your potential stress with COVID, if the closures extend out?

No, I don't believe so. I think we covered it pretty well in the various disclosures and the profile. I would just simply say that, given the scope of what's happening, almost anything is possible. Things that would not normally be an issue could be an issue. And it's -- given our diversity, we're protected against any big concentrations in most categories, but almost anything could pop up. Just the scope of the disruptions, whether it's trade into Europe and people were just supplying things at docks or in transport of some kind, services businesses of different kinds, it's just breathtaking how much disruption there's been. And in some cases, destruction of demand. So I think we've highlighted the risk as best we could for you. I would certainly say that there could be things that pop up along the way. Almost, you would have to expect that things will pop up along the way. But for -- in some ways, diversity is our protection, but it also -- diversity makes it hard to predict. But I will just say that to the extent that our diversification helps us, it's because our exposure on a national basis and diversifying the portfolio out of Northern Illinois is likely to help us more than it will hurt us. So we're hoping that, that's the case as time goes forward. And as these markets open up, South Carolina is restarting, Florida is starting -- to look at restarting, Colorado, apparently is going to start reopening as soon as Monday. Texas is already working on it. And remember, in Texas, our exposures are primarily in the Dallas area. So that's a very highly diversified economy. As they all start to push ahead in recovery, then the opportunity or the chance of surprises, if you will, or further developments diminishes rapidly, and we would certainly look forward to that.

Okay. And just to the capital for a minute. You mentioned about the buyback on what remains and possible looking at, I guess, fair to think that if you complete the current repurchase plan this quarter, that's fair to think about it that way. And you wouldn't anticipate having approval for a new one until, after you get through the second quarter? Is that seem...

I don't know it'd go that far. I'd say simply that, one, we always like to have availability to the market. Two, given the current price, continuing the share repurchase program makes sense. Exactly how much we do is also a function of how much there is in the market. But we -- if we start running low, I'm sure we're going to have some consideration of extending it. How much and for how long and at what levels, those are the variables that we're going to have to weigh -- the Board is going to have to weigh and look at it over the next 1 to 4 months. But given these conditions, we want to be in the market as much as feasible, it just makes sense. So we're going to have to balance all the interest to do that, but it is still a key part of our capital management.

Okay. And then maybe just lastly, just on the expenses. I guess given the possible decline in revenue here, less revenue than initially expected, I guess, is there -- are there any initiatives on the expense front that you can do kind of combat some of that or mitigate some of that? Or just kind of what are you thinking on there?

It's possible that we would take a view towards expense reductions if this appears to be a more permanent world. But we have pieces in place with new real estate bankers, with the new lease bankers. And on the assumption that we're going to see a recovery of market conditions so that they can execute their business plans or develop new ones, consistent with market conditions. These are very good people that we brought aboard, and we want to give them time to succeed, if market conditions permit. So in the very short term, I wouldn't necessarily expect us to do much. We're also going to be investing in new people in the middle market space. We've been having conversations with candidates for the obvious reasons that, among other things, we can't really interview people and ramp stuff up. That's delayed, but not necessarily deferred. We would still like to add to the production and the key people we need. We're also going to be adding some resources on the deposit side, putting in new stronger capabilities on commercial treasury services that fit our asset generation model. So for all those reasons, in the short run, we're pretty much going to manage the expenses the way we have. One thing, though, that we are keeping an eye on is how the current environment changes customer behaviors on the deposit side. More and more customers are getting used to remote banking. We put in some new capabilities with DocuSign and electronic transaction execution, just to cut down the number of trips they had to go to the branch. We'll see how successful those are. We're able to transact more business through the drive-ins. And naturally, we're seeing even greater demand for bank-by-phone and online than we did before. So when you take those changes in customer behavior, and obviously, we were already working towards contactless and mobile app for payments, I think the -- this environment will accelerate that demand and the customer preference. So things like ATM machines, ATM debit cards, branch service hours, the scope of the facilities. As we see that demand change and if it becomes the new normal, then there may be some opportunities on the infrastructure and the fixed cost side to make some improvements. And that would probably help us to reduce overall expenses and still keep customers really happy.

Got you. Okay. And remind me, Morgan, I don't think -- are you guys participating in the PPP program? Or is that not something you're using at this point or participating in?

Yes, we did. We are -- we did participate in the PPP. We are participating in the PPP. We are expecting that the House will act on Thursday, and the program will come back live on Friday. As we noted in the overview, it took a while for the SBA to get us into the system. We are already approved 7(a) lender, but you have to reactivate credentials and add people, and we waited a long time for SBA to get through their backlog. But we now have about a dozen people in the system. We had applications pending that are ready to process. So we are organizing that process now. It's going to look a lot like Black Friday at Walmart at 6 a.m., come Friday morning. So we're actually going to be using our time zone diversity to start the process early when it opens, and then we will continue to go through. Our focus was primarily on our smaller businesses, and we will continue that focus going forward.

Okay. So you would expect some contribution, but it's maybe just a little bit later because you were late to participate or late to get approval to participate?

Are you saying contribution in terms of fee income, Brian? Is that the point -- the focus...

Yes, just -- yes, from a revenue standpoint, the contribution as you fund those loans?

Well, at a 1% rate, it certainly won't do much on the interest income side. And as of last night, I confirmed with the SBA that they haven't quite figured out how the fee income is going to work. So I'm sure we'll maintain an accrual. But when we get the cash, is a whole another thing.

[Operator Instructions] And I am showing no further questions from our phone lines. And I'd like to turn the conference back over to F. Morgan Gasior for any closing remarks.

Well, we appreciate all the questions and interest. We wish everyone to be safe. We all hope that we get out of this sooner rather than later for everyone's benefit. And enjoy spring and early summer as best you can, and I'm sure we'll be speaking to you in the third quarter.