Ladies and gentlemen, thank you for standing by. And welcome to the First Quarter 2020 Equity Bancshares' Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Chris Navratil, Senior Vice President.
Sir, you may begin..
Good morning, and thank you for joining Equity Bancshares conference call, which will include discussion and presentation of our first quarter 2020 results. Presentation slides to accompany our call are available via PDF for download at investor.equitybank.com, by clicking the Presentation tab.
You may also click the Event icon for today's call posted at investor.equitybank.com to view the webcast player. If you are viewing this call on our webcast player, please note that slides will not automatically advance. Please note, Slide 2 including important information regarding forward-looking statements.
From time to time, we make forward-looking statements within today's call and actual results may vary. Following the presentation, we will allow time for questions and further discussion. Thank you all for joining us. With that, I'd like to turn it over to Equity Bancshares' Chairman and CEO, Brad Elliott..
Good morning. Thank you for joining the Equity Bancshares' First Quarter 2020 Earnings Call. I'm joined today by Greg Kossover, our Chief Financial Officer; Craig Mayo, our Chief Credit Officer; Craig Anderson, our Chief Operating Officer; and our General Counsel, Brett Reber.
As each of our employees, our families, our customers and our companies navigate this challenging environment, let me first say thank you to all the Equity Bank associates and their families for continuing to work hard and extending the effort it takes to be successful in this COVID world.
Each of our stakeholders should know that the Equity Bank team and their employees have gone far beyond the call of duty to protect and run the bank. Every department and every location has made me proud to be the CEO of this bank. Please continue to be safe and keep your families safe.
You will notice, we have changed our slide deck this quarter to assist in the flow of information for today's call. We will talk about the following topics before we get to the Q&A.
First, Greg will take us through what our first quarter would have looked like without the impact of COVID-19 and then discuss our desire to increase our reserves for the uncertain future. Second, I'll provide an overview of Equity Bank's Paycheck Protection Program results thus far.
Third, Craig Anderson, who leads our retail and commercial sales groups, will speak to what we have done operationally with our retail and production teams and how we see the near-term in these areas. Fourth, Craig Mayo will provide an in-depth credit look of our loan and special asset portfolios.
Then Greg will discuss the impacts of the near-zero rate environment and our balance sheet, NIM, liquidity and capital. Finally, I will close with thoughts on how we are positioning the company for the upcoming quarters.
Greg?.
We feel it's important for our stakeholders to hear we had a very good quarter, exceeding our preloan loss provision expectations. We did take larger loan and OREO loss provisions to allow for future, primarily COVID-19 unknown potential credit weakness.
Had we taken our planned loan loss provision of $900,000 we would have pro forma net income after tax of about $0.57 per share, which would have beat the initial Street estimates of $0.56 per share. Our results were primarily driven by an improved net interest margin stated at 3.67%.
However, when adjusted for normalized purchased accounting accretion, it would have been about 3.62%. This is higher than our expectation of 3.52% as we did not fully anticipate the rapidly declining interest rate environment and its impact on our liability-sensitive balance sheet.
As the Fed announced its positions on rates in the first quarter, we acted immediately. Our cost of interest-bearing deposits was 1.09%, down 23 basis points from December 31, 2019, and down 52 basis points from March 31, 2019, when it was 1.61%.
As we have stated on recent calls, the deposit and retail teams, led primarily by Brad Daniel, deposits officer, have worked to responsibly act on the Fed rate movements in the past 12 months.
In addition, our Federal Home Loan Bank advances dropped to 1.60% in the quarter and we have now locked in the majority of our advances at 73 basis points for another five months.
As such, our cost of funds, which was 1.43% at December 31, 2019, decreased a full 25 basis points to 1.18% in the first quarter and has dropped 53 basis points year-over-year. Coupon loans was 4.9% at March 31, and 5.20% at December 31, 2019. Our adjusted yield on loans was 5.44% in the first quarter as opposed to 5.55% at December 31, 2019.
Our yield on the securities portfolio in the quarter was 2.49% as compared to 2.51% at 12/31/19. Total adjusted yield on assets is 4.61%, and this compares to adjusted yield of 4.69% at year-end. In all, our cost of liabilities dropped 17 basis points more than our yield on assets.
Non-interest income was below our projections primarily due to softer transaction fee activity and derivatives reacting to the lower rate environment. Non-interest expense was slightly better than our expectations on lower compensation than expected, offset by modestly higher professional fees for items such as CECL and legal.
We provided a $900,000 provision for potential future losses on OREO based on the COVID-19 environment, which was partially offset by gain on sale of OREO in the quarter. Non-interest expenses adjusted for these items was approximately $25.5 million, up about 1% year-over-year and in line with our expectations.
As shown in our press release, we did take a provision for loan losses of $9,940,000. Although we are prepared to adopt CECL, we believe, given the very unusual economic environment our world is antigen for loan losses, continued utilization of our probable incurred model is appropriate.
We are ready and will continue to be ready for CECL adoption no later than at the time prescribed by the SEC and FASB. When we ran the probable incurred model and given the unprecedented nature of COVID-19, we utilized our experience from the Great Recession to estimate the levels of loan loss allowance adjusted for our current portfolio.
We then recorded provision to take our ALLL to these estimated levels and arrived at an allowance for loan losses at March 31, 2020, of approximately 87 basis points and a total of 126 basis points with purchase accounting discounts.
We adjusted the provision through qualitative analysis, which we will continue to evaluate along with our quantitative results as we progress through this economic environment. Actual net charge-offs for the quarter were again relatively low at four basis points annualized. We will talk about the balance sheet, capital and liquidity more in a bit.
Brad?.
When the SBA launched the Paycheck Protection Program under the CARES Act, our lending and operational teams jumped into action to use this platform to help our customers through this economic crisis.
Teams led by Craig Mayo, Julie Huber, Craig Anderson, Jeremy Allen, Patrick Harbor [ph] and Brad Daniel worked tirelessly, and often through the night to provide over 1600 PPP loans, totaling $459 million; helping to keep employed an estimated 78,000 workers during the first phase of the PPP program.
Equally important was our success in processing completing nearly all the applications received before the funding was ended by the SBA. Over 1400 of these loans were to businesses applying for less than $350,000; all but 30 of the applications were completed, and those 30 were in process with the SBA BTRAN shutdown when the SBA money ran out.
The impact this has on our communities and their families, by keeping employees productive and unemployment gives me so much pride in our Equity Bank teams and their families. In our 4-state area we were able to use the PPP program with 30% of the loans coming from our Arkansas allocations, 70% in Missouri, 11% in Oklahoma, and 59% in Kansas.
And finally, 39% of the loans were in our metro areas and 61% were in our community markets. Craig Anderson leads the customer facing side of our bank and he has been instrumental in not only the PPP initiative, but also all retail and commercial operations.
Craig?.
Thanks, Brad. Our top priority has been to keep our employees and customers safe, while at the same time, delivering the Equity Bank experience our customers deserve and have come to expect. As Brad said, being able to offer a PPP loan at a critical time for our business customers has been one of the most satisfying experiences of my banking career.
It has also been rewarding for me to see our operating teams deliver the Equity Bank customer experience while pivoting from standard operations to our branch-light, drive-through first model in March offering lobby access as needed, keeping safe distances from others, showing care and courtesy to fellow employees, and continuing to run the day-to-day banking business seamlessly.
With less foot traffic, our online activity has picked up substantially. You may recall overall our online banking experience in the first quarter of 2019 and in March of this year, we saw a 7% increase in digital transactions such as bill payments and mobile deposits and 9% monthly increase in total log ins.
As we have modified our brick-and-mortar experience, our customers have continued to receive the Equity Bank services and support they need and want. Our branch-light strategy has seen a significant increase in calls to our customer care center.
We averaged approximately 500 calls a day during the first quarter and have seen our call volume double in the first three weeks of April. Our motto is, "We Are Here For You," and our staff have demonstrated that service level through our drive-throughs and call center.
The focus of our growth management division is building upon the existing relationships within our enterprise. The introduction of a robust asset management and trust platform, coupled with an enhanced private banking product offering, has resulted in new pipelines for loans, deposits and fee revenue.
As of March 31, Equity Trust & Wealth Management had total assets under management of $76 million, generating an estimated $274,000 in annual fee revenue. We are expecting our assets under management to increase by 50% in the next 90 days.
We are maximizing our growth with an experienced sales team that have long-lasting relationships in our community within the entrepreneurial culture of Equity Bank.
Also and consistent with our ongoing diligence to evaluate revenues, expenses and our branch network, tomorrow, May 1, we will be consolidating three smaller locations in our footprint into nearby locations.
Our customers will continue to bank with us just at locations that we feel deliver greater economic efficiencies, and we will eliminate the expenses associated with those locations while any associated onetime cost will be nominal. Finally, growing non-interest-bearing deposits has been and always will be an ongoing initiative.
It is exciting for me to say that through all the noise in the first quarter, our non-interest-bearing demand accounts were up 6% and new online deposit account applications are up over 50% in March from February.
Brad?.
Before I turn the call over to Craig Mayo to discuss our loan portfolio, let me say our goal is to provide transparency to you today. Craig and all the leadership at Equity Bank are always working hard to proactively manage any credits we believe to be impending problems.
We work with our borrowers to provide guidance when we see opportunities to help them. But we also make tough decisions based on what we believe will be the best for our shareholders. We are proud of our credit portfolio and our credit culture, but also believe both may be tested in future quarters.
We'll continue to adjust our credit management for the long-term benefit of our stakeholders, and we'll strive to continue to be the bank of choice for all of our customers.
Craig?.
At March 31, our loan portfolio totaled $2.5 billion. As you can see from Slides 5 through 13 in the slide deck, the loan portfolio is well diversified both in composition and geography. I will highlight some of the different segments of the loan portfolio, as shown on Slide 5. Residential mortgages represent $481 million or 19% of total loans.
This number represents both organic loan originations and mortgage pool purchases in the properties that are concentrated in the Midwest. The portfolio consists of 3, five or 7-year adjustable rate mortgages. Hotels, on Slide 6, represent $240 million or 9.6% of loans. This is made up of 93 loans.
The top 20 loans in the portfolio comprise $202 million or 84% of the segment of our portfolio and have a loan-to-value of 54%. The remainder of the hotel portfolio is comprised of 73 loans with an average loan size of $526,000.
The portfolio is made up of strong, experienced operators who have proven operating results in both good times and, more importantly, in challenging times. The portfolio is geographically dispersed with properties located in different metropolitan centers.
Slide 7 shows agricultural relationships accounted for just over $218 million or 8.7% of total loans. The bank's Ag portfolio is diversified between protein, cattle, swine and chickens and cash grain, corn, wheat, soybeans, cotton and milo. The Ag portfolio is spread across the bank's 4-state footprint of Kansas, Missouri, Arkansas and Oklahoma.
A majority of the Ag portfolio, $130 million or 59%, is secured to real estate. The bank's Ag portfolio has remained stable with minimal declines in land value. Direct government payments under the MFP program supported many farm incomes in 2019. Crop yields across our four states were better than average.
Our Ag lenders have been proactively working with our farmers over the past two years, which has helped mitigate the impact of lower commodity prices on the bank's Ag portfolio. The bank has $222 million in construction and land development loans with 95% in vertical construction.
As Slide 8 shows, the bank has $165 million in commercial construction, $46 million in residential construction and $11 million in vacant land. The top 40 commercial construction loans totaled $161 million or 73% of the total construction loan portfolio. Of the 40 largest commercial construction projects, two have been interrupted by coronavirus.
Additionally, construction has been completed on two QSR restaurants, which are unable to open due to the state's stay at home order. No other construction projects have been delayed or impacted by the coronavirus.
The bank's residential construction portfolio is custom build/spec homes to strong, seasoned builder developers, with which the bank has had a long relationship. The vacant land is dispersed over 71 loans for an average loan size of $159,000. The bank has $96 million in restaurant loans with 57% in the QSR national concepts segment.
The portfolio consists of 170 loans for an average loan size of $514,000. The bank works with experienced strong franchisees who've had a successful track record owning multiple locations. The bank's total retail exposure is $144 million or 5.7% of total loans, as seen on Slide 9. Car dealerships account for $48 million or 2% of total loans.
Shopping centers, strip malls account for $40 million or 1.6% of total loan portfolio. Shopping centers are made up of 39 loans with an average loan size of just over $1 million. Retail stores account for $29 million or 1% of total loans, and convenience stores are $22 million and are less than 1% of the overall portfolio.
The bank has $132 million in manufacturing and machine shops or 4.4% of our total loan portfolio, as indicated on Slide 10. Aircraft-related manufacturing makes up $63 million of the $132 million total and is comprised of seven relationships.
The aircraft industry has been adversely impacted, first by the Boeing 737 MAX grounding; and second by the coronavirus and the state's stay at home orders. Aircraft-related manufacturing companies that the bank works with are not immune to the issues facing the industry. The second half of 2019 and Q1 2020 have showed a delay in pullback on sales.
We believe these companies have solid, experienced management teams who have proactively addressed the issues and have solid balance sheets, good liquidity and ownership with access to additional capital, if needed. The bank has just over $85 million in multifamily properties or 3.4% of total loans.
This is made up of 93 loans with an average loan size of $915,000. As noted on Slide 11, over $9 million of the bank's multifamily portfolio consists of low to moderate income apartments. As noted on Slide 12, the bank has limited exposure to shared national credits. The six companies and eight loans totaled $45 million or $5.6 million per loan.
This is down $18 million from June of 2019 when the bank had $63 million in shared national credits. As noted on Slide 13, at March 31, the bank had no direct exposure to oil and gas exploration and has limited related exposure to oil and gas with $19 million and 43 relationships. Medical and assisted living each had $15 million in their portfolios.
As of April 23, neither the assisted living facilities nor the medical facilities had been impacted by the coronavirus. Our team has continued to work responsibly on special assets with net charge-offs in the quarter of only $257,000, annualized to four basis points.
The ratio of classified assets to regulatory capital is down to 20.2% at quarter end and OREO is down $1.5 million during the quarter before the provision discussed earlier to $5.9 million as we sold a large real estate development asset that had been acquired in one of our mergers.
Slide 4 shows our COVID loan modifications at March 31 were $122 million and modifications as of April 20 were $430 million, representing 17% of total loans. Of these, 290 were consumer customers and 494 were commercial customers. Our unfunded commitments have been very stable, and the funded balances are actually down slightly from year-end.
Our Ag portfolio has paid down with the season and our commercial portfolio has drawn up a modest $10.8 million since 12/31/19.
Brad?.
Craig Mayo and his team did another outstanding job in the quarter to continue to improve our loan book and reduce special assets. Clearly, the emphasis will be important as we look into the next few quarters. We recently hired Thad Van Hiel as our Director of Special Assets.
His prior experience working for a $5 billion bank in Chicago will be helpful to us as we prepare for what could lie ahead.
Greg?.
Equity Bancshares entered the COVID-19 environment as strong as we have ever been. Our capital ratios at the bank are very strong with total risk-based capital of 13.50% and Tier one leverage of 9.39%. Our holding company capital ratio of tangible common to tangible assets is 8.47% and Tier one leverage is 9.02%.
As noted in our press release, we have also temporarily suspended our stock repurchase program as we believe capital preservation is important right now. Our Board of Directors will revisit that important initiative as the landscape presents itself more clearly in the near future.
In addition to the loan analysis Craig Mayo presented, we also have done a full scope review of our balance sheet. Our securities portfolio today has 83% in government and agency securities and the balance primarily in seasoned communities we acquired mainly through mergers.
Our bank-owned life insurance is with very reputable companies as shown on Slide 27. As Craig Anderson stated, we have seen growth in our non-interest-bearing DDAs and our signature deposits. Those that are transactional in nature represents 74% of total deposits and are spread over a 4-state geography with both metro and community markets.
We do not have a significant concentration of deposits to any one market. Speaking to liquidity. Our primary and secondary liquidity is very strong at just over $2 billion with approximately $1.2 billion of that as primary.
We consistently test our liquidity sources and have also done so at the end of the first quarter, and there were no issues with availability. We are modestly borrowed with the Federal Home Loan Bank with significant excess capacity of over $350 million today.
Our other borrowed money is a modest $63 million, and we are established with the Federal Reserve for the PPPLF as well as the discount window. The remainder of our liquid sources is dispersed between access to Fed funds, sale of unencumbered investment securities, brokered deposits and BOLI.
Although we have discussed capital, I feel it is important to note that we expect our balance sheet to be stable in the next two quarters as bankers and customers alike try to understand what and where the opportunities and challenges will be.
That said, we are well positioned in our balance sheet to meet the upcoming quarters with strength and ability to serve our customers' needs. I will also address interest rate sensitivity and then give the mic back to Brad to finish our commentary.
Our net interest margin did increase nicely in the second quarter as our liability-sensitive balance sheet repriced downward faster than our assets. We were able to reprice all of our interest-bearing transaction accounts, and in the next 12 months, we have approximately $600 million of time deposits repricing.
In the late third quarter, our FHLB term advances will reprice again, and assuming today's rate of 51 basis points, would come down from the 73 basis points I mentioned earlier. Currently, 52% of our loans or $1.3 billion are variable rate and 61% have floors. And of those, 69% have reached their floors.
Approximately 65% of loans, which have not reached their floors, are within 25 basis points of doing so. NIM guidance can be a bit challenging right now. However, I believe we may improve slightly in Q2 to as high as 3.65% as we will have a full quarter of benefit from our liabilities repricing in late Q1.
As our adjustable rate loans continue to reprice at their contractual dates, we believe NIM will have a mild contraction down to approximately 3.55% to 3.60% in Qs three and 4. This analysis does not include the impact of the PPP program, which will distort from both the PPP fee income and its low coupon.
Brad?.
As I think about the next few quarters, I know we cannot project or predict the exact outcome. So much depends on America going back to work, and on what shape of the recovery looks like. I do think about the Federal Reserve acronym used in examinations, CAMELS, as it simply lays out the components needed to be successful in banking.
We have a solid capital base, and we believe we have access to additional inexpensive forms of capital if needed. We are also growing capital organically, as our bank is doing well today, and we believe it will be sufficient in the future. We went into this downturn with strong asset quality and as a base of strong borrowers.
All of our mergers have onboarded successfully into Equity's credit culture, and we feel confident about our customer bases in each region we bank. There will be asset quality concerns going forward, and we have the personnel, systems and decision-making expertise to navigate the issues.
We have taken advantage of these opportunities in past down cycles, and we look forward to excelling again during this cycle. The M in CAMELS is for management. We have an outstanding management team with many years of experience in all of our critical functions, very capable redundancy, and an impressive amount of tenure of talent at Equity Bank.
We will also continue to bolster the team, if needed, in any area. This operating environment will require a dynamic leadership, and this management team will step up to meet that challenge. Greg and I believe we are positioned for reasonable earnings in this environment as our balance sheet hasn't changed much.
We have executed the PPP initiative and that, I believe, will help us in the next quarter. No one really knows what is around the corner. However, I do know we are diversified in asset base, geography, and product offerings.
We have avoided concentrations of some of the higher-risk loan holdings and should not face those particular challenges, which leaves our resources available to deal with the challenges that will no doubt arise. As Greg stated, we have excess liquidity, which will assist planning, opportunities and reduce risk on both sides of the balance sheet.
And finally, we have been liability-sensitive, which has helped us grow EPS as the Fed moves rates downward. We'll continue to look at strategies to take advantage of and lock in this particular rate environment.
We have built a tool chest, which includes enhanced online banking and, more importantly, bankers who are experienced and know their customers. We have reached out to all of our small and large commercial customers in the past 45 days to understand their needs and concerns. We want them to know we are not just a source of funds or services.
We are advisers and providers. We'll also continue to manage capital and provide for ALLL to do our best to make sure we are prepared for whatever comes our way. We founded this bank with an entrepreneurial vision and a spirit, and we will continue responsibly execute with that purpose.
As always, I thank you for your continued support in the past and certainly right now. We, at Equity Bank, hope each of you is being safe and that your families and teammates are healthy and positive. We're happy to take questions at this time..
[Operator Instructions] And our first question comes from Jeff Rulis from D.A. Davidson..
Greg, I think you mentioned the margin was adjusted margin or core was 3.62% in the quarter.
What was that in the fourth quarter, comparable figure?.
3.52%, I believe..
3.52%, okay.
And the 3.65% you referenced in the second quarter is on the same baseline, right? That's up to 3.62%?.
That is correct..
Okay. Then moving to the maybe the fee income and expense lines.
The was the fair value hedge baked into that figure? Was it offset to income?.
Yes. No. The fair value hedge is a temporary hit to non-interest income of about $500,000 this quarter..
So, but it is in fee it's in okay..
Non-interest income..
Right. So within that figure, if we're to add that back, and I think you talked about a pretty significant spike in AUM. I don't know if you how much you kind of turn that to fee income. But any thoughts on if we add back that sort of fair value hit, gets you closer to $6 million in the quarter.
I think you mentioned mortgage banking should have a better quarter.
Kind of expectations on the fee income side, particularly what's driving that AUM increase?.
Let me speak to the overall non-interest income and then I'll let Craig Anderson talk about assets under management. Our non-interest income actually held up fairly well during the quarter. We are seeing fewer debit transactions, which could be to be expected.
But overall, if we add the fair value hedge mark-to-market adjustment back in, we weren't far off our guidance from before. As we look out into the second quarter, I think we would come off the previous guidance a little bit, just anticipating fewer transactions from the DDA side, which I think that we are experiencing a small amount of.
And so instead of being in the $6 million range, I would look to that to be closer to probably down 8% to 10% from that number.
Craig, you want to talk about AUM?.
Yes, this is Craig Anderson, and we started our Trust & Wealth Management group about 18 months ago, hired two very experienced senior professionals that have over 25 years' experience. And over the last six months, they have really worked hard from a new business development perspective. And we're just starting to see the fruits of those calls.
And as I stated in our earnings call, we expect our AUM to increase by about 50% over the next 90 days, and we actually had one of those new pieces of business come in this week. So we're right on that schedule that we talked about..
Okay, great. And then on the expense side, just wanted to make sure again that the OREO reserve was in Other.
So again, we can kind of back that out of expenses?.
That is correct, Jeff..
Okay. And so I guess implies kind of a low $25 million kind of run rate. Any puts and takes? You mentioned the branch consolidation is upcoming.
How do you see the run rate of expenses impacted?.
Yes. Good call. It's in the low 25s is what, I think, is a fair comment. And the branches are not real big. We probably think it's somewhere in the $300,000 to $400,000 range as far as non-interest expense savings..
Our next question comes from Michael Perito from KBW..
I wanted to spend an extra minute. I appreciate all the color in the prepared remarks, but I want to spend an extra minute on the hotel portfolio. I was just curious if you can give us a little bit more flavor of how as I guess, from background, as I think about it and the economy hopefully starts to recover.
There's travel might be one of the later things.
So I was curious, maybe just as a starting point, can you kind of give us what occupancy typically looks like, where it's at now and where it kind of has moved to just to be able for these projects to service their debt, as you guys see it?.
Sure, this is Craig Mayo. So occupancy, traditionally in the hotel industry is in the 70% range. To service the debt, we're looking somewhere in the 40%, 45% range. We've seen hotels impacted go down to the 10%, 15%. Some have maintained occupancy in the 35%, 45% range. So it's kind of over the board, depending upon where the location is.
Our hotel portfolio, by and large, reacted very quickly to the COVID-19 in the declines in occupancy. They reduced expenses. They adapted to lower occupancy levels. So they weren't late to the party. They were kind of on the forefront. So we anticipate continuing to work with them.
The other thing that's good about our hotel portfolio is that we have the loan-to-value in that is low. And our top 20 largest hotels are in the 54% range LTV. So we have some room to work with if they do some additional funding. And again, we have some pretty solid borrowers that we're working with..
And if I'm looking on Slide 6, it says here, you guys have a decent chunk in Oklahoma and Texas in the hotel portfolio.
Is there any concern on your end there that some of the stuff going on with oil can indirectly impact those businesses' ability to recover?.
We don't see any direct impact on the oil. I mean, there's going to be slowdown in the economy. That will have some impact. But the hotels are in major metropolitan areas that aren't reliant. The business travel and stuff was not reliant on the oil and gas industry. So that shouldn't have a huge impact on those hotels..
We don't have anything in Midland, Texas or anything that's specifically oil and gas related..
Okay, helpful. And then, just a couple quick one questions.
One, Brad, do you mind just repeating what the notional dollar amount was of the PPP and reminding us what you think the fee could be on that approximately?.
So I've got the numbers don't get the numbers. Yes. I've got the numbers on the I got to be coached here, Michael. I've got the numbers on the total program outstanding through today is about 400 no, $560 million of originations. I think you could use about a 2% number on that to get to a fee income number.
As you blend the three fee buckets together, I think that would give you something close..
That's perfect. And then on the more traditional portfolio.
When I think about that NIM guide that Greg provided, what does that assume in terms of kind of traditional commercial lending? And where does the pipeline stand there? And how do you guys kind of foresee that play out near term?.
So the pipeline, Michael, is really hard to understand today. The deals that we had in the pipeline on the prospect list are still there. Customers are still evaluating those moves. We have customers still moving business over to us that we originate from other institutions.
But I would say that our guidance instead of growth is, I think, we're going to be somewhat stagnant. There's going to be some projects that we don't want to do that customers might want to do. And there's going to be some projects that customers are just going to put on hold for a little while to evaluate what's going to happen in the economy.
So I'm not very bullish on the fact that there's going to be a whole lot of origination going on. But our guys are working really hard. The PPP program is going to open up some doors for us on both the deposit side and the lending side we didn't have before. We excelled in this like none other.
And so through the first part of the program, we were able to originate about 1,650 loans. We only had 30 of them that were stuck in the queue that didn't get funded when they shut off. We've got everything approved that's been approved today and it's got an E-Tran number. So we've been able to take business from U.S.
Bank, Bank of America, Wells Fargo, and Regions Bank and lots of others that just couldn't get this stuff done. And those customers have told us that if we got these things done for them, they would move their deposit relationships to us.
So I actually see this as there's a silver lining in this, in that we've got some opportunities we wouldn't have had before. And so I don't know that they come through in the next quarter or 2, but I think they'll come through in this year and in the sales cycle. So....
That's helpful.
Do you guys know how many of the PPP loans that you approved that were with new customers?.
I don't have a specific number on that. But can get that we'll get that broken out. But we did not track that specifically..
Okay.
Was it a majority of the second wave, though? Or is the second wave still alive?.
The second wave the interesting thing is the second wave, the average balances and this is from memory, the average balances, say, we're $275 million or $275,000 per loan customer in the first wave. The second wave is about $110,000. And so the second wave is actually small proprietors.
I mean it's small business stuff, and we really went out and solicited to make sure every one of our customer bases were scoured to make sure this. And this was spread out from Arkansas to Northwest Kansas.
So I mean, we're really proud of our teams for getting every small business customer out there contacted and making sure that they knew that we wanted their business. So we've got loans we did for $1,200. And we've got loans that we did for $10 million. So....
That's really helpful, Brad. Just one last quick one for me.
Just Craig, was the tax rate elevated in the quarter? Any thoughts there?.
Yes, but not only temporarily. We had some discrete items come through on a very low pretax income basis, Michael. I'm still using that 22.5% as my forward guidance..
[Operator Instructions] Our next question comes from Terry McEvoy from Stephens..
First off, thanks for the detailed investor presentation. I'm sure a lot of time went into that. So I appreciate that. Maybe a question on the hotel portfolio.
How long have you had relationships with those top 20 borrowers that you referenced in the presentation? And then maybe give us a perspective some perspective on how quickly that portfolio has grown.
So what were balances, call it, a year ago and maybe two years ago, if you have it?.
Terry, this is Craig Anderson. Our top 20 customer lists in the hotel space, we've had relationships over five years with most of those operators. They're very proven. Our largest customer is in the boutique hotel space and had 17 or 18 hotels across the U.S.
As Craig Mayo stated earlier, they were very aggressive in furloughing workers and cutting their expenses six weeks ago, and we feel like they're in very good shape. And our loan-to-value on those properties are, as Craig stated, 54% to 55%..
Terry, I would chime in that. Brad and I go back, that's how we met and when I was in the hotel business. And a lot of these folks that Craig Anderson is talking about, we've known for literally a generation or two. And that's how they've spent their careers primarily in the hotel business. And we've been talking to them frequently.
And it's very enlightening. They have the ability, as most hoteliers do, especially coming off of really a good piece of a favorable economic cycle.
They've got the ability to skinny back some of their offerings and some of their cost structure to where they can continue to be successful with lower room rates and lower occupancy simply by managing their costs and the good ones know how to do it, and they've already reacted to it.
And so it's still going to be, what is, in essence, a re-ramp to a certain degree for that industry. But these operators that are in our portfolio are skilled at doing it..
So the other part of your question, Terry, is we're actually down from June 30 in this category about 5% or 8%. We actually and that actually included some that's some big changes actually. We actually have some better hotel product in there than we didn't a year ago. We're down 7% or 8%, but the mix in that's probably different, 20%.
The borrowers we brought in are better than the borrowers we ran out. So we ran out three or four hotel hoteliers we didn't think were doing the right things last year. We replaced them with better, lower loan-to-value product. And then we're about the same we were 18 months ago or so..
And as a follow-up question, the $400 million of commercial loan payment deferrals, what would be the top three industries receptor that you would dough?.
So they would probably the top two anyway would be the hotel and restaurant groups from a number of standpoint. The rest of it would be pretty much dispersed over the portfolio. So those would be the Top 2..
And then, just the last question. When I think of Wichita, I think the aerospace industry, and I know you've got a slide in the presentation with kind of the exposure there.
Could you talk at all about the ripple effect or what that's doing to the local economy in terms of some of the job weakness and the overall weakness within that industry?.
Yes. So, I would tell you that we've got a slide detailing the exposure the direct exposure on that. The good thing is, Terry, from indirect exposure, we're fairly geographically dispersed. So Wichita is just over 10% of our assets are in Wichita from a company standpoint. So we're not going to have a significant influence or impact.
We have no I believe we have no builder in Wichita that we finance, no homebuilder. So, we don't have any exposure on the construction homebuilding side there. And so we feel fairly fortunate about that aspect. But we haven't seen the ripple effect yet through the economy. But if this continues for a long period of time, it will.
I would actually say, I've had conversations with several people in the business jet space. That space is actually picking up as people aren't wanting their employees to travel commercially. I know that they some of the I'm trying not to divulge information here.
Some of the -- what are they called, air share companies have seen substantial spikes in membership over the last four weeks.
And so the hope on that is that business jet market is going to back up because as we open back up, I think people are going to want their executives fly on air share type product versus flying commercially for safety standpoint. And so we hope that the business jet market picks back up, where the 737 market is probably going to stay slow..
Our next question comes from Andrew Liesch from Piper Sandler..
You've actually answered all my other questions. I exit the queue. Sorry about that..
And we do have a follow-up from Jeff Rulis from D.A. Davidson..
Craig, just a quick question on the assuming you're running parallel with CECL, any idea of if you had adopted what the reserve difference would be?.
Yes. So obviously, that's a great question, Jeff. And because we didn't disclose any of our CECL numbers, I'm going to talk around it for a moment. But I think it's safe for me to say, as we go back and look at our 12/31/19 numbers in the pre-CECL environment, remember that we were a serial acquirer.
That's really part of the cornerstones of how Brad founded the bank. And so we had a lot of because of the way your purchase accounting rules worked, you wiped out the ALLL from the acquired institution. So we were running somewhere between 50 and 55 basis points of traditional ALLL in the pre-CECL environment.
When we hit January 1, had we run CECL, I would tell you that I think that we were probably half of the ALLL that we would have wanted to be in a normal environment. And then when we get to 03/31, of course, things are very different.
But the way we did our ALLL provision in Q1, as we said on the call, we went back and looked at what we thought could give people at least a stepping off point to understand today versus the Great Recession. Whether it's the same or not, we don't know, but at least it's something that people can understand.
Had we run CECL, I believe that it would that the CECL results would have been very similar. Maybe a little smaller actually, but very similar..
Okay, I appreciate it. And just the credit marks that you carry on acquisitions, I think you alluded to that.
I think it trued up, it was something like 125 of loans?.
That is correct. I believe it was actually 126, that's correct..
Okay, thank you..
Thank you..
Thank you. And that does conclude the question-and-answer session for today's conference. Ladies and gentlemen, that does conclude today's conference. Thank you for your participation, and you may now disconnect. Everyone, have a wonderful day..