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HFWA Heritage Financial

Participants
Jeff Deuel President & CEO
Don Hinson CFO
Bryan McDonald COO
David Spurling EVP & Chief Credit Officer, Heritage Bank
Jeff Rulis D.A Davidson
Matthew Clark Piper Jaffray
Gordon McGuire Stephens
Call transcript
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Bryan McDonald

I'm here.

Jeff Deuel

Thank you, Bryan.

Operator

Okay.

So host and speakers, you are in the main conference and everyone is in listen -- else is in listen mode right now.

Jeff Deuel

Okay, perfect. Daniel. you, Thank called who Welcome in. everybody, This is Heritage CEO Deuel, of Financial. Jeff on sorry call. for very the the We're mix-up phone Apparently, we asked a general for a hosted call call. and got

flexible be. Fortunately we today's environment, all lot in we're used more to a than

e-mails, So hopefully, time got some you've end. out our while on on to streamed we work had your

Chief Don presentation Dave to the in me at end. our we Officer; locations Hinson, Chief remote open Officer; and Credit are Financial our going this our McDonald of one on I'm Chief into up Bryan will Spurling, With Officer the then morning. our Operating is jump by is for at and room questions he extension, our is

it went pre-market Please this morning call. release statements have refer and to earnings the had the out to to prior press release. forward-looking the you Our review in hopefully the opportunity

has months saying credit the communities heck Well, our two first quality We this portfolio a goes positive result our industry. management. some seeing as pipeline, our active banking been it country, some for of with and growth progress nice quarter of quarter a in the the our out a without of started

management We the new our successfully direct obviously Heritage as also quickly things changed C-XX treasury launched accelerated. pandemic platform,

to Our pandemic plan. team and decrease pipeline dusted began management the off our

March. Washington Oregon, in since been we third operating have the in In week and status stay at home

flatten in the economy regional some of is self-induced managed take a expect curve economy we coma, we the to robust time. Our to although our and have revival

talking staged restart. to a approach about Fortunately, Oregon are Washington and a

to of safe. easier. all, Early move operate customer little drive we served both in keep operate lobbies to and interruption customers. drive but locations most much made customers our which with to our close our service, have bank through branch employees This the transition to very that facilities XX through capabilities, and continue through essential nine an our As March, we opted traffic to the

lobbies we and months. to in -- couple continue phased for this phase a We are the manner for plan some beginning of now operate to in reopening next just to approach

a our for lobbies absorbed XXX, and a needed completely began of to many We have people a loan approximately relationships parallel It this fully also about light we our that, deposit make customers, After customers and that closed, the implement of of quickly program are also parameters modification who XX% note money continue able is underwriting and types we add work employees important select to at and stimulus loan are our it. our with getting we're employees relief review have now our provide remote SBA PPP In became time. securing even environment the working new to all remote to we program and remote remotely, loans. new launched we capabilities for we to who people, the to conditions. the in in lobby's

downturn. industry will similar the to result and served banking industry quality Fortunately, the have as We we customer though seen experience PPP in our have believe point, with C-XX last credit of believe the we base. good outperform we expect a Even our at program impact. the Heritage of our we this will median needs success experience the deterioration

manageable us longstanding losses concentrations, which Our culture on pay at of and will is credit portfolio levels. loan by focused keeping avoidance underwriting, for active conservative management off

quality comments financial in our move color to results detail cover some Hinson, all CECL. more and as there's operating metrics operating metrics, our few on We about to will will of cover -- Don a including take who this corporate specific our minutes credit we core

Don Hinson

Jeff. Thank you,

The an in share rate $X.XX, in earnings QX, QX, unfavorable CARES net credit due $X.XX XXXX. combination tax earnings Act, The mostly exempt impact is per to while earnings factors; to carry losses. back allowing to QX of partially tax which was effective operating acquired $X us offset diluted by lower decreased XXXX. was much provision income from was reported increasing Our for the down pre-tax was instruments; for and item, income, lower including million loss due a bank to discrete to to due this and increased a

Our interest in X.XX% of stable to the earnings net net quarter this compared expanded interest margin quarter, XXXX. fourth to also helped the margin X.XX%,

amount due deposits sheet, for operating loan increases balance the while of balances same in QX, of net XX.X%. to utilization Deposits QX, of $XX the increased $XX that $XX lines credits non-maturity onto was in increased million in C&I million Moving maintaining percentage loans. of rates total million on to

maintain continue combined and At million. credit very Home facilities Bank Bank we quarter for strong lines of to million maintained sheet and Federal the liquidity. Federal end, We other $XXX at Reserve a banks Loan $XXX balance totaling the

points we total of securities have million investment only In up unpledged making broker addition, deposits. totaling deposits $XXX and basis X currently

longstanding economic was our of balance Our believe sheet continue which low well us situation. strategy the our ratio deposit during with we current loan serve with XX.X%, we leverage, operating will

been use conjunction lending. PPP PPP have to Fed's our approved the also with We in liquidity facility

a partially we $XX we due and we that real loan $XX.X off are decrease payments line These in of which QX those relationship to at status credit loans loans in We history mostly will way have are million, million in exceeded loans. well which This from on earnings is quality, a of calls, XX% had the relationship, estate which secured. still of stay Ag believe length until Bank. on QX. significant charged $XX.X see we the non-accrual non-accrual balances of discussed in Regarding QX This million improvement $X.X in agricultural part QX. or million the was borrowing

on non-accrual Additionally, a payment business in which million, also was commercial full we relationship status. of received $X.X on

QX. other of $XXX,XXX, the million recovery that in Our in million charge-offs of to in off This in that a is offset due this relationship was QX. net charged charge-offs by same only QX from $XXX,XXX decrease $X.X for were QX, QX recovery was $X.X from Ag commercial

provide million four loans $XX C-XX a increased mostly due as to the Potential problem loans C-XX to downgraded eight additional of oversight. problem downgraded QX, in quarter-over-quarter special loans loans to mention additions. Potential without and decreased result

We exposure industries are monitoring our high-risk pandemic. to during carefully this

the exposure hotels is total and of Our categories X.X% of million the which the portfolio. or centers about X.X% businesses million recreation, relatively $XXX of includes or portfolio; or restaurants to the includes related portfolio million low high-risk entertainment, $XX bowling, X% following: $XX fitness commercial and other total amusement of total

monitoring loan carefully. In our addition, we are types all winning

modified combination have on and amortizing days. April related than of Let's modifications the a consumer commercial were commercial XX deferrals. for deferrals, commercial full of a portfolio, is including Almost interest-only term loans number turn XXX COVID-XX XXX all XX, total approximately through for $XX million, higher loan total of loan loans loan modifications. loan payment approximately and deferrals million modifications. to loans quarter of are now less dollar with while end $XXX XX% interest the to we commercial QX, a consumer modification we on for full payment than end modified XX% XX% the only of Subsequent the At modifications loan of approximately amount

rating, approach leaving if modified will to conservative a only its to risk at and performance. rating pre-pandemic quickly entity their loans taking operating that risk pre-pandemic return the it are is clear We

watch not C-XX in As to response in of are modifications Most $XX have downgraded XX potential our to being pandemic XX, we of related numbers. are and loan March downgraded totaling million included issues. loans

the Our expectation our that of and substandard. is see round for next some modifications, we'll deterioration of downgrades sustainability

The as This lower of discounts CECL of million unfunded allowance in commitments. allowance for PCI $X.X for reclassified $X.X the Day allowance losses million, and on was QX. approximately on offset be $X million loan increase loans partially post for the is that loans Moving million reversal for were to unfunded partially X the of losses in balances or credit on impact due process. to a at Day to X loans This million for was of XX% end CECL. accreted provision X the loan balances allowance by XX, for allowance QX million on The credit to $XX on loans. allowance $X.X the credit provision the on part from increase allowance total losses unfunded to previously of related December Day mitigated losses was was on commitments, by credit $X.X implementation

At the loans credit allowance of on the of as increased X.XX% of from loans for losses QX, end end total to the X.XX% QX. of

of a in point QX allowance the result to end this the XX% from the XXX% QX. non-accrual As increase of allowance decrease loans, at increased of and end to the -- at sorry, loans in X non-accrual

at risk over additional and environment to a We used. we such for Oxford recreation. restaurants, we due losses as to CECL March I'll go an forecast, quickly for Economics model late allowance the certain assumptions expected models the rapidly changing some the had hotels industries used

Bank's severe global for the which on XXXX rates Reserve stress early of and CRE. elevated and increased impact We stress debt also market recession reviewed of scenario, planet US corporate Federal on calls

severely scenario likelihood using Oxford did likelihood of we a the the use XX% XX as forecast. Although final and Economics our in scenario not our XX% was equivalent late-March CECL calculation a stress the of March of of allowance Fed's the

what to have the the monitor remainder provisions forecast Based conditions. elevated XXXX. economic We are continue has post-quarter will end, on and of to likely we for occurred

assets a overnight construction have QX. We bps on had as funding on of expected, in NIM interest been net Moving due due an during not commercial on earning primarily to earning loans and interest reversed loans change non-accrual decrease margin. of the might interest percentage higher lower percentage some the loans and deposits. higher as quarter. of earning, in to the increase Loan mix X yields much of in the previously to did in occurred This recapture

dropping to QX. to As points deposits points whole in cost X previously as in decrease QX, began basis XX basis expected

significant expected on didn't starting this points QX, we to experience compression mitigated PPP partially be pressure the XXX this NIM the on in by in due basis QX the to loans. pressure expect is rate downward March, year yields in Although I cuts NIM

mostly QX of Non-interest from in QX X.XX% million our in benefits for QX mostly increased year-over-year and to the to implementation expense prior marketing in the costs to QX, due to X.XX% in due to in system our our improved and levels XXXX. QX, management completion overhead treasury ratio and the credit expenses. with increase comparing expense premiums. associated expect from quarterly of and QX of new increases Both categories usage these our QX, tend We do expense the FDIC comp increased $X.X overall jump levels, of from

ratio And well all at remained QX. TCE finally, capital regulatory moving XX.X% of capital. Further our strong end remains at on the the ratios. We capitalized for

on repurchased suspended our our we quarter. long-term the one another a Yesterday, is until plan situation impact dividend, one we prior declared shares, better the the QX, repurchase On on $X.XX unchanged XXth, levels. buyback XXX,XXX and March Board understand capital XXth. starting current During program which the completing of March economic we from

we have dividends. we cease no at to time, on our plans basis Although pay dividends quarterly or to will a monitoring be capital our future position cut and ability this

Bryan McDonald PPP will now production and have loan status. update the on an

Bryan McDonald

Thanks, Don.

opening in and saw we and As February. good in his levels Jeff remarks, mentioned momentum January loan production commercial pipeline in the

Before then focus. our being and caused C-XX, heavily shift us which by our impacted early in March customers to

commercial the up and in XXXX. closed pipeline $XXX XX%, first our commercial first quarter, loan quarter fourth million, the of ended in new the closed the of compared volume up very to For to quarter compared commitments, at XXXX. the million quarter, similar $XXX The to first quarter the XX%, teams loan

due many are prepayments Subsequent now much to and $XX will actual expansion first to during of increased lower. we capital customers from volume have the loan and and annual operating lines seen plans to activity closed lower the utilization of be on a put and pipeline quarter anticipating million rate a higher we hold, quarter, transitions levels on end, bank this Gross projects, loans credit. payoff X% rate

in we up down fourth what the prepayments during first production have utilization million on contributing XXXX years. and over few levels experienced X% million in end, XXXX. same to increased utilization our the during rates to Consumer commercial the payouts the lower last rate the the by line been $XX with quarter more growth was closed $XX of as the Subsequent quarter. experiencing utilization in trended quarter loans quarter $XX we from fourth and the has first the million than million, to quarter, of rate quarter and So loan $XX were

Moving on rates. interest to

X.XX%, was X.XX% Our rate points XX commercial first of last interest quarter for basis quarter. loans new a decrease from

first million X.XX%, closed addition, million last million and XX% in average to growth quarter of $XX pipeline quarter $XX first last for In of refinance all $XX in quarter in of of first $XX first point versus loans quarter department the quarter caused the mortgage to and makes drop million last basis $XX at the from the rate XXXX. end. quarter. XXXX, The ended new in in The spike million The of in up million loans was pipeline by due the the the new X.XX% the mortgage a quarter $XX X long-term at refinance pipeline XXXX. activity quarter quarter rates, is compared

bank's Finally, like I'd under of participation after signed launch the XXth. Act first program. loans fulfillment to paycheck At the into cover PPP to law end preparing CARES President quarter, of offering protection our the and the SBA loans March we started the on the

Monday, April customers to Friday April available we live Xrd, on processing went and on made applications Xth. was package application Our

SBA team here in designing Heritage workflow lender for many for and PPP. the the having preferred years. requirements to very This SBA a are at We have been proved experienced very critical XA a fortunate

internal the full applications us us, with time of loan at a of to process hours. X,XXX stand of we to the an being many process several and benefited weekend a volumes Xth. number during with capabilities addition, In fulfill small during left shift round whom from are on of of important Xth phase and each system over funding and working staff fulfillment when were customer our SBA Most step ourselves applications, of only received PPP of work SBA $XXX,XXX. able The remotely of funding IT to exhausted unprocessed funding, system April PPP see the reporting us morning applications amount the in allowed the members, for having organize we extended average XXth. in between to April to was first up and lending, working allowed This backlog hundred real first

applications of of fully customers funding were net with our are on process round and current our from achieving customers. applications. relationships new to live ability we until application. backlog few when XXth April went exclusively processed, new result up SBA a and We applications efficiency, continue process We opened this PPP hours we known These many PPP within receipt, them process the we to second of Monday, new prospective applications to our after will process on their level for the processing anticipate help

the I'll now back Jeff. call turn to

Jeff Deuel

of good Bryan. our you, Thank about very of We overlay C-XX. feel light performance in the

to needs We continue high a in notable stay take have to with on to the years a a up industries. advantage matter capability -- we we capability of of days. to actions at-risk able our IT portfolio believe of competitive portfolio, markets, the we loan at the our in able successfully safely toll was home the a to in particularly to an We customers us support and communities employees, not development adding provided while have team seen platform were level see It ago, and this at address expect in the as of automated we serve. be loan important two for in PPP, deterioration stand its perform us result

with in than a This it slow are gets before we to funding very resuscitation and play recession need is will cases, shocks and a that will revenue we how the to to deferral agree damage. immediate total the seen set with economic fully beyond an modification not shutdown out and of others the our back, different get sure the period PPP two in begin parameters to that transitions footprint. as revenue ever We to underway back will see growth. suffer have most businesses We

quarter, in on and from the deposit foundation our challenges maintaining a first capital and take pleased on franchise challenges benefit We liquidity to the and interest focus and credit address position core despite the provides rates. management. with solid culture, expense in well our to performance robust while our with will us Furthermore, opportunities. of decrease rapid C-XX, and sheet a Heritage is the and from conservative we balance challenges believe these advantage interest and We net our positioned navigate progress continue are to margin

we're As team our immensely to-date difficult I said time. and this proud performance with during performance our earlier, pleased their of for

That prepared is of the conclusion our comments.

up questions. Daniel to open line maybe can we answer the So,

Operator

Yes, have we Rulis. absolutely. Jeff question of [Operator line the do Instructions] a And from

now is line open. Your

Jeff Deuel

morning, Good Jeff.

Jeff Rulis

Thanks, and was what good kind -- morning, you'd guess, -- Don if Jeff. To the the was reported how I add core margin, the XXX, it how much that did much the recovery quarter-to-quarter? to of, interest

Don Hinson

we but a again Jeff, be that I as that and the that and obviously tell impact balances, But -- fast think loan deposits late not cuts steal our drop some. because March the feel our quarter will and we as think because again happened able did all side, the this us lot, bps help of that's rates won't it that rate our be. lot of on didn't in we cost a couple the to so loan -- a mostly I of tell loan not to it will

Jeff Rulis

Okay.

So you deposit of next the the in kind think it's release of and XXX lag about talked a quarters. that's more of, pricing, of couple balance I about XXX, a,

given an the the margin? maybe of some again, quarter's a impact didn't time So rate to have lot cuts of acceleration compression

Don Hinson

both Correct. quarter are about of loans Correct. Again, fully our floating.

their that get have them, floors a points rates. are So anniversary rewritten each and are lower XXX to at they some of rewritten them if get they on you even about but just when liable think basis now, -- year

that now gets changes So loans as you know, if they're the floor on renewed. will a like

Jeff Rulis

Got it. brought Ag of C&I out side, the the credits and credit To non-accrual.

to trying were hear they credit see somewhat I that are others those singular any one-off hope there true related think, if or issues? that but recall is similar issues, I were

Bryan McDonald

loans the to all specific an is think that those I there group. of to that's overlay don't

think all Jeff. working progress, we've I we the are all especially issues, already portfolio, the hopeful about we'll we're that we And they're I individual talk see always that time, think that seen.

Jeff Rulis

And, on deferrals, percentage downgrades. I C&I just terms know, any those the that? mentioned on you of support that the have a broad got if or a or -- some don't you've PPP group idea

Bryan McDonald

is what the that part was characterize exercise they're to our to an customers loans there PPP just program of into of which sooner series And see The we're clearly a COVID, sooner. deterioration as larger problem to that of Well, risk moving loan category would that on hotels participating. specifically is are start in some I happy attention was got the on them it larger most it of was taking and that category obviously of part than loans, later. action related

Jeff Rulis

I loans Great. just And -- at to if would could, -- the the for that be on Don, one reserve last what one true-up maybe XXX.

were to marks additionally? include you credit If

Don Hinson

quite I'm Jeff, your not understood question.

Jeff Rulis

would be, discounts to credit may a so acquired The exceed reserve that additional balance have at loans -- that that did but you reserves an XXX, level?

Don Hinson

think Well, we million I had over. switched that we $X.X

Jeff Rulis

away, effectively Okay, so that not… went there's

Don Hinson

Yes.

same which this allowance went the opposed see impact and quarter, to stayed the will and that's allowance, as So then on from get that part billion the that it as the and normally that's the that yields of was one decrease goes because we basically balances before. the accretion loan going we threw reason to to overall down be in being into percentage discounts another of amount, -- $X.X accreted why,

Jeff Rulis

Great.

step I'll back. thanks. Okay,

Jeff Deuel

Jeff. Thanks,

Operator

line we Mr. question Clark. of have from the a Matthew And

open. is line Your

Matthew Clark

guys. good morning Hi,

Jeff Deuel

morning. Good

Matthew Clark

maybe of, third that we'll in start that a forecast quarter pretty to in it this late-March adjustment to, dire, to the but some the obviously here second there the On assume kind forecast realize you know the too, things additional is before reserve April. before, -- I was is with using but fair builds losses? use reserve that quarter and deteriorating even see

Don Hinson

Yes, I is think, Don. this

I for go and what's and continue year, predict levels of high that we see hard long-term -- expect this quarter really again would expect to I happen of throughout It's to be to going now, probably probably, happens, to right higher right. QX high QX going couple on I now, is I think will and the the think on depending that will reserves to over guessing what quarters I'm this at points next probably reserve But how to long least. right continued for. all that

Matthew Clark

living the service whether that then like that? like give you other the not or And concerned hotels, size churches, maybe on entertainment. debt facilities, have underlying And talked Can industries and things restaurants, a coverage ratios recreation, there the exposures might about any Okay. for about you sense there? LTVs is average and schools, senior higher-risk that be us others loan healthcare,

David Spurling

this industries But that also and hotels, we've high Dave dental that fitness also question. obviously risk restaurants, centers. some Spurling. recreation include Yes, Jeff mentioned if we've your as got is our list borrowers churches answers dental, on The identified,

Matthew Clark

of How exposure much other two terms those in there, are categories?

David Spurling

those largest restaurants about fairly in And exposures I $XXX predominant exposure The about was $XX risk the at -- high and other was behind restaurants is the categories. on hotels, The exposure that. million, the categories believe hotel are are low. Those million.

Matthew Clark

underlying coverage there, Okay. And ratio LTVs and if have the you them?

David Spurling

On real of things. side estate the

in to the weighted conservative average Our LTVs be is tend about to XX% XX%. portfolio pretty

Matthew Clark

of -- will on of not, give longer? just quarter, average a PPP you like you're the And not then it still if might most there? pipeline And program, just I'm sense if size that? whether already can by do the be you mentioned or the it How sure feel around you much in be end loan then stick come you going -- to assuming that might the modeling you're you how for Okay. third go the and

Jeff Deuel

want Matt, Don to follow then you. you I'll start and

Don Hinson

the Sure. or -- quarter not Again, end the -- through through end. quarter

the XX.X% between $XXX between For it in million break XXX was to Half was then of $XXX the average we're billion. about $XXX XXX -- say, loans million XXX and balance fact, under would XXX. of was price we million tranche million XX.X. X.X% down further XXX,XXX and you $XXX and over I in if funded were a were million $X $X with average again first million and under those and/or bulk got

getting will getting piece funded we we are is but through around now it, then the have we're through, right we're applications drops we And been get applications our through time. to average are approved still funded, loan $XXX so they've those it items think including and our then with second in about other sizes have we're of the $XXX that's, they about million it that but been and to and -- adds up still So $XXX, going of, though putting looking right on worth kind over down tranche by all now. up overall that the down another that the

Bryan, do you want add anything to that?

Bryan McDonald

No, that's right, Don.

Matthew Clark

Okay. fee But assume X% is not to X%? it fair a origination on average

Don Hinson

I $X think, so that, million about be and by million going over and the is higher will be than about is it of million between XX% to $X the -- yes, loans to million million, because on average. it of $X only $X and get only, the half million $XXX again, it's between again $X half are

Matthew Clark

got Okay, it.

Okay. And of it? on end then, March, maybe just you the deposit if spot at rate have the costs

Don Hinson

was it I play to closer towards XX the spot points at rates. lower, in was basis end think It

rates -- the dropping market. this keep we but and in So

Matthew Clark

Okay. And then you, just lower of going forward? the given just a good rate to income level tax

Don Hinson

in taxes or that don't, that bit the for QX, a grew or we as will we income our again, rate because to forward. the as depend discrete a on our and closer rate be tax again lot it to are tax the depending Well, of perm so... pre-tax far little item have items XX%, used But on itself calculation but the would tax effective it's income effective levels going actually didn't similar

Matthew Clark

you. Thank great. Okay,

Operator

the question a from Jackie have of we [ph]. And

line open, Your is now please.

Unidentified Analyst

everyone. Good morning,

Don Hinson

Jackie. morning, Good

Unidentified Analyst

some morning. from the the or the over Is follow-up to that, One in terms through wanted additional million the that? I second on so new have of new Good round. on make did that customers, PPP that round? first roughly clear just all quick that carried the customers you're $XXX was you I that processing sure

Bryan McDonald

is be night Hey that able the been Jackie, maybe at process. before taken after the hadn't X applications that Bryan. certain then just number had so of inflow around to and a had was o'clock we incomplete this We stuff

that of and of round the period time So, then applied and it the additional time that had between came opened. the course time. during of closed We customers funding and second

days prospects, over neighborhood customers a flow when we mix Phase and versus day-to-day. But went different last course in XXX has few end somewhere of the daily of it's applications of maybe into our the So it's of been all X. more customers a

been customers calling still in on. is with prospective we've there along there that So customers

Unidentified Analyst

what And begin of could that new loans then think customers, in deposits, likelihood you bring Okay. normalize you pieces over the to and their and do these things terms in after again? other of to is both you portfolio

Bryan McDonald

us. open seeing forum. that, number seeing result that, around services talking into early, didn't to requirement doing business loan with being to it go a Jackie, our about already we're other additional the We're we a PPP a but banking customers be It's we're moving of a to us customers of open to little as but already seeing

Unidentified Analyst

prospective you were these customers marketing actively meeting these customers. where And Okay.

and to If just a were these obtaining have out have or hopes their you customers reaching loan? been coming business you looking in, of for I

Bryan McDonald

so bankers calling. prospects for and had predominantly our that previously, were list They actively has many everybody years, in on been prospect many cases their calling

finished to attention help had they their been for if of the as we prospects, existing customers, PPP. -- the to on can calling turn their the hand. in So then needs them applications they to the they see handling had with see up if They

Unidentified Analyst

recover. will you, Thank great. Okay,

one last back. I'll and one then step Just

expenses light added management terms year. roughly in and In that's $X of million had quarter the note, the I think system that, I of last from treasury

an included number. any was million an And all still that accurate that that or that, number? of annual will is off, second, in that flow XQ First in is realizing XQ,

Bryan McDonald

think we $X.X Jackie gone I QX. be -- more $XXX,XXX I some to million that is we than implementation another going about that's think think up about And another left million probably cost in and thought, we have of did initially I or

remaining be that the QX but million. should of $X million in or $X.X done So, end by

Jeff Deuel

one hit. issues then we quite customers of the actually first was we Jackie, faced handled and the were well quarter wave into first the launched and of C-XX in

to customers so were to So with what we weeks. up was past in we had the last year, our of double wave we eight dealing later get can what waves do the that the next shift

So a through process. vendor, reset because to that helping just that we presented additional that's us our cost, arrangement had with

Unidentified Analyst

Okay, that's that helpful. And that number, $XXX,XXX number? an is annualized

Bryan McDonald

was that number in QX. No, the

Unidentified Analyst

Thank you.

Bryan McDonald

like another we'll think the have two I over quarters. I next million And say, $X.X I left

Unidentified Analyst

so is? Okay. $X.X million the And $XXX,XXX But not that, the is annualized.

Bryan McDonald

left million to -- the what's two next quarters. the over $X.X spent $X.X million is be

Unidentified Analyst

got it. Okay,

That's all. you. thank Okay,

Bryan McDonald

Thank you.

Operator

And Mr. the from line of have McGuire. we question a Gordon

is now. Your line

Jeff Deuel

Gordon. morning, Good

Gordon McGuire

how are morning, you Good guys?

Jeff Deuel

phone a systems better that We're now working.

Gordon McGuire

you -- Don, I made for you wanted you to loans modified clarify downgraded. comment earlier you a

they If didn't of return feel correct? is that like you could pre-Covid levels did, you performance, to

David Spurling

is taking had We was to But rating. towards to performance we credits this quickly likely those Yes, watch. where a borrower their those client original instances left the to and at bias return risk in pre-pandemic Dave. more

Gordon McGuire

you Okay. of December? And loans at versus ratio I point have do versus March this watch the guess XX

David Spurling

there those modifications. have that in I in to result numbers quarter kind of were there was downgrades but handy, know the of don't credits March, the was due in spike I first a watch

Gordon McGuire

potential those flow not did into problem loans. But Okay.

able subject loans the going modifications? So so $XX is there million to I to guess or be are potential problem COVID-related to be

David Spurling

risk hotels some more were normal thought those were ones present. of modification and that a the Those presented than were destination we two kind predominant would credits outliers, they

those take did mention we became So special and down to DPLs.

Gordon McGuire

the the that you related much of you And you to modifications, do the how or modification had portfolios have identified? were Okay. higher-risk mix of

David Spurling

have mentioned payment there earlier, only the was interest full and deferrals, have kind even was, don't it of split breakout by industry. but between as don't was amortizing on a it, an I but

Gordon McGuire

And Bryan. Okay. then,

drove feel kind basis points, all point higher what the or do think was that, basis spreads I heard what abnormal? it was like loan utilization, what guess construction you credit new drive increased drove originations were I that X drove I up XXX did to of that

Bryan McDonald

It jury the big pre-trade higher mirror of Fed Bank tend most that off rates just, production course rates off. of indexes just Home quarter's saw we the the rates, pre-dated fall Don mentioned in the so Loan But dropping. the Federal to drop those course of

seen. rate of then downward quarter the it fact was mix we've didn't And the loans. of So that capture most really just just the the movement

Gordon McGuire

me the for guys loans funding come you sheet? balance one last about thinking how then, is are the And PPP on that Okay.

Don Hinson

the all for we signed started the doing Well, yet. as their use that Fed mentioned, haven't up facility liquidity with to we're I -- it

it. going yet account, a or out and needed is really has everyone will person's going loans but have recently. think we And, haven't deposit that much nothing We there pretty been not give spent but to to got to

no but need on facility. take we'll those funds a as that the is reminder that there are from borrowings. spent we And money to So, those XX that and as that at points. fledge basis and facility non-recourse facility funds gets And start

Gordon McGuire

I you. right. it. All Thank appreciate

Bryan McDonald

Thanks, Gordon.

Operator

And no this questions at further time. there are

Bryan McDonald

Thank you, Daniel.

our ready ongoing we're your got interest underway. call. I think we up your all in our thank to wrap We then your patience performance. as for this call and time your earnings and We quarter's you support appreciate

talking So over we look to with Thank forward the weeks. you goodbye. many you coming of and

Operator

will midnight. and X:XX this be through XXth after till PM available conference for replay gentlemen, Ladies today May

entering numbers and participation you our X-XXX-XXX-XXXX time again and at XXX-XXX-XXXX system any Service. You dialing for Teleconference are and the using AT&T code may by Those for does code access Thank your the XXXXXXX. XXXXXXX. today. for conference access conclude That the access replay AT&T

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