Thank you, Terry and good morning everybody. Loan growth was solid for the quarter. End of period loans increased by 608 million during the quarter with about 250 million attributable to commercial loan growth with most of those we believe in response to the pandemic of our commercial borrowers.
As a result, organic loan growth we believe was in the $350 million range for the quarter with results in about 7% annualized loan growth which we believe is admirable given the environment.
Now to deposits, as Terry mentioned it was a big deposit quarter for us. End of period deposit is up almost 23%, our core deposits where 22% over December 31. To the point, as many of you know we modified our annual cash incentive plan incorporated core deposit growth and rate deployment.
First quarter was a great quarter for core deposit growth, so as we sit today we thank our modification is working well. More on incentives later when I talk about expenses.
Next is the usual update to our loan pricing loan spreads held up really well in the first quarter, so we are pleased to see that and hopeful spreads will continue to hold in the second quarter. Impacting first quarter LIBOR loan yields with absolute spread of LIBOR to Fed Funds, LIBOR spent a lot of time in the first quarter pricing below Fed Funds and at the beginning of March LIBOR was around 40 basis points less than Fed Funds.
Since substantially all of our LIBOR loans reprice on the first of the month. March was negatively impacted.
Now, going into the second quarter, we finished March at 3.8% on LIBOR loans with LIBOR well above Fed Funds, we’re anticipating that LIBOR will work its way south towards Fed Funds so we will see absolutely yield compression and LIBOR credits on the second quarter by modest amount. It just depends on how quickly and how far LIBOR moves during the second quarter.
It seems like it’s been a long time since we talked about deposit betas. We do believe our relationship managers did a bang-up job on managing our deposit cost in this rate environment. In the negotiated rate bucket, we’ve achieved our 117 basis point decline since June of 2019.
Our relationship managers were very much in tune with the right environment and are prepared to have more discussions with our client needs about rate decreases, and a minimum which should experience decreases in CD rates for the next couple of quarters as reprising occurs, all things considered, overall deposit rates should be down in the second quarter.
A busy slide, but some important information as we head into the second quarter. The NIM chart on the top left goes back to 2007 and tracks our NIM in relation to Fed Funds target range. We all know we’ve operated in a zero rate environment before so this is nothing really that new. The chart reflects that the longer the zero rate environment lasts, the better our NIM perform. Substantially all of this felt we were headed to a zero rate environment and the pandemic put a lot of winds in those sales and certainly increased the speed it took to get there.
Looking forward, we’ve got several issues impacting first quarter NIM and that also will impact second quarter NIM. Impacting the GAAP NIM is obviously purchase accounting which is shown in the chart at the top right. We recognized approximately 7.4 million of discount accretion in the first quarter. Who knows where it will end up for the full year, my bet that it will be less than the 23 million we are projecting given payment deferrals and the low rate environment. That said we believe we had a solid quarter for NIM performance after concerning the impact of purchase accounting.
The bottom charts detailed the impacts of our hedges, as well as hedge unwind and our recent liquidity bill. Covering the shrinkage in LIBOR spreads that I mentioned earlier will be an increase in revenues from a LIBOR loan core we still have on the balance sheet. This core will last for about another 4.5 years.
As the chart indicates floor increases in value as LIBOR continues to fall.
Additionally we have about 1.2 billion in client floors that are currently in the money and will also become more value should LIBOR continue to fall. We’ve also added quite a bit of liquidity to our balance sheet and intend to add more in the second quarter as we currently evaluate the depth of the pandemic. We’ve got ample sources of liquidity to fund our franchise, but we believe it was prudent to take on this additional liquidity.
The liquidity bill will likely result in more net interest income in the second quarter, but will also result in some NIM compression. We always have the option to reduce this liquidity during 2020 as the potential recovery becomes more in view.
As Terry will cover more in detail in minute, our significance is to impact of the PPP lending program. PPP was an incredible three or four weeks around here.
Significant resource allocation on lot of blood, sweat, and tears but some very dedicated Pinnacle associates, but if it happens like it's supposed to happen, it'll definitely soften the financial blow of the pandemic.
We’re also developing a strategy around the mainstream program currently to identify those borrowers that might be well suited for, but the mainstream is now PPP.
Now to fee income, I’ll be really brief. These were more than $70 million for the quarter, up more than 3% of the same quarter in 2019, BSG contributed approximately 15.5 million, which was slightly less than we anticipated, but more on bankers healthcare group in a second.
Our other fee businesses had a strong first quarter, with residential mortgage leading the way of approximately 76% year-over-year.
Mortgage had a great first quarter correlating not only with drops in long term rates, but also with increases in the number of mortgage originated. Again, great markets are very helpful with this line of business, but national residential mortgage market has gone through some strategic issues at present, so it's difficult to speculate on where all this is headed and how it might impact us.
We just believe we have the best mortgage originators in the markets and our various health plans get through with current uncertainties. Wealth management had a big quarter in brokerage as they operate in much the quarter with record market highs and we maybe one of the first, or one of the few financial institutions in the country that consider trust to be a growth engine. All in all a super nice big quarter for us.
So, now briefly on expenses. Salary is up largely due to the increased personnel this quarter compared to the last quarter.
As the slide indicates, we are throttling back our hiring focus, to focus on Atlanta, which Terry will discuss in a second, critical revenue and hires around the franchise, as well as critical support personal we produced, as we produced our RA plan about 40% in 2020.
Our incentive accrual is at [50%] at quarter-end, as I mentioned previously the deposits kind of worked well for us in the first quarter.
We will continue to attract the EPS component to see what happens to the rest of the year. We concluded that 50% was fair right now, but suffice to say given first quarter results many things will have to break our way for that hole.
Last quarter I mentioned that our 2020 expense run rate should approximate a mid-single digit increase over FORTUNE 2019’s results, slight modification with our belief that our expense run rate should now be less than mid-single digits for 2020. I will go into this more on the next slide. We’ve incurred in the first quarter of 5.2 million lending related costs related to our billing of our off-balance sheet reserves as a result of adopting season.
So, we are now expecting the other amount to repeat next quarter, granted the absolute level of our unfunded commitment both with determine absolute length and depth of the pandemic to play a critical part of where we are at the end of the second quarter and the length at the end of the second quarter.
Now, CECL. I’ve got a lot to say here, so hopefully we can reduce what we have to say about CECL in the future as now we are all weary of this topic. At the top of the slide is our rendition of a table that we’ve seen in several presentations so far this earnings season.
Our day one allowance ended up at 67 basis points, which we believe is consistent and with the guidance we have been giving for several quarter.
We have slightly more than $10 million in charge-offs during the quarter due in large part to the partial charge-off for the C&I credit that was criticized going into the pandemic and with the pandemic, finds itself in need of equity support sooner than anticipated, which is working on in our specialized asset folks have a reasonable degree of confidence it will eventually receive.
One of the first things our internal special assets group did in line of the pandemic was spend more than a week as a group going back through every specialized credit and to specifically address the impact of the pandemic of our criticized and classified loans. I take great comfort in the judgment of our special assets team. This is not their first rodeo.
Later Tim will also discuss how we dug in the hotels, restaurants, etcetera and other segments of our loan portfolio.
For the quarter, charge-offs ended at 20 basis points and other real estate increased to 2.4 million.
As provision run rate, there is obviously much judgment involved in all of this, but all other conditions being equal our provision would have been, as the table indicates in the $14 million range.
Again, you have to assume our net charge-offs would have been the same had the pandemic not occurred, so there is lot of guess work. Allowance for loan losses on an apples-to-apples basis we think would have been in the 69 basis point range at quarter-end.
Now as with COVID related provision. Based on model inputs, we feel like we’ve been like conservative here.
We’ve taken in a lot of relevant inputs and observations into few allowance that takes into consideration a wide variety of bankers. We do use a third party source for our economic projection, which uses national level forecasting metrics. It’s the same third party we used for asset liability modeling, so hopefully there is some synergy advantage by using the same forward metrics.
There are four economic scenarios in our model ranging from optimistic to baseline the pessimistic to severe, probably not too dissimilar to the more familiar adverse and severely adverse nomenclature that we’ve heard about in conference calls thus far. In comparison to previous relations about other banks this quarter we’ve also waited the various scenarios with the most adverse scenario with the most adverse scenario having a wait of 25% and the optimistic being only 6%.
The difference is allocated basically evenly between baseline and pessimist.
As to economic projections, anticipated unemployment seems to get a lot of attention with our severe scenario ramping up to more than 20% in the fourth quarter of this year and averaging almost 19% for all of 2021 with 4% unemployment returning five years from now in 2024.
As to GDP, our severe model dropped GDP by 25% in the third quarter of this year with a rebound that current GDP in 2022.
I assume all of this points to a U-Shaped recovery.
Our reasonable and supportable opinion is around 18 months.
So, our calculations are waited to a time period and incorporates the bottom view and then incorporates the front-end of the recovery by another [indiscernible] of initial return to some degree [indiscernible].
Back to the top chart on the slide. Off balance sheet results are not something that anyone routinely talks about. In my opinion, I believe it’s accounting on steroids.
We are at 16 million at quarter-end and providing $5 million of expense this quarter, significantly higher than what we’ve booked in our history, that amount represents the anticipated loss content of the unfunded loan portfolio should a loan eventually be funded that results in a loss.
Most of the loans that contributed to this reserve are C&I lines of credit, which are very short in maturities. All things continue with 109 for their allowance at the end of the quarter plus the $16 million and the off balance sheet reserve, so our allowance for credit losses are around 1.17%.
Just a quick note, CECL has been in development at Pinnacle for over three years, more money to vendors that our [indiscernible] significantly more expenses because of thousands of hours spent by 10 or 15 key leaders of our firm in getting this standard adopted.
As an extensive accounting standard and [indiscernible] but I want to thank them for hanging in there to get us to this point. I wish I could give them – I probably going to tell them their work is done, but we all know there is always more work coming.
The big question asked thus far in this earnings season that no self respecting CFO will answer is we will have more provision at the end of the second quarter. There are blooming assumptions in play here, but obviously our [indiscernible] we will get updated economic projections and we will take the pulse from borrowers throughout and at quarter end.
Organic loan growth, the impact of the CARES Act and other government programs will also have to be considered. Many factors are [indiscernible] such as the development of anti-virus, government imposed restrictions on trade and travel, and the information as they come to light with increased [indiscernible]. There is obviously a lot to think about this year.
Our best [play] right now is to use our models [indiscernible] largely around economic projections so [indiscernible]. Like I said, I think we've been conservative here. A $100 million provision is a significant investment for Pinnacle into this – into a period of this much uncertainty. There's more than 20 times our usual provision run rate and results in our allowance of more than two times where we were at year end.
Post the Great Recession, the term green shoots became popular. There's a lot of discussion today about restarting the economy. The PPP, the other programs that make up the CARES Act and whatever comes next has to have a positive impact, so we remain optimistic not only about the markets where we operate, but in our business model and the 2,500 associates that work with Pinnacle.
As Terry mentioned, this management team has taken the operating position to get COVID behind us quickly in an effort to gain as much clarity as we can about our run rate going into the second half of 2020 and into 2021.
Now, some comments on capital.
First, we did redeem about $80 million of sub-debt early in the quarter that were [holdover] issuances from previous mergers.
We also acquired about 1 million shares of PNFP earlier in the quarter. We've now suspended our buyback program until we’re getting more clarity as to the length and depth of the pandemic.
We're not likely to regain approximately $130 million of bank sub-debt that was previously planned by us for redemption in the summer.
Additionally, we currently anticipate maintaining our dividend for the foreseeable future.
Lastly, we did experience tangible book value accretion during the quarter as our management remains focused on this metric.
Capital ratios did experience some dilution by 20 basis points to 30 basis points this quarter back to levels more consistent with about a year ago.
Our [100/300] ratios were basically flat with the fourth quarter.
Our participation in the PPP program shouldn't impact regulatory ratios once those funds are fully funded in the second quarter. Holding company cash is sufficient to carry about [indiscernible] quarters of dividends and debt service. Basically, we feel good about our capital.
Obviously, credit will be the driving force behind any changes to our previous statements. Like probably every investment banker listening to this call, we too have been conducting stress testing and burn down analysis using multiple scenarios. We've incorporated Great Recession loss rates, [indiscernible] loss rates, historical charge-off rates and other scenarios. It’s way too early in this crisis to conclude that our CECL and stress testing algorithm is accurate, but we walk away from our stress testing, feeling that – very strongly that our capital is strong and we will need to deliver to common shareholders as a result of the pandemic.
This slide is new, but not inconsistent with what other bankers are talking about on conference calls. The PPP program will be significantly impactful in the second quarter and Terry will discuss that in just a few seconds. All in all, it's steady as she goes right now. The last few weeks have presented us, as well as all bankers, significant challenges.
We couldn’t be proud of our – couldn't be prouder of our 2,500 Pinnacle associates.
Our goal today is to support our clients, particularly our borrowers, all the while making sure that we are making prudent credit decisions.
We are here to provide our clients the capital they need to weather the storm so that they initially are able to thrive in short order.
With that, I will turn it back over to Terry.