ServisFirst Bancshares Inc (SFBS) Q1 2020 earnings call dated Apr. 20, 2020
Corporate Participants:
Davis Mange — Investor Relations Manager
Thomas Ashford Broughton III — President and Chief Executive Officer
Henry Abbott — Chief Credit Officer
William M. Foshee — Executive Vice President, Treasurer, Secretary and Chief Financial Officer
Analysts:
Kevin Fitzsimmons — D.A. Davidson — Analyst
Tyler Stafford — Stephens — Analyst
Graham Dick — Piper Sandler — Analyst
Kevin Swanson — Hovde Group — Analyst
William Wallace — Raymond James — Analyst
Presentation:
Operator
Good day and welcome to ServisFirst Bancshares First Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Davis Mange, Investor Relations Manager. Please go ahead.
Davis Mange — Investor Relations Manager
Thank you, Alex. Good afternoon and welcome to our first quarter earnings call. We will have Tom Broughton, our CEO; Bud Foshee, our CFO; and Henry Abbott, our Chief Credit Officer covering some highlights from the quarter and then we’ll take your questions.
I’ll now cover our forward-looking statements disclosure. Some of the discussion in today’s earnings call may include forward-looking statements. Actual results may differ from any projections shared today due to factors described in our most recent 10-K and 10-Q filings. Forward-looking statements speak only as of the date they are made and ServisFirst assumes no duty to update them. With that, I’ll turn the call over to Tom.
Thomas Ashford Broughton III — President and Chief Executive Officer
Davis, thank you and good afternoon and welcome to everybody to our call. My comments will be a little bit longer than normal because these are interesting times we’re in today with the pandemic. It seems like the first quarter was a long time ago. So much has happened over the course of the ensuing days. I guess we talk a little bit about the pandemic, we activated our pandemic plan on March 2. I remember the first time we — the regulators thought we need to have a pandemic plan, I thought last, but the silliest thing I’ve ever heard them align. Turns out, some at the FDIC was right and I was wrong. Of course, we all thought that it was just going to be a bad flu season that there was a way to make it through and I’ve always believed that we’ll give all the employees a free flu shot and we’re not going to have a flu epidemic. It was all sort of my plan but plans get — go awry a bit here during the pandemic.
But what we found really is we had an excellent plan, thanks to our Chief Risk Officer, Mark McVay. We had an excellent plan. Our focus has been on employee safety. Employee and customer safety or number one is employee safety and number two is customer safety. What we found is that a branch light technology heavy business model works very well during the pandemic. Our business model is made for a pandemic. So one of our regional CEO said is — I’m so happy that I’m managing one office instead of the 34 branches at my old bank I used to work with. So it is much easier to only manage — we have some 22 offices and in many cases we — obviously doing, like most people, we’ve gone to drive-in only, we have very limited in-person contact.
We are rotating — a number of our people are rotating 50% work from home where possible. We’re all today in this conference room — large conference room, this larger conference room than normal, so that we can all be socially distant, six feet apart.
Also our second focus has been on serving our clients and our communities needs and we’ve received very positive feedback from all of our clients. I’ll go in a little bit more detail. Sort of our stance, you know, when you’re facing an unknown threat, you want to be as conservative as possible and that’s what we’ve tried to do in every case of how we’ve managed the business since March 2. We’ve tried to be as conservative as possible. Certainly I don’t change anything, we don’t need to change and try to serve our customers’ needs. That has been our total focus is serving employees, getting the employees safe and serving our clients’ needs.
Henry Abbott is our Chief Credit Officer, he is going to talk in a few minutes a little bit more about our asset quality focus and give you a lot of details on that. We’ve put a deck out this afternoon. I think all the analysts have it. It’s on our website, a supplemental deck and it’s on the SEC website as well. It’s not a very big deck, I’m glad to say.
I remember when I was a young credit analyst at AmSouth Bank and I went into an executive officers office and he handed me a credit file, it was about six inches thick. I still remember it was a department store called CityStore out of New York. Obviously, I don’t remember whether it was a shared national credit or we had a direct relationship. And I stared at that thick credit file and the executive said, Tom, you need to understand that the quality of credit is inversely related to the thickness of the credit file. He said a very good company has a very thin file. So I’m glad to say that we are a good company and we have a thin deck that we posted out there today, a little bit more information. Henry will go over it in a few minutes.
But I want to give a few high-level comments on asset quality. Henry is going to talk about the loan categories that are of interest to investors. We will — we’d say that we — everybody says they underwrite better than other buyers, everybody says that, of course, we say that, but everybody says that. You know, we do have minimal consumer exposure, less than 1% of our portfolio is consumer. You know, I know that there are areas of interest, obviously, restaurants, hotels and things, but you just don’t — a recession causes problems with weak players in every industry. It does not matter what industry it is, you’re going to be — for example, if you’ve got some big apartments that are not well underwritten and they’ve got a lot of tenants that lose their jobs, you’re going to have some problems with something like that. So it does expose all weak players in all industries.
I don’t — you can hear anything you want to hear about what economists are saying that it’s going to happen to the economy over the next few quarters up, I’ve been looking — if anybody has got a list of economists that have gotten rich from doing accurate forecast, I wish somebody would email me the list on this call today, I’d love to have that, because I don’t know of any. If there’s a list, I’d like to know. I will say that the charge-offs — just common sense would tell you they are going to be elevated a bit over the next — I don’t think any time soon.
You know, I remember during the 2008 recession, what was cratering was homebuilders, AD&C. But now we have some so bad, they started cratering in 2007, we were ahead of the recession. But I remember they had come in and they kind of said, you need to make us a large unsecured loan or we’re going to throw you the keys. So we’d say, well, hand us the keys and they’ve handed you the keys and walk out. This isn’t like that. We’ve had — it’s been very calm with the customers. I think that some have asked for loan extensions and Henry is going to talk about — cover that in more detail, but you know, I have kind of been surprised that who’ve asked for the loan extensions is — it’s people that are in really strong financial shape. I think that just lot of them are being conservative. It’s mainline churches that are not reliant on the collection plate for their revenue. Most of the money is sent by check or by automatic debit. Dentists, other medical professionals, endodontists, dermatologists, those sort of people have all asked for extensions as well. So I don’t — we don’t expect any long term credit issues or repayment issues with most of those sort of people.
So — and the last thing I’ll say on asset quality, is we’re not a deal bank, we’re a relationship bank. We know our customers well. We don’t have deals all over the United States with some random deal. So we are – they’re in our footprint, for the most part and we feel really good about our customer base.
I was going to talk about deposit growth for a minute. We’ve seen really solid deposit growth in the first quarter and year-to-date, our liquidity continues to grow. We have not seen a surge in line usage, we don’t have any of those type of customers you read about it in the big banks, how there — a lot of credit usage surge. And in fact, our line utilization was exactly the same at March 31 as it was at December 31 within 48.8% versus 48.2%. So it was almost no change there whatsoever. We did see very strong deposit growth during the last recession from customers looking for a good strong bank and we see this as shaping up to be much the same.
Talking about loan pricing, Bud is going to talk about our margin improvement in a minute, but loan pricing today is much more rational than it was just a few weeks ago. We have made the decision to implement minimum pricing in early March. So our minimum pricing has been strengthened, a good bit is. It is sort of interesting. So the commercial customers would call to say they — well, they read the interest rates have dropped and they want to know if they can — we can redo their loan at a lower rate. Well, no, the only borrower who’s borrowing cost has dropped is United States government and almost everybody else, including most countries in the world, they had borrowing cost have gone up. So we strike an amount on — from that standpoint, that there is not — we’re not in the business of cutting rates. So I might be surprised, people might go back to doing silly things a little quicker than I think, but I don’t think we’re going to see any margin pressure in the immediate future. I think customers today are more focused on access to credit. The cost is low, it’s still low. And I think that’s — it’s going to be remaining the same for at least the balance of the year.
I was going to talk a minute about profitability. We’ve put in our press release that our first quarter pre-tax pre-provision return on assets was 2.49% in the first quarter, which is obviously one of the best in the industry. Our dividend payout has been in the mid-20% range of earnings. We’ve had a lot of questions in the past about, why don’t you buy your stock back. And I always answer, well, I read a lot of studies and insiders never know when is the best time to buy stock back, that stock can always get cheaper. So you’d feel foolish if you’d bought it back at a higher price. And we’ve gotten the question is about what are you going to do with all your excess capital and I always say, well, it might be nice to have one of these days.
And also, we’ve gotten questions about why we don’t buy — why we haven’t been buying banks with all our excess capital and our answer is always been that, bank stocks may get — bank prices might get cheaper at some point. So I’m very happy we don’t have to do any goodwill impairment assessments today on any banks we bought and I’m also happy that we don’t have to wonder about the asset quality of the banks we just bought. So our policies have served us well when a pandemic hits.
I was going to talk for a minute about the PPP program paycheck — it’s a tongue twister for me, I call it the PPP SBA program. You know, I’ve never been — we’ve never had a big — we’ve done SBA loans and certainly we want to meet our CRE commitment, Community Reinvestment Act commitment to small businesses in our communities and that’s very important to this and that’s why we do SBA loans. But we’ve never looked at SBA loans as a line of business. I know a lot of banks, the way they made it through the recession, they would do a lot of SBA loans and sell off the guaranteed portion and book the profit and that’s what kept them alive. I learned pretty early in my career, I didn’t want to be a big SBA lender. Typically what I’d see is, when the Democrats were in office, they’d want us to make a lot of SBA loans and then when the Republicans came in office, they would try to figure out how to avoid the guarantees on the loans we’ve made when the Democrats were in office. So I got enough of that business pretty quickly and didn’t want to — decided that was not something we wanted to do.
Despite having said that, we decided to participate in the program to support our customers and our communities that need the support. Paul Schabacker, is one of our executive officers here in Birmingham ramped up our program and did an outstanding job of — we made about six month’s worth of loans in two weeks period of time. I think it was a little over 3300 loans totaling $914 million that we have closed and funded in the PPP program in round one. I understand, I think, round two is probably coming over the next few days possibly. We have spent interesting time, we had people working 24/7 except for Easter Sunday, trying to get all these loans booked and funded. And in very few cases, we had a few that we didn’t get done and typically was just because our clients didn’t have — had not given us all the information. Everybody has all the information, they gave it to us and we might have — I think we just made mistake on maybe two or three that we didn’t get done. But anyway, I’m very proud of our team.
One thing that’s interesting is, I think our production — our loan officers have a greater appreciation to date for our credit and operations people than ever before. It’s truly been a team effort. And I’m proud of what they’ve done to get those loans closed. As we put in our slide deck that — we expect the vast bulk of those loans to be forgivable loans and we will — they will be off our books. We expect them to be off our books before the end of the second quarter if we need. Liquidity, as I’ve mentioned earlier, has been strong. If we needed any additional funding, we will go to the Fed and access but we’ve filled out the paperwork for the PPP loan facility at the Fed if that’s necessary. But I’m not at all sure that we’ll need to do that. Due to the high demand, we did focus on existing clients and we did not — we made an attempt first to prioritize the smallest clients first, thinking that they would need the help, but we’re just saying it, we just did it randomly. And in terms of that’s the only way if it worked is to do it in that manner.
The expenses are quite high. You know I kind of learned that during a pandemic, everything costs more, except all of the catering we did for our employees. We were catering as many as three meals a day for all of our employees for a good chunk of the time and that’s one of the thing we’ve got a good deal on, because the restaurants all needed business right now. But everything else cost a lot of money. So we do expect that we’ll — the program will be profitable in the second quarter and we think it will make a nice addition to our loan loss reserve in the second quarter with the net profit above — we paid a lot of over time, and we paid a lot of incentive pay in terms of, I call it, pace rate. We paid pace rate fees to get a lot of this done over the course of a 24-hour period. We had — you couldn’t — when we started, we only had maybe, what we call seats of the SBA. We had three seats when we first started, including loans. We tried to get as many seats as we could, but we just didn’t get them approved by the SBA. So I think we ramped up over the course of a few days from three seats to eight seats to 19 seats to 29 seats and we got it done. All these loans have been closed, funded, they were all signed by DocuSign. We got them all done.
At the end of the day, besides our over time and incentive pay that we’ll pay, it will be a little noisy in the second quarter for the analysts to decipher in terms of all that. And we will keep a reserve knowing that my thoughts on if any issues down the road, we’re going to keep a reserve for any contingencies on those type of loans.
I’m going to ask Henry Abbott now to talk a little bit more about asset quality. Henry?
Henry Abbott — Chief Credit Officer
Thank you, Tom. And looking at the ServisFirst footprint, I’m cautiously optimistic as the economy reopens and viewing heat maps and other data points that layout impacted COVID-19 areas, thus far the majority of our markets are in low impacted areas. We’re not in the Northeast or some more heavily concentrated COVID-19 impacted communities. No one is immune to the broad impacts of the pandemic, but we should be well positioned as our markets reopen.
We have a well diversified loan portfolio in both geography and industry classifications. The portfolio is granular and we don’t have any major concentrations within industry codes. We’ve always prided ourselves on being a well-rounded, commercial and industrial or C&I bank versus the bank that focuses on CRE transactions or has targeted industry calling officers. Greater than 55% of our loan portfolio is the C&I operating companies and this is through owner-occupied real estate loans, equipment loans for lines of credit. We have very low exposure to SNIC [Phonetic] as they represent only $65 million in current balances on a total loan portfolio of $7.5 billion, which is less than 1%. The SNICs we are involved in are because we have a direct relationship with those borrowers. To date, we’ve had no major downgrades within the portfolio as a result of COVID-19. At the end of the quarter, past dues decreased by $7 million from year-end and nonperforming assets decreased by $3 million from year-end.
As Tom mentioned, we have a slide deck on the website and I’ll cover some of that in more detail here. Page 4 lays out areas of interest to investors. We’re not a large hotel lender and hotels only constitute roughly 2% of our portfolio and the overwhelming majority of those are flagged hotels and none are oriented toward conventions or resort-style accommodations. Restaurant exposure is noted at less than 3% of our portfolio. Oil and gas is less than 1% of our portfolio.
Retail CRE consists of $267 million in loans, which is 3.5% of our loan portfolio. The CRE loans are to well established borrowers who we have long-standing relationships with at this bank. The average loan size in this segment is less than $2 million. Our AD&C portfolio to capital is 55%, which is well under the regulatory guideline of 100%. Our income producing portfolio which is non-owner occupied commercial real estate is 236% of our capital, which is well under the regulatory guidance of 300%.
Within our income producing commercial real estate portfolio, we don’t have any major market concentrations, the highest one being Alabama that accounts for just under 10% of our loan portfolio. Given the guidance from regulators and FASB, we’ve agreed to provide COVID-related deferrals to clients who have requested some form of payment release. We have taken a three-month approach to these deferrals and we’ll assess future deferrals in the coming months. Of the deferrals requested, the vast majority have been principal-only relief and the borrowers are continuing to make monthly interest payments.
On Page 5 of the PowerPoint presentation, we lay out the industries of these deferrals. Given the uncertainty with the financial impact of COVID-19, we’ve chosen to retain our proven incurred loss methodology for calculating our ALLL and delayed CECL implementation. With that, I’ll turn it over to Bud.
William M. Foshee — Executive Vice President, Treasurer, Secretary and Chief Financial Officer
Thank you, Henry. Good afternoon. First, our net interest margin. Our margin increased from 3.47% in the fourth quarter to 3.58% in the first quarter. Tom had talked about our strong growth for loans in the first quarter, we grew $307 million, deposits grew $302 million.
Our variable-rate loans were $3.1 million at March 31 and $1.2 billion of those loans were at their floor rate or 40% of our total variable rate loans at the end of March. Based on our March 31 balance sheet, our consolidated margin was 3.64%. Also, our total deposit costs was 0.55 as of March 31. For the future NIM, we expect it to remain north of 3.60% in the second quarter, exclusive of PPP loans. A reminder, we have no accretion income related to acquisitions and there were no other major income or expense items that impacted the first quarter earnings.
Liquidity, our investment portfolio is 8.5% of our total assets. The portfolio is available for any liquidity needs. We have a very vanilla portfolio, government agency mortgage backed, Alabama Muni’s with a A or better underlying credit rating, treasuries, agencies, bank senior and sub debts. And average life of the portfolio is 3.4 years.
For non-insurance income, we added 70 banks in the first quarter through our American Bankers Association Credit Card Referral Program. Mortgage banking income slowed in the first two months and then in March we had fee income of $525,000. Lot of it had to do with two Fed rate cuts in March. Also a reminder, we do not sell any government guaranteed loans to generate non-interest income.
For non-interest expense, our ORE expenses increased $498,000 that was due to updated appraisals on two credits. Payroll taxes increased by $380,000 primarily related to incentives that we paid in January and our 401 k contribution match increased $229,000 related to incentives. Net producers had five that left in the first quarter and we added three. And as we mentioned in our fourth quarter call, we have a new expense control initiative for 2020. We’ll continue to look at our costs, working with our vendors to control that which you don’t see the impact of that in 2021 as opposed to 2020.
Our loan loss provision, our first quarter net charge-offs were $4.8 million, $3.7 million of which was loans that were previously impaired and we continue to be proactive with our problem credits.
Capital, our bank Tier 1 leverage ratio was in excess of 10% at March 31, so we had very good ratio. Taxes, our year-to-date tax credit — tax rate for 2020 was 18.8%, 21.3% without the stock option tax credits in the first quarter of $1.1 million. The 2019 year-to-date rate was 19.5% and 21.3% without stock option credits of $772,000. We project the tax rate for the remainder of 2020 to be 22%. And that concludes my comments, and I’ll turn it back over to Tom.
Thomas Ashford Broughton III — President and Chief Executive Officer
Thank you, Bud. I’ll finish before we take questions. I’ll finish by saying that we do see a lot of opportunities on the horizon. We see a lot of opportunities with customers that had an unsatisfactory experience at their existing banks, some large banks and some regional banks. And you might guess, with some of the people that had put caps on how much they were going to do and they have a very unsatisfactory experience there with existing banks. So we are in the process of on-boarding some new customers. We see a lot more opportunity down the road. We are mindful of the current economic conditions with any new request that involves credit, we certainly — the deposit accounts is a pretty simple being with any — anything that involves credit, we’re stress testing any new loan request in light of the current economic conditions.
In summary, I really like where we are today. The positives far outweigh the negatives. We have the capacity to bring on a lot of new clients and we intend to thrive, not survive through this pandemic and we’ve shown we can adapt to a new environment and do very well. So we also have got a chart out there on — a page on digital banking opportunities. We are seeing a much greater adoption today than ever before of scanners, as well as mobile banking. So our business model is working very well given the current conditions. We’ll now turn it over to take questions.
Questions and Answers:
Operator
We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Kevin Fitzsimmons with D.A. Davidson.
Kevin Fitzsimmons — D.A. Davidson — Analyst
Hey, good evening, guys.
Thomas Ashford Broughton III — President and Chief Executive Officer
Hey, Kevin.
Kevin Fitzsimmons — D.A. Davidson — Analyst
I recognize upfront, how fluid this is and all the uncertainty, but can you give us any idea how you think about further reserve building off of this quarter? So as we look forward in the next few quarters, because I’m just interested there — how that debate went among you all in terms of — you made reference to the very strong pre-tax pre-provision profitability you had and whether — what — did you entertain the thought of using even more of that to be aggressive, more than you even thought what you can see now, just to try to get more of it in the rear view mirror and just, that’s a long-winded way of saying, how should we think about provisioning going forward?
Thomas Ashford Broughton III — President and Chief Executive Officer
Okay, that’s an interesting question, Kevin. Obviously if we thought we needed more money, we would’ve put more money in there. Now, that’s — the clear answer is if we felt necessary to do that, we would have done so. So, again, we like our customer base. We feel good about our customer base. I mean obviously there is going to be some pain with some of the restaurants, for example. Restaurants and hotels have some pain but we listed for you our existing balances on the watch list on that debt.
We’ve had no downgrades as a result of COVID-19. It takes some time for things to play out. But again, by the way, I’ve seen some analyst estimating what the fees are going to be on the PPP and they’re estimating a little on the high side and so I hesitate to give our average because an average is not a good number. It is misleading because when you have a lot of $2000 and $10,000 loan request and you average those, you’ll end up with some very large ones, that might be $2 million, $5 million that sort of thing. You get some strange average that people are trying to run off of. I know that’s not what you asked, Kevin, I just mentioned that for all the analysts on the call, everybody seems to be a little high.
But we think, we will have an opportunity to meet anything we think we will need, we can do and mostly, albeit in the second quarter, Kevin.
Kevin Fitzsimmons — D.A. Davidson — Analyst
Okay, great. One quick follow-up on the subject of loan growth. It was very strong this quarter and I know, I think traditionally in past years, the loan growth has been on the light side and early in the year and then it really kicks in, in the back half of the year. And you mentioned that it really wasn’t a surge in people drawing the lines. So was it just more of the PPP loans being on the books? Was it just pent-up loan demand from last quarter? Anything to attribute that to.
Thomas Ashford Broughton III — President and Chief Executive Officer
I could — we had a couple of bank holding company loans closed. They were pretty good sized, good solid companies. We had a marine oil and gas customer pay off in — they went permanent in the fall and they came back in with another vessel with us this quarter, which is the vast part of our oil and gas exposure is one, not the last part, but the biggest one is a vessel that’s leased on a long term lease to a major oil company. So — but those probably three credits distorted the numbers upwards, Kevin, if that makes any sense.
Kevin Fitzsimmons — D.A. Davidson — Analyst
Okay, that’s great. Thanks, guys. That’s it from me.
Thomas Ashford Broughton III — President and Chief Executive Officer
Thank you.
Operator
Our next question comes from Tyler Stafford with Stephens.
Tyler Stafford — Stephens — Analyst
Hey, good afternoon, guys.
Thomas Ashford Broughton III — President and Chief Executive Officer
Hey, Tyler.
Tyler Stafford — Stephens — Analyst
Hey, I had a question also to start on the allowance. And I saw on the release that you added a new pandemic qualitative factor to the allowance. How much did that new pandemic qualitative factor add to the allowance in reserve build this quarter?
William M. Foshee — Executive Vice President, Treasurer, Secretary and Chief Financial Officer
I don’t know if we have that here in our books sitting here. I don’t know if we have that specific amount in front of us. We’d have to go back and look.
Tyler Stafford — Stephens — Analyst
Okay. That’s fine.
Henry Abbott — Chief Credit Officer
But other factors also played into it like GDP growth, change in prime continuing to decrease. I mean there are other factors also that drove it.
Tyler Stafford — Stephens — Analyst
So maybe, let me ask it this way, do you have a good frame of reference we can think about for what the reserve build would have been if you had adopted CECL?
Thomas Ashford Broughton III — President and Chief Executive Officer
Yes. Early in the quarter — Tyler, this is Tom, early in the quarter, the difference — first of all, we look at CECL two or three different ways, but we start from the stance, that if you are going to be as conservative as possible, you don’t change anything that you don’t need to change. We got enough going on. And what we’ve had going on is this SBA PPP program and it has been kept us extremely busy and then we’ve had all of our request for people looking for loan extensions because the regulators announced to the world that they could go have them. So we had our hands full primarily with PPP loans. But — so we look at it in a couple of different ways. First of all, don’t change anything you don’t need to change.
Early in the quarter, the difference between the two models was negligible. Because of deteriorating economy due to COVID-19, at the end of the quarter, we had to put in another $8 million due to the COVID-19, on the CECL models. It’s not a meaningful — not really a meaningful amount. And so we — we also think there is some chance that — I’m told, I don’t know what Congress is going to do, but I’m told there is some chance that on a bipartisan basis, they may decide to kill CECL at some point. If you’ve already adopted this, it’s going to be a bit difficult trying to unwind it. So we thought the best thing to do is to just take a conservative stance and don’t do anything new.
Tyler Stafford — Stephens — Analyst
Yeah. Okay. So if you had adopted CECL, the incremental 3/31 provision would have been an additional $8 million.
Thomas Ashford Broughton III — President and Chief Executive Officer
Yes.
Tyler Stafford — Stephens — Analyst
Okay, all right. Got it. Thanks. I appreciate the details in the release around the deferrals from COVID-19 and the major industries impacted. Do you just have what the total amount of loans that were deferred as of 3/31 were?
Thomas Ashford Broughton III — President and Chief Executive Officer
Go ahead, Henry.
Henry Abbott — Chief Credit Officer
Yeah, so as of 3/31, total balances deferred was $574 million and that was about 5% or less than 5% of our customers in terms of units. So $575 million as of the end of the quarter.
Tyler Stafford — Stephens — Analyst
Perfect.
Thomas Ashford Broughton III — President and Chief Executive Officer
And again, Tyler, it’s in 80 different industries. And I look down the list and most of the industries get down to — there might be $1 million in 80 industries, you know for the last 51 or $2 million of 80 industries. I don’t look at those as vulnerable on credit side for the most part. There are people being — they’re large mainline churches. Again, they’re people being conservative. They think they’re being conservative by asking for — and we think we’re being conservative because we didn’t do any six-month deferrals and we only did three months of principal deferral.
Tyler Stafford — Stephens — Analyst
Okay, all right, thanks for that. And then on the prior slide just around the portfolios potentially impacted by the pandemic, I appreciate all the new disclosures in details here. I guess I was a little surprised that there were zero dollars of hotels and motels on the watch list. And I was wondering if you could maybe walk through why there would be none of those balances on the watchlist.
Henry Abbott — Chief Credit Officer
We are selective with our hotel lending. We’re traditionally looking at low loan to value type hotels. At this time, none had been downgraded and all were performing loans at the end of the quarter and all still are.
Tyler Stafford — Stephens — Analyst
Okay, all right, that’s helpful. And then maybe lastly, Tom, did I hear you say that you provided three meals a day for all of your employees.
Thomas Ashford Broughton III — President and Chief Executive Officer
No, not every day, but in many cases, we did. That’s the only thing we got a good deal on was the catering. We were running there full time, except for Easter Sunday, we were running. The first weekend we had to roll it out. We had run as close to 24/7 as we could and…
Tyler Stafford — Stephens — Analyst
Good on you for doing that. That’s pretty great. That’s all my questions. Thanks.
Thomas Ashford Broughton III — President and Chief Executive Officer
Thank you, Tyler.
Operator
Our next question comes from Graham Dick with Piper Sandler.
Graham Dick — Piper Sandler — Analyst
Hey, guys, good evening. I’m on for Brad tonight.
Thomas Ashford Broughton III — President and Chief Executive Officer
Hey, Graham.
Graham Dick — Piper Sandler — Analyst
So, kind of just following up on the portfolios, you guys disclosed in the slide deck. Within restaurants, I know it’s just under 3% of your total loans, but would you mind giving a little info on like the composition of that segment? Is it mostly quick service or weighted toward casual dining?
Henry Abbott — Chief Credit Officer
This is Henry. So on a true loan balance perspective, $145 million of that $226 million is full service, under that is then more limited service. So that represents another $60 million and within that category, we did add bars as well. And so that’s also another category but breakdown is primarily full service and limited service under that.
Graham Dick — Piper Sandler — Analyst
Okay, great, that’s very helpful. And then kind of following up with the loan growth question. And it’s obviously going to be relatively on policy time being while you guys are working through PPP and COVID continues to kind of pause client activity. But how do you guys think about loan growth at the other end of this thing? Maybe, is there a light at the end of the tunnel? Do you think you might be able to get close to picking up where you left off or you expect to take some time to ramp back up to that low-double-digit rate you guys had in 2019?
Thomas Ashford Broughton III — President and Chief Executive Officer
We see an abundance of loan opportunities growing and in spite of the fact that our people — we’ve taken them all off the road, we’re not making calls, obviously took them off airlines pretty early on compared to — and we were on the conservative side. We had a lot of gnashing of teeth around the company when we told people to get off the road and once they got off an airline, don’t come to the office for 14 days. We took a very conservative approach. But we see an abundance of loan opportunities out there and we feel like we can be as — swe could, again, we could see strength in our loan pricing. We see better opportunities there in terms of where we are, because there are certainly less banks that are able to make loans today than they were just literally a couple of months ago.
Graham Dick — Piper Sandler — Analyst
Got it. Great, that’s really helpful. That’s it for me today, guys. Thank you guys very much and congrats.
Thomas Ashford Broughton III — President and Chief Executive Officer
Yeah, I would say, Graham, to answer, a lot of people have hit the pause button on projects, which is just kind of common sense. That if you’ve got a project under way, a lot of people have hit the pause button for a few months just to let sort of the dust settle a little bit.
Operator
Our next question comes from Kevin Swanson with Hovde Group.
Kevin Swanson — Hovde Group — Analyst
Hey, guys.
Thomas Ashford Broughton III — President and Chief Executive Officer
Hey, Kevin.
Henry Abbott — Chief Credit Officer
Hey, Kevin.
Kevin Swanson — Hovde Group — Analyst
Hey, obviously the multiple in the stock has held up well compared to others. And you know despite your guys have strength this quarter and kind of the outlook, it looks like there are definitely some banks who don’t come out of this unscathed. Prior to COVID you guys set off well organically with all the M&A going on in your backyard and some of the hiring you’ve done, but is there any change of thinking around being an acquirer now that the multiple seems to be stronger on a relative basis and kind of where you guys sit?
Thomas Ashford Broughton III — President and Chief Executive Officer
We want — obviously, we want to get on the other side of the dust storm, Kevin, but obviously it’s much more interesting today than it was just literally a few weeks ago. The prices are substantially better, I would think, than if people are even — once the M&A starts back up, which might be six months. I mean I would guess it would be six months before we see any activity, but certainly we’d be willing to entertaining it at the lower level of pricing that we see today.
Kevin Swanson — Hovde Group — Analyst
Okay, thanks. And then the last one is appreciating the significant uncertainty, like you mentioned, remains, have you guys thought about any changes to kind of credit structure and underwriting policies, given what you’ve learned so far in the impact? Kind of, obvioulsy, it changed quite a bit after the Great Recession, but just curious, if this has kind of refreshed any kind of credit processes in your mind.
Thomas Ashford Broughton III — President and Chief Executive Officer
Well, again we’re going — any new request, we’re focused on our existing clients. And that’s where we should be focused on today. But on any new request, we’re putting an extra stress test on it. As one of our executive, Greg Bryant in Tampa said, that’s what we did during 2008 to 2012 in Florida as we put an extra stress test on any loan request. So it makes perfect sense.
I’ve always said we need to make the same loan decision and when the stock market has gone along 5,000 points, you’re going down 5000 points. We need to be emotionless on making a good sound underwriting decision and it shouldn’t vary at all. So the same underwriting standards apply and we want to deal with good people and good quality people.
Kevin Swanson — Hovde Group — Analyst
Okay, great, thanks guys.
Thomas Ashford Broughton III — President and Chief Executive Officer
Thank you.
Operator
Our next question comes from William Wallace with Raymond James.
William Wallace — Raymond James — Analyst
Thanks. Good afternoon, guys.
Thomas Ashford Broughton III — President and Chief Executive Officer
Hey, Wally.
William Wallace — Raymond James — Analyst
On CECL real quick, the decision to delay, were you guys delaying and operating under the assumption that when you do adopt that you are going to have to go back and restate your results?
William M. Foshee — Executive Vice President, Treasurer, Secretary and Chief Financial Officer
Well, I mean, we — this is Bud, yeah, I mean we know we will have to restate once — once we implement. If that comes to pass in 2020 we will have to do that.
William Wallace — Raymond James — Analyst
And what kind of expense does it add to go back and do that? Is that a…
William M. Foshee — Executive Vice President, Treasurer, Secretary and Chief Financial Officer
Well, I mean, we’re doing parallel. I mean we’re doing our incurred loss and CECL. We’ll do that each quarter. So…
William Wallace — Raymond James — Analyst
So you have all the results right there, so theoretically, shouldn’t be too expensive.
William M. Foshee — Executive Vice President, Treasurer, Secretary and Chief Financial Officer
Right, right.
William Wallace — Raymond James — Analyst
Okay. On the expense side, is there anyway — there is a lot of commentary in your preamble, Tom, about the expenses being pretty hard to gauge and generally being up. Can you maybe just help us get a sense of what we might be looking at for the next couple of quarters on a run rate basis understanding that, I guess, this quarter will be higher, given the PPP activity?
Thomas Ashford Broughton III — President and Chief Executive Officer
Yeah, the expenses in general are trending down. I mean, we expect to see all our expense initiatives — we expect to see most results in the second half of 2020 and 2021. So we’re certainly — we’re more glad than ever we put in some expense controls, given the current economic environment. But I just meant that it is just going to be a little noisy. We’ll have actually a heightened expense in a number of categories because of the PPP program.
Now, having said that, it’s still going to be a profitable program, Wally. So — but it will be a little bit of margin distortion and when we talk about margin, we exclude out any effect from the PPP — taking $914 million loans that aren’t 1%, and exclude that from the margin. That’s why we’re going to look at it, and think you want to look at it that way as well.
William Wallace — Raymond James — Analyst
Yeah. Okay. And that’s probably a good segue to think about the fees related to PPP. I understand that when you got a few loans that are bigger in that 1% fee range versus a ton of loans that are smaller in that 5% range. Are we — would you suggest that we’d be better off modeling closer to that 1% range or do you think midpoint in the 3% range?
Thomas Ashford Broughton III — President and Chief Executive Officer
Yeah, I’ve seen people modelling as much as 4% or something — 3.5% to 4% which seemed a little high to me. I don’t know what those banks — it runs a gamut. We got $2,000 — we got $1 million, $2000 and $10,000 loan request, and those customers, they need the help. They need it more than people with the big money. So those are just as important to us as the big customers. Those are — but, yeah, I think you’re on track, Wally, with 3% range.
William Wallace — Raymond James — Analyst
Okay. Okay, and then my last question on the loan deferrals, I believe you gave the number of $574 million at 3/31. Would you be willing to share what that number is today?
Thomas Ashford Broughton III — President and Chief Executive Officer
Sure. Henry?
Henry Abbott — Chief Credit Officer
Yeah. Today, through part of last week, I guess, through April 14, the number is $988 million through, I guess, through the first half of April.
William Wallace — Raymond James — Analyst
Okay. And I mean are you continuing to see a pretty high volume of requests coming through?
Henry Abbott — Chief Credit Officer
You know, I think, it’s slowed down and in part now that people have some PPP funds. As Tom said, we were able to accommodate overwhelming majority of our customers, so they now have some more capital to make payments on loans. I think the volume has slowed down. Was that related to them getting PPP money or our bankers working on PPP loans at the same time? I can’t tell you, but it is slowing.
William Wallace — Raymond James — Analyst
Okay. On PPP part 2, which looks like it could be a possibility, how many applications have you received that you didn’t — weren’t able to get through before they ran out of money? In other words, how much do you already have in the pipeline that you could take advantage of, should there be a part 2?
Thomas Ashford Broughton III — President and Chief Executive Officer
It’s not huge, Wally. We got most of them knocked out but it’s in the $20-odd million range, I think is the loans that we had in the pipe when it shut down. And of course, we’ve added loans to the pipe since then from people that are not our – we again prioritize our existing clients, but then we’ve added clients from other banks, trying to help people that had a bank — some banks didn’t participate in the program and you find out it’s kind of amazing to me, but, anyway, we’re trying to help people.
William Wallace — Raymond James — Analyst
Yeah. Okay. I’ll step out. Appreciate the responses. Thank you.
Thomas Ashford Broughton III — President and Chief Executive Officer
Thank you, Wally.
Operator
Our next question is a follow-up from Tyler Stafford with Stephens.
Tyler Stafford — Stephens — Analyst
Hi, thanks for taking the follow-up. Just one more quick one from me on the margin. I appreciate the 2Q outlook of relatively stable in the 3/31 total deposit cost. Do you have what the spot loan yield rates were at 3/31 as well?
William M. Foshee — Executive Vice President, Treasurer, Secretary and Chief Financial Officer
No, Tyler, I want to say it was 4.60% but I will email it to you.
Tyler Stafford — Stephens — Analyst
Okay. But the expectation is — I think it was 55 basis points of total deposit costs at 3/31, the total margin in the second quarter ex-PPP should be 3.60%-ish. Is that what you said?
William M. Foshee — Executive Vice President, Treasurer, Secretary and Chief Financial Officer
Yeah, I mean, we still think exclusive of PPP, we’d still be at 3.60%. Yeah, what I’ve got is the total loan yield for March, so that’s before all of the repricing and Fed cuts and all that. So I’ll have to find out what the yield was at the end of March. I’ll email it to you. I’ll email it to you, buddy.
Tyler Stafford — Stephens — Analyst
Okay.
Thomas Ashford Broughton III — President and Chief Executive Officer
And again, Tyler, our goal is to strengthen loan price, and this is going to take time. I mean if it doesn’t happen, certainly we’ll have an opportunity in May, June renewal season. And then, you know, obviously we have more two year lines of credit than we’re used to in the old days, so we see opportunity to strengthen the loan pricing.
Tyler Stafford — Stephens — Analyst
Yeah, I know it will be impressive if you guys can hold the margin flat in 2Q after 150 bps of cuts in March. So that will be impressive to see then. Thanks, guys.
Thomas Ashford Broughton III — President and Chief Executive Officer
Thank you.
Operator
[Operator Closing Remarks]