First Commonwealth Financial Corp (FCF) 2020 Q1 法說會逐字稿

Good afternoon, and welcome to the FCF First Quarter 2020 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Ryan Thomas, Vice President of Finance and Investor Relations. Please go ahead.

Thanks, Grant. Good afternoon, everyone. Thank you for joining us today. Participating on today's call from separate locations across our footprint in Pennsylvania and Ohio will be Mike Price, President and CEO; Jim Reske, Chief Financial Officer; and Brian Karrip, Chief Credit Officer.

After prepared remarks from management, we will open the call to your questions. For that portion of the call, we will be joined by our Bank President, Jane Grebenc. As a reminder, a copy of today's earnings release can be accessed by logging on to fcbanking.com and selecting the Investor Relations link at the top of the page. We have also included a slide presentation in our Investor Relations website with supplemental financial information that will be referenced throughout today's call.

Before we begin, I need to caution listeners that this call will contain forward-looking statements. Please refer to our forward-looking statements disclaimer on Page 2 of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.

Today's call will also include non-GAAP financial measures. These non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. A reconciliation of these measures can be found in the appendix of today's slide presentation.

And with that, I will turn the call over to Mike Price.

Thank you, Ryan. The COVID-19 pandemic has significantly disrupted the health and well-being of our communities. Our banking teams at First Commonwealth are engaged along a variety of fronts. We've adopted emerging best practices and follow direction from health and government leaders around COVID-19 to protect our employees, customers and communities. Our bankers were proactive early on in reaching out to customers and offering forbearance to consumers and businesses who were pressing forward in the wake of this pandemic.

At quarter end, we had modified over 2,200 loans for our borrowers, impacting $145 million in loans. Rolling forward to last Friday, April 24, payment relief had been extended to over 5,800 consumers and businesses on $1.1 billion in total loans. However, the number of modifications had trailed off to a trickle.

Now third, the team was all in on the first wave of the Paycheck Protection Program, funding and helping 1,500 customers secure $426 million in government loans. Approximately 85% of those loans were less than $350,000. We are a preferred SBA lender in 2019, ranked as the #2 SBA lender in Pittsburgh and the #3 SBA lender in Cleveland. We are now eagerly engaged in securing a second wave of PPP loans for our customers as government funding has resumed. We expect the typical loan amount to be lower than wave 1.

Now fourth, the volumes through our operations areas have been unprecedented, from loan modifications to PPP loan processing and stimulus checks, from call center volumes to mobile chats, from online mobile deposit account openings to log ins on our digital platforms. The team has shifted a significant portion of our workforce from our branch and select areas to call centers, underwriting, documentation and loan processing, while training them to meet the new operational reality of the week or month. As we work through opportunities with our customers every day, the COVID-19 pandemic is accelerating the change in the banking landscape. We expect ongoing change and are evaluating additional near- and long-term opportunities surrounding growth, efficiency, expense and net interest margin as we reshape our business. We are not waiting for business to return to normal. Our business is undergoing rapid, longer-term structural change that we must and will anticipate.

As we reflect on the first quarter, it's important to note that we have been preparing for a downturn for years. The team has added new growth engines to include mortgage and SBA. We've built a geographic-based, regional president model, led by local presidents accountable for their markets and delivering the bank cross-functionally to our customers and prospects. We've moved to a universal business model in our branches several years ago, which enabled flexibility in staffing and broader talent development. We have significantly expanded our digital capabilities, and most recently, our call center capabilities as well. We've sought better balance between our commercial and consumer businesses as well as between our variable and fixed rate lending. The team has built a strong, low-cost core funding franchise, where roughly 1/2 of our deposits are noninterest-bearing and now transaction accounts, split evenly between consumer and business customers. Our acquisition strategy has been accretive to our low cost, core funding and profitability.

Similarly, we have expanded our footprint to adjacent markets that we know well in both Ohio and Central Pennsylvania and executed flawlessly on a series of smaller, lower-risk acquisitions. These newer markets account for the majority of brisk loan and deposit growth in the first quarter.

We have paid down our borrowings significantly to give us flexibility for times like these. We have fortified our capital position organically and also with the issuance of $100 million in sub debt roughly 2 years ago, which leaves us ready to withstand the current crisis. And from a credit perspective, we have improved the granularity of our loan portfolio and cut the number of larger credits by 2/3, while actively managing to segment and concentration limits.

In the first quarter, our net income fell to $4.7 million or $0.05 per share as our provision expense increased to $31 million despite only $3.5 million or 23 basis points of net charge-offs. Using the incurred allowance for loan loss methodology, the reserve build was some 42 basis points to 1.25% of total loans in the first quarter.

Jim will speak to spread income, noninterest income and expenses and a number of other things, however, our pretax, preprovision, first quarter earnings were good. The company is well capitalized with ample liquidity. Our reserve build this quarter is appropriate given the specter of COVID-19 and what may lie ahead. Our continued focus on building low-cost core funding and leveraging our regional business model for growth make us optimistic about the future of our company.

I would now like to turn it over to Jim Reske, our CFO; followed by Brian Karrip, our Chief Credit Officer, to provide more color commentary on the first quarter, capital and credit. I've also asked Jane Grebenc, our Bank President, to join us as well for the question-and-answer session. Jim?

Thanks, Mike. Our financial results for the quarter were, of course, [profoundly] affected by the reserve build in response to the COVID-19 crisis. We are pleased to see that our pretax preprovision income calculated on a tax equivalent basis increased 5.8% over the year ago period and was $0.38 per share for the quarter, which compares favorably to the consensus of $0.37. Taking advantage of the optional temporary relief provided through the CARES Act that allowed for the delayed implementation of CECL, as a result, our loan loss provision was calculated under the incurred loss method. Brian will provide some further detail on our provision expense in a moment. But first, let me take a moment to describe why we stayed with the incurred method.

Basically, we saw no advantage to CECL adoption and every advantage in delay. Deferral gives us time to assess the impact of COVID-19 on estimated credit losses, including the impact on the economy of fiscal stimulus measures. We also took note of the extreme volatility of economic forecasts over the past several weeks, which led to a wide range of CECL outcomes and gave us pause as to the veracity of those forecasts. Finally, delaying CECL gave us time to see how our internal model reacts in uncertain economic conditions, which will allow us to further refine our approach before adoption later this year.

Of the $27.4 million in reserve build in the first quarter, a disproportionate amount was COVID related, including a portion of our specific reserves. Our reserve coverage ratio increased from 83 basis points to total loans to 1.25%, an increase of 42 basis points or just over 50%. Without the increase in specific reserves, the coverage ratio increased by 29 basis points, an increase of 33%. We believe that this proactive reserve build provides further protection for our balance sheet.

We note that while we continue to use the incurred loss method this quarter, our reserve building coverage ratios compare favorably with many banks that have adopted CECL. That's because we set aside extra qualitative reserves for losses that we believe have been incurred even though they have not yet emerged. In that sense, it will ultimately reduce the difference between the incurred allowance and our CECL allowance when we adopt CECL later this year.

Looking beyond the provision, there were actually a few other financial developments this quarter worth highlighting. First, net interest income was down $1.10 million to $68.1 million for the period. Here, strong loan growth of $134.6 million or 8.7% annualized, was offset by 8 basis points of contraction in the net interest margin. Commercial banking, indirect lending and mortgage led the way.

Deposits saw a larger increases with a strong percent in March leaving period-end deposits up by $245 million, even as we brought our cost of deposits down by 5 basis points by aggressively dropping rates and letting CDs run off. At 51 basis points, our cost to deposits is now 10 basis points lower than it was a year ago, and our total cost of funds is down 19 basis points. We expect that our efforts to manage deposit costs will help mitigate NIM compression over the course of 2020. We have approximately $450 million in time deposits maturing before year-end and have been able to retain approximately 2/3 of maturing time deposits at rack rates of, for example, 20 basis points for 12-month CD. We have another $300 million in money market accounts with teaser rates to roll off by year-end and reprice downward as well.

Second, noninterest income fell by $3.3 million or 15% to $19.3 million in the first quarter, primarily due to a $3.1 million...

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Or decrease in swap income compared to last quarter, $1.7 million of which was due to a mark-to-market adjustment for the swap valuation allowance.

On a more positive note, mortgage gain on sale was up by $1 million from last quarter. Beyond that, we saw a small effect on debit card interchange income due to pandemic spending [restrictions] that we estimate to be about $300,000 for the quarter. Interchange could come under pressure until economies reopen and spending picks up, but our mortgage, SBA, wealth and insurance businesses continue to generate fee income for us.

Third, noninterest expense improved by $3.1 million to $50.3 million quarter-over-quarter, reflecting the release of $2.5 million in reserves for unfunded commitments. This is due to the use of updated loss information from our CECL model. And even though we didn't adopt CECL, we did update our approach. More fundamentally, even though hospitalization expense remained elevated at $3.2 million for the quarter, we are taking steps to bring our costs down, including a hiring freeze and stopping almost all discretionary spending, other than investing in digital delivery for our customers.

Stepping back for a moment, I would emphasize that First Commonwealth is entering into this period from a position of financial strength. We have approximately $3.7 billion of available liquidity and our loan-to-deposit ratio remains in the comfortable below 90s. We come into this period of low rates with a relatively high net interest margin. And even though we expect additional margin compression, we believe our NIM should benefit from the income for the PPP program mostly in the third quarter.

Finally, in terms of capital, we have approximately $100 million of excess capital over and above what it takes to be considered well capitalized. We suspended our buyback program in order to focus on capital preservation. Our reserve build further protects our balance sheet. And while we are not required to run capital stress tests due to our size, we do so anyway, and even in our most severely adverse scenarios, we remain well capitalized.

With that, I'll turn it over to Brian.

Thank you, Jim, and good afternoon. It's clear from our reported provision that we're building reserves in response to the impact of COVID-19. Our reserve build primarily reflects 3 factors: first, an $8.9 million of qualitative adjustments within our incurred model framework to reflect general economic and business conditions; second, $7.8 million of additional qualitative overlays to address the risk portfolios and forbearances; third, an increase of $7.4 million in specific reserves. Let me provide a little more color on each one of these.

First, we ran our standard and incurred loss model as of March 31. At that time, many of our standard indicators were not reflecting economic strain. However, management knew to take measures to estimate the loss content in the portfolio as of 3/31. As a result, we increased qualitative factors within our model appropriately. For example, we assume the effective unemployment rate of 11.9% at 3/31. Even though the level of unemployment had not yet been evident in the most recently published materials.

Second, the risk portfolios that drove what we refer to as the overlays are set forth in some detail in our earnings release supplement. As the COVID crisis began to develop, we looked through our loan portfolio and identified certain sectors that had the potential to be impacted by COVID-19. While some of the segments, such as energy and restaurants, might be immaterial as a percentage of the portfolio, management felt it was important to review each one to accurately identify the risks. These portfolios generally exhibit good diversification, granularity and conservative underwriting characteristics. For example, in the retail segment, the largest subsegment is our freestanding retail book. That subsegment has an average loan size of $3 million and 59% LTV and debt service coverage ratio of 1.44%. In hospitality, approximately 80% of the portfolio is under either a Hilton or a Marriott flag, and the average LTVs, excluding enterprise value, was 64%. The debt service coverage ratio is 1.59. We know our borrowers. And when COVID emerged, we walked through each name, name by name and reviewed each of the larger relationships. I would note that at the end of the first quarter, 96.4% of the loans in these portfolios were pass rated and 97% were in the performing status.

The other part of the overlay has to do with forbearances, and additional detail on the consumer forbearances is contained within the supplement. Early in the crisis, we signed the Pennsylvania CARES Act, and made forbearances available to our consumer and commercial customers. We added qualitative reserves for consumer losses within the portfolio that have not yet emerged.

And third, we set aside $7.4 million in specific reserves, largely related to 5 underperforming borrowers. Most of these were showing signs of weakness before the crisis, but of course, the crisis made their problems worse. Three of these underperforming borrowers were downgraded to nonaccrual status in the first quarter, which drove an increase of $27.6 million in nonperforming assets. We could have simply offered forbearances to these customers and kicked the can down the road a bit, but that's not what a forbearance is for, and that's not the right thing to do. These downgrades and associated specific reserves are in keeping with our credit culture of early recognition of problem credits, and we believe will serve us well through this crisis.

In closing, we've taken many steps to reduce credit risk in the portfolio. We've reduced hold levels. We adhere to our strict concentration and segment limits. We reduced our out-of-market commercial loans. We drove a more balanced mix of commercial and consumer loans to diversify the portfolio. We have mitigated concentration risk by creating a more granular commercial loan portfolio and, specifically, with only 26 borrowers with commitments greater than $15 million. In short, we believe First Commonwealth is well positioned to weather the storm.

And with that, we'll take any questions.

(Operator Instructions) Our first question will come from Frank Schiraldi with Piper Sandler.

I want to start with the increase in nonaccrual. I think most banks I look at are probably doing exactly what you guys noted, just maybe kicking the can down the road a bit and offering deferrals or forbearances to anybody who has some COVID-related issue. And I just kind of wanted to maybe get a little bit more color on those loans specifically, why they moved to nonaccrual as opposed to being offered forbearance. And then just your thoughts on, if this may lead to NPA builds at FCF a little bit faster than we're going to see at most banks, most likely.

On the latter question, we don't think so. I think with these 2 particular credits, there were systemic issues in the credit that were prevalent before the crisis, then I'll let Brian Karrip speak to that. Brian?

Yes. Thank you, Frank, for your question. In specifically to these 2 loans, the first loan was challenged with construction delays throughout 2019 and it had yet to stabilize early 2020. It's about a $7.5 million loan to a hotel in Ohio, and it's adjacent to a university that had been shut down with COVID. Credit impaired this loan based on the facts and circumstances and events at the time. We could have offered simply a forbearance, and we did, in fact, provide a forbearance. But based on the underperformance going into COVID, the extensive period of time, we believe, to come back out of it for the specific property, we elected to move it to nonaccrual.

Similarly with the second one, we did move it to nonaccrual. It was a long-time relationship. This is also in the hospitality space. The facilities are shut down, weddings and banquets have been canceled, and we did move this one over. Both loans were past credits prior to COVID. Post -- I'm sorry. Both loans had been struggling a bit before COVID. Both loans were paying as agreed, though, before COVID.

Okay. And I'm sorry, you might have mentioned, but in terms of specific reserves against those 2 loans, did you give that detail?

I didn't, but I could. The specific reserves on the first one, it's about $1.4 million. And the specific reserve on the second one is nominal.

Okay. And then just a follow-up on provisioning. I don't know if you can say, I mean, Jim, I think you mentioned that there were several models you would have looked at on the -- had you adopted CECL, and they were sort of moving around quite quickly. So I don't know if you have it available, but just kind of curious if provisioning, in your estimation, would have been significantly different in the first quarter had you adopted CECL. And then is it your understanding, how is this going to work going forward? Once you do adopt CECL, are you going to have to go back then and restate these quarters for CECL reserve?

Jim?

Yes. Sure, Frank. Thanks. Good question. I'm happy to tell you what I can. We're not going to be to -- provide an exact CECL as-if number, but I can give you some color that might be helpful to you. As a general rule, we do think that expected loss should be higher than incurred loss, that just makes sense, not if there's an anomaly in your math, and you have to use some kind of Q factor to adjust for that. And even though we ran the incurred model, we actually did over a dozen different CECL runs using different scenarios, different combinations of scenarios, different permutation of those scenarios. And I could tell you, in those scenarios, some of them required more reserves than we actually set aside with the incurred model and some required less. And that kind of volatility is actually one of the reasons that led us to the decision to delay adaptation of CECL.

So I can't give you the exact CECL number now. I can tell you a couple of things. I think that if we had adopted CECL that, from what we can tell, we would be in the range of the other peer banks who have reported CECL numbers. And that -- the other thing is our reserve build now closes the gap to our eventual CECL number when we do adopt CECL.

The other part of your question had to do with restatement. It is our understanding that we will not have to actually go back and restate publicly filed financial statements. When we do adopt CECL, we will provide or disclose the quarterly numbers, either on a year-to-date basis depending on the period, or year-over-year comparisons to the actual published numbers with CECL adopted. And then we will, ultimately, also publish our day 1 CECL adoption number, which we will have to book retroactively as of January 1, 2020.

Okay. I got you. And then just when you speak of, if you had adopted CECL, you think you'd be sort of in a range along with other peers. When you -- are you talking about from a reserve to loan standpoint?

Yes. Yes, we are, from the reserve coverage ratio standpoint. That's the way we looked at it.

Next question will come from Russell Gunther with D.A. Davidson.

First question for me, a bit of a ticky-tacky question, but just curious, the reserve at 1.25%, are there fair value adjustments on previously acquired loans we should think about? And if so, where would the reserve stand on that sort of pro forma basis?

Russell, no, great question, but no. Those aren't included.

And do you have the -- so they're not included. Do they exist? And if so, what would be the order of magnitude?

No, sorry if I wasn't clear but -- sorry if I wasn't clear, but they -- no, they don't exist.

Okay. And then I appreciate the granularity that you provided in the deck as it relates to some of the exposures you think are a bit more at risk in the early innings of this uncertainty. I'm curious if you could provide a little more detail in terms of the internal stress testing that you ran and perhaps the loss content assumed for some of those more challenged buckets.

Jim?

Yes. Russ, I'm sorry, are you referring to the impacted portfolios that we are disclosing in the supplement?

Yes, I am. In terms of how you factor that into some of the internal stress tests that you provide and assumed loss rates within some of those more potentially adversely impacted buckets.

It'd be a little different. So what we're doing now under the incurred method is looking at those portfolios and trying to say, what kind of additional loss content might there be that is incurred as of 3/31, but not yet emerged? That's why we set aside additional qualitative reserves for those different portfolios. Will we run stress tests, like the capital stress test that I was referring to earlier? Those were actually run with an earlier version of our CECL model to say what is the life of loan loss in all portfolios. And so that kind of result would have been a CECL type of result based on historical loss rates and severely adverse forecast. So they are 2 slightly distinct concepts. I hope that gets you to your question or let me know if I've answered your question.

You have, Jim.

Our next question will come from Collyn Gilbert with KBW.

My question, I just want to start with Slide 8, where you run through kind of the forbearance metrics. And I think it's interesting that you saw a little bit more of an acceleration from the end of March through April 24. Can you just sort of talk about that process? How much was outreach on your own part versus inbound calls from your borrowers? And then also would be curious to know how some of those forbearance requests range relative to the geographies, would -- basically Ohio versus PA?

Yes. Thanks, Collyn. This is Mike. I'm going to hand it off to Jane, but we're routinely in touch with our customers. Our branches were reaching out to consumers at the onset of the crisis to have discussions with them and a number of them led to HELOC applications and others led to forbearance. And we did the same thing with our consumer -- or our commercial customers. So our fingers are really on the pulse of their business. And Jane, why don't you give a little bit more color on the forbearance process?

Thank you, Mike. Thanks, Collyn. As Mike said, we were fairly assertive in the approach. Ever since the second week of March, we've been trying to balance the idea that we're physically not as available, and we wanted to stay really close to our customers. And we did not furlough any branch employees.

And we did 2 things with them, Collyn. We redeployed them to all sorts of other operational areas around the bank that were running hot. We also had them reach out aggressively to our customers, and they were reaching out against a script that essentially said, "How are you? How are you doing? How is your business?" And as Mike said, sometimes that turned into, "Everything is fine. I can't believe you guys are calling me. This is great. None of our other banks are doing that," to "I need a HELOC, just in case," to "I really could use a forbearance." And we were glad to grant the forbearances. They're consistent with the regulatory guidance. We believe that eventually those clients were going to ask for a forbearance anyway once they got to be 30-day delinquent. And we would only have to correct the credit bureau report at that time. So this way, we didn't touch the customer twice. And -- but to temper that, these forbearances are only 90-day forbearances. So we will be talking with our clients, we believe, more frequently than other banks might be talking to theirs.

Okay. Okay. That's helpful. And then is there -- did you see much variance between the 2 geographies, namely between Pennsylvania and Ohio?

Oh, I'm sorry, I forgot about that. No, they're almost identical. They are the same customer base. It just really depends on which side of the river they're on.

Okay. Okay. Got it. And then, Brian, just back to you and your comment on the 2 credits that went nonaccrual this quarter. So this -- I think you had said $7.5 million was the loan. What was the balance of the second one of hospitality credit?

$10.3 million.

$10.3 million. Okay. Great. And did -- so the hotel credit was -- I think, if I heard you correctly, you also provided forbearance for that, correct?

We did. Both of them were granted a forbearance. Both of them were impaired by quarter end.

Okay. So how does that work from a -- this question goes back to you, Jim. How does that work from an accounting standpoint? Because I thought I was under the impression that a lot of these forbearances, you're still accruing interest. So -- but just trying to understand, yes, how the accounting will work on these credits and then any additional credits that may come up as nonaccrual that you've already extended forbearance requests to.

Yes. Sure. And Brian can correct me here, but I think what Brian is saying is that for a credit like that, as part of the process of moving towards impairment and nonaccrual, we had offered forbearance to try to work that out with the client. So -- but once that decision is made to put that on accrual, then that loan goes out on nonaccrual, we're no longer accruing income, any payments that are received go to principal reduction, just like any other nonaccrual loan from an accounting perspective.

For the forbearance customers, so the other forbearance customers that we list on Page 8 of the supplement that accepted the forbearance, that gave them the 90-day forbearance, for those, we are accruing the income just like any other bank because those loans technically are not delinquent. They are still current. They're just receiving forbearance. So there's a little bit of a distinction.

If any one of those on Page 8, we said that, that loan, we are not going to receive payment in full, forbearance or not, we're going to put that on nonaccrual then it would be -- put it right on nonaccrual and start applying any payments we did receive to principal reduction.

Got it. Okay. Okay. That was helpful. And then just on the NIM, Jim, you'd indicated, obviously, the opportunity here to reduce funding costs should help to mitigate some of the compression. Can you just give a little bit more color as to what you think the NIM outlook will be just given the fact that, obviously, in the second quarter, we're feeling more of the pain on the LIBOR drop? And then if you said it, I missed it, I apologize. But what the fee structure is on the PPP loans kind of on an average basis that you expect to generate?

Yes. I'll take them in reverse order. The fee structure question is a little easier. The fees -- PPP loans are still coming in. We're participating in wave 2 and so we -- all that data is coming in, so we might have a more refined number once it's all said and done. But for the first wave, the average fee for us has been a little over 3%. And as we understand that, that will -- that is a fee that is going to be amortized -- recognized, that is, over the 2-year stated life of the loan unless the -- in the margin, unless the client prepays, and we expect most of them will prepay, and then we'll accelerate that amortization, and it will flow through the NIM. So that actually is going to impact the NIM and it results in quite a bit of volatility to the NIM.

So with regard to your question on the NIM and our forward look, I appreciate the question and I kind of anticipated it as well, Collyn. It's so difficult in this (inaudible) to give forward guidance. And I think that's why you're finding banks -- most banks are -- they're finding it much easier to give balance sheet guidance than income statement guidance. So we can talk about our capital position, and how solid our balance sheet is, because that's a whole lot easier than kind of running down the income statement and giving any income statement guidance. We don't have a high degree of confidence in our ability to predict what the economy is doing or -- and customer behavior, in particular. But let me tell you a few things on the NIM just to be helpful to you.

We had previously given guidance, fairly consistently, that for every 25 basis point rate cut, the NIM will be affected by 3 to 4 basis points. So what we saw with 150 basis points of cuts for the Fed, that's the equivalent of 6 rate cuts, and that would, just doing the straight math, imply 18 to 24 basis points of NIM compression, which would take place for some -- in some ways, quickly as it would affect variable rate loans and then follow-on effects in subsequent quarters.

But that kind of assumption that we normally give is based on normal times. For example, that kind of assumption -- that kind of guidance we've given in the past would assume a beta of about 25% on the deposit side. And what we were experiencing now is betas that are approaching 100% on the deposit side. And that's why I was giving some deposit detail in the prepared remarks that I was giving. So we're hopeful that, that will sort itself out. And then if you -- and you could think of it this way: that, that kind of ability to affect the deposit side might result in us coming out at the lower end of the range of that NIM compression and be mitigant to NIM compression. And then if you take that with the volatility of the NIM that's going to come from the PPP program, those things will all play themselves out before the end of the year.

Okay. Okay. That's very helpful. And then just to the comment you made, Jim, it may be a little bit easier to tell on balance sheet, although who knows how customer behavior will react in kind of the next quarter or back half of the year. But just curious on -- as to how the pipeline looks today. And just where you're seeing just natural customer demand for credit? And maybe if there's any kind of broad comment you can make on loan growth for the rest of the year?

Yes. Mike?

Yes, Collyn, this is Mike. On the PPP side, obviously, it's very great. We also expect probably a litany of other SBA and government-type programs that will be available to different types of businesses over the course of the year, and we'll be well positioned for those. Mortgage has remained relatively strong. Indirect and auto business has fallen dramatically in the last year. Consumer lending has been surprisingly better than we've thought it would be, and that's mostly through the proactive efforts that Jane highlighted earlier. And we still have some new engines. The mortgage and the SBA are serving us well. We also like the fact, with our regional business model and our relatively small size in Cleveland, Columbus, and Cincinnati, that might present avenues for growth as well.

I would fall short of giving you the mid-single to high-single-digit guidance that we've given you, and we actually achieved 8.7% in the first quarter. We'll see how it unfolds, and we'll keep you updated. Does that help?

Great. Yes, it is. Yes, that's very helpful.

Mike, before we go to the next question, there is a place where Pennsylvania and Ohio do have some difference in terms of loan growth and, specifically, with mortgage and indirect auto. Ohio's restrictions, over the last 6 weeks, have not been quite as stringent as Pennsylvania's. And they're still selling cars in Ohio, and Pennsylvania is service only. And construction was shut down in Pennsylvania and was allowed to continue in Ohio. So we're still plugging along in Ohio in those 2 consumer businesses.

Great comments. Thank you, Jane.

Our next question will come from Steven Duong with RBC Capital Markets.

So just on Slide 7, just on your retail and malls, is there any way to get -- gauge what the nonessential retail is?

Brian?

Yes. Yes. Let me offer some color. So what you see on the slide, Slide 7, is $541 million. That's actually across 541 borrowers. The largest in the group is $16 million. The largest non-pass is around $1.9 million. And unfortunately, that was under an agreement to sell until COVID happened. The way we think about this portfolio is those names above $1 million -- and as we discussed earlier, that largest subsegment of this portfolio is around 31%, and we call it freestanding. That's the dollar stores, the convenience stores with gasoline, a bank branch or a wine and spirit store. Those are around $3 million in average size, as we mentioned earlier, 59% LTV, 1.44% cover.

The second largest chunk in this portfolio is what we would call grocery store anchored. It's about 22% of the portfolio. They're around $9.6 million average size. The LTV here is lower at 44%, and the coverage ratios are higher at 1.83%. This portfolio was performing very well prior to COVID. And our view is, as the economy opens up, it may take 6 to 12 months to get restabilization, but we are -- we're monitoring it closely. We've done some additional stress testing. And so far, this portfolio has held up nicely.

I really appreciate the detail on that. And then just one last one for me. Just -- I know the portfolio is really small, just the energy, the $34.8 million, what exactly is in that?

Brian?

Thank you for asking. Yes, what you would expect because we're ground 0 from Marcellus Shale, you would expect we would have a bigger book. Over the past several years, we've decreased the book, and it's roughly half what it's been over the past 3 years. So what you see on the slide is 52 borrowers, total of $35 million. And one name is special mention. It's about $6.9 million. It's a large, publicly-traded company with lots of liquidity. The other 2 nonperformers have been nonperformers in the bank's portfolio for quite a while. And they are both being handled by special assets, they both have sufficient specific reserves against them. This is a business we do not do, and you could expect this portfolio, over time, to continue to shrink.

(Operator Instructions) Our next question will come from Steve Moss with B. Riley FBR.

I wanted to ask about the -- most of my questions have been asked and answered here. I guess one thing, just in terms of the commercial real estate portfolio forbearances, just wondering what the underlying mix is there. Just give a sense of the larger component of forbearances. I'm sorry if I missed it.

Brian?

Yes. The forbearances in commercial real estate are generally aligned with the count for borrowers. So as I mentioned earlier, retail is our largest count in terms of borrowers, and that would represent the largest number of forbearances. The one, I think, we ought to simply highlight is, in the hospitality book, 28 of our 31 borrowers over $1 million have received a forbearance, and 22 of them have actually received PPP loans. This is a portfolio, while we didn't discuss it, that we exited 5 names last year. We continue to shrink the book, and it's fair to say that 3 groupings of our -- 3 of our largest groupings of borrowers are very experienced. They account for over 55% of the portfolio. Those management teams have operated through previous cycles. And while this portfolio does have, as I mentioned, 28 of the 31 above $1 million loans have forbearances, we have a lot of confidence in the experienced management teams.

Okay. Great. And actually, just one more question. In terms of just the restaurant and bar exposure, just wondering, I know it's small, but what is the underlying mix between quick serve versus, call it, fine dining or whatever your classifications are?

Yes. So that portfolio -- again, you're referring to Slide 7. What you see on 7 is it's $28 million. In our prework, we pulled out of the $28 million the 2 large SBA loans, one for $4.4 million and the other for $3.7 million. What that leaves you is 247 loans less than $20 million, they're about $80,000 apiece. And when we go through this list, you find a lot of restaurants, caterers, bars, large -- very large number of small business accounts.

Our next question will come from Russell Gunther with D.A. Davison.

Just wanted to touch on the Slide 9, the leveraged loan portfolio. If you could share what the reserve is there? I know you mentioned that there are some qualitative reserves, but just kind of where that reserve stands and expectations for performance in that portfolio?

That reserve is about $4.9 million.

Our next question will come from William Wallace with Raymond James.

Just one small follow-up as it relates to the NIM question from earlier. If you have a loan on forbearance that is scheduled to have an interest rate reset during the period, are you accruing interest at the previous rate? And if so, is there a large enough portion of that in forbearance that could have some NIM impact in the second quarter, in other words, push off some of the pressure that you might have had otherwise?

Jim?

Yes. Another great question, Wally. I think we are going to apply the resets and just continue to [attribute], while it's in the forbearance period, at the reset rate.

This concludes our question-and-answer session. I'd like to turn the conference back to Mike Price, President and CEO, for any closing remarks.

Yes. Thank you. We appreciate your engagement. We feel like we're making good choices, good choices for our employees, good choices for our businesses, small businesses and consumers we're privileged to do business with. And thank you for your interest in our company, and look forward to being engaged with a number of you over the course of the next several months. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.