United Community Banks Inc (UCBIO) 2020 Q1 法說會逐字稿

Good morning, and welcome to United Community Bank's First Quarter 2020 Earnings Call. Hosting the call today are Chairman and Chief Executive Officer, Lynn Harton; Chief Financial Officer, Jefferson Harralson; Chief Banking Officer, Rich Bradshaw; and Chief Risk Officer, Rob Edwards.

United's presentation today includes references to operating earnings, pre-tax, pre-credit earnings and other non-GAAP financial information. For these non-GAAP financial measures, United has provided a reconciliation to the corresponding GAAP financial measure in the financial highlights section of the earnings release as well as at the end of the investor presentation. Both are included on the website at ucbi.com. Copies of the first quarter's earnings release and investor presentation were filed last night on Form 8-K with the SEC, and a replay of this call will be available in the Investor Relations section of the company's website at ucbi.com.

Please be aware that during this call forward-looking statements may be made by representatives of United. Any forward-looking statements should be considered in light of risks and uncertainties described on Page 3 of the company's 2019 Form 10-K as well as other information provided by the company in its filings with the SEC and included on its website.

At this time, I will turn the call over to Lynn Harton.

Good morning. Normally, I prefer to have a short earnings call and just let the numbers speak for themselves. But this quarter, obviously, the numbers don't tell the whole story, so I'm going to spend a bit more time on some other topics. So please just bear with me a few minutes.

I'll start on Page 3 of the deck with how I'm viewing our response to the COVID crisis. Fundamentally, I'm focusing on our employees, our customers and our risk management processes. Employees and customers because they are the drivers of our long-term value post crisis. Risk management because that's what's going to drive our ability to come out of the crisis in shape to take advantage of the opportunities we expect. And my support for those areas comes from our comprehensive pandemic plan and our Board governance.

As I note on Slide 4, we've got an extraordinarily strong Board, including 3 members who are actually active senior execs at major U.S. banks during the last crisis. Their knowledge and challenge to the management team along with the rest of our Board, an additional 3 of whom live through the crisis as United Board members, continues to provide the right balance of oversight and support as we make our plans. On Slide 5, I've also been pleased at the thoroughness and responsiveness of our business continuity plan owners to both put our plan in place quickly and to make adjustments as need dictates.

Turning to our focus areas. On Slides 7 through 9, I outlined several steps we have taken to support our teams. Currently, we have 54% of our branch teams working remotely, and we have the ability to scale that up to 88%, if needed. I also describe some of the other actions we have taken to make our teams understand that they are valued, supported and safe during this time. One of these initiatives is our Share the Good program you'll see highlighted on Slide 8, where we encourage our teams to share encouragement with one another and with our customers.

And speaking of customers, starting on Slide 11, we're being flexible and proactive in payment deferral options. We know we are good underwriters. We know how to select customers. So our goal is to support and bridge as many of them as possible to the recovery phase. That's one reason we committed early to be a leader with the PPP program. Our team was able to get approval for almost 7,000 loans, totaling more than $960 million before the program ran out of funding. In context, this equals more than 14% of our existing commercial loan portfolio. This was a tremendous effort involving hundreds of people across the bank, and I want to recognize the entire United team for going all in to support each other and our customers.

We've also stepped up customer communication. We're adjusting fees, changing limits, all with the goal of supporting our clients and living our brand promise to be the bank that's service built. This is actually one of the most energizing and rewarding times of my career to be a banker. Our teams can see more clearly than ever how they are making a difference. This will pay off in the long term. And as you can see on Slides 12 and 13, we are actually seeing it pay dividends today.

As we look at digital engagement across the board, site traffic is up substantially. Active online and mobile banking users are up. More customers continue to open deposit accounts online. And our social media connections are growing rapidly as well.

As we look at risk on Slide 15, we're relying on our 3 risk principles. When you arrive at a crisis, it's generally unexpected. And the risk you enter a crisis with is the risk you're going to live with. There's really no time to make major adjustments. So we've tried to manage with a through-the-cycle approach in mind, avoiding concentrations, so as to not bet the bank, taking only the risk we believe we understand and having a culture that rewards speaking up and addressing problems realistically.

Speaking of risk, Jefferson, why don't you cover some of our portfolio statistics and then our performance numbers for the quarter. And after that, I'd like to come back for just a quick look forward before we open it up for questions.

Thank you, Lynn. This quarter, I'm making a change and starting with loans and credit on Page 17.

Our ending balance of loans was up $122 million from 12/31 or 6% annualized. Of the $122 million, about $60 million came from draw activity. These draws came in the middle and at the end of March at the beginning of the stress, but had been stable throughout April and into this week. Our commercial loans to commitments ratio moved to about 67% from 63% at year-end with the draws.

As Lynn mentioned, we have $961 million of PPP loans coming on to the Q2 balance sheet, which represents about 14% of our existing commercial book. As far as funding goes, we expect a significant portion of the PPP loans will be funded this week and early next week. We expect to use a mix of available cash, the PPP liquidity facility and perhaps some FHLB funding as well, depending on timing. In our initial planning, we are estimating that 70% of the PPP loans will be forgiven to the borrower within 6 months.

On the credit side, we have booked approximately $900 million in loan deferrals as of Friday or about 10% of our loan book. Of the $900 million in loan deferrals, about $169 million comes from Navitas. To give you some transparency, later in the deck, we have some additional information on Navitas, Seaside as well as our restaurant, hotel and senior care portfolios that we are carefully monitoring. Specifically, our restaurant book and our hotel book each separately make up about 3% of loans or about 6% in total. And again, in the back, there are some more detail on these exposures.

Navitas makes up about 8.5% of our loan book, and we did execute a $22 million sale of Navitas loans in February at a 6% gain. Rob is here to talk more about our credit in the Q&A, if you like, but our credit philosophy is that we are very selective in the customers we choose and believe they will fare better than most. We're also very disciplined on the size of our individual exposures and very selective on the size of each book relative to capital.

On Page 18, we look at our credit for the quarter. Our net loan losses in the quarter were higher than we have been running at $8.1 million and annualized at 37 basis points in losses. The main driver of the increased net charge-offs was a $6.4 million loss on a single loan. This $6.4 million loan was in our leveraged loan book, of which we have about $73 million left. The company was in the pulmonary medical testing business. It had significant private equity money behind it, but struggled, the PE walked away and the company subsequently failed.

All right, let's turn the page to allowance for credit losses on Page 19. We adopted CECL on January 1, and we declined on the opportunity to go back to the incurred loss method. In the first quarter, we posted a loan loss provision of $22.2 million. Our allowance for credit losses is up 19% from January 1 and up 35% from year-end. In terms of dollars, our allowance for credit losses was up $14 million from January 1 and up about $23 million from year-end.

I want to share with you a little bit of how we're thinking about CECL. We believe the future is unknowable and that the models are based on historical economic correlations, but neither we nor anyone else has seen an environment like this one. Throughout the quarter, we considered and ran many scenarios and stressed our inputs and assumptions. And of course, we will continue to do so as the public health crisis continues to play out.

Moving to Page 20, capital. Before I talk about the numbers, I'll talk about strategy for a bit. As the pandemic became increasingly apparent, we stopped our buybacks and began reviewing our contingency plans and rerunning our capital and liquidity stress models, and we feel comfortable with where we are. Our capital ratios were flat in the quarter and up about 40 to 50 basis points from last year.

Moving to Page 21. Again, I will mention that we just don't know how long this environment is going to last or how bad this is going to get, but we do believe that we're coming into the cycle from a position of strength. We come into the cycle with more capital than our peers. We also come into the cycle with about 20% more profitability than peers as measured by pre-tax, pre-provision ROA in Q4. I would also argue that we are more liquid than our peers with our 81% loan-to-deposit ratio, and with almost no wholesale funding in place, we have a lot of flexibility on the balance sheet. We also have very strong core funding, with 33% of our deposits in DDA in the first quarter, and we have one of the lowest cost deposit bases in the Southeast.

Moving on to our net interest income results. We had 150 basis points of rate cuts in March that affected the end of the quarter so we had about 2 months of what I would call a normal quarter and the crisis started impacting our March numbers. Our net interest income grew 7% annualized, and our NIM increased by 14 basis points. This increase had the help of an unusual amount of accretion in the quarter. Accretion income moved to $7.6 million in Q1 from $3.4 million last quarter and added 15 basis points to the NIM versus last quarter and contributed 26 basis points in total.

The switch to CECL had the initial impact of shortening the time frame of which we accrete a loan. Specifically, now we accrete to the contractual maturity versus the expected resolution date, which was often longer. We have $15 million left to accrete to the margin, and we are expecting $3 million to $3.5 million next quarter depending on prepayments or about 10 basis points.

Excluding accretion, our core NIM was down only 1 basis point versus last quarter to 3.81%, and the NII itself was down 2% versus last quarter. Our core NIM benefited from the runoff and sale of our low-yielding indirect portfolio last quarter that helped the NIM by about 3 basis points. We also had some positive remix on the funding side with strong core deposit growth and shrinkage in average CDs. We had more than $165 million of DDA growth that more than funded our $112 million of loan growth. All in, our cost of funds moved to 95 basis points from 103 basis points last quarter or down about 8 basis points.

Let's talk a little on our philosophy and culture of risk here we have been de-risking our securities portfolio and balance sheet for 2 years at least. We sold and let our CLOs run off from a peak as high as about $330 million in 2017. We also ran off our indirect auto portfolio to 0, a portfolio that peaked at around $440 million, also in 2017. We maintain our liquidity with our low 80% loan-to-deposit ratio. We also de-levered our balance sheet since 2018, freeing up capital and liquidity as we ran off about $700 million in FHLB borrowings from its peak in 2018. The combination of these things also took our TCE from the low 9% range 2 years ago to 10.2% this quarter.

Moving on to Page 23 and fee income. The first quarter is typically our weakest quarter for fee income being seasonally slower for both SBA and mortgage. Our fee income was down $4 million from last quarter, but was also up $5 million from the year ago quarter at $25.8 million. As the crisis set in, we saw a sharp drop in rates and turmoil in the markets, including significant illiquidity in certain asset classes throughout the quarter.

Our locked volume was over $800 million in the quarter, well above our previous record. With the refi environment, we had to write down the value of our mortgage servicing asset by $4.3 million, as the expected life of our loan service shortened dramatically. All said, it was a great quarter for mortgage.

As I mentioned and as I know you are aware, there was volatility and illiquidity at times in the credit markets this quarter that of course affected the gain on loans sold line item that you see at $1.7 million. In February, we sold $22 million of Navitas loans at a 6% gain. Usually, in Q1, you would see us with about $1 million or so in SBA loan sale gains, but we elected not to sell this quarter because the pricing narrowed, and we preferred to hold them. For Q2 and the rest of the year, we are not expecting Navitas loan sales, but we will be monitoring market conditions.

Moving to expenses briefly. Total expenses were down $800,000 versus Q4, excluding merger charges.

And with that, I'll pass it back to Lynn to conclude our prepared remarks.

Thank you, Jefferson. Clearly, the shutdown has caused the most serious economic stoppage of our lifetimes, combined with the most massive government intervention in history, and we simply don't know at this point what the ultimate ramifications for our customer base will be. But I do believe, and I want to close my prepared remarks with this, that we will be able to accelerate many of our long-term goals as we execute over the next several quarters.

The investments we have made in technology will show results, and we're already seeing how we can digitize our business even more quickly than we imagined. Our branch delivery system will be able to be improved more rapidly as well. Our brand will be strengthened as service and connection will stand out in this environment. And by the way, we just found out late yesterday that we were recognized by J.D. Power for having the highest retail banking satisfaction in the Southeast for 2020. That's the sixth time in the past 7 years we've received that honor, which is a truly amazing testament to our team and how they live our brand out every day.

And finally, we believe that M&A opportunities post-crisis will likely increase for the type of service-oriented banks we like to partner with. And speaking of M&A on Slide 26, I have a few comments about our Seaside acquisition, which we announced right before the COVID crisis began. As we have progressed, our decision to partner with Seaside has only been reinforced. We're in constant contact with their team, and that time together continues to prove the similarities of our cultures. We both remain focused on serving our clients, and I believe that both during and after the crisis, we will be better together.

And with that, I'd like to open it up for questions.

(Operator Instructions) And our first question will come from the line of Brad Milsaps from Piper Sandler.

Jefferson, you guys did a nice job hanging on to the net interest margin this quarter in light of everything that happened, a lot of it happened in late March. Just curious, have you maybe had spot rates for maybe loan yields and deposit costs at the end of the quarter? Just trying to get a sense of directionally kind of what kind of pressure might be on the horizon.

Yes. So I might get back to you on the spot rate, but we'll talk about the margin a little bit. I think that our margin will be directionally down. One, we had unusual amount of accretion. So you probably have, yes, 26 basis points this quarter. The run rate is probably closer to 10 basis points. So I think maybe down 15 from the accretion piece of it.

The LIBOR rate has been irrationally high, as it move with Fed funds. And so we have $3 billion on LIBOR loans. So I would expect that to come down even without -- with no more rate cuts, obviously. We have a very significant number of CDs coming due at high prices. We have $300 million at 190. So you should see a continuation of the cost of funds moving down. So it's extraordinary moving parts of timing of PPP and such. So not given -- and you didn't ask for a specific margin guidance, but I can get back to you with what I think the spot rates are for the yields and the cost.

Okay. Great. That would be helpful. And you brought up PPP for a moment. I think you noted in the slide deck that you thought kind of most of your loan growth would just be kind of limited to that program. You guys had tremendous production again this quarter. It didn't necessarily translate to a lot of net growth. But would you back away from kind of where we are now, kind of your mid-single-digit kind of loan growth, excluding the PPP program? Or do you think there's opportunities for you guys to take advantage of it out there given as strong as your capital is, all the liquidity you have, kind of being in a better seat than most banks?

So Brad, this is Rich. You bring up a great question. So number one, we are being cautious and very selective. However, to your point, we do see an opportunity. There are a lot of long-term strong companies out there, and we really feel like the big banks are going to take their eye off them. That's a great opportunity for us. We'll look for those companies who demonstrate the impact of COVID-19 on them now and on the future and what their action plan is. Providing they could do that, we would be supportive of those requests.

You might want to talk about the hires you made in the first quarter as well before...

Sure. So a couple of things on that. Normally, we'd be leading off with that, but it's a different world. We were extremely successful in Q1 and have lifted out in Atlanta. We lifted out a team leader, Craig Dowdy; and 4 CRMs, commercial relationship managers, out of SunTrust. And we also -- and I say SunTrust because -- to put it in perspective. We have one from BB&T. It's all Truist, but they came -- that was the makeup. And we're very excited they came on very late in March and they brought on deals and deposits right away, and they've also jumped in on our PPP program. So from that perspective, we're excited about what they bring to the table.

Okay. Great. And maybe one final one. Jefferson, would you expect the kind of weighted average fee on the PPP loans to be around 3% for you guys?

That's in the ballpark.

And our next question will come from the line of Jennifer Demba from SunTrust.

This is Brandon King on for Jennifer. I see that you disclose your deferral rate for the Navitas portfolio, but I was wondering what the deferral rates per industry were for the broader portfolio.

So this is Rob. So if you go to the back of the deck, there's -- we've broken out deferral rates, talk some about restaurants and hotels. So we've listed some of those and then also senior care is at the back of the package. So that's probably a good place to start. And then maybe just I would break out for you kind of the overall bank is at right around 9% deferral rate and Navitas is around 22%. So that's probably kind of within those -- maybe 5 different categories, that's a good way to think about it.

Okay. Were there any other sectors that stood out from what you were seeing?

No. There's a variety of different numbers, but those are the ones that, of course, when we put the deck together that we got focused on and seemed to be some of the high watermarks. And then, of course, the Navitas ones separate. We've listed also -- if you look at Page 28, we've listed the top 5 sector deferral rates for Navitas specifically there.

Okay. And then one more question. As far as your internal stress test results, how does your loan loss reserve now compare to the losses you're seeing in those stressed tests?

Well, it's a great question. Thanks for asking that. We've had -- we've run so many. I mean we've run stress test of the last cycle. We ran stress test specifically to our losses in the last cycle. We've run various CCAR stress tests. So we've run, I don't know, 20 different probably capital stress tests. And -- but we do feel like we have very significant capital and for any reasonable -- we're continuing to run stress tests. We're looking at the new Moody's results, but we feel comfortable with where our capital is, and we believe that -- for almost any reasonable loss scenario, that our capital is fine.

And our next question will come from the line of Tyler Stafford from Stephens.

I wanted to start on fees, Jefferson. So I guess, what do you expect the impact of the PPP, I guess, distraction to be on the -- just the normal SBA gain on sale revenue over the near term to be?

Yes, I might pass that over to Rich on this.

Sure. There's -- we had an existing pipeline rolling into Q2. Obviously, 95% of the effort right now is focused on PPP. I will say that the secondary market has come back a little bit from first quarter. About half the buyers are active and the ranges in gain on sale are 106 to 107 currently.

And we did not sell loans, you noticed probably, in the first quarter, and we had $25 million of originations. So there is a bit of a backlog for Q2.

Okay. So you would expect to sell SBA loans, but not Navitas loans?

Correct.

Okay. And why not sell Navitas loans at this point?

I just -- I don't know what the market will be for Navitas loans. With that said, we'll just kind of watch the market, watch the credit markets and see where the bid might be. It's a good thing about having flexibility on your balance sheet, that we can hold these loans if we want to. We have been selling loans late last year and early this year at that 6% gain. I don't know what that gain would be now. And if we -- and so for now, we're going to plan on holding them.

And if the gain continues to be in that 5% to 6% range, we may consider it.

Also think of it another way. We have 8.5% of our loans in Navitas right now. We're going to add at least $1 billion for PPP loans for some short period of time. We're going to add Seaside in there, too. So that percentage of 8.5% is going to come down a decent amount. So we have a lot of room to get to that 10% level as well. So we're not -- so that's how we're thinking about it. We may sell, but we don't need to for our 10%.

And I was going to add, we're expecting another good performance for mortgage, right.

And back on Navitas, just the natural condition of what's going on is their volume is down about 30% anyway. And they're really looking at it as an opportunity to up credit quality during this time. There's a lot of -- their competitors, as Jefferson said, don't have a balance sheet. So we expect volume to be down anyway. We expect credit quality to be up in terms of the new originations. So that's part of it as well.

Okay. That's helpful. Maybe sticking with Navitas. Do you know how much of that portfolio today, that equipment is idle right now versus being actively used?

Probably the best measure of that would be the deferral piece. And as you can see in there in the deferral segments, it'd be what you would expect, fitness and beauty salons, for example. Obviously, they can't operate. And so -- but there's -- they're still seeing a fair amount of activity. I mean whether landscapers, whether short-haul trucks. So it's -- there are businesses still operating and businesses need equipment, and this is essential-use equipment.

So it's hard to give -- what we're doing on the deferral side is we've got an automated portal setup to request a deferral, and in contacting the clients and requesting, the first deferral is for 90 days. But during that time, we're requesting touch payments. So a small payment just to kind of keep contact, to keep engaged with the client. And we're just taking a wait and see. I mean because -- obviously, these are customers that they want to be back in business, they want to open back up. But in many cases, they've got to get the government to allow them to open back up. And our expectation is, honestly, that is -- we -- at the end of the 90 days, a lot of those will be deferred again, and we'll probably increase those touch payments. And it's just going to be bridging those clients back into recovery.

Okay. And I do appreciate all the details around the Navitas kind of breakdown by deferment and the hotels and restaurants in the back. And I guess, maybe just shifting over to my last question. If -- I totally appreciate that you guys are entering this recessionary environment with a significantly higher capital position than most of your peers. But as I sit back and look at the reserve ratio that you guys built to of 99 basis points and then kind of add up some of the different portfolios that you laid out in your deck of Navitas at 8.5%, the hotels at 3%, restaurants at 3%, senior care at 5%. And then I think retail CRE is somewhere around 3.5%. And then you gave us some syndicated credits and leverage details. It looks like around 25%, 26% of the total portfolio are to some of these type -- hotbed-type portfolios. And I'm not trying to imply that you guys are under-reserved, but I'm just trying to better understand what went into your CECL calculation and assumption. And I guess, why do you feel comfortable with that 99 basis points, at least especially relative to some of your other peers that, at least so far, have built reserves a little bit higher at this point?

Yes. So Tyler, it's Rob. I would say a couple of things. One is you do have to understand, and I think Jefferson mentioned it in his comments and I think he said it appropriately, so the models are built off of correlations from past experience. And so we're in a situation where -- just as you look at the models, you have to understand that there may be moments of disconnect. But I would say this also, we're also -- usually, you get like one set of scenarios from -- we use Moody's for the economic forecast, usually get one a month. And we're now in a situation where we're getting one a week.

And so it's -- keep in mind, CECL is built off of what you think is going to happen in the future and based on what happened in the past. And it's -- because of the element of deferral and government stimulus, it really is a challenge to know for sure what is going to happen in the future. We -- at quarter end, we kind of looked at it and said we are in the hotel space, but we're in it at a 50% loan-to-value with some really strong operators with strong liquidity. We feel good about that. We are in the leveraged loan business, but we're in it in a very small way at $70 million. And while it is leveraged, it's generally leveraged at less than 4x, and that's based on commitments, not based on outstandings. Most of ours would come way down if you measure what I call true leverage, which is the outstanding to cash flow -- outstanding debt to cash flow.

So I feel -- we don't have -- so we have -- that $70 million, I would say, is negligible in the portfolio. And then we don't have any oil and gas exposure. So I feel really good about the specific components that we mentioned and then also good that some of the components that other folks are having to talk about are not in the book at all.

Okay. That's very helpful. Maybe just one more on that. Could you provide what the new CECL reserve for the Navitas portfolio is?

So it's $15 million.

And our next question will come from the line of Kevin Fitzsimmons from D.A. Davidson.

So you mentioned a few times, Jefferson, PPP. Could you just kind of walk through how we should expect the noise to occur in the next few quarters? So I would suspect that a lot of banks have talked about the second quarter will have elevated expenses. You'll have the higher average balances because of the loans. You'll have a dilutive impact to the margin because of the 1% carry on those loans. But then whether it occurs in late second quarter or it occurs in third quarter, you'll have the origination fees come through, which I would think come through the margin, but I think some companies are having to come through fee income. If you can just talk through some of that.

Yes. I think our -- the fees that we earn here will come through the margin. I think you -- for the second quarter, I think you laid it out very well. We're not expecting any -- we're expecting to amortize that fee over the 2 years of the loan. And as I mentioned in the prepared remarks, I think about 70% of these will be forgiven within 6 months. That kind of gets you right to that end of third or early fourth quarter that you'll see some of these fees starting to come in. So I would expect that you would get kind of 1/8 of the fee roughly in Q2, then you would get kind of 70% of those fees split between Q3 and Q4. It's how I'm thinking about it currently.

On expenses, we are -- we're probably running some overtime expenses. Now I don't think it's going to be super meaningful. On the expense line, I do expect our expenses to be flat to down going forward. So I don't think that the PPP, you're going to really see that by itself in the expense line.

Okay. Great. And then one just follow-up on the allowance ratio, so -- on Tyler's question. So I know from past acquisitions, there's obviously been loans that are marked that you typically have to factor in. But now with a post-CECL world, I would suspect that that's all been adjusted. I wanted to just clarify because I know you said at one point you guys adopted CECL, but I thought I heard you said another point that you delayed the impact of it. So I just want to clarify that.

No, we adopted it. We declined to delay the impact. And -- was there another question on there as far as the CECL?

Just on the allowance ratio, whether there was any kind of caveat or clarifying point to make based on past acquisitions on that when we're looking at it versus peers.

That's the bring over of the -- so if you go back to our Q4 deck, I think the number that we brought over from acquisitions was in the $3.5 million range. So -- but you're right, Kevin. All that's been -- as a part of the transition from incurred loss to CECL, you do bring over that purchase. The purchase discount goes away from effectively -- it sort of is hidden and subtracted from the loans. And now it's on the purchase credit impaired. It's part of the allowance. And it was -- I think the number was around $3 million that we brought over.

And you may be thinking a little bit on the accretion side that I mentioned that we have $15 million of purchase accretion that we're still running through that will positively [impact] margin.

And our next question comes from the line of Michael Rose from Raymond James.

Guys, sorry, if you addressed this, I got on late. But the mortgage piece was really good this quarter if you back up the MSR impacts from both quarters. Can you just give an update on kind of where pipelines are today and maybe what you'd expect from a mix and a volume perspective as we move through the second quarter?

Michael, this is Rich. So the mortgage, we expect to continue to have a strong Q2 based on the pipelines. So we feel good about that. I will tell you that we are being cautious. And in terms of our portfolio, what we put on our books, nongovernment, we have tightened up the credit criteria, increasing FICO scores and reducing maximum loan sizes.

Okay. And then maybe just one follow-up. I think you mentioned earlier in the call that you brought on another team, and you'd expect to be opportunistic. What areas would you expect to be opportunistic? Because I assume some of those at-risk portfolios would be deemphasized at this point. So I guess where do you see the greatest opportunities as you look out the next couple of quarters and maybe if you can size it?

Well, it's interesting -- it's Rich again. It's interesting. So there certainly are going to be opportunities. And I would say, it's not -- you're not going to think I'm -- so unusual answer, but the PPP thing has given us a real opportunity. So the big banks have not come out all that favorable. And many of our -- in our rural areas, the smaller banks don't have the PPP program. So we're getting just a lot of feedback that -- and actually not just feedback. People are moving accounts right now because they feel better about what we've been able to do in this program and come through for the communities that we serve.

Yes. Because this really, as you said, Michael -- I mean, we've put clearly a pause on all these highly affected areas. And so it's really just kind of core C&I long-term companies that really we're seeing the opportunity with. It's hard to size it, but we're -- it's a real thing, and we're seeing it every week.

And our next question comes from the line of Catherine Mealor from KBW.

Just a quick clarification on -- back to Navitas. So do you think that -- Lynn, you mentioned that origination volumes are down. Would you expect to continue to grow Navitas balances from here?

Yes. I'll start with that. I do -- so for -- Navitas applications are down, so we would expect lower originations. That said, now we are not selling Navitas loans that adds a little bit -- we're not planning on selling anyway Navitas loans, that adds a little bit to the balances. So I would expect a slight positive growth in Navitas balances throughout the year.

Okay. Great. And then you also mentioned that the Navitas' CECL reserve was 50 -- I think it's $15 million. What was that compared to year end?

Yes. So Catherine, this is Rob. It was really up from $12.5 million to $15 million

And our next question will come from the line of Christopher Marinac from Janney Montgomery.

And thanks for all the detail, both on the call as well as in the disclosures. Rob, if we go back to the $900 million of deferrals kind of company-wide, how do you consider that in the big picture? Should we think about as kind of a de facto criticized number in that those loans kind of get worked out from here and that number comes down? Or will the $900 million grow? Just kind of curious how you think about it in the big picture.

So anecdotally, I think it's interesting to think about it. I -- there's a numbers way to think about it. And then there's a real-life way to think about it. And you may have heard that the Georgia governor opened Georgia back up for business. And the day after that happened, we were on the phone with some regulators that live in Atlanta, and they were talking about how their -- one guy said his daughter, another guy said his wife, as soon as the order was lifted, they all reached out to the beauty salon to make their reservations to get into -- crank those businesses back up.

So it's hard to say, Chris. I mean I don't want to be evasive, but I think people are ready to get out. We're sensing a wave here in the Carolinas and in the Southeast of people ready to kind of get back to normal. And I -- so it's hard to say that -- some percentage of these people that had deferrals -- we sent everybody home and told them not to go, and there's clearly a pent-up demand for these businesses. People are going to go back out to eat. They're going to get their haircut. It's -- they're going to start traveling again. And so it's just really hard to have any element of predictability around it.

Yes. Because, I mean it's clearly -- as we all know, this is not a borrower-specific "I've got a problem. I can't run my -- I'm a bad manager of my business," this is a broad economic shutdown. So we're not looking at deferrals in the normal way. I mean, if we -- we're not looking at these at this point as TDRs. We're supportive of clients deferring their payments. We know they want to get back into business. And I think that's where -- as it comes to the reserve and all these other things, we've just got to see some of this data work its way back out to see what really happens.

And again, we'd like to be more definitive, but it's just not a normal environment. If you think about unemployment rising like it is, but yet unemployment benefits covers probably, for most people, 70%, 80% of what they're making, we're seeing very few mortgage and HELOC deferrals, which would -- you would normally expect to see problems exist -- stop -- start there. So we're obviously very -- trying to stay very close to these clients so that we understand what's going on with them. But we're not viewing them as special assets by any means at this point.

Got you. That's very helpful. I appreciate that a lot. And then just a follow-up as it pertains to the PPP. Is it possible or even likely that you would take some type of expense accrual just against those fees as they -- particularly a couple of months from now as they start to come in on forgiveness? I'm just curious on if a legal reserve or just unanticipated expenses to set aside would make sense.

Yes, Chris. That's -- it's a great question. Certainly we've been thinking about it a little bit. It is a nice earnings that should come in a lot in the second half of the year. And there is room to set aside possibly a legal reserve or possibly some provision or really anything. It's just it will add to profitability in a short-term way in the second half of the year. So we haven't decided what to do with that, if anything, but there is that ability to do so and we'll look more into it in the third and fourth quarter.

I'm not showing any further questions at this time.

All right. Well, great. Well, thank you all for joining the call. We appreciate your support, your interest, great questions, and we will look forward to talking again soon. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.