Live Oak Bancshares, Inc. (LOB) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen thank you for standing by and welcome to the First Quarter 2020 Live Oak Bancshares, Incorporated Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Greg Seward, General Counsel for Live Oak Bancshares. Thank you and please go ahead, sir.

Thank you and good morning everyone. Welcome to Live Oak’s first quarter 2020 earnings conference call. We are webcasting live over the Internet and this call is being recorded. To access the call over the Internet and review the presentation materials and commentary that we will reference on the call, please visit our website at investor.liveoakbank.com and go to today’s call in our Event Calendar for supporting materials. Our first quarter earnings release is also available on our website. Before we get started, I would like to caution you that we may make forward-looking statements during today’s call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from our expectations are detailed in the materials accompanying this call and in our SEC filings. We do not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of today's call. Information about any non-GAAP financial measures referenced, including reconciliation of those measures to GAAP measures, can also be found in our SEC filings. I will now turn the call over to Chip Mahan, our Chairman and Chief Executive Officer.

Greg, good morning, and thanks. In these trying times you find out what you're made of. What do we Live Oak as an institution stand for? Are we just a bank? Yesterday a top core bank account officer told their customer, we don't know anything about the PPP program, call the home office. What do each of our folks stand for? Well we found out. We reverted to our original guiding principles and we stood tall. We have always thought of the three legged stool of business: our folks, our customers, and our shareholders. With this thesis that if you do everything humanly possible for folks [technical difficulty] and you tell them they have one job and one job only, treat every single customer like the only customer in the bank. And simultaneously you tell your very talented credit folks that rule number one is soundness, rule number two is profitability, and rule number three is growth. Then all three groups will win. Shareholders will win. I cannot begin to tell you what all 600 of our folks have done. All 600 have been going at it 24/7 since the situation began. Here are some responses from the field customer. What we're facing right now might be characterized as an economic meltdown. We have prided ourselves in never laying anyone off due to lack of work in 30 years of business until we were forced to curtail operations this March. We can't tell you how thankful we were to see that loan amount in our business checking account this morning. Today we spent hours planning on how we will bring our employees back and resume our full operations as soon as it is acceptable to do so. Number two, Wow!! double exclamation. I just logged into my bank account and the money is there!!! triple exclamation. I feel like crying. I am so happy!!! triple exclamation payroll is thirsty and everyone will get 40 hours!!!!!! six exclamation points. Number three and lastly. Live Oak took it upon themselves to try to save the lives of over a dozen restaurants in Wilmington. I mean emails at 3:00 AM kind of attempts to help keep these family businesses afloat. The military gives medals for this sort of service. I cannot say enough. Now, let's take a step back before the virus. We were on our way to achieve what we said on the last call. We were highly confident we were going to exceed and maybe substantially exceed $2 billion in originations. On the liability side we were moving all of our savings in CD customers to Finxact on the 13th of April. The loan portfolio is growing. Next-gen deposit platforms were being delivered. Credit quality was excellent. Then boom the virus. Who could have predicted that the United States government would choose the SBA platform to distribute what might be $1 trillion in capital to American small business. So now it’s game time. And we leapt into action. How can America's number one SBA lender help? First of all get the rules right. As everyone knows the SBA has lots of rules. Rules for the Express program, rules for 7(a), rules for 504, migrations the book is 550 pages long. But that was not the object of the exercise. How can Treasury and the SBA stand up a product overnight to be distributed by banks and FinTechs alike to literally millions of small businesses? I will remind you that in a normal year about 3,000 banks make about $25 billion in SBA loans. The first 350 went in 13 days. Your team here and other experienced SBA lenders had a lot of input into that product. That was launched at 12:01 AM on the 3rd of April. Now the absolute key to the strip down SBA loan is to get a loan authorization number. This platform is called E-Tran. Well E-Tran is kind of like my grandfather's jalopy. Sometimes you just have to wackle Betsy with a hammer. Well we know SBA's Betsy better than anyone, many knew that and ask for our help and we gave it to a top 4 bank to several top 10 banks, 2 Canapi banks and to some of the largest systems integration firms on the planet. So everyone could win, so small business could win, so America could win. So what has happened here at the bank to levels. We have 4,400 customers, we service 5,600 loans. Before the CARES Act 1,128 customers asked for a 90-day deferral of principal and interest and it was granted. In the CARES Act U.S. government will pay all principal and interest for six months to 100% of SBA borrowers. This should give our customers some breathing room. This is highly fortunate for a lot of bank. After the launch of PPP we had the following goals. Get cash in the hands of 100% of our borrowers that needed it, help small businesses in the communities that we operate and put partners in our workforce. That has happened. As of this moment we have close funded 4,826 loans totaling $953 million. We have E-Tran numbers for an additional 131 businesses totaling $28 million and let us 116,000 jobs were saved by these 4,960 businesses. As we await the starting gun all around to our pipeline to help others is substantial. Lastly, it is our belief that help is on the way on the other side. The Express program has been temporarily increased from $350,000 to a $1 million. It is our understanding that the house version of Phase 4 of the CARES Act includes an increase of the guaranteed percentages from 50% in the Express program to 90% and an increase in the 78 program from 75% to 90%. Both increases would be temporary and there is absolutely no certainty that this would happen. It would be good for our customers and good for America. As always my opening comments discuss credit quality historically bodiless. This time I think you'll listen. So I'm moving to Slide 4. I don't think there's banker in the land or a board wouldn't be pleased with the ratios noted above. And as always we'd like to note our effective capital ratio of $500 million in capital at the bank level, $60 million before the accounts mess with the loan loss reserve that Huntley is going to tell you, about $2 billion burn guaranteed pay for adjusted capital ratio of that 26%, and on top of that almost a $1 billion of SBA guaranteed loans which if you can slap whatever premium on that is substantial additional gap. In addition to that, we have about a $1 billion prepared on the balance sheet before the Fed allowed us to finance these loans differently. We took down $50 million in the credit facility at the holding company bringing the holding company's cash position to about $60 million in cash to begin to attack this challenge. Huntley, over to you.

Thanks Chip. To follow up on his comments in times of stress thanking fundamentals always seem to come back to liquidity, capital and credit quality. And we believe we've always run a conservative balance sheet. But as the quarter unfolded, we took some cautionary steps to strengthen that even further. As Chip mentioned, $1 billion of liquidity on our balance sheet that increased by almost 25% over the quarter. We also saw an incremental about $50 million of 7(a) loans to show up a little more capital here at the end of the quarter. Our risk capital stands at a healthy almost 15%. And times like this it's also nice to have $1.7 billion worth or nearly half of our loan portfolio guaranteed by the government. You might have seen in March, we authorized the small share repurchase program to better position ourselves when we get to the other side of this. We have not repurchased any shares and we don't anticipate doing so until the world settles down. Our dividend is reasonably small, just $0.03 a share and we plan to maintain that unless things get really rough. Chip talked about credit quality, I’ll cover in more detail. We always follow the guiding principle, the safety and soundness comes first. And we believe we've been prudent in our credit decisioning. But you only can really tell that prudence in time of stress when you see how well your customers with the help of their bank are able to navigate a crisis. As a small business bank, we find ourselves in the last few months squarely in the eye of the storm. From the time the pandemic started, we’ve been in touch with 100% of our over 4,000 borrowing customers. As Chip, mentioned we processed deferrals for over a quarter of them and we are able to secure payroll loans for all of them who needed it. Once we secured SBA authorizations for our existing customers, we reached out into our community and the industry verticals we serve. And as Chip mentioned, we originated nearly 5,000 loans and nearly $1 billion of payroll loans. We're also proud to report as Chip mentioned that as of this morning a 100% of those customers have loan docs in their hand and we funded over 97% of them which is as Chip mentioned over 115,000 jobs. When you turn to the results of the quarter though admittedly there's a lot going on in the numbers. Our lending franchise started the year off strong. The deposit franchise was operating extremely efficiently and we were continuing to build recurring revenue. Secondary markets for 7(a) loans were robust and our loan pipeline with at an all-time high. All of that feels like a lifetime ago. As the virus spread and the nationwide lockdown set in, our deal pipeline slowed dramatically. And while we continue to see some activity in selected areas like renewable energy and agriculture primarily most of the new business activity has been put on hold. Small businesses across the country were facing significant revenue challenges seemingly overnight. After we mobilized the deferrals on our portfolio, we turned 100% of our attention to these payroll protection loans. Now as we close the books on Q1, the obvious item that was most impacted was our loan loss provision and as luck would have it, the industry also faced the implementation of CECL this quarter. And we elected to adopt the new standards starting July 1. Also of note in conjunction with implementing CECL we reclassified a portion of our loan loss reserve into a fair value adjustment for loans accounted for at fair value in accordance with the disclosure requirements for those loans. A bit of balance sheet geography shift that I'll talk about in a minute that add to a bit of the noise. But all-in-all we increased our total allowance by about $13 million largely as a result of the deteriorating macro environment. Given the significant sell off of risk assets across pretty much all markets into the end of the first quarter we also saw some volatility in our mark-to-market assets under balance sheet. Despite the work we've done over the past 18 months to reduce those impacts. Secondary markets for SBA loans declined by as much as four points into the end of the quarter. Interest rate dropped precipitously and other market indicators decreased across the board. These market changes impacted our gain on sale revenues, the fair value of our hedges, or servicing after revaluation as well as the loans we carry as fair value. If you look at the highlights on Page 7 for the quarter, our balance sheet and recurring revenues continue to grow nicely year-over-year and quarter-over-quarter. All the metrics are largely on track although expenses were up as we hired into the end of the year as Chip mentioned our lending franchise and we continue to invest in our next generation technology initiatives. Fundamentally though, many of the same trends that we discussed with you over the past year continued during the first quarter. Given the moving pieces in the quarter, we thought it might be helpful to outline the various adjustments on our income statement and try to take a closer look at the core earnings power of the bank which we laid out on Page 9. Overall Q1 bank core earnings were pretty consistent from Q4. But there was an awful lot going on in between. So a little more detail on that. The total credit related expenses that would have previously been in the provision line was $18 million which comprises $11.8 million addition to the provision and $6 million that is included in the fair value adjustment on loans. The mark on our USDA lending hedges drove a $4 million swing as loan interest rates dropped 125 basis points in the quarter. The fair value losses on the loans accounted for under fair value was $10 million and as I mentioned over half of that was related to credit. Our servicing asset continue to mark down despite a significant slowdown in prepayment fees and with the SBA paying six months of principal and interest on the entire servicing portfolio, it’s actually a pretty solid asset right now. And lastly, our FinTech losses were in a little higher than the fourth quarter. So all in all there are a bunch of headwinds on income statement that mapped was a pretty solid quarter as it relates to the earnings power of the franchise. Chip covered the credit stats in the quarter, so I won’t go back through them again and the forward is obviously more important than the stat. But I do think it's worth mentioning that our portfolio was really healthy heading into this crisis. As a reminder, I mean over $1.7 billion of our loan portfolio guaranteed by the government $1.6 billion of SBA and $100 million of USDA and a total of $3 billion of the loans on our balance sheet or SBA loans including both guaranteed and unguaranteed. And as Chip mentioned the SBA will be making six months of principal interest payments on all those loans and that on top of the deferrals that we processed before the CARES Act took place. You combine that with securing payroll loans for our customers and we believe that our borrowers have a few unique aspects that will better help them weather the storm. I’ll also point out as they have on protocols the diversity of our loan portfolio. And while we certainly do have some exposure to some of the higher impacted areas like hotels, fitness centers and daycare centers, we also have some areas like renewable energy, chicken farms, self-storage and government contracting, that are much less impacted by the current events. In terms of our go forward thoughts on credit it’s honestly too early to predict the depth of these impacts and the effect that government intervention will have to mitigate challenges that our customers face, but we are actively engaged with our entire portfolio, it’s actually those most impacted. We are staying very close to our customers, having reached out to 100% of them. We are monitoring their liquidity real time, helping to manage their fixed expenses, working through options around rent and franchise relief and trying to ascertain as best we can when revenues will return to some semblance of normalcy. The initial tools at our disposal deferrals, payroll loans and P&I support from the SBA have provided critical breathing room in capital to a large portion of our portfolio. As we progress, we're confident we have a capital liquidity we need to provide working capital to our customers that need it to help them through this. As we indicated in prior calls, we did not expect the day one impact of CECL to be material to our loan loss reserve although the changes in the forecasted macro event were significant. The day one impact ended up being a $1.3 million decrease to our allowance. And as we closed the books on the quarter like most other banks, we evaluated which macroeconomic scenarios to use to calibrate the lifetime loss model in CECL. We settled on the RMA pandemic scenario which contemplates sustained high unemployment that escalates throughout the year and ends in double digits. On Page 12, you can see the impacts of the reclassification to our loan loss reserve that we mentioned earlier basically requiring us to separate our loan portfolio into those loans held at historical cost and those loans held at fair value and reallocate our existing loan loss reserve into those two buckets. As you can see, it really is just balance sheet geography. All in all, our modeling for the quarter generate an additional $13 million in credit reserves previously classified as allowances which comprised of about $7.6 million in the allowance, and a $5.4 million increase in the credit component in this fair value loans. If you look on the far right of Page 12, you can see the total of about $61 million of reserves across these two categories. And if you look at that on a really simplistic basis, we have a little over $2 billion of unguaranteed loans or about a 3% protection on those loans. Given the uncertainty of the ultimate outcome and timing and shape of any recovery, we're going to remain conservative as it relates to forecasting and spend all our energy supporting our customers. On the funding side, our deposit platform remained really efficient and in a lot of ways, the events over the last six weeks have reinforced the importance of digital banking offerings. Given the overall stress in funding markets, however, liquidity remain paramount and our deposit portfolio has not repriced downward quite as quickly as we might have imagined given the Fed's actions. We've seen some pretty rational downward pricing recently though and think the opportunity for us to gain some ground here in the near future. If you look at the blended cost though, it's still a really great source of funding with minimal overhead. We remain really excited about our operating account that Chip mentioned and building up checking accounts and launching that and in the near zero interest rate environment, we find ourselves - the gap between those two costs on a fully loaded base is actually pretty compressed versus the saving product that we have now. In terms of our net interest margin, recurring revenue growth was solid and margin was stable in the first quarter. That said the Fed action in terms of timing it came at a pretty bad time for us as our - 55% of our loan portfolio will reprice with 150 basis points Fed action here at the beginning of Q2 and we were just at the tail end of a lot of our Q1 CD repricing. So we expect our margin to take a hit in Q2, but to recover in the back-half of the year as the deposit reprice. We also have warehoused significant liquidity as Chip mentioned in anticipation of the PPP program and with the introduction of the Fed facility funding 100% of those loans at 35 basis point cost of funds we find ourselves in extremely liquid balance sheet, which is great from a risk perspective, but will also compress NIM in the near-term. On the expense side, as I mentioned earlier we hired into the end of last year anticipating a banner year of small business lending and technology deployment. The silver lining to that is we found ourselves fortunate to have 600 incredibly talented, incredibly dedicated teammates who rolled up their sleeves. I have been collectively working around the clock throughout the PPP program helping small businesses across the country. We repositioned over 200 people into new roles and processed 5,000 loans in two weeks. For contacts that's four times more loans than we made in all of 2019 in two weeks. And we're back to work it out as we speak committing to getting more funds into the hands of small businesses to help preserve jobs and keep them going through this. So our expense line looks high largely result of our team and we don't plan to change that. One thing to note as you triangulate expenses and capital almost $3 million a quarter of our compensation expense is stock-based comp which helps us from a capital perspective. Our team is rock solid while the long-term path to sustain profitability may be pushed back a little bit. We're more confident than ever in our model of service to small businesses. Aside from salaries and benefits, we had a couple of million dollars and increased expenses related to our technology initiatives as we continue to build what we believe to be the next gen platform for the future of small business banking. It really feels like our thesis related to technology and banking has only been reinforced by recent events. Given some of our experience with hurricanes, you know distributing 600 people remotely and working in cloud-based technology has become pretty ordinary course for us and over the last six weeks we really haven't missed a beat. In some ways you can argue that we collaborate even better with Zoom and teams, and our entire company rallying around a common mission. Generating these PPP loans of scale requires flexible architecture and great technology platforms. With the help of our partners we stood up our PPP lending platform quickly. We funded loans on the first day of the program and we booked loans on to a purpose built Finxact platform which we believe will dramatically increase our efficiency in the forgiveness process. In our experience, the importance of robust digital banking offerings coupled with great customer service wins the day. We spoke directly to every single one of the 5,000 small businesses that we funded PPP loans for. And while there may be some fully automated solutions out there, the feedback we got from our existing and our prospective customers was extraordinarily positive. We believe the marriage of great people and great technology truly is the winning model. As Chip mentioned we hadn’t lost sight of our broader technology initiatives namely re-platforming our entire company on the next-gen platforms like FinXact and Apiture and launching our digital small business checking account. We still believe as strongly as ever in our model bank initiatives, but we pause them for a bit as we turned our attention fully to the PPP program. We're still on track for deployment of our model bank this year, savings in CDs launching on Apiture and FinXact in the near-term and a checking account close behind. In the payroll loan program we've proven that we can pivot quickly and redeploy people on the fly. As we look to launch these new deposit products, our team is energized and excited to focus on the new opportunity in what looks to be a slower lending environment in the near-term. Meanwhile, our portfolio of companies within Live Oak ventures continue to perform well. Apiture, FinXact, Payrailz and others. Canapi is sitting on roughly $500 million of dry powder to make financial technology investments and the banking industry now appreciates more than ever the need for next generation platforms to deliver digital banking services. So how do you wrap all this up? Do we go back to the long-term goal slide that we shown in previous quarters. Clearly, we didn't move the needle forward on the profitability side this quarter. And with new business activity slowing and the need to help our existing customers our priorities have obviously shifted a bit. But we firmly believe the goalpost remain the same even if it takes us a little longer to get there. Sustainable revenues, sustainable returns, we still require additional scale on our balance sheet and a more normalized lending environment. But if the past is any predictor of the future, we expect to see great opportunity to help provide capital of small businesses on the other side of this. Away from the payroll protection program SBA loans have always been critical components of economic recovery. And we believe we're well-positioned to provide working capital to recapitalize small businesses and help them recover from the impact of this crisis. Our long-term mission remains unchanged to become the nation's best small business bank. Our current mission and our obsession lies with helping small business across the nation through this crisis. As a company, we focus heavily on the safety and well-being of our people and our people in turn are dedicating all of their energy focusing on the safety of our customers offering them advice, loan deferrals, and payroll loans. We quickly expanded our attention beyond just our existing customers. They are small businesses in our communities both local and within our industry verticals, to help administer payroll loans to provide critical funds to small businesses. That mission is still underway. We've been inspired by the tenacity of our customers and by the small business owners across this country. They truly are and will continue to be the American dream. Roll the questions.

We’re ready for questions.

[Operator Instructions] And our first question comes from the line of Jennifer Demba with SunTrust. Your line is now open.

So many question so, just starting with credit, you guys do you have only about two dozen or so verticals that you work with. Just curious as to what you feel like the most vulnerable industry bar that you're talking to right now. I know - you've got a unique borrower base with the SBA guaranteed and what they're going to do be it above and beyond right now, but who do you feel like the most vulnerable right now?

So Jennifer, this is Steve Smits, thank you. So we've identified what we would call our most impacted industries, as you can imagine dentists, family entertainment centers, early childhood education, wine and craft, fitness centers that makes up just north of 20% of our portfolio. Now what we've done with them is first and foremost where it's come and handy is that we've been very diligent about collecting quarterly financials. So the first thing we do is we look at the most recent pre-crisis financials that we have in each of these businesses. And take a look at their balance sheet, see what their fallback position, their liquidity positions look like. We map that against their income statements and their historical fixed cost overhead. And we've run the analysis on how many months can they sustain based on the pretty material impact to their topline revenue. And then as the government programs and interventions kick-in, we map against the impact that they will have. So we did reach out first and foremost besides just these most impacted businesses. To Chip's point, 100% of every small business borrower by vote bank on a phone call. We had a very detailed spend a good bit of time talking to them assessing how they felt. We immediately reacted with the deferrals, about 19% of our clients expressed the need for a deferral. And then - as the government started kicking in with these programs we saw that flat line and even go down in some of them opting to hold off on deferral and not the least of which the impact is the six months of payments by the SBA. So 76% of our portfolio are SBA 7(a) loans that will have the full P&I payments made - for them on behalf of the U.S. government. So that's created some confidence among these folks. PPP every small business borrower of Live Oak Bank that expressed the need and a desire for a PPP loan received one. So that also then created some confidence in this group as well. So we continue to map what their liquidity positions look like how impacted the revenues are and then try to assess the impact of these enhanced programs that are coming out from the government to monitor them very closely.

And Jennifer so I would look at that kind of forward tranches you know the number one would be payment deferral. Number two would be PPP. Number three would be as Steve mentioned the government making payments on their behalf. And then number four, we do feel like there's a good shot of more money coming at 9% guarantee. So our average loan is about $1.3 million. So 25% would be either guaranteed percentage towards a $3.750 million bucket - having additional financing capabilities with a 9% guarantee for working capital to take them beyond this challenge I think would be you know where, but we'll see.

Can you elaborate on the economic scenario that was factored in your provision, you mention it very quickly Huntley, but could you say that again and just give a little more color?

Yes Jennifer, this is Steve Smits again. So clearly, the most impacted impactful was the quantitative factor that we used for unemployment that we assumed an immediate impact to an increase in unemployment write-off the bat and then sustained an increased unemployment throughout the year. So that was pretty impactful. That was probably just shy of an $8 million impact to the provision just by making that assumption. Time will tell, but right now and because CECL looks at lifetime loss scenarios that had a pretty meaningful impact to the provisions.

How much participation do you expect to have in the second round PPP? Will you go beyond your current client base or what do you expect in there?

Well Jennifer, we're going to go like a bat out of hell. So, we have partners that we're working with some substantial partners and we're trying even - predict rapid - a bit more technology. Round one was kind of the concierge's brute force get it done for our customers tranche, who knows when they're going to hit the starting gun you know maybe some have said at 12:01 a.m. tomorrow, but we're ready and we're going to go as fast and hard as we can.

And what kind of a Huntley you mentioned that some of the hiring that you’ve done late in the year obviously came through in the first quarter expenses, but do you feel like first quarter expenses are get run rate going forward. What kind of expense control will there be to put in place to kind of offset some of - your provision needs?

It's a great question Jennifer. I think you know obviously things are a little hard to predict right now clearly things like travel expenses are going to be down for the near future. Our team is in place we don't expect that to grow at all, but it will stay - it will stay what it is. When we're going to be redeploying folks we might have folks going out and finally checking account customers here before along with folks who historically have been in some other roles. Clearly some of those folks are going to shift into more portfolio management work. I think my gut tells me there was a little bit of noise on the expense side this quarter, but we always have a few puts and takes. So, I don't want to face some dramatically lower, but I don't think you should expect to increase much through the course of the year.

Right. And what about future loan sales? What is the market look like right now? Is there any market for SBA 7(a) loans?

Hey, Brett.

Yes hi, Jennifer this is Brett. Right now the secondary market is - it’s a little bit tough. The buyers that are out there are typically just the buyers that want to buy and portfolio, government-guaranteed loans. There's a bit of - a bit slowdown with any buyers who are pooling loans. And that's just sort of during the time of difficulty getting a pooling certificate. So there is activity, loans are moving by given the reduced number of players in the market premiums are compress a bit as Huntley mentioned, referencing the roughly a four percentage point drop on average for loans that are being sold right now.

My last question for Chip, Chip what do you think the long-term implications of all this are for your company and for the banks, in general. You just already talked about, you think this certainly underscores the need for more technology, but any other implications do you see?

Jennifer, when I put my head on the pillow at night, I just think about our customers. And as you know, we go see 100% of our customers before we make them a loan to try to determine if they have the eye of the tiger. And so, now we're going to find out, because they didn't ask for this, we didn't ask for this. But we're going to swarm them after this PPP thing is over. And who knows where all that's going to end. But we have a geographic dispersed portfolio. We're in 33 separate industries, but yes, I actually think we're in the best position of any bank in the country because of the nature of the SBA program and everything that we’ve talked about previously. And I think we'll be better on the other side. We have spent the latter part, best part of the last three years working on these next-gen technology platforms. We were right on the precipice of launching FinXact. We’re booking loans on a FinXact core today in the PPP program. So America will be back, our customers will be back, Live Oak’s not going anywhere.

And our last question comes from the line of Chris Donat with Piper Sandler. Your line is now open.

So with all the other changes going on in the world, I'm making a small change trying to fill the seat that Aaron Deer has vacated as he takes the CFO position. So thanks for taking my question. What I wanted to have is someone who is new and looking at the story when I look at your dominant position in the SBA market, the $1 billion of loans dispersed under PPP seems sort of small. But can you help me understand that, is it just because you focused on the - on your existing customers that that limited how large you would be in PPP I just want to kind of understand the scope of PPP for you, the first round at least?

Yes, so look I mean the existing customers most of the banking industry was servicing their existing customers which is you know more streamlined with KYC perspective you go outside of that, I mean when you go into new customers and you're [indiscernible] at scale. You got to make sure you're comfortable with fraud you're comfortable with your KYC criteria - you're comfortable with eligibility. And we took a bit of a more manual approach in terms of reaching out and talking to people. And so we went through all of our customers over the course of a couple of days that went really efficiently and then we wanted to actually see where we could have an impact. So we did again you know we did four times more units than we did all of last year in the course of two weeks right. So I think we turn the crank pretty hard. There were some fully automated solutions that I think some folks used to turn massive volume. And we'll see if when the dust settles if they did a good job knowing the customer, knowing the eligibility, making good loans, being able to get the forgiveness up done the right way and ultimately being able to affect the guarantee with some of these loans go bad. We think about all of those things having been in the SBA business for as long as we have. We have banks that are much, much larger than us that did about the same amount or even just a little bit bigger than us that had 10x more people filling out forms all day long. So, we're really proud of what we did.

And Chris just I would remind you that our Chief Credit Officer, Steve Smits who is to run the Office of Capital Access at the SBA, so tell us the number two guy at the SBA in the last crisis. No one knows more about, is that a 100% guarantee or not then Steve and his team. So maybe we were a little conservative early and relative to other banks and just say well - just that's flat on this because it's guaranteed by government maybe, maybe it is and maybe it isn't. We are highly confident that every PPP loan we made is 100% guaranteed by the United States government.

Got it, I appreciate that. And then one of the challenges of this environment is social distancing. And Chip you talked about how you still meet with your clients and you know look in their eyes and see if they got the eye of the tiger. How are you handling one-on-one meetings or on-site meetings in a social distancing environment? Are you capable of doing those meetings through zoom and document exchanges or data rooms or something or just to help us understand how the world shifted following last month?

Steve why don’t you take that one relative to?

I’ll start and let Huntley add to it. We’ve - I’ve been one that is not really tech-savvy in a ways at zoom. So out of diversity comes opportunity right. For me I have embraced technology and found the wonders of other means of communication that can be as effective and meaningful. So you have being able to zoom-in have conversations I would think that actually what we've given up as far as face-to-face, walking in the front door. We gained in expeditiously more conversations with our borrowers that we ever have in the past and we already pretty good at it.

Yes, I also think you know because he has arrived just at the right time in this. We have constructing portfolio right and so they're managing draws and site visits and inspections and those are happening virtually right and we're seeing collaboration happening in that way. We are as Steve said incredibly plugged in and in communication with our customers. Would we like to be doing that and also going and shaking their hands absolutely. For our existing customer’s that's actually not really the requirement we've met them in person, we've shaken their hands. Now our relationship can be totally virtual for net new customers look as the world develops, we will be back to face-to-face. We think that's important too, but we're awfully connected right now there's no question about that.

Got it. And then just last one on the economic forecasts you're using that Huntley talked about, I just want to make sure I got it right. It ends in double-digit unemployment, Huntley did you give us a timeframe for that I was scribbling?

So through the end of the year will be, will still be double-digit through the end of the year in this forecast and then start you know some slow recovery after that.

Thank you. And this does conclude today's question and answer session. I would now like to turn the call back to Chip Mahan, CEO for any closing remarks.

Well, we just appreciate everyone attending today and we look forward to progress in the PPP program and see you on the other side.

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