Simmons First National Corporation (SFNC) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Simmons First National Corporation mid-quarter update on COVID loan modifications call and Webcast. [Operator Instructions]. Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Steve Massanelli. Thank you. Please go ahead, sir.

Good morning, and thank you for joining our conference call. My name is Steve Massanelli, and I serve as Chief Administrative Officer and Investor Relations Officer at Simmons First National Corporation. Joining me today are George Makris, Chairman and Chief Executive Officer; and Bob Fehlman, Chief Financial Officer and Chief Operating Officer. The purpose of today's call is to provide a mid-quarter update on Simmons Bank's COVID-19 loan modification program. We've invited institutional investors and analysts from the equity firms that provide research on our company to participate in the call. [Operator Instructions]. During today's call, we will refer to a slide presentation, a copy of which is available on our website at simmonsbank.com under the Investor Relations page and at sec.gov. A recording of today's call will also be posted under the Investor Relations page of our website for at least 60 days. During today's call, we will make forward-looking statements about future plans, goals, expectations, estimates, projections and outlook. I'll remind you that actual results could differ materially from those projected in or implied by the forward-looking statements due to a variety of factors, some of which cannot be predicted or quantified. Additional information concerning some of these factors is contained in our SEC filings, including, without limitation, the description of certain risk factors contained in our Form 10-K for the year ended December 31, 2019; our Form 10-Q for the quarter ended June 30, 2020; and the legal disclaimer section of our presentation issued this morning. We assume no obligation to update or revise any forward-looking statements or other information. Please see the legal disclaimers section of our presentation for additional information about the financial information disclosed today and about our internal COVID-19 loan status categories. I'll now turn the call over to George Makris.

Thanks, Steve, and good morning. Thanks to all of you for joining us on a Monday morning. I was listening to Steve's disclosures there. And I guess there's never been a time where it has more meaning about forward-looking statements and events that could affect our current thinking than today. I would say that we're very pleased with the way the economy is bouncing back. Schools have started to reopen with generally minimal problems. We kicked off college football over the weekend. Golf is going on. Tennis is going on. Basketball is going on. So maybe we're starting to get back to normal. But for our purposes today, over the last month or so, we've had several really good conversations with investors and analysts about Simmons Bank. And of course, one of the topics of interest were loan modifications and our outlook on our particular portfolio. And we thought it was appropriate to give a mid-quarter update on those loan modifications and how they are returning to normal payments. We did publish a brief presentation. I think Steve reminded you that you can find that at our website or on the SEC's website, and I would encourage you to do that. I will be talking to some of those slides today. Just to go back a little bit in history, about mid-March, we became very proactive with our customers to offer, what I call, accommodating modifications to their loans. Now we did that in lieu of trying to force them to go deeper in debt, draw on lines of credit in these uncertain times. And I think that's paid off well for not only Simmons, but for our customers as well. Most of our modifications were made between March 15 and May 15. We've had very little modification activity after that period of time. Of course, based on that 3-month anniversary of those modifications is in range of approximately June 15 to August 15. And that's why the timing of this report, I feel, is very important because we are basically past the first 90-day period with almost all of our modified loans. The 6-month anniversary will be between September 15 and November 15, which means that in October when we announce third quarter earnings, we should have a certainly more recent update on the status of all our modified loans. On Page 3 of our presentation, we talk about the options that we gave our customers for modifications. I'm happy to report, we're not going to spend much time on this that our consumer loan modification seem to be coming back very well. We have a very small percentage of those that are actually asking for additional loan modifications after the original 90-day term. So we're very pleased with that. And while we had over a 1,000 of those loans, the dollar amount relatively speaking, was very small. So what we want to do today is concentrate on the commercial loan modifications. And I will refer to Page 4 of the presentation. In order for us to track those loan modifications, we developed a 7-category rating scale that determines where that particular loan is in its return to normal payment status. And I would tell you that those in Category 1 and 2 are not surprising, some 2,100 loans in that category today. Those are either back on regular payments and have paid all the deferred amounts or they are back on regular payments and are paying the deferred amount over a specified period of time. If they're not back on current payment that means that their original modification period has not expired, but they have told us proactively that at the end of that period, they will be back on regular payments. Category 3A and 3B are loans that we expect to be back on regular payments at the end of their modified terms. I mean what we really want to spend some time on today, and we'll get to that in just a minute, is what we call Category 4 through 7. Category 4 are those loans that we have identified that are still very solid loans, but we don't expect that they will be back on regular payments within 6 months of the original modification, meaning that we expect to extend that modification for a period longer than 6 months. But we do expect, at some point in the future, those loans to be back on regular payments on original loan terms. Categories 5 through 7 are ones that we have identified some weakness in either in the cash flow analysis or the valuation of the collateral. Categories 5 and 6, the borrower is very cooperative, and we're working with them, and we're very comfortable where we are there. Category 7 are those that we have identified as deteriorated to the point that either the guarantors, the property or the cash flow will not support returning to that original modification. And therefore, we will probably have to take some action on that. I'm very pleased to report that we only have 2 loans in that Category 7 at this point, totaling $260,000. So we feel very good about how our borrowers are returning to normal payments. In the middle of the presentation from Slide 5 through Slide 9, we break our loan modifications down by our divisions. We define those divisions basically state by state. Our western division includes Oklahoma, Kansas and our Northwest Arkansas Community Bank. In Arkansas, we have Central Arkansas, which is Alaska County and the surrounding area. And then we have the rest of Arkansas, which are basically the former community banks of Simmons Bank. We also break down the 4 key industry segments where the market believes there is the biggest risk. And that would be our hotel portfolio, our restaurant portfolio, our retail portfolio and our health care portfolio. Now I want to spend a couple of minutes talking about Categories 4 through 7 at the back of the presentation, Slides 11, 12, 13 and 14, go through a little more detail with those categories. We have 194 loans in Category 4 with about $468 million of loans represented. Once again, those are loans that we still feel very good about. But for some reason, they are going to need modifications that extend past a 6-month period. On Slides 12 through 14, you will see the industry category broken out for all of those 4 through 7 commercial loans. And it will not surprise you that most of those affected are in the hospitality area. So we have convenient stores with gas stations that early on, when the economy was shut down, were seriously affected by the lack of travel. We have hotels, no surprise there. They are still struggling to get back to a cash flow position and occupancy levels that will sustain them going forward, but they are making progress. We have a couple of continuing care retirement communities. So -- assisted living facilities that were basically quarantined during the COVID crisis. So they were not accepting new residents. Surprisingly omitted from this list are fast food restaurants. All of our fast food restaurants are in Category 3 or better. And very few of our full-service restaurants have actually made this list 4 through 7. So those are the comments that I wanted to bring out today. And with that, I'll ask the operator to open the line for questions from our institutional investors and analysts.

[Operator Instructions] Our first question comes from Brady Gailey with KBW.

So I wanted to start just on Slide 4, the $143 million of past due. Maybe just talk about how much of that was in the NPA bucket in the second quarter. I think your total NPAs as of June 30 was a little under $150 million. So maybe just talk about the dynamic of the past dues relative to either 2Q NPAs? Or are these past due balances going to potentially eventually become new NPAs?

Brady, that's a good question. We probably should have been a little more specific about that. Most of the past due balance here are in Category 3A and 4, and both of those categories are the ones where we are likely in the process of extending that modification. So they've just gone past the original modification date. That doesn't mean they're necessarily past due. All of these loans that are modified were current as of the date of the modification.

Okay. So when would -- I mean, if these loans get modified again, at what point does it turn into an NPA?

Well, under the same standards that we would normally consider, and that's going to be on a one-on-one basis. So there is no hard and fast rule about when a modified loan would be classified. There are also some leeway with regard to TDRs. For our purposes, all of these loans will be monitored under the same terms and conditions that we would in normal circumstances. So if we get to a point where we believe the loan ought to go on nonaccrual, it's going on nonaccrual. I would tell you that in Category 4, we don't think, right now, any of those are going to go on nonaccrual. The only issue that we would have would be those in 5 through 7 at this point. And category 7 would be the only one today that we would say we have a great potential for losses. The rest of them, we're still working with the borrower. They're very cooperative. They may have an exit strategy. We may be looking at a complete restructure of that loan, but it's on a case-by-case basis. And we are not at the point where we are ready to increase our NPAs out of this group. And quite honestly, we have not recalculated CECL with any additional troubled debt associated with it. Now it is the 1st of September. We've got to make that judgment call at the end of September, so we've still got 30 days to monitor these loans. So what I'm telling you today could change if any of these, we felt like deteriorated between now and the end of September. And based on our conversations with our customers as of mid-August, we feel very comfortable with the way we've rated these loans.

And Brady, this is Bob. I'd make a comment too on past dues. We generally don't release mid-quarter or mid-month numbers. And I would tell you these numbers on past due is a mid-month number. It's not indicative of what's happened since quarter end. So these loans -- a loan can go past due and at maturity, the loan officer might be waiting on some documentation. All of that is a push, every month, to get those cleaned up and past due. So you get to 8/31, and there's a big push, 9/30 there is a big push, but you may have a little bit of in-between mid -- so it's challenging when you see -- we wanted to give you the most recent data we could give you, but at 8/18 number on past dues. Personally, I wouldn't take that as something -- a big change from the numbers we reported at 6/30 to where we are today, I would take that more as a mid-month. We're still working through the -- each month's normal process. You get to the end of the month, you get to the end of September, that's when those numbers drop down significantly as we've worked through the administrative pieces of the loans.

Okay. All right. That's helpful. And then I know we spoke earlier in the quarter. I think it was during Gulf South. But at that time, I think you guys were saying that you didn't really see the need for an outsized provision in the back half of the year. Assuming there's no big change in the Moody's forecast, and there's no large loan growth or any large specific net charge-offs. But is that -- I know those are a lot of assumptions. But when you look to the back half of the year, do you continue to see a greatly reduced provision need relative to the front half of the year?

Well, yes, right now, we're proceeding just with normal provisioning, no additional. Once again, as we reevaluate the status of these loans at the end of the quarter, we'll make that determination. But today, we have not determined any particular need for additional provision other than our normal vision.

Okay. And then finally for me is just a little off topic, but I know you guys are focused on reducing the energy portfolio. Have you been successful in doing that quarter-to-date? And I know you were -- you kind of had your eye on $120 million midstream credit. Just any update on that specific credit?

Well, we feel a little better about that credit actually today. We haven't done anything about changing our specific reserve about it. We are going through some evaluation now. Oil prices are holding steady in the low $40, $45 range. That's much better than where we were 60 days ago. So we still feel good about the credit quality of the remainder of the energy portfolio. Our real challenge is the timing of exiting, particularly the Shared National Credits. So when the redetermination date comes around, if that redetermination warrants an increase in their line, we will not be a participant and that will be a time we will get out. If it does not -- if it actually warrants a pay down, then we will be the beneficiary on a pro rata basis of a pay down on their existing lines. So those are being managed one-on-one. All of the lead banks understand our position on our desire to exit those credits. It's just a matter of market conditions and timing. From a credit quality standpoint, I would say that, that is a very stable part of our portfolio right now.

Our next question comes from Stephen Scouten with Piper Sandler.

I wanted to see if you guys could give me some additional details just about the process for which these loans are classified in the various categories. I know it says kind of communications with the bankers and with credit officers and so forth. But I'm just trying to determine who's actually making that call definitively and placing them in these various category buckets?

Well, I will tell you that it starts with the lender. The lender categorizes that. It goes to their divisional credit team. So our credit officers responsible for that division, look at it and they -- because we were going to publish this information, our Chief Credit Officer looked at every commercial loan classification. And that's why there is a little bit of a period between the effective date of this data, which is 8/18 and today. Because we wanted to give them time to go through and verify that they agreed with the categorization. So we have had the field, the credit officers and our Chief Credit Officer, all 3, take a look at these categorizations and sign off.

Okay. Perfect. Very helpful. And then maybe could you give a little bit more color on why you feel so confident about the category 4 bucket here? I know you said -- it says guarantors and collateral fully support the credit. But do you have any incremental detail on, I don't know, LTVs or any other incremental data that kind of supports that confidence around that category for?

Well, we are finalizing our deep dive in our hotel portfolio, which is well over half of that group. And let me just give you one statistic here and that's occupancy. So we've got out of our hotel loans, this is the entire portfolio, not just the ones that are in our modified steps. We've got 31 hotels whose occupancy is below 30%. We've got 7 hotels whose occupancy is above 70%. We have 84 hotels whose occupancy is between 30% and 70%, and we have 13 that are not open. Now that's a little misleading because this includes hotel construction. So we have some $58 million of unfunded commitment in that not open category. So most of those 13 are still under construction. I don't know what those numbers were 60 days ago, but my best guess is they were substantially worse than that. So we are starting to see the most significant part of that Category 4 come back. And I think we reported at our last earnings release, our first take on our hotel portfolio that showed that our debt service coverage was in the 1.7% range. Our loan-to-value was in the 45% range. So we had a lot of room to absorb bad times. I think we also said that even the worst stress scenario wouldn't support 20% occupancy. So we believe that those hotels, specifically, are going to be able to come back in fine shape. A lot of these, like convenience stores, just got a period of time where they had basically no revenue. They are all back to supporting the original loan, but they've got some room to make up with regard to the deficit that they had first part of pandemic. So our guys have done a pretty good job of going out there, investing with their customers. They understand our exposure on that loan. And we believe, based on that, that they will be back paying under the regular terms, just not within the original 6-month period.

Okay. Got it. Great detail there. I appreciate that, George. And then maybe last question for me, and this is maybe impossible to answer, and I'm not sure if you've taken a stab at it yet, but maybe specifically on the hotel portfolio that are in the Category 5 to 7 where you do expect to see maybe some losses or some additional weakness. How do you think about a loss given default there? I mean, obviously, we can all try to assume a percentage of loans that will default or have weakness, but then the harder part clearly is the loss given default there. So how are you guys thinking about that? If there's any kind of color you can give?

No. Bob, you've probably taken a look at that in more detail than I have. Have you got any comment on that?

I don't think we have enough info at this point. As George said, I mean, our collateral is good, our guarantees and a lot of these -- you'd like to say you're well covered in them, but you know how times are. I don't have a number that I'd be willing to say this is what it is.

Our next question comes from Gary Tenner with D.A. Davidson.

I wanted to ask about the classified loan and risk ratings. I think Brady, may have kind of alluded to a little bit in his question. But you pointed out that putting loans on modification doesn't make them subject to automatic risk rating changes, et cetera. As you look at the basket of loans in 4 through 7 and having an idea maybe today of what needs to be extended on modification and is showing further signs of weakness. We didn't really see a change in classified balances from first quarter to second quarter. Is this the trigger point now to maybe some risk rating changes as we get to the end of the third quarter?

Well, it certainly could be. And once again, we will evaluate that much more closely toward the end of September instead of 1st of September. If we had to do it today, you would not see a significant increase in classified loans. We're very comfortable with what we've put in the document today. Of course, that could change. And I'll tell you some of the things that could have an effect. We have some student housing in this portfolio. So you'll see lessors in residential buildings and some $25 million there. Right now, things look okay. But if students -- if colleges shut down and students go home, that could be an issue for us. But today, it's not. So those are the kinds of things that are very fluid, and we don't expect that to happen, but it's something that could. So today, no real change in classified loans. But once again, this next period is very, very critical. We're just past the first 90 days. We've got another 90 days that are really going to help us understand more deeply that 4 through 7 category.

Okay. And then I just wanted to make sure I understood. On Slide 4 and Slide 11, where you break out the categories by balance. It looks like Category 6 and 7 were lower on Slide 11 than they were on Slide 4. So I just wondered if you could clarify why that would be.

Slide 4 includes consumer loans. Slide 11 is just commercial loans.

Our next question comes from David Feaster with Raymond James.

I just kind of wanted to follow-up on the question, how you're going to handle redeferrals. I mean do you -- how do you -- how are you going to approach these? Are you going to require additional collateral? It sounds like most of them already have guarantors. And then just maybe, are you going to grant 90-day deferrals or willing to grant up to 6 months again?

Well, I think we're doing this on a case-by-case basis. And the first go around, it was pretty much, as I said, accommodating. So if it sort of made sense that because of the uncertainty, it was in the customers' best interest to give them a deferral and we did that. The second round of deferral is going to be underwritten. So it's going to go through the normal approval process. And I will tell you, the ones that I've seen have not been granted anything more than another 90 days, but it's very possible that under certain circumstances, we would underwrite a longer period of some kind of modification. Now we cracked down on all modifications in certain areas. For instance, we prohibited any dividends or distributions above what was required to take care of sub-asset or other obligations. So we wanted to make sure that our borrowers had skin in the game, and we were the only ones willing to modify terms. And they have all done exactly what they said they were going to do. So yes, there are some additional consideration that we're giving, especially in this second round of potential modifications.

Okay. Okay. That's helpful. And then of the $1.5 billion that's in Category 3A and B, you expect those return to payment, but you haven't been able to communicate with the borrower yet. Just curious, when do you plan to communicate with those folks that are in that category? And if they come back and actually think that they need additional relief, even though your forecasts say that they could return to payment. How do you plan to approach those? I mean are you going to be pretty flexible? Or try and get most of this back to current status?

Well, once again, if we were to consider any additional modification, they would have to go through the underwriting process. So yes, I mean we'll be reasonable, but it's going to be based on data, not just accommodating.

Okay. Okay. And then last question, just following up on Brady's comments earlier. It almost sounds like you may be -- just curious how you're going to approach the modified loans under the CARES Act? It sounds like some of the higher risk categories you might be more intellectually on if there's structural issues that you might consider an NPA or a TDR now even though it might be -- have status under the CARES Act to be a non-TDR. Is that correct? Did I understand that right?

We're going to follow our regular, conservative underwriting and risk rating. And if we see a problem in the loan, we're going to change the risk rating. So we're going to continue along those lines. At my advanced stage, I can't keep everything straight. So the simpler, the better. So if I see a loan in this risk rating, I know what that means. I don't need this separate group out here that has a different definition. So anyway, that -- for no other reason to satisfy me, we're going to make sure those get in the right category.

Our next question comes from Matt Olney with Stephens Inc.

I want to follow-up on the hotel portfolio discussion. You gave us some good details a few months ago. I don't think you've disclosed your weighted average LTV yet in that portfolio. And if you have, I apologize, I missed it. Do you have what the LTV is of that portfolio?

Matt, I'm flipping through here to see if I do have that currently. I want to say that when we announced that -- I don't have that, but I recall that it was a sub-50 number. And based on the fact that we don't have reappraisals, I'm still comfortable with that. As a portfolio, it's below 50%. Now obviously, we've got ranges in there and probably those that are well under 50%, either never got a modification or they're in that 1 through 3. So I would tell you that probably 4 through 7 are the ones who have LTVs in the 60% to 70%, maybe even up to 80%. So I'm sorry, I don't have that detail today.

And it sounds like you're still going through the deep dive of the hotel book. So is it fair to say that this update today does not include the hotel deep dive? Is that right? And if so, when should we expect to see the findings from that deep dive?

Well, that's going to be really critical in evaluating these Category 4 loans. As I mentioned, over half of that category is in our hotel book. So we've got to have that deep dive done by the end of the month so we can appropriately reserve for that. But today, we are still in the process of evaluating that portfolio.

So George, is it fair to say that we'll get more details around that deep dive once you guys report the third quarter earnings and have a update call for us in October?

Absolutely, Matt. Our hope is that we are able to give you much more detail on the status of the -- particularly Category 4. The ones that are head scratchers today, we're very comfortable with, but we don't know when they might get back on regular payments. And once again, a lot of that is going to be contingent on really 2 things: hotel portfolio and whether colleges stay with in-person classes. I'd say those 2 analyses during this next month are really going to be critical with regard to that Category 4.

Okay. Matt, this is Bob. Just got word, George was correct. The loan-to-value on the hotel is about 47% for all -- the hotel category.

47%. Okay. Excellent. And then on -- I guess, on that Page 11 of the deck you put out this morning, Categories 4 through 7 is about -- a little over 4% of the total loan portfolio. Does that give you guys more confidence that potential charge-offs will be contained at more reasonable levels? And if so, any updated thoughts on the stock buyback plan at this point?

Well, Matt, I would say, yes, it does give us confidence that first of all, we think we're well reserved; second, we don't foresee any significant reason for additional provision now -- well maybe a little bit, but not significant. And as far as the buyback goes, I still think we want to get through this next 90-day period for our sake, so that we're a little more certain about risk in this Category 4 through 7 before we start releasing capital in a buyback resumption.

Okay. Got it. And then looking at the slide deck and some of the geographies you guys disclosed, it looks like the markets that have higher levels of additional modifications for around 2 are going to be in the Texas division and western divisions. Can you just speak big picture on those divisions? How are those different? And would you agree that those 2 markets are a little bit more concerning from a credit standpoint versus your other markets?

Well, I think just basically, what we're talking about there is the Southwest Bank portfolio and the Bank SNB portfolio. And a lot of that was commercial real estate heavy, as you probably recall. So it's no surprise that from a hotel perspective, from a student housing perspective and just from a CRE general perspective, when you go through that list of 4 through 7, those are the kinds of loans that populated those loan portfolios in those acquired banks. So it's really not surprising to us that it is weighted a little bit toward those 2 divisions, more than others. We get into Arkansas and we're very community bank oriented, very little CRE in relation to everything else. So I don't know if that answers your question or not, but I wouldn't say that the credit quality in those is any worse than in any other group. It's just that the type of loan in that portfolio are ones that were affected by COVID and therefore, large dollar modifications.

Our next question comes from Garrett Holland with Baird.

I realize these trends are very fluid. But do you have a formal expectation for where total deferred loans and Q3 are settled out at the time of Q3 reporting? Should it be closer to that 4% of loans bracketed by Categories 4 through 7?

Well, so you're going to ask me to guess, okay? And again, I want to refer you to what Steve said in his opening comments. So if this holds true, the number -- the percentage of loans still modified at the end of the quarter should be between 10% and 15%. If you recall, that's down from a high of 23% to 24% of total modifications. So we expect that number to be back with their modification period already over. So take a look at Category 3 and Category 4 and then 5 through 7, and a portion of the Category 3 is still going to be in modified mode at the end of the quarter. We're pretty sure all of Category 4 through 7 will be. So 1 and 2 ought to be behind us. Some are Category 3. So maybe not cut in half, but a substantial decrease in the number or percentage of loans still in a modified status.

That's very helpful. And just to follow-up on some of the detail you're seeing by client level as you're rolling out. So were -- you're the primary or lead bank for these relationships, what are the operating cash flows look like for these customers in deferral? Especially those Category 4 through 7 customers, how are they performing year-over-year when you look at those operating balances?

Well, they're -- year-over-year, they're obviously worse this year than they were last year if that loan has been on our books, that long. But they still -- pro forma at an acceptable -- and by acceptable, I mean, based on our credit policy, cash flow status. And that's how we rate all of our loans. Now how long it takes them to get back that net service coverage? That's the debatable issue today with that Category 4 through 7. I would say that in the other categories, their debt service coverage, their cash flow is, if not back to pre-COVID levels, very close to it. So once again, the big issue for us is when are these Category 4 loans expected to be back where they were pre-COVID. And that's the analysis we're trying to go through right now. I hope that we will know much more by the end of this month. But certainly, by the end of October, 1st of November, that ought to be really clear to us.

That's very helpful, George. And then one more quick one. The interest on these deferred loans continues to accrue, correct?

That's correct.

Your next question is a follow-up from Matt Olney with Stephens Inc.

I just want to clarify something, George, I think you mentioned the 2 big concerns you have right now are one around hotels, which we've talked that linked on; and two, schools and colleges, universities remaining in-person. Have you quantified that latter category of the loan balances that could be impacted? Or how you kind of think about that second category from a risk perspective?

Well, yes. And I can't break that out, but that's going to be in the residential buildings and dwellings category. And you can see that's some $25 million. We have 3 or 4 student housing projects that obviously are dependent on students being in-person at the university. And right now, so far, so good. But if we get a school that sends everyone home, and does virtual learning for the first semester because of COVID outbreak, then we've got an issue to deal with. May not be a loss, but it may be an additional deferral or some other modification that we have to go through with that customer until they do get back to normal time. So the schools have started. So far, so good. But that's a big question mark. And it's one that we can't foresee. Every school seems to be handling things a little bit differently. Fortunately, for us, we're not concentrated around any one university. Ours is pretty spread out. So it's really going to be on a case-by-case basis.

Well, to make sure I understand this. So the 2 big categories, hotels, you disclosed the amounts there, I think close to $1 billion, but this -- the residential housing, just $25 million or 3 or 4 different projects. So is that the total amount of, I guess, the total balance that you're concerned about within that category? Or are there other categories beyond that, that kind of fit in that student housing or that fit in the university class setting that we talked about before? But the $25 million is just kind of what you called out initially.

Well, that $25 million is on our list Category 4 through 7. And the reason I'm calling that out, Matt, is because there are circumstances that, obviously, are out of our control, they are out of our borrowers' control that could change our outlook on that particular category. I think as I'm looking through these others, they're more predictable. I think what's less predictable for us are the 2 categories I mentioned, and that is hotels and student housing. And that's why we've got to continuously stay on top of those to make sure that they don't deteriorate to the point that we feel like we have losses there. The rest of them are more predictable. We understand that the convenience stores are back in business now. They're selling gas. People are driving, traveling. So we're good there. Their problem was early on in the pandemic, and that's why they needed that modification. So most of those other categories are more predictable, the ones I mentioned are just the ones where things could change in a hurry.

And I'm currently showing no further questions at this time. I'd like to turn the call back over to George Makris for closing remarks.

Well, thanks again, guys. And I know there are other questions that you have, and there are questions that we have. And I hope that we've been very specific about the unknowns in the portfolio. I think what I'd like to leave you with is we are very comfortable with the knowns in the portfolio. I'm not sure we could have said that 60 days ago. So we have a much greater comfort level in our classifications of these modified loans and their timing of returning to regular payments. I would suspect that our next update will come in our earnings release at the end of the third quarter. If we have significant changes in between, that may change. But right now, we're planning on more in-depth study of Categories 4 through 7, and we hope to have that detail outlined for you in our next earnings release. Thanks again for joining us this morning. And hope you have a great day.

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