Good morning, everyone, and welcome to the Pinnacle Financial Partners first quarter 2020 earnings conference call. Hosting the call today from Pinnacle Financial Partners is Mr. Terry Turner, Chief Executive Officer, and Mr. Harold Carpenter, Chief Financial Officer. Please note Pinnacle's earnings release in this morning's presentation are available on the investor relations page on their website at www.pnfp.com.
Today's call is being recorded and will be available for replay on Pinnacle's website for the next 90 days. At this time, all participants have been placed in a listen-only mode. The floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star one on your touchtone phone. Analysts will be given preference during the Q&A. We ask that you please pick up your handsets to allow optimal sound quality.
Before we begin, Pinnacle does not provide earnings guidance or forecasts. During this presentation, we may make comments which may constitute forward-looking statements. All forward-looking statements are subject to risks, uncertainties, and other facts that may cause the actual results, performance, or achievements of Pinnacle Financial to differ materially from any results expressed or implied by such forward-looking statements. Many of such factors are beyond Pinnacle Financial's ability to control or predict, and listeners are cautioned not to put undue reliance on such forward-looking statements. A more detailed description on these and other risks is contained in Pinnacle Financial's annual report on Form 10-K for the year ended December 31st, 2019. Pinnacle Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events, or otherwise.
In addition, these remarks may include certain non-GAAP financial measures as defined by SEC Regulation G. A presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to the comparable GAAP measures will be available on Pinnacle Financial website at www.pnfp.com. With that, I'm now going to turn the presentation over to Mr. Terry Turner, Pinnacle's President and CEO.
Thank you. For those of you that have previewed today, as you can see, we've got a lot of information to cover today. In addition to topics we'd ordinarily cover on the call, we've got a lot of information on the COVID-19 pandemic impact and our response to it, which I believe has been bold and aggressive. We've got color commentary on our adoption of CECL and the subsequent reserve build during the quarter, a much more in-depth look at the makeup of the segments of loan portfolio that are likely more impacted by the pandemic, including a deep dive into BHG and how we expect it to weather the storm, and an update on our entry into the Atlanta market, which we remain excited about. We'll try to move quickly.
We've begun every quarterly call for a good number of years with our financial dashboard, primarily because it gives a view of our long-term focus and our ability to execute. I recognize that this quarter, many are focused on the immediate impact of the COVID-19 pandemic and their responses to it, which are obviously the most newsworthy items. Honestly, in our first draft of this presentation, we led with the impacts of the pandemic. The truth is, we've been in dialogue with investors over the last number of years regarding items like our ability to attract revenue producers, gather low-cost core deposits, lowering cost of funds, and growing fee income, those items that produce long-term shareholder value.
While we'll cover the COVID-19 pandemic in great detail, it just felt like it'd be beneficial to begin where we left off and try to offer brief insights into underlying financial performance despite the impacts of COVID. As we go through the material, hopefully, you'll be able to see that our decisions and actions have been both bold and aggressive. It's inconceivable to me that, on a personal basis, I guess, that when 2020 is over, that it will have been about earnings in 2020.
I suspect that it'll ultimately have been about building the earnings run rate for 2021. It's our intent to execute on the fundamentals that produce long-term shareholder value while adopting a more defensive posture in the early stages of the pandemic in order to best position ourselves for a return to more normal run rates as we head into 2021.
Of course, to ensure full disclosure, we always start with the GAAP measures. Today I want to move quickly to the non-GAAP measures because honestly, for the most part, these are the things that we're managing against. Total revenues were up for the quarter and up 10.8% year-over-year. I think that's consistent with the large volume of revenue producers we've been adding over the last several years. The model works. Of course, fully diluted EPS for the quarter was $0.39, primarily impacted by the elevated provision in the response to the COVID pandemic. We'll review that in detail in just a few minutes. Next to the EPS chart, you can see pre-provision net revenue grew 2.8% linked quarter, north of 11% on an annualized basis.
That's a really important measure when considering, first of all, our ability to weather the storm, but secondly, our ability to elevate our earnings run rate as we head into 2021. Loan and deposit volumes were up meaningfully during the quarter. In the case of core deposits, it was our largest growth quarter ever, which I believe is primarily attributable to the internal emphasis that we've placed on gathering low-cost core deposits over the last six to nine months.
No doubt both loans and deposits were aided by clients building liquidity late in the quarter. Inner numbers would have suggested that loan volume would have been slightly better than what we'd anticipated. In the case of deposits, that they would have been very strong and way ahead of our planned expectations. In general, I thought asset quality was strong. Both NPAs and classified assets were flattish.
Net charge-offs jumped up for us just a little bit in the quarter. As most of you know that have followed us for any length of time, our charge-offs are generally lumpy. Looking at the chart there, you can see that six of the last 17 quarters have been 20 basis points or higher. We'll review that in greater detail shortly, but that number was highly impacted by a partial charge-off that we're going to cover later on the call. That's a 30,000-foot summary of the quarter. I think great performance on the fundamentals, coupled with an aggressive reserve build, primarily in response to the uncertainty surrounding the COVID-19 pandemic. Let me turn it over to Harold and provide a little more color commentary on the quarter before we begin to examine the impacts of the pandemic.
Thanks, Terry, and good morning, everybody. Loan growth was solid for the quarter. End of period loans increased by $608 million during the quarter, with about $250 million attributable to commercial loan draws, with most of those, we believe, in response to the pandemic by our commercial borrowers. As a result, organic loan growth, we believe, was in the $350 million range for the quarter, which results in about 7% annualized loan growth, which we believe is admirable given the environment. Now, the deposits, as Terry mentioned, it was a big deposit quarter for us. End of period deposits up almost 23%, while core deposits were up 22% over December 31st. To that point, as many of you know, we modified our annual cash incentive plan to incorporate a core deposit growth and rate component.
First quarter was a great quarter for core deposit growth, as we sit today, we think our modification is working well. More on incentives later when I talk about expenses. Next is the usual update to our loan pricing. Loan spreads held up really well in the first quarter, we were pleased to see that and hopeful spreads will continue to hold in the second quarter. Impacting first quarter LIBOR loan yields was the absolute spread of LIBOR to Fed Funds. LIBOR spent a lot of time in the first quarter pricing below Fed Funds, at the beginning of March, LIBOR was around 40 basis points less than Fed Funds. Since substantially all of our LIBOR loans reprice on the first of the month, March was negatively impacted.
Now, going into the second quarter, we finished March at 3.8% on LIBOR loans, with LIBOR well above Fed Funds. We're anticipating that LIBOR will work its way south towards Fed Funds, so we will see absolute yield compression on LIBOR credits in the second quarter by a modest amount. It just depends on how quickly and how far LIBOR moves during the second quarter. It seems like it's been a long time since we talked about deposit betas. We do believe our relationship managers did a bang-up job on managing our deposit cost in this rate environment. In the negotiated rate bucket, we've achieved 117 basis point declines since June of 2019. Our relationship managers are very much in tune with the rate environment and are prepared to have more discussions with our client base about rate decreases.
At a minimum, we should experience decreases in CD rates for the next couple of quarters as repricing occurs. All things considered, overall deposit rates should be down in the second quarter. A busy slide, some important information as we head into the second quarter. The NIM chart on the top left goes back to 2007 and tracks our NIM in relation to Fed Funds target rates. We all know we've operated in a zero rate environment before, this is nothing really that new. The chart reflects that the longer the zero rate environment lasts, the better our NIM perform. Substantially all of us felt we were headed to a zero rate environment, and the pandemic put a lot of wind in those sails and certainly increased the speed it took to get there.
Looking forward, we've got several issues impacting first quarter NIM, and that also will impact second quarter NIM. Impacting the GAAP NIM is obviously purchase accounting, which is shown in the chart at the top right. We recognized approximately $7.4 million of discount accretion in the first quarter. Who knows where it'll end up for the full year. My bet that it'll be less than the $23 million we're projecting given payment deferrals and the low rate environment.
That said, we believe we had a solid quarter for NIM performance after considering the impact of purchase accounting. The bottom charts detail the impact of our hedges as well as hedge unwinds and our recent liquidity build. Countering the shrinkage in LIBOR spreads that I mentioned earlier will be an increase in revenues from a LIBOR loan floor we still have on the balance sheet.
This floor lasts for about another four and a half years. As the chart indicates, the floor increases in value as LIBOR continues to fall. Additionally, we have about $1.2 billion in client floors that are currently in the money and will also become more valuable should LIBOR continue to fall. We've also added quite a bit of liquidity to our balance sheet and intend to add more in the second quarter as we carefully evaluate the depth of the pandemic.
We've got ample sources of liquidity to fund our franchise, but we believe it was prudent to take on this additional liquidity. The liquidity build will likely result in more net interest income in the second quarter, but it will also result in some NIM compression. We always have the option to reduce this liquidity during 2020 as a potential recovery becomes more in view.
As Terry will cover more in detail in a minute, of significance is the impact of the PPP lending Program. PPP was an incredible three to four weeks around here. Significant resource allocation, a lot of blood, sweat, and tears by some very dedicated Pinnacle associates. If it happens like it's supposed to happen, it'll definitely soften the financial blow of the pandemic.
We're also developing a strategy around the Main Street Lending Program currently to identify those borrowers that might be well suited for it, but the Main Street is no PPP. Now to fee income, I'll be really brief. Fees were more than $70 million for the quarter, up more than 3% over the same quarter in 2019. BHG contributed approximately $15.5 million, which was slightly less than we anticipated, but more on Bankers Healthcare Group in a second.
Our other fee businesses had a strong first quarter with residential mortgage leading the way, up approximately 76% year-over-year. Mortgage had a great first quarter correlating not only with drops in long-term rates, but also with increases in the number of mortgage originators. Again, great markets are very helpful with this line of business. The national residential mortgage market is going through some strategic issues at present, so it's difficult to speculate on where all this is headed and how it might impact us. We just believe we have the best mortgage originators in our markets that are there to help clients get through the current uncertainties.
Wealth management had a big quarter in brokerage as they operated much of the quarter with record market highs. We may be one of the first or one of the few financial institutions in the country that consider trust to be a growth engine. All in all, a super nice fee quarter for us. Now briefly on expenses, salaries up largely due to the increased personnel this quarter compared to last quarter.
As a flat end case, we're throttling back our hiring focus to focus on Atlanta, which Terry will discuss in a second. Critical revenue hires around the franchise as well as critical support personnel as we've reduced our hiring plan by 40% in 2020. Our incentive accrual is at 50% at quarter end. As I mentioned previously, the deposit component worked well for us in the first quarter.
We will continue to track the EPS components to see what happens the rest of the year. We concluded 50% was fair right now. Suffice to say, given first quarter results, many things will have to break our way for that to hold. Last quarter, I mentioned that our 2020 expense run rate should approximate a mid-single digit increase over 4Q19's results. Slight modification with our belief that our expense run rate should now be less than mid-single digits for 2020. I will go into this more on the next slide. We've incurred in the first quarter a $5.2 million lending related cost related to our building of our off-balance sheet reserves as a result of adopting CECL. We're not expecting that amount to repeat next quarter.
Granted, the absolute level of our unfunded commitment book will determine that. The length and depth of the pandemic could play a critical part of where we are at the end of the second quarter and the length at the end of the second quarter. Now to CECL. I've got a lot to say here. Hopefully, we can reduce what we have to say about CECL in the future, as I know we're all weary of this topic. At the top of the slide is our rendition of a table that we've seen in several presentations so far this earnings season. Our day one allowance ended up at 67 basis points, which we believe is consistent with the guidance we've been given for several quarters.
We had slightly more than $10 million in charge-offs during the quarter, due in large part to the partial charge-off of a C&I credit that was criticized going into the pandemic, and with the pandemic, finds itself in need of equity support sooner than anticipated, which it is working on, and our specialized asset folks have a reasonable degree of confidence it will eventually receive. One of the first things our entire special assets group did in light of the pandemic was spend more than a week as a group going back through every special asset credit and to specifically address the impact of the pandemic on our criticized and classified loans. I take great comfort in the judgment of our special assets team. This is not their first rodeo. Later, Tim will also discuss how we dug into hotels, restaurants, et cetera, and other segments of our loan portfolio.
For the quarter, charge-offs ended at 20 basis points, and other real estate increased to $2.4 million. As for provision run rates, there's obviously much judgment involved in all of this, but all other conditions being equal, our provision would have been, as the table indicates, in the $14 million range. Again, you'd have to assume our net charge-offs would have been the same had the pandemic not occurred, so there's a lot of guesswork. The allowance for loan losses on an apples-to-apples basis, we think would have been in the 69 basis point range at quarter end. Now as to the COVID related provision. Based on model inputs, we feel like we've been conservative here. We've taken in a lot of relevant inputs and observations and computed an allowance that takes into consideration a wide variety of factors.
We do use a third-party source for our economic projections, which uses national level forecasting metrics. It's the same third party we use for asset liability modeling. Hopefully there is some synergy advantage by using the same forward metrics. There are four economic scenarios in our model ranging from optimistic to baseline to pessimistic to severe. Probably not too dissimilar to the more familiar adverse and severely adverse nomenclature that we've heard about in conference calls thus far. In comparison to previous releases by other banks this quarter, we've also weighted the various scenarios with the most adverse scenario having a weight of 25% and the optimistic being only six. The difference is allocated basically evenly between baseline and pessimistic.
As to economic projections, anticipated unemployment seems to get a lot of attention with our severe scenario ramping up to more than 20% in the fourth quarter of this year and averaging almost 19% for all of 2021, with 4% unemployment returning five years from now in 2024. As to GDP, our severe model drops GDP by 25% in the third quarter of this year with a rebound to current GDP in 2022. I assume all this points to a U-shaped recovery.
Our reasonable and supportable period is around 18 months, so our calculations are weighted to a time period that incorporates the bottom of the U and then incorporates the front end of the recovery, but doesn't take into account the eventual return to some degree of normal. Back to the top chart on the slide, off-balance sheet reserves are not something that anyone routinely talks about.
In my opinion, I believe it's accounting on steroids. We're at $16 million a quarter end after providing $5 million of expense this quarter, significantly higher than what we've booked in our history. That amount represents the anticipated loss content of the unfunded loan portfolio should a loan eventually be funded and ultimately result in a loss. Most of the loans that contribute to this reserve are C&I lines of credit, which are very short in maturity. All things considered, we're at 109 basis points for the allowance at the end of the quarter, plus the $16 million in the off-balance sheet reserve, so our allowance for credit losses is around 1.17%. Just a quick note, CECL has been in development at Pinnacle for over three years.
More money to vendors than I care to acknowledge and likely significantly more expensive is the thousands of hours spent by 10 to 15 key leaders of our firm in getting this standard adopted. It's an extensive accounting standard, and it's been a slog, but I want to thank them for hanging in there to get us to this point. I wish I could give them a trophy and tell them their work is done, but we all know there's always more work coming. The big question asked thus far this earning season that no self-respecting CFO will answer is will we have more provision at the end of the second quarter? Obviously our SAC group will rehuddle, we will get updated economic projections, and we'll take the pulse of our borrowers throughout and at quarter end.
Organic loan growth, the impact of the CARES Act, and other government programs will also have to be considered. Many factors are outside of our control, such as the development of antivirals, government-imposed restrictions on trade and travel, and the information that may come to light with increased testing. There's obviously a lot to think about this year.
Our best play right now is to use our models, designed largely around economic projections, to determine what an appropriate allowance may be. Like I said, I think we've been conservative here. A $100 million provision is a significant investment for Pinnacle into a period of this much uncertainty. It's more than 20 x our usual provision run rate and results in an allowance of more than 2 x where we were at year-end. Post the Great Recession, the term green shoots became popular.
There's a lot of discussion today about restarting the economy. The PPP, the other programs that make up the CARES Act, whatever comes next has to have a positive impact. We remain optimistic not only about the markets where we operate, but in our business model and the 2,500 associates that work at Pinnacle. As Terry mentioned, this management team has taken the operating position to get COVID behind us quickly in an effort to gain as much clarity as we can about our run rates going into the second half of 2020 and into 2021. Some comments on capital. First, we did redeem about $80 million of sub-debt early in the quarter that were holdover issuances from previous mergers. We also acquired about 1 million shares of PNFP earlier in the quarter.
We've now suspended our buyback program until we gain more clarity as to the length and depth of the pandemic. We're not likely to redeem approximately $130 million of bank sub-debt that was previously planned by us for redemption in the summer. We currently anticipate maintaining our dividend for the foreseeable future. We did experience tangible book value accretion during the quarter as our management remains focused on this metric.
Capital ratios did experience some dilution by 20-30 basis points this quarter back to levels more consistent with about a year ago. Our 100/300 ratios were basically flat with the fourth quarter. Our participation in the PPP program shouldn't impact regulatory ratios once those funds are fully funded in the second quarter. Holding company cash is sufficient to carry about six forward quarters of dividends and debt service. We feel good about our capital.
Obviously, credit will be the driving force behind any changes to our previous statements. Like probably every investment banker listening to this call, we too have been conducting stress testing and burn-down analysis using multiple scenarios. We've incorporated Great Recession loss rates, CECL's loss rates, historical charge-off rates, and other scenarios.
It's way too early in this crisis to conclude that our CECL and stress testing algebra is accurate, but we walk away from our stress testing feeling very strongly that our capital is strong, and we won't need to dilute common shareholders as a result of this pandemic. This slide is new but not inconsistent with what other bankers are talking about on conference calls. The PPP program will be significantly impactful in the second quarter, and Terry will discuss that in just a few seconds. All in all, it's steady as she goes right now.
The last few weeks have presented us, as well as all bankers, significant challenges. We couldn't be prouder of our 2,500 Pinnacle associates. Our goal today is to support our clients, particularly our borrowers, all the while making sure that we are making prudent credit decisions. We are here to provide our clients the capital they need to weather the storm so that they eventually are able to thrive in short order. With that, I will turn it back over to Terry.
Okay, thanks, Harold. In my view, isolating out the inputs of the pandemic, Q1 was an excellent quarter for us in terms of operating fundamentals, but obviously by the end of the quarter, we were consumed with protection, protecting our associates, our clients, our communities, and our shareholders. I can't tell you how proud I am of the leadership and the aggressiveness of our response. As you can see on this timeline, we actually activated our pandemic response team on January the 30th. That's just 10 days after the first known case in the U.S., and the same day that the World Health Organization declared a global health emergency. We had already begun ordering supplies like hand sanitizer before we had the first cases of community spread in the U.S.
In early March, we began restricting business travel, inventorying the personal travel plans of our associates as we headed into the spring break season, and communicating with associates and clients about health safety prior to the World Health Organization declaring a pandemic. On March 12th, we limited meetings and events to less than 15. That was three days before the CDC suggested limiting groups to no more than 50, and well before subsequent safer at home orders by a number of governors in our footprint suggested limiting gatherings to less than 10, which of course, we complied with. On March 18th, I believe we were one of the first in our footprint to convert all offices to drive-through only service. We already had greater than 50% of our back office associates working from home.
On March 20th, we rolled out a relatively aggressive loan deferral program to assist impacted borrowers. I'll talk more about that here in just a few minutes. I don't want to rattle down through each of these actions since so many of them by now are commonplace, but it does appear to me that our team was very bold in its decision-making and on the front end of virtually all these issues. All these things that impacted associates and clients have worked well, and we believe our clients and our associates have been well protected. In fact, to date, we have only three confirmed cases firm-wide, two in Nashville, one in Memphis. As it relates to protecting our clients, I would say we aggressively reached out to clients to make them aware of our payment deferral program.
In general, our deferrals are structured for 90 days with an ability to defer a second 90 days should the borrower need it, with no further documentation. As you can see on the left of this slide, total deferred balances were roughly 16%, and not surprisingly, were concentrated in hotels, restaurants, and entertainment. As I've listened to other banks discuss their loan deferral utilization, some have sought to use it as sparingly as possible, and I'm not being critical of that approach at all. In fact, I see some merit to it. I do want to be clear, our approach has been the opposite. It's been our intent to help our clients build as much liquidity as possible, not knowing the depth and the duration of the pullback.
Of course, as Harold mentioned a minute ago, the most impactful for clients and the most consuming effort for our firm over the last three weeks has been the Paycheck Protection Program. We received roughly $2.5 billion in apps, were ultimately able to gain SBA approval for $1.8 billion. In other words, we were able to distribute roughly 72% of the requested funds. Another way to look at it is based on the asset size of our firm compared to commercial banking assets nationally. Assuming an even distribution of the $349 billion in funding, we would have been expected to distribute about $490 million, which means we handled roughly 3.5x-4x our shares.
While I'm incredibly proud of that and all the associates of this firm, many of whom worked literally night and day, it kills me to think that any of our clients that deserved funding were unable to receive it. As you might guess, we've been lobbying Congress to do the right thing and refund the program by at least another $250 billion. In the event they do, it's our desire to see every one of our eligible clients get the funding they need, and we'll dedicate ourselves to that effort regardless of the time and effort required to do it. Just a couple other observations on PPP.
Obviously, the largest number of loans come from the smallest businesses, almost 31 x more smaller loans approved. In other words, in the SBA's lowest tier, less than $350,000, we had 31 times more of those than the ones that were in its highest tier, greater than $2 million. The fee income associated with all that volume of loans that were part of the SBA's first $349 billion allocation translates to roughly $50 million in fees expected to be recognized over the short life of those loans. That's a meaningful down payment on the special loan loss provision we made this quarter. It's our intent to be as successful on a second round, assuming Congress does indeed refund the program. We have as many applications yet to be processed as we processed in the first phase.
Let me say that Paycheck Protection Program, because it was significantly underfunded in terms of demand, put most banks across the country in a position of underserving clients. Very few banks and constituents were able to get all the apps that they received processed before funding ran out. Of course, if you're one of those businesses that didn't get funding, then you may feel like your bank let you down regardless of how Herculean their effort was to get you approved by the SBA. We took just under 13,000 applications, as I mentioned, totaling $2.5 billion. We were able to get $1.8 billion of that approved. Our associates, I think, in addition to the funding, we had to get our clients prepared beforehand on very short notice.
We had people working night and day to get in a position to advise and help clients prepare to apply once the apps were permitted by the SBA on April the 3rd. It was our genuine desire to get all our clients to the front of the queue, recognizing the banks would likely be fighting for a scarce resource. It's hard to believe that we had to stand up two new systems in a matter of days to process all that volume. Understandably, clients that didn't get funded are frustrated, and we are too. Honestly, our associates have continued to work all weekend trying to ensure that those unfunded apps are in a position to launch in the event that Congress does what it should and authorizes additional funding.
Despite frustration by those who didn't get funded, for the most part, our work to advise and look after our clients stood out versus our competitors, and it's been widely praised among our clients and in the local press. It's obvious by now there are probably no borrowers that won't be impacted in some way by COVID-19, but clearly there are segments like restaurants, hotels, retail, and entertainment that will be most impacted. I've asked Tim Huestis, our Chief Credit Officer, to provide a deeper dive into those segments of our portfolio.
Thank you, Terry. Good morning, everyone. From a credit perspective, first quarter 2020 was a continuation of our solid performance for metrics such as past due, non-performing assets, classified assets, and net charge-offs. As Terry mentioned earlier, we did experience an increase in net charge-offs from 10-20 basis points. This spike was a result of a single credit that was directly impacted by COVID-19. Absent this credit, our net charge-offs would have been in line with prior quarters. A little more color on that credit later. Before I get into the following slides, first, a few overarching comments. What we don't know with certainty is when economic conditions will stabilize. It largely depends on flattening of the pandemic curve, how high unemployment ultimately gets, and whether the rebound is V-shaped or a U-shaped curve.
What we are focused on today are those things we can do to help our borrowers and minimize loan defaults. Our strategy is the best offense is a good defense. You've all heard Terry say many times over, we hire experienced bankers who know their clients. This same principle has always held true as we've grown our credit team. We only hire very experienced senior credit officers. We currently have 24 senior credit officers, and their average tenure is 28 years, or years of experience. We have our senior credit officers paired with our financial advisors in virtually every one of our markets. Credit officers go on client and prospect calls with the financial advisor. Further rounding our credit discipline is our credit analyst team of 96 employees. Our credit analysts have an average of 20 years of experience.
We believe our largely unique line credit model of partnering experienced credit talent right next to the banker will serve us well during these difficult times. Here's what Pinnacle is doing to address COVID-19 challenge. Payment deferral program. We've provided deferrals for real estate, C&I loans, and consumers approximately of $3.2 billion. We proactively reached out to clients in the most impacted areas of our loan book with a streamlined 90 plus 90 payment deferral. For commercial and CRE clients requesting a second 90-day extension, we built a survey tool to help us collect and quickly aggregate client responses to targeted questions. We believe payment deferrals are a prudent step to help our clients bridge to the other side of COVID-19. Second, Paycheck Protection Program loans.
As you just heard Terry discuss, Pinnacle received approximately 13,000 applications totaling roughly $2.5 billion and obtained SBA approval on just north of 6,000 applications totaling roughly $1.8 billion. We believe the additional dollars to our clients will help them better endure this difficult time. Third, enhanced monitoring strategies to produce more real-time data on severely impacted segments. In the next few slides, we'll briefly cover several of the segments most obviously impacted by COVID-19. To take it a step further to understand COVID-19's impact, we partnered with an industry research firm, IBISWorld. IBIS and a team from Pinnacle work to stratify the risk in our C&I book. We took IBIS's time-proven historical quantitative metrics of industry risk level and trend of risk, and combined a qualitative overlay for impact of social distancing.
The product results in a stratification of our C&I book into categories of highest risk, high risk, medium, low, and lowest. We will use this stratification to target time and energy where the risk levels are highest. Pinnacle has continued its approach of building a well-balanced and granular portfolio. We've maintained our discipline regarding conservative house limits for CRE segments, as well as for C&I sub-segments.
The pie chart on the right provides a quick glance of these segments that have been most impacted by COVID-19 and their relative size to our loan book. Here's an attempt to be as transparent as possible regarding our loans to the hospitality industry. Pinnacle's approach of lending to hotel sponsors that are well-capitalized and have a long history of successfully operating hotels has served us well. As of March 31st, we only had one non-performing hotel loan of $3 million.
This was an SBA loan that was originated by a bank that Bank of North Carolina had acquired years ago. A few items on the page to draw your attention to include, weighted average LTV of 50%. We have provided payment deferrals for 74% to provide them flexibility. Hospitality projects are financed largely in our geographic footprint. Many of our hotel sponsors are also very large depositors with Pinnacle.
The second slide on our hotel book will provide detail about our 10 largest hotel loans. Some noteworthy details to point out include, 81% of our exposure is in the Hilton, Marriott, Holiday Inn, and Hyatt. We believe this brand identity will better position our portfolio. As you can see in the chart, a conservative LTV position on these 10 largest. Most of our hotel exposure is limited service, no luxury or resort brands.
Only 18% of our hospitality book has loan maturities in 2021 and 2022. Hopefully by these dates, the impact of COVID-19 will have subsided. This next slide provides details of our restaurant book. It groups together exposure to commercial real estate developers who lease to restaurants, as well as loans directly to restaurant operators. Some noteworthy points include, this segment is less than 3% of our loan book. Top two exposures are to well-known public companies who operate restaurants. These two relationships represent 30% of our loans to restaurant operators. The listing on the far right illustrates approximately 25% of our total retail book is being repaid from revenues of seven well-known restaurant brands. As of April 15th, 44% of our book has executed payment deferrals. This slide will provide details of our retail loan book.
It groups together exposure to commercial real estate developers who lease to retail stores, as well as clients that operate a retail business. Together, they represent 11% of our loan book. Some noteworthy details include, no mall exposure. For our pre-term loans, only 22 are greater than $10 million. Of these 22, 12 are to grocery anchored centers. 31% are single tenant, averaging just $1 million to tenants like Dollar General, Tractor Supply, 7-Eleven, and Bojangles.
These are open. It's a very granular book with over 800 loans averaging just $1.5 million . For our pre-construction loans, only six loans greater than $10 million. Of these six, two are grocery anchor. 39% of our construction loans are build-to-suit. This slide will provide some details into our entertainment music loan book. We have one financial advisor that specializes in lending to the music publishing industry.
Very experienced with strong contacts throughout the industry. Most of our loans are in the music publishing space to finance the acquisition of song catalogs. Each catalog is made up of thousands of well-seasoned, diversified songs that are stable from an earnings standpoint. Average LTV is under 50%. Revenue from the catalog is generated primarily from terrestrial radio and streaming. To a lesser degree, sync revenue is generated from songs in catalogs used in film, TV commercials, and general licensing. Only a limited amount of COVID pressure to revenue is anticipated. People will continue to stream their music, but fewer bars and restaurants playing songs may impact sync revenue. All loans have appropriate loan covenants that permit close monitoring. Notably, Pinnacle had only one loan to a concert promoter. It was a $2 million line with very modest usage.
As we discussed on the call, we had one partial charge-off in the first quarter of 2020. The music team had just one talent agency borrowing client. Due to cash liquidity reasons, this relationship was transferred to our special assets team during late fourth quarter 2019. Significant equity was injected into the company in early 2020, thus curing the liquidity issue. COVID-19 hit and revenues completely stopped. We do not anticipate any further loss on this credit.
Now let me turn it over to Harold to provide some similar analysis for BHG and our belief about how they will weather the storm.
Thanks, Tim. I've got several charts here on BHG, but I'm going to move pretty quickly through them. The top left chart on this slide, we've shown on several occasions, our opinion is that there has been no loosening, but actual tightening of credit standards at BHG, and through all of that, volume growth has been exceptional. The quality of BHG's borrowers has improved steadily from the early years of the firm. They continue to refine their scorecards and increase the quality of the borrowing base. As you know, they've ramped up sophistication on the credit process as they continue to aim at segments that have high-quality borrowers. Perhaps the bottom right chart may be the most powerful chart I have to offer related to BHG's steadily improving credit quality.
As you look at the losses by vintage, losses continue to level out in earlier months since origination, thus pointing toward a lower loss percentage over the life of the borrowing base. Recent pandemic-related events will likely cause these lines to point upward, but the quality of the borrowing base, in our opinion, is much higher than the borrowing base from just a few years ago. Now, more on historical charge-offs and reserve builds. These are for loans that they sold to their network of community banks. The green bars show that currently they've got about $2.8 billion in credit with banks who acquired their loans. The orange line shows the annual loss rate, while the blue line on the chart details the recourse accrual as a percentage of outstanding loans with these other banks.
They've been keeping the recourse reserve for substitution losses in the mid to high fours over the last few years, basically constant with annual losses. As many of you know, BHG's been building their balance sheet, thus maintaining more loans on their books with the eventual goal of issuing debt securities collateralized by these balance sheet loans. Two positives from the strategy in our view, BHG is creating a more diversified revenue stream and as well as creating another funding source with the securitization technique. That said, during the first quarter, BHG elected to pull back on the strategy and sell more loans through the auction platform, thus generating more revenue during the first quarter. By doing this, they generated enough revenue to significantly increase their recourse reserve for substitutions as we all enter into this period of uncertainty.
Their business flows have provided them the ability to increase this reserve and strengthen their balance sheet accordingly. Additionally, BHG has taken a slightly more conservative position with their outbound sales and marketing. They are purposefully electing to aim at higher FICO scores at origination and have backed away from adding any new professional classifications to their portfolio at this time. They will continue to evaluate this position for the foreseeable future. Agreed, this is some fairly granular data, but I feel it's really important. We're not going to go through it in detail, but in our opinion, point to a well-diversified loan portfolio and maybe helps to eliminate some preconceived notions that BHG is just for dentists. Dentists are absolutely important to their franchise, accounting for 11% of the outstandings.
At the bottom of the chart details the non-medical book that is growing faster than the medical book and represents approximately 14% of total outstandings. As of April 5th, total deferrals represent about 10% of the total book. That number is currently running at about 13%. It slowed somewhat. These deferrals require the cooperation of the purchasing bank.
BHG has been working with not only the borrowers, but the banks to help the borrowers get through the impact of the pandemic. Quick sidebar comment about after talking to our friends at Bankers Healthcare Group, dentists leave the group unexpectedly with a 35% deferral rate. As BHG talks to these dentists, they have learned that dentists are handling dental emergencies only and rescheduling non-emergency procedures into the summer. As a result, dentists will need to start working six days a week upon restart to keep up with the demand.
I don't know about you, but going to the dentist is not my idea of fun, but given the current economic climate, I'm going to look forward to seeing my dentist on a Saturday in the very near future. We've shown this slide before. The green bars on the left chart represent originations and have ramped up with more loans being funded, which is the result of enhanced analytics and more sophisticated marketing platforms. With the tailwind pushing more to the auction platform, the first quarter was a great quarter for origination, but also business flows are strong and should help us as we head into the second quarter. The blue bars are the loans on which gain on sale has been recorded, as these loans are placed with bankers with gain on sale revenues being generated.
The blue bars increase in the first quarter as a result of their decision to send more loans off balance sheet and build reserves, a wise play from the Pinnacle's perspective. The gold bars represent the loans held by BHG on its balance sheet for which BHG will collect interest income. Once some idea of restart occurs and the credit markets appear more liquid, the off-balance sheet strategy will be back on the radar. For me, the auction platform is probably the most valuable component of BHG's unique gain on sale model. Currently, they have more than 1,000 banks in their network. Their funding platform is alive and well and very liquid. Spreads during the first quarter were some of the best in the history of BHG.
As you know, BHG's management spends a great deal of time on making sure that this platform has ample liquidity and is ready to acquire their loans at a competitive price. Lastly, for Bankers Healthcare Group, they have pulled back their estimates by a modest amount for 2020. Who knows where all this is going to end up with so much uncertainty. As it stands currently, their business flows going into the second quarter are strong as there are borrowers out there needing their products.
Their marketing engine is aimed right at higher quality borrowers in the traditional segments that BHG has significant experience underwriting. The auction platform is liquid and spreads have been a positive for Bankers Healthcare Group. Pinnacle remains excited about our investment and look forward to watching our friends at BHG step up during this time.
With that, I'll turn it back over to Terry to wrap up.
Thanks, Harold. Quickly, as you heard from Harold earlier, in concert with generally adopting a more defensive stance, we're substantially slowing our recruitment efforts for the foreseeable future, along with the associated expense bill. With the exception of Atlanta. We continue to believe that the opportunity in Atlanta is a once in a generation opportunity, and that the timing is perfect. Indirect impacts of COVID, like social distancing, may slow our effort to some extent, but our early associate client recruiting success breeds confidence that we should press ahead. Here's why we see so much opportunity in Atlanta. This is Greenwich data for both the Nashville and Atlanta markets. It covers businesses with annual revenues from $1 million- $500 million in each. The crosshairs represent the mean performance across each market, and so above average performers are above the horizontal line and to the right of the vertical line.
It seems to me that the goal for any institution would be to get to the northeast corner as quickly as possible. As you can see, what we've done in Nashville is just that. We have capitalized on relatively poor client satisfaction among clients in the largest banks in the market. Those that had the most share had the greatest vulnerability. Clearly in Nashville, we were at the right place at the right time. Now, looking at the chart on the right, Atlanta, I want to make two observations. First of all, you'll notice that the crosshairs in Atlanta would suggest that the average satisfaction among clients of the banks in Atlanta is generally less strong than in Nashville. In other words, Atlanta is less competitive in terms of client satisfaction.
More importantly, all of the biggest banks, who possess the vast majority of all the business clients in Atlanta, suffer from below average perception of their service quality and are therefore extremely vulnerable. It is really an unusual opportunity. As a reminder, this is a slide we covered last time to paint a picture of our aspirations there. I'm not going to review it again since nothing has really changed. As you can see here, we've been extremely busy over the last 12 to 13 weeks, having pretty well hired our complete initial team. As mentioned earlier, I do expect that things like social distancing may slow our recruiting timeline down just a little bit. At this point, we're extremely encouraged by the response of the bankers that we're talking to there.
In an effort to summarize our plan for moving forward in this pandemic in general, it's our intent to move from offense to defense, to slow our investment in growth until the storm has been weathered and the environment's once again conducive to our unusual ability to take share from the larger, unwieldy banks.
That said, I believe our aggressive addition of revenue producers over the last two years, who are still in the earlier stages of consolidating their client base, should result in ongoing growth, albeit at a slower pace, and hopefully put us in a position to elevate 2021 earnings run rates faster than peers. We'll continue to manage those things that produce long-term shareholder value, but we'll remain in a more defensive posture until we more clearly see the depth and duration of the pandemic and its impacts.
Specifically, we've increased liquidity, and we'll continue to do so in Q2. We've elevated our loan loss allowance meaningfully, and although we don't intend to cut our dividend at this time, we're still in a capital preservation mode, suspending our share buyback and retaining sub-debt we had previously intended to redeem. For the first time since the Great Recession, we're slowing our recruitment and hiring in an effort to avoid the expense bill that goes with it, and to enable us to maximize pre-provision net revenue as an important aspect of our defensive posture. Operator, we'll stop there and take questions.
Thank you, Mr. Turner. The floor is now open for your questions. If you would like to ask a question at this time, please press star one on your touchtone phone. Analysts will be given preference during the Q&A. We do ask that while you pose your question, that you pick up your handset to provide optimal sound quality. Our first question comes from Jennifer Demba with SunTrust. Please go ahead.
Thank you. Good morning.
Good morning, Jennifer.
You mentioned several higher at-risk portfolios, and you gave amazing detail on all of those, as well as BHG. You said 44% of your restaurant borrowers had requested deferrals to date. Can you talk about what kind of deferral rate you've seen from those other at-risk portfolios?
Jennifer, this is Tim Huestis. Your question was breaking up. Was the question, we've had 44% of payment deferrals from restaurants. Are you asking what the deferral rates on the other segments have been?
Yes, exactly.
Okay. Well, I don't have all the different segments with deferral rates. We did include the deferral rates for these key categories, but I don't have it at my fingertips for the different segments.
Jennifer, as you can see there, the deferral rates are concentrated in those segments, given that you've got an overall 16% deferral rate as opposed to the very elevated deferral rates in those highly impacted segments.
Okay. Can you just talk about what you're expecting in terms of reopening throughout your footprint? I know the Tennessee governor has already said some things
Yeah, that's a great question. Thank you. I think we're encouraged by an offensive posture, it looks like in the state of Tennessee, the state of Georgia, and the state of South Carolina, those are principal operating areas for our firm. Rob McCabe, the Chairman and my partner here, is active on the governor of Tennessee's task force to figure out how to reopen the economy as well as the city of Nashville. It looks to me that you're going to get an aggressive restart in, as I said, Tennessee, Georgia, and South Carolina. I think when you think through, what does that mean to us? I think that you ought to anticipate that we'll work not dissimilar to the President's guidelines.
In other words, he sort of got a phased reopening, and it's based on watching the decline in cases and then stepping back in and escalating the progress from there. I think you'll see the same thing in the state. I know in the state of Tennessee, that'll be the case. Rapid opening in some places, slower opening in the more urban markets like Davidson County, Shelby County, Hamilton County, Knox County, and Sullivan County, which is up in the Tri-Cities. Again, Pinnacle will then be a function of that, and we'll do the same thing. We sort of expect to phase reopening. As you know, we've kept all our branch offices, fundamentally all our branch offices open with drive-through service, so there's not a huge service degradation. We'll stagger into it.
We've already begun building the reopening kits, and we'll use shields for tellers, protective shields, not dissimilar to what you've seen in some of the grocery stores. There are a variety of things that are included in the supply kits we're building to actually reopen on a full service basis.
Thank you so much.
All right.
All right. Our next question comes from Jared Shaw with Wells Fargo Securities. Please go ahead, Jared.
Good morning, everybody. Thanks for all the great detail. Really appreciate what you wrote out in the slide deck. I guess maybe first on the provision. From what we've seen so far in April, is there any expectation for changing the weightings of your different scenarios, or is that too early to tell, or as you probably are expecting a good second quarter provision?
Yeah, Jared, this is Harold. I don't think we'll be changing any weightings just right now. We'll probably be getting new economic projections in short order, and then we'll likely get some more before the end of the quarter. We'll just have to see what those look like, but as it sits right now, we're not planning on changing those weightings.
Okay. Does the provision fully impact incentive comp? As we see higher provision, is that fully flowing through to the incentive comp, or is there some type of determination made for broader macro portion of the provision?
Yeah, I'm not sure I got all your question. We're having a bad connection today, but I think you were trying to ask a question around our provision and how it correlates with incentives. Is that correct?
That's correct. Yes.
All right. Yeah. Currently, the way the incentive program would work is we don't have any kind of exception for provision expense, so that would be included in however we ultimately end up with respect to the incentive plan.
On BHG, when we look at the recourse obligation that's on slide 33, should we think of that as similar to a provision, or is that forward-looking and based on expectations, or is it based on actual substitution requirements that have come through, or requests that have already come through?
Yeah, I think so. Excuse me. The recourse accrual is there for eventual substitution risks that may exist in the portfolio that's been sold to the community banks. It is forward-looking, and it is an attempt to kind of cover whatever that future loss rate may be as of March 31.
Okay. Do BHG loans that are in deferral, do those qualify for substitution, or does there need to be additional trigger besides just a COVID deferral?
BHG is not subject to CECL. Those community bank loans would be included with a kind of a similar thought process as the loans that are on BHG's balance sheet. The way BHG looks at the loans off balance sheet is the way they look at it for loans on balance sheet. There's substitution risk, and that's just merely in lieu of credit risk for the loans that are on the balance sheet. Did I answer your question, Jared?
Jared, this is Terry. I think if I understand the question, the loans that are on banks' balance sheet, therefore subject to the substitution, will be treated like any other bank assets, meaning that the deferral is looked at differently for those loans than it would have been in the past as it relates to TDRs and therefore substitution put back and all those kinds of things.
Great. Thank you. That was exactly what I was looking for. Thanks.
Okay, our next question comes from Stephen Scouten with Piper Sandler. Please go ahead, Stephen.
Hey, guys. Good morning.
Morning. Morning.
Is my volume okay as well there?
Yeah, it is. Yeah, I'm not sure. Everybody's questions are breaking up, so it's not you, it's something between you and us.
Okay. I'll try to keep it short then. Can you talk about how much an additional line utilization might be outstanding, kind of what the line utilization is today, and expectations for further draws?
Yeah, I think that number is somewhere in the $2 billion range as far as what's left to draw.
Harold, I think as it relates to line utilization, it goes up and down, and today the line utilization would be at a lower level than it was at quarter end. Is that?
Yeah. In April, the $250 million has come back to like $180 million.
Yeah. Is that what you're asking, Steven?
That is. Thank you.
Yeah.
Going back to BHG, I know you gave the recourse reserve. Do you have a level of reserve for what BHG actually has on balance sheet?
Yeah, that reserve is about, I think, 2%.
Okay. I guess why would that be so much lower than the 6%?
It's about 3%. Why would it be less than the reserve for the-?
Replacement
substitution, the community bank loans? Is that the question?
Yeah.
Yeah, I think what they're doing is they're looking at it. First of all, there's prepayment losses in the off-balance-sheet book. If a loan prepays, they reimburse the bank for that. With the loans on-balance-sheet, they haven't recognized any prepayment gains. That runs about 1.5 % .
Okay.
So that's-
Okay. Last thing for me, hopefully you can hear this in a way that makes sense. I know you gave a lot of detail why you think the reserve is justified, with your exposure to C&I, can you talk a little bit about, I guess, kind of the loss expectations in C&I, the 130 basis points you had in the presentation. Just frame it up to where that was out-cycle, or what the assumptions are in the loss-given default rates, essentially, just to frame up the reserve that might screen a little bit lower than peers on a percentage basis.
All right. Well, I've been looking at several disclosures regarding CECL and the allocation of the reserves. I think by and large, the credit card books are getting closer to 9%-10%. I've not seen many disclosures yet on what the C&I and the CRE books may be allocated for our peers. As it sits right now, the way our models work, the allocation for C&I think you mentioned 1.3%, seems to be reasonable.
Okay. Thanks for the color. I appreciate it.
Thank you. Our next question is from the line of Tyler Stafford with Stephens. Please go ahead, Tyler.
Hey, good morning, guys. Can you hear me okay?
Yeah. We can hear you loud and clear, Tyler.
Perfect. I've got a couple more on BHG, if I can. I guess first, thanks for all the details in the slide deck last night. I think that was extremely helpful and much appreciated. I appreciate the earlier comment around spreads around BHG in the first quarter remaining strong and the demand there still being, I think, record levels. I guess later on in the quarter and even so far into the second quarter, have you seen any decline in the willingness of those 1,000 or so downstream banks to buy BHG paper more recently?
Tyler, got an email this morning from Al Crawford, the CEO of BHG. I think he's believing his April will be as strong as it's ever been. Their paper is still in strong demand, it looks like going into the second quarter thus far, BHG will hold. If I could follow back up on Steve Scouten's question regarding the reserve between allowance and recourse obligation. The allowance also includes joint venture loans where they share the credit risk with the bank, that does dilute the on-balance-sheet reserves. Anyway, I know I kind of mixed you up there with a couple of responses, but did I get to your question, Tyler?
Yeah, I think so. I guess I'm just trying to understand how the dynamic with BHG and the purchasing banks are going to play out this year. If default rates do begin to accelerate, what happens to the demand from those purchasing banks? Conversely, I guess, BHG's willingness to make those banks whole with losses.
Yeah. I think what they'll do is they'll continually modify their scoring models. They've told us that they tweaked those models a little bit. They're aimed at higher FICO scores currently, and they're not getting into any kind of new disciplines, so they won't have to introduce new disciplines to the banks. Their track record has always been to substitute. I don't think they really feel that they'll have that much difficulty getting a BHG loan that's gone through the approval process downstream into the banks. I think what BHG is going to have to do, that may be a little more of a challenge for them this year, is find those higher caliber borrowers to satisfy their business flows. Thus far, that seems to be working just fine. Hey, Donald, let me give you a comment.
As you know, I think maybe your question's unknowable, maybe, so I'm not trying to say, "Hey, I know this is how it's going to play out." My belief is that if you go back to the way that model works, what they're doing is generating a high-quality asset that a lot of banks in this country serve markets that don't produce that high quality an asset, nor at any acceptable volume. My belief is a lot of those smaller community banks will continue to buy that paper because it's the best asset alternative they have.
Their experience, as you know, is having gone through 19 years here, no bank has ever taken a dollar's loss on those credits. They're highly regarded credits by these smaller banks and smaller markets. I don't know the answer, and I can't guarantee what's going to happen, but my bet is that bank network will hold up very well.
Yeah. No, I appreciate that, Terry. I guess what we're just all trying to figure out is, as we enter a recessionary environment and losses out of that paper potentially accelerate dramatically, does the liquidity dry up and these banks stop buying the paper, or does BHG continue to make those banks whole as they historically have to keep that high quality aspect of that paper, but take on significantly more losses and less profitability to do so?
Again, I hear you loud and clear that you may not know that answer and how it's all going to play out. I think that's just what we're trying to figure out. Maybe just lastly from me then, given that said, in terms of Al's comment about how April is trending so far, what's the underlying, I guess, drag on BHG's net earnings growth this year?
Is it less gain on sale margin? Is it assumption for higher put back risk or losses? What's ultimately driving that lower net earnings growth?
Yeah. I think it may be all of that. Primarily, I think what they're trying to do is get prepared for maybe additional recourse bills as well as maybe some pullback on business flows. I think they reduced their guidance to us on where they think their loans will end up for the year. I think it's a little bit of all of that. I still think they'll weather this storm pretty well.
Okay. Just lastly from me on expenses, just a clarification question. The earnings release talked about low to mid single-digit expense growth relative to 2019. The slide deck talks about low to mid single-digit expense growth relative to 4Q 2019 annualized. It's about a $20 million or so difference. I'm just curious what the baseline that we should be thinking about, if it is 4Q 2019 annualized, which is $522 million of baseline expenses to go on top of.
It's 4Q 2019.
Okay. All right. Thanks again, guys. I appreciate all the color.
Thanks, Tyler.
Thank you. Ladies and gentlemen, let's try a better sound quality. Before you state your question, please turn down or off your computer speakers. Again, just turn down or off your computer speakers. As a reminder, if you have a question, just press star then one. Our next question is from Catherine Mealor with KBW. Please go ahead.
Thanks. Good morning. Can you hear me?
Yes, we can. Thank you.
All right. Question on the PPP program. Great to see how active you were. Can you help us think about how to model that $50 million in fees? I'm assuming we'll see most of it in the second quarter, assuming most of it turns into a grant. One on geography, do you expect this to come in the margin or in fees? How are you thinking about how much of that will come in the second quarter versus trail off over the life of the loan? Thanks.
Yeah, that's a great question. I wish I knew all the answers to it. What we're modeling is the revenue to come in, some in the late second quarter and some into the early third quarter, and about 75% of the loans being, call it, forgivable. Recognition of the fees of the remaining 20%-25% over the next, call it year and a half after that. Now, we've asked a lot of people about how they're modeling it, and we can't really get a strong consensus one way or the other, but that's kind of where we've taken a first stab on collection of that revenue.
Oh, as far as fees.
And so you're-
Go ahead.
No, go ahead.
As far as fees or margin, I think right now we're leaning towards a fee recognition, but we'll wait to see what the accountants say about that. It may be a margin thing. I'm not really sure right now, to be totally positive, Catherine.
Okay. Your margin and your fee guidance does not include anything from the PPP program, then?
That's right.
Okay, perfect. On your reserve build, is there any way to think about how much of your reserve build came from the higher risk category that you broke out? You gave, I guess it's about 20% of your book is in the retail, CRE, hotel, restaurant. Can we think about how much of the incremental provision we saw this quarter came from just those portfolios, or is that too simple of a number to pull?
I don't think we know. When we ran the models, the way the modeling works is it gets call report categories. We don't have it allocated within the models to the various NAICS codes like that.
Got it. Okay, makes sense. Thank you for all of the disclosure last night. Super helpful.
Thank you.
Thank you. Our next question comes from Steven Alexopoulos with JP Morgan. Please go ahead.
Hey, guys. Good morning. This is Anthony on for Steve. Of the number of banks in your core purchasing has the willingness of these small community banks to purchase BHG loans changed at all, given the high amount of payment deferrals going on in many banks across the country?
Can you go back through that one more time? It was a great one.
I think he wants to know, has the BHG demand for BHG purchases from corresponding banks diminished as a result of deferral activity?
They're still able to place every loan that they send to the auction to all these community banks. There's still high demand with respect to the auction platform, there's a lot of bid traffic on the website for it. They don't believe they're seeing any diminishment in the appetite for that credit.
Got it. Okay. On the 20% of high-risk loans that you called out as most impacted by the pandemic, do you have the reserve against these loans for each of the four segments that you called out?
Yeah, we don't have that degree of specificity. The CECL models are built around call report categories, and we don't have it broken down into the individual NAICS. What we tried to do on the slide deck this morning was aggregate exposure through various products. We've got C&I exposure, CRE exposure, all considered within those individual slides. We can't really differentiate or allocate the loss exposure assigned to those.
Okay. Finally from me, on deferrals, it looks like eight of your top 10 borrowers in hotel have requested some sort of deferral. You mentioned about 44% of the restaurant book is getting payment deferrals. What are you hearing from these borrowers when talking to them about the likelihood of them getting current on their payments once the deferral period ends? Thanks.
Well, I guess to understand that, I think the question had to do with, of all the deferrals that we're having, what are we hearing from our borrowers about their ultimate ability to make payments?
Correct. That was my question.
This is Tim Huestis. I'd say that it's still early. I think our conversations with the clients about payment deferrals will pick up in earnest in early May, as they start approaching the 60-day. With any of the clients that want another 90-day deferral, we'll be asking for a fair amount of information from them with the purpose of trying to determine how much of the portfolio may not make it versus those that are simply wounded. As of this moment, we don't really have feedback from clients on deferrals, when they might be able to make payments.
Great. Thank you.
Thank you.
Operator, are there any more questions? Hello? Operator, are there any more questions? All right. Well, let me offer my apologies. We've had a difficult time on the line being able to hear, and we're a little uncertain as to where we are right now. We're not hearing any questions, and so I would just thank you for joining us. Again, our view is that we had a really solid quarter, operating well on fundamentals, and we think we've been aggressive and bold in our responses to the COVID pandemic, including our loan loss allowance build. Thank you very much. Appreciate you being here.