Q1 2020 Earnings Call
Greetings, ladies and gentlemen.
Welcome to the Truest Financial Corporation first quarter, what do you towards the earnings conference call.
They all participants are in listen only mode. A brief question lots, especially with followed a formal presentation.
As a reminder, this event is being recorded.
It is now my pleasure to introduce your host Mr., Ryan Richards Director of Investor Relations for Trust Fund out your cooperation.
Please go ahead.
Thank you Johnny Good morning, everyone. We appreciate you joining us today sincerely hope you're doing well.
This call, our chairman and Chief Executive Officer, Kelly, King and our Chief Financial Officer, Daryl Bible or you are first quarter results and provide some thoughts for the second quarter 2020.
We also have Bill Rogers, our President and Chief operating Officer, Chris Henson are kinda back again, and insurance and Clarke Starnes, our chief risk officer to participate into Q1 day session.
Note that we're conducting our call today from different locations to protect our executives and teammates.
We will reference a slide presentation during today's call a copy of the presentation as well as our earnings release and supplemental financial information.
Our available on the truth <unk> Investor Relations website.
Please note the truth does not provide public earnings predictions or forecasts. However, there may be statements made during this call that express management's intentions beliefs or expectations.
These statements are subject to inherent risks and uncertainties, including the impact to kill the 19.
Actual results may materially differ materially from those contemplated by these forward looking statements.
Please refer to the cautionary note regarding forward looking information in our presentation and our FTC filings.
Please also note that our presentation includes certain non-GAAP financial measures.
Please refer to page three and the appendix of our presentation at the appropriate reconciliations to GAAP.
Now I will turn it over to Kelly.
Sure Ryan Good morning, everybody. Thank you for joining our call I'll start and I Hope you and your families or say somewhere along the difficult environment, where all living and I want to talk a minute before we get into the numbers to just talk about culture, because I believe now more than ever closer matters. Most so all of the things we can talk about.
So you've heard of sorry that our purposes in spine barrel better life and communities. This is absolutely.
Critical time for us to live out that purpose.
I'm not sure does focusing on our clients our teammates on our stakeholders.
And in that order and we do that Burger seriously you ever done.
Our buyers are to be trustworthy, Karen operated one chain focus on success and ultimately happen as for our teammates.
We are focusing during this environment.
Number one on excuse me to help them sector of our teammates.
We are well used up about 35000 about 58000 today marks are able to work our remotely.
We are spending a lot of time supporting our clients, particularly on the payroll protection program.
We're spending a lot of energen fiber supporting our communities are our troops chair of 25 million dollar philanthropic organization that we did early end to end the cycle.
I'll tell you that our team works are working really really hard they're working 24 seven in many cases.
They're working Berberich closer together, it's incredible to see the China positive results that were getting particularly like in the PPP program, where our people were able to stand up literally overnight and automated portal to allow our clients or access automatically are with us in terms are getting their applications.
Then.
I pay makes a bonding faster than we've ever had expected.
And I can say to you today that are coals are a true it is really really strong.
If you're following a presentation I'm on slide five.
Just as a reminder, after the combination where all the sixth largest your commercial bank that's market value.
From a very strong number two weighted average deposit market share and on top 20, I mean, I'd say, that's where American households, 58000 teammates.
We're very well positioned we think churchey our purpose.
All recognized as one of the high afraid it financial institution.
And we're continuing to grow loans and deposits, particularly in the staring at a flight to quality. There's gonna covered a lot of estimation of about first foreign capital and liquidity and just a bit but I would point out without diversification as a real strength, we are very diversified and products services and geography.
On slide six we talk about some of the things we're doing with regard to their prices.
Like others, where you had been providing relief assisted living.
During forbearance deferrals extensions.
Other ways, we can help our clients we've already done over 300000 accommodation for so much 16000 for our commercial clients.
Weve temporarily waived <unk> service charges.
We are uniquely offering at 5% cashback on qualifying card purchases for important basic needs.
We're real pleased that we've been able to continue to allow oh pull but and on intervention with our clients in terms of particularly when they have we're fortunate the 90% of our branches have drive through so we've been able to keep those branches opened in terms of activity.
We've been.
Really focused on the Oh check protection program.
Average loan them out there's about 323000.
We've been authorized for 32000 companies, one representing about 1 million employees and we expect to funding to be a little more than $10 billion on the first round and it will likely be more on the second round. If it is in fact approved.
Providing financial relate programs for small businesses midyear all the way also and we've been able to fund a without hesitation extension line drawn for our commercial appliance.
Teammates lever water 1200, dollar kronos virus or related bonuses to about 78% of our teammates making less than 100000, a year, we've been very aggressive in providing work from home and other alternative worked strategies for our teammates to provide safety for them.
We also to increase our on site special right pay for those that have to be a work in critical roles. The 6025 cents special pay or are those on hourly in 15 miles a day for those that are not a true foundation is contributing to pull it all up for every $1 that our troops female donate a one team fun, but.
I'm, sorry teammates that are in financial hardship and native census, rock Premier days, we announced earlier $25 million philanthropic contribution. This is really gone a long way to help we started what donated $1 million for each of the CDC Foundation on Johns Hopkins.
No true foundation diluted 3 million miles I, like where you're not anyway organization.
On page seven just a few financial highlights.
We did have $5.6 billion and taxable equivalent revenue.
Adjusted net income available to common shareholders was 1.18 billion.
Diluted earnings per share on adjusted basis was 87 cents.
Return on tangible common equity adjusted was 15.5, which is very strong in this environment.
And our adjusted efficiency ratio was 53.4% so we feel really good about that.
Our January February will like a lot of people really strong a and then we of course the ran into all the challenges that we're all experiencing recalls of Carbonite team Interestingly insurance and mortgage continued to have strong performance throughout the entire water asset quality of Clark will describe two years is actually very.
Good right now, but we know that's the common before the storm.
That's why we added a stronger 809, it's very emotional of provision in anticipation of the challenges that we thought we will face we have a tie to focus on our teammates and our clients and our communities, which we believe is our job number one right now.
If you will go to slide eight that's a couple of the unusual items this quarter.
We know, it's a little messy, but we've got the issue of the merger and the covert impact.
Merger related charges or 107 million before tags about six cents a negative impact after tax the incremental operating expenses bigger ones that provide future benefits, but they're not a part of the ongoing run rate, we called them out separately and that's 74 Mariano will hall sensor share and then to covert impact.
In terms of cost around for volume revenue.
It's about 71 billion or four cents. So there really is in my view about 14 cents of unusual items, which gets you to the 87 cents.
If you go to.
Deck now on slide.
Slide nine and most of maxes.
It's been an interesting period.
You can see that our first quarter average.
Loans was 301 Varian.
But by the end of the period or 319, but obviously, we have a surge high at the end of March were at about $18 billion and draw Downs.
That continued into early part of April we Gotta Love Love about 1.4 bedroom, then John the subsided and it's been relatively flat since then.
We do expect substantial PPP funding that said we have in process.
About $10 billion and committed loans, we expect will be drawn down relatively uncertain.
You know turned to the market.
I know everybody wants to know what's going to happen there too.
But the truth is we just don't low.
It depends obviously on the depth and the length of the L. prices.
As we as we work through that and and how that has the knockoff effect with regard to the economy. The good news is going into this economy was very strong.
The bad news is small businesses will really struggled to recover from this.
Still I would say to you Americans are resilient.
And I believe our country is likely to outperform the worst expectations.
If you look at deposits on page 10.
Same kind of thing our average balances for him and 34, Bergen popped up to 350 billion.
As we had.
And then great. So $15 billion during that period of time about 7 billion and that was land balls.
We also had some seasonal increases and some flight to quality deposits that moved them with river. So.
Total average calls.
This decrease by six basis points, which we're.
Burden for happy to say, let me turn as the Dal tile and let him give some detail.
Thank you Kelly and good morning, everyone today I want to talk about the key pulled from the first quarter and provide some color on car business conditions, turning to slide 11.
Net interest margin of 3.58% at 17 basis points purchase accounting contributed 52 basis points to reported net interest margin.
Core net interest margin was 3.06% down eight basis points.
Decline reflected the full quarter impact of the merger of equals lower interest rates and our liquidity built in March.
The yield on loans and leases held for investment increased eight basis points as the benefit from purchase accounting more than offset lower short term rates.
The yield on our portfolio securities portfolio decreased three basis points, we became more asset sensitive to two floating rate loan growth expected higher prepayments terming out federal home loan bank advances and increased non interest bearing deposits.
Our loan mix was 55% floating in 45% fixed.
Current trends suggest and then interest margin will decline further from a full quarter impact of lower rates flying draws PPP funding and elevated reserves at the fed.
To protect loan yields we are implementing for an all new production and we continue to aggressively reduced deposit costs.
Turning to slide 12.
Non interest income increased 563 million, reflecting a full quarter from the merger of equals.
Insurance income increased 39 million or 7.6% versus first quarter 19, due to higher PNC commissions organic growth strong retention increased pricing.
Rather that your mortgage income was strong with origination volumes at 11.7 billion.
When you file with 56% of origination and gain on Carol margins for 176 basis points.
Wow forbearance is a potential headwind that could be offset by higher volume and spreads.
This quarter several feet income categories were impacted by the pandemic.
Investment banking and trading was impacted by 92 million.
Due to the increase in TV, a reserves arising from lower interest rates and wider credit spreads.
As shown on this slide discretionary actions resulted in lower service charges on deposits and card and payment related fees.
Current trans include the seasonally strong insurance income.
Strong residential mortgage production, partially offset by lower service income due to forbearance.
Lower asset valuations and lower purchase volume related to Kobe.
Turning to slide 13.
Non interest expense increased 856 million, reflecting a full quarter impact from the merger merger related costs included a 107 million of merger related and restructuring charges and 74 million or incremental operating expenses related to the merger.
Discretionary actions in response to co that impacted non interest expense by approximately 65 million.
Hello quoted at 1200 dollar bonus to all teammates burning less than 100000.
Personnel expense included 44 million of incremental operating expenses related to the merger.
This was positively impacted by the decrease in the market value of non qualified plan assets, which is offset and then interest income and other income.
We also updated our intangible valuation as a result annualized full year amortization expense for 2020, what's revised to about 660 million.
Current trends in expenses include relief measures such as special pay for some client facing teammates and measures to better protect our teammates clients in communities.
We continue to have.
Good core expense discipline, even in the face of Kobe Health crisis.
Turning to slide 14.
Asset quality remained strong economic conditions have deteriorated truest will continue to apply the Cecil standard adopted January onest.
Our MP a ratio increased nine basis points to 23 basis points largely due to the adoption of diesel and the transition from T. I had a PCB.
Npls were 32 basis points to total loans up 17 basis points from yearend, primarily due to the P.T.I.P.C.D. transition.
Adjusting for this transition our M P eight and MTR ratios were essentially flat from last quarter.
Net charge offs were 36 basis points of average was down four basis points.
The provision was 893 million and reflected the reserving in accordance with C. So.
The increased provision was mostly due to a significant loan growth and scenarios, reflecting a weaker economic outlook.
The increase also reflected a full quarter of post merger activity.
Our allowance coverage ratio was 1.63%.
The combination of our allowance and the unamortized fair value Mark remains a very robust 2.71% of total loans.
The adoption of C., so, resulting in strong coverage ratios at 4.76 times for net charge offs and 5.04 times for Npls.
We expect second quarter asset quality matrix to be elevated reflecting covert stress across a loan portfolios.
Turning to slide 15.
The table on the left summarizes our exposure to industries, we believe our most vulnerable and the current environment.
We have very low exposure, reflecting meaningful diversification from our merger outstanding loans to the group totaled 28.4 billion EUR, 8.9% of loans held for investment at the end of March.
Oil and gas portfolio is weighted towards lower risk sectors.
Outstanding balances on Levered loans totaled 10.5 billion EUR 3.3 billion of loans held for investment.
42% of our leverage loans are investment grade or the equivalent.
We are actively managing these portfolios and we'll continue to make underwriting or risk, except this adjustment as appropriate.
Turning to slide 16.
The 582 million increase in the Hcl from the initial c. so adoption.
Reflects rapidly evolving market conditions.
Our standard practice is to use three scenarios to inform the c., so allowance complying judgment to assign the probability of each scenario.
These scenarios include movies baseline with implied rates, but optimistic scenario I want stress scenario.
We also consider heighten industry concerns from the pandemic effect.
Together with the impact of government relief packages when calculating the c. so estimate.
Slide 17 add additional details on our loss estimation approach.
Turning to slide 18.
Our capital ratios declined slightly mostly due to significant significant balance sheet growth related to line draws however, our capital levels remain strong relative to regulatory levels for well capitalized banks are C. E. T. One ratio was 9.3% down 9.5% in the fourth quarter.
Our dividend and total payouts were 61.4% for the first quarter.
We are taking a prudent approach to capital due to the uncertainty on the economy.
Our 2020 see CCAR submission incorporated this impact.
Andy T T. One ratios for the internal baseline severely adverse scenarios, well exceeded regulatory minimums and internal post stress policy goals.
We intend to utilize the five year Cecil transition for regulatory capital purposes, which provides a 17 basis point benefit to see 81.
We expect to grow capital and serve our clients throughout this challenging time.
Turning to slide 19.
This slide shows the second past performance among peers under stress conditions and from a capital resiliency perspective, due to strong PPNR and lower credit losses.
The cable compares credit loss reserves reported Biotrue list and its peers at March 31st to the respective stress losses under 2018 de fast.
We used stress losses from 2018 as this was the last year, the fed probably ski fast results for BB and T. and Suntrust.
We think that 2019 would be similar given the improved risk profile and earnings power of the combined company.
As the column on the right shows through its 35% ratio of credit loss reserves to stress losses is above the peer average at 33%. However, after layering in the unamortized fair value marks on the Suntrust portfolio, which totaled three and a half billion on March 30, Onest true us so.
Dress loss coverage increased to 58%.
This is a great illustration of how the merger enhance the risk profile, both companies and resulting in a defensive balance sheet.
That is insulated by purchase accounting marks and see so reserves.
It is also another example of why we believe we are better together at truest turning to slide 20.
We acted quickly in response to the pandemic to term out short term borrowings and increased cash to meet capital funding needs.
As such our liquidity ratios remained strong with an average LCR, 117% and illiquid asset buffer of 19.6.
Our access to secure funding sources remains robust.
We have experienced a flight to quality admitted recent market volatility with total deposits, increasing 15.5 billion and we continue to see robust growth. This quarter, we have sufficient liquidity to fund our PPP loans from our existing fed balances.
At the fab.
In addition, holding company cash is sufficient to cover 17 months of contractual expected outflows.
No and flows.
We are withdrawing our guidance for 2020, given the uncertainty going forward.
For the second quarter, we are providing guidance on several categories based on linked quarter changes versus the first quarter of 2020 [noise].
We expect earning assets to grow in excess of 5% on linked quarter average basis, reflecting the increase in loans from seeing eye line draws and the P.P.P. program.
Total taxable equivalent revenue will be down a few percent linked quarter, reflecting a meaningful decline and then interest margin driven by lower rates liquidity Bell and fee income pressure as noted earlier.
Core noninterest expense adjusted for the merger amortization and covert expenses is expected to be flat linked quarter, excluding the adjustment for the nonqualified plans.
We're making good progress generating savings from third party spend 10 facilities optimization.
Depending on the length of the economic downturn, how deep the downturn goes and how effective the government programs play out will influence scenarios that unfold you can see net charge offs increase throughout the year and possibly add more pressure to build the allowance.
We are also striving to achieve positive operating leverage despite this challenging environment now let me turn it back to Kelly for an update on the merger and closing thoughts acuity.
Excel.
So in terms of the accomplishments and keep in mind.
We really just did merge the two companies in December and so we've accomplished a lot. Most importantly, we rolled out there through its culture, a we were able to complete 32 town hall meetings or we had a few of the very end or we had to cancel or defer because of a curve at night chain, but we got through most of it.
Enterprise and the reception through it was extremely good we introduced and rolled out a truest visual identity and logo.
We did complete the purchase of Truest Center, which is our corporate headquarters here in Charlotte.
We launched our troops foundation.
And we were able to go ahead and begin consolidating some redundant real estate portfolios that we had a that we could go ahead and begin to get some early call sites.
So in terms of mix sale.
If you think about a right now we really have to major priority number one priority is focusing on her with my team.
We are laser focused on taking care of our teammates, making sure everybody is safe and well.
We're doing everything we can possibly due to support our clients.
The only in terms of the safety in terms of interaction with us, but also in terms of helping them, so saying to economic challenges that are going along with that so terrible experience. We're all all going for.
We're trying to be very I'm willing to invest and be created in terms of how to support our.
Communities, we're doing some really interesting things there in terms of broadband and all types of things. We can do to have communities that are where they really.
Struggling.
So the second priority of course is keep and integration and conversion on track. We believe we are in our good place there it's hard to know exactly what may happen with regard to any delays.
We really depends on you know the depth and that sort of and lifts of the of the health crisis.
But at this point, we still feel good about where we are in terms of our.
Planned a conversion and integration activities.
In terms of our performance targets are we still believe a into medium term, we would project our return on tangible common equity into low twentys adjusted efficiency into low Fiftys you can see we're already.
Pretty much there.
And we still remain very confident in terms of our $1.6 billion and net.
Call studies.
You know exactly when we achieved that China depends on the obviously the environment. We're living in if it's a v. then we'll recover pretty quickly and we'll hit these are in the not too distant medium target type arrangement, because the you it'll take a little bit longer and that's it's pretty obvious.
Regardless.
We believe that we will be a top tier.
Performer or whatever the absolute numbers are.
I will say to you that all of the benefits of the merger look better now than they did a year ago.
Finally, if you look at our value proposition slide we believe we provide a really strong value proposition, we already purpose driven company committed to inspiring and building better lives in communities, that's really important more important than they ever in today's world.
We have an exceptional franchise with diverse products services and markets.
We have strong market share and viber faster or human assays in the south the mid Atlantic kind of growing national presence, we have a very copper a comprehensive and diverse business mix and banking capital markets and insurance and very importantly, we are simply better together they are stronger where more rigs.
We have best in breed in terms of talent technology strategy and processes.
We are very uniquely positioned to deliver best in class efficiency and returns while investing into future.
That said, we have net 1.6 30 miles of never called stage yet to come.
Just complimentary businesses are clearly going to yield substantial revenue increases as we develop synergies.
Returns on capital avoid by purchase accounting accretion, which they'll has described to you.
And we're making many from investments in technology capabilities, our teammates marketing and advertising.
We have a very strong capital and liquidity or with a resilient risk profile enhanced by the merger, we are very prudent and disciplined and risk management and financial management.
Very conservative risk old leading credit metrics among the highest rated large bank.
Diversification benefits that arise from the merger.
Discussed, we stress tests, very very well separately and together.
We have a very strong capital and liquidity position there and.
Being enhanced even with a flight to quality and we have a very defensive and I would call and strong and resilient balance sheet.
Supported by purchase accounting marks combined with the sequel credit reserves because of the strength of our balance sheet.
And our liquidity I would expect us to continue our dividend.
As we go forward it into a as far as we can say.
So like I said in January as you liked us a year ago, you should love US now as we continue to believe our best days are ahead, Brian I'll turn back over to you. Thank you Kelly John at this time will you. Please explain how our listeners can participate in the Q and a session.
Certainly.
If you'd like to ask the question on today's call. Please press star one on your telephone keypad. Please make sure. Your mute function has turned off to another signal to reach our equipment.
I always talk on the phone line will indicate when your line is open piece can get your name before posing a question.
Again that is style one to ask a question.
We will take a first question.
From Saul Martinez.
Yes.
Please go ahead.
Hi, Good morning, guys wanted to ask a little bit about.
Outlook for credit and the interplay with the accounting and a lot of the moving parts here. So on slide 16, you go through your day one.
Jamie Research true up and the additional reserve fuels within the first quarter.
But darryl how much of the can you just tell us how much of the three and half billion dollar spread it Mark is $3 billion loan Mark sorry for credit versus liquidity in rates.
Yes out so first I would tell you when we came up with our day one estimate on our reserve.
We had three scenarios that we came up with and we waited our stress scenario, 40% on day, one so we started.
A year off with a strong reserve from that perspective.
When we moved over and made our provision this quarter, we went through multiple scenarios actually always Ron and then with Moody's changing their scenarios. Every few days, we added actually ended up running 10 different scenarios through quarter and into early April trying to help using oh.
Overlay to help us I just on that CISO number that we came up with.
And then at the end of the day, you're back to using expert judgment I mean, we always have qualitative factors this year, but this time.
Clark and Alan and the team really had to spend a lot of time qualitatively because the models have limitations when the government's infusing over five trillion dollars and they have to weigh in and what the effectiveness is you have all these payment plans basically out there and you need to expert judgments on how effective those programs might be.
So there's lots of qualitative adjustments that we came up with and we feel very good about the reserves that we have there as far as your fair value Mark we basically it's a combination of credit liquidity and interest rate.
And it's out of had three and a half billion.
Okay, how much of that spread.
Versus industry, we didn't just if we didn't disclose that hats out okay.
So going for me I I see ended a day.
That's out at the end of the day I mean, it's all going to create into earnings. It's all going to be used as a lower value for when we out you get a little bit a benefit because you have a lower book value.
When you apply your reserve so it's all going to count whether its credit interest rate or liquidity it really doesn't matter.
Okay got it but I'm trying to understand that lots acuity capacity for credits little bit more engine to storm forward. So I mean, you did mention that there is a possibility for reserve builds and if they think about going forward. If it keeps the economic environment does worsen in credits as we're seeing more than what sort of embedded in your.
Team in your outlook.
How does that obviously on the Suntrust both you'll have to.
Your BPMC legacy book do you like which will your theory seattles, but on the credit more.
Do you see if it turns out that whatever that portion of the threed happening that's for credit marks is insufficient losses will be larger than that.
How does that work in terms of each county.
We estimate that down and then get a subsequent benefit on purchase accounting accretion I guess, what I'm asking is eating going forward you get the is there risk of sort of doubles here to your equity base from reserve builds in credit Mark adjustments that only come back over time.
So when you come up with your Cesar reserves, we really don't take into account that the the fair value Mark.
It is a lower book values and providing last.
It really is going to depend on what I said in my prepared remarks.
What happens in the economy as they tend to be more stressful.
At the government plans, how effective theyre going to be and then how deep it really is Arkansas sell a week, we assume through a weighted probability of all those scenarios that Daryl described when we did our estimate we assumed very sharp initial GDP contraction spike in unemployment in.
Then lingering high single digit unemployment for the two year reasonable supportable period in our mean reversion was basically similar to what we experienced after the great recession and so then we did the Daryls point, a good bit of senior inhibiting analysis around the different stress portfolios.
As we looked at the.
Historical and projected re default rates on the different margin deferrals, and we baked all that into our qualitative overlay. So we feel like.
The estimate today is the best we know obviously if things deteriorate worse, we would have to provide more if they if it holds up as we projected than we're well reserved.
I understand it on the C. So is there but on the unamortized loan markets the losses are greater than three now.
Calibrations estimates and you now housing.
How does that work.
So you have a year up to true up your good well, but that's based upon any miscalculations you had at that 12 six.
We feel pretty good we finalized all the marks I think I mentioned that the new amortization amount is on the intangible. So all that was trued up this quarter actually haven't table on it and that that so all that kind of finalized from that perspective, you really can't go back and and Riyadh you out on any of that okay. Okay. So there's no there's no.
Really.
Yes, there that there's an incremental loss associated with that on top so user.
Yes, that's correct yeah, that's right side, Thank you write things like well.
Sure.
We'll now take on next question from Gerard Cassidy of RBC. Please go ahead. Your line is open.
Maybe moving down the money so.
Hey, John.
No.
Does it look like fuel.
Purchase accounting accretion came in stronger this quarter, you tangible book value, obviously jumped up to 26000 share.
That was partly attributed to I guess stronger to purchase accounting accretion can you give us some color and how that worked out this quarter versus maybe your prior expectation.
Yeah. So we came in higher than expected and was mainly due to well is paying off.
Both on the corporate side and on the consumer side.
So as a little bit above our own estimates that we had.
You know on a go forward basis, you know I would say that you can't count on that you know basically over estimating throughout the year, it's possible, but you wouldn't count on it. So you look at core versus.
Reported margin, we were 52 basis points at friends.
I would probably think it averages closer to 40 basis points on a.
Consistent basis, but you never know, what's going to happen on a quarter quarter basis on play out payoffs. It just from people pay off their loans you have to basically taken all the accretion.
Very busy and then.
Slide 19.
Samsung appreciate you put that putting that together.
Can we shared with us.
And maybe it's just simply loans.
Economic assumptions are not a different than the stress test. So one is in seasonal accounting it's everyone.
The teams and looking at life of loan losses.
Hi, good reasons, even higher and yields are the highest level to too.
A stress losses why don't they match what the stress tests. We're testing for you then is it simply as economic assumptions.
Yeah. So there's a difference between diesel and stress testing stress testing as a dynamic living breathing.
Process. So you basically have to project, new volumes and growth or a write off depending whatever happens T cell is basically a static balance sheet with write off assumptions. So there's differences there the chart that we put it on 19 I just to give credit or we basically plagiarized that from Jason Goldberg I give Jason.
In a lot of credit for that but I think on that table. It clearly shows that our reserves that we have versus the combined companies losses that we added together from 2018 is at 35% says a little bit of other peer group.
And as you add in the fair market value. It's at 58% one thing to note, though to see actually look at our company run results on a combined basis and 18 that number was basically 44%. The reason I'm telling you that is is that you know we don't have our 2020.
He CCAR stress results yet from the fed that will come later this quarter.
But we do have what we submitted to the fed a few weeks ago and if you look at what the company run stress results were.
And on that severely adverse we were basically at 52%.
So I think that shows a good indication that as we put the company they gather Clark and Alan have really de risk the company and we just are less risk your company that we would've been on a combined 2018 basis. So our reserves then you know at 52% and then if you add in a fair value Mark you're at 84.
Our percent of our as we came up with 10.8 billion of losses in our 2020 severely adverse.
Very helpful. Thank you.
Thank you.
We'll now take a next question.
From Betsy Classic of Morgan Stanley. Please go ahead your line is open.
Hi, good morning, Thanks, Tom on the color.
HM two questions. One just you gave us a number of customers that have been never question deferrals <unk> 30000 on consumer side in.
15000 wholesale side can you just a sense as to that percentage balances that those each represents.
You bet see this is Clark on the consumer side its about $9 billion, that's for both us and serviced for others. So it's about $8 billion for on for balance sheet. So roughly 3% on the commercial side, it's about roughly $10 billion are so five.
Were 6%, so again I would note.
The four majority of all of our re aging have been a with accounts that are current start with even in our sub prime all to it as an example, so again I think this is a very unusual.
Environment. So you have a lot of people that are worried that of it may be it had lost her job or maybe have not but they're worried and we just a little different than normal in that most are current to start with.
And in your forward look on me Cecil that we're just talking through how high do you expect those numbers to go.
Okay.
I mean, it really depends on the three factors I said earlier that Tami right now we feel we are adequately reserved from what we know there's a lot more that we don't know than what we know, though and how things are going to impact I mean, a government. It's gonna have over six trillion dollars a stimulus that's all said and done at three times more than what they had in the great.
Recession, we really don't know how effective those programs are going to be.
So you really need to let a lot of that play out all the forbearance, it's been occurring right now I mean that all has to play out and some of the clients may not make it but it is we feel really comfortable where we are a reserve today and we're just see what happens as I look forward then bed to keep in mind too that the you know the effects of the payroll.
Pension program will keep people hole in terms of there you know their income and those that or furloughed and in most cases as I understand there unemployment insurance because there was an increase in a normalized unemployment insurance substantially.
So in many cases people have more take on income than they had before so it's hard to see exactly today is a short run those would be a huge negative impact obviously fixes extended and the government programs don't.
Provide continued stimulus and it will be a factor, but in the short run the government sites have done a pretty good job in terms of provide any short term buffer.
Got it Yep, Okay, and then just moving to expenses on the 1.6 billion I understand it's hard to know the timeframe given everything that's going on I'm just wondering how much in that 1.6 do you feel you can control today versus you know maybe you put on the team you know put put aside because it's a redundancies that you didn't.
I want to touch at this stage.
Well, it's all of it is a little bit of a term, it's still achievable you're right, though some of it.
Maybe from the falls off their environment, we're in today.
Because of.
Well people be walking away from they office connectivities towards that may be some things that were not able to do as quickly as we had anticipated but our people are starting this daily.
And as of today, a they have not discovered any material.
Issues that will dramatically slowed down our regression in terms of immigration and the progression of the integration is what drives call centers and I give me a couple of examples so on a third party vendor right now our teams are still working on it but we're probably 35% to 40% of the lay of our target.
So we'll have about a close to 100 million annual run rate save this year and the next couple of years, we have already locked in a 135 million of that so that's progressing well, we're making really good progress on our corporate real estate portfolio, we have over 30000 square feet right now we have no.
And savings in there of about $66 million of what we're executing on.
Do you look at what we're going through right now as people working at home Yeah, we have to really evaluate the impact to that after its all said and done but that could be an opportunity for a much more assays. So you know we have 30 million we might go down to 20 million over the next three to five years. I mean, you just don't know that so that could be even a bigger opportunity. So.
That was it just a few examples betsy.
Thanks.
Oh no take our next question from.
Yes.
Mike Mayo.
Of Wells Fargo Securities. Please go ahead your line is open.
Hi, a few more questions about your forward guidance.
You know Kelly I thought you said.
Maybe darryl talked about potential for positive operating results this year, which.
Seems pretty tough with your second quarter guidance.
And as it relates that guidance only flat expenses in the second quarter, you just mentioned vendor real estate. All these other things that he said that was the extra kogut effect and the other part of the guidance and some other banks and said expect much higher reserves.
Building in the second quarter.
I know youve, given some numbers on that but it is actively form thank you.
Yeah, Mike So I I would definitely say, it's gonna be a challenge from linked quarter from first to second you know, we will continue to execute and do the best that we can within the parameters that we have.
And we aren't giving up on our positive operating leverage right do the best we can we may not achieve it this year, but we still may it is not out of the what it all depends on how quickly the economy recovers.
And if it does if I said sharp v., we have a shot at it.
And the other questions.
Reserve builds in the second quarter, I mean, some bank, saying, Hey look since the end of the first quarter conditions gotten worse I guess, you say use Moody's.
I guess, maybe have some flexibility use your own capital markets food for forecast like in the larger banks or.
Given the decline since the end of the first quarter would you expect more reserve building that even though you said your 84% reserved for what you're 2020 bank submitted stress test.
A big number that's all in with your.
Purchase accounting mugs, if I got that correct.
Yes, I mean, you're right on that.
As far as.
We use Moody's and we also have a couple other scenarios that we run but we went into early April running scenarios and adjusting our reserve. So we didn't cut it off on the 30, Firstly, we closed a little later this quarter just because were later in this cycle. So we went through at least the first week of April but that information.
Yeah, and again, if the if the.
Tom the actually underperform, so scenarios, we would have to provide more but based on what we know today, we think we're well reserved but we're certainly watching it.
Okay.
How much of the expense savings have you achieved so far and you said some of the time frames might slip you didn't mention some areas like we'll still have.
I mean, you have a pandemic with the biggest merger in your history happening at the same time so.
You know, it's it's a tough situation it sounds like you're managing through it.
Maybe just to get out on cable now what we should expect as opposed to wait until later.
Yeah, so from US a specific expense savings we have some savings that are has had some slippage just with what happened and March and that as covert some of our expenses are a little bit elevated we pull forward buying a bunch of our laptops and my fives and other equipped.
Matt that got pulled forward into the first quarter that we're planning on later in the year. So we're a little bit elevated from that perspective in our goal was to try to get our expenses down.
30% of 1.6 billion by the entity here you know we are on track. So far this quarter to doing that we were trying to have a some buffer and be ahead of that.
You know it doesn't get any easier as we get into this next quarter to be honest with you.
But we still have a shot at getting our 30% at the end of the year, if we have a sharp recovery.
Alright, thank you.
Yep.
We will take a next question.
So John Pancari of Evercore I say please go ahead.
Good morning.
Regarding the exposures the operas credit exposures on slide 15 to 28 NASS billion.
I know you indicate on that slide that you have qualitative overlays for the effective industries. So can you give us a little more color on that on the magnitude and maybe to the amount of loan loss reserve against those portfolios and maybe the loan marks against them.
Oh, it's something we haven't disclosed that level details I would tell you. This that for each of those segments. We have done detailed analysis things like risk grade notching and a good bit a sensitivity to the downside in each and every one of those we've looked at though.
Modification or deferral requests and so we use that to add additional overlays on top of what models would have a driven in you know there considerably higher than the other segments I would just tell you that.
Okay.
Alright, and then the.
In terms of the insurance business I know you any keeping your second quarter outlook that you.
Well if you were in your outlook. So you do expect koby could dampen the organic trends in the business can you give us a little bit more detail, how that could play out and new syrup I'm all set some perhaps any better pricing that you see the industry just want to see how you think about how that plays out. Thanks.
There are some double that.
Yeah. This is Chris Don. Thank you. Good question first off we would.
We would expect second quarter, two the up about 3% that's a seasonally strong this quarter the year.
And you're right the slowdown as a result to tell you that really is creating declining explicit exposure units.
The loss people lost business will have in that will slow economic I mean, I'm new business production.
But to your point, there will be potential pick up in pricing you know we win is a great recession, we win with the backdrop in the self insurance market. We go into this one was actually very strong market on the on the back of 17, and 18 billion. The two largest insurable launches in history, so little bit we're kinda into up four and a half.
5% range that you know what we've got to go into one that's a good backdrop that to have it to the beginning to having said that.
And just for this quarter for example, they threw up four and a half or soon to be zero on top of that.
Lower interest rates. These wise I mean, you lose a b and C underwriters.
These drugs in the investment.
Returns so they will likely.
Seem to keep the upward pressure on on the latest going on that so I think you a intuition is exactly right, we lose that momentum and pricing for the balance of the year.
We do we do see.
So if new business with us and so.
No we might have been looking at.
This past quarter, we had 7.2% organic growth.
Looking forward, it's looking more like maybe in the you know flat to 2% kind of range for the for the balance of the or.
Okay. Thanks, Chris.
I don't know take our next question.
Can use them of Jefferies. Please go ahead your line is open.
Thank you good good morning, Daryl just wondering if it could step back out a step on the revenue side, you talked about second quarter revenues down a few percent and just following on the did the fee part that was just talked about can you help us just to understand and I versus fees. There's so many moving parts involved but if you can directionally just help us understand the moving parts.
In direction for each that'd be helpful. Thank you.
Yeah, just high level can I would tell you and Chris commented on insurance up insurance is seasonally strong second quarter that well I changed from that perspective.
Service charges, Yeah, we have those programs in place to help our clients. During this time a stress, let's put Kelly talked about the 5% cashback. They have waving ATM fees. So people can get their banking services people are coming in now we're getting more request for relief on NSF and overdraft.
In that so I would say that service charges over all that might be down a touch from that perspective, you know depending on what interest rates to and credit spreads you know Boes area Wow Wow the volumes overall lower there as TV, a 92 million that line item at a chance of recovering potentially on what happens.
The fat.
And then mortgage mortgage will have good volumes strong the offset will be the impact on forbearance on the servicing we didn't try to factor in some estimates on the MSR valuation already we don't know if that's the full impact of that but it is embedded in there. So we did adjust for that accordingly.
So mortgage will probably have a decent quarter would be my guess.
And on the Eni side I also can you just help us understand their balance sheets like looks like it's going to keep growing and you mentioned the difference between stating and core NIM, but.
Can you help us understand just.
Most of you know run other peers are talking about and I growing from here you guys have to the purchase accounting I, sometimes an extra factor in that time anyway, you can help us just parse out the moving parts there too yes.
Yeah, I don't foresee our unless unless purchase accounting really.
It is stronger than we think I don't foresee anti being positive second quarter versus first.
Core margin you know if you looked at our sensitivities and you probably need to go back to our disclosure is back in January when we disclose what a down 200 basis points now our disclosures that we show on our earnings reports are gradual so ex assuming that the 100 basis points would go down.
To wrap that 12 months.
At that point in January it was a negative 1.78% or 1.72%.
If you say that's equivalent to like a shock of 50.
So what we experienced and March was a shock of 150.
I had a little bit we're going on with five worldwide, where we talk about a second but see out a shock of one's heskey. So if you take that 1.72 and multiply it by three that would probably be what the impact would be rough estimate on what our anti I change might be out for a second quarter from that perspective.
Then we have built a lot of liquidity now we built liquidity it because it run a stress periods, we ought to make sure. We can meet our clients need both from a funding and trauma deposit perspective. So are the costs that will carry and what we're carrying at the fed right. Now is anywhere from 10 to 15 basis points I mean, if you look at our balance sheet.
Right now.
And through Friday on March or April 17th our balance sheet at total balances or 518 billion.
Our deposits now or 364 billion. So all the government stimulus checks that started to come in last week. We had one day I think it was Wednesday, where we went up $6 billion in deposits and <unk> and that one time period.
You know our P.P.P. funding is going to start going on the books. You know started last week. It's kinda gone. This week in the following like you know, we're probably have 330 billion of loans. So we're definitely going to have much higher earning assets. The other thing I wouldn't know is that our deposit cost.
We were at 70 basis points down 12 out of interest bearing basis.
If you look at March our interest bearing deposit costs were already 56 basis points.
When you go back and looked at the great recession.
And you look at how far it deposit cost get down to back then we got down to about 23 basis points.
No I don't think were and get to 23 in a second quarter, but we're going to get in the Twentys for sure over the next couple of quarters as we continue to push down rates at these rates stay where they are.
So I think we got a lot of things and if we happen to manage with but our margin will be down.
We will be down because of liquidity, but once we feel that distresses over we couldn't reversed the liquidity pressure, there pretty easily and get that core margin back. So hopefully that's helpful.
Very much O'donnell <unk>, we're going to talk about lie borne out as a point I was wondering if you talk about how are you seeing lie born normalize down as you look out over time, thanks for all of color.
Yeah. So it peaked at on April 1st at one OTO now it's 67, one month LIBOR now we have about 130 billion net LIBOR or asset tied to one month LIBOR right now.
So is that migrate down that will kind of put in that full effect of that interest rate sensitivity that you saw there you know we aren't there yet it still has room to come down some more but that will also allow us to push down our deposit cost faster too is LIBOR is coming down as well and when you look at the money market equivalent that will all.
Got it come down together, so it it will hurt our asset side, but we're going to make it up on the deposit side.
Got it thanks very much.
Welcome.
We will now take Guy next question, Matt O'connor with Deutsche Bank. Please go ahead. Your line is open.
Good morning.
Morning.
Are you guys have addressed you know the risk that some of the integration got.
Delayed if we don't get a V shaped recovery here I guess the flip side.
The risk of losing customers and staff to competitors is probably a lot less than maybe some people here you know, partly because the virus, partly and the action but.
Interest that seems very generous so maybe you could just talk you know Kelly fell about.
You know the engagement of your staff and Ah you know how do you keep the culture is kind of both in the same direction and can't do from a town halls, what you're doing before.
I'd like to talk about some of those kind of fall for aspects of the business and how far are completed and thanks.
There are once you go ahead on Nobel Entercom out of them.
Okay. Thanks, Matt I think I think as you point out I mean, the retention numbers were already good coming in from a team. They perspective, then we just did a survey does this engagement proxy and you know in this incredible environment, the sort of actually show high levels of engagement from a from our team.
Yes.
And in many ways the cultural integration has been accelerated by month. So it's not years because people are operating under.
You know stressful conditions the to work has been spectacular I think Kelly you you would.
Echo that the no one's wearing a jersey, because they're all headed towards the towards the same objective. So I think you point out accurately no there are.
Elements of those that are done pages as we go to go through this process and I personally them, just really really proud of the work that a better teammates have done.
The town halls, and the rollout of purpose notion of values, we we're well underway there and that has done a really good catalyst because everybody's got something the lean forward on their old speaking the same language and operating from the same play book.
Yes.
And I would point out one additional point you know I said earlier.
Our culture matters always that really matters in a time like this and you know a really big part of our culture is just taking care of our teammates and we never forget that our clients come first but you can't take care of your clients without doing a really good drop we attain nicely. So.
Trust is unique in terms of having a Jim it fully paid for a pension plan out of a 6.64 when K match.
They would do things like 12 under model bonuses and and premium pay for people on the line. So all of those things [noise].
Teammates really appreciate.
And so they see that during difficult times, we're going to take care of them.
Even if there isn't sacrifice in terms of short term profitability, we're going to take care of our teenage because they can feel safe and secure and then they can therefore, concho safe and secure those memories will be here for decades, and so we feel very good about our soldiers Bill said it is accelerating.
And it is strongest steel.
That's helpful. And then I was just separate question for Darryl you talked about for new loans.
Implementing our from Florida to just talk about Oh, right, how much about before that you are and.
I assume as loans come up for renewal, you'll have the people find something on those loans.
Yeah, So I'm, Dave of reported I think a week or two ago that the floors that he's putting in range anywhere from adding 25 to 75 basis points for my LIBOR perspective, I think those are the floors that he's putting then from that perspective.
That's the LIBOR rate at the spread over.
Okay I guess.
Welcome.
Probably the take next question.
Okay that job area of Bank of America. Please go ahead.
Hi, Good morning, I just have one follow up question, Oh, that's 100 million.
Lives cost, saying that noted how much work.
Achievable without interruption to no pandemic related support of your employees.
And your clients and if I'm interpreting down your answer to Betsys question 100 million of annual run rate.
Concerning fund them, there's 66 million from known savings in corporate real estate. So it sounds like at least 466 million of that store. He would have nothing to do raise supporting your employees our clients.
So Eric of just one common dark and you're right as you can count I think in terms of expenses being bifurcated. There our expenses that are independent or Congress like filling started a somewhat of a vendor contracts on the order of carbon I'm reading substantial reductions and a run rate.
And our contracts already and more more to gone with regard to the teammates.
So there's a there's a onetime big jobs, we have with regard to the that's where a lot of bonus, but they're only going from this going forward he made chargers or not a marginal incremental.
And it turns or the impact on the you noted that conversion.
It really depends but today our people are functioning very well one thing you're all flight.
Keep in mind, we in the technology area. We've already we've got thousands of people working all five forever. So there's not a new ideas just more people doing it.
And so as long as they're able to continue to do that scoping and our mapping out of their programming a remote live which now we say either they can it's not a self evident that there will be a dramatic change with regard to our integration on conversion schedule.
Yeah for the second quarter Erika, we are paying a premium to our teammates right now that are on the front line nearly so you're going to see an elevated charge and personnel the fat depending on how quickly you know we basically can adjust from work at home that will fade away. We also are actively you know getting.
More laptops and so more people on the call centers can do more of their work at home. So that will subside as we get more that equipment as well that we've accelerated from that perspective, you know as far as like the.
Implementation of third party and facilities.
As they execute and and play out that's when you get the savings. So yeah, you may not see as much early on this year, but as it goes out throughout the year and as we continue to move that will start to build especially at the fourth quarter will have a higher annualized impact than what you would see at this point.
From that perspective, so a lot of good things are those some of the third party savings is tied to conversions are just to be transparent yeah. There's some big card conversions coming up some big conversions coming up in the wealth and broker dealer areas. So like right now in Joe's World He's planning to.
I'll stay on track with an early or conversion and at the broker dealer I think that's gonna be in the first part of 21 that stays on track that might Miss a little bit at the end of 20, but he wasn't supposed to be there at the end of 20, he's schedule more for early 21, but if that plays out than some of those statements will come in at that point in time so.
Mhm.
Well now take our next question from Steven scrutiny of Piper Sandler. These go ahead. Your line is open.
Hey, good morning, guys. Thanks.
<unk>.
First I want to say thank you guys spoke to the way you all are leading in community impact being one of your affected comedians, though that's like leadership is appreciated important to thank you guys for that.
Wanted to ask you as it pertains to your capital.
You know, how you've talked about longer terms and to get back to 10% to resume buybacks. None I guess is shaking his combined they will probably have far weighs out but I'm. Just curious how are you thinking about that number 9.3% CPT one versus kind of the I think it was 8.7, if you would fully phased in seasonal impact from time to.
How about for James that 10% target and where you think about buybacks way down the line.
Yeah.
So nobody is thinking about buybacks today.
Ah you know we are in a very strong capital position.
And our celebrating capital.
It's still remain a billion dollars or even before adjustments is yours August 4th floor.
We will be steadily moving up unless they are dramatic increases in loan losses, which we wouldn't call for drugs.
This.
As Tom again, if it's a long you got like so it makes a difference where all we all understand that.
So you know we had said that our.
An immediate term harder was 10% we've said we did that because of the on certain news that we knew about with regard to the merger. We said we were doing that because of uncertain as we didnt know about we didnt know about <unk> of course, but thank goodness, we did prepare for that ER and we're in a really good position now as those on Sir.
And do subside in terms of the merger integration and surely the health prices will go away and surely the economy will improve then we have said and I would reaffirmed we have capital opportunities as we go forward below that 10% level.
It will depend on that then it goes through circumstances, but there are opportunities available for Charles.
The other minor point is remember that P.P.P. laws are putting on the books have a zero percent risk way. So we put 10 billion on from the first route that that kind of cost if any risk weighted capital and then from a leverage number either never going to find it ourselves, it's not going I really cost us because we're basically just trading out at 10 basis points out that the.
I had 200 basis points.
He asked that from P.P.P., so from a capital perspective, those should be fine.
Thanks, Michael and one of the thing I'm curious you know we've seen thing others, a means to going to tighten underwriting standards around where the mortgage keyed off other categories have you guys, you've always been fairly conservative on London, but have you further tightened any of your underwriting standards and encana within that what are you seeing with the poor Barents request.
The industry concentrations. Thank you guys.
Hi, This is Clark I would say, yes to that question across all our asset classes, we've done a pretty extensive reviews, and we estimate underwriting and risk acceptance changes as appropriate you would expect us to do so I think we would be more on the conservative in and they are in place today.
We've also worked hard to be very careful about what we call any non essential lending right now given the uncertainty so.
As far as the.
Modification requests I'd say from the commercial side, we've had a lot in distressed industries that we laid out things like hospitality.
It said or a in and all the consumer side, it's been predominantly on the mortgage and all those side right now and you recall, but we have made some adjustments with regard to underwriters standardizing <unk> recovery. So that's why we've already anticipated.
Potential slowdown we'd made adjustments already.
Thank you guys very much.
Yes.
We will take our next question from Christopher Marinac of Janney Montgomery Scott. Please go ahead. Your line is open.
Thanks, Good morning apparel is there an average life on the PPP loans that we should expect.
[laughter], Chris we don't really have a good estimate on how much forget this is gonna be out there. If I gave you a number it would be a pure gas right now.
I don't really know you know whether it goes out you know my guess is you know work everybody is making the loans now so you've got a big tsunami never the SBK has to process. All these forgiveness is the only 60 day it probably won't take some time to process. All that so my guess is that might linger on into.
Well 345 months at all before all the forget this is our happened it we'll see how quickly they they do that but then there will be saumen portions of some loans that will stay the full two years.
Yeah, we will create the earnings or broken them at a discount on the last time I looked at our average discount that were put on the books about 2.7%.
Discount and that will create in and then what it pays off for forgiveness will take all that and at that point in time. The plays out to two years and he does turn it over that time period.
Got it that makes sense, thanks, very much lots of all the information today.
Oh.
We will take our final question from John Mcdonald of Autonomous Research. Please go ahead your line is up.
Hey, guys. Two quick follow up I'm wondering if you could give any color on how the reserve is allocated between consumer and commercial buckets as of today.
Yeah.
Yeah, John I would just say and wouldn't noteworthy thing for the increase for Q1 about 70% of that reserve that provision increase was related to commercial in about 30% was on consumer [noise].
You know force also will consume all the split between.
[noise] I guess, we can get back to you on that now.
Well the split in the actual else itself, we can get to that.
Okay, and then just kind of wondering this comes up with questions frequently is there a dumb down example, you guys could give us is how the marks absorb credit how that helps it is it just the idea that if you have a write off on a mark loan you're you're marking it down from a small amounts of 100, all alone you're running it down from 95 as as opposed to hundreds was a small.
Our charge off that's kind of the question like how does that mechanic work of helping absorb losses the marks.
Yes, that's exactly right. So that basically your book value is lower so you apply your reserve against the lower about so it helps you a little bit, but yeah I think of it as it its earnings that are coming in but was there any and can be used to provide for other pervasion or could follow the bottom line from an earnings perspective.
[noise], meaning the P I think.
Yeah exactly I.
I think to your first question Oh God, you got it yeah, telling us that to the for your first question. The wholesale reserves for key Warner about 2 billion to 70, and the consumers 2 billion 941.
Yes.
Okay, and Daryl when you think about it the loss absorbency. Its comes in the form a PPA. So you've got an extra cushion. That's how you kind of think of it absorbing losses as giving you have more quickly on the P.A. side.
Yeah, well, we'd have to have more absorption more cushion from that perspective, but also I I think when you just cut the bank coming together and the diversification of how we came together I mean, we really don't have any really significant exposure is any of our portfolios because as they came together, we're much more diversified and that.
It should play out when the new stress test come out from that that later this quarter in our hope is that we're going to have a really strong PPNR. It really strong last number and that very resilient capital ratio, we should hopefully be well under that 250 basis points stress capital buffer.
Remember that.
All of our portfolios essentially a their exposure, but dusan half because of the doubling up a denominator. So there was an automatic diversification this material and those kind of.
Okay. Thanks, guys.
Okay.
I mean no further.
Okay.
Thanks, very much and thank everyone for joining us today.
Everybody has a good day and please stay well.
This concludes today's call. Thank you for your participation you may now disconnect.
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