Q1 2020 Earnings Call
Good day, ladies and gentlemen, and welcome to the People's United Financial Inc. first quarter 2020 earnings Conference call.
My name is still well and that would be a coordinator for today.
That's right all participants I know listen only mode. Following their prepared remarks, there will be a question and answer session.
I'd like to participate in this question another call. Please press star followed by one at any time during the conference.
Since it needed anytime during the call. Please press star followed by zero and the coordinator we'll be happy says yes.
As a reminder, this conference is being recorded for replay purposes.
I would now like to turn the presentation over to Mr., Andrew Hersom Senior Vice President of Investor Relations for People's United Financial Inc. Please proceed sir.
Good afternoon, Thank you for joining us today.
On the call to review our first quarter 2020 results are Jack Board, Chairman and Chief Executive Officer, David Rosato, Chief Financial Officer, Kirk Walters corporate development the strategic planning.
Tangle, President and Jeff point, Chief Accounting Officer.
He's never referring to our forward looking statements on slide one of this presentation, which is posted on our Investor Relations website.
Well dot com backslash investors with that I'll turn the call over to Jack.
We it's David it seems like where you don't.
Hi, Dan.
David Sorry [laughter].
Sorry.
Thank you Andrew.
And David [laughter] afternoon.
We appreciate everyone joining us today and hope that you and your loved ones are remaining safe and healthy.
He's on certain times for everyone, but we are on the together.
I believe we think collectively emerge from this endemic more united and stronger than ever.
With that let's begin by turning to slide two.
Well the economic impacts is filled with my team.
Meaningful upside on the results for the remainder of 2020.
Our first quarter performance Martha strong start for the year and we entered the crisis in a position is right.
As a community oriented thing.
We have a responsibility to protect colleague supports customers and fear for communities, especially in the current environment.
I would like to take a moment to say thank you to our employees.
Their dedication professionalism and resilience during this unprecedented period has been remarkable.
Despite challenging conditions. They have continued to provide the level of support and service customers have come to expect from people Tonight.
I'm, particularly proud of the terrific efforts displayed body employees and the completion of the core system conversion and full integration of United Bank in early April.
The health and safety of our employees is always a top priority for the company.
As the seriousness of the pandemic became clear we immediately implemented a companywide prevention and social distancing policy that included a remote enabled workforce.
We also adjusted branch service, including reduced hours and appointment only banking limits for potential spread the virus.
Online employees and those in positions, where telecommuting is not possible well given additional paid time off.
Let's move further flexibility to care for family and stay home, it's feeling sick themselves.
For additional support we enhanced benefits for all employees covered under our health plans.
So the cost so cobras 19 related illness, including diagnosis.
Things and any further related treatment are covered.
Peoples, United is committed to assisting those individuals and businesses impacted cycle with 19.
System with a long history are providing support in times of the we instituted release initiatives designed to mitigate hardships to customers caused by the pandemic.
That's relief measures include waiving certain fees implementing a 90 day full blown your moratorium on eligible residential loans and offering individual life support to both consumer and business loans.
Peoples, United is a relationship based thing and as such we believe it is critical to work with our customers to help them manage through difficult financial fine.
We did this during the financial crisis over a decade ago and many of those customers have grown prosper and remain with us today.
As a result, so far just caused by the fans on it we have offered for parents are both commercial and retail customers. Once again help them navigate the challenging economic landscape.
As of April Twentyth, we have approved forbearance for approximately 7200 loans totaling $2.9 billion.
Comprised of $1.8 billion in commercial.
$387 million in equipment finance.
And $657 million in retail.
Peoples, United It's also participating in the cares.
Hey, Jeff Protection program.
We accept it nearly 11000 applications of which more than 9600 loans totaling greater than $2.1 billion.
Been submitted to the S.J. and approved.
We have currently funded $1 billion somebody's alone.
And the feedback received from businesses. We've worked with has been overwhelmingly positive.
Finally, we are also engaging community organizations and government officials.
To ensure a coordinated approach to covert 19 relief efforts.
Through the bank and its charitable foundation, we have granted more than $3.5 billion and support.
This includes providing monetary supports the response funds and nonprofit that are meeting the basic needs the vulnerable populations, including low income residents.
First responders healthcare workers and small businesses.
Moving to slide three we're pleased with our first quarter performance.
The results benefited from both organic growth and recent acquisitions and reflected a stable margin continued strong fee income as well a solid loan and deposit growth.
Other highlights include operating income of $141 million.
<unk> increased 15% from the first quarter last year and generated an operating return on average tangible common equity of 13.2%.
Total revenue of $520 million was up 22% from the prior year for water.
Pretax pre provision net revenue of $218 million increased 32% from year ago on an operating basis.
The efficiency ratio of 54% improved 330 basis points year over here as we continue to produce positive operating leverage.
The provision of $33.5 billion increased $26.4 million or 371% compared to our 2019 quarterly run rate.
Reflecting the application of C., so and the impact of Cobras 19.
And finally tangible book value.
Common share increased 7% from a year ago, even after closing two acquisitions and repurchasing 20 million common shares.
Peoples, United has always had a long term view.
Our dictated on conservative underwriting philosophy.
Your your service a diversified business mix.
And prudent liquidity in capital management.
Which has served us well for various operating environment.
Sustained exceptional asset quality is a hallmark of our institution and we firmly believe it is an important lever and building long term value.
As we have grown the company from $14 billion.
Total assets at the end of 2007 to over $60 billion today.
We have never wavered from our conservative and well defined underwriting approach.
Experience of our senior credit officers is significant with an average tenure over 25 years.
The same team successfully seared people's United through the prior financial crisis.
With a low level of loss.
As you can see on slide four our average charge offs as a percentage of average loan from 2008 through last year is only 16 basis points well below the peer median of 53 basis points.
Another driver of our exceptional asset quality is our high quality Michael tested customer base.
Our local market expertise enables us to identify and developed long term relationships with highly coveted strong business owners and operators.
Many of our customers were with us during the prior financial crisis as evidenced by the average tenure of our top 25 relationships being over 17 years.
These long term relationships provide us with deep knowledge of their businesses and operating performance through economic cycles.
The diversification of our loan portfolio is displayed on slide five.
It is always important however, during economic downturns the value of this diversification becomes even more prominent.
One of the strategic objectives of our risk management is running a diversified business model that does not overly exposed the bank to a single line of business.
We have provided our exposure to sectors significantly impacted by covert 19 on slide six.
Our conservative approach to underwriting is evident.
Our hospitality portfolio had $1 billion and balances at the end of quarter.
The majority of the portfolio is flags by major hotel brands and most of the properties.
Manage and owned by operators in the space as their primary business.
In addition, the property soprano primarily located in the main cities within our footprint.
Such as Boston Port Smith and Burlington.
In addition, our top 10 client account for over 70% of our commercial real estate hotel exposure.
Each of these sponsors are cycle tested and have extensive hotel experience.
Yes.
In our $540 million restaurant portfolio nearly half of the exposure is concentrated in quick service establishment, which have experienced lesser degree of disruption.
At the end.
At quarter end balances in our retail were $4.7 billion.
We have no material exposure to enclosed retail malls and over half of our retail exposure is with grocery store anchored properties.
Pharmacies Big box home improvement.
And gas stations and convenient stores.
Finally is an important to note that we have in material or no exposure to airline whose line casinos.
Energy.
Loan.
Auto lending.
And consumer credit cards.
Before passing the call over to David to discuss diesel and the first quarter results in more detail.
I want to mentioned that due to the uncertain economic outlook caused by Silverstein team, we have withdrawn the full year 2020 goals, we outline in January.
As I commented earlier People's United entered this crisis in a position of strength with exceptional asset quality strong liquidity and capital levels and the diversified business mix.
We are confident our strategy of operating with a long term view will once again shows the strength of the franchise as it plays a critical role in supporting.
The financial health for individuals businesses and communities throughout this crisis and beyond.
With that his David.
Thank you Jack we started the year with another strong quarterly financial performance as Jack just referenced we entered the crisis in a position of strength.
Our diversified loan portfolio has high quality cycle tested borrowers low LTV and strong cash flows.
We certainly did not underwrite our portfolios with an assumption of a global pandemic. However, we are confident our conservative underwriting approach significant and cycled past at risk management experience and deep customer relationships well continue to serve us well as we move through this on.
Folding situation.
With that background.
Looking at slide seven and eight we highlight the adoption of C., so and its application in the first quarter.
The day, one impact of the adoption of Cecil was an increase in the allowance for credit losses of $72.2 billion or 29% from your ran to 318.8 million.
This increase was primarily primarily driven by the higher reserve requirements associated with the companys longer duration retail portfolio, partially offset by shorter duration commercial portfolios and our low historical loss experience.
The day to impact the application of Cecil further increase the allowance by $22.9 million or 9% to 341.7 million, which effectively was all due to covert 19.
Our quantitative modeling reflects a baseline economic forecast as of late March which is indicative of a U shape recovery in the second half of 20 Twond.
The forecast is inclusive of Kogan 19, and the government response at that time.
In addition, underline the allowance is a two year reasonable and supportable forecast period as well as they want here straight line reversion to historical losses.
Our allowance at March 31st provide significant coverage as it represents more than eight times, our annualized first quarter net charge offs at 142% of nonperforming loans.
Furthermore, the AC all represent 65% coverage of our at December 31st 2019 severely adverse internal stress test, which was inclusive of the recently acquired United portfolios.
It is important to note. The current allowance reflects the view the loan portfolios credit quality X water rat.
Good represents our best estimate of future losses at that time.
However, since we finalized asking that yeah economic environment has continued to deteriorate and a high level of uncertainty remains adds to the duration and ultimate impact of the pans out.
As such we might experience another elevated provision in the second quarter.
Moving to slide nine net interest income of 396 million increased 13.3 million or 3% from the fourth quarter.
Net interest income benefited from lower deposit and borrowing costs of 6.9 billion and 2.8 million respectively.
In addition, higher balances in both the securities and loan portfolios collectively added 5.8 million.
Conversely, net interest income was lower by $2.2 million due to one last calendar day in the first water.
[noise] as displayed on slide 10, net interest margin of 312 was two basis points lower than the fourth quarter.
Well loan portfolio negatively impacted the margin by eight basis points, driven by the downward repricing of floating rate loans, and new business yields coming in lower than the total loan portfolio yield.
During the quarter loan spreads widened, but were more than offset by lower benchmark interest rates.
In addition, one last calendar day in the first quarter lowered the margin by two basis points.
Largely offsetting these negative effect was our continued disciplined management of deposits at lower borrowing costs, which favorably impacted the margin by six basis points and two basis points respectively.
Turning to loans on slide 11 average balances a 43.5 billion increase by one and a half billion or 3% from the fourth quarter, primarily driven by higher average balances in commercial real estate and residential mortgage of 920.
The 2 million and $217 million respectively.
On a period then basis loans increased 688 million for 2% driven why driven by 1 billion dollar increase in Seattle, I balances, which benefited from strong resorts in the mortgage warehouse at large corporate businesses.
Well large corporate benefited from approximately $200 million in line draws the overall and I line utilization rate was consistent with the fourth quarter at 50%.
The largest offset to the seeing <unk> increase was a 236 million dollar decline in residential mortgages as we continue to remix the balance sheet, where they focus on higher yielding portfolios.
Approximately 46% of the loan portfolio at quarter end was either one month LIBOR or prime based up from 44% at yearend and 3.2 billion of these floating rate loans have floors.
Balances in the transactional portion of the New York multifamily portfolio, which is then runoff mode ended the quarter at $692 million down 45 million from year end.
I'd like to provide an update on the United portfolios, we have chosen to run off.
In January we stated we would write off $1.346 billion.
Since that at upon further evaluation, we decided to retain certain relationships associated with 233 million of these loans.
After run off during the first quarter of $71 billion. The balance of these portfolios was 1 billion zero four too.
At March 31st.
We now expect write off in these portfolios to be 200 million to $300 million for the full year.
Moving on to slide 12 deposit growth for the quarter was primarily driven by solid results at both our municipal and commercial businesses.
Average deposits increased nearly $2 billion linked quarter benefiting from 1.1 billion and higher interest bearing checking and money market balances as well was 400 and sub 483 million and higher non interest bearing balances.
On a period end basis balances increased 1.2 billion from year end to 44.7 billion.
We remain focused on managing pricing as evidenced by the end 11 basis point reduction in deposit costs during the quarter.
Our funding and liquidity profile remains strong with secured borrowing capacity of $8 billion comprised of 4.2 billion in federal home loan bank capacity and 3.8 billion in Unpledged Securities.
We also continue to experience just strong deposit inflows in the second quarter since quarter end through April 20, a deposit balances have increased a further $2.6 billion.
Looking at Slide 13, noninterest income of 123.8 million marked another strong quarterly result, although down 400000 from a record level in the fourth quarter.
As a reminder, the fourth quarter included a 7.6 million dollar nonoperating gain net of expenses from the sale of eight central Maine branches.
Such on an operating basis non interest income increased 7.2 million or 6%.
Now I know noninterest income benefited from a 15.3 million dollar increase at a net gain on the sale of loans and 3.4 billion in higher insurance revenues, reflecting the seasonality of commercial insurance renewals.
With that loan sale gains was driven by $16.9 million gain related to the sale of 492 million of loans acquired in the United transaction and held for sale at yearend.
We also recorded another strong quarter customer interest rate swap income, which was up $300000 from a high level in the fourth quarter.
These increases were partially offset by $1.2 million lower investment management fees and the aggregate decline of $1.7 million and bank service charges and commercial lending fees.
In addition, other noninterest income was unfavorably impacted by 3 million dollar write down of an MSR asset previously acquired from United and by 2.4 million dollar lower income from at the Mark to market of one equity security position.
As you will recall other non interest income in the fourth quarter benefited from a $3.3 million gain on the sale leaseback of our office building in Burlington, Vermont.
On slide 14, non interest expense of $320.1 billion declined $5.6 million linked quarter.
The first quarter benefited from 21.2 million and lower non operating costs, which totaled 17.9 million and we're in the following categories.
15.1 billion in professional and outside services.
500000 in occupancy any quit.
400000 in compensation and benefits.
1.9 billion and other non interest expense.
Excluding non operating cost noninterest expense of 302.2 million was up 15.6 million or 5%.
This increase was primarily driven by 9.6 million dollar increase in compensation and benefit expenses weve resolving from seasonally higher payroll and benefit costs and having United on the books for the full water first two months in the fourth quarter.
We also incurred approximately $1 million of additional expenses in response to covert 19.
These costs, primarily resulted from more extensive cleaning up our facilities and other measures taken to protect our employees.
Turning to slide 15, the efficiency ratio of 54 basis, a 54% increased 30 basis points from a strong fourth quarter result, but improved 330 basis points from a year ago.
The seasonally higher payroll and benefit costs in the first quarter were the primary reason for the modest uptick in the efficiency ratio on a linked quarter basis.
As Jack discussed earlier, our asset quality continues to be exceptional across each of our portfolios and we entered the pandemic in a position of strength.
As displayed on slide 16, nonperforming assets as a percent it percentage of loans and Oreo was 59 basis points and continue to be below our peer group and top 50 banks.
Net charge off the average loans of 10 basis points was up four basis points linked quarter.
The increase was driven by two charge offs in commercial real estate, which were unrelated to cope at 19. It had specific reserves previously established.
One of the charge off was a nursing home that had been experiencing difficulties for an extended period. It was finally close.
The other was a retail strip center, which lost a significant tenet.
Both of these occurrences were one off of that.
Briefly on slide 17 return on average assets of 89 basis points or 96 basis points on an operating basis and return on average tangible common equity of 11.8% or 13.2% on an operating basis were lower compared to both linked.
And prior year prior year waters.
The decline in these returns was primarily driven by the provision increase resulting from the adoption of seasonal.
Finally on slide 18 capital ratios remained strong given our diversified business mix and long history of exceptional risk management.
Holding company capital ratios declined from year end, primarily driven by the repurchase of 19.8 million common shares during the quarter at a total cost of $304 million.
On March nine we completed the common share repurchase program authorized by the company's board of directors in 2019.
In light of our strong capital position and consistent with historical practices. The board approved the company's 27th consecutive annual common dividend increase.
The ability to provide a consistent cash return of capital to shareholders is a key part of our business model and illustrates the success in building the franchise with a long term view.
We understand the importance it has on the valuation of the company shares.
As I always thought one of our most important objectives is having the capital strength to protect the dividends.
That concludes our prepared remarks.
We'll be happy to answer any questions you may have.
Operator, we're ready for questions.
Ladies and gentlemen, we are ready to open the lines up for questions. If you wish to ask a question. Please press star followed by one on you touched on telephone.
If your question asked and answered you wish to withdraw your question cuts town.
Again I want to ask a question. Please standby for your first question.
Our first question comes from Mark Fitzgibbon with Piper Stanley. Your line is now open.
Hey, guys good afternoon.
Hi, Mark Hi, Mark on the first question I had was on commercial line utilization rates, what those looks like today, maybe versus the started the year.
Yeah, we oh very similar.
They generally then in about a 47, 48% kind of number there.
They've gone 40, depending on the portfolio 49 50.
Really really kind of across the board Oh the different.
The different commercial portfolios, our middle market business banking, a utilization is pretty stable.
Same was our our home equity on the consumer side.
So we've we've been watching that and.
Sure.
Obviously wanting to monitor that and we've been very pleased with Oh, its behaved actually I think it's a sign that are.
Customers.
Are in good in good shape, and not panicking, but and also that they're comfortable that we will fund yeah, if they need it.
Okay.
Good sign.
Okay, and then secondly, or buybacks likely on the whole given what's going on in the environment in your current capital position.
Yes.
Okay.
And then Jack I'm curious is M&A necessarily stop until we get sort of further along in determining how this current crisis plays out.
Yes, I would say definitely.
Where everybody right, it's just way too uncertain for everybody.
Okay, and then lastly on the Securities portfolio had really strong growth. There I guess I'm curious you know what was the impetus for that was it just you know sort of a temporary parking place for some deposit liquidity coming on the balance sheet.
Sure Bob you want to save that.
Oh, Yeah sure. Thanks Jack.
Well there you know there was a.
Little bit of a back up early in the first quarter and break and we were getting a sense that the economy. Good experience a bit of that was slow down not we certainly did have a sense of what would eventually happen. So we decided it was more of an asset liability.
The boot I'm just to put some duration on the balance sheet.
Great. Thank you.
All right.
Thank you that's one.
Next question comes from Steven Alexopoulos with JP Morgan Your line is healthy.
Hi, everyone.
Hey, say.
Once the started on Cecil So if we look at the date to adjustment years was one of them. Most modest we've seen through earnings season can you talk about how your economic assumptions changed from day, one three day too.
Go ahead go ahead.
Well yeah.
I mean, there was that was I.
Significant change you know January 1st you know we were living in the past life, right, which was somewhat business as usual and expectations for.
Now normal growth.
And this and the next couple of years low unemployment levels et cetera.
Day to towards the end of March obviously, the World had change I would I go back and and.
Say that besides the changing economic and environmental wanted me.
Changes was that most of the growth in the quarter was in our mortgage warehouse business, which really carries a very small reserve, we kind of broke that out on page seven so really the entire.
Provision on day, two was co bid related.
Loan growth related.
Yeah.
But David could you share the economic assumptions underlying de too.
Maybe just GTR Ah well, we ran up we ran a base case.
The scenario, which was reflective of a you which as a recovery, which then the back half of 2020. We also ran Malta other multiple scenarios a any long dated you where recovery didnt.
Her until.
Back half of 2021, we also ran what people would call and al which as you know basically a multiyear recovery to where we were at the beginning of the here and then we ran a b as well and then the way.
Our models work that those different scenarios get weight it based on judgment of management.
Yep.
Okay, but you did call out that you were risk of another reserve build into Q.
Just given how does this assumption to change do you think we could see another adjustments similar to the day to run 23 million you saw this quarter.
Yeah, I would say it's entirely possible they.
As you know you know almost every day.
No. That's the economic situation is changing this is it's it's fluid your own bag when they announced talked about yes Edwards being read dawn some of those statistics they were citing were substantially different when they when they went pencils down I'd say the same.
True for us but.
Not only are there.
I would say all of us getting more concerned about and play unemployment levels. GDP for example, but Theres also positive things, where we've got the second stimulus Bill. That's about you know the P.P. programs going to start flowing up next week.
Some of the states are opening up some states are not so I all it's it's much too fluid to give any real color to what the two two for the second quarter provision will look like.
But.
Yeah. So so that's why our combat yes.
Yeah, we could see I mean, other large provision in the second quarter and really can't give much more color than that okay.
And then just one separate question on expenses I know you guys pulls the full year guidance. What are you looking at expenses, where you you do have more control over that less impacted by environmental factors is there any reason the prior goal you gave last quarter 1.19 to 1.22 billion of expenses why that would no longer be intact.
[laughter] as always Dave It's a good question, what what I would say, yes the.
The fluid they because situation is the reason that.
We're pulling guidance and not giving more clarity.
As we see the year on fall.
We certainly expect a fee income headwinds we are waving a lot of fees at this point, we had see increases that we had planned that we've now decided to defer our wealth management.
Business is facing headwinds just because the markets are down.
Offsetting that will be.
Expense reductions, but we were thinking about the pace of technology investments.
We will be a bit slower just because we're all working remotely some of what we will wind up doing this year will be technology to support our employees remotely as well as.
[noise] technologies to help our customers. So I think are so the way we spend money going forward. The balancing this year and that's actually change a bit but I also think we won't do our best to lower expenses as much as we can relative to.
The headwinds as well as margin headwinds.
Okay terrific thinking Oh, Yeah, I would say just one last comment on that is.
Yeah. So this was the quarter that at the beginning in the quarter as Jack said, we completed the.
Systems conversion for United So I would like to state that we promised 55% cost saves in that transaction and we are right on track, where we should be.
Okay.
Terrific, Thanks, David Hey, Steve.
I would just and it went up I don't think that's a that's prior guidance is necessarily that we think of it as unreasonable right now based on where we are.
There are some moving parts the David signed a decides to give you a sense that.
When we pulled total value maybe that's less dramatic.
We are and I don't want it to be misunderstood on the technology spend we look we're moving forward on a bunch of projects that we haven't flights, but I.
I think David common is about case when when the pace is challenged.
And the timing of those expenses hitting is this change. So there's there are different things like that that we really just need to reassess an understanding how we're feeling about <unk>.
Yeah, Thanks to the color Jack.
Okay.
Thank you.
And our next question comes from Jared Shaw with Wells Fargo. Your line is not Wilson.
Hey, good afternoon.
Maybe David just circling back on the on the baseline economic assumptions can you share with us when I guess, what your expectations under that are for unemployment and GDP.
Sure.
So as I said the most important thing is you know the variety of scenarios that we ran so we have GDP across those scenarios from.
No growth in and 2022.
Growth down.
6% in 2020.
Burying bike waters unemployment rates and for example in the second quarter from down 12% to down 16%.
<unk>.
Hopefully.
That's helpful. I mean, there's those aren't the only two drivers to our models as you can imagine you know commercial real estate prices levels of interest rates.
[noise] credit spreads.
Home prices.
There's there's a multitude of.
Econometric data that goes goes into our modeling process I know I would.
Our bottles are our c. So models are essentially have been developed from our stress testing models that we spent.
Now.
Seven plus eight years I think now at this point, putting together we're building teams getting ready to cross the 50 billion dollar Mark I'm to be a C car bank.
So I would say, they're all loan level and they're they're they're well developed and and actually quite sophisticated.
Great. Thanks, that's a that's good color I guess one question I had you talked about the loans that you're considering reach or that you are retaining from you'd be in K that you thought you would get rid of what's a what type of loans for those that you're holding onto.
And.
Oh.
The one that I caught out $233 million it relates pub relationships. They are mostly commercial real estate.
Loans that.
I would say Oh.
Originally we didnt understand the full expanded their relationship as we got a little deeper under the covers we do and and think there's they're high quality relationships that half growth potential for us.
Okay and.
Then just finally, I guess with a with a broader move in thanks stock prices, what's the other risk or the a chance of a goodwill impairment charge on on.
Looks at all or is are you just you look out the rest of the your.
You know, it's it's Oh.
A good questions. There there was no risk.
And they in Q1, they I think.
Primary driver is our obviously.
They are stock price and where we are but what I would say is it's really it's not something were highly concerned about because the when we look at the goodwill on the books by acquisition, we have nice conditions across those acquisitions.
And we.
I believe we will be profitable every quarter through this and that's also a large driver.
Thank you.
Well I think thank you and then next question comes from deep shelf with D.A. Davidson. Your line is handled [laughter].
Yeah, good evening gentlemen.
You noted the participation in the that's the care as a piece expert so protection program.
Just give us an update in terms of fundings today, how much you expect us to fund from the program Im just curious what you're assuming in terms of fees related to this and are they going to other a NIM it back as well and just Oh, you're thinking about actually this is the funding of the Oh the program.
Yeah. So this is Jack as I said in the in the the comments, we we got approval for $2.1 billion, we funded or as of today or something just I think a little North school in the day of one point.
1.0 billion. So we funded just about 50%.
We have actually.
Through the good thinking them some of our technology folks. We've we've put a block into what was a manual process. When we started and the pace of closing in funding alone says picks up markedly. So we're we're actually hoping to be fully funded with a the first.
<unk>.
Program close to by the end of the the week here.
So we feel good about that Uh huh.
Strong effort from hundreds of people in our company and a lot of my work over the weekend. So we felt strongly we needed to respond.
For our customers and ER and we were all in on that.
There will be some margin impact or you know the 1% loans. So you know window, David improved been doing some thinking and ER and we're forecasting on that.
I would comment we've also put some additional automation in dealing with this phase two so we're we're also feeling good about continuing to support our customers. We've been focused on our customer base to this point.
In the program.
Yeah, Hi, Justin.
I just like a couple other.
Issue or points of reference on that so about.
30% of the loans that we've done our.
At a 5% loan originate.
Origination and servicing fee about 40% are at 3% and about 30% or at 1%.
We're all we've been focused on taking the apps and getting them funded and now I think Pos and all the banks are starting to think about exactly how the length of time. These loans will be on the books and the impact to fee income and interest income they.
That fees that were paid are actually part of the white legislation reach their parts service and other part origination so it'd be really think about them part of the fixed part of that he is supposed to be amortized over the life of the loan which technically or.
Two years, but should be forgiven in eight weeks and then.
<unk> is for servicing which you can take up front, so I'd say off and everyone else is start is really.
<unk> getting our head around the margin impact and the fee income impact, we don't really have a clear answer to that yet.
These will also below dot our balance sheet up there on at the end up with water. So I just.
Just thinking forward I don't think are thinking would be different than anyone else is from the point of view I think we'll all be talking about fee income in margin with and without the P. P loans in the second quarter.
Got it from accounting perspective, what what are you there from that or funding alone.
Oh, well paid finding the loans between probably 15 in 35 basis points.
Yeah, I somehow I saw something today or last night that the whole loans are actually going to accept these loans as collateral that's new news I'm. So every bank can just go under their their current capacities or you can use the 35 basis points facility or you can do.
Let's find it as part of your short term funding position.
Got it and then just in terms of some of the forbearance actions just maybe some details in terms of what you're doing in terms of the forbearance programs.
On the commercial one so.
Sure on the commercial loan side.
It's roughly.
Well for sense.
The total commercial book.
It varies a commercial real estate and some of the equipment finance area is our most active there.
And.
Oh, it does appear to be slowing.
I would say definitely appears to be slowing a from what we're being told but yeah, the managers and the different business line.
We had that yeah.
[noise]. Thank you Hello.
Okay, Yeah, we hear your job.
Yeah.
[noise] move onto the next question.
Thank you and then next question comes from Dave Rochester, with Compass point Your line is Allison.
Hey, good evening guys.
Hi, Dan evening for balloon balloons, you guys talked about on slide six which is nice break out here was just wondering what some of the underwriting metrics are on those ltbs debt service coverage ratios whatnot, you have that available and if you could talk about what the reserves or you have you can see segments that would be great.
Yeah, So I'm.
I'm going to ask Jeff to talk about our approach the underwriting or on the different segments and then and then David can maybe comment some about a.
Reserve them.
Yes, Hi, this is Jeff and as Jack and David Both I mentioned earlier coming into this from a position of strength since these portfolios would be similar the going in.
Debt yield and debt service coverage ratios and loan to values were.
And.
Definitely the hospitality space in the retail space were on the Conservative side, you know debt yields in the mid teens debt service coverage you know one in three quarters to two times LTB you know enough.
50% to 60% range on average, but you know as David also pointed out you know, we didnt underwrite to a pandemic, which is why having the customer base that Jack described is being cycle tested.
And in the case of hospitality having.
You know multiple multiple.
Hotels within their portfolio and having been assets for a long time give us comfort that we'll be able to.
Kinda weather the storm, but clearly you have a hotel that has zero percent [laughter] occupancy.
It doesn't matter, what you're going in that yield was your you're gonna have challenges and that's what we're working through.
Pretty good color and then on many of the reserving aspect.
Yeah, and Dave I really just point you back to our seasonal slides.
You know.
The dollar reserves page seven but then.
The allowance to loans by portfolio is on page eight.
You see a commercial allowance 67 basis points inclusive of the mortgage warehouse A.B.L. at eight basis points retail, which undersea so because of the long nature. So the long durations requires a higher allowance at.
103 basis points total reserves of 77.
Okay, Great and then you had mentioned a nursing home credit earlier I was just curious how large that segment was and then I know your leverage loan.
Exposure is really low just wanted to do give it a confirmation of bad what would that number looks like.
Jeff do you want to.
Take a shot it.
Total nursing home exposure and have them from.
Yes.
So.
Yeah, it's not you know given the size of our portfolio. It is not a it's not significant the.
The health care vertical that we manage has about.
Seven or $800 million than it I think nursing homes are.
Maybe if that's a third to less than half of that the thing that we've heard a most and can kind of the call. It. The senior housing space is on a go forward basis.
They expect occupancy to fall just because of the lack of people moving in.
And operating expenses to drift higher because they're having to increase.
Their compensation for their employees and pay for a lot of the P.P. purchases.
In caring for all the people in those homes with I think here again, you know the portfolio was with.
Large.
Operators, who have multiple Holmes, who do this professionally and then a line of business. So its.
It's it's it's with cycle tested sponsors.
The one nursing home that took a called out as part of our charge offs <unk> was a very old legacy blown up part of this portfolio per se and has been troubled for for quite sometime.
Yeah, meaning like fiber eight years of is the who is a unique situation.
The state ended up getting involved as well we worked through with them.
And they came to a closure so I would call that one very unique.
Yeah, Tim with regards to your leverage lending question.
We don't really how about sponsor finance you know private equity vertical or groups. So we don't do a lot of the.
Private equity sponsor finance lending.
I would say our exposure.
That type of businesses is modest we do have leverage loans, but there are leveraged their called leverage loans because of those he see definition not because it's an underlying sponsor.
Finance type transaction.
And that that how big is relatively big enough at all.
Belgium.
Yeah, I think it's less than a billion dollars over there.
Okay.
And maybe just one last one on capital I know you to really originally talked about the targets easy one in the tend to tenant a half percent range. Excluding the buybacks. Now you guys was completed the buyback is lower because of that so just wondering if you have any kind of revised targets. There and then a just a tier one lever.
Ratio specifically at 8.4 now you've got the P. loans coming on was just wondering how low vaccine go what's your comfort level is there.
Great.
Yeah. So obviously.
No both ratios impacted.
Because of the the completion of the buyback or so and below the original guidance, we we put out they.
No. We just expect to build from here back to prior levels as a quarter's unfold.
So really no more color that there are we took them down because of the buyback depending on the level of the provision going forward that that would determine ultimately how much retention of capital we have the pea.
P. long so as I said.
May or may not be on the balance sheet column 630, just because if they art forgiven third forgiven within eight weeks in their funding now Oh.
Just as well as a reminder that.
All those loans are zero percent risk weighted for regulatory capital purposes. So the only every all effect that they will have is on tangible common at 630.
And I guess, the tier one leverage ratio right.
Yeah.
Alright sounds good thanks, guys appreciate it.
You're welcome Dan.
Thank you.
Next question comes from Collyn Gilbert with KBW. Your line is now open.
Thanks, Good afternoon, everyone.
Oh I guess, it's a question for you I'm on slide seven of the the seasonal breakout which is super helpful. If we that 342 million now what are your reserves that do you have that what that is that's a percent.
And you May I seem I guess you may have said this in your initial comments I think that's it but I've been.
When you would go through sort of the de Sal.
Severely stressed lost scenario.
Yeah, it's 65%.
The fast losses under the severely adverse scenario.
Okay, Okay, and that's and and colleges to be clear that not what's out on our website. You know the 2017 number that's at 12 31 19 inclusive of United.
Okay. Okay got it and then just while we're on that slide I know you had indicated obviously, we know you know duration has an impact on.
I see so formula but just.
Can you give a little bit more color as to what drove the 20 million dollar reduction in the allocated reserves for C. and I.
Sure so under our previous incurred loss methodology, we included a b L and mortgage warehouse within Sicad I and treated it adds a homogeneous portfolio under c.. So we have a so.
I think model for those those two asset classes.
So.
Yeah, that's why it's approximately $3 billion of loans that only carries a 2.4 million dollar reserve. That's the eight basis points that you see on slide eight.
So it's actually interestingly if you back.
Those loans at al as well as the $2.4 million, what you'll see is for the commercial reserve. It would go from 67 basis points to 73.
And if you did that for the whole allowance it would take our reserve from 77, the 82 basis points.
Okay. Okay got it and then just.
In terms of the the loans that you guys have identified is kinda significantly impacted so on slide six.
How much of those have been.
Did you say acquired either through you know some of your finance acquisitions or through Port you know your your bank acquisitions over the last.
Five years or so.
So Collin this is Jack.
I'll take a crack at that and then just a few have anything to add free and yeah. We described the relationships or on the hospitality side. Those are long term relationships that have been with People's United for a long time set so that 70% of Oh.
The exposure.
And.
The.
On the retail side.
The description of the grocery anchored.
Pharmacy Big Bucks.
All of those relationships are long term.
People's United relationships we.
We financed or for instance, a lot of this up and shop anchored the properties through else kinetic is we've got a couple of customers that have done a lot of CBS type pharmacy. So.
All that stuff is long term tenured customers.
And those are all the big dollars in those.
<unk>.
Okay. Okay.
Okay. That's helpful. And then just lastly, just on me I'm actually going to be equipment finance talk a little bit. So the 5 billion. There maybe just walk walk through some of the credit metrics I know obviously restaurant.
Or within not a little bit, but just sort of how that portfolio is faring and how do you see that I mean, obviously the slide gives you kind of you know maybe day, one and Packer Kobe, but if we're in this longer you know slowdown from an economic standpoint recession, how maybe that equipment finance portfolio will do.
Yeah, so you're asking about restaurants in the.
Well no well just generally just $55 billion, just all of the putting us in Oh, I'm, sorry, I'm, sorry, I guess you know it's okay.
So.
I would say yeah, Jeff if he wants to add anything but.
So we've kind of got three distinct businesses in that in those portfolios the old PCL C, which as you know leasing company, we've probably operated within the company for 25 or 30 years.
Well those are kind of larger mission critical pieces of equipment.
Many of those companies have definitely been impacted by the virus and we've gotten forbearance request.
But you know many are not many are more insulated at least now.
The.
You know what I would say I would think of those as you know kind of cash flow.
Focused in the underwriting.
Hi, or percentage on the.
Original.
Loan to values, a that's the way that business functions, you know competitively in the market.
But don't lend that typically five year alone. So you just think of kind of pretty evenly running out no serious.
The the next one zillow since it and those guys do more of a smaller companies variety of.
Cranes that I think about cranes on top of a.
Troughs that can move them around the different sizes some construction equipment.
Cetacean.
They have had an incredible record with us they know their clients really well in the long term relationships.
And then leave.
As small ticket item.
Wide variety of vendors that they work with a in different industries, and then I'm very tightly controlled credit box. That's that's focused on the fair Isaac small business module and then they add a lot of attributes that they work with.
Probably the most.
Well, we think one of the quickest ways, we can explain the Lee.
History with you guys as these or is there is a management team that's been working together for 30 years, they've been in the business through cycle, there's a ton of the public information out there about their securitization they've done over the years, which is a big part of our underwriting and due diligence on the company.
So you know again, there's gonna be some companies in there that are gonna be affected no doubt and but I think the core going in underwriting approach is very sound and and cycles tested so were that's the way we're viewing it.
Okay.
Oh, sorry got yeah, Jeff did you have any.
No I just you described to perfectly Jack I wouldn't read anything.
Okay, and I I know it.
Yeah.
Oh I was I was just going to share some historical loss numbers the place with Jack said in perspective, so in Jack Slide where we talked about the 16 basis points with charge offs no through 2008, well a PC I'll see the first one Jack talked about is included in that.
Because we bound to the whole time, they've averaged over that period of time 29 basis points to charge offs.
They all things that people should I equipment finance rebound since 2010, they've averaged five basis points of charge offs, because they're so close to the collateral and that lead to we habit owned since 2011, but they have public securitizations.
Out over that time period, so from 2011 through last year their average annual charge offs were 72 basis points.
Okay. That's great color alright, thanks, guys I want to get there I appreciate it.
Thank you.
Thank you.
Next question comes from Matthew Breese with Stephens, Inc. Your line is Hamilton, Hey, good evening everybody.
No I just wanted to follow that the last line of questioning there. So could you remind us what the size of the overall leaf.
Portfolio is I just want to frame of reference page 20, where we see a lot of equipment finance loans with forbearance, but not a very large amount of outstanding I would assume that's that's a lot of leaf related loans, yeah leases current portfolios 1.8 billion.
Got it Okay, and then do you have prior 2011 for leaf what the what they did through a degree financial crisis in terms of charge offs and the same question for definitely enough.
Oh, well, so Ben said, we bounced since 2010.
So no I don't have third data prior to 2010.
For leap.
Some of that information is publicly available because they they securitize they had public securitizations outstanding we don't usually reference that because the business model coming right out of the crisis was different.
And what it was since 2011, so it's not really a play football when we went through some of that early on they they're charge off history averaged about 90 to 95 basis points.
Okay.
And your neighbor, Mike, Yes, Yeah, Jack I, just want to make sure you don't I heard you started out and and it is not accurate that the majority of forbearance request a in the leasing business or our all in lease at all it's quite a mixed across the board.
Okay understood.
Last question for me just just you mentioned a assets under a discretionary management.
Obviously post quarter that that could change do you have what that number is is down to a as of april versus versus that.
Quarter, what you use for for the first quarter I know, sometimes that that's marked off of a in earlier part in the quarter.
I don't.
We can go we can come back to you with that Matt I, just we don't have it available right now I understood. Okay. I appreciate it that's all I had thank you.
Thank you.
Huh.
Thank you, ladies and gentlemen, just said no further questions in the queue I'd now like to turn the call I went to mr. bonds for closing remarks.
Thank you operator.
Well the economic impact of the pandemic will meaningfully affect the remainder of the year. Our first quarter performance was strong company entered the sites is well positioned.
We are confident grains of our franchise.
Excellent risk management capability, [noise] deep customer relationships diversified business mix and strong liquidity in capital levels peoples, United will successfully navigate this uncertain time and play a critical role in supporting the financial health of individual businesses and communities throughout the crisis and beyond.
Thank you all.
They have a good night.
Thank you for your participation in today's conference. This concludes the presentation you may now disconnect good day.
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