Q1 2020 Earnings Call
Good day, ladies and gentlemen, and welcome to the S and T. Bancorp first quarter 2020 earnings conference call. All lines have been placed I don't listen only mode on the floor will be opened for your questions and comments following the presentation.
At this time and it's my pleasure to turn the floor richer host for today Mr. Marco far Chief Financial Officer, Sir the floor is yours.
Alright, Thank you very much and good afternoon, everyone.
During today's conference call before making a presentation.
Are you to our team.
[laughter].
Great.
Hey, good bye.
We acquired by Securities Exchange Commission.
And maybe closer to this presentation.
A copy of the first quarter 2020, <unk> earnings release can be obtained by clicking on the press release like ours screen or by visiting our Investor Relations website.
I'll be dog eat Bancorp Dot com.
I'll be reviewing <unk> earnings.
As part of this presentation you could attain copies.
Under the presentations first quarter twice White earnings conference call.
First quarter 2020 earnings supplement.
I would now like to introduce time right.
Chief Executive Officer, who will begin today's presentation.
Thank you market.
Everybody I hope you all think safe and healthy through these unprecedented times.
Colin Nike has impacted operations and our economies and unprecedented ways.
So we've expanded our presentation this quarter to provide some granularity on loan portfolio as well as somewhere customer assistance programs that we definitely.
Well, we're we're reporting.
$13.2 million is 34 cents per share which included.
$3 million or five cents per share a merger related expenses.
The quarter that were associated with the Dnbi transactions that we consummated last year.
The core EPS for the quarter were 39 cents per share which translates into.
70 basis point return on average assets.
One 3% return on equity 7.7, I understood every job guys. What we are managing expenses continued to be a strategic focus our efficiency ratio for the quarter was 52.89% and what we do need to be a focus moving forward. We did a lot to adopt seasonal as of January 1st and the uncertainty around two was 19.
Resulting in $20 million provision expense in Q1.
<unk> $2.2 million and in the fourth quarter.
Our allowance for credit losses stands at $96.9 million or 1.3, or 4% loans versus Wade, 7% last were pretty solid we're seeing nice growth in all of our lines of business across all of our five regional markets Oh. The de conversion went extremely well and then we were experiencing nice activity. It sounds that's.
South Eastern Pennsylvania.
The quarter portfolio loans increased $109.6 million or 6.2% annualized and was distributed across commercial real estate see an <unk> construction categories.
Our code.
Yes.
So the Oh the Nike in response was focused on for stakeholders.
As for our employees, a that customer and business.
This is good customers and finally, our communities protecting the health and well be our boys with customers with the initial concern so working from home rotating schedules letting our operational status would be multiple facilities. Oh. This pay for people that were coming into the office picking up some choppier expenses.
For only a number of other.
Initiatives that we did it really just try and make sure our employees were worse shape. It.
Healthy. So next we focus on customer assistance program for consumers and businesses I would you tell needs based loan Baylor deferrals SP 80 bps lending extended solution center hours encouraging the use of online and mobile solutions and finally I work in bed to supporting our communities as Don said through contribution to food banks that are.
Regional medical provider.
Before I turn the are present day, that's all I've got my share some very exciting news, we have been recognized by JD power as the best retail bank in the mid Atlantic region. It's really lottery received this designation and it really is a reflection of the cognizant trust in our customers have placed it has to be bank.
Certainly our communities for 118 years through good times challenging times, economic downturns and national disasters and today, we bring that same commitment to do the horrifying navigate the Coca with Nike brand Daddy.
Common shares totaling 411000.
430 were repurchased during the first quarter 2020, and total cost of $12.6 million for an average of 3.5 to <unk> pretty only 52 cents per share and that the impact is that Coca with Nike Pandemics right. We did spend repurchase activity in mid March.
Finally, please announce your board of directors approved the 28 cents per share given for shareholders of record on May 19 was paid why did you say 2020 or this is.
An increase of 3.7 per cent compared to do at 27 cents for sure very busy period last year I want to thank you for your continued support of S.P. bank or not unlike the temporary merger present.
Steve into it.
Thank you John and good afternoon, everyone.
I can direct your attention to slide number five we thought it would be helpful to provide an overview by category of the entire loan portfolio in order to frame our discussion today regarding credit risk and covered 19 hardship assistance focusing on those categories that have been most impacted by the crisis.
And you can see on slide six we have provided payment. That's just that's in the form of principal deferrals and payment for parents were loans that total $1.258 billion or the approximate ratio principal deferral versus payment Forbearances 50, 50, and a life of these modifications is generally.
The between three and six months.
Segments with the largest modified percentages include our work when customers, where we waived curtailment payments are essentially the entire block as the various stand out orders did not allow for continued operations and as the overwhelming offer. These dealers who were also a longstanding customers are located in pedal.
Hey, a word automobile dealers were prohibited from selling cars until just last week when the state allowed for online sales only to restart other high impact categories include retailers and restaurants, who been forced to close were severely limit operations. Oh. This is having an impact on our strip mall and.
Retails theory borrowers and its asked for rent concessions on page seven we provide more detail information or most negatively impacted category hotels. It's important to note that approximately 84% at these properties carried stopped solid mid tier flags and then our hotel portfolio was promoted.
Entirely comprised the business travel locations, rather then leisure focused locations.
Also note that our oil and gas outstandings totaled $88 million at the end of quarter with approximately $66 million that amount concentrated in several well you know convenient store brands, who continue to perform well at this time.
Turning to eight games.
We have I most recent resolved the work consumer hardship assistance programs, where we have not $560 million are the ones or 5% of the total balance board both the commercial and consumer hardship assistance programs. We have seen requests for new really reduce rapidly and are assessing the need for these programs as we move.
Forward on page nine you will see the resolves the work just station in the Paycheck Protection program. We're very proud of these yourselves in our ability to refocus resources towards helping our customers access. This program, we have taken a very disciplined and thoughtful approach to our participation and believes our mission of provide.
Adding exact exceptional customer service is representative represented in these results.
On slide 10, you can see our utilization experience.
Bottom line here is that we did not see significant line activity as a result of cobot 19.
Finally, we are preparing for our returns business as usual activities in the coming weeks as you know the kind of all the Pennsylvania has announced a multi phase reopening plan how the thing I described as cautious the by the state into six regions, where reopening a reopening of various segments of the economy will take place.
At various times, we will continue to monitor closely a other guidance and we will adjust our operations accordingly.
Now I'd like to turn the presentation over to market for our Chief Financial Officer.
Thanks, Dave a slide 11 shows the progression of the allowance for credit losses from the incurred methodology at the 12 31, 19th the sequel, which was impacted by to cope with 19 at a 331 20.
The original day, one impact was 18.4 million 8.2 million related to legacy equity loan book and 10.2 million for the acquired <unk> loan portfolio, which under prior accounting carry no reserve.
The additional they want adjustment primary primarily relate to the $9.9 million charge off we had in the first quarter due to the timing when we learn the charge off with appropriate which was after the filing at the 10-K prior to the end of Q1 specific reserve for that long. What's included in the day, one adjustment since that had not.
As previously disclosed.
That long made up the majority of the 11.2 million net charge off in the first quarter.
And finally, the reserve build which may relates to pandemic influenza economic forecast changes at approximately 80.6 million.
Our allowance stands at just under 97 million and 1.34% lounge that into the first quarter. This does not include the reserve for unfunded commitments, which stood at 6.1 million at the end of Q1.
The net interest income improvement a 5.6 million compared to Q4 was primarily related to the Dnbi merger, which closed on November Thirtyth 2019.
With our first full quarter of combined result average loan balances increased by 666 million.
The net interest margin compression quarter over quarter was just two basis point as we aggressively reprice deposit costs and we benefited from a lag and decreases likewise.
LIBOR has come down in April we expect additional NIM compression in Q2 more consistent with our prior experience approximately four basis point for every quarter point that decrease.
Due to our asset sensitive balance sheet cienas on flights well.
Well get some relief on the liability side di di my market and borrowing through price over the next 12 months.
This implies a core net interest margin rate ultimately declining to the 335 to 340 range included in net interest income in the first quarter is approximately five basis point the purchase accounting accretion.
The next couple of quarters will be impacted by the F.D.A.P.P. program and the mouse kinda on the pace of the forget it.
Noninterest income in the first quarter was impacted significantly by the stock market at the Mark to market Nonqualified deferred benefit plan combined with a decline in the value of some banks dock beyond resulted in a three and a half million dollar decrease in other income.
Swap fees were strong in the first quarter and mortgage banking picked up heavy refinance activity.
We expect somebody some weakness in consumer fees lower transaction volume moving into the second quarter, along with the slow down in swaps.
We remain comfortable with the run rate of about 13 in half 14 half million per quarter.
Non interest expense included $2.3 million that merger related expense was favorably impacted salaries and benefit by 1.5 million from the other side of the valuation of the nonqualified deferred benefit plan that decrease other income the none of these two at PNM neutral.
Although we are experiencing some additional expenses relate to the pandemic. They are being off site for now I reductions elsewhere, such a t. any that's lower hiring.
We continue to expect our expense run rate to be into 40, and $45 million to $46 million range per quarter.
We expect our tax rate in 2020 be somewhat lower than originally anticipated due to pressure on pretax income in the range of 78%.
Capital levels on Fythirteen remained strong and an excess regulatory well capitalized levels, we're comfortable with our ability to absorb losses based on internal stress test that we have completed.
Hi.
Slide 14.
Shows that we have ample liquidity on hand off balance sheet.
It's very much at the time I'd like to turn back over to the operator to provide instructions for asking questions.
Thank you, ladies and gentlemen, the floors on open for questions if you'd like to ask a question. Please press star one on your telephone keypad at this time using a speaker phone we ask that you pick up your handset while you pose your question once again star one for any comments or questions at this time.
Well go first to Russell Gunther D.A. Davidson.
Hi, good afternoon guys.
Absolutely Russell.
Yes, I appreciate all the detail in the slide deck gets even more than a robust deck, we usually get from you guys as well as increased get granularity around the hotel exposure, but I'm wondering if we look at slide five I mean can they serve on most of the heat map in terms of where youre.
You know initial a concern may reside within the loan portfolio or how would you.
Beyond the hotels under staffed right.
Potential pockets of weakness within within the S&P portfolio.
[laughter].
Yeah, I think if you look at slide six Russell, where we have that Oh bid loan modification and look at the categories, where we had the highest percentage of modified balance you know that would indicate the areas where we have the most risk.
Now what we're in the process of determining is it short term risk due to elevated or is there long term impact on the underlying operations of these various businesses.
Okay got it thanks, Dave and then and then sort of sticking with that are there any.
Kind of underwriting characteristics you could share a whether it's you know a current ltvs within within some of those more at risk buckets or just a reminder of sort of the general framework, whether it's a max LTV or minimum debt service coverage.
Yeah. So he is in the hotel portfolio Russell, we typically rice is 70%.
Loan to value Yeah, we haven't been booking a new assets in that category. We had two loans that were under construction, they're they're being completed that are a in strong markets.
But generally speaking where 70% on on hotels, yeah, the remainder of the portfolio, depending on asset classes traditionally underwritten to 75% to 80% loan to value and our debt service coverage ratios are 120 to 125 based on the based on the asset class.
That was where it had a free Kobe underwriting standards. So we're looking at each individual deal and as our including as part of our underwriting and analysis at thorough discussion and understanding of how each geography and industry is impacted by coded so goes beyond kind of abroad and.
You're writing a guideline, it's really a deeper into what the impact of Kobe will have on each industry and and geography.
Okay great.
Thanks, Dave and then.
Just looking at slide 11 into glide path of the reserve do you guys have much in the way of remaining credit marks on acquired loans that if we weren't a kind of look at the 134 reserves today and consider though is that what would take that higher.
Hi, This is mark we still have about $9 million in or in other reserves from acquisitions and then we also have about $6 million in the unfunded commitment reserve.
Okay, great. Thanks, Mark and then the last one for me you know you guys mentioned you hadn't seen much I think it was yeah slide 10 and in terms of a significant pickup.
In line usage I, just curious for your outlook for organic growth non P. P. P for the for the rest of the year.
And and you can just kind of comment is is there something up demand is that reflective of just that.
Deceleration and pay down expectations, just any kind of commentary there would be appreciated.
Yeah, Russell I think they still want now and I mean, you know, Pennsylvania, there's a little bit behind other states on you know our business is already we opened were very restrictive then like tomorrow. Finally, there out without constructing a construction projects going to be able to.
Right back up but everything is supply chain. So what that does or does it mean, having worked with the stakes that we're doing a lot about price declines to try and if this thing I think there's still trying to wade through a how they you know going to use our businesses right now that's something we're going to stay on top of it and you know we want to be there for our customers.
Well they need this and what could you do it yourself.
Understood. Okay. Thanks, Todd Thanks, guys, that's all I got.
Hi, Carolyn.
Once again, ladies and gentleman that was star one if you have a question or comment at this time.
Oh, okay.
Well go next to Collyn Gilbert of KBW.
Thanks, Good afternoon guys.
Well I call. It Mark if we could just dig in to the reserve kind of assumptions again you guys did you know you you up built the reserve you know probably even more so than than many of your peers now that was good certainly good to see can you share with us what some of your economic forecast assumptions were on that.
And.
Yeah, just sort of what went into that went into that methodology.
What we did we get about people and so that's the biggest factory. Our model is the is the unemployment rate.
So there is volatility just didn't need a in the estimates there. So we're still a valley evaluating the Dallas.
We did put some there's some management judgment that we can exercise with that and we did ramp that I'll ask the some of the S and that's what I'm find them. We're gonna be we're still in their early stages. When we were doing it's early in April.
And then we have other other more general factors that we can bring into the analysis as well we're not just on its unemployment, but the unplanned rated the is the major thing that drive the forecast for us.
And what we are using just for unemployment, where you guys. Following the one of the Moody's forecast.
Oh, we're not using your moodys were actually he's done a just a best forecast so they have been well behind on producing a new one so we used our management piece of that essentially override that and use a an implied higher unemployment rate.
Okay. Okay. That's helpful.
And then you don't Mark you had given in your guidance the NIM.
But just trying to just breaking it down just thinking looking at some of the CD pricing and you know all I'm, assuming a lot of that's just because it sounds like dnbi coming on but looking at Cds at 180 kind of money market that 127. It seems like there's a lot more you can do there to reduce some of those funding costs. How are you seeing that kinda.
Play it play out here on the next quarter or so on the funding side.
Well I think a lot of that had it's hard to see in the quarters numbers because so much of activity happened right at the end at the ended the quarter and so I think you'll see that we did we didn't do a lot it'll show up more in Q2, then it didn't he won on the other things on that on the asset side. It's the same thing you know with 150 basis point.
Hi, which at the timing of it you know really worked out the only maybe up 40 basis points for the quarter. So there's another 110 basis points to go and then with a lot more lag you know we're going to see a bigger drop on me asset yield side in Q2, again that would be off that because.
The latest up when we changed our deposit rates in.
In the first quarter.
Okay, Okay, and then just lastly.
I see a loan pipeline looks like and just kind of what is your expectation for loan growth you know as you've had pointed out you know, Pennsylvania looks like it's going to open up I know I know you feel like you're behind Todd. Let me start you well ahead of what's happening I think in New Jersey in New York, So, but kind of what's your outlook for for loan demand as.
We move into kind of the back half the year and how some of your borrowers.
Our anticipating to react once things start to open up again.
Yeah, Hey call as Dave So.
You know he is a commercial business banking sectors, you know pipelines are off.
You know, 50% 40, 50% from where they were coming into the year.
Well those folks are looking at you know just getting through getting getting the triple P. proceeds.
Ah you stand and focusing on forgiveness efforts. So we were in the process of every four caffeine recasting, where we think we might be so we don't have guidance right. This time, but demand is clearly office people are looking bouncing in weighing working capital needs.
You know what we're starting to hear the conversations about you know revenue opportunities for people and how they might be able to.
Fine a silver lining it in that store the other pipeline that I will speak to is our retail mortgage pipeline, which is yeah. It has been at.
Oh, it's sort of allows for us and we continue to see that kinda demand is as rates remain well. So I think our mortgage banking activities will remain strong through you know through this low interest rate period, but we.
I have some better clarity for yet next quarter.
Okay. Okay, that's great I wouldn't even though that's really give color on the slide deck thing for us for doing that.
Great. Thank you all.
Well connects to William Wallace that Raymond James.
Thanks, Good afternoon guys.
I would say Wally.
Hi on the Oh.
On the 537 million dollar of a.
P.P.P. loans that you did you highlighted in your deck is that because that spread across both the first and second round.
Yes.
Could you could you separate those out and then also give a sense of the average speeds.
Yeah, rich, what well I see the average the average fee.
She noted for 803%.
Okay.
And it is as a part of the fundings that as long as kind of spread evenly between both of the routes.
No no. The first fraud was probably right under 500 million.
Yeah, Yeah, we had you know a pretty significant number how we're being able to chew through a bunch of those Oh you know over last couple of days are you pretty comfortable where we are but they were they were probably the sole proprietors and spot business isn't why go.
Okay, perfect all right well third so they just you know they got they're going to jump up and Rob why but so the average the average.
Uh huh.
Hey, bar 90, $90000 and we funded alone [laughter] as low as $370.
So a big round two as maybe I'm going to say, we're still finalizing numbers because we're still working through its probably in that $35 million range.
Okay. Thank you.
So that that core margin guidance of 335 to 340 does that include any impact from these loans or would that be on top of the guide.
That would be on top top of this.
Timing on that is good it's going to throw ranks and Oh Martin calculations, you know if we do get yeah, a lot I forget that saying Q3 is going up top margin a pretty significantly so that that guidances did.
Yep Yep Yep, that's it thank you.
On your loan much though it was a little bit confusing are they all 90 day, Tom interest only modifications across the border or part of their variations around what types of RG <unk>.
James Yeah in the commercial space there are various modifications or some of those are 30 60 90 days summer as long as 180 day you know we were following the TTR guidance.
And using that as the guy that some of them are a principal deferrals Sundar PNR deferrals, depending on the ability of the businesses to operate during this environment.
Yeah, Yeah, yeah on the on the consumer.
Yes, just 90 days.
It's not chosen account or get some of those are answers.
Ali you already with you suspect press when there's still paying interest on myself is concerned.
Okay, great. Thank you that's helpful.
Oh, and then I wanted to follow up on a question earlier, where you.
Said, there's still $9 million in marks from from purchased loans. Those are those remarks those are interest rate Mark is that correct.
Well, they're interesting credit, but yeah. They operate differently now were those will just get accreted basically over over as those pay down.
Right. So you put it does loans that those marks are tied to specific loans. So they cannot be used to support credit somewhere else is that correct. I think some people are trying to stay there double its double counting.
Yeah now can you define how do those and not really I mean, he does as you know they're going to run through margin no matter what.
Timing is just okay whenever they get paid.
Okay. Thank you.
That's a that's all the questions I had thanks I appreciate it.
That's why it.
[laughter].
And with no other questions holding I'll turn the conference back to management for any additional or closing comments.
Well. Thank you for participating in todays conference call Mark David I appreciate the opportunity to discuss this quarter results and look forward to hearing from you or next conference call.
You too.
No I hope you all stay safe and healthy.
Ladies and gentlemen that well conclude today's call. We thank you for your participation you may disconnect at this time and have a great thing.
[noise].