Q1 2020 Earnings Call
[music].
Good morning, and thank you for joining the bank of Moran Bancorp earnings call for the first quarter ended March 31 Twentytwenty.
Andrea Henderson director of marketing for Bank Ameren.
During the presentation, all participants will be in a listen only mode. After the call. We will conduct a question and answer session.
At that time, if you have question. Please press one followed by four on your telephone.
If at any time during the conference you need to reach an operator, Please press star zero.
As a reminder, this conference is being recorded on April 20 Twentytwenty.
Joining us on the call today, our Russ Colombo, President and CEO.
And tiny Girton executive Vice President and Chief Financial Officer.
Our earnings press release, which we issued this morning can be found on our web site at bank of Moran Dot Com, where this call is also being webcast.
Before we get started I want to emphasize the discussion on this call is based on information we know as of Friday April 17th Twentytwenty and May contain forward looking statements that involve risks and uncertainties.
Actual results may differ materially from those set forth in such statements.
For a discussion of these risks and uncertainties. Please review the forward looking statements closure.
In our earnings press release, as well as our S easy filings.
Following our prepared remarks breast centanni, along with Chief Credit Officer, Beth Reizman and Tim Myers head of commercial banking will be available to answer your question and now I'd like to turn the call over to Ross Colombo.
Thank you Andrew good morning, and welcome to the call.
Before we begin I hope everyone is healthy and say okay.
I, especially want to express my gratitude to social workers, who continue to provide much needed resources to local communities in northern California and across the nation.
As you know.
We will that change dramatically in the situation being very challenging.
Fortunately, thank the brand as well capitalized and we have ample liquidity in resources to help our clients manage through these trying Tanya.
We will participate.
In the small business administration Patric protection pilot program, which provides low interest loans to small businesses to cover payroll expenses and other overhead call.
Today.
We have received approximately 1300 application full estimated total of $350 million.
We were able to submit and receive SP approval for meaningful meaningful portion of those applications prior to the FDA suspension of the program.
We continue to process customer applications internally remain poised to submit them for approval as soon as a program is resurgence.
In an effort to ease of financial burden on our customers, where waving all ATM and overdraft fees into clean early withdrawal penalties for Cts will allow by law.
We're also provided 120 days of payment relief to borrowers with hardship request is that reduced interest rate floors on prime based business loans.
As of April 14th we have received approximately $342 million in low release request for conversion.
Through interest only or payments fertile.
93% or secured by real estate with loan to value ratios, averaging less than 45%.
In 129 million are linked to the industry's most impacted by California shelter in place orders.
Our loan portfolio exposure to the most affected industry includes 10.4% retail properties and businesses, 4.6% wind related.
2.7% hospitality.
Transportation dental recreation and entertainment combined.
Represent less than 1.5% of the total portfolio.
The health of our employees and customers is also a top priority.
Think of Marine has deployed safety protocols, such as enhanced spirits cleaning and strict social distancing policies.
Well, we have met a modified branch hours.
We have repaid all of our employees at full pay with no layoffs or furloughs.
Although many employees are currently working from home.
We have season banking teams in all of our market and they are dedicated to helping our clients weather the storm.
Additionally, we are encouraging our customers to use ATM.
Digital banking and telephone banking services, all of which are available 24 seven.
Now I'll turn to our first quarter results.
We maintained strong lending levels and generated net income of $7.2 million.
Diluted diluted earnings per share of 53 cents.
Total loans of 1.8 billion were up slightly from a record fourth quarter 2019.
Deposits held steady at $2.3 billion.
Our cost of deposits remained very low at 21 basis points.
Non interest bearing deposits comprised 49% of total deposits.
Proposed we posted a total risk based capital ratio of 15.3% well in excess of regulatory requirements.
Well, we're very well capitalized our board of directors.
Decided on March 20 to suspend our share repurchase program.
Indefinitely.
For cautionary funds to the pandemic.
The board plans to monitor the situation closely and reinstate program when appropriate.
Mostly unrelated to the effects of the CRO to buyers nonaccrual loans increased.
By 1.4 million in the first quarter, two 1.6 million, 4.09% total loans.
Classified loans increased by 2.1 million from the prior quarter to 12.1 million.
But we're still down relative to the first quarter of 2019.
The credit impactful.
Koby dates in crisis will take time to materialize.
Our bank is not immune to the significant economic pressures associated with the pandemic.
But we're confident in our conservative lending philosophy, and strong historic asset quality performance.
Buying because of our continued profitability our board of directors declared a cash dividend of 23 cents per share on April 17 2020.
This represents the 60 sixtyth consecutive quarterly dividend paid by bank of Marine Bancorp.
With that I will turn it over to Tony for additional insight on our financial results.
Thank you, Rob and good morning, everyone.
As Rob noted, we generated $7.2 million in net income and diluted earnings per share a 53 cents in the first quarter of 2020.
Compared to 9.1 million and 66 cents, respectively in the prior quarter.
Net interest income totaled 24.1 million in the first quarter compared to 23.9 million in the prior quarter.
Despite lower loan yields and one less day in the quarter net interest income exceeded that of the fourth quarter 2019, due to a larger earning asset base accelerated accretion on a call the investment security and money market deposit rate reductions.
The tax equivalent net interest margin was 3.8% in the first quarter compared to 3.82% in the prior quarter.
Accelerated accretion on the calls investment security added seven basis points to the first quarter margin.
We have postponed the adoption of the current expected credit loss accounting standard or Cecil in accordance with the accounting release provision in the cures Act that allowance banks to delay implementation until the end of the national emergency or December 31, whichever occurs first.
We recorded a 2.2 million dollar loan loss provision in the first quarter under the incurred loss model.
This was unusual for bank Ameren and up from 500000, the previous quarter, reflecting adjustments to qualitative factors for the economic uncertainties raised by the Covance 19 pandemic.
Noninterest income was 3.1 million in the first quarter of 2020 increased from 2.3 million in the prior quarter, primarily due to 800000 in gains on sale of investment Securities.
The first quarter typically includes some seasonal expenses and this year was no exception.
Noninterest expense totaled 15.5 million compared to 13.3 million in the prior quarter.
The increase was primarily due to 1.7 million higher salary and benefit expenses related to January reset of for one came matching and payroll taxes.
2019 bonus accrual true up.
Lorawan came matching bonus payments.
And stock based compensation, which included 388000 for participants meeting retirement eligibility criteria.
Other increases included four additional full time equivalent staff and the $102000 provision for off balance sheet commitment.
The bank delivered a return on assets of 1.09% and a return on equity of 8.54% in the first quarter of 2020.
We're pleased with our continued profitability and prepared to leverage our operating strength in support of our customers during the covered 19 crisis.
Now rest, we'd like to share some closing comments with year.
Thank you Tony.
No one can predict belief in severity of the pandemic.
For the extent of its impact on our lives in local economies.
However.
Thank you Brent has a strong capital position.
Hi quality loan portfolio with excellent credit metrics.
The low cost deposit base.
For more than 30 years. These factors have allowed us to support our customers in communities through good times and Beth.
We will navigate through the crisis in the same way together.
Before we open it for questions I wanted to provide our latest numbers for the paycheck protection program.
Thank you Brenda collected over 1300 applications since the program launch totaling more than $350 million.
We process close to 250 loans before the Sta stopped accepting applications.
Most of which will fund today.
Now we will open up the line for questions.
As a reminder to ask your question do we need to press star one on your telephone to withdraw your question press the pound or Heskey questions can also be submitted in the webcast be it by clicking that.
Ask questions have is helping your question and the box that appears to be loans attack. Please standby week about the Q and I roster.
Your first question is on the line of Jeff Rulis with day D.A. Davidson. Please go ahead.
Thanks, Good morning.
Hi, good morning.
I guess.
Thanks for the detail on the sort of the portfolio exposure in those categories I guess, the the wind related businesses is maybe a little more unique.
To you and others I guess could you walk through just the segment kind of.
Those operations that can continue or cannot within the one industry and what you what's your view on.
And how that industry.
Progresses.
Sure I'd be happy to.
It's kind of interesting because depending upon the winery you know there's still.
There is part of their business is still going fine because it is why in clubs its direct shipments to.
Two wind or members, it's sales to grocery stores and things like that or we're still on business. The part of the business. That's just not nothing's happening is of course tasting room sales and in our on premise type sales, which is your bars and restaurants things like that so thats.
That's that so off obviously, 100% so I have read Jesse Mckay.
You know we the wineries, we we have a number of wineries in we have wind related businesses.
Good there.
There, they're certainly off significantly and most of the applied for PVD, because they're often they had the you know there their sales were off that I feel pretty good about that one once we get back to.
Whatever the new normal is once restaurant opening in those those wineries circuit that youre going to be back in Bakken business back to 100%. So.
It is unique but it's not.
Completely zero.
And you know eventually personal come back to the wine country and sorry, visiting the line I'm done the tasting rooms, but in the meantime is is that part of business is struggling that's for sure.
Right and so theres a figure there.
Russia about.
That 4.7 is there.
You know a quarter of it is direct shipments or have you thought of it in that it looks like what portion is on premise or.
In a real hospitality.
Direct retail or you know every business every hour winery is different but maybe I can ask 'em bethree is that our chief credit officers on the line and she may have more specific on that yes.
No actually on many of our clients.
Have all facets of the business, where they ship direct.
They have.
Wine tasting rooms et cetera, So we haven't really broken it down specifically to ones that are just typically.
Wholesale or direct to consumer, but I think they all most of them have an aspect of each partner Russ mentioned in their business.
Okay. Thank you.
Maybe shifting gears to the the fee income side.
Mentioned, the waving of fees I guess, the first part of that question has.
What impact did you see in the first quarter of waiving fees or if that came very late in didnt see much impact and so that translates to the outlook on on fee income.
Expecting maybe investment gain or that you booked in the quarter to.
Stock.
Yeah, I'll answer it and I'll ask on Tanya jump in yeah, that'd be the impact is minimal in the second in the first quarter because it was towards the end of the quarter that that was all put in place. So.
I'm going to be a lot.
And in the first quarter second quarter, certainly we'll have we'll have an impact on.
On earnings as you know we are yards or our fee income relative to our net interest margin spread is is relatively small so it's not going to have a big impact I think as others might but so but it's one thing to do at this point in time. So we have no problem, making those changes the tiny did you want to make any comments and.
Terms or gains on sale.
Hi, yes in terms of the gain on sale or what we sold were some shorter duration a mortgage back securities that we felt.
As we were approaching the interest rate.
Great cuts or are they the stressed environment were subjected to higher prepayment risk and so their duration would shorten either even further and we were able to sell those it again and then redeploy a much of those funds into longer duration high credit quality municipal securities.
Which we did and that also that help the yield on the portfolio and also protects the bank.
From interest rate risk in this lower interest rate environment.
And any thoughts on further security sales are you kind of took a pretty good.
Chunk of it in the quarter.
[noise], but yeah that was that was an opportunity that we saw at that point in the quarter right now we're not looking at anything in particular, we have.
Plenty of liquidity to support the PDP and other other.
Programs that were running right now.
And you noted the P.L. after liquidity facility is out there if we want to generate on so we won't be selling securities just for liquidity purposes.
If we do see opportunities or we also keep a very close eye on the credit quality the portfolio. So if we anticipate some sort of credit issues and we might sell one or two as those come up but in general we have a very high credit quality portfolio and don't do too much of that.
Out activity.
Okay, great. Thank you so far.
Thanks, Jeff.
Your next question comes from the line as Matthew Clark with Piper Sandler. Please go ahead.
Hi, good morning.
Good morning.
Well the reserve build this quarter.
Knowing you guys delayed.
See so we were able to consider.
The subsequent deterioration in the overall economy here in April or was it really as of 331, I guess, what I'm getting that is whether or not we might see some additional reserve build here.
At least in the near term.
Yes, good question I'm going to ask our Chief Credit Officer Beth Reizman.
To answer that question.
So we use the are incurred loss model, which is the existing models are using prior to the conversion of seasonal so we looked at where we were as of 331.
However, there was already deterioration definitely in the market we had.
Ross It indicated numerous clients request payment relief. So for that reason, we adjusted our economic factors that said if there's continued deterioration we will take that into account in June we are especially whichever model were under.
Okay, and then as you.
Kind of dig deeper on the exposure that you have them most at risk in this environment have you would have you run a stress test internally to try to get a sense for what the potential loss content could be if this environment stays statistics around for another three months or so.
Again allows us to answer that question.
Well as we.
Stress, our real estate portfolio annually and do you have numbers as far as clients that request and payment relief. There are indicative of our portfolio. The average LTV was less than 45%.
So we are looking at clients on a case by case basis. If there is.
Request or if they're experiencing financial difficulty, but the overall portfolio is very well secured and we are relationship bank and our credit generally have very strong sponsorship behind them as well in the form of guaranteed.
Okay, Great and just obviously, Alan but the I'll just add to that or one of the whatever hallmarks of our aboard portfolio is the.
The low loan to value that Beth mentioned on our real estate.
And leave the we have quite a quite a bit of our portfolio secured by real estate.
Low loan to value guarantors and liquidity.
And I will I will just say that when if you look back to the with the last recession.
We came back to that really really well because because our borrowers have a commitment to those to those properties and when there was a problem.
They have they fix the problem as opposed to debate inheriting the problem I think that continues to be in cases death mentioned, 45% molded relative value I'm on a on the portfolio a little stress prop.
Those that we gave loan modifications to is indicative of the strength of that that that part of the portfolio and the strength of the the total portfolio because that's the portion that asked for help the rest did not so I'm I'm feeling very good about it going forward of course everyone's going to have problem.
Depending on how long. This goes on you know the problems will intensify im sure, but but I'm feeling pretty good about the position, we're in and our ability to.
You into ride out is this a this crisis.
So really any comments.
Sure.
So I do want to emphasize that 2.2 million is a very large provisions for bank of marine and even in the incurred loss model as that said there is a projection not a projection, but a factor in the qualitative factors for.
The unknown and associated with co that 19, so while we don't have the forward looking aspect of the Cecil model incorporated there is a significant chunk of uncertainty associated with Covidien 19 that it is that is embedded in the provision.
That we took which is why it was so large.
Got it and then just on the Pvp.
Program.
I guess it to the timing and geography question to some degree but.
Assuming [laughter], assuming the $350 million fully funds, which I don't know what the probability of that is are not maybe you could help answer that but assuming that doesn't mean with an average loan size under you know 200.
$80000 it would imply about a 5% origination fee on those balances which.
I would be about $17.5 million of origination fees that I would think you could use to help kind of.
Through this and it's over the life alone, but so my question is really around your appetites a whole lot of these loans and the timing of those origination fee should you decide to unload them because you submit them to the ASP wafer.
For getting paid back.
Oh.
First of all the time in terms of the our appetite to hold onto him. Yeah. There are one per se. So since that's the most appealing loans at the holding there is a fee related I you know.
We don't know exactly what the with the fee income will be I did it's such a big number of of loans that.
And that's kind of spread across we had anticipated more of an average of in the.
63 tell me that was just the guests but.
Yes that was the case, we're probably haven't allergy more in the 3% range is supposed to five but that's it's still it's still hard to determine at this point.
I'm going to has Jim Meiers.
This point to jump in Tim is a in commercial banking have been have been really shepherding missed a this whole program through and had been very hard at work. So let me, let me have Jim jump in to address those issues.
Sure. Thanks, Ross, Yes, I think in terms of the fee income, we really haven't gone to the part of trying to calculate based on the size of of each individual application.
And the volume of that in its entirety.
As rough also pointed out these are gonna stay on the books, a 1% if they do so our intent.
As you know as we get more guidance from USPI has to follow the forgiveness process.
And we have a platform we acquired to help with the application through documentation submission tracking and forgiveness phase.
I think we're waiting for additional guidance on how to go about that but our intent is to once we're able to star processing that for our customers and certainly there may be somewhere depending on how the money spent or.
How they view that application or or use of proceeds where we end up with but I think our intent at this time is to allow the forgiveness take place for Cam.
Yeah.
Okay and you is your sense that is going to come through and I assume it would but haven't come.
Confirmation on it.
That is going to it.
That is your expectation that the sorry. The is your expectation that those origination fees when you do realize and they'll come through spread revenue not not fee income.
Okay.
Sure I thought I'd be I'm not sure not when I.
Got it could you could you answer that.
Yes, yes, our initial expectation is that yes, it will come through net interest income and I'd. Because we are this point in time about what the forgiveness timing will be what will probably happen is that we will for them and run them through net interest income the same way we do other.
Fees with a life of two years, because that's the maximum during a maturity on these loans and then if they get for given we would accelerate those fees at the time of forgiveness.
Got it Okay and then just last one from me on the loan floors or some bench.
Lowering floors I guess can you give us a sense for the magnitude of floors.
But you have and I guess to percentage that might you know move lower if not all.
Sure I'll tell you do an incident.
Sure we have so the floors the floor reduction applied to crime business loans, mostly because the floors on the home equity loans, we're already at the lower level.
So that.
You know somewhere between 10 and 15% of the portfolio.
Good.
But some of those.
Some of those loans were at higher floors that we reduced in somewhere not.
So.
<unk>.
I can't tell you what the impact on net interest margin would be but what I can say is that Jan.
As a.
It it looks like you know if we if we applied it for.
A whole year it could be you know somewhere between 750000 and a million dollars in terms of net interest income.
Okay. Thank you.
<unk>.
Your next question comes from the line as Jackie Bohlen with KBW. Please go ahead.
Hi, good morning, everyone.
Hi, Jackie.
[laughter] about premium amortization expectations for next quarter I know you did a little bit of that portfolio positioning too.
For voice and the bat coming through but do you have just a sense on what you would expect into Q and how you're thinking about security yields overall next quarter in light of the rate environment and then the purchase as you made this quarter.
Sure last last time, you the answer that question.
Yeah, so yeah, the seven basis points related to the I I'd say that the security yields are pretty much stable other than that seven basis points for the accretion.
You know wasn't.
Two significant as a portion of the portfolio that we sold and redeployed you know, maybe an eighth as a portfolio or even less than that.
But I think what it does is more slows the decline of the yields on the portfolio as opposed to actually bumping them up.
Okay, and do you have a sense for premium amortization expectations I'm just that delta between maybe.
What happened in the first quarter and what your expectations would be for the second quarter.
I don't know the answer to that question you mean, the delta between the portfolio pre transactions and post transactions on premium amortization or or just in general I mean do you expect given the rate movement that happened somewhat later towards the ended the quarter.
Do you expect premium amortization to pick up into Q.
The payoffs and things like that or is it just you know it's.
Too soon to now.
Yeah, I think it's a little too soon to now I mean.
I think we have noticed it there were before things Scott.
You know before the shelter in place orders were in place than people started to realize the full impacts of what's going on we did see some increase in prepayments on the mortgage side.
But that that seems to be anecdotally slowing a little bit. So it's really hard to make a projection on that but I'll look at it Jackie and if there's something that we can share with with you all we will.
Okay.
Okay, and then in terms just of loan yields.
I am in realizing here that activity is impacted by the you know the shelter in place orders that are ongoing hi, how are you seeing new loan booking yields versus the portfolio.
Yeah. That's a good question I'm actually going to ask Jim Meiers disease on the line. So so to answer that question.
Yes, Thank you Ross.
It's come down somewhat although not as much I think overall as we pretend I expect to potentially this last quarter. So I think we're doing our best too.
Maintain the relationship banking approach and get as much as we can were fair for both parties, but there's no question are there are banks, taking advantage this environment offering rates that I would deem beyond competitive and so well continue do our best but theres no question rates have dropped below the portfolio.
Averages.
Okay can you have a sense for how much below the average is there dropping.
I don't have an aggregate number for you, but I can work with who wanted to get that for.
Okay.
Okay. Thank you.
Then just one last one related to incurred loss versus diesel on your best you made comments about looking at the provision and you said whichever model all your operating under.
Is there a possibility that you would love to adopt he sold prior to the end of the national emergency or December 31st whichever one of those comes first.
[noise] Ross's alright, if I answer there Yeah go ahead your business.
I doubt, we adopted before the end of the National Emergency Oh, we do we.
I would believe would stay under the incurred loss model, but that's something we will discuss internally to it just really depends.
It was so difficult to try to implement see sold for the first quarter because it was very.
Very very difficult to forecast.
The variable just kept changing almost daily and so that's what makes it very very difficult as well as we deployed our resources really the focus on our clients.
Okay, so not not a perfect answer, but we'll see.
No no, but that's that's helpful. Nonetheless, thank you and the I what is your understanding of how do you know so it.
Let's just say the national and merchant they ends on say I don't know September 15th and just picking a date. So would you have an adoption then on October 1st is that how it works.
I guess I'm I might differ to Tony on that but we're going to be ready for a scenario like that that's our intent internally. We don't want to be you know have to have it end to not be ready. It's our intent is to be ready because we we were basically almost there. We just had to fine tune a couple of things can again it was the forecasting.
With the real issue with the.
Just uncertainty in the economy and the constant changing of the projection.
Right, Okay various entities.
Jack you know I'm going to add to that too.
I don't think you're gonna have a day when the national emergency.
I think it's a time period.
And I don't because I don't think we're you know from my.
For my understanding I don't think we'd have a time when a this is over we get all get back to normal. This is going to gradually come in so it's going to be difficult to pick a date and said okay. Now the day, we need to implement this so I think that over the next.
Six to nine month, it's going to be a very gradual returned to whatever the new normal it and so I just don't see these this happening this adoption happening before we get to that new normal life. It's just it's really difficult to project, what the with the markets or during this time.
Great.
Okay understood and I I mean, that's my assumption as well that then you normalize going to take a very long time too you know for all of us to figure out what that is so it it sounds like in your mind, but more likely scenario is that we get to December 31st the four there's any sort of a declaration at the end of the emergency that might trigger stifels implementation.
Right.
Okay. Jackie this is tiny if I can add a we don't have actually clear guidance out a fast fee in terms of how this will be adopted or.
Work institutions that chose to delay the adoption of Cecil So the mechanics of the adoption are still.
Sure.
Well, what's the best we can gas based on what we know now, but they haven't actually come out with clear guidance and if they do obviously that will influence what we need to do going forward.
Okay. Thank you Tony that's helpful and Ah. Thank you for taking all my questions on every when thinking about.
Thank you you too.
You too.
Your next question is on the line as Tim Coffey with <unk>. Please go ahead.
Hi, good morning, everybody.
Good morning, good morning.
Hey.
Spending all around the provision.
For me for a moment the Q factors that you use this quarter when what way do they compare to what you experienced during the great recession, where they comparable or have you use the losses that you experienced during the great recession to help set the Q factor on constant color there. Please.
Yes, Jeff if you like to now.
Sure So no too.
And incurred loss model the historical losses, which are based on our history is it's not the set figure that we can't touch it. It's calculated figure Q factors are used to adjust for what is occurring in the market today or in the economy today that is not show.
Hi, our historical losses, and so that's what we looked at and we had there we adjusted our Q factors qualitative factors for what was occurring due to the pandemic.
Yes, so you didn't use any of the UK losses experienced in the great recession, that's kind of a.
Based or a starting point for the Q factor this quarter.
They are baked into our model.
Okay, Okay, norcal losses, Nora calculation in our model.
If you factor out for whats occurring.
Kind of outside the historical loss calculation.
Sure Okay fair to assume all okay, I'll add one thing it back and we're going to great recession. If you look back what our losses that we experience, which we're really frankly relatively minimal most of them were related to residential development loans.
Well the old track development.
And so.
We don't we don't really has held that at all anymore and so this is not comparable at all because it was so tied to the mortgage interest through into the development of a residential homes and this is so different data so it's hard to compare.
Okay.
Of course.
And then again appreciate the details on the portfolio that you believe is exposed to the coded situation.
What percentage of those loans that you identified have either asked for payment relief or submitted a PPP loan application.
<unk>.
What percentage of the loans that we ask that we got we made loan modifications or asked with BP Villaume. There's always you know what for what percentage of the 17.7% of your portfolio that's exposed.
Hotel retail exactly how I see requested from us.
HM idols no let me see Tim do you know the answer to that one I don't I don't think I have that one I don't have a precise percentage for that there's significant crossover between PPP.
The payment relief the different modes, the payment related but I don't have an exact number.
You know your line is the Tim as you look if you look at the.
Challenging industries.
You can guess that most of them do I mean dental hotel motel retail properties, although we have.
We have are we talking about retail properties typically as.
We have a borrower who owns some kind of centre and we yes. We have one that has a drug store. It would you doing just fine so we don't.
We don't make payment, we we didn't making modifications or let alone you at the same borrower has something that has let's say a restaurant in it we might make a modification there. So it's just it's.
Every situation is different depending upon.
The type of property and I'm also the bar the strength of the borrower and you know there you know the liquidity that they portal house, so it kind of depends.
Okay.
And then just recruiting environment Russ you need to pay off so you thought you experience this quarter were elevated.
Yeah, I guess with lower rates, you would expect to see more payoffs, but giving any this of the situation, perhaps not what's kind of your outlook on that.
Yeah, I don't Yeah, we had we have certain capital I mean of Jim kind of address the what the payoffs war because frankly it was it was more related to construction activity I completely but.
No I don't if this is not an environment, we're going to see a lot of health right now because I I don't think because I think we're going to you're going to see people more focusing on the business as you know there their day to day as opposed to the financing side I could be wrong here, but I just I just don't think.
Yes, we're going to be substantially this quarter over the third quarter, but Jim maybe you can give him a little bit of a little bit of color on the on the payoff activity last quarter sure. Yeah. If you look at just the quarter. You know if you pull out can you walk in Trc type pay offs and just look at the commercial.
Loans the pay it off it was relatively evenly split between assets sold and what we kind of deemed planned or project completion pay offs.
And with an assets sold at a fairly good size chunk of that as a sale of.
So that's underline construction loans, others, just selling properties on the on the planned a significant chunk of that was you know we have some large construction clients. We are we're proposing are entertaining a large construction project to the same bars, we had a number of.
Tom loans that we had in sort of manage our exposure to that.
Group of borrowers, we you know just negotiated and they would reflect some of those term loans elsewhere and we would focus on the construction loan so that really make a you know up the bulk of that there was one material third party refinance which I think is more probably what you are and out there and we've sort of been seen a bit of a trend over the.
Last year and a half on mobile home parks things like that been taken out by non bank lenders at very aggressive terms that you know non recourse very low rates interest only for many years just.
Hi, guys, where we're not interested in participating in up or that level of aggression.
So that really matters like the bulk of it sorry go ahead.
I guess it seemed why did you give a little color on the and your interest you don't pay offs going forward over the next quarter numbers, which is what you with what you're thinking at this point yeah. I mean, I think that plan that number is going to subside that was a unique situation I think sales I'm expecting to decline you know we will have construction projects get wrapped.
Up successfully but this was an elevated number I don't expect this level of payoffs going forward.
Okay, great well I appreciate all the color. Thank you.
And then if we're looking at kind of non interest expenses are there any investments that you had planned for this year that you might be pulling back from or anything that might put downward pressure on that expense number.
The core number of course, not the seasonal stuff.
They do you know the expenses that we have yeah were.
Well, obviously, we have 'em, we have a breadth with movies and that's going to happen in may so that we have that it's it's a relatively minor expense frankly. It gives me the location, we had which would it pretty well built out anyway. The.
<unk> expenses for the most part.
New new new projects, we've kind of put on hold in terms of anything new whether its technology, otherwise, we'll just kind of focusing on getting through this.
Situation right now.
You know in terms of expansion elsewhere, or we will build know very careful about.
Ill.
Because we want to we wanted to see how this oh. This goes we do have a branch of being built out in Hanover. So that's going to continue so we didn't have a lot on that on the table in terms of big projects.
But we're certainly not energy new ideas right now and bill.
Until we get through this until we go through this crisis.
And Tim This is Tony I'm I would add that you know due to social distance scene and travel restrictions and conference cancellations and any of the events. We do a fair amount of events that have been canceled or postponed a obviously those are going to put downward pressure.
Sure on noninterest expense.
Okay.
Great. Thank you very much for your time those are all my questions.
Thanks, Jim.
And again, if you like to ask your question. Please press star one on your telephone Keypad also you get set another question via the webcast page by clicking the ask questions have.
We have another question from the line ads Jackie Bohlen with KBW. Please go ahead.
Hi, Thanks for taking my follow up just one quick question I wanted to ask do you expect any noticeable overtime to run through with PPP Huh.
We we will have overtime, because we have had a team.
Working on those literally day and night and when we when we for you.
We did get it took a little while to get approved because we were not enough. The lender. So when we didn't get approved into.
Last week.
And when we got approved we had do we're we're doing all the background work.
This is that since we got that approved but we couldn't summit anything so once we got the approval.
Teamwork literally till two to three in the morning submitting these applications to the S.P.A. and feel the until the a the well ran dry so to speak.
That being said, we will will have the same energy and and focus.
During the next as soon as the next packages approved which I understand is getting closer.
I haven't seen recently, but that's what I heard this morning, and if that.
Once that happens that that team is going to be working day and night too. So long that's a long winded answer to say there will be some overtime because not all of these people that are working on it or are exempt employees someone altogether. So I don't have kit could put a number on it right now, but there will be some of it.
Okay alright. Thanks.
So.
And we have no further audio questions at this time.
Okay.
I think there are some some email in question.
For us so the first.
First question was from David Fischer billion, James So how do you think about noninterest expenses going forward.
Talk little bit about that lot of the revenue headwind given low rate environment and the challenging backdrop backdrop, what does a good run rate going forward.
Today do you want to expand on that at all.
Well I think you know if you take out the first quarter noise that we get all the time I think we're at a pretty decent run rate right now so.
Hey, as Russ said I don't think we have any large news channel you know investments that are either staying on are being canceled and we do have some downward pressure associated with reduced events and social contact.
But on the other handy overtime associated with the TPP. So I think in general, though if you take out of the first quarter noise, you've got a pretty decent base and start something.
You know I will also adding the Tony you mentioned the fact that there was a lot of there's a lot of event. So we participate in that we have in terms of.
Customer event things of that nature, which I've gotten put on hold at least for time being and probably canceled for this year.
However that those funds a lot of those funds or what we're redirecting to donation to nonprofit we've made a we've committed we've committed money to the do a number of different municipalities, who are making grants to customers in the market.
To help them through this crisis and all bank is take any pretty active role with phone with couple of on the number is a municipality and so in all in all in all those things abeles themselves out to certain extent, while we won't maybe put on into that may just give the money to the to nonprofit.
I didn't sponsoring table or something like that so I see non interest expenses I'm will going forward would be pretty pretty consistent.
The make up will be deferred but the number will probably pretty similar.
Oh, there's another question.
I'm also those David Feaster, followed up on the PPP question, how do you plan to account for those.
Do you expect to hold those loans for sale and those fees should and those fees should run through fees or will be a low thier flow through and I are I think Tony answer that but Tony did you already covered on it.
Well the only other thing I'd say, it's you know just to remember Tim's emphasis on the point that these loans can be forgiven if the borrower.
In fact uses the funds for the intended purpose and so our top priority is to assist our customers with getting forgiveness on those loans. So when that occurs then the SBK would repay the alone as opposed to the borrower.
Yes.
[laughter] there was another another question from Elizabeth Park capital and the question is or any of the Tdrs on the books 11 point trucks were 11.1 million related to the industry's most effective most likely affected by the coated.
A more detailed the composition of the credit that credit bucket, So ask 'em death reizman to comment on that.
So I took a look at those loans and they're really throughout the various industries. There is one large one but one of those industries, but it's well secured and good sponsorship behind it and you know a number of our Tdrs are actually pass credit. It's just said there it's difficult to Richard.
Eliminate that status.
Okay.
And then I think there was one more question.
Well, David Feaster, Raymond James I'm, just curious what you're hearing from the regulators.
And auditors and your discussions on the increased provision from Q factors given the ongoing pandemic.
Given your asset quality did they think it was too high or thought it was a good conservative estimate just curious what commentary received from regulators or your auditors on the topic and that will I'm definitely be that's that's the answer though.
So we've had numerous conversations with our auditors during the process, both myself and tiny and they are an agreement with where our provision was felt it was appropriate.
I have not smoking with the regulators at this point in time I don't know as time has already.
Okay I think.
That maybe all the questions.
If there's no other questions from anyone I am really appreciate your time this morning.
We we will obviously be and communication as on the next step the next quarter hopefully the circumstances will be will be better but I. Appreciate your time again this morning, and look forward to talk Unix export. Thanks.
And this concludes today's conference call you may now disconnect.
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