Q1 2020 Earnings Call

Thank you. Connect the line you are on a mode should you need assistance, please signal a conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question, Press star then one on your telephone keypad to withdraw your question, please press * then two, please note this event is being recorded. I would now like to turn the conference over to Adam Brown, please go ahead. Thank you, Andrew and good morning everyone. This is Adam Bromley director of investor relations of Boston Private Financial Holdings. We welcome you to this conference call us our first quarter 2020 Financial results our call this morning includes references to an earnings presentation, which can be found in the investor relations section of our website. Boston private join. Yep.

The balance sheet now. There is a chance that just given uh, the delay in tax day that seasonality isn't as pronounced right off the bat the second quarter so that can extend a month or two, but that's really the main main driver of that short-term compression and then longer-term, you know, you get to the back half a year depending on you know, the shape of the curve and and how on balance sheet liquidity recovers you could see additional name compression, you know at some point probably towards the third or fourth quarter. You probably get deposit cost to maybe as low as they can get off. It may be that plugs into two next year, but then you still have access to pricing lower. So uh to 65 to 70 for the second quarter and then a downward bias for the back half of the year.

Thanks for taking my questions.

Thank you. The next question comes from Chris McGrady of KBW, please go ahead.

Great. Thanks. Good morning. Good morning. Steve. Hey Anthony. Just want to come back to the dividend question for for a moment understanding like most banks Reserve built probably heavy for a couple more quarters. But then you know kind of exiting, you know this year it would seem that you could earn your dividend again is the is the dividend discuss more about how long this goes or you know, perhaps managing to you know, a payout ratio a manageable payout ratio, cuz it seems like you know, the interest rate environments that's pretty challenging for the bank and profitability is going to be lower. Even when we emerge from the credit crisis any thought to be great. Yeah. I think Chris we're trying to assess kind of how long this goes cuz obviously dividend a source of capital and what we think we're well-positioned from a capital perspective. And you know, we're we feel good about our underwriting, um, you know, as I mentioned earlier, this just happened so quickly, uh-huh, and it seems to be changing.

Morning are Anthony's jealous?

Chief Executive Officer Steve Gavin Chief Financial Officer Paul Simon's president of private banking wealth and trust and Jim Brown president of Commercial Banking this call contains forward-looking statements regarding strategic objectives and expectations for future results of operations and financial prospects. They are based upon the current beliefs and expectations of Boston private management and are subject to certain risks and uncertainties actual results. May differ from those set forth in the forward-looking statements. I refer you also to the forward-looking statements qualifier contains in our earnings release which identified a number of factors that could cause material differences between actual and anticipated results or other expectations expressed additional factors that could cause Boston private results to differ materially from those described in the forward-looking statements can be found in the company's filings took it to the SEC all subsequent written and oral forward-looking statements attributable to Boston private or any person acting on our behalf are expressly qualified by these cautionary statements.

Possibly. It does not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the forward-looking statements are made with that. I will now turn it over to Anthony the jealous.

Kind of every day. So as we work through the second quarter, we'll we'll be spending a lot of time on scenario analysis updating our forecasts and see what that means from, you know, the forward earnings Outlook to full credit Outlook and then we'll make a decision based off that but you know right now I would say it's too early to tell just given uh, it was only about a you know, six weeks ago where I was still sitting my office in Boston. I'm thinking Thursday only be out of work or you know, not out of work but out of the office for two to four weeks and here we are probably not return until sometime in June. So, uh just too early to tell and this is just moving so quick.

Thank you, Adam. Good morning everyone and thank you for joining us on today's call discuss first-quarter 2020 results.

We hope you and your families are well and staying healthy during these challenging and uncertain times.

Before we discuss our first quarter of 2020 results. I'd like to address a few topics related to our company's response to covid-19 and the broad impact of the pandemic best bar in our country. My comments will begin on slide three.

Okay, great. Thanks. And then maybe it's a kind of combining the comments about slowing the pace of hiring. How do we think about expense progression in this investment for the rest of the year? Yeah. I mean, I'm not comfortable kind of talking, you know too far out but I think going to next quarter probably sixty to sixty two million of operating expenses down and you know that that range will be dictate where we fall in that range will be dictated kind of on Pace of hiring as well as some of the other initiatives we have undergone. We haven't seen too much delay on our Tech platform in our in our Tech development, you know, maybe push back a couple of weeks here and there and certain initiatives but we're largely outpaced. They're not really be the pace of hiring cuz as you can imagine, um, you just the onboarding process right now is is challenging and I think things are things are just a little slow given the environment.

First and foremost most Boston private has taken all reasonable measures to protect the well-being of its clients employees and local communities during a truly unprecedented month. I think we might all agree that unprecedented is an often overused word not this time the different environment. The current environment is obviously unlike any I have ever seen and it's ultimate impact Still Remains very uncertain.

What remains familiar?

Is what is required to help our clients in times of crisis?

This is when our clients need us most and this is a moment when firms distinguished themselves on either end of the performance Spectrum on that note. I'm very thankful for the clients. We have at Boston private and for the partnership Spirit they bring our relationship.

Yeah, great. And and then one more if I could give you the drawing out the attention of what's different about this balance sheet today, which is you know, twelve years ago. If you kind of a separate the two portfolios that the the resi book is obviously stood on its own and the lost content been very low. How do you think about ultimate loss content on a commercial portfolios? Maybe just talk about how you know, you guys have been running perhaps internal stress tests on some of these commercial books and where you think, you know losses could could Trend over the next couple of years if this environment persisted next. Yeah, I mean again, I think it's tough to say with with much Precision where Los is Trend over the next couple of years. Just given where we are. I would say that God, you know, we're comfortable where we're positioned with Tier 1 common equity in that low to mid elevens, you know, we're comfortable with with how we've underwritten these loans and that we can manage, you know, ma'am.

It's going to be more proud of the Boston private team for the way. They have managed a storm with multiple fronts in some ways. It's been disabled Perfect Storm.

I'm standing up a technology platform within days to very effectively managing the SBA PPP program. Where vast majority of our clients completing loan applications have been succesfully assisted to managing all aspects of our business remotely Boston private team has successfully adapted in a manner that I could never have dreamed possible.

every day

Our clients and our employees become more able and more adaptable to working within the current business constraints on behalf of all Boston private employees and climb. I would like to especially acknowledge the outstanding work for operations and Technology team. Thanks to their unwavering commitment and the technological enhancements to our platform. We have not only managed to continue our normal business functions that have been also able to add new capabilities to help our clients meet the demands and challenges presented as a result of doing Boston private team has remained unified with our clients during these challenging times relationships have strengthened and we are prepared to perform all functions of our business office at the highest levels albeit through different means

That's great.

Your credit portfolio effectively. So again tough to say where what happens is thing plays out over the next couple of years. Um, but we do feel comfortable that uh,

You know putting aside that that Reggie portfolio is demonstrated real strength over time the commercial tax exempt I would put in kind of that same bucket has also demonstrated real strength over time, but we feel good about where Syrian great. Thanks, Dave.

The next question comes from Christopher of Janney Montgomery Scott, please go ahead. Hey, thanks. Good morning. I missed it. If you set it earlier. Sorry I missed it. If you said earlier about the home and sort of where those are going and and if those may change further.

Through the course of the recent events. Our team has been steady and highly focused on the emotional physical and Financial Health of our clients employees and communities.

Economic extremely proud of the commitment and tireless dedication shown by the Boston private employees to serve our clients.

Yeah, so Chris, I'll just run through that again. So residential that's a 3 month deferral 3-month option at the end of three months to extend. So six months in total. It's $162 million, which is about 5.7% or 6% Portfolio. See and I was a six-month principal deferral that's about 12% of the portfolio. And then you know, we talked a little bit about the Siri program that we have in place which is is a little different in that with a proactive program that are Commercial Banking team executed against um, where we went out to our clients and offer them a second mortgage if they qualified to cover up to one year's worth of of p&i which in effect enables them to really focus on their tenants took making sure that they're able to um, you know plan to come out the other side in good standing so about 70%

Response of our employees reinforces my great confidence in our ability to meet the challenges that may lay ahead. I'm also highly confident that we come through the other side of this crisis. Boston private will happen is Brandon the minds of our constituents.

And I'd like to move on to where Boston private stands today operationally and financially.

Like many other firms our company is operating primarily from the remote working environments best far. It has been a fairly smooth transition to a dramatic change in conditions.

Thanks for thoughtful business continuity plan that was refined in January as a threat of covid-19 increased.

We have temporarily closed select offices and reduced office hours and other in others in order to ensure clients are able to execute banking services. They need while simultaneously limiting in-person interaction with those offices that remain open. We have enhanced hygiene practices increase supplies of personal protective equipment and install plastic barriers to protect clients and employees.

Of the book qualified 51% of the qualified accepted 21% of the qualified didn't accept in a disqualifier for that program. Was that combined LTV had to be 75% or less. You couldn't have an existing credit facility in place that 1:30 providing liquidity support like an LLC couldn't have been a participation or it couldn't have been a community development project. But if you were combined LTV 75% or less and didn't have those other features offers you qualify for that program.

Our recent technology Investments have proved to be timely and shown immediate benefits as our new digital banking platform has enabled our clients to access banking services remotely Thursday. We have seen increased rates of enrollment login activity and Mobile Banking activity across both private and business clients in particular with the rate of daily enrollment of our private club has doubled since January and our business clients have increased their use of mobile deposit by nearly 40%

Got it. That's all full and some extent the cre initiative on the p and I sound a little bit more proactive than we've heard from other Banks, which is a positive. So it kind of leads to my other question which is you know, do you think some of these deferrals ultimately lead back to hire criticized assets or would you think that they criticized level actually sort of backs down or that, you know, some of the churns that you keep it a similar issue is what we have now. Yeah, I think I think they go together, right? I don't think that just because something is deferred that the underlying risk of that relationship with is necessary insulated. I think it buys time but in a lot of respects, I think you have to separate out whether something's in deferral and whether or not there's real risk to Thursday to that credit and I think you should risk rate accordingly. And I think that's what you exactly what you saw this quarter with us is that you have 3 credits that we know.

Like wise Investments to improve our operations and infrastructure have improved process efficiencies and employee productivity.

Well, the current environment has continued attacks are energy and emotions in many ways. Is it all that is also served to renew our resolve and provides a new source of energy to fuel our commitment to being an unrelenting source of support and die creation for our clients and Community especially as they continue to navigate truly Uncharted Territory during the last two months have made available host of payment relief options for our business and private clients. Specifically, we are providing payment deferment instituting debt Reserve accounts when warranted waiving late charges, and we have a foreclosure moratorium in fact

We've been actively helping our commercial clients.

Since the SBA paycheck Protection Program, we have helped Eleven Hundred clients get approved for loans totaling more than $425.

As long as we downgraded that have really strong ltvs really strong.

Sponsor support with with strong liquidity behind it. But at the end of the day, you know Boutique hospitality is under a lot of pressure. So it's tough to sit there and call something a four rating a phone when you think about that backdrop that they face so, you know, I don't think they can be exclusive. I think you still have to rate the loans appropriately even if there's deferment programs in place off. Yep, cuz the cash flow is negative for it may change but it is negative at the moment that goes back to the fact batters. Correct so good. Okay, that makes sense. And then just back to the same question that we kind of beat on it a couple of times but it would seem to me that your pre-tax pre-provision is still strong enough to more than cover the dividend. So I guess I'm curious, you know, do you envision changes in margin and not accrued interest that are big enough to kind of lead to that strategic change or is it that you do you have to have more evidence? I think we have to have more evidence from dead.

Many members of our staff worked tirelessly and throughout weekends in order to deliver this much-needed Capital to our clients and their efforts have been aided by our technology.

We have been actively working with government agencies municipalities and other funding sources to ensure that Community Development and affordable housing projects will succeed especially when construction stopped.

We have also expedited funding to community development organizations while investing in three Community Development non-profit organizations that have established covid-19 funds wage is I think about the pandemics impact on our company and the continuing challenges that may lay ahead. I am reassured and feel fortunate to have a senior management team with expertise wide-ranging knowledge and vast image experience.

The team overseeing the company's credit review process has been in place for many years managing a conservative discipline credit culture that has led the top quartile asset quality ranking and 7/8 years of network coverage. Our CFO Steve. Gavin will have more to say about our credit culture and the loan portfolio later on this call.

You know, like I said this happened so quickly and we'll continue to look at it until we get a better sense of of how things play out over the next quarter. I mean, I think second quarter back to reveal a lot and that's going to give us a lot better information as we try to manage that going forward and make a decision. Um, but I just think we need more evidence more information from you know, or we really firmly commit to anything at this point.

Finally, I don't think it would will surprise anyone to learn that the pandemic will impact our company's 2022 strategic growth objectives. Even we anticipate a slower rate, but okay by or if they're hiring in the coming months.

Sounds good. Thanks for the clarification. So I appreciate it. Thank you.

The next question comes from Moana of BMO Capital markets, please. Go ahead.

And the car is the current environment persists and the Slowdown is prolonged or targets will need to be reassessed. However, our business strategy remains intact and we believe our competitive Position will be approved in the future state of the financial services industry.

Hi, good morning morning. Just a question on the CRV modifications or the the second mortgage. Pretty unique that you guys are doing that how much did it actually generate in terms of new loans about eighty six million dead end. But in the cni deferrals were there any particular industry segments in cni that accounted for most of the different roles? So the the the data on that I talked to that's the total cni book that includes commercial tax exempt most of it as you can imagine was in our small business and kind of lower middle-market business in a client base where you know, it's been most acutely hit during the Pandemic those far.

We will dress specific changes to Target some forecasts and coming quarters.

Again, we remain committed to the core principles of the Strategic Vision. We laid out in our 2019 investor day, which are that we will continue to build our platform to empower knowledgeable advise who are better Able by intelligent technology to deliver an advice based Solutions.

We remain focused on recruiting developing and retaining the industry's best talent. We will pursue a revenue profile that has higher relative contributions of wealth management Revenue as a result of higher wage, and we will continue to operate more efficiently in order to achieve higher Returns on common equity.

Before I turn it over to Steve to walk through our first quarter 2020 results. I would like to close with a comment on one call each race that helped me inspired me to become the CEO of Boston private bank. And that is the Boston private score. DNA has always been about science service excellence and working everyday to earn the most trusted advisor role.

Okay, but just got it and my third question was around the margins did that guidance for the same order includes the impact of the addition of PPP loans, which are lower yielding know if you bear with me one moment. I can get you the Pee Pee Song.

I believe that a positive consequence of the current environment for our company is at our level of Engagement with clients has never been higher. This has been an opportunity for us to reinforce or value to clients as we help them navigate Market volatility rework a state plans and help them decipher quickly evolving government and Regulatory programs.

Impact but no that that margin does not include that.

Well, let me get back to you after the call. I have that somewhere but I can't don't have it right now. I'm sorry 21 basis points if you include PPP.

Okay, and we're getting 1% on these loans. We're assuming in that page says that we're funding fully with the facility. Bed set up. That was my second question. Great. Thank you very much.

I've never seen

Clients more engaged than the topics of portfolio construction financial planning risk management wealth transfer on business succession. I have no doubt that this will result in deeper client relationships with a long-term and clients will long remember those firms. We had the capacity to step up and help them when they needed it most during a moment that is truly unprecedented with that. I will turn off Steve. Thanks Anthony a good morning everyone. My comments will begin on slide for where we show a summary of our Consolidated financial highlights from the first quarter this quarter. We reported net income of $1,000 or $0.01 per share or earnings were significantly impacted by the adoption of the Cecil accounting standard on January 1st and includes 18.8 million or Reserve building to incorporate the Steep decline a economic Outlook that occurred during March are on balance sheet liquidity improved during the quarter as the average loan-to-deposit ratio dropped from 100 3% to 99% as year-over-year deposit game.

This concludes our question-and-answer session. I would like to turn the conference back over to Anthony De chellis for any closing remarks.

Thank you. I think as we've all probably you know her time just call and we kind of continue to here regardless of who we're talking to in the industry. Is that a few model, you know Incorporated a scenario like the one we're all managing. And so we continued like all of you to you know, try to forecast you know, what the media quarter looks like. I'm going out to the end of the year. But as I said in my in my earlier remarks, you know, we're more than steady, you know, the the current crisis and um and truly believe that when we come out the other side there will be even more opportunities available to us, especially given how I think we were able to adjust to this to this crisis. I want to thank you all for you know taking the time to join us today regardless of

5% outpaced year-over-year loan growth of 2% total AUM as of March 31st, 2020 was 14.5 billion a decline link order in year-over-year wage really driven by lower Equity Market values at the end of the quarter total net flows from the first quarter were positive 150176000000 of which were attributable to talk with management entrust segment. The Tier 1 common equity ratio was 11.2% while tangible book value per share increased 10% year-over-year in 3% in quarter to $9,000.31 per share.

What the next quarter or to bring the help? It's a safe journey for you and your families and we certainly look forward more than ever to the next time we get to see each other in person. So thank you again, and I wish you all a great day.

During the quarter we repurchased 12.8 million shares which reflects the completion of our existing $20 program that was initiated in 2019 going for. We do not anticipate repurchasing common shares all the uncertainty of the current economic environment remains.

The conference has now concluded thank you for attending today's presentation. You may now disconnect.

Slide V shows Consolidated income statement pre-tax provision income for the first quarter of 2020 with 17.9 million a six point six million dollar decline a link order some of the primary factors contributing to the client include 1.8 million a provision expense related to unfunded commitments, which is captured in total non-interest expense in total other income which includes one point four million of negative marks on derivatives insecurities related to the company of the first Compensation Plan and finally a 1.1 million dollar gain during the fourth quarter of 2019 related to the revaluation of a receivable of a divested affiliate.

Dead dead dead.

Pre-tax income was negatively impacted by the loan Reserve building the effective tax rate for the quarter of 11.2% was lower than previous quarters as a result of lower levels of tax income during the quarter. The effective tax rate going forward will depend on taxable income but we anticipate the second quarter effective tax rate to be approximately 18% and from the whole year and after tax rate of approximately 16% slide six shows Consolidated Revenue Trends, the company's primary sources of earnings the some of managers saying come in Total Core fees and income the cloud 1% off order.

Total course. He's an income declined linked order as a result of lower Investment Management fees in the first quarter and higher fourth-quarter private banking fees that included Revenue associated with residential sales interest income increased link order as a decline in funding cost outpaced a decline in on interest-earning assets the link or decline of three point four million a miscellaneous income was primarily driven by a 1.1 million dollar gain in the fourth quarter related to the revaluation of a receivable for a divested affiliate in one point four million of negative marks on derivative Securities in the first quarter on slide seven. We show a detailed breakout born on interest expense total non-interest expense for the first quarter of 2020 with 60.9 million bucks, including the 1.8 million of provision expense related to unfunded loan commitments categorized as other expense, excluding the impact of provision expense first Corridor total.

Interest expense was 59.1 million a 1% increase in quarter primarily as a result of seasonal seasonal compensation expenses slide eight shows the past five quarters of average length of an average deposit balances by type on balance sheet liquidity increased as the average loan to deposit ratio declined to 99% during the quarter. However, end of. Deposit balances the client link order as temporary deposits we had on the balance sheet as of the end of the year left in the first quarter as we anticipated in communicated on our previous earnings call.

As you may recall our business has historically experienced seasonal out flows during the second quarter of related tax payments. Although tax filing deadlines have been delayed. We anticipate similar out photos to a birthday or any upcoming quarter total average loans during the quarter increased 2% year-over-year to seven billion overall loan growth was primarily driven by commercial real estate and commercial industrial growth wage decline for the residential loan category over the prior 2 quarters. We driven by loan sales in the third and fourth quarters of 2019 total average deposits during the quarter increase 5 per month a year over year and 2% in the quarter to seven point 1 billion average deposit growth was primarily driven by twelve percent growth and money market accounts in four percent growth in demand deposit accounts off partially offset by a decline in certificates of deposits related to the runoff of brokered CDs.

Slide 9. She was a trend of Consolidated net interest income and net interest margin cord net interest income which excludes interest recovered on previous non-accrual loans increased 5% linked quarter as a decline in funding costs outpaced the decline in interest on earning assets.

On the bottom of the slide we show a net interest margin table including changes and earning asset yields and funding costs the corn Angeles margin increased six basis points in order to 2.76% of the factor supporting lower funding costs include lower money market rates and lower borrowing volumes as a result of stronger average deposit balances during the quarter liquid order the cost of deposits decreased by 14 basis points in the total cost of funds decreased 16 basis points as we move to slide ten which includes a discussion of the bank's loan portfolio wage. I would like to discuss a few key aspects of our credit culture. We have historically managed to a disciplined mid-single-digit organic loan growth rate. So we are not forced to reach on a set off your terms too achieved outside growth rates. We focused on related refocus on relationship lending and our Geographic markets New England, Northern, California in Southern California for the

Those of you who are less familiar with the company.

History our company has evolved considerably since the 2008 financial crisis going into that financial crisis. Boston Private Financial Holdings was a bank holding company that owned five separate page operating in a decentralized manner in each maintaining separate risk appetites and credit approval processes in 2011. We merge the banks and Consolidated our credit function under the Legacy Boston Private Bank and Trust Company team, which has been in place for over 20 years and is led by Bob buffum in Jim Brown who is joining us on the call today from Boston Private Bank and Trust Company recognized a total of $13 of gross charge-offs from 2007 until the bank Affiliates were merged in 2011-12. The integration this team was responsible for fixing the loan portfolio and working out loans being criticized and classified assets down from 360 million in the first quarter of 2011.

And ultimately helping Drive net recoveries for the past seven years. Another key difference with respect to credit is the balance sheet composition of today's Consolidated company. Today's balance sheet profile reflects more conservative and discipline underwriting in the third quarter of 2007 construction loans represented 16% of total loans or 414% of tangible capital a larger percentage of our balance sheet compared today, which represents only 2% of total loans and 31% of tangible capital in addition today's construction and landlords include government-supported multi-family development projects with inherently lower levels of risk slide ten shows and overshoot overview of our balance sheet profile as it stands or four largest loan types represent 93% of our total loan portfolio. Our largest loan category includes residential loans.

Which comprise 40% of our total loan portfolio? These are primarily jumbo loans to high-net-worth clients and our primary Geographic markets these loans carry a weighted average LTV of 6% We have recognized cumulative losses of five million dollars in this portfolio since the beginning of 2007 our second largest loan category includes commercial real estate, which would further on the next slide our commercial real estate loan portfolio reflects diverse collateral types and conservative underwriting practices commercial industrial loans represent 10% of the total balance sheet in these clients include high-quality segments such as private-equity Professional Services firms and privately held businesses while the fourth largest category includes commercial tax exempt loans. These are loans to non-for-profit private schools colleges and public charter schools. We have experienced low losses in our history in the commercial tax exempt loan segment dead.

Slide eleven contains a breakdown of our commercial real estate portfolio as of March 31st. We had two point six billion of commercial real estate loans. Our commercial real estate loans are walk-ins stabilized properties primarily in our Geographic markets too strong sponsors that are well-known to our Bankers some of the key takeaways on our portfolio include multi-family represents our lot of exposure with the highest growth rate since the end of 2016. Our retail exposure has declined 1% annually since the end of 2016 collateral types are Diversified by region. We have no Hospitality exposure in Southern, California.

slide twelve

Contains a breakdown of our overall exposure to Industries and client segments that are likely to be most impacted by the covid-19 pandemic while the pandemics ultimate impact on our portfolio remains highly uncertain we have limited exposure to several industries that maybe most immediately at risk. We do not have material exposure to energy on a cruise lines movie theaters in casinos, and we have limited consumer exposure outside our residential loan portfolio, since we do not have any credit cards or auto loans off.

We are closely monitoring potential exposure within the cre portfolio related to retail and Hospitality while we believe our exposure is under written conservatively and secured by real estate in our Geographic markets. We certainly do not expect our clients to be immune from the pandemic.

Our total retail exposure is 630 two million the average loan size in the portfolio is three point eight million in the weighted-average LTV factoring current portfolio balances wage is approximately 48% our Hospitality portfolio represents 144 million of exposure. We have downgraded independent Boutique locally owned hotel properties that we deem to be high risk, which partially caused our criticized and classified loans to increase during the quarter. So all of these loans continue to pay as agreed and remain current month the weighted-average LTV factoring current portfolio balances for the hospitality portfolio is approximately 51% the third area of exposure includes Restaurant Loan, which totals 16 million or less than 1% or less than one quarter of a percent of total loans.

And slide thirteen, we review the implementation of Cecil accounting standard, which we adopted on January 1st, 2020 upon adoption. We realized initial Reserve release wage twenty point four million. This was primarily based on Arlo lost history impacting the quantitative nature of the Cecil model.

Subsequent Reserve building of 16.6 million through the provisioning was primarily driven by deterioration in the economic Outlook as a result of the pandemic rather than net loan charge-offs, which remain low at $300,000 during the first quarter. Our economic forecast is based on a probability way to composite scenario primarily comprised of the moodies covid-19 line and the Moody's S3 downside scenario. The Baseline scenario is seems a sudden sharp recession catalyzed by The Cove covid-19 crisis turmoil in the equity markets and the plunging Global oil prices notable economic data from the Baseline scenario includes u.s. GDP Contracting 18.3% annualized in the second quarter wage unemployment rate of 8.7% in the second quarter.

The addition of the S3.

Scenario negative negatively impact the composite scenario to reflect an environment where covid-19 deepens and persists longer than expected resulting in a double dip recession month after the first quarter provision build our reserves as a percentage of loans declined slightly from 103 basis points to 97 basis points.

Our reserves as a percentage of loans under Cecil our highest on construction land commercial Industrial and Commercial Real Estate while the lower rates on residential and Commercial tax exempt portfolio in the higher weight of residential loans resulted in a lower Consolidated coverage ratio.

Slide fourteen provides detail on our adversity graded non-performing loans overall non-accrual loans remain low at thirty five basis points a total loans the inquiry criticized and classified loans reflects the downgrade of Performing loans to special mention and accruing classified categories. The special mention increase was a result of downgrading the previously mentioned wage dependent Boutique Hotel Siri loans that were deemed to be at higher risk and the 30 million increase to accrue and classified loans was primarily driven by a single relationship that experience credit deterioration, which we believe to be an isolated incident on slide fifteen. We show the private banking segment including excluding the wealth management and Trust Porsche Bank, the private bank efficiency ratio increases 72% driven by negative Revenue categorized as other income coupled with provision expense related to unfunded commitments dead.

I will now turn it to Paul Simon's to discuss our wealth management and Trust segment.

Thank you, Steve and good morning slide sixteen shows performance highlights for the wealth management and Trust segment the segment ebitda margin for the quarter was 22% off reflecting a slight decline in revenue and seasonal compensation expenses for the segment was thirteen point five billion lower Equity market value age as of March 31st, cause linked quarter and year-over-year comparisons to be negative continued strength in new business source both from new and existing advisors off some bind with a reduction in outflows led to positive net flows of a hundred and Seventy-Six million dollars for the first quarter of 2020 at the same time. We added service advisors in the quarter while experiencing no attrition.

That concludes our prepared comments on our first quarter 2020 reported results. We will now open the line for your questions.

We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster. The first question comes from Michael Young of SunTrust, please go ahead.

Hey.

Hey, good morning.

Wanted to just start on the the downgrades, you know, we've seen most other Banks not necessarily move forward with downgrades this quickly as they've been, you know, either deferring payments or you know, allowing borrowers into forbearance. So just curious if there's a reason why these were specifically downgraded as opposed to looking at some of those other mitigating factors and off any other color you can provide on location size of these loans.

Sure, Michael, this is Steve. I think the start off it's just kind of revisit the Boston private credit culture and how we approach these type of situations. You know, our goal is to identify pockets of risk off early rate those pockets of risk appropriately and then manage those Pockets pockets of risk in a way where we minimize loss in the key to that to keep that last month minimizing losses really identifying problems early and that's what you see here. So we had those three Hospitality loans that we downgraded from past the special mention those thoughts loans two of which have ltvs, um in the 50% range from the third, you know below 65% below 60% range all back by a strong sponsor which strong liquidity but nevertheless Hobbies of that segment is experiencing challenges. So we thought it was appropriate as we typically do dead.

Identify that problem and I and downgrade it as appropriate. I would point you to the slide in our investor presentation slide forty-five where we kind of laid out between 2017-2018 where we downgraded a hundred million of loans upgraded a hundred and ten million of loans or or had payoffs, um in that bucket and I think that money just is a is a really strong example of how we approach this and I think that's what you're seeing. You're seeing this quarter.

And a quick credit follow-up. Do you all have any shared National credits or any leveraged lending on the books, leveraged lending? Um, no shared National Credit, so I'll have to come back to you with that detail. It's a small number.

Okay, so and then Anthony may be a bigger picture question just on kind of the updated Outlook and kind of roadmap that was originally laid out. I know you're still kind of re-evaluated God but essentially you know what you're trying to communicate is that the the hiring pace and or you know, I think at one point there were some hope for some Acquisitions of riaa's is is likely to be much lower this year. So, you know, maybe that kicks out, you know things, you know adds an additional year to the timeline. Is that kind of the right way to think about it. I mean whether it adds a year or not, I think we're all trying to you know, figure out how long this lasts. So the two activities you just reference, you know, whether it's hiring or firing an RA. Obviously. Those are two things that require a lot of indirect contact. Um, you know, it wouldn't surprise anyone to know that we're we're you know not going to buy anything or not going to hire anybody unless we've spent a considerable amount of time in their present job.

So that's really, you know, we felt getting out in front of that and saying even though we were able to add seven advisers.

From the first quarter or a lot of that was A build-up of the meetings we had had obviously in the third and fourth quarter, you know, lots of face-to-face meetings, um us getting to know them and them getting to know the firm we clearly, you know can't do that as actively now but we will clearly resume it as soon as we can and so we we're thinking that at a minimum it kicks back off, you know, six months whether or not it's a year will, you know, we'll just see how long this lasts but you're you know, you've got it right. That's really the basis of us thinking things will be pushed back because you know going our our business has a lot to do with hiring and if we're going to require something, um due diligence as clearly been hampered.

Okay, and maybe just one last one just on the dividend obviously understand the reason for the suspension of the share buyback, but you know earnings maybe a little bit lower the Press here Thursday with Reserve build, but just how are you thinking about the dividend in that context? Yeah. So right now so once you go ahead and see what you saw.

I see if this is the difficulty of doing a call. We're we're not in the same room but go ahead seating. So you saw us obviously spend the share repurchases, you know, we continue to pay the dividend as we have in previous quarters will continue to look at all our Capital return options and see what makes sense as we work through the crisis, you know, this all happen pretty quickly. So we'll continue to analyze the our forward Outlook get a better sense of how the economy is going to develop over the coming quarters will continue to re-evaluate whether or not the dividend that makes sense. But um, I I think it's too early to to make a definitive decision on that.

I don't have anything more to add that.