Q1 2020 Earnings Call

We have continued to deliver on our brand promise.

Commitment to the customer while conducting our business in a safe and sound manner. I'm extremely proud of the way our team members from various disciplines have met The Challenge from the thought of requests for paycheck Protection Program loans.

We have directly secured 820 PVP loans for total of $378 and also afforded customers the opportunity to apply to a fintech option. This was a great job.

Like most companies in our industry. Our first-quarter financial results were adversely impacted by the shutdown of our economy due to the pandemic and our adoption as of January one of six

We reported earnings a $0.23 per share with a core pre-tax pre-provision return on average assets of 1.47% for the quarter excluding $463,000 in my life are related professional fees. We announced our plan merger SP One bank or in March and have already filed our applications with the bank Regulatory Agencies. The integration teams from banks have been meeting virtually and planning for an anticipated third-quarter closer.

Total asset March 31st 2020 increased to 10.1 billion as we finally crossed the ten billion dollar in assets threshold are outstanding loan balances at March 31st. 7.37 billion with loan originations of $355 billion for the quarter.

We believe our loan portfolio is solid but there are some commercial customers and industries that had been hit hard by covid-19.

You're keeping a close eye on loan customers in the retail hotel and restaurant Industries. Where are combined exposures were approximately $995 million two hundred and $34 million and sixty five million at March 31st, 2020 respectively.

The level of request for a principal or p and I Rose quickly after the economy shut down in mid-march. We require detailed documentation of the hardship before Grange any deferrals off none of which were granted for longer than 90 days to date. We have process and documented 363 payment deferral request on Commercial loans, totaling $820 million dollars and off balances.

These are loans a good customers and are for the most part secured by real estate and other business assets, which should mitigate losses in the event that a borrower cannot recover.

Turning to our Residential Mortgage and consumer loan portfolio. We had approved payment deferrals to 275 borrowers who have been impacted by job losses due to covid-19. Her lungs took $69 million in principle balances.

Regulators have encouraged Banks to work with borrowers and have a greater flexibility in terms of being able to make payment deferrals and modifications without triggering TDR accounting or other adverse consequences.

Side deposit growth continued in our core deposit as a percentage of total deposits remain strong at over 90% while we price down our cost of borrowings and extend the duration.

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We believe we still have the ability to incrementally lower costs over the next quarter on our core and time deposit accounts.

Liquidity remain satisfactory and there have been no deposit went off although growth from the PPP and stimulus checks will likely inflate balances in the near-term.

On the margin Outlook, we expect to see some pressure over the next couple of quarters primarily due to the timing and extent of changes in interest rates late in the first quarter. The rapid Decline and rates to zero has impacted our pricing and we continue to require floors many loans.

A Major Impact to our earnings in q1 was our adoption of Cecil as of January one the fifteen point seven million dollar provision for credit losses in the first quarter is a reflection of the negative economic Outlook is impacted by the pandemic. We can expect that the economic forecast used in our Cecil model will likely worsen in the second quarter.

Non-interest income increased 4.8 million dollars from the same. 2019 with the p&l acquisition having been completed on April 1st 2019 along with higher loan level Suave fees in the current quarter. However, several feet items income items will likely come under pressure due to the economic slowdown well-managed if he's largely driven by assets under management will likely decrease in the near-term as asset values declined in the current market overdraft fees interchange fee income. They also continue to compress as consumers comply with shelter and police officer and limit their spending to essential services.

On the expense side. There were costs related to the acquisition and executive Severance expense recognizing the first quarter. Tom will provide more detail on our financial results Tom. Thank you Chris and good luck. Everyone is Chris noted are recorded. Net income was fourteen point nine million dollars or a $0.23 per diluted share compared to 30.9 million or $0.48 per diluted share for the first quarter of 2019 and twenty six million or forty cents per diluted share in the trailing quarter earnings for the current quarter or adversely impacted by elevated Provisions for credit losses under the diesel standard and the recessionary economic forecast attribution, covid-19 pandemic 3 tax-free provision earnings for thirty six point four million dollars, excluding 15.7 million and Provisions for credit losses on loans and commitments to extend credit and for $63,000 a professional fees related to the pending sd1 merges

This compares to 39.6 million in the trailing quarter, excluding the expense recorded to increase the contingent liability related to the first one low Acquisitions and 38.8 million for the first quarter of 2019 or that interest margin contracted one basis point versus the trailing quarter and twenty basis points versus the same period last year as declining Market interest rates drove reductions and ask that you took that margin compression would continue to replace deposit accounts with negotiated exception rates and maturing time deposits. This deposit rate management couples with a continued emphasis on attracting non-interest-bearing deposits results in the three basis point decrease in the total cost of deposits this quarter to 62 basis points.

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Averaged 1.5 billion or 21% of total average deposits for the quarter average bar and level is also decreased Thirty 1 million and the average cost of borrowing funds decreased 18 basis points versus the trailing quarter month. We will continue to softly manage liability. Plus that the rate environment involved with

And Loan totals increased $39 or 2.1% annualized from December 31st as growth in C&I and Residential Mortgage Loans is partially offset by net reductions in cre construction consumer and off like loans loan origination, excluding line of credit advances total 355 million twenty 1% increase versus the first quarter of 2019.

Pipeline at March 31st increased to one point three billion from 906 million at the trail and quarter-end. The pipeline rate has decreased 81 basis points his last quarter to 3.16% at March 31st. The lower python great reflects current market conditions in a decline and treasury rates.

A provision for credit losses on loans on deceased. It was fourteen point seven million for the current quarter compared with 2.9 Million under the incurred loss model and the trailing quarter the adoption of Cecil resulted in the seven point nine million increase in the allowance for credit losses on loans recognize through Equity upon the January 1st adoption of the standard.

The increase in the provision reflects model estimates for the life of loan losses as impacted by the current severe economic forecast.

Or annualized net charge-offs is the percentage of average loans for 16 basis points for the quarter and 26 basis points for the trailing quarter non-performing assets to clients of 39 basis points of total assets from $44 a year in the allowance for credit losses on loans to Total loans increased to 1.02% from 76 basis points in the trail and quarter.

That interesting comes decrease $734,000 worth of the trailing quarter to $17 as increased swap. The income was more than offset by lower Bank owns life insurance benefits and loan prepayment fees.

Excluding Provisions for credit losses. I have commitments to extend credit and acquisition-related professional fees minus expenses were an annualized 2.13% of average assets for the quarter. These core expenses increased 5.7 million versus the trailing quarter this comparison excludes, the two point eight million dollar expense reported to increase the contingent liability related to the church van Loi acquisition from the trail and quarter the increase in monthly expenses versus the trail in Florida was attributed to 1 million dollars executive 7th and normal first quarter increases in compensation and related payroll taxes. We did once again benefit from the FDIC Insurance small Bank assessment credit. Nothing in no expense for the quarter. Our total remaining credit potentially realizable in future quarters is $267,000.

Our effective tax rate increase to 26% from 23.6% for the trailing quarter as a result of a discrete item related to the best thing in stock compensation. We're currently projecting an effective tax rate of approximately 55% for the second quarter and 24% for the balance of 2020.

That concludes our prepared remarks would be happy to respond to questions.

We would not.

Begin, the question-and-answer session to ask a question. You may press * then one on your telephone keypad. If you are using the speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press stars and to at this time. We will pause momentarily to assemble our roster.

The first question is from Mark Sandler, please. Go ahead.

Thank you and good morning. I wondered if you could start by giving us an update on asset Flows In Your wealth management business. And what was as of 12:31 and 3:31 a.m.

Sure, Marcus, the ending balance until you win. The 12/31 was 3.4 billion at March 31st at a decline to 2.8 billion. We're not seeing much in the way. Of course. This is a really market conditions driving that in terms of average balances for the two quarters, which is what drives the fee income is about 3.3 billion and two for down to three point two billion in q1. So, we really saw the decrease in market value towards the end of the. So if I think about it in terms of income at risk going forward if we were to remain at the March 31st level as an average for Q2, we'd be about a million dollars lighter Thursday of income in Q2. Okay, and then secondly if the eight hundred ninety million of loans that you granted payment deferrals on this quarter, I was wondering what did the breakdown of that look like like wage category C R E loans are about $548 million multi-family is thirty-seven million construction is about 18 million cm

It's about $217 for a total commercial type loans of 820 million and then the resident consumer. It's about sixty-eight sixty-nine dollars.

Okay, and then I apologize if you mentioned this in your comments, but that 1 million dollar charge that went through expenses for off-balance-sheet credit exposure. Could you just give us a little more detail on that? Yeah, that's the reserve on commitments to extend credit that's required under Cecil. So that runs through the non expensive action. If it's akin to a provision for almost is that's why the total for credit losses 15.7 million, but the piece that's attributable to the increasing the allowance for loan losses really is just the 14.7. That's the difference. Okay, and then wage type line looks really strong and I think a billion three. How much is that? Would you expect actually closed in the say the second quarter?

Get about a 52% full through rate. If you would pull through adjust the the the rate on that pipeline if if you actually picks up a little bit to 3:23. I think I quoted a 3/16 is the overall pipeline great. Okay, great. Thank you. The next question comes from Peter Kowalski with High Street advisors off, please go ahead. Hi Chris Tom. How are you? You know, I was a little disappointed I wasn't able to we weren't able to get together at the annual meeting, but you know, hopefully next year things we back to normal.

We would agree virtual.

Virtual helps but doesn't have so yeah first question cash dividend. I see you know, you declared one for this quarter going forward is the am committed to maintaining its cash dividend for for sure all those like myself who rely on dividend income to pay the bills if it's kind of important month. We certainly I know our board looks at that is just part of the our return for our shareholders in this environment with limited buyback opportunities. We look at that as something that's very important to our shareholders and it's always evaluated quarter-to-quarter, but we're in a very strong Capital position and again with a review of our balance sheet loans and the like I would say that that is stable, but obviously quarter quarter. We don't know what happens next quarter if we get things started again the economy it should bring more stability just to the messages by itself off.

And another question. Unfortunately, the timing of your your sb1 acquisition was an unfortunate. I mean, it's been like I say about the I guess six years you did a bank deal with a team Capital question. I had you know, if this locked down ends up being longer than it has, you know, it was expected to announce the economy gets even weaker in the merger agreement. Is there a material adverse change Clause that you know, if asset quality deteriorated significantly that way you can re-evaluate the transaction.

If you do review review the document, there is a material adverse impact in that document that's been filed. We envisioned this still as a very solid transaction to stream companies getting together and to like meant like management teams and Boards. So I wouldn't see that as an issue on the other hand. You have to you know, watch C. I think they're dead. They released earnings yesterday and we did and not seen any asset-quality changes that we would be worried about right now to point things go on home or work, but I think we're still in a a good place. We look forward to this combination, but all antenna up on both sides.

Okay. Thank you very much guys. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to mr. Christopher Martin for any closing remarks.

Thank you, Sabrina. Our financial industry will be operating in a challenging environment for a while as we're all susceptible to economic and emotional stress brought on by the pandemic faith in the strength of our Capital base and balance sheet along with the dedicated efforts of our offices employees and our underlying culture will continue to be a differentiating factor over time. We thank you all for your continued confidence and support and look forward to better and brighter days ahead. Say well, thank you very much.

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

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