Q1 2020 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Amrit Bancorp first quarter. Its 2020 earnings conference call. At this time, all participant lines when I listen only mode. After the speakers presentation. There will be a question answer session.

That's a question during this session you'll need to press star one on your telephone. Please be advised of today's conference is being recorded.

If you acquire any further assistance. Please press star Zero I would now like to hand, the conference over to your speaker today, or Rossi Investor Relations officer at M. right.

Bancorp. Please go ahead ma'am.

Thank you operator.

Good morning to everyone on the coal and thank you for joining us to review Ameren Bancorps first quarter 2020 resold.

In the Cold This morning, our Miller Wilson, Chief Executive Officer catastrophe <unk> head of Treasury entering fine Chief Financial Officer.

Let me get philosophy, as Chief business Officer, and PNC shirt credit risk manager.

Before we begin no that the company's press release comments made him to be school and responses to your question contain forward looking statements.

The company's business and operation are subject to a variety of risks and uncertainties many of which are beyond its control and consequently actual results may differ materially from those expressed or implied.

Please refer to the cautionary notice regarding forward looking statements in the company's press release.

For a more complete description of these I know there possible risk.

Please refer to the Companys annual report on form 10-K for the year ended December 31st 2019, I just want to subsequent filings with the FCC you can access these findings on the Fccs website.

Please note that America has no obligation and makes no commitment to update or publicly release any revisions to forward looking statements in order to reflect new information or subsequent events circumstances or changes in expectations, except as required by law.

You should also note that the company's press release earnings presentation and today school include references to certain adjusted financial measures also known as non-GAAP financial measures.

Referred to appendix one of the company's earnings presentation for a reconciliation of each non financial measure to which most comparable GAAP financial measure.

I will now turn the call over to Mr. Wilson.

Good morning, Thank you for joining I'm right first quarter 2020 earnings call.

Before we start I want to take a quick moment to introduce our interim CFO cargo see epidiolex.

This is being with them room to 2004, and our head to Treasury since 2015.

He played an integral role in our IPO process and it's a valued member of our team.

We are fortunate to have an executive with Cardless experience surface interim CFO and I'm excited to welcome to the call.

Today I'll begin with some comments around the current environment and the steps, we're taking to ensure business continuity and that we continued to deliver exceptional value to our customer.

I will also taught turn our first quarter 2020 highlights before Cardless reviews, our financial performance for the quarter in greater detail.

After our prepared remarks pardon me go Yeah, then I will address questions.

I want to start by saying that are thought to with the individuals can community directly impacted by Covis 19.

Including healthcare workers on the front line.

Normally tend to workers, who keep the country running.

It has been incredible to watch the country and the world come together during these extraordinary time.

Everyone has a role to play in overcoming this pandemic monobrand. That's the largest community bank headquartered in Florida is taking its role to provide financial stability and confidence to customers and to the broader economy very seriously.

I'm proud of the entire companies efforts over these difficult past few mom to come together and support each other as well as communities we serve.

I've already responded to the call. If it's 19 pandemic by promptly activating its business continuity plan in March which has successfully insured seamless an uninterrupted service for customers as well is the safety of our employees customers and communities.

Which remains our top priority.

At a high level, we have implemented remote work arrangements across the organization.

Currently with 86% of our employees working remotely.

And shorten banking center hours encouraging customers to leverage our digital channels.

Took all necessary steps to minimise impact on operations and customers as well as critical vendor and supplier already know.

Insurance system stability and bandwidth capacity.

Continued our monitoring to detect and prevent Syria suspicious activity.

Communicated frequently with customers regarding assistance program.

With employees regarding health and safety remote working tools and security guideline.

I'm happy to report that our technology and communications infrastructure. The bedrock of RBC P is performing well and it's stable effectively supporting the work of our team.

Moving to slide four we continued to proactively provide customers with best in class service during these difficult time.

Following regulatory guidance on loan modification, we have started offering payment relief auction, including interest only payments and interests deferrals to customers impacted by cope with 90.

We're also participating in the small business administration pay check protection program.

With the goal of providing relief to our small business customers.

We have seen a significant level of interest in this program and are working hard to wrap up our processing capacity to meet this demand.

To further support customers during this difficult time.

Barack has temporarily eliminated ATM fees wavelength payment fees on business and consumer loans as well if deposit account fees.

On refrain from reporting negative information to credit bureaus, among other individualized account managers.

Turning to slide five we have already received from brief relief requests on 1.1 billion of loans were 20% of our total loan portfolio with the 20 largest requests accounting for 56% of that total.

Most of these relief request or in the C artery hotel CRT retail gas station and apparel manufacturing industries.

Additionally, we have received approval for 485 Paycheck protection program loans totaling $130 million.

Given the current market environment I want to quickly provide a few highlights around our overall loan portfolio, which you can find a comprehensive breakdown in the supplemental loan portfolio information section of our earnings presentation.

While approximately 30% of our portfolio. It is exposed to the most coffee 19 impact industries, such as CRB retailers Hotel restaurant and Entertainment Recreation Daycare Center is manufacturing on wholesalers fit.

The percent of these exposures, so secured with real estate collateral.

Additionally, our CRT portfolio is well diversified by property type and region.

It has conservative loan to value on debt service coverage ratios with strong sponsorship profiles and no significant tenant concentration.

The majority of our hotel exposure is to popular travel destinations in Florida, and New York.

Given the recent leaf request granted the executive management team has increased its oversight and monitoring of credit and liquidity risk and he is working hard to understand and quantify the potential magnitude of the current pandemic on our business.

I'm proud to say that at this time, our credit profile and loan portfolio remain very strong.

And this time of disrupted markets and high volatility, we have focused our attention on liquidity and credit risk.

On slide six we have detailed several protective measures that we believe will position us well to manage through the current environment.

In terms of liquidity, we're maintaining a high cash position that the federal reserve with $271 million in cash and equivalents as of the end of first quarter, which is more than double our usual position.

In terms of credit risk, we have significantly increased our loan loss provision to account for estimated portfolio deterioration due to cope with 19.

Additional measures, which we will discuss in more detail later in the presentation include proactive pricing of deposits and wholesale funding leveraging opportunities for higher yields investment and reducing our rent asset sensitivity amongst others.

Importantly, we continue to monitor our credit exposures as well as credit approval practices on an ongoing basis.

To safeguard our strong asset base as well as ensure that sounded prudent underwriting standards continue to underpin our business relationship.

I am proud of the team prompt response to the current environment and their dedication to protecting our value while meeting the needs of our customers during the summer precedented time.

Turning now to either the other highlights of the quarter on slide seven Admiral continued to execute on our relationships centric strategy prioritize low risk domestic loans preserve asset quality I'm focused on increasing our domestic funding from core deposits.

While actively managing the investment portfolio and wholesale funding to mitigate the impact of lower rate.

As you can expect first quarter profitability was materially impacted by the loan loss provision.

Driven primarily to account for the estimated impact of Cobot 19 on our portfolio, we recorded a provision of $22 million and in the current quarter compared to a release of point Threemillion in the fourth quarter of 2019, no provision recorded in the first quarter due.

2019.

While net income was down our first quarter operating income, which excludes provision for income tax provision for loan losses or reversals, a net gains on securities was strong at 16.7 million up 12.5% from the fourth quarter two.

19, and flat compared to first quarter 2019.

We continue to monitor our loan loss reserves as market conditions change.

We made progress on our other strategic initiatives to better cross sell and increase our share of customer's wallet.

This included building stronger customer relationships and enhancing our customer service capabilities to better meet their needs by implementing more disciplined customer outreach using improved CRM tools, and introducing new products and services.

We also worked on our digital transformation and expanded our geographic reach by enhancing our online account opening platform for domestic customers.

As a result of these efforts in the first quarter, we increased our domestic deposit base driven by higher capture of online tedious and relationship money market deposits.

In addition, we opened a new stayed with the our banking center of the future in the affluent coastal city of Delray Beach in South Florida. This quarter in line with our focus of to continue improving the banks customer service capabilities and operational efficiency.

As wireless enhancing our core products and services in the coming quarters.

Moving to slide eight our net income for the quarter was down 74.9% from fourth quarter 2019, and down 74.1% from the same quarter last year.

On an adjusted basis, which excludes restructuring expenses net income declined 67.9% compared to the fourth quarter of 2019 and was down 73.5% from the first quarter 2019.

Our return on assets was 0.17% or 0.19% on an as adjusted basis.

And our earnings per share was eight cents per share or nine cents on an as adjusted basis.

Allowance for loan losses to total loans increased by 38 basis points from fourth quarter 2019.

By 24 basis points from the year ago period.

As I previously mentioned this increase is primarily due to the loan loss provision of $22 million, we recorded this quarter.

While the economic disruption caused by Cobot 19.

By the Cobot 19 pandemic is expected to impact our credit quality. It is difficult to estimate and quantify this potential impact due to the uncertain duration and scope that slowed down in U.S. and global economic activity.

As I mentioned earlier, we will continuously reassess our loan loss provisions and monitor credit quality as market conditions evolve.

Now I will turn the call over to Carlin's, who will go over the quarter in 14.

Thank you Miller and good morning, everyone I.

I would like to start by discussing the highlight of our balance sheet this quarter end.

On the asset side total loans this quarter decreased 1.3% from the previous quarter ended December 30, Onest 2019.

Primarily driven by the seasonality as well as low down the lump production due to cover 90.

To offset the decline total investments were increased by 1.8% does resulting in total asset increase of 2.5%.

Mueller mentioned, our deposit funding what solid this quarter on our deposits were up 1.5% compared to the previous quarter, while international deposits declined 1.8% over the prior quarter as living conditions in Venezuela remain challenged we saw the pace of the decline slowdown.

Does the acceleration in the decline of international deposit as well as the 4.2% increase in total domestic deposit which was driven my mainly due to the higher capture of Cds and relationship money market. Our rose from the company's increase engagement with customers and sales effort last brokered deposits are down 5.2%.

And from December 30, Onest 2019.

Stockholders' equity increased by 6.4 million or 0.8% compared to the fourth quarter of 2019, and 62.4 million or 8% compared to the first quarter of 2019.

While net income contributed to these increases higher market valuations of our debt securities available for sale was the largest driver as interest rates continue to decline this quarter.

Turning to slide nine.

Our investment portfolio on the first quarter balance increased to 1.8 billion from 1.7 billion at the end of the full quarter of 2019 and for 1.7 billion. The same period last year.

In this and this part of this quarter, we continue to see accelerated level Sop expected prepayments speeds on our mortgage related securities given the low interest rate environment.

We will said is we rebalanced portfolio by changing the duration of certain portions in favor of longer duration assets.

Additionally, we continue to decrease our portion of floating rate investments securities. Our teachers rate continued to decline this quarter and are expected to do so in the near future.

Floating rate investments comprised 14.6% of our investment portfolio as of the end of March 2020 down from 16.8% into Euro go quarter.

The higher expected levels of mortgage prepayments this quarter dropdown be effective duration of our investment portfolio. Two three years from 3.5 years in the first quarter of 2019.

We continue to focus on shifting our investment portfolio towards higher yield longer duration investments in the coming month, as well as leverage and opportunities to purchase securities with prepayment protection.

Turning to slide 10, our loan portfolio during the first quarter loans decreased 76 million or 1.3% compared to December 30, Onest 2019.

To close at 5.7 billion due to lower Cnine and see a re loan portfolios as I mentioned earlier, we experienced normal business seasonality compounded with the slowdown in the long production due to call that 19.

Nevertheless, this decrease was partially offset by quarter over quarter growth into Texas market of 64 million.

This quarter, we purchased 60 million in high yield indirect consumer loans.

Total loan production from core relationship business total approximately $239 million this quarter compared to 275 million in the prior quarter and 334 million in the year ago period, as we continue efforts to growth our strategic relationships were upset by covered 19 environment.

Following the completed run off of our foreign Inphi and non relationship sneaks loans last year higher yielding lower risk domestic loans now comprise 97% of omron.

Total loan portfolio inline with our broader strategy to prioritize profitability from core relationships.

Turning to slide 11.

We recorded a provision for loan losses of 22 million during the first quarter of 2020 compared to a release of point 3 million in the fourth quarter of 2019 and no provision in the first quarter of 2019.

The increase is mainly due to prohibitions driven by the estimated losses reflect in the deterioration in the macroeconomic environment as a result of the impact of carbon 19 across multiple sectors.

We believe that recorded provision providers with comfortable coverage ratio in the current challenging environment.

Additionally, the increasing prohibition also includes 1.2 million in additional specific reserves allocated to a multi long relationship of a south Florida wholesale borrower disclosing the previous quarter and a 1 million in reserves to cover charge off of multiple smaller commercial loans our ratio of allowance.

For loan losses to total loans increased 38 basis points compared to the prior quarter.

Next nonperforming assets remain stable I'll, just point fivemillion quarter over quarter, and up 12.9 million compared to the year ago period.

Totaling 33.4 million at the end of the first quarter of 2020.

The ratio of nonperforming assets to total assets was 41 basis point on change from fourth quarter 2019, and up from 26 basis points at the end of the first quarter of 2019.

The marginal uptick was driven by 2.9 million in new nonperforming loans offset by charge off on Paydowns.

Additionally, special mention loans decreased 13.4 million during the quarter, mainly due to the upgrade of Threec Erie loans for about 9.3 million to pass the upgrade of one owner occupied of about a million to pass the paydown of three commercial loans totaling 1.2 million.

The downgrade of two commercial loans for about 1.7 million due substandard Andy up rate of one commercial loan of poor point of 44 million to pass.

The decrease was offset by didn't grid of one commercial loan of point 2 million. Two special mentioned you ended period.

Following up on the charges related to our credit card product that was discontinued last October we realize just point 4 million of credit card charge off this quarter, all of which were anticipated on already reserved.

Finally, as Miller mentioned Amram began offering loan payment relief options to our customers in the first quarter as a result of the covered linking impacts and in accordance with regulatory guidelines.

While we have already begun long Ddos mitigation efforts, we will continue to actively marni toward those loans, we activated relief options in order to proactively identify any early negative industry or regional trends and pursue remediation efforts in a timely manner.

Despite a challenging market environment, we're facing amarins credit quality and reserve coverage remained strong as we're proactively work to monitor our assets unemployment effective mitigation tools accordingly.

Turning to slide 12, you can see that our loan yield decreased 16 basis points this quarter compared to the fourth quarter of 2019, driven by declining interest rate on subsequent slowdown in early payment activity, resulting for lower prepayment penalties collected.

Additionally, our investment securities yield also declined seven basis points quarter over quarter.

This decrease was the result of the repricing of floating securities and reinvestment at a lower market rates as well as higher expected prepayments speeds in the overall portfolio.

Partially offset by purchases of higher yielding longer duration assets such as corporate bonds.

Looking at Slide 13, I wanted to provide some color around on rent wholesale funding strategies, we continued to proactively manage against the declining interest rate environment and effectively minimize net interest margin sensitivity through number up actions in the first quarter, we replaced federal home loan Bank had.

Balances from both maturities on prepayments at a lower cost most significantly in early April we successfully modified.

About 420 million in fixed rate FHLB advances as we continue to take advantage of interest rate environment and replace disadvantages advances with longer duration fixed rate advances and lower Dan prevailing rates.

These were resold in a lower effective cost going forward and generate annual savings of 26 basis points on this portfolio.

We expect to realize an associated cost savings of 2.4 million for the reminder of 2020.

Additionally to reduce our funding cost this quarter, we lowered the cost of our broker Cds by partially replacing higher rate maturity broker deposits out a lower market rate.

We will continue to utilize similar wholesale funding strategies with advantageous to regions or you sort of structures that bring down our cost as needed.

Moving on to slide 14.

Looking at the total deposits at the end of the first quarter were 5.8 billion up 1.5% quarter over quarter, and driven by strong domestic growth, which more than offset declines in foreign deposits.

Domestic deposits were 3.3 billion in the first quarter of 2020 up approximately 4.2% from the quarter.

For the last quarter of 2019.

This increase was driven by securing additional nine cities and relationship money market deposit positive results for an hour cross selling efforts.

We'd like to note that continued growth in non niceties resulted in 69 million of growth. This first quarter of the year, representing an increase of more than 50 per cent compared to the four quarter of 2019.

And while foreign deposits declined 47 million in the first quarter as Venezuelan customers continue to use their U.S dollar deposits to fund the been expenses.

We were encouraged to see that the base of decline in does the policies had low.

This improvement, which represent a minus 1.8% change compared to the fourth quarter of 2019 or 7.1% decline on an annualized basis, it's attributed to the companys increasing engagement.

With customers and sales efforts, we continue to strength existing relationships and expansion of amarin banking products and services such as Dell transferred launched last quarter.

In the first quarter, we executed on deliver now were previously stated strategy to increase domestic deposit, which present, hi, good growth potential and better cross selling opportunities for auto products and services.

I will continue efforts have resulted in a deposit mix of 56% of domestic deposits up from 54% at the end of 2019 on 44% international deposits.

While our deposit mix continue to shift cost of interest bearing deposits was down three basis points.

From the fourth quarter of 2018.

Mainly due to proactive repricing of Cds relationship money markets on deal Province.

The slower decline in international deposits also contributed to containing the cost.

Turning into slide 15 for the BNL items, the first quarter of 2020 net interest income.

What 49.2 million down 4% for the fourth quarter of 2019 and down 11.2% for the first quarter of 2019.

The quarter over quarter decrease was driven by lower prepayment penalties higher volumes in average time deposits and lower average balances. Additionally, the company is variable rate loans reprice in line with lower market rates. Following the federal reserve emergency rig cost March 3rd and 50, which contributed to lower interest.

Yeah.

We neutralized is by proactively repricing customer deposits, replacing FHLB advances are lower Cosby, our maturities and prepayment and partially replacing higher rate maturing broker deposits at a lower market rates.

The year over year decrease was driven by strategic runoff of foreign Inphi and non relationship sneak launch during the first three quarters of 2019, which we have discussed previously.

Lower yields and increase earning assets.

The federal reserve rate decrease its benchmark three times during 2019 and two emergency costs I just explained.

And finally higher rates on Cds.

The net interest margin for the first quarter of 22 any was two point, 65% a decrease of nine basis points from the prior quarter on 31 basis points compared to the first quarter of 2019.

Looking ahead, we anticipated our net interest income on net interest margin will continue to be pressured largely as a result of the current low interest rate environment due to cover 90.

The continued run off of our low cost international departed will also be a contributing factor.

That said, we are being proactive in managing these challenges, especially we have done one reading 27 million in trust preferred securities reducing annual cost funding for about 2.4 million.

To proactively code rates on time deposit relationship money markets and beer pricing for top commercial customer.

Three leverage opportunities for higher yielding investment and lower cost funding included FHLB and broker Cds fourth ward to reduce asset sensitivity, which I will discuss in depth later.

And five focus on relationship accounts to enhance demand deposit.

Balance is an online Cds as lower cost alternative to broker deposits and seeks modify maturities on 420 million of fixed rate advances as I mentioned previously, resulting in 26 basis points of savings for Dysport form.

We are confident these actions will help us to navigate through the current environment.

Now turning to slide 16, noninterest income in the first quarter was 21.9 million up 37.2% quarter over quarter and up 66.5% year over year.

First quarter noninterest income was largely driven by a 9.2 million net gain on the sale of 20 year Treasury securities in order to replace them with longer duration bonds to mitigate higher expected prepayments speeds in additional to the point ninemillion immune gone from derivatives sold to customers.

Additionally, this quarter benefits from the absence of eighth which will be advances early termination costs, we had in the fourth quarter of 2019.

Im point 5 million, new credit card annual referral fees, resulting from our partnership with Amex.

Having said this non interest income in the first quarter was partially offset by lower wire transfer fees attributable to the implementation of Xcel lower derivative income due to declining customer activity and the absence of meaningful onetime gain on the sale of land we had previous quarter.

The 66.5 year over year increase was mainly driven by began of the Treasury Securities. In addition.

To a 12.1, increasing brokerage and advisory fees compared to the first quarter of 29 Dean.

These increasing fees was a result of an improved allocation of assets under management in our advisory services and higher customer trading activity following market volatility.

I am rent assets under management and costly decreased 121 million to one point 57 billion into first quarter of 2020 from one point 69 billion in the first quarter of 2019.

This decrease reflects the lower valuation, resulting from the carbon 19, driven global market crisis.

Partially offset by approximately 20 million, we capture in net new assets.

Moving on to slide 17.

The first quarter non interest expense was 44.9 million down 13.3% quarter over quarter and down 13.6 year over year.

This quarter over quarter decrease is largely due to lower salaries and employee benefits of 6.7 million, resulting from changes to various variable compensation programs. As we continue to comprehensively review, our total employee compensation practices and from a decline in the amortization expense.

This is related to the 2019 IPO restricted stock grant.

Additionally, we had lower legal and order professional fees, mainly due to a decline amortization expenses related to directors based.

Compensation.

The year over year decrease was the result of the salary and benefits factor I. Just mentioned in addition to the absence of rebranding costs that we incur last year.

Turning to slide 18.

First quarter adjusted noninterest expenses was down was 44.5 million down 13.8% quarter over quarter end down 12.7% year over year.

In the first quarter, we had restructuring expenses 1.4 million, primarily associated with our staff realignment efforts.

As well as our digital and technological transformation, which we spoke about the beginning of this presentation.

We incurred a majority of this transformation expenses as we move forward in the implementation of several CRN loan origination and online and mobile banking platforms.

Restructuring expenses decreased 62.1% in a year over year basis in the first quarter due to the absence of rebranding costs related to the prior years transformation efforts.

While we have reduced how were staffed by 7.2% since since the first quarter of 2019, we have not made any staffing changes in response to carbon 19.

Moving on to slide 19, as we have said in prior quarters on trial. This call Omron continues to be sensitive to interest rate as over half of our loan portfolio has floating rate structures all matures within a year. Our team is working hard to reduce asset sensitivity in the core in low interest.

And and we are actively managing the investment portfolio in order to improve our need.

In line with this and as I previously mentioned in the first quarter. We sold off approximately 100 million of 20 year Treasury Securities and purchased 30 year treasuries Cmos and Oddo securities with prepayment protection to mitigate higher expected prepayments on the mortgage related securities.

Now I will hand, it over back to Miller to conclude our prepared remarks.

Thank you Carlos.

Moving on to our last July we continued to execute on our goal is to drive shareholder value.

While our focus remains centered on driving profitability for deposit and loan growth. We have adding the objective will ensure we are able to successfully navigate the current covis 19 situation.

Notably with regards to our credit quality, we will be focusing on proactively assessing and monitoring our loan portfolio in order to preserve asset quality. In addition, we will be actively prioritizing the preservation of capital.

No more than ever executing our strategy is critical and we will continue to pull levers to successfully manage through the current covert 19 environment, while positioning our business for long term success.

With that we will be happy to take your questions. Operator. Please open the line for Q in May and thank you.

And our next question is going to our first question is going to come from Michael Young from Suntrust. Your line is now open.

Thanks, Good morning, everyone.

Good morning.

Maybe just starting off as we look at.

The capital preservation.

Yes that you mentioned Miller TG could you talk about actively what you're going to do to preserve capital what your expectations are for for growth Stan any portfolio shrinkage.

In addition that we might expect from here.

Well, we expect capital growth to come primarily from earnings in the future.

In the near term.

I don't expect any shrinkage of the asset side.

I think the loan portfolio will maintain or.

Possibly grow not not significantly.

Okay. Those are the key.

Comments that were able to make.

Time.

Okay.

And then.

Maybe just really quickly on the CRM portfolio I appreciate all the disclosure.

But just wanted to talk at a high level about.

The New York piece of that specifically.

Can you provide a little more detailed there on.

Whatever mitigating factors you see.

I know those are pretty strong strong relationships and strong tenant our owners that you have up there but.

Maybe just walk us through a little more detail on those projects.

Yes.

So operator, so frankly, we are seeing.

Very.

Strong behavior from lower sponsors in New York, we haven't seen.

And the echo going detailed regarding the relief, but we have not seen.

That much request from the New York portfolio is holding steady.

On the hotel side that you could say could be impacted.

They are performing they have.

Thank you read the liquidity on deal on that.

At the hotel that we have into Kennedy Airport.

They have.

Liquidio two September there are about 20%, they're working with a port authority because it's one of the.

Shareholders, we haven't seen any any concern related to that they go in that sense on that fulfill side, which is one of.

The most effect deck on during this call we don't see any issue.

In the retail die also the behavior has been.

I suspect that.

Due to the they're very small portion alpha relieve we have received.

As we mentioned before our retail portfolio a make on both too.

Theme.

Walk by retail.

They are very strong top tier one sponsored side and so far we are cautiously, but we have not seen any any major impact nor any concern all will depend on how long these goods that.

We believe that based on the information we have.

If we hold some people may 15, or maybe I know may we might see I small increasing relieve but so far no significantly idle.

Okay, Great and maybe that's just on the net interest income.

Appreciate all the color all the restructuring that's been going on obviously rates have moved a lot here late in the quarter.

And with some implications on funding costs could you, maybe just give us a little bit of understanding are detailed kind of where we finished the quarter in terms of.

Net interest margin and any expectations as we move forward into two Q.

Yes, you probably don't see the full effect of the of the decrease in the into interest expenses because it was just stopped.

Few weeks.

Most of the actions were taken towards the end of March as this crisis involved.

But but definitely the was.

There was a significant decrease in the and the cost of fond of advances.

We probably have a average cost of one point, 48% doors at quarter end and nowadays.

That's probably closer to the 120 ish.

Cost of funds Justine advances, adding cost of deposits. There was if we take into account all the the changes in some products we have reach a beta thal of point 65.

In our most.

Hi, yielding product so there is definitely.

Drop in the and the cost of funds that we will probably be closer to the 1%.

Doors deanne of.

Of the month of margin also during the.

The the month of April as repricing of Cds will come and definitely those will have.

Nick and impact on the on the cost of funds going forward.

Okay, and one more maybe.

Just kind of high level question.

On the expenses there were a good bit of investments in technology investments et cetera that were initially planned following the IPO.

Can you give us an update on kind of your thoughts relative to that new branch openings et cetera.

If we if some of that can be for gone or delayed what can I mean for the expense run rate on a go forward basis from here.

Okay and there are we have no more new branches.

Our plans at the moment.

Our.

Expense on the digital transformation continues we have no.

Cut back on our strategic plan in fact, we feel given everything that's happening with the cope with 19 pandemic.

More and more.

Our focus will be on digital side of the business. So it is.

No.

It's really important to keep going and we feel that we have.

Taken successful steps to get into place and will be.

Starting to show its fruits.

Sometime this year as we've come out.

Because.

Michael I just wanted to go back on your capital questioning.

Two points.

Remember, we don't pay dividends.

Plan for us to pay dividends.

And.

We don't through share buybacks or we don't have a formal plan to do share buybacks and it's unlikely that we would do anyone in the current environment, even though.

With the the price of our shares its very tempting.

Understood. Thank you all a setback.

Thank you.

And our next question comes from Michael Rose from Raymond James Your line is now open.

Hey, good morning, everyone.

Morning warning Michael.

Just wanted to circle back on the margin question you guys gave a lot of color, but if I go back and look at your 10-K.

The sensitivity is about 10% reduction in net interest income for 100 basis point move so that would imply about a 15% reduction and then if I look this quarter it looks like your asset sensitivity actually increased.

Obviously, given some of the the moves you made so how should we think about.

You know that in the context of some of the mitigation efforts that you you've talked about is that it is that a good place to start.

Yes definitely.

So one of up.

I guess contention points of the asset sensitivity has been the investment portfolio.

As you know the more than half of our loan portfolio, its floating and thats up pretty much the natur of the of the type of lending that we do.

So the investment put to help portfolio has been critical to reshape the duration of the whole banish it.

Adding items that are.

That kind of barbel the.

The duration of the overall investment portfolio have been critical to protect not only the duration of the bond issued but also the.

The earnings out of the bank so.

We have been active on that and also on the cost of funds and they can.

Proactive actions on every professional funding that we have available.

To make sure debt.

We minimizing its cost as much as possible.

That Dow will definitely help us to mitigate the impact that you saw on the on the net interest income sensitivity analysis.

Okay. So I guess to sum it up but you guys are expecting less than what the what the model showed at least at the end of the year in terms of.

Packed on on eminent.

Correct issued its that's right it shouldn't be well you will have the impact of obviously, a 150 basis points less due to the fed funds, Scott and but obviously there were there were.

Different actions that we're taking balance sheet to try to mitigate that dot dot effect on us as you know been.

Decreasing the lag on the drop of the of deposits and being proactive we debate as and trying to.

Make everything possible on the on the tools that we have available.

To minimize the impact.

Okay, that's very helpful.

Can you update us Miller on where you are in some of the process improvement efforts are obviously this quarter, we saw nice step down and in salaries and professional fees I.

I know, there's some some tech initiatives I don't know if any that's been pushed out just because of the pandemics or we're going through but can you just give us an update on.

Where you stand thanks.

No we haven't.

Pushed out any of our strategic objective investments, we continue to press on with.

The development of the CRM and the.

Loan onboarding process as well as some other.

Additional products.

The initiative regarding cost saves continues continues.

Very actively.

We're looking to continue to generate more.

Cost saves as the year goes along.

Carlos I don't know if you have.

But I don't think too.

Yes, the in terms of the digital transformation.

Pretty much the project goes as the schedule.

The.

Estimated impact.

We have.

Explained before was close to the 8 million dollar probably total investment, but that will be over the course of two years and so it goes as expected. So we firmly believe that.

Covered 19 has been a catalyst to all the technological changes and now more than ever. This technological improvements are critical to to keep going after covered 19.

Okay. So does that.

Just just based on the investments on the cost savings does that mean at least in the near term, we would expect expenses be relatively flattish from here.

The the.

The non interest expense you should probably be.

So the the amount that we reported this quarter will definitely have it's been impacted by called the 19 definitely due to the.

HR kind of adjustments, obviously because of the situation, but but you should be probably being the range of the 47 48 million more or less that will be the normalized.

Number and.

Digital transformation. He goes as scheduled so you should expect that Capex keep going over the next two two years.

This year in 2020 into doesn't 21.

Very helpful. Thanks for taking my questions Okay.

Thank you.

And ladies and gentlemen, if you'd like to ask the question that is star. One next question comes from.

Great Brady Gailey from KBW.

Hey, Thanks, good morning, guys.

Good morning, born in.

Just wanted to follow up on Michael's question on the expense base. When you look at the compensation line it was down notably well was there impacts.

There from the stock price fall and then maybe.

The lack of share based compensation that may have been and that run rate previously.

Well clearly we expect that the.

A run rate.

Variable compensation this.

Year to be down compared to prior years and that is one of the.

Impacts that you're seeing there.

Okay.

All right. So summing up the topline was down on a linked quarter basis.

Almost $7 million, yes about six.

Revenue.

Yeah, just a little more color on what the drivers were there.

Yes.

There's two aspects to our variable compensation, there's your annual cash bonus and there's also.

The long term incentive.

Compensation, both of which were.

Impacted by the expected performance at work.

This year.

Got it wasn't there was another.

I guess.

Part of the 2018 IPO Grand.

The the I guess the biggest amortization portion it came on during the year.

2019, so that that's no longer there.

Or its each of the lower pace that also help.

This quarter.

Okay.

And then I know we were.

So you have something else I was just kind of say.

We discussed in prior quarters, how the.

Amortization of the IPO grant was sort of front loaded.

Because of the accounting so the cost in 2019 was significantly higher than it would be in 2000 22021.

Okay all right.

And then.

Moving on to see so I know you guys were not planning to adopt c., So regardless October 19, or not but remind us what when do you guys plan to adopt c. So that's known at this time.

We are expected to.

Be under seasonal.

As soon as we potentially leave our emergen.

Institution condition or 2023.

At the latest it would be January 2020, correct.

Alright, great. Thanks, guys.

And thank you.

I'm showing no further questions and I would now like to turn the call back over to Mr. Wilson for further remarks.

Okay. Thank you for joining our first quarter earnings.

The full amarin team is committed to executing on our strategy navigating the current corporate environment.

No no need to position the business for future success, but to do so for our shareholders customers and employees and other states.

Thank you very much.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

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