Q1 2020 Earnings Call
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I wouldn't electrochemical over to Mr., Larry Clark Investor Relations for the company. Please go ahead Mr. Clark.
Thank you Kevin Good day, everyone and thank you for joining us to discuss RVP Bancorp's financial results for the first quarter of 21.
With me today for management, our chairman and President CEO, Alex Yes.
He VP and Chief Financial Officer, David Moore.
He VP and Chief Credit Officer, Jeff for you.
And he B P <unk> director of mortgage lending Larson leap.
Management will provide a brief summary of the results and then we'll open they'll call up to your questions.
During the course of this conference call statements may be made by management may include forward looking statements within the meaning of the private Securities Litigation Reform Act Nike 95.
Such forward looking statements are based upon specific assumptions that may or may not prove correct.
Forward looking statements are also subject to known and unknown risks and uncertainties and other factors relating to our BB bancorp's operations ambitions environment, all which are difficult to predict and many of which are beyond the control the company.
A detailed discussion of these risks and uncertainties. Please refer to required documents the company as filed with the S. You see.
Hey, these uncertainties materialize or any of these assumptions prove incorrect RV bancorp's results could differ materially from its expectations as set forth. In these statements. The company assumes no obligation to update such forward looking statements unless required by law.
At this time I'd like to turn the call over to Alan Tim Allen.
Uh huh.
Thank you Larry Good day, everyone and thank you for Chinese <unk> today.
I will stop by providing a company update.
And then David will discuss our first quarter financial results.
The <unk> lighting pandemic has created a stream challenger.
In our country and the world.
The pieces and financial health.
Our customers he left us and employees.
For most Constance.
Yeah, coming but [noise] to help our local businesses and the communities that we started doing just difficult times.
We expect to Greg lumpy first to our customer who need temporary relief and will partner with the small business administration to off on loans to affect that crimes true the payroll protection program.
Chris.
We have putting you pretty much a companywide business continuation plan. So that we may continue to operate on business, while keeping I'm, probably east and class safe and healthy.
We are offering work from home options and about 41% about workforce is currently working remotely.
For those who are continuing to come into the office, we have teams working in shifts and I practicing social gets that seems between employees.
Oh, so, Kentucky, and most of our meetings or what the phones and online.
Yeah, working with all of our customer who I think the like this crisis to provide guidance and help rebuilt the options. We have contract a bar was across several pieces lines and provide the payment the first too many.
As of last week, we have pets, then that pay been relief on two high rent and 57 million loans.
Cros are entitled to piping and loan portfolio.
Representing 10 play seventh us out of the total.
We have grant that I read 86 meta up this payment the first to accomplish a customer and 71 million to watch single family residential mortgage borrowers.
However.
It is too early stage of this economy slow down to determine how many of our customer well I'll keep make the neat payment deferrals.
Yeah really focused on multi Tony and responding to our customer must needs in the near terms.
We believe that by helping them get through this situation, yeah, Paul helping the country I, creating a strong bond with our clients.
You should also help us bring new business to the bank or what the long term.
I'm generally pleased with our first quarter financial performance and to help the on.
Underlying fundamentals of the comedy <unk>.
We have time to casino to.
Originating new loans across all business lines in a disciplined manner and we remain focused on maintaining strong liquidity b to help I actually think customers continue to operate truth is crisis.
We also continue to execute on our strategic goals by growing our franchise or correctly, what do I see markets and by especially our franchise to be on Sixtym buckets.
I want to thank the entire RPP family fault that devotion to our customers and their hard work as we manage true yes pandemic.
That's a good amount of work ahead.
But I haven't clunky lives that are bandwidth at much from piece.
Events, a stronger organization.
Before I turn the call let to David I went to say <unk> debit then in the past two yes, we have strike to pay out a portion of our names in the form of cash to meet that last year that amounted to a pay out ratio of approximately 20%.
Given a lot lower and then in the first quarter and uncertainty about.
The remainder of 2020, the bought decided that.
It was prudent to decrease six cents per share TV then this quarter.
From 12 cents last quarter, but have you been and well be peep side. The upon by the board on a quarterly basis and welcome mainly based on our view of the onions potential off the comedy.
I'll now turn the call over to David fought discussion office Quater results David [noise].
Thank you Alan.
We have provided pit grade level of detail in our press release, so I'm going to focus on those items, where some additional discussion is warranted.
In general the pandemic impact on result.
Impacted our results through lower organic loan and any pre provision for loan losses, but our overall, but credit quality remained relatively stable and our operating expenses were in line with our expectations.
Our total loans were up just over $200 million during the quarter, but this was primarily driven by our acquisition of Pacific Global Bank, which accounted for $172 million or the increase we also transfer $13 million in single family mortgage is on a net basis to they available for sale.
Bucket as part of our ongoing balance sheet strategy.
Total single family loan production, the first quarter was $112 million down from 26 million in the.
Fourth quarter payoffs and Paydowns were also modestly lower in the first quarter, we sold just over $100 million of mortgages and the first quarter down from $162 million in the fourth quarter 32 million or.
Were sold to Fannie Mae and 69 million were sold to private investors going forward, we still expect to sell some of our residential mortgage production each quarter, but it will depend on market conditions in our production levels.
And as Alan mentioned, we plan to continue making new loans in a disciplined manner. However, given the uncertainties surrounding the economy.
We likely won't see enough demand to reach our previous type of loan portfolio growth for the year at least well the short term until the impact from the pandemic begins to subside.
Now turning to deposits.
Total deposits, excluding brokered deposits increased by $221 million during the quarter, mainly due to our acquisition of PCB.
Which accounted for $187 million of the increase non interest bearing deposits increased by $46 million and our non maturing interest bearing deposits increased by $34 million broker Cds declined by $34 million.
Average cost of interest bearing deposits was down 21 basis points and whatever we experienced lower costs on both our non maturity deposit and or it is given the lower interest rate environment going forward, we expect the cost about deposit be modestly down as the gap between the rates that we pay.
New Cds and rates.
We pay a maturing Cds continue to work in our favor.
Moving onto the net interest margin.
Well said reported basis and adjusted for purchase discount accretion NIM decreased by 12 basis points from the previous quarter.
Our NIM was negatively impacted by a 26 basis points. The decrease in total earning asset yield only being partially offset by 23 basis point decline in total interest bearing liability costs the decline in asset yield.
It was partially driven by filled up.
And liquidity heading into the.
Intellect period, where we will likely be facing meaningful downward deferrals in our loan portfolio going forward.
We believe that our net interest margin should be relatively stable to slightly down.
But it.
Depends on a number of factors that are very hard to predict at this point, including the direction of loan yields and the level of excess liquidity that we will carry on our balance sheet turning to noninterest income and expenses. Our noninterest income was down in the first quarter, mainly due to fewer loan sales in the quarter.
As previously discussed.
Our total.
Noninterest expense was up from the fourth quarter, but all due to the PGP acquisition, we actually had lower travel marketing and business expenses as we maintain our focus on controlling our costs.
Starting in the current quarter, we expect to begin to see the cost savings associated with PGP merger. In addition, we have already closed that branch and the New York Region plan, a second branch closure in the New York region at the end of the year failed one branch closure in the L.A. region and plan to open a branch Edison.
Sure the on the second half.
We have also canceled the sale of the Brooklyn operations Center until after the curve in 19 crisis that path.
Going forward.
Total non interest expense should decreased slightly as we have different tranches.
Continue to need.
Done system, However month collection expense may increase depending upon the severity of the common economic downturn.
Shifting to income taxes, our effective tax rate for the quarter was 33%, including the impact from the exercise of stock options. During the quarter, we anticipate an effective tax rate between 30 and 33% for the full year 2020 in between 30 and 33% for the second quarter.
Float in the impact of the stock option activity that we may experience from quarter to quarter now turning to our asset quality, our nonperforming loans increased by $7.3 million during the quarter.
As we placed to SB, a six see an eye for residential mortgages on non accrual at the end of the quarter. The two must be loan totals $3.6 million and our secured by $2 million in real estate collateral at $1.9 million for the $3.6 billion. This guaranteed.
The Cnine loans totaled 1.9 million dollar and the mortgage loans totaled $1.6 million and we feel that.
There is sufficient count collateral values pulling the flow.
So we don't believe that any impairment exists.
During the quarter, we had $631000 net charge offs related to the two SP a loan discussed earlier.
Hi provision for loan losses was $1.9 million for the first quarter up 659000 from the fourth quarter increase was due to higher loan balances and increase the past due loans.
Nonperforming loans and the expected impact that covers 19 pandemic our allowance for loan losses, So that 0.84% total loans held for investments down from 0.86 at the next year that's impossible at this time to determine what impact the cope with 19 induced economic slowdown have on.
Asset quality, we have provided the table in our earnings related.
Earnings release that lays out the exposure that we have.
The fourth in certain industries that are deemed to be at risk.
To the effect of this public health crisis than others.
Our largest exposure is the general retail and mixed use commercial properties at just over 11% of our total loans.
While we do have exposures to hotel motel, the non us be a portion of the exposure only represents 2.5% of our total loans.
Our capital levels remain strong and we believe that we have.
Liquidity to help our clients whether its form.
We also believe that we will emerge from this a stronger company well position [noise].
So far long term goal of growth and value creation, both organically and through strategic acquisitions with that we are happy to take your questions.
Operator, please open the call.
Ladies and gentlemen, if your question or comment at this time. Please proceed starts in the one key on your Touchtone telephone.
Your question that's been answered your question what are your support from the Q. Please press the pound key.
Our first question comes from Tyler Stafford with Stephens.
Hey, good afternoon gentlemen.
Good afternoon good afternoon.
Thanks for taking the question I wanted to start on the dividend cut and I was obviously a lot I think quite surprised to see that last night, particularly given just how much capital you guys. Currently have what the total risk base of call. It 22%. So can you can you help us.
Better appreciate why the board made the decision to cut the dividend now given that that that's a robust capital position. In addition to the growth expectations being a little bit more tempered for the remainder of the year that that would obviously help capital as well just curious the thought process there.
Once you guys are seeing that would warrant that.
Well.
Good afternoon, and this is Alan well, what we have a very likely discussion.
With the bought during our last bought meeting.
We realized that we have a lot of capital we have a lot of liquidity and I won't be basis, how much it we.
Keep them back to our shareholders.
At this juncture well again site report that.
Leah our Formula is that we are looking at 20% cash payout of only that's one of our ground off between how much we should pay.
Then the second thing actually we have is that we are even though we payout quantity actually we are really looking at a Android TV that as a whole up 28 cents.
So.
By looking at these.
Pandemic and we've seen this as possible it could be a.
Larger crisis.
We talk about.
1982, when we have these high prime rate, we are talking about.
1990, we have RPC and we are talking about a 2008 and we have the subprime lending again at this point is that it is at the very beginning of the whole situation. So at this point, we do not have a Chris.
The ball to see how well this crisis and much so.
We thought just to be a.
Responsible.
Operator.
We should reflect this as a concern as a cautious so again, we are using this to show asset just shut that we don't believe this is a constant we don't believe this could be a even see risk crisis, and we would really is not.
Canteen up to half, which pretty much reflect the 20% payout of our first quarter, ending and with the whole mice that if.
Second quarter third quarter thinks is getting a lot better than we intended to make up the shortfall of what we are paying.
At the first quarter so again.
The S print that this is not something that we believe is imminent. We just bleep that this is showing that just like hop up business continuation plan.
This is Jeff to show that we would react to anything that debt that that impact negatively at the short term, but again, we've seen intention that when every bank go to the normal we well at we well.
Maciel up fault worldwide, we have caught these quanta.
Okay.
Got it thanks for that Alan and did you did you say over a four quarter basis, you're looking at a 48 cent dividend <unk> cumulatively is that what I heard.
When we talked about it at the beginning of the year, we looked at what we thought we would pay.
Based upon our Formula and we fight for the the.
This year, the four quarters, we would be paying 48.
Okay.
Oh, okay.
Got it Oh, yeah, so that.
So this is a.
So first quarter reaction that we respond to the possible negative impact on us.
Got it.
I wanted to also ask about the reserve levels.
I think the released mentioned that there there was part of the deferred provision in reserve was around Kobe I was just curious if you could just quantify how much that qualitative factor for covert 19 impacted the provision in the reserve this quarter and then secondly.
Where are you comfortable running that reserve ratio in this environment should you know like came down a basis point or so what would you expect that to to remain around here or should we see or expect to see further reserve build as we move throughout 2020, given the macro environment.
Okay right now.
Tyler Theres two basis point qualitative factor put in there for 12 at 19 over all of our law, it's not just over the affected groups.
That's that's number one we will be looking at our a triple in greater detail at the effects at group level to determine if we need to raise that Q quantitative factor the end those those affected areas and may be decrease it.
In other areas.
Number one number two is we do expect to put in more reserves definitely in the second quarter, depending upon the insect definitely in the second quarter, the third quarter, we do not.
Really no yet so quarter to quarter work on the play this quarter to quarter, we don't have enough information.
Thing.
Yes by July Thirtyth, if all those.
Referrals that weve granted for three months pay in the month of July we know our answer if they don't pay we know our answer too. Okay. So it's really A.H. and why.
A july decision.
Okay. Okay. Okay.
And then just lastly from me.
Right.
Sorry, you guys built <unk> liquidity this quarter and just curious if youre planning to put on a and build for the liquidity also given the macro backdrop.
No what we're investing in that liquidity, we're investing in liquidity now and everything that short term or a floating rate with a minimum of a floor. So.
We do not expect to put on more liquidity I'm really.
It all depends upon what our loan growth is persists loan sale and you.
Our loan sales right now.
Don't look that.
I don't look that promising I mean, we can definitely sell through actually to see Fannie Mae through.
Through the flow system that we have already but oh, we can probably sell through a couple of banks also.
It all depends upon you know.
We don't have any other plants put on another 150 million and liquidity, we think that's enough.
Okay, all right that's it for me thanks, guys.
Our next question comes from Kelly Motta with KBW.
Hi, Thank you so much for the question I think maybe following up on lung TLCV train to Sta portion of that and I know in your release you mentioned, the PPP launch, which I assume are kept on balance sheet I was wondering with the backdrop and the focus on PPP.
Should we be taking out acts the eighth M&A gain on sales as well.
I think you should pick up gain on sale Sanofi has right now yes for at least that's cool.
Okay, and then as our SP a team is just completely inundated with TPP loans.
Got it.
Do you have a magnitude of kind of be interest there were you able yeah, we've heard how.
I carried the program and then.
Well, you selectively going out to your.
Customers and getting that are or do you have a big backlog for us pushing through more loans.
But to actually get another batch of funding here. Okay. We originally.
Went out to our clients and said Okay. We're open for PPP and we've got about probably 150 applications of which we got a 117 up on approved by the S.P.A. before this up.
The its stop.
So we still have the 35 anywhere in the pipeline plus we are increasing it to we believe we'll be able to do about another.
65 to another 100 loans.
And so forth before the money runs out again.
Okay. So that's what we've kind of feel that we can do right now we werent like some lenders who are open it up to everybody.
But we have opened it you know we're taking care of our customers first and then go into the.
The rest of World second.
And how how should we be thinking about the rate at which these pay off do you do you expect them, let's see forgiven in this that's roll off on.
Hi into Q3, Q and meet the speed just to clarify base your front tree.
Is that right.
So so we don't okay. So these are with two year loans right. So we expect them to probably pay off relatively quickly because I would hope most of them, we'll get forgiven, okay. So within a within a year.
And again, it's only a 1% interest rate so it's basically coming out of our excess liquidity.
Ill.
Oh that we have right now.
Okay, and then the upfront FDIC fees or are those somethings are saying that that's running through net interest income over the life of alone I mean, how do you.
Figure that out yet for how we should be modeling that when me I'm modeling.
[music].
I mean, why don't I, we haven't I haven't even thought about that yet like [laughter] right. Thanks, I'll step back.
Yeah.
Our next question comes from Tim Coffey would Jeremy.
Good morning, everybody.
Hi, David the pull up on that last question about how you plan to fund the PBP route.
Are you, having not to use the facility, but you're on liquidity.
We don't need the liquidity, so why should I bought all right now.
Okay. No. That's one of the sure I'd answer that correctly.
And then the FHLB line that you took down during the quarter does that fixed rate.
Yes, it is for five years.
Okay.
Hey, Tim I, just want to make sure you realized I am going to pledge those loans to FRB just in case I do need to have liquidity, okay right.
Okay no.
I understand and then the I guess because he.
I wouldn't call our balance sheet loan growth organic one of this and RPP stuff. What do you. What are you thinking that's gonna look like this year.
Well.
Right now.
We will probably you know we did was 52 million last quarter and we are in CRT, and we'll probably be able to do about the same or Oh, you know work you know seven set between that 17 million. Okay. That's what we're looking at on a mortgage.
I'll let.
You know mortgage we see our production.
Probably going down to about 25 to 30 million a month at the most.
Right now and that maybe they regain after the crisis the sites.
Okay.
<unk>.
And then did you Oh, what kind of fair value marks did you take on the acquired loan portfolio for this quarter.
Or how should we think about kind of what the discount on those loans are.
The well number one the along some pretty short term most of our loss.
Uh huh.
Uh huh.
Mature within two years.
So.
So our marks were in the in the range of 1% to 1.2%.
We didn't actually we increased the probability of default and so forth on almost all of them to get to that point.
The standard model was a little bit less than that.
Okay very good and then just kind of looking at the.
The inputs to expenses. This next quarter, you mentioned that you guys, possibly world question. Please go up but are you also you also run overtime to.
Through the the Triple B wells.
Yes, we had some overtime for triple people, it's not going to be huge because most of the people that were working on them our officers.
About $21000 in overtime.
Okay, Okay yeah.
Okay. So then all right I'm, saying.
Okay.
Those are all my questions. Thank you.
Kelly our next.
Our next question was actually a follow up question probably model with KBW.
Hi, sorry, David do you I just follow up question on expenses, but I don't I.
Cut you off.
Go ahead lets you follow okay.
Okay. I was just hoping you could remind us about the coffee you expect to get from TGP and how we should be thinking to the trajectory of realizing that throughout the year Cmos that come on now that you completed the conversion late in the quarter here.
Okay, our our.
System expenses should begin to show in the second quarter.
We will.
And manpower expenses should begin to show in the second or second and third quarter and PGP, Okay, and then any reduction in branches.
They only have three branches, but they do have one and two of them. They all they do have one that's within a block of each other so that should be.
Pretty quickly.
That that should be maybe next year.
Okay.
[noise] with.
Okay, great. Thank you.
And I'm not showing any further questions just how much from the call back over to Mr. Kim.
Uh huh.
Once again, thank you all for joining US today, we invite you to try our upcoming Andrew a show doesn't mean that will be held by webcast and what the telephone on Wednesday may 13th at 11 o'clock in the money actually peptide.
Have a nice day.
Ladies and gentlemen. This concludes todays presentation you may now disconnect have a wonderful there.
Hi.
Wow.
On the.
Okay, because I need to here.