Q1 2020 Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Bankunited Inc. first quarter financial results Conference call.
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Thank you Liz good morning, and thanks for joining us today on our first quarter results conference call on the call. This morning, our Raj singer Chairman President and CEO.
Actually leave that our Chief financial Officer, and Tom Cornish, Our Chief operating officer before we start I'd like to remind everyone that this call may contain forward looking statements because in the meeting some of the private Securities Litigation Reform has 1995. It reflects the company's current views with respect to among other.
Everything.
Your attention financial performance.
Any forward looking statements made during this call her based on the historical performance of the company and its subsidiaries or on the Companys current plan.
An expectation the inclusion of this forward looking information should not be regard it as a representation by the company at the future plans estimates or expectations contemplated by the [laughter] will be achieved.
Such forward looking statements are subject to various risk and uncertainties and assumptions, including without limitation those related to the company's operations financial results financial condition isn't this prospect growth strategy and liquidity, including ask impacted by the cobot 19.
Pandemic the company does not undertake any obligation to publicly update or would do any forward looking statement, whether as a result of new information future developments or otherwise a number of important factors could cause actual results could differ materially from those indicated by the forward looking statement.
Information on these factors can be found in the company's annual report on form 10-K for the year ended December 31st 2019, and any any subsequent quarterly reports on form 10-Q, four current report on form 8-K, which are available at the Sbcs website <unk>.
You've got to you got SBC gotten caught with that I'd like to turn the call Corporative Raasch [laughter].
Thank you Susan.
With regard to humans range.
The first call that we've ever done where the management team is not together in one location.
So lastly, and Tom are in Miami I'm in New York, and we are doing this.
Virtually.
Also I've never done a conference call Bye bye.
I had more than one or two pieces of paper inside of me with them.
Good day, and lastly has put inside of me a 27 big data.
And then points that are several pages long so forgive me for all the shuffling, but you might hear wonderful.
Okay.
Let's do that instead of jumping straight into the earnings for the water I would like and pick five minutes of your time before I talk about exactly.
The state of the a union for bank, United What is it that we've been doing over the last six seven weeks.
The situation has the wall.
Advertising and give you explicitly of the Latin and then we'll get into the numbers and discuss in detail first look like.
So let me start by first and foremost given the big shout out to the banks United team every person who comes here close this home and work hard.
You know.
Cases reveals character people I think that history, not just for people that ultra reveals a true character altered organization I'm very proud to say that what I've seen over the last six or seven weeks. It really fills me with great Pride that I'm, leaving the organization people have come together, helping each other.
Work on Doughty hours, while they were under it and that's not a portion stress. So there are too many examples get into but I just wanted to get big one shot out every one of the company not just people working in PPP on the branches or keeping our call centers up but everyone. You know right down to the person who's making sandwiches the Kathryn.
Sure, Yes, all the way to the last day when they shut under GAAP.
The big Shout out and thank you a big thing.
We have as you can imagine going through this early in March we made our employees well being and safety.
Andy.
We enable 97% as of now 97% apart.
We are working.
From a this is 97% and we're not gradually force.
We have extended our paid time off a policy <unk> yeah.
In Greece, our health benefits Hubbert any expenses, so instead of cobot.
Good luck followed any employees.
I basically vicious person so it it did I say this oh very carefully we were recently awarded a life that's where the this is Jim let awards can be wanting to LDS employers and so yeah.
Oh and I hope that we can play this again next year. So far we've had only one before okay and deeply we do think there are others. He never get tested well a little bit as well it sounds like it would only one come from coated papers pretty good given.
Given what is going on.
What do you think you're going to leave the Herndon take your customers needed kept their customers that takes care of the company that's sort of though the to change that I follow so quickly. Let me tell you what you've been doing to support our customers are the most obvious thing it's offerings the operational resilience that needed to that I'd like to reactivate.
<unk> I know what do you plan.
We beefed up Oh, the back office infrastructure that is needed to run the company so far but no really any significant operational issues are definitely service disruptions and you're asking me. This you know how I felt about.
Our ability to do this news in the first be marketed deal can vary can do this I was pretty nervous, but I'm happy to say that everything is gone without English and the banks is working well I'm not saying Oh perspective.
Our employees several hundreds of them have worked tirelessly now for about three weeks deliver the PPP program. A we I think I thought last night, our close to 700, when they deal with 700 million loans that we've done for the you'd be program and our estimates are that help repaid.
80, 586000 jobs in our footprint through this program.
And we're not done there's more going through as we speak English and walking around the clock and.
And we will help a few hundred more small businesses before eventually the money runs out of movie.
We haven't seen deferrals for many borrowers with contacted us and ask for systems because endemic.
Hmm and equally importantly, we have honored all on commitments. They were mine that you've had or a business that hasn't been pipelines are getting better.
Close and alone we did not bad boy anyone.
And that is equally important.
We have behaved like fees and we get also temporarily halted new residential football for actions.
Why don't we want all of this is happening I just want to clarify when I say, 97% upon employees one branch employees are working remotely.
For example branches are still open.
They are open.
Limited basically the floors drive-thrus and an appointment only oh method, but they are open and we are certainly like the traffic as you can imagine has gone down substantially.
Also we have Oh, just from from somewhere in the second week of March mid March or we have.
Made sure that get enough liquidity, if you're a client needs into somebody when needed.
We continue to hold a an excessive mando liquidity, but weve outfield ivas right start taking it down and I think beginning next week, we picked up this excess liquidity that we've been sitting back to service lines.
Now turning back internally or you can go back and we're prioritizing risk management and credit quality credit risk management.
That applied portfolio and borrowers that you believe will be under an increase Russian did what I call do you sort of be sort of you know your indirect lineup fire type of portfolios.
We have reached out to every single borrower exactly who will talk in detail about looking segments aren't a big data that you have reached out all borrowers would be.
And in other segments, we have reached out to everyone over $5 million in exposure do you understand exactly what the impact will be our balance sheet.
Why do we always do shift that's thinking sort of actually routine business for us in this environment do you have significantly enhanced expressed to you would expect us to.
But through all of its I. Its important you know why I would imagine a crisis knocked us again, what the long term flattening and to keep those long <unk> objective in mind and we're doing that why we're fighting.
The the immediate economic crisis.
So again.
So I think the biggest question here that you probably have is one of the need for our balance sheet like I will try to I'd say, our balance sheet is wrong I feel very good about our balance sheet, our capital levels, our liquidity levels and you'll see at March 31st I regulatory ratios no matter. What did you look at bank holding company, they're all in significantly in excess.
Well capitalized thresholds.
We're committed to our dividend, which we they recently increased by 10% it was in middle of February.
We did however stop our share buyback program I'll be where we had an authorization.
From a pick it was a fourth quarter was authorized 150 million be executed about 101 million and be stopped that and we're going to put aside.
At least until the dust settles on on the economy.
Question that we haven't seen a lot of other banks seem to be Nashville presented earnings in the last a week or so anticipating the same question. We did someone else is 40, you by the way there's a slide deck like I said this time around we've never had a flight deck. It are you now calls but at this time, we have quite a lot more disclosure and it was 27 based flight deck Phil.
Patrick I'll make references to certain like nothing to flip every eight but I will make references. So for example, right now I'm told me what pace for the slide deck.
Which takes.
The de fast severely adverse scenario for 2018 in 2000, and funny and run that on the March 31st 2020 portfolio to see what the losses would be and by the way not just nice waters of losses, but lifetime losses, you don't keep after the nine quarter exercise, but could this be actually use lifetime losses.
And if you use those who don't pick our auto are really relevant but nevertheless, sunset question will probably be adds we just didn't alphas anyway use both 2018 and do it at the 2020 defects severely adverse scenario.
And that okay. What are the losses that are generated and you can see them on slide four and if those words agenda or where do you use now wouldn't be still be well capitalized enough capital ratios hold up and the answer is yes. They do.
So.
Quickly one question. So I don't forget again about liquidity, which is the next like a we have committed liquidity. A we are we currently have over to easily I think it's even a heavily miles of liquidity seem to liquidity available a lot because gosh, we will take some of the cash position down as we paid.
That's settling down to the marketplace.
But with that let me say go we're quickly I talk about the core.
We reported a net loss of $31 million.33, a share not surprising this is driven in large part to their large provision that become the provision for the water was shoot me under $25 million. This increase our credit losses due to wanted to.
51 billion, which is 1.08%.
So you used to be at December 31st we were in 109 billion or 47 basis points on January 1st undersea. So that's number bumped up to 136 million or 59 basis points and now at the end of March were 1.08% or 251 million.
And that obviously when the biggest driver and in in the $31 million losses to be up hosting this quarter.
I will ask Leslie to give you some more detail around to see filled and the assumptions that went into a calculating that provision, but I will say before I hand, it over to her it said we believe this at March 31st Reserve estimate is based on both a data that it's hard and conservative.
At quarter end and it reflects our best estimate off lifetime card losses on the portfolio.
And second quarter, we would go through the same exercise for the three big area, which will impact refused to let estimate for the next water, which is going to be an update on the macroeconomic outlook an update on our you know our portfolio, especially our high risk factors and also the assessment of impact from government stimulus because we've seen more similar to this.
I heard on than we've ever seen in the history of their public. So you wouldn't have truly an accounting and physical channels and God knows how much monetary side, but let me turn it over to lastly, do a much better job of describing the underlying Stifel assumptions and I can.
Thanks, Ross I'll try and so I'm going to refer you did in the slide eight in the supplemental deck that talks a little bit about our Cecil methodology.
Fundamentally for the substantial majority of our portfolio segment, where are you using econometric models that forecast PD L. G D and expected losses at the long Whitehall and has there been aggregated my portfolio segment.
Our March 31st estimate was largely driven by the Moody March mid cycle pandemic baseline forecast. It was issued on March 27.
This forecast assumes an approximate 20% decline in GDP in Q2 unemployment, reaching about 9% in Q2, the VIX approaching 60 and year over year decline in the S&P 500 approaching close to 30%.
Forecast pappas into recovery beginning in the second half of 2020 with unemployment levels remaining elevated into 2023.
I know, there's been a lot of focus on GDP and unemployment and all the discussions taking place around these seasonal forecasts and those are certainly important reference point, but I do want to remind you that Peter very complex models and there are in fact, hundreds if not thousands of national regional and and I say level economic variables and data point that.
Form or loss estimates.
Some of them more impactful ones are listed on the right side as a slide eight there for you.
[noise] another thing I want to point out about our thesis less than 10 at 331, we did not make a qualitative overlay. We don't think our models really take into account for only the impact of all of the government assistance, that's being provided to our clients PPP. Other deferral programs that we might have in place we did.
Not make a qualitative overlay for that at March 31st the reason, we didnt. If we just felt it was pretty much work have really be able to dimension those things at March 31st Dennis as Raj pointed out that's something we'll take into account when we consider our second quarter estimate.
What I refer you now to slide nine and this left [laughter].
Second I, just got attacks from someone saying that the call cut off for about 20 seconds and they couldn't hear you for the first 22nd So you may want to just.
He said because I think those are important points I want to make sure okay.
Okay.
So bad that to start on diesel [laughter] they'll do a better this time, hopefully I won't contradict myself so.
Again, I'm, referring to slide eight in the deck about our Cecil methodology and fundamentally for this substantial majority of our portfolio segments. We use econometric models that forecast PD L.D.D. and expected losses at the loan level, which are going aggregated by portfolio segment, our March 31st estimate.
Was largely driven by the Moody's March mid cycle pandemic baseline forecast. It was issued on March 27.
That forecast assumes an approximate 20% decline in GDP in Q2 unemployment, reaching about 9% in Q2, the VIX approaching 60 and year over year decline in the S&P 500 approaching close to 30%.
The forecast path to save a recovery beginning in the second half of 2020 with unemployment levels remaining elevated ended 2023.
Well, there's been a lot of focus on GDP and unemployment in the discussions taking place around these seasonal forecasts and those are certainly important reference points. He's our complex models and there are in fact, hundreds if not thousands of national regional and am I say level economic variables and data point that informed a loss estimates and some of the more impactful ones of those.
With that for you on Friday.
I also want to mention briefly that we did not incorporate in our Cecil estimates at 331 any significant qualitative overlay related to the impact of.
Direct government assistance TPP deferral programs that we make put in place at 331, or we felt we just didn't have enough data to properly dimension the impact to Bose. So we did not reduce our reserve levels to take those into account and as Raj mentioned, that's something we'll be considering in more detail in Q2.
Now I'll refer you back to add the DAC and look at slide nine and slide nine provide for U.S. visual picture of what changed our reserves from 12 31 19 to 331 20, we started about $108.7 million you can see here the 27.3.
The million dollar impact at the initial implementation of diesel.
The most significant driver the increase in the reserve from January 1st after initial implementation to March 31st is not surprisingly the change in the reasonable with affordable forecast, which increased the reserve by about $93 million.
We've also taken an additional $16 million into specific reserves. This quarter. The majority of this related to the franchise finance portfolio. While the credits driving these reserves had been identified as potential problem loans prior to the onset of coal that we believe the underlying issues and amount of those reserves were certainly further aggravated.
By the credit crisis, and particularly as workout solution had become more limited.
I want to reemphasize that we ended.
The quarter at 331, 20, whether reserve of 1.08% of loans and we certainly don't think that's outside in comparison to other banks, whose results we've seen really.
I want to take [noise].
A minute and just focusing on slide 10. It gives you a distribution of the reserve by portfolio segment. At March 31st then you can see here that on a percentage basis the franchise portfolio not surprisingly carries the highest reserve.
Followed by the <unk> portfolio.
One more thing I want to touch on before I turn this back over to Rod is a little bit that little bit more on a stress testing results that we didnt Raj mentioned at a high level a couple of minutes ago, you can see the results of those on slide four in the deck.
And what we did here [noise].
What we took our March 31st 2020 portfolio and we ran that portfolio through both the 2018 de fast severely adverse scenario and the 2020 de first deep AF severely adverse scenario. The table here showing you total lifetime not nine core.
Their projected credit losses for our significant portfolios see an eye cream B F. G residential under each of those scenarios as well as the banks pro forma regulatory capital ratios now those were calculated as it all incremental losses were applied to the March 31st 2020 capital position. So they don't.
We'll take into account.
Any yet PPNR that might offset losses over the course of the forecast horizon or any actions management my take to reduce risk weight risk weighted assets. During a period of stress both of which would have been taken into account in the past regulatory submission.
So you can see that our reserves at March 31st 2020 stand at about 44% of severely adverse protected losses under the 2018 de fast and about 56% of severely adverse protected losses under the 2020 defect severely adverse scenario and you can see.
In the box there that all of our capital ratios remain in excess of all well capitalized and threshold under those [laughter] stress scenarios.
So with that I will turn it back over to rush to talk a little more about quarterly result.
Yeah. Thanks, Leslie let's talk a PPNR pre religion pretax net revenue came in at 85 million this quarter and that compares to 104 million last quarter. So what was that delta of 19 million a really three buckets first.
And I was down about $5 million.
It really is for two reasons, one mark attracted by six basis points from two different to 41 to 35 and the reason for that is asset yields came down faster deposit pricing clearly wasn't changed much until pretty late in the quarter, we'll see a very meaningful impact on deposit pricing going forward.
But well this quarter that databases risk between Oh exercise price and what are the things that tied to worsen deposits. They watch that gap a few weeks, which is what causes margin to come down also first quarter is not a very strong acid growth water for us the nature of our businesses first quarter.
Just to be our slowest quarter. So we didn't see a that much in terms of asset growth. So you combine little to no assets were led by the way a lot of other banks are seeing asset growth coming from line draws our business is not bills.
Kind of business and we did not get that benefit did not see a lot of line I don't think it's about it I think it's a good thing, though he did not have that business.
But that creates a little or no asset growth and NIM that compressed six basis points or at least to 5 million dollar reduction and I also a fee income last quarter, we had seven and a half million or so of securities gains well. This quarter, we had three and a half a million dollars of securities losses. So.
That's an 11 million or so slaying in fee income by the way into three and a $1 billion securities losses. This quarter includes a $5 billion of unrealized losses on equity Securities. We haven't sold them, but the accounting makes us take us through through the personnel and lastly expenses.
And first water expenses are always higher because you start to FICA cycle, all over again, I'd, just say contribution floral and gift contributions and all that stuff in the fourth quarter. So that that is what drove expenses higher if you compare it to expenses from a year ago, that's probably a better way to compare and those expenses.
We're obviously much lower.
First one and this year it was much lower so once is really mean for next quarter well go next quarter, we expect a acid grows to pick up the middle of even we're doing a lot of Pvp loans were probably goes up a mainstream leping loans, we expect margins big fan.
Deposit glass prices have come down very very aggressively not just the middle of box, but also the beginning of may and ER and that should a feeder to margin and we are very positively biased, whereas our margin into second quarter and beyond.
<unk> expenses should come down as well because all that stuff that I talk to you about wouldn't be behind us after the first quarter and naturally expenses.
We'll get better next quarter so.
That's one on the guidance will be able to give you, but I do feel less important we mentioned these things in some level of detail.
I've mentioned, a little bit about PPP program I think you know a usually renamed basically later for the bulk of it will they be paid that's a lot. All we've been doing to give you a little comparison you know we haven't SBS business revenue you probably do roughly about 200 units up business.
Here, we are now in the process of trying to do over three hours and loans through the S. The a and less than a month. So it isn't as it's been a very large operational challenge that people across the company heparin recruited to help him and so far we've already close to $700 million as most of them done then we're not.
And yet we're still have a few more that will do over the course of today all day out for the money runs out.
We're also on a case by case be providing deferrals to borrowers will be impacted by by the pandemic and that solder somewhere in the middle of.
Uh Huh March.
Those requests have tapered off somewhat in the last week, two weeks and topping talking about back a little more before that Tom why don't you.
Spent a little I'm talking about loans and deposits give a little more detailed on that.
Great. Thanks, Raj happy to so let's start off with deposits, where we've continued to make good progress on our deposit growth initiatives. As you can see deposits grew for the quarter by 606 million and just over 50% about EUR 305 million was noninterest DTA.
Which now stands at 18.4% of total deposits compared to 15.9% a year ago and as we've talked in all of these calls growing noninterest DTA is one of the most important things that we're trying to do.
In the bank right now.
Unlike what some other banks have reported most of those DTA growth was really cord de AD growth there wasn't related to draws on lines of credit now are going to look for more detail about that later.
We're consistently been moving down deposit pricing is the fed is reduced rates the cost of total deposits declined by 12 basis points. This quarter from 1.48 to 1.36.
Additional moves by the fed in late March.
Had minimal impact on our ability to move cost of funds down further in Q1, but he's Raj mentioned, you'll see that impact much larger in Q2, Didier better idea of this the spot rate on total interest bearing deposits, including our certificates of deposit declined by 36 basis points from December 30, Onest two.
2019 from March 30, Onest 2020, and then by another 27 basis points.
Through April to 17 of 2020, so a total of 63 basis points.
Declined during that period of time and you go to slide seven into deck, you'll get a little bit more information.
In detail on that it on the loan side as Roger mentioned loans are relatively flat for the quarter with net growth of 29 million.
There were some parts of the portfolio, where we actually saw very good growth the C and I business had a total growth of 353 million, which was good quarter for that for that segment mortgage warehouse Outstandings also increased by 84 million, but offsetting that RCR E book declined by 350 million.
Which is pretty much in line with what we expected primarily driven by the continued decline in New York Smells like family, which was 249 million.
And unlike a lot of banks, particularly some of the larger banks weve not experienced any real growth in line utilization since the onset of this crisis. The majority of our seeing I grew up as I mentioned was not as a result of draws our utilization ratio, which we track consistent way through.
Ralph this process really hasn't moved too much during this entire thing only by a few percentage points or through the total period of time and is generally remained in line with our three year averages I would the exclusion of mortgage warehouse business.
So with that I'll turn it over to Raj person discussion on credit quality trends.
Thanks.
I would like it was flip to page 16. This is what I was talking about at the beginning of the call. These are the segments that we have a sort of circled around and saying. These are the portfolios that that will have increased stress.
Oh, they saw our estimation. This is a retail it in the C. R. E book retail is he and I both franchise finance, if you've talked about viewed the last six months hotels for obvious reasons Airlines cruise lines and energy.
So total it's about 40% of our portfolio. What we've tried to show you here is what.
As of March one part of these individual portfolios or pass rated and what were classified criticized and non performing.
So.
Now, let me, let me say something sort of which is obvious but I'll mention it anyway, just because we have highlighted these portfolios I'm not trying to say that loans. These portfolios in the nickel that we expect at large portion of these loans will be just fund sponsors of the pump this will be able to bear the brunt of the pace here, but in terms of.
Monitoring we are calling these are the ones that we will monitor and a heightened basis. Because we think these are in a in harm's way more than other parts of the portfolio by the same logic, let me say it doesn't mean that anything that an outside of this portfolio is on fine.
We have to monitor everything because they will be second third fourth water impacts in other parts of the business as well and we will monitor them too, but this is where the heightened monitoring movie.
So.
It's too early really see the back of off the global situation on risk rating migration, you can see that the exceptional franchise finance portfolio.
Actually most of these segments I'll pass rated.
At March 31st we did move at lunch into franchise portfolio into into those a lower categories in the quarter.
Uh huh.
Let me talk a little bit about and he is a little bit about criticized assets and then charge offs NBS npls for this quarter.
Were basically flat npls were down a little bit couple of bases claims Npls were also down a few basis points or maybe once 85 basis points.
And I just to remind you that these numbers and gays and deals leaves report that includes the guaranteed portion of nonaccrual loans to just keep that in mind.
The criticized classified this photo went up by $269 million.
107 up back to 69 was in the franchise portfolio and 90% of that 207 was really after the doubled hold it as as I said, you know kind of play itself out in the month of March charge offs were 13 basis points for the level weighted from last quarter, mostly because of one credit and be a few equipment.
There because that charge off but we're already seeing recoveries.
From that situation this quarter.
So more detailed metrics are our towards the end was a slight decrease 20 to 23 24 to 25. So I would encourage you to spend some time until goes as well.
Tom I mentioned leave these portfolios were hike and monitoring what we spend a few minutes and just get into them a little more to those more detail.
Sure. Thanks Raj so we'd refer you to slide 14 in the deck, which provide some additional detail around the level of deferrals in the segments, but through April 20, yet we have received.
Request for deferrals from almost 800 commercial borrowers and approve modifications for about 500, those borrows totaling a little over $2 billion. We've also processed about 500 million and residential deferrals exploding. The journey may early buyout portfolio, which would represent about.
10% of that portfolio.
These deferrals typically takes the form of a 90 day principle.
And your interest payment deferrals for commercial loans and those payments are generally due at maturity for residential borrowers. These payments are typically at the end of the deferral period consistent with referral programs being offered by the Geo cities now, we'll obviously be reassessed the each of these loans at the end of the 90 days and looking ahead.
Can you know the best decisions, we can look at that point.
As you can see the largest amount of commercial deferrals into commercial real estate portfolio, particularly the hotel sub segment, where 90% of the borrowers by dollars have requested and been approved for deferrals, followed by the retail sub segment.
We have also received a high level of deferral requests from borrowers in the franchise.
Dance portfolio as Rick mentioned were 74% of the borrowers have been approved for deferrals.
Other see an eye portfolio sub segments with where we're seeing higher levels of deferral requests to include accommodation Foodservices Arts and entertainment and recreation due to retail trade.
At this point and as of today modification request appear to be slowing a you know over the last 10 to 15 days.
Starting on slide 17, we provide a little bit deeper dive into some of the higher risk portfolio sub segments of the Roger has already mentioned.
In the retail segment decree book [noise] contains no significant exposure to big box or large shopping malls, we estimate that about 60% of decree retail exposure is supported by businesses that we would categorize as essential were moderately essential and the remainder that we would categorize it.
Non essential businesses within this segment LTV is averaged 57.5% and 84% of the total or below 65% level.
Retail exposure in the see an eye book is well diversified largest concentration.
Turning to gas station and convenient store owner operators.
Refer to page slide 18 rigs see further breakdown of franchise portfolio.
As a fairly diverse portfolio both by concept in geography.
We saw over 200 million dollar increase in criticized and classified out here in this segment.
During the first quarter approximately 90% of these downgrades were directly related to the Kroger 19 crisis.
I'll also mention that the current environment, the fitness center it fit this sector, which up until now has been really the better performing sector. In this book, it's coming under stress as most of these are now close with the social distancing or guidelines some of the restaurant concepts actually make fare better, particularly those with heavy drive through fixed.
I was your good digital strategies on Slide 19, you can see that most of hotel book represents run on flags in is within our footprint quarterly revenues in this segment of declined dramatically with the social distancing measures and travel restrictions that are currently in place.
Ltvs in this segment average, 54% and 78% of this segment has ltvs under 65%.
And finally, referring to slide 20, or energy exposure, particularly in the loan portfolio remains minimal. The majority of this exposure relates to railcars in our operating lease portfolio. So with that I'll go back to lastly for a little more detail on the quarter.
Thanks, Tom.
I wanted to take a minute to discuss the unrealized losses on the securities portfolio that impacted other comprehensive income and our gas capital at March 31st.
Ill remind you that these unrealized losses do not impact regulatory capital and I'll be referring to slide 26, and 27 in the deck for this part of the discussion.
The available for sale securities portfolio within a net unrealized loss position at $250 million at March 31st.
As unrealized losses were mainly attributable to market dislocation in widening spreads, reflecting the reaction in the markets to the coated crisis.
As you can see on slide 26, 90% of the available for sale portfolio within government agencies or is rated AAA.
At March 31st we stressed the entire non agency portfolio at the individual security level modeling collateral losses that we believed to be consistent with levels, reflecting the trough at the 2008 global financial crisis.
Based on that analysis, none of the securities in this portfolio are expected to take credit losses.
The majority of the unrealized losses. If you can see are in the private label CMBS and see yellow portfolio on slide 27, We show you. The ratings distribution of these portfolio segment, along with levels of credit enhancement compared to stress losses illustrating the high credit quality at these bonds.
We also priced the March 31st portfolio as of April 22nd and you can see the results of that on slide 26.
And although unrealized losses remain significant you can see that valuations have started to come back into recapture some.
I also want to point out that none of our holdings have been downgraded since the onset of the kind of the crisis.
To provide a little more color around the man and the NIM declined by six basis points. This quarter from two for 41 to 235 compared to the immediately preceding quarter get up to get a little bit into the components of that yield on interest, earning assets declined by 18 basis points that reflects the decline of nine base.
Points in the yield on loans and a 37 basis point decline in the yield on investment securities.
These declines related to obviously declines and benchmark interest rates and also reflect turnover in the portfolios at lower prevailing rate the decline in the yield on securities reflects the short duration of that portfolio into an extent increases in prepayment speeds, which contributed about five basis points to the decline.
The cost of interest bearing liabilities declined by 14 basis points quarter over quarter, I'll remind you that reductions in deposit costs that we had done in response to the fed reducing rates in late March were not fully out this quarter.
A couple of items I Wanna mention that impacted noninterest income noninterest expense for the quarter Raj already pointed out the unrealized loss on marketable equity securities that negatively impacted non interest income this quarter. So.
The largest contributor to the 6.8 million dollar decline in the other noninterest income line compared to the immediately preceding quarter with a reduction in income related to our customer swap program and this is really attributable just to lower levels of activity in that space during the quarter.
Employee compensation and benefits actually increased by $3 million compared to the immediately preceding quarter and as Raj pointed out there are always seasonal items that impact comp in the first quarter, a better comparison might need in the first quarter. If the prior year compensation expense declined by $6.3 million compared to the first quarter.
2019.
With that I will turn it back offered a rush.
Thanks, Leslie when trying to wrap this up and open the subsequent culinary, but let me say.
Regarding guidance, we are the growing goes I can give you at the last earnings call.
We generally have a pretty good idea of what we're seeing the business and economies, where we operate filler.
Look out about six months or so but at this time. It is very hard to look past a month or two sort of try and give you guidance at such an uncertain time, it's very hard what we can say is you know we are you will see a growth.
Now I'd like to said Russell somewhere that 800 million dollar number is what we think we'll end up with.
Mainstream clubbing facility, we're still waiting a lot of details that but we hope to do some of those open heart failure, how much we will be at least do or we would want to do.
And even deposit growth can be hard to predict but our priorities that outside will maintain which has grown D.A. bring down cost of funds NIM will expand we feel fairly confident of that into this quarter and in fact I haven't even go as far to say that made for the fully or will be higher than what you saw.
But this quarter.
That's our expectation.
Oh.
Any questions that you asked about c. So the only thing we can say about syphilis provisioning going forward into second quarter, the rest of the year.
Very volatile.
Given the fact that the economic environment is extremely well.
And very importantly, we've not lost sight once again I will say not lost sight of what we're trying to build in the long term last we are.
Fighting this healthcare crisis in the short term, but in the medium and long term, we're still focused on building wouldn't be set up to build so what does bank 2.0. It all goes if that were working on they've kind of Neil.
Some of the initiatives on banks, what else, especially around revenue might get pushed out by a couple of months simply because it's you know new products that are big launch is going to be hard to drive launch them. In the next couple of months when we are going through a social decisions in the way we are.
But.
Overall, the numbers don't change and it just gets pushed out a little more.
With that I will turn it over to the operator can pick some questions.
As a reminder, ladies and gentlemen, if you'd like to ask a question at this time. Please press. The Star then the number one key on your touched on telephone to withdraw your question press about team.
Our first question comes from the lineup Jared Shaw with Wells Fargo Securities. Your line is now open.
Hi, good morning.
Good morning here.
Thanks.
We're just starting on the on the credit side. When you look at the franchise fans on specifically what percentage of of those credits have some type of protection from you know PPP or anticipated to to have.
And some protection from from government stimulus.
Carl.
Yes.
Right now we're obviously, we're still end up in the process of working through all of the loans that are that Raj mentioned, they portion well it's difficult to until we finish processing all the loans to say the exact numbers, but we're certainly seeing you know a fairly high level either come.
Through us or in many cases, the franchise credits are a little bit different than some of our normal credits.
And that this big part of the National.
Group of client bases, many do not actually have you know there in Utah or California wherever they are so we're the only PPP applications that we see are the ones that are actually applying through us where's the vast majority of them are applying through banks that might you be community banks in their own local.
Neighborhoods, but I would say to you know, we we'll probably see a very large percentage of them either apply and receive PPP assistance through us more through other banks the day back within their communities.
Okay and then when you look at the gross and criticized loans are you classifying any of the loans that are in deferral or if they go through the formal deferral applications and are they excluded from from being classified at this point.
So so jared each time, we processed one of these deferrals, we do we view the risk rating of alone. So in a number of the franchise loans that.
We spoke to that were downgraded this quarter.
Word the subject of deferrals.
That's not to say that every loan that receives a deferral will be downgraded that's not the case, but we do we view the risk rating every time, we process one of these deferrals, so you're seeing some of that reflected in those downgrades.
Okay.
Yeah. Thanks, the color and then just.
Do you see a broad difference in the performance across various concepts.
Well the raw, they're all not exactly equal depending upon what type of concept it is and where the venue is.
Okay.
Yeah, just shifting a little bit looking on the deposit growth.
The strong T.D.A. deposit growth you saw this quarter.
Are you starting to hit the stride there and do you think that that's going to be sustainable and should we be looking at DTA as a percentage of total deposits I'm continuing to to March higher sure all things being equal.
Yeah. That's you know as I see the deposit numbers right now you know I feel pretty good about PVA growth, though some of that you know that we're seeing so far this month suddenly DPP love that be funded that's sitting as D.A., but overall the momentum in deviate growth that.
Good news and that priority still remains a top priority.
Okay. Thank you.
Our next question comes from Brady Gailey with KBW. Your line is now open.
Hey, Thanks, good morning, guys.
But in Brady remarried, but if you look at the activity under that.
<unk>.
Say with round two you 800 million I think most banks have seen is off of that production of around 3% or a little under 3%.
So a 3% of 800 million that's about a 24 million is that the right way to think about the earnings potential from your involvement in PPP.
That's right Brett.
Brady one thing I'll remind you that these fees are being deferred.
Just like any other loan origination fee and are being recognized over the term of these loans, obviously to the extent that these loans are forgiven.
Remaining unrecognized he will get swept them through the margin that's at the time that the loan is forgiven. So it's hard to dimension.
The timeframe over which these fees are going to hit the PNM until we understand a little bit better.
When and how many of these loans are going to be forgiven by you know obviously that 3% is probably in the range of with average for for this portfolio in the aggregate, but the timing of income recognition is still pretty uncertain.
All righty another thing that another data point I would give you is that the average ticket size. If we're seeing isn't the to 60 to 72.
270000 range I mean, we're still not done under the program. So it might move a little bit but this is under 300000 as the average and then that is obviously a distribution from you know very very small country thousand dollars loans will be much larger ones, but the average is about to 60 to 70 exactly.
All right. That's that's helpful. Then I appreciate all the color on Cecil.
The other movies hand out what their April baseline whats instead of having unemployment at 9% I think it's up to a little over 12% how does some of the banks have been talking about what the April baseline impact could be two loan loss reserves any idea how much bank. Your line is reserves would have to increase the severance April baseline.
For me.
So Brady what I, what I can say about that is by June Thirtyth I don't know what the forecast is gonna look like but I'm pretty sure. The April baseline is gonna be in the garbage can.
I I don't know, if it's going to be better or worse at June thirtyth than it is at April, but our second quarter provision in reserve levels will be based on what these forecasts looked like at the end again not what they looked like on April 15.
We did not completely recalculate, our provision based on that April 15th baseline, obviously if that holds.
Running that forecast through will result in an increase in reserves as I mentioned earlier.
The impact of TPP government stimulus deferrals, and what night whatnot will pull in the opposite direction.
And so all I can say right now is that the number on our balance sheet at March 31st 2020 is our best estimate of at that data lifetime losses coming out on the that portfolio.
And we will update the estimate in June.
Based on what the world looks like at that to us at that time.
And then lastly from me rise you laid out they come out to 2.0.
For anybody even knew what the crowd of our says no. We're in a different backdrop today.
With more earnings pressure than we thought evident by this quarter, but is there an opportunity to revisit baked into 2.0 on the expense side and potentially tried to harvest some more expenses out of the franchise in the future.
I think there will be I don't think it is gonna be this quarter.
I think right now everyone.
I'd think about the capacity of the bank just the number that I gave you were trying to 3000 loans in a month when we usually do 200, a year tells you how much just physical work there is but this this will pass and and and and as we get out onto the other side, we will look at everything and.
There are opportunities we will we will go attack absolutely.
Great. Thanks, guys.
Our next question comes from on a Chen with BMO capital markets. Your line is now open.
Hi, Thanks, Good morning couple of questions. One on just on the expense side, Yeah. I guess last quarter. You gave a died insane expenses could be pretty flat a this year versus last year.
Since you know it's Matt. This is one thing that you can't control is that still a reasonable estimate supposedly.
Got it looks like.
Lot of I you know, there's there's just a lot in the hopper right now in a lot of things going on if I had to get my best guess right now I would say they would be down.
But I'm a little hesitant to quantify that very specifically because we're in such as.
An unprecedented.
Time, but if I had if I had to get my best estimate I would say they would be down somewhat from last year.
Okay, and the guidance around them for the second quarter. It does that include the impact or the pee paid onto which are lower yielding.
Yep.
It does.
Okay.
And does I just wanted to really say the disclosure on the long portfolios are I think one of the best that we've seen the thanks, that's why this quarter. So I really appreciate it.
On the CRB side, you know if I look at the reserve allocated to see Irene seems relatively low to me and I know that you guys have had very low losses in that portfolio typically, but if I look at you know where some there'd be a potential corporate exposures are the hotel, let's see I really can't CRT.
And how much has been just oh, so it's those portfolios.
I'm curious why the beach up allocated to Jerry is it higher at this point.
So I spent a lot of time looking into that question lot I believe it or [laughter].
The hotel portfolio did get.
Penalize pretty significantly when we ran the models. This this quarter as a part of that theory at some of the other portfolios that are actually lower but really Atlanta I would attribute that to the LTV cushion that we have throughout that portfolio.
Probably what's driving those reserves to be a little bit lower than you might have just guest but we feel very confident I'm their model that alone level, we've dug in pretty deep, but I think the driver is that we have a pretty significant LTV cushion going in across the spectrum of that portfolio.
Okay. Thank you.
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Our next question comes from Dave Bishop with D.A. Davidson. Your line is now open.
Yeah.
Good morning, Hey.
Probably the same question in terms of the reserve, but maybe into the equipment finance portfolio I think that that actual reserve came down a bit just just curious in terms of the methodology, there and directionally why that that's out as well.
So it's a methodology is the same you know we're running needs at the loan level through these econometric models and I would say that's just reflective of the fact that for the most part like sitting in that portfolio loans to some pretty strong borrowers and some pretty strong companies with stronger balance sheet.
Got it then let me I think of the preamble you walk through and I might've missed the slide here, but.
The out the impact under the various de fast scenario does that broken out one of the slides are yes.
Yeah, Dave on slide four.
And I didn't give some other details that I could not.
Yeah, I think two if you could just go over that again.
Yeah, and slide four shows you that under the 2018 de fast severely adverse projected lifetime losses would be 575 million in our current reserve at 251 sits at 44% of that I know that is a <unk>.
Kind of a metric or a barometer that a lot of analyst community has been looking at this earnings season. The 2020 be fast severely adverse losses are projected at 445 million in our reserve sits at 56% of that.
I will say.
I understand why people are looking at this metric because everybody.
Searching for anything they can to try to provide a comparison from bank to bank.
But I do want to emphasize that the purpose of Cecil and the purpose of de faster very very different.
And the C. D. Fas scenarios are are not forecast there hypothetical scenarios that were designed by the fed for stress testing purposes.
So I don't know that Theres really.
Yeah, the comparison between de fast losses, and and the losses that we actually expect to realizing the current environment. It's tenuous at best but I do understand why people want to look at this.
Okay, Great appreciate that detail and then Ross I become sounds like you guys have a obviously a lot of communism directionally in terms of the net interest margin it sounds like a core basis just curious.
You can give some good color in terms of the up the deposit side, the funding side or on the asset side just curious.
What you're seeing there and impact maybe a floor is taking hold why isn't there maybe a bigger impact in terms the asset size and what's happening yet that breakout.
Let me emphasize listen spreads are wider right.
And and based on which assets last summer white in more than others, and but they're fluctuating quite a bit.
What I am still nervous about is oh, while the healthcare data is beginning to trend better capital Wonka subbing in for better mix is down market is a you know spreads tightening a little bit Andy is a fixed income market I I'm still not calling this at you know that that to me.
Mainstreet recession is behind us will that be bottomed out I drove this morning, and I took a long way down here just to see what it feels like I think one somewhere in the bottom, but you know we maybe a few weeks away from it a few days away from it takes haven't opened up yet.
So.
When it comes to doing more new business, we're going to build careful obviously right now we're just doing pvp, but that's a different animal.
And we'll do mainstream lending, which will also be different animal, but just going out and saying, okay. Everything is fine, but you don't pretend everything is okay and underwrite and also maybe what three months ago. I think that's that's that's a little too early.
It might be there next quarter or maybe sooner, but we're not there today, so we're not leaning into and taking risk and saying, let's build the portfolio like nothing happened you know.
It's hard to get an appraisal done it's hard to know what you can look at a cash flow a business from last year I mean, nothing that right now so that's why we haven't said much about.
Of course that are much wider and across the board we couldn't do a better business you know.
I think what I think about the long term aspects of what this recession does it look on water park. It will do a lot of damage the economy various businesses, but here's a silver lining to a due to a recession, which is once the recession is behind us the new business cycle starts at the best kind of business. You can do is always done in the first one for years off at the next business.
Michael.
The last three four years, all the things that have been suffering from irrational competition tight spreads nonbank players all that stuff gets a.
Fixed in the post recession, but to get their young first get through it.
And I'm not willing to call. It that it is you know behind that I am hoping that next quarter. When I talk to you guys I'll be able to call it but right now we're still in the middle of this and we need to see this economy open up we need to see people get back where we need to see some social activity, even if it's not anywhere near the levels, but we haven't yet it was.
They hospital.
So thats why were little careful in saying anything about the appetite.
Dave Dave I'll make one more comment on your back to your question about the NIM.
You know as LIBOR came down ahead of fed funds, we saw a lot of our assets reprice earlier in the first quarter, we saw very little impact of the work. We did at the ended the quarter and into April and repricing deposits in our first quarter.
Mm and we expect the repricing down of deposits that we have been aggressively engaged in late March into first half of April to have more of an impact on the second quarter. Now. So that also is is part of the reason for our confidence for our expectation I should say that the NIM will probably standards.
Second quarter, they've I would also had there were more we looked at the market today from a new business perspective, there's clearly plenty of spread in loans, we don't want to make.
You know, there's a lot of that out there what we're doing today beyond.
The PPP program tends to be.
New credit for existing clients that are long tenured clients that have strong financial positions in our generally in central related businesses that that's what we're seeing today, but no. This is also a time I think to to be as Raj said, you know careful around credit quality and and making.
Sure there were not straying into areas that.
Good to be problematic, but so as as we see recovery you know that will probably change a bit but right now our credit posture is fairly highly selective within our existing client base and we're going into central businesses.
Got it one final housekeeping question, maybe some God is just in terms of the effective tax rate.
I think it's probably going to be relatively stable. If what you saw this quarter somewhere around 23% I don't think like see anything unusual coming in the effective tax rate.
Okay, great. Thanks.
Okay.
Our next question comes from Steven Alexopoulos with JP Morgan Your line is open.
Hey, good morning, everybody.
Turning to Steven.
I want to start on the criticized and classified and if we look at the franchise finance loans, you guys reported a pretty sharp increase quarter over quarter.
Seen other banks report really a marginal increase I'm trying to understand as your exposure more challenge than peers or did you just approach this differently in terms of the accounting for these loans.
I think we pretty aggressively reef viewed the risk rating of these loans this quarter as deferral requests came in and we may or may not I don't know what other I can't speak to what other banks did that we may or may not be a little bit of ahead of the game. There in terms of some of the AD downgrades that we took this quarter as these days.
For all request started coming yeah, yeah, Okay I love this happened literally as a very last week or the quarter. So like you know yeah, just waited a week it would have fallen into April, but but we were on does it towards the end of March Yeah. I think that's why some peers are saying, they're not recording it and classified because of how late it happened it but.
Sounds like you were able to move that in.
Yeah, Yeah, we water yep okay.
And then the defects losses, you're providing are helpful. If if we wanted to you or use the nine quarter loss assumption somewhere to other banks would that a matter really change that estimate.
You know.
I really I mean, certainly [noise].
When you ever you run these it's hard to say I mean, you would certainly think at least more than half of the losses would probably emerged in the first nine quarters, but on a lifetime losses, particularly for a portfolio that has a longer average life than that so yeah. Some of the Cree portfolio. Some of the owner occupied real estate to be F. G.
Equipment, so the ones with the longer average lives it would be material to see an IP portfolio, it's probably not material difference yeah, yeah yeah.
Yeah.
And then if we look at the cobot expose loan segments, which are calling on slide 16, which is helpful. So they degree that some of these deferrals become the false where in that side do you feel like your most protected from a collateral viewing and whats portfolios are most vulnerable.
Oh.
Uh huh.
I think the books.
There is gonna be franchise.
And when it comes to CRD, whether its hotels or you know retail or what have you.
Depends on how valuation pulled up I mean, we feel pretty good.
Starting point right. These are very low these.
Yeah, you have tea business does that's not a real said business. So that's where the biggest risk is but a anywhere in retail see I really are hotels, and we feel pretty good even cruise lines. They feel good because the highly rated.
Oh.
Company.
Despite the extreme amount of stress it goes really feel okay.
And Ah you know from Miami base. Thank you wouldn't talk would have lot more cruise line exposure. We just have never they like that this is that much you'd have a small amount.
I would say franchise is number one.
You also at Raj I would add the you know some of the.
Entities like cruise lines or or companies that have significant access as you see the other capital markets and have been able to access those you know successfully.
Over the last couple of weeks, so Rogers correct or.
Our exposure to that industry segment, given where our headquarters is and where we see these ships passing very close to our offices in homes is relatively.
Modest stuff for our size. The bank you know I would also say that you know there's a lot going on in the New York market is a group as it relates to what's happening in rent abatement dialogue and you know what are the entire legislative market for multifamily. So that's.
One there were continuing to watch very closely.
I also would add a couple of things to that and you know in the Cree portfolio. There is significant LTV cushion there as you can see from the slide.
But certainly the duration of this crisis or recession or downturn.
We'll be a big factor that drives what ultimately happens to valuations here you know if the economy opens up relatively soon and relatively quickly I think it's reasonable to assume there'd be less impact and then if this is drawn out much longer.
So that's that's an uncertainty there I've also mentioned on the airlines most of the airlines that are in the spot exposed or have either already received or expect to receive significant amounts of direct government.
The system.
Okay.
Those are just some things.
Thanks for the color and I just want at Galanis comments, if you are really providing great color in the slides today in a very appreciated. Thank you.
Welcome Greg I'm glad glad it was useful.
Our next question comes from Stephen do along with RBC Capital. Your line is now open.
Hi, good morning.
Morning.
So just a question on your your stress test and.
For the European ARX <unk> in your stress that did that decline meaningfully decline at all during distress period, and if so how much but what percentage yeah. We did not okay. Let me and I am glad you asked that question give me an opportunity to clarify something.
So the way we did that this as you know we're no longer subject to the fast so we did not actually submit the fast.
The way, we did to boost the credit losses, and we said what are the credit losses, we didn't get any impact to PPNR. Here says. This is increased losses. If we don't have one dollar of P. PNR over this forecast horizon, we didn't offset any of these credit losses with PPNR in this exercise.
Hi.
Ken.
So it's a it's a pretty severe or punitive way of looking at this.
Got it so basically your your capital decline is it is not offset with any PPNR. One dollar correct. Okay. Yeah no.
Okay, Great and then just Oh last question just on the restaurants.
How much has a much of the restaurants have dr. seuss.
I don't know the exact percentage.
It's it's and it's also not so much richer drive-thrus, that's an important component, but when you break down the their composition businesses that have high delivery models are the ones that are really performing well. So if you look at like QSR sooner magazine. If you. If you look at Q1 in early.
April numbers for revenues, it's the digitally capable delivery models that are really doing well. The drive-thru impact is clearly important that also tends to be you know how modern are these drive-thru facilities. If you have the to drive through facilities and also.
Venue.
Mike heavily traveled highways.
Is different than than you know any QSR restaurants that maybe on side Street or may not have quite the same.
Location or you know capability so I.
I I would say in the in the quick service space.
Okay high percentage of them would have drive-thrus, but I think it's really more of the delivery model right now in the digital capability that is separating.
Those that are actually reporting same store sales increases versus those that might be off 25 or 30%.
Great really appreciate the color and a great job in the slide Thank you.
Our next question comes from David do you ever any with Wedbush Securities. Your line is open.
Hi, Thanks had a follow up question on the multifamily portfolio. So on slide 13, showing how about two thirds of your portfolio is rent regulated and I see how the LTV is pretty low at 56% I was just curious and is alluded to.
Earlier about how you know there's a lot of tenants with the rent strike going on I was curious if you had an idea of how much even before coal bed leading into earlier this year, how much multifamily values building values have declined.
Post the rent regulation lot changes last year do you have a sense of that.
That's difficult to tell conceptually obviously it has declined but there have been so few actual sales in the market to be able to rely upon in terms of looking.
Values and even some of the ones that were sold you know you're seeing a very very wide variation in and and declines in values. We saw one that was in queens, they've had a larger decline, but that property had certain characteristics to it.
The people in the market you know we're following that made it less valuable where issue. We saw declines as you know low single digits for property that was well located in the Manhattan, you know borough. So it was its there really has not been enough activity and the sales market from our perspective.
To be able to pinpoint you know yes. This is what we take an average decline would be from the rent regulation. The past you know a new York legislature and than July of last year late June.
In the 56% LPV, that's as of the time at the loan origination.
As of the most recent appraisal date that we have which in some cases would be at origination in some cases would be more recently, but it is whatever the most recent appraisal that we have on file as so obviously they are up to the minute valuations, but it does give you some idea at how much Cushing is there.
And how often do you guys do a probably presupposes that annually.
Not necessarily yeah, we do an annual review of all loans those do not necessarily.
Give us a full appraisal at that time, but we annually review every loan.
Great and then shifting gears, a you mentioned about how the DTA momentum is continuing into the second quarter. I was just curious given the unique environment with co bid and everything that's going on how have you been able to win new business given that backdrop.
I think right now, it's just a matter of converting the pipeline that you've had a if I take out further let's say four months six months out I do that's one of the challenges all company today is that a social distancing is with US is you know is here to stay for a long time.
I will just change our selling properties right, how does that change face to face selling L. B to b sales and how do you finish looks fine. So what you're seeing right. Now is just like line, which has been robust and.
But if this is a if we're not going I'm getting a place for another year of Dr. bid or did that we have to find a different way of getting in front of pipelines of its not industry conferences and.
You know other events.
Lining in dining up you know all VW business is not just banks, but all due to the business, but I have to rethink how they actually do sales part of their job.
No I I would add to that.
We started you know voicing this and Raj really laid it out as a number one.
Objective for the organization part of our success is really shifting the priorities of industries, we focus on.
And I take a lot of the success is due to that as we think about.
Who are top potential clients what industry segments, we want to develop treasury management capability around where we're focusing no over the last couple of years. Since we laid this out is a top priority, we really have executed well around those strategies within that was very soon.
Typically industries and I think we'll continue to do that it will clearly be a challenge to to do it in the future dirt due to some of the things that Raj just mentioned, but the it isn't sort of like is accidentally happen. It's been a very well thought out process of what to focus on and quite specific client.
Relationships.
Specific client industry. So we'll have to retool our hard tactical sales process, but I think the strategy is in place.
Thanks very much.
I'm showing no further questions in queue at this time I'd like to turn the call back to Mr., saying for closing remarks.
Oh listen guys. This has been a tough quarter, we are living to unprecedented times the balance sheet. The company is strong we will.
Well, we will do fine.
Yes.
Like I said, we're not calling that what I'm going to side of that hopefully I can say that the next call, but a everyone thinks about it is hard at work trying to take care of our implied.
The relationship that you build doing tough times are the ones that lasts the longest so I keep coming to sales people. This is your opportunity shine as these relationships and what you do to help them can decide they will remember this and they'll be with the bank forever.
And the last thing I would say is and why we are.
Dealing with the crisis and had a word we are absolutely focused on the long term as well and we haven't lost focus of that so with that I. Thank you everyone for joining us and we'll talk to you again in three months. Thanks Bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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