Q1 2020 Earnings Call
Dead dead dead dead dead.
Professional Services expense was up $346,000 because of the timing of audit fees that are typically highest in the first quarter each year combined with higher fees and connection without consulting and advisory projects. These increases were partially offset by a decrease of $671,000 in advertising and promotions expense expense is typically lowest in the first quarter of each year in addition advertising activity was reduced in March due to the covid-19 demek.
Income tax expense was $322,000 in the quarter representing an effective tax rate of 22.2%
moving on to the balance sheet growth and total loans was muted in the quarter with an increase of one half of a percent from your end Commercial Business and residential loans through 2.5 and 1.3% respectively while commercial mortgage was relatively flat and consumer indirect continue to decline commercial mortgage experienced higher pay off than the prior co-driving the relatively flat linked quarter performance.
Thursday
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Total loans increased 4.1% for March Thirty One 2019 led by 11:00 and half percent growth in commercial mortgage 8.4% growth residential loans and 6.3% growth in Commercial Business partially offset by a 6.5% decrease in consumer indirect.
Good morning, and welcome to the financial institution thing first quarter earnings conference call all participants will be in a listen-only mode. So you need assistance. Please stay on a conference specialist by pressing the star key followed by zero.
After today's presentation will be an opportunity to ask questions, please also note today's event is being recorded at this time. I'd like to turn the conference call over to Shelley Doran vice president of investor religious ma'am, please go ahead.
Total deposits at quarter-end were 232 million higher than the end of the fourth quarter of 2019. The increase was driven by $268 off of growth in customer deposits, excluding CDs partially offset by decreases in customer CDs of 13 million and brokered deposits of twenty-three million.
Thank you for joining us for today's.
customer
Target's excluding CDs includes consumer commercial Municipal and reciprocal deposits. The first quarter growth of 232 million was driven by $100,000 million of public deposit seasonality.
Total deposits at quarter-end where 278 million higher than March Thirty One 2019. This increase was driven by $230 million of grass in customer deposits, excluding CDs + 112 million of growth in broker deposits partially offset by a decrease in customer CDs of $64,000. We increased our broker deposit portfolio to reduce Reliance on fhlb secured borrowings and improve are available committed liquidity.
During a normal call at this time. I would provide our current Outlook and key areas. However, we are not operating in normal times. The covid-19 crisis is expected to confirm and it will have Financial impact on our results in the second quarter of 2020 and Beyond as a result of this rapidly evolving situation.
And high degree of uncertainty we do not believe we can estimate the impact to financial and operational results with reasonable accuracy. Therefore we are not providing guidance this quarter and you should not rely on the 2020 guidance. We previously provided.
With that said I'll now turn the call back to Marty for closing remarks.
Thank you, Justin. Well, we have been incredibly busy operating in our new temporary normal addressing a multitude of issues related to covid-19.
Covid-19 is driving even faster changes in the way customers are learning to interact with us in our digital upgrade will Empower them. It is a critically positive development that we belong will position as well in the future as consumer and Commercial customers increase the Reliance on digital Solutions. We were concerned about launching our new digital offerings in the middle of a project. So we reached out to several customers and asked if they want us to go ahead with the launch or wait due to the current environment most respondents indicated that they wanted us to move ahead with this combined with our determination that the benefits offered by the new platform would greatly benefit customers during this time when they need to be able to interact with us digitally more than ever prompted us to move forward.
the transition
Just to the new platform will be completed and multiple waves over the course of the next few weeks.
We launched the first wave last week and moved 17,000 customers. The process was not without issues. But we saw outstanding teamwork and willingness to help from individuals across the organization to assist with the process and calls from customers.
Our vendor advisor results after day for compared favorably to other institutions and we've received numerous customer testimonials about positive experiences. We are proud of these huge wins. I look forward to wrapping up the conversion later this quarter.
Our Enterprise sterilization program is also advancing we continue to evaluate activities and functions across the organization focusing on ways to improve operational efficiency while I am dancing the employee and customer experience we expect this program to result in improved efficiencies and enhance profitability and we are committed to following through on this initiative in the current operating environment while we are experiencing many challenges in today's environment. We're seeing some favorable outcomes and Trends our ability to help customers and potential customers package is demonstrating the benefits of local management and decision-making and we believe customers will move additional business to us and that we will gain new customers.
We're using the paycheck Protection Program as an opportunity to deepen existing relationships and develop new relationships. We believe all of this will in turn a whole future deposit growth.
You're seeing significant mortgage origination activity and believe we are lending prudently. This is another important way. We can take care of families in our communities. We are reviewing metrics from a writing and pricing across all of our lending platforms. We are doing a carefully and thoughtfully weighing risk and reward to maximize profitability while continuing our strategic focus on the importance of credit discipline.
Cross the banking wealth management Insurance lines of business. We are staying close to our customer base. Our Associates have been reaching out to customers since the beginning of the crisis can find out how we can help you have an each unique business circumstance.
You're operating in uncertain times and there are no in there are just too many variables to provide guidance on expectations as a situation develops, and we better understand the impacts on our Compaq. We will continue to communicate with shareholders on our evolving strategies and expectation.
As I stated my opening comments. We remain focused on taking good care of our customers and managing our company to successfully navigate this crisis notwithstanding Cecil in the impact of one credit our core operating performance in the quarter demonstrated strong fundamentals. We are moving forward with our Enterprise standardization program and other strategic initiatives in our phone now, I'm driving positive operating leverage for the year.
with the assistance
Smart dedicated Associates, I believe we would come through this stronger than ever.
Operator this concludes our prepared comments and we are ready to open the call for questions.
Ladies and gentlemen at this time will begin the question-and-answer session to ask a question. You may press star and then one if you are using a speakerphone, we do ask you please pick up your handset before pressing the key ensure the best sound quality. So it's all your questions. You may press star and to once again that is star and then one to ask a question.
Our first question today comes from Alex where it all from Piper Sandler, please go ahead with your question.
Hey, good morning.
Morning, Alex.
First off just you know, it sounded to me just in your prepared remarks with respect to Cecil's that the the the really the Big Driver of Cecil for you guys is national unemployment versus things like GDP Decline and things like that. I was just wondering if you could kind of share with us. What um, what the what the inputs are to that model right. Now what you kind of assuming unemployment goes to Etc so we can just get a better sense for for how you're putting it all together. Uh, sure Alex happy to do that. Yeah. So our portfolio is off. The primary driver of our Cecil calculation is national unemployment as as I stated and as you pointed out we used a cue to unemployment figure of approximately 11% and then it scales down from there for future quarters, and we used a Bloomberg weighted average, uh at quarter-end Birth.
to do that estimate
Okay, and then, you know talk a little bit more about this specific net charge-off, you know, you gave some good details on the type of business and what they're going on, but it sounds to me like the truck driver of them becoming a charge off or that long becoming a charge off. This quarter was the fact that the business decided to cease operations before the end of the quarter. Can you just talk a little bit and I'm more comfortable with you know, the remaining kind of quote unquote high risk exposure that you define here is 12% you know, are there any other of those loans that would be on a watch list a similar type of a situation where you know if they seized operations it could result in something similar in the second quarter.
Sure Alex, it's it's Marty speaking. You know, the the credit we talked about is, you know, watching our performance over the last five or six years generally Thursday. We have had credits, um, uh experienced issues with their industry or the life cycle of their business at cetera. And obviously, we've tried to be very thoughtful transparent with this specific credit that we've talked about in our disclosures. Otherwise, we have supplemental investor materials and earnings presentation. In fact that we've also posted with our earnings press release and on slide 17, we talked about the information you're referencing and you know, we have analyzed the situation in terms of what we know today of Industries having sensitivity in construction and Retail lodging restaurants and food and entertainment Recreation auto-related at 7 a.m.
So those were good.
That's when we under wrote them. They're good strong management teams. It's consistent with our historic performance. But in the Cove it environment where the economy is shut down. These are the industry mean the exposures that we are looking at even more carefully and depending upon how long the situation goes on for will impact and influence what happens with those credits, but we remain optimistic with our exposures as we've identified, but we've tried to be again transparent with how we're thinking about this those Industries and the resulting explosion, but we'll know more as this covid-19.
Okay, and then when I look at the earnings release, you know one thing that kind of jumps out at me is that savings accounts and money-market accounts the rates actually increased in the first quarter is that because of the broker deposit so you guys put on or is there something else going on there?
So Alex I can take that question. So as you probably also noticed our CD portfolio is also starting to run down. So some of what we're seeing is our CD customers. We do have some of the TV customers that are rolling off electing, uh to take advantage of an intro rate on our money market. So I would say that's the primary driver of what you're seeing in the rate on the money markets. There is the intro that the folks are electing to take advantage of as they rotate our CDs.
Okay, and then you know if I remember correctly you guys are fairly close to liability sensitive sensitive if not a little liability tentative. So I understand you're not giving guidance on the margin, but would it be fair to assume that those liabilities are going to be priced fairly quickly over the next couple of months. Just giving what the FED has done with rates and and potentially faster than than than assets will come down. And therefore we can get a little bit of margin expect over the next couple of quarters or at least margin flat.
Jeez, Alex, I put that is a tough question for us to predict. I mean so much is driven by not only overall rates, but also the level of change and the dramatic reduction in rates everything new that we're booking. Um and everything that's variable on the asset side is repricing down a lot more than it would typically repack down if you know the FED only moved twenty-five or fifty basis points and as I'm sure you know, as rates come down, you know, you're spread almost automatically if I go 2-0, you're spread almost automatically compresses. Uh, it's it's impossible to get as much out of the liabilities as comes out of your asset book, um, because the accent is so much higher so, you know, we said we're not really guiding right now, but I'm not sure I would I'm not sure I would assume an expansion of the margin in this environment.
Understood thank you for taking the other the other.
Variable Alex to is the PPP loans really difficult to know how much we have and how much is going to be on the books. Those are coming on at 1% So those are also going to impact the margin.
Right. Thank you for taking my questions.
Welcome. Thanks Alex.
Once again, if you would like to ask a question, please press star and one our next question comes from David Del Monte from KBW, please go ahead with your question.
Good morning, everyone. Hope everybody's doing well during these challenging times first question just to kind of follow up on on Justin's last comment on the and the the PPP participation and I think you guys know did you did around two hundred million dollars in loans in the first round and you're you're you're active in the second round of that first two hundred million dollars of loans. What's the average fee that you expect them to realize from those months?
So the peace reigned from you know one to 5% based on the size of the loans, we've done loans as low as $35,000 and up to age ten million, you know, I think our our average was around $350,000. So if this point I think Justin we've for planning purposes have kind of plug an average of 2 and half percent, but just and I would ask you to comment further.
David yeah, Marty Marty is accurate and and you know, we're obviously, you know monitoring this very closely but I think a 2 and 1/2 months is probably a reasonable Assumption of of where we're averaging right now. And again with the second round occurring we don't know what the average size yet. Is that that second round so that could change that variable as well. Okay. I just confirm we did $3,100 and turned the range was $3,100 to 10 million or medium loan size was eighty thousand a thousand and eighty 1% of the loans that we did were under $350,000. So we'll see how all that math works out. Okay. And a half percent some good Ball Park figure just from a modeling standpoint. Thank you. And then, you know with regards to loan modifications. Can you give us an update as to either the the number of birth?
In the dollar amount or maybe a break out between commercial consumer.
or Residential Mortgages
I could take it on what like let's go ahead. Go ahead Justin.
So what we've seen so far is Residential Mortgage or residential? I guess I should say forbearance is a little north of five thousand and five and half percent or so consumer, which is primarily are in Direct Auto book is about 6% of their this is relative to their own bolio's large commercial about six and a half percent and small business about 7 between 7 and 7 and half percent.
Got it.
Okay, that's great. Thank you. And then um, I guess let's see. The last question was you know with regards that that's like first of all the slide number 17 with the with the court higher-risk asset classes. That's that's very helpful. Thank you for that. Just wondering if you could maybe just dig a little bit deeper in that and and um, are there any notable size life, you know particularly in the hotel motel & lodging or the restaurant size like, you know, what's the average average size for that those own buckets?
So, you know we have previously talked on these calls that we've tried to maintain discipline relative to concentrations and exposures. And you know, I think that's still you know holds true here relative to how we have organized the information on page 17 inch terms of the granularity of the portfolios, uh that are represented here Justin if you have additional comments, I would ask you to jump in
No, I don't really have additional comments there. I mean Damien work. We're not, you know, given the size of our organization, you know, our average loan sizes are not typically off as large as as the credit that we that we spoke about earlier in our prepared remarks. So I wouldn't anticipate all right wouldn't make a choice option that we have a whole lot of those in our portfolio. Um, I don't have the current sizes with me at this time and we could certainly follow up with you, Um, if necessary, but the thing that I will point out is that our hotels and motels are probably somewhere in the ballpark of um, you know, 5% or so, which is, you know, a pretty small portion of the overall portfolio.
Okay, that's helpful. That's all that I had. Thanks and stay. Well everybody.
You too. Thank you.
Once again, if you would like to ask a question, please press star and one.
And we do have an additional question. This comes from Kevin Parks from Park E capital, please go ahead with your question.
Hey everyone, here. We going.
Kevin speaking with slide 17 the last bullet point the revolver draws are those drawers and those kind of high-impact categories or those on a portfolio wide basis?
Those are on a portfolio wide basis.
And I guess kind of Shifting Gears a little bit wasn't really mentioned expressly in the press release on General comments. What point does you guys kind of like magic came aboard start thinking about the dividend policy?
Well, we talked about the dividend with our board consistently every quarter and ramping up to declaring a dividend. I have a very thoughtful process in terms of capital capital allocation strategy Etc looking at our Capital plan and the demand on Capitol the dividend is always been an important part of our shareholder experience so long, you know given where we are with our Capital levels today and what we know today. We remain comfortable with the dividends it currently stands.
Okay. Thanks.
And ladies and gentlemen at this point. It's showing no additional questions. I'd like to turn the conference call back over to management for any closing remarks.
Thank you, Jamie, and and thanks to all who have joined us this morning on this call. We appreciate the opportunity to discuss our results with you and we look forward to building on the conversation as the year unfolds and hopefully as we continue to move forward in a positive way with the management of the cobit healthcare crisis and getting on with its impact on the economy our industry our company and the future. So we'll look forward to talking to at the end of the second quarter. Thank you.
Gave me that concludes our call ladies and gentlemen at this time. We conclude today's presentation. We thank you for joining. You may now disconnect your line.