Q1 2020 Earnings Call

Good morning, and welcome to the first quarter 2020 customers Bancorp Inc. earnings Conference call. At this time I will turn call over to Bob Ramsey. Please go ahead Sir.

Hi, good Travis and good morning, everyone 'cause Your Bank Wars first quarter 2020 earnings release was issued this morning, along with our Investor presentation.

Sit on the Investor Relations page of the company's website www dot customers banks Dot com.

Our investor presentation includes important details will be discussion. This morning, I would encourage everyone to pull up a copy.

Well, we began I would like to remind you that some of the statements. We make today maybe considered forward looking.

These forward looking statements are subject to a number of risks and uncertainties that may cause actual performance results to differ materially from what is currently anticipated.

Please note that these forward looking statements speak only as of the data this presentation.

Undertake no obligation to update these forward looking statements in light of new information or future events, except to the extent acquired by applicable securities laws.

Please refer to our SCC filings, including our form 10-K and form 10-Q, four more detailed description of risk factors that may affect our results.

This may be obtained from the FCC or by visiting the Investor Relations section of our website.

At this time, it's my pleasure to introduce customer base, we're CEO James to do Jay the floor is yours.

Good. Thank you very much Bob and good morning, ladies and gentlemen, thank you for joining us for this call Oh, you all are safe and healthy and as you can imagine we're all speaking from several different locations today.

I thought it would be a good idea to have.

Several members of our management team president to be able to answer any kind of question do you have because this is another important time for everybody to understand that a customers Bancorp wells. So we encourage you get please.

Look I doubt deck investor deck.

That he has got bolstered on their website.

And please follow the deck.

Joining me today. Besides Ah Dick you used to that president of customers Bank, and Carlos Leibold, who the chief financial officer of customers Bancorp and Sam to do that Chief operating officer.

I suppose bank, but also several members so far what we call them very important executives the management board of customers. Thanks, those are Andy boom and he's our chief credit officer.

Steve is our chief lending officer, as well as president of our new England market as well as he has the commercial finance group or there could some leasing reporting to him also joining guys. Good luck on again, largely as our market President of Metro New York or private banking teams, there as well as he's had a part, especially with your lending as well as the Chicago.

Market.

And then Tim Romenesko has also been does today you didn't miss the regs until far, Pennsylvania, New Jersey markets as well as he had a small business administration group, which has been very very active the last a couple of weeks and has contributed immensely varies significantly different numbers than what you've seen from.

Our peer groups and then joining us all to it's Glenn Eddie.

There's a the head of our banking the mortgage companies and also Jim Collins, Jim is our chief administrative officer.

If you go to page two of their investor deck for fourth quarter that you've shared with you.

I'd like to start off by talking about how privileged we all fields and so how proud we are all part team members, who have really really risen to though occasion and are working remotely 85% or their my board can remotely and they've done an exceptional job there in our opinion, it's all been gone.

This concludes our communities are very well.

We've had some special baked integration we've had some bonuses you got some additional incentives for them and whatnot <unk> I know for loads and we've also added that 2500 zero interest loans for our team members, who are rather than the executive officers of the company and I'm pleased to do you ever do that so fortunate that none of our team members hasn't been directly.

In fact, good so up so far bike little bit 90, but their family members have been and be prepared for all those work something right now.

In terms of helping the consumers or did you can call imagined.

Customer care Center has been opened 24 hours to do seven days, a beacon majority because.

We've had our fuel branches that we have opened audio driving been goes in important been banking like others, but very important for the consumers I wanted shared with you that did under 5% up our consumer loan cuts to lose water and deployment right now, which speaks somewhat above the quality of our consumer loan portfolio and you'll disgusting.

More of that in detail.

Regarding the business customers as well as they're not for profit segment. We are very pleased to share with you that we took advantage of helping those communities and he Uh huh.

Then.

For the small business administration about $5 billion in P.B.B. loans, that's about five times to six times the average well for peer group.

Based upon some of the information that you plan schoolwork that was prepared by many of you as well as investment bankers.

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And not only has got generated approximately 80 $500 million in revenues for customers Bancorp, but has helped us attracts thousands of new prospects and be wonder do you opened about thousand new business checking account with all from all of this source it multiples of normally what you would it.

Spect from a bank a in just kind of an environment, where the brand to done not open book you're doing it all digitally.

And we are in touch with hundreds of Central Park emotional clients and we are pleased to share with you that it's eight saying Oh Park commercial loan customers had basketball deployments. This again speaks for the kind of come see an IDE business now that you've been doing the kind of commercial real estate business, we've been doing it.

It goes commercial real estate other than multi family is not has not been a major focus for us that you all know.

Regarding the communities, we are pleased to share with you that customers bank.

Has made directly or indirectly in excess of $1 million all donations for urgent Qubic 19 here. We've also conducted a better not for the entire business community and our franchise talking about how do you not only survived but also thrives in the environment after Google.

19, and we were pleased that C and D. C invited me to share with them the perspectives of community banks on this crisis. So moving onto page three let me talk a little bit more about the paycheck protection program, because we have really done I'm. So proud about team can be.

Really outperformed any of the banks in our peer group and the results for US our resemble goes up from 50 to 100 billion dollar banks in many instances.

Well, we set out to help being smaller sized businesses in all got communities and customers expanded its platform be developed because you have a group you're not company called the Fintech banking group so be developed partnerships with several as to be approved another spin tech platforms do it.

Span dogs, each expand our ability to help the customers and so I'm pleased to shared with you.

As of Friday, 75000 small businesses.

Stablex good relationship, but the customers bank and people are able to.

To offer them 5 billion little over 5 billion in PBP loans, our average loan size was in the low seventys, which is well below what you normally see from some of the banks that people are competing with.

And ER and we expect to add approximately 85 million night to 90 million in revenues sawmill did you nation alone and on top of that in the first two months itself. Those revenues from the five Bill <unk> billion in loans will be approximately $1 billion in net interest income into.

Two months to build stay with us.

The industry's expecting a up to 25% to 35% of these loans may not be for given and they'd be able to stay on the balance sheet. We are we are putting all of the odd loans to the federal reserve a window for the picture protection broker.

I'm doing a funding and so we will get the funding.

And our mind that spread of 65 basis points and it has no impact whatsoever on our capital so over the next two years if.

25% or not but given and to stay on our balance sheet.

You would expect to see approximately $8 billion more in annual net interest interest income. So you can add it all up you're talking about approximately 95 $200 million revenues for our company, Besides helping 75000 business businesses and that.

Equals about after taxes $2 in 50, since then or so in book value tangible common equity accretion or two daughters, and 50 cents book value accretion just from the PPP launch.

And you will see later on we've been pretty conservative in the reserving and still that added approximately 800 million to watch reserves in the first quarter and it just so happens that we would have added approximately $90 million to $100 million over here, including net interest income so that we have.

A much stronger balance sheet without any.

Impact on our tangible common equity.

From a loan modification point of view.

We.

At do of course that set up the deployment of our Oh bar in the form independent initiative for our boys who are directly impacted by Qubic 19, you would you hear from my colleagues talking about that we took a very proactive action on that.

And we decided to go with 30 days do 90 days type of a department and we'd do a tremendous amount of dialogue completely understand the needs. Because we believe just granting 90 days to six months of deployment, it's simply postponing the inevitable and we are very very comfortable with our asset quality.

And the kinda customers, we have but to make sure that there are no surprises you have to be actively engaged in portfolio management in our opinion. So the bottom line is our total deployment order leap represents 5.1% up our portfolio about 4.3% to them or consumer loan customers.

And 7.9% of them work commercial loan customers, but the C and I need to put loans are only 1.7% talking about that we had stayed away from some of the industries, which are higher risk and majority apart commercial deployments were in the multifamily area.

Regarding customer assistance, we are actually actively engaged with clients to understand that situation and to minimize any credit deterioration. So hundred percent off the customers Bancorp borrowers are being contacted right now who are into four meant on a weekly basis and everybody on a monthly.

Basis, moving to slide four books quarter 2020 highlights as you know we made after.

Providing 23 million in provisions in Q1, we still reported 7 billion in GAAP earnings important thing is a p., Vietnam or pretax pre provision or be the provision net revenues whatever you want to call. It was 38.6 million and that is 53%.

Well, we're the first quarter of last year that was driven by a 37% year over year increase in net interest income and 11% year over year increase in noninterest income.

Looking at the asset quality at March 31st we built a reserves by little over $100 million into fluids quarter between 12 31 in March 30, 30 books numbers that deserves today amount to 2.1% <unk> total loans for investment that's up from <unk> 0.8.

Saying at 12, 31, 2019, and this compares with only 1.7% reserves for all the regional banks in the United States and 1.2% comparable reserve levels for Midcap banks all across America. So.

So odd reserves are amount to about six and a half 6.4% apart consumer loans and deserves equal to one or 240% up our nonperforming loans and a total nonperforming loans were <unk>, 0.6%.

<unk> 30 foot.

And we'll talk more about all of that our loan portfolio as Youve seen grew by 18% over last years like see Eni loans as I mentioned earlier grew 29% over last year, we've been gradually bringing our multi family loans down over the last two three years. So they were down 36% over last year.

I see an eye launch.

Pick up over 50%.

Total loans and commercial real estate, including multi family is 33%, but without multi pad views about little over a little under 10% part about 10% of the total loans.

And our other consumer loans, which are a bit at home improvement loans personal loans as well as student loan refinancing all combined as well as a some home equity loans make up only about 13% before I talk a lot and couldn't be like that and the more good news and manufactured housing got about 4% up our loans and we have.

Absolutely no subprime loans in our portfolio and dog definition of subprime at 660 bike with schools not 640.

Many other industries consider to be subprime onto a deposit side of it got deposits went up 30% year over year or the amount demand deposits are up 38% year over year and from a capital point of view, our capital ratios. It even excluding the accretion in capital that we will see from.

If what topped off a retained earnings as well as our PPD afterwards still at March 31st the T. P. One was 10.7%. So sold was like tier one risk based and the total risk base was 12.2%, they're not tier one leverage at 10.1% that customers bank from a tangible book value.

Interview, excluding C.. So it was 801 million or $25 in 50 cents a share approximately and if you include c. So.

It. It's 23 51 and if you include them revenues, we made from BBB. It back up to 25 47, all go there'll be a timing issue in terms of when you would be able to recognize all the revenues coming from <unk>.

At March 30 books to me, but trading at only <unk> 0.46 times tangible book value off March 31st as of March 31st.

Moving to slide five.

This is financial highlights year over year, so wanted to emphasize year over year for you.

Banks tier one equity capital was up by 9% and like I mentioned to you extend 0.7% <unk>. One if you look at it out give me an hour a that went up 53% and that PPNR orderly or the it on an average assets improved by 29 basis points unit.

But here are just to be Vietnam return on common equity that improved by 570 basis points year over year over year to 17.4% at March 31st.

Loans and leases like I'd shared with you earlier was about up 18% God deposits were up 13%.

He is up 38% year over year on non interest income up 11% year over year and like I said earlier net interest income was up 37% year over year.

If you look at slide six you can see that tangible book value per share as I shared with you earlier, yeah. If you look at that would there be and daughter assessment or not because we simply transferred capital from the both from the capital account.

To a reserve account and so that book value per share 25, 60, and that means we are trading at 43% of tangible book and you can see over here our stock price compared to tangible book, what I'm pleased to share with you that our book value per share over the last few years had been up the between it and a half.

To 9% blur yet.

We are moving to slide.

Eight.

We at our company are very focused on risk management and what you wanted to do was to share with you on top five risk management priorities and discuss those with you.

And on this call. So you would have a better understanding of customers Bancorp.

The top five this management priorities for <unk> SAR number one.

Portfolio management or maintaining superior asset quality.

I'm going to preserving and expanding our margin.

And I'll talk about each one of these separately above the highlights a looming in the second number three is strong liquidity number four is it's <unk> capital management and capital allocation process and number five obviously is maintaining and improving profitability. So if you go back to the portfolio management, we are very very focused.

On conservative underwriting and my colleague I'll call you got Andy Bowman, Who's our Chief credit officer in about a minute, we'll share with you what do we mean by conservative underwriting and what our credit culture. It looks like up but we believe we've also been it now in this environment, especially are taking up.

So, but it view towards reserving the reason for that is that me since the middle of last year had been operating in a pre recessionary environment, we've been stress testing each and every loan stress testing our loan portfolio moving out of the bank. The credits that were more stressed and then trying to only focus on.

Attracting credits, where we believe in distressed resection environment would perform better than the rest of the industry and up and that's why Oh.

In addition to that it's very important for you to note that we are having weekly contact with every one of our borders and department and we are requiring information from them working with them and we are in in a in a regular contact with every single borrower maximum once.

Weak otherwise more frequent than that month to month like Saudi but more frequent that in most of the kids.

And you will have my.

You'll get Andy talked more about this number two is preserving extending the margin as you know our margin expanded 40 basis points compared to where it was last year Luxco depots 2019. It expanded 10 basis points in Q1 2020, we expect the margin to be about creep.

And 1% by year end, or we are saying over 3% for the entire year every single quarter.

And we believe that and just kinda up an environment. It is much more important to have a stronger balance sheet and preserve your margin than to build loans. So but so whatever we do is we are very focused on on disciplined credit quality disciplined pricing.

As well as reducing our reliance on higher cost funding as well as reducing our borrowings. That's why we are very confident with preserving an expanding their margin.

On the liquidity is tied up in the most important factors as you know for liquidity its strong growth in demand deposits and strong growth in core deposits have already see are those numbers with you and that should result in reduced reliance on borrowings and Oh, we have a loan to deposit ratio when you exclude the mortgage warehouse business that'd be fine.

And with borrowing because it's only a 30 day type of a known and so it's not a loan held for investment for us and so we got an 87 into half the sense.

Oh part loan to deposit ratio and we have over $3 billion, which is in excess of 30% up our average assets are extremely liquid right now.

And do from a capital management point of view, we're pleased to share with you that it makes no sense for us to redeem our preferred stock. This year and then it's becoming callable so and last year based upon up he'd recessionary environment style, or we decided to add about hundred million in cap.

So to the bank into in the third and fourth quarters last year.

And plus.

PBB Ah well well add as I shared with you or not you know 85 $200 million a pre tax to our equity capital over the next couple of quarters and both the bank and the holding company is well above the vote capitalized status.

And maintaining and improving profitability, our P.D. and our I've already shared with you. A is doing is joining above average growth and our core our away and auto we target within the next two or three years remain there's a little bit of uncertainty why did you can't be precise because of this environment.

But we are confident that we would be in the top quality <unk> peer group and our focus grandbridge today, it happens to be about 125 or away and 12% auto we and be the main focus and the long term for having maintaining those kind of outerwear and auto we ratios are and that ends up.

Being in about $6 in quality, yes, within five perhaps six years because of cool but.

Now I'd like to move to slide 10.

And you can just talking about our portfolio management or.

And our asset quality and talking about our portfolio of assets. So see an eye loans make up 2.6 billion up are up our loan portfolio.

In the middle market in business banking itself is about 1.5 billion. Okay. The specialty lending is about 675 million, Okay and equipment finance has about 264 million in Outstandings and this is a very very high performing portfolio and bell diversified.

At such end up my colleagues are happy we'll be happy to answer any kinda question the yield on that at March 31st with 4.7%.

Loans to mortgage companies, it's a niche nationals business or we had 1.8 billion an average outstanding is up 46% you can imagine where the cost of goods right now that this business is booming right.

Right now and it's expected to them in booming for the next to at least two to three months and we have bought 55, Glenn Idiots 55, very high quality mortgage clients across the country. These are just the top.

Qualities that mortgage companies independent companies are mostly privately held in the nation and we are a top 10 lender in this business and we also has habits that is also being in this business about $575 million.

Non interest bearing deposits right now and this business also generate fee income for drugs, which usually averages about 30 basis points of outstanding.

So it's a great business.

Haven't had any losses, rather than an unfortunate fraud loss a at one time over the last 10 years that you've been in this business.

From a commercial real estate loan point of view like I mentioned to you we have de emphasized lending to detail shops, we deemphasize ought to be built shopping centers, we deemphasized lending or two office buildings up and today, but we've been focused on multi family and even over there a week.

Been deemphasizing data over the last two years. This show. So that's why are the portfolio of commercial real estate is down 20% year over year.

And the commercial real estate non owner occupied it was only about 1.4 billion, which is about 13, 14% apart loan portfolio.

And our multifamily is now at 2.1 billion, that's down 36% year over year, and we think you should expect this portfolio to be somewhere between one and a half to 2 billion or we will maintain that we are opportunistic. We think we can see some very high quality opportunities right now, but we will determine.

And disciplined in having higher quality boards as well as the pricing has to be that's good jobs to basis or the spreads have widened a little bit and so we will take advantage of that as far as consumer loans are concerned we wanted to diversify our portfolio, we wanted to build our deposit into consumer.

<unk> business, we wanted to.

Be pick the best still Fintechs with the best stop a bank in this business, but we wanted to be cautious we wanted to have a limitation and put some constraints on this business or thoughts from a growth point of view. So that's why a this business which includes personal.

Loans home improvement launch student refinancing Outstandings are about $1.3 billion, which is about 13% of our loans.

Such no subprime loans at all and again subprime is defined a six six before us and you will see a lot more details about disclosing to you today about this business and residential mortgages because of a interest rate risk. We have really de emphasized that it's only about 330 to 240 million in up with <unk>.

And investment Securities are very clean 700 million in our portfolio because we have about 30 some percent off our assets are all liquid assets you know before we talk more about our commercial loan portfolio.

And I'd like to ask a Andy Bowman, who many of you may have never met but he's a very integral part of our business I've known Andy for Dick and I've known Andy for many many years he's been with our company for many years.

Andy if he can share with our.

Our investors and analysts needs a little bit about how you see in how would you define and our credit culture.

Absolutely Jane Thank you and good morning, everyone.

I'd like to take a few moments and share with you why we feel the bank is well positioned to continue to post strong credit quality metrics to out as we move forward through this very challenging economic period.

First and foremost I just wanted to get rid of where we possess a highly experienced and well seasoned 49 member credit team.

Our team of credit officers, who are regionally disperse the latter footprint on average have an excess of 20 plus years of credit management experience. The majority, having 20 to 20 to sorry, 25 to 30 years and not experience pertains to front end credit structuring portfolio management and work out experience.

Personally I've been in the credit industry for 32 years I've been working with ticking Jay for the past 10 years here at customers Bank.

Additionally.

As evidenced by a strong historical credit metrics, our credit culture is one that it's conservative in nature with a high degree of emphasis placed.

In safe sound underwriting practices and highly interactive portfolio management framework, driven through our single point of contact customer facing model.

I'd also like to point out the beginning in the middle of 2019 and initiative was undertaken within the organization did again operating or various credit lines of business has it been a pre recessionary environment.

But each line of business challenged at that time to assess their respective portfolios as to how we should perform in accessanyware environment.

Then work in unison with the credit administration team and implementing a strategy to address any areas of concern.

Some of the key initiatives that came out at this undertaking.

For the scaling back more complete placement of a moratorium.

Of lending into industries, but highly susceptible to recessionary pressures such as Hotelzon motels.

Entertainment industries.

Energy restaurants, and leisure and travel.

We also implemented a formal exit plan strategy.

Where we established this for all credits of high risk.

Where there was a formal timeline sensitive exit strategy you put in place for each of those credits.

Third.

We plan and we implemented increases in staffing levels within both the portfolio management and loan workout segments within the organization.

I think it's also important to note that we developed a very robust portfolio management program that requires ongoing discussions as Jay had previously mentioned between our relationship management and portfolio management teams and our borrowers.

It's important to note that these are all being tracked and documented.

Through our fully integrated Salesforce platform.

I'd also like to know that we undertook a very proactive stance in working with their customers to support their respective operations payment deferral options.

The Paycheck protection program.

Both of which James previously mentioned.

But also by levering, our small business administration preferred lender status.

Which enables us to provide other S.P.A. lending options to our customers that not all of our peers have that flexibility to do.

In closing I liked off the state when we assess the composition of our overall commercial loan portfolio.

It's important to note that many of our larger lines of business, such as mortgage warehouse lending multifamily lending and our specialty finance lender finance unit.

There are proving to be historically strong performers in periods of economic stress.

And.

Or are well positioned at this time and I'd like to give a few highlights on that regarding our mortgage warehouse lending unit.

As we shared with you previously it's a self liquidating by nature and currently it's evidencing little to no signs of stress I think it's also important to note that within that portfolio. The majority of our exposure is wet conforming mortgages that again are self liquidating in nature as they go out to the secondary market.

And we have scaled back significantly any level of credit exposure, we have to non conforming market. As also asked it along service finance components.

From a multifamily perspective.

It's always just talking for wouldn't be a line of business with limited losses potential and based upon our ongoing Barber conversations collection rates currently stand at approximately 75%.

Dropping slightly to 65% to 70% for mixed use properties to noting a little bit more stress in the retail component of leasing industry. In addition, I think it's important to note into the multifamily credits that we have provided deferrals for.

Those credits all maintains strong LTV positions within the current proximate LTV possession on those credits a 50%.

And those credits had a pre deferral.

Debt service coverage ratio of approximately 1.58 times.

Lastly wanted to talk about our specialty finance lender finance portfolio.

It's very it's also haven't seen very little stressed at this time.

That's really supported by there being no payment deferral requests at this time and the presence of what we're seeing is very proactive stance is being taken by many of our borrowers in funds in either scaling back row or outright portfolio reductions and nothing trend, we've seen very important in that industry, especially amongst our.

Customers and funds.

That or prominent sentiment gravitation towards senior debt financing as opposed to any type of troche branch or sub debt financing.

That's the first education within the portfolio also provides us with that additional structural hedge.

So really at this time I wouldn't like the handed over to deck East, our president and CEO and working with your more detail or overall loan portfolio.

How we're managing it going forward.

Debt.

Thank you very much Andy and thank you to everyone, who has taken the time to listen to our story today.

When I'm listening to Jay just reminds me of the passion.

And driving.

Our company or young company, which we started a little over 10 years ago.

And that passion has been the.

Creation of jobs in the retention of jobs, that's what drove has been driving.

Customers Bank for all of these years.

The opportunity to be the conduit to.

Provide.

Financing.

For these 77000 customers or potential customers that.

And applications.

We have gone true totaling $5 billion as Jay mentioned just speaks to the heart.

Who we are as a company.

We are Oh, we are privileged to be able to.

Phil that role and.

It's been a remarkable process as Jay mentioned over the last five weeks.

To be able to achieve that resolved.

In keeping with the program today, let me refer to page 11.

The Jack.

And basically went the left side <unk> share.

I see.

The behavior of various.

Portfolios within the company.

Over the last several years.

You can see a constant and consistent increase RCN islands.

You can see a stabilization of our investment Creek loans.

You can bring to us a reduction in our multifamily loans.

As well as a.

And increase our banking for mortgage companies, which are commercial loans as well.

But what drives the business bank as same as a business model.

And that business model is their single point of contact.

What this means that every commercial business customer.

Has a team dedicated to delivering services of the entire bank.

To that customer.

Basically one call.

Does it all.

The experience of our teams as exceptional.

Ah or when you when you look at the entire generation of assets in this company.

The median.

Term of engagement and credit experience. It says it's about 26 years.

You know across the company.

He averages about 30 and happy to tighten I'm, probably one of them.

Dancers those averages.

The business banking, that's conducted principally and you know from new England to Northern Virginia, along I 95 corridor.

Yes, it's made up but as Jay mentioned.

Commercial finance group, which is headed up by Shams mess up and.

Portsmouth, New Hampshire.

While cutting have had jumped, especially finance group you know along with the other market leader Steve as.

While of course for Metro, New York, and Tim Robert for Pennsylvania, New Jersey.

But we are constantly focused on end market lending.

Yeah, we do have some national programs as a as Jay mentioned.

Our banking for mortgage companies is unmatched national program, and Tim real may catch up or National program Frisbee anyway.

Yeah that was tempered med D. L. P knows that exist in Boston proper engineer for that I've in Chicago.

Plus the U.S.P. program, which I mentioned as a national program.

ER has since significantly multiplies to help it goes yeah, we have throughout the country.

Let me share with you just a moment on page 12, how very comfortable we are with a credit quality.

You know as well as a coupon range.

Yeah, we've enjoyed a these high quality assets.

Building these high quality assets over a period of time.

And but those assets are being built be believed to be at a fair price.

Yes, you as you look at this.

Slide 12.

Demonstrates quarter over quarter year over here.

The improvements that we have made a in the.

Complexity.

Commercial loan portfolio.

Now as far as Andy mentioned, the efforts to accommodate deferment requests.

[laughter], we initially on page 13, you'll see.

Maxim Deferments at this time of 90 days.

That's a bit different than other banks are doing Oh, we will other banks, we believer in 180 day range.

We will review and 90 day increments you know when additional time as required by by our customers.

We do have Oh, we obviously goes through a extremely detailed process to make sure that the deferments that we are offering to our customers are absolutely necessary.

We also have as Jay mentioned daily weekly and at least monthly contacts with all of our commercial customers.

And we'll continue to use U.S.P. lending programs where possible to.

To support the cash needs of our customers.

And all of those issues are true to our commercial real estate borrowers as well.

So now I'm going to ask a.

Our are calling Sam should do.

Two.

Take over the.

The presentation on consumer loans.

Yeah.

Thanks Dick.

Good morning, everyone.

I appreciate you taking the time on todays call I recognize it's called running a little longer than we would normally anticipate but there's obviously a lot to cover a given the environment that we're in.

So if you flip to slide 15.

Before I jump into the numbers, let me take a step back and walk it through the business model of our consumer business.

Our consumer total consumer portfolio is approximately 1.7 billion, including mortgages and it provides a tremendous amount of diversification to our balance sheet.

We provide home equity in residential mortgage loans to customers. In addition to originating in purchasing unsecured consumer loans through arrangements with third party fintechs.

Over the past several years online consumer lenders have jumped from being a small fraction of the market to what we expect to be the dominant market share.

Today, it's been more efficient for customers bank to target and service. These loans outside of the traditional bank infants infrastructure, given the high volume as well as large amounts of marketing dollars to fin techs have been spending to compete.

What we've done at the bank has taken a hybrid approach with our other consumer book, which is currently at approximately 1.3 billion.

Phase one of our approach was to originate direct as well as enter into purchase in flow arrangements with top online lenders and the country.

Phase two is we supplemented our internal credit box and modeling with industry partner and internal data in an effort to drive superior asset quality and risk management.

In the portfolio and overtime, you will see our purchases be a smaller percentage of our overall portfolio. We're currently already slightly below 50% purchased.

We're now entering phase three which is where we are matching the assets and liabilities.

On our balance sheet of our digital bank, which includes digital deposits of about 1.2 billion.

Close to 2 billion. If you include Bankmobile and cross sell and create deeper connections on both sides of the balance sheet.

We're spending a lot of time thinking about how to link our digital customers together and create a cohesive brand platform with unity across the product suite to create a national presence, but as much more integrated with a combined customer proposition.

As many of you know what customers bank, we have a challenger bank mentality on a national digital for scale and we see this consumer strategy is the best way to acquire customers at scale.

With that background I'll point, you to slide 15, as you can see we have a very highly diversified portfolio by loan type age of borrower geographic market employment industry and income levels.

From a FICO perspective, we have no subprime as you heard Jay say, our averages of 744 FICO.

If you move to debt to income just about half of our portfolios borrowers have debt to income ratios of less than 20 for 20% at an average of just over a just under 22%.

If you look at the bottom left chart, where geographically well dispersed in line with population dispersion with a top 10 states representing about 55% of our portfolio.

[noise] from unemployment perspective, 50% of our borrowers are employed in professional education government and healthcare sectors with only 5% self employed.

Finally from a use of funds perspective on the bottom rights chart, you see that debt consolidation represents about 58% home improvement about 25% specialty and niche financing of about 19% and student loan refinancing of about 4%.

All in all as we've said previously we expect or other consumer portfolio to be around 15% of the assets at the bank.

[noise]. So if you flip to slide 16.

Again here are some summary staffs in our portfolio, we want to reemphasize that we have no subprime loans strong FICO debt to income borrower income and geographic characteristics.

This discipline has helped us over the past several weeks as I'll touch in a minute that's related to deferments in our portfolio.

In terms of residential in home equity mortgage businesses, we periodically reevaluate these businesses, but at this point in time, we don't foresee an increase of capital allocation.

[noise], if you flip to slide 17.

As the team alluded to in our commercial portfolio, we pursued a similar diligent process to our consumer portfolio.

Personally in March as we publicly announced we decided to temper growth in our consumer business. In addition, we tightened our credit standards, increasing our FICO cut off to 700 plus only credits.

In conjunction with our proactive efforts to tighten credit standards on new originations, we worked with each of our Servicers to Institute natural disaster Deferment plans ranging from 30 to 90 days.

As you can see as of April 25th.

We were at 4.27% on the portfolio and we have we're pleased to see the deferment growth has slowed and month to have cobot 19 from 34.9 million in March two under 17 million as of April 24th representing a greater than 50% reduction.

As I alluded to earlier, our direct originations inclusive of the upstart platform, who is a public partner that we previously disclosed is about 27% of our other consumer portfolio and we're proud to say that we are operating in under 4% in deferments, which is well below our industry peers, including partners customers back.

Works works with which is a testament to our internal credit underwriting modeling and risk management standards.

[noise], if you flip to slide 18, you heard from Indian deck about our outstanding credit quality.

Right, we have very experienced team managing a well structured portfolio our historical credit metrics.

Reflect our outstanding credit culture at levels, well below peers and industry averages.

Once you see in the chart in the first quarter of 2020 as a jump to around 53 basis points of total npis largely driven by one credit which is a class a office building with about 25% personal guarantee from high net worth borrowers.

As a conservative measure we have decided to dispose of the asset and I'm pleased to say that we're currently under a letter of intent with a strong institutional buyer Silva credit and expect to close in the next several weeks.

With that I'll pass it to Carla to flip to slide 19, and talk about our C. so process.

Thanks, Sam and good morning, everyone.

Couple of flight focused on her she told adoption on January one and the reserve build that occurred during the first quarter 2020, starting at the end of last year, we had a total allowance for loan and lease losses, a 56 million or about 80 basis points of total loans and leases how far in testing.

Okay, one adoption impact with 80 million SJ, Andy mentioned earlier, our economic outlook on January 1st considered that we were operating actively managing I portfolio since the middle of 2019 under the assumption that we were in a pre recessionary period as a result, we probability weighted.

Recession scenario using Moody's S. Three since that scenario available at 12, 31, 19 and the consensus forecast.

After reflect managements economic outlook as of January 1st. We then apply qualitative adjustments it seemed appropriate that resulted in a total allowance for credit losses.

6 million or an increase of 141% over our December 31st 2019 allowance for loan losses.

We then adjusted for first quarter 2020, net charge offs of about 6 million and portfolio balance changes that occurred during the quarter, which increased the allowance balance by about 10 million.

At March 31st 2020, we use Moody's March 27 baseline scenario as a basis for economic outlook. We then went to a very similar just disciplined process as we get on day, one and we which we calibrate it not all out that's to be more reflective of our portfolio.

And layered in other qualitative factors that resulted in an allowance for credit losses on most of leases.

52.6 million at March 31st 2020, a coverage ratio of two point, 10% and provision expense of 22.3 million for Q1 2020.

Slide 20 provides an overview of our held for investment portfolio as of March 31st He amortized cost estimated lifetime loss rate and the associated provision expense like commercial and consumer lending activities I'll comment here that our coverage ratio of 2.1.

We're saying, which we believed to be prudent and conservative compares to the industry average of 1.7% for regional banks and 1.3% Catherine.

Moving onto our efforts to serve and expand margin slide 22 really highlights the significant progress we've made over the past six quarters in restructuring our balance sheet you can see the trial to 47 and third quarter 20.

Increasing to 2.9% in first quarter, 2020, which is 52 basis points of expansion.

First quarter 2020 yields on interest, earning assets declined two basis point, some fourth quarter 20, 19% to 4.59%, while the cost of interest bearing liabilities decreased 16 basis points to 2.1% going forward. We can we see can sit.

<unk> opportunities to further reduce our deposit costs, particularly in the second half of the here actually run off higher cost Cds and reprice, our digital assent deposit we are expecting marching to be about 3% for the full year 2020, not factoring in the intact at the ASP.

Hey, PPP loans held on your balance sheet.

Turning to slide 24, which really speaks to our strong liquidity, which we actively manage and monitor Daley our strong deposit growth over the past two years has created a strong liquidity position you can see also the decline in our core loans to deposit ratio, which has decreased to about 88.

Person at March 31st 2020, we also had average liquid assets of 3.2 billion for first quarter 2020, which included 1.8 billion of on mortgage warehouse portfolio. It's important to note that a mortgage warehouse portfolio with a self liquidating assets and can be.

Liquidated in less than 60 days under stress conditions, and lastly from a borrowing capacity capacity perspective, we have access to a total of 7.1 billion bottling capacity with the remaining capacity of 2.8 billion I'll also point out that the P.P.P. loans.

Weve originated to date will be pledged to the fed PPP lending facility. So we can take advantage of favorable capital treatment, which means that the P.P.P. loans will be risk weighted assets zero person and have no impact on our leverage ratio and also we'll get a favorable borrowing rate 30.

Five basis points.

Slide 26 presents our capital ratios for the bank in the bank for both significantly above well capitalized at the bottom of that slide on the left hand side, you can see the banks excess capital capital levels over well capitalized.

We did elect to defer the impact to see so over the five year Transitionary period, which means 100% I've heard day, when adjusting and 25%.

Day to what you asked me will be deferred for two years.

And 2021, and then be facing at 75%, 50% and 25% over the following three years ending on December 31st 2024 [noise].

Turning to our profitability on slide 28, our cap earnings were 22 cents for first quarter core earnings were 26 cents on an adjusted pretax pre provision faces earnings were 38.6 million, a 53% increase over the year ago corridor.

And the adjusted PNR return on average assets increased 20 basis point to 1.3 hours per cent for the first quarter 2020, our net interest margin also increased 40 basis points over first quarter 2019, and both the consolidated and the business banking efficiency ratio.

Yes showed improvements on a year ago corridor Lastly, slide 29 shows trends in the level of noninterest expenses over the past five quarters in the latter half the 29.

I see the significant cost savings from renegotiating vendor contracts last here going forward, we expect the level of noninterest expenses to moderate over the next few quarters.

Now I'll turn it back.

Thank you think there's so much Carla and I go to apologize that you're taking a long time, but I think it's very important or that we go through a lot of details with you. So I'm on the last slide he take away is that I'd like to emphasize cool things number one the company's very well positioned to execute on her 2020 as one of them.

Long term strategies.

NIM should be remained above 3% I should you should expect about the 10, but ended the year operating expenses as Karla mentioned should moderate over the next few quarters, our tax rate would be 20% to 23% for 2020, and excluding the P.B.B. Lowe and our balance sheet at year end 20, twentys expected to be about the seem.

But it was at 12 31, 29 team and when you add all the capital could be whatever I did from BBB loans as well as our retained earnings because we're not buying back any stock can be are not giving any cash dividends on a on our oh no equity so that to you you should see.

And if we can growth in our equity to execute issues at the end of up at the end of 2020 once again want to emphasize the S.P.A.P.B.B. program, which was a major major major initiative.

One of the acknowledge the hundreds of our team members who worked around the clock can be so proud of the ER to make this all happened.

And we Didnt just go after the large customers, we did everything possible and like I shared with you just from origination fees alone. It's about $85 million is our number but then you got to add the net interest income on top of it.

About 195 to 100 million dollar number and we're not done because PPP. So it's good open.

Touch and and they're like we mentioned earlier, we're also focused on <unk> and the long term business, we expect to the good somewhere around $6 denoting which here and good improved daughter wind daughter, we are well over the next to a couple of years from a NIM point of view as you've already mentioned, how do we do it.

As to talk is gonna be measured growth, we're not focused on growing up our balance sheet at all it's very disciplined pricing, especially in this environment, we're going to be very very focused on maintaining our higher credit quality I'd rather than building our loan portfolio, we built floors into our loan agreements.

And we are protecting the spread above the floating but into fees from a deposit point of view as I think Karla mentioned, we love wanting to have 1.1 billion of hard goods go because the digital deposits. They ought expected to be price down at least 200 basis points or up 200 basis points excuse me.

On July the first we had guaranteed a 2.2 are they still July or the first and then another similar among the 1.1 billion in Cds will mature in the second half of 2020 and they are also expected to be deep rights down by about the same amount.

From a capital allocation point of view ability should do we are targeting or at least a 7%.

TC ratio then this is excluding taking advantage of Ah, but the huge increase in our equity capital coming from the expiate you'd be games.

As well as are the positive spread that you will get on those loans wallaby keep them on our balance sheet about 25% to them for up to two years and like I shared with you we are not going to be redeeming our preferred equity in 2022 habit stronger balance sheet.

From a bank mobile point of view Bankmobile is expected to be profitable in 2020, and we are on target and we expect to have the divestiture being executed the sometime this year so with that Travis. If you can please open it up for at least 15 minutes so cute Wendy.

Im thinking if he would like to ask a question. Please signaled by pressing star one on your telephone keypad. If you were using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment you get for star want to ask a question.

Parts, just for a moment to allow everyone an opportunity that signal for questions.

We do have a first question.

Hi, Good morning, it's Steve Moss with B. Riley FBR.

Oh, Hi, Steve how are you.

Hi, good yourself Jay.

Great. Thank you.

I.

Well, let's start with the the P.P. originations here you know a really big number partnership with others.

I take it to 5 billion you guys are retaining pledging it's kind of wondering how you structured a this partnership with with the Fintech partners.

And perhaps any any lender liability or any other color you could share there.

[noise] keep all that money any of my colleagues. So please jump in a fight or.

I didn't answer the question completely but are there is no longer liability or because we are an approved as you remember read or how to do this business. A this is a business a you know that we've done a in accordance and working weird that big a we've looked at Oh.

I think I'm going to off the servicing functions with some because that's the approved agreement or for that and ER and so that you can fill rates. These clients a proxy midland over a little over a billion dollars whats gone directly by our relationship managers and their goods covered was done in partnerships.

We've got our Oh, where the value, it's a business oriented higher quality or fintechs and a this is turns out to be a beautiful business opportunity for us to BBB and your so gratified with you'll get you should look at auction, which would media.

Contact you very rare that you see the kind of reaction from small businesses interim not for profit so deep sea.

Sam or Tim do you want to add anything else.

No I think that was a good a good summary, a you know Steve I think that a liquidity is very important and as as you heard there Jane card I mentioned, we intend to punch all to the P.P.P. lending facility and a if there is a you know a a chance that some portion of this or not forgiven they will.

Remain in our balance sheet, but we will still enjoy the benefits of the P.P.P. lending facilities and the fact is essentially sharing that risk with us and that would just accrete more income over a up to two year period for the portion that is not forget it.

So as a bottom line great. Good it's no credit risk there is no operating group or some sort of between the choose we are working or were there and and this gives us an opportunity towards these clients to become prime rebanking customers of ours.

Okay.

Great. Thank you very much that's helpful. And then you know in in terms of C stores here you know.

Good day, one building, obviously big provision here.

Sounds like you guys used the late March Moody's numbers kind of wondering given that the economic scenarios the trees after march 31st how.

How youre thinking about.

The provision for the second quarter.

That's a very good question, because I was called luxury or do.

We used a lot of qualitative pedometers and dog to Frac cooked in since mid look 2019, we were working because I didn't twentytwenty, there would be or economic recession that was hard strategy was started functioning in duck fashion, we did not realize talks on Moody's in 29 team, but just for the discipline for the proper.

Process.

We relied on a <unk> on an approach so that it's not just managements judgment, but it's a very very.

Strong process, which can be bought a good by our independent a accountants and up and so that's why we use the Moody's process. So it's a good on top of fit there's a limiting and Ah you soon be assuming go somewhere between a V. Chip to are you ship Oh This section at <unk>.

Our men do not quantitative analysis.

And so be stress all are a bit different portfolios in the into severely adverse type of put in barman restricts CCAR test stood out in park loan portfolio be book going through a process and be you've done it actually that we are implementing a portfolio management the extreme be automated system and.

Are we cannot guarded view as to what will happen it to our provisions in the next couple of quarters. If you understand but it's a process the very disciplined order to both process that we follow and we think it would be prudent to be conservative in this environment makes no sense to find a way to divorce some apart reserving oh.

We are sure that could be or out of the economic go to section.

Documents can be bid.

That maybe some of this could be a up for potential divorced from.

Our consumer loans are performing better than all the assumptions that you've used in setting up the reserves all our loan categories are performing better than words assumptions would be views you know very stressed environment. So so we will just be very disciplined and following this stuff.

Okay. That's fair and then in terms of is the just wondering what the total restaurant and hotel exposure you guys have its current time and what the loan to values are there.

Oh, Yeah, sorry that we are kinda jumped over there are a little bit, but oh <unk>, our exposure is minimal and Andy maybe you have those numbers so.

Yes, absolutely our total exposure in the restaurant industry is very minimal in aggregate right now stands at only about $64 million, an aggregate total exposure and that spread across.

Approximately 120 customers. So there's not a lot of a aggregation of density in that portfolio.

As far as the Ltvs on this portfolio. It varies a lot of them are some of them are leased facilities. Some of them are known facilities. If there were known facilities and their owner occupied based if I understand or underwriting criteria they'll come in somewhere between 70% to 75% on an LTV basis.

And then do what percentage of them, our national chains are franchisees, like Mcdonald's or arby's, or Taco bells that sector compared to independent restaurants.

Yeah, I would say up out of that 64 million I'm Gonna say somewhere in the ballpark of 20 million. This in some form of franchise restaurant.

Chain, whether it be a potential Dunkin' donuts.

Taco Bell et cetera.

Okay, Great and you only had one of their hotels.

I'm sorry.

What was that Steve go ahead.

Oh the hotel exposures.

Same thing.

Oh I can share with you our total exposure in the hotels right now is a 395 million total so it's not a significant portion portfolio.

Super Prime and others are cells are flagged hotels.

Meeting all the lines of your Marriott's your highest et cetera.

That's probably about 60% of the portfolio and then there's probably about another 25% of the portfolio. That's what we've classified more sure seasonal resort hotels that have been long established for a period of time.

And then obviously, there's the gap is the difference between some of that it's obviously yesterday exposure as well.

And I and I think Andy if he can comment if he can comment on what percentage of our hotels all good.

Strong borders and what percentage of them on school leased out right now.

Yeah, right now I'd say, we've got about $211 million are the $395 million per the one slide.

It is out there on to for all right now the other hotels are all paying as agreed I'm guessing I would like to note at about 15% of our hotel portfolio is actually supported by contrast, with government authorities for USIS facilities for either displaced persons.

Or individuals that are just trying to get back on their feet in a lot of those are those that are up in the North Jersey and earn in their New York market.

And that's about 50% of that total 395 million.

Okay, great and.

Do you haven't had the loan to values on on those by any chance on hotels.

Sure our loan to values typically are very entrenched from an underwriting perspective, we land they see out of the gated to 65% loan to value. That's based upon the real estate only value, we do not give any value to ask that funny. So our standard underwriting would be 65% loan to value on just a real estate compare.

Oh the collateral.

Okay, Great and then my last question here just in terms of the margin.

To the marching dense include or exclude the a P.P.P.O. loans.

Well, we mentioned to you the bugs and excludes the 3.1 margin, but ended the year it excludes any impact the bones.

So I apologize for Misnap alright, Thank you very much.

Sure.

[noise] [noise] [laughter] any other questions next question.

Hi, good afternoon, everyone as Michael Shivani from KBW. Thanks for taking my question.

Sure Michael.

On the day, one T cell adjustment I it was a bit more than we expected can you talk about white show that because I I think it's correct to assume that the Kobe 19 should not impact that figure right.

That is correct.

So are there wasn't impacted that is.

True or what impacted that is that since middle of last year. We were we were working with what.

With an assumption that in 2020, there would be able to section and that's why like you heard from my colleagues. We were in a strategy I think guarantee outlined for you in detail what that strategy was we would started to take out we've started to tighten underwriting we started two m. deemphasize certain sectors, we've moved out sodas.

Credits are we focused on certain oh risk based pricing initiatives, we looked at dog portfolio management strategies, that's out and we were sitting or would that we are going to be notice session and that is why would be I'd assume they're not qualitative. Another says now obviously we did.

Moody's quantitative and qualitative analysis showed to us that we need to be conservative in reserving and appropriate.

Based upon the quality <unk> based upon the analysis, where management was operating at that time and management was clearly you know go documented way be I'd have risk summit on this middle of last year was talking about how do we manage our credit risk and just kind of a pre recessionary environment and doublets all conclusion.

And we took a that approach to come up with a qualitative adjustment to the quantitative Moody's analysis to build up or a reserved appropriately.

That's helpful. Thank you and honest answer is how much of the build was due to some of the code at 19 actions you guys laid out in the earnings release and further wrestler where the big drivers and he can maybe discuss what do you think the run rate from here will be.

Well, let you want to get on things.

Yeah sure. So yeah every year there were a couple of drivers first of all we had a million dollar legal settlement for partial suddenly frenzy D. O. <unk>. We also had an increase in the reserve for unfunded commitments. If he's a 22 million that we were talking about was focused on alone and.

Lease portfolio. There was also an additional 800000 for unfunded commitments that went through that other noninterest expense line.

<unk> increased other non cash related items in particular, some depreciation expense related to capitalized development costs for technology that was placed into service in 29 team as well as some other technology related costs that were capitalizable and an increase.

Sitting on digital transformation efforts and as we said that we do expect operating expenses to moderate over the next couple of quick.

Great Thanks and.

For the P.P. program is it reasonable to assume that should help they use capital love. It levels. Later this year when nod their revenue start to be realized and then were wondering at that point will you reconsider start thinking about redeeming the preferred.

Well, let me take that on its in the next two months that 76, the 5% to 75% of all the 85 million plus minus in revenues that I've shared with you will be realized by us in the next 60 to 75 days.

Maybe just maybe you can add another factor to that and we'll do it on there.

Got it how much impact you will see on our capital equity tangible common equity capital into next to a couple of weeks.

So that's basically the impact on capital over the second part a quick question.

And like why what point do you guys expect to start rethinking about redeeming the preferred.

Yeah, I think I think lead or it's more important than this and bar meant to have a stronger balance sheet than to be maximizing oneq.

And we're gonna have very strong earnings a this year because of the PPP and a you know accretive nuts from that and and we think a it would be we'll take it at a time from a capital allocation point of view and we wouldn't want to come back to anything, but we would quotes a priority is to have its banca.

Capital ratios and we're not gonna be however, looking good.

Or any kind of thing common equity issuance to REO tweeting about book. So that's how the question for US and we will look at a appropriately building a strong balance sheet, ER and ER and you know and continuing to function.

Just kind of an environment enough cautionary state.

Okay, and lastly, if the cobot 19 environment impact your ability to divest bank mobile do you have any sort of contingency plan moving forward for Bankmobile.

Our contingency plan there no definitive plan, it's called because that's true.

We will stay with them [laughter].

Okay. Thank you have a contingency plan I was in other words I'm, telling you it seems pretty good certainty that it's going to happen.

Thank you very much thanks for taking my questions on good day.

Thank you.

Pretty much if any other pleasant.

Yes next question.

Yeah, Hey, good afternoon, guys its Russell Gunther from D.A. Davidson.

Hello Russell.

Hey, Jay I, just have to follow ups at this point the first just jumping back to the preferred conversation. Just a reminder, police have what does in fact come due in 2020 and then what the the slog that's would be available and in 2021, and then if you guys to put a finer point around what capital.

Hurdles you'd need to achieve before you start thinking about that.

Oh, just mentioned in the coupled hurdles in Carlo will give you some of the details I think like I mentioned over here that we're looking at building or fortress balance sheet under good strong capital ratios and not me.

Deeming dog with photos are probably already so we are older put a section of the environment.

That is our philosophy on capital is more capital to the other than less capital and in fact with the rates where they are right now as Carlo would probably could be the detailed so that were in fact, a keeping the preferred on our books. This year, it's gonna deduce that rate on goes for food based upon the country. So Carla season.

Somebody fields. Please.

Yeah. So right. So we have about 57 and a half million that first becomes callable in June 2020, sad about a 7% right. It will reprice two or three months library that when we set quarterly.

Kind of spread I would say close to 600 basis points. So given where rates are currently would actually be a benefit when it would catch we sat I'm at a lower cost them. When it was on the books previously, but as Jay mentioned, we are not considering redeeming that 2020, and we have a total about.

25 that will stop become redeemable in 2021.

Okay, great. Thank you Carlos Thank you Jay and then just the last one is a bit of the Ticky tacky question, but appreciated the granularity in the deck as well as in response to Steve's questions on hotels and restaurants, just wondering if he could provide the same for your retail exposure kind of what that is an aggregate and then any of the portfolio care.

Dr sticks from an LTV perspective.

[noise] Yep.

Go down do you want to take that on please.

So we have a very little exposure than retail overall.

Yeah.

Go ahead I'm sorry.

Bad debt.

We agree there as of the 24 as of April you'll see on.

Page 14 as a deck.

We have a total of 12 lounge right now totaling about $4.7 million.

How much the retail exposure is almost nil.

Andy.

Yeah, we have very little in direct retail exposure at this time and I think I really don't have much datatech statement there it's negligible.

Yeah decree referencing the total number of deferrals and.

I'm, just trying to get a sense for what the Outstandings are.

Well, if the Outstandings are zero <unk>, 0.12% of the total portfolio.

So you can do the math reverse I guess.

And did you ever number on that.

Yeah, our total our total overall exposure in the retail side is probably in that ballpark of.

You know no more than 10 million.

Okay great.

I appreciate you guys clarifying that's like thank you very much.

And also just type real quick what that exposure is predominantly also I pointed out is probably S.P. as well.

Thank you guys that's it for me.

Thank you though.

Any other questions.

Next question.

Yes.

Yes, Hi, this is Ah Tony space deal with Anthony L. stage of consulting.

And then you've sort of answered this question, but I just want to ask what they click about the preferred.

The one coming due in June is alive or 90, they live our plus 530.

And of course alive or as a discontinued right a year ago of course, it was to 58, which would have put that over 8%.

All right out any its way lower now, but have you actually formally determine.

The what right you intend to use part of the variable rate and prefer.

Org are here you know a proxy for the 90 day libel.

Well you want to take that.

Did we lose Carla sorry, guys will break you know anything different locations. So we are library is going to stick it on drugs or.

No partly through the 2021 and so we are using the library.

Okay, all right you're going to use some pockets in Lahore.

Even though it you know kind of become a not it's being discontinued.

It sounds like.

Yeah, hopefully hopefully this could you know yeah. We know you know that got do you know the federal reserve on the main Street lending program had suggested so for first because of it and then they moved to libel.

And ER and goes up for your loans.

Yeah, Okay. Thank you.

Sure. Thank you.

Any other questions at all yes, we do have you.

Okay.

Hi, everyone. It's a French trolley from Piper Sandler Hope, you're although I don't think.

Yeah, I just wanted to.

Thank you Jay just just quickly Oh Gee I Wonder if you get back to the 7% Tc ratio by year end I know the P.P.P. program should help significantly or just wondering if you could talk a little bit more about the puts and takes and the rest of the balance sheet sounds like multifamily will continue to shrink but wondering.

About the rest of the loan portfolio and then as you've seen a good growth seems like in the digital deposit space wondering you know stuff celebrating and where you think loan to deposit ratio will shake out later this year.

No we think Frank or frankly, we think the loan to deposit ratio is gonna be between 80 park to 90%, we're not focused on building a or loan book or.

Tony cost since you don't have any targets for that's our target talk for a they're talking on a assets under turned on capital and a basketball is improving god capital ratios and preserving our.

Credit quality and preserving got margins there was a and having the appropriate liquidity I think that's what we shared with you a dog priorities.

As such and Ah. So so you know to us up or is that equity is going to be very critical and lose on certain times and so we are looking at all of its continuing to build that ER sites and we are very comfortable with dog equity puts.

Suits, and especially be we put a tremendous amount of an airport and building or or equity by you know somewhere between 35 to 100 million ins and outs to two weeks or by doing this stuff that you had expected to do.

And we are proud of our teams to have done that so are you know the doesn't cheaters stronger we just transferred hundred million from equity capital to reserves and then we found a way to replace that hundred million back into equity. It is very very significant.

And ER and dog reserves as you know so well Frank.

But oh, no assuming my lifetime charge offs and lifetime breakdowns and ER nobody knows for sure.

Not a self assessment as to what will happen from a corporate 19 environment, a everybody's talking about <unk> research and they want economics, we'd do it starts loan by loan stress testing.

The only way in our opinion that you can figure out whether its global 19 related or non covered right 19 related or economic stress and what it for 2028 environment comes in how much did you need in reserves. So another way of looking at it if you assume no growth in loans and into.

Good.

If you follow qualitative and quantitative assumptions are there.

You should see immaterial changes or additions or subtraction from our Oh from all the loans over the next couple of years and Doug. So you know the because it's 123 years average life of our loan portfolio and ER and that is Ah the way we.

Looking at it we've been evaluated bad, which do you have a reserves on a quarter media to being a very disciplined process and on top of with Leerink. Your qualitative conservative standards and Doug will determine our eventual capital allocation process, but right. Now we are very very comfortable and be don't envision <unk> capital ratio.

Oh, you know to be below 7% or this year at all I'm talking about T.C., but you've got to add another 215 million all preferred equity on top of Doug we choose another 2% on top of that so we're really looking at 9% equity capital.

Shareholder a you know a equity capital is common shareholders itself, when and preferred shareholders would be too. So it's a 9% equity capital.

Gotcha, Okay, and then just finally on a I wondered if you could share trends.

In loan delinquencies through the end of the a quarter and then even if you could hear you know through.

End of April are those elevated or did those just get captured by deferrals nothing at this point. Thanks no.

Very good question again, Frank Thanks for asking good questions. When you see only under 5% of their consumer loans to be deferred but very smart question is what are you what's happening with older or 95 blocks question Lux and how is the delinquencies. So it's a very good questions at U.S. I'm pleased to share with you we are seeing no material.

No change there no delinquencies from fourth quarter two now.

Among the ones, we talked in the non deferral basis and be disclosed to you deferrals by income to photos by FICO scores to portal, you know and all those ways that you can see that.

And and you know in fact, we've seen in our portfolio's whereby.

There has been and increase in payments coming in from those who had elected to defer and then decided for whatever reason to be after they've got there.

The check from the government to make the payment.

So as of right now, we're seeing no material change in delinquencies at all.

And thank you don't think ones, who do not multifamily.

Thank you.

Next question.

My question was just to answer I was going to ask about borrower behavior at specifically in April you have anything you want to add that's fine otherwise we can go to the next quite well.

Thank you that's why we decided it could give you have a lot slightly later.

Cause Toby can give you the it boat buyer behavior, and a borrower behavior rather than being to rush to give you a that fourth quarter earnings.

Thanks again.

There are no further questions in the Q.

Yeah. Thank you very much good dog and getting really appreciate your interest in customers and they'll be our we're hopeful that you have any other questions to be able to call. Thank you and have a good day.

Thank you ladies and gentlemen, this concludes todays teleconference. You may now disconnect.