Q2 2020 Peoples Bancorp Inc Earnings Call
Good morning.
Welcome to peoples Bancorp.
This conference call.
My name is like snowmobile carpets Michelle.
Today's call will cover discussion the results of operations.
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[music] 20 Twond.
Please be advised that all lines have been placed on.
But any background noise.
The speakers remarks will be a question that's a period.
If you would like to ask a question. During this time. So we press Star then one of the telephone can.
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Please be advised that the commentary in this call will contain projections or other forward looking statements regarding peoples' future financial performance.
Sure.
These statements are based on managements expectations.
Statements on this call. What's your historical are forward looking statements involve a number of risk and uncertainties.
And people Securities and Exchange Commission filings.
These include although not limited to.
He ever changing effects of the cobot might you put them.
On the economic and market conditions.
Our customers.
The parties employees.
Party service providers as well as the effects of various sponsors of governmental involved governmental authorities.
Tenders in the interest rate environment, good economic conditions led to the cold, but not just kinda.
Well. The fact is what's my adversely impact interest rates the interest rate yield curve interest margins.
Demand.
I'm interest rate sensitivity.
That's a six excuse me. This is also impact that's topping of the implementation of People's business strategies.
People's ability to manage strategic initiatives, including thinks that's the commercial and consumer lending activity.
The competitor the nature of the financial services industry being talked about estimates.
And then plus years within models, which labor mature away some actual outcomes, including.
That's what's the current expressed.
Credit loss, Bob Sixtyl model.
Continuation of library.
The other reference writes what smokers and then of course expenses So litigation.
Firstly impact the effectiveness of hedging strategies.
Uncertainty regarding the nature Tommy cost.
Federal or state bank getting that Sean.
Tax legislative or regulatory changes, where actions and changes in accounting standards policies estimates or procedures.
Most of my believes the forward looking statements made during this call or based on original assumptions within the bounds of the knowledge People's business and operations.
However, it is possible actual results may differ materially from these forward looking statements.
Peoples disclaims any responsibility to update these forward looking statements. After this call.
As may be required.
Applicable legal requirements.
People's <unk> second quarter 2020 on enjoys wishes issued this morning and is available at peoples Bancorp Dot com under Investor Relations.
A reconciliation of the dog generally accepted the told me that's most well.
Financial measures discussed during this call. So the most directly comparable GAAP financial measures is included at the end of the earnings release.
This call will include about 30 minutes of prepared commentary followed by a question, that's a period, which I will facilitate.
An archived webcast of this call will be available on peoples Bancorp dot com any of us relation instructions for one year.
Justin on today's call will be Mr. Chuck Sulerzyski, President and Chief Executive Officer, Mr., John Rogers, Chief Financial Officer in charge I.
I mean, she will be available for questions following opening statements.
That's the Solecki before just to be good. Thank you.
Oh boy and wish for the continued well being of you your families and colleagues we continue to monitor the Colbert 19, pandemic and make adjustments that nexus.
Sorry.
At the state in which we operate have relax some of their restrictions. We have also been for weight in our own reopening process on June 22nd we opened all branches what services being provided during normal business hours.
Also started to bring back a portion of our operational workforce. We continue to have some associates temporarily working from home as we have limited spacing in certain portions of our offices that do not allow adequate socially distance there.
Supporting our employees and communities during this challenging Todd and plan to continue this practice.
Monitor developments and adjust our responses accordingly.
We have had many breakpoints in the last few months in our execution for our clients has been the most meaningful.
We have closed nearly 500 million of loans under the small business administration Paycheck protection program or PPP.
Approximately 40% of the total number of loans made up into new clients.
We have Lee with other banks they were unable to help them as quickly as we could we have had some successes in cross selling other financial products to our new relationships. This would be a continued focus for the remainder of the year.
We grew the number of household cert every month during the quarter. Despite limited branch access.
We had originated loan growth of 4% annualize compared to March 31st Twentytwenty.
It's excludes the impact of P.P.P. loans in our previously acquired loan portfolios, we had significant unexpected record production in consumer indirect lending, which at 31% annualized growth compared to the linked quarter and.
We implemented a new consumer and they new commercial loan origination system.
Despite the cobot 19 pandemic he's worked diligently to stick to the original inflammation implementation timeline.
Total non interest income excluding gains and losses grew 3% compared to the linked quarter, excluding the annual impact of performance based commission.
Oh, that's performance within commercial loan swap fees, which were nearly four times, what we recognized in the linked quarter, coupled with growth in mortgage banking and electronic banking income.
This increase was despite the nearly $1 billion decline in our deposit account service charges.
We had an 8% to go a decline in total non interest expense compared to the first quarter.
We get core deposit growth, which excludes Cds, 16% compared to March 31st 2020.
Well they'll deposit growth, it's been a highlight for us during the quarter. Our clients have had an abundance of liquidity. It's a significantly we do you start deposit account service charges compared to the prior periods.
We also completed the previously announced acquisition of a premium Finance company, which was recorded effective on July 1st 2020, It's unit will operate as People's premium Finance, we were recognized at the top I have to work for why the Cleveland Dot com and the Cleveland planes dealer as well as the number.
One bank in West, Virginia, as part of Forbes annual list of America's Best in state banks and credit unions, what 20 Twond.
As far as our financial performance, we announced a quarterly earnings earlier this morning.
We generated net income of 4.7 million for the second quarter of 2020.
For 23 cents per diluted share and $4 million or 19 cents per diluted share for the first six months of trumped each warranty.
Results continued to be heavily impacted by the provision for credit losses, which reflect the current economic outlook utilize within that see some model.
For the second quarter of 2020, we recorded provision for credit losses of 11.8 million compared to 17 million in the linked quarter and 626000 in the prior year second quarter.
The provision for credit losses, we recorded negatively impacted diluted EPS by 47 cents for the quarter compared to 65 cents in the linked quarter.
The relatively high provision for credit losses in the last two quarters is not however, reflective of our carbon credit quality, which remained stable during the second quarter.
As of June Thirtyth Twentytwenty, our allowance for credit losses was 54.4 million in on funding commitment liability was 3.1 million.
We also had some non core items impacting results during the second quarter, including 918000 to cope with 19 related expenses, which reduced the movie. He asked by four cents. These costs were associated with donations made to walk communities in support of food banks and pantry as.
Well up assistance to our employees, including a stock award for our employees that work in assistant Vice President for below.
Pension settlement charges that totaled 151000 for the quarter and negatively impacted the movie. He asked by once said and recognition up our remaining FDIC credits, which were $172000 in positively impacted diluted EPS by one cents.
Our return on average assets for the second quarter was 40 basis points compared to a negative seven basis points for the linked quarter and 91 basis points for the prior year second quarter.
On a pretax pre provision our return on average assets was 1.48% compared to 1.4 or 5% for the linked quarter and 1.21% for the prior year second quarter.
The second quarter of 2019 was heavily impacted by $7 million of acquisition related costs.
For the quarter provision for credit losses in income tax expense negatively impacted onto movie, Yes, hi.
67 cents compared to 81 cents in the linked quarter and 16 cents in the prior year second quarter.
Excluding provision for credit losses in income tax expense onto really E. P. S improved by 17% over the linked quarter and was higher than the prior year second quarter.
Compared to linked quarter, the improvement was driven by a decrease in total non interest expense.
Well from the prior year second quarter was largely due to lower acquisition related costs, which were $47000 for the second quarter of Twentytwenty compared to 7 million in the second quarter of 2019.
The first half of Twentytwenty provision for credit losses, and income tax expense negatively impacted diluted EPS by $1.47 cents compared to 32 cents in 2019.
Acquisition related costs were $57000 for the first six months of Twentytwenty compared to 7.3 million for 2090.
Our efficiency ratio improved during the quarter in was 62.34% compared to 66.64% in the linked quarter and 73.24% in the prior year second quarter, which had been heavily impacted by acquisition related expenses.
When adjusted for non core items, the efficiency ratio improved to 59.9 Walker said.
Compared to 65.55% and the linked quarter and 60.21% in the prior year second quarter.
Most of the reduction in the respective efficiency ratios was the result of lower total non interest expense compared to prior periods.
We have been pleased with our performance as it relates to the PPP and dog participation has benefited us in many ways during the quarter.
We recognized be origination income net of amortization of deferred costs of 1.9 million and 918000 of interest income both of which increased net interest income although the P. P. P loans benefited net interest income the low interest rate of 1% on these loans coupled with the.
Your origination fees of between 1% to 5%, which were partially offset by origination costs have negatively impacted on net interest margin.
Our weighted average origination fee on the volume of P.P. loans originated was 3.3 was that.
We also recorded deferred personnel cost of 921000 related to the average cost of originating the PPP loans, which decreased salaries and employee benefit costs.
At June Thirtyth, Twentytwenty, we can't be only 13.6 million of deferred origination fees net of deferred costs, which will be amortized over the life of each loan originated when he PPP loan its forgiven any remaining deferred fees and costs associated with the loan.
Well be recognized through net interest income.
I was loan growth the P.P.P. loans had an aggregate principal balance of 158 million at June Thirtyth 2020, which was included in commercial and industrial loan balances and with net of some payoffs during the second quarter.
Excluding the impact of the PPP loans total originated loans grew well was 4% annualize compared to March 31st 2020.
Most of the growth was provided by increases of 32 million in consumer indirect 31 million in commercial real estate all.
This growth was partially offset by a reduction in non PPP commercial and industrial loans, we have seen in overall reduction in the utilization rates of commercial lines of credit at some of our business clients have used to PPP loan proceeds to reduce line of credit borrowings while others have used the pea.
He PD Lone proceed as an alternative to drawing on open lines.
All commercial line of credit utilization rate decline from approximately 50% in recent quarters to 37% at the end of June.
Based on available balances that equates to approximately $60 million, an available credit not being used and had been previously.
Probably average gross loans increased 13% compared to the linked quarter with most of the growth coming from the PPP loans compared to the prior year second quarter average loan balances grew by 15% well average loan balances increased 10% for the first half 2020.
Well as compared to the prior year period was due to both the P.P.P. loans and the full period impact of the acquired loans from first Preston's Bert.
As it relates to loan modifications, we completed the first wave of modifications in March and early in second quarter.
Commercial portfolio has experienced much smaller second wave with some clients seeking an additional two or three months of payment deferrals. We have been more closely analyzing these requests and they're not exceeded six month deferral period in these cases.
The majority of a second request from clients at the lodging sector. They have continued to be severely impacted by effects of the current pandemic.
Leading to less travel among business and leisure customers.
Specific requests have accounted for more than half of the total balance is approved for the second week west of payment relief.
At June Thirtyth 2020, a logic related portfolio was 3.5% about commercial loan portfolio and could fight 2.2% of our total loan portfolio.
The remaining request for additional corporate 19 payment really have primarily been from clients operating base cares and a few clients in the retail sector.
Overall, the second wave of modifications accounted for 5% of total commercial loans or 9% of total commercial loan balances originally modified.
From a consumer loans standpoint, and number of new belief request subsided significantly at the end of the second quarter, we reached out to our installment loan clients who were at part of the admission ground that we lead which was generally 90 days to see if they were prepared to resume payments on their own.
Those letters of only resulted in a few calls for additional we'd be.
Oh for election team has added two full time associated in anticipation of other forbearance or modification required at the initial forbearance plans, which were up to 180 days begins to expire.
Well make credit quality perspective, we have continued to experience relatively stable metrics.
Our net charge off rate was negative five basis points annualized for the second quarter 2020, compared to 87 basis point net charge off rate in the linked quarter, our negative net charge off rate for the second.
Give me a negative net charge off rate with the quarter was due to its $750000 recovery on a previously charged off commercial loan coupled with lower gross charge offs for the quarter.
No problem loan in nonperforming assets were relatively flat compared to the linked quarter and.
Criticized loans increased by 14.6 million compared to the linked quarter and while our classified loans declined by 2.2 million. We had a couple of credits downgraded this quarter based upon updated information about the borrowers that that was available with the downgrades not being driven.
Like over 19, we are hopeful that these credits will exit as we continue through the remainder of the year.
Our delinquency trends improved as loans, considering current compromise, 99% of our loan portfolio at quarter end compared to 98.5% at the linked quarter and well we have not experienced an increase in delinquencies yet we do anticipate that this will occur in the.
Second half of Twentytwenty as our clients continue to be impacted by cobot 19.
Our future delinquency trends could be positively impacted if additional fiscal stimulus is provided to clients I will now turn the call over to John's provides additional details about the income statement and balance sheet.
Thanks, John.
During the second quarter, our net interest income increased by 1% compared to the linked quarter and was down 3% error or your second quarter.
Very good a linked quarter interest income on loans increased lately and efforts in men's your deposit costs served more than offset a decline in investment income.
Well pp, while PPP loan benefited net interest income during the quarter.
Our dependence on LIBOR proliferation of our variable rate loans at a negative impact on adventures income.
One month LIBOR moved from 173 1.73 recent beginning of 2020.
0.1 search for sand at the end view.
Our net interest margin declined 32 basis points compared to linked quarter.
And was heavily impacted by lower loan yields were impacted by the P. loans included in commercial and broker loan balances.
Blown out of state greater one person.
The quarter, we recognize 2.8 million in total for interest and fees on these loans.
Our investment yield decline, which are affected by the lower interest rate environment driving premium amortization higher during the quarter. We recognized an increase of 720000 dollar premium amortization compared to the linked quarter with reduced net interest margin by 60% 60.
At this point.
We work to offset these declines by reducing our deposit cost by 38% error linked quarter.
Our cost of funds declined 84 basis points during the prior year second quarter 43 basis points for the second quarter of 2020.
Finally, we had a negative carry on or short term borrowings in the four per quarter.
We have larger cash balances funny to wall and potential draws on lines of credit.
Our net interest margin declined 58 basis points compared to prior year second quarter.
Lower loan and investment yield.
Were partially offset by our ability to control funding costs.
Well the first half of 20 Twond.
Net interest income declined 1%, well then market was down 44 basis points compared to prior year period.
Lower investment and loan yields partially offset by lower funding costs continued to be the driver of the decline and then our.
Accretion income.
None of the amortization expense.
Added $995000.
Net interest income or nine basis points that net interest margin during the quarter.
Curriculum 1.1 million or 11 basis point for linked quarter, and 1.1 million or 13 basis points from prior years or or.
For the first half of 20, Twond accretion income at into $2 million.
Net interest income or 10 basis points.
Margin.
And 1.9 million or 10 basis points during 2019.
Our total noninterest income, excluding gains and losses decreased 4% compared to linked quarter.
This was due to several factors, including lower interest income lower insurance income mostly related to performance based commission annually in the FERC order.
Our deposit account service charges declined by 32% and were partially due to the reduced.
For activity in higher deposit balances, both of which have been impacted by the pandemic.
The higher balances have been impacted by the government stimulus program and PPP loan proceeds.
Our overdraft and not sufficient funds income decreased 47% compared to linked quarter as consumer spending habits shifted and every account balances were higher than normal.
[noise] these declines were partially offset by higher swap.
Well a number of while transaction during the quarter has been relatively unchanged compared between 19 larger sizes and transaction to driven much of the increase its clients have taken advantage of the low interest rates.
Mortgage banking and electronic banking income also grew compared to linked quarter and were up 39% and 7% restart.
We continue to see a good mortgage pipeline is low rate environment has increased client demand for these products.
The second quarter of 40, 19 over noninterest income excluding gains or losses declined by five.
The reduction in deposit account jury chartered were down 36% were largely the result was.
Was largely the reason for the decline.
Well churns Andromeda also 8% lower than the prior year quarter.
Wow fees nearly doubled compared to second quarter 2019, and electronic banking income through April.
Total non interest income excluding gains losses was down 3% <unk>.
Electronic banking income grew 9%, partially due to the full period impact for the first person bird required I'll.
Well, we nearly doubled compared to 2019.
Insurance income declined by 10% the positive comps are targeted decreased by 11% compared the prior year.
We also recorded additional income of $787000. During the first quarter 40, 19 leased to the sale of unrestricted class B visa stock.
Which was not repeated in the current here.
We closely monitor and control or expenses during the second order pointing 20.
Our total noninterest expense declined by 8% compared to linked order and by 18% prior year second quarter.
Salaries and employee benefits cost increased 10% compared to linked quarter, reflecting the impact of $921000 increase in deferred compensation costs, coupled with lower medical insurance costs.
Or declining medical insurance costs were mostly related to health savings account contribution for employees during the first quarter, coupled with the cobot impact a routine for us.
And I'd love to surgery, which were deferred until recently.
Well for close real estate and other loan expenses declined 42% compared to linked quarter.
Decreased mostly due to the increase deferred cost related to higher origination volume of tumor indirect loans.
We also had reductions in travel and entertainment costs, which are driven by state at home or implied in place for part of the quarter and other ancillary cost compared to blame for.
The decrease in total non interest expense compared to prior second quarter was larger than largely the result of.
The reduction of 6.7 million in acquisition related expenses coupled with.
Further reductions in salary and employee benefit costs.
Due to the higher level the for personnel cost in second quarter 2020.
Our professional fees declined 22% and was mostly related to lower acquisition related expenses.
Yes, she is best increased by 60%.
Related to the credits we receive because level the positive in terms of <unk> Jude.
The evolved the targeting threshold small Brian recognized credits, we have now utilize all credits issue to us.
Compared to 2019 over noninterest expense during the first have 2020 declined 7% as we recognized a reduction of $6.7 billion in acquisition related expenses.
The majority of the range injury was related to the Cline salaries and employee benefit costs, driven by the higher level deferred personal loan costs lower medical insurance costs.
These decreases were partially offset by increased electronic banking expense.
Trued up 14% compared to the prior year increased data properties and software spent 13% compared to prior compared 2019 and franchise tax.
18% higher than the prior year was impacted by higher equity balances.
Our Ohio financial institution stacks.
We focused on expense management during the second quarter, pointing 20, and we'll continue to keep those are the main objective.
The remainder of the year and into 2020.
Moving onto the balance sheet.
Our investment portfolio declined to 90% of total last quarter end compared to 23% of your end.
Partially due to the larger balance sheet at June Thirtyth 2014, as a result of the Pvp loan.
A couple payments on the investment portfolio was also higher than anticipated during the quarter given the increased refinancing activity, but tribute to the reduction of interest rate for the federal reserve or at the end of the first quarter.
The principal paydowns during the quarter reinvested in loan portfolio to support growth and we utilized for the payment the premium finance acquisition, well I'll give us for an opportunity we're limited during the quarter.
Our demand deposits as a percentage of total deposits grew 42% at quarter end compared 40% at the linked quarter and year end and were up 37% a year ago.
Well core deposit, which excludes GTS, 16% from Gurda linked quarter end, 25% or the yearend and up 27% compared to prior year second quarter end region PPP loan proceeds imos and change consumer spending habits have driven increases over the prior.
Hi periods.
Compared to March 31st 2020, we experienced a 38% increase in noninterest bearing deposit.
23% growth in money market deposit account and a 10% increase in savings account balances.
We also.
We have been reducing or higher cost brokered deposits in recent quarters.
However, we added $180 million broker deposits during the second order as they provided relatively low cost funding loan growth compared where other funding sources.
Quarterly average deposits total deposits from 15% compared to linked quarter and 17% compared prior to your second quarter, well average total deposits grew 13% compared the first half of 2019.
Oh periods room impacted by region fiscal stimulus easy PD lone broadly unchanged consumer spending habits.
All comparisons to the 40 19 period included the full year impact from the acquired for preference for August.
These increases were partially offset by central reductions in higher costs broker deposits earlier in 2020 recent increasing broker deposits occur late in the second quarter and did not have a large impact on quarterly averages.
Our cost of deposits was 34 basis points for the second quarter of 2020 compared to 55 basis points in linked quarter and 70 basis points in the prior year quarter.
We remain committed to maintain strong capital. During this crisis, we have been Barclays cresting, our capital levels and same barden reductions in capital well still being within our internal and regulatory requirements.
During the quarter, we purchased nearly 10 million of shares under our share purchase repurchase program, we will carefully evaluate whether to continue share repurchases in future periods.
And at what level.
Our capital ratio, even after the reason.
Purposes, a fair continued to be strong at June Thirtyth 2020, our common equity tier one capital ratio was 13.44% our tier one capital ratio was 13.69% our total risk based capital ratio was 14.94%.
In our tangible equity tangible asset ratio was 18.
8.16%.
Negatively impacted by 86 basis points.
Digital TPP loans at June Thirtyth 2020.
Recently completed another stress test on our capital.
Which included the following key assumptions.
No net income for the remainder of 2020.
For the full year of 2021.
Dividends were held at the current rate 34 cents per share.
As far as for the result.
Under this scenario, we will maintain capital and that's a wall capitalize levels are holding company at December 31st 2021.
One.
Our projected common tier one capital would exceed the well capitalized level by $136 million why our colder risk based capital would exceed well capitalized level by 74 million.
For the bank.
Rejected ratios would be above well capitalized levels at December 31st 2021 as well.
Projected common equity tier one capital if she well capitalized level by $140 million, while our total risk based capital would be 70 million Oh, well capitalized level.
And that's the results or expressed to us indicated that we could boost and knowing.
You need to pay our 34% pershare dividend and still be able to windoor nearly $90 million of additional provision for credit losses through the end the 2021 remaining above well capitalized steps.
We will continue to closely monitor or capital levels and pursue additional stress testing.
As we reported earlier. This morning, we will continue to pay the same dividend per share during the third quarter and we didnt second maintaining the dividend as a current level is a high or.
We have been proactive in our approach liquidity man.
And they move early independent mic to ensure we had available funds central needs.
Many strong sources of funding important additional collateral pure wine several months ago do have multiple funding options.
Manage.
Manage some excess liquidity during the quarter, which cost us a net interest margin, but we believe the risk and the need outweighed the cost.
During the quarter, we did not end up used white utilizing the pvp lending facility in material way as we were able to your other funding at lower cost.
Our loan to deposit ratio declined to 84% there will be 20 white compared to 86 person at the linked quarter and 87% at quarter end.
As we disclosed last quarter, we moved forward with implementation of the seasonal accounting standard as of January for 2020.
Compared to March 31st 2020, the underlying economic forecast continued to show deteriorating conditions through several quarters.
And when coupled with our loan growth resulted in the higher allow for her losses at the end of the quarter.
The recent PPP loan growth reflects obligation guaranteed by the FDA and therefore had no impact on our allowance for credit loss calculation for or.
At June Thirtyth 2020, our allowance for credit loss grew to 1.62% growth loans compared to 1.47% the linked quarter end and 0.75% at your rent are allowed to incur losses. The gross loan was negatively negatively impacted by 23.
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Basis points at June Thirtyth 2020.
These additional PGP long for which there was no related allow write off.
Our allowance for credit losses, as a percent of nonperforming loans has doubled compared to your Iran. And was 199.81% at June 30th compared to 158.49% and de linked quarter end.
While our own team record peak credit metric that at the church significantly during the quarter economic forecasts at June Thirtyth drove much of the increase in the allowance for credit losses.
I'll now turn the call back to jump for his final comments. Thank you John.
Recent turmoil, we have found the silver lining our associates, even though many had been working from home are working more closely than before.
Teams a dedicated to doing what is best for our clients and are doing as much as possible to help out during this difficult time, we remain committed to our community and to payroll detection. Our associates have donated over $40000 to local food banks in recent months.
As an organization we have also donated $250000 during the quarter to local food banks and pantries throughout our footprint. In addition, we recently donated $25000 to the Heisman Trophy winner and number one NFL traffic by the Cincinnati Bengals, Joe borrows hunger relief fund.
Which was designed to make a difference in food and security across southeast, Ohio, We will continue to look for meaningful ways to get back to our communities. We were excited to be working with the new premium finance team and look forward to the acquisition complementing our current business structure, while also giving us the flexibility to offer additional serve.
Mrs to our clients as we move forward, we continue to place important on our credit functions as we closely monitor our portfolio and work to proactively identify issues and work with our clients to accommodate modifications as we disclosed publicly in June we will not be providing financial expectations for the.
Foreseeable future during this historic period of economic uncertainty overall, we view our financial strength as fee income, which comprised 30% of total revenue for the second quarter of Twentytwenty or low cost of deposits, which was 34 basis points for the quarter a 21.
Basis point.
Declined compared to the linked quarter loan to deposit ratio, which stood at 84% on June Thirtyth Twentytwenty, our nonperforming assets as a percentage of loans in Oreo, which was at 80 basis points, an improved 14 basis points compared to the linked quarter end.
Strong capital position, which even under stress scenarios provides a great source of strength and our ability to maintain a high stable dividend rate. This concludes our commentary we will open the call for questions. Once again. This is Chuck Sulerzyski and joining me for the Q in a session is John Rogers.
Our Chief Financial Officer, I will now turn the call back to the hands of all coal facilitator.
Thank you Sir.
We'll now begin to question answer session to ask a question and you May Press Star then one on the Touchtone phone.
Thanks, and my question has been addressed my will drive a question by pressing Star then too.
I guess in a star then one to asking question.
Yes, I will just pause momentarily to assemble roster.
And the first question, we'll have will come from Scott's inflows of Piper Sandler. Please go ahead.
Morning, guys. Thanks for taking my question.
Scott.
Hey.
John was hoping you could I know you you provided some detail in your prepped remarks, I haven't seen the.
Deferred personnel costs on the fashion before you know where I guess, we're all going through new stuff, but that PPP, but just curious if you can can expand upon or how that plays out that does not sort of structurally lower the expense base going forward by like 900000, a quarter right. That's just that's just something that happened in.
In the quarter in which those loans were originated is that correct.
That's correct I mean, so I mean, the dissolves on are basically Fas 91, which required in refinery origination income is rolling origination costs.
So we originated all those loans.
You are furloughs that costs are I'd, just like you are referring fees that we got from yes.
You amortize over that two year period news come to a new one good forgiven recognize all that the fees and expenses at that time, but right now to it only happens that when you originated loans are ongoing quarterly cost.
Okay, perfect and then when those I guess, though the way we'll see those costs is just on a net basis through the margin is that right. It sounded from your prepared remarks like that but the fees and expenses gets sort of embedded within and I did I hear that correctly. That's correct. That's correct, although the Fas 91.
You can get run they get deferred and running through the margin.
Yep, Okay, perfect and then final one I apologies if I missed this in your prepped remarks, but as more forgiveness of.
The PPP loans, what what is your sense for timing and and sort of total percent that that ultimately could be forgiven.
We think the vast majority of it will be forgiven hopefully in this calendar year, maybe 85% of it is.
This year.
Yeah, so hard to given answered your question like that since there's no clarity as to what that forgiveness process is.
Yeah.
Thanks, guys.
Yeah.
Absolutely upside if they come up with the dollar threshold and they're going to automatically basically right. So yes.
Would have moved things along.
Right now we're thinking anywhere you have talked mentions give or take 8% give or take it could happen this year.
Terrific. Okay, great. Thank you guys very much appreciate it thank you Scott.
Your next question web will come from Michael Sovaldi of KBW.
Hi, good morning, Thanks for taking my questions.
Welcome by more than my morning mine.
Good morning. So you guys are one of few bank to repurchase shares. This quarter can you talk about the decision to continue at the buybacks and your comfort with the reserve and capital levels and then do you expect deposit the buyback from here.
First off at this price, we think our stock as a steel.
If we're not willing to buy it why would an investor be willing.
To buy it we have high capital.
You know I think we're going to continue to analyze stock purchases, yeah without buying an excessive amounts.
At any one point in time.
So.
Well continue to review it and I don't think it's the left last buyback we will ever do.
And.
Sure.
Josh I sure hope.
But the value of not only our company, but all of this community banks.
Begins to reflect and the stock price what they're worth.
So.
We'd like.
Pardon up like the stock at this price.
Hi, great. Thank you that's helpful.
And on the NIM I should we expect the excess liquidity and the resulting drag on the margin to stick around for the next few quarters given limited opportunities to deploy cash.
Oh, I would say that.
We brought down our own cap that we're holding or in the core for the second order role in a little less at quarter end that we were definitely in the April early may timeframe.
But you know given the current situation you know things the economy I.
Thank goodness.
Shutdown central further shutdowns and those types of opportunities I think.
We do need to be careful right. So I think you need acute disease modern cash as far as it allows us in the inflow of deposits that we've had.
You know a lot of that depends upon timing or at least forgivenesses, where customers are actually doing with the cash they have.
I'm expecting deposit balances be pretty strong at least Rob the remain a good chunk of the remainder of the year as that holds in there we have the premium finance company too.
You know, we're optimistic that can grow and what we actually bought that June July for officially.
They were kind of a seasonal law they have a strong pipeline.
Got it kicks off early in the third quarter or July August September very strong origination periods that we know we're going to have funding related to that as well and.
That's kind of how we see things playing out currently but I do think with all the deposits and rolling out very difficult to see all this plays out.
Over the next.
Yes.
Right. Okay. Thank you.
He just provide some color on the consumer indirect loan production and where that came from and kind of wires. Some of the credit parameters around those loans.
I'm sure be glad to help yeah, I'd be damned, if I can tell you whether the mask count from I mean buying vehicles at a pandemic would not have been on my top 10 things to do but nonetheless volumes for you know nationally call volumes are pretty close to where they were before.
And our footprint they are a little bit higher.
So that that's helped us.
There is not much inventory out there in terms of.
New caused so it was a little bit more tilted.
To use caused a then what we have seen historically and the average five go up production upward Q2 was 734. So we had good credit quality a with a good.
Good growth so.
It's kind of like the perfect storm.
Awesome great. Thanks for taking my questions have every day.
Thank you.
Well again as a reminder, after you like to participate in today's QNX. Please press Star then one on the touched on.
Hi, good rather star then one to ask a question that's way of Russell Gunther of D.A. Davidson. Please go ahead.
Hey, good morning, guys I Russell morning.
A couple follow ups on some of the prepared remarks, the first wanted to.
Terrify comments around the deferral so [noise].
Could you give us a sense for where maybe on a total dollar basis, where deferral stand today versus quarter end.
Yes.
You're talking about regarding loan modifications.
That's correct, Yeah, just trying to track the trend for where we are I mean, you spoke a little bit about some of the.
Request for a second round, but I'm just trying to track the point to point.
At quarter end do you mean June Thirtyth versions today or do you mean.
Our 31st versus <unk>.
There.
However, you like to define it I just would like to get a sense for where those modifications are are today and how they have trended over the past 90 days I think I'll keep this referrals were about 530.
Million dollars and I think as we sit here its about 480.
6000, so they're coming down.
Okay got it and then the key point as Roy those Oh, we keep talking to our customers and we're not seeing a large demand for any re offs.
On that type of thing Australian commercial side, there were 90 to 120 days or so people would start to have an inkling awarded there had eight on that I believe you know at this point in time, Burger and you want or not so we're not seeing.
Ours to Matt So over the next 30 days 45 days when do you start to run off so you're really not going to feel our run off yet.
In the might have most of them probably occurred while after.
April 15th.
My time that process without role so.
Got it Okay, and then along those lines guys. Thank you for that but.
Do you consider these customers to be higher risk given that they are enough forbearance program and you know if that's the cases that reflected in the current reserves.
Or will.
You know, we potentially see additional reserve builds for these going forward I do not consider the vast majority of these customers to be at higher risk. A good example would be Mcdonald's portfolio, which is about 100 million of it.
Yeah, Mcdonalds is doing extremely well the operators and abundance of caution did everything they could too.
Increase their liquidity so of the 480 ish million that's out there you know I feel really strong about over 400 million up it is going to be perfectly fine where I feel you know in the last quarter's call. We went through our portfolio.
In detail and talked about different segments that might be stressed Fortunately for us.
The only segment that were really feeling stress and then the hotel portfolio, which is a relatively small portfolio and you know about 40 ish million of those modifications. So yeah, we feel pretty good pretty good about it.
I appreciate the color check you actually got to my next question, which was yeah.
How that kind of co bid 19 ring fence has has trended you mentioned some of that sectors that you called out last quarter.
So how would you quantify it beyond hotel is that really where were.
Where things stand in terms of the most amount of big stress you'd expect or are there are there still other pockets of weakness you would include in that.
Ring fence amount.
Hotels is overwhelmingly the largest piece of it you know we have some.
So.
Take care facilities that are a little stressed we have some non mcdonald's restaurants that a little stressed but nothing really material and as it relates to increase in the read the.
Reserves.
Oh reserves, a bigger than our net charge offs for the last 10 years I mean, I'm. So I I'm struggling with this new accounting convention I would say that our reserves are.
Extremely high relative to the rest that's in all portfolio.
Got it okay, and and that was really to my last question Chuck Thank you for that.
Hearing you on you know.
How you feel about the deferrals.
You wouldn't expect significant.
Negative credit migration, they're hearing you that Ur cobot 19 loans at risk is is a lower percentage than you would have characterized originally have we seen the provision level peak for People's in the first after the well I understand how piece so we.
Works in based on an economic model.
Oh, you know that includes a number of components.
Unemployment forecast GDP forecast of fall Io and some for the United States and.
I don't control.
What Moody says to those variables.
I do feel very good about all portfolio I do feel very good.
About what our folks are doing I do feel good about where our clients are but those economic forecast deteriorate.
They are.
According to the convention of the New convention, our reserves are going to go up.
And.
Do I think that mirrors the risk in the portfolio idle.
But I don't get to make the rules.
So that's the driver going forward there aren't qualitative overlays that does qualitative overlaid all qualitative overlays put you cannot but.
But you could modify.
But you can't like going the opposite direction.
Okay. So roughly I think out vertical goksu with winds up right. So even when the economic indicators start to level off.
You know at that point and given the fiscal stimulus that occurred I think is.
So far this has been very on traditional three or four months here and I think how this plays out will be like nothing we've seen before right I would imagine.
And there you can probably rationalize multitude of outcomes and if you think through or a long enough, but what's the economic indicators improved you know you're gonna start to see maybe a few credits and then you're going to need to put of specific reserves on those credits so economic factors could improve your costs.
Our models to come down you might need to have some specific reserve that you put up you know how that one comes down one goes up where.
Where that leveled off and you can doesn't mean, a net increase or decrease.
I think thats was all to the common be decided so predicting.
Those types of things I think it's very difficult.
Sure I said, we're very confident in our portfolio Oh, we think we've seen good signs of the modification.
We have been signs on consumer delinquencies, but we'll see I'll split.
No I appreciate the color thanks for taking my questions guys.
Thank you.
Hi, good as a final reminder, we'd like to participate in today's can I. Please press Star then one on its how soon so again that the star then one.
We have Steve Moss with B. Riley FBR.
Hi, good morning.
Dave.
Yes, I'll start and just follow up with the regard to sequel here. Just wondering what are your underlying assumptions with regard to GDP and unemployment.
I headed toward time here in your question, Steve you want to know what the fact is art in in the model that we use yes for GDP and I'm playing for example.
Yeah, so its U.S. unemployment, Ohio, unemployment and Ohio, GDP other three factors.
Mm Hmm right or I guess.
Are you using like assuming like high single digits low double digits type well unemployment rate, although we do you kind of.
So.
Both the moms.
Moody's forecasted in June for 10 to 12 months out the U.S. unemployment is nice 68, Ohio unemployment Tenthirty War in Ohio GDP.
Plus 451.
Okay.
We use the motif baseline scenario right. So I think.
Go there in New York, you'll find the numbers ever used for the next 12 quarter. We go out one year.
Okay perfect.
And then with regard to funding costs for the core I apologize if I missed this just kind of curious where you know.
We're kind of cost could shake out here, but for deposits in just total interest bearing funds and the next three to six months.
Well I think for the quarter. They were 34 basis points you have an excess of.
Ah liquidity I don't think that that's going to change.
That much of the cost of deposits over the next right. So we've done some a continuing to lower the deposit cost we did some a little rock sitting down in June.
That helped a little bit, but we are for most part most where costs are pretty low level, we still have some.
Promotional products, you need money markets it'll come off throughout the year well from public forums contracts.
Player so you'll see a reduction for low but.
I don't think you're going to see quite the reduction in the next few quarters. If we have seen over the last few quarters. So.
Are we talking basis points as opposed to tens of basis.
Okay.
That's helpful. And then just kind of in terms of.
Well a hard one to.
To answer but in terms just.
Business activity.
I'm, assuming most customers are pulling back.
When do you think you do have any sense of when you know you could be perhaps building up a more commercial pipeline or how you're thinking about that further out.
Well I think there's a couple of things I may feel better about some of the activity. Then you may 1st off if you look at Ohio, Kentucky in West Virginia footprint.
And you look at the pandemic.
Okay cases per million or way, lower and our deaths per million or way lower so the U.S. average for cases per million at 11968, Ohio 6519.
Kentucky, 5000 to 41, and West Virginia 2869.
So I think that those numbers.
Weve reflect state in total Where's the state got the most problems with.
The pandemic in Cleveland, Columbus, and Cincinnati.
So if you look at all footprint.
Were more in the World counties.
I think that all customers are probably more optimistic than Ohio on average or national on average.
We did have 4% loan growth outside of the PPP between Q2 in Q1, we do have a respectable pipeline isn't the best pipeline I've seen in my career no, but other deals that we're doing that a good deals to do absolutely. We also have the benefit of the.
Okay.
PPP customers that we bought in.
Yes, so far.
We have sold over $40 million of deposits and loans.
Two goes.
New PPP customers as well as you know close to $150000 to fee and I suspect over the next 90 days I'm, you know will be able to increase that multiple times as we round those customers out and welcome them to People's Bank. So I don't think it's all bleak.
And we'll just keep chipping away and does it will be fine.
Okay. That's helpful. And then lastly, just kind of I.
In terms of just going back to hotel portfolio, you mentioned the largest source of stress. If you could just remind us on loan to values and kind of how you're thinking about.
You know I'm, assuming why those customer going or redeploy or just how to think about maybe restructuring those loans or what your thought process there.
Oh, it's 64% loan to value, obviously goes appraisals done one times when they're fully operational and reflects the income of the <unk> you know property nine of the 12 a flag.
The three that arent you know two of them are cabins and.
People are running to cabins to get away and they're doing great probably better than ever.
But I can't speak for the country, but I can tell you that I made my first business trip and last week and stayed in.
Two different hotels and ER stayed out of 300 bed hotel and the night I was there it had 80 occupancy and that was the best like they had since this thing began.
And you saw if you follow the national better you saw that hotel occupancy actually dropped a last week it had been increasing but last week. It went back and if you saw what the CEO of Marriott Yeah. Yeah said he views this as a problem for a long term so I suspect the folks are going to.
I have difficulty.
A number on them.
[noise] are well.
Well capitalized and they'll get through it.
If you set asked what the scenario is you know I'm sure that these properties will likely be downgraded in the second half of the year.
Do I expect us to have a losses.
In the second half of the year on these properties I think that's unlikely it's possible due I think that these properties will have losses.
Through this pandemic.
Perhaps but I don't think it'll be anything.
Anything meaningful, particularly.
In light of whatever the number is 54 million dollar provision.
Okay that allowance whatever.
I'll be a big or [laughter].
Well. Thank you very much I appreciate all that color.
Thank you Walt.
The big one.
Well I put aside we're showing no further questions. Sir do you have any closing remarks.
Thank you for listening to us go on and on and on.
Thank you for participating please remember that our earnings release and webcast of this call will be archived that peoples Bancorp dot com under the Investor Relations section again, I want to thank Eric I want I wish everyone. Good help thanks for your time would have a good day.
And we thank you Sir and also to the rest of the management team for your time also today again the conference calls now conclude at this time you may disconnect you lines. Thank you again, everyone take care and have a great day.
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