Q2 2020 Investors Bancorp Inc Earnings Call
To the investors Bancorp.
Quarterly earnings Conference call.
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[music] after todays presentation will be an opportunity to ask questions.
We will begin this morning's call what the company's standard forward looking statement disclosure.
[music] Representatives investors Bancorp, Inc.
Forward looking statements with respect to its financial position [noise].
[music] operation in business.
Hi, good statements are not guarantees.
And are subject to risks uncertainties and other factors some of which are beyond the best for Bancorp's control.
Or difficult to predict.
Actual results to result materially differ from those expressed or forecasted these forward looking statements.
The last Night's press release the company included it Safe Harbor disclosure refer you to that statement.
That document is incorporated into this presentation.
[music] for a more complete discussion certain risks and uncertainties affecting investors Bancorp.
Second entitled Risk factors management's discussions and analyst.
[laughter] central condition and results of operations set forth investor Bancorp's filings with the FCC.
Well I went to try to go over to Mr., Kevin Cummings, Chairman and CEO investors Bancorp. Please go ahead.
Thank you there.
Good morning.
Welcome to the investors Bancorp second quarter earnings call.
The company reported its press release that a couple of 42.6 million.
<unk>.
Lord and share with a three months ended June Thirtyth 2020.
As compared to 39.5 billion or 17 cents a share.
Quarter ended March 31st.
At 46 million or 18 cents per share a three month period ended June Thirtyth I can't.
For the six months ended June Thirtyth net income totaled 82.1 billion or 35 cents per diluted share compared to 94.8 billion or 36 cents per share for the six months ended June Thirtyth 2019.
During the company doors across the company completed its acquisition of Gulf Coast Bank, which had approximately 535 million in total assets.
Got 43 million at lunch and point and 90 million in deposits.
It is seven branches in the New York markets nearly doubled the pod.
And that sort of southern counties.
He's customers have attractive demographics, and give us opportunity to leverage our business miles to customers in that mark.
Getting this transaction completed during this pandemic is attributed to the grid tenacity at the bank as we close the transaction.
Great brands at the branches and completed the data processing conversion during the weekend about April threerd.
Acquisition resulted in a recognition of 12 naming goodwill at approximately <unk> million in core deposits intangibles.
During the second quarter the company recorded a provision for loan losses 33.3 million versus 31.3 billion into first quarter 2020.
At this compares to a crazy $3 million into second quarter 2019.
This elevated provision has a direct result, correct. Okay. When economic conditions that include the economic impact the called me back pain and that.
Pre provision net revenue was 92.1 billion for three months ended June Thirtyth 2020, an increase of 6.7 billion almost 18% 8%.
It's a three months ended March 31st 2020.
This is also an increase of 29.8 billion or 48% compared to three months ended June Thirtyth 2019.
The bank has spent considerable effort and evaluate the credit position and that's focus itself and other commercial portfolio.
As disclosed at March 31st True the company reported approximately 3.6 billion in commercial loan deferrals comprised of 600 million at senile.
1.4 billion at multifamily loans.
1.6 billion NCR right.
The banks lending teams were very aggressive reaching out to customers starting at a time of great stress and uncertainty.
And like the P.B.B. Lowe program.
What that does the federal process that help out borrowers and customers.
Well, we're actively reaching out to not to assist them. During this economic locked down initiated by local governments.
We have spent the last 10 weeks actively communicating our customers to assess their needs starting this bad data.
After extensive communications with our borrowers and follow up on lending teams.
We have reduced the exposures to depart significantly.
At July 24, total requests and that's no different that total request. The second deferrals totaled 480 million, which was comprised of 218 billion see an eye laws 87 million in multifamily homes at 175 million in commercial real estate.
We have performed detailed reviews on 79% of the original 3.6 billion.
Charles today.
We anticipate upon completion of this entire review it hard launch.
Second the pro exposure for commercial loans of approximately 750 million or 5% commercial loans.
I mentioned earlier, the 480 million and long instead of requested second deferrals approximately 292 billion is concentrated in the accommodations.
And services sector.
Oh that amount.
230 billion or hotel loans to two relationships.
Strong liquidity and our proven generational operators.
One relationship at the first loans with an average LTV pretty called it a 45% a debt service coverage ratio 185.
The other relationship is also for the parent loans with an average LTV of 51% and the debt service coverage ratio of 142.
Okay as far as have goodwill occasions, and desirable areas of Manhattan.
And the retail sector, we have approximately exposure at 1.8 billion at June Thirtyth 2020, that's entire commercial portfolio.
The initial deparle amount of 880 million, which has been reduced to 380 million. My follow is making the July 1st payment.
Based on discussions with borrowers we expect further reduction.
On completion of the initial three month apparel area.
258 million.
Which would result in second deferrals in the retail portfolio of approximately 130 million.
And the officer sector.
Total loan exposure is 1.2 billion with initial deferrals of 186 billion.
As of July 22nd we have received a july 1st payments for loans totaling 35 million.
What you solved it occurred at the federal balance of 151 million.
Based upon a follow up with off hours.
We anticipate further reductions of 115 billion and office apparel balances as for you. So as a result of payments principally scheduled for August 1st.
Which would result in the second deferral bouts of approximately 36 million for the sector.
And the multifamily sector.
Total exposure of 7.4 billion at June Thirtyth with initial deferrals of 1.4 billion.
Which have been reduced to 900 million due to payments received in July.
We expect those deferrals to be further reduced oh, the completion of the initial three month deferral period by August September payments to approximately 100 million.
So in summary today.
We have approximately 1.4 billion a mall deferrals in the office retail and multifamily sectors.
We expect based on current conditions of ours.
That's almost a bowl bounces will be reduced to 260 million at the end up their initial first three month deferral period, which is that name August 1st attempt a first to eliminate extent I've told that person.
Overall, we're very pleased where we all with respect to assisting our customers through this pandemic today.
There is much uncertainty.
Forecasting future events or results are sometimes very difficult Oh, we'll continue to work with our customers to help them through this crisis.
Our approach is to be proactive in addressing these issues and then we'll be in the future difficult conversations. We believe we have taken a conservative approach to our provisions as compared to banks with similar portfolios and the New York, New Jersey markets, and we are well positioned to weather the storm.
With respect to charge offs for the quarter, we had one significant charge off on a multifamily loan for $3 million to $5 million that was not pandemic related.
And I have had the loan written down to 80% of current appraised value, which was received recently in may.
With respect to delinquencies 15.3 million up to 24 billion and multifamily 30 days delinquent loans or current as of today.
Six and a half million of the 10.6 billion CR rate 30 day delinquencies are current as of today and $5.9 billion seven have not yet and Cnine 30 day portfolio is current as of today.
In a 60 day bucket the only significant exposure is in the multifamily.
Which totaled 19.1 billion of which 9.9 billion its current today.
4.8 million has been approved for its first appraisal and 4.4 billion, it's a maturity where there's a contract for sale.
It's a 90 day talk at the only significant increase was into multifamily portfolio, whereas the reference loan with this quarter's charge off.
That now has a carrying value of 18 billion was moved into the 90 days delinquent Buck during the quarter.
In addition, there were five small additional credits with an average balance of 1.4 billion, which moved into non accrual status started the quarter.
Based on our current delinquencies and the significant progress in reducing our deferred loan balances.
In addition to the increase in a low reserves in the past two quarters. We believe we are well positioned to get through this pandemic.
With respect to the balance sheet.
Well as increased 75 million during the quarter, which was attributable to the Gulf Coast acquisition, and the origination of approximately 328 billion and PPP loans.
Without those transactions wallets would have declined by approximately 700 million.
With the uncertainty that we're looking at.
With the and certainly that we were looking at in March and April It was prone to take out fourth warfare accelerator and build liquidity to manage the challenge of this economic environment.
As we got a better handle on our exposures to the Ben and dynamic economic impact, we will assess our growth opportunities.
As the economy continues to stabilize we will look for opportunities to grow out loans across all portfolios.
As opposed to our strategy in 2019 at the beginning of 20, well we were more focused on business lending side.
This is that a major strategy shift, but one that we'll be opportunistic based on current interest rates.
It was a strong caught up with deposits as noninterest bearing deposits increased 618 billion, what 25% for the quarter, which 93 billion was attributable gold coast.
Total deposits increased 1.3 billion or 7%, which of which nine 490 million was for the gold coast acquisition.
Our loan to deposit ratio declined from 117% to 110% for the quarter.
Right.
Declined 46 basis points in the quarter and there was still opportunities to discuss decrease funding cost and the second after this year as two and a half billion in time to scheduled to mature with an average cost about 1.57%.
With respect to capital the company announced the cash dividend of 12 cents per share has maintained its capital ratios across the board given the impact of the PPP loans.
We believe we have sufficient capital strong liquidity and a robust credit culture to maintain that dividend and to handle the uncertainty and economic stall that maybe on the horizon.
If we look at past comedies like Hurricane Sandy at the 2008, great recession, we have matched the turmoil and have been opportunistic.
I believe with this management team and with the investments that we have made in our enterprise and credit risk management teams.
The investments in technology and product development.
Today, we are better prepared to serve our customers, which really so hopefully it stronger returns to our shareholders.
No not at the turn the discussion over to Sean Burke, our CFO for more commentary on our results of operations for the quarter.
Thank you Kevin.
Net interest margin increased two basis points to 2.73% quarter over quarter, Despite an elevated average cash position and the second quarter.
We continue to benefit from previous pen rate cuts and Saar cost of interest bearing deposits declined 46 basis points during the quarter.
Total land loan balances increased 76 million quarter over quarter inclusive of 453 million of loans from the acquisition Gulf Coast, and 329 million of PDP loans.
Deposits increased 1.3 billion or 7% quarter over quarter with noninterest bearing deposits up 618 million or 26% quarter over quarter.
Total non interest income totaled 10.1 million for the quarter a decline of 4.5 million.
Quarter over quarter.
The decrease was driven by a 2.6 million MSR write down a 1 million reduction and swap income and lower loan and deposit fees as a result could see really policies.
Excluding 3.3 million of goalpost related costs expenses totaled 96.7 million for the three months ended June Thirtyth 2020, a decrease of 5.8 million or 6% compared to the three months ended March 30 Onest.
Our reported efficiency ratio improved to 52% from 55% in Q1, reflecting a modest increase in revenue and a decrease in noninterest expense.
Provision for credit losses was 33.3 million three months ended June thirtyth.
Parenting 31 million two to three months ended March 31.
Oh periods were significantly impacted by the cobot 19 pandemic.
Our Cecil economic forecast scenarios for the second quarter included a double dip recession scenario, where GDP unemployment further deteriorate in Q4 and unemployment remains in double digit territory for most of 2022.
Asset quality liquidity and capital where in a strong position at quarter end as we continue through this environment.
Non accrual loans represented 0.59% of total loans at June Thirtyth compared 2.46% at March 30, Onest, our allowance for credit losses to loans stood at 1.37% at June Thirtyth.
Our common equity tier one ratio was 13% and June thirtyth exceeding the well capitalized level by approximately $1.2 billion.
Liquidity improved quarter over quarter and their loan to deposit ratio stood at 110% at quarter end down from 117% in Q1.
Finally, I would like to note that additional information on long deferrals can be found in an 8-K that we filed last night.
Now I'd like to turn it back over to Kevin for concluding remarks today. Thanks, Sean.
Yeah message at the bank is to be faithful enough people, we need to be a source, hoping optimism communities.
Our branches are open the full service right you allow us.
And then we had 48 employee cases, thank goodness. Thank God today, we do not have any.
We are taking all precautions to protect our customers and employees.
We have close to 50% of our corporate employees back to the office and it's very good for me to see them healthy and strong willing to return and lead our communities back to some form normalcy.
Isn't that Brad yesterday, and listen to their challenges during the height of this pandemic here in New Jersey, our retail teams are engaged and excited to be working and more importantly, helping their customers and communities through this pandemic. The past four months have not been easy.
We have face the challenge and continued to get stronger and more adaptable as we navigate the changes from these unprecedented events.
And we get some stabilization in the macro economic climate, which will then impact our economic models, we could have a much stronger second half 2020.
We've been aggressive.
Calling on our loan customers and have a warning type attitude to a monitoring our credit exposures with great teamwork from our frontline loan offices at our credit risks team.
This crisis is different from 2008, great recession at the banking industry is stronger, but better capital to sustain the economic downturn.
Investors Bank has also stronger and better prepared for these events.
Much more optimistic that I wasn't April when there was so much uncertainty.
Our medical professionals and healthcare workers have been outstanding and I've learned a lot about the treatment of this virus and we are in a better position the monitor and treat this terrible as Evan.
Earnings per share.
Flat to last year after taking 36 million additional provisions in the quarter.
Our balance sheet capital, a strong and we are well position to grow as the economy improves that wed like to turn it over to questions.
Yes.
Well I'll begin the questioning or for a second fastest question. You May proceed star one on your Touchtone phone.
We are using a speakerphone please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then.
This time, we'll pause momentarily to assemble a roster.
[noise] first question comes from Mark That's Gibbons Piper Sandler. Please go ahead.
Hey, guys good morning.
Kevin Kevin I really I like your optimism. It's good to hear first question I had you also are pretty good dropping deferrals this quarter I'm just curious.
With that borrowers genuinely willing or ready to start making payments again or or did it necessitate a fair bit and nudging on on your behalf to get them to sort of start making payments again.
Hey, Mark instalment, Okay, Hey, Tom I think yeah, I think the most part D customers were willing to come off the.
Off to deferral.
But we did put and policy in place in which we made it a little bit tougher to get the second deferral no. We asked for income expense.
You know PNM statements.
We've looked at their debt service coverage.
In some cases.
In exchange for getting the second deferral, we would ask them to put up the cash reserve or even put a guarantee on loans and so.
Yeah. They said for most part customers were willing to come off but clearly a second deferral policy is to be a little tougher end to scrutinize the deferral requests a little bit more did we did the first time.
Okay, and then at that same being how were you know rent payments, particularly on multifamily properties going.
Recently.
[laughter] Mark I think you know we've been open with this information I mean, what were noticing is not too dissimilar to what we see in the rest of the market in the multifamily space I would say that you know average collections of rent.
Our north of 85%.
On the commercial real estate side, I would say that that number is about 50%.
But again, our multifamily it's been it's been stronger than it then commercial real estate.
Okay.
And then Sean I'm curious can you give us a sense for the timing of the you know the excess liquidity deployment, because I know that obviously is weighing on the margin.
Yes.
Mark by quarter end by June 30, as you can see that our cash position had come down nicely.
From the average balance that you saw during the quarter. So our to a large degree it has come off already and we're expecting to to kind of have that number average cash balance in the 500 million range.
Come the end of next quarter, and then by the end of.
The following quarter, we think we'll be back to normalized level from a cash position perspective.
And then as you think about the margins for the back half of the year, excluding the benefit from PPP that will come in at some point the core margin up maybe five seven basis points a quarters at a reasonable expectation.
Mark I don't know if I.
If I completely agree with that but what I would what I would comment as our pump you know we are expecting our margin to be stable with a bias to slightly up through year end.
Okay, great. Thank you.
Next question comes from jury trial of Wells Fargo. Please go ahead.
Hey, Gerry you on mute.
That's for sure are you there are you on can't hear you.
Nick maybe we can go to the next caller.
Come back next the next questions from Laurie Hunsicker of Compass point. Please go ahead.
Hi, Thanks, good morning.
Good morning.
That's around your comments regarding the core margin for the back half. The are you are you including.
PPP forgiveness on that.
Thank you can you remind us what the fees on the 329 million or expected cool.
So the answer is yes, but laurie we only have $329 million PPP launch so you know.
It really is not that impactful on our margin.
As a whole.
And I think our expectation is it around 75% of that.
Pp balance we are expecting.
That to cure or within a year's pure period, and then the remainder.
25% is going to come in over a five year period. So that averages to about you know a couple of years at least that's our assumption that we're using what we do modeling for margin purposes, but again, Lori even if you kind of stripped out with or without and I would probably is very negligible, one or two basis points.
The impact on the margin.
<unk>.
He sees that block there around 10 million or do you have a better number.
The net fees were approximately $8 million, so that potential upset that they all paid off next week.
$8 million of their interest revenue.
Okay. That's helpful. Okay, and then for the back half of the or how should we be thinking about expenses.
<unk> closed are you thinking about any branch rationalization or or any color you can get about that.
Yeah laureates Dominic Oh, Yeah, we are looking at branch rationalization obviously.
Consumers and business customers have Tom.
Taking better hold up you know online and mobile banking.
Services, so that that's giving us an opportunity to look and our branches to see where we may have some overlap.
So yeah, there's some branch rationalization and we're examining for 2020.
Lori if we you know we made a comment in a discussion last week.
If we don't change the way we do business results of this pandemic, we waste a lot of time effort. It sweat Ts over this last five months. So I think that's going to be significant changes on IRI said as we move forward.
And customer behavior has changed as a result of this dynamic.
Luckily were in a position, where we made significant investments in our technology and our products and over the last in 18 and 19 with a new.
Chief marketing officer, and that's paying off for us in spades as we work through this.
Situation.
Okay, Okay, and then on to loan modifications and I really appreciate all your detail.
If we were just more high level thinking about 2.7 billion that you have.
Cars active deferrals as of June 30, what does that number looking like as we get closer to top August or September bars.
I think Lori Wade and think about it is you know just 10 set a very high level.
And Kevin gave the number and about 750 million. So you know what.
Well, we're expecting is.
Well. This is all said and done that we'll we'll have about 750 million in deferrals that won't be working with.
Okay and that that obviously included.
The big South of that 230 million or so that's how.
Absolutely, yes, absolutely.
Yes, the netting that out it really my number and then it's if you can just help us think about because you've got your your hotels in your food service.
Combined do you have a dollar balance on hotels in a dollar balance one restaurant.
Sure it's gotta, how long, it's it's overwhelmingly in favor of the hotels.
I mean I think it's.
Don't have an exact dollar amount I'm worried but it is predominantly a hotel.
Okay, we can get back to you and that number I think it's like in my mind, it's like.
Less than 50 million you know restaurant exposure is much less than that so we won't get back to your offline on that.
Okay and then just one last quick question. Your 1.2 billion of office you haven't LTV on that.
Okay.
[noise] I know you don't have right here in Florida, but we can get back with that information.
Okay. Thanks, I'll leave it there.
[noise]. Thank you. Our next question comes from Collyn Gilbert KBW. Please go ahead.
If I could start with expenses. So you [laughter] relative to where we were expecting and even in the second quarter. You guys saw a material drop in expenses this quarter and I appreciate Sean kind of your your comments and you to down but if we just think about this quarter's expenses I mean, it kind of run rates to like.
395, or something below I think Sean what you had given as a fight for 35.
Guide for the full year of 2020 can you just talk about kind of movement. There on the expense side and and what will come back maybe in the back half the year and how that compares to your original.
Opex guidance.
Yes.
On the Opex Guide, we were high you know as it turns out and I think you know the largest driver of that is just as pandemic. You know we just don't have that the type of expenses that we would normally experience when people are traveling and loan officers are generating lounge, and and so I think we're benefiting.
From a lack of expenses on on on that side.
As we look through the back half of the year, we don't have anything.
Collin necessarily plan, it's going to meaningfully increased expenses from the base that we're at now so I think you know it's safe to say that the guy that we're providing a for 35 that we're not going to be at that number we're gonna be south of that you know I was thinking about something in the for 410 million range is probably.
More reasonable level right now I, probably have a little bit a buffer in that to college as far as you know some of the unknown you know as we go through the back half of the year, but nothing planned.
The docket, you know that's going to throw off expenses in the back half of the year meaningfully.
Okay. Okay. That's helpful and then just in terms of.
Sure you you mentioned kind of the liquidity or the cash usage through the end of the year. Sean can you guys just tie that to what you think loan growth will be and then within that you know in terms of like your current loan pipeline and then what you're seeing in terms of new loan origination yields and then I have fallen to that as well.
[laughter] Collyn I, it's we just recently.
Opened up.
Lending.
To a greater degree you know.
We.
We came into 2020 with strategic plan intended to reduce residential in multifamily and certainly that's happened in our pipelines will reduce coming into the first quarter, then depend demi kit.
And you know I would say that we were more cautious on lending and so.
Did not see a lot of loans closed.
During the March April may timeframe as credit spreads style started to wide we recognize that we could we could put on residential in multifamily.
At a decent spread and which would be.
Which which which would contribute to net interest margin and so those pipelines now have started to build and right. Now we're looking at a pipeline of about 2.4 billion. If you include 400 million for residential loans, so seeing nice about an 800 million.
You know pipeline series about a billion to and pipeline.
And I know that's a long winded answer to tell you that I'm not really sure where loan growth is going to pay I mean, if I if I took.
If I took PPP and I took.
Goalpost off the table for a moment.
The loan by loan actually declined to about $700 million. So I'm, hoping that we could get that back and keep the balance sheet.
Stable and neutral for the rest of this year. So you know having said that that would mean that I would stay at around $27 billion Mark as we head into the ended the year.
Okay. Okay. That's helpful.
And then just so on that and and Sean Your your comment on the NIM.
I guess I I wouldn't be thinking that maybe that NIM would expand a little bit more than what you guys are indicating can you just talk about it so you'd mentioned the tranche of Cds that are maturing in coming down, but you know where you're starting new CD rates are kinda fits and starts as to what you're assuming on the funding side.
[noise] <unk> you know in the composition deposits is a big one too right in terms of your outlook for non interest bearing.
Yes, the pecans Dominic the up you know on the on the cost of deposits coming in now I mean, we we have we have a product out there a money market account that's tied to a.
Core checking account that requires activities and certain number of.
Online deposits and things like that and that cost is at 75 basis points right. Now that's what we're out advertising we have a 13 month product out there it 85 basis points and a seven month product out there at 60 basis points and quite honestly just in talking.
You bet at the last few days, we see those numbers, it's been towards the higher end to the market. So so we see that coming down somewhat but you know I want to go back to Kevin's comment about the maturing Cds I mean, it's significant it.
Close to a billion dollars you know $900 million. If you look at it through the ended the year with the weighted average cost of let's call. It 160 ish and so that that should help NIM coming into.
The third and fourth quarter.
You know as far as out projections it being light on where that is I mean, clearly there's a lot dependent on when it's going to go these cash balances have been a bird non us.
You know to the extent that we continue to shrink it could you know could it who does mitigate any potential benefit but onto loan side I mean, we're seeing rates between residency and I am.
Going anywhere from three in three eight to three and five range. So that you know so if you think about the incremental cost of funds yet be somewhere around let's call. It 40 to 60 basis points.
You know when looking at spreads north of 300 basis points, which will be additive to NIM as we added and go into the third and fourth quarter, obviously offset by.
Any cash balances that we continue to maintain.
Okay. That's great color. Thanks for that Tom and then just one last question on on mortgage banking was up nicely. This quarter. I guess, just you know seeing a lot of the activity in the market here do you have a sense as to where you think you can take that business line either through just near term activity and then just structural.
Sort of you know how you see that building out longer term.
The.
Alan.
Mortgage banking business I mean, yeah, we just had a meeting on this morning, I mean, right now pipelines about 400 billion and about 50% of it is slated to be sold to the agencies. It's amazing to me you know we looked at the pricing. This morning, and two in 70 30 year mortgages can be so.
So to Fannie and price of North of three point, which when you compare that to where we've been historically, let's say over the last 18 months I mean that spread as was about one and a half. So it's gone from one and a half to north of three.
Over an 18 month period, and the coupons have come down to two would seven eight.
And to your question in terms of.
To answer your question in terms of where could disco for us.
You know, it's hard to say I mean, we just trying to you know we're not at out there actively conduct having a mortgage banking business. We're just trying to manage our own customer base and generate some commissions for out our loan officers. So it's not the type of thing.
That we're going to build up or make any significant investment. We're just kind of reaping the rewards of the current interest rate environment and the impact it's having on mortgage banking.
Okay. That's great that's super helpful. I will leave it there thanks, everyone.
Thank you next question comes from Matthew Breese Stephens, Inc. Please go ahead.
[noise] I appreciate all the detail on the on the commercial poor book in terms of deferrals very encouraging could you just talked about deferral trends or expectations for the residential portfolio and or the cure rates as a strong there.
[laughter].
So Matt that's a very good point, it's something that we've looked at actually it's it's not as strong on the residential side as it has been on the commercial side. So you know on the residential side, we had approximately $600 million of loans that would differ.
And when we look at those that were coming due in July that totaled approximately 352 million.
Of the 352 million.
34% have cured.
All right. So that's about 100 and.
140 million and 65% have asked for a second deferral. So you could see on the resi side, it's not as strong as it has been on the commercial side.
Is the process for issuing additional consume more residential deferrals as strenuous as it is for commercial customer hit it is not as strenuous you know what's happening there. Matt is we are trying to follow the Fannie guidelines on that and you know fannies.
Slide lines.
Don't.
Bush.
Customers to provide the type Oregon level of detail that.
That we can on the commercial side so.
You know, we're a little hamstrung, even though these loans are in our portfolio and I guess technically we don't have to abide by the Fannie guideline, but I think not abiding by Fannie guideline would probably hurt us a you know just from a reputation perspective.
Understood Okay.
And then considering the overall deferral comments and trends and certainly theres more news or more positive body language in tone. This quarter can you just talk about reserve adequacy and and the outlook for the provision and whether you think you know what we're seeing these last two quarters is is what you expect for for the back half of the year should we expect a reduction in the level of.
Collision.
Well that some of my commentary on the.
Macro economic show you deal with the model now.
And so little difficult to forecast that future based on the inputs that may be changing over the next couple of months.
You know, we got asked by regulators at a meeting the other day and it can be.
Down to 15 million in up to 50 million in the cost of that ranges. So it's a truck you can drive truck through the range and to give guidance on that and things that really are not in our control based on the life It alone and the new Cecil.
Mandates, it's very very difficult to forecast, but I think where we are.
I think where we feel very comfortable with our reserve today.
Okay and then my last one is just bigger picture. The last few years, we've seen the bank really push towards Cnine more relationship driven banking one time to stress you know we've heard you talk about adding to the residential in multifamily portfolio.
How's everything that's happened, giving you any sort of have you contemplated maybe a more balanced approach and going back to the multifamily Reggie business and a little less on Cnine is that any of that changed.
Hi, I don't think so Matt I think you know we continue to I you know I think we've run of well diversified portfolio and when you look at the the ratios of multifamily loans, they've they've they've come down I mean, weve at seven and a half billion on on multifamily.
The 5 billion Nonresi 3.5 on C., and I and about 5 billion on CR rate. So that that's a pretty balanced book I think I mean, you know from the C and I perspective, you know, we're going to continue to try to grow that business I mean, it because it's not only the C.
Nine loans that you put on your balance sheet. It's also the deposit that comes with it it's the cash management fees they come with it and you know quite frankly, when we compare our returns nationwide to banks in our peer group and we see banks, who are performing better than we we are.
Again pre coping.
The one the two pieces of data that is different and those banks first is our bank is that they have a greater percentage of the loan portfolio in see Eni and they have a greater percentage of their deposits in noninterest bearing deposits and so when I look at those two factors Dave pretty.
Clearly tell me that we can have a better return on equity in a bit better return on assets. If we shift the strategy a little bit here. Despite the fact that we here in the northeast.
Got it understood. That's all I had thanks for taking my questions.
[noise] next question comes from Jared Shaw Wells Fargo. Please go ahead.
Yeah, let's try this again can you hear me Hey, Gary They lost.
Thanks.
Yeah. So I guess I just wanted to circle back on the on the loan growth discussion you know with the headwind of I'm looking at that course or number down 700 million. This quarter in the pipeline you guys talked about or we are we thinking you know how should we be thinking about.
The the magnitude of loan growth for here music trying to recover that 700 million by the end of the year or is that you know that too too much I guess to think of over the next next few quarters with a headwind on smaller PPC balances. Yeah. I think that's a fair that that's a fair assessment of.
We want to be if we can recover that 700 million I think we would all feel pretty good about it.
Okay, and then you know circling I guess back with that provision with that growth is the backdrop for the provision if we don't see any change in the economic models, then I mean with that I guess I would mathematically lead to a significantly lower provision.
And third and fourth quarter without without economic deterioration without.
So I can't grow.
You Jared again I just go back to Kevin's response earlier I mean is just so difficult to try to determine even to sit here and I presume that is you know a better economy and loan growth.
It's just so hard to say I mean, the Cecil process is completely driven by the use of of models, Dan a forecasting the economy and you know for us to sit here trying to.
No.
Determine what our provision is is difficult and I know it's difficult for you because you need to run your models and and try to come up with some forecast, but you know, it's just hard for us to say.
Got it I guess, you know with the model.
Are you using the the Moody's baseline it seems like the way you're discussing it maybe it seems like there's a little more of an adverse economic scenario than industry, yes baseline at your way using when we're using a combination of three of them you know the three models and we're signing weeks to this.
Perfect scenarios. So you know we have you know weights assigned to the S. Three version of Moody's S. One and what end baseline and baseline.
Okay.
Oh yeah.
And we're in a unique situation here because we're in a real world without the.
Kazakh than the change in treating non paying customers.
And we would have significant pdrs troubled debt restructurings and a non accruals and it's amazing.
That the.
Yes on the general market conditions, and Soc market things don't really take that into account.
It is it's going to be something like I said earlier, it's going be some detailed discussions once this second deferral period ends up and we might be dealing with say anywhere from.
Yes, $3 million to $400 million, along with that May not come off that hotel group. So yeah, we're already talking with them.
Working unplanned post second deferral and.
Very good hopefully going to be into a better position as we're proactively reaching out to customers and tell them that.
You know, what's going to be awhile before people go to New York City to go to a pipe fees awhile before people are traveling the way we were pre pre pandemic. So when you put all those things together, there's still some uncertainty, but I think we're making the best of a tough situation.
And that's a that's great color I guess actually just want because under $230 million are those two relationships you mentioned, how many properties are incorporated in those you know enough balance eight.
Yeah, you Chatsworth, each forestar locations in New York City.
Great. Thanks, I appreciate the color.
Next question comes from Stephen do own RBC capital markets. Please go ahead.
Hi, good morning, guys.
Good morning, they see Hey, I'm just on your your footprint are there any pockets, that's showing more stress than your other areas.
Chris from what perspective.
I guess I'm you know from I guess from a credit perspective, just more unusual as opposed to like what you're seeing generally.
Yeah and from a geographic perspective, yeah yeah.
Hi, I can't I can't say that is one particular area that has been impacted more than the other.
It feels like geographic and more asset class and I think you could see that Steve and our 8-K right now where you see the deferrals really focused on you know office and and you know shopping centers retail CRT and then also the accommodation hotels motels. So.
So I think it's more by industry is by geography.
Got it and then just last one from me you you Treasury management team or are you guys still looking you know they still out trying to win business and just how are they doing as to how successful. It then.
Okay Treasury management team.
Your your product.
Yeah, I mean, you know we're not out there aggressively trying to win business, obviously, we have.
Significant cash position right now I think what they are trying to do is make sure that current customer base is taken care of in and it's in line with our you know what the market in our own cost of funds is but I wouldn't say that were out there.
Relatively trying to bring deposits and elite.
At least on the wholesale side, which is where the treasury management team would be most involved.
But you know anecdotally.
Steve I've been out on some calls.
A college up in new England up in Massachusetts.
Hey.
Yes, two very large not for profits were one on one of those not crops, we had the business and taken out one of the one of the national banks.
And and the cash management procedures and the deposits are a big part of that.
Product offering to that particular customer that's a sizable alone a lot of credit of $8 million and the other two situation was a $32 million alone and the other one is a.
$40 million alone and it's really we won the business, but it's a pricing issue on whether you know we can.
Get to a reasonable.
You know return for us dealing with swaps.
Things like that so so I think the business we're out there our guys. We you know we recently hired five significant well experienced loan offices. We've also continued to build out that business development team that we talked about on previous calls. Both these groups was so helpful and that PPP night process, I mean and.
We've gotten through that with a lot more experienced bankers and that's why we're encouraging people to get back you know, we have 50% of our staff and corporate offices and getting back to normal see is is really what we're striving to striving to do to generate more core deposits and that gets back to that strategy question before like.
I said, we don't want a step change our strategy, but we're certainly going to be optimistic and take advantage of situations, where I'd like multifamily residential good credit products are available to us at average yield and we're also looking at this opportunity to.
You know move out some of our funding or use of cash flow swaps and that's been yeah. We've been up at Astec using some of those tools to lock down some of funding become less.
Liability sensitive as we anticipate rates going up and not going down any further but the fed position and the opposition to negative rates.
Got it appreciate the color. Thank you again, yes.
Thank you.
Next question a follow up from Collyn Gilbert of KBW. Please go ahead.
Hi, guys just a really quick housekeeping question Sean on this the merger charges do you have where how those broke out in the quarter.
Within each segment.
Ah I can get to the breakout calm, but primarily to two categories.
One is data processing, so termination there's some costs.
On the fights are side and then also professional fees.
Okay bankruptcy, a banker fees legal fees I actually think thats, the bulk, but I can get back to comment on the breakout okay. Okay. That's great alright. Thank you.
This concludes our question answer session I want to turn the conference back over to my closing remarks.
Okay. Thanks, Nick.
First I'd like to thank you for your participation today.
Yes. This may sound shift change strange, but the past five months have been adrenalin rush to me as our executive team.
And this.
And every day, it's been a venture the days along with a week's flyby and I'm very proud to be work with our leadership team at the bank. The great team of employees, who have stepped up the held various non profits our customers and just generally people in need.
As the famous quote states and adversity in crisis to not build cared that every field.
And character is the first of our core values foresees character commitment cooperation and community.
And these values in the core values in this country will carry us through this crisis I know it may look dark with all the scream, it's in the world and in Washington.
Well, we need to be painful and not be a full hopeful and optimistic we need to stay healthy and help each other this time.
I wanted you all please stay healthy Oh, the CDC guidelines.
Good to sequeira math stay away from crowds, Washington, and Marcia and right, let's pray for each other and inspire each other or not daily work and look for magical moments that help each other to be the very best version of ourselves. During this crisis as we make this journey together and always remember the journey as the destination.
Thanks again for your participation today I look forward to the day that we'd be out on the road visiting with some of you.
Enjoy your summer.
For the baseball season, the basketball hockey seasons.
They're starting Tonight, if started over the past week, it's another step back to normalcy and let's continue to pray for Occurence. It is dreadful buyers you strong be safe God bless have a great day and thank you very much for your participation.
Conference has now concluded. Thank you for 10 the previous presentation you may now disconnect.