Q2 2020 FIRST BANK (Hamilton) Earnings Call
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Second portraits Ritchie <unk> earnings conference.
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Good morning, Thank you and welcome to our second quarter 2020 earnings Conference call I'm joined today by Steve Martin, Our Chief Financial Officer, Peter Cahill, Our Chief lending Officer, and Emilio Cooper, our chief deposits Officer.
Before we begin however, Steve will read the Safe Harbor statement.
The following discussion may contain forward looking statement.
Concerning the financial condition results of operations and business the first bag.
We caution that such statements are subject to a number of uncertainties.
Actual results could differ materially and therefore, you should not place undue reliance on any forward looking statements we make.
We may not update any forward looking statements, we make today for future events or developments.
Information about risks and uncertainties are described under item Onea risk factors.
<unk> annual report on form 10-K for the year ended December 31st 2019 filed with the FDIC that back to you.
Thank you, Steve I'd like to start.
Mark This morning, with say a summary of the P.P.P. program.
As I'm sure. Many of you have heard from other banks that have already released earnings the the impact of the P.P.P. program on our customers on our staff and on our communities cannot be understated.
Certainly from our standpoint, our perspective, there was a tremendous game performance with the people from all parts of the bank.
Getting retrained shipping in helping out working overtime and I.
I would certainly say it was a great success from our perspective.
Three primary benefits from the program a number one we created a lot of customer goodwill.
Well in the at the end of the day, most everybody a pretty much everybody. They wanted a P.P.P. loan was able to good morning.
Quite sometime it was a lot of feared anxiety out of the market and the fact that.
We were able to get people submitted an approved quickly.
And also help a lot of folks who were not being helped by their primary bank at the time.
That's certainly created a lot of goodwill and also created a lot of great new loan and deposit opportunities with new commercial prospects and third benefit obviously, the additional interest and fee income that.
We will be receiving over the life of these loans.
Stepping back for P. P for a second in the quarter at what's a good quarter.
In terms of our ancillary fee income sources prepayment penalty income was it at 184000 in the corridor, which is a little bit below.
Our quarterly average from last year of 214000, a loan swap fee income was up significantly in the quarter at $553000.
Where do the quarterly average from last year of 114000.
I cannot tell that <unk> came in at 38000, which was a little below our historical quarterly average and gains on recovery of acquired loans or 293000 in the quarter and that compares to.
An average last year of just under 200000 per quarter. So all that added up to a strong noninterest income quarter for us here at first bank.
Similar to what you saw from us in the first quarter.
We did believe it would be prudent to continue to put additional dollars into the reserves through added loan loss provisions.
This point once again, the provisions are primarily driven by and certainty and overall economic conditions not specific credit metrics.
So far and 2020, we've been able to set aside close to 4 million an additional loan loss provisions compared to what we did in the first half of 29 team, while still generating reasonable bottom line profit.
At the end of the second quarter irate triple else alone for the 1.10 per se, but that includes the P.P.P. logs in the denominator if you back out the P.P.P. loudly.
[noise] AOL ratio moves up to 1.20%.
Furthermore, if you had in 4.8 million in general credit marks as well, it's three point Sixmillion at specific credit marks associated with prior acquisitions.
Ratio would move all the way up to 1.68% those ratios compare to nail the true.
Oh, the ratio of 1.0% at year at 29 tea.
During the quarter, we continued to lower our deposit costs.
Which helped offset some of the impact of lower loan and asset yields our cost of interest bearing deposits declined 31 basis points from 1.56% to 1.25 per se, but the expectation that we'll be able to continue to move this number lower over the remainder of 2020.
Our mix of deposits as it but improving significantly as many of you know having listened into prior calls.
We've had a real strategic focus on generating more noninterest bearing balances as well as commercial balances.
And those numbers that certainly moved much much higher it's a little tough to know how the dust settle given the impact of the additional deposits from the P.P.P. loans, but certainly the underlying trends in both noninterest bearing a commercial deposits I've been very positive and Emilio will touch on that a little more.
During his part of the presentation.
Net interest margin did come down 23 basis points in the quarter from 3.30% in the first quarter.
3.07% in the second quarter, but that was impacted by holding excess liquidity as well as the lower yield on P.P.P. low.
A nice positive in the quarter was a strong expense control our quarterly expenses came in at 9.8 million, which was down from 9.9 million last quarter. There were certainly a fair number of unusual.
Events in the quarter from an expense standpoint, some of them added some extraordinary our or not typical expenses in the quarter. I know, we also benefited from some reduction in expenses.
As a result of things like T any and.
Things like that that were down so that we think the 9.8 is is there is a decent number may trend a little bit higher but a number of the initiatives that we've taken so far this year I think are bearing fruit and helping us keep costs slow I would note that so far this year.
If you compare the annualized salary figures for any new hires so for a 2020 and you compare that to the annualized salary figures from those that have the part of the bank in this 2020 year. The net amount is $300000 less when you look at the new hires can pay.
Paired to the departure employees and we've also taken steps to significantly reduce our marketing budget given the great opportunities that are emerging for new business development on the commercial side.
It is giving us an opportunity to cut back on some of the general corporate marketing and we think we'll still be able to.
Continue to grow nicely, even with that lower marketing budget.
We did improve our capital position in the quarter, a we had a successful refinancing of our subordinated debt.
We also completed our share buyback program and those two actions together help reposition the banks capital stack towards significantly lower cost tier two capital a those actions also give the bank capital flexibility going forward to either continue the dividend or explore future.
Share repurchase programs.
Looking forward to the second half of 2020 or the potential credit impact from covert 19, its toll wildcard and are a bit uncertain as it will <unk>, how it will impact.
<unk> 2020 and beyond the initial results from our deferrals is encouraging and I know Peter Kal will touch on that a little bit later, but certainly feel still too early to tell.
Regarding how this will ultimately play out from a credit perspective during the second half of your we believe we can continue to lower our funding costs to help offset lower earning asset yields and potentially a move the move the margin up a little bit from the levels. We saw in the second quarter.
We believe P.P.P. income and expense management will go a long way towards helping to offset the potential negative impact of the higher credit costs.
And lastly, I would say, it's my belief that in the commercial banking space a community banks may emerge as the real winters from what we're seeing in experiencing as a result to covert 19, given the access to personal relationships and the access to bankers that can get things done I think the value proposition.
Community bankers is really being driven home right now and I'm excited about the prospects not only for the remainder of 2020, but beyond that.
At this time I'd like to turn it over to Steve Carmen to discuss the financial results Im a little bit more detail.
Thanks Pat.
We entered the second quarter up 2020, and a completely different business and interest rate environment based on the impact of public 19 to the national and state economies.
The fed lowering the targeted fed funds rate in March 550 basis points, which led to overnight excess liquidity, yielding 25 basis points or less with a dramatic lower treasury yield curve result was a lower net interest margin.
With the strong liquidity position in the second quarter, we aggressively lower deposit rates to help stabilize net interest income and the net interest margin.
Net income for Q2 2020 was 4.1 million were 21 cents per diluted share compared to 2.8 million or 15 cents per diluted share for the second quarter of 2019.
Net interest income was 16 point Threemillion for Q2, 2020, an increase of 2.2 million or 15.3% compared to 14.2 million for Q2 of 29 team.
Higher interest income primarily from interest income on loans combined with lower deposit costs contributed to the net interest income growth for the comparative periods.
The higher provision for loan.
Loan losses for the comparative second quarters, and 2020 and 2019 as was the case for the Q1 compared quarters.
Primarily due to qualitative assessment, so challenging economic conditions due to cope with 19.
Net income in Q2, 2020 wasn't enhanced by higher noninterest income compared to the same period and 2019 due to increased loan fee income of $500000 primarily from loan swap fee income.
Additional income on bank owned life insurance due to proceeds from the redemption certain insurance policies.
The effective management of non interest expense, which included the impact of the Grand Bank acquisition on 930, 2020 were up only 7% for the second quarter of 2020 compared the same period in 2019.
Which contributed to our positive results.
Net income for the first six months of 2020 was 7.4 million worth 36 cents per diluted share compared to 7.1 billion EUR 38 cents per diluted share for the same period than 2019.
The results for the six month period, ending June 30, 2020 were similar to the results for the first for the second quarter.
Net interest income increased 4.0 million or 14.2% to 32.2 million compared to 28.2 million for the six month ended June Thirtyth 2019.
The increase in a 2020 year to date net interest income was also driven by strong growth in average loans, which increased 321 point threemillion were 21.4% from the prior year period.
Average loan growth includes the impact of P.P.P. loans originated in the second quarter.
Hey, higher provision for loan losses, Hyder noninterest income and effective expense management also characterized results for the comparative six month periods.
Our tax equivalent net interest margin for the second quarter of 2020 was 3.07% as Pat mentioned compared to 3.37 for Q2 2019 that declined 30 basis points.
The compression or margin is primarily due to the lower interest rate environment.
The origination of low yielding PPP loans, and the impact that the significantly lower yield <unk> excess balance sheet liquidity.
The yield on interest, earning assets declined 74 basis points, primarily due to a lower yield on loans and excess liquidity.
From an interest bearing liability perspective, total interest bearing deposits declined to 52 basis points.
On a linked quarter basis, our tax equivalent net interest margin for the three months ended June Thirtyth 2020 was 23 basis points lower.
And our margin of 330 for the three months ended March 31st of 2020.
Our emphasis has been on lowering deposit costs reflected by lower deposit cost of 31 basis points for the second quarter.
We expect that trend to continue in the third quarter.
In the third quarter, approximately $239 million, and C.D.'s will reprice well or mature.
With the cost much lower.
Based on the highest current CD rate being offered the cost of these funds will report repriced lower by approximately 180 basis points further lowering our cost of deposits, which is expected to boost our margin over the next several months.
Regarding our margin of 3.07% for the second quarter.
We estimate the impact of lower yielding PPP loans and carrying higher levels of excess liquidity to the margin was seven in five basis points respectively.
Also contributing to a lower margin was the impact of higher sub debt expense as our legacy sub debt up 22 million was not redeem until June thirtyth, which impacted the margin about two basis point.
Lastly, we've continued our focused on effectively managing the level of noninterest expense growth.
This is reflected in lower marketing travel and entertainment cost and data processing expenses for the comparative quarterly periods.
Salary and employee benefit costs were up only 3.3% in the current input.
The comparable prior year period, as we have limited new hires and slightly reduced staff since the acquisition of Grand Bank on 930 of 20 a 2019.
Reflective of the current business environment.
Effective management of expenses has resulted in an efficiency ratio of 53.64% for the three months ended June Thirtyth 2020.
That compares to 59.76% for the quarter ended June Thirtyth, 2019, and 58.03% to the linked first quarter of 2020.
Next to discuss our lending results as Peter Kato, our Chief lending Officer Peter.
Thank you Steve.
That's helpful patent Steve touched upon the driving force for us behind loan growth in the second quarter, clearly, whose P.P.P. loans.
Being able to take applications approved document closed end fund over 1100 loans in a couple of months plus.
Required total collaboration among many different teams in the bank from the sell side, which included retail to credit administration ends alone administration.
Now that we have the important task is getting small businesses some relief behind us we're ready to further system with the process.
Forgiveness aspects of the P.P. program once that gets a completely finalized by Congress.
Like many banks most of the 100 $190 million a peek into loans. We did were small in size averaging around $178000. We had only a handful that were either 2 million.
You'll also note that the volume of TPP loans change the mix in the loan portfolio a bit increasing the percentage of see an eye loans bank wide to 22% up from 14%.
In addition, the loan growth and 6.9 million in fee income the TPP loans provided a relationship managers will listen qualified referrals.
20% the loans, we funded wouldn't non customers and ourselves that is out there now trying to extend our business with these 200 plus customers.
Aside from the P.P.P. loan growth non PTP loans were up around $40 million through June.
Our new business pipeline, despite the slowdown caused by the pandemic looks good.
We look at deals and the pipeline probable funding basis, where we take projected year, one funding and apply the likelihood to close factor to it.
Loans committed in closing next week for example, we'll have a higher likelihood close them or piece of business, where we're still collecting information.
Can you talk with another bank.
At June Thirtyth, the pipeline was up 24 million from the and the May $269 million. This figure exceeds the average for the past six months.
One thing we're doing the all but the sales process is that we're using this period, where they used to say sales effort is hard it's difficult to get out and meet with people. During that are indeed pandemic, we're providing all brands with sales trading or do you know Oh, all bets are skills.
We've hired a consultant that has a history of training the sell side of banking and the focus is on becoming more proactive them less reactive no getting salespeople to be better organized a little bit more process, driven and identifying the types of customers and prospects that we want to do business with.
No. It's important that we spend our time touching our value proposition. So the right people, let's say this is a perfect tied to a you folks a refresher on this.
No, but overall staffing perspective, the lending side is adequately staffed we have a couple of openings on the credit administration side, but based upon economic conditions were going to hold off on selling them for now.
Despite the hardships having many people out of the office last few months I've given us a great opportunity you have folks working together you know on the phone reviews zoom et cetera on various projects.
Our credit officer, who has done here only about a year, who was promoted to senior credit officer early in the first quarter.
We then sold an opening credit administration by hiring additional junior credit officer type right at the start of the pandemic.
We also brought in a new leader for RSV 18, when the first quarter.
And having these three working with the relationship managers alone business <unk> went a long long way and giving us the ability to handle the P.P.P. crush of loan requests.
Our credit losses also provided assistance in reviewing in approving the code at 19 loan payment deferrals, we reported all these deferrals last quarter as our slide that breaking them down by industry collateral and we've highlighted where we are now in yesterdays earnings release.
At this point, we're seeing very few new request for deferrals.
Many of the 616 loans, representing approximately 430 million.
Outstanding loans originally deferred have reached the end of their 90 day deferral period, and that's the earnings release points out the Georgia those do for payment approximately 79% have resumed making normal payments again.
We also outlined in the release the status with two industries hit hardest by the pandemic.
Our restaurant portfolio and our hotel portfolio had their challenges we're in constant contact with these borrowers.
To summarize loan deferrals, it's still very early to know the extent to its dependent it will impact these borrowers, but we're glad that with payments being risen by so many.
The portfolio loans, having payments the first has reduced by over a third.
Patent Steve also touched upon asset quality asset quality metrics look pretty good but well into the pandemic, we'll certainly have an impact.
Business generation as well as loan quality.
I will tell there, but we're doing the things we need to do to stay on top of these changing conditions.
That's it for me now after the second quarter, I'll turn things over 2 million Cooper.
Thanks, Peter deposit results for Q2 continued to move us closer toward achieving our strategic objectives for 2020.
Total deposits grew 190 million from the end of Q1.
Deposit balances the 1.9 billion at June Thirtyth represent growth of 282 million up 17% for the year.
Noninterest bearing deposits were up 167 million for the quarter and are up 184 million for the year.
Noninterest bearing accounts now represent 24% of deposits up from 17% year prior.
Our deposit mix continues to improve as we realized the benefits of prior period investments in our business.
Our strong execution in helping customers and prospects with the paycheck protection program loans. When this significant contributor to the record deposit increases we experience for the quarter.
This increase was aided by strong underlying organic core deposit growth and new commercial customer acquisition.
The foundation, we laid through investments in our cash management team in capabilities combined with our realigned leadership structure enabled us to capitalize on the opportunities presented to the competitive disruption caused by the pandemic.
We posted strong growth primarily led by increases in commercial deposit.
This was partially offset by a strategic reduction in our CD portfolio as we execute on our plan to aggressively drive our deposit costs lower and improve our mix.
We've made significant reductions in our preferred rate portfolio and our promotional deposit rates offered.
This resulted in a 48 basis point reduction in average rates paid on interest bearing liabilities during the quarter.
As Steve indicated we expect to see continued reduction in our cost of deposits as over 238 million in Cds mature in Q3, and repriced at a level close to 180 basis points below their current rate.
During the quarter, we continued to invest in our business.
We have placed sneeze guards and social different thing markers in our branches to protect our team and our customers. We added a C. H positive pay account reconciliation and pay E positive paid to our cash management suite of products and services.
In addition, we upgraded our tenant security and escrow account management platform.
These investments will enable us to compete at a higher level increase our deposit fee income and aggressively grow our commercial deposit base.
During the quarter, we remained open by appointment in our lobbies and our teams were creative and finding ways to provide exceptional service to our customers.
Our deposit pipeline remains strong and we continue to enhance our ability to attract and onboard new commercial deposit core operating account relationships.
We are looking forward to continuing to advance the ball during the second half with 2020.
Thank you Pat.
Thank you Emilio at this point I'd like to turn it back to the operator to open things up for Q1 <unk>.
Thank you, Sir we will now begin Christian on sufficient.
Sounds good question pretty star and the one when you touched on fun.
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Our first question comes from dig bushel of buttons Center. Please go ahead.
Good morning, guys.
According to <unk>.
So I wanted to start on P.P., where you pulled your fair share I know, it's early stages, but can you help us think about the opportunity to bring these clients into the bank have you been able to increase balances from these customers that did come in.
Yeah, It's a great question, Nick I mean, yeah, we sort of think about the P.P.P. portfolio in two ways 80, 80% plus or minus the PPP loans made went to existing customers now in some of those cases, they were existing customers, where we might not have.
Certainly had all the business or the primary business and so it's a little bit.
Overly simplistic to look at as existing and new but certainly within the pool of existing customers. You know, we're using that to the goodwill created we're using it as an opportunity to further expand relationships, we're using it as an opportunity to have.
Adam refer people, they know and get introductions that way. So there's certainly a lot of opportunities and follow up from the existing base of customers and you know separately from that we've got 20, 20% or plus or minus 200 brand new.
To the bank opportunities that we're spending a lot of time.
Cultivating following up and are working on bringing over to the bank in terms of getting the core business in almost every case, we got the operating accounts set up here for the P.P. funds to go in but in some cases those ended up getting moved over if they had operating councils.
Or just from practicality standpoint, they needed to get the money no different account, but you know it'd be hard to understate. The the magnitude of the opportunities that are that are there. So.
As far as your second part of your question you know how much of the money. That's here now is it kind of stay.
That's certainly a much a much tougher Ah Ah question to answer, but you know we're starting to see some of that fit for the beginning part some of the PPP money, just what's kind of sitting around and we're now starting to see that get the.
Put to use a little bit more but we certainly hope that some of the run off will be offset by additional funds from existing customers or a new operating accounts from new customers and.
It really is a really is a great feeder system for us and Emily I don't know if there's anything you want to add there on the deposit side [noise].
Oh, Yeah I think.
That made a very smart I think early strategic decision to engage as you heard Peter mentioned it was a full team effort great collaboration but very early on in the process that made the decision to engage the retail leadership team with a working with customers who were deposits only as well as Pos.
Thanks to the bank and as you recall prior quarters, we had realigned our structure and put branch area managers in place and this was an opportunity where we really got to see the benefit of that structure because that group of people who are not in the branches, providing you know the main customer service, but we design that does.
They seem to be more proactive in nature and they were the folks who were connecting with the the deposit prospects and really working to help gather information for the PPP and keeping them and board and so we built a very strong pipeline of opportunities over 100 opportunities representing about 20 million and potential.
External balances and that's where the partnership with cash management worked well as we work through.
The months since their ppps were done in getting them onboard and so I I expect that we're going to continue to see in a nice growth in our noninterest bearing.
As folks start to put the PPP funds to to work those balances will certainly go down, but our underlying growth as measured by the accounts, we were able to onboard and what we're seeing in transaction activity and the cash management services that have been set up give me a really good.
Comfort and feeling that we acquired their core operating relationship. So I think we'll see that that will play out very nicely overtime.
Yeah, and it's great to that where you know we're tracking noninterest bearing deposit growth excluding P. P. P and you know year to date.
There were certainly well well ahead of plan on that metric you know kind of.
Backing out whatever impact came from good loans that funded P.P.P. account so.
Again, the reason to be really encouraged about what's going on underneath it. Despite the fact that at a at a gross dollar basis. The you know the P.P.P. dollars, obviously make it harder to see what's happening there, but the underlying trends are very positive.
That's great color and then you had a I'm a big quarter for swap fees as you mentioned in the prepared remarks have you seen sustained customer appetite in the quarter there.
Yeah, I mean, certainly the real estate lending market remains active in some ways, there's additional opportunities from banks, giving given the.
No the retrenchment, a little bit and the CMBS and the insurance lending market and obviously a lot of borrowers right now we're looking to try to lock in long term fixed rates and our preference is not to lock in long term fixed rates at these low levels. So you know I think.
We'll continue to see some good activity I don't know if it'll be exactly at the level that we saw in the second quarter that was certainly.
At higher than than what we'd seen historically, but you know looking at the pipeline of deals are doing right now, we're having conversations with borrowers about swaps I do think there'll be some continued activity over the next couple of quarters as Lisa.
Okay.
And then a I heard the commentary on near term expenses, but given the operating environment not specifically the potential for a prolonged period of lower rates do you see any opportunity for some cost savings longer term.
Yeah, I mean, there's there's so much going on right now outside the norm that it makes it a little bit tricky to say, here's what quote unquote normal expenses are besides nobody really knows what that new normal is gonna look like on the other side of this thing, but yeah outside of all that there are kinda.
Craig steps that we have already taken and continue to take two or you know find opportunities for dollars and savings and I think you saw some of the impact of that in the second quarter results and certainly you know from my perspective, it's it's not a nice.
To add to need to add right here in a world where.
Margins are low because interest rates are low.
Credit costs are uncertain, obviously, we've got to do everything we can only expense side to try to protect our profitability and yeah, we're well on our way to you know turning over every stone and finding those opportunities.
Okay, and then lastly, do you have the average balances TPP loans in the quarter.
I think the average was 140 million, but I don't know, Steve maybe you can confirm that yes, that's correct hundred 40.2 million.
Terrific. Thanks for taking my questions.
Excellent. Thank you Mick.
Thank you very much. The next question is from <unk>.
Scott Goodman. Please go ahead.
Good morning, guys.
More Eric.
Our first just when I say, thanks for all of that the detailed information in the press release and care on another call. This morning with regard to that deferral trends. That's that's very helpful to see and certainly I would agree with your comments that they're encouraging at this point if I can focus on you know one of the areas of the portfolio, where it seems like the trends maybe.
Little bit slower to move towards.
Positive and certainly not alone other banks have shown that as well and that would be that's the hotel portfolio.
So if you can provide a little detail into that portfolio in terms of maybe the breakdown of business versus vacation.
Flag versus maybe an independent operator, any ltvs and just any update on current occupancy rates you have at this point.
Yeah, Great question, Eric and let me try to hit on some high level thoughts and then I'll turn it over to Peter maybe for little bit more color around.
The composition of the portfolio the LTV some of which.
We didn't include I think in the presentation last quarter it.
Certainly you know as you look at the LTV, We don't think there was a big change.
So some of that data well little sales, probably still pretty good bye.
You know what I think we're seeing a couple of things. So the way we looked at referrals as we kinda we looked at how many loans were due for payment by.
Mid month July and tried to track what we were seeing out of that group and I think as you saw we.
Overall saw 79 course, 80% of those loans that hit their 90 day or you know window, we're back paying as agreed so that was certainly a good news couple of things on the hotel particular, one the dollar amount that hit the 90 day window was actually relatively small.
All I think you know the portfolio deferred otelo out.
Emailing, plus or minus said only about a third of over 20 million happen to hit there.
Hey, guys and about a third of that group.
Payment and the other.
Colin if there are some folks that we've agreed to do another 90 day deferral and then there is kind of middle third that we're still talking to them about what the best plan is in some cases.
You end up getting to a middle row does it maybe they were on a full p. and I deferral for the first 90 days.
Occupancy trends starting to move slightly higher somewhere in a position where they can go to interest only for the next three months. It is.
Obviously, the occupancy in the Revpar numbers continue to move higher.
We'd be in a position to go back to full PXI at the end of the 180 days. So you know that's definitely a.
Segment, the slow to recover obviously with new Jersey being one of the places that was very late so reopened.
Probably not surprising that.
Well the folks were talking to in the space do seem to be doing better occupancy levels sorta prevented from 20 to 30% to 40%.
Yeah for most of these folks they need to get up closer to 50, 60% to be kinda cash flow breakeven or in a position to meet their their debt obligations without having to come out of pocket. So there's still some so some work to do in terms of overall occupancy levels.
But what we are hearing from our folks is that the trends are moving into right direction. It yeah, depending on the type of property that obviously makes any difference we don't have a lot of luxury resort exposure a lot of it is more you know Hilton Garden Inn Hampton.
Sure.
Okay suite area type stuff that Oh.
Okay can be somewhat dependent on a summers in terms of people staying in accessing show or or six flags or sesame place. So some of those are closer to the end use parts not surprisingly habit bounce back quite as quickly, but yeah. That's got some high.
Level thoughts and then Peter maybe you can share a little bit more in terms of the mix of the portfolio by type of flag or anything like that.
Yeah. Thanks that are provided a whole lot of detail there reshaping. It I don't have exact did on the mix I will say that virtually all of our flag properties. We're all in you know our immediate market.
You, though new Jersey opened up slower and certainly when it comes to you know weddings and functions and things like that.
You know, there's still being impacted significantly.
From a leverage basis, what and when we under we don't have a lot of the a lot of exposure anyway, but when we are so when we underwrote a these loans HM feel we did a pretty conservatively.
Ltvs, perhaps the portfolio heading into the pandemic anyway were.
Less than 65%.
You, though the other half would have been under 70, you know that 65% to 75% LTV range. So we think we're in pretty good shape. There we know the operators the number of.
More than just a few of the hotels or could be owned by the same group that were there were close to so oh, we feel like we have our handle on the exposure at this point we just.
The the ride out this pandemic with them, hopefully, though not too much longer.
Yeah, I think I would just close on the question just by noting that you know we didnt, we didnt have a strategic initiative to rapidly grow hospitality.
It was a segment that we would play in selectively with what we thought where some of the strongest proven operators with multiple locations that were performing well and you know deep pockets personally along with.
Limited or full recourse to help support the asset so yeah, I think the ltvs are conservative and it and most if not every case, we've got limited or full recourse from substantial individuals who can help support the property. So.
I do think.
Are you know the segment will ultimately rebound, but the question really is the duration of the.
The downturn that we don't have a great feel for just yet.
That's all very helpful. Thanks to both of your for the detail there.
And then you know just looking after the press release you indicated the remaining.
Third loans that have yet to kind of reach their expiration or if they followed the trends that that's the first I guess, 42% have Betsy deferral population to be about 4.6%.
At that point and then once that second round expires I assume additional now falls off at that point. It seems like that's the potential population of loans where.
I see some loss content just curious about your.
Thoughts around.
Ended that second round.
Up deferrals, how you're thinking about dealing with those customers moving forward and potentially the impact on losses and provisioning at that point.
Yeah. It's a great question I wish we had a little more visibility in that I mean, certainly they're going to be.
Some customers that are in industries that you know really haven't reopened you know you can think of places like indoor sports facilities or you know transportation companies, where you know there there you're going to need a bit of a longer term plan to work.
With those folks and I.
I think in most cases as long as you've got committed quality operators and you've got.
You know good assets to work with there will be opportunities to a even for those folks that need more than 180 days to.
Restructure those loans on reasonable terms reasonable repayment schedules.
Even if it's for a year to date allow them to get back on their feet and then on the other side, Yes, you know resumed normal activity and resume to perhaps a stronger repayment schedule. So I certainly think you're gonna see cases like that Eric It's a little hard to say, how many and how it's going to play out but.
You know to me the important thing in those cases is you know that you're dealing with good operators, who are committed to the business and that they're in a business that has real prospects on the back end. It is certainly there are some that you might wonder about but I think for the most part the conversations we've we've had with folks who are in those hard.
Industries that you know just haven't haven't reopened haven't rebound it really at all yet you know those conversations having said that feed it in any sense, it's a bad hey, how doesn't work together to to get through the next 12 to 18 month said that I think it a lot of cases some of these folks are going to.
Have you know a robust rising businesses once the health care subsides, but you know I think it's going to be our job working smartly with them too.
You don't make sure that they're in a position to succeed when they get to the other side.
Got it and then just given your seeming to kind of positive commentary on loan growth opportunities going forward. It sounds the pipeline is.
Good position at this point.
Couple of questions there one.
In terms over there any particular industries, where you're seeing stronger demand at this point what does the source for these new opportunities is it coming from similar size bank competitors or maybe some of the larger banks. Just curious if people are stepping back and then from an underwriting perspective, how are you thinking about viewing. These these loans today in the current it.
Firemen and you do expect pull through rates to be similar to what they may have been and in the past.
Yes. Good question I mean, a in a portfolio with a probability adjusted opportunity at $168 million you might expect there's.
Hundreds of loans across multiple markets and multiple our friends and and each one has its own story, but in terms of trends it seems.
I'll mention a couple then turn it over to Peter Yes, certainly, we're seeing a little bit of an uptick on the real estate side I mean, the one interesting thing about commercial real estate is.
Most loans are are you know built in terms of five seven maybe at the higher 10 years.
That creates a build to portfolio loans that are maturing and it needs to be refinanced. So in a market where CMBS is quiet did not exist in insurance companies are being less aggressive I think there's just more but not a lot of new development new.
Taking in the commercial real estate side, but I, certainly plenty of opportunities with cash flow properties with tenants that are paying as agreed that Ah you know our our quality loans that we think can and should be made even though the markets.
Certain so that's certainly a piece of it a piece of it is you know what we're seeing in terms of a number of Hirsch commercial customers, who were unhappy with the experience they had potentially with with a big bank.
On TPP or just the.
The larger banks are a little bit notorious for just kind of closing the spec Ed and pushing people out when the economy not doing as well.
You know obviously need to be careful that you're here, you're finding new customers that are quality customers not.
On one that are being moved out because of a significant credit issues, but yeah underwriting is longer it's harder access problematic, but you know that's our job and the fact that it takes more time than that they've got to dig a little deeper doesn't mean that there are still good opportunities out there. So those are a couple of thoughts on a Peter if you'd add anything.
To that.
Oh I just confirm you know, there's clearly been a tick up in the real is the deals in the pipeline is for the reasons. You. Just described there are a number of C and I Oh pieces of business in the pipeline, but they're smaller right you got numbers of deals that dollar volume.
And some of those Ah I deals are quite frankly have come out of this PPP process. So we're we're happy that happy to see that.
Petition you know larger banks not so much larger banks not so much I'll say you know.
The Lake Glenn or you know valleys Providence are still kind of around the community banks or are always out there trying to find a deal or two to do so.
You know more more real estate to look that Sars in dollar terms dollars more deals to look at in terms of smaller see United stuff.
That's helpful. Thanks patents D. R. P for those comments there.
Last question for for Steve.
On the margin it sounds like you know the opportunity to lower deposit costs over the next several months will.
Oh, okay overcome any additional pressure you'd have from from lower rates as well as a the excess liquidity just curious if you could frame the potential magnitude of increases you could potentially realize and the back half of the or.
Well, thanks, everything obviously, that's a little bit a you know a dicey from a lending standpoint as far as the rates that that will get on loans based on the yield curve, but.
That being said with the you know from a deposit standpoint, we're continuing to lower deposit cost as we mentioned as well as the CD costs. In addition, you know we've also lowered up preferred rates on certain customers as well. So we expect that the margin can go up five to 10 basis points higher.
If we're able to continue our trend and loan and deposit costs, which we expect we're gonna be able to do.
Great. Thank you so much guys for taking all my questions today.
Sure No problem. Thank you are.
Thank you ladies and gentlemen, just a reminder, if you wish to ask a question. Please press star one.
The next question is from doing the ship of D.A. Davidson. Please go ahead.
Hey, good morning, John the how are you.
Good how are you.
Good good Hey, Pat just quick question in terms of the loans that Oh.
Not reach their maturity and he said her back making payments are these are the payments on the full p. and I are they sort of occurring as normal just maybe some color in terms of Oh, the improvement and the.
Returned to payments data for some of that it for a bunch of US sort of you know you know sort of normal occurring wants to standpoint, yeah. Yeah. You know that's a great question in the answer is yes. So we only included.
Loan that went from.
You know not paying according to the original contractual terms to well that resumed pay at the original contractual terms and that's what's in that 79 for said what's in the 21% is a combination of either well that weve.
Read through an additional deferral well that haven't paid yet, but make no pay but they just haven't made the payment by the time, we don't have to cut it off for this analysis.
And the or loans, where maybe they were paying he and I and we agreed to an additional deferral, allowing them to make just interest only payments for a period of time so.
We're not including loans like that where they went from not paying anything to pay something in that 79%. Those are in the the kind of remains our number.
Got it soak up 79% or within that 21 person on the obviously there are some.
Some presented there that are making something that's you just include seven or so yeah. It's part of the problem. It's like you could take this analysis out too.
Pretty pretty far level and get pretty far into the we but we've got the important number let's say 79% of people are back paying as agreed.
And you know third a portion of that 21% that probably are also going to return to paying a degree we just haven't got the payment yet because maybe they hit the 90 day deferral date on the 14 and by the 16th the Twentyth or whatever the payment had come in yet you know so technically they're not really that part.
I do but because we had gotten the payment we didnt count towards that.
Got it.
And then Pat you spoke about that but the hotel.
Folio just curious in terms of what you're seeing maybe and rent collection efforts.
And sales trends in terms of maybe your your core commercial read a retail book, maybe just some color there what you're seeing on that level.
Yeah.
Phil side.
You know I would say held up held up remarkably well it certainly depends on the type of property I mean.
To the extent that it was a single tenant credit tenant with a bank or a drug store or you know auto parts are these other things that kind of reopened fairly quickly and have been doing okay. The payment history has been pretty good you know some of that some of the.
Centers, where you might add pizza shops, and they'll something like that those those folks took longer to reopen.
A little bit slower but.
Yeah, I'd say, what what we're seeing across the board in retail.
Payments are coming in fairly well and you.
You know the other way that to answer that question is the number of request for additional deferrals on.
You know the retail CRM.
Relatively low so you know to me even if you don't have the exact data about what's happened to property. The fact, they don't need another 90 day deferrals are pretty good.
Oh, that's good color them. One final question you noted the completion.
Of the share buyback program, just trying to gauge the potential for another announcement here in the back half of the year.
Yeah. It's a good question I I wouldn't be comfortable handicapping that right now.
David I think it's.
You know you've got two considerations you got the financial considerations you got the uncertainty that's still out there around Kobe the impact and you know they've also got the political regulatory climate that you've got to deal with their yeah, you could be looking at.
Natural transaction that makes all the sense in the world, but yeah.
Our regulators prove additional buybacks.
[laughter] thing about it. So you know I don't think you can.
It's not a simple plex another thing to a spreadsheet is that answer I'd say that.
He had a more level, there's a differing opinions about if and when it would make sense to do another buyback so.
I couldn't tell you with certainty if it will happen, but I can tell you what certainly that it's on our mine and if the right or combination of events urge you get more and more comfortable the credit impact Cove is going to be a manageable.
No. It's certainly something that I think it result, so that having a strong capital position that should very much beyond our mind as we think about whether it's the remainder of this year next year.
I appreciate the color.
Sure.
Thank you David is that finished and your questions.
That's it.
Thank you very much.
What's it going to talk to some institution done would like to become from spectrum restaurant. He comes in a box.
Okay. Thank you.
Well I would like to just say thanks, everybody for taking the time to listening on the call and we'll look forward to.
Regrouping with folks at the end of the third quarter. Thank you very much.
Thank you very much.
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