Q2 2020 Sandy Spring Bancorp Inc Earnings Call
Second quarter of 2020.
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I would now let's turn the conference over to Daniel Schrider, President and CEO. Please go ahead Sir.
Thank you and good afternoon, everyone. Thank you all for joining us for a conference call to discuss.
Sandy spring Bancorps performance for the second quarter 2020.
They will also bring you up to date on our response to an impact from the cobot 19 pandemic.
This is Dan Schrider speaking and I'm joined here about my colleagues fill man to Chief Financial Officer nearing cast My General Counsel for Sandy Spring Bancorp.
As always today's call is open to all investors analyst and media there'll be a live webcast of today's call and a replay will be available on our website. Later today before we get started covering highlights from the quarter in taking your questions earn will give the customary safe Harbor statement.
Thank you Dan good afternoon, everyone.
And it's pretty Bancorp make forward looking statements in this webcast and are subject to risks and uncertainties.
Forward looking statements include statements of gold Intensions earnings and other expectation.
It's a risk future costs that's it.
Assessment of excessive credit losses assessment, the market risk they have to the ability to achieve financial for another goal.
Forward looking statements are subject to significant uncertainty because they are based upon were affected by management customers.
Sections of future interest rates market behavior, other economic conditions future laws and regulations in a variety of other matters, including the impact will be called <unk>.
That's why they're very nature are subject to significant uncertain.
Because of these uncertainties is pretty big bird actual future results may differ materially from them.
In addition, the company's past results of operations do not necessarily.
Yeah.
Thank you Aaron.
We used to be on the line with you today to discuss our second quarter results and hope that you and your loved ones are healthy and doing doing well during this time.
Before we get into financial highlights I think it's important to acknowledge that long before the global pandemic took center stage.
And our nation's economic outlook dramatically changed we had our sights set on the second quarter of 2020.
This was our first full quarter with Revere bank and remembered Pendleton Jackson, otherwise known as Rpj.
Let me take out the clothes and integrate both of these transactions. This year no one could have imagined the <unk> events in the last quarter.
However, I'm extremely pleased that we successfully closed these transactions when we did.
Despite this tumultuous environment, we're already seeing the positive impact of our recent acquisitions and we remain on track to complete the full conversion of Revere systems next month as originally planned.
We look forward to long term earnings growth as the result of both investments and we feel we're in a position or strengths to weather the current environment.
During this quarter. We also continue to come through in a big way for our clients is a paycheck protection program or P. P. P.
During the P.P.P., we helped infuse over $1 billion into our local small businesses.
And our Covenant response has been seamless ineffective as we've worked hard to protect the health and safety of our employees clients and communities.
We've continued to serve our clients through these uncertain times in our role as a community bank is more important now than ever.
I will comment further on these things throughout my remarks, and later break down some of the unique attributes to the quarter.
However, now I'd like to talk through our financial highlights.
Today, we reported a $14.3 million net loss or 31 cents per share for the second quarter of 2020.
This compares to net income of 28.3 million or 79 cents per diluted share for the second quarter of 2019, and $10 million or 28 cents per diluted share for the first quarter of 2020.
These results were driven by two distinct events.
First our merger and acquisition expenses related to review your bank totaled 22, and a half million.
And second our provision for credit losses due to one the negative change in the current quarters economic forecast. This accounted for approximately $33.8 million of our $58.7 million provision for credit losses, and the additional day, one provision for credit losses associated with the acquisition of Revere, which totaled 17 and a half million.
Well these areas had significant impact on our results. It's important to note that our pretax pre provision and pre merger expense income was a record 61 and a half million.
In a few moments I'll walk through elements of our non-GAAP reconciliation and help you understand our core performance for this quarter.
Our total assets deposit and loan growth was driven primarily by revere and our participation in the P. P. P.
Total assets grew to 13.3 billion compared to 8.4 billion at June 30 2019.
Deposit growth was 58% for the same period as noninterest bearing deposits experienced growth of 70% and interest bearing deposits grew 52%.
In addition to deposit growth from both the Revera acquisition and PPP proceeds we saw significant growth in new business households, which helped drive our deposit results.
Total loans also grew by 58% to 10.3 billion compared to 6.6 billion at June 30.
2019, excluding TPP loans total loans grew 42% to 9.3 billion at June 30 2020.
Commercial loans, excluding PPP loans grew 58% or 2.7 billion, while the remainder of the portfolio grew 2%.
The commercial on pipeline in the near term is strong and we anticipate good organic production to cope.
We've built a lot of goodwill from the TPP program, which is translating into production for us today.
Year over year growth and the consumer portfolio was limited as low interest rates resulted in heavy mortgage loan refinance activity. We continue to sell the majority of new mortgage loan production to drive noninterest income.
On that topic fee income increased 38% or 6.4 million from the prior quarter mortgage had a tremendous quarter reporting an increase of 5.2 million in revenue for mortgage banking activities.
We also saw a 2.1 million dollar increase in wealth management income stemming from our first quarter acquisition the rpj.
This growth and fee income offset the 1.4 million dollar decline in service and bank card fees compared to the prior year quarter.
This decline was due to our temporary reduction of service fees, which we implemented to help our clients manage through the impact of Coburn 19.
The net interest margin was 3.7% for the second quarter 2020, compared to 3.54% for the second quarter 2019, and 3.29% for the first quarter of 2020.
Excluding the impact of the amortization of the fair value marks derived from acquisitions and the accelerated amortization of the purchase premium on FHLB advances. The current quarters net interest margin would have been 3.19% compared to 3.54 for the second quarter 2019, and 3.29% for the first quarter.
2020.
Noninterest expense grew 95% or 41.6 million from the prior year quarter. As previously stated merger and acquisition expense accounted for 22, and a half million of the growth in non interest expense. This also included 5.9 million in prepayment penalties from the liquidation of acquired FHLB borrowings.
Excluding the impact of these non core expenses the year over year growth rate would have been 27% as a result of the operational cost of Revere and Rpj acquisitions.
Increased compensation expense related to the high level of mortgage loan originations as well as annual employee Merit increases.
We delivered an impressive impressive improvement in our efficiency with a non-GAAP efficiency ratio of 43 point, 85% for the current quarter as compared to 51 point, 71% for the second quarter of 2019, and 50 476 for the first quarter of 2020. This as a result of 50% growth and non-GAAP rent.
Revenue outpacing the non-GAAP Ics non interest expense growth of 27%.
On the loan side the level of nonperforming loans to total loans increased to 77 basis points at June 30, 2020, compared to 58 basis points. At June 30, 2019 at June 30, 2020, nonperforming loans totaled 79.9 million compared to 37.7 million at June 30, 2019, and 54 million.
And at March 30, Onest 2020.
The year over year growth and nonperforming loans was driven by three major components loans placed on non accrual status acquired Revere nonaccrual loans and loans previously accounted for as purchase credit impaired loans that have been designated as non accrual loans as a result of the company's adoption of the accounting standard for expected credit losses at the beginning of the year.
Loans placed on non accrual during the current quarter amounted to 27.3 billion compared to 3.4 million for the prior year quarter and 2.4 million for their first quarter of 2020.
Acquired Revere nonaccrual loans were 11.3 million, excluding the impact of the acquisition of Revere their current quarter's growth and no non accrual loans was primarily the result of three large relationships.
We recorded recorded net recoveries a 400000 for the second quarter of 2020 compared to net charge offs of 700000, and a half a million for the second quarter of 2019, and the first quarter of 2020, respectively.
The allowance for credit losses was one 163, and a half million or one 1.58% of outstanding loans and 205% of nonperforming loans at June 32020, compared to 85.8 million or 84, I'm, sorry point, 84% of outstanding loans and 159.
A percent of nonperforming loans at March 30, Onest 2020.
The acquisition of Reveres PCD loans resulted in an increase to the allowance or credit losses of 18.6 million, which did not affect the current quarters provision expense the remaining growth in the allowance was attributable to the provision for credit losses during the quarter.
Tangible common equity increased to 1 billion at June 32020, compared to 767 million at June 30 of 2019 as a result of the equity issuance related to the Revera acquisition.
The year every year change and tangible common equity also reflects the effects of the repurchase of $50 million of common stock an increase in dividends beginning in the second quarter of 2019, and the increase in intangible assets and goodwill associated with the two acquisitions during the past 12 months.
At June 32020, the company had a total risk based capital ratio of 13, 79, a common equity tier one risk based capital ratio of 10, 23, and a tier one risk based capital ratio of 10, 23, and the tier one leverage ratio of 835.
Before we talk through the supplemental information. We also issued this morning I want to underscore the strength of our second quarter. After the successful transaction, we closed with Revere.
To understand the performance based on non-GAAP operating earnings I'm going to refer to the non-GAAP metrics tables contained in this mornings release and it's a third page of the Tabulature data.
If you begin with our $14.3 million net loss for the quarter and adjust for the following the provision for credit losses net net of tax of hit 43.8 million.
Adjust for merger related expenses net of taxes six to 16.7 million.
And the Pp Ela funding expense net of tax of 368000, and then subtract the benefit of both interest income and the net deferral of fees from our participation in PPP afford a half million.
This results in a non-GAAP operating earnings of over 42 million compared to 29, and a half million in the second quarter of 2019, any non-GAAP operating EPS of 88 cents.
Which is a 7.3% increase also compared to the second quarter of 2019.
Despite the impact of merger related expenses, including the day, one provision expense and the impact of a deteriorating economic forecast on the provision expense the underlying operating performance of our company has improved and was very solid.
The other ongoing strength is further demonstrated when evaluating performance on a pretax pre provision in pre merger expense income basis. The company generated a pretax pre provision pre merger expense our way of 1.91% for the quarter ended June 30.
And 1.81 for year to date 2020.
Additionally, our pretax pre provision pre merger expense return on average equity was 17.73% for the second quarter and 15.54% for year to date 2020.
So I remain very pleased with the franchise, we continue to build with the addition of Rpj and Revere.
And with that I'd like to transition to the supplemental information that we issued this morning.
I will provide an update related to the current state and returned to work strategy related to Cobot 19, then review the current status of loan accommodations as well as an update on specific industry trends and then my colleague Phill may until will pick it up from there and comment on the allowance for credit losses are seasonal methodology and assumption changes and wrap it up with our.
Capital position.
So within the supplemental deck as you can see from slide two little has changed from our comments during the first quarter Investor call. We continue with more than 85% of non branch personnel working remotely.
Very impressed with the agility of our employees and the effectiveness of their work regardless of the location.
We've continued to serve our clients through various channels, including our branches by appointment only our clients conduct the majority of their transactions through the drive through online mobile banking or the phone.
We remain focused on the health of our employees and clients and continue to follow all CDC guidelines.
And we're taking a very deliberate approach to bringing employees back into branches and our office.
We reached out to our employees and clients to understand both their needs and concerns and our business continuity team has developed a comprehensive returned to work strategy.
We implemented our phase one in July which caps the workforce at any given location at 25% of normal occupancy.
An additional phases will be implemented as were able but realistically it could take several months or quarters to fully implement.
Slide four provides information as of July 17, 2020 on our loan accommodations.
As of July 17, total accommodations totaled 1.46 billion or 16% of our total loan portfolio less PPP outstandings.
60% of all accommodations were granted in April or May and totaled $2.2 billion at their highest level.
We continue to being close touch with their borrowers.
And at this point, we've discovered that approximately 62% do not require an additional accommodation beyond the initial 90 days.
23% are requesting additional 90 days and 15% continue to evaluate their needs.
We're very encouraged by the initial response from our client base, but also to understand that a setback in reopening businesses in our region could have a negative impact on this trend.
Slide five nodes.
That is as of July 17th we have advanced nearly 1.1 billion of PPP loans to over 5100 clients. In total we supported over 112000 jobs in our region advanced nearly 100 million to area nonprofit organizations and 23% of our PBP loans went to clients and low to moderate income neighborhoods.
Shifting to slide six this provides a summary of the five industry segments, we covered last quarter outstanding balances for each segment or as of 630 and the loans with payment accommodations data is EPS is as of 717.
We continue to drill down into this client base as well as others to determine where there maybe maybe pockets of weakness overall, we continue to believe we're in the early innings of this.
But we are encouraged by the mutual cooperation of the banker client relationship as we work to understand the potential impact on many businesses in our portfolio.
Slide seven detail some of the specific portfolio management actions, we've implemented to identify weakness we take a proactive approach to working with our clients and we're conducting the ongoing relationship reviews. We also conduct daily and monthly portfolio monitoring of a number of possible covance related impacts and cute including utilization rate.
It's by industry payment accommodations delinquency trends and risk rating migration.
And Additionally, we monitor the big for Beacon score migration for both the mortgage and consumer of port portfolio and perform commercial real estate stress testing.
So with that I'll turn it over to fill to talk through Cecil and our capital position.
Thank you Dan good afternoon, everyone.
So what pickup on slide number eight.
Can see we have our local depiction of our allowance build for the second quarter.
As you can see either three significant components the bill.
The first two are directly related to our beer bank guarantee acquisition and the day, one reserve requirements under seasonal.
The third is based on the change in our economic forecasts.
Moving to what the rail Mcgrath the eight point 18.6 million, which is a non.
Revision. Based addition is the day one reserve on those acquired loans that have been identified as purchased credit Terry.
Which totaled $974 million as of the evaluation.
The next 17.5 million in the graph, which is a provision. Based addition is the day one reserve against the remaining non BCD loans in their career portfolio.
The third major component, which is based on the changing the economic forecasts, which as we've previously discussed.
Highly dependent on a number of key macroeconomic variables as outlined on next slide number nine.
These the methodology used the Moody's baseline work as well local I must say added through the second quarter with aversion released by duties in mid June.
This baseline forecast integrate the effect of proven 19 as shown on slide 10 in comparison to the forecast for use in the first quarter four trades and unemployment rate for our local market increases during the remainder of 2020.
Our next at 5.9% in the second quarter of 21, and then slowly recovers settling at a level of 4.7% body in 2022.
In determining our reasonable unsupportable forecast period, we continue to use a one year time horizon.
The ongoing uncertainty in the long term outlook at this time.
Because the aforementioned uncertainly similar similar to our acreage taken in the first quarter. We also tends to not take into consideration any potential mitigating factors based on we couldn't be perceived as a positive outcome or impact if any of the government programs such as Pvp et cetera.
We feel very comfortable with this overall conservative stance.
The creation of our reserve.
On slide 11, we provide some additional granularity related to the reserve build from a portfolio.
Whereas you can see the most significant amount of reserve both by dollar amount in percentage is attributed to the commercial business portfolio, where the total reserve.
The $8.6 million for 2.64% of Outstandings.
We should note that the 2.64% of reserve reflected here includes PBP loans in the balance although there is no reserve required on those loans.
I was illustrated with note at the bottom of the slide when adjusting the balance to exclude the PDP loans outstanding the reserve on our commercial business segment would actually be 5.02% and our total reserve would be 1.76% of our total loans.
Finally on slide 12 of the trend of our patent and capital ratios.
Some brief explanations regarding the treatment of certain items and their impact on the result in ratios.
Included in those comments is an adjusted tangible equity to tangible asset ratio to reflect the impact of PPP loans all the current measure.
We continue to feel confident about our capital position.
And we've also recently updated our capital stress tests were constructed a baseline severe forecasts scenario utilizing the same moody's baseline forecast, incorporating our seasonal calculation and a more severe code base.
Joining me in a severe case.
Having done so we continue to be confident that we have the capital to carry us through this ongoing situation.
Dan will pass it back to you.
Thank you Phil.
Before we move into the question and answer period. There just a few other updates I want to briefly cover with you.
I mentioned at the top of the call that everything is on track for the Revere conversion or what we refer to as client day, one which will take place next month as originally planned.
Our cross functional integration teams have done a phenomenal job working through this pandemic adapting to these unprecedented circumstances and continuing to press ahead.
Our teams have also gained valued experienced over the years and we're in a great position heading into this integration.
So today, we announced our acquisition of Revere, we established consistent and transparent communications and we got right to work building relationships and trust on both sides of this deal.
This is made for a seamless integration that has not been hindered by the cobot 19 disruptions.
The key to a successful integration is to make sure your partner as a shared vision and a significant commitment to building a better bank and we have that in revere.
I would also like to express my sincere appreciation to all my colleagues for making US a Washington post top workplace, which is truly a high on our because it's based on the feedback from our employees.
Last month Forbes also named as one of America's Best in state banks, and the top bank in Maryland.
We're all extremely proud at this is the second year in a row that we've received these recognitions from the post and Forbes, especially given the current environment.
We look forward to when we can put the pandemic and as far reaching economic impact behind us, but for now we remain focused on taking care of our employees and clients I'll also strategically moving our company forward by being a top workplace and the best Bank in the Greater Washington region.
And finally to show our appreciation for our health care heroes in the greater Washington area. The Sandy Spring Bank Foundation donated $600000 to cope with 19 relief efforts at 12 local hospitals.
As a community bank these frontline healthcare workers and the people they are treating our neighbors friends colleagues in clients. They represent all of us and we're standing with them as they work to safeguard the people in the communities that we love.
This concludes our general comments for today, and we will now move to your questions.
Thank you we will now begin we were probably going to question answer session.
Ask a question we were press Star then one on your touched on.
If you're using the speaker phone, we ask Steve please trigger handset for pressing the keys.
Today's first question comes from stored lots with KBW. Please go ahead.
Hey, guys good afternoon.
Good afternoon Lester.
I really appreciate the detail on the allowance in the deck.
And really the your updated commentary on deferrals data I was wondering.
What's the schedule deferral is looking like as we get in the back half. This month you anticipate.
Further reduction into August or is this the current level right now.
What we can expect.
For at least another few months.
60% total deferrals that is that correct.
You're talking about the current level of about 1.4 billion and deferrals I think were yeah. We you know with most of those being granted in April and May we still have.
A decent population of deferrals to work through that will be coming due and the remainder of of July. It in the early part of August So my status update as to the number that have anticipated and many have returned to making their normal payments, we still have more to work through that could potentially.
Reduce the the the a number of outstanding dollars that are in the deferral category. So I think we'll have we'll have more updates as we go along but early returns.
We think are pretty good pretty good number.
Okay.
Okay, sorry, but the majority of your first round deferrals, where they 60 day or 90 day or is it they were nicely.
Got it okay, yes, yes.
But I guess, Phil turning on the margin.
A lot of accretion this quarter.
Yes.
The dollar amount I mean, I get back into that but just curious what year.
If you guys had a particular dollar amount that that came through this quarter.
I don't know that I have the dollar amount in front of me specifically there.
Stuart but I.
I think.
It's about 20, its total of 28 basis points that are related to the today overall fair value marks and 20 of that is all involved just specifically with what we did on the home loan bank advances.
So if you're going to look into calculated on a go forward type situation, what I would suggest is.
We had a 319 here kind of core in this quarter I think going forward into next quarter that the ongoing initial ongoing marks.
We'll probably be worth about five or six basis points.
So thats, probably the best way of year to get to where you want to go I believe I understand what it looks like going forward and then of course, a trail down you know subsequent quarters by maybe a basis point or so each quarter.
As we look out into the rest of the year. So I mean, my overall general guidance for margin so to speak.
Absent well, including the amount being contributed by PPP loans, which.
His diluting it to some degree is probably in that 315 to 320 range. So few basis points off of where we are right now.
And so I would I would I would go I would look at it in that.
In that regard.
Okay, and how are you model it ppgs. It I mean, some of your peers are kind of use in like a level yield method.
Are you still kind of waiting on on guidance regarding forgiveness before you provided any guidance there.
None that we certainly are amortizing over the life of alone.
Similar to what we would do in any other related fee or or related costs.
And so I think.
What we're expecting is the forgiveness period to start in the fourth quarter.
Which at that point will bring you know depending on the percentage that.
Obviously gets forgiven initially of the majority good good portion of that back ended at quarter end. Yes, then the margin in the fourth quarter and probably into the first quarter nextera going to look dramatically different than what I just talked about.
I think our initial estimate was probably that we would look for forgiveness to be somewhere in the 80% range of our total outstanding PPP loans, which I think it together the quarter was roughly $1 billion unchanged.
Got it.
Thanks for taking my questions.
Sure.
Our next question comes from Stephen Curry or G. Research. Please go ahead.
Hey, guys good afternoon.
Dave.
I wanted to ask about expenses. So so I know you Miss the prepared remarks that there was some sort of uptick in salaries.
Related to mortgage incentive pay I'll, just kind of wondering if you could talk about maybe the magnitude of that and sort of how we should think of the run rate going forward assuming.
Mortgage isn't quite as big as it was this quarter.
Yes, the let me comment on expenses I would say in general here first.
I mean, obviously the large increase overall is is obvious obviously related to putting their.
Current.
Existing revere expense base in place.
And so that's one element of it second element just in terms of compensation expenses. This is our normal merit increase period. So.
We would have increased our overall salary levels from what would have been legacy Sandy spring by somewhere between three 3.5%.
As a rough estimate so those are two things it at play there.
As it relates to the.
The mortgage side.
There was certainly higher levels of of.
Certain elements of that up commission comp that.
We'd be part of the equation, there a lot of which those probably going to be.
You know kind of kind of netted through to some of the overall gain because the majority of those commission costs were related to load that we actually.
We actually sold.
And if anything some of those.
So many other costs.
On the surface.
We're also probably.
Thank you then can deferred as it relates to those balances that we.
That we did book with just to answer your question. The commissioning cut commission compensation quarter over quarter was about 1 million to higher.
Just in gross amount paid for that line.
Okay very good.
So I mean, I guess I guess like the final piece was just sort of like is this like a good place to look at the run rate going forward or you know I guess I also the other piece too is like how are you thinking about third year cost save realization is like the schedule that any different circumstances are different.
I don't know that any circumstances as to how we looked at those initial cost saves.
There are any differences in that outlook I mean, we'll clearly start to.
Benefit so to speak into the third and fourth quarter of this year towards a more normalized combined run rate probably at the first part of 21 I mean, the efficiency ratio. This quarter was extremely low by anybody standards and certainly by ours at 43, it's probably.
Now.
6% on that ratio related to PPP net revenues. So I would immediately more normalized that even in the quarter without PPP at around 48.
But then that would be before any potential cost saves going forward.
Net of the onetime stuff, we would have to incur to close certain branches and close out other contracts. So I would I would guide in terms of efficiency ratio I want to more pure run rate basis.
In in the high Fortys to the 50% range as we look out through their ended the year and then really to the degree of what it looks likely to 21, that's where I would targeted for for where we'd like to be.
Okay. Okay very good that's that's helpful.
Maybe more for me those also another piece of the prepared comments talking about.
Non performers being contributed to the three large relationships, maybe just any color. There was there any commonality across the three or they will.
Relatively idiosyncratic and is there anything you're looking for the rest of the book just based on the performance there.
Yes. They these these.
Good good questions. D. These are these are credits that have been in a process of working with the client for some time that are not necessarily coded related impacts.
And nothing nothing like from a similar standpoint in terms of specific portfolio that is coming from so.
Kind of normal course stuff.
Okay very good that's it for me.
And our next question comes from Brody Preston with Stephens, Inc. Please go ahead.
Good afternoon, how are you.
Hey, Birdie library, we are good.
Good so I just wanted to start though one of the I guess the hot topics ever since see car went down for the big banks was what the fed sort of said about Threeq you dividend payouts.
Not being able to exceed you know average of trailing four quarter net income and so I just wanted to ask you guys. It has there been any similar I guess conversations with the fed for the smaller banks and I guess, how are you thinking about.
The dividend in light of that moving forward.
Yes Brady this is Dan there has not been.
Any specific conversations that kind of come down into the community bank space around around specifically around dividend or expectation there will continue to.
Evaluate.
Like we always do kind of looking back on a quarter by quarter basis at earnings capital levels.
From a broader capital management standpoint.
We do feel when you much like we've done in our prepared remarks, we do feel that with the current core earnings of the organization that we feel feel that supports our current level of dividend will be will be addressing that decision around this most recent quarter here shortly but but the short answer your question it really hasn't been any.
Any comment or anticipated pressure on that point.
Alright, great. Thank you for that as it just one last one on this topic.
If there were to be any kind of discussions around that as you guys have any sort of.
Unlocked security gains they you could use and maybe boost GAAP earnings.
On a go forward basis.
Hey, Brian. It is this is Phil I mean, I do believe we've got some unrealized gain in the overall portfolio.
We don't normally look at it kind of that way in terms of using one off.
Type of.
Items, we try to really kind of called those out and set them aside as to what they are made clear we could do that from a cash flow standpoint, or wherever you want to call. It relative to you know upstreaming from the bank to the holding company to pay them.
But I don't think that we would use one to try to impact that decision on what we would do with the dividend is probably the best way to I would I would kind of get added.
All right great. Thank you for that.
On the from the Slide you know I noticed the big increase in provision due to macro factors, but at the peak unemployment that's being used by Moodys fear geography, didnt tick up to too much but the peak got pushed out.
By year end, so is it fair to say that with the with these sort of macro models and see so that.
The duration almost matters, a little bit more than the than the peak does.
I think it actually is maybe the more more port pertinent got thing is the timing of when the peak occurs.
And when it happens as it did this time further out into that kind of last third to close the last.
The last few quarters of when we have our.
Our our reasonable.
Im period, it has a bigger impact pick that up and then runs it out from there. So I think the timing of when that peak occurs it's probably a bigger factor than than some of the other elements of it again, depending on when you how far out you go with your forecast period, as well and we as I mentioned in the comments in a more normal and.
Argument, we would normally run it for a two year period, but given where we're at now and not knowing what else to help the evaluated we've cut that back to one year.
Alright, alright.
All right and I guess on the sticking with the reserve you know the 5% see and I reserve is pretty hefty and so I guess I just wanted to better understand the moving parts. There was like I noticed the bankruptcy component of.
The macro model.
Bankruptcies increased significantly I guess from one cuda to Q is that what's driving that are just.
5% as a pretty large reserve on the Cnine portfolio. So just wanted some must some more detail there, yes, well I think I think what falls within that category or a lot of the.
The loans that ended up in the PCB portion of the Revere portfolio, which were driven by a lot of things relative to deferrals et cetera.
Evaluating what that.
What that that portfolio is going to get pulled out of that so I believe at a pretty significant piece of that back that dollar amount. There. It's a good majority of that 18.6 that within that day, one PCV reserve I believe is in that commercial business category.
Because there was a fair amount by either industry and therefore, those that were moved a lot of them that were deferred that ended up in that PCV portfolio that have those reserves against them.
Okay, Great and then one last one from me what was the I'm sorry, if I missed it but what was the impact to the of PPP on the margin again did you say three basis points.
Yes, I think I think it's probably a little bit more than that depending on how you want to calculate the impact relative to the moving pieces because right now on our balance sheet, we start with the amount of loans out PPP loans outstanding. We then there that the majority of those following their skill set.
In our deposit base.
We're not really convinced that a lot of them had been drawn down yet just based on movements in our in our various deposit categories. We also though then.
Went ahead and tapped into the PPL out.
To the tune of about 845 million of that billion in PPP loads and then have really been sitting on that cash overall net asset side again, just in and fun sitting at basically fed effective at a 555 for so basis points. So when you add.
All of that kind of in that aspect of it all being pvp related the impact of the margins probably greater than just a couple of basis points. It could it probably is more like 10 basis points or beyond at the end of the day.
Okay. I guess you give the average balance on the PPP loans for the quarter I guess, what ready and what was the income that you I guess sort of accrued for this quarter it related to PPP.
The overall net effect, we have related to the income less the amount of the expense and PLM pre tax was about five and a half million dollars.
Alright, great. Thank you very much taking my questions.
Thank you.
Ladies and gentlemen, as a reminder, I'd like to ask your question. Please press Star then one.
Hey, guys question comes from Irks work with Boenning and Scattergood. Please go ahead.
Good afternoon.
Good afternoon, Eric there.
If I could start just a quick question on slide four.
Supplementary materials that second bullet point Pos as accommodations granted exceeded 2 billion was that the the peak volume of loans that had a combination before some started to expire or is that referring to something else I will now that that is exactly correct that is what is referring to.
Gotcha, Okay, great. Thanks for that clarification, there and then just maybe a bit of a follow up on Brody's question from earlier looking at slide 10, if those projections from Moodys, we're not to change a whole lot over the next coming quarters and seem to be fairly accurate at this point.
So model you should have reserved for the loss content in your current portfolio as we go forward and even if you start to realized losses, what does does that imply that the loan loss provision should move.
Lower and future quarters, because you're actually even though you actually taking the losses TV outlook hasn't changed or are there other things to take into consideration.
Other kind of Q factors or.
Migration and risk migration in the portfolio just kind of curious about your thoughts there, but trajectory at that provision.
Yeah, Eric this is Phil.
I think you're right.
I think most so first of all it if the type of 'em unemployment rate projections are kind of retained at the current level.
And we do not.
Yes, I see a significant amount of actual losses than the provisions will definitely.
Most definitely come down from the levels that we book here in the first couple of quarters of the year.
Really when those changes go in either direction as to where when it really materially moves the amount of either incremental or less amount of provisions from where you are at a point in time.
So obviously, though if we have some actual charge offs that now we'll get factored into.
The overall requirement for total reserve based on whatever that is unemployment rates are at that point and that'll have been alter what we got to effectively back into for overall provisioning if we have to replenish.
So I think that Thats, the best way too.
You know to kind of kind of look at the way that the model kind of operates.
You know off of off of that for a pretty significant factor.
That's helpful and maybe just one quick follow up on that replenishment for any charge offs as it dollar for dollar out as it seems from arbitrate that or is it.
Less percent assuming that.
The rest of the portfolio may not have the same level of content, if something has already been realized.
Yes, I think I'm not sure if it's quite dollar for dollar depending on again with that didn't comment on but you also asked about what happens with some of the other.
More overriding or qualitative factors, there's probably some influence its related to that as well.
So I'm not quite sure if it's quite dollar for dollar or not.
Got it thanks, so much for taking my questions.
Thanks, Eric.
Ladies and gentlemen, this was a question answer session I'd turn the conference back over to the management team for any final remarks.
Thank you Rob Thanks, everyone again for joining us this afternoon for our call.
We always welcome your feedback on these calls so please feel free to email us at IR at Sandy Spring Bank Dot com. Thanks, again for participating and hope you have a great and safe afternoon.
Thank you. This concludes today's conference call you May now disconnect your lines another wonderful day.