Q2 2020 UMB Financial Corp Earnings Call
Good day locally to you and the financial Corp. second quarter 2020, <unk> Conference call.
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Kay Gregory Please go ahead.
Good morning, and welcome to our second quarter 2020 call American Burke, President and CEO and Ramzi Gallagher CFO will share a few comments about our results in line CEO of you'll be bank and Tom Terry Chief Credit Officer will also be available for the question answer session.
Before we begin let me remind you that today's presentation contains forward looking statements all of which are subject to assumptions risks and uncertainty.
During the currently unknown potential impacts of the Cobot 19 crisis.
These risks are included in our SEC filings that are summarized on page two of our presentation.
Actual results and other future circumstances or aspiration may differ from those set forth in any forward looking statement.
Forward looking statements speak only as of today and we undertake no obligation to update them, except to the extent required by applicable securities laws.
Oh earnings per share metrics discussed on this call or on a diluted share basis.
Our presentation materials press release are available online at Investor Relations Dot you wouldn't be dot com.
Now I'll turn the call over to Mariner Kemper.
Thank you Kate and thanks, everyone for joining us today I Hope you and your families are safe and healthy.
As we all navigate our way through not only a global pandemic, but an increasingly polarized and highly politicized environment, we have been engaging our associates customers and communities through proactive outreach and dialogue.
Inclusion in diversity has always been core principles for you and be however, like many others. We've taken more action in this time of heightened sensitivity we offer a variety of resource groups for our associates and their hosting ongoing conversations you educate and to spell stereotypes as well as foster.
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On page five of the slides. We've included a few comments on her inclusion and diversity efforts along with some key topics.
I encourage you to read our recent corporate citizenship update by using the link shown there.
During the quarter, we continue to serve our customers fully well most of our workforce remains off site, we began seeing customers and our branches by appointment only and continue our drive through operations most location.
Our sales teams have had success with virtual calling efforts.
Meetings with clients via video in some instances and I'm extremely proud and impressed with how our associates continue to adapt and perform.
We're taking a measured approach and our return to the workplace, bringing back a small percentage of our employees on a phase in basis, and including enhanced safety protocols.
I'd like to see more of our team back in the office health and safety will take a priority.
Last quarter I shared my thoughts on economic crisis paired with the unfortunate timing of the implementation of Cecil and its likely impact on our industry. As we continue to see there's a great deal of subjectivity on how banks supply the methodology, making comparisons actual risk.
Difficult at best so.
We focus on what we know and our priorities continue to be maintaining the high quality underwriting standards that has served us well over the long term maintaining solid capital and liquidity levels to carry us through this crisis and doing what's right to support our workforce customers and communities.
We entered the second half a year and opposition to manage what lies ahead.
We had solid capital levels at a very strong liquidity position what loan to deposit ratio that provides us flexibility and most importantly, we have experienced credit team with a superior track record, particularly the types of crisis.
As it relates to the U.S. economy, we're navigating through the murky waters model by global pandemic and deep rooted social issues, where every issue is further politicized, particularly an election year for these reasons. The overall economy continues to be fragile.
And these uncertainties will likely persist into the next year.
However, within our markets at among our borrowers we haven't seen any significant signs of deterioration today.
Now I'll turn to our second quarter results, which highlighted the balance sheet strength I mention along with the quality of our underwriting practices as evidenced by our 15 basis points of net charge offs 30 days ended the quarter. We continue to here that our customers generally remained prepared to whether the current economic headwinds.
We posted net income 60.5 million or $1.26 per share on a GAAP basis.
63.8 million or $1.33 per share on an operating basis.
The tax pre provision income of 90.2 million represents a 7.6% increase over the linked quarter and a 15% increase compared to the second quarter of 2019.
Total fee income was strong at 120.5 million well. This included some market related adjustments, including coal evaluations, we saw positive results in investment banking.
Higher trading volumes, particularly in municipals and be Astro linked quarter increase a 6.2 million.
Which you can find it our trading in investment banking life.
Similar to trends across the industry, we've seen reductions in twelveb, one fees in our brokerage business as well as reduced credit and debit card spend across most categories.
Net interest income increased 2.5% from first quarter, driven by lower deposit borrowing costs, along with strong loan volume, which included 1.5 billion people Appeals.
New loan production outside of PPP remained strong.
Given our sixmillion and payoffs and Paydowns were slightly lower than historical averages a 3.2% of balances excluding PPP.
Organic growth was partly mitigated by the normalization of commercial line utilization.
Which was 31% at June 30, following a spike to 39% first quarter from the initial impact coated.
In addition, some active deals we had in the pipeline at the end of first quarter were pushed out a bit as customers paused to understand the implications of the crisis looking ahead into the third quarter, we continue to see robust activity.
Average loan balances, excluding PBP increased 8.2% linked quarter basis annualized.
Driven by commercial and consumer real estate I see an eye balances were impacted by the normalization of line utilization.
Mortgage prequalification applications hit record highs during the quarter, helping to drive at 8.1% quarterly increase in consumer real estate.
The composition of our loan portfolio, which remains diverse and well balanced across several product lines geographies and industries as shown on slide 18 in the balance sheet section of the presentation, followed by loan activity during the quarter and breakdowns of our commercial portfolios last.
On slide 22, we've updated our exposure to sensitive industries that we shared in April we removed transportation after reviewing its performance.
That group is largely comprised of freight warehouse relationships with top.
Industry companies, and we've had little exposure to travel related business.
We've added senior living theory to list based on the potential strain on occupancy levels operating expenses related to the covance restrictions and increase pandemic related costs. This category represents 2.1% or loan portfolio or just 1.6% when risk.
Adjusted.
As we did last quarter, we again looked at each category for specific characteristics or specific credits that we feel comfortable with.
As well as those which may carry more risk if the crisis. This prolonged.
After an in depth analysis, the portion we view as potentially being more impacted represents about 10% of total loans, excluding PPP balances.
Of course, this isn't an indication that we expect losses portfolio, but we continue to keep close eye on the conditions as they evolve.
We've included some details and considerations in each category on the fly.
Details on the 1.5 billion in P.P. loans, we booked during the quarter are shown on slide 23 medium size was 56000 as you can see their broadly diversified among industries.
Now looking at asset quality in provision you see on slide 27 that second quarter provision under Cecil was 21.5 million, which represents 3.9 times net charge off.
5.5 million.
As we noted previously our substantial provision and reserve build in the first quarter was prudent and conservative.
The additional reserve build in the second quarter brings our total allowance for loan losses to 200 point Threemillion as of June Thirtyth.
Within allowance to loan coverage of 1.3%, excluding P.P. loans that coverage is 1.4 or 5% or nearly two times what it was at yearend 2018.
Prior to the adoption of fees.
Total reserves to nonperforming assets is now 2.3 times compared to the pure median of 1.6 times based on those who have reported today.
Net charge off the average loans for the quarter I was just 15 basis points is better than our long term historical performance and Npls improved from the first quarter, 2.54% flows.
You won't be has always had a reputation for being responsive consistent and Britain.
As it relates to credit and we have a good long term tracker for keeping rank credits are moving to loss based our relationships with our clients.
Well this unpredictable environment as new territory for all of US well keep our focus on risk management and believes that our credit quality, where a main one of the key differentiators, especially during periods of stress.
This quarter, we've added a more granular look at loans by type in the loan risk table on slide 29.
Data shows a quality inherent in our portfolio.
We're continuing to provide flexibility for our clients through modification and you'll see those totals into in the table as well.
Based on initial requests we approved approximately 2.1 billion modification. However, many of those were ultimately not accepted as customers determined they weren't fully necessary. This speaks to the general strength of our customer base.
At June 30, we had loan modifications of 1.3 billion on our books, representing 9.6% portfolio, excluding PPP balances.
This includes our proactive offer a six month referrals to our practice solution clients, largely dental offices and our business banking group.
Our teams are in regular contact with our class and have ongoing dialogue anecdotally conversations RCR. He customers indicate that a good portion will again, making payments at the end of the deferral period.
As we indicated last quarter, a significant number of our borrowers within the sensitive industries has strong balance sheets and sponsors.
Well ahead of the pandemic, we had begun reinvigoration of our retail business, including online banking upgrade online account opening and our new teller platform, we onboarded second wave or existing online banking users just days. After we moved our branch operations to drive through only in mid March.
Usage has increased although the timing makes it difficult to fully gauge the drivers of the uptake among our customers. The average number of daily online banking users increased by 12% during the second quarter and the number of users enrolled in our personal finance tool in the new platform increased 42% from March to do.
Yeah.
Mobile deposit capture has increased 44% since customer access to branches was limited and finally.
Since our online account opening capabilities fully launched in May about 17% of our new DTA accounts have been opened through the digital channel.
Ultimately, it's clear that a mix of options is important to our customer base and we'll continue to make sure. Our network has the appropriate capabilities. We continually look at staffing and the use of technology as we transform our digital offerings, especially in light of the headwinds we're living through.
In closing I reiterate what I said at the beginning.
We're in a sound positioned to navigate what lies ahead, we continue to manage for the long term.
Strong capital liquidity position, a history of prudent risk management and diverse revenue sources to help provide buffers and the interest rate environment, we're living in.
Now I'll turn it over and wrong to discuss some of the drivers of our results Raul.
Thank you Mariner I'll begin with comments on diesel and the drivers up our allowance for credit losses, which begins on slide 25.
As we previously discussed we took a conservative approach to our first quarter modeling considering the volatility and frequent changes in economic expectations, we saw at that time.
I've Mariner noted our second quarter provision for credit losses totaled 21.5 million down from 88 million in the linked quarter.
Approximately half of the provisioning in the second quarter reflected changes in key macroeconomic variables I've prescribed in the Moody's baseline economic forecast you shoot in June I smell of consideration for modified loans.
And your provisioning levels, well continue to be predicated on loan growth any changes in our portfolio mix that charge offs and forward looking macro economic assumptions that drive our economic models.
At June 30, nearly 85% up our allowance for credit losses was attribute it to our commercial and commercial real estate portfolios.
Now looking to the quarterly result, net interest income of 178.2 million represents an increase of 4.3 million from the first quarter benefiting from a 58 basis points reduction in the cost of interest bearing liabilities and loan volumes, including PPP lows.
These were offset by the adverse impact of 105 basis points quarter over quarter degrees in the one month LIBOR rate.
Total, earning asset yields fell 57 basis points to 3.01% from the linked quarter driven by 73 basis point decline in loan yields.
Interest spread increased one basis point or the first quarter and was down only five basis points from the year ago period.
Net interest margin compressed by 18 basis points from the first quarter.
Drivers of the change included.
34 basis point reduction from loan yield, which included a negative three basis points to margin from P.B.B. Lowe and positive two basis points from the synthetic floor, we haven't place.
A 19 basis points reduction from excess liquidity and the reduced benefit a three bonds.
Negative two basis points from lower reinvestment rates and market changes to be yeah. That's portfolio, partially offset by a positive 38 basis points impact from lower interest bearing liability costs, including a 53 basis points reduction in the cost of interest bearing deposits 2.3%.
I stated fee income was 120.5 million for the quarter and reflected continued impacts from the volatile markets, including a valuation adjustment in company owned life insurance income, which resulted in a $24.8 million swing from the last quarter, which is included in the other income line.
This increase is offset by a similar increase in deferred compensation expense.
As Mariner mentioned increased Muni and M.B.S. volumes drove solid increases our investment banking income supplemented by market valuation benefits from our trading portfolio.
Offsets included a 4.1 billion reduction a brokerage fees and a 3.6 million reduction in bank card income.
We've been watching us peers have reported results and it's clear that the pandemic dramatically impacted credit and debit card spending patterns, our card purchase volume stats or on slide nine.
Our year over year basis, we saw a 17% decline in total card volumes driven largely by reduced healthcare spending that's people have delayed from routine medical and dental care.
Well it decreases in travel gasoline restaurants and entertainment spending.
On the commercial Brent corporate travel and entertainment, how big curtail and municipalities, which make up a good portion of our card business have seen declines related to school closings and reduction in other usual activities.
Spend just for the quarter increased 10.6% or 19.9 million compared to the first quarter driven by a 24.6 million increase in deferred compensation expense the offset to the increased coli income I mentioned.
In the salaries and benefit line. This increase was partially offset by lower payroll taxes and profit sharing and poor one k. expense.
Marketing expense decreased 1.4 million compared to the first quarter from the decline in travel and business development activities due to the pandemic.
Additionally, we recorded 4 million in nonrecurring costs tied to our cold at 19 response.
For the full year 2020, we anticipate the tax rate will be approximately 12% to 14%.
Moving back to the balance sheet average deposits increased 9.4% on a linked quarter basis.
Frequent now comprise nearly 34% of total deposit.
We estimate that about 560 million of demand deposit balances at June 30 were related to PBB fun dispersed to our customers.
We continue to maintain strong regulatory capital ratios, but the C. E T. One ratio up 11.92% based on the adoption of interagency guidance for regulatory capital transition and tangible common equity two assets of 8.7%.
Our tangible book value per share increased to $53.57 or the ended the quarter up 15% from a year ago.
Comparison, our peers that I've reported so far have shown an increase of 6.6%.
Regulatory capital ratios are shown on slide 13.
That concludes our prepared remarks, and I'll turn it now back over to the operator to begin that you want a portion of the call.
We'll now begin the question answer session.
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My first question comes from Gordon Wire with Stephens. Please go ahead.
Good morning.
Born either.
I wanted to start on the balance sheet size or even excluding the P.P. deposits deposits grew 2.7 billion quarter over quarter I'm curious what trends you're seeing so far in July in terms of deposit balances and how much is that that you'd expect to be fairly sticky or whether you see.
Being any kind of outflows.
This is mariner I you know, we don't obviously give guidance, but I would say that.
The environment that we're in doesn't look to be over any time soon and liquidity build seems to be apart.
Of the environment, we're living in so we don't expect.
A liquidity draw downs any time soon.
We have a very very diverse book of deposits.
And.
Lets say during the last crisis, when we had a safety and soundness liquidity build it stuck around largely and we continue to build our balance sheet. It's too early I would say to determine what's going to happen, but if history is an indicator.
You know, we've we've largely pick up market share a rather than.
Just temporary liquidity there'll be a combination, but I think it's it's too early really to tell but the first part of your question is low what do we see and I would you say that we're still in the environment and people are still building liquidity.
And I think the last quarter you suggested that you would try to put more the cash on hand, the securities portfolio is that still consistent looking forward from here.
Well I mean, I you know, obviously, we want to rotate strategically we'd like to rotate more of that into loans and so it's just a matter of.
What we're seeing with demand in the absence of loan demand will be rotating that liquidity into securities.
And just on deposit cost repricing was pretty strong this quarter I'm curious if you had an estimate too.
What kind of floor, you could expect for for cost or how much how much more room you have to go on that front.
Go ahead, Rob, Yes, so I mean were up 30 basis points for the second quarter in the month of junior about 28 right. So if you look good last time, we were at zero the 25 basis points on the short end of the curve our deposit caught bottomed out at about 18 basis points or so.
Of course, that's three four years ago, and there's been some like shifted our deposit mix. So there's still some room probably on the on the downside for deposit pricing based on quality aggressive actions, we're taking a but it's going to be marginal relative to the 53 basis points drop you saw in Ah Ah deposit cost this past quarter.
Got it and then last thing for me if I look at the sensitive sensitive industry update and compare each portfolio to what was lifted last quarter. It looks like the potentially more impacted subset increased on a dollar basis in percent basis, I think particularly in multifamily, but also somebody other categories I'm sure.
Yes, what what drove that whether its migration from less concerned three months ago to more concern now and if so what trends are characteristics would have warranted more concerned.
I'll take the high level, and then ROM can rahm can SIFI, if I don't pick up the whole answer for you I mean first of all the portfolios slightly smaller right. So.
You have a percentage change related to the size of the balance sheet. So that's a part of it and then the other one it was really just a shift as we spoke we took transportation out and put in.
Senior housing so.
That's that's the overall change really there I would say if you and my estimation. If you take a balance sheet size component of that it's really a margin in the air kind of concept. It's it's pretty much the same size I would I would describe it as on moved.
Tom I don't know if you want to Oh, that's exactly it well that's exactly it.
I would note on slide 22, right. So we took away transportation I've done outdoors category and then instead this time around because of occupancy trends than what's about what would you see in headlines about senior living Riyadh about and by the French shows you know just about 100 basis points. So that's why you see a marginally to go yeah, but I I just want to also.
I echo that sort our view of.
This concept is a little bit different than its being interpreted we we don't think that this group as identified means we see loss in it. It's just you know an area. It's a group of categories were watching more closely it doesn't indicate loss. So that's.
Also saw that add to that.
Description.
Okay I I appreciate the switch from transportation to senior living but I guess I was looking at.
Multifamily went from 361 potentially more impacted in dollar balances to 463, you know I was curious if there was any increase concern out of some of these portfolios.
Hi, Tom you want to take that I I mean, it's really it's really a minor.
She has.
Yeah. This is Tom Terry some of that is just the growth in construction loans. You know we still have a construction loans that are advancing so you are seeing an increase in balances. There is not there has not been a shift.
Identification of Oh, we have more of that we're worried about I think it's just the natural growth that we're seeing.
And mainly in our construction loans.
Okay. Thank you appreciate it.
Thanks Gordon.
Our next question comes from Chris Mcgratty KBW. Please go ahead.
Great Good morning ready.
Yes.
Murder in your prepared remarks. Thank you characterized the outlook for loan growth or loan demand as robust, which is a little bit more optimistic than some of your peers I'm interested what your what you're seeing in your markets that are they at least that statement and any and any color you.
Could have on loan repricing be great yeah sure. So on loan growth first of all even in second quarter, where you see a small.
Decrease that that obviously was mostly due to line utilization coming down if you look at gross production. It was actually up so I'm. So so even in the second quarter, we saw that the growth side of it come in the way we expected to it was just negated by.
Utilization rates, which which by the way we see is a a indication of quality you know the them.
That's a that's a positive sign of quality.
In a portfolio.
As it relates to growth and looking into the next quarter as we always do we get a little bit of a look into the coming quarter.
And.
Part of why we weren't any higher in the second quarter is because of Corona virus. So it was a little bit of I call, it hesitation or slow down and the ability to close and bring parties together and such so some a second quarter has pushed in the third quarter.
Some of the growth, we expect it and some of the loans we identified a.
Got pushed into the <unk> third quarter, so that'll be part of what we see in the third quarter and forward is is that and as far as the the loan growth itself.
What we've always said about our loan growth is it's more about market share gains in underpenetrated markets than it is economic activity. So when we say, we see robust loan growth, it's not an indication of economic activity, it's more us blocking and tackling tackling.
<unk> and continuing to take market share, where we have low marketshare and large markets.
That it's more about share gains than it is economic activity.
I appreciate that thank you for that.
Maybe a follow up you know the or the ability to.
Fine tune, except branches has been a emerging theme I think with cobot you guys. If in the past in pretty proactive in terms of managing your branches I'm interested kind of how you're thinking about it.
Expenses and expense management in this environment and maybe what you've learned over the last 90 day that could lead to some synergies over time. Thanks.
Yeah, well I mean that I'd start by saying you know where we're in the middle of where the middle of that so what I'd say is there is absolutely change coming right and we mentioned in our prepared comments some of the changes related to a pickup in activity in all of our debt.
For mobile platforms and products. So we're seeing it I would.
I would say what once was going to be a 10 year a 10 year.
Process is now a two year process I think over the next two years will be a pretty dramatic on the uptake and digital acceptance of a product and interface with our with the industry customer but.
It's too early to tell exactly what we're going to do with that I mean, we're we're deep into it in or neck deep and analyzing.
But what it means and how we're going to react and.
Whether it's you know the.
Sizable branch, what's gonna take place in a branch well, we do a appointment only in the branch side and do transactions in the drive up you know all these questions that are that are in process, but be assured it will change will become more efficient.
[music].
Great.
That's great and then maybe last one for ROM can you.
Help us with the.
The P.P.P. outlook the amount of fees that are to come in and maybe the timing or how you're modeling it. Thanks.
[laughter], yeah remains to be sitting right, Chris So what we're modeling is very consistent what others have said somewhere between 60 and 80% are paying off in the fourth and first quarters. That's probably the earliest though we expect a big drudge of these up forgiveness things to happen, so probably I would say.
Distributed evenly between before the first quarters I would start with 60% to 80% range.
And then the amount of the fees that were that are yet to be realized Jeff, yes, but yeah. It's about 240 ish based on the medium that we disclosed or medium size on the BBB is about 56000.
For modeling purposes, we are using about 2.4% of these balances.
Thank you very much.
[noise] again, if you have a question. Please press Star then one.
Our next question comes from Nathan race of Piper Jaffray. Please go ahead.
Hi, guys more any but.
Well just touch on the loan or.
Moan about occasions as disclosed in the cloud Doug just curious now as you guys are talking to clients at this point how much of those no 10% alone that our deferred currently yards <unk> need.
The second deferral going forward.
Tom you want to take that.
Yeah at this point, we feel like the the volume of request for a second deferral. So far has been very low.
And our commercial real estate book.
Roughly 35%.
Those on deferral, who have requested a second deferral.
And the see an eye portfolio, it's been less than that.
Certainly all of that is subject to.
You know the the policy of the economy and kind of what lies ahead over the next several weeks and months so that could change, but right now we're hearing a very positive commentary from our customers and the level of request has really slowed.
Okay, Great and also as well we have that cause them to punish the you know the note. So from first quarter, when we talked about percentage and deferrals. Those were approved and what was accepted at this point is substantially less I was at 1.3 billion.
And right Tom versus <unk> five <unk>.
Yeah. Good feel to 2.1 billion was approved and ultimately 1.3 billion. That's what got book. So we had a lot of clients that were approved for a modification that ultimately said I don't need it and kept on paying for those.
For the contract yeah, so effect number that well this yeah. So the second number that we're announcing today is more important first number was the first numbers is what we approved.
At the.
End of the last quarter.
Understood Yeah got it I'm, just thinking about the up provision in the quarter I appreciate the.
Do you feel hooklogic, along those lines I got the qualitative.
Effect I'm on the provision scores a little below what we saw than some others I'm so far in the quarter and it looks like you guys do the third party input from early June So just and I think that in putting includes.
No second wave of cobot going forward, which you know I think it varies by state at this point. So just curious if we had up more kind of current economic and put into the.
Provision and diesel model, how that would have been takes your provision in the quarter in kind of how you guys are thing about provisioning at least into the third quarter as well at this point.
I'll take a or the high level, there and ROM you can get in any modeling questions that we want to get into there, but I first hey, I'll begin my soapbox here for just a quick second you know Cecil if you all are trying to look for.
Actual performance or relative to try to look through the fog to figure out what credit risks actually exists in the banks.
You know I'm not a believer in Cecil as easily what it actually tells us.
We're we're complying with C. silk as it's a it's a you know and accounting convention, we need to comply with but it means nothing to me as it relates to how I feel about the quality of my loan portfolio and what you ice what we pay attention to.
Is what is happening to our npls, what's happening to our charge offs, what's happening to our past dues, what's happening to utilization rates and those are the things that you can actually look at across all thanks to level level. The information Cecil is a joke because the way every bank does it.
Different so it's a it's a it's a stupid way to analyze what the problems are in the banks portfolio. So that's how I feel about about that so you know for me what you should look at as what is our NPL coverage to two allowance for US. It's 2.3 times against our peer group at 1.6 times, which helps us understand why were.
At 145 on coverage with the provision versus a peer group being a median it won 65, they're all at once they're covering their mpls at 1.6 were hovering RMP Hills at 2.3 times. So you know that those are the kinds of things I think are more important focus on.
And you know what's happening to your Ah you know your charge off rate what's happening to your.
Your utilization rates ours are down significantly which means our the performance of our seeing eye book is actually stronger than it was and and then your past dues. What's happened in your past is those are current period forecasting outlook things to look at that are real and tangible versus trying to.
Forecast the impact of co bid.
On unemployment in the unpack the short term impact of 10, and 20% unemployment that happens overnight on a short term basis because disease.
Or virus and what that impact would be on the economy nine quarters for now, it's and it's seen and absurd way to think about credit quality. So.
Yes, that's how I think about that but so stepping back into that we're using moodys reason Tripoli corporate spreads and the data that we deployed is right in line with Moody's and right in line crippled Triple B corporate spreads and that's the information that was spit out gave you the.
You know gave you the macro a piece of our.
Our provision for the quarter, which is I think about what 9 million for the quarter on the macro side.
Our total provision of 21 million.
Yep.
8.1, Yes, you look at page 27 in the slide deck at 8.1, and that's all spit out from the model.
And you know using our data that we would update it the model using our data for our portfolio to update those macro effects to to do the qualitative side.
So that's my take you didn't ask for all that but I'm kind of frustrated by having to be compared to other banks Cove added macro economic nonsense. That's all over the board and it's just simply because it doesn't have anything to do anything so that's my take on it.
<unk>.
Our next question comes from Jared Shaw of Wells Fargo. Please go ahead.
Hi, Good morning. This is actually Timo, Brazil are filling in for Jared.
<unk>.
Hey, guys appreciate all the Oh the color on T.. So that's certainly a helpful. But maybe switching over to the commercial loan book have those utilization rate stabilize the and in your commentary for robust loan growth.
And third quarter is any of that coming from the commercial base.
Can you ask that again.
So looking at utilization rates in the commercial book those started to stabilize a 31 person and then as you look at the broke off loan growth commentary for the third quarter is any of that being driven by the commercial book.
So that the utilization rate is you know it's hard to tell what it'll be on its own prospective basis, because you know that will be based on.
Ah things that will have to.
Unfold, but.
This would be more inline with our historic utilization rates, where we are now so that's.
It's it's sort of in line with the a backward looking.
Utilization rate as far as.
What how will play into loan growth in the next quarter.
Given the fact that is kind of stabilize the historic levels. It it's less likely to being a drag, but probably not going to play much in a way of what kind of growth we have.
Okay understood and then one more for me.
Looking at the deferral is can we have to break out of those deferred for 90 days versus six months.
You got that or I guess, Tom we have that sounds fine there yeah. The.
So on page slide 29.
The business banking.
Category those were all down on six month deferrals.
The vast majority of everything else was done on a 90 day.
Interest only basis.
Okay, and I guess or the business banking clients as the deferral period of going on how much visibility are you getting into that sub segment is there enough that gives you kind of cautious optimism coming out of this or is this going to be more of a situation than until that deferral period, and that's going to be really.
To get into what the outcome that's.
Go ahead, Tom Yeah, the majority of that business banking segment, our practice finance loans.
Largely to Dennis.
And so you can really track quite closely with one the dental offices open back up and they're allowed to do more elective type procedures, which they are to that today.
Then we're optimistic that at the end of the deferral period, they should be able to get back to a normal payment structure.
The unknown clearly is if we fall back into a locked out of some sort that changes, but you kind of follow the data. Some for the first 30 and close to 60 days of those they were shut down entirely except for emergency type procedures.
So we're optimistic that as the economy slowly.
Opens up backup in the end the dental practices continue to to be able to do the elective type procedures that they'll be able to come off the deferral, let the.
At the end of the agreement.
Great. Thank you.
Thanks anymore.
Again, if you have a question. Please press Star then one.
Our next question comes from Chris Mcgratty of KBW. Please go ahead.
Oh, great. Thanks to the follow up.
Just wanted to get a little bit more color on the trajectory of service charges. We've heard from most banks that are the elevated cash liquidity is obviously and lower transactions are just wait on that but interested in kind of that progression over the course of.
April May June.
[noise], you got that wrong or Jim I.
Well. This is this is Jim Ryan on the service charges we.
We saw an uptick.
In first quarter related to a one time of bad, but we're seeing primarily the same thing that mostar as far as service charges actually on the decline but.
They are consistent with earnings credit more cash on balance sheet. So with that particular mine item certainly is going to see some pressure, but it's not true lost business or other market actions that are causing that other than increase.
Offset.
Understood. Okay. So relatively stable at this point with some sort of industry pressure based on just trends right, but there's no no nothing.
Underneath the hood on it.
And maybe just one quick one on the hotel portfolio.
Could you.
Could you make a comment on a.
Occupancy rates in your portfolio in kind of where where those need to be for.
For kind of breakeven for for some of your borrowers.
Well we are out in the first answer is it's just under 50% and we mostly have limited service as.
A you know within the portfolio as far as breakeven I'm not sure. That's something you know Tom is that something we have for Sydney from Sydney.
Oh, no not off top.
We don't.
Yeah.
Don't have that we but that's something maybe we can address later, but.
It's about 50% just under 50% occupied and portfolio, we feel relatively good I mean, it's certainly something that we're watching closely but again, it's 100% guaranteed portfolio.
With large liquid sponsors and.
It's a you know the limited service hotels so.
Don't have all the other.
Loaded expenses to deal with et cetera.
This does the limited service tend to outperform our tending to outperform the other categories.
And.
You know again feeling.
Feeling pretty good about about where we are there and we maybe we can address.
Into future quarters, the breakeven I'm sure. It's obviously different from hotel by hotel.
No I appreciate that and then there's just a quick one on the deferral process for four hotels.
Some banks that kind of requiring more more equity to get that deferral. How did have the deferral process work specifically for for your hotel port borrowers.
Oh, Yeah I'll take that you have to also start out on the basis that the hotel deals that we have done.
Started out at lower loan to cost lower loan to value are generally with lot with strong sponsors. So we just we didn't require across the board additional equity in some cases, we did but as a rule.
We just would go ahead and do the deferral, but again, we're going into these I think in stroke and a stronger position.
Perhaps some of our brother.
Great. Thank you was that what you're asking okay.
Yes, exactly thank you.
Our next question comes from David Wong of Raymond James. Please go ahead.
Good morning warning if you want.
<unk> today.
Just wanted to ask about the asset servicing business in this volatile backdrop.
My sense is that those revenue numbers from acquisitions can move around quite a bit and you guys have held pretty consistent there. So just curious on the puts and takes in that in that business and then also dizzy environment today lend itself to pick up any market share in that business as well.
Go ahead, Jim I'm, Yeah, I'd go ahead.
That but that that business has been strong for us partly because we continued to acquire market share of we've made investments.
That should be strong teams as far as our Utah.
Walkie so the alternative investments all reported back we've seen.
We've seen stable growth there.
I don't have anything yet to doing that I was the only thing I would add is it because we are strong player in the alternative space the asset values hold up better in the alternative side than they do in the liquid market side.
They don't reprice the same way so they hold better the values will better and we have also seen new business. So combination of continued new business.
Along with a heavier reliance on all a with you know less volatility in the way the assets or price has been helpful and.
Lastly.
The you asked about.
Market share gains because the industry you know, we have seen and the pipeline grow because the consolidation and what we've learned from talking to our teams is that when a consolidation takes place the pipeline goes into suspense basically.
So anything that has been in the pipeline within other larger consolidations basically becomes more lives for us.
And so our pipeline has been growing because of the consolidation. So that's.
So the kind of three nominations along with our custody business has been we've hired some people out of the big players. So we're starting to see stream on just a pure.
Institutional consumer customer site, largely again the fallout from the consolidation we picked up several really key people to help just don't because.
Institution pesticide alone.
Got it that's the that's the cars will get for appreciate it guys.
<unk>.
Sure.
Again, if you have a question press Star then one.
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This concludes the question answer session I would now like turn the conference back over to Kay Gregory for any closing remarks.
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