Q2 2020 First Commonwealth Financial Corp Earnings Call
Good day and welcome to the first Commonwealth Financial Corporation second quarter 2020 earnings Conference call.
Yes.
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After today's presentation, there will be an opportunity to ask questions to ask a question. Your press Star then one on your question.
Withdraw your question. Please press Star then too. Please note. This event is being recorded no now, let's turn the conference over to Brian Thomas Vice President Investor Relations. Please go ahead.
Thank you cool and good afternoon, everyone. Thanks for joining us on todays call to discuss the first Commonwealth Financial Corporation second quarter financial results.
Speaking on today's call will be like price, President and CEO, Jim risky Chief Financial Officer, Brian Carroll, Chief Credit Officer in General about our bank, President and Chief revenue Officer.
I Wonder a copy of today's earnings release can be accessed by logging on to ft banking dotcom.
Let me Investor Relations link at the top of the page.
Yes also included a slide presentation on our Investor Relations website with supplemental financial information that will be referenced during today's call.
Before we begin.
I would caution listeners that this call will contain forward looking statements. Please refer to our forward looking statements disclaimer on page two of the slide presentation for a description of risks and uncertainties that could cause actual results could differ materially from those reflected in the forward looking statements.
Today's call will also include non-GAAP financial measures non-GAAP financial measures should be viewed in addition to and not as an alternative for our reported financial results in accordance with gap.
Reconciliation of these measures can be found in the appendix of today's slide presentation.
With that I will turn the call over to Mike price.
Thank you Ryan.
We were generally pleased with the second quarter results with net income of $23.9 million earnings per share of 24 cents, a pre tax pre provision our way of.
1.61% kind of core efficiency ratio of 57.2%.
First provision expense fell to 6.9 million from $31 million in the first quarter as three non performing loans were resolved.
The second quarter reserve increase from 2 million.
[laughter] 81 million or 1.28% of total loans, excluding P.P.P. loans as we added another 5.5 million in qualitative reserves to reflect the economy and our co that overlap.
We believe that ratio compares favorably to other incurred banks, although our second quarter reserve of $81 million was calculated using the incurred last model.
Adding our previously disclosed day, one seasonal increase [laughter] put reserves into the mid 90 million dollar range that would put the reserve coverage in the mid one fifties, which we believe with compare favorably Cecil banks, our size even with no.
Further reserve build that's all because of the strong reserve build we did in the first quarter.
Our first quarter alone deferral figure of $1.1 billion for 17.6% of total loans go all the way to $186 million were 2.7% of total loans as of July 24th most of our deferrals where now.
90 days and our approach to customers consumers and businesses in March in early April shifted from accommodative and customer service oriented to a more credit oriented approach and manger.
Team is exercising extraordinary oversight with regard to credit. This is warranted, particularly if the ongoing reopening of the economy cannot safely continue in the ensuing quarter or too and as the impact of the initial shorter term government stimulus dissipates.
Second quarter, our credit and banking teams did a name by name commercial loan review and spoke with some 1600 clients in total Brian Kara Our Chief Credit Officer will provide more credit commentary shortly.
The team helped roughly 5000 local businesses preserve roughly 80000 jobs at a median loan size of only $32000 through the payroll protection program, excluding $571 million of P.P.P. loans, our portfolio grew 2.7%.
Annualized.
Driven by record mortgage volumes strong indirect loan originations in corporate banking growth.
Hi, all markets accounted for all of the net new loan growth in second quarter further validating our Ohio expansion over the past few years as an aside over 20 million in P.P.P. loan fees were wired the first Commonwealth in June from the S. The a and will accrete into income and the.
Second half the year as we expect that the majority of our P.P. loans will be forget it.
Third the net interest margin of 3.29% fell as expected, but after adjusting for the dilutive effects of.
The P.P.P. loans at 1% in an excess of low yielding cash on our balance sheet. The NIM of our company was closer to 3.41% Chemerinsky, our CFO will provide commentary on margin expenses and other important items.
Fourth noninterest income of 21.8 million 21.8 million in the second quarter increase some 2.5 billion the companies that quarterly records in both mortgage origination and debit card interchange income regarding the former some 203 million.
And mortgage originations increased gain on sale income some $1.7 million to $4.2 million on the latter we added 10% more debit cards, but our santan their branch acquisition last year, then the second quarter consumer debit card swipes.
Uh-huh as retailers had a strong preference for cards versus cash. This produced 5.9 million in debit card interchange income $600000 more than last quarter.
Our capital levels remain strong we have over $200 million of excess capital and together with our age Triple let all this would allow us to absorb losses equal to roughly 5% of the entire loan portfolio at once and still remain well capitalized.
[laughter] six despite the 2.5 million dollar uptick in our noninterest expense the 52.8 million. The underlying expect interest expense trend is down as the quarter over quarter comparison, absorbs 3.4 million, a 3.4 million negative variance in.
Funded an expense.
Jim Reske, he will elaborate on this as well, but we want to enter 2021 and sustained through the year 51, the 52 million dollar quarterly non interest expense run rate.
At the onset of the Covance endemic and after the first Federal reserve cuts in March the executive team started a broad based initiative dub.
Project thrive as we focused on one gross expense efficiency NIM and capital with the express all of emerging on the other side of the pandemic stronger than ever we now have two dozen initiatives. Some small some large in the works the yesterday, we announced the consolidation of 20%.
Of our branches across our footprint into adjacent offices that will be completed by year. At this comes at a time that we're studying quarterly company records with online mobile account opening mobile deposit activity in debit card activity with our new contactless cards and the ensuing.
Months, we expect launch our third generation to.
PDP payments in the fourth generation of an integrated mobile online banking platform. After the successful launch of a new Treasury management platform for our commercial clients in June.
Customer preferences continue to change meaningfully in the cobot crisis, that's push all things digital well past the traditional servicing just one example, and the second quarter. We opened 992 deposit accounts via our mobile online platform.
Some three times, our first quarter figure for 12, which what by the way it was not bad our investment in digital leaves us well prepared for the future.
Lastly, the first Commonwealth Seymour remained focused on a handful of items that will simply make us a better bank, namely accentuating opportunities to grow our core business and geographies as we continue to build at the first Commonwealth Bren.
Second realizing efficiencies at a time when margins are compressed and could remain there for the foreseeable future third executing a handful of key digital initiatives and the ensuing months and continuing to build competitive advantage on that front and lastly, navigating the cold it environment the delivered.
Good through the cycle credit and net interest margin outcomes for our shareholders. Unlike the now turn the time over to Jim risky Jim.
Thank you Mike.
Before I begin allow me to point out that we have as usual provided a supplement to our earnings release in the form of a Powerpoint presentation that is available on the Investor relations portion of our website.
Which we will refer to from time to time in our remarks.
Core earnings per share 24 cents rebounded strongly from last quarter.
This brings our trailing four quarter non core EPS average to 21 cents well in excess of our current dividends at 11 cents per share.
Second quarter results were driven by relatively positive credit experience and the net interest margin.
I will discuss credit in detail in a moment. So my remarks will be focused on margin expenses.
Changes in our loan deferrals.
The net interest margin fell from 3.65% last quarter to 3.29%.
The primary driver of NIM compression was not surprisingly rate resets on the banks variable rate loans following the Fas 150 basis points of rate cuts.
However, there was also a pronounced effect on them from the addition of low rate PPP loans and the excess cash on the balance sheet as he loans.
Were mostly just first into customer deposit accounts.
We also saw inflows from other sources, such as federal stimulus checks.
As a result, we here quarter over quarter growth, an average deposits of $758 million.
Non interest bearing deposits alone increased by $537 million, 29.4% of total deposits.
Up from 25.3% last quarter.
This strong deposit growth resulted in an average of $212 million excess cash in the quarter.
In fact excess cash peaked at over $480 million in mid July.
The only 5% of total assets.
Yes of course out of suppressive effect on in them.
We estimate that the impact of PPP loans.
And a like amount of associated deposits on NIM to be approximately 12 basis points in the second quarter, which would imply a core NIM.
3.41% for the quarter.
That represents 24 basis points that NIM compression.
Which is within the within the range of previous guidance, albeit at the higher.
Our ability to lower deposit cost in the second quarter helped to blunt the impact of downward rates. For example, the average rate on interest bearing demand and saving deposits, which had over $4 billion is our largest deposit category was cut in half a quarter from 48 basis points to 24 basis points.
As shown on page 12 of the supplemental earnings presentation, our total cost of deposits, including non interest bearing deposits fell in the second quarter from 51 basis points to 31 basis points.
Looking forward, we still have nearly $800 million a time deposits at an average rate of 1.51%.
Which will reprice downward overtime and should help offset the impact of negative loan replacement yields so not completely.
As a result, even though we expect some further NIM compression, we believe the pace of compression should slow.
Adjusting for the impact on NIM from PPP loans and excess cash we expect the core man.
Drift down to 325 to 335 by yearend.
To offset the impact of low rate environment, we remain firmly focused on continuing our long if successful track record of controlling expenses.
The quarter over quarter increase of $2.5 million, a non interest expense.
Strong effected by the unfunded commitment reserves, which was a negative $2.5 million last quarter, but a positive zero point $9 million this quarter for 3.4 million negative quarter over quarter swing.
The other notable event in anybody was about $419000 a co good related expense in the second quarter.
Going forward, we expect significant expense reductions for the branch consolidation project, Mike discussed earlier.
We expect this and other contemplated expense containment initiatives to enable us to maintain a non interest expense run rate between $51 million to $52 million per quarter for the foreseeable future.
Now let me provide a few general remarks at our loans into thorough and how they are trending.
Last quarter, we reported that deferrals totaled $1.1 billion were 17.6% of total loans as of April 24, the Friday before our first quarter earnings call.
Deferrals peak during the quarter at approximately 1.4 billion.
I would note that most of our deferrals, where for 90 day period that began in the last week in March and continue through April.
As such the initial 90 day period for most of these loans has been coming to an end only in the last few weeks.
So we would encourage caution in drawing conclusions from what is only early experience.
However, as Mike mentioned as of July 24 last Friday, they remained $186.3 million of loans into first status or 2.7% of total loans.
Well that reduction is an early positive sign we firmly believe that it's too early to draw any conclusions until we see more evidence of actual payment history on these loans.
We have therefore increased qualitative reserves held against consumer forbearances by $1.2 million in the second quarter.
Before I turn it over to Brian for discussion of credit trends I'd like to just reiterate our rationale for remaining with incurred loss approach.
Last quarter volatility in forecast models gave us pause as to the efficacy of those models and that volatility continues with the current debate over the W. You and switch recoveries.
As I mentioned last quarter, we saw no advantage and seasonal adoption for time and we continue to believe Thats. The case. They have in fact allowed it to observe the various industry approaches to see for adoption and refine our models accordingly.
Never even though we are on incurred as shown on page six of our settlement, we get a significant reserve build in the first half of this year, resulting in a coverage ratio that we believe compares favorably with incurred banks as well as many seasonal adopters.
And we continue to build qualitative reserves in the second quarter.
And with that I'll turn it over to Brian.
Thank you Jim.
Although we were in the early innings of the economic recession, we're pleased with our asset quality trends for the second quarter.
Our NPL decreased approximately $3.1 million improving from 0.93% of total loans in Q1.
The 0.88% excluding PPP.
Reserve coverage of Npls rose from 133.53% to 145% NPK decreased format for and a half million dollars from 0.74 total assets in Q1 to 0.66.
Classified loans as a percentage of total loans, excluding PPP decreased from 1.42% to 1.21%.
These improving trends for form the backdrop of our approach for loan loss reserve in the second quarter.
Continued to build reserves under the incurred loss model.
I can only $2.4 million.
Our allowance to total loans grew to 1.28%.
Provision for the quarter was $6.9 million driven by.
Modest loan growth.
And overall decrease in Npls approximately $3.1 million.
The decrease in specific reserves.
Of approximately 2.9 million.
And changes in our qualitative reserves.
Our standard Qualitatives increased by $3.4 million quarter over quarter, reflecting the economic conditions.
And as Jim mentioned are totally qualitative overlay increased by $2.1 million to 9.9 million.
Recall from the last quarter, we developed a framework to capture the incremental risk of loss due to coated.
The framework included eight higher risk commercial portfolios. Additionally, we developed a consumer over like based on our internal PD LGT models to address the risk associated with consumer Forbearances.
We attribute our solid performance in the quarter to our continued adherence to our credit principles.
Over the past several years, we've managed concentration risk and all levels, creating granularity in our commercial loan portfolios.
As of June Thirtyth, we only had 27 relationships over $15 million.
To better identify portfolio risk, we have prepared internal industry studies for each commercial real estate segment as well as certain see eni segments, including dealer floor plan and energy.
Our industry studies are valuable tool to identify and manage certain portfolio risks.
Additionally, we use our industry studies to manage our geographic diversification and diversification that the industry sectors.
One of our great strength is that we use our size speed and flexibility to our advantage.
For example over the course, the second quarter, we performed a comprehensive loan review.
Covering approximately 1600 borrowers and $3.6 billion in commercial loans.
We reviewed commercial credits as small as $350000, so as to better understand cobot related impacts our commercial clients and small businesses.
The review was founded on the notion that.
In this current economic environment financial statements looked at customers through the rear view mirror.
And we wanted to look through the windshield.
During our loan reviews, we relied on are experienced customer knowledge to evaluate the health of our borrowers and a name by name basis. These loan reviews helped us to identify potential risk and to adjust risk ratings accordingly.
And with that let me turn it back to Mike.
Thanks, Brian and Jim and with that.
I'll turn it back to the operator for questions.
Thank you we will now begin the question and answer session to ask your question. Their press Star then one on your touched on.
If you're using a speakerphone please pick up your handset before pressing the case.
Let me draw your question. Please press Star then too.
At this time pause momentarily to assemble a roster.
Your first question today will come from French are already with Piper Sandler. Please go ahead.
Good afternoon.
Just wanted to start on the the branch.
Closures.
That sounds like the 51 to 52 million or that you guys are targeting and noninterest expense next year.
That is based off of both cost saves here and then additional initiatives is that right.
That's correct.
Yes.
We expect a savings of about $8 million net some leakage of that savings with some revenue headwinds in our branches and then we'll have some onetime costs in the third quarter.
ER and the savings there will be adding additional savings and that will be less we still continue to make pretty significant investment in digital.
This year with our P to P ops and sell with a new online account opening our online mobile platform and Treasury management, we're adding to our expense so it.
It comes out in the wash and about 51 to 52.
And our the closures or the combinations sort of across a geography, and they tend to be more rural or less rural or any or detail there.
I think the pretty equally weighted just share a few things and mentioned the consolidation as a function of customers increase utilization of digital tools. We also developed a pretty strong culture of deposit gathering and I'll, let James speak to that in a minute to incur Bentsur bank President but also.
I've looked at this pretty analytically the distance between branches being consolidated the median distance is three and a half miles we feel like we can really control.
Attrition were affecting 20% of the branches, which represent 10% of our deposits than others, 10%, we really only expect about 15% to 20% attrition or about one and it has to 2% being truly at risk and then lastly, I would just shares is make no mistake, we are still bullish on.
Branches, we probably have more per capita then most of our competitors our retail locations deliver our brand and our people inside these branches are powerful in their outreach to the communities and so I.
I think we're still bullish on branches, but I think this is.
An important opportunity here and I would say probably half for rural and probably half for metro. So that's probably about 10 inch.
Okay.
Right and then just.
And then just one quick follow up on.
Provisioning Uh huh.
Totally heard out of unless the full review and and it sounds like you've adjusted risk ratings with that reviews. So.
Obviously difficult to say Im a there's still a lot of uncertainty out there, but as we think about provisioning for the back half of the year is it more reasonable at this point to assume the reserve builds are behind that and maybe provisioning in the back half the year, just a mass charge offs give any.
Thoughts on that front.
Right.
Yes, our view is that we call falsely strikes honestly, we stay on top of our customer base and we run a process that we call a draft process. So it's financials come in we evaluate those we make risk rating adjustments is appropriate this line sheet exercise which to me.
Sure that we could get ahead of.
The lack of financial statements, even tax returns for delayed through July and so we needed a mechanism to appropriately adjust our risk ratings I wouldn't necessarily say Frank that this is a precursor to losses later in the year as borrowers get back on their fee.
We'll adjust risk ratings back the other way so our analysis of their projections our analysis of their liquidity our analysis. It where we are in the process would lead us to believe that our risk ratings are appropriate at this time.
Okay, all right great. Thank you.
Thanks Frank.
Our next question will come from Steve Moss with B. Riley FBR. Please go ahead.
Good afternoon guys.
Good afternoon.
What a follow up on the just on on credit here I guess it was a little surprised that criticized and classified actually ticked down a little bit in aggregate just kind of curious as to where the dynamics. There just given the level of business disruption you know we saw this quarter.
Hi, Adam.
Yes, what you'll see in the press release is that we were sick. We successfully resolved three problem credits and we were very pleased to have those resolve their specifics went down there that were associated with with those.
And.
You know.
One was a previously disclose parking structure in Ohio, a second was a Pennsylvania based manufacturing the energy sector and the third one was an auto dealer that had been non performing.
And and so Steve be successfully resolve those driving or Npls down. We also were successful and selling one of our large for all our ratios.
Contributing to the lower end Deejays.
Okay, and then I guess it just in terms of business activity.
You mentioned that.
Jim that I think it Pennsylvania do you didnt have any lending opportunities this past quarter, Ohio drove the loan growth kind of curious had.
Dynamic improved or does that continue to be a continued to be the same sort of dynamic.
Part of it is just on a record mortgage volume our average mortgage in Ohio is about two X what it is in Pennsylvania.
And so similar activity produces larger loans in Ohio, We've also grown our indirect business into Ohio, So that adds a little juice.
And you know pipelines, we still good loan production in P.A.. It's just this particular quarter.
The majority if not all the growth came from Ohio, So there'll be an ebb and flow to that those markets had been very good to us a business is more mature in Pennsylvania, Jane I, what would you add to that chamber events or bank President.
Oh, Thanks, Mike you know the only thing that I would add is that the Pennsylvania loan book is so much bigger across all categories. So we've got a lot more attrition run so I would expect the Ohio loan book to always well just to show more loan growth for at least the next several quarters.
Okay, great points and.
That's that's helpful.
And then in terms of the.
Indirect portfolio growth, you're quite healthy for a number of banks. This past quarter kind of wondering if that trend is carrying over into this quarter and kind of what the mix and auto was that you guys soft.
Yes, I mean really we are primarily used car, we do fine over a decade that indirect auto tends to be a bit counter cyclical. That's one of the reasons, we hang onto it when everybody's getting it and the margins are nothing you know like three or four years ago. So its time.
Like this that that business tends to perform pretty well I think we also benefited from a nice rebound.
After a lot of pent up demand from the.
Probably March and April and May as customers consumers gone out in June and July.
What would you add there.
Not sure business.
Thank you.
First of all what's really important as we didn't get any more than our typical market share. So we're not stretching to grow indirect.
All the banks had I think a pretty good.
Pretty good may.
And a fabulous June.
And.
We just do a good luck introduced.
Some.
We should all vehicles capability last year and in the midst of a pandemic people are buying obese.
So our indirect book is about this last quarter at least.
Probably 60% auto.
40% RV stay like that RV.
When at 20% of the book I suspect.
And of those are these are 25000 dollar pull behind you know glamping kind of R&D and.
Credit scores are terrific 780 credit score on the R&D book.
So it's just good luck.
And.
As Mike said were primarily used car shop, 80% used 20% newish.
Great.
Thank you very much and I would add that this is I would add that this is in spite of tighter underwriting standards, we have virtually across the board tightened our underwriting standards, both for consumer and for commercial.
Appreciate all color. Thank you.
Your next question will come from Steve do on with RBC capital markets. Please go ahead.
Hey, good afternoon guys.
Good afternoon.
Just.
For your reserving this quarter can you just go over your what your for economic assumptions are compared to where.
Current economic activity is today.
<unk>.
Yeah chip yeah, well just thanks My question, Steve just keep in mind that Rami incurred model. So we are not.
Adopting a forecast that's driving forward looking expected losses the neighborhood if you're on Freecell. So.
Well, we do have qualitative reserve, even though we're on incurred that take the economy into account in those qualitative reserve calculations, we were assuming it unemployment rate right around 11% between 11 12, and that's part of a contributor to some reserve building back qualitative factor this quarter.
Got it is that 11% by the end of this year I assume right.
Yes, let's because its incurred especially the ones going right now and say stuff that's been factored modeling assessment because of that high unemployment rates. It adds further qualitative reserves.
Got it.
And I'm sorry, I missed this what were your loan forgiveness expectations were where are you expecting all then to be forgiven by the ended the year was a third quarter.
We generally think that's probably about 90% and then we'll be forgiven in second half not really the third quarter. Some of the forgiveness mechanics that forgiveness, and then delayed a little bit. It seems so you're out we think it's going to play itself out over the whole second half.
Got it got it and just another one in your your retail portfolio how much of that is CR reverses C and I and do you have the LTV for the theory.
I'm sorry rephrase the question please.
Your your retail portfolio.
For your culture exposure yeah.
Is that all theory.
Oh, you're looking at.
The retail cobiz portfolio on page eight of our settlement.
Yes, that's correct yes.
Yes, so the retail portfolios, we outlined on page eight is $547 billion, that's spread across over well over 500 borrowers as we discussed last quarter on the earnings call, we do break our portfolio while so.
A little different ways, our focus has been those phones greater than a million dollars and have that the bucket. That's the largest is our freestanding retail loans certificate Lee loans made with the tenet is it national tenant or a large regional tenet to by 29% of that portfolio you could expect.
I can't tended to be a dollar store or convenience store with a gas gas station.
Bank branch, a wine and spirits store the average those launches around $2.8 million, 58% LTV hundred 43 cover.
At portfolio is doing very well.
And then we further breakdown each one of the individual buckets in retail and study then not only in our alliance. She spent on our ongoing review process.
Got it appreciate that yeah, <unk> and Oh need to see here.
Your thrive initiative.
The 20% when do you expect to have that completed by.
Yes, we'll be able to a really December suburb 10th 11.
We're looking to.
Consolidate those offices I think one leaks into the first quarter of next year.
Okay. So.
Is the 51 to 52 million run rate is that for the basically the second half of this year or would that be for next year.
That's for next year.
Got it okay. Great. Appreciate thank you guys.
Thank you.
And our next question will come from Russell Gunther with D.A. Davidson. Please go ahead.
Hey, good afternoon Guy.
Hi, Russell.
I wanted to follow up on this very granular commercial loan review and the comments you guys gave which are much appreciated one of them you touched on MACI taxes coming in.
In in July and so first question is whether you were able to incorporate those updated financial in your analysis and then the second question I'm curious as to any details you can share as to what the internal studies for the CRT sector show and how you're monitoring.
That asset class.
Brian.
Let me take the second question first in each one of the buckets that we've discussed in our proprietary work for this call we not only a update to the extent possible LTV S. T R and forbearance information, but we also reached out to our real estate.
Clients and asked them what are you really see today what are you hearing what should we be thinking about you know what's interesting in this market as we begin to think about senior living or think about our student housing bucket.
While the student housing portfolio isn't very large.
Well, we are hearing is that one major university and Ohio. The borrower there is reporting 100% pre leased for fall. Another one in Pennsylvania is 92% Preleased. We're also hearing that some universities and colleges and an effort to create social distancing has.
Pushed juniors and seniors out to virtual learning, while requiring sophomores to live off campus.
So it's a mixed bag it somewhat uncertain, but as we look at that portfolio, albeit not large at 99 million roughly 24 borrowers. We believe our occupancy rates that held two quarters ago and the high Ninetys will continue somewhere.
Mid Eightys the high Ninetys.
That's just our expectation LTB Annette portfolios, 61% Dsis Dfc ours was 73 in debt yields around 14%.
We do the similar we do similar work for each one of the portfolios as outlined in the Kobe slide number eight.
Got it I appreciate the thoughts there and then a follow up on the 186 million of remaining deferrals I wanted to just make sure I understand your comments in terms of.
It potentially being too early to get positive and draw positive conclusions. Yet. So is the expectation that you know a second round the deferrals would push that kinda total number higher or that hundred 86 million because it was a forbearance programs. These are higher risk borrowers.
That may ultimately moving to a risk weighting downgrade and incremental provisioning going forward just trying to understand the comments from earlier.
No that's a great question and here's our view.
Last quarter Jane mentioned that at the onset of the pandemic, we established an outreach program to touch our customers and off alone deferrals in PPP loans.
Based on the rolling maturities of those loan deferrals. The leadership team came together and proactively establish cross functional teams in may.
And the express purpose of this was to do a look back.
The team whiteboard to round, one deferral process and develop the framework for around two we looked at our internal and external communications, we clearly laid out the requirements for our borrowers the questionnaires that would be required for consumer as well as the requirements for corporate the core.
Requirements are simply this.
We want to see a 13 week cash flow within includes liquidity and cash burn.
We want to see a plan that includes projections. So we can tie our solution to their business deed.
We want to be able to evaluate it and determine.
Together, whether we need incremental recourse additional collateral co borrowers in some instances we've gone Io.
In some instances, we required debt service coverage reserves to be prefunded with cash.
And then along the way our head of commercial real estate is pushing for LIBOR floors. We taken one at a time so as they present themselves in a committee format for a second request, we put out our put ourselves in a position not just a rollover and grant to second one but find.
Solution on the deal by deal basis.
To answer your question.
You did I appreciate it and thank you all that's it for me.
Thank you.
And once again, if he would like to ask your question. Please press Star then one.
Our next question will come from Collyn Gilbert with KBW. Please go ahead.
Hi, This is Chris O'connell, calling it ER filling in for calling.
I just wanted to continue on the deferral or trends, which obviously screen.
Very positive here, but just understanding the comments as well.
From the initial comments you mentioned.
The.
You wouldn't you had mentioned that that most of these loans had had only been coming to an engine and the last few weeks, but it seems like the vast majority must have come to the and.
If the updated deferral balances dropped.
You know that significantly significantly from 1.1 billion down to zero.
<unk> point 2 billion.
<unk> is that correct am I interpreting that correct.
Jim you want to start there yeah, you are interpreting that correctly, it's just that by virtue of the timing of our earnings call.
The first quarter, we had several weeks of April go by the 40 publishing number as a part of earnings call and so we're trying to be consistent with that do the same thing this quarter and so you're right. That's capture because you're going April 24th and showing that number can try 24. It. It does captured most of the 90 day roll over period.
Okay great.
And then I apologize I missed this but but what does your outlook for mortgage banking going forward. Obviously, you know this quarter had record originations and it was very strong in terms the mortgage banking fee line or do you think that can be a retained going to the back half way there.
Or would you expect that fall off a little bit.
We see a deep pipelines in originations in the third quarter and are continuing strength on the business at least in the third quarter Jane would you like to add to that change her bets or bank president.
Oh, Thanks, Mike only that you know certainly.
The second quarter was phenomenal a third quarter.
We expect also be very strong and I suspect will fall off some.
You know you just never know when the refinances, you're going to try out.
We are here, we have some advantage given that our port folio is newish.
No we didn't get into the business until 2014, so our refinance volume isn't anywhere near what most banks are but but still you can't live off of the refinances, we feel good about the CRO business.
And if anything I would add is organically year over year.
Ex refinance activity business has grown.
And it's just because of feed on the street production and so on and that's probably a little different than more mature operations.
Great that's helpful color.
And then finally are on the NIM guidance.
For the core NIM, you know X TPP and the cash impact to kind of trend toward a 325 to 335 by year end and that is in those assumptions or the area in that guidance.
Are you assuming that there's a significant oh fall off and noninterest bearing deposits related to kind of PPP loans.
We are yes. Thank you.
It does take that into account, we are assuming that hasn't PPP those out for given that a.
A like amount of deposits on flow out of the bank.
It doesn't have that much effect on the calculation because the alternative cost of borrowing and right now it's almost free anyway.
And we have excess cash so.
Some of those funds come out of the bank it actually benefits us, but it's very very little effect, but yes. We are we're definitely taken into account.
Okay, Great. That's all I. Thank you.
Thank you.
This concludes the question answer session I'd like to turn the conference back over to Mike price for any closing remarks.
As always we appreciate your interest in our company and your questions and look forward hopefully the been with you soon on your a virtual conferences. Thank you so much bye bye.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Your lines. This time.
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