Q2 2020 Washington Trust Bancorp Inc Earnings Call
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Thank you Chad good morning, and welcome to Washington Trust Bancorp Inc. second quarter 2020 conference call, we'd like to remind everyone that today's presentation may contain forward looking statements that are actually actual results could differ materially from what as discussed on today's call. Our complete safe Harbor statement is contained in Washington.
Interest earnings press release, and other documents that we filed with the FCC. We encourage you to visit our Investor Relations site at IR Dot Wash Trust Dot com to visit our complete safe Harbor statement and other public filings [laughter], Washington Trust trades on NASDAQ under the symbol wash today's call will be hosted by Washington Trust Executive team.
Net handy chairman and Chief Executive Officer, and Rosberg Senior Executive Vice President Chief Financial Officer, and Treasurer worries your second quarter performance.
The conclusion of their remarks market, President and Chief operating Officer, and Bill right, Our senior Executive Vice President and Chief Risk Officer will join that Enron for question and answer session. I'm now pleased to introduce Washington trusts, Chairman and CEO Ned Handy net [noise].
Mr. Handy, perhaps your line is muted on your end were unable to hear you up and good morning. Good morning, and thank you for joining us on todays call I apologize I was on mute.
We hope you and your families are doing well at a managed to remain healthy during this ongoing pandemic.
Yesterday, we released our second quarter earnings and I'm pleased to report the Washington Trust posted very strong results with net income of $21 million or $1.21 per diluted share as a significant increase from 11.9 million a net income or 68 cents per diluted share earned in the first quarter of 2020.
With solid business continuity and pandemic plans in place we were his prepared as we could be for these unprecedented events, but our performance was a testament to our people and their unwavering care for our customers.
On July six we reopened our branch lobbyist to limited foot traffic and then person meetings, our frontline retail bankers have kept the branch operation running without pause and have been steadfast in their support of each other and our customers.
Our non customer facing employees, who have been working remotely are gradually beginning to transition back to their bank offices, we've done an outstanding job of keeping everyone healthy while maintaining service some production levels. So we'll be cautious with our transition plans. We continue to enforce strict health and safety guidelines to ensure we are maintaining its.
Safe workplace and to help mitigate the risk of any future spread of covert 19.
As we continue to manage through this multifaceted period of health, social economic and political unrest the depth of which none of us have seen we take comfort in careful planning deliberate execution and common focus on being a part of an expedited resolution to the to the issues we all phase.
In addition to highlight in the dedication of our people our second quarter performance also once again demonstrated our diversified business model enables us to generate earnings in a challenging environment.
Let me review some of the quarters highlights.
Total loans amounted to 4.3 billion at June Thirtyth 2020, an increase of 5% from March 31st 2020, and up 15% from a year ago.
Loan growth in the second quarter was primarily due to the origination of the small business administrations paycheck protection plan loans.
Washington Trust, except that applications from both existing customers and nine customers.
Washington Trust was one of the Rhode Island top PPP lenders, securing SPD authorizations more than 1700 borrowers totaling more than $220 million.
According to a recent article on the Providence Journal, Rhode Island, SBK estimates the PPP funding that's supported approximately 200000 jobs in the state covering roughly 83% of the state small business payroll expenses.
We're now working with eligible P.P. borrowers to prepare them for the Sps forgiveness process once rules or final and guidance is in place.
We also continue to actively support our commercial borrower base with deferments other payment relief details of our covert 19 relief efforts are contained in our earnings press release, and we'll be happy to justice further in the Q and a recession.
Once again I must acknowledge the efforts of our employees. In addition to our commercial lending team and retail branch stuff. We had 70 employees from different departments throughout the bank pitch and to help with the P.P.P. program.
As you know after the P.P. program was introduced in April the rules and guidance kept changing our team worked closely with both existing customers and new borrowers to answer questions and help them understand the program and guide them through the application process.
Aside from PPP lending, though overall commercial loan demand and our commercial pipeline were down during the quarter as there's still a great deal of economic uncertainty in the marketplace.
Residential mortgage demand is a different story in our mortgage banking area achieved record levels in the second quarter low interest rates bird, both refinance and purchase activity, resulting in an all time high mortgage origination volume and sales gains.
Mortgage revenues, which reached a quarterly record of 14.9 million helped to offset margin pressure and proved to be accused source of revenue during the quarter.
I can't say enough about our retail lending team the mortgage originators the underwriters the loan operation staff in the secondary market group, everyone work long hours some from their bank offices, others from remote locations and still we're able to originate a record level of mortgages safely and efficiently.
We've recruited employees from other areas of the bank to assist our retail lending team and they'll need there will be needed going forward as the demand is still strong.
Our mortgage pipeline has increased from the prior quarter sort team has its work cut out for them in the months ahead.
Total deposits amounted to 4.1 billion at June Thirtyth, 2020 up 11% from the first quarter end market deposits increased by 9% in the previous quarter, mainly due to increased.
Noninterest bearing demand deposit balances and now account balances a good portion of the new deposit growth was related to PPP loans, as we required customers and non customers to deposit PPP funds into a Washington Trust deposit account.
We do expect some deposit outflow as the business has begun to use the PPP funding.
We've been pleased to be able to assist many noncustomers PPP loans the grateful for the personal attention in service. They received during the process, we now consider them new customers and hope to retain and build relationships with them overtime.
Turning to wealth management wealth management assets under administration increased to 6.1 billion at June 30, 2020 up from the first quarter due to market appreciation and new business generation.
Over the past several months or wealth management team has been in close communications with clients, providing regular financial market updates and conducting online video conferences to advise in guide them through these uncertain times.
As you May recall in 2019, we introduced a private clients initiative to help uncover new wealth management opportunities. The private clients team has been working closely with our commercial and mortgage lending teams to introduce high net worth clients to our wealth management business. We're encouraged with our efforts to date as they've been a meaningful contributor to net you AUM growth.
Before I ask Ron to provide his financial review I want to assure you all that we remain very focused on proactively managing credit across the company and I'm building and preserving capital as we navigate the uncertain Road ahead.
I'll now turn turnaround and ask him to provide a financial review of our results Ron.
Thank you Matt Good morning, everyone. Thank you for joining us on our call today.
I'll review, our second quarter 2020 results in more detail.
I had mentioned net income was $21 million $1.21 per diluted share for the second quarter.
That's compared to 11.9 million and 68 cents for the first quarter.
Net interest income of 30.9 million decreased by 1.7 million or 5% from a preceding quarter.
The margin was to 31 compared to 261 in the first quarter.
Fee income from prepayment penalties was modest and totaled 21000 compared to 125000 in the first quarter.
Net interest income in margin were negatively affected by the decline in whiteboard during the quarter as compared with Q1.
The average balance of interest, earning assets increased by 357 million on a linked quarter basis.
Average loans were up by 261 million in average cash and short term investments were up by 74.
Yield on earning assets decreased by 58 basis points from the first quarter to 3.18% on.
On the funding side average end market deposits rose by 94 million, while the average balance of wholesale funding increased by 115 million.
The cost of interest bearing liabilities declined by 33 basis points to 1.0%.
Noninterest income comprised 46% of total revenues in the quarter and amounted to 26.3 million by 6.4 million or 32% from the first quarter.
Our mortgage banking revenues totaled 14.9 million a record high.
The linked quarter increase of 8.8 million were 144% included an increase in net realized gains reflecting both the higher sales volume as well as the higher sales yield on loans sold to the secondary market.
Mortgage loans sold total been all time quarterly high 305 million in second quarter up by 143 million or 80, 88% from the first quarter.
This was also up by 168 million for 122% from the second quarter 2019.
Net unrealized mortgage gains also increased from the preceding quarter, reflecting growth in the mortgage pipeline and a corresponding increase in a fair value of mortgage loan commitments as of June 30.
Our mortgage origination pipeline at June 30 was about $410 million in up about 25% from the end of March.
Wealth management revenues were 8.6 million down by 84000 or 1%.
This was due to a 199000 or 2% decline in asset base revenues, which were partially offset by an increase in transaction based revenues of 115000.
The decline in asset base revenues correlated with a decline in the average balance of assets under administration, which decreased by 157 million or 3%.
The June 30 ended period balance of assets under administration totaled 6.1 million and was up 801 million or 15% from March 31st This was due to a recovery in financial markets during the quarter as well as net client asset inflows.
Well in related derivative income amounted to 99000. This was down by 2.4 million from the first quarter, reflecting the lower volume of commercial borrower interest rate swap transactions as well as unusually high activity in the first quarter.
[noise] income from bank owned life insurance totaled 791000 up by 227000 or 40%.
Included in the second quarter was a 229000 dollar nontaxable gain due to the receipt of life insurance proceeds.
Now, let me turn to noninterest expenses.
Total expenses were down by 2 million or 6% from the first quarter.
The linked quarter change was impacted by the following item in the first quarter, we established a contingent loss reserve within other noninterest expenses of approximately $800000. This matter was resolved in the second quarter and a $170000 of unnecessary reserves were reversed.
Excluding the impact of this item noninterest expenses for the second quarter decreased by $1 million were 3% on a linked quarter basis.
The reason employee benefits expense was essentially flat as increased mortgage commission expense was offset by approximately 1.1 million of deferred labor costs, including 1 million associated with the PPP loan originations. The PPP deferred labor costs are a contra expense and are nonrecurring.
Outsource services expense was down 216000, mainly reflecting volume volume related decreases in third party processing costs related to customer swap transactions.
FDIC insurance costs were up by 252000 from the preceding quarter largely due to growth in average assets.
Mainly related to the PPP loans, we expect a quarterly expenses to approximate 550000 in both the third and fourth quarter 2020.
Income tax expense totaled 5.5 million the effective tax rate for the second quarter was 20.9% unchanged from the prior quarter. We currently expect our full year effective tax rate to be approximately 21% for 2020.
Turning to the balance sheet total loans were up by 197 million or 5% compared to March 31st and up by 557 million or 15% from a year ago.
Total commercial loans were up by 210 million or 9% in the second quarter.
The increase mainly reflected 220 million a P.P.P. originations also a single $25 million wine advance that was made at the ended the first quarter was repaid during the second quarter.
Residential loans decreased by 2 million in consumer loans were down by 11 million.
In market deposits were up by 299 million or 9% and.
And by 551 million or 18% from a year ago.
We estimate approximately 175 million of the increases associated with BPP loans, which are expected to be temporary.
Wholesale brokered Cds were up by 97 million and FHLB borrowings were down by 193 million.
We also were elected to participate in the PPP liquidity facility with the fed at June 30 advances under this program totaled $39 million.
Nonperforming assets declined by 1.9 million from the end of Q1.
Non accruing loans were 0.37% of total loans compared to <unk> 0.4, 0.44% at the end of the first quarter.
Loans past due 30 days or more we're 0.34% of total loans compared to <unk>, 0.4% in Q1.
Net charge offs of 308000 were recognized in Q2 compared to 623000 in Q1.
The allowance for credit losses on loans totaled 41.4 million or 97 basis points of total loans and provided NPL coverage of 259%.
Excluding PPP loans, the allowance coverage was 101 basis points.
The provision for credit losses was 2.2 million compared to 7 million recorded in Q1.
We use the baseline national unemployment rate forecast from facts that the econometric data provider use Barry wealth management division for our sees a modeling.
Continued uncertainty regarding severity and duration of the pandemic unrelated economic effects remains and it is unclear what to what extent varies very government initiatives will be able to mitigate future credit losses.
Total shareholders equity was 520 million at June 30 by 11.6 million for me into the first quarter, Washington Trust remains well capitalized the total risk based capital ratio was 12.78% compared to 12.42% at March 31st the tangible equity intangible assets ratio was seven.
0.74% compared to 7.89.
This reflected the increase in total assets associated with PPP lending, which is government guaranteed.
And anticipated to be relatively short term.
Finally, I'd like Oh, sorry, our second quarter dividend Declaration of 51 cents per share was paid on July 10.
And finally I'd like to update you on our corporate 19 lending.
Loan deferments as of June Thirtyth totaled 652 million or 15% about standings.
This includes 447 million of Cree 74 million of C. N I 122 million of residential and 9 million of consumer.
A breakdown of commercial deferments by industry category is presented in a table in our earnings release, we will be happy to get into the details during Q1 day.
Also as of June Thirtyth, we have underwritten 1741, PPP loans totaling 220 million at an average size of 127000.
Gross fees related to PPP loans total about 7.4 million were 3.4% of originations.
And these are expected to be which will be offset by projected underwriting costs, which include 1 million I'd be internal deferred labor costs that I mentioned previously.
The timing of the recognition of net fees into the margin will depend upon the pace of loan forgiveness as approved by the SP and.
And at this time I will turn the call back to net.
Thank you Ron.
Washington Trust response to the Cobot 19 pandemic and as extended implications has been thorough and I'm tremendously proud of the commitment spirit of teamwork and genuine sense of carrying that our team has displayed.
As we move forward, there's still a great deal of uncertainty regarding the severity in duration of the covert 19 pandemic and its related economic effects the impact on consumers in many businesses will likely take time to fully manifest due to the powerful effect of various government stimulus programs.
Well, we're cautiously optimistic about what lies ahead there are many hurdles challenges and unknowns.
We believe Washington Trust is well positioned with a strong capital position and ample sources of liquidity to handle the challenges that lie ahead. During these unprecedented times.
We thank you for your continued support of Washington Trust and hope you'll stay with us as we ride out the storm together.
This concludes our prepared remarks and now Chad. Please open the phone lines to be got arc Una session.
Thank you, Sir we will now begin accumulates session.
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At this time, we will pause momentarily to assemble roster.
And the first question will come from Mark Fitzgibbon with Piper Sandler. Please go ahead.
Hi, good morning.
Morning, Mark.
Couple of questions related to modeling first a ron cash balances been up a lot year over year. When do you think you'll see cash balances coming back down what we see it much impact in Threeq you.
Probably not mark the cash balances are largely a function of our our swap book so with our dealer Counterparties, we're kind of out of the money. So that's a lot of that is posted cash collateral.
Okay.
And then secondly, I heard what you said about the ppt impact goes.
Loan forgiveness, but excluding the impact of PPP does the core margin solar hang around at the current level or does do we do we still have improved.
And now becoming quarter.
Yeah, so so LIBOR ratcheted down during the quarter, So I would say our asset yields bottomed out in the month of June.
You know, we're still seeing some you know investment pay offs and read the payoffs, which you know as we replenish those they kind of come back on at a lower yield.
So those two things look dragged down asset yields a little bit, but we do think that we have quite a bit. We know we have quite a bit of a variable liabilities that will reprice in the second half of the year. So I would expect.
Kind of the core margin for the third quarter to be comparable to the second quarter and then we should see some margin expansion in the fourth quarter.
Okay.
And then your mortgage pipelines I could you share with us the size today.
Yeah, I mean are it's it's over 400 million right now Mark which is higher than it was at the end of March.
Okay.
And then.
We saw pretty positive signs in the wealth management business there with client inflows I think it was 130 million, what's driving that is it new or existing clients in India anticipate you know will continue to see it flows in threeq and beyond.
Yeah, Mark Marcon, Mark ill take that yes, I'll take that question.
The net inflows were driven by a combination of high net worth individuals and by.
One larger institutional account at the end of the quarter, which came in from the private client group. These are by and large from new clients. Although there are always additions from existing clients and.
We're optimistic that that momentum will continue into Q3, although as you can imagine business development in the cobot era has been a little bit more challenging so pipelines were strong going into the end of the second quarter, we're working to be filled those going into the third but I think we can safely say that the majority of net asset inflows were due to new customers.
[music].
Okay.
And then given the strong mortgage banking income that you guys had this quarter I guess I'm curious why not push some of that into the provision given the uncertainties around the current environment.
Yeah, So mark I mean, we.
Our first and foremost we follow gap and you know were five following our allowance methodology that we've installed vendor Cecil.
You know we've we're using the same kind of unemployment data that everyone's using I would say mark our our our provision is a function of the of the underwriting that we're doing and the nature of the the composition of the portfolio that we have so we don't have credit card. We don't know car loans, we don't know student loans.
<unk>.
There is definitely uncertainty with regard to where the economy is going but.
And then Bill I'll, let you jump in on this too in terms of just what we're doing in terms of customer outreach and understanding our portfolio, but at this point in time, we feel comfortable with the level of reserves that were at.
Which are approximately four times the worst loss experience, we had at the depth of the financial crisis. So.
Hmm time will tell what happens when we come and go to out of the deferral process, but for the moment, we we feel comfortable with reserves, where they are and Ned and Bill again, you guys can kinda talk about how we're monitoring the portfolio's yeah Marca of though I'll go first build but you know look we're where we get the question.
We have a.
Clean portfolio that has performed well in the quarter, we have a lot of loans on deferment.
I'd say from a process standpoint, we are all over those and we are talking to those customers weekly and we have now set up a system of kind of color coding them to predict whether additional deferments will be requested and written in a stand on top of how.
Either on a retail deal how underlying tenets are doing or.
But we've got a hospitality portfolio that we're watching weekly.
For for signs of progress.
And so some of those will require additional deferments and will be accommodative, but but you know we're spending all of our credit time watching the deferments watching managing through the forgiveness process on the on the PPP program.
The pipelines in the commercial side are down I think at least part because we're focused on internal things and stand on top of the credit book and we think we have enough capital and.
On an earnings generation power to that to face what whatever comes our way as the facts.
Suggest we need to do something more right now the facts as we see them.
And I'll, let bill Bill spot speaking more specifics the facts as we see them.
Suggests that the reserve we've gotten places is the right one.
Well I don't know if you want to add to that.
Sure two things first on the reserve methodology, you know we had we do our quantitative estimates as we're supposed to following gap they have a bias towards conservatism in them. But then we have mark as you suggested overlaying a lot of sort of uncertainty in our qualitative factors to boost those the results of the quantitative side.
So we believe what we're doing is in accordance with gap and is appropriately conservative inadequate.
And on the deferment side, when we talk we literally talk to our customers we drive by our customers. It we're sort of the essence of community bank. So we're staying very very close to what's going on during this period. So that the deferments aren't masking any underlying concerns and obviously, we will respond to those as they arise.
Okay got it.
Okay, well work I would just say this too.
Most of the deferments that Weve and runs got some details on what has come what has expired with departments have expired and whats happened, but but the large share of them have not expire jet 731 is a big did for us.
So so you know we're all over it and I expect that we'll be making.
Decisions and 731 831 timeframe as as these things all kind of roll.
And then one last question if I could on the Deferments you know yeah. The information that you have itself to date any sense for what percentage of the 652 million of the permits you have today are likely to go delinquent when let's say, we get to the end of the year and the deferral period brought out.
Yeah. So run we have we have information on on what what has happened with deferments that have rolled so far, but but I don't believe bill or on that we've put together any kind of speculation about <unk>.
What what might happen at the end of 90 or 180 days with the entire portfolio yet my Mark I think thats sort off about an hour and I and I think if you look at any of the other banks that are reported that they will tell you. The same thing I mean, there there is certainly a lot of uncertainty out there. So so no. We don't know how many of these are going to be delinquent.
At the end of the deferral period, but given all that uncertainty does not make an argument for having a bigger provision or bigger reserve I should say.
Well this is bill as as I noted, we we believe our methodology reflects a large allowance for uncertainty because we think a lot about uncertainty exists.
Okay. Thank you.
Thanks Mark.
Next question comes from Damon Delmonte with KBW. Please go ahead.
Hey, Good morning, guys has gone today morning them.
Doing well.
Great just a quick follow up on the deferral commentary. So are those that have reached 90 days and understanding that you said a lot of these they're going to be at 731 I'm, assuming some have already reached 90 days. So all those how many everquest requested additional extensions.
Yeah, So so Dan and so it's you know this all in a little bit influx, but I'll tell you on the commercial side about 17% as of last week had kind of reached the end of the deferral period, and you know between 60 and 70% have not.
Extended.
On the resi outside 50% have reached the end of that kind of the initial three month deferral and 70, you know mid seventies of those have not requested additional deferrals. So.
And as Ned said, we we are very willing to work with our customers to give them. The maximum amount of flexibility that they have can have to to kind of restore their businesses to pre coded levels, but.
You know CNET and qualitatively I mean, our conversations with customers have had been very encouraging in terms of.
They are their recovery of a business operations and then going on if you Wanna add any color that out I mean, I would agree with that although it's very early.
Businesses are starting to come back in.
Now, we're seeing a little bit of uptick in reservations in the hospitality book, especially the drive two locations and Newport and watch Ellen.
And a little bit of business.
Bookings increase, but but out in the out in the fall so.
We're seeing positive signs and some of the retail projects you know as things reopen some of the smaller in line stores or are starting to reopen but but Damon I tell you. It's it's it's early and I think we would all be well served a wait and then have the signs that we're seeing turned effect before we make too many judgments.
Sure Understatement.
David This is mark that said one thing that we might comment on is that a new England states and Rhode Island, and Connecticut in particular.
Our in some ways ahead of the cold that curve compared to other parts of the country.
We are going into the summer months, which are typically travel and tourism in Rhode Island, and because the state has been able to move to a phase three and maybe a soft phase four up reopening we may compare a little bit more favorably with business dynamics, and perhaps consumer and job dynamics compared to other parts of the country. So combined with.
The strong candle, we have on customer communication on the commercial and even on the retail side.
Although it is early days he has to judge from a deferral requests will will roll or be renewed the early data for I think cautiously optimistic about and so that may give a little more insight on.
Why we feel about our bulk book compared perhaps to now, but the southeast or the mountain west or the West coast.
Got you, Okay, if you're seeing it a video from up Misquote <unk> you can get a sense that things are almost back to normal has a lot lot of people out of vacation down there.
Yeah.
So I guess on that regard to the PPP could you talk a little bit about your expectation for the the pattern for forgiveness in kind of how that might play out over the coming months in a couple of quarters here I'm, assuming you didn't have much if any forgiveness during the quarter.
Right right and Bill Ray is running that operation for us. So I think bill why don't you take that one.
Sure.
So far because of the uncertainty around the criteria and because the SBH not accepting.
The formal submissions yet it's it's a bit of a waiting game right. Now we are set up to go we have an a bit the ability to accept all mine submissions. We've done a few pilots with a few customers.
But this thing has especially with some of the changes in Congress moving out to the 24 weeks in with some of the consideration for expedited approval below the 150 threshold. This looks like it's going to.
Move more slowly than we all thought when it first came along.
Right, Okay, and you said there is a total of 1741 loans and what was the dollar amount for that.
220 million.
Okay.
Great and then I guess just lastly.
Quickly on on the margin.
The so you're saying like the core margin, it's probably going to be stable from here and then they'll start to see some benefit from liability repricing as he got to the back half the what what exactly the core margin. If the reported was to 31 Where'd you kind of put that core margin.
That's it.
So we calculated the margin on our PPP loans standalone, yet like at like to 30 [laughter]. Okay.
Perfect. Okay. That's all I had thanks lapses yet.
Our next question comes from Erik Zwick with owning and Scattergood. Please go ahead.
[noise] plenty our according everyone.
Good morning.
[noise] I'm curious maybe I'll just start with a quick question on the deferrals as well and I realize it's early and we had a few as you kind of give the numbers a few that have kind of reached their initial exploration at this point.
But some pretty good percentages of those that have not extended at this point I'm curious if you have a sense of where some of those particularly our potentially borrowers either businesses or individuals that question, maybe the deferral just as a insurance policy in and it didn't necessarily need it and how many of those borrowers actually you know me.
One or more payments, even having the deferral. It just kind of curious now maybe we're getting.
It didn't extend or those that are the businesses are individuals that are more stress just trying to get a sense of.
How you view that population.
Going forward.
That's it's an interesting question, Eric I was thinking about that this morning, I mean, obviously these those that have rolled are the ones that got the early deferrals.
So they may have.
Jumped into the into the mix early I'm, not wanting to to miss out or whatever.
With less need than some of the ones that got in late or so so I don't I don't know that we know that for a fact, we'd have to to look at the individual borrowers, but I I would suspect that that there are some in there that that either didn't needed or didn't didn't needed as much as others.
Whether there were payments made by that universe of borrowers during their deferral period right now I don't think we have that detail.
Yeah, I I don't have it here yeah, I mean, we can certainly find that Eric, but but yes, I'm not sure about the but I, but I think your hunch that that this universe. This early.
Before the before the start of the bulk of them expire might be different in ways than than others is a possibility, but it's it's a little little speculative to say that but I I understand your question.
No that's great color and I realize it's hard to have a good sense. This early in the game.
And then I think you mentioned kind of the loan pipeline down quarter over quarter.
Maybe you mentioned just due to that economic uncertainty, which makes a lot of sense. What would you expect in terms of kind of organic growth and in the back half of the you're at this point.
Yeah, I, you know I I think I'd stick with the sort of the low mid single digit growth on the commercial side. It's the pipelines below 100 million right now, which is low for us, but I think that that has its own some to do it demand in the marketplace. It but it also has some to do with the fact that are coming.
<unk> lenders have been focused on PPP loans, and and and deferrals within their within their existing books, and frankly spending a lot of time on the existing book in portfolio with customers.
So.
It's hard to say, but I would say just based on where we are today, that's but it's probably a at the low end of what we've given and for guidance.
Thus far.
And then last one for me looking at noninterest expense run rate in Twoq, you got did a nice job.
Good.
Holding the line on salaries and that occupancy.
Look for today, the back half of the year.
Can you continue to hold the line and remain kind of below that $30 million remarks.
And our per quarter run rate is that some reasonable.
It does I mean, we would expect you know we've got some variable costs such as the commissions on the mortgage so those will probably remain high at least through the third quarter.
FDIC expense is a little higher than what we've been trending just because of the PPP kind of inflated the balance sheet.
So as those pay down you know, we might see a little bit of relief on that but there's nothing else in our expense base that that's changing.
Great. Thanks for taking my questions today.
Sure. Thanks, there thanks, sorry.
Again, if you have a question. Please press Star then one.
Our next question comes from Laurie Hunsicker Compass point. Please go ahead.
Hi, Thanks, Good morning, and warning letter and good morning.
I just wanted to clarify needs and find out one of the comments you need.
But on the FDIC insurance you Hot you said that would be.
Stepping out the.
Inflated number that would probably be running around 550, a quarter from Olympic Saturday for this quarter.
Yeah Okay.
Okay, and then also just a follow up.
Generally on on the expense line expenses seem to be better than I, then I had expected, especially given that.
Very high mortgage banking revenue the I mean, I guess, how should we be thinking it's typically about that was there any kind of timing lag that expenses in the salary and benefit will be going next quarter.
Just on the strong mortgage banking revenue.
Yes, I think it keep in mind that we had a million dollars of Contra expense go through in Q2. So that's that's nonrecurring.
Got it that way.
Got it Ben.
Yes, other otherwise, it's it's been it's holding pretty steady I mean since we're working from home I think we're seeing some savings in occupancy and things like that and you know there can be some timing things with regard to advertising and marketing and and those kinds of things quite gotten our run rate is pretty stable.
Okay, and then Tim Tim question here on the wealth management revenues and in terms of timing, obviously, we've thought rather than is dropped linked quarter. Despite a very nice attack from a client in Florida.
Yes, that's going to cease and how should we be thinking about battling corner.
Yeah. So yeah I wasn't so much of that depends on on you know what markets do.
But.
We saw a big increase in our end of period spot balances and that's not really reflected in the in the second quarter revenues. So we would expect you know.
Pretty strong.
You know revenue growth momentum coming into the third quarter, just on the basis of the averages catching up to.
To the spot balance Oh, yes, we we'd expect to see some some revenue pickup in the third quarter.
Okay got it more and this is mark just to add just to amplify on Rons comments, we have several different billing convention some more based on asset under management spot balance at the end up get month. Some are based on average daily balance and some are based on billing in arrears, So wealth management, a when related fees Tim.
To lag on the way up in a rising market and tend to lag about a quarter on the way down falling market, but I think bonds comments at the beginning of a call were spot on if you look at the average monthly balance during the quarter or wealth. They you when the fee declined roughly followed that.
Okay and so that's good it's conceivable we could see you know obviously are being equal in terms of what's going on and I get that we could see that 8.6 million track that Ted.
Yeah low nine.
Yeah, again already depending on market than I also want to point out that that the transaction base fees will will really run out at the end of the second quarter. So that won't carry over into Q3, that's the tax prep.
Right right right.
And just remind me that the attack pizza that.
How much is how much is that typically.
So well I will say that we had and insurance commission in the second quarter, which is <unk>.
Again transaction based up by $100000.
So you know.
Yes, so our total transaction base fees in the second quarter, a little higher than normal.
But again, it's that's all seasonal so they'll be nothing in Q3.
Virtually nothing in Q3.
Okay, Great and then let's go back over a man that's just sort of a just more general question.
We think about forgiveness falling and the PPP impact and <unk> are you all letting that drop to the bottom line are you all.
Let's say on that some of the biggest banks have in terms that you're not collecting that.
Yes in terms of keeping them. How are you how are you thinking about that.
Well.
We are going to run, though the you know the proportionate amount of deferred revenues associated with the program that will roll through the margin.
In proportion to the amount forgiveness that occurs.
Right, Okay, so you're keeping.
I've got one attach it makes I got to be and then really appreciate your.
Your detail around your portfolio segmental side, just wondered if if you could you know Ron or even tell just update us on on a couple of things here regarding your commercial real estate segment.
Just looking at sort of some of the higher categories in terms of Reform Act.
For example, starting with retail that 327 million I guess 121 million is lined up on that I. Just can you help us think about within that service.
Harvest retail component what is that.
What what does your retail look like.
By service piece, I mean is that a grocery drug who are like restored type anchor or you know clothing.
You just help us think overall more broadly about your 327 million and also if you've got ltvs on any of that retail the offsets.
Hospitality and the health care.
Segments any other color, yet, but yes, it looks like so l'oreal its net I'll start and Bill you can fill in on the on the LTV side.
As appropriate, but so on the retail book 327 about 130 million to that is now as of as of July 17th.
In deferment, but 42% of that book hundred and 30.
Three loans of which 45 have deferrals in place.
So so food anchored largely in the food anchors are paying but the inline tenants might not be there might be.
One big one deal with the food anchor that's paying but but it's got a movie theater and at that shutdown.
Asked our borrower for deferral, we gave we gave.
A commensurate deferral to what he gave to the tenants. We've got we've got no large box to speak of we've had very little we've got no urban malls.
So it's it's we've got some sort of inline I'd say not regional shopping centers, but kind of local shopping centers, where where you might have a.
You know a dollar general as a sort of lead tenant they're paying.
But the in lines and those centers or not so it's it's mostly a and by the way. The news of late is that those those inline tenants are starting to come back restaurants are at half capacity, but starting to come back.
So so I think its neighborhood, mostly it's not regional it's not large urban it's not big Bucks for the most part it's largely food anchored.
But even the food anchor centers with the inline stores, but not able to to pay their rent are needed needed some support so.
You know obviously the next couple of months are gonna be critical in terms of how those in lines come back and how the how the deferrals, whether whether they get extended or not.
Well, we'll try and keep you all as as informed as we possibly can on.
Progress on that front.
Hospitality book.
A quick question. When you think food anchored is that great. She started that restaurant I know grocery store grocery stores.
Yeah, sorry, thanks, Thank you for clearing that up I appreciate that yeah. No. We don't we don't have a lot of the other than again in lines inline space in a in a you know neighborhood shopping center.
There there there are likely some restaurants, but not not we don't have a focus on big sort of big box chain restaurants.
Hospitality book 145 million 117 million of it.
Or 81% in deferral, you know obviously the hotel book.
Virtually close down they're starting to come back we're starting to see bookings are they said earlier, it's 25 distinct borrowers.
The number those are very small motel better than breakfast kind of things in the in the Rhode Island marketplace Newport Watch Hill.
The the larger hotels or are starting to reopen starting to see a little bit of a surgeon.
Surge is probably a strong word.
Return to some occupancy, but that that books going to take a while I expect that we will be extended we did 180 days on those it'll be interesting to see what happens at the end of those under needed. It periods, whether I know, there's a lot of push it'd be a and others to.
To try and get even more time for the hospitality sector, we'll see how that goes.
I think it will need it.
Let's see on the health care side within the real estate book, which would be assisted living senior housing non government reliant for the most part.
120 million.
A book of which 64 million isn't deferral five of the.
16 loans in that space under deferral so.
And again those are those are you know.
Assisted living senior housing facilities with the memory care unit, perhaps that all but all but shut down to new customers during cove it.
Couldn't replace exiting customers, they're starting to they were doing virtual tours now they're starting to actually open up for new customers. So we expect that to.
I mean, the demographics for that space are still very supportive as soon as they can take new residents. They will and residents are lined up to to move in so I think that space will be pretty strong.
In terms of how fast it comes back.
So that cover off that that's the main.
The match up you have out LTV is on on each of those okay. All right now they can follow up with you offline.
Yep.
Net I can answer that if you want this is bill Yeah go ahead, both yep. So we did an analysis of weighted average LTV. So we also look at the distribution of Ltvs I'm on these weighted average for all of she or he has a 531 was 58%.
Retail 57.
Lodging was 49.
Then health care was 56, so reflects a seasoned portfolio and reflects our underwriting we are borrowers have a lot of cash in the game that they want to protect so we think again.
We're well positioned going into this certainly expect some.
Some concerns as we come out the other side of that but we went into it with a seasoned and the low leveraged portfolio.
Got it that's really how do you have LTV on the office.
Yes, it's 56.
Okay. That's all I'm, just going back to the hotel dock.
No what percentage of watermark corporate business travel versus what percentage of thank you Sam.
Well tell their BMD Dnbi is obviously, what do you think wholesale wondered if you haven't.
The other color there.
I would tell you that we are largely a laser travel book and that the business travel that's involved to sort of the free independent traveler not it's not group business.
I couldn't give you a breakout in terms of total revenues for the whole book that is something we could look at.
Yeah, we could we kept us or we don't have that many lorries. So we could determine that.
There's there's a lot as sort of tourism base and even the ones that are here in Providence for example that might have a business orientation. They also have an education orientation.
So modems right next to the Brown Medical School for example, and serves there is the Brown Pete Provenance College.
Downtown you are I population as much as it serves the business community.
Right, Okay and that just last question how do you have any idea what your occupancy.
It's running now at the Oh.
We would know occupancy on each one individually I don't have that information in front of me Laurie, but I'm happy to go to you it's low I mean.
Some of them some of them until very recently were zero.
In fact, I'm surprised that the at the one or two that kind of ran at 20% occupancy I haven't figured out yet who was going to them.
Yes, that's all I know, that's all I need.
Yep Yep, Okay, and then I just wonder if I understand I kind of where you just looking at the accommodation and food services the 45 million.
I know you've said that that the 25 million I think if the gaming lounge paid off.
But the balance there didn't seem to drop relative to where it was last quarter or maybe.
Maybe I left heart.
I just wanted to double check that.
As I thought of that 45 million that included a 29.
Our I can follow up with you offline yeah, let's let's follow up on that I still do I still do.
Let's see show that same.
Combination and foodservice.
Yeah, I think more if we could one last follow up on that I'm happy to give you. The details on that I do believe you're right, but but that gaming that there was a we have we have additional debt would that there was a line of credit and maybe some termed out and so maybe that's the difference.
Well, let me, let me get either detailing the.
Okay, great. Thanks, I'll leave it there appreciate you taking my question awesome, Thanks, very much Laurie.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over the net heading for any closing remarks, thanks very much Chad and thank you. All we really appreciate your interest and the time you invest in us and.
We look forward to keeping you informed obviously these are these are difficult challenging times.
And we're focused.
I think appropriately on credit and capital as we should be and less so on growth and while we're happy with the certainly happy with the earnings and unapologetic about about how strong our.
Our team has been through this will we'll stay focused on the right things and look forward to catching up with you. Soon so thank you all.
And thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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