Q2 2020 WSFS Financial Corp Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly she's continue to stand by I think you pay patients.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the WSFS Financial Corporation second quarter earnings Conference call. At this time, all participants are not listen only mode. After the speaker presentation, there will be question and answer session.
I asked the question. During this session you want me to press Star one on your telephone please be advised that today's conference is being recorded.
If you acquire any further assistance. Please press star zero I'd now like to tend to call over to your host for today Mr., Dominic Caruso Chief Financial Officer. So you may begin.
Thank you do well and thanks to all of you for taking the time to participate on our call today.
With me on this call or Rodger Levenson, Chairman President and CEO.
BACE Chief Wealth Officer, Steve Clark, Chief Commercial banking Officer, and Rick Wright, Chief retail banking officer.
Before Roger begins with his remarks, I would like to read our safe Harbor statement.
Our discussion today will include information about our management's view of our future expectations plans and prospects that constitute forward looking statements.
Actual results may differ materially from historic results or those indicated by these forward looking statements due to risks and uncertainties, including but not limited to the risk factors included in our annual report on form 10-K, and our most recent quarterly reports on form 10-Q as.
As well as other documents, we periodically filed with the Securities and Exchange Commission.
All comments made during today's call are subject to the safe Harbor seat.
During our call today, we will be referencing both our earnings release earnings release supplement.
Both are available on the Investor Relations section of our website at Www, W. Dot, which this bank dot com.
With that Red I'll turn the discussion over to Rodger Levenson.
Thanks, Dominic and thanks, everyone for joining us on the call.
I've outlined in our first quarter earnings materials, we had anticipated that the economy in our region would remain in a complete stay at home protocol throughout the second quarter due to the uncertainty related to the Cobiz 19 pandemic.
Thankfully as the regional health situation began to improve we started to see modest improvement economic activity starting in mid May followed by the official reopening of the economy in early June.
While we continue to move through the various stages of reopening established by our state and local governments. This process has been on even and continues to evolve.
The impact of this recovery is reflected in the results for the second quarter.
And while the local economy continues to open longer term economic forecasts expect an extended recovery.
As detailed in the earnings release, which gets recorded a net loss of $7.1 million or 14 cents per share for the second quarter.
These results were directly attributable to the 94.8 million dollar provision for credit losses in the quarter.
As noted by Dominic we have provided details in the earnings supplement when Cecil credit and a loan portfolio.
I will also provide additional comments on credit in a few moments.
Excluding the impact of the provision our operating performance this quarter was solid.
Core pre provision net revenue was $63.5 million for 1.96% of assets.
This includes approximately $3 million a pre tax income related to P. P. P.
P.P.P. was obviously a highlight an organizational focus during the quarter.
We are proud to have a sister our customers in communities by processing almost $1 billion of loans, which went directly into the local economy and supported an estimated 100000 jobs.
When excluding P.P.P. the continued intentional decline in the non relationship runoff portfolios and increase in the allowance for credit losses loans were essentially flat for the quarter, reflecting low levels of business activity.
The project growth was very strong we total customer deposits growing at a 28% annualized rate when excluding the estimated impact of P.P.P. loan proceeds.
P.P.P. reduced the net interest margin by eight basis points in the quarter.
The ongoing impact of P.P.P. on the NIM will be dependent upon the timing and magnitude of the forgiveness results. We have included the estimated NIM impact in our second half outlook in the supplement.
Core fee income was also a direct reflection of the current economic factors as well as the benefits of having diversified fee revenue with the clear bright spot being mortgage which has continued to see elevated volumes driven by the lower rate environment.
The core efficiency ratio of 58.7% included a 3.2 million dollar increase in non provision credit costs versus the second quarter of last year related to unfunded commitment reserve expense.
Excluding this credit related costs, the core efficiency ratio would have been around 56%.
In addition to P.P.P. the other significant highlight for the quarter was the $22.1 million gain related to the sale of almost all of our visa class B shares as detailed in our 8-K dated June 18th.
Total returns to date or approximately $78 million on an initial investment of just under $18 million.
Turning to credit.
As a result of several factors, including the uncertainty as to the shape in duration of the economic recovery, we prudently and conservatively built reserves during the quarter, while maintaining our strong capital position.
About 40% of the provision was related to our economic forecasts, which assumes a full year 2020 negative 6.1% GDP improving some positive mid single digits throughout 2021.
Our forecast also assumes unemployment declining to 9.3% in the fourth quarter of this year and remains in a hot mid to high single digits throughout 2021.
Underlying this forecast is continued limited economic activity and modest travel and entertainment spending until a significant improvement in the health situation, which most likely will not occur until there is a safe vaccine.
The magnitude and impact of ongoing and additional government stimulus also remains on determined.
In terms of overall asset quality delinquency levels remained low primarily as a result of the short term loan modifications executed in April in May.
Since that time, we have seen few request for new deferrals with most of the existing deferrals expiring in June and July.
In addition, about 25% of the commercial loan deferrals paid their interest during the quarter.
Based upon ongoing discussions with these customers we'd expect a significant majority of these loans to return to contractual payments and total loan modifications as a percentage of the portfolio should decline to the mid to high single digits during the third quarter.
We did see some early signs of credit deterioration as evidenced by the increased levels of problem loans.
During the quarter, we performed updated risk rating assessments on the loan portfolios most likely to be impacted by the pet pandemic with a focus on those loans with the highest potential for additional loan modifications.
The majority of loans evaluated we're in the hotel foodservice and retail sectors.
As a result of this process the hotel portfolio experienced significant risk rating migration with criticized loans at 48% of at quarter end.
The increase in problem loans in hotels accounted for approximately 70% of the growth in total problem loans and was one of the primary drivers of the reserve increase in the quarter.
The Hcl coverage now stands at 2.73% excluding P. P P and a 3.26% when including the credit marks on previously acquired loans.
Capital levels, including the impact of the reserve build remained very strong with common equity tier one at 12.68%.
As outlined in our in the supplement our strong PPNR run rate provides material capacity to pay our existing dividend and absorb an estimated $850 million of additional hcl reserves over the next court six quarters before hitting the regulatory minimums for well capitalize.
In summary, we took the approach to get as much of the potential credit issues. As a result of the pandemic reserved for as fully as possible within the framework of Cecil which includes the primary economic assumption of along and uneven recovery.
This will allow us to focus on running the business and gaining market share as the economy returns to normal.
As we look forward to the second half of 2020, and assuming no material changes to the economic environment or forecasts, we would expect significantly lower reserve builds with loss content to occur later in the year and into 2021.
We also expect core PPNR to remain in a range of $59 million to $68 million per quarter, which includes the impact of P.P.P. as well as Durbin, which begins in the third quarter.
In conclusion, the strength of our business model combined with the remarkable dedication of our over 1800 associates uniquely positions with FIS to serve our customers and support our communities. During this unprecedented period.
Thank you again.
I will now turn it over to Dominic to facilitate culinary with our team.
Thank you Roger to all we're pleased I will be pleased that answer any questions. I'm. If you could open up the line and as reminder, for those who are interested ask some questions. We will also make ourselves available after the call today to the extent you would like more detailed specific questions to be.
Yes.
Thank you to ask a question you would need to press star one on your telephone sewage try your question 'cause the pound key please stand by what we come out of the kinda roster.
First question comes from functionality with Piper Sam There. Your line is now open.
Hi, guys good afternoon.
That's correct.
Just wanted to start with.
You know seems to me that certainly other banks are kinda legging into reserve builds here and then.
Certainly seems like there delaying risk rating downgrades until.
Maybe that more information later in the year, obviously with the with the.
Large provision this quarter, you're 100 basis points in some cases 200 basis points, so higher than other banks your size. So in terms of reserve to loan ratio.
You know assuming are you assuming that that could move higher in the near term at the model you know remain sort of where it is or you know are you confident but these are these.
Under the under where the models you know what you guys have modeled out here that these are our peak reserves now.
Yeah, Thanks, Frank and first I'll say I can't speak to how others have approached to kind of the review both their portfolio and the assumptions into the Cecil framework, but as Roger mentioned, given the uniqueness and severity of the economic environment and the continued uncertainty around the recovery.
We took the approach be very rigorous in our assumptions and our portfolio reviews and downgrades at this point in time.
Yeah, clearly at the economic environment and worsens, we would obviously reevaluate, but again as Roger mentioned, we took the opportunity under the framework of Cecil to fully reserved for expected impacts associated based on the knowledge, we have and this deep the an elongated recovery environment.
So based on you know I just said based on the knowledge you have today I mean, I think one of the reasons that banks or are delaying risk rating downgrades is you know they obviously nobody has a crystal ball until year end, but where you know the expectation is that hotel occupancy rates.
Proven that maybe we get another stimulus and then also you know many whose business is just reopening. So you know someone just argued it's too early to make a good assessment on downgrades and I'm wondering how you guys sort of handled that I mean are you looking at occupancy now and just assuming that could be a run rate when when properties come off in the car into frozen in October.
Or you know <unk> what are your thoughts there.
Sure It and as Roger mentioned, we did take the approach to focus our efforts in the quarter on what we see as the at risk portfolios of hotel retail and foodservice is but I'll pass the line over to Steve Clark to discuss our approach where credit valuation in the quarter.
Yes, Thank you Dominic Frank the really they're kind of amplifies the hotel.
I'm going to answer Franks question.
As of June Thirtyth.
About two thirds of our hotel bookings in the business sector with a third being in leisure. So we do have the there the benefit of having the Jersey shore in the Delaware pitches in our footprint and when the pandemic started occupancy really within the low to mid single digit.
But as.
The last couple of months of progress.
Our owner operators are reporting to us that in the business segment occupancy has arisen up to 30% to 35% well and the leisure operators at the beaches I'm sure.
On weekends are reporting better occupancy in fact of maybe you're approaching 90%.
On the weekend, but you know are you taking a step back.
Baumann Act and Roger have expressed there is significant uncertainty about the future.
And while we do expect.
Decent portion of our hotel booking to resume contractual payments.
Payments alone don't necessarily.
Risk rating and.
There are other potential weaknesses.
And clearly the economy as described earlier is the.
We've been on surplus. So there we took oh, we think are very prudent and targeted approach to risk rating that book.
Okay. If you think about and I'm not asking I know on I understand you're not looking as closely and other banks hotel books, but when you think about weaknesses potential weaknesses in that book versus you know your average community Bank would would you say.
The weakness if lies in the fact that had a greater amount.
Oh, sorry in the dealing with businesses and then is there anything I mean, LTV look pretty good.
Compared to what I've seen elsewhere. So is there anything else you can point to as maybe being a greater weakness in your book versus some others, where you know banks have have had too much less a much lower provision rates are today.
Yes, so I think the fact that two thirds isn't the business sector that contributes to our assessment and frankly the uncertainty.
The state here of Pennsylvania, New Jersey, Delaware kind of Indian out of restrictions on travel between state.
And the in and out of opening restaurants and closing restaurants.
That to us is really pointing to the uncertainty Frank.
Mostly or a revolving around the travel restriction.
Okay, and just to close out there.
Comments around C.. So you know it's information based on the economic forecast remains consistent we would expect.
You know our provision going forward to reserve, we returned to kind of.
Pre co bid builds but again a lot to evaluate there.
Okay got you all right I'll hop back in the Cuban let someone else asked question. Thank you.
Thank you and next question comes from Michael Perito with KBW. Your line is now open.
Hey, good afternoon, guys. Thanks for taking the questions.
Hey, Michael Hey, Michael.
A couple of things I want to hit I, just took to close the loop or cracks follow ups or different questions on the so.
I am sorry, if I missed it someone supplement but so how much would that mean that some of the reserve build was kind of specific allowance against for like where we're at the hotel booking specific credits within the hotel Burke puts us versus being I think what was mostly just a general reserve building in the first quarter.
Sure. Thanks, Michael Yes. In fact, if you look at slide six in our supplement we provide a bridge that really demonstrates the growth and and reserve from first quarter to second quarter, you see that fell 39 million of it is specific to the economic forecast assumption across the portfolio.
And then 44 million specific to migration impact and and a good portion of that migration and pack is from hotels with some additional from the retail and foodservice is.
So what is the migration impact I guess is we incorporated within that or are there specific reserves against certain properties and credits or or is it not.
Still not got to Pacific Yeah, just given kind of the uncertainty the outlook for these businesses.
No. It there they're based on kind of the pooled approach and Cecil methodology and looking at the risk rating and expected correlated loss forecast for those versus specific loan by loan reserves.
Okay.
How forgot my thanks, and then so I mean like Roger One thing you said that Mike obviously, you're saying was kinda do this and this credit build and now focused kind of on the other parts of the business and and I guess on that that point weve forward here.
He is behind you guys in terms of your origination.
Part of it deferral activities aren't trending down and have you guys are obviously doing a lot of work on the credit analysis I, but as we look at kind of the rest of the business outlook you guys talk about the PPNR Guy that you updated maybe I'm starting on the cost side you know how how are you guys thinking about the cost structure all of your business today, given what we've seen.
Learn from your consumer so far I'm in content, the kind of stay at home orders and your footprint it and how should we be thinking about some of the investments and maybe cost reduction opportunities that you guys are considering as we move forward.
Yeah, but thanks for the question, Mike I'll I'll, let them Dominic give you some specific specifics about how we view on costs.
For the second half of the year, but I would generally say that you know as as a result of the process that we're going through and as I mentioned in my remarks.
Between that and the P.P.P., which was a organizational focus for the second quarter and as we move past.
These loan modifications, we think there's a lot of market share going to be up for grabs you know there was a lot of inquiries that we had around PPP.
Prospects, we're not being served by their other banks and we're interested in talking to us and if we assume it. There's a you know more business to come out of that that will be available once we get through the forgiveness process.
And so we think that that you know bodes well for potential growth in market share gains for our commercial relationship managers. So that's what you know I was referring to is trying to get.
Credit piece identified dealt with and behind most of the teams are that then they're out there are hoping to hoping that we can grow the business and gain market share, but I'll, let dominic address the cost side.
Sure Thanks right.
Roger and Michael to your question regarding cost as a reminder, the driver of our cost growth is primarily investment in the businesses and our delivery transformation.
Initiative.
Yeah, we are focused on an annual basis to create positive operating leverage obviously, excluding any shifts in the rate environment and would expect our efficiency ratio to trend relatively consistent with where we have been for for the last few quarters, maintaining and in the high Fiftys, particularly in this environment and lower interest rates and with the onset.
Durbin in beginning in the third quarter.
If you're looking at our second quarter cost specifically betting included charges for unfunded commitments, some PPP administrative and technology costs and costs specific to co but in preparing our opening of our read retail offices, but stepping back and looking forward some of those costs.
Yes, clearly would not reoccur go forward.
And as I mentioned, the investment in the business, particularly our opportunities to create synergies as we communicated over the last two years with the beneficial acquisition in our business cases around mortgage and small business and well those continue on course, and we continue to exceed the opportunity that generates the incremental market share.
And the absolute growth levels. Roger was speaking to in addition, obviously the results of coated.
Reinforced our expectation and are.
Investment, we want to make in our delivery transformation initiative as a significant amount of our customers.
Who were may be hesitant to adopt both our mobile banking and other digital platforms.
Quickly adopted those and we saw significant increases not only in the usage of them, but we're able to maintain the quality and level of service that is known for with us in our markets.
So we expect to continue to make those investments as we take the Longview and as we've been talking about being able to take the approach. We did in second quarter with regard to see sold that reserve build now focus our attention on executing on that longer term strategy.
But to say, obviously cobot has.
A subtle things around how we can work more efficiently in various locations. We are doing a full assessment of.
Our retail footprint, our office space footprint and cost across organization and looking for opportunities to create efficiencies in our cost base.
And leverage the learnings we have over the last few months on how our associates have maintained efficiencies while working from home in some cases increase then because of.
Lack of commutes et cetera, and we'll look to take the best of what we've experienced over the last few months and embed that into our operating models, we look to 2021.
Yes that was all really helpful dominant. Thank you, Matt and then I guess is it fair to say that some of that.
The office space. Some analysis that you guys you're doing not got any action taken there would that be additive to the P.P. in our outlook or are you guys incorporating some level of.
Cost efficiencies at some point, even if they don't all fall for Bottomline and in that analysis or in that outlook rather already.
Yes, I would say, it's additive, but I would also say, we're not looking to rush into any decisions right now so while in the last four months have felt like forever, we don't want to overreact to the environment, but taking.
Prudent steps to do our due diligence in a post cobot vaccine world and shortened any decisions, we would make it in the near term would work and.
Served our customers boss and again put our associates health, well being and fulfillment.
Towards the top of our priorities and so it's not included in our PPNR views for the second after the year and would more likely result in opportunity again in 2021.
Got it and they're just just lastly from me and I'll hop out it rockers on capital I mean with this reserve build.
Trying to kind of.
Take a big swing it and be conservative it sounds like Hong Kong, what kind of given the uncertainty on went losses could look like I mean.
Obviously capital even after this quarter still very strong yourself with quite a bit of excess.
I know, it's hard to comment on timing, so I want to ask him to do that but in terms of what you're looking for from a clarity perspective to maybe get back in the sat on share repurchases or or just to start thinking about capital deployment more offensively. What do you guys looking forward as simple as the credit clarity or is it more complicated than that.
No I think it's as simple as the credit clarity for for us and for the industry and for you know for the economy I think until we have a better handle on that even though we are very very well positioned today, it's prudent to wait.
To do any significant capital actions.
Okay, well listen thank you guys for taking my questions I appreciate instead well.
Thanks, Mike Thank you Michael talked too soon.
Thank you and next question comes from restaurants content with D.A. Davidson. Your line is now open.
Hey, good afternoon, guys, Hi, Russell definitely proposal.
Maybe just to kind of Ticky tacky question to start but one.
I understand how you characterize some of the step by step reserve build so.
Economic forecast impact to 39 million is that.
Something you would characterize as a qualitative factor and the 44 million migration.
I want.
There are tied back to those specific portfolios or.
Maybe just help me understand those two moving pieces first.
Sure. Thanks, Russ no there primarily quantitative there they are the c., so model and inclusive of and I remind everyone. While we communicated on that slide what the GDP and unemployment forecast look like the model is also dependent on the 10 year interest rate curve.
The triple B spreads.
And then real estate price indices, and so as those influence the model.
Statistically speaking, that's what's incorporated here and again, saying with the migration.
These aren't specific reserves and while that we do have some qualitative or special adjustment factors driving these steps in the reserve build our model driven.
Okay I appreciate the clarity on that and then just kind of following up on the.
On the migration impact I understand I think you said, it's kind of a pulled approach but are there.
Identified observable credit deterioration metrics that you could share it in terms of whether its price decline or just some of the inputs that caused you to downgrade those credits.
Sure, Steve if you like to speak to them.
Yes, so could you repeat the question Russell.
Yes, Hi, Stephen just trying to get a sense of any specifics you can provide in terms of.
Your thoughts around sort of asset price declines within those portfolios with what's your assumptions would be kind of within hotels restaurants retail that drove the decision to move them into the problem loan bucket.
Yeah. So thank you for us it really.
The primary metric as cash flow and coverage the ability to cover debt service. So you know for instance in the hotel bulk while the origination in the weighted average loan to value is really strong 55%.
The fact is that the hotels are.
Operating.
At a very low capacity hardly operating at all so if you look at that particular borrowing entity and its ability to generate cash flow to service. The debt that is the number one metric so that really drove much of our decisioning and the same applies to other businesses restaurants.
Or otherwise.
For us in risk assessment and risk rating.
Paul about that metric cash flow and ability to covered that.
Yeah, and if I could that just a little bit Russell the color maybe to help you kind of understand the process. As we said you know when we did the first round of modifications that was in the early stages of this process were people really we're in a total shut down did not know the impact of the business what the duration was going to be with the past four.
It was and therefore, we felt it was appropriate to give those 90 day deferrals to give people a chance to get their sea legs underneath them adjust their businesses as they could and then start working with us on our forecast on kind of what the future look like and so I think a fair amount of what you see and the risk rating migration migration in the hotels.
Steven the team sitting down with those customers getting the updated occupancy Rev. Par 80 are all the other stats for those properties and then forecasting them out under multiple scenarios dependent upon a number of factors, including business versus leisure flag type it's.
Cetera, and then making that assessment that oil plays into the primary driver of risk rating, which is as Steve said cash flow and debt service coverage. So am I think it's a very informed process. We as we said you know as we did that evaluation, we take those sensitivities and.
Have a conservative IMS, we evaluate those but I think we actually have a more informed understanding of kind of where things are at you know at this point now that those sponsors have had a time to react and adjust and sort of develop their plans for the future.
I appreciate all three of your thoughts on that thank you guys.
Another bit of health. Please in terms of clarifying so the 1.1 billion.
At risk loans that were reviewed this quarter and I'm on slide seven does that tie out to the.
One one is in relation to the 1.8 billion of commercial loans.
That have been modified and the remainder of that balances what you plan to review in the third quarter.
Yes, you want to talk little bit about the status.
Yes. So this is Steve so.
That is correct. When we took a look at our overall portfolio, we kind of tree Josh the no. The the portfolio kind of red yellow green and the Red really were borrowers that.
We're going up is clearly impacted by.
The copas.
Pandemic or requested payment rolling so they were the first.
Portfolios, we reviewed we've got very deep into.
Well, 100% of the hotel book.
Significant portion of the retail Fiori book that we reviewed every every retail CR rate of 8 million and larger.
Nearly half of that portfolio.
The top 10 of.
Tail thing and I relationship almost 40% of that portfolio.
Significant penetration.
Foodservice every restaurant with exposure over a million dollar.
50% of that portfolio. So yes, the 1.1 goes kind of tie into the 1.8 and will continue to evaluate through our normal quarterly.
Very very job.
Focused quarterly.
Portfolio reviews, with all of our relationship managers and we'll continue that process.
End of July and August.
But we believe we have significant penetration into all their books.
Thank you Steve Great color final question another point of clarification guys.
How much of the kind of 1.1 billion that's been reviewed yeah.
How much of that reflects the kind of ring fence run off portfolio from the from the beneficial acquisition.
How much of that is really a piece of what you've reviewed in the quarter.
I would estimate very little is actually in the run off portfolio. Most of this is in an ongoing book.
Okay.
Thanks, Roger Thank you guys for taking my question.
Thank you resin.
Thank you next question comes from Brody Preston with Stephens, Inc. Your line is now open.
Good afternoon, everyone hope you're well okay Bernie.
I guess, a housekeeping question to start dominant a couple the TPP income and expense reconciliation in the non gap I just wanted to clarify on the pp PPP expenses any of that interests. I did you guys drawn the lending facility at all or is that all noninterest expense.
That is all non interest expense the way we've articulated on slide five is that 4.8 million in the quarter net interest income included the fee accretion.
Along with the spread on a 1%.
On the on the loans minus kind of our internal funding cost.
Okay, Great and then the I guess the Pvp expense.
Oh, Okay. Some onetime items that PPP expense the pension plan loss insurance recovery and Covis just wanted to get a better sense or were those showed up across the consolidated.
Line items.
Sure happy to work with you at the meeting took kind of will walk you through kind of the various items within the piano.
As we reported earnings release, if you'd like to that.
Yeah that'd be great.
So just to circle back to the hotel the two to 222 million that moved into criticize how much of that went into the special mention and how much went into substandard.
So it's about it's still a little under 40% went into special mention and a little over 60% went into substantial.
Okay. Thank you for that so I guess.
Just if you know if that 40% I guess you know as you continue to do is you know index quarterly reviews, if that remaining 40% or to migrate into sub standard you would see I guess that migration impact and in a future quarter reflect that I suppose is that fair.
Yeah, if everything remain static and there wasn't any other changes if something to do some continued downward migration that would be reflective, but as you know these portfolios are dynamic and some things get better some things down so it would be hard to make it you know in absolute statement about how that would happen in overtime.
Okay, and I guess, Dominic you mentioned, the the pooled approach to the migration impact undersea so as opposed to.
Any of the reserve being on specific credits, but when you. When you do the pooled approach is it pool to buy I guess, maybe asset type like a CRT hotel pool, and then a retail CRT pool or how should I think about that.
Yes, there probably will primarily in the portfolio loan segments as we laid out on the slide we do look in some of those categories by.
You know the assets under writing those loans.
But for the most part we look at them at the total segment level and then by risk rating.
Okay.
Okay.
That's good color the 75% of original loan modifications that you expect to revert in Threeq you.
I guess, the just thinking about the base for the original mods. The 1.6 billion that we saw last quarter is that how I should be thinking about that math.
Yes, I would say on slide seven weve.
Illustrated what we see is going to the full first round if you ever US first 30 day modifications and that includes the totaled just over 2 billion across the entire portfolio and with commercial being at 1.8 and its off those bases that we're speaking.
Okay, Okay, and so I guess.
What were I guess what were peak.
What were peak modification levels.
Yeah, I think it prodi it was just a little bit higher.
Than that.
Total dollar amount was 2.2 billion and it's come down just a little bit.
Okay. So I guess as I think about you know the 25% that.
Well not revert to full contractual payment that Mike thinking about in terms like 550 might be Oh, good place to start for you know another 90 day kind a deferral.
Yeah, I think that's you know obviously, that's the math I think you know.
As it make a comment on the second deferrals I think this is important or modifications. So the approach that we have coming into the is that there is.
On an expectation if we're going to do a second modification that customers will be at least making interest payments and that's really where were dropped and driving the process and short term again, although there could be some situations, where as part of I'm working with the borrower.
Potentially getting some [noise] enhancements to the loan instruct the loan structure. The actual length of the deferment, maybe a little bit longer but that's really the approach you know that we're taking shorter term, making interest payments, we would expect that to be the primary profile.
What's left once we get through you know this week recalling the second round of modifications.
Okay. All right. That's that's great detail I guess, just as I step back Roger and I think about it more broadly you know you've gotten a near 7% reserve on the see an eye book and you know with the two additional loan March or at.
325, or so you know reserve ratio all in I.
I mean does any of this I guess like.
Assuming a macro doesn't change the do you feel like somewhat I guess optimistic as you look forward and you look at where you are from a reserve perspective, you look at your capital levels and you look at you know I guess the market share opportunity that you have in front of you do you feel like I guess, maybe optimistic about the future in terms of so everything's OK future reserve.
Our releases in the forward pace of earnings and I guess, just any color there on your high level thoughts.
Yes so.
We're very optimistic about the opportunity in the past in front of US as we said a couple of times you know everything that we thought going into the beneficial combination I in terms of the magnitude of the opportunity.
Has been confirmed and in many cases has increased.
Even going through this difficult environment as I mentioned the contracts that we have is being the large local bank can compete against the big guys.
I think we will see benefits from that in the near term because of how PPP and most likely how may will handle some of the credit situations that come up is this unfold. So we're very very optimistic about the opportunity to take the which this business model into that beneficial.
Customer base and as we said part of the you know the strength of the combination was not only the strength of the capital base that we had and the market position that we had.
But the opportunity in the Optionality to deal with things like this that would be coming our way. Obviously, we did not envision anything of this magnitude, but it's clearly it's being demonstrated we can we can deal with this.
And we can still also focus on growing the business and we have a great opportunity to grow the business. So.
No speaking for myself and the team we feel very optimistic for the future.
Obviously, the pop yacht, depending upon how things play out in the near term with the health situation.
Okay, Great and then Dominic one last one from me on cash connect the 9.3 million in net revenue that you reported this quarter is that you know I guess was interest cuts sorta behind US is that you know a good go forward rate, maybe by biased slightly upward for smart safe and non bellmon revenue growth sources.
Yes, I would say, that's a strong run rate, especially because.
Because it's a national business and you know about a third to a half of the quarter included stay at home orders for almost 80% of the country. It was primarily driven by kind of lower volume, but youre correct you know the.
The rate environment drives those lower fees, but those fees are fully offset in lower funding costs. Both in our net interest margin operating expenses as where interest rate neutral and so I would say say, it's a good baseline to continue the recovery in the economy and continued growth in the business, including.
New line product lines that bring.
Higher returns than some like legacy products.
Alright, great. Thank you very much taking all my questions I appreciate it.
Thanks.
Thank you and next question comes from me slick with Boenning and Scattergood. Your line is now open.
Good afternoon.
There.
Eric.
Just a couple follow ups on the hotel portfolio.
Looking at slide and 78 million enough that portfolios constructions about 15% or so curious what how many properties.
That's.
Entails the average I guess would suggest maybe 10 or 11 annoying, but curious if there's any bigger properties in there and then secondly is all the construction still ongoing at this point and is it all new construction or some potentially improvements or expansions to existing properties.
So this is Steve so yes, all the construction is ongoing.
And.
This part of the hotel book really resides in our.
Lowest pass category because all of these loans have.
Interest reserve as Bill in two of the project financing and most of these property.
Our not through to open for some period in the future as they're in the midst the construction.
On page on slide 10 to 50 average size I will have to circle back with you on specifics, but the math. It is about right you know.
Somewhere between.
Seven to 10 projects in place under construction.
Yeah, I'd just add to that Eric just a point of clarification. The slide is balances so the commitments and those are our larger and that's.
I would support the size of the.
He was talking about.
Gotcha. Thanks first to both of you for the clarification on that point, and then I guess, Steve kind of ticking I think the point that you made there since these properties are not scheduled to open for quite a bit then it's a lower percentage of them a those properties criticized at this point compared to the existing portfolio since.
There's kind of said you mentioned all that interest reserves and things of that nature. So there's potentially not as much risk at this point in the process.
Yes, that's correct.
Believe that none of the hotels in the construction.
Segment that are under construction or criticized at this point in time.
Great. That's all I had thanks for taking my questions.
Thank you Eric.
Thank you as a reminder to ask a question you'll need to press star one on your telephone.
Our next question comes from functionality with Piper Stanley.
Your line is downturn.
Thank you just a couple of follow ups, if I could just just wondered I just wanted to get a sense of how the conversations have gone.
Here for guys to come off the deferral you know not get another 90 days is it mostly of their own coalition or.
You know have there been tougher conversations on your end or or if there you know.
Willing to cover.
Yes, the interest can may stay on has it been pretty straightforward.
Oh. So this is Steve Frac I would say for the 75% of the original loan modifications that are.
Returning to contractual payment.
There was conversations have been very very good and for the most part of the customer saying to US you know the read into return.
For the segment for the piece of this the 25% that aren't ready to return some of them our interest only considers a bridge to contractual payment.
At that they're going to pay interest there was conversations have been good and then there's clearly a piece where.
There are some tougher conversation when a customer is asking for another.
Roundup all deferral.
As Roger mentioned in or we are looking to.
Support our customer, but we're also looking for some level of credit enhancement whether that's.
Additional guarantees or you know.
A reserve account for future payments after the next round of deferments. So those conversations are a little tougher.
Okay, and just to get clarification, Steve from your I think you.
I mentioned earlier on that if you look back at the June Thirtyth occupancy rates in some places they were pretty dire and have improved since then in terms of your you know the risk weighting.
You guys have done or were you is that more based off the June thirtyth or we do you think able to effectively pull forward what you've learned.
Since then and apply to these loans.
Yes, so I think the dire buyer and this really goes back further the kind of that you know.
End of March April the very beginning where occupancy that were very very low and as I said things have improved based on what we're hearing from our owner operators, but they really haven't improved to a point, where we're forecasting out different scenarios.
You know.
10, 10, the property comfortably service it's that.
In there that that.
That is the assessment that we've been using.
In terms of risk rating.
Some of the properties will make payments, but still there such a potential weakness there or even clear weakness that.
We're we're risk rating they use appropriately as criticized.
Got you, okay, so and that makes sense because doing the math theres theres some that seemed to a number that seem to be coming off deferral and going back to contractual payment, but I guess there. There is a piece of that that has still been downgraded.
Classified criticized.
Yes that is correct Kevin.
Good contractual payment alone does not necessarily drive a risk rating. So yes, we have criticized assets in that book of that are making payment.
Or plan to making payments.
Okay and then just finally, Roger you mentioned you talked about some market share up for grabs and getting the credit piece behind you.
Helps you know get more I guess flexibility to go after I'm done market share.
And you've already been asked on buybacks potash to ask it again, you know I would assume you got more capital flexibility on the potential for buying back stock too.
Is there any.
Sort of.
Timing you can offer on on you know what I know, it's broken into two pieces to supplementary and the and.
To get you up to a 30%.
Payout you know because your dividends so low and then.
Beyond the and then buybacks beyond that if you like the price. So just any help on on how this might be sets you up for getting back to buybacks earlier, and then sense for timing there.
So I think part of part of this does get us closer to that point in time Frank.
As you know we temporarily suspended all buybacks.
And I as I mentioned I think it's prudent for US we believe it's prudent to wait until there is a little bit more visibility on the overall credit environment before we before we.
Though there so it's something that we evaluate and we'll continue to evaluate every quarter, but until there's a little bit more certainty.
We feel it's prudent to wait.
This this environment has had a number of unexpected turns.
And we hope its.
The next turn is a much more positive turn but at this point until there is that that's a little bit clearer.
We're going to.
Just continue to evaluate and wait till that point in time.
Okay fair enough. Thank you.
Thank you.
And with no further questions in queue I'd like to turn the conference back over to Mr. Rodger Levenson.
Thanks, Joelle, thanks, everybody for joining the call today appreciate the questions sure there's going to be some follow up and as Dominic said T. I in the whole team are available if anybody wants to have some further follow up conversations please reach out and we'd be happy to do so.
So thanks again for joining today and wish everybody a good rest of your day. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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