Q2 2020 Amalgamated Bank Earnings Call
The amalgamated Bank second quarter 2020 earnings conference call. During today's presentation, all parties there'll be a listen only mode. Following the presentation. The comments will be open for questions with instructions to follow at that time.
As a reminder, this conference call is being recorded.
I'd now like to turn the call over to Mr. true well then Chief Financial Officer. Please go ahead Sir.
[music].
Thank you operator, and good morning, everyone. We appreciate your participation in our second quarter 2020 earnings call with me today is keep Mastrich, President and Chief Executive Officer.
As a reminder, a telephonic replay of this call will be available on the Investor section of our web site for an extended period of time.
Additionally, slide deck to complement today's discussion is also available on the Investor section of our website.
Well, we began let me remind everyone that this call may contain certain statements that constitute forward looking statements.
In the meeting of the private Securities Litigation Reform Act up 1995.
We caution investors that a number of factors some of which are beyond our control could cause actual results to differ from the expectations indicated or implied by any such forward looking information or statements.
Investors should refer to slide two of our earnings deck as well as our 2019 10-K filed on March 13, 2020, and or other periodic reports that we file from time to time with the FDIC typically under cautionary note regarding forward looking statements and risk factors for further.
Description or exploration of those items that could cause actual results to differ materially from those indicated or implied by any forward looking statements that we may make.
Additionally, during today's call we may discuss certain non-GAAP measures, which we believe are useful in evaluating our performance.
Presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U.S. gab.
A reconciliation of these non-GAAP measures to the most comparable GAAP measures can be found in our earnings release as well as on their website.
At this point I'll turn the call over to Keith.
Thank you drew and good morning, everyone. We appreciate your time and attention today on today's call I will start by providing an overview our current operations and how we have diligently managed our business amid the ongoing kogan 19 pandemic.
We'll then turn the call over did you grew to discuss our second quarter results in more detail.
First I would like to begin by thanking our employees, where the central <unk> organization. They continue to work tirelessly to ensure that our operations run smoothly without sacrificing our banking standards and high level service during this unprecedented times.
The safety of our employees and customers remains our top priority and I'm pleased that we've been able to maintain our operations well keeping more than 95% of our employees and work from home environment.
The second quarters also been marked by social tension across our country had amalgamated we've always believed that financial institution mission should include using its resources money and influence to help deciding move forward.
We are selected to be the banking partner for individuals and companies who share our mission, allowing us to support their financial goals.
Now more than ever consumers investors and workforce is holding companies to even higher levels of social responsibility and requiring them to focus on contributions over and above simply delivering profits and value for shareholders.
We consider ourselves industry leaders in this regard and work hard everyday to continue to build upon a reputation as America socially responsible bank.
Our second quarter is not only validates this to you, but further emphasize the value partnership that we provide to our core customer base. That's can be seen in our average deposit growth of $606 million during the quarter or 50.5% on an annualized basis as compared to the 2021st quarter.
This deposit growth was strong in both political and nonpolitical sectors demonstrates the brand recognition and competitive position that amalgamated holds in the significant market segment.
Additionally, we have nearly doubled our deposit base in our western region. Since we acquired new resource Bank two years ago.
Calculated approach to gathering deposits that drove success in New York City in Washington, DC is gaining traction and demonstrates that we can utilize this approach as we further expands our geographic footprint.
As we look forward, we continue to estimate that our deposit market opportunity is $90 billion, where we hold only a small share today.
In our current markets there are thousands of value driven and socially responsible businesses and individuals who are aligned well with amalgamated's core values, providing a long runway for growth.
The strength of our business model and competitive positioning and our debt to the market can further be seen in our results, which we delivered despite a challenging economic backdrop driven by the pandemic highlights of which were first we grew our balance sheet, 50% on an annualized basis in the second quarter and now have $6.5 billion now assets.
Second we delivered pretax pre provision income of $22 million, which compares to 21.5 million ended 2021st quarter.
Third our net interest margin declined by 36 basis points to 3.1% as compared to the first quarter as we will discuss further this decline was largely due to the rapid expansion of our balance sheet and resultant opportunistic investments.
Fourth our cost of deposits was 20 basis points down from 33 basis points in Q1, and noninterest bearing deposits were 53% of ending deposits.
We grew our pace portfolio by adding $68.1 million in security during the quarter.
And lastly, we continue to main our expense discipline and close six of our branches, which will ultimately result in approximately $1 million quarterly expense saves in 2021.
As we exit the second quarter. The bank has a strong capital base and a conservatively underwritten loan portfolio as a result of our disciplined credit culture.
Drew will discuss more detail, we recorded a provision expense of $8.2 million, primarily driven by $3.2 million of allowance related to payment deferrals and approximately $2.7 million NRC Ari portfolio for a hotel that was impacted by Kogut 19.
We continue to diligently watch our loan portfolio and remain committed to working with our borrowers in a more challenge industries on payment deferrals. During this time period importantly, we've seen a stabilization in the amount of loan balances, but payment deferrals as well as a meaningful number of residential customers start to remake payments after their initial Nike date before.
As part of our efforts to mitigate the effect of the pandemic, while further streamlining our operations, we continue to aggressively reduced our expenses as we reported noninterest expense of $31.1 million during the quarter compared to $32.3 million during the first quarter.
This was accomplished through taking actions to mitigate the impact of lower net interest income given the low rate environment.
We have reduced spending on noncritical projects can slowed down hiring during this uncertain time as well as closing unprofitable branches, which I mentioned previously importantly, our team will continue to explore opportunities to reduce expenses without sacrificing the operational integrity of our competitive position at the bank.
So this is that it is important to draw your attention to the successful migration within our client base to our online banking platform.
This began at the beginning of the pandemic and carried on through much of the second quarter and wish her team effectively assisting our clients with the move towards our digital platform. During this time, we experienced high level of adoption and customer satisfaction with no significant client losses.
That's the transition enabled us to Opportunistically expedite branch closures as the branches were not functional due to the bad debt and our clients bank needs. We're now address through our online platform.
Turning to our growth initiatives I would like to take a minute to touch on pace as we successfully added $68.1 million of pay securities during the second quarter.
Pace continues to be an opportunity for us as home improvement is doing very well given that people are spending more time at home and are utilizing pace to fund home improvements.
We expect to continue adding new assessments to our portfolio through 2020 through our agreement with the pace funding group.
Another group initiative that we move forward with beginning in the first quarter and have continued to execute on is the opening of our commercial banking office in Boston.
Given the pandemic and the shelter in place orders that existed at the time of the opening we anticipated a more gradual ramp.
I'd like to highlight that Mark Wallace and his team are off to a terrific start having opened eight new deposit accounts in the second quarter under less than ideal circumstances.
This is a real success and we look forward to what's to come in a more normalized environment as the reopening of our economy progress is looking forward, our Los Angeles office remains on hold for the foreseeable future and we're hopeful to have some additional clarity on this market as we move into 2021.
Turning to capital allocation, our priorities remain consistent our share buyback program remains under suspension given the continued economic environment and we will evaluate our dividend with our board of directors each quarter.
To conclude I'm very pleased with the growth we have achieved during the second quarter. Despite the continued penned down our deposit base continues to grow and is key to our growth strategy. We remain steadfast in our ability to drive value for all constituents of the bank.
Our people clients and customers come first and we stand with them through this incredible period of uncertainty and through an important movement in our country's history.
I would like to thank all of our employees, who continue to work tirelessly to deliver seamless operations to our customers and you make the fruits of their efforts our mission together, we will make it through this pandemic MPS the epicenter of change for our country.
I'd now like to turn the call Overdrew for more detailed review of our financial results.
Thank you Keith I'll begin by reviewing our second quarter results before turning the line back to the operator to open for questions.
Turning to slide six in the second quarter, ending deposits increased $793.8 million or 62.5% annualized to $5.9 billion for the first quarter of 2020, while average deposits grew $606 million for the quarter to $5.4 billion.
Average non interest bearing deposits increased $445.5 million from the prior quarter, primarily due to seasonality related to the election cycle and now represent 50.6% of average deposits at quarter end.
Our cost of deposits decreased to 20 basis points down 13 basis points compared to 33 basis points at the end of the first quarter.
Theres still some opportunity to reduce deposit costs in reaction to the fed rate cuts.
So we are getting near the end of these moves.
Deposits from politically active customers such as campaigns packs advocates fee based organizations and state and National Party committees increased $325.9 million from $774.8 million at March 30, Onest 2020.
Ending the second quarter at $1.1 billion as outlined on slide seven.
The election environment continues to be a source of growth for our deposit franchise.
Focus for this year will be the presidential race, and we continued to be a partner to a majority of Democratic candidates as we support their business needs.
As seen on slide 10, we delivered loan growth of $123.0 million or 14.1% annualized as compared to March 30, Onest 2020.
And ended the quarter with $3.6 billion of total loans.
Loan growth was primarily driven by an increase in seeing eye loans from the purchase of government guaranteed and PPP loans as well as residential first lien and consumer residential solar loans.
As a reminder, or pace our balance of peace assessments is now reported in the held to maturity securities portfolio.
Which is inclusive of approximately $323.4 million in purchase pace assessments.
Our new investment in the pace funding group for a while the bank to continue adding pace assessments in future quarters until we complete the $150 million purchase agreement.
As part of the Cures Act the bank has implemented a payment deferral program.
For consumer and commercial customers. The standard agreement allows for three months of deferrals of principal and interest with the potential to defer another three months if needed.
The majority of these loans are not reported as delinquent on our financial statements and are not downgraded solely due to the payment deferral program.
In total we currently have $428 million or 12% of our loans on a deferral program, which is shown on slide 12.
This is down approximately $84 million from the highest number we reported about a month ago.
The number of new loans, asking for a deferral has pretty much ceased.
We're seeing a number of residential loans asked for a second 90 day deferral, which we have been granting but we've also seen $33 million in residential loans begin to make payments. After the first deferral, which is encouraging.
For those residential customers that reached the end of their first 90 day deferral, 58% began to make whole payments.
Commercial loan deferrals began later in the second quarter. So we've not had a meaningful number complete the 90 day process, but we do expect several of these loans to ask for a second differ.
We are generally asking the commercial clients to pay interest on the second deferral if at all possible.
In the first quarter 2020 be available for sale investment portfolio had a sizable negative mark through other comprehensive income of $17.9 million due primarily to the volatility in the fixed income markets.
In the second quarter, the market's largely recovered and we had a positive mark of $21.9 million through other comprehensive income.
It's worth noting that we have had no downgrades of securities in our portfolio. We are pleased with the performance thus far.
Net interest income for the second quarter of 2020 was $44.4 million.
Which compares to $44.7 million and the linked quarter at approximately 2.6 million dollar increase as compared to $41.9 million in the same quarter of 29 team.
The year over year increase is primarily attributable to a decrease in interest expense due to decrease in borrowings in deposit rate paid and an increase in average securities and loans, a $509.5 million and $383.9 million, respectively with lower yields.
These impacts were partially offset by an increase in average interest bearing deposits of $340.4 million.
As shown on slide 16, our net interest margin was 3.10% for the quarter a decrease of 36 basis points from the first quarter at a year over year decreased 56 basis points.
The accretion of the loan Mark from the loans, we are required in our new resource Bank acquisition contributes three basis points to our net interest margin in the second quarter of 2020 compared to four and six basis points in the first quarter of 2020, the second quarter of 2019, respectively.
Prepayment penalties earned through loan income contributes zero point $2 million or two basis points toward net interest margin in the second quarter of 2020.
Compared to 63 basis points in the first quarter 2020 than the second quarter of 2019, respectively.
As keep discussed the decline in NIM was largely due to the rapid expansion of our balance sheet from deposit growth.
These deposits were either held in cash invested in floating rate agency securities.
On a go forward basis, we expect NIM to stay low in the third quarters, we hold cash and liquid securities in preparation for the outflow of political deposits in conjunction with the election cycle.
We expect to use a combination of cash on hand, and short term borrowings to fund the political deposit outflow.
The overall impact of this move should be just over 1 million dollar decrease in annualized net interest income.
Now onto non interest income noninterest income for the second quarter of 2020 was $8.7 million declining from $9.1 million in the first quarter of 2020, and a 2.3 million dollar increase compared with the second quarter of 29 team.
The increase in the second quarter 2020, compared to the like period in 2019.
Was primarily due to a 1.3 million dollar tax credit on an equity investment in the solar project zero point $5 million gain on the sale of securities compared to a loss of 0.4 million the comparable quarter of 2019 and to zero point $7 million increase in bank owned life insurance income due to the receipt of.
The payout.
These increases were partially offset by a zero point $5 million decrease and trust department fees, primarily related to the decrease in revenue from a real estate fund, which is liquidating assets.
Keith mentioned the initiative the initiatives to reduce non interest expense on a go forward basis.
As seen on slide 17, our noninterest expense for the second quarter of 2020 decreased to $31.1 million, which compares to $32.3 million in the first quarter at $31.0 million in the second quarter of 29 team.
On a core basis, our expenses were $30.4 million, which reflects our ongoing expense discipline.
We're pleased with the prudent expense management expect around core expenses at or below $32 million per quarter for the remainder of the year.
As we head into 2021, we will also see the 4 million dollar annual benefit at the cost reduction from branch closures.
Keeping it had to slide 19, nonperforming assets totaled $74.3 million or 1.15% of period and total assets at June Thirtyth 2020.
Which was an increase of $7.6 million from the end of December 2090.
The change was the result of a 14.7 million dollar increase in non accruing loans, driven primarily by a legacy 10.2 million dollar hotel loan in Ohio, which has been in our portfolio since 2005.
The amount of criticized and classified loans increased by approximately $35 million, primarily due to CRT and construction loans.
The provision for loan losses in the second quarter, 2020 was $8.2 million, which compares to 8.6 million of provision in the linked quarter.
The provision expense in the second quarter was primarily driven by a 3.2 million dollar increase in allowance related to payment deferrals in the loan portfolio increase in specific reserves is $2.7 million related to the previously mentioned hotel.
An additional downgrade sta risk ratings of construction loans.
Moving along the slide 20, our GAAP and core return on tangible average common equity were 8.6 and 9.1% for the second quarter of 2020, respectively. The core return compares to 7.7% for the first quarter of 2020.
And 10.5% for the comparable period in 2019.
Lastly, we remain well capitalized to support future growth.
To conclude we are pleased with our second quarter 2020 results, we've been able to grow our business support our customers and generate strong returns all while dealing with the pandemic and building strong reserves to protect against any credit issues that may materialize.
Thank you again for your time today, we look forward to updating everyone on our third quarter results in October with that I'd like to ask the operator to open up the line for any questions.
Operator.
Thank you at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad and confirmation tell indicate your line is in the question Q.
You may print start to if you like to remove your question from the Q.
For participants use and speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment. Please why we poll for questions.
My first question comes from Steven Alex Palace with JP Morgan. Please proceed with your question.
Good morning, this is genuinely on for Steve.
Our next question well Hi, My first question is okay. So I think last quarter you disclosed.
Good and 20 million a flawless our 3% of total.
Hi, good industry, I think stonegate changing with the past quarter end can you provide more color around distressed one by one hotels, you called out and why that the systemic issue you're seeing on your Potter hotel exposure on the others gesture seeing on the overall.
Yeah, Okay, Hi, Jana this is true I'll I'll take that so and then let Keith feel free to jump in so on our.
Impact did.
Industries No nothing has really changed there were certainly not originating more into impacted industries and as you can imagine a lot of the impact industries aren't aren't paying off their loans right now.
With regard to that hotel. This is as I was saying in the in the comments.
This is a hotel loan that was originated in 2005, well before any of US we're here and it had gone through a.
It had been on our our workout list I think actually when I joined the company in 2015, and we Didnt subsequently it worked out an arrangement with that loan and then obviously cobot hit and has caused some issues with it.
That that loan is in Ohio, I would say that hotel, it's very unique to our portfolio and I would not extrapolate what what's happening with that loan to any other part of our portfolio at this point.
So we took a pretty you know we took a pretty strong reserve on that.
I think there's a reasonably high likelihood that we end up taking that property into Oreo and having to dispose of it ourselves.
In 2020, most likely or maybe 2021.
But again I wouldn't I wouldn't extrapolate that out to the rest of our hotels.
Yeah, the rest of the hotel portfolio, which is a little under 20 million.
Is there definitely on loan deferrals and they've definitely seen loss of revenue, but I think they are in pretty strong locations and to assuming the economy comes back in.
In Colorado in California, where those two are located.
We think and hope that there'll be okay.
Right. The only thing is the only thing I would add again just to emphasize you know which is the mountain may never made a business of doing loans in hospitality industry whether its.
Hotels, and motels or or restaurants, we had just a handful of them and I would just give a lot of credit to our.
Our lending a credit team is they are on each of these names I think you know as the economy has begun to reopen a little bit personal see what happens, but I think that that story. There has it gotten you know a little bit better or stabilized at least in and this is a tiny portion of our portfolio and I agree with Julie there's no sort of systemic issue.
Because the one hotel in Ohio.
Yes.
Makes sense.
Following up on the current it's included in your Twoq precision build was 3 million and reserves for loan to far house.
Which is the overall well reserves for low deferrals or a watch category of the loan to fall was the primary driver as the reserve build this quarter and should we expect more research helped you do you did file to continue the coming fundings.
Yes. So the so I think was 3.2 million in Q2, it's the same category as the 3 million. We took in Q1, which is in the qualitative reserves. So we've we've increased our or qualitative factors related to covert now 6.2 million over the over the two quarters.
I would say that as far as the qualitative reserves.
Those are those are pretty big numbers and I don't think we'll see those size numbers again in Q3.
There might be some qualitative reserve, but we've moved up the main factors to their highest level at this point, so well and then what we would.
Maybe see happening as we go through future quarters is as the loans come on its own loan deferral.
If they are not making there they're normally scheduled payments at that point, we would downgrade those loans and then they would start to get.
Reserves related to their risk rating or specific reserves, if they become a TDR. So we could see that playing out in Q3 or Q4, depending on how the numbers evolve.
Okay got you.
Shifting to the tax credits so the 1.3 million tax credits.
On an equity investment the solar project and there was this new item wind added this quarter can you give more color around doesn't this is going to be a recurring fee item going forward.
Yes, so it's a it say equity investment in it Tech solar project as as we said so these are pretty common in the industry I'm familiar with them from previous companies that I work debt as well it does create some lumpy income trends over various quarters for these investments as you take the tax credit and.
You write them down so the 1.3 million we took this quarter over the next two quarters the timing of when it will hit is always a little variable, but I think we'll see 1.4 million moring gains over the next two quarters, but it's quite likely we'll see a larger gain in Q3 and actually maybe a little bit of a reversal in Q4, but the net of those.
Should be 1.4 million positive and then there is a smaller stream of non interest income that will receive overtime from the projects, but it will be rather small compared to the numbers that we're talking about right now.
I would add I would just add that though having now done a tax equity deal and having the regulator sign off on our having done that deal does increase our access to potential opportunities in an industry, we still like regardless of the pad Demick, which is you know renewable energy and the solar industry in particular, and it's just gives us.
A few more tools in our toolbox and get this little bit more exposure to better better deals by having the equity tools available to us.
Okay, that's helpful and.
Our net just to clarify on the third quarter NIM guidance as saying low is it fair to assume that.
Net interest income and margin is going down in third quarter versus second quarter.
Well the NIM is is increasingly difficult to forecast just given the volatility in cash in floating rate securities in our balance sheet with the deposit inflows. So I'm really not going to say, if it's going up or down this quarter.
Just from the inflows that was about a 19 basis point impact.
Based on the cash we held in the floating rate securities we added so.
I have deposits continue to increase which so far this quarter. They they have done that could put more downward pressure on NIM, Conversely, and maybe a bit ironically as deposits as political deposits flow out.
That will actually helping them in terms of going up.
As far as net interest income I think the pressure is downward I think from Q1. The Q2, we Oh, we basically held flat with the exception of a decline in prepayment penalties.
I think we'll be down a little bit from where we were in Q2 in terms of net interest income.
But it will depend on what we do with the balance sheet over the course of the quarter.
Got it that's helpful and finally, my last one as on a local deposit I want to make sure that I understand its right to political deposit.
Now to 300 million range at the end to Mark Hughes, how should I think about political deposit balances.
Through the third quarter is to stay elevated at this level or bonding all first and second quarter.
Yeah, So it's always hard to.
Great Group.
So I've got.
It's always a little hard to predict but we know as we get towards the end of the cycle and get towards the election, we start to see more run off then flow in if you will as people you know spend more money at the end of the cycle on television and fine electoral perhaps in stuff. Our model has us going down to around $300 million now I would say we've.
Higher than we thought we have when that model was originally put together, but you know what kind of holding to our model at that point and that should be the trend rounds for ended September then through October and November.
November if it passes prologue here that you'd be the kind of thing that we would actually.
See in the political deposit on environment.
Yeah, I would just the only thing I was going to add was that I think the end of Q3 number is probably a pretty difficult one to predict because it's right in the heart of wet everything is happening.
With regard to the away spending.
Yes, thanks for taking my questions.
Thanks, Kevin Thanks.
Our next question comes from Chris O'connell with KBW. Please proceed with your question.
Hi, good morning.
So so I wanted to start off.
On the expense front I may have.
You know not caught some of the guidance there as to the back after the year were going from here, but.
But I was also so if you could maybe just go Daddy down and then also as we're going into 21.
You know, what the net impact or I guess the.
Six six closure branches being the 4.4 million, but is the Boston expansion kind of offsetting that a little bit.
Yes, so what we've said on the guidance is that we expect to be below 32 million.
For the remaining two quarters of 2020, that's that's a core number so it excludes the 6 million ish 6 million dollar estimate that we have in Q3 for branch closure expense the onetime cost, which is you know we've closed the branches already or Theyve gone dark we're negotiating.
In lease exits with landlords sometimes.
That happens sometimes you just end up continuing to make the lease payments, but you take the charge upfront until the lease expires. So theres a theres a little bit of variability in terms of what may happen. There at the 4.4 million in 2021 is the annual run rate, we expect to get when everything is complete with the branches.
Now the one nuance there is where we are moving a lot of staff into open positions in the company right now so that kind of expense or the branch may not just fully go away. It may take time as we continue to experience vacancy and other positions in fill with those those branch employees.
And then in terms of Boston, I would equate our effort and Boston, replacing any of that kind of extensive brick and mortar operation that one of our branches in New York has but we have a small commercial team of three people that are operating in Boston right. Now we're you know in.
Sublet space, we're looking for an opportunity to have more permanent office, but that's really a commercial banking office, although its officially.
Brands, it's not the kind of typical branch that will happen full compliment the staff in the kind of footprint that you would have so while there are some expense associated with Boston I think the you know very.
Hopeful kind of start that we've had there should you know quickly justify that extent I wouldn't call it much of an offset.
It all to the the expense savings that we get from the you know that the closure of the branches in the New York area.
Okay great.
It's helpful and then in particular on the data processing line was there anything onetime or unusual this quarters. I know you know I think there's both theres vendor cost saves, which you know brought down for the first quarter. This year.
But then it kind of popped back up to you know at the level or even a little bit above the tree vendor cost saves yeah, we had a onetime impact in there. So I think that number's, probably more like 2.6 ish that data processing should be running at.
[noise] two point rates 2.7.
Great.
And then.
In terms of Ah could you just walk us through the 51 million Pvp loans I know you are kind of park partnering with another institution for.
Are those are not originating or self sufficient maybe you know how that's going to run through income enough. That's any different than you had originated at your yourselves.
Yes, so basically for us what it looks like is almost like a government guaranteed loan that we purchased with the with the 1% yield we purchased pretty much at par.
These were almost entirely from the first round of PPP. So.
You know I think the forgiveness rules on that are much.
Much easier to process through than the second round. So we would expect that a high level of forgiveness to happened in so they won't be on the balance sheet for for all that long.
And the only difference for us versus other banks as we didnt originate so we're not capturing any of the fee income related to that or any of the kind of operational hassle.
It's a hassle the operational activity related to the PPP loans in the forgiveness as well.
Okay great.
Alright, Great and then just finally on the on the piece a loan originator.
Hey, its investment origination front.
I noticed that you kind of how the are you noted in the deck.
A little bit of a delay on the extension to the New York market does that change your outlook or the demand that you're seeing putting those kind of on the books going forward.
No I mean, we really have never.
Included any new York production in our estimates because its a.
Unproven Unapproved program, right, now, which which means it can be subject to delays.
Colgate is certainly not helping with that.
Okay great.
Well that's all for me thank you.
Thanks, Chris.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad. One moment. Please why we poll for questions.
Our next question comes from Brian Martin with Barclays Bank. Please proceed with your question.
Hi, good morning, guys.
Hi, Brian.
Oh, thanks for the kind of additional or.
Guidance on the NIM in the third quarter I'm, just curious whats kind of get past.
Decline in political coupons corner.
Bridge balances on the fourth quarter do you think you could a recapture any of that 19 business point impacts on the NIM from higher cash level.
Yeah, I think we would recapture most of the 19 basis points. The question is which I won't that will provide an answer right now is what's going to happen everything else in terms of of NIM right. So that you might have that 19 basis point increase but you're still going to have continued pressure downward from just lower yields coming out.
On the books from everything that that's being originated at this point.
Given the interest rate environment.
Okay great.
Maybe a little bit more on capital kind of.
What are you looking at under what kind of scenario, you think you'd be willing to restart the share repurchase program work what kind of levels do you think you're going to end the year kind of on C. One.
[noise] Keith you want to take the real well then I'll talk about.
Brian I think the most important factor on the share repurchase right now really just as the external environment and the I think you know the the dour you know sentiment that.
You know policymakers and public at large have around share repurchases at this point than you know the fad guidance, even on sort of uses the capital I think I think before we would even consider that program again, we would need to see an overall change and again I don't think we're very different than the rest of the rest of the industry here I think we need to see a very different.
And the external environment in the and then the viewpoint on on share repurchases before we would restart that programs.
And then on capital. So so leverage capital has come down as the balance sheet has grown it I think in Q3, just given where even we sit where we see our deposits today and probably political not really coming off.
That much in Q3, but more in Q4, I think leverage ratio will probably decrease again next quarter, a little bit and then rebound in Q4.
See T. One given most of the assets, we've been putting in cash and floating rate securities I don't see one making any big moves.
Probably a little bit down as we as we grow the balance sheet, but I don't see major moves and see T. One yeah, yeah, given that flow in a in the Castleline right. I think you know, we all feel very comfortable with our capital position at this point.
Yes, absolutely.
All right. Thanks, that's all for me.
Thanks, Brian.
Our next question comes from Chris O'connell with KBW. Please proceed with your question.
Yeah.
Hey, just wanted to hop back on.
Rick Warren.
For the 10.2 million dollar.
Hi Hotel alone you guys put a 2.7 million specific reserve on that this quarter, what what's the total specific reserve against us.
So actually I'm glad you asked that Chris because a we probably didn't totally clarify that so 10 points 10.2, but we have a $2 million standby letter of credit on it which brings it to 8.2 and then.
Which we fully expect to be paid out on and then the 8.2 takes has the 2.7 specific reserve.
So thats your net.
Okay, great and.
I mean as things stand and you know given the lack of activity.
You know likely across the board.
For the hotel space, but for this one in particular.
As you move through the back half of the year it theres not.
You know significant improvement in overall kind of.
Travel and activity levels do you think that that specific reserves gonna have to go higher juice see yourselves.
Getting paid out on the collateral there.
So it's a maybe on the first one I mean, we you know we had a third party appraisal done and we Mark did I think.
Pretty well.
As deeply as we could based on the appraisal.
You know, but I think it's a very volatile market right now in price discovery is happening. So it's possible we might need more reserve on that.
I don't think you're looking at another 2.7 million that would shock me, but I guess anything's possible nowadays.
But you know its a.
Pretty heavy mark from where the last appraisal was at this point. So I think we've we've put a pretty good discount on it I think we'll we'll look at the economic case too.
Korea didn't Oreo and rehabilitate versus sell it to sell it didnt auction or other method.
Okay, Great that's helpful and so I. Thank you.
And we reached the end of the question and answer session. At this time I'd like to turn the call over to Keith Mastrich for closing comments.
Thank you operator, I just want to thank everybody for taking a little bit time today I know, it's a busy season a in the.
In the earnings World and couple of conference is going on that's got everybody very busy.
I think we'll be seeing many of you at the KBW conference over the next couple of days and look forward to continuing on those conversations and just want to thank everybody for taking some time to join us today.
This concludes todays conference you may disconnect your lines at this time and we thank you for your participation.