Q2 2020 Boston Private Financial Holdings Inc Earnings Call
Okay and welcome to the Boston Private financial Holdings second quarter 2020 earnings Conference call.
All participants will be in listen only mode. So do you need assistance. Please take my conference specialist by pressing the star keep all that buys euro.
After today's presentation, there will be an opportunity to ask questions.
So this event is being recorded I would now like turn the conference over to Adam Bromley. Please go ahead.
Thank you Melissa and good morning, everyone.
Adam Bromley Director Investor Relations, Boston Private financial Holdings.
We walk into this conference call to discuss our second quarter 2020 financial results.
All this morning includes references to an earnings presentation, which can be found in may so.
That's really section of our website Boston private dotcom.
Joining me this morning, our Anthony the Cialis, Chief Executive Officer, Steve Gavin you finished off Sir.
Paul Simon President private banking wealth and trust and Jim Brown President of commercial banking.
Call contains forward looking statements regarding strategic objectives in expectations for future operating results of operations and financial prospects.
They are based in the current beliefs and expectations of Boston Privates management and are subject to certain risks and uncertainties.
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Actual results may differ from those set forth in the forward looking statements I refer you also to the forward looking statements qualifier containing our earnings release, which identified a number of factors that could cause material differences between actual anticipated results or other expectations expressed.
Additional factors that could cause Boston private results to differ materially from those described in the forward looking statements can be found in the company's filings submitted to the FCC.
All subsequent written and oral forward looking statements attribute to the Boston private or any person asking on behalf are expressly qualified bodies cautionary statement.
Awesome, probably does not undertake any obligation to update any forward looking statements to reflect circumstances or events that occur. After the forward looking statements are made.
With that I'll now turn it over to Anthony the jealous.
Thank you Adam.
Good morning, everyone and thank you for joining us on today's call to discuss our second quarter 2020 results.
Before we get into this quarter results our team I'd like to express that we hope that's called finds you and your family is in good health.
And that you all managed to remain save during these challenging times.
The business, an economic outlook in our markets remain a fluid situation and is creating some new challenges for all banks. However, we are encouraged by our firm's ability to adapt quickly to provide uninterrupted service to our clients.
Throughout the first two quarters of 2020, we have continued to say intensely focused on our strategic growth plans.
Are we expecting environments remain demanding sort of down to the year. We're also optimistic about developments in consumer behavior, which we believe of accelerating some key trends in financial services and present new opportunities.
The first half 2020 for us can be characterized as finding the right balance between short term in long term objectives.
Our immediate task became implementing our business continuity plan and adapting to the majority of our firm's employees working remotely.
Our company's productivity levels remain.
Remarkably both clients and employees.
Adjusted quickly through a work from home client coverage model.
This pandemic has tested some of our strengths, but is not diminished our ambitions for delivering on it a highly distinctive and differentiated private banking and wealth management client experience.
Our teams continue to demonstrate that they can deliver best in class advice and guidance whether in person or virtually.
Challenging times afford all firms an opportunity to distinguish themselves in the hearts and minds with clients and we believe the Boston private has continued to build on its legacy of excellent client service.
As mentioned earlier, we also believe that trends in financial services have accelerated significantly moving toward the timeline for the future model, a private banking and wealth management in particular.
Your behaviors have been learned new norms are evolving the clock will not be turned back and while it won't be easy the opportunity to challenge the largest in Congress for market share is as good as it's ever been for the firms that are willing to reimagine the client experience and innovate.
Yes, we have accelerated our own timeline for delivering highly distinctive and comprehensive banking and wealth management platform, one which delivers highly skilled advisors are supported by teams are experts all underpinned by efficient and empowering technology.
We have a simple ambition, we aspire to deliver one of the most compelling value propositions in our industry.
At the same time, we've been highly focused on the president and Barney and the risk management of our loan portfolio and balance sheet in order to ensure our company's long term success.
Our priority has been to intelligently and thought we support the needs of our clients.
Luckily analyzing and managing risk exposures on our balance sheet.
As discussed in Q1, we have put programs in place to support our clients and build a conservative loan loss reserve. So there are a company can withstand the duration of a pandemic.
And we remain highly confident in our firm's capital position.
I'd like to expand on a few topics that give our team cause for optimism.
First our technology team remains on plan, but all of our projects, especially those aimed at enhancing our overall client experience.
These efforts will simultaneously bolster our abilities to work remotely, while enabling new avenues for growth.
Our enhanced online and mobile banking platform will continue to be refined and this fall clients will be able to initiate new relationships.
Purely online interaction.
In the spring of 2001, following the launch of a dramatically improved wealth management platform, we plan to roll out the direct access online and mobile capability in wealth management as well.
This new capability will not only allow clients to initiate a relationship with our from directly.
Also allow them to have increased flexibility and choice regarding the service model they desire.
Our upgrade our efforts to upgrade our digital capabilities in late 2019.
Proved to be not only timely.
But I've also served to strengthen our abilities to deliver an exceptional client experience.
Our client acquisition efforts are trending positively in key areas.
Including our deposit levels, which have seen good growth year to date.
Recent momentum in our pipeline make us optimistic about both our bank deposit and wealth management, you Im outlook for the back half the year.
We expect a stronger deposit flows to improve our funding and liquidity profile and offer balance sheet management flexibility.
And the wealth management and trust business.
We have delivered positive flows for the second consecutive quarter.
Regain momentum in hiring high quality advisors after a temporary slowdown entering the pandemic.
Here as well we were optimistic about the new hire pipeline.
Our ability to continue to add.
New high quality advisors.
In regards to our dividend Steve will have more to say about our thought process or offer better primary intent was to make a prudent adjustment. So that we can continue to stay focused on moving forward on our strategic plan.
Getting our pay your payout ratio in line with industry norms.
It's not a new ambition the current environment simply necessitated a review and a change in the past two or more normalized payout ratio.
As we are the balance of 2020, our team feels confident our companys capital position and liquidity position.
Loan loss reserve build which incorporate a conservative assumptions and in our overall ability to stay focused on executing our strategic plan.
I mentioned earlier times like these are great opportunity for us to distinguish our firm and further strengthen client relationships. We will ensure the long term success of our company by continuing to earned the trust of our clients each day.
And by staying true to our value proposition.
I'd now like handed over to Steve to discuss the details of our second quarter results.
Thanks, Anthony and good morning, everyone. My comments will begin on slide four where we show a summary of our consolidated financial highlights from the second quarter.
This quarter, we reported a net loss of $3.3 million earnings were significantly impacted by 25.4 million of total reserve building, reflecting that hearing economic conditions related to the kilobit 19 pandemic any more conservative economic forecast driven by the increased weighting of our downside scenario under the C.
The methodology.
Loan activity for the quarter was heavily influenced by the Paycheck protection program loans increased 4% personally quarter, all deposits increased 2% linked quarter.
Total AIU and as of June Thirtyth 2020 was 16 billion.
<unk> increased linked quarter, primarily driven by a recovery in equity market values from March 30, Onest to June Thirtyth.
Total net flows for the second quarter or negative 40 million, while while our wealth management and Trust segment contributed contributed 60 million a positive net inflows.
Concurrent with our earnings release, our board of directors authorized six cents per share dividend payable to common shareholders. During the third quarter compared to 12 cents per share in the previous quarter.
As you'll recall from our 2019 Investor day, we outlined a capital return philosophy, whereby we targeted lowering our long term payout ratio through earnings growth given the environment that hasn't hold it we're taking conservative view and accelerating our objective of achieving a payout ratio more in line with the industry. This decision allow allows us to move closer to our.
Yesterday targets, while representing a conservative approach to liquidity and capital management.
Moving on to slide five we show consolidated income statement.
Pretax pre provision income increased 13% linked quarter to 20.1 million, excluding the impact of provision expense for unfunded loan commitments, which is recognized the noninterest expense adjusted pretax pre provision income income increased 16% linked quarter.
Early driven by higher revenue and lower expenses.
Slide six shows consolidated revenue trends total revenue increased 4% linked quarter.
Early driven by growth in net interest income.
Linked quarter improvement of miscellaneous income, which included positive marks on derivatives and securities during the second quarter.
Core fee Inc. <unk>, he's an income declined 5% in quarter as lower equity market values as of March 31st resulted in lower second quarter billing rates in the wealth management and trust business.
On slide seven we show a detailed breakout of our non interest expense.
Total non interest expense for the second quarter of 2020 was 61.5 million, which includes 2.8 million a provision expense related to unfunded loan commitments categorize as other expense.
Excluding the impact of the provision expense second quarter total noninterest expense was 58.7 million, a 1% decline linked quarter and a 5% increase year over year.
The year over year increase was primarily driven by technology investments in new hires.
As you will recall our previous guidance for the quarter was for operating expenses to be 60 to 62 million.
Slide eight shows the past five quarters of average loan in average deposit balances by type.
Average total loans increased 4% linked quarter, reflecting the funding a PPP loans.
During the quarter out company funded $380 million PPP loans, resulting in 284 million of average balances.
Excluding PPP loads.
Total loans were flat linked quarter and year over year.
Linked quarter commercial industrial loans declined 10%, primarily driven by the payoff of loans and lower line usage commercial real estate loans increased 3% linked quarter, primarily driven by the increased loan balances attributable to the debt service Reserve program.
Excluding debt service reserve loans commercial real estate loans were flat for the quarter.
Total average deposits in the second quarter increased 2% linked quarter and 10% year over year as a result of higher average non interest bearing deposits from commercial clients.
Year over year interest bearing deposits increased 8%, primarily driven by higher commercial client money market balances and well sweep deposits, partially offset by the intentional about off brokered Cds.
The typical seasonality our deposit base experiences in the second quarter as a result of tax payments did not materialize as a result of the delayed tax filing deadline, but we do anticipate some impact on our business as we enter the third quarter.
Slide nine shows a five quarter trend of consolidated net interest income net interest margin.
Net interest income increased 3% linked quarter, primarily driven by lower funding costs P.P.P. income in prepayment penalties.
Net interest margin decreased one basis point linked quarter to 2.75%.
Net interest margin was pressured by lower earning asset yield, which declined 33 basis points, while benefiting from lower funding costs, which also declined 33 basis points <unk>.
TPP loans negatively impacted our NIM by two basis points.
Low interest rates and the loans were partially offset by amortization of origination fees.
Total cost of deposits decreased 31 basis points during the quarter, driven primarily by 50 basis point decline money market rates in growth in noninterest bearing deposits.
As we move into our discussion on credit starting on slide 10, I thought it would be helpful to review, Boston Privates credit culture, and our process for managing credit risk on loan portfolio.
Throughout the first half of the year. Our team has been focused on identifying pockets of risk early rating those pockets of risk Accordingly, and then managing those credits aggressively in order to minimize loss, we always anticipate with special mention loans at some percentage will emerge and be upgraded while some percentage will be challenged and downgrade the classified.
In this click in this case the status and duration of Cobot 19 is obviously the key factor determining future loan prefer performance.
Well, we managing these relationships accurately as we always do and as we discussed last quarter, our underwriting ltvs at origination archon Sir.
Slide 10 provides detail on are adversely graded nonperforming loans overall nonaccrual loans remained stable at low levels of 35 basis points of total loans net charge offs also remained very low at 1.5 million for the quarter or eight basis points of total loans on an annualized basis.
The increase in our criticizing classified loans reflects the downgrade of performing commercial real estate loans to the special natural mention category as a result of a more proactive bottom up analysis of loan level detail rather than a deterioration borrower conditions during the second quarter.
Slide 11 shows a roll forward the changes to criticizing classified loans from March 31st to June Thirtyth.
This quarter's increase reflects the downgrade of approximately 170 mile 79 million of loans, partially offset by loan payoffs and Paydowns of 48 million in loan upgrades of 29 million.
Over the past three months, we performed a deep dive on 100% or hospitality exposures in all of our retail exposures with balance is greater than 4 million, which represents approximately 75% other retail portfolio.
This exercise led to the downgrade of 14 commercial real estate loans totaling 153 million of outstanding balances.
Within the real estate loans, we downgraded included approximately 75 million a retail loans in 43 million hospitality loans.
On slide 12, we provide an update on our exposure to several industries that maybe most immediately at risk like over 19.
We're closely monitoring potential exposure within our C are equally folio, particularly retail in hospitality properties, while we believe our exposures underwritten conservatively, we are closely tracking trends in the underlying properties.
Our retail portfolio went into Cove, and 19 with an LTV just below 50% interrupt the second quarter, we saw retail properties experiencing increasing rent collection trends.
You can see rates in hospitality portfolio have been increasing after bottom in April. However, this segment remains challenged due to the impact of coven 19.
On slide 13, we provide an update on our deferral requests deny deferral levels remain flat from the prior quarter as we granted deferral on principle payments for six months on approximately 126 million of loans were 13% the portfolio. All of these clients continue to pay interest on their loan facilities.
At the ended the quarter, there was 217 million or 7% residential loans under federal.
This compares to 162 million last quarter. It changed from last quarter reflects additional request that were not process between our last earnings call in the middle of May since the middle of May we have not seen many new deferral requests thus far clients, representing 80 million of deferrals have requested a 90 day extension. The next critical date for.
Essentially request is August 1st.
Soon after the onset of the Koby 19 pandemic, we proactively reached out to qualified commercial real estate stay clients and established a debt service reserve program that we have previously discussed this program as a portfolio level program intended to provide our borrowers with flexibility to work with their their tenants who represent the primary sources.
Repayment on our loans.
On Slide 14, we review the allowance for loan loss provision for loan loss expense.
This quarter's provision cause our total allowance for loans increased by 25 basis points 222 basis points.
We increased our reserve levels on commercial real estate loans 278 basis points.
Excluding PPP loans, our reserve coverage on see an islands increased 269 basis points.
And the total allowance reserve coverage as a percentage of loans, excluding PPP is 128 basis points.
Total reserve build up 25.4 million through provisioning was primary primarily driven by our increased conservatism regarding the economic outlook.
During the second quarter, we increased the weighting of our downside and economic scenario as our seasonal model is based on a probability weighted composite scenario comprised of 50% Moody's Koby 19 baseline in 50% Moody's S. Three scenario. This compares to weights of 73% baseline and 30% as three.
Last quarter.
On slide 15, we show the private banking segment, excluding the wealth management Trust portion of our bank.
Private banking.
Efficiency ratio decreased to 68% in the quarter driven by higher revenues.
I'll now turn it to Paul Simons to discuss our wealth management and Trust segment.
Thank you, Steve and good morning, everybody.
Slide 15 shows performance highlights for the wealth management and Trust segment segment EBITDA margin for the quarter was 21 per cent compared to 22% in the prior quarter.
The linked quarter revenue decline was driven by low equity market levels on March 31st which negatively impacted second quarter going rates, while lower expense levels linked quarter were driven by seasonal compensation expenses in the first quarter.
The segment demonstrated continued strength in new business, coupled with low client attrition ultimately driving positive net flows of 60 million for the second quarter of 2020 as Anthony mentioned, we regained momentum hiring high quality advisors in the back half of the second quarter follow.
Following a temporary slowdown during the locked down phase of the pandemic.
That concludes our prepared comments on our second quarter 2020 reported results. We will now open up the line for your questions.
Well now begin the question and answer session.
Good question you May Press Star then one and your Touchtone phone. If you are using you speakerphone. Please pick up your handset before passing the keys.
To withdraw your question. Please press Star then to at this time, we will pause momentarily to assemble the roster.
So first question today comes from Michael Young of Suntrust. Please go ahead.
Hey, good morning.
Good morning, one of my.
Wanted to start on you know maybe just some of the asset quality pieces you provided a lot of really good detail, but wanted to just get a feel for you know in the current a group of special mentioned the nonperforming that have already been downgraded our those moral.
Just cash flow shortfalls, and you all don't see a lot of loss content because of the you know ltvs are appraised values are still a pretty high is that kind of the right way to think about that.
Hey, Michael This is Steve I think it's important to kind of take a step back and think about kind of what we've been doing since the onset of cobot.
So if you go back to kind of late March mid March when it became apparent.
You know, what we might be dealing with a we obviously took a lot of time to to go through the portfolio identify those areas most at risk for us that retail and hospitality. So we went through the process of sweeping the entire hospitality portfolio. We looked at every retail exposure and office exposure above $4 million and in retail there.
Covers about 75% of the portfolio in a typical time you know what you're thinking about risk rating, you're looking at updated financial as you're looking at appraisals, you're talking to the client.
And your you're making your judgments based on that obviously this time and what we're dealing with as little different. So we really focused on a couple attributes within within the borrower base. After we did our suite. So if you think about the thing that are probably most relevant to what we're dealing with now pre chauvet LTV that kind of a mark.
In a safety.
As collateral values deteriorate.
We also looked at real time property level revenue trends and sponsors shrink. So those are kind of the three things we looked at and for the data rates a special mention really reflect headwinds in one or more of the attributes that I just listed REIT in most cases pre kobin LTV for us as an area of.
Great just given our conservative underwriting in this environment, obviously revenue trends.
Our among the weaker attributes you know, particularly hospitality rockets rates are down it's putting pressure.
On Revpar.
On the retail portfolio, what we looked at though is at this point about 77% of the tenant base is paying rent.
So we feel pretty good about how that's come off the bottom.
Back in April, but that was really the approach we took to risk rating special mention.
We think we have a good baseline of criticized and classified right now we could see some more downgrades, perhaps next quarter in hospitality portfolio. Just given you know given the headwinds that base that segment basis, but I feel like we had a good baseline right now.
What you'll see going forward, it's kind of your typical movement in and out of criticizing classified as those get downgrading upgraded.
Pay down or shared.
Okay, and maybe as we're thinking about cut future downgrades are migration, obviously, you outlined the most sensitive buckets here in retail hospitality in restaurants, but is it the right to think that.
It's really going to be those that are in deferral now that maybe come out and can resume payment or are there you know credits that maybe werent approved really for deferrals or due to some shortfalls already that are in those buckets that could also.
Negatively migrate go forward.
Yeah. So I think it's important when looking at our risk rating migration is that you keep in mind, we don't take into consideration whether or not alone. It's been a program are on deferral when assigning risk ratings. So we kind of put that aside through our process. It based on the approach I just described that's how it.
Rising at our risk ratings.
So we shouldn't see this cliff effect, if you will that loans come off a program or loans come off deferral and then they become problems where they need to be downgraded we're doing that at a time.
And Michael This is this is Adam I would just add to what Steve said here, Steve quoted the the 77 percentage rent collection were in the high Sixtys with loans that are on deferrals. So it's not like the loans that are on deferral or particularly low those have come off the bottom as well.
Got it thank you.
And then maybe switching gears a I don't know if this is for anthony or or maybe Paul but.
It was good to see the positive net flows again for the second quarter and our ROE here.
Could you maybe just talk about you know.
Well what is going on in this environment right now with customers and client interaction et cetera, and how you're able to drive those.
And just what the outlook is either it sounded like positive trends you expected in the back half. So just maybe a little more color there would be helpful.
Sure I'll start and then maybe Paul.
Well, we'll add something [noise].
So as I mentioned in the in the first quarter.
Call you know one or one of the benefits that we've had from from an environment. Like this is your your clients actually do need to talk to you about more complex things right. If you you're more if you weren't thinking about [noise] business could succession or you know a state planning your wealth transfer strategies I'm not sure.
Because maybe you're sitting at home with your family around here, maybe talking about some things you don't normally talk about <unk> current environment has has probably put some topics on the table. Maybe we just saw US you know naturally differs human beings right. There's just not maybe though the topic you want to talk about and so that's allowed us to.
Actually you know engage with our clients you know that maybe more often more about investments or investment processes into more expanded conversations about there you know their whole financial well being so that's been promote a client standpoint.
I've personally been a means and how well they've adapted.
Sure either you know and video conference you know or are there just a phone call and I think they're being understanding of the current current environment, but I would say that at the moment we are.
Seeing things precede a rather well what I referenced earlier in my my comments about the opportunities that I think it's you know its offering is if you had a brick and mortar advantage.
For the moment anyway.
It's not the advantage it used to be and I think that that coupled with the fact that clients [noise].
Our becoming more and more comfortable where the aid doing things maybe themselves online or being open you know to a different sort of a relationship still having access to great advice and guidance, but also being able to use technology to get done a lot of things maybe they have interact someone to do for them before is going to create.
You know a good opportunity.
And we see that dynamic also playing out in potential talent right if you've been.
At home, a you know working and you've been another big from for last 10, or 20 years, you're probably more open to the idea of making some sort of a have a change in that seem maybe less of a big leap to go to a different from our smaller from and maybe even start your own firms. So these are all things that will.
Already trends in place, we just think bad.
This you know pandemic longer bring you ought to challenges has also accelerated some of the things that we probably yeah. We were going to see anyway. It's just now I think when sped up by about three years, Paul I don't know if you would add anything to that.
No I I think that that covers. This this is an environment that that lends itself to our strikes a as a holistic advisers and we're seeing that and increased engagement.
Strong retention.
Well clients and.
It is a challenge covert does present, a a challenging environment for sort of onboarding.
Of new clients and so so you know we take comfort in.
Continued strength of our numbers for the second quarter and feel good that that trend is going to continue and accelerate into the second here.
One of the things we tried to do during the pandemic is just put out a regular pulse both of our see how our employees are doing but also how our clients are doing.
And it is interesting there during this time period and things like our net promoter score actually increasing right. So even.
At a time period, where you can't Miss <unk> debt in person time to maybe you're getting screen time or you certainly getting phone time that clients are our scores have improved across the board on things that matter most to clients. We review that yesterday in our executive trade meeting, which where I've, which I think is very telling them, but you know you cannot only man.
A time periods like this but you can accurately actually make progress with clients and we're seeing or.
Okay. Thanks.
The next question comes from Chris Mcgratty of KBW. Please go ahead.
Hey, good morning, everybody.
Morning.
Steve maybe start with you. The margin was was was obviously a really strong point in the quarter.
As you kind of matched one for one on a repricing how do we think about a prospective margin maybe they maybe the conversation excluding PPP how do we think about margin and then probably more importantly, how do we think about just dollars of net interest income from the from this quarter's level. Thanks.
Yeah. So I would think about kind of the corn in CPP, Chris we're going to see some margin compression going into next quarter.
And that's mostly due to the fact that we pushed through a lot of the deposit.
Cost reductions.
In the first and second quarter, there's probably another 10 to 15 basis points to move on interest bearing deposit costs as we get through the next couple of quarters.
Then we think we're kind of close to bottoming, although we'll see how the industry reactions, we get longer into this lower for seemingly longer cycle.
And obviously, we're gonna have asset you know.
Builds repricing down so were bit of an asset sensitive.
Position at this point, so that's where you're going to see kind of core NIM compression, probably five to 10 basis points and that also depend on our ability to maintain the on balance sheet liquidity that we've seen through the second quarter quite frankly.
You know thus far in the third quarter from a dollar perspective.
Because of P. P. I think you can see Eni flat to up slightly next quarter and that's really a function of the fact that we really didn't start amortizing the P.P.P. fees until may and even in May I think the only got about half of the impact in that month, so the only month with a whole.
Active amortization on PPP always June so I'd expect you know eni flat to slightly up as kind of ERP you offset some of the core NIM.
You know accord in contraction that we anticipate.
Okay. That's helpful and just can you remind us the fees that are yet to be a realized and also should we just assume a kind of us straight line or are you guys kind of for it.
Yeah. So it's a 11 million to fees krish straight lined over 24 months.
So that's the monthly rate to using your modeling.
Got it Okay, and then I want it and want to turn to expenses from for a moment.
You talked about how you were within your guide even with the unfunded build up how do we think about.
Putting the comment that Paul and Anthony talked about with hiring into the into the environment that we're in terms of expense Bill.
Yes, I would think expenses linked quarter going into third quarter should be down.
500000 to a million and that's really you get some pickup obviously from the off balance sheet provision going away. But then you have the offsets being investment in technology and hiring so that's how to think about expenses for third quarter.
Okay.
And then maybe last one on the.
On the tax rate, how do we think about a tax that was.
So.
<unk> tax rate is tricky in this environment, given kind of where earnings have been.
I think for the full you were modeling attacks predator of 20% to 25%.
That's going to move around a lot, though depending on where pre tax income shakes out for the rest of the year. So I'd like to give you a more definitive answer just when you get to these levels of earnings the tax rate moves around pretty wildly.
Yep understood Okay. Thanks.
The next question comes from Alex Twerdahl type person there. Please go ahead.
Hi, good morning, guys.
Morning, running out [noise].
First off just wanted to go back to the to the commentary on on Boston private wealth I. Appreciate your comments on the momentum in the pipeline for hires and customers et cetera, but maybe just to ask it a little bit more bluntly you guys had a strategy to grow at U.M. to about 50 billion over the next couple of years that was suspended last quarter I, we back on track for that part.
<unk> or is that still suspended target.
No as I, you know I think I addressed this in a in Q1, but I'm happy to go.
To go through it so you.
When we look at it our our wealth business.
One of the they've been key area to grow it was a.
Taking our existing business and expanding it right. So we looked at a 50 billion dollar number we thought but 16 or with existing clients can get to 23 or 24 billion. We thought we would hire a the next 15 billion that really requires bringing in 10 to 12 really high quality people a year over.
Four year period.
In the area, where we have slowed down we'll have to replace it with hiring is really we thought we would be able to to acquire a eight to 10 billion of.
Okay veered smaller firms five 5 billion and signs are at or one from 10 billion in size given the price movement in some of those assets. We've we've.
Not turn we turn our attention sort of away from that and focus just on on hiring sort of piece that comes into the question is a 10 billion that we were going to acquire mainly because we're just put off by a you know some of the prices.
To accomplish side and we focused on on hiring so we haven't.
You bet 10 billion dollar pieces, a piece and question you know we were slow down because of a pandemic.
But we've seen conversations now accelerating accelerating as Paul said, particularly through the back half a second quarter and so you know the original piece that we thought we could hire our way into we're still committed to.
Okay, and then you know with some of the hires that you guys had already brought on sort of at the end of last year.
You know and some of their momentum.
Do you foresee kind of a.
I don't know if it's a flood gate opening or some event or some quarter, where we're going to really start to see a when build as a result of hiring a customer acquisition.
That is certainly the plan and when we looked at Pall, probably comment a little bit more on best for weeks. When we look at some individual hires we've made they're actually ahead of plan.
You know, there's some noise as we continue to sort of addressed the business, but when we look at individual hires you know we normally expect them. If we hire the right people within a 12 month period of so they'll bring in 302 or 350 million to you and and we've seen you know a couple other folks we've hired actually be on a better pace than that.
Okay, and then I'm back to the question on the downgrades, Steve Great color I think you talked about 75% of the portfolio has been reviewed at this point.
Everything over $4 million is there an expectation that the other 25% would be reviews and I reviewed in subsequent quarters and could result in additional downgrades.
Let me I just clarify so all of hospitality has been reviewed Alex on on retail and office, it's anything above.
4 million I'll I'll ask Jim to comment on.
How he thinks about the remaining part of the portfolio.
And the approach we took in who'll give you his thoughts on what we can expect in coming quarters.
Yeah, Thanks, 100, but just to be clear, 100% of the loans over $4 million.
I've been reviewed in retail <unk> hospitality, <unk> and actually office as well, we just didn't see the same weakness and office that we did and retailer hospitality, but.
Every other <unk> you know every other alone is still reviewed the same way, we would always review loans, but we really took.
A much much higher degree of review for all the loans over $4 million because obviously, that's as Steve said, that's where 75% to the exposure is in <unk> and I would say, probably a higher percentage than that in terms of loss exposure.
Okay. So and then just can you remind me for the other sort of the rest of the portfolio that did I get reviewed annually.
Oh I mean, we're looking at everything quarterly at this at this point, but under ordinary circumstances, you would review loans annually yeah.
Okay, and then just as it relates to the reserve you know I guess and under the old model an increase of special mentioned would result in an increase in the reserve you attributed most of the reserve increase this quarter.
To just the I'm the changing waiting in the scenarios. So I mean, how should we think about the reserve level.
I'm here it seems like some of the buckets certainly had very healthy reserve you know if the scenarios don't change meaningfully are you done with the reserve build at this point.
I think for the most part Alex the Big step up in reserve building has been done in the first half of the year.
You know obviously, we took the opportunity this quarter to reevaluate the economic forecasts change the waiting.
Really the reason why we changed the weighting is when we went through the narratives that Moody's provides the baseline basically had the U.S. economy reopening uninterrupted in the forecast in just based on what we're seeing in all markets in what we're seeing more broadly we thought it made sense to.
Oh wait that downside scenario equal to the baseline I think its level of conservatism. There as you mentioned you look at the loan level tools.
I think we've built up reserves seemed appropriate place. So on a go forward basis, we should get back to.
You know your traditional.
Provision and allowance build kind of tracking loan growth and charge off levels again, if there's a big downgrading the economic environment that'll have an impact on on allowance, but we think we've we've done a good job.
Conservatively in appropriately building allows in the first half of the year.
Thank you for taking my questions.
Thank you.
Again, if you have a question. Please press Star then one and next question comes from Christopher Marinac of Janney Montgomery Scott. Please go ahead.
Hey, Thanks, good morning, I'm, what I'm without the a unrealized security gains that you have and would you consider utilizing them at this point I'm just curious if that's an option for you going forward.
Yeah, we typically aren't active sellers out of the portfolio, Chris will do it from time to time, if it makes sense.
As you can imagine redeploying that cash is difficult in this environment.
We think we have ample capital we when we look at our capital with our allowance build that kind of 12.3% C. E. T. One plus a trip allow you feel really good about where we're from a capital perspective.
We don't think we need to be opportunistic and building capital by selling securities on the portfolio.
Did decelerate it all into your dividend discussion this quarter and that's sort of curious if you could have bought yourself another quarter or to maybe it's moved its dependent it gets worse just curious I thought about that.
Yeah. So we I mean, when we thought about the dividend obviously, we run.
A number of different stress scenarios.
To test earnings levels as well as capital.
And you know we marry that with what we discussed that are in May 2019.
[noise] analyst day, where we talked about kind of normalizing that payout ratio closer to 30%, which is typically where you see.
You know companies our size operating at a <unk> and we are taking all that information together looking at the earnings trajectory that we think can materialize kind of in 2021 in 2020.
And understand the risks in our horse in our portfolio, we think that six cents per share is a good number.
We don't tickets at risk a and obviously if things get better quicker you know, we can always increase that dividend. If it makes sense, but that was really how we thought about dividends decision going into the quarter.
Okay, Great and then I guess just a final question back of the portfolio. I mean is there any sort of testing do you envision. The next couple of months in terms of the LTV is where perhaps alone to sold in the marketplace or that you de risk and you know test those values I'm. Just curious if you feel that those ltvs or defendable.
Well, obviously those ltvs that origination you know pre coded those will change obviously, there aren't a lot of reference points as you can imagine there's just not active there's not active capital markets activity in commercial real estate at this point.
But the reason why we point out those LTV not that we think those are the LTV today per se, but I think it does illustrate that.
At the origination.
The underwriting very conservative there's a lot of margin of safety. So for an order for these properties to be underwater.
We need to see kind of significant deterioration in collateral values, and we'll probably see that sort of asset classes.
But we see you feel like we're pretty well protected based on the underwriting going into this crisis.
Great. Thanks for taking my questions appreciate it.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Anthony tell us for any closing remarks.
Thanks, and thank you all for joining us today.
As indicated in our remarks, we expect the current dynamics of the.
The current environment.
To persist for the balance of the year offering both challenges and opportunities, which we are confident we will continue to navigate well.
We look forward to updating you on our next call in the meantime, we wish you all well and navigating what I'm sure our your own set of unique challenges and opportunities.
I wish you a great day, and hope that you stay safe. Thanks.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.