Q2 2022 Eastern Bankshares Inc Earnings Call
Cup of coffee.
[music].
Yes.
Hello, and welcome to the Easter Bancshares, Inc, second quarter.
Earnings call first call today's call will include forward looking statements, including statements shallow eastern and future financial and operating results outlook business studies and plan as well as other opportunities and potential risks that management foresees such forward looking statements reflect management's current estimates.
Our release and are subject to known and unknown risks and uncertainties that may cause actual results or the timing of events, Steve for materially from those expressed or implied in such forward looking statements Easterners I referred to the East Coast Port.
I'm sorry under the caption forward looking statements in the earnings press release, that's why as the risk factors and other disclosures contained in the company's recent signings.
And it comes from.
For more information about such risks and uncertainties.
Any forward looking statements made during this call represent managements views.
Absolutely.
While the company may elect to update forward looking city, thanks for that in the future.
Please proceed with your case any relation to do so even if management's views already seeing much change and you should not rely on such statements as you mentioned Mark Schmitz use.
Any leaks sampling.
During the call. The company will also discuss certain non-GAAP financial measures.
Reconciliations of such non-GAAP financial measures.
Comparable GAAP figures.
The company's earnings press release.
At Investor that eastern Mac.
Please note this event is being recorded.
All lines have been placed on mute to prevent any background noise with British meter as much there will be a question and answers.
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Okay.
On the call over to Walgreens.
Yes.
Great well, thank you Sergio and good morning, everyone and thank you for joining our second quarter earnings call of 2022, joining me today is Jim Fitzgerald, our chief administrative officer, and Chief Financial Officer.
Our results during the second quarter continued to be strong, reflecting the benefits of investments we've made over the past year to strengthen our franchise within one of the most attractive markets in the United States.
Despite the uncertainty brought about by Covid and the shift to remote work the impacts of higher higher inflation and the specter of recession Greater Boston is considered by many to build among the best performing office markets in the country bolstered by a high diversity of industry sectors relatively low.
Reliance on large tenants and the tailwind is a strong demand the life Sciences space. In addition to the financial leverage generated by the century Bank acquisition eight months ago, the effects of which are reflected in our operating net income for the quarter, which was 42% higher than the prior quarter.
We're seeing early signs that recent staffing additions to enhance our commercial lending capabilities are contributing to commercial loan growth net of PPP loans, which accelerated to a 10% annualized rate in the quarter.
Since most of these new hires joined us in the past few months, we have yet to realize their full production potential and we believe they're joining.
Our already highly talented team bodes well for the quarters ahead.
Some of these new additions of senior leaders, who also bring added expertise in networks within emerging areas of our commercial lending activities. These expanded capabilities further add to those in the higher education and healthcare sectors, which we acquired through the century transaction and in which we are gaining traction as well.
As we have stated in the past given these factors and continued strong pipelines. We believe we are still on track for a high single digit growth in our commercial loan portfolios for the year.
Residential and consumer lending balances also grew sequentially at double digit rates on an annualized basis, reflecting the solid greater Boston economy, and our own increased emphasis on driving higher growth in these categories. In addition, due to our long standing discipline with respect to deposit pricing in the face of rising.
Interest rates are already low cost deposit base of just six basis points actually declined by one basis point during the quarter, resulting in our net interest margin widening by 21 basis points, our largest single expansion in a quarter since 2018.
Net of the transfer of about $300 million in cannabis and money service business deposits in early April our total deposit balances increased slightly during the quarter and as of quarter end was comprised by almost 60% by checking account balances and 98% by core deposits.
We continue to be thoughtful about our branch locations and how they can expand and strengthen our strong deposit franchise and community outreach. Most recently, we opened a branch in Needham, Massachusetts, which complements our network and Boston affluent western suburbs overall.
Overall, after taking eastern public and completing the largest acquisition in our long history, while supporting our customers and communities in the midst of some of the darkest days of the pandemic. We believe we are beginning to hit our stride and driving greater operating performance and delivering value to our shareholders as always these results.
The hard work and tremendous commitment of my 2100, eastern colleagues with whom I have a privilege to work at home I think for all they do every day to serve our customers our communities and each other.
Once again, thank you for joining us today and for your interest in Eastern and now I'll turn things over to Jim for an in depth review of our financial performance and our outlook for the remainder of 2022.
Thank you Bob and good morning, everyone as Bob mentioned, we're pleased with our second quarter results. We think they demonstrate very strong earnings momentum and include many of the benefits. We had projected from the century transaction last year as well as the positive impact to our net interest income from higher interest rates.
The outlook for interest rates has changed from our last call and we've updated our outlook based on those changes and we'll also talk how the outlook impacts our interest rate risk management later in my remarks.
Net income was $51 2 million for the quarter or <unk> 31 per diluted share.
Operating net income was $52 5 million or <unk> 32 per diluted share Opra.
Operating net income for the second quarter was 42% higher than the same quarter of 2021.
Net interest income was very strong in the second quarter rising 8% from the prior quarter.
The net interest margin increased 21 basis points from Q1.
Higher rates improved our asset yields by 21 basis points and our cost of funds was essentially unchanged from Q1.
We also had a strong quarter of loan growth in all of our major portfolios with commercial loans up 10% quarter to quarter, excluding PPP loans residential mortgages were up 11% and consumer loans were up 13%.
Each of these percentages are on an annualized basis.
Our board approved a dividend of <unk> <unk> per share payable on September 15th to shareholders of record on September 2nd 2022.
We repurchased $4 2 million shares under our share repurchase program in the quarter.
Up from $2 9 million in Q1 the.
The average purchase price for the shares excluding commission costs was $19 24.
In the second quarter.
First I'll make some comments on the balance sheet assets were down $500 million from $22 8 billion to $22 4 billion in the quarter as deposits were lower by $200 million.
This was due in part to the transfer in early April of the cannabis and money services deposits, we acquired from century.
Cash and securities were down 800 million offset by loan growth of just over $200 million.
The securities portfolio was down $287 million, primarily due to lower market values.
All major loan categories were up for the quarter commercial loans, excluding PPP loans were up $219 million or 10% annualized residential loans were up $53 million or 11% annualized and consumer loans, driven by home equity loans were up $43 million or 13% annualized.
PPP loans were down $99 million in the quarter and the total PPP portfolio only had $42 million remaining at June 30.
As mentioned above deposits were down $229 million in the quarter, which reflected the transfer of the cannabis and money services deposits of $300 million in early April average deposits were down just under $500 million in the quarter, which we outlined on page 12 of the presentation and also reflect the cannabis transfer.
Shareholder equity decreased $289 million in the quarter due to the impact of the reduction in accumulated other comprehensive income and share repurchases in the period, partially offset by an increase in retained earnings.
Turning to earnings as I mentioned GAAP net income was $51 2 million or <unk> 31 per diluted share and operating earnings were $52 5 million or 32 per diluted share.
We feel our results reflect very strong progress in many key areas.
Net interest income of $137 8 million was $9 6 million or 8% higher than Q1 and benefited from the increase in interest rates in March and in the second quarter.
Asset yields were up 21 basis points in the quarter and quarter over quarter and funding costs were essentially unchanged.
Our deposit costs were six basis points in the quarter down one basis point from Q1.
This combination of higher asset yields and stable funding costs allowed our net interest margin to expand by 21 basis points from two four to four 2% to $2 63%.
The provision for loan loss was $1 1 million in the second quarter compared to a reserve release of 500000 in Q1.
In our release of $3 3 million in Q2 of 2021.
Noninterest income on an operating basis was $48 million in Q2.
Insurance revenues were $24 7 million in the second quarter up 4% from the prior year quarter.
And down from $28 7 million in Q1, which is when we receive a higher portion of our revenue sharing payments from insurance carriers.
Other operating line items were generally in line with either the prior quarter or prior year.
The value of Rabbi Trust assets was down $7 3 million due primarily to declines in the stock market.
This was partially offset by $1 3 million in gains from building sales, which resulted in non operating noninterest revenue of negative $6 1 million.
Noninterest expense was 100 <unk>.
$11 1 million in the second quarter on an operating basis noninterest expense was $114 4 million compared to $110 9 million in Q1, due primarily to an increase in salaries and benefits expense we.
We had a full quarter of expense for the equity plan in Q2 compared to one month's expense in Q1 and.
And a slightly higher incentive compensation expense compared to Q1.
Occupancy data processing and professional fees were all slightly lower in the second quarter compared to the first quarter and were partially offset by increases in marketing expenses.
I will include a few comments later in my remarks on the outlook for expenses.
The tax rate in the second quarter was slightly higher than Q1, and we provide guidance for the full year tax rate on the outlook slide.
Our marginal tax rate is higher than the average tax rate and as projected earnings increase the average rate will increase as well.
Asset quality continues to be sound for the first half of 2022 charge offs were essentially equal to recoveries and both were very very modest.
Covid monarch.
Excuse me Covid modifications continued to perform as expected and are down to approximately $20 million.
There was an increase in nonperforming loans of approximately $25 million due to a movement to non accrual and one syndicated credit facility.
The credit facilities and work out and we're optimistic it will be resolved without a loss over the next few quarters.
Away from that one credit there was very little change from Q1.
As I just noted the provision for loan loss was $1 1 million compared to a release in Q1 of 500000.
Even with the increase in Npls the ratio of reserves to Npls remained above 200%.
I wanted to review our outlook on page 16, and make some additional comments.
Last quarter, when we provided our outlook for 2022, we had incorporated $7 25 basis point increases by the fed in our forecast.
We are now assuming an upper bound for the fed funds target of three 5% by year end 2022, which we believe aligns with the consensus view.
With that rate forecast, we would expect net interest income of $570 million to $590 million in 2022.
This is up from the prior outlook of $530 to $550 million.
An increase of $40 million.
As we outlined on page 14 of the presentation. The current rate environment creates some different dynamics than we've had over the last three years. The increase in rates is clearly, helping our net interest income.
As I just outlined we expect that to continue throughout the rest of the year and into 2023, where the impact will be felt for the full year assuming rates remain relatively unchanged in 2023.
The combination of higher rates are naturally asset sensitive balance sheet and general economic uncertainty requires to start protecting for downside rate scenarios.
To that end, we initiated a hedging program in Q2 to convert $1 billion of our variable rate assets to a fixed rate and would expect to do more of that in Q3.
I wanted to note there are two primary drivers of our asset sensitivity. The first is our low cost non maturity deposits that are long duration liabilities and the second is our high level of variable rate loans that have short term repricing integrals.
We have historically used balance sheet swaps to reduce our asset sensitivity in a very comfortable continuing with that strategy.
There is no change in our guidance on net noninterest income from last quarter, as we still expect $180 million to $190 million for 2022.
We did change our overdraft practices starting on July one that we previewed last quarter and that reduction is included in this guidance.
There is no change in our operating non interest expense guidance as we still expect between $445 and $460 million for 2022.
As expected we are watching wage inflation pressures carefully.
We have taken some recent steps to increase wages for many of our branch operations colleagues to help retain and attract workers. We also experienced wage pressure when we recruit for replacements.
But we are still comfortable with the expense guidance, we provided earlier in the year.
As I mentioned previously we expect a slightly higher tax rate for 2022 due in part to higher earnings levels.
We had a very strong quarter for loan originations on all of our major portfolios in Q2.
We continue to expect commercial loan growth to be in the mid to high single digits over time.
Although as you can see from our Q1 and Q2 results it can be a little volatile quarter to quarter.
We expect this growth to be more visible now that PPP loans have a relatively small impact.
We do expect that over time higher interest rates and a potential weakening economy may impact our commercial loan growth expectations, and we will update as we see any changes over the coming quarters.
We have been interested in reducing the size of our investment portfolio over the last year.
After considering a few options we have entered into a flow agreement that enables us to purchase residential loans from embraced home loans and.
Embraces located in Rhode Island, and has processed our originations and supported our mortgage efforts since 2016.
The flow arrangement provides a means for us to purchase a portion of their originations for our balance sheet.
We have started the process with a goal of redirecting the securities portfolio cash flow of approximately $80 million a month into loans.
We don't expect too much of an impact to our balance sheet in Q3, but we will provide an update on progress as the year progresses.
Our expectation is that we will see a reduction in the securities portfolio and a similar size increase in the residential loan residential mortgage loan portfolio as the program develops.
We expect the deposit environment to get more challenging as the year progresses, although we didn't experience any deposit cost increase in the second quarter, we expect cost will begin to increase.
We did see our average deposits declined quarter over quarter and expect volumes to continue to be challenging.
We're close to completing the 5% share repurchase authorization that received regulatory approval last November .
Future repurchase activity beyond that is subject to regulatory approval and if approved would be based on market conditions.
We'll continue to be very thoughtful about our use of capital.
Thanks, Sergio we're ready for questions.
Thanks, Jim.
At this time I would like to remind everyone in order to ask your question Krish Star then the number one on your telephone keypad will last for you.
To compile the queue grocer.
Your first question comes from Janet Lee.
From JP Morgan.
Your line is open.
Good morning.
Good morning, Jonathan.
I wanted to start with.
The deposit data.
I understand the historically low deposit beta for you guys.
Sort of around 18%.
Interest bearing deposit beta in the right ballpark for what you guys experienced in the prior rising rate cycle.
Would you expect your terminal interest bearing deposit beta and both cycle to be behave any differently vessels that tier one.
Sure and good morning, Jonathan.
The catch up with you I think.
Okay.
Back in time precisely when we did disclose our historical deposit betas was slightly was in the 20% I think it was slightly higher than the number you referenced but very similar.
And that was from the time period is basically 2015 or 16 through the end of 18 or into 2019.
And the beta was in the 20% range at that time, the one thing I always want to note about that is 2019. The fed reversed course actually started to lower rates and then the pandemic happened in 2020. So there was a huge acceleration so inter.
Internally, we feel like that's a little bit about optimistic number quite honestly, because if rates continue to rise.
Beta would have been higher so for our internal purposes, we assume.
A higher beta than that historical number roughly 150% of that.
Okay is that what you're assuming for a terminal or whats you are assuming.
2022.
Sure.
Ed.
Its terminal you might have to define for me since I'm not clear what you mean by that.
So would you expect 150%.
Interest bearing deposit beta regardless of higher like 20% range and that being achieved by the end of 2022 or that all flows.
Flows grew.
Mid 2020.
So basically beyond the end of 2012.
Sure.
Alright, thanks for clarifying so I think.
We're in July of 2022 in the second quarter, we didn't have any increases so I don't expect that to be in.
In place by the end of this year, we use that 150% of that 20% beta as really over time so.
We would extend well past 2022 rigs moved very quickly here, it's pretty hard to calibrate those kind of calculations in the short term.
Okay.
And on your asset sensitivity or as you're trying to reduce that to protect from potential downside scenarios can you give us an update on your NII sensitivity in terms of how.
How much.
NII you would get from let's say, a 25 basis point rate increase.
Funds.
So.
We're about to do our 10-Q next week, we'll have information in there.
We would do we do a number of scenarios that one isn't one of them.
So I don't think I can answer that question, but we will provide the normal disclosures in the 10-Q next week.
Okay.
And on.
<unk>.
So I get that.
Getting more challenging to grow deposits.
Right.
It looks like you guys still.
Managed to grow deposits modestly.
Period end basis.
Why that 200 million candidates deposits.
So how should we think about sort of the magnitude of the decline in deposits.
The back half of 2022.
And how should I think about the mix of Merrill Lynch.
Deposits to total going from the current 35%.
Right.
No.
Timely question I think a few responses I'd give janet.
Eastern history has been a great deposit gatherer right. If you look at our cost of funds and you look at our deposit growth over really an extended period of time I think it compares very favorably with our peers in the industry.
It said deposits are.
There has been a total change in deposits over the last month or certainly two months and.
We had great deposit growth as did the industry in 'twenty 2020 in 2021, and clearly we're going to see some of that be challenge. So it's hard for us to know exactly how that's going to play out but we did signal. We don't think the deposit growth that we've had historically is going to be a great measure for the next period of time deposits are going to be tough.
To grow we believe.
Our deposit mix, which we look at in total not just any one particular category is quite strong as interest rates increase we do see what we would consider deposit mix shifts from some of our transaction related accounts into more.
Interest sensitive accounts like money market deposit accounts for example, so we do expect that shift to occur it has in previous cycles and the reasons for our kind of obvious right as rates are higher people pay more attention to that and that's factored in.
Outlook that we gave for net interest income and we would expect that to continue beyond 'twenty two as well.
Okay.
And last question on loan growth.
The color you gave on agreement that that was helpful.
So is it fair to assume that the Bradley.
<unk>.
In the back half of 2022 mines.
So down a little bit versus what you experienced in the second quarter and then <unk>.
Can you growing that consumer balances and will maintain this pace.
During the back half of 2022, how should I think about the overall.
Residential and consumer loan growth for full year 2020.
Sure. So let me just theres a lot let me unpack it a little bit on it one step at a time, so I'm going to start with home equity and.
Like many in the industry, we saw very strong growth in home equity product in the second quarter.
It was great to see.
We feel like we're tracking maybe not for the high growth rates that we had this quarter to continue but the growth in dollars to continue.
That's a relatively small portfolio, so the 15% or 13% that we had was off a relatively small base, but we do expect continued.
Progress in the home equity portfolio, the percentages I would direct you more towards the dollar growth in the percentage of growth in that particular category for that reason.
Break down the residential portfolio into two components going forward.
To this point and we haven't had.
We've just initiated the arrangement with embraced so thats not in any of our historical numbers. The growth that you saw in residential loans in the quarter than what we had in the previous quarters was all from our organic origination team series turn.
<unk>.
Emily I think the growth rate may come down a little bit, but the dollar growth that we saw in the second quarter is something I think we think is sustainable for the rest of the year.
Embraced would be sort of a new category as we get going we will make sure thats easy, we'll try and make that easier to understand that will also show up in residential loans.
But in terms of pegging growth I'd look at the securities portfolio cash flow. Our goal here is to kind of redirect those cash flows away from the securities portfolio into the residential loan category.
So that's so youll see more growth in the residential loan because of that but that will be driven by the embraced relationship and as I said as we get going it doesn't have an impact. We've just started literally in July it takes a while for the applications of flow through and become origination. So as we get closer to the third quarter, we'll try and be true.
<unk> on that so that you can see that.
Okay, great. Thank you.
Thank you.
Okay.
Your next question comes from Fitch Steven your.
Your line is open.
Good morning, guys Happy Friday.
Hey, Mark.
First I was wondering if you could you could share with US Trust and investment advisory revenues held up really well this quarter and I am curious, where AUM stands and what your flows look like this quarter.
So mark good morning, how are you Jim.
AUM is down I don't have the precise amount that it's down.
So you are known and anticipated that question and I think there's a couple of things that happen. There is some timing things about when fees are charged and we don't see anything different than what you would expect in a speech.
AUM is down not as much as the market because there is.
Fixed fixed income assets in there et cetera, but the fees are down a little bit quarter to quarter and.
Our own internal view that that was in line with what we expected they werent growing up and told the market reversal at the end of the year. So there was a little bit of a catch up in some of that and we do have some trust assets that are a little bit less sensitive to.
Market moves then then the asset management side of that but we didn't see anything there that was surprising to us.
Okay, and then secondly, Jim I'm wondering if you could give us any more color around that snick that went non accrual sort of what industry. It was any what the collateral backing it looks like.
Timing on resolution.
Sure so.
As you've mentioned, it's a syndicated credit we're a participant it's local.
It's in workout workout as always take a little bit more time than anyone would like but we believe that workout process will happen. It may take a couple of quarters, but it will be resolved and we don't anticipate a loss.
Okay and then last question I had is I wonder if you could just give us a little more detail on the relationship with embrace home loans.
I assume you've given them kind of the types of loans that you want to buy what sort of pricing arrangement. If you made with them for the loans that you flow.
Sure and just for those for those on the phone who arent aware of this relationship embraces.
And then independently owned mortgage company in Rhode Island, we have outsourced our process. So we outsourced our processing to them back in 2016 and has been a very successful relationship.
We have what we would call our risk acceptance criteria for a mortgage loan products. We've provided that to them. There is a limitation on states that will accept originations from.
But the goal is to make and make it look and feel as much like an eastern originated product as possible from a credit perspective.
We are in some states that we don't do business in today, but most of those are very close to home.
And pricing Tim.
Oh, I'm sorry, yes, so it's priced theres, a daily pricing formula based on.
Federal home loan bank rates with.
With a spread and there is a premium paid to embraced for both the interim.
Interest rate and also we are servicing the loans here at eastern.
Thank you.
Thank you.
Your next question comes from Laurie Hunsicker.
Tom Tom Disappoints Research your line is open.
Great. Thanks, good morning.
Good morning, Jeff.
Dang with them great tier.
So this is a national footprint you said most of it that will be focused in new England.
Mike.
Yes, the east coast Laurie so.
There is a number of states beyond new England, but it's generally speaking all and it's all in the east coast and generally speaking closer to home close to home.
But not but not just new England.
Great. Thanks, and then what is the FICO, you're targeting and what is the FICO in terms of how low you go.
So as I said there is we have what we call our risk acceptance criteria. Its the same criteria that we use for own origination. So theres no no change in credit appetite here or anything like that in some ways, it's a little bit tighter than our than our own criteria.
The expectation and belief and confidence is that these originations the credit quality will look like our own portfolio absent. The fact that they're not just from Massachusetts as I said earlier.
Okay. So your average tanker then.
Probably I don't have a complete refresh number but then that puts you in that mid 700.
757, <unk> is that right.
I don't know the answer to that question Laurie.
Can follow up but the credit credit credit quality of our residential book.
Is quite high we.
We can follow up with some particulars on that I don't know it off the top of my head.
Okay, Great and then just just one more question on that is there a plan to also capture the customer capture the deposit relationship or how do you think about that.
So as I mentioned were servicing the loans. So we would have that customer relationship.
We're in very early days here very early beginnings of the program. So we will try and figure that stuff over time, but we will be servicing the loans and have the relationship from that perspective.
Okay, Okay and sorry, just last question is how much do you plan to add in the next year or so on that.
Yes, I think.
As I've mentioned, a couple of times and really over a couple of quarters, we have.
The cash flow from the securities portfolio is about $80 million a month.
Our initial plan here is to just get started let's see what happens make sure. It's working well for both ourselves and embraced as I said earlier, we have a strong partnership with them. So it's important that works for them and works for US I think our expectation is we would let the scope for the next couple of months, maybe through the end of the year and we would reevaluate and obviously embraced <unk>.
Have to reevaluate as well.
Got it got it okay.
And then jumping over to your net interest income within your $138 million and net interest income how much of that was accretion income accretion income.
Yes.
Okay.
Very little Laurie I think I remember this conversation back when we closed the century transaction.
And the overall impact on an annualized basis in the early years post century was less than two or $3 million. It's a very small number.
The annualized impact.
The accretion of the marks let me be more clear.
Yes.
King.
The reversal.
No.
If I look at your margin then just ex PPP.
Because you had 11 basis points in last quarter and five basis points on PPP that's quarter to your core margin was really up 27 basis points.
Just a remarkable can you help us think about especially with the $1 billion hedge that you just had on how we should be thinking about margin just as we look to September and I certainly appreciate the guide that you've given us.
This just some moving parts it would be super helpful that to kind of understand that piece. Thanks, Tim Yeah, Okay sure Laurie.
I'll try.
As we outlined in the outlook, we do see a very nice increase from what the prior outlook was $40 million for this year.
You look at our margin there were it was it was confusing in part because of century and also PPP as you mentioned.
The increase from $2 42 to $2 63.
We would.
We don't have a number for what we would expect that over the second half of the year, but we do see continued improvement in it and I think one of our strategic challenges as we've talked in other calls is to improve that margin. So we're very excited by that and hopefully the guidance on the net interest income itself can help you with that.
Those calculations.
Okay.
Yes, I can back into that okay. That's great I appreciate your guidance.
Finally can you can you just give us a little bit of a refresh on.
What's sort of the warning signals starting to flash, where we stand on offense.
In terms of how you see things like your balance is there any details you can give us and then same question on leverage lending can you give us a refresh on those two categories.
Sure.
Sure.
So our office portfolio is a little bit these are outstanding a little bit less than a $1 billion.
Okay.
That's made up of three major sectors. There is medical is about $100 million of that medical offices.
Are things that are a combined retail office or about a third of it and the residual amount is which you would think of as office space.
We do very little.
Office space in Boston proper.
So theres very little in Boston itself, we have and we do with all of our portfolios very extensive reviews.
And in this particular climate, we did an office review just here recently I think the things that we would say about it at our I would say after.
That review is.
And I've said this a lot when we were talking about Covid modifications, we have a very great customer base, we deal with very good sponsors we work very hard to get those clients. So when we review our office exposure. The first thing we feel very good about is the people we've done business with as I said our clients. They are really great sponsors we work very hard.
To retain those relationships so.
It's obviously an area that's under a lot of.
We're watching very carefully but as we did those reviews, we felt very good about our customers and their ability there and.
When we think about our overall exposure as I said.
Not just office itself, it's those three sectors. So.
Reasonably good diversification from that perspective.
Leverage lending we don't.
Yes, just.
Leverage lending, we don't have a separate.
Leverage lending group, we obviously support customers, who do things like acquisitions and take on additional leverage to do some other business objectives, but we don't have a specific leverage lending group.
So it's difficult to give you any.
That's not something we're.
Oriented to do in the way that you asked the question.
Okay. Okay, and then just on office do you have an updated LTV there.
I don't the Ltvs are ltvs, we do disclose in our public documents there Rob.
We think very appropriate and the office would be very similar to those.
Okay, Okay, Great and then Bob just one last question.
Thank you if you can talk a little bit about your M&A appetite here, how youre thinking about things obviously this century.
Very well, but interest rate marks are very painful on a on a buyers' tangible book can you just refresh us in terms of how you view M&A currently.
What youre seeing out there what makes sense to you.
Yes, sure. Thanks, Larry I mean, certainly.
We're very interested in any opportunities that might come our way, we're ready to engage show organizationally and undertake those.
As they arise certainly.
Going to evaluate each opportunity on its financial merits.
Whether it be the impact of interest rate marks impact on any dilution to our tangible book value, we're very careful insensitive to so again.
We'll evaluate them as they come across but certainly we remain interested in engaging those conversations but for now.
We're really encouraged that we have this opportunity to really lean into our organic results. We've been building the engine here, particularly in the commercial lending.
Groups, you can see the results of those starting to pay off.
So we're very excited about our prospects.
In that regard and really after a period of a couple of years, where we were very busy with both the IPO and the integration of century to really have a year that thats cleaner, if you will to.
To focus fully an entirely on continuing to build the organization's capability.
<unk> is really just a tremendous opportunity for us and one that we're taking advantage of.
Great. Thank you for taking my question.
Sure. Thank you.
Thank you.
Your next question comes from Damon Delmonte from.
<unk>.
Your line is open.
Hey, Good morning, guys hope everybody is doing well today.
Good morning, Good morning, just I am doing great. Thanks.
A lot of great questions asked and answered so just a couple a couple of follow ups here.
Credit obviously remains strong absent the one shared national credit that moved into nonperforming status, but as you kind of look at the.
Some of the underlying trends.
Boston market in New England market.
How are you feeling about provision level going forward.
You feel that you're going to be able to keep it similar to this quarter's level or do you think youre going to need to start to incorporate some measure of.
Factors related to economic uncertainty and I know you haven't adopted seems like yes, I know that comes up at the end of the year, but just kind of what your thoughts are.
Sure just one technical thing we did adopt Cecil.
January 1st of this year.
My mistake.
Nope Nope north.
So I think I'm going to answer your question I'm going to break it into two components I think.
Let's see saw seasonal second right I think our view of the local economy, and where we have learnt.
We feel cautiously optimistic about obviously, there is uncertainty and volatility.
In today's market more so than there was certainly six months ago.
But.
Boston is doing very well, we think our position the way that we blend our history our customer base.
It is really strong.
And Ken.
Continue to do very very well.
The fact that it's likely to get a little bit more volatile. So we're cautiously optimistic that that said we read the same publications everybody else reads and are certainly aware of recession fears et cetera, and we tried to weave that into our outlook as well.
On the fundamental credit side I think we feel very good. We're always everybody is always worried about credit for all the right reasons.
We're watching it very carefully as we've talked about on the office portfolio in particular, but we do feel very good and as I reaffirm we feel very good about our customers in that space, we have great staple of.
Leading customers in our market I think in terms of the provision and sea salt, it's a little bit hard to say as you know seasonal starts with an economic forecast the forecast that we used and I think most banks use for this quarter expected a slowdown but not a recession.
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How that forecast evolves into the third and fourth quarter.
And that that forecast comes from outsiders, it's not an internal forecast.
So I think it's a little bit hard to say, we do feel like our underwriting statistics, which play a role in those <unk> models are very very prudent and very strong.
And we don't see any major issues as we've talked about in a couple of ways here. So I don't.
But it's hard to give you.
And answer on the provision based on seasonal because of that the thing thats a little bit outside of our control. If you look at the results this quarter.
Actual allowance for credit losses, essentially stayed the same went down very slightly and we had some loan growth and thats what resulted in the $1 million provision that we put forth.
Got it Okay. That's helpful. I appreciate the color.
And then I guess secondly.
Obviously very active with the buyback this quarter.
Exhaust that claim.
During the back half of the year.
What are your thoughts on.
Seeking out approval for a new buyback or is that something that you would wait until.
2023 four.
Sure. So just to repeat what you said in there we are very close to exhausting that first 5% authorization, what I said in my remarks on what we say in the deck is essentially all we're going to say.
Dan which is it requires regulatory approval, we respect that.
And we understand that they need to do their process. So we don't like to we're not going to say anything more.
And so we have something else to say.
Got it fair enough. Okay. That's all I had thanks for all the great detail provided on the call appreciate it have a great weekend.
Thanks, David.
Thank you there are no further question at this time I will now turn the call over to Bob <unk> for closing remarks.
Well thanks, everyone for joining the call for your interest for your questions and have a great rest of summer.
This concludes today's conference call you may now disconnect.