Good morning, everyone, and welcome to the Horizon Bancorp Conference Call to discuss financial results for the three months ended June 30, 2020. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded.

Before turning the call over to management, I would like to remind everyone that today's call may contain forward-looking statements related to Horizon that may generally be identified as describing the company's future plans, objectives or goals.

Such forward-looking statements are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those currently anticipated. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

For further information about the factors that could affect Horizon's future results, please see the company's most recent annual and quarterly reports filed on Forms 10-K and 10-Q. You should keep in mind that any forward-looking statements made by Horizon speak only as of the date on which they were made.

New risks and uncertainties come up from time to time, and management cannot predict these events or how they may affect the company. Horizon has no duty to and does not intend to update or revise forward-looking statements after the date on which they are made.

To the extent non-GAAP financial measures are discussed in this call, comparable GAAP measures and reconciliations can be found in Horizon's April 29 news release, which is available on its website at horizonbank.com.

Horizon also published an investor presentation on Wednesday afternoon, and it is available on the company's website with information that will be addressed this morning.

Representing Horizon today is Chairman and CEO, Craig Dwight; as well as Executive Vice President and CFO, Mark Secor; President, Jim Neff; and Executive Vice President and Chief Commercial Banking Officer, Dennis Kuhn. At this time, I would like to turn the conference over to Mr. Dwight..

Thank you, Kate, and good morning, and thank you for participating in Horizon Bancorp's earnings conference call. Our comments today will follow our investor presentation that was published after the close of trading on July 29. So starting on Slide 4.

We summarize and highlight what we believe was a very solid quarter during these unprecedented times, as evidenced by a 26.9% increase over the first quarter's earnings per share. These results were supported by good loan and deposit growth of 8% and 7%, respectively, excellent expense management and record residential mortgage loan volume.

In addition, during the quarter, we demonstrated our ability to effectively access the capital markets through the issuance of $60 million in subordinated debentures.

This capital raise provided our holding company with a considerable cash cushion to protect the dividend to its common shareholders and provides us with the optionality on how to deploy capital in the future. Slide 5 titled Seasoned Management Team. We are very proud of our entire Horizon Bank team and what they've accomplished.

Slide 6 reflects our accomplishments and excellent history of financial performance over the past 17 years. Slide 7 titled Diversified & Attractive Footprint. I'm going to spend a little more time on the next two slides so you have a better understanding of our footprint and what's taking place in the markets we do business.

Horizon's focus has been consistent over a long period of time to grow four revenue streams, which diversifies risk and stabilizes earnings in varying economic cycles. For example, today, our mortgage teams are doing very well, which offset slow growth in other business lines. The map to the left reflects Horizon's 73 locations.

Horizon has a great footprint with our loans distributed throughout the states of Indiana and Michigan, which represents good geographic diversity. As of June 30, Indiana's unemployment rate was approximately 11% and Michigan's was approximately 14%. Both states saw a considerable drop in unemployment rates from their peak in April and May.

Currently, we're experiencing a slight increase in unemployment claims in Michigan, while Indiana claims continue to decline. Horizon's expansion and growth is occurring primarily in cities and towns with colleges or universities and state or county governmental seats.

Therefore, a majority of our footprint has an economic base that is traditionally more stable than other areas of Indiana and Michigan. And now to give you a current status of the COVID-19 by state. Indiana's positive COVID-19 cases peaked on April 26 and then again on July 23, and over the past week, we've seen the number of cases start to decline.

The utilization rate of Indiana's intensive care units is below 60%, with a substantial decline in COVID patient hospitalization rates since its peak in April. Currently, Michigan has 8 counties reporting an increase in COVID-19 cases.

However, they are concentrated in the more populous Detroit metro area and in the southeast portion of the state, while Horizon Bank's branches and customers are concentrated in western and central Michigan. Overall, the state's recent total confirmed cases are down considerably from the peak periods in April and May.

As many of you know, we bank customers in a number of college towns. All major universities in both Indiana and Michigan plan to open in the fall under certain safety protocols which include shorter fall semesters, classes with a mixture of virtual and in classroom and requiring fewer occupancies in student housing.

Most universities are requiring single occupancy unless you preselect a roommate. The new college student housing occupancy standards will bode well for Horizon's multifamily loans located near college campuses. Slide 8 talks about our attractive and stable Midwest markets.

Horizon's focus has been on midsized cities as we've grown our footprint through 11 organic expansions and 14 mergers and acquisitions. We have no plans to be a Chicago bank. However, we do enjoy the benefits of consumers and businesses escaping its higher cost of living, high taxes and dense population.

Our legacy market is in the Michigan City, La Porte area, where we have approximately 50% market share, has historically been a slow growth market. However, with recent impending investments by the Chicago Metra commuter rail line, this market is positioned well for future growth.

The greater Indianapolis area has a well-diversified economy with strong growth, large employers, including Fortune 500 companies, state government and universities. Northwest Indiana has considerable appeal in Chicago companies and residents due to its close proximity with short commute times as well as several quality school systems.

Southwest Michigan is not as volatile as the other parts of the state. They have an excellent business climate, good owner operators, has less automotive influence and considerable personal wealth. This area also includes several college towns.

Finally, the greater Lafayette area, home of Purdue University, has established incredible partnerships with local cities for infrastructure and quality of life improvements. Purdue recently announced record freshmen enrollment for the fall of 2020. Just last week, Subaru broke ground a major expansion of its only U.S.

assembly plant, which plans to add 350 jobs in this market. Slide 9 exhibits Horizon's response to the COVID-19 pandemic. As most community banks, Horizon Bank is very proud of our employees and how they've managed through this pandemic and provided assistance to our customers and communities during these unique times.

Slide 10 talks about our digital transformation. Horizon was well on its way to transforming our customer base through our digital platform, as evidenced by the chart on the left titled Active Online Bank Users, as more than 98,000 or 71% of all of our checking accounts are active users.

As expected during this pandemic and presented on the chart to the right, Horizon's digital transactions increased and branch transactions declined due to limiting office traffic to appointment-only until June 15. Fortunately, Horizon was well prepared for this increase in digital transactions.

Now it's my privilege to turn it over to Mark Secor, our CFO, who will give you the financial update.

Mark?.

Thank you, Craig. I will briefly summarize the second quarter results, which we believe continues to demonstrate the strong position we are in as we navigate the current environment. Starting with Slide 12.

You will recall that in the first quarter, our results reflected a nearly 3x increase in our allowance after we implemented CECL on January 1 and built general reserves in the early days of the pandemic-driven economic emergency.

We continue to provide for growing reserves in the second quarter but at a slower rate than in the first three months of the year. We believe we are appropriately reserved given the current state of our portfolio and our CECL modeling.

Our profitability metrics, including pretax pre-provision earnings, also benefited from growth in net interest income supported by higher average balances of interest-earning assets resulting from the PPP program participation.

Linked-quarter net interest income growth of 5% allowed us to outpace net interest margin compression of 9 basis points during the quarter. Slide 13; the 9 basis point decline in margin during the quarter was relatively modest with approximately 3 basis points attributed to lower-yielding PPP loans.

In addition, as customers deposited PPP loan proceeds and other stimulus funds, we sold excess cash at very low rates, impacting the margin by approximately 4 basis points. Our ability to quickly and decisively lower funding costs since March has helped us keep pace with lower asset yields.

Slide 14; loan yields were reduced during the quarter as variable rate loans repriced lower. PPP loans contributed approximately 10 basis points of this reduction. 36% of our commercial loans are variable and the vast majority repriced. 21% of our variable rate commercial loans have floors and 67% are not at their floor -- 67% are not at their floors.

74% of our mortgage loans are variable and adjust over a longer period of time. 98% of variable rate mortgages have floors, with 5% of them at their floor. As loans continue to reprice and new product is originated at lower rates, additional downward pressure on asset yield is expected.

Slide 15; our strong core deposits were key in the second quarter, further bolstered to -- by customer deposits of stimulus funding, with 29% of noninterest-bearing -- 29% growth in noninterest-bearing deposits and the interest-bearing deposit cost lowered to 15 basis points significantly contributed to stabilizing the margin during the volatile rate moves.

The CD portfolio also helped reduce funding costs as high-cost CDs matured during the quarter. To provide an offset to the expected asset yield pressure, over the next two quarters, $40 million of CDs will mature with a weighted average rate of 1.64%. The duration of the entire CD portfolio is just over 10 months with a weighted average rate of 1.55%.

The continued repricing of the CD portfolio and the expected shift in CD balances to transactional accounts should provide support to the margin. Slide 16; the two biggest drivers of the noninterest income in the second quarter are both related to the mortgage business.

To the downside, national increases in prepayment fees and past due levels were a significant factor in our third-party valuation of Horizon's mortgage servicing asset, requiring us to accrue a $2.9 million noncash impairment charge in the second quarter.

Additional impairment would be expected for service mortgages that refinance and if the national prepayment fees and delinquency percentages increase. Even with the MSR impairment in the second quarter, mortgage-related revenues grew on record gains from the sale of mortgage loans.

The continued refinancing activity and strong percentage gain we are receiving on the sale of mortgage loans is providing revenue to help offset lower nonsufficient fund fees and lower fiduciary income. Based on local and national refinancing activity, we expect strong top line contributions to continue from this business through the end of the year.

During the second quarter, we continued to manage operating expenses with our usual discipline. Even adding back in the $1.1 million of deferred PPP loans originated -- origination cost to salaries and benefits, annualized noninterest expense was still 2.26% of average assets in the second quarter.

The efficiency ratio of 56.2% was lower than the previous two quarters due to both higher revenue and lower expenses during the second quarter. This is a very positive trend in this environment and demonstrates the strong core results for the company.

We will continue to focus on expense control by ongoing rationalization of our retail locations, looking for discretionary spending cuts and leveraging the current infrastructure.

Slide 18; as we discussed last quarter, we did adopt CECL on January 1, and we believe this is allowing us to make more relevant reserve builds based on the current economic conditions impacting our loan portfolios. This quarter, we added weekly indicators to our economic forecast to assist in capturing the volatility we are seeing in the economy.

The $6.7 million reserve build in the second quarter was primarily driven by allocations made from continuing to analyze sectors of loans that potentially have a higher risk of loss. Craig will provide more details on these sectors later in the presentation.

The percentage of allowance to loans -- total loans was 1.38% at June 30 or 1.49% when excluding PPP loans. A balance of $14.5 million remains for discounts on acquired loans. Slide 19; Horizon continues to maintain a strong capital position in these uncertain times.

Management has been diligent in performing capital stress testing to ensure Horizon maintains adequate capital in a range of scenarios from mild to extreme. This is done in order to determine what action plans would need to be taken in these scenarios.

To add to the capital position, during the second quarter, the company issued $60 million in subordinated debt at a rate of 5.625%. This debt raise was to provide additional capital support and optionality as we navigate through and out of this economic downturn.

Also during the quarter, the bank provided a $34 million dividend to the holding company to even be better prepared for the uncertainties still facing the economy in the months ahead.

Accordingly, at June 30, the holding company had just over $125 million in cash, representing nearly 18 quarters of fixed costs, which include interest on all debt, operating expenses at the holding company and the current shareholder dividend level, which we are committed to maintaining.

Now for some additional comments on our loan portfolio, I'll turn it back over to Craig..

Thank you, Mark. And looking at our $4 billion in total loans on Slide 21, you'll see a diversified portfolio with 58% in commercial loans and 42% in residential, mortgage and consumer loans. We like this loan mix as it diversifies our credit risk and provides advantages to managing net interest margin.

This slide also details granularity in our commercial portfolio, which itself is well diversified. Our single largest sector is the residential multifamily loans at less than 6% of total loans, and this portfolio continues to perform well.

Other key points to make; Horizon manages capital at risk by maintaining an in-house legal lending limit of $30 million and our legal limit is $76 million. Our granularity is further enhanced by the fact our average commercial loan is only $366,000. Now moving to Slide 22. Loan deferrals peaked in mid-May and have started to level off.

Total deferred loans were 14.3% at quarter end, and overall, Horizon's deferral rates are in line with peer banks. Next, we are seeing a decline in mortgage deferrals, and Horizon's mortgage deferral rate continues to fall below the national average, which is well over 7.5%.

Horizon's consumer loan deferrals range between 1.3% and 5.1% of total consumer loans by segment. Horizon consumer loan deferral rates compare well to Moody's Analytics report as of May 31, which reported consumer loan deferral rates running at approximately 6.5%.

Consumer loan deferrals are starting to decline with the exception of the indirect auto loan portfolio. Horizon's commercial loan deferrals make up 88% of the total loans in deferral. 59% of our commercial loans on a payment deferral continue to make monthly interest payments.

74% of Horizon's commercial loans with payment deferrals were for a period of 90 days or less. We expect most of these loans to commence their regular payments in the third quarter. Horizon has only 53 commercial loans for $120 million, with payment deferrals between four and six months; most of these are in the hotel sector.

Next, Slide 23 talks about our payroll protection program. Horizon was a very active participant with $308 million in PPP loans and our total fees were $11.1 million, which Mark has already discussed. Moving to Slide 24; Horizon has a seasoned team of consumer underwriters and a long history of prudent consumer loan underwriting.

Our consumer loan portfolio is predominantly secured credit, with 99.2% of our loans backed by collateral of some type, and the vast majority of our consumer loans are made in market. Our consumer loan mix consists of 53% indirect auto all in market and 40% HELOCs and home equity term loans.

The consumer loan portfolio has excellent credit quality as evidenced by high FICO scores, lower delinquency with 30 days or more past due at 33 basis points and low nonperforming loans at 59 basis points of total consumer loans. Next, our prime mortgage loan portfolio.

Horizon has a seasoned team of mortgage underwriters, processors and mortgage loan originators. We've been in the business for a long time. The majority of our mortgage production is sold on secondary market with year-to-date sales running at 71% of total production.

Horizon's mortgage loan quality remained strong at quarter end, as evidenced by low delinquency with past due loans of 30 days or more at 22 basis points. Next, Slide 26 to talk about our diversified commercial loan portfolio.

Horizon is your traditional regional bank offering a standard lineup of commercial products to an experienced and seasoned team of lenders and credit administration staff. We have a history and culture of prudent commercial loan underwriting. We are primarily in-market lenders, require recourse on most of our loans from owners of the business.

Commercial and asset quality metrics continue to be favorable at quarter end with nonperforming commercial loans at 61 basis points of total commercial loans. This does represent an increase over the 47 basis points at quarter end March 31. During the quarter, we had one ag credit go non-accrual, which contributed to the bulk of this increase.

This ag credit is partially backed by government guarantee and is well secured by farmland. We do not anticipate a loss. Commercial delinquency at quarter end was a very low 2 basis points. Slide 27 talks about the sectors with escalated monitoring.

We had elevated monitoring in those loan categories that exhibit the most duress as evidenced by high payment deferrals. Most of the deferrals are made to nonessential businesses or real estate loans that have tenants who were primarily nonessential businesses.

The portfolio of segments with elevated monitoring include hotels, restaurants, non-owner occupied retail, leisure and hospitality. Hotel payment modifications are the highest percentage of any sector with $105 million in modified loans or 75% of this sector.

All hotel loans in our portfolio are open for business, with occupancy rates ranging from 20% to 70%. We continue to see improvement in monthly occupancy rates. Majority of our hotel loans are located near major interstate highways or resort communities, which have rebounded faster than hotels located in metropolitan areas.

The comfort we have with this portfolio is that our borrowers are long-time operators, have managed through multiple economic cycles, most have liquid resources to fall back upon, and they're adopting to the new norm for hotel operations. Next, our restaurant loans. We have $37 million in full-service restaurants.

One relationship of this $37 million consists of over $10 million in outstandings and is with a very strong operator who has considerable liquid assets, very short-term amortization on the real estate portion of their debt. Our limited service restaurants totaled $29.2 million.

Most consist of good franchises such as McDonald's, Culver's and Burger King and are with long-time owner operators. Fast food revenues are down year-to-date between 20% and 30%, which places them close to their historical breakeven point.

However, some entities are actually reporting an increase in net profits over the prior year due to lower overhead and good drive-through revenue. Early customer contacts in this portfolio indicate good performance by limited service restaurants.

And our full-service restaurants were able to maintain cash flow with the combination of carryout and in-dining limited service. The smaller independent operators and non-resort tenants appear to be struggling the most. Our comfort in this portfolio is due to the fact that the average loan amount is low at $467,000.

We have good year-to-date performance and long-time owner operators with good franchises. Next is non-owner occupied retail space. Early borrower feedback is that this portfolio is holding up well due to stable markets and strong sponsors.

In addition, the low average loan to valuation of this portfolio does provide Horizon cushion against any potential future loss. Our comfort in this loan portfolio is due to the fact we have good sponsors, low average loan amount, low loan-to-value ratios and diverse and stable markets. Next, leisure and hospitality.

This industry segment consists of a diverse group of borrowers, including golf courses, bowling centers, movie theater establishments and a zoo. All entities, with the exception of the movie theater, are open and had seen increasing customer tenants. In general, we have strong and cooperative borrowers.

However, we may need to increase allocation in this portfolio in the future if the COVID-19 challenges continue and if states add additional COVID-related restrictions. Moving to Slide 28. Even with the stress of COVID-19, Horizon continues to report strong asset quality metrics in the second quarter, which you can see on these four charts.

And then finally, in conclusion, Horizon's key highlights. We have a seasoned management team who has managed through multiple economic cycles, strong credit culture. We have good geographic diversification.

We're well capitalized, historical earnings run rate even during the Great Recession, conservative cash holding requirements at the holding company, and finally, the fact that management is aligned with shareholders' interest.

Management has a considerable ownership stake in Horizon, and we have a policy since 2003 of not paying executive bonuses if earnings do not exceed 1.5x our holding company's fixed cost plus common dividends. We are aligned with shareholders' interest. That concludes our comments and presentation. We are now open for questions. Thank you..

[Operator Instructions] The first question is from Terry McEvoy of Stephens..

Just, Craig, I want to make sure I understand your comments on the payment deferrals. A lot of them were 90 days and a lot of them occurred in the second quarter. So it really didn't show up here in the June 30 data.

Were you saying that most of these deferrals will resume their normal payment schedules outside of the hotel portfolio? Was that the takeaway or the message you're getting at?.

Yes, that's a fair comment. The reason for the hotel, they were extended for four to six months, and so they will not roll off until really the end of the third quarter, first part of the fourth quarter. So that would be the correct comment..

Okay. And then, Mark, maybe a question for you.

On the PPP program, kind of what are you thinking about for the forgiveness period? And do you think most of those loans will go through that forgivable period by the end of this year?.

Yes. We think that the ones that are going to be forgiven will be through the end of the year. Some might circle into the first quarter, just depending on how quickly the participant follows through..

The next question is from David Long of Raymond James..

I wanted to ask about the size of the balance sheet. Obviously, the PPP program helped your deposit growth pretty nicely. But even when you look in the excess of the deposit of the PPP, the deposit growth was very strong.

Is that -- can you maintain that? Or what are your expectations, I guess, overall, with the deposit base here over the next couple of quarters?.

During the last recession, I think other recessions, you do see the deposit balances grow as cash gets held. So reflecting back on previous history, we could expect to see deposit balances maintaining. Now they are benefiting from these funds that have been some stimulus. And you would expect those to be getting used over time also.

So I guess the answer would be, just based on history, I think we will be able to maintain the deposit balances. But we're not sure what would happen and how much of that will come -- be used from the stimulus money that's been given to the customers..

Sure, got it. And being here in Chicago, I could thank you once again for your reminder about the relative attractiveness of my home market compared to your marketplace. But that said, just want to get a better sense on your expectations for loan growth outside of the -- obviously, the PPP program.

And how is the sentiment amongst your commercial borrowers at this point?.

Do you want to answer that, Dennis Kuhn?.

Sure. The -- outside of PPP, we were down slightly year-to-date. Much of that was related to the lack of line usage -- actually paydowns and lines related to probably PPP funds for the most part. But -- so from a standpoint of loan growth, it's been obviously very modest overall. We are seeing some additional activity at this point.

But with the continued restrictions, our lenders have not returned to the norm of being out in front of clients regularly. So we think it's going to be tepid, I guess, I would say, over the balance of the year. And we think that we've seen that pretty much across our peer group as well..

David, we kind of tightened our underwriting standards, somewhat requiring more downpayments on real estate, etcetera. And Fannie Mae has tightened their underwriting standards for mortgages. So just because it's tighter standards, I would not expect growth for a while..

The next question is from Nathan Race of Piper Sandler..

Just going along the lines of the last question, thinking about the core margin outlook going forward, I'm trying to isolate the impact or exclude the impact of PPP loans going forward and accretion. I think if we add back the 3 basis points, as indicated in the release, from the PPP impact, like it's maybe a core margin at 3.38%.

So it sounds like excess deposit levels and liquidity levels may be somewhat elevated near term. And so just trying to think about those dynamics with ongoing funding costs, leverage. And then it sounds like you got a good chunk of loans at 4. So just trying to get what you're thinking about the core margin into 3Q at this point..

Nate, I think what we've -- what we're seeing happening with the ability to reprice the CD portfolio, the $400 million that is still coming due yet this year, that's going to have a pretty good significant impact on deposit costs. So that's going to help to offset the asset pressure.

When the PPP loans come out, like you said, that's going to be able to help increase the asset yield just because they're lower yielding. The challenge is going to be to manage margins.

We are going to have a lot of excess liquidity, as you indicated, that we're going to have to do something with, which most likely will be in the investment portfolio and would be at lower yields just to generate the income we need.

So, I think the investment portfolio is probably what will be the challenge to being able to maintain the margin, but it will be incremental growth to net interest income..

Okay, got it. So maybe a little bit of additional near-term pressure just given the dynamic of securities' reinvestment rates relative to the portfolio yield if I'm hearing you right, Mark..

Yes..

That's probably all 2021..

Yes..

Okay, got it. And then just changing gears and thinking about the income into the third quarter. Mortgage banking, obviously really strong this quarter. The gain on sale margin came down a little bit, it would seem.

So I'm just curious on kind of the puts and takes within the fee income as you guys are kind of looking out to a 3Q run rate, and then obviously, ex the MSR adjustment that we had in the quarter..

Yes. We're continuing to see very strong refinancing activity, which is benefiting both the MSR gain and -- the mortgage servicing gain but also in the warehousing line, be able to maintain those balances, continuing to be asked for larger line limits for the warehousing side as their business is continuing to see the refinance activity.

So we see the refinancing driving this, especially through the third quarter and into the fourth, although it's going to depend some on what rate to do. With gain percentages, some of coming in at close to 4%, there's a lot of room as the refinance activity could slow to bring rates down yet if the treasury stays in the area where it's at.

So you could continue to see volume if rates come down as we get into the fourth and the first quarter of next year..

[Operator Instructions] The next question is from Damon DelMonte of KBW..

So my first question, probably directed to Mark on the outlook for expenses. I know you had mentioned that you had some deferred comp costs related to PPP.

So as we try to normalize that run rate going forward, how are you looking at the overall expense base for the back half of the year?.

I think overall, it's fairly stable. Obviously, we had the deferred costs that benefited but we also had higher loan origination costs. And some of the -- or yes, loan origination cost.

Some of the loan costs though, as we get into later in the year and into next year, I think you're going to see collection costs increasing as we start to determine who's coming out of this downturn and who isn't.

The other area that might have some increase is if we continue to operate at the level that we are, we will need to start accruing for bonuses more than what we have in the first half of the year. So I think that would be the one area that we could see some increase..

So then on a dollar amount, would you say that's something close to like the 31, that below 31 to 31.5 range is reasonable?.

I'm not sure that we can state that..

Okay. All right, fair enough. And I guess as my follow-up, it looks like nonperforming loans went up a little bit during the quarter.

Can you just talk about -- a little about the migration there and what led to that uptick?.

one, as Craig mentioned earlier, the ag industry; the other, service. And so we don't believe it's an indication of the overall health of the portfolio, although we have COVID obviously impacting going forward. But again, they were two isolated instances that had been identified by the bank previously but saw some additional deterioration..

Got it. Okay, that's helpful..

David, just to add one more comment to that. In the fourth quarter, we had three large jumbo mortgages to the non-accrual, two of which properties have sold and 1 has reaffirmed payments with us. So -- and so that would show the continuation. So it's not all just commercial..

The next question is from Brian Martin of Janney Montgomery..

I joined the call a bit late, so I apologize.

But Mark, could you just give any comments or just direction on how you're thinking about the core margin as you go forward here with the rate environment, so kind of most of the impact from the Fed cuts now and just kind of the core margin ex the accretion of PPP, just how you're thinking about that directionally going forward?.

Yes. Brian, the core margin -- and there's going to be so much noise, as we know, in there.

The core -- just our loan -- specifically, loan yields and deposit yields, we think -- we see through the next couple of quarters that the ability to reprice the CD portfolio will help offset some of the asset pressure in the loan side since we've already seen most of the variable rate loans repriced in the second quarter on the commercial side.

The area that's going to have the pressure that we have to do something with the liquidity, most likely going to the investment portfolio, I think that will have more pressure on the asset yield side. And then obviously, the PPP, the income that will come in probably into the fourth quarter primarily and some may be going out into the first quarter..

There are no additional questions. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Dwight for closing remarks..

I'd like to thank all those for calling in to our second quarter conference call. And we look forward to talking to you soon in the near future without COVID-19. Thank you, and have a great day. That concludes today's conference. Bye now..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..