Good morning and welcome to the Bryn Mawr Bank Corporation Second Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Mr. Mike Harrington, Chief Financial Officer. Please go ahead..

Thank you, [Ivey] and thanks everyone for joining us today. I hope you had a chance to review our most recent earnings release and presentation. Both of these documents are available on our website at bmt.com in the Investor Relations section. We will be referring to the presentation during this conference call.

On the call with me today are Frank Leto, President and CEO and Liam Brickley, Chief Credit Officer. Before we begin, please be advised that during this conference call, management may make forward-looking statements which are not based on historical facts.

Please refer to the disclaimer labeled forward-looking statements and Safe Harbor in our earnings release and presentation for more information regarding what constitutes a forward-looking statement.

All forward-looking statements discussed during this call are based on management's current beliefs and assumptions and speak only as of the date and time they are made. The Corporation does not undertake to update forward-looking statements.

For a more complete discussion of the assumptions, risks, and uncertainties related to our business, you are encouraged to review our filings with the Securities and Exchange Commission located on our website. I would now like to turn the call over to Frank..

Thanks Mike. And I'd like to thank all of you for joining our earnings call today. The last several months have redefined how an organization operates. We all have to change our perspective in every facet of our lives while adapting to this new normal.

The current environment has been one of the most challenging our organization has ever faced in our more than 130 years in business but our resilience is one of which I am profoundly proud. Our employees continue to rise to new challenges that each day brings and I am confident our team's ability to overcome the obstacles we face.

We continue to believe investing in our people, processes and technology are the hallmarks of the successful and sustainable company. This has become more evident in the current operating environment and the results of those investments [further] in Q2. Our recent results are signs of the skills, resiliency and nimbler responses from our team.

During the second quarter our net income of $15 million or $0.75 of diluted earnings per share. Second quarter included several notable items as detailed in our earnings release along with an 8-K filed on June 29, 2020. One example of our ability to move quickly was the sale of the PPP portfolio to the loan source.

Starting in early part of the second quarter we originated and funded almost 1800 loans totaling approximately $300 million. After thoughtful review and consideration we decided was in the best interest of the organization and our clients to sell this portfolio in the same quarter.

While the sale generated non-interest income of $2.4 million, in addition to the fee income which we accreted through the margin. We determined that further investments would be required if we were to manage the loan forgiveness and service the portfolio internally.

In our opinion the operational risk associated with this activity together with the constantly evolving parameters of the PPP program outweighed the benefits of managing the forgiveness and servicing process in-house and led to our decision to sell the portfolio.

We also disclosed plans for optimizing our real estate footprint and operational efficiency.

For well more than a year BMT has been working on a comprehensive facility and staffing strategy with the intent of optimizing both our front and back office space to better serve our clients and to structure a staffing model to deliver our services more efficiently and effectively.

Near the end stage of this planning for these changes, the pandemic hit and provided new and important real-time information about our ability to serve our clients in a remote operating environment. With this information we modified in some cases accelerated our strategy.

As previously disclosed we plan to acts at approximately 33,000 square feet of office space both owned and leased which we expect to be completed by the end of this year.

Additionally and consistent with our focus on better processes and use of technology, we identify deficiencies which resulted in the decision to eliminate 25 enterprise wide positions. We did not make these decisions lately. However, we firmly believe to make BMT stronger and better positioned for the future.

Finally, we unwound BMT insured investment advisors. This entity was established to provide investment management services to the BMT multi cap fund, the mutual fund that was liquidated in the second quarter. The liquidation of the mutual fund the advisor was no longer required.

The cost related to this action of $2.2 million will be recouped in the form of expense reduction a little over two years. While we navigate the current world we live and we're mindful to keep our customers, employees and communities close to every decision we make.

We work hard every day to ensure our stakeholders are safe and have access to all the resources they need and aware of all the services BMT has to offer. We continue to adapt the needs of our customers by ensuring that the solutions and services we offer help them in this dynamic environment.

Part of our success, no doubt, is attributable to the investments we've made in technology. An example of this investment consistent with the strategic framework depicted here was improving our digital experience by partnering with nCino in the automation of our deposit account openings.

As depicted in the slide deposit account applications increased 300% from March through April and remained at elevated levels in May. This increase in openings were enabled by our nCino online account opening solution which we deployed in the fourth quarter of 2019.

Also depicted statistics related to mobile banking where we saw usage increased by 25%.

These advancements to our technology platform continued today as we are moving forward on multiple fronts to automate processes leverage and [sceners] capabilities and transition our systems to the cloud; all with the objective of getting more efficient and improving our customer experience and reducing our operating risk.

Also depicted on this page is our paper usage which dropped two thirds over the last three months.

Well, the cost saving might be not material, the fact that we've been able to effectively operate the business while reducing paper usage it's just another example of the operational and cultural transformation taking place at Bryn Mawr as we adopt and adapt our work environment processes to this new environment.

This too is part of our broader ESP strategy to further help reduce use of natural resources as is our reduction in our corporate footprint by having the significant percentage of our employees working from home. Finally our Board of Directors approved a $0.27 per share dividend. I am very proud that this is our 111 consecutive quarterly dividend.

With that I'd like to ask Mike now to discuss some of our second quarter results.

Mike?.

Thank you, Frank. For the second quarter 2020 we posted GAAP net income of $15 million or $0.75 per diluted share. The main drivers for the quarter included strong fee income as a result of the PPP loan sale as well as solid results from our wealth and capital markets teams.

Also driving the results was a lower provision compared to the length quarter in solid expense control. On a core basis net income was $15.4 million or $0.77 per diluted share.

Our core net income during the second quarter excludes the gain on sale the PPP loans, [BMT] investment advisors wind-down costs and severance associated with the staff reduction. Net interest income increased 2.9% from the first quarter.

While interest income on loans and leases were lower as loan yields declined, a methodical approach on deposit pricing saw interest expense related to deposits decreased over 40%. The tax equivalent net interest margin decreased from 3.38% to 3.22% quarter-over-quarter.

The main contributors to the decline included a decrease in the loan yields and an increase in cash held throughout the quarter. With the sale of the PPP loans our cash position is substantially higher as of the end of the quarter and is likely to remain so in the near term which is expected to put pressure on the net interest margin.

The provision for the second quarter was $4.3 million. This additional provision was required to account for a change to our estimates related to the timing of peak unemployment.

As we continue to operate through this uncertain economic cycle the quantitative and qualitative factors pertaining to the CECL methodology may cause volatility in our provision from quarter to quarter.

Further, as discussed in our last earnings call, unemployment is the key driver of future losses in our CECL model given the extreme uncertainty related to the economic environment and the possibility for unemployment expectations to change or provision will likely follow an uncertain path.

Non-interest income increased 24% quarter-over-quarter, while the PPP sale had a sizable impact on this increase, our wealth and capital market segments also had good quarters. I would also note that our wealth revenue excludes a substantial portion of the tax service fees we typically earn in the second quarter.

The recognition of these fees was delayed due the extension of the tax filing deadline and will be earned in the third quarter. Adjusted non-interest expense as detailed on the last page of our earnings release removes certain non-interest expense items.

Such items excluded from the second quarter include amortization of intangibles, BMT investment advisors wind-down costs and severance associated with staff reductions. Compared to the first quarter adjusted non-interest expenses were down $2.4 million and reflected in our lower efficiency ratio.

As Frank mentioned earlier we have spent considerable time reviewing all aspects of the business. The expected exit of the 33,000 square feet of office space to occur by year end will have approximately annual recurring pre-tax cost benefit of $1 million.

Regarding the elimination of positions noted earlier we estimate the annual recurring pre-tax benefit to be $2.2 million. Additional opportunities to improve efficiencies are likely to be realized as we execute our strategy in a post-COVID world.

These areas of opportunity are expected to include further decreases in occupancy cost as well as a realization of the efficiencies associated with our technology plan.

One of the increase in our cash holdings inflates to deposits growing over 12% from the prior quarter, leveraging this growth in deposits we lowered our interest bearing deposit cost from 1.08% in the first quarter to 0.61% in the second quarter.

We remain vigilant to the market pricing and client behavior and believe that maintaining robust liquidity is essential in the current environment. As noted earlier cash holdings may be elevated in the short term as opportunities to invest our excess liquidity are limited.

Capital at both the bank and the corporation withholding company remains well above the levels needed to be deemed well capitalized. We have spent considerable time and effort stressing our capital position under varying degrees of severity leveraging both internal and external resources.

We believe we have a good idea of the possible loss outcomes and resulting capital levels under these various scenarios and are well-positioned as we enter the second half of this year. Consistent with our feelings related to our capital position we increased our dividend modestly as noted earlier.

The company has ample liquidity at the holding company to both support the bank as a source of strength and pay future dividends. As you'll note on slide 8, asset quality was fairly stable in the second quarter with net charge-offs falling modestly from the prior quarter.

Provision for credit losses was noticeably lower due to the implementation of CECL during the first quarter following the economic downturn.

Slide 9 is an update from the previous quarter which depicts the transition from the incurred loss model to CECL on January 1, 2020 followed by the impact of our allowance from the economic downturn up until the end of the first quarter. Change from the first quarter to the second quarter is less dramatic.

The allowance for credit losses on loans and leases increasing approximately $900,000. We will now turn the call over to our Chief Credit Officer Liam Brickley who will provide additional commentary on the bank's loan portfolio..

Thanks, Mike. As indicated on slide 10, our portfolio did not change significantly from the first quarter and remains diversified across borrower and property types. We are spending considerable time working alongside our borrowers specifically those who are more susceptible to the current environment.

We are an experienced commercial real estate lender which is a category that comprises a significant portion of our overall portfolio. At the end of the second quarter 27% of our pre-non-owner-occupied portfolio was in deferral.

Since that time this amount has been gradually declining with the bulk expected to come out of its initial deferral plan in August. However, depending on circumstances and at our election, a portion of these loan deferrals may be extended for an additional 90 days.

As mentioned during the first quarter earnings call our leasing portfolio is more vulnerable to downturns in this economy. We have remained conservative as we approach this portfolio which is evident in the nearly 6% provision on total lease exposure. Approximately 18% of the lease portfolio is in deferral.

The average resume payment date for these loans is coming this week. As we transition to slide 11, we can see a more detailed analysis of our commercial real estate portfolio. The underlying metrics of these segments have not changed materially from the first quarter. However, we have made several adjustments to our internal loan risk ratings.

Again, we're taking a conservative approach in our methodology. This is most apparent in the hospitality sector where 73% of our total loans are rated substandard. We believe this action is prudent and we rate each loan according to the underlying fundamentals along with current market data and market conditions.

While we believe these portfolios will hold up well in the current environment we are taking a conservative approach now and how we view them. Our trends around lines of credit usage have been positive over the last quarter and year-to-date. Since the end of the first quarter our line of credit usage actually decreased 10% worth $79 million.

On slide 12, we outlined a detailed schedule of loan deferrals by customer segment. At the end of the second quarter approximately 21% of the total portfolio was at a deferral program.

Over the past few weeks we have seen this percentage gradually declining and anticipate that this will continue as many of these loans come out of their initial 90-day deferral term. However, as previously mentioned at our discretion we may extend some of the deferral periods for select clients based on certain underlying factors.

In the second quarter earnings release we included new information as it pertains to classified and criticized bonds. A trend chart depicts this data on slide 12.

As we continue to conduct thorough reviews of the entire portfolio we have initiated several downgrades primarily in our hospitality credits which is evident in the sharp increase quarter-over-quarter.

We believe that taking a proactive approach is vital to address the concerns in this current environment and warrants frequent analysis of our portfolio. We believe volatility will persist for some time but are confident in our team's ability to address the issues accordingly. With that we'll turn it back to Frank..

Thanks Liam and thanks Mike. At this point we'll open up the call to questions.

Operator if you have any questions in the queue?.

We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Casey Whitman with Piper Sandler..

Good morning..

Good morning, Casey..

Good morning. I guess I'd start just with all the expense initiatives you discussed.

Can we expect the incremental impact to flow right to the bottom line or do you expect to reinvest the said elsewhere?.

Mike let me start and then you can jump right in on this one..

Yes..

Casey, obviously [Bryn Mawr] and we're continuously investing in the enterprise. I don't know that we have specific earmarked dollars that we're going to use of the savings at this point in time.

I think most of it will drop to our bottom line but understand we've never worried about investing some money today for the payoff later on and I think you see that in the evidence of this quarter.

Our investments in technology over the last few years, our investments in our personnel over the last few years and our investments in our process improvement have really paid off.

So Mike, I don't know you want to add something to that that helps?.

Yes. Just timing the real estate since that won't be executed until the end of the year. The real estate benefit won't happen until 2021. We should see immediate impact from this staffing changes that we made and immediate impact from the wind down of the investment advisor..

Got it. Thank you..

Got it, okay..

Yes. Okay, fine. Liam let me turn to you maybe just a little bit more color on hospitality book.

Is that almost all hotels and can you give us some information as to where that book is primarily located? Is it all on market to which hotel chains and then would it be safe to say that the majority of the hospitality book was on deferral at quarter end at least? Thanks..

Yes. We have a modest exposure to the hospitality sector. The bulk of it are flagged hotels in our primary trade area; southeast Pennsylvania, New Jersey, Delaware and [indiscernible] city Maryland.

It's the vast majority of that exposure was in deferral in Q2 and we're having conversations literally this week, next week on the next round of deferrals and beginning to see some positive movement. These are all just, we are recourse lender so a 100% of this exposure is supported by sponsors who have historically supported their properties.

The decision to downgrade the vast majority of the exposure was strictly a response to the cash flow impact of COVID and occupancy rates declining rapidly and until such time as we have visibility on what a sustained recovery looks like we think those ratings are appropriate..

Got it. Thank you..

Casey, can I say one? Casey, I will just add one thing to Liam's comments which is that the CECL building of the reserve happened first.

So there's some timing here too like if this would have all sequenced at the same time you would have seen these loans become classified or downgraded appropriately based on the current conditions we're dealing with that would have coincided with the build of the allowance. So that building allowance happened first and then this follows.

There's a natural migration of assets into these categories and which is reflected in the allowance itself. That's why the allowance has been built. So we view these two things as being very consistent..

Understood. Thank you..

Our next question comes from Michael Perito with KBW..

Hey, good morning, guys. Thanks for taking my questions..

Good morning, Mike..

Good morning. I just wanted to really quickly clarify on the expense just. Can you guys just repeat the -- I heard the million dollars for the office and the $2.2 million from the FT reduction.

Can you just repeat the expected savings from the BMT advisor wind-down and just confirm that those are all kind of targeted annual savings figures?.

Right. That later yes targeted annual the investment advisor savings is about another million and change. So that's the earn back period. There's about two years. And again that'll begin in this quarter we're in now like that and the staff..

And the FT reductions?.

Yes..

Okay.

And then on the credit side, to your comment like about how that states the natural next step after the reserve bill but I guess technically on just trying to understand what these loans mostly on deferral? I mean you guys had the ability to not migrate these loans yet, correct? But you guys just chose to do it viewing it as kind of the natural course of where these loans are at given the uncertainty right now?.

Yes. It's Liam. That's correct.

Your internal risk ratings are always at management's discretion and we felt the lack of revenue visibility in those hospitality credits warranted a downgrade of the risk rating again until such time as we get clarity to Mike's point when we initiated our CECL transition in the end of Q1, we were at the early days of the COVID event.

We assumed that with the spike in unemployment we would see material stress but we didn't have granular information on individual borrower performance at the end of the first quarter.

With our portfolio reviews we have much more visibility at a loan by loan basis into the book and decided it was prudent to downgrade those assets just based on current trading conditions.

There is -- as you can see in our delinquency and payments that's with the deferral program no one, we've seen no material change in our payment patterns outside of the deferral program. So it was entirely our option to downgrade this..

Okay.

And I guess at one point do, I mean, I guess you can't ever make the total assumption it's on total case-by-case basis but presumably at some point there will be some challenges with some of these businesses and I guess as you guys are thinking about it sounds like you have a review coming up in a couple weeks on deferral renewals but how do you guys thinking about when there could actually come to a point where there might be some write-downs or some special asset actions needed to kind of work through these credits? I mean how do you guys, I guess at what point is deferral and kind of the bad cash flow change from just being criticized or kind of special mention to actually requiring action as you guys see it today?.

Well to paraphrase Jamie Diamond's quote last week we don't know what we don't know. We know that this is an unprecedented economic event and how it plays out is entirely opaque right now.

The impact of the various stimulus packages as well as these deferral packages has clearly given everybody time to make assessments into and our borrowers making their own assessments of their business models us to make assessments in the portfolio but assuming no other changes all the deferral activity rolls out of the banking industry at the end of three and into Q4, so it's reasonable to say that we will have better visibility at that point in time.

Again as to our specific book as a recourse lender even at the property level if there are some stressors we have a track record which folks who have supported their properties. How that plays out over the next period of time again we'll know more later..

Thanks..

I think I’ll add to that, Mike is that we have run outside the whole credit management process as Liam is describing and what we're doing there then we have run CECL and we've made some assumptions both we've done that from a quantitative standpoint.

Then we've got qualitative overlays in there sort of we're thinking around all this everything you're hearing is all discussed internally and then we've stressed this in a pretty dramatic fashion and that's the point.

I was making around capital is we've taken a stressed environment that we're in now and double down on that to see okay well what happens we'll take a loss exposure do we have in that the statement we're making around capital that I made as a function of all that work as well.

So just to appreciate that as and factor that in your thinking in terms of corporation and where we stand right now..

Yes. Helpful and then I will have you guys two more quick ones if I can.

Just one you guys outlined some expense outlook items which were helpful but on the non-interest income side the – what AUM expanded a little just any thoughts Frank or Mike on kind of what the outlook might look like on some of the key businesses as we move forward here?.

Sure.

You want me to take that Frank?.

Well, yes. I mean go ahead Mike. I will add anything to you. Go ahead..

Yes.

I mean the wealth as I mentioned in the prepared remarks a lot of the normal we usually get a spike if you look back in time from those that are familiar with the pattern of wealth revenue typically the second quarter is one of our better quarters barring big market changes because of the tax service fees we collect those got pushed out to the third quarter and then we finished the quarter very strongly from an AUM perspective.

There was a market rallied here so that 630 number, those dollars the fees are reflect what we reflected in Q3. So those are two positive things from supporting non-interest income and the other thing I throw in is, the wealth business continues to have its own, it's growing.

I mean they grew on a besides just the rebound in the market in Q2 had net positive cash flows in the legacy business and then our Delaware, the business the Bryn Mawr Trust Delaware Corp which just continues to [grow] at a rapid pace, a lot of assets moving out on high-tech states into what Delaware.

So and then on the capital market side this is the function of loan activity and I think that's Q3 is usually the slowest quarter and it's really dependent, a lot of that's dependent on loan closing.

So but we're very pleased with where that organization's sitting and they're starting to build some other capabilities that should offset maybe if loan closings aren't what we expect should offset some of that FX in particular and trade finance which are really starting to get some traction in those two areas..

Yes, let me just add. I want to just add real quickly I mean Mike, back to last crisis, I mean this is when we doubled down on wealth and then the fruits of that have paid off obviously dramatically.

I think Jen is in the final throes of her strategic plan obviously a little bit, went sideways a little bit this year just because of the crisis but I would say that a lot of the investments she made prior to this are really paying off.

And generally speaking when we hit these difficult times and I think you see the news when these large banks start to escape it is a customer service issue generally and that's where we shine.

That's where we step in and I know Jen has, is in the throes of a pretty involved marketing plan going forward to try to take advantage of some of the disruption in the market. I think she was also very integral involved in the process improvement and some of the reductions that we had through the second quarter.

So I think she's well-positioned to move forward on both the wealth and the insurance fronts. I think Mike's comments about capital markets are spot on there. So I just wanted to add that little bit of color..

Helpful. Excuse me. Helpful.

Thank you guys and then just lastly, can you just give us an update? I know that on the nCino front you guys were rolling out quite a few products just where you guys are in that and then just any thoughts Frank on kind of what's next from a technology perspective? I mean it seems like you guys kind of have some stuff in the budget and already which is why most of the other cost savings [went] to the bottom line.

So I am just curious what some of those items are as we move forward?.

Well, we are in the throes of this nCino project, it's been a multi-year project for us. While we're talking here I am knocking all over my wooden desk about how lucky we were to get the deposit piece completed when we did.

That was really integral to us being able to handle seamlessly really the PPP origination process and the opening of accounts around that. So we see that the fruits of that.

Throughout the balance of the year and into the first quarter it looks like will be completed probably by the end of Q1, 2021 with the other transformations and small, excuse me, consumer small business and then of course really the big aspect of this is a commercial ending piece and that's why we're pushing that back.

We had to push it back a little bit on the timing just to make sure our commercial lenders have enough focus going into the latter part of this year on the credit side. So I mean that is that's a big focus for us. Of course, we always have a lot of things in the works. We have a lot of projects.

We have pretty detailed Adam Bonanno, our chief technology officer has really developed, I think a very detailed strategic plan for technology for us in conjunction with all of our business lines and we're really, I think Adam is really reacting to the needs of the businesses and what's going to make us more efficient, what's going to make the customer experience better in any way we possibly can.

So there are some things on the forefront. I mean I think if you're getting at or we're going to have some major multi-million dollar spend, I don't know we have other than what we are already looking at. I don't think we have any kind of major like an nCino like project.

I think Adam is really focused on getting us into the cloud and getting a lot of that off of our backs so to speak and pushing it out there. But it's really this digital transformation.

This whole, this is all like I said it's a whole strategic plan around technology and around a digital experience at the bank and it's ongoing and look you followed us long enough Mike to know this started back in 2015. So it is a process. It's not one end done. It's an ongoing process and I think that's the only way to do it.

I mean we had to get our foundations in place which we did early like I said 2015-16. That paid off really well for us. That allowed us to do a lot of what we're doing today but it's a continuous process to improve our technology and the experience with technology..

All right. Thank you guys. Sorry I know I had quite a few questions but I appreciate the color. Thanks..

Our next question comes from Christopher Marinac with Janney Montgomery Scott..

Thanks, good morning. I just want to go back to the classified and criticized assets.

So what has to change for you to put a bigger reserve against those? I mean are you comfortable that you've got that properly marked within the reserve? I just want to understand kind of what has to change to change the reserve allocation there?.

We believe we are appropriately reserved now and to have a material change in our reserve allocation for those specific assets going forward, we would have to make a determination that the values are permanently impaired and obviously the transitory nature of the current crisis, it's pretty hard to figure out the terminal values until we get into something that looks like a normalized recovery.

The only thing that would accelerate any of those discussions would be a hardcore payment default if a counterparty basically was unable to maintain their debt service. And again at the current time we don't see that on the horizon..

Okay. Great, that's very helpful and then is there any major revenue change to the unit that you disbanded in the quarter? You may have mentioned that earlier I just may have missed it..

No. No, we just, we had some costs related to the wind-down of the advisor and the mutual fund and we'll again, we know that we've recouped that in two years..

Sounds great Mike. Thank you, Frank. Thank you both. Appreciate it..

Okay..

Thanks Chris. .

[Operator Instructions] Our next question comes from Matthew Breese with Stephen..

Hey, good morning. .

Good morning..

Just real quick on the total deferral -- deferral balances now, what portion is paying interest only or on partial payment plans versus deferring the entire thing principle and interest?.

Mike, from a disclosure perspective?.

Yes. That's a good point. We know we haven't disclosed that information, Matt. So I don't know if we, Liam might have it. I don't have that in front of me that breakdown..

I have a breakdown Mike.

If it's okay to talk about broadly?.

Go ahead..

And that is roughly 65% of the transactions in deferral are on a total payment deferral with the other 35% on either a principal only, if you are paying us interest only or maintaining sufficient payments to meet their swap obligations. So roughly 65/35 split between IO and total payment deferral..

Okay and what's the total amount of accrued interest tied to deferrals at this point meaning if deferrals were to go to MPL what would have to be backed out of NII from the deferrals?.

I don't have that..

Yes. That's probably a little a lot more than we're, we've got to line us up with our public disclosure as well. So….

Okay.

And then going back to Chris's question, just on the reserves versus the hospitality portfolio and retail portfolio as well could you just give us some insight apart from the LTVs being very healthy as you look at the borrowers are there, are other sources of payment or other levels of comfort you have on those portfolios where you'd get repaid?.

Well, globally speaking, the strength of our sponsors, we look at their global position in the aggregate. We look at their liquidity and we look at that their concentration by asset class and property.

As I mentioned previously historically our sponsors have supported their property through the last downturn with significant demonstrations of strength where needed and it's something we obviously monitor and are doing deep dives constantly looking at both our borrowers at a property level and our sponsors on a global cash flow level and that's how we make our assessments as to risk ratings and future appetite for these guys..

Understood, okay. And then Frank, you'd mentioned the back office optimization obviously 33,000 square feet. The office you also mentioned taking a look at the front office side of the business.

At some point in the near or medium term future should we expect branch optimization, branch closures and expense saves from that avenue?.

Well, Chris, yes. I mean yes.

I think we, that's part of our overall view of real estate and I think it's public now that we actually exited a lease at the end of next month for a branch that we acquired a number of years ago that just really didn't fit the strategy anymore and where we continued to look at each branch and I think now that we have this new model that we're going to operate in, it's going to give us a real opportunity to look at branches and who's doing what, where and that'll give us some opportunity in the future.

I mean do we have very specific plans at this way, not anything definite but we're going to look at each one of our branches as time goes on and try to make some decisions there just as we've looked at some of our office space. I don't think any differently. We're not going to approach it any differently..

Yes. Sorry for hopping around a little bit. You covered quite a bit in the opening comments. The next one is just on capital and the dividend.

Should we take this quarter’s the $0.27 dividend, the increase -- should we take that as a step in the right direction versus last quarter's message which felt a little bit like take a wait and see approach on the capital front and the dividend front?.

I will take a shot at that answer which is I wouldn't, I mean in this environment I wouldn't read too much into a penny increase where we were never, was never in doubt, I hope that we were going to pay our dividend in this quarter and increasing at a penny was debated internally.

We looked at the analysis we've done around capital adequacy and liquidity at the holding company and one penny a one cent dividend is a very small amount of dollars from a cash flow perspective and from a capital perspective. So we thought it was important to increase the dividend and demonstrate that.

We feel good about where we're at but I wouldn't read too much into it about us trying to predict the future because I think all of us on the phone are still very wary and very concerned about what might transpire here. We just don't have a lot of, we don't have the data we need to make predictions about the future.

So we are [indiscernible] the 800,000 change of extra capital we're paying back to shareholders wasn't a material amount in the context of what might come and we're very well capitalized and felt like we're in a good position but again we're not trying to make a statement around what the future is going to bring..

Understood. Got it. Okay.

And then just the last one at this point has the majority of the floating and variable rate loan book re-priced and what should we expect on the [NIM] front over the near to medium term?.

Yes. I think a lot of that book is a very short term re-pricing profile. So you saw that re-price downward in the quarter following the market indices and as I noted in my prepared remarks just the fact that we're holding a lot of cash is going to have just holding a lot of cash going to put pressure on the [NIM]..

Understood. Okay that's all I had. I appreciate taking my questions. Thank you..

Thanks..

This concludes our question-and-answer session. And I would like to turn the call back over to Frank Leto for any closing remarks..

Thank you and thank everybody for joining us today in these really uncertain times and while we can't forecast the future, I think our investments in people, in process and technology and our historic focus on credit quality positions us well in this environment and what's yet to come.

We look forward to talking to you in the future and again thanks for your all being shareholders of the bank. Thank you..

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