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Great Western Bancorp (GWB)

Participants
Seth Artz Head of Investor Relations
Mark Borrecco President and Chief Executive Officer
Peter Chapman Executive Vice President and Chief Financial Officer
Stephen Yose Chief Credit Officer
Jeff Rulis D.A. Davidson & Co.
Terry McEvoy Stephens Inc
Andrew Liesch Piper Sandler
Jon Arfstrom RBC Capital Markets
Damon DelMonte Keefe, Bruyette & Woods, Inc.
Janet Lee JPMorgan
Call transcript
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Operator

Good day, and welcome to the Great Western Bancorp Fourth Quarter and Full Fiscal Year 2020 Earnings Announcement and Call. All participants will be in a 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 like now to turn the conference over to Seth Artz, Head of Investor Relations. ahead. go Please

Seth Artz

Chief good prepared morning, and Officer. Knieriem, Executive us our our Q&A Officer; Steve through Peter us Operating here Thank support Chief we to have morning. Chief have Mark our this our Yose, and Officer; we Chief after Chief Karlyn Officer. Borrecco, presentation Risk Also, Chapman, with our you, session Financial Taking Credit remarks, President and Officer; Bass, and Doug

presentation at for for prepared earnings usual, review, – available a As we is today’s webcast and which have on greatwesternbank.com. our on our website

Before results getting current pandemic. that COVID-XX risk today’s a are contained like the materially in filings discussed. those periodic from to continued the statement Please factors. uncertainty the SEC refer with especially remind statements website, presentation certain earnings to you cause risks the stemming and disclosures differ the from started, that the company’s we is materials would outline subject that on This forward-looking future may of true forward-looking with in actual uncertainty contain could the environment along to full to company’s for

are and Borrecco. call and non-GAAP turn trends Mark, within included be in discussed measures go any referenced the Chief the only measures please Mark would Bancorp’s appropriately over the conference as a and in to upon ahead. you such now to I actual relied Executive non-GAAP like Reconciliations Great for presentation. Additionally, Western to provided Officer, and of assist President understanding conference results. results financial Western’s not Great are performance should measure financial

Mark Borrecco

and joining doing and hope thank Good family, you, staying I morning, us. well healthy. your that co-workers Seth. you, everyone, your you, for are are Thank

our the of moment we acknowledge Bass, this discuss December. retiring call at recently will that be and a like quarter, take end with results our Doug Operating announced would he Chief Officer, be last Before will I to who the for

I’ve the all We are Doug, on contributions. with Great quick you your have we over best into transitioned the also years and the grateful all you thank support past retirement. you months. appreciate that his the our markets for Bank and company Western Doug’s XX for done wish operating in many as A for I environment. his and seven update

All of our temporary and are including about for and protocol, closure We branches cautiously optimistic branches we when and contact. are cleaning CDC aware become essentially following our reopened we a footprint. internal close remain of guidelines

indicate activity COVID than on market While are cases our better U.S. markets. is the majority faring the of continues to other tracking rise,

for quarter initiatives Now X. an Slide developments the and bolstering update We’ve credit on key talked our our about from management. risk on

nonmaterial external review minimal loan completed by in findings. Protiviti Our resulted

criticized. segments, to a in $X high-risk they appropriate underwritten credits review later standards. provide to of I’m the comments that As loans over our included with reminder, smaller accurately pleased million key presentation, leveraging X% loans along We credit had system. that from new our first-line now are reviewed downgrade than the our me to risk-rating the a appropriately of for are assurance a are outcome. ensure Steve other additional with the past our but for the XX% in bankers, will scope of have this level along and very takeaways with less team, risk-rated

loans, were peak, of managing deferrals total loan excluding addition, the PPP. just In COVID-related At XX.X% been Great we diligently over have deferrals. Bank for our Western

and elevate decided improve monitoring, detection review the independent any XXXX, early we has improve measured loans have ongoing of of X.XX% of relationship on to PPP. credit October loan level ability declined total our credit This issues. XX, material review function to new to our actions. a and outsource Conservative excluding loans, to our As of third-party. To deferral will have

improving our one loans, ratios, FTE, will to on. resulting savings decisions basis capital million PPP, contracted an our of for excluding Our of loss coverage $X cost on. of share Pete and provide contributed for estimates will which our X.XX% healthy Loan points day total in a CECL later reduced discuss previous Pete reserves conservative NIM and fill quarter. we adoption a year. ongoing not We only later did X the have positions

In to quarter We off treasury sheet management, we importance FHLB improve client earnings fill of of the important million improving moving and paid a profile roles. to addition, we number forward. continue our announced $XXX and last balance Organizationally, borrowings of our experience performance. our senior

comes large Johnson financial experience she Head Amy to are enhanced facilities the lead institution and Great implemented We to centralized Amy of hired over this a new to management We years and led with Midwest, treasury sales in multi-region have Western function. a XX of teams. delighted hired a function with Facilities. where

a of locations. We office branch center and Small excellence. are of currently our doing thorough review all of business

credits, discussed originated third-party using and support initiative process. we our To reinvent regardless origination we selected of historically, our have the business size, provider. as to our commercial Fundation small As loan previously, same decisioned all key segment, we have

high to this of We volatility. the new pleased come team our employees appreciative I’m X to has agenda. pilot period caliber March launch how together our about by support our also at expect I’m during of to ability modified XXXX. attract

credit for front, in clearly about lies what and us I’m ahead making progress the are We XXXX. on excited

financial results, Chief review our our a Officer, Pete? I Chapman. Financial for will Now call turn the to Pete of over

Peter Chapman

everybody. morning, good and Mark, Thanks,

prior income taxes, flow X, we of value through income quarter. the $XX fair earnings Net significant had that not credit in from within Looking items and $X.X $XX a the million and net for charges provision were was number million, see an increase included provision at do Slide this before quarter. the you’ll quarter million

charge up in FHLB Also, pick $X gain to you with credit-related history charges which in the sale credit the a non-interest prepayment from for fair can fee XXXX. to break borrowing, $X.X was and loan value, non-interest classified accounted resulted million which value payoffs to see, of loan, increase offset pre-tax cost in a within to securities $X mark for income, a we $X.X related the credit the a million $XX through also $X.X $XX.X million the expenses, earnings is an sale realized quarter, the X.XX% through portfolio. substandard credit to realized cost During charge loss of the had on totaled certain This a moves from million million. which million million portfolio adjustment fair and healthcare of a income. forecasted Including with fiscal mark the loan

to items agreement XXXX. loss-sharing an of in Finally, the included the realized we expense $X completion expense into FDIC in related million other quarter entered

from which COVID-XX related $X of the on rates Credit-related past an cost Bank’s asset provided costs in impact costs. and this taken revenue were in on and net improved further position. other the to resilience write-down generation results to quarter consulting $XX of as the can Additionally, include in year. certain through approximately $X.X we Non-interest year, And comparative measured also three items. OREO the million much through the year. Also, for related incurred showed reserve despite March charges X, interest fiscal the fiscal quarters, a see, included expenses million actions we lower there you some recognized and the and million year’s unique significant severance Slide items

was due environment. at $X as basis only And a deposit the Mark income million Interest decrease in adjusted Now, to X. revenue also $X.X flat point decreased X prior million, basis in in with and Slide successful points contracted NIM, income by Interest million, XX X.X%. Net including looking closer mentioned, has which as deposits. X on quarter. decreased further $XXX the decrease expense loan securities interest to basis to given high-cost yields we’re points yields reducing a was

that quarter of Also, more loan combination by rate billion the be loans, of the – reached the than the loans. yield of yielding income Looking make a and PPP X.X%, currently excluding Protection income that net $X for recognized income million. continues was $X.X up to inflows program. and billion our Program yielding billion interest Together, that averaging just over variable at tripe million interest are $XX of loan of life Slide Payment fee fixed be within in $X.X over beyond fee these Remaining repriced our XX% X, PPP days balance, of loans X.XX%. portfolio XX items X.XX% have to supported loans $X

at quarter. looking the million income non-interest total X, Slide in Now resulted for of $X a loss net

a was million at Slide Steve items XX% which X, the provision period million unique related in in which for expenses quarter very related gain, really at securities loss with $XX value result. identified current prior the up environment from of And history. to a the were prior from provisions seasonal the The by the originations, the touch the for management deposit quarter, total earlier full-year in for million activity a decrease $XX.X quarter. of origination which interest and from contributed increased items. loss that adjusting prior, million $X.X saw Midwest. to supporting non-recurring classified prior $X.X million new the provision $XX the low to as to prior in activity, on loan up will great on million which result approximately elevated was quarter. million. Excluding included on a the increase their compares in slightly transaction $XX.X from Mortgage specific rebound newly or was this demand this non-recurring underlying processing effective million, and the accounting strong This and were were portion later, in quarter, and quarter, million, loans prior largely along $X.X income was revenue was $XX.X $X million, about a charges. I We Non-interest from quarter for strong million quarter the expense $X.X service charge-offs, increased was fair items during business revenue rate a expenses of also outlined teams non-interest quarter. up $XX income XX%, million in expenses $X.X the that which quarter, demand also Wealth the the our Loan in both underlying net

see X, Slide reserves, from loans, that loan quarter. the can X.X% PPP prior loss in to we increased to X.XX% excluding Moving

mark of represent we have value, fair a of PPA addition, loans we million that have of million acquired loans. X.XX%, on In million mark, $XX.X coverage an our our Collectively, portfolio credit $XXX as $XXX total is our long-term accounted X.XX% excluding these and loans. credit $XX.X also provided million of

from of method in X of October, beginning adoption as the Importantly, of to the year fiscal the our new we CECL loss moved incurred XXXX.

see to XX%. loans. common PPP current We’re those XX% to capital XX% This value CECL. of have our prior X day increased such increased X.X% is improved in of equity and expected impact basis increase with also excluding total to share of estimate by industry capital we well to Tier thresholds, also prior more to A equity points in and increase X.XX% and regulatory ratios ratio assumptions from it reflects somewhere as are we this the which at X.X% levels Tier the to from be $XX.XX On coverage ratio an stands, estimate one that per our the overlay about an of XX.X% X Tangible as adoption X also. common on to basis $XX.XX, a between Total tangible a estimated impacted reserve XX.X%, in X, up generally COVID capital on a pandemic X we and points as accommodation continues. book improved impact loss year. internal finalizing X.X% increased Slide exposures the may excess

XX, We share prudent per $X.XX current the in it’s XXXX. for played the consequently, environment. continue capital dividend a to quarter preserve we September to ended of believe And

$XXX increase showing liquidity. tendency decreased in non-interest-bearing the quarter intact and time We’ve of to preserve the remain stimulus deposits were at Deposits from the our in also looking been $XX a as to in improving prior quarter. in the balances $XXX up proceeds slightly PPP receipts while during and deposits million a in customers are Now, of actually an average prior deposits. average mix million quarter. Balances reduction billion, consumer million with successful $XX largely

quality of average Loans the were commercial metrics balance non-real update during Yose, period relatively which end also the non-preferred paydowns prior an some our over The balances asset Officer, With loans. initiatives, balances facility deleveraging of an and commercial the also large $XXX that consumer agriculture Steve progress provide were of acceleration decline or and down I’ll driven an of the at was and credit on within Looking quarter. by that, some now End-of-period sectors billion, portfolio. in balances and quarter. the hand key Chief to HELOC the in estate with exit in Credit to includes segments PPP at loans. loan flat while were $XXX $XX.X million,

over your, So to Steve.

Stephen Yose

Thank you, Pete.

improving give As Mark focus. And quality in progress results. said, the quality repeatedly you the asset would primary made asset with update has along an is quarter, I the our on reviewing like to key

Slide framework the Looking administration. risk decisioning outlined XX, of at we’ve initiatives timely specialized ratings, focused credit credit accurate more and within and key sticking risk-based

As review third-party an that by target. of Mark independent to proceeding we were and September by portfolio, loan with noted earlier, last pleased a the within said quarter critical conducted completed share areas our I’m it was we

fully assurance asset Those on as is stage, noted, new improve the addition manage with and a development actions loans of substandard, training we what it modeling, less to the identify risk system a few exercise. a effective than early now, We’ve of previously us but portfolio. the As warning And a discussing combined between Special and helps downgrade state steps helping can we and provide past in as been reviewed rating more of X, take and prioritize of been indicators, scale October is a quality. Mention Analytics of quarters exercise to better from our was now following criticized. our the portfolio the the added integrated Watch this X% so for at to of required granularity thorough have Moody’s level corrected. our The

which use allowed risk to portfolio COVID the with As objectivity. rate greater us hotel an with to we conditions, the rescore example, model

create an We taking culture steps more more as help unified a credit to us and continue risk-focused risk become organization.

Our industries, my the effect hold a leverages enhanced driving key having that accountable further policy is happy now new to went fully August – risk-based risk risk-focused process providing that specialized to new a rating elevation more or decisioning leadership, and on culture the credit and into The X, credit requires as right have for focused approval system very team approval is in place. I’m the and limit process. higher-risk and senior

We Travis joined appraisal business to September: and Senior Officer, ag Ag Mueller, our have role us in estate a [ph] as hired an real line. Rodock Tom critical manager, Credit in experienced support modified

always most in we the strategies us focus, made While as to including the these new our embraced significant will trumps have even a and I’m Peter late our our organization, been risk of changes very in Officer, the credit more a key have at given experts pleased lift culture Credit I strategy. steps where almost say, Chief pleased Drucker, have improving culture management strategies significant cultural frontline how provide shift. as have other employees and

momentum quarter. Our in continue to team commercial the build workout

and clean a the market with other forward. to We completed a us team, perspective drive that have added on the in resolutions starting manner, sale and efficient resources bolster which and get and deleveraging set is helped viability to tangible workout customers. skill We which non-accrual of loan going the large

We’re strategic our and risk credit management. actions and being with deliberate

and in will over forward some see with earlier, to we the and fits immediately on quality. fact, have will What I’m organization are Mark on on and evolve improvements asset this time. touched strategy looking they doing Some overall you will them,

that XX went As $X billion, this external to through some different XX, on The reviews including $X.X total which further we the were review. third-party billion the hotel turn have reviewed The loan quarter Slide loans included review. details the portfolio. covered I segments,

X% see reviewed. relationships and Mark of our the subsided earlier, excluding commitments, levels loans, less of criticize, I just came No the under downgraded touched past recommendations worth were charge-off As to representing non-accrual $XX have million noted just total deferrals X% you in on reviews. earlier loans PPP. from from will to or five than

loans. top Looking recreation segments, of at million make to XX% of and portfolio the Arts, $XX the million, deferrals $XXX up entertainment was which portfolio. that linked hotels reduced and were to hotel XX%

remain relationship. relationships of a Watch have dairy industry, for other non-accruals hotel Watch relates loans to associated as rating dairy financial $XXX their the current CRE system, quarter system asset as X.XX% COVID sale of risk to were average diligent that and $XXX effort offset the better increase result category resort the a substandard going peers. were space, the The our $XXX XX, remainder XXXX an position. been was coming who ag as with with not The facility we’re $XXX largely through relationships substandard not increased quarter, with the for able been charge-offs quarter. million healthcare able or the which to for ag $XX increased related increase The $XXX larger Our Net progress $XXX in good December million quality category a non-accrual align of and – million worse million. the improve environment. relationships have graded rating category, reflecting the Slide this to includes in two million recent the large in level to charged-off million or moving this that $XX and loans and Mention and to healthcare operating the months past $XX rebound metrics. two hotel and we uncertainty. $XX through On to increase Watch total relationships Special of to million will with spot be to downgraded our of rating for the year balance to in million, approximately a to number changed of were the million with a replaced ongoing in assessment, is lowest in outgoing million in for loans, the Loans have

of the loan which as Slide have we under in $XXX system, began see with portfolio rating on formally Out portfolio, the of new rated as the and current risk legacy Special Mention million summary system, our XX, substandard October $XXX a Watch X. You’ll million along new our we showing worse. rating have

moved and unfavorably conclude the and identify how been indicators in I’m using again our early credit new that accurate actually quarter, this encouraged to While ratings. metrics risk policy have timely we diligent

loan at closer I’m with the portfolio, diversification comfortable Looking the generally have. we

are projects key diversified we are and reviews and adopted XX% The very in of key hotel book. average is national the the a rose XX% who million and respectively, different are key as past However, perspective, flag. XX%. across The a XX%, of is to remained about $XX footprint, close $XXX reported with in million, well the at From that our our remains well The rated. in the Substandard following by is impacted a tracking Special The grain which our to Slide of portfolio sector this $XXX I risk at to rating Nebraska being managing within the a system; XX%. and main substantial are we Iowa, the ag rating the our rose rescoring loans million at risk from And USDA XX, new are this franchise well as and sure harvest is characteristic mid-sized of footprint On very segments any $XX footprint make and XXX progressing quarter. information Mention to our million; locations linked cities, change diversity better South obviously Dakota to to seasoned there portfolio, effectively. have concentration most projects. concentration want developing few customers pandemic. COVID most we carry small biggest migration, quarter reflected is in a non-footprint

is also well average Soybean with of XX%. harvest national a progressing

pace with subsided from Class or and to ahead the in price forward September Iowa $XX.XX, summer, levels prices far Milk South the above have from as XX% level. are this high Dakota, at this of XX%. III levels ranging milk averaged somewhat Nebraska very all

as linked balance other industry healthcare and assisted-living broad healthcare senior an the issues. monitor and social as in healthcare-related assistance. is portfolio the few loans are situational nursing, to perspective. happening what with The been have across and to hospitals continue care, problem any there have mixed services had We is not COVID signals portfolio loans retirement There skilled communities, and from we to

it senior commentary And that in and manageable We have That engage in up XX housing, about which up XX my my identify in nursing more credit wraps skilled hospitals, – wraps I’ll commentary. make and it with to back now customers turn early XX Mark. to relationships indicators.

Mark Borrecco

quality complete, thorough issues support review with the Thanks, Steve’s asset Steve. with and we a for loan our a our guidance And addressing Improving portfolio make remains progress of derisking focus and quality sheet. our major on third-party continue balance to credit and us.

we the that, excited Our other NIM our new up well forward. in low our as continues to going let’s initiatives small accelerate business this section. and about to how year, Operator, move And fiscal our begin rate now I’m hold environment. with will performance question-and-answer

Operator

comes [Operator from with We session. begin will Rulis first ahead. Please Jeff now the question-and-answer Our Instructions] D.A. go question Davidson.

Jeff Rulis

morning. thanks. Good Yes,

Mark Borrecco

Jeff. morning, Good

Peter Chapman

Good morning.

Jeff Rulis

starts think First that the of these the – employees, what as question is you the is forward? with it’s as some kind LPO terms going savings, the and severance I of if of bake in and that the drive of things – expenses. the that does – and deem look, cost the well the what we – in in that reduction quarter, projecting what kind path balance on takes, given the the with it all the Peter, core guess, would in you puts

Peter Chapman

want the Jeff, comments, quarter. expenses got to from run but my the for sort was piece, not big around little which in, Jeff. a next fund quarter. I we’ll just was to mentioned business initiatives – I there other we’ve uptick should We’ve there, said was is million baked pretty use In infrastructure think able of a underlying some sort which good we of around in. small the one to invest saves for But be about got and some a And slight that cost for a there, $XX will there from be rate maintain that was obviously, Mark growth. bit some up good we us the if

Jeff Rulis

Okay.

annual into cost the savings already on FTE of million, over that takes the clarify, that’s expected course the $XX not reduction that? or next the that I’m just sorry baked place following, quarter, So – about to the

Peter Chapman

it Yep. is. yes, Yes,

talking we’re next $XX So million $XX for next for Jeff, quarter. about is, to $XX is where of sort quarter million, forecast million

Jeff Rulis

Got it.

Okay. you. Thank

Peter Chapman

problem No

Operator

Our Please Stephens. with comes question go from next Terry ahead. McEvoy

Terry McEvoy

morning. is and metrics trying the some get my an minimal the nonmaterial first review, hedging other Good substandard maybe bullet of first in findings I of guess, the that, right thanks. commentary And some the outsider up marks kind morning? that Hi, just looking point on to at just question, pleased just of direction and on trends, an again, kind I’m as loans value of loan of at the we��re blunt. wrong credit nonmaterial, of this behind noise the within outsider, moving the a what’s some I the the of with in guess, slide of findings be there. versus I the to as external the look the or the fair just kind sense

Mark Borrecco

ag risk I from Well, are as perspective, my or focus we, on I talking guess, rating. mentioned, our about

as credit on closely a the focus portfolio. very So looking at and frontline, we

with risk driven and the if those sure risk mentioned, we But as looking it increase confirm, rescoring outside under really we to to look are as our our is that ratings make us, indicated portfolio. we’re at which the review in from to So I we’re correctly ratings, primarily hood was really if the are. comfortable

rating is very the our at and risk portfolio. by a consider you impact degree the to substandard especially If size when Mention natural really driven in of section, Watch look the our hospitality you Special which and and changes, is hospitality the of bulk at

mentioned, way looking very we’re and So what that driven, our change, and reviewing be review. not we third-party change hospitality as the and how was cultural by well trying any what why the at to as drove really quality we’re asset sector conservative the I really emphasize that’s

believe, asset we right third-party The doing changes. quality did it our not but things, that are the drive I confirmed, review

Terry McEvoy

rolled some Mark, a you Thanks. kind come? a office, loan I bank individuals, think more changes? and behind follow-up of And SBA. you in perspective, as company? of production largely there are closed the the appreciate from are of Do hired to strategic out the that. Where kind then, Or that’s structure maybe you making just the

Mark Borrecco

I to area, at the of company. would really get is say going behind beginning it announcement treasury, retail, much mortgage, say area first-line, closer as the the that I would the our that retirement, with mentioned lines. to Doug’s the one our call is that I one ag of commercial, most of I’m wealth, his business

And for me better report those those with and directly lines and what they’ll bank structure so to six our our next then market, business understand moving the the organizational the acquaint individuals, months, opportunities, forward. chance will to myself a for give me decide is appropriate

or as me that we’re months better to me roughly on really understand. then spot. So area I to report to business those good for continue businesses in think six that retires one and in for other areas, lines The that we’ll Doug businesses a focus will be the first-line our or

Terry McEvoy

I That’s it. great. Thank you appreciate both.

Operator

comes Our go Please Andrew with next question Sandler. ahead. from Piper Liesch

Andrew Liesch

everyone. morning, Good

Mark Borrecco

morning. Good

Andrew Liesch

the the forward and like should like there is kind NII and mean, securities shake ability seeing benefit lower they’re margin ties the the I costs book how some And size be you with kind And a NII? funding $XXX on also – out to there it to side from are overall, the margin should further? of this rate that what I the of you versus funding the in X.XX% still lower perspective margin from the that? of guess, expect focus and want Just the going on with of guess, opportunities well. It seems I to the sheet prepays as size FHLB be here. level in of balance of a side then million

Peter Chapman

pretty that opportunities. relief comes this sheet not the change the seeing we’re when in sheet, interesting seeing could Obviously, of funding be say it’ll I’ll we’re a significantly. good many comment, But I’ll of depending the just balance certainly, here, so on Look, through timing make couple loan it there, balance quarters. shape PPP. excluding as the in Around environment. Yes. of Certainly,

perspective, us number to mix have more we and those of just costs. loans for any a the to deposits if But into continue may funding anything move help the the will down certainly, over run focus with one, period. securities that we is course from So more high-cost the

there’s into room maybe more in bit a So of little bit move there, to a little securities. move

think So margin we portfolio drift from where the may down loan are more we just from a we where manageable now, perspective, mix given little see a is. bit but it’s

Andrew Liesch

bit Okay. you this higher-cost other last is borrowing that Gotcha. or prepay Are of the there still any it? could

Peter Chapman

No, perspective. that was the main one from a borrowing

really roll the just can move through through, that well. obviously, as money time we’ll down. little So we – continue got some down a now, those We’ve to working as market just bit reprice it’s deposits

on the the deposit side funding more side So and now.

Andrew Liesch

Okay. much. Thank so you

Peter Chapman

problem. No

Operator

next Arfstrom Our comes go ahead. RBC Capital. with Please from question Jon

Jon Arfstrom

Hey, Good everyone. thanks. morning,

Mark Borrecco

Good morning.

Peter Chapman

morning. Good

Jon Arfstrom

credit, us message message in you’ve What’s And things to back Just stable? made. worse, and want at credit? I credit? what’s on of send on us as I you loan trying see But better, you’re understand that terms to to the think the send the prospectively you grading feel look you do probably all changes better to to the things. you

Stephen Yose

far as of say, I as would would say, stable I to the our outlook. hospitality, outside core improving portfolio

positive. agribusiness, As all are you the look at indicators

reports over look you the show pricing months, commodity at If six of the other all and the most USDA next positive. of

From look perspective, at to So trying I hospitality see That’s an portfolio. space. improvement do just Officer hopeful area in our I would closely. agribusiness see focus, uncertainty our Credit in we’re Chief the

We’re constantly. reviewing

We’re sure that it. have trying our around we arms to make

to We’re reduce we what portfolio. carefully that do see can to trying

open business to small strategically, to be in community and grow continue want going grow want markets bank We So our business. to be precise our is as a to space. market within the a commercial for We there. forward, hope strong

are hospitality and how can assisted our derisk portfolio to continue our a we the degree care to focus. We focus in in and going on space, to is smaller that really

asset our So I’m space an quality have work would just say, in continue from asset overly, are how optimistic significant short-term, I to in that, we and to can about challenges But perspective. we part daily the long-term, those portfolio. quality see us challenging the hospitality of within through watching we the

Jon Arfstrom

Okay.

a guess, I in non-performing impossible of, an each increase numbers probably kind I quarter. think that non-performing any ironically thought sounds start the moved you loans backfilled, have And issue quarter is It then very Okay. loans some would think down? the feeling have helpful? your do question, that be gut And you and is can but you when in like it’s on an other you but the coming thing this

Stephen Yose

me Well, bit little once gives the about uncertainty a again, pause. talked I of

watching that month, quarter see We non-accrual, how – just see we’re a to can’t this the going in But to have I just moment. way movement but I’m we’re positive we’re this say which so at that closely. However, but hopeful place, I’m stable some just goes. we’ll we hopeful go,

Jon Arfstrom

in one message there essentially maybe But to for step everything, a captured one provision Peter, on of caps that phase then the that the the I is or down on range, Thank CECL, you. send message the different Okay. because day is to you’ve more is want the at can provision that, start And because outlook? them message up regulatory all you in can impact, it’s come squeeze if X% you Steve. you, you, in low the

Peter Chapman

gives look Look, non-performing are based it the of obviously Steve’s comments CECL of now, over depends obviously, around the But where we of on the sort full Jon. timing on portfolio. you the the life assets,

worsen, we But obviously, to over we XX if and is roll doesn’t what would what next happens see days days. need the So hope. to XX here the forward as that’s that environment stays

Jon Arfstrom

Yes.

right. Okay. All Thanks help. the for

Peter Chapman

Thanks.

Operator

ahead. DelMonte from Please Damon with comes KBW. go question next Our

Damon DelMonte

Hey, guys. is well good today. doing everybody morning, I hope

Mark Borrecco

Damon. morning, Good

Damon DelMonte

on So kind just a credit. of follow-up

had guys in a there take about thoughts on your portfolio a hospitality are step trying big derisk loans with do had that trying I you are larger out a bulk worked secondary you market any that the the favorably. loan to forward and issues? sold and think, to the thought sale? it some Is What mentioned guys giving you that,

Stephen Yose

sale. hotel, in you are at maximize also if is, bulk with your the our a portfolio. careful, learned can do not is every This We losses the you’re with the – thing looking we’ve if opportunity hospitality uncertainty you other

large you large have level specific not have do allocations. at a space, we loans. look or not We hospitality If non-performing of level our do of a non-accrual

not the moment interest a looked we places from seen to the our be all market. within have definitely space at at So looking view we there, and bulk at hospitality – options but best just and of our we here are sale the have the in

Damon DelMonte

Got it.

of decline more you just Thank a if of of I the we Do you. expect And kind kind thanks. Okay, about to quarterly kind in But squeeze one what think case of this could growth, it it could on was just for trend loan the outlook down loans? for lower? quarter. X%

Peter Chapman

Damon. A talked go Steve lot depends about, we that with on derisking the how just

works So based the quarter contraction see through, expect to a would that still slight here on current sort for certainly, outlook. of if I next just

Damon DelMonte

very you Thank much. Okay.

Mark Borrecco

Thanks.

Operator

ahead. Lee next Our Janet JPMorgan. from with comes go Please question

Janet Lee

Good morning.

Mark Borrecco

Good morning.

Janet Lee

up just on perceive the the what in changes a rescore, rest second fundamental on quarter? that and besides level first do – My in following hospitality any third-party, in you versus risk adjustment the question by rating guys the portfolio on you Moody’s saw change

Mark Borrecco

Well, driven if driven the our by the third-party, wasn’t by by it you third-party. own driven review, notice it frontline our was big internally increases by really and and wasn’t it second-line

we look have Mention category. feel just it compared measures space really peers Special to probably – them in hospitality a other be and to But you the at did our markets confirm. And taking level, footprint higher good it Watch we prudent and We in. about in and have could

the But say, a would higher our in CECL in difficult I in the losses the But answer, time uncertainty as would we that I the ACL over there taking that degree. and way me I measured we loans for forward. going we allowance COVID other said anticipate at to look our And steps. space. just is of loan hospitality earlier, uncertainty, are, recognize for and On to hand, levels classified calculations the makes

So it’s say, we’ll have like daily, our we’re on. looking in we anything and just through don’t we monitoring Special That’s But – Mention earlier, it from said we every monthly, to impacts those things monitoring Watch. would more it any day what move to and I COVID really at see I why that. than significant are, just else. we’ve we one changes work what of to portfolio focused those

Janet Lee

in ag quarter, pointed the other the the in case? ag portfolio to asset Is metrics quality quarter, in saw this portfolio. And the last the describe you the expected you one-off in improvement would this some dairy And and migration still we split? like as

Peter Chapman

it saw that cases. yes, or space already one-off, ended say, been in substandard renewed the of to the you recognized non-accrual, up would relationships loans moving classified ag what that had couple was a as I is

We to quickly have want we’ve on we that consistent quarters careful of our been three upgraded how cash had portfolios. We recognize or two flows.

we’re see So like consistent. our We’ll say, just going don’t at we steps that. on of deterioration in any, there, a that, But quarter. improvement this into our see portfolio hope but we’re significant prudent and stay is how the yes, looking quarter next degree to I taking those

Janet Lee

just on the on the you the Or $XX If the the it increased losses line assume risk as be charge just in obviously, about about that P&L, income P&L? this think updated going if side like fair loans, on hard flows mind quarter. value line to I that credit fair volatile I forward? for driver should except very assumptions. from squeeze will coming this through million item that there one to the of mark the risks based non-interest default and don’t credit provision, Is this how The other rise, of item predict more. included can on that risk That portfolio is

Peter Chapman

good question. Yes,

things So One healthcare million on impacted of the was this about an that there’s that charge Janet. portfolio, quarter. disposal $X of couple a that

that at expect hope a step that for then we’d I up lost discount And that’s quarter to see of also wouldn’t credit So, a in we’re next that charge unless significant significant well. sort other as relation to mentioned see loans as exiting elevated. this quarter we history, I’d

that magnitude So quarter that that of was example. this we that adjustment made I for expect significant quarter, something wouldn’t a next

Janet Lee

Thank Okay. right. All you.

Mark Borrecco

Thanks.

Operator

Borrecco, This any closing to concludes like conference would remarks. back turn the our question-and-answer Mark I to over for session. CEO,

Mark Borrecco

so free all Okay. day. us Thank you much. Thank Make if you stay reach have any you, to questions, feel you operator. Thank great please and out. today. Again, for joining follow-up a safe you have sure

Operator

Thank The you conference today’s concluded. is attending presentation. now for

You may now disconnect.