Amalgamated Financial (NASDAQ:AMAL) Q1 2020 Earnings Call

0:00 Good morning, ladies and gentlemen, and welcome to Amalgamated Bank First Quarter 2020 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder, the conference is being recorded. I would now like to turn the conference over to Mr. Drew Levin, Chief Financial Officer. Please go ahead, sir.

0:26 Thank you, operator, and good morning, everyone. We appreciate your participation in our first quarter 2020 earnings call. With me today is Keith Mestrich, President and Chief Executive Officer. As a reminder, a telephonic replay of this call will be available on the investor section of our website for an extended period of time. Additionally, a slide deck to complement today's discussion is also available on the investor section of our website. Before we begin, let me remind everyone that this call may contain certain statements that constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We caution investors that a number of factors, some of which are beyond our control, could cause actual results to differ from the expectations indicated or implied by any such forward looking information or statement.

1:19 Investors should refer to Slide 2 of our earnings slide deck, as well as our 2019 10-K filed on March 13, 2020, and our other periodic reports that we file from time to time with the FDIC, typically under a cautionary note regarding forward-looking statements and risk factors. For further description or explanation of those items that could cause actual results to differ materially from those indicated or implied by any forward-looking statements that we make. Additionally, during today's call, we will discuss certain non-GAAP measures which we believe are useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U.S.

2:06 GAAP. A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release as well as on our website. At this point, I'll turn the call over to Keith.

2:18 Thank you, Drew, and good morning, everyone. We appreciate your time and attention today. On today's call, I will start with an overview of our operations given the rapid spread of COVID-19 and its impact on New York City before reviewing our results and accomplishments in the first quarter. I will then turn the call over to Drew to discuss our first quarter financial results in more detail. I'd like to start by thanking our employees for their extraordinary efforts during this challenging time. They have worked tirelessly to ensure that the bank's operations have run smoothly and our support to our customers and communities remains uninterrupted. The safety of our employees and customers is our top priority. I want to share with you all a brief story of how we found ourselves at the door to the COVID crisis. I had been attending a bank conference in Switzerland in February as the pandemic was beginning to flare uncontrollably in Italy, where I was also scheduled to travel for meetings. Needless to say, I canceled my trip to Rome and headed back to New York. as my proximity to the pandemic opened my eyes to the risk that it held not only to the US but New York City in particular.

3:21 This was truly a case of being in the wrong place at the right time and I knew that our crisis management team needed to put our pandemic plan into place as I believe the shut-in of New York was imminent. Our crisis team implemented plans to move to almost 100% of our employees to a work-from-home environment by the middle of March and we have quickly adapted to this new normal. Our managers are checking with their direct reports daily to ensure that our operations continue to run smoothly and I am very pleased to report that our staff is seamlessly handling transactions and making new loans. I'm very proud of their efforts and we have not missed a beat. Since our founding almost 100 years ago, we have had a commitment to the greater good which has shaped the business model and our values. We believe that a financial institution's mission should include using its resources, money, and influence to help move its customers, its community, and society forward.

4:13 While we find ourselves in an unprecedented environment, our mission and values are unchanged, and they continue to guide our senior leadership team in the decisions that we make as we navigate these uncharted waters. First and foremost, we remain committed to our employees having repositioned branch staff to other areas of the bank's operations that have seen an increase in activity. We are committed to the physical, emotional, and financial health of our team and have no plans to lay off our employees during this uncertain time. We also remain committed to our communities and those in need. I am amazed and thankful for the efforts of those that are battling this crisis on the frontlines, and I'm very pleased that we were able to create the Frontline Workers Fund, which offers direct assistance to nurses and healthcare workers, grocery workers, cleaning service workers, food service workers, laundry workers in our hospitals, and retail workers, to name just a few. We also launched the Families and Workers Fund in partnership with the Consortium of Foundations, whose goal is to provide financial resources to vulnerable working families across the country. This fund has initial commitment of $7.1 million and the goal is to raise $20 million in order to provide flexible funding to organizations striving to prevent workers and families from sinking deeper into levels of poverty during the initial months of this pandemic.

5:30 All of this would not be possible without the strategic transformation that Amalgamated has undergone in the last six years. When I was appointed CEO in 2014, our team undertook a broad plan designed to unlock the profit potential of the bank, which included recruiting talented executives from across the banking industry, growing our customer base, instilling a disciplined expense culture, and improving the quality of both our assets and sources of funding. This has led to a stable low-cost deposit base. We have also closed unprofitable business lines and significantly reduced our branch footprint.

6:03 Most importantly,

6:04 We have instilled a disciplined credit culture, which has resulted in strong credit performance of our loan portfolio. As part of our comprehensive credit risk management process, we made the decision to run off our indirect C&I portfolio and significantly de-risk our balance sheet over the last two years, which I am very grateful for given the current market backdrop. Today, the bank is on firm financial footing with a strong capital base and a well-underwritten loan portfolio. as can be seen in our first quarter results, which provides confidence in our ability to weather the storm. For the first quarter, we reported, first, pre-tax, pre-provision income of $21.5 million, which compares to $16.5 million in the 2019 fourth quarter. We grew average deposits by $400 million, or 36% annualized, as compared to the fourth quarter of 2019. Our cost of deposits was 33 basis points down from 36 basis points in Q4 and non-interest bearing deposits were 48% of ending deposits.

7:04 Our net interest margin expanded three basis points to 3.46% from the 2019 fourth quarter. Importantly, our efficiency ratio improved to 59.97% and we remain well capitalized with a common equity tier one ratio of 12.74%. As Drew will discuss in more detail, We recorded a provision expense of $8.6 million, primarily driven by $3.4 million in our indirect C&I portfolio and $3 million in qualitative factors, both largely due to the impact of COVID-19. We are watching our loan portfolio carefully and are proactively working with our borrowers in more challenging industries on payment deferrals to help them through this time period. While we expect provision to go higher, we remain confident in our strong credit culture Good afternoon, and thank you for joining us today.

8:15 We have also been aggressively reducing expenses to ensure we remain well positioned to handle an extended downturn while not sacrificing the underlying fabric of our business. Our focus has been on reducing some deposit expense, initiating a hiring freeze beginning in April, cutting back on non-essential projects, shifting resources internally, most specifically at the branch level, improving call center operations, and canceling unnecessary services. We expect these steps to help mitigate the impact of lower interest and equity market values on our revenue. We have an experienced team in place that is executing the necessary adjustments while not taking out costs that will affect the operational capabilities or competitive position of our business on a go-forward basis. Looking forward, we understand that the future is uncertain and we are opportunistically managing our non-interest expense to maintain our financial flexibility and ensure the long-term success in the bank.

9:07 One growth initiative that we have moved forward with is the opening of our commercial banking office in Boston. I am very pleased to announce that we have hired Mark Walsh to head the office and oversee a team. Mark has over 13 years of experience as a leader in the nonprofit and political sectors in the Boston area and brings a wealth of local knowledge to the bank. Given the pandemic and shelter-in-place orders that continue to exist, we expect the ramp of our Boston office to be more gradual, though we are already starting to see new client acquisition, and we will delay the opening of our Los Angeles office until the environment begins to normalize. For our capital allocation priorities, we have suspended our share buyback given the uncertain economic environment and we will evaluate our dividend with our board of directors each quarter. That said, we announced yesterday a second quarter dividend of $0.08 per share. Additionally, we are watching the economy closely and aggressively managing our business to adapt to this new environment.

10:03 While M&A has been a growth driver for the bank, we will remain on the sidelines until we have more clarity on the recovery. Given our positioning in capital, We would look to take advantage of opportunities that present themselves as the recovery takes hold and the economy begins to normalize. I am also very proud of our mission-aligned initiatives and accomplishments that we have achieved thus far in 2020. Of note, we launched our Corporate Social Responsibility Report on April 13th, which provides a comprehensive overview of our CSR policies, strategies, and initiatives. Our CSR report provides a wonderful overview of all the good that Amalgamated is doing in the world. and we continue to build on our reputation as America's socially responsible bank every day. I am also pleased to see that our initiatives and efforts are being recognized as MSCI raised our ESG score from triple B to single A and we improved our certified B corporation score to 115 from 87.

10:56 To conclude, I am very pleased with our first quarter results and the positioning of our loan portfolio as the country works together to defeat the spread of COVID-19. We remain well capitalized to successfully weather this storm Thank you, Keith.

11:35 I will begin by reviewing our first quarter results before turning the line back to the operator to open for questions. Turning to slide seven. In the fourth quarter, ending deposits increased $435.6 million, or 37.5% annualized, to $5.1 billion from the fourth quarter of 2019, while average deposits for the quarter were $4.8 billion. Average non-interest bearing deposits increased $276.5 million from the prior quarter primarily due to seasonality related to the election cycle and now represent 48% of average deposits at quarter end. Our cost of deposits decreased to 33 basis points, down 3 basis points compared to 36 basis points at year's end.

12:21 As Keith mentioned, we expect the cost of deposits to continue decreasing as a result of repricing in reaction to the Fed cutting rates to near zero. Deposits from politically active customers, such as campaigns, PACs, and state and national party committees, increased $196.2 million from $578.6 million at December 31, 2019, ending the first quarter at $774.8 million, as outlined on slide eight. The election environment continues to be a source of growth for our deposit franchise. The focus for this year will be the presidential race, We have and continue to be a partner supporting the business needs of the majority of Democratic candidates.

13:07 It is worth noting that in April we continue to see an influx of deposits and balances have increased another $247 million since the end of the first quarter, of which $47 million were from political deposits. As a result of the deposit growth, the bank just crossed the $6 billion mark in total assets. As seen on slide 11, we delivered loan growth of $76.2 million, or 8.9% annualized as compared to December 31, 2019, and ended the quarter with $3.5 billion of total loans. This loan growth was driven primarily by an increase in C&I loans of $58 million, of which $24 million was the purchase of government-guaranteed loans, an increase in residential loans of $50 million, and consumer loans of $26 million.

14:00 The growth was offset by a $53 million decrease in commercial real estate and multifamily loans due to payoffs, where we chose not to match the terms of other lenders to retain the loans. As a reminder, our balance of PACE assessments is now reported in the Health to Maturity Securities Portfolio, which is inclusive of approximately $255 million in purchased PACE assessments. Our new investment in PACE Funding Group will allow the bank to continue adding PACE assessments in the future, though the trend may be slower than originally anticipated due to the ongoing pandemic. As part of the CARES Act, the bank has implemented a payment deferral program for consumer and commercial customers. The standard agreement allows for three months of deferrals of principal and interest. These loans are not reported as delinquent on our financial statements and are not downgraded solely due to the payment deferral program.

14:57 In total, we have set up approximately 9% of our loans on a deferral program, which is shown on slide 14. We expect that number to grow over the coming weeks, particularly for commercial clients who are still going through the process. On slide 15, we have highlighted our residential loan portfolio by origination source. All portfolios have strong loan-to-value coverage, and it is worth noting this is compared to the original appraisal on the property and not adjusted for HPI increases over time. These requests in the residential portfolio were heavy in the first part of April, but have since slowed down. Moving to slide 16, we are showing the portfolios in CNI and CRE where we expect to see COVID-19 impacts. In the CNI portfolio, we have $112 million or 3.2% of total loans that are in industries that are more susceptible to impacts.

15:52 Of the total CNI portfolio, approximately 30 million have received payment deferrals. Multifamily and commercial real estate, we've had many inquiries from property owners on payment deferral options. As of April 24th, $155 million of balances have received payment deferrals. Unlike the residential portfolio, the requests from commercial clients have been slower and we expect this number will continue to increase throughout the second quarter. Our investment securities portfolio has also seen impacts on the mark to market for the available for sale securities during the first quarter. In the last few weeks of March, the fixed income markets for non-agency securities was particularly volatile, and the fair value of the available for sale securities portfolio decreased by $25 million compared to year-end 2019, which was an improvement from the lows of mid-March.

16:44 Since the end of Q1, values have continued to improve, but there may be more volatility in the future. Turning to slide 18, our net interest margin was 3.46% for the quarter, an increase of three basis points from the fourth quarter and a year-over-year decrease of 19 basis points. The increase in NIM compared to the linked quarter was primarily due to the lower cost of interest-bearing liabilities as the cost of interest-bearing deposits dropped by five basis points and borrowing costs were essentially zero due to deposit growth. First quarter NIM includes four basis points of accretion of the loan mark from the new resource bank acquisition and six basis points from prepayment penalties on loans. as compared to five and two basis points respectively in the fourth quarter of 2019.

17:33 On a go-forward basis, we expect NIM to decline in the second quarter as we start to see the impacts of the most recent Fed cuts to zero, which will be partially offset by deposit cost reductions. In addition, the inflow of deposits has been more heavily deployed into floating rate agency securities or held in cash in the second quarter, and that will also pressure net interest margins. Net interest income for the first quarter of 2020 was $44.7 million, which compares to $42.3 million in the linked quarter, and an approximately $3.9 million increase as compared to $40.8 million in the same quarter of 2019. Now on to non-interest income. Non-interest income for the first quarter of 2020 was $9.1 million, increasing from $7.8 million in the fourth quarter of 2019 and a $1.7 million increase compared with the first quarter of 2019.

18:32 The main factor for the growth in the quarter was the sale of our Tremont branch for a gain of $1.4 million, which has been excluded from core net income. Keith mentioned the initiatives to reduce non-interest expense on a go-forward basis. For the first quarter of 2020, our non-interest expense decreased to $32.3 million compared to $33.5 million at the end of the fourth quarter. This quarter's expense included $1.4 million of non-core expense, primarily related to branch closures which will not recur next quarter. On a core basis, our expense is worth $30.8 million, which reflects our ongoing expense discipline. As Keith mentioned earlier, we are focusing on expense management as part of our pandemic response initiatives. and we expect to run expenses below $32 million per quarter for the remainder of the year.

19:29 Skipping ahead to slide 21, the credit quality of our portfolio has held steady throughout the first quarter as non-performing assets totaled $65.6 million or 1.14% of period end total assets at March 31st, 2020 compared to 1.25% as of December 31st, 2019 a decrease of $1.1 million from the LINC quarter and an increase of $9.1 million as compared to March 31, 2019. Criticized and classified loans increased by approximately $16 million in the first quarter compared to the LINC quarter driven primarily by the downgrade of one construction loan on the West Coast of $7.9 million and an increase in CNI and retail.

20:17 The provision for loan losses in the first quarter of 2020 told an expense of $8.6 million, which compares to an expense of $83,000 in the fourth quarter of 2019. Provision expense in the first quarter was primarily driven by an increase in specific reserves of $3.4 million on two loans in the indirect C&I portfolio, which were impacted by COVID-19 issues, and the addition of $3 million to the qualitative reserves. The indirect CNI loans were previously TDRs and were not eligible for the payment deferral treatment afforded by the CARES Act. We do expect to have an elevated level of provision in the second quarter as we continue to update qualitative factors based on information available in the second quarter.

21:04 Charge-offs on currently delinquent consumer loans may also be elevated in the second quarter as those loans are not deemed to be impacted by COVID-19 and are not eligible for deferral. Skipping to slide 21, our gap in core return on tangible common equity was 7.6 and 7.7% for the first quarter of 2020, respectively. The core return compares to 10.7% for the fourth quarter of 2019 and 10.2% for the comparable period in 2019. The decrease in core return on tangible common equity in the linked quarter was primarily due to the previously discussed provision taken related to COVID-19. Lastly, we remain well capitalized to support future growth.

21:49 To conclude, we are pleased with our first quarter 2020 results given all the events that have occurred. Given the fluid environment today and the uncertainty that exists, we have decided to suspend our current full year outlook until the economy begins to recover and normalize from today's events. Thank you again for your time today. We look forward to updating everyone on our second quarter results in July. With that, I'd like to ask the operator to open up the line for any questions. Operator. Thank you. At this time, we will conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. At any time you would like to remove your question, please press star 2.

22:35 For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star 1 to ask a question at this time. One moment while we pull for our first question. Our first question comes from Steven at Lex Palouse with JP Morgan. Please receive your question. Hey, good morning, everybody.

22:57 Hey, good morning, Steve. I wanted to start on the provision. And regarding the commentary, the expected increase in the 2Q reserve tied to payment deferrals. So you guys are not on CECL. You're still under the incurred loss model. And under that regime, what do you need to see to change further to drive an increase in the reserve? Is it just new deferrals coming in?

23:21 So, Steve, keep in mind, and this is specifically the qualitative reserve that I was talking about and I'm about to talk about here, just to be clear. So at 331, we did not have a lot of deferral. We had actually no deferral activity, though we were starting to have inquiries come in at that point, starting to get our process into place. So when we set the qualitative factors at 331, The only thing we really had to work off of was the downgrade of the economic factors, which we took from pretty much the lowest levels to the highest level. So we did kind of the maximum qualitative impact on economic factors, and we used the same standard nine factors that I think many other banks use. The factor that we will be looking at this time in Q2 is the trends of, you know, it would normally be the trends of past dues in the portfolio, but the trends of deferrals, past dues, et cetera, in the portfolio, which again, I think will move from pretty low levels to, depending on the portfolio, you know, somewhere between medium and high. But if we went from the lowest level to the highest level, that would again be a $3 million impact in qualitative.

24:32 And that's a Q2 event. It's not a Q1 event, unfortunately. Okay. Other banks are saying that they're seeing a material drop-off in new deferrals, though. I mean, in terms of the pace, have you seen any abatement in terms of the pace of requests? Are those still increasing?

24:50 No, as I was just saying on the call, residential has basically slowed. Actually, the last few days we've had no deferral requests at all come through, or new deferral requests. So that part of the portfolio has pretty much stopped. Now, we're coming up to a new set of payments, so I don't know what that's going to mean. I don't think anyone knows what that's going to mean for the next round. It might mean absolutely nothing. It might mean that we see some incremental deferrals come in, but I think the majority of it has probably already happened. On the multifamily commercial real estate, I think general commercial real estate and C&I has reacted pretty quickly. I think multifamily, you know, a lot of April payments were made. I think they're probably waiting, the landlords that is, are probably waiting to see the May payments. And we may see some more deferrals come in through that. And it would not surprise us at all to see more deferrals come in, particularly in multifamily. You know, the other thing I'll add is the processing on the commercial side, at least for us, is slower because on the consumer side, the residential side, We ask the customer to describe their hardship, but we don't require any proof because to do so would be difficult and unreliable.

26:09 On the commercial side, we actually ask the borrowers to document for us their decrease in cash flows before we grant the deferral. So the process takes a little longer to work through. Okay, that's helpful. And then on slide 16, the COVID-19 exposed sectors, I'm curious, what worries you most In terms of what you're calling out, and maybe in the Cree book, how much of that is retail?

26:35 In terms, well, overall, what worries me is probably more of a, there's a lot to worry about, Steve, so let me just pick the one that probably worries me, and I know Keith the most because we talked about it, is our portfolios that are based on real estate, whether it's residential or multifamily commercial, I think have very strong loan-to-values portfolios. and implicit in that underwriting is that we will be able to control the property over time if needed to work out the credit. And I think given how widespread the impact of this pandemic has been, it's quite possible that the rules change in terms of foreclosure, how fast properties or tenants turn over.

27:21 And that could mean that the normal time to work out a credit across the industry changes. I'm not saying it will, but that is, I think, what kind of worries me maybe more than I would normally be worried about it, if that makes sense.

27:40 Yeah, I totally agree with Drew on that. I mean, look, what's in hotels and restaurants, obviously, every bank that has those on their portfolio is going to be concerned about those individual names. It's not a huge percentage of the portfolio, so while I don't love it, it's not the big worry. I think Drew is exactly right. What we can't predict, particularly with the New York City-centric multifamily portfolio and other things, is when the pressure will really come on landlords. What will the impact of stimulus payments and potentially new stimulus payments to individuals, people starting to receive enhanced unemployment benefits, are they able to continue to make their rent and mortgage payments, and what will be the other countervailing political pressure that will be on the ability for anybody to be able to sort of deal with the property that they have and work it out in a normal way. It is a big, big unknown to us. And while I think we built a portfolio that in normal periods of economic stress should be well positioned to do well, The severity of this and the unknowns, you know, as you look at months out into the future here, were there to be extended double digit unemployment kind of pressures is just the biggest worry I think that we have at the bank.

29:03 Yeah. Okay. And then thank you. And then just finally, Drew, with deposit growth running so strong, sounds like the pace demand has slowed a bit given the pandemic, maybe loan growth too. How do you see and what do you see for investing this cash and what kind of yield should we expect? Thanks.

29:20 Yeah, so it's all happened very quickly. And clearly, we haven't been able to thoughtfully and carefully deploy it out. So we've, you know, in the near term, we've purchased a lot of floating rate agency securities. You know, we do have a very strong residential pipeline from Q1 that we're working through. And so I think for Q2, and I think PACE assessments that come on the books in Q2 as well will be pretty strong. So Q2 I think we're okay, but we're going to end up with a lot of cash and a lot of floating rate agencies on the books. Now keep in mind we're also expecting to have the political deposits start to run off maybe a little bit. I don't know that at the end of Q2 we'll see that, but I think we're going to want to stay more liquid in the near term just to be in a great position to be able to offset that upcoming runoff and not necessarily have to go into borrowings, although we may choose to do that as well and just continue to grow the balance sheet.

30:21 But our first and foremost thought here, and I think probably most banks are in the same boat, is be extremely careful with deploying cash and capital into credit right now and make sure we understand what we're getting into as best we can in the new environment that we're all dealing with. Okay, great. Thanks for all the color. Thank you. Our next question comes from Chris O'Connell with KBW. Please receive the question.

30:51 Morning. I was hoping you guys could dive into a little bit the PPP program you have going on and just how it is logistically working in terms of providing your customers with the referral.

31:12 Yeah, yeah, happy to, Chris. So we are not an SBA-certified lender. And as you know, we're not a bank that's particularly geared up to do small business loans. It's never been one of our focus. We don't really have the capacity to be able to handle the origination request and the loan servicing request to handle a small business portfolio. And over the past several years, we've had a renewal relationship with one of the country's largest non-bank SBA companies, Lenders. That has worked very well for us in normal times. We made a decision early on, probably not anticipating, like a lot of banks, quite what the demand would look like to do referrals for mostly small nonprofit organizations who are eligible for the PPP loan.

31:58 They're not normally eligible for SBA loans, but were for the PPP program. We got about 850 referrals into that program. We referred them on to our partner to be able to handle those loans. Our bankers have helped people through the process and continue to fill out their applications, but our partner has really handled the underwriting and the origination of those loan requests.

32:24 Got it. And do you know what the dollar amount is on the amount that you prefer?

32:30 I do, but Chris, I'm going to have to get you that more accurately because I don't have that at my fingertips. Drew, do you know off the top of your head? How many are funded? What the total loan request volume was?

32:44 In units, I mean, it was over 800. I think in dollar amounts, it was probably... Yeah, I don't know the number, actually. I don't want to speculate.

32:53 We'll get to the number, Chris.

32:55 The other place where we are going to participate in PPP, which is really the only way that we have the ability to do so, is from NewTek, we do plan to... purchase some of their sales of the PPP loans which you know it actually the duration of those of those loans matches very well with the political runoff cycle that we're anticipating so that's a you know risk-free short-term use of cash that you know we should be able to do to it's kind of our way of helping the PPP program

33:31 work. Got it, got it. and then if we could shift to the balance sheet in particular, loans. I think you mentioned in the press release that there were some loan purchases this quarter. If you could just go through maybe the amount and what type of loans those were and then just overall, you know, your outlook on loan growth for the rest of the year given just the big shift in the environment from last quarter to now.

34:03 Yep, so in terms of loan purchases, first of all, we did purchase $35 million of residential loans on the West Coast, which normally we haven't been doing, but we're doing that for CRA purposes. So those are going to be high-quality residential loans. It's more about the geography that they're in than anything else. We did do some more solar loan purchases. I think the amount there is probably about $35 million. There was one transaction we had been working on for a while that did finally close. I think for residential solar purchases, at least for now, that's probably it for us in terms of what we'll be doing. Same for residential loan purchases.

34:49 And then SBA as well. Every quarter we seem to be purchasing some SBA or maybe more so I should say SBA and USDA. They're government guaranteed loans that show up in our CNI portfolio. So we did do some more purchases for those as well. Our total government guaranteed loans sitting in C&I is now about $150 million. So it's a place we like to deploy capital risk-free.

35:17 Got it. Hey, Chris, just to follow up on your past question, I emailed really quickly our head of commercial banking. The total loan requests were approximately $65 million under the PPP program.

35:32 Great.

35:34 and then just finishing up on the loan side maybe dive into the outlook for the rest of the year just given some of them you know changes in the economy yeah looks cloudy I'll be honest I mean what we what we are seeing is I think there are more opportunities now in high quality loans than there were before this began I think the multifamily space has loosened up a little bit but obviously We're being very cautious there, only doing the highest quality deals. We're requiring six months of P&I reserve for anything that we're currently underwriting. But those deals are now moving forward. Residential, we had so much come through in Q1 before all this happened as a result of just rates continuing to go lower that we actually sort of effectively turned off our pipeline.

36:28 I think we're now looking at turning it on again in a very conservative manner. So I think that we should still see some growth there, but it's probably slower than we anticipated. And PACE will continue to come on as well in the securities portfolio. I'm actually pleasantly surprised with how PACE originations are going with our partners. It's certainly down, but it's not out. So I think those will be some of our growth areas, and then we continue to have a pipeline of C&I loans as well that we're looking at. But we've obviously turned the dial several notches in terms of the risk that we're willing to put on the balance sheet at this point. But we're also still in business to originate.

37:09 Got it. And then on the deposit side, I mean obviously political deposits were really strong this quarter and much stronger than I think even you guys were expecting. Do you have any outlook on kind of, you know, I mean, it's been strong coming into the second quarter as well. It seems like, I mean, is there any outlook, I guess, that you can provide or is it still kind of murky given the election cycle?

37:40 Really, you know, look, one thing I would emphasize is, you know, we've seen, as we have in the past couple of quarters, nice deposit growth across our sectors, not just in the political sector and our commercial bankers. Even though they're in a work-from-home environment, they remain active in terms of talking to a number of our existing customers and looking for new relationships. So that activity has not stopped or slowed at all. The election cycle obviously is also in a bit of a murky environment. It's gotten a little bit more clarity on the presidential side now that we have a presumed Democratic nominee, and I think you'll start to see in that piece of the race, you'll start to see a consolidation of candidates of contributions there that will help in that. And we should continue to see some growth there.

38:27 You know, Democratic, vulnerable Democratic candidates who are in their first term had very, very good first quarter of fundraising, anticipate them having a good second quarter as well. But we should, as in past years, start to see a plateau start to happen where people, as we've talked about before, sort of raise and spend at an equal clip. And I think as campaigns make adjustments, figure out how to spend money in this environment. We should start to enter into a plateau phase and then again see the runoff of the deposit portfolio towards the end of the third quarter, beginning of the fourth quarter, as we've seen in past election cycles. That's the best crystal ball I have at this point. I could be wrong by a little bit, but I think that would be the general pattern that we'll see, Chris.

39:15 Great. Thank you. and then just one last one on the NIM I appreciate you know the guidance you know probably you know down next quarter and I know there's a lot of moving parts here particularly you know with the political deposits and kind of unknown you know how that might end up for the for the quarter but assuming maybe they stay flat here for the remainder of 2Q at the balances that you guys gave in the deck. Just given all the movement in short-term rates, can you give any look into just maybe a range or how that might factor into the quarter-over-quarter NIM for 2Q?

40:12 Yes. It's going to be, it's tough to see where it is this early in the quarter given all the movements that have happened. I mean, I think you're probably going to be looking at just, and it's a combination of a little bit of NII starting to flatten or maybe drop a little bit and then the balance sheet growth just expanding very rapidly because keep in mind the averages that you're looking at for the Q1 NIMM are probably, just given all the end of quarter activity, are probably 200 million light compared to where they would be if you just take the end of March average, if that makes sense. But it's going to be on lower yielding assets because of where we've deployed it. I think maybe in terms of NII, which I'm a little more comfortable talking about at this point just given all the volatility, When we model, you know, we have obviously had our disclosure last quarter where it was, I think, about 13 million down for 100 basis point drop, which just happened.

41:15 I think we're looking at more like 7 million down when we factor everything in, which is a pretty decent size improvement. And that's a combination of, I think, a little better performance in terms of prepayment speeds. You know, LIBOR, that assumes LIBOR comes down a little bit from where it was, which it's already doing. and I think our deposit repricing has been more effective than we thought it would be in the model and part of that is just how fast it happened and you know money market yields which are sometimes competition for us you know effectively going to zero so I'm very pleased at least with our outlook which you know is always subject to some error in terms of where NII is going to go versus what we originally projected with the down scenario.

42:04 Got it. And that $7 million, that's coming off the $44.7 million this quarter?

42:11 No, no, no. Annually. Annually.

42:13 Yeah, just wanted to confirm that.

42:15 Yeah, that's a good one to confirm, Chris. Yeah, yeah. Call it $1 to $2 million a quarter. Great. All right. That's all I had. Thank you. Once again, ladies and gentlemen, to ask a question at this time, please press star 1 on your telephone keypad. There are no further questions in queue. I would like to turn the call back over to management for closing comments.

42:44 Thank you, operator. I just want to thank everyone who joined our call today. We hope that you and your families continue to stay safe and calm. We're certainly living through a challenging time, and I wanted to leave you with just a few concluding thoughts. First, I continue to be very proud every day of our employees who've worked so hard to support our customers since we moved to a remote working environment. Secondly, our commitment to our employees, customers, and communities remains true to our mission and values. Third, we have many levers for growth, including our sustainable lending, geographic expansion, and new product development in our trust business, to name just a few. Fourth, we also have the ability to drive additional operational efficiencies and are reviewing opportunities to further reduce our expenses without impacting our competitive positioning. and taking together and despite the challenging backdrop, we're optimistic that we can continue to grow the bank and are confident in our financial positioning such that we will be able to take advantage of market dislocations as the economy begins to normalize again. And as a reminder, we anticipate filing our 10Q this evening.

43:43 So thank you again for your time today and everyone, we will see you soon. Thanks. This does conclude today's teleconference. You may disconnect your lines at this time and have a great day.