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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by and welcome to the Fulton Financial First Quarter 2020 Results Call. At this time all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I’d now like to hand the conference over to your speaker Mr. Jason Weber. Please go ahead, sir.
Thank you, Cherie [ph]. Good morning. Thanks for joining us for Fulton Financial’s conference call and webcast to discuss our earnings for the first quarter of 2020. Your host for today’s conference call is Phil Wenger, Chairman and Chief Executive Officer. Joining Phil Wenger is Curt Myers, President and Chief Operating Officer; and Mark McCollom, Chief Financial Officer.
Our comments today will refer to the financial information and related slide presentation included with our earnings announcement, which we released at 4:30 PM yesterday afternoon. These documents can be found on our website at www.fult.com by clicking on Investor Relations, then on News. The slides can also be found on the Presentations page under Investor Relations on our website.
On this call, representatives of Fulton may make forward-looking statements with respect to Fulton’s financial condition, results of operations and business. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, and actual results could differ materially. Please refer to the safe harbor statement on our forward-looking statements in our earnings release and on Slide 2 of today’s presentation for additional information regarding these risks, uncertainties and other factors.
Fulton undertakes no obligation, other than as required by law, to update or revise any forward-looking statements. In discussing Fulton’s performance, representatives of Fulton may refer to certain non-GAAP financial measures. Please refer to the supplemental financial information included with Fulton’s earnings announcement released yesterday and Slides 16 and 17 of these non-GAAP financial measures to the most comparable GAAP measures.
Now I’d like to turn the call over to your host, Phil Wenger.
Well, thanks Jason and good morning, everyone. Thanks for joining us. I have a few prepared remarks before our President and Chief Operating Officer; Curt Myers provides insights, on our business performance for the first quarter of 2020. When Curt’s finished, our Chief Financial Officer, Mark McCollom will share the details of our financial performance. When Mark concludes, we’ll open the phone lines for questions.
As COVID-19 developments continue to unfold, I want to spend a few minutes updating you on our response to this pandemic. Our company’s brand, It’s Personal. It’s not just about words it’s about actions. As we face the effects of COVID-19 together we’re continuing to support affected individuals, families and businesses by offering special programs to ease the financial and economic impact in the communities they serve. Some of these programs are listed for you on Slide 3 in today’s presentation.
We understand the hardship our employees and customers may face and all the business and school closures, job furloughs, reduced work hours and social distancing and we’re prepared on an individualized and personal basis to help them through these challenging times. Curt will provide you with the details at the moment. But we’ve provided payment relief to our commercial and consumer customers to help them get through this difficult time.
As the severity of pandemic became more apparent, we quickly focused on our employees knowing that the health and safety of our team members was and is critical to our ability to meet the needs of our customers and our communities. Like many companies we initially implemented sanitation protocols in our offices, encouraged the use of technology rather than in-person meetings wherever possible and put in place additional paid time-off programs to help our employees and their families.
As the crisis worsened, we completely redesigned our service delivery models and strengthened appropriate balance between continuing to meet customer needs and reducing face-to-face interaction. We instituted banking by appointment only in our financial centers and encouraged the use of ATMs and drive up windows instead and guided customers to our digital channels to support their financial services needs without requiring physical contact with others.
By quickly acknowledging the new reality of the COVID-19 environment we have been able to support our employees and their families, continue to serve our customers and be a source of stability for our communities. From a financial perspective, our pre-provision net revenue was approximately $74 million for the first quarter of 2020. A slight increase from the same quarter last year. Our subsidiary bank, Fulton Bank remains well capitalized, it has ample liquidity to support our employees, customers and the communities that we serve.
Mark will provide more details on this, but we believe capital and liquidity are two of the most important qualities to uphold in this crisis. We’ve taken several intentional steps to ensure that our capital and liquidity stay strong throughout the crisis. Going forward, we intend to focus on our primary mission of serving the communities in which we operate, so they in turn, can help to push the economy and our country forward from here.
To help with this effort, early in the second quarter we made a contribution to our Fulton Forward Foundation which will be used to help our communities in the fight against COVID-19. Our senior management team also remains focused on leading our employees through this difficult time so that we can all continue to change our customers lives for the better.
So now I’d like to turn the call over to Curt to provide insights on our business performances. Curt?
Thank you, Phil and good morning, everyone. Our commercial and consumer lines of business performed well in the first quarter, highlighted by the solid loan growth and strong production from our mortgage banking business. However deposits in the quarter were overshadowed by the rapid deterioration in the macroeconomic environment as a result of COVID-19. As Phil mentioned, we’re working with our customers during this difficult time and are providing payment relief ranging from three to six months depending on the product. As you can see on Slide 4, we provided payment relief on approximately 4% of our consumer loan balances and approximately 14% of our commercial loan balances as of April 17.
We are offering other special assistance programs as well such as overdraft and NSF fee waivers and early withdrawal penalty waivers for certificates of deposit. We continue to provide liquidity and funding to our customers. Our loan balances increased $240 million or 1.4% linked quarter and $815 million or 5% year-over-year. The commercial pipeline at March 31, 2020 increased 19% linked quarter and 17% year-over-year.
Commercial line utilization has remained relatively stable in the low 30% range for the trailing four quarters and so far here in April. However it’s too early to know if this trend will continue given the uncertainty in the economy and the impact of the various lending programs instituted by the Federal Government. For some perspective, during the financial crisis that started in 2007 our line utilization topped out in the low 40% range much higher than we’re experiencing to-date with COVID-19.
As you can see on Slide 5, we are actively involved in the newly launched Paycheck Protection Program to help our small business customers. Our team has worked heroically to get this surging demand handled and it is a testament to our company’s commitment across the board to change lives for the better. To-date we’ve processed approximately 6,500 applications representing approximately $1.7 billion in loans. We’re actively in the process of funding these loans.
Turning to fees, our mortgage company continues to grow at a strong pace by increasing market share and benefitting from the low rate environment. The total residential mortgage originations for the first quarter of 2020 were $380 million, an increase of 40% [indiscernible] last year. Refinance activity accounted for 44% of originations in the first quarter of 2020 compared to 25% for the same period last year. Our mortgage pipeline sits at $727 million at quarter end which is one of the highest levels of all time.
Wealth management had a solid quarter as fees were based on asset value earlier in the quarter, it didn’t fully reflect the recent market sell-off. Cash management made a notable contribution to overall fees. Moving to credit, we saw some improvement during the quarter. However there is a lot of uncertainty around the potential short and long-term impacts of COVID-19. The increase in our allowance for credit losses this quarter reflects our assessment of those impacts under the CECL methodology.
Mark will have more details around the increase in the allowance and the underlying assumptions in his prepared remarks. As you can see on Slide 6, we have limited portfolio exposure to some of the industries that were hit hardest initially from COVID-19. Most of the loans were secured by real estate or other forms of collateral which to help mitigate losses in the event of a default. Our loan portfolio is diverse both geographically and from a product type perspective.
As a reminder, our owned occupied commercial mortgages represent close to half of the overall commercial mortgage portfolio and generally lend to experienced borrowers that have stable cash flow and sizable equity positions. We continue to assess and analyze the loan portfolio for signs of weakness or stress. We believe the programs we have put in place will ultimately mitigate losses but as we learn more of the breadth and depth of the economic downturn resulting from COVID-19 we may need to make further adjustments in future periods.
Now I’d like to turn the call over to Mark to discuss our financial results in more detail. Mark?
Thanks Curt and good morning to everyone on the call. COVID-19 has certainly impacted the content of this call and as you’ve already seen our slide deck was enhanced with several new disclosures in an attempt to address these items of focus. While comparisons to prior periods are not as meaningful today due to the rapid change in outlook unless I note otherwise the quarterly comparisons, I will discuss over the fourth quarter of 2019.
Starting on Slide 7, earnings per diluted share this quarter were $0.16 on net income of $26 million. First quarter earnings in comparison to the fourth quarter were impacted by a higher provision for credit losses driven by our application of the CECL methodology and the outlook for COVID-19 on our credit.
Moving to Slide 8, our net interest income was $161 million an increase of $2 million linked quarter despite one less business day in the quarter. Earning asset growth both in loans and investment securities drove this NII growth. Our net interest margin for the quarter was 3.21% versus 3.22% in the fourth quarter. The 1 basis point of linked quarter compression in our net interest margin was ahead of our internal projections and we consider this to be a solid start to our year.
The stability in our net interest margin over the past quarter was driven by our ability to reprice our deposits. Deposit cost declined 15 basis points from 77 bps to 62 bps from the fourth quarter to the first quarter and our earning asset yields declined only 10 basis points during this period from 4.07% to 3.97%. Going forward we will be impacted by the recent severe reductions in interest rates. We believe we still have the ability to lower our deposit cost more over the next quarter and we intend to do that.
Turning to credit on Slide 9, we adopted CECL or the Current Expected Credit Loss standard on January 1, 2020. As a result of this adoption, our allowance for credit loss increased by $58.4 million. Slide 9 provides a rollforward of our allowance for credit loss balance from December 31 to March 31 and breakout specific components of the changes. It also provides you with more detail on some of the material assumptions that formed the basis for our first quarter provision for credit losses under CECL.
We utilize Moody’s for some of the macroeconomic assumptions that populate our models and for CECL; we employ the Moody’s baseline forecast which assumes a critical pandemic set of economic assumptions. I also want to point out that under CECL it’s not appropriate to assume that our first quarter of 2020 provision for credit loss is indicative of provision levels for the balance of the year. The intent of CECL is to capture an estimate of expected future losses that exist on our books today.
Moving to Slide 10, for the first quarter of 2020. Net charge offs on an annualized basis were 26 basis points as compared to 65 basis points in the fourth quarter. The majority of our net charge offs for the quarter related to borrowers were specific reserve allocations that were established in prior periods. In the fourth quarter of 2019, net charge offs were elevated by discrete $20 million charge-off with 48 basis points related to a specific commercial relationship.
Non-performing loans at March 31 decreased $1.2 million or about 1% in comparison to year end 2019. Non-performing loans as a percentage of total loans decreased to 82 basis points as compared to 84 basis points at the end of last year. The allowance for credit loss related to loans at March 31 was 1.4% as a percentage of total loan balances up 43 basis points from December 31. Our adoption to CECL increased this ratio by 27 basis points and our provision for the quarter which includes the impact of COVID-19 accounted for the remaining increase. The allowance for credit loss coverage ratio as a percentage of non-performing loans was 170% at March 31.
Moving to Slide 11, non-interest income excluding securities gains was $55 million relatively unchanged from the fourth quarter and seasonally very strong up over 17% from the same quarter a year ago. Our strong performance was driven by mortgage banking revenues, wealth management revenues and capital markets revenues offset by decreases in consumer card income, merchant and commercial card income.
Mortgage banking revenues were up $1 million from the prior quarter despite recognized $1 million mortgage servicing rights impairment charge during the quarter as interest rates rapidly decline and expectations for pre-payments increased. Moving to Slide 12, our non-interest expenses were $143 million in the first quarter up about $4 million from the fourth quarter. Expenses were up 3.4% compared to the first quarter a year ago with roughly one-third of this increase driven by a differing day count since 2020 is a leap year.
The linked quarter expense increase included a $3.5 million or 4% increase in salaries and employee benefits largely due to seasonal increases in payroll taxes and higher incentive compensation. Other expense categories in total were consistent with the fourth quarter. Income tax expense decreased $5 million linked quarter. Our effective tax rate was 10% for the quarter as compared to 13% in the fourth quarter of 2019. We will provide guidance on certain numbers for the second quarter including our effective tax rate in a moment.
Slide 13 is a new slide which focuses on our liquidity. Since early March we’ve been very intentional in maintaining excess liquidity incase market conditions would cause any of our liquidity sources to contract. Since mid-March, we’ve maintained excess cash of between $200 million to $300 million per day. While this impacts our net interest margin moderately, in our view this is prudent planning and we’ll continue to do so until we see more stabilization in the markets.
Our committed liquidity has maintained in the mid $6 billion over the past 30 days and our overall liquidity including uncommitted sources such as fed funds lines and broker deposits has remained in excess of $10.5 billion. We’re fully prepared to handle the influx of PPP loans which Curt referenced earlier. Slide 14 gives you more detail on our capital ratio.
During the first quarter we raised $375 million of Tier 2 qualifying subordinated debt. This additional capital came at very opportune time as we now, are entering the downturn with an estimated total risk based capital of 13.8%. We have evaluated our capital and liquidity under a variety of stress scenarios including going back to loss levels by product type experienced during the financial recession.
In these scenarios, both the bank and holding company maintain sufficient regulatory capital and liquidity. While our regulatory capital ratios will not be impacted by the influx of PPP loans in the second quarter. Those loans will cause our tangible common equity ratio to decline somewhat due to the rapid balance sheet growth. Based on our approved applications of approximately $1.7 billion in loan balances we believe our TCE ratio will be around 7.4% at the end of the second quarter. Absent changes to our outlook will then expected to increase in the back half of 2020.
While we’re comfortable with our capital levels at the current time, we did take some steps to conserve capital during this period of uncertainty. We suspended our share repurchases in March and we’ll continue to do so until we have better economic clarity. During the quarter, we had repurchased $40 million under our current $100 million authorization reducing our share count by 2.9 million shares. We also elected to hold our quarterly dividend at 13% instead of our recent practice of increasing it with our first quarter dividend announcement. Our goal is to maintain this dividend going forward.
Lastly, we would like to provide our thoughts about forward guidance for 2020. We are pulling all of the previous guidance for 2020 we have provided last quarter as our outlook has obviously changed. At this time, we’ll be providing select guidance on certain numbers for the second quarter of 2020. Those numbers are as follows: loans, for the second quarter we expect our PPP loan growth to be approximately $1.7 billion. For other loan categories, we expect growth on an annualized basis to be in the low single-digit range overall with residential growth leading the way.
Deposits, thus far we’ve not seen run off as significant as we had expected as a result of meaningful price reductions we adopted soon after the fed had shocked [ph] rates downward in March. At this point, we’re assuming deposits that experience somewhere between modest run off to slight growth in the second quarter excluding the impact of PPP. The timing of stimulus checks, the use of proceeds by our PPP customers, unemployment levels and other economic factors all play into this estimate.
We expect our net interest income to be in the range of $150 million to $160 million for the second quarter of 2020. Material factors impacting this estimate include the final level and mix of the PPP loans and the relationship between fed funds and other funding points such as one-month LIBOR. We expect our non-interest income to decrease from first quarter levels. While management revenues, capital markets and all consumer driven revenues merchant, debit and credit card are expected to declined.
Mortgage banking should continue to be a bright spot as our pipeline is very strong and we’re now just entering the seasonally busy time of the year. Cash management fees should also hold up okay during this time. But overall, we would expect to see non-interest income decline 5% to 15% from first quarter levels. Overall, we expect our operating expenses to be in the range of $140 million to $144 million. We expect our effective tax rate to be between 11.5% and 12.5% for the second quarter.
We will hopefully know a lot more about the breadth and depth of the economic downturn caused by COVID-19 over the next few months. If the situation moderates, we may be in a position next quarter to provide more clarity on the second half of the year at that time. With that, we’ll now turn the call over to the operator for questions. Cherie [ph].
[Operator Instructions] our first question comes from Frank Schiraldi with Piper Sandler. Please go ahead.
Just wanted to know, I know it’s quite a wild card and it’s obviously not in your 2Q guidance. But as we think about provisioning levels going forward Mark you made a comment about, we shouldn’t necessarily assume levels remain as elevated as 1Q. I would assume that Moody’s modeling has deteriorated a bit since the end of the March. The delta between the end of March and today is probably not as big as the delta in modeling from January 1 to the end of March. So I mean is it fair to think about provisioning remaining if the model holds up, remaining quite elevated in the second quarter and then we should see quite a tail-off from there and any color or thoughts on modeling that out would be helpful?
Frank, I think what is fair to say is we’ll explain to you how we came to our first quarter provision level. We had used the Moody’s critical pandemic scenario which you correctly point out was created at the end of March and since that time things have deteriorated in some of the updated Moody scenarios. While we use that Moody’s scenario as a baseline, we did consider other Moody’s scenarios that were at that time that helped those form the overall basis for our conclusion that are provisioned for the first quarter is satisfactory. We will continue to evaluate that baseline scenario should that baseline scenario change as well as other Moody scenarios to form the basis for our second quarter provision.
As you’re thinking about as we look at the back half of the year when it’s – modeling hasn’t changed from today and you still have elevated provisioning in the second quarter than in the back half of the year as we actually start to see maybe some non-performers and some charge offs with some of the deferrals maybe end. Is it fair to think that you could see charge-off levels in excess some of the reserve – you could actually see the reserve move below our in the back half of the year given you already reserve for the life of these loans that are on the books?
Frank, what I would say is that, you are correctly explaining how CECL could work and should work under this new standard. But doing that is layering in assumptions on what the economy will be in the back half of the year which we’re obviously not providing at this time. But your understanding of CECL and how CECL should work. Yes, I mean day one you were accounting for all expected future [ph] losses embedded in your loan portfolio.
Okay, all right and then. Just a follow-up on the PPP program. You talked about in the presentation and I think the release is well prioritizing current customers. I wonder if that’s – has the potential to change in Phase II and wondering how big a pipeline is there? It looks like Phase II is going to be pretty similar to Phase I in terms of total dollar amount little bit lower about $310 billion and actually setting aside some [indiscernible] banks in Europe asset size of $10 billion to $50 billion. So just wanted your thoughts could Phase II be just as large for [indiscernible] Phase I or are there any sort of limiting circumstances?
Frank, this is Curt. I can give a little more color on that. We do have applications in pipeline from Phase I, that we would obviously have in the Q, if additional funding is approved as expected. So we do have additional apps in the pipeline. We would probably - expected the volume of request would not be as significant or as quick as it was in Phase 1. But there are opportunities to continue to expand that program as we move forward.
Is there any concerns over I mean, obviously to your point regulatory capital won’t be impacted? I mean the TCE ratio will go lower in the near term, if you do more in Phase II but I don’t know how much of a limiting factor that actually is given, it won’t be a regulatory capital issue. Can you just speak to that?
Frank, we had assumed in our capital forecast again for the $1.7 billion. As Curt said, while we think there’s opportunity in Phase II it’s a little unclear at this point whether the Phase II opportunity for us would be double that amount. And we feel comfortable with our TCE levels because under that PPP program it’s temporary and in conversations we’ve had with other stakeholders having a temporary decrease to TCE level, we feel comfortable with that, given the overall strengthen of our regulatory capital ratios.
Great. Thanks very much.
Thank you. Our next question comes from Casey Haire with Jefferies. Please go ahead.
Wanted to touch on the PPP on our guide for 2Q. It looks like a pretty sizable down draft here. Starting on the NII, I mean the guide is pretty wide down $1 million or down $10 million. Can you just give us a little bit more color as to why that range is so wide?
Casey, it’s Mark. The difference for that is because of PPP opening up second plan. The fees that are received on that PPP program plus the interest all run through net interest income. So depending on what our final number is under that program that will have some influence. The other influence which I referenced in the script is, there has been if you go back and look at the 10-year average of one-month LIBOR to fed funds that number is about eight or 9 basis points on the 10-year average.
Today or at least yesterday it was still sitting at around one-month LIBOR was at about 80 basis points so the difference between those was about 65, 70 basis points between the midpoint of fed funds. We have $6.5 billion roughly in loans that are tied to one-month LIBOR. So depending for how many months you continue to have that disconnect where LIBOR is higher because we’re in a period of volatility right now. We benefit in our one-month LIBOR loans for each month that benefit continues. So that’s the main difference for the line range.
Okay, so I got it. So the low end of the NII guide would assume that LIBOR resets to that normal relationships versus fed funds?
Correct.
Is that – okay, got you. All right thanks on that. Okay, all right now and then the fee guide, you walked to us it sounds like a number of line items. Why would we not get any leverage on the expense side given the fees are coming down meaningfully?
Well we’re getting some leverage on the expense side. However there are some expenses going into the second quarter which would be kind of related to COVID, some of that is staff augmentation and mortgage banking, some of that is some bonus programs we have in place for some of our employees who have worked really hard kind of being the frontline heroes for our organization.
Okay, great. Just last one from me on the modifications. Appreciate the color through April 17. Can you just give us a sense as to how that – how we’re still building or to that peak in early April and that has been moderating since then just some color on the cadence of – on the modifications?
Casey, that definitely peaked in April and it is moderating quite a bit.
Great, thank you.
Thank you. Our next question comes from Chris McGratty with KBW. Please go ahead.
Mark, maybe start with question on the margin kind of trend isolate out the PPP. Do you have spot rate for deposit securities of loans as of the end of the quarter? Just trying to get a sense of how much of the margin paying [ph] from the fed going 150 in the first quarter was actually in the number. I’m just trying to separate the PPP and the core business. Thanks.
On spot rates I don’t have those with me, Chris. I can follow-up with you offline on that. But yes, I don’t have those, I just have the quarterly averages here.
Okay. That will be great. In terms of just coming back to the fees that you’re going to generate. I don’t remember you provide any estimate in the fees – most banks are saying somewhere in the 3% range, I guess question want to be that about what we should be thinking about for the fees aspect of it and then, what are your thoughts about kind of just reallocating these fees into the reserve during uncertain time. It would seem that most banks would have kind of incentive to just push it back into the reserve given the banks are not necessarily trading. Any thoughts would be great? Thanks.
Sure. So two things there Chris. On our PPP slide, we did actually say it on that slide that our estimated fee was also 3%, what you’re seeing from other banks so that is closing out there. And in terms of what we do with that fee based revenue. There is no correlation between that revenue and what our provision levels are. Our provision levels are going to be based by running through CECL methodology.
Okay, thanks.
Thank you. Our next question comes from Erik Zwick with Boenning & Scattergood.
First a question on the PPP program. I’m curious if you have an estimate or some sort of expectation for what percentage of the loans that you approved will be forgiven, so I guess it’s $1.7 billion likely to go up in the second round. Just kind of curious, we can likely to see kind of mid-year increase in loans balances by the end of the year it looks different kind of curious about your expectations there?
Well I’d say at this point it would be a total guess. Certainly we believe there is an incentive for companies to use the money as it should be used and if that’s the case then it gets forgiven. But it’s tough to say. But I think a large percentage of them will be forgiven.
I appreciate that, it’s difficult to estimate and I assume those fees get accelerated with more impacts the margin and potentially by year end margin looks like a little bit hopefully more normal. I guess it’s kind of my follow-up, as I look at the CECL slide, Slide 9 and thinking about the third bullet point. [Indiscernible] if you can just discuss some of the additional model overlays and adjustments that you made to as kind of account for the potential forecast in precision and additional risk?
Yes exactly, that’s exactly what we do Erik. As we look at and put overlays related to [indiscernible] example, some companies use multiple economic forecast and then probability weigh each of those. We instead use one economic base forecast but then look at and run other economic scenarios to inform what the level of those overlays are for inherent model and precision and other factors.
Got it. Thanks for taking my questions.
Thank you. Your next question comes from Russell Gunther with D.A. Davidson. Please go ahead.
I wanted to follow-up on Slide 6, if I could appreciate the granularity there. Are you able to share what some of the underwriting characteristics are within sort of hotel, restaurant, energy, entertainment from whether it’s an LTV perspective or debt service coverage ratio?
Sure, Russell. It’s Curt. I can provide a little more clarity. We tend to focus on a pretty consistent policy that applies across the board. So we do think we have a conservative underwriting. We’re really focused on customers that we have a track record with or that we have multiple facilities and look at that business over the long haul. So we think we have good diversified strong credit underwriting in that portfolio.
Okay and then, as my follow-up. You made comments in the prepared release in terms of internal stress test that you run and just curious if you could share what type of loss rates you’re assuming across the portfolio perhaps focusing on the commercial book, what do you think is appropriate for those portfolios given all of the uncertainty today?
I’m happy to go over those details with you offline product-by-product. But what we did do, is we went back and looked at our loss rates through the five-year period of the great recession and then we assumed that those losses would actually occur more quickly this time. So we assumed what would that stress be to our capital liquidity if those losses were to incur in two-year period instead of five.
Okay, great. That’s helpful. Thank you guys for taking my questions.
Thank you. And our next question comes from Matthew Breese with Stephens.
Just a quick question on the $1.7 billion PPP loans. What is the assumed contractual life most have used 24 months, but I just wanted to confirm?
That’s correct.
Okay. And then secondly in terms of the provision as we think about the percentage of loans that we have been deferred or been given some sort of forbearance. Does the provision this quarter incorporate – does set aside dollars for interest on those loans that currently are haven’t actually been collected essentially difference between net interest income and what would have been cash net interest income?
No.
Okay, should be expect a provision tied to that as we go through the year and loans that are being modified either stay put or grow?
If we don’t collect interest that’s been deferred that will come out of the margin not the provision.
That’s right.
Understood. Okay. And then just lastly on the lower tax rate. Is the new tax rate something we should expect to continue throughout the remainder of the year or is that just the 2Q tax rate?
No, for our tax rate I mean we have to put together our best estimate of what we think earnings will be for the year and then look at our book tax differences to come up with that effective tax rate for the quarter. So based on our current assessment and the level of book tax adjustments that we have we think that level is appropriate and if we stay within that bandwidth for the remainder of the year, then our effective tax rate losses stay there.
Got it. Okay. I appreciate it. That’s all I had. Thank you.
Thank you. I’m showing no further questions in the queue at this time. I would now like to turn the call back over to CEO and Chairman, Mr. Phil Wenger. Please go ahead.
Thank you all for joining us today and we hope you’ll be able to be with us when we discuss second quarter results in July.
Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect and have a wonderful day.