Amalgamated Financial Corp. Q1 FY2020 Earnings Call

Good morning, ladies and gentlemen, and welcome to Amalgamated Bank first-quarter 2020 earnings conference call. As a reminder, the conference is being recorded. I would now like to turn the conference over to Mr. Drew LaBenne, chief financial officer. Please go ahead, sir.

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 statements. 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 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 the U.S. 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.

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 are running 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 in the door of 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 cancelled my trip and headed back to New York as my proximity to the pandemic opened my eyes to the risk that it held not only for the U.S., but New York City, in particular. 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 believed 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 also 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. And while we find ourselves in an unprecedented environment, our mission and values are unchanged and they continue to guide our senior leadership team and the decisions that we make as we navigate these unchartered 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 community 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, foodservice 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 a consortium of foundations, whose goal is to provide financial resources to vulnerable working families across the country. This fund has an initial commitment of $7.1 million and the goal is to reach $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. 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 some unprofitable business lines and significantly reduced our brand footprint. Most importantly, we have reinstilled 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-risked 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 and which provides confidence in our ability to weather the storm. For the first quarter, we reported pre-tax pre-provision income of $25.5 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. 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 1 ratio at 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 deferments to help them through this time period. While we expect provisions to go higher, we remain confident in our strong credit culture and believe we are well-capitalized to handle an even more severe recession. It is important to emphasize that our core customers, our unions and non-profits, are not primarily credit customers. These customers in their relationships with us are primarily on the deposit side of the bank. Additionally, though we are based and headquartered in New York City, our credit exposure is more broad-based geographically. 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 on 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 of the bank. One growth initiative that we have moved forward with is the opening of our commercial banking office in Boston. I'm also really 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 non-profit 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. 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. Turning to 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. While M&A has been a growth driver for the bank, we will remain on the sidelines until we have clarity on the recovery. Given our positioning and capital, we would look to take advantage of opportunities that represent themselves as a recovery takes hold and the economy begins to normalize. I'm 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'm very pleased to see that our initiatives and efforts are being recognized, as MSCI raised our ESG score from BBB to A, and we improved our Certified B Corporation score to 115 from 87. To conclude, I'm 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 the storm and take advantage of opportunities that we believe will exist when the economy begins to normalize. In line with our mission, we continue to put our people, clients, and customers first, and we will work with them through this period of uncertainty. I would like to thank all of our employees again who have worked tirelessly over the last eight weeks and made our mission possible. Together, we will see this through. So now I'd like to turn the call over to Drew for a more detailed review of our financial results.

Thank you, Keith. I will begin by reviewing our first-quarter results before turning the line back to the operator to open for questions. Turning to Slide 7. 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 our 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 three basis points compared to 36 basis points at year's end. 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 to $774.8 million in the first quarter as outlined on Slide 8. 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 the partner supporting the business needs of the majority of Democratic candidates. It's 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. The growth has been 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 held-to-maturity securities portfolio, which is inclusive of approximately $255 million in purchases of PACE assessments. Our new investment in PACE Funding Group will allow the bank to continue adding PACE assessments in the future. So 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. In total, we have set up approximately 9% of our loans on a deferral program, which is shown on Slide 14. We expect that numbers 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's 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 we have since slowed down. Moving to Slide 16, we are showing the portfolios in C&I and CRE where we expect to see COVID-19 impacts. In the C&I portfolio, we have $112 million or 3.2% of total loans that are in industries that are more susceptible to impacts. Of the C&I portfolio, approximately $30 million have received payment deferrals. In multifamily and commercial real estate, we've had many inquiries from property owners on payment deferral options. As of April 24, $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 some 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. 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 3 basis points from the fourth quarter and a year-over-year decrease of 19 basis points. The increase in NIM compared to a linked quarter was primarily due to the lower cost of interest-bearing liabilities as the cost of interest-bearing deposits dropped by 5 basis points and borrowing costs were essentially zero due to deposit growth. First-quarter NIM includes 4 basis points of accretion of the loan mark from the new resource bank acquisition, 6 basis points from pre-payment penalties on loans as compared to 5 and 2 basis points respectively in the fourth quarter of 2019. 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 in the floating rate agency securities or held in cash in the second quarter and that will also pressure net interest margin. 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 compared to $40.8 million in the same quarter of 2019. Now on to non-interest income. Non-interest income from the first quarter of 2020 was $9.1 million, increasing from $7.8 million from the fourth quarter of 2019 and a $1.7 million increase compared with the first quarter of 2019. 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. As Keith mentioned, the initiatives to reduce non-interest expense on a go-forward basis. For the first quarter of 2020 our net 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 expenses were $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. Skipping ahead to Slide 21, the credit quality of our portfolio is held steady throughout the first quarter, as non-performing assets totaled $65.6 million or 1.14% of period end total assets at March 31, 2020, compared to 1.25% as of December 31, 2019. A decrease of $1.1 million from the linked quarter and increases 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 linked quarter driven primarily by the downgrade of one construction loan on the West Coast of $7.9 million and an increase in C&I and retail. Our provision for loan losses in the first quarter of 2020 totaled 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 and 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. These indirect C&I 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. Charge-offs on currently delinquent consumer loans may also be elevated in the second quarter if those loans are not deemed to be impacted by COVID-19 and are not eligible for deferral. Skipping to Slide 21. Our GAAP and core return on tangible common equity were 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. To conclude, we are very 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. So, thank you again for your time today and 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.

Thank you. Our first question comes from Steven Alexopoulos with JP Morgan. Please proceed with your question.

I wanted to start on the provision and regarding the commentary, do you expect an increase in the second-quarter reserve tied to payment deferrals? So, you guys are not on CECL, you're selling to the incurred loss model. And in that regime, what do you need to see to change further to drive an increase in the reserves? Is it just new deferrals coming in?

So Steve, keep in mind, and this is specifically the qualitative reserve that I was talking about and we're about to talk about here just to be clear. So when we set the qualitative factors at March 31, we did not have a lot of deferrals; we had actually no deferral activity that we were starting to have inquiries come in at that point and starting to get our process in place. So when we set the qualitative factors at March 31, the only thing we really had to work off of were the downgrade of the economic factors, which we took from pretty much the lowest levels to the highest level, right? 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 probably be looking at this time in the second quarter is the trends of normally being the trends of past dues in the portfolio, but the trends of deferrals past dues, etc., in the portfolio, which again I think will move from pretty low levels to, depending on the portfolio, somewhere between medium and high. But if we went from the lowest level to the highest level, that would again be a $3 million impacting qualitative and that's a second-quarter event. It's not a first-quarter event unfortunately.

Okay. Got it. 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 or are those still increasing?

No. As I mentioned earlier, the residential segment has essentially slowed down. In fact, over the past few days, we haven't received any new deferral requests. So that segment has largely come to a halt. We're approaching a new cycle of payments, and it's uncertain what that will signal. No one can really predict the implications for the upcoming round. It could mean nothing at all, or it could lead to some additional deferrals, but I believe most of the requests have likely already been submitted. In terms of multifamily commercial real estate, I think the general commercial real estate and commercial and industrial sectors have responded fairly quickly. Many April payments were made for multifamily, and landlords are likely waiting to see how May goes, which could result in a few more deferrals. I wouldn't be surprised if we see more requests, especially in the multifamily area. Additionally, I want to note that the processing on the commercial side is slower for us. On the consumer side, we ask customers to explain their hardships without requiring proof, which can be challenging and unreliable. However, on the commercial side, we require borrowers to document their cash flow decreases before we can approve any deferrals, making the process take longer.

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 CRE book, how much of that is retail?

Overall, what concerns me most is related to our portfolios tied to real estate, whether residential or multifamily commercial. These portfolios have strong loan-to-values, and part of the underwriting assumes we can manage the property over time if we need to address any credit issues. Given the widespread impact of the pandemic, it's possible that the rules regarding foreclosure and how quickly properties or tenants turnover could change, which may alter the typical timeframe for resolving credit issues across the industry. I’m not saying this will happen, but it is something that worries me more than I usually would be.

Yes. 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 out on landlords. What will be the impact of stimulus payments and potentially new stimulus payments 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 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 we think we've built a portfolio that in normal periods of economic stress, should be well-positioned to do well, the severity of this and the unknown as you look at months out into the future here where there could be some extended double-digit unemployment kind of pressures is just the biggest worry that we have on that bank.

Yes, yes. Thank you. And then just finally, Drew, with deposit growth running so strong, it 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? What kind of yield should we expect? Thanks.

It's happened very quickly, and we haven't been able to deploy it thoughtfully yet. In the near term, we have bought a lot of floating rate agency securities. We have a strong residential pipeline from Q1 that we are working through. For Q2, I think the pace of assessments coming in will be strong. So, for Q2, I feel confident, but we will end up with significant cash and many floating rate agencies on our balance sheet. We also expect political deposits to begin to decline somewhat, and I'm not sure if this will happen by the end of Q2. In the near term, we want to remain liquid to manage the upcoming runoff without necessarily relying on borrowings, although we might consider that option. Our primary focus, like that of many banks, is to be very cautious when deploying cash and capital into credit right now and to ensure we fully understand the new environment we are facing.

Our next question comes from Chris O'Connell with KBW. Please proceed with your question.

I was hoping you guys can 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.

Yes, I'm glad to address that, Chris. We are not an SBA Certified lender, and as you know, we are not a bank that focuses on small business loans. This has never been one of our primary objectives. We lack the capacity to manage the origination and servicing demands of a small business portfolio. Over the past few years, we have maintained a collaborative relationship with one of the largest non-bank SBA lenders in the country, which has been beneficial in normal circumstances. Early on, we decided to refer mostly small nonprofit organizations eligible for the PPP loan to our partner, even though they usually wouldn't qualify for SBA loans. We sent about 850 referrals into that program, allowing our partner to manage the loan origination. Our bankers have assisted clients throughout the application process, while our partner has taken care of the underwriting and origination of those loans.

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

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 have funded?

What the total loan request volume was.

In units, it was over 800. I think in dollar amounts, I'm not sure of the exact figure and I prefer not to speculate.

We'll get to the number, Chris.

We plan to participate in the PPP program by purchasing some of the sales of PPP loans from a new tech. The duration of these loans aligns well with the political runoff cycle we expect. This presents a risk-free short-term use of cash, which will help support the PPP program.

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 your outlook on loan growth for the rest of the year, just given the big shift in the environment from last quarter to now.

Yes. We purchased $35 million of residential loans on the West Coast, which is something we normally don't do, but we are doing it for CRA purposes. These are high-quality residential loans, primarily influenced by their geographic location. We also made additional solar loan purchases, totaling about $35 million, including one transaction that we had been working on for some time. For residential solar purchases, that will likely be our limit for now. Additionally, we regularly purchase government-guaranteed loans, including SBA and USDA loans, which appear in our commercial and industrial portfolio. We made more purchases in this category as well. Our total in government-guaranteed loans within C&I has reached approximately $150 million, and we view this as a risk-free opportunity to deploy capital.

Got it.

Hey, Chris. Just to follow up on your previous question, I quickly emailed our head of commercial banking. The total loan requests were around $65 million under the PPP program.

Great. Great. And then, just finishing up on the loan side, maybe dive into the outlook for the rest of the year, just given some of the changes in the economy?

Yes, outlook's cloudy. I'll be honest. I mean 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 of 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. I think we're now looking at turning it on again in a very conservative manner. So I think that we should still see a bit of 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 so 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 matches in terms of the risk that we're willing to put on our balance sheet at this point but we're also still in business to originate.

Got it. On the deposit side, political deposits were very strong this quarter, even stronger than expected. Is there any outlook you can provide for the second quarter, or is it still uncertain given the election cycle?

I want to highlight that we have observed positive deposit growth across various sectors, not just in the political area, but also among our commercial bankers. Despite the work-from-home situation, they have remained engaged with our existing customers and are actively seeking new relationships. This activity has not diminished. The election cycle is somewhat unclear, but there is now more clarity on the presidential side with a likely Democratic nominee. We can expect to see a consolidation of contributions that will benefit this sector. Vulnerable Democratic candidates in their first term had a strong first quarter of fundraising, and we anticipate similar success in the second quarter. However, as we've seen in previous years, we may start to see a plateau in fundraising as candidates manage their spending. As campaigns adjust their strategies, we could be entering a plateau phase, followed by a decline in the deposit portfolio towards the end of the third quarter and the beginning of the fourth quarter, consistent with past election cycles. This is the best projection I have at this moment. It may be a bit off, but I believe this will generally reflect the pattern we will observe.

Thank you. I have one last question about the net interest margin. I appreciate the guidance. It seems likely to decrease next quarter, and there are many factors at play, especially regarding the political deposits which are uncertain. Assuming these deposits remain stable for the rest of the second quarter at the balances you mentioned, considering the fluctuations in short-term rates, could you provide some insight into a potential range or how this might influence the quarter-over-quarter net interest margin for the second quarter?

Yes. It's challenging to predict the situation this early in the quarter, especially with all the changes that have occurred. You'll likely see a combination of net interest income starting to stabilize or possibly decline a bit, along with our balance sheet growth rising rapidly. Keep in mind that the second-quarter net interest margin averages you're looking at are likely about $200 million less than they would be if you took into account the averages from April or late March. However, this growth is occurring in lower-yielding assets due to where we've allocated funds. In terms of net interest income, I feel more comfortable discussing it now given the volatility. Last quarter, we disclosed a $13 million decrease for a 100 basis point drop, which has now occurred. Looking ahead, we're estimating a decline of around $7 million when considering all factors, which is a notable improvement. This is partly due to better performance in prepayment speeds and LIBOR, assuming LIBOR decreases slightly from its current level, which it is already starting to do. Our deposit repricing has been more effective than we anticipated, and the pace of changes, along with money market yields dropping to almost zero, has also contributed to this. Overall, I'm optimistic about our outlook, although there is some uncertainty regarding net interest income compared to our original projections in the down scenario.

Got it. And that $7 million that's coming off the $44.7 million number this quarter?

No, no, no. Annually.

Got it. Just wanted to confirm that.

Yes, it's a good one to confirm, Chris. Yes, yes. Call it $1 million to $2 million a quarter.

Great. All right. That's all I had. Thank you.

There are no further questions in queue. I would like to turn the call back over to management for closing comments.

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 want to leave you with just a few concluding thoughts. First, I continue to be very proud every day of our employees who work 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. Taken 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 10-Q this evening. 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.