Washington Trust Bancorp Inc Q3 FY2020 Earnings Call

Good morning, and welcome to Washington Trust Bancorp, Inc.’s conference call. My name is Rocco, and I will be your operator today. Today’s call is being recorded. I will now turn the call over to Elizabeth B. Eckel, Senior Vice President, Chief Marketing and Corporate Communications Officer. Ms. Eckel, please go ahead.

Thank you, Rocco. Good morning, everyone. And welcome to Washington Trust Bancorp Inc.’s third quarter 2020 conference call. We would like to remind everyone that today’s presentation may contain forward-looking statements and our actual results could differ materially from what is discussed on the call. Our complete Safe Harbor statement is contained in Washington Trust’s earnings press release and other documents that we file with the SEC. We encourage you to visit our Investor Relations website at ir.washtrust.com to review a complete Safe Harbor statement and other public filings. Washington Trust trades on NASDAQ under the symbol WASH. Today’s call will be hosted by Washington Trust’s executive team, Ned Handy, Chairman and Chief Executive Officer; and Ron Ohsberg, Senior Executive Vice President and Chief Financial Officer and Treasurer, and they will review our third quarter financial performance. At the conclusion of their remarks, Mark Gim, President and Chief Operating Officer; and Bill Wray, Senior Executive Vice President and Chief Risk Officer will join Ned and Ron for our question-and-answer session. And I am now pleased to introduce Washington Trust’s Chairman and CEO, Ned Handy. Ned?

Thank you, Beth. Good morning, and thank you all for joining us on today’s call. Yesterday, we released our third quarter earnings. This morning, I will review the quarter’s highlights and Ron Ohsberg will discuss our financial performance. We will then answer any questions you may have about the third quarter or our outlook for the remainder of 2020. I am pleased to report that Washington Trust posted net income of $18.3 million or $1.60 per diluted share for the quarter ended September 30, 2020. Our key performance measures remained strong, we are well capitalized and while our asset quality indicators improved in the quarter, we continue to be highly focused on our loan portfolios and very close to our borrowers as we work through the challenges of the pandemic. Our third quarter performance reflects our success at generating solid earnings during extremely challenging economic times. It’s amazing to think about what we have experienced so far this year: near record low interest rates, financial market volatility, social and political unrest, and a global pandemic. Fortunately, Washington Trust business continuity and pandemic planning, diverse business model and strong balance sheet have enabled us to manage our way through these difficult times. I couldn’t be more proud of our team and the work they have done and continue to do to ensure the well-being of our Washington Trust family, our customers and our communities. Let me take a moment to review some of the highlights from our key business lines. Total deposits amounted to $4.3 billion at September 30th, up 4% from the previous quarter and nearly 20% from a year ago. We had strong end-market deposit growth and had seasonal inflows from institutional and municipal customers during the quarter. We had increases across all deposit categories: checking, noninterest-bearing accounts, savings, money markets and CDs. The increase in low-cost core deposits allowed us to reduce Federal Home Loan Bank borrowings, which helped stabilize the margin. There’s been some indication that customers are saving more than usual, perhaps a result of reduced spending during COVID or a need to set aside emergency funds. We are fortunate to be in a position to help our customers manage their funds in whatever way their condition mandates. During the pandemic, we temporarily closed our branch lobbies for health and safety reasons, and saw an increase in the use of drive-through, digital and telephone banking services. Now that our lobbies are open, we have seen an uptick in branch traffic, but haven’t seen a corresponding decrease in other delivery channel usage. We believe a high-tech, high-touch service model fits well with our community banking strategy. We found that our customers enjoy the convenience technology offers, but also want face-to-face conversations with our trusted advisers as needed, and during these turbulent times, our team has been there for them. Branch expansion has been a key part of our growth in recent years and I am pleased to announce that we recently broke ground for a new branch in East Greenwich, Rhode Island. This is one of a handful of remaining vibrant suburban communities in Rhode Island where Washington Trust does not currently have a presence. We anticipate the branch will open toward the end of the first quarter of 2021. Total loans amounted to $4.3 billion at quarter’s end, which was essentially unchanged from the previous quarter. Year-over-year we had double-digit growth as total loans were up 13% from September 30, 2019. Commercial loan activity is relatively flat during the quarter, which was not unexpected given market conditions. We continue to work one-on-one with borrowers to help with PPP forgiveness applications and to assist with loan deferrals, modifications and extensions. Our team has been working around the clock and I have been pleased to speak with borrowers who are grateful for the support and attention that we have provided them. It’s been a difficult time for local businesses and as a community bank it is our responsibility to do whatever we can to help keep businesses open and the economy moving forward. Ron will provide more detail about our credit portfolio including an update on loan deferments. The residential mortgage story continues to be a good one as mortgage banking activity was outstanding during the quarter. Both mortgage originations and mortgage loans sold to the secondary market reached all-time quarterly high levels with mortgage originations surpassing the $1 billion mark. Mortgage revenues totaled $12.4 million for the third quarter, up a remarkable 155% over the same period last year. Year-to-date, mortgage revenue has tripled the amount earned in 2019. Housing demand is very strong but inventory is low in the areas where we originate. Rates are anticipated to be low for the coming months and we anticipate that there will be continued demand for refinancing as well as purchases. We continue to be very active in the Greater Boston area where low inventory levels support a robust and fast-paced sales market. We have also seen an increase in second home purchases in our market as borrowers look for green space properties. It’s been a busy year for our mortgage team and they work closely with borrowers to ensure they receive the right product and best pricing. We have introduced technology to make the process faster, easier and more efficient for employees and customers, but personal service plays a key role in retaining and building mortgage relationships. The unprecedented volume and pace has been exhausting, and I want to acknowledge the hard work and dedication of our mortgage team from the front lines to the back offices, as they have worked tirelessly to ensure home buyers’ needs were met while producing record results. Our mortgage pipeline remains strong going into the fourth quarter. So we believe volume should continue at a good pace through year end. Wealth management assets under administration amounted to $6.4 billion at September 30th, up 4% from the previous quarter. Wealth management revenues amounted to $9 million and were also up by 4%. As we found with other business lines, our wealth management clients continue to seek personal advice and attention during these uncertain economic times. Our wealth team has done an outstanding job of meeting clients safely in person or through online conferencing to ensure their financial plans and investments are in order. I will now turn the discussion over to Ron for a more in-depth review of our financial performance. Ron?

Thank you, Ned. Good morning, everyone. Thank you for joining us on our call today. As Ned mentioned, net income was $18.3 million or $1.60 per diluted share for the third quarter. This is compared to $21.0 million and $1.21 for the second quarter. Net interest income of $31.7 million increased by $709,000 or 2% from the preceding quarter. The net interest margin was 2.31%, unchanged. Prepayment penalties were modest and totaled $33,000 in Q3 compared to $21,000 in the second quarter. Average earning assets increased by $63 million; loans were up by $81 million and cash and short-term investments were down by $19 million. The yield on earning assets decreased by 20 basis points from the second quarter to 2.98%. On the funding side, average end-market deposits rose by $83 million; our wholesale funding sources decreased by $126 million from the second quarter. The rate on interest-bearing liabilities declined by 23 basis points to 0.85%. Non-interest income comprised 45% of total revenues in the third quarter and amounted to $25.5 million, down $852,000 or 3% from the second quarter. Our mortgage banking revenues totaled $12.4 million. These results included net realized gains of $14.3 million, which was up by $3.6 million or 34% from the prior quarter. This increase reflected both a higher volume and higher yield on loans sold to the secondary market. Mortgage loans sold totaled an all-time quarterly high of $354 million, up by $49 million or 16% from the prior quarter’s record level. Compared to the third quarter of last year, mortgage loans sold were up $169 million or 91%. Net realized gains were offset by a decrease in net unrealized mortgage gains, reflecting a lower mortgage pipeline and a corresponding decline in the fair value of mortgage loan commitments as of September 30th. Year-to-date, net mortgage banking revenues of $33.3 million tripled the 2019 levels. Our mortgage origination pipeline at September 30th was about $372 million, down about 9% since June 30th, but remains 43% higher than at this time a year ago. Wealth management revenues were $9 million, up by $349,000 or 4%. This was due to a $630,000 or 8% increase in asset-based revenues, which was partially offset by a $281,000 decrease in transaction-based revenues. The increase in asset-based revenues correlated with an increase in the average balance of assets under administration, which were up $594 million or 10%. The decline in transaction-based revenues was mainly due to tax preparation fees, which are concentrated in the first half of the year. The September 30th end-of-period balance of assets under administration totaled $6.4 billion, up by $257 million or 4% from June 30th, reflecting financial market appreciation of assets, which were partially offset by net client outflows. Loan-related derivative income amounted to $1.3 million. This was up by $1.2 million from Q2, reflecting a higher volume of commercial borrower interest rate swap transactions. Income from bank-owned life insurance totaled $567,000 in the third quarter, down by $224,000; included in the prior quarter was $229,000 of life insurance proceeds. Now let me turn to non-interest expenses. Total expenses were up by $3.9 million or 14% quarter-over-quarter. Salaries and employee benefits expense increased by $2.4 million or 12%. Recall that last quarter we deferred approximately $1 million of direct labor cost, which was a cost to originate PPP loans. The increase also reflected volume-related increases in mortgage originator commission expense, as well as some performance-based compensation expense increases. Legal, audit and professional fees were up $593,000, mainly due to various matters arising in the normal course of business; also included here are the costs of obtaining the bond rating and refreshing our shelf registration. Outsourced services expense was up $376,000, mainly reflecting volume-related increases in third-party processing costs related to the customer interest rate swap transactions. FDIC deposit insurance costs were down $282,000, reflecting a decline in our assessment rate, and other expenses were up by $413,000 from the prior quarter; of this increase, $170,000 resulted from the second quarter reversal of a contingency reserve. Income tax expense totaled $5.1 million for the quarter. The effective tax rate was 21.9%, compared to 20.9% in the prior quarter. We currently expect our fourth quarter effective tax rate to be 21.9% and our full-year 2020 effective tax rate to be 21.5%. Turning to the balance sheet, total loans were down by $6 million, essentially flat compared to June 30th and up by $504 million or 13% from a year ago. Total commercial loans were up by $5 million in the third quarter. The increase in the commercial portfolio included a net increase in CRE of $35 million, which was partially offset by a net decrease of $30 million in C&I. Residential loans decreased by $1 million and consumer loans decreased by $9 million. Investment securities were down by $25 million or 3%. In-market deposits were up by $129 million or 4% from the end of the prior quarter and $546 million or 17% from a year ago. Wholesale brokered CDs were up by $56 million and FHLB borrowings were down by $291 million. Last quarter, we elected to participate in the PPP Liquidity Facility with the Fed. At September 30th, advances under this program totaled $106 million. Turning to asset quality, non-performing assets declined by $1.3 million from the end of Q2. Non-accruing loans were 0.34% of total loans compared to 0.37% at the end of Q2, and loans past due by 30 days or more were 0.24% of total loans compared to 0.34% in Q2. Net charge-offs were $96,000 compared to $308,000 in Q2. The allowance for credit losses on loans totaled $42.6 million or 1.0% of total loans and provided NPL coverage of 289%. Excluding PPP loans the allowance coverage was 105 basis points. And finally, the provision for credit losses was $1.3 million, which compared to $2.2 million recorded in Q2. Total shareholders’ equity was $527 million at September 30th, up by $7.5 million from the end of Q2. Washington Trust remains well capitalized. The total risk-based capital ratio was 13.09% compared to 12.78% at June 30th and tangible equity to tangible assets was 7.91% compared to 7.74%. Our third quarter dividend declaration of $0.51 per share was paid on October 9th. Finally, I’d like to update you on our COVID-19 lending impacts. Loan deferments as of October 14th totaled $336 million or 8% of total loans outstanding, excluding PPP loans. This was down from 16% in June and this includes $253 million of CRE, $42 million of C&I, $41 million of residential and $1 million of consumer. A breakdown of commercial deferments by industry category is presented in a table in our earnings release and we will be happy to get into the details during Q&A. As of September 30th we are reporting 1,770 PPP loans totaling $217 million. The average PPP loan size as of September 30th was approximately $122,000. On amortized fees and PPP loans net of underwriting costs amounted to approximately $5.1 million at September 30th. The timing of the recognition of these net fees into the margin will depend upon the pace of loan forgiveness as approved by the SBA. Approximately $300,000 of net fees are amortizing into the margin monthly and absent any forgiveness in 2020 approximately $4 million would be recognized at some point in 2021. And at this time, I will turn the call back over to Ned.

Thank you, Ron. We are pleased with our third quarter performance in light of all the challenges we faced and we know we are not out of the woods yet, as we know there will be challenges with the ongoing pandemic, as well as implications resulting from the upcoming Presidential Election. We believe in our business model and our team, and we will continue to do what is in the best interests of our shareholders, our communities, our customers and our employees. We thank you for your time this morning, and now Mark, Ron, Bill and I are happy to answer your questions.

Thank you. Today’s first question will come from Mark Fitzgibbon with Piper Sandler. Please go ahead.

Hey, guys. Good morning.

Good morning, Mark.

Hey, Mark.

Good morning, Mark.

Quick question on the deferrals: do you have a sense for what percentage of the loans in deferral are in their first 90-day period versus in their second 90-day deferral?

We do. If you wait one second I will give you that.

And I guess…

So on the CRE space, 56% are in their first deferment, 35% or $88 million are in their second deferment, and $21.5 million are in their third deferment; that’s 9% of the CRE deferral dollars. On the C&I side, 77% are in the first deferment and 23% are in the second. There are not enough third deferments in C&I at this point.

Okay. Great. And then, I mean, I know this is hard to say, but I am curious whether you think that we are kind of plateauing a little bit with deferral levels or do you anticipate we will see a steady decline in those in coming months or quarters?

We will definitely see a decline. Bill and Ron have done some work on that. We expect to go from here to something in the 4% range around year end and we have a pretty good handle on what’s going to need more time — the hospitality book, a little longer. There are a couple retail deals that we know will need a bit more time to come back, and a couple movie theater-related loans will take a while to come back. So I think we have a good handle on what will go beyond December 31st, but I think we are going to be in really good shape certainly by year end.

Okay. Great. And then, I wonder if you could give us a rough breakdown of the maturities of the roughly $750 million of time deposits that you have. It looks like the rates obviously are pretty high on those. I am just curious as to when they roll off.

So, Mark, we have, between various wholesale funding as well as CD maturities, about $728 million coming due in the fourth quarter at an average rate of 1.2% and another $340 million in the first quarter at about 1.1% to 1.2%. So we expect to get some additional lift on the margin as those liabilities reprice.

I am sorry, Ron, you said $728 million at 1.2% and $1.1 billion in the first quarter at what rate?

No, sorry. It’s $728 million in the fourth quarter and another $340 million in the first quarter.

I am sorry, $340 million. Got you. And the $340 million is at 1.1%?

Yes, around 1.1% to 1.2%.

Okay. Great. And so — and obviously probably carrying a little bit of excess liquidity — how are you thinking about the outlook for the margin maybe in 4Q? Do we see continued margin decline?

No, we will see some expansion. It will be somewhere between $235 million and $240 million.

Okay. Great. And that’s exclusive of any PPP forgiveness?

Yes. That’s exclusive of any PPP forgiveness. At this point we are not even factoring that in because the timing of forgiveness has been so uncertain. Internally, we are thinking that’s a Q1 event but we will see what happens.

Okay. And then, lastly, on the wealth management business, maybe this is for Mark. There looked like about $78 million of outflows this quarter — was that a function of employees that left or is it just routine flows?

This is Mark. It was really routine distributions more than anything else. The outflows related to employees leaving Western Financial are very limited and not really a factor now. Primarily the decline in non-market driven AUM was routine distributions.

Okay.

We really haven’t seen any material outflow related to the two counselors since the beginning of the second quarter.

Great. Thank you.

Thanks, Mark.

And our next question today comes from Damon Delmonte with KBW. Please go ahead.

Hey. Good morning, guys. How’s it going today?

Good morning, Damon.

Hi, Damon.

My first question, just want to circle back on the numbers you gave for the CRE deferrals. I think you said there is 56% that are still on their first deferral period. What were the other two again?

Yes, 35% are in their second deferral and 9% are in their third deferral.

Now the third deferral period — is that basically just three consecutive 90-day deferrals or a 270-day deferral? How comfortable do you feel with that portion of the portfolio that is requesting a third deferral? Have you done additional due diligence and underwriting on those? Do you feel like there is limited loss content or is it still too early?

I’ll speak in general terms. We did a lot of six-month deferrals in the hospitality space, but there may have been a few that were 90-day initially, thinking things would turn sooner, so those could be three consecutive 90-day deferrals. It could also be a 180- and then 90-day sequence. Typically we try to shorten deferments as we go from first to second to third and we typically try to change the payment structure under that deferment. So if we are going P&I to start with we will try to modify that to interest-only or principal-only. I don’t have the specifics in front of me, Damon; Bill, do you have other color on that?

Sure. I would add that we underwrite every deal. These aren’t decisions made on a quick phone call. We take them through our loan approval process, present them to the finance committee, and they get a lot of discussion. There’s a lot of care put into it and we want to make sure our borrowers and sponsors are equally engaged as we are. The good news is that the numbers are coming down into the dozens now so there is a lot less uncertainty than there used to be and we are very much focused on the ones that are going to need help to get them through the winter. That’s why there is a concentration on the hospitality side. We are doing deferments to borrowers and sponsors who are sound and we are focused on structure and patience, working with them to help preserve cash until they reach stabilized operations.

Got it. Okay. That’s helpful.

Damon, I will just add —

Yeah.

I just looked it up: the $21 million, which is the third-deferment bucket, represents 9% of the CRE deferrals. They are all hospitality deals and these are ones that are going to take a little longer to come back.

Okay. Thank you. And then on the credit front, regarding the outlook for the provision: do you feel that your reserve level — excluding PPP — was up to about 105 basis points this quarter. Do you feel comfortable with that based on how you’ve interpreted CECL?

We obviously have another quarter under our belt now. We have seen deferments come down and we have had a chance to learn things we didn’t know three months ago. I think we feel very comfortable with our reserve levels where they are. They increased modestly this quarter. That could happen again in the fourth quarter, but we haven’t seen anything we didn’t expect to see.

Okay. So the few quarters you have averaged about 2.2% and 1.3% — you think somewhere in that range as you go forward is reasonable?

Yes.

Okay. And then, on expenses, it’s understandable why expenses were up this quarter; from a run-rate perspective do you think $32 million to $33 million per quarter is reasonable or could it tick a bit higher as you start to incur some cost with the new branch?

We have about $50,000 in the fourth quarter for the new branch. I think expenses could tick down a little because we expect mortgage originations to come down somewhat in the fourth quarter and that’s a variable cost. Our core non-variable expenses are on track with what we have seen all year.

Got it. And my last question regarding capital: you mentioned getting a debt rating during the quarter. What are your thoughts on tapping the debt markets and adding Tier 2 capital? Many peers have done so recently. Any plans?

We obtained a debt rating this summer to have another option. We don’t see the need currently to raise additional capital through subordinated debt. We aren’t sure what we’d do with that capital. If an M&A opportunity were to arise, we would reconsider. But at this point we have no intention to raise subordinated debt.

Got it. Okay. That’s all I had. Thank you very much.

Thanks, Damon.

And our next question comes from Erik Zwick with Boenning & Scattergood. Please go ahead.

Good morning, everyone.

Good morning, Erik.

Hi, Erik.

Good morning, Erik.

First, a follow-up on Damon’s question about expenses: you mentioned legal and consulting was up in part due to costs of obtaining a bond rating and refreshing the shelf. Is that an area where run-rate expenses could tick down in 4Q?

Yes. I think that will drop out.

Are you able to quantify what those costs were — either individually or combined for the bond rating and shelf?

It was between $100,000 and $150,000.

Thanks. Then on loan loss provisioning and your comment that 4Q could be in line with the prior two quarters: it sounds like you’re confident that absent changes in the economic outlook, provisioning would be tied to organic loan growth. What are your expectations for potential organic growth and how does the pipeline look today? When we talked three months ago you thought low-mid single digits could be possible in the back half — how are you thinking now?

Let me take the loan growth piece. As far as provisioning, yes, unless something unexpected happens, provisioning would be more along the lines of organic growth at this point.

The commercial pipelines are down a bit from normal times, as one might expect. We will see moderate growth in the fourth quarter. I think we will hit our low-mid single-digit growth for the year, but last quarter was low. Next quarter will be kind of flat — originations are okay but we will have some payoffs in the fourth quarter. We may layer in some mortgage growth; we can always put more mortgages in portfolio at the expense of taking gains. Overall, I would say loan growth will be similar to the third quarter — fairly flat.

Got it. Thanks. Switching to credit: you mentioned that for second and third round deferments you are underwriting every loan. How is that impacting internal risk ratings — any material changes to special mention or classified buckets?

Bill, do you want to discuss the COVID watch list process and how you are handling incremental deferments?

From the beginning we had a watch list process that handled criticized and certain lower-grade pass-rated assets. We started a COVID watch list process where every month we look at all loans in deferment above $500,000. We have a separate process for small business and we also look at any other loans of concern. We grade those on whether they might need a second deferment, etc. Once loans are out of deferral we follow them until they have made a few payments; we don’t drop anything off the COVID watch list until they have shown they can operate successfully post-deferment. The watch list has become substantially narrowed as deferments roll off, which is why we feel comfortable about where we’ll be at year end. We can pretty much name the loans that will continue to need attention. Those loans are being underwritten with cash flow forecasts — we are very closely tied to our borrowers and collateral as we make the next deferments. The composition of deferments has changed from almost entirely principal-and-interest deferrals to more interest-only or principal-only arrangements, so we feel the fog of uncertainty has narrowed. In terms of the commercial credit portfolio, we are very focused on the handful of loans that will continue to be in deferment. We understand why they need deferment, we support it and we know we are working with the right sponsors and borrowers.

That’s great color. Thanks very much.

Thanks, Erik.

Thanks, Erik.

Thanks, Erik.

Our next question today comes from Laurie Hunsicker with Compass Point. Please go ahead.

Hi. Thanks. Good morning.

Good morning, Laurie.

Good morning, Laurie.

Bill, I wondered if we could go back to PPP loans. Assuming there isn’t a fast-track process, how quickly do you expect forgiveness to roll through? How many months potentially are you thinking?

Remember the SBA has 90 days to turn these around. Factor that in. This is going to be a 2021 event and it’s hard to say the exact timing, but I wouldn’t be surprised if it doesn’t start moving in a meaningful way until the second quarter and potentially even the third quarter of 2021 depending on how quickly the SBA moves. It’s effectively a non-event for 2020.

Perfect. Okay. That’s what I was looking for. You said you had a $15,000 loan move all the way through — how quickly start to finish did that go through?

From the time we submitted it to the SBA, it was about a week. That’s the only one that’s gone all the way through. I think we have submitted on the order of $30 million or so to them. It’s been somewhat random so far. Given the review time on our side and the SBA’s 90-day timeline, the fourth quarter will be a non-event again for forgiveness.

Okay. And Ron, just to confirm the net of amortized costs — the potential fee recapture — is $5.1 million as of September 30?

Yes. That’s as of September 30.

Perfect. And then on the hotel book: can you give us a refreshed LTV? And do you have the LTV on the $89 million that’s modified?

Bill, do you want to kick off on the LTV side and then I will give some details?

Our weighted-average LTV on the commercial hospitality book is 49%; that hasn’t moved from last quarter. We haven’t been doing updated appraisals unless necessary as part of underwriting because appraisals are uncertain right now. We make appraisal reduction estimates during underwriting based on stabilization timing.

Okay. And then do you have an LTV on the $89 million piece that’s modified?

In that hotel book, the $89 million consists of 21 loans on 11 properties. There are $32 million in the first deferment, $35 million in the second deferment, and $22 million in the third deferment. Almost all of them remain on principal and interest deferment; a couple are on interest-only or principal-only. $87.5 million of the $89.4 million is on P&I deferment. This is a book that will take a while to recover. Some larger deals: one in Connecticut is 54% LTV, another Connecticut deal that’s driven by casinos is 61% LTV, one Residence Inn is 62% LTV and had 81% occupancy in August but had unusual circumstances that month, and a Hampton Inn is at 65% LTV with a mix of corporate and leisure customers. We think these properties need occupancy levels somewhere between 40% and 50% to breakeven and many aren’t there yet.

Okay. Same question on the retail side — do you have a refreshed LTV on the retail book, and how much of the $404 million retail exposure relates to movie theaters or other challenging tenants?

Bill, you can add color, but I know of three properties that have movie theaters: two are primarily theaters and one is part of a larger retail development that’s food-anchored. That retail development also has a gym which has its own challenges. Many of our retail deals are food-anchored and those tend to perform better. A number of retail deferments roll in November and several borrowers have told us they won’t need additional deferments.

The weighted average LTV for retail is 57%.

Do you have the dollar amount of the three properties with theaters?

I don’t have that in front of me, Laurie. We can get back to you on that.

Okay. I can follow up offline. Also, when you say food-anchored, you mean grocery-anchored, right?

Yes.

That’s helpful. Regarding capital and buybacks, your capital looks healthy. How are you thinking about buybacks — under what conditions would you revisit them?

We think of buybacks largely as a function of our stock price. We did some repurchases in Q1 but stopped once COVID hit. At our current price, we don’t have a big appetite to buy. We’d like more clarity on the economy before considering it seriously. So I wouldn’t expect to see buybacks in the near term.

On acquisitions, Laurie, it could be both wealth AUA-type deals or bank deals. We’d be opportunistic and look for a deal that makes sense for us. Ned?

We are always looking for wealth opportunities, and if a bank deal became available and made sense, we would consider it. Price has to be right and the acquisition has to solve for our strategic needs. Deposit growth remains our number one strategic challenge, and bank M&A could be a way to address that under the right terms.

Okay. Thanks.

On the wealth M&A side, we are actively monitoring opportunities. There is a lot of interest in alternatives to margin-based revenues, and pricing is competitive. Price and value are important gating factors for us. We would be ready if we found an opportunity that made sense from an internal rate-of-return perspective.

Great. Thank you very much.

Laurie, Bill has some information on the theater question. Bill?

We have a total of five loans across three relationships that have theaters, totaling about $22 million in outstanding principal. Of that, most of the theater component is a small portion of the development — perhaps 8% to 10% of total rent in those cases. There is one relationship where theaters are the only tenant, and that’s a much smaller part of the $22 million. Those deals are the ones that could have a bigger impact given the uncertainty in that industry.

Apologies. Laurie has left the queue. And at this time I am showing no further questions.

Well, thank you everyone for participating on today’s call and for your continued interest and support of the Bank. We appreciate it and I hope everyone is well and stays well, and we will certainly talk to you soon. So thank you everybody.

Thank you, sir. This concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.