National Bank Holdings Corp (NBHC) 2020 Q2 法說會逐字稿

Good morning, everyone, and welcome to the National Bank Holdings Corporation 2020 Second Quarter Earnings Call.

My name is Mary Alma, and I will be your conference operator for today.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would like to remind you that this conference call will contain forward-looking statements, including, but not limited to statements regarding the company's strategy, loans, deposits, capital, net interest income, noninterest income, margins, allowance, taxes and noninterest expense.

Actual results could differ materially from those discussed today.

These forward-looking statements are subject to risks and uncertainties and other factors which are disclosed in more detail in the company's most recent filings with the U.S. Securities and Exchange Commission.

These statements speak only as of the date of this call and National Bank Holdings Corporation undertakes no obligation to update or revise these statements.

In addition, the call today will reference certain non-GAAP measures, which National Bank Holdings Corporation believes provides useful information for investors.

Reconciliations of these non-GAAP financial measures to the GAAP measures are provided in the news release posted on the Investor Relations section of www.nationalbankholdings.com.

It is now my pleasure to turn the call over and introduce National Bank Holdings Corporation's Chairman, President and CEO, Mr. Tim Laney.

Thank you, Mary Alma.

Good morning, and thank you for joining National Bank Holdings Second Quarter 2020 Earnings Call.

I have with me our Chief Financial Officer, Aldis Birkans; and Rick Newfield, our Chief Risk Management Officer.

We continued to address the challenges presented by the COVID-19 pandemic head-on.

During the quarter, we realized annualized net charge-offs of just 5 basis points, while also experiencing a decline in our nonperforming loan ratio.

Adjusted net income of $0.62 per share during the quarter resulted in growth of our tangible book value by $0.40 per share to $21.67.

We continue to fortify our balance sheet with our common equity Tier 1 capital ratio growing during the quarter to 13.2%.

The stress in the current environment represents a legitimate test to our underwriting approach, and I like what I'm seeing.

Underwriting with conservative LTVs, cash flow coverage and reasonable liquidity reserves tends to provide solid downside protection during challenging periods.

We also benefit from operating in markets that have performed better than the national average during the COVID pandemic.

Ensuring the safety and soundness of our bank remains a top priority, and I've asked Rick to speak to the actions we've taken on this front thus far.

Rick?

Yes.

Thank you, Tim, and good morning, everyone.

I'll cover 3 areas in my comments.

First, I'll briefly summarize our first quarter -- sorry, second quarter credit metrics and performance.

Second, I'll discuss the COVID-related modifications we've completed through June 30.

And third, I'll describe the actions we've taken to mitigate credit risk within our portfolio while working to prudently support our clients.

With respect to our credit metrics, trends held up well.

I'll note that the asset quality ratios I'm about to cover exclude the Paycheck Protection Program loans, thereby showing a more conservative view of asset quality.

Our nonaccrual loans decreased during the quarter with our nonaccrual ratio improving from 0.47% at March 31, 2020, to 0.45% at June 30, 2020.

Our classified loans remained relatively flat, with the ratio ticking up to 0.9% at June 30 from 0.86% at March 31, but lower than 0.96% at December 31, 2019.

Our total nonperforming asset ratio improved to 0.60% from 0.63% at March 31 and 0.66% at December 31, 2019.

30-day plus past dues were very low 14 basis points, improved from 27 basis points at March 31.

Net charge-offs for the quarter were only $616,000 or 5 basis points annualized.

The positive credit trends and strength of our loan portfolio leaves us well positioned to deal with the continued challenges presented by the pandemic and the current and expected economic stress.

The provision expense this quarter was driven by a worsening economic outlook relative to March 2020, and Aldis will cover that in more detail during his comments.

Cumulatively through June 30, we have executed modifications on 10.3% of our total loans.

98% of these modifications were for 90 days, and 52% required clients to continue to make interest payments versus full payment deferral.

We expect the majority of our clients to return to regular contractual payments during the current quarter after the initial 90-day modification.

In fact, as of today, the percentage of loans on a payment modification has fallen to about 7% of total loans.

Tim, myself and our banking teams have continued our intensified portfolio management and further refined our process.

We are reviewing all commercial and specialty banking clients as well as business banking clients with either larger credit exposures or at higher-risk sectors on a weekly basis.

During these reviews, we assess weekly revenue versus revenue required to cover the client's expenses and contractual debt payments.

We discuss the operating status, particularly to the extent impacted by pandemic-driven, jurisdiction-mandated restrictions as well as weekly and trailing 4-week trends.

Not only has this enabled us to quickly detect credit deterioration and take actions faster to address as needed, but it has put our bankers in a position to be more advisory with our clients as they're having a minimum of weekly discussions on each client's operations and trends.

While the vast majority of our clients have been able to stabilize revenue and expenses at sufficient levels to cover debt service at contractual levels, we recognize our hotel clients, representing only 3.8% of our total loans, will most likely face a longer road to recovery.

Beginning in June, well before initial 90-day payment modifications were set to expire, we began working with our hotel clients on a conservatively forecasted path to sufficient occupancy and average daily rates to represent restabilization.

Based on any operating deficits forecast and ongoing interest-only loan payments, these clients required to infuse additional cash equity and agree to certain additional loan terms.

To date, we have successfully negotiated such agreements with the majority of our hotel clients.

We benefit from our conservative underwriting of this portfolio and are further protected by an average loan-to-value of 56%.

Given the additional equity infusions and other enhancements to our loan structures, I believe our hotel exposure is well positioned to weather the potentially protracted stress from the pandemic.

Given the pandemic's continuing impacts, it's noteworthy where we have no direct exposure: aviation, cruise lines, malls, energy services, casinos and gaming, convention centers and hedge funds.

We have no dealer floor plan, indirect auto, car leasing and no consumer credit card exposure.

I believe maintaining a diverse granular loan portfolio as a strength.

We've conducted twice a year stress tests on our commercial loan book.

The most recent of those tests was just completed by an outside party with a focus on continuing stress by the COVID-19 pandemic and an elongated path to recovery over the coming years.

In the most severe scenario models, which assumes no meaningful rebound in the economy in 2020 and a weak L-shaped recovery, we remain very well capitalized.

I'll also point out that nonowner-occupied commercial real estate is only 14% of our total loan portfolio, excluding PPP loans, and is conservatively underwritten, as Tim said, relative to loan-to-cost, loan-to-value and other key metrics.

We are well diversified across industry sectors, with most industry concentrations at 5% or less of total loans, and all concentration levels remain well below our self-imposed limits.

I'll now turn the call over to Aldis.

All right.

Thank you, Rick, and good morning.

As we reported yesterday, our second quarter's net income was $17.7 million or $0.57 per diluted share.

Included in this quarter's results was a nonrecurring charge related to our decision to consolidate 12 of our banking centers.

Excluding this $1.7 million pretax charge, adjusted EPS for the quarter was $0.62 or a $0.12 increase from the prior quarter.

This quarter's results demonstrate the financial strength and resiliency that our bank has built over the years.

In these difficult and uncertain economic times, it has allowed us to focus on the safety of our clients and associates while also delivering solid financial results.

During the quarter, we grew our core transaction deposit balances 57.7% annualized, improving the loan-to-deposit ratio to 88.3%.

We funded $358.8 million in PPP loans, realized record residential banking revenues and added to our allowance for credit loss reserve, increasing it to 1.36%.

Our strong financial performance generated pretax pre-provision net revenue of $33.7 million for the second quarter, which was 27.3% higher than the first quarter of 2020 and 20.4% higher than the second quarter of 2019.

During the quarter, we originated $461.6 million in new loan fundings.

However, as Tim and Rick have already mentioned, our records this -- our efforts this quarter were focused on working with our existing clients to ensure the safety and soundness of our bank.

As such, $358.8 million of new loan fundings were PPP loans.

Excluding PPP loans, our loan portfolio decreased by $72 million from the prior quarter.

The decrease was primarily driven by a $55.8 million reduction in the revolving lines of credit as some of our clients took the opportunity to pay down their debt.

We view this activity as a positive.

Moving to deposits.

Our average transaction deposits grew a very strong $521.7 million or 57.7% annualized.

Our transaction deposit costs decreased 13 basis points to a low 19 basis points this quarter, and we saw a strong deposit inflows from both our existing client base as well as newly established client relationships.

The fully taxable equivalent net interest income totaled $48.6 million, a $3 million decrease from prior quarter.

The linked quarter decrease was driven by a 106 basis point decrease in the average 1-month LIBOR rate as well as the lower accelerated loan mark accretion income.

Rick provided a detailed summary of our credit trends, so I'll just touch on the provision expense and allowance this quarter.

As a reminder, our CECL model incorporates Moody's macroeconomic forecasts.

Other than covering for the nominal net charge-offs of just $616,000, this quarter's $10.3 million provision expense was entirely driven by a worsening macroeconomic outlook as compared to the March 2020 forecast.

Specifically, our models incorporate the national unemployment rate, GDP growth, home price index and retail sales growth as the key macroeconomic forecast drivers for the allowance calculation.

In terms of the loan loss provisioning, we finished the quarter with an ACL to total loans, excluding PPP, of 1.36% as compared to 1.13% at the prior quarter end and 0.88% at the prior year-end.

Additionally, as of June 30, 2020, we held $15.2 million in loan marks against the acquired loan portfolio.

These loan marks continue to accrete through net interest margin and they also provide additional protection from credit loss in that portfolio.

During the second quarter, we realized record noninterest income of $38.8 million, which was $15.3 million or 65% higher than the prior quarter.

The increase was driven by the gains on sale of our residential mortgage loan originations.

This was somewhat offset by lower consumer service income and lower swap fee income as we saw a significant slowdown in our client's activity due to pandemic restrictions.

Needless to say, however, this quarter was an exceptional quarter for our residential mortgage group.

Our team generated record mortgage origination volume, almost double that of the second quarter 2019.

On top of the record volume, our teams were able to widen margins by 70%.

During the second quarter, we closed $663.3 million in new loan mortgage loans or a 98.8% increase from the same quarter last year.

While we are experiencing strong refinance activity, driven by the low rate environment, an important factor that we continue to monitor is activity within the purchase market.

Our teams of bankers are doing an excellent job supporting new homebuyers within our footprint.

And we benefit from operating in markets where the housing activity remains strong.

As a result, on a year-to-date basis, the purchase market represents a solid 36.9% of the total mortgages closed.

Turning to expenses.

The second quarter's noninterest expense of $53.8 million was $5.1 million higher than the prior quarter.

The increase was primarily driven by the variable compensation related to the residential mortgage activity and the previously announced nonrecurring expenses related to the banking center consolidations.

As the residential banking activity has increased over the past several quarters, so has the variable compensation related to it, which elevates our total expenses.

So to break out a few components this quarter.

Of the $53.8 million noninterest expense, $10.5 million was related to the mortgage activity and $1.7 million was nonrecurring expense due to the banking center consolidations.

During the quarter, we also incurred approximately $600,000 in additional COVID-related expenses from actions we took to protect our associates and clients.

Excluding these items, expenses this quarter would have been slightly lower than the first quarter's similarly adjusted numbers.

In regards to the banking center closures announced earlier this month, we are planning to consolidate 12 of our banking centers into other nearby locations within our footprint.

We continue to see client preferences shift toward mobile and online banking.

And we are confident that with a healthy mix of digital client engagement and the convenience of neighboring banking centers, we will serve all of our clients well.

The total nonrecurring banking center consolidation expense for the year is expected to be $2.5 million, with approximately $400,000 yet to be realized during each of the third and fourth quarters.

Going forward, based on these actions, we anticipate to lower our operating expenses by approximately $3.5 million annually, earning back the onetime charges in less than a year.

With regards to capital, as Tim pointed out earlier, we finished the quarter with a strong 13.2% common equity Tier 1 ratio, and we grew our tangible book value by $0.40 to $21.67 at the end of second quarter.

Over the past 4 quarters, the tangible book value has increased 9.3% as our solid financial results during this period have more than covered the quarterly dividend payouts as well as covered a meaningful build of reserves set aside to address COVID-19-related economic weakness.

Tim, with this, I will turn it back to you.

Thank you, Aldis.

We are operating under a range of assumptions that suggest a protracted level of economic stress running well into 2021.

We believe that our prudent approach to credit and capital management leave us well positioned to address the severe consequences of the COVID-19-driven crisis.

Further, we tested our ability to deliver our dividend in a range of stress scenarios, and we believe our ability to deliver the dividend is strong.

We clearly benefit from operating in markets that are performing better than national averages across a range of economic measures.

We also believe, as Rick pointed out, that the diversity of our loan portfolio will continue to serve us well during this downturn.

Most important, we remain vigilant in our work to protect our teammates, our clients and of course, our balance sheet.

Mary Alma, we are ready to open up the call for Q&A.

(Operator Instructions) Your first question comes from the line of Jeff Rulis with D.A. Davidson.

And Rick, I thought the credit overview was as succinct and as thorough as I've heard this quarter, so I appreciate the detail there.

On the questions, maybe indicative of the environment, but Aldis, typically, you've offered some guidance on margin expenses, maybe even touch on mortgage.

Maybe not specific, but any thoughts on those fronts as we head into the back half?

Yes.

I'll take that starting with the margin.

Certainly, it behaved the way we thought and we guided last quarter, our last quarter's earnings call for this quarter.

By now, most of the rate changes that took place in late March have been priced in our earning assets.

So that's good there.

It's hard on a guidance go-forward basis, kind of 3 items that will be impacting margin calculation itself is liquidity -- excess liquidity we're starting to build with a solid deposit behavior here late in second quarter and going here in third quarter.

So that earning asset deployment will be important.

The timing of PPP loan forgiveness clearly will impact the margin calculations for the third or fourth quarters.

And then certainly, the purchase mark accretion speed is going to be important for us.

Yet still, as I mentioned, we have $15.2 million of mark that's still being accreted, and did see some of the slowdown in paydowns -- payoffs in late second quarter.

So the speed of that will impact it.

I'll say that in margin, though, that really what we focus on and as we look forward is growing the net interest income, right, over time.

That's important.

And the good news, I think, is that in second quarter, net interest income is, as I mentioned, priced in most of the rate movements.

So we -- all else equal, no assumptions made on PPP loan timing, we should be able to hold here and then look to grow from here.

Okay.

Great.

And just on your thoughts on...

Yes, just on expenses, I know you mentioned the expenses.

Expenses, I broke out this time a little bit more given how much the residential mortgage contributed to the variable compensation and expenses.

So if you were to strip out those 3 items that I mentioned, $10.5 million of mortgage, obviously, $1.7 million nonrecurring and then $600,000 on -- of COVID-related items, you'd come up with a low $41 million type of number.

That's the number, that's the core bank number that we would project going forward.

And that's really the number that we look to improve on based on the banking center consolidation announcement and moving it down on $3.5 million annually type of thing.

Okay.

And Aldis, did you include a -- was there a deferred comp benefit on PPP in the quarter?

Or did you book that net in the revenues?

We've booked net.

So if you look at the footnotes in the loan tables, you'll see that a net but what we funded to what we've reflected on the books, this is about $10.1 million, that's net of the fees and the deferred comp -- the fee component that's remaining.

Great.

Yes.

And just the last piece is the -- or even just commentary on the mortgage front.

Has that strength -- I wouldn't anticipate that closes the year like this, but has it continued at least into Q3?

Or any thoughts on the mortgage piece?

Yes.

It's very difficult to forecast mortgage.

Clearly, the rate environment is very low.

We're still...

Jeffrey, are you still on?

I'm here.

Yes.

Mary Alma, we are hearing a busy signal in the background.

If you could check that?

(technical difficulty)

But in terms of the mortgages, obviously, it's hard to forecast given the volumes to be realized this quarter.

What we focus on is building on that purchase market year-over-year.

We're holding steady there.

We are operating in markets there are good markets.

I will say that this last quarter, to the second quarter, our teams were able to -- given the volumes on the refinancing, we were able to widen the margins quite a bit, as I mentioned, 70% increase.

I don't expect to hold on to that, but clearly, the environment for refinancing is quite favorable going here in the second -- third quarter.

I would add, Jeff, I'm obviously very proud of the work on the part of our residential banking team from leadership through that entire organization.

And as Aldis pointed out, we did benefit from being in very healthy markets.

There almost seems to be an increased desire or focus on people moving into our markets like Colorado, and so that obviously bodes well for the residential banking space.

We actually believe third quarter will be pretty strong for us.

But it's -- again, no one has a crystal ball.

But based on what we're seeing, activity continues to be pretty solid.

Our next question comes from the line of Chris McGratty with KBW.

Maybe come back to net interest income, I just want to make sure I understand kind of the trajectory going forward.

Aldis, if we take the $48.6 million that was reported on FTE basis this quarter, what was the amount of accretion?

I know you said it was down, but how much accretion was realized?

The way I look at it is really on the acquired loan book yield basis.

And you can see we -- that book is yielding about 8.5%.

The coupon underneath it is closer to 4.5%.

So that's the additional accretion that you can back into it.

The book though is -- I'll say that the book is typically amortizing about 30% -- on 30% annualized basis.

And while that is -- you lose that 8.5% yielding kind of asset on to the extent that it is prepayment and payoff-driven amortization, you get to accelerate that mark.

So it's not an exact science, but that's the -- kind of 8.5% is where it's yielding.

And we didn't pick up any -- but to your last point Aldis, we didn't pick up any kind of accelerated marks in the quarter that stood out.

So...

That was stood...

As you know, Chris, that tends to be pretty sporadic.

It's nice when it comes, but second quarter was light.

Okay.

So maybe I'll start, if I take out -- yes, if just start with the $48.6 million, the PPP was a 1% loan.

Did you realize any fees in the quarter from PPP?

Or is that more of a...

Yes.

We realized fee amortization over a 2-year period.

So we realized a -- take $12 million over 24 months, and we have about 3 months' worth of -- or 2.5 months' worth of fee amortization.

Okay.

Okay.

I guess what I'm trying to decipher is this NII trajectory from here, it's -- yes, obviously, the liquidity build and the margin makes it a challenge for everybody.

But I'm trying to kind of get a sense of where loan growth might be and kind of the comments on margins, just to see if NII is going to grow or is it going to kind of bottom out for the next couple of quarters.

I think -- I mean, again, excluding the accelerated component of fee realization, we've kind of bottomed out here.

And then the trajectory will be how fast and what type of earning asset can we grow.

Chris, I would add -- this is Tim.

I would add that, look, first and foremost, in this environment, our focus is on protecting the balance sheet.

So it's an interesting time to be talking about picking up additional market share.

Maybe let's just say the levels of additional underwriting that's required to make that happen are, in some cases, almost insurmountable.

What we are starting to see are opportunities working with existing clients that we know well and understand to take advantage of certain opportunities.

We'll also continue to look at with every renewal of pricing opportunities with the indexes like LIBOR, where they're at today.

We don't necessarily think that's the appropriate index or the way to be thinking about pricing credit on renewals versus looking at overall yield.

So we think there's opportunity with yield management.

We think there's opportunities with existing clients.

But we're not going to be running hard into the marketplace at this point expanding our balance sheet with the number of unknowns that are out there.

Understood.

Great.

And maybe last question, if I can sneak one in.

The color on the mortgage was great, Aldis.

But I just want to kind of understand, how do I think about the marginal efficiency ratio of that business?

You talked about $10.5 million of comp.

You did $30 million roughly of revenue.

Is that how I should be thinking about kind of the marginal efficiency ratio for that business?

Yes.

The best way I would summarize is if you look on a year-to-date basis, it's running where we think to be is gain on sales of mortgages -- or I should say, the variable compensation, that is representing about 40% of the gain on sale of mortgages.

So that's a variable component.

Now embedded, obviously, if there is a fixed component of facilities and services, staff and all of that, so in the long run, that business still is running above the 60% efficiency ratio this quarter.

Again, as I mentioned, margin driven, we were quite profitable in that business.

Our next question comes from Gordon McGuire with Stephens.

Maybe start with Aldis.

You had touched earlier that some of the deposit growth came late in the quarter and was continuing.

But it's such a large jump, 14% transaction growth on -- in average balances.

I'm curious if there's anything that might be more transitory.

That could be outflows.

I'm just trying to think about the size of the balance sheet from here.

That's a great question.

And we spend a ton of time looking at our deposits and the sources of this.

And I think the most -- and I think you've heard it from other banks have talked about it, but the most hard one to kind of put your finger on it is we had our entire PPP loan book that got funded, on day 1, got put in a transaction account with our bank, and those are our clients and we serve as a primary bank for them.

So those dollars, as they get used, are certainly likely to leave the bank.

Other than that, it's hard to say.

It feels like a lot of our dollars that we've gathered have come from new relationships, expanding the relationships.

And it's just there's a lot of liquidity in the system, and how that gets utilized over time, we certainly want to be part of it and retain most of it, if not all of it.

Okay.

And then -- and Tim mentioned maybe focusing the loan portfolio more on existing clients, not necessarily taking market share right now.

So would it be fair to say that the excess liquidity this quarter probably gets plugged in the securities book?

I guess how should I think about the strategy with your liquidity now, now that that portfolio is starting to grow off of 15% of assets?

Yes.

I mean potentially, I think it's going to be mixed, albeit conservatively.

I think we will be ready to deploy it into loan growth and we certainly don't want to tie it up in a longer duration, very low-yielding asset today.

So we'll be smart about that.

I think we might leave some of it in cash and hold on and wait for the opportunity to turn our loan pipelines again.

And Tim, with the office consolidations, I'm curious if there's any specific targets, efficiency or overhead, that you're targeting with this and whether there could be more to come on that side of the house.

As most of the listeners would know, and I know you recognize this, Gordon, as a team, we have a pretty strong track record of continuing to identify opportunities to better manage expense.

And we certainly believe, to be more specific in answering your question, that we still have nice runway on that front.

Certainly an area that we'll continue to focus on is the right balance between brick-and-mortar and digital.

With the COVID pandemic, we've seen, like other institutions, really amazing adoption rates on our digital capabilities.

The work thus far with the 12 branches or banking centers that we've announced earlier in the quarter are -- that work is going really well.

And we'll continue to look at opportunities to better balance the way we serve our clients while reducing expense.

And as I said before, while I'm not prepared today to talk about specific targets, I can tell you, at a strategic level, we're confident that we still have nice runway on that front.

Your next question comes from Andrew Liesch with Piper Sandler.

A few follow-up questions from me.

It sounds like the cost savings from the branch consolidation is expected to follow the bottom line, but you also referenced this increasing technology usage.

So is some of these cost savings can be reinvested back into the franchise?

Or is the right way to look at it just a straight benefit to expenses?

We'll continue to look at investing in our alternative delivery channels.

But I would tell you that this is an effort that's been underway in our company over the last number of years.

And so in terms of any big expected spikes in those areas, that's not something that we forecasted.

We're pretty comfortable with our current run rates of investment.

Okay.

That's helpful.

And then just circling back to the deposit growth, as you referenced, you're certainly benefiting from PPP recipients parking their money at the bank.

But I mean, beyond that, it's still exceptional.

Is there anything you can point to that was driving it?

Yes.

We were -- we had high expectations, and we expected our teams to be very disciplined around the PPP program in working with clients that were willing to open up, if they didn't already have them with us, to bring all of their operating depository business to our company.

And that's just a core kind of philosophy of the way we do business, you're expecting to capture that full relationship.

Maybe one of the unexpected benefits we saw was with a number of prospects where we weren't able to work with them on the PPP, but this particularly seemed to happen with the largest of banks in the country, we saw a meaningful number of new business relationships develop as a result of them being disappointed in the response of their large bank on PPP and moving all of their depository and operating business to us.

I don't think we were unique in that regard.

We were focused on it.

But we love that because we also see it as a first step in doing potential other business down the road when the economic environment starts to solidify.

So I don't know, Rick, Aldis, anything else you would add?

No, just I think we continue expanding our relationships with new accounts.

I think the -- or relationships, I should say, and it is driven by broadening the net, so to say.

I think in some respects, what Aldis just pointed out, Andrew, is maybe the most important focus for me because I can't discern how much of this balance growth at the end of the day is just driven by the liquidity the government has pumped into the markets.

But what we can measure with confidence is how many new relationships we're growing, and that's what's exciting is that we're seeing nice core operating deposit relationship growth.

By the way, not just in small business and commercial, but in consumer as well.

Okay.

That's very helpful.

And then just one follow-up to the question.

Just on the reserve ratio, 1.36%, excluding the PPP loans, but then you also referenced the $15.2 million discount.

Is the right way to look at that to add that $15.2 million into the allowance to calculate the reserve ratio?

I'm just curious if we really should be including that in there.

Well, certainly, it's -- look, I mean, if any of those loans we had trouble with it, that mark is there to protect.

It doesn't matter whether it was on -- at the time the purchase was generated by credit or interest rate, that mark is there to protect.

And if you add the mark, you get to what?

Remind everybody.

Yes.

The mark on the book itself is worth 34 basis points -- or overall -- sorry, overall loan book is worth 34 basis points.

So would bring us up in comfortably into 1s -- high 1.6s.

If you kind of narrow it to the purchase book, it's worth 5%.

So it is quite a bit of protection, and we view it as a protection even though as these loans are maturing and rolling off, we are realizing it through net interest income.

Got you.

So arguably, the reserve is stronger than that 1.36%.

Yes.

1.36%.

I am showing we have no further questions at this time.

I will now turn the call back to Mr. Laney for his closing remarks.

Thank you, Mary Alma.

I'll just simply wish everyone their continuing safety and health, and thank you for joining today.

Take care.

And this concludes today's conference call.

If you would like to listen to the telephone replay of this call, it will be available beginning in approximately 2 hours and will run through August 5, 2020, by dialing (855) 859-2056 or (404) 537-3406 and referencing the conference ID of 8919639.

The earnings release and an online replay of this call will also be available on the company's website on the Investor Relations page.

Thank you very much, and have a great day.

You may now disconnect.