Stellar Bancorp Inc (STEL) 2020 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the CBTX Q2 2020 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your speaker today, Justin Long, General Counsel. You may begin.

Thank you. Good morning. I'm Justin Long, General Counsel of CBTX, and our management team would like to welcome you to the earnings call for the second quarter of 2020. We appreciate you joining us.

We issued our earnings press release yesterday afternoon, a copy of which is available on our website. We also filed our quarterly report on Form 10-Q for the second quarter yesterday afternoon and released a slide presentation this morning that we will refer to during this presentation.

Before we begin, I'd like to remind you that during this presentation, we may make forward-looking statements regarding future events, our financial performance or our business prospects.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Additional information concerning factors that could cause actual results to differ is available in our earnings release and in the Risk Factors section of our annual report on Form 10-Q -- our quarterly report on Form 10-Q -- excuse me, our annual report on Form 10-K and our quarterly report on Form 10-Q for the second quarter, and our other filings with the SEC, which can all be accessed on our Investor Relations website at ir.cbtxinc.com.

Any forward-looking statements are made only as of the date of this call, and we assume no obligation to update any such statements.

You should also be aware that during this call, we will reference certain non-GAAP financial information. A reconciliation of these financial measures to the most directly comparable GAAP financial measures is included in our earnings release and investor presentation.

I'm joined this morning by Robert R. Franklin, Jr., our Chairman, President and CEO; Ted Pigott, our Chief Financial Officer; Joe West, our Chief Credit Officer; and Joseph McMullen, our Controller. At the end of their remarks, we will open the call to questions.

With that, I turn it over to our Chairman, President and CEO Bob Franklin.

Thank you, Justin, and welcome to the earnings call for CBTX for the second quarter 2020.

Second quarter remained a challenging and an uncertain environment. We continue to deal with the impact of the pandemic on the communities and customers that we serve and continued instability in the oil and gas industry along with an extraordinarily low interest rate environment.

I'm very happy of the work -- I'm very proud of the work that our team did this quarter. We were able to fund 2,010 PPP loans totaling about approximately $336 million during the quarter, while we continue to work with our customers to structure deferral arrangements to assist them in these uncertain times.

Our team has been actively reaching out to our customers to understand their positions, stresses and to maintain contact with them. We have found that many of them are back to work and finding their own solutions to the current challenges.

As to provision. For the second quarter, we took a provision of approximately $9.9 million, dictated by the uncertainties associated with the COVID-19 pandemic, sustained instability in oil and gas and the resultant economic conditions.

These uncertainties resulted in our adjusting several qualitative factors utilized in the estimate for the allowance for credit losses.

Our allowance for credit losses at the end of the quarter was 1.35% or 1.52% when we removed the PPP loans.

Our capital ratios remain very strong, with our second quarter CET1 and Tier 1 capital ratios each at 15.3% to go along with our total risk-based capital of 16.56% and a leverage ratio of 11.96%.

During the second quarter, we continued to pay our quarterly dividend and do not expect to change a change in that philosophy going forward. We believe that our strong capital position, conservative credit philosophy will allow us the flexibility to work with our customers through these troubled times, while continuing to look for opportunities in this uncertain environment.

As to deferrals. While Joe will provide some more information regarding our loans and deferrals later in the call, I want to touch on several points that I noted in last quarter's earnings call.

I spoke last quarter about how we will think about our deferrals in 3 general categories or buckets as we got to the end of the deferral period. The first category consists of those customers who are impacted by the virus but who are back off and running again.

The second category are those customers that may be struggling a bit, but 90 days was not quite enough to resume a full payment schedule.

The third category is the highly stressed customer category. Those customers whose businesses were not helped by the deferral, are on the wrong track and which remain highly stressed. These customers will require more active management and ultimately may end in foreclosure or potential loss.

We have also chosen to take and actively manage our process for early detection and identify TDRs on a very conservative basis. The pandemic has created a fog over our economies and current outlook. But as we get to the end of the initial deferral period in July, early indications are that the majority of our customers are comfortable in continuing their previous repayment schedule. We are seeing very few new requests for deferral.

Our total deferrals at June 30, 2020, consisted of 689 loans with principal amounts totaling $544.9 million or approximately 18.5% of our gross loans at June 30, 2020. Of those loans, approximately 454 loans with a principal amount of $356 million revert to their original payment schedule starting with this month of July.

We are reviewing our loans daily and continuing to reach out to our customers. As of July 20, 2020, we had entered into second deferral arrangements for only 16 loans with the principal amount totaling approximately $23.7 million. We continue to gain clarity as we move through the end of July, August and September. To date, we are encouraged by the much slower pace of initial deferrals and request for second deferrals. We continue to work with our customers in these troubled times in a cooperative, but prudent manner.

As to the formal agreement. During June, Community Bank of Texas and the OCC entered into a Formal Agreement with regard to Bank Secrecy Act and Anti-Money Laundering compliance matters. The agreement generally requires that the bank enhance its policies and procedures to ensure compliance with BSA/AML laws and regulations. Although the agreement does not resolve the investigation by FinCEN, we view the agreement as a positive step as it gives us the ability to focus on specific steps, with specific time frames to enhance our BSA/AML compliance program. We think that identifying and completing those enhancements will positively impact our negotiations to resolve our FinCEN matter.

We have commenced actions to meet the terms of the agreement and are making progress as we have completed certain steps already. We are committed to taking the necessary actions to fully address the provisions of the agreement within the time frames identified in the agreement. We believe that our efforts to comply will only strengthen our program and the bank will (inaudible)

Our efforts are targeted to achieve full compliance by the end of this year, and then we'll work with the OCC to lift the agreement by the first part of 2021.

We consistently work to have open lines of communications with our regulators regarding our operations on a regular basis and will continue to do so, including with respect to our BSA/AML compliance program and the actions required under the agreement.

Our team is focused on our customers, our regulators and our shareholders during these uncertain times. We are supported by a strong capital base and experienced staff and loyal customer base.

I'll now turn it over to our Chief Financial Officer, Ted Pigott.

Thank you, Bob. I'll turn to the financial highlights, which begin on Slide 4 in our Investor deck. And we will review our second quarter results.

Net income was $2.2 million or $0.09 per diluted share for the quarter ended June 30, 2020, compared to $7.5 million or $0.30 per diluted share for the quarter ended March 31, 2020, and also comparing to $14.3 million or $0.57 per diluted share for the quarter ended June 30, 2019.

Returns on our average assets and average shareholders' equity were 0.23% and 1.60%, respectively, for the second quarter. This compares to the first quarter of 2020 which was 80 -- 0.87% and 5.64%, respectively. And for the prior year quarter, 1.72% and 11.3%, respectively, for that period.

Turning to the 6-month period ending June 30. Net income was $9.7 million or $0.39 per share compared to $24.8 million or $0.99 per share for the prior period, a decreases of $12.2 million and $15.1 million during the 3 and 6 months period ended June 20 -- June 30, 2020, compared to the 3 and 6 months ended June 30, 2019, respectively, were primarily due to the increase in the provisions for credit losses during the first and second quarter and decreases in net interest income, noninterest income and income tax expense during such periods.

Our pre-provision net revenue was $12.6 million for the second quarter, down $1.9 million or 13% compared to $14.5 million reported in the first quarter of 2020.

Noninterest income declined $1.4 million from the prior quarter. This resulted from a nonrecurring interest rate swap fee of $965,000 recorded in the first quarter and $319,000 in decreased NSF overdraft fees. Noninterest expense increased $406,000 due to higher legal fees related to the regulatory matters and a nonrecurrent FDIC assessment credit of $199,000 recorded in the first quarter of 2020.

Moving to net interest income. It was $32.2 million for the second quarter. This was in line with the preceding quarter compared to the second quarter of 2019 at $34.3 million. Net interest income decreased $2.1 million during the second quarter 2020 compared to the second quarter of 2019, primarily due to lower rates on loans and other interest-earning assets, partially offset by the impact of increased average loans and lower rates on interest-bearing deposits.

Our net interest margin on a tax equivalent basis was 3.68%. This was 38 basis points below the 4.06% reported in the first quarter of 2020.

In the same period, the rate on our interest-bearing deposits decreased 44 basis points to 0.48% for the current quarter.

Net interest margin on a tax equivalent basis decreased 85 basis points from the prior year period.

For the second quarter of 2020, the provision for credit losses related to loans was $8.5 million compared to only $53,000 of debt charge-offs. This compares with $4.7 million in credit expense and $301,000 in net recoveries for the first quarter of 2020 and $807,000 in credit loss expense and $108,000 in net charge-offs in the second quarter of 2019. The increase in the provision for credit losses in 2020 was primarily due to the impact of COVID-19 and the sustained instability of the oil and gas industry on local and international economy and on current and forecasted expected losses. The credit loss related to off-balance sheet credit exposure was $1.3 million in the second quarter. The increase was the impact of the COVID-19 and sustained instability of oil and gas as we stressed above.

Noninterest income was $2.9 million for the second quarter. This was down $1.4 million from $4.3 million reported in the first quarter, primarily due to a $965,000 interest rate swap fee realized in the preceding quarter and a $319,000 decrease in NSF fees, which reflected lower transaction fees.

Noninterest income decreased $4.4 million from the prior period -- prior year period, primarily due to a death benefit received under our bank-owned life insurance policy, which resulted in a gain of $3.3 million over the carrying value during the second quarter of 2019.

Noninterest expense was $22.5 million for the second quarter. This was up $400,000 from the prior quarter of $22.1 million. Noninterest expense decreased $900,000 compared to the prior year period, primarily due to a $1.1 million reduction in fees related to regulatory matters.

Moving to the balance sheet. Our total assets were $3.9 billion at June 30, 2020, compared to $3.5 billion at December 31, 2019. This is an increase of $423.2 million, primarily due to the increase in loans, excluding loans held for sale of $295.8 million and a $120.3 million increase in cash and cash equivalents partially offset by the allowance for credit losses which totaled $14.4 million.

Total liabilities were $3.4 billion at the end of June 30, 2020 as compared to $2.9 billion as of December 31, 2019, again, an increase of $421.5 million which was primarily due to an increase in deposits, which increased $401 million in the 6-month period.

The allowance for credit losses as a percentage of loans was 1.35% at the end of the quarter, compared to 1.17% at the end of March 31, 2020, and 0.96% at the end of last year, December 31, 2019.

Nonperforming assets were $11.2 million or 0.29% of total assets at June 30 compared to $977,000 or 0.03% of total assets at December 31, 2019.

Nonaccrual loans outstanding at June 30 include $9.9 million of loans that were placed on nonaccrual while subject to deferral arrangements.

As of June 30, the company entered into deferral arrangements of 689 loans with an outstanding principal of $545 million. These arrangements have resulted in deferral payments, including principal and interest totaling $17 million, which includes all payments on the loans that are being deferred in accordance with the deferral arrangement.

Moving to capital. Our capital ratios, the common equity Tier 1 or the Tier 1 risk based, the total risk-based and Tier 1 leverage capital ratios at the end of the quarter were 15.3% -- 15.3%, 16.56% and 11.96%, respectively. These all continue to be well in excess of well capitalized levels and exceed the Basel III minimum requirements.

Now I'm going to turn it over to Joe West.

Thank you, Ted. I'll speak a bit of our loan portfolio, beginning with Slide 9 from the investor presentation.

For the second quarter, our loans were $2.9 billion versus $2.6 billion at the end of the first quarter of this year for an increase of approximately $295.8 million. Our portfolio yield was down from the 3 months ended Q2 2020 with a yield of 5 -- excuse me, 4.54% versus 5.13% for the first 3 months of this year, largely as a result of the drop in prime rate over the prior 12 months, and it was impacted by our PPP loans made during the second quarter, which I'll discuss a bit later.

Our average yield on loans for Q2, when excluding the PPP loans, was 4.75%.

For the quarter, C&I was up 37%, largely as a result of the PPP loans that were made during the second quarter. CRE was up 0.8%. Our construction and development was up 4.7%. 1-4 family was down 2.8% and multi-family was down 8%.

As you turn to Slide 11, you'll see our construction and development loans were up $25 million at the end of the second quarter compared with on 12/31/'19.

Slide 12 sets forth our oil and gas exposure, including how we quantify our direct and indirect exposure.

Outstanding balances of oil and gas loans continued a downward trend from Q1 last year, Q1 -- Q4 last year, Q1 this year and Q2 this year, with the total falling from March 31 by approximately $14.1 million, largely because of loan payoffs and paydowns.

Slide 13 shows the breakout of our oil and gas exposure across the components of our portfolio, which remained relatively consistent compared to Q1 of this year.

Slide 14 sets forth information around our PPP loans during the second quarter. As Bob noted, we originated $336.1 million in PPP loans during the quarter and had approximately $5.6 million of principal payments on them which were largely payoffs. Our average PPP loan size was $167,000 and 1,799 of the PPP loans were under $350,000 in principle amount.

The table at the bottom of Slide 14 sets forth our average yield on our loan portfolio, our average yield on our PPP loans and the average yield on our loan portfolio when taking out the PPP loans.

Our team did a great job working on the program that we have been preparing for the forgiveness application process. As the program has continued to evolve, we think that we will start seeing applications for forgiveness in the coming weeks.

Slide 16 sets forth information regarding deferral arrangements that we have entered into with our customers as a result of the COVID-19 pandemic. The largest category of our deferred loans is in our commercial real estate portfolio and our total deferred principal and interest as of June 30, 2020, was slightly over $17 million.

We have seen a very steady decline in the request for deferrals over the course of the second quarter having entered into first deferral arrangements with 2 customers during the first 3 weeks of July following the quarter end. We also have had 9 loans previously subject to deferral arrangements with the pretty deferral arrangements weeks on the quarter end -- excuse me, we have had 9 loans [principal here] subject to deferral arrangements for the quarter, principal amount of $2.4 million that paid off during the second quarter.

If you turn to Slide 17, you'll see a breakout of what we think are the elements of our portfolio that are both sensitive to the COVID-19 virus: Retail CRE, oil and gas, convenience stores, hotels and restaurants. Those higher risk elements comprised approximately 24.3% of our total loans at June 30.

For this group, the deferred loan totals were at the end of the second quarter; retail CRE, $145.9 million, oil and gas, $5 million; convenience stores, $17.6 million; hotels, $47.3 million; restaurants, $31.3 million.

At 6/30, we had approximately 49.5% of our loan portfolio with variable rates and approximately 77% of our variable rates -- rental rate loan portfolio had floors. All of our variable rate loan portfolio with very few exceptions ran on rate floor. The maturity distribution of fixed rate loan -- on the fixed rate loan portfolio provides for 80% maturing on or before December 31, 2025.

Credit quality remains strong through the second quarter. Slide 20 shows information regarding our charge-off history, and our net charge-offs to average loans for Q2 was 0.01%.

Similarly, Slide 21 reflects our nonperforming assets to our total assets over the last 4 years. And for Q2, our ratio was 0.29%.

For past dues and classifiers of past dues were $5.4 million at Q2 '20 versus $6.2 million at Q1 '20. Classified credits rated substandard or worse increased but remained low compared to the total portfolio, moving to $70 million at Q2 '20 versus $51 million at Q1 '20 and versus $29 million at Q4 '19.

Troubled debt restructurings increased $26 million over Q4 '19 and $21.6 million over Q1 2020, largely as a result of 5 credits that moved to substandard and received deferrals. The increase in TDRs over Q1 2020 included 32 loans, totaling $26.3 million that had potential credit issues, not related to COVID and that entered into deferral arrangements because files of these loans pre-dated COVID. We would had to consider these TDRs in connection with the deferral arrangement.

So with that, I'll turn it back over to Bob.

Thanks, Joe. There are still unknowns in front of our company. We feel with the reserve build and the capital position, we are well prepared to deal with the impacts of the pandemic and the instability in the oil and gas industry and the low rate environment we -- that persists. Our markets and our customers are resilient, and our team is experienced. We are well positioned to work with our customers and communities to take advantage of opportunities as they may present themselves.

With that, we're going to open it up for questions.

(Operator Instructions) Your first question comes from the line Bradley Milsaps from Piper Sandler.

Just wanted to follow up on the deferral discussion. It sounds like you had about $545 million deferral at June 30. $356 million have kind of reverted to the original payment schedule, which is good, roughly $24 million have taken a second deferral. The remaining $165 million, can you kind of talk about those? Are those just in kind of various stages of discussion? Or those deferrals maybe don't expire until a little bit later. Just kind of curious on kind of the unaccounted form out there, kind of what the color would be.

It's really timing. We expect the same sort of skew as we did in July for those credits. So it's just -- that's when we basically gave out 90-day deferrals, and so that's when those will be maturing. So our expectation is to see the same type of results. We are going back through this month, talking to every single deferral that we've had. And it seems like that's where the expectation is that we're going to have the same type of results, but that's subject to change over time. But it looks like people are getting back on schedule again. And they -- a lot of these guys took deferrals just as a defensive measure. So it looks like people are getting back to work.

Got it. So that would imply maybe roughly 5% of that remaining amount would take a second deferral?

It sort of depends. If you think about it in the higher stress where, like we've seen a daycare center, for example, who's trying to get back to -- when we go back to school, a lot of these guys are stressed. They haven't been able to open. Those are the types of industries. There may be some motels that still have a little stress around people, although occupancy is starting to build across that portfolio. But a little bits and pieces here and there that are really COVID-related that are continuing to be somewhat stressed out there.

Got it. And then as you look at and think about the -- your at-risk industries on Slide 17, what areas at this point are you most concerned about, and may would seem that your deferral numbers are going to go down pretty substantially if the pattern holds? Just you noted that you built the reserve again because of stress and instability in the oil and gas sector. But just kind of curious your thoughts around some of those categories on Slide 17 and how that might lead into additional reserve building. Because it seems like your deferral numbers are going to be pretty low at the -- once we kind of get through the end of this month.

Yes. I think if you think about the oil and gas piece, we haven't seen much in the way of deferrals. And it seems like at least the things that we've done haven't been quite as stressed as where maybe some others.

Convenience stores. These guys are doing really well.

Hotels, I think, are certainly under stress, but occupancy seems to be coming back at least to a relatively decent level. And typically, on our second deferrals, we've been collecting interest. So we're doing very little in the way of full second deferrals.

Restaurants, I think, are going to be still subject to what goes on out there. I mean the city of Houston, for example, kind of goes in and out of opening these things up. And although they continue to operate fairly well with take-out services, people have adjusted.

Retail centers, we've actually seen those come back pretty well. They're still subject to some of the tenants that they have, and we'll continue to see how that performs. But really, across those COVID at-risk loans, we see people adapting, and we haven't seen probably the stress that we even expected to see at this point. But I think we're a bit worried about what the fourth quarter of this year might look like if, for some reason, this country wants to shut us down again. But for now, it seems like our customers are coming back pretty well.

That's great. And then maybe just one final question for me on the margin. Even excluding the impact of PPP loans, was still down, maybe more than you guys were thinking in the quarter. I know you've got a fair amount of your variable rate loans at floors, but continued repricing on the fixed rate side will obviously have an impact, you've got some room on the deposit side potentially.

But just kind of curious about kind of how you're thinking about the margin as you move into the back half of the year. I know there are a lot of moving parts with liquidity and probably not a ton of loan growth, but just kind of curious what you're thinking.

Yes. I think there continues to be some stress on the margin, although less, I don't think we'll see a lot of movement. We took -- we saw a lot of benefit from what we did with deposit rates this quarter, but it didn't offset what we saw on the loan side.

New loans going on the books are definitely going on at a lower rate. Although we're not doing a ton of new stuff, they're definitely going on at a lower rate. We've also been willing to help people through this downturn and COVID situation by lowering some folk's rates to help them out. So we have done a little bit of that. So there continues to be a little pressure on the loan yield side. Although, if you take out the PPP loans, we did see some decline in loan yield, but not nearly as much. And I think we're going to continue -- we'll probably hold that, I think, for the most part through the rest of the year.

We've got a lot of cash that we don't make any money on. So I think all of us in our industry are trying to figure out what our true liquidity is as we -- I'll speak to our case, where we saw a tremendous amount of influx of deposits as a result of doing these PPP loans. But by now, a lot of these guys have spent the PPP money, yet our deposits continue to sit at a pretty high level. We think if Congress gets this 1-pager done, we're going to see a tremendous amount of these PPP loans roll out. We have spread the fees on that over the life of the loans. We would get the benefit of that in this quarter, this -- in the coming quarter if that's what happens, but it's affected our margin on both sides of the margin. So it's hard to make money on all this cash. Fed don't want to pay anything, and we don't know how long it's going to stay. So we sort of sit here with a lot of cash on our balance sheet. Thank you.

Your next question comes from the line of Brady Gailey from KBW.

So I want to start just with the need for additional provisioning. I mean you built the ACL, again, as you said, ex PPP, it's over 1.5%. Your provision is about double this quarter versus last quarter. How do you think about the need for additional reserve building and provisioning?

Well, I think to some extent, we're all getting used to CECL, Brady. CECL was really the primary driver for most of that build as we adjusted qualitative factors to pretty high levels, given the unknown. And we're in such a fluid environment, it's hard to know. And I think as we were making these provisions, and we still we're in the middle of trying to understand what stresses remained, how our deferred loans were going to be impacted, but we're starting to see a much better pattern than what we may have thought.

I don't see significant build through the end of the year, but we continue to watch economic conditions. If economic conditions deteriorated, I guess we would have to move with that. We haven't seen particular loan driving needs for that. But as time goes on, we'll continue to watch that and make sure that we're covering what we need. But we feel pretty good about where the loan loss reserve is right now, and we'll just have to -- it's really based on what conditions do going forward.

Okay. And then your NPAs have been very low for you all for a while. They still are low this quarter, but they are up about $10 million. I think I heard in your comments, some of those are deferrals. Can you just comment on the $10 million increase and how the deferrals played into that?

That was one particular loan customer. That was severely affected by COVID revenue off about 80%. And we would have had and moved that to nonaccrual. And, and we're in the process of -- and they had also requested a 90-day deferral full payment deferral back in early April, I believe. And so we got more information on that during the quarter. And so we downgraded the credit. We're in the process of negotiating a forbearance agreement right now. So it will become a TDR, signed of a forbearance agreement. So that was one particular company that had their revenue impacted about 80%.

And what type of company was that?

It's a transportation company. I don't want to go into too much detail for confidentiality reasons, but it's involved in transportation.

Okay. But not oil related? Or is it oil related?

No, it's not oil related. They do have some oil and gas clients that they work for, but it's mainly non-oil and gas what they do.

And [schools] hurt these guys pretty well, too. And I will say about 70% of that loan, if I'm giving my math right, is actually real estate secured.

I think more 60 -- 60 on that. But yes. So we're trying to -- it's equipment, a lot of credit and real estate.

All right. That's helpful. And then finally, for me, just on the regulatory order, the BSA/AML issue. I mean I realize it's costing you guys a lot of money, which is very unfortunate. But outside of the cost, is this order really holding you back from doing anything that you want to be doing right now?

Well, not right now. I don't think it's holding us back. It's -- we ended up with this formal agreement, but I think -- it gives us a road map, and we think it's a positive thing, gives us a road map to get ourselves moving out of this thing. And that -- we think pretty clearly, as we work with the OCC, our regular exam schedule is February, and our expectation is that we're complete by 12/31. It gives them the opportunity to check all of that as they do their exam. And our expectation is that we're out from under this thing. And it's -- so we think it's a positive step. It doesn't resolve, for instance, but we think it helps tremendously in getting them to understand kind of where we are in this thing.

(Operator Instructions)Your next question comes from the line of Matt Olney from Stephens Inc.

You've already addressed most of my questions. I want to circle back to loan balances. And when I take out the impact of PPP, loan balances were down a little bit, and that's something we're certainly seeing amongst many of your peers, too, right now. What's your expectations of when we should expect this to stabilize?

Well, tell me when we're going to quit having COVID? I think it's difficult. We're still doing some new loans, Matt. But we think it's very difficult to assess risk today. And so we are very cautious about new credits. It's interesting that we have seen some new stuff come out. We've actually been able to get extremely enhanced sort of loan covenants and additional equity and a lot of things and in the form of covering cash flows. And there's just a lot of things that if we do a loan today, they're really strong. So we're seeing some, but we also see a runoff of $20 million, $25 million in just paydowns in a regular payment cycle on a monthly basis. We do have some construction loans, funding and some other things happening so we're kind of covering that. It's sort of -- but this trend is going to still be down a little bit because we're not generating a lot of new stuff, although we are generating some. So I would say that we're going to continue to see a little bit of deterioration there, but we're not in a position to want to reach for credits today, if that helps you at all.

Yes. That's helpful. And then on the deposit side, did a really nice job bringing down deposit costs this quarter. How much more room is there to bring down deposit costs after seeing 2Q?

There's not much, Matt. I think we can tweak it maybe a little bit, but I mean, we're not paying much. And we got almost half of our deposits are demand deposits already. So it's not -- it's the funny part is with all this PPP and all the stimulus, I mean I -- so that fees are down. So you don't have people overdrawing their accounts. They got money in the account. The sad part for us is, we don't have anything to do with it, and it's hard to count on that cash being there. We did see a build as people -- as we always do, right before people paid their taxes this year. So I think deposits are down a little bit as we're going forward as people paid their taxes in July, which was deferred for folks so -- but we still have a lot of liquidity. And as we get rid of the PPP loans, that they get forgiven, I think we'll have a better understanding of what our real liquidity is and just try to understand what -- how many of these people are actually going to get forgiveness, and we suspect it's a lot, it's just that the government had quit fooling around with this thing. But that's kind of where we are. I mean I don't think there's a lot more room to move deposit rates now.

Okay. And then on the fees, Bob, you mentioned that the customers have lots of liquidity right now, which is slowing down your overall fees. Were there any kind of fee -- more fee waivers during 2Q that you guys implemented? I'm just trying to see if fees could rebound a little bit more in the next few quarters, but still, I assume remain depressed from where they were previously.

No. Over the last year or 2, the biggest fluctuation in that has been swap fees. And we did have a big one earlier this year, and that's going to be a difference for us. But we've never been a big fee bank. Service charges are down some just because people are balancing out of the service charges with our earnings credit. So that fees are down. I mean the typical fees that we do get are down a little bit during all of this as people have accumulated a lot of cash and are kind of sitting on that cash. But we'll just -- I think it's pretty well played itself out. So as people start to reemploy that money. Thank you, Matt.

I am showing no further questions at this time. This concludes today's conference call. Thank you, and have a great day.

Thank you very much.