Q1 2021 Zions Bancorporation NA Earnings Call
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thank you for standing by and welcome to the Zions Bank corporations first order 2021 earnings results webcast at this time. All participants are in a listen-only mode after the speakers presentations. There will be a question-and-answer session with staff requested that time star than one on your touch-tone telephone call is being recorded video hosted the James Abbott director of investor relations am good. Thank you and good evening everyone. We welcome you to this conference call to discuss our 2021 first quarter earnings. I would like to remind you that during this call may be making forward-looking statements. Although actual results May differ materially additionally your earnings release the related slide presentation and this earnings call contains several references to non-gaap measures. We encourage you to review the disclaimer in the press release or the slide deck on slide to dealing with forward-looking information and the presentation of non-gaap measures wage.
Which apply equally to the statements made during this call a copy of the earnings release as well as a supplemental slide deck are available at Zions bancorporation, We will be referring to this life during this call.
For our agenda today chairman and chief executive officer Harris Simmons will provide a brief high-level overview of key financial performance of the company subsequent to Harris's comments off our Chief Financial Officer will conclude by providing additional detail on Zions Financial condition with us. Also today are Scott McClain our president and Chief Operating Officer or chief risk officer and Michael Morris our chief credit officer. We intend to limit the length of this call to one hour during the question and answer section of the call. We ask you to limit your questions the one primary and one follow-up question to enable other participants to ask questions. I will now turn the time over to us. Thanks very much James. We welcome all of you to our call this evening beginning on slide three of the presentation that we distributed. We're pleased with the overall results of the quarter particularly on the credit card.
Maltese front diluted earnings per share increased to a dollar ninety cents
From a dollar sixty cents per share in the prior quarter. The increase can be attributed to the change in the provision for credit losses this reserved release which was almost double the size of a guy in the prior quarter was made possible by the combination of a low 7 basis points of annualized loan losses relative to average non PPP loans, six basis points, total loans total average loans, and it's also the result of continued Improvement in the economic Outlook our Capital improved common Equity Tier 1 Capital the ratio of increasing about 40 basis points to 11.2%. And Loans were flat with a prior quarter Home Health by additional growth and he loans from the 2021 round of the program.
When viewed through the lens Federal Reserve data and from other reporting Banks recent earnings releases. It appears that we held up better than a great many banks viewed both with and without the effect of PPP loans month. And deposits increased 6% or 24% annualized and non-interest bearing deposits increased more than 10% or 42% annualized slide for reflects recent earnings per share results along with some notable items on the right-hand side of the shirt of the slide there that might be of interest to you.
And then turning to slide five adjusted pre-provision Revenue was 253 million dollars in the first quarter decreased from the prior quarter was largely, although not totally attributable to seasonal factors such as reduced revenue from fewer days in the quarter and increased expense primarily from an increase in long-term incentive compensation. We've also displayed the provision for credit losses, which has been the most volatile component of our earnings Paul burdiss will provide additional detail in his prepared remarks about some of these items.
On slide 6 we highlight the balance sheet profitability metrics a very strong results over the past two quarters in large measure reflect the partial reversal of credit loss Provisions in the fourth quarter of 2020.
Turning a slide seven. We highlight the increase in our common Equity Tier 1 Capital ratio, which as I noted increased to more than 11% from 10% a year ago June much of this is attributable to the fact that we suspended share repurchases during the most the most uncertain period of the pandemic while maintaining our comments off a cash dividend in the first quarter, we repurchased $50 of our stock and although it's premature to announce anything today. The company is well-positioned to be more active in our Capital Management over the next several months. We believe flight eight highlights are paycheck Protection Program lending success. We've been very pleased with the result of our efforts ranking 10th overall and origination volume when combining last and this year's results. We are willing to the Forgiveness process with 4.4 billion dollars of application.
received a two point eight billion dollars
Proof by the SBA during the first quarter an additional 1.5 billion was forgiven by the s p a slight increase over the prior quarters rate leading to a moderate increase in yield of those loans off but you the 2021 round has been a continued success. Although fewer of our borrowers if needed the funds still if the more than 28,000 application submitted in the current round nearly 4,000. The applications are from customers that are new to the bank and the current round in addition to the nearly 15,000 new customers from the 2020 applicants wage.
Turning to slide 9 we can see the status of customers that as a result of the PPP are new to the bank as well as those who are existing customers who obtained a PPP loan from us. We have an active calling program that is designed to introduce these customers to our front-line Bankers who then can assess the customers Financial Services needs and offer products and services that might need to fit for their business is shown in the chart on the right. These customers have added various products and services outside of their PPP loan and related deposit account. We're encouraged by the progress. I'm making on this front and look forward to more progress in the months and quarters ahead as we enter 2021. I'm encouraged with the progress made on the technology front that has enabled me to do things faster and lower cost.
We're currently rolling out our new front end on Front End online and Mobile Banking platform for consumers and in 2023. We expect to complete the transition to our new core deposit system sure you Lena McWilliams of the FDIC recently noted that quote. I would say that if we could scratch every Legacy computer system and start anew that would be wonderful quote off though. We've not replaced every Legacy system. We've come a long way and we believe we're doing some uh, some really leading work here. We've we're further along in the process and off any of our peers that we're aware of we expect this will give us a long-term competitive advantage and staying relevant and allowing us to be nimble and fast and adopting new technologies phone numbers and ultimately making the experience for the customer very user-friendly now turn the time over to Paul burdiss our CFO to provide some additional detail on our financial results. Well,
Thank you Harrison. Good evening. Everyone. I'll be getting my comments on slide ten with average loans and deposits loan growth has been elusive for banks recently and our first month results are consistent with that Trend a show on the left side of the page average total loans were nearly flat in the first quarter when compared to the fourth quarter. The same is true for. And lungs would be loans average loans are essentially unchanged from the prior quarter and are down 1.3 billion dollars or approximately 2.5% from the prior quarter. It's an incidental the majority of the loan decline that we've seen have been in revolving lines of credit, which is consistent with the deposit growth. We've seen in L describe that in a few moments.
within the loan portfolio
Average non, my loans are down $149 or about one half of 1% from the prior quarter and down 782 million or 3% from a year ago. Average Consumer loans are down $403 or 3.6% from the prior quarter and are down 1.1 billion dollars or 9% from the birth of your. Consumer loans are down in each category. Most notably in Residential Mortgages as refinancing activity has added to fee income while reducing outstanding loans on our books off.
The notable increases came from PPP loans Municipal lending and Commercial Real Estate while credit Trends are generally improving across the portfolio the credit quality in our Municipal lending portfolio continues to stand out as being exceptional.
The increase in PPP loans reflected the production of two point six billion dollars of round 20 21 months partially offset by 1.6 billion dollar round 12000 ptpp loan forgiveness and to pay Downs.
Nitin growth of nearly nine hundred million dollars between the 1st and the fourth quarter. End as Harris noted earlier were particularly pleased with being able to assist and support them thousands of small businesses in obtaining the government stimulus money through our internally-developed simple easy fast and safe process turning through deposits on the right side of this page average deposits increased 4.7% from the prior quarter while. And deposits increased at a moderately stronger Pace relative to the year ago. Average deposits increased over 25%
Average non-interest-bearing deposits increased at a slightly stronger Pace in both the quarter and year-over-year comparison. And at this point our average nine is your screen deposits are 47% of total average deposits up from a ratio in the low 40s prior to 2020. This mix shift has provided support to our net interest margin, although I am not interest bearing deposits are not as valuable when interest rates are low.
Before I advance to the next slide, I will highlight loan and deposit yields the yield on average total loans increased slightly from the prior quarter, which is attributable to the loan portfolio, excluding PPP loans, the yield declined slightly to 3.69% from 3.74% as noted in the press release financial the yield on it. New life reduction is moderately lower than the loans rolling off and the Lucian is generally consistent with the levels. We've seen in Prior quarters there remains continued pressure on pricing and money markets, which is what one would expect given the significant increase in liquidity throughout our banking system.
deposit
Continue to be very well behaved as our cost of total deposits has fallen to five basis points in the first quarter.
Flight eleven we show our Securities and money market investment portfolios over the last five quarters, you'll notice we increase the size of the. And securities portfolio by about two point four billion dollars over the past year 217.2 million dollars while money market Investments increased seven point nine billion dollars to nine point seven billion dollars off, which is 12% of earning assets. The growth in cash is attributable in part to the Forgiveness of PPP loans, the origination of new PPP loans where the proceeds have may have been placed into a deposit account and not yet been used by our customers and general increases in the liquidity of our customers. We continue to grow our Investment Portfolio measured Pace during the first quarter reflecting unprecedented growth in deposits and helps by the steepening of the yield curve as the longevity of recently added deposits remain uncertain. We will extra exercise
Extra caution and will likely hold more in Money Market Investments than we would at times of Greater certainty.
Flight 12 is an overview of net interest income and the net interest. Margin the chart on the left shows the recent five quarter Trend in both the net interest margin in the white box has has declined over the past year reflecting both falling rates and Rising excess liquidity. Notably average deposit growth has exceeded average loan growth by ten billion dollars over the past year this growth in excess liquidity is referenced in the chart on the right as strong growth in deposits has impacted the composition of earning assets to a larger concentration and lower yielding money market and securities investments in the current quarter the effect of lower rates and a greater concentration of cash and securities drove 9 basis points of linked quarter net interest margin compression with excess cash driving eight of those nine basis points.
Flight 13 has a lot of information about our interest rate sensitivity, but I'll focus on the upper left quadrant. If you compare this to our prior iterations of this page, you'll note that our asset sensitivity has increased as deposits of increased this of course assumes that the incremental deposits have similar duration characters characteristics as the deposits on our balance prior to the recent deposit search understanding this is one of the greater challenges. We currently face when determining the appropriate mix of security to cash. We are generally comfortable with the interest rate sensitivity because we believe the risk to lower rates is somewhat limited and the durability of recent deposit growth remains uncertain as previously indicated. We deployed some of the increase in deposits into Securities security purchases for the quarter at an average yield of about 1.3%
It's like 14.
Customer late fees declined modestly in the quarter to 133 million dollars relative to the prior quarter Capital markets activity is somewhat weaker principally due to fewer than a straight swap sales and syndication feeds several fee income categories were fairly stable compared to the prior quarter such as commercial account fees and most of the items within retail and business banking with the exception being non. Sufficient funds seat wealth management fees continue to grow and are now being reported on a separate line items.
Not intrest expensive Shore towns, like 15 with four hundred thirty-five million dollars in the first quarter up from $11 in the prior quarter adjusted manage expense was seventeen million dollars to 440 million dollars, the quarter-over-quarter adjusted non interest expense increase can largely be broken down as follows Monday editions of ten million dollars for seasonal Equity grants to retirement eligible employees nine dollars for profit sharing and seasonal seasonal matching contributions wage employee 401K accounts an incremental five million dollars associated with PPP loan forgiveness. These additions were partially offset by a decrease in base salaries of ten million dollars.
A review of credit quality and credit expense begins on slide sixteen building upon comment from Harris earlier. We saw a meaningful improvements in non-performing loans and net charge-off when compared to the prior quarter not showing here is the criticized loan Mobile which includes both classified loans and special mention loans that balance declined 7% from the page overall net charge-offs were seven basis points in the first quarter declining from 13 basis points in the prior quarter. I think that is worth repeating net charge-offs were eight million dollars in the wage order or seven basis points of average non PPP loans.
Flight Seventeen details are allowed for credit losses or on the top left. You can see the recent declining Trend in our ACL to $695 million dollars at March 31st wage or 1.48% of non PPP loans the chart on the lower right side of this page shows that 110 million of the 140 million in the ACL quarter of the Clutter was driven by an improvement in the macro economic Outlook. We expect that future changes to the ATL will be driven by changes in the macroeconomic Outlook as well a portfolio credit performance and growth
Our Outlook can be found on flight 18 as a reminder. This is our outlook for financial performance in the first quarter of 2222 age as compared to the first quarter of 2021 the quarters in between our subject to normal seasonality and my comments are subject to our earlier reference to the forward-looking statement on page two.
Hello.
Gold Outlook, would you exclude PPP loans is somewhat uncertain.
Well, our Bankers are expressing optimism, the unprecedented level of government stimulus is almost certainly having an adverse impact on the need for credit particularly among our Main Street Bar hours. I'm balance. We are reasonably comfortable reiterating our slightly increasing Outlook, which can be interpreted as non ptpp loan growth in the low single-digits. We expect net interest in life. Also excluding PPP on Revenue to increase slightly with the deployment of cash into security and the slight growth in non ptpp loans partially offset by moderate compression of loan yields.
We'd established Outlook at slightly increasing for customer related fees in January and we are in increasing that to moderately increasing We Believe an improvement in economic activity should help to increase card and small business related fees as well as loan syndication and other commercial lending related fees and that wealth management will continue the trend of double-digit growth and the Mortgage Banking revenues will remain generally stable at the current level. I also have a bit of late-breaking news based upon current market conditions. We believe that we will recognize a second quarter gain in our FDIC Investment Portfolio of over twenty-five million dollars. We will have more to disclose when we file our 10-q in a few weeks.
We're making a slight change to our I'll look for adjusted non-interest expense moving to stable to slightly increasing from generally stable. We will remain disciplined on expense control, but I have business activity and profitability increases expenses may increase this Outlook does not reflect a significant change in inflation from the last several years, which we believe may be a risk to this out finally regarding Capital Management. We we feel good about the strength of our common Equity Tier 1 ratio at 11.2% particularly in the context of excellent credit performance package results of our internal stress testing as we consider the balance of risk and capital. We believe there may be room for more active Capital Management in the near to medium-term. So long as the current macroeconomic and credit Trends continue or improve this concludes our prepared remarks Valerie. Would you please open the line for questions?
Thank you. I did laser because I got the question from Star then one on your touch-tone telephone. I can't ask the question, please. Press five and one in Morgan Stanley Cup.
All right. Great. Thanks. Good evening, guys, I guess Paul just a couple questions on guidance. I think you touched on this very briefly. But in terms of the net interest income stable is slightly increasing. Can you just break that out a little bit in terms of you know, how much of that is driven by Corvallis. She growth versus ptpp run down overtime versus Cordon compression versus The Accelerated fee income that you're getting from from the ppp's if that's possible. It just it sounds like some of the corporations are a little bit weaker and that this might be being held up by TVP, but just unsure thank you. Yeah. Thanks for question. So what we try to do is provide about look that excludes ptpp, and the reason for that is exactly what you described that that you know, PPP is absolutely augmenting our current levels of net interest income off.
It's because of forgiveness another factors can be somewhat volatile. And so the Outlook that we provided.
Was really meant to speak to the underlying Trends in that interesting, which are going to be defined by what's happening on our core balance sheet that is loan and deposit growth. And then also the absolute level of rates we believe as activity improves we're going to as we say in the long runs Outlook, which also excludes PPP loans, you know, we are expecting some level of economic activity to translate to increase loan growth over the course of the next year. We think that will be additive and then there's also an expectation that you know interest rates and or the yield curve may continue to steepen over the course of the year, which we think would also be additive.
Got out of it. Maybe I should rephrase my question. I probably stood in correctly. But how like what would you expect for obviously one of the biggest lenders in the mid cap space off and it should be pretty meaningful for your results over the course of the year. We great help get some clarity around that thank you. Yeah, so I can't make a specific prediction because of all the things we've outlined but you can see in our financials that we've had over six billion dollars of loans today related to the program. Those are yielding 1% There is also $168 million dollars of unamortized fees, which will be recognized into net interest income as those loans, you know, either amortize mature wage or are forgiven. And so those are the pieces that are going to flow into our net interest income. But the timing of that is just a little bit uncertain because it's somewhat dependent upon as I said, yep.
What kind of a forgiveness or repayment of those loans?
Understood know. I know it's hard to hard to answer that question. All right, but thank you very much. Appreciate it. Thank you.
Thank you. Next question comes from John and Cory of Alaric olsun.
Good afternoon. Want to see if you can give a little bit more color on your margin expectation. Just curious what's embedded in your stable to slightly increase in wage and I Outlook and how that margin expectation might differ in terms of what you know factoring in PPP or excluding PPP, I guess. However, you're able to help us kind of set that out. Thanks.
Yeah, I'll click that John. Thank thanks for question. This is very similar to the response. I just gave relative to net interest income. That's really where we're focused its revenue and net interest income. Margin is being significantly impacted by all the cash we have on the balance sheet as I said loan growth or deposit growth exceeded lung growth by ten billion dollars over the course of the last year and off balance sheet that's significant of the approximately 55 basis points of margin compression. We've experienced over the last year about half of that is related to an increase in cash balances so long that is to say the underlying Trend in the margin isn't nearly as bad. I will say as the headline outcome and in fact given what rates have done and how much they fall in I feel proud about where our margin is. So looking ahead of you know, again trying to exclude PPP because of the volatility our expectation is that we will see a little a little loan growth in Thursday.
Is helpful from a volume perspective.
And that interesting, and then also to the extent, uh, the yield curve steepens a little bit from here, which is possible. We think that would also be added to so it's it's really those pieces of the core that interest income reflected in the net interest margin that we're focused on
All right. Got it. Thanks Paul. And then separately on the Capitol Front. I heard your comments around potentially becoming more active Capital Management. Can you help us kind of house you think about that? Like what type of you know, if you can remind us of the priorities and clearly that could imply a much more active buyback program. How should we think about the upside to that program to tell substantial? It could be as you look at where you stand right now at the 11.2% if you want, thanks. Yeah, I'll start with that. Harris will probably provide his perspective as well. I I I will say, you know, we we have said pretty consistently kind of up until the pandemic that the start of the Potomac you know that we believe that we've got lower-than-average risk on our balance sheet. And we think that's a combination of kind of lower than average risk and average to slightly better-than-average cet1 ratio is the best outcome for us and our shareholders. And so as you can see that despite wage
Pandemic, we have significantly grown r c e t 1 ratio over the last year. In fact, our cet1 is up a hundred twenty basis points from 10% to 11.2% And so it feels to me like I'm getting a little further away from that sort of pure media and performance or peer median level that we think is important relative to the risk on our balance sheet. So over the sort of long term. Um, John I think that's you know, that might be a decent yardstick but I'll let Harris provide a few comments. Well, I just, you know, I just add you know, we got correct equated assets for about $55 and and so, you know CT ones 11.2 and you know, and I I think that that's you know, I my own assessment is that we have room to bring that down by about a percentage point so you can kind of do the math I you know, the timing of that is is really going to depend on wage.
Happens with loan growth and obviously profitability as we go through the year here, but I would expect it will try to work that back down to something, you know close closer to you know, kind of a a strong showing relative to peers but but not as high as we are today.
Got it. Thanks Harris. That's helpful. Okay. Thank you. Next question comes from David.
Hey, good afternoon, guys.
Hi Paul, you you talked about this earlier. But can you just maybe frame the magnitude of that difference in the phone book back book on the yield on new lows and the Securities purchases. It's a little bit closer to maybe I was like Fifty basis points. I know it may seem like splitting hairs. But with the cost of funds where it is as low as it is around 9:50. It's there just isn't a whole lot of room to offset that pressure outside of just deploying a lot of cash. They're just wondering how close we are to parody there and I know you mentioned the funk with me. So I guess that was probably over the quarter right? You might be a little bit higher on that now,
you
Cut out there at the end day, but I'm going to answer the question that I think you asked and then you can correct me. So I'll I will provide some numbers although I'm a little reluctant to do that because there is you came in sort of a lot of volatility in these figures, but the trends that we're seeing on that, uh, what we refer to as the front book back book that is you know loans and securities coming on vs. Loans and securities coming off its just been the range of twenty five basis points in the loan portfolio and sort of fifty or fifty plus on the Securities portfolio. And that's as I said, that's kind of consistent with what we've seen over the course of the past several quarters with so no no change in Trend there.
Thank you, Jennifer.
Good afternoon.
Hi. Hi Jennifer. Hi Harris. Could you talk about the company's interest in and Acquisitions in the future there? Been some very high-profile deals in the in life over the last several months as companies looked at more scale.
Sure, you know I I think that you know, I I wouldn't count anything out but it's not something that we're you know out actively trying to pursue I I do expect that as we complete some of the systems work that we're doing an effort to get out here just a few quarters. I you know, I I think we could find ourselves perhaps more interested if you know if the fit is right the Price Is Right etcetera, but it is not it's not a
high priority for us right at the moment and
So I don't I can't really expect this. You know, we'd see any anything significant, you know in the in the in the near future but as you know, there are a lot of things happening and off and as the economy picks up and you know in particular if we see some increase in in interest rates, you know some modest increase to change the could put us in a much better position to be thinking about that. So I I guess that's how I'd characterize where we are at the moment.
What what kind of transaction would be of interest to Zion if the conditions became right for it?
Well it would you know.
Probably most prominently the you know in in Market, you know West Western us Centric off that, you know, I I've noted in various forms over in recent times that you know, a lot of like a lot of smaller Banks even even some of the you know, the large Community Banks and smaller midsize banks have have probably an over abundance of commercial real estate exposure. That would not I mean that would be something that would not probably be very interested in. You know, would you look for in a life that has the reasonably strong commercial orientation and you know, they're not that many of them but but there are there are some out there that long
They kind of fit that profile.
Harris
Our next question comes in can loosen his open?
Hi, thanks. Good afternoon. Paul. Just wondering if you could talk a little bit more about that. Great slide 11 you have about the Securities and and interest rate sensitivity. So you mention a lot more offensive now because of all the deposit inflows and I see that table above your your plan to swap run off. Just wondering how you might intend to navigate going forward with either off adding incremental swaps putting on more floors. And you know, how you managed that against just you know, what you're doing on the traditional side. Oh sure can thank thanks for question, So a couple of things one on the traditional Securities is I I tried to lay out in the prepared comments. We're really, you know, we're not going crazy in terms of adding either volume or duration are we're really sticking to our knitting and sort of incrementally adding. So the the real opportunity to sort of change interested in stability is really on the uh, the interest rate swaps.
Sort of the the synthetic extension of duration with swaps, which is what your question keys on I will say as the curve has steepened. We we the alcohol should be have discussed the maturity profile of the swap in sort of the duration that's created by that and we are incrementally adding to that and so in terms of activity when I think about balancing the duration of the assets liabilities, we are going to be much more focused on the swap side to the extent that you know, you'll curve remains, you know, somewhat attractive.
And I think that's the the uncertain part that the reason I pause is the uncertain part is is that again, I tried to say in my prepared remarks what we don't know what the sort of real average life or duration of the surgeon deposits has been or will be right. So we've got you know, this incremental ten billion dollars of deposit growth and excessive growth. Um, that's creating a lot of sensitivity and our models but you know as managers, you know, the Alcove job is to look at that with some level of skepticism and that's what we're doing. So well, we're you know marginally adding duration either in portfolio size or industry interest rate swaps, but we haven't we haven't added a lot yet. Looking ahead. I would look for more activity in swaps insecurities. Okay, great. Yeah, and that's what I'm getting at and is that is would that those potential ads be built into your forward forecast like the potential?
Add and you know, what kind of our how how in the money are are are are swaps today versus what you you know, saw them being, you know, three six months ago. Is it a clear winner?
To do it. It's a it's a much different risk-return profile today than it was three or six months ago. And you can see that very clearly in the shape of the curve now, we we don't go out much Beyond Five Years on swaps. Um, and so, you know you look at where that point of the curve how that point of the curve has changed over the last six months and you can see there's absolutely carried there now where I was almost no carry there for example 6 months ago. So the the issue that we had let's say six months ago about, you know, kind of trying to put on some protection against lower rates was one we didn't think Thursday were much lower or could go much lower and two we weren't getting paid at all for adding that duration. Now there is a you know, we're getting paid a little bit for you know, if you will ever be duration. That we're putting off which is why we're a little more active so nothing too exciting yet, but we're absolutely paying a lot of attention to that. Okay, and that was in your forward that's built into your forward guide was my first part of it. I got off.
But it is although I'll say there isn't a lot of speculation around, you know, a continued steepening of the curve. You know, that Outlook was really based on sort of what we know today and and how we think about how we expect, you know balance the balance sheet to change over the next year understood. Thank you Paul. Okay. Thank you.
Thank you. Next question comes from Steve and Alex.
I wanted to start on the expense side. If I just look at the big picture, so in just did not interest expenses were up 8% year-over-year Parts legal and professional fees, but the comp line still have 5% year-over-year maybe for Paul. Can you run through why the expenses or isn't so much?
Yeah sure as we noted in the press release, you know, a lot of that was related to long-term incentive. So first, let me say year-over-year wage salaries are down 5 million dollars. Okay. I think that's really important. But your your uh, you do see sort of increases in profit sharing and the company sort of company match 401K. We have been encouraging our employees to participate more fully and 401k and the good news is that they're doing that all she does create some incremental expense as we are contribute to that. So there's a there's almost six million dollars of year-over-year change just in those, you know, what characterizes 401K related items between the profit sharing and the
Profit sharing in 401K match and then the other the other big piece is really in what we call our values sharing plans. So this is the kind of a three-year-old. It's a it's a if you look at our proxy say but you can see how it's calculated. It's a very quantitatively derived three year and therefore somewhat long-term incentive Compensation Program in this is really, you know, largely, uh, our financial performance relative to peers and what we saw this year in the first quarter was that you know, the financial performance looks much better this year than it did a year ago with all of the uncertainty related to this pandemic and so there were increases in accruals associated with those long-term incentive plans. Those are the key drivers really Europe.
hey, so if we assume that they
The salaries don't decline moving forward again. Should we assume that you know mid single-digit is where growth of the comp line should remain doesn't sound like anything really describe to be temporary. Well, he's continue to contribute. Well, it's it's it's dependent on earnings is the key. Right? So it's sort of meter to earnings so as performer improves and this is what I tried to say in my Outlook on expenses as important as performance improves. There is a meter on expense in comp that is related to Performance, but that as it relates particularly compensation expense that that key sort of key performance indicator is really financial performance if that makes sense. Otherwise, otherwise, we feel like we have a pretty good handle and will remain really discipline that expenses as noted. There was an integral incremental five million dollars a total of eight million dollars of PPP related phone number.
Business expense that is sort of third-party help with forgiveness because it is somewhat complicated and that's the kind of thing that you know doesn't show up every quarter. Okay, that's helpful for my follow-up question on the loan Outlook. So you're calling for a slight increase in loans over the next year despite, you know one and economic boom expected fairly widely into your picking up quite often new customers through PVP. Why are expecting only a slight increase in loans? Thanks what I'll start and then maybe Scott could jump in on that too. I you know, as I said growth, um, it was ten ten billion dollars short of deposit growth year-over-year. So we have a lot of deposits. We have a lot of customers with deposits. As I said in my prepared remarks, you know, our uh, um line of credit utilization is down pretty significantly year-over-year and you know, I think there's a direct correlation to deposits with that. So I I I think that there's a little birth
Crowding out if you will of you know, the government, you know providing funds such that our customers don't need as much credit which makes us sort of a little less confident on a comic activity translating to loan growth as it is as it has in the past. Would you add to that? Yeah, I I wouldn't add much to it. I Steven I just think it's
You know when you're in a. Like this it's hard to call the bottom, but I would agree with you. Once it turns I think we will see nice growth. It's just a function of when is it going to turn and it's Paul noted, you know, the the point the point the Klein in our loan balance is is almost entirely reliable. They can lower utilization of revolving credits. So our non-revolving credits are basically stable with where they were a year ago, which I think is a string and I'll look through the PPP borrower specifically the new loans that we've generated with those borrowers. They represent about 10% of what the existing companies were borrowing three pandemic. So we're seeing nice volume there as you know that so I I think we're we have a dog
More kind of positive outlook than we had.
Maybe three or four months ago, but it's just a big ship to turn and once it turns I think we'll we should expect to be back in the mid single-digit long growth projects, which is where we were for a number of years. Okay. Great. Thanks for the color.
Thank you. My next question comes from Steve security salon is open. All right, good afternoon following up on maybe you know, you guys suck. Lenders being more optimistic about business activity kind of curious where maybe you guys are seeing improvements in the loan pipeline.
This Scott and I you know, I would just say that in the small business Basics and I and owner-occupied areas, but I think we also will see some strength from our 124 family mortgages that we hold on balance sheet. We're doing a number of things to to get that back up for investment percentage back up. We've seen some run off their uh, and if you look back over the last five years one to four-family mortgage growth accounted for about 25% of our growth and almost any time. And so I think I think you'll see that returned. You've seen good growth and Municipal over the last year. It was really nice rowing parts of the portfolio. We'd love that business. It's a very high credit quality business and we're just starting to see some of the benefits of ancillary business coming from it, and yep.
Festival historically, uh, like mortgage contributes about 20% plus or minus to our overall loan growth. So sorry we met um,
You know it'll grow but it'll probably grow equal to or less than the overall growth rate of the loan portfolio. But I think the the incrementally Positive Growth will be my small business kind of our core markets mortgage and municipal.
Okay. Thanks for that Scott. And then I guess for Paul just kind of curious as to you know, you held Security's down to steady at 20% of assets, you know, pick up a percentage points here. It sounds like you're a bit reluctant to do that and kind of also wondering, you know, where are investment Securities yield here, you know purchases today. Is it kind of a one and half percent range maybe versus the 134 the quarter well, you know on the yield at any given day, obviously that changes but yeah, it's probably in the sort of 1.4 maybe 1 .55 generally speaking as it relates to the the Investment Portfolio itself, you know, we we have been holding back on growing that a little bit as we've noted just because we're just uncertain as to the the sort of the durability or sustainability of the all what what we kind of are characterizing is the search deposits dead.
Come on is relative as it relates.
To you know, not only all of the fiscal programs but also all of the you know monetary programs put on by the federal government. So but nonetheless, we you know, it's not like we're doing nothing. I mean I have added to the portfolio as we know it on slide, you know, eleven the portfolio is gone from I'm. I'm basis 14.8 billion to 17.2 billion over the course of the last year. So as we're walking through time and we become either, you know cash continues to grow and or we become more confident in the sustainability that cash we are marginally adding the portfolio, but we're not going to go out and put on five billion dollars a quarter. If you're going to see increases there. They'll be marginal increases that certainly has been the trend and I expect that train may may continue over the near-term
Okay, great. Thank you very much. Thank you. Thank you. Next question comes from Brad milsaps.
Oh, hey, good evening.
Paul just wanted to follow up on the discussion on Securities. I did notice that the yield this quarter on the available for sale portfolio held in pretty pretty flat I think about $69 versus 170 just kind of curious if there's anything in there from a one-time perspective that that helps you in a positive way that you know, we might see reverse out of the near-term especially, you know talking about you know, where where where new money yields are coming in. You know, I don't recall anything in there that sort of one-time in nature. I I think it more uh, maybe it's more reflective of you know changes in prepayment speeds in the way those affect yields, you know is the yield curve picks up prepayment slow down on premiumisation slow down yields go up that kind of thing if I remember correctly and I apologize that my I'm just a little fuzzy right now. That's probably the key driver sort of offsetting some of the front book back book stuff that we've described previously.
Okay, great. That's helpful. And then just on asset-quality clearly you guys have have seen Improvement just kind of curious if there's a level to think about in terms of the overall level of the reserve that you might see as a sort of a floor as you think about your Cecil model and kind of where the reserve is today relative to where you think it could be. Well, I would love to be that confident that I can predict something like that in Cecil land and you know, you know, this really is just so highly dependent not only on the underlying credit quality of the portfolio, but you know, maybe and what you saw this quarter more importantly, uh, depending upon the macroeconomic forecasts. So it's it's really hard for me to put any kind of floor of on that figure. It's hard for me to get power beyond that because it's just going to be so dependent on largely though, you know, the macroeconomic forecasts On Any Given quarter dead.
Great. Thank you. Thank you. Thank you. Next question is
Gary Keno d a Davidson here on the sofa
Thanks, good afternoon. I appreciate all the color and discussion about the loan Outlook. I did have one follow-up and I wonder if you could kind of discuss where the kind of stuck on you know appetite for Lending in particular areas are you know, maybe compared today to prepend emack areas that you're maybe still wanting to steer clear of or any of that month if you have changed your perception over the last year.
Yeah, I think we're you know, I'm sure it's changed a lot. I it's
How we're we're we're interested in in, you know, kind of across-the-board in in commercial and see and I mean, we we continue to have a lot of interest in building a municipal loan portfolio as Municipal loans at least home. And so I expect we'll see continued growth e r I agree with Scott as you know, as as our economy continues to to improve I think we'll see more demand from small businesses. I they the issue that that Paul spoke about Thursday. We respect all the liquidity I do think as an issue in that in a headwind and it's a little hard to I mean, we just never quite seen this before with this this much of the quality out there. So it's kind of hard to know.
What kind of head when that's going to be is the economy starts to pick up but I think I think we're interested across the board in in in commercial commercial real estate worth trying to be a little more careful there because of some of the well-understood bath challenges with respect, you know, in in in in the retail CRV and in office.
Most notably and I and and I I also tend to believe that multi-family is you know, you just have to be careful with it right now. We've seen a lot of a lot of growth here, uh in terms of just activity in the economy, and I you know, I think that we'll see I agree with you know, I said earlier will I hope we'll see a little more growth in 124
Family on the balance sheet jumbled arms that performed really exceptionally well, but the consumer is is had a lot of dead scene pay downs and Home Equity Credit lines and a lot of refinancing activity, but I think that'll probably kind of bottomed out here and I I would help start to grow a little bit, Um, so I don't know if Michael if you have any particular thoughts that are chief credit officer,
No Heroes, you know.
Thank you. You've covered most of the bases. I think if you look at utilization on the consumer side, it's down, you know equal to or greater than the other domains that month that you think about consumer cni Siri. So I think consumers going to come back quite quickly both in utilization and the origination outside of 124 off in small business. We've recently taken some of the measures off that we put in during a call kind of the heart of the crisis. So we've we've loosened up a little bit on on small business and consumer and we're getting back to sort of a pre COVID-19 place. So I would expect there would be growth there as well off and I just I'd also add owner-occupied real estate commercial real estate is is a category. I said, I expect we'll see. Yep.
grocery, right that that's that's something we're really comfortable with and and we we we're trying to emphasize in some some of the mom so
little little of all of the the above I guess.
Harris I just add this got I just added that there's some things you won't see us to you go back into time and you look at other periods of low loan demand and low birth rates we've seen other Banks reach for credit and reach for yield you won't see us do things out of the norm on taking larger issue a credit. You won't see us from adequately increasing our finance book. We've been very modest in that recovered won't see us, you know, growing rapidly our construction loan portfolio. Uh,
You won't see a plane into thing that that other bank officials lean into when they're faced with and Loi taking higher risk.
I'm great. Thank you for calling.
Thank you. Our next question comes from Erika. Najarian Bank of America. Hi, just one question for me your appears that have downgraded or extent Outlook during this earnings season either also upgraded the revenue Outlook or had much bigger fee beats, uh hear you loud and clear that there is a significant amount of conservatism baked into the revenue Outlook. But you know, if we enter a stronger. For, you know, either the curve in terms of a curve steepening or you know loan demand picks back up greater than low single-digits. What should your investors expect in terms of that guidance for for expenses, as you know, how long your Revenue expectations do you prove to be conservative?
Oh God. I was just going to say, you know, I I don't think to see a lot of change other than probably, you know incentive compensation which is ball noted earlier as some language to profitability. We'd see higher profit sharing contributions et cetera, but God, I don't think it's going to otherwise, you know, we don't
I don't think of them as otherwise being particularly linked. I mean we're we're going to we're going to work on expenses really hard regardless of what happens in the right environment month. And if I could I'll just note that you know, we we have not we have not changed our expense Outlook are 9 or 6 Pence Outlook. There were clearly some items in the first quarter that we thought we need to talk about then in my prepared remarks. I also talked about sort of the risk of inflation and what might happen there, but but our expense not as expensive Outlook hasn't changed from prior quarter.
Okay. Got it. Thanks.
Thank you. And our next question comes from Peter winter Weber security. Hi. I just had a quick question on I was just wondering if you could say how your life about it in the second quarter. And if there was any impact this quarter with the loan portal closed for for part of the quarter.
I've got you on the car.
Well it the the new loan volume is down to a trickle so we don't anticipate unless something new that you'll see us reporting at the end of the second quarter significant change from what we've reported other than more forgiveness month.
But we're not seeing it right a lot of new people nor do we know where is the rest of the industry?
Right. I was looking more for an interest income number relative to the $60 million in the first quarter. Oh, sorry about that.
Forgiveness the month and it's really it's really hard to predict right? And so there there was a little bit as you pointed out. There was a little bit of a slow down by the SBA, but it really like in the middle of the quarter and the new Administration put on some sort of, you know, different rules and things around forgiveness and access access to the program and you know, there were several things that happened in the quarterback, but I think things really accelerated Again by the end of the quarter so I I'm not sure unbalanced that it was significantly different than otherwise would have been and and then I think it would be somewhat special to start getting into what's happening in the, you know, second third or fourth quarters, which is why we've tried to provide an Outlook that excludes the impact of PPP.
Because it's just it's it's it's really hard to predict. It's not up to.
Off, you know what I mean? And so as a result a little hard to predict but that's why we've given you the the component pieces. We've give you the loan balances as I said, it's you know, those are in 1% as long as they're on the books and Thursday. We've got a hundred sixty-eight million dollars of an advertised fees. So, you know, those are the pieces and then it's really a matter of I think you know, your guess is as good as mine is a as it relates to how efficiently month or effectively all of that stuff works with the process. I like just add Paul. I mean, it's I'm just reflecting on the fact that it's been over a year since we made our first loan and we still have money. I mean, you know this time of year ago. We were really busy pumping these things out and we still have a lot of those around 1 or you know, 2020 loans that month that have not yet applied for forgiveness. And so I you know, I wouldn't have expected that. I would have expected of you know that he's dead.
The melted off much much more quickly than they have. So, you know, we're just we're watching and learning as we go but uh just underscores what Paul of thing.
Thanks, Eric.
And it's all right.
Thank you. I'm showing no further questions at this time. I'd like to try to call back and let me post Walmart.
Thank you Valerie, and thank you all of us. Thank you to all of you rather for joining us on the call today. If you have any additional questions, please contact me by email or phone number is listed on our website. Again, it's James Abbott at Zion bancorporation. We look forward to connecting with you throughout the coming months and thank you for your interest today in Planes bancorporation. This concludes our call. Thank God thank you, ladies and gentlemen. Thank you all have a great day.