Q1 2021 First Merchants Corp Earnings Call
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Okay.
Good afternoon, and welcome to the first merchants Corporation first quarter 2021 earnings call all participants will be in a listen only mode.
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Please note this event is being recorded.
This presentation contains forward looking statements made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act.
Such forward looking statements can be identified by the use of words like believe expect gourmet and include statements relating to first merchants business plan growth strategies loan and investment portfolio <expletive>et quality risks and future costs.
These statements are subject to significant uncertainties that may cause results to differ materially from those set forth and such statements, including changes in economic conditions. The ability of first merchants to integrate recent acquisitions changes in regulations and requirements of the company's regulators litigation chain.
And the credit worthiness of customers fluctuations in market rates and interest and other risks and factors identified in first merchants filings with the Securities and Exchange Commission.
First merchants undertakes no obligation to update any forward looking statement, whether written or oral relating to the matters discussed in this presentation or press release.
In addition, the Companys past results of operations do not necessarily indicate its anticipated future results.
I would now like to turn the conference over to Mark Hardwick CEO. Please go ahead.
Good morning, everyone and welcome to first merchants first quarter 2021 conference call. We released our earnings today at approximately eight a M eastern standard time.
Hopefully you have all found your way towards slide presentation.
But if not you can access the slides by following the link and the second page of our earnings release.
Betsy Thanks for the introduction and for covering our forward looking statement on page two.
On page three you will see today's presenters and our buyers to include President Mike Stewart.
And if credit officer, John Martin and Chief Financial Officer, Michelle Kevin you're asking.
Page four and there's a nice one page snapshot of the first merchants geographic footprint and a few relevant financial highlights for your review and we feel the first quarter return on <expletive>ets of 1.39% and return on tangible equity of 15, eight 7% reflect the strength of first merchants.
For our balance sheet and our earnings model.
We're also pleased to see the stock price returned to the levels that we that are more reflective of a top quartile performing bank for the price to tangible book multiple as of March 31st of just over two times tangible book.
Now, Mike Stewart will cover slides, five and six and provide some line of business commentary.
Thank you Mark and good afternoon, and you look at the next two slides I want to provide and update on our line of business activities and their contribution to the quarter results that Michelle and John will review in detail and provide insight into the geographic markets we serve.
I'll start with our private wealth advisory business, we closed on the previously announced acquisition of Who's Your Trust company on April 1st their business up Trust and investment services will integrate with our existing businesses and the Indianapolis market. We welcome the who and the team from who you trust and their clients as part of the first merchants family.
I've talked about last quarter, our private wealth team is now fully integrated into each of our markets and and <expletive>ures we can grow and a balanced full service banking approach Michel will offer additional insight for the performance of this line of business, but the wealth management fee income within our noninterest income category has grown nearly.
7% over the first quarter of prior year. Additionally, the loan balances and the private banking team grew 7% for the quarter, both demonstrating quality organic growth.
Moving onto the consumer line of business.
The core growth of deposits was strong with both the stimulus checks and organic unit growth driving the consumer deposit balances up over $250 million for the quarter.
As Michelle will highlight next our deposit costs continued to decline again this quarter six basis points being nearly equally shared between the consumer and commercial business units.
And our consumer loan balances contracted yet again this quarter and was the sole business day or two should show a decline here.
He liked utilization continues to decline average usage sits at 40% down from 42% last quarter and <unk> 46 per cent a year ago further with improving home values across the Midwest, coupled with the low mortgage rate environment first mortgage refinancings have continued to be used to repay consumer debt.
Do look for this trend and what's baked through the balance of the year.
As we discussed last quarter, our consumer clients continued to accelerate their usage of our digital product sets and we continue to align our people and technology to increase revenue and retention rates, while improving the client experience the ease of use speed up transaction and product pull through rates.
We want to further our digital capabilities, so and the first quarter, we partnered with Terra Pheno for a new on why and account origination platform. We intend to offer this new onboarding experience to all of our markets by end of year.
Lastly, the previously announced banking center consolidations, we talked about in December are moving forward with all announced full service locations being consolidated by the end of the second quarter.
Moving onto the commercial line of business.
Our non P. P. P commercial loans grew in the quarter by roughly $37 million, a 3% annual rate.
Around two P. P. P volumes drove the balance of the loan growth for the commercial segment.
We have previously discussed line of credit utilization, which again decreased during the quarter down another one half of 1% and down over 10% from the prior year.
The rate of decline looks to be at a bottom and our pipeline is very good after the strong fourth quarter of loan closings, which we talked about last quarter, 10%. In addition to all the P. P. P for giving us activity and round two efforts. Our teams have been working on the pipeline looks to be able to deliver continued growth in subsequent.
Orders and affirms my expectation on mid to high single digit annual growth rates.
Like the consumer group the commercial group had strong deposit growth, while managing interest expense lower.
Michele will also cover the noninterest income and more to tell but derivative and hedging activities were muted this quarter and contributed to our non interest income decline.
The map you see on page six represents both the demographics of a growing economic environment and it's the heart of the Midwest that drives our growth and a stable source of talent to lead our business efforts across all of our lines of business.
Over the past month, I have been back out and our markets and have witnessed the reemergence of business activities by both our bankers and our communities while uneven from state to state all markets are reopening or have reopened and the business. The climate is very good and we noted that we reopened our banking centers in February.
Mark I'm excited for Michelle to provide the complete review of the quarter results and operating metrics and for John to.
And to share the soundness of our portfolio and efforts around PPP and deferral activities.
I'll give it back to me, yes, thanks, Mike.
And if you turn to page seven and we just have a few more highlights performing shuttle covers the details of the financials.
You know as my quote mentioned and the press release and consistent with Mike's comments, we're really pleased to be back and the office and serving our customers and a more personal way again as the vaccination rollout progresses nicely and I and our entire footprint.
And Michael Joyce the president of our.
First merchants private wealth advisors.
His teams were very excited about the acquisition of Who's Your trust.
And the addition of one and a half million dollars of annual revenue debt.
Now as part of his business.
Mike mentioned some of the branch consolidations and I would just point out that at least to date through our earnings day today.
Consolidated 13 of the 17 announced locations and we continue to reinvest the savings and the Digitization initiatives that we discussed on previous calls.
Our initial digital investment is being channeled into Terra FEMA and it's.
As Mike mentioned.
It's a new online account origination platform.
And along with that investment and technology. We've also made significant investment and talent in order to optimize our investment and to create a real state of the art user experience.
The PPP program dominated our lending efforts and Q1 and at <unk>.
First as you look at the details of the numbers and.
And we realized fee income from that program of about seven and a half million dollars through the amortization and and our true just the forgiveness process.
And Michelle will discuss the our seasonal adoption does now complete and when combined with our capital and financial metrics for the bank is positioned to maximize future growth opportunities.
At this point Michelle will further discuss our financials. Thanks.
Thanks, Mark My comments will begin on slide eight.
We experienced significant balance sheet growth during the quarter, which you can see on lines one through for its total <expletive>ets increased 562 million or 16%, we had $590 million and deposit growth during the quarter, reflecting an influx of stimulus payments coupled with organic growth. This liquidity funded.
And 76 million of loan growth and an investment of 554 million and the bond portfolio.
We are pleased to report net income on line 17 increased $4 3 million for 38, 5% over the fourth quarter, leading us to earnings per share of 91 cents, which is shown on line 22, which is and eats and increase over prior quarter.
Walk through the income and expense components and more detail on later slides.
And 923, you will see the tangible book value per share declined to $1 29. This quarter. It's Mark mentioned, we adopted you could see some standard at the beginning of the year, which caused tangible book value per share to decline by a $1 26.
Additionally, the increasing yield curve caused a reduction and the unrealized gain on the investment portfolio, which is reflected and the accumulated other comprehensive income component of equity. So that also caused a reduction and tangible book value this quarter as well.
Moving up to line 19.
And on average equity increased over 1% to our strong tenant I'm, sorry, 10, seven and 5% and the highlights and increase and pretax pre provision earnings of 1.2 million over Q4, 2020 as noted which brings the pretax pre provision return on average equity.
And to a strong $12 seven per cent.
The efficiency ratio as shown on line 21 was a low 50.23 per cent. We feel all of these ratios reflect a strong and efficient core business that will produce greater needs and the future.
On slide nine shows the highlights of our investment portfolio.
And the top right graph shows the trend and the portfolio yield.
Yield on the portfolio declined eight basis points during the quarter, which is more than we anticipated but was the result of significant and portfolio growth invested and yields that were lower than where the portfolio was averaging however, the portfolio contributed $19 million of interest income this quarter and increase of 1.8 million over.
For a quarter and the overall portfolio yield continues to outpace that of peers.
On the bottom left or some investment highlights we are pleased to see the current purchase yield increased to two point, 10% up from the purchase yield of 165% at the beginning of the quarter the roll off yield for the remaining year is 2.54%. So we could see a bit more compression and overall poor.
Folio yield over the course of the year, depending on how the rate environment shapes up.
The adoption of C. So requires us to establish and allowance for credit losses for investments. So we recorded a reserve for held for maturity municipal bond securities and the amount of 245000.
That was estimated using Moody's published 10 year cumulative default rates for double a rated securities which reflects the high quality of the bonds we hold.
On slide 10.
And the bottom left corner, you will see the first quarter loan yield was a strong 3.98%.
Excluding the impact of the P. P P loans and loan yield was 385 per cent.
And our new and renewed loans and our fourth quarter averaged 3.63% up from 21 basis points from the yield on new and renewed loans from last quarter.
On the bottom right just the loan rate mix. It shows that 61 per cent of the total loan portfolio is variable and 39% is fixed with eight per cent of those fixed rate loans are being P. P. P loans.
Excluding the P. P. P loans 67 per cent of our loan portfolio is variable rate. So when the fed starts to increase rates to be pricing and other portfolio will create significant interest income growth.
Slide 11 shows the details related to our allowance for credit losses on loans.
On the bottom right of the slide is a roll forward of our allowance balance starting on the left of that graph. We ended Q4, 2020 with an allowance balance of 130 million and 600000, we adopted Cecil on January 1st 2021, with the day, one increase of $74 million 55.
And then bringing the balance to 204 million and 700000.
During the first quarter, we had $3 6 million and charge offs net of recoveries, which reduced the allowance balance and we did not book any provision expense. This quarter. Therefore, the ending allowance for credit losses on loans was 201.082 million.
The coverage ratio trend is in the graph on the top left.
Coverage ratio at the end of Q1 was 2.1 and 6% up from one point for one from prior quarter. Excluding P. P. P loans the coverage ratio is at a robust 2.34%.
She also requires that we book a reserve for unfunded commitments, which was valued at 20 million and 500000 recorded in net liabilities and the separate from the allowance for credit losses on loans balance any future changes and the valuation of that reserve will be recorded provision for credit losses on the income statement, we do think our allowance bad.
And reflects our cautious posture and given the quality of our la and loan portfolio, which John Martin will cover in his remarks, and we're glad to get the Cecil implementation behind us.
Now I will move to slide 12.
On the bottom left you will see the cost of deposits continues its downward trend to 21 basis points and the first quarter as Mike pointed out. This is a six basis point decline from the prior quarter and 67 basis point decline from Q1, 2020, Despite large average deposit balance growth into.
First expense from deposits declined $1 3 million on a linked quarter basis due to strong deposit pricing discipline.
Slide 13 shows the trending of our net interest margin.
Flying one shows net interest income on a fully tax equivalent basis of $105 1 million when you back out and non core interest income items, such as fair value accretion shown on line two and the impact of P. P. P loans on line three our core net interest income total.
With $94 1 million compared to the prior quarter total of $92 4 million the increase and core net interest income was $1 7 million.
Stated net interest margin on line six totaled 3.23 per cent for the quarter and.
Adjusted for fair value accretion and the impact of P. P. P loans and brings us to coordinate interest margin of three point O, 4%, which is a nine basis points lower than the fourth quarter margin of 313%, we calculate our margin on a $33 60 days basis, So losing two days of income and the month of February.
And where he always has the calculated effect of lowering our stated margin when quantifying the impact of that if results and seven basis points of margin reduction so eliminating bad impact brings core margin to three point, 11% for the first quarter. So to summarize we had just a couple of basis points of core margin compression, which was pre.
Merely due to the impact of increased liquidity.
On slide 14.
Non interest income totaled $24 1 million for the quarter with total customer related fees of $20 7 million quarter over quarter decline was largely driven by lower derivative hedge fees and a decline in the gain on the sale of mortgage loans.
Card payment fees increased by 900000 with 600000 of that coming from and annual Mastercard rebate that we received and the first quarter of each year for.
Finally wealth management fees increased by 200000 on a linked quarter basis, we do expect to mortgage production to increase and Q2 compared to Q1 that coupled with the inclusion of fee income from Who's Your trust acquisition that Mark mentioned should lead us to an increase in total noninterest income and Q2.
Moving to slide 15.
<unk> expenses for the quarter totaled $66 1 million, which was $6 4 million less than full day, and Q4, 2020 expenses of $72 5 million and the bar graph on the right you can see the decline and premises and equipment from Q4 as a reminder, Q4 expenses include branch consolidation.
And is a $4 5 million salaries and benefits also declined from Q4, primarily related to a reduction and incentive accruals.
Slide 16 shows the strength of our capital ratios.
The tangible common equity ratio at the top of the page is stated at $8 seven and 8%, but is nine point, 10% without the impact of the P. P. P loans.
Side from the impact of the P. P P loans and the decline in this ratio quarter over quarter was due to the same factors that caused the decline and tangible book value per share that I mentioned on an earlier slide the impact of Cecil adoption caused a decline of 45 basis points and the decrease and net unrealized gains on securities quarter over quarter.
The decline of 25 basis points at the bottom you will see common equity tier one and also the total risk based capital ratios remain at really high levels, reflecting the strength of our capital base that concludes my remarks, I will now turn it over to our Chief Credit Officer, John Martin, Thanks, Michelle and <unk>.
Good afternoon folks I'll begin my comments on slide 17 by reviewing our loan portfolio and including industry concentrations and provide an update on loan modifications and touch on the residual panned out and pandemic impacted.
Impacted the loan portfolios with an update on the P. P. P loans program before closing with some <expletive>et quality updates.
So turning to slide 17 in the quarter, we had $76 million of loan growth led by the sponsor finance business construction lending portfolio and public finance activities.
This also included P. P P loans, which grew by $75 million as we continued our.
Participation as mentioned earlier in the program during the first quarter.
Mortgage loan.
Production remains strong as we head into the second quarter.
As we operate a mostly originate and sell model is.
And Mike mentioned earlier with some decline and home equity.
And consumer balances, which are really related to the home refinance the.
And the core commercial portfolio remains diversified and balanced with a skew towards manufacturing centered and our geographies with core scalable business lines, leading our growth.
Turning to slide 18.
On the left side of the slide I've highlighted the P. P. P production, both in aggregate and by year to help provide a sense of the average dollar loan.
Still outstanding by phase or a year.
Also included the details for the 186 million and you want to make a note of this or 337 applications that have been submitted for forgiveness to the SBA and which are under review are highlighting the loans eligible for the streamline forgiveness.
<unk> for those loans under 150000.
Well there are a number of factors at play as we contemplate forgiveness and fee recognition I view, the forgiveness, peaking in the second quarter second and third quarters, while containing a tail as we head into 'twenty two and beyond.
Moving to the right side of this slide.
The modification and deferral tracking from last quarter was $65 million and 49 loans with 13 of the 49 and really just small dollar consumer loans. The residual result of the pandemic and that portfolio is remarkably muted after peaking early last year at over $1 billion and.
And.
The bar chart below highlights the concentration of the derma hurdles.
And the hospitality industry with $49 million of the $65 million above related related to the hospitality industry.
Turning to slide 19 and.
And I've broken out the senior living and hospitality related portfolios.
Demand drivers below which include University, and and think like sporting events.
Rich like convention related hospital, a hospital think like the hospital adjacent properties and transit like vacation and a roadside properties or what makes up the hotel portfolio.
And as activity returns to more normal levels related to those demand drivers. The expectation is that the performance in this space will continue to improve.
We are reviewing the Horton hotel portfolio of quarterly and continue to see improvement really and the specific and specific property results as we go through those reviews now with the senior living portfolio.
And as we headed into the pandemic, we were already focused on some specific projects and markets, where we're seeing saturation with the effect of the pandemic hit led certain projects to experience weekend occupancy followed by payment difficulties, which are highlighted in the <expletive>et quality slides on slide 20.
Flipping to slide 20.
Overall <expletive>et quality remains stable, we had a three point and $6 million decrease and non accruals <expletive>ociated with the $2 $6 million of charge downs related to two senior living projects previously moved to non accrual.
Other real estate owned as relatively low with a book balance of $600000.
Resulting overall in a 65 basis point level of N P. A's and 90 days past due to loans and I know Ari.
Cl<expletive>ified loans were stable as well down $2.3 million with net charge offs of $3 6 million or 16 basis points.
But the portfolio continues to trend and the right direction with the help of the PPP program and an improved economic environment. This has led to better overall borrower financial performance heading into 2021 and improvement in the residential or excuse me and residual pandemic impacted portfolios.
So flipping to slide 21, and once again included the <expletive>et quality roll forward, which reconciles changes and <expletive>et quality noon.
And new non accrual loans on line two fell back from the fourth quarter and were only $6 $5 million compared to the 16 million and the prior quarter.
Gross charge offs were higher at $4 $3 million as we recognized the previously mentioned $2 6 million dollar losses <expletive>ociated with the two senior living related loans.
And which have and original loan balance of roughly $27 million.
Overall, ending Npa's and 90 days past due remain stable and improving as as highlighted on line 13.
And then finally I would just close by saying that we continue to focus on ways to ensure improvement there a residual pandemic portfolios, while winding down and delivery of the new P. P. P loans and continuing to extend our balance sheet to new business across all regions and business lines.
For your attention and I'll turn the call back over to you Mark.
Thanks, Sean.
If you look at slides 22, and 'twenty three because they're just nice snapshots and highlight the track record of first merchants from both a growth perspective and financial performance and.
And then.
Page 24 is really a listing of some of the priorities that were that we were focused on as it.
As a management team to really drive our performance over the next several years.
As we continue to grow the company.
I feel like we're making great strides across the board, both and our lines of business and administratively and.
And as the year progresses, we'll be sharing even more detail about performance under each of these 10 items that were listing so.
And I feel like the quarter was was pretty clean and easy to understand.
You know if theres anything that feels extraordinarily to us it's just the impact of BBB and <unk>.
Number of different ways.
Throughout the balance sheet and the income statement, but.
We clearly appreciate appreciative of your investment and we appreciate your attention today and Betsy at this time, we are happy to open up the for conference for Q&A.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to <expletive>emble our roster.
Our first question comes from Scott Cyphers from Piper Sandler. Please go ahead.
Good afternoon, everybody and thank you for taking the question.
I guess first.
First question is on the margin so sort of the core core margin, excluding P. A's and P. P. P. Dominantly a couple of basis points and I think you suggested and Michelle once you account for day count.
So where where does it go from here relative to that 311 level.
Yeah, you know I think our core net interest margin and I was just looking at even the month of March which is always kind of a great jumping off point because of the February noise and our core margin for March was 310, and so that's probably a good indicator of where we're going to be you know I think if theres any compression at all it will probably depend on how much and coming liquidity. We have you know this quarter we.
Had really great growth and deposits and put it to work and the investment portfolio and to the degree that we can get that invested in our loan portfolio. Obviously, the yields are higher and that that's a little more helpful for margin and so I think it's probably dependent on liquidity growth otherwise I would still expect stability and our margin.
Okay perfect. That's great. Thank you and then.
And let's see just with the reserve.
And I guess, the timing and what do you guys.
And adopted seasonal makes it a bit more complicated than at others, but maybe what sort of a steady state reserve that we would be working down toward in other words and in the seasonal.
Adjustment, presumably there was I guess like Coke COVID-19 adjustment in there as well so what what would you consider sort of a steady state reserved and we ended up working back down toward.
You know and it probably depends on what you consider them, what kind of and economic environment. You consider a steady state you know one of the things that I have suggested to folks and granted you know back at the end of 2019 unemployment and so forth. We're at 50 year lows so and.
I don't know if that's the steady state, but if you go back to our disclosures at that time.
We had a reserve of $80 million at the end of 2019 and that was before any of the pandemic hit and so we had suggested that we would have like about a $55 million increase and reserve at that time, and so that would have brought our coverage ratio to somewhere around.
150, I think of coverage and so you know that if it kind of depends on what's your considering steady state, but that is at least a data point that might be helpful.
Alright, Thats perfect and I. It seems then like absent any.
No real surprises would be sort of working day reserve down via a combination of loan growth and and maybe just some.
Some credit leverage meaning under providing relative to charge offs over the next several quarters is that fair enough.
And I think that's right yeah.
Okay perfect. Thank you and then I guess one for one final question and thank you guys have about 20, and a half million and remaining P. P. P fees do you know how that breaks out roughly between rounds loans.
Yeah.
Yeah, and so round Oh, sorry.
And look through my notes.
Okay.
Yeah.
So our.
Round one.
[noise] unearned fees of $7 2 million and then on round two it is 13.3.
Okay perfect.
Alright that does it for me thank you very much.
Thanks Scott.
Yeah.
Our next question comes from Terry Mcevilly from Stephens.
Go ahead.
Alright, Thanks, good afternoon everybody.
Hi, Terry.
Maybe just I was hoping to get your thoughts on future loan growth, there was and a real strength and the sponsor finance book construction was up and and a few areas. As you mentioned like home equity were down so maybe some comments on loan pipeline and and X P. P. P. What you'd expect over the coming quarters, where there could be some upside and where are you.
You think there could continue to be some some roll off thanks.
Sure Mike Stewart here I'll try to give you some more insight.
And again.
The activity levels that I look forward to continue to give us and the position that we talk about regularly and net net.
Mid to single high digit loan growth and I really feel like that's where our pipeline currently or when you look across the segments that you had asked about.
Our commercial and industrial activity businesses are performing well absent and supply chain issues and maybe some labor nuances their business volumes are growing and they're reinvesting back and businesses and the activity level that we see.
Beyond just M&A activity with the replenishment of equipment and real estate is just continuing to grow the investment real estate has remained robust for us on the areas that we focus on as John pointed out we don't focus on hospitality as an example, or traditional retail and when you think about multifamily and <unk>.
Going on and Suburbia, and what's going on with office, No net office with industrial and warehouse space in particular.
Good <expletive>et cl<expletive>es and this distribution model and continue to grow and we're very active in that space and feel good about debt.
Yeah. The sponsor activity is a nice part of our business our focus on that that's C&I. The theres good equity sitting on the sidelines ready to put that money to work and the M&A activity of those sponsors.
As with from a Lowe's low point and the second quarter of last year and continued to build his day.
Find good good opportunities and we're positioned well in that space. So I look for that to go and that's also augmented.
And with some of our continued people a focus that we talked about last quarter. Our commercial teams across all of our markets have invest invested in additional skill set capabilities to.
Round out the size of organization, we are whether it's in Argentina.
Michigan marketplace.
Or back in our Ohio markets, and Indiana, So new talent.
Growing and our opportunities just gives us more looks across the way.
The consumer portfolio, we're just going to keep watching what.
<unk> focus is what happens there when you think about the consumer at large the use of their looked stimulus checks the need of them to spend and we're starting to see the spend activity increase when you look at credit card and and.
Usage on that regard, so we very well might see an uptick in our consumer portfolios as the time goes on but that's a relatively small piece of our overall loan book.
I appreciate that thank you and maybe as my follow up for a question for Mark Capital is high the reserve is high and I guess, depending on who you ask and you mentioned and on slide four here the stock prices relatively high at two times tangible book.
Hi, My question is as you and a great position for to take advantage of this M&A window that might be open what are your thoughts on M&A and any specific markets kind of stand out or specific bank sizes that you're kind of comfortable with today. Thank you.
Yeah. Thanks, Terry Yeah, we do feel like the balance sheet is well positioned for growth and a number of different ways.
And liquidity, we have a great team and I think as well.
Really actively.
Engaged and growing our loan portfolio organically.
And as well as our fee income sources, but.
M&A is something that you know if you.
Look at our history, it's it's clear that we usually have about one acquisition a year and.
And we'd love to just stay on that pace.
So we're more active and and our footprint, which we always talk about it as just being Indiana and the for contiguous states.
And we typically think of organizations that are you know.
Less than 25% of our total <expletive>et range. So.
And we're active and we're busy and and continuing to have great communication with and with Ceos, who are evaluating their options. So.
And we will see if something happens this year, but we're certainly interested and would love to continue to put our capital to work.
Great. Thank you Mark.
Thank you Jerry.
Our next question comes from Daniel Tamayo from Raymond James. Please go ahead.
Good afternoon everybody.
And maybe just touch on the expense outlook I think last quarter.
You guys mentioned that day expectations were somewhere in the range of $68 million to $70 million per quarter, and we're running a little bit below that and the first quarter, obviously, a good thing, but with with the investments that you talked about including the partnership with tariffs.
How are you thinking about that debt.
Quarterly run rate going forward.
Yeah, I think I would reinforce the guidance that we gave last quarter with that expense run rate of $68 million to $70 million.
And its management this quarter was really outstanding but I do think total expenses will creep up a little higher as we get further into the execution of our plans and our strategic initiatives.
Okay terrific and then maybe following up on the discussion Mark that you were just having around M&A.
And given we're at two times tangible book and you do have the share repurchase authorization in place, but how do you how.
How would you feel about share repurchase at these current prices or if not what what would be a potential entry point and to get back and involved and that thanks.
And we have our.
Our next board meeting our annual shareholder meeting as announced as of May the 11th and will have that discussion again and put in the boardroom.
And it kind of depends on the outlook and we feel like for the next couple of years at least given the amount of stimulus and the vaccinations that are occurring that the economic outlook.
Okay.
Continue to be strong and improving and.
And.
And if that's the case it makes our stock price is look more attractive so.
And I think Michael at the end of the day is to make sure that we maintain our tangible common equity and around 11 or I'm, sorry around 9%.
Because it just drives a much higher return on tangible equity and return on equity. So that was really thrilled with the 15 87 return on tangible we had this quarter.
And I'd love to keep it and that range by managing the capital base to two and 9% T C versus letting it creep up to nine and a half for nine and 75 or 10 like we've been in the past so.
I guess as we're looking at our options.
And it's dividends, which will likely look at again and at the May 11th Board meeting.
But share repurchase activity and just weighing that against.
Actual cash and acquisitions as we evaluate the opportunities and are in front of us.
Terrific. That's all I had I appreciate the color.
Yeah. Thanks Terry.
Our Dan Yeah, Okay.
Our next question comes from Bryce Rowe with half the growth.
Yeah.
Thanks, Good good afternoon, and thanks for taking the question here wanted to to ask about the bond portfolio and opportunities, possibly to put to put more excess liquidity to work there obviously.
And obviously, we've seen a big jump and the bond portfolio and the first quarter and.
And was wondering with the with the level of excess liquidity continuing to.
To look elevated and possibly be elevated for a for the foreseeable future here was wondering if he will continue to add to the bond portfolio and a and a meaningful way like like you've done here recently.
Well, we think you know volte and liquidity that came in and the first quarter debt. Although we had we did have really good organic growth is probably about half of that was stimulus payment related whether it was the P. P P money or the EAP payments and so I wouldn't expect that big of an increase in liquidity next quarter.
But should agree that we do have it of course, putting it and loan growth is always going to be our first choice, but you know as opposed to letting it sit and cash we probably will continue to buy securities and detect them as available for sailing and case, we wanted to use for the liquidity and the future for another purpose.
And this is mark I would just add and don't take time and we're we're pretty selective in terms of the bonds that we like and.
And you can see and net interest bearing deposits that were.
And so sizable number and we're always looking for opportunities for for good investments with the right return profile and we'll continue to do so this quarter.
Okay. That's that's helpful and you know as a follow up.
And maybe you all touched on this here recently as well, but in terms of the U S. H L. B advances on the on the balance sheet came down a little bit here.
And in the first quarter, just wondering if there are more opportunities to let let those roll off with.
And with excess liquidity being being what it is.
And I do believe we have some maturing and yet this year I actually don't have that schedule in front of me, but to the degree that we have any of those mature certainly we'll let those roll off.
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But you know I'll follow back up with your price and I can get you that number one thing I did that up.
Okay, and that'd be great Michele I appreciate it thanks for thanks for taking the question.
Yes, you're welcome.
As a reminder, if you have a question. Please press star then one to be joining us and the Q.
Our next question comes from Damon Delmonte with K B W.
Please go ahead.
Good afternoon, everyone and hope everybody is doing well today.
And we are waiting for.
Great Great Great day here. This is my first question just on fee income.
You know I think you guys noted that there are some seasonal factors that kind of brought numbers down this quarter for from last quarter and you alluded to the fact that you get a bit of a rebound here and the second quarter. You know Michel can you give a little bit of guidance on and a range of what would be a reasonable expectation.
Yeah last quarter I told you that I thought we could replicate Q4 levels and net debt was a good run rate, but we're really seen some cooling and the derivative for loan level hedges compared to Q for them.
And so if I look at you know the list they will get from Who's Your Trust and also you know some strong mortgage loan production I would probably bring that range down a little bit to maybe $25 million to $26 million a quarter.
Okay. That's helpful. And then did you say before as for like a point of reference on the and the reserve level that.
If you added where you were pre pre pandemic plus what you would have expected for seasonal you're talking around something around $150 million of our reserves is that what you had said.
And 150 <unk> coverage ratio.
Yeah.
130 million maybe for Jim.
Okay. So if you're at 202 million today are towards the one night and today I mean could you arguably not take a provision for the remainder of this year and next year I mean.
And still have more than 130 million so.
Yeah, and that's a possibility yes.
Okay.
Okay I'll take a take a look at the model then okay. That's all that I had everything else was asked and answered. Thanks, a lot I appreciate it.
Thank you Dan.
This concludes our question and answer session I would like to share the conference back over to Mark Hardwick for any closing remarks.
Thanks, Betsy Thanks, everyone for your attendance and we appreciate all the questions at the end of the call and I look forward to talking to you again and another 90 day so.
I guess I have a great spring.
The conference.
And is now concluded. Thank you for attending today's presentation you may now disconnect.