Q1 2021 WesBanco Inc Earnings Call
Good day and welcome to the West Bank go first quarter 2021 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to John <unk> Senior Vice President Investor Relations. Please go ahead.
Thank you Gary Good morning, and welcome for Wesbanco, Inc. 's first quarter 2021 earnings conference call.
And our call today are Todd Clawson, President and Chief Executive Officer, and Bob Young Senior Executive Vice President and Chief Financial Officer.
Today's call and archive and which will be available on our website for one year paid.
Forward looking information.
Cautionary statements about this information and reconciliation of non-GAAP measures are included in our earnings weighted materials issued yesterday afternoon.
And as well as our other SEC filings and Investor materials.
These materials are available are available on the Investor Relations section of our website with Banco Dot com.
All statements speak only as of April 28, 2021, and Wesbanco undertakes no obligation to update them.
I would now like to turn the call over to Todd caution Todd.
Thank you John and good morning, everyone.
On today's call, we're going to review our results for the first quarter of 2021 and provide an update on our operations and 2021 outlook key takeaways from the call. Today are we delivered strong year over year pretax pre provision earnings driven by our diversified growth engines and company wide commitment to expense management.
Wesbanco remains a well capitalized financial institution with solid liquidity strong balance sheet solid credit quality that is focused on and shareholder value through earnings growth and effective capital management.
And we continue to receive and national accolades for our employees' commitment to our community banking roots and values.
We're pleased with our performance during the first quarter, where and the early stages of emerging from this pandemic.
For the quarter ended March 31st 2021, we reported net income available to common shareholders of $71 $3 million and diluted earnings per share of $1 six.
When excluding merger and restructuring charges.
And the same basis, our pre tax pre provision income of $64 2 million grew three 6% year over year, driven by strong fee income growth and disciplined cost control and we reported strong pretax pre provision return on average assets and average tangible equity of 157% and <unk>.
<unk>, 8% respectively.
Reflecting our strong legacy of credit and risk management for our key credit quality ratios remained at low levels and our regulatory capital ratios remained well above the applicable well capitalized standards.
Furthermore, as you can see on slides eight and 10 of our earnings presentation. Our key ratios also remained favorable to peer bank averages.
We're excited about our opportunities for the upcoming year as we build upon our well defined long term strategies, which are enhanced by our flexibility provided by our strong capital position and strong liquidity position and good expense management and.
In addition, we have experienced teams and the markets with positive demographics, including several that we just entered just prior to the pandemic, which put us in a good position to compete effectively on a relative basis as our local economies continue to rebound.
We remain focused on appropriate capital allocation to provide financial flexibility, while continuing to enhance shareholder value through earnings growth and effective capital management to that and last week. Our board of directors authorized the adoption of a new stock repurchase plan of up to an additional one 7 million shares.
This new authorization is in addition to the existing stock repurchase program that we had approved in December of 2019, which has approximately one point million remaining shares for repurchase. So the combination of these two authorizations represents about 5% of our outstanding shares.
As I've mentioned previously we assisted tens of thousands of customers individuals families businesses and nonprofits across our communities, including in this community outreach has been helping more than 10000 businesses secure critical funding to approximately $1 $2 billion to date through all rounds of the small business administration.
Australia and payroll protection program.
Earlier this year, we were named to Forbes magazine's list of the best Banks in America for the 11th time since 2010, and the second consecutive year and the top 15.
Is this ranking is based on growth credit quality profitability metrics. It demonstrates the strength of our diversified earnings streams, our long term growth strategies, our unique competitive advantages, our legacy of credit quality and risk management, and our unwavering focus on shareholder value.
And then earlier this month, we were again named as one of the world's best banks for the third consecutive year. This is a ranking of which I am, especially proud because it is a testament to the hard work and dedication of all of our employees. It is based completely on customer satisfaction and feedback.
We received strong scores across the survey very high scores and the areas for satisfaction.
Customer service financial advice and digital services.
Again be named as one of the top focused companies across the world in terms of customers I'd like to personally thank our employees.
I would also like to recognize Abdul Mohammed our senior Vice President of regional manager of residential lending as he was appointed just recently as one of the eight members of the Federal Reserve Bank and Cleveland's equity and inclusion Advisory Council in order to provide advice strategic counsel and feedback aimed at improving diversity equity and inclusion.
And opportunity at the Cleveland Fed and the regions that it serves in addition, Abdul chairs our own diversity equity and inclusion Council, which is focused on our three key initiatives leadership development employee education and community development in order to benefit both the communities and which we serve and also our employees by for.
Because he and on hiring retention and the development of diverse employees will be better prepared to help minority communities work to close the wealth GAAP and work toward a better financial future.
I'd now like to turn the call over to Bob Young our CFO for an update on our first quarter results and outlook for 2020 one Bob.
Thanks, Todd and good morning, everyone. During the first quarter of 2021, we experienced a continuation of the low interest rate environment and significant amounts of excess liquidity, which were mitigated somewhat by continued strong residential mortgage origination volumes are robust stock market strong expense control and an improved.
And the macroeconomic forecasts utilized under the current expected credit losses accounting standard.
As a result of higher net interest income and lower operating expenses and a negative provision for credit losses more than offsetting lower net interest income.
I'm sorry.
Higher noninterest income is what I should have said offsetting lower net interest income as compared to the prior year and prior quarter. We reported improved GAAP net income available to common shareholders of $70 6 million and earnings per diluted share of a dollar and five cents for the three months ended March 31 2020.
One <unk>.
Excluding restructuring and merger related charges results for a dollar and <unk> <unk> per share for the quarter as compared to 41 cents last year.
Todd just provided you our P. T. P. P returns are our core returns on average assets and average tangible equity or 1.7, and 4% and 18.39% and the first quarter.
And in order to provide better comparability to prior year periods and to demonstrate the strength of our underlying financial results.
We believe it is important to evaluate pretax pre provision net income excluding restructuring and merger related costs and the first quarter, we reported $64 2 million and and P. T. P. P income, which increased three 6% compared to the prior year period.
In addition on a similar basis, we reported strong pretax pre provision returns.
On average assets and average tangible equity of 1.57% and $16 seven 8% for the quarter.
Total assets of $17 1 billion and portfolio loans of $10 7 billion as of March 31 increased six 6% and three 4%, respectively when compared to the prior year period, due primarily to growth and our securities portfolio and cash held due to excess liquidity related to additional.
Customer stimulus funds reshaped as well as new round two loans from the Sba's payroll protection program.
Very strong deposit growth continues to be a key story for Wesbanco as total deposits increased 23% year over year to $13 3 billion due primarily to the aforementioned stimulus and SBA PPP loan funds received increased personal savings and lower personal discretionary spending.
And earlier in the pandemic.
Total demand deposits were up some 36% year over year.
Furthermore, reflecting the strong growth and resulting available excess liquidity, we continue to strengthen our balance sheet by reducing higher cost certificates of deposit and federal home loan bank borrowings and short term borrowings.
For our total high cost funding reduction of $1 7 billion.
Key credit quality metrics, such as nonperforming assets past due loans and net loan charge offs as percentages of total portfolio loans, which reflect our strong loan underwriting and credit processes have remained at low levels and favorable to peer bank averages.
For the prior four quarters last night's earnings release captures key credit metric improvements, so I will not repeat them, but reflecting improved macroeconomic factors and the seesaw calculation the allowance for credit losses specific to total portfolio loans at March 31, 2021 was 160 million.
And or 1.5 O percentage of total loans.
Or when excluding SBA PPP loans, 162% of total portfolio loans.
Excluded from this allowance for credit losses and related coverage ratio, our fair market value adjustments on previously acquired loans, representing 34 basis points of total loans.
The improved factors resulted in a negative provision for credit losses of 28 million for the first quarter of 2021.
Key information and measures affecting this quarters provision can be viewed on slide nine of the earnings presentation.
The net interest margin of 3.27% for the first quarter decreased for.
For and 27 basis points, respectively from the fourth and first quarters of 2020, primarily due to the lower interest rate environment. As a result of our continued pricing management efforts, our first quarter net interest margin, excluding purchase accounting accretion was 3.1, and 4% which was down just one basis point for me.
The fourth quarter of last year.
Also I would remark that excess liquidity.
And about a 12 basis point reduction to the net interest margin during the first quarter.
Reflecting the significantly low interest rate environment, we aggressively reduced our deposit rates throughout the past year and that helped to lower deposit funding costs 30 for 35 basis points year over year to 20 basis points for the first quarter of 2021.
And we're just 14 basis points, when including noninterest bearing deposits further we lowered the cost of federal home loan bank and short term borrowings by 25% and 79 basis points, respectively year over year as rate reduced first quarter total average borrowings by $1 1 billion or 62, 4% year.
Year over year.
Two 700 million combined.
A combined effect of these efforts helped to lower our first quarter total interest bearing liabilities costs by 54 basis points year over year to 37 basis points and helped to partially offset lower earning asset yields which do reflect materially lower yields on new or repriced commercial loans and the aforementioned higher securities and cash.
Balances.
Turning now to noninterest income for the quarter. It was $33 2 million and increase of 18, 6% year over year, primarily due to higher mortgage banking fees commercial customer loan swap related income and trust fees, partially offset by lower service charges on deposits and net securities gains.
Regarding Wanda for family residential mortgage origination dollar volume or worse, Robert roughly a 45% was related to home purchase or construction lending.
Totalled $326 million.
About 60% and this volume was sold and in the secondary market.
Briefly I do want to mention that we recently sold our debit card sponsorship business to another bank.
And this line of business, which we acquired through our merger with old line was considered by management to be of non essential business and was determined to not met merit the investment necessary to make it a core business line and when we first evaluated the purchase of old line Bank with.
And the details surrounding the purchase or in the press release.
Okay.
Now on our operating expenses, we felt they they continue to be very well controlled through our company wide efforts to effectively manage discretionary costs and full time equivalent employee counts as demonstrated by a 100 basis point improvement year over year, and our first quarter efficiency ratio to $56 seven and <unk>.
Percent, excluding restructuring and merger related expenses noninterest expense for the three months ended March 31, 2021 decreased zero point $7 million or 0.8% to $85 5 million compared to the prior year period, primarily due to lower salaries and wages from the recent financial center.
<unk> as well as continuing cost controls over certain discretionary expenses.
I would also point out salaries were lower by about $1 3 million due to costs deferred related to new SBA PPP loan originations.
On the subject of capital as of March 31, we reported very strong capital ratios tier one risk based capital of $14 nine 5% tier one leverage of 10, seven and 4% and tangible equity to tangible assets of 10, 3% given.
Given such capital strength on April 22nd our board authorized the adoption of a new stock repurchase plan for the purchase of up to an additional one 7 million shares of our common stock from time to time and the open market and that brings our total repurchase capacity to approximately 5% of shares outstanding we do expect.
To restart share repurchase activity this quarter.
And any potential future share repurchases will be subject to market conditions and other factors.
And while they are timing price and quantity of any potential purchases will be at Wesbanco has discretion.
With an unprecedented operating environment that continues to evolve daily I'll now provide some limited thoughts and our current outlook for the rest of the year.
And asset sensitive bank, we remain subject to factors.
I expect it to continue to affect industry wide and interest margins and the near term while market rates have recently increased for certain intermediate and longer term rates short term rates are expected to remain at low levels for the next couple of years, which are the primary rates upon which new investments and loans are priced.
Therefore, we believe our GAAP net interest margin may continue to decrease a few basis points throughout the year due to lower purchase accounting accretion, which should decrease a couple basis points each quarter and lower earning asset yields. In addition, as a result of higher cash balances from additional stimulus funds received by our customers and.
And there are higher personal savings and investment securities increased by about $900 million during the first quarter and more of that was invested towards the end of the quarter.
So that is also expected to have a somewhat negative influence on the margin as we move forward, but it does also increase overall net interest income as compared to overnight liquidity alternatives.
Therefore, we currently anticipate our margin excluding accretion for purchase accounting to be down somewhat from the first quarter's three one and 4%.
Again, partially due to the increased securities book.
And on and expectation of lower total, earning assets net of SBA PPP loan forgiveness.
That is expected to be higher than new loan originations as well as new P. P. P loans.
We do anticipate GAAP margin accretion and the next two quarters from the forgiveness itself on PPP loans as net deferred fees are accreted into income. However, I would remark that new PPP loans put on and the first quarter and here early in the in the sack and are expected to be slightly dilutive to the margin going forward.
Due to their longer contractual lives than first round loans originated during 2020 until they themselves are forgiven.
In general we continue to anticipate similar trends and fee income sources as we experienced during 2020 residential mortgage generation and associated gains on sales should remain strong although potentially at lower levels than the record volumes realized during 2020.
As well as our current expectation of selling approximately 50% to 60% of originations into the secondary market reflecting.
Reflecting the current interest rate environment commercial loan swap fee income and should continue to be relatively strong <unk>.
Electronic banking fees continue to rebound and follow a more normal quarterly patterns as economies continue to reopen.
Securities brokerage revenue will still be impacted in the short term until we're able to loosen the access restrictions to the lobbies of our financial centers.
Service charges, John deposits will most likely remain weak due to the additional stimulus provided our customers this year.
We certainly intend to maintain our diligent focus on expense management throughout the rest of the year, while making the appropriate investments for organic growth as the economy picks up.
As a reminder, our long term efficiency ratio target continues to be in the mid 50% range and that's of course subject to the future shape for the yogurt.
While we remain diligent on salary costs, we are still planning for our annual midyear merit increases as well as targeted increases to certain retail employees, starting hourly wages due to the competitive hiring environment as we hire additional staff for re engaging our financial centers post pandemic.
In addition, we currently anticipate somewhat higher marketing spend during the year to make up for reduced brand and image costs.
During 2020, particularly and our new mid Atlantic market.
Regarding the benefits from our financial center optimization plan, the anticipated gross cost savings from the closures and remain on track to be fully realized by the end of the second quarter and we continue to anticipate about half of those savings to be utilized for employees filling open positions and other locations as well as expected digital and technology spending.
Further we will continue to review our remaining footprint for additional optimization opportunities this year as well.
Relative to our provision for credit losses, the provision will depend upon changes for the macroeconomic forecast used and the seasonal methodology as well as various credit quality metrics, including potential charge offs criticized and classified loan changes and other portfolio changes and general continued improvements and macroeconomic <unk>.
<unk> should bode well for the direction of future provisioning.
Lastly, we currently anticipate our effective full year tax rate to be between 19, and 21% subject to any changes in tax policy and taxable income strategies.
And with that we're now ready to take your questions. Operator would you. Please review the instructions.
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.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question will be from Russell Gunther of D. A Davidson. Please go ahead.
Hey, good morning, guys.
Morning Ross.
I wanted to start with the loan growth outlook and I appreciate the glide path provided in the deck.
Runoff of ore of organic kind of ex PPP balances something we've seen from a lot of our banks this quarter due to the excess liquidity a bit more pronounced I think at worst Banco and.
Getting close to seemingly meeting the commercial run off with new originations, but.
Todd if you could provide us your thoughts on kind of way.
And we can close that gap and expect.
Positive organic kind of ex PPP growth.
And it looks like I was looking at a lot of the others throw out there trying to compare looks like everybody's <unk>.
6% to 8% I guess annualized for.
And when does that fall into that mix as well too.
It's difficult to provide you know a lot of near term.
Loan growth expectations, we still continue to think it's going to be relatively flat for a while I don't think that's views and consistent with what you are and from a lot of banks across the nation, just because theres a lot of liquidity and even since the last earnings call.
And our new dose and liquidity put in there for both consumers and also businesses through the PPP process. So there is an awful lot of liquidity, that's out there and and we see that and our interline usage as well too so.
Don't know exactly when it's going to take off I mean, GDP looks like it's going to be strong this year, but companies have got to work through that liquidity first I think when they do we're in a really good position to participate and that growth because of the lending teams, we have and and particularly now and in higher growth markets because of our.
Our acquisitions were seen.
Commercial real estate pay offs again, and the secondary market secondary market is getting to be really aggressive we're seeing things that are getting taken out quite frankly during the construction phase let alone stabilization phase. So I think that's kind of interesting to see that trend and overall, our pipelines are up about 10%.
Over the last quarter, but still down about 10% from kind of pre pandemic first quarter of last year, but theyre building. So I think that that's good to see.
Again, I think I think we're positioned well I just don't know when it's going to take off again, I think we got a little bit of time here in terms of.
Kind of a flattish type of loan growth are consistent with what we've seen here recently probably for for most most of the industry for the next.
And the next few months or maybe quarter or two.
I appreciate the thoughts Todd and.
And thinking out a bit more longer term and we do finally hit that turn.
So what is the expectation for organic growth.
At our west Banco with the.
Old line fully integrated and is that a mid single digit number you're striving for or yeah. How are you seeing that <unk> you know mid mid to upper mid.
We were kind of a low to mid single digit grower prior to some of our expansion not just in the mid Atlantic market, but into.
Louisville, and Lexington, and markets like that as well too that had some traditionally some higher higher growth rates and now those are all part of the full draw into the bank for all assimilated we've done the portfolio pruning that we typically do after acquisitions and all that so all that's all that's really behind us So I would hope that coming out of.
The pandemic when we're in a more normalized environment that the benefits of being in those markets, which start sharp start to show through so that we would go from you know are.
Low to mid single digit grower to a mid to upper single digit grower would be the expectation and mid Atlantic market pre pandemic was kind of alone and a low double digit grower. So.
We're not changed and how they do business and we got a good strong lending teams in place there same leadership, so we would expect and and actually we're seeing early signs and pipelines and things like that that are.
The mid Atlantic market.
And.
Ducky are two of our biggest growing areas in terms of pipeline and business. So far this year.
Great. Thank you and then switching gears before I step back with you on the expense side of things so.
Good result, this quarter came and well below consensus and it sounds like there's some puts and takes going forward with higher minimum wage and midyear increases you mentioned marketing.
But then full benefit from our <unk>.
<unk> identified cost saves so could.
Could you help us with the glide path in terms of where the near term expense base kind of shakes out over the next couple of quarters. Yeah. Yeah. I mean, we look at the last quarter I think we looked at what the consensus was out there and we said we were comfortable with it and I would still say, we're comfortable with that as well and first quarter was lower.
For for a number of reasons.
One of which was net about $1 3 million.
And as deferred costs related to S. P. SBA PPP loans. So that's.
That's not a.
A long term reduction and that it would be part of the part of the run rate going forward.
We do have our midyear merit increases that we're going to do we're still being very cautious on hires but we are I would say be we're being aggressive on lending hiring lenders. This for the time of year to hire them and they just get their bonuses and if theyre looking around now is the time to do it so we went and capitalize.
On that.
With the and starting to Unrestrict lobby access and things like that we're going to have more growth with our.
License Securities brokers, and we're now looking to hire more of those individuals'. So we know we've got some investments that we're gonna make nothing crazy, but we're going to make some selective investments to participate and the growth going going forward. So I think the you know the thought and the consensus was in the past it was and kind of and 80 780.
8 million quarterly run rate. So it is hard to predict but I wouldnt argue with with that ATC.
<unk> $87 million to $88 million number I mean, we are going to have some I'd say reopening.
Expenses for your good thing travel entertainment and things like that that should generate additional revenue for us. So we will have some of those kind of more standard cost that were pretty reduced during the pandemic.
We are seeing the benefit of the branch restructuring.
We did in January and those costs have.
And have come out and are coming out through the second quarter here.
And we also had additional branches that were looking at and we will be acting on here over the next couple of months. So we're not done. We're just we had a number of markets that we didn't address during the first round of branch consolidations and and we're looking hard at that and you know those.
There should be happening here over the next.
A couple of months or quarters.
And I appreciate it you addressed kind of my follow up which would be the next look at the remaining branch networks. So is there anything additional you can share there in terms of and what markets are being targeted and and then when we might.
Expect a related announcement, there and I'll step back and thank you yeah, Yeah sure well the markets that we didn't really look at because they were they were still relatively new to us and you know we wanted them to stabilize for a while the mid Atlantic market would be one.
And then looking at.
Some of the other markets and the and the Kentucky area and kind of done Kentucky already so it would primarily be mid Atlantic market that we're taking a good hard look at a rate now.
And I think it would be anything that would be significant enough that would you know.
Create and announcements or anything like that it's just part of our ongoing business rate, we're always looking at.
A number of branches, whether that's 2345 on an annual basis that we consolidate and we were doing that prior to the pandemic, we announced the one third quarter last year, because it was a big number and it was over 20.
But you know our traditional Onesies twosies and <unk> will continue to do and we'll talk about those obviously and the quarterly earnings calls, but I don't see anything that's significant enough that would.
Create a reason for an announcement.
Okay, great well, thank you guys Thats it for me sure.
The next question comes from Brody Preston with Stephens, Inc. Please go ahead.
Hey, good morning, everyone.
Good morning.
And I just wanted to ask on the on the trust business.
And you normally have and you saw it but you normally have a step up from from the fourth quarter and the first quarter and I just wanted to confirm.
That was due to tax preparation related items.
And <unk>.
That's correct that would that would factor into that market appreciation as well.
Okay got it and then just on the mortgage front.
How did how did the originations and gain on sale margins, there and the first quarter.
But to do and handle that.
So gain on sale was down a little bit just because of the mark to market. We had good hedging gains, but offset a little bit by what would be.
A negative mark on loans held for sale is about 160 million there at the end of the quarter.
So that did offset which what was a very strong quarter for originations as well as associated hedging gains.
On the pipeline.
It might also remark.
That in the middle of last year, we began moving.
Some of the mortgage salaries for originators.
To that particular line item gain on sale.
And so to some degree you see a little bit of a reduction as compared to what the normal amount and would have been in prior years.
And because of that move for.
From salaries over in addition debt to what Todd talked about on the PPP side.
And that of course is not associated with the gain on sale line.
Nonetheless, we do expect a strong gain on sale here and the second quarter and the third quarter. Your typical seasonal timeframes Brody for.
And additional.
Additional activity and we're still seeing a very strong pipeline on residential mortgage.
That is part of the reason however, why youre seeing a little bit of reduction in the loan portfolio side is a lot of folks are still on the refinancing mode. Our rates haven't gone up that much.
So it's a combination of both refis as well as purchase money and and construction mortgages that were doing.
And about 56 for 60% as our expectation of of the split between portfolio and.
Gain on sale loans sold into the secondary market here in the near term going forward.
Great. Thanks for that detail, Bob and then I just did want to ask on the on the loan and the swap related income.
Just given some of the swings and the fair value adjustments.
I just wanted to ask what that I guess, where should that settle out and what could the expectations be for that other income line item just given the kind of large swing you had this quarter.
So you did note that.
The part of that swing this quarter was due market due to the mark to market on the existing portfolio and.
And it's kind of creates its own hedge against what's happening and the mortgage portfolio.
Loans held for sale.
That would've had a negative mark at the end of the quarter as rates increased versus the current inventory and that and loans held for sale on the other hand.
Swap.
Income has influenced this quarter and in any quarter when rates are going up versus if you remember rates going down and the first quarter last year that would've had a negative impact on <unk>.
And on existing swaps, but in terms of what you should be looking at net of that noise, because that's hard to predict what's happening with rates at the end of quarter.
We see very strong opportunity going forward for swap fees, we have a lot of our lenders trained on using it.
Using the product.
Rates are still fairly low were cut.
Customers are interested in fixed rates going forward for five or seven years and.
So net of that noise.
Think of $2 million to $3 million Ghana.
Shortly run rate is what we've been experiencing and no reason to consider that that wouldn't be there going forward.
Okay got it and then just on PPP do you happen to have what the interest income component from the P. P. P was this quarter.
And just in dollar terms.
I don't I can look it up if you give me some time.
And I can tell you that.
The deferred origination fees were 7.9 million.
For the fee accretion I should say seven 2 million of which would have been.
Associated with PPP loans forgiven this quarter. So the bulk of that would have been for forgiven loans.
I think I can find the interest income, but why don't we move on to.
Another question, yes.
Yeah, that's fine and do you.
No no what the.
I guess, just what the breakdown of the PPP fees will look like moving forward just in terms of what you have left from round one at this point and and what you have for deferred fees from the most recent round.
I would have to look that up.
No worries I just had two more quick ones.
Credit what was it you guys kind of bucked the trend versus other banks this quarter on criticized and classified it was nice to see those move lower and so I wanted to ask was there anything specific that drove that decrease this quarter.
Yes, we.
We will continue to evaluate particularly the hospitality portfolio, where we're re grading that every quarter.
Right now so and <unk>.
And the first quarter.
We had a re grading that took place there and.
Because you know things started to improve particularly during the month of March and and a lot of liquidity that's out there as well too.
And I think we saw the first inklings of what we expect to see going forward.
And that is a number of of upgrades that occurred and that portfolio and there were a few that went the other way too but.
Dominic Lee predominantly upgrades and and we also had a.
Another another credit or two that was able to work itself out as well so.
And we saw some nice movement, there our expectation would be.
As you recall from prior earnings calls.
And you know that we do we do look at these on a quarterly basis and the hospitality loans.
Would be.
I think it would be being upgraded and the second and third quarter, unless we see something really surprising.
And and the trends are really strong I mean do you see the same trans nationally that we read and I would tell you we're at or above those those trends. So it's it's pretty encouraging at this point.
Thanks for that Todd and then my last one was just on the new commercial origination yields at $3 18, and this quarter I just wanted to ask because that is the reduction and your origination yields more of a function of you know.
Low rates or how much is I guess, maybe stiffer competition, just given the low loan growth environment kind of playing into that.
Yeah, we're seeing we're seeing more and more of the <unk>.
Competition and the rate area as opposed to structure, which I think is probably the better place to see it.
People do and a lot of crazy things right now, but it is competitive to us out there. So we've seen that particularly on some of the midsize to larger.
C&I and commercial real estate loans for the swap income becomes really important to you as well too as well as some ancillary deposit business T M business things like that so we were and our return on equity model on these.
The rates that the key driver of it.
But I think in environments like this if you're not already focused on deposits and other non credit things you really are going to be now, but the answer to your question. It's a it's primarily a function of competitiveness.
Got it. Thank you for taking all my questions guys I really appreciate it.
And then I do have the answers I think to your questions. So 2 million was the interest income on PPP loans and the first quarter, we have about $840 million left at the end of the quarter, which is very similar to what we had with round one.
And once that.
Once round, one and wrapped up last June or July.
So basically the.
The new loans $344 million of kind of offset the December and first quarter run off due to forgiveness of last year's loans.
So we have as I said $344 million here at the end of the quarter that represents new originations.
Call it around three round to whichever what whatever you want to call. It and then about $500 million left from last year.
A total of $22 million left and fees.
And that's about one third remaining from last year and two thirds on the new originations I hope that's been responsive.
Thank you very much for that Bob I appreciate it.
The next question will be from Casey Whitman with Piper Sandler.
Hey, good morning, good morning Casey.
And then.
While we're on the subject of P. P. P. Maybe do you also have the average balance of PPP loans and the quarter.
And then you gave and a period, but just wondering if you had the average balance.
Oh I'm, sorry, I was on mute I don't have that but I would I would tell you that.
A lot of the new loans were.
Being booked throughout the month of February and March so sort of a tail on that while a lot of the forgiveness was occurring earlier in the quarter January and February and then.
Kind of a last two to three weeks.
Once the instructions came out on the 150000 and last forgiveness, we started to see a pretty significant amount of forgiveness.
There as well.
And kind of like two ships passing and the night.
And up.
And was about the same amount of forgiveness between December and March on the old program as we did book New loans again, ending up at about the same number $840 million is what we had last June or July but.
I don't think there would be a significant difference between.
The period and and the average on PPP, John do you happen to have that in your deck.
Okay.
I'm looking for and how to write yet Bob Okay, we'll get back to you on that Casey.
And that makes sense and that's all I needed. Thank you.
And maybe just trying to piece together some of the margin commentary that you already gave Bob I guess first.
Guidance for the increase and the Securities book at the end of the quarter can you maybe give us a sense for the yield and duration you got on that.
Well, we got more on the at the end of the quarter than we did.
Back and say early February.
Rates at that point were one to one and a quarter based upon what we were buying mostly cmo's.
Durations typically and the four year area there.
There were some munis mixed in but.
Basically out of the 900 million net that we increased for the quarter about 100, and some odd million and that is growth and muni both taxable and.
Tax exempt and and the rest of it are a split primarily between Cmos and mortgage backs more oriented towards cmo's and about $400 million of that settled and the last couple of day. So thats kind of part of my margin guidance going forward Youre going to see all of the additional liquidity we got towards.
At the end of the quarter from.
PPP loan.
Amounts deposited and business accounts as well as additional stimulus.
Third round here and in March being.
And being deposited net customer accounts as well so.
We were putting as much of that as we could.
Could back into the investment portfolio and you still see very strong liquidity on the on the cash and due from line.
And in the month of March you are looking at about 51, 5% on average as compared to that one 110 120 kind of average.
Earlier in the quarter.
Okay.
And.
I guess lastly for me can you.
Yeah. This is more of a sense of just your thoughts around the level of liquidity between cash and carries and.
And the timing of when we could see some of that come off whether it's like just from deposit outflows from these PPP customers or whatnot and how that sort of plays into your.
Core margin guidance that you just gave yes.
Yes, we do anticipate that we're going to see some run off and and what we would call surge deposits.
Throughout the back half the EBITDA, but.
We anticipate the same thing last year, and Indiana, instead and continue to grow you can use to grow here early in the and the second quarter, yet on the deposit side.
So it's very hard to say.
How much of that is going to disappear and you were over 17 billion and as you go back to 16, App, that's kind of what we're thinking in terms of total assets.
And there's going to be a $1 billion worth of run off and the investment portfolio over the next 12 months or so.
And currently we're not thinking we're going to significantly increase the size of the securities portfolio.
Just reinvest what is coming back at us basically it's $80 million to $100 million a month as opposed to continue to grow that but kind of depends upon the direction of deposits do have $250 million Casey that will be paid off in the.
Borrowings book between now and the end of the year.
Most of that and the federal home loan bank.
On the federal home loan Bank line so.
At this point.
Would say that while we have a lot of excess.
Cash.
And my guidance around what that cost us in terms of margin is probably going to be consistent for the next couple of quarters, you know somewhere between eight and 12 basis points a quarter is going to be related to that additional liquidity.
And don't intend to run that back down to say 300 million 2%.
The size of the balance sheet here and the near term.
Hey, Robert.
A question and average number if you need it yes.
Yeah go ahead John.
Yes.
Casey it's John.
So.
Bob pattern and he provided.
Is rate.
And so for the average for the quarter at roughly.
Balances roughly $45 million for the first quarter 2020 one.
John decided you say 725.
775.
And sometimes.
Great. Thank you.
Mhm.
The next question will be from Steve Moss with B Riley FBR.
Hi, Good morning, guys good morning.
Maybe just following up on the margin here just in terms of purchase accounting accretion Bob I hear your guidance for a couple of basis points for the decline each quarter for the remainder of the year just as we think about that.
John.
A little further out do we think about purchase accounting basically going away by the middle of next year.
Yes, there'll be some.
And two to three basis points per quarter, because the loan book from old line still has some run off there.
And it was a longer average life portfolio for you'll remember, Steve so they'll still be a few basis points and.
I just think.
In fact.
Assuming that there are no larger loans paid off we'll have two to three basis points here and the second quarter, and then and it will begin.
Patterning.
More towards a one basis point number as we get to the back half of the one basis point per quarter number as we go.
Get more towards the back half of the year and begin to be in that mid single digit.
Area.
Okay. That's that's helpful and then just.
Going back to credit here, just wondering if you guys could give any color on.
One deferral balances were at quarter end and kind of.
And just how youre seeing any potential work outs going forward.
Yeah, I mean, let me take that.
Similar to what we had at the end of the end of the year and maybe just a hair lower because most.
What's on deferral at this point would be hospitality, we don't have much of anything outside of hospitality on deferral.
So we provided.
Remember from prior calls we provided relief got most of these loans done before the end of the year and we provided relief and a lot of cases for 12 months, but we put Springer language in there so that when they.
Got to a certain occupancy or revpar or.
Or a certain liquidity level that the payments would begin again and we would have anticipated and were seeing that many of them will returned to payment status well before the the the extension.
Runs out and we have been really the 12.
12 months.
Deferral extension, so that's kind of where we're at so it's really still hospitality and lot of them are doing really well.
Most all of them are doing really well at this point, so I would anticipate that that.
Deferral number will come down and and second third quarters.
Because of that because of that Springer language, but we haven't seen any new modifications deferrals no demand for it by anybody including hospitality or are there other industries for that matter even consumers. So it is trending and exactly the way we wanted it.
Two but not a lot of movement and the first quarter because it was still pretty much a downtime for the the hotels and.
Thanks for picking up and in March So I would expect the Springer language to kick in on a lot of them.
Okay. That's helpful. And then maybe just thinking about the improvement in.
And classifieds, Todd you kind of alluded to analyzing the hotels on a quarterly basis, just kind of curious as to how we think about the rest of the portfolio in terms of just review of criticized and classified loans that more on a semiannual or annual basis.
And maybe when we could see further improvements and maybe therefore further reserve releases.
And where we're looking we're looking at for pretty much all loans over $1 million on a regular schedule basis. So.
Yeah, we look at the portfolio very very regularly.
Hotels are stepped up to quarterly just because obviously, that's an area of focus for everybody and theres things are changing rapidly.
With regard to hospitality, but all criticized and classified loans get reviewed on a regular basis and we.
You know we report most of those over a certain size to the to the board of directors and the Executive Committee. So again it gets high level of attention.
But we're just we're seeing some really nice trends and.
It's encouraging to see food and asked me a year ago I would have expected more companies heading heading south by now.
But they haven't I think the P. P. P loans have really helped clearly and the strengthening of the economy I think we want to keep our eyes open for and I can't point to a specific company impacted by this yet, but you know there's a lot of supply chain disruption out there too so and we really want to watch that to make sure. It doesn't trip up our C&I customer or somebody you know that's a.
Sourcing things internationally or we're trying to find employees locally right I mean, because you know who is competing against unemployment at this point too.
Thank you and employees. So you know I think some of those things could ripple through and affect some of the broader portfolio net C and it yet.
If it did happen and I don't think it would be dramatic, but it could affect the company here or there.
But we are in answer to your question and we're reviewing all the ones over $1 million on a regular basis and that and lines of credit and term loans.
Okay great.
That's very helpful. Todd and then just maybe one more going back towards on.
Balance sheet liquidity and securities here.
And as a percentage of assets just over 21%.
Is that kind of cap you want to keep it at.
Or could we head back towards that 23% to 24% level, we probably saw a couple of years ago.
Yes, I think we because we had done some thrift acquisitions it.
It seems like 6767 years ago now.
We were up we were up and not much higher range up and up for 'twenty and we had always wanted to get down to the 20 range peers pre pandemic were about 17.
So I think there was some.
Selling and unusual time with liquidity, but I would venture to say that we would hover.
High teens low twenties.
But I wouldn't take we would take a dramatically lower dramatically higher at least not based upon what we see right now Bob would you have a different answer.
No I think at this point with the additional liquidity until we see some of that.
Run off in terms of deposits.
I think low Twenty's is where we're gonna boosted.
Okay, great well, thank you very much and I appreciate it.
Sure. Thank you.
The next question will be from Stuart Lotz of <unk>. Please go ahead.
Hey, guys good morning.
<unk>.
Bob if I'm actually surprised we haven't gone to the allowance yet but.
And if you could just give additional color on your outlook for further reserve releases. This year you know assuming we continue to get improvement in the and some of the economic drivers driving your seats a model and you know I think last quarter, you mentioned that your day one.
You were at 1% how quickly do you anticipate we could we can get back to that level. If we do.
Todd and I have regular discussions back and forth about a high level.
The allowance get at some point and time and I believe we were in the low eighties, when we transitioned to see so on January the first last year, and then and you saw the increase and both the first and the second quarter. So I think it's going to head back down towards that.
I believe that youre going to see a number for the industry, that's going to be and the 100 twenty's.
At least this year by the end of the year, maybe a little bit lower than that next year as improvements continue recall Stuart that we have a blend of the Moody's and <unk>.
The fed forecasts.
That and fuse data into our model as those continue to come down and almost.
Every quarter and the case to the S&P from the fed and monthly for Moody's, we're seeing that continue to ratchet down in terms of the expectation for the next four to eight quarters.
There are some people thinking we're going to be and the low force here by the end of the year in terms of unemployment, who would've thought that a year ago.
And so there could be some additional reduction on the quantitative side in the model Stuart, but right now the largest.
Benefit that we could get here over the short to intermediate term would be on some of the qualitative factors specifically related to COVID-19.
There's a COVID-19 factor.
That could run off over the next few quarters.
Hard to say, how much that would run off.
Each quarter, but then we also have about 8% associated with the hotel book.
I think thats around $55 million total, we added a little bit to that.
This quarter, just under $5 million and and I think Todd.
And Todd and I believe that there's going to be a benefit to improvements and the operating operations of hotels.
Throughout the summer months and as we proceed through the rest of the year that could result in that particular factor continuing to decline.
There may be some exceptional hotels that it will have to associate more of a reserve to on a one to one basis as opposed to kind of this portfolio wide.
And Mark that we have currently.
Our allowance allocation.
But I do think that there is going to be an improvement and that book as well as we proceed through the rest of the year.
And I, certainly would not be predicting that we're going to see a $28 million reduction and the and the provision.
For the allowance here and the short run, but there could still be some <unk>.
Negative provisioning before we get back towards zero or or slight amount of.
Reserve allocation for or provision increase per quarter.
Alright, great very hard to say.
And how much will we will come out by the end of the year.
And the pandemic kind of sets its own course and.
Our reactions and the marketplace as well.
So it does it sounds like reserve release will be a little bit more modest in the next couple of quarters and then.
And how much wiggle room do you have for.
We're taking kind of taking that and earnings accretion from the negative reserve this year compared to you know.
Kind of spreading that out over into 2022.
And it's kind of the impact on earnings per share.
Yeah, again I would.
And I would stay at a high level on that I don't think were and are positioned to say wiggle room wise, how much of that is going to come out by the end of this year versus early next year.
Transition that curve and your model.
To be obviously lower than what we experienced here and the first quarter, but.
Continued improvement and macroeconomic factors and the qualitative factors.
Result in reductions and the overall allowance as we move forward.
Thanks Todd.
John.
You covered it thanks.
Great.
For on the on the buyback.
We were kind of surprised to see you guys actually added another $1 7 million share authorization, but just given your strong capital levels.
And what's your valuation back to $1 seven of tangible.
And how active do you think you expect to be on the buyback in the coming quarters, given the credit improvement and any thoughts on a potential accelerated share repurchase.
And you still have any color there. Thanks, Yeah, I mean, we wanted to provide some some flexibility there because again, we are at such strong capital levels, and we had strong capital levels heading into the pandemic and.
And we raised preferred and and obviously, a nice earnings as well too. So it puts us in a really really strong capital position.
And I think a couple of different ways, you can use capital rate dividends, we increased our dividend last quarter.
Buybacks, M&A, which we've talked about is not something where necessary and looking at anything right now it could be could get more constructively and of the year and next year, but it's not a major focus of ours and again not and near term priority.
So you really you look at repurchases, but we're going to base it off of and IRR calculation.
We think theres opportunity too.
B.
Proactive and selective and basically have the ability I think like a lot of our peers have done to buyback when they feel the timing is right and theres been a lot of volatility up and down and bank stocks over the last.
Really even just the last quarter and out along the last year. So we just want to be positioned to be able to do that and we're cognizant of how much capital, we're carrying and the capital is good because that strength, but from a shareholder friendly perspective. We've also got to make sure. We got the appropriate capital levels and buybacks would be one of those things that we would be looking at so but it's.
They're all going to be IRR, driven and it's gonna be you know, what's the what's the best use of our capital and in particular point and time.
Got it.
Great and then sorry, and just kind of one more.
And like Youre, not obviously not thinking about M&A until.
Probably next year.
In terms of in terms of bank M&A at least.
And how do you.
And you guys considering any non bank deals we've seen.
And number of those deals get announced in recent weeks.
And in terms of.
Picking up a profitable fee business award and asset generator.
And and using some of your excess capital for that would love to hear your thoughts. Thanks.
Yeah, I mean, our focus has been on.
And first of all I'm, just I guess and a broader broader context, we wanted to make sure there was <unk>.
Clarity around credit rate somebody elses balance sheet, and how do you price. It. So we think we're getting closer to that each month improves and there's a lot more clarity on trying to price somebody else's balance sheet now than there was 90 days ago. So I think that that hurdles being crossed and we got a lot of work going into our own core upgrade and.
And that core upgrade will be completed and the third quarter. So you know once we get past that core upgrade.
And then I think you again with the capital position that we have and just.
I think that the strength with the new core we have as well too.
Could start looking at some some bank and non bank opportunities so Phoebe.
Our fee based businesses are always something that we're open to if they fit within the risk profile, we tend not to bias for some of the things that are out there right now we're kind of national franchises national asset generation franchise for us.
And we tend to like to stay within our franchise just from a risk profile perspective as opposed to.
Trying to buy into.
A vertical or something like that to get loan growth.
We just don't think that that works long term.
But we would be we would be open us up there were you know boutique trust firms.
Our other fee generation businesses like that we'd be very open to that as we head towards the end of the year and definitely into next year.
Todd Thanks for all the color and thanks for taking my questions.
The next question is from William Wallace of Raymond James. Please go ahead.
Hi, Thanks for taking my question I was.
And maybe just try to dig down a little bit and and get a couple of points of clarification. So starting on net interest margin.
If we back out the purchase accounting accretion and we back out the net interest income and average loans for the PPP program I calculate that your core NIM was about three three.
And and Bob It sounds like what you're saying is that there's still some pressures to that core margin.
So my question is is that.
Is that a couple of basis points a quarter for the next.
Two to three quarters or is that under less pressure.
And the GAAP.
Yeah.
So.
The GAAP will be influenced by the amount of loan forgiveness each.
Each quarter.
I still think theres, a little bit of that to go.
And here in the second quarter and you picked up on what I said earlier no. One has had loans between two and 10 million forgiven yet.
For the industry. There is a fair amount of deferred fees remaining on that group as well so hard to say when that will hit.
But.
Excluding all of that and I understand take out the purchase accounting accretion and take out the loan forgiveness. Yeah. So recall I also said earlier that we had about $400 million and the $900 million.
And growth on the security side that came in towards the end of the quarter.
That will.
Will influence the margin here early in the second quarter.
That will increase net interest income to some degree as compared to.
No.
Five to 10 basis points at the fed.
But its slower than than a normal margin say on on a normal loan to deposit ratio.
For the company, so I would plug that into your model.
We said somewhat of a reduction in terms of basis points without being specific as to whether thats.
Two for whatever it is.
Versus a few basis points.
And it is coming from additional reduction on the loan yield side as we book new loans in that $3 18 to 320 area that is in the deck versus what's coming off and the $3 73, a area. So there's still some repricing on that side, we have some savings yet.
And on cost of funds.
But most of that has already been factored in and won't be as much going forward as low as we are at this point.
Okay. So.
Could we see a core margin that starts with the two.
Yes, because of the additional securities and the bulk and additional liquidity.
Okay. So that's very high interest.
And I want to just a thought that the securities investments would have been coming out of.
Cash, earning asset so lower yielding stuff going into higher yet, even though it's low yield securities. It's still I would've thought higher than like for orders, you know cash not and the earning asset balance.
A portion of it is but most of it is not.
And that's capped at the fed would be five to 10 basis points and 91 particular day.
Okay. Thank you that's helpful and you saw the waterfall of waterfall shows that loans were down some 16 basis points that was the contribution and the first quarter as compared to the fourth quarter.
So I still think theres, a little bit to go there.
And.
The mix of the balance sheet in terms of the investments for the additional liquidity to the industry got in March.
From that additional stimulus, which was huge and one nine trillion and and the banks are picking up an awful lot of that so.
Yes, it is more accretive and sitting at the fed but.
But it's when you look at interest rate loan to asset and loan to deposit ratios pretty much all time lows.
That's a prescription for a lower margin and then what was plugged into most models at the end of the year.
Yeah, and I, just I would add I would add volume and you. Obviously you see that with US you see that with a lot of others and that's what creates the increased focus on expense management and and it's big.
Part of the reason why we've been so tough on expenses as well too as you you. Just we just don't have a crystal ball, we don't know where it's going to go but if it does continue to trickle down a little bit.
You can have margin compression and banks have got to find a way to deal with it.
Understood. Thank you.
And then I wanted to follow up just for clarity on the reserve conversation. So Bob you said that your prediction was that the industry would end up Canada, and the 100 twenty's by year, and given West Bank loss history, and what we know and as the <unk>.
In terms of underwriting culture.
I would anticipate at some point that the west Banco is going to be below the industry, but it sounds like youre, saying that youre.
Going to hit.
It does Q factors as hard as you can so that you don't have to reduce reserves that much and it.
A quick time periods and say the next three quarters and I am I seeing that correctly or do you think that you could be like the industry by the end of the year.
I think that.
He doesn't want it kind of depends upon the direction of COVID-19 and how that influences the hotel adjustment.
More than anything else.
Paul I would not say, we're going to hit the qualitative factors more so than quantitative because if you'd asked me prior to the pandemic I would have said the qualitative factors wont have as big of an influence on the seasonal calculation as they did and the incurred model prior to 12 31 of <unk>.
19.
So it is true today that the macroeconomic factors have a.
Pretty helpful influence on the calculations and the model and.
And so as we pull down the qualitative factors that will.
And that will drive the ultimate conclusion as to where that reserve ends up but I have no reason to believe that by the end of the next year that we're going to be any different than the industry relative to ending allowance.
And some differences in terms of who uses what forecasts and over what forecast period, and what are the historical losses, but.
I think we'll be reasonably close right now the industry at least those that have announced so far are between $1 40 and $1 45.
Includes the base as well, so less and that for for banks of our size and smaller that have adopted seasonal.
And some banks, we will get to that one to 110 level, probably a little sooner.
So if and if the economy opens if travel opens back up and the hotel.
Portfolio returns to vacancy rates that are much more sustainable from a cash flow perspective for your hotel portfolio is it is it safe to assume that that D. C. So model what have you going back to that once and level that you work and of the first quarter by the end of this year.
Yes.
It's hard it's hard to pick a number because you don't know what's going to happen, but we all think that the priest to pre pandemic Cecil and numbers for kind of that 1% range.
If you talk to the credit folks they'd probably say you're going to end up and the 100 to one to $1 20 range when everything gets back to normal, but when you get back to normal I don't know me and we'll have to see how it goes and the lateral has to do with human behavior.
And it's hard it's hard to predict what that's what that's going to be.
Business travel how quickly is that going to come back.
Does everything spring back a 100% or is there a new normal for business travel and does that have an impact on hospitality.
Theres some things out there that I would say, we will track with the industry on that.
But I don't think we can say at the end of this year that.
The concerns over pandemic are gonna be over because theres going to be new normals out there.
So I think that's gonna be and important part of it and Matt.
Youre going to want to see hotels go through another winter.
And with.
Particularly those that are downtown.
Airport related you're going to and see those go through another winter.
Before you completely declare victory I agree with Bob I think that it would be paid by the end of this year it will probably be.
Individual marks on a couple we don't see any right now today quite frankly, you don't see any losses today.
But there may be a couple of hotels that turn into challenges that we would need to work through the next next winter, but it wouldn't be any different than anybody else. So I don't know, it's just it's just hard to and how many people and you get vaccinated by the end of the year.
Whats unemployment going and be them and so I'll, just kind of a guess and.
And I'd tell you with our history of being Conservative we will be on the conservative and have it I think we were with the amount of provision. We raised we were and the conservative side with the amount of capital. We raised we were on the conservative side and.
And I think we will reduce reserves probably in line with everybody else, but I don't think we're gonna be ahead of them.
With regard to to that so anyway, that's just kind of my two cents worth I think if you were looking at two years.
Be a little different story, you get a little more flexibility and there but.
It's just hard to know what this thing is going to look like and the fall, but we feel really good about it.
We feel very good about it actually we may very well be back to normal by the end of the third quarter fourth quarter, but.
It's hard to say.
Understood, Okay, Alright fair enough. Thanks sure.
And the last question will be from Steven Duong of RBC capital markets. Please go ahead.
Hey, good morning, guys.
Bob.
Can I I'm not sure if I heard you correctly, but did you say that you're still seeing and surge in deposits from your period end balances.
Well net of tax payments made in April and typically you get tax payments, but I wouldn't call. It a surge I would just call it normal normal growth and deposits.
My point was Stephen that we're not seeing deposits leave the franchise yet at this point other than for normal users I still think the personal savings rate.
And and the desire for consumers to keep a lot of their cash.
And is influencing bank balance sheets and deposits.
Also the PPP program.
To the extent that companies get forgiveness will they be more willing to use the cash that they've retained.
Going forward and not worried about whether they're going to get forgiveness.
And we'll they'd be willing to hire more people.
And an economy, where it's hard to hire right now so it's hard to say whether consumers and businesses will spend.
The savings that they've accumulated or whether it will.
And stay on bank balance sheets over.
And additional time frame it took a long time from the last great recession for.
The additional deposits to buildup.
Back in 2010, and 11 to come off bank balance sheets and for you to see.
Significant loan growth rate hard to predict that this time because this is.
This recession was driven by the pandemic.
As opposed to the great financial recession.
So I'm not saying, we're going to experience the kind of deposit growth and the second quarter that we did and the first obviously that was influenced by.
The end of the year stimulus and then the the mat and a more massive stimulus here at the start of March I was just commenting that we're not seeing and run out the door.
Yes, now understood and and.
And it seems like it's trickling in.
And it's all working its way I mean, even when people and companies spend.
And I had to spend its got to go somewhere in the system, So and swaps.
Washing around and different bank accounts.
So it seems like it could be here for quite some time.
But maybe just the rate of the deposit growth and maybe not be as much but let's say, let's assume that.
This liquidity is here for some time.
You have 250 million borrowings maturing at the end of the year and so I think you have a little less and 200 for next after that.
Is that 200 maturing next year do you know.
Yes.
About <unk> about 150 of it matures next year, we don't we have very little maturing beyond 2022.
Got it yet.
And.
And the Cds like I'm, just curious like what's the rate that you guys are putting out there and is there a way that you did.
Just drive that down and.
Comparable to the rates that youre getting on your core deposits.
Our new offering rates Steven have been historically for the last few years.
Lower than the market average and and we were certainly very successful and being able to reduce the CD rates and the mid Atlantic market that was one of our strategies when we acquired old line because we add.
Or a lower loan to deposit ratio than they did and so could blend our funding rate into that market and then of course, the pandemic came along.
But we're already lower than peer.
And our CD rates.
Yes, Theres most customers are taking maturing Cds and just putting it right back into their bank savings account or checking accounts and waiting for opportunities down the road as opposed to putting it into the stock market or or even spending it.
So.
Is there another 10 to 15 basis points. There we continue to ratchet down rates, we saw about 15 basis points, a reduction and in the first quarter, just due to maturities versus the new blended rates going on.
And most customers are just rolling off of their existing maturities to the extent that the.
And the two thirds of customers who rollover.
They are rolling over into the same maturities day, we're in.
Yes, just curious do you know what.
And generally where your CD rates are that you're offering right now.
They are all below 50 basis points.
And so most of our CD rates in that six month to two year.
Set of buckets, that's where most banks are saying CD renewals and and those are.
No.
15% to 25 basis points.
Oh Wow.
And so 15% to 25 and and it seems like you still have some people.
Rolling into the Cds I would've thought the CD balance would've done.
And much lower.
And so just I guess the.
The liquidity that your customers have.
Is there an opportunity for you to.
Bring some of that over to your fee businesses.
Okay.
Yeah. This is Todd I would say I would say definitely I mean, we've had that kind of that muscle built and our company with the shale deposits over the last number of years in terms of private banking customers wealth management customers and.
And definitely I think as these deposits have it come in theres ways to do things with them to the extent that they're not.
They're not spent are utilized and and we've got programs in place already for that and the shale area and we just roll them into other.
Other other deposits until we would do is we look at anything over.
A couple of hundred thousand dollars and make sure do we get.
The rate investment people talking to them as well.
Yes, okay.
And then just last one for me.
For your commercial loans with floors.
How much do you front end rates need to increase by for those.
Loans to be above their floors.
Steve and our average floor right now on.
Over $2 billion that have that have floors.
And is just over 4% and about a billion six.
Are at the floor rate.
So.
But as you know.
Depending upon what your spread is off of off of LIBOR.
Or if you're offering prime plus.
There still.
Obviously, some room to go there before you get above floor rate.
Okay. So is that like a 150 basis points.
No it's not that much it's.
If your normal spread is.
225 to $2 50 over and over LIBOR, and what does that make it 60 basis points basically okay Yep Yep understood.
That's it for me I really appreciate the color on this.
And this concludes our question and answer session I would now like to turn the conference back over to Todd Clos and for any closing remarks sure.
Thank you and I appreciate the call today, and your time and and all of the detailed questions really good. If there were some that didn't get a chance to ask questions. Please.
Follow up with myself and Bob and John look forward to hopefully get a chance to C. P. I said and upcoming Investor event, and hopefully we can get back out and start traveling again. Thank you.
Okay.
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