Q1 2021 Civista Bancshares Inc Earnings Call
[music].
Good afternoon, everyone and welcome to the semester Bancshares incorporated Q1, 2021 earnings conference call.
All participants will be in a listen only mode should you need assistance, placing other 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 and then why are you using a touchtone telephone so with cash.
All your questions you May press star and two.
Please also note today's event is being recorded.
At this time I'd like to turn the conference call over to Dennis Shaffer, President and CEO. Please go ahead.
Good afternoon. This is Dennis Shaffer, President and CEO of <unk> Bancshares, and I would like to thank you for joining us for our first quarter 2021 earnings call.
I'm joined today by Rich Dutton SVP of the company and Chief operating officer of the Bank Chuck Parcher SVP of the company and Chief lending officer or the other bank and other members of our executive team.
Before we begin I would like to remind you that this conference call contains forward looking statements with respect to the future performance and financial condition of <unk> Bancshares, Inc. Net.
<unk> risks and uncertainties.
Various factors could cause actual results to be materially different from any future results expressed or implied by such forward looking statements.
These factors are discussed in the company's SEC filings, which are available on the company's website.
The company disclaims any obligation to update any forward looking statements made during the call.
Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute the most directly comparable GAAP measures.
The press release available on the website contains the financial and other quantitative information to be discussed today as well as a reconciliation of the GAAP to non-GAAP measures.
We will record this call and make it available on <unk> Bancshares website at Www Dot <unk> Dot Com again welcome to service the Bancshares first quarter 2021 earnings call.
At the conclusion of my remarks, we will take any questions that you may have.
This morning, we reported net income of $10 $8 million or <unk> 68 per diluted share for the first quarter 2021.
Our earnings per share increased 44, 7% compared to the first quarter of 2020.
This is a direct result of our continued focus on growing and diversifying non interest income streams and our disciplined approach in managing the company.
Our return on average assets was 136% for the quarter compared to one point for 4% for the linked quarter and our return on average equity was 12, 48% for the quarter compared to $11 seven 9% for the linked quarter.
During the quarter, we continued our focus on managing COVID-19 loan deferrals as well as our asset quality as a whole.
We were proactive in working with our borrowers in the beginning of the pandemic and had some sizeable deferrals.
We feel that this approach was the right one as many of our borrowers were able to resume normal payments throughout 2020.
Our deferrals have improved modestly from three 6% of total loans at December 31, 2020 to three 4% at March 31st some of these borrowers have seasonal businesses, which will not resume operations until late in the spring.
Due to our diligent efforts to work with customers and strong borrowers we have not experienced any default attributable to the pandemic and delinquencies.
Are at historically low levels.
Our mortgage banking business continues to drive non interest income generating gains of $2 $7 million this quarter, nearly keeping pace with the $3 1 million dollar record gain that we recorded in the linked quarter.
Our board of directors approved our quarterly dividend on April 9th 12 cents per share, which represents a dividend payout ratio of 17, 7% and earlier. This week, we announced the authorization of a new 13, and a half million dollars stock repurchase program.
Included in this morning's earnings release is an announcement that we will be closing two of our smaller branches in July.
This decision isn't one we take lightly no matter what the size of the branches.
We understand that community banks are the lifeblood of many small communities.
During the pandemic, we began a process to transform our online and mobile banking.
Many of our customers are transacting business digitally and we expect that trend to continue.
We anticipate redirecting the cost to operate through small branches into our digital offerings.
Getting back to the numbers, our net interest income increased $297000 or one 3% over the linked quarter and $1.7 million or seven 7% year over year, our net interest margin for the quarter was three.
300% compared to $3 six 9% for the linked quarter.
Let me first talk about the easy part of our net interest income and our net interest margin.
That would be on the funding side.
We were able to reduce our funding cost by $990000 compared to the first quarter of 2020, and 293000 compared to the linked quarter. The majority of this decline is due to rate. We believe there is still some room for the rates in our time deposit category.
To come down further.
The earning asset side of this equation has a bit more noise included in it there are really two pieces to discuss the first piece is the income related to the PPP loans.
Our PPP loans had an average balance of $248 $7 million during the first quarter of 2021, and a yield of six point <unk>, 7%. When you factor in the accretion of the fees. This increased our yield on earning assets by 22 basis points.
And net interest margin by 26 basis points.
The second piece is the increase in liquidity generated by the federal government's stimulus program.
In early January we mistakenly received nearly $5 $6 billion in stimulus payments with no advanced warning from the U S. Treasury. These funds remained in our account at the Federal reserve for several days before we could get them either distributed or written.
Turn which increased the average balance of our interest bearing deposits and other banks by $258 million for the current quarter, earning 10 basis points and had the effect of reducing our yield on earning assets by 33 basis points in our first quarter margin.
By 30 basis points. This was in addition to extra liquidity normally generated by our tax refund processing program during the first half of the year.
Few years, we have had short term borrowings going into the tax season that we were able to pay off which lessened the impact to the margin. This year. Our liquidity profile was such that all of these funds went into our fed account, which further reduced our margin by 14 basis points.
Certainly margin is important but with all this noise surrounding this quarter's margin I would like to reiterate that our net interest income increased over both the linked quarter and year over year.
During the quarter non interest income increased one $5 million or 19, 9% in comparison to the fourth quarter of 2020, and increased $2 $3 million or 33, 7% year over year.
Mortgage banking continues to be the largest driver of our noninterest income first quarter gains on the sale of mortgage loans were $2 $7 million down slightly from our linked quarter, which was a record at $3 1 million and represented a 1.9 million dollar increase over.
The prior year.
We sold $77 6 million mortgage loans during the first quarter of 2021 compared to $91 $8 million during the linked quarter as the strong as strong mortgage demand that we saw during much of 2020 continued.
The average premium recognized on the sale of loans increased 21 basis points from 334% for 355% over the linked quarter.
Service charge revenue declined by 220000, or 14, 9% compared to our linked quarter, which was consistent with a $212000 or 14, 4% decline from our first quarter of last year.
These declines are primarily attributable to the industry wide decline in overdraft fees as our retail customer behavior patterns change during the pandemic.
For similar reasons interchange revenue increased $63000 compared to the linked quarter typically we experience a post holiday season decline in debit card activity. However, this year was not the case interchange revenue increased $282000.
Or 33, 9% compared to our first quarter of last year.
Wealth management revenue increased $81000 or seven 6% compared to the linked quarter and 140000 or 13, 9% year over year. We continue to view the expansion of these services across our entire footprint as an opportunity for you.
Diversify and grow non interest income.
Our tax refund processing program continues to be an important contributor to our non interest income during our first and second quarters each year, Inc.
Come from that program during the first quarter was consistent with the prior year at $1 9 million.
Non interest expense increased $2 $3 million for 14, 3% compared to the linked quarter and $1 5 million or eight 6% year over year in both cases. The increases are primarily the result of increases in compensation occupancy and taxes.
Assessments com.
Compensation expense, which increased $1.4 million accounted for the largest portion of the linked quarter increase in non interest expense.
Payroll taxes are typically higher in the first quarter as our contributions to our employees for O. One K plans and pension plans.
Merit increases which occur each year in April average three 3% in 2020.
And accounted for $199000 and increased commissions to our mortgage lenders accounted for most of the increase in compensation expense year over year.
Other drivers of both the linked quarter and year over year increases where occupancy expenses with additional cleaning and sanitation supplies related to the pandemic and some significant snow removal cost incurred in February 2021.
While taxes and assessments expense also drove up both the linked quarter and year over year expenses.
The increase from the prior year was the result of the FDIC small bank credit that was applied against our first quarter 2020 assessment and an increase in our FDIC accrual as our balance sheet has grown.
Our efficiency ratio was 58% compared to 53, 7% for the linked quarter and 67% year over year.
Yeah.
During the first quarter, our total loans grew by $2 $7 million PPP loans were the primary reason for the increase.
If we back out the PPP loans originated during the first quarter, our loan portfolio would have contracted by $26 $6 million or one 4%.
<unk> for commercial real estate loans across our footprint continued on strong demand in our non owner occupied category.
Other construction loans declined slightly as projects were completed and draws on those projects that were not under roof slowed due to weather. In addition, the influx of stimulus money from both P. P P and payments to individuals' provided the liquidity to pay down 21.
$2 million on lines of credit, which are included in commercial and agricultural loans.
While our first quarter loan production was less than what we would've liked demand has picked up strong demand and the fact that our undrawn construction lines are near an all time high gives us confidence that we will grow our loan portfolio at a mid single digit rate for 2021.
I talked before about the gains we recorded on the sale of mortgage loans, our mortgage pipelines remain very strong.
With respect to P. P. P. We originated over 'twenty 300 loans for $267 $8 million during phase one of the program and over 1300 loans for $119 $8 million during phase two of the program.
At the end of the quarter $246 $6 million in PPP loans remained on our balance sheet of the $9 $9 million in fees generated by phase one we have recognized $7 $6 million of which $2 9 million was recognized during the quarter.
So far phase II PPP loans have generated $5 $7 million in fees of which $220000 were recognized during the quarter.
Of our phase one PPP loans for $141 million or 52, 7% have been forgiven through March 31 2021.
On the funding side, we experienced growth in virtually every category with total deposits, increasing $286 $5 million or 13, 1% since the beginning of the year.
Noninterest bearing demand accounts, which made up 37% of our total deposits at March 31 grew by $196 $8 million compared to December 31, 2020, while balances related to our income tax processing program made up of $136 $9 million of the increase.
We also experienced $37 $9 million of growth in non interest bearing business accounts as our business customers' deposits and PPP loan proceeds.
We also experienced a $77 $8 million increase in our interest bearing demand accounts driven by a $62 $5 million increase in public fund accounts.
During the third quarter of 2020, we automatically down graded each commercial loan that requested concessions beyond the initial 90 day modification, we offered in the beginning stages of the pandemic. We continue meeting with our customers to better understand how they have been impacted in their play.
<unk> for operating as we move forward.
That said, our total criticized loan portfolio, which includes all classified in sub standard loans remained consistent at $149 7 million at March 31 2021.
The largest segment of criticized loans, our hotel loans totaling $82 million.
During the quarter, we did realize $275000 in net recoveries.
However, there are still uncertainties associated with COVID-19, and its impact on the economy.
As a result, we recorded an $830000 provision expense for the quarter.
The ratio of our allowance for loan losses for loans increased from one point to 2% at year end 2022, one point to 7% exclusive of the PPP loans. This ratio would have been one point for 4%.
Our allowance for loan losses to non performing loans also increased to 423 point O 9% at the end of the quarter from 343 point or <unk>, 5% at the end of 2020.
While these reflect very strong credit metrics by historical standards, given the uncertain nature of our current economy, we will continue to monitor our portfolio and the economy, making further adjustments as our model dictates.
We ended the quarter with a tangible common equity ratio of 9% compared to $9 nine 8% at December 31 2020.
The extra $136 $9 million of liquidity related to our income tax refund processing business at quarter end combined with the $246 $6 million in PPP loans had the effect of reducing our TCE ratio by approximately 133 basis.
Points.
Our strong earnings continue to create capital, which allows us to consider several options in managing our capital. Our overall goal is to have adequate capital for growth, both organic and for acquisitions.
We continue to view dividends to our shareholders as one way to manage capital capital and we were happy to be able to increase our dividend in January of this year to 12 cents per quarter.
We also view share repurchases as an integral part of our capital management strategy during the quarter, we repurchased 181627 shares of common stock for $3 $9 million for an average price of $21 39, we expect to continue.
To repurchase shares with our new authorization through the remainder of 2021.
In summary, we are pleased with another quarter fueled by solid earnings.
While there are several challenges that lie ahead for us in 2021, we remain optimistic as restrictions are lifted and the economy continues to open up our loan pipelines are solid we anticipate that many of the remaining PPP phase one loans will be forgiven during the balance of 2021.
In the second quarter of 2021, we look forward to rolling out many new digital tools focused on improving the customer experience. Our digital initiatives are aimed at improving our account onboarding process customer communications, the digital delivery of Treasury management services as well as how we deliver retail <unk>.
Services to consumers.
Thank you for your attention this afternoon and now we'd be happy to address any questions that you may have.
Ladies and gentlemen at this time well begin the question and answer session. Once again to ask a question you May Press Star and then one.
To withdraw your question you May press Star two.
To remove yourself from the question you May press Star two if you.
We're using a speaker phone we do as you. Please pick up the handset before pressing the numbers to ensure the best sound quality.
Our first question today comes from Terry Mcevoy from Stephens. Please go ahead with your question.
Hi, good afternoon guys.
Gary.
First off thanks for running through the inflow of stimulus funds I thought that was a typo and I saw 1 billion. So thanks for addressing that in the prepared remarks, we thought it was a typo.
Okay.
[laughter] Youre surprised is larger than mine I'm sure.
I guess for first question. The could you just maybe run through where you are in the expense side for the digital investments on online and mobile banking and I guess will it be fully offset with the branch actions and I guess, what I'm getting at is looking ahead should.
Should we expect to see.
Step up in expenses at all because of technology spending.
So Terry where we're at right now we still haven't expenses anything with regard to what we're rolling out in June and later this year, we continue to operate under our current I guess Jack Henry contract.
We're trying to time those up so that when the new expenses roll on to the books for Jack Henry will have some reduction or a Jack Henry contract, but I think net net starting sometime in the second quarter or certainly the third quarter.
To increase by about $200000 in the quarter.
And we can work it down but I think that's the way it looks right now.
Helpful.
And then in the branch.
At closures.
We will always net us about $200000 in total savings for the year Terry They were relatively small branches, we didnt have a lot of employees there.
No.
Yeah.
It won't offset it but it will.
Obviously helps a little bit.
Thank you and then as a follow up.
I was reading the release, the three 4% loan deferral.
Is call it about maybe about two times, what I've kind of put together for just other banks across the country and I know you addressed it in terms of kind of some seasonality in some of your customers, but maybe just expand on that are those hotels that.
Youre expecting to have just stronger occupancy and maybe just provide a little bit more color there.
Take care Paul.
Paul.
We do have a number of hotels I think the income drivers of those hotels are primarily the destination for lids.
James Allen as well as the.
Island.
And then also.
It's mostly leisure so we expect debt.
Went up as we go and we expect those payments.
So we.
Probably half that number.
It should be.
Half of that $70 million should go out in the.
Second quarter early in the third.
It's really more timing.
As it relates to other revenues.
Yes, Im sorry, we're hearing some positive comments from some of our hotel operators, but we do want to see a couple of months at least that they return back to kind of pre pandemic revenue type.
So even though we're hearing positive comments, we also want to see.
A couple of months or maybe even a quarter of <unk>.
Revenue numbers at least that there that day.
They've returned to nose.
Somewhat close to those pre pandemic levels for bookings and reservations are strong right now.
Yes, so we're really optimistic there.
But I think just being it's we're trying to be a little bit conservative we don't want to upgrade and then the net.
Quarter after.
Celebrated again, so we're just trying to be a little bit conservative there.
I appreciate that thank you and enjoy the weekend.
Thanks Terry.
Our next question comes from Nick could you rally from Piper Sandler. Please go ahead with your question.
Good afternoon, guys. How are you hey, Nick Nick how about that operator, getting your name right too.
Yeah Amazing [laughter].
Just to follow up with the expenses that go to the digital commentary, where do you see the overall run rate in future periods and what type of year over year growth are you expecting.
So net where we're at I guess again for the first quarter, we've got a fair amount of our commissions and incentive payments that went out.
And as you'll recall each year in April we have our merit increases.
Almost a push.
We've got a run rate going forward, and probably $18 $9 million a quarter is kind of where we're at.
How that stacks up year over year I don't have that number in front of me, but I'll bet you calculate you can figure that out for me.
Yeah, that's that's plenty for what I'm looking for thank you.
Then.
Uh huh.
Go ahead I'm sorry.
Go ahead.
And secondly, I just wanted to get your take on loan growth, which took a little bit of a breather, but was this a function of a strong fourth quarter and the pipeline is building back up I'm, just trying to get a sense of the outlook for loan demand across your geographies.
No question from that perspective mechanism Scott.
Did have a really big fourth quarter as you know we had a few payoffs than we expected in the fourth quarter that leaked into the first quarter.
Pay off for a little higher than they normally are.
Our pipeline is was it was okay coming into the year, but it's really strong right now in the last 30 to 45 day, we've seen a really big uptick in <unk>.
In loan demand for we feel good about that we've got a lot of construction projects, we need to fund over the summer.
I still feel like we will end up in that in that.
Mid single digit growth rate for the year.
And <unk> comments, you mentioned on lines of credit is based on the PPP funding.
Net paid down a little over $20 million, if you kind of look at the numbers in our release Youll see that our residential mortgages went down by another $11 million as we continue to refinance kind of some other stuff on the books and ends up being.
Gain on sales category. So we have a little pressure as far as all know about in the first quarter, we feel like we'll grow through that.
Three quarters.
Okay, and then lastly, just the gain on sale margin in the mortgage business improved again.
It's done this in last quarter's call, but do you see that as sustainable in the near term.
No I see that coming down.
Not dramatically.
I don't see that 355 number being sustainable I think we will.
For you to move down probably moved closer to three three.
Three number, especially in the second quarter.
Demand starts to.
Go down I think you'll have to get a little bit more competitive there. So.
Pipelines are still for right now so.
Makes sense, thanks for taking my questions.
You bet.
And our next question comes from Michael Perito from <unk>. Please go with your question.
Hey, guys. Good afternoon, Mike how are you.
Good.
Thanks for taking my questions I wanted to start on the technology investments I was curious if maybe you guys could give us a little bit more insight into kind of some of the goals whether it be you know.
Financial or just conceptually.
Trying to achieve with these upgrades.
How we should think about kind of what the platform will look like versus what it is today weren't once the rollouts are completed.
I think for nationally the big Big thing and all the all of the benefits kind of in the back end. So you know you've absorbed most of the cost going in and then you hope to open more accounts you hope to you know get a little bit more interchange fees get your cards.
No.
Top of mind in the digital wallet in things like debt. So.
That's where we hope you know between you know between service charges and interchange fees for.
To recognize revenue there.
We'll go with this is really to just improve the overall customer experience we feel that.
That one.
Design and the platform is going to be as good as anything out there right now I mean, we are going to be able to link. Other accounts. Currently you can't you can only see service accounts, you'll be able to if you use a particular reward card.
You'll be able to link that you'll be able to link if you have a CD yet another financial institution, so youll be able to get one financial snapshot, you'll you'll be able to.
Do you know from budgeting things and stuff for you know through the App.
Big lift.
Hope is that we'll be able to also do online account opening I read something.
Just the other day that 55% of the accounts that banks opened.
Last year were opened online.
And we don't have that capability. So eventually we will have that capability towards the latter half of this year 2021.
When a company is kind of in the second phase of this.
Also improve just the time, we do it and in the branch.
For opening an account and there'll be able to do it much quicker much easier.
So I think there's a ton of benefits.
For our customers.
From the customer experience standpoint.
I would add to what debt.
I said I think once for other new platform. We're also expecting quite a big lift in our treasury area.
You're going to get a lot more.
Net of improvement in the <unk>.
<unk> side of that and feel like we've got a lot of growth opportunity there.
That's really helpful and then and to make you feel a little better than that that number is jaded by the fact by the market share right. So for.
55% of the largest banks in the country are opening their accounts online, but we estimate that number is less than five or 6% for the community Bancshares.
Okay.
But certainly it makes a lot of sense at.
I think that that's a good direction for you guys to be moving.
Maybe just to piggyback on that in a couple of other earlier questions. I just wanted to make sure rich I have do you expect side right. So it sounds like Theres, probably four or 500000 of elevated expenses.
First quarter net that drops to like $18 9 million and then from there.
Probably just from <unk>.
Normal growth low single digits.
Merit increases annually stuff like that but in the third and fourth quarter you expect on top of that to be another couple of hundred thousand a quarter related package that has that kind of capturing it holistically fairly early.
Absolutely.
That's probably.
And that's our conservative best guess.
If we can get a little more aggressive with Jack Henry that might be better than that but if I was going to model. It I'd model. It just the way you said it well.
Yes, that's pretty good we just you know again the revenue pieces from the Tech piece, we will start recognizing that until the latter half of the year and really into 2022.
Got it.
And then lastly, Eddie.
Any thoughts Dennis on M&A in the Ohio marketplace.
You've seen some other parts of the country really start to pick up here in North East South East.
And just curious what you guys are hearing or if theres any insight on kind of pace of conversations that you could share maybe just remind us where you're focused and appetites are.
Yeah Yeah.
Sure you know I think you are.
Our goal still is mainly independent may grow the organization I.
I think we've been proactive in some of our calling efforts and reaching out to.
Two organizations that we think would be a good fit.
We're a good partner for our organization.
You know, we remain committed to kind of creating long term shareholder value. So many of our discussions.
With the with the other potential partners.
Center around a lot of the social issues.
And really the culture of the bank, because we think we're gonna be a little bit from.
Friendly or in our approach than some of our larger competitors.
If if if they would partner up with us so.
And then really the focus and then you know I think people see that.
So we're hoping to gain some traction there we again are focused on mostly Ohio.
All but maybe south eastern.
Ohio there.
But mostly Ohio, Eastern Indiana from Indianapolis, North and South Northern Kentucky.
And.
Southern Michigan, and then I think you know western Pennsylvania could be a possibility. There are some banks that may be good fits for us there so our debt.
The CIT fairly close to the Ohio border and in that footprint and also May open up I think.
A couple of them.
The.
For a market would be attractive to be and so.
I think those are really where we've been focusing a lot of our efforts in Ohio, We haven't seen a lot of a lot of a ton of activity I know people did their deal, but they kind of stretch their footprint.
Expanded their footprint, so but that was a deal that was.
Recently announced but we haven't seen a ton within our footprint.
As a as of today anyway.
Great Yeah, no. It makes sense very helpful. Thank you guys for taking all my questions and providing the color I appreciate it.
Thanks, Mike.
Our next question comes from Russell Gunther from D. A Davidson. Please go ahead with your question.
Hey, good afternoon, guys, Hey, Russell I Russell.
I appreciate all the color on the puts and takes for the margin this quarter.
Could you extend your thoughts to the upcoming couple of quarters if we.
Some of those idiosyncratic events EPS and you mentioned some additional room on the funding side, how do you expect the margin to trend over the next remainder.
The remainder of the year, let's say.
Well from where it's at right now it'll trend up right 330 day.
But I guess, if you take kind of that noise out of our Russell I mean, I guess add the 30 basis points that we have due to the stimulus and a snafu.
Tax money coming in again over the last couple of years hasn't had as much impact as maybe it did this year with a 14 basis point kind of compression that it caused and that spins off as the year goes so that gets us back to kind of a 370 for kind of margin and I suppose the the $500000 question is kind of how that.
P P P loans get.
Refunded or forgiven and how quick those fees roll through.
And that's a hard one.
So ex that I can I think you know that 370 is kind of a good number and it drifts maybe.
It may be downward from there, but the PPP piece I, just it's hard to say how quick those get forgiven.
Sitting on you know Theres a lot of liquidity, we're sitting on and we're probably going to get more liquidity.
Yesterday, there were that was on a call with the Ohio Bankers League and they were talking about you know more stimulus money in.
In the last stimulus Bill there's 11 over $11 billion that will be allocated to public entities public.
Entities.
Ohio alone and you know, we've got 100 and some million dollars of so you know our villages in municipalities and cities.
They're going to have more money. So how fast are they you know.
How fast will that money flow out same thing with the schools, there's a billion and a half for dollars or something.
Io schools are getting and we've got a lot of those type of accounts. So you know that's.
That's the one wildcard there and then which then.
Yeah.
Creates another wild card.
With.
How aggressive are banks that are going to be then lending money out I think that forces people to get that money out quicker. So youll see some banks start getting very aggressive on loan rates. So it's kind of a snowball effect I think but.
Well I think we're doing a pretty good job of trying to stay disciplined.
Where we can.
We will get right out of our customer and where.
Some other was more competitive deals if we really want them, we were going to have to get a little thin or maybe to get those.
That's very helpful guys. Thank you and then just my last question switching gears.
I appreciate your answers to my question on M&A.
With the renewed buyback program out there just your appetite to repurchase the stock at current levels.
Yeah, I think we still have appetite there I mean.
If we read all of the analysts reports from all the different companies that cover US most of them will say that.
No, we're a buy or them outperform and.
We still think were undervalued. So we still think it makes sense to repurchase.
At this current level.
Very good thanks, guys for taking my questions.
Yep.
Once again, if you would like to ask a question. Please press star and one.
Our next question comes from Bryce Rowe from Hot Day. Please go ahead with your question.
Thanks, Happy Friday and good afternoon.
Brian Brian wanted to Hey wanted to ask about the allowance.
And in terms of the commentary around improving kind of potential improving economic.
Situation as well as credit so we're.
We're seeing the allowance continue to.
To build a debt here.
And at what point do you think debt debt the allowance peaks.
And do we run into a situation, where maybe you have to release early some of the allowance.
If conditions in fact to do continue to improve.
This is Paul.
Look at this obviously vaccinations.
Whole COVID-19 situations such as the key.
While we are seeing.
Good vaccination pace.
It started to slow down.
The the <unk>.
Hours.
We've had two quarters relative stability in terms of criticized loans.
We would be able to improve our non performing somewhat.
That hasn't really changed because of COVID-19.
I think as we look at this for waiting to see the revenue stream resumed at normal levels.
And the fact that we have a big chunk of our criticized for hotels.
Little bit longer.
I believe what you read it.
Listen moving hotel recovery is going to be towards the end of the year. So again I think we're just trying to be cautious and as we look at debt. That's one of the reasons, we slowed down the provision because we are seeing improved bookings and we actually have been for until.
We assess the damage on the balance sheet for some of these companies.
And then see the revenues in Brazil, I think we're going to maintain a cautious posture.
Or are we did slow down the provision from what we put in the previous quarter and stuff and.
You know as we as we talked earlier I think some of those we just want to see some performance there I think.
It looks like the conditions are improving and stuff, but you know our deferral number didn't move a ton and we hope to see some movement in that.
Maybe the end of second quarter end.
That that may.
That may cause, but remember we were a slow build we didnt go many banks were somewhere in that $151 60 range. When you exclude the PPP. If you exclude ours, even what we put in today were at $1 40 for and we said we would be a slow build.
Throughout that process, because we were doing it quarter by quarter and really assessing the economic factors because we're not a seasonal we're not seasonal and you know it's those qualitative factors. So we've made adjustments each quarter, whether as the economy's worsened or or has improved.
Okay. That's good commentary.
Wanted to shift gears here and talk a little bit more kind of about the.
The margin obviously, there was a question about the margin here earlier, but wanted to.
Look at the funding side of things and more funding costs are.
Transaction accounts from a funding cost perspective are low and likely can't go much lower but we.
We continue to see that debt the average cost from Tds work lower.
And so kind of curious how you're how you're thinking about those.
The CD levels.
Retention of Cds, and kind of where where Cds are repricing.
We're coming into the bank today.
The other Cds I think.
We don't have a ton of Cds in our portfolio I think about 13% of our book is.
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Some of those.
We're on 18 months specials that seem to be the big thing, we ran a year or or more ago and many of those as rich said I think that's where the opportunity is because they want all of our books and some of those are on our books at the $161 70.
180 <unk>.
On an interest rate and today, we're at 30 to 35 basis points. So we think.
We think we'll be able to bring those down from what we've seen is things have been re pricing, we really haven't lost too many of those I don't think.
There's going to be a lot of options for other banks from.
Someone may pay 45 basis for but everybody sitting on this excess liquidity so.
It's not enough rates are so low I don't think it's incentivize advisors anybody to move though so I don't think you'll see a big shift of what we're doing there in our CD portfolio I think it'll stay fairly consistent but I do think we'll be able to bring down those costs or is there still a number of those that need to reprice.
Okay.
That's good that's good detail Dennis I appreciate it that's all for me and have a good a good weekend and I appreciate the time thanks Bryce.
Once again, if he would like to ask a question. Please press star and then one to withdraw your question you May Press Star and two again that is star one to join the question queue.
And ladies and gentlemen at this time in showing no additional questions I'd like to turn the conference call back over to the management team for any closing remarks.
Thank you in closing I, just want to thank everyone for listening and thank those that participated in the call again, we were pleased with our first quarter results and we look forward to talking to you again in a few months to share our second quarter results. So thank you for your time today.
Ladies and gentlemen that will conclude today's conference call. We do thank you for attending you may now disconnect your lines.
Yeah.