Q1 2021 Washington Trust Bancorp Inc Earnings Call
Good morning, and welcome to Washington Trust Bancorp, Inc. 's Conference call My name and Sarah and I will be your operator today.
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And now I will turn the call over to Elizabeth B, Eckel, Senior Vice President and Chief marketing and corporate Communications Officer Masako. Please begin.
Thank you good morning, and welcome to Washington Trust Bancorp, Inc. First quarter 2021 conference call joining us for today's call are members of Washington Trust Executive team, Ned Handy, Chairman and Chief Executive Officer, Mark and President and Chief Operating Officer, Ron Osborne Senior Executive Vice President and Chief.
Financial Officer, and Treasurer, and Bill rate Senior Executive Vice President and Chief Risk Officer. As a reminder, today's call may contain forward looking statements and actual results could differ materially from what is discussed our complete safe Harbor statement appears in our earnings press release as well as other documents filed with the FCC.
You May view these materials as well as the safe Harbor statement and its entirety on our Investor Relations site at IR Dot Wash Trust Dotcom, Washington Trust trades on NASDAQ under the symbol wash and I'm now pleased to introduce the host of today's call, Washington Trust, CEO and chairman Ned Handy.
Thank you very much Beth and good morning, everyone I hope, you're all doing well and that you've all been able to stay healthy since our last call and we appreciate your continued interest and Washington Trust and thank you very much for taking the time to join US This morning.
Todays agenda is similar to past calls I'll provide an overview of our first quarter highlights and then Ron Iceberg will review our financial performance. After our prepared remarks, Mark Jim and Bill rate will join us to answer any questions. You may have about the quarter.
I'm pleased to report that Washington Trust posted strong first quarter results with net income of $25 million or one dollar and 17 cents per diluted share up from $18 $6 million or $1 seven per diluted share reported and the fourth quarter of 2020 quarter.
Quarterly earnings increased substantially from the first quarter of 2000 and 'twenty. When we first started feeling the impact of COVID-19.
If you look back over the past year, it's incredible to think about what's transpired on the pandemic hit it abruptly forced us to change the way we work the way, we communicate and the way we serve our customers our results reflect our success and adapting to change. They also show just how important consistency is during times of change and uncertainty throughout.
The pandemic our employees worked hard to ensure they consistently delivered a high level of service and maintain the human connection with their clients and it made all the difference I can't say enough about how proud I am of our team and the work. They do our business model is also consistently provided a diverse stream of earnings for us through various economic cycles and that.
And has served us well during this crisis and this period of extended low interest rates.
Our returns on average equity and average assets improved from fourth quarter levels, we remain well capitalized and our risk based capital ratio was 13.85% at the end of the first quarter.
We believe our capital position suits, our business model supports our dividend and provides us with opportunities for future growth.
And now let's take a few moments to share some first quarter highlights.
And market deposits, which exclude wholesale brokered time deposits reached an all time high 4 billion and the first quarter up 6% from the fourth quarter and up 23% from a year ago deposit growth has continued and included temporary increases associated with P. P. P loan origination funds deposited to customer.
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As a result of the increased and low cost deposits, we saw improvement in both our loan to deposit ratio and our margin deposit growth has also allowed us to continue to reduce federal home loan bank borrowings.
This influx of deposits as a nationwide trend as consumers buckled down and savings stimulus checks and putting aside funds to ensure they could meet day to day living expenses, while riding out the COVID-19 pandemic.
Industry research shows that consumers saving tends to slowdown and consumer spending picks up as soon as there are positive signs of economic growth. We're cautiously optimistic about consumer strength, but think it's too early to predict what will happen with consumer behavior and the short run.
And we're seeing more and more business is open up now that state governments and health officials have eased many of the COVID-19 restrictions we reopened our branch lobbies on April 1st with safety measures still in place and have seen a gradual uptick and branch traffic.
And speaking of branches next month, we'll open a new branch and East Greenwich, Rhode Island, It's a great location that offers tremendous opportunities for retail wealth management and small business banking, we have a seasoned team of professionals in place and are looking forward to opening the doors and Mei.
We still believe branches are an important part of our community banking model over the past year, we've seen more and more customers use digital and telephone banking services as well as other types of technology to conduct their banking transactions. However, as I mentioned earlier, we also believe our customers enjoy the human connection and meeting face to face with our trust.
And advisors to discuss financial solutions.
We're committed to meeting our customers, where they want whether it's on a technological platform at a physical location or both and we strive to deliver a safe convenient and high quality customer experience across all channels.
Turning to credit and lending asset quality is stable and the economic outlook has improved given the acceleration of the vaccine rollout and the continuation of government stimulus.
Just on this we released about $2 million and credit loss reserves and the quarter Ron will provide more details on this shortly.
Total loans amounted to $4 2 billion for the first quarter down slightly from the end of the fourth cohort from fourth quarter, but up by $104 million or 3% from a year ago.
We originated over 1000, and PPP loans totaling 97 million and the first quarter and we processed P. P. P forgiveness on about 700 loans totaling $66 million.
Aside from PPP lending commercial loan originations and construction advances advances were offset by payoffs and Paydowns and.
And a positive note commercial pipelines have been improving since February and have returned almost a pre pandemic levels. We've seen a resurgence across all business lines and are hopeful the commercial lending activity will pick up as economic recovery begins.
Residential mortgage originations and sales were down from the record levels and the fourth quarter of 2020 mortgage banking revenues totaled $11 9 million for the first quarter down by $2 2 million or 15% from the fourth quarter of 2020, but up by $5 8 million or 96% from a year ago a mortgage.
The team continues to work diligently, although there was an uptick and mortgage rates and the first quarter inventory levels continue to remain very low we had robust application activity throughout the first quarter and into April and the pipeline is currently very strong.
At some point in 2021 mortgage banking activities may start to normalize, but timing is somewhat difficult to predict given the impact a very tight supply and continued low rates.
Our wealth management divisions assets under administration or a UA reached a record 7 billion at March 31st up 3% from the end of 2020 and up 32% from March 31 2020.
This growth reflects financial market appreciation as well as strong business development and client retention efforts net of routine client asset flows.
Wealth management revenues were $9 9 million for the first quarter up 7% from the preceding quarter, providing a key source of noninterest income to the bottom line.
We're very pleased with our wealth management division's first quarter performance and.
And now I'd like to turn the call over to Ron for a review of our financial performance Ron.
Yes, Thank you Ned and good morning, everyone. Thank you for joining us on our call today.
As Ned mentioned net income was $20 5 million or $1 17 per diluted share for the first quarter as compared to $18 6 million and $1 seven from the fourth quarter.
Net interest income amounted to $32 9 million up by 628000 or 2% from the preceding quarter.
The net interest margin was $2 51 up by 12 basis points.
And the first quarter net interest income benefited from accelerated fees due to PPP forgiveness, which totaled $1 2 million and had a nine basis point benefit to the margin.
And this compared to 423003 basis points and the fourth quarter and.
Excluding P. P P fees and bolt periods the margin increased by six basis points from two six to $2 42.
Commercial loan prepayment fees were modest and totaled 217000, and the first quarter compared to 123000 and the fourth quarter.
Average, earning assets decreased by $47 million, mainly due to a decrease of $38 million and average loans.
Yield on earning assets decreased by two basis points to 290.
On the funding side average in market deposits rose by $88 million, while wholesale funding sources decreased by $183 million.
The rate on interest bearing liabilities declined by 17 basis points to <unk> five zero percent.
Noninterest income comprised 44% of total revenues and the first quarter and and Mike.
$26 million down by $1 8 million or 6% from the preceding quarter.
Included in other noninterest income and the first quarter was $1 million associated with the litigation settlement as previously disclosed included in other noninterest income and the fourth quarter was a gain of $1 4 million associated with the sale of our interest and our low income housing tax credit investment.
Excluding the impact of these items noninterest income was down by $1 4 million or 5%.
Our mortgage banking revenues totaled $11 9 million and the first quarter down $2 2 million.
This included net realized gains of $13 7 million, which were up by 351000 or 3% from the prior quarter, reflecting a lower volume of loans sold but offset by a higher yield.
Mortgage loans sold totaled $292 million down by $26 million.
Our rate per cent from the preceding quarter sales were up by $130 million or 80% from the first quarter of 2020.
Realized gains and the first quarter were offset by net unrealized losses of 1.9 million, reflecting a decrease and the fair value of mortgage loan commitments as of March 31st.
Originations amounted to $441 million down by $5 million or 1% from the preceding quarter and our origination pipeline at March 31 was $396 million.
$73 million or 23% since December.
Okay.
Wealth management revenues were $9 9 million and the first quarter up by 689000 or 7%. This included an increase and asset based revenues, which were up by 517000 or 6% as well as an increase and transaction revenues of 172000 and.
The increase and transaction revenues was largely due to tax compliance fees, which are concentrated in the first half of the year.
The increase and asset based revenues correlated to an increase and the average balance of assets under administration, which were up by $298 million or 5%.
March 31, and a period balance of assets under administration totaled a record $7 billion up by $182 million or 3% from December 31, reflecting market appreciation of assets.
Regarding noninterest expenses these were up by 604000 or 2% from the fourth quarter and both the first quarter of 2021, and the fourth quarter of 2020 debt prepayment penalties were incurred from paying off higher cost F. H L. P. Advances this expense was $3 3 million and the first quarter compared to one point.
$4 million and the preceding quarter.
Excluding the impact of these penalties from both periods noninterest expense was down $1 3 million or 4%.
Salaries and employee benefits decreased by 548000, or 2% and the first quarter the decline reflected lower incentive compensation expense as well as higher deferred labor, which is which is a contra expense.
Which were partially offset by higher payroll taxes associated with the start of the new calendar year.
The linked quarter increase and deferred labor was approximately 560000 and was largely attributable to first quarter origination of PPP loans.
The remaining decrease and noninterest expense reflected relatively modest declines, including lower marketing expense due to timing and a decrease and legal expenses.
Income tax expense totaled $5 7 million for the first quarter. The effective tax rate was 21, 7% compared to 22, 9% and the prior quarter.
We currently expect our full year 2021 effective tax rate to be approximately 22, 3%.
Now turning to the balance sheet total loans were down by $1 million from December 30, <unk> and up by $104 million or 3% from a year ago and.
And the first quarter commercial loans increased by $9 million or point, and 4% and the first quarter commercial loan originations and construction advances totaled $160 million and included $97 million of PPP loans. This was largely offset by payoffs totaling 153 million, which included 66 million of PPP loans that works.
Given.
Residential loans decreased by $10 million and consumer loans were essentially unchanged.
Investment Securities were up by $54 million or 6% from December 31st and Securities represented 17% of total assets as of March 31.
And market deposits were up by $227 million or 6% from December 31, and up by $739 million or 23% from a year ago. All the increase has been and checking and savings products. The.
The deposit inflows have allowed us to improve our funding mix by paying down higher cost wholesale advances.
Wholesale brokered Cds were down by $56 million and the first quarter and that's H O V borrowings were down by $127 million.
Total shareholders equity amounted to 534 million at March 31 down by 596000.
From the end of Q4, Washington Trust remains well capitalized the total risk based capital ratio was 13, 85% at March 31, compared to 13.51 and December 31, and our tangible equity to tangible assets ratio was 8.21% at March 31, compared to <unk> 22.
Remember 31st.
Our first quarter dividend declaration of 52 per share was paid on April 9th.
Regarding asset quality nonperforming loans declined by 214000, and the first quarter nonaccrual loans were <unk> three one percentage of total loans unchanged from the end of the year.
Loans past due 30 days or more were 0.26% of total loans compared to 0.30 at the end of Q4.
The allowance for credit losses on loans totaled $42 $1 million or 1% of total loans and provided NPL coverage of 325%.
Excluding PPP loans, the allowance coverage was 105 basis points.
The provision for credit losses was a negative $2 million and the first quarter compared to a positive $1 8 million recognized in the preceding quarter.
The reduction and the provision and the ACL reflected our current estimate of forecasted economic conditions and continued stable asset quality metrics.
Net charge offs were 18000, and Q1 compared to 118000 and Q4 and.
And finally, I'd like to provide and update on our COVID-19 lending impact.
Loan deferments as of April 16th totaled 150 million or 4% of total loans outstanding excluding PPP loans down from $245 million or 6% of total loans as of December 31st this.
And this includes 120 million of commercial real estate $13 million of C&I 16 million of residential and $1 million of consumer loans, a breakdown of commercial deferments by industry category is presented in a table in our earnings release, we will be happy to get into the details during Q&A.
As of March 31st we are reporting 2065 P. P P loans with a carrying value totaling $229 million.
And the first quarter, we originated 1058 P. P P loans with principal balances totaling $97 million.
PPP loans totaling $66 million were forgiven by the SBA during the first quarter as I mentioned earlier, approximately $1 2 million of net deferred fees were accelerated into income as a result of these loans being forgiven.
Net unamortized fees on P. P. P loans amounted to approximately $5 7 million at March 31.
The timing and recognition of these net fees into the margin will dependent from the pace of loan forgiveness is approved by the SBA.
And at this time I will turn the call back to net.
Thanks, very much Ron Washington Trust had a very good first quarter, which has provided us with some momentum momentum going forward now that the government has eased some COVID-19 restrictions and the vaccine appears to be successfully rolling out we're beginning to see more business activity and consumer confidence. We're also hearing that summer rentals and reservations or pick.
<unk> up so that's a good sign for the region's tourism industry and economy and.
I don't think were out of the woods, yet, but we're cautiously optimistic about the remainder of 2021 I think it's a bit too early to claim victory over the pandemic or predict when the economy will recover or to fully define the new normal but I believe we have successfully navigated through significant change in the past year and that we're well prepared for the challenges and opportunities.
These that lie ahead.
As I mentioned earlier, Washington Trust success to date and over time has been our ability to change and to provide consistent returns to our shareholders. Washington Trust has weathered many storms during our 220 plus year history, and we believe and our team and and our business model and that we are well positioned to continue to navigate forward.
And we thank you for your continued support of Washington Trust and know Ron Mark and Bill will join me for a brief question and answer session.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
And if youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw from the question queue. Please press Star then two.
And at this time, we'll pause momentarily to assemble our roster.
Our first question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.
Hey, guys good morning.
Good morning, Michael anymore.
Hey, Ron I was curious if you could share with us your core NIM outlook for the next quarter or two I know the prepayment.
P P P fees will.
<unk> set upward, but I was curious of your view on the core NIM.
Sure. So so excluding PPP, we would expect modest expansion of the margin from the.
The $2 42 that we reported and the first quarter to somewhere in the $2 45 to $2 50 range and Q2.
And the second half of the year, we probably see that starting to trend back down towards 240.
You have to be continuing headwinds on asset yields for a while and most of our.
Liability repricing is really behind us so we will get older and better pickup and the second quarter and then it will taper down and the second half.
Okay, and then I'm wondering if you could maybe at a high level share some perspectives on the mortgage business.
It's been trending down and I know gain on sale margins, even this quarter under a bit of pressure do you feel like a lot of your customers at this point a refinance do you expect the mortgage pipeline to be under a little pressure and this this line to kind of work down and and in that same day and I am curious what kinds of things are and can you do to get the cost structure.
Under control if that occurs.
Sure I'll start with that and and Mark and maybe you can jump in too, but the pipeline remains really strong at the end of March but that said, we recognize that these elevated levels aren't going to last forever.
So you know rates have have trended up recently, although the pipeline is still strong.
I think our expectation is that that Q2 will be a good quarter, but maybe not quite as strong as Q1, and maybe with some lower volume and lower sales yield it's too early to tell.
And that but but mark I don't know if you want to add anything to that sure I would be happy to good question Mark.
And we think that just from a point of view of housing activity and new England, while some of the refinance activity may have been sort of boiled out by the strength of refis over the last year and a half there is still quite a few people who have a refinancing incentive with the 10 year, where it is today and really and new England. The story is one of lack of housing and.
Inventory and our pipeline and application activity still remains very strong purchases over 40% of activity, which is healthy and we would anticipate that to improve further as we go into the spring and summer months. The real story. We think is lack of inventory in the Rhode Island, and greater Boston markets and it's it's the.
The lowest it's ever been and about a quarter, 25% lower than the previous low and 1992, one and by our estimates you know piece.
You say a healthy housing market has about six months of available inventory.
Just for illustrative purposes, we maybe have one three and 1.4 months of inventory available and Rhode Island, and and greater Boston, respectively. So if purchase activity is a bellwether of mortgage activity in general that should be strong.
As Ron said refi looks pretty good for the second quarter. The second half of the year is a little harder for us to foresee as far as costs are concerned the majority of our expenses and the mortgage side are variable related to mortgage commissions based on loan closings and we took great pains not to build the cost structure up.
Significantly during the last year and a half for two years, that's been really good from a profitability perspective at times, it's taxed our mortgage groups.
Group's ability to turn around $450 million pipelines, but we don't foresee being stock with and inflated cost base to support the level of activity as it as and if it begins to wane during the second half of 2021 and the flipside of slower refinancing may mean also slower prepayments.
<unk>, which would be a net positive for us loan mortgage loan growth all things being equal our origination activity both for sale and for retention and <unk> portfolio has been robust, but it's been muted somewhat by the amounts of prepayment so.
I think ron's Ron's guidance is pretty good.
The last half of the year is a little hard to foresee, but we don't feel like we have overbuilt.
And expense engine to support a declining level of mortgage activity hope that helps in terms of color.
It does I guess I'd be curious what kind of margin like and this quarter did you see on the mortgage business or Alternatively asked.
What was the rough cost structure and the mortgage business on the $11 9 million of revenue share.
Okay.
Yeah, Mark so our mortgage commissions run about 85 bps on volume so it's a largely variable cost so.
So we have not added a lot of fixed costs during this cycle.
And Mark this is mark just in terms of margin compression and we continue to try to find ways to improve turn times and to automate and basically and the mortgage business speed equates to margin and so while margins are under compression to some extent because competition for loans and starting to get more intense.
Any ways that we can work with for example, fintech to help shorten the title and closing side of the process and shaved three or four days may help mitigate some of that Marc meant that more debt margin compression risk.
Open question as to whether the fed remains as aggressive and the mortgage market and the second half of the year again from a quantitative easing support perspective, but that's certainly been attributing to a tail anyway. There are things that we think we can do on the operational and processing side to help mute the effect of that.
Okay, and then last question I had net I'm curious.
Seen a bunch of deals and new England recently, and we've heard some CEO suggests that scale and tech spending have become dramatically more important recently.
Which has prompted some of this consolidation I guess sort of a two part question number one do you agree with that and number two do you think Washington Trust needs more scale.
So great Great question and two parts to it obviously I think I think.
You recognized us as somebody who spent some some money recently and tech I would tell you and I'll, let bill comment on this further.
Tech reports to him, but we've invested fairly heavily and are sort of technology platform.
And we think we're well positioned to to add onto that is as we need to.
Proved technology at the sort of consumer facing our customer facing level and we've done some of that but I think that's kind of where where our incremental spend would be we don't have any big big plans for technology spend today, but I think we've done that and the last couple of years and are ready to to consider additional investment.
On that front I think scale matters I think we've talked over the.
And there is quarters about about our organic growth and M&A is as are important elements of our.
Our growth prospects are so so we wouldn't take the and take any either of those off the table certainly not take organic growth off the table M&A.
Our our sort of guideposts haven't changed much.
Price it it's what can we do with it once we once we own it can we find partnerships you know a lot of the the bigger deals at the higher levels that we've seen and the recent quarters.
Feel like they've been sort of M O E M type deals and more partnership deals.
I think we're open to that we've we've.
Certainly considered debt over past quarters, and throwing our hat and the ring and haven't been successful, but we'll continue to consider that we've got the capital to do it and we think our currency is fine.
And but having said that we've got a great operation and we won't do anything to jeopardize that so, but I think where our community bank want to stay a community bank.
And and we'll we'll find ways to grow and and remain as such.
Thank you.
Mhm.
Next question comes from Laurie Hunsicker.
With Compass point. Please go ahead.
Yeah, Hi, Thanks, good morning.
Good morning, Larry and I, hoping Ron Ron If you could just give me just a couple numbers I'll win and a quarter with the debt extinguishment and completed.
And it was we did a couple of rounds of that so I can just give you some numbers on the on the debt extinguishment. So.
And the fourth quarter and and the first quarter, we expect the run rate benefit for 2021 to be about 1 million Bucks and two basis points.
Okay.
Okay, and if you were to say that you know that was debt the debt extinguishment was weighted more toward the beginning first with the and or the middle of the quarter that debt.
How do you think net.
Yeah, we did some in February and some in March.
Okay perfect. That's helpful and then on the on the expenses and the legal expenses, obviously, we saw it drop.
Which leads me to wonder the settlement that flow through was that related to the departure of the people and I guess more importantly in terms of the legal expenses.
Now a good run rate or with debt.
And usually small how should we think about that.
Yeah. So I guess, we're not going to really comment on.
And the litigation matters. So so I won't answer that directly and I will just say that it was something that we've been working on for awhile and and it's it's resolved. So I think from a legal expense run rate you would expect to see that to be lower than what it has been.
Okay. Okay. So debt this quarter, it's probably a good run rate and one or even tracking lower.
Yeah.
Yes, I think so.
Okay. Okay, and then I just wanted to verify you want you currently have seven mortgage banking offices right now.
Or is that a David number.
And I guess I guess.
Your your mortgage loan production offices not that your commercial one just your market share we have.
We have four and Massachusetts, one and Connecticut, and then in Rhode Island, We generally work out of the branches.
Ron Correct me, if there's if I'm missing anything.
Well, we technically have a mortgage office and Rhode Island, as well, so and underwriting off of it.
Yes, yes, that's correct.
Got it so how how are you thinking about those and are you thinking perhaps.
You would set or some of those or can you just talk a little bit about how you're thinking about those and maybe cost saves around that given where rates are.
Yes, let me take that Laurie this is mark if I can.
Really does represent locations that we work out of but I think you may be asking in terms of like lease commitments or physical facilities or so forth is that the nature of the question.
Correct because.
Well, let's put it this way I think and in.
In the Covid era.
One might think well Gee office spaces is not as necessary as it used to be anymore I'm not sure that's true because our mortgage offices tend to work out of those locations because those are where their centers of influence might be and their referral sources, whether attorneys accountants are realtors and so the critical mass and those locations has been there for quite.
And some time.
Really well predating the Covid era, I think a lot of questions about the mortgage banking business that people are asking now and we got this question just a few minutes ago, our weather whether banks have over indexed in it during the run up to <unk>.
Outstandingly high refinance and origination levels and really all of those offices for US. We're open long before this period of time. So we will continue as a company to be careful when we think about brick and mortar and lease commitments, but.
The strength of this mortgage banking business was built on and environment that was a factor of half what we see today and so while I think.
We want to be careful about things like occupancy expense going forward I would not look at all at our mortgage banking business and someplace, where we would be looking to take out cost.
We're in the mortgage business, both from a portfolio perspective and from a refinance perspective.
Unlike our more.
Mortgage company or a more retail oriented bank that drives its originations through physical retail locations ours are really driven by originators working and a number of different areas and again more than I think 60, or so percent of our volume today comes from the Massachusetts market. So I would say, we'll certainly be careful around the edges, but.
To reiterate we really don't feel like we have.
Any either incentive or need to to contemplate.
Cost reduction program and the mortgage infrastructure side at this point those those markets remain robust again, if we were relying on refi only and no portfolio.
It might be a different story as it might be from mortgage companies, but I don't think for us.
Alright, Thanks, Mark and then just net last question is if we can go back here. Your comments maybe around Mark's question can you help us think about your very very strong stock currency. If you were to embark on on whole bank M&A can you help us think about the framework for asthma and other words would you be open to and Emily.
And how you're thinking about and asset level in terms of how small you would go and how large you think that just how you're thinking about that.
I would say we'd be open to partnership M. O E feels big to me is bigger than anything we've contemplated.
And if youre talking about just equal asset size. So so I would say probably not that we'd probably be looking.
And that's something that we could we could partner with and and and add into our mix.
More efficiently than the.
Culture would would be important to us price would be important to us. We are we've looked around our local geography, Laurie we may need to stretch our horizons, a little bit in terms of how far away from homebase, we'd we'd go to to find the right kind of partnership.
But but you're in a world where open to figuring out whether there's there's a company like ours culturally that could be a good fit that could expand the geography, and which we do what we do well.
But it would it would be.
<unk> be important to us to find and find someone like us.
And that has had also and interest in and combining and adding scale and perhaps we could bring something like wealth or mortgage to the table that the target doesn't have.
But and.
And so we're we're happy to have those discussions and explore the opportunities and again I said, we've got the currency and the capital to do it and I think.
A partner would be and well well served.
And frankly on our stock.
Great. Thanks for taking my question.
Not at all.
Thank you.
Our next question comes from David Matt Damon Delmonte with <unk>.
Please go ahead.
Hey, good morning, guys hope everybody's doing well today.
Good morning, David.
David.
Mani So my and my first question just wanted to touch a little bit on our loan growth I think you guys said that the the pipelines, we're rebuilding our going through the first quarter here and.
Net I think he may have even said there are close to pre pandemic levels.
You know obviously a slower start this after the year X P. P P with balances down a little bit how how are you guys thinking about the upcoming three quarters and and what you think you could get for you.
Net growth and the portfolio.
So we've definitely seen growth and the pipeline and in the last 30 to 60 days.
Obviously at the start of the year things, where we're looking.
We're looking pretty low we were kind of half of our sort of what had become more normal levels. We're building back towards where we were we're not there yet, but we see a lot of activity and the early stages and the pipeline.
A lot more requests.
I think I think people are feeling a little bit better about.
The outlook ahead, so I think I think we've sort of.
Suggested.
Low single digit growth for the year I think we will grow for the year. It wont be like historic levels, but I think we're still committed to seeing growth and the commercial side and the and the.
And the low single digit levels.
Okay. Thank you and nation primarily.
And I will say Oh, sorry go ahead.
And I started for inflammation was pretty good and the first quarter, we're still struggling with payoffs and Paydowns is as our customers complete projects and stabilize them and frankly take advantage of either long term finance fixed rate finance or low cap rates.
Yeah I was just going to say are just asking is this commercial growth focus and any particular area of the footprint that Rhode Island based is it more greater Boston area, or maybe you know southern Connecticut, and like where where are you seeing the best opportunity.
And I'd say, it's all of all of the above I mean, and Rhode Island. We have you know great Great brand and we know a lot of the top tier developers that are going to be the ones that start first and so were and the mix there.
Got a lot of good momentum and the Connecticut marketplace.
And again I think we've got a core of developers that are.
What will be the first ones back into the mix and similar in Boston. So I'd say, we're in all three.
Multifamily.
Industrial properties are strong I would say we're probably.
A little more reluctant on retail and office space at the time being.
But we've got some customers that do.
And that are that are <unk>.
Cvs Walgreens type type developers, we'll help them out we've seen a couple of those deals come come through and the last one.
Or so so.
And I think we're open to consider whatever our strong field of developers bring our way things are competitive pricing is competitive.
Little bit of structural competitiveness, which we'll stick to our and a safe safe methods.
And then and won't won't go out and all of them on the structure side will be competitive on pricing and bill I don't know if you have any other comments.
And I think you explained it it's.
More of what we've done steady growth I think we're actually seeing some opportunities because we've been steady didn't overreact.
And when things got tough and <unk>.
Had been taking good care of our borrower base and that creates loyalty and brings back loyalty. So.
While there is a lot of competition and we think theres going to be some opportunities out there again, because we we stuck to our knitting throughout this process.
Okay, Great. That's excellent color. Thank you and then just my second question you know credit trends have been extremely strong and do you guys and.
See that and the way of low NPA formation, and low net charge offs and.
No provision this quarter and negative provision this quarter.
Yeah, Ron how do we think about the provision going forward you know with the with the five basis point Reserve release do you think reserves are going to come down further and the upcoming quarters and any prospect and you can give on that.
Yeah, So Saddam and we expect credit remains stable and the absence of any COVID-19 relapse or some unforeseen economic shocks. So I think generally we would say that.
Provision should generally track to loan growth.
And we'll take it as it goes we recognize our deferments are store and go to a higher than others. I think that we've made a decision early on to be relatively liberal with.
And with granting of deferrals, and we think that was and our customers' interest as well as ours, but we've seen a nice steady decline in those and we would expect that to continue over the next three quarters to see the deferments roll off so.
Yeah, I mean provision yeah, I mean, it's we think things are pretty stabilized.
Okay, Great and that's all that I had thank you very much.
Thanks, David.
Our next question comes from Erik Zwick with Boenning and Scattergood. Please go ahead.
Hi, good morning, everyone.
Morning, Eric.
Morning.
First if I could start with a question a bit of a kind of follow up on <unk> question about the FHA advances, but maybe just a little bit more bigger picture curious for your updated thoughts on your funding strategy and I guess and a little bit of a setup to this question is I just kind of look at how they funding has changed over the last year and market deposits are up.
And I'll call it $740 million or so FH I'll be advances down 734 million sales close to one to one there and you incurred from prepayment fees to retire some of those advances. So my guess is to some degree you think.
The new deposits will be sticky and I guess theres potentially some questions about those I'm, just excess liquidity with people and not spending for travel and you've got the PPP funds that will be used by customers and as I look at it at the same time and a hole you continue to kind of keep wholesale broker time deposits at about the same percentage of total deposits. So just kind of curious how you're thinking about.
Funding today, given some of those those factors.
Yeah. So I think we think that debt those deposits are going to be relatively sticky and and you know that the new deposits that came in with a new PPP.
Lending those will bleed off.
Over the next couple of quarters.
But we still finished that PPP, one that those deposits had already bled off by the end of the year and we still had pretty elevated deposit levels, even after that occurred and so even putting PPP. Aside I think we continue to enjoy some high organic deposit growth.
I think that's going to stick around for at least awhile.
And in terms of wholesale funding that brokerage Cds have been really much.
Measurably cheaper than FH L. B, so and just in terms of arbitrage we've been.
Favoring brokerage Cds over over F H L b as as those.
No scheduled maturities occur and we had some higher cost you know call it plus 3% F.
And <unk> debt on our books and we've chosen to pay it down.
And so.
I think there's probably a little bit of more opportunity to do some of that going forward, but.
Most of our repricing is behind us and there's a little bit left to do perhaps.
Eric This is mark I'll, just add to that from a kind of a big picture perspective, Ron has talked about some of the tactical moves that we've made during this period of low rates and flush deposit growth, we think that structurally one of the keys to our improved performance over time is really addressing the cost of funds and the balance sheet and to favor low cost core deposit gathering.
Wherever we can and this feels like and environment right now where banks are so flushed with liquidity and and the near term no place to use at that there may be less interest in growing deposit basis, particularly as we look at some of the M&A and our area with larger banks the focus maybe more on cost reduction and efficiencies through either closing branches as of.
Results of transactions or closing lower performing branches, so and the long run we remain very focused on deposit growth as a structural way of changing our cost of funds right now and the super low interest rate environment with the fed being very accommodative. It may appear to some that the value of deposits and the near term isn't that great but it is.
Substantial value to us and sell whether its remixing of the wholesale funding book between <unk> and broker depending on cost.
Or you know.
Just to focus on on funding growth and general core deposits remain a real key strategic priority for us and we will continue to pursue deposit growth, even in and rate environment, where others might not be as interest in that.
Hope that helps give some color.
And that's great I appreciate the thorough answer from from both of you guys and.
And we're on this next one is probably for you as well just curious of the.
And $5 $7 million and remaining unamortized PPP fees curious if you could break that out between well, which portion is related to the 2020 originations versus the 2021 originations just trying to kind of maybe key on and and.
And to what amount might be recognized this year as those 2020 continue to get forgiven.
Yep Yep so.
The 2020 pool is about $2 million.
And the 2021 pool is like three seven.
Okay excellent that's great.
And then looking at the wealth management revenue line I know the first quarter included some from tax prep fees and I'm guessing maybe that trickles, a little bit into <unk>, given the extended filing date, but curious if you could quantify what the amount of debt the tax prep fees were in and <unk> 21.
So and <unk> they were well I mean, our total transaction fees, which is mostly all tax was 172000.
And we'd expect Q2 to look similar to Q1 in terms of transaction fees.
Okay, Great that's helpful.
That's all that's all I had right now thanks, so much for the answers.
Thanks, Eric.
This concludes our question and answer session I would like to turn the conference back over to Ned Handy for any closing remarks.
Thank you and we thank all of you very much for your time and interest and certainly look forward to catching up with all of you as soon as possible. So thanks, a lot and have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.