Q1 2021 F.N.B. Corp Earnings Call

I'd like to open the call by expressing my appreciation for the entire fmbt who produced highly impressive results despite continued challenges presented by the pandemic wage order. Net income totaled $91 million or 28 cents per share resulting in an upper quartile return on tangible common Equity of 15% I'm so proud of the first quarter results are on par with free COVID-19 levels an extraordinary accomplishment given the significant changes in interest rates and a less favorable economic invite the last 12 months.

our company

Remains, well capitalized with increased risk-based Capital ratios and an allowance for credit losses excluding PPP loan at 1.57%

FNB demonstrated strong fundamental performance is total revenue increased both on a year-over-year and linked quarter basis. We establish a new record for not interest income 83 million supported by strengthening Mortgage Banking record wealth management and insurance revenues in solid contributions from Capital market during the quarter. We originated me 1 million of round two loans on a linked quarter basis. Angela book value per share increased $0.13 to $8.01 as long as we continue to our commitment to paying an attractive dividend by declaring our quarterly common dividend of $0.12 last week while executing on 36 million of share BuyBacks during the quarter off at an average price of $11.91.

In addition r c e t 1 ratio increased to 10% as we continue to prioritize our options for Capital deployment in the manner that produces the highest risk-adjusted return home or shareholders diligent expense management remains a top priority and we are on track to meet this year's twenty million dollar cost savings Target completing our three years 60 million dollar expense reduction initiative.

The efficiency ratio total 58.7% improving 36 basis points compared to the first quarter of 2020 with both quarters reflecting seasonal elevated expense.

Hey, I'll take a deeper dive into three areas discussing our annual letter to shareholders where we've successfully gained scale strengthened our risk profile and diversified our Revenue agent.

First I will cover the successful expansion of our fee-based businesses and how we continually expanded our sweep the value-added products and services next. I want to highlight f&b digital capabilities and provide updates about our de novo strategy within the clicks to brixen issue. Lastly after Gary reviews asset-quality Advanced provides detailed financials. I will wrap up with a summary of how we differentiate ourselves and deliver value to all of our stakeholders.

One of the main areas is emphasized in our 2020 annual report was our goal of diversifying our overall Revenue over the last several years. We've been consistently growing value-added home businesses many of which generated double-digit annual growth rates that have led to a more granular e based Revenue stream and what has been a challenging interest rate environment over the last month. We have successfully leveraged these Investments that are based businesses to mitigate net interest margin head specifically through significant growth in capital markets Mortgage Banking wealth management and insurance revenues.

Bring the first.

For 2021 we continued to build on last year's success. Does those businesses have increased $16 million or 56% compared to the first quarter of 2012?

If you recall we laid out our long-term strategy to invest in scale or be based businesses to offer core products and services to our clients namely Mortgage Banking and Capital Bank.

As we transformed our footprint and expanded into attractive markets such as Baltimore, Maryland Washington DC and the Carolinas f&b continues to grow the scope and depth of relationships in 2021. We are adding capacity to Mortgage Banking operations and services as production levels continued to set records each quarter off as of this week mortgage pipelines are at record levels in relation to both production and held for investment origination. Our mortgage banking business had a record-breaking year in two thousand more than 3 billion in total production in fifty million and being come.

Even as rates have risen we are confident that a broader geography and a more favorable economic environment for purchase money mortgage loans will support healthy auction levels and become a greater portion of our our total volume.

Turning to our Capital markets platform. We've expanded our capability significantly through building our syndications derivatives International banking platforms organically with those businesses often contributing revenues from just over 1 million to more than thirty million annually.

Additionally, we have expanded the rep and reach of our Capital markets platform with enhanced debt Capital markets capabilities geared towards our Upper Middle Market and large corporate office looking ahead. We are also focusing on specific opportunities in public finance and other specialty vertical that will provide broader Revenue opportunities with the issuance of corporate and Municipal debt.

As we convinced our fee-based business. Our consumer bank is making important decisions relative to evolving overall consumer preferences and how we deliver products to our client Bots.

Consumers can now utilize fmbc style checking designed to prevent overdraft and NSF fees complete.

FNB continues to expand its digital capabilities through launching new products. We recently ruled out a number of new features such as a signature and offering credit scores plans for inventing the solution Center East or into our robust mobile application.

This will provide clients with the opportunity to directly purchase loan products within the mobile application as well as deposit products. The next phase is to finalize our single omni-channel online application. So the customer can apply for multiple products with a single application while utilizing our shopping cart experience.

along with the

New investment we continue to streamline elements of the physical delivery channel for implementing Dynamic appointment setting capabilities and a comprehensive data-driven Sales Management platform to better identify value-added products and services when clients conduct business in the branch. Additionally, we are focused on bringing the application process online for more life and our other consumer products in the coming quarters. So that consumers are able to seamlessly manage and add FMV products and services using online or mobile Channel as we continue to make progress within applications for end-to-end delivery of digital products and services.

In addition to investing in technology, we continue to make targeted investment in our physical delivery channel to position our company for Accelerated growth and efficiency Charleston South Carolina is an example of our successful de novo strategy to enter a higher growth Market this year. We will have five retail branch locations in a regional Hub implements has to offer a complete set of fee-based products complementing the consumer and Commercial team that are firmly established in the market or South Carolina Bankers move across some of the largest financial institutions in the country. The commercial team has originated more than a hundred fifty million in funded assets and deception and the retail location ranked among the upper quartile of branches relative to their key performance indicators during 2020.

Looking ahead near-term commercial pipeline are at an all-time high and South Carolina was the fastest growing commercial Market company-wide on a percentage basis for both full year 2012-13 and first quarter 2021 or many exciting things happening with our investments in De novo Quilt Market and digital technology. Another another area where I'm proud of is our risk management and credit performance. And with that I will transition the call over to Gary to discuss our progress Gary.

Thank You Vince have a good morning everyone we continue to see positive performance across our credit portfolio during the first quarter of the Year our key credit metrics improved the board and remain at very solid levels with better-than-expected results across a number of consumer portfolios as well as the favorable positioning of our commercial book month following the actions taken last quarter to proactively reduce exposure to the most challenged Industries, I would not like to review some highlights for the quarter followed by birth overview of our current deferral levels.

Level of delinquency improved over the prior quarter to enlarge at 80 basis points representing a 22 basis-point Improvement linked quarter, which was driven by positive macroeconomic Trends and some seasonally lower past due levels in the consumer portfolio as is typical in the first quarter.

triple P loan volume delinquency stands at 89 basis points

level of npls and Oreo ended March and 65 basis points and Improvement of five bibs on a linked quarter basis while the non-gaap level excluding triple P lounge and 72 basis points. The Improvement was largely driven by a reduction in non-accrual loans of twelve million dollars during the quarter with nearly half of our npls in Ewing to pay on a contractually current basis that charge office for the first quarter. It came in at a very solid level of seven million dollars or eleven basis points off and 13 bibs on a non-gaap basis with provision expense totaling $6 billion dollars resulting in an ending march Reserve position at one point four. Mm.

Excluding the triple P portfolio the non-gaap ACL stands at 1.57% up 1 basis point over the prior Court.

Inclusive of the remaining acquired unamortized discount our total Reserve coverage stands at 1.78% with our npl coverage position. Also remaining favorable at 230% following the previously noted Improvement in npl levels during the quarter.

But not like to provide you with a brief update on our loan deferral levels.

At the end of March our deferrals are down to 1.2% of our core loan portfolio. And the number of new requests from commercial borrowers have essentially ceased in this month you continue to monitor these smaller credits actively as we have done throughout the entire pandemic with the expectation that the numbers will continue to reduce as the economy that opens up.

Additionally, we continue to track our portfolio mix and performance trans to stay ahead of any potentially sensitive asset classes that could show signs of stress towards the tail end of the Panthers.

Is this consistent when our approach to risk-management will continue to proactively identify any potential areas of risk and take action if opportunities arise that are strategically and potentially beneficial to the company.

Closing we are very pleased with the solid start to the year and the continued progress. We've made in the book to work down are limited exposure to the more sensitive Industries.

As the broader economy continues to evolve we are focused on managing our book you are poor credit principles of disciplined underwriting across our footprint attended risk management and the proactive work out of credits to keep our portfolio well position as we look forward to the anticipated activity from an accelerating economy in the second half of the year.

Well now.

Service call over to Vincent Calabrese our Chief Financial Officer for his remarks. Thanks Gary. Good morning. Today. I will discuss our financial results some of our current expectations off.

That's noted on five. Five. First quarter. EPS was solid at $0.28 up significantly on a year-over-year basis as the first quarter of 2020 at significant Reserve bill off the onset of the pandemic.

At a high level results for the quarter included record levels of non-interest income translating into Revenue growth well-managed expenses and significantly lower provision for loan losses in recent asset quality Trends partially offset by the continued impact of this low-interest-rate environment.

Let's review the balance sheet on page eight average balance is for total loans increased 8.3% on a year-over-year basis and decreased 0.8% from the fourth quarter.

It's five basis for the first quarter of 2021. Total loans were up 0.3% is Triple-T balance has increased $330 million on a net basis with 900,000 around to Triple P loans funded during the quarter partially offset by five hundred million of Triple-T forgiveness.

Commercial line utilization rates remain at record lows in the low thirties which translates into about a half a billion in funded balances at a normalized utilization rate. This month will create upside for loan growth as reflected in the strength of our long-range commercial pipelines, which are near all-time highs.

Turning two deposits average deposits grew 19.3% on a year-over-year basis and increased 5.7% annualized on a linked quarter basis.

On a spot basis for the first quarter of 2021 total deposits increased one point two billion or 16.9% annualized led by strong growth and non-interest bearing hub bearing demand deposits partially offset by manage decrease in time deposits.

Discontinued deposit growth pollsters are ample liquidity and strengthens our deposit mix with the loan-to-deposit ratio at 84% with 33% of our deposits be an interest-bearing at the end of the quarter.

Turning to the income statement that interesting comes to find eleven point five million or 4.9% fair to the fourth quarter the reporting that interest margin narrow 12 basis points to 265.

It's higher average cash balances for a 6 basis-point negative impact on the margin compared to last quarter.

Additional drivers to the lower margin for a 7 basis-point reduction in triple P contribution and a 2 basis-point reduction in the benefit from purchase accounting on acquired loans.

Impacts the underlying margin increased five basis points from the fourth quarter with benefits from continuing to manage down interest-bearing deposit costs, which improved 12 basis points 31 basis points for the quarter with the cost of these deposits ending the quarter at 27 basis points on a spot basis for basis points lower than the average we expect further options in our cost of funds moving forward.

Let's now look at 9 interest income and expense on slides 10 and 11 not interesting from Total to record $83 million is Mortgage Banking income remains strong and 16 million month was expanded gain on sale margins strong sold production volume that was up 69% on a year-over-year basis wealth management increased 14% from the fourth quarter of to record levels due to the expanded footprint and positive Market impacts on assets under management.

David contributions from Capital markets and insurance also supported the record fee income result for the quarter.

Looking at 5:11 not interest expense total of 184.9 million relatively flat the prior quarter and year ago quarter on an operating basis back to the fourth quarter of 2020 salaries and employee benefits increase 2.7 million or 2.5% are apparently related to 5.6 million of expense first quarter of 2021 due to the timing of normal seasonal long-term compensation recognition similar to last year's first quarter.

Oxygen equipment on an operating basis increased 2.5 million or 8.1% due to investments in digital technology expansion and growth markets the footprint and seasonal expenses related to adverse weather.

Marci one ratio improved to an estimated 10% up from 9.1% last March even with $75 million of buy back over this. Reflecting a strategy to optimize Capital deployment.

Can I tour album we expect reported net interest income to be generally flat first-quarter 21 levels as we expect to pick up and Loan activity to be weighted toward the second half of the year and the net interest income contribution from triple P to be similar to the first quarter.

The full year of 2021 or mid single-digit loan and transaction Deposit Road consumptions next Triple P remaining unchanged from our prior guidance.

We expect continued strong contributions and Mortgage Banking given the pipelines Vince mentioned with total non-interest income expected in the high seventy million dollar range for the second quarter off.

Provision. Our current Outlook is down from our expectations in January subject to loan origination activity in the second half of the year.

We are.

On track to achieve our expense savings Target of twenty million for 20 21 and expect operating expenses for the second quarter to be down from seasonally higher expenses in the first quarter wage based on our current forecasted level of mortgage commissions.

For the full year of 2021 you still expect revenues to be stable compared to twenty twenty and expenses to be down slightly year-over-year.

Actually, we expect the full year effective tax rate to be around 19% Assuming no change to the statutory corporate tax rate from 21% Now turn the call back to this month.

Thanks been successfully executing our long-term growth strategy differentiates FM be moving out first and foremost fmd is in a unique position as Regional Bank with a top market share in many attractive growth markets across a broad geography given this position with our local product specialist and decision-makers dedicate dedicated to serving our Market can provide a high-touch relationship-based personal service level that consumers and middle-market borrower.

We have an exceptionally talented team of Bankers the necessary funding and optimal Capital levels to pursue relationships across the footprint to accomplish. Our growth objectives are shareholders with pure leading return on tangible common equity.

As an organization we consistently and prudently invested in technology data analytics and risk management to better the customer experience improved profitability and enable FNB to maintain severe acid quality throughout varying Cycles while maintaining a top-quartile efficiency ratio relative to peers.

We've been recognized for our mobile and digital offering that have improved the customer experience by positioning the company for shifting preferences and providing FMV with a sustained competitive advantage.

Our culture of risk management and disciplined approach to underwriting local decision-making allows us to maintain our lower risk profile.

We are in need and that we can maintain a lower level of human losses while driving mid-to-high single-digit loan growth because of our Diversified granular approach to president.

As it relates to the quality of people and strength of our culture has received more than 65 Greenwich excellence and best brand Awards including specific recognition for excellence and client advisory services. And for its Commercial Banking climb experienced during the past decade the company further Builds on these honors in 2028 with 3 consecutive quarters of recognition as a Greenwich Associates standout Commercial Bank a mid crisis for our COVID-19 respond.

and

Last week f&b was named to Forbes 2021 ranking of the world's best bank based on consumer feedback FMB is one of only seventy five banks in the United States needs to be recognized on the which includes a total of five hundred Banks from around the globe.

In closing we are focused on continuing our commitment to advance our Market position by gaining scale and operational efficiency and by cultivating meaningful lasting relationships with our clients and communities while simultaneously creating value per share homes again, I want to say thank you to all of our employees for their continued dedication and we'll now turn the call back to the operator for question operator.

Yes, thank you. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys to try your question, please press * then two at this time. We will pause momentarily doing some of the roster.

And this morning's first question comes from Frank schiraldi with Piper Sandler morning. Everyone else. You can talk a little bit about how you manage that in the near-term. Are you starting to see, you know enough of these deposits as sticking around, you know, more than transitory where you can start with a directing into the Securities book for some yield or you know, they're enough loan growth potential that they use you seek to keep that seem to keep that out or dry.

Yeah, I would say, you know during the quarter. It's still quite a bit put in the comments. They're ending the quarter around two and half a billion dollars. I think as we as we look ahead and we commented on we do offer phone activity to pick up in the second half of the year. We do have you know, half a billion dollars of federal Home Loan Bank advances that are maturing this year that I use some of the cash, you know, we I started to reinvest cash flows from the Securities portfolio actually grew a little bit if you exclude the T bills that we had in there six hundred million at the end of the year. So we're reinvesting the cash flow rates are you know, at least north of one of the fifty basis points from where they were earlier in the quarter. So as far as the Securities portfolio kind of around that same dollar level reporter is kind of an expectation so really combination of the maturing advances and then from all activity, you know picking up and using up some of that cash off.

No, we we don't want to go along and really well off the Investment Portfolio. We don't think does that make sense, you know the cash flow from that portfolios pretty significant, you know over the next twelve months off, you know, there's a million for it's going to kind of cut cash flow over the next twelve months depending on where race goes, you know, we will be opportunistic if rates, you know, the 10-year rated new significantly turn off where there's opportunity and we see things we like, you know, we would invest more than the cash flows, but there's a there's a good opportunity to continue to remake that portfolio and we go forward from here.

Okay, great. And then just a second second.

Play just wondering if you could you could talk a little bit about your updated thoughts on on m&a. Um, you know, we've seen a lot of it so far in the industry and in 2021, you guys talked about the strong pipeline that sounds like there's plenty of organic opportunity. But just just wondering how if m&a could fit into the strategy and what you know, that's what a deal could look like.

Yeah, well, I think as I mentioned in my prepared comments, we are very well positioned unlike some other Banks and the mid-size group spread across a fairly broad geography. We're in a number of high-growth markets. We've had very good success with our de novo expansion strategy particularly in Charleston. And now, you know, we're starting to see some good progress in Washington DC obviously, you know, as we move forward m&a at some point is inevitable one way or another but I feel pretty strongly about where we are from a performance perspective. You know, I think that that we've posted some very solid borders. We've got some very good measure throw we've got very solid pipelines going into the second half of the year. We you said repeatedly that we felt that we'll see, you know, a surgeon demand works the second half of the year. It's Todd.

Play out in the pipeline that we have in the event that an opportunity to work to present itself from that position perspective. Obviously, you know, we've been very disciplined in the past month and we've done a very good job of executing we've you know, there's a large group of people here that have tremendous amount of experience with integration and and Performing due diligence. You know, I I our post first focus is to to try to drive organic growth through the platform that we've created well digitally and then those High wage with markets that we've expanded into we think they're substantial up side for the shareholders as we execute our longer-term strategic plan. That's one to Thursday. We're obviously looking at opportunities to deploy capital and I think you know as we as we continue to grow and it I mean what time

Example is Shifting Gears here a little bit but one good example is actually our incentive compensation plan to be eligible for themselves aligned our interest with the shareholders where you know, we grow tangible book value per share and you know continue to pay an attractive dividend. So internal Capital world is an important factor and return on tangible common Equity, you know, as we offer our Capital based performing at a higher level by taking cost out and you know driving returns up is also part of our short and long-term incentive plans. Do I know that's a really long answer but obviously, you know, we're capable of doing an acquisition. It's still not a principal focus of choice and there's something comes along that's attractive that works in Market. It would there's a high probability that you know, we would look at it, but it's not a focus, of course at this point.

Great. Okay. Thanks guys.

Thank you. And the next question comes from Jared Shaw with Wells Fargo securities.

Hey, good morning, everybody.

Gordon may be shifting over to to the expenses, you know, you make good progress. Like you said on reaching your your targeted expense wage Cuts their other additional expense opportunities that you could shift to or is it really at this point more inefficiency story as as Revenue comes back that would that would be the primary driver of a lower efficiency ratio. Now, I just a couple of comments on the expenses during the first quarter, you know, you mentioned it seemed ality, you know in total there's about ten million dollars of seasonality in the prostates that happens in the first quarter that the stock compensation talked about was 5.6 million, you know payroll taxes are a 3.6 million when you restart the year utilities were up a million into so really there's there's kind of ten million dollars that you know isn't recurring so kind of where we go from here Geoff.

To find our cost day which is baked into our guidance for the third year in a row. And as you notice we're still guiding expensive being down for the full year so that we can 20/20 level of $7,000. And did you look ahead to the next quarter? I mean the expenses will come down, you know in the several million dollar area for first-quarter and second-quarter from those seasonal elevated levels off. And as far as how we you know kind of execute on the cost savings. I mean, this is your three of it. So there's a there's always been a focus in the company on this point management and cost money, you know, the things that we've had kind of in our tool belt continue to be in the tool belt as far as continued optimization of the retail bank, you know closely monitoring customer preferences, they evolved we negotiated contracts with constant, you know, we busted off our top 100 vendors going back through all of those including the large ones, you know, we're starting to have some success as far as optimize birth.

Our space throughout the footprint Patrick branches, but also some of our kind of operating facilities and then kind of you know, our PA is that the topic is robotic process automation, We have a bunch of initiatives that we're looking at and that'll be a big Focus for us and 21 and 22 this kind of a newer item. So so that's kind of additive to the things. We've been focusing on a part of the kind of cost-saving initiatives over the last couple of years.

Okay, great. Thanks that car have you shifting over to the to the allowance, you know with the with the improving economic backdrop how quickly do we see that allowance ratio of start to migrate back maybe towards the you know day one level, you know, either through a combination of the permission or growth. Is that something we should expect, you know to see maybe lower dependence on qualitative or relations to go through the next few quarters.

Hey Jude when you when you

De once you saw it, you know right around round figures three hundred million and a reserve level in the high 120s closest today at 1:57 in terms of the position of it and about three hundred and sixty million dollars, you know, we we do expect that there's opportunity there as we move through the cycle and we see, you know upgrades and reductions in criticized assets that were impacted by the by the pandemic, you know, we did we did move the 14th of last month to 4 to a consensus forecast.

So we did see a little bit of benefit there. We do expect to see a little bit of benefit going forward from motto related benefits as well. As I mentioned upgrades from the criticized portfolio. We we were down $51 million and criticized assets disco. We do expect that to continue as we move forward the model related benefits. We expect of of that Delta or about 25% or so and you know from a credit standpoint about 75% So we do see some benefit coming as we are seeing improved performance and number of those credits wage final comment around it, you know from a model framework stand for the the qualitative piece of it varies from low 20s to about 30% off.

All right. Now we sitting near the high end of that. So I would not expect that qualitative to build up any from where it's at or very slightly. So there was there is something in that piece of it as well.

And it was finally for me, you know you comment on the cni pipelines being so strong geographically is that really just focus more in the Carolinas or are you seeing any type of wage began Trends in your in your legacy markets? And you know, when you're when you're talking about that is that primarily new customers and new customers to the bank or do you think you should get back to that normal utilization level, you know, maybe in third quarter. I would say a couple of things. First of all, it does not necessarily contemplate getting back to normal rotation rates in the second half of the year. I mean, I think there's still a lot of liquidity out there. There's a lot of cash sitting on the sidelines for our local client. It's going to take a while to deploy that, so that's that's one aspect of it having said that you know in our Legacy markets as we sit today, we've gotten better production of the southeast much better off.

The the Midwest and the Northeast has been a little slower.

Based upon the pipeline that we've had what we've actually funded in production in the first quarter in the second half of the Year. There are a number of opportunities that are coming that are larger than the upper middle Market to to call the Parts Corporate space that are kind of m&a related. So we've got a number of opportunities within our Legacy markets that should drive some growth for us both in Capital Market speeds and with the size of the commercial portfolio. So that's you know, Pittsburgh Cleveland Baltimore Market wage, then in the Carolinas, there's you know, there's still quite a bit of activity across the board. So we're we're pretty optimistic about that. The pipelines have grown considerably. So if you recall last quarter, we said, you know things were a little light from because we had a big order in closings in the fourth quarter, but that has rebuilt and actually exceeds off.

Where was it at the high last year? So, you know, we're more optimistic about achieving the guidance that we put out there and and growing in the second half of the year.

Of that helps you that and it's really a combination of both existing customers and you know new opportunities that we're seeing. We we have we've seen a lot of activity across the board, but it's really increasing in the Carolinas with with some of the banks. We brought on over the last four to six months new leadership in one one area there in Charlotte who's really generating some nice new name opportunities. Hi, the credits and some some good opportunities that we've already worked through and in the pipeline, so we're excited about that. You know, when I think about the order, I mean really I I think it was a solid quarter.

Even though we didn't show the Longboat this border. I think there's prospects for a loan growth fairly substantial down the road. There's a lot of activity going on. I feel better about our birth sheet than I ever have because of our CDT one Capital ratio of 10% of the amount of liquidity that we have. We've got many options to deploy that liquidity that will enhance earnings we were now able to buy shares back which we couldn't do historically so, you know as I look at the quarter without substantial Reserve release, we did pretty well this quarter and it's a good foundation to build on as we moved throughout the year.

That's great. Thanks. I appreciate the call. Thank you.

Thank you have the next question comes from Michael Young with securities?

Hey, good morning. Thanks for the question.

I wanted to start maybe just with the revenue guidance. Obviously the second round of PPP. You have a little more color on now, but I notice the revenue guide wasn't you know adjusted upward so often things offsetting it or is that just putting too fine of a point on the guy that's overall.

We did revise the guidance cycle from where it was in January given round to PDP. So we had moved the revenue originally. I remember man. It was down down slightly was the guy came in January. We moved it up to stable full year twenty-twenty given around to contribution and it's come in pretty strong. I mean as I mentioned, you know, we said 9 we're up to a billion dollars off as we sit here today. So, you know, we we did move the guidance up to it like that.

Okay. Thanks. And I guess a follow-up question just on the the margin kind of Outlook. I know there's a lot of moving pieces. But if we look at you know, maybe in I I. Should we come back of that as having bottom here, um stomach or basis xpp and purchase accounting accretion with the potential to continue to kind of steadily climb as liquid. He's deployed in low-wage Returns the guidance as you can see on the slide, there is for that interesting to be flat from the third quarter, you know coming into the first quarter you did not have the impact on the, you know, the Triple-T contribution which was reduced from where it was in the fourth quarter, so that kind of ran against

7.7 billion. So we expect that to be at a comfortable level in the second quarter to where it wasn't the first so you won't have kind of a drag from the the triple key off, you know, the cash side of it doesn't affect dollars. It does affect the margin so kind of given where we ended the quarter, you know, there's an additional drag and it's good to I don't know if you noticed 814. There's a new slide we put in there kind of decomposition and then everything's on the car yet, you know, I think that the PPP and CCD contribution increasing jobs require loan would expect to be uncomfortable levels in that quarter, you know, like I mentioned the cash contribution getting a little bit worse from a marketing perspective, but but not really from a dollar perspective. So, you know, the dollars kind of being flat is based on those and then you have other things. I mean, you know in the first quarter we had one last day that affects us by working down 3 basis points that was dead.

And one last day of three million. So first quarter had quite a few things affecting. Is that kind of you know, I'm a help you move forward from here. So, you know, I would expect it the the dollars long as you get into the second half of the year. I think one of the things that's really important is that the the triple P contribution. I mean, I really suck at that as a bridge to the loan activity kind of increasing so, you know, the contribution has been coming in on each quarter, you know was Thirty-One in the fourth quarter 23 this quarter we look for a similar number off the second quarter down a little bit third quarter, but it really serves as ice Bridge cuz it is commercial loan activity to you know, the the traditional commercial activity picking up in the second half a year. So kind of a long answer their Michael. But yeah, I think I would agree with your statement, but I just wanted to kind of talk through the moving parts of their

Okay, and maybe just one last one just on the share buyback the $75?

Remaining. I was good to see activity again on it this quarter. Can you just talk about you know kind of appetite going forward given where the stock prices today and any other thoughts their wage? I mean, we'll be opportunistic. You know, it's we look at Capital allocation every day and decided you know, what should we do with our capital and it's been said now that you have a CT one and 10% you know, you have same opportunity to kind of optimize that Capital based depending on what happens in the balance sheet. So, you know, if the loan growth kind of ramps up in the second half of the year, we would be less active dog doesn't come through quite a strong, you know, we continue to be more active. There are three purchasing the $75 million this left, you know, we just kind of have to see how the how the balance sheet needs to transpire here. But now we're definitely we still make the stock valuations is very attractive. So, you know, we've been very active and we we bought a good amount thirty-six million in the first quarter Thursday.

Continue to to do the right thing as far as shareholder interest and for all lines on the so we'll continue to manage it appropriately.

Okay. Thank you.

Thank you. And the next question comes in Gunther with the Davidson?

Hey, good morning, guys.

Just one quick follow-up while we're on Capitol return. So Vince your your comments on the inevitability of ultimately returning to m&a down the road could just provide a little bit of color in terms of of where you would would like to go or or fill in, you know from an asset size perspective Geographic perspective just any additional thoughts. That would be great. Thank you.

I think that obviously in Market transactions would be the most appealing as I've said though, you know, we're always been very good discipline in our incentive compensation plans are designed for us to grow tangible book values. So, you know, we're not looking to do a large dilute transaction. I can tell you that money, you know, I I think that we're open to it will look at it. But again, I don't want to get specific because you know, that's not the principal Focus. We think we have a great mods business model that we're executing on I mentioned in my

Mike quote and the release that you know, we've done you know more than thirty thousand applications digitally. So, you know, we just launched our whole digital platform Engineers. Unfortunately was right before the park fortunately I should say it was right before the pandemic. So we were able to to accommodate customers but really didn't have a great opportunity to promote it like we would like going to shift gears and focus more on PPP origination, which we did digitally and that's all coming online this year. So we'll have a great opportunity to grow organically through that platform as well. And that's only starting. So as we integrate our ability to take applications in the consumer segment where in fact that we're going to be able to take loan applications in mortgage and Consumer loans home equity on that platform and then later in the year small business loans.

so that will significantly change our of

I need to efficiently go after market share and you know, the focus will shift a little bit strategically from a marketing perspective, but I know we've got all that going on. So, you know, I don't roll out m&a because I think that it's an important part of our DNA. But again, I have you know, quite a few things going on that are that are pretty positive and it certainly isn't something that we feel desperate to do.

I appreciate your thoughts there and guys the rest of my questions were asked and answered. Thank you very much. Thank you so much.

Thank you. And the next question comes on Casey haire with Jeffries.

Hey, good morning, guys. This is Elan Xander on for Casey. So just looking at the coral O'Neill's xpp there was you know, there were still some compression. Could you maybe talk a little bit about kind of the Outlook there where you know, where where are you seeing spread compression? And what's what's the new money? That's that's coming on balance sheet.

Yeah, in terms of spreads, you know, they had moved up when you go back during the soft. I can tell you they may have moved down again, you know, they're they're ranging depending upon credit quality from 12054 extremely solid red to you know to 25 250 depending upon you know, the real transaction the the tenor and the quality of of that asset the real estate opportunities that we're seeing are generally in the in the 250 range some very strong transactions with extreme amounts of equity 50% type of equity may be slightly under that but that gives you a pretty good range.

And how would you say that as far as the new lands made during the quarter if you put the TTP on the side, you know, we were at three and a quarter 2.24% rate for the new loan from a coupon standpoint. It was 321 in the fourth quarter. So kind of X DPT, you know ptpp with the 1% coupon, you know brings that number down to 240. So that's kind of going through the the average balance sheets either but the 324 versus the 321 is kind of an apple apple number so some stability there, which is good.

Okay, and then back on the on the Securities reinvestment rates, I understand it's it's more just cash flow coming off that that's going back in time. Where where is that today relative to the 178 that that you that you showed in the in the first quarter?

Investment rates would be we looked at what happened during the quarter, you know, it moved significantly. I mean in January or 52 basis points is what was available by March, you know, we had 106 but we were reinvesting at so um, so that's kind of a good proxy to use for where we're putting money to work. But again, the stuff is rolling off is wrong kind of in a wonderful spot. So there's still you know, 79 days of difference there, you know, there are still some of that continue to to roll through and have that that Gap, you know, but God gives you the kind of the figures as far as where we invest today. We're we're not going long. So we're not going to make bets here and lock stuff up for many years. I mean, we've kept the duration on the shorter side so that way it will benefit and they see you again some day and and we we definitely during the quarter we kind of back-end loaded the reinvestment. We were definitely less active much less active in January birth.

Tu more active than March like I said earlier will be opportunistic when we see Securities and needles if you like will

investor

Okay. Okay. So the low the low ones right now? Okay. Okay, great. That's all that's all for me. Thanks guys.

Thank you. And the next question comes from Samuel Vargo with Stephens Inc.

Good morning from Brody and I just wanted to ask a customer question on the loan portfolio and kind of going off of the previous question looking at 15% of your loans are in floating-rate to where can we expect some kind of a backstop to some of the lung compressing?

Numbers moved up. I want to say we're probably around 15% or so oil. I mean it's been as we've been going through this cycle and they you know, how long the place so it benefits of next time. But the recently the origination is happening cluded Wars, the competitive environment has essentially negated the abyss we're good at we're getting floors and fewer transactions today again, I go back to six to nine months we had when we were very successful in getting floors into the transactions. We make good progress during that time frame. It is getting much more competitive, you know getting back to the interest rate spread commentary as well and it's more difficult today than it has been an infinite is reducing pretty significantly.

You know that's going to vary based upon the risk profile of the borrower. So if it's a riskier situation the borrowers going to agree to before if it's a higher-quality credit app the bombers not going to screen of a floor and you're not going to be able to impose it for on them. So we tend to compete as I just like everybody says we tend to go after higher-quality off credit opportunities. So, you know, really that's a function of the competitive environment and we try our best but you know, that's really where it's at.

I understand. Thank you.

Another data point around that 1% of the loan portfolio has as a floating direct contract. So I understand 15 at the floor already, but I guess off of the floating rate for the total.

Total variable an adjustable combined is 56% of the total loan portfolio just to give the data points that typically give 1-month Libor to 35% off and then there's another 9.6% is hyperprime 2.4 billion and that's embedded in that overall 56% figure.

Awesome. Thank you very much. And then just one more question tied to this. If we were to see a $25 rate hike sometime this year. What percent of those at the floor would start getting above the floor?

Very very small percentage of that any it would be very low most most of the floors are in and fifty basis points. We've got many in a hundred very very few at 25. Okay. Thank you, and that would be it. Thank you very much. Thank you.

Thank you. And the next question is Brian Martin with Janney Montgomery. Hey, good morning guys. Just wondering if you can comment on the appreciate the color on the mortgage and not type line. And just I know you talked last quarter about you know, kind of a debt Capital Market fees and kind of getting into that the second half but just kind of is you look high level. I guess. We're we're the fee income is at today this level, you know feels pretty sustainable. If if you have that, you know pick up in the second half and service charges rebound I guess is we thinking about, you know fee income in that way that you know looking at it the right way with that type of sustainability and growth from here is is mortgage remains strong and the the other fees kick in and service charges, you know pick up a bit.

Yeah. No, I think your characterization is disabled a very good characterization have the value of it being as Diversified as it is right helps because not everything that a record every month. But you know as we look forward from here particularly to the second quarter, you know, we would expect mortgage to be a similarly strong number Capital markets have been very strong even though it's down his lights out record last year, you know seven to eight million is a very very strong quarter there. So, you know as we look at what's baked into our guidance Brian where you know around that 80 million ich komme figure recorder so stability, so it's a good way to look at it with some upside with some of the newer initiatives that really is are just starting. So I think there's some upside it's not big into the dialogue kind of a nudist.

Right. Okay, perfect.

Okay, and then maybe just one or two others just on the on the on the forgiveness and the the remaining fees that are going to be collected given that a lot of that round two is you know, just in there. How much do you expect to get a big picture to see realize that the 59 in in twenty one versus maybe some bleeding over into 22 is that you know more of it coming in 21 is that your expectation was just a little, you know, I guess a piece that my overhang into 22

I mean no.

59 is there and forty million of it is related to around to know that a portal hasn't been opened yet. Right so that needs to happen. You know before you have the fax machine is cranking there. So there would I would say for the next couple of quarters as I mentioned earlier looking for a similar level in in the South Quarter or quarter kind of come down a million from there. I mean there there's some tail that would go into twenty-two, you know, but there's not a ton left it goes through there.

Trying to think of what do we have with our look ahead for 22 is pretty small, right? Yeah.

Okay, gotcha. Okay, perfect. And then just your comments about the pipeline. I just make sure I understood that the the southeast obviously is is doing well. I guess your comment on just to remind me just on the pipelines in the Northeast and in the midwest, just how how they're looking today. Yeah, the second half of the year is much better for our Legacy markets Cleveland Pittsburgh and Baltimore. You know Baltimore had a great year last year. You've been extremely strong and then it was a little slow in the first quarter and that's really the Baltimore area. I think I think the the pipelines for those areas particular terminal market large corporate is very solid for the second half of the year. So we're starting to see some sizable opportunities coming in and will generate both Capital markets. He's dead.

And on days for us in the Southeast their pipelines have been pretty strong and their production has been decent, you know, it's on par with the first quarter of last year and continues to build. So Charlotte in particular is performing pretty well and there's quite a bit coming in and then even in some of the other businesses that we have built our finance which is based in Charlotte under this c r e group small portfolio, but we're expecting them to do a little more this year. There's a lot of activities very active but I mean, there's there's there's quite a bit going on if you look at what I was trying to say and I probably didn't do a great job was funded production for us in the wage was more there were more solid contribution from the southeast than our Legacy marketed when you look at the pipeline overall end-to-end for the rest of the year off.

Next three quarters, you know, it's a sizable. There's been a sizable increase.

In the pipeline, so that tells me that there's a lot more going on out there than we had initially thought.

That's that's what I was trying to communicate. Got to that's helpful. That's that's helpful, and I appreciate that's all I have then. Thanks guys. Thank you.

Thank you. And is that those to the question and answer session? I would like to return the Ford to management for any closing comments.

Yeah again, I'd like to thank everybody thank our employees in particular because they've gone through a tremendous amount and you know, we've had to forge forward despite all the challenges, you know, I think the company is performed very very well given the challenges in the interest rate environment and economic environment with the pandemic. So thank you to all of our employees for your contribution and you know, thank you to the analysts recovering us and providing such detailed and thoughtful analysis. I look forward to the next quarter of the year, and everybody stays safe and thank you. Take care.

Thank you. The conference has now concluded. Thank you for attending today's presentation, you know disconnect your lines.