Q1 2021 Sandy Spring Bancorp Inc Earnings Call
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At this time I'd like to turn the conference call over to Mr. Dan Schneider, Sir. Please go ahead.
Thank you and good afternoon, everyone. Thank you for joining us for our conference call to discuss Sandy spring Bancorp's performance for the first quarter of 2021 today will also bring you up to date on our response to an impact from Covid.
COVID-19 pandemic.
This is Dan Schreiter speaking and I'm joined here by my colleagues, Phil Mantua, Chief Financial Officer, and Aaron Kaslow General Counsel for Sandy Spring Bancorp.
As usual todays call is open to all investors analysts and the media Theres a live webcast of todays call and a replay will be available on our website later today.
So before we get started covering highlights from the quarter and taking your questions Aaron will give the customary safe Harbor statement here. Thank.
Thank you Tim good afternoon, everyone.
Sandy Spring Bancorp will make forward looking statements in this webcast that are subject to risks and uncertainties. These forward looking statements include statements of goals intentions earnings and other expectations.
Estimates of risks in the future costs and benefits the fat.
Estimates of expected credit losses, the <expletive>essments of market risk and statements of the ability to achieve financial and other goals is for.
Forward looking statements are subject to significant uncertainties, because they are based upon or affected by managements estimates and projections of future interest rate market behavior, other economic conditions future laws and regulations and a variety of other matters, including the impact of the COVID-19, pandemic, which by the very nature are subject to significant uncertainties.
Because of these uncertainties Sandy spring Bancorp's actual future results may differ materially from those indicated in addition, the companys past results of operations do not necessarily indicate its future results.
Thanks, Erin and thank you all again for joining us today.
Today I'll review, our first quarter financials, and then Phil and I will walk you through the supplemental materials, we issued earlier this morning.
Overall, we're very pleased with our performance this quarter. There are many promising trends in our results, especially as it relates to the resiliency of our loan portfolio and our credit outlook.
We continue to be in a great position to help our clients reopen and recover from this pandemic.
Vaccinations in our region on the rise we look forward to welcoming more of our clients and our employees back to our offices in the weeks and months ahead and I'll provide more color on our return to work plans later in today's call for.
For now though of run through our first quarter financial highlights.
Today, we reported net income of $75 5 million or $1 58 per diluted share for the first quarter of 2021 the.
Current quarter's results compared to net income of $10 million or 28 cents per diluted share for the first quarter of 2020.
Net income of $56 7 million or $1 19 per diluted share for the fourth quarter of 2020.
For earnings were $56 9 million for $1 20 per diluted share compared to $29 6 million or <unk> 85 per diluted share for the quarter ended March 31 of 2020, and $58 3 million or $1 23 per diluted share for the linked quarter.
Core earnings exclude the impact of the provision for credit losses, M&A expenses prepayment penalties on early at the H L B redemptions and investment securities gains.
The provision for credit losses. This quarter was a credit of $34 7 million compared to the linked quarter's credit of $4 5 million.
Like many financial institutions that have adopted Cecil improving economic conditions have led to the reversal of the large provisions take taken earlier in the pandemic.
Currently our actual credit metrics demonstrate favorable churn trends, which I'll touch on later and Phil will also explain the provision credit in more detail when we review the supplemental materials.
Total <expletive>ets grew 44% to $12 9 billion compared to the first quarter of 2020 and during the same periods loan grew loans grew by 55%.
This year to year growth is primarily due to the Revere Bank acquisition in the second quarter of 2020 as well as our participation in both rounds of the PPP program.
Excluding PPP total loans grew 36% to $9 1 billion compared to the prior year quarter with commercial loans growing 49% or $2 5 billion and consumer loans, increasing 6%.
During the first quarter of 2021 total loans, excluding PPP declined $225 million compared to the linked quarter.
We believe this decline is temporary and reflects the high level of early payoffs out of our commercial real estate portfolio refinances out of our mortgage portfolio and lower seasonal loan production.
For many reasons, we are well positioned for future growth.
PPP originations are now behind us the economic forecast has improved and increasing percentage of the population is now vaccinated.
We have a unique position in the margin both in terms of scale and sophistication and a very highly skilled team of commercial bankers.
Also aided by a resilient credit portfolio and significant liquidity.
For all of these reasons and more we're confident in our ability to continue to serve our clients and grow our company.
On the deposit front, our deposit base continues to be an underlying strength of our franchise over the past 12 month period deposit growth was 62% with noninterest bearing deposits growing 94% and interest bearing deposits growing 48%.
Once again this was primarily driven by the acquisition and our ability to retain revere clients. Despite integrating the companies in the midst of the pandemic.
PPP related deposits are estimated to be approximately $1 billion at the end of the quarter.
$610 million or from round, one and $450 million or from round to the.
Remaining round one deposits represent 55 per cent, a 55 per cent retention rate in those funds from credit exceeding of half a million or retained at a rate closer to 70 per cent.
The majority of all of PPP related deposits or approximately 90% are in our demand deposit and checking categories.
Noninterest income, it's been very strong throughout the pandemic, increasing by 59% or $10 7 million compared to the prior year quarter.
This was the result of the 235% increase in mortgage banking income and of 25% increase in wealth management income.
Mortgage banking income increased by $7 $1 million during the current quarter compared to the prior year quarter and on the linked quarter basis mortgage banking income declined to $10 2 million compared to $14 5 million. This decline is the result of decreasing margins on the volume of mortgages sold during the quarter as well as the refinance side.
Having run its course.
As we previously shared mortgage banking will remain a significant part of our fee based revenue this year.
However, given the extremely limited purchase inventory mortgage production is expected to continue to decline both nationally and here at Sandy spring.
This quarter also marked our first full year with Rembert Pendleton, Jackson or RP Jay.
And the result of this acquisition have been significant wealth management income increased $1 8 million over the past 12 months and wealth income grew 515000 or $6, two 7% compared to the linked quarter.
With more than 5 billion of wealth <expletive>ets under management across RP, Jay with financial services and Sandy Spring Trust, we're pleased with our increasing presence in the wealth space. We remain focused on continuing to grow our wealth business and differentiate ourselves in this competitive market.
Other noninterest income increased $2 1 million compared to the same quarter of last year due the due to prepayment fees earned from early loan payoffs and the recovery from a previously charged off loan from Revere Bank.
We continue to be very pleased with the stability in the margin and net interest margin for the first quarter of 2021 was $3 $5 six compared to $3 two nine for the same quarter of the prior year exclude.
Excluding the net the net $2 9 million impact of amortization of fair value marks the net interest margin for the current quarter would have been three point for six compared to 3.27 for the first quarter of 2020.
The stability, we're seeing in our margin is being driven primarily by our ability to continue to reduce overall cost of funding as the cost of interest bearing liabilities declined by 13 basis points from last quarter.
And the cost of interest bearing deposits fell by 11 basis points.
The average rate on Cds was reduced by 22 basis points, representing the deposit category with the largest declines in the quarter.
On a go forward basis. The overall cost of funding should continue to decline as we replace the recently redeemed <unk> advances with more cost effective alternatives at a favorable average rate differential of 230 basis points.
On the expense side noninterest expense increased 43% or $20 4 million compared to the prior year quarter. This quarter's results included $9 1 million in prepayment penalties from the early redemption of $279 million of FHA advances with an average rate of 263%. This action will support.
Our efforts to preserve a stable margin.
Excluding these penalties and M&A expenses noninterest expense grew 27% year over year due to compensation and operational costs <expletive>ociated with both the revere and RPG acquisitions as well as an increase in FDIC insurance and the amortization of intangible <expletive>ets.
After adjusting for the prepayment penalties noninterest expenses are consistent with the linked quarter.
The non-GAAP efficiency ratio was $42 65 for the current quarter compared to $54 76 for the first quarter of 2020, and 40 519 for the fourth quarter of 2020.
This decrease in the efficiency ratio from the first quarter of last year to the current year quarter was the result of the $50 9 million growth of non-GAAP revenue outpaced in the $11 6 million growth in non-GAAP noninterest expense.
Looking ahead, we continue to manage the expense to revenue metric two of targeted range of 48% to 50%.
We anticipate full year 2021 efficiency levels for settled into this range as we expect mortgage revenues to decline from current levels and operating expenses to be comparable to current levels absent. The FH youll be advanced prepayment penalties and we'll also look to invest in the people and technologies needed for future growth and success.
While identifying opportunities for greater efficiency.
Shifting to credit quality nonperforming loans decreased from one of 111 basis points to 94 basis points nonperforming loans totaled $98 7 million compared to the $115 $5 million in the linked quarter and were very encouraged by these trends loans.
Loans, the non accrual status that relate primarily to a limited number of large borrowing relationships within the hospitality sector were $43 8 million at quarter end.
Of these large relationships, our collateral dependent and require no individual reserves due to sufficient values of the underlying collateral.
The company recorded net charge offs of 300000 for the first quarter of 2021 compared to net charge offs of of half a million for both the first and fourth quarter of 2020, respectively.
The allowance for credit losses was $130 4 million or of 100 of 125% of outstanding loans, and 132% of nonperforming loans compared to $165 4 million of 159% of outstanding loans, and 143% of nonperforming loans of the linked quarter ex.
Leading PPP loans, the allowance for credit losses, as a percentage of total loans outstanding would increase to 143% and to 286% looking at the commercial business segment alone.
Tangible common equity increased to $1 1 billion or eight 9% of tangible <expletive>ets at March 31, 2021, compared to $726 8 million or eight net 0.51% at March 31 of 2020 as a result of of the equity issuance and the Revere acquisition the.
The year over year change in tangible common equity also reflects the increase in intangible <expletive>ets and goodwill <expletive>ociated with the Revere acquisition.
Excluding the impact of the PPP program from tangible <expletive>ets at March 31 of the tangible common equity ratio would be 994%.
The company had total risk based capital ratio of $15 49, the common equity tier one risk based capital ratio of 12 point O nine of tier one risk based capital ratio of 12 of nine and the tier one leverage ratio of 9% 2014.
And we'll now move to the supplemental information that we issued this morning in conjunction with our press release.
On slide two you can see the loans with a payment of accommodations as of March 31 totaled $233 million.
Results of 3% of our loan portfolio of receiving accommodations the <unk>.
Slight increase from last quarter was due to one specific hotel credit that was granted an additional accommodation after having come out of the deferral and two relationships that were granted first time payment of accommodations.
The move to slide three we have detailed specific industry information, which we've updated and sharing of the past four quarters outstanding balances for each segment and the loans and payment of accommodations are as of March 31.
On slides four and five.
We have broken out of our PPP participation in both round, one and the second slide in round two of the program.
And to update you on our forgiveness efforts, 61% of all round one loans of apply for forgiveness and 99, 5% of all forgiveness applications submitted to the SBA have received for forgiveness.
In round two we originated 2950 PPP loans for a total of $446 million.
And we're no longer accepting new applications and are focused on helping our clients through the forgiveness process and is expect the majority of forgiveness to fall in this calendar year.
And now I'll pause and turn it over to Phil to talk through seasonal and our capital position.
Thank you Dan and good afternoon, everyone pleasure to be here with you it's afternoon.
I'm going to pick up on slide number six of the supplemental deck, where we have with become our traditional Waldorf waterfall representation of the movement in our allowance for the first quarter of 2021.
Broken into the components that reflect the key drivers of the change during the quarter.
As you can see the change over the course of the current quarter was primarily driven by the significant reduction in the projected near term level of the unemployment rate of key economic factor in our seasonal methodology.
On the next slide slide seven is a comparison of the current and more recent economic forecast variables.
<unk> methodology continues to use the Moody's baseline forecast and for the first quarter of this year was the version that was released on April the fifth.
This baseline forecast integrates the effects of COVID-19, and portrays an unemployment rate for our local market that has essentially already peaked and it's ultimately recover adult scheduled to recover to a level of three 5% in early 2023.
Which is lower by almost one 2% than it was in the previous forecast so.
So can you give the significant improvement in the year over year growth in business bankruptcies, and a better year over year change in the home price Index were also presented as they are forecasted.
These economics of these macroeconomic variables of further outlined on the next slide number eight inch.
In determining our reasonable and supportable forecast period, we continue to use of two year time horizon to reflect less down less uncertainty in the long term outlook at this time.
Similar to our approach taken in the last two quarters, we continue to not take into consideration any potential mitigating factors based on what could be perceived as the protect potential positive outcome or other impact of government programs such as the PPP.
We still feel very comfortable that this is a conservative stance and approach to our reserve. Conversely, though we have chosen to include an additional qualitative factor this quarter related to concentration of risk.
Now we believe captures the additional risk levels that could exist in certain industry segments of our portfolio, which would include the hotel office and retail base portions.
Of our of our loads. This additional factor is also the majority of the increase of the qualitative factors component noted on the waterfall slide earlier presented.
On slide nine we provide some additional granularity related to the reserve from a portfolio of view.
You can see the most significant amount of the reserve by dollar amount continues to be attributed to the commercial business portfolio for the total reserve. This quarter is $31 8 million of 132% of Outstandings, but again declined from the prior quarter. We should note that that 132% of the reserve reflected here.
Includes PPP loans and the balance although there is no reserve required on those loans.
And as illustrated in the footnote at the bottom of the slide when adjusting the balance to exclude the PPP loans outstanding the reserve on our commercial business segment would be 2.86% and our total reserve would be one for three of total loans.
Finally on slide 10 is the trend of our current capital ratios with some brief explanations regarding the treatment of certain items and their impact on the result of ratios included in those comments as an adjusted tangible equity of tangible <expletive>ets ratio to reflect the impact of PPP loans on the current measure as Dan mentioned earlier.
We continue to feel confident about our capital position as all of the metrics improved nicely. This quarter, primarily as a result of the strength of our reported earnings.
Also recently updated our capital stress tests worry of constructed a baseline of severe forecast scenario continuing to utilize the same Moody's baseline forecast incorporated in our seasonal calculations and of Covid based S for economy in the severe case.
<unk> done so as we have in the past we continue to be confident that we have the capital base to carry through the remainder of this ongoing pandemic situation and provide us a strong basis for future growth.
The dam thanks Bill.
Before we move to take your questions I'd like to briefly cover just a few other updates as I mentioned earlier, we noted.
Noted in the release, we look forward to welcoming more of our employees and clients back to our offices. So far we have been operating out of 25% capacity, but we will increase that percentage in the weeks and months ahead, we have like so many others learned so much about working from home staying flexible and using technology to do our jobs more efficiently and effectively.
<unk> and we'll apply these lessons as we move forward.
The lead with the mindset that we are going to return to our offices. We believe that in person collaboration is what's best for our relationships with our clients and our colleagues and included in these return to work efforts. We will also begin to reopen our branch lobbies.
Summer.
As it relates to our branch network I am pleased to report that in February we expanded our presence in D. C and opened our fourth branch in the city.
This full service branches located in the vibrant retail and business community near the Washington Convention Center, we see a great deal of growth potential, especially as this region continues to recover from the pandemic.
Last month, we also released our first annual corporate responsibility report this.
This report goes beyond our financial reporting to show, how we support our clients our employees communities as well as the environment. We are committed to transparency and are proud to share our progress with you.
Haven't seen it you can find the reported Sandy spring bank Dot com and on our Investor Relations site.
Our company continues to earn recognitions of demonstrate we are of Premier community Bank and employer of choice in a company with top talent.
Most recently Forbes named Sandy Spring Bank to its 2021 list of America's 100 best banks.
As I mentioned earlier today and in prior quarters, we truly have a unique position in our market and among our peer group.
As of nearly $13 billion company, we have the size scale and diversification of products to meet our clients' banking mortgage private banking trust wealth and insurance needs.
Our employees live and work in the communities, we serve and all of decision making is local.
We all feel a sense of pride and ownership of taking care of our clients because they are our neighbors and their friends.
And they are the community we existed.
We operate in the highly desirable market for you to Washington region is home to the federal government and the m<expletive>ive government contracting presence Amazon's HQ, two and many other national and international companies are headquartered here.
Small business is driving this region and we are surrounded by several top tier universities and hospitals systems. So as we look forward with the endless opportunities to grow our company and build on our existing strength.
So that concludes our general comments for today, and we will now move to your questions. So Jamie you can have the first question if you could identify.
And the company affiliation your with as you come on the line that would be really helpful.
Ladies and gentlemen at this time, we will begin the question and answer the second the ask a question you May Press Star and then one.
If you are using a speaker phone we ask you. Please pickup your handset before pressing the keys.
So it's all of your questions you May press Star two.
At this time, we will pause momentarily to <expletive>emble that roster.
And our first question comes from Casey Whitman from Piper Sandler. Please go ahead with your question.
Hey, good afternoon.
Good afternoon case by case.
Hi, Hi.
Maybe Phil can you start off by just.
Filling ex in on your core margin outlook from here I know the next few quarters are going to be bumpy with keeping the forgiveness of the many of you can fill for sort of what you're thinking about the core margin ex PPP and accretion.
Yes, the case it would be glad to so first of all the as it relates to the PPP forgiveness aspect of things.
What you can expect here is that from a timing timing perspective, the large majority of the impact to our earnings as well as therefore, the margin are kind of really be in this next quarter here in the second quarter of the year.
With that kind of continuing into the third quarter and trailing trailing off more towards the fourth quarter.
In the current quarter.
The forgiveness aspect of what took place was probably worth about four basis points.
To the.
The four basis points of benefit to the off the core margin.
In addition to what's going on with the ongoing fair value adjustments, which are beginning to decline, especially on the <expletive>et side. So.
All in all what I would suggest is on a core basis underneath all of that throughout the remainder of the year that margin is probably going to be in the mid $3 40 range.
Not terribly different than I think what we are.
Basically reported here.
Yes, the $3 $43 45 to $3 46 somewhere in that range.
And.
And again that's with.
The <expletive>umption that there are no significant changes in the overall level of market rates other than whatever fluctuations could occur on the on the tenure.
Great. That's helpful. Thank you and while we're talking about PPP, Dan I think you gave some numbers in your prepared remarks around.
Deposit retention with that program can you repeat those numbers that you gave just missed I'm sorry.
Yes, I sure can.
Yes.
Okay.
I'm getting there.
The problem.
Okay.
So.
Not getting there as fast as I thought I would.
So we've got.
So all in all at the end of the quarter, we had about 1 billion in deposits related to PPP.
What I commented on is in round one of about $610 million.
Our on the books and from round to about $450 million.
Of the of the remaining round one deposits.
That represents about a 55% retention rate.
Of those deposits, but when you break it down a little further on the credit originations that exceeded the half of million initially that retention rate is closer to 70%.
And.
All of those round two's were done in the quarter. So there's no retention data on that.
Casey just from a standpoint of trying to estimate where that goes from here.
For the most part modeling debt by the end of the year, We think we'll still we'll still be retaining between 30% to 40% of the remaining deposits as we see them today based on the numbers of Dan just suggest that so we have some expectation of they'll continue to run down but we also built.
Leave that there'll be some element of the net will continue to hold onto.
And a lot of that.
I believe we'll know by virtue of when folks get forgiven and feel like they've the mall.
The belongs to them so to speak.
And therefore, it will be interesting to see whether they deploy those funds where they continue to just kind of hang onto all of them and they stay in our deposit base.
On the.
Thank you I'll hop off.
Thanks Casey.
Our next question comes from Steve <unk> from G. Research. Please go ahead with your question.
Hey, guys good afternoon.
Good afternoon state by state.
I wanted to actually.
Maybe ask for a little clarification on the core margin outlook, let's start there.
During the quarter. It seems like you benefited from higher <unk>, obviously I was wondering what the impact of the higher payoffs was in the quarter was there any kind of.
Prepayment element.
And the margin in this quarter and if there was kind of what's going to make up the difference in the back half of the year.
Yes, Steve this is Phil.
If there were any implications of any prepayment penalties or things that we might of accrued by having some of those earlier payoffs. This quarter. They would have been able to run through the noninterest income element of things as opposed to.
The net interest income or the margin side of it wouldn't have been any implications from that standpoint related to the to the run up to that run off.
I would say certainly whatever yields that those loans ran off that would have had.
Some detrimental impact to the overall level of the margin currently and in.
Giving that guidance I would also tell you that.
Even even with the.
The.
The prepayment that we made on the advances which were which we would predominantly pick up probably five or six basis points effect of the margin we still have some.
Continuing pricing down on the <expletive>et side of the balance sheet. So.
My guidance is to really kind of give us truly.
Truly stable margin position between now and then knowing the cause and effects on both sides.
Both in <expletive>et yields as well as what happens to deposits, even with the pickup that we're going to enjoy from having paid down those advances.
Okay. Okay. That's.
That's very good detail and then maybe on the loan balances.
I noticed that essentially all of the commercial loan categories for up slightly and all of the consumer categories were down.
Bifurcation in demand or is that.
Credit choice by the bank.
In terms of in terms of the runoff levels or the or the ending.
Ending balances.
Yes.
Yes.
Yes.
Yeah, Steve I think I think as it relates to the consumer portfolio, that's predominantly client behavior and choice, we're not really doing anything differently there whether its in the.
The underlying approach to credit for the way that we're just for just promoting our offering those.
And the majority of our consumer portfolio as you probably can recall of our home equity lines, which I think are just becoming less and less favorable to the consumer of these days.
So as it relates to that component of it.
Don't see anything big.
Anything out of the ordinary in that regard.
I don't know if the answer you have any comments on the commercial side you offer for them.
From a what we desire standpoint, theres been no change in our appetite for any elements of our portfolio first.
First quarter we.
Let's focus on the outside.
Run off which was.
Really a lot of ways. The result of success of our clients number of commercial real estate projects.
Change hands and sold.
A lot of our small builders of Ben.
Outpacing our expectations in terms of turning construction loans with the sale of properties and in a couple of cases, we had some clients take advantage of the market conditions.
And sell their business and so nothing nothing from a from a loss of client standpoint more.
For some.
Yeah.
The higher run off here in the first quarter than what we typically would expect.
But we're still we're still have appetite to grow every aspect of our commercial portfolio.
Okay. Okay very good maybe one more for me.
Period end non interest balances showed a lot more of an increase in like the average balance of shared was there anything unusual going on there.
Probably just the timing of the funding of PPP loans that were probably more heavily weighted towards the end of the quarter day during the quarter.
Since we.
The way, we know from the timing of when we reopened the port of et cetera.
Okay.
That's what I think okay. Thanks, guys, Yeah, you bet.
Our next question comes from Catherine Mealor from <unk>. Please go ahead with your question.
Thanks, Good afternoon good.
Good afternoon, Catherine Thank Kathryn.
I just wanted to ask just on the provision you gave a lot of great.
Color around what drove the large the reserve release this quarter fill line, maybe just a follow up to all of that is do you feel like this is most of the reduction in the reserve release, just from the better economic baseline and from here.
Got it.
Mark keeping the reserve at this level and kind of providing for growth and charge offs or do you see.
The ability to bring the reserve down even further from here.
Yes, Catherine so I think the first for.
First answer is that this is probably.
The quarter, the largest amount of reserve release, we might see.
But I would also say that again, if we don't.
And hopefully this is the case, we don't really experienced any significant charge off.
True losses and charge offs as we go forward. It will continue to mute the amount of provisioning and potentially create further releases and therefore provision credits in subsequent quarters. So that is a possibility, but I don't know that I would suggest to you that they would be nearly as large as the one that we.
Just talk.
Which means that there is still further room for the overall level of reserves to loans to decline over some period of time here going forward.
Great.
And then on the expense side the expenses came down.
More than I had expected just a good run rate to grow for them or how do you. What's your outlook for expense expenses this year yeah.
Yeah, I think the I think that the the decline in the expense rate here in the first quarter will not continue going forward I think we'll start to see our expense base grow here in the next quarter and beyond.
In sum of dance.
Prepared comments here we.
Made he made some.
Made some mention of things that we're starting to invest in from a technology and people standpoint, and I think that that's going to start manifesting itself in the expense line and the run rate as we as we.
We go in through the second quarter and through the rest of the year. So.
Yes, I think absent of the netting of the the.
Prepayment penalties and the offset against the.
Yes, the the liability for unfunded commitments, we probably had a base of expense this quarter around 60, I would expect that to go.
North of that into <unk> into the next quarter and beyond you could see our expense base grow.
In the low single digits here low to middle single digits through the rest of the year.
Okay great.
And one of the last question just on M&A that we've seen some deals any kind of updated thoughts on.
And your thoughts on participating in melanoma.
Thanks.
Yes.
Thanks Catherine.
It continues to be.
The element of R. R.
View forward from a growth standpoint, and we'll continue to.
Uh huh.
Have those types of discussions nothing nothing imminent to two certainly report and probably not different than my comments from.
From the prior quarter and that is.
At this point, we of focus on continuing to emerge from from the pandemic in.
Strong focus on organic growth, but what.
But M&A will be of part of of our story going forward, both bank and non bank.
Great helpful Great quarter. Thanks.
Thanks, guys. Thank you.
Our next question comes from Erik Zwick from spending and Scattergood. Please go ahead with your question.
Good afternoon guys.
There are.
First one for me.
Apologies if I missed it earlier, just curious with regard to the PPP loans in the 2020 of.
Originations what is the remaining amount of unamortized fees from from those.
That's a good question, Eric I'm not sure I have that specific number.
<unk>.
At my disposal.
But I can follow up I can certainly follow up with you on that.
I don't know that it really have that identified.
That's okay, and then looking at slide five it looks like it's about $19 million or so.
For those 2021.
Originations of that.
<unk>.
Well, that's probably related mainly to two round two and the net case those fees I believe are higher then.
On a loan by loan basis, then the nose of round, one, but yes, I think that's that's the correct number.
Okay.
That's good thanks, and then you talked about the outlook for mortgage revenue to likely decline throughout the year for for this kind of several factors you mentioned I guess I'm curious about the cost side of that as you view that business how much of how you manage it is variable versus fixed and what is kind of of the longer term.
The ratio of your mortgage operations.
Yes, Eric Dan.
Our outlook as I mentioned for for the reasons stated is that it's going to it's going to come off.
We are.
It's largely of variable piece of our business from an expense base standpoint.
And so we have the ability to two.
<unk>.
Modify the spigot there in terms of what we have invested in mortgage I say that at the same time that we've got a very.
And.
<unk> and <unk>.
Highly productive shop that we still will look to grab our.
Fair share of the market is even as the market diminishes. So.
Phil's pulling out the data with regard to your question about the efficiency of that business.
Yeah Eric.
I think the debt from.
For the internal calculations that we make their debt fishy ratio on that business is in the mid 20% range, if I'm not mistaken.
And as you know usually manage consistently in net and that the.
That range.
So I mean.
Clearly in relation to the rest of the bank, it's a highly efficient component of our business.
Okay, great. Thanks for the color there and I guess last one for me as a bit of a follow up on Catherine's question of B belief about the.
The reserve we've heard a number of.
Indicate that.
Potentially timing, it's obviously hard to predict but once we get back to a more stable economic outlook and once of the deferrals are resolved.
But the longer term reserve levels could converge back through kind of what the day, one seasonal adoption levels Werent I guess looking at slide nine Thats call. It 90 basis points or so for you.
Is that appropriate for sandy spring over over the longer term or how do you think about the kind of natural level of of the reserve over time.
Yeah, Eric I think the 90 basis points is probably a bit lean, although I have seen and certainly heard that debt that is the sentiment and a lot of cases that a lot of the reserve levels could go back to.
To that.
Our reserves could go back to those kind of pre.
Pre COVID-19 levels.
I don't know I would have a hard time seeing ours potentially get below one but.
It's yet to be seen how this plays out but I understand the sentiment that's out there on that.
I appreciate the color there thanks for taking my questions today.
Youre welcome.
And ladies and gentlemen, once again, if you would like to ask a question. Please press star and then the one.
To withdraw your question of you May Press Star two.
Our next question comes from Brody Preston from Stephens. Please go ahead with your question.
Hi, good afternoon, everyone.
Hi, Barry.
Hey, just wanted to follow up on PPP. So it's about.
Call It $1 3 billion in Outstandings currently correct.
Yes, yes, yes, yes, I'm sorry ahead of what's been for any given year.
Okay, and do you happen to know what the average balances for <unk>.
Yes hang on one second I'll tell you what that is.
And by the way Eric the question the answer to Eric's earlier question of remaining deferred fees is about the little less than $27 million.
Let me see if I can find for you of the average here real quick hanging on the second.
Okay.
The average PPP balance this quarter was about 1 billion 170.
Hi, Thank you for that.
So.
Just I did want to clarify so it was about 10 basis points of.
Accretable yield this quarter correct.
For.
<unk>.
The switching of the PAA.
Yes, the personnel, yes im sorry.
Hang on a second I'll find that it sounds about right, but let me confirm that for you.
Yes, I just wanted to confirm that what you had put it in the release was just the margin was just ex PAA. It wasn't inclusive of the PPP. That's correct Yep, that's at about nine basis points, that's correct yep, Okay alright.
Alright. Thank you for that and then I wanted to ask on the C&I balances right. So just kind of excluding ex.
Excluding PPP the balances were actually down.
Now for about 8%.
In the linked quarter, but that was after they were up 5% in the previous quarter. So I just wanted to better understand what was driving that variability.
We had a couple of things at play, but the the largest where a couple of business sales that impacted that portfolio.
Our utilization on lines has held pretty constant through through the whole pandemic, including through the first quarter. We had a couple of couple of large.
Credits move move out through the successful sale of those businesses is probably the most significant.
Kind of.
The large larger hits in that in that book.
Understood.
Okay, and then on the on the expenses.
I just wanted to follow up on the other expense line items kind of setting aside the FH L. B.
Prepayment penalty.
There is some variability there from <unk> to <unk>. So just the is the 5 million rate sort of the rate run rate to use all of that other expense line item moving forward.
In addition to any growth.
Uh huh.
Let me take a look at that for you Eric real quick.
It's probably a little bit more in the $6 million range, the five because theres, an additional offset to what we.
Set aside for unfunded commitments last quarter that we reverse back out.
In this quarter, so I would add that back and get you closer to six before growth yes.
Okay. Thank you for that and then I just did want to ask what percentage of your loan portfolio is floating rate at this point.
Yes.
Oh, I think of the overall portfolio, it's probably in the 25% to 30% range.
Alright, great. Thank you all for taking my questions I really appreciate it.
Thank you Barry.
And ladies and gentlemen at this time in showing no additional questions I'd like to turn the floor back over to the management team for any closing remarks.
Thank you Jamie and.
And thank everyone for their participation today.
We always welcome your feedback on these calls so please E mail your comments to IR at Sandy Spring Bank Dot com.
And hope you all have a terrific afternoon.
And ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for attending you may now disconnect your lines.