Q1 2021 Columbia Banking System Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to Columbia banking systems first quarter 2021 earnings update.
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Nice to turn the call over to your host Clint Stein, President and Chief Executive Officer of Columbia banking system.
Thank you Michelle welcome and good morning, everyone and thank you for joining us on today's call as we review our first quarter results.
Which we released before the market opened this morning.
The earnings release and accompanying Investor presentation are available on Columbia Bank Dot com.
During the past few earnings calls Ive commented on our bankers remaining externally focus despite the 10 day.
It continued to show up in person and operate within the confines of the post COVID-19 World.
For a determination of allowed us to attract new clients and deepen existing relationships.
The momentum that was building at the end of last year accelerated in the first quarter, which.
Which is typically our seasonal weakest.
Our team dedicated the brown shoe of the Paycheck protection program was extremely of fishing.
The limited the polymer bankers, we're not able to dedicate for full attention to supporting our clients.
As a result.
Moving on PPP, we achieved the first quarter record for new loan originations, we had another quarter of impressive deposit inflows and our financial services revenues for our new quarterly Pi, surpassing the old record set just last quarter.
Our performance is the outcome of the very deliberate strategy and for.
Focus on continuing to build our business throughout the pandemic, while at the same time, ensuring the safety of our employees and clients.
We activated our well tested pandemic response plan early which gave our teams more time to shift resources in response to changing state mandates and new federal stimulus programs.
At the same time, we continue to support all of our clients ensuring that their immediate needs for met and longer term plans to move forward.
The benefits of this strategy of evidenced in our loan production and deposit growth as well as in the strength of our loan pipeline.
It's nothing more proud of every one of our employees as a team we expanded relationships with clients and each other and improved our operating leverage while meeting the challenges of a very unique economy.
On the call with me today are Aaron Deer for our Chief Financial Officer, Chris Mary well for Chief operating Officer, and Andy Mcdonald, Our Chief Credit Officer.
All of them in our prepared remarks, we'll open the line and take your questions.
However, I need to remind you that we may make forward looking statements during the call for further information on forward looking comments, please refer to either of our earnings release or website or our SEC filings.
This time I'll turn the call over to Aaron.
Thanks, Bob and good morning, everyone. During the quarter Columbia generated net income of $51 9 billion or <unk> 73 per share pretax pre provision income of $62 6 million was down $6 $8 million from the fourth quarter of 2020, primarily due to lower net interest income stemming from a combination of lower asset yields.
Less income from interest recoveries on security prepayments.
Compared to the first quarter of 2020 pretax pre provision income, whereas for $2 million.
Due to reduced funding costs stronger mortgage banking activity and lower expenses total deposits ended the quarter of $14 8 billion, which was an increase of $898 million from your on the inflows were largely of noninterest bearing accounts and were spread throughout our footprint the.
The increase was attributed to federal stimulus, including round two of PPP as well as new relationship for some tempered spending and investment for our clients our cost of deposits dropped one basis point linked quarter to four basis points matching our all time low.
Total loans ended the quarter at $9 7 billion, which was an increase of 249 million from year end of first quarter loan production was $895 million, including Brown <unk> production of 511 million.
Loan balances, excluding PPP loans increased slightly to $8 8 billion.
New loan production excluding P. P. P was brought on at an average tax adjusted coupon rate of 370%, which compares for the overall portfolio also excluding PPP of 398%.
The net interest margin of $3 31 was down 21 basis points on a linked quarter basis. There were a number of factors behind the drop but the most impactful was lower coupon rates on loans, which contributed 11 basis points of the decline.
Each of the remaining dropped seven for less interest income on the early repayment of certain <unk> and the large interest recovery on the non accrual loan on the prior quarter, which together contributed about 10 basis points of pressure.
Noninterest income was down slightly on a linked quarter basis to $23 2 million, though this was up $2 million from the first quarter of 2020 of the modest linked quarter decline was mostly due to seasonally lower mortgage banking income, but we were actually pleased with how well the mortgage volumes held up non.
Noninterest expense of $83 6 million was down just slightly when compared both on a linked quarter and prior year basis, notably our compensation expense.
In the first quarter benefited from the favorable impact of capitalized origination costs for round two PPP loans.
This benefited the quarter by five 5 million debt was partly offset by 923000 of data processing costs for round two of originations. In addition, we reported a one 5 million provision for unfunded commitments.
Look for our quarterly expense run rates return to a mid to upper eighties run rate for the remainder of the year for.
Provision for income taxes decreased $4 $2 million on the linked quarter basis to $16 8 million, representing the 19, 5% effective rate, we expect our 2021 tax rate to be in the range of 19% to 21% and with that I'll turn the call over to Chris.
And good morning, everyone.
We've worked hard partnering with our clients to help them in their businesses remain viable and healthy over the past year. This.
This has resulted in deeper relationships and upward momentum, which is evident in the tremendous deposit flows and strong loan production on what is typically our seasonal low quarter well round to PPP loan production has been a major focus we've also emphasized business as usual.
This approach has allowed us to win new business during a tough year and to create new opportunities as communities begin to exit the economic crisis.
Clinton noted excluding round two PPP loans, we achieved a new first quarter loan production record of $384 million.
This was the sixth highest production quarter ever and follows the quarterly record of $468 million during the fourth quarter of last year.
Loan production was offset by a decline in utilization of 2% during the quarter and 7% in the past year.
Which was a headwind of $92 million and $326 million respectively.
The decrease is partly due to typical seasonal agricultural paydowns of shifting funding from existing lines to PPP loans as well as delayed investment from uncertainty within the economy.
Nonetheless, we continue to be pleased with the momentum of loan production and are optimistic that the healthy pipeline that is expected to generate quality loan production in the months to come.
As of March 31, our round two PPP loan production supported over 4100 clients and way of received more applications in this round than we did in round one.
Where we funded all of qualified loans applications.
We are proud to support our communities by providing critical funding in support of both existing and new clients excluding.
Excluding PPP quarterly production mix was 63% fixed 33% slowing and 4% variable.
Overall, the portfolio of niche is now, 9% PPP loans, 48% non PPP fixed 31% floating and 12% variable the.
The composition of the loan so on the first quarter benefited from the favorable impact of oops.
Yes.
Our compensation to start for.
<unk> remained relatively unchanged with a small increase in C&I due to the additional of round two PPP loans.
Gross of unearned unearned income PPP loans were $915 million at the end of the first quarter.
Since we opened the forgiveness portal in mid August we have received over $550 million of payoffs and pay downs all related to round one of the program.
Deposits grew by 898 million in the quarter and at an unprecedented 37% or for billions over the past 12 months of $14 8 billion as of March 31.
Deposit mix remained at 60% business and 40% consumer.
Over half of the increase during the quarter was in demand deposits and as of March 31 of the deposit base was evenly split between noninterest bearing and interest bearing.
Continue to drive the exception rates down and as was mentioned our cost of deposits declined to an industry, leading four basis points.
The activity remained robust during the quarter the financial services and trust revenue at the new high up 10% over first quarter 2020.
And although residential mortgage activity slowed on a linked quarter basis. It drove loan revenue up by 61% or $2 8 million when compared to the prior year quarter.
This offset declines in deposit account fees from the increased liquidity.
Customer of the balance sheets.
At the end of March we announced the move of our Tigard, Oregon branch to a new financial hub location, just like our Ballard and Boise neighborhoods.
<unk> financial hub will offer the same banking experience geared towards helping our clients achieve their comprehensive financial goals, including the investments Trust services and other financial considerations. The tigress financial hub of scheduled to open in July.
Now I will turn the call over to Andy to review our credit performance.
Thank you for this quarter's ACL total of $148 3 million a reduction of almost 850000 from year end.
Net charge offs of only 47000 led for the provision release for the quarter.
Our forecast assumes annual gross domestic product to increase to five 7% for 2021.
With the unemployment rate predicted in 2021 at six 2%.
An improvement from the six 6% last quarter.
As noted before we use IHS markit for our economic forecast.
The improved forecast of counterbalanced by the continued strength in the travel and leisure industries, which are showing signs of stabilizing.
As I noted previously we continue to apply an overlay.
This quarter for what we can say for high risk of commercial real estate and downstream potential impacts of the permanent job losses at a significant northwest employer.
These amounted to a combined 11.
$7 million in Q1, an increase from $11 1 million in Q4.
Our adjusted was driven by the continuing impact of the pandemic affecting hospitality.
Shifting dynamics in office, and retail and business closures and capacity restrictions for the restaurant industry.
We ended the quarter with the allowance relative to the period end loans of 1.53%.
Adjusting for the PPP loans the allowance the period end loans increases to one 6 million per se.
N P as for the quarter were relatively unchanged. The 20 basis points. However, I always like to adjust for PPP loans as I believe it provides a more consistent comparison as we move forward.
With this adjustment M. P. A to go out of the increase much only one basis point to 21 basis points.
Task of loans for the quarter were 11 basis points compared to 28 basis points of last quarter.
Net charge offs as noted earlier were essentially mill versus the 13 basis points last quarter and our repaired capital ratio of was 29 four per se.
Probably all of which we define as loans rated watch or worse decline for 955 million last quarter to 920 million as of March 30 for 2021.
We did see migration downward from watch for the special mention to substandard and of the quarter, which also impacted our allowance for credit losses.
Aviation hospitality and restaurants, where categories, where we saw the negative migration.
Okay deferral at the close of the quarter, we had 71 million an act of deferrals or less than 1% of all of our portfolio excluding PPP loans.
This is down from the 147 million of deferrals at the end of last year.
Deferrals for the most part of continuing to run off as expected.
We continue to classify all of retail hospitality restaurant and aviation portfolios as portfolios subject to an elevated level of risk due to the pandemic.
In aggregate these portfolios of account for about $1 3 billion or $13 one per cent of our loan portfolio.
As alluded to for the past few quarters, we have removed our dental and health care of portfolios from this classification.
Both of these portfolio of exhibited stable metrics throughout 2020.
Problem loans remained very modest in this segment there were no past dues in either of portfolio and deferrals were less than 1 billion or less than one basis point, while the combined portfolio of $1 1 billion.
As of quarter end.
Okay. So for those that we still classify it.
Retail is the largest segment of $574 million in loans outstanding at the end of the quarter.
While we remain concerned over the pandemic impact on the portfolio.
Total loans are actually down year over year, we had no past dues in this segment non accruals were only three basis points.
And no retail loans were on deferral as of March 30 for.
PPP loans of certainly made a difference for our borrowers in this portfolio.
While these statistics are all positive we continue to be cautious however, given the colloquial evidence we see in our footprint.
Hospitality at 336 more has shown a mixed bag of results and total problem loans in the segment declined during the quarter and now represent about 56% of of the portfolio down from 66 per se.
However, we did see sub standard assets increased to 26% of of the portfolio from 23% of it yet.
There is clearly a bifurcation in the portfolio between those which are the leisure oriented.
All of which are business oriented.
Leisure properties have weathered the pandemic much better than our original expectation while business oriented properties continue to struggle.
Leisure travel accounts for about 69% of our portfolio.
<unk> business accounts for 31 for sales.
Restaurants, which account for about 227 million and saw a modest amount of negative migration during the quarter.
<unk> loans increased 4% to 21% for 23 per se.
The criticized classified assets increased from $29 million of 33 day.
We had about $7 million of deferrals on this portfolio at quarter end.
Similar to the retail businesses.
The P loans have had a meaningful impact for restaurant operating weeks.
As of March 31st 57 per cent of our restaurant operators were at 50% occupancy.
However, with rollbacks put in place by Governors on both Oregon, and Washington that has dropped to 39% as of today.
Thus demonstrating the fickle nature of this pandemic and the economic recovery as we move forward for this industry.
However, with the summer months of arriving outdoor dining will be returning to our footprint.
This combined with the increasing number of people, becoming vaccinated, all bode well for the restaurant industry and in the Pacific Northwest.
Finally, the aviation portfolio of roughly $837 million down by about 25 billion from a year ago was relatively stable during the COVID-19.
As in past quarters, no loans of you're past the all.
All customers continue to pay as agreed and no loans were on deferral.
Almost all of the news in this area has been positive with some airlines projecting to be cash flow positive by the end of this flow.
With that I'll turn the call back over to Clint Thanks, Andy as noted in our 2021 proxy statement Columbia bank's commitment to social responsibility is in full alignment with our corporate values.
More about our efforts in this area. We invite you to visit our new ESG page found in the investors section of our website.
There you will find information supporting our commitment to sound environmental social and corporate governance principles.
Our regular quarterly dividend of <unk> 28 was announced this morning. This quarter. If the dividend will be paid on may 26 to shareholders of record as of the close of business on May 12.
This concludes our prepared comments as a reminder, Andy Chris and Arens are with me to answer your questions.
And now Michelle.
We'll open the call for questions.
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Our first question comes from Jeff <unk> with D. A Davidson your line is open.
Good morning.
Okay.
On the margin.
Date myself here on the when.
Glenn I recall back of the day sort of are you pegged it for on a quarter now of the bank is probably half the size and.
Different.
The interest rate environment, but I guess longer term, we've got quite a bit of liquidity, but.
Is that of tangible mark overtime decline back to us.
I'm, just trying to kind of longer term.
The margin.
Thanks.
[laughter].
<unk>.
Yeah, I mean, there is.
There's a lot of different ways that we could respond to that and Youre right Jeff.
You've been with us for for a long period of time in and.
Throughout the history of of of.
Of our company.
And the different rate environments and business cycles that has been the range that we would.
It was kind of gravitating towards.
But.
Gosh you know.
The liquidity.
Come on to our balance sheet in the past year.
That's really I think a lot of what's driving.
The compression.
You know what I guess.
If I'm in your shoes I have to think about what do I assume in terms of debt liquidity being absorbed with loan demand.
On the yield curve steepening.
The fed.
The meeting this weekend.
No.
This inflation continue to pressures continue the Mt.
Yes, so there's a lot of variables there.
And that's why we've really been focused on growing net interest income.
Because we think that debt that's something that the.
Our direct efforts and the production that.
Chris talked about.
His prepared remarks, and some of the things and Aaron and his team have done.
In terms of deploying the excess liquidity.
But I think of the business environment normalizes and the rate environment starts to look something like.
What we what we've seen you know prepays.
Pre pandemic and say over the past.
The prior seven or eight years.
Okay.
Our bankers are doing a lot of great things and so I think that will work through that liquidity in the loan to deposit ratio will come up and I think youll start to see the margin the a man.
The consistent with maybe what you've seen.
The prior cycles.
I don't know.
Yeah.
Yes, I guess I would just add.
Our new.
Loan production.
Upon the $3 seven day right. So.
Sure.
The fees to be add on top of that but the reality of some credit right now of the environment that we're on.
For 25 is inconceivable, but.
As Glenn said, we start getting some of this liquidity to the point back on the loans you can get a better rate environment and absolutely we should at the very least getting back on that trajectory.
Okay I appreciate it guys.
I would imagine the strategy is a little more NII of focus them on an actual margin figure but.
I appreciate it maybe.
Maybe another big picture Quentin I, just wanted to check in on them.
Kind of M&A.
<unk> been on the sidelines for a while sort of internally focused or.
Investing in the business and wanted to see if as we've evolved here.
Huge towards looking at any opportunities.
Acquisition Wise are you still more lending teams any update on that.
Front would be helpful. Thanks.
Well.
We've always.
As we've said M&A is in our DNA.
We are in.
In the Investor deck.
Debt that debt.
This updated put out on the website this morning.
We have the standing chart, which shows our M&A history and.
Many of the.
Individuals that have been part of those.
Those past transactions in terms of of evaluating and the integration.
Or are still.
Part of our team today, so we still have the expertise.
On a lot of the book that we did.
Over the past year.
And I kind of touched on it briefly in terms of of.
The proactive approach that we really felt like we were able to take.
Throughout especially the early months of the pandemic because of our.
Okay.
Pandemic response plan that we had put in place and the fact that we had.
Tested that plan.
And we activated it.
In early January of 2020.
It really put us in a position.
To spin the back half of last year focused on.
On on continuing to make progress on operational efficiencies continuing to look at all for opportunities to grow.
Our our business and some of those are our organic but also.
We feel like that there.
Is going to be.
Consolidation and all.
I won't use the word significant consolidation within our industry, but I just look at the.
The rate environment.
The pressures that all banks face and I think it's going to force them to reevaluate and.
And seek out of.
Thank to partner with and so our goal.
Is to make sure that when the.
The reached that point that we are on the shortlist of who they call.
You know I can't really get into much more detailed on that but I do think that Emma.
M&A chatter is picking up and we're starting to see some things on a national level.
The only announcements that have come out.
In the quarter.
And I would expect that youre going to see that trend continue and and you'll probably see some of that activity within our marketplace.
Great. Thanks for the thoughts.
You bet.
Our next question comes from Matthew Clark with Piper Sandler Your line is open.
Hey, good morning, everyone.
Yeah.
I wanted to start.
On the margin as well.
Can you give us.
The new security yields.
You experienced this quarter in terms of purchases I think it was 126 last quarter.
Maybe start there.
Sure.
Yes.
On the list and the curve that we saw towards the.
The longer end of that we did see some benefit on your purchases.
That number came up to about $1 46 for the first quarter.
And we actually had a few purchases that were over two percentage, which is the first time I saw that in a while so.
Things are moving on the right direction there but.
Obviously, we've got.
On a more of a liquidity to deploy on us.
PPP loans are forgiven thats going to.
Give us more liquidity to work with so I would expect.
There's more to be done on that front.
As you noted.
It should be coming on at a little better yields it's not.
So that the mix necessarily that you wanted to have but that's.
But it should be.
The positive net interest income.
Okay, and then on the new loan coupons of 370, I think that's up 34 basis points from last quarter, how much of that was kind of driven by mix change.
Or do you start to experience, maybe a little bit of better pricing given the steepness Super curve.
And that this is Chris.
I would say, it's a little bit of both.
Some of it depends on.
For the mix of what comes in.
During the particular quarter.
On size of deal credits.
<unk> of it and things of that nature. So.
It is a bit of a moving target I think that the the steepening of the curve certainly helps us and will continue to monitor and pay attention to that.
Okay, and then do you happen to have the.
The core margin in the month of March.
What I'm trying to get out of where.
Your margin might be headed and it seems like if you just use the incrementals.
Rates on securities and loans, maybe layering on some additional fees you are kind of headed toward us.
The 290 ish core margin.
Longer term, but obviously.
Mixing assets would help mitigate that.
On to some degree so.
Just wondering if you had the if you would agree with that and if not.
And then if you had the monthly NIM in March on a core basis that'd be helpful.
I don't have the March number in front of me the.
I would say.
The $2 90 number seems a little extreme.
But.
What that really kind of a standard how long are we down in the.
Effectively zero interest rate environment.
So it's not.
Not to mention the mix changes that we just saw for that so I would say that.
On a more.
Pessimistic view of di would have but maybe.
Okay.
Well see what happens with the fed and look for it.
Understood no worries.
And then just on the pipeline the loan pipeline.
Sounds strong can you give us kind of the order of magnitude how much it might be up linked quarter I assume year over year comps are a lot easier and less meaningful.
Yes.
As far as of quarter to quarter.
Continues to improve and some of that is based on what the throughput is.
How much comes through in any of any one quarter.
I would tell you that.
The while the pipeline is strong.
Certainly have high expectations for our ability to go to market and the things we can do and we're not disappointed.
And so I think that we're seeing our approach.
Over the second half of shipment.
Certainly the second half of 2020.
Is certainly paying dividends, we're seeing more opportunities our approach with the second round of PPP is taking care of it and some being relationships and so we're getting plenty of at bats, and then it all comes down to structure and pricing and things of that nature, but we're very pleased with where we're at.
And.
We'll see how the.
If we get any <unk> share in the pandemic and how that might affect things, but it appears that people are getting back and engaged taking advantage of a low interest rate environment, but also actively investing in their businesses, which is all of it the interest.
Okay, and then just on the PPP related stuff the SaaS.
The 91 benefit this quarter I think in the release you mentioned most of the decline in comp was related to that but can you quantify the dollar number there and then.
Can you also just confirm how much you have in the way of round one PPP net piece left in round two net the PPP and the amortization schedule too.
Sure so yes.
The the Fas 91 related to PPP was about $5 5 million.
I'd also point out that we had.
So the technology.
Fees related to PPP, there was about 900000.
And the.
The other kind of material item in the quarter.
It was we reported of one 5 million provision for unfunded commitments.
So I would think about.
Each of those on what that looks like.
Going forward as you're modeling out.
Also going forward.
We tend to have a big lift and insight.
And for one K contributions in the first quarter of some of which will go away.
As we head into the second quarter on through the year.
The in terms of the the.
The remaining.
On an income related to PPP.
That's about the.
Just shy of 21 million at March 31.
And how much of that came from room to just so we can amortize that over five years, so I'm not sure.
Assuming something different.
So the I guess, if you were to assume that the straight line amortization then yes.
Five years of although.
I wouldn't think about it that way for myself, but.
The but there was.
The way to put it this way so it hit this year.
Year end, we had $9 9 million and other of income.
And of that amount related to PPP. One we had for 4 million remaining at March 31, So that should give you a sense of how much we added during the first quarter with brown too.
Okay.
Got it and then the <unk>.
Maybe one benefit I just want to make sure I heard you correctly, you said $5 5 million of.
Originated the deferred piece.
That is correct the comp okay.
Okay. Thank you.
Our next question comes from David Feaster with Raymond James Your line is open.
Good morning, everybody.
Oh.
I wanted to start on the the record non PPP production for the first quarter I'm just curious.
On where the growth came from how much do you think is kind of from an improved economic outlook, just just giving your clients more confidence in investing versus new client acquisition from the PPP program on the new hires and maybe just kind of what are we starting to see any real contribution from the neighborhood.
The concept at all.
David I'll I'll, just start with the statement in the law.
I'll step back on what Chris actually give you.
Some numbers for contests book.
The pre pandemic.
The the biggest single comment that we would hear from our clients as they could grow their business 2030.
For <unk> or more but labor was the constraint for them. They just simply couldn't find.
Skill set of.
Available labor.
And then.
I would say the conversation with the.
The clients.
The I've been in contact with us return to that dynamic.
You know, there's going to be pockets as Andy talked about the hospitality sector and things but.
A lot of our business clients.
Very very busy.
And they just simply can't get enough people to continue to keep up with all of the opportunities that they have in front of them. So I do think there's a lot of optimism out there.
We do feel like the PPP is has helped.
Thousands of businesses with them are all of our market area.
But but also there's there's there's a lot of liquidity.
Bill there and the other thing that debt.
I don't know that.
Really hits at the spin.
Any kind of talking about of the disruption in supply chain.
So things like Oh.
Like the the chip shortage.
And how that ripples through.
Not necessarily directly with us.
Our clients, but.
In terms of things day investing for looking for a new piece of machinery or something.
And if that production is idled or delayed because they simply can't get the chips to manage the electronic components.
So I think those are some of the things of that will start to break loose as we go forward.
And the create additional opportunities for all of our industry and for <unk>.
The simple for clients, so I'll step back in the Chris and his contacts.
And they don't have the exact numbers on on the mix on that but I can tell you that it's pretty well diversified.
It's coming from.
All over the footprint, it's coming from all of the concepts are the efforts that you've talked about.
Probably most notably picking up business because of the approach of being open.
We're taking advantage of situations, where other institutions of closed locations and clients are migrating.
Most of that approach.
And as far as the the neighborhoods.
Both the neighborhoods that we currently have the certainly support our commercial banking opportunities and they are performing at or above expectations.
But theyre really more of a support to what's happening they do drive some small business.
Production certainly.
And but the bigger benefit is how they support the overall network and support of our support of our bankers and in total.
Okay. That's good color and then just kind of following up on your comments Colin on the supply chain I'm. Just curious what you guys are seeing on the C&I side Utilizations of continued to come down but do you think we did at trough, yes, I guess, just as you know clients start needing to build inventory and just improve the economic.
Outlook do.
Do you think that we're kind of at trough levels here or I guess as you talk to clients do you think they'll they prefer to use their excess cash before starting to draw on lines. Just curious what's your thoughts on there.
Well I'll start with.
The first quarter is historically, our seasonal charge off and.
Where we ended up on where that picks up sometimes it depends on on.
Do we have an early spring or the spring.
And in particular with some of all kind of.
Cultural.
Clients in.
And we've had a late spring.
<unk>.
Everything.
Here seems to be about five weeks behind where we typically would be in terms of of.
Weather conditions on out while the spring as spring of this phone all we did have the stretch of 80 degree weather followed by the structure of of 48 range.
Today, it's funny in debt, so definitely starting to see.
On that seasonal.
Seasonally driven activity.
Pick up there.
The other components in terms of what the C&I book It also lead to.
The demand side.
On your comment around clients using their own liquidity.
But in some different.
Business verticals that we're in sometimes.
As their market teed up for cool down the line utilization also changes.
So.
No.
I'm optimistic.
You know about.
The comment about is this the bottom of the trough.
But but it's not a typical year.
We're still.
So on the.
The.
Well, what I hope for the.
Last grips of the pandemic.
Vaccination rates.
Proven and and.
Thanks Budd.
As Andy mentioned.
Various counties within our footprint.
The vast split on the cash.
Restful backsliding into various.
Components of the restrictions not like what we saw at this time of year ago, but the.
But certainly it's just another data point that caused us the pause and say all of the second quarter is not gonna be the.
The necessarily the same as what our seasonal activity in the past multiple.
Outside of some of those things that are very much driven by the weather and the timing of rare diseases and with that I'll pause for Chris I think in the past that.
What day whatever to add to that is I think debt.
Where we're at is somewhat unprecedented and so thinking forward of.
Are we at or near a trough as probably you know that's what we're looking towards that's what we're optimistic that those things start to change as of.
A lot of liquidity is still on the sidelines.
I'm optimistic that we're starting to see some of the liquidity be invested into.
In the traditional securities markets and I think that that's shown in the results that we're seeing in our.
The financial services and Trust Division of some of that money is now moving to other areas starting to look for additional yield or a return on it I.
I think the piece around right now the liquidity.
If youre certainly sitting on lots of cash at a low interest rate.
It certainly makes sense to pay down your line.
But as we start picking up on our production and we're seeing that fixed production.
Once that kind of.
It starts working through the system, you'll start seeing some more opportunistic types of things as we exit the pandemic.
And then of course, I can just echo and reiterate that the late spring certainly has had an impact.
Okay.
That's good color and then you know look the key the key really to getting back the the margin back to where we've talked about is putting on new earning assets.
It's great to hear the increase in the in the.
Rates on new production I'm, just curious whether you're interested or are you increasingly willing to be maybe more component on on competitive on rate in order to drive growth of do you think you can hold the line on rate and still drive the growth that you need to deploy that liquidity and diversity is there any appetite for substantial loan.
Purchases the supplement that the pool of liquidity quicker.
Yeah.
David I can talk about the production side and I'll, let Darren jump in to the second part of that question.
So given the choice I would much rather we would much rather compete on rate and on the structure.
And certainly of that to say a long term aspect of it.
We are on what we would do.
I think that.
Several things are at play there are value proposition around relationships do we more than a simple transaction.
And our.
Our process and the ability that we stayed open can certainly help in some situations drive a little higher yield a little higher coupon.
But it all depends on the relationship and as long as we continue to show value and bring other things to the table, we can command a bit higher coupon on that now with that said I will also say for some very competitive.
Opportunities out there.
We will look at all of those from a credit aspect first and if it passes through that aspect of it.
We will sharpen our pencil is necessary so it makes sense.
Right in our backyard and things of that nature, and so we will compete on price.
Selectively that's probably the best way to sales.
And in terms of loans purchased I mean, obviously we are.
Our preference was to use our lending teams to drive around organic production of which.
With that.
Fantastic track record of note and I think we're feeling really optimistic about where things are moving.
Going forward.
We very selectively made so for example, some mortgage purchases or something like that too.
On a backfill of Paydowns for something of that book when our own production.
Isn't quite matching what we want to carry on the balance sheet, but.
Ideally what we're going to do is drive our own <unk>.
Nations in the loan growth and if something came along the swing.
Particularly attractive to take a look for but buying loans of big premiums right now it doesn't necessarily make a lot of Sam Smith.
Alright, thanks for the color.
Thanks, David.
Our next question comes from Jon <unk> with RBC capital markets. Your line is open.
Thanks, Good morning, everyone.
Hi, John.
A couple of cleanup questions here just on.
On the loan production numbers.
Feels like.
You are saying this and your peers of kind of saying this as well as the.
The economic activity is picking up.
But it's not quite there yet.
And I'm just curious some of your earlier comments about.
Your bankers are less burdened with PPP now when Theyre looking forward.
I guess the Big picture question is are you just taking share in terms of your production or is this increase the economic activity that's driving the.
John This is Chris on it.
I'll tell you it's both.
Economic activity of certainly starting to increase but as you mentioned it is it is not where it was in 2019.
I think the fact that we opened forgiveness back in August of last year and have moved considerably through the first round bodes really well for in our approach in the second round.
With the technology that we have available.
It's pretty seamless and so it was it was a much easier process for us we expect to see that on the backside of the second round PPP forgiveness as well.
So that has really.
Kept our bankers from the.
Working on that and be an all hands on deck to we've got a very streamlined process still requires people, but nowhere near as many as what we experienced last year and so our teams are out and about.
Capitalizing on the the opportunities in the markets and it would tell you. That's the broad based it's all three states all of our regions.
And there's a real sense of.
Now as announced the great time for us to be out in talking about our approach.
And again being opened as paid fantastic dividends.
And.
The teams are excited so instead of having about trying to win business.
So that leads to your part of the outsiders.
For some share that's been that's being acquired.
Okay.
Andy.
And the question for you.
<unk>.
How concerned are you about.
Deterioration in some of the stress sectors.
The leading them to.
Higher non performance I mean, your numbers are pretty clean, but I'm just curious on your thoughts on that topic.
Yeah.
Well.
I'm, obviously surprised of how well all of the segments.
The date of by half per for them.
So.
The hospitality would be the the firm.
First one that I have concerns with in terms of migration into the non performing assets.
And that would be the business.
Travelers side, most of that I talked about before.
If we look historically, we can see the business travel take on it.
Standard period of time relative to the leisure to rebound.
So that would be the area that are hoping for.
On the retail and restaurants continues to surprise me as I've mentioned before retail is better now than it was on a year ago.
The restaurants relatively speaking.
You know I guess of meeting expectations, but they are not deteriorating.
True.
Sure.
Our non performing loans yet.
But why we put hospitality for as I said the oil.
Probably put restaurants back so that'll give you the two segments that I think we will see some migration into non accruals.
Ultimately there could be a modest amount of charge offs there as well.
Okay.
And then I guess the this is another bigger picture question, but just on the reserve level.
Would you guys were for day, one the seafood I think was maybe a little of above 1%.
And I know that there is.
Plenty of scope to be concerned about debt.
You migrate back there overtime.
Because of the right level to think about longer term.
I think the seasonal it's difficult to say where that migrates longer term.
I think in terms of all of our behavior for this year, it's pretty consistent with what I've talked about before.
You know, it's going to kind of bounce around a little bit and we will have some modest in the leases we continue to move forward.
And I think that youre going to see it migrate down it's just really difficult with the new model to say, 1% is the long term.
Given the volatility of economic forecast now.
Now as we continue to get more stable economic forecasts and in this case they are stable to slightly improving we are seeing that the model behaves in a more stable manner.
And to that extent, yes, you would have the ability to migrate down to one of the corridor and possibly one of them. If you continue to have that stable economic forecast.
Okay Alright.
Alright, thanks for the help.
Our next question comes from Jackie Bohlen with <unk>. Your line is open.
Hi, everyone. Good morning.
Good day.
Start on capital.
You, obviously have really healthy levels I was just wondering if you get a refresher on how youre thinking about.
The I know he used to go variable special dividend so as that comes up in conversations.
The thing you know lower appetite for buybacks still but just an update would be great.
Yeah.
We still haven't changed our view on.
In terms of of of our long term targets and for many years, we've stated debt.
TCE of 8%.
The total capital ratio of 12% is kind of what we think.
Makes sense for us in terms of giving us flexibility to do some things opportunistic fleet and.
And we are well above those levels.
But.
But I think that as we progressed through.
Through 2021, some of the conversations that we'll have.
With our with our board of directors will be around.
The direction.
All of those ratios.
We continue to expect will continue to build.
And.
What uses.
What tools do we have available to us too.
The start to shift those closer to the those long term targets.
And there are some things on the horizon.
Obviously the maintained our regular dividend as you noted special dividends have been a tool that we've used.
Many times over the years.
In that regard and so I wouldn't I wouldn't rule that out of.
Buybacks we have of.
An authorization in place but.
Sure.
We will be opportunistic and use discretion in terms of of to.
To the extent that debt.
We engage in buybacks.
You know there is China.
There is also as we talked earlier and I think of this.
To Jeff's question and my comments around.
We do expect that the M&A activity.
In our region will pick up at some point in the in the coming year and so.
It's a long winded way of saying that our traditional uses of capital.
Still on the table.
But the.
One of what we know today, we're comfortable with being above those long term targets.
Okay.
And then just.
Thinking about M&A I feel like we're in a really fluid environment with a lot of moving pieces. So just a refresh on how you think about potential targets in terms of size and geography with the great.
Uh Huh, Jackie I'm not going to give you the playbook.
But.
All of it would be great. If you could just see that.
Yes.
I'm just kind of get out of you would look at something obviously much larger than you were when you were doing deals in the past and so I'm trying to get on to the extent that you are not able to you know that there's not an available target that really moves the needle for you. If you would take a look at something strategic but small.
Yeah.
That's the.
Uh huh.
The exact word that I would use and that I had on the tip of my tongue is this.
The strategic rationale.
When we talk about M&A.
Internally that's the.
The question, we always assets, what's the strategic rationale on does it make sense what does it bring to us that we don't have housing.
How is the additive to our franchise and not dilutive to what we've built over the last 28 years.
And we tend to think about it more along those lines as opposed to absolute size.
There is.
I mean, you've seen our growth and in terms of of.
Deposits over the past quarter in the past year, and so it would be easy to say.
G C.
Theres this minimum size, where we just would even consider M&A because our organic growth just outpaces or we could do it over a certain time horizon.
But I think that's a little shortsighted and.
Needlessly.
The confines.
The the institution to thinking about that strategic rationale and there's things rather at the.
The tech platform for other it's a certain niche.
On the expertise that we could gather from it and.
But all things being equal.
It does have it does take.
The larger target to move the needle and what it did for us say 10 years ago or or or.
Pre great recession, so I don't know if that's helpful for you, but that's kind of how we think about it.
Right now it is very helpful. Great. Thank you.
Thanks Jackie.
Our next question comes from Andrew <unk> with Stephens. Your line is open.
Hey, good morning.
Good morning.
Hey, So I wanted to ask just on the deposit growth front. So we obviously saw a tremendous side.
Out of deposit growth this past quarter.
It's impressive to see non interest bearing mix still being so high.
I was hoping you could speak to just any kind of early trends youre seeing in the.
The month of April just in terms of deposit flows.
Feel like things are slowing Dallas was stimulus being put on the economy.
And then can you maybe just update us on how you're thinking about deposit growth throughout the year.
So.
I guess this is the theme of the day I'll start and then.
What Chris and Erin.
Add some comments.
You know.
In respect to the question around line utilization of the talked about the seasonality and that's something that we.
And we also have seasonality in <unk>.
Historically in our deposit portfolio.
And typically.
The first half of the year in any given year, we have a little.
We're very little of deposit growth for sometimes we would actually go backwards and then much of our deposit growth will occur in the third and fourth quarters and so for us to have a quarter like what we had last the.
This past quarter.
<unk> is definitely an outlier from from our our historical seasonality that we would experience.
I don't have a crystal ball to necessarily know where it will be for me.
Can you talk.
After the second quarter here.
In July.
But but but.
I can I can certainly say that the first quarter performance was definitely a dramatic departure from what our historical expectations would be for.
For our first quarter or of second quarter, and with that I'll step back and sort of Chris iron of anything like that.
Andrew what I reported accelerated as well if you take in consideration of an amount of growth on when you take in that.
Again, our investment teams had record production on the first quarter.
There's a lot of money moving throughout the system and even with that production the.
Went into our investment teams and we still had the the deposit growth and so I think it's driven some of them. So the sources and then obviously the CPT as part of the theirs.
A lot of businesses within our regions that are doing phenomenally well.
And they continue to sort of pause of their money.
As well.
So I think as people start moving through the second quarter travel starts picking up things of that nature, we've seen travel pick up.
It hasn't had a major impact on the first quarter and we'll see how that kind of moves out throughout the second quarter of into the end of the summer.
You may see some of that.
The liquidity start being deployed now.
Typically what seems to take places on.
Our client may deploy the liquidity.
Also of somebody else's clients plenty of liquidity when it ends up on one of our business accounts and so it's a little bit of moving around.
And how the money all of the moneys trading hands and I think until you start finding ways.
Liquidity the leaves the system.
One of those may be maybe a little bit of on.
Abnormal year for us, especially on the in the first half.
But again, we're seeing more money to be deployed into investment assets and things of that nature, but it hasnt had a tremendous impact yet.
Okay.
That's very helpful. And then maybe Aaron do you have how much in PPP income is included in the loan fee disclosure. That's made at the bottom of the margin detail in the release I think the total loan fee dollar was $8 3 million.
Okay.
So in the first quarter, we on our on our.
Yeah.
PPP program. We had earned interest of just over 2 million, we had fees of little shy of 3 million and then we had accelerated fees a little over for milling.
So all in you're looking at about $9 million.
And the PPP loan yield in the quarter was $4 46.
Okay. That's helpful. Thanks for taking my questions.
Thanks, Andrew.
There are no further questions. Please proceed with any closing remarks.
Yes.
Well, thank you again for joining us.
We look forward to continuing.
Our conversation throughout the second quarter end.
And reporting on our second quarter results to you in July.
Sure.
Ladies and gentlemen, this does conclude the conference you may now disconnect everyone have a great day.
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