Q2 2021 First Commonwealth Financial Corp Earnings Call
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Your line.
Good day.
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Good day, and thank you for standing by and welcome to the first Commonwealth Financial Corporation second quarter, 2020.1 earnings conference call. At this time, all participants are in a listen only mode.
After the Speakers' pre.
And there will be a question and there and answer session.
To ask a question. During this session you will need to press star 1 on your telephone please.
Please be advised that today's conference is being recorded.
If you require any further assistance. Please press star zero and would now like to hand, the conference over to your speaker today.
Presentation on this vice President of Finance and Investor Relations. Please go ahead.
Thank you Pasha and good afternoon, everyone. Thank you for joining us today to discuss first Commonwealth Financial Corporation second quarter financial results.
Dissipating on today's call will be Mike price, President and CEO, Jim <unk>.
Ryan Chief Financial Officer, and James <unk>, Our bank, President and Chief revenue Officer.
As a reminder, a copy of today's earnings release can be accessed by logging on to F. C banking dot com and selecting the Investor Relations link at the top of the page.
We have also included a slide presentation on our investor.
He and his website with supplemental financial information that will be referenced during today's call.
Before we begin and need to caution listeners that this call will contain forward looking statements.
Please refer to our forward looking statements disclaimer on page 2 of the slide presentation for a description of risks.
<unk> and uncertainties that could cause the actual results to differ materially from those reflected in the forward looking statements.
Today's call will also include non-GAAP financial measures non-GAAP financial measures should be viewed and addition to and not as an alternative for our reported results prepared in accordance with GAAP.
A reconciliation of these measures can be found in the appendix of today's slide presentation.
With that I will turn the call over to Mike.
Hey, Thanks, Brian and welcome everyone.
Net income and the second quarter of $29.6 million produced core earnings per share.
<unk> of 31 cents, a core pretax pre provision ROA of 182%.
Core efficiency ratio of 52, 1% and.
Importantly, pre tax pre provision net revenue of $42.9 million was slightly ahead of the consensus estimate.
Estimate, reflecting good underlying second quarter momentum and our key businesses.
Lending rebounded in the second quarter, increasing year to date and loan growth to 5.3% annualized rate and that excludes PPP loans.
Loan growth was broad based and although indirect.
Indirect lending and corporate banking led the way mortgage Brent based consumer lending and small business all contributed meaningfully.
And our corporate bank had several big wins, and it's being deepening pipelines bucking national trends our branch team has originated 209 million.
And home equity loans year to date, which represents a 12% increase year over year.
Geographically, Ohio continues to lead the way and with the majority of our loan growth. Although PAA production remained strong our regional business model and our focus on execution have been key elements and driving.
Sheets and fee income growth, we have also lifted out some talented lenders from large competitors over the last past year consumer.
Consumer and small business household growth helped fuel noninterest income, which remained strong at $26.1 million, even as mortgage gain on sale.
Alberta.
Card related interchange income at $7.4 million was a quarterly company record by a wide margin and.
$2.7 million truss revenue was a quarterly record as well our SBA business contributed $1.6 million to gain on.
Sale income and SBA pipelines have never been stronger.
4 quarters in a row of strong contribution by the SBA business and.
Importantly, and this discussion around growth business condition, and the second quarter and our markets recovered faster than we anticipated and our business.
From Famers are generally positive about the outlook ahead.
Expenses remain well controlled and the core efficiency ratio was an impressive 53.
2.1% book.
Over the last 6 years first Commonwealth revenue based on broadened considerably.
With significant investments and new commercial lending.
And customers a day.
<unk> mortgage business indirect lending SBA lending and credit card and new digital platforms to include online loan and deposit account opening we've expanded also expanded our footprint through 5 strategic M&A opportunities.
Even as we've made.
And significant investments and transformed our company at the forefront of our planning is adhering to the core principle of maintaining positive operating leverage.
Turning to NIM, Jim will provide important detail and a few minutes, but at a very high level I believe our NIM has been.
These and from our long term approach to building a diversified loan portfolio that is balanced between commercial and consumer loans at a time when banks are struggling to deploy excess cash our consumer loan growth has been strong all year and our commercial loan growth picked up steam as the second quarter progressed, we like the contribution.
<unk> engine, and new consoles consumer loan and brings versus having money part of thorough reserve and investment security and we also have the potential of cross selling and new consumer customer as an added bonus.
We are also enthused about the lift out of and equipment finance team from a larger institution that.
And Martin and we announced as well as the momentum and our SBA business. Both of these businesses are scalable and will enable our margin to expand by generating high higher yielding assets.
Importantly, we are very pleased with the adoption of our new digital platform.
The second quarter, our active mobile users.
And we increased an annualized 22%. Additionally, we continue to bring new capabilities forward and we will be introducing a new mobile and mortgage platform and August where our customers can easily apply for and track the mortgage status from any from anywhere at any time.
Users regarding credit and we feel our asset quality is solid and coupled with improving economic conditions, we expect credit to be a tailwind and the back half of the year.
And now I'll turn it over to Jim Reske, our CFO.
Thanks, Mike.
As Mike already mentioned.
And so there.
And last form and this quarter, especially with regard to loan growth fee income and expense control.
Hopefully I can provide you with a little more detail on our NIM asset quality fee income and expenses.
Our net interest margin for the second quarter was $3, 1.7% down from 34, 1% last quarter.
Financial loan yields fell by 11 basis points, but we were able to offset most of that by reducing the cost of interest bearing liabilities by 7 basis points.
And to understand our NIM and you have to look at the effects of PPP and changes and our asset mix, especially cash.
For example, we began the quarter with 479.
And I was on PPP loans.
At June 30th debt figure had shrunk to $292 million.
Similarly, excess cash dropped from $414 million to $189 million over the period.
These changes don't come through if you only look at our published average balances which barely moved.
Millions and essentially what happened and this.
We started the quarter with a lot of excess cash because of the government stimulus programs that took place in the first quarter.
In addition, PPP loans forgiven over the course of the quarter generating even more cash.
We invested some of that excess cash into securities early in the quarter and.
Strong loan growth towards the end of the quarter.
To be more precise PPP and excess cash at 2 distinct effects on the margin.
First the first quarter NIM had the benefit excuse me the first quarter and had the benefit of $7.9 million of PPP income, while second quarter PPP income was only $5.5.
And the dealers.
Second we put excess cash to work and by purchasing approximately $300 million of securities and the second quarter.
That's better than leaving at CIT and cash and those investments will generate about $3.9 million and net interest income annually or about <unk> <unk> per share.
But they still yield less than what we earn.
And on the PPP loans, and it's still a layer of thin margin assets on top of the balance sheet debt drags down the net.
Because of the noise from TPP and excess cash we have been publishing a core NIM net adjust for both of those things.
Our previous guidance was for our core NIM to fall between 3.2% and $3.
And 9% and our corn and for the second quarter came in at $3, 2 zero percent, which was within that range, albeit at the bottom of that range.
The reason for that and simple math, the more excess cash we invest and securities.
Net cash there is to adjust for and the core calculation.
And the good news here is that our loan growth and the second.
3 other was very strong, especially towards the end of the quarter.
And that should help the margin going forward and we expect to maintain that trajectory for the remainder of the year, we should replace TPP runoff and further soak up excess cash to the benefit of the margin.
As a result, we are reiterating our core NIM guidance of 3.5%.
Second quarter on just 5 basis points.
Yeah.
Let me switch gears now to asset quality and offer a couple of thoughts and maybe helpful to you.
First we realized that deferrals, we're the number 1 topic a year ago, but our deferrals have all but disappeared from a peak of over $1 billion during the pandemic to $138 million last quarter to only $59.
$5 million this quarter or just 88 basis points of total loans.
Second nonperforming loans are just 0.82 percentage of total loans ex PPP.
And the reserve coverage of nonperforming loans is 182, 9%.
These are levels that we believe compare very favorably to peers.
Plus on third and just completed our regular semi annual loan review process, and which we reviewed every commercial credit and excess of $350000.
This involves a review about a thousand relationships totaling $2.4 billion.
Out of the $3.9 billion commercial loan portfolio.
At the conclusion of that exercise and they were zero downgrades.
Special mention or substandard in the portfolio. The thoroughness of that exercise gives us confidence as we took note of declines in both special mention and classified loans this quarter.
Classified loans for example dropped from $72.3 million to $56.2 million a level very close to the pre pandemic level.
On a $52.5 million at the end of 2019.
Fourth delinquencies, which are sometimes seen as an early warning signs of trouble ahead, not only went down from last quarter, but they are at an all time low for our bank and just 11 basis points of total loans ex PPP.
Fifth and finally, our reserves.
And at 1.50% and total loans ex PPP protecting our capital and our earnings stream going forward.
As for fee income, even with mortgage income slowing down a bit and the second half, we anticipate being able to sustain and pace of $26 million to $27 million per quarter and non interest income for the remainder of 2.
And so we made 1 due to favorable trends, we are seeing and SBA swap and trust income.
Turning to expenses and he came in at $51.5 million and the second quarter down slightly from $51.9 million last quarter.
Our previous NII guidance was 52% to $53 million per quarter. So we've.
<unk> thousand <unk> below that.
However, expect some expense associated with returning to a more normal work and travel environment elevated hospitalization expense that we haven't seen new hires and revenue producing and credit positions and the new recently announced equipment finance effort.
Bringing our niu.
And confidence to $53 million to $54 million per quarter for the remainder of the year.
Finally, we repurchased 72724 shares and the second quarter, and and average price of $13 and 95.
And with that we'll take any questions you may have.
Thanks, Jim.
On your guidance of operator.
And ladies and gentlemen, as a reminder, in order to ask a question. Please press star followed by the number 1 on your telephone keypad.
Well pause from Aman to capacity Q&A roster.
And your first question is from the line of Michael Perito with <unk>.
Hey, good afternoon guys.
Good afternoon.
I had a couple of questions. Obviously it was good to see some of the revenue momentum come through and the quarter and and I was wondering more specifically on the loan growth side I know you guys provided some updated.
Crusher commentary for the back half of the year, but.
Do you think the mix will shift more dramatically towards commercial or do you think that the consumer portfolios could could be the larger driver on the growth for for the near future here until kind of line utilization recovers to a tool.
A more normalized rate.
I would like the pipelines from seeing the spike and the corporate bank and we think.
And growth there could continue and pick up perhaps a little bit.
On the retail side, we just.
There is mostly execution.
And.
Our.
And broad based in sales really.
Moving the needle this year and grown the business.
And as well as and our indirect business has really expanded into new markets, primarily Ohio and penetrated those markets as well I think it will probably be pretty equally yoked, maybe with a little tilt towards retail.
Our branch speculation, but it's.
It's good to have a lot of orders and the water to generate growth and thats, what we had this past quarter.
Okay.
And on that point with the equipment finance.
Platform.
I know you guys have provided some general thoughts around like where what direction it could add.
But I was curious if you could give more of a better strength for us around timing.
How long the ramp up process for that type of platform can take I mean.
On.
For for example, like are there any non competes or anything of that sort like with hiring and traditional commercial under debt that we should be mindful of.
Or is it pretty much you guys can start originating these loans immediately.
After bringing him on board.
There's no noncompete fiscal is the lift that we didn't purchase.
Hey.
And equipment finance and leasing business, we really expect debt and.
<unk>.
<unk> or second half towards the end of the next year will be breakeven and that business and then the following 2 years could be very accretive for us.
2 our profitability and.
We're not ready to give you a number we obviously havent internal forecast, we'll see how the build out proceeds.
Very confident.
Professional who has led the same team.
For the last 17 or 18 years and.
And.
But we're not doing this to make 3 to 5 million Bucks.
And we're doing it and to make a lot more money than that so we're pretty enthused about that business and it has our full attention and factset is probably.
On the top of our list in terms of.
Businesses that can really.
Continue to transform our company and we have had some success as you know with mortgage reinvigorated indirect SBA and really doing de novo type things and <unk>.
Introducing.
Through our business. So we're excited about it.
Great and interest.
First question from me and then I'll, let someone else competitors on the.
Mike I was wondering if you could just give us any updates on kind of the.
Capital and deployment.
Deployment from it and maybe more specifically just on DM.
On the M&A environment, it's been a pretty active quarter.
And it seems like they're pretty good deal flow just curious how the pipeline looks and if there are attractive opportunities out there potentially from you guys to explore.
There could be a price is important and as Jim likes to remind me and I know all of you that we've looked at now 50 things.
2.5.
So we're pretty picky, and we want to make sure that.
Financially sound and it's also very strategic and.
And makes us a better company and it's also strategic accretive.
Not just for our earnings per share of the profitability of the bank.
Overall profitability and so.
<unk>.
But there is increased activity and there is opportunities in front of us.
On.
But we've looked at a lot of things over the years.
Hopefully that's helpful. We're excited about M&A, I think and perhaps the opportunity to be deals that they need to be rate.
And can you just.
So I was just remind us kind of.
What youre target box kind of looks like on the M&A front from size and geography standpoint.
Jim.
Yes, sure so we think about and I.
And I guess first geographically and 1 things that are and contiguous footprint that drive and low kind of footprint. So we look at overlap deals.
Within our geographies and <unk>.
<unk> had great success with these markets and extension deals and <unk>.
We were in metro areas.
But we look at all of those types of deals in terms of size.
The other old rule of thumb is always 20% to 30% of your assets science was the right fit.
And if it gets much much larger than.
And that <unk> has.
Consider that that has its own and integration challenges and much smaller and that is not accretive enough I think as a company what we've done what we've shown is that we're willing to look at some of the smaller deals.
<unk> move the needle accretion day for us if they have the right kind of business mix. If they have good talent against interest rate kind of geography, we would look at the smaller deals.
Debt.
And we often have those conversations so we're happy to do that.
And I guess and general comment on M&A, which we believe and bright future and a lot to offer.
We believe we can fold and other companies and making them part of the success story very effectively.
Great. Thank you guys for taking my.
And I appreciate it.
Q.
Your next question is from the line of Steve Moss with B Riley Securities.
Good afternoon.
Maybe just starting with the low.
On pipeline and.
And I hear you Mike in terms of just the thing.
Deepening and pipeline kind of curious.
And as to what Youre sharing fee for pricing and competition and just kind of maybe trampling from that until loan growth here.
Just a little different.
The assumption is there is an RFP on every deal and sometimes there is and you have to compete a lot of times and lending, particularly and the smaller and the midsize.
My question and just a matter of execution and being in front of your customer are in front of a prospect. So.
I would say.
Small business side, we have nice SBA debt pipelines, our corporate bank has really helped there and.
And it's just the way of credit enhancements and get a deal done.
Side, good pipeline on our SBA lending and our commercial real estate and and our C&I again deepening pipelines I would say that.
And you have to compete on price you really don't want to compete on credit quality if anything.
Probably at the onset we are tight.
<unk> tightened from guideline.
We're seeing and it frankly, and so we don't want to compromise there.
And then we really have a regional business model, where we.
And power regional presidents to go out and we have P&L and.
And regional metrics on their markets and.
And as they go on and compete and.
We've made calls with them and.
And it's a lot of fun.
Yeah.
I don't know that I have a lot to add other than we are and we feel like we have good momentum and.
And our commercial bank and and our retail bank and a lot of calls.
Line and the HELOC business was very good right now.
Okay.
That's helpful. And then in terms of just where we are where our new origination yields for the quarter projects that I missed that.
Jim.
Yeah.
It depends on the asset category some of the consumer category.
All because we are in the high twos like indirect auto.
Mortgages and the low threes, the commercial categories, and generally and the low to mid threes from new origination yields.
Okay. That's helpful does that helps.
Yes that does thanks, Ron and Jim and then maybe just on the.
The provision here and just kind of how to how to think about.
Trends going forward, just kind of curious I know you guys indicated and the release.
Growth drove it.
Drove the provisions quarter, but just kind of curious as to how how does the how you guys are thinking about the reserve ratio.
As we go through go forward.
And Martin.
And so forth.
We believe that with our credit quality and what we've seen and the migration and key categories by classified and criticized.
And what's been good the last quarter.
On the pressure will be off a bit there and.
Notwithstanding migration.
<unk>, which we're seeing migration goes the other way on a positive way.
I think that there'll be less pressure certainly and.
And you want to cover charge offs and.
And this quarter the charge offs were 3.9 that was mostly 1 credit otherwise we would have a very low charge offs.
Shorter, but it's really in line with our expectations and the past 4 or 5 quarters and you want to cover charge offs and we're probably we feel we're a little bit at the higher range of the loan loss reserve to total loans and we have good coverage, so that would really point to.
And.
Pressure and maybe a credit being a tailwind and the second half of the year.
Okay, and I mean are there.
Maybe some overlays projects that you guys are keeping that you want to wait for things to share a little bit better for that reserve ratio maybe to get back towards that day 1.
Reserve.
Alright.
I'm, having a tough time here and yet.
Oh, sorry, maybe just like.
And in terms of if the reserve ratio just kind of like what do you think it could maybe bottomed out and I realize you guys didn't adopt seasonal pull later.
And so just trying to trying to think about how to do.
And how to get towards a.
A lower range.
Ratio longer term.
I think it will.
Net slated trade.
With our peers I suspect and.
And our asset mix is a little different and.
Jim I don't know if you want to add.
And Mike cover the basic dynamics.
And of.
Provision expense quarter to quarter, which oddly.
And I will be enough, just hasnt changed and where you see so you are covering net charge offs and the company alone launch and providing for future loan growth.
We're really pleased that our user penetration has held up as high and I think what we're experiencing I think we've spent a lot of banks with line because that really be rolling into that kind of zone coverage.
<unk> ratio so as.
As opposed to the whipsaw on building up a big reserve on this season, and releasing and then having to build and again what average.
Thanks, Mike and his ability to grow into that ratio. We don't have a target I know you mentioned the day, 1, but we don't have a target to get back to day 1.
And we leased and reserves to drive it down to.
And that we just we have an obligation with 1 make sure that we have adequate reserves based on what we see in the portfolio and based on our economic forecasts and then all the rest if it plays out like I, just said and loan growth continues and rates going and the economy keeps improving and we probably won't get back down on those ratios, but hopefully that will take place over time and thats on being massively.
The release debt, which suggests that risk of having to provide for that again.
Hopefully that's a little bit rate helpful commentary from you.
That's all helpful. I appreciate it thank you very much.
Thanks, Steve.
Your next question is from the line of Russell Gunther with D. A Davidson.
Hey.
And good afternoon guys.
Good afternoon.
And I wanted to follow back to the discussion there on the equipment finance lift out and and maybe just the volume and rate impacts so on.
And on the volume side, you guys have been at.
Targeting and mid single digit rate successfully executing there.
As this.
Mature is that this business line that you see is accretive to that and growth rate or more of a mix shift.
And recommitting to our mid single digit growth.
And then on the rate side.
Yes.
Present upside going forward to a $323.30 near term important index.
Yes, I think yes, and yes, we do see it as accretive to our net interest margin and.
Do see it as an opportunity to boost growth and EBITDA.
Guidance, we've given is mid single digits notwithstanding.
Pandemics, we really felt we would be at the high end of the range.
And we feel that.
And provide another boost and really complement.
A very capable commercial banking franchise.
Got it okay.
And then in terms of the expense side change how much of that.
Increase on a quarterly basis was driven by the equipment finance team and you mentioned a few other.
Other drivers but.
And the bulk of that.
And Couldnt financing and just starting so early days and we couldnt financing, our projections would be $1 million million $5 per quarter, probably by the time, it's all set and balance really humming expense will be about $2 million per quarter, but that will more than pay for itself once a passenger.
And to breakeven point.
And very much pay for itself and then some that passed that point. So it's not that we just finished came on board, we're really happy to have them, there and we're building up systems and other.
Non-GAAP.
Return on controls and all the things we have to do a lot like what we did with mortgage with respect to book some assets by the end of this year.
That's why we're being a little conservative on the breakeven pointing towards the end of next year full on getting on the assets on the books as soon as we can see and kind of helped that and if a pay for itself.
All right Jim. Thank you and then Mike I understand you guys don't want to put too fine a point on it right now but.
And on that data to make $3 million to $5 million I mean, that's.
It sounds like.
And net income type of number which is about a nickel on the high side is that the way to think about it or how should we stay tuned for earnings accretion.
I think on multiple of that yes.
Yes, absolutely.
And we'll give you plenty of guidance assets.
And as we go on we will have multiple quarters and quarterly calls before we get to that point. So we'll refine that guidance as we go but yes. Ultimately eventually passed on it should be more accretive and that when you look at this a little bit like the mortgage business, where ultimately see 4545 years down the road.
And to be 10% to 15% of your balance sheet and is really selling.
And off some really healthy income.
Yes makes sense I appreciate it guys and then just last 1 on the expense side of thing.
You had a lot of success with the initiatives that you've put in place.
Getting those cost saves out and have you given.
Any thoughts into the back half of this year or is your.
Thinking about budgeting for 2022.
Visiting branch rationalization or any other potential expense initiatives.
Not right now, it's pretty fluid and we look at it as you know Russell quarter to quarter, and and network now and to the planning season and for 2000 and.
2002 and.
It's the key principle and we've been able to maintain positive operating leverage.
Slide a slew of investments.
Cited earlier and each of those discretely.
Akin to.
The equipment finance business, we are spending 3 to 5 plus.
<unk> million dollars to really build out platforms and we will.
And we figured a way to cover for them and.
And that's what we have to do and we also.
We also continue to make investments and digital and we are and another product I mentioned earlier, the blend mortgage solution, which will be terrific and we're still bullish on that.
And so we just had a great producers.
Good for the brand net new households, we cross sell them, so even though on mortgages tapering. It it's an important part of our company now.
And I understood like and the positive operating leverage.
That's great to see it from the prepared remarks.
And clearly it sounds like a commitment to do that amid.
This continued franchise investments is that the message to take away going forward.
It is it is and.
I know.
And we have staked in any given quarter youre going to remind us of that.
And we will try not to.
Fair enough.
Thanks for taking my question.
Yes.
And your next question is from the line of Steven Duong from RBC capital markets.
Hey, good afternoon guys.
And Steve.
Okay.
And Tim.
It looks like the low.
Liquidity as smooth a little bit on on your period and balance sheet is it fair debt.
When we look at the average deposits deposit balance next quarter that it could be perhaps flat to down and your cash and securities.
And perhaps be soaked up a little bit with loan growth.
Yes.
And just a little bit of what you said, Steve, but if it gets adjusted and Youre asking about trends and deposits and securities.
Is that rate.
And between because.
Obviously this quarter average deposits jumped up.
Liquidity jumped off but then I noticed your period end balance sheet and looks like.
Yes.
That is kind of and played out and maybe heading.
Heading into the third quarter.
The liquidity that we've been seeing has kind of leveled off.
Yes, I think that's right and I'm glad you picked up on that because it was a bit of an odd quarter to decipher from the numbers, you mentioned and what Youre looking at the period and <unk>.
And he has barely moved.
But the average is going up and that's because of this big influx right towards the end of the first quarter with the Alaska and this program.
But I would say overall, yes, we do think the deposit balance probably leveling off 1 of the big questions is when are they all the PPP loans that converting to cash there and customer accounts and the stimulus dollars.
And there'll be a rush of spending to withdraw some of that money.
But basically what we plan on and what we expect is that deposit base and relatively stable from here.
We also expect the securities portfolio to be relatively stable for the rest of the year and don't expect to take a lot of extra cash.
And deposit and Securities, we'll probably report.
Purchase securities to replace runoff.
Of course, we have and out of the market of securities for the last couple of weeks when the purchase opportunities for plain vanilla mortgage backed securities were at 1% even.
On appealing it's come up a bit since then so it's a little bit better.
Try to stay out of the market when it gets to be that week.
On.
But overall we.
And we're much more excited about the loan growth prospect as a way to soak up the excess cash and the excess deposits.
And that's that's the way and you see the second half playing out.
Got it and I guess with all this liquidity.
I guess the 1 thing we could do is just buy more of your stock Bath as debt.
And <unk>.
Are you kind of opened more open to that if you still have this liquidity.
And <unk>.
Stock repurchase activity and it never really been driven by liquidity, it's more driven by our.
Is it liquidity question, we don't really think of it that way, we think of it more of a capital planning exercise and.
And so we have.
<unk> been taking a fairly non aggressive approach to the senior fairly slow approach.
As we get.
As we've just retain more earnings and free the second half and capital levels build it really becomes more of a capital management tool to get to deploy excess capital and so we could pick up the pace, a little bit and the second half but right.
And now the plan is to kind of maintain the slow steady paces and doing so far.
Understood.
And then just on your PPE.
The balance is right now I guess, it's kind of hard to tell but do you think you'll have the.
A majority of those balances be forgiven and the third quarter or the fourth.
Yeah.
Do we think that ultimately that 90% of the totals will be gone by the end of the year that we'll leave it remain and PPE balances somewhere between $100 million to $150 million.
By the end of the year.
Yes.
Paws and the forgiveness programs driven by the way the SBA was beginning PPP loans and the second quarter that that's part of what's led to the slowdown and forgiveness rate and the second quarter, but it really picked up again towards the end of the quarter and so most of the round..1 now has most of its already been forgiven and we expect that to around 2.
And there was about the same kind of pattern and most of it will be forgiven by the end of the year.
Okay. Thanks for that and then.
Just on the loan growth and the quarter, I guess Wednesday, and auto were pretty strong on how you guys feeling about those 2 segments for the second half of the year.
And then also.
Eni ex PPP.
It kind of looks like Thats bottomed out as well are you seeing.
On that kind of starting to turn as well.
Yes.
It is it was.
Some of the loss there was and this.
And.
That is turning.
The commercial real estate was a little ahead of it.
Commercial solutions, which is the smaller portion of C&I, we're already seeing a little some nice little growth there.
So is it that is beginning to turn and then I think the first question was just about.
On the indirect business and our expansion.
Io is really driven that the team has done a nice job of getting in front of dealers and we're also getting for clients from that and other commercial business.
From that as well and <unk>.
We are having good credit experience and.
And we have had or Steve I would just remind you.
And then the great recession.
Our indirect business performed very well with scaled a bit.
But our credit underwriting, it's pretty discerning and if anything at the onset of the.
Of the pandemic, we tightened our standards a bit there. So we feel good about these portfolios and how to endure.
If I could just add to that Covid, our mind, 1 thing that gives us confidence about C&I growth towards the second half as the growth that we don't see bid and the published financials and growth and commitments that we have.
The strong growth and commitments from the second quarter and would have turned into rate.
A decline and the utilization rate and so even though the total.
Total C&I loan balances.
And I can go up that much and we grew.
Growth and commitments for the quarter was 124 million risk.
See that really paving the way and.
And it gives us confidence that we can.
It's a timing issue as that gets drawn down the second half of it and experienced net loan growth from C&I Bridgepoint and yet.
And that's good to hear and I guess, maybe just on back on the auto.
It's been pretty strong I thought it would and kind of leveled off a little bit, but it's still pretty strong there is no issues with it I don't know that the chip.
Chip shortage or anything like that are you still kind of bullish on it.
Yes, we are.
And 1.
And 1 of really a debt deal.
Or is there is just finding a way to do some just in time and surprising how resilient and.
Some of the older School Board Old school dealers, it's been a little harder on.
And I think this will sound a little obscure, but I think the demand.
And the Manheim used car and.
Index back and the Middle of June I think we've peaked at price and we're starting to come off of those a little bit so thats, probably pretends well for other businesses.
And steadier volume right.
And I don't know its been more uninterrupted and we thought it would be despite the.
The inventory shortages.
That's great to hear and then just last question.
And your equipment leasing book the lift out I guess you were.
This is coming on board and look back and see.
Some of the other segments debt.
Net.
And I've gotten bogged with.
How do you see the equipment leasing portfolio comparing to those other portfolios that you've been involved with through the years do you see it really being up there compared to the other portfolios or in line.
And overall.
<unk> growth and profitability.
Okay.
I think I think it will be very profitable.
And I think it will we can grow it.
Yeah.
Yeah.
I think we can we can have a substantial meaningful business for our cash.
Yes.
And I'll just echo 1 thing I mentioned before about its place in our company and I think that gets to your question as being a part of the overall pie chart of the business and it.
Slice being a tenant and 50% Pie chart in terms of balances, but it's a more profitable business than a lot of other businesses within this range it will be nicely accretive.
And to margin the yields are higher.
Our efficient business and without the efficiency ratio.
We are excited about that business as it grows.
Great Thats it from me thank you.
Thank you.
Yes.
Our final question is from the line of Matthew Breese.
Stephens incorporated Hey, good afternoon.
Just a few from.
From me.
First.
What types of equipment.
We're going to be underwritten by the new team is this large ticket small ticket yellow metal.
And what is it.
Small ticket.
And Mr.
Okay.
And any any.
And could you be any more specific there or is it small ticket like office equipment or something else and.
What are the kinds of typical loan terms.
Might get on it.
And these will be true vendor programs and.
This will include.
Include everything from.
Small ticket leasing or I mean, it could be landscaping and to be office it could be.
And really.
Tools and manufacturing forklifts.
Surprisingly, we go to some of our middle market clients and invariably we might have.
5 or $10 million that they will have between small equipment that runs the plant.
Another $5 million and leases it'll be 4.
And some programs like that as well.
Okay.
And I'm, sorry, just clarify and its not primarily office I think you were alluding to that.
Mike mentioned.
Transportation equipment manufacturing equipment.
Both of those not familiar.
Okay.
Providing an example, thank you for clarifying and then.
And what are the typical kind of.
Spreads in terms on on this.
New share in the 4 and 5 to 5.5% range.
And pretty consistently and thats pretty consistent through economic cycles.
That's why we are fair.
And I'm confident that on the NIM accretive because thats.
The yields are very attractive.
And do you have an idea of historical loss content from the producers.
Yeah.
Give us a few months is fairly it's.
And we'll probably a little higher than our loss now.
Let me get that for sure from I'll ask my follow up question.
How much of the balance sheet at this point is floating rate and without Florida, just wanted to get a sense for if and when we do see a fed hike how quickly.
We might see some of your loan yields respond.
They are loans, we have about 50% that reprice.
And about 50% are fixed net by design.
On.
We've been higher on the fixed and then weakness.
And it's.
Like it's 50.50.
<unk>.
And then my last 1 is <unk>.
Strip away.
And PPP this quarter core NII was up sequentially. It feels like we inflect and kind of.
The bottom was last quarter as I think about the outlook right.
Good loan growth feels.
Okay, and the core NIM can expand.
Could you provide any color on on core NII and kind of the outlook. There maybe provide some guardrails as to how we should be thinking about it over the next 6 to 12 months.
I think well first of all by other I've got you answered on the charge offs normalized charge off and this business is about 55 to 75 basis points.
Feels like and you probably higher than our index on our business.
1 of the makeup of that.
Thank you.
It's a great question. Thanks, we will get more clarifying.
Colors and go on.
And the.
Yes.
Spread income and think what kind of.
And just to continue the story and I'm, just telling and can see.
And that Hasnt been the story.
And stability and maybe some growth potential because of the change and the asset mix.
And get better and the assets on our balance sheet.
We will try and give some clarity as to stripping our PDP and how that affects that because we still have a lot of pvp fee amortization to recognize and are recognized on a lot of that and the second half, but the core like you were talking about the core NII without PPP seems.
And so the story of stability with some growth potential and the <unk>.
And have some of that story will depend on the rate environment.
Obviously, we're all watching the 10 year headlines on treasury rate at 1 a quarter percent for us.
And we Werent asking this question directly but it's implied in your question for US we have very.
And the company tied to the 10 year rate.
For example, if you look at the middle part of the curve with 2 and 3 year part of the curve, which isn't getting as much attention and that that's actually higher than it was at March 31, and.
Net indirect auto production is all tied to that part of the curve.
So there is some of that very much obviously the rate environment plays a part.
And our expectations toward NII trend, which was the core of your question.
But it's not as.
Penalized and to US is and I think just looking at the headline 10 year number.
Got it okay and I appreciate that thanks for all the color.
Thank you.
Very little at this time and there are no further questions I would like to turn the call over for any closing remarks.
Thank you operator, and as always we appreciate your interest and our company and we look forward to being with a number of you over the course of the next 3 to 6 months.
Thank you so much.
This concludes today's.
His conference call. Thank you for participating you may now disconnect.
Okay.
And then.
And.
And.
Yes.
And.
And.