Q3 2021 Great Western Bancorp Inc Earnings Call
Full year 2021 earnings announcement and conference call all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing star followed by zero. After today's presentation there'll be an opportunity to ask questions to ask a question. Please press Star then 1 on your telephone keypad to withdraw your question. Please press.
Press Star then 2 please note. This event is being recorded I would now like to turn the conference over to Seth Artz head of Investor Relations. Please go ahead.
Thank you Emily and good morning, everyone.
Joining us for today's presentation and discussion we have Mark <unk>, President and Chief Executive Officer, Pete Chapman.
Then chief Financial Officer, Steve Yost, Chief Credit Officer, and Carlin Canaria Chief risk officer the.
The presentation for today's earnings review is available for webcast and download through our Investor Relations website at IR Dot great Western Bank Dot com.
We'd like to remind you today that todays presentation may.
May contain forward looking statements that are subject to risks and uncertainty, which may cause actual future results to materially differ from those disclosed. Additionally, any non-GAAP financial measures presented are provided to further assist you in understanding results and performance trends and should not be relied upon as the financial measure of actual results.
Please refer to the earnings materials, along with periodic SEC filings, which contain our forward looking statement disclosures as well as reconciliations for non-GAAP measures on.
Now I'll turn the call over to Mark Bracco Mark.
Thank you Seth and good morning, everyone.
I would like to start by thanking our employees for their continued efforts in supporting.
The Western Bank mission to make like great by strengthening our customers and enriching our communities.
Their efforts enabled us to have another strong quarter, posting net income of $51.3 million.
Peter and Steve will walk through the specifics, but I am very pleased with our continued progress.
Turning to slide to credit risk management.
The great was the top priority for us.
We made progress with our asset quality with a further reduction in both non accrual and classified loans.
We made significant progress on our loans on deferral, which are now just $19.7 million as of April 16th down from a peak of 1 point.
It remains of $9 billion.
The outlook for the AG industry continues to improve with grain prices receiving support from higher demand and livestock prices holding above average I'm encouraged with the number of upgrades this past quarter in the AG sector and expect additional upgrades in the June quarter.
We made.
6 managing our net interest margin.
Particularly through a 5 basis point decrease in our deposit costs.
We made progress on strengthening our capital position by 80 basis points through improved earnings and our allowance for credit loss ratio remains at 350 of total loans excluding PPP following.
The program vision recapture of $5 million this quarter.
I'm excited that we launched.
The pilot of our small business center, which will transform how we originate and manage small commercial credits.
This new program will reduce origination time from 22 days to 3 and we will significantly improve the client experience.
The name <unk>, which will allow us to better support the many small businesses in our footprint.
These enhancements will also create capacity for our commercial bankers to pursue larger relationships and are underweight segments and markets.
The initial pilot results are encouraging I caught up with Andy Syverson, 1 of our pilot bankers in Omaha and his.
<unk> was it's so easy to complete the process and our customers love. The simplicity. He also mentioned that he will be able to help a much larger customer base than before because of this new program.
We expect to have the small business center rolled out to all markets by the end of September.
As I mentioned at the beginning of the call at the heart.
Feedback Aggress is our mission of making life, great by strengthening our customers and enriching our communities I am proud of our diversity equity and inclusion efforts and our employee support for our current B you campaign and.
And the support and empower a diverse workforce and to create and sustain a conscious culture of inclusion at great Western Bank.
Looking forward I am encouraged by the increased economic activity in our markets. Our team is back in the office at 50% capacity with a full return to work date of August 2nd and as the weather in the Midwest improves I expect our growth opportunities to improve as well now.
<unk> for a review of the financial results I will turn the call over to our chief.
The financial Officer, Pete Chapman, Pete Thanks, Mark and good morning to everybody looking at slides for Youll see we had another strong quarter of earnings with net income of $51 million.
Supported by low credit costs of an underlying pretax pre provision earnings of $60 million.
Net interest income benefited from a focus on managing them funding costs combined.
The accelerated PPP feeds helping to offset the impact of lower loan balances and our excess liquidity.
Noninterest income was supported by good core revenue generation amidst the seasonal slowdown on select items and expenses of being below guidance with the.
This quarter been cheap.
Benefiting from lower Oreo operator.
Running costs and also reduced FDIC insurance.
On slide 4 we see adjusted net interest income was $101 million compared to $106 million on the prior quarter and our adjusted NIM was 3.4% compared with $3.5 2% in the prior quarter when excluding 1 off items like nonaccrual interest recoveries along with PPP.
Combined with cash in this quarter underlying NIM decreased 18 basis points from 336% to $3, 1.8% primarily related to excess liquidity as deposit growth has been strong coupled with the decline in loan volumes.
Okay.
For the pressure on NIM from the full effect of higher interest, earning assets and will be prudently man.
Cash cash position going forward.
The average cash and securities of $3.1 billion.
It was an increase of 27% on the linked quarter.
$818 million of that in cash compared to just $57 million a year ago.
Looking at slide 5 in the quarter, we originated $196 million.
The PPP loans in the latest round compared to $727 million in the first round $356 million of lunch in the first round of Bain for given in the current outstanding balance for all of PPP loans is $567 million.
Total interest and fee income from PPP loans was $9.7 million this quarter.
And as of March 31, there was still $13.2 million of fees remaining to be on amortized.
Still originating PPP loans, but volume is type it off significantly.
On slide 6 total noninterest income was $78 million, an increase of $3 million from the prior quarter.
The increase in the right environment.
The favorable derivative credit adjustment of $2.3 million.
Excluding this item core income was $18.1 million compared to $19.4 million in the prior quarter with the decrease due mostly to less overdraft income low crop insurance revenue and also seasonally lower mortgage income.
Looking.
Little slide 7 noninterest expenses of $59 million were up slightly from $57 million on the prior quarter.
The increase was driven primarily by salaries and benefits due to merit increases in January and higher accrued incentives Oreo costs remain low in line with stability in the Oreo asset levels and we also benefited.
Looking at the from a true up on our FDIC assessments.
Overall cost of tracked below expectations. So far this year, but we still expect an uptick towards $61 million to $63 million per quarter that gives the effect.
Supporting our key initiatives around improved technology and also on improving our asset quality.
This quarter, we recaptured 5.
$5 million of provision for credit losses on loans compared to $11.9 million provision in the prior quarter.
Due to the reduction in loan balances in the current quarter.
Moving to slide 8 you'll see our ACL was $296 million at the end of the quarter compared to $309 million from the prior quarter with the decrease.
Due to lower loan balances.
In addition to the $296 million of ICL with $27 million of fair value marks against the long term fixed rate portfolio of loans of $569 million, which was down $43 million from the prior quarter.
Our ICL on fair value Mark combined with the $2.4 million.
1 of the funded commitment or is it puts the total credit coverage.
Ratio of 386% of total loans, excluding PPP loans.
On slide 9 we see total capital increased 80 basis points to 15, 1% tier 1 capital increased 90 basis points to 13, 6%.
The common.
On equity tier 1 capital increased 80 basis points to 12, 8% during the quarter.
Also of tangible book value per share increased to $9.75 per share up from 19 point to $8 per share on the linked quarter.
Positive earnings reduced risk weighted assets and reduced dividends of helping improve that our capital levels. We.
Continue to believe it is prudent to manage our capital given our asset quality combined with the current environment, which while improving still has some uncertainty in the outlook consequent quaintly. We once again declared a dividend of <unk> <unk> per share for the quarter ended the 31 March 2021.
We will continue to evaluate capital.
Engagement in close conjunction with the level of classified assets, which again of showed some improvement this quarter, but do remain elevated overall.
Looking at deposits they increased by $191 million in the quarter to $11.6 billion, while average balances are up $139 million of mix continued to improve.
Groove as average timed deposits decreased 15% for $183 million during the quarter.
Total deposit cost of 16 basis points was down 5 basis points from 21 points in the prior quarter and down 59 basis points from 75 points a year ago.
Loans at the end of the period, we've just opened.
The <unk> a decrease of $506 million from the prior quarter or 373 million when excluding the PPP loan decline.
Proximately $130 million of the decrease was the related to the repayment of higher risk weighted loans, which included the sale of the 23 million hotel loan that was showing deterioration.
The ability to remaining decrease consisted primarily of declining balances in the non owner occupied commercial real estate segment through refinances for the secondary market, some seasonality and line pay downs and a general trend of deleveraging across commercial and consumer customers holding higher levels of liquidity.
With that I'll now hand over to our.
Chief Credit Officer, Steve, Yes to give an update on credit progress asset quality metrics and key loan segments.
Thank you Pete and good morning, everyone.
As Mark stated priority number 1 continues to be improving our asset quality and we have made further progress following improvements from last quarter.
Our stronger credit culture is evolving in parallel with our focus on credit risk management portfolio management and specialized credit administration.
Our consecutive quarter of improvements on our nonaccrual and classified metrics for success and exiting problem loans, along with making a few risk rating upgrades.
The loan deferral requests have dropped significantly with the balance of our loans on some form of deferral down totaling $19.7 million or 2.4% of total loans. Excluding PPP on the majority of those are making interest payments the progress on our small business initiative as Mark outlined will allow us to.
To be much more efficient with the administration of our smaller commercial credits are commercial loan workout groups are making progress on our.
With our workout of classified assets I am pleased with our progress on asset quality and credit risk management, and how our execution is moving us towards a stronger position.
On slide 13, we have a summary of our asset quality metrics net charge offs were $7.8 million of 3.4% of loans annualized and excluding the sale of the deteriorating classified hotel on this quarter net charge offs were $2.5 million or 1.1% of total loans annualized.
<unk>.
Classified loans were down to $674 million, a decrease of 6% from the prior quarter classified AG loans were $292 million on 9% decrease from the prior quarter driven by pay downs and a few upgrades.
Classified non AG loans were 300.
Third 82 million of decrease of 4% due to a number of upgrades and the pay off of a larger hotel on partially offset by $41 million of hotel loans downgraded to substandard in the quarter.
Nonaccrual loans decreased further to $285 million due to a few payoffs of minimal downgrades.
Our momentum in reducing the balance coming out of the quarter.
On slide 15, and 16, we continued to provide an overview of key loan segments in our portfolio on slide 15, you will see total accommodation book of $939 million for sure.
Is comprised of 784.
Millions of hotels, excluding the casino hotels $115 million of casino hotels, and $40 million of PPP loans for the whole.
Tell portfolio reduced by $39 million this quarter, 88% of the total portfolio is in footprint and well diversified across more than 100 small.
And we had nice locations a.
The year after the pandemic began on coming out of the lender season for $198 million of hotel loans are pass rated along with all of $115 million of Casino hotels are also fast rated and we will remain diligent in managing the portfolio with the transition to spring and summer.
Number.
On Slide 16, you will see our AG portfolio is diversified across screen on livestock segments of.
As Mark noted the outlook for AG of showing upside driven primarily by increased demand for U S. Agricultural products. The last few USDA reports of projected further reduction in corn and soybean.
To mitigate inventories, which as of April has farm price estimates of $4.30, since the vessel for corn and $11.25 per bushel for.
Soybeans, both indicating good margin opportunity for producers.
The <unk> III milk prices reported by the USDA notched up to $16.
Soybean teen cents per hundred weight in March and remained in the remaining 2021 futures are tracking 10% to 15% above that.
Our health care portfolio has generally shown stability through of Covid cycle, and we continue to be proactive on identifying early risk indicators to determine appropriate risk ratings.
That wraps up my credit commentary on alternative now back to Mark. Thank you Stephen Operator, we're now ready for the question and answer portion of the call.
We will now begin the question and answer session.
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Some of our roster.
The first question comes from Jeff for less from D. A Davidson. Please go ahead.
Thanks, Good morning.
Good morning, Jeff looking looking at the the progress.
Progress made on on the credit clean up I.
It sounds like if you've got continued.
Loan workouts occurring 1 of just check in on the on the net loan growth outlook in terms of the <unk>.
Progress you've made and maybe.
When that could turn potentially positive and then sort of related to that if you could speak to the provisioning level.
We're going to have to wait till.
The net loan growth before we see potentially a positive for <unk>.
Thanks.
Yes, sure Jeff I'll start this is Marc and then I'll turn it over to Steve for additional comments. So when we think about our net loan growth or where we are from an organizational standpoint, we have been focused on ensuring that we get to a place where we are working those.
Either of problem credits out and or looking at the portfolio and being proactive around how we start to manage those credits out before they deteriorate. It also.
Institutionally has.
Taken some time and attention away from our normal business, calling activities as has the pandemic. So when we talk about.
<unk>, I think or where do we think our loan growth is I would say that the engine is started again, we are seeing increased pipelines, we are seeing increased activity.
But for us because of the current asset quality focus.
It has in some ways.
Slow down what growth, we would have seen over the last.
Couple of quarters, So am I encouraged about our opportunities for growth in the future. Yes am I encouraged that we're seeing that activity and that our pipelines are increasing.
In this last quarter. It was a material increase over the prior quarter I am I don't want to get overly optimistic about what that means but I do believe that the second half of the year things will be better for.
And as that of engine gets ramped back up again and Thats, our focus turns to more business development activities as we have the other parts of our hotel portfolio ring fenced with a specialized group our normalized our normal workout group I feel like we're in a better place than we were before and that activity is starting to increase ph D of other comments.
That's really well said mark overall, though Jeff I'd expect loans to be flat to slightly down just as we continue to run off the classified book on the loans that the ones that are causing us some stress sorry from a top line perspective, but as Mark said pipeline for increasing and we're seeing some really good activity of the market.
Jeff as Mark mentioned.
Strategic business services, which is our workout group for commercial credits handles most of our classified credit sales are not handled in the field. So that they can focus on bringing on new business as well as mark outlined we have our specialized hotel group that are dealing with the more challenged hotel credits. So the plan is is that those rooms.
Our focus on continuously improving our asset quality of the other groups will focus on growing assets.
And the provisioning.
Oversimplify it is the flip to growth, but just some thoughts on.
The provisioning level.
Thanks.
Yeah look really comfortable with the Jeff obviously.
And on the level of nonperforming nonperforming assets as you saw during the quarter were comfortable coverages.
Adequate based on asset quality and as we said the decline this quarter was really as a result of the decline in balances.
Outlook, we're not really releasing reserves due to the improved outlook is yet just.
As we wait to get customer financials in and also have a look to see how some of those hotel exposure has performed through the summer.
Appreciate it thank you.
Thanks, Jeff.
Our next question comes from John.
Our strong from RBC capital markets. Please go ahead.
Good morning, everyone.
Good morning, John.
1 of the comments you made in your prepared comments you used the word momentum.
Non accruals.
Since quarter end can you can you talk a little bit more about that in for.
30000 feet it seems like everything.
Is getting better from a credit perspective.
Made some progress on non accruals, but.
They're going to be a quarter, where you think we're gonna see of big Big stepped on the non accruals and as the coming relatively soon.
Oh.
As I've learned with asset quality of the makeup of our portfolio of it can be lumpy.
When we show improvement like last quarter, we had the hotel sale and we had some really good improvement on non accruals I see that hopeful in the future. So I am encouraged as I look at our workout loans on what I'm seeing for the next quarter I'm very encouraged that we can see progress in the non accrual.
Just don't really.
Outlined where that's going to be until the monies in the bank so to speak until we actually see the actual pay off so I'm very encouraged by what I see and I am hopeful that we will see some momentum there and I don't see anything that would discourage me from that statement we.
We just want to be very careful until we actually see those.
<unk> paid off.
Could you maybe give us the top.
3 to 5.
The non accrual balances how concentrated is this at this point.
So on non accrual balances are concentrated more I would say.
Add to the.
2 thirds of Zagat, that's more of our legacy from a few years ago and so we're working those extremely aggressive way of hard to work through those and we have the appraisals on all of those we feel that we've got those mark to the right balances. We do have a hotel loan. That's also on the larger non accrual balance that we see.
Loans continued improvement on.
And so we also don't see significant amount of specific reserves in that non accrual balance and so of all of those factors. We are encouraged especially with a proven on the AG that we.
Further validates my comment on the momentum.
Mark maybe a question for you.
It kind of goes to overall confidence I guess, but.
Talk a little bit about cash.
Capital allocation.
What you'd like to see happen.
For the next few quarters in terms of dividends or even potentially.
Potentially thinking buyback.
Yeah.
We haven't had the internal conversations around that I think for us it's still too early given where our non accruals are and where overall.
Asset quality is.
With that momentum that Steve referred to and with some of the other elements that we are seeing.
Throughout our performance.
I am comfortable to say that let's.
Let's see that asset quality.
Improve once we see that material improvement then discussions around dividend or share buyback all of those things are back on the table, but.
Consistent with our conservative approach that we've taken over the last 12 months I want to see that material improvement and then we can have the conversation about how to how the best.
Put that capital to use.
And.
Great.
Last question on and in this case it goes to the same topic, but you've spent a lot of time digging through the company.
Looking at the economy.
The more optimistic it seems like a silly question, but.
We're still seeing this elevated nonaccrual balance and we're seeing kind of the loans come down, but you're talking about improvement.
We're talking about potentially better loan growth just how are you feeling about things market in general.
Yeah. It's a question that we ask ourselves of I asked myself, often I do feel much better about where we are and while I would love to see faster improvement in our nonaccrual and classified levels. The fact is if we.
I'd see that faster improvement it would likely mean that we were accelerating our losses and so the fact that we are being prudent. The fact that I know based on Steve's team and all of the hard work. They are doing that I would expect to see continued and even more sizable improvement this quarter.
See how and what the the organization is responding to some of our key initiatives.
We like the small business center of the overall end to end lending process revamp of going through the fact that pipelines are improving the fact that overall sentiment in our markets is getting better economic activity is higher.
Employee engagement is better all of those elements for me lead me to that increased optimism and I also know that.
We have an engine of our performance of that are like I mentioned before it was maybe a bit of neutral last year as we were trying to solve some issues, it's now clearly and drive.
And we're getting revved up so I am far more optimistic about the second half and going into 2022.
Okay, alright, thanks for the tons of against.
<unk>.
Yeah.
Our next question comes from Abraham tune of Wala from Bank of America. Please go ahead.
Hey, good morning.
1 of you Brian.
I guess I just wanted to follow up on again on credit.
All of you correctly your reserves out of 3.5%.
The ex PPP.
2 thirds of non accruals or AG lending, which I think you mentioned in the specific reserves. Historically this has had the minimus loss content.
So I appreciate you don't want to give any specific guidance or outlook on the reserves, but talk to us in terms of what do you think the loss recognition is going to be.
Some of these things most of the bike and is it safe for us to assume that a lot of that C. N of half percent of reserves..1 comes back into the into capital, which is already very strong and peace of mind us what steady state.
The 1 ceases the jobs would look like for you if we get back to a normal environment 6 months.
In terms of your balance sheet.
Yes, sure certainly I'm sorry.
In terms of lost timing.
Steve do you want to make any comments on that.
So we.
As I mentioned earlier, we do not see significant loss on our non accrual book.
And the former.
On the specific allocation of the appraisals that we have against those properties. Those agribusiness properties that we spoke the that I spoke to earlier.
There are a few COVID-19 impact of non accruals.
Hotel that we have a decent allocation against as well as the Ada that we have a decent allocation again.
So I don't want I, just want folks to the all of those Covid Covid impacted industries have the higher specific allocations and then as far as future reserves and I'll, let Pete speak to the specifics.
Because of the uncertainty of hotels and hospitality, we are encouraged by everything we say on everything we've talked.
About but until we see the actual improvement come in the next 6 months, we are being very careful with how we're reserving against our hotel and hospitality book, which has minimal non accrual at this point.
And minimal classified.
We are just being very careful on how we view.
View that because of the uncertainty over the next 6 months.
Ebrahim I think that the more normalized provision level in terms of that 6 month timeframe I think that's a little bit too soon.
As we've seen with some of these non accrual assets that just take time to work down. So I think it'll be more than a 6 month period to move back to a more normalized level.
But.
When we do certainly from a provision coverage level Abraham we certainly hope we don't have to be where we are now when we hope we can move back and more in line with peers, maybe a little bit more elevated just because we have that AG book.
Say, a little bit more volatility so certainly we might carry a little bit more on or is there compared to peers, but certainly I would hope.
To get back more in line with with where others are at the moment as we move down the non accruals.
Got it and I guess on the.
The other question Mark for you.
Just give us an update in terms of things that youre doing I think to improve transform the franchise.
You highlighted some of the progress made.
In a few quarters.
Look forward I mean, it seems like beach expense guidance is actually lower than where you've been for.
Talk to us in terms of.
Does that take into account in the future investment spend on technology and personnel and and how are you thinking about in terms of just adding bankers and and and and what markets are you looking.
Looking to expand into.
Sure. So yeah the guidance for the expenses is down a bit from our previous guidance.
For us as we do our of our deeper dive into the organization look at where our strategic initiatives are we are very comfortable that with that guidance. We are able to make the types of investments that we need to to move the organization or the use the words that you.
For us transform our what we want to do I am encouraged by the our ability to get.
Some of the benefit of these key initiatives early on we talked about the small business center, we know that we have our commercial.
And the and lending process revamp of which the level of engagement from our our bankers.
Additional we have deloitte coming in to help us to provide additional counsel and accelerate some of those improvements I think about where and how.
We want to continue to support the markets that you mentioned growth. So we think about Tucson, We think about Colorado Springs about Fargo about Kansas City.
Additional growth in Omaha des Moines, we of opportunities in the eastern Iowa.
And so for for US, it's not a shortage of markets, where we want to grow we will look to hire either of you know.
Experienced bankers and our teams of bankers in some of those key markets. We've had some significant upgrades in Colorado Springs for example.
On our commercial leadership and so just expect us to do that on the continued basis to make targeted investments in those key markets as well as making sure that we make it easier for our employees to do their jobs to those technology improvements and process improvements.
Feel really good about about how that's progressing and knowing that there's a lot more work to do but.
We're clearly making that kind of progress we need to.
The lower expense guidance really is just recognizing.
<unk> run rate is tracking lower than what it has done historically Abraham.
Still very much investing in the business, but just acknowledging the with Oreo balances sort of flat to declining that we'll be doing a little bit better than we think.
Got it thanks for taking my questions.
Thanks for thanks very much.
Our next question comes from Andrew Liesch from Pete Pete Piper Sandler. Please go ahead.
Hey, good morning, everyone.
Good morning, Andrew just Steve a question on the just the overall.
<unk> level and not necessarily in the near term because you have the classifieds and some of the non accruals yet to work through but you won't get.
The loan portfolios for for many years of where do you think it's like looking for I'm talking 2.3 years down the line from here what do you think the reserve ratio ultimately settles out.
A lot of I would like to see non accrual loans stabilize at about $100 million to $125 million on a stable state I hope to be better than that in 3 years I hope.
Definitely would have of butter goal for myself on that but I think if we can get of that level of non accruals.
And then I'll, let Pete talk to the.
The thought but I think if I could get on that level of non accruals. We as the bank can get to there that we will you'll ask me lots of questions about asset quality and won't be talking about other questions. So I think the that's kind of where I see us on where I hope, we can get to and the allowance will probably fall of Super fast.
100% of great safe So Andrew.
Andrew if we're getting back to more normalized <unk> levels are on that.
1.1 of the quarter level, then I think from a reserving perspective, then we pulled back a little bit more in line with some of the peer peer analysis on our you've for at least over the course of the quarter, Andrew maybe a little higher as we said Gee the wagon.
Protect around some volatility.
Not materially.
Allowance for away from PS.
Got it got it.
You've covered all my other questions. So I'll step back thank you.
Thanks, Andrew.
Our next question comes from David Long from Raymond James. Please go ahead.
Good morning, everyone.
Good morning Debbie.
I appreciate the color that you guys have given on some of the progress of the bank has made and maybe Mark I know, it's still early in your tenure.
You talked about building on a more competitive small business presence, just curious where you stand there and if theres any tangible evidence you can point to of of some success at this.
Point.
Yeah, we lost the pilot March 29th So I would love to have more tangible evidence and we will definitely for the next call.
But so far the pilot is very much in its infancy.
I did have a chance to check in with the team and also with the several of the pilot bankers and again early returns.
Albeit.
A small sample size is very positive for the thing that's the most encouraging and I keep going back to this as the within the organization. The small business initiative really has 3 key elements of the first is just really improve and simplify how we originate and manage our small credits that improves the client experience.
Turns but it also significantly improves the employee experience because historically, we have originated those smaller credits and manage those smaller credits the same way, we manage $5 million to $10 million of credit. So the amount of work involved the amount of oversight was significant and yet the upside of the the the benefit to the organization was not necessarily in line.
With all of the work and costs.
To put into it the second benefit for US is that we can now be much more efficient with how of banker can handle a bigger pool of clients within those markets. So they could maybe help 50 customers before now they can help the 100.150 customers the.
Last piece for me is that small business is a great way to grow.
So low cost sticky deposits. It's also a way through a package program to also increase our noninterest income through Treasury management merchant services or other activities or services, where today, we don't really have a large portion of that business. So the small business element is really important for those reasons and again.
On top of that creating additional capacity for the organization to go out and grow those larger credits as well. So we'll have more tangible evidence for you.
In the next conversation, David but that right now is really all we have because of the pilot again just began March 29.
Sure. Thanks, I appreciate the color and then my second question.
As it relates to the the PPP program and just curious on your thoughts on I know you talked about $13 million less in fees. How do you see the the forgiveness playing out with the rest of the round 1 and then with the round 2 through the end of the year on do you think that maybe it goes into next year at all thanks.
Oh book I think it does.
Again it into next calendar year, if you're talking if you're talking calendar just to keep it keep it clean but yeah I think it probably will will drift out a little bit, but you know what you saw this.
Of this quarter.
Just over $9 million of the revenue it is starting to accelerate so I think materially the next couple of quarters and maybe less material after that.
Got it thanks, guys I appreciate it.
Thank you.
Once again, if you would like to have an ask a question. Please press Star then 1 of our next question comes from Damon Delmonte day at K B W. Please go ahead. Thank you are there with them.
Morning, guys hope everybody's doing well today.
So.
David First question just Hi, My first question just relates to the for the margin and the outlook. There I think Peter you had mentioned.
On the expectation is for some some core pressure on the margin I was wondering if you could talk of about that and kind of your thoughts around the excess liquidity and how youre managing that well that just stay in and low.
Low yielding fed funds or would you look to move that into the securities in the interim.
Yes, Thanks Diamond Hill look I would expect to see some pressure there because we had some some of that liquidity increase was actually towards the end of the quarter. So in terms of that liquidity drag you'll see some of that with the full effect come through this quarter on we're not seeing.
Significant deposit outflow the states. So we think that will stay around for the moment diamond so that'll caused the pressure.
And then just in terms of deploying that are being.
Being measured but look we're trying to just take advantage of where we do see some opportunities. So I would put on some boldly in the last quarter, certainly we bought a little bit of bank sub.
Well so the team will just continue to chip away at that and look at opportunities, but I would expect cash and low yielding balances to be elevated here for the next quarter as well.
Okay great.
Mark I think you kind of touched on this on 1 of your other responses, but when the growth returns.
Of course.
That is a very well on your on your commentary about being ready for opportunities could you just kind of remind us again, where some of the greatest opportunities on the footprint line and.
Just on the geographic perspective please.
Yes, sure. So we'll start kind of in the Midwest and the northern parts of within Fargo for example.
I feel like we have a really best in class.
Commercial team and so being able to leverage that and make some additional investment in the Fargo market I see opportunity as we work the way down the Midwest clearly in Omaha in des Moines.
Have opportunities for continued growth within South Dakota, obviously.
I mean geographically challenged in that regard South Dakota, we still think that within Sioux falls.
Characterized by the other key South Dakota markets, there's there's growth opportunities, Kansas City, I see really big opportunities for us and opportunities for us to go out and get some bankers and really make a difference in that market.
<unk> talked a bit about eastern Iowa.
We had a nice win in eastern Iowa, This past week, and I would expect to see additional.
That's the wins as we continue to expand in our eastern Iowa footprint as we move over to the Arizona market I think about Tucson and area, where we have some presence, but again much bigger upside and opportunities to grow in that market, Colorado Springs in the Colorado market, we have of new banker a leader out there and we're starting to see some early.
Early.
The progress there and then just overall of the Arizona and column, our Colorado markets are clearly are areas for growth. We've shown over the years that we can grow on that market and I would expect us with the leadership and team in place there to continue to see a nice growth pattern for those 2 states moving forward.
Additionally, the great run down and I appreciate the color. That's all of that I had guys. Thank you very much. Thank.
Thank you.
Our.
Question comes from Janet Lee from J P. Morgan. Please go ahead.
Good morning.
Good morning fine of.
I'm following up on Mark's comment about having to.
See a material improvement and non accrual of before assessing buybacks of our raising the dividend what level of.
Non accrual of Asia are you, referring to or is that like 1 to 1 and the half percent of steam for pardon me lets me on a go or could it be higher than that youre, considering increasing capital returns.
Yeah, it could be a little hard on that Janet So that's a long term goal from Steve on.
The that we'll look towards but yes, it could be a little bit hot in the.
When we are when we look to deploy some capital absolutely could be.
It'd be like 2% or.
Is that look we haven't got on the specifics I think the the.
Industrially is sustainable improvement.
Moving to 1 number.
In 1 quarter, it's really just getting comfortable I. The 2 to 3 quarters that we've seen the sustainable improvement in that number generally just sort of more of the the thing we're looking at rather than just sort of of black and white 1 to be honest with you on the number I was referring to was really where we believe.
The key for call it will be on an adequate stay in the state of where we will no longer be on high focus on the it'll always be of high focus for me and make sure that we retain good and strong asset quality, but as far as us being able to answer the call, where we want to be but that doesn't mean the before then there is a lot of other things we can do for those of bank.
Got.
Got it.
And I understand it's hard to predict but you know given the improved prospect of the economy reopening in tourism and travel coming back on.
For all of basis, assuming that the recovery continues to take hold is it fair to say that this may be the last quarter, where we may see.
The additional sort of material of hotel downgrades down the road or should it be another quarter or 2 where we see additional hotel downgrades are you still sort of.
Assessing how your hotel relationship like hotel borrowers are working on or are we basically largely done.
So we are taking on a.
Of our cautious approach, we try to be very timely on our risk rating and.
I would say the tourism, we anticipated doing well the next 2 quarters I think people are getting back to going out of visiting on the you'll look at our footprint. We have a lot of great places to visit 1 of the great places producing of the Cowen stay on hotels all of.
Still have some business hotels.
I do not see business travel being to the degree that it has been on the past and it will hopefully improve in the future, but I don't see that getting much left in the next 2 quarters, so that uncertainty and the fact that we really don't know what's going to happen with the vacation and tourism season.
But we all right.
It makes me want to pause and also launch.
As I look at the financial statements coming in we have to make sure. We have documented cash flow going forward. So I do want to be careful of the next 2 quarters I would say is uncertain I'm optimistic and hopeful but it's uncertain.
Alright, thank you.
Thanks very much.
This concludes our question and answer session I would like to turn the conference back over the Mark <unk> CEO for closing remarks.
Thank you so much Emily and thank you all for joining the call today as we mentioned we're excited about our continued progress please reach out with any follow up that.
You have and have a wonderful day take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.