Q2 2021 Columbia Banking System Inc Earnings Call
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This is the operator today's conference is scheduled to begin momentarily.
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Ladies and gentlemen, thank you for standing by welcome to Columbia banking system second quarter 2021 earnings conference call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. If you are on the telephone and should require.
During the conference. Please press Star Zero as a reminder of this conference is being recorded I will now turn the call over to your host Clint Stein, President and Chief Executive Officer of Columbia banking system.
Thank you for quell welcome and good morning, everyone and thank you for joining us on today's.
The call as we review our second quarter results, which we released before the market opened this morning.
The earnings release, and Investor presentation are available at Columbia Bank Dot com.
Second quarter performance was outstanding as we continue to build upon the momentum generated by remaining open and externally.
Assistance over the past 17 months.
Excluding pre P. P. Our teams generated record quarterly loan production exceeding $600 million for the first time in our history.
And shattering the previous record set in the fourth quarter of last year.
Moreover, the positive inflows remained robust.
The full and well above our expectations, our financial services group and trust company or having a breakout year and credit quality is exceptional.
They had a great quarter, even better we announced our entrance into the northern California market with the signing of the definitive merger agreement with sacramental base Bank.
For the Commerce holdings.
Our success this quarter was due to the forward focus of all of our employees.
Throughout the pandemic, we remain safely open and available to existing and prospective clients.
Our bankers continue to cultivate relationships and win new business by deploy.
Playing their solutions based approach to meeting the individual client needs and the benefits of their efforts over the past year are evident in our year to date balance sheet growth and earnings performance.
On the call with me today are Aaron deer of our Chief Financial Officer, Chris Mary well.
Our chief operating officer.
And Andy Mcdonald, our Chief Credit Officer.
Following our prepared remarks, we'll open the line and take your questions.
As a reminder, we may make forward looking statements during the call for further information.
Information on forward looking comments, please refer to either of our earnings release on.
Or like for our SEC filings.
Time, I will turn the call over to Aaron.
Thank you Glenn and good morning, everyone.
During the quarter of Columbia generated net income of 55 million or <unk> 70 per share adjusted for 510000 of acquisition related costs pretax pre provision.
Our web of $66.3 million was 1 of our best quarters on record the strong performance was driven by solid fundamentals.
Assets increased our cost of deposits remains among the best in the industry and noninterest income was again, a solid contributor total deposits increased by $578 million or 16%.
The company of lives during the quarter to $15.3 billion at June 30.
Our cost of deposits held steady at just 4 basis points.
Total loans increased modestly to $9.7 billion at June 30.
Net of the PPP loan balances increased by $219 million for 10% annualized.
<unk> and surpassed $9 billion for the first time in our history.
The increase was driven by record production during the quarter, we originated $657 million of new loans, which includes $52 million of PPP loans.
New loan production, excluding PPP was brought on at an average tax adjusted coupon rate of $3.14.
<unk>, which compares to the overall portfolio of rate also excluding PPP of 390.
Our investment Securities portfolio was $6.2 billion as of June 30th which was the linked quarter increase of $718 million driven by $942 million of purchases during the quarter, we transferred securities with.
The fair value of $2 billion from the available for sale of classification to the held to maturity classification.
Because of the intent is to hold these investments to maturity. The securities are no longer subject to valuation adjustments of connected to interest rate changes and that should reduce the related volatility in equity on book value.
The net interest margin decreased 15 basis points linked quarter to 316. However, net interest income increased by $1.5 million linked quarter as we deployed more of our deposit growth into loans and investment securities. The.
The deposit inflows and larger investment portfolio were key factors behind the margin pressure in the quarter.
As higher securities balances and lower yields on those balances together contributed 10 basis points to the margin decline. The remaining decline was primarily due to the reduction in loan yields.
Mostly due to the drop in amortized fees from the PPP portfolio, but also from lower coupon rates on new loans.
Noninterest income was.
It's down slightly on a linked quarter basis to $22.7 million. The drop was centered in loan revenue stemming from lower mortgage banking income. The most of that pressure was offset by strength in other business lines, notably card revenues, mostly driven by interchange fees increased by $1 million.
The financial services and trust revenue rose by 8.
<unk> hundred 64000, and deposit and Treasury management fees increased by 343000.
Noninterest expense was $84.1 million included professional services cost of 510000 related to the pending merchants bank of Commerce transaction.
Excluding these acquisition costs noninterest expense.
Q3 dollars 6 million was essentially flat when compared to the first quarter.
Compensation and benefit costs increased linked quarter, mostly due to higher capitalized loan origination cost and the for.
First quarter, when compared to the second quarter.
That said even in the second quarter, we continued to benefit from a high level of capitalized loan origination.
Of the <unk>. Meanwhile, other expense.
Excuse me of Meanwhile, the other expense line.
The price linked quarter due to $1.3 million of less provision for unfunded commitments.
Lastly, the provision for income taxes increased $2 million on a linked quarter basis to $14.5 million, representing a $20.9.
Nation of the country effect of rate, we continue to expect for 2021 tax rate remained in the range of 19% to 21% and with that I'll turn the call over to for US. Thank you Erin and good morning, everyone.
Without the economic turbulence of the past 17 months, we are focused on what we can control in order to take care of our employees.
Men per clients and communities, we continue to invest in on our people relationship training and banking systems.
Our bankers have responded by keeping the pipeline for providing custom solutions to meet the needs of existing and new clients.
Following this business as usual mindset positioned us to capitalize.
High quality credits and win new business during the quarter.
While sales in the background during the second quarter. The pandemic is no longer the lead story.
The bank continued to originate PPP loans through the programs and on May 4 and in the final tally for both rounds of PPP approximately.
The only 9300 loans were originated which infused over $1.5 billion into the Pacific Northwest economy.
For giving us for both rounds is now underway as of the round 2 platform open for our clients on July 7.
Net of unearned income PPP loans were 692.
<unk> on them at the end of the second quarter, we have received over $820 million of payoffs and pay downs related to round 1 of the program and we have received over 2000 applications for forgiveness of round 2 loans since the portal opened.
As Clinton noted excluding round 2 of the PPP.
2 millions, we achieved a new loan production record of $605 million, which was notably higher than the previous than the prior quarter record of 468 million set during the fourth quarter of 2020 <unk>.
Production was especially strong in CRE and C&I was diversity.
Like with good growth in real estate lending and leasing healthcare construction and the agricultural sectors.
Line utilization was flat at 44, 6%.
But we saw absolute dollar increases in C&I and construction lines.
Excluding PPP quarterly.
On the quarterly production mix was 58% fixed 34% floating and 8% variable.
The composition of the loan portfolio remained.
Relatively unchanged and the overall portfolio of mix is now 7% PPP loans of 49%.
Italy on PPP fixed.
33% floating and 11% variable.
As was mentioned deposits grew by $578 million during the quarter and by over $2 billion over the past 12 months the <unk>.
<unk> inflows were split between noninterest and interest bearing.
Now with the majority from business customers.
Over half of the increase was from new accounts with the remainder attributed to delayed spending and investment by existing business clients and consumers.
Approximately 60% of the quarterly increase came from our Puget Sound region.
With approximately.
During the 5% from Oregon, and the Columbia Gorge clients.
The deposit mix increased slightly to 61% business and 39% consumer.
We continue to drive exceptional rates down maintaining our industry leading cost of deposits.
Although residential.
The <unk> search activity slowed on a linked quarter basis. Other fee income categories were up during the quarter as we benefit from our relationship focus and higher quality referrals.
Financial services, and Columbia Trust company of both had a tremendous year achieving record revenues and assets under management.
Mortgage card revenue was up $1 million on a linked quarter basis and deposit service fees increased by 343000.
As part of our ongoing branch rationalization process, we recently announced the consolidation of free branches scheduled to occur during September and October of this year.
We.
Annually, optimizing our delivery strategy and have been proactive in consolidating branches over the past decade <unk>.
Expanding each branch of service coverage area, given local market conditions and projected growth.
Continuing to expand our delivery strategy on July 12, we relocated our Tigard, Oregon.
Our contention and opened a new financial hub of.
The joins our Ballard from Boise neighbor hubs, which are specifically designed to support our relationship based approach to helping our clients achieve their financial goals.
Now I will turn the call over to Andy to review our credit performance.
Thank you Chris this quarter.
The allowance for credit losses totaled $143 million.
A reduction of $5.3 million from last quarter.
Net recoveries of about 200000 led to a provision release of $5.5 million for the quarter.
Should also be noted that the release from the provision was muted.
<unk> by over $215 billion of loan growth net of the Pvp during the quarter.
Our IHS Markit economic forecast assumes full year of GDP growth of 6.7% for 2021 and 4.7% for 2022.
With the unemployment.
Employment rate predicted in 2021 at 4.2%.
And 2020 to close to pre pandemic levels.
This forecast is an improvement over last quarter when GDP was forecasted at 5.7 percentage for 2021.
The improved forecast is counterbalanced by the continued stress in our loan portfolio as borrowers continue to be impacted by the lingering effects of the pandemic and related lockdown.
As such we continue to apply an overlay for what we considered high risk of commercial real estate and.
And downstream potential impacts of permanent job losses out of significant northwest corner.
These amounted to a combined $10 million in Q2 reserves a decrease from $11.7 million in Q1.
Our adjustment is driven by the continuing impacts.
Of the pandemic affecting hospitality.
Shifting dynamics in office and retail.
And business closures and labor challenges in the restaurant industry.
We ended the quarter within the allowance relative to the period end loans on.
For the 8%.
Justin.
Seeing for PPP loans, the allowance the period end loans increased to 159%.
<unk> for the quarter improved to 14 basis points.
The decline in NPA was principally due to paydowns and payoffs with a modest amount returned to accrual status.
Most of our remaining in Tas our assets the gain to this classification due to reasons not related to the pandemic.
However, with that said the pandemic has in some cases impacted the businesses ability to rebound.
Nevertheless, at 14 basis points NPH.
<unk> are very manageable.
Fast food loans for the quarter was 17 basis points compared to 11 basis points last quarter.
Net charge offs as noted earlier posted a small recovery of about 20000.
The problem loans, which we define as loans rated watch or worse.
Declined from $920 million last quarter to $804 million as of June 30 of 2020 loans.
When compared to a year ago and problem loans were about $1.1 billion.
Can see there has been a meaningful amount of healing within the portfolio.
This is principally within.
The hospitality true.
<unk>.
Food and beverage and retail portfolio.
Okay deferrals.
At the close of the quarter, we had $40 million impact of deferrals or less than 1 per cent of our portfolio excluding PPP loans.
This is of course very different from this time last year.
When we had $1.6 billion.
The majority of these deferrals of roughly 75% are on there first of all of them.
Can be found in our hospitality and restaurant portfolios, along with some urban park as well.
<unk> for the most of our continue to run off as expected.
We continue to classify our retail hospitality restaurant and aviation portfolios as portfolio subject to an elevated level of risk due to the pandemic.
In aggregate these portfolios of account for about $1.2 billion in loans for 13% of our loan portfolio.
Retail is the largest segment at $572 million in loans outstanding at the end of the quarter.
While we remain concerned over the pandemic impact on this portfolio problem loans are actually down year over year as well as from last quarter.
In fact this portfolio has now exhibited improving.
The credit trends for 4 consecutive quarters and problem loans are half of what they were a year ago.
We had no past dues in the segment non accruals were only 4 basis points.
No retail loans on deferral as of June 30.
But as mentioned before.
PPP loans that certainly made a difference for our borrowers in this portfolio.
While these statistics are all positive we continue to be cautious here given the closely will evidence we see in our footprint along with conditions seen in the labor market.
Hospitality at $331 million.
As shown on the mixed bag of results and total problem loans in this segment declined during the quarter and now represent about 53% of of the portfolio down from 70% of year ago.
As discussed last quarter, there was clearly a bifurcation in the portfolio of between leisure.
And business oriented properties.
Leisure of accounts for about 69% of our portfolio, while business accounts for 31%.
Leisure properties had the weather dependent and make much better than our original expectations.
While the business oriented properties, which make up most of the sub standard assets.
Assets of this portfolio are taking longer to recover.
About half of the hospitality portfolio was $169 billion of problem loans, our sub standards for roughly $89 million.
It does appear at this level of classification of sub standard hospitals.
Hospitality loans has leveled off.
For most of these hotel properties rated sub standard we have put into place long term action plans to help get our customers through to recovery.
Restaurants, which account for about 217 billion remained consistent this past quarter.
Problem loans were stable at roughly <unk> 22 per cent of the portfolio.
At about $2.6 million of deferrals in this portfolio at quarter end.
Similar to the bank in general of deferrals at this time last year amounted to $66 million so of dramatic reduction year over year.
Again.
The D P loans have had a meaningful impact for restaurant operators.
As of June 30th 100 per cent of our restaurant operators were clear to open at 100% occupancy which of course great news.
However of the new issue affecting each operator is finding enough of employees.
<unk> to support 100% occupancy.
So the good news bad news scenario for the restaurant operating.
Finally, the aviation portfolio of roughly $117 million down by about $32 million from the year ago was stable during the COVID-19.
That's.
As in past quarters, no loans in the past do all customers continue to pay as agreed and no loans were on the field.
This industry will take time to recover mostly due to the business travel, which as of yet has not rebounded as dramatically at leisure travel.
There is a lot of pent up demand on.
On the leisure side the thing by the TSA traffic with July traffic, averaging 80% of 2019 levels.
Grandparents are excited to go visit their grandchildren and many families are finally, taking the long awaited trip the Hawaii.
However headwinds continue with low.
And for business travel as noted before and an unequal global recovery.
Despite the slow recovery due to the continued headwinds many of U S Airlines of projecting a return to positive cash flow within the next few quarters and have begun using their liquidity to retire debt and deleverage the balance.
The demand.
I will now hand, the call back over to Glenn.
Thanks, Andy.
We're excited to have the bank of Commerce Holdings joined the Columbia family and are still on target for the fourth quarter close for.
Randy Eslick and his team have been working closely with the Columbia counterparts to ensure a seamless closing and integration.
<unk> of the merger.
The partnership will bring together 2 community focused banks with complementary business models and cultures.
This morning, we announced on a regular quarterly dividend of <unk> 28.
This quarters of dividend will be paid on August 25 to shareholders of record as of the close of business.
<unk> on August 11th.
This concludes our prepared comments and as a reminder, Andy Chris and Eric are with me to answer your questions.
Now recall, we will open the line for questions.
At this time to ask a question you will need to press star 1 on your telephone to withdraw.
All of your question press the pound key please standby, while we compile the Q&A roster.
Your first question comes from the line of Matthew Clark with Piper Sandler.
Good morning.
Morning.
Very strong production this quarter.
Isn't it.
Wanted to get a better sense of the type of commercial real estate production that youre doing assuming that retail.
Office, hospitality or still kind of areas of.
Some concern.
In terms of new business, just wanted to get a sense for what drove that.
The commercial real.
Piece of the production.
[noise] Yeah, just the second let me get it in front of me.
[noise] I have too much paper so of Andy finds the.
The state.
I'll just just speak in general in terms of.
The record production for the quarter and as I noted in my opening comments it was.
Uh huh.
Far surpass the record previous record set in the fourth quarter of last year and so that's just a.
The the deviation of what we saw.
At the end of the third quarter of last year going into the fourth quarter and the momentum continued to build in terms of.
The pipeline activity and and.
And what we're seeing just broadly is even though there's a lot of liquidity.
Continual out there in the market, it's a very competitive.
Atmosphere.
<unk>.
We're taking.
We're taking market share.
And some longtime clients and that's what you saw that really drove kind of that record production.
During the quarter.
Thank.
I think Andy has the the detail of that.
We'll respond to your question yes.
Yeah. So most of the growth is actually in owner occupied CRE.
And the.
The combination of owner occupied office warehouse warehouse type property.
And then we've also done.
On a little bit and in the retail space, but thats pretty modest at $4 million.
So it's predominantly owner occupied.
Okay and then.
How does the pipeline compare to.
The quarter coming out of <unk>.
Is given the production as the pipeline is it down and you feel like you need to kind of backfill or I'm, just trying to get a sense for the the.
The change on a percentage basis from last quarter or even year over year.
Shar matin as expected.
Alaska with you would you would expect that after a record quarter at those levels, but the pipeline would pull back some of them well.
Very pleased with where its apps and our bankers continue to.
The prospects when the deals and were holding on to.
A lot of our existing.
Good.
Loans on the books as well so yeah, it's retreated a little but in the historic you can look at it historically, we're very pleased with the level of this AD and it should lead to system does for us.
Okay, and then just on the new coupons of $3.14, that's down pretty materially from last.
The $3.90, ex PPP I guess, how much of that was related to the mix and how much of that might be related to just be more competitive on price.
Yes of all.
I'll take a start on that in any of it can come in and maybe some more details.
It does have to do mostly with the mix during.
Quarter on quarter, we had the opportunity to participate in some of municipal deals.
That drove some larger balances those are highly competitive rfps.
Our approach our expertise in that space allowed us to win those deals, but those high quality credit certainly.
During the long at a lower coupon.
And that that skewed the number for the quarter.
Pass that we see a more of a return.
Sort of leveled out numbers on an improving numbers and is there anything you'd like.
I'll, just say that the.
The loan yields during.
Come on quarter, excluding PPP was for 2006 and that compares to $4.28 in the first quarter.
Yes, Okay, and then just on I know, it's a small piece.
The revenue pie, but on the mortgage the.
Weaker mortgage gain on sales.
During the kind of I think it is embedded in your <unk>.
Alone <unk>.
Revenue fee line.
Can you give us a sense for how much in the way of loans were sold.
And the specific gain this quarter versus last.
So.
Matt the I'm not sure.
Sales provide the specifics on that but generally speaking the debt.
All in of sales.
As well as the the gain on sale was not materially different from quarter to quarter on what changed was the pipeline and in the value of the pipeline. So that was really what drove the decline sequentially.
Got it.
It's more of a.
The volume of activity.
In the business versus the gain on sale of amount that drove the change.
Okay. Thank you.
Your next question comes from the line of Jeff <unk> with D. A Davidson.
Tim.
Good morning.
Good morning, Jeff.
Question on the.
Just trying to ball together the the margin.
Your securities investments.
And I guess, if you could kind of offer any thoughts on go forward, what you could do with that earning asset.
Balance as well as kind of.
Stabilizing the margin I know the the goal is the spread income dollars, but just the <unk>.
Interplay and anything you could kind of point to what you think back half price.
Yes.
The margin is kind of continue to be a bit.
The challenge the.
I mean, there is a lot of.
The factors at play.
We had a very.
The significant increase in the investment securities balances during the quarter on the balances that did come on came on at the.
At lower yields.
Ultimately.
You know too.
To see that the.
The margin kind of rebound is going to take.
Either of improvement in the in the rate environment or a significant shift back toward towards loans.
So I think.
Over the next couple of quarters are.
The noise of the continuing to add to that.
Still have 700 million of PPP loans on the balance sheet. My expectation is is that much of that will be forgiven over this quarter on next.
And so that you know that will continue to drive some.
From some of the fee income.
On that and benefit the margin.
Underlying that youre going to see the the full quarter impact of the changes that I just discussed with respect of the securities portfolio and and lower yields on on both the the securities as well as.
The loan portfolio, so the theres going to be from fundamental pressure there. They continue to sort of like that said I do think that we're getting closer to 12.
Where I would expect that to bottom out and obviously I'm very hopeful that we'd get some improvement on the rate environment the rates this quarter.
It is not ideal not only did we see the tenure of come on quite a bit but but the the.
The flattening was was not ideal.
Encouragingly, though some of them.
The more recent forecast that I've seen for rates are more suggestive debt that we could see a good lift by the end of the year. So.
Hopefully the operating environment in terms of of rates.
Show some improvement from here.
And then the.
The worst of of the kind of balance sheet pressures kind of working through the system.
And of my expectation is that the the core margin is closer to.
On a bottoming.
And then not but we'd probably still hospital for their to go but I'll just I'll just add on to that debt.
To me the wildcard around on the margin.
Is what happens with deposit growth and that's really created the the liquidity and the shift into other.
I guess, the earning asset.
Gift.
And as you know Jeff from from all of the years, you've followed us debt.
And in a normal environment virtually all of our deposit growth comes in the second half of the year.
And we add.
Net of $1.5 of the first half of this year of deposit growth.
So it certainly impacts the margin calculation and I know that's an important component of of your modeling, but we're still at 4 basis points for our cost of funds and so where I'm really focused and the team.
Really focuses on making sure that we're growing net interest.
Hum.
And I think that.
If we should continue to have strong deposit growth.
While it.
We will push the loan to deposit ratio down and perhaps grow on the.
In the short term the size of the Securities book.
It should result in increased.
The income for us.
Okay.
I appreciate the commentary maybe 1 other just the different angle.
On the expense line.
You kind of noted some of the PPP impact there, but it's a pretty low number you guys had talked about of mid to upper eighties kind.
Revenue rate is that can we adjust that lowers it squarely kind of mid eighties. If we came in a bit just trying to sense if.
That's come in 1 of theirs.
The significant investment in the second half of it should look for.
Yes, Jeff I guess I'm disinclined to.
On a run rate.
Did you lower at this point.
That said.
On the team for doing a great job controlling expenses.
As Chris noted.
It's going to be doing a little bit consolidation here in the back half that'll that'll help some but.
On the.
The.
The Fas 91 in the second quarter were still pretty strong. So I think a couple of million dollars of of that and I would expect that.
That's gonna have much less of the beneficial impact on our expenses in the third quarter.
And then we've also got some.
Some project costs that I'm expecting of probably going to hit our data processing and software line in the third quarter. So.
So at this point of view.
I think that the prior guidance still stands, particularly we're seeing a lot more.
Of our folks get out.
While they.
<unk> been active with clients throughout I think we're starting to see a little bit more travel and entertainment kind of expenses and so that's going to probably the first of all add up to but we're certainly being.
Very mindful of clothing those costs in check.
Okay. Thank you.
Your next question comes from the line of Jackie Bohlen.
K B W.
Your line is open.
Sorry, I'm on mute.
Hi, everyone.
So I'm going to give you a little bit of context for where my question is coming from so I apologize. If this is a little bit wordy, but what do they share the make it clear 1 of them.
Lynn.
And this is 1 of the the <unk>.
1 of the last few quarters, the next hard and looking through other earnings releases I really think that I've been asking the wrong question and so I have the opportunity to actually asking price of bright line, which is I feel like I've been really focused on line utilization when what I should be focused on its actual line draws and.
After you had if I did my math right. Excluding P. P. P. You had balanced growth in the commercial business portfolio and so I wanted to see where that's coming from if its you know if you have a sense, whether it's from the customers that are actually out there and spending more or whether it's some of the the new generation that you were talking about on just.
Do you have kind of how you think of the momentum going forward.
Yes, that's absolutely the right way to think about it.
Because of.
Especially if youre looking at debt at year over year or even on a linked quarter as our bankers.
Zero out there originating new commitments in the balances on those commitments.
It can skew that utilization.
Ratio.
From looking at.
Right.
There's been 1 of utilization number itself did not.
That change from quarter to quarter, but you are right to be thinking about the.
Draws have increased the says has the commitment for the increase.
Yes.
You have some context for the debt.
Change.
Well not really trying to figure out is how much of the roughly $200 million of growth came from from growth in new outstanding line.
Yeah, just wondering because I my Macy's bad I don't know if that's the kind of play out or not is that though we're not seeing line utilization changed that because you're adding new customers, which is drawing.
On the commitment level up and so is masking the benefit of some of the draws that you are seeing.
Okay.
Does that sound fair.
J P.
That's a fair question and I apologize for not having that right at the tip of our finger.
<unk>.
Yeah.
Really new I'm, sorry to put you on the spot like that.
You know will ship in order.
Information here, we do have it and you can either get back if you have another room for another question or we will get back to you afterwards certainly.
Great question and the the new balances the new clients that are coming.
On.
Certainly transfer in line balances.
It does mask the overall the aspect of it.
Yes, it's an excellent question.
Okay and that I mean, your comments rate the aircrafts kind of get to the heart of what I'm looking at which is more of just the general momentum that.
Youre seeing more so than an actual dollar figure.
And then my the second thing I wanted to take assets just related to construction on I know demand of high in the market that obviously, there are constraints relating to supply chain and just the availability of land and inventory and everything and so I'm wondering you know how what you're seeing.
And that market in terms of growth potential and how projects are moving along.
Yes.
For a more of a builder banking group they are having a fantastic year.
Builders are still they have inventories are finding.
For all projects are.
Delayed taking longer.
They're getting through to the end sales up into the second quarter were very strong I think the biggest challenge for us. When you look at that segment is houses are selling so quickly that they're not staying around them on our books.
Sort of the churn of it is.
It's pretty robust now we're going to move into a season, where.
The house sales tend to slow down.
And things of that nature of where it may give us a little bit of other lift there but to date it's.
Ben it's been extremely quick other than the delays.
Always from the supply chain.
Okay great.
Great. Thank you.
And the Jackie the this is Eric.
Pulled up the.
The sequential change if I'm understanding of your question correctly, the sequential increase in revolving lines of the banking increased by about $76 million.
On a net basis.
Okay.
Okay. Thanks.
Thanks, Erin and again I apologize for having such a technical question I was just trying to get of kind of a sense of new customer activity and what impact that's having on utilization rate.
We are fortunate.
Your next question comes from the line of John Ostrom with.
With RBC capital markets.
Thanks, Good morning.
For example.
Maybe just the back to the question on deposits.
You're expecting.
Similar second half deposit growth to maybe what we see historically.
In other words are you seeing some normalization developing and deposit flows or do we do we still have some of the excesses out there on the market in terms of money flowing in.
Wow, that's a that's a forward looking question that I'd love to have any of the exact answer for that.
Historically, yes, you've seen.
<unk> seen that.
On.
I think that it remains to be seen.
And there's still a lot of liquidity in the system, we've talked on previous quarters about what's it going to take for for that liquidity exit the system.
All things being equal I think I.
Pinpoint that will be at the same the same exact levels, but there is a lot of economic activity money is changing hands and I would expect that.
Our client base.
We will continue to behave as they have.
With that said I think the 1 of the variables could be.
I cant new client acquisition on what continues to come on in that space, which may be an offset to the normal activity is not there we may see a pickup in and that which would then offset it. So all of that around I would say, yeah, I would think it's going to be fairly normal but the components.
Of it may be different.
1 of the what other variables that comes into play.
And that's the that's what.
What we do through our CD financial services group.
And that's something that.
As.
Clients begin to.
To maybe look for returns above book.
What we're paying on bank deposit rates.
And we see some activity and we've seen that pre pandemic.
With several hundred million dollars.
For a couple of quarters that moved off our balance sheet.
She'd into assets under management with our financial services group.
We still drive.
Positive economics from that and you can see some of that activity is still occurring today and you see that with debt upward trajectory in terms of the fee income that we're driving from from that.
That group, so that's something that as we progress through the third quarter fourth quarter.
If that if that's of significant driver of net deposit balances and we will certainly highlight that for you.
Okay.
There was another question on anthem.
Okay.
Scratch it off my list.
You bet.
Andy question for you.
On 1 of your quotes on the release of things are very strong and I. Appreciate all the puts and takes in terms of the.
The reserve and provision, but but what does it take what more does it take to bring to keep bringing the reserve down.
Well.
Pretty economic improvement that does it is it changing any of your factors and I guess I'm just trying to get a bit of a forward book because of some of these negative provisions that we've seen in the last couple of quarters.
Right.
Well for Columbia.
We still have.
The 400 million plus.
Is it in substandard loans.
And so we need to continue to work through.
And help those borrowers.
Recover.
And that will have.
A meaningful impact on our level of.
Allowance for credit losses.
I think as the.
<unk> economy stabilizes.
And we do not see dramatic changes in economic forecasts the.
The economic forecast will be less of the driver and more traditional levels of the problem loans charge offs and those kinds of activities.
Driving the provision.
Does that answer your question on the I'm trying to be I guess, a little bit more specific to Colby.
Yes.
That does help I guess.
From an outsider's point of view I still see the reserve levels.
Relatively high.
We'll be particularly relative to your NPA. So I just kind of wanted to get a flavor for what we should expect in terms of the quarterly impact on the P&L.
Okay.
Okay.
Last question maybe for you.
On this loan production and growth.
<unk>.
Number.
You've been seen it just it feels like something is different in your model in a positive way.
And you guys always highlight expenses to average assets.
We've touched a little bit on expected deposit growth, so that brings up assets as well, but I'm just curious what kind of capacity you feel like you have to add assets with.
Or is that amount of hiring and spending in other ways, what kind of on leverage do you have on your business model and is it different on a couple of years ago.
They are still there.
Ladies and gentlemen, this is the operator please standby.
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Great.
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Please resume.
Alright, you hear me.
John on that what's the best answer I've ever given unfortunately, nobody heard it.
I think you put me on mute and started the historically laughrey menu have disconnected.
Well I'm trying to decide if it was Andy of Crystal.
It kicks something under the table, but.
Did you hear my question.
I believe so.
So what are the ought to repeat it just to make sure I'm just curious about the operating leverage on your business because I'm looking at the loan production is going up.
You always highlight the.
The.
The operating leverage piece of the business and I'm. Just curious if is the business model a little bit different meaning you have the capacity to add assets.
Without hiring a lot of new lenders and is there the.
Potential for longer term improvement on operating leverage based on some of the changes you've made over the last couple.
Couple of years.
Yeah. The short answer is yes to both of those but it's more nuanced in terms of of.
The internal capacity.
In particular on our ability to.
Handle the additional loan volume is something that we've worked on.
For for the past several years.
And even with the things that we've discussed over the past year.
Where we when we say that.
Of our bankers remain externally focused and we continued throughout the pandemic and of near normal operating.
<unk> well that also included moving forward on internal initiatives and the back office process improvement increased automation.
And all of all of those types of activities as well as just the collaboration amongst our various.
Teams and groups and.
And getting the right banker in front of the client and that's that's resulted and relationships on both sides of the balance sheet.
You know driving activity to the Columbia Trust company as well as <unk> financial served.
On this.
And and that's always been the goal is is.
To have that type of activity and volume deal the scale our business. So we have been working on it and I think debt.
The results of of our participation in both rounds of the PPP program.
Service there.
Hum.
Booked over 10000, PPP loans for about $1.6 billion.
Just demonstrated the capabilities of the progress we've made on that.
If you think it wasn't too long ago that.
Ah.
Well that just this PPP alone.
From a volume standpoint was about double the number of loans that we would typically do in a in a year.
And then <unk>.
Equated to what our annual production was just a couple of years ago, and so to be able to do that.
And in the midst of that have.
The 2 of our top 3 quarters of production.
And.
Do it in a very controlled manner it wasn't.
Other than the first.
First part of PPP, which was.
<unk>.
All hands on deck effort everything else was handled in essentially a business as usual.
Fashion so.
That's the long winded way of saying, yes, we can do more with the existing cash.
And infrastructure.
We have but I think it's also important to note that.
Theres some disruption that's occurring with some of the large national banks in terms of of how they serve their clients.
And that's creating.
Some dissatisfaction.
At the client level that were.
We're benefiting from but also.
Of some really good bankers and if we have the opportunity to bring in.
The good bankers.
We will make we will make room on the bus for them.
Okay. Good.
Non-GAAP.
I appreciate all of that.
I think of what's a good quarter. So thank you.
Thanks, John.
As a reminder to ask a question you will need to press star 1 on your telephone. Your next question comes from the line of Andrew <unk> with Stephens.
Hey, good morning.
The Andrew.
Hey, maybe just the start Aaron can you remind us just what the approach you're taking from a duration perspective to investing in the securities portfolio is it seems like you might be buying at a bit longer duration, just given where the.
Of the overall portfolio of duration trended this quarter.
Yeah.
On a little bit further on the curve I don't think we're going to extend beyond where we've been buying.
The.
The.
The overall duration on the portfolio has inched up went out rate of about 5 years.
And as you noted we split the portfolio between the NSS in HTM portfolio, So theres a little bit of differential between those 2 of the asbestos is at about $4.7 in the held the maturity of about 5 points a.
The.
The new purchases in the quarter were right around 6.
Yes.
So as I said, we have done at some but we're also of being pretty thoughtful of what we're buying so we're buying.
The things would have.
Lower likelihood of prepaid we're buying things that have pretty good upfront cash flows sort of it.
So the to the extent that we are seeing.
Continued strong loan growth.
If deposit flows arent keeping up that we.
Have those cash flows to reinvest into the end of the loan growth so will the.
Didn't really mindful about what we're doing on of course.
We tend to stick with very high quality type of.
The type of purchases so.
It's a very deliberate.
The process that we go through obviously with the size that the book of has gotten the b, we need to be very thoughtful about how we're managing that.
We're doing so but I would not expect that youre going to see that portfolio duration extended materially from here.
Okay, Great. That's helpful. Thank you.
I apologize for maybe the back to back kind of a technical question, but looking at page 10 of the slide deck.
About half of the loan book is variable on another.
The 40% of that is currently out of floor rate right now just for those of those loans currently at floor rates. How many rate hikes do you think we would need to see.
Before breaking passed kind of the average loan for.
Yeah.
I don't have that offhand.
But yes.
There is it's a mix where there is there are some that are going to kind of look pretty quickly and there's others that are going to take a little longer.
So.
We actually looked at this intra quarter on it's something that we're going to I think start providing some better disclosure for because of our hope obviously is the rate youre going to be moving higher.
Higher than that lower and so I think we can start providing you with some additional context.
That will flow.
For help with that.
Alright, great that would be on.
Yes.
On the on the right side.
Okay. That's it for me thanks for taking the questions.
Your next question is from the line of Matthew Clark from Piper Sandler.
Hey, just on a few follow.
Just the <unk>.
On the wagons on the deposit related question.
Kind of of traditional traditionally stronger second half in terms of growth.
I assume you're also expecting that $700 million of PPP loans.
You know a lot of that fight the translate.
And the deposits as well which is.
Just kind of caused that phenomenon to continue here on the second half is that fair.
Thanks.
I think thats, a fair assumption because.
To qualify for forgiveness, if part of that they've already spent the money.
Yes, okay.
And then just on the securities.
Yeah.
The securities purchases can you give us the weighted average rate on what you bought this quarter.
Yes.
That's my second question I guess.
Yes, so the.
The rate on the new purchases.
Was 159.
Which is actually up from from the the first part of where we're at 146 so despite the.
The drop in rates during the quarter of the average the average purchase on the excellent for <unk>.
Pleased to see that.
The particularly given the volume that we added during the quarter.
Okay.
We had about $942 million of purchases and.
So.
My expectation is that we won't be buying in that volume again, the going forward.
But.
But that's the.
So that answers your questions.
Yeah, and I guess my the fall.
Follow up part of the question was related to what the curve is done at the kind of gone against you and everybody else. So I guess what are your thoughts on I guess what.
If you were to buy something today, what is that that kind of of the blended rate on that.
Knowing the volume of what you're going to purchase the coming quarters.
Obviously the lower.
Well I mean, we are continuing to purchase the.
And we make a ton of like were suspended not because we're going to have cash flow to some things that need to be reinvested, but.
I would say that of the.
Purchases that items.
Seen of late they are.
A little below where the average was from the second quarter.
But.
We'll see what happens through the quarter, we're still pretty early.
Tell you Directionally.
What's the theyre going to happen with that.
It sort of with purchases but.
At this point I guess.
Yes.
We're down a little bit from where we were in the second quarter, but hopefully that turns.
Okay and then just finally on the loan purchases I think you mentioned it earlier on in your comments, but I didn't catch.
Catch it can you give us the amount of loans purchased and.
What specifically you bought and what's your appetite to do more of that going forward.
Not sure Richard if we did not make any loan purchases during the quarter.
Okay. I know you did last quarter I just didn't wasn't sure if I heard you did more of it this quarter.
So I assume no more no more single family resi purchases.
We will periodically if it makes sense given paydowns in the portfolio, we might do some top line up of that but because of something that's worked on in the in the second quarter.
Okay. Thank you.
Ladies and gentlemen, this concludes today's conference call.
Thank you for participating you may now disconnect.
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