Q3 2021 Fulton Financial Corp Earnings Call
Continue to move forward.
And as vaccination levels increase we remain optimistic about our company's future and the future of the markets we serve.
As I noted last quarter, we have seen several mergers and acquisitions in and around our footprint and that trend has continued in the third quarter.
Fulton has taken a look at select opportunities.
Might be a good fit for us and we remain interested in supporting our future growth through M&A.
We are particularly interested in those companies, which would be a good fit for fulton's strategy and our community oriented.
Style of banking.
As always we remain focused on our shareholders and will remain disciplined on pricing.
If the right opportunity presents itself.
During the quarter, we were able to take advantage of a dip in our stock price and and have utilized approximately one third.
<unk> of our $75 million.
Share repurchase authorization.
We will continue to repurchase stock under that authorization, if it makes financial sense to do so.
Yeah.
Throughout the past year I've referenced the challenges brought about by COVID-19.
And now as vaccination rates continue to rise throughout the markets we serve.
Our fault Ms moving forward with our previously announced plans to begin bringing more of our team members back to on site work.
Beginning the week of November one.
But we are really proud of how our team members have.
Did to constantly changing circumstances.
And we are pleased to have provided an essential service that our customers could depend on.
Throughout the pandemic.
As we reunite our team we remain focused on achieving our three main priorities.
<unk> growing the company.
Achieving operational excellence and sustaining effective risk management and compliance.
Now I'll turn things over to Kurt to discuss our business performance.
Well, thank you Bill and good morning, everyone.
Bill noted our third quarter performance.
<unk> produced solid results and I'd like to share some detail on several key areas.
Strong loan growth from residential mortgage lending moderate loan growth from consumer loans and growth in certain commercial lending areas led to approximately $205 million and total loan growth or about four 5% annualized.
When excluding the impact of PTP forgiveness.
Starting with consumer lending loan balances grew $186 million or three 5% linked quarter and 14% on an annualized basis. This growth was driven primarily by strong residential mortgage and residential construction lending.
<unk> with other consumer loan categories also contributing to the growth this quarter.
Overall mortgage banking business remains strong as we continue to experience origination activity above pre pandemic levels and see opportunities to either sell or conforming mortgages in the secondary market and healthy spreads or.
<unk> increase our balance sheet at beneficial yields.
As noted in prior quarters, our asset sensitive balance sheet provides room to continue to grow this segment of high quality in market residential mortgage loans and we continue to evaluate our opportunities to do so.
Residential mortgage originations for the quarter.
$859 million, a decrease of 25% from the prior quarter, but purchase activity accounted for approximately 70% of the total residential mortgage originations during the quarter up from 60% in the second quarter.
At September 30, the mortgage pipeline remains at approximately two.
We're <unk>, our pre pandemic levels.
As I noted before residential construction also had a strong quarter, increasing $21 million or 14% linked quarter.
Finally in consumer banking of new Fintech partnership for student loan refinance business contributed to consumer loan growth this quarter.
Tom Your overall consumer loan growth was partly offset by continued headwinds in home equity lending line utilization.
Turning to commercial loans, we saw pockets of growth driven by increased line utilization strong commercial construction lending and growth in our core C&I business. However.
We saw continued pressure in our floor plan business as dealers continued to struggle to get inventory. This cap total commercial loans flat for the quarter.
During the quarter commercial line utilization increased 46 million. The first increase we've seen since the beginning of 2020. This is an encouraging sign of business growth.
However, and activity.
Commercial construction loans grew as well up two 1% linked quarter or eight 4% annualized.
C&I loans were down $7 million. However, excluding floor plan C&I loans were up 5% linked quarter and 2% annualized.
<unk> mortgages were.
Growth for the quarter.
The commercial pipeline has been relatively consistent over the past few quarters and ended the quarter flat on a linked quarter year to date and year over year basis.
Turning to deposits growth for the quarter continued as we saw expected seasonal inflow of municipal balances total Bob.
We're flat balances increased $350 million or one 6% linked quarter with seasonal municipal deposits representing $290 million of that growth.
Also during the quarter, we continued to actively manage our deposit costs lower.
Moving to fee income businesses, we were pleased.
<unk> with a strong quarter as fee income increased $11 million.
Strong results in wealth management, and mortgage banking and solid performance in consumer fee businesses drove this increase our.
Our wealth management business continues to perform very well driven by strong equity markets solid sales efforts and.
And good client retention assets under management and administration grew to $14 billion in the third quarter up from $13 7 billion at the end of the second quarter and $11 8 billion at the end of the year ago period.
These trends drove quarterly wealth management income to record levels for the fourth quarter in a row.
Mortgage banking delivered another strong quarter on solid loan sales and wider gain on sale margins, even when excluding a positive change in the mortgage servicing rights valuation, which mark will discuss.
Income was up on a linked quarter basis.
Continuing with consumer banking consumer transactional fees were up eight.
Eight 7% linked quarter as customer activity continues to grow this increase was across the board and the majority of the consumer products.
Overall commercial banking fees were down modestly for the quarter, we saw a sizeable increase in capital markets and recorded modest growth in merchant banking and card fee income.
Offsetting these categories was a slight decline in cash management and a sizeable linked quarter decline in SBA gain on sale fees.
Capital markets activity, which is primarily commercial loan interest rate swaps increased in the third quarter.
We expect capital markets revenue to return to more historic trends.
Some time. However, this will continue to depend on customer preferences commercial loan demand and interest rate expectations SBA gain on sale fees declined linked quarter coming off a very strong second quarter in.
In summary, we remain encouraged by the increased activity within our commercial business during the period.
Moving to credit asset quality remained stable delinquency remains low and deferrals and forbearance continued to decline.
Nonperforming loans declined $3 5 million linked quarter and remained relatively stable since prior to the beginning of the pandemic.
During the quarter, we booked a net recovery of $2.
$2 million or five basis points. This compares to $6 9 million or 15 basis points of annualized net charge offs in the second quarter.
Historically, we have included a detailed slide on Covid loan deferrals. However, you will notice we have removed that from the presentation as COVID-19 deferrals and forbearance continued.
Three cline ending the quarter at only $65 million.
Overall, our credit outlook remains cautiously optimistic for the remainder of 2020 and as a result, we have further reduced our 2021 provision for credit loss outlook.
Now I'll turn the call over to Mark to discuss our financial results.
So a little more detail.
Thank you Kurt and good morning to everyone on the call.
Unless I note otherwise the quarterly comparisons I will discuss it with the second quarter of 2021.
Starting on slide three earnings per diluted share this quarter were 45.
While net income available to common shareholders.
A $73 million.
This represents an increase of <unk> seven per share versus the prior quarter.
Our strong third quarter performance included increases in net interest income and noninterest income as well as a negative provision for the quarter.
Offset by higher operating expenses, which I'll cover in more detail later in my comments.
Moving to slide four our net interest income was $171 million.
<unk> 9 million increase linked quarter.
This was due to a pickup in fees earned on PPP loans forgiven during the third quarter versus the second quarter.
Moderate loan growth and higher yields on earning assets during the quarter.
With a relatively sizable decline in interest expense.
First I'll provide some more detail around our PPP program.
At the end of the second quarter, we had $1 1 billion of outstanding PPP loans and $36 million of unearned fees.
During the third quarter, our PPP loan forgiveness.
Couple of $526 million and fees earned were $18 million up from $12 million earned in the second quarter.
Since the start of the program. The SBA is forgiven approximately 78% of our PPP loans and at September 30, we have $590 million of PPP loans still on our books.
This was with approximately $18 million of PPP loan fees yet to be recognized.
Turning to the investment portfolio balances grew modestly during the period, increasing $80 million to end the quarter at $4 billion.
We did see an increase in deposits with other institutions by about four.
<unk> $50 million during the quarter, but we would expect this to decline a bit in the fourth quarter if deposit patterns are consistent with prior years.
Turning to deposits total deposits grew by approximately $350 million on an ending balance basis.
And as Curt noted, we lowered our cost of deposits for the quarter.
From 15 basis points to 12 basis points, and we would expect this to migrate modestly lower in future periods.
The third quarter traditionally represents the peak inflow of our municipal deposit balances and we would expect to see those balances begin to outflow in the fourth quarter and into next year.
<unk> hundred non municipal deposits increased approximately $60 million during the quarter.
As municipal deposits represented $290 million of our overall quarterly increase.
Our average loan to deposit ratio declined from 86, 9% in the second quarter to 83, 2% in the third quarter.
From a combination of increased deposits as well as a significant decline in PPP loans.
Our net interest margin for the third quarter was $2 eight 2% versus 273% in the second quarter.
The nine basis points of linked quarter expansion resulted from higher PPP.
The loan fee recognition as well as higher earning asset yields and a continued decline in deposit costs.
Turning to credit on slide five our third quarter provision for credit losses was a negative 600000 compared to a negative $3 5 million last quarter and a negative $5 5 million in the first.
<unk>.
Year to date due to solid performance, including a net recovery in the third quarter and an improving view on asset quality. It has been appropriate to release reserves throughout 2021.
Slide five shows our quarterly credit quality metrics.
We recorded a net recovery of previously.
Quarter charge off loans at $2 3 million for the quarter and nonperforming loans to total clones declined.
Other including or excluding PPP loans.
The allowance for credit losses, excluding PPP loans remained flat on a linked quarter basis down 15 basis points since the end.
The chart here and currently stands at 145%.
As always our allowance for credit loss trends could change in future periods based on new loan origination volumes loan mix net charge off activity and longer term economic projections.
Laughs moving to slide six noninterest income I'll touch on just a few items that Curt did not cover in a little bit more detail.
Banking revenues were driven by strong mortgage loan sales and widening gain on sales spreads, which were 194 basis points this quarter versus 185 basis points.
Nice quarter.
During the third quarter consistent with this year, we have chose to portfolio salable mortgage product and have now put approximately $288 million of salable mortgages on our balance sheet. Thus far this year.
Keeping more mortgage production on our balance sheet has impacted mortgage banking.
Ladies modestly for 2021, but may provide a significant long term benefit to net interest income virtues versus the purchase of lower yielding investment securities.
Lastly, during the quarter, we recorded a valuation.
The valuation allowance of our mortgage servicing rights asset.
<unk> revenue was $5 million due primarily to the higher interest rate environment.
Our MSR asset was $32 9 million on balance sheet at September 30.
This balance is net of a $3 $1 million mortgage servicing rights valuation allowance, which remains as of quarter end.
Lastly in fee income other fee income increased by $2 6 million linked quarter. This.
This was primarily due to gains of $2 1 million on equity investments as we have seen an investment in a fintech fund generate very strong returns recently.
Moving.
Slide seven.
Noninterest expenses were approximately $145 million in the third quarter up $4 million linked quarter.
This increase was driven by the following factors.
The day count in the third quarter accounted for about $1 $6 million of the increase.
And we saw increased benefits costs of $1 6 million for the quarter that were due to increased healthcare costs. As a reminder, we are self funded for our health care and we saw employees hitting their deductible limits.
We would expect these costs to revert to historic trends in the fourth quarter and then decline in early 2000.
Moving to Sue as deductibles reset.
We also saw higher variable comp costs due to both higher pre tax earnings as well as higher commissions in our wealth management area.
And lastly on expenses, we saw higher data processing costs occurred during the quarter due to various technology initiatives across the company.
These increases some of which are not expected to recur were offset in part by sales of real estate related to our branch closings earlier in the year and also one sale leaseback transaction, which when combined reduce other expenses by approximately $1 4 million.
Turning to taxes our.
'twenty tax rate was 16% for the quarter consistent with the second quarter.
Slide eight gives you more detail on our capital ratios.
As of September 30, we maintained strong cushions over the regulatory minimums.
And our bank and parent company liquidity remained very strong.
Effective during the quarter, we repurchased approximately one 7 million shares at an average price of $15 43.
And have utilized approximately one third of our $75 million share repurchase authorization.
On slide nine we provide our updated guidance for 2021.
We expect our net interest income to be in the range of $655 million to $665 million.
We now expect our provision for credit losses to be negative for the year.
We expect our non interest income excluding securities gains to be in the range of 230 to two.
We had $35 million.
We expect operating expenses, excluding charges related to our balance sheet restructuring to be in the range of $570 million to $575 million for the year <unk>.
Included in this number are some planned expenses in the fourth quarter related to Covid vaccine.
200, <unk> as well as a contribution to our Fulton forward Foundation.
Lastly, we are aware that many of you look at pre provision net revenue or <unk> as a key metric to assess the profitability of key operations.
We also know that many of you calculate this metric differently.
We have included.
Bonus or version of this metric in the financial tables of our press release, we would also like to point out a couple of additional items to consider as you assess our <unk> results.
First PPP fees earned have increased $6 million from the second quarter to the third quarter.
And also MSR value.
<unk> allowance adjustments, resulting in a $5 $7 million swing.
From a $2 $2 million increase to the allowance in the second quarter to a $3.5 million decrease in that valuation allowance in the third quarter.
When you remove the impact of these items, we believe our <unk>.
<unk> continued improvement each quarter in 2021.
As a result of our first quarter balance sheet restructuring, earning asset growth.
Core margin stabilization and continued cost containment efforts.
I will now turn the call over to our operator for questions Brian.
Thank you.
Ladies and gentlemen at this time, if you would like to ask a question over the phone. Please press star and then one on your telephone keypad again at this time, if you'd like to ask a question over the phone that is star and then one.
Our first question will come from the line of Frank Schiraldi with Piper Sandler Your line is now open.
Yes.
Good morning.
Okay.
Just Scott you mentioned the pipeline clinical pipeline in pretty stable and I wondered if you could.
Follow up a little bit on your comments about the dealer floor plan utilization.
The mechanics, there in terms of it sounds like it was.
Slower again or.
And frankly used again in the third quarter.
Wondering your thoughts about <unk> and going forward and just if you could quantify.
The size of that.
And where utilization rates already.
Yes, sure Frank guidance, just a little more color on.
Just just download.
We start with overall originations.
We're pretty consistent.
On a quarter to quarter pipeline remains steady as well so I think we.
We feel that origination.
Origination will remain steady as we look forward into the fourth quarter, we do see.
Our low risk business activity overall I think the.
The overall commercial line utilization.
Growth was really encouraging factor.
So as we look forward there we expect originations to.
Continue to accelerate.
And in the.
Stable pipeline, we think is positive at this point.
Specifically on dealer.
That headwind for the Covid linked quarter was $24 million and essentially.
We're maintaining that business and even growing that business, but.
Car dealers just can't get.
<unk> increase.
Almost all of our dealers all their new cars are pre sold.
They are they're in and off.
The line.
Very very quickly that business overall for us is about $350 million.
Okay, great. Thank you for all the color.
And then just lastly on the you also mentioned.
With Fintech partnership on the consumer side, I think you said seating loans.
So I would think that that refi businesses actually pretty slow right now.
Just wondering your thoughts on.
Growth or.
What this partnership.
Ship.
In terms of growth.
And is this something you are looking at.
Across the board on the consumer side that.
These fintech partnerships that could be.
A tailwind.
Yes, Frank So we are looking at Fintech partnerships on the origination side, we had not been.
The student loan business.
It was a good way to.
To get into that business, we have specific originations that will accept.
Under that program and it is very modest at this point.
Ranging $2 million to $4 million of them.
In <unk> per month.
But we think we'll we'll continue to grow and we are looking at.
Other partnerships that can accelerate our overall origination activity on the consumer side.
Okay, great. Thanks, and if I could just sneak in one more in terms of the.
Mark on the expenses.
Origination you talked about the investment in digital.
As being sort of a partial offset to cost saves you gone elsewhere, you've talked about that running maybe.
Data.
And software running maybe $1 million to $2 million higher.
In terms of expense year over year, it seems like that.
Holding true.
And already in run rate I'm, just wondering is that still a pretty good bogey to think about in the <unk> in.
That still something that you ramp up.
In 2022 as well.
Yes.
I think I think what you've seen on the data processing line is consistent with the guidance that we gave at.
At the beginning of the year.
I would expect to see that probably continue to creep higher I mean, just when you think about the continued digitization of our industry.
Well as the way the accounting changed on that Frank where previously you could buy a piece of software and amortize it over seven years, but with so much more going to the cloud.
And things being subscription based.
I think that's also going to see that line to go up a little bit higher discreetly I.
I guess, while we're talking about expenses. The one comment I guess I'll also make one just our overall expense.
If you look at our expenses year to date.
And if you take out the debt extinguishment costs.
That takes our expenses year to date to $431 million and that's up from a little under $425 million over the same period, a year ago, that's about $6 5 million or about a one 5% increased year over year, but when you then look at the reasons.
Reasons for that.
The principal reason really just comes down to the fact that we're making more money this year.
If you take between.
Management related incentive bonuses as well as specific commissions within our wealth area, which is produced through nine months $10 million of year.
Year additional revenue.
Those those incentive accruals and wealth commissions account for $76 million.
So more than 100% of our year over year increase so when you strip that out and the fact that we are making a little bit more pretax.
We have.
Over delivered on the on the cost savings program that we put in place last year.
Okay, Okay, great. Thanks for all the color.
You bet, thanks for the questions Frank.
Thank you and our next question will come from Daniel Tamayo with Raymond James Your line is now open.
Yeah.
Thanks, Good morning, everyone.
Yes, we do.
So maybe just starting on I just want to make sure I heard this comment right.
A comment about an expected decline in deposits was that in the fourth quarter was that overall deposits you talked about the municipal peaking in the third quarter, but.
Did I catch it a comment.
Overall deposit decline in fourth quarter.
Yeah, Danny So this is mark.
If you think about our normal trends in our municipal deposit business in the third quarter is always always a high watermark.
And if you look back in prior years, we would have between.
$5 million to $600 million between the peaks.
And I know the valleys in that business with the peak always occurring in the third quarter.
I think one of the questions that the whole industry is sort of wondering right now what is it on top of that then you had the surge deposits during the beginning of Covid.
Yes.
The jury is really still out as to how much.
And third versus how much of that is going to stick around but typically for us.
<unk>.
The third quarter to the first quarter. So over that six month period of time is when you would see that movement from the peak to trough, which again has historically been in the $5 million to $600 million range.
Each of that okay, great. That's helpful. Thanks for that.
And then that too.
It'd be dead horse here, but on the expense guidance.
Maybe we could talk just about a little bit about what's going to be the.
It sounds like there's a lot of moving parts in the fourth quarter, where you provided guidance but.
How much of the fourth quarter number is going to be kind of onetime in nature on either side to try and get us help us get a base as we start 2022 model.
Yes, yes, I think with some of the items that we do.
I mentioned in the script and I think that could.
B and the.
In the $3 million to $5 million range, depending on what overall.
Overall pre tax earnings ended up being.
And but I think those would not recur into next year.
Yes, we would have another year similar to this.
Arms of our pre tax profitability.
So.
Golf related.
Hi.
Some uplift.
Okay.
What those might be.
Oh Wow.
Michael.
Yes, you are.
Fading a little bit on the call their daily, but I think youre, just asking for a little bit more detail on that three to five and again it comes down to the two items I mentioned, which.
Specifically we are.
Encouraging our employees to receive a vaccine and we're offering for those employees who are fully vaccinated by November one.
One is that they would receive a $500 bonus.
So that would be part of.
That onetime number and then.
Our Fulton forward Foundation, which would make up the remainder.
That number.
Okay, that's exactly what I was looking for thanks, Mark appreciate it.
Sure.
Thank you and our next question will come from the line of Chris Mcgratty with <unk>. Your line is now open.
Hey, guys good morning.
Hey, Good morning, Hey, Mark a question on the <unk>.
Just the composition of the balance sheet.
How should we think about.
Most of that asset.
Growth or Remixing from here is it more likely I know, it's dependent on deposit growth but.
Is it more likely to shift into more profitable assets or outright growth.
In the next few quarters.
Well again, a lot of that depends on.
Supply chain issues in our.
Ernie.
How fully.
No things open as Curt referenced in his script.
We did see some signs of optimism with an increase in commercial line utilization.
I would also say that when you look at within our fee income.
You may have noticed.
Country Overdrafts, we're actually up 700000, which.
We're still not back to pre pandemic levels of overdraft fees, but we do think.
When you got into the details of that we saw a 17% increase in the incidence of overdrafts linked quarter, which may.
Our.
Be assigned in one quarter does not clearly make a trend, but we think that may be assigned.
Folks are starting to burn through some of this surge money and the stimulus money and that that was the overall then leading to more.
Loan activity in future periods.
Certainly the goal is.
We're sitting.
Today, it's still about $1 8 billion.
And excess cash and then what we did pre pandemic. So there is certainly a lot of room for.
For us to make that shift.
From overnight cash.
Into in the more profitable asset classes in.
I mean, certainly our expectation.
Exactly what percent.
And what percent of loan growth.
We'll be we'll be speaking to that certainly on our fourth quarter earnings call and we set our guidance.
2022.
Great. Thank you for that color.
Just a clarification on the dealer floor plan I think you said.
And that's from $3 50, what was the peak in that portfolio.
I don't have the balances the historical balances, but it's off about $100 million.
It was like $70 million.
The linked quarter and in the first or second quarter and then it was another 24 million.
It was $80 million to $100 million off of what we would expect.
Utilization to be at this point.
And then maybe if I could on the M&A comments, Phil in your prepared remarks, but can you just refresh us the size I know it sounds like end market cultural fits but I think in the past you said minimum of 1 billion.
So, it's but just kind of an update on.
Potential range of what you might consider thanks.
Yes, I think we're still looking at.
$1 billion to eight or nine.
<unk>.
Great. Thank you.
Thank you and our next question will come from the line of Russell Gunther with D. A Davidson your line is now open.
Hey, good morning, guys.
Good morning Lauren.
So just a bit of a piggyback on Chris's question and following up on the loan growth conversation. So I appreciate the color on the commercial pipeline origination.
Pockets of growth.
If you haven't seen in prior quarters.
A detailed some headwinds so as we tie all of this together.
Is that for four 5% annualized ex PPP the right way to think about for near term or are there.
Additional tailwind or optimism that we're not seeing that you guys are expecting.
Over the next couple of quarters.
Yes, Russell as Kurt.
We are expecting.
That range of 4% to 6% if you look at historically the organic growth has been in that range.
We are doing some things like the Fintech partnership and some other things to accelerate.
<unk> nation, so we won't be kind of at the top end of that range, all things being equal where they are right now.
Certainly a pickup in business activity.
And we'll.
Will drive that growth without adding new customers, we look at growing the business by adding new customers, we think theres a significant.
<unk>.
At some point when we just get back to normal business activity in our commercial book.
Together with the commercial.
Construction utilization.
Referenced as well.
It just shows that there is construction mortgages are being done they're funded they're moving forward I think thats a positive sign as well I think it really just depends on how quickly that happens.
Okay.
Very helpful. I appreciate it and then.
On the Securities portfolio. So you mentioned the growth this quarter as well.
The deposit inflow dynamic this quarter and over the next couple but.
But how should we think about that near term in terms of overall growth investment appetite.
Yeah.
We think of our investment portfolio.
Primarily for liquidity.
And.
While it's grown a little bit this year, that's really been.
Largely commensurate with just overall balance sheet growth.
There was some opportunity here, obviously late in the quarter when rates went up a little bit to maybe put.
Born in the investment portfolio, but for a good chunk of the quarter the longer end was down.
And.
It just didn't seem as attractive to us I mean ideally for us.
As I said earlier, we would like to see a lot of that excess liquidity, we put into higher yielding asset classes and classes that are.
A little bit of supporting our customers.
And.
So I would not expect on a percentage basis for you to see our investment portfolio increase more.
More than what it has historically, but to the extent that the overall balance sheet grows. Then then you could expect to see the investment portfolio to grow.
Awesome.
Okay, great. Thanks, Mark and thanks to everyone for taking my question. Thank you a bedroom. Thanks Ross.
Thank you and just as a reminder, if you'd like to ask a question that is star and then one on your telephone keypad.
Our next question will come from line of Matthew Breese with Stephens, Inc. Your line is now open good morning.
Good morning, everyone.
Scott.
First question for me just on.
What is your current outlook for PPP balances and forgiveness from here when do you think its totally off the balance sheet.
And along those same lines, how do you expect the cadence of recognizing the $18 million remaining fees.
Yeah.
<unk> of that of the eight.
$18 million in fees in the $590 million of balances that remain.
Our assumption is we're going to be there's going to be somewhere.
Brown.
10% to 15% of that might remain on the books.
And actually go out to become a term loan, but the majority of it we expect to be forgiven.
And we expect that majority of it to be forgiven by the end of the first quarter of next year.
So of that $18 million in fees.
Wow.
Theres been so little bit of fits and starts with the SBA I think in generally Matt we would expect.
Two thirds.
Our around $12 million of that to be recognized in the fourth quarter, and then one third or around $6 million give or take to be recognized in the first quarter of next year.
Got it okay perfect.
So you mentioned do you do in market M&A disruption that there were opportunities on the hiring front could you just.
Give us.
Some more color on the extent of those opportunities are you talking.
Lenders and in terms of individuals or teams and.
I just wanted to get a sense for.
What kind of needle moving opportunity that could be.
Yes.
I mean.
We're looking for teams and lenders all the time.
Think when there are acquisitions the opportunity can become.
Greater.
We're looking for those folks everywhere.
Throughout our footprint.
Okay.
Yeah.
Two more for me the first one is just.
I noticed that common shares outstanding were down quarter over quarter I didn't see you mentioned.
That you repurchased stock in the release I, just wanted to get a sense for whether or not you actually did repurchase stock this quarter what price.
I know you'd mentioned there was some remaining author.
<unk>, but did you actually buy back stock this quarter.
Yes go ahead, Mark Yes, we did it was in our prepared remarks.
We repurchased about one 7 million shares.
At a price of $15 43 on average.
Perfect Okay. Thank.
The last.
One is just.
On M&A. This this is a recurring topic.
But I wanted to get your thoughts on this year in particular, we've seen a lot of deals and the buyer stocks.
Have not performed great and as you've looked at other deals in your markets, where buyer stocks have not performed well could you just share with us some of the items.
I think our are critical to a deal being successful and well received by shareholders versus not.
Yes, I think.
Matt This is mark.
First right now certainly.
Tangible book value dilution and earn back has a heightened focus.
So you could always think it's important to look at those two together.
Because you can accept.
Maybe.
A little bit higher earn back upfront. If you have a really strong company that you are buying so then that earn back that the earn back of that upfront dilution becomes a little bit lower.
I also say when you look at that in terms of absolute numbers I always caution a little bit to say well, we never do a deal more than two or 4% upfront dilution because a lot of that depends on the relative size of the end of the year acquiring as well.
But in general.
I would say that from an earn back perspective.
We want to be three years or less.
That earn back.
And then EPS accretion for US it is always important in the first year of combined operations that you show EPS accretion again, how much accretion you show is also going to be a function of the relative size of the entities.
And then we also focus on.
Internal rate of return.
Make sure that the IRR on the deal.
As.
Higher than the than the target cost of capital.
And we focus on the target cost of capital because with a smaller entity there could be more risk embedded there then with a larger entity with a more diversified revenue stream. So we always want.
IRR in excess of the targets cost of capital as well.
And then on top of that I would tell you that the non financial terms I mean, what I mean.
Just talk about all the financial stuff as a CFO, but.
The most important thing really is that theres, a good cultural fit.
And.
A great financial deal.
With a band cultural fit we'll ultimately end up being a bad deal for shareholders.
Great. That's all I had thank you for taking my questions I appreciate it. Thank you thanks, Matt.
Thank you and our next question comes from the line of Erik Zwick with Boenning Scattergood. Your line is now open.
Good morning, guys.
Sure.
I appreciate all the color commentary already on the near term expense outlook, maybe thinking a little bit more kind of met our longer term outlook. There has obviously been a lot of press about inflationary pressures in labor markets.
Curious I'm wondering if you guys are seeing any pressure either as you look to recruit.
New lenders or other associates.
From external sources or anything internal from employees are asking for increases and then maybe a second part of the question can you just remind me when you typically award merit increases and how inflation.
Maybe considered in in those <unk>.
<unk>.
Sure.
As Phil there is intense.
Pressure on wages at every level of our company.
And.
As we talk to our businesses I think it's.
Okay.
With every business.
The.
Biggest problem, everyone has is getting employees and.
It's.
It's a very tough environment.
To hire people.
And I think for.
Industries.
We see wages continuing to climb.
And we see <unk>.
Inflation.
That's helpful and when do you typically kind of award annually.
April April.
Alright.
And then maybe just switching gears a little bit Mark I appreciate the calling out.
Kind of tracking the <unk>, that's been growing year over year, if we think about that from a from a profitability standpoint relative to average assets or even looking at ROA and Roe.
Where.
Are there opportunities today within the organization to pull levers to gradually increase that.
Outside of considering M&A are steepened yield curve, our improved interest rate environment.
Yes, the most obvious.
Area to focus on is that excess liquidity, we're sitting on.
<unk>.
Right now we've got.
One $8 billion that effectively has earned at about 15 basis points.
So so that when you when you think about like I know there.
Some of the analysts on this call I know strip out our PPP fees, which we understand and think is appropriate to get down in the core.
But when you strip out the impacts of PPP on our margin and our loan yields.
We think you also need to then strip out the impact of that excess liquidity.
Because as you get back to a more normalized environment in a more normalized environment for our company.
As a long term loan to deposit.
<unk> ratio between 95 and 100%.
So when you get back to that level.
Redeploying that excess liquidity kind of gives you back.
About the same amount as what the PPP fees.
Pulling away so soon.
So we think that that's by far.
<unk>.
Biggest lever and opportunity for us.
Thanks for taking my questions today.
You bet. Thanks, yes, thanks, Eric.
Thank you and I'm showing no further questions at this time. So now it is my pleasure to hand, the conference back over to Phil Wagner Chairman.
Chairman and Chief Executive Officer for closing comments or remarks.
Thank you again for joining us today and we.
We hope you will be able to be with us when we discuss the fourth quarter results.
In January 2022, thank you.
Thank you everyone. This concludes our conference call.
Everyone have a wonderful day.
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