Q1 2022 Fulton Financial Corp Earnings Call
Okay.
Good day and thank you for standing by welcome to the Fulton Financial first quarter 2022 results conference call. At this time, all participants are in a listen only mode.
The speaker's presentation there'll be a question and answer session to ask a question. During this session you will need to press star one on your telephone. Please be advised this call is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your host today.
At Joes lack of director of Investor Relations.
Yeah.
Good morning, and thanks for joining us for Fulton Financial's conference call and webcast to discuss our earnings for the first quarter of 2022.
For today's conference call is Phil Wenger, Chairman and Chief Executive Officer, joining Phil or Curt Myers, President and Chief operating Officer, and Mark Mccollom Chief Financial Officer.
Our comments today will refer to the financial information and related slide presentation.
Included with our earnings announcement, which we released yesterday afternoon.
These documents can be found on our website at.
U L T dot com click.
Clicking on Investor Relations then on news the slides can also be found under the presentations page under the Investor Relations tab of our Investor Relations website.
On this call Representatives of Fulton May make forward looking statements with respect to Fulton's financial condition results of operations and business. These statements are not guarantees of future performance and are subject to risks uncertainties and other factors and actual results could differ materially.
Please refer to the Safe Harbor statement on forward looking statements in our earnings release and on slide two of todays presentation for additional information regarding these risks uncertainties and other factors.
Fulton undertakes no obligation other than as required by law to update or revise any forward looking statements.
In discussing Fulton's performance Representatives of Fulton may refer to certain non-GAAP financial measures.
Please refer to the supplemental financial information included with Fulton's earnings announcement released yesterday in slides 10, and 11 of today's presentation for a reconciliation of those non-GAAP financial measures to the most comparable GAAP measures.
Now I would like to turn the call over to your host Phil Wenger.
Thanks, Matt and good morning, everyone.
After a ship after I share a high level overview of the quarter.
Curt will discuss our business performance and Mark will share the details of our financial performance.
And then we would be happy to take your questions.
We were pleased with our performance during the first quarter 2022, we saw solid loan growth in both our consumer and commercial lines of business.
Right, a very volatile rate environment.
And once again, our wealth management business produced record income.
Expenses declined in the first quarter and you'll hear more detail on that in a few minutes.
We made several announcements in the first quarter first we announced our intent to acquire Prudential Bank.
Ink later this year.
This will be our first bank acquisition in 16 years.
We have acquired some.
Although we did acquire some small wealth management firms in recent years.
As I shared in the past it is <unk> intent to once again be an acquirer of banks that fit our strategy, our geography and our culture.
The Prudential acquisition meets all three of these objectives.
As you know we have identified Philadelphia is a market that offers a lot of opportunity for us and.
And we have been steadily growing our presence there over the past few years.
With the Prudential acquisition, we look forward to bringing our products expertise and community oriented style of banking to more of Philadelphia's neighborhoods.
Also during the quarter, we raised our quarterly common stock dividend to <unk> 15 per share a <unk>, 7% increase over the previous quarter.
And in March the board approved a new stock repurchase program.
Authorizing us to repurchase up to $75 million.
Our shares of our stock.
No. We are currently not able to repurchase stock due to the upcoming Prudential acquisition, we look forward to pursuing this opportunity later in the year, if it makes financial sense to do so.
And lastly in March I announced my intent to retire as chairman and CEO effective December 31 2022.
Our shared that has truly been a privilege and a pleasure to be part of this company for the past 43 years I look forward to continuing to serve on the holding company and bank boards of directors.
Once my staff for all come stone and.
And I'm very pleased that the board has announced that Curt Myers will succeed me.
Assuming the role of chairman CEO and President effective January one 2023.
With current at the helm and the talented members of our senior management team, adding their expertise.
I am confident that <unk> will be in good hands.
So now I'll turn things over to Kurt to discuss our business performance.
Well, thank you Phil and good morning.
As Bill mentioned, we were pleased with our performance in the first quarter. So let me share a little detail with you on several key areas.
<unk> growth exceeded our internal expectations for the quarter total loan growth was approximately $290 million or about six 4% annualized when excluding PPP loans.
We're also pleased with the diversification of our loan production as most areas experienced solid growth.
As a reminder, the loan growth percentages I referenced are on an annualized basis.
We experienced strong growth in C&I lending residential mortgage commercial and residential construction leasing and also with our student lending Fintech partnership.
Our commercial mortgage portfolio grew modestly as we saw originations declined from a seasonally high fourth quarter.
Turning to provide more detail on consumer lending business consumer loan balances grew $120 million or eight 5%. This was primarily driven.
By 10 by 10, 4% growth in residential mortgages. We also saw double digit growth in residential construction and our student lending portfolio residential.
Residential mortgage originations for the quarter were $465 million, a decrease of 20% from the prior quarter and a decrease of 35% from the prior year.
Originations of $353 million accounted for approximately 76% of total residential mortgage originations during the quarter.
At March 31, the mortgage pipeline was $439 million up 18% from year end as we approach the traditional home buying season.
Residential construction mortgages continued to grow double digits and contributed nicely to our overall loan growth.
This quarter residential construction growth was $16 million or 31%.
This growth is seasonal and is in line with our expectations.
As I mentioned in the past two quarters, our recent Fintech partnership for student loan refinance business continues to progress nicely with $11 million of originations during the quarter.
Now, let me provide a little more detail on commercial lending the commercial loan portfolio grew $170 million of five 5%.
<unk> strong quarter.
C&I loan growth accelerated increasing 85 million or eight 8% versus four 5% growth last quarter increase.
Increased originations as well as increased line utilization combined with a decline in pay downs drove this growth.
Note that we have seen increases in line balances for the third consecutive quarter commercial line utilization ended the quarter at 23% up from the low point of 20% in the second quarter of 2021. This.
This has generated approximately $150 million in growth in outstandings over the past three quarters. As a reminder, commercial line utilization was 32% as of the first quarter of 2020.
As a result, we see growth opportunity as line utilization migrates to more historical levels.
Also contributing nicely commercial construction loans grew $54 million or 23% driven by increased advances during the quarter.
Commercial mortgages grew at a modest $10 million up <unk>, 6% originations declined from a seasonally elevated fourth quarter. However remain in line with the first three quarters of 2021.
Offsetting the seasonal decline in originations was an equal decline in prepayments and pay downs.
After two strong quarters of originations our commercial pipeline continues to rebuild and remained solid.
Overall, we were pleased with our loan growth to start the year.
Turning to deposits, we saw a modest decline in deposits for the quarter driven by a decrease in certain interest bearing products, partially offset by continued growth in noninterest bearing products.
Total deposit balances declined $32 million up 6% and our mix continues to migrate toward lower cost or noninterest bearing products.
During the quarter, we maintained our cost of deposits of 11 basis points and our excess cash position gives us strategic flexibility as we consider multiple rising rate scenarios.
Moving to our fee business, we were pleased with many of our business lines, our wealth management business delivered another record quarter and cash management revenues continued to grow nicely.
Despite these positive results, we did experienced pressure in residential mortgage banking and capital markets.
First our wealth management business continues to grow our strong sales effort client retention and the cumulative effect of several small acquisitions continue to drive customer growth.
Despite these efforts we did see assets under management and administration declined as markets have declined on a linked quarter basis assets under management and administration declined to $13 8 billion down from $14 6 billion at year end. However, they remain up from $13 1 billion at the end of the year ago period.
Good.
Turning to our commercial lines of business total fees declined $2 $5 million down 6% versus the year ago period. This was driven by seasonality and some transactional businesses.
Cash management grew eight 4% linked quarter annualized and was up 10% versus the year ago period, as we see business activity continued to expand.
Offsetting cash management was near term pressure on capital markets or our commercial swap fee program.
Lower SBA gain on sale fees and seasonal declines in merchant fees.
Capital markets and SBA revenues will exhibit modest volatility throughout the year.
Swap fees were impacted by a decline in activity as some customers have turned their preference to direct fixed rate loan structures and this pressures our swap income.
Gain on sale fees declined linked quarter after coming off a record 21, however, our SBA pipeline remains solid as a reminder, this SBA income is separate from the PPP program and is generated by our dedicated SBA team.
Turning to our consumer banking line of business, we did see pressure during the quarter led by decline in mortgage banking revenue.
While residential mortgage applications and the pipeline were up during the quarter originations and gain on sale margins declined leading to a quarter over quarter decline in fee income.
With interest rates moving higher the remaining portion of our mortgage servicing rights valuation allowance was a result reverse and Mark will talk about that a little later.
Overall residential banking fee income was down $2 7 million linked quarter.
In addition to mortgage banking fee income consumer transactional fees were down three 1% linked quarter or 12 point.
7% annualized as customer activity experienced an expected seasonal decline.
Finally, moving to credit and asset quality continues to remain solid delinquency remains low despite a modest uptick during the quarter nonperforming loans remained within a narrow range and we experienced net recoveries for the quarter.
Net recoveries of $1 1 million in the first quarter compares to <unk> 3 million or seven basis points of annualized net charge offs in the fourth quarter of 'twenty, one and seven basis points of net charge offs for all of 2021.
Our first quarter provision for credit losses was a negative $7 million versus a negative 5 million provision in the fourth quarter of 2021.
This is our fifth consecutive quarter of negative provision.
The allowance for credit losses, excluding PPP loans stands at 133%.
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 overall, our credit outlook remains stable with no material change in our current trends.
Now I'll turn the call over to Mark to discuss our financial results and our outlook in a little more detail.
Great. Thank you Kurt and good morning to everyone on the call unless I note otherwise quarterly comparisons I will discuss it with the fourth quarter of 2021.
Starting on slide three earnings per diluted share this quarter were 38.
Our net income available to common shareholders was $61 7 million.
This is up from 37 in the prior quarter.
Our first quarter performance included a decline in net interest income and noninterest income a negative provision for credit losses, and a decline in operating expenses and I'll cover each of these in more detail later in my comments.
Moving to slide four our net interest income was $161 million, a $5 million decline linked quarter.
This was primarily due to a $6 million linked quarter decrease in fees earned from PPP loan forgiveness.
This decrease was offset by solid loan growth.
Modest increase in yields on earning assets and a modest decline in interest expense.
With respect to our PPP program at the end of the fourth quarter, we had $301 million of outstanding PPP loans and $8 million of unearned fees.
During the first quarter PPP loan forgiveness was $137 million and the fees earned on that were $4 million down from $10 million in the fourth quarter.
So at March 31st then we have $164 million in PPP loans still on our books with approximately $4 million of loan fees yet to be recognized.
Turning to the investment portfolio balances grew modestly during the period, increasing $121 million to end the quarter at $4 3 billion.
With a sharp increase in rates, we did put some of our excess cash to work. However, we remain measured in our approach to deploying excess cash into investment securities.
Turning to deposits total deposits declined approximately $32 million on an ending balance basis.
Curt noted our cost of deposits for the quarter remained low at 11 basis points.
During the quarter, we saw increases in noninterest bearing and savings deposits offset by decreases in certain interest bearing categories as well as time deposits for the net decline of 32 million.
Our ending loan to deposit ratio increased from 84, 9% for the fourth quarter to 85, 8% in the first quarter, primarily due to increased loans outstanding.
Our net interest margin for the first quarter was $2 seven 8% versus $2 77 in the fourth quarter.
The one basis point increase linked quarter resulted primarily from an improvement in the mix of earning assets interest, earning assets higher loan yields and stable deposit costs, partially offset by a decline in PPP loans fee recognition.
Turning to slide six our noninterest income I'll provide some additional detail on the business results Curt just discussed.
Wealth management continued to deliver a good quarter despite volatility in the market our mortgage banking revenues declined and resulted from a decrease in loan sales and a decline in gain on sales spreads, which were 161 basis points this quarter versus 174 basis points last quarter.
We also recorded a reduction to the valuation allowance for our mortgage servicing rights asset of 600000 due to higher interest rates and slower prepayment speeds.
Our MSR asset was $35 6 million at March 31.
At quarter end there are no sir there are no mortgage servicing rights valuation allowances remained.
Other fee income decreased $4 $2 million on a linked quarter basis.
Last quarter included gains of $3 8 million from equity method investments as our investment in a Fintech fund generated very strong returns during that quarter.
Moving to slide seven noninterest expenses were approximately $146 million in the fourth quarter down $8 million linked quarter.
This decline was driven by the following factors.
Total salaries and benefits were down $1 million linked quarter, driven by certain onetime incentives and bonuses in the fourth quarter totaling $3 6 million.
This was partially offset by increases in the first quarter salary costs payroll taxes increased incentive compensation and lower fast 91 deferrals due to a decline in mortgage banking market.
Also contributing to the linked quarter decline in expenses were lower outside services cost due to the timing of certain technology projects in the fourth quarter, resulting in a $1 $5 million linked quarter decline.
And lastly, we reported a $4 $7 million decline in other expenses, primarily due in part to a $2 $2 million decrease in charitable contributions linked quarter and a net gain on fixed asset sales of $1 5 million recorded in the first quarter.
Slide eight provides more detail on our capital ratios at March 31, we maintained solid tuitions over the regulatory minimums in our bank and parent company liquidity foods remain very strong.
With a significant increase in interest rates during the quarter accumulated other comprehensive income swung from a positive 27 million to a negative $159 million during the quarter.
This swing impacted both our tangible common equity ratio as well as our tangible book value per share by 68 basis points and $1 16 per share respectively.
During the quarter, we did not repurchase any shares and as Phil mentioned, our board approved another $75 million share repurchase authorization expiring at year end.
Given the pending acquisition of Prudential Bancorp, we won't be repurchasing any shares prior to the closing which is anticipated to be in the third quarter.
On slide nine we're providing updated guidance for 2022.
A lot has obviously changed in the macroeconomic environment over the past three months.
Our guidance now assumes a total of 150 basis points of fed funds increases occurring as follows.
The 25 basis points previously announced in March 50.
50 basis points in May and 25 basis points in each of June July and September .
Based on this rate forecast our revised guidance is as follows.
We expect our net interest income on a non tax equivalent basis to be in the range of $690 million to $705 million.
We expect our noninterest income excluding securities gains to be in the range of $225 million to $235 million.
We expect operating expenses to be in the range of $595 million to $605 million for the year.
And lastly, we expect our effective tax rate to be in the range of 17% to 17, 5% for the full year.
Yes.
This guidance excludes the impact of the Prudential transaction, which is expected to close in the third quarter.
We will incorporate the impact of Prudential and future guidance that we provided.
Many of you look at pre provision net revenue or <unk> as a key metric to assess the profitability of core operations.
Our version of this metric is included in the financial tables of our press release.
We'd also like to point out a couple of additional items for you to consider as you assess our PPE and our results.
Our PPP fees earned have declined $6 million from the fourth quarter to the first quarter.
MSR valuation allowance adjustments resulted in an additional $600000 decrease in the valuation allowance in the first quarter.
And when removing the impact of these two items, we believe our P. PNR has shown improvement since the first quarter 2021, as a result of all of our first quarter 2021 balance sheet restructuring, earning asset growth over the past year core margin stabilization and fee income business groups.
Additionally, our asset sensitive balance sheet is positioned to benefit from anticipated rate increases in 2022 and beyond.
With that I'll now turn the call over to the operator for questions Justin.
And thank you.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the balance sheet. Please standby, we compile the Q&A roster and again that is star one if you'd like to ask a question and our first question comes from Russell Gunther from D. A Davidson your line is now open.
Hey, good morning, guys. Good morning Russell.
I wanted to follow up on the loan growth discussion very healthy results this quarter and diversified as you guys look out through the remainder of 2022 could you give us a sense for how you expect that to progress both from a mix and magnitude perspective.
And then just bigger picture kind of.
Characterize the operating environment from a growth perspective.
More stable or is there any concern for softness in the back half of the year.
Yeah.
Yeah. Thanks Russell has occurred.
Ill answer that question for you so.
So as we look at our loan growth we were.
Happy with first quarter loan growth I think we're off to a good start as you look at the consumer business I think consumer business will be a steady contributor.
For the remainder of the year.
We see it becoming more diversified we had really relied on residential mortgage growth in consumer and we see that becoming more diversified.
And we had less prepay headwinds as we look forward. So we think consumer will be a good steady performer as we look forward.
On the commercial side, we had good origination activity again last quarter, our pipeline is stable even even with.
Good origination activity.
The growth is diversified in geography and in product.
So we're encouraged by that and we do expect that to continue as we look at our pipeline.
And we have the added tailwind of why utilization we referenced those in.
In the script, and we think thats going to continue to be a.
Gross supporter.
As we look forward.
Final thing I'd say on one loan growth as we've been adding talent.
We added.
A team in D C. We've got.
Out of the government services team and we added a team in southeast Ta.
So with those additions that are pretty recent.
They're going to give.
Growth opportunities in that second half of the year. So we think.
We're positioned well and our outlooks.
That we can meet the targets that we've set out.
Okay.
Okay, great. Thank you guys for that and then just one.
One more question for me on the fee income guidance.
The revision there could you just give us a sense in terms of whats driving that dialed back expectations.
And where you expect the.
Fee income growth to be more concentrated this year.
Yes, that's correct Dan I'll, let.
Mark a follow up.
Two key headline.
Items are the swap business given the rate environment is going to be choppy.
We're expecting increases in that year over year.
It kind of flat to last year, and hopefully flat to last year.
A headwind for us and then the mortgage business and our rates went up quicker than we thought.
Mortgage business in the first quarter were softer than we thought but.
We have a purchase.
Purchase money driven shop, and we think we continue to perform going forward. Those are the two key headwinds that we had in fee income.
Okay, great well that's it for me guys. Thanks very much.
Thanks Russell Thank you.
And our next question comes from Frank Schiraldi from Piper Sandler Your line is now open.
Good morning.
Good morning, Brian .
Just wondering if you guys could.
It's a follow up on the.
Hi.
Talk a little bit about the.
The updated expense guide.
Is that just quickly you know inflationary pressures or what's kind of the driver there for that adjustment for the full year, especially given.
The good start.
Strong start on expenses and <unk>.
Yeah, Yeah, I would say frankly, it's almost entirely related to inflation and the effects of that in multiple categories.
Hum.
No.
Okay.
And.
Just yeah.
Thoughts on how.
The near term rate hikes play out in terms of.
The deposit picture in terms of balances and deposit costs.
Mark you mentioned the mix shift.
In the quarter.
On the deposit side any updated thoughts.
Two betas here.
Potential.
One off in the coming quarters.
Yeah.
We saw in the first quarter or frankly, even a stronger shift than we'd anticipated to noninterest bearing.
So we have a much higher percentage of noninterest bearing DDA as than we had.
And if you go back to kind of 2015 in the store and the last upright cycle.
So when you combine a higher percentage of noninterest bearing DDA.
And also just still sitting generally right now somewhere in the $800 million range, you know day to day and overnight cash.
Gives us strategic flexibility as we think about what those betas will be.
But I mean at the end of the day, we are customer centric organization and we're going to make sure that we.
Increased rates.
In a way thats going to corner onto all of our key customers.
But.
But we do expect betas, if you look through the last cycle.
<unk> was just a little bit north of 30% through the cycle.
And we think that there's going to be opportunities at least early on here.
<unk> be at a slower pace than what we were in the last upgrade cycle because of the composition of our balance sheet.
Okay, Alright, great. Thank you.
That's correct.
Thank you.
And our next question comes from Daniel Tamayo from Raymond James Your line is now open.
Hey, good morning, guys. Thanks for taking my question.
Just first I wanted to confirm you guys said that the guidance on in the slide deck does not include any of the numbers from Prudential.
That's correct correctly correct Danny it does not yes, we will be providing those next quarter, we'll start incorporating that into the guidance.
Got it okay.
So, adding on a quarter and change whenever that deal closes.
Has anything changed at this point in terms of I know you.
Youre going to provide guidance next quarter, but has anything changed with the way youre thinking about accretion related to the deal.
With the rate environment changing.
No.
It Hasnt Danny.
Our existing guide that we gave back when we announced the deal for the relative accretion of the acquisitions stayed the same at this point.
Got it Okay and then just.
Just maybe a clarification on the Eni NII guidance.
Does that include you know you still got excess cash levels, you talked about that gives you flexibility.
They did come down in the first quarter as well.
Does the guidance include a normalization of excess cash levels at all or how is that included in the guidance.
Yes so.
And that guidance does assume that there is going to be some level of normalization I would say that by the end of this year, we still have excess cash then what we held historically sort of pre pandemic.
But it does assume that there would be gradual normalization, which is really more a function of loan growth and.
And we've continued loan growth then obviously.
We'd rather put our cash to use that weighs into securities or cash.
Okay great.
Then finally <unk>.
On reserves just curious what your updated thoughts are on.
You know where those may move from here, given the expectation for higher rates and potentially higher losses down the road. Thanks.
Oh.
You talked about loan loss reserves correct.
Yeah.
Okay.
Danny.
The line.
We lose them.
No Sir he's not on the line.
We lost we lost.
Yeah. So.
So for others, who might be interested in his question. So we don't give specific guidance on our one of our loan loss provision.
But.
But obviously, we've had a very benign credit environment.
As folks know with seasonal the amount of provision that we have on the books today in theory is a sufficient fruit.
For credit loss to cover.
All credit losses that we may incur in the future so our future unless that economic outlook changes.
Then the only thing that would really impact our provision levels going forward would be loan growth.
And thank you, yes that also will go to the next question I guess.
Okay.
Our next question comes from Chris Mcgrady from K B W.
Line is now open.
Hey, good morning.
Mark I wanted just to revisit the balance sheet growth for a second.
Obviously deposit projections are very hard given.
All the dynamics out there today.
How should we be thinking about.
The fed taper.
And just the size of earning assets I'm trying to get a sense of appetite to add bonds reduce cash I know, it's a function of deposit growth, but if I just took a step back and think over the next 12 months to 18 months, what's the size of the earning asset base in your projections.
Yes. So if you think overall, earning assets I mean for us our overnight cash position.
At some point over the next six to eight quarters is going to be entirely replaced by loans right. So I mean, that's really where our industrial portfolio. We've stayed pretty consistent over the years at roughly 15% of our total assets.
I don't see that changing more than a couple percentage points.
And we're willing to be patient.
To allow that to come back on the loan growth as opposed to just Bruce on the loan portfolio right now.
Okay and then in terms of what you may be buying in the bond book, what kind of yield pick up are you experiencing relative to the blended yield in the first quarter.
In the 40 basis point range.
Okay.
Alright, great. Thank you.
Chris.
Thank you.
And our next question comes from Erik Zwick from.
From Boenning and Scattergood. Your line is now open.
Thanks, Good morning, guys how are you.
Hey, Eric Good morning.
First one for me wondering if you can just remind me in terms of how you kind of Dell or charge for the wealth management fees, just given the decline in AUM balances quarter over quarter.
It is billed in arrears are kind of based on average balances just trying to get a sense of where that might trend going forward given kind of recent market dynamics.
Yes, Kurt.
So.
We have different business lines and wealth management set of billings, a little different but a bulk of our business is recurring fee.
Based on assets under management levels important portfolio levels. So it's a good solid business on recurring fees.
And we typically build quarter end.
Looking forward so.
We would see assets down a little bit.
There'll be a little pressure on <unk> revenue as we look forward, but again, we continue to grow the business customers and adding assets too.
Yeah.
Thanks, Curt I appreciate that color, there and just a kind of a broader question not specific to this quarter's earnings or the outlook.
Im curious if you could provide some commentary into your current ESG positioning and initiatives given the proposals for enhanced regulatory disclosures.
Yes, So we were working very hard at.
Understanding what reporting requirements, we will have going forward.
We'll be over the next couple of weeks issuing our first.
Corporate social responsibility report.
We are paying a lot of attention.
Two being.
Managing that appropriately internally, we have client quite a task force working diligently.
So that we can navigate.
The business impact as we move forward.
So we feel we are making the effort necessary to understand.
Where we need to be and to make positive impact.
Great I look forward to looking at the upcoming report thanks.
Got it.
Thank you and our next question comes from Matthew Breese from Stephens, Inc.
Good morning. Your line is now open.
Morning, Matt and thank you and good.
Good morning.
Hey, just on the NII forecast. So you now have 125 basis points of additional fed hikes in your model through year end versus 50 basis points.
Last quarter and it feels very much like today.
Fed funds could increase as much as 200 220 basis points by the end of the year.
So if we were to get more than you expect.
200 versus the 125, how does the NII outlook change.
Well it will definitely go up.
And.
For US then obviously as each incremental 25 comes on you would probably likely to see a little bit more of a deposit beta.
Corresponding with that.
But.
The rough numbers.
Which I think you are aware, we have roughly $10 billion.
You'll have loans that are tied to either prime or LIBOR or sofa that are unhedged.
We have about little over $1 billion, but then 1 billion that are already hedged.
Back to fixed so.
So you take that incremental impact on NII, that's about $25 million give.
Give or take.
For each.
25 basis point rate move offset by whatever that deposit beta would be.
Okay.
And has there been any movement in spot.
Deposit prices yet have you changed your offered rates or core rate core base rates at this point.
No not in any product.
Got it okay.
In your prepared remarks, you had mentioned historical C&I utilization rates, I think you'd mentioned, 32% versus kind of like the low 20% range today.
If you were to get back to 32% what would that be on today's book in terms of incremental loan growth.
Over what kind of timeframe do you think we can get back there.
Yes so.
It's probably north of $500 million.
And.
Two things.
There were 23%.
<unk> normal averaged about 32%, but over the past couple of years, we've really grown our business as well so are our commitments in line line commitments are up.
So we think we have upside to get to the historical average.
<unk> 500, $700 million from where we stand right now.
The pace that that will occur we do think that will accelerate we pretty much moved up 1% each quarter in the last three quarters, and we do think that that pace.
<unk>.
Increased but we're not sure how much that will increase but I think we will see an increasing pace.
Over the next quarters.
Okay.
Going to the mortgage business how much of the 465 million originated this quarter was retained versus sold and has the recent hike in mortgage rates changed your thinking at all in terms of what youre originating for sale versus holding on the books.
Yeah, let me grab the numbers there.
Yes, yes, I'll just need to look here really quickly I can point out at my fingertips, but I can tell you is as we think about how much we're going to retain.
There was only a nominal amount of sort of salable product that we kept on the books this past quarter.
It was roughly $30 million.
So.
But we would consider obviously with the.
With the increasing commercial business.
That over time, it might make more sense for us to just sell some of that remaining product as well.
Currently under consideration okay.
Last one for me.
You touched on the reserve, but I was just curious in terms of the Cecil process obviously.
Obviously this quarter there were two kind of.
Opposite direction items, you had the Russia Ukraine.
Conflict, increasing but you also have COVID-19 items declining.
Could you just talk about the inputs and outputs and how.
How those items impacted the thought process around reserve in provisioning.
Yes, so so we like a lot of mid sized banks rely on Moody's.
And for their base economic forecasts so Moody's.
Obviously, it has a team of economists.
Who would think about all of those different macroeconomic factors and.
That produces the base output as well as they are different stress scenarios.
We look at as well.
Got it okay. That's all I had I'll leave it there. Thank you.
Thank you.
Thank you.
And our next question comes from Dave Bishop from whole Degroup.
Your line is now open.
Yes. Thank you good morning, gentlemen, thank you Dave.
Welcome.
Thank you. Thank you very much hey, Mark I think you've talked about.
Some of the targets longer term in terms of the.
The investment securities portfolio, maybe centering around that 15% range, how should we view about the <unk>.
Excess liquidity at this point in cash and then overnight liquidity.
From a dollar or percent of assets basis, where do you see that sort of normalizing of longer term yes.
Pre pandemic, David we were between 50 and $100 million of night kind of where we'd like to run our overnight cash.
That number has been as high during the pandemic as 131 4 billion.
Down right now and about $800 million.
And again, we've been.
We're reluctant to go much above that 15% of assets in the investment portfolio. So we've just been sitting that an overnight cash which is obviously only a little bit more today than it was a month ago.
But we're going to stay patient.
With a forecast for loan growth here over the next three quarters.
What I would expect to see by the end of the year, we'd still be a little bit higher than that historic level, but then sometime in 'twenty three we probably revert back to historic levels.
Got it.
And then one final question I think you noted.
The preamble the increase in cash management fees up.
Likely on a year over year basis any change in terms of fee structure of pricing on that product or is that just represents et cetera.
Actual account penetration.
Yeah, it really brought to customers and as well as <unk>.
Growth in activity.
Great. Thank you.
Yes.
And thank you and I am showing no further questions I would now like to turn the call back over to Phil Ladner CEO for closing remarks.
Well. Thank you everyone again for joining us today, and we hope youll be able to be with us when we discuss second quarter results in July .
This concludes today's conference call. Thank you for participating you may now disconnect.
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Okay.
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