Q1 2023 Community Bank System Inc. Earnings Call
[music].
Welcome to the community Bank system first quarter 2023 earnings conference.
Please note that this presentation contains forward looking statements within the person within the provisions of the private Securities Litigation Reform Act of 1995.
That are based on current expectations estimates and projections about the industry markets and economic environment in which the company operates.
Such statements involve risks and uncertainties that could cause <unk>.
Actual results to differ materially from the results discussed in these statements. These risks are detailed in the company's annual report and Form 10-K.
Filed with the Securities and Exchange Commission. Please note. This conference is being recorded.
Today's call presenters are Mark <unk>, President and Chief Executive Officer, and Joseph Harris, Executive Vice President and Chief Financial Officer. They will be joined by Tim is hard to Robin off Executive Vice President and Chief operating officer for the question and answer session.
You may begin.
Thank you good morning, everyone and thank you for joining our first quarter conference call.
Certainly has been eventful quarter for the industry.
Typically come on or earnings first but it feels like I should start with the balance sheet first off the vessels. The weekend of March has had.
Actually no impact on us beyond the minimal level of customer inquiries.
We proactively reached out to a larger consumer commercial and municipal customers with no movement at all and those deposits are relationships.
Total deposits were actually up almost $100 million during the quarter, mostly C DS with the mix otherwise been remarkably consistent.
Our uninsured deposits or 17% of total deposits and our average consumer and commercial account balances are 12060 thousand respectively.
We have no brokered or wholesale deposits of any type.
We didn't need to move rates in the quarter, which raised our deposit funding costs up to 31 basis points and as at the end of March our full cycle deposit betas, 5%.
Joe will speak further on this topic, but we have $4 $7 billion of immediately available liquidity.
Growth in the quarter was solid at $173 million, mostly business in auto lending and asset quality remains exceptional.
Earnings for the quarter were lower than we expected due mainly to expenses and the elimination of some retail fees, both of which Joe will discuss further but year over year, we delivered greater net interest income and record revenues from our non banking businesses, which continued to grow despite capital market conditions.
Looking at how do we think our funding and liquidity are really well positioned and we have another $350 million of Treasury Securities maturing next month it will be.
Additive to margins and earnings.
We have one of the best deposit bases of any bank in the U S. Our lending businesses are all executing really well and we expect that to continue credit quality remains exceptional and our lending portfolios are highly diversified highly granular.
And our non banking businesses continued to grow despite challenging market conditions. So I think we are extremely well positioned for the future and expect our formats to reflect that regardless of the operating environment.
Joe Thanks.
Thank you Mark and good morning, everyone as Mark noted fully diluted GAAP earnings per share of 11 cents in the quarter. This compares to a fully diluted GAAP earnings per share of <unk> 86 cents in the first quarter of 2022 and 97 cents in the linked fourth quarter of 2022 during the quarter the company strategically repositioned its balance sheet by some.
Selling available for sale investment securities with a market value of 730 <unk>.
The proceeds of which were used to pay down expensive overnight borrowings to provide the company with greater flexibility to manage balance sheet growth and deposit funding in connection with the repositioning the company recognized a pretax realized loss on sale of $52 $3 million, resulting in a 75 cent per share after tax loss on the sale.
Excluding the loss on the sale of investment Securities acquisition related expenses and gain on debt extinguishment. The company is fully diluted operating earnings per share for the quarter was <unk> 86 cents.
This compares to net <unk> <unk> of fully diluted operating earnings per share in the first quarter of 2022, and <unk> 96 cents in the linked fourth quarter.
Penny decrease in operating earnings per share on a year over year basis was driven by a decrease in banking related noninterest revenues and increase in the provision for credit losses, and higher operating expenses, partially offset by increases in net interest income.
In financial services business revenues and decreases in income taxes, and the fully diluted shares outstanding.
10 cents per share decrease in operating earnings per share on a linked quarter basis was largely driven by an increase in operating expenses and lower deposit service fees.
First quarter 2023, adjusted pretax pre provision net revenue per share, which is a non-GAAP measure as defined in our earnings release of $1 16 was up four cents as compared to the first quarter of 2022 and down 13 cents as compared to the fourth quarter of 2022.
The company recorded total revenues of $124 $5 million in the first quarter of 2023, a decrease of $36 million or 22, 4% from the prior year's first quarter. The decrease in total revenues between the periods was primarily driven by the previously mentioned loss on sale of securities during the quarter total operating revenues.
Excludes net realized and unrealized securities gains and losses and gain on debt extinguishment of $176 $6 million in the first quarter of 2023, an increase of $16 1 million or 10% from the prior year's first quarter, driven primarily by an increase in net interest income comparatively total revenues were.
Down $51 4 million or 29, 2% from the fourth quarter of 2020 as a result.
Zero point $7 million or 0.4% on an operating basis.
The company reported net interest income of $111 million in the first quarter of 2023. This was up $16 2 million or 17% over the prior year's first quarter.
The company's tax equivalent net interest margin increased.
By 47 basis points from 273% in the first quarter, 2022% to 3.20% in the first quarter of 2023, the tax equivalent yield on average interest, earning assets was up 82 basis points over the prior year's first quarter, while the average cost of funds increased 35 basis points over the same period comparatively.
The company's net interest margin increased 18 basis points on a linked quarter basis, while net interest income decreased $1 $2 million due in part to a lower day count in the quarter.
Excluding the impact of a loss on sale of investment securities and a gain on debt extinguishment noninterest revenues decreased $1 million between comparable annual quarters, a $1 $1 million increase in insured services revenues in the quarter was offset by a zero point $6 million decrease in banking related revenues zero.
<unk> 2 million decrease in employee benefits benefits services revenues and a zero point $4 million decrease in wealth management revenues.
The decrease in banking related noninterest revenues was driven by a decrease in debit interchange revenues in overdraft occurrences as well as the recent implementation.
Certain deposit fee changes, including the elimination of non sufficient funds available funds fees. Despite the organic growth in the employee benefit services.
New place surcharges business excuse me.
Wealth management businesses revenues were down due to market related headwinds on a linked quarter basis noninterest revenues, excluding the loss on the sale of securities and gain on debt extinguishment increased $1 9 million or two 9% an increase in revenues in all three of the financial services businesses totaling $4 4 million or 10% was.
Partially offset by $2 6 million or 13, 6% decrease in banking related noninterest revenues.
During the first quarter of 2023, the company recorded a provision for credit losses of $3 $5 million driven by weaker economic forecast combined with $172 $9 million increase in loans outstanding comparatively the company recorded a provision for credit losses of $9 million during the first quarter of 2022 and $2 eight.
In the fourth quarter of 2022.
The company reported $114 million in total operating expenses in the first quarter of 2023 compared to $99 8 million total operating expenses in the prior year's first quarter of $2014 2 million increase in operating expenses was primarily attributable to a $9 $8 million increase in salaries and employee benefits and a four.
$2 million increase in our expenses the increase in salaries and employee benefits expense was driven by increases in merit severance and incentive related play wages, including minimum wage related compression on the lower end of the company's pay scale.
Acquisition related and other additions is happening higher payroll taxes and higher employee benefit related expenses. Other expenses were up due to an increase in insurance costs, including larger FDIC insurance expenses higher professional fees business development travel and marketing expenses, along with incremental expenses associated with the operating with.
Operating an expanded franchise subsequent to the Elmira acquisition in the second quarter of 2022.
Comparison, the company reported $105 $9 million of total operating expenses in the fourth quarter of 2020 to $8 $2 million or seven 7% increase in total operating expenses between the fourth quarter 22 in the first quarter of 2023 was largely attributable to a $7 $4 million of 11, 5% increase in salaries and employee benefits.
And a zero point.
$7 million, 5% increase in other expenses for the remaining three quarters of 2023 management anticipates that total operating expenses, excluding any future acquisition activities will remain generally in line with first quarter levels set another way on a full year full calendar year year over year basis. The company anticipates total operating expenses too.
Increased between 5% to 9%.
The effective tax rate for the first quarter of 2023 was 16, 9% down from 21, 4% in the first quarter of 2022, excluding the impact.
Of tax benefits relates to stock based compensation activity. The effective tax rate was 21, 4% in the first quarter of 2023 down from 22, 3% in the first quarter of 2022.
The Companys total assets were $15 $2 6 billion at March 31, 2023, representing a $369 9 million or two 4% decrease from one year prior and a $579 7 million or three 7% decrease from the end of the fourth quarter of 2022, the book value of average.
Interest, earning assets decreased $662 1 million or four 5% during the first quarter due primarily to a decrease in the average book value of investment Securities.
Partially offset by higher average loan balances at the end of the quarter. The book value of interest, earning assets was 14.03 billion comprised.
Comprised of $8 $98 billion of loans $5.02 billion of investment securities and $28 million in cash equivalents.
Ending loans increased $1, $5 6 billion or 21% over the prior year and $172 9 million or 2% during the quarter the increase in ending loans year over year was driven by increases in all loan categories due to net organic growth and the <unk> acquisition.
The increase in loans outstanding on a linked quarter basis was driven by $102 3 million or two 8% increase in business lending $77 million, one 4% net increase in the company's consumer loan portfolios.
The Companys liquidity position remains strong the company's funding base is largely comprised of core noninterest bearing demand deposit accounts and interest bearing checking savings and money market deposit accounts with customers that operate reside or work within our branch footprint.
At March 31, 2023, the company is readily available source of liquidity totaled $4 $69 billion, including cash and cash equivalent balances net of float of $109 $7 million $154 billion of funding availability at the federal reserve discount window $184 billion.
Unused borrowing capacity at the federal home loan Bank of New York, and $1 2 billion Unpledged investment securities that could be pledged as collateral for additional borrowing capacity. These sources of immediately available liquidity represent over 200% of the Companys uninsured deposits net of collateralized deposits, which are estimated at two $3 billion.
The company ending total loans were up $98 million.
Excuse me companies any total deposits were up $98 million from the end of the fourth quarter of approximately 1% deposit base is well diversified across customer segments comprised of approximately 63% consumer balances, 25% business balances and 12% municipal balances.
Broadly disbursed with average consumer deposit account balance of $12000 in average business deposit relationship of approximately $60000. The company's cycle to date deposit beta is 5% reflective of a high proportion of noninterest bearing deposits, which represent 30% over 30% hold deposits and composition.
Stability of the customer base, while our cycle to date total funding beta 7%.
At the end of the quarter, 74% of the company's total deposit balances, where I'm checking and savings accounts and the weighted average age of the company's non maturity deposit accounts is approximately 15 years. The company has not currently have any brokered or wholesale deposit side its balance sheet. The companys loan to deposit ratio at the end of the first quarter was 68, 5%.
68, 5%, providing future opportunity to migrate lower yielding investment securities balances into higher yielding loans. In addition, during the remaining three quarters of 2023, the company anticipates receiving over $600 million of investment Securities principal cash flows to support funding needs.
At March 31, 2023, all of the companies in the bank's regulatory capital ratios significantly exceeded well capitalized standards more specifically the company's tier one leverage ratio was 9.06% at March 31, 2000, fine fragrance substantially exceed the regulatory well capitalized standard of 5% the company's net tangible equity to net.
Tangible assets ratio was.
It was 541% and March 31, 2023 up 77 basis points from the end of the fourth quarter of 2022.
During the first quarter the company repurchased 200000 shares of its common stock pursuant to its board approved 2023 stock repurchase program.
At March 31, 2023 of the company's allowance for credit losses totaled $63 $2 million from 0.70% of total loans outstanding. This compares to $61 1 million balances, 0.69% of total loans outstanding at the end of the fourth quarter.
And $50 $1 million of 068 percent of total loans outstanding at March 31, 2022. During the first quarter of 2023. The company reported net charge offs of $1 5 million or seven basis points of average annual loans on an annual annualized this compares to three basis points of annualized.
Net charge offs in the first quarter of 2022 and nine basis points in the fourth quarter of 2022.
At March 31, 2023, nonperforming loans totaled $33 $8 million or 0.38% of total loans outstanding loans 30 to 89 days delinquent were 0.35% of total loans outstanding at March 31, 2023 down from 0.51% at the end of the fourth quarter of 2022.
We believe the company's strong liquidity profile capital reserves core deposit base asset quality revenue profile provide a solid foundation for future opportunities.
Looking forward, we are encouraged by the momentum in our business. The company continued to organically grow its loan portfolio and asset quality remains strong the companys granular main street focus deposit base and strong liquidity profile are expected to support future growth in our banking business. In addition, new business opportunities in the financial services business has remained strong.
Thank you I will now turn it back to Daniel to open the line for questions.
Okay.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble the roster.
Yes.
The first question comes from Alex <unk> from Piper Sandler. Please go ahead.
Hey, good morning.
Good morning, good morning, Alex.
First off can you just elaborate a little bit on what you're doing with the NSF fees this quarter.
Whether or not the $16 2 million is the right run rate for deposit service fees over the remainder of the year.
Yes so.
Late in the fourth quarter.
<unk>.
Also I guess really kicking in in the early part of the first quarter, we made some changes, particularly on NSF and unavailable funds fees.
Our expectation of a full year basis is that will effectively reduce overall deposit service fees by $6 million to $8 million.
Also in the first quarter, Alex we just have lower occurrences of Overdrew faster typically deposit service fees are down a bit in the first quarter as compared to the fourth quarter.
So that run rate that we have in the first quarters potentially just slightly below our expectations for.
The next next three quarters is typically the first quarter is a little bit slower in terms of Debbie.
Debit interchange and overdraft occurrences, but on an annualized run rate basis.
We expect to beat the changes.
Secondly, reduce fees by $6 million to $8 million.
Okay. Thank you.
Then can you give us a little bit is it $600 million of cash flows from the securities portfolio over the course of the year I think Mark mentioned 350 in May.
Can you give us the timing of the of the remainder of that as well as expectations.
For deposits I know municipal deposits tend to come in in the first quarter, how much do we expect to flow out in the second quarter and whether or not you.
Kind of saying underlying there that.
Maybe just to give us a little bit more expectations for overall liquidity management over the next couple of quarters.
Yes, so the $350 million as Mark mentioned matures in the middle of May.
So we do expect that.
Three security so it's going to happen we have another $150 million in mid August also treasury security.
Those two pieces comprise the lion's share of the $600 million other cash flows come out.
It will happen throughout the year basically mortgage backed security principal repayments.
On a blended basis those those two treasury securities are coming off at about two 5% yield.
So we do expect.
To be able to redeploy those proceeds either pay pay off overnight borrowings should we see some drift down in the deposit base or potentially that could be redeployed into the loan growth.
If that opportunities there. So we do expect some I'll call. It NII pick up net interest income pick up on.
Maturities, Alex with respect to.
Deposit flows.
Typically do see an increase in municipal flows in the first quarter.
As we talked about tax collection cycles in New York State and that typically is a couple hundred million dollars on a net basis in the quarter and we do typically see those flow out.
Throughout most of the second quarter, and then we kind of sometimes drift down a bit in the third quarter. Another.
$100 million or so and then tax collection occurs in September again for the year excludes restriction, we see kind of a lot of that.
That restore.
Going into the late part of the third quarter and into the fourth quarter.
With respect to IPC deposits.
I think we're just.
Just sort of seeing the results of kind of the overall into supply were reflective of the <unk>.
On a supply going down and I think the entire industry is seeing a bit of.
All flow out of.
Their deposit balances and I think thats kind of what will probably happen across the industry and potentially to us as well.
Okay.
Great. Thanks for taking my questions.
The next question comes from Steve Moss of Raymond James. Please go ahead.
Good morning.
Good morning, Steve maybe just maybe just start on loan pricing here and loan growth you good loan growth in the quarter. Just curious what are the yields youre seeing these days.
And let's just start there.
So Steve it's Tim it's or in the first quarter with blended to about six 3% yield.
<unk> originations.
I think if you look at by various buckets.
As we sit here today.
<unk> is kind of in the mid to high sixes.
And the auto business were 7% right now.
And mortgage servicing it depends on what happens with wix.
Flips with aggregate rates, but that's been kind of in the six to six five range. So we have not seen much movement.
Hi, Thank you.
In the second quarter, so far with that said there were a couple of interest rate.
In the first quarter that we didn't get the full benefit us because it was at the end of March and potentially a matter hike next week.
So some of the loans that we have tied to prime should drift up.
So kind of that <unk> I think is a decent proxy for for Q2.
Okay.
That's helpful. Thanks, a lot I'm, sorry, and then in terms of just the margin you know you have a lot of balance sheet movement here.
During the current quarter, and obviously have come with the treasuries maturing just kind of curious maybe do you have a spot margin at quarter end and kind of how youre thinking about margin trends for the second and third quarters.
So.
We actually see.
Steve.
The month of March was our highest net interest income.
One of our existing month on record.
So we kind of saw peak NII at the end of the quarter.
So if you think about the catalysts for NII for.
The balance of 2023, and really if you look at kind of the SEC.
Second quarter, because it's a little bit difficult.
Make the call relative to the third and fourth quarter because of the potential funding costs, but if you look at the next <unk>.
Next quarter, we have the securities maturity of $350 million, which that's maturing at about $2 40. So.
So thats going to be redeployed into either loans or to pay off overnight borrowings. We have a couple of extra days of interest earning days in Q2, which is which is helpful as well.
We also have.
Loan replacement right. So.
We have about $3 million to $350 million per quarter debt thats.
Thats maturing that's just replacement we don't simply we don't grow loans, we just replacement is coming off.
We're picking up about 175 basis points on a replacement.
Placement you also that's a catalyst for NII.
As Tim mentioned, we also have an increase in prime that really didn't catch if you will in the first quarter, which will see benefits of that in the second quarter.
Next 90 days or so we have about $850 million of loans that are going to reprice. There is another roughly 1 billion beyond that.
Balance of the EU, but in the first 90 days, there's about $850 million, that's going to reprice.
So that's that's that's helpful. And then of course, there is potential for additional loan growth in the quarter. So other catalysts on the interest income side obviously.
The big question around cost of funds and cost of.
Cost of deposits.
Now it remains to be seen and I would just say that we do have.
Really strong core deposit franchise.
But.
The rate increases were so rapid in 2022.
There's going to be some.
Necessary increases in funding costs in 2023, as we sort of catch up to some of the.
The changes that were made.
Prime in fed funds in the short end of the curve. So I think theres going to be a little bit of catch up in other words I don't believe that art.
Positive data will stay.
At 5% for the full cycle, it's simply going to accelerate and I think it hasn't I think the whole industry has seen that happened in the last this last couple of quarters.
Right. Okay. That's helpful and then just on expenses here.
Just on the drivers of the increase in compensation expense here.
I hear you guys on the full year relatively stable versus it sounds maybe just a little bit of color.
I'm not sure if I missed it.
Yes so.
Steve probably.
Could have spoken I guess more directly about first quarter results.
On our last quarter's conference call, but.
Our typical pattern is to see a significant increase in expenses in Q1 and part of that as we provide our merit increases across the board in Q1 other companies might feather amount throughout the year, we typically do it in the first quarter along with that comes higher.
<unk> expenses, we had some severance severance expenses in the quarter around salaries, we did have wage pressures, particularly on the lower end, which there's a compression component to that which pushes up.
The lower end of our our pay scale. So some of that effectively is all embedded in the future.
Run rate on salaries, but there's also components that.
Effectively are are higher in the first quarter.
So our expectation is that all in on operating expenses that we would expect the next three quarters to be in line with first quarter. Most of our increase is absorbed in the first quarter. We also have some other expenses around.
Just facilities costs, given our climate and like in the first quarter that typically we don't see in the following quarter. So so theres a couple of items that contribute to it just a higher opex line in Q1, but we do expect that basically level off the advance in the year. When you look at our full year over year basis and operate.
Expenses, our expectations are somewhere between call it 5% to 9% full.
Full year 'twenty three basis versus a full year 22 basis.
Okay.
Great. Thank you very much appreciate all the color.
Welcome.
The next question comes from Manuel Nevada of D. A Davidson. Please go ahead.
Hey, good morning, gentlemen, filling in for methanol today.
I have a few questions on loan growth.
Outlook with pipelines, so first up just the loan.
Loan growth outlook of mid single digits still hold from last quarter.
Especially after the balance sheet repositioning.
In a change of mindset.
Just want some color on that please.
Yeah.
Yes, I believe that our expectations are the same which is mid single digits for loan growth.
What what I think is a favorable change for us is just the competitive dynamic which.
Driven by an environment a number of our peers are.
In a tougher spot from a balance sheet perspective, and their ability to to service customers. So we're seeing higher quality opportunities at substantially better rates than maybe what we expected at the beginning of the year. So I don't think that we expect to do a lot more than what we can.
Get it before but I think better quality at better rates.
What were we are striving for right now.
So that guidance is still intact.
Yes.
Great. Thanks could you also talk about your pipeline.
And also some color on your.
Auto portfolio.
Any credit issues or anything like that that we need to be aware of.
Sure. So on the pipeline if you look at our commercial pipelines.
Still very strong.
But lower than they were.
Kind of at the end of the fourth quarter as we would expect given the market environment, but still very strong compared to our historical loss and again that is a reflection on competitive dynamics and our retooling of the company over the past 18 months in terms of capabilities and people.
On the mortgage side.
Earlier, I think we've communicated that we see.
A lot of time effort and money and retooling our go to market strategy.
Thats paying off dividends in fact last week's mortgage applications were higher than a year ago, a week, which is a nice change in trend given everything that's happening in the mortgage market. So our.
Kind of efforts there are paying off as we expected that portfolio will grow as well.
Auto is a little bit more of a wildcard.
A wildcard from quarter to quarter.
We probably didn't expect as strong of a growth in the first quarter as we as we got in that portfolio.
But again right in the same type of credit 750 average FICO.
Very.
Appealing loan to values.
And better rates virtually every month so.
Like you said, we're roughly at 7% so that risk reward in that paper right now is pretty good.
As it relates to asset quality, maybe kind of starting backwards from auto.
Our charge offs. This quarter were about 30 basis points, which is right in the historical range.
Our loss experience in auto.
Again, this is 750 FICO Super Prime paper basically.
We expect that it's going to be somewhere in that range.
For the rest of the year.
Mortgage.
Sure.
Virtually no.
Charge offs are very little.
<unk> historical averages expecting that to maybe normalize again, we've been talking about normalization for awhile. We are planning for that Youre seeing this provision a little bit more ahead of that.
So far no stresses on the on the consumer.
Consumer side and commercial.
We're basically at zero.
In terms of losses right now.
We had to recover as the prior quarter I believe so.
The going is pretty good we're very vigilant around it we ask ourselves multiple times, a week, what's happening with <unk> with credit.
We're proactively staying in front of our borrowers, but right now Chris <unk>.
Is it as good as we would.
I wanted to be.
Alright, thanks for taking my questions all of them.
Okay.
The next question comes from Matthew Breese with Stephens, Inc. Please go ahead.
Good morning, everybody.
Good morning, Matt.
I was hoping to start on on deposit costs.
Get a sense for where we exited the quarter in terms of overall deposit costs and Joe I know you had mentioned that your expectations are not for a full cycle, 5% deposit beta, but we'd love some thoughts or color around where you think you might end up.
Sure Matt So we did exit the quarter with the deposit funding cost was about 30 38 basis points.
So we have seen.
Some acceleration in terms of.
No.
Positive.
Cost increases.
With respect to.
Margin and NII.
Yes, I think expectations is that we will see.
A couple of tailwind for Q2.
So I would expect that we're going to see a better outcome in Q2, albeit maybe marginally better outcome.
Q4, well see but the alternative of a full cycle beta.
It's not unreasonable to expect that if we have a 500 basis point increase in <unk>.
On the short end of the curve that ultimately our deposit beta is.
23% of that or more when we're through the full cycle full.
Full cycle beta.
Which I think siggi.
<unk> significantly outperformed the industry.
I think those expectations are not unreasonable.
Okay.
I mean, if you look at.
We look at all of our peers reporting and kind of across the country.
If you had a list of betas and deposit cost right now we would stack up very short list.
So we expect that we will continue to be on that short list.
Forward, if you look at the underlying dynamics.
A lot of the personal deposits basically remake remixing into cities.
They are not necessarily leaving the bank, they're just remixing into Cds.
The commercial deposits you've seen some dropdowns, therefore people using cash for projects.
<unk> taxes, which happens kind of in the first part of deer.
So that's been a little bit more of the negative drill down that doesn't stay with us but.
Businesses make money over a year hopefully those balances are going to grow.
And then on the public side, we've talked about the seasonality. So it's it's a little bit hard to figure out what the ultimate through the cycle.
<unk>, but theres a lot of moving pieces to tenants as Josef Joe said, it's not going to be five we hope it's less than 20.
But.
We're trying to be as proactive as we can and continue to be on the very short list of banks with extraordinary deposit basis in the United States.
Understood.
There is 200000 shares repurchased for the quarter, obviously like so many other banks in the industry. The stock is down a bit but your capital levels are improving and it seems like.
Fingers crossed with the repositioning some of the worst of the OCI stuff is behind us.
Share repurchases on the radar in a more aggressive fashion than we've seen you do historically.
Okay.
Yes, Matt I would say.
Terribly more aggressive than we've done historically, we typically.
Try to at least a repurchase.
Shares that are issued in.
Our equity plans.
So I would.
For the balance of the year.
Maybe half a million dollars or less in terms of total shares.
That would be repurchased so we're at 200000 ounces potentially another 300000 throughout the year and that could change later in the year, but right now thats.
Yes, I think we'd be on high end of our expectations.
Okay.
Just turning to M&A.
Obviously, it feels like the banking industry.
Everybody's a bit inward focus right now but.
Do you have expectations that M&A picks up in the back half of the year on the back of all this and how.
How do you feel about your ability to participate in that and would you.
Yes, I think it's hard to handicap right now.
The remainder of the year brings just given the current uncertainty in the environment.
Not just industry uncertainty.
But macro uncertainty as well as it relates to just overall interest rates.
GDP and inflation all those kinds of things that can just of that.
How people think about M&A.
So I think it's relatively quiet right now.
For the most part.
We're certainly always interested in partnering with.
Other organizations that have.
High valued assets to us.
I think that.
The recent events in the industry.
Suggest that theres going to be a separation between.
Companies with.
Good balance sheets and more challenging balance sheets.
We certainly wouldn't be.
Motivated to partner with someone that would dilute the quality of our balance sheet.
But also our strategy.
Changed at all in terms of high value.
M&A opportunities I will say that we're we're focusing fair bit.
Non banking businesses.
We think there is continues to be really good opportunity there. It's a significant part of the strength of our company.
Our future in terms of strategic capital allocation. So we are we're pretty active on the non bank space, but again on that.
The bank side its been relatively subdued we continue to have conversations with other banks that we have.
Potential interest in.
But I think the.
<unk>.
Environmental uncertainty makes it very difficult right now I mean, you start with valuations are down across the industry, including us.
And it just makes I think putting a deal together that much more.
Difficult.
Principally from the sellers perspective in terms of expectations around valuation. So we continue to be interested strategy hasn't changed we're really trying to focus heavily on the nonbank side of the businesses, where we have critical mass as well we have critical mass and benefits we have critical mass in insurance yes.
We will continue to invest in those businesses potentially at even a faster pace in terms of capital allocation.
The banking segment.
As a reminder, if you have a question. Please press star one. The next question comes from Erik Zwick of Hub Group. Please go ahead.
Hey, good morning, guys, just a market on for Eric today.
Most of my questions have already been answered, but just a.
Quick one policy starting already missed it but did you have an average price per share on the buyback this quarter.
Yeah.
Yes, it was just about $54.
Okay, great. Thanks, I appreciate it.
Youre welcome.
The next question comes from Chris O'connell of <unk>. Please go ahead.
Good morning.
Good morning, I appreciate all the color you guys gave it around kind of NII.
The impacts.
From Securities.
Maturing.
Over the next couple of quarters here.
Given you guys a good amount of analog to kind of.
Defend the margin.
<unk> and <unk> and how are you guys thinking about where the eventual margin begins to settle out.
Get toward <unk> at year end.
Post.
Some of that was kind of balance sheet opportunities.
Okay.
Yes, Chris.
It is a difficult question to answer because.
It really comes down to the fund.
Adding data I think we have a pretty good line of sight on sort of what happens on the asset side for the most part.
Given our loan growth in call it the replacement rate of maturing loans.
Funding side as well.
It was a bit of a wildcard right now we've got about 13 $5 billion.
Funding.
Between deposits and borrowings and the question is.
Does that go up.
10, 20, or 30 basis points throughout the year and I think that is.
We get deeper into Q2 and into Q3.
What kind of see where the market settles out but.
That's a pretty tough call for for Q4, I Wouldnt expect that the industry will see I'll call. It <unk>.
Significant margin expansion.
Q4 in fact, I'd, probably we think the industry might actually drift down in terms of margin by by Q4, but I think.
We might we might do a little bit better than the industry, given our given our market base.
I'm not sure we can make a call on Q4 at this time.
Got it.
And.
For the borrowings that you guys have kind of on balance sheet right now is that mostly overnight.
If not you know.
What is the duration of those.
Maybe due to timing or whatever.
But the yield is fairly low on those or the cost is pretty low and those borrowings for the quarter or was that just kind of a timing issue.
Okay.
Yes, we have at the end of the quarter. We had about 50, I think was $58 million in overnight borrowings.
Chris We also carry typically over $300 million and customer repurchase agreements they are classified as as borrowings.
Ken quite frankly too to deposits.
And most of that's in our Vermont, New England footprint.
A lot a fair number of municipal customers, some commercial customers, but for the most part.
We kind of look at that portfolio as something more akin to deposits. So it's a bit more rate sensitive than demand deposits.
But also wouldnt match necessarily overnight borrowing costs so.
A fair amount of our borrowings are tied up in the customer repurchase agreements.
Alright that makes sense.
And for the Cds that you guys are putting on.
What are the what are the rates.
Does that I'm coming up.
Okay.
So Chris on the CD side, I think we're right around 4% right now.
Kind of probably published on blended rates.
In some markets a little bit lower in some markets a little bit higher.
Okay. Thanks.
And then.
Just I know you guys touched on it earlier, but I mean is there is there any areas that you guys are starting to see any types of.
Credit stress.
You guys are kind of pulling back on that growth or that it's starting to concern you.
Within your overall markets.
Or is the outlook.
Kind of still cautiously optimistic here.
The near term future.
Okay.
Chris I wouldn't say any sort of stress I would say, we're just being a little bit more vigilant brown. The sectors. You would typically think about like commercial real estate <unk>.
To stress test for for rates.
With that said the new paper Thats coming in you could argue.
1314 coverage on rates in the Sevens.
That's trading the stress test from day one.
For <unk> customers.
But we're looking at those that are resetting a little bit tighter.
Paying a little bit closer attention to the indirect paper as well again.
Right in the middle of.
Historical ranges, we don't necessarily expect that to change much but you are just being a little bit more vigilant.
Around trends and making sure that.
We're not seeing anything worrisome, which we're not right now.
Great and last one for me.
What's a good go forward tax rate.
Somewhere between 21, and a half and call. It low 20, twos 22 and a half.
$21 522, and a half is probably a fair range to expect.
I think on a go forward basis.
Great.
I appreciate the time, thanks for taking my questions.
Thank you.
Okay.
This concludes the question and answer session I would like to turn the conference back over to Mr. Jim Jenness, Keith for closing remarks.
Thank you.
Nothing more from IRA and thank you all for joining us and we'll talk again after the end of Q2.
Yes.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.