Q1 2023 Independent Bank Corp Earnings Call
Speaker 2: Good day and welcome to the INDB first quarter 2023 earnings call. All participants will be in listen only mode. Should you need assistance please signal a conference specialist by pressing the star key followed by zero. After today's presentation, please
Speaker 2: There will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2.
Speaker 2: Before proceeding, please note that during this call we will be making forward-looking statements. Actual results may differ materially from these statements due to a number of factors, including those described in our earnings release and other SEC filings.
Speaker 2: We undertake no obligation to publicly update any such statements. In addition, some of our discussion today may include references to certain non-GAAP financial measures, information about these non-GAAP measures, including reconciliation to GAAP measures.
Speaker 2: may be found in our earnings release and other SEC filings. These SEC filings can be accessed via the investor relations section of our website. Finally, please note this event is being recorded. I would now like to turn the conference over to Jeff Tangle.
Speaker 3: CEO , please go ahead.
Speaker 4: Thank you and good morning and thanks for joining us today. I'm thrilled to be hosting my first earnings call as CEO of Independent Bank Corp. I'm joined by CFO and head of consumer lending Mark Ruggiero.
Speaker 4: First, I'd like to give a shout out to my predecessor, Chris Odlison, who expertly guided Rockland Trust for the past 20 years and laid a strong foundation on which to build upon.
Speaker 4: So I've been at the helm for all of two and a half months now, and at least the first month was relatively calm.
Speaker 4: Since then, the challenges in the banking industry has taken center stage.
Speaker 4: So let me get to that topic right up front, given the intense interest regarding its impact on individual banks.
Speaker 4: Mark will take you through the details, but let me just say all in all we're faring quite well. Total deposits were down 3.8% in the quarter in line with prevailing peer trends. We do feel some of this continues an outflow experienced in prior quarters.
Speaker 4: as depositors draw down on excess liquidity and or seek higher interest rates. That's not to say we've been immune from the volatile environment, but things have been manageable. At the very outset, we armed our front-line customer-facing colleagues with coaching and support to respond to questions and calm customer concerns.
Speaker 4: We also reconfirmed our access to multiple sources of liquidity that we've tapped into and can easily further avail ourselves should the need arise.
Speaker 4: But more than anything, it's been our history of focusing on core relationships that has provided considerable stability to our deposit base.
Speaker 4: In fact, household retention has remained at historic highs and new checking account activity continues to be strong.
Speaker 4: Also, some of our deposit outflow migrated over to our investment management group as we successfully manage our relationships across business lines.
Speaker 4: For many of you that already know us well, all of this should come as no surprise. That stability, coupled with our history of conservative risk management, a balanced business model, granular and diverse customer base, and a culture where each relationship matters leaves us well positioned to navigate whatever challenges the external environment throws at us.
Speaker 4: Notwithstanding all of that, we are by no means complacent as this interest rate cycle is still playing out amidst much uncertainty.
Speaker 4: We remain ever vigilant to the ongoing developments with elevated levels of communication and contingency plans in place.
Speaker 4: As our company has proven at the onset of prior banking challenges, we have pivoted quickly to prioritize safety and soundness considerations despite near-term earnings impacts.
Speaker 4: We remain steadfast in our resolve to weather the current uncertain environment and come out the other side stronger than ever.
Speaker 4: Zooming out, I'd like to share a few observations of the company from my initial few months.
Speaker 4: I was impressed by the Rockman Trust franchise from afar. I'm even more impressed being on the inside.
Speaker 4: The phrase that comes to mind is that in many ways, Rockland Trust is punching above our weight class.
Speaker 4: I've spent a considerable amount of my time thus far listening and learning, reassuring our employees that I have zero interest in changing the strategic direction or business model of the company. Chris and the team built a truly special company over the past 20 years. Why would I change that? That's why we get most interested in democratic government…
Speaker 4: I guess it would fall under the old adage, if it's not broke, don't fix it.
Speaker 4: My job is to preserve and build upon the unique culture that makes Rockland Trust so special.
Speaker 4: We will continue down the path of discipline growth that we've become accustomed to.
Speaker 4: In closing, I just wanted to add that in the past few months I've had the opportunity to meet and speak to a number of folks in the investment community, including our larger shareholders. Over the years I've always found these dialogues healthy and insightful.
Speaker 4: These recent conversations have just reinforced my condition that we're pursuing the right strategy and operating from a position of strength.
Speaker 4: I would now like to turn the call over to Mark. Thanks Jeff. I will now take us through the earnings presentation deck that was included in our 8K filing and is available on our website in today's investor portal.
Speaker 5: Slide 4 of the deck summarizes our first quarter results and key drivers. As noted, 2023 first quarter GAAP net income was $61.2 million and diluted EPS was $1.36, reflecting 20.5% and 19.5% decreases, respectively.
Speaker 5: from prior quarter results, largely due to higher funding costs on deposits and borrowings.
Speaker 5: These results produced a 1.30% return on assets, an 8.63% return on average common equity, and a 13.30% return on tangible common equity.
Speaker 5: Also noted on this slide, we highlight some of the primary drivers behind the first quarter results, many of which we will touch upon through the rest of the deck, in addition to further insight on key risk management updates that we recognize are of importance in this challenging environment.
Speaker 5: But before moving on, I'll highlight quickly the last two bullets, noting we completed the full $120 million stock buyback during the quarter, and despite this activity, strong earnings and other comprehensive income resulted in a modest increase in tangible book value from $41.12.
Speaker 5: to $41.31. Addressing those key risk areas, we will focus first on deposit activity, which is obviously top of mind for many of you.
Speaker 5: Slide 5 includes our typical deposit charts reflecting changes and balances for the quarter, as well as additional details over quarterly cost of deposits.
And I will highlight deposit betas in a couple of minutes on a future slide.
As noted, total deposits declined 607 million or 3.8% when compared to the last quarter.
We attribute the runoff to a combination of factors including seasonality, FDIC insurance protection, though to a loss of degree, an extremely competitive rate environment, which on a positive note included another $78 million that moved to our wealth management team.
And lastly, as Jeff alluded to, general usage of excess liquidity due to inflationary and other factors.
And we believe it is important to expand upon this last factor.
Focusing on the excess liquidity impact, we continue to monitor activity very closely and note that the vast majority of deposit outflows is attributable to existing accounts of existing households. In other words, in many cases, customers redeploying their money.
The level of deposit outflows attributable to lost households remains very low and is consistent with historical levels of attrition.
In further highlighting our longstanding history of focusing on core relationship accounts, a highly important metric for us in Q1 is the positive 0.5% growth in households, which led to record quote-unquote new to bank deposit levels attributable to new households in the quarter. Your worth is a means ofSONG.
Continuing to focus on the strength of our deposit base, we move to slide 6, where we have also included information over emerging risk data points such as uninsured deposit balances.
As noted, our March 2023 estimated uninsured deposits of $4.7 billion represent approximately 30% of total deposits.
And though not insured by the FDIC, another $659 million of municipal deposits, or 4.3% of total deposits, are collateralized by the bank, providing additional protection over those amounts. This results in a relatively low 25.8% of deposits being uninsured or
outside centres of influence to ensure any and all concerns are addressed within our suite of product offerings.
Turning now to slide 7, we provide some additional information regarding the company's overall liquidity position, which as Jeff stated is a major priority for us.
In summary, we manage liquidity risk by effective measuring and monitoring of both on and off balance sheet liquidity.
And though various metrics are used across the industry to monitor on-balance sheet liquidity, we highlight the key drivers of the changes in our on-balance sheet cash held primarily at the Federal Reserve and its correlated impact on the borrowings.
As noted here, the increase in interest earning cash to approximately $323 million reflects a proactive decision to bolster on-balance sheet liquidity through increased borrowings as a direct response to the emerging industry risks observed in the quarter. This action, along with the previously mentioned share repurchase activity, is not a
funding liabilities.
And from an interest rate management perspective, we entered into $300 million of hedges.
fixing the interest rate on 300 million of borrowings at a weighted average rate of 3.68% over an average term of three and a half years. Regarding our off-balance sheet borrowing capacity, you can see here that we have borrowing availability through various channels, including primarily the Federal Home Loan Bank of Boston.
the Federal Reserve, and unpledged securities that could serve as additional collateral.
I will also emphasize that in direct response to the emerging industry risk, we significantly increased our asset pledging and borrowing capacity at the Federal Reserve during the quarter and continue to assess additional strategies on an ongoing basis.
We are keenly focused on the tracking and monitoring of deposits and liquidity to ensure there is a comprehensive analysis of balance sheet trends and the potential impact on our liquidity and interest rate risk management.
The borrowing capacity at March 31, 2023 represents approximately 132% of our estimated uninsured deposit exposure, and 153% when also excluding collateralized deposits.
Continuing the focus on interest rate and capital risk management, we have included some additional information on slide 8, summarizing key information related to our securities portfolio.
The reported combined AFS and HTM security portfolios as of March 31, 2023, totaled $3.1 billion.
The $19.3 million decrease from the prior quarter reflects principal paydowns of $43.6 million, offset by unrealized gains of $22.2 million in the available for sale securities portfolio for the quarter. The quarter and unrealized loss position on the AFS portfolio is $146 million or 9.3% of the portfolio.
Not included in the reported balances is another 158 million of unrealized losses on the held to maturity portfolio, or 9.4% of those balances.
The average life of the entire portfolio is 4.5 years, with details of expected principal payments over the next four years included on this slide.
With the AFS unrealized losses already included in our reported tangible capital ratios,
We highlight our strong capital position by noting our tangible capital ratio remains strong at 9.4% even when factoring in the health and maturity portfolio losses net of tax. While there is no denying that earnings growth will be challenged in this environment, as I stated earlier, we are confident that our patient and balance...
summarize quickly now.
Referring to slides 9 and 10, our loan activity remains solid, with total loan balances relatively flat for the quarter, reflecting a cautiously opportunistic posture to providing credit in this environment.
Our long-standing focus on relationship banking continues to provide solid loan opportunities that meet our discipline pricing and credit philosophy.
Appreciating the level of investor interest over commercial real estate exposure, I will reiterate that commercial real estate lending has been a long-standing core competency of this bank, with credit underwriting discipline and monitoring of the portfolio that has proven to mitigate credit loss over previous cycles. Recognizing there are unique dynamics in today's environment, and recognizing the importance of the
and in particular relative to office related classes, we provide additional information over the composition of that portfolio.
While I won't go through all the details on slide 11, the data highlights a balanced and diverse portfolio with very strong current credit metrics, a portfolio which we continue to feel is very well managed.
Staying on the topic of asset quality, we move now to slide 12.
Further deterioration of the outlook over the large non-performing CNI syndicated credit that we mentioned last quarter brought the provision for the quarter to $7.25 million.
We have now allocated a specific reserve to cover 100% of the 23.2 million outstanding balance of this loan.
Separate from this individual credit, total non-performing assets, delinquencies, and overall asset quality remained strong and consistent with the prior quarter. Turning to slide 13 in the net interest margin, due primarily to the deposit runoff pressure noted earlier, the increase in wholesale borrowings and cost of deposits resulted in a 6 basis point reduction in the reported asset quality.
respectively, we highlight these results are right in line with the assumptions used in building out our balance sheet and longer term asset sensitive profile.
Noted on slide 14, fee income results were in line with expectations with a bright spot continuing to be our wealth management offering.
Though the timing of inflows and lower average fee ratios on new money impacted quarter-over-quarter revenue, total assets under administration of $6.1 billion at March 31st reflect an increase of $352 million, or 6% from the prior quarter.
fueled by net new money inflows and market appreciation.
Similarly, on slide 15, the expense increase of 4% was also in line with expectations.
reflecting seasonal increases in payroll taxes, increased FDIC insurance expense, and approximately $2 million of one-time costs associated with CEO transition.
Lastly, as summarized on slide 16, as a result of the emerging environment and significant uncertainty over macroeconomic factors, we provide a limited set of guidance focused primarily on general trends over near-term expectations.
With reduced total approved pipelines compared to the prior quarter, we now expect flat overall loan balances for the second quarter.
With the March spot rate cost of deposits at 67 basis points, deposit pricing and overall market competitiveness remains high. We anticipate a continued shift into higher rate deposit products and overall deposit balance pressure will persist.
Similar to Q1, we expect outstanding borrowings changes will primarily be a direct result of loan and deposit changes.
We anticipate the culmination of these items will likely result in some level of further net interest margin contraction.
With the large non-performing C&I credit now fully deserved, we anticipate provision for loan loss to decline from the Q1 levels, barring no significant changes to the overall credit environment.
And lastly, regarding non-interest items, we anticipate flat to low single-digit increase in non-interest income, despite recent changes to overdraft fees and relatively flat expenses as compared to Q1 totals.
That concludes my comments and we will now open it up to questions. We will now begin the question and answer session. To ask a question, you may press star then one on a touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two.
Mark, I saw your guidance for flat loan balances for the year. Would you also expect balance sheet footings to be flattish for the year as well? Yes, in terms of, help me out there Mark when you mean just total assets. Yep. Yeah, I mean we talked a little bit, it isn't a big number, but we do.
period end March serves as a good proxy for total assets over the course of the year. Okay. And then secondly, would you expect the NIM compression in the second quarter to look sort of similar to what we saw in the first quarter, or is it a little less because you don't have the sort of the extra liquidity to take on the way you did in the first quarter?
Yeah, it's a tough question Mark and to be honest, I'm sure you can appreciate it. It really is going to depend on the overall balance of deposits as that has.
a direct impact on kind of our level of borrowings. So just to give you some perspective, our March spot margin was 3.7%, or 3.70, and that included only a portion of the cash that we had borrowed during the first quarter. So when you reflect that way, you're going to see
of 370 there'll be a little bit of a drag from the cash we're holding on the balance sheet and I do think you'll see the cost of deposits continue to go up from those March levels. I just I really can't predict exactly where that endpoint will be but I think it's reasonable to suggest we'll continue to tick down from from that March level.
Okay and obviously you guys bought a lot of stock during the first quarter at an average price I think of 74. Is it logical then that you're going to be even more aggressive at 58?
Yeah, I think we're probably going to hit the pause button on any stock buybacks at the moment and just kind of assess the situation as we move through the second quarter. It's always something that's, you know, it's kind of a tool in our toolbox, but at the moment we'd like a bit more clarity and certainty about what the future rate environment looks like. It's amazing where it goes from there. Yeah.
Okay great and then Jeff now that you've sort of been in the driver's seat for a little bit here as you look at the various loan books and business lines that independent has are there any sort of areas where you think there's an opportunity to shrink or sell you know pieces of the business?
Not really. I think most of the loan portfolios in the lines of business we're in, I think we feel pretty good about. And don't really have, there's not any hot spots that we feel like we're taking too much risk or that the performance isn't what we'd like.
I would, if anything, you know, I think I'd like to sort of double down on a number of, you know, our middle market CNI business, for example, is one that I hope we can continue to make progress on. But I haven't seen anything that gave me pause that suggested we would exit any of the businesses. Great. And then, lastly, I just want to take a couple of minutes to introduce the opening Towards
Do you think M&A is possible in this environment? And if so, what would be sort of at the top of your wish list?
Thank you. That's a good question. I would like to believe that M&A is possible in this environment. It might take a bit longer to get through the regulatory process would be my guess. But that's something that I guess we'll…
whether it's us or somebody else is just going to have to test and see what that process looks like today. And as I'm sure you can appreciate, and I think our M&A strategy is going to look very similar to what it was during Chris' tenure here. It would be filling in existing...
markets where we're already doing business with or in adjacent markets that would really begin to round out our franchise.
Now I'll just add Mark, the obvious is the purchase accounting noise that would be created in this environment. You know you really have to get comfortable that you can look through that and look at the real economics of any deal. But you know I think you certainly have to be appreciative of.
the accounting marks in this environment and you know understanding where there may be as expected initial capital dilution and likely higher earnback as a result of accounting. I always you know, we're big proponents of having that, you know, internal rate of return governor to really kind of weed through that noise and make sure a deal
What was yourice,
Maybe just starting with the deposits here, deposit costs, just curious, what do you guys see for interest-bearing deposit pricing, and kind of how are you thinking about those costs migrating higher? If you could quantify how much those costs could head higher in the upcoming quarter or two.
Yeah, as I alluded to earlier, Steve, it's a tough one to pick a number for sure. But I think from…
just a practical perspective, a lot of what we're seeing is, you know, for customers that are looking for rate.
On the consumer side and to some degree on some of our small business side, our CD offering has really resonated. We have a 4.25% five-month CD. We've incented higher rates on the short end of the curve, obviously in this environment, and that's been...
working really well in terms of retaining balances.
We also have some promotional money in our money market, loyalty accounts, and we do a lot of kind of what I would call exception pricing.
Because of the great job we've done in building a deposit franchise where we really have that relationship with the customer, we often have the ability to have the conversation with the customer looking for rate, or looking for type of product. And as such we're able to deploy a strategy where it's much more kind of exception.
basis versus having to reprice broader pockets of the deposit base.
So that has worked well, but as you would imagine, a lot of that pricing is up in the 4% in this environment. And again, the story we've been talking about is, often when a customer has.
competitive rate that they're seeing in our market, if we can get to within 25 or 50 basis points of that competitive rate, you know, our relationship will usually retain that deposit.
If we don't take that for granted, it's not to say we can only play a defensive game here. So we're obviously being proactive and looking at where it makes sense to continue to price up deposits. But for those that are rate sensitive, a money market or a CDE offering right now in the fore is likely doing the job.
So that's been the dynamic, Steve, that's created the increase that you've seen and as I referenced our March cost of deposits was up to 67 basis points.
So you figure that's seven or eight basis points kind of over the course of that month. I think in the very near term, that's probably a likely projection heading into Q2. You know, we'll see kind of where we are at the end of the quarter.
Okay, and maybe just on the non-trustbearing side with kind of the ongoing remixing, kind of how much do you ultimately think could remix here over the next couple of quarters? I realize that's tough, but when you look at customer liquidity, how much do you think could be excess? Do you have any kind of sensitivities or quantifying that?
Yeah, again, it's a tough one, you know, because typically the first quarter, I don't want to dismiss, we usually have some seasonality here in the first quarter. Right now you're seeing a lot of outflow related to tax payments.
So it's tough to really parse out what's normal course of business versus what may be something else.
But I think it's just reasonable to suggest that. I would think it'll start to level off towards the end of the quarter from the pace we've experienced in the first quarter, but I really don't, I'm not comfortable sort of predicting a number at this point.
I think it's just reasonable to suggest that. I would think it'll start to level off towards the end of the quarter from the pace we've experienced in the first quarter, but I really don't, I'm not comfortable sort of predicting a number at this point. Go pub.
And then maybe just in terms of on the office disclosures here, I'm wondering if you guys could provide any color on the underlying loan to values, debt service coverage.
and maybe even how much may be maturing in the next 12 months. Yeah, the loan to values is a, you know, I don't know what the number is, I think it's pretty low. I think it's in the like the 50 or 60%. But the problem with that calculation is a lot of those scenarios help those who wish to beAt the Rebar on below. Thank you guys, I'm over here and hope you
owned value calculations are based on older appraisals. And so because of that, it's not really a good measure because they're not all sort of mark to market, if you will. The debt service coverage I think is maybe a better indication of the health of the portfolio.
and the debt service coverage in our office book is north of 1-5. So we feel pretty good about that. And we have roughly about $400 million of the office portfolio that is going to reprice in the next couple of years, which we think is a pretty manageable number.
And I think the whole office, the story around office is going to play out relatively slowly. I think it's not going to be a tsunami. This is because the lease maturities are staggered, the loan maturities are staggered.
companies are still determining how much space they actually want upon lease maturities. So that's still a bit of an unknown. So there's a number of factors that are all variable and is all going to occur over two, three, four years. So because of all that we feel pretty good about our office portfolio.
Okay, great. And maybe just one last one for me in terms of loan pricing. You guys mentioned pipelines have declined. Just kind of curious what you're seeing in the market for loan rates these days. What we have now thing is Bit Cap Knox, it's known to do these kind of things. You know, I and I are talking about Carers for Women,
Yeah, I would say in the middle market where we're playing, it's still fairly aggressive. But I would also tell you historically, we've been very disciplined in our pricing. And so our spreads haven't changed all that much because
they haven't needed to because we continue to be very disciplined in that regard. So again, feel pretty good about the overall yield on our loan book and don't think that they're going to widen out dramatically nor are they going to come in. I'm talking about the credit spread.
In terms of some numbers there, in terms of what's funded in the first quarter on the commercial side, a lot of it was around 6%, low 6's. A lot of the commitments that were booked in the first quarter that will drive funding going forward, that has certainly gone up into the 7% range.
So it's really less closings needed to get to flat and or modest growth. So although the impact may not be as big, we are seeing a nice lift in terms of overall interest rates on the commercial side. On the consumer side, it continues to go up. I'd say most of our
Resi production has been in the high five range, you know, looking to get 6%, but, you know, that's an area we'll continue to monitor closely going forward.
Thank you very much for all the color. I appreciate it.
Great. Thank you very much for all the color. Appreciate it. Thank you.
Our next question comes from Chris O'Connell with KBW. Please go ahead.
Hey, good morning, Jeff, Mark.
So I want to just keep going on the loan side of the business. I think everybody is kind of seeing a slower loan growth environment here, but I hope you could provide color as to some of the drivers. Is it your pricing at the top of the market here? Is it that you are being tighter on credit standards?
or is it more so that there is less demand out there in your markets?
I think of all of those three it's probably the latter. Again I think historically we've been very disciplined on both credit and pricing so those two factors haven't really changed all that much in my opinion. But I think there is less demand out there and companies are being a bit more cautious and as we've seen they've been using their funds to pay down the line.
And then as far as what you guys are putting on and find attractive at this point in the cycle, is there any particular industries or market segments either within CRE or CNI that you like the most here outside of office? Are you guys seeing any other stress?
you know, in other specific segments. I can jump in and Jeff feel free to add on, but I'd say generally no, we're not seeing pockets of stress, but we're obviously being very selective here, Chris, right? In terms of.
which asset classes, the types of sponsors. Again, I highlight, we're a relationship bank and we've done business in the commercial space with borrowers and sponsors over a number of projects. We know them very well and that's probably where we'll continue to see opportunity that we're comfortable with.
So it's been still primarily driven by, you know, one to four family kind of construction, apartment condo developments. You know, there's some level of industrial or mixed use, again, that with the right credit box, you know, fits our profile and we're comfortable with, but I'd say, you know, if it's a sponsor or a borrower that we don't have that relationship.
I think that's had an effect that has just been limiting some of the activity we've seen.
And I appreciate the comments around the overall balance sheet as well as the loan guide.
For the – I think it's just shy of like 200 million or so remaining of the securities portfolio that's maturing in the back half of this year, you guys plan to reinvest that in securities, or pay down borrowings, or limit kind of higher cost deposits, or what's the best use of those cash flows.
Yeah, that'll certainly be redirected to paying down Borrowings assuming those are still outstanding, you know We've we're operating now with with a higher securities portfolio than we have in the past And we can certainly acknowledge and recognize that so
We are certainly in a very good position to just allow for that securities portfolio to attrite and redeploy that against borrowings in the near term. So we have no desire to be reinvesting back in the securities book at this point.
Okay, got it. You mentioned that I think in the prepared comments, was it $2 million for the kind of one-time compensation line?
with the CFOs all in comp and some level of legal related to transition.
Okay, so do you think expenses can trend down in the second quarter at all and then ramping back up or is there kind of natural growth in the business that's offsetting some of that to a million to keep it flat on a go-forward basis?
Yeah, I guided the flat. That's a reflection of there are some projects that we will stay committed to. I think we need to continue to invest in the future of this bank. There's a number of
customer-related initiatives and some back-office efficiency initiatives that we have on tap for the year. Certainly the customer experience is top of mind that we don't want to continue to improve. So we're looking at deposit account opening technology. We're looking at technology on the back end that over time we believe will draw efficiencies.
But right now there's a level of one time spend associated with that embedded in some of the flat guidance there. There's obviously variable compensation arrangements that will provide us some flexibility to keep costs in check.
in the near term, but I think the combination of tightening the belt a bit in areas where we should be, but making sure we continue to invest in technology and our future growth serves us the path to suggest we keep expenses relatively flat.
But if the pressure retains, Chris, and if we continue to see earnings pressure, I think expenses is fair game to be looking at where there may be opportunity to do more there.
Got it. And I guess, you know, following up there, you know, what types of opportunities, you know, would you guys be looking at? Would it be kind of reduced, you know, footprints or headcounts or would it be taking a closer look at kind of like vendor contracts or things, you know, of that nature?
Yeah, I'd say all of the above. I mean, I don't think from a footprint standpoint there's anything right now where I'd say we have immediate opportunities to suggest cutting costs is the right answer. But I think it's getting into the details of, to your point, it's vendors.
and other expenses associated, maybe a level of consulting experience that we've had in the past, where there may not be kind of...
the immediate return, those that have a little bit of a longer end tail there, we may have an opportunity to make some changes. And then certainly on the place I mentioned on the facility side, we have meaningful rent expense as I mentioned. I don't think there's...
There's an opportunity there. Anything that's coming up for renewal, we're taking hard looks at. Maybe there's a consolidation opportunity or two, but I wouldn't say anything too widespread.
And given the timing, it seems like on the wealth AUM as well as maybe some more fee schedules on some of the new AUM put on.
What's a good starting point as a baseline for wealth management next quarter on the C side? In terms of total revenue?
or the onset number? Yeah, so I wanted to remind, so our fourth quarter number was elevated. If you recall, we had a large one-time benefit. We had moved some money over to a different platform, which generated kind of a one-time benefit.
commission of about six or seven hundred thousand dollars. So the fourth quarter number was certainly elevated for that reason. And then in the first quarter, I think you saw kind of more of a normalization as well as you know, the reality of some of the new money being in kind of municipal related products. Certainly some of it being in the deposit.
customers looking for rate, those are going into a laddered treasury security portfolio and that has a lower fee ratio associated with it. So I think you're seeing a little bit of that, you know driving kind of the revenues staying flat I guess more or less without you know, despite having some of the increase in the AUA.
So I think your first quarter numbers is probably a pretty good baseline to be thinking as a starting point. We typically get a second quarter bump from our tax prep fee business, so we should see that hit in the second quarter. But I think you'll probably see it land somewhere between kind of Q1 and Q4 numbers would be my guess. Great.
think your first quarter numbers is probably a pretty good baseline to be thinking as a starting point. We typically get a second quarter bump from our tax prep fee business so we should see that hit in the second quarter but I think you'll probably see it land somewhere between kind of Q1 and Q4 numbers would be my guess. Great.
And then as far as the C&I credit that is now fully reserved for here from a couple quarters ago, can you just walk us through like I guess what change or in the past quarter that made you guys take the full reserve and is there any opportunity for that to come back in over time?
Or do you think that it's going to continue in their own direction? Yeah, at the time we closed the books at EARend. As I mentioned, this is a larger syndicated deal. There's a number of consultants now involved associated with the company filing bankruptcy.
You know, all the work right now is trying to understand the validity of receivables. And I'd say the newer information that we gleaned in the first quarter is that, you know, there's risks. Some of those receivables may not materialize into true proceeds.
So the realization of those receivables that serve as collateral based on the data at year end suggested a small portion of that would still be realized.
I think what we're hearing and learning now is that the vast majority of those receivables may not materialize into proceeds that would make its way back to the lenders. So at this point we just feel like this is...
not much of a path there to getting much return in terms of proceeds upon liquidation and we think it's appropriate to take the full reserve. I think the level of insight and clarity on how this will all play out, we may not actually know for a couple more quarters.
So in terms of when the charge-off comes, we typically under the regulatory guidance, we'd need to see.
little bit more clarity as to what the end result of a liquidation process will be but I think the full reserve at this point we feel is appropriate. Got it. And then
You know, last one for me, I mean, obviously the rate that the borrowing hedge locked in seems very attractive for that term. I mean, the securities book as you mentioned is a little bit bigger than normal.
I mean certainly you know we're certainly aware and we know other institutions have taken that strategy of liquidating some of the securities portfolio. You know personally I was not a huge fan of that. I think it you know the numbers on the paper we all kind of know the impact of that you take the loss.
the table but you know that's a lever we could pull or maybe the more realistic answer there Chris is there's some smaller pools of the securities that maybe don't have as big of a loss embedded in them that we could do some cleanup trades and accelerate the reduction of the securities book so I think that's an area where there's opportunity but one that I wouldn't suggest we're committing to saying we need to be at a point where we
where we accelerate the liquidation, but I think it's something we'll continue to monitor. And then secondarily, you know, certainly we've grown our residential portfolio and a lot of that volume has been retained on balance sheet as well. You know, that's an area in the past we've done some loan sales out of. Again, I think with the rates we've put that production on in a true kind of marginal cost of type funding.
spread environment, I think that that's appropriate return on our investment, but in terms of maybe shrinking the balance sheet a little bit and right-sizing kind of the leverage, that's another area where we could maybe look for opportunities to sell off a portion of that book and pay down borrowings as well. So those are probably the two asset classes I'd look to.
you know sub 150 or you know one and a quarter.
Yeah, this is a decent portion of...
the balance that is probably in that sub 150 range. I don't have the exact numbers here in front of me, but.
You know, that's the trade-off though, right? I mean, that's where you have some pretty large embedded losses. So, there'd be... Yeah. You'd have to be, you know, much really confident that that's the right decision to make, which I haven't been there yet. Got it.