Q1 2023 First Commonwealth Financial Corporation Earnings Call
Ladies and gentlemen, good afternoon. My name is Abby and I will be your conference operator today.
At this time I would like to welcome everyone to the first Commonwealth Financial Corporation first quarter 2023 earnings release conference call.
Today's conference is being recorded and all lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad.
If you would like to withdraw your question Press Star one once again.
Thank you and I will now turn the conference over to Ryan Thomas Vice President of Finance and Investor Relations you may begin.
Thank you Abby and good afternoon, everyone. Thank you for joining us today to discuss the first Commonwealth Financial Corporation's first quarter financial results participating on today's call will be Mike price, President and CEO , Jim Reske, Chief Financial Officer, <unk> Bank, President and Chief revenue Officer, and Brian Carroll, Our Chief Credit Officer.
As a reminder, a copy of yesterday's earnings release can be accessed by logging on to the FC banking dotcom and selecting the Investor Relations link at the top of the page.
Also included a slide presentation on our Investor Relations website with supplemental financial information that will be referenced during today's call before we begin need to caution listeners that this call will contain forward looking statements.
These preferred or forward looking statements disclaimer on page three of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward looking statement.
Today's call will also include non-GAAP financial measures non-GAAP financial measures should be viewed in addition to and not as an alternative for our reported results prepared in accordance with GAAP. A reconciliation of these measures can be found in the appendix of today's slide presentation.
With that I'll turn it over to Mike.
Hey, Thank you Ryan and good afternoon, everyone. We are pleased with our results in a tumultuous quarter for the industry.
Core earnings per share beat consensus by <unk> <unk>.
Our NIM expanded we had record net interest income and we grew deposits much faster than loans, bringing down our loan to deposit ratio.
In short we worked our way through the first quarter by focusing intently on deposit gathering and retention.
Taking a measured approach to loan growth.
Core earnings per share, which adjusts for one time merger expenses and the day one T cell provision associated with our acquisition of centric was <unk> 45 in the first quarter core return on assets.
175% was up from 151% last quarter, reflecting the benefit of lower provision expense, while core pretax pre provision ROA.
Up to one 1% was down from 2.28% last quarter. The NIM expanded by two basis points to 4.01% and the net interest income was up by $6 3 million over the last quarter non interest income declined in expenses rose contributing to.
And efficiency ratio.
At 50, 241% was slightly elevated from last quarter's 50%.
The first quarter was an eventful one for US was successfully closed and converted centric bank during the quarter. The legal close took place on January 31.
And the conversion occurred over the last weekend in February .
Deeply grateful for all of the team members on both sides of this integration who work to make this come together as smoothly as it did we are bullish on the demographics of the region, which includes Harrisburg Lancaster and the Philadelphia suburbs of Devin in Doylestown. We're also pleased with the former centric team that Joe.
First Commonwealth as they have added to our line and back off the strength the.
The events of the first quarter and the banking industry put a spotlight on community banks like first Commonwealth that have diverse and granular deposit portfolios and ample access to liquidity looking back to the middle of last year before the <unk>.
Deposit.
Competition began in earnest our cost of deposits was one of the best of any financial institution in the country and our time deposit book had been consciously reduced to less than 5% of total deposits. Furthermore, our deposit composition has for some time been balanced between urban and rural and business sense.
Consumer with a relatively large proportion of transaction accounts.
As the events of the first quarter unfolded, we saw renewed interest and the composition of that deposit base.
I would direct your attention to new disclosures on pages 13 through 17 and the accompanying slide deck. For example, as of the end of the first quarter, our uninsured deposits comprised only 27% of total deposits and our total uninsured unsecured deposits.
Amounted to only 17% of total deposits our average deposit size of $19426 speaks to the granularity of our deposit base and that figure is for all deposits consumer deposits represent 58% of our deposits and the average consumer deposits.
It is $12726, while the average consumer checking account is $7900 no one private sector industry represents more than 3%.
Of our deposits approximately 98, 2% of our deposits are less than $250000 and 94% or less than $100000. We refrained from certain deposit gathering strategies in the fourth quarter and a conscious effort to keep our total assets below.
<unk> $10 billion at quarter end. However, we have always been and continue to be focused on gathering new checking households, and acting as the primary depository for our customers.
At year end in 2022, our total assets were $9 8 billion and we pivoted once again the broader deposit gathering the results demonstrated demonstrates the fruit of our efforts is average deposits grew 13, 8% annualized outstripping measure.
<unk> loan growth of 343% for the quarter, bringing down our loan to deposit ratio from 95, 6% to 93, 9%.
First quarter growth excludes centric and the impact of purchase accounting marks as consumer loan categories led the way, we now expect to see mid single digit loan growth through the end of the year in light of our continued ability to generate excess.
Capital in excess of what is needed to fund organic loan growth. We are pleased to announce that we have raised the dividend and obtained an additional $25 million of share repurchase authorization from our board.
Our digital platform continues to show impressive growth, particularly around customer engagement. We're now averaging over 210000 average daily logins, a 24% year over year increase this equates to approximately $1 two logins per active user.
Per day, as we look to the remainder of 2023 and into 2024, we will remain relentlessly focused on gathering and retaining core deposits. We will realize the benefits of the centric acquisition and begin to grow we will grow our C&I business throughout through our regional.
Business model and with that I'll turn it over to Jim Reske, our CFO , Jeff <unk>.
Mike.
Net interest income grew by $6 $3 million over last quarter to a record $94 7 million.
Net interest margin or NIM expanded by two basis points to four 1% in the quarter as compared to last quarter.
The cost of non maturity deposits was 0.88% in the first quarter for a cumulative through the cycle data to 17, 5% to date.
Deposit rates increased over the course of the quarter, but at a slowing rate up 31 basis points from January to February .
Only up 15 basis points from February to March.
Our projections for 2023 incorporate to rate forecast suggests one more 25 basis point rate hike and then a decline in the fed funds rate to approximately four 8% by year end.
We estimate roughly five basis points of NIM compression next quarter as always give or take a few basis points.
Our forecasts are highly dependent on assumptions regarding the repricing of deposits.
Okay.
In terms of liquidity, we began the first quarter of 2023 with $285 million of overnight borrowings.
From the federal home loan bank.
And because deposit growth exceeded loan growth, we had paid off those borrowings completely towards the middle of March.
However in response to industry wide liquidity concerns, we stockpiled from cash as did many banks this quarter to be sure we have cash on hand to meet liquidity needs.
At quarter end, our cash and available for sale for securities as a percentage of total assets.
The increase of 102 basis points to 10, 6%.
And total available liquidity of $4 1 billion was two six times total uninsured slash unsecured deposit.
First quarter average deposits grew at a 13, 8% annualized rate as Mike previously mentioned, excluding the acquisition of Central Bank.
Part of that growth came from the transfer in January of approximately $109 $1 million of average off balance sheet deposits from a trust company sweep accounts back onto our balance sheet.
This was one of the strategy that as Mike mentioned, we held off on we held off on executing in the fourth quarter to avoid inadvertently going over $10 billion in total assets.
However, even without this transfer average deposits would still have grown by eight 3% annualized in the first quarter.
The total cost of deposits, which includes noninterest bearing deposits increased by 52 basis points from 20 basis points last quarter to 73 basis points in the first quarter.
The total cost of funds, which includes borrowings grew by 51 basis points to 90 basis points for the quarter.
Up 39 basis points last quarter. This growth of 51 basis points of the total cost of funds was nearly equal to the 50 basis point increase in the yield on total earning assets in the quarter, which helps explain why the NIM was largely unchanged.
Fee income declined by $1 3 million as compared to last quarter due largely to the ongoing weaknesses in our gain on sale businesses.
Operating expense increased by $5 8 million as compared to last quarter as you might expect following an acquisition.
Approximately $1 9 million of this expense was directly attributable to centric operating expense and another $400000 was the result of increased intangible amortization costs attributable to centric.
Other indirect expenses associated with the acquisition such as advertising that are difficult to quantify.
For example, we experienced a $742000 increase in FDIC deposit insurance premiums in the first quarter, approximately $300000 of which can be attributable to centric.
Looking forward, we expect intangible amortization expense to total $4 $7 million in 2023 with.
With $2 1 million of that spending for this centric acquisition and we expect operating expense to be in the range of $63 million to $64 million per quarter for the rest of 2023.
Core provision expense was negative $2 $7 million that is a release too.
$2 1 million of which was due to lower reserves on unfunded commitments with the remaining zero point $6 million release due to the low level of charge offs and loan growth along with a slightly improved Moody's economic forecast within our seasonal model.
Centric credit marks came in very close to what we expected when we announced the transaction.
There was a $10 $7 million, one time day, one provision expense for centric as anticipated, but this is excluded from our reported core operating figures.
However, including onetime credit marks for centric.
The loan loss reserve will increase from 135% of total loans at December 31.
It's a 155% of total loans on March 31, 2023, adding further protection to capital.
Our nonperforming loans reflect the acquisition, but credit trends continue to be strong with very low charge offs down to six basis points from 11 basis points last quarter.
I will directly to new disclosures on pages 16 to 17 of our supplement that breakout our CRE and office loan portfolios.
Finally, tangible book value per share increased from $7 92 per share at year end to $8 13 per share due to retained earnings and a $13 $1 million improvement.
In OCI.
$137 7 million to $124 6 million.
<unk> is down to 14, 8% of tangible common equity from 18, 6% last quarter and our tangible common equity ratio remains at seven 8%.
I would add that if the fair value marks on our available for sale and held to maturity securities are fully realized we would remain well capitalized.
While we have received an additional $25 million of share repurchase authorization from our board as Mike mentioned, we anticipate taking a measured opportunistic approach to buybacks balancing the need to capitalize moderate loan growth and preserve capital with the opportunity to retire shares at these attractive.
Price levels.
And with that we'll take any questions you may have.
Okay.
Operator questions.
Thank you as a reminder.
You would like to ask a question press Star then the number one on your telephone keypad and we will pause for just a moment to compile the Q&A roster.
Okay.
We will take our first question from Frank Schiraldi with Piper Sandler Your line is open.
Thanks, Good afternoon.
Just in terms of the margin.
Detail you gave.
Thank you said five basis points of margin contraction in the second quarter give or take.
Seems really strong, especially if youre still targeting that 25% total deposit beta not sure. If I missed the change there but is that still the assumption and can you maybe just talk about.
How.
How long do you think or when do you think that sort of.
Get fully baked in to.
To the margin.
Yes, sure frankly have been spending a lot of time working on that and try to understand that deposit movements have been.
So very this quarter than it is difficult to predict you may recall that a year ago.
Dropped our cumulative deposit beta forecast, we have been for some time say, 25% cumulative deposit beta and then given the fact that we had almost zero percent deposit beta is in any incremental deposit beta is in any given quarter last year, we dropped it to 20% and then towards the end of last year, We said, we'd better go back to 25% of that was our going assumption.
We've done some work now to understand where deposits are going based on current estimates kind of extrapolating the first quarter deposit trends into the end of the year.
We would calculate a deposit beta that's in the upper <unk>.
More like 28%, but it's impossible to peg even exact in the exact number like that.
More helpful. I'd tell you that when we look at it that way, we can say that for every point of cumulative deposit beta it affects the NIM the ending NIM for the year by about five basis points.
So if you have a 28% cumulative beta one result, and if it ends up being.
30% cumulative deposit beta by the end of the year, but the margin is 10 points different map 10 points will power.
Less than that does that.
Maybe it helps you give you some idea.
Sensitivity to the NIM to the betas, but given where things are going it's very difficult to predict exactly where deposit behaviors.
Okay.
When you think about that 28% or whatever it ends up being do you sort of feel like.
That continues maybe for a few quarters after the fed stops so maybe by year end it sort of fully baked in in your analysis.
Yes.
That's a great question and our analysis actually tried to only go out one year.
It's difficult to breakeven several quarters out let alone going into the next year.
So the way we think about it is accumulative through the cycle beta.
Taking us to just the end of this year in a world where the fed funds comes up a little bit by another quarter point, and then drops down to $4 eight by the end of the year.
Even in those results Frank when we do a 28% deposit beta is an imminent ends up around in the low three <unk>.
And if we stress it and do a 30% cumulative deposit betas of NIM ends up in the.
Low <unk> by the end of the year and that's why we're fairly comfortable saying five basis points per quarter, but give or take a few ideas aside because no one really knows where deposits are going.
Got you Okay. That's great color. Thank you and then just curious I mean, it makes perfect sense, you're talking about a remaining under the $10 billion and the trust sweep balances coming back on the first quarter, just curious what sort of rates.
Those are at and if you could talk about the growth and the deposit which was still very strong growth in deposits.
At legacy Fcs.
Outside of those sweet balances coming back on the quarter.
Hey, Jim why don't you take the rates and I will take the strategies, so that the rates and the trust. So this trust deposits. We hold is in a fiduciary capacity for our <unk> clients, where there can be no better or worse than its offer to the market. So those rates are going to be over probably over.
They're going to be.
Premium rates in the market.
Probably about 4%.
So.
But no that are worse than they were able to get in their sweep accounts and so that's why we're able as a fiduciary to bring it back on balance sheet and my question. Together question, Yes, just our bank President Jane <unk> head of corporate and retail banking they have been laser focused.
On a core depository.
A decade and in its take bell, it's taken that long to build it and we were particularly focused in the first quarter on customer outreach through our branch managers and our commercial <unk> with the competitive rates that Jim mentioned.
We cut we've rebuilt the CD book, we had let that.
Whittled down to virtually nothing we have a team that's really empowered to make exceptions for clients.
And.
We look at.
Good deposit base of small businesses corporate clients.
Municipalities, its long tenured deep relationships sticky and granular.
We just look to add to it every month and Thats, a big part of the incentives for our branches who have the balance sheet.
And our corporate RM, So I hope that's helpful.
Yes, no I appreciate that and then if I could just sneak in one last one you mentioned, Jim the 63% to $64 million in operating expense.
Any change to the I think it was 35% expense saves.
And the centric deal and then one of those fully baked in.
Thanks.
We had ammonia we announced that we projected that those will be fully baked in by the first full year, which would be next year, but we think we will be able to we're on track to achieve that 35% this year.
Okay great.
Thanks.
Thank you.
And we will take our next question from Carl Shepard with RBC capital markets. Your line is open.
Hey, good afternoon everybody.
I appreciate all the color on deposit beta and so I guess I wanted to follow up to ask about asset yields just kind of what are you thinking about asset yield lift as we roll through the back half of the year, assuming kind of your rate forecast.
Actually the asset yields are we're still asset sensitive and so there is still upside on the asset on the asset side and if you look at where we are.
This quarter was a quarter, where the fed raise rates 50 basis points.
Asset yields went up by about 50 basis points. So.
I'm not sure it works that way every quarter, but that's kind of a 100% loan data release for the first quarter of this year. The new loans are coming on are really nice yields I'm sorry, Mike go ahead, yes. So we're pleased to see where that's happening and so even with for example, some portfolios of minimal loan growth. The replacement yields are still pretty strong senior living portfolio doesn't grow.
The new loans that are coming on are coming on at higher rates on loans that are coming off.
Yes, and centric added a little to our asset sensitivity, probably just over two thirds of the commercial loans were.
Variable.
Yes.
Okay.
And then kind of switching over to lending I think Mike you mentioned, taking a measured approach I think what youre because youre worthy.
Curious, what's driving that I know this may be lower.
Construction commitments and the materials switches can you help me understand that and it feels like maybe a slight tweak in the loan growth outlook. I don't think you guys are signaling an affiliate kind of a weaker environment.
Yes, I think the.
It's determined by price and.
Some of the yields on some of our consumer categories had gotten a little tight so we.
Raised some rates and that restricted some volume, particularly in the indirect business, we're still doing a lot of indirect.
More a little bit more on our terms, we have a very experienced leader there we like the business, we're getting just not as much of it and then I also think.
Some of the businesses have slowed down a bit.
Mortgage has hopefully it's bottomed out and they are turning the corner there and.
The commercial side on the commercial real estate has backed up a little bit as well.
We have nice pipelines I would say.
More so in C&I.
And our regions than we've had in a while and so thats.
And also obviously, our new equipment finance business.
Everything that's put on there we'll stick to the balance sheet since that's relatively new.
Great. Thanks for all the help.
As a reminder, this star one if you would like to ask a question and.
And we will take our next question from Daniel Tamayo with Raymond James Your line is open.
Hey, good afternoon everybody.
Maybe first we can start on the office commercial real estate portfolio I appreciate the new disclosures.
But if.
If you could just talk about maybe the.
The dispersion of that office portfolio kind of where it is within your markets. If there is any of it.
Kind of Central business district, particularly the big Metro areas that you would get listed on the <unk> on that slide.
I'll hand, it off to Brian Carroll, our chief.
Credit officer in a minute.
Just.
$5 4 million dollar average commitment Ren.
Rent per square foot in the space of about $17, 65% or $17 65, which is really well below east and West Coast brands and then good debt service coverage of about $1 53, and loan to value of $63, two which just means that vacancy could go up quite a bit in <unk>.
<unk> it won't break the developer Brian why don't you add a little more.
Commentary this slide 17.
Thank you thanks, Mike and thanks, Daniel for your question.
So when we think about our book and the dispersion of the portfolio.
<unk>.
We are a subscription with a global real estate.
<unk> that provides information and analytics and we received monthly updates we think that our portfolio has behaved as well if not better than most others, let's talk about the materials. We gave you our markets are stable and very predictable as we break our portfolio.
Down and think about our geographic dispersion across each of their markets identified on slide 17. We further define it has what is central business district, and what is in the suburban so we have about $87 million.
That is in central business district, and its performing performing reasonably well as we think about the balance of the book and the materials. We provided there are only two loans above $15 million in the portfolio.
One loan is secured by.
Hi.
Multiple properties and those are leased to the federal government.
And the second loan is.
Tenant debts at global credit tenant.
So the office book has performed fine notwithstanding all the concern in the noise.
We focus on this book and have focused on it since the pandemic.
And.
It may not come out in the slides, but we're down about $77 million over the past year or so 14 months and we will continue to work to appropriately size. This book given the economic conditions.
Okay.
That's great color I appreciate all that.
And then switching gears for my follow up here.
For for you Jim.
The reserves are much stronger after the deal now at $1 55.
Just curious on your thoughts of work.
Do you think that still will drift up.
Potentially from here.
Obviously, a lot of questions in terms of what would happen in the environment, but.
Just interested in your thoughts about about the ACL here.
No I appreciate that a lot and I'll start and then Brian If you have some further thoughts you can add to it as well.
With the acquisition and the marks and Mark contributed to the ACL.
And give us a bit of a reset following the acquisition of a nice higher level for 135 to 155.
Anything that compares more favorably to peers and it is a four and Chris Liddle.
Less pressure in that sense.
After this kind of recent for the acquisition.
Pressures just resume reed.
Provision expense is going to be driven by loan growth and then changes in our Moody's economic forecast.
After the reset is kind of back to the.
Same pressures there was before.
And then for a while Brian out if there's anything you wanted to add to that.
No that was well put.
We are hoping that outstanding.
It does thanks, guys I appreciate it that's all for me.
Thank you.
Thanks.
And we will take our next question from Matthew Breese with Stephens. Your line is open.
Hey, good afternoon.
Good afternoon a.
A few modeling questions on my end, sorry, if I missed it in your opening comments, but I was curious what accretable yield was for the quarter and then the outlook for the rest of the year.
It's about five five basis points in the quarter.
It's hard to give you some of it's because of the seasonal is going to go up and down based on how credit performs.
It's hard to give you kind of where that's going to go for the rest of the year, but it's five 5% for the first quarter.
Okay.
In your model.
Are there for the rest of the for the rest of the year and I will update you as we go along.
Okay.
And then turning to the securities portfolio, it's been in decline for.
Five or six quarters now just wanted to get an updated message on what youre doing with.
With cash flows there and if there's any appetite to add to it.
Yes, thanks for asking great questions.
I think we will change our approach we as you've noted we have been letting it run off to fund loan growth.
Expectations for strong loan growth and.
It's really come down to a pretty low level of about 12% of total assets.
As I mentioned in the prepared remarks towards the end of the quarter, we stockpiled cash by basically borrowing from the <unk> and putting on deposit with the federal reserve.
But we'll probably deploy that excess cash into securities.
At a measured pace with dollar cost average into the market not all at once but we'll probably deploy that.
To grow the securities portfolio and one way to think about that is if we add.
Just reinvested ordinary cash flow for those last couple of quarters. The securities portfolio will be a at a higher level and so this will be a way to kind of replicate that redeployment of the cash flow and get it back up to a little bit higher level.
Okay.
Care to give us some reference point in terms of securities to assets that you feel most comfortable with.
I would <unk>.
Right now I don't know exactly but right now I am contemplating adding about $100 million of securities portfolio bound balance from here by the end of the year.
Okay.
Okay.
The other subjects, we didn't quite fully flesh out was just thoughts around fee income.
Some of the moving parts there this quarter and then the outlook for the rest of the year I was hoping for some color there.
Yes, the downdraft here the last year or so has been.
With our gain on sale businesses, primarily.
SBA and mortgage and just had lunch with our mortgage head last week and hopefully we've bottomed out and we can make some progress there.
And we think that long term as it will be a strength of the bank and banking right now these.
Two of the key businesses.
Are struggling a bit and are a little bit below our internal budgets as well and so we think we can we can pick up and improve that line item.
From here towards the end of the year.
Got it Okay, and then maybe Mike just commenting on M&A from here.
I would love to get a sense for geographically, which direction you'd like to head Easter West.
And then give us kind of an updated thought on kind of sizing of any potential targets that you might be interested in.
Well the first thing order of business is.
Announcing closing and converting our banker the easy part.
The hard part is.
Having a ground game and growing.
Great franchise, and a footprint that we just acquired and were working hard on that every month.
We had actually modeled just because of.
Our history with M&A, a little downdraft initially.
With deposits and loans and we've put that into our deal math.
But we need we want to hit the ground running in the second half of the year and certainly well into 2024, but those are great markets great opportunity those branches.
We think we can they can become a terrific depository for us we're off to a good start and those are markets that have a little stronger demographics than we're used to in western Pennsylvania, where like Ohio in terms of our preference for growth.
Yes, just stating the fact, Ohio has been very good to US we've had double digit growth there on the loans and deposit side now for five or six years are little $180 million Bank in Cincinnati is now over $700 million in assets Columbus in Northern Ohio are now a $1 billion two and $1 three.
Respectively. They can fill in with the depository and get a better loan to deposit ratio like we have in Pennsylvania, but theres a lot of upside there and we like those markets and they've been good to us.
Pennsylvania is our home state.
<unk>.
We have three $4 billion in community, Pennsylvania in deposits, that's kind of the bread basket of the company to the extent that we could do things in market or contiguous to that and Jim and I mused about and Jane about rural Depository is all the time, we love them and.
So there is all kinds of opportunities.
They tend to be kind of episodic in terms of how they present themselves.
We're trying to there's a lot of good banks out there that we can partner with them in terms of size.
I think our history is probably fairly indicative of what might be our future.
We've done we've done really small deals.
We have $200 million and up to centric was the largest at $1 1 billion and that very manageable and that way. If you get sideways for a few months you can figure it out and pressed forward and we expect deals to not only be accretive to earnings, but really accretive to profitability long term.
And that's a little higher standard and.
The things we've done in Ohio have done exactly that for US we were.
60, plus efficiency bank, we were.
And ROA that Couldnt get to one.
And that's all changed in the last five or six years with.
Some good acquisitions, and then quite frankly, most of that is organic but.
It's probably no more color than you bargained for but.
I wish it was.
You could almost baked into your plan, but you and I, both though you can't.
At least if you're selective you Kat.
No.
I understand and I appreciate all the color. Thank you that's all I had.
As a reminder, it is star one if you would like to ask a question and we will take our next question from Manuel Nava with D. A Davidson your line is open.
Hey, good afternoon.
Mmm.
Just thinking about the loan portfolio and the <unk>.
Mid single digit.
Loan growth guide can you can.
Go into a little more detail on the mix of it going forward I know you talked a little bit about consumer pulling back a little bit but.
A little more color on the mix and it's going to be first half weighted or not.
Any any kind of thoughts on that on that end as well.
Yes, when you look back the last several years the first quarter lease for US has always been light and we've tended to do better in the second half of the year.
I don't know if that's a trend but it certainly has been the case for the last two or three years.
And as I look at kind of on page seven.
Sure.
Actually it's not paid seven sorry about that I think it's.
Page before loans.
Page six.
I think.
We have an opportunity to grow C&I.
Uh huh.
Construction has been good to us.
That could present, some opportunities commercial real estate.
<unk>.
We picked up a lot of commercial real estate with us with centric.
We'd like to grow the C&I and small business.
<unk>.
I think thats, where we would start and but we have good.
Mortgage commercial real estate and.
Other.
Portfolios.
Just a little harder and a higher rate environment and.
And indirect auto as I mentioned were.
You really need to get the right pricing and the right deal and so.
It will come on the C&I side, and maybe a little bit on the branch side the branch consumer lending side certainly on equipment finance.
That business is ramping up.
A little slower than we expected, but nonetheless, it will be meaningful this year I think.
We're looking at over $200 million there alone.
So that will help the C&I side is this helpful. I don't mean to ramble alright.
Alright, I was going to ask about equipment finance, specifically, so that was kind of an helpful with that target.
Jim anything or Jane Youre on the line anything I missed.
No.
I think.
We're really targeting as you said Mike C&I.
And we will get our fair share of commercial real estate.
And.
And that's why you have lots of businesses, because when somewhere down the others can carry the water.
Okay.
Can I flip that to kind of.
The deposit side.
Just kind of thoughts on where the noninterest bearing percentage, Ken can stay stable or where it can work in fall two and.
Alright.
Growth in <unk>, just wondering how high that bookings yet.
As you kind of play out across the year.
Core deposits.
Yeah, Jim why don't you have modeled it so yes.
The niv to total deposits was 33% last quarter from the 29% this quarter.
It was 25% pre pandemic.
So it's probably settle somewhere in the mid to high <unk>.
And then the CD book with some low before.
Right.
Just two quarters ago.
Where could that get to.
We have capacity there just kind of thoughts on.
A more normalized.
CD book, It's a fair question, but I don't have an answer for I don't know what kind of a percentage of total deposits were definitely rebuilding it.
Let it go to zero, we had we had really.
During the pandemic focused on trying to get our total cost of deposits was close to zero as possible and so with a conscious idea to not pursue time deposits and we are doing that I would tell you. One thing that's really encouraging as little anecdote that might be helpful to you as we put out time deposits now we find that a lot of our customers that we have are very loyal to us and had taken money.
Ticket their operating accounts with us, but idle cash balances.
Because we're offering central rate base up from somewhere else and now they're bringing them back.
So we have found.
Is that what we put out a new.
Time deposit special.
Our track dollars for every $100 million, we attract to stay above.
$50 million of that will be our own money.
Our customers have kept it in our noninterest bearing account or a savings account may take advantage of a CD special.
But about $25 million will be money from our own customers as they kept somewhere else. Some other bank when they bring back to US and then the last $25 million as new money coming from outside of the bank.
So hopefully that gives you a little color on how things are moving.
We just had a good time to talk.
Yes.
Had the luxury of doing that simply because Jane.
Jane and the team.
Our business bankers or commercial bankers.
Our branch managers I mean their primary charge is to go out and get a noninterest bearing deposit accounts.
Core depositary from a small business and you know not all branch employees and banks run their retail model that way.
Jean and the team do and that really put us in a strong position, we're really over half of our depository was noninterest bearing.
Sure.
Now accounts or low interest checking and so.
I think it'll be natural that perhaps.
We can we can grow because our customers are loyal we just didn't give them.
A really attractive.
CD option Jean anything you want to add this was your baby.
No I don't think so Mike I think you've covered it.
Let me just add one bit.
Also be helpful to you in terms of the <unk>.
<unk> flows within the bank.
We gave the number for the amount of noninterest bearing that decline in non interest bearing over the course of the quarter on the average it was $180 million and change.
And but money market went up.
Positive categories and up CD definitely went up.
Here's just one dynamic for you we have offered the Ics product for a long time, that's the product that we all know about now.
That allows customers to break up their deposits and receive virtually unlimited deposit insurance with a product we've had for years and.
Now this is much more awareness of it and so customers are taking advantage of it theres a cost to it there always has been and so it's a different environment customers weren't willing to pay that cost and things have changed. So we saw we saw non interest bearing deposits go down we saw the Ics balances go up from about 100 million to 200 million over the course of the quarter. So that's a lot of noninterest bearing money.
That just becomes now account basically.
Very interesting, let's phase of the bank.
We're happy offer that in our <unk>.
Really appreciate it.
Pat.
That's great color.
Can I shift with one last question.
You have your your fund the outlook your fed funds outlook that has a little bit of a lower end point for the year kind of how.
How are you positioned for potential rate declines at some point.
Yes, we're still asset sensitive.
So we are considering but have not executed on derivative strategies that would either.
Slop, either assets or liabilities to reduce AD sensitivity some of.
The natural things were doing will lumpy asset sensitivity a little bit for example, when we talked about stockpiling casualty in the quarter, we borrowed out with overnight money as we deploy that into securities with some kind of term usually four to five years and we typically have bought in the past.
That will produce a little bit of liability sensitive liabilities.
Reduced a liability sensitive layer that will go on to our asset sensitivity a little bit and then as we grow businesses, especially like equipment finance, which is has very few prepayments and really has an average life closer to the stated life that gives us a little bit more duration too and that helps a little bit organically to blunt against low rates.
And that has been our strategy organically, we've used hedges in the past, but we've been very intentional about being 50% variable and 50% fixed and we've become aware when we veer off of that and then organically we try to get back there.
Thinking straight pool.
Thank you. Thank you for the comments.
And we'll take our next question from Dan Cardenas with Janney Montgomery Scott Your line is open.
Hey, good afternoon guys.
Most of my questions have been asked and answered just a couple quick questions on the deposit trend I mean, I've noticed a number of.
Larger financial institutions kind of tap the broker deposit market this quarter.
Wondering if there's any brokered Cds and your and your book at quarter end and then also maybe some color.
<unk> two.
Your desire if any to to use the bank term funding program.
I think on page 13, 13, we have your answer I didn't I do think we've got.
Some broker deposits from centric, but I don't think we've had them yet no Dan I'm. So glad you asked because we have not had any broker deposits, but now we're showing $18 7 million they are all.
Acquired from centric. So we really have not had any appetite or desire to use brokered deposits and wholesale funding.
In the past.
We inherited those in the acquisition.
Okay.
And then in terms of your other question.
Sorry.
Any desire to maybe.
Use the bank term funding program.
<unk> been evaluating it we have not tapped into that but we are evaluating it.
It seems like some of the financial terms could be attractive, but we want to make sure that theres been a stigma or signaling effect from tapping it in the markets and so we're eager to see the reaction in the market to others that might have tapped into that.
It appears.
Because there may be some financial management fees and some of that facility, but today, we have not.
Okay perfect. That's all I have thanks, guys.
You bet.
And there are no further questions at this time I will now turn the call back to Mr. Mike price for any additional or closing remarks.
Well. Thank you again, we appreciate the partnership we appreciate the opportunity to be.
With a number of view.
We will review every quarter and we always learn.
From your perspective, and thank you for your great questions today.
Sure.
Ladies and gentlemen, this concludes today's conference call and we thank you for your participation you may now disconnect.
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