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spk12: Good day, and thank you for standing by. Welcome to the Fulton Financial First Quarter 2022 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star 1 on your telephone. Please be advised this call is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your host today, Matt. Joe Zwack, Director of Investor Relations.
spk08: Good morning, and thanks for joining us for Fulton Financial's conference call and webcast to discuss our earnings for the first quarter of 2022. Your host for today's conference call is Phil Wenger, Chairman and Chief Executive Officer. Joining Phil are Kurt Myers, President and Chief Operating Officer, and Mark McCollum, Chief Financial Officer. Our comments today will refer to the financial information and related slide presentation included with our earnings announcement, which we released yesterday afternoon. These documents can be found on our website at FULT.com by clicking on Investor Relations and then on News. The slides can also be found under the Presentations page under the Investor Relations tab of our Investor Relations website. On this call, representatives of Fulton may make forward-looking statements with respect to Fulton's financial condition, results of operations, and business. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, and actual results could differ materially. Please refer to the safe harbor statement on forward-looking statements in our earnings release and on slide two of today's presentation for additional information regarding these risks, uncertainties, and other factors. Fulton undertakes no obligation other than as required by law to update or revise any forward-looking statements. In discussing Fulton's performance, representatives of Fulton may refer to certain non-GAAP financial measures. Please refer to the supplemental financial information included with Fulton's earnings announcement released yesterday and slides 10 and 11 of today's presentation for reconciliation of those non-GAAP financial measures to the most comparable GAAP measures. Now I would like to turn the call over to your host, Phil Winger.
spk07: Thanks, Matt, and good morning, everyone. After I share a high-level overview of the quarter, Kurt will discuss our business performance, and Mark will share the details of our financial performance. And then we would be happy to take your questions. We were pleased with our performance during the first quarter of 2022. We saw solid loan growth in both our consumer and commercial lines of business, despite a very volatile rate environment. And once again, our wealth management business produced record income. Expenses declined in the first quarter, and you'll hear more detail on that in a few minutes. We made several announcements in the first quarter. First, we announced our intent to acquire Prudential Bank Corp. Inc. later this year, This will be our first bank acquisition in 16 years, although we did acquire some small wealth management firms in recent years. As I shared in the past, it is Fulton's intent to once again be an acquirer of banks that fit our strategy, our geography, and our culture. The Prudential Acquisition meets all three of these objectives. As you know, we have identified Philadelphia as a market that offers a lot of opportunity for us, and we have been steadily growing our presence there over the past few years. With a prudential acquisition, we look forward to bringing our products, expertise, and community-oriented style of banking to more of Philadelphia's neighborhoods. Also, during the quarter, we raised our quarterly common stock dividend to $0.15 per share and a 1 cent or 7% increase over the previous quarter. And in March, the Board approved a new stock repurchase program authorizing us to repurchase up to $75 million for shares of our stock. Though we are currently not able to repurchase stock due to the upcoming prudential acquisition, we look forward to pursuing this opportunity later in the year if it makes financial sense to do so. And lastly, in March, I announced my intent to retire as chairman and CEO of Fulton Effective, December 31st, 2022. I've shared that it has truly been a privilege and a pleasure to be part of this company for the past 43 years. I look forward to continuing to serve on the holding company and bank boards of directors once my staff role comes to an end. And I'm very pleased that the board has announced that Kurt Myers will succeed me, assuming the role of chairman, CEO, and president effective January 1st, 2023. With Kurt at the helm and the talented members of our senior management team adding their expertise, I am confident that Fulton will be in good hands. So now I'll turn things over to Kurt to discuss our business performance.
spk03: Well, thank you, Phil, and good morning. As Phil mentioned, we were pleased with our performance in the first quarter. So let me share a little detail with you on several key areas. Loan growth exceeded our internal expectations for the quarter. Total loan growth was approximately $290 million, or about 6.4% annualized when excluding PPP loans. We were also pleased with the diversification of our loan production, as most areas experienced solid growth. As a reminder, the loan growth percentages I referenced are on an annualized basis. We experienced strong growth in C&I lending, residential mortgage, commercial and residential construction, leasing, and also with our student lending fintech partnership. Our commercial mortgage portfolio grew modestly as we saw originations decline from a seasonally high fourth quarter. Turning to provide more detail on consumer lending business, Consumer loan balances grew $120 million, or 8.5%. This was primarily driven by 10.4% growth in residential mortgages. We also saw double-digit growth in residential construction and our student lending portfolio. Residential mortgage originations for the quarter were $465 million, a decrease of 20% from the prior quarter and a decrease of 35% from the prior year. Purchase originations at $353 million accounted for approximately 76% of total residential mortgage originations during the quarter. At March 31, the mortgage pipeline was $439 million, up 18% from year-end as we approach the traditional home-buying season. Residential construction mortgages continued to grow double digits and contributed nicely to our overall loan growth. This quarter, residential construction growth was $16 million, or 31%. This growth is seasonal and is in line with our expectations. As I mentioned the past two quarters, our recent FinTech partnership for student loan refinance business continues to progress nicely, with $11 million of originations during this quarter. Now let me provide a little more detail on commercial lending. The commercial loan portfolio grew $170 million, or 5.5%, a seasonally strong quarter. C&I loan growth accelerated, increasing 85 million, or 8.8% versus 4.5% growth last quarter. Increased originations as well as increased line utilization combined with a decline in paydowns drove this growth. I would note that we have seen increases in line balances for the third consecutive quarter. Commercial line utilization ended the quarter at 23%, up from the low point of 20% in the second quarter of 2021. This has generated approximately $150 million in growth and outstandings over the past three quarters. As a reminder, commercial line utilization was 32% as of the first quarter of 2020. As a result, we see growth opportunity as line utilization migrates to more historical levels. Also contributing nicely, commercial construction loans grew $54 million, or 23%, driven by increased advances during the quarter. Commercial mortgages grew at a modest 10 million or 0.6%. Originations declined from a seasonally elevated fourth quarter, however, remain in line with the first three quarters of 2021. Offsetting the seasonal decline in originations was an equal decline in prepayments and paydowns. After two strong quarters of originations, our commercial pipeline continues to rebuild and remain solid. Overall, we were pleased with our loan growth to start the year. Turning to deposits, we saw a modest decline in deposits for the quarter, driven by a decrease in certain interest-bearing products, partially offset by continued growth in non-interest-bearing products. Total deposit balances declined $32 million, or 0.6%, and our mix continues to migrate toward lower-cost or non-interest-bearing products. During the quarter, we maintained our cost of deposits at 11 basis points, And our excess cash position gives us strategic flexibility as we consider multiple rising rate scenarios. Moving to our fee business, we were pleased with many of our business lines. Our wealth management business delivered another record quarter, and cash management revenues continue to grow nicely. Despite these positive results, we did experience pressure in residential mortgage banking and capital markets. First, our wealth management business continues to grow. Our strong sales effort, client retention, and the cumulative effect of several small acquisitions continue to drive customer growth. Despite these efforts, we did see assets under management and administration decline as markets have declined on a link quarter basis. Assets under management and administration declined to $13.8 billion, down from $14.6 billion at year end. However, they remain up from $13.1 billion at the end of the year-ago period. Turning to our commercial lines of business, total fees declined $2.5 million, down 6% versus the year-ago period. This is driven by seasonality and some transactional businesses. Cash management grew 8.4% length quarter annualized and was up 10% versus the year-ago period as we see business activity continue to expand. All set in cash management was near-term pressure in capital markets or our commercial swap fee program. lower SBA gain on sale fees, and seasonal declines in merchant fees. Capital markets and SBA revenues will exhibit modest volatility throughout the year. Swap fees were impacted by a decline in activity, as some customers have turned their preference to direct fixed-rate loan structures, and this pressures our swap income. SBA gain on sale fees declined linked quarter after coming off a record 21. However, our SBA pipeline remains solid. As a reminder, this SBA income is separate from the PPP program and is generated by our dedicated SBA team. Turning to our consumer banking line of business, we did see pressure during the quarter, led by a decline in mortgage banking revenue. While residential mortgage applications and the pipeline were up during the quarter, originations and gain-on-sale margins declined, leading to a quarter-over-quarter decline in fee income. With interest rates moving higher, the remaining portion of our mortgage servicing rates valuation allowance was reversed, and Mark will talk about that a little later. Overall, residential banking fee income was down $2.7 million length quarter. In addition to mortgage banking fee income, consumer transactional fees were down 3.1% length quarter or 12.7% annualized as customer activity experienced an expected seasonal decline. Finally, moving to credit, asset quality continues to remain solid. Delinquency remains low despite a modest uptick during the quarter. Non-performing loans remain within a narrow range, and we experienced net recoveries for the quarter. Net recoveries of 1.1 million in the first quarter compares to 3 million, or seven basis points, of annualized net charge-offs in the fourth quarter of 21, and seven basis points of net charge-offs for all of 2021. Our first quarter provision for credit losses was a negative 7 million versus a negative 5 million provision in the fourth quarter of 2021. This is our fifth consecutive quarter of negative provision. The allowance for credit losses, excluding PPP loans, stands at 1.33%. As always, our allowance for credit loss trends could change in future periods based on new loan origination volumes, loan mix, net charge-off activity, and longer-term economic projections. Overall, our credit outlook remains stable with no material change in our current trends. Now I'll turn the call over to Mark to discuss our financial results and our outlook in a little more detail.
spk09: Great. Thank you, Kurt, and good morning to everyone on the call. Unless I note otherwise, the quarterly comparisons I will discuss are with the fourth quarter of 2021. Starting on slide three, earnings per diluted share this quarter were $0.38 on net income available to common shareholders was $61.7 million. This is up from 37 cents in the prior quarter. Our first quarter performance included a decline in net interest income and non-interest income, a negative provision for credit losses, and a decline in operating expenses. And I'll cover each of these in more detail later in my comments. Moving to slide four, our net interest income was $161 million, a $5 million decline linked quarter. This was primarily due to a $6 million linked quarter decrease in fees earned from PPP loan forgiveness. This decrease was offset by solid loan growth, a modest increase in yields on earning assets, and a modest decline in interest expense. With respect to our PPP program, at the end of the fourth quarter, we had $301 million of outstanding PPP loans and $8 million of unearned fees. During the first quarter, PPP loan forgiveness was $137 million, and the fees earned on that were $4 million, down from $10 million in the fourth quarter. So, at March 31st, then, we have $164 million of PPP loans still in our books, with approximately $4 million of loan fees yet to be recognized. Turning to the investment portfolio, balances grew modestly during the period, increasing $121 million to end the quarter at $4.3 billion. With a sharp increase in rates We did put some of our excess cash to work. However, we remain measured in our approach to deploying excess cash into investment securities. Turning to deposits, total deposits declined approximately $32 million on an ending balance basis. As Kurt noted, our cost of deposits for the quarter remained low at 11 basis points. During the quarter, we saw increases in non-interest-bearing and savings deposits offset by decreases in certain interest-bearing categories as well as time deposits. for the net decline of $32 million. Our ending loan-to-deposit ratio increased from 84.9 percent for the fourth quarter to 85.8 percent in the first quarter, primarily due to increased loans outstanding. Our net interest margin for the first quarter was 2.78 percent versus 2.77 in the fourth quarter. The one basis point increase linked quarter resulted primarily from an improvement in the mix of earning assets, interest earning assets, higher loan yields, and stable deposit costs, partially offset by a decline in PPP loan fee recognition. Turning to slide six, our non-interest income, I'll provide some additional detail on the business results Kirk just discussed. Wealth management continued to deliver a good quarter despite volatility in the market. Our mortgage banking revenues declined and resulted from a decrease in loan sales and a decline in gain-on-sales spreads, which were 161 basis points this quarter versus 174 basis points last quarter. We also reported a reduction to the valuation allowance for our mortgage servicing rights asset of $600,000 due to higher interest rates and slower prepayment speeds. Our MSR asset was $35.6 million at March 31st. At quarter end, there are no mortgage servicing rights valuation allowances remaining. Other fee income decreased $4.2 million on a linked quarter basis. Last quarter included gains of $3.8 million from equity method investments, as our investment in a FinTech fund generated very strong returns during that quarter. Moving to slide seven, non-interest expenses were approximately $146 million in the fourth quarter, down $8 million linked quarter. This decline was driven by the following factors. Total salaries and benefits were down $1 million linked quarter, driven by certain one-time incentives and bonuses in the fourth quarter, totaling $3.6 million. This was partially offset by increases in first quarter salary costs, payroll taxes, increased incentive compensation, and lower FAS91 deferrals due to a declining mortgage banking market. Also contributing to the link quarter decline in expenses were lower outside services costs due to the timing of certain technology projects in the fourth quarter, resulting in a $1.5 million link quarter decline. And lastly, we reported a $4.7 million decline in other expenses, primarily due in part to a $2.2 million decrease in charitable contributions link quarter, and a net gain on fixed asset sales of $1.5 million recorded in the first quarter. Slide 8 provides more detail on our capital ratios. At March 31st, we maintained solid cushions over the regulatory minimums, and our bank and parent company liquidity both remained very strong. With a significant increase in interest rates during the quarter, Accumulated other comprehensive income swung from a positive $27 million to a negative $159 million during the quarter. This swing impacted both our tangible common equity ratio as well as our tangible book value per share by 68 basis points and $1.16 per share, respectively. During the quarter, we did not repurchase any shares, and as Phil mentioned, our board approved another $75 million share repurchase authorization expiring at year end. Given the pending acquisition of Prudential Bancorp, we won't be repurchasing any shares prior to the closing, which is anticipated to be in the third quarter. On slide nine, we're providing updated guidance for 2022. A lot has obviously changed in the macroeconomic environment over the past three months. Our guidance now assumes a total of 150 basis points of Fed funds increases occurring as follows. the 25 basis points previously announced in March, 50 basis points in May, and 25 basis points in each of June, July, and September. Based on this rate forecast, our revised guidance is as follows. We expect our net interest income on a non-tax-equivalent basis to be in the range of 690 to 705 million. We expect our non-interest income excluding securities gains, to be in the range of $225 to $235 million. We expect operating expenses to be in the range of $595 to $605 million for the year. And lastly, we expect our effective tax rate to be in the range of 17 percent to 17.5 percent for the full year. This guidance excludes the impact of the prudential transaction, which is expected to close in the third quarter. we will incorporate the impact of Prudential in future guidance that we provide. Many of you look at Pre-Provision Net Revenue, or PPNR, as a key metric to assess the profitability of core operations. Our version of this metric is included in the financial tables of our press release. We'd also like to point out a couple of additional items for you to consider as you assess our PPNR results. Our PPP fees earned have declined $6 million from the fourth quarter to the first quarter. MSR evaluation allowance adjustments resulted in an additional $600,000 decrease in the evaluation allowance in the first quarter. And when removing the impact of these two items, we believe our PPNR has shown improvement since the first quarter of 2021 as a result of our first quarter 2021 balance sheet restructuring, earning asset growth over the past year, core margin stabilization, and fee income business growth. Additionally, our asset sensitive balance sheet is positioned to benefit from anticipated rate increases in 2022 and beyond. With that, I'll now turn the call over to the operator for questions. Justin.
spk12: And thank you. As a reminder to ask a question, you'll need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by, we'll compile the Q&A roster And again, that is star one if you'd like to ask a question. And our first question comes from Russell Gumther from D.A. Davidson. Your line is now open.
spk04: Hey, good morning, guys. Morning, Russell. Morning, Russell. I wanted to follow up on the loan growth discussion. Very healthy result this quarter and diversified. As you guys look out, you know, through the remainder of 2022, Could you give us a sense for, you know, how you expect that to progress both from a mix and magnitude perspective? And then just bigger picture, kind of characterize the operating environment from a growth perspective, you know, more stable, or is there any concern for softness in the back half of the year?
spk03: Yeah, thanks, Russell. This is Kurt. I'll answer that question for you. So as we look at our loan growth, we were – Happy with first quarter loan growth. I think we're off to a good start. As you look at the consumer business, I think consumer business will be a steady growth contributor for the remainder of the year. We see it becoming more diversified. We had really relied on residential mortgage growth in consumer, and we see that becoming more diversified. And we have less prepaid headwinds as we look forward. So we think consumer will be a good steady performer as we look forward. On the commercial side, we have good origination activity. Again, last quarter, our pipeline is stable even with that good origination activity. The growth is diversified in geography and in product, so we're encouraged by that, and we do expect that to continue as we look at our pipeline. And we have the added tailwind of line utilization. We referenced those in the script, and we think that's going to continue to be a growth supporter as we look forward. The final thing I'd say on loan growth is we've been adding talent. So we added a team in D.C. We've added a government services team, and we added a team in southeast P.A., You know, so with those additions that are pretty recent, they're going to give, you know, growth opportunities in that second half of the year. So we think we're positioned well in our outlooks that we can meet the targets that we have set out. Okay, great.
spk04: Thank you guys for that. And then just one more question for me on the fee income guidance and the revision there. Could you just give us a sense in terms of, you know, what's driving that dialed-back expectations and, you know, where you expect the fee income growth to be more concentrated this year? Yeah, it's good.
spk03: Again, I'll let Mark follow up. You know, two key headline items are the swap business. Given the rate environment, it's going to be choppy. We were expecting increases in that year over year, and we're probably kind of flat to last year, hopefully flat to last year. So that's a headwind for us. And then the mortgage business, you know, rates went up quicker than we thought. Mortgage business in the first quarter were softer than we thought. But, you know, we have a purchase money driven shop, and we think we continue to perform going forward. Those are the two key headwinds. that we have in fee income.
spk04: Okay, great. Well, that's it for me, guys. Thanks very much.
spk12: Thanks, Russell. Thank you. And our next question comes from Frank Chiraldi from Piper Sandler. Your line is now open.
spk10: Good morning. Good morning, Greg. Just wondered if you guys could, to follow up on the guide, Talk a little bit about the updated expense guide. Is that just strictly inflationary pressures, or what's kind of the driver there for that adjustment for the full year, especially given the good start or the strong start on expenses in 1Q?
spk09: Yeah, I would say, Frank, it's almost entirely related to inflation and the effects of that in multiple categories. And that'll be it.
spk10: Okay. And just thoughts on how the near-term rate hikes play out in terms of the deposit picture, in terms of balances and deposit costs. Mark, you mentioned the mixed shift in the quarter on the deposit side. Any updated thoughts as to betas here and or potential runoff in the coming quarters?
spk09: Yeah, you know, we saw in the first quarter, Frank, you know, even a, you know, a stronger shift than we had anticipated to non-interest bearing. You know, so we have, you know, a much higher percentage of non-interest bearing DDAs than we had, you know, if you go back to kind of 2015 and the start of the last, you know, up rate cycle. So when you combine, you know, a higher percentage of non-interest bearing DDAs, and also just still sitting generally right now somewhere in the $800 million range day-to-day and overnight cash, it gives us strategic flexibility as we think about what those betas will be. But at the end of the day, we're a customer-centric organization, and we're going to make sure that we increase rates in a way that's going to hold on to all of our key customers. But But we do expect betas, you know, if you look through the last cycle, our beta was just a little bit north of 30% through the cycle. And we think that, you know, there's going to be opportunities at least early on here to be at a slower pace than what we were in the last upgrade cycle because of the composition of our balance sheet.
spk10: Okay. All right, great. Thank you.
spk12: Thank you. And our next question comes from Daniel Tomeo from Raymond James. Your line is now open.
spk01: Hey, good morning, guys. Thanks for taking my question. Just first, I wanted to confirm what you guys said, that the guidance in the slide deck does not include any of the numbers from Prudential. Did I hear that correctly? Correct, Danny. It does not.
spk09: Yeah, we'll be providing those next quarter. We'll start incorporating that into the guidance.
spk01: Got it. Okay. So, you know, adding on a quarter and change whenever that deal closes. You know, has anything changed at this point in terms of, I know you're going to provide guidance next quarter, but has anything changed with the way you're thinking about accretion related to the deal with the rate environment changing?
spk09: No, it hasn't, Danny. Our existing guide that we gave back when we announced the deal for the relative accretion of that acquisition has stayed the same at this point.
spk01: Got it. Okay. And then just maybe a clarification on the NII guidance. Does that include, you know, you've still got excess cash levels. You talked about that giving you flexibility. They did come down in the first quarter as well. Does the guidance include a normalization of excess cash levels at all, or how is that included in the guidance?
spk09: Yeah, so in that guide does assume, you know, that there's going to be some level of normalization. You know, I would say that by the end of this year, we still have excess cash than what we held historically, sort of pre-pandemic. You know, but it does assume that there would be, you know, gradual normalization, which is, you know, really more a function of loan growth. And if we have continued loan growth, you know, then obviously we'd rather put our cash to use that way than insecurities or overnight cash.
spk01: Okay, great. And then finally, just on reserves, just curious what your updated thoughts are on, you know, where those may move from here given, you know, expectation for higher rates and potentially higher losses down the road. Thanks.
spk00: You're talking about loan loss reserves, correct? Danny, still on the line?
spk12: We're losing. No, sir. He's not on the line.
spk09: We lost him. We lost him. All right.
spk07: Still answering.
spk09: Yeah, so for others who might be interested in his question, so we don't give specific guidance on our loan loss provision, but obviously we've had a very benign credit environment. And as folks know with CECL, the amount of provision that we have on the books today in theory is a sufficient allowance for credit loss to cover all credit losses that we may incur in the future. So our future... Unless that economic outlook changes, you know, then the only thing that would really impact our provision levels going forward would be loan growth.
spk12: And thank you.
spk09: Yeah, with that, we'll go to the next question, I guess, Danny.
spk12: Okay. Our next question comes from Chris McGrady from KBW. Your line is now open.
spk06: Mark, I want to just revisit the balance sheet growth for a second. Obviously, deposit projections are very hard given all the dynamics out there today. How should we be thinking about the Fed taper and just the size of earning assets? I'm trying to get a sense of appetite to add bonds, reduce cash. I know it's a function of deposit growth, but if I just took a step back and think over the next 12 to 18 months, what's the size of the earning asset base in your projections?
spk09: Yeah, so, you know, as you think of overall earning assets, I mean, for us, you know, our overnight cash position, you know, at some point over the next, you know, six to eight quarters is going to be entirely replaced by loans, right? So, I mean, that's really, you know, where, you know, our investment portfolio, we've stayed pretty consistent, you know, over the years at roughly 15%. of our total assets. I don't see that changing more than a couple percentage points. And we're willing to be patient to allow that to come back into loan growth as opposed to just grossing up the loan portfolio right now.
spk06: Okay. And then in terms of what you may be buying in the bond book, what kind of yield pickup are you experiencing relative to the blended yield in the first quarter?
spk09: In the 40 basis point range,
spk12: All right, great.
spk06: Thank you.
spk12: Thank you. And our next question comes from Eric Zwick from Boning and Scattergood. Your line is now open.
spk11: Thanks. Good morning, guys. How are you? Hey, Eric. Good morning. First one for me, wondering if you can just remind me in terms of how you kind of bill or charge for the wealth management fees, just given the decline in AUM balances quarter over quarter. Are those billed in arrears or kind of based on average balances? Just trying to get a sense of where that might trend going forward, given kind of recent market dynamics.
spk03: Yeah, Eric, it's Kurt. So we have different business lines in wealth management, so the billing is a little different. But a bulk of our business is recurring fee fees. based on assets under management levels and portfolio levels. So it's a good, solid business on recurring fees, and we typically build quarter-end looking forward. So we would see assets down a little bit. There would be a little pressure on revenue as we look forward, but, again, we continue to grow the business, customers, and adding assets, too.
spk11: Thanks, Kurt. Appreciate that color there. And just kind of a broader question, not specific to this quarter's earnings or the outlook, but I'm curious if you could provide some commentary into your current ESG positioning and initiatives, given the proposals for enhanced regulatory disclosures.
spk03: Yeah, so we're working very hard at understanding what reporting requirements we'll have going forward. We will be, over the next couple weeks, issuing our first corporate social responsibility report. We are paying a lot of attention to managing that appropriately. Internally, we have climate test force working diligently so that we can navigate the business impact as we move forward. So we feel we are making the effort necessary to understand where we need to be and to make positive impact.
spk11: Great. I look forward to looking at the upcoming report. Thanks. We'll make sure you get it.
spk12: Thank you. And our next question comes from Matthew Brief from Stevens, Inc.
spk07: Good morning.
spk12: Your line is now open.
spk07: Good morning, Matt.
spk02: Thank you. Good morning. Hey, just on the NII forecast, so you now have 125 basis points of additional Fed hikes in your model through year-end versus 50 basis points last quarter, and it feels very much like today the Fed funds could increase as much as 200, 220 basis points by the end of the year. So if we were to get more than you expect, you know, 200 versus the 125, how does the NII outlook change?
spk09: Well, it would definitely go up. And, you know, for us, then, obviously, as, you know, each incremental 25 comes on, you know, you would probably likely see a little bit more of a deposit beta, you know, corresponding with that. But, you know, the rough numbers, Matt, which I think you're aware of, we have roughly $10 billion, you know, of loans that are tied to either prime, you know, LIBOR or SOFR that are unhedged. You know, we have about a little over $11 billion, but then a billion that are already hedged. you know, back to fixed. So, you know, so you take that incremental impact on NII, you know, that's about 25 million, you know, give or take, you know, for each 25 basis point rate move offset by, you know, whatever that deposit beta would be.
spk02: Okay. And has there been any movement in spot deposit prices yet? Have you changed your offered rates or core rate, core base rates at this point? No, not in any product. Got it. Okay. In your prepared remark, you'd mentioned historical C&I utilization rates. I think you'd mentioned 32% versus kind of like the low 20% range today. You know, if you were to get back to 32%, what would that be on today's book in terms of incremental loan growth? And, you know, over what kind of timeframe do you think we can get back there?
spk03: Yeah, so... It's probably north of $500 million. And two things. So we're at 23%. Historical normal average is about 32%. But over the past couple of years, we've really grown the business as well. So our commitments and line commitments are up. So we think we have upside to get to historical average between $500 million and $700 million from where we stand right now. The pace that that will occur, we do think that will accelerate. We've pretty much moved up 1% each quarter, the last three quarters. And we do think that that pace will increase, but we're not sure how much that will increase. But I think we will see an increasing pace over the next quarters.
spk02: Okay. Going to the mortgage business, how much of the $465 million originated this quarter was retained versus sold? And has the recent hike in mortgage rates changed thinking at all in terms of what you're retaining for sale versus holding on the books?
spk09: Yeah, let me grab the numbers there. Yeah, I'll just need to look here really quickly. I can't find it at my fingertips. But I can tell you that as we think about how much we're going to retain, there was only a nominal amount of sort of saleable product that we kept on the books this past quarter. It was roughly $30 million. But we would consider, obviously, with the increase in commercial business, that over time it might make more sense for us to just sell some of that remaining product as well. That's currently under consideration. Okay.
spk02: Last one for me. You touched on the reserve, but I was just curious in terms of the CECL process. Obviously this quarter there were two kind of opposite direction items. You had the Russia-Ukraine conflict increasing, but you also have COVID items declining. Could you just talk about the inputs and outputs and how, you know, how those items impacted the thought process around reserve and provisioning?
spk09: Yeah, so we, like a lot of mid-sized banks, rely on Moody's, you know, and for their base economic forecast. So Moody's, you know, obviously has a team of economists who think about all of those different macroeconomic factors, and, you know, that produces their base output as well as their different stress scenarios and you know, that we look at as well.
spk02: Got it. Okay. That's all I had. I'll leave it there. Thank you.
spk12: Thank you. Thank you. And our next question comes from Dave Bishop from Hovde Group. Your line is now open.
spk13: Yeah, thank you. Good morning, gentlemen. Thank you, Dave, and welcome. Thank you. Thank you very much. Hey, Mark, I think you talked about some of the targets longer term in terms of the investment securities portfolio, maybe centering around that 15% range. How should we view about the excess equity at this point in cash and then overnight liquidity from a dollar percent of assets basis where you see that sort of normalizing over the longer term?
spk09: Yeah, pre-pandemic, David, we were between $50 and $100 million a night. It's kind of where we like to run our overnight cash. That number has been as high during the pandemic as $1.3, $1.4 billion. It's down right now at about $800 million. And again, we've been reluctant to go much above that 15% of assets in the investment portfolio. So we've just been sitting that in overnight cash which is obviously earning a little bit more today than it was a month ago. But we're going to stay patient. And, you know, with the forecast for loan growth here over the next three quarters, you know, what I'd expect to see by the end of the year, we'd still be a little bit higher than that historic level. But then sometime in 2023, we'd probably revert back to historic levels.
spk13: Got it. And then one final question. I think you noted in the preamble the increase in cash management fees. up nicely on a year-over-year basis. Any change in terms of fee structure or pricing on that product, or does that just represent just better commercial account penetration? Thanks.
spk03: Yeah, it's really growth in customers as well as just growth in activity.
spk12: Great. Thank you. And thank you. And I am showing no further questions. I would now like to turn the call back over to Phil Wagner, CEO, for closing remarks.
spk07: Well, thank you, everyone, again, for joining us today, and we hope you'll be able to be with us when we discuss second quarter results in July. This concludes today's conference call.
spk12: Thank you for participating. You may now disconnect.
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