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spk01: Ladies and gentlemen, and welcome to Hancock Whitney's Corporation's first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this call may be recorded. I would now like to introduce your host for today's call, Ms. Tricia Carlson, Investor Relations Manager. You may begin.
spk07: Tricia Carlson Thank you, and good afternoon. During today's call, we may make forward-looking statements. We would like to remind everyone to carefully review the safe harbor language that was published with the earnings release and presentation and in the company's most recent 10-K and 10-Q, including the risk and uncertainties identified therein. You should keep in mind that any forward-looking statements made by Hancock Whitney speak only as of the date on which they were made. As everyone understands, the current economic environment is rapidly evolving and changing. Hancock-Whitney's ability to accurately project results or predict the effects of future plans or strategies or predict market or economic developments is inherently limited. We believe that the expectations reflected or implied by any forward-looking statements are based on reasonable assumptions but are not guarantees of performance or results, and our actual results and performance could differ materially from those set forth in our forward-looking statements. Hancock Whitney undertakes no obligation to update or revise any forward-looking statements, and you are cautioned not to place undue reliance on such forward-looking statements. In addition, some of the remarks this afternoon may contain nine GAAP financial measures. You can find reconciliations to the most comparable GAAP measures in our earnings release and financial table. The presentation slides included in our 8K are also posted with the conference call webcast link on the Investor Relations website. We will reference some of these slides in today's call. Participating in today's call are John Harrison, President and CEO, Mike Ackery, CFO, and Chris DeLuca, Chief Credit Officer. I will now turn the call over to John Harrison.
spk04: Thank you, Tricia, and good afternoon, everyone. Thank you for joining us. Today's operating environment is headed in a decidedly more positive direction compared to the end of last year, and as such, 2021 has started off on an encouraging note. Earnings for the first quarter of the year are $107 million, we began to see signs of cautious optimism across our footprint as vaccinations ramped up, markets began reopening, restrictions were decreased or eliminated, and businesses were allowed to increase capacity. See slide eight in our investor deck for information specific to each of our major regions. That outlook, coupled with declines in criticized and non-performing loans of 11% and 20% respectively, and a 30% drop in loans making up our allowed us to release a modest amount, or $23 million, of loan loss reserves in the quarter. We did report $18 million in net charge-offs, mostly from one long-term energy credit. None of that one loss, NCOs were a well-controlled $4 million. Overall, our provision for credit losses was a negative $4.9 million as a result, and we expect similar or better quarterly provision levels as we move through 2021, based on what we know now. Our ACL remains strong at over 2%. Despite this new level of optimism, loan growth remains limited net of PPP. Core loans declined $465 million in the next quarter as indirect loans continue to run off with no new production plan. Residential mortgage payoffs actually increased thanks to a strong surge in March 2021 secondary mortgage transactions. Line utilization slowed amid normal payoffs and elevated levels of loan production altogether led to declines in some of our regions. See slide 7 in the deck for details. You may note on slide 7 that net loan growth is now differentiating across the footprint, with the eastern franchise actually showing growth even as our central area, primarily New Orleans, remains under pressure, but thankfully green shoots are appearing even there. One bright spot for loans was from PPP. During the first quarter, we originated over $800 million in new PPPs. As you all probably remember, midway through the quarter, the SBA put a pause on forgiveness as the new PPP portal was put in place. We expect forgiveness to substantially increase in pace, led by smaller loans, in the second quarter. We're also seeing continued solid results in fee income. Slide 18 shows several categories of our performance in the week and with positive expense run rate impact in May. We maintained solid capital ratios with common tier one up 41 basis points to an estimated 11.02%. Operating leverage improved with pre-provision programs underway throughout the U.S. and the world, we are cautiously optimistic about 2021 and beyond. I will now turn the call to Mike for further comments. Thanks, John. Good afternoon, everyone. As John noted, first quarter's results were a great start to 2021. Both net income and PPNR were up in quarter and for a variety of reasons exceeded street expectations. John's already talked about loans, so I'll jump over to deposits. With the expansion of PPP and a new round of stimulus, we, along with many in the industry, were once again flush with new deposits this quarter. Our EOP deposits grew over $1.5 billion during the quarter, and combined with nearly $500 million in PPP forgiveness, was the source of over $2 billion of fresh liquidity. Compared to what would be normal levels, we're calling out our March 31st level of excess liquidity at about $2.5 billion. So the question becomes, what to do with all this liquidity in an environment where there's little opportunity for core loan growth? The chart at the bottom right of slide 13 in our earnings deck shows part of the story. We typically like to keep our securities and short-term investments at around 20% to 25% of our average earning assets. You can see we were able to maintain that rough mix for most of 2020, but over the last few quarters, it increased our mix of bonds and Fed deposits by a third. So by the first quarter of 2021, over 30% of our earning assets were comprised of bonds and Fed deposits. With that kind of an earning asset mix change, NIN compression is unfortunately inevitable. Our NIN for the quarter was 3.09%. was down 13 basis points on quarter. Our guidance was to be down about 10 basis points. Unless we can deploy some of this excess liquidity into loans, or until it starts to leave the bank, we expect NM could compress a similar level in the second quarter. That does assume no interest recoveries in the quarter. We do see the second quarter with organic loan growth in the second half of 2021. Despite the compression in NIM, our actual level of net interest income is relatively stable as the link quarter decline is entirely due to two fewer accrual days in the quarter. Non-interest expense was flat in the quarter at $193 million, and we remain focused on efficiency and managing expenses. Last quarter, we discussed initiatives we have in place for closing branches, attrition levels, and also announced an early retirement program. The deadline proposed to accept that early retirement incentive was April 15th, but preliminary results were very encouraging with 260 of 647 eligible associates electing to accept the early retirement offer. Most of those associates will depart April 30th. We will invariably need to replace some of those leaving, and have made a conservative estimate of that backfill level. Our estimate of the ongoing impact of the program, which includes estimates for incentives, benefits, and backfills, is $19 million annualized, or about $4.8 million per quarter, and is included in our expense guidance on slide 22. you'll note that we've included an expense run rate estimate for the fourth quarter of 2021 of $187 million. The $4.8 million expense reduction related to the early retirement program is a significant part of how we'll hit that expense target. Our expense guidance on slide 22 for 2021 points to a year-over-year reduction in expenses of as much as $24 million with another reduction of close to $25 million in 2022. We get there by annualizing the guided fourth quarter run rate of $187 million. The 2022 expense level, we believe, provides the foundation for a much improved efficiency ratio of potentially around 55% for next year. With that, I'll turn the call back over to John. Thanks, Mike, and let's open the call for questions.
spk01: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Ibrahim Punawalla with Bank of America. Please go ahead.
spk00: Good afternoon.
spk01: Hi, Graham.
spk00: Hi. I guess just first, Mike, in terms of some clarity around the margin outlook, as we think about the decline in the second quarter and then some stabilization, is that stabilization essentially dependent on loan growth picking up as you look into the back half of the year? Just give us a sense of what the puts and takes are for the margin as we look beyond the liquidity impact in Tokyo.
spk04: Oh, sure, Ibrahim. Be glad to. So really the start point is, you know, again, the 309 that came in in the first quarter. Right off the bat, we have about seven basis points or so of interest recoveries that we're assuming won't repeat in the second quarter. And then from there, the remaining half-dozen basis points or so really, I guess, is a result of – the continuation of the impact of excess liquidity. So again, you know, this quarter, as you can tell from our comments and certainly our financials, we had another pretty big surge of excess liquidity. And certainly, if you look at the end-of-period numbers, they were about a billion-one higher than the average. So you'll have a carryover into the second quarter related to that. You know, as far as the things you asked about specifically, you know, the level of excess liquidity and how soon that buildup begins to subside and even go down. It certainly will have an impact on our NIM going forward for the year, and then certainly the fact that we're guided to a pickup in loan growth for the second half of the year is a big factor that will be very, very helpful to our NIM. So overall related to the NIM, you know, we're calling for as much as,
spk00: you know another 13 basis points or so compression in the second quarter and then kind of flattening out to the down to the year got it and I guess just tied to that in terms of loan growth like the comments you have in the press release and just listening it doesn't sound like you're seeing any green shoots on loan demand at the moment can you just talk about that in terms of what needs to happen before we start picking, seeing some loan demand, or am I thinking about it the right way that you're not seeing a demand right now?
spk04: Now, Ibrahim, you know, the pipeline builds up over time and then The results of that pipeline will follow a quarter or two in the future. So the low demand numbers and the green shoots, to use your phrase, really began to show up towards the beginning of Q1. And that was in central and west. And in east, that was happening in Q4. And a quarter ago, one of the comments I gave was, I think I used the phrase, the beachy communities, those that are on the coastal area in the eastern part of our footprint, were really already beginning to show signs of growth. And that happened in this quarter. we see the same sort of impact coming to the positive in the western and center parts of the franchise. And it may take a quarter or two for that to completely overwhelm the Contras, but that's really where we got it to flat for the second quarter and then 800 native growth. and the back two quarters of the year. So the green shoots are definitely there. The pipeline has farmed up a great deal. It's actually about, I would say, a factor of 30% or so, a better pipeline than I would have expected to see three months ago. So it's a lot more positive than I would have anticipated. Our challenge has been, and our larger CNI lines of credit, particularly in the CNI-concentrated central and western parts of the footprint, Those clients, while feeling better, some of that better sentiment has led to them taking down revolving debt with some of the cash they have stockpiled. for a maybe worse environment than it's turned out to be. And so as a result, those revolvers were taken down. So it was really a combination of the pipeline just beginning to build up to something impressive and the takedown of the revolvers simply because people began to use that excess cash. So, you know, while the quarter is unimpressive in terms of lending, the pipeline has become more impressive, which is leading to a little rosier assessment of growth.
spk00: Got it.
spk01: Thank you.
spk04: You bet. Thank you.
spk01: The next question will come from Michael Rose with Raymond James. Please go ahead.
spk02: Hey, good afternoon. Hope you're doing well. Just wanted to ask around capital returns. So you guys are off the restriction for the dividend. Understanding that capital here, TCE at least, is a little depressed because of PPP loans. But should we expect a buyback at some point in the near future as the PPP loans come off? Because it seems like capital formation or bills is going to really accelerate as those loans are forgiven. Thanks.
spk04: Yeah, Michael, this is Mike. So I absolutely agree with that statement. Certainly as we go forward, we'll be building capital, I think, at a pretty good rate. and level. So now that we are out of the consultation process with the Federal Reserve, things like buybacks and dividend increase or other capital measures are things that we've already kind of talked about wanting to look at really in the second half of this year. So really, for now, we're evaluating those options and, again, in the meantime, building capital. So I think more to come, you know, on that topic as we move through the quarter.
spk02: Okay, that's helpful. Maybe just as a follow-up, you know, the expense guide is certainly, I think, better than a lot of us in consensus were hoping for, and yet the fee guide is a little bit stronger um do you guys feel like you've made enough investments over the years where the investment you know pace slows down and you can you can really generate positive operating leverage for the next couple years is that the way we should kind of think about in the intermediate term because you guys have obviously done a lot of work over the years kind of fine-tuning the businesses investing in the business etc thanks
spk04: Yeah, Michael, thanks for that. This is John. I would add a little bit more to your assertion and say, yes, we agree with you. But at the same time, some of the technology investment is facilitating, as it rolls out, a little bit more effectiveness in the front office, a better digital adoption for servicing, soon to be a better digital adoption for gathering accounts. and then also a lesser of an expense spent in the back office to handle servicing on both sides of the balance sheet. So there's technology investment that is continuing, and we're beginning to see the impact of that. And as Mike mentioned, the early retirement effort was really the beginning of that exercise, and I think we'll see better improvement as we go through the year leading to that fourth quarter run rate that Mike mentioned earlier. Great. Thanks for taking my questions.
spk01: The next question will come from Brad Millsaps with Piper Sandler. Please go ahead.
spk05: Hey, good afternoon. Hey, Brad. I appreciate all the guidance you guys included. I did want to follow up on the expense narrative. I understand you expect 4Q21 to approximate a run rate of $187 million. Mike, I think you said, you know, that would imply maybe an additional... $25 million reduction expenses in 2022, but that would assume that you'd stay at that kind of $187 million run rate. Am I understanding that correctly? Would there be some natural growth that you would expect on top of that?
spk04: Yeah, certainly there's going to be some natural growth with respect to the $187 million run rate for the fourth quarter. But for 2022, again, we really are kind of aiming at the roughly $750 million range. So certainly that would mean that there would be additional reductions to really kind of offset any growth otherwise in that expense space.
spk05: Okay, thanks for that clarity. And I think, Larry, you mentioned that you thought you were sort of in the third or fourth inning. of what you could do on the expense side of the equation. If you had to use that same analogy now, you know, with the guidance that you've given inclusive of 22, where would you sort of put, you know, Hancock-Whitney and sort of your, you know, expense right-sizing journey?
spk04: I guess maybe the 17-inch stretch, maybe.
spk05: Okay.
spk04: Okay, so still potentially moving on. Let me just use that analogy. Yeah. And what that means really is, I mean, obviously – We set up a lot of work ahead of us for the balance of this year, but then also went to 22 as well. But we're confident of the things that we've accomplished thus far. Certainly, as John just mentioned, the early retirement program has proven to be very successful and given us, I think, a pretty good head start toward hitting that $187 million number in the fourth quarter of this year. So we feel good about the things we've done so far. We feel good about the things I think are kind of yet to come.
spk05: Okay, great. I appreciate the call. Thank you. Sure.
spk01: The next question will come from Kevin Fitzsimmons with DA Davidson. Please go ahead.
spk04: Hey, good afternoon, everyone.
spk05: Hey, Kevin.
spk04: Mike, you mentioned earlier about the taking up the level of securities, and I'm just curious, with where it is right now, is this kind of a level at the top of your comfort level, or could you continue taking that even higher in coming quarters, securities levels as a percent of earning assets? And also, are there – just I'm curious if – you know, I know – Loan growth is hard to come by these days. And I'm curious if you guys have looked into other kinds of alternatives like purchasing loans or whether those are options you consider. Thanks. Sure. As far as the bond portfolio and I guess how we think about this notion of where to kind of put this excess liquidity, really over the course of the first quarter, We kept about two-thirds of it at the Fed, earning 10 basis points, and the other one-third or so we deployed into the bond portfolio. So in a go-forward basis, we'd like to not deploy as much in the bond portfolio, I think, but a lot of that's going to depend on the pace of excess liquidity and whether that begins to slow down, and then certainly loan growth. We are kind of guiding for the numbers that are in the earnings deck until 2022 for the second half of the year. But certainly if we can get some degree of loan growth, and when I say loan growth, I mean core loan growth, so excluding PPP, but if we can get that sooner rather than later, then certainly that's very helpful, you know, for this overall kind of dilemma of what to do with all this excess liquidity and the impact that has on the earning asset mix. So that's kind of how we think about that. You know, going forward, you know, we'll walk that balance between, again, fed deposits and bond portfolio. Kevin, this is John. Just to add to that, when you mentioned the long-full purchase thought, you know, if we look at sort of the journey we're on that leads us to where we are now in terms of what the balance sheet looks like, before the pandemic, you know, we had a pretty doggone good deposit book, right, in terms of mix deposits. and growth trajectory because it's something that we're good at in this part of the country. We have a good branch franchise with terrific people and good product offerings. So the deposit mix was very good before liquidity was sort of dripping in every direction imaginable. And so then the pandemic hits and liquidity is very available. Our team didn't stop working on that, right? So the amount of that has come in that we call excess liquidity, I don't want to say that it's a bad thing. It's tough on our NEM because the deployment options are limited, but it's just something that we're particularly good at, and, you know, when things are easier for you to do when you're good at them, you see those types of results. That excess liquidity, I don't want to leave you forever, and it will turn into something more offensive to our NEM down the road, but we certainly are getting paid for that today. And so when we start thinking about the outlook of what do you do with it, you know, one of those options is to ease the portfolio on the bond side up a bit. And I guess, Mike, it's been a lot of years since we had a number like we have right now in terms of the percentage of assets in securities portfolios. But you don't want to leave it all sitting at 10 basis points. And so we took a measured view towards deploying some of it to keep some available for demand that we thought would materialize. And we thought when it did materialize, it would happen somewhat aggressively. And so we've avoided doing the loan pool purchase for two reasons. One, because as a company looking to allow the quality of its portfolio when energy removed, finally let it shine a bit. The risk of taking on a portfolio that might have problems in it that we didn't originate would be, you know, the damage wouldn't be limited. Just the AQ measure would be more of an opposite direction of where we're trying to head. And then the second reason is because we wanted to have that liquidity to deploy aggressively in the event that things became competitive on price and we wanted to make sure we could compete. with the players across the street. And so that's really why we haven't done the loan pool discussion. They've been out there, but it's indirect auto and things that we're getting rid of, not trying to add more of. So if the pipeline pull-through rate delivers as we hope and expect it to, then by the time we get to the end of this quarter and have something closer to a push, then than we had in Q1. I think all the conversation then is about how much faster can we make it actually get deployed. So for that reason, I think it's worthy of keeping it more liquid, avoid doing the full purchase for now, and devote all of our attention to ensuring that we're very competitive in terms of our calling efforts to acquire more credit business as it becomes more available. Yeah, so I guess one thing I just wanted to frame a different way is that is the Mike, what Mike had said earlier about maybe putting less in the bond portfolio going forward, is that more about just reaching sort of a comfort ceiling, or is it more about seeing those green shoots for loan growth and feeling more comfortable that that's coming sooner, or a little bit of both? That's a little bit of both, and it really is, I think, a combination of those things, especially the green shoots on core loan growth. But also being mindful of things like duration risk and investing, you know, so much money at the rate of yield curves today. Although it is improved, it's still, you know, what we would call historically low. Okay. And one thing I just wanted to just clarify on the margin guidance was that's inclusive of all the PPP accelerated forgiveness fees, right, flowing through as well? Is that in there as well? But I guess you get that, but you lose the ongoing coupon of just having the loans, I guess. Correct. That's correct. Hence the importance of being able to get to a push as quickly as we can on core loan growth. Right. Okay. Thanks, guys. Thank you for the questions.
spk01: The next question will come from Jennifer Dimba with Truist. Please go ahead.
spk06: Thank you. Good afternoon.
spk02: Hi, Jennifer.
spk06: John, there's been a lot of high-profile M&A over recent months. I'm just wondering how management is thinking about acquisitions or combinations at this point and if they make sense for Hancock or don't make sense.
spk04: Well, thanks for the question. We obviously pay attention to it. You know, it's been a lot more chatter in the past few weeks than it had been a month or two before that, but we pay attention to it. We study the deal points and the market reaction to it, and all that plays into our thinking about the future. And I mentioned a little earlier about the technology work going on. When we set out to do all that technology work, the drivers were effectiveness and efficiency, but also scalability. And so after a number of years of hard work, we are deploying all those toolkits which allow us, I think, to improve upon the expense takeouts we do when we acquire, when that time comes. We really haven't changed our M&A focus in terms of digestible deals. I think we know as well as anyone else does the complexities of an MOE and how you have to be prepared for it. But the one lesson we learned above all was that being scalable before the deal happens is important. in terms of de-risking the deal and also making sure you get your expense takeouts without a contra of things you have to invest in. And so our tact is to be sure that when any acquisitive opportunity comes up and as our currency improves, that we don't have to reach terribly hard to make it actually work. And so that's really the direction of our investment.
spk06: Okay. And second question on your voluntary retirement program. Did those elections come out much higher than you expected? What were you modeling in terms of the number of employees that elected to retire?
spk04: I'll start, and Mike may want to add color to it. We set bookends around what the definition of success would be for that acceptance rate, and it was right at the upper end of that boundary of what we hoped to receive. But as you know, when you're doing an early retirement program, the measure of success is that you get as many positions as you can in that acceptance rate that you're able to absorb as much of that work as you can without a very high backfill percentage. So we were pleased, very pleased with the acceptance rate. We're pleased for the associates who took it because it means they can move on to a stage of their life that they've been anxious to begin after a really tough couple of years with the pandemic. But we're equally pleased about the folks who didn't accept it and were in key positions and it's not going to create any risk or a higher cost of backfill. So overall, I really couldn't be more happy with the way that it turned out, both for the company and for the team. Yeah, I think absolutely kind of a win-win situation. So as John mentioned, the 40% acceptance rate is probably a little bit on the higher end of what we were expecting. We're very, very pleased with it. The other thing that I would add is that the annualized estimate of $19 million And it does include what we think is a pretty conservative assumption around backfills. So as we get more clarity on exactly what those backfills would be, we'll share kind of the final results, I think, a little bit later in the quarter.
spk06: And John, can you comment on any green shoots you're seeing in tourism in New Orleans? I know you gave a lot of detail on that on the last earnings call.
spk04: Yeah, thanks for the question. uh... you know the first quarter uh... was probably the most positive changes that we saw in the hospitality outlook for our entire footprint. And I believe it's slide eight. Is that right, Mike? Yes. Slide eight in the deck is a gathering of a lot of information that we got from the tourism leadership organizations across our footprint. And so all of that was literally coming from those organizations that are planning for particularly the middle of the year. So three months ago, I didn't expect to hear tourism leaders project in some of the more coastal communities things like better than 2019 performance when 2019 was a record year. But that's what we're hearing, and we're seeing evidence of that already beginning to form up. In New Orleans specifically, that was such a dependent market on convention and trade shows which is still a good bit handicapped. It's getting better, but it's still handicapped. New Orleans had to pivot back to leisure tourism because, obviously, international convention and trade show was going to be diminished for some time. And the month of March was one of the best months that we've ever seen in terms of additional leisure tourism coming to the city. So it almost looked normal even though the convention business was significantly damp compared to what it would have been two years ago. So I think what we'll see in New Orleans based on the gathering of the data that we've already received is leisure will be a big winner. for the second and early parts of the third quarter. In New Orleans, we're seeing a firming up of the convention, trade show, and festival business for the third and fourth quarter. For the city, we're seeing much more positive commentary from city leadership and state leadership around the concentration of people allowed at sporting events, which is important to the New Orleans market. So all those signs really have been much more positive. And March really was a really, really surprisingly positive month, and that's carried into April. So we feel a lot better about it. And the reason we put all that commentary in there was to give a real-time shot of the basis for our confidence with hospitality improvement across our footprint.
spk01: Thanks a lot.
spk04: You bet. Thank you for the question.
spk01: The next question will come from Catherine Miller with KBW. Please go ahead.
spk08: Thanks. Good evening.
spk01: Hey, good evening.
spk08: I have three margin questions kind of relative to your guys in this row. All three at you, and you can just kind of go through your mic. But the number one is how much PPP is included in your second quarter NII guide that's down 2 to 4 million? Just trying to think of how much this kind of PPP is for next quarter. And then question two is, I look at loan yields, ex-PPP and accretable yields. You're at about 395 today. So just thinking, how are you thinking about where loan yields may bottom. And then my third question is just also how you think about the trajectory of premium amortization in your bond book. Thanks.
spk04: Okay. So last question first. So premium amortization in the bond portfolio was actually less this quarter than the previous quarter and actually contributed about three basis points or so to the overall bond yield. So on a go-forward basis, assuming that the 10-year stays where it is or continues to go up. We would expect that prepayments would continue to ease and certainly could get, I guess, a little bit of a tailwind related to the bond portfolio and premium amortization. To your first question around PPP balances included in the second quarter, we're assuming about a billion or so, maybe a little bit less, I think 800 billion of PPP loans forgiven in the second quarter. So we have about 800 million less than we have now without really much of an increase related to the second round of new PPP loans. And then, Catherine, your middle question I think had to do with the loan portfolio.
spk03: Yes, loan yield.
spk04: Yes, loan yield. And certainly this assumption is baked into the second quarter guidance that we do see that loan yield coming down a little bit in the second quarter. Again, we had kind of an outsized level of interest recoveries in the first quarter that impacted the NIM by seven basis points and in the loan yield by about eight basis points. But again, all things equal, I think we do see the loan yield coming down overall.
spk08: Okay, great. Very helpful. Thanks.
spk04: Did we get all the questions?
spk08: You did. It's free and to watch.
spk01: Thank you.
spk08: Perfect. Thank you.
spk01: You bet. Thank you. The next question will come from Matt Olney with Stevens. Please go ahead.
spk03: Hey, thank you. Good evening. I wanted to circle back on loan growth, and it looks like one of the headwinds for OneCube was the paydowns of single-family mortgage loans. What's the appetite to refill that bucket from here? Just trying to appreciate if that could be a driver of future growth. Thanks.
spk04: It's a good question, Matt. You know, right now, when the rates begin to move up a little bit in March, we initially thought that the surge in application volume, and remember, we're more of a purchase money shop than a refi shop, but we thought that that might have been a knee-jerk reaction from the client book to jump in and grab the cheap rates for fear that they're going to go up a lot in the next couple of months. But as that concern is eased, the volume maintained. And so I think there's just a really strong appetite for home changes, which is creating the new money purchase volume that we're seeing. So that will continue to keep pressure on the mortgage book. It may not be what it was in the fourth quarter last year, the first quarter, we'd expect that to ease some. But we really at this point don't plan on filling that bucket, so to speak, until the rate environment is such that the benefit is a little bit better. Right now, the fee income right back to capital is a little bit more attractive to us than the interest income. So I think it will stabilize, but I don't think we'll see precipitous growth there, at least not in the near future. Can I answer your question?
spk03: uh yeah that helps definitely and i guess within the loan pipelines that you talked about are building it sounds like it's the eastern region in the bank that's leading that charge if i think about the pipelines by by loan type or by or type of borrower any color you can give us uh that would uh uh that would help kind of clarify what what types of portfolio could show growth initially
spk04: It's a blend, and it really comes in – let me break it down this way, maybe as you understand it. The East was the least damaged part of the franchise in terms of pandemic effects. While it was a somewhat hospitality-impacted area of our franchise, the beach-going community really responded back in the summertime. There was less damage. So line utilizations and other types of things weren't as impacted there. And frankly, sentiment wasn't impacted as negatively there. Restrictions there were not as significant as they were in the western and central part of our franchise. So it's not really a mystery why people there felt better because they never did feel quite as badly as other places in our market. So they rebounded much quicker. So I don't know that the eastern region will continue to lead the rest of the company as we get back to normal in growth, but certainly they have this quarter and may the next quarter or two. But the biggest change, quarter to quarter, is really more the diminishment of the outflow because we saw a lot of very large lines pay down. There are no lost clients. In fact, zero lost clients among the ones I'm highlighting. They just simply decided to take excess liquidity and pay down debt. And that pace seems to be slowing. So we're a month in. to the second quarter, and those trends are part of the basis for the guidance for 2Q leaning to flat, which is an unbelievable $460 million improvement from the prior quarter, but that's exactly where the book seems to be headed. So, but it's an even blend over CREs, certain types, CNI, consumer beginning to not believe in growth. And so, overall, I don't think there's really one or two areas to point to with one exception being equipment finance that we do expect outperformance from because the pent-up desire for purchasing has gotten more steep because of a lack of equipment and items to purchase. I mean, you've heard the microchip story for equipment that, I mean, automobiles and such, and that's certainly exacerbated into other types of equipment. But those pipelines seem to be filling for inventory to purchase, and so the equipment finance numbers in the pipeline look pretty impressive. So with that exception and with a little bit faster head start in the east, I think it's going to be fairly blended.
spk03: Okay, thank you. That's helpful. Okay.
spk01: This concludes our question and answer session. I would like to turn the conference back over to John Harrison for any closing remarks. Please go ahead, sir.
spk04: Thank you, Chuck, and we appreciate you moderating today. Thanks for everyone attending the call. I know it's been a long day of earnings releases to cover, and we appreciate you hanging in there to attend our call. We look forward to talking to you soon.
spk01: The conference has now concluded. you for attending today's presentation. You may now disconnect.
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