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spk01: Good afternoon, everyone, and welcome to the Sandy Spring Bank Corp. Incorporated Earnings Conference Call-In Webcast for the first quarter of 2021. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, it will be an opportunity to ask questions. To ask a question, you may press star and then one using a touchtone telephone. To withdraw your questions, you may press star and two. For your information, today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. Dan Schreider. Sir, please go ahead.
spk02: Thank you, and good afternoon, everyone. Thank you for joining us for a conference call to discuss Sandy Spring Bank Horse performance for the first quarter of 2021. Today, we'll also bring you up to date on our response to an impact from the COVID-19 pandemic. This is Dan Schreider speaking, and I'm joined here by my colleagues Phil Mantua, Chief Financial Officer, and Aaron Caslow, General Counsel for Sandy Spring Bancorp. As usual, today's call is open to all investors, analysts, and the media. There's a live webcast of today's call, and a replay will be available on our website later today. So before we get started covering highlights from the quarter and taking your questions to Aaron will give the customary safe harbor statement. Aaron?
spk00: Thank you, Dan. Good afternoon, everyone. Sandy Spring Bancorp will make forward-looking statements in this webcast that are subject to risks and uncertainties. These forward-looking statements include statements of goals, intentions, earnings, and other expectations, estimates of risks and future costs and benefits, assessments of expected credit losses, assessments of market risk, and statements of the ability to achieve financial and other goals. These forward-looking statements are subject to significant uncertainties because they are based upon or affected by management's estimates and projections of future interest rates, market behavior, other economic conditions, future laws and regulations, and a variety of other matters, including the impact of the COVID-19 pandemic, which by their very nature are subject to significant uncertainties. Because of these uncertainties, Sandy Spring Bancorp's actual future results may differ materially from those indicated. In addition, the company's past results of operations do not necessarily indicate its future results.
spk02: Thanks, Aaron, and thank you all again for joining us today. Today I will review our first quarter financials, and then Phil and I will walk you through the supplemental materials we issued earlier this morning. Overall, we're very pleased with our performance this quarter. There are many promising trends in our results, especially as it relates to the resiliency of our loan portfolio and our credit outlook. We continue to be in a great position to help our clients reopen and recover from this pandemic. And with vaccinations in our region on the rise, we look forward to welcoming more of our clients and our employees back to our offices in the weeks and months ahead. And I'll provide more color on our return to work plans later in today's call. For now, though, I'll run through our first quarter financial highlights. Today, we reported net income of $75.5 million, or $1.58 per diluted share, for the first quarter of 2021. The current quarter's results compared to net income of $10 million or $0.28 per diluted share for the first quarter of 2020 and net income of $56.7 million or $1.19 per diluted share for the fourth quarter of 2020. Core earnings were $56.9 million or $1.20 per diluted share compared to $29.6 million or $0.85 per diluted share for the quarter ended March 31st of 2020. and $58.3 million, or $1.23 per diluted share, for the linked quarter. Poor earnings exclude the impact of the provision for credit losses, M&A expenses, prepayment penalties on early FHLB redemptions, and investment securities gains. The provision for credit losses this quarter was a credit of $34.7 million compared to the linked quarter's credit of $4.5 million. Like many financial institutions that have adopted CECL, improving economic conditions have led to the reversal of the large provisions taken earlier in the pandemic. Currently, our actual credit metrics demonstrate favorable trends, which I'll touch on later. And Phil will also explain the provision credit in more detail when we review the supplemental materials. Total assets grew 44% to $12.9 billion compared to the first quarter of 2020, and during the same periods, loans grew by 55%. This year-to-year growth is primarily due to the Revere Bank acquisition in the second quarter of 2020, as well as our participation in both rounds of the PPP program. Excluding PPP, total loans grew 36% to $9.1 billion compared to the prior year quarter, with commercial loans growing 49%, or $2.5 billion, and consumer loans increasing 6%. During the first quarter of 2021, total loans, excluding PPP, declined $225 million compared to the linked quarter. We believe this decline is temporary and reflects a high level of early payoffs out of our commercial real estate portfolio, refinances out of our mortgage portfolio, and lower seasonal loan production. For many reasons, we are well positioned for future growth. PPP originations are now behind us. The economic forecast has improved. An increasing percentage of the population is now vaccinated. We have a unique position in the market, both in terms of scale and sophistication, and a very highly skilled team of commercial bankers, also aided by a resilient credit portfolio and significant liquidity. For all of these reasons and more, we're confident in our ability to continue to serve our clients and grow our company. On the deposit front, our deposit base continues to be an underlying strength of our franchise. Over the past 12-month period, deposit growth was 62%, with non-interest-bearing deposits growing 94% and interest-bearing deposits growing 48%. Once again, this was primarily driven by the acquisition and our ability to retain Revere clients despite integrating the companies in the midst of the pandemic. APP-related deposits are estimated to be approximately $1 billion at the end of the quarter, $610 million are from round one, and $450 million are from round two. The remaining round one deposits represent a 55% retention rate, and those funds from credits exceeding a half a million are retained at a rate closer to 70%. The majority of all PPP-related deposits, or approximately 90%, are in our demand deposit and checking categories. Non-interest income has been very strong throughout the pandemic, increasing by 59% or 10.7 million compared to the prior year quarter. This was a result of a 235% increase in mortgage banking income and a 25% increase in wealth management income. Mortgage banking income increased by 7.1 million during the current quarter compared to the prior year quarter. And on the league's quarter basis, mortgage banking income declined to 10.2 million compared to 14.5 million. This decline is a result of decreasing margins on the volume of mortgages sold during the quarter, as well as the refinance cycle having run its course. As we previously shared, mortgage banking will remain a significant part of our fee-based revenue this year. However, given the extremely limited purchase inventory, mortgage production is expected to continue to decline, both nationally and here at Sandy Spring. This quarter also marked our first full year with Rembert Pendleton Jackson, or RPJ, and the results of this acquisition have been significant. Wealth management income increased 1.8 million over the past 12 months, and wealth income grew 515,000, or 6.27%, compared to the linked quarter. With more than $5 billion in wealth assets under management across RPJ, West Financial Services, and Sandy Spring Trust, we are pleased with our increasing presence in the wealth space. We remain focused on continuing to grow our wealth business and differentiate ourselves in this competitive market. Other non-interest income increased $2.1 million compared to the same quarter of last year due to prepayment fees earned from early loan payoffs and a recovery from a previously charged off loan from Revere Bank. We continue to be very pleased with the stability in the margin. The net interest margin for the first quarter of 2021 was $3.56 compared to $3.29 for the same quarter of the prior year. Excluding the net the net 2.9 million impact of amortization of fair value marks, the net interest margin for the current quarter would have been 3.46 compared to 3.27 for the first quarter of 2020. The stability we're seeing in our margin is being driven primarily by our ability to continue to reduce overall cost of funding as the cost of interest bearing liabilities declined by 13 basis points from last quarter and the cost of interest bearing deposits fell by 11 basis points. The average rate on CDs was reduced by 22 basis points, representing the deposit category with the largest decline in the quarter. On a go-forward basis, the overall cost of funding should continue to decline as we replace the recently redeemed FHLV advances with more cost-effective alternatives at a favorable average rate differential of 230 basis points. On the expense side, non-interest expense increased 43% or $20.4 million compared to the prior year quarter. This quarter's results included $9.1 million in prepayment penalties from the early redemption of $279 million of FHLB advances with an average rate of 2.63%. This action will support our efforts to preserve a stable margin. Excluding these penalties and M&A expenses, non-interest expense grew 27% year over year due to compensation and operational costs associated with both the Revere and RPJ acquisitions, as well as an increase in FDIC insurance and the amortization of intangible assets. After adjusting for the prepayment penalties, non-interest expenses are consistent with the linked quarter. The non-GAAP efficiency ratio was 42.65 for the current quarter compared to 54.76 for the first quarter of 2020 and 45.09 for the fourth quarter of 2020. This decrease in the efficiency ratio from the first quarter of last year to the current year quarter was a result of the 50.9 million growth in non-GAAP revenue outpacing the 11.6 million growth in non-GAAP non-interest expense. Looking ahead, we continue to manage this expense-to-revenue metric to a targeted range of 48% to 50%. We anticipate full-year 2021 efficiency levels to settle into this range as we expect mortgage revenues to decline from current levels and operating expenses to be comparable to current levels absent the FHELB advance prepayment penalties. And we'll also look to invest in the people and technologies needed for future growth and success while identifying opportunities for greater efficiency. Shifting to credit quality, non-performing loans decreased from 111 basis points to 94 basis points. Non-performing loans totaled 98.7 million compared to the 115.5 million in the linked quarter, and we're very encouraged by these trends. Loans in non-accrual status that relate primarily to a limited number of large borrowing relationships within the hospitality sector were 43.8 million at quarter end. And these large relationships are collateral dependent and require no individual reserves due to sufficient values of the underlying collateral. The company recorded net charge-offs of $300,000 for the first quarter of 2021, compared to net charge-offs of a half a million for both the first and fourth quarter of 2020, respectively. The allowance for credit losses was $130.4 million, or 1.25% of outstanding loans, and 132% of non-performing loans. compared to $165.4 million or 1.59% of outstanding loans and 143% of non-performing loans at the linked quarter. Excluding PPP loans, the allowance for credit losses as a percentage of total loans outstanding would increase to 1.43% and to 2.86% looking at the commercial business segment alone. Tangible common equity increased to $1.1 billion or 8.9% of tangible assets at March 31st, 2021 compared to $726.8 million or 8.51% at March 31 of 2020 as a result of the equity issuance in the Revere acquisition. The year-over-year change in tangible common equity also reflects the increase in intangible assets and goodwill associated with the Revere acquisition. Excluding the impact of the PPP program from tangible assets at March 31st, the tangible common equity ratio would be 9.94%. The company had a total risk-based capital ratio of 15.49, a common equity Tier 1 risk-based capital ratio of 12.09, a Tier 1 risk-based capital ratio of 12.09, and a Tier 1 leverage ratio of 9.14. And we'll now move to the supplemental information that we issued this morning in conjunction with our press release. On slide two, you can see that loans with payment accommodations at March 31st totaled $233 million, resulting in 3% of our loan portfolio receiving accommodations. The slight increase from last quarter was due to one specific hotel credit that was granted an additional accommodation after having come out of a deferral, and two relationships that were granted first-time payment accommodations. If you move to slide three, we have detailed specific industry information which we've updated and shared the past four quarters. Outstanding balances for each segment and the loans and payment accommodations are as of March 31st. On slides four and five, we've broken out our PPP participation in both rounds one and the second slide in round two of the program. And to update you on our forgiveness efforts, 61% of all round one loans have applied for forgiveness and 99.5% of all forgiveness applications submitted to the SBA have received full forgiveness. In round two, we originated 2,950 PPP loans for a total of $446 million. And we're no longer accepting new applications and are focused on helping our clients through the forgiveness process and expect the majority of forgiveness to fall in this calendar year. Now I'll pause and turn it over to Phil to talk through CECL and our capital position.
spk03: Thank you, Dan. Good afternoon, everyone. Pleasure to be here with you this afternoon. I'm going to pick up on slide number six of the supplemental deck, where we have become our traditional waterfall representation of the movement in our allowance for the first quarter of 2021. It's broken into components that reflect the key drivers of the change during the quarter. As you can see, the change over the course of the current quarter was primarily driven by the significant reduction in the projected near-term level of the unemployment rate, a key economic factor in our CECL methodology. On the next slide, slide seven is a comparison of the current and more recent economic forecast variables. Our CECL methodology continues to use a Moody's baseline forecast that for the first quarter of this year was a version that was released on April the 5th. This baseline forecast integrates the effects of COVID-19 and portrays an unemployment rate for our local market that has essentially already peaked and is ultimately scheduled to recover to a level of 3.5% in early 2023, which is lower by almost 1.2% than it was in the previous forecast. Significant improvement in the year-over-year growth in business bankruptcies and a better year-over-year change in the home price index are also presented as they are forecasted. These macroeconomic variables are further outlined on the next slide, number eight. In determining our reasonable and supportable forecast period, we continue to use a two-year time horizon to reflect less uncertainty in the long-term outlook at this time. Similar to our approach taken in the last two quarters, we continue to not take into consideration any potential mitigating factors based on what could be perceived as a potential positive outcome or other impact of government programs such as the PPP. We still feel very comfortable that this is a conservative stance and approach to our reserve. Conversely, though, we have chosen to include an additional qualitative factor this quarter related to concentration risks that we believe captures the additional risk levels that could exist in certain industry segments of our portfolio, which would include the hotel, office, and retail-based portions of our loans. This additional factor is also the majority of the increase of the qualitative factors component noted on the waterfall slide earlier presented. On slide nine, we provide some additional granularity related to the reserve from a portfolio view, where you can see the most significant amount of reserve by dollar amount continues to be attributed to the commercial business portfolio, where the total reserve this quarter is 31.8 million, or 1.32% of outstandings, but again declined from the prior quarter. We should note that that 1.32% of the reserve reflected here includes PPP loans in the balance, although there is no reserve required on those loans. And as illustrated in the footnote at the bottom of the slide, when adjusting the balance to exclude the PPP loans outstanding, the reserve on our commercial business segment would be 2.86 percent, and our total reserve would be 1.43 of total loans. Finally, on slide 10 is the trend of our pertinent capital ratios, with some brief explanations regarding the treatment of certain items and their impact on the resultant ratios. Included in those comments is an adjusted tangible equity to tangible assets ratio to reflect the impact of PPP loans on the current measure, as Dan mentioned earlier. We continue to feel confident about our capital position, as all of the metrics improved nicely this quarter, primarily as a result of the strength of our reported earnings. We've also recently updated our capital stress test, where we've constructed a baseline and severe forecast scenario, continuing to utilize the same Moody's baseline forecast incorporated in our CECL calculations and a COVID-based S4 economy in the severe case. Having done so, as we have in the past, we continue to be confident that we have the capital base to carry us through the remainder of this ongoing pandemic situation and provide us a strong basis for future growth. That's it, Sam.
spk02: Thanks, Bill. Before we move to take your questions, I'd like to briefly cover just a few other updates. As I mentioned earlier and noted in the release, we look forward to welcoming more of our employees and clients back to our offices. So far, we've been operating at a 25% capacity, but we will increase that percentage in the weeks and months ahead. We have, like so many others, learned so much about working from home, staying flexible, and using technology to do our jobs. more efficiently and effectively. And we'll apply these lessons as we move forward. But we'll lead with the mindset that we are going to return to our offices. We believe that in-person collaboration is what's best for our relationships with our clients and our colleagues. And included in these return to work efforts, we'll also begin to reopen our branch lobbies this summer. As it relates to our branch network, I'm pleased to report that in February, we expanded our presence in D.C. and opened our fourth branch in the city. This full-service branch is located in the vibrant retail and business community near the Washington Convention Center. We see a great deal of growth potential, especially as this region continues to recover from the pandemic. Last month, we also released our first annual corporate responsibility report. This report goes beyond our financial reporting to show how we support our clients, our employees, communities, as well as the environment. We are committed to transparency and are proud to share our progress with you. If you haven't seen it, you can find the report at sandyspringbank.com and on our investor relations site. Our company continues to earn recognitions that demonstrate we are a premier community bank, an employer of choice, and a company with top talent. Most recently, Ford's named Sandy Spring Bank to its 2021 list of America's 100 Best Banks. As I mentioned earlier today and in prior quarters, we truly have a unique position in our market and among our peer group. As a nearly $13 billion company, we have the size, scale, and diversification of products to meet our clients' banking, mortgage, private banking, trust, wealth, and insurance needs. Our employees live and work in the communities we serve, and all decision-making is local. We all feel a sense of pride and ownership in taking care of our clients because they are our neighbors and their friends, and they are the community we exist in. We operate in a highly desirable market. The Greater Washington region is home to the federal government and a massive government contracting presence. Amazon's HQ2 and many other national and international companies are headquartered here. Small businesses thrive in this region, and we are surrounded by several top-tier universities and hospital systems. So as we look forward, we see endless opportunities to grow our company and build on our existing strength. That concludes our general comments for today, and we will now move to your questions. So, Jamie, you can have the first question. If you could identify your name and the company affiliation you're with as you come on the line, that would be really helpful.
spk01: Ladies and gentlemen, at this time, we will begin that question and answer session. To ask a question, you may press star and then 1. If you are using a speakerphone, we ask that you please pick up your handsets before pressing the keys. To withdraw your questions, you may press star and 2. At this time, we will pause momentarily to assemble that roster. And our first question comes from Casey Whitman from Piper Sandler. Please go ahead with your question.
spk08: Hey, good afternoon.
spk02: Good afternoon, Casey. Hi, Casey.
spk08: Hi. Hi. Maybe, Phil, can you start off by just filling us in on your core margin outlook from here? I know the next few quarters are going to be I'll be with PPP forgiveness, but maybe if you can fill us in on sort of what you're thinking about the core margin XPPP and accretion.
spk03: Yeah, Casey, I'd be glad to. So, first of all, as it relates to the PPP forgiveness aspect of things, I think what you can expect here is that from a timing perspective, the large majority of the impact to our earnings as well as, therefore, the margin are going to really be in this next quarter here, the second quarter of the year, with that kind of continuing into the third quarter and trailing off more towards the fourth quarter. In the current quarter, the forgiveness aspect of what took place was probably worth about four basis points of benefit off the core margin. in addition to what's going on with the ongoing fair value adjustments, which are beginning to decline, especially on the asset side. So all in all, what I would suggest is on a core basis underneath all of that throughout the remainder of the year, that margin's probably going to be in the mid-340 range. Not terribly different than I think what we basically reported here, 340, 345, 346, somewhere in that range. And, again, that's with, you know, the assumption that there are no significant changes in the overall level of market rates other than, you know, whatever fluctuations could occur on the 10-year.
spk08: Great. That's helpful. Thank you. And while we're talking about PPP, Dan, I think you gave some numbers in your prepared remarks around deposit retention with that program. Can you repeat those numbers that you gave? I just missed them. Sorry.
spk02: Yep, I sure can. I'm getting there.
spk01: No problem.
spk02: Not getting there as fast as I thought I would. So all in all, at the end of the quarter, we had about a billion in deposits related to PPP. What I commented on is in round one, about 610 million are on the books, and from round two, about 450 million. Of the remaining round one deposits, that represents about a 55% retention rate of those deposits. But when you break it down a little further, On the credits, originations that exceeded a half a million initially, that retention rate is closer to 70%. And obviously all those round twos were done in the quarter, so there's no retention data on that.
spk03: Yeah, and Casey, just from a standpoint of trying to estimate where that goes from here, we're for the most part modeling that By the end of the year, we think we'll still be retaining between 30% and 40% of the remaining deposits as we see them today, based on the numbers that Dan just suggested. So we have some expectation they'll continue to run down, but we also believe that there'll be some element of them that will continue to hold on to. And a lot of that, I believe, we'll know by virtue of when folks get forgiven and feel like the money belongs to them, so to speak. And therefore, it'll be interesting to see whether they deploy those funds or they continue to just kind of hang on to them and they stay in our deposit base.
spk08: Understood. Thank you, Ahabat.
spk02: Thanks, Casey. Thanks.
spk01: Our next question comes from Steve Comrie from G Research. Please go ahead with your question.
spk04: Hey, guys. Good afternoon.
spk02: Good afternoon, Steve. Hi, Steve.
spk04: Wanted to actually maybe ask for a little clarification on the core margin outlook, at least start there. You know, during the quarter, it seems like you benefited from higher PPP, obviously. I was wondering what the impact of the higher payoffs was in the quarter. Was there any kind of prepayment element in the margin in this quarter? And if there was, kind of what's going to make up the difference in the back half of the year?
spk03: Yes, Steve, this is Phil. If there were any implications of any prepayment penalties or things that we might have accrued by having some of those earlier payoffs this quarter, they would have run through the non-interest income element of things as opposed to the net interest income or the margin. So there wouldn't have been any implications from that standpoint related to that runoff. I would say certainly whatever yields that those loans ran off at would have had some detrimental impact to the overall level of the margin currently. And in giving that guidance, I would also tell you that even with the prepayments that we made on the advances, which we would predominantly pick up probably five or six basis points effect to the margin, we still have some continuing pricing down on the asset side of the balance sheet. So my guidance is to really kind of give a truly stable margin position between now and then, knowing the cause and effect on both sides, both in asset yields as well as what happens to deposits, even with the pickup that we're going to enjoy from having paid down those advances.
spk04: okay thanks that's that's very good detail and then maybe on the load balances um i noticed that essentially all the commercial loan categories were up slightly and all the consumer categories were down is there like a bifurcation in demand or is this a credit choice by the bank in in terms of in terms of uh the the runoff levels or the or the ending balances
spk02: Yeah, just ending balances.
spk03: Yeah, Steve, I think as it relates to the consumer portfolio, that's predominantly client behavior and choice. We're not really doing anything differently there, whether it's in the underlying approach to credit or the way that we're We're just promoting or offering those. And the majority of our consumer portfolio, as you probably can recall, are home equity lines, which I think are just becoming less and less favorable to the consumer these days. So as it relates to that component of it, I don't see anything out of the ordinary in that regard. I don't know, Dan, if you have any comments on the commercial side you want to offer.
spk02: From a what we desire standpoint, there's been no change in our appetite for any elements of our portfolio. First quarter, we spoke to some outside runoff, which was really in a lot of ways a result of success of our clients. A number of commercial real estate projects changed hands and sold. A lot of our small builders have been, you know, outpacing our expectations in terms of turning construction loans with the sale of properties. And in a couple cases, we had some clients take advantage of the market conditions and sell their business. And so nothing from a loss of client standpoint, more some, you know, just... a little higher runoff here in the first quarter than what we typically would expect. But we still have appetite to grow every aspect of our commercial portfolio.
spk04: Okay, very good. Maybe one more from me. Period and non-interest balances showed a lot more of an increase than the average balances showed. Was there anything unusual going on there?
spk03: Probably just the timing of the funding of PPP loans that were probably more heavily weighted towards the end of the quarter than during the quarter since we, you know, from the timing when we reopened the portal, et cetera.
spk04: Okay, yeah, that's what I figured. Okay, thanks, guys. Yep, you bet.
spk01: Our next question comes from Catherine Miller from KBW. Please go ahead with your question.
spk07: Thanks. Good afternoon.
spk05: Good afternoon, Catherine. Hey, Catherine.
spk07: I just wanted to ask, just on the provision, you gave a lot of great color around what drove the large reserve release this quarter, Phil. And maybe just a follow-up to all that is, do you feel like this is most of the reduction in the reserve release just from the better economic baseline? And from here... You know, it's kind of more keeping the reserve at this level and kind of providing for growth and charge-offs, or do you see the ability to bring the reserve down even further from here?
spk03: Yeah, Catherine, so I think the first answer is that this is probably, you know, within a quarter the largest amount of release we might see. But I would also say that, again, if we don't, and hopefully this is the case, we don't really experience any significant charge-off, true losses and charge-offs as we go forward, it will continue to mute the amount of provisioning and potentially create further releases and therefore provision credits in subsequent quarters. So that is a possibility, but I don't know that I would suggest to you that they'd be nearly as large as the one that we just took, which means that there is still further room for the overall level of reserves to loans to decline over some period of time here going forward.
spk07: Great. And on the expense side, expenses came down a little bit more than I had expected. Is this a good run rate to grow from, or what's your outlook for expenses this year?
spk03: Yeah, I think that the decline in the expense rate here in the first quarter will not continue going forward. I think we'll start to see our expense base grow here in the next quarter and beyond. In some of Dan's prepared comments here, he made some comments. Made some mention of things that we're starting to invest in from a technology and people standpoint, and I think that that's going to start manifesting itself in the expense line and the run rate as we go in through the second quarter and through the rest of the year. I think absent of the netting of the prepayment penalties and the offset against the liability for unfunded commitments, we probably had a base of expense this quarter around 60. I would expect that to go north of that into the next quarter and beyond. You could see our expense base grow significantly. you know, in the low single digits here, low to middle single digits through the rest of the year.
spk07: Okay, great. And then one last question just on M&A. We've seen some deals announced. Any kind of updated thoughts on your thoughts on participating in M&A activity this year? Thanks.
spk02: Yeah, thanks, Catherine. It continues to be, you know, an element of our activity view forward from a growth standpoint and uh we'll continue to to uh you know have those types of discussions uh nothing uh nothing imminent to to certainly report and probably not different than my comments from from the prior quarter and that is um you know at this point we have you know focus on continuing to emerge from from the pandemic and and uh a strong focus on organic growth but um but M&A will be a part of our story going forward, both bank and non-bank.
spk07: Great helpful, great quarter, thanks.
spk01: Thanks, Catherine. Thank you. Our next question comes from Eric Zwick from Benning and Scattergood. Please go ahead with your question.
spk05: Good afternoon, guys. Hi, Eric. Hey, Eric. First one for me, apologies if I missed it earlier, just curious with regard to the PPP loans and the 2020 originations, what is the remaining amount of unamortized fees from those?
spk03: That's a good question, Eric. I'm not sure I have that specific number at my disposal, but I can follow up. I can certainly follow up with you on that. Don't know that I really have that identified.
spk05: That's okay. And then looking at slide five, looks like it's about $19 million or so for those 2021 originations. Is that right?
spk03: Well, that's probably related mainly to round two. And in that case, those fees, I believe, are higher than, you know, on a loan-by-loan basis than those of round one. But, yeah, I think that's a correct number. Okay.
spk05: That's good, thanks. And then, you know, you talked about the outlook for mortgage revenue to likely, you know, decline throughout the year for the kind of several factors you mentioned. I guess I'm curious about, you know, the cost side of that as you view that business, you know, how much of how you manage it is variable versus fixed, and what is kind of, you know, the longer-term efficiency ratio of your mortgage operations?
spk02: Yeah, Eric, Dan, the... Our outlook, as I mentioned, for the reasons stated, is that it's going to come off. It's largely a variable piece of our business from an expense-based standpoint, and so we have the ability to modify the spigot there in terms of what we have invested in mortgage. I say that at the same time that we've got a very efficient and highly productive shop that we still will look to grab our fair share of the market even as the market diminishes. So Phil's pulling out data with regard to your question about the efficiency of that business.
spk03: Yeah, Eric, I think that from the internal calculations that we make there, the efficiency ratio on that business is in the mid-20% range, if I'm not mistaken. and is, you know, usually managed consistently in that range. So, I mean, clearly in relation to the rest of the bank, it's a highly efficient component of our business.
spk05: Okay, great. Thanks for the color there. And I guess the last one for me is a bit of a follow-up on Catherine's question, I believe, about the reserve. We've heard a number of banks indicate that, you know, Potentially timing is obviously hard to predict, but once we get back to a more stable economic outlook and once the deferrals are resolved, that the longer-term reserve levels could converge back to kind of what the day one CECL adoption levels were. And I guess looking at slide nine, that's called 90 basis points or so for you. Is that appropriate for Sandy Spring over the longer term, or how do you think about the kind of natural level of the reserve over time?
spk03: Yeah, Eric, I think the 90 basis points is probably a bit lean, although I've seen and certainly heard that that is the sentiment in a lot of cases that a lot of the reserve levels could go back to that, or reserves could go back to those pre-COVID levels. I don't know. I would have a hard time seeing ours potentially get below one, but it's It's yet to be seen how this plays out, but I understand the sentiment that's out there on that.
spk05: Appreciate the call there. Thanks for taking my questions today.
spk01: Thanks, Eric. You're welcome. And ladies and gentlemen, once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Our next question comes from Brody Preston from Stevens. Please go ahead with your question.
spk06: Good afternoon, everyone. Hi, Brady. Hey, just wanted to follow up on PPP. So it's about, call it $1.3 billion in outstanding is currently correct?
spk02: Yes. Yeah. Yeah. That's correct. Okay. Net of what's been forgiven. Yep.
spk06: Okay. And do you happen to know what the average balance is for one QR?
spk03: Yes. Hang on one second. I'll tell you what that is. And by the way, Eric, the answer to Eric's earlier question of remaining deferred fees is about a little less than $27 million. Let me see if I can find for you the average here real quick.
spk06: Hang on a second.
spk03: The average PPP balance this quarter was about $1.1 billion.
spk06: Thank you for that. And so, just I did want to clarify. So, it was about 10 basis points of accruable yield this quarter, correct?
spk03: Just switching to PAA. Oh, yeah. I'm sorry. Hang on a second. I'll find that. It sounds about right, but let me confirm that for you.
spk06: Yeah, I just wanted to confirm that what you had put in the release was just the margin was just XPAA. It wasn't inclusive of the PPP.
spk03: That's correct. Yeah, that's it, about nine basis points. That's correct. Yep.
spk06: Okay. All right. Thank you for that. And then I wanted to ask on the CNI balances, right, so just kind of excluding PPP, the balances were actually down, you know, about 8%. in the link quarter, but that was after they were up, you know, 5% in the previous quarter. So I just wanted to better understand what was driving that variability.
spk02: We had a couple things at play, but the largest were a couple of business sales that impacted that portfolio. Our utilization on lines is held pretty constant through the whole pandemic, including through the first quarter. We had a couple large credits move out through the successful sale of those businesses. That's probably the most significant, you know, kind of larger hits in that book.
spk06: Understood. Okay. And then on the expenses, I just wanted to follow up on the other expense line item, you know, kind of setting aside the FHLB prepayment penalty. There's some variability there from 4Q to 1Q. So just is the $5 million rate sort of the right run rate to use on that other expense line item moving forward in addition to any growth?
spk03: Let me take a look at that for you, Eric, real quick. It's probably a little bit more in the $6 million range than five, because there's an additional offset to what we set aside for unfunded commitments last quarter that we reversed back out in this quarter. So I would add that back and get you closer to six before growth. Yeah.
spk06: Okay. Thank you for that. And then I just did want to ask, what percent of your loan portfolio is floating rate at this point?
spk03: I think the overall portfolio is probably in the 25% to 30% range.
spk06: All right. Great. Thank you all for taking my questions. I really appreciate it.
spk02: Thank you. Thank you, Brody.
spk01: And ladies and gentlemen, at this time, and showing no additional questions, I'd like to turn the floor back over to the management team for any closing remarks.
spk02: Thank you, Jamie, and thank everyone for their participation today. We always welcome your feedback on these calls, so please email your comments to ir.sandyspringbank.com. And I hope you all have a terrific afternoon.
spk01: And, ladies and gentlemen, with that, we'll conclude today's conference call. We thank you for attending. You may now disconnect your lines.
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