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spk00: Hey and welcome to the West Banco first quarter 2021 earnings conference call. All participants will be in listen only mode. Should you need assistance please signal a conference specialist by pressing the star key followed by zero. After today's presentation there will be an opportunity to ask questions. To ask a question you may press star then one on your touchtone phone. To withdraw your question please press star then two. Please note this event is being recorded. I would now like to turn the conference over to John Iannone, Senior Vice President, Investor Relations. Please go ahead.
spk07: Thank you, Carrie. Good morning, and welcome to WestBanco, Inc.' 's first quarter 2021 earnings conference call. Leading the call today are Todd Claussen, President and Chief Executive Officer, and Bob Young, Senior Executive Vice President and Chief Financial Officer. Today's call, an archive of which will be available on our website for one year, is forward-looking information. Cautionary statements about this information and reconciliation of non-GAAP measures are included in our earnings-related materials issued yesterday afternoon, as well as our other SEC filings and investor materials. These materials are available on the Investor Relations section of our website, lesbanco.com. All statements speak only as of April 28, 2021, unless bank owner takes no obligation to update them. I would now like to turn the call over to Todd Claussen. Todd?
spk10: Thank you, John. Good morning, everyone. On today's call, we're going to review our results for the first quarter of 2021 and provide an update on our operations and 2021 outlook. Key takeaways from the call today are we delivered strong year-over-year pre-tax, pre-provision earnings driven by our diversified growth engines and company-wide commitment to expense management. West Banco remains a well-capitalized financial institution with solid liquidity, strong balance sheet, solid credit quality that is focused on shareholder value through earnings growth and effective capital management. And we continue to receive national accolades for our employees' commitment to our community banking roots and values. We're pleased with our performance during the first quarter. We're in the early stages of emerging from this pandemic. For the quarter ending March 31st, 2021, we reported net income available to common shareholders of $71.3 million and diluted earnings per share of $1.06, when excluding merger and restructuring charges. On the same basis, our pre-tax pre-provision income of $64.2 million grew 3.6% year-over-year, driven by strong fee income growth and disciplined cost control. and we reported strong pre-tax pre-provision return on average assets and average tangible equity of 1.57% and 16.8% respectively. Reflecting our strong legacy of credit and risk management, our key credit quality ratios remained at low levels and our regulatory capital ratios remained well above the applicable well-capitalized standards. Furthermore, as you can see on slides eight and 10 of our earnings presentation, our key ratios also remained favorable to peer bank averages. We're excited about our opportunities for the upcoming year as we build upon our well-defined long-term strategies, which are enhanced by our flexibility provided by our strong capital position, strong liquidity position, and good expense management. In addition, we have experienced teams in the markets with positive demographics, including several that we just entered just prior to the pandemic, which put us in a good position to compete effectively on a relative basis as our local economies continue to rebound. We remain focused on appropriate capital allocation to provide financial flexibility while continuing to enhance shareholder value through earnings growth and effective capital management. To that end, last week our board of directors authorized the adoption of a new stock repurchase plan of up to an additional 1.7 million shares. This new authorization is in addition to the existing stock repurchase program that we had approved in December of 2019, which has approximately 1.1 million remaining shares for repurchase. So the combination of these two authorizations represents about 5% of our outstanding shares. As I mentioned previously, we assisted tens of thousands of customers, individuals, families, businesses, and nonprofits across our communities. Including in this community outreach has been helping more than 10,000 businesses secure critical funding through approximately $1.2 billion to date through all rounds of the Small Business Administration's Payroll Protection Program. Earlier this year, we renamed the Forbes Magazine's list of the best banks in America for the 11th time since 2010 and the second consecutive year in the top 15. As this ranking is based on growth, credit quality, profitability metrics, it demonstrates the strength of our diversified earnings streams, our long-term growth strategies, our unique competitive advantages, our legacy of credit quality and risk management, and our unwavering focus on shareholder value. Then earlier this month, we were again named as one of the world's best banks for the third consecutive year. This is a ranking of which I am especially proud because it's a testament to the hard work and dedication of all of our employees. It is based completely on customer satisfaction and feedback. We received strong scores across the survey, very high scores in the areas for satisfaction, customer service, financial advice, and digital services. To again be named as one of the top focused companies across the world in terms of customers, I'd like to personally thank our employees. I would also like to recognize Abdul Muhammad, our Senior Vice President and Regional Manager of Residential Lending, as he was appointed just recently as one of the eight members of the Federal Reserve Bank of Cleveland's Equity and Inclusion Advisory Council in order to provide advice, strategic counsel, and feedback aimed at improving diversity, equity, and inclusion and opportunity at the Cleveland Fed and the regions that it serves. In addition, Abdul chairs our own Diversity, Equity, and Inclusion Council, which is focused on our three key initiatives, leadership development, employee education, and community development in order to benefit both the communities in which we serve and also our employees. By focusing on hiring, retention, and the development of diverse employees, we'll be better prepared to help minority communities work to close the wealth gap and work toward a better financial future. I'd now like to turn the call over to Bob Young, our CFO, for an update on the first quarter results and outlook for 2021. Bob?
spk02: Thanks, Todd, and good morning, everyone. During the first quarter of 2021, We experienced the continuation of the low interest rate environment and significant amounts of excess liquidity, which were mitigated somewhat by continued strong residential mortgage origination volumes, a robust stock market, strong expense control, and an improvement in the macroeconomic forecasts utilized under the current expected credit losses accounting standard. As a result of higher net interest income, lower operating expenses, and a negative provision for credit losses more than offsetting lower net interest income, I'm sorry, higher non-interest income is what I should have said, offsetting lower net interest income as compared to the prior year and prior quarter, we reported improved GAAP net income available to common shareholders of $70.6 million and earnings per diluted share of $1.05 for the three months ended March 31, 2021. Excluding restructuring and merger related charges, results were $1.06 per share for the quarter as compared to 41 cents last year. Todd just provided you our PTPP returns. Our core returns on average assets and average tangible equity were 1.74% and 18.39% in the first quarter. In order to provide better comparability to prior year periods and to demonstrate the strength of our underlying financial results, We believe it is important to evaluate pre-tax, pre-provision income, excluding restructuring and merger-related costs. In the first quarter, we reported $64.2 million in PTPP income, which increased 3.6% compared to the prior year period. In addition, on a similar basis, we reported strong pre-tax, pre-provision returns on average assets and average tangible equity of 1.57% and 16.78% per quarter. Total assets of $17.1 billion and portfolio loans of $10.7 billion as of March 31 increased 6.6% and 3.4% respectively when compared to the prior year period. Due primarily to growth in the securities portfolio and cash held due to excess liquidity related to additional customer stimulus funds received as well as new round two loans from the SBA's payroll protection program. Very strong deposit growth continues to be a key story for WestBanco as total deposits increased 20.3% year over year to $13.3 billion due primarily to the aforementioned stimulus and SBA PPP loan funds received, increased personal savings, and lower personal discretionary spending earlier in the pandemic. Total demand deposits were up some 36% year over year. Furthermore, reflecting this strong growth and resulting available excess liquidity, we continue to strengthen our balance sheet by reducing higher cost certificates of deposit, federal home loan bank borrowings, and short-term borrowings for a total high-cost funding reduction of $1.7 billion. Key credit quality metrics such as non-performing assets, past due loans, and net loan charge-offs as percentages of total portfolio loans which reflect our strong loan underwriting and credit processes, have remained at low levels and favorable to peer bank averages for the prior four quarters. Last night's earnings release captures key credit metric improvements, so I will not repeat them, but reflecting improved macroeconomic factors in the CECL calculation, the allowance for credit losses specific to total portfolio loans at March 31, 2021, was 160 million, or 1.50% of total loans, or when excluding SBA PPP loans, 1.62% of total portfolio loans. Excluded from this allowance for credit losses and related coverage ratio are fair market value adjustments on previously acquired loans, representing 34 basis points of total loans. The improved factors resulted in a negative provision for credit losses of $28 million for the first quarter of 2021. Key information and measures affecting this quarter's provision can be viewed on slide 9 of the earnings presentation. The net interest margin of 3.27% for the first quarter decreased 4 and 27 basis points respectively from the fourth and first quarters of 2020, primarily due to the lower interest rate environment. As a result of our continued pricing management efforts, our first quarter net interest margin excluding purchase accounting accretion was 3.14%, which was down just one basis point from the fourth quarter of last year. Also, I would remark that excess liquidity resulted in about a 12 basis point reduction to the net interest margin during the first quarter. Reflecting the significantly low interest rate environment, we aggressively reduced our deposit rates throughout the past year. and that helped to lower deposit funding costs, 35 basis points year-over-year to 20 basis points for the first quarter of 2021, or just 14 basis points when including non-interest-bearing deposits. Further, we lowered the cost of federal home loan bank and short-term borrowings by 25 and 79 basis points, respectively, year-over-year, as we reduced first quarter total average borrowings by $1.1 billion or 62.4% year-over-year to $700 million combined. The combined effect of these efforts helped to lower our first quarter total interest bearing liabilities costs by 54 basis points year-over-year to 37 basis points and helped to partially offset lower earning asset yields, which do reflect materially lower yields on new or repriced commercial loans and the aforementioned higher securities and cash balances. Turning now to non-interest income, for the quarter, it was $33.2 million, an increase of 18.6% year-over-year, primarily due to higher mortgage banking fees, commercial customer, loan swap-related income, and trust fees, partially offset by lower service charges on deposits and net securities gains. Regarding 1-4 family residential mortgage origination dollar volume, of which roughly 45% was related to home purchase or construction lending, It totaled $326 million. About 60% of this volume was sold into the secondary market. Briefly, I do want to mention that we recently sold our debit card sponsorship business to another bank. This line of business, which we acquired through our merger with Old Line, was considered by management to be a non-essential business and was determined to not merit the investment necessary to make it a core business line when we first evaluated the purchase of Old Line Bank. The details surrounding the purchase are in the press release. Now, on operating expenses, we felt they continued to be very well controlled through our company-wide efforts to effectively manage discretionary costs and full-time equivalent employee accounts, as demonstrated by our 100 basis point improvement year over year in our first quarter efficiency ratio to 56.71%, excluding restructuring and merger-related expenses, Non-interest expense for the three months ended March 31, 2021 decreased 0.7 million or 0.8% to $85.5 million compared to the prior year period, primarily due to lower salaries and wages from the recent financial center closures, as well as continuing cost controls over certain discretionary expenses. I would also point out salaries were lower by about $1.3 million due to costs deferred related to new SBA PPP loan originations. On the subject of capital, as of March 31, we reported very strong capital ratios of Tier 1 risk-based capital of 14.95%, Tier 1 leverage of 10.74%, and tangible equity to tangible assets of 10.3%. Given such capital strength, on April 22, our board authorized the adoption of a new stock repurchase plan for the purchase of up to an additional 1.7 million shares of our common stock from time to time in the open market. And that brings our total repurchase capacity to approximately 5% of shares outstanding. We do expect to restart share repurchase activity this quarter, and any potential future share repurchases will be subject to market conditions and other factors. And while the timing, price, and quantity of any potential purchases will be at WestBanco's discretion. With an unprecedented operating environment that continues to evolve daily, I'll now provide some limited thoughts on our current outlook for the rest of the year. As an asset sensitive bank, we remain subject to factors expected to continue to affect industry-wide and interest margins in the near term. While market rates have recently increased for certain intermediate and longer term rates, short term rates are expected to remain at low levels for the next couple of years, which are the primary rates upon which new investments and loans are priced. Therefore, we believe our gap in interest margin may continue to decrease a few basis points throughout the year due to lower purchase accounting accretion, which should decrease a couple basis points each quarter and lower earning asset yields. In addition, as a result of higher cash balances from additional stimulus funds received by our customers and their higher personal savings, Investment securities increased by about $900 million during the first quarter, and more of that was invested towards the end of the quarter. So that is also expected to have a somewhat negative influence on the margin as we move forward. But it does also increase overall net interest income as compared to overnight liquidity alternatives. Therefore, we currently anticipate our margin excluding accretion for purchase accounting to be down somewhat from the first quarter's 3.14%. again partially due to the increased securities book, and on an expectation of lower total earning assets net of SBA PPP loan forgiveness that is expected to be higher than new loan originations as well as new PPP loans. We do anticipate gap margin accretion in the next two quarters from the forgiveness itself on PPP loans as net deferred fees are accreted into income. However, I would remark that new PPP loans put on in the first quarter and here early in the second are expected to be slightly diluted with the margin going forward due to their longer contractual lives than first round loans originated during 2020 until they themselves are forgiven. In general, we continue to anticipate similar trends in fee income sources as we experienced during 2020. Residential mortgage generation and associated gains on sales should remain strong, although potentially at lower levels than the record volumes realized during 2020, as well as our current expectation of selling approximately 50% to 60% of originations into the secondary market. Reflecting the current interest rate environment, commercial loan swap fee income should continue to be relatively strong. Electronic banking fees should continue to rebound and follow more normal quarterly patterns. as economies continue to reopen. Securities brokerage revenue will still be impacted in the short term until we are able to loosen the access restrictions to the lobbies of our financial centers. Service charges on deposits will most likely remain weak due to the additional stimulus provided our customers this year. We certainly intend to maintain our diligent focus on expense management throughout the rest of the year. while making the appropriate investments for organic growth as the economy picks up. As a reminder, our long-term efficiency ratio target continues to be in the mid-50% range. And that's, of course, subject to the future shape of the yield curve. While we remain diligent on salary costs, we are still planning for our annual mid-year merit increases, as well as targeted increases to certain retail employees starting hourly wages due to the competitive hiring environment as we hire additional staff for re-engaging our financial centers post-pandemic. In addition, we currently anticipate somewhat higher marketing spend during the year to make up for reduced brand and image costs during 2020, particularly in our new mid-Atlantic market. Regarding the benefits from our financial center optimization plan, the anticipated gross cost savings from the closures remain on track to be fully realized by the end of the second quarter and we continue to anticipate about half of those savings to be utilized for employees filling open positions in other locations, as well as expected digital and technology spending. Further, we will continue to review our remaining footprint for additional optimization opportunities this year as well. Relative to our provision for credit losses, the provision will depend upon changes to the macroeconomic forecast used in the CECL methodology, as well as various credit quality metrics, including potential charge-offs, criticized and classified loan changes, and other portfolio changes. In general, continued improvements in macroeconomic factors should bode well for the direction of future provisioning. Lastly, we currently anticipate our effective full-year tax rate to be between 19% and 21%, subject to any changes in tax policy and taxable income strategies. And with that, we're now ready to take your questions. Operator, would you please review the instructions?
spk00: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone 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. At this time, we will pause momentarily to assemble our roster. The first question will be from Russell Gunther of DA Davidson. Please go ahead.
spk08: Hey, good morning, guys.
spk10: Good morning, Russell.
spk08: I wanted to start with the loan growth outlook and, you know, appreciate the glide path provided in the deck. You know, runoff of organic kind of XPPP balance is something we've seen from a lot of our banks this quarter due to the excess liquidity. A bit more pronounced, I think, at West Banco and We're getting close to seemingly meeting the commercial runoff with new originations. But, Todd, if you could provide us your thoughts on kind of when we can close that gap and expect, you know, positive organic kind of ex-PPP growth.
spk10: Yeah, I mean, I was looking at a lot of the others that are out there, you know, trying to compare. It looks like everybody's 6% to 8%, I guess, annualized. We fall into that mix as well, too. You know, it's difficult to provide, you know, a lot of – near-term loan growth expectations. We still continue to think it's going to be relatively flat for a while. I don't think that view is inconsistent with what you're hearing from a lot of banks across the nation, just because there's a lot of liquidity. And even since the last earnings call, you know, there was a new dose of liquidity put in there for both consumers and also businesses through the PPP process. So there is an awful lot of liquidity that's out there, and we see that in our line usage as well, too. So I don't know exactly when it's going to take off. I mean, GDP looks like it's going to be strong this year, but companies have got to work through that liquidity first. I think when they do, we're in a really good position to participate in that growth because of the lending teams we have, and particularly now in higher growth markets because of our acquisitions. We're seeing commercial real estate payoffs again in the secondary markets. Secondary markets getting to be really aggressive. We're seeing things that are getting taken out, quite frankly, during the construction phase, let alone stabilization phase. So I think that's kind of interesting to see that trend. You know, overall, our pipelines are up about 10% over the last quarter, but still down about 10% from kind of pre-pandemic first quarter of last year. But they're building. So I think that's good to see. Again, I think we're positioned well. I just don't know when that's going to take off again. I think we've got a little bit of time here in terms of – kind of a flattish type of loan growth or consistent with what we've seen here recently, probably for most of the industry for the next few months or maybe quarter or two.
spk08: I appreciate the thoughts, Todd. And, you know, thinking out a bit more longer term, and we do finally hit that term, what is the expectation for organic growth out of West Banco with the, you know, old line fully integrated? Is that a mid-single-digit number you're striving for or –
spk10: Yeah, definitely. You know, mid to upper mid, you know, we were kind of a low to mid single-digit grower prior to some of our expansion, not just in the Mid-Atlantic market, but into Louisville, Lexington, you know, markets like that as well, too, that had some traditionally some higher growth rates. So now those are all part of the fold. They're all into the bank. They're all assimilated. You know, we've done the portfolio pruning that we typically do after acquisitions and all that. So all that's really behind us. So I would hope that coming out of the pandemic, when we're in a more normalized environment, that the benefits of being in those markets would start to show through so that we would go from, you know, a low to mid single digit grower to a mid to upper single digit grower would be the expectation. Mid-Atlantic market pre-pandemic was kind of a low double digit grower. So, you know, we're not changing how they do business. And we got... good strong lending teams in place there, same leadership. So, you know, we would expect, and actually we're seeing early signs and pipelines and things like that, that the mid-Atlantic market and Kentucky are two of our biggest growing areas in terms of pipeline and business so far this year.
spk08: That's great. Thank you. And then switching gears before I step back, we'll be on the expense side of things. So, Really good result this quarter, you know, came in well below consensus. It sounds like there's some puts and takes going forward with higher minimum wage and mid-year increases. You mentioned marketing, but then, you know, full benefit from the already identified cost save. So could you help us with a glide path in terms of where the near-term expense space kind of shakes out over the next couple quarters?
spk10: Yeah, yeah. I mean, at the last quarter, I think we looked at what the consensus was that was out there, and we said we were comfortable with it, and I would still say we're comfortable with that as well. And first quarter was lower for a number of reasons, one of which was that about $1.3 million was deferred costs related to SBA PPP loans. So that's not a long-term reduction. That would be part of the run rate going forward. We do have our mid-year merit increases that we're going to do. We're still being very cautious on hires, but we are I would say we're being aggressive on hiring lenders. This is the time of year to hire them. They just got their bonuses, and if they're looking around, now's the time to do it. So we want to capitalize on that with starting to unrestrict lobby access and things like that. We're going to have more growth with our licensed securities brokers. We're now looking to hire more of those individuals. So we've got some investments that we're going to make. Nothing crazy, but we're going to make some selective investments to participate in the growth going forward. So I think the thought and the consensus was in the past, it was kind of an 87, 88 million quarterly run rate. So it's hard to predict, but I wouldn't argue with that 87 to 88 million dollar number. I mean, we are going to have some, I would say, reopening expenses, which are a good thing, travel, entertainment, things like that, that should generate additional revenue for us. So, you know, we'll have some of those kind of more standard costs that were pretty reduced during the pandemic. We are seeing the benefit of the branch restructuring that we did in January, and those costs have come out or are coming out through the second quarter here. And we also have additional branches that we're looking at and we will be acting on here over the next couple of months. So we're not done. We have a number of markets that we didn't address during the first round of branch consolidations, and we're looking hard at that. And those should be happening here over the next couple months or quarters.
spk08: I appreciate it. You addressed kind of my follow-up, which would be the next look at the remaining branch network. So is there anything additional you can share there in terms of what markets are being targeted and then when we might expect a related announcement there, and I'll step back. Thank you.
spk10: Yeah, sure. Well, the markets that we didn't really look at because they were so relatively new to us and we wanted them to stabilize for a while, the mid-Atlantic market would be one. And then looking at some of the other markets in the Kentucky area, we've kind of done Kentucky already, so primarily the mid-Atlantic market that we're taking a good hard look at right now. I mean, I don't think it would be anything that would be significant enough that would, you know, create an announcement or anything like that. It's just part of our ongoing business, right? We're always looking at a number of branches, whether that's two, three, four, five on an annual basis that we consolidate. And we were doing that prior to the pandemic. We announced the one third quarter last year because it was a big number. You know, it was over 20. But, you know, our traditional onesies, twosies, threesies, you know, we'll continue to do, and we'll talk about those, obviously, in the quarterly earnings calls, but I don't see anything that's significant enough that would, you know, create a reason for an announcement.
spk08: Okay, great. Well, thank you, guys. That's it for me. Sure.
spk00: The next question comes from Brody Preston with Stevens, Inc. Please go ahead.
spk09: Hey, good morning, everyone.
spk10: Morning.
spk09: I just wanted to ask on the trust business, You know, you normally have, and you saw it, but you normally have a step up, you know, from the fourth quarter to the first quarter. I just wanted to confirm that was due to tax preparation related items?
spk10: That's correct. That would factor into that market appreciation as well.
spk09: Okay, got it. And then just on the mortgage front, how did originations and gain on sale margins fare in the first quarter?
spk10: Bob, do you want to handle that?
spk02: So gain on sale was down a little bit just because of the mark-to-market. We had good hedging gains, but offset a little bit by what would be a negative mark on loans held for sale, about $160 million there at the end of the quarter. So that did offset what was a very strong quarter for originations. as well as associated hedging gains on the pipeline. I might also remark that in the middle of last year, we began moving some of the mortgage salaries for originators to that particular line item, gain on sale. And so to some degree, you see a little bit of a reduction as compared to what the normal amount would have been in prior years because of that move from salaries over. In addition to what Todd talked about on the PPP side, that of course is not associated with the gain-on-sale line. Nonetheless, we do expect a strong gain-on-sale here in the second quarter. In the third quarter, your typical seasonal time frames, Brody, for additional activity. And we're still seeing a very strong pipeline on residential mortgage. That is part of the reason, however, why you're seeing a little bit of reduction on the loan portfolio side is a lot of folks are still in the refinancing mode. Rates haven't gone up that much. So it's a combination of both refis as well as purchased money and construction mortgages that we're doing. And about 50% to 60% is our expectation of the split between portfolio and gain on sale loans sold into the secondary market here in the near term going forward.
spk09: Great. Thanks for that detail, Bob. And then I just did want to ask on the loan, on the swap related income. just given, you know, some of the swings and the fair value adjustments. I just wanted to ask what that, I guess, where should that settle out and what could the expectations be for that other income line item, just given the kind of large swing you had this quarter?
spk02: So you did note that the part of that swing this quarter was due to the mark to market on the existing portfolio. And You know, it kind of creates its own hedge against what's happening in the mortgage portfolio, at least loans held for sale. That would have had a negative mark at the end of the quarter as rates increased versus the current inventory in loans held for sale. On the other hand, swap income has influenced this quarter and in any quarter when rates are going up. versus, if you remember, rates going down the first quarter last year that would have had a negative impact on existing swaps. But in terms of what you should be looking at net of that noise, because that's hard to predict what's happening with rates at the end of the quarter, we see very strong opportunity going forward for swap fees. We have a lot of our lenders trained on using it, using the product. Rates are still fairly low where customers are interested in fixed rates going forward for five or seven years. And so net of that noise, I think, you know, a $2 million to $3 million kind of quarterly run rate is what we've been experiencing and no reason to consider that that wouldn't be there going forward.
spk09: Okay, got it. And then just on PPP, do you happen to have what the interest income component from PPP was this quarter? Or just in dollar terms?
spk02: I don't. I can look it up if you give me some time. I can tell you that the deferred origination fees were $7.9 million, or the fee accretion, I should say. $7.2 million of which would have been associated with PPP loans forgiven this quarter. So the bulk of that would have been for forgiven loans. I think I can find the interest income, but why don't we move on to another question?
spk09: Yeah, that's fine. Do you happen to know what the the breakdown of PPP fees will look like moving forward just in terms of what you have left from round one at this point and what you have for deferred fees from the most recent round?
spk02: I would have to look that up.
spk09: Okay. No worries. I just had two more quick ones. On credit, what was it? You know, you guys kind of bucked the trend versus other banks this quarter on the criticized and classified. It was nice to see those move lower. And so I wanted to ask, is there anything specific that drove that decrease this quarter?
spk10: Yeah, I mean, we continue to evaluate, particularly the hospitality portfolio. We're regrading that every quarter right now. So, you know, in the first quarter, we had a regrading that took place there, and because things are starting to improve, particularly during the month of March, and a lot of liquidity that's out there as well, too. I think we saw the first inklings of what we expect to see going forward, and that is a number of upgrades that occurred in that portfolio. I mean, there were a few that went the other way, too, but predominantly upgrades. And we also had another credit or two that was able to work itself out as well. You know, we saw some nice movement there. Our expectation would be, as you recall from prior earnings calls, you know, that we do look at these on a quarterly basis. And the hospitality loans would be, you know, I would think would be being upgraded in the second and third quarter unless we see something really surprising happen. And the trends are really strong. I mean, you see the same trends nationally that we read. And I would tell you we're at or above those trends, so it's pretty encouraging at this point.
spk09: Thanks for that, Todd. And then my last one was just on the new commercial origination yields at 318 this quarter. I just wanted to ask, is the reduction in your origination yields more of a function of low rates, or how much is, I guess, maybe stiffer competition, just given the low loan growth environment kind of playing into that?
spk10: Yeah, we're seeing more of the... competition in the rate area as opposed to structure, which I think is probably the better place to see it. We don't see people doing a lot of crazy things right now. But it is competitive. It's out there. So, you know, we've seen that, particularly on some of the midsize to larger C&I and commercial real estate loans. It's where the swap income becomes really important to you as well, too, as well as ancillary deposit business, TM business, things like that. So we run a return on equity model. on these um you know the the rates the the key driver of it um but i think in environments like this if you're not already focused on deposits and other non-credit things you really are going to be now but the answer to your question it's uh it's primarily a function of competitiveness got it thank you for taking all my questions guys i really appreciate it sure and then i do have the answers i think uh to your questions uh so uh two million was the interest income on ppp loans
spk02: in the first quarter. We have about $840 million left at the end of the quarter, which is very similar to what we had with round one once round one wrapped up last June or July. So basically, the new loans, $344 million, have kind of offset the December and first quarter runoff due to forgiveness of last year's loans. So we have, as I said, $344 million here at the end of the quarter that represents new originations, call it round three, round two, whichever, whatever you want to call it, and then about $500 million left from last year. That's a total of $22 million left in fees, and that's about one-third remaining from last year and two-thirds on the new originations. I hope that's been responsive.
spk09: Thank you very much for that, Bob. I appreciate it.
spk00: The next question will be from Casey Whitman with Piper Sandler.
spk01: Hey, good morning.
spk10: Good morning, Casey.
spk01: Good morning. Bob, while we're on the subject of PPP, maybe do you also have the average balance of PPP loans in the quarter? I know you gave end of period, but just wondering if you had the average balance.
spk02: I'm sorry, I was on mute. I don't have that, but I would tell you that a lot of the new loans were being booked throughout the month of February and March, so sort of a tail on that, while a lot of the forgiveness was occurring earlier in the quarter, January and February. And then kind of the last two to three weeks, once the instructions came out on $150,000 and less forgiveness, we started to see a pretty significant amount of forgiveness there as well. And kind of like two ships passing in the night, we end up with about the same amount of forgiveness between December and March on the old program as we did book new loans. Again, ending up at about the same number, $840 million is what we had last June or July. I don't think there would be a significant difference between the period end and the average on PPP. John, do you happen to have that in your deck?
spk07: I'm looking for it. I don't have it right yet, Bob.
spk02: Okay. We'll get back to you on that, Casey.
spk01: That makes sense, though. That's all I needed. Thank you. And maybe just trying to piece together some of the margin commentary that you already gave, Bob. I guess first, With regards to the increase in the securities book at the end of the quarter, can you maybe give us a sense for the yield and duration you got on that?
spk02: Well, we got more at the end of the quarter than we did back in, say, early February. Rates at that point were one to one and a quarter based upon what we were buying, mostly CMOs, durations typically in the four-year area there. There were some munis mixed in, but basically out of the $900 million that we increased for the quarter, about $100 and some odd million of that is growth in munis, both taxable and tax-exempt, and the rest of it are split primarily between CMOs and mortgage-backs, more oriented towards CMOs. And about $400 million of that settled in the last couple days, so that's kind of part of my margin guidance going forward. You're going to see All the additional liquidity we got towards the end of the quarter from PPP loan amounts deposited in business accounts as well as additional stimulus, third round here in March, being deposited in customer accounts as well. So we were putting as much of that as we could back into the investment portfolio, and you still see very strong liquidity on the cash and due from line. In the month of March, you're looking at $1.50, 1.50% on average as compared to that $1, $1.10, $1.20 kind of average earlier in the quarter.
spk01: Okay. And I guess lastly from me, can you give us just more of a sense of just your thoughts around the level of liquidity between cash and securities and you know, the timing of when we could see some of that come off, whether it's like just from deposit outflows from these PPP customers or whatnot, and how that sort of plays into your core margin guidance that you just gave.
spk02: Yeah, we do anticipate that we're going to see some runoff in what we would call surge deposits throughout the back half year. But, you know, we anticipated the same thing last year, and instead it continued to grow. continues to grow here early in the second quarter yet on the deposit side. So it's very hard to say, you know, how much of that's going to disappear. We're over $17 billion. Does it go back to $16.5? That's kind of what we're thinking in terms of total assets. You know, there's going to be a billion dollars worth of runoff in the investment portfolio over the next 12 months or so. Currently, we're not thinking we're going to significantly increase the size of the securities portfolio, just reinvest what is coming back at us. Basically, it's $80 to $100 million a month, as opposed to continue to grow that, but that kind of depends upon the direction of deposits. We do have $250 million, Casey, that will be paid off in the borrowings book. between now and the end of the year, most of that in the federal home loan bank, on the federal home loan bank line. So, you know, I at this point would say that while we have a lot of excess cash and my guidance around what that costs us in terms of margin is probably going to be consistent for the next couple of quarters, you know, somewhere between 8 and 12 basis points a quarter is going to be related to that additional liquidity. and don't intend to run that back down to say $300 million, 2% of the size of the balance sheet here in the near term.
spk07: Bob, I have the average PPP number if you need it. Yeah, go ahead, John. Yeah, so in case it's John. So Bob's patterning he provided is right. So for the average, the quarter is roughly PPP balance is roughly $775 million for the first quarter of 2021.
spk01: John, sorry, did you say $725? $775. Great. Thank you.
spk00: The next question will be from Steve Moss with B. Reilly FBR.
spk06: Good morning, guys. Good morning, Steve. Maybe just, you know, following up on the margin here, just in terms of purchase accounting accretion, Bob, I hear your guidance for a couple of basis points further decline each quarter for the remainder of the year. And just as we think about that going, you know, a little further out, do we think about purchase accounting basically going away by the middle of next year?
spk02: Yeah, there'll be some, you know, two to three basis points per quarter because the loan book from old line still has some runoff there. It was a longer average life portfolio, if you remember, Steve. So there'll still be a few basis points. And I just think, in fact, assuming that there are no larger loans paid off, we'll have two to three basis points here in the second quarter, and then it'll begin patterning more towards a one basis point number as we get to the back half of the one basis point per quarter number as we get more towards the back half of the year and begin to be in that mid single digit area.
spk06: Okay, that's helpful. And then just going back to credit here, just wondering if you guys could give any color on what loan deferral balances were at quarter end and kind of just how you're seeing any potential workouts going forward.
spk10: Yeah, let me take that. You know, very similar to what we had at the end of the year, maybe just a hair lower, because most of what's on deferral at this point would be hospitality. We don't have much of anything outside of hospitality on deferral. So, you know, we provided, if you remember from prior calls, we provided relief, got most of these loans done before the end of the year, and we provided relief in a lot of cases for 12 months, but we put Springer language in there so that when they got to a certain occupancy or rev par or a certain liquidity level that the payments would begin again. And we would have anticipated and we're seeing that many of them will return to payment status well before the extension runs out, really the 12-month deferral extension. So that's kind of where we're at. So it's really still hospitality. A lot of them are doing really well. Most all of them are doing really well at this point. So I would anticipate that that deferral number will come down in second, third quarters because of that Springer language. But we haven't seen any new modifications, deferrals, no demand for it by anybody including hospitality or other industries for that matter or even consumers. So it is trending exactly the way we wanted it to. But not a lot of movement in the first quarter because it was still pretty much a a downtime for the hotels. And, you know, things started picking up in March. So I would expect the Springer language to kick in on a lot of them.
spk06: Okay, that's helpful. And then maybe just thinking about, you know, the improvement in classifieds. Todd, you kind of alluded to your analyzing the hotels on a quarterly basis. Just kind of curious as to how we think about the rest of the portfolio in terms of just review of criticizing classified loans. Is that more our on a semi-annual or annual basis, maybe when we could see further improvements and maybe therefore further reserve releases?
spk10: No, I mean, we're looking at pretty much all loans over a million dollars on a regular scheduled basis. So, yeah, we look at the portfolio very, very regularly. The hotels are stepped up to quarterly just because obviously that's an area of focus for everybody and things are changing rapidly with regard to hospitality. all criticized and classified loans get reviewed on a regular basis. And, you know, we report most of those over a certain size to the Board of Directors and the Executive Committee, so it gets high-level attention. But we're just, you know, we're seeing some really nice trends. And, you know, it's encouraging to see. If you would have asked me a year ago, I would have expected more companies heading south by now, but they haven't. I think the PPP loans have really helped. and, you know, the strength in the economy. I think, you know, we want to keep our eyes open for, and I can't point to a specific company impacted by this yet, but, you know, there's a lot of supply chain disruption out there, too. So we really want to watch that to make sure it doesn't trip up a C&I customer or somebody, you know, that's sourcing things internationally or trying to find employees locally, right? I mean, because, you know, everybody's competing against unemployment at this point to get employees. So, You know, I think some of those things could ripple through and affect some of the broader portfolio. I'm not seeing it yet. If it did happen, I don't think it would be dramatic, but it could affect the company here or there. But we are, in answer to your question, we're reviewing all loans over a million dollars on a regular basis, and that's lines of credit and term loans.
spk06: Okay, great. That's very helpful, Todd. And then just maybe one more going back towards you know, on balance sheet liquidity and securities here. You know, securities percentage of assets just over 21%. You know, is that kind of a cap you want to keep at? Or, you know, could we head back towards that 23%, 24% level we probably saw a couple years ago?
spk10: Yeah, I think, you know, because we had done some thrift acquisitions, you know, it seems like six, seven years ago now, you know, we were up in a much higher range up in the upper 20s. And we had always wanted to get down to the 20 range. Peers pre-pandemic were about 17. So I think they were still in an unusual time with liquidity. But I would venture to say that we would hover high teens, low 20s. But I wouldn't think we would take it dramatically lower or dramatically higher, at least not based on what we see right now. Bob, would you have a different answer?
spk02: No. I think at this point, with the additional liquidity, until we see some of that runoff in terms of deposits, I think low 20s is where we're going to be, Steve.
spk06: Okay. Great. Well, thank you very much. I appreciate it. Sure. Thank you.
spk00: The next question will be from Stuart Lotz with KBW. Please go ahead.
spk04: Hey, guys. Good morning. Good morning. Um, Bob, I'm actually surprised we haven't gone to the allowance yet, but, um, Bob, if you can just give additional color on your outlook for further reserve releases this year, you know, assuming we, we continue to get improvement in the, you know, some of the economic drivers, uh, driving your CESA model. And, you know, I think last quarter you mentioned that your day one, you were at 1%. How quickly do you anticipate? we can get back to that level if we do.
spk02: Todd and I have regular discussions back and forth about how low will the allowance get at some point in time. And I believe we were in the low 80s when we transitioned to CECL on January the 1st last year. And then you saw the increase in both the first and the second quarter. So I think it's going to head back down towards that. You know, I believe that you're going to see a number for the industry that's going to be in the 120s at least this year. By the end of the year, maybe a little bit lower than that next year as improvements continue. Recall, Stuart, that we have a blend of the Moody's and the Fed forecasts that infuse data into our model. As those continue to come down and almost every quarter in the case of the SEP from the Fed and monthly from Moody's, we're seeing that continue to ratchet down in terms of the expectation for the next four to eight quarters. You know, there's some people thinking we're going to be in the low fours here by the end of the year in terms of unemployment. Who would have thought that a year ago? So there could be some additional reduction on the quantitative side in the model, Stuart, but right now The largest benefit that we could get here over the short to intermediate term would be on some of the qualitative factors specifically related to COVID. There's a COVID factor that could run off over the next few quarters. Hard to say how much that would run off each quarter. But then we also have about 8% associated with the hotel book. I think that's around $55 million total. We added a little bit to that this quarter, just under $5 million. And I think Todd and I believe that there's going to be a benefit to improvements in the operations of hotels here throughout the summer months and as we proceed through the rest of the year that could result in that particular factor continuing to decline. There may be some exceptional hotels that we'll have to associate more of a reserve to on a one-to-one basis as opposed to kind of this portfolio-wide mark that we have currently or allowance allocation. But I do think that there is going to be an improvement in that book as well as we proceed through the rest of the year. I certainly would not be predicting that we're going to see a $28 million reduction in the provision or the allowance here in the short run, but there could still be some negative provisioning before we get back to a zero or slight amount of reserve allocation or provision increase per quarter. Very hard to say how much we'll will come out by the end of the year. You know, the pandemic kind of sets its own course and, you know, reactions in the marketplace as well.
spk04: So it sounds like reserve release will be a little bit more modest in the next couple quarters. And then how much, you know, wiggle room do you have versus, you know, taking, you know, kind of taking that earnings accretion from the negative reserve this year compared to, you know, kind of spreading that out over into 2022. And, you know, kind of the impact on earnings per share.
spk02: Yeah. Again, I would stay at a high level on that. I don't think we're in a position to say wiggle room wise how much of that's going to come out by the end of this year versus early next year. You know, transition that curve in your model to be obviously lower than what we experienced here in the first quarter. But, you know, continued improvement in macroeconomic factors and the qualitative factors will result in reductions in the overall allowance as we move forward. Good. Thank you.
spk10: Todd, did you?
spk04: No, you covered it. Thanks. Great. On the buyback issue, We were kind of surprised to see that you guys actually added another 1.7 million share authorization, but just given your strong capital levels and with your valuation back to 1.7 of tangible, how active do you think you expect to be on the buyback in the coming quarters given the credit improvement? Any thoughts on a potential accelerated share repurchase? Love any color there. Thanks.
spk10: Yeah, I mean, we wanted to provide some flexibility there because, again, we are at such strong capital levels. We had strong capital levels heading into the pandemic, and we raised preferred, and we obviously had nice earnings as well, too. So it puts us in a really, really strong capital position. I think a couple different ways you can use capital, right? Dividends, we increased our dividend last quarter. Buybacks, M&A, which we've talked about is not something we're necessarily looking at anything right now. It could be could get more constructive the end of the year or next year, but it's not a major focus of ours, and again, not a near-term priority. So you look at repurchases, but we're going to base it off of an IRR calculation. We think there's opportunity to be proactive and selective and basically have the ability, I think like a lot of our peers have done, to buy back when they feel the timing is right. And there's been a lot of volatility up and down in bank stocks over the last, really, even just the last quarter, not only the last year. So we just want to be positioned to be able to do that. We're cognizant of how much capital we're carrying, and the capital's good because of that strength. But from a shareholder-friendly perspective, we've also got to make sure we've got the appropriate capital levels. And buybacks would be one of those things that we would be looking at. But it's all going to be IRR-driven. It's going to be what's the best use of our capital at any particular point in time.
spk04: Got it. Um, great. And then, sorry, just kind of one more, you know, it sounds like you're not, obviously not thinking about M&A until, you know, probably next year. Um, in terms of, in terms of bank M&A, at least, um, yeah. How do you, you know, you guys considering any non-bank deals, you know, we've seen a number of those deals get announced for recent weeks. Um, and just, you know, in terms of, you know, you know, picking up a profitable fee business or an asset generator. and using some of your excess capital for that. We'd love to hear your thoughts. Thanks.
spk10: Yeah, I mean, you know, our focus has been on, first of all, just I guess in a broader context, we wanted to make sure there was clarity around credit, right? Somebody else's balance sheet, how do you price it? So we think we're getting closer to that. Each month improves. There's a lot more clarity on trying to price somebody else's balance sheet now than there was 90 days ago. So I think that hurdle's being crossed. We've got a lot of work going into our own core upgrade, and that core upgrade will be completed in the third quarter. So once we get past that core upgrade, then I think, again, with the capital position that we have, and I think the strength with the new core we have as well, too, we could start looking at some bank and non-bank opportunities. So fee-based businesses are always something that we're open to if they fit within the risk profile. We tend not to buy. Some of the things that are out there right now are kind of national franchises, national asset generation franchises. We tend to like to stay within our franchise just from a risk profile perspective as opposed to trying to buy into a vertical or something like that to get loan growth. We just don't think that works long term. But we would be open. So if there were boutique trust firms or other fee generation businesses like that, we'd be very open to that as we head towards the end of the year and definitely into next year.
spk04: Todd, thanks for all the color and thanks for taking my questions.
spk00: The next question is from William Wallace of Raymond James. Please go ahead.
spk05: Hi, thanks for taking my question. I was going to maybe just try to Dig down a little bit and get a couple points of clarification. So starting on net interest margin, if we back out the purchase accounting accretion and we back out the net interest income and average loans for the PPP program, I calculate that your core NEM was about 303. And Bob, it sounds like what you're saying is that there's still some pressures to that core margin So my question is, is that a couple basis points a quarter for the next two to three quarters, or is that under less pressure than the gap?
spk02: So the gap will be influenced by the amount of loan forgiveness each quarter. I still think there's a little bit of that to go. Here in the second quarter, and if you picked up on what I said earlier, no one has had loans between $2 million and $10 million forgiven yet. For the industry, there's a fair amount of deferred fees remaining on that group as well, so hard to say when that will hit.
spk05: Excluding all of that.
spk02: I understand.
spk05: Take out the personal accounting accretion and take out the loan forgiveness. Yes.
spk02: Yeah, so recall I also said earlier that we had about $400 million of the $900 million in growth on the security side that came in towards the end of the quarter. That will influence the margin here early in the second quarter. It will increase net interest income to some degree as compared to, you know, five to ten basis points at the Fed. but it's lower than the normal margin, say, on a normal loan-to-deposit ratio for the company. So I would plug that into your model. We said somewhat of a reduction in terms of basis points without being specific as to whether that's two, four, whatever it is, versus a few basis points. And it is coming from additional reduction on the loan yield side as we book new loans in that 318 to 320 area that is in the deck versus what's coming off in the 373A area. So still some repricing on that side. We have some savings yet on cost of funds, but most of that has already been factored in and won't be as much going forward as low as we are at this point.
spk05: OK. Could we see a core margin that starts with a two?
spk02: Yes, because of the additional securities in the, in the bulk and the additional liquidity.
spk05: Okay. So I would just have thought that the securities investments would have been coming out of cash earning asset. So lower yielding stuff going into higher yielding, even though it's low yield securities, it's still, I would have thought higher than like, or is your cash not in the earning asset balance?
spk02: A portion of it is, but most of it is not. The portion that's kept at the Fed would be five to 10 basis points in any one particular day.
spk05: Okay, thank you. That's helpful.
spk02: You saw the waterfall. The waterfall shows that loans were down some 16 basis points. That was the contribution in the first quarter as compared to the fourth quarter. So I still think there's a little bit to go there. And the mix of the balance sheet in terms of investments, for the additional liquidity that the industry got in March from that additional stimulus, which was huge, $1.9 trillion. And the banks are picking up an awful lot of that. So yes, it is more accretive than sitting at the Fed. But when you look at industry loan to asset and loan to deposit ratios, it's pretty much all-time lows. That's a prescription for a lower margin than what was plugged into most models at the end of the year.
spk10: Yeah, and I would add, Wally, I mean, obviously you see that with us. You see that with a lot of others. That's what creates the increased focus on expense management, and that's a big part of the reason why we've been so tough on expenses as well, too, is we just don't have a crystal ball. We don't know where it's going to go. But if it does continue to trickle down a little bit, you can have margin compression, and banks have got to find a way to deal with it. Understood. Thank you.
spk05: And then I wanted to follow up just for clarity on the reserve conversation. So, Bob, you said that your prediction was that the industry would end up kind of in the 120s by year end. Given West Banco's lost history and what we know as a conservative underwriting culture, I would anticipate at some point that West Banco is going to be below the industry. But it sounds like you're saying that you're going to hit those Q factors as hard as you can so that you don't have to reduce reserves that much in a quick time period, say in the next three quarters. Am I saying that correctly, or do you think that you could be like the industry by the end of the year?
spk02: I think at this point, it kind of depends upon the direction of COVID and how that influences the hotel adjustment. More than anything else, Wally, I would not say we're going to hit the qualitative factors more so than quantitative. Because if you'd asked me prior to the pandemic, I would have said that qualitative factors won't have as big of an influence on the CECL calculation as they did in the incurred model prior to 1231 of 19. So it is true today that the macroeconomic factors have a pretty helpful influence on the calculations in the model. And so as we pull down the qualitative factors, that will drive the ultimate conclusion as to where that reserve ends up. But I have no reason to believe that by the end of the next year that we're going to be any different than the industry relative to ending allowance. There will be some differences in terms of who uses what forecast and over what forecast period and what are the historical losses. I think we'll be reasonably close. Right now, the industry, at least those that have announced so far, are between 140 and 145. It includes the bigs as well. So less than that for banks of our size and smaller that have adopted CECL. And some banks will get to that 1 to 110 level probably a little sooner.
spk05: So if If travel opens back up and the hotel portfolio returns to vacancy rates that are much more sustainable from a cash flow perspective for your hotel portfolio, is it safe to assume that the CECL model would have you going back to that 110 level that you were at the end of the first quarter by the end of this year?
spk10: I think, Wally, it's hard to pick a number because I don't know what's going to happen. But, I mean, we all think that, you know, the pre-pandemic CECL numbers were kind of that 1% range. If you talk to, you know, the credit folks, they'd probably say you're going to end up in the 100 to 1 to 120 range when everything gets back to normal. But, you know, when you get back to normal, I don't know. I mean, we'll have to see how it goes. A lot of it has to do with human behavior. You know, and it's hard to predict what that's going to be. Business travel, you know, how quickly is that going to come back? You know, does everything spring back 100%? Or is there a new normal for business travel? And does that have an impact on hospitality? I mean, there's some things out there that I would say we'll track with the industry on that. But, you know, I don't think we can say at the end of this year that, you know, the concerns over, you know, pandemic are going to be over because there's going to be, new normals out there. You know, so I think that's going to be an important part of it. I think you're going to want to see hotels go through another winter, you know, with particularly those that are downtown, you know, airport related. You're going to want to see those go through another winter before you completely, you know, declare victory. I agree with Bob. I think that by the end of this year, it'll probably be individual marks on a couple. We don't see any right now today, quite frankly. We don't see any losses today. But there may be a couple hotels that turn into challenges that, you know, we would need to work through next winter. But it wouldn't be any different than anybody else. So, I don't know. It's just hard to know how many people are going to get vaccinated by the end of the year, you know? What's unemployment going to be? I mean, it's all just kind of a guess. And I tell you, with our history of being conservative, we'll be on the conservative end of it. I think we were with the amount of provision we raised. We were on the conservative side. With the amount of capital we raised, we were on the conservative side. and I think we will reduce reserves, probably in line with everybody else, but I don't think we're going to be ahead of them with regard to that. So anyway, that's just kind of my two cents worth. I think if you were looking at two years, maybe a little different story, you'd get a little more flexibility in there, but it's just hard to know what this thing's going to look like in the fall. We feel really good about it. We feel very good about it, actually. We may very well be back to new normal by the end of the third quarter or fourth quarter, but it's hard to say.
spk05: Understood. Okay. All right. Fair enough. Thanks.
spk10: Sure.
spk00: And the last question will be from Stephen Duong of RBC Capital Markets. Please go ahead.
spk03: Hey, good morning, guys. Bob, did I – I'm not sure if I heard you correctly, but did you say that you're still seeing a surge in deposits from your Puritan balances?
spk02: Well, net of tax payments made in April, typically you get tax payments, but I wouldn't call it a surge. I would just call it normal growth in deposits. My point was, Stephen, that we're not seeing deposits leave the franchise yet at this point, other than for normal uses. I still think the personal savings rate and the desire for consumers to keep a lot of their cash is influencing bank balance sheets and deposits. Also, the PPP program, to the extent that companies get forgiveness, will they be more willing to use the cash that they've retained going forward and not worry about whether they're going to get forgiveness? Will they be willing to hire more people in an economy where it's hard to hire right now? So it's hard to say whether consumers and businesses will spend the savings that they've accumulated or whether it will stay on bank balance sheets over an additional timeframe. It took a long time from the last great recession for the additional deposits that build up back in 2010 and 11 to come off bank balance sheets and for you to see significant loan growth rates. Hard to predict that this time because this is You know, this recession was driven by the pandemic as opposed to the great financial recession. So, you know, I'm not saying we're going to experience the kind of deposit growth the second quarter that we did in the first. Obviously, that was influenced by the end of the year stimulus and then the more massive stimulus here at the start of March. I was just commenting that we're not seeing it run out the door.
spk03: Yeah, no, understood. And it seems like it's trickling in. You know, it's all working its way. I mean, even when people and companies spend, you know, decide to spend, it's got to go somewhere in the system. So it ends up swashing around in different bank accounts. So it seems like it could be here, you know, for quite some time. but maybe just the rate of the deposit growth may not be as much. But let's assume that this liquidity is here for some time. You have 250 million borrowings maturing the end of the year, so I think you have a little less than 200 after that. Is that 200 maturing next year? Do you know?
spk02: Yes. About 150 of it matures next year. We don't We have very little maturing beyond 2022.
spk03: Got it. And the CDs, like, I'm just curious, like, what's the rate that you guys are putting out there? Is there a way that you could, you know, just drive that down and, you know, comparable to the rates that you're getting on your core deposits?
spk02: Our new offering rates, Stephen, have been historically for the last few years lower than the market average. And we were certainly very successful in being able to reduce the CD rates in the mid-Atlantic market. That was one of our strategies when we acquired Old Line, because we had a lower loan-to-deposit ratio than they did, and so could blend our funding rate into that market. And then, of course, the pandemic came along. But we're already lower than Pierre on our CD rates. Yeah, most customers are taking maturing CDs and just putting it right back into their bank savings account or checking account and waiting for opportunities down the road as opposed to putting it into the stock market or even spending it. So is there another 10 to 15 basis points there? We continue to ratchet down rates. We saw about 15 basis points of reduction in the first quarter just due to maturities. versus the new blended rates going on. And most customers are just rolling off of their existing maturities to the extent that the two thirds of customers who roll over, they're rolling over into the same maturities they were in.
spk03: Yeah, just curious, do you know what generally where your CD rates are that you're offering right now?
spk02: They're all below 50 basis points. So most of our CD rates in that six-month to two-year set of buckets, that's where most banks are seeing CD renewals. And those are 15 to 25 basis points.
spk03: Oh, wow. So 15 to 25. And it seems like you still have some people rolling into the CDs. I would have thought that the CD balance would have gone much lower. And so just I guess, you know, the liquidity that your customers have, is there an opportunity for you to bring some of that over to your fee businesses?
spk10: Yes, Todd, I would say definitely. I mean, we've had that kind of that muscle built in our company, you know, with the shale deposits over the last number of years in terms of private banking customers, wealth management customers. And definitely, I think, as these deposits have come in, there's ways to do things with them to the extent that they're not spent or utilized. And we've got programs in place already for that on the shale area, and we just roll them into other deposits. And what we do is we look at anything over a couple hundred thousand dollars and make sure that we get, you know, the right investment people talking to them as well.
spk03: Yeah, okay. Yep. And then just the last one for me, for your commercial loans with floors, how much do front end rates need to increase by for those loans to be above their floors?
spk02: Steven, our average floor right now on over $2 billion that have floors, is just over 4% and about a billion six are at the floor rate. Depending upon what your spread is off of LIBOR or if you're offering Prime Plus, there's still obviously some room to go there before you get above floor rates.
spk03: Okay, so is that like 150 basis points?
spk02: No, it's not that much. If your normal spread is 225 to 250 over LIBOR, what does that make it? 60 basis points, basically.
spk03: Okay. Yep, yep. Understood. Now, that's it for me. I really appreciate the color on this.
spk00: And this concludes our question-and-answer session. I would now like to turn the conference back over to Todd Claussen for any closing remarks.
spk10: Sure. Thank you. And I appreciate the call today and your time and all the detailed questions. Really good. If there are some that didn't get a chance to ask questions, please follow up with myself and Bob and John. Look forward to hopefully getting a chance to see you guys at an upcoming investor event. Hopefully we can get back out and start traveling again. Thank you.
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