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spk00: Welcome to the Community Bank System First Quarter 2023 Earnings Conference. Please note that this presentation contains forward-looking statements within the provisions of the Private Security Litigation Reform Act of 1995 that are based on current expectations, estimates, and projections about the industry, markets, and economic environment in which the company operates. Such statements involve risks and uncertainties that could cause actual results to differ materially from the results discussed in these statements. These risks are detailed in the company's annual report and form 10-K, filed with the Security and Exchange Commission. Please note this conference is being recorded. Today's call presenters are Mark Cherninsky, President and Chief Executive Officer, and Joseph Soteras, Executive Vice President and Chief Financial Officer. They will be joined by Dimitar Karabinov, Executive Vice President and Chief Operating Officer, for the question and answer session. Gentlemen, you may begin.
spk05: Thank you. Good morning, everyone, and thank you for joining our first quarter conference call. It certainly has been an eventful quarter for the industry. I typically comment on earnings first, but it feels like I should start with the balance sheet. First off, the events of the weekend of March 10th had virtually no impact on us beyond the minimal level of customer inquiries that We proactively reached out to our larger consumer, commercial, and municipal customers with no movement at all in those deposits or relationships. Total deposits were actually up almost 100 million during the quarter, mostly CDs, with the mix otherwise being remarkably consistent. Our uninsured deposits are 17 percent of total deposits, and our average consumer and commercial account balances are 12,000 and 60,000, respectively. We have no broker or wholesale deposits of any kind. We did need to move rates in the quarter, which raised our deposit funding costs up to 31 basis points, and as of the end of March, our full cycle deposit beta is 5%. Joe will speak further on this topic, but we have $4.7 billion of immediately available liquidity. Loan growth in the quarter was solid at $173 million, mostly business and auto lending. and asset quality remains exceptional. Earnings for the quarter were lower than we expected, due mainly to expenses and the elimination of some retail fees, both of which Joe will discuss further. But year over year, we've delivered greater net interest income and record revenues from our non-banking businesses, which continue to grow despite capital market conditions. Looking ahead, we think our funding and liquidity are really well positioned, and we have another $350 million of Treasury securities maturing next month that will be additive to margin and earnings. We have one of the best deposit bases of any bank in the U.S. Our lending businesses are all executing really well, and we expect that to continue. Credit quality remains exceptional, and our lending portfolios are highly diversified and highly granular. and our non-banking businesses continue to grow despite capital market conditions. So I think we are extremely well positioned for the future and expect our performance to reflect that regardless of the operating environment. Joe?
spk11: Thank you, Mark, and good morning, everyone. As Mark noted, fully diluted gap earnings per share were 11 cents in the quarter. This compares to a fully diluted gap earnings per share of 86 cents in the first quarter of 2020. in 97 cents in the linked fourth quarter of 2022. During the quarter, the company strategically repositioned its balance sheet by selling available for sale investment securities with a market value of $733.8 million, the proceeds of which were used to pay down expensive overnight bargains to provide the company with greater flexibility to manage balance sheet growth and deposit funding. In connection with the repositioning, the company recognized a pre-tax realized loss on sale of $52.3 million, resulting in a $0.75 per share after tax loss on the sale. Excluding a loss on the sale of investment securities, acquisition-related expenses, and gain on debt extinguishment, the company's fully diluted operating earnings per share for the quarter was $0.86. This compares to $0.87 of fully diluted operating earnings per share in the first quarter of 2022 and $0.96 in the linked fourth quarter. The penny decrease in operating earnings per share on a year-over-year basis was driven by a decrease in banking-related non-interest revenues, an increase in the provision for credit losses and higher operating expenses partially offset by increases in net interest income and financial services business revenues, and decreases in income taxes and fully diluted shares outstanding. Ten cents per share decrease in operating earnings per share on a linked quarter basis was largely driven by an increase in operating expenses and lower deposit service fees. First quarter 2023 adjusted pre-tax, pre-provision net revenue per share, which is a non-GAAP measure as defined in our earnings release, of $1.16 was up four cents as compared to the first quarter of 2022 and down 13 cents as compared to the fourth quarter of 2022. The company recorded total revenues of $124.5 million in the first quarter of 2023, a decrease of $36 million or 22.4% from the prior year's first quarter, The decrease in total revenues between the periods was primarily driven by the previously mentioned loss on sale of securities during the quarter. Total operating revenues, which excludes net realized and unrealized securities gains and losses and gain on debt extinguishment, were $176.6 million in the first quarter of 2023, an increase of $16.1 million, or 10%, from the prior year's first quarter, driven primarily by an increase in net interest income. Comparatively, total revenues were down $51.4 million or 29.2% from the fourth quarter of 2022 results, but up $0.7 million or 0.4% on an operating basis. The company reported net interest income of $111 million in the first quarter of 2023. This was up $16.2 million or 17% over the prior year's first quarter. The company's tax equivalent net interest margin increased by 47 basis points from 2.73 percent in the first quarter of 2022 to 3.20 percent in the first quarter of 2023. The taxable yield on average interest earning assets was up 82 basis points over the prior year's first quarter, while the average cost of funds increased 35 basis points over the same period. Comparatively, the company's net interest margin increased 18 basis points on a linked quarter basis, while net interest income decreased $1.2 million due in part to a lower day count in the quarter. Excluding the impact of the loss on sale of investment securities and the gain on debt extinguishment, non-interest revenues decreased $0.1 million between the comparable annual quarters. A $1.1 million increase in insurance services revenues in the quarter was offset by a $0.6 million decrease in banking-related revenues a $0.2 million decrease in employee benefits services revenues, and a $0.4 million decrease in wealth management revenues. The decrease in banking-related non-insurers revenues was driven by a decrease in debit interchange revenues and overdraft occurrences, as well as the recent implementation of certain deposit fee changes, including the elimination of non-sufficient funds and available funds fees. Despite the organic growth in the employee benefits services In the employee services business, excuse me, and wealth management businesses, revenues were down due to market-related headwinds. On a linked quarter basis, non-interest revenues excluding the loss on the sale of securities and gain on debt extinguishment increased $1.9 million, or 2.9%. An increase in revenues in all three of the financial services businesses totaling $4.4 million, or 10%, was partially offset by a $2.6 million, or 13.6%. percent decrease in banking-related non-interest revenues. During the first quarter of 2023, the company recorded a provision for credit losses of $3.5 million driven by a weaker economic forecast combined with a $172.9 million increase in loans outstanding. Comparatively, the company recorded a provision for credit losses of $0.9 million during the first quarter of 2022 and $2.8 million in the fourth quarter of 2022. The company record $114 million in total operating expenses in the first quarter of 2023 compared to $99.8 million in total operating expenses prior year's first quarter. The $14.2 million increase in operating expenses was primarily attributable to a $9.8 million increase in salaries and employee benefits and a $4.2 million increase in other expenses. The increase in salaries and employee benefits expense was driven by increases in merit, severance, and incentive-related employee wages, including minimum wage-related compression on the lower end of the company's pay scale, acquisition-related and other additions to staffing, higher payroll taxes, and higher employee benefit-related expenses. Other expenses were up due to an increase in insurance costs, including larger FDIC insurance expenses. higher professional fees, business development, travel, and marketing expenses, along with incremental expenses associated with operating an expanded franchise subsequent to the Elmira acquisition in the second quarter of 2022. In comparison, the company reported $105.9 million of total operating expenses in the fourth quarter of 2022, $8.2 million or 7.7 percent increase in total operating expenses between the fourth quarter of 2022 and the first quarter of 2023, was largely attributable to a $7.4 million, 11.5% increase in salaries and employee benefits, and a $0.7 million, 5% increase in other expenses. For the remaining three quarters of 2023, management anticipates that total operating expenses excluding any future acquisition activities will remain generally in line with first quarter levels. Said another way, on a full calendar year, year-over-year basis, The company anticipates total operating expenses to increase between 5% and 9%. The effective tax rate for the first quarter of 2023 was 16.9%, down from 21.4% in the first quarter of 2022. Excluding the impact of tax benefits related to stock-based compensation activity, the effective tax rate was 21.4% in the first quarter of 2023, down from 22.3% in the first quarter of 2022. The company's total assets were $15.26 billion at March 31st, 2023, representing a $369.9 million or 2.4% decrease from one year prior and a $579.7 million or 3.7% decrease from the end of the fourth quarter of 2022. The book value of average interest earning assets decreased $662.1 million or 4.5% during the first quarter, primarily to a decrease in the average book value of the investment securities, partially offset by higher average loan balances. At the end of the quarter, the book value of interest-earning assets was $14.03 billion, comprised of $8.98 billion of loans, $5.02 billion of investment securities, and $28 million of cash equivalents. Ending loans increased $1.56 billion, or 21%, over the prior year, and $172.9 million, or 2%, during the quarter. The increase in ending loans year-over-year was driven by increases in all loan categories due to net organic growth and the on-law acquisition. The increase in loans outstanding on the link quarter basis was driven by a $102.3 million, or 2.8%, increase in business lending. a $70.7 million, 1.4 percent net increase in the company's consumer loan portfolios. The company's liquidity position remains strong. The company's funding base is largely comprised of core non-interest-bearing demand deposit accounts and interest-bearing checking, savings, and money market deposit accounts with customers that operate, reside, or work within our branch footprint. At March 31st, 2023, the company's readily available source of liquidity totaled $4.69 billion. including cash and cash equivalent balances net afloat of $109.7 million, $1.54 billion of funding availability at the Federal Reserve Bank's discount window, $1.84 billion of unused borrowing capacity at the Federal Home Loan Bank of New York, and $1.2 billion of unplugged investment securities that could be pledged as collateral for additional borrowing capacity. These sources of immediately available liquidity represent over 200% of the company's uninsured deposits and that of collateralized deposits, which are estimated at $2.3 billion. The company's ending total deposits were up $98 million from the end of the fourth quarter, or approximately 1%. Deposit base is well diversified across customer segments, comprised of approximately 63% consumer balances. 25 percent business balances, and 12 percent municipal balances, and broadly dispersed with average consumer deposit account balance of $12,000 and average business deposit relationship of approximately $60,000. The company's cycle-to-date deposit data is 5 percent reflective of a high proportion of non-interest bearing deposits, which represent 30 percent, over 30 percent of total deposits, and a composition and stability of the customer base, while the cycle-to-date total funding data At the end of the quarter, 74% of the company's total deposit balances were in checking and savings accounts, and the weighted average age of the company's non-maturity deposit accounts is approximately 15 years. The company does not currently have any brokerage or wholesale deposits on its balance sheet. The company's loan-to-deposit ratio at the end of the first quarter was 68.5%, providing future opportunity to migrate lower-yielding investment security balances into higher-yielding loans. In addition, during the remaining three quarters of 2023, the company anticipates receiving over $600 million of investment security principal cash flows to support its funding needs. On March 31, 2023, all the companies in the bank's regulatory capital ratio significantly exceeded well-capitalized standards. More specifically, the company's Tier 1 leverage ratio was 9.06%, at March 31st, 2023, which substantially exceeds the regulatory well-capitalized standard of 5%. The company's net tangible equity and net tangible assets ratio was 5.41% at March 31st, 2023, up 77 basis points from the end of the fourth quarter of 2022. During the first quarter, the company repurchased 200,000 shares of its common stock pursuant to its board-approved 2023 stock repurchase program. At March 31, 2023, the company's allowance for credit losses totaled $63.2 million, with 0.70% of total loans outstanding. This compares to $61.1 million, with 0.69% of total loans outstanding at the end of the fourth quarter of 2022, and $50.1 million, with 0.68% of total loans outstanding at March 31, 2022. During the first quarter of 2023, the company reported net charge loss of $1.5 million, or seven basis points of average annual loans, annualized. This compares to three basis points of annualized net charge-offs in the first quarter of 2022, and nine basis points in the fourth quarter of 2022. At March 31st, 2023, non-performing loans, over $33.8 million, or 0.38% of total loans outstanding, loans 30 to 89 days delinquent, or 0.35% of total loans outstanding at March 31st, 2023, down from 0.51% at the end of the fourth quarter of 2022. We believe the company's strong liquidity profile, capital reserves, core deposit base, asset quality, and revenue profile provide a solid foundation for future opportunities for growth. Looking forward, we are encouraged by the momentum in our business. The company continued to organically grow its loan portfolios, and asset quality remains strong. The company's granular, Main Street-focused deposit base and strong liquidity profile are expected to support future growth in our banking business. In addition, new business opportunities in the financial services business has remained strong. Thank you all, and I'll turn it back to Danielle to open the line for questions.
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 are 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'll pause momentarily to assemble the roster. The first question comes from Alex Turdall from Piper Sander. Please go ahead.
spk10: Hey, good morning. Good morning, Alex.
spk01: Hey, first off, can you just elaborate a little bit on what you did with the NSF fees this quarter and whether or not that $16.2 million is the right run rate for deposit service fees over the remainder of the year?
spk11: Yeah, so late in the fourth quarter and also, I guess, really kicking in the early part of the first quarter, we made some changes, particularly on NSF and unavailable funds fees. Our expectation on a full year basis is that we'll effectively reduce overall deposit service fees by $6 to $8 million. You know, also in the first quarter, Alex, we just have lower occurrences of overdraft FAFSA and just typically deposit service fees are down a bit in the first quarters compared to the fourth quarter. So, you know, that run rate that we have in the first quarter is potentially just slightly below expectations for, you know, for the next three quarters because typically the first quarter is a little bit slower in terms of debit interchange and overdraft occurrences. But on an annualized run rate basis, we expect the changes will effectively reduce fees by $6 to $8 million.
spk01: Okay, thank you. And then can you give us a little bit, you said $600 million of cash flows from the securities portfolio over the course of the year. I think Mark mentioned $350 in May. Can you give us the timing of the remainder of that, as well as expectations for deposits? I know municipal deposits tend to... tend to come in the first quarter, you know, how much we expect to flow out in the second quarter and whether or not, you know, what you're kind of seeing underlying there that maybe just to give us a little bit more expectations for overall liquidity management over the next couple of quarters?
spk11: Yes. So the $350 million, as Mark mentioned, matures in the middle of May. So we do expect that. That's Treasury security, so it's going to happen. We have another $150 million in mid-August, also Treasury security. Those two pieces comprise the lion's share of the $600 million. The other cash flows come out quickly. you know, happen throughout the year, you know, basically mortgage-backed security principal repayments. You know, on a blended basis, those two Treasury securities are coming off at about a 2.5% yield. So we do expect, you know, to be able to redeploy those proceeds to either pay off overnight borrowings should we see some drift down in the deposit base or potentially that could be redeployed into loan growth if, you know, if that opportunity is there. So we do expect some, you know, call it NII pickup, net interest income pickup on these maturities, Alex. With respect to deposit flows, we typically do see an increase in municipal flows in the first quarter. As you know, we talked about tax collection cycles in New York State, and that typically is a couple hundred million dollars on a net basis in the quarter, and we do typically see those flow out. you know, throughout most of the second quarter. And, you know, then we kind of sometimes grip down a bit in the third quarter, you know, another, you know, $100 million or so. And then tax collection occurs in September again for New York school districts. And we see kind of a lot of that restore in going into the late part of the third quarter and into the fourth quarter. You know, with respect to IPC deposits, you know, I think We're just sort of seeing the results of kind of the overall M2 supply. We're reflective of the M2 money supply going down, and I think the entire industry is seeing a bit of a flow out of the deposit balances, and I think that's kind of what we'll probably have across the industry and potentially to us as well.
spk01: Great. Thanks for taking my questions.
spk00: The next question comes from Steve Moss of Raymond James. Please go ahead.
spk10: Good morning. Morning, Steve.
spk07: Maybe just starting on loan pricing here and loan growth, good loan growth in the quarter. Just curious, you know, what are the yields you're seeing these days? And let's just start there.
spk09: So, Steve, it's Dimitar. In the first quarter, we blended to about 6.3% yields. on originations. You know, I think if you look at by various buckets, as we sit here today, you know, commercial is kind of in the mid to high sixes. In the auto business, we're at 7% right now. In mortgage, obviously depends on what happens with aggregate rates, but that's been kind of in the six to six and a half range. So we have not seen much movement. I think in the second quarter so far, with that said, there were a couple of interest rate, well, one hike in the first quarter that we didn't get the full benefit of because it was at the end of March and potentially another hike next week. So some of the loans that we have tied to prime should drift up. But kind of that range, mid-sixes, I think is a decent proxy for Q2. Okay.
spk07: That's helpful. Thanks for that, Demetar. And then in terms of just the margin, you know, you have a lot of balance sheet movement here during the current quarter. And obviously upcoming with the Treasuries maturing, just kind of curious, maybe do you have a spot margin at quarter end and kind of how you're thinking about margin trends for the second and third quarters?
spk10: So we actually, Steve, the
spk11: Month of March was our highest net interest income quarter, or excuse me, month on record. So we kind of saw peak NII at the end of the quarter. So if you think about the catalyst for NII for the balance of 2023 and really if you look at kind of the second quarter, because it's a little bit difficult to make the call relative to the third and fourth quarter because of potential funding costs. But if you look at the next quarter, you know, we have the securities maturity at $350 million, which, you know, that's maturing at about 240. So that's going to be, you know, redeployed into either loans or to pay off overnight borrowings. You know, we have a couple extra days of interest earning days in Q2, which is helpful as well. You know, we also have, you know, call it loan replacement, right? So We have about $3 to $350 million per quarter that's maturing. And if that's just replacing, we don't simply, we don't grow loans, we just replace what's coming off. You know, we're picking up about 175 basis points on the replacement yield. So that's a catalyst for NII. As Dimitar mentioned, we also have an increase in prime that really didn't catch, if you will, in the first quarter, which we'll see benefits of that in the second quarter. In the next 90 days or so, we have about $850 million of loans that are due to reprice. There's another roughly billion beyond that in the balance of the year, but in the first 90 days, there's about $850 million that's going to reprice. So that's, you know, that's helpful. And then, of course, there's, you know, potential for additional loan growth in the quarter. So the catalyst on the interest income side, obviously, you know, the question around cost of funds and cost of, you know, cost of deposits, you know, remains to be seen. And I would just say that, you know, we do have a, you know, really strong core deposit franchise. But, you know, the The rate increases were so rapid in 2022, you know, there's going to be some, you know, necessary increases in funding costs in 2023 as we sort of catch up to some of the, you know, the changes that were made on prime and fed funds and, you know, the short end of the curve. So I think there's going to be a little bit of catch up. In other words, I don't believe that our deposit data will stay You know, at 5% for the full cycle, it's simply going to accelerate, and I think it has, and I think the whole industry has seen that happen in the last couple of quarters.
spk07: Right. Okay. That's helpful. And then just on expenses here, you know, just on the drivers of the increase in compensation expense here, you know, I hear you guys on the full year relatively stable versus this bounce, but maybe just a little bit of color. I'm not sure if I missed it. Thanks.
spk11: Yeah, so, and Steve probably could have spoken, I guess, more directly about first quarter results on the last quarter's conference call, but our typical pattern is to see a significant increase in expenses in Q1, and part of that is we provide our merit increases across the board in Q1. Other companies might feather them out throughout the year. We typically do it in the first quarter. Along with that comes higher You know, FICA expenses, we had some severance expenses in the quarter around salaries. You know, we did have wage pressures, particularly on the lower end, which, you know, there's a compression component to that which pushes up, you know, the lower end of our pay scale. So some of that effectively is, you know, I'll call it embedded in the future run rate on salaries, but there's also components that, you know, effectively are higher in the first quarter. So our expectation is that, you know, all in on operating expenses, that we would expect the next three quarters to be in line with first quarter. Most of our increases absorbed in the first quarter. We also have some other expenses around, you know, just facilities costs, given our climate and the like in the first quarter that typically we don't see in the following quarter. So there's a couple of items that contribute to it, just a higher OPEX line in Q1, but we do expect that to basically level off for the balance of the year. If you look at a full year-over-year basis on operating expenses, our expectations are somewhere between, call it five and nine percent, a full year 23 basis versus a full year 22 basis.
spk07: Okay. Great. Thank you very much. I appreciate all the color. You're welcome.
spk00: The next question comes from Manuel Navas of DA Davidson. Please go ahead.
spk03: Hey, good morning, gentlemen. Filling in for Manuel today. I have a few questions on loan growth, outlook, and pipelines. So first off, just a low-end growth outlook of mid-single digits still hold from last quarter, especially after the balance sheet repositioning? Has there been a change of mindset? I just want some color on that, please.
spk09: Yeah, I believe that our expectations are the same, which is mid-single digits for low-end growth. What I think is a favorable change for us is just the competitive dynamic which, driven by the environment, a number of our peers are in a tougher spot from a balance sheet perspective in their ability to service customers. So we're seeing higher quality opportunities at substantially better rates than maybe what we expected at the beginning of the year. So I don't think that we expect to do a lot more than what we communicated before, but I think better quality at better rates is what we're striving for right now. So that guidance is still intact.
spk03: Great. Thanks. Could you also talk about your pipelines and also some color on your auto portfolio, any credit issues or anything like that that we need to be aware of?
spk09: Sure. So on the pipeline, if you look at our commercial pipelines, still very strong, a little bit lower than they were kind of at the end of the fourth quarter, as we would expect, given the market environment, but still very strong compared to our historicals. And again, that is a reflection on competitive dynamics and our retooling of the company over the past 18 months in terms of capabilities and people. On the mortgage side, similarly, I think we've communicated that we spent a lot of time, effort, and money in retooling our go-to-market strategy. That's paying off dividends. In fact, last week's mortgage applications were higher than a year ago's week, which is a nice change in trend given everything that's happening in the mortgage market. So our... kind of efforts they're paying off, so we expect that that portfolio will grow as well. Auto is a little bit more of a wild card from quarter to quarter. We probably didn't expect as strong of a growth in the first quarter as we got in that portfolio, but again, writing the same type of credit, 750 average FICO, you know, very appealing loan to values and, you know, better rates virtually every month. So, like I said, we're roughly at 7%, so that risk-reward in that paper right now is pretty good. As it relates to asset quality, maybe kind of starting backwards from auto, our charge-offs this quarter were about 30 basis points. which is right in the historical range of our loss experience in auto. Again, this is 755 because it's a super prime paper, basically. We expect that it's going to be somewhere in that range for the rest of the year. Mortgage, virtually no. Charge-offs, very little. Below historical averages, expect that to maybe Normalize, again, we've been talking about normalization for a while. We're planning for that. You're seeing this provision a little bit more ahead of that. But so far, no stresses on the consumer side. And commercial, I mean, we're basically at zero in terms of losses right now. We had recovery the prior quarter, I believe. So the going is pretty good. We're very vigilant around it. We ask ourselves multiple times a week, what's happening with credit. We're practically staying in front of our borrowers, but right now, credit quality is as good as we would want it to be.
spk03: Great. Thanks, sir, for taking my questions on. You're welcome.
spk00: The next question comes from Matthew Breeze of Stevens Inc. Please go ahead.
spk06: Good morning, everybody. I was hoping to start on deposit costs, get a sense for where we exited the quarter in terms of overall deposit costs. And Joe, I know you've mentioned that expectations are not for a full cycle 5% deposit beta, but we'd love some thoughts or color around where you think you might end up.
spk10: Sure, Matt.
spk11: So we did exit the quarter with deposit funding costs of about 38 basis points. So we have seen some acceleration in terms of deposit costs increasing. With respect to margin and NII, I think expectations is that we'll see, we have a couple tailwinds for Q2, so I would expect that we're gonna see a better outcome in Q2, albeit maybe a marginally better outcome, and then Q3, Q4, we'll see. But in terms of a full cycle beta, it's not unreasonable to expect that if we have a 500 basis point increase you know, on the short end of the curve, that ultimately our deposit beta is 20% of that or more when we're through the full cycle, you know, full cycle beta, you know, which I think would significantly outperform the industry. But I think, you know, those expectations are not unreasonable.
spk09: Yeah, okay. To add to that, if you look at, I mean, we look at all of our peers reporting and kind of across the country, and I think if you had a list of betas and deposit costs right now, we would stack up on a very short list. So we expect that we'll continue to be on that short list going forward. If you look at the underlying dynamics, a lot of the personal deposits are basically remixing into CDs. You know, they're not necessarily leaving the bank. They're just remixing into CDs. the commercial deposits, you've seen some drawdowns there for people using cash for projects, you know, paying taxes, which happens kind of in the first part of the year. So that's been a little bit more of the negative drawdown that doesn't stay with us. But, you know, as businesses make money over the year, hopefully those balances are going to grow. And then on the public side, we've talked about the seasonality. So it's a little bit hard to figure out, you know, what the ultimate through-the-cycle cost is, but there's a lot of moving pieces to it. And as Joe said, you know, it's not going to be five. We hope it's less than 20. But, you know, we're trying to be as proactive as we can and continue to be on the very short list of banks with extraordinary deposit basis in the United States.
spk06: Understood. You know, there's 200,000 shares we purchased for the quarter. Obviously, like so many other banks in the industry, the stock is down a bit, but your capital levels are improving, and it seems like, fingers crossed, with the repositioning, some of the worst of the AOCI stuff is behind us. Cherry purchases on the radar in a more aggressive fashion than we've seen you do historically?
spk11: Yeah, man, I wouldn't say terribly more aggressive than we've done historically. We typically try to at least repurchase the, you know, the shares that are issued in, you know, our equity plans. So, you know, I would, you know, for the balance of the year, you know, maybe half a million or less in terms of total shares that would be repurchased. So we're at 200,000 now, so potentially another 300,000 throughout the year. I mean, that could change later in the year, but right now that's, you know, that I think would be on the high end of our expectations. Okay.
spk06: Maybe just turning to M&A, obviously it feels like the banking industry, everybody's a bit inward focused right now, but do you have expectations that M&A picks up in the back half of the year on the back of all this, and how do you feel about your ability to participate in that, and would you?
spk05: Yeah, I think it's hard to handicap. Right now, what the remainder of the year brings, just given the current uncertainty in the environment, not just industry uncertainty, but macro uncertainty as well as it relates to just overall interest rates and GDP and inflation, all those kinds of things that can just affect how people think about M&A. So I think it's relatively quiet right now. for the most part. We're certainly always interested in partnering with, you know, other organizations that have high-value assets to us. You know, I think that, you know, the recent events in the industry, you know, would suggest that there's going to be a separation between companies with, you know, good balance sheets and more challenging balance sheets. We certainly wouldn't be motivated to partner with someone that would dilute the quality of our balance sheet. But also our strategy hasn't changed at all in terms of high value M&A opportunities. I will say that we're focusing a fair bit on the non-banking businesses. uh, we think there's, uh, you know, continues to be really good opportunity there. It's a, you know, significant part of the strength of our company and our future in terms of strategic capital allocation. So we are, uh, we're pretty active, uh, on the non-bank space, but again, on the, on the bank side, it's been relatively subdued. We continue to have conversations with other banks that we have, uh, potential interest in, but I think the environmental uncertainty makes it very difficult. Right now, I mean, you start with valuations are down across the industry, including us, and it just makes, I think, putting a deal together that much more difficult, principally from the seller's perspective in terms of expectations around valuation. So we continue to be interested. The strategy hasn't changed. We're really trying to focus heavily on the non-bank side of the businesses where we have critical mass in wealth, we have critical mass in benefits, we have critical mass in insurance, and we'll continue to invest in those businesses potentially at even a faster pace in terms of capital allocation than the banking segment.
spk00: As a reminder, if you have a question, please press star one. The next question comes from Eric Zwick of the Hufti Group. Please go ahead.
spk02: Hey, good morning, guys. Justin Marcon for Eric today. I think most of my questions have already been answered, but just a quick one in positive style. I already missed it, but did you have an average price per share on the buyback this quarter?
spk10: Yes, it was just about $54 today.
spk05: Okay, great. Thanks. I appreciate it. You're welcome.
spk00: The next question comes from Chris O'Connell of KBW. Please go ahead.
spk08: Good morning. Good morning. Appreciate all the color, you know, you guys have given around kind of NAI and, you know, the impacts, you know, from securities, you know, maturing, you know, over the next couple quarters here. You know, given you guys have a good amount of AMO to kind of defend the margin, you know, into 2Q and 3Q. And how are you guys thinking about, you know, where the eventual margin begins to settle out, you know, as we get toward, you know, 4Q or year end, you know, post, you know, some of those kind of, you know, balance sheet opportunities?
spk11: Yeah, Chris, that's a, I mean, it is a difficult question to answer because, you know, it really comes down to, you know, the funding data. I think we have a pretty good, you know, line of sight on sort of what happens on the asset side for the most part, given our, you know, loan growth and called the replacement rate of maturing loans. You know, the funding side is, you know, is a bit of the wild card. I mean, right now we've got about $13.5 billion in and funding between deposits and borrowings. And the question is, does that go up 10, 20, or 30 basis points throughout the year? And I think that as we get deeper into Q2 and into Q3, we'll kind of see where the market settles out. But that's a pretty tough call for Q4. I wouldn't expect that the industry will see, I'll call it, significant margin expansion. By Q4, in fact, I probably would think the industry might actually drift down in terms of margin by Q4. But I think, you know, we might do a little bit better than the industry given our wealth of base. So, you know, I'm not sure we can make a call on Q4 at this point.
spk08: Got it. And, you know, for the borrowings, you guys, you know, have kind of on balance sheet right now. is that mostly overnight? If not, you know, what is the duration of those? And I just noticed, you know, maybe due to timing or whatever, but the yield is fairly low on those, or the cost is pretty low on those borrowings for the quarter. Was that just kind of a timing issue?
spk11: Yeah, we have, at the end of the quarter, we had about 50, I think it was $58 million in overnight borrowings. Well, Chris, we also carry borrowings typically over $300 million in customer repurchase agreements. They're classified as borrowings. You know, they're more akin, quite frankly, to deposits. And most of that's in our Vermont, you know, New England footprint. A fair number of municipal customers, some commercial customers. But for the most part, you know, we kind of look at that portfolio as something more akin to deposits. So it's a bit more rate sensitive than, you know, demand deposits. but also wouldn't match necessarily overnight borrowing costs. So a fair amount of our borrowings are tied up in customer repurchase agreements.
spk08: All right, that makes sense. And for the CDs that you guys are putting on, what are the rates that those are on coming up?
spk09: So, Chris, on the CD side, I think we're right around 4% right now on kind of probably published and blended rates. And some markets a little bit lower and some markets a little bit higher.
spk08: Okay. Thanks. And then just, you know, I know you guys touched on it earlier, but I mean, is there any areas that you guys are starting to see any types of, you know, credit stress or that you guys are kind of pulling back on that growth or that is starting to concern you, you know, within your overall markets? Or is, you know, the outlook, you know, kind of still cautiously optimistic here for the, you know, near-term future?
spk09: Chris, I wouldn't say any sort of stress. I would say we're just being a little bit more vigilant around the sectors you would typically think about, like, you know, commercial real estate resets and, you know, ability to stress test for rates. You know, with that said, the new paper that's coming in, you could argue if you've got 1.3, 1.4 coverage on rates in the sevens, that's pretty good stress test on day one. for those customers, but we're looking at those that are resetting a little bit tighter, paying a little bit closer attention to the indirect paper as well. Again, right in the middle of historical ranges, we don't necessarily expect that to change much, but we're just being a little bit more vigilant around trends and making sure that we're not seeing anything worrisome, which we're not right now.
spk08: Great. And the last one for me, just what's a good go-forward tax rate?
spk11: Somewhere, Chris, between 21 and a half and call it low 22s, you know, so 22 and a half, 21 and a half, 22 and a half is probably a fair range to expect on a go-forward basis.
spk08: Great. I appreciate the time. Thanks for taking my questions.
spk00: Thank you. This concludes the question and answer session. I would like to turn the conference back over to Mr. Treninsky for closing remarks.
spk04: Thank you. Nothing more from our end. Thanks you all for joining us and we'll talk again after the end of Q2. Thank you.
spk00: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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