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spk05: Hello and welcome to the FMB Corporation first quarter 2022 earnings 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 touch-tone phone. To withdraw your question, please press star, then two. Please note, today's event is being recorded. I now would like to turn the conference over to Lisa Constantine, Investor Relations. Ms. Constantine, please go ahead.
spk01: Thank you. Good morning and welcome to our earnings call. This conference call of FMV Corporation and the reports it files with the Securities and Exchange Commission often contain forward-looking statements and non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to and not as an alternative for our reported results prepared in accordance with GAAPs. Reconciliations of GAAP to non-GAAP operating measures to the most directly comparable GAAP financial measures are included in our presentation materials and in our earnings release. We refer to these non-GAAP and forward-looking statement disclosures contained in our related materials, reports, and registration statements filed with the Securities and Exchange Commission and available on our corporate website. A replay of this call will be available until Tuesday, April 26th and the webcast link will be posted to the About Us Investor Relations section of our corporate website. I will now turn the call over to Vince DeLee, Chairman, President, and CEO.
spk08: Thank you, and welcome to our first quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer, and Gary Guerrero, our Chief Credit Officer. FNB began 2022 with solid fundamental performance and the full integration of the Howard Bank acquisitions. We are pleased that the deal metrics associated with Howard came in at or better than planned, with a positive impact to our capital ratios. Howard added $1.8 billion of loans to the balance sheet, bringing our total assets to $42 billion. In fact, on a combined basis, F&B had strong loan pipeline growth in the mid-Atlantic region, up 13% year-over-year and 61% linked quarters. Our expectation is that the Mid-Atlantic region will continue to grow with the exceptional employees and new clients who joined FMV. Additionally, we expect to receive revenue benefit from FMV's more robust product set as we offer these services to the existing customer base already in the market. Earlier this month, FMV's Board of Directors approved a new $150 million share repurchase program, providing additional flexibility to effectively manage capital and benefit our shareholders. FMB reported first quarter GAAP earnings per share of $0.15 and $0.26 on an operating basis. Revenue increased 3.4% linked quarter, led by net interest income increasing 5%. We remain well positioned to grow net interest income, given the strategic steps we undertook to position our balance sheet, and benefit from the current interest rate cycle. These include favorable deposit mix changes and investing in a short-term securities portfolio. We remain well positioned with $16 billion of assets that are tied to short-term rate indices. Loans increased $2 billion, or 8.2%, when excluding PPP. While Howard contributed to the growth, commercial loan production was more than a billion, up 30% year over year. As we look ahead, pipelines have rebuilt from our strong growth in the fourth quarter and are up 23% quarter over quarter. This gives us additional confidence in our mid to high single-digit organic loan growth guidance for the full year. Our fee income businesses contributed another solid quarter at $78 million, essentially flat to the last quarter. Wealth management continued to produce record results, with revenues increasing 1.1 million linked quarter, or nearly 30% annualized, driven primarily by record organic sales activity. Mortgage banking income increased 700,000 linked quarter to 7 million amid significant interest rate volatility. While rising mortgage rates are expected to reduce refinance activity, we are confident our diversified geographic footprint and consistent commitments to the home purchase and new construction market will help us outperform the industry. In fact, nearly 80% of our originations this quarter were for purchase money mortgages. FMB's investment in technology has also enabled us to efficiently bring in more mortgage clients, with 66% of our mortgage application submitted through our online e-store. As we continue to grow our balance sheet, we remain vigilant in examining the current macroeconomic environment of high inflation, supply chain disruption, and geopolitical unrest. We have proactively assessed the risks and activated plans given the current environment. Our credit team is continually monitoring the industries that are potentially affected by the rising interest rates, higher food, oil and gas, and commodity prices, and supply chain disruptions. We will continue to assess the environmental risks and adjust our strategy appropriately to ensure consistent performance while addressing the needs of our key stakeholders. I will now turn the call over to Gary to discuss overall credit performance and the steps his team has taken to position our portfolio.
spk09: Thank you, Vince, and good morning, everyone. Our first quarter results remain strong, and we are very pleased with the continued favorable positioning of our credit portfolio as evidenced by our key asset quality metrics. The quarter also marked the successful completion of the Howard Bank acquisition, which I am pleased to report came over slightly better than expected and did not have a material impact to the overall credit portfolio. I will provide some additional color on the transaction including the day one and day two impacts to the reserve levels, which I will touch on later in my prepared remarks. Let's first review our GAAP asset quality results for the quarter. As I have mentioned previously, we entered 2022 with our credit portfolio in a position of strength, and with the newly acquired Howard Loan Book now reflected in our total consolidated results, we saw only slight increases in our delinquency and NPL levels as compared to our very low year-end results. The level of delinquency ended March at a very solid 66 basis points, reflecting an increase of five bips driven entirely by Howard. And exclusive of that acquired book of loans, delinquency would have decreased slightly compared to the prior quarter. NPLs and Oreo also reflected a small increase on a linked quarter basis against very low year-end results, with the gap level up two basis points to end March at 40 bps, which was again due to the absorption of Howard's portfolio. Net charge-offs for the quarter were very low at $1.9 million, or three basis points annualized, as we continue to track at historically low levels over the past several quarters. We recognized provision expense of $18 million for the quarter, including the $19.1 million initial provision for non-PCD loans associated with the Howard acquisition. With the additional day one PCD gross up of $10 million, our ending reserve position stands at 371 million or 1.38% of loans at quarter end. Acquired PCD loans were relatively low and represented just over 10% of the Howard loan book. Absent the Howard transaction and the associated provision and gross up activity, our reserve level would have been down slightly compared to December which is consistent with the favorable credit quality trends we've seen. Our NPL coverage position remains strong at 365%. Regarding Howard's loan portfolio, we are very pleased with the successful conversion of the book and the ongoing tracking and monitoring our teams continue to perform to help us better manage risk during this transition phase. Howard's credit book performed slightly better than we were expecting leading up to the conversion, with our loan risk profile and credit concentrations all remaining satisfactory. We look forward to the additional lending opportunities and access to the expanded customer base within our Mid-Atlantic footprint, which helps support our overall loan growth objectives and provides us with deeper opportunities for our other fee-based services. I would like to congratulate the team for their tireless efforts to close the transaction and expand our position in this highly desirable market. I would now like to briefly touch on recent global and macroeconomic activity that we have been monitoring including the potential effect on our borrowers and the markets in which we operate. With the ongoing challenges of widespread inflation, elevated input costs, supply chain disruptions, labor shortages, and geopolitical influences. We are focused on these factors in our underwriting and in our credit discussions to address and mitigate these risks upfront. While we have not seen any material impact to our credit portfolio at this time, we remain vigilant and have tailored our credit decisioning approach to address the impact that these various factors could have on a borrower's EBITDA and margin levels, including the effects of fluctuating operational and supply costs, as well as potential interest rate sensitivities that may lead to increased borrowing costs. That said, we have been very proactive in utilizing interest rate instruments to provide borrowers the option to fix their borrowing costs and reduce their sensitivity to the rising rate environment. In closing, we remain very pleased with the position of our portfolio and the successful acquisition of Howard Bank, and we remain focused on the year ahead to manage our growing credit book through a potentially softer economic environment. Maintaining our strong credit culture stands front and center, and we are well prepared and remain proactive in our approach to quickly identify and better manage emerging risks in our loan portfolio. Our disciplined credit framework is built on a foundation of consistent underwriting, attentive risk management, and selectivity of high-quality lending opportunities, all of which has served us well and positions us for the year ahead. I will now turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks.
spk14: As Vince mentioned, we are very excited about the Howard acquisition and the potential this deal offers to continue growing our fee-based revenues. As of the merger closing date, loans and deposits were both $1.8 billion, with 43% of deposits in non-interest-bearing accounts. In terms of significant items, the first quarter had $28.6 million in merger-related expenses, $19.1 million of initial provision for non-PTD loans, and $4.2 million in branch consolidation costs. In conjunction with the acquisition, FMB issued a little over 34 million shares of Common Stock at $12.99 in exchange for 18.9 million shares of Howard Common Stock. Going forward, Howard will be included in all of our reported numbers, including guidance, because they are now part of FMB. With that, let's turn to slide five to discuss the first quarter financials, starting with the highlights. First quarter reported EPS totaled 15 cents and 26 cents on an operating basis after adjusting for the Howard-related items and branch consolidation costs previously noted. But excluding Triple P and Howard loans as of the acquisition date, which is more reflective of underlying loan growth, period end total loans increased $259.7 million or 4.3% annualized on a linked quarter basis, including an increase of $81.7 million in commercial loans and leases and $178 million in consumer loans. Average loans, excluding Triple P and Howard, increased $440 million or 7.4% annualized. Let's continue with the balance sheet on slide seven. First quarter average securities reached $7.0 billion, an increase of $469 million from the prior quarter as we increased our investing activity to take advantage of the higher interest rate environment. Securities growth coupled with the loan growth contributed to a 3.9% increase in total average earning assets. Average deposits, excluding Howard, totaled $31.7 billion, an increase of 7.8% year-over-year, reflecting continued organic growth in households and account balances partially offset by decline in time deposits, given customer preferences to move funds into liquid accounts. Turning to slide 8, net interest income total $234.1 million, an increase of $10.8 million, or 4.8% from the prior quarter, primarily due to growth in average earning assets and initial benefits from the higher interest rate environment, partially offset by the $4.2 million decreased contribution from Triple Peaks. Our net interest margin increased six basis points to 261, reflecting the early stages of benefiting from upward movement in interest rates. The total impact of Triple P, purchase accounting accretion, and higher cash balances on net interest margin was a reduction of 13 basis points for the quarter, similar to the 14 basis point reduction last quarter. Now let's look at non-interest income and expense. Non-interest income totaled 78.3 million, essentially flat from the prior quarter. We have previously mentioned the strategy of investing in our diversified fee-based businesses, and this quarter again demonstrates its importance. For example, the insurance commissions and fees increase of $2.3 million linked quarter offset the capital markets increase of $2.4 million as it reverted from elevated levels in the fourth quarter. We expect our diversified fee income strategy to be advantageous as we continue along the economic cycle. Reported non-interest expense increased 45.8 million or 25.2% linked quarter. On an operating basis, non-interest expense increased 13.9 million or 7.7% to 194.6 million excluding merger-related expenses and branch consolidation costs from the current and prior quarters. On an operating basis, salaries and employee benefits increased $8.1 million, or 7.8% linked quarter, primarily related to normal seasonal long-term compensation expense of $6.2 million in the first quarter of 2022, as well as seasonally higher employer-paid payroll taxes. Also included in the quarter total is a little over two months of salaries and benefits for the Howard employees that joined FMV. Occupancy and equipment increased $3.1 million, or 10.1%, primarily due to higher seasonal utilities costs. Bank shares and franchise taxes increased $2.3 million due to the recognition of state tax credits in the prior quarter. The efficiency ratio equals 60.7% compared to 58.7. Higher efficiency ratio resulted from nearly 20 million of lower PPP and purchase accounting accretion income versus a year ago. Excluding PPP and PAA, our efficiency ratio would have improved around 220 basis points year over year. We expect improvement from this quarter's efficiency ratio moving forward with a positive impact from expected rate hikes and synergies in revenue and expense associated with Howard. Tangible book value per share decreased length quarter to $8.09, primarily related to $202 million, or $0.57 per share, and accumulated other comprehensive loss as of March 31, 2022, reflecting the impact of higher interest rates on the fair value of AFS securities. This compares to a 62 million or 19 cent negative impact at the end of the prior quarter. Increased unrealized losses in the AFS portfolio due to rising interest rates should come back into capital over time as securities mature or prepay. During the first quarter of 2022, the company repurchased 2.2 million shares of common stock. With a weighted average share price of $13.25, for a total of $29.8 million. To date, F&B repurchased $111 million under the program approved in September 2019. Earlier this month, our board approved a new $150 million share repurchase program, continuing to provide F&B with a tool to optimize capital management and enhance overall shareholder returns. Now let's turn to guidance on page 12. We expect loans to increase in the low double digits to low teens, with underlying organic growth in the mid to high single digits on a year-over-year spot basis. Total deposits projected to grow high single digits on a year-over-year spot basis. Full-year net interest income is expected to be between $1.0 and $1.04 billion, with the second quarter between $249 and $253 million. Our base guidance currently assumes 125 basis points of rate increases for the remainder of the year, including a 50 basis point increase in May. Full year non-interest income is expected to be between 315 and 330 million, with the second quarter around 80 million. The revised full year guidance is due to slightly lower than expected market-related fee income. There is no change to our full year guidance for non-interest expense with a range of $760 to $780 million on an operating basis for the full year and $190 to $195 million for the second quarter. This does not include the one-time expenses associated with the Howard Bank acquisition. Positive credit quality is expected to continue throughout 2022, with provision guided to $20 to $40 million. This does not include the initial $19.1 million of provision related to Howard and is dependent on net loan growth experienced throughout the year. Lastly, the effective tax rate should be between 17.5% and 18.5% for the full year, which assumes no changes to corporate income tax rates and is dependent on the level of investment tax credit activity. With that, I will turn the call back to Vince.
spk08: Thanks, Vince. We've worked hard to build a strong, differentiated brand. including our commercial lending and wholesale banking businesses. Our knowledgeable team and investments in products and technology result in a commercial banking experience that is unique for its high level of convenience and sophistication. Our commercial business ranges from large corporate clients to small business lending, including highly specialized industry verticals, creating an opportunity for F&B to surpass the needs of most clients. Thus far in 2022, F&B has been named as one of America's best banks and world's best banks by Forbes, received 17 Greenwich Excellence and Best Brand Awards, and was recognized as a Top Workplace USA by Energage for a second consecutive year. These awards add to an extensive list of honors F&B has received for its differentiated culture and business model. which focuses on doing what is right for its clients, communities, and employees, and ultimately benefiting our shareholders. For example, FMB is increasing our closing cost assistance grant to 5,000 in April 2022, advancing our commitment to borrowers in low to moderate income communities. We also enhanced our mortgage product offerings through Fannie Mae and Freddie Mac to provide additional access for homeowners with income at or below the area median income for their market. Our goal is to ensure all stakeholders benefit from the products and services that we offer. Our first quarter results provide a solid foundation for us to continue building momentum throughout 2022. As always, our performance is a testament to our team, and I thank each employee for their dedication and contribution. With that, I'll turn the call over to the operator for questions.
spk05: Yes, thank you. At this time, we will begin the question and answer session. To ask a question, you may press star, then one on your touchstone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble the roster. And the first question comes from Frank Shirati with Piper Sandler.
spk06: Good morning. Good morning, Frank. In terms of Vince, you know, you mentioned still a lot of confidence in the loan growth expectations for the year. And I think you said that the current pipeline is up 23% link quarter. And so I just want to follow up on that. And is that the commercial pipeline? And I wonder if you could talk a little bit more about that pickup, you know, does it reflect Supply chain issues improving. Is it more seasonal? Just wondering if you can frame a little further that significant tick up in the pipeline, one quarter.
spk08: Yeah, I can address that. I think it's pretty broad-based. If you look at the dispersion of our pipeline, we have a little chart here for our own sake that shows the trending. You can see almost every region in the company has seen growth. in their pipeline on a linked quarter basis. If you remember, back in the fourth quarter, we had a pretty strong, it was a record production quarter for us. So typically what happens, the bankers are busy closing transactions, the pipeline kind of shrinks a little bit, and then we start to move back into prospecting or accommodating borrowers' requests, and the pipeline builds again. I think you're seeing that here. The other factor is, you know, the first quarter is a little bit is seasonally slower, you know, you don't have the financial results from your corporate borrowers to act upon. Typically, the companies haven't devised their CapEx plans until now. So, you know, now is the time when you start to see a pickup in the pipeline. You know, we're very pleased with the growth in the Mid-Atlantic region. Mid-Atlantic's up, you know, 13% year over year, 61% quarter over quarter. So you've got a big boost because of that Howard acquisition, a lot of critical mass and scale, deeper penetration in the market, and some great bankers that we picked up who seem to be pretty happy with our system. So we're very excited about the opportunities there. We also feel that, as I mentioned on the call, from a non-interest income standpoint, perspective, you know, we, fee-based businesses that we have, we have a tremendous opportunity to penetrate that customer base with some, you know, sizable fee opportunities in wealth and market. So I think that should help us in that market. So, you know, that's a big driver. Charlotte's up 33% year over year, you know, 52% on a link quarter basis. So, you know, there's quite a bit going on in the southeast. I just spent some time, spent a week in Charleston and Raleigh, and both of those markets are performing very well. Spent a lot of time with clients, and I think our brand is being received well in those markets. We're pretty well established. We have regional headquarters that we've established in Greensboro, in Charlotte, in Raleigh, in Charleston, South Carolina. with highly visible signage and a decent delivery channel. So things are starting to cook there. We've expanded from a de novo perspective into Asheville, North Carolina. It's been a couple of years now, so that's starting to pick up for us, as well as Greenville, South Carolina. We were on the outskirts of Greenville, but we have a plan to move into that market more heavily, which provides quite a few commercial opportunities opportunities for us, particularly C&I opportunities. And then small business banking for us, you know, historically has lagged from a growth perspective because we were consolidating portfolios every time we did an acquisition. That stabilized and has actually started to grow nicely for us across the footprint. So we're seeing a little bit of lift from our small business lending activity. So, you know, that kind of gives you the landscape. I think it's more related, Frank, to, you know, when you look at line utilization rates within the company, Chris, Jan, and I were just looking at that data. You know, what you see is a substantial drop-off in utilization. So borrowings declined post-pandemic, you know, beginning of the pandemic. After the first quarter of the pandemic in 2020, things really fell off from a borrowing perspective for commercial borrowers. So a lot of those businesses went to cash, they got stimulus or benefited from stimulus and drove down their balances and then a series of things occurred which were unpredictable. But supply chain disruption, all kinds of things happened. That kind of slowed their ability to grow or expand. And I think we're starting to see a pickup, if you dive into that utilization rate, even though we haven't seen much of a global rise in utilization rates across all the portfolios. When you start to drill down into it, we're seeing growth in the middle market now. We're starting to see things pick up. So that's telling me that we're working through those supply chain issues. Companies, while the war in Ukraine is probably a worry, I think companies are starting to get back to normal from an operating perspective. Anyway, we still are very cautious, as I've said in my remarks. We're still watching what's going on from a credit perspective because there are concerns about additional supply chain disruption, the price of oil and gas rising and impacting certain industries. So we keep a close eye on it, but all in, we're seeing We haven't seen any significant weakness anywhere in the portfolio. In fact, the credit quality is holding in there. I hope that answers your question. I tried to be as comprehensive as possible.
spk06: That was helpful. Thank you. And I guess just as a follow-up, in terms of just given how strong, just given your confidence on the long growth picture, Is there any room to ramp up the buyback at all? Just wondering if, you know, with bank stocks having pulled back a little bit, you know, from where you bought back stock in the first quarter, if we should think about that maybe ramping up a bit, if we should think about the buyback any differently, you know, than we did going into 1Q.
spk08: Yeah, I think, you know, our guidance on loan growth isn't crazy. I mean, we're mid to high single-digit growth. So there is some room. fund that growth with capital that we generate internally, plus buyback shares. And that's why the board approved the buyback program. We want to have options so that we can continue to drive shareholder value and support the stock price if we see movement downward. And the company has performed admirably over the last few years. So there's a lot of confidence in the board in putting forward a buyback program. if you look at the financial performance of the company, it's been very strong through some very different challenging times. And the actions that Gary and the credit team have taken and our commercial bankers, I mean, we've really prepared ourselves well and gotten through, you know, in pretty good shape. So, you know, that gives them a lot of confidence on the buyback. And if you look at the capital ratios, and I can't remember, Chris, we're at 10%, I think. Anyway, you know, from a regulatory capital perspective, we look good. I think we're in a good place, Frank. There are options for us.
spk06: Okay. All right, great. Thank you, Vince. Thanks.
spk05: Thank you. And the next question comes from Michael Young with Truist Securities. Please go ahead, Mr. Young. Your line is live.
spk08: Sounds like he's on a horse.
spk05: All right. Well, moving on, the next question will come from Daniel Tamayo with Raymond James.
spk12: Good morning, guys. Hey there. How are you? Morning. Doing well, thank you. Maybe first on the mortgage banking outlook, you gave some good color on continuing to expect that to be, I should say, outperform the industry going forward, but Maybe if you could provide a little more detail on how you're thinking about, you know, how we should be thinking about sizing that revenue stream going forward. Are you still expecting that to increase from here or flat? Or how, from an overall perspective, do you see revenue trending from here?
spk08: I'll let Vince answer that question, Vince Calabrese. But before he does, I will tell you that the pipeline has shifted, as we've indicated. You know, we are very well positioned across the southeast and the mid-Atlantic in some fairly dynamic housing markets, so we have an opportunity to benefit from more heavily from purchase money mortgage originations. And, you know, I think we're current – our current pipeline is sitting at around 90 percent, so we purchase money. So we did make that shift, you know, which provides some support, which is why I indicated and my prepared comments that we should outperform the industry. We're not as dependent on refinance activity. And we are spread across a pretty broad geography in some very attractive markets. And about 50% of the franchise sits in very stable, more stable markets. It gives us some stability and we're able to maintain a lower growth trajectory. And then half of more housing starts and a lot of activity. But go ahead, Vince. I don't know if you want to give them a little bit more color on the top line and what were our expectations.
spk14: Yeah, no, I would say, you know, for the quarter, you saw the results there. We were up a little bit from kind of the low last quarter. We were thinking it was going to be the low. You know, the purchase versus refi mix, as Vince mentioned, positions us well to focus on purchase there. You know, for the quarter, it was 77%, and now it's up to You know, the refis last I looked was even down to 5% of the total. So kind of the way our business is built is very well positioned. And the activity on the purchase side has still been very strong. But I guess if you boil it down to the mortgage banking income, right, that's a function of how much you sell and how much your portfolio, too, depending on the nature of the originations. We've definitely seen some shift to customers wanting to get arms, you know, 7-1s or 7-3s. Seven, six months. It's not one anymore. In 10 years and six months. So we've seen some movement towards that. So that stuff goes in the portfolio. So you have more portfolio, higher net interest income, a little bit less gain on sale on that. I guess if you kind of boil it all down, I would expect mortgage banking to move up from here from the first quarter. We're entering the seasonal second and third quarters that are kind of high. But kind of around the level to a little bit higher from here would be the best way to characterize it. And it's really going to be a function of the mix of those originations. But they're still very healthy. Applications are very strong. And like I said, the purchase market continues to be strong. So that helps to support the business activity there.
spk08: The other side of it, too, is there's quite a bit of activity in the consumer lending area relative to mortgage lending. So outside of the mortgage bank itself, we have a surge in pipelines. I don't know, Barry, what you're seeing there.
spk06: One of the strongest platforms we've ever had right now.
spk08: Yeah, so there's been a significant pickup. There was a lot of pent-up demand. I don't know that there was the capacity to execute a lot of the construction projects. So I think we've seen a surge in demand across our footprint, right? I mean, it's pretty much every geography. Absolutely.
spk14: Let's continue to add bankruptcy, mortgage bankruptcy.
spk08: So all of that leads to... The reason I brought that up is because ultimately that may lead people... take out a consumer loan secured by real estate, and then they roll it into a larger mortgage loan, and it's taken out. Anyway, there's quite a bit of activity. So we're feeling pretty good about being positioned where we are with the purchase money opportunities and the growth in certain segments of our business geography.
spk12: That's terrific color. I appreciate all of that. And maybe switching gears here, thinking about net interest income, obviously we're in a much different rate outlook environment now than we were last quarter, and you've updated guidance to reflect that. How should we think about, or how are you thinking about the change in the bank's sensitivity to rates from the from the hike we just had all the way out to what you're forecasting by the end of the year. Is there any impact? Are you expecting any difference in terms of loan betas, like what you're able to reprice on the loan side? And then just remind us if you're still thinking that deposit betas end up around the 40% to 50% range by the end of the year. Thanks.
spk14: Yeah, I would say, you know, a few things there. As far as, you know, what's baked into the guidance, you see what we have in there, an additional 125 basis points with 50 in May. If we get more than that, obviously there's upside to the range there. So, you know, and I know everybody's modeling it with their interest rate projection. So, clearly there's some upside to the range depending on where we end up. As far as the betas, I mean, the loan betas, you know, continue to be pretty strong. As you know from the past, we have close to 50% of total loans that are tied to LIBOR, SOFR, three months or less on those two measures, as well as prime. So it's $13 billion, 48% of total loans. So that benefits as rates move up. The cash position we have is benefiting, while we still have around 3, 3.2 billion. That was earning 15. Now it's earning 40. And then we would expect that to move up time that the Fed moves. So that would move up another 50 basis points to get 50. So that's helping, you know, while that cash is not yet deployed in loans, you're getting a benefit there too. And then the investment portfolio, we've been able to take advantage of the higher rates in recent quarter to put some more money to work there. And you'll see that in the growth of the investment portfolio. So that's kind of supporting the overall margin. And Triple P is almost gone. So, you know, if you kind of put Triple P on the side, Our loan yields were actually up five basis points, kind of the continuing business there. And then on the deposit data side, there's, again, none of us really know. Level liquidity in the banking system, obviously, is still a consideration for all of us. We do think we'll feel more pressure as we continue to move down this path of Fed moves, with kind of commercial municipal depositors being earlier in that process. You know, our current projection for us, based on what we see and what we think, would be we'd end the quarter of the rate hikes coming through in total cost of deposits. So kind of 25% on a total deposit basis and around 40% for interest-bearing deposits at the end of the year. That's kind of our current projection.
spk12: Terrific. That's all I had. Thanks for all of that.
spk05: Okay. Thank you. Thank you. And the next question is another attempt from Michael Young with Truist. Please go ahead, Mr. Young. Your line is live.
spk16: Hey, can you hear me?
spk08: We can now.
spk16: Okay. Sorry about that. Having some technical issues here this morning. I apologize.
spk08: It sounded like you were trotting around on a horse the first time. We just had a clicking noise. But I'm glad to have you on the call.
spk15: Maybe it's the ghost of cell phone pass. I don't know. I apologize. It always happens. Go ahead.
spk16: At any rate, just maybe Vince wanted to walk through kind of the fee income side. Obviously kind of a lot of big swings this quarter with kind of the MSR fair value adjustment. You know, you kind of have big moves in insurance to the upside, but capital markets to the downside. You know, it sounds like a slight weakening is kind of the outlook, but is that more mortgage driven or are you seeing some things in some of the other business lines that you think will be a little weaker as we move throughout the year?
spk08: It's a combination of several areas. I think the mortgage banking fee income in general year over year is going to be challenging to meet last year's fee income, obviously, because it was so strong. But the way we've tried to build out our fee-based businesses is to ensure that when one's not performing at the highest level, we have enough balance within our offering to kind of make up for it. And, you know, the guide that we gave you implies some of that shifting, as you mentioned. So, you know, capital markets, we, you know, from a pure derivative perspective, interest rate hedging, you know, obviously a lot of customers, clients took advantage of the hedging products during a time when rates were extraordinarily low. So that business has come down a little bit. But on the flip side, you know, in capital markets, seeing good activity there and good prospects there, so we're expecting to have a pretty decent year in that space. We have invested in our international banking platform and added products. We're expecting to see some growth there. We've had some really solid growth in SBA. We expect that to continue, so our SBA platform that we shrunk and then rebuilt and integrated into our It's integrated more in-depthly into our calling activities across the company versus being a standalone. Business is starting to take off. So those things should counterbalance the legal mortgage and derivative business. And then wealth, you know, wealth obviously, you know, of course we rely on that asset values as well, right? I mean, if the market remains steady, we should be able to benefit there as well because we're seeing a very opportunistic in D.C. and Baltimore with that Howard portfolio and the fact that they didn't have a product offering. We're starting to see some good opportunities there and in the Carolinas. So Charleston, Asheville, Greenville are all great markets for us from a private banking and wealth perspective and we're starting to see some activity.
spk14: Howard will be additive just across the base.
spk08: Oh yeah. You've added quite a few households You know, a nice little commercial bank that fit in well culturally with us. The people there did a nice job. And, you know, we were able to take costs out but still keep the vast majority of the front-line people. So we've added to our teams, and, you know, those folks are doing really well.
spk14: And they didn't have the same product set that we have today. The opportunity there on the fee side is significant, given the quality of the customer base that Howard has, you know, really across the board. wealth management, cap markets, insurance, mortgage. So there's opportunities across the different fee-based revenue categories. That'll be additive.
spk08: So while there are challenges, we're not trying to kid you. It's going to be tougher in mortgage banking this year. It's going to be tougher in capital markets, particularly centered around hedging. But I think you know, the guide that we gave you and we feel confident about because of our ability to drive the income in those other areas.
spk14: Yeah, I think that's important too, right? So the quarter is 78, our guide for the next quarter is around 80, and then 315 to 330. So, you know, obviously we feel with diversity, diversification within the fee-based categories that, you know, we're comfortable with those guidance range that we gave out.
spk16: Okay, great. And just following up on the prior questions, just as we look at kind of the cash balances, you know, the 10-year rate moved up pretty considerably. You know, are you guys thinking about kind of laddering some of that out into securities and growing the size of the balance sheet? Are you opting more for kind of remix and just funding loan growth with the cash? So we should expect, you know, a little less balance sheet growth, but higher margins.
spk14: Yeah, given the opportunities with rates, I mean, we definitely put some more money to work. You know, during the first quarter, you know, we invested $600 million into the portfolio, which is about $200 million higher than the cash flows. And when you look at that, you know, the average balance was up almost a half a billion. So we did take advantage of rates moving. But we still stayed within our strategy of duration around kind of three and a half to four. You know, we haven't wanted to go long to date And as we sit here right now, for the current quarter at least, our anticipation would be to kind of reinvest the cash flows that are coming on. And, you know, the rates are – I mean, we were – in the fourth quarter, we were reinvesting around 134. First quarter, it was up to 190, again, with a three-and-a-half duration. And I think one of the things that's important for us, too, is, you know, with the movement in interest rates, I mean, our securities portfolio is 50-50, AFS versus health and maturity rates. and it's on the short side. So I think the AOCI hit that we had was much smaller than others, depending on how they constructed your portfolio. So that helps us manage as far as that impact to kind of book equity, but also helps us manage and create opportunities with, you know, a billion dollars worth of cash flow coming that rates continue to move. You know, we'll be opportunistic, and if it makes sense, you know, we will grow the portfolio some, but we've made a good amount here. But we'll just monitor very closely and look for those opportunities as we have been doing.
spk16: Okay, thank you.
spk05: Thank you. And the next question comes from Jared Shaw with Wells Fargo.
spk02: Hi, good morning. This is Timor, Brazil. My name is Jared. First question, I guess just following up on the NII guidance and looking at the guide this quarter versus last quarter. Last quarter was fairly similar with expectation for two rate hikes and I think 3% sensitivity if there was a third rate hike. Now going to five rate hikes with one that already occurred and expectation for 50 basis points in May. I'm a little surprised that the guidance wasn't higher. Is there anything else that kind of changed in the calculation of that guidance that offsets some of that sensitivity to the incremental rate hikes or maybe the combination with Howard? I guess if you can frame that, that would be great.
spk14: I would say one place that we are conservative is on the betas because we really don't know what's going to happen there. With Howard coming on board and just kind of looking ahead from here, we'll see what happens. Like I said, a lot of liquidity in the banking system, so I think banks are going to be methodical about moving rates up as you need to, but everybody has a lot of cash on their balance sheet. That's one area where we're probably being a little conservative on the betas, but nobody really knows for certain. We moved the guide up quite a bit from the guide that was in the first quarter Given what we have in here, and I know some of the analysts have more rate hikes baked into their forecast. So, as I said earlier, if we get more than 125 basis points from here, which the futures market, I don't know where it is now, Scott, it's higher than that. It's higher than that. So, if you get more, there's more upside there, too. So, I mean, those are the two things I would comment on.
spk02: Okay, and then as far as power goes, maybe for Gary, just an outlook for purchase accounting dollars starting here in the second quarter.
spk09: Yeah, and go ahead, Vince, I'm sorry.
spk02: I wasn't sure of the question. Just the expectation and outlook for accretions, purchase accounting accretions.
spk08: Oh, okay. Yeah, do you want to come on? Go ahead. The net accretable discount overall was only around $10 million once you do the PCD gross up. So, we would assume maybe $600,000 or a little more than a half a million a quarter going forward, subject to prepay. That's just for Howard. Just for Howard, yeah. Hey, Gary, do you have any other color on Howard and for the group?
spk09: Yeah, Vince, I can update everyone. As I mentioned in the remarks, the portfolio came over better than expected. We were very pleased with the information that we gathered as we got deeper into the transaction around some clients that we had some missing information on up front and we were able to to get very comfortable with some of those clients and move those ratings upward to pass ratings. That helped tremendously from the MARC perspective, as well as how the portfolio performed through the quarter. The portfolio was very nicely underwritten. It was actually the best underwritten portfolio that we've seen. and we expect it to continue to perform very, very nicely as we move forward. As you saw in the metrics, the changes in the metrics were very minimal. Generally speaking, they're significantly higher than that, and from a rating standpoint, the portfolio rated very nicely, very closely to FMB, so very pleased overall with it.
spk14: I'm sorry, just for a second. On the accretion, so the total purchase account accretion in first quarter was about $3 million pre-Howard, right? And that number kind of would be projected to come down as it has kind of on a quarterly basis. And then you add in Howard with the kind of $600,000 a quarter that we were talking about. So net-net, you know, we'll be somewhere between $3 and $3.5 million a quarter, you know, over the next few quarters. All in, Howard plus what we had before.
spk02: Got it. Okay, that's helpful. Thank you. And then just one more follow-up for me. So glad to see that the pipeline is being rebuilt. I'm just wondering, as you look out at the expected loan growth this year, is the composition going to be similar to what we saw kind of in the back end of 21? Or with some of these new digital initiatives, should we expect to see more of the loan production coming on the consumer side versus on the commercial side?
spk08: Well, to start the year off, we were seeing pretty strong production coming out of the consumer bank in total. And I attribute that to a couple of things. Some of it is just economic, macroeconomic. Some of it is the embedding of the e-store into our mobile application and our online offering. Basically, what we've done is we've pushed that forward. You know, we push those products essentially, put them in front of the client repeatedly in those digital channels. So, you know, they're able to act on it pretty easily or schedule an appointment and go out and see somebody in a branch. You know, for example, it's added to our online user base. You know, we've increased online users 10% year over year. You know, we have over 900,000 enrolled users now. Mobile banking is up 12%. The number of mortgage applications that we push through our e-store is up to 60% of production, which is up from 59. We've invested pretty heavily in a number of areas. But if you look at the total e-store visits that I mentioned, that's up 56% year over year. So that, for us, is a very reasonable way to advertise our products and services particularly when there's macroeconomic factors at play. People need to borrow money for renovation, home renovation. So that seems to be working for us. The data analytics tools that we put into place and the leads that we're able to generate from analysis that we do on pools of data in our data hub, that's helped us immensely. We can find opportunities within the data In a systemic way, we can find opportunities within the portfolio, and then exploit them by contacting those customers proactively. And if you look at all of those statistics in total, there's quite a bit going on there, and it's driving that activity. On the commercial side, I think that we're well-positioned. We have very, very good bankers across the footprint. They're high-quality bankers. We don't have a lot of carpetbaggers. There's a lot of bankers that I ran corporate banking groups for a long time. There's a lot of bankers that move around from bank to bank to bank. We don't have a lot of that. We have pretty sound, respected bankers in each of the markets. They've not jumped around 50 times. We may have attracted them here for career opportunities. We really rely pretty heavily on their skill set you know, salesmanship being one of a series of, you know, skills that we expect. So I think, you know, we're starting to see the benefits of all of this.
spk14: Anyway, that's... Production in the first quarter was very strong. Origination level was very strong.
spk08: Originations were strong.
spk02: Great. Thank you for the color. Much appreciated.
spk05: Yep. All right.
spk02: Thank you.
spk05: Thank you. And the next question comes from Casey Hare with Jefferies.
spk11: Hi, good morning. This is Tyler Marks on for Casey. Following up on Frank's question on share buyback appetite, how much lower are you willing to go below your target CET1 ratio of 10%?
spk14: I would say that's really the target that we're managing to. You know, we're 10.0 for this quarter. We were 10.0 a year ago, and 99, I think, in the prior quarter. So that's really the level we're using as kind of our floor to manage to, you know, with the earnings generation capabilities plus the expectation for higher rates, obviously that generates more earnings, which is built into our guidance. So we'll use that as kind of a governor and we'll be dependent on the amount of loan activity. If the loan activity was lower for some reason, we'd be more active here. But if you look at what we did with the first programs, We bought back $111 million at a very attractive price, as I mentioned. We were opportunistic when the opportunities were there and the markets were dipping. And we still think our stock is still very attractive to value. So we will continue to be opportunistic. And we were down to $30 million or so. So we wanted to improve a new level to give us that flexibility to manage capital. But Ken's really kind of the governor that we're using. We think that's a good level for us. the overall profile of the company. And as we move up above that, you know, we'll opportunistically share buybacks.
spk11: Okay, understood. And then, how are you addressing the secular pressure seen with overdraft fees? And is your fee guide assuming any of this impact within service charges?
spk08: I'm sorry, can you repeat the question? I...
spk11: How are you addressing the secular pressure seen with overdraft fees? And is your fee guide assuming any of this impact within service?
spk08: Yeah, sorry. I didn't hear secular pressure. I was wondering what that was. So I heard, I know what you're talking about. You know, first of all, we have, we've rolled out a product that is bank on certified and that we recommend to clients, particularly those that are afraid that they're going to overdraft or have an issue with overdrafting. And it just simply does not permit it. So the product that we offer, you can't overdraft the account. If there is an overdraft because of some POS transaction or some posting issue, it's refunded to the customer. So we You know, we have this product that we rolled out. It's, you know, a top four product for us. It's actually the third most popular checking account product. So, it's already had an impact on overdraft fees for us. And, you know, we've made a number of changes over the years to our overdraft practices and plan on continuing to make those changes. And I think we mentioned when we rolled out the guide for the year on fee income, that we were expecting that category to decline throughout the year. So, you know, that's another area. Add that to the mortgage and other, you know, capital markets area that I said there will be headwind pressure that we have to overcome or make up. That's another category. I don't have an exact number for you. I don't have it at my fingertips, but, you know, it's a pretty meaningful decline. There are additional changes coming to our practices, but it's reflected in the guides that we had given you at the beginning.
spk14: Yeah, I would just add, too, that the consumer fees are about $6 to $7 million a quarter. That's right. Put it in perspective.
spk11: Understood. Thanks so much.
spk08: Thank you. Take care. Thank you.
spk05: Thank you. And the next question comes from Michael Perito with KBW.
spk13: Yeah, thanks. Just one last kind of clarification question for me is just curious if you guys could comment. You talked about how we're going well and some of the appetite on the buyback, but maybe putting the whole capital deployment picture together here as we move forward. It seems like the fundamental outlook is fairly bullish for you guys. Margins are moving higher. Growth pipelines are filled. The expense guide was unchanged. I mean, how do you view the new buyback program versus incremental M&A as you guys look out over the next 12 to 18 months, just in terms of the capital deployment priorities as you guys see it. That'd be great, thanks.
spk08: Yeah, I mean, we spend a lot of time modeling all of these things and evaluating them. I mean, we look at loan growth relative to buybacks from a return on capital perspective. We look at M&A the same way. So our decisions are based upon what's best for the company and the shareholders moving forward. So, we try to balance that out. I think having the ability to buy shares back in the event that loan growth doesn't materialize or, you know, M&A opportunities that are accretive and provide us with substantial returns over our cost of capital aren't out there, we have another tool to essentially return capital to the shareholders. So, we look at it as kind of a backstop, and then we evaluate the options. So I'm not ruling anything out, nor am I saying that there's something looming. I'm just simply telling you that, you know, we're very careful about the deployment of capital. And we look at the effect on tangible book value dilution and the earned back and all of that.
spk14: And the primary focus, you know, loan growth is the primary someone goes too strong, that's where we'll put our capital. If it slows, like Ben said, then we look at the buyback and become more active on the buyback.
spk13: Got it. But I guess just to kind of be clear, I mean, so if your growth guidance is achieved as expected and no additional M&A comes to fruition for this year, you guys would expect, given current market conditions, that that buyback would be utilized to some extent.
spk03: Yes. Yes.
spk13: Yeah, got it. Great. Thank you, guys.
spk05: Thank you.
spk13: Thanks, Michael.
spk05: Thank you. And the next question comes from Russell Gunther with DAA Davidson.
spk03: Hey, good morning, guys. Morning, guys. Morning. So just a bigger picture in terms of better understanding your view of the operating environment from a growth perspective. So on the one hand, we've talked about how pipelines are up and giving increased confidence in that mid to high single digits. And then on the other, you know, the potential for a softer environment, some caution from a credit watch perspective, just things you guys are focused on there. So does the mid single digit guide, you know, reflect a stable operating environment, growth environment, or are you dialing in the potential for some softer growth in the back half of the year, recessionary pressures? Just to help me frame that would be great. Thank you.
spk08: I think mid-single digits dials in the current environment, including the factors that we laid out as, you know, potential areas of concern. I don't want to alarm everybody. We haven't seen, as I said, we haven't seen weakness yet. But those are areas that any prudent thinker would look at and say, hey, you know, we've got a number of things coming at us we have to be prepared to deal with, right? So that could potentially result in a slowing of the U.S. economy and lower loan demand, and it'll hit first in the commercial segment. There's some talk about consumer spending declining in the latter half of this year. I've read that in a number of economists' reports. Some economists say they think consumers are stronger than we expect. We'll see how that plays out. If you look at what's going on right now, and we only know what's happening at our bank and within our portfolios, right? The consumer portfolio pipelines up record levels, as Barry mentioned. The mortgage business has shifted pretty dramatically to purchase money. The commercial business slowed in the first quarter. You know, we had the war in Ukraine and some supply chain disruption and a very robust And we've got some seasonal slowness. So, you know, the expectation, our expectation, which is built into our guide, is that the beginning of the year would be slower. Things would start to accelerate just like they did last year. We were in the same spot last year, a little better growth in the first quarter than last year. And the consumer bank didn't have anywhere near the production and pipelines that we have this quarter. So I hope that sums it up for you. I'm cautious about our growth prospects as we move throughout the year. Obviously, you know, with Gary and, you know, he's a very skilled professional, his team, Tom Fisher, the people we have here, you know, we're watching very carefully what's happening and we're going to continue to monitor it because we don't want to balloon into a recession, right? So That's why we're giving you the guidance we're giving you. But it's all baked in. You know, we've thought a lot about it, spent a lot of time modeling it. It's built from the ground up, portfolio by portfolio, and that's how we've derived it.
spk03: Yeah, and I appreciate it, Vince. It's exactly the type of color I was hoping to better understand. So I appreciate the information.
spk08: I can understand it's confusing, right, because on one hand we're saying, hey, we're going to achieve mid to high. On the other hand, we're saying we're real concerned about certain things that are going on in the economic environment that could potentially impact that growth in the latter half of the year. So I think given the geographic diversification, the quality of the credit portfolio, the skill of the bankers, we can achieve our guide.
spk03: I appreciate the call. That's it for me, guys. Thank you.
spk05: Thank you. All right. Thank you.
spk04: Thank you.
spk05: Thank you. And the next question comes from Brody Preston with Stevens Inc.
spk04: Hey, good morning, everyone.
spk05: Hey, Brody.
spk04: Morning. Hey, I just wanted to circle back. Thanks for all the color on the securities book earlier. I just wanted to ask and just clarify, was it $134 million per quarter in cash flows that you said that you're reinvesting, Vince? And then could you give us an indication as to as to what the new yields look like that are coming on the book versus what's rolling off during that repricing cadence?
spk14: Sure. The 12-month cash flow that we estimate is $1 billion, and that's rolling off at a yield of 174. If you look at where we're putting money to work so far this quarter, we've invested $150 million so far in April. It yields closer to 3%. You know, new purchases are still within that kind of three and a half to four duration, a little bit on the higher end of that, but still within that kind of tight thing. So that's kind of your moving parts there, Brody, if that answers you.
spk04: Got it. That's helpful. Thank you. And I just wanted to ask on the timing of the hikes that you all are modeling. I know you have the 50 in May, but beyond that, where's the additional 75 coming in from a timing perspective?
spk07: It's pretty much one per meeting, Brody, after that.
spk04: Got it. Thanks, Chris. I did have one follow-up on the capital markets business. Could you remind me, I know you have a lot that kind of goes into it, but could you remind me what the big drivers are from a revenue perspective within capital markets?
spk08: Absolutely. We have syndications. We do both large CRE and CNI syndications. We have a big derivatives practice that I mentioned, which focuses principally on interest rate derivatives, but there's the ability to do commodity-based derivatives within that space as well. Then we have international banking, which we throw into the capital markets arena because we're offering hedging products in the international space and spot transactions. Then we have our, I call it the debt capitalization, offerings. That business was started last year. And I think that pretty much covers it. Those are the principal areas that drive the bulk of the revenue in capital markets. And the syndications business is lumpy because you get big syndications. If you underwrite a deal, you're getting paid more heavily than the best efforts arrangement. And then the debt capital markets area is lumpy too because if you're participating and a larger deal, and we may be getting syndications fee income because we're participating in the distribution, and we're getting now bond economics, right, because the company's issued public debt, so we're included in the syndicate. Anyway, those are the businesses that we have.
spk04: Got it. Thank you for that. I just have two last ones here. The first one is on expenses. Could you kind of maybe give us a sense for what would cause you all to be either at the low end or the high end of the expense guidance just in terms of are there any individual items that come to mind that would cause it to be one way or the other?
spk14: I would say, as you know, we manage expenses very tightly within the company. We've had that discipline for many, many years. Within our guidance for for 2022, as we mentioned in January, was a $10 million cost savings target. We have the cost savings from Howard still to be realized given the timing in the quarter. Some of that's been realized, but on track for what we initially said early on. One of the drivers is always commissions tied to production. That can swing depending on the business activity and the different businesses. That is a swing item. It could move from quarter to quarter. It can move you within that range. We'll continue to manage expenses tightly as we always have. I think the range for the full year is a pretty tight range. Those are really the key drivers for us. We've talked in the past about RPA continuing to go after ways to automate our processes. That's just a continuous every day and there's more opportunity to get some of that stuff to get done quicker, there's opportunity there too. But again, it's a pretty tight range, I'd say, for the guidance.
spk04: Got it. Thank you. And then my last question would be, Vince, I just want to follow up. I appreciate the color on the deposit betas that y'all are modeling. I think it was 40% interest bearing was what you was what you mentioned, and that's pretty in line with last cycle. And so I guess I wanted to, for what you did on the interest-bearing deposit beta side last cycle, I guess I wanted to get your thoughts on what's driving the beta to be close to last cycle. I think a lot of folks initially, just given industry-wide improvements in terms of liquidity, you know, lower loan to deposit ratios, lots of cash, higher securities balances, are thinking that maybe betas could lag last cycle, at least on a percentage basis. But you're seeming to indicate that you expect them to be in line. So could you give us any color on why you expect that?
spk14: Yeah, I would say, you know, what we had said last time was we'd probably be around 50% would be kind of maybe the historical, right? And, you know, things are quite a bit different as far as liquidity in the system. So, So we're kind of inside that to begin with as far as at the 40. And then as I mentioned earlier, again, we're being conservative on the betas. We're going to manage them to optimize the earnings for the company overall and not be more aggressive than we need to be. So as I said earlier, I think there's some conservatism baked into that. But even at the 40, we're kind of inside of – I think last quarter we said 50. So we're at 40. And I think the pace of the changes – The rapid nature of them, the large amount, 50 basis point moves, you know, is just something we have to manage closely. And, you know, the customers get more alert as things are going through. So it's just for all of us to mention. But I would just say the 40s inside the 50s, 30, I guess, bottom line, and then there's conservatism within the betas.
spk04: Got it. Thank you very much for taking all my questions and for giving us all the time this morning, guys. I appreciate it.
spk05: Thank you. Thank you. And the next question comes from Ryan Martin with Jannie Montgomery.
spk10: Hey, guys. Thanks for taking the question. Just a couple of follow-ups here. Just the yield on new loans, Vince, commercial loans, can you just talk about where those are at, where those are coming on today?
spk14: New loans in total, I would say, came on at $309 during the quarter. That was 291 last quarter, so clearly kind of a nice move up. The overall spot portfolio rate, XPPT, that's down to like 180 million, increased 10 basis points to 322. So that's kind of the all-in figures there.
spk10: Gotcha. Okay, that's helpful. And then just a couple other housekeeping things. The line of credit, the line utilizations, You know, it didn't sound like that moved up a lot this quarter. Is that fair? Is it pretty similar to what it was last quarter, but the expectation is it's going to move higher? Is that kind of what I'm hearing?
spk08: Well, I think, you know, with the debt capital markets platform, we did some larger transactions that were unfunded. So that kind of, you know, we got the income. So we would expect those to fund up at some point, right? So, you know, we brought over larger commitments with lower borrowings on them. That's part of it. The other part is, as I've said, I think when you drill down into the various segments, we saw certain areas starting to grow, expand. Small business, middle market banking on the CNI side saw expansion. And then we brought on some large construction deals and those large corporate transactions, which kind of kept us still or moved it back slightly. Actually, it's kind of flat, but slightly down. If you took those out of the equation, we saw an expansion in utilization. So I don't have the exact numbers for you, but that's what we were seeing.
spk14: I would add, overall, if you look year over year, it did move up about three points from the first quarter of last year to the first quarter of this year. And it's pretty stable to where it was at the end of the year, kind of in that mid-30s.
spk08: I would expect it to continue to move up. It was running in the 42% to 44% range historically. We expect it to get back there at some point. Yeah.
spk10: Okay. And then just last couple, just on the Howard expense savings, just kind of is second quarter kind of, you know, largely a clean quarter given the, you know, the back office consolidation this quarter, I guess, or just kind of how should we think about that clean expense quarter?
spk07: Yeah, so like we said in the announcement, we expect cost savings to be greater than 50%, and we're well on track on getting to the 85% phase-in that we talked about during 2022. I mean, Howard really didn't add that many expenses to the quarter. I mean, we're talking, you know, you know, less than mid-single-digit million type number. But I think we've got a pretty good handle on the expense days and where we're going to handle that for the rest of the year.
spk14: Yeah, Brian, I would think it would take some more like the third quarter until you kind of get clean where, you know, we're running some dual branches right now as we're doing some renovations.
spk07: As that finishes up during the summer, you'll see kind of the last bit of the tail come out.
spk10: Okay, that's helpful. And then just On the – just given the cautiousness about some of the items you mentioned, just kind of the reserve coverage, you know, with some of the noise this quarter with Howard, I mean, where do you see the – given your outlook on credit quality seems pretty robust here, that certainly with some caution, just kind of where that reserve level, you know, the reserve coverage may trend to, you know, over the next couple of quarters?
spk09: Hey, Brian. Yes. Yeah, in terms of the reserve, we've been very cautious all through the pandemic and didn't have any large releases, as you're aware. With the headwinds that we see out there with inflation, supply chain, transportation costs, higher interest rates, those things, as we've talked, we're cautious about them. And they do have the ability to impact borrowers that are on the lower end of the liquidity range or higher end of the leverage range. You know, we were flat in the quarter at 138, even including bringing Howard on. We're comfortable with that level right now, and we'll continue to watch it all play out. as we move forward despite only three basis points of charge-offs. The other thing that's going to play a role there is loan growth. We've talked about that a good bit today, and that has its impact. So I would tell you that we're looking at right now the guide being 20 to 40. Could it surely come in on the low end of that guide based on the strength of the book right now? Surely it can. But I would expect with all the headwinds, we'll be cautious around those items as we move forward.
spk10: Gotcha. Thanks, Gary. And then just last one, Vince Calabrese, I guess just last quarter you talked about the liquidity levels kind of maybe cutting that in half by year end. I think there's still a similar level on liquidity right now. I guess is that still your expectation or at least kind of how you're thinking about things?
spk14: Yeah, it's hard to say. I mean, the deposits keep growing. Triple G is going to feed another $180 million of forgiveness, and that goes into the coffers, too. So I would think that's probably too low at this point, and we'll see how the year plays out, Brian. But I thought we'd already start moving down, and we've been saying that for, I don't know, six quarters now. So those deposits, they keep us growing. I would think we'd start to slowly bring that number down, but the pace of it is just hard to say with certainty.
spk10: Yeah. Okay. Okay. Thank you for taking the questions, guys.
spk05: All right.
spk00: Thank you.
spk05: Thanks, Brian. Thank you. And the next question is a follow-up with Rudy Preston with Stevens, Inc.
spk04: Hey, guys, sorry to hop back in like this. Just one quick question. Could you remind me how much you have left in PPP fees going forward? I know the portfolio is smaller. I just want to make sure I'm understanding what you have left.
spk08: Three and a half million.
spk04: Awesome. Thank you very much.
spk05: Okay. Thanks. Thank you. That does conclude the question and answer session. I would like to turn it forward to Vince DeLee for any closing comments.
spk08: Well, first of all, thank you for all the thoughtful questions. questions, quite a few questions. I thought they were great. I'm glad we were able to answer. If we weren't able to get to you or get to your question, please call. We posted a pretty extensive deck walking through it. But thank you. We appreciate your support and look forward to it. We've got a lot of work to do. It was a good solid quarter, but we still have a lot in front of us and we plan on actually I want to thank the employees for a great start, and we'll keep working on your behalf. So thank you very much for joining me on the call and all of us. Take care.
spk05: Thank you. The conference has now concluded. Thank you for attending today's presentation.
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