Community Financial System Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 25, 2023

Key Takeaways

  • Strong deposit base and liquidity: Deposits grew by about $100 million in Q1 with no reliance on brokered funds, a full-cycle deposit beta of just 5%, and $4.7 billion of immediately available liquidity.
  • Margin expansion and net interest income growth: Tax-equivalent net interest margin increased 47 bps year-over-year to 3.20%, lifting net interest income 17% to $111 million.
  • Operating expenses rose 14% year-over-year to $114 million, driven by higher salary, benefits and professional fees; full-year expenses are forecast to increase 5–9%.
  • GAAP EPS dropped to $0.11 from $0.86 a year ago due to a $52.3 million pre-tax loss on sale of securities, although operating EPS remained flat at $0.86.
  • Credit quality stayed sound with a 0.38% nonperforming loan ratio, annualized net charge-offs of 7 bps, and a $3.5 million provision for credit losses reflecting cautious economic assumptions.
AI Generated. May Contain Errors.
Earnings Conference Call
Community Financial System Q1 2023
00:00 / 00:00

There are 7 speakers on the call.

Operator

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 Securities 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 ks filed with the Securities and Exchange Commission. Please note this conference is being recorded.

Operator

Today's call Presenters are Mark Cetragnitsky, President and Chief Executive Officer and Joseph Seteras, Executive Vice President and Chief Financial Officer. We will be joined by Dimitar Karavanov, Executive Vice President and Chief Operating Officer, for the question and answer session. Gentlemen, you may begin.

Speaker 1

Thank you. Good morning, everyone, and thank you for joining our Q1 conference call. It certainly has been an Eventful quarter for the industry. I typically comment on our earnings first, but it feels like I should start with the balance sheet. First off, the events of the weekend of March Had virtually no impact on us beyond the minimal level of customer inquiries.

Speaker 1

We proactively reached out to our larger consumer, commercial and municipal with no movement at all in those deposits or relationships. Total deposits were actually up almost 100,000,000 and our average consumer and commercial account balances are $12,060,000 respectively. We have no brokered 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 $4,700,000,000 of immediately available liquidity.

Speaker 1

Loan growth in the quarter was solid at 170 due mainly to expenses and the elimination of some retail fees, both of which Joe will discuss further. But year over year, we delivered greater net 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 $350,000,000 of treasury securities maturing next that will be additive to margin and earnings. We have one of the best deposit bases of any bank in the U. S.

Speaker 1

Our lending businesses are all executing really well, and we that I'd like 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.

Speaker 2

Joe? Thank you, Mark, and good morning, everyone. As Mark noted, fully diluted GAAP earnings per share were $0.11 in the quarter. This compares to a fully diluted GAAP earnings per share of $0.86 in the Q1 of 2022 and $0.97 in the linked Q4 of 2022. During the quarter, the company strategically repositioned its balance sheet by selling available for sale of investment securities with a market value of $733,800,000 the proceeds of which were used to pay down expensive overnight borrowings to provide the company with greater flexibility to manage balance sheet growth and and deposit funding.

Speaker 2

In connection with the repositioning, the company recognized a pre tax realized loss on sale of $52,300,000 resulting in a $0.75 per that 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 Q1 in the linked Q4. The $0.01 decrease in operating earnings per share on a year over year basis was driven by a decrease in banking related non interest revenues and 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. $0.10 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. Q1 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 $0.04 as compared to the Q1 of 2022 and down $0.13 as compared to the Q4 of 2022. The company recorded total revenues of $124,500,000 in the Q1 of 2023, a decrease of 36 and gain on debt extinguishment were $176,600,000 in the Q1 of 2023, an increase of $16,100,000 of 10% from the prior year's Q1, driven primarily by an increase in net interest income.

Speaker 2

Comparatively, total revenues were down $51,400,000 or 29.2 percent from the Q4 of 2020 to results, but up $700,000 or 0.4 percent on an on an operating basis. The company reported net interest income of $111,000,000 in the Q1 of 2023. This was up $16,200,000 or 17 percent over prior year's Q1. The company's tax equivalent net interest margin increased by 47 basis points from 2.73 percent in the Q1 of 2022 to 3.20% in the Q1 of 2023. The taxable yield on average interest earning assets was up 82 basis points over the prior year's Q1, while the average cost of funds increased 35 basis points over same period.

Speaker 2

Comparatively, the company's net interest margin increased 18 basis points on a linked quarter basis, while net interest income decreased $1,200,000 due in part to a lower day count in the quarter. Excluding the impact of a loss on sale of investment securities and and the gain on debt extinguishment, non interest revenues decreased $100,000 between the comparable annual quarters. A $1,100,000 increase Insurance Services revenues in the quarter was offset by a $600,000 decrease in banking related revenues, a $200,000 decrease in employee benefits services revenues and a $400,000 decrease in wealth management revenues. The decrease in banking related non insurance 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 benefit services And you play said that the services business, excuse me, and Wealth Management Businesses revenues were down due to market related headwinds.

Speaker 2

On a linked quarter basis, non interest revenues excluding the loss on the sale of securities and gain on debt extinguishment increased $1,900,000 or 2.9%. An increase in revenues in all three of the financial services businesses totaling $4,400,000 or 10% was partially offset by a $2,600,000 or 13.6 percent decrease in banking related non interest revenues. During the Q1 of 2023, the company recorded provision for credit losses of $3,500,000 driven by a weaker economic forecast combined with $172,900,000 increase in loans outstanding. Comparatively, the company recorded a provision for credit loss of $900,000 during the Q1 of 2022 and $2,800,000 in the Q4 of 2022. The company reported $114,000,000 in total operating expenses in the Q1 of 2023 compared to $99,800,000 in total operating expenses in the prior year's first The $14,200,000 increase in operating expenses was primarily attributable to a $9,800,000 increase and employee benefits and a $4,200,000 increase in other expenses.

Speaker 2

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 and the expanded franchise subsequent to the Elmira acquisition in the Q2 of 2022. In comparison, the company reported $105,900,000 of total operating in the Q4 of 2022. The $8,200,000 or 7.7 percent increase in total operating expenses between the Q4 of 'twenty 2 and the Q1 of 20 3 was largely attributable to a $7,400,000 11.5 percent increase in salaries and employee benefits and a 0 point $7,000,000 or 5 percent 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 Q1 levels.

Speaker 2

Said another way, on a full year Full calendar year over year basis, the company anticipates total operating expenses to increase between 5% 9%. The effective tax rate for the Q1 of 2023 was 16.9%, down from 21.4% in the Q1 in the Q1 of 2023, down from 22.3% in the Q1 of 2022. The company's total assets were $15,260,000,000 at March 31, 2023, representing a $369,900,000 or 2.4 percent decrease from 1 year prior and a $579,700,000 or 3.7% decrease from the end of the Q4 of 2022. The book value of average interest earning assets decreased $662,100,000 or 4.5 percent during the 1st quarter, due primarily to a decrease in the average book value of the investment securities, partially offset by higher average loan At the end of the quarter, the book value of interest earning assets was $14,030,000,000 comprised of $8,980,000,000 of loans, $5,020,000,000 of investment securities and $28,000,000 of cash equivalents. Ending loans increased 1 point $5,000,000,000 or 21 percent over the prior year and $172,900,000 or 2% during the quarter.

Speaker 2

The increase in ending loans year over driven by increases in all loan categories due to net organic growth and the Elmira acquisition. The increase in loans outstanding on a linked quarter basis was driven by $102,300,000 or 2.8 percent increase in business lending, a $70,700,000 of 1.4% 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 31, 2023, the company's readily available source of liquidity totaled $4,690,000,000 including cash and cash equivalent balances net of float of $109,700,000 1,540,000,000 dollars of funding availability at the Federal Reserve Bank's discount window, dollars 1,840,000,000 of unused borrowing capacity in Federal Home Loan Bank of New York and $1,200,000,000 of unpledged investment securities that could be pledged as collateral for additional borrowing capacity.

Speaker 2

These sources of immediately available liquidity represent over 200% of the company's uninsured deposits and net of collateralized deposits, which are estimated at 2,300,000,000 The company's ending total loans were up $98,000,000 from the end of the 4th quarter, Approximately 1%. Deposit base is well diversified across customer segments, comprised of approximately 63% consumer balances, 25% business balances and 12% 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 beta is 5%, reflective of a high proportion of non interest bearing deposits, which represent 30% over 30 and the composition and stability of the customer base, while the cycle to date total funding beta 7%. 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 for 15 years. The company does not currently have any brokered or wholesale deposits on its balance sheet. The company's loan deposit ratio at the end of the Q1 was 68.5 percent providing future opportunity to migrate lower yielding investment security balances into higher yielding loans.

Speaker 2

In addition, during the remaining three quarters of 2023, the company anticipates receiving over $600,000,000 and liquidity principal cash flows to support its funding needs. At March 31, 2023, all the companies and the bank's regulatory Capital ratio significantly exceeded Wealth Capitalized Standards. More specifically, the company's Tier 1 leverage ratio was 9.06% at This ratio was 5.41 percent at March 31, 2023, up 77 basis points from the end of the Q4 of 2022. During the Q1, 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 $63,200,000 or 0.7 0% of total loans outstanding.

Speaker 2

This compares to $61,100,000 or 0.69 percent of total loans outstanding at the end of the Q4 of 2020 and $50,100,000 or 0.68 percent of total loans outstanding at March 31, 2022. During the Q1 of 2023, the company reported net charge offs of $1,500,000 or 7 basis points of average annual loans annualized. This compares to 3 basis points of annualized net charge offs in the Q1 of 2022 and 9 basis points in the Q4 of 2022. At March 31, 2023, non performing loans totaled $33,800,000 or 0.38 percent of total loans outstanding. Loans 30 days to 89 days delinquent were 0.35 percent of total loans outstanding at March 31, 2023, down from 0.51% at the end of Q4 of 2022.

Speaker 2

We believe the company's strong liquidity profile, capital reserves, core deposit base, asset quality and revenue profile and 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 remain 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.

Speaker 2

I'll now turn it back to Danielle to open the line for questions.

Operator

We will now begin the question and answer session. The first question comes from Alex Twerdahl from Piper Sandler. Please go ahead.

Speaker 3

Hey, good morning.

Speaker 2

Good morning, Alex. Good morning, Alex.

Speaker 3

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 $16,200,000 is the right run rate for deposit service fees over the remainder of

Speaker 2

the year. Yes. So, late in the Q4 and also, I guess really kicking in, in the early part of the Q1. 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 $6,000,000 to $8,000,000 Also in the Q1, Alex, we just have lower occurrences of over Just typically deposit service fees are down a bit in the 1st quarters compared to the 4th quarter.

Speaker 2

So that run rate that we have in the 1st quarter is Potentially just slightly below expectations for the next three quarters, because typically the Q1 is a little bit slower in terms of debit interchange and overdraft occurrences. But on an annualized run rate basis, we The changes will effectively reduce fees by $6,000,000 to $8,000,000

Speaker 3

Okay. Thank you. And then can you give us a little bit you said $600,000,000 of cash flows from the securities portfolio over the course of the year. I think Mark mentioned $350,000,000 in May. Can you give us the timing of the remainder of that as well as expectations for deposits?

Speaker 3

I know municipal deposits tend to come in the Q1. How much we expect to flow out in the Q2 and whether or not 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?

Speaker 2

Yes. So the $350,000,000 as Mark mentioned matures So we do expect that that's treasury security, so it's going to happen. We have another $150,000,000 in mid August also Treasury Security. Those two pieces comprise the lion's share of the $600,000,000 the Call them cash flows come out happen throughout the year, basically mortgage backed security principal repayments. To be able to redeploy those proceeds either pay off overnight borrowings, should we see some drift down in the deposit base or That could be redeployed into loan growth if that opportunity is there.

Speaker 2

So we do expect some call it NII pick up, Net interest income pickup on maturities, Alex. With respect to deposit flows, we typically do We do see an increase in municipal flows in the Q1. As we talked about tax cycles in New York State and that typically is a couple of $100,000,000 on a net basis in the quarter and we do typically see those flow out throughout most of the second quarter and then we kind of sometimes drift down a bit in the 3rd quarter, another $100,000,000 or so and then tax collection occurs in September again for the Eric School Districts and we see kind of a lot of that restored going into the late part of Q3 and into the Q4. With respect to IPC deposits, I think we're just sort of seeing the results of kind of the overall about the M2, money supply going down and I think the entire industry is seeing a bit of of 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.

Speaker 3

Great. Thanks for taking my questions.

Operator

The next question comes from Steve Moss of Raymond James. Please go ahead.

Speaker 4

Good morning.

Speaker 3

Good morning, Steve.

Speaker 5

Maybe

Speaker 3

just starting on loan pricing here and loan growth, Good loan growth in the quarter. Just curious what are the yields you're seeing these days? And let's just start there.

Speaker 5

So Steve, it's Dimitar. In the Q1, we blended to about 6.3% yield on originations. I think if you look at by various buckets, As we sit here today, commercial is kind of in the mid to high 6s. In the auto We're at 7% right now. In mortgage, obviously, it depends on what happens with aggregate rates, that's been kind of in the 6% to 6.5% range.

Speaker 5

So we have not seen much movement, I think in the Q2 so far, with that said, there were a couple of interest rate, well, one hike in the Q1 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 loan that we have tied to prime should drift up. So but kind of that range mid-6s, I think is a decent proxy for Q2.

Speaker 3

Okay. That's helpful. Thanks for that, Dimitar. And then in terms of just the margin, 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 how you're thinking about margin trends for the 2nd 3rd quarters?

Speaker 2

So we actually The 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 Q2 because it's a little bit difficult to Make the call relative to the 3rd Q4 because of the potential funding costs. But if you look at the next quarter, we have the securities overnight borrowings. We have a couple extra days of interest earning days in Q2, which is helpful as well.

Speaker 2

We also have call it loan replacement, right? So we have about $350,000,000 per quarter that's maturing and if that's just replacing we don't simply we don't grow those we just replace what's coming off. 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 we really didn't catch, if you will, in the Q1, which we'll in the Q2.

Speaker 2

In the next 90 days or so we have about $850,000,000 of loans that are going to reprice. There's another roughly $1,000,000,000 beyond that on the balance of the year, but in the 1st 90 days there's about $850,000,000 that's going to reprice. So that's helpful. And then of course there's potential for additional loan growth in the So as a catalyst on the interest income side, obviously, the question around cost of funds and Cost of deposits remains to be seen and I would just say that we do have a really strong core deposit Franchise, but the rate increases were so rapid in 2022. There's going to be some necessary increases in funding costs in 2023 as we sort of Catch up to some of the changes that were made on prime and Fed funds and the short end of the curve.

Speaker 2

So I there's going to be a little bit of catch up. In other words, I don't believe that our deposit data will stay at 5% for the full cycle. 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.

Speaker 1

Right.

Speaker 3

Okay. That's helpful. And then just on expenses here, just on the drivers of the increase in compensation expense here. I hear you guys on the full year relatively stable versus this balance, but maybe just a little bit of color. Not sure if I missed it.

Speaker 3

Thanks.

Speaker 2

Yes. So and Steve, probably, I guess more directly about Q1 results in 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.

Speaker 2

These might feather them out throughout the year. We typically do it in the Q1. Along with that comes higher FICA expenses. We had some Severance expenses in the quarter around salaries. We did have wage pressures, particularly on the lower end, which there's a compression and components of that which pushes up the lower end of our pay scale.

Speaker 2

So some of that effectively is embedded in the future run rate on salaries, but there's also components that effectively or higher in the Q1. So our expectation is that all in on operating expenses that We would expect the next three quarters to be in line with Q1, most of our increases absorbed in We also have some other expenses around just facilities costs given our climate and like in the Q1 that typically we in the following quarter. So there's a couple of items that contribute to just a higher OpEx line in Q1, but we do expect that to basically level off between call it 5% and 9% full year 'twenty three basis versus a full year 'twenty two basis.

Speaker 3

Okay, great. Thank you very much. Appreciate all the color.

Speaker 1

You're welcome.

Operator

The next question comes from Manuel Neves of D. A. Davidson, please go ahead.

Speaker 4

Hey, good morning, gentlemen. Filling in for Manuel today. I have a few questions on loan growth, outlook and pipelines. So first off, does the Loan growth outlook of mid single digits still hold from last quarter, especially after the balance sheet repositioning, has there been a change of mindset? Just want some color on that please?

Speaker 2

Yes. I believe that our expectations are

Speaker 5

the same, which is mid single digits for loan growth. What I think is a favorable change for us is The competitive dynamic, which driven by the environment, a number of our peers are in tougher spots from balance 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 of better rates is what we're striving for right now. So That guidance is still intact.

Speaker 4

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? [SPEAKER JOSE RAFAEL

Speaker 2

FERNANDEZ:] Sure.

Speaker 5

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 Q4 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 there are paying off as we Our portfolio will grow as well.

Speaker 5

Auto is a little bit more of a wildcard from quarter to quarter. We probably didn't expect a strong of a growth in the Q1 as we got in that portfolio. But Again, writing the same type of credit, dollars 7.50 average FICO, very appealing loan to values and better rates virtually every month. So like I said, we're roughly at 7%. So that risk reward and that paper right now is pretty good.

Speaker 5

As it relates to asset quality, maybe kind of starting backwards from Our charge offs this quarter were about 30 basis points, which is right in the historical range of our loss experience in Again, this is 750 FICO 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, Averages, we expect that to maybe normalize. Again, we've been talking about normalization for a while. We're planning for that.

Speaker 5

You're seeing this provision a little more ahead of that, but so far no stresses on the consumer side. And Commercial, I mean, we're basically at 0 in terms of losses right now. We had recovery in the prior quarter, I believe. So The going is pretty good. We're very vigilant around it.

Speaker 5

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 as good as we would want it to be.

Speaker 4

Great. Thanks for taking my questions, Simon.

Speaker 3

Yes. Welcome.

Operator

The next question comes from Matthew Breese of Stephens Inc. Please go ahead.

Speaker 6

Good morning, everybody.

Speaker 2

Good morning, Matt. Good morning, Matt.

Speaker 6

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

Speaker 2

Sure, Matt. So we did exit the quarter with deposit funding costs about 38 basis points. So we have seen some acceleration in terms of of deposit costs increasing. With respect to margin and NII. I think expectations is that we'll see We have a couple of tailwinds for Q2.

Speaker 2

So I would expect that we're going to see a better outcome in in Q2, albeit maybe a marginally better outcome than Q3, Q4 we'll see. But in terms of our full cycle beta, It's not unreasonable to expect that if we have a 500 basis point increase in on short end of the curve that ultimately our deposit beta is 20% of that or more when we're through the full cycle which I think would significantly outperform the industry, but I think those expectations are not unreasonable.

Speaker 5

Yes, okay. To add to that, I mean, if you look at I mean, we look at all of our peers reporting and kind of across 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 Shortlist. Going forward, if you look at the underlying dynamics, a lot of the personal deposits are basically remixing CDs. They're not necessarily leaving the bank.

Speaker 5

They're just remixing into CDs. The commercial deposits you've seen Some drawdowns there for people using cash for projects, paying taxes, which happens kind of in the 1st part of the year. So that's been a little bit more of the negative drawdown that doesn't stay with us. But as businesses make money over the year, hopefully those balances are And then on the public side, we've talked about the seasonality. So it's a little bit hard to figure out what the Ultimate through the cycle cost is, but there's a lot of moving pieces to it.

Speaker 5

And as Joe said, it's not going to be 5. We hope it's less than 20, but we're trying to be as proactive as we can and continue to be on the very shortlist with extraordinary deposit basis in the United States.

Speaker 6

Understood.

Speaker 3

There is 200,000 shares repurchased 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

Speaker 6

it seems like Fingers crossed with the repositioning some of the worst of the AOCI stuff is behind us.

Speaker 3

Share repurchases on the radar in

Speaker 6

a more aggressive fashion than we've seen you do

Speaker 2

We typically try to at least repurchase the shares that are issued in our equity plans. So I would for the balance of the year, maybe $500,000 or less in terms of total shares that would be repurchased. So we're at 200,000 now, so potentially another 300,000 throughout That could change later in the year, but right now that's I think would be on the high end of our expectations.

Speaker 6

Okay. Maybe just turning M and A, obviously, it feels like the banking industry is everybody's a bit inward focused right now. But Do you

Speaker 3

have expectations that M and A picks up in the back half of

Speaker 6

the year on the back of all this? And how do you feel about your ability to participate in that and would you?

Speaker 1

Yes, I think it's hard to handicap right now what the remainder of the year brings just given the current Certainty in the environment, not just industry uncertainty, But macro uncertainty as well as it relates to just overall interest rates and GDP and inflation and all Those kinds of things that can just affect how people think about M and A. So I think It's relatively quiet right now for the most part. We're certainly always interested in partnering with other organizations that have high value assets to us. I think that the recent events in the industry would suggest that there's going to be a separation between companies with 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 and M and A opportunities.

Speaker 1

I will say that we're focusing fair bit on the non banking businesses. We think there's continues to be really good opportunity there. It's a significant part of the strength of our company and our future in terms of strategic capital allocation. So we are pretty active on on the non bank space. But again, on the bank side, it's been relatively subdued.

Speaker 1

We continue to have conversations with Environmental uncertainty makes it very difficult right now. I mean you start with valuations are down across the industry including us. It just makes I think putting a deal together that much more difficult principally from the sellers' perspective in terms of expectations around valuation. So we continue to be interested. 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 and we'll continue to invest in those businesses potentially at even a faster

Operator

Eric Zwick of Hovde Group. Please go ahead.

Speaker 3

Hey, good morning guys. Justin Mark on for Eric today. I think most of my questions have already been answered, but just a quick one and positive if I already missed it. But did you have an average price per share on the buyback this quarter?

Speaker 2

Yes, it was just about $54

Speaker 4

Okay, great.

Speaker 3

Thanks. I appreciate it. You're welcome.

Operator

The next question comes from Chris O'Connell of KBW. Please go ahead.

Speaker 3

Good morning. Good morning. Appreciate all the color you guys have given around kind of NII and The impacts from securities maturing over the next couple of quarters here. Given you guys have a good amount of aim of to kind of defend the margin into 2Q and 3Q, And how are you guys thinking about where the eventual margin begins to settle out as we get toward 4Q or year end post some of those kind of balance sheet opportunities.

Speaker 2

Yes, Chris, that's a I mean it is a difficult question to answer because it really comes down

Speaker 3

to the funding beta. I think we have a

Speaker 2

pretty good Line of sight on sort of what happens on the asset side for the most part, given our loan growth and called the replacement rate of maturing loans. The funding side is a bit of Right now we've got about $13,500,000,000 in funding between deposits and in borrowings and the Question is, does that go up 10, 20 or 30 basis points throughout the year? And I think that's 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. I probably would think the industry might actually drift down in terms of margin by Q4, but I think we might do a little bit better than Industry given our growth and base.

Speaker 2

So I'm not sure we can make a call on Q4 at this point.

Speaker 3

Got it. And for the borrowings, do you guys have kind of on balance sheet right now? Is that mostly overnight? If not, what is the duration of those? And I just noticed maybe due to timing or whatever, but the yield was fairly low on those or the cost is pretty low on those borrowings for the quarter or was that just kind of a timing issue?

Speaker 2

Yes, we have at the end of the quarter, we had about $58,000,000 in overnight borrowings. Chris, we also carry typically over $300,000,000 in customer repurchase agreements. They're classified as borrowings. They're more akin quite frankly to deposits. And most of that's in our Vermont, New England footprint, a lot of fair number of municipal customers, some commercial customers, but for the most part, we kind of look at Portfolio is something more akin to deposits.

Speaker 2

So it's a bit more rate sensitive than 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.

Speaker 3

All right. That makes sense. And for the CDs that you guys are putting on, what are the rates that those aren't coming up.

Speaker 5

So Chris, on the CD side, I think we're right around 4% right now on kind of probably published and blended rates, in some markets a little bit lower and some markets a little

Speaker 3

Okay. Thanks. And then just I know you guys touched on it earlier, but I mean is there any areas that you guys are starting to see any types Credit stress or that you guys are kind of pulling back on that growth or that is starting to concern you within your overall markets or is either the outlook kind of still cautiously optimistic here for the near term future.

Speaker 5

Chris, I wouldn't say any sort of stress. I would say we're just being a little bit more around the sectors you would typically think about like commercial real estate resets and ability to stress test for rates. With that said, the new paper that's coming in, you could argue, You've got 1.3, 1.4 coverage on rates in the 7s. That's pretty good stress test on day 1 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 I think 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

Speaker 3

right now. Great. And last one for me. Just what's a good go forward tax rate?

Speaker 2

Somewhere, Chris, between 21.5% and call it low 22s, so 21.5percent, 22.5percent is probably a fair range to expect on a go forward basis.

Speaker 3

Great. I appreciate the time. Thanks for taking my questions.

Speaker 1

Thank you.

Operator

This concludes the question and answer session. I would like to turn the conference back over to Mr. Chyninski for closing remarks.

Speaker 1

Thank you. Nothing more from our end. Thank you all for joining us, and we'll talk again after the end of Q2. Thank you.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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