Community Bank System Q1 2024 Earnings Call Transcript

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Provided by Quartr
April 23, 2024

There are 7 speakers on the call.

Operator

Good day, welcome to the Community Bank System First Quarter 2024 Earnings Conference Call. All participants will be in listen only mode. Please note, this event is being recorded. I would now like to turn the conference over to Dimitra Karabinov, President and Chief Executive Officer of Community Bank System. Please go ahead.

Speaker 1

Thank you, Nick, and good morning, everyone, and thank you for joining the Community Bank System Q1 2024 Earnings Call. This quarter was a good illustration of the benefit of our diversified financial model. Our market sensitive recurring fee income businesses showcased their strength and fully offset margin pressure in our banking business, leading to another quarter of revenue of record revenue for the company. We normalized the expense growth rate while continuing to invest in all of our businesses. Our below average risk profile remains firmly rooted in the low credit risk intensity and exceptional liquidity of our balance sheet.

Speaker 1

During the quarter, we also modestly increased our qualitative assessment of Banking business, growth continued in our commercial, mortgage and consumer installment portfolios. Strong loan growth of $179,000,000 was more than fully funded through deposit growth of $424,000,000 Market share gain opportunities remain attractive across our footprint as many competitors are limited by their liquidity profiles. Pipelines remain excellent with particular strength in C and I compared to prior quarters. We also formally announced our branch expansion plans with 14 locations expected to open in the next 5 quarters, 2 in Buffalo, 3 in Rochester, 3 in Syracuse, 2 in the Capital Region, 2 in the Lehigh Valley, 1 in Springfield, Massachusetts and our first location in New Hampshire. In our Employee Benefit Services business, we are now benefiting from both new client counts and market appreciation.

Speaker 1

Revenue growth was 7.9% and we also closed on the acquisition of Creative Plant Designs during the quarter. Looking forward, the organic momentum remains strong and market values remain supportive. Our Insurance Services business was relatively flat terms of revenue performance due to the timing of certain commercial premiums and lower contingency revenue. However, both the organic and inorganic growth opportunities remain attractive for 2024. Our Wealth business had a record revenue quarter with double digit gain in revenue and increased inflows.

Speaker 1

Our Wealth team is energized and focused on increasing penetration levels while also launching a number of new service offerings on a nationwide basis. Overall, I'm encouraged by our operational execution this quarter as evidenced by the improvement in pretax pre provision net revenues over the prior two quarters. In terms of capital deployment, we closed on both a number of smaller acquisitions in our fee income businesses and also repurchased 750,000 shares at what we deem to be very attractive levels given the intrinsic earnings power of our company. I will now pass it on to Joe for more details.

Speaker 2

Thank you, Dimitar, and good morning, everyone. The company recorded $0.76 of GAAP diluted earnings per share in the Q1. This compares to $0.11 in the Q1 of 2023 and $0.63 in the linked Q4 of 2023. As a reminder, during the Q1 of 2023, the company recorded a $52,300,000 pretax realized loss on the sales of certain available for sale investment securities in connection with the company's balance sheet repositioning strategy, which negatively impacted GAAP diluted earnings per share by $0.75 in that quarter. Operating diluted earnings per share, which excludes certain non operating revenues and expense as delineated in this morning's press release were $0.82 in the Q1 and linked 4th quarter as compared to $0.92 in the Q1 of the prior year.

Speaker 2

The $0.10 decrease in operating diluted earnings per share from the prior year's Q1 was driven by a decrease in net interest income and increases in the provision for credit losses, operating expenses and income taxes offset in part by an increase in operating noninterest revenues. On a linked quarter basis, a decrease in operating expenses and an increase in non interest revenues were offset by a decrease in net interest income, a higher provision for credit losses and an increase in income taxes. Operating pretaxpreprovisionnetrevenuepershare as defined in the press release was $1.18 for the Q1. This was up $0.05 per share over the linked 4th quarter, but $0.04 per share below the prior year's Q1. During the Q1, the company recorded total revenues of 177 $300,000 This established a new quarterly record for the company and highlights our diversified business model.

Speaker 2

Higher levels of operating non interest revenues in our banking, employee benefit services and wealth management services businesses overcame declines in net interest income and insurance services revenues in both the linked quarter and the prior quarter. The company recorded net interest income of $107,000,000 in the 1st quarter as compared to 100 $9,200,000 in the linked 4th quarter. Despite solid loan growth in the quarter and an improvement in yield on interest earning assets, pressure on funding costs did not abate. During the quarter, the company continued to experience a migration of customer deposit balances from lower rate checking and savings accounts to higher rate funding market and time deposits increasing the cost of deposits 16 basis points in the quarter from 98 basis points in the linked 4th quarter to 1.14% in the 1st quarter. When combined with higher borrowing costs, the company's total cost of funds increased 23 basis points from 1.08% in the linked 4th quarter to 1.31% in the 1st quarter.

Speaker 2

This outpaced a 13 basis point increase in interest earning asset yields resulting in a 9 basis point decrease in the company's fully taxable net interest margin from 3.07% in the Q4 of 2023 to 2.9% in the Q1 of 2024. Comparatively, the company reported net interest income of $111,000,000 in the Q1 of 2023. We believe the Q1 net interest income result of $107,000,000 represents bottom for the company in 2024 and the outlook remains positive for net interest income expansion a full year basis. As mentioned previously, operating non interest revenues were up in 3 of our 4 businesses on both an annual quarter and linked quarter basis. Banking related non interest revenues were up $1,800,000 or 11.1 percent over the same quarter of the prior year, driven by increases in debit interchange and ATM fees and loan placement and advisory revenues, while employee benefit services and wealth management services revenues were up $2,300,000 or 7.9 percent and $1,000,000 or 11.7 percent respectively over the same period driven by favorable investment market conditions and employee benefit plan participant growth.

Speaker 2

Insurance services revenues were down approximately $400,000 or 3.6 percent due to timing differences on certain commercial policy renewals and insurance carrier related contingency revenues. On a linked quarter basis, banking related non insurance revenues were up slightly, while employee benefit services revenues and wealth management services revenues increased $1,700,000 or 5.6 percent and $1,300,000 or 16.5 percent respectively. Insurance services revenues were down approximately $500,000 or 4.2%. During the Q1, the company recorded $118,100,000 in non interest expenses. This represents a 4 0.5 percent increase from the prior year's Q1 and an $11,000,000 or 8.5 percent decrease from the linked 4th quarter results.

Speaker 2

Total operating non interest expenses, which excludes certain non operating expenses as detailed in the company's press release, were $114,400,000 in the quarter as compared to $110,300,000 in the prior year's Q1 and $116,400,000 in the linked 4th quarter. As mentioned on last quarter's earnings call, although the company will continue to make front footed investments in its leadership team, talent across all lines of business, data systems and risk management, operating expense growth is expected to moderate in 2024. The Q1 results were consistent with these expectations. The company recorded a $6,100,000 provision for credit losses during the Q1 of 2024. This compares to $3,500,000 in the prior year's first quarter and $4,100,000 in the linked Q4.

Speaker 2

Although the company's credit metrics remain strong during the Q1, the company built loss reserves reflective of an increase in our qualitative assessment of future uncertainty. The company's allowance for credit losses stood at $70,100,000 or 71 basis points of total loans outstanding at the end of Q1, up $3,400,000 or 2 basis points in the quarter and up $6,900,000 or 1 basis point over the prior year's Q1. The effective tax rate for the Q1 of 2024 was 22.9%, up from 16.9% in the Q1 of 2023. Excluding the impact of tax expense and benefits related to stock based compensation activity and income tax credit amortization, the effective tax rate for the Q1 of 2024 was 22%, up from 21.4% in the Q1 of 2023. Ending loans increased $178,900,000 or 1.8 percent during the Q1.

Speaker 2

This marks the 11th consecutive quarter and is reflective of the company's continued investment in its organic loan growth capabilities. Although outstanding balances in the Consumer Mortgage and Consumer Indirect segments increased in the Q1 despite seasonal headwinds. The primary driver of loan growth in the quarter was the $135,800,000 or 3.3 percent increase in the company's business lending portfolio. The company's ending total deposits increased $423,900,000 or 3.3 percent during the Q1 of 2024, driven by seasonal inflows of municipal deposits. Ending deposits also increased $241,400,000 or 1.8 percent from 1 year prior.

Speaker 2

Although funding costs continue to increase in the Q1 as previously noted, non interest bearing and low rate checking and savings accounts continue to represent almost 2 thirds of total deposits and the company's cycle to date deposit beta of 20% continues to be one of the best in the banking industry and reflects the strength of the company's core deposit base. The company's liquidity position remains strong, readily available sources of liquidity including cash and cash equivalents, funding availability at the Federal Reserve Bank's discount window, unused borrowing capacity at the Federal Home Loan Bank of New York and unpledged investment securities totaled $4,600,000,000 at the end of the first quarter. These sources of immediately available liquidity represent over 200% of the custom company's estimated uninsured deposits and net of collateralized and intercompany deposits. Company's loan to deposit ratio at the end of the Q1 was 74%, providing future opportunity to migrate lower yielding investment security balances into higher yielding loans. At the end of the Q1, all the companies and the bank's regulatory capital ratio significantly exceeded well capitalized standards.

Speaker 2

More specifically, the company's Tier 1 leverage ratio was 9.01%, which substantially exceeded the regulatory well capitalized standard of 5%. During the Q1, the company repurchased 750,000 shares of its common stock at an average price of approximately $46 per share. The company recorded net charge offs of $2,800,000 or 12 basis points of average loans annualized during the Q1. This is up slightly from 10 basis points in the 4th quarter and 7 basis points in the same quarter of the prior year with increases primarily attributed to consumer indirect loan the indirect loan portfolio. At March 31, 2024, nonperforming loans totaled $49,400,000 or 50 basis points of total loans outstanding.

Speaker 2

This represents a decline from $54,600,000 or 56 basis points of total loans at the end of the linked 4th quarter. Non performing loans were $33,800,000 or 38 basis points of total loans 1 year prior. Loans 30 to 89 days delinquent were also down on a linked quarter basis from $48,400,000 or 50 basis points of total loans at the end of 2023 to $42,100,000 or 43 basis points of total loans at the end of the Q1. Overall, the company's asset quality remains strong in the quarter. We believe the company's diversified revenue profile, strong liquidity, regulatory capital reserves, stable core deposit base and historically strong asset quality provide a fundamentally solid foundation for future opportunities and growth.

Speaker 2

Looking forward, we are very encouraged by the revenue outlook in all four of our businesses. We will continue to lean into growth and prudently deploy capital in line with the interest of our shareholders. That concludes my prepared comments. Thank you. I'll now turn it over to Nick to open the line for questions.

Operator

Our first question comes from Manuel Nivas with D. A. Davidson. Please go ahead.

Speaker 3

Hi, this is Sharon Gee on for Emmanuel. Thank you so much for taking my question.

Speaker 2

Good morning.

Speaker 3

Good morning. So OpEx this quarter was much better than expected. What are your some of your expectations for the OpEx run rate going forward?

Speaker 1

Yes.

Speaker 2

We believe our run rate for OpEx will kind of be contained I'll call them historic levels of about mid single digits, call it 3% to maybe 3% to 6%. We invested pretty heavily in a lot of our infrastructure and talent and technology last year, which kind of increased the OpEx run rate, but they were kind of most of them are front footed investments. I mean, obviously, there were some wage pressures as well. But we expected that to sort of come down, if you will, in 2024. And I think the Q1 is, I think, a pretty good data point for us from the standpoint of what the expectations are going forward.

Speaker 3

Great. Thank you. And do you have any updated thoughts on the pace of the buybacks given strong loan growth?

Speaker 2

Yes. We would expect that the pace will slow a bit. I wouldn't expect to purchase an additional 750,000 shares going forward. We just had an opportunity at these levels. So we took advantage of that, if you will.

Speaker 2

Generally, our philosophy over the years has been to generally buy back the I'll call it the equity plan issuance during the year and potentially a little more in this case with the current price points.

Speaker 3

Thank you. I think that's it for now. Thank you again for taking my question.

Operator

Our next question comes from Steve Moss with B. Riley FBR. Please go ahead.

Speaker 4

Hey, good morning guys. Just sorry, I hopped on late here, but I do want to maybe start on the loan pipeline. You guys showed good commercial loan growth this quarter. Just curious as to where what you're seeing for economic activity and the opportunity there?

Speaker 1

Good morning, Steve. It's Tim Athar. Our pipeline is strong. Our pipeline is actually stronger than it was at the end of last year and probably stronger than it's been the past couple of quarters. I will say the difference in our pipeline on the commercial side, and I really should preface it that it's the commercial pipeline I'm talking about, is that we have successfully changed the mix there quite dramatically, which we've been working on over the past few quarters from commercial real estate into C and I.

Speaker 1

And over well over half of our pipeline today is in C and I. That takes a little bit longer to close. So you may not see the same pace of growth even with a lower with a higher pipeline. But it's there. It's just going to transpire a little bit later, I think, in the year some of those things to close.

Speaker 1

So the activity is strong, as I mentioned. It's the same thing on the mortgage side. Our pipeline today is higher than it was a year ago As we've talked our consumer installment business, we take a little bit more of a price versus growth equation in that one. So with that said, I mean, the our competitors, a lot of them remain constrained, be it liquidity, be it capital, be it optimizing risk weighted assets. So there is a lot of market share opportunity for us.

Speaker 1

And our markets as well continue to remain resilient and with more than the average historical economic activity. If you look at Central New York, some of the data that some of the local organizations have gathered in terms of economic development, Central New York has 10x the amount of economic development today in the pipeline than it did 5 years ago. That, by the way, does not include any of the semiconductor corridor investments. So a lot going on in our markets in a positive way and we're really well positioned to continue to take market share.

Speaker 4

Okay. Really helpful. Appreciate the color there, Devittar. And just curious as to what's the add on rate for new loans these days for you guys? Yes.

Speaker 1

We're right smack in the mid-7s, which is where we've been in the past couple of quarters. So really pricing has remained pretty firm here in terms of our new originations.

Speaker 4

Okay. Appreciate that. And then in terms of just the margin here, I realize your deposit there remains and your funding costs are being really low relative to Fed funds. Curious how you're thinking about the margin here if we stay in a higher for longer environment. Do you continue to see funding creep?

Speaker 4

And is there I know the securities reprice a little longer dated. So just curious around see some more margin pressure in the next couple of quarters?

Speaker 2

Yes. So Steve, this is Joe. Good morning. I will address that. So our expectation and I made it or said it in my prepared comments is that we expected the Q1 NII outcome, net interest income outcome to kind of be the bottom for us.

Speaker 2

That's still our expectations even in a higher for longer scenario. We do expect the NII to step up in the remaining quarters of 2024 and hopefully outpace the full year result from 2023. Obviously, there's a lot of variables that could change between now and the end of the year. But just some things to think about is that in the trailing 12 month period, we had about $1,300,000,000 of principal payments and prepayments on the loan portfolio and originated about 2,200,000,000 dollars for net growth of about $900,000,000 over a trailing 12 month period. So there's a turnover component, if you will, on the earning asset side as these 5.20 or so loans that are on the books now, the current book yield, as they're rolling off, they're being replaced by 7.5% new paper.

Speaker 2

So I think that provides us a significant potential lift on the earning asset side. On the liability side, I said it in the prepared comments, but we do expect kind of some of the pressures on funding to abate. With that said, if rates continue to move up on the long end, those pressures will probably still be present. But right now, our expectations are that the cost of deposits are not going to grow in the quarters going forward at the same rate they had been in the trailing quarters. So that sort of hints at NII expansion.

Speaker 2

The net interest margin, we booked $298,000,000 on a tax equivalent basis in the quarter. The expectation is the margin may creep up a couple of basis points to flat, but the expectation is that we'll be able to expand net interest income on a go forward basis. Obviously, deposit balances will make a difference and kind of how what the outcome is there and their ability to support continued loan growth. Because if we move from a little over 1% deposit base to a 5% borrowing, that could be expensive. So that's one of the caveats as we have kind of look and manage the deposit balances.

Speaker 2

There's obviously migration continued migration to higher cost deposits that will impact the overall cost. And obviously, the slope of the yield curve matters as well. So there are some, call it, some components that could affect the outcome, but our expectation is that NII will expand moving forward.

Speaker 4

Okay. Appreciate that. And then in terms of the insurance business here, and maybe just in both insurance and employees benefits, I realized I think I heard there was timing issues for the insurance revenues this quarter. Just I assume it's still a hard market and just any update you can give on revenue growth there and it's been a strong market for stocks and bonds and or more stocks and bonds, but nice pickup on employee benefits, just kind of thoughts there as well.

Speaker 1

Sure. This is Steve. I'll start with the insurance business. We continue to believe that both the organic expansion in terms of new clients and higher rates is going to be positive this year. And in addition, we do have a very good pipeline in terms of inorganic add ons as well.

Speaker 1

So as you think about the revenue growth in that business, we've grown at double digits over the past 3 years. We still think that kind of high single digit is probably achievable for this year. As the business is getting bigger, that double digit number is continuing to increase as well, but the opportunities are strong. And we did have some what we consider to be just timing cutoffs and mismatches this quarter, which kind of muted a little bit of the revenue performance. But full year expectation for the businesses is still very positive.

Speaker 1

On the employee benefit side, we've been talking for years about adding a lot of new customers and a lot of new lives on the platform. That's been the case. It's just been muted for those couple of years because the asset values were too low. And you're now seeing both those new units, if you will, and the asset values come together. And we had a great quarter, and our expectation is that that's going to continue.

Speaker 1

We did acquire Credit Plan Designs, and we did not have much revenue in this quarter from that acquisition as well. So there is some back end second half of the year loaded revenue from the acquisition activities as well.

Speaker 4

Great. Appreciate all the color there, Devinder. Thank you.

Operator

The next question comes from Christopher O'Connell with KBW. Please go ahead.

Speaker 5

Hey, good morning. Just wanted to follow-up on the fee discussion. I realize that markets are strong, but Wealth Management, the uptick was pretty strong there as well as the BPAS group there. Is that a good sustainable run rate on a go forward basis?

Speaker 1

Yes. I think, Chris, I mean, our Wealth business is very much the same story as our Employee Benefits business. Folks have been really busy on adding more clients over the past couple of years. And again, that growth has been a little bit muted. So if market values stay where they are, yes, that will be a very close run rate for us for the rest of the year in that business.

Speaker 1

So look, we've got 4 businesses. We always talk about our 4 businesses. That's how we run the company. If you think about our company, we've got 4 engines to our bolt, which is a couple of engines more than most. And right now, our Wealth business and our Employee Benefit Services business are revving up.

Speaker 1

Our insurance business, as we mentioned, ran a little bit lower, but we expect it to rev up over the rest of the year. And our banking engine is a little bit sputtering on the interest income side, but the gas tank is full. And as we mentioned, if we do get some slowdown really in the mixing of the deposit base, that's going to start contributing quite meaningfully. So we feel pretty good about the organic and market value driven and inorganic growth across all of those 4 businesses for the year.

Speaker 5

Great. And I apologize if I missed it, but did you guys say how much the Creative Plan Designs acquisition adds in terms of revenues?

Speaker 1

It's going to be somewhere between $3,000,000 $4,000,000 for the year.

Speaker 5

Great. And you mentioned a couple of times, I think in the prepared remarks, the inorganic acquisition opportunities, can you just talk about where you're seeing the greatest opportunities on the fee business side? And then a little bit about what you're seeing and how the markets progressed in terms of the traditional bank M and A side?

Speaker 1

Sure. So we're pretty active in terms of what we would consider to be kind of roll up acquisitions. And those have been predominantly in our insurance business over the past couple of years. I think we've done about 11 the past 3 years. So as you can imagine, there's 3 to 4 to 5 kind of books of businesses that we're tucking in, and that's across various geographies for us where we're present.

Speaker 1

So that pipeline remains just as strong as it was last year, and I fully expect that we'll be doing another 3 or 4 or 5 tuck ins in the insurance business. Our employee benefits business, we've done, I think, 3 tuck ins so far this year. They vary in size with Creative Plan Designs being the larger one. The other ones are kind of $500,000 $1,000,000 here and there. So they add up over time, and that's part of our business model is to continue to deploy capital in those very attractive segments.

Speaker 1

In our Wealth business, we, I would call it, acquire practices every once in a while. So every year, we will probably have an opportunity to do 1 or 2 of those. Again, they're more like acquihires, if you will, somebody just moving on to our platform and we paid them for a book of business. So that's kind of on in those three businesses. On the bank side, as we mentioned in the prior call, we remain very interested in pursuing acquisitions.

Speaker 1

We have a bit of a different plans today than we did 4 or 5 years ago. That doesn't mean that we're not really interested in bank transactions. There's been a little bit more of a pickup in the way of discussions, I would call it. But we all know the hurdles, right, in terms of rates and marks and values. And so a lot of things need to come together for those to happen, but we remain engaged on that side of the business as well.

Speaker 5

Great. That's helpful. And then can you talk a little bit about what you're seeing on the credit side of all the trends, it looks very solid this quarter in terms of NPAs and delinquencies. But you mentioned that the reserve, you brought up a little bit on the business funding in consumer and direct portfolios. Is there anything that you're seeing there that's different or where credit costs may pick up in those segments over time?

Speaker 1

Yes, good question, Chris. So on the credit, look, our outlook has not really changed much. And we believe that with an unemployment rate of under 4%, a tremendous amount of government spending and nominal GDP growth of 5%, the outlook for credit is positive across the board. Having said that, if you just think about the distribution of probabilities, if you will, this quarter, at the end of this quarter versus last quarter, if we are to remain in a bit of a higher for longer scenario, eventually, the higher cost of credit has to feed through and find its way into the real economy. So we looked at our model, which actually suggested a little bit of a lower quantitative outcome compared to prior quarters.

Speaker 1

And I don't think that that's a big surprise. You've seen a lot of banks actually release reserves this quarter. We just didn't think that it was appropriate for us given the outlook. And our loss coverage remains very, very strong. I mean, we've got if you take our 12 basis points of losses this quarter, we've got 6 years' worth of losses in the ACL.

Speaker 1

So that remains very strong. We just felt that given the qualitative outlook for maybe higher for longer and maybe a little bit more pressure over time at some point in the portfolios. It will just put them to add a little bit.

Speaker 5

Great. Thanks, Timtar. Appreciate the color.

Operator

Our next question comes from Matthew Breese with Stephens Incorporated. Please go ahead.

Speaker 2

Hey, good morning everybody.

Speaker 6

Joe, you had mentioned a little bit that you're starting to see the increase in deposit costs starting to slow over time. And I was curious if you look at the composition of deposits, if that is matching up with stability, particularly in the lower cost categories as well? And along those lines, have you had any sort of projections as to where we might see DDAs kind of settle out later this year?

Speaker 2

Yes. I'm not sure, Matt, that I can give you precisely where the time deposit mix will be at the end of the year. I would say that the migration that we saw in Q1, the expectation is that would slow just a little bit throughout the year. We think that more most of the rate sensitive deposits, if you will, have found their way to generally to higher cost funds. I would have said the same thing last quarter.

Speaker 2

But the expectation is that, that migration will slow a bit, but probably will continue just maybe not at the same pace that it has been kind of moving through. So with that said, will there be additional increases in the overall cost potentially throughout the year. But we also think that the rate of increase on the deposit side will slow a bit. The one thing that's also worth noting Matt is that for us in particular, we have seasonal inflows of municipal deposits that occurred in the Q1. And so there was some migration, if you will, from a consumer checking account into a municipal account for tax collection at a higher rate.

Speaker 2

And so a little bit of our cost escalation on the deposit side was due to the municipal accounts. So some of that will slow a bit, if you will, as well. So that's why kind of the expectation of not, I'll call it, the same rate of increase on deposit costs as we've kind of had the last couple of quarters.

Speaker 5

Got it.

Speaker 6

Okay. And then the other part is, I think this is from a prior call, but there's not much in the way of securities kind of maturing or cash flow coming back to you this year. The yield is well below market rates. And I was curious if you in a greater way have considered securities restructuring to kind of get that book up to market rates?

Speaker 1

I think, Matt, so you're right. Obviously, we as most of our folks have a securities portfolio that's below market. And there are pieces though of the securities portfolio that are much closer to market. And in this Q1, we identified a decent amount of those securities and kind of the rates ran away from us in the second half of the quarter. But if there's a bit of a rate pullback, we have a not insignificant amount of potential liquidity in the portfolio that we could really set values pretty close to par.

Speaker 1

So I think that's how we're looking at it. In terms of something similar to what we did last year, it for us, it does come back to net present value of those cash flows. So last year, when we did our restructuring, I think the 10 year was below 4. We pulled forward 3 years' worth of cash flows, and we're getting those back now with the higher for longer scenario for probably 18 months instead of 2 years that we estimated initially. So very positive end to the transaction.

Speaker 1

If we have another opportunity to do so, we're going to look into it. But my guess is until we get kind of that 4 handle, and again, as a reminder, our portfolio is 85% treasuries. So it is very certain in terms of outcome, but it is tied to that treasury curve.

Speaker 6

Got it. Okay. And then last one for me is, Dimitore, on whole bank M and A, it feels like deals are more under the microscope from a regulatory perspective than ever. Certain deals that you expect to be fairly routine taking longer or haven't gotten done. And I was curious if that's played into your thinking or how that might be a competitive advantage given all the deals over the years?

Speaker 1

Yes. I think, Matt, it does. We feel like we've got a very good track record of execution. So to your point, it does enable us to make a case and differentiate ourselves in discussions. I think what this does though, if you're just kind of sitting there and thinking about capital deployment is, you've got now uncertainty on timing.

Speaker 1

And in our experience, deals and acquisitions don't get better over time as they sit in uncertainty. So the question is how do you price that uncertainty in the transaction? And that's also a hard discussion to have with a seller, right, because it's kind of no one's fault. But clearly, that asset is going to be worth less to us in 18 months than it is in 9 months and than it is in 6 months. So that's something that's kind of percolating in the back of some of those discussions.

Speaker 1

It's hopefully that as we get more transactions kind of through the pipeline as an industry, there will be a little bit more of a playbook. Right now, the playbook is also a little bit uncertain because every agency came out with kind of new proposed rules and they're proposed, but sometimes that means a little bit more than just proposed. So we have to evaluate all of that as we think about capital deployment.

Speaker 6

Great. That's all I had. I'll leave it there. Thank you.

Operator

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

Speaker 1

Thank you, Nick, and thank you, everybody, who participated and listened to our call. We really appreciate your support and interest in our company, and we look forward to speaking to you after the Q2. Thank you.

Operator

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

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