Earnings Transcript for LBAI - Q1 Fiscal Year 2022

Operator: Good morning, and welcome to the Lakeland Bancorp, Inc. First Quarter Earnings Conference Call. My name is Elliot, and I'll be coordinating your call today. [Operator Instructions]. I would now like to turn the conference over to Mary Russell, Assistant Controller and Director of Financial Reporting. Please go ahead, ma'am.

Mary Russell: Thank you, Elliot. Good morning, ladies and gentlemen, and thank you for joining us on our first quarter earnings call. Today's presenters are President and CEO, Thomas Shara; and Executive Vice President and Chief Financial Officer, Thomas Splaine. Before beginning the review of our financial results, we ask that you please take note of our standard caution as to any forward-looking statements, which may be made during the course of today's call. Our full disclaimer is contained in this morning's earnings release, which has been posted to the Investor Relations page on our website, lakelandbank.com. Now it is my pleasure to introduce Thomas Shara, who will offer his perspective on our first quarter. Tom?

Thomas Shara: Thank you, Mary. Good morning, everyone, and welcome to our first quarter earnings call. I'm joined this morning by Tom Splaine, our CFO, who will walk you through our earnings, including the purchase accounting impacts from 1st Constitution. As it relates to 1st Constitution, we closed the merger on January 6 and completed the conversion on February 14. The conversion went extremely well, and we are thrilled with the receptivity of the customer base and are very impressed with the enthusiasm and energy of our new associates. Some highlights for the quarter are organic loan growth for the quarter ex PPP was approximately $100 million or 1.2%. We experienced growth in every category except PPP and warehouse, both of which declined $30 million for the quarter. For mortgage warehouse, the first quarter is seasonally a slow quarter and was further impacted by the downturn in mortgage lending, which also impacted our gain on sale results for the quarter. And Tom will talk more about that in a minute. Based on current trends, we do expect that the warehouse group will gain back all of the $30 million in the second quarter. We do expect PPP to completely run off either late second or early third quarter of this year. I'm happy to report that commercial closings for the first quarter were up 34% from last year's first quarter and the pipeline at the end of the quarter was at record levels. Very little of that increase is coming from the 1st Constitution teams as they were focused primarily on our conversion and customer retention in the last few months. Our healthcare lending team had tremendous momentum going into the quarter, and we expect them to have a strong year as well. Recently, we are also starting to see opportunities for new relationships as a result of larger bank M&A in our markets, which will be beneficial in the subsequent quarters. Overall, we expect stronger loan growth in the second quarter and for the balance of the year. As we reported in past quarters, prepayments for this quarter remained elevated. We do anticipate prepayment speeds to slow with a rapid rise in interest rates this quarter. On the residential mortgage side, with rates moving from the low 3s to the low 5s in the quarter, originations declined 55% versus the first quarter of last year with new finance activity down 68%. We were able, however, to put some well-priced jumbos and arms on the balance sheet this quarter, and we'll continue to look at that opportunity going forward. Based on the current mortgage pipeline, we expect an uptick in 2Q originations entering the spring sales season. On the deposit side, deposits increased organically 2% for the quarter in spite of a larger decrease in time deposits. Non-interest-bearing deposits were up 3.3% last quarter and now totaled 26% of total deposits. Core deposits now make up 90% of our total deposits. On the credit side, credit remained very solid. For the quarter, net charge-offs totaled $7.6 million, all of which was the 1st Constitution and were fully disclosed during due diligence. For the legacy Lakeland Bank net charge-offs for the quarter was negligible. Non-performing assets to assets at the end of the quarter were 19 basis points. The allowance finished the first quarter at $67 million or 94 basis points of loans versus 58 and 97 basis points at year-end. Regarding our dividend based on our continued growth and positive outlook, the Board authorized a 7.4% dividend increase payable in May. Our dividend payout ratio will remain in the low to mid-30 range, consistent with our cash payout ratio. I'd like to point out that our compounded annual growth rate of our dividend over the last 10 years has been approximately 9%. As it relates to the Central and Northern New Jersey economy, we remain healthy. New Jersey's unemployment rate continues to drive lower and stands at 4.2%. Through March, the status recovered 93% of the jobs lost are in the pandemic. Our commercial customers are reporting strong results with a positive outlook, although there are some concerns around inflation, supply chain challenges and in some cases, a lack of staffing, which is slowing new sales a bit. Overall, the local economy remains very strong. That concludes my remarks. Now I'd like to turn over the balance of the presentation to Tom. Once he's concluded with his comments, we're happy to answer your questions. Tom, take it away.

Thomas Splaine: Thank you, Tom, and Good morning, everyone. Lakeland's financial results for Q1 include the acquisition of 1st Constitution Bancorp which was completed in January this year. The acquisition was accounted for under the acquisition of [indiscernible]. And accordingly, the assets acquired and the liabilities assumed in the acquisition were recorded after estimated fair values as of the acquisition date. 1st Constitution results of operations have been included in the company's consolidated statements of income from that date forward. For Q1, our net income was $15.9 million or $0.25 per diluted share compared to the fourth quarter of 2021 of $22.2 million or $0.43 per diluted share and the first quarter of 2021 of $23.2 million or $0.45 per diluted share. Q1 financial results, as Tom mentioned were significantly impacted by the acquisition accounting including merger-related expenses of $4.6 million and the CECL day 1 provision for credit losses on 1st Constitution loans considered loan purchase credit impaired of $4.6 million. The non-PCD provision was significantly less than our estimated $16 million provision due to the final classification of acquired loans as of the merger completion date and the improved macroeconomic conditions. The rapidly changing interest rate environment creates an opportunity for us to deploy excess cash into investment securities during the quarter. While these tailwinds from the rising interest rates positively impacted net interest income, those same higher rates have prompted headwinds for our newly acquired business lines of warehouse lending and residential mortgage banking business. We expect these headwinds to persist in the short term. These items were partially offset by continued earning asset growth and a remixing of the balance sheet into higher-yielding assets. On the balance sheet, as Tom mentioned, our loan portfolio, excluding 1st Constitution, acquired loans and PPP loans grew organically approximately $100 million as we experienced growth in various loan segments. Loan prepayments remain fairly elevated but lower than the prior 2 quarters, while PPP loan forgiveness has reduced debt portfolio to an insignificant level. The investment portfolio continued to grow in Q1 as we deployed 1st Constitution's excess liquidity to increase net interest income and improve earnings. Investments, excluding the impact of 1st Constitution increased $200 million during the quarter and the portfolio now totals $2.1 billion or 21% of total assets. Total deposits excluding 1st Constitution organically increased $132 million in Q1 or 2% compared to the trailing quarter. Including non-interest-bearing deposits, our cost of deposits remained at 19 basis points for the quarter and continue to remain among the best in our bank peer group. We continue to remix the deposit portfolio by growing non-interest-bearing deposits and interest-bearing transaction accounts while continuing to run off higher rate time deposits. Our average cash balance for Q1 remains slightly elevated due to the acquisition and comprised $4.6 million of average total assets for Q1 compared to a more normalized level of 2.3%, which is where we finished 2021. Our capital position remains strong, and we continue to accrete capital through earnings retention. During Q1, including the impact of the 1sr Constitution acquisition, all regulatory capital ratios increased except total risk-based capital ratio, which decreased slightly. Our tangible common equity to tangible asset ratio decreased 24 basis points or 2.9% to 8.07% at March 31, 2022, compared to 8.31% at December 31, 2021. The mark-to-market impact of increasing interest rates on our available for -- available-for-sale investment portfolio was muted by management's transfer of $500 million of longer duration securities to held to maturity back in the summer of 2021. We did not repurchase any common stock in Q1 under our existing authorized share repurchase program which has 2.4 million shares remaining to be repurchased under the program. We will be commencing share repurchases during Q2 to provide support for the stock and further increase shareholder value. As Tom mentioned, the Board of Directors authorized an increase in the quarterly cash dividend per common share by 7% to $0.145 per quarter. On the income statement, our net interest margin expanded 4 basis points versus the trailing quarter as the excess liquidity deployed in the later part of Q4 into loan growth and investment portfolio favorably impacted earnings. Net interest income accretion on 1st Constitution's acquired loans, investments and deposits resulted in a $320,000 reduction in net interest income in Q1 and will not be a significant factor in 2022. Our provision for credit losses was an expense of $6.3 million for the current quarter compared to $400,000 in the trailing quarter as well as a benefit of $2.7 million in the prior-year quarter. The current quarter provision was comprised of a $4.6 million credit losses on loans, a $1.2 million credit losses on investments and a $400,000 credit losses on unfunded loan commitments. The Q1 $4.6 million provision for credit losses on loans was entirely related to the CECL day 1 provision on non-PCD acquired loans. The provision for credit losses on investments was a result of the decrease in the market value of securities based on interest rates and not based on any credit downgrades of the securities. Non-performing assets decreased 2 basis points for the quarter to 19 basis points of total assets and credit remains stellar. The Q1 charge-offs was $7.8 million are entirely related to the acquired 1st Constitution purchase credit deteriorated loans. At March 31, 2022, the allowance for credit losses on loans represented 94 basis points of total loans compared with 97 basis points in the trailing quarter. Non-interest income increased $900,000 to $6.8 million versus the trailing quarter due to higher gain on sales on residential mortgages and SBA loans due to the addition of the 1st Constitution business lines. However, this was well short of the budgeted results due to the rapid increase in market interest rates. Q1 operating expenses were negatively impacted by non-recurring merger-related expenses of $4.6 million. Excluding merger-related expenses, operating expenses increased $9.8 million from the prior quarter, mainly due to the addition of 1st Constitution associates, additional new Lakeland hires and the related medical and benefits expense. The expected cost savings from the merger will begin to be realized in Q2 as we converted 1st Constitution records to our systems during Q1. Our efficiency ratio of 58% for Q1 includes previously discussed merger-related expenses as well as 1st Constitution expenses for personnel and systems, which will not be reoccurring after Q1. Our Q1 effective tax rate was 23.9% as compared to 23.4% in the trailing quarter. Regarding our outlook for the remainder of 2022, the forecast is complicated by the rapidly changing interest rate environment and the Federal Reserve Bank's anticipated move to curb inflation. We believe that we are well positioned for rising interest rates. Our projected interest rate risk position shows that we are currently asset sensitive, and this increases over time. With the current excess liquidity in the financial system, as noted by the current low loan-to-deposit ratios, it is likely that deposit betas will be much lower than model deposit betas, which will increase net interest income in the near term. With the continued deployment of liquidity into loans and securities at the higher market rates, we anticipate net interest margin will increase 4 basis points to 5 basis points in Q2. As Tom discussed earlier, we expect the loan portfolio to grow organically in the mid-single digits in 2022 and asset quality to remain high. Non-interest income for 2022 is expected to be approximately $7 million to $8 million per quarter, down from prior forecasts due to the increased interest rates negatively impacting our expanded residential mortgage secondary marketing and the SBA loan origination capacity acquired in the 1st Constitution merger. We have experienced renewed borrower interest in loan swaps, which may partially offset the reduction in gain on sale activity. Non-interest expenses for 2022 including merger-related costs are on track to total in the high $170 million range, inclusive of the higher run rate in Q1. Salary and benefit expenses are likely to be higher than previous years due to the current hiring conditions companies are facing and hiring quality employees and our continued development of our digital initiatives. Income tax expense for 2022 is forecasted to be reduced to approximately 24% to 24.5% for the year. That concludes our prepared remarks, and we'll be happy to address any questions. With that, Elliot, can you open the question period for us, please?

Operator: [Operator Instructions]. Our first question comes from Frank Schiraldi from Piper Sandler.

Frank Schiraldi: Just want to make sure I heard your comments right in the beginning on the call. If you talk about mid-single-digit loan growth in 2022, does that include mortgage warehouse from FCCY?

Thomas Shara: It does, but we expect that to be muted, Frank, just based on current conditions. So we expect them to recover the runoff they experienced in the first quarter. But the growth trajectory there will be slower than we originally thought, just based on mortgage conditions.

Frank Schiraldi: Sure. And then I just want to make sure I understand the CECL mark. Just the charge-offs that came on the 1st Constitution side. You mentioned, it seemed that those were credits that were familiar to you as potentially meeting charge-offs. Is that why the CECL mark came in lower than you guys had anticipated as sort of the charge-offs, the difference or part of the difference?

Thomas Shara: Yes, you're on the right trail there, Frank. We -- the allocation of loans identified as purchase credit repaired increased, reducing the non-PCD mark that goes through income. And the PCD loans, grossing them up under the accounting rules, the $12 million being allocated to the allowance for loan loss for them and a subsequent to $7.6 million charge-off of those loans down to the current level. It's just a reallocation of how the loans are identified coming on to our books.

Frank Schiraldi: Got you. Okay. And then, Tom, you also mentioned the continued capital accretion, you guys talked about buybacks. I wondered if there's any more color you could give on buyback levels and how that might translate to capital levels going forward throughout the year?

Thomas Shara: Yes. Right now, Frank, as you know, we've had the share repurchase plan in place for a number of years and have been very, very cautious about utilizing it based upon where we were trading. Due to the current softness of bank valuations right now, it's an opportune time for us to step in and be prudent with purchases of shares, but we're not going to be gung-ho about it. We'll do it wisely as we move forward. So we're -- with our TCE ratio currently right now, just above 8% we're mindful of that as we go forward. But we also look at the overall risk of our bank and our operation, we're a low-risk institution. So we have plenty of capital. It's just a matter of picking our spots as we go forward. So we haven't set any firm limits or timing of size of repurchase as we head forward.

Frank Schiraldi: Okay. And just thinking about other uses of capital, I realize you guys just closed on the deal. But just big picture, just your thoughts on M&A here. And has the macro picture gotten uncertain enough where this is sort of, you think, on the back burner here?

Thomas Shara: Frank, I think you're right in that observation. The priority has been on the 1st Constitution merger integration, that's gone exceptionally well. And we're going to stay focused on that for the time being, Frank. So I don't think it's likely that you'll see us pursuing M&A. To your point, I think the macroeconomic conditions are a little uncertain right now and it will be difficult to rationalize something. So right now, the focus is entirely on organic growth and leveraging the first constitution customer base.

Frank Schiraldi: Got you. Okay. And then if I could just sneak in one last one. Tom, you mentioned the model betas versus what will likely to actually see just given liquidity in the market. Can you remind us -- or I'm not sure maybe you don't disclose what those model betas are and if you could just -- I think you gave some NII guide that I might have missed.

Thomas Splaine: Yes. On deposit betas, we haven't really pushed them out there, but they're very conservative for money market accounts, we're looking at deposit betas of 70% as well as 20% on savings accounts. So in the current environment, it's with all the excess liquidity right now. We think that actual deposit betas in the short run will be much less than what's being mapped into the interest -- the ALCO models right now. So I hope that answers your question, Frank.

Frank Schiraldi: Yes. But you did -- I got -- or maybe I've misheard -- I heard that for the second quarter.

Thomas Splaine: We said that net interest margin should increase about 4 basis points to 5 basis points next quarter.

Operator: Our next question comes from Manuel Navas from D.A. Davidson.

Manuel Navas: Does the mid-single-digit loan growth guidance include a set amount of residential real estate portfolio. Can you kind of discuss how that will go forward that particular line item?

Thomas Shara: Yes. That's -- Manuel, that's not included in the projection for growth. We're going to evaluate rates in the quarter and subsequent quarters. We're seeing deals priced in the high 4s and low 5s and we may cherrypick some residential mortgage portfolio production to go in portfolio, which would further increase the opportunity for growth for the balance of the year, but we'll be selective about that. And as you know, Manuel, our residential portfolio is one of our smallest portfolios that we have on our books standing around $400 million.

Manuel Navas: Okay. Is that a -- is that an avenue that is impacting some of the fee -- the fee from -- the fee growth from FCCY that you're going to do portfolio loans? Or is it just how the market and the rates are rising?

Thomas Splaine: The biggest impact to mortgage secondary marketing right now, just a rapid increase in rates of people pulling back right now. So salable product has dried up very quickly, the refis and the pull back on rates on the standard 30-year fixed rate mortgages. So some people have been moving to other products that are not as salable in the secondary market. We've been putting those on our balance sheet right now. So they're going on at good yields, and we're very, very comfortable with the credit.

Manuel Navas: Okay. Is -- what are you seeing in current pricing for new loans? What was it for the last quarter? And wh0at is the kind of you're seeing in April? Has like -- has pricing improved yet? And I'm going to ask a question about deposit rates. Go ahead.

Thomas Shara: Yes. We are definitely seeing an improvement in pricing across the board kind of current rates are in the mid 4.5% on the commercial real estate side. A quarter ago, that would have been probably in the high 3s, manual. So we are seeing an ability to price better. And we think that should continue to benefit us going forward.

Manuel Navas: Are you seeing any kind of bad actors in loan competition at the moment?

Thomas Shara: Yes. I think we keep talking about the prepayment speeds, and we are still seeing, believe it or not, 10-year interest only in the 3s. That's mostly insurance companies, GSEs, not necessarily peer banks, Manuel, but there are still hunger for assets out there. That is slowing quite frankly, with the rapid increase in rates. So we hope that stems the tide a bit and it allows us to keep more in portfolios.

Manuel Navas: And I understand that it makes a lot of sense to think of deposit betas being low during the first several hikes. Have you seen any competitors move deposit rates yet? That's my last question for now.

Thomas Shara: Right. At this point, things have been very calm in the local peer markets here. And -- so we haven't seen a lot of pressure there. There are some people -- some of the online banks, I think, have started to inch a little bit, but it's not part of our core relationship driven deposit base here.

Operator: Our next question comes from Chris O'Connell from KBW.

Christopher O'Connell: I was hoping to get a little bit more color on the margin guide. With the liquidity -- excess liquidity levels, you said your longer term kind of get down to 2.3% or so, I believe. Are you expecting to do that relatively near term in the second quarter or over the course of a few quarters here?

Thomas Splaine: We can probably get down there during the second quarter. But it's a function of deposit growth, which continued to be strong in Q1. And -- but it's actively managing the balance sheet and redeploying the liquidity into earning assets. So I think it's achievable in Q2.

Christopher O'Connell: Got it. So I guess, based on your comments around the deposit betas and where the loan pricing is coming on, combined with some of this excess liquidity deployment. And should we be expecting a movement in NIM following the second quarter and kind of 3Q that's a bit larger than that 4 basis points to 5 basis points?

Thomas Splaine: Yes. We don't want to get too far out over ourselves in that rate -- how much rates have moved over the last 90 days. But the trend would be to continue manage as things reprice on a go-forward basis on the asset side as well as the potential of keeping deposit betas well or near 0 would help everyone's NIM in the financial services and spread lenders on a go-forward basis. So I know it's a long-winded answer, but it's -- things are just very uncertain at this point about where the government is heading with rates and balance sheet reductions and the longer end of the yield curve, where does that go?

Thomas Shara: Chris, we do think that over the subsequent quarters, the NIM would naturally move up if we get 50 basis points in May, 50 basis points in July that you're talking about our NIM would naturally move up from there.

Christopher O'Connell: Got it. And can you just remind us of the pro forma balance sheet, how much of the loan portfolio is variable or floating?

Thomas Shara: Right now, we're just under 40% is variable.

Christopher O'Connell: Okay.

Thomas Shara: If you remember 1st Constitution did help with that 44% of their loans repriced with prime or liability.

Christopher O'Connell: Yes, absolutely. And as far as the deposit outlook, given the strong growth the past couple of years here, how are you thinking about just overall deposit flows and balances with rising rates kind of on the rising?

Thomas Shara: Chris, we've never been a CD shop or paid up for deposits, our deposits flow through relationships and mostly on the commercial side. So we expect those to continue to come in 8% to 10% a year. If you look back at our deposit growth, the CAGR is about 8% to 10% as far back as you want to look. So it is something we continue to produce. It's something that we demand as part of a lending relationship with a focus being on non-interest-bearing DDA, which continues to grow double digits year-after-year.

Christopher O'Connell: Great. And then just lastly on the credit, given the moves at the closing merger where the reserve kind of settled out this quarter. How are you thinking about the reserve ratio going forward?

Thomas Splaine: We don't like giving guidance on provisions and where we're going because it's very volatile. But if you looked at our balance sheet and where our credit metrics are right now, Chris, it's very clean. We're coming to a resolution on a couple of the remaining non-accrual loans that we have on the books in Q2 is likely. So things are looking better on the short term and macroeconomic conditions for the CECL model continue to look strong on a go-forward basis. So you put all that stuff together and you kind of say that things are getting better on the credit side on a go-forward basis when you get down to CECL modeling. So I hope that kind of points you in the right direction.

Christopher O'Connell: Got it, yes, that makes sense.

Operator: Our next question comes from Erik Zwick from Boenning & Scattergood.

Erik Zwick: I wanted to follow up one or two questions on the margin first. I know you indicated that the purchase accounting accretion from FCCY in the first quarter, I think it was a negative $320,000. Was there any impact related to Highlands or any other prior acquisitions in the quarter as well?

Thomas Splaine: No, those prior accretions are just running down and not material.

Erik Zwick: And then do you have a schedule for kind of scheduled accretion related to 1st Constitution for the remainder of '22.

Thomas Splaine: We do. It's -- but the impact on the whole amortization schedule goes out over the next 3.5 years, but the impact on 2022 is not a significant item.

Erik Zwick: Okay. And then I think you also mentioned that at this point, PPP is becoming a fairly immaterial impact as well and expect that to be run off by the end of 2Q or 3Q. Do you happen to have the remaining balances and unamortized fees at the end of the first quarter?

Thomas Splaine: Unamortized fees, at the end of March were approximately $600,000.

Erik Zwick: Excellent. Okay. That's helpful. And then a number of banks have started to kind of reassess their non-sufficient fees kind of deposit overdraft fees and strategy. Have you guys given any thought to that? Or are you feeling pretty good with your current positioning in terms of how you assess those today?

Thomas Shara: Yes. We feel good about our overdraft programs. They've always been above board. But we are looking at them and considering some minor tweaks, but we have never relied heavily on overdrafts and our programs are fair with the customer. But we are watching what's going on and we'll probably make a few tweaks in the second quarter.

Erik Zwick: And would you expect any of those tweaks to have a material impact on the level of fees that you're realizing today?

Thomas Shara: Not at all.

Erik Zwick: And then in terms of the loans, curious if you could provide us an update on kind of a commercial pipeline and the balance at the -- into the first quarter relative to the end of the year and just what that mix might look like in terms of kind of maybe product type or C&I versus CRE?

Thomas Shara: Yes. The pipeline, as I mentioned is at record levels. And that pipeline that I talk about really is exclusively commercial. And it's killing more heavily to CRE than C&I, although we're starting to see some C&I business as a result of the healthcare lending teams, which I mentioned previously. So we're seeing a mix, I'd say 75% of the pipeline would be CRE and 25% would be C&I, but pretty good traction in both cases.

Erik Zwick: Okay. That's helpful. And do you have the dollar balance of the pipeline today or at the end of the first quarter.

Thomas Shara: We don't generally disclose that. But it is -- as I said earlier, the originations were up 34% for the quarter, and they've gotten even better in April. So we're pretty bullish on loan growth going forward into 2Q. And then just to clarify, it really doesn't include much, if any, contribution for 1st Constitution, we really are working on customer retention and making sure everything has gone well there. So they'll start to come now on board and start pushing the pipeline even further forward.

Erik Zwick: And then just last one for me, curious if you could provide an update on your current kind of ESP strategy and initiatives in light of recent proposals to require kind of enhanced disclosures and some of the regulatory filings?

Thomas Shara: Yes. We've been working on that for a year now. We've -- we're working with NASDAQ in terms of best practices. So we're pretty far along with some of the initiatives, and we feel like we're in good shape. We started to disclose those on our website. You'll see in our annual meeting, we'll mention more about ESG initiatives, but we're on it.

Operator: We have a follow-up from Manuel Navas.

Manuel Navas: I wanted to hop back on to clarify something on the NIM. The 4 basis point to 5 basis point increase in 2Q '21, does that just assume only the March hike and none of the -- not a potential may hike? Is that just like 4 basis points to 5 basis points for just the March hike?

Thomas Splaine: That's what we're forecasting right now. There might be some limited impact from a May hike. But the next Fed meeting after that would be June. And if they move another 50 basis point there, that's very late in the quarter and have any impact at all. But yes, pretty much right now, it's the main driver of that would be the March, right.

Manuel Navas: Do you have -- if there was a March 50 basis point hike, do you have an idea of how much that would increase the NIM?

Thomas Splaine: Assuming deposit betas stay low at zero other than contractual rates, any 25 basis point movement would be accretive to net interest income by about $0.5 million in the quarter. So if the short end moves up and you don't move your deposit base, there's positive drift there.

Operator: Our next question comes from Eric Grubelich, a Private Investor.

Unidentified Analyst: A question for Tom Splaine plan and maybe a bigger picture for maybe Tom Shara also chime in on. Your securities portfolio is pretty big, both in the HTM and the available for sale. You have the mark that you show on the recent March on the HTM -- it moved about $80 million. I was curious what was the mark on your available-for-sale portfolio. And given that it's a fairly large size, have you thought about the fact that it's got 160 yields, I think 190 on the muni side of it versus the risk of rates moving more and that value dropping?

Thomas Splaine: Yes, Eric, we look at that and take that into consideration. As you know, we probably -- we use the investment portfolio as for liquidity purposes and not so much to maximize yield due to all the cash flows that come off of it and it acts as a buffer against our loan portfolio as well. So we're very mindful of the movement of interest rates on the portfolio. And we think we've taken some really good steps over the last year to minimize the impact of moving rates a case in point, the transfer of AFS securities into HTM last year well before interest rates are moving. So we take it all into consideration, and we look for the best place to deploy funding to get higher yields while providing liquidity at the same time.

Unidentified Analyst: Where is the mark on the AFS that would have affected your book value like 99% of the other banks this quarter?

Thomas Splaine: We had a $31 million negative OCI mark, other comprehensive income mark related to the AFS portfolio during the quarter.

Unidentified Analyst: Okay. That's blended, of course, for the inclusion of 1st Constitution combined, right?

Thomas Splaine: That $31 million AOCI mark is just for the investment securities portfolio. The TCE ratio dropping from the 24 basis points down to 8.07% is inclusive of both the AOCI negative mark as well as 1st Constitution, as you indicated, that is correct and earnings for the quarter.

Unidentified Analyst: Yes. Okay. That's -- Okay. So about $30 million on the AFS, okay.

Operator: We have no further questions. I'll now hand back to Tom Shara for closing remarks.

Thomas Shara: Well, I want to thank everybody for joining us this morning for the earnings call. If any of you have any follow-up questions during the course of the day, Tom and I are available to take those. So welcome your calls. Thank you very much, everybody, and have a wonderful day. Take care.

Operator: Today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.