Good day, and welcome to the Community Bank System Second Quarter 2021 Earnings Conference Call. Please note that this presentation contains forward looking statements within provisions of the Private Securities Litigation Reform Act of 1995 that are based on current expectations, estimates and projections about the industry, the market and economic environment in which the company operates. Such statements involve risks and uncertainties that could cause actual results to differ materially from those the results discussed in these statements. These risks are detailed in the company's annual report and on Form 10 ks with the Securities and Exchange Commission. Today's call's presenters are Mark Cherninski, President and Chief Executive Officer and Joseph Sateras, Executive Vice President and Chief Financial Officer.
They will be joined by Joseph Serban, Executive Vice President and Chief Banking Officer for the question and answer session. Gentlemen, you may begin.
Thank you, Paul. Good morning, everyone, and thank you for joining our Q2 conference call. Hope you're all well. The I'll start with a brief comment on earnings and Joe will provide more detail. The quarter was about as we expected with the reported earnings strength driven by a reserve release.
The quarter. Beyond that, the margin continues to be a headwind, but overall deposit fees and the strength of our financial services businesses are tailwinds. The From a business line perspective, commercial is flat ex PPP and muni loans, but the pipeline is growing back post COVID quicker than we expected. That's the good news. The mortgage business is strong with the biggest pipeline we have ever had.
The payoffs are elevated also, so the book is growing more slowly than it might otherwise. The The indirect lending business had a great Q2 with outstandings up 8% over Q1. Deposit service fees continue to rebound from the pandemic impact and were up 18% from a depressed Q2 of 2020. The future. Our Financial Services businesses were the star performers of the quarter, the combined revenues of 14% and pre tax earnings of 25% over 2020.
We are also pleased to announce the quarter. Earlier this month, the acquisition of Fringe Benefits Design of Minnesota, a provider of retirement plan administration and consulting services with offices in Minneapolis and South Dakota. The The benefits space is very active right now in terms of opportunities, and we expect more to come. The benefits of a diversified revenue model have never been so apparent. The presentation.
As we announced last week, our Board has approved a $0.01 per quarter increase in our dividend, which marks the 29th consecutive year of dividend increases, the presentation and we think a validation of our disciplined and diversified business model. As we announced in March, we have appointed Dimitar Karajanov as our the Executive Vice President for Financial Services and Corporate Development, and he had in his role in June. He joined us from Lazard, where he was the Managing Director in the Financial the institutions group and has over a dozen years of experience in investment banking, serving clients in the banking benefits and FinTech space. I've known and worked with Dimitar for nearly his entire career and thrilled to have him on board supporting our growth initiatives.
The financial statements.
Looking ahead, we will be doing our best to manage the changing wins. We have the headwind margin pressure, the growth, credit, the financial services businesses and liquidity deployment are all tailwinds.
Joe? Thank you, Mark, and good morning, everyone. The call. As Mark noted, the 2nd quarter earnings results were solid with fully diluted GAAP and operating earnings per share of $0.88 the company's financial results. The GAAP earnings results were $0.22 per share or 33.3 percent higher than the Q2 of 2020 GAAP earnings results the company's earnings per share or 15.8 percent better on an operating basis.
The improvement in earnings per share was led by lower credit related costs and a significant increase in noninterest press release, particularly in the company's non banking businesses. Comparatively, the company reported GAAP earnings and operating earnings per share of $0.97 in the linked Q1 of 2021. The company. The company recorded total revenues of $151,600,000 in the Q2 of 2021, a $6,700,000 or 4 the prior year's 2nd quarter revenues of $144,900,000 The increase in total revenues between the periods was driven by a 5.3 the company's financial services business revenues and a $1,200,000 or 8.6 percent increase in banking related non the financial statements. Net interest income of $92,100,000 was up $200,000 or 0.2 percent over the Q1 of 2020 results.
Total revenues were down $900,000 or 0.6 percent from the late quarter Q1, driven by a 1 point $9,000,000 decrease in net interest income, offset in part by higher non interest revenues. Although net interest income was up slightly over the same quarter last year, the results were prepared remarks and statements on the lower net interest margin outcome. The company's tax equivalent net interest margin for the Q2 of 2021 was 2.79%. The quarter. This compares to 3.03 percent in the Q1 of 2021 and 3.37% 1 year prior.
Net interest margin results continue to be negatively impacted within the low interest rate environment and the abundance of low yield cash equivalents being maintained on the company's balance sheet. The tax equivalent yield on earning assets was Q2 of 2021 as compared to 3.15% in the linked Q1 of 3.56 1 year prior. During the Q2, the company recognized $3,900,000 of PPP related interest income, including $2,900,000 of net deferred loan fees. This compares to $6,900,000 of PPP related interest income recognized in the Q1, including 5,900,000 the company's total cost of deposits remained low, averaging 10 basis points during the Q2 of 2021.
The company's
financial statements. Employee benefit services revenues were up $3,400,000 or 14.2 percent over the prior year's 2nd quarter, driven by increases in employee benefit trust and custodial fees. Wealth management revenues were also up $1,900,000 the quarter, 29.2%, driven by higher investment management advisory and trust services revenues. Insurance services revenues were consistent with prior year's results. The call.
The increase in banking related non interest revenues was driven by a $2,300,000 or 17.6 percent increase in deposit service and other banking fees, the quarter, offset in part by a $1,000,000 decrease in mortgage banking income. During the Q2 of 2021, the company reported a net benefit in
the provision for credit loss the
Q2 of 20 20, the quarter, $3,200,000 of which was due to the acquisition of Stew Van Trust Corporation with the remaining $6,600,000 largely driven by pandemic related factors. The Q2 of 2021, the company reported 3 basis points of net loan recoveries and the post vaccine economic outlook remained positive. The In addition, at the end of the second quarter, there were only 12 borrowers representing $2,400,000 of loans outstanding that remained in the pandemic related forbearance. The This compares to 47 borrowers of pandemic related forbearance representing $75,600,000 at the end of the Q1 and 3,700 borrowers with quarter. These factors broke down the expected loan losses resulting in the recording of the net benefit of provision of credit losses for the quarter.
The The company recorded $93,500,000 in total operating expenses in the Q2 of 2021 as compared to $87,500,000 in the the Q4 of 2020, excluding $3,400,000 of acquisition related expenses. The $6,000,000 or 6.9 percent increase in operating the prior year. The company's operating expenses was attributable to a $3,200,000 or 5.8 percent increase in salaries and employee benefits, a $1,900,000 or 17.8 percent increase in data processing and the company's financial statements and a $700,000 7.7 percent increase in other expenses and a $500,000 5.3 percent increase the company's operating expenses, offset in part by a $300,000 7.9 percent decrease in the amortization of the financial statements. The increase in salaries and employee benefits expense was driven by increases in merit related employee wages, higher payroll taxes, including increases the related unemployment taxes, higher employee benefit related expenses and the Snoopant acquisition. Other expenses were up due to the general increase in the level of the company's press release activities, including increases in business development and marketing expenses.
The increase in data processing and communications expenses was due to the Q2 2020 Snoop Van acquisition and the company's implementation of new customer facing digital technologies and back office systems between comparable periods. The The increase in occupancy and equipment expenses driven by the Snoopin acquisition. In comparison, the company reported $93,200,000 of total operating the Q1 of 2021, dollars 300,000 or 0.3 percent lower than the Q2 of 2021 total operating expenses. The effective tax rate for the Q2 of 2021 was 23.1%, up from 20.3% in the Q2 of 2020. The quarter.
The increase in the effective tax rate was primarily attributable to an increase in certain state income tax rates that were enacted in the Q2 of 2021. The company closed the Q2 of 2021 with total assets of $14,800,000,000 This was up $181,100,000 quarter and up $1,360,000,000 or 10.1 percent from the year earlier. The quarter. Average interest earning assets for the Q2 of 2021 of $13,370,000,000 were up $680,600,000 or the Q1 of 2019, up $2,270,000,000 or 20.4 percent from 1 year prior. The presentation.
The very large increases in total assets and average interest earning assets over the prior 12 months was driven by the Q2 2020 acquisitions we've been at large inflows of government stimulus related the company's ending loan balances of $7,240,000,000 were down the quarter. The decrease in PPP loans the quarter, we recorded $26,100,000 in the seasonal decrease in municipal loans totaling $41,200,000 ending loans increased $43,100,000 the quarter. As of June 30, 2021, the company's business lending portfolio included 3 17 1st draw PPP loans the company's financial statements with a total balance of $72,500,000 and 2,254 Second Draw PPP loans with a total balance of $212,300,000 the company expects to recognize through interest income the majority of its remaining 1st draw net deferred PPP fees totaling $900,000 the Q3 of 2021 and the majority of its 2nd draw on net deferred PPP is totaling $9,200,000 over the next few the presentation. On a linked quarter basis, the average book value of the investment securities portfolio increased $290,200,000 or 7.9 percent from the company's 3,670,000,000 during the 1st quarter and 3,960,000,000 the With this said, the company is largely remaining on the sidelines with respect to deploying excess liquidity until market interest rates become more attractive.
The quarter. During the Q2, the company's average cash equivalents of $202,070,000,000 representing approximately 16% of the company's average earning assets. The This compares to $1,670,000,000 in average cash equivalents during the Q1 of 2021 and $823,000,000 in the Q2 2020. The $408,000,000 or 24.5 percent increase in average cash equivalents during the quarter was driven by continued inflow of federal stimulus funds, the origination of 2nd draw PPP loans and 1st draw PPP loan forgiveness. The company's capital reserves remained strong in the Q2.
The company's net tangible equity and net net net assets ratios was 9.02% at June 30, 2021. The This was down from 10.08 percent a year earlier, but up 8.48% at the end of the Q1. Company's Tier 1 leverage ratio was 9.3 company's 6% at June 30, 2021, which is nearly 2x the well capitalized regulatory standard of 5%. The company has an abundance of liquidity, the combination of the company's cash and cash equivalents, borrowing availability of the Federal Reserve Bank, borrowing capacity of the Federal Home Loan Bank and unpledged available for sale of investment securities. Portfolio provided with over $6,100,000,000 of immediately available sources of liquidity.
At June 30, 2021, the company's allowance the credit losses totaled $51,800,000 or 0.71 percent of total loans outstanding. This compares to $55,100,000 the quarter of 0.75 percent of total loans outstanding at the end of the Q1 of 2021 $64,400,000 or quarter or 0.86 percent of total loans outstanding at June 30, 2020. The decrease in the allowance for credit losses is reflective of an improving economic outlook, very low levels the quarter of net charge offs and a decrease in delinquent loans and loans on pandemic related forbearance. Non performing loans decreased in the 2nd quarter to 70 the quarter. We are now at $2,000,000 or 0.97 percent of loans outstanding, down from $75,500,000 or 1.02 percent of loans outstanding the Q1 of 2021, but up from $26,800,000 or 0.36 percent of loans outstanding at the end of the second quarter quarter.
Due primarily to the reclassification of certain hotel loans under extended forbearance from accrual to non accrual status between periods. The company's non performing loans totaled only $2,800,000 at June 30, 2021. The Loans 30 to 89 days delinquent totaled 0.25 percent of loans outstanding at June 30 2021. This compares to the quarter, 0.37 percent 1 year prior and 0.27 percent at the end of the linked Q1. Management believes below levels of delinquent loans and charge offs has supported by the extraordinary federal and state government financial assistance provided to consumers throughout the pandemic.
We remain focused on new loan origination and we'll the company's financial statements. We continue to monitor market conditions to seek the right opportunities to deploy excess liquidity. Our loan pipelines increased considerably during the Q2 and call remains very strong. We also expect net interest margin pressures to persist and remain well below our pre pandemic levels, the financial statements, but also believe our abundance of cash equivalents represent a significant future earnings opportunity. We're also fortunate and pleased to have the strong non banking businesses the
company that support and diversify
our streams of non interest revenue. And lastly, to echo Mark's comments, we are pleased and excited to welcome the customers and employees of FPD to the Community Bank the Thank you, Alan. I'll turn it back to Cole for questions.
And we will now begin the question and answer session.
The presentation. And our
first question today will come from Alex Twerdahl with Piper Sandler. Please go ahead.
The Hey, good morning, guys. Good morning, Alex.
First off, I just want to ask about, as I kind of look at the 2022 over 2021, a couple of things like the reserve releases, PPP, some of those things, obviously, aren't going to be repeatable in 2022, setting up the possibility of earnings going lower. And I was wondering if that has any impact on how you think about M and A. I know when you guys crossed the $10,000,000,000 mark, there was a little bit more of an emphasis to kind of cover the Durbin by doing a slightly larger transaction. And I'm wondering if your outlook on M and A has Change at all just kind of as you look forward into what earnings may bring next year?
No, I think it's a fair question. There were some things this year that clearly are non recurring and we're going to have to refill the bucket. The I think organic growth is going to have to improve. We need to continue the momentum of our financial services businesses. Deposit fees the potential.
So I think we have some levers to pull the quarter in terms of continued momentum relative to earnings and offsetting some of the non recurring the prior year. And that's our job is to grow earnings every year. The It doesn't really change our outlook as it relates to M and A. I mean, I think the M and A is more of a longer term continual the strategy to try to create above average shareholder returns with below average risk. And the That's really so we aren't going to forecast if we forecasted lower the core operating earnings.
I don't think a strategy to address that is going to be try to find something for that purpose. I think we look at the M and A more strategically, what's the fit, what does it contribute into the future, how does it the create sustainable and growing shareholder value. So I would say it doesn't really change at all our outlook on M and A, which is more of a the presentation. I think with Durbin or with the 10,000,000,000 Yes, Durbin, I guess. That was a little bit different.
That was a the $10,000,000 hit and $12,000,000 hit. There's no operational mechanism to absorb a $10,000,000 or $12,000,000 the So that was a little bit different. But with that said, I think our the At the time our articulation to shareholders was we expect to cross the $10,000,000,000 without reducing earnings the So the only realistic way to do that is through good M and A opportunities. And we were fortunate, the call it, to be able to, in that timeframe, acquire 2 really strong franchises and merchants the in Vermont and NRS, the benefits business in Boston, which continues to the an extremely high level with respect to growth in revenues and growth the in margin. But ordinary course, M and A is more strategic and less tactical.
The Okay. And then just kind of on the same along the same topic, you alluded to some opportunities in the benefit space in your prepared remarks. The Are those going to continue to follow the same sort of similar transactions to what we've seen within the With the most recent one kind of all be sort of relatively bite sized and over time improve that business, but not be necessarily huge needle movers in the near term? The
I think that's the expectation right now. But with that said, if we had the opportunity to do another the larger transaction like the NRS transaction that we did in Boston 4 years ago, we would definitely do it. The So I think for the most part, I mean, I think what's driving a lot of these non banking opportunities right now is just the the concern over the cap gains rate. And some of these businesses were started 20 years ago with the dollar the $20,000,000 or $30,000,000 or more, and it's all cap gain. And if I sell now, I can pay 20%, but I sell sometime in the the future.
I think it's as simple as that in terms of what's driving a lot of the activity right now. So we're also getting a little bit bigger. The our benefits business right now, the run rate is over $110,000,000 in revenues. And the profit the margin. The operating margin has actually grown over the last couple of years nicely.
So it's a great business for us and we've got a fair bit of critical mass in that business. There's a couple of businesses. We are one of the lead players in the U. S. In those spaces and they continue to have the opportunities for us to partner with much larger financial institutions the on the kind of the institutional trust side and in some other areas.
So the We've got a lot of momentum in that business and we're going to continue to invest in it, whether it's the business, which we've done some startup business, the startup Aviva business a few years ago with 0 revenues, now the probably was $4,000,000 pushing $5,000,000 good margin. So we'll continue to invest organically in terms the starting up either product lines or other organic startups and also look at the There's a lot of businesses in that space that we wouldn't be interested in the call for different reasons. We like to acquire acquiring revenues is great, but we also like to acquire the product line, technology or consulting resources. And so if we find a the transaction that has some of those value drivers for us that are much more attractive than just bolting on some revenues, Which can also be, I mean, I'm not suggesting we wouldn't do a more tactical acquisition, but we also like the really strong consulting point or product line knowledge consulting talent, technical talent, the Sales talent, which is what we got with FBD sales and consulting talent. So the It's not just a revenue stream, but it's active right now in that space and the Dimitart has been very busy and we'll continue to hopefully be busy in that space for a while, but the The operating momentum of that business is really tremendous right now, not just organically, but in terms of our opportunity to partner with much larger financial institutions and clients.
I mean, we have the number of Fortune 500 clients in our benefits business that we do institutional trust work for. So we the We'll continue to invest in that business and right now the M and A opportunities are pretty good.
The Awesome. And then just a final question for me, the strong consumer indirect growth you had this quarter, was that reflective of any sort of change in how you guys are the portfolio or any pricing changes or anything that we should be aware of for the as we kind of think how that portfolio could prepared call over the next couple of quarters.
No, I don't think so. The pricing is really kind of the You're at the mercy of the market. I mean, the market goes up, the market goes down. We've been in that space for a long time. We don't get in and get out, get in and get out.
A lot of players have gotten out post COVID, Which has been a little bit helpful. Our business is the biggest component is used the Auto, which right now is very good. There's not much new inventory. It's less the valuable to finance new vehicles when it is used in any event. So it's just been a really last quarter was really good.
The It also kind of gets hot and cold pretty quickly. So next quarter might even be better and could also be worse. It's just it's more, I'd call it, volatile. The It's less predictable in some ways. We've never had to really deal with inventory before as an issue in that the business, but now we're dealing with it.
And as I said, I think it's in some respects working to our advantage because the used car market is the pretty good and pretty active and it's the biggest component of what we finance in that business.
The
And our next question will come from Eric Zwick with Boenning and Scattergood. Please go ahead.
Good morning, guys.
The call.
Good morning, Eric.
You mentioned a couple of times in the prepared remarks that the pipelines, the loan pipelines had increased significantly during the quarter and you're acutely focused on new loan origination going forward. If we back out the expectation that the PPP loans continue to run off if they're forgiven. Just curious if you could frame maybe what the opportunity is for net growth in the remaining portfolios in the back half of the year and into next year.
Joe, you want to take home? Eric, Joe Survin, how are you this morning?
The Hey, Joe.
Let me give you a little bit of an insight into the pipeline activity first. The commercial pipeline. We're in the rebuilding stage, if you will. The pipeline from June of 2019 to June of 20 the 2020 2020 1, it's about 3.5%. I'll come back to that in a minute.
You have to look at the first half of twenty twenty one to understand the what's going on in that business. So the first half of twenty twenty one, there was an 85% increase from the average the Q1 to the average of Q2. So the pipeline has grown significantly in the commercial business in the months of May June and hopefully that will the like I said, since 2019, it's about 35%. The On the residential mortgage side, Mark had mentioned earlier, maybe it was Joe that we're at the high point of our the pipeline, which we are. As long as I've been here, we've never seen a pipeline that large, both in dollars, but also in applications.
The So in dollars, we're up about 50%. If you look at June of 'nineteen to June of 'twenty one, we're up about 50%. The If you look at just June of 2020 to 2021, we're up 36% in dollars, we're up 35% in applications. So the It seems as though it's going in the right direction. I would anticipate maybe another net the $20,000,000 in the indirect portfolio, maybe another $40,000,000 in the residential portfolio as we come to close out the year.
But the Like Mark said, particularly in the indirect portfolio, that's hot and cold. And so it could be a bigger number or a lesser number. But nonetheless, I think we're positioned nicely the pipeline, given the application volume, that we'll see growth in continued growth in both of those portfolios. The The commercial, as you know, takes a little longer, but I think we're positioned nicely with the size pipeline as well as the committed not funded rate loans already approved. That piece of the pie has increased by about 9% quarter over quarter.
So
the Thanks, Joe. I appreciate that color there. And then switching gears to the reserve and the outlook for provisioning going forward. It looks like the the quarter. Now is back where it was at the end of 2019 before the pretty much kind of released all the bill that you had from last year.
The Is it safe to assume then that the provisioning going forward will reflect kind of net charge offs and then growth in the loan portfolio? Are there other items to kind of consider at this point.
Eric, this is Joe Seteros. Based on the kind of where we've been and where we are today. I think that's a reasonable expectation. I think the credit markets obviously the in turmoil and we provisioned accordingly. We think we're kind of on the back end of that.
I mean, I suppose there could be another surge. I know the We're concerned about that, but right now, I think we came out of the pandemic in very good shape from a credit perspective. The So growth of the portfolio and sort of charge offs will likely drive some of the provisioning on a going forward basis. The The economic outlook, we don't anticipate having the same level of volatility that we had certainly going through the pandemic. So that component of the reserve calculation we anticipate at least as of right now the So yes, I think that provisioning, the volatility provisioning should settle down as the
quarter. Got it. And then thinking about the tax rate, I think as mentioned in the press release and your comments that there were some changes at the state level, which led to the increase here in Q2. Was any of that increase in 2Q a catch up or is that 23% rate a decent run rate going forward?
The Yes. So there was a bit of a catch up because you had it with retroactive for the full year. So the run rate in around 22 the Plus or minus is reasonable, excluding any sort of employer related stock option exercise and the benefits
the
the Great. Thank you for taking my questions today.
You're welcome. Thanks, Eric.
And our next question will come from Russell Gunther with Ipsen. Please go ahead.
Hey, good morning, guys.
Good morning. Good morning, Russell.
The Would
you guys, Joe, perhaps be able to give some color on the P and L impact of the more recently announced employee benefit deal from a fee and expense perspective over the next couple of quarters. And then kind of sticking with that being bigger picture, how the
the So the Russell, it was a small transaction for us. We paid less than the $20,000,000 for the company. We expect the revenue run rate of that business the to be less than $10,000,000 on a going forward basis. So the overall impact of the business will be very marginal. I think as Mark was alluding the We picked up some strategic benefit of that acquisition to beachhead in the Midwest the direct sales force, just additive overall to our 401 the practice within the employee benefit space, but pretty small acquisition for us, the I think strategically important.
I think we believe there will be additional opportunities kind of similar type transactions down the road the
Thanks, Joe. And then the You guys had said previously, a real focus on low single digit expenses for the year, and the There's been really good discipline here. You're certainly on track for that. As you look out into 2022, similar to a question earlier, the Is that a range you will continue to target that low single digit given some revenue challenges or are there the targeted franchise investment or just inflationary pressures that would push that higher.
Russell, that is our hope. The The challenge, obviously, as you kind of mentioned, is just keeping, particularly payroll and wages. There's more pressure the on wages than there's been in the past. That will be a challenge for us to continue to manage that appropriately and higher qualified and experienced staff. So there is some pressure on the wage front the Per Share.
But we are actively managing all of the line items that we can from an operating expense the basis. As we've also mentioned, we've kind of consolidated some branches over the last the year, year and a half, and we're starting to see some of the benefits from a cost perspective kind of get baked into the quarterly earnings. So our expectation is the It's kind of low single digits and excluding any sort of significant acquisitions, so we're going to continue to manage that very prudently.
The Thanks, Joe. Last one for me is on the margin. You guys have mentioned, I think, a couple of times just the headwind that remains there. Can you give us a sense for the back half of the year, the expectation for pressure from this 279 prior to some excess liquidity getting deployed or how do you see the near term trends?
Yes. Russell, from an overall margin perspective, it's going to continue to be a challenge the quarter. We are the additional investment of securities. The We are the loan pipeline is increasing as Joe was indicating. We're starting to see a little bit of loan growth that will help the margin the At least a bit.
That roughly $2,000,000,000 of cash equivalents, if the We tomorrow decided to invest that in the 10 year treasury represents about $22,000,000 on a pre tax operating basis. The The 10 year treasury were $150,000,000 that's closer to a $30,000,000 improvement in net interest income, but we need the market to kind of work with us a bit the and we kind of see that as a significant earnings opportunity and margin improvement opportunity. And as you're aware, we don't really have anywhere to go on the the cost of funds side. Our cost of funds and cost of deposits are 10 basis points is about the flow it's going to go. And so that's really been the challenge the .:] It's deploying that excess liquidity and obviously we don't have a lot of room to go down on the deposit side because of the strength of our core deposit franchise.
The From a margin perspective, we certainly hope we're at the low point, but potentially it could drift a bit lower. The But we also expect that net interest income at least, we could stabilize it with some loan growth and some deployment the On the back end of the year or 2, I think it might be worth noting that we're sitting on about $9,000,000 of net the deferred fees on the PPP side that have not been recognized. So assuming that Q4 is the majority of the forgiveness the activity. We'll see some of that hit in the back end of the Q4 and that will at least show improvement in the posted margin if we do recognize most of that being the
The only thing I would add is if you look at the originations this quarter the In our commercial book, our mortgage book and our indirect book, they were all lower than what the aggregate portfolio yield is right now. So kind of the core take out PPP and all the other stuff that kind of the The core operating margin is going to go down. I don't see how that doesn't happen if the Just what happened this quarter. With that said, we need to grow. So the rate is going to go down.
The The challenge for us and our team is to not let the dollars go down. So if the rate goes down, when we get enough growth that we can offset that, and we can manage the dollars, that I think the It's really difficult. So the idea of the $2,000,000,000 yes, if we invested $1,500,000 or $150,000,000 the $30,000,000 that's great. Whole business strategy. So that'd be great if the market cooperates and we have the opportunity, that's wonderful.
If it doesn't, the We need to plan as to how we grow margin dollars in a declining the rate environment, and that's the challenge that we're focused on.
Understood. Thanks, Mark. Thanks, Joe.
The the. Our next question will come from Matthew Breese with Stephens Inc. Please go ahead.
Good morning. The Hey, I just wanted to stick on this theme of liquidity. I just want to confirm, so the message for now is that you'll be on the sidelines the In terms of investing on liquidity and securities, just because of how low yields are, do I have that right?
The Yes, at 127, you have that right.
Okay. And has there been a turning point yet in In terms of liquidity starting to roll off the balance sheet, have you seen that quarter to date or is it continuing to stick around and or
grow? The
We have not seen a trend yet in terms of runoff of any of that excess liquidity. The In the past quarter, we saw an increase. So we have not seen the So we think most of the $2,000,000,000 is here to stay. We don't think all of it the But most of it is probably here to stay on the balance sheet. So we do feel like we're going to need to deploy that at some point the When the cycle is right for us.
Okay. I
will say though, I think if you look at the quarterly run rate of deposit, I think the the deposit inflows, the rate of inflows is decreasing. So it's slowing down in terms of the Right.
Okay. And then Mark, you mentioned that stripping away PPP, the New versus existing loan yields still show some pressure.
Could you just give us
an update on where you're seeing the most pressure, what that delta is?
It was across the board actually and it was pretty consistent. So I'd say, on the consumer mortgage side, the delta was about, the What is that, 80 basis points, business lending is 80 basis points, and the The indirect business was 80 basis points. So it's about 80 basis points. The Okay. The 2nd quarter origination yield versus the aggregate portfolio yield for the quarter.
So the So it's about 80 basis points.
Okay.
And then last one for me. Could you remind us the How much of the portfolio is floating and or has really short durations? I just want to get a sense as the talks about Fed hikes intensify, how well positioned you are for capturing some of that benefit out of the gate?
So our floating rate loan instruments were about 1,000,000,000 the $3,000,000,000 in that neighborhood. So it's not a significant component of our overall loan portfolio. The But obviously, if we do get rate hikes, then the excess liquidity comes into play as well. But from a loan perspective. It's about that level.
Okay. Great.
The other thing too is that the indirect portfolio turns over really quick. All the cash flows go up monthly, dollars 40,000,000 a month or something in cash flows.
The Right, right. That's like a 12 to 24 month product, the
Yes, it's a little bit more than that, but you also get payoffs. So I'm not sure what the average the contractual versus actual It's probably 24 to 36 months somewhere.
The Okay, very good. That's all I had. Thanks for taking my questions.
Thank you, Matt. Thanks, Matt.
And this will conclude our question and answer session. I'd like to turn the conference back over to Mr. Cherninski for any closing remarks.
The call. Thank you all for joining, and we will talk again next quarter. Thank you. Have a good summer.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.