Good morning, ladies and gentlemen, and welcome to the Fulton Financial First Quarter 2021 Results. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. I would now like to turn the conference over to your host, Matt Jossiak, Director of Investor Relations. Thank you.
Sir, please go ahead.
Good morning, and thanks for joining us for Fulton Financial's conference call and webcast to discuss our earnings for the Q1 of 2021. Your host for today's conference call is Phil Wenger, Chairman and Chief Executive Officer. Joining Phil are Curt Meyers, President and Chief Operating Officer and Mark McCollum, Chief Financial Officer. Our comments today will refer to the financial information and related slide presentation included with our earnings announcement, which we released yesterday afternoon. These documents can be found on our website at fult.com by clicking on Investor Relations and then on News.
The slides can also be found in the Presentations page under our investor under the Investor Relations website. On this call, representatives of Fulton may make forward looking statements with respect to Fulton's financial condition, results of operation and business. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, and actual results could differ materially. Please refer to the Safe Harbor statement on forward looking statements in our earnings release and on Slide 2 of today's presentation for additional information regarding these risks, uncertainties and other factors. Fulton undertakes no obligation other than as required by law to update or revise any forward looking statements.
In discussing Fulton's performance, representatives of Fulton may refer to certain non GAAP financial measures. Please refer to the supplemental financial information included with Fulton's earnings announcement released yesterday in Slides 112 in today's presentation for a reconciliation of those non GAAP financial measures to the most comparable GAAP measures.
Now, I would like
to turn the call over to your host, Phil Wenger.
Thanks, Matt, and good morning, everyone. I'll begin today's call by sharing a high level overview of the quarter. Then we'll hear Kurt's thoughts on our business performance. Mark will follow Kurt, and he'll discuss the details of our financial performance. And after that, we will be happy to take your questions.
Fulton's performance was solid in the Q1 of 2021. In fact, our earnings per share of $0.43 in the Q1 was a quarterly record for us, surpassing our previous record of $0.38 per share, which was in the Q3 of 2020. Though the lasting presence of COVID-nineteen and the prolonged low interest rate environment have brought some challenges, our customers and our team members continue to meet those challenges. Throughout the past year, Holton has continuously worked to serve our customers while keeping everyone safe. Our financial centers remained accessible and customers escalated their use of our telephone, digital and online platforms, so our banking and financial services delivery remained largely uninterrupted.
In terms of our back office and operations staff, team members whose rules could be performed off-site work remotely whenever possible to reduce the direct contact that could potentially spread the virus. Now as the vaccine rollout continues throughout the world, we are seeing our communities plan to more fully open, and we are cautiously optimistic about the reopening of the economy and the markets we serve. As we look forward, we have been carefully developing our own plans to bring more employees back to our offices. Late last week, we shared our timetable for doing this with our team members, letting them know we plan to bring more people back on-site in September. This is the first time we've offered a specific timetable for returning more of the team to our offices, and it is contingent upon the continued successful vaccine rollout, the loosening of government requirements in the communities we serve, and the advice of health experts at the national and local levels.
We plan to use the months between now September to clearly communicate how the return process will work. While most of our employees will perform some amount of on-site work, some will continue to work remotely for the longer term. We want to do our part to enable every team member to achieve peak performance no matter where they sit. Last quarter, I shared some updates on the Small Business Administration's Paycheck Protection Program or PPP, and I'm pleased to report we continue to realize volume that has exceeded our expectations. And we also continue to support all CARES Act's initiatives.
In terms of other highlights in the Q1, quarter loans grew modestly because of the impact of the Wave 3 PPP loans. Deposit growth continues to be extraordinarily strong, and we continue to be encouraged by our asset quality performance through the pandemic, as Kurt and Mark will discuss in a few minutes. Our mortgage business continues to be a strong performer, and the pipeline remains elevated. Our wealth management business also continues to be growing and a significant contributor to non interest income. This line of business delivered record income during the quarter on an all time high in assets under management and administration.
In March, we announced a restructuring of our balance sheet that will help manage our interest rate risk profile. This had a minimal impact to earnings in the Q1. However, it will meaningfully enhance net interest income as we move forward, and Mark will discuss this in further detail in a few minutes. Despite the pandemic related challenges, we remain fully focused on our strategic priorities. These include achieving growth, enhancing our technology and increasing our efficiency.
One way in which we are growing is by moving forward with plans to open additional financial centers in our 2 priority urban markets of Philadelphia and Baltimore. In 2021, we remain focused on efficiency and investment in technology, which we believe are closely linked. We currently have a number of technology system replacements and upgrades in progress. These include new platforms for consumer loan origination and mortgage servicing. In addition, we are making a significant upgrade to a new customer relationship management or CRM system, and we are fully integrating that system in our sales and service processes.
Now, I'll turn things over to Kurt for more detail on our business results.
Thank you, Phil, and good morning, everyone. As Phil noted, our Q1 performance produced solid results, and I'd like to share some detail on several key areas. Loan growth for the quarter was modest as we experienced strong growth in residential mortgage originations and generated PPP Wave 3 performance that exceeded our expectations. These results were offset by continued line of credit utilization headwinds and greater than expected residential mortgage prepayments. 1st, let me touch on PPP.
We continue to support our small business customers by both satisfying forgiveness requests and processing Wave 3 applications. As I mentioned on last quarter's call, we anticipated between $500,000,000 $600,000,000 in total Wave 3 PPP funding. As of the end of the Q1, we were at $685,000,000 and we expect to modestly exceed $700,000,000 for the program before it expires. This is well beyond our expectations. At this point, applications continue to come in, but at a significantly reduced pace.
We continue to also work diligently to support our Wave 1 and 2 customers with their forgiveness requests. In the Q1, we successfully processed $579,000,000 of PPP forgiveness requests and have a remaining Wave 1 and 2 outstanding balance of approximately $1,000,000,000 Turning to commercial loans, balances declined $48,000,000 or 0.4 percent on a linked quarter basis, excluding PPP loans. Originations were down modestly from the 4th quarter as we and we experienced continued decline in line utilization. These factors combined to contribute to the slight pullback in overall commercial balances. Looking forward, our commercial loan pipeline at March 31 was up approximately 9% versus year end 2020.
However, it was down 10% year over year. In consumer lending, our loan balances grew $45,000,000 or 0.9% linked quarter on an ending balance basis. This growth was driven primarily by growth in residential mortgages in spite of the elevated refinance activity. Our mortgage pipeline remains very strong and we continue to be optimistic about our growth targets as we enter the traditional home buying season. As we mentioned in prior quarters, our asset sensitive balance sheet provides room to continue growing this segment of high quality in market residential mortgages.
Overall, we anticipate loan origination levels to continue at a rate that is adequate to support the annual net interest income guidance in our outlook that Mark will discuss in a few minutes. Turning to deposits. Growth for the quarter far exceeded our expectations. We had anticipated a modest decline in deposits as we actively managed deposit costs down. However, strong customer liquidity has continued to drive our balances higher and government stimulus payments provided significant inflows during the quarter.
Total deposits grew approximately $800,000,000 on a linked quarter basis with growth in virtually all non maturity categories. More specifically, non interest bearing demand deposits drove this growth, increasing $515,000,000 or 7.9 percent on a linked quarter basis. Total deposits are up $4,000,000,000 on a year over year basis. During the quarter, we continued to actively manage our deposit costs down. As a result, deposit costs declined 5 basis points linked quarter, and now total deposit costs have dropped to 18 basis points.
In addition, we have made further pricing adjustments to our earnings credit rates on commercial accounts. Moving on to fee income, excluding the vis a vis gain on sale, our fee based businesses delivered growth in revenue on a linked quarter and year over year basis. As Phil mentioned, our wealth management business continues to perform well as we add new customers and equity markets continue to move higher. We also have a full quarter's impact of BenefitWorks, an investment advisory and retirement plan service firm we acquired in the Q4 of 2020. Our assets under management and administration grew $13,100,000,000 at quarter end, up from $12,800,000,000 last quarter and $11,800,000,000 at the end of the Q1 of 2020.
This drove record quarterly income for the 2nd quarter in a row. Mortgage banking revenues declined modestly linked quarter when excluding the MSR write up. However, these revenues are up 26% on a year over year basis. Our mortgage banking business remains strong as we continue to experience elevated origination activity and historically strong gain on sale spreads. Total residential mortgage originations for the Q1 of 2021 were 714,000,000 dollars an increase of 89% from the same period last year.
Purchase activity represents approximately 49% of total originations and remains relatively consistent with recent quarters. Our mortgage pipeline remains strong and has increased from year end and year over year levels. Capital markets revenue, which are primarily commercial loan interest rate swap fees, declined in the Q1. This decline was in line with moderately lower commercial originations during the quarter. Moving to credit.
Despite a challenging COVID-nineteen environment, our asset quality remains relatively stable. Delinquent loans declined on a linked quarter and year over year basis. Loans on non accrual increased slightly, however, has remained relatively stable since prior to the beginning of the pandemic. In terms of net charge offs, after 2 quarters of net recoveries, we had $6,100,000 in net charge offs for the quarter, which was 14 basis points when excluding PPP balances. On Slide 14, we have again provided updated loan deferral trends through March 31, 2021.
Commercial deferrals declined approximately to approximately $153,000,000 down from $200,000,000 at the end of the year and stand at approximately 1.1 percent of the commercial portfolio. Consumer loans on deferral and forbearance also declined and are now at $94,000,000 down from $130,000,000 at year end. These stand at approximately 1.9 percent of the consumer portfolio. In previous calls, we noted selected industries we believe may have more risk due to COVID-nineteen. Slide 15 provides an updated summary of these selected industries.
Our credit outlook remains cautiously optimistic for the remainder of 2021. Now I'll turn the call over to Mark to discuss our financial results in a little more detail.
Thank you, Kurt, and good morning to everyone on the call. Unless I knew it otherwise, the quarterly comparisons I will discuss are with the Q4 of 2020. Starting on slide 3, earnings per diluted share this quarter were $0.43 on net income available to common shareholders of 70,500,000 dollars This is $0.13 higher than the Q4 of 2020. Our Q1 performance included a lower provision for credit losses and higher net interest income. We also reported higher non interest income and higher non interest expense largely due to a balance sheet restructuring I'll discuss in more detail in a minute.
Moving to Slide 4, our net interest income was 164,000,000 dollars a $3,000,000 increase linked quarter, primarily due to additional fees earned on PPP loans forgiven during the quarter. As Curt noted, during the quarter, we originated $685,000,000 of new PPP loans, and this was offset by forgiveness of $579,000,000 of PPP loans that were originated in 2020. The latest round of PPP loans have a larger average fee 4.54 percent due to a smaller average loan size for this wave of funding. As of March 31, we have approximately $45,000,000 of PPP loan fees yet to be recognized, dollars 15,000,000 from 20 20 originations and $30,000,000 from our Q1 originations. We grew our investment portfolio $272,000,000 during the Q1 as we selectively redeployed some of our excess cash into mortgage backed securities as the yield curve steepened during the quarter.
As Curt noted, the latest round of government stimulus fueled deposit growth during the quarter, and our Q1 saw deposits grow by approximately 800,000,000 dollars We continue to manage our deposit mix and our cost of deposits for the quarter was now only 18 basis points, a decline of 5 basis points linked quarter. We would expect our deposit cost to migrate moderately lower in future quarters as we have approximately $775,000,000 of CDs maturing over the next two quarters at costs that are approximately 100 basis points higher than current market costs. Our average loan to deposit ratio declined during the quarter from 91.4 percent to 89.9%. During the quarter, Fulton completed a balance sheet restructuring, which reduced our interest rate risk and improved several of our performance metrics going forward. This restructuring was detailed in an 8 ks filed on March 30 and is summarized on Slide 5.
It included the sale of our Visa Class B shares at a gain of $34,000,000 This gain was offset by losses on the extinguishment of higher cost debt, which included the prepayment of $535,000,000 of long term FHLB advances at a cost of 1.78 percent, the tender of $75,000,000 of subordinated debt at a rate of 4.5 percent and the tender of $60,000,000 of senior notes at a rate of 3.6%. So when you add those up, we removed $670,000,000 of liabilities at a cost of 2.25% and paid these off with cash that was currently yielding 8 to 10 basis points. We also had entered into $500,000,000 of notional value, received fixed interest rate swaps during the quarter. Those have 69 basis points of positive carry currently. So overall, this restructuring reduces our interest rate risk and improves our net interest income by approximately $17,000,000 on an annualized basis.
The impact of 2021 is incorporated into the updated guidance I will provide at the end of my remarks. Our net I will provide at the end of my remarks. Our net interest margin for the Q1 was 2.79% versus 2.75% in the 4th quarter. The 4 basis points of linked quarter increase largely resulted from PPP loan forgiveness and the related fee income recognition. Turning to credit.
Our first quarter provision for credit losses was a negative $5,500,000 versus $6,000,000 for the Q4 $44,000,000 a year ago. As you know, the adoption of CECL as well as the impact of COVID had a significant impact on our allowance for credit losses in the first half of twenty twenty. But as economic forecasts have improved in recent periods, it has reduced the amount needed in our allowance for credit losses. As always, this could change in future periods based on new loan origination volumes, our loan mix, net charge off activity and updated economic projections. Slide 6 also provides you with our normal quarterly credit metrics, which do not contain any noteworthy trends or surprises.
Moving to Slide 7, non interest income excluding those security gains were $62,000,000 up $6,000,000 from $56,000,000 last quarter and up $7,000,000 from $55,000,000 a year ago. Fee based revenues were strong and were driven by outperformance in mortgage banking and wealth management. Mortgage banking revenues benefited from a $6,000,000 reversal of a mortgage servicing rights reserve that was established in 2020. Our remaining mortgage servicing rights impairment reserve is $4,400,000 at March 31. Wealth management revenues were $17,000,000 for the quarter, an increase of 11% from the 4th quarter and an increase of 15% from the prior year.
Moving to Slide 8. Our non interest expenses were $178,000,000 in the Q1, up $24,000,000 linked quarter. However, in the Q1, we had incurred $33,000,000 in debt extinguishment costs related to our balance sheet restructuring. And in the Q4 of 2020, we had incurred $15,000,000 of expenses related to cost savings initiatives. So excluding these items from each period, our core expenses increased approximately $5,000,000 due to higher benefits costs, seasonal occupancy costs and higher incentive compensation accruals compared to the prior quarter.
Our effective tax rate was 16% for the quarter compared to 10% in the Q4 of 2020 as a result of higher pretax earnings. Slide 9 gives you more detail on our capital ratios. The balance sheet restructuring did have a modest impact to total risk based capital due to the reduction in subordinated debt, but all other capital ratios improved slightly. Our liquidity remains very strong. We also announced a new $75,000,000 share repurchase during the quarter, but did not repurchase any shares under that program during the Q1.
Lastly, we'd like to provide our updated guidance for 2020. This updated guidance reflects the impact of our balance sheet restructuring, the current wave of PPP as well as other items that are now known to us as of March 31. We expect our net interest income for the year to be in the range of $640,000,000 to $660,000,000 We expect our provision for credit losses to be in the range of $20,000,000 to $40,000,000
for the year.
We expect our non interest income to be in the range of $220,000,000 to $230,000,000 And lastly, overall, we expect operating expenses, excluding charges related to the balance sheet restructuring, to be in the range of $555,000,000 to $575,000,000 for the year. And with that, we'll now turn the call over to the operator for your questions.
Your first question is from Frank Schiraldi of Piper Sandler. Your line is open.
Good morning. Good morning, Frank. Good morning, Frank. I wonder just, Mark, you mentioned the updated guide obviously includes the balance sheet restructuring and the 2nd round or the latest round of BBB. The interest rate picture has also improved a bit.
I'm wondering if that provides some potential upside, do you think, to NII guide? Or is that just not impactful enough unless the short end moves and is that already baked into updated guide?
Yes. On the short end of the curve definitely impacts us a lot more than the long end would. We did take advantage in the Q1, as I noted, and put some money to work in the investment portfolio out of cash. But we're still sitting, obviously, in a lot of excess liquidity. Our expectation is that the 10 year is going to stay relatively range bound to where it is right now.
And candidly the trade off is if we invest too much into the investment portfolio today then at some point in the future when PPP funds are burned through, we think we're going to start to see line utilization draws happening again and we'd rather use our liquidity for our core loan growth than putting too much in the
investment portfolio at this point.
Okay. So does the guide then just sort of assume the securities book is kind of flattish at these levels? Or is there some of that excess cash gets redirected through the rest of the year?
No. I'd expect for the balance of the year, the securities book will stay relatively range bound unless if we would see an opportunity if the 10 year would pop up to 180 again temporarily, we could put a little bit to there. But I'd expect it to stay relatively consistent as a percentage of the balance sheet.
Okay. And then just thinking about reserve levels, I mean, it seems like this could be a fairly I mean, it's still early in the year, but it seems like it could be a fairly normal year in terms of charge off levels. And so as qualitative factors continue to normalize, do you think there's opportunity for additional reserve release? I guess, where is a good level to assume the reserve to loan ratio could move back to? Is it where it was with CECL day 1, Mark?
Can you just give us a little your thoughts there?
Yes. We went from 99 basis points to 120 basis points when CECL was first implemented and then or I'm sorry to 140 basis points. And then we went from 140 up to our current level as a result of COVID. Do I think it can drift down to day 1 CECL again? Yes, I do.
But again, that's obviously dependent that's assuming our business mix stays the same. That assumes that our pace of growth stays relatively the same as well as what we were historically. But I think there's definitely opportunity for that to happen Frank. Just it's obviously hard to predict the timing.
Sure. Okay. Thank you.
Thank you. Thanks, Frank.
Your next question is from Daniel Tamayo of Raymond James. Your line is open.
Good morning, guys.
Good morning, Daniel.
I'm not sure if I missed this or not, but did you provide the I know you gave some fee numbers from PPP, but did you provide the impact that had on the margin?
In the Q4 Q1, Steve? Can?
Yes. So the way to think about the margin, I mean, what I can share you is that our fee income totals, Danny, were $19,400,000 in the Q1. That's up from $14,000,000 in the 4th quarter. But we also saw increased excess liquidity in the Q1. To me, when you're talking about the effect of PPP in the margin, you really have to consider both sides.
You need to think about the fees, but then you also need to think about the fact that we're sitting on some excess liquidity. If both of those would normalize, the impact is about 7 basis points in the Q1.
Okay. That's helpful. And then maybe if you can talk a little bit about the assumptions embedded in your NIM interest income guidance within the NIM and then maybe on the balance sheet
as well?
Well, yes, I mean we were intentional when we gave our guidance to not provide NIM guidance for the year because the timing and the volatility with PPP makes it a little bit harder to predict balance sheet size. And I think as you've seen from the whole industry, the whole industry is sitting on a crush of excess liquidity that wasn't even there back when that Q4 guidance was originally put out. So I can comment that our guide does include our current assumptions on PPP. We assume that as I said earlier, we have $14,000,000 $14,700,000 of Wave 1 and 2 fees yet to be amortized. And then with the new originations that have just come on, we have a little over 30,000,000 dollars So you have $45,000,000 of fees that still need to be recognized.
I would anticipate of that remaining $1,000,000,000 that somewhere between 80% 90% of that gets forgiven and is off the books by the end of the year. How much of the new originations, which is approximately $700,000,000 how much of that comes off by the end of the year is a little bit more of a wildcard. But our assumptions on that are baked into the guidance. What's also baked into that guidance again would be the full year or the stub year impact of the restructuring which really didn't take place until the last 2 weeks of March. So you really didn't see any material impact of that in the Q1, but you'll see a 9 months effect of that $17,000,000 would be factored into 2021 and then the full year impact of that restructuring would be factored into 2022.
Okay. That's terrific. And then I guess last thing here on the balance sheet restructuring. You mentioned reducing asset sensitivity a bit, but coming into the quarter pretty strong given the increase in deposits. So how is the bank from an asset sensitive perspective now relative to maybe before COVID or this increase in asset sensitivity?
How would you guys expect to benefit from rising short term rates relative to prior periods?
It's a great question. And the answer is with everything we've done, we're really just kind of treading water. I mean, we've reduced our asset sensitivity slightly. But then remember, every time you get excess liquidity, if you got a non maturity deposit and it's sitting in overnight cash, that's inherently very asset sensitive because that non maturity deposit, even if it's government stimulus, it's going to be sticking around for a little bit of time. So our asset sensitivity would have gone up a lot more had we not done this.
This has reined it back into acceptable levels. But depending on that dynamic of how quickly as loans get forgiven on our books, I mean, you're taking off a loan and replacing that with cash. So unless that cash gets used and unless then your balance sheet shrinks both in terms of excess cash and in deposits, that is going to increase asset sensitivity a little bit more. So we are still very well positioned to benefit from rising rates.
I appreciate all the color, Mark.
Your next question is from Eric Zwick from Boenning and Scattergood. Your line is open.
Hey, Eric. Good morning. Good morning, Eric.
Hey, Eric, we can't hear you if you were on mute by any chance.
How about now?
It was better.
Okay, great. Sorry about that. Maybe first, just a question for Mark on the non interest expense outlook for the year. If I remove the restructuring charges from the Q1 and then kind of annualize that level kind of $145,000,000 on a quarterly rate kind of coming towards the top end of that range. Just curious and you mentioned investing in new branches, some of the urban markets, the tech investments.
Just curious where is the opportunity potentially improve from that quarterly run rate that would get you closer to the bottom end of that outlook range?
Yes. You should definitely great question, Eric. Yes. You should definitely not be taking that number and just kind of multiplying by 4. In the Q1, we had some items that definitely won't repeat.
We did have some bonus payments that were just related to our frontline personnel for all the great work they've done throughout COVID. There were some kind of final true ups of some of our 2020 bonus plans. I referenced snow removal. It was a tougher winter this year for us than some prior years. And just in terms of the number of incidents, not necessarily the amount of snowfall, but the number of incidents which increased cost there.
And if you look at our 5 quarter trend on occupancy expense, because of that seasonality both in terms of heating as well as snow removal, the Q1 always tends to be our highest level. So when you strip those things out, the reason and if you look at what our guide was a quarter ago versus what it is now, we increased it by about $5,000,000 and that increase was really the amount that would be attributable to bonus accrual adjustments for this year's plans.
Thanks. That's helpful. And then one for maybe Phil or Kurt. And then for our prepared comments, you mentioned that you're expecting loan growth to support the NII guide. Just curious where you're seeing opportunities to grow.
I mean, I've spoken to a couple of smaller banks in your markets and they're still seeing pretty tepid loan growth. So I'm curious if maybe it's just your access to some larger customers, but maybe just access to some of the urban markets that might present more opportunities. Where do you see the opportunities for improved loan growth this year?
Yes. So we're seeing opportunities across all our markets, but maybe a little more in the urban markets. It's really hard to grow your loan portfolio ex PPP when all that PPP money is coming in, and a lot of it's paying down lines. So as that disappears and people start using their lines of credits like they have in the past, we see just great opportunity for growth there. So we're still entertaining a lot of requests and we are settling.
It's just hard to show growth when that PPP money is coming in.
Eric, this is Kurt. Just one point to that. Just linked quarter, the line of credit utilization headwind that we had was over $100,000,000 just linked quarter. So and for the 18 months, it's been $700,000,000 if we would get back to kind of normal long term utilization rates.
Got it. Thanks for the color there. And then just one last one, thinking about the mortgage banking line. And if I exclude the impact from the mortgage servicing assets valuation, that was what the run rate was maybe kind of $8,000,000 or so. And just curious, thoughts going forward?
We're entering the peak home selling season. It seems like inventory is definitely short. And with the increase in 10 year yield, I'm guessing refi maybe starts to tail off a little bit. Just curious what you're thinking in terms of what you can generate from that business line?
Yes, we see that business continuing to be strong. We are putting loans on the balance sheet. So it depends if you look at fee income or if you look at the balance sheet growth, that operation really funds and fuels both of those. So, we expect seasonal improvement just moving from Q1 into then the normal higher home buying season. But the business remains strong for us.
We continue to have really high gain on sale spreads, and we expect them to moderate over time. It will really depend on the pace of that margin moderating, but we still see strong volume.
Great. Thanks for taking my questions today.
Thank you. Yes. Thank you.
Your next question is from Russell Gunther from Davidson. Your line is open.
Let me just first start, if I could, on the NII guide. One other follow-up, please. So the $640,000,000 to $660,000,000 you guys mentioned includes PPP assumptions. Do you have a number for how much of that $45,000,000 of remaining fees is included in that guide?
Well, we're not providing that specific guidance. But again what I can tell you is that of the $15,000,000 that relates to the 1st wave, we're assuming that between 80% 90% of those loans, so it's about $1,000,000,000 left on our balance sheet. We're assuming that that comes off by the end of the year. Now keep in mind then one of the other things that's going to create more volatility not just for us but for everybody who's participating in Wave 3 that these Wave 3 loans are actually accretive the fee is accretive over 5 years because it's a 5 year note unlike the 1st waves which were a 2 year note. So the $30,000,000 of fees that we have yet to be recognized from this current wave, those are going to be until they start being forgiven, there's going to be a little bit lower amount that's going to be coming in on a more normalized basis until the forgiveness process starts.
We would expect these Wave 3 forgiveness would start in the 3rd quarter in the middle of Q3.
Okay. That's helpful. Thanks, Mark.
And then just following up on Eric's question on the loan growth expectations. I know you don't put too fine a point on it and talked about some of the geographic contributors, but how about mix for the year? I know you mentioned portfolio, some residential real estate, but the organic growth that you do show, do you have a sense for how that might contribute from the different loan verticals?
Yes, Russell, it's Kurt. We do still see residential mortgage continuing to be a significant provider of growth as it has, and we have the ability to balance sheet that activity, and that activity is strong. On the commercial side, we continue to focus on being diversified in our portfolio. So we really are trying to grow each segment, and we feel that mix is going to be very similar to what we've experienced over the last 3 to 5 quarters. So you'll have a mix of C and I and CRE driving the commercial growth.
Okay,
great. Thank you. And then just last one for me. You mentioned the $75,000,000 buyback authorization. Could you discuss your appetite to buyback stock at current levels?
At current levels, Russell, we run a model and just look at that like what the earn back will be on that dilution. So obviously, as the stock price goes up and you're buying at a higher premium to a tangible book value increases the earn back length. So we want to continue to have that out there as one tool in the toolbox. But at current levels, I think it would be unlikely that we tap it. But that's going to ultimately be a question of what other opportunities are there to use capital for, which would include organic growth.
It would include inorganic growth using cash as a component in M and A transactions as well.
Got it. Great. Thanks, Mark. Thanks, guys for taking my questions. That's it for me.
Thank you.
Thanks, Austin.
Your next question is from Zach Winterlin from Stephens. Your line is open.
Hey, guys. It's Zach Westerlin here covering for Matt Breeze. How are you?
Hi, Zach.
How are you doing?
Good. Just to go back to the margin really quickly, I was just hoping that you could provide a little color on incremental loan yields coming on the book and what new deposit costs are kind of looking like?
What I can share is we do without answering your question directly, but what I would share is that I had stated in the last quarter's earnings call, which I know you weren't on, Matt was on. I've said that we expected within the next quarter or so to be at our trough on margin on a core basis. And I would say that with the balance sheet restructuring that we've just affected, we do feel confident that on a go forward basis, if you stripped out the impact of PPP, other than on a core basis now, we are out of floor and should expect to see some modest margin expansion going forward. The only wildcard in that again is going to be what that utilization of excess deposit from PPP on the timing of that.
Great. Appreciate that. And I know you talked a little bit about asset sensitivity of the loan book. Are you able to share what percentage of the loan book is floating and or how much of that is at the loan floor if you're able to share that?
Yes. So when we look at it today, our loan book appears on the surface to be 31% fixed rate, but that includes PPP. So when you strip out PPP, the fixed rate of our loan portfolio is about 23%. And so we would still be then about 77% between adjustable and variable. And if you in total, we have about 12 point $6,000,000,000 of loans that are tied to either prime or LIBOR, so about 2 thirds of the loan book.
Great. Appreciate that. And then last one for me, just kind of on the M and A landscape, obviously, we've seen some pretty big deals in your market here lately. Just kind of curious about if how these larger deals are impacting conversations? Have conversations been picking up, slowing down or just any color you're willing to share on that front?
I would just say over the last 6 months, conversations have picked up.
Perfect. Well, that's it for me. Thanks for taking my questions.
Thank you. Okay. Thanks, Ed.
I'm showing no further questions at this time. I would now like to turn the conference back to Phil Langer.
Well, thank you again for joining us today, and we hope you'll be able to be with us when we discuss Q2 results in July. Thank you.
Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day. You may all disconnect.