Earnings Call Transcript
WASHINGTON TRUST BANCORP INC (WASH)
Earnings Call Transcript - WASH Q1 2021
Operator, Operator
Good morning. Welcome to Washington Trust Bancorp Inc.’s Conference Call. My name is Sarah and I will be your operator today. Today’s call is being recorded. I will now turn the call over to Elizabeth B. Eckel, Senior Vice President, Chief Marketing and Corporate Communications Officer. Ms. Eckel, please begin.
Elizabeth Eckel, Senior Vice President, Chief Marketing and Corporate Communications Officer
Thank you. Good morning and welcome to Washington Trust Bancorp Inc.’s first quarter 2021 conference call. Joining us for today’s call are members of Washington Trust Executive Team, Ned Handy, Chairman and Chief Executive Officer; Mark Gim, President and Chief Operating Officer; Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer; and Bill Wray, Senior Executive Vice President and Chief Risk Officer. As a reminder, today’s call may contain forward-looking statements and actual results could differ materially from what is discussed. Our complete Safe Harbor statement appears in our earnings press release as well as other documents filed with the SEC. You may view these materials as well as the Safe Harbor statement in its entirety on our investor relations site at ir.washtrust.com. Washington Trust trades on NASDAQ under the symbol WASH. I am now pleased to introduce the host for today’s call, Washington Trust’s CEO and Chairman, Ned Handy.
Ned Handy, Chairman and CEO
Thank you very much, Beth, and good morning everyone. I hope you're all doing well and that you've all been able to stay healthy since our last call. We appreciate your continued interest in Washington Trust and thank you very much for taking the time to join us this morning. Today's agenda is similar to past calls. I'll provide an overview of our first quarter highlights and then Ron Ohsberg will review our financial performance. After our prepared remarks, Mark Gim and Bill Wray will join us to answer any questions you may have about the quarter. I'm pleased to report that Washington Trust posted strong first quarter results with net income of $20.5 million or $1.17 per diluted share, up from $18.6 million or $1.07 per diluted share reported in the fourth quarter of 2020. Quarterly earnings increased substantially from the first quarter of 2020, when we first started feeling the impact of COVID-19. If you look back over the past year, it's incredible to think about what's transpired. When the pandemic hit, it abruptly forced us to change the way we work, the way we communicate, and the way we serve our customers. Our results reflect our success at adapting to change. They also show just how important consistency is during times of change and uncertainty. Throughout the pandemic, our employees worked hard to ensure they consistently delivered a high level of service and maintained the human connection with their clients, and it made all the difference. I can't say enough about how proud I am of our team and the work they do. Our business model has also consistently provided a diverse stream of earnings for us through various economic cycles, and that has served us well during this crisis in this period of extended low interest rates. Our returns on average equity and average assets improved from fourth quarter levels. We remain well capitalized, and our risk-based capital ratio is 13.85% at the end of the first quarter. We believe our capital position suits our business model, supports our dividend, and provides us with opportunities for future growth. I would now like to take a few moments to share some first quarter highlights. In-market deposits, which exclude wholesale brokered time deposits, reached an all-time high of $4 billion in the first quarter, up 6% from the fourth quarter and up 23% from a year ago. Deposit growth has continued and included temporary increases associated with PPP loan origination funds deposited to customer accounts. As a result of the increase in low-cost deposits, we saw improvement in both our loan-to-deposit ratio and our margin. Deposit growth has also allowed us to continue to reduce Federal Home Loan Bank borrowings. This influx of deposits is a nationwide trend as consumers buckled down, saving stimulus checks and putting aside funds to ensure they could meet day-to-day living expenses while riding out the COVID-19 pandemic. Industry research shows that consumer saving tends to slow down, and consumer spending picks up as soon as there are positive signs of economic growth. We're cautiously optimistic about consumer strength, but I think it's too early to predict what will happen with consumer behavior in the short run. And we're seeing more and more businesses open up now that state governments and health officials have eased many of the COVID-19 restrictions. We reopened our branch lobbies on April 1 with safety measures still in place, and I have seen a gradual uptick in branch traffic. Speaking of branches, next month, we'll open a new branch in East Greenwich, Rhode Island. It's a great location that offers tremendous opportunities for retail wealth management and small business banking. We have a seasoned team of professionals in place and are looking forward to opening the doors in May. We still believe branches are an important part of our community banking model. Over the past year, we've seen more and more customers use digital and telephone banking services, as well as other types of technology to conduct their banking transactions. However, as I mentioned earlier, we also believe our customers enjoy the human connection and meeting face-to-face with our trusted advisors to discuss financial solutions. We're committed to meeting our customers where they want, whether it's on a technological platform, at a physical location, or both. We strive to deliver a safe, convenient, and high-quality customer experience across all channels. Turning to credit and lending, asset quality is stable and the economic outlook has improved, given the acceleration of the vaccine rollout and the continuation of government stimulus. Based on this, we released about $2 million in credit loss reserves in the quarter. Ron will provide more details on this shortly. Total loans amounted to $4.2 billion for the first quarter, down slightly from the end of the fourth quarter, but up by $104 million or 3% from a year ago. We originated over 1,000 PPP loans totaling $97 million in the first quarter, and we processed PPP forgiveness on about 700 loans totaling $66 million. Aside from PPP lending, commercial loan originations and construction advances were offset by pay-offs and pay downs. On a positive note, commercial pipelines have been improving since February and have returned almost to pre-pandemic levels. We've seen a resurgence across all business lines, and we are hopeful that commercial lending activity will pick up as economic recovery begins. Residential mortgage originations and sales were down from the record levels in the fourth quarter of 2020. Mortgage banking revenues totaled $11.9 million for the first quarter, down by $2.2 million or 15% from the fourth quarter of 2020, but up by $5.8 million or 96% from a year ago. Our mortgage team continues to work diligently, although there was an uptick in mortgage rates in the first quarter, inventory levels continue to remain very low. We had robust application activity throughout the first quarter and into April, and the pipeline is currently very strong. At some point in 2021, mortgage banking activities may start to normalize, but timing is somewhat difficult to predict, given the impact of very tight supply and continued low rates. Our Wealth Management division’s assets under administration or AUA reached a record $7 billion at March 31, up 3% from the end of 2020 and up 32% from March 31, 2020. This growth reflects financial market appreciation, as well as strong business development and client retention efforts net of routine client asset flows. Wealth Management revenues were $9.9 million for the first quarter, up 7% from the preceding quarter, providing a key source of non-interest income to the bottom line. We're very pleased with our Wealth Management division’s first quarter performance. And now I'd like to turn the call over to Ron for a review of our financial performance. Ron?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes, thank you, Ned. Good morning, everyone. Thank you for joining us on our call today. As Ned mentioned, net income was $20.5 million or $1.17 per diluted share for the first quarter, as compared to $18.6 million and $1.07 for the fourth quarter. Net interest income amounted to $32.9 million, up by $628,000 or 2% from the preceding quarter. The net interest margin was 251, up by 12 basis points. In the first quarter, net interest income benefited from accelerated fees due to PPP forgiveness, which totaled $1.2 million and had a 9 basis point benefit to the margin. This compared to $423,000 in 3 basis points in the fourth quarter. Excluding PPP fees in both periods, the margin increased by 6 basis points from 236 to 242. Commercial loan pre-payment fees were modest and totaled $217,000 in the first quarter, compared to $123,000 in the fourth quarter. Average earning assets decreased by $47 million, mainly due to a decrease of $38 million in average loans. The yield on earning assets decreased by 2 basis points to 290. On the funding side, average in-market deposits rose by $88 million, while wholesale funding sources decreased by $183 million. The rate on interest-bearing liabilities declined by 17 basis points to 0.50%. Non-interest income comprised 44% of total revenues in the first quarter and amounted to $26 million, down by $1.8 million or 6% from the preceding quarter. Included in other non-interest income in the first quarter was $1 million associated with the litigation settlement. As previously disclosed, included in other non-interest income in the fourth quarter was a gain of $1.4 million associated with the sale of our interest in low-income housing tax credit investment. Excluding the impact of these items, non-interest income was down by $1.4 million or 5%. Our mortgage banking revenues totaled $11.9 million in the first quarter, down $2.2 million. This included net realized gains of $13.7 million, which were up by $351,000 or 3% from the prior quarter, reflecting a lower volume of loans sold offset by a higher yield. Mortgage loans sold totaled $292 million, down by $26 million or 8% from the preceding quarter. Sales were up by $130 million or 80% from the first quarter of 2020. Realized gains in the first quarter were offset by net unrealized losses of $1.9 million, reflecting a decrease in the fair value of mortgage loan commitments as of March 31. Originations amounted to $441 million, down by $5 million or 1% from the preceding quarter. Our origination pipeline at March 31 was $396 million, up $73 million or 23% since December. Wealth Management revenues were $9.9 million in the first quarter, up by $689,000 or 7%. This included an increase in asset base revenues, which were up by $517,000 or 6%, as well as an increase in transaction revenues of $172,000. The increase in transaction revenues was largely due to tax compliance fees which are concentrated in the first half of the year. The increase in asset-based revenues correlated to an increase in the average balance of assets under administration, which were up by $298 million or 5%. The March 31 end-of-period balance of assets under administration totaled a record $7 billion, up by $182 million or 3% from December 31, reflecting market appreciation of assets. Regarding non-interest expenses, fees were up by $604,000 or 2% from the fourth quarter. In both the first quarter of 2021 and in the fourth quarter of 2020, debt pre-payment penalties were incurred from paying off higher-cost FHLB advances. This expense was $3.3 million in the first quarter, compared to $1.4 million in the preceding quarter. Excluding the impact of these penalties from both periods, non-interest expense was down $1.3 million or 4%. Salaries and employee benefits decreased by $548,000 or 2% in the first quarter. The decline reflected lower incentive compensation expense as well as higher deferred labor, which is a contract expense, which will be partially offset by higher payroll taxes associated with the start of the new calendar year. The linked quarter increase in deferred labor was approximately $560,000 and was largely attributable to first quarter origination of PPP loans. The remaining decrease in non-interest expense reflected relatively modest declines, including lower marketing expenses due to timing and a decrease in legal expenses. Income tax expense totaled $5.7 million for the first quarter; the effective tax rate was 21.7% compared to 22.9% in the prior quarter. We currently expect our full-year 2021 effective tax rate to be approximately 22.3%. Now turning to the balance sheet, total loans were down by $1 million from December 31 and up by $104 million or 3% from a year ago. In the first quarter, commercial loans increased by $9 million or 0.4%. In the first quarter, commercial loan origination and construction advances totaled $160 million and included $97 million of PPP loans. This was largely offset by pay-offs totaling $153 million, which included $66 million of PPP loans that were forgiven. Residential loans decreased by $10 million, and consumer loans were essentially unchanged. Investment securities were up by $54 million or 6% from December 31, and securities represented 17% of total assets as of March 31. In-market deposits were up by $227 million or 6% from December 31 and up by $739 million or 23% from a year ago, all the increase has been in checking and savings products. The deposit inflows have allowed us to improve our funding mix by paying down higher-cost wholesale advances. Wholesale brokerage CDs were down by $56 million in the first quarter, and FHLB borrowings were down by $127 million. Total shareholders' equity amounted to $534 million at March 31, down by $596,000 from the end of Q4. Washington Trust remains well capitalized. The total risk-based capital ratio was 13.85% at March 31 compared to 13.51% at December 31, and our tangible equity to tangible assets ratio was 8.21% at March 31 compared to 8.22% at December 31. Our first quarter dividend declaration of $0.52 per share was paid on April 9. Regarding asset quality, non-performing loans declined by $214,000 in the first quarter; non-accrual loans were 0.31% of total loans, unchanged from the end of the year. Loans past due 30 days or more were 0.26% of total loans, compared to 0.30% at the end of Q4. The allowance for credit losses on loans totaled $42.1 million or 1% of total loans and provided NPL coverage of 325%. Excluding PPP loans, the allowance coverage was 105 basis points. The provision for credit losses was a negative $2 million in the first quarter, compared to a positive $1.8 million recognized in the preceding quarter. The reduction in the provision and the ACL reflected our current estimate of forecasted economic conditions and continued stable asset quality metrics. Net charge-offs were $18,000 in Q1 compared to $118,000 in Q4. Finally, I'd like to provide an update on our COVID-19 lending impact. Loan deferments as of April 16 totaled $150 million or 4% of total loans outstanding excluding PPP loans, down from $245 million or 6% of total loans as of December 31. This includes $120 million of commercial real estate, $13 million of C&I, $16 million of residential, and $1 million of consumer loans. A breakdown of commercial deferments by industry category is presented in a table in our earnings release. We will be happy to get into the details during Q&A. As of March 31, we were reporting 2,065 PPP loans with a carrying value totaling $229 million. In the first quarter, we originated 1,058 PPP loans with principal balances totaling $97 million. PPP loans totaling $66 million were forgiven by the SBA during the first quarter. As I mentioned earlier, approximately $1.2 million of net deferred fees were accelerated into income as a result of these loans being forgiven. Net un-amortized fees on PPP loans amounted to approximately $5.7 million at March 31. The timing and recognition of these net fees into the margin will depend on the pace of loan forgiveness as approved by the SBA. And at this time, I will turn the call back to Ned.
Ned Handy, Chairman and CEO
Thanks very much, Ron. Washington Trust had a very good first quarter, which has provided us with some momentum going forward. Now that the government has eased some COVID restrictions and the vaccine rollout appears to be successful, we're beginning to see more business activity and consumer confidence. We're also hearing that summer rentals and reservations are picking up, so that's a good sign for the region's tourism industry and economy. I don't think we're out of the woods yet, but we're cautiously optimistic about the remainder of 2021. I think it's a bit too early to claim victory over the pandemic or predict when the economy will recover or to fully define the new normal. But I believe we've successfully navigated through significant change in the past year and that we're well prepared for the challenges and opportunities that lie ahead. As I mentioned earlier, Washington Trust's success to date and over time has been our ability to change and to provide consistent returns to our shareholders. Washington Trust has weathered many storms during our 220-plus year history, and we believe in our team and in our business model, and that we are well positioned to continue to navigate forward. We thank you for your continued support of Washington Trust. And now Ron, Mark, and Bill will join me for a brief question and answer session.
Operator, Operator
We will now begin the question and answer session. We will pause momentarily to assemble our roster. Our first question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.
Mark Fitzgibbon, Analyst
Hey, guys, good morning.
Ned Handy, Chairman and CEO
Good morning, Mark.
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Good morning, Mark.
Mark Fitzgibbon, Analyst
Hey, Ron, I was curious if you could share with us your core NIM outlook for the next quarter or two. I know the pre-payment of the PPP fees will fine set up, but I was curious to your view on the core NIM?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Sure, so excluding PPP, we would expect modest expansion of the margin from the 242 that we reported in the first quarter to somewhere in the 245 to 250 range in Q2. In the second half of the year, we will probably see that starting to trend back down towards 240. We continue to face headwinds on asset yields for a while, and most of our liability repricing is really behind us. So we'll get a little bit of pickup in the second quarter, and then that will taper down in the second half.
Mark Fitzgibbon, Analyst
Okay. And then I wondered if you could maybe at a high level share some perspectives on the mortgage business? It's been trending down, and I know being on sale margins even this quarter under a bit of pressure. Do you feel like a lot of your customers at this point have refinanced? Do you expect the mortgage pipeline to be under a little pressure in this line to kind of work down? And in that same vein, I'm curious, what kinds of things can you do to get the cost structure under control if that occurs?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Sure, I'll start with that, and Mark Gim maybe you can jump in too. But the pipeline remains really strong at the end of March. But that said, we recognize that these elevated levels aren't going to last forever. So rates have trended up recently, although the pipeline is still strong. I think our expectation is that Q2 will be a good quarter, but maybe not quite as strong as Q1, maybe with some lower volume and lower sales yield. It's too early to tell beyond that, but Mark I don't know if you want to add anything to that.
Mark Gim, President and Chief Operating Officer
Sure, I would be happy to. Good question, Mark. We think that just from a point of view of housing activity in New England, while some of the refinance activity may have been sort of boiled out by the strength of reprice over the last year and a half, there's still quite a few people who have a refinancing incentive with where it is today. And really, in New England, the story is one of lack of housing inventory, and our pipeline and application activity still remains very strong. Purchases account for over 40% of activity, which is healthy, and we would anticipate that to improve further as we go into the spring and summer months. The real story, we think is the lack of inventory in the Rhode Island and Greater Boston markets. It's the lowest it's ever been, about 25% lower than the previous low in 1992. In a healthy housing market, one would expect about six months of available inventory; we may have 1.3 months in Rhode Island and 1.4 months available in Greater Boston, respectively. So, if purchase activity is a bellwether of mortgage activity in general, that should be strong. As Ron said, REFI looks pretty good for the second quarter, but the second half of the year is a little harder for us to foresee. In terms of costs, the majority of our expenses on the mortgage side are variable, related to mortgage commissions based on loan closings. We've made it a priority to avoid overextending the cost structure and have avoided building up characteristically high fixed costs during this time. Therefore, we should be resilient when we experience potential declines in activity going forward, and we remain optimistic that slower refinancing may also mean slower pre-payments, which could be favorable for mortgage loan growth.
Mark Fitzgibbon, Analyst
It does. I guess I'd be curious about what kind of margin like in this quarter did you see on the mortgage business, or alternatively asked, what was the rough cost structure in the mortgage business on the $11.9 million revenue?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes, Mark. So our mortgage commissions run about 85 basis points on volume, so it's a largely variable cost. So we have not added a lot of fixed costs during this cycle.
Mark Fitzgibbon, Analyst
Okay.
Mark Gim, President and Chief Operating Officer
And Mark, this is Mark. Just in terms of margin compression, we continue to try to find ways to improve turn times and automate processes, as in the mortgage business, speed equates to margin. While margins are under compression to some extent because competition for loans is starting to get more intense, we are working to engage with potential partners like FinTechs to help streamline services, such as title and closing times, which may help mitigate some of that margin compression risk.
Mark Fitzgibbon, Analyst
Okay. And then the last question I had, Ned, I'm curious, we've seen a bunch of deals in New England recently. And we've heard some CEOs suggest that scale and tech spending have become dramatically more important recently, which has prompted some of this consolidation. I guess, sort of a two-part question. Number one, do you agree with that? And number two, do you think Washington Trust needs more scale?
Ned Handy, Chairman and CEO
So, great question, and two parts to it obviously. I think you recognized us as somebody who spent some money recently on tech. I would tell you and I'll let Bill comment on this further, as tech reports to him. But we've invested fairly heavily in our technology platform. We think we're well positioned to add on to that as we need to improve technology at a consumer-facing level. We've done some of that. But I think that's kind of where our incremental spend would be. We don't have any big plans for technology spend today, but I think we've done that in the last couple of years and are ready to consider additional investment on that front. I think scale matters. We've talked in various quarters about organic growth and M&A as important elements of our growth prospects. So we wouldn't take any of those off the table, certainly not organic growth off the table. M&A are sort of guideposts haven't changed much as price; it's what can we do with it once we own it? Can we find partnerships? A lot of the bigger deals at the higher levels that we've seen in recent quarters feel like they've been sort of MOE-type deals and more partnership deals. I think we're open to that. We've certainly considered that over the past quarters and thrown our hat in the ring but haven't been successful. But we'll continue to consider that—we've got the capital to do it. We think our currency is fine. But, having said that, we've got a great operation, and we won't do anything to jeopardize it. So, we're a community bank, want to stay a community bank and we'll find ways to grow and remain as such.
Mark Fitzgibbon, Analyst
Thank you.
Operator, Operator
Our next question comes from Laurie Hunsicker with Compass Point. Please go ahead.
Laurie Hunsicker, Analyst
Yes, hi, thanks. Good morning.
Ned Handy, Chairman and CEO
Good morning Laurie.
Laurie Hunsicker, Analyst
We were hoping, Ron, if you could just give me just a couple numbers of when in the quarter was the debt extinguishment completed?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
It was—we did a couple of rounds of that. So I can just give you some numbers on the debt extinguishment. In the fourth quarter and in the first quarter, we expect the run-rate benefit for 2021 to be about a million bucks and 2 basis points.
Laurie Hunsicker, Analyst
Okay, perfect. And if you were to say that the debt extinguishment was weighted more towards the beginning versus the end or the middle of the quarter just of this quarter how do you think about that?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
We did some in February and some in March.
Laurie Hunsicker, Analyst
Okay, perfect. That’s helpful. And then on the expenses, the legal expenses, obviously, we saw a drop, which leads me to wonder the settlement that flowed through was that related to the departure of the AUA people? And I guess more importantly in terms of the legal expenses, is this now a good run rate or was this unusually small? How should we think about that?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes, so I guess we're not going to really comment on the litigation matters. So I won't answer that directly. I will just say that we—it was something that we've been working on for a while, and it's resolved. So I think from a legal expense run rate, you would expect to see that to be lower than what it has been.
Laurie Hunsicker, Analyst
Okay. Okay. So this quarter is probably a good run rate then or even tracking lower?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes, I think so.
Laurie Hunsicker, Analyst
Okay. And then I just wanted to verify you are—you currently have seven mortgage banking offices right now or is that a dated number? And I guess your mortgage loan production offices not your commercial ones just a mortgage.
Ned Handy, Chairman and CEO
Yes, we have four in Massachusetts, one in Connecticut, and then in Rhode Island, we generally work out of the branches. Ron, correct me if I've missed anything?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Well, we technically have a mortgage office in Rhode Island as well.
Ned Handy, Chairman and CEO
Yes, an underwriting office.
Laurie Hunsicker, Analyst
Okay. Got it. So how are you thinking about those? What—are you thinking perhaps you would shutter some of those, or can you just talk a little bit about how you're thinking about those and maybe cost savings around that given where rates are?
Mark Gim, President and Chief Operating Officer
Yes, let me take that. Laurie, this is Mark if I can. Really those represent locations that we work out of, but I think you're maybe asking about lease commitments or physical facilities or so forth, is that the nature of the question?
Laurie Hunsicker, Analyst
Right.
Mark Gim, President and Chief Operating Officer
The critical mass in those locations has been there for quite some time, really well predating the COVID era. I think a lot of questions about the mortgage banking business that people are asking now—we got this question just a few minutes ago—are whether banks have overindexed in it during the run-up to outstandingly high refinance levels. All of those offices, for us, were open long before this period of time. We will continue as a company to be careful when we think about brick-and-mortar and lease commitments. But the strength of this mortgage banking business was built on an environment that was a factor of half what we see today. And so, while I think we want to be careful about things like occupancy expense going forward, I would not look at all at our mortgage banking business as someplace where we would be looking to take out costs. We're in the mortgage business both from a portfolio perspective and from a refinance perspective. Unlike a mortgage company or a more retail-oriented bank that drives its origination through physical retail locations, ours are really driven by originators working in several different areas. Again, more than I think 60% of our volume today comes from the Massachusetts market. So, I would say we'll certainly be careful around the edges, but to reiterate, we really don't feel like we have any either incentive or need to contemplate a cost reduction program on the mortgage infrastructure side at this point. Those markets remain robust. Again, if we were relying on REFI only and no portfolio, it might be a different story, but I don't think for us.
Laurie Hunsicker, Analyst
Right. Thanks, Mark. And then just Ned, last question, if we can go back to your comments, maybe are around Mark's question, can you help us think about your very strong stock currency? If you were to embark on whole bank M&A? Can you help us think about the framework for assets? In other words, would you be open to an MOE or just how you're thinking about an asset level in terms of how small you would go, how large you would go, just how you're thinking about this?
Ned Handy, Chairman and CEO
So great question. It’s a two-part question and I think you recognized us as somebody who spent some money recently on tech. I would tell you, and I'll let Bill comment on this further, as tech is relevant to him. But we've invested fairly heavily in our technology platform. We think we're well positioned to add onto that as we need to improve technology at the consumer-facing or customer-facing level. We've done some of that. But I think that's kind of where our incremental spend would be. We don't have any big plans for technology spend today. But I think we've done that in the last couple of years and are ready to consider additional investment on that front. I think scale matters. We've talked in various quarters about organic growth and M&A as important elements of our growth prospects. So we wouldn't take any off the table, certainly not organic growth off the table. M&A guideposts haven't changed much as price; it's what can we do with it once we own it? Can we find partnerships? A lot of the bigger deals at the higher levels that we've seen in recent quarters feel like they've been sort of MOE type deals and more partnerships. I think we're open to that. We've certainly considered that over the past quarters and thrown our hat in the ring but haven't been successful. But we'll continue to consider that—we've got the capital to do it. We think our currency is fine. But, having said that, we've got a great operation, and we won't do anything to jeopardize it. But I think we’re a community bank, want to stay community bank, and we'll find ways to grow and remain as such.
Laurie Hunsicker, Analyst
Thank you for taking my questions.
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Not at all.
Ned Handy, Chairman and CEO
Thank you.
Operator, Operator
Our next question comes from Damon DelMonte with KBW. Please go ahead.
Damon DelMonte, Analyst
Hey, good morning, guys. Hope everybody's doing well today.
Ned Handy, Chairman and CEO
Good morning, Damon.
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Hey, Damon.
Damon DelMonte, Analyst
Good morning. So my first question, just wanted to touch a little bit on loan growth. I think you guys said that the pipelines were rebuilding going through this first quarter here, and Ned, I think you may have even said they are close to pre-pandemic levels. Obviously, a slower start to the year as PPP with balances down a little bit. How are you guys thinking about the upcoming three quarters? And then what do you think you could get for net growth in the portfolio?
Ned Handy, Chairman and CEO
So we've definitely seen growth in the pipeline in the last 30 to 60 days. At the start of the year, things were looking pretty low; we were kind of half of our sort of what had become our normal levels. We’re building back towards where we were. We're not there yet, but we see a lot of activity in the early stages of the pipeline. A lot more requests. I think people are feeling a little bit better about the outlook ahead. So I think we've suggested low single-digit growth for the year. I think we will grow for the year; it won't be like historic levels, but I think we're still committed to seeing growth in the commercial side and in the low single-digit levels.
Damon DelMonte, Analyst
Okay.
Ned Handy, Chairman and CEO
Sorry, go ahead.
Damon DelMonte, Analyst
Information was pretty good in the first quarter; we're still struggling with pay-offs and pay-downs as our customers complete projects and stabilize them. And, frankly, take advantage of either long-term finance, fixed rate finance or low cap rates.
Ned Handy, Chairman and CEO
Yes, I was just going to say, or just ask, is this commercial growth focused in any particular area of the footprint? Is it Rhode Island based? Is it more Greater Boston area or maybe Southern Connecticut area? Like where are you seeing the best opportunities? Yes, I'd say it's all of the above. In Rhode Island, we have a great brand, and we know a lot of the top-tier developers that are going to be the ones that start first, so we're in the mix there. We've got a lot of good momentum in the Connecticut marketplace. Again, I think we've got a core of developers that will be the first ones back into the mix, and similarly in Boston. I'd say we're in all three—multifamily and industrial properties are strong; I would say we're probably a little more reluctant on retail and office space at this time being. But we've got some customers that are CVS, Walgreens-type developers; we'll help them out. We've seen a couple of those deals come through in the last month or so. So I think we're open to considering whatever our strong field of developers bring our way. Things are competitive, pricing is competitive. There’s a little bit of structural competitiveness, which we'll stick to our safe methods and won't go out on a limb on the structure side. We will be competitive on pricing. And Bill, I don't know if you have any other comments.
Bill Wray, Senior Executive Vice President and Chief Risk Officer
No, Ned, I think you explained it. It’s more of what we've done—steady growth. I think we're actually seeing some opportunities because we've been steady and didn't overreact when things got tough, and have been taking good care of our borrower base, which creates loyalty and brings back loyalty. While there is a lot of competition, we think there are going to be some opportunities out there again because we’ve stuck to our knitting throughout this process.
Damon DelMonte, Analyst
Okay, great. That's excellent color. Thank you. And then just my second question, credit trends have been extremely strong. You guys see that in the way of low NPA formation, low net charge-offs, no provision this quarter or—sorry, negative provision this quarter? Yes, Ron, how do we think about the provision going forward with the 5 basis point reserve release? Do you think reserves are going to come down further in the upcoming quarters? Any perspective you can give on that?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes. So, Damon, we expect credit to remain stable in the absence of any COVID relapse or some forcing of economic shocks. So I think generally, we would say that provision should generally track to loan growth. And we'll take care as it goes. We made our decision early on to be relatively liberal with granting of deferrals. We think that was in our customer’s interests as well as ours. But we've seen a nice, steady decline in those, and we expect that to continue over the next three quarters to see the deferments roll-off. So yes, I mean, provision – yes, it's—we think things are pretty stabilized.
Damon DelMonte, Analyst
Okay, great. That's all that I had. Thank you very much.
Ned Handy, Chairman and CEO
Thanks, Damon.
Operator, Operator
Our next question comes from Erik Zwick with Boenning & Scattergood. Please go ahead.
Erik Zwick, Analyst
Hi, good morning, everyone.
Ned Handy, Chairman and CEO
Good morning, Erik.
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Good morning, Erik.
Erik Zwick, Analyst
First, if I could start with a question a bit of a follow-up on Laurie’s question about the FHLB advances, but maybe just a little bit more bigger picture. Curious for your updated thoughts on your funding strategy? I guess a little bit of a setup to this question, as I just look at how the funding has changed over the last year, the end market deposits are up $740 million or so, FHLB advances down $734 million—so close to one-to-one there—and you incurred some pre-payment fees to retire some of those advances. So my guess is to some degree, you think the new deposits will be sticky? And I guess there are potentially some questions about those. So I'm just excess liquidity with people not spending for travel; you've got the PPP funds that will be used by customers. At the same time, I hope you continue to kind of keep wholesale broker time deposits at about the same percentage of total deposits. So just kind of curious how you're thinking about funding today given some of those factors?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes. So I think we think that those deposits are going to be relatively sticky. And that—the new deposits that came in with the new PPP lending—those will bleed off over the next couple of quarters. But we've still finished that PPP 1, and those deposits had already bled off by the end of the year, and we still had pretty elevated deposit levels even after that occurred. So even putting PPP aside, I think we continue to enjoy some high organic deposit growth. I think that's going to stick around for at least a while. In terms of wholesale funding, the brokered CDs have been really much measurably cheaper than FHLB. So just in terms of arbitrage we've been favoring brokered CDs over FHLB as those scheduled maturities occur. And we had some higher-cost FHLB debt on our books, and we've chosen to pay it down. So I think there’s probably a little bit more opportunity to do some of that going forward. But most of our repricing is behind us, and there's a little bit left to do, perhaps.
Mark Gim, President and Chief Operating Officer
Erik, this is Mark. I’ll just add to that from a kind of a big picture perspective. Ron has talked about some of the tactical moves we've made during this period of low rates and flush deposit growth. We think that structurally, one of the keys to our improved performance over time is really addressing the cost of funds on the balance sheet and to favor low-cost core deposit gathering wherever we can. This feels like an environment right now, where banks are so flush with liquidity that there may be less interest in growing deposit bases, particularly as we look at some of the M&A in our area with larger banks. The focus may be more on cost reduction and efficiencies through either closing branches as a result of transactions or a closing of lower-performing branches. So, in the long run, we remain very focused on deposit growth as a structural way of changing our cost of funds. Right now, when there's a super low interest rate environment with the fed being very accommodative, it may appear to some that the value of deposits in the near term isn't that great, but it is of substantial value to us. So whether it's remixing of the wholesale funding book between FHLB and broker depending on cost or just focusing on funding growth in general, core deposits remain a key strategic priority for us. And we'll continue to pursue deposit growth even in a rate environment where others might not be as interested in.
Erik Zwick, Analyst
That's great. I appreciate the thorough answer from both of you guys. And Ron, this next one's probably for you as well; just curious of the $5.7 million in remaining un-amortized PPP fees. Curious if you could break that out between which portion is related to the 2020 originations versus the 2021 originations, just to kind of maybe key on what amount might be recognized this year as those 2020 continue to get forgiven?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes, yes. So the 2020 pool is about $2 million, and the 2021 pool is like $3.7 million.
Erik Zwick, Analyst
Excellent, that's great. And then looking at the Wealth Management revenue line, I know the first quarter included some tax prep fees and guessing maybe that trickles a little bit into the second quarter given the extended filing date. But curious if you could quantify what the amount of the tax prep fees were in Q1, ‘21?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
So in Q1, they were—well, I mean, our total transaction fees, which is mostly all tax, was $172,000. And we'd expect Q2 to look similar to Q1 in terms of transaction fees.
Erik Zwick, Analyst
Okay, great. That's helpful. That's all I had right now. Thanks so much for the answers.
Ned Handy, Chairman and CEO
Thanks, Erik.
Operator, Operator
This concludes our question and answer session. I would like to turn the conference back over to Ned Handy for any closing remarks.
Ned Handy, Chairman and CEO
Thank you, and we thank all of you very much for your time and interest, and certainly look forward to catching up with all of you as soon as possible. So thanks a lot, and have a great day.
Operator, Operator
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.