Fulton Financial Corp
NASDAQ:FULT
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Fulton Financial Corp
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Ladies and gentlemen, thank you for standing by and welcome to the Fulton Financial Fourth Quarter 2020 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Matt Jozwiak, Director of Investor Relations. Please go ahead, sir.
Good morning and thanks for joining us for Fulton Financial’s conference call and webcast to discuss earnings for the fourth quarter of 2020. Your host for today’s conference call is Phil Wenger, Chairman and Chief Executive Officer. Joining Phil are Curt Myers, President and Chief Operating Officer; and Mark McCollom, 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. The 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 on the Presentations page under Investor Relations on our website.
On this call, representatives of Fulton may make forward-looking statements with respect to Fulton’s financial condition, results of operations 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 11 and 12 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 and thanks for joining us today. Today, we will follow our usual call format. I will provide a high level overview of the quarter and the year. Then, Curt will share some thoughts on our business performance and Mark will discuss the details of our financial performance. After that, we would be happy to take your questions.
We were pleased with what Fulton was able to achieve in the fourth quarter of 2020 and for the year as a whole given the environment in which we have been operating. The prolonged presence of COVID-19 and the extended low interest rate environment have made for a very challenging year. But to me, the word that best describes 2020 is resilience. And by working together, our company, our customers and our communities have withstood nearly a year of extreme challenges. Thanks to the creativity of the Fulton team, the partnership of our customers, and the support of our shareholders. Fulton has continued to fulfill our purpose to change lives for the better, even in these most trying times.
Overall, many of our customers have managed to hold their own and we were pleased that nearly 10,000 small businesses and nonprofit organizations called on us for approximately $2 billion in loans through the small business administration’s Paycheck Protection Program or PPP. We administered Round 1 of that program in 2020 and we began helping our customers through Round 2 earlier this week. In 2020, there were other signs of customer resilience as we saw significant deposit growth and diversified fee income for the year.
Our mortgage business had a historically strong year and loans grew in both our consumer and commercial lines of business, when excluding the CPP loans. Our wealth management business also performed beyond our expectations. Our asset quality remains stable and Curt and Mark will discuss this in more detail in a few minutes. And we successfully accessed the capital markets with a subordinated debt offering in March and a preferred stock offering in October of 2020, enabling us to continue to build our capital position.
Despite the challenges of the low interest rate environment and the effects of COVID-19, we were able to make progress towards achieving our strategic priorities. We continued our branch optimization activities. In the fourth quarter, 50 of our financial centers changed formats to better meet their customers’ needs. And on January 8 of 2021, we consolidated 21 financial centers into nearby offices. Since 2014, we have consolidated 58 offices or approximately 23% of our total locations, continuing to make our retail system more efficient. We continued our focus on growing our presence in the urban markets of Philadelphia and Baltimore. In June 2020, we opened our new Yard 56 Financial Center in Baltimore. And we have announced plans to open a new financial center in University City, Philadelphia. We are planning to open additional branches in both Philadelphia and Baltimore later in 2021 or early 2022.
Over the past 18 months, we have been recognized in both Philadelphia and Baltimore for revitalization in support of those communities. And we are pleased that we are increasingly viewed as a contributing member of these vibrant and historic cities. Some of this community support is now coming from our newly created Fulton Forward Foundation, an independent private foundation funded by Fulton Bank that makes donations to nonprofit organizations that share our vision of advancing economic empowerment, particularly in underserved communities. Last year, the foundation made special grants to support organizations that were addressing COVID-19 in the communities we serve.
In 2020, we work to deliver an appropriate return to our shareholders, maintaining our quarterly cash dividend of $0.13 per share throughout all four quarters and declaring a special cash dividend of $0.04 per share in November. Doing these things help us demonstrate to our shareholders how much we appreciate their investment in Fulton Financial. In 2019, you may remember that we purchased two Wealth Management businesses and in November 2020, Fulton Bank acquired the outstanding stock of BenefitWorks, Inc., a registered investment advisor and retirement services for Central Pennsylvania. This acquisition is helpful and financial advisors accelerate its growth rate.
So now, I will turn things over to Curt for more detail on our business results. Curt?
Thank you, Phil and good morning everyone. As Phil noted, our fourth quarter performance produced solid results. And I would like to share some more detail on several key areas. Overall, loan growth trends for the quarter were solid, excluding the impact of PPP loans. We continued to generate relatively consistent amount of commercial loan originations and we saw continued residential loan growth. Commercial loan balances, excluding the PPP loans, increased $190 million for the quarter on an ending balance basis.
Looking forward, our commercial loan pipeline at December 31, 2020 is down only 1.3% from a year ago. We expect that loan originations in the first quarter will be adequate to support our annual net interest income guidance in our outlook. In consumer lending, our loan balances grew $58 million linked quarter on an ending balance basis. More specifically, residential mortgage results continued to be solid, producing linked quarter ending balance loan growth of approximately 2.6% or $80 million. This growth is in spite of significant refinance activity.
Given our asset sensitive balance sheet and the high quality nature of these residential borrowers, we have room to continue growing this segment on our balance sheet for the next several quarters and we expect to continue to do so. Deposit growth far exceeded our expectations for the quarter as non-interest bearing demand deposit balances grew 2.4% despite experiencing some seasonal outflow of municipal deposits during the quarter. Overall, deposits grew $109 million on an ending balance basis with growth in checking and savings deposits offset by planned runoff of higher cost certificate of deposit. We continue to actively manage our deposit portfolio and deposit costs declined 6 basis points during the quarter, down from 29 basis points to 23 basis points.
Moving on to fee income, our fee-based revenues decreased overall during the quarter. As a reminder, the third quarter was very strong in terms of fee income. In the fourth quarter, we experienced declines in certain areas offset by growth in others. First, mortgage banking revenues declined $7 million after our record third quarter. These results were still $4 million higher than a year ago. These results were fueled by both strong originations and historically strong gain-on-sale spreads. Total residential mortgage originations for the fourth quarter of 2020 were just over $807 million, an increase of 59% from the same period last year and our purchase activity is 57% of total originations. Our mortgage pipeline currently sits at $737 million at year end seasonally lower than the third quarter, but continuing to be elevated that we have seen in recent quarters. Year-over-year, our mortgage pipeline is almost 3x that of the prior year.
Next, our wealth management business performed better than we anticipated as the stock market edged higher for most of the quarter and we continued to benefit from a high level of recurring fee business. Our assets under management administration grew to $12.8 billion at quarter end from $11.8 billion last quarter. Capital markets revenues which are primarily commercial loan swap fees declined in the fourth quarter. This decline came on the heels of several very strong quarters.
Moving to credit, overall, we are pleased with where we are given COVID-19. Using the CECL methodology, we feel we have properly provided for potential losses. In terms of delinquency, we saw an increase linked quarter, but delinquency remained stable year-over-year. In terms of net charge-offs, we actually had net recoveries of $3.3 million further improving from a net recovery of $2.4 million last year or last quarter. We are very pleased with these results in consecutive quarters as we experienced very low charge-offs in the current environment and we continue to work hard to obtain recoveries.
Slide 14, we have provided updated loan deferral trends through December 31, 2020. Commercial loan deferrals are down significantly to approximately $200 million or 202% of the commercial portfolio. Slide 15 provides a summary of the segments we believe maybe more at risk due to COVID-19. Our special mentioned designation has increased over the past quarters is a result of continued monitoring of the commercial portfolio specifically to greater than $5 million relationships and the relationships in industries that were highly affected by COVID-19. In our consumer portfolio, the total amount of consumer loans under COVID deferral decreased 56% down to $130 million or 3% of that portfolio. Despite these very positive near-term credit trends, our outlook remains cautious for the next few quarters, while our loan deferral trends have been favorable to-date, certain segments of our portfolio maybe affected by the second wave of COVID-19 that continues to lengthen the full reopening of the markets we serve.
Now, I will turn the call over to Mark to discuss our financial results in a little more detail.
Thanks, Curt and good morning to everyone on the call. Unless I knew it otherwise, the quarterly comparisons I will discuss are with the third quarter of 2020. Starting on Slide 3, earnings per diluted share this quarter were $0.30 on net income available to common shareholders of $48.7 million. This is $0.08 lower than the third quarter. Included in these results were $15.4 million of expenses recognized as part of our cost savings initiatives previously announced.
Our fourth quarter performance included a lower provision for credit losses and higher net interest income offset by lower non-interest income and higher non-interest expense due to the charges related to the cost savings initiatives I just mentioned. Compared to our quarterly guidance, loan growth and operating expenses were in line and deposit growth, net interest income and our tax rate all exceeded expectations. Our non-interest income came in just a little bit below our guidance.
Moving to Slide 4, our net interest income was $161.6 million, a $7.5 million increase linked quarter, mainly due to fees earned on PPP loans forgiven during the period. Our net interest margin for the fourth quarter was 2.75% versus 2.70% in the third quarter. The 5 basis points of linked quarter increase largely resulted from PPP loan forgiveness and related fee income recognition. Without the $6.4 million of accelerated PPP fee income during the quarter, our net interest margin would have been 2.65% in the fourth quarter. As Phil and Curt mentioned, deposit growth and retention continues to be stronger than we anticipated and our fourth quarter saw average deposits grow by approximately $400 million. We also grew our investment portfolio during the quarter as we invested the net proceeds of our $200 million preferred stock offering. And we also selectively deployed some of our excess cash into mortgage-backed securities as the yield curve steepened in the fourth quarter. Our average loan to deposit ratio declined slightly during the quarter from 92.6% to 91.4%.
Turning to credit, our fourth quarter provision for credit losses was $6 million versus $7 million in the third quarter and $20 million a year ago. As you know, COVID-19 had a significant impact on our allowance for credit losses in the first half of 2020. But as economic forecasts have eased in the second half of the year, so have the needs for allowance for credit loss. Of course, this can change in future periods based on new loan origination volumes, loan mix, net charge-off activity and the economic projections. Non-performing loans as a percentage of total loans, excluding PPP loans, were 85 basis points for the quarter up from 83 basis points linked quarter and 84 basis points a year ago. Including PPP loans, non-performing loans to loans were 78 basis points up 3 basis points on a linked quarter basis. The allowance for credit losses as a percentage of loans at year end was 1.60%, excluding PPP loans, an increase of 4 basis points from the prior quarter. The allowance for credit loss as a percentage of non-performing loans was 189% at December 31, an increase from 188% last quarter.
Moving to Slide 6, non-interest income, excluding securities gains, was $56 million, down approximately $8 million from $63 million last quarter and in line with $55 million a year ago. This was slightly lower than our guidance as a result of lower mortgage sales gains. Mortgage banking revenues were also impacted by $1.3 million impairment on our mortgage servicing rights during the quarter compared to $1.5 million in the prior quarter. This brings our total MSR impairments for the year to $10.5 million. Wealth management revenues were $16 million for the quarter, an increase of 5% from the third quarter and an increase of 9% from the prior year. Capital markets revenues declined linked quarter after very strong performance for the prior four quarters.
Moving to Slide 7, our non-interest expenses were $155 million in the fourth quarter, up $16 million linked quarter. However, as I previously noted in the fourth quarter, we incurred $15.4 million of expenses related to cost savings initiatives. Excluding these expenses, we came in at the low end of our guidance range.
Slide 8 provides detail on the special charges recognized in 2020 related to these cost savings initiatives. In total, we expect this initiative will reduce our operating expenses by $25 million on an annual basis. We anticipate reinvesting a portion of these savings in 2021 in order to accelerate the digital transformation of our company. We also plan to continue making normal ongoing investments into our franchise in 2021. However, on an overall basis, we expect this expense initiative will result in 2021 core operating expenses lower than our 2020 core expenses. Our effective tax rate was 9.5% for the quarter compared to 13.4% in the third quarter of 2020 primarily due to lower pre-tax earnings.
Slide 9 gives you more detail on our capital ratios. During the quarter, we raised $200 million of Tier 1 qualified preferred stock, which increased Tier 1 capital and related ratios. We continue to maintain solid capital and liquidity. Our previous share repurchase program expired on December 31 of last year and we are considering a new repurchase program for 2021.
Lastly, we would like to provide our thoughts about forward guidance for 2021. We are streamlining our guidance for 2021 to the following areas. We expect our annual net interest income to be in the range of $620 million to $640 million. We expect our provision for credit losses to be in the range of $30 million to $50 million for the full year. We expect our annual non-interest income to be in the range of $210 million to $220 million. And lastly, we expect our core operating expenses to be in the range of $550 million to $570 million for the year.
And with that, I will now turn the call over to the operator for questions. Stacy?
[Operator Instructions] Our first question comes from the line of Frank Schiraldi from Piper Sandler. Your line is now open.
Good morning.
Hi, Frank. Good morning.
Hi, guys. Just a question on, Mark, you just mentioned buybacks and Curt, I know you talked about credit and you said I think optimistic, but outlook remains cautious for the next couple of quarters. So I just wonder if when you talk about buybacks is that more so after in the back half of the year or are you comfortable enough with the outlook to maybe institute something earlier?
Yes, I think, Frank, we continue to evaluate whether or not that would make sense. I think it would be unlikely that, that would occur anytime in the next month or two. But I think as the year goes on, I think it would make sense for us to consider deploying some of our capital in that way.
Okay. And just on the heels of that given the guidance you provided and the obviously the preferred raise boost in your Tier 1. Just curious if that any, if the guide includes or you could share any sort of target on Tier 1 or TCE ratio at year end 2021?
Yes. Our capital guidance for our internal minimums continued to be what they have been in prior quarters. So, nothing has changed with respect to our capital targets.
Okay. And then just finally on PPP, I know, it’s very early days for the second round, but just curious your thoughts compared to the rush of the first round, just wanted your thoughts of how large you think the opportunity for the second round could be for Fulton?
Yes, Frank, it’s Curt. So, we have our application live as of 3:30 on Monday and we do have pretty significant application volume. It’s a little too early to tell the average loan amount appears to be less than on Round 1, but we do think it potentially a significant opportunity again.
Okay, great. Thank you. That’s all I had.
Thank you. Our next question comes from the line of Chris McGratty from KBW. Your line is now open.
Good morning, Chris.
Good morning, everybody.
Hey, Chris.
I want to start on the guide if we could the one that was materially I guess different from what we were thinking about was the non-interest income. I am interested in kind of the pressure points that you see on the horizon from non-interest income, is it simply mortgage normalizing or are there other kind of structural issues with service charges given the liquidity levels with some of your borrowers? Thanks.
Yes. Chris, it’s predominantly mortgage. And we had such a great year, this past year. It’s a little difficult to project how that’s all going to work out. So it’s the best we could, but it is a mortgage.
And how much of that like what is it – what is the base case for mortgage in that 210 to 220, what’s the contribution?
Well, this year, Chris that we were north of $40 million, but with that $40 million, I mean, we have averaged the last three quarters, over 3% gain-on-sale spreads. They came off just slightly in the fourth quarter, third quarter, they were $320 million, the fourth quarter, they were $312 million, but I mean, that can’t sustain itself. And I think with the increase in the tenure recently, I think that will have some downward pressure on gain-on-sale spreads going forward. So, if you normalize that more to where gain-on-sale spreads were in 2019, which is like in the 150, 160 range, if you normalize back down there even somewhere in the middle, it’s easy to see where you would get to our overall guidance.
Okay, that’s helpful. Thanks. Thanks Mark. On the credit guidance, I guess most peers are kind of refraining from given this specific of a target, I guess, could you speak to the visibility that you have with that $30 million to $50 million provision? It seems fairly optimistic, but obviously, we all know, there is quite a bit of uncertainty that’s out there?
Well, I think when you look at what our trends have been and when – again we use Moody’s for our economic forecast. So, if you believed in their base forecasts which will be a gradual reopening of the economy and understanding how that CECL standard works, we have largely built our reserves to account for future losses that may come as a result of COVID-19 and the effects of that over the prior three quarters. So, then going forward, our reserve needs would be primarily growth and then replenishing to some extent, net charge-offs, but based on the economic outlook, you could see that 1.6% ACL to loans decline over the next couple of quarters and be totally appropriate.
Okay, thanks. And then maybe one last housekeeping if I could, I think you mentioned $6.4 million of the fees. I guess, what was the total fees of PPP in the quarter and what’s – I guess what’s left to be realized?
Yes, it was just under $14 million for the quarter. So, if you recall, we had $60 million roughly of fees in Round 1. We had just under $14 million in the fourth quarter. What remains for 2021 is about $33 million from Round 1.
Got it. Thank you.
Thank you. Our next question comes from the line of Daniel Tamayo from Raymond James. Your line is now open.
Good morning, guys. Thanks for taking my question.
Good morning, Daniel.
Hi.
Hi, Daniel.
Maybe just looking at the – from the capital discussion we talked about repurchases. I asked the question last quarter, what would it take to get more active in M&A discussions? Maybe just following up on that, what your current thoughts are there? If you are having any discussions, what those other banks are sounding like if you need more likely less likely to tell at this point, just kind of what your take on the environment is?
Well, we are anticipating in the second half of this year that M&A activity is going to start increasing and we are having some discussions, but I think once we get to the middle of the year and folks are vaccinated and economy starts moving back to normal. I think you are going to see an increase in activity.
Okay. And then switching gears here, just following up on Mark’s discussion of the net interest margin, you had some nice growth in deposits you have got some additional excess liquidity now. What is in – how are you thinking about the deployment of that excess liquidity as it relates to your deposit portfolio and how quickly you can do that? And then how does that play into the net interest income forecast for 2021 for guidance?
Yes, Danny, we – I think the whole industry has expected in 2020 that more of the PPP funds that were in bank deposit accounts would be used and a combination of that and just other deposit growth, we have been pleasantly surprised at the level of positive growth we have seen all year, which has created an excess liquidity situation. We continue to believe that at some point when the economy does reopen that some of those deposits then will be used, business deposits used to restore inventories and restart CapEx. But I would expect at least for the first half of 2021 that we would continue to have elevated excess liquidity. We deployed a little bit of that in the fourth quarter. But I think you will continue to see elevated liquidity remain until the back half of the year.
Okay. And then so I guess I can tell you that kind of x everything else, you would expect to see perhaps some acceleration in net interest income growth in the back half of the year as you might see some margin expansion based off of that deployment?
Yes. And again a lot of that deployment is based off of assumptions on what the reopening of the economy looks like. We have seen declines since COVID hit our line utilization. So, if that net line utilization goes back to historic levels, pre-COVID levels that, that would translate into commercial and a little bit of consumer growth in the back half of the year and into 2022.
Okay, great. Thanks for answering my questions. That’s all I have.
Thank you. Our next question comes from the line of Erik Zwick from Boenning & Scattergood. Your line is now open.
Good morning, guys.
Hey, how are you, Erik?
Hi, Erik.
I wanted to first just start with a follow-up, I think it was some of Curt’s commentary about the loan pipeline and the commercial loan pipeline, I think down just about 1% year-over-year and feeling confident that what you would pull through and 1Q would be adequate to support kind of that the full year net interest income outlook, curious I guess, first in terms of what industries are you seeing strength in demand from your customers? And then secondarily, just thinking about loan growth for the full year, you have got the if I kind of assume that the expectation that the remainder of the first round of PPP has gone by kind of midyear in terms of forgiveness and things of that nature? I guess there is about $1.8 billion to come off there. Is the outlook for organic growth positive enough to offset that headwind for the whole year or is that likely a drag in terms of kind of what the net growth will be for the year?
Hey, Erik. Just to clarify my comments that, that was excluding PPP. So, it’s originations of our core consumer and commercial business. The commercial pipeline is essentially at levels pre-COVID. So, we do think that will allow us to continue origination pace that would be consistent with what we are putting in the forecast for NII.
And then on the industries that are – go ahead.
Yes, to answer your question on types of businesses, the pipeline remains very diversified and is picking up market share and growing with current customers. So, we work really hard to continue to have a very diversified portfolio. So, there is not really any specific segment that is more heavily weighted there than historical.
Thanks for that color there. And then Mark, maybe just curious in terms of the effective tax rate for 2021, I think I have been using something in the 15% range. Is that still good or should we expect something potentially different?
Yes, I think that’s good thing to start unless Washington tells us something different.
Okay. And then last one from me. I mean looking back to 2018 and 2019 Fulton was generating an ROA in excess of 1% that came down in 2020 given the reserve build and some other factors. Just curious looking at 2021 and your outlook doesn’t look that 1% kind of hurdle will be achievable at this point. I guess what is the path back at this point and what other levers do you potentially have at your disposal to improve profitability at this point?
Well, I think when you look, we continue to be an asset sensitive bank. So obviously, getting to a fully reopening economy, getting back to the Fed’s target rate to kind of 2% core inflation and then having an increase in short-term interest rates would certainly help but we don’t expect that until 2023. When you look to 2021 and maybe then going from there, to 2022 it will be continued. We can get continued positive operating leverage through just disciplined loan pricing, continuing to really keep a lid on expenses. We obviously went out with our expense initiative. And I think that’s going to allow year-over-year decline in expenses. So we can have a 2-year stretch where you have very low kind of core expense growth over a 2-year period of time, which then doesn’t require a whole lot of earning asset growth, to generate that positive leverage.
Thanks for taking my questions today.
Thank you. Our next question comes from the line of Russell Gunther from D.A. Davidson. Your line is now open.
Hey, good morning guys.
Good morning, Russ.
Good morning, Russell.
Just start with a clarifying question on the NII guide, is that on an FTE basis, number one. And then number two, does that include your remaining PPP fee recognition assumption?
That is, it is not on a fully tax equivalent. So that is our GAAP number and it does include our assumption of what percent of that remaining $33 million will be recognized during the year, while we think the majority of it will be some portion of those customers will stay and convert to a full term loan.
Got it. Okay. I appreciate the color there. And then do you guys have the criticized classified number for this quarter. If so, can you talk about how it compares linked quarter and then in the context of your provision outlook being fairly benign, do you think that number has peaked?
Yes, Russell, it’s Curt. So we do have the numbers linked quarter, we did provide some detail on the COVID risk on Page 15 in the investor deck, you can see the specifics there that also gives you the total special mention stuff, and substandard that’s trending. It continues to trend up specifically in special mention, and substandard is pretty much flat year-over-year and we are seeing that in the affected industries predominantly that contributes to most of that increase in special mention that we’ve been working through all year. So we continue to continuously monitor the portfolio, make sure risk ratings are accurate, given the current circumstances, but we do have an increasing trend in special mention specifically.
Okay. And then I guess as you monitor and move out of deferrals, I mean is there the potential that that continues to trend higher, or do you think we’re through the bulk of that negative credit migration at the end of 2020?
We continue to monitor customer performance. I think it depends on how the economy opens up and recovers. Again, most of the increase is from heavily COVID impacted customers. So, we have been rated appropriately we feel right now based on the outlook that is evident in the modeling.
Okay, got it. Alright, guys. That’s it for me. Thank you so much.
Thank you.
Thanks.
Thank you. Our next question comes from the line of Matt Breese from Stephens, Inc. Your line is now open.
Hey, good morning.
Good morning, Matt.
Good morning, Matt.
I wanted to go back to Mark’s comment on the core NIM and PPP, I think you said 2.65% and that sounds fairly stable quarter-over-quarter. Just curious about your expectations for the core NIM trajectory throughout 2021 and whether or not we troughed or stabilized here and then perhaps core NIM upside based on liquidity deployment or is there still more pressure on loan yields and margin expansion and expect that yet?
Yes, we think on a core basis if you stripped out the full effects of PPP, not just the fee income acceleration. We think that we have approached or are in the trough here in the fourth quarter, that’s going to be masked a little bit in the first half of ‘21 because you’re going to continue to have acceleration of that remaining $33 million of unaccrued fee income, a good chunk of that may come through in the first half of the year. So you may see on a quarterly basis, our net interest margin go up the first half of the year and then the third quarter, fourth quarter, it may optically then come back down a little bit, but we think on a core basis we’re approaching the floor now. We still have a CD book that’s over the first three quarters of 2021, that’s about $1.2 billion combined in those three quarters still to come due. As those have been repricing, they’ve been repricing lower by over 120 basis points. And so we think there is still opportunity there to push our deposit costs down a little bit lower. And then I – what we’ll see with the effects of the steep yield curve our and this other pricing discipline that we have throughout our other loan segments.
Understood. Maybe just a follow-up there. As I think about the NII guide less in the majority of PPP fees being recognized let’s call the midpoint, roughly $600 million in core NII or $150 million in core NII per quarter. I just wanted to get a sense for how you feel about the fourth quarter of 2021, the exit quarter and where NII – core NII might fill and it sounds like you expect it to be north of $150 million and on an upward trajectory. Is that correct?
Yes. Yes, I think that’s fair. Although, keep in mind the numbers in the back half of the year are then going to be further clouded by around to PPP. So we’re going to be talking about PPP going into 2022.
Understood. Okay. And then I just wanted to follow-up here. What are, in fact new C&I and CRE loan yields coming on the books at?
Yes, it’s a – this is total commercial to commercial, just a shade over 3%.
Okay, okay. Last one from me is just, you mentioned a bit of a cautious outlook on the credit front, given the ongoing second wave. Can you just provide a little bit color there in terms of what you expect to happen as a result of that? Are you suggesting that there is a second wave of higher deferrals coming or NPA formation that we should expect or higher charge-offs? Just a little bit more detail there.
Yes, it’s Curt, just to clarify, second wave. We feel we’re in the middle of the second wave. So we’re not thinking a wave beyond this and really we’re looking here in the Northeast that getting through the winter and getting through the current wave that we have now, that is not for getting a wave beyond that.
Okay, great. That’s all I had. Thanks for taking my questions.
Thanks Matt.
Thanks, Matt.
Thank you. At this time, I am showing no further questions. I would like to turn the call back over to Phil Wenger, CEO for closing remarks.
Well, thank you again for joining us today and we hope you will be able to be with us, when we discuss our first quarter results in April.
Ladies and gentlemen, this concludes today’s conference call. Thanks for participating. You may now disconnect.