Bank of Marin Bancorp (NASDAQ:BMRC) Q2 2022 Earnings Conference Call July 25, 2022 11:30 AM ET
Company Participants
Andrea Henderson – Director of Marketing
Tim Myers – President and CEO
Tani Girton – CFO
Conference Call Participants
David Feaster – Raymond James
Matthew Clark – Piper Sandler
Jeff Rulis – D.A. Davidson
Stuart Lotz – KBW
Andrew Terrell – Stephens
Andrea Henderson
Good morning and thank you for joining Bank of Marin Bancorp’s earnings call for the second quarter ended June 30, 2022. I am Andrea Henderson, Director of Marketing for Bank of Marin. [Operator Instructions] This conference call is being recorded on July 25, 2022.
Joining us on the call today are Tim Myers, President and CEO; and Tani Girton, Executive Vice President and Chief Financial Officer. Our earnings press release, which we issued this morning, can be found on our website at bankofmarin.com, where this call is also being webcast.
Before we get started, I want to note that we will be discussing some non-GAAP financial measures on the call. Please refer to the reconciliation table on Page 3 of our earnings press release for both GAAP and non-GAAP measures. Additionally, the discussion on this call is based on information we know as of Friday, July 22, 2022, and may contain forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, please review the forward-looking statements disclosure in our earnings press release as well as our SEC filings. Following our prepared remarks, Tim and Tani will be available to answer your questions.
And now I’d like to turn the call over to Tim Myers.
Tim Myers
Thank you, Andrea. Good morning, everyone, and welcome to our call. As we reported in April, Q1 2022 originations were the strongest since 2017. Through disciplined client outreach and enhanced business development efforts, robust loan production continued in the second quarter. During the first 6 months of 2022, our loan originations totaled $152 million, more than double the same period a year earlier.
With the legacy American River Bank core system conversion behind us, we are laser-focused on loan growth as our seasoned teams, complemented by talented new additions, actively developed business across Northern California. Given our focus on relationship banking and the caliber of our branch and commercial banking teams, we are able to prioritize and maintain a low cost of deposits. Noninterest-bearing deposits continue to make up more than half of total deposits at June 30, representing one of the strongest deposit franchises in the industry.
Notably, our net interest margin increased 9 basis points in the quarter as we saw the early impacts of the rising rate environment. This increase was driven by deployment of cash in the securities and higher interest rates on our loans while the cost of deposits held steady. We expect further improvement across the portfolio in the current quarter as we experienced the full impact of the Federal Reserve’s 75 basis point rate increase in June and anticipate additional Fed increases in the second half of 2022.
While our production was strong, total loans decreased modestly in the quarter due to expected construction project completions and borrower sales of underlying commercial real estate and business assets, PPP loan payoffs and third-party refinancing of acquired loans outside the bank’s credit risk appetite. We remain prudent and consistent in our underwriting and will not sacrifice our credit standards as we grow. Our nonaccrual loans remain extremely low, and our overall credit quality continues to be excellent.
Now I’ll turn to our second quarter results. We delivered record net income of $11.1 million compared to $10.5 million in the first quarter, diluted earnings per share of $0.69 compared to $0.66 in the first quarter. Total loans decreased modestly to $2.2 billion driven by payoffs within the portfolio. Record second quarter originations of $102 million were offset by non-PPP loan payoffs of $109.8 million that included $35 million in expected construction project completions and $29 million whereby borrowers sold underlying assets and businesses.
With noninterest-bearing deposits of 53% of total deposits, the average cost of deposits was just 6 basis points, unchanged from the prior quarter and better by 1 basis point on a year-to-date basis. Credit quality remains strong, as I noted, with nonaccrual loans representing 0.37% of total loans. There was no significant change in classified loans.
We were not immune to the effects of post-pandemic employee migration, however. We have recently made some outstanding strategic hires. I’m excited about what these investments and talent will bring to the bank in the months to come. Thanks to the strength and durability of our financial performance, our Board of Directors declared an increase in the quarterly cash dividend of $0.25 per share on July 22, 2022. This represents the 69th consecutive quarterly dividend paid by Bank of Marin Bancorp.
Now I’ll turn the call over to Tani to discuss our financial results in more detail.
Tani Girton
Thank you, Tim, and good morning. Return on assets of 1.03% and return on equity of 10.74% for the 3 months ended June 30, 2022, would have been 1.05% and 10.95%, respectively, without onetime and conversion costs related to the 2021 merger with American River Bank. That compares to 0.98% and 9.61% GAAP and 1.01% and 9.96% non-GAAP, respectively, for the 3 months ended March 31.
As can be seen in the reconciliation of GAAP and non-GAAP financial measures in our earnings release, merger-related costs reduced second quarter net income by $219,000 or $0.02 per share. Net interest income totaled $31.2 million in the second quarter compared to $29.9 million in the first quarter. The $1.3 million increase was driven by higher average balances and yields on investment securities that added $1.6 million in interest income, while the cost of deposits remained flat.
Tim covered the major changes in the loan portfolio, and I will just add that we held 112 PPP loans totaling $17 million net of $420,000 in unrecognized season costs at the end of the quarter. We recognized $573,000 in PPP fees net of costs during the quarter.
Digging a little deeper into the 9 basis point increase in tax equivalent net interest margin over the first quarter. Average invest balances grew $181 million with an 18 basis point improvement in average yield. At the same time, average cash balances fell $136 million with a 57 basis point improvement in average yield. The average rate on gross loans increased 10 basis points, but lower interest and fee income from PPP loans created a 7 basis point drag on margin improvement.
The 6 basis point total cost of deposits was unchanged from the first quarter and improved by 1 basis point year-to-date versus 2021. The $96 million decrease in money market accounts included a large customer’s transfer to a noninterest-bearing account prior to an early July disbursement, consistent with the customer’s normal business activity.
Deposits held off balance sheet with deposit networks decreased $28 million as we allowed some excess liquidity to run off. There was no adjustment to the allowance for credit losses on loans and off-balance sheet commitments in the second quarter. Improvements in the California unemployment rate forecast that decreased the quantitative calculation were offset by changes in qualitative factors associated with supply chain issues, inflation and recession risk.
The decrease in noninterest income to $2.7 million in the second quarter was related to payments on bank-owned life insurance in the first quarter. Year-to-date noninterest income was up by $1.7 million due to increased activity and fees in all categories, mostly attributable to the acquisition.
Noninterest expense of $18.9 million in the second quarter was — of 2022 was down $0.5 million from the first quarter. The decrease was primarily due to a $1.2 million reduction in salaries and benefits after the completion of the acquisition-related conversion in March 2022. Decreases were partially offset by a $466,000 increase in charitable contributions due to the annual distribution of grant funding related to the bank’s corporate giving program in the second quarter.
As Tim mentioned earlier, we have been successful in hiring talent to fill immediate needs and support our long-term strategic priorities. Continued focus on talent acquisition and development in this competitive environment could put upward pressure on our expense run rate. As we continue to integrate and build on our most recent acquisition, the efficiency ratio illustrates its positive impact on operating leverage. The efficiency ratios of 55.7% and 57.4% in the second quarter and year-to-date, respectively, both improved from 59.1% in the prior quarter and 61.4% last year. The same improvement is evident in the ratios, excluding onetime acquisition and conversion costs.
All capital ratios were above well-capitalized regulatory requirements. The total risk-based capital ratio for Bancorp was 14.7% at June 30 compared to 14.4% at March 31 and 14.6% at December 31, 2021. The bank’s total risk-based capital ratio was 14.2% at June 30 compared to 14.3% at March 31 and 14.4% at December 31, 2021.
June 30, 2022, tangible common equity of 7.8% for Bancorp and 7.5% for Bank of Marin were down 24 and 53 basis points, respectively, due to an increase in after-tax unrealized losses on available-for-sale securities associated with rising interest rates during the second quarter. The reduction in other comprehensive losses relative to the preceding quarter was due to greater increases in interest rates at certain points on the yield curve and a larger available-for-sale portfolio in the first quarter.
In March, we took the opportunity to transfer $357.5 million in securities from the available for sale to held to maturity given our substantial liquidity position. That transfer helped to reduce the impact of lower valuations on our capital ratios.
Bank of Marin’s strong balance sheet, liquidity and capital continue to generate profitability across interest rate and economic cycles and serve as resources and support for the success of our exciting initiatives going forward.
With that, I’ll turn it back to Tim to share some final comments.
Tim Myers
Thank you, Tani. While we are mindful of inflationary pressures, Fed-driven rate increases and concerns about a potential national recession, we are also confident in the long-term economic prospects of our markets and the resilience of our customer base as we move into the second half of the year. Commercial loan demand has been curbed by higher interest rates industry-wide. Despite this trend, our bankers’ collective focus on consistent client outreach positions us well to anticipate customer needs, and we will aggressively look to acquire new customers as demand adjusts to the rate environment.
For more than 30 years, our disciplined lending principles have served us well with a loan portfolio that has consistently performed across multiple credit cycles. Additionally, our customers know that they can rely on us in both good and uncertain times, reinforcing the strength of our relationship banking model.
With the merger behind us, we are executing on our strategic priorities to invest in key talent and technology, further improving our internal efficiencies and customer experience. We are committed to developing the expertise and capabilities that will drive growth by exceeding our customers’ expectations. At the same time, we continue to identify cost-saving opportunities and new efficiencies to offset investments and ensure that we carefully manage expenses.
With that, I want to thank everyone on today’s call for your interest and support. We will now open the call to your questions.
Question-and-Answer Session
Operator
[Operator Instructions] And our first question comes from the line of David Feaster, Raymond James.
David Feaster
Maybe just starting on growth. It was great to see the improvement in originations, a record quarter. Payoffs and paydowns, still kind of a headwind here. Just curious, some of the puts and takes, how much of the strong originations do you think might be a pull-forward of demand perhaps? And just any commentary on like how demand, the health of your clients is and how the pipeline is heading into 2Q and maybe how the complexion of that or new loan yields? Any commentary on any of that? I know it’s a big question, but that would be helpful.
Tim Myers
No. No, I appreciate it. So there’s no question that there was probably some pull-forward, but we had a really big pipeline leading up to that period where rates shot up. So I’ll kind of invert that order a little bit. In terms of the rise in gross loan yields, they did see an increase but not what we’d like, but we do now expect to see more of that. There was a lot in that pipeline that were — rates that were set based on relationships as rates rose. And so we funded more into that, especially early in the quarter, at the lower rates rather than at the higher rates. But now we’re seeing obviously things going out at higher rates.
There’s no question that we’re seeing some contraction in demand at this rate, especially with investor real estate. That being said, the pipelines remain healthy. And I think there was a period of time where borrowers, particularly investor real estate owners, were sitting on the sidelines a bit waiting to see what happened. But if you look at some of the numbers that affected us, the largest asset sale in there was [10.31] into another property, and we funded that loan in July. So there are some positives there as well.
On the construction side, those are, for better or worse, is performing as agreed, meaning it conflates and it finances out into some vehicle or sell. So by and large, though, our lenders are active. Not a lot of that growth came from new people. So we’ve hired a number of new people and that are getting their sea legs under them. And we expect that pipeline building and production to continue. A lot of that growth did come from just mining our client portfolio and being good relationship managers.
That being said, where we have added people like Sacramento, we saw good growth out of that. So I think in terms of it being dispersed, the nature of that growth, I feel positive about. And I do think the payoffs will taper. And again, some of that’s already coming back to us.
David Feaster
Okay. That’s encouraging. Maybe just shifting gears to deposits. Could you just help us understand some of the flows in the quarter? How much of the decline was maybe more seasonal issues like tax payments versus strategically maybe letting some more rate-sensitive deposits leave? And obviously, we have that seasonal decline from a large customer this quarter that you highlighted. But how do you expect deposit to trend near term? And maybe when would you consider bringing the remaining $150 million off balance sheet back on?
Tim Myers
Yes. So I’ll start high level and then I’ll hand it over to Tani. But seasonal, that big outflow you mentioned from one large deposit customer we mentioned, their inflows now flows-fluctuate. It’s really hard to pick a seasonality specific to that. We have been very cautious about raising anyone’s rates but have not seen a lot of people ask to the extent where they would leave over that, that may happen, but we haven’t experienced a lot of it yet. But we’re being very cautious. We have a lot of liquidity. So Tani can elaborate.
Tani Girton
Yes. I think, as you saw, we brought some of the off-balance-sheet deposits in — onto the balance sheet when all of that activity was happening to prepare for it. Some of those have gone back out to off balance sheet but not all of them. So we’ll bring it back as we need it for liquidity, but we still have a lot of excess liquidity both in the deposits and in the portfolio. So — and we watch it every day. So I think we’re in pretty good shape there.
The — that allows us to allow some deposits to roll off if that’s going to happen. So if you think back about the surge that we got with all the PPP money and other fiscal programs out there, that still hasn’t completely come off. We’ve seen activity in the greater marketplace where deposits are starting to flow out. So we are standing at the ready. But we’ve seen some but not a lot.
David Feaster
Okay. That’s helpful. And then maybe just curious on your thoughts on capital priorities here. Obviously, organic growth is top priority. It sounds like we’re kind of at an inflection point, and there’s plenty of capital to support that. But just as you think about dividend growth and share repurchases, has your appetite changed at all for buybacks here? And then maybe on the third leg of that still be in M&A. Just how are conversations going? And what’s your appetite for a deal here just in light of the economic uncertainty?
Tim Myers
Thank you. Good question. So I’ll start with the end there. We’re certainly open, and I continue to have conversations on the M&A front. As you know, you can’t predict when someone will decide it’s time to sell their organization, but we expect those kind of conversations to continue as we potentially head into another cycle.
In terms of capital preservation, if you will, right now, given the uncertain environment, given where the high deposit levels have kept capital ratios, we are being cautious. We have said that before. We would certainly be open to considering a share buyback or reactivating the share buyback program when we understood that – what our competing priorities were. But we do have some investments to make in technology and growth. And we are a little bit cautious right now given the external environment and a potential recession that capital may [indiscernible]. So we’re balancing all those as we consider that.
Operator
Our next question is from the line of Matthew Clark, Piper Sandler.
Matthew Clark
Maybe just as a follow-up to the pressure points you saw on loan balances this quarter. You mentioned that third-party competition and some refis away at unfavorable terms or structure. How much of that did it contribute to payoffs? And has that type of activity subsided at all here in July?
Tim Myers
It is slowing, there’s no question. A good chunk of that was third-party refis, but some of that, as you mentioned, was stuff that we chose not to compete for. So one of the larger chunks of that was a set of acquired loans that were done on types of properties and locations that we weren’t interested in competing over. So it wasn’t as if we were being taken out of a property we wanted to.
On the payoffs, certainly, we’ve had some investors that have had properties at relatively low leverage in markets that have done very well historically. And given the environment, they were choosing to cash out of those. But as I mentioned a moment ago, the largest of those already has come back in the form of a new financing opportunity or a closed loan for their [10.31] exchange into another property. So some of that is timing in terms of the optics.
Matthew Clark
Okay. And I think you — we talked recently about a desire to do a little bit better than maybe kind of a 3%, 4% annualized growth rate kind of ex PPP. And given the outlook and growing uncertainty, new hires, pipeline, kind of putting it all together, I mean, do you feel like you can still do better than that? Or is this 3% probably a reasonable forecast from here, at least in the second half?
Tim Myers
Well, I think it’s a reasonable assumption. We would definitely like to do better, though. On some of our hires, if you look at our hiring patterns, we’ve got a few really quality managers that have joined in the last quarter, a month into the prior quarter that we’re very optimistic about. San Francisco, our construction group, a new leader in the North Bay covering the teams in Marin and Sonoma. So they’re going to have an impact, just not right away.
A lot of the hiring that we’ve done to replace positions that were vacant were more on the portfolio management underwriting side as opposed to — so we’re still filling positions on the relationship manager side, the folks charged with bringing in new business. So with those new managers and those hires, our growth rate today really doesn’t reflect those kind of positions or the impact of them. So in that regard, I feel optimistic.
As you pointed out, we don’t exactly know what the rate environment, how that will affect demand. But the pipelines are still healthy, and we’re optimistic that the combination of all that will increase that. But I think your assumption is fair given the totality of all those circumstances.
Matthew Clark
Great. And then any update on the weighted average rate on new production and whether or not you’ve seen some additional lift here recently — more recently?
Tim Myers
Yes. We have seen some lift. If you look at the more recent loans, like I mentioned, when you look at the quarter as a whole, a lot of loans got pulled through right at that moment, from that moment when rates jumped up. And for relationship and reputation reasons, when you get the honor rates that we’d put on paper. But we are seeing that increase. We saw increase towards the end of the quarter, and we’re seeing certainly higher rates now. That was a temporary phenomenon that, I think, caught a lot of us by surprise in terms of the speed of it. But we — certainly, the loans now are going out at yields that reflect market trends.
Matthew Clark
Okay. So that’s like 4.5%, 5% range, is that a reasonable range?
Tim Myers
Yes. That’s a reasonable range. But there’s still competition out there. So competition is probably keeping spread over indices below where all of us would like, but it’s certainly in the — on average in the lower end of that range you quoted. But we don’t know how that will play out for the rest of the quarter.
Matthew Clark
Okay. And then maybe for Tani, do you happen to have the net amount of purchase accounting accretion from American River that was in net interest income? I’m guesstimating it’s about $300,000 based on the core loan yield comment of being up 10 basis points in the PPP contribution in the quarter.
Tani Girton
Matthew, I’m going to have to come back to you with the specific numbers. There’s a lot of stuff going on in the fee category between the accretion. We had a lot of deferred origination cost, and then we also had some payoffs. So I’ll come back to you on that.
Matthew Clark
Okay. And then maybe as a follow-up on expenses. It sounded like you might expect a little bit of upward pressure here despite historically trailing lower throughout the year. I know you’ve been hiring, but I also know you have some additional cost saves from American River. I mean when you net it all together, do you think that run rate grows modestly from here in the back half?
Tani Girton
So yes, I think Q2 is a good starting point as we discussed last quarter because now the conversion personnel are out, but we are continuing to hire. We have had some — with the great migration, that’s had a bigger impact. So we’ve had some salary increases this year, but those are also pretty much baked into the second quarter. So yes, we are continuing to hire, but we are very focused on expense management through building efficiencies in both our processes and technology.
Tim Myers
And yes, Matthew, to your point, we do have more cost savings to come – tied to the merger. So we will – we continue to make progress on that, and we can talk about that when we’re able to.
Operator
Our next phone question comes from the line of Jeff Rulis with D.A. Davidson.
Jeff Rulis
Just a couple of follow-ups. The margin — you mentioned the drag from lower fee recognition. What was that in the prior quarter? So if you have 7 — well, I guess the interest margin, just PPP exit — excluding that, I guess, 3.12%, excluding the accretion part of it. What was that in the prior quarter?
Tani Girton
So Jeff, that 7 basis points represents the drag on NIM improvement quarter-over-quarter. So the 7 basis points, we would have been — we would have improved an additional 7 basis points over the quarter if it hadn’t been for PPP. So I think what you might be asking me is what the difference is between PPP, the dollars, in the first quarter and the third quarter. Is that right?
Jeff Rulis
Well, yes. Just to put it in another way, if you report it with 3.05%, you say it would have been potentially 3.12% ex PPP drag. What was the 3.12% compared to the first quarter on the same apples-to-apples?
Tani Girton
Yes. Let me pull that for you. I want to make sure I give you the right information as opposed to trying to do it off the top of my head.
Jeff Rulis
Okay. And maybe just a broader question of that remaining PPP balance, any visibility on? Would you expect that to be approaching 0 next quarter? Or is it going to — you got the balance to carry that from here, any expectation?
Tim Myers
That’s really hard to predict, sorry. We’re down to the loans where it’s hard to connect with people, where they may be less sophisticated in terms of preparing and presenting all the information necessary to get the forgiveness, cases where business is sold. So we’re kind of down to the ones that are just taking more time. So I’d hate to predict exactly the timing of that.
But we had more payoffs last quarter than I expected for those same reasons. So the team is doing a good job. We have an outside CPA firm that helps us on some of the more complicated ones. They are doing a good job. But we can’t predict the timing of when they will respond and go through that process.
Jeff Rulis
Got it. Fair enough. And more specifically on those cost savings, I think the original target on the American River — could you say — do you think you’re through — I mean it sounded pretty confident that you’re going to get those and maybe exceed expectations. But do you think you’re 70% of the cost save, 90%? Where would you peg versus the original target?
Tani Girton
Versus the original target, we’re probably around 85%, 90% there.
Jeff Rulis
Okay. Got it. And maybe a last one, Tim. Just trying to get a sense for the hires that you’re speaking of, timing-wise and market. Could you just — I don’t know if that’s year-to-date what you’ve brought on, but high level, when and where have those folks been added?
Tim Myers
Yes. That wasn’t all this last quarter, but certainly, the impact of that started into the quarter. So we added a new construction team manager, Jason Lorenz. We added a new manager in San Francisco that brings a lot of sophisticated background by way of both relationship banking and deal structure. We expect that to help us in that market. The new hire just started in the North Bay, but it’s a very experienced person in the market. That’s pretty hard to find, someone with deep experience managing lending teams in Marin and Sonoma.
We’ve had — added key lenders in Sacramento. We added actually, as we talked about over the last number of months, a whole team in Sacramento. I’m trying to think some of the other — just like I said, some of the other hires have been more on the portfolio maintenance underwriting side, and we have some positions to fill on the relationship manager side that will help us really all across the footprint. So it’s pretty spread out. But the key ones that we’re really excited about are the managers I mentioned because they’ll build out teams that we expect to do really well.
Jeff Rulis
Okay. And it sounds like a lot of that — maybe Tani said, that’s sort of baked in expense run rate with some lift as you continue to look at hires?
Tim Myers
Yes. I mean some of this goes back to April. Some of those, like in Sacramento, go back too much earlier in the year, and then the newest was July. So I think Tani’s comment about expense run rate is fair.
Operator
Next phone question is from the line of Stuart Lotz with KBW.
Stuart Lotz
Most of my questions have been asked at this point, but maybe just one on credit. And I think the no provision this quarter kind of made sense just given stable credit trends and some of the loan shrinkage. But kind of wanted to dig into — I believe you disclosed you have 2 relationships remaining on deferral related to the CARES Act totaling about $24 million. Just given we’re about 2 years from when you — they were probably originally deferred. Maybe — could you provide a little bit more disclosure on what those credits are remaining? And maybe how do you think about those — working through those credits over the next couple of quarters?
Tim Myers
Yes. So I will say this, I mean it’s one relationship. It’s — what they’re dealing with now is sort of a lingering but changed effect from the pandemic. And it’s in an industry — and I’d rather not go too much into detail about them, but it’s in an industry where there’s visibility into how we’ll do each year, but there’s not a lot they can do within that year to change it. So there’s actually been considerable improvement. That’s probably all I want to say about a specific credit, but we expect that to continue to improve.
Stuart Lotz
Okay. And would those come off deferral this year just given kind of the expiration of the CARES Act? And then how would you think about working through those when they — is there any chance of potential loss going forward?
Tim Myers
No. We don’t view this as a loss — sorry, Stuart, we don’t view this as a loss potential credit. It’s just the timing of when it comes off any relief that was provided when it was provided under the CARES Act. But we can manage this under normal relationship management, credit management guidelines and norms, and we’re not concerned in any way about a loss.
Stuart Lotz
Great. Okay. And then maybe, Tim, I think we had a conversation this quarter just about doing initiatives to potentially increase the fee contribution. If I look at your fee revenue stream as a percentage of your total revenue, it’s a little bit below peers in the high single digits. So any potential initiatives there? And are you — what are your thoughts on pursuing an acquisition to maybe support that kind of the fee revenue generation?
Tim Myers
Sure. Those conversations continue. We have a number of initiatives that we hope will initially drive that. Nothing to report now. Certainly, all the options are on the table. Certainly looking at ways to increase our contribution from our wealth management trust group. But we’re looking at that among other options. And as you pointed out, we talked about it because it’s important to us. We just want to do it prudently.
But we do have a number of internal initiatives on other non-wealth management trust fee income about maximizing what we can do based on the service offerings we have today as well as considering new ones or any potential acquisitions. So that’s all on the table. It’s just not something that’s going to happen next quarter.
Stuart Lotz
Okay. Awesome. And Tani, maybe one more for you. I think we’re not really worried about deposit betas for you guys just given the low loan-to-deposit ratio, high composition of noninterest-bearing. But maybe if you could provide a little bit more color on where deposit costs were trending at the end of June and as we get into July, if you started to see any pressure there. Or are you just kind of letting the higher cost funding continue to roll out the door?
Tani Girton
Yes. There’s no trend towards the end of June that is different from what happened throughout the quarter. And as you know, we will publish our interest rate risk metrics in the 10-Q. So you’ll see that the betas on the deposits came down in the odelling. That makes us more interest rate sensitive but not all the way down to historical levels because we want to be conservative. We fully understand that some of those deposits might run off different from what happened in the great recession.
So yes, no visible trends yet on those. So I just – I will add that the other thing I’m sure that you’re looking at the net interest margin impact of that. And I would say that in addition to the lower betas, you’re going to see higher sensitivity in our – higher asset sensitivity in our net interest margin in the numbers that get published in the 10-Q because also a lot of the loan. So we didn’t have a lot of loans on floors last time we ran those numbers, but we had some. And now all of the loans are off their floors. So we’re getting a bigger lift faster.
Operator
[Operator Instructions] Next question from the line of Andrew Terrell with Stephens.
Andrew Terrell
Most of mine have been asked and answered already, but one quick one just on the securities portfolio. Maybe thinking about how you guys are forecasting kind of loan and deposit growth moving forward. I guess, what should our expectation be for the securities portfolio? Should we, I guess, expect flat to — flat to down from these levels?
Tani Girton
Well, that’s what we hope. So yes, the securities portfolio has gotten to a very high percentage of the balance sheet. And what we’ve done — we do have about 50% of that portfolio in held to maturity to limit the impact of future interest rate changes on tangible equity. But we also have 50% in available for sale so that, that gives us some flexibility. We get a fair amount of cash flow off of the portfolio that can be redirected into loans when needed.
So — but we really — even with the larger portfolio, we haven’t changed the general allocation. They continue — all those securities tend to be high credit quality agency-based or municipal credits. So that has not changed.
Andrew Terrell
Okay. And can you remind us how much in kind of quarterly cash flow you expect from the bond book?
Tani Girton
Well, depending on the interest rate environment, it’s probably somewhere between $15 million to $25 million.
Andrew Terrell
That’s per month or per quarter?
Tani Girton
Quarter.
Operator
We have no further phone questions.
Tim Myers
Thank you very much everyone for joining us. We appreciate it.
Operator
That concludes today’s call. We thank you for your participation and ask you to please disconnect your lines.
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