Q1 2021 FB Financial Corp Earnings Call
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Yeah.
Good morning, and welcome to the FB Financial Corporation's first quarter 2021 earnings Conference call. This call today from <unk>.
<unk> financial is Chris Holmes, President and Chief Executive Officer.
He is joined by Michael <unk>.
The financial Officer, Greg Bowers, Chief Credit Officer, and what Evans President of FB ventures, who will be available would you on the question and answer session. Please.
Please note FB Financial's earnings release supplemental financial information.
Earnings presentation are available on the Investor Relations page of the company's website.
Www.
First bank online Dot com.
And on the Securities and exchange Commission's website at Www SEC.
C C dot Gov.
Today's call is being recorded and will be available for replay on FB Financial's website, approximately an hour after the conclusion of the call.
At this time, all participants have been placed on mute.
And the only net.
He called me up for questions after the presentation and what.
I would like to turn the call over to Robert Huh.
Correct or corporate from please go ahead.
Thank you and during this presentation FB financial May make comments, which constitute forward looking statements under the federal Securities laws. All forward looking statements are subject to risks and uncertainties and other facts that may cause actual results and performance or achievements of FB financial to differ materially from any results expressed or implied by such forward looking sales.
Many of such factors are beyond FB financial's ability to control or predict and listeners are cautioned not to put undue reliance on such forward looking statements.
And a more detailed description of these and other risks is contained in FB financial's periodic and current reports filed with the SEC, including FB Financial's, most recent form 10-K, and except as required by law FB financial disclaims any obligation to update or revise any forward looking statements contained.
And Thats presentation, whether as a result from new information future events or otherwise and <unk>.
And these remarks may include certain non-GAAP financial measures as defined by SEC regulation G.
The presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to comparable GAAP measures is available and FB Financial's earnings release, and supplemental financial information and this morning's presentation, which are available on the Investor Relations page of the company's website at Www Dot first bank online dot com and on the SEC's website.
And that www dot SEC dot Gov, I would now like to turn the presentation over to Chris Holmes, FB Financial's, President and CEO.
Thank you Robert and good morning, everybody. Thank you for joining US this morning, and we appreciate your interest and FB financial we had another successful quarter and we delivered.
Adjusted EPS of $1 12 per share adjusted ROA.
On a dollar I'm, sorry on 1.89% and readjust and adjusted return on tangible common equity up 29% and.
And we grew our tangible book value per share to $22.51.
Or 14, 6% annualized.
With each day that passes our markets get a little closer to normal and that is reflected in a few of our numbers this quarter.
At $31 million and loan growth excluding PPP.
For one 8% annualize through February.
Balances were actually down $89 million.
But then we had a very strong march with $120 million and grow.
And our markets bounce back customer demand for loans continues to build and we still feel good about our mid to high single digit annual loan growth target that we set for ourselves.
We released $13 $9 million from our.
Our allowance for credit losses, this quarter and continually improving economic forecast dictate that we bring down our reserves.
Following this reserve release, our allowance to loans, excluding PPP is 229% down from $2 four 8% last quarter.
Assuming no further COVID-19 waves or hiccups and the recovery and we would expect those releases to continue on near term and economic outlooks continue to improve.
Our full deferrals of principal and interest are down to $21 million and we.
$131 million of loans on interest only payment schedules of $131 million on interest on the schedule was $76 million.
And our homes are tell loans, we continue to feel optimistic about the ultimate resolution of our loan deferrals.
Our net charge offs were.
Five basis points this quarter, we're still cautious and we still have significant reserves and case, we do experience any credit events, but we don't have any knowledge and any specifics and causes any concern.
With each passing quarter, we grow more optimistic that we will get through the pain of COVID-19 and without any serious credit costs.
Yeah.
Beyond the numbers our associates have returned to the office. This is crucial for the internal projects that we are that our current focus.
While our remote world has been effective for most tasks and for a limited time period.
Interaction is crucial for the goals that we have for ourselves this year.
Each time, we speak to investors individually, we harp on being better operators and our competitors.
First on the goals and initiatives from our strategic plan and are geared towards ensuring that we run a better bank for our free.
And our customers and our competitors day.
Most services and Baidu are commoditized, so our value proposition for our customers to be faster with less friction and while providing better advice and our competitors, whether that's on bank credit Union or Fintech company.
From an infrastructure standpoint that means ensuring that a customer can attain any product that they could with any of our competitor.
And with any other competitor and <unk>.
And second that means enabling and the customer.
To do business.
As conveniently and they came on any competitor being online on the adult learners.
Or.
And through our branch location.
From a personnel standpoint, we do that and by setting up regions and besting our regional practice management and the power to operate their recent regions as independent community banks each of our regions are divided into markets. Each market has a president and.
And individual relationship managers report up into mid market presence very few banks, our size and larger have chosen to stick with the community banking model from a risk and uniform standpoint.
And again with the centralized line of business model.
And it operational consequences of a centralized model are the reasons and smaller community banks have historically been able to pick on talent and customers from larger banks relationship managers tend to get dissatisfied with their work environments and customers and grow frustrated by the lack of responsiveness and burnt out of broken centralized processes.
And the first bank, our goal and desire and.
And to keep our community banking strategy and model regardless of size, we've been able to maintain that well enough, but now that we've we have $12 billion and assets and have a very strong and have very strong organic growth prospects across our footprint, we're taking the time and working hard.
To review and challenge the customer experience and support functions risk management functions and other processes that allow us to maintain our community bank model and we will be scalable up to 2030 $40 billion and even more.
With that explanation about our regional model, we're excited to announce a newly formed central Alabama region, where the hiring of our first four banking division associates and Birmingham.
Two of which are very experienced senior bankers.
We have long and have more strong mortgage presence in Birmingham, and what our retail channel leadership being base and the stadia deals.
And our foothold and mortgage and Birmingham made it a logical market.
Spansion for us and we couldnt be happier to welcome Nathan says, yes to the first bank team.
We have a loan production office and place currently and we're working through the branch application process with the goal of having a full service branch later in the year.
And two other financial reports to make before turning the call over to Greg and Michael.
The first is on mortgage our mortgage team delivered $16 million and direct contribution this quarter.
Which was 71% of our fourth quarter 2020 contribution and so within our previous guidance of 70% to 100% of the first and fourth quarters adjusted contribution.
We generally don't give much guidance.
Lastly, with mortgage.
What we did last quarter, because we were confident that we had good insight into the quarter.
And then the first quarter would be solid for our mortgage group both in the retail channel and the consumer direct channel and it turns out we were right.
And we look into the second quarter and the remainder of the year, our retail mortgage channel and continued to look strong.
But with the increase in interest rates, we've seen a decline in refinance volumes, which has an outsized impact on our consumer direct and delivery channel.
As a result on the retail channel should have a solid second quarter, but that will be largely or entirely offset by the impact on the declining volumes and margins and consumer direct and the smaller pipeline recalls and negative mark to market adjustment on the pipeline that we will absorb and the second quarter.
With these headwinds.
We're expecting.
A significant and if any contribution from our mortgage operations and the second quarter. Once we digest the consumer direct volume decrease we expect more normal operations and the second half of the year, where we would expect mortgage to be and the 10% range of total contribution for any given quarter dependent on seasonality reported.
The second point is on our non core.
Commercial held for sale portfolio.
We had offers that were close to acceptable force, but we ultimately decide and we weren't comfortable with the discount that we were being asked to take on the portfolio.
And that we think remains reasonably strong.
And as long as we continue to hold the portfolio, we're likely to see some small movements and the valuation as we mark that to market each quarter. The third quarter was a $1 $9 million gain and the fourth quarter was up $1 $4 million during the first quarter was and $853000 loss.
And we continue to feel appropriately mark on the overall portfolio and believe that we will ultimately dispose of the portfolio in line to ahead of the discount that we have on the loan term.
So.
To summarize.
We had strong financial performance this quarter.
Regional leadership feels good about their growth prospects for the remainder of the year and we.
And a new central Alabama region, and key relationship managers in the quarter we.
We faced a mortgage headwind in Q2, but feel good about the second half of the year and we're focused on customer experience and the operational enhancements that allow us to deliver our community banking style and no matter on SaaS.
Greg and I gave you some additional color on credit.
Thanks, Chris and good morning, and overall the portfolio continues to perform satisfactorily and I'm reminded that it was almost exactly a year ago that we gave our first update and the pandemic world. It would be an understatement to say that we've seen a number of changes within our portfolio. Unfortunately due to good general underwriting buyers.
<unk> strong relationships and the strength of our own balance sheet. We successfully managed through what appears to be the worst of this part of the storm.
And that was the view that followed us for the past year will recall that in reaction to the pandemic, we assisted our customers by allowing for some form of payment deferral on approximately 20% of our portfolio and today that has been reduced to around 2% as previously noted and as shown on slide 11.
Of that 2% number, but minority or only $21 million our remaining on a full deferral of P&I while.
The other $131 million and deferral are on.
On an interest payment schedule.
Those remaining interest only and deferrals are largely in the hospitality sector as we pointed out previously.
And all of that to say, we're glad to see how that has progressed.
While we're on deferrals, it's a good time to highlight some of the major portfolio categories that we've been tracking or are industries up concern is it's pointed out and the.
Deck a.
On a year ago, we outlined six primary industry sectors that based upon what we knew at the time could potentially be more heavily impacted by the pandemic.
Retail hotel and health care restaurants, other leisure and transportation.
As we look back we are pleased with the overall results from these sectors, especially in the light of the unknown ones at the beginning of all this.
Slide 12 highlights the overall picture of those industry segments, and you can see that credit quality has held up.
And these we will call out two segments to highlight this quarter.
And the hotel portfolio with detail broken out on slide 13, our larger operators are reporting and improved Occupancies and I believe we are optimistic about the futures markets continue though the number of vaccinations increase and travel picks back up.
They account for the majority of our exposure.
On the smaller less well capitalized and of the market. We have seen a few operators not fare as well and those accounts for some of them and then.
Classified totals.
I'm talking only about a few smaller loans, we're hopeful there results improved but if not we can save further migration whether capital base, but again overall I'm very pleased with how the hotel portfolio has come through this so far.
Second one I'd point out is and the health care portfolio, which is detailed on slide 14.
We saw a decline initially last year from the closures of the doctor's offices, but again that pick back up with the reopening of the markets.
The exception to this has been and a few of our assisted living homes, which were hit without breaks at the beginning of this year and their occupancies are sensitive accounts have been impacted and.
<unk>.
This has not been indicative of our portfolio overall, but it's project specific.
And just over $20 million a couple of these credits account for the rest of the increase and our classified numbers.
Our teams are confident that with the increase and vaccinations. These properties will be able to build the occupancy numbers backup, but this could be and extended time frame that we will be monitoring closely.
Slide 15 breaks out the restaurant group as we have done in the past, but results here a good overall and in line with our last reported.
I'll close with.
Slide 16.
And <unk> displays our overall credit metrics on the whole we feel comfortable with the help of our loan portfolio charge offs were minimal this quarter and five basis points nonperforming ratio held relatively steady this quarter, our classified loans saw a bit of a jump, but that increase was primarily related to the credit side just.
Discuss primarily the assisted living.
Lastly, we remain comforted by having an allowance towards the upper end and our peers to two 9% excluding PPP.
And with that I'll turn it over to Michael.
Thank you, Greg speaking first and mortgage and expanding on some of what Chris spoke to earlier the team produced another strong quarter and Q1, producing $16 3 million and seasonal decline from Q4, 2020, but it was within the expected range as.
And as mentioned last quarter, we saw a seasonal dip in margins, which have continued to compress as illustrated on slide six with the rise in interest rates.
And we obtained in the past when interest rates rise quickly and the effects on margins and volume impact on consumer direct lenders harder than the traditional retail channels.
Due to the consumer direct channel and being more heavily refinance focus and our traditional retail channel and historically the consumer direct line of business heads between has been between 55 to 65 per cent of our overall volume.
We do believe one of the positive outcomes from the pandemic as it relates to mortgage has been a shift in consumer behavior and preference to utilize and leverage technology for their mortgage needs.
This shift will provide our consumer direct business with continued growth prospects, especially as the team works to gain additional market share and the purchase price.
We have seen and successful strive and April to move in that direction, but as in any business model. Just takes time to fully implement and we will continue to take advantage of the refinance business as long as it exist.
And we do expect a solid purchase season, but the mortgage industry as a whole is facing its share of headwinds, including excess industry capacity and national and local housing shortages.
Moving on to net interest margin, we saw a decline on the headline number is our liquidity has continued to build and.
Adjusted for normalized liquidity levels, and the margin held relatively flat around 341% compared to 344% last quarter and that details on slide five and the impact of excess liquidity line.
And we're still focused on bringing deposit costs down and we were able to do that this quarter is concentrated on deposits came down five basis points, while contractual yield on loans. Excluding PPP loans also came down five basis points.
And this trend is poised to continue as we have over $300 million of CD repricing again, this quarter and the $1 two 5% range.
We also continue to see progress on reducing our money market and interest bearing checking rates as we've been picking up a basis point or so per week on the cost of those deposits frequently.
Liquidity is likely to continue to weigh on the margin and we would obviously like to redeploy that cash and the core lending relationships.
The competitive environment and with liquidity continuing to flood into the system, we have ramped up our securities purchases.
We had previously held off on investing too much and the securities portfolio, given low rates and duration risk there were evident and our investment opportunities. However, with the recent uptick and rates. We've added 112 million into our portfolio and April at about 150 basis point yield, which is a nice short term pickup compared to the 12 basis points that we're earning on our cash.
Cash.
We will look to move our portfolio to approximately 12% to 13% and total assets.
Moving on our seasonal and our allowance we saw relief and $13 9 million this quarter as economic forecasts continue to improve.
And we had mentioned previously we had been fairly model driven and with limited qualitative factors to this point however.
However, the initial related based on our trades and moving forecast this quarter was larger than we thought it was prudent given that the economic recovery and its early stages and we're still facing headwinds.
With that we increased our qualitative factors this quarter in order to account for some of the uncertainty.
Going forward, we will continue to weigh them improving forecast or SKU factors and we believe are prudent to manage the allowance. However, we would currently expect further releases over the next few quarters, assuming outlets continued to improve.
I'll close my section by speaking to our expenses.
Banking segment noninterest expense was a bit higher this quarter at $55 7 million, which.
Excluding $4 $5 million and FHL be prepayment penalties compares to $52 9 million and in the fourth quarter and this was related to some seasonal and onetime expenses and not a run rate to base future estimates on.
Troy.
Seasonal expenses related to the annual incentive compensation payout and a few other one time items were about $1 7 million higher this quarter than what we felt like the run rate is.
We continue to expect low to mid single digit percentage growth rate for 2020, one and our annualized run rate from the fourth quarter, which would've been about $212 million.
I'll now turn things back over to Chris to close.
Okay. Thank you, Greg and thank you Michael for that color.
Thank you everyone for your again for your interest and our company and operator, we would like to open the line for questions at this free.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad tier.
Series and a speaker phone please pick up your handset before pressing on the Q2 of charter. Your question. Please press star and too.
At this time of a pause momentarily to assemble our roster.
Yeah.
And our first question comes from Catherine Mealor, K B W.
Please proceed.
Hi, good morning good.
Good morning Catherine.
And I just wanted to first follow up on your expense guide that you just gave day, you're saying we should take.
That 1 million seven out of just run rate from this quarter, and then grow it and kind of a low single digit pace from there is that range.
And most of it like a lot of mid single digit range.
Okay great.
And are they are you have you basically through all of your cost savings.
From.
The merger or.
And I wish I think about further cost savings kind of offset by just yeah, correct and and investments and the franchise and hiring and take it.
And technology investments and on that.
Yes, so a couple of things we we.
We hit on we hit the.
I guess, we hit that we hit the goals in terms of cost savings, but we still have.
A few things that will come out.
Later in the year.
Primarily in the form of.
From some comp related expenses and some leases microwave is anything else it and come out.
No I think that's fair I think we're seeing some improvement and real estate, but it's improved and leisure.
Yes.
Yeah. Good point, we have some dormant branches and and.
And there are markets or the real estate market is such that the prospects for those better than when we initially.
Took them took them in and so we're probably going to be able to get rid of some of those.
Okay, Great and then my follow up is just on the loan growth. Its great that you are forecasting to return to the mid to high single digits on the back half of the year can you just kind of talk about what your pipeline looks like and just kind of the health net.
Uh huh.
Of your markets and.
And then and the risk of accelerated Paydowns that you may see that may tend to eat into that that grasp it.
Yeah, I think your question actually I could probably formulate into a pretty good answer.
<unk>.
And my comments I'm going to do.
Note that.
We were a little concerned and February because we were down significantly and loan balances and then we had a really strong March and so if you look at our average as they would reflect that.
And so as we continue to look forward, we've got good demand and so we are seeing the pipeline and actually look quite good.
We are off but we're also seeing pay downs because.
Obviously, it's been a pretty good time to refinance.
You're it's been a good time to refinance and actually it's a good time, especially for some non for profits and others to pay off and and so we're seeing where they're just on summer some deep both individuals companies and enough profits just eliminating their debt altogether.
And so good for them and bottom line.
Not so good appears a lender on a really solid credit, but so so as we try to project that I would tell you it's not easy, but we when we look at the pipeline today.
It still feels pretty good as we as we try to roll the year forward for mid to high single digits. When we when we take all those things and into account we are seeing.
Hum.
But we are seeing it bounce around a lot and.
And I would say.
Actually we saw really strong March we've seen a weaker April but if we look at the pipeline and get it gets a little stronger in the latter part of the quarter.
So and by the way if you sit and.
And marci that means you're a little nervous always.
When it comes in.
Later versus earlier in the year, but but so far our folks had been right on target with what they've been and projected.
Great. That's very helpful. Thank you very much.
Thanks Catherine.
And our next question comes from Steven and scope of Piper Sandler. Please proceed.
Thanks, Good morning, everyone.
Davidson.
I wanted to just see if you could give some additional color on that.
Birmingham, and maybe what size bank kind of they are coming from if theres any sort of.
On.
Specialty focus for that team or if they're just kind of standard kind of core commercial bankers and then what your maybe longer term vision is for that market and if it you think that would entail M&A or just other team lift outs or kind of how you think about the growth there longer term.
Yeah. Thanks Steven.
A couple of things I'd say folks are coming not from a single institution.
Down there.
Had.
And actually probably two or three different.
Contributors and and that continues to be the case, they do have some experience, but it's a it's a variety of.
Types of banks of folks that we.
Or are able to have been able to acquire remember that we do have some folks and the market that are very experienced and the market.
We have had.
And we're already and Huntsville, and Florence and so again, we've got contacts there and so I'd say, it's fairly normal and.
In terms of just we're spreading and and thus creating some opportunities.
And we'll go on how we're how we're taking book folks up so I'd say no no no we're not.
And we're certainly not targeting any institution or anything like that it just <unk>.
And shame on us there.
And what was the second part of the question.
And Greg play and what's your vision for Yeah, I'm sorry in terms of just total down there.
Yes.
And we would.
Any market that we enter like debt, we take a very long term vision and approach to it and so.
We entered that thinking about how co pack and we'd be the leading bank and that market over a decade, or so and and so we're thinking of all of the above we would think about that and we would think about acquisitions.
Flat straight up acquisitions of a bank, we think about you.
Our branch and New York is the right kind of bridge deal popped up we'd think about and we're trying to acquire leading bankers and the market and so all of those would be a part of our strategy and it could go back and look at how we've approached Nashville, and how we've approached Chattanooga and how we've approached Knoxville.
And <unk>.
That's the way we go into each market is with a long term intent.
To be one of the dominant banks and the market and we will utilize all of those things to be able to achieve that over a over a longer period of time.
Great that makes sense, thanks, Chris and then.
And maybe if you guys could talk to the NIM, a little bit I know liquidity makes it almost impossible to kind of forecast but.
But maybe if we thought about and ex the incremental liquidity and.
Kind of thought about what you think you are seeing on new loan yields and incremental pressure on loan yields. They were I think relatively stable ex PPP this quarter.
And then kind of.
And I guess, if you think you'll see incremental <unk>.
Investments in the Securities and I know, you said kind of 12% to 13% of assets, but.
Kind of how you think about that balance of keeping liquidity versus investing it and taking duration risk and so forth.
Yeah and state of art as Greg pointed out.
Thank you talked to us at the beginning of the quarter, where and it's expected that 35% annual annualized deposit growth.
And that liquidity is weighing on us and others certainly.
Yes, we are saying low and.
Pay off right.
Kind of higher yields and stuff.
446 and.
And the month of March common coming in and the high threes to low 4% range may production.
So you do see a basis point or so every month, the lower lower loan yields and that's what we're trying to get add on on lowering our deposit costs right. We look to offset that decrease in loan yields to stabilize NIM.
We certainly have started to pick up our securities purchases.
And it's opportunity arose as rates moved up late March early April you saw the tenure go up 70 to 80 basis points and to settle back down a little bit and so got a lot more comfortable.
Obviously, we'd like to deploy that excess liquidity and the loan growth Chris was just talking about.
But but as we said 150 basis points on the investment portfolio filled.
There was a lot better than 12 basis points, all cash and we'll continue to make investments as is prudent, but realizing we prefer to invest in and that longer term loan growth and and relationships.
Yeah, Hey, David and I'll just add this.
When it really isn't unusual time.
Margin is one of our most key metrics and it's hard to use that as a judgment on success right now because liquidity is so abundant and.
And anything that you know.
And tell our folks basically any dollar of funding we take in and if we're paying more than 12 basis points on it and that's that's the loss for us and so.
And we by the way, we took and $800 million.
Instead of and.
So the margin if you if you just look at it and so I look at it and look at about three things one just the.
And the yield on the loan portfolio, which is holding in pretty reasonably well.
And deposit cost, which will continue to.
A decrease and so there I think.
Got some optimism as we move forward and then the other thing I look at it just the raw on net interest income number.
It was down quarter over quarter, which is disappointing for me and disappointing for us and so that's one that we'll be focused on just to try and get as much out of that liquidity is and.
As we can.
Got it got it and then maybe just one last thing from me I'm curious.
And some slight uptick back and the refi application numbers as the 10 years moved back down on these mid $1 50 range. If you think there could be some improvement throughout the quarter and just to confirm you said those fair value marks might make the contribution from <unk>.
Relatively neutral or close to zero day, I hear that correctly.
Yeah, you did hear that correctly and no.
And and yes, we.
And also through a citizen there before and sitting there and we are we're always.
Giving guidance on mortgage is really a tough tough thing.
And so but when you have the type one and we have remember our business would look a little our mortgage business is obviously robust and we've we've had a.
Five quarters of 100, and if we roll the last five quarters, we had about $120 million of contribution which is fantastic from a capital account standpoint, but that also means we get and our pipeline is large and so when you have a movement and that pipeline like we will have in the second quarter as we do less and.
Our consumer direct business, just that mark to market can be substantial it was really.
Remember our margins relate.
Related to Mark to market, we're really large on the way up as we grew the pipeline as you.
And the shrinking the pipeline and with volume decrease.
And you've got the other side of that so it's a short term phenomenon, but yes, you're right it could it could lead to a.
Just on a second quarter.
I guess, Michael and I'll call it on an anomaly I might get.
And we've got a second quarter phenomenon will we shrink the pipeline and net mark to market will be a negative force, yeah and state and I think you refinance question and what the move down on rates I think.
There could be some opportunity there, but keep in mind. The industry has spent the last year building capacity and.
And so now Christmas touched on margins decreasing so even even if that that increase in rates on that.
You got people fighting.
For that business and I think we're still down substantially from a rate perspective over the last year and.
And the industry over the last six weeks.
Yes.
We hope we hope you are right and we hopefully.
And I hope you're right.
Realism, and US says, let's don't count on it.
Yes, no that's fair, but you know it helped to grow tangible book 23 per cent year over year. So I think you'll take it [laughter] congrats country.
And yet Youre right Youre exactly right, we'll take it.
Yeah.
Okay.
Yeah.
Our next question comes from Jennifer Denver, I'm sure and Securities.
Please proceed.
Thank you good morning.
Good morning, Jennifer.
And you just talk about interest and other hires and other market and the South East that you may be targeting and.
And we're seeing obviously a lot of the acquisitions being announced and the last several weeks can you talk about.
Interest as it stands right now.
Sure.
And so on other hires are very interested and see.
Seasoned relationship managers and other markets and so that's something that will be.
Our recruiting efforts.
I would say and.
2020 was a tough year and a lot of ways, but remember we were also we grew from $6 1 million to day 12 billion and so and so we.
We were focused on a lot of conversion a lot of a lot of things with our business model a lot of risk management and <unk>.
And have grown the company and so we probably haven't done as much of that and so that is a focus for us this year to continue to be able to add boats and so you'll you'll you'll see us you'll.
You'll see that throughout the year as we add some some relationship managers.
And every and each of our markets.
And in and and different all shapes and sizes I guess is the way I would put and including mortgage bankers as well as commercial.
And as commercial bankers.
And then on the M&A front.
<unk>.
We're always.
<unk>.
We're always interested is the way I would put it but we also.
Going back to just what I've just mentioned.
We have been really focused internally on.
And the business model on the customer experience.
On making sure that we have.
And we're beating our competitors every day on the street and when we talk about being a good operator, that's what we really mean and so again with with as much as we've grown and that's really our focus and so are.
We get some calls, but frankly on most of them were.
And we've got we got other things on our mind and we think that's where we were going and get the biggest dividend and the immediate future and so.
And we never say never but that's really not what we're that's really not where our pursue from a strategic standpoint. He has today.
Thank you.
And as a reminder, if you have a question. Please press Star then one.
Our next question is going to come from my own Stephens and core fruit Matt.
Please proceed.
Hey, thank.
Thank you and good morning.
Wanted to ask about the impact of higher interest rates potentially next few years on the company.
So all the disclosures and the 10-K from December.
And I don't know if theres, a new disclosure I missed last night, but.
I guess the shock analysis suggests that the.
And the bank is one of the more asset sensitive banks and the peer group and would love to hear kind of what the what the drivers are and your expectations of higher rates impact of loan floors and and excess liquidity.
Hey, Matt Good morning, So yeah, we feel pretty good about a rising rate scenario, especially on the short end of the curve.
We're about 50% variable.
And our loan portfolio and so we will see a nice pick up and down and interest income.
As rates rise and so that.
Disclosure that you're referencing is indicative of some of our optimism and Chris mentioned NIM being a key metric for us we obviously.
Because were asset sensitive, we obviously performed pretty well and in that environment.
If we can get some inflation.
And we can get short term rates rise, we think we're well positioned with the way the balance sheet and structured and obviously that puts a little bit of pressure on on some other foodservice my mortgage, but it's more than offset and.
On the balance sheet.
And.
And just as a follow up what about loan floors behind that what would it take a few short from rate increases before you actually see a benefit because of those on force.
Yeah.
Would see it would take.
It's with increasing.
We get some increasing benefit with each increment.
And we would get us we'd get a small benefit from the.
The earlier the earlier stages on the increases that have dogs and I'd have to look exactly on the chart, but we'd get we'd get some benefit from the hurt either.
The rental rate increases.
Okay and then.
Okay.
And I would just I would say this good.
On the question and good to talk to you.
I would say this and.
We actually got benefit from net mortgage and and I talked about that it's been 120 million over the last five quarters and so as rates go down.
The way, we tried to build it as we get that we get that benefit.
And could be because of our margins getting squeezed, but as rates. We think we're positioned well on the NIM and on our core banking business as March with rates go up you will see.
You know just like we've talked about for the <unk>.
Q2, you'll see some challenge and and especially and that consumer direct piece of the mortgage market because it's so rate sensitive, but that's part of the that's part of the plan and we think when we put on book together. It makes for a really good shareholder value kind of proposition.
Proposition.
Alright.
Final reminder, and if you have a question. Please press Star then one.
Our next question I was kind of it comes from Alex.
Wow on SAP.
P Morgan.
Please proceed.
Good morning, Thanks for taking my questions.
Can you talk about the growth and public fund deposits in terms of size and also what you expect in terms of seasonal impact as these run off thank you.
Yeah, and so on the growth and public fund deposits, we have we think.
And just about the vast majority of our public funds would be.
Yes.
Sort of centralized operating type of accounts.
And those those.
Counts and fund up and the first quarter every year and.
And so where we're at.
Just on the seating.
Money come in and the first quarter and.
Increases those balances and and so if we looked at the increase and the first quarter.
A majority of that would be driven by public funds and accounts that are existing accounts that are simply funding up and the quarter. So.
And it actually be a fairly significant majority that will come down in the second quarter and probably throughout the quarter and maybe even a little bit and into the third and that so that's all.
Our routine.
Current scores.
Okay.
And I'll just layer on them and you know.
There's a lot of money and the system.
And Thats flown and had government and says yes.
Supporting our communities and municipalities and so that creates a little bit of.
Volatility and that number increase because how much money flowing and the governments.
Across our.
Our major municipalities there.
Does that answer your question, Alex and it does thank you and under allowance for credit loss ratio with the combination with Franklin do you have and.
ACL ratio for day, one and seasonal so I'm just trying to get a sense of what a normal ratio would be as you release more reserves.
Yeah Alex.
The day, one capital if its not a partner.
And because of what you just mentioned right, we look a bit different from a balance sheet perspective after the.
The merger, so we don't necessarily have a target.
That we're looking to return to where.
We're going through the process on a monthly quarterly basis and looking at.
And then obviously loan growth and new line balance sheet changes and adjusting accordingly, with the with the model and then based on what what the outlook looks like for the economy.
That's not a.
Direct number, but that's kind of how we think about it.
Yeah.
And just to add debt.
And as you can see obviously, where we are.
Maybe at the top of our peer group problem. If we're not at the very top where certainly and the top desktop.
And we understand that and that's why we've made but we also have been approached it.
And are both a prudent way.
Seafood.
His first year of adoption. So we feel like we've approached it prudently.
We try to approach most things conservatively.
Because we're a bank and <unk>.
So we think we we approached that conservatively, well and as well and.
And you've heard us say pretty openly if things continue to improve.
We would likely see releases.
At least in the near term on some of that.
And so that's.
How much that is or what that would look like we take it quarter by quarter.
As opposed to have and any we don't have any certain target that we're aiming for.
Cause I, you know and and our understanding of seasonal events.
And I don't think that's what see some possible.
I appreciate that and lastly, with your focus inward on customer experience to compete with other banks and Fintech does this require any additional investments in terms of technology that would be noticeable.
Oh yeah.
Acknowledging and our world and our way of thinking is a consistent I mean, it's a constant investment I mean, you you were making some investments and technology every quarter and so for US it's trying to plan and just trying to be routine about it we have done a couple of things on the technology front debt.
And we feel.
Gives us.
Keeps us on the front line in terms of what's emerging and what's happening and it keeps us sharp and thinking about that customer experience.
We were and early investor.
Back a few years back and a local.
Fintech fund cost and top.
It's managed by a friend of ours on and when I said, we are and local investor and we were on Investor ex.
And that is actually misstated.
And I guess I'd say, a very large shareholder of course.
And was personal investor, but because of that we were able to two.
Get a lot of insight into their investments what theyre looking at.
And so that's and so we are.
We have since made an investment and fund small investment and a fun. It is.
A fintech focus and.
So again, we said well we will sit on an advisory board there and.
And with Jack Henry our core processor, where on their highest level.
Advisory Board again, where we are.
Constantly.
Evaluating and pin monitoring on the technology for so debt. So wrapping all of that into what we're doing and wrapping that into the customer experience focus and project that we have going on.
So that we're in a position to.
Continue to make sure that we are our leading and our competitors when it comes to that customer experience.
That's great color. Thanks for taking my question.
And excited about.
Yeah.
This concludes the question and answer session. At this time I would like to turn it back to Chris Holmes for any closing remarks.
Okay. Thanks to everybody that wraps up Q1 were almost third of the way through Q2 at this point too.
We will look forward to being back book backhaul with you at the end of the next quarter. This quarter now if not before.
Right.
This concludes the conference.
You are now free to disconnect at this time. Thank you have a great day.
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