Q1 2021 Origin Bancorp Inc Earnings Call
Good day and welcome to the origin Bancorp first quarter 2021 earnings conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing star key followed by zero. After today's presentation, there will be and opportunity to ask questions to ask a question you May Press Star then one.
One on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would like now to turn the conference over to Chris Riggleman head of Investor Relations. Please go ahead and.
Good morning, and thank you for joining US today, we issued our earnings press release yesterday afternoon, a copy of which is available on our website along with a slide presentation that we will refer to during this presentation.
Please refer to slide two of our slide presentation, which includes our safe Harbor statements regarding forward looking statements and the use of non-GAAP financial measures for the.
And I was joining by phone. Please note. The slide presentation is available on our website at Www Dot origin Dot Bank. Please also note that our safe Harbor statements are available on page six of our earnings release filed with the SEC yesterday.
All comments made during today's call are subject to the safe Harbor statements on our slide presentation and earnings release.
I'm joined this morning by origin, Bancorp's, Chairman, President and CEO Drake Mills, our Chief Financial Officer, Steve Brolly, President and CEO of origin Bank Lance Hall, our Chief Risk Officer, Jim Crotwell, and our Chief Banking Officer Preston Moore. After the presentation, we will be happy to address any questions. You may have now I'll turn the call over to you Drake.
Thanks, Chris and good morning, everyone to start I am very pleased with the results for the first quarter of this year and I'm equally pleased with the process that our teams are going through to elevate the performance of our company. It was vaccines are more available throughout our markets and economic activity continues to improve and I'm encouraged and optimistic about how origin is positioned as we move forward.
And 2021 looking at the results for the quarter net income was $25 $5 million up $8 million from the prior quarter pretax.
Pre tax pre provision earnings were a record high for origin at $32 $9 million for the quarter compared to $28 $3 million for the prior quarter.
Net interest income was $3 $4 million higher this quarter for a total of $55 $2 million. Another historic quarterly hot provision and expense came in at $1.4 million, which is the lowest level, we've recorded and of course, it depend and it began early last year.
Diluted EPS for the first quarter with the dollar and ATC and its up 44% from the prior quarter. Our total assets ended at 7.57 billion and total loans held for investments were five four and eight $5 billion at March 31st up $125 million from the previous quarter I'm not going to continue to go through the strong performance metrics for.
For the quarter, but I'll, let lance Jim and Steve provide more detail as I go through our slide presentation.
The success, we've enjoyed in Q1 as a direct result of the hard work and have for put in by our teams over the past year as all from say on these calls we are guided by our strategic plan, which I view as an intentional and methodical process to position us for success and the.
Past, we've talked about investments, we made and infrastructure and teams throughout our footprint and our focus and commitment to those investments are paying off and a big way on slide six you can see the results of some of the investments we've made with assessed we've had and Houston and DFW, we still see tremendous opportunities for growth and Texas based on our current infrastructure.
And and quality teams of bankers as well as opportunities that exist based on disruptions and the market.
We anticipate capitalizing.
We were highly successful and the first quarter and I'm looking forward to what our teams will accomplish in 2021 now.
Now I'll turn it over to Lance.
Thanks, Alright.
A great deal of pride and what the numbers on slide seven represent our mission from the beginning of the pandemic was to support our customers and a meaningful and dynamic way and they face a tremendous amount of uncertainty.
Loans under COVID-19 for Bayer into June 30 of last year were just over $1 billion at March 31st only $5.3 million of loans remained under the COVID-19 related forbearance.
Our support for our customers. During this past year has created a tremendous amount of loyalty allowed us to strategically attract new clients and strength and long term relationships that will continue to pay off and the future.
At the bottom of the slide we provide and update on our P. P P metrics.
We've originated over $767 million and PPP loans and round, one and round two with almost 200 million and round to align and.
In total we originated nearly 5000 loans across both round of the program.
We had over 61% of PPP loan balances that had been applied for forgiveness with 28% haven't been fully forgiving at March 31.
We've collected over $24 million and PPP fees and at March 31st have around 11, and a half million dollars and net PPP fees on earned on our balance sheet.
We've seen the direct impact of this program with our clients and their employees.
I'm proud of our response and our bankers' commitment to delivering for our clients when they needed us most.
On slide eight you can see our continued focus on levering leveraging technology to deliver a meaningful client experience.
We see growth across our platforms and continue to have above industry adoption of mobile banking features within our customer base.
Our technology Committee has been very active over the past quarter evaluating our current product offerings and working with our Fintech partners on new opportunities.
Our commitment to aligning ourselves with leading Fintech partners and the elevation of our technology experience remains a primary focus and is a central component of our vision statement.
On slide nine you can see and overview of deposit trends as Greg mentioned at the beginning of the call our bankers have and intentional and methodical process for success the.
And the deposit growth, we have seen over the past year and the relationships. We have developed speak to the commitment our bankers have and driving results for our company.
Our average deposits for the quarter were $5 $9 billion and increase of $1 $5 billion over the first quarter of 2020.
Over the same time, our in our Bes have increased 55% from an average of $1 $1 billion for $1 $7 billion.
Over the past year, we've improved our deposit mix as average and our babies have grown from 25, 4% to 29, 3% of total deposits.
This increase and then our base along with the focus of our bankers has reduced our deposit cost of 26 basis points for the quarter.
Our cost and time deposits have decreased significantly over the past five quarters of decline and 52% and we still have an opportunity to manage that cost even lower.
On slide 10, and you can see our loan composition.
On the bottom left for the slide we show the trend of our loan portfolio over the past four quarters you.
You can see our loans held for investment have grown by approximately $1.4 billion over the past four quarters.
Due primarily to $653 million of growth and our mortgage warehouse portfolio and $584 million of growth and PPP loans.
And the current quarter, our loans held for investment excluding PPP and mortgage warehouse grew by 2% for an annualized growth rate close to 8%.
Based on recent pipelines I'm optimistic about our loan growth opportunities in 2020 one.
As we look at on mortgage warehouse line of business not only have we seen growth and loan and deposit balances over the past four quarters, but our customer base has also grown strategically.
This growth is based on the incredible job our warehouse team has done and grow and existing relationships and capitalizing on new relationships due to disruption and the broader market.
I'm very proud of the commitment and execution of our bankers and I'm very confident and our ability to drive meaningful growth.
Now I'll turn it over to Jim.
Yeah.
Thanks Lance.
For the past quarter, we have continued to closely monitor our portfolio, particularly in the sectors of hotels nonessential retail restaurants and assisted living.
As reflected on slide 11, these sectors total $510 million as of March 31, and represented nine 7% of total loans held for investment excluding PPP loans.
As we have reported throughout the pandemic, we feel very comfortable with the quality of our relationships within these sectors.
As mentioned earlier, we are extremely pleased with the reduction and COVID-19 related modifications for our entire portfolio and that is true for these targeted sectors as well with only $1.9 million representing three 7% of these sectors still under modification. We continue to be pleased with the resiliency and performance of these sectors.
As evidenced by past dues, only 0.1, and 6% classified loans of only 1.1, and 6% and nonperforming loans of only point to 2% for these sectors.
Looking at the portfolio as a whole and as reflected on slide 12, we continued to see stable and improving credit trends, perhaps most evidenced by the reduction of classified loans to total loans. Excluding P. P. P to 1.81% as of the quarter and past due levels remained stable at 0.58% on net.
Charge offs for the quarter totaled $2 $9 million or two 3% annualized which compares to two 4% for all of 2020.
While we did see an increase and the ratio of nonperforming loans to 0.63% as of quarter end. The ratio is still below pre pandemic levels.
As a result of the above portfolio trends, particularly the reduction in classified loans and the improving economic outlook, we reduced our allowance for loan losses for loan credit losses from 1.51% for one point for 6% of loans held for investment from the prior quarter.
Excluding P P P loans and mortgage warehouse, we reduced our allowance from two 1% to two point out 2% of loans. We will continue to closely monitor the economic outlook, particularly the impact of the ongoing vaccination progress bars variance and the recent global increases and COVID-19 cases.
That said, we do anticipate continued improvement and economic conditions throughout the remainder of this year, which should positively impact our required reserve levels I'll turn it over to Steve.
Thanks, Jim.
On slide 13, and I will cover a couple of points on our asset yields and cost of funds as Lance discussed previously our cost of deposits continued to decline the five basis points decreased during the quarter.
Which is a 16% decline from the prior quarter and a 73% lower than the first quarter 2020.
Loan yields ticked up during the first quarter to 399% up 10 basis points from the prior quarter excluding.
Excluding PPP our loan yields had a slight decrease of three basis points.
And our fixed floating profile has remained relatively unchanged from prior quarters, and we continue to remain asset sensitive.
On slide 14, our quarterly net interest income and another historic high both including P. P P and excluding PPP.
Total net interest income was $55 $2 million, including $6 $1 million of P. P. P interest and fee income.
The P. P. P interest and fee income was elevated during the quarter from acceleration of fees as a result of loans paid off and the forgiveness process our.
Our NIM fully tax equivalent for the quarter was 3.22% up 15 basis points from the prior quarter.
Excluding the impact of PPP, our tax equivalent NIM was down two basis points from the first quarter.
Slide 15 shows our net revenue distribution and the breakdown of noninterest income.
And Q1 are noninterest revenue was 24% of net revenue go.
During the quarter, we saw and increasing insurance commission and fees.
Which were in line with the first quarter of 'twenty, and 'twenty and expected due to the cyclical nature of the insurance revenue stream.
Other income sources were $2 $7 million higher from the prior quarter as you can see and the graph on the right on this slide.
This included increases of $1 4 million and gains on sales of securities and 1.4 million and limited partnership investment income.
Mortgage banking revenue declined during the quarter, but remains 65% higher and quarter, one 2020, which is more comparative quarter due to the seasonal nature of the mortgage business.
Linked quarter decline was primarily driven by a decrease from our mortgage pipeline.
Impact of the weather winter storm and the rise and the five and 10 year U S Treasury rates.
The next slide is from trending information about our noninterest expense.
For the quarter and noninterest expense was $39 $4 million, which is 552000 higher than Q4, 2020.
And on the quarter, we terminated some federal home loan bank advances and incurred a prepayment penalty of $1 $6 million, which is so on and part of the other category and the chart on the left on the page.
Salaries and benefits continue to remain stable declining $150000 on a linked quarter basis.
Cost controls and efficiency measures continued to improve our operating leverage as you can see on the bottom right with our efficiency ratio for the quarter at 54.49%.
With that I'll turn it over to Drake.
Thanks, Steve on Slide 17, you see our capital trends for both the bank and the bank holding company and the bottom right shows the changes and our total capital ratio at the holding company strong earnings for the quarter supported our growth, while increasing capital levels enhancing our position to take advantage of market opportunity.
After raising $150 million and sub debt and 2020, we are well positioned from a capital standpoint.
And you've heard throughout the call today, we had an impressive quarter and are prepared to perform at a high level throughout 2021.
And from a strategic perspective origin is in a strong position, we have plenty of runway and our current infrastructure. Our teams of talented bankers has the capacity to continue to drive strong organic growth. We have a corporate culture that has and will continue to attract best in class bankers and teams and our liquidity and capital level put us in a position to deploy capital ways.
And that will be beneficial to our shareholders and drive long term value I.
I am proud of our team and what they do every day to serve our customers communities and shareholders.
My optimism for this company and what I know, we can accomplish is extremely high and as reflected in our 30% increase and our dividend this quarter.
Thank you and we'll now open the call up for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you were using a speakerphone. Please pick up your handset before pressing the keys and.
If at any time, you question and that's been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question will come from Matt Olney with Stephens. Please go ahead.
Great. Thanks, good morning, everybody and.
And Matt.
And I want to start on the organic loan growth and.
Ex warehouse ex PPP would love to hear more about the investments you've been making in recent years new teams individuals.
Where are they located and and what types of lending and most focused on and then whats the pipeline look like for new hires new investments. This year can you compare the pipeline today to previous years I think some of your peers, especially.
And the Texas markets have talked about lots of M&A disruption, it's creating opportunities for new hires I'm curious if you're seeing those opportunities are in your markets and in Texas, or Louisiana and Mississippi.
Yeah, Matt absolutely I mean I'm on.
Our model is based on on lift outs, and the and success of that and certainly.
I feel this and.
Institution is positioned better than ever to take advantage of as we said for the last couple of years, we're going to put ourselves and are positioned to take advantage of dislocation, we're starting to see that a lot of activity.
And but what we're seeing is opportunity throughout our entire footprint when it comes to lift out opportunities loan growth pipeline growth and number of different things I'm actually going to ask Lance for at the tail end of this comment too.
To give you some color around pipeline growth and what we're expecting but.
Our our driver where a strong organic growth story, we are going to continue to focus on the infrastructure. We built as we continue to communicate.
I've actually never felt better about the position. This company, then and I do right now because not only dislocation and the opportunity for us to continue to lift out strategy, which by the way a lot of conversations going on again across footprint not just in Texas, I'm really pleased with what's going on on our Texas markets, though but.
And when you look at the capacity that we currently have within our.
Current teams.
We have a lot of we have a lot of runway there too to continued organic growth.
And our infrastructure and and the scalability of that infrastructure is phenomenal and I think we're in a really good place for all he's going to add a couple of pieces here, but in doing that I think we're going for the most part keep the expense structure flat.
But I think the strong part of this story is the fact that where we are positioned as interest rates potentially move forward and you got to think debt with the things going on and the inflationary pressures, we're having that certainly is and our future where we we're just so well positioned to take advantage of the disruption and market lift out the team.
And get these relationships on board, we continue to see significant growth and relationships on even mortgage warehouse debt I thought maybe it would slow down. So just overall, Matt I think we're in on OSM position and we are going to continue to focus on on the organic growth story and be successful through that and other opportunities are just going to add ice and to the cake. So low.
And if you would lets go through just a little bit of a pipeline and color to answer Matt's question.
Yeah, Thanks, Greg and good morning, Bad drags on 100% right. The reality is we we never slowed down.
From our strategy of continuing to add on dynamic Rem's and producers.
We were very fortunate that we added one and in our Houston market and the last few months the pipeline that she has already built kind of moving clients over from the banks as she came from has been tremendous.
And one in North Texas, Mississippi.
This strategy of sort of develop and the corporate culture and attracting talent continues to pay dividends for us on Drake is right, we still have tremendous capacity from a lift outs.
That we've delivered over the last five years, and we think spin.
And specifically in Texas, but also in Mississippi and it has been a big win for us.
And as you saw on the first quarter.
We had.
And 2% loan growth not including PPP or warehouse we.
We feel incredibly confident that we can kind of continue on that path as I'm sitting here looking at pipeline reports now are our north, Texas and Houston market, specifically are showing very strong.
And residential real estate and multifamily.
Construction draws that we know are common in owner occupied real estate.
We've and we've been able to grow despite having pullbacks and our revolving lines as I'm sure everybody does.
If you look back a year ago, we were at 56% utilization on our revolving lines.
Today, we're at 44, that's a 200 million dollar reduction and yet we've achieved growth even on top of that of the 200 million and reduction.
Three of that was energy that we were sort of pushing out.
And then obviously the rest is the liquidity and the marketplace and so on.
And incredibly optimistic.
And as we built this company this loan growth engine and I think is about to pay real dividends for us.
Okay, that's great commentary have lance and dragged and thank you for that.
And then just one more just shifting over towards credit quality.
It sounds like that the you're feeling better about credit and maybe the ultimate loss content and the portfolio is and what we thought it was six months ago or even three months ago, So I'd love to.
Hear more about how the team is thinking about net charge offs and 2021 and it seems like last year the bank.
Cleaned up a few lingering credits that are out there for a while we would love to hear more about 2021 charge off thanks.
And Matt.
For 2021, and I think we're going to continue to.
Feel that we can drive and and I'm going to say this where we had some cleanup and 'twenty. We still have a couple of pieces that were still clean up and 21.
And that's going to impact.
Our charge off levels somewhat higher than what traditionally you would see from from from this company. So we still believe that.
That 25 basis points is a number that we can achieve throughout the year and but I'll say this.
Outside of those lingering issues that are that are credit that we've dealt with for a number of years I I am bullish and feel very strong about the quality of the portfolio, but as I've talked about and in the fourth quarter.
2021 for US was a year that we were going to drive loan growth down somewhat focus and our loan yields and quality client selection and and these are the two elements from our incentive concept that our incentive pay a concept that we're utilizing debt I think is going to drive rewards the surprise for this.
Was the strong pipelines that we're seeing and what we think where we were kind of leaned towards five or 6% growth I think this eight 8% growth is sustainable for us through the year and then comes equally through the through the rest of the three quarters for 'twenty, one and so I think our credit quality is stronger than it's ever been.
And I think moving forward, what we bring on the books and put on the books is going to have sustainability around credit quality.
Okay perfect. That's all from me. Thank you guys.
Thank you.
Our next question will come from Brad Millsaps with Piper Sandler. Please go ahead.
Hey, good morning, guys.
Brad Good morning.
Drag or Lance just wanted to start just to follow up on the loan growth maybe on the warehouse side of the equation and I know.
I think Lance you mentioned you continue to pick up customers just curious if he added anymore.
And the first quarter and sort of what your crystal ball shows for kind of how.
How you guys can maintain that you guys sort of Buck the trend this quarter and showed out a linked quarter increase and the average warehouse for a lot of banks were down so just any additional color there would be helpful.
Yes.
Disruption still providing quality opportunities for us and and again I'm going to go back to the client selection because we are going to make sure that the acquisition and these customers that we bring on and we're gonna be.
And so that's gonna add quality overall, we did increase from 41 clients and mortgage warehouse at 45, we have.
Thank a couple and a pipeline now that are high quality, but we're just seeing significant opportunity and it.
And it's really give and management the opportunity to look at what mortgage warehouse.
And.
And b and as a percentage of Outstandings for us and we're still working through that but I will say, what I've talked about and the fourth quarter that I saw mortgage warehouse from our outstanding perspective, I think is going to be somewhat higher than that.
And I think that that seven to 800 million range is achievable and sustainable for us with quality acquisition. These clients. So.
It's certainly produce and strong fee income is produced and noninterest bearing deposits that are that are very good for us at this point, so I'm I'm bullish on that and I'm I'm on.
Try not to say the word bullish again, but it's a.
It feels good and and mortgage warehouse is a good business for us.
Great and then and then just a follow up can.
Can you guys comment on kind of what youre seeing in terms of the.
New loan yields.
Coming on the books you guys are obviously seeing great growth, but yeah, I'm sure, it's coming up a little bit dilutive to the current book Youll just kind of curious you know kind of where those new loans are coming on the books.
Well as as I opened up and talked about our client selection and loan yields and trying to push loan yields more peer like even though we do have a short portfolio and C&I heavy it it is a focus and we're seeing.
You know on the low end on high quality deals the $3 20, fives, where where we're pushing to see the $3 75 and attack it and Texas market, where on the core markets, where more and that that's you know $3 75 to four range. So where we are seeing pressure I do think our client selection and passing on deals.
And just from price and and and.
And Lance I won't last it to talk a little bit about the type of pressure, we're seeing and in the marketplace and what's going on and how we're spending at all and Lance.
Yeah.
Yeah.
And we talked periodically on these calls about what do we see and from a competition perspective, both on covenants on a risk and it comes to pricing and so we've had some pretty strong examples here recently on.
Competition, that's been lax and all of those and when we saw one and the other day. It was a good C&I opportunity where competition came in with no covenants and and really really really loose and so we let that go.
We also had a very interesting.
One of the big National Banks came in and North, Louisiana, and one of our markets and made a call on to one of our really good C&I clients offer them, 1.8% fixed for two years to move their business.
And you end up staying with us.
Because of the relationship the loyalty of the relationship with Drake personally and and other things. So we were able to fend that off but that and.
And clearly goes to show you what some of the bigger banks think of the what the rate environment is going to be the next two years. So.
As Drake said, where we're clearly fill and pressure across our markets.
And I think we saw a couple of basis points compression, we're doing everything on our power to fend that off with deposit reductions I think we've done a good job getting the cost of deposits down to 26 Bips.
Here across north, Louisiana, it's even less and that.
So we were fighting the good fight on loan yield at this point we have.
68% of our floating rate loans have floors and we're at the floor of 52% of that obviously, we think when rates go up we have a real advantage, but and clearly as and clearly as a fight right now and on yields and and and I add to that I don't think we have a lot of GAAP and those floors to too feel the right.
The increased rate impact so we're in a good position there.
I will say that we are remind and these long term clients of some of these big bank strategies around coming in and just don't have nothing more but low rates and then as industry you start feeling some stress they pull out and leave them hanging so where we're doing everything we can have a hate to use a competitor's.
And the name, but pool, Johnny Alice and on them here and there about remember when and and how that count so.
I think we're in good shape.
Yeah. Thanks, Thanks for the college, and certainly better than a bond for share.
Nice quarter guys. Thank you.
Thank you.
Our next question will come from Woody lay with K B W. Please go ahead.
Hey, good morning, guys.
More and Woody.
And so on the credit front just wanted to touch on during the quarter, we thought it would tick up and M. P H, but a decline and criticized loans could you just give some color on what drove the changes and those two buckets.
Yeah, Jim Crotwell, our chief risk officer is here to respond to that and I've got a stick about helium and the headset.
Yes on the increase and the non performing loans that was just a couple of.
I would refer to as legacy credits that were previously classified and and and reserved for so unfortunately, they did shift over into the non performing levels I would point out when we look at the.
That's an area of focus on that we are really over the last year.
And before and we worked for that level of nonperformance down so where we found ourselves even with the increase quarter to quarter. We look back we're still at a level, that's very comparable and actually lower than pre pandemic levels. So so we will continue to manage that as it relates to overall classified a reduction and very pleased and I think that.
It's really an indication of what great was speaking to is the overall quality of our portfolio and continued improvement when.
When we looked at that we had you.
You know we had a.
Several credits would actually pay down.
And reducing that level and we also had upgrades.
And the category of classifieds that drove the overall levels down and so when we look as a portfolio as a whole look at levels of past dues as an early indicator.
We just really feel good and we continued our deep dive through the course of the you know over the last year. When we do we seal resilience within our entire portfolio. So really pleased with where we are from a credit metric perspective.
And that's great color thanks for that.
And then I wanted to touch on that at H L. D prepayment on what rate for the long term advances have and when exactly in the quarter did you repay them.
Sure what they would have five 2% and.
And we pay them about the very end of February. So they were sitting we had him on for two months basically and one month off for the quarter.
Alright got it so I guess with that in mind and I think earlier on the call you mentioned, excluding PPP the NIM was down.
And two basis points, how how do you sort of see that going forward here day.
Next couple of quarters, especially with the pressure on on loan yields a little bit just from competition.
Well the the pressure on loan yields.
And we're definitely managing the hardest part we're gonna have is with all the liquidity, adding to cash and investments and bonds.
You'd rather habit and loans, where you have a higher yielding so we still think it's going to be tough maybe.
It's going to be very hard to keep it flat with liquidity, but we will.
We think it's going to be about the same maybe one to two basis point decrease next quarter.
And it really depends on how fast the cash comes in and what can we do with it.
Alright, great Thats all for me thanks, guys.
Thank you Woody.
Our next question will come from William Wallace with Raymond James. Please go ahead.
Yes, thanks, guys.
Thank you you endorsed a kind of 8% growth level and loans for the quarter, but lance when I was listening to your commentary about the pipelines at.
Reading between the lines it sounds like the pipelines are actually growing pretty pretty meaningfully is that is that a fair read through or am I getting too optimistic.
Well you know.
I think the 8% number sort of feels good for us right now.
We are seeing pipelines build I'll say, they're better today than they were for.
And three months ago, and six months ago.
I'm kind of working through some timing of some closings and some deals in north Louisiana. So.
Yeah, you heard me I'm very optimistic, but I feel like the 8% number is sort of the right guidance.
Okay, and then Drake.
When when you were discussing the opportunities for potential lift outs did I hear you say that you would consider lift outs, but that your goal would be to keep expenses flat or are you, saying, you're you're you're hiring opportunistically and trying to manage expenses, but lift outs would be would be hard to keep expenses expenses flat no.
And while our team I think we are driving to keep expenses flat less.
Our added any lift outs that we have and that's where the points I wanted to make sure everybody was clear on because we're going to continue to do the things that we built this company owned and feel like we're we're leveraging and and our efficiency and the direction. We're going that we have some runway to be able to do that but yet steel.
You know manage core expenses flat.
Okay.
And then if I look at the first quarter of that 37.8.
After backing out the prepay penalty.
Is that is that the right run rate or was there some deferred comp related to PPP et cetera that would come back and I just hope that help us think about where we should be kind of a starting point.
Yeah, and I'm Gonna make this simple for all for everyone.
And I'm Gonna look at a 39.
We're on right for the balance of the year and that puts us right at where we thought we'd be about 1.9% increase and expenses.
Okay.
And then you know you guys have have done a good job talking about the investments and in technology that you've made and if I look at the slide that you show some of the partners that you've made and it seems like a lot of bad is.
Really to kind of help the customer experience and and I know, obviously theres some investments you've made to help streamline the production.
Processes et cetera.
Are there are there technology continued technology opportunities that would really help you streamline on the back office on accustomed net customer acquisition front, and just kind of across the platform that could.
Severely change or dramatically change the the way you think about the branch network and you guys are not a branch heavy bank, but but you do seem to be forward thinking on technology side I'd love to know your thoughts on how technology could change.
And system at your bank and perhaps at others.
Yeah, Hi, Thanks, why this lance you're exactly right. This is something we're focused on.
On all the time now we've created a technology committee inside of the organization and that includes our operation partners, we have a dedicated robotics automation and person and that our accounting groups.
And so internal automation is kind of the key for US right now as well as what we're doing on the client experience.
What I am finding and I think other banks would probably agree is the ability to accomplish both refined and the right Fintech partners that are going to deliver a more meaningful experience, but they're also coming at a cheaper.
Price and what we're getting from our traditional corporate water. So we're able to enhance at the same time.
Create some efficiency on the cost side.
You know there is a lot of interesting technology coming around and we had.
Ongoing conversation right now with a direct payment provider, that's using block chain and that's gonna be pretty fascinating to work through and we've kind of and vetting and some ideas around how to use.
More and more virtual environment and drive throughs, and so just a lot of conversations going around about how do we continue to drive automation reduce expenses, but enhance the experience and I think it's and.
It's an exciting time.
Okay. Thanks for that color and commentary I appreciate I'll step out.
Our next question will come from Kevin Fitzsimmons with D. A Davidson. Please go ahead.
Hey, good morning, everyone.
Good morning, Kevin.
Patrick I wanted to ask about M&A, because it seems like in the past you guys have had put that out there was something you were really looking.
And closely for and opportunity.
But now you know the understandably the tone.
You know you've used the word a number times bullishness on organic growth on the opportunity to get.
Advantage of disruption from other competitors deals you for.
Feel better about mortgage warehouse, a lift out potential on.
On the other side you have a much better multiple today than what we when we talked in past quarters. So I'm wondering how you net those two in terms of M&A opportunities are you less.
On the hunt for those even though you've got a better multiple just because of all the organic opportunity you have in front of you or.
Is it still a high priority.
Well I.
I'm going to go back to who we are and and who we sold ourself as where we're on organic growth story and and I feel so much better right now than I did.
Last couple of years about our opportunity with this and and the dislocation and marketplace and what we're gonna see as that continues.
We are in a better position I think today to take advantage of that and keep the bones and the company as strong as they are today, which I think is important and and I would say that as you look at cash.
Capital deployment, and and the opportunity to make mistakes and I now feel that we could do nothing and continue to do what we do consistently and very well and be highly successful now.
It also puts us in a position to continue to have these conversations as we are.
Because there are some opportunities to partner and filling some gaps in our footprints and make a tremendous amount of sense, but it's not going to be at the mistake of applying capital to a deal that doesn't make sense for us. So we're being more selective I would say and where we're optimistic about every you know the lift out opportunities with this dislocation.
And also put our our currency to give us some conversations to find true partners and I think.
For Us M&A is all about our geographic structure and how we account and how we manage that's it and attractive partnership for some of these companies that we're having some conversation with so we're still in the ballgame, it's not something that I feel we have to be successful with but I think eventually will be.
Okay, great and and as it is it fair to say.
The whole issue of being more selective that you know maybe.
Maybe opportunities might be more likely in Louisiana, and Mississippi, where you can get cheap deposits as opposed to paying up for opportunities and Texas, where you already have this opportunity for organic growth is that a fair statement or is it or is that off base.
Well actually the opportunities that we are visiting with our and each of the three states and our marketplace, but I'll tell you a couple of Inc.
Less metropolitan Texas.
Opportunities have just as low cost deposits system on the things that we're seeing and our Mississippi opportunities, Louisiana opportunities because they're they're very good banks and those markets and there and good.
And the markets that have some some some quality franchise on the part side. So I'm I've been pleased with what we've seen from our overall cost of deposits and some of the Texas plays.
Okay, great and and just as a follow up on on the whole topic of deploying.
Deploying excess capital. So you did buy back shares this quarter, but you also made a big statement with a big increase and the dividend, which which makes a statement about how you feel going forward, just given where the stock's trading is it more likely now that buybacks, probably fall off and in terms of priority level in terms of.
Deploying capital.
Well the the buyback.
And program that we built and the guardrails around that pretty much have us out of the market at this point based on the.
You know, what what we built in and and what it allows us to do now.
Hope we don't have this conversation that we have to change those guardrails and because we see a pullback and economy and other things that put us back and the market, but for now that's that's well down on the list of opportunities and deploy capital.
Okay, great. Thanks very much.
Thank you.
Again, if you have a question. Please press star then one to be joined into the queue. Our next question is a follow up from Matt Olney with Stephens. Please go ahead.
Yeah. Thanks.
A follow up on the topic of mortgage and I think for for all banks. This quarter, we're trying to understand and mortgage trends and and figure out where it's going to land at the end of the year is the refi volume flow and we get to the other side of this mortgage surge so for for origin.
Like it's twofold, it's on the warehouse and on the traditional and gain on sale or margin on the on the fee side on the warehouse I think Drake kind of addressed this already trying to keep that.
Mortgage warehouse balance and that 700 day $100 million range when the surge.
Side of that what about on on the gain on sale on the fee side and it was four and $5 million and the first quarter any color or any kind of data points. You can provide us that would help us appreciate where this can land over the next few quarters and towards the end of the year.
Yeah, Matt before Steve answers that question and I do want to.
Our mortgage volume certainly decreases we saw some other institutions have some upticks, there and I would say that not only the interest rate environment and refinance side, but the storms that we experienced that actually slowed down those pipelines have been and influencer, but what we're seeing now and and not as impactful on.
Mortgage warehouse, because we have a footprint that's that's more region, that's not as regional as say our mortgage footprint, where we're just seeing inventories and lack of inventories and significant.
Hurdle point too to get those volumes up and hopefully.
There's not an answer for that but we're just seeing some crazy crazy deals around trying to to.
Purchase homes and this market, we've got a lot of applicants they can't get to pull the trigger because of value. So that's that's going to continue to be a problem Steve.
Sure, we had a $4.5 million.
And where.
Total excuse me for six where total mortgage banking revenue for the quarter. We think next quarter is going to be definitely higher than that at least definitely have a.
A little bit more origination the gain on sales still continue to come down, but we think it's going to be more driven by volume. So we think the the number will be.
Probably 10% to 15% higher start with a five.
Five, but it'll be and a low fives for the next quarter.
Third quarter is generally a very good quarter also but then historically the fourth quarter will decrease.
Okay. Thanks for that Steve and then just as a follow up on.
On the warehouse and I'm curious what the funding strategy of the warehouses today with all the liquidity and the system are you finding that differently today than a few years ago.
Yes, right now we're funding it mostly with low cost deposits.
And when you compare federal home loan bank advances today, there are about 8%, but there's so much liquidity out there you could get brokered deposits for 1%.
And.
I'm, sorry, eight basis points, yes, eight basis points, and then one basis points for.
On brokerage so when you look at our non core dependency funding dependency, it's the lowest it's been and so we are funding it mostly with deposits and every once in a while we'll go out and and borrow from either home loan bank and eight basis points or broker deposits at one basis point.
Okay. Thanks for that and tier one more follow up I apologize for taking up the time here.
You paid down some of the S. H L. B this quarter.
And there anymore similar opportunities and the future of paying down higher cost deposits.
We are we just talking about that today, we're going to run the numbers and take a look at it.
And what we have on the balance sheet right. Now is a we have a $250 million and that's at 165 and then the other amount is a long term also so.
And we definitely have a chance for the 7 million to $2 50, we're gonna have to one day numbers and and really take a look at it.
Okay. Thank you guys.
Thank you Matt.
This concludes our question and answer session I would like to turn the conference back over to Drake Mills for any closing remarks.
And thank each and every one of you for participate and day and I just want to reiterate that.
This company and the position that we're in a day is very positive.
I've used the word bullish and I'm going to continue to our opportunity for organic growth and to take advantage of market.
On opportunities has never been better and I just appreciate the.
Our investors and and the questions and hopefully if any of you have any additional questions. Most of you have my cell phone number and I look forward to hear and from each and every one of you, but thank you for your support.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.