Q4 2021 FB Financial Corp Earnings Call
Yeah.
Good morning, everyone and welcome to FB Financial Corporation's fourth quarter 2021 earnings Conference call.
Hosting the call today from FB financial is Chris Holmes, President and Chief Executive Officer.
He is joined by Michael <unk>, Chief Financial Officer.
Wade Perry Chief Administration Officer, and with Evans President of FB Ventures will also be available during the question and answer session.
Please note FB Financial's earnings release supplemental financial information and this morning's presentation are available on the Investor Relations page of the company's website at Www Dot first bank online dot com and on the Securities and exchange Commission's website at Www Dot FCC.
<unk> Dot Gov.
Today's call is being recorded and will be available for replay on FB Financial's website, approximately one hour after the conclusion of today's call.
At this time, all participants have been placed in a listen only mode.
All will be open for questions after the presentation.
With that I would like to turn the conference call over to Robert Helen.
Erector of corporate Finance. Please go ahead.
Hey, Jamie.
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 performance or achievements of FB financial to differ materially from any results expressed or implied by such forward looking statements many of such factors.
Our beyond FB financial's ability to control or predict and listeners are cautioned not to put undue reliance on such forward looking statements a more detailed description of these and other risks is contained in FB financial's periodic and current reports filed with the SEC.
FB Financial's most recent Form 10-K .
Except as required by law FB financial disclaims any obligation to update or revise any forward looking statements contained in this presentation, whether as a result of new information future events or otherwise.
In addition, these remarks may include certain non-GAAP financial measures as defined by SEC regulation G. A presentation of the most directly comparable GAAP financial measures and reconciliation of the non-GAAP measures to comparable GAAP measures is available in the FB Financial's earnings release 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 at Www Dot SEC Dot Gov.
I would now like to turn the presentation over to Chris Holmes, our president and CEO .
Thank you Robert and good morning. Thank.
Thank you all for joining us. This morning, we always appreciate your interest in FB financial.
We had an excellent quarter, we delivered strong organic growth reported EPS of $1.02 and continued growth in our tangible book value per share.
Tangible book value per share at year end was $24 67 fits that represents a compound annual growth rate of 15% since the company became public in September of 2016.
While our return to slightly less than we've come to expect from ourselves our return on average assets of 1.6% reported at one 4% adjusted return on tangible common equity of 16, 8% reported and 14, 7% adjusted are sound.
Given the extended ultra low rate environment.
Earnings for the quarter.
Strong and relatively straightforward.
During last quarter's call I mentioned that our regional proud of those top fourth quarter.
Show activity that could get us to double digit loan growth for the year.
Well they were right.
We had $315 million of net loan growth, excluding PPP or 17% annualized for the quarter.
This puts us at nearly 11% for the full year.
We also had very strong noninterest bearing deposit growth was 20% annualized for the quarter and 23% for the year.
Our noninterest I'm sorry, our net interest margin was stable for the fourth quarter at 319% zero rate environment.
Expenses were stable and as expected.
Our asset quality continues to be very strong with NPA assets holding flat with the third quarter at 50 basis points and classes.
Spot loans as a percentage of total loans dropping to 14 basis.
<unk> bought 14 basis points to 166%.
Charge offs for the year, we're very manageable eight basis points, and we had a provision release of $10 8 million in the quarter, which leaves our allowance for credit losses at a very healthy 165% of loans.
Hey, Jeff.
The year end.
We did have a significant gain on our commercial loans held for sale during the quarter primarily related to two relationships that exited the bank.
One of those had been written down materially prior to the Franklin merger.
One paid off and had a mark against it.
Been consistently describing this portfolio from the date.
The announcement in January of 2020 in total day.
It is conservatively at the at the merger date, we have very capable people managing it and we have continued to manage it to maximize returns as we've worked it out of the way we had $11 2 million of net gains on the portfolio in 2021.
And we have $79 million in loans left all of those same factors that have yielded positive results. So far still hold and we look forward to maximizing the value of the remaining portfolio in 2022.
For the core portfolio the legacy Franklin financial.
Performance has been stellar.
As we enter 2022.
And we think about our outlook.
Our long term organic target for loans has been towards 10% to 12% annually with the current environment and the momentum that we're carrying into the year. We believe that will be on the upper end of that range for 2022, we're targeting similar growth.
Non interest bearing deposits.
Our net interest margin should remain stable until rates rise and we're positioned for rising rates and we expect margin expansion throughout the year as rates move upwards.
Expenses will increase as you would expect with healthy revenue growth, we expect expense growth in the mid to high single digits in 2022.
Moving to mortgage as expected the fourth quarter was a challenging environment as refinance volumes came down significantly we expect these volumes these conditions to persist in the first quarter.
I don't believe our mortgage comp contribution first quarter will look much different than it did in the fourth.
In short we believe that 2022 will prevent the whole program presents strong opportunities for organic growth.
One other area of opportunity became public last week as we announced we were awarded five founding members of the U S. D. F consortium, which will focus on doing foundational work to allow banks to leverage the breakthrough blockchain technology for responsible innovation and growth.
We feel the use cases of USDA are nearly limitless and in every case it provides efficiency and an enhanced experience both for us and our customers our chief administrative officer wait periods on the call. Wade has led our digital strategy and our innovations area plus he is a board member of the USDA, Georgia.
We will also continue to evaluate acquisition opportunities are nearly 18 months after our combination with Franklin we have a high degree of confidence in our ability to identify negotiate and execute on mergers in a manner that delivers value for customers associates and shareholders and Franklin murder, we combined with a dominant community.
Bank in attractive markets and added new associates that play a vital role in managing the resulting company and significantly raised the overall talent level of the resulting institution.
The wish list of partners that we've identified would have similar mass in markets that we want to be active in both in footprint and contiguous to our footprint and all of those banks are known in their local markets as the cream of the community banking for crop.
One is the cloud we don't need to pursue acquisitions for the sake of growth. We're very excited about our organic growth profit.
Probabilities.
Bank hasn't made our list that were too focused on organic opportunities in front of US right now to distract our team with the care and effort that we put into the integration process.
So with that I'm going to turn it over to Michael to discuss our financial results in a little more detail.
Thank you, Chris and good morning, everyone speaking first mortgage and illustrated on slide six mortgage face the usual seasonality of the fourth quarter in a different difficult operating environment due to excess capacity in the system and lower refinance volumes ultimately, resulting in downward pressure on margins.
The mortgage segment provided a $700000 contribution for the fourth quarter.
And with the recent rise in rates continued to cloud and refinance volume that continued seasonality, we would anticipate similar results in the first quarter before.
Before moving on from mortgage I want to address our gain on sale.
The Mark to market value chart in the bottom right of slide six.
We appointed to the Mark to market valuation as a leading indicator of gain on sale margin. This quarter, we had a timing difference related to settlement of hedges versus loan sales. So our mark to market valuation was slightly lower than our gain on sale margin a little higher than otherwise would've been.
We expect those numbers to be more in the 220 to 230 range next quarter with Mark to market closer to two people at 2% and again on sale margin closer to two 3%.
Moving onto the net interest margin for the fourth consecutive quarter. We saw the margin remained essentially flat at $3 one 9%.
<unk> costs declined by a further four basis points in the quarter, which serve to mostly offset the six basis point decline that we experienced in our contractual yield on loans.
Yields on new loan originations have held steady in the three 8% range compared to the existing portfolio of four 7% and we continue to make incremental progress on lowering our cost of deposits, which offset some of the decline in asset yields.
We expect our margin to remain in the same relative band until rates increase which seems imminent and our balance sheet is well positioned for that increase when it happens.
Our latest interest rate shock scenarios show, 10% upside to our net interest income and a plus 100 scenario.
We have $3 billion of variable rate loans that either don't have floors are not currently receiving support from a floor.
Those will reprice with any increase in rates with the majority of those repricing within three months of a move with them and have an additional 500 million in lines that are within 25 basis points of their floors. We also still have $1 6 billion in interest bearing cash that will reprice with an increase in rates our interest income will increase materially in a rising.
Right environment.
But I think the industry is unsure of at this point is how quickly deposit costs will follow the increase in asset yields.
It can fluids of liquidity in the system and new nonbank competitors, there weren't nearly as prevalent during the last round of rate increases, making it difficult to predict.
Speaking to deposit growth in the quarter. We once again showed solid growth in noninterest bearing deposits excluding mortgage escrow related deposits are noninterest bearing grew about 31, 8% annualized in the fourth quarter.
Interest bearing deposits grew even more at 33, 7%.
This growth was driven by an approximate $500 million increase in public funds.
As accounts began a seasonally fund.
We would expect those balances to remain elevated through April or may before beginning to decline.
Moving to the allowance at $10 8 million a release was a bit larger than we expected the economic forecast that we use in our <unk> model has stayed relatively flat from third and fourth quarter. It had minimal impact on the change in our levels of reserve this quarter.
The primary driver of the change this quarter was the release of a portion of our Covid related qualitative reserves, we determined that release was appropriate as economic activity had remained vibrant across our markets at the beginning of winter.
However, with the sheer case counts of Omicron, we maintained some of our favorite related reserves. We will continue to monitor the qualitative factor and we may have further releases over the coming quarters and the absence of any renewed shutdowns or changes in consumer behavior that impacts our customers outlet.
With our allowance currently at $1 six 5% reserve releases in 2022 are likely to be smaller than they were in 2021.
Speaking to expenses core banking segment expenses of 58 7 million were down slightly from last quarter's $58 8 million excluded from our core expenses. This quarter were $1 4 million of charitable donations that are not run rate expenses going forward.
In addition to normal growth, we would expect the first quarter to be elevated compared to the fourth quarter.
Due to FICA and 401K contributions for.
For 2022, we expect expense growth to be higher as we invest in innovation and technology and intend to aggressively recruit relationship managers, both of which we feel should lead to top line growth.
Excluding gains related to our non core commercial loans held for sale portfolio of $9 9 million. Our banking segment noninterest income was $11 9 million.
Quarter to quarter, we have been in the 12 to $12 5 million range and we would expect that to continue with some growth until the second half of the year.
Which point the Durbin amendment impact on our interchange revenue will begin.
We anticipate losing two to $2 $35 million per quarter as a result.
Touching last on capital management, we were able to redeploy the gains on the commercial loans held for sale portfolio into our share repurchase plan as we retired seven $2 million of our stock during the quarter, we have a little over $92 million remaining on our current authorization and will continue to repurchase shares when the financial impact of such transactions make sense.
Yes.
I'll now turn things back over to Chris to close.
Alright, Thank you Michael for the color, we're pleased with our results for the quarter and we're particularly proud of the team for the loan growth in the noninterest bearing deposit growth.
That concludes our prepared remarks. Thank you again, everybody for your interest and operator at this point, we'd like to open up the line for questions.
Ladies and gentlemen at this time, we will begin the question and answer session to ask a question you May Press Star and then one on your Touchtone phone. If you are using a speakerphone. Please.
Please pick up your handset before pressing the keys to ensure the best sound quality.
Withdraw your question you May press Star two.
Once again that is star and then one to ask a question at this time, we will pause momentarily to assemble the roster.
And our first question today comes from Brett Robinson from Hockey Group. Please go ahead with your question.
Hey, guys good morning.
Good morning, Brett.
Congrats on the strong loan growth.
Wanted to just I guess first start on that you mentioned that you think that'll be on the higher side of that 10% to 12%.
But you usually are giving guidance too.
Just wanted to see you know what what.
Segments do you think that will come from and then maybe just thinking about the pipeline and the <unk>.
The hires that Youre looking to make maybe just talk about geographies and and you know.
Generally speaking with the with the pipeline.
For this year.
Sure.
Okay.
Okay, Brad Thanks first of all the loans are.
We continue to be.
Bullish and positive on loan growth and that's because of the.
Because of it it's not confined to any single product, we see it across product, whereas this particular core are.
Our construction and development.
Had the had the largest growth.
But in different depending on which or you look at it's kind of been spread across the board, we had strong C&I growth as well.
Continue to have strong residential growth and so all of those are in a growth mode. We had if you go back a quarter or two multifamily led the way and so it's.
It's both spread across product types, but its also spur.
Spread across geographies and so because of that we continue to feel pretty good about our about heading into next year, it's hard to predict for the whole year, but again, we've consistently been able to deliver 10% to 12% and obviously this quarter.
This was significantly above that and in a year that was a.
When we went into the year the outlook for loan growth was very questionable.
And we ended up with 11% for the year right in the middle of that range. So we feel.
Looking at the higher end of that range for next year.
Is what our.
Our expectation is and then on the hires.
You know we have we're generating a lot of capital we have a lot of capital. We're always trying to think of the best way to deploy that and.
Acquisitions tend to grab most of the headlines but frankly.
Being able to recruit.
Both in our existing geographies as well as in and well pretty much in our existing geographies and there's a chance we could do something.
All of a de novo basis, we're not out there searching for that but sometimes it comes to us and so those would be the two areas, where we would where we would be active with that strategy and there's not one particular geography, where were that we've got pulled out a geography or a.
Or are there.
Or any particular competitors or anything like that it's more a matter of matter of being aggressive everyday haven't people talk about it every day and and taking advantage of the opportunities when they present themselves.
That's that's very helpful. Chris I appreciate it.
And then maybe more a question for Michael on the margin.
And you mentioned, the 10% upsides, NII and with a 100 basis points.
If we get three rate hikes. This year I know people are talking about four but if we assume when we get three rate hikes. This year starting in March we've.
It would seem like your margin could be up 20 to 25 basis points, but I know, there's a lot of variables that go into that with the cash and liquidity and everything else.
I'm curious just from a margin perspective.
Assuming we do get three rate hikes. This year, how you think the margin micro kras.
Yes, Brian .
I think youre thinking about that right that 2025 basis point range. You did you mentioned that a key point right excess liquidity is still weighing on us about 22 basis points.
On the margin so if we see some of that exit or redeploy.
And if some things are either loan growth or securities you could say a little bit.
Benefit there as well, but I think in general that 25 basis point rises.
Pretty alone.
Okay.
And then one last clarification I just want to make sure I understood. The mortgage guidance for the year. It sounds like youre expecting the relative efficiency ratio and the contribution to remain similar to <unk> levels for the basically for the full year of 'twenty two is that a fair.
Think of that no we were pointing to the first quarter.
It will look a lot like the fourth quarter not the full year.
We're kind of in a wait and see approach on the full year at this point, we've tried to go quarter to quarter and get some decent guidance and so that's kind of what we're looking at for the first quarter.
Okay. Thanks for that.
And can I just add this is Michael.
Is.
There was a lot about the mortgage business. In addition to being the CFO . He's got a background in the mortgage business I'll start by saying he knows tons vornado and we set a pattern, but really not borne out much more than a quarter because we do think about the year. The seasonality pattern. We do think should hold for the year, where the you know the second quarter in the third quarter.
There tend to be the quarters, where we certainly have the most contribution in the first and the fourth tend to be more tend to be quarters, where we don't have as much contribution.
Okay.
Okay, Great appreciate all the color.
Alright, Thanks, Brett.
Our next question comes from Jennifer Denver from tourists Security. Please go ahead with your question.
Thank you good morning.
Good morning Judah.
I'm just curious about your expense growth guidance mm mid to high single digit for 'twenty, two what kind of hiring plan as is baked into that assumption.
Yeah.
Yeah. So.
Yeah.
We have made that when we've looked out.
And we've.
Done budgets for the year and projected for the year and we've we've baked in.
<unk> did a lot of frankly in quite a few places.
Mostly a lot of revenue producers, but not all revenue producing some of them are significant hiring in the operational side of our business and the technology side of the business and in our innovations unit.
And so there are there are some significant hires there.
Revenue producers within the bank I think are the major categories.
Revenue producers within the bank.
Like I said, a few in our what I'll call our operation support area.
So later innovation unit we.
We've mentioned the U S D F consortium and some things we're doing there on the innovation side and so.
That there's going to be some talent there and then the other thing that that's baked in there is we are seeing our costs increase our employee cost increase.
We're headquartered in Nashville balance of our folks are the biggest concentration of our folks are in Nashville, and we're seeing it we're seeing cost increases are not only there, but all across the board and so.
What are the keys to us continuing to grow revenue is to continue to be a great place to work and continue to have.
Make sure our associates are taken care of and so we intend to do that both defensively and offensively and so that's an important part of our 22 strategy.
Okay. Thank you.
Just a follow up question on asset quality looks like.
'twenty two is going to be another great year in asset quality for Union industry. How low do you think this reserve could go given the fact that you should be produced increased strong double digit loan growth.
So.
Yeah, Good question, Jennifer and.
And I'm knocking on wood as we say that this looks like it's going to be another great year for asset quality for the record. It seems like every time that we think that.
Something negative happens to the industry and so.
But.
Knocking on wood I tell you, we feel actually quite good.
And haven't been able to do some pruning the portfolio wise and so as we look out on the asset quality front, we feel actually quite good.
When we think about.
Where that settles, let's say just a normalized allowance for credit losses settles out.
Keep in mind.
Our combination with with frankly, the first bank Franklin combination took place.
We announced it in January 22, we closed it in August I'm, sorry January of 'twenty, we closed it in August of 'twenty, and so see that also writing them, obviously right in the middle of the Cecil adoption.
We think probably a 131 50 range.
It is probably where it will settle out.
I'll call it normal as is.
As a as really kind of what we think.
Thanks, so much and keep the keep keep in mind all of those factors change.
All of those those factors that we use to set that.
You know were evaluated by a committee.
You know our audited and we are in.
And those factors change every quarter, but that's that's why the range. So we think we think it will probably settle out to 131 50 rig.
Thank you.
Our next question comes from Matt Olney from Stephens. Please go ahead with your question.
Thanks, Good morning, guys wanted to go back and.
Ask about our loan floors, and Michael you gave us some great detail there.
I wrote down $3 billion of variable rate loans without floors, and reprice immediately and another $500 million that we price.
Another 25 bps higher move.
What about ethane beyond 25 bps or is that pretty much at the $500 million and then on variable rate side are these prime or LIBOR sofa.
Color on that.
Yeah.
Yes.
I'll just say that.
The biggest portion of the move comes in the first couple of rate books for.
For us.
And it's a combination of a prime and so.
Crime, mostly most of the prime and LIBOR, but mostly oh.
No that's right around the Wellbore and.
Transitioning.
Most of the LIBOR to prompt this one although we are doing some so for but yeah, Matt as Chris mentioned that it's minimal beyond.
Beyond the 25 basis points.
But 50 to 100 million.
Beyond that.
Per rate hike.
Okay got it.
Yeah.
And then.
On the mortgage front, you gave us some great commentary for for near term.
Definitely appreciate tough to.
Predict that I guess, taking a step back and just trying to appreciate where the profitability of mortgage could be longer term whatever metric. You think is the best way to look at that where do you think that will eventually land.
Yeah.
We said.
If you look at our at the bottom.
<unk> of the company, we think it should be somewhere.
More than 5%, but probably less than 10% of the total company.
The bottom line and so.
We still kind of we still think that.
I will say that.
Our business as.
As you said, Matt Thank you I'm, saying that.
Thank you for saying it targets the choices, they're hard to predict.
Jack we certainly do it and we project it but we are.
But it's hard to project and so we don't get too far out other than what we said we do expect certainly a you know.
A meaningful contribution.
During the year, but if you look at it NBA predictions on volumes I think they're down 1% or 35 ish 35 ish percent year over year and so were in addition to.
Normal running of the business where were try it where we're making sure that we've tried to maximize our our origination to try and maximize margin trying to trying to maximize our customer.
Customer experience.
We're thinking about how we continue to evolve that business.
With things like blockchain.
The technology and the other technologies and so we are.
We're also thinking about some investment in that business.
If we as we continue to move forward so.
So we want to continue to have a meaningful contribution, but also where we are.
Tried to bake in an entrepreneurial way about that business.
Thank you.
Alright.
Our next question comes from Alex Lau from Jpmorgan. Please go ahead with your question.
Hi, good morning.
Can you.
Good morning can you speak more on the U S involvement in where some potential use cases for the blockchain technology in the near term.
Apply to your businesses, whether it's the core banking or the mortgage business. Thank you.
Yeah, Alex and wait periods, where they suddenly said he's on the board member USD has some I'll let him talk.
Just a little about a couple of things but.
But I'll say this.
Uh huh.
How about the consortium one we're very excited to be a founding member and do think it is.
As the industry continues to evolve that's going to be very important moving forward.
Wait.
I'll, let you can talk about it.
Maybe give an example of a use case or to that and even some that could be specific to us. So sure. Good morning, Alex.
So when we think about the block chain technology, what we what we know and recognize it is revolutionary.
And it will have the potential change almost every aspect of the financial services industry. We see that we're watching closely what's going on in the centralized finance ecosystem and that's proving out to be true and you'll see that that non bank because it's rolling.
We want to come together with technologists and regulators in and find a way to utilize that inside the banking spaces. So that's the intent of the consortium has to do with foundational work there.
And part of that has to be the creation of a stable cooling, which is what we're working toward here with USD half and that is actually going to assess it once you are able to.
Allow banks to be an on ramp to use blockchain technology. Then you basically have had to have a set of opportunities that can be quite expensive. So specifically for us I mean, we're looking at things that we have deep knowledge as we as we get started in this space, particularly around mortgage we know that the.
The manufacture and delivery and sale of mortgages can be done at a significantly less less costly and a significantly less costly manner using blockchain technology because.
Crude replaces trust is that are.
That resonates with you. So that's one of the spaces and of course, we do we do a lot of obviously our manufactured housing business is quite large so we're thinking about in those two areas today and as well.
What can happen on the payments himself settlement front.
<unk> has the potential to really help us with some of the things, we're facing particularly around revenue Walton Durbin and those things and as you look at the payment systems today that we actually run our economy in their 40 plus years old.
And we will be able to cut substantial costs out of those systems and get 24, seven 365 real time settlement out of blockchain, so, particularly those two areas.
Are starting places for us, but we have a quite a long list of opportunities that can help us on both the revenue and expense that.
Very good thanks Blake.
Alex.
Thank you for that in a separate question.
Digging into the very strong loan growth are you seeing any borrowers.
Tap into the kind of the excess liquidity on their balance sheet to pay down loans at all or is the preference still to hold on to that your cash and just can you just speak on the recent pay down activity if any thanks.
Yeah.
We haven't seen a.
A big move towards.
Tapping the liquidity on our balance sheet to pay down loans, that's not something that we that has been a notable move for us.
We we deal we do still see customers at high point with their liquidity and then we see we continue to see room in.
In our.
And our utilization of lines.
Where it has not returned.
To normal levels for us if we go back to.
19.
The high point was was where it was in the low 50 percents in terms of our utilization and.
And we'd be in the low 40, percents today and so we we think.
Part of our again continued bullishness on loans is that.
We're seeing great originations and we still see room for additional draws on some.
Some of our commitments and so so that's let's say that that color helps Alex.
Yes, that's very helpful. Thank you for taking my questions.
Sure.
And once again, ladies and gentlemen, if you would like to ask a question. Please press star and one.
It's all your questions you May press star two.
Our next question comes from Catherine Mealor from keeping W. Please go ahead with your question.
Thanks, Good morning.
And Kathryn.
Just one follow up on the margin discussion.
Yes.
Actual ammonia now for 17, where where are you seeing new loan yields coming on at the trying to think about where that bottom before we start to get the lift from higher rates.
Hey, Catherine Michael Good morning, Yes for the past couple of quarters, we've consistently seen it in the three 8% range.
And that's been pretty steady.
For the back half of the year and what we're seeing early on this year.
And would you say more of your current and when production is variable rate or fixed rate categories.
Yeah, it's still pretty split obviously all of our all of our customers wants fixed rate and all of our.
We prefer the variables. So there's a balancing act here, so let's kind of ebbs and flows.
Yeah.
Every time, but it's been pretty consistent 50, 50 split maybe slightly more on the fixed rate here lately, but.
We expect it to go back to our historical norms.
Okay.
And then I'm sure our Alco modeling you you mentioned that there was 10% upside with 100 basis point.
Now do you what's the deposit beta assumptions do you make within that and also is that a static balance sheet or are you assuming some deployment of your cash within that Jim. Thanks.
That's a great question is static balance sheet.
Sure.
And deposit betas.
We mentioned really kind of difficult to.
If you really look at it on a and this kind of new economy to wait were just mentioning but we've got about.
3% to 30 basis points of every every 100 basis point, maybe where you are.
Third on deposits I would think that lag a little bit.
But time will tell as to how much we see competitive pressures on rates going up and with what customers demand.
Okay awesome. Thank you so that it feels like to get your commentary on that even 10% feels conservative just fantastic to point them more aggressively in deposit cost flat is that a fair yeah.
Certainly sitting on a lot of excess liquidity, yeah. We don't as you know generally over deploy into the investment portfolio. We've stuck it kind of 13 13, 5% of our assets and that's where we're kind of wound up which we really appreciate it now that the 10 years above 180. This morning and it has.
Some opportunities there we are conscious of public funds and how long that sticks around in deposits, but yeah, I would say there's definite definite upside.
Okay, great. Thank you for that color.
Thanks Scott.
Yeah.
And our next question comes from Kevin Fitzsimmons from D. A Davidson. Please go ahead with your question.
Hey, good morning, everyone.
Well, we havent.
I just wanted to follow up on your commentary on the M&A outlook and I recognize your point that you don't need it.
You feel very confident in the organic growth, but I'm just curious what your.
What your assessment of the environment is like out there on one hand, it seems like you guys are pretty.
Selective in terms of your wish list and you know who those names are on the other hands. When you look at the environment and now we're moving toward higher rates do you think that has.
In effect would be sellers that maybe they're not going to be in.
Quite as big of a hurry to sell as they might otherwise have been or just I guess and then just just what your expectation.
Would you expect in 'twenty two to be announcing a deal would you be disappointed if you didn't just just trying to drill bounce back. Thanks.
Yeah.
Yes, good questions, Kevin denominated give hum.
I'll try to.
I cover all of that and don't hesitate to tell me if I Miss a piece you're interested in so.
As we look out.
And we are comfortable with our organic growth picture and again, that's where we get the highest return on capital. So we like our born out and in organic growth and we have I've said before.
We kind of keep a targeted list and we've talked some about that but we also will entertain other opportunities that come our way.
That folks bring bring to us like investment bankers are the primary investment bankers and they may not be on our list.
I guess more and more as we think about the environment going and move.
Moving forward.
It's probably more focused on the list and less focus on less.
That's helpful. This is somebody that's not on the list.
Have a reality because it.
The thing that we talked about the things that are changing in the industry.
And so we've got really strong opportunity there now that being said.
When we have the opportunity to get really you know geographies that we're interested in with a meaningful share okay.
Geography that really bring us a strong brand and strong people.
That's something that we're interested in if you look at our list every one of them would be a very strong community bank.
Either at or near our markets.
But again there aren't many of those and we were always interested in the liability side of the balance sheet, where we were very interested in non interest bearing deposits and so so those are things that that we really think about and look at out there and it's not that others don't have value. They certainly do but when you look at our strategy, that's where they're at.
Where the most value is.
And so that's so we're pretty focused on all of the things that were looking for which leads to a relatively small list.
And so which leads to a relatively.
Small list and when it comes to the higher rates I think actually more than the sellers.
I think what happens with higher rates as at least a higher stock prices stock price stock is usually going to be your currency and so.
And that usually leads to folks at least under the impression that they're getting more well on a relative basis. They actually may not me, but I think that's it.
At least leads people to feel better.
And so I think what what really rate driver.
Is is is the higher our stock is that a higher stock prices.
What it's driven by rates and hey, the one other thing I want to mention is.
And I would've thought.
Big Shout out here to the.
Two two you know both the legacy Franklin folks in the legacy legacy birthday folks.
Integration on these things.
Kevin is really hard and to actually put them together.
Get everybody in the same company and thinking the same way with when they didn't used to do that is is not easy and it takes a lot of care and a lot of.
Work and it's it's really hard and so.
We've been able to do that with and I think the what you saw in <unk>.
What we announced on the gain on the held for sale portfolio, what we announced in loan growth.
We've been able to integrate those in a way that has made it work.
But man I say it takes a lot out of it and get it in and it takes your focus off of everything else and so it's got to be something that we just like Franklin that that makes a big difference to the combined company for us to undertake that at this point and so when we do it it's going to be something that we are.
That we really really want.
Alright that was that was perfect. Thanks, Thanks, Chris.
One quick follow up just Michael I believe you mentioned in your commentary buybacks and apologies if you already covered this but with the <unk>.
Stock price, where it is is it in.
The preference for organic growth and funding that is it fair to assume buybacks are really not going to be the focus in the near term.
Yeah, that's fair we've got better.
More optimal use of capital right now.
Obviously continue to monitor that and deploy it appropriate.
Okay.
Okay. Thanks very much.
Got it.
Hey, Kevin.
And ladies and gentlemen, with that we'll be concluding today's question and answer session I'd like to turn the floor back over to Chris Holmes for any closing remarks.
Alright.
Thank you very much everybody for being on the call. We really appreciate your interest and we look forward to a fantastic 2022. Thank you everybody.
Yeah.
And ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for attending today's presentation.
You may now disconnect your lines.