Q1 2022 Crossfirst Bankshares Inc Earnings Call
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Hello, and welcome to the first quarter 2022 earnings Conference call.
Charles first Mike shares Inc.
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I would now like to turn the call, but you have the warranty director of Investor Relations. Please go ahead.
Good morning, and thank you for joining us today for the cross first Bancshares first quarter 2022 earnings conference call.
Heather Worley director of Investor Relations.
Before we begin please be aware. This call will include forward looking statements that are based on current expectations of future results or events forward looking statements are subject to both known and unknown risks.
And uncertainties that could cause actual results to differ materially from these statements.
Our forward looking statements are as of the date of this call and we do not assume any obligation to update or revise such statements made on this call should be considered together with the cautionary statements and other information contained in today's earnings release, our most recent annual before report on Form 10-K and in <unk>.
Subsequent filings with the SEC.
Our speakers for the call today are Mike Maddox, President and CEO , Dan <unk>, CFO , and Randy Rapp, Chief Risk Officer, and Chief Credit Officer at the conclusion of our prepared remarks, our operator to wonder will facilitate our question and answer session. At this time I'd like to turn the call over to Mike Maddox Mike.
Thank you Heather good morning, everyone and thank you for joining us today as we discuss our first quarter 2022 results are the first quarter was great not only at the bank, but I'd be remiss, if I didn't give a shout out to my Kansas Jayhawks for winning the National Championship.
That was fun one for me.
Before we get into the numbers I'd like to take a minute to talk about our strategic plan.
We recently shared the highlights with our employees and I'm excited to do the same with all of you today.
Our plan for 'twenty to 'twenty, two is focused on investing in talent and technology to drive responsible growth.
The cross first core values of character competence commitment in connection combined with our one team one bank shared vision mindset defines our course of our strategy.
One team is about our people who are the foundation of what we do.
We are dedicated to recruiting the best talent and investing in their strengths and skills.
This approach is at the heart of our culture and makes us highly desirable place to work.
Last year, we were named one of the best places to work by the Kansas City Business Journal and we've set a strategic goal this year to be recognized by Gallup as a best place to work company.
We believe that our strong and consistent focus on employee engagement enhances our culture and leads to increased customer satisfaction, which supports our growth objectives.
Our commitment to employee development starts with identifying and leveraging the strengths of our employees and coaching them to their full potential.
We continue to explore different niches in verticals, where we have the talent and experience to excel.
As a part of that effort, we recently announced the hiring of Bobby Oliver to lead our restaurant Finance group.
He brings deep experience in providing customized banking solutions to companies in the restaurant space and will make a significant contribution to the bank.
The recent addition of David feeling to lead our Texas strategy. The further development of our Phoenix team and now adding Bobby are a few examples of our commitment to investing in top talent.
We are confident in the strength of the new hires we've made and their abilities to make an impactful contribution to our strategy goals and overall results.
Our team knows growth without quality credit is not sustainable and I'm proud of the improvements we've made in our credit profile and the framework that Randy and team have put in place.
So as we look at the broader economy, no that we're keeping abreast of any changes and we will prudently manage our risk profile.
We continue to watch the geopolitical disruption drawing inflation.
<unk> supply chain challenges and the likelihood of additional rate hikes.
Scares me.
These factors could dampen growth slowed the economy.
We have ambitious objectives, but when we talk about growth we know we must do so responsibly.
That means we will manage risk appropriately by taking a balanced approach.
This balance is key to how we build long term value both as a company and for our shareholders.
One bank is about accelerating our transformation into a larger organization with organic loan and deposit growth.
Driving greater fee income and looking to expand into new markets and new business verticals.
Having the best talent and investing in personal relationships with our clients is critical.
But we also know that more and more business is being done digitally.
As such it is imperative, we invest in technology to provide an exceptional client experience.
Today, we are fully engaged in the implementation of our technology strategy, which focuses on enhancing the digital experience for our clients.
When completed later this year, we will have a unified digital platform across all channels.
We have also invested in three bank sponsored Fintech funds to ensure we gain exposure to developing technologies, which could provide more solutions for our clients.
Lastly, the shared vision of our strategy is a balanced approach to drive shareholder value.
We take seriously the role that we play in the overall health and wellbeing of our communities.
I am so proud of the impact cross first is making in all of our markets as evidenced in our first corporate impact report published last year.
We will do more of the same this year as we continue to support our strategic partners to make a difference in our communities.
I am confident that our strategy for 2022 and beyond of one team one bank with a shared vision will guide us on our path to deliver for our clients shareholders communities and employees.
Turning to this quarter's performance, we continued our momentum with earnings of $16 8 million or 33 cents per share.
We grew loans at an annualized 12% growth rate excluding P. P. P forgiveness.
We remain focused on the overall economy and intend to be prudent ahead of a potential for a slowdown.
Credit quality remains strong with modest improvement to a level, we expect to maintain going forward.
Our team is doing an outstanding job of continuing to diversify our revenue by growing fee income.
We are dedicated to the expansion of our credit card products International banking services, and our full suite of treasury capabilities.
With another quarter of solid earnings we continue to add to our capital position, while providing return.
And investing in our future.
We accelerated the pace of our stock buyback initiatives to take advantage of our stock price during the first quarter, while making investments in technology and talent.
We are actively evaluating the most attractive opportunities to deploy our capital including M&A.
We believe strongly in our proven organic growth model. However, we would consider M&A options that would allow us to enter new markets.
Get us greater scale in existing markets or augment our company through new lines of business with fee income products, which will further our ability to meet our customer's financial needs.
We have a great team supporting dynamic markets, we were well positioned for the future and I could not be more excited about what our team can accomplish the rest of the year and beyond.
Now I will hand, the call over to Ben to cover the financial resorts results in more detail.
Good morning, everyone.
Mike indicated we had another solid quarter with net income of $16 8 million or 33 cents per share.
We adopted Cecil on January one with minimal conversion impact and saw improvement in credit quality with a small release of reserves of $625000.
Mechanically the new seasonal adoption impact goes through equity.
With the biggest change being the addition of a reserve for unfunded commitments.
We started the year with strong loan growth, which was in line with our expectations.
Quarterly return on average assets was one point to 3% and return on equity was 10.44%.
These ratios were the result of strong core performance and were impacted slightly by the small release of reserves.
We are pleased to see these performance ratios improve as a result of our earnings momentum driven by execution of our growth strategy.
Our interest income in the first quarter was $47 8 million, which decreased $1 4 million from fourth quarter.
Fewer days in the quarter, a positive fourth quarter impact of loans that returned to accruing status.
And headwinds from P. P P fees, which continue to decline all offset positive expansion of interest income from loan growth and deployment of liquidity.
Average loan balances were up 2.7% quarter over quarter.
Interest expense was down for the quarter.
We continue to have higher rate time deposits mature, which brought the deposit costs down for the quarter.
As expected.
Our cost of funds declined primarily due to lower FH L. B borrowing costs from last quarter's prepayment.
Our percentage of demand deposits was consistent and we experienced seasonality from client tax payments.
Looking forward, a rising rate environment could impact the growth trajectory for noninterest bearing accounts, where our team is very focused.
Net interest margin was relatively flat for the quarter at 329% on a fully tax equivalent basis.
We expect margin to expand in the rising rate environment, although deposit migration and some remaining pressure on loan pricing will be headwinds.
We are asset sensitive and we see opportunities as rates rise to lag deposit rate increases and potentially enhance our margin.
Over two thirds of our earning assets reprice or mature over the next 12 months with much of that being in the first 90 days.
With the first rate increase we are now past more of the impact of loan floors, and we have greater sensitivity as rates move above those floors.
We'll also see continued roll off of higher cost time deposits in the second quarter.
Noninterest income for the quarter was $4 9 million and improved 3% over fourth quarter the.
The improvement was driven by higher analysis fees and consistent credit card growth, which remained solid areas of expansion for us and a focus of our team.
Noninterest expenses for the quarter were $27 7 million up three 7% from the fourth quarter.
Salaries and benefits were the largest driver and increased $1 5 million. This was due to hiring for production and technology talent in a very competitive environment annual merit increases and higher taxes and benefits due to incentive payouts this quarter, along with the resetting of tax and benefit.
Limits at the beginning of the year.
We added four new producers in the quarter. In addition to four added during the fourth quarter.
These increases were partially offset by lower legal costs and loan recoveries.
Payroll taxes will moderate in the run rate by the end of the quarter was in line with our expectations.
We anticipate noninterest expense to be in a range of 27.5 to $28 5 million per quarter for the rest of this year subject to our ability to continue to find opportunistic hires in a very competitive environment and subject to revenue growth to support a higher cost base.
We will continue to seek efficiency ratio improvement.
And focus on managing expenses with a balance between growing earnings and investing for the future.
Our tax rate was 20% for the quarter and was down due to the impacts of stock based compensation in the first quarter from the vesting of awards, we expect it to be in the range of 21% to 23% for the rest of the year.
Our capital ratios remained strong as we generated significant earnings we repurchased one 1 million shares in the first quarter. This represented 2% of outstanding shares.
Our buyback of shares has little tangible book value dilution and a short earn back period based on price levels. So far that will in no way compromise our strong capital ratios.
We experienced a swing in our unrealized gains on the investment portfolio to a net unrealized loss as long term rates have increased.
Given our duration around five years, we don't expect further movement unless there is additional change in the long end of the curve.
We deployed some of our liquidity this quarter, which pushed up the loan to deposit ratio to 94%.
Including our FHL B borrowings, we had a funding ratio of 90% and we have significant capacity for additional borrowing or wholesale funding if needed. In addition to deposit growth to fund our loans.
Overall, we're pleased with the solid financial results for the quarter and look forward to the rest of 'twenty two.
I would like to turn the presentation over to Randy for a more detailed discussion of credit and the loan portfolio.
Thank you Ben and good morning, everyone.
As Mike mentioned in Q1, we reported a 3% quarter over quarter loan growth rate, excluding P. P P balance changes or 12% on an annualized basis.
Growth was centered primarily in the commercial real estate and C&I portfolios.
P. P P loans decreased 34 million during the quarter to $31 million.
The portfolio turnover rate decreased during the quarter, but remains at an elevated level compared to historical averages illustrating the higher continued level of loan payoff activity due to low permanent fixed rates and market cap rates as permanent interest rate.
<unk>, we expect this turnover rate to continue to decrease C&I line utilization decreased during the quarter to 42, 5% from 45, 7% in Q1 of 2021.
In Q1, our primary credit metrics remained relatively stable.
As slide 13 illustrates in Q1, we saw improvement in our classified loan totals.
<unk> loans decreased six 8% during Q1 to $73 3 million.
Classified totals in the energy portfolio reduced 24% in Q1 to $16 million and now represent 22% of total classified loans.
Classified loans to total capital and combined allowance for credit loss reserve ratio.
Ended the quarter at 10, 7% and we expect this ratio to remain in this range in 2022.
In Q1, nonperforming assets increased slightly to $35 6 million or 0.64% of total assets due primarily to a downgrade to non accrual of a previously identified sub standard loan in the C&I portfolio.
25% of nonperforming assets remain in the energy sector, which has been positively impacted by the sustained higher commodity prices at.
At the end of Q1, we had a combined allowance for credit losses to nonperforming asset ratio of 169%.
Moving to slide 14, net charge offs for the quarter were minimal at $1 1 million and well below the $8 2 million reported in the same quarter of 2021.
Q1, net charge offs on an annualized basis were 10 basis points and the trailing 12 month net charge off rate was 13 basis points. We expect this rate to better represent the anticipated net charge off activity for 2022.
Yeah.
As previously Messaged, we adopted Cecil on January one 2020 to.
The prime primary impact of the conversion related to establishing reserves for noncancelable unfunded commitments, which added $5 2 million to the reserve level at conversion.
The conversion to seasonal increase the combined allowance for credit loss total by $3 4 million or five 9%.
At the end of Q1, we reported a combined allowance for credit losses of $60 1 million or 1.38% of total loans. The combined allowance includes the allowance for credit losses on loans of $55 2 million and reserve for unfunded commitments are for.
$9 million for.
For the quarter the bank reported a small release of reserves of $625000.
In closing we are pleased with our loan growth for the quarter and continued stability in our credit metrics, our net charge off activity. Our team worked diligently to prepare for the conversion to Cecil and we are pleased that the conversion occurred with minimal impact to our financial statements. We continue to closely monitor the use.
And global economic indicators inflation rate higher commodity prices and interest rates potential supply chain disruption and the effects of the war in Ukraine on our clients markets and prospects as we evaluate our portfolio and new credit opportunities I look forward to answering any questions you might have short.
This wraps up our prepared remarks, and now I will turn it back over to the operator to begin the Q&A portion of the call.
Thank you.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone telephone.
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To withdraw your question press the pound key.
Again, Thats star one to ask a question.
At this time, we will pause momentarily to assemble the roster.
Yes.
Our first question comes from the line of Matt Olney.
With Stephens your line is open.
Hi, Thanks, good morning, everybody.
Good morning, Matt.
Wanted to start on the <unk>.
Spin side, and then you gave us some good guidance there from a quarterly standpoint, but it sounds like there is some flexibility in that guidance based off of opportunities from hiring and based off the rate environment.
I guess the question is if we do get the call. It 200 bps of higher fed funds.
The year that the market's expecting.
Would that increase that range that you provided or does that already consider a similar rate environment.
Higher rates.
Good morning, Matt.
That range I gave would would include you know what we're all looking you know what I think consensus is for the rate environment and.
The the point you reiterated is an important one we're not going to grow our expense base at the top end of that range. If we don't see revenue growth to support that and so.
Mike can I think about that as you know those two things moving together, we had a little bit of noise in particular in the net interest income in the in the first quarter that that pushed our ratios a little bit but that range would include anticipated rate rate changes in our sensitivity.
Okay. Thanks for that I guess you said.
A follow up.
To that response.
What are the key metrics that youre looking for with respect to that.
Positive operating leverage I mean, you mentioned you don't want expensive ticket.
Ahead of the revenue.
So.
It typically.
<unk> revenue growth versus expense growth year over year or what is it that you're kind of guiding you with respect to maintain the positive operating leverage.
It's definitely revenue growth and expense growth and making sure those move appropriately toward one another but we're also very focused on the efficiency ratio is up this quarter because wages were up and revenue didn't move a whole lot because our growth was <unk>.
<unk>, a little bit by by non accrual changes, but we're very focused on continuing to find improvement to our efficiency ratio and to gaining some leverage as as we continue to grow the bank. So I think those are the two key that that I would point to efficiency ratio and then as you said.
Ed, making sure expense growth isn't outpacing revenue growth.
Matt.
We want to we want to keep an efficiency ratio you know down in the mid to low fifties and that's going to have some ups and downs as we invest in growth.
And we also want to be entrepreneurial enough to invest in opportunities to grow the company.
And we also want to get our capital deployed we've got quite a bit of excess capital that we want to get deployed into growth and so some of the expense increase you see in the first quarters related to some of that investment in growth.
And.
We are confident that the revenue will catch up with some of those investments for example in Phoenix.
So we've made a pretty good investment in Phoenix and they hit profitability for the first time in March.
So we're excited about their opportunity to continue to scale and be a positive impact on the bottom line.
Okay.
Thanks for that and then I guess on that note that 8% to 10% loan growth guidance for the year.
Remind us does that include or exclude the headwinds from the PPP.
We are we said 8% to 10% excluding the.
The P P P.
Yeah.
Got it and then just lastly for me I think.
The guidance included the.
ACL ratio would.
Maintaining that one three to $1 45 ratio for the year I assume that compares to that $1 38 that we saw this year. So it sounds like we should.
Don't anticipate any material change in the allowance ratio is that is that fair.
Hey, Matt This is Randy Yeah. That's that's fair that's the way I would look at it.
Okay I'll hop back in the queue. Thanks, guys.
Thanks Brendan.
Yeah.
Thank you.
Our next question comes from the line of Michael Rose with Raymond James Your line is open.
Hey, good morning, everyone. Thanks for taking my questions just to follow up on the loan growth.
It looks obviously, if you annualize this quarter, it's kind of above that range and obviously you're in Phoenix as you just mentioned reaching profitability.
New restaurant franchise Finance group.
Further growth.
In Texas I.
I guess what are the.
The pluses one would be kind of the negatives is it paydowns. This is just general cautiousness, because it does seem like.
The guide is potentially a little conservative.
Well yeah.
No we are still fighting churn.
And the real estate portfolio with low long term rates and low cap rates, we're still seeing seeing that line utilization is still below historical levels.
It's improved some but it's got a ways to go.
We've also been.
Prudent in certain sectors of our portfolio like <unk>.
We've continued to work on an on rationalizing our energy portfolio as a as an overall.
Piece of the pie.
And so you know there is some headwinds to growth then and we don't know what's going to happen in the economy over the rest of the year and there are a lot of.
Red flags out there and so we want to be prudent we think our model and in the team. We have can still deliver that 8% to 10% growth. Despite maybe being in an environment that may or may not support the outsized growth.
Okay. That's helpful and then maybe for Ben.
Just if we exclude rate hikes, there's obviously some some some pluses and potential negatives as you grow just given where the loan to deposit ratio are and adding some higher beta.
Sources of funding you.
How should we think about kind of a nearer term.
Core margin here I think we can all do the math around what rate hikes do.
But as we think about the core margin. If you can just delve into a little bit more of the puts and takes of what.
What happens there.
Sure Michael.
Yeah as you said.
Rate increases are generally good for us and we're asset sensitive you know like like most banks.
Of our size and scope for US you know, where we've spent a lot of time thinking about what our deposit beta will look like going forward in the last rate cycle. We had a rate rate increase cycle, we had a much different deposit composition than we do today.
I think we are we are relatively conservative in our sensitivity modeling and you know as I said last quarter I'll I'll repeat we believe we have some opportunity to to lag deposit increases as the fed brings up short term rates and we're working very very.
<unk> closely with our client facing market leaders to do that in the right way and ensure we don't impact client relationships in particular with a with a short term focus we're taking we're taking a long term focus with that said you know the the betas we are using.
Look a lot different because the composition of our portfolio is our deposit portfolio is a lot different.
With that said you know overall on non maturity deposits. The betas, we're assuming are relatively consistent.
When you take into account the composition of the last rate cycle, but if you peel that back a little bit we're assuming lower betas, but we have much higher beta product composition than than we did in the past if that helps give a little color there.
Yes, very much so.
And then just one final question for me I'm, just trying to figure out the dollar amount that you guys repurchase the scores and see how much you have left and then given.
Given the stock is still at around one two a tangible fairly low earn back.
What the appetite may be as we move forward and could you potentially look to do.
Another program here just given you.
You saw some excess liquidity.
Sure.
So we we expended $16 8 million in the quarter on the buybacks that's.
A million 58000 shares I think that figure might be in the in the deck and so that works out that we have about $4 9 million of authorization left as of 331.
So we'll seek.
Another authorization for the board as this one and as you pointed out our price to book value remains well in the range that we think buybacks continue to make sense and we continue to have an appetite to do that.
Very helpful. Thanks for taking my questions sure. Thanks.
Thanks, Michael.
Thank you our next.
Question comes from the line of Jennifer <unk> with choice Youre line is open.
Thank you good morning.
Morning.
Just wondering if you could size up the market opportunity for the restaurant franchise business.
At this point are there any other lending lines that youre looking at.
Entering over the foreseeable future.
Yeah, we we believe there's a substantial market they're in.
We already have.
About $63 million today in that space and we believe that.
Over time that that could be somewhere between a 255 billion over time.
<unk> for us so.
Bobby has really experienced and and as well connected in the industry and.
I think combining him with the existing talent we have.
We see a significant opportunity.
And also you know that that that also drives fee income and deposits and ancillary business that goes along with it.
Yeah, we're constantly evaluating other lines of business and it's really driven by our ability to find the right talent and so we don't have anything immediate on the on the in our plans but.
You know whether.
It's senior.
Senior housing or or.
Yeah.
Equipment finance and some other things that we may look at over time.
Right and.
A second if I could ask one other question what do you feel like Hill.
Feel very confident about asset quality over the near term, but as rates go up.
What areas of the portfolio you feel are most vulnerable at this point.
Hey, good morning, Jennifer this Randy so obviously, we're watching all of our commercial real estate portfolio as the rates increase.
We've been stressing stressing those assets individually in our underwriting pretty healthy.
Anticipating a rise in interest rates and one of the things we continue to see in the real estate portfolio has significant equity in projects. So 35, 40% equity, which helps provide some buffer in a raising rising rate environment and we're also trying to be disciplined in that portfolio to stay more in the multifamily industrial segments.
Which continue to have quite a bit of growth and the lower level of the cap rate. So we're looking at that portfolio and other portfolio. We'd think about is our EV leveraged lending portfolio by nature of those tend to carry a higher leverage position and can be susceptible to rate increases, but again, we've been stressing those four significant declines in <unk>.
EBITDA and significant clines in increases in interest rates as we do our underwriting them. So those are a couple of segments of the portfolio that they're watching closely.
How big is the leverage loan portfolio at this point.
That portfolio is about $380 million, but again that combines.
E V and leverage lending so of that probably half of that meets the regulatory definition of an over leveraged loan.
Thank you.
Thank you.
Our next question comes from the line of Brady Gailey with <unk>. Your line is open.
Hey, Thanks, Good morning, guys, Hey, Brian .
So I'm just wondering your guidance on the loan growth side and on the expense side.
How much additional hiring do you need to do it.
I'm looking here on slide nine you talk about these potential target markets you have seven or eight of them here does that guidance include expansion into additional.
Mark that's or is that you know kind of the markets you're already in.
No the guidance we've given.
Today. We're just include the markets that we're in today and we believe that we can deliver that growth with the team that.
We have on the field.
So.
Yeah, if we make further investments.
Or we expand to new markets, we think will do better, but but right. The guidance. We're providing is just on our existing markets with our existing team.
Okay, Alright, and then to circle back to share repurchases.
We purchased about 2% of the company this quarter.
Is there any reason why that would slow down for the rest of the year or do you think you go to the App.
Activity, we saw at <unk>.
It could be what we could see throughout the rest of this year.
Well Brady there.
Really only be two reasons I think that would slow down one if.
Our our share price went way up which I hope that happens.
The other thing would be if we have something going on that precludes us from being in the market as a public company that'd be the only other reason that occasionally happens as we as we run our business, but barring those two things will continue to be active as active as we can and the buyback.
Okay, Alright, Brian we're ready we think it's a real opportunity I mean with our stock price trading where it is we.
We see great value in it and and so we think it's a great opportunity for our shareholders to do that and it will continue to do it.
Yeah I agree.
You can see.
Finally for me you know, Mike you mentioned.
Briefly some interest in it.
No no I know, it's tough with your currency trading where it's trading.
Kind of right on top of tangible book value, but maybe just expand on what sort of opportunities would get you excited all the M&A side.
Yes.
Where our currency is trading today, you know M&A for US we would certainly have to be.
Cash opportunities that we could leverage our capital that way.
You know we're <unk>.
Constantly looking for the right opportunities to partner with people, who fit our culture and who fit in those markets that were desirable of entering overtime and so.
Again, M&A could provide us a new market opportunity. If there was an opportunity to grow some scale in an existing market or there was a partner we could find that provided some product and opportunities that we can cross sell across our franchise.
Those would be the driving forces but.
It's going to be driven by market and it can be driven by talent and and culture and we want to make sure. We maintain our branch light model. So you know that.
That also limits the universe a bit on on partners that would be a good fit for us.
Got it thanks, Mike.
Yes.
Thank you.
Our next question comes from the line of Andrew Leisch with Piper Sandler Your line is open.
Hey, good morning, everyone. Thanks for taking the question.
So just a question on the new nonaccrual C&I alone just curious what other details you can provide like really.
It's like maybe industry or location and is this more of a unique situation related to the borrower or do you think it can be anything to stomach for the mystery or larger issue down the line.
Sure Andrew Good morning, this Randy happy to answer that so.
I can tell you that the we took a slight charge on the credit in Q1.
It is in the process of resolving and we expect it to be fully resolved in late in Q2 or early Q3, and we expect to fully recover our remaining book balance and given the sensitivity to the process right now it's pretty much what I can say about it. It is a unique credit is not a systemic issue.
We don't have other credits in that space.
Got it alright, that's very helpful.
And then just how should we be looking at the securities portfolio right now.
The decline in it we're just as I look from a fair value Mark but are there plans to add more to it or it was really the goal to take whatever liquidity you have and feel it in the long ago.
Andrew It's Ben Good morning, we were taking a long term view on our securities portfolio, you're correct right rising rates have caused some unrealized loss in our fixed income portfolio. It's all it's all fixed income.
We like the flexibility that the RFS categorization offers you know.
If we need that for funding or a it's very flexible for us to pledge.
You know for borrowing in particular with the FH L. B.
I think we'll continue to add to that portfolio in proportion to the to the growth of our balance sheet. We are able to get much better yields right now as rates have come up you know, we're seeing you know.
Munis.
Beyond 4% from a tax equivalent yield perspective, and mortgage backs you know around.
Around three or maybe as much as 325. So it continues to make sense for us and we don't intend to make any any major shifts strategically there with regard to the portfolio.
Got it.
You've covered all my other questions. Thanks, so much.
Thank you Andrew.
Thank you and modulate.
Thats Star one to ask the question.
We have a follow up question from the line of Matt Olney with Stephens. Your line is open.
Yes, just to follow up on the M&A discussion, Mike you gave some good thoughts around the strategic merits and kind of what.
Is it bank we consider.
On the financial side, what are the guideposts that you lean on the most with respect to the financial aspects of an acquisition.
Well you know we're going to look at it.
Obviously is it an opportunity that's accretive to earnings and creates a franchise value for us.
We want to make sure that that any dilution that would occur would be returned to you know within a reasonable period of time you know in that.
You know two and a half to three year range.
And so and then obviously, we want to make sure that that anything we do isn't going to negatively impact credit quality and some of the ways. We do business. So it's just it's got to be something that's going to be accretive and we also look at people and and whats the.
To take that opportunity and expand it in.
<unk>.
And Matt I would I would add one more thing, which I think we've talked about a little bit before which is we have something in a range of 100 or $125 million.
<unk> capital that we could think about deploying from a regulatory perspective, and so that that would be some sizing range for us as well.
Got it okay.
Thanks for that and then one more follow up here.
Then you mentioned a higher level of Cds that mature in <unk> I'm, just curious kind of what the strategy.
Sure.
Are you trying to get customers to extend duration any success more broadly kind of what the strategy. There is at this point.
Well, our our primary strategy is continued continuing to be relationship focused with our clients, which has been our model all along and we're not going to lose a client you know over.
Over a yield and we're making sure that we're accommodative of that and responsive across all of our markets. We have you know for example in second quarter, we'll have about 70 million of Cds roll off and another 42.
$45 million of borrowings and wholesale roll off the Cds, repricing, ultimately or or retention, we might not see a huge.
Change in cost of funds the borrowings in the wholesale will will be pretty significant.
And again, we're really focused on on relationship basis, and making sure we're strategic about about the rates that we pay.
And then just to follow up there.
The loan growth expectations are 8% to 10% this year.
Should we think about the core deposit growth this year being below that or do you think it.
It would.
A similar range this year.
Going forward for the rest of the year I think our expectation is a similar range. We deployed a fair amount of liquidity in Q1, but but going forward, we'll be focused on growing deposits and looking at the whole relationship is as you heard Mike say unexpected.
Posits to move in a range pretty close to two loans and and our teams continue to be focused on cross selling and making sure that that we're providing a full suite of services to clients to generate.
Income growth as well.
Okay.
Thanks, and congrats on the quarter.
Welcome. Thank you.
Yeah.
Thank you.
I'm not showing any further.
The queue. This concludes our question and answer session I would now like to turn the conference back over to President and CEO , Mike <unk> for closing remarks.
Well I, just again I want to thank everybody for joining our call. We're really really proud of the quarter and we're very very excited about the opportunity we have to continue to grow and expand and drive shareholder value and so we really appreciate all of your support and look forward to talking to you next.
If not before so I have a great day.
Thank you.
Please direct any follow up calls, but Heather at cross first dotcom that Heather.
Alright at cross first Dot com.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect everyone have a wonderful day.
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