Q1 2022 First Internet Bancorp Earnings Call
Hello, all and a warm welcome to the first Internet Bancorp, Inc.
Since COVID-19 for the first quarter of 2022 .
If you'd like to ask a question at the end of the presentation. You may do so at a crushing style followed by one on your telephone keypad.
Please note that today's event is being recorded.
I would now like to turn the conference over to Larry Clark from Financial Profiles, Inc. Please go ahead Mr. Clark.
Thank you Lydia good day, everyone and thank you for joining us to discuss first Internet Bancorp's financial results for the first quarter of 2022.
The company issued its earnings press release yesterday afternoon, and it is.
Available on the company's website at Www Dot first Internet Bancorp Dot com.
In addition, the company has included a slide presentation that you can refer to during the call you.
You can also access these slides on the website.
Joining us today from the management team are chairman and CEO , David Becker, and executive Vice President and CFO , Ken Lubbock.
David will provide an overview and Ken will discuss the financial results then we'll open up the call to your questions.
Before we begin I'd like to remind you that this call contains forward looking statements with respect to the future performance and financial condition of first Internet Bancorp that involve risks and uncertainties.
Various factors could cause actual results to be materially different from any future results expressed or implied by such forward looking statements.
These factors are discussed in the company's SEC filings, which are available on the company's website.
The company disclaims any obligation to update any forward looking statements made during the call. Additionally management may refer to non-GAAP measures, which are intended to supplement but not substitute the most directly comparable GAAP measures.
The press release available on the website contains the financial and other quantitative information to be discussed today as well as a reconciliation of the GAAP to non-GAAP measures.
At this time I'd like to turn the call over to David.
Thank you Larry good afternoon, everyone and thanks for joining us today.
We are off to a strong start to 2022, but before I get into the details of our results from this past quarter I would like to provide you an update on our strategic initiatives that we expect will have a meaningful impact on our future results.
We are still waiting on certain regulatory approvals required to complete the acquisition of first century that we announced on November 2nd.
We hope that something can occur next month, we are in discussions with first century to extend our outside date to close the transaction.
Over the past quarter, we began delivering on our objective to provide banking as a service to fintech companies.
We expect those relationships to translate into a combination of low cost deposits and noninterest income for us in the first quarter. We entered into relationship that has thus far generated $50 million of new deposits at a fixed cost of only 20 basis points, which is well below our average cost of funds.
The Fintech channel has special appeal to us primarily because it's a branchless bank March pre 2000, we see ourselves as an early.
We support the spirit of innovation and disruption.
Moreover, banks to offer banking as a service partnerships with fin techs are growing quicker and more efficiently than the overall industry.
We believe there are strong secular tailwind to this demand providing lives with a long runway as a provider in this sector.
We have been selective and intentional and our Fintech partner rollout, we are planning to announce a second partnership here in the second quarter and we have a pipeline of opportunities under review.
Now I will turn to our operating results for the first quarter. We reported net income of $11 2 million up 7% from a year earlier and diluted earnings per share of $1 14 up nearly 9%. We recorded adjusted net income of $12 million or $1 20.
<unk> two per diluted share when excluding non reoccurring consulting fees and acquisition related expenses.
These solid results helped us to generate an adjusted return on average assets of 1.16% and adjusted return on average tangible common equity at 12, 98%.
Loan balances were relatively flat from the prior quarter as robust growth in key lending areas such as franchise.
And construction were offset by payoffs in health care.
Owner occupied commercial real estate and public finance.
Our partnership with Apple Pie.
Fin tech oriented specialty lender that focuses on lending to the franchise industry continue to drive meaningful growth in the first quarter and our third quarter of working together, we funded $28 million in miles and now hold over $100 million in this portfolio, we still anticipate originations for the year to be in the range of a one.
Wondered $50 million and could exceed that amount because of growth oriented brands Apple pie works with achieving their targets.
As we have discussed in the past construction lending is another area. Okay. Our team continued to successfully source new opportunities during the quarter within the commercial and residential housing markets.
Close to the first quarter unfunded commitments and our construction line of business totaled $183 million, which was down slightly from the started the year, but we were pleased with the dry activity and expect outstanding balances to continue growing throughout the rest of the year.
Pipelines across other commercial lines of business, including our National SBA operations are also very strong given that SBA originations are historically lighter in the first part of the year. We are extremely pleased with where the pipeline stands today.
Our consumer lines of business also started the year on a very positive note.
In addition to growth in portfolio residential mortgage balances, we were especially pleased with growth in recreational vehicle and trailer and other consumer lines as new originations exceeded 25 million for the quarter. Despite continued inventory shortages and elevated inflation and total consumer loan balances rose four.
On a linked quarter basis.
In addition to our existing pipeline. We are actively involved in multiple discussions that can provide additional asset generation capabilities to supplement our existing lines of business. The opportunities involves strategic partnerships that cover a range of asset classes and specialty commercial lending consumer lending to.
Residential mortgage we are very excited about the growth and potential each can provide.
Our credit quality. Meanwhile, remains excellent and among the industry's leaders during the quarter our ratio of nonperforming loans to total.
<unk>, 2.25% and our ratio of nonperforming assets to total assets declined to one 7%.
Highlighting the quarter was the recovery on a single tenant lease financing relationship.
Previously had been charged off for the remaining balance transfer to other real estate loan in total we received net proceeds of $1 2 million in excess of the carrying value of the other real estate of balance, which excluding tax refund advance loan activity, resulting in net recoveries to average loans of 16.
At this point.
In 2022, we will continue to leverage our customer focused product expertise and digital service delivery to deepen relationships with existing and new customers. We will further invest in our digital capabilities prioritize recruiting and talent development and build additional collaborative partnerships with Fintech card.
And of course, we plan to integrate for century and expand our emphasis on banking as a service capabilities to further position us as a premier technology for digital financial services provider.
Summary, we are in great financial shape to continue producing strong results for our shareholders.
Proving our capabilities to serve our growing base of customers.
Before I turn it over to Ken I would like to thank the entire first internet team for their tireless work throughout the quarter.
Sure, it's a smooth integration process, while never losing focus on our hallmark customer service, our team's unwavering commitment fuels our confidence in the strength of our franchise and our ability to seize potential growth opportunities ahead.
I'm proud of what we've accomplished to date through the capacity and innovation ideas from our team members on behalf of each of them I would like to share a sincere thanks to our shareholders for their continued support with that I'd like to turn the call over to Ken to discuss our financial results for the quarter.
Thanks, David as David mentioned, we posted strong earnings to start the year with first quarter income of $11 2 million and diluted earnings per share of $1 14, which included about $1 million of additional pretax tax expense related to certain nonrecurring items.
<unk> in these items adjusted net income was $12 million and adjusted diluted earnings per share were $1 22, a decrease of seven 3% and five 7% respectively from the fourth quarter of 2021.
15, 2% and 16, 5%, respectively from the first quarter of 2021.
Profitability continued to be solid with adjusted return on average assets of $1, one 6% and adjusted return on average tangible common equity is $12 19 per cent.
As you can see from the earnings release, we participated in first centuries tax refund advance lending activity, which added some additional new moving parts to the financial results for the quarter.
If you remove this activity from our results, which included program fees that are classified as net interest income for GAAP accounting purposes, the related provision for loan losses, and a servicing fee that we paid for century, the impact was relatively immaterial and increased net income by less than $100000.
Our intent and participating in the tax refund advance lending business was not to maximize profitability, but rather to provide balance sheets support to our partner and ensure that they have efficient access to funding for the thousands of loans originated during the quarter.
Looking at slide four total loans at the end of the first quarter were $2 9 billion down slightly from the fourth quarter and down five 8% from March 31 to 2021.
David covered the highlights for the quarter from a lending perspective, including the growth in franchise finance construction and consumer lending. This activity was offset by net payoffs in our health care finance small business lending, which included PPP repayment as well as some prepayments and sales of season loans.
Owner occupied commercial real estate and public finance portfolios also contributing to the slight decrease in loan balances was the sale of $14 million of single tenant lease financing loans with a gross weighted average coupon of 351% that were sold at a gain of approximately $400000.
Moving on to deposits on slide five overall deposit balances were up modestly from the end of the fourth quarter and we continue to see improvement in the composition of our deposit base during the quarter non maturity deposits increased by $136 $6 million due primarily to approximately $100 million.
And deposits with the contractual term of five years and a fixed rate of 1.15% pursuant to a new customer relationship.
Additionally, as David discussed earlier, we generated $50 million of new banking as a service deposits during the quarter at a cost of 20 basis points.
Cds and brokered deposits continued their downward trend decreasing $97 $7 million or seven 7% as higher cost CD and broker deposit maturities were either funded with on balance sheet liquidity were replaced with much lower deposit costs.
In total the cost of interest bearing deposits declined by three basis points during the quarter.
Turning to slide six and seven net interest income for the quarter was $25 $8 million, an increase of $2 $3 million or nine 6% compared to the fourth quarter on a fully taxable equivalent basis net interest income was $27 1 million up $2 2 million or eight 9%.
From the fourth quarter.
The yield on interest, earning assets improved to $3 five 8% in the first quarter up 24 basis points from 334% in the linked quarter due primarily to the recognition of $2 $9 million of income from tax refund advance loans, which contributed 30 basis points to the increase in average loan yields partially.
Italy offset by significantly lower loan fees.
In addition, we experienced a 25 basis point increase in the yield on the securities mostly related to a decrease in prepayment activity in the mortgage backed securities portfolio.
We recorded a net interest margin of 256% in the first quarter, an increase of 26 basis points from 2.3% in the fourth quarter fully taxable equivalent net interest margin also increased 26 basis points from 243% for the fourth quarter to $2 six 9% for the first quarter.
As you can see on slide seven the 26 basis point improvement was driven primarily by a 21 basis point in contribution from loans, mostly due to income from tax refund advance loans, partially offset by the impact of lower loan fees. In addition, we experienced higher yields in our securities portfolio, which provided a bed.
Three basis points as well as lower deposit cost, which provided a further benefit of two basis points.
Excluding the income from the tax refund advance loans fully taxable equivalent net interest margin was 241%, which was a two basis point decline from the prior quarter, but was on the higher end of our forecast as a reminder, we received a fairly high amount of prepayment fees last quarter, which translated.
Due to the strong net interest margin expansion, we saw in the fourth quarter.
Looking ahead to the remainder of this year, we expect our yield on interest earning assets in the second quarter to revert closer to our results in the fourth quarter of 2021, but increased steadily as we deploy on balance sheet liquidity into commercial and consumer loan growth.
In terms of deposits, we expect deposit cost to remain relatively stable for most of 2022, given the significant on balance sheet liquidity across the industry. We don't believe increases in market interest rates will have a significant impact on our deposit pricing in the near term.
We will also be bringing approximately 300 million of low cost deposits onto the balance sheet. Following the close of the first century Bancorp acquisition.
Further Furthermore, with regard to the new banking as a service relationship that provided $50 million in deposits, we expect that balance to grow and be in the range of $150 million by year end and we continue to explore additional deposit opportunities through the banking as a service platform.
Turning to noninterest income on slide eight non interest income for the quarter was $6 $8 million down from $7 7 million in the fourth quarter. The decrease was a result of lower revenues from mortgage banking activities and a decrease in gain on sale of loans mortgage banking revenue totaled $1 9 million for the.
Quarter down $900000 from the prior quarter due to a decrease in interest rate locks sold loan volume and margins.
Gain on sale of loans totaled $3 $8 million for the quarter up 300000 from the fourth quarter and included $3 $5 million of gains on the sale of SBA loans as well as the gain on the sale of single tenant lease financing loans mentioned earlier.
We are revising our outlook for mortgage revenue for the remainder of the year given the rapid rise in mortgage rates and the ongoing limited supply of new and existing homes homes for sale across the mountain across most major markets.
We now expect mortgage revenues to be in the range of $8 million to $9 million for the full year 2022 with regard to gate with regard to the SBA gain on sale revenue, we continue to forecast that to be in the range of 13, five to $14 $5 million for the year.
Moving to slide nine noninterest expense for the first quarter was $18 $8 million the $1 8 million increase from the fourth quarter was due primarily to higher loan expenses consulting and professional fees premises and equipment and other expense, partially offset by a decrease in salaries and employee.
The increase in loan expenses was driven primarily by the servicing fees related to the tax refund advance loans that I mentioned earlier, which totaled $900000.
The increase in consulting and professional fees was due primarily to $875000 of nonrecurring consulting fees and $170000 of acquisition related expenses, partially offset by lower third party loan review fees.
The increase in premises and equipment is primarily related to costs associated with our new corporate headquarters, partially offset by the $475000 termination fee incurred in the fourth quarter.
Salaries and employee benefits expense came in lower than expected due mainly to lower incentive compensation in the small business lending and mortgage banking divisions and lower medical claims expense, partially offset by higher employee benefit costs due to annual resets.
Now, let's turn to asset quality on slide 10, as David mentioned earlier credit quality was strong again during the quarter as nonperforming loans and nonperforming asset ratios continued to decline our provision for loan losses and net charge offs were both relatively modest on a reported basis, but were also impacted by.
Tax refund advance Atlantic.
Net charge offs of $381000 were recognized during the first quarter, resulting in net charge offs to average loans of approximately five basis points.
Excluding $1 $5 million of net charge offs related to tax refund advance loans net recoveries of $1 $1 billion were recognized during the first quarter, resulting in net recoveries to average loans of 16 basis points.
The provision for loan losses in the first quarter was $791000 compared to a benefit of $238000 for the fourth quarter.
The linked quarter change was driven by the provision related to tax refund advance loans, which totaled $1 $8 million and to a lesser extent adjustments to qualitative factors that increased the overall overall allowance as a percentage of loans. This was partially offset by the $1 2 billion dollar recovery that David meant.
Second earlier, excluding the provision related to tax refund advance loans the company recognized a benefit of $1 $1 billion for the first quarter.
The allowance for loan losses as a percentage of total loans was 98 basis points at the end of the first quarter, which represents a two basis point increase from the fourth quarter.
With respect to capital as shown on slide 11, our overall capital levels remain solid at both the company and the bank our tangible common equity to tangible assets ratio decreased modestly to 877% down 16 basis points from the fourth quarter. This was due primarily to an increase in accumulated.
Other comprehensive loss, resulting from a decline in the value of the available for sale securities portfolio arising from the rapid rise in interest rates during the quarter as well as stock repurchase activity. This was partially offset by the net come net income earned as well as an increase in the fair value of interest rate swaps classify.
As cash flow hedges.
As a result tangible book value per share decreased slightly to $38.21 down from $38.51 in the fourth quarter with approximately 10% higher than one year ago.
During the first quarter, we repurchased 103700 shares of our common stock at an average price of $49 35 per share as part of our authorized stock repurchase program, including shares repurchased in the fourth quarter of 2021, we have repurchased 200 and 203000.
703 shares at an average price of $46 90 per share through March 31.
Furthermore, thus far in the second quarter, we have purchased an additional 43628 shares at an average price of $41 62 per share in total we have repurchased $11 million 400000 $11.400 million of stock under the total author.
Amortization of $30 million.
Turning to slide 12, we.
We feel we are much better positioned for a rising rate environment than we were at the beginning of the last rate tightening cycle over the last several quarters.
We have improved our deposit composition with a larger percentage of non maturity deposits, which we believe will only get better as our fintech and banking as a service initiatives grow.
We have also increased our focus on higher yielding variable rate and short duration loans, notably through both SBA and construction lending.
Furthermore, while mortgage revenue is expected to pull back from the historic high as we've seen over the last two years our investment in SBA lending is added greater diversity to noninterest income, which we expect will be further diversified as we onboard fintech and banking as a service partnerships, providing stability regardless of the interest.
Rate environment.
Overall, we had another solid quarter and continue to position ourselves well for success in future periods with that I will turn it back to the operator, so we can take your questions.
Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad now.
Joe Your question. Please press star followed by Chi.
Our first question today comes from Brett Robinson Humphrey. Your line is open. Please go ahead.
Hey, guys good morning.
Good morning.
Wanted to first ask you know if you could provide some detail on fintech relationships from here on the lending side I know, it's still early but you know I think one of the one of the questions people have is you're obviously, having initiatives to grow loans at a faster pace, but you're still having to pay off.
Offs effect.
Net balances can you give us some color on what we might expect in the back half of the year from Fintech and other initiatives from a loan growth perspective.
You know any any color on potential payoffs would be helpful. In the three portfolios that are obviously, having some atrophy.
I'll tell you what Brian .
I'll address the payoff side of it first I think obviously the.
Health care finance is going to continue to pay down I think it's been relatively consistent and it will probably continue to show that kind of same level of payoffs eventually, we'll probably get to a point where.
The refi incentive may not be there for some of the borrowers as long rates have gone up but.
But that that that portfolio will still continue to decline.
You know I think on the single tenant side, while balances were down and maybe you could do the math on it you can say that the decline was due almost entirely to the loan sale that we conducted during the quarter.
Originations new funded originations in single tenant were very strong, but there was still a little bit of elevated prepayment activity I think what we saw in that activity in that portfolio. This quarter was you had a lot of borrowers out there existing borrowers and new borrowers who were trying to gauge and tried to play.
The rate game.
Some people fell out of the process that we're trying to look at new properties and and others race to get there their rates locked in.
So I think there was a bit of a shuffle there with.
Somewhat elevated prepayment activity, but again strong origination activity again, I think looking out over the course of the year you know our pricing is with with the long rates moving up it kind of moves more into our wheelhouse on pricing and we will see originations and balances continue to grow there over the course of.
The remainder of the year.
Again, as we've talked about a number times with Apple pie.
We continue to feel good about $150 million of originations for the year there.
With normal portfolio amortization that probably leaves us in the range of say $240 million at year end.
On balances there and in fact that could go higher because of some of the some of the brands that Apple pie is working with our <unk>.
Growth oriented very popular.
We're seeing are actually you know through even even through the limited amount of time from the end of the quarter through now we've seen some very strong origination activity there.
So I think overall I think the portfolio. We have as you know there is we do have grown forecasted in our consumer and our commercial loan portfolios.
And some of the kind of strategic partnerships that we're looking at have a lot of excitement and a lot of potential growth activity well beyond that.
Rather we can't really pick out names to you on the Fintech out with any sort of take a look at but it's a nice mix of some consumer oriented products. There are some commercial products.
Not much in the line of real estate opportunities, but it is a it's a nice mix and as Ken said some of those are.
Potentially hundreds of millions of dollars that opportunity on an annualized basis.
We've got a lot of good activity in the Hopper and don't forget on the other side right now it's still much more conducive for us to sell the SBA portfolio and the secondary market due to the fees, we're receiving but as interest rates continue to climb there's a potential that the fed does everything that theyre talking about by year end.
It would be more conducive for us to hang on to those on the balance sheet versus selling so we're real confident we're going to hit the year end forecast the targets on the loan side.
And as Ken said, it's gonna be a whole combination of a lot of different moving parts, but we've got great confidence in seeing good solid asset growth over the course of the year.
Okay. That's helpful. And then wanted to talk about the margin at all.
Obviously, a lot of moving parts this quarter and into Q as well it would seem like with the first century transaction.
Improving deposit funding mix that the margin could actually stay at the product level versus kind of that core to fortyish level. This quarter do you guys have any thoughts you could share on your.
Margin expectations for <unk> and you know how much more you think seating is could run off and you know what towards the mix looks like.
You know going forward.
Yeah, I think you know as we look at it let's let's just back up first century for a minute, let's just think about the existing first internet franchise.
Looking over you know again with a lot of cash on the balance sheet rates moving up I mean, I think by the fourth quarter. You know if you say are you know ex the tax business margin was 241.
Which I think as I said in the prepared comments came in came in at the higher end of our range and as we forecast out over the course of the year with some of the asset deployment and putting cash to work.
And some optionality on the liability side of the balance sheet I think you know by fourth quarter, we're probably.
I was going to say 20 to 30 basis points of expansion, but lets just split it and just say you know 25 basis points of margin expansion in the fourth by the fourth quarter.
You know kind of incrementally from now until then I think on the liability side is again, we do have Optionality. We do have we got a limited amount of what I'd call traditional historical wire house brokered Cds maturing and we got one coming up here in a few weeks not a big dollar.
The amount about 10 million, but it's expensive.
Have some of that later in the year and I think as we also have some optionality on the FHL fee side as well as far as you know prepaying, you know with rates coming up the prepayment penalties aren't quite as onerous as they were three six months ago.
And some of those are higher cost.
That you know from a margin perspective.
Have have kind of a dual impact right, you're removing a lot of expense dollars and reducing your earning asset balance.
And then on the deposit side you know we do you know over the course of the next 12 months about call. It two thirds of our CD portfolio. What's remaining does mature a lot of those were shorter duration. So you've seen the cost of those come down, but I would say with the remix of.
Deposits more banking as a service deposits continued growth in small business money market checking accounts that the that the improvement at the composition of that changes and allows us to pick up there as well.
So I think we feel good about the different levers we have to improve net interest margin throughout the course of the year.
Okay, Great I appreciate all the color.
Thanks, Brett.
Thank you. Our next question today comes from Michael Perito of K B W.
Please go ahead.
Yeah.
Hey, good afternoon guys.
Hey, Mike I wanted to start on the the $50 million.
Thank you as a service deposit relationship that you guys brought on I guess, just a couple questions around that I guess, one was that brought in through the Saint Taro partnership or is that sourced through your own efforts in and then two can you just repeat the.
Capacity will grow to a 150 million was that bye bye you're right is that what this one relationship or is that assume that other relationships were added.
And over the span of the timeframe. Thank.
Thank you.
No that Mike that's one relationships and we had $50 million at the end of the quarter and we expect that one relationship to expand to a 150 million on its Alan.
So again, we're still again as David talked about we have a lot of opportunities under review that would be additional deposit.
Positive opportunities on top of that.
This is a relationship Mike that we brought on by ourselves, it's not the not facing terra or outs.
Outside of that it's a relationship we develop.
Got it and and and that most of the time frame on that 150 million cars did you say that or or is it just over the internet.
Media day, it'll be spread evenly over the course of the remaining course of the year.
Could you expand a minimum of 150 by year end coming at as Ken said in equal amounts.
At the beginning of the month between now and ended the year.
And is it fair to say that the deposit relationship pipeline.
Right.
Is that additive to kind of the margin story you can that you just laid out for further legacy first internet here or is that taken into account and some of the budgeting that you guys have done around around the margin in the current environment.
[laughter].
No I mean that that's where we're taking that that into account when thinking about the you know again remixing the deposit composition.
Mike window to think about we're sitting here today, it's there yet, but that's probably another 50 basis point bump up from the fed.
But we're not funding jumped up the full 25 basis points last time, if it does it again, it's gotta go from 33 basis points to 83.
And we felt no pressure to move the money market accounts you see article after article day by day that banks are still very flush with cash if we get a 50 basis point spread and we don't have or feel pressure to move our money market funds for the first time in the history of the bank will be paying 50 basis points on money market and yielding.
83, an overnight deposits I mean that.
The experience we haven't had in 23 years that is not factored in.
But that just gives you an idea of some of the movie pieces out here what impact it might have on us we're setting very watching cash.
Without including the first century monies were still.
300 million plus on our balance sheet and cash so.
Somebody does something really wacky in the marketplace, which it appears that the bank has learned a lesson last time a week.
Got an opportunity to.
I think that number is probably a little bit conservative on.
The margin increase by year end, but there is a whole lot of levers that can be pulled here over the next couple of months.
That's helpful. And then just two more quick ones for me one just on the Opex line I mean.
And as we look towards the back half of the year when when theoretically the cost of the deals closed cost savings are baked in yet you know we have some inflation do you think that kind of a mid twenties of all in blended number is still within the range of outcomes or do you think there could be upward pressure on that just given some of the inflationary environmental stuff.
I think that I think the initial assumption is it's fine I, there probably could be some inflationary, but I think I think maybe what might impact that more is just the ability what we've been doing on our own in terms of sourcing.
New partnerships.
Breaking in new technologies, I mean, I think there could there could be upward pressure, but it's because we are seeing new opportunities and we need to make new investments.
But it's kind of hard to forecast those right now so I think I just your initial assumption I think is.
Yes still valid.
Okay and then just lastly regarding the first century deal you know when we think about when the deal was announced today you know the rate environment expectations have changed dramatically and obviously they had their their tax.
Product lending revenues that flow through in the first quarter would push them.
On the fee side, which you guys didnt capture it because the deal isn't closed.
Curious if you think the balance sheet impact of any of the marks or anything could could change relative to what was initially communicated is that we should be mindful of.
I would say not really you know there you know when you think about traditional M&A you know one of your bigger marks is gonna be on your.
On your loan portfolio, but they're not really a lender I mean, I think the portfolio is down to the range of $20 million in it.
Pretty well, so I don't expect any significant kind of mark there.
We'll probably some restructuring with the securities portfolio I mean, there their portfolio has been beat up like everybody else's.
And get off the deposit side.
I mean, there probably could be some adjustment to the to the rate mark on that but I don't.
To me I don't think it really moves the needle.
<unk> in terms of all of the purchase accounting adjustments.
Great. Thank.
Thank you guys for taking my questions.
I appreciate it.
Thank you. Our next question today comes from Nathan race of Piper Sandler.
Please go ahead Nelson.
Hey, guys good afternoon.
And they see it.
Clarifying question just to Mike's last one on the.
The impact from FCB just from a tangible.
Book value perspective, and goodwill just given that the deal hasnt closed yet in FCB.
<unk> recognized a good chunk of revenue and earnings in the first quarter from their tax anticipation lending segment is it fair to assume that the goodwill number should be lower because of the retained earnings and equity components will be higher for them once the deal ultimately closes though.
Hum.
What they did they Didnt book all the revenue they had a good tax season, but in terms of the way that the GAAP accounting and the purchase accounting if you think about that what I alluded to earlier is that the.
They their securities portfolio has been beat up like everybody else's.
So I would say kind of net net we're probably in the same position as we were it's just the tax revenues.
Little bit higher, but you have an offset with the larger negative mark on the securities portfolio. So we're not going to see there is there wasn't there's not going to be a meaningful change from our initial assumptions.
We're still modest going forward at the same cost it was.
Understood.
And then just maybe thinking a little further out about the impact from FCB.
From an income statement perspective.
Would be curious to get some color on kind of other volumes turned in the first quarter I. Appreciate all the details in the deck in terms of the income statement impact.
From your kind of flow arrangement that you had with them during the first quarter when I look back at their call report data. It seems like the tax credit business in the first quarter has been anywhere between 12 million to nine.
Million dollar.
Figure for these guys is that kind of a good starting point to think about kind of the revenue impact for you guys in the first quarter of next year.
It's probably a good baseline I think what what in our discussions.
Discussions and.
You know daily discussions with them on this business I think we you know they saw good bump from from last year's activities, probably more comparable to 2019 I think the one thing that we've always talked about and you know it was part of the thesis on the merger and the opportunity to begin with is that just the <unk>.
Partnership.
Bringing the larger balance sheet.
<unk> has more opportunities.
So I think it's probably a good conservative baseline to start with but.
Where are you now and they are actively engaged in looking at new additional partners to add.
And then as you know for those of you who do follow that business, there's another aspect to.
So the revenue stream there that first century has not capitalized on in the past and that's that the payment side of it.
So we're looking at providing those services as well to the partners that they work with so.
I think I think we all feel between everybody here at first Internet and everybody in the first century side is that you know the combination of us with that brings a lot more opportunity to expand that business.
Understood.
That's helpful. Thanks, Ken.
And then maybe just one last one when I going back to <unk>.
Brents question earlier, just trying to kind of fine tune the loan growth outlook for this year I think last quarter, you guys were thinking low double digits.
Obviously, there are some moving pieces across a number of portfolios is it more kind of maybe a high single digit trajectory for this year based on kind of what was described earlier. How are you guys generally think about overall loan growth for this year.
Today, I think that I think we still feel good about the low double digit number.
Yeah like I said, we had you know we did even though prepayment activity was down relative to fourth quarter. It still was fairly strong.
But I think as we will probably see elevated prepayment activity waning in and again, we've been really really pleased with.
Tumor side with the originations there in the Rfps and the horse trailers.
And obviously you know as we've talked about Apple pie and single tenant all look really good construction as.
Fundings are those balances are forecasted to.
Funded balances to increase substantially over the course of the year. So I think we still feel good about you know kind of being in the double digit range on loan growth by the end of the year and again, that's not really factoring in any of the opportunities that David talked about earlier.
Got it.
Understood if I could just ask.
One last one just again going back to FCB.
Does the kind of delayed timing with closing that acquisition does that change the timeline in terms of when you guys intend to bring over a lot of the core deposits, which was a core component to the transaction in terms of moving to the balance sheet to at least neutral if not slightly asset sensitive position going forward.
Yeah.
Kind of do it so it can can fill in specifics on I think that the bottomline to think forward as Ken mentioned earlier.
And in the discussions we've had all along and in your common to hear the first quarter is a big quarter.
For our first century, that's when all the tax revenue and income historically.
Last nine months of the year, they've been pretty much revenue neutral, we hope that changes and they actually make a profit over the remaining nine months of the year, but we're going forward with or without that number in there and we're confident that we're going to hit.
The $4 72 forecast for this year as we've discussed here for the last 45 minutes. There are so many moving parts and pieces not here to give you guys. A clear thought we've got model after model that we've been playing with we adjust them everyday based on what's currently in the news as long as World War II.
Does it start.
We've got the 472 launch and timing on the first century is somewhat irrelevant and.
We think we're just had a great position for 2022.
A lot of the movement in the marketplace outside of mortgage is really coming our way and we think the dust to settle a lot of that has rates settled yet I can tell you. If we are forecasting. It is 30 year first mortgages up 6% or top 6% that mortgage market is going to dry up.
Very very very quickly, but shy of that and again.
So we're confident as Ken said with all the moving parts that we have other pieces that could come along and cover the mortgage shortfall. So we're locked in on the $4 72, and we think that's a rock solid number in the 2023 forecast you guys have out there for US again unless World War III starts up we think we're in a great.
Shape for those numbers as well so we're phenomenally excited about what's going on in the organization and just the new opportunities that are coming in on a daily basis.
I share in the excitement as well David I appreciate all the color guys. Thank you.
I appreciate it.
Thank you.
If you'd like to ask a question. Please press star followed by one on your telephone keypad now.
We have a question from John <unk> of Janney Montgomery Scott.
Please go ahead.
Hey, good or good afternoon guys.
Hey, John .
Hope everybody is doing well.
David just back to your just quickly back to your comment on the $4.72 for this year.
Does that reflect the dollars 14 in the first quarter or is that reflect the operating number of a $1 22.
That actually goes back to the forecast that you guys had of the.
Dollar for it and there we havent adjusted it so.
<unk>.
We got second quarter, one 2014 third quarter 126, and fourth quarter 128, we've just totally not but hadn't necessarily adjusted for the real play in these numbers because as you well know mortgage could soften up SBA could take off some of the other stuff I don't know that we're looking at a one.
2014 here for a second quarter I think that's very achievable.
But it might be higher it but I can assure you with the poor quarters come together for US. The fourth 72 has a lock number and weed.
We'd like to be a little more clear with you John but they're like from interest rates everything is moving so rapidly out here.
Ken and his guys are adjusted numbers on a daily basis, but.
And we're confident it'll take the $1 14 and roll that forward curve first quarter, we're going to hit the <unk> 72.
Okay got you David Thats fine.
I understand a lot of moving parts. He can just just back to expenses real quick I think last quarter, you talked about mid teens growth on the legacy first internet without FCB is that does.
Is that still what you're thinking kind of 15% to 17% I think you said.
Yeah, Yeah. That's that's still that's still they don't go to get it you know the.
It may come and visit the Delta may come back to the mortgage because if if mortgage continues to decline youre going to see lower head count costs, youre going to see lower salaries and employee benefits because of lower commissions there.
And probably some lower variable expenses.
Yeah.
But I think the initial assumption is still a valid wanted to go with.
Okay. Okay. Okay. Thank you guys.
I appreciate it.
And our next question today comes from George Sutton Craig Hallum. Please proceed.
Thank you, David you mentioned last quarter or $3 to four potential partnerships you didn't really give a number this quarter, but you did mention you were being very selective and I'm. Just curious if you could walk through the competitive landscape as you see it how many of these are opting for other opportunities. How many of these are you opting out of.
I'm curious from that perspective.
Give me a kind of a feel on that one George I would say in the last.
Six months fourth quarter first quarter, we probably looked at a dozen deals we've got three that are really.
Coming to hopefully to fruition here very quickly the other nine we walked away from a.
We have not lost the wanted to competitive forces I guess, you could call it some of it.
We need the SEC taro relationship some of it we do it independently.
It works. So it's it's really been our selection process not really the outside market and I will tell you I can't tell you how many inquiries that we've had.
Come in almost daily at the current time that are just not baked enough that we then take the call.
We've got a.
Dedicated a full team we have four people that their daily charges to look at and tech opportunities. They bought a whole lot come onboard and we've set this committee up here in the last six months, we didn't have at Pryor and Theyre getting phone calls on a daily basis, but we had 12 that we actually did due diligence on.
Three major caught three are still in the hopper.
<unk>.
And then the other nine week, we opted not to provide services.
Oh that is super detail. One other thing you mentioned you were making further investments in your digital capabilities could you just give us a sense of what you mean by that.
Yeah, we're looking at it we've got a new front end coming for the Internet banking, that's really focused on the small business side of things.
That's still a little rough.
Rough around the edges, a new account opening it's a 15 to 20 minute process, it's not a good smooth ability to plug in documents, there's snow Ottawa approval process and all of that is being revamped and instead of testing now hopefully a live before the end of the quarter, there's a new accounting.
Trolls, they don't Bill pay Leverages, there's a great Friday and a T. I turn on third party packages. So you could have you using quickbooks or you're using auto pay there's a whole lot of third party services. The interfaces are already there. So as a small business owner you can come to the first I'd be accounted literally take care of all your bill.
This practices. She can do payroll you can do accounting you can do a bill payment services ultimately, we went at insurance products and other tools to it.
It really is a revamp Friday and the growth of our SBA business are just small business in general 2021, we were listed as the best small business account in America, We just got the 'twenty to 'twenty two the best savings.
Savings account program for small businesses in America, we think we really have an opportunity to take that market by storm one of the things we've done more of it came out for a long time. Although you guys can appreciate a permit traditional C&I lenders don't want to see a $350000 alone you just can't.
Any money off it is the story I've heard for 20 years, we think we're close to cracking that and coming up with a system, where we can automate a lot of the processes and really truly take care of small business through smaller loans.
Credit card services.
And really get into a market that banks historically have just shied away from so a lot of neat things going on on the software side, it's not quite as crazy as my days are 20 years ago. The software business, but we got a we got a lot of activity. Most of it is all third party, we're doing some API activity on our own.
But these are third party, we're searching the marketplace finding best of breed and putting them onto our system. So it's it's an exciting time, it's a lot of fun.
Great.
Mentioned rvs horse trailers, and Apple pie driving your loan volume I say God Bless America.
That's it.
She just replay that that's the first part.
<unk> be my mind, if we had a D M in their way they had it with.
That's great.
Thank you we have no further questions in the queue. So I'll hand, the call back over to David Becker for closing remarks.
So everyone. We want to thank you for joining us today as you can tell by our comments we're off to a great start in 'twenty two looking for even a better finish. We hope you have a great day look forward to speaking with all of you again I appreciate it. Thank you.
Yeah.
This concludes today's call. Thank you for joining.
You can now disconnect your line.
Uh huh.
Okay.
Okay.
Okay.
<unk>.
Okay.
Sure.
Yes.
[music] et cetera.
Okay.
Okay.
Okay.
Okay.
Okay.