Q2 2022 FB Financial Corp Earnings Call
Speaker 1: The and I that.
Speaker 2: Good morning, everyone, and welcome to FD Financial Corporation's second quarter 2022 earnings conference call.
Speaker 2: Hosting the call today from F.B. Financial is Chris Holmes, President and Chief Executive Officer. He is joined by Michael Mati, Chief Financial Officer.
Speaker 2: Please note, FD 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.firstbankonline.com and on the Securities and Exchange Commission's website at www.fcc.gov.
Speaker 2: Today's call is being recorded and will be available for replay on FD Financial's website approximately an hour after the conclusion of the call.
Speaker 2: At this time, all participants are in a listen-only mode. The call will open for questions after the presentation.
Speaker 2: With that, I would like to turn the call over to Robert Hoehn, Director of Corporate Finance.
Speaker 3: Thanks, Jimmy.
Speaker 3: During this presentation, FB Financial may make comments which constitute forward looking statements under their federal security laws. All forward looking statements are subject to risks and uncertainties in other facts that may cause actual results in performance or achievements of FB Financial to differ materially. From any results expressed or implied by such forward looking statements. As many of such factors are beyond FB Financial's ability to control or predict and listener's precaution, not to put under your lines on such forward looking statements. Not to put under your lines on such forward looking statements.
Speaker 3: A more detailed description of these and other risks contained in FB financials, periodic and current reports filed with the SEC, including FB financials, most recent form 10K. Except is 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 other ones.
Speaker 3: In addition, these remarks may include certain non-GAAP financial measures as defined by FCC regulation genes.
Speaker 3: a presentation of the most...
Speaker 3: And directly comparable GAAP financial measures and a reconciliation of the non- GAAP measures to comparable GAAP measures is available in FB financial 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.firstbankonline.com and on the FEC's website at www.suc.gov.
Speaker 3: I would say we have heard that the presentation up in the course call app is the prior quarter's presentation. The current presentation is available on Edgar as well as our investor relations website. At that point, I would now like to turn the presentation over to Chris Holmes, ESSI Financials President and CEO .
Speaker 4: All right, thank you Robert. Good morning everybody. Thank you for joining us this morning. As always, we do appreciate your interest in FBA Financial.
Speaker 4: For the quarter, we reported EPS of 41 cents, an ROAA of.62 percent, and an RO, return on average, tangible common equity of 7.1 percent. Adjusted for 12.5 million of mortgage restructuring charges and 2 million of negative mark-to-market adjustment on our commercial loan self-portfolio, we delivered adjusted EPS of $2.5 million.
Speaker 4: 64 cents share.
Speaker 4: adjusted ROAA of 0.97%, adjusted return on average tangible common equity of 11.0%.
Speaker 4: Those returns are a little below our standard, but with some good reason. In the quarter signal, some momentum that has us costly optimistic. We've grown our tangible book value per share and port of measure for us, excluding the impact of the AOCI at a compound annual growth rate of 15.2% since our IPO in 2016. Since our IPO in 2016.
Speaker 4: The bank had a very strong quarter of balance sheet and core profitability growth. While mortgage had a challenging quarter, they continued to adjust for expected future market conditions. There are a few items that I want to highlight for the quarter.
Speaker 4: At $619 million or 31% annualized loan growth was historically strong. While our markets and relationship managers, with our markets and relationship managers, the asset generation is not a problem.
Speaker 4: In the last 12 months, we've grown loans by 1.4 billion or 20 percent while not loosening our underwriting standards or expanding our credit box. Republican Senate
Speaker 4: In fact, in the second quarter, we became more selective in our credit process.
Speaker 4: In the second quarter alone, we estimate that we passed on well over $400 million in construction loan opportunities.
Speaker 4: and those projects that we viewed as responsible credit opportunities that generally met our underwriting standards, but we've passed as we've managed our construction concentration down in the current economic environment. 4 ?? PROCES
Speaker 4: We also continue to see good activity in our non-experienced deposits. Excluding our mortgage escrow related deposits, we grew 16% link or annualized. You're over year excluding mortgage escrow deposits. We've grown our non-experienced deposits by 19%.
Speaker 4: Growing 9th bearing operating account relationships is a strong focus for us and our relationship managers continue to execute well on that goal.
Speaker 4: While we saw another good quarter, non-experient growth, we saw pressure on our interest bearing deposits, which declined about 565 million in the quarter. So Chrysler looks up the quarter, all bonds of interest here and the dollar fourth, the e-mail, and the fourth. And here, the Bill he's going to have this?a Morales- negotiations debate. So all of the countries we are Senator Ch ??? approve,just??angir o order.
Speaker 4: But that $565 million, we asked me that just over 200 million of that $2 million of that was in seasonal public funds to clients that should come back into the bank as part of the annual business cycle.
Speaker 4: We had an additional 325 million in larger balances move for higher rates that we chose not to match. And 120 million of that was also public funds relationships. And 120 million of that was also public funds relationships.
Speaker 4: We have another four million in high rate public funds that we expect to exit in the second half of the year since we don't intend to renew at the current terms.
Speaker 4: We went into 2022 with a goal of growing non-interest bearing deposits and holding our cost deposits down, understanding if we'd call our cost of deposit bounces to move lower. We've executed on those goals. At 82% a loan shelter investment to deposits at the end of the second quarter, we write side the balance sheet while improving the composition of our deposit portfolio. At the deposit bounces, we have moved lower.
Speaker 4: And as that's particularly loans have grown passively expected, we will need to raise the positive in order to fund a loan growth.
Speaker 4: But as we've historically done, we'll increase our customer relationship deposit balances and have little reliance on wholesale funding and select use of public funds relationships.
Speaker 4: Our asset quality remains strong as our NDA, SASSS and NPLs to loans, HFI remain defectively flat at 46 basis points respectively.
Speaker 4: Despite the lack of issues that we see in our portfolio, we do remain cautious in our outlook of future economic conditions. As a result, we maintained our 1.46% allowance for credit losses to loans held for investment.
Speaker 4: Paired with our loan growth, this resulted in a provision expense of 12.3 million per quarter, which compared with a release of 4.2 million in the prior quarter. That difference of 16.5 million between the two quarters accounted for a delta of 26 cents in earnings per share at the core.
Speaker 4: We also further reduced our commercial loans health for sale portfolio this quarter. Our exposure is down to four relationships and $37.8 million. Each of the remaining relationships are sponsored by health care companies.
Speaker 4: Three of those full relationships are performing well, while one has been written down to 10% of par and has only $1.3 million of credit exposure remaining. For agents like this, please welcome Creation to tell us how it looks like. remaining.
Speaker 4: We had a negative market of $2 million in the quarter with that one former, I'm sorry, with that one non-teformer. I just mentioned...
Speaker 4: accounting for $3.6 million loss and the remainder of the portfolio delivering a $1.6 million gain for the net of $2 million for the quarter.
Speaker 4: As we're close to being completely out of this portfolio and we've provided updates on it each quarter, it's important to note that since the close of the Franklin merger, we've realized gains of $12.2 million above our initial market market.
Speaker 4: Outside of the large provision expense and the market to market on the commercial loans held for self-profility, profitability for the banking segment this quarter was exceptional.
Speaker 4: We saw our year-over-year growth and adjusted banking segment PTPP of 36.1%. Back growth has been driven by strong loan growth and our margin benefiting from our asset sensitivity.
Speaker 4: We see those underlying trends largely continuing over the coming quarter, which should deliver continued strong loan growth and core profitability for our banks.
Speaker 4: Mortgage continues to face a difficult environment and delivered an adjusted operating loss of 2.7 million during the second quarter. We've materially completed the wind down of our direct consumer channel and made initial structure change and changes to our retail channel. However, with the market conditions that we anticipate over the foreseeable future, our remaining retail channel will need to continue to make adjustments over the coming months. We're going to make adjustments over the coming months.
Speaker 4: face a difficult environment delivered and adjusted operating loss of 2.7 million during the second quarter. We've materially completed the wind down of our direct consumer channel and made initial structure change changes to our retail channel. However, with the market conditions that we anticipate over the foreseeable future our remaining retail channel will need to continue to make adjustments over the coming months.
Speaker 4: Lastly, we were more active in our share repurchase this quarter than we have been historically. Well, our stock trading, what we believe were attractive valuations. We repurchased $26 million during the quarter. We were glad to retire those shares when we did, but with the loan growth that we are experiencing in the economic uncertainty of the coming quarter, if we're not likely to be active in our repurchase program in the near term.
Speaker 4: As we look to the second half of the year, we anticipate loan growth slowing from the extreme levels that we've seen in the first half of the year to a more reasonable high single digit, low double digit range over the last two quarters of the year. Our local economies continue to be very strong and we see continued demand from our customers, but we intend to be disciplined on pricing given inflation and the general economic headwinds anticipated in the new year.
Speaker 4: We've been able to upgrade our risk and compliance and finance and accounting teams with numerous associates that have held leadership positions at larger public banks across the southeast that have been recently acquired or going through the process of being acquired. Michael and I continue to be impressed with the quality of resumes coming across our desks and we continue to put people in place that will allow us to double or even triple the size of a company.
Speaker 4: We also continue to have positive conversations with relationship managers across our footprint that are evaluating new homes. We've hired 32 revenue producers to the first two quarters of the year, and those have been in every region across our footprint. With our younger executive team, our $12 billion asset balance sheet, and strong organic growth prospects, we provide exceptional runway for relationship managers to come and spend the rest of their careers first bank.
Speaker 4: As an update on M&A, right now we have too many impactful internal initiatives to distract the team with broad auction processes at this point. And with the pullback in the market and bank valuations, that activity has slowed anyway. We do continue to have dialogue with high quality banks across our geography and contiguous geographies.
Speaker 4: that have indicated they may be seeking a partner over the coming months or years. We don't control that timing, but we do have active conversations.
Speaker 4: And anything we're considering at this point would be with banks we know well and geographies that we know well.
Speaker 4: Finally, our innovations group continues to have discussions with Fintech and other technology companies. As customers, we look for vendors that can provide the standard technology benefits of improved back office efficiencies while making sure we're up to date with table stakes for our customer experience.
Speaker 4: As investors, we focus on areas where we have deep niche knowledge and can provide value and a partnership above and beyond what other investors would be able to provide, such as mortgage or manufactured housing.
Speaker 4: We're also interested in the propaganda strategies that can supplement our traditional local community bank customer base. With that, I'll now turn it over to Michael to discuss our financial results in some more detail.
Speaker 4: Thanks, Chris, and good morning, everyone. I'll speak first to this quarter's results in our banking segment. Our baseline run rate pre-tax pre-provision income for the banking segment was $53.9 million in the second quarter. According to the segment core efficiency ratio reconciliations, which are on page 19 of the slide deck and page 19 of the financial supplement, we had $102.9 million in segment tax equivalent net interest income this quarter.
Speaker 4: Along with that $102.9 million in net interest income, we have $12.8 million in core banking segment non-interest income.
Speaker 4: Finally, we have $59.43 million in banking segment on its success. not if you're sick.
Speaker 4: This quarter, due to our lower level of taxable income, we had a geography shift of $1.4 million as tax credits were made from a reduction in our tax expense to instead be a reduction in non-interest expense.
Speaker 3: We also had a true out there resulted in a 1.1 million reduction in reported non-interest expense this quarter. Adjusting for those shifts, core banking segment non-interest expense would have been $61.8 million. Together, that comes to our $53.9 million in run rate segment PTPP, which has grown 30.5% over the comparable $41.3 million that we delivered in the second quarter of 2021.
Speaker 4: Moving on to our net interest margin with summary detail on page five of the slide deck, our net interest margin of 3.52% shows significant improvement from the 3.04% that we reported in the first quarter.
Speaker 4: Part of that improvement was due to our accretion and non-accrual collection interest returning to a de minimis impact of positive two basis points in the quarter compared to negative seven basis points in the first quarter.
Speaker 3: Another driver with our balance sheet mix is declining deposit balances and strong loan volume and interest bearing cash to be a smaller percentage of our balance sheet.
Speaker 4: We estimate that excess liquidity had only a 14 basis point negative impact on our margin in the second quarter compared to 29 basis points in the first quarter.
Speaker 4: The remaining 20-year-set basis points of expansion was due to assets replying faster than our liabilities as our cost of total deposits increased by only five basis points, where our yield on loans, excluding non-accrual and purchase accounting increased by 25 basis points. Our securities portfolio increased by 12 basis points, and our interest bearing cash increased by 42 basis points.
Speaker 3: Looking forward.
Speaker 3: For our margin, we had a run rate margin excluding the impact of liquidity for the month of June and the 3.7% range.
Speaker 4: We have only 239 million of our approximately 4 billion and variable rate loans above their floors as of June 30th. And that 239 million should be roughly cut in half after the next rate hike later this month.
Speaker 4: We get a pretty sizable bump in the yield on our variable rate loans on the day of a rate hike, and they get a lingering benefit as loans hit their various contractual re-pricing sites.
Speaker 3: As an example, for the last 75 basis point increase, we saw roughly a 30 basis point increase immediately, and from June 16th to July 7th, we saw another roughly 20 basis point increase and yielded on our variable rate loans.
Speaker 3: We've also intentionally kept our securities portfolio smaller at the percentage of our overall balance sheet and have kept our duration fairly short. We have around 200 million of cash loads coming off the portfolio and available for investment annually. We've been available for investment annually. We've been available for investment annually.
Speaker 4: Offsetting some of that sensitivity going forward will be higher deposit costs. In the month of June , we had a cost of interest-bearing deposit to 41 basis points compared to 33 basis points for the quarter. And we've done a good job so far of keeping our beta low.
Speaker 3: However, we expect costs to accelerate every second half of the year as competition for deposits increases. •
Speaker 3: For banking segment non-itre-syncom with the German cap on interchange, beginning to impact it says it's a delab first, we expect for our banking non-itre-syncom to be in a 10 million to let a million range from quarter to quarter every that the stable teacher.
Speaker 4: As I mentioned earlier, we view our run rate core banking segment non-interceptive being 61.8 million, where it's reported 59.3 million, due to the 1.1 million of true up and 1.4 million of state tax credit that were shifted by the law and reduced on its expensive quarter.
Speaker 3: We say continued growth in our banking segment, none of those expenses. As Chris mentioned, we have tremendous opportunity to add talent by customer facing and back office roles, and we are continuing to build an infrastructure that will allow us to capitalize on these opportunities in front of it in achieved strong organic growth. We are continuing to build an infrastructure that will allow us to grow and grow. We are continuing to build an infrastructure that will allow us to grow and grow. We are continuing to build an infrastructure that will allow us to grow and grow. We are continuing to build an infrastructure that will allow us to great.
Speaker 3: There's opportunities to have us planning to add approximately two to two and a half million an experiment in each of the next two quarters.
Speaker 3: In addition to expected growth from the $61.8 million over the remainder of the year, we also expect our segment non-interest expense to be elevated in either the third or fourth quarter as we create enough taxable income to move the state tax credit back to the tax loan.
Speaker 3: Once we hit that threshold, we would reverse the 1.4 million bid herman rate to update xXX900 on such as the driver and the root for properly ordered.
Speaker 3: As you would expect, that $1.4 million in movement of the tax credit was also the culprit for our higher tax rate this quarter.
Speaker 3: For the year, we expect our effective tax rate to be in the 22% to 23% area.
Speaker 3: When the tax credit reverses up a non-interest experience and makes that line item higher, it will reduce our tax rate and allow the normalize levels in the same quarter.
Speaker 4: Moving to mortgage, the environment continues to be exceptionally difficult. As retail channel log volume is down 18% of the second quarter compared to the first quarter, it is expected to be down in additional 2020 to 25% in the third quarter compared to the second quarter.
Speaker 3: We've made structural changes to our remaining mortgage operations to caper lower volumes, but with it continuing to climb, we will need to make further changes to reposition ourselves.
Speaker 3: but do not expect a positive pre-packed contribution for mortgage in the second half of the year.
Speaker 3: Moving to our allowance for credit losses, we saw a HCL to loans to climb by only four basis for its quarter afterbie isso? servers, many of the employees said the first account was declared as here yesterday, in secure reports as previously issued. Thrown down by warranty businesses due to post stress pierwszy was issued. call police has gotten a 30 min haven't sent out of the official money inadvertently, according to infinitypiej fo? ??? it ??? you
Speaker 4: Economic forecast for the second quarter did not move materially from those that we utilized in the first quarter. However, they did get more negative in the July release, and our optimism about our local economies is being tempered by uncertainty due to the inflation that we're experiencing and the general national narrative that we will soon enter into a recession if we're not already in one.
Speaker 3: If conditions do not change, we would anticipate maintaining a similar level of ACL to loans held for investment over the near term.
Speaker 3: I'll close my section by speaking about our manufactured housing portfolio.
Speaker 3: For those that are unfamiliar with our manufactured housing portfolio, we acquired that business line with our Clayton Banks merger in 2017. If you recall Clayton Banks' trust was named for a founder, Jim Clayton, considered by many to be the father of manufactured housing and the founder of Clayton Homes, which was acquired by Berkshire Havaway for $1.7 billion in 2003.
Speaker 3: That background to say our manufacturing housing team has a long history in the industry and learned the business from the best.
Speaker 3: Today, RMH business has three revenue streams. In a quarter end, it had roughly 520 million total loans, or 6% of the overall portfolio.
Speaker 4: The first line is our community's portfolio, which has $265 million of the $520 million in loans.
Speaker 3: The community's business is a strong portfolio sophisticated operators who sometimes we refer to as multi-family investors, but with a horizontal department design.
Speaker 4: These are loans with significant cash equity positions.
Speaker 3: Long-term season operators who have been and continue to be the beneficiaries of an effort to train affordable housing across the country.
Speaker 4: The second piece of our MH business is our portfolio of loans to the owners of the manufacturer and themselves, which we call our MH Retail Portfolio.
Speaker 3: We have approximately 245 million in MA retail, or just less than 3% of archival loans.
Speaker 4: Typically, these are classified as channel loans and the majority of those balances that are sitting in our consumer and other categories. The majority of those balances are sitting in our consumer and other categories.
Speaker 3: The average flight average for these portfolios is 663 and the average note size is about $50,000.
Speaker 3: that the size of new origination has been increasing as manufactured having to send the same material cost increase as site build homes.
Speaker 4: As you might expect, past news and charge offs are higher than the segment than the rest of our portfolio. With the only particular reason that we have here from the 4% to 8% in a given month.
Speaker 4: In a normal credit environment, we're accustomed to seeing annual charge offs in the 50 basis point area.
Speaker 4: In bad markets, that can move to around 1%. However, during the pandemic, we put a qualitative reserve of 5% on the portfolio, so we feel well protected. And with yields and excess of 8%, this is a very profitable portfolio for us, and we're excited for it to grow.
Speaker 4: Our third revenue stream for MH is our servicing book where we service the retail loan pool total years and some of our MH community customers. This is strictly a fee-based business, no balance sheet grip, no credit risk.
Speaker 4: Yes, everything portfolio is.
Speaker 4: Then with that, we'll turn the call back over to Chris.
Speaker 4: All right, thanks Michael for that color. We're pleased that our results from quarter of Check the Browse team for the long growth. And that will conclude our prepared remarks. And in our brave this point we'd like to thank questions. Thank you.
Speaker 2: Ladies and gentlemen, at this time we'll begin the question and answer session.
Speaker 2: to join the question queue you may press star and then one using a touch to a telephone to withdraw your questions you may press star and two.
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Speaker 2: Once again, that is star and then one to join the question queue.
Speaker 2: Our first question today comes from Matt Olney from Steven. Please go ahead with your question.
Speaker 5: Hey, good morning guys.
Speaker 4: Good morning, Matt. Hey, Matt.
Speaker 5: I want to ask more about the construction portfolio. I think it's now around 18% of the loan mix, which would put the bank at the higher end of the range in terms of just the mix. But I think you also said you passed on quite a few construction loans this quarter. So just trying to appreciate it if you're trying to manage this down from this 18% or trying to prevent this from moving higher. And then I guess within that segment, we'd love to hear any commentary you have about the...
Speaker 5: which construction segment you're keeping an eye on in this environment. Thanks.
Speaker 4: Yeah, Matt, I'm going to Chris, I'll go first. And first, I'll just manage the overall concentration. And first, I'll just manage the overall concentration.
Speaker 4: Good morning, Chris. I'll go first. And first, I'll just imagine the overall concentration.
Speaker 4: You know, we do look at the guideline or we certainly pay attention to the guideline of 100% of risk-based capital. And today we're over that. We've been signaling that we would go over that because as you know, most of these construction loans you will make and you might not have draws on them for quite some time. And so you're always trying to project where that balance is going to be. You don't know exactly when the project will come.
Speaker 4: pleat either and you're going to certificate of oxygraphe, oxygraphe, which is when they roll out of construction. So it's up to const up monitoring process. And so we have been looking at that actually for several quarters. And if you look at our availability of undiscubing funds, our commitments that are.
Speaker 4: that are not drawn on at this point. It's actually moved down for us each of the last couple of quarters. And so we've been monitoring what goes into that. So yeah, we monitor that. Just as a general, it's kind of difficult.
Speaker 4: And I alluded to that in my comments. We're seeing good projects, but we just have to manage the concentration down because we see given the, our geography and given the attractiveness of what's going on in the growth and the immigration in our geography, we continue to see some good projects, but we're just managing that down to. We're just managing that down to.
Speaker 4: limits concentration is really what's happening there. And then on the other, you guys have comments on anything. And then you did ask, what are we particularly keeping an eye on? and how often do we have any comments to answer?
Speaker 4: If there was anything...
Speaker 4: that I've probably got the closest eye on, I'd say it's office, just in the geography. I think it's still not quite known how...
Speaker 6: me
Speaker 4: Office segment handles COVID, we did just have an announcement. There was a national announcement, but it was, we were one of the markets that had an impact from the Amazon announcement where they said they were halting construction. I think it was on six buildings, six office buildings where they were reconsidering the layout of the office buildings. And one of those is here where they, they've,
Speaker 4: They've said, hey, we're continuing to bring on the people. We just want to take a breath and look at how we're going to reconfigure that for the new work from home, you know, work environment. So that's one that we have been watching closely. I'd say the other is...
Speaker 4: to bring on the people. We just want to take a breath and look at how we're going to reconstruct reconfigure that for the new work from home, you know, work environment. So that's one that we have been watching closely. I'd say the other is
Speaker 4: You know, the others actually have been pretty good for us. We've seen good projects and pretty much all the segments. So you guys anything further to...
Speaker 4: Okay, that helps.
Speaker 5: Yeah, that's great, Chris. I appreciate that. Good color. And then I guess switching gears, also going to ask more about.
Speaker 5: deposit balances. I think you mentioned part of that
Speaker 5: the deposit balance contraction in two q their worsen seasonal pressures there But I guess beyond seasonal pressures will love to hear more about kind of what you're seeing with deposit balances and it sounds like we shouldn't participate additional public funds coming down again the third quarter. I think you mentioned that just we'll have to get your take on expectations for total deposit balances in the back half the year if they should contract incrementally or if you expect those to turn positive
Speaker 4: Yeah, sure. So on public funds, there've been a lot of public funds out there and it's been really cheap over the last couple of years as...
Speaker 4: as municipalities, as states, as all the government entities have just been flooded with money from our federal government, then those deposits have headbanged balance sheets. You haven't, they've been cheap for banks, and so they basically have sat on the balance sheets. Sometimes, frankly, they had a loss by the time you collateralize it. We've let them sit on the balance sheet. You saw where our margin was last quarter compared to this quarter.
Speaker 4: But frankly, we knew that once rates moved up, that we weren't going to be keeping a lot of those because we weren't interested in keeping a lot of those. We also had...
Speaker 4: A couple of larger public funds.
Speaker 4: relationships that came to us, the acquisition that we were, that were not very profitable for us. And so those were also ones that we said, you know, on the time was right, we would let those go. And so we've been filtering through that. It's also the comment that I made in my prepared remarks about the composition of our deposit book being improved.
Speaker 4: And so that's where that comes from is we are. And so we've still got a little bit of money sitting on the balance sheet. Say a little bit. But I mean it's, you know, it's.
Speaker 4: you know, close to $3.00 million that we think will probably exit. Again, it doesn't result to rate, but you know, historically, if you look at our department, it says we place almost no reliance on wholesale funds. And then when we do have public funds, then it's usually operating relationships that we've got at reasonably priced. And so...
Speaker 4: So just some remix there is what we're going down to. And it also is noted, you know, it does come at a time. It's pretty good for us in terms of where we are from along the deposit ratio. But you also heard me say, you know, you're going to see slower long growth, luckily for us, slower long growth means 10 or 12 percent, you know. And so that will allow us to sort of.
Speaker 5: We've continued to remix and reprice on the deposit side. Chris, that's helpful. I guess the other part of that would be just the overnight liquidity position has come down a little bit over the last few quarters. We would love to hear more commentary about how you expect to fund long growth the back half of the year, whether it's deposit growth or excess liquidity. In the longer term, where do you see that overnight liquidity position going?
Speaker 4: Thanks. I'm at this Michael Morton. Yeah, I mean, yes, we did see a large drop in excess liquidity due to the funds funding of the loan rate 619 million and then also the deposit run off the crystal's mention. Thank you.
Speaker 4: I think you'll see a little bit more pressure on liquidity and Christmas and public funds rolling back out, but I would say that was normalized relative to the last couple of years. We've been running excess for good two, three years here and so kind of back to limits that we would have expected back in 2019 range. You will see a focus on deposit generation in the area of Christmas and 10th of all for sure.
Speaker 4: Lone growth, we expect to fund the relationship deposits. So if you think about that, we talked about our deposit cost being relatively low, increased quarter, every quarter. And so I'd expect to see that accelerate. Our betas will be a bit higher or possibly materially higher. You have to kind of catch up. We've been very fortunate. And as we said, it was our plan to let somebody's deposits run down.
Speaker 4: keep our costs low and take advantage of some of that excess liquidity. So in the back half of the year, I think you'll see us move a bit more in line with interest rate increases to not only maintain our current deposits on interest bands but grow some as well.
Speaker 4: I'll add one thing to that, Matt, and that is that our traditional public funds that we have had on the balance sheet for a long time bottom out generally in the second quarter and then they begin to build back in the third and fourth. And so we expect those to build back some over the third and fourth as well. So, thank you.
Speaker 4: we could like when we go out.
Speaker 4: like when we go out.
Speaker 4: With, I'm not talking about crazy above market rates, but when we go out with pretty good deposit proposition, our customers and our relationship managers respond very well.
Speaker 5: Okay guys, thanks for the commentary, be sure to.
Speaker 4: Thanks, Matt.
Speaker 2: Our next question comes from Brett Rabbitin from Hawkeeg Group. Please go ahead with your question.
Speaker 7: Hey guys, good morning.
Speaker 4: Good morning, Brad.
Speaker 7: One of the first, just talk about the loan growth, the $620 million, obviously extremely impressive. Wanted to hear any color you could give on how much of that was new versus existing clients and then how much of that would have been fixed versus floating production.
Speaker 4: Yeah, good questions.
Speaker 4: A strong majority of that would be existing clients.
Speaker 4: So I'm not sure exactly the percentage that would be existing versus new, but a strong percentage of it would be relationships with existing, would be existing relationships, a strong majority of that.
Speaker 4: And then fixed versus variable is close to 50 feet, right? 50-50, we're right at 50-50 in the lone portfolio. And what came on in the quarter? We're right at 50-50 also. And we're right at 50-50 also.
Speaker 7: Okay. And just given Chris that a lot of that production was existing customers, I'm curious to hear your thoughts on the, you know. I'm curious to hear your thoughts on the, you know.
Speaker 7: perception or ability to possibly grow through a recession and there's been some talk with that with some other larger banks about using a recession as an opportunity to move market share continue to grow through a recession. I think Michael mentioned you know would are we in a recession or not. Assuming we are in a recession next year.
Speaker 7: You know what happens to that high single digit low double digit number. How would you change? If anything, how you're doing when you're writing.
Speaker 4: Yeah, and so being with changing on the long underwriting.
Speaker 4: He ain't in, in already.
Speaker 4: I'd say it's actually already gotten a little more stringent in terms of
Speaker 4: And I don't want to send the wrong message there. It's not like we're back in down the hatchet or anything like that. We're absolutely open for business and we are. Ok, fine, come. Thank you. you
Speaker 3: expectations out there. Have you seen any changes from bank examiners or regulators in terms of things there looking a lot closer at whether it be certain capital level, certain liquidity levels, certain kinds of lending they're digging into or concentrations that's different and say a few quarters ago.
Speaker 4: From a regular poorest standpoint, I don't know that's seen anything different.
Speaker 4: I'll say this, being over the $10 billion threshold, we've seen a lot of things that are different from a regular, with regulators. And so, but, trying to segment those from above the 10 billion threshold into things maybe caused by the environment, I can't say that I have. Thanks.