First Internet Bancorp Q1 2023 Earnings Call
Good day, everyone and welcome to the first Internet Bancorp earnings Conference call for the first quarter of 2023, My name is Jason and I'll be the moderator for today's call.
All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
If you'd like to ask a question. Please press star one on your telephone keypad.
Please note that today's event is being recorded.
I would like to turn the conference over to Larry Clark from financial profiles. Please go ahead Mr. Clark.
Thank you just saw and good day, everyone and thank you for joining us to discuss first Internet Bancorp's financial results for the first quarter of 2023.
The company issued its earnings press release yesterday afternoon, and it's available on the company's website.
In addition, the company has included a slide presentation that you can refer to during the call.
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 then discuss our financial results then we'll open the call to your questions.
Before we begin I'd like to remind you that this call. This conference call contains forward looking statements with respect to the future performance and financial condition of first Internet Bancorp.
Involve risks and uncertainties.
Various factors could cause actual results to be materially different.
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 as we discuss our first quarter 2023 results.
Before we walk through the financial and operating results for the quarter I would like to start with some comments regarding the sustainability and resilience of our business in light of the stunning external events during March and the challenges faced by the banking system, you'll find these points on slide three in the earnings presentation.
First continued outflows in deposits in the banking sector during the quarter.
Brought deposit retention and liquidity to the poor print.
Internet bank increased deposits by $181 million or five 3% and year end earlier in the quarter. We took advantage of consumer demand proceeding and brought in over $200 million in new CD volume, allowing us to build liquidity pricing below forecasted increases in the fed funds rate.
The demand for CB to remain fairly strong later in the quarter as well.
You also had the opportunity to increase certain larger deposit relationships.
Calculated growth allowed us to easily in the door and a decline in money market balances some of which was due to outflows to money center banks in the U S Treasury market.
While we experienced a modest decline in deposits from mid March through quarter end balances have rebounded and a wrap of $135 million thus far in the month of April .
As of March 31st nearly 75% of our deposits were covered under FDIC insurance the percentage increases to over 80%. When you exclude public fund deposits that are either insured or collateralized and other deposits under contractual agreements.
The volatility in the banking industry. There in March on balance sheet liquidity remained strong and we did not need to access any.
Any additional borrowings from either the federal home loan bank or any of the new emergency facilities established by the Federal reserve in response to the events there in March another.
Another hot topic at the moment is office commercial real estate exposure.
Within our commercial portfolio office exposure is limited to suburban and medical office. There is no central business district exposure and overall it represents less than 1% of our total loan portfolio.
Our capital levels remain strong with tangible common equity to tangible assets was 747% and a common equity tier one capital ratio of 10, 35% at quarter end, our securities portfolio has not been immune from the impact of higher interest rates, However, regulatory capital ratio.
<unk> remained well above minimum requirements.
After adjusting for unrealized losses in the securities portfolio.
We did not go all in on buying securities back in 2020 in 2021 with excess liquidity when rates were at an all time low as a result total unrealized security losses, only represent 13, 3% of our tangible shareholder equity at quarter end.
More tangible book value per share was relatively stable at $39 43 sites.
This brings me to our financial and operating results, which are highlighted on slide towards the presentation for.
For the first quarter 2023, we reported a net loss of $1 3 million and diluted loss per share of <unk> 14.
The loss for the quarter can be largely attributed to two events.
First we had a partial charge off of a $9 8 million commercial and industrial mode based on events, we've lined up after the end of the quarter the partial charge off with $4 7 million, which amounts to <unk> per share impact of 41 set.
We'll come back to this loan into credit quality generally in just a moment.
Our results for the quarter also included $3 1 million of mortgage operations and exit costs and about 100000 of mortgage banking revenue.
January we announced our plan to exit this line of business.
<unk> substantially all of originations that we are in the pipeline.
Costs associated with winding down the line of business were generally in line with our guidance and had a per share impact of 26 cents.
Adjusting for these two discrete items net income was $4 eight.
And earnings per share 53.
As in line with analysts' expectations.
In terms of our core operation performance for the quarter reflects the execution of our strategy, we discussed last quarter.
We focused on controlling what we can control and so we look to expenses, excluding mortgage costs operating expenses across the organization declined three 3% from fourth quarter of 'twenty two.
We have also focused on positioning the loan portfolio to generate increased revenue in future periods.
The variable rate lending and construction investor commercial real estate, and SBA and higher yielding fixed rate lending franchise finance and consumer lending.
During the quarter the weighted average yield on new funded originations was 776%, which was up 161 basis points over the fourth quarter of 2022.
The composition of the loan portfolio continues to migrate towards a more favorable mix.
Variable rate and new production at higher rates, we continue to believe that we will.
We are well positioned to achieve higher earnings and profitability in future quarters. Once the federal reserve its terminal fed funds rate.
Commercial loan balances were up $89 million, three 3% compared to the prior quarter as cash flows from longer term fixed rate products will redeploy to support growth in franchise finance small business lending construction and investor commercial real estate.
Consumer loan balances increased $23 1 million or three 1%.
Paired to the prior quarter as trailers are the and other consumer loan production remained solid despite the higher interest rate environment.
With regard to asset quality I would like to provide some more color around the C&I loans that we partially charged off.
This particular account had some participation through a program we have been a part out for about nine years that allows smaller banks access to the leverage loan market <unk>.
Historically these loans have performed exceptionally well for us with only about 20 basis points of cumulative losses over the nine year period up to this point.
This loan begin to demonstrate some weaknesses and was moved to nonaccrual status in the first quarter.
Our credit team is highly engaged with the program manager on resolution strategies, the borrower and the lender would require evaluated subs.
Subsequent to quarter end, we were made aware of developments related to these resolution efforts that made it clear in our opinion, along with impaired which resulted in the partial charge off.
Through this program, we had only $11 8 million of other loans. In addition to this credit outstanding at quarter yet.
$2 million of which has been paid off in full in April .
<unk> credits are performing well and we see no signs of potential problems on the horizon.
Despite the developments on this particular and lowered our overall levels of nonperforming loans to total loans of 32 basis point nonperforming assets to total assets of 24 basis points still relatively low compared to the rest of the banking industry.
Furthermore, delinquencies 30 days or more past due declined during the quarter 13 basis points, while net charge offs.
The effect of the partial C&I charge offs remained low at three basis points of average loan balances.
To wrap up the credit discussion I want to emphasize that we believe that participation credit discussed earlier. This is an isolated incident and our portfolio with less than $15 million outstanding loans from this program represents a very small portion of our portfolio and again have historically to a point extremely well.
Speaking to our credit standards generally our disciplined underwriting standards have remained consistent over time, regardless of market conditions.
Remain confident in the high quality of our loan portfolio as evidenced by the continued low levels of delinquency and net charge offs.
Turning back to the operating highlights our SBA team had an outstanding quarter posting its highest level of quarterly gain on sale revenue to date, which was up over 40% compared to the prior quarter on increases in both sold loan volume and net gain on sale premiums are SBA pipe.
It's continued to build which is a testament to the high performing team we've put together.
And it leaves us confident that we will achieve the growth targets, we have set for them.
Lastly, I want to provide an update on our banking as a service and Tim Dec partnership initiatives.
<unk>. We're in pilot are now live and gaining momentum we have a dozen programs either live or preparing to go live with our platform increase.
Total deposit standpoint, we now have over $80 million of banking as a service deposit program.
Program fees contributed 125000 to noninterest income during the quarter will grow as more programs go live on the platform.
Additionally, our partnership with a platform Treasury Prime continues to move forward.
Similar to our partnership with increase we are looking at new opportunities regularly as we get ready to go live with Treasury Prime.
To wrap up my prepared comments I want to reiterate that we are focused on controlling what we can control building earnings stream that is resilient to changes in the economic and interest rate environment, we have a strong balance sheet, well capitalized, allowing us to withstand the challenges of an uncertain economy.
Like you members of the board and the senior leadership team and our shareholders.
Committed to improvement on our financial performance in order to create shareholder value.
I'd like to turn the call over to Kim for more details of our financial results for the quarter.
Thanks, David now turning to slide five David covered the highlights for the quarter from a lending perspective. So I will just add some additional color in line with our focus on higher yielding asset classes. We were pleased to see that our first quarter funded portfolio loan originations continued to increase from the fourth.
<unk> because of the fixed rate nature of some of our larger portfolios. There is a lagging impact of the higher origination yields on the overall loan portfolio. However, these originations should have a positive impact on the loan yields in future periods.
Our SBA construction and franchise finance channels continue to have healthy pipelines. Our intent is to fund the majority of this production using cash flows from other loan portfolios as we continue to rebalance the composition of our total loan book.
Moving on to deposits on slides six through eight for the quarter, our deposit balances were up $181 million or five 3% from the end of the fourth quarter.
As David mentioned early in the first quarter, we took advantage of strong consumer and small business demand and pulled forward deposit growth, primarily with Cds, which increased $296 million from the prior quarter locking in rates ahead of the expected March fed rate hike. Additionally, brokered deposits increased 69.
From the end of 2022, as we proactively expanded existing contractual deposit relationships with certain customers and issued long term fixed rate callable brokered Cds.
Non maturity deposits, excluding bass deposits decreased by $227 million compared to the linked quarter.
With money market accounts, noninterest bearing and interest bearing demand deposits declining $165 million $35 million and $23 million respectively.
We estimate that about half of the decline in money market balances was the result of outflows of uninsured deposits in mid March while the other portion of it of the decline was considered to be business as usual from our commercial and small business customers to fund ongoing operations.
The decline in noninterest bearing deposits was due primarily to drawdowns from commercial real estate development and construction clients contributing at equity to projects, we're financing while the decline in interest bearing demand was due to normal activity associated with the municipal deposit relationship.
We more than doubled our bass deposits, which increased from $40 million at the end of 2022% to $82 $4 million at the end of the first quarter.
As a result of all the deposit and interest rate activity during the first quarter the cost of our interest bearing deposits increased by 79 basis points from the fourth quarter.
Looking at slide seven at quarter end, we estimate that our uninsured deposit balances were $950 million or 26% of total deposits down from 33% at the beginning of the year. This decrease was driven primarily by the decline in money market balances conversions to reciprocal deposit.
And the drawdowns on construction related noninterest bearing balances include.
Included in the uninsured balance total our Indiana based municipal deposits, which are insured by the Indiana Board for depository and neither require collateral nor reported as preferred deposits on the banks call report.
As well as certain larger balanced collateralized public funds and accounts under contractual agreements that only allow withdrawal under certain conditions.
After adjusting for these types of deposits are adjusted uninsured balance drops to $695 million or 19% of total deposits comparing favorably to the rest of the industry.
Moving to slide eight at quarter end, we had total liquidity of $932 million, including cash and unused borrowing capacity.
With the deposit growth since quarter end, we have increased cash balances by an additional $100 million.
Currently our cash and unused borrowing capacity represent 109% of total uninsured deposits and 149% of adjusted uninsured deposits.
So we continue to feel comfortable that we have the ability to meet any future customer liquidity needs if they arise.
As David noted earlier total deposit balances declined modestly from mid March through quarter end and have since rebounded up $135 million through April 20th.
Turning to slides nine and 10 net interest income for the quarter was $19 $6 million and $21 million on a fully taxable equivalent basis down nine 7% to nine 1% respectively from the fourth quarter.
Our yield on average interest, earning assets increased to $4 six 9% from four 4% in the linked quarter due primarily to a 24 basis point increase in the average loan yield.
36 basis point increase in the yield earned on Securities and a 94 basis point increase in the yield earned on other earning assets.
The higher yields on interest, earning assets combined with growth in average loan balances produced strong top line growth and interest income, increasing 13, 9% compared to the linked quarter.
Deposit cost however, increased at a faster pace, resulting in the decline in net interest income.
We recorded a net interest margin of 176 in the first quarter, a decrease of 33 basis points from the fourth quarter fully taxable equivalent net interest margin was also down 33 basis points to 189% for the quarter.
This was down from the range, we provided on last quarter's call for a couple of reasons. The primary one being the impact of pulling forward deposit growth and building liquidity with Cds.
Additionally, average commercial loan balances, specifically construction and C&I loans came in a bit lower than our forecast, which impacted topline loan income.
Additionally, average commercial loan balances, specifically construction and C&I loans came in a bit lower than our forecast, which impacted topline loan income.
The net interest margin roll forward on slide 10 highlights the drivers of change and fully tax equivalent net interest margin during the quarter.
Looking ahead with higher priced new loan originations and variable rate assets repricing higher we believe that we will deliver another increase in total interest income for the second quarter. Currently we expect the yield on the portfolio to be up around another 15 to 20 basis points for the second quarter.
We also expect deposit cost to increase given forward rate expectations based on the Fed's continued language regarding rates and inflation as well as the effect on deposit pricing. Following the events of March the pace of increase will depend heavily on price competition as deposits continue to leave the banking system.
Given the expectations for high short term higher short term interest rates in the near term, we anticipate the net interest margin and net interest income will contract further in the second quarter, although not at nearly the same pace as the past two quarters and are expected to increase thereafter.
Turning to noninterest income on slide 11, noninterest income for the quarter was $5 4 million down 400000 from the fourth quarter gain on sale of loans totaled $4 $1 million for the quarter up 42% over the fourth quarter and consisted entirely of gains on sales of U S. Small.
<unk> administration <unk> guaranteed loans.
Our SBA team continues to put from performed well as sold loan volume increased 16, 4% and net premiums were up over 150 basis points as well.
Other income totaled 400000 for the first quarter down $1 $2 million compared to the linked quarter due to distributions received on our fund investments in the fourth quarter.
Mortgage banking revenue totaled less than $100000 for the first quarter as we began to wind down our consumer mortgage business in late January .
Moving to slide 12, excluding $3 $1 million of mortgage operation and exit costs noninterest expense totaled $17 9 million for the first quarter declining $600000 or three 3% compared to the linked quarter <unk>.
Excluding the mortgage operations and exit costs salaries and employee benefits expense decreased by $800000 compared to the linked quarter due to lower incentive compensation and bonus accruals.
Now, let's turn to asset quality on slide 13.
David covered the major components of asset quality for the quarter in his comments I will just add some color around the provision and the allowance for credit losses.
The provision for loan losses in the quarter was $7 2 million up from $2 1 million in the fourth quarter of 2022.
The increase in the provision was largely driven by the partial charge off of the C&I participation loan as well as growth in our loan portfolio and changes in certain economic forecast that impacted qualitative factors quantitative factors related to the allowance for credit losses in certain portfolios.
The allowance for credit losses, as a percentage of total loans was 1.0% to 2% as of March 31, compared to 91 basis points as of December 31 the.
The increase in the allowance for credit losses reflects the day one <unk>.
Seasonal adjustment of Threep of $3 million, which was in line with the estimate we provided last quarter. The increase also reflects the portfolio growth and the impact of economic forecast mentioned earlier.
With respect to capital ish as shown on slide 14, our overall capital levels at both the company and the bank remained strong our tangible common equity ratio declined 47 basis points to 747% due to the combination of share repurchase activity the day, one seasonal adjustment and the.
Reported net loss for the quarter, partially offset by the decrease in the accumulated other comprehensive loss as securities valuations improved since year end.
During the quarter, we repurchased 161691 shares of our common stock at an average price of $24 50.
<unk> per share as part of our authorized stock repurchase program.
In total we have repurchased $36 2 million of stock under our authorized programs to date.
As a result of share repurchase activity tangible book value per share remained relatively stable at $39 43 at quarter end.
Before I wrap up my comments I would like to provide some additional comments on components of forward earnings.
As we discussed on the expense side, excluding the impact of mortgage total noninterest expense was down three 3% compared to the prior quarter.
Along the lines of controlling what we can control we do have levers we can pull to control expense growth and expect full year 2023, total noninterest expense to be in the range of $72 million of $72 million to $74 million, which is a little lower than the previous guidance.
Related to non interest income our solid performance in the first quarter sets us up to outperform the guidance provided on last quarter's call for the full year 2023, we now expect total noninterest income to be in the range of $19 million to $21 million, which is up from our prior guidance our revised outlook reflects.
Greased SBA origination and loan sale volume and modestly higher net gain on sale premiums.
We expect the next several quarters may continue to provide a level of uncertainty from an earnings perspective, due to where deposit costs may trend and determining the right level of liquidity to maintain on the balance sheet.
However, we also continue to remain very optimistic about 2024 and beyond.
When the fed begins to bring rates back down whether in line with the forward curve expectations or the fed dot plot deposit costs should come down significantly with a meaningful and positive impact on net income and EPS.
One final area I would like to address is our commitment to preserving and growing tangible book value per share.
While the impact of operating in a challenging interest rate and deposit environment may be new to many bank management teams. We have operated successfully with our business model for decades, and along with that we have Devin we have a demonstrated track record of building tangible book value per share regardless of what interest.
Right or economic scenario actually comes to fruition the stability in our business model gives us the confidence that we will continue to build tangible book value per share over the long term.
With that I will turn it back to the operator, so we can take your questions.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
Any reason you'd like to remove that question. Please press star followed by two.
To ask a question it is star one.
Our first question is from Nathan race with Piper Sandler.
Your line is now open.
Yes.
Hey, guys.
Good afternoon.
Okay.
Question, just on the margin guidance I appreciate all the details in terms of kind of the trajectory for QQ and it sounds like you guys think you can kind of keep the margin stable in the back half of the year. So I guess I'm just curious what kind of rate environment does that contemplate does that just assume the fed hikes in may and then is on hold from there and I guess, what kind of gives you guys confidence that the.
Positive pricing.
Pressures may moderate or.
Margin can stabilize.
The fed on hold <unk>.
<unk> and <unk>.
Well.
At this point, we're not we don't we kind of model out several different scenarios. So we are.
Again, I think we're in we're in line with the fed raising one more time, perhaps another but.
Perhaps being done with that but you got the forward curve that says rates are going to come down at the back end of the year.
I don't know if we're convinced that that's going to happen. So we look at a different a few different sets of scenarios, but.
Think when I think the wildcard Nate with deposit pricing and why it's hard to pin it down exactly as is what it is you got the you got the effective interest rates on deposits, but you also have you have deposits coming out of the system and a scarcity value for deposits so as.
As <unk> seen with with your banks and others who've had to go to different different deposit markets and they are used to I mean, the cost and whether it's fed funds or spread to fed funds seems to vary by channel.
But I think as we model it out once the fed stops.
And again, assuming that spreads arent really widening and that we feel pretty good that the cost of the cost of deposits, whether it's the cost itself in percentage terms or the dollar amount is going to stabilize and then it will it will be stable and once once rates start coming down whether its this year.
Next year.
We're going to pick up a lot of leverage on earnings because those deposit costs are going to come down pretty rapidly.
Okay, well I'll just comment I'll add we.
It started a little higher.
And the rest of the folks did.
Coming into this marketplace our rates were higher to begin with we haven't seen obviously, we had big jumps in the last couple of quarters on a percentage basis.
Not that some folks are looking at triple digit increases in cost of funds.
Yes.
Ken maybe in his closing comment we've been doing this for two decades. So we are pretty adept at moving and adjusting rates when need be.
And we've increased deposits outstanding without going to the extremes of the market. As you stated we did not go to any third parties to borrow funds debt.
To get it out there so our world is pretty stable.
So increase the loan rates on the other side and we're funding a lot of that activity to repayments from longer term lower cost loans.
The real guess in hedge for US is how much liquidity do you mean.
Hold on the balance sheet.
We don't have to go back out toward additional deposits at this point, we grilled in Cds and stuff.
Work.
Thank you.
The worst is kind of behind us by far so you have to see what happens first Republic blows up it might send another shock waves through the system and have people clamoring, but.
Yet to be seen.
Right.
Got it that's helpful.
And just turning to credit.
You mentioned in the release, David that your exposure to similar type loans is very limited. So I was wondering if you just size up kind of what the.
Participation C&I loan portfolio looks like what credit quality.
Metrics are trending there in terms of criticized classified trends and so forth and just maybe if you could shed more light in terms of some of the uniqueness around this specific charge offs and <unk>.
Yes that loan to Big Alliance of partnership we've been a part of for 19 years.
It was a.
Company that during Covid.
Absolutely booming.
And.
Unlike other companies when Covid started to go away they readjusted the business model and slowed down this company.
Building product.
What kind of out over their skis on development of the product.
Really the biggest issue that guidance certainly today is phenomenal excess inventory and then spending millions of dollars on consultants trying to figure out how to solve that problem and that's why.
It's a good company, we had write ups from S&P Moody's we've been Privy to some potential sales discussions about the company. So there is still value there, but it's the management team just did not keep track with what's going on post COVID-19 while.
Thats getting in over their heads the rest of the loan portfolio, we still have about $4 million a little over $4 million of this loan on the books, we've got about $10 million.
Five other loans they've all been.
Folks for years performing as agreed never had a problem there I'll pass except for this one loan on non accrual the rest of our C&I portfolio had no degradation during the quarter everything is running.
<unk> kind of business as usual so had we.
Not move this one to nonperforming. Additionally, hadn't gone bad we would have actually seen that million dollar decrease in nonperforming assets over fourth quarter. So literally the bump up in all of the statistics.
And as a forecast for the last couple of quarters on that and the mindset of Jamie Diamond thinking that we're looking at a hurricane.
But there would be a tornado or two that might come to a global market. That's exactly what happened. This one it's a little bit of the interest rate move, but more importantly that shifts somebody didn't follow up post COVID-19 like they should have on the operations had gotten into trouble.
Got it that's very helpful and it sounds like just.
The broader participation book, where you guys are the non agent is fairly small.
Very very small we've got a couple of C&I.
Loans that we've done with a couple of other banks into Vietnam.
Construction, but the OLED <unk>.
Hi.
Couldnt, even hazard a guess that its in the.
I'm going to say $20 million to $30 million in total exposure on participations with other financial institutions above and beyond baked July so it's a small number.
Okay got it.
And then just maybe lastly, with the mortgage rate sizing seemingly largely behind you guys at this point.
How should we be thinking about the tax rate going forward or any other one time costs and <unk>.
And beyond.
Nate where are you asking if there is any more onetime costs in <unk> and beyond.
Yeah, and just the tax rate going forward obviously.
Reversal in the quarter.
Yeah, well the first question no with mortgage we took all of our one time costs in the first quarter.
So there should be no more additional costs associated with with with exiting the mortgage business or any other one time costs that we see on the horizon right now.
I'd say in a more normalized environment I would say that tax rate is probably closer to the 12 to 15 <unk>.
<unk> that we've had but.
With with earnings being a bit lower than what they were a year ago.
<unk>.
The tax rate I am going to tell you we model internally at 12%, but reality, it's probably somewhere maybe 9% to 12%.
Only because it's lower because we get we get a benefit from the tax exempt.
Public finance portfolio, we have.
So as earnings are a little bit lower the impact of that is much greater so.
That's probably the way I'd look at it.
Okay got it.
I appreciate the color I'll step back thank you guys.
Thanks, Nick.
Okay.
Our next question is from Brett rapid <unk> with <unk> Group. Your line is now open.
Hey, guys good afternoon.
I wanted just to start.
Hey, David just wanted to start strategically and just thinking about.
The balance sheet options is it is it not under consideration when maybe shrink down.
Balance sheet are there long pieces of the loan book that maybe you could.
So.
Just given.
<unk> price, maybe retrench and buyback more stock or <unk>.
Just any thoughts on the strategic opportunities.
Our stock price here might be given the relative to the balance sheet.
At the current time.
Do intend to continue to stock buyback, particularly at the price of that today exclude the Chris not to.
On the sell off on some of the balance sheet, a point that maybe youll notice if you compare individual categories to last quarter back in the fourth quarter.
Single tenant leasing some of the stuff that we have on the.
Municipal lending there are segments of the market that were out of it.
Total because the pricing is so low that makes no sense for us to compete.
We're bringing in funds in the 4% level and we're putting it back out the door and the eight 910% level to the commercial side municipal or excuse me not municipal SBA and the consumer it makes sense to continue.
Good quality lending, we're not buying business and we're not growing the balance sheet for the sake of growth, but if we can get a three to 400 point spread over what.
The cost of funds. So I was just what we are able to new loan that we're positioning.
Testing the markets throughout the quarter.
T cell segments of the portfolio, but we can't justify the hit we would take in the recycle we'll put it back to work.
Let me take that cost so the hit.
Ross on the portfolio, we're making a better spread doing what we're doing so with.
Whether it out and when we come out the other side, we will have value.
Shrink a little bit of a need to but we're still rock solid on the capital requirement. So we viewed as kind of business as usual we've been through these cycles.
<unk> stated several times in the last 20 years.
So by the mall and come out stronger on the other side, we're going to do that again.
Okay.
And then from a repricing perspective is it can you give us I think you said.
15 basis points of improvement in asset yields on <unk>.
Caught that right and just wanted to know.
Alright, great.
More like the loan book, 15% to 20% and I think one of the I mean, some of that is obviously, that's really no new loan yield generation.
That's new loans coming out in the books not necessarily <unk>.
<unk> pricing if you will that's just new new origination yields being up.
Okay. Okay. That's helpful.
And on the CD book, how much do you have maturing in the next two quarters and it looks like Japan little over 5% for the one year CD, but it looks like your money market rate is actually.
356 on consumer be curious to hear what it is on the commercial.
300 <unk>.
Sure.
Yes, we also pay out.
That's one thing.
On the money markets too if you have a balance above certain amounts, we will pay a higher rate as well.
But in terms of what's maturing say over the next two quarters, we got about $360 million of Cds maturing.
Kind of at an average rate those are going to be rolling off and kind of call it $2, 78% to 3% range.
Okay.
Okay.
And then just last one on the on the bass platform. How many people have you guys added in compliance I'm, just curious thinking about that platform and how you built that out over the past year or so in particular.
In the past year on the compliance side, we've added about six individuals.
More than doubled the team that we had on board.
Part of that was <unk>.
Setting the stage, obviously watching some of our peers get in trouble for.
Relying on the third party vendor as a fintech to do compliance efforts, we knew that was it the smart business place.
Build out both the technology and bodies internal tracking to be better positioned for BSA <unk> be.
Regulatory play and even though some of our fintech.
Fintech partners do some of that.
Kind of comply to banking standards, we double check everything we have some good automation tools to process the volume and transactions are back to our proposals and programs were audited.
FDIC DNI when they came to last fall.
And the comment from one of those it's one of the stronger programs that they've seen internally and pace.
The Vas services. So we're comfortable that we've got the t's crossed and the I's dotted and we're continually reviewing and looking at it but right now we think its very strong very stable.
Literally picking up some of the activity, we're getting folks that we've been under financial institutions, where they got sideways with the regulators.
Okay, that's great.
Okay.
Kind of addresses what I was trying to get at so I appreciate the color there.
Youre welcome.
Once again, if you would like to ask a question. It is star one on your telephone keypad.
Our next question is from George Sutton with Craig Hallum. Your line is now open.
Thank you David wondering if you could just go further on what you were just referring to relative to the Fintech update.
Just to take this a little higher level the idea of creating this was to bring in low cost deposits.
Do you feel like this area can achieve that going forward and can you give us a little bit more detail on the scarcity.
Of the deposit sort of importance relative to bringing these potential partners.
Yes.
George as you well know in the marketplace. Today I don't think there is a free deposit of any dine out there as we were analyzing we're looking at all.
The stuff in preparation for the call and just getting a handle on our deposits helped us give you a couple of programs.
We were looking at the first century deal because we're going to get $300 million in cheap deposits from them from the HOA side of things, we actually when we went through and did an analysis by.
ZIP codes, we actually have more HOA deposits on the books today.
For centuries.
And they're not free but they are lower level money market. There are services provided with them and we're not reimbursing them for their account.
Accounting services with DHL.
Term is having performance when you put the two together kind of the net costs for us almost deposits is equal or lower than what would have been at for a century. The other side. There is still good money coming in on that end, but.
All bets are off after the first quarter here.
The body understands what money market rates are everybody understands what the fed fund program is today.
We're not paying that we're getting discounted below fed funds on everything thats coming in with a vast deposits depending on services and products and part of it is in pricing part of it's yielded rate, but we're getting them anywhere from 50 points below.
Ted funds too.
We literally do have some zero cost deposits, but it's growing quickly fee income is coming on strong we have one.
Group.
On a monthly basis now we're processing over $500 million and ACTH transaction activity. So we've got the increased customer base is really.
Getting up to speed quickly.
I think the offset with the revenue opportunity and lower cost of funds is what's in the marketplace today.
I think it's still it's a great model for us and it's a great opportunity.
We can scale it.
Pretty effectively in the near term and I think theres going to be a lot of consolidation going on in the Fintech space folks are finding that they are going to that b and C round of financing that if they don't have a path to profitability they need to partner up or they need to do something else. So.
Can be a lot of shuffling.
As I've said before I kind of think it's tonnage with fintech to point out and there'll be some very strong good customers and there is going to be strong with customers on the market.
Because the banks themselves did not invest we can take a small community bank.
Best services and the opening of 1000, new accounts, a month and they don't do a thousand new accounts in the calendar year is a traditional bank things are going to blow up on it so.
We think we're well positioned as a pre money I don't think theres free money in the industry today.
But it is lower cost funds and a lot of the outside.
Choices, we have in the fee revenue in the partnerships have real value to us.
One other thing have you put in a reciprocal deposit program and my assumption is you probably have I'm just curious the feedback you've gotten in terms of keeping some of those uninsured deposits.
We have we've been part of <unk> for the last couple of years, and obviously Silicon Valley, We will up we've had virtually no request for it and it's kind of interesting. The fact that we offer that.
It's taken the edge off a lot of our larger depositors.
I think last number I. So <unk> is going to be probably two weeks. So we have about $60 million $60 million to $70 million now that has moved to the <unk> and spread the monies.
<unk> multiple institutions, but again, it's still.
Low cost service fee for that is nominal.
It's one of those things I think the comfort that we have it available.
Took the edge off from the consumer.
Some of their thoughts to be dividends in March we gave and that's part of the deposit growth here in April .
Some of the customers looking for that have come back to us and it's spread amongst <unk>. So.
It's a nice tool again.
And his first Republic, another Big Bank goes down I think it'll be a necessary tool for probably everybody in the industry team deposits, but.
Right now it's more of a safety net and it is a true selling point.
Alright, good to hear thank you both.
Thank you.
George.
Once again, if you would like to ask a question. It is star one.
Our next question is from Nathan race with Piper Sandler Your line is now open.
Yes, I appreciate you taking the follow up and I apologize if I didn't catch it in your prepared comments, Ken but you guys just remind me kind of whats your.
Look is for.
Core deposit growth and loan growth.
Next Doug.
A couple of quarters.
Yes, I think one of the things that we've kind of that we've talked about a couple of times here is.
It's the concept of kind of re re remixing the loan book and having the idea that the.
I think overall loan balances over the course of the next.
Two to three quarters really arent expected to grow tremendously, it's really just more more remixing it and using cash flows from public finance and health care and single tenant in mortgage.
To fund growth in construction at ICR.
Franchise, and SBA and our consumer channels, where we're getting certainly the variable rate portfolios in a little bit more yield.
That's really the way that I would look at it.
Okay. So comps are flat, earning asset base give or take from the level in <unk>.
Maybe just the yeah, yeah, a little to maybe some slight growth, but again, it's really the concept of Remixing the book organically.
Versus growing the overall balance sheet, the only again the caveat to that as David said in his comments was.
What is the right amount of liquidity to maintain on the balance sheet.
Alright, because with <unk>.
Foreseen events going forward it probably is prudent to maintain more liquidity right now and as we all know balance sheet growth isn't really driven by loans, it's driven more by deposits.
So that's just the one wildcard on that.
Yes understood.
Sorry go ahead David.
One real quick comment on the deposit side need I know one of the things that the investor community and folks getting antsy about apps.
It has over the years, but when the loan to deposit ratio gets north of a 100% everybody gets pretty nervous. So if you wanted to factor.
The positive side of things. So we're now in a position where we're under one to one I did still 90, 899% that will focus on the deposit side to keep those at par with the loans loan growth or a little above so that we stay under that 100%.
Loan to deposit ratio.
That's how I would.
Model and as Ken said, I'd say low single digits, 3% probably Max.
Loan growth.
Two quarters.
Okay, great sounds good.
Thanks, guys.
Thank you.
Our next question is from Ross Haberman with <unk>. Your line is now open.
Are you guys I just had a quick question I got on late could you touch upon any weakness in any of the loan categories, which are beginning to see or like a lot of banks youre not seeing any.
Cracks yet thank you.
Robert at the current time, we're not seeing any cracks per se like I said, we had the one off on this.
Participation loan that we discussed earlier, but the overall delinquency is down this quarter over last quarter.
We do have one or the old property.
It's our home in Vermont, it's less than $200000 and Thats been in foreclosure process for three and a half years has nothing to do with the current economy. So overall portfolio staying in solid.
No pending losses.
Even the SBA world, which is kind of new to us Steve nominally stable.
Where can really solid.
Small business community is doing what they always do they just not coming down and keep them.
What's going on up so yes across the board, we're not seeing any cracks yet at all.
This one loan is truly a one off so we're pretty confident that.
Unless the fed really goes nuts, and ratchet those up to 665% interest rate, which causes some pretty massive unemployment across the country.
We're not we're not worried about anything in the portfolio today.
Could could.
Just one follow up could you refresh us how big is your total loans.
Participation book as a percentage of the total loans.
We have about $15 million.
The Bank Alliance program, which is where this one C&I.
<unk> that's what's left after we took the write down and then as I said earlier I think we're somewhere in that range of 20 to 30 million Macs with other banks.
Banks in the state of Indiana that we do a couple participations with it's a real small percentage of our book.
The controllers.
And then.
Go ahead, so you're saying a total of $45 million about in total.
In total.
Yes.
Okay.
Yes.
It's about it's closer to 30 in total it's about 15% and 15, so 15 with our existing program and another 15 with the partner banks.
Thank you very much.
Yes.
Our next question is from Brett Robinson with Hovde Group. Your line is now open.
Okay.
Hey, thanks for the follow up.
On the buyback.
Yes.
If you gave it the remaining authorization.
And then just.
I know it probably depends on lot of factors, but any kind of broad color on how much you think you might buyback the rest of the year and if there are capital ratios that would constrain that.
You wouldn't want to go beyond.
Just how youre thinking about the buyback specifically from here.
At the current time, Ken correct me, if I'm wrong, but I think we have a little over $19 million left on the 25 million that we started the year with.
We're in the market buying today and particularly at this price will continue to do that.
We're not going to push ourselves below 7% I guess it'd be one look at the capital marker by buying back the stock.
But shy of that bill.
In consistently and will stay there when the prices at this level or it starts to climb back up again, we buy we evaluated in the second half of the year.
Set to continue buying at this quarter at this price we can't afford not to what's the best use of capital that we have.
Okay, and seven 7% David is that TCE I assume.
Yes, yes correct.
Okay.
Great. Thank you.
Yeah.
Our next question is from Howard <unk> with <unk> capital. Your line is now open.
Hey, guys.
I have a quick question I've seen other banks in the past issues with Bank Alliance loans.
Really understand originating C&I loans, and a consortium anyway.
Obviously, it's.
To some extent the character one are you still originating loans to bank alliance or is that program shut down. Thank you.
I can't tell you the last time, we've done with them it's been several months.
Obviously the experience of this loan is.
It is on the program, but we've been in at nine years, and we've only had 20 basis points of losses over nine years, we obviously don't participate in every loan that they do by any means probably.
Over the years have looked at maybe one in 'twenty, what's presented that we would take advantage of.
We have not done anything in the last six seven months so.
What's out there today, and just kind of in a home leverage market as crazy as the capital markets and the industry is in the future. The economics, we kind of backed up purposely and then taking the hit on this model will make it even tougher for us to make a decision before we got good opportunities with our existing clients.
Demand out here that we don't have to get it to the third party. So.
I would tell you I'm not going to say, we would never ever do another one.
Got it.
Have to be Goldman for us to take a look at it we've got it now.
Opportunity ourselves, we don't need to backfill the balance sheet with it anymore.
Many more of our product.
Yeah I agree okay. Thank you.
There are no more questions. So I'll pass the call back over to David Becker.
Okay.
But everybody we thank you for joining us on today's call. We will continue to use all the tools at our disposal to maintain a strong balance sheet and liquidity position as well as drive for more resilient earnings going forward.
Again as fellow shareholders, we remain very committed to driving improved profitability and enhance shareholder value.
Thank you for your time today and have a good afternoon appreciate it much.
Yeah.
That concludes the conference call. Thank you for your participation you may now disconnect your lines.
Yeah.