Q1 2023 Independent Bank Group Inc. Earnings Call
Greetings and welcome to the independent Bank Group first quarter 2023 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your.
Telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host and Kita Pori Executive Vice President and Chief Legal Officer for Independent Bank Group.
You may begin.
Good morning, and welcome to the Independent Bank Group first quarter 2023 earnings call. We appreciate you joining us.
The related earnings press release, and industrial presentation can be accessed on our website at IR Dot I financial dotcom.
I would like to remind you that remarks made today may include forward looking statements.
Those statements are subject to risks and uncertainties that could cause actual and expected results to differ we.
We intend such statements to be covered by safe Harbor provisions for forward looking statements.
Please see page five of the text in the release or page two of the slide presentation for our Safe Harbor statement. All comments made during today's call are subject to that statement.
Please note that if we give guidance about future results that guidance is a statement of managements beliefs at the time. The statement is made and we assume no obligation to publicly update guidance.
In this call we will discuss several financial measures considered to be non-GAAP under the SEC's rules reconciliations of these financial measures to the most directly comparable GAAP financial measures are included in our release.
I'm joined this morning by our Chairman and Chief Executive Officer, David Brooks, Our Vice Chairman, Dan Brown, and our Chief Financial Officer, Paul Langdale.
And if their remarks, David will open the call to questions with that I will turn it over to David.
Thank you. Thank you good morning, everyone and thanks for joining the call today.
For the first quarter, we reported a GAAP net loss of $37 $5 million or 91 cents per diluted share, which includes the impact of the $100 million legal settlement expense that was previously disclosed on February 27.
This one time payment settled litigation ongoing since 2009.
Involving Stanford International Bank and related entities that was inherited in connection with our 2014 acquisition of bank of Houston.
This settlement will resolve all current and potential future claims related to the Stanford entities and we believe this settlement could be in our shareholders' best interest as it enables us to avoid the cost risk and distraction of protracted litigation.
Excluding this onetime legal expense adjusted net income for the quarter was $44 1 million or.
For $1 seven per diluted share.
Our core operating business continues to maintain a healthy level of profitability. Despite the challenges presented by the volatile macroeconomic and interest rate environment.
Our underlying business is buoyed by a strong balance sheet and our resilient asset quality with nonperforming assets of just 32 basis points of total assets and net charge offs of just four basis points annualized.
In addition, we continue to maintain robust capital levels with an estimated total capital ratio of 11, 85% and a TCE ratio of 731%.
A sharper than anticipated funding cost pressures from the first quarter compressed our net interest margin by 32 basis points to 317.
We remain encouraged by the continued re pricing of our maturing loans in the mid Sevens. This re pricing should be a consistent tailwind to our adjusted loan yields which expanded by 32 basis points in the first quarter to 533.
While accumulating the benefit of higher loan yields will be more gradual or precede an incremental expense discipline is far more immediate.
Adjusted noninterest expense for the quarter was $84 $9 million down $3 $5 million from the linked quarter due to the continued realization of benefits from our expense management initiatives and with that overview I'll turn the call over to Paul to give more details on the financials.
Thank you David and good morning, everyone, starting with the balance sheet. This morning total assets increased by $540 million from the linked quarter to $18 8 billion, which was primarily driven by excess liquidity held on balance sheet funded by short term <unk> advances.
Balance sheet cash increased to one 5 billion at quarter end the company decided to strategically increase our liquidity position out of an abundance of caution and in response to the macroeconomic environment, which is consistent with our philosophy of conservatism and gearing the balance sheet.
On the liability side noninterest bearing deposit balances decreased steadily throughout the quarter as depositors soft higher yielding alternatives for their cash balances.
Quarter end noninterest bearing balances were $4 $1 5 billion down from $4 74 billion at year end 2022.
Average noninterest bearing balances during the first quarter were $4 four zero billion and most of the noninterest bearing deposit attrition occurred prior to the end of February as depositors saw higher rates.
A portion of these deposits were moved off balance sheet to a wholly owned subsidiary of private capital management.
During the quarter approximately $184 million of deposits flowed to private capital management to be deployed in market based liquidity management strategies and overall AUM at private capital management increased by $235 million their largest quarter on record since these deposits remain in our ecosystem.
Slide 20 shows the deposit funding vertical trends interest bearing branch deposits were down 3% or $217 million for the linked quarter or for the quarter, which was mostly a result of seasonality and yield seeking behavior early in the year from February 28 through quarter end interest bearing branch deposits reversed.
This trend and increased.
The increase of $197 million and brokered Cds was opportunistically executed in February when market rates fell below 5%.
The weighted average rate for brokerage Cds added in the first quarter was 473%.
The onset of broader industry events in mid March meaningfully impacted the pricing and availability of both brokered and non brokered specialty liquidity. During this time, we opted to instead utilize less expensive short term <unk> advances to supplement funding.
This included the replacement of 556 million of non brokerage specialty treasury deposits.
Public funds balances increased by $101 million from year end.
As anticipated the cost of brokered funds has dropped meaningfully following quarter end and we have begun to strategically replace maturing <unk> advances with brokered funds as appropriate.
So far in the second quarter, we have added $162 million and brokered funds at an average rate of four 9% and three six and nine months tenors.
Due to this <unk> utilization has begun to decline during the second quarter.
As noted on slide 19, adjusted uninsured deposits, which excludes fully collateralized public funds deposits totaled $5 $2 6 billion or 37, 4% of deposits at March 31 2023.
As of quarter end, we have five 5 billion of immediate borrowing capacity between the FHL be deferred and fed funds lines enough to cover all uninsured deposits. We also maintain access to multiple contingent sources of deposit funding with more than $7 billion of additional capacity, which brings total contingent funding capacity.
<unk> to over $12 billion.
Other borrowings increased by $75 million during the quarter as a result of the company drawing.
$100 million on our holding company line of credit to facilitate the repayment of the $30 million tranche of subordinated debt redeemed at quarter end that had moved to floating as well as to facilitate the repaint.
Of the legal settlement expense discussed in David's remarks.
Since quarter end, we have repaid $32 $5 million on the holding company line of credit and we expect to retire the remainder of this balance by the end of the third quarter.
Our regulatory capital levels remain healthy and well in excess of well capitalized minimums with a common equity tier one ratio of 967% a tier one ratio of 10, 3% and a total capital ratio of 11, 85% at quarter end <unk>.
Additionally, the TCE ratio remained strong at 731%.
Moving on to the income statement net interest income decreased by $13 $9 million from the linked quarter and $3 2 million from the first quarter of 2022.
NII was impacted by slower loan growth and increased funding costs during the quarter.
While net growth was impacted by first quarter seasonality yields continue to benefit from gross production and adjustments in pricing. The average loan yield net of acquired loan accretion and PPP income was 533% for the quarter up 32 basis points from the linked quarter funding.
Funding costs as discussed were impacted by the remixing of noninterest bearing to interest bearing balances during the quarter as well as higher liquidity levels held on balance sheet.
Noninterest income increased by $1 5 million compared to the linked quarter, which included the recognition of a $318000 benefit claim related to the bally portfolio.
Adjusted noninterest expense was $84 9 million, a decrease of $3 $5 million versus the linked quarter. The primary drivers of the reduction in noninterest expense were lower salaries and benefits expense as well as lower professional fees. Looking ahead, we will continue to maintain expense discipline and explore additional targeted.
<unk> to strategically reduce noninterest expense through initiatives.
These are all the comments I have today, so with that I'll turn the call over to Dan.
Thanks, Paul loans held for investment were $13 6 billion in the first quarter.
Loan growth, excluding mortgage warehouse and P. P. P loans totaled $8 5 million or 2% annualized for the quarter.
New production during the quarter was subdued due to seasonal slowness in the first quarter as well as lower demand across our markets.
Despite the lower growth during the quarter, we originated $599 million of new commitments and 315 million of which funded during the quarter we.
We continue to see opportunities in the pipeline and we continue to underwrite with the same discipline that has guided us through past economic cycles.
Average mortgage warehouse purchase loans remained stable at $298 million versus the linked quarter.
Our expectation is for this business to continue to remain flat at current levels.
Credit quality metrics continued to strengthen during the quarter.
Total nonperforming assets decreased to $60 1 million or three 2% of total assets at quarter end.
Other real estate owned decreased to $22 seven due to an impairment of the $1 $2 million recognized during the quarter.
Net charge offs totaled just four basis points annualized for the first quarter.
We continue to see the loan portfolio exhibit resilience in the face of volatile macroeconomic conditions and we remain confident in the strength of our credit quality as we enter the second quarter.
These are all the comments I have related to the loan portfolio. This morning, so with that I'll turn it back over to David.
Thanks, Dan looking ahead, we remain focused on optimizing our franchise to navigate a complex macroeconomic and banking landscape.
We remain encouraged by the continued gross loan production and the repricing of our fixed rate loans, and we will continue to focus on opportunities to strategically play both defense and offense on the deposit base.
While loan production was seasonally lower in Q1, we are seeing solid opportunities in the pipeline is still expect to grow loans at 4% to 5% annualized rate for the remainder of the year.
Second quarter, we will continue to optimize our expense base for the current environment.
We expect to achieve targeted expense reduction opportunities that will allow us to incrementally manage the run rate down over the course of 'twenty three.
Thank you for taking the time to join US today, we'll now open the line to questions operator.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May Press Star two if he would like to remove your question from the queue for participants using speaker equipment, it may be necessary to pick up here.
Our first question comes from the line of Rod Mill shops with Piper Sandler. Please proceed with your question.
Hey, good morning.
Hey, good morning, Brad Bradley.
Oh, thanks for thanks for taking my questions.
Just curious Paul a lot of movement.
With the balance sheet at the end of the quarter I'd be curious if you'd be able to provide us sort of spot.
Is it rates and maybe even spot loan rates.
And maybe how that might inform your margin outlook as you think about sort of all the moving parts.
You know as we kind of move through the next couple of quarters.
Sure Brad happy to provide some color on that on the earning asset side, our loan yields are coming on in the mid Sevens, we've reliably seen that for the last couple of months and we expect that pace to continue based on what we see in the pipeline on the deposit side. The marginal funding that we're adding to our balance sheet is just under 5%.
We've tried to manage that rate relative to the liquidity available in the market and relative to our strategy and so that's our expectation to hold funding at that level, depending on the trajectory of course of monetary policy.
Okay, and maybe just drilling down a little bit further I mean, you had total deposit cost of I think around 170 basis points interest bearing costs were.
Little over two 4%.
If you thought about where those numbers kind of move to you.
At the end of the quarter given all the moving parts or are you seeing the the pace of the beta slowed down or would you expect something.
Similar to what you saw in the first quarter.
The betas in the first quarter, Brad were driven significantly by the noninterest bearing remixing trends that we saw in the interest bearing so adding those interest bearing funds.
We didn't expect the magnitude of noninterest bearing mix shift in the first quarter. It was really driven by accelerated yield seeking behavior of that coming out of the fourth quarter really accelerated into January and February but most of the NIM pressure I think has happened in the first quarter and following quarter end, we have seen a stabilization in funding cost.
Which leads us to anticipate that NIM will bottom out in Q2 and start expanding in Q3 and beyond as earning asset yields begin to climb. So it's hard to give an exact range given the dynamism in the environment, but we certainly don't anticipate that kind of betas and NIM compression in Q2 that we saw in Q1.
And Paul just kind of a final follow up would you expect I think you had a loan beta of around 38% in the quarter, obviously, you've been talking about.
The repricing characteristics of your loan book for a while.
Do you expect that to continue to step up and is it heavily more heavily weighted in one.
One quarter versus another or is it just going to kind of be this sort of a gradual climb as we move through the year.
It's weighted heavier in the back half of the year and 'twenty three than in the front half of the year, we had seasonal slowness, usually especially in the first quarter. So the amount of bulk repricing that we get in the first quarter as reliably less than in the back half of the year. When we typically see the most growth I.
I will say that we certainly do expect given our loan growth guide to see those earning assets, especially loan yields tick up.
And the more production, we have and the more net growth we have the more that will impact the yields.
Okay, great. Thank you guys I'll hop back in queue.
Thanks, Brett.
Thank you. Our next question comes from the line of Brandon <unk> with <unk> Securities. Please proceed with your question.
Hey, good morning.
Good morning.
See I had a I had another question on deposits I know before.
The goal is to match deposits with loan growth, but wanted to get updated thoughts on your outlook for where you see deposits trending for the remainder of the year.
Our focused brand and really remains on growing the core deposit base and we believe that we've equipped our teams with the tools necessary to successfully compete both offensive Lee and defensively against what we're seeing in the market.
Important to note also that relationship deposits do factor into our lending decisions and we believe that our ability to produce loans also translates to an ability to produce deposits, we're going to be very focused on making sure that we can grow deposits and can fund loans with deposit growth obviously, the accelerated attrition that we saw in.
Q1, we don't expect to repeat in Q2, because we've seen some stabilization since quarter end. So given what we've passed our teams with and given what we're seeing in the market. We think we're in a good position to grow deposits in Q2.
Okay.
And.
I know you've mentioned in the commentary as far as the deposits moving kind of off balance sheet was still within within the bank.
What do you think it would take for those deposits to come back and kind of when do you anticipate that happening.
I think it depends entirely on the trajectory of monetary policy and specifically the yield in the treasury market most of the liquidity management products out there based on treasury yields and a ladder treasury strategy. So as we see the fed hit the terminal rate and especially if we have some economic storm clouds on the horizon I think there'll be an opportunity for bank.
To be very competitive on rate versus the treasury market, but it'll just depend again on the trajectory of inflation and monetary policy.
Okay, and there's nothing I guess internally that.
Do you plan on doing to kind of encourage those deposits coming back sooner rather than later.
I think it depends on the idiosyncratic beliefs and behavior of the customers and what they're specifically looking for obviously, we have opportunities to incentivize customers to return that cash on the balance sheet, but as of right now it's a relationship driven strategy that we really focus on understanding the individual custom.
Their needs and we really want to provide them with a total suite of solutions that fits what theyre looking for.
Okay.
Ill hop back in the queue. Thanks for taking my questions. Thanks, Brian .
Thank you. Our next question comes from the line of Brett Robinson with Hudson Group. Please proceed with your question.
Hey, good morning, gentlemen.
Morning, Brett.
Wanted to.
I guess first start on expenses and the expense levels are obviously, something when youre focused on this year and the numbers and <unk> on a core basis were a little better than I expected can you can you talk maybe.
Paul or David about what do you think you'll achieve from here on the expense side and just a good way to think about maybe the efficiency ratio relative to what you are trying to get done on the revenue side. Thanks.
Sure Brett I'm happy to talk to expenses. Obviously, we remained focus on notching incremental expense discipline that is something that we have expressed a clear intent to continue to focus on over the last several calls. So if you look at our expenses in Q1, they are seasonally a little bit lower than they typically are I would.
Specced, the expense run rate to be around $88 million for the remainder of the year mid.
Midway through the first quarter, we did have our merit increases so that does impact the run rate on a go forward basis.
Trajectory of expenses and the magnitude of savings that we can realize there's going to be dependent upon the opportunities that that we see across our expense base. Obviously, we're looking under every rock and making sure that we're being mindful of gearing the organization for the current economic environment.
Okay.
That's helpful and then on capital I want to make sure I understood that correctly, you repaid the $30 million of sub debt post quarter does that was that correct.
No we repaid debt at quarter end, so it isn't around okay numbers and that was three months LIBOR plus 283, so that was a little over 8% paper for modeling purposes.
And so would the plan be to replace that.
In the near term.
We continue to accrete enough capital to be able to not replace that little $30 million tranche.
Okay.
And then any any thoughts on on capital generally just in all of that I think some some banks are thinking about running with excess capital just due to some uncertainty is there a.
A specific capital.
Capital ratio that you are focused on and maybe what capital level would you be trying to target maybe later this year or in the environment.
Yes, Brett let me, let me address it from a high level, just where I believe the board is and what our strategy is how we're thinking about it.
We have continued to approve our dividend at its current level that we came into the year with we finished the fourth quarter of.
22 and into 'twenty three.
Our dividend level, we expect to keep that constant.
For the foreseeable future in the next few quarters as we observe what's going on.
<unk> Paul has said.
We have a buyback in place.
But we're not expecting to be active with it you know for the foreseeable future.
And part of that is what you alluded.
That is we're watching closely what's going on with the economy.
The markets seem to be pricing it now at least.
That recession.
And some rate declines in the back half of the year.
We're not making any assumptions around that but we're watching and preparing and so where we're going to allow capital to accretive as Paul just said here in the next few quarters and continue to strengthen that.
Ratio, we're not expecting as Paul said to add any additional sub debt or capital at this time.
And we feel really good about where we are as far as specific capital ratios at it. Paul you may have a thought on that but I think broadly we feel good where we are Brett and we expect those to accrete up over the next few quarters. The only thing I would add Brad is that we continue to target a TCE ratio north of 7%.
That's something I think Youll see continued to increase as we accrete capital over the remainder of the year.
Yes, we like the Neff standpoint, Brett, particularly.
Particularly the fact that we have a small bond portfolio and in a relatively insignificant a OCI charge at this time. So we think that puts us in a good spot from an overall capital standpoint.
Okay. That's helpful. Thanks, so much for the color.
Thanks, Brett.
Thank you. Our next question comes from the line of Michael Rose with Raymond James. Please proceed with your question.
Hey, good morning, everyone. Thanks for taking my questions just wanted to go back to deposits.
I think like every back youre seeing a mix shift into <unk>.
Obviously higher cost deposits any sense from a modeling perspective, where you think.
That mix shift kind of trough like where does DDA trough and then if you can just kind of update us on beta expectations, a cumulative through the cycle.
Thanks, Michael I'll, let Paul.
Good morning.
Sure Michael Thanks for the question as I mentioned earlier, the pace of noninterest bearing attrition was really accelerated through the first part of the first quarter due to yield seeking behavior since quarter end, we've seen that pace slow down meaningfully and begin to stabilize so based on what we know today there could be some incremental pressures that that is the terminal rate but.
Oh, and we don't expect to see the big move down in noninterest bearing balances that we saw in Q1 repeat itself. So if it's noninterest bearing.
Being a percentage of the deposit book. It is today I would expect that ratio to gradually come down maybe another 1% to 2% over the over the coming 12 months, although I wouldn't expect any significant noninterest bearing run off relative to what we've seen in Q1.
From a beta standpoint, as I mentioned earlier betas will slow down given that we've already passed on a meaningful amount of deposit cost increases to our customers. It has been our stated strategy since the beginning of this rate hike cycle to play defense with our interest bearing balances and make sure that we're taking care of our customer.
If we pay rates too to anyone we would like it to be to our core customers and so that's why you've seen us.
Have a little bit sharper betas over the last couple of quarters relative to the interest bearing branch book.
And I think given where we are in the cycle right now youll see those betas meaningfully slow.
Very helpful.
Paul.
And Paul I think you mentioned that you expected deposit balance growth in the in the second quarter I appreciate that I would expect that given commentary around maybe some of those deposits that kind of moved off balance sheet potentially coming back on that we should expect continued.
Continued growth through the year and you guys I assume the expectation would be to keep that loan to deposit ratio sub 100%.
Yes, absolutely we do expect to keep the loan to deposit ratio under 100% and we are employing and all of the above strategy in the deposit book, we we like to maintain a reasonable mix shift, especially among the broker deposits keep it relatively short duration use a ladder strategy used a number of different products.
<unk>, we really do believe that strategically achieving granularity across the deposit book both in our core deposits and then our wholesale flavor deposits is something that will benefit us long term and really dovetails well with our conservatism in gearing in the balance sheet. So that's something I think you'll you should expect us to continue.
To do over the coming quarters.
Okay, Great and then maybe just finally for me back to expenses I appreciate the.
The color on the kind of expense run rate, maybe just holistically, if you can kind of balance.
For us cost saving efforts with with investments.
You continue to grow the franchise and just how do you balance that and maybe in the context of you know.
Yes.
How do you think about the efficiency ratio kind of when we get into the intermediate term now.
Funding cost profiles have definitely changed just trying to get some holistic color on how you balance of investments versus savings. Thanks.
Sure Michael It's obviously the same conundrum that every management team has across the country right now given the economic environment, but we've made significant.
Investments in our infrastructure over the last couple of years as you know we've spoken about it clearly.
In our technology and process improvement and risk of enterprise risk management build out things like that that we continue to do and continue to invest in and we're not going to back.
Back away from our commitments, there and our strategy there.
We're clearly you know as we think about the next few years assessing what you know what the highest priorities are and moving ahead on those projects.
But then at the same time looking at our at our organization in our Org chart, you know division by Division and just understanding where we've invested and what that investment is going toward in terms of our high level objectives of our company. So I just think it's a healthy process that we.
Go through on a regular basis anyway.
Investing in the necessity of investing in the necessity you know how we're doing there. So so we're continuing to go through that process. As you know, we really started it last fall and just.
We expected that it was going to be a difficult environment in 'twenty three and so it's playing out how we expected and we will continue to be diligent around that we're not going to.
Do anything from a cost cutting standpoint that that harms our franchise or our long term value. We believe deeply in the markets. We're in we believe deeply in our team on the field.
Who our day to day interacting with our customers.
We've got terrific customer base.
Whatever it whatever we have to invest in.
To meet the needs as Paul said earlier to make sure. We've got the product side of the technology and everything our customers need and at the same time being mindful that you know we're running a business here and you know we need to run a high performing business and we're committed to doing that.
Appreciate the color.
Thanks, everyone.
Thanks, Paul.
Thank you. Our next question comes from the line of Brady Gailey with <unk>. Please proceed with your question.
Hey, Thanks, good morning, guys.
I know we've talked I know, we've talked about the components of the net interest margin, but when you look overall at the at the net interest margin. How do you think that trends from here I know in the past we've talked about.
Once the fed pauses your CRE alone, you'll catch up and you could actually see some NIM expansion, but how do you think about the overall NIM from here.
So Brady as I discussed a little bit earlier, we saw an accelerated a NIM compression in the first quarter due to predominantly the mix shift as well as some funding cost pressures, we don't expect to see that repeat in the second quarter, we do expect to see NIM bottom in the second quarter and the.
<unk> of the decline from Q1 to Q2 will be less than it was from Q4 to Q1.
But on the whole, it's hard to handicap exactly where the bottom is.
From Q3, Q4 onwards, we do expect to see NIM expansion, because we do believe that we've hit close to the peak in terms of our funding costs with the fed assuming a fed terminal rate of just above 5%.
That are at lower cap rates than what you would expect given our interest rate environment. So it speaks to the strength of the underlying markets and that's the point I'm, making with that.
As we've seen these paydowns are coming from asset sales really strong prices.
And as Dan said as we've seen these loans reset pricing and things been a wise have been very robust growth in the last three or five years since we made the loan or since at last price reset to where it is today. So we're not seeing pressure there and then.
Final comment I'll make about the CRE portfolio just to emphasize again, what Dan said is that our loan sizes are loan holds are just different than what a lot of banks that have a big CRE concentration or a large CRE concentration have our average hold sizes are much smaller.
We have many more loans against many different property, so diversification of risk by not only asset class within the asset classes. So so again and I understand.
Right now we're facing a potential as Paul said earlier storm clouds on the horizon that people are concerned about it and we get it.
And to some extent.
It's going to have to play out right and so that investors and folks can see exactly how different banks asset quality holds up we continue to be very confident in how ours will hold up and but we'll just have to play it out the next few quarters and see and see how the economy does but we remain confident in <unk>.
Not seeing any any difficulties on the horizon at this point.
That's good color thanks, guys.
Thanks Brady.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad.
Our next question comes from the line of Matt Olney with Stephens Inc. Please proceed with your question.
Hey, Thanks, good morning, everybody good.
What about that.
Paul Thanks for all the commentary on the deposit costs and the margin I'll I'll take a swing at the topic too.
If I assume a deposit beta that that moderates into queue from what we saw in <unk> and if I assume that the N b a outflow pressure there kind of eases up quite a bit in the second quarter as well.
So getting a margin that drops below 3% in the third quarter.
And that would still be kind of you know less than that margin pressure that you talked about in the first quarter I just want to make sure I'm thinking about this right as far as kind of where that margin could ultimately Tom. Thanks.
The core NIM ex accretion is going to depend upon a variety of factors. Matt obviously, we have a few offsets relative to our cost redeeming that tranche of sub debt as I noted, we did repay part of the borrowings.
That we had at the end of last quarter as well.
While we do still expect some incremental NIM compression, we do believe it should hold and a reasonable area around three so that's our expectation going into Q2.
Okay. Thanks for that Paul and you mentioned you paid down a part of that F N b.
More recently any color on kind of what that balances currently.
I don't have the updated balance right in front of me, but we continue to use short term advances on the <unk> front, what we did Matt in the back half of March as we really focused on using short duration FHA advances so that we could replace those funds selectively with brokered and core deposits as we proceed.
Our growth initiatives in that category. The funding markets were very dislocated in the last two weeks of March and the cost for both broker deposits and specialty deposits were significantly higher than where they are today. So we waited for those rates to come down at quarter end and added those started adding those funds back after quarter end.
And on that note.
How.
How favorable is that trade as you move back into some of the specialty products over the last.
A few weeks relative to FHA b any context for how much favorable available that is versus the U S. H O b.
So it's not meaningfully favorable over FHL be it's probably a spread of about 15 basis points today.
But it was very favorable related to versus the brokered market in mid March.
Got it okay.
That's helpful. Paul Thanks for that and then I have a questions had been addressed I guess, just lastly on the mortgage warehouse I think Dan mentioned expect some stability there just any color on stability versus end of period or average quite the delta we saw in the first quarter.
Yeah, Matt This is Dan good morning.
I think we indicated in there that we averaged right around almost 300 million for the quarter.
We actually saw a significant increase in AR.
In March and ended the quarter above $400 million, we continue to be at that level here in April as we have indicated in the past we expect it to be fairly flat for the year end.
And following the rest of the market, but we did see some increase as you will see there.
Okay.
Thanks, Matt.
Thank you, ladies and gentlemen that concludes our question and answer session and I will turn the floor back to Mr. Brooks for any final comments.
Thank you I appreciate everyone. Joining this morning, we remain encouraged about.
The position of our company relative to being nimble.
For whatever comes our way for the balance of the year and we expect that.
We will continue to see good growth in and we're confident in our team and confident in our ability to execute in this environment and looking forward to what the next few quarters brings in and I appreciate everyone's interest always happy too.
<unk> be available if you need us for anything feel free to reach out hope everyone has a great day.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.