Q1 2024 CrossFirst Bankshares Inc Earnings Call

Yeah.

Operator: Good morning, and welcome to the Cross First Bank Shares First Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode.

Speaker Change: Good morning, and welcome to the cross first Bancshares first quarter 'twenty 'twenty four earnings conference call.

Speaker Change: All participants will be in listen only mode.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2.

Speaker Change: So do you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

Speaker Change: After todays presentation, there will be an opportunity to ask questions.

Speaker Change: To ask a question you May press Star then one on a touchtone phone.

Speaker Change: To withdraw your question. Please press Star then two.

Operator: Please note this event is being recorded. I would now like to turn the conference over to Mike Daley, Chief Accounting Officer and Head of Investor Relations. Please go ahead.

Speaker Change: Please note this event is being recorded.

Speaker Change: I'd now like to turn the conference over to Mike Daly, Chief Accounting Officer, and head of Investor Relations. Please go ahead.

Michael John Daley: Good morning, before we begin please be aware. This call will include forward looking statements, including statements about our business plans growth opportunities expense control initiatives cash requirements and sources of liquidity capital allocation strategies and plans and our future financial performance.

Michael John Daley: Before we begin, please be aware this call will include forward-looking statements, including statements about our business plans, growth opportunities, expense control initiatives, cash requirements and sources of liquidity, capital allocation strategies and plans, and our future financial performance. These comments are based on our current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from these statements. Our forward-looking statements are as of the date of this call, and we do not assume any obligation to update or revise them, except as required by law.

Michael John Daley: These comments are based on our current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from these statements.

Michael John Daley: Our forward looking statements are as of the date of this call and we do not assume any obligation to update or revise them, except as required by law.

Michael John Daley: Statements made on this call should be considered together with the risk factors identified in today's earnings release and our other filings with the SEC. We may also refer to adjusted or non-GAAP financial measures. A reconciliation of non-GAAP financial measures to GAAP financial measures can be found in our earnings release. These non-GAAP financial measures are not meant to be a substitute for or superior to financial measures prepared in accordance with GAAP.

Michael John Daley: Statements made on this call should be considered together with the risk factors identified in today's earnings release, and our other filings with the SEC.

Michael John Daley: We may also refer to adjusted or non-GAAP financial measures a reconciliation of non-GAAP financial measures to GAAP financial measures can be found in our earnings release. These non-GAAP financial measures are not meant to be a substitute for or superior to financial measures prepared in accordance with GAAP.

Michael John Daley: Our presentation will include prepared remarks from Mike Maddox, President and CEO of Crossfirst Bank Shares, Randy Rapp, President of Crossfirst Bank, and Ben Clouse, CFO of Crossfirst Bank. At the conclusion of our prepared remarks, our operator, Cindy, will facilitate a Q&A session. At this time, I would like to turn the call over to Mike, who will begin on slide 7 of the presentation, available on our website and filed with our earnings release. Mike?

Michael John Daley: Our presentation will include prepared remarks from Mike Maddox, President and CEO of Crossroads Bancshares, Randy Rapp President of Cross first bank and Ben Clouse CFO of cross first bancshares at the conclusion of our prepared remarks, our operator, Cindy will facilitate a Q&A session at.

Michael J. Maddox: At this time I would like to turn the call over to Mike who will begin on slide seven of the presentation available on our website and filed with our earnings release Mike.

Michael J. Maddox: Thank you, Mike. Good morning, everyone, and thank you for joining us to discuss Crossfirst's first quarter financial results. Our company had a solid first quarter with strong organic loan and deposit growth, stable credit quality, expansion of non-interest income, and an increase in earnings. We continue to benefit from operating in dynamic markets with experienced talent. This combination provides steady growth as we execute our strategy focused on serving our clients and driving enhanced shareholder returns. Total assets grew to a record $7.5 billion, with loan growth at 8% on an annualized basis. Net income was $18.2 million, or $0.36 earnings per share.

Michael J. Maddox: Thank you Mike Good morning, everyone and thank you for joining us to discuss cross versus first quarter financial results.

Mike: Our company had a solid first quarter with strong organic loan and deposit growth.

Mike: Stable credit quality expansion of noninterest income and an increase in earnings.

Mike: We continue to benefit from operating in dynamic markets with experienced talent. This combination provides steady growth as we execute our strategy focused on serving our clients and driving enhanced shareholder return.

Mike: Total assets grew to a record $7 5 billion with loan growth at 8% on an annualized basis net income was $18 2 million or <unk> 36 cents earnings per share.

Michael J. Maddox: We continue to build capital with improvement in our ratios and growth in book value despite negative AOCI movements. These performance metrics demonstrate our ability to generate sustainable profits for our shareholders, and our incredible people are the drivers behind our success. I am thrilled to announce that last week our company was honored by Gallup with the prestigious Don Clifton Strengths-Based Culture Award for the second year in a row. This award recognizes companies with workplace cultures that put the strengths of leaders, managers, and employees at the core of how they work every day. Receiving this Global Award for the second year in a row is a true reflection of our collective efforts in fostering a culture that values individual strengths, collaboration, and continuous growth.

We continue to build capital with improvement in our ratios and growth in book value. Despite negative a M C I movement.

Mike: These performance metrics demonstrate our ability to generate sustainable profits for our shareholders and our incredible people are drivers behind our success.

Mike: To that end I.

I am thrilled to announce that last week, our company was honored by Gallup, what's the prestigious Dawn Clifton strengths based culture award for the second year in a row.

Mike: This award recognizes companies with workplace cultures that put the strengths of leaders managers and employees at the core of how they work every day.

Mike: Receiving this global award for the second year in a row is a true reflection of our collective efforts and fostering a culture that values individual strengths collaboration and continuous growth.

Michael J. Maddox: It is also a testament that when you focus on the relationship between employee contributions and overall business outcomes, you will build a culture of engaged employees, which leads to an increase in performance. Despite a challenging macro environment, we continue to see good new business opportunities in our markets and verticals. This has allowed us to continue to have a moderate level of loan growth while maintaining a focus on quality deals and appropriately managing risk.

Mike: Also a testament that when you focus on the relationship between employee contributions than the overall business outcomes, you will build a culture of engaged employees, which leads to an increase in performance.

Mike: Despite a challenging macro environment, we continue to see good new business opportunities in our markets and verticals.

Mike: This has allowed us to continue to have a moderate level of loan growth, while maintaining a focus on quality deals and appropriately managing risk.

Michael J. Maddox: This strategy has helped us navigate uncertainties in the market and ensure the stability of our loan portfolio. Commercial real estate continues to be an area of heightened focus for us and our industry, as a result of our strong clients and economically robust market. We are not seeing deterioration in this portfolio.

Mike: This strategy has helped us navigate uncertainties in the market and ensure the stability of our loan portfolio.

Mike: Commercial real estate continues to be an area of heightened focus for us and our industry.

Mike: As a result of our strong clients and economically robust markets, we are not seeing deterioration in this portfolio.

Michael J. Maddox: Our investor office portfolio, predominantly comprised of suburban and single-tenant properties located in our footprint, continues to remain strong and perform as anticipated. Randy will cover more details on the loan portfolio in a moment, but I do want to highlight that the increase in our CRE portfolio is in large part due to the two strategic acquisitions we made over the last 18 months. We are now predominantly fulfilling prior loan commitments and are focused on reducing our concentration in CRE back toward historic levels.

Mike: Our our Investor office portfolio predominantly comprised of suburban and single tenant properties located in our footprint continues to remain strong and perform as anticipated.

Mike: Randy will cover more details on our loan portfolio in a moment.

Mike: But I do want to highlight that the increase or in our CRE portfolio is in large part due to the two strategic acquisitions, we made over the last 18 months.

Mike: We are now predominantly fulfilling prior loan commitments and are focused on reducing our concentration in CRE back towards historic levels.

Michael J. Maddox: We had nice organic growth and client deposits this quarter, led by Kansas City, Oklahoma, and Phoenix Market, despite the continued highly competitive environment. We are also happy with the year-over-year growth in non-interest income, fueled in part by the development of our newer markets and vertical. Specifically, SBA and Treasury fees were a significant part of the non-interest income expansion.

Mike: We had nice organic growth in client deposits this quarter led by Kansas City, Oklahoma and Phoenix markets. Despite the continued highly competitive environment.

Mike: We are also happy with the year over year growth in noninterest income fueled in part by the development of our newer markets and verticals.

Specifically S P. A and treasury fees were a significant part of the noninterest income expansion.

Michael J. Maddox: The growth in loans, deposits, and non-interest income reflects our commitment to providing secure and reliable banking services to our clients and building trusted relationships within our markets and verticals. We will continue to focus on deposits and non-interest income opportunities and have aligned our bankers' incentive plans and goals to drive that focus. This historic rising rate environment has been challenging for financial institutions, putting pressure on net interest margins, earnings, and capital.

Mike: The growth in loans deposits and noninterest income reflects our commitment to providing secure and reliable banking services to our clients and building trusted relationships within our markets and verticals.

Mike: We will continue to focus on deposits and noninterest income opportunities and have aligned our bankers' incentive plans and goals to drive that focus.

Mike: This historic rising rate environment has been challenging for financial institutions, putting pressure on net interest margin earnings and capital.

Michael J. Maddox: Our highly variable balance sheet has benefited us, which Ben will cover in more detail shortly. I remain confident in our ability to navigate the evolving financial landscape and optimistic about our future due to the strong markets we operate in. We have a highly experienced team of bankers focused on optimization and efficiency as we continue to scale our operations while enhancing franchise value. As we look ahead, we remain committed to our strategic goals and will continue to focus on delivering value to our clients, shareholders, and communities.

Mike: Our highly variable balance sheet has benefited us, which Ben will cover in more detail shortly.

Mike: I remain confident in our ability to navigate the evolving financial landscape and optimistic about our future due to the strong markets we operate in.

Mike: We have a highly experienced team of bankers focused on optimization and efficiency as we continue to scale our operations, while enhancing franchise value.

Mike: As we look ahead, we remain committed to our strategic goals and will continue to focus on delivering value to our clients shareholders and communities.

Michael J. Maddox: We intend to continue to grow prudently, efficiently, and profitably by optimizing operations and maximizing Key Technology Investments while continuing to manage expenses. Thank you for your continued support and trust in Crossfirst, and now I'd like to turn the call over to our President of Crossfirst Bank, Randy Rapp.

Mike: We intend to continue to grow prudently efficiently and profitably by optimizing operations.

Maximizing key technology investments, while continuing to manage expenses.

Mike: Thank you for your continued support and trust in cross first and now I'd like to turn the call over to our President of Cross first Bank Randy Rapp.

Randy Rapp: Thanks Mike, and good morning everyone. In Q1, we reported loan and deposit growth in line with our expectations while increasing fee income and maintaining solid credit metrics. For the quarter, total loan growth was $121 million, resulting in a growth rate of 2% for the quarter, or 8% on an annualized basis. Primary contributors to growth in the quarter were commercial real estate, C&I, and owner-occupied real estate. We continue to focus on increasing loan yields, and the average loan yield on new production in the quarter was a strong 8.58%.

Randy Rapp: Thanks, Mike and good morning, everyone. In Q1, we reported loan and deposit growth in line with our expectations, while increasing fee income and maintaining solid credit metrics for.

Randy Rapp: For the quarter total loan growth was 121 million, resulting in a growth rate of 2% for the quarter or 8% on an annualized basis.

Randy Rapp: Primary contributors to growth in the quarter were commercial real estate C&I and owner occupied real estate, we continue to focus on increasing loan yields and the average loan yield on new production in the quarter was a strong 8.58%.

Randy Rapp: Loan growth for the quarter was broad-based across our markets and lines of business, led by the Dallas-Fort Worth, Denver, and Kansas City markets and the energy and restaurant finance lines of business. We continue to gain momentum in our SBA line of business, which contributed to fee income in Q1.

Randy Rapp: Loan growth for the quarter was broad based across our markets and lines of business led by the Dallas Fort Worth Denver, and Kansas City markets and the energy and restaurant finance lines of business. We continue to gain momentum in our SBA line of business, which contributed to fee income in Q1.

Randy Rapp: Quarter End average C&I line utilization was 51%, which is slightly above the historical usage percentage rate of 48%, and consistent with the line utilization rate in Q4, portfolio churn decreased and remains below the historical average level. Although portfolio churn has been low, we expect this churn to increase significantly over the next several quarters, primarily in the commercial real estate portfolio. We have heard from many of our CRE clients that they intend to sell or take stabilized properties to the permanent markets in the coming quarters based on acceptable cap rates and long-term fixed interest rates. Our loan portfolio continues to remain balanced, with 44% in commercial real estate and 44% in C&I and owner-occupied real estate. Energy outstandings were $221 million, or 4% of the total portfolio.

Randy Rapp: At quarter in average C&I line utilization was 51%, which is slightly above the historical usage percentage rate of 48% and consistent with the line utilization rate in Q4.

Randy Rapp: Portfolio churn decreased and remain below the historical average level.

Randy Rapp: Although portfolio churn has been low we expect this churn to increase significantly over the next several quarters, primarily in the commercial real estate portfolio.

Randy Rapp: We have heard for many of our CRE clients that they intend to sell or take stabilized properties to the permanent markets in the coming quarters based on acceptable cap rates and long term fixed interest rates.

Our loan portfolio continues to remain balanced with 44% in commercial real estate and 44% in C&I and owner occupied real estate energy Outstandings were 221 million or 4% of the total portfolio.

Randy Rapp: On slide 8, you can see there remains good diversity within each of those portfolios, with the highest CRE property type, industrial, accounting for 23% of total CRE exposure, and the largest industry segment in C&I, being restaurants, at 10% of C&I exposure and 3.7% of total loans. In the CRE portfolio, total office exposure is now $291 million, which is flat compared to the end of Q4, and is 4.7% of total loans. The average office loan size remains $7 million, and the largest is $25 million.

Randy Rapp: On slide eight you can see there remains good diversity within each of those portfolios with the highest CRE property type industrial accounting for 23% of total CRE exposure and the largest industry segment in C&I being restaurants at 10% of C&I exposure and three seven.

Randy Rapp: <unk> of total loans.

Randy Rapp: In the CRE portfolio total office exposure is now 291 million, which is flat compared to the end of Q4 and is four 7% of total loans.

Randy Rapp: The average office loan size remains 7 million and the largest is $25 million.

Randy Rapp: The average loan-to-value is 61%, and the majority of the portfolio is suburban, Class A and B offices. As previously stated, approximately half of the portfolio is set to mature in the next two years. However, 75% of these maturities are loans with floating rates, which have been repricing up through this rate cycle. We currently have one $13.9 million office transaction, graded special mention, which has the support of a strong guarantor, and the remainder of the portfolio has a past grade. We have followed our strongest sponsors to other markets, but the majority of the exposure is in our footprint, centered in Texas, Kansas City, and Colorado.

Randy Rapp: The average loan to value is 61% and the majority of the portfolio is suburban class a and B office that's.

Randy Rapp: As previously stated approximately half of the portfolio is set to mature in the next two years. However, 75% of these maturities are loans with floating rates, which had been repricing up through this rate cycle.

Randy Rapp: We currently have $113 9 million dollar office transaction graded special mention which has the support of a strong guarantor and the remainder of the portfolio has a pass grade we.

We have followed our strongest sponsors to other markets, but the majority of the exposure is in our footprint centered in Texas, Kansas City and Colorado.

Randy Rapp: During Q1, total CRE commitments decreased slightly from $3.3 billion at year-end 2023 to $3.2 billion, and unfunded CRE balances decreased from $734 million at year-end 2023 to $595 million at year-end 331-24. Total CRE outstandings increased from $2.57 billion to $2.66 billion, led by funding in the industrial and multifamily portfolios. As previously mentioned, we anticipate increased churn in the CRE portfolio, which will lower total CRE exposure in future quarters. Moving to credit highlights on slide 9, for Q1, we reported a non-performing asset to total asset ratio of 27 basis points, which is down from the 34 basis points reported at the end of Q4.

During Q1 total CRE commitments decreased slightly from $3 3 billion at year end 2023 to $3 2 billion in unfunded CRE balances decreased from 734 million at year in 'twenty $3 million to $595 million at 331.

Randy Rapp: <unk> 24.

Randy Rapp: Total CRE Outstandings increased from 2.57 billion to $2 six 6 billion led by fundings in the industrial and multifamily portfolios. As previously mentioned, we anticipate increased churn in the CRE portfolio, which will lower total CRE exposure in future quarters.

Randy Rapp: Moving to credit highlights on slide nine for Q1, we reported a nonperforming assets to total asset ratio of 27 basis points, which is down from the 34 basis points reported at the end of Q4. The decrease was primarily due to a reduction in 90 day past due.

Randy Rapp: The decrease was primarily due to a reduction in 90-day past-due C&I transactions, and the remaining non-performing loans are primarily C&I transactions, with the largest exposure being The ORE balance increased to $5.3 million during Q1 due to a foreclosure on a previously identified non-performing loan secured by residential lots and residences in Austin, TX. We believe our carrying value is appropriate based on a current appraisal and healthy Austin residential

Randy Rapp: C&I transactions and the remaining nonperforming loans are primarily C&I transactions with the largest exposure being under 5 million.

Randy Rapp: C O R E balance increased to $5 3 million during Q1 due to a foreclosure on a previously identified nonperforming loan secured by residential lots in residences in Austin, Texas, We believe our carrying value is appropriate based on our current appraisal and healthy Austin residential market.

Randy Rapp: Classified loans to total capital plus combined reserves ended Q1 at 15.8%, which is up slightly compared to 14.8% at the end of Q4 and remains at an acceptable level. At the end of Q1, classified loan totals were comprised of 71% in the C&I space, 19% commercial real estate, and 9% owner-occupied real estate. At the end of Q1, we reported an increase in past due transactions, which is primarily attributable to some administrative delays at quarter end, and we expect this figure to return to historical levels in future quarters.

Randy Rapp: Classified loans to total capital plus combined reserves ended Q1 at 15, 8%, which is up slightly compared to 14, 8% at the end of Q4 and remains at an acceptable level at the end of Q1 classified loan totals are comprised of 71%.

Randy Rapp: In the C&I space, 19% commercial real estate and 9% owner occupied real estate classified loans in the energy portfolio are negligible.

Randy Rapp: At the end of Q1, we reported an increase in past due transactions, which is primarily attributable to some administrative delays.

Quarter end and we expect this figure to return to historical levels in future quarters.

Randy Rapp: For the quarter, we reported net charge-offs of 1.5 million, resulting in a charge-off rate of 10 basis points on an annualized basis and 8 basis points on a trailing 12-month basis. Charge-offs for the quarter were primarily attributable to several small C&I credits and the foreclosed credit previously mentioned.

Randy Rapp: For the quarter, we reported net charge offs of 1.5 million, resulting in a charge off rate of 10 basis points on an annualized basis and eight basis points on a trailing 12 month basis charge offs for the quarter were primarily attributable to several small C&I credits and the foreclosed credit previously mentioned.

Randy Rapp: At Quarter End, we report an allowance for credit loss to total loan ratio of 1.2%, which is flat compared to the end of Q4. The combined allowance for credit loss and reserve for unfunded commitments totaled 1.28%. The slight decrease in total reserves compared to Q4 is due to a significant reduction in unfunded commitments driving less reserves.

Randy Rapp: At quarter end, we reported an allowance for credit loss to total loan ratio of 1.2%, which is flat compared to the end of Q4.

Randy Rapp: Combined allowance for credit loss and reserve for unfunded commitments totaled one point to 8%.

Randy Rapp: The slight decrease in total reserves compared to Q4 is due to a significant reduction in unfunded commitments driving less reserve provision expense of 1.65 million was lower than the Q4 provision due to lower loan growth and lower charge off activity during the quarter the provision to charge.

Randy Rapp: Provision Expense of $1.65 million was lower than the Q4 provision due to lower loan growth and lower charge-off activity during the quarter. The provision to charge-off ratio was 113%. With a total ACL of $74.9 million, our current ACL to non-performing loan ratio is 499%. As always, we remain highly focused on maintaining good credit metrics moving forward. Turning to slide 10, for Q1, deposits increased 1.5% to $6.6 billion, up $96 million from the previous quarter. Non-interest-bearing deposits decreased slightly during the quarter to $954 million and now represent 14.5% of total deposits.

Randy Rapp: Off ratio was 113% with a total ACL of $74 9 million, our current ACL to nonperforming loan ratio is 499% as always we remain highly focused on maintaining good credit metrics moving forward.

Randy Rapp: Turning to slide 10 for Q1 deposits increased 1.5% to $6 6 billion up $96 million from the previous quarter noninterest bearing deposits decreased slightly during the quarter to $954 million and now represent 14, 5% of total deposits.

Randy Rapp: We reported minimal growth in time deposits for the quarter and higher growth in our other interest-bearing deposits. We are pleased with our loan growth, overall portfolio diversification, and credit metrics and expect our CRE exposure to moderate over the coming quarters. We remain focused on deposit growth and mix and have made adjustments to our incentive program to enhance the rewards attributable to deposit generation. Fee income also remains a focus area centered on SBA, treasury fees, and credit card revenue.

Randy Rapp: We reported minimal growth in time deposits for the quarter and higher growth in our other interest bearing deposits.

Randy Rapp: We are pleased with our loan growth overall portfolio diversification and credit metrics and expect our CRE exposure to moderate over the coming quarters, we remain focused on deposit growth and mix and have made adjustments to our incentive program to enhance the rewards attributable to deposit generation.

Randy Rapp: Fee income also remains a focus area centered around S. P. A treasury fees and credit card revenue, we plan to continually heavily scrutinizing the existing loan portfolio looking for negative credit trends and are being disciplined adhering to our underwriting standards for new exposure, we are fortunate to be.

Randy Rapp: We plan to continue to heavily scrutinize the existing loan portfolio, looking for negative credit trends, and are being disciplined in adhering to our underwriting standards for new exposure. We are fortunate to be located in markets with high job growth and economic expansion. I will now turn the call over to Ben to cover the financial results in more detail.

Randy Rapp: In be located in markets with high job growth and economic expansion.

Randy Rapp: Now I'll turn the call over to Ben to cover the financial results in more detail then.

Benjamin Russell Clouse: Thanks, Randy, and good morning, everyone. As Mike said, net income this quarter was $18.2 million, or $0.36 per diluted share. This was an increase of about 3% from last quarter, or $0.01 per EPS. Lower provision expense and higher non-interest income drove the increase and were partially offset by increased non-interest expenses. Net interest income was nearly flat despite one less day this quarter.

Benjamin Russell Clouse: Thanks, Randy and good morning, everyone.

As Mike said net income this quarter was $18 2 million or <unk> 36 cents per diluted share. This was an increase of about 3% from last quarter or one cent of E. P. S.

Benjamin Russell Clouse: Lower provision expense and higher noninterest income drove the increase and were partially offset by increased noninterest expenses.

Benjamin Russell Clouse: Net interest income was nearly flat despite one less day this quarter.

Benjamin Russell Clouse: Quarterly return on average assets was 1.0% and return on average common equity was 10, 4%.

Benjamin Russell Clouse: Quarterly return on average assets was 1.0%, and return on average common equity was 10.4%. We realized good organic balance sheet growth in the quarter, as Randy outlined, and we are pleased to see continued profitability improvement in the quarter's results. Interest income expanded this quarter with a balanced contribution from both higher yields and higher average balances, partially offset by one less day.

Benjamin Russell Clouse: We realized good organic balance sheet growth in the quarter as Randy outlined and we are pleased to see continued profitability improvement in the quarter's results.

Benjamin Russell Clouse: Interest income expanded this quarter with a balanced contribution from both higher yields and higher average balances, partially offset by one less day.

Benjamin Russell Clouse: We have a long term rate hedged to protect against declining rates with a modest notional amount that became effective this quarter.

Benjamin Russell Clouse: We have a long-term rate hedge to protect against declining rates with a modest notional amount that became effective this quarter. Slide 11 outlines the change in our net interest margin this quarter. The underlying yield on earning assets increased 16 basis points, although the hedge offset that by 7 basis points, resulting in an earning asset yield of 6.72% this quarter, with expansion due to loan repricing as well as higher yields on new loans. Better yields on our investments or securities portfolio also contributed. Average earning assets increased $80 million compared to the prior quarter, primarily due to loan growth.

Benjamin Russell Clouse: Slide 11 outlines the change in our net interest margin this quarter.

Benjamin Russell Clouse: The underlying yield on earning assets increased 16 basis points, although the hedge offset that by seven basis points, resulting in an earning asset yield of 672% this quarter with expansion due to loan repricing as well as higher yields on new loans.

Benjamin Russell Clouse: Better yields on our investment Securities portfolio also contributed.

Benjamin Russell Clouse: Average, earning assets increased 80 million compared to the prior quarter, primarily due to loan growth.

Benjamin Russell Clouse: Our total cost of deposits was 387% for the quarter, increasing 13 basis points or.

Benjamin Russell Clouse: Our total cost of deposits was 3.87% for the quarter, increasing 13 basis points. Our total non-maturity deposit beta against the entire rate cycle through the first quarter remained at 57, in line with our expectations, and the pace of increase in the cost of deposits continued to moderate. Our deposit base remained consistent with the prior quarter in terms of diversification and composition, and our loan to deposit ratio was up slightly to 95%. Borrowings were slightly down from the prior quarter, and we kept wholesale funding flat as a percentage of assets.

Benjamin Russell Clouse: Our total non maturity deposit beta against the entire rate cycle through the first quarter remained at 57 in line with our expectations and the pace of increase in our cost of deposits continued to moderate.

Benjamin Russell Clouse: Our deposit base remained consistent with the prior quarter in terms of diversification and composition.

Benjamin Russell Clouse: Our loan to deposit ratio was up slightly to 95%.

Benjamin Russell Clouse: Borrowings were slightly down from the prior quarter and we kept whole self funding flat as a percentage of assets.

Benjamin Russell Clouse: Fully tax equivalent net interest margin was down three basis points compared to the prior quarter to 320 in line with our expected range.

Benjamin Russell Clouse: Fully tax-equivalent net interest margin was down 3 basis points compared to the prior quarter to 3.20, in line with our expected range. We expect our NIM to improve modestly with any rate cuts this year, and we remain slightly liability sensitive. For the quarter, yield on assets slightly outpaced the increase in cost of funds, with the hedge causing a slight decline overall from last quarter. Our NIM has remained stable in the low 320s since the second quarter of 2023.

Benjamin Russell Clouse: We expect our NIM to improve modestly with any rate cuts this year and we remain slightly liability sensitive.

Benjamin Russell Clouse: For the quarter yield on assets slightly outpaced the increase in cost of funds with the hedge causing the slight decline overall from last quarter.

Benjamin Russell Clouse: Our NIM has remained stable in the low 300, twenty's since the second quarter of 2023.

Benjamin Russell Clouse: We have worked diligently to position our balance sheet to perform in the current higher for longer rate environment, while preparing for potential rate cuts.

Benjamin Russell Clouse: We have worked diligently to position our balance sheet to perform in the current higher-for-longer rate environment while preparing for potential rate cuts. As we shared last quarter, our expected margin is in a range of $3.20 to $3.25 and assumes two rate cuts this year. Fewer cuts would put our margin at the lower end of this range.

Benjamin Russell Clouse: As we shared last quarter, our expected margin is in a range of $3 20 to $3 25 and assumes two rate cuts this year.

Benjamin Russell Clouse: Fewer cuts would put our margin at the lower end of this range.

Benjamin Russell Clouse: I also want to provide some additional color on our balance sheet positioning.

Our earning assets continue to be primarily variable at 65% reprice or mature in the next 12 months.

Benjamin Russell Clouse: I also want to provide some additional color on our balance sheet positioning. Our earning assets continue to be primarily variable as 65% reprice or mature in the next 12 months. As Randy outlined, our loan growth was right in line with the lower end of our expectation this quarter, and we continue to expect loan and deposit growth in 2024 in a range of 8 to 10 percent. On the liability side, 26% of our client deposits are indexed and will automatically move down with any Fed rate movement.

Benjamin Russell Clouse: As Randy outlined our loan growth was right in line with the lower end of our expectation this quarter and we continue to expect loan and deposit growth in 2024 in a range of 8% to 10%.

Benjamin Russell Clouse: On the liability side, 26% of our client deposits are indexed and will automatically moved down with any fed rate movement.

Benjamin Russell Clouse: In addition, we have short duration brokered deposits of 15%.

Benjamin Russell Clouse: Our CD portfolio duration has continued to shorten as we incentivize clients to move into six and nine month products and we have 900 million of client Cds that mature in the next 12 months.

Benjamin Russell Clouse: In addition, we have short-duration broker deposits of 15%. Our CD portfolio duration has continued to shorten as we incentivize clients to move into six- and nine-month products, and we have 900 million in client CDs that mature in the next 12 months. As we renew CDs, the expected pressure on margin continues to narrow.

Benjamin Russell Clouse: As we renew Cds the expected pressure to margin continues to narrow.

Benjamin Russell Clouse: Finally, we entered into a rate hedge as I mentioned, a number of quarters ago to offset the loan sensitivity and while we have had to overcome the impact on net interest income given the lack of fed rate actions the hedges performing as we expected.

Benjamin Russell Clouse: Finally, we entered into a rate hedge, as I mentioned, a number of quarters ago to offset the loan sensitivity. And while we have had to overcome the impact on net interest income given the lack of Fed rate actions, the hedge is performing as we expected. Non-interest income was $5.6 million for the quarter, expanding from last quarter, which included the bond portfolio restructuring loss.

Benjamin Russell Clouse: Noninterest income was $5 6 million for the quarter expanding from last quarter, which included the bond portfolio restructuring loss on a year over year basis noninterest income grew 26% with contributions from Treasury credit card and S. P a being the largest dry.

Benjamin Russell Clouse: <unk>.

Benjamin Russell Clouse: On a year-over-year basis, non-interest income grew 26%, with contributions from Treasury, Credit Card, and SBA being the largest drivers. These will be continued focus areas of growth in 2024, supported by targeted pricing increases in treasury products. Moving to slide 12, non-interest expense increased $2.5 million this quarter compared to the prior quarter, due primarily to compensation, as expected. The main drivers of compensation were returning to full incentive accrual and the reset of benefits and taxes at the beginning of the year. Our headcount is nearly flat, being up four since year-end.

Benjamin Russell Clouse: These will be continued focus areas of growth in 2020 four supported by targeted pricing increases in treasury products.

Benjamin Russell Clouse: Moving to slide 12, noninterest expense increased $2 5 million this quarter compared to the prior quarter due primarily to compensation as expected.

Benjamin Russell Clouse: The main drivers of compensation, we're returning to a full incentive accrual and the reset of benefits and taxes at the beginning of the year.

Benjamin Russell Clouse: Our head count is nearly flat being up four since year end.

Benjamin Russell Clouse: Expenses were slightly above our guidance this quarter due to a benefits true up in Oreo costs, and we expect to have a run rate right around $37 million per quarter.

Benjamin Russell Clouse: We remain highly focused on our efforts to drive additional efficiencies and gain operating leverage in 2024.

Benjamin Russell Clouse: Expenses were slightly above our guidance this quarter due to a benefits true-up and REO costs, and we expect to have a run rate right around $37 million per quarter. We remain highly focused on our efforts to drive additional efficiencies and gain operating leverage in 2024. Our tax rate this quarter was consistent at 21%, and we expect the rate to remain in a range of 20 to 22% this year. On slide 13, our liquidity remains strong, consistent with the prior quarter at 33% of assets. We have significant liquidity of approximately $2.5 billion from on and off balance sheet sources.

Benjamin Russell Clouse: Our tax rate this quarter was consistent at 21% and we expect the rate to remain in a range of 20% to 22% this year.

Benjamin Russell Clouse: On slide 13, our liquidity remains strong consistent with the prior quarter at 33% of assets, we have significant liquidity of approximately $2 5 billion from on and off balance sheet sources.

Benjamin Russell Clouse: On slide 14, we continue to advance our goal of building capital this quarter as we saw moderate asset growth strong earnings and a continued decline in unfunded commitments.

We intend to continue to focus on building capital from here balanced with a focus on shareholder return.

Benjamin Russell Clouse: On slide 14, we continue to advance our goal of building capital this quarter, as we saw moderate asset growth, strong earnings, and a continued decline in unfunded commitment. We intend to continue to focus on building capital from here, balanced with a focus on shareholder return. In the first quarter, with continued strong earnings, we restarted share buybacks after pausing through all of 2023. We repurchased 112,000 shares at a weighted average cost of $13.10 compared to a tangible book value per share of $13.70 at quarter end.

Benjamin Russell Clouse: In the first quarter with continued strong earnings we restarted share buybacks after pausing through all of 2023.

Benjamin Russell Clouse: We repurchased 112000 shares at a weighted average cost of $13.10 compared to tangible book value per share of $13.70 at quarter end.

Benjamin Russell Clouse: We believe we can continue to achieve our goal to build capital while dedicating a portion of our earnings to shareholder return through modest buybacks at a price below book value.

In summary, we started 2024 with strong earnings great organic growth and continued advancement of our strategy.

Benjamin Russell Clouse: We believe we can continue to achieve our goal to build capital while dedicating a portion of our earnings to shareholder return through modest buybacks at a price below book value. In summary, we started 2024 with strong earnings, great organic growth, and continued advancement of our strategy. Operator, we are now ready to begin the question and answer portion of the call.

Speaker Change: Operator, we are now ready to begin the question and answer portion of the call.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker Change: If you are using a speaker phone please pick up your handset before pressing the keys.

Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Operator: If at any time your question has been answered and you would like to withdraw your question, please press star then 2. Please limit yourself to one question and one follow-up question. The first question comes from Woody Lay of KBW. Go ahead, please. Hey, good morning, guys. Good morning, everybody. I wanted to start with credit and specifically the 30 to 89 day past-due bucket. I believe in the opening comments you called out some administrative issues there, but would that increase just one relationship? And any color you can give on that segment?

Speaker Change: Please limit yourself to one question and one follow up question.

Speaker Change: Yeah.

Speaker Change: The first question comes from Woody lay of Kb definitely ill go ahead. Please.

Woody Lay: Hey, good morning, guys.

Woody Lay: Yeah.

Woody Lay: Okay.

Woody Lay: Wanted to start with credit.

Woody Lay: Specifically, the 30 to 89 day past due bucket I believe in the opening comments you called out.

Woody Lay: Some administrative issues there, but what was that increase just one relationship in and any color you can give on on that segment.

Randy Rapp: Hi Woody, this is Randy. There were a couple of larger transactions in here that are in the process of renewing. And as I said, those are administrative. One of them was that there is a strong guarantor that was out of the country and is now back and has executed documents. One was a participation that the company was selling, and we expected to be paid off by quarter end, and that got pushed into the quarter. No common theme there, just a couple that the quarter had those administrative issues. But, as I said, we expect that number to return to historical levels in this current quarter.

Woody Lay: Yeah. This is Randy there was a couple of larger transactions in that that or in the process of renewing.

Randy Rapp: And as I said those are administrative one of them was theres a strong guarantor that was out of the country and is now back and has executed documents. One was a participation that the company was selling and we expect it to be paid off by quarter end and that got pushed into the quarter. So you know.

Randy Rapp: No no common theme there just a couple of that that are at the border had those administrative issues, but as I said, we expect that number to two or returned to historical levels in the current quarter.

Randy Rapp: Got it. And then on the classified ones, it looks like it picked up a little bit quarter over quarter. I heard that

Speaker Change: Got it and then on the classified loans it looks like it ticked up a little bit quarter over quarter, I I heard that detail, but any additional info on just what drove the linked quarter increase.

Randy Rapp: detail, but any additional info on just what drove the

Randy Rapp: The increase was minimal, you know, from $4 million to $5 million.

The increase.

Speaker Change: The increase was was minimal went from $14 eight to 15, 8% of capital.

Randy Rapp: of Capital, primarily driven by a couple of C&I transactions, but again, when we look across our substandard in our C&I, there's no real industry concentration to note.

Really driven by a couple of C&I transactions mm.

Speaker Change: But again, when we look across our sub standard and our C&I, there's no real industry concentration Ah to note.

Randy Rapp: Got it. All right, that's all for me. Thanks for taking my question. Thanks, Brady. Thanks, Brady. The next question comes from Michael Rose of Raymond James. Go ahead, please. Hey, good morning, everyone. Thanks for taking my questions. Just just circling back on the credit questions that were just asked, you know, I think what I hear from investors on you guys sometimes is, you know, kind of newer banks haven't been through a credit cycle yet. And now I understand.

Speaker Change: Got it alright, that's all for me Thanks for taking my question.

Speaker Change: Thanks Ronnie.

Speaker Change: The next question comes from Michael Rose of Raymond James Go ahead. Please.

Hey, good morning, everyone. Thanks for taking my questions just just circling back on the on the credit questions that were just asked you know I think what I hear from investors on you guys, sometimes as you know kind of newer bank.

Michael Edward Rose: Hasn't been through a credit cycle yet.

Speaker Change: Now I understand.

Michael Edward Rose: There are administrative issues, but if I look at the classifieds, I understand Q1Q they were only up a little bit. But if you look year over year, they're up fairly meaningfully. You could probably say that for the industry, up from a very low base. How can you help us and help investors just gain comfort around credit underwriting, and your reserve levels at this point? And maybe some fears that you guys have been a high-growth bank, maybe that growth has moderated as you've gotten bigger.

Speaker Change: There's administrative issues, but if I look at the classifieds I understand Q on Q. They were only up a little bit, but if you look year over year, they're up fairly meaningfully you could probably say that for the industry off of a very low base, but.

Speaker Change: How can you help us and help investors just just gaining comfort around.

Speaker Change: Credit underwriting your reserve levels at this point.

And just maybe some fears that you guys would have been a high growth bank, maybe that growth has moderated as you've gotten bigger deals.

Michael Edward Rose: gotten bigger and done some deals, but you haven't been through a credit cycle yet, so you have kind of an untested loan book. Just some general commentary on credit that would give us a little bit more comfort.

Speaker Change: But you haven't been through a credit cycle yet so.

Speaker Change: End of an untested loan book just just this is just some general commentary on credit that would give us a little bit more comfort on kind of the underwriting process and kind of where we stand in terms of reserves.

Michael Edward Rose: and kind of where we stand in terms of reserves. Thanks.

Speaker Change: Yeah, and Michael this is Randy.

Randy Rapp: Yeah I understand the question.

Randy Rapp: Michael, this is Randy. I understand the question. We feel good about our credit metrics and quality, and we do get that we haven't been through a cycle, but we've been through some pretty interesting times in pandemics and large increases in rates, and the portfolio has continued to perform, and really those metrics have improved. And so we're in the quarter with sub-30 non-performing loans, a total reserve of 1.2. We have frequent third-party loan review exams, which validate our grading process and reserve level.

Randy Rapp: We feel good about our credit metrics and quality and we do get that that we haven't been through a cycle, but we've been through some pretty interesting times and pandemics.

Randy Rapp: Large increases in rates and the portfolio has continued to perform and really those metrics have improved and so in the quarter with sub 30 nonperforming a total reserve of one point to.

Randy Rapp: We have frequent a third party loan review exams, which validate our our grading process and reserve level and again.

Randy Rapp: Again, we feel good about our underwriting standards and that we've adhered to those and and again feel good about the quality of our sponsors and finally, the quality of the markets, which we're in and there's obviously been a lot of noise in credit and across the country, but when you really look at our footprint in the Midwest. We've we've.

Randy Rapp: And again, we feel good about our underwriting standards and that we've adhered to those, and again, we feel good about the quality of our sponsors, and finally, the quality of the markets in which we operate. And there's obviously been a lot of noise in credit and across the country, but when you really look at our footprint in the Midwest, those markets continue to produce strong job creation through migration and are benefiting, I think, our credit metrics.

Speaker Change: You know those markets continue to produce strong job creation in migration and are benefiting I think our credit metrics, yeah, Michael I'd, just add I mean, we've had a historic raisin right.

Speaker Change: The rise in rates over the last 12 months and.

Michael J. Maddox: Yeah, Michael, I'd just add, I mean, we've had a historic rise in rates over the last 12 months and, you know, classified loans to capital are still under 16%, which is historically a very low number. Our non-performing loan number is strong, and, you know, over our 16-year history overall, other than other

Speaker Change: Classified loans the capital is still under 16%, which is historically a very low number our nonperforming numbers strong and you know over our 16 year history overall other than a short blip in 19 2019, I mean, we haven't had any significant charge offs.

Speaker Change: And so we have a lot of third party eyes on our portfolio and they come back with consistent.

Michael J. Maddox: and so we have a lot of third-party eyes on our portfolio, and they come back with consistent results. Randy and his team are extremely diligent in monitoring our portfolio, and so we feel really good about it. We have strong sponsors, we're in good markets, we stick to our knitting, we have good diversification, and our portfolio, I feel strongly, is going to continue to perform well, and so I don't know what else to do other than keep doing it every quarter.

Speaker Change: <unk>, Randy and his team.

Speaker Change: Our our extremely diligent on monitoring our portfolio.

Speaker Change: And so we feel really good about it we have we have strong sponsors.

Speaker Change: We're in good markets.

Speaker Change: We stick to our knitting.

Speaker Change: We have good diversification.

Speaker Change: And our portfolio I feel strongly is going to continue to perform well and so I don't know what else to do other than keep doing it every quarter I'm you know I wish I could fast forward are aged 32 years.

Michael J. Maddox: I wish I could fast forward our age to 32 years and we would have cycles, but I can't. We're 16 years old, and as Randy said, we've been through some interesting times, and the portfolios continue to perform well. I certainly understand, and thanks for all that color.

Speaker Change: We would have cycles, but I can't.

Speaker Change: We are 16 years old and as Randy said, we've been through some interesting times and the portfolio has continued to perform well.

Speaker Change: Certainly I understand and thanks for thanks for all that color, maybe just as a follow up.

Michael Edward Rose: Maybe just as a follow-up, I think I heard the expenses were gonna be kind of...

Speaker Change: I think I heard the expenses were going to be kind of towards the higher end of the of the guidance range for the next I guess.

Michael Edward Rose: of the guidance.

Michael Edward Rose: I guess the rest of the year, but I also did hear, you know.

Speaker Change: The rest of the year, but I also did here.

Michael Edward Rose: continues to strengthen the fee side. I think you mentioned Treasury, Credit, and SBA. Can you just help us better appreciate that?

Speaker Change: Strengthening our fee side I think he mentioned treasury credit and an SBA can you just help us better appreciate how those two may tie in should we kind of expect continued momentum on the fee income front as we move over the next couple of quarters. Thanks.

Michael Edward Rose: have those two may tie.

Michael Edward Rose: I kind of expect continued momentum on the fee income front as we move over the next couple quarters.

Michael J. Maddox: Michael, I would say we're very focused on fee income, really proud of the year over year increase we've had, almost 30%, and we're going to continue to be focused on expenses. We did have a few one-time things in the first quarter, but those will moderate in Q2, and we believe we still have this tremendous opportunity to drive operating leverage, and we've made plenty of investments in order to allow us to continue to grow.

Speaker Change: Hmm mm.

Speaker Change: Michael I would say, we're very focused on fee income I'm really proud of the year over year increase we've had almost 30% and.

Speaker Change: And we're going to continue to be focused on expenses. We did have a few one time things in the first quarter, but those will moderate in Q2, and we believe we still have a tremendous opportunity to drive operating leverage and.

We've made plenty of investments in order to allow us to continue to grow.

Michael J. Maddox: Balance sheet growth for us is going to be very moderate, 2% a quarter is pretty moderate for us, and although we continue to see good opportunities to continue to grow, that's going to help our net interest income, that's going to help our fee income, so we're very focused on driving fee income, holding the line on expenses, and continuing to drive operating revenue, renegotiating our core systems contract. We believe that this can create some savings for us. I mean, there are just some opportunities we have to hold the line on expenses that we should take advantage of.

Speaker Change: Balance sheet growth was going to be.

For us there's going to be very moderate too.

Speaker Change: 2% a quarter.

Speaker Change: It's pretty moderate for us and although we continue to see good opportunities to continue to grow that's going to help our net interest income that's going to help our fee income.

Speaker Change: Hum.

Speaker Change: So we're very focused on driving fee income holding the line on expenses and continuing to drive operating revenue you know we're in the middle of.

Speaker Change: Renegotiating our core systems contract, we believe that can create some savings for us I mean theres just some opportunities we have to hold hold the line on expenses that we will take advantage of them.

Benjamin Russell Clouse: Michael, it's Ben.

Benjamin Russell Clouse: Then I'd just add a couple of things to what Mike said, which is correct. We believe we'll be toward the upper end of our guidance range around 37. We've already made the investments Mike referenced in CARD and Treasury and SBA and, you know, have a real opportunity to scale the revenue base there without incremental costs. Got it okay, so it sounds like the kind of major investments the chassis has been built on now it's just extracting the operating leverage perfect.

Speaker Change: And Michael It's Ben I'd, just add a couple of things to what Mike said, which is correct. We believe will be toward the upper end of our guidance around 37 and.

Benjamin Russell Clouse: We've already made the investments Mike referenced in card and Treasury and SBA and and.

Have real opportunity to scale the revenue base, there without incremental costs.

Speaker Change: Got it okay. So it sounds like the kind of the major investments. The chassis has been built now just extracting the operating leverage perfect correct, maybe Greg just squeeze one in just because.

Benjamin Russell Clouse: [inaudible]

Michael Edward Rose: because you kind of brought up the margin. And if we don't get, you know, kind of fewer cuts than if we get fewer cuts relative to your kind of two cuts this year, you'd be towards the lower end of the range. Can you just give us some comfort?

Greg: You kind of brought up the margin and if we don't get a you know kind of fewer cuts then if we get fewer cuts relative to your kind of two cuts this year you'd be towards the lower end of the range is just to help give us some comfort if.

Michael Edward Rose: and inflation continues to be a concern; just talk about the ability to continue to reprice loans upward.

Greg: Rates continue at least market rates continue to move higher.

Greg: And inflation continues to be a concern.

Greg: Just talk about the ability to continue to reprice loans upward at a elevated pace without losing the balances and then.

Benjamin Russell Clouse: It sounds like the NIB mix is hopefully nearing a bottom, but what could cause you to fall below that? As we think about the next couple of quarters. Michael, I think page 11 is actually a good tool for that.

Greg: Yeah, It sounds like the Niv mixes, it's hopefully nearing a bottom.

Greg: But just what could cause you to kind of fall below that range.

Greg: As we think about the next couple of quarters. Thanks.

Speaker Change: Yeah, Michael I think page 11, actually it's a good tool for that and if you look at that graph on our loan yield in our in our cost of deposits you'll.

Benjamin Russell Clouse: And if you look at that graph on our loan yield and our cost of deposits, you'll see the illustration of my comment in that the change in cost of deposits quarter over quarter has continued to shrink over the last four quarters, and we believe that will continue to be the case as the pricing pressure on deposits has continued to ebb. Absent, you know, our hedge becoming effective and us taking that into the run rate, our yield on assets in recent quarters has outpaced that cost of deposits growth, and so we feel good that those will keep pace with one another, even in a relatively static rate environment. I think you know, most of the market has now come toward what some of us started the year with, which was just a couple of cuts, and we'll see what happens from there.

Speaker Change: Youll see the illustration of my comment in that the.

Speaker Change: The change in cost of deposits quarter over quarter has continued to shrink over the last.

Speaker Change: Four quarters, and we believe that will continue to be the case as the pricing pressure on deposits has continued to.

Speaker Change: Absent you know our hedge becoming effective in us taking that into the run rate our yield on assets in recent quarters has outpaced that cost of deposits growth and so we feel good that those will keep pace with one another even in a relatively static.

Speaker Change: Rate environment I think.

Speaker Change: Most of the market has now come toward our what some of US started the year with which was just a couple of cuts and we'll see what happens from from there.

Michael Edward Rose: Great, thanks for taking on my question.

Speaker Change: Great. Thanks for taking all my questions.

Michael Edward Rose: Thank you all.

Speaker Change: Hi.

Speaker Change: Yeah.

Andrew Brian Liesch: The next question comes from Andrew Liesch of Piper Sandler. Go ahead, please. Thanks, everyone. Thanks for taking the questions.

Speaker Change: The next question comes from Andrew Liesch of Piper Sandler go ahead. Please.

Andrew Brian Liesch: Thanks, everyone. Thanks for taking the questions.

Andrew Brian Liesch: Andrew just on the.

Andrew Brian Liesch: Just on the hedge that was put in, or that became effective this quarter, what else can you let us know about that? Like what rates we should be looking at? And with some of the midterm rates on the yield curve moving up so far this month, could that affect on the second quarter margin be worse than what you saw in the first quarter?

Andrew Brian Liesch: That was put out that became effective this quarter what.

Andrew Brian Liesch: What else can you, let us know about that like what rates should we be looking at and with some of the mid term rates and the yield curve moving up so.

So far this month could that effect on the second quarter margin would be worse than.

Benjamin Russell Clouse: Sure. Good morning, Andrew. It's Ben.

Andrew Brian Liesch: What you saw in the first quarter.

Speaker Change: Sure. Good morning, Andrew it's been that hedge just to give a little color, it's really a color, but the floor of that call or is what's out of the money it's linked to so for.

Benjamin Russell Clouse: That hedge, just to give a little color, it's really a collar, but the floor of that collar is what's out of the money. It's linked to SOFR. You know, it's a three-year hedge, and so it just started becoming effective in the first quarter. My projection is we're not going to see a lot of movement in SOFR in the second quarter, like we might with longer-term rates, as I was mentioning to Michael. You know, we took that into our run rate this quarter.

Speaker Change: It's a three year hedge and so it just started becoming effective in the first quarter. My projection is we're not going to see a lot of movement and so far in the second quarter.

Speaker Change: Like we may with longer term rates.

Speaker Change: As I was.

Speaker Change: Mentioning to Michael you know, we took that into our run rate this quarter, so that caused a little bit of a dip but.

Benjamin Russell Clouse: So that caused a little bit of a dip, but it's now in NIM and with an. [inaudible] yield on earning assets. As I said, keeping pace with the change in the cost of funds, we feel good about some stability in the margin, even in a static environment. If we do get a little bit of rate relief from the Fed, we think it can expand a little bit.

It's now in NIM and with our yield.

Speaker Change: Yield on earning assets as I said, keeping pace with the change in cost of funds, we feel good about some stability in the margin even in a static environment, if we do get a little bit.

Speaker Change: Rate relief from the fed we think it can expand a little bit.

Benjamin Russell Clouse: Alright, that's really helpful.

Got it all right that's really helpful.

Andrew Brian Liesch: And then it sounds like your deposit growth outlook is pretty similar to your loan growth forecast. I'm going to be talking about the balance sheet and how deposits are going to flow.

Speaker Change: And then it sounded like your deposit growth outlook is pretty similar to your loan growth forecast.

Speaker Change: But I mean, how should we look at right now.

Speaker Change: The composition of the balance sheet and how deposits are going to flow through to earning assets I just noticed that the cash and security as youre down about 14% of earning assets this quarter.

Andrew Brian Liesch: through to earning assets. I've just noticed that cash and securities are down about 14% of earning assets this quarter. Is that a four on that number?

Speaker Change: Is that a floor in that number I guess, where do you see that being optimized.

Andrew Brian Liesch: I guess, where do you see that being optimized?

Speaker Change: Yeah.

Benjamin Russell Clouse: All four on that number? I guess, where do you see that being off? You know, it probably or was down just a little bit, our cash balance quarter over quarter, Andrew, and that's really just a funding issue. Certainly wasn't deliberate.

Speaker Change: It was probably.

Speaker Change: It was down just a little bit our cash balance quarter over quarter, Andrew and that's really just a funding issue certainly wasn't.

Speaker Change: Deliberate we intend to keep the cash in.

Benjamin Russell Clouse: We intend to keep cash in a three to five percent range for liquidity management. In addition to what we do with our investment portfolio, we just had a little bit better loan growth in the quarter. We didn't have a need to completely backfill that with brokered money and let a little bit of that go. As I said, as a percent of assets, you know, brokered really was flat quarter over quarter. And that was the primary driver of the cash change.

Speaker Change: 3% to 5% range for for liquidity management and.

Speaker Change: In addition to what we do with our investment portfolio, we just had a little bit better loan growth in the quarter, we didnt have a need to completely backfill that with brokered money in but a little bit of that go as I said as a percent of assets you know brokered really was flat quarter over quarter and that was the <unk>.

Speaker Change: Mary driver of the cash change.

Michael J. Maddox: Andrew, I'd reiterate that our loan growth, our ability to grow loans, is going to be directly tied to our ability to grow deposits. So if deposit growth, customer deposit growth, doesn't keep up, we won't grow loans as fast. So that will be a governor on our ability to grow.

Speaker Change: I'd reiterate that our loan growth our ability to grow loans is gonna be directly tied to our ability to grow deposits. So if deposit growth customer deposit growth doesn't keep up we won't grow allowance as fast so.

Speaker Change: That will be a governor on our ability to grow.

Michael J. Maddox: We had a great quarter because all of our deposit growth was market-driven and organic. We're really happy with that.

Speaker Change: This was actually a.

Speaker Change: <unk> quarter, because all of our deposit growth was market driven and organics, we're really happy with that.

Andrew Brian Liesch: Okay, that's all I have. Thanks for taking these questions and thanks for the underwriting talk. Carded out. Thanks, Andrew. Our next question comes from Matt Olney of Stevens. Go ahead, please. Hey, thanks, good morning. I want to talk about loan growth, and I think one of the headwinds that you guys noted both on this call and on past calls is the potential for additional churn in the

Speaker Change: Mhm Okay.

Speaker Change: That's all I got thanks for taking these questions and thanks for the underwriting and.

Speaker Change: Thanks, Andrew.

Our next question comes from Matt Olney of Stephens go ahead. Please.

Matthew Covington Olney: Hey, Thanks, good morning.

Matthew Covington Olney: Wanted to ask about good morning about loan growth and I think one of the headwinds that you guys noted both on this call and on past calls is the potential for additional churn in the in the loan portfolio I'm curious how much of that concern around higher churn is around interest rates.

Matthew Covington Olney: in the loan portfolio. I'm curious how much of that concern...

Matthew Covington Olney: Higher churn is around interest rates, and if we don't get very many cuts this year, what that could mean for your assumptions around portfolio churn, and then, in part, what that could mean for your long-term.

Matthew Covington Olney: And if we don't get very many cuts this year, what that could mean for your or some.

Matthew Covington Olney: Our assumptions around portfolio churn and then and part of what that could mean for your loan growth outlook.

Randy Rapp: Longworth Outlook. Thanks. Hey, Matt. It's Randy.

Speaker Change: Hey, Matt Randy I'm happy to talk about that so theres several factors there.

Randy Rapp: I'm happy to talk about that. So there are several factors that go into that churn. The age of projects, if they float through stabilization, obviously, what's going on in the cap rate environment and what options are available for long-term fixed interest rates will factor into that decision. But as we talk to our clients, we just see a lot of projects they have that they feel are at a point they want to either take advantage of and sell or take to a permanent market.

Speaker Change: Looking to that churn.

Speaker Change: The age of projects if they flowed through stabilization you know obviously, what's going on in the in the cap rate environment and what options are available for long term fixed interest rates will factor into that decision, but as we talk to our clients.

Speaker Change: We just see a lot of projects. They have that are they feel are at a point they want to either take advantage and sell or take to a permanent market and we have pretty good clarity into the next 30 to 60 days, where we could have close to 50 to 100 million that that turns out into one of our two either to a sale.

Randy Rapp: And we have pretty good clarity into the next 30 to 60 days, where we could have close to $50 to $100 million that churns out either as a sale in one instance or refinance in another. So I think obviously the movement in rates that's happened in the last two to three weeks has put a little slight pause on that as people are just trying to make sure they understand what those cap rates and permanent rate options are going to be for them. But overall, we still expect that activity to be higher.

Speaker Change: In one instance, a refinancing another so.

Speaker Change: I think obviously the movement in rates that's happened in the last two to three weeks has put a little.

Speaker Change: Slight pause on that as people are just trying to make sure they understand what those cap rates and permanent rate options are going to be to them, but overall, we still expect that activity to be higher.

Michael J. Maddox: Matt, I would say even with the churn, I mean, whether it happens or not, we still feel pretty good about our guidance on where loans are going to be at the end of the year. And if we do get a little more churn, I think that'll give us an opportunity to look at some pretty strong opportunities that are really attractive yields. So it ought to help our NIM if we get a little more churn.

Yeah, Matt I would say, even with the churn I mean, whether it happens or not we still feel pretty good about our guidance.

Speaker Change: Where we're alone loans are going to be at the end of the year and.

Speaker Change: If we do get a little more churn I think that'll give us opportunity to look at some pretty strong opportunities that really attractive yields so.

Speaker Change: It ought to help our NIM, if we get a little more churn.

Matthew Covington Olney: Okay, appreciate the color there, and then on the outlook for the...

Speaker Change: Yeah.

Okay I appreciate the color there and then on the outlook for the net interest margin.

Matthew Covington Olney: The net interest margin, I'm curious what's implied there for the securities yields. I think there have been some restructurings more recently. Could we see more lift from the yields from those restructurings, and then what's the appetite for additional restructurings that could give incremental lift throughout the year? Thanks.

Speaker Change: I'm curious, what's the implied there fourth the securities yields I think theres been some restructurings more recently could we see more more lift from the yields from those restructurings and then.

Speaker Change: You know, what's the appetite for additional restructuring that could give incremental lift throughout the year. Thanks.

Benjamin Russell Clouse: Good morning, Matt. It's Ben. You know, as I mentioned in my comments, we have seen a little bit of a pickup.

Speaker Change: Good morning, Matt. It's been you know as I mentioned in my comments, we have seen a little bit of a pick up in our yield and of course as we.

Benjamin Russell Clouse: in our yield and, of course, as we reinvest cash flow from the portfolio. And as we continue to grow the investment portfolio commensurate with the growth of the balance sheet, we are getting better yields, of course, with the higher rate environment. So I think that will continue to help, although as a percentage of our balance sheet, it doesn't quite have the impact of loan growth. We're certainly looking at continued opportunities for restructuring. We don't have anything planned, or nothing is imminent right now, but we are obviously looking at that at all times. In any way we've got to enhance yield, we will take advantage of it.

Speaker Change: Reinvest cash flow from the portfolio and as we continue to grow the investment portfolio commensurate with with growth of the balance sheet. We are getting better yields of course with the higher rate environment. So I think that will continue to be.

Speaker Change: Our help although.

Speaker Change: As a percentage of our balance sheet.

Speaker Change: No it doesn't quite have the impact of loan growth.

We're certainly looking at continued opportunities for restructuring, we don't have anything planned or nothing is eminent right now, but we are obviously looking at that.

Speaker Change: At all times in any ways, we've got to enhance yield we will take advantage of.

Speaker Change: Okay.

Benjamin Russell Clouse: Okay, thank you guys. You're welcome. Thanks, man.

Speaker Change: Okay. Thank you guys.

Speaker Change: Youre welcome.

Michael J. Maddox: This concludes our question and answer session. I would like to turn the conference back over to Mike Maddox for any closing remarks. I just want to thank everybody again for joining our call today. I also want to thank our team and our employees for another strong quarter. They continue to be very diligent in managing the risks that we're all dealing with in today's macroeconomic environment. We're going to continue to focus on growing core deposits, our fee income, and growing capital, while also trying to take advantage of opportunities to return capital to our shareholders. We feel good about where we're positioned. Our balance sheet is well positioned for this rate environment. Credit quality remains strong, and we will continue to be diligent in managing that.

Speaker Change: Sure.

Speaker Change: This concludes our question and answer session.

Speaker Change: I'd like to turn the conference back over to Mike <unk> for any closing remarks go ahead. Please.

Mike: Well I just want to thank everybody again for joining our call today I also want to thank our team and our employees for another strong quarter. They continue to be very diligent in managing the risks that we're all dealing with in today's macroeconomic environment.

Mike: We're going to continue to focus on growing core deposits, our fee income and growing capital. While also trying to take advantage of opportunities to return.

Mike: Capital to our shareholders.

Mike: We feel good about where we're positioned our balance sheet is well positioned for this rate environment credit quality remains to be strong and we will continue to be diligent in managing that so I want to thank everybody for joining us and have a great day.

Operator: So I want to thank everybody for joining us, and have a great day. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Mike: Yeah.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.