CrossFirst Bankshares Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 18, 2023

Key Takeaways

  • Strong Q1 results: Reported $17.3 million in adjusted net income (EPS $0.35) with net interest margin of 3.65%, driven by higher loan yields and balance sheet growth.
  • Robust loan and deposit growth: Total loans increased by $270 million (C&I up $59 million; CRE up $198 million), while deposits rose 8.3% to $5.7 billion, though non-interest-bearing balances fell to 17% of total.
  • Pristine credit quality: Non-performing assets declined to $11 million (0.16% of assets), net charge-offs were 8 bps annualized, and the combined allowance for credit losses remains at 1.3% of loans.
  • Strong capital and liquidity: Well above regulatory requirements with $645 million in equity, $2.3 billion of on-balance-sheet liquidity, and no reliance on the Fed’s discount window or BTFP.
  • 2023 outlook: NIM is expected to narrow to 3.40%–3.55% as deposit costs rise, while quarterly non-interest expense is projected at $35–$36 million amid moderate loan growth.
AI Generated. May Contain Errors.
Earnings Conference Call
CrossFirst Bankshares Q1 2023
00:00 / 00:00

There are 8 speakers on the call.

Operator

After today's presentation, there will be an opportunity to ask Please note this event is being recorded. I would now like to turn the conference over to Heather Worley, Director of Investor Relations. Please go ahead.

Speaker 1

Good morning, and welcome to CrossFirst Bancshares First Quarter 2023 Earnings Conference Call. I'm Heather Worley, Director of Investor Relations of CrossFirst Bank. Before we begin, please be aware this call will include forward looking statements, including statements about our business plans, expansion and growth opportunities in 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 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.

Speaker 1

We may 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. Our presentation will include prepared remarks From Mike Maddox, President and CEO of CrossFirst Bancshares Randy Rapp, President of CrossFirst Bank and Ben Clough, CFO of CrossFirst Bancshares. At the conclusion of our prepared remarks, our operator, MJ, will facilitate a Q and A session.

Speaker 1

At this time, I'd like to turn the call over to Mike, He will begin on Slide 4 of the presentation available on our website and filed with our earnings release with the SEC. Mike?

Speaker 2

Thank you, Heather. Good morning, everyone, and thank you for joining us to discuss CrossFirst's Q1 2023 operating results. It has certainly been an interesting start to the year, but I always look forward to this opportunity to share an update on CrossFirst performance as well as offer a preview of what's to come in the year ahead. I cannot be more proud of how our team has navigated the challenging environment. We entered 2023 with a theme of optimization.

Speaker 2

Our goal this year is to build on our solid foundation and maximize the investments we have made to benefit our clients and our shareholders. We continued our momentum from 2022 into the Q1, Producing strong earnings, expanded margin, growth in our capital and improvement in our credit quality against a challenging backdrop. We maintain a diversified balance sheet with significant liquidity to withstand market volatility. In terms of Q1 2023 financial We reported $17,300,000 in adjusted net income or $0.35 per share. We are fortunate to have an experienced team of bankers and leaders, and I am extremely proud of the way they have managed through the recent turmoil within our industry.

Speaker 2

With a focus on serving our clients and continuing to build franchise value. We have a history of financial stability and Responsible risk management mindset. These sound fundamentals have served us well since our bank was founded and will continue to guide us into the future. We are well capitalized with ratios above regulatory requirements. As a sign of support and confidence in our company, Last quarter, we issued $17,800,000 in a private preferred stock offering.

Speaker 2

The preferred shares were primarily purchased by our Board and executive team to further strengthen our capital ratios. We are so fortunate to have a diversified client base of depositors and borrowers consisting of successful businesses and professionals within the markets we serve. This customer base has been built over 15 years based on relationship and trust, which has proved invaluable over the last several weeks. We operate in high quality metro markets such as Dallas Fort Worth, Kansas City, Phoenix And most recently, Denver and Colorado Springs. We believe our presence in these markets will strengthen our financial profile for continued success.

Speaker 2

We have had several significant accomplishments this past quarter as we continue to leverage the investments we have made in technology, Our processes and then the development of our people. In March, we completed the final step in our Colorado and New Mexico integration as we combine the strengths of our technology and people. As we look to the rest of the year, we will be thoughtful about how we allocate our capital with The expectation that our loan growth will moderate from 1st quarter levels. Due to the economic environment, we will hold to our credit standards and we will remain true to our relationship based banking philosophy. We are very cognizant of the continued economic uncertainty As the Fed pursues its goal of reining in inflation, maintaining great asset quality remains our number one priority and it will not be compromised to facilitate growth.

Speaker 2

We are only as good as our people and our culture. The The success we achieve as an organization is directly connected to our teammates and their development, which is why I'm honored to share with all of you that we were recently recognized Mike Gallup as a 2023 Don Clifton Strengths Based Culture Award winner. This award is recognition of all the extraordinary work Our employees do each day to embrace our strengths based culture. With increased pressure on retaining top talent, This award is a strong indicator that we are investing in the right areas, especially in our people. We know there continues to be a dynamic economic environment, Regardless of what may happen outside of our control, I am confident in our team's ability to deliver extraordinary service and help our clients while building franchise value.

Speaker 2

And now I'd like to turn the call over to our President of Cross First Bank, Randy Rapp.

Speaker 3

Thanks, Mike, and good morning, everyone. Q1 was a unique quarter for our industry, but I could not be happier about the way our bankers and clients Responded to changing market conditions, affirming the trusted relationships we have established in our markets. We have not lost any significant clients to date and in fact continue to see strong loan demand. During the quarter, we integrated the Colorado and New Mexico teams and enhanced our leadership team with the addition of Brendan McGuffey as President of our Tulsa market. In Q1, we also continued our focus on providing our clients with innovative technology solutions, completing the final phase Our digital banking platform conversion.

Speaker 3

We have now migrated all clients to the newly enhanced platform, which we believe will assist in driving new deposit and Turning to Q1 highlights, we reported total loan growth of 270,000,000 C and I and commercial real estate both increased during the quarter with C and I increasing $59,000,000 and commercial real estate increasing 198,000,000 During the quarter, we realized growth in areas we have recently made investments in talent, including franchise finance, energy And the Colorado markets. Our larger markets, including Dallas, Kansas City and Phoenix also continue to report significant loan growth. Although we realize good loan activity, we continue to strictly adhere to our underwriting standards, while integrating the impact of a higher Interest rate environment and enhanced economic uncertainty. Over the last several quarters, as liquidity in the markets has decreased And the level of competition has lessened, we have also seen an increase in loan spreads. Average C and I line utilization for the quarter was 44%, consistent with the prior quarter and portfolio and is now below the historical average level.

Speaker 3

We expect portfolio churn to continue to decrease over the next Several quarters led by a decrease in commercial real estate refinancing and sales activity. Our loan portfolio remains diversified with a 44% concentration in commercial real estate and 45% concentration in C and I and owner occupied real estate. Energy exposure is now $194,000,000 or 3.4 percent of total portfolio. There also remains good diversity within each of those portfolios with the highest CRE property type accounting for 17% of total CRE exposure and the largest industry segment in C and I being manufacturing at 10 We also continue to have good transaction diversity within each portfolio With the top 25 C and I clients representing 27% of total C and I exposure or 10% of total loan exposure and the top 25 commercial real estate transactions representing 23% of CRE exposure or 10% of total loan exposure. Our real estate portfolio also has geographic diversity With concentrations in high quality markets, including Dallas, Kansas City, Phoenix and Denver.

Speaker 3

For the quarter, average deposits increased 8.3 percent to $5,700,000,000 up $439,000,000 from the previous quarter. Non interest bearing deposits decreased during the quarter to $970,000,000 and now represent 17% of total deposits, down from 25% at the end of 2022. Some of this migration was anticipated due to several clients holding short term outsized DBA positions at the end of the year. Ben will cover additional deposit portfolio statistics in his remarks. Continuing to grow deposits with a focus on DDA remains a top priority.

Speaker 3

Moving to the credit highlights. For Q1, We reported a drop in non performing assets of $2,000,000 to $11,000,000 resulting in a non performing asset to total asset ratio of 0.16%. This ratio is down from 0.64% from the same period in 2022. At quarter end, we held only one piece of ORE valued at $855,000 which has subsequently been sold with a slight recovery. Classified loans to capital plus combined reserves ended Q1 at 9.3%, down from 10% at year end 2022 and down from 10.7% the same quarter last year.

Speaker 3

For the quarter, we reported net charge offs of $1,600,000 resulting in a charge off rate of 8 basis points on an annualized basis and 9 basis points on a trailing 12 month basis. At quarter end, we reported an allowance for Credit loss to total loan ratio of 1.15 percent and combined allowance for credit loss and reserve for unfunded commitments of 1.3%. For the quarter, we reported provision expense of $4,400,000 resulting in a provision to charge off ratio of 2 69%. Provision was driven primarily by loan growth during the quarter. With a total ACL of 65,000,000 Our current combined ACL to non performing loan ratio is 6 29%.

Speaker 3

We remain highly focused on Maintaining good credit metrics moving forward. We continue to proactively monitor our portfolio and have consistent dialogue with our clients and prospects about the continued impact of higher interest rates, inflation and economic uncertainty on their businesses. We are also continuing to closely monitor our local U. S. And global economies looking for impactful trends.

Speaker 3

We have minimal exposure in some of the higher impacted parts of the country and we are pleased with our core stable Midwest markets as well as our larger markets that continue to show positive job creation and population migration. I will now turn the call over to Ben to cover the financial results In more detail. Ben? Thanks, Randy, and good morning, everyone. GAAP net income this Quarter was $16,100,000 or $0.33 per share, which included several costs related to the Colorado integration.

Speaker 3

Adjusted net income was $17,300,000 or $0.35 per share. Net income was higher this quarter due to an increase in net interest income, partially offset by higher non interest expenses. I'll frame the rest of my comments around results adjusted to remove the integration and acquisition costs where applicable, which we believe is reflective of our core operating performance. We are in the early stages following the acquisition, but we are on track to achieve our cost savings target and earnings accretion as anticipated. Quarterly adjusted return on average assets was 1.04 percent and adjusted return on average equity was 11 point 3%.

Speaker 3

These ratios were the result of strong core performance driven by balance sheet growth and an Expanding margin while optimizing investments we have made. Net interest income on a fully tax equivalent basis Increased $4,200,000 or 8 percent from the 4th quarter due to higher average earning assets and stronger loan yields, partially offset by higher cost of funds and 2 fewer days. Average earning assets increased $521,000,000 compared to the prior quarter. The yield on loans increased 63 basis points due to repricing as well as higher yields on new loans. The cost of funds increased due to continued pricing pressure on deposits as well as the mix of deposits shifting into higher cost products as anticipated as clients sought better yields.

Speaker 3

Fully tax equivalent net interest margin Expanded 4 basis points to 3.65 percent compared to the prior quarter due primarily to the benefit of non interest bearing deposits In the quarter, we expect margin to narrow from this first quarter level based on changes in our funding mix and moderate to a level between 3.4% and 3.55% for the remainder of the year. Given our largely variable loan portfolio, we expect an offsetting benefit of a few basis points with additional rate Our percentage of demand deposits was pressured this quarter and declined to 17% of total deposits. We had a level of elevated deposits at year end, which was deployed by clients during the quarter, And we experienced some shift into interest bearing accounts, but we did not experience any significant client losses. Our total cost of funds was 2.66 percent for the quarter. Our total deposit beta against rate increases through the Q1 Remained in the 50s in line with our expectations.

Speaker 3

During the current rate cycle, starting at the beginning of 2022, We have expanded our NIM by 35 basis points with yield on loans outpacing the cost of deposits because of our largely variable loan portfolio. As we have managed through this rate cycle, largely due to our commercial focused strategy, We have realized the majority of our through the cycle deposit beta expectations in our results already. While we acknowledge competition for deposits will persist, our unique positioning will allow us to better defend our NIM as we move forward from Here. Non interest income was $4,400,000 for the quarter and increased across several Including gain on sale of loans. Credit card income increased again this quarter and we remain focused on increasing credit card Transaction volume.

Speaker 3

Excluding acquisition related expenses in both the Q1 and the prior quarter, Non interest expense increased $3,800,000 Salaries and benefit costs were higher due to merit increases, tax and benefit limit resets and the full quarter impact of the addition of employees from the Colorado acquisition. Additionally, deposit insurance premiums increased primarily due to an increase in the assessment rate. We also had a full quarter of core deposit intangible amortization as a result of the acquisition. We've begun reassessing our expense base given the environment and the economy. With moderating loan growth, we anticipate Non interest expense to be in a range of $35,000,000 to $36,000,000 per quarter for the remainder of the year.

Speaker 3

We plan to manage our cost base to be well within our amount of revenue expansion to promote continued earnings growth and operating leverage. Our tax rate was 20% for the quarter, down due to acquisition activity in the 4th quarter. We expect the tax rate to remain in a range of 20% to 22% for the year. At the end of the quarter, stockholders' equity totaled $645,000,000 compared to $609,000,000 at December 31, 2022. The increase was due to net income, The issuance of $7,800,000 of preferred as Mike mentioned and a decrease in the unrealized loss on available for sale securities, which declined as long term rates moderated.

Speaker 3

As of quarter end, we are well capitalized under all ratios. Considering the current environment, I would like to highlight a couple aspects of our balance sheet and our liquidity. As we outlined on Slide 13, we have significant liquidity of approximately $2,300,000,000 and have worked to expand our borrowing capacity at both the FHLB and Federal Reserve as a precaution. We have not utilized the Federal Reserve discount window or the new BTFP and we do not foresee doing so at this point. We have significant on balance sheet liquidity.

Speaker 3

In addition to our cash, I wanted to break down our 100% Available for sale investment portfolio. $244,000,000 can be pledged to FHLB And we have an additional $222,000,000 of securities that we could sell today at a net gain. The after tax mark on our entire AFS portfolio as of threethirty onetwenty 3 was 7% of capital. We also have multiple sources of additional off balance sheet liquidity, including capacity at the FHLB, The Federal Reserve, Fed Funds and other wholesale funding sources totaling approximately $1,300,000,000 Slide 14 outlines the composition of our investment portfolio. As I mentioned, we have increased the liquidity in our portfolio and shifted the ratio of munis to 64% from 72% at year end.

Speaker 3

Securities sold in the normal course during the Quarter were transacted at a net gain with reinvestment at equivalent or greater yields, providing better liquidity, A modest gain and improvement in yield. We also included some additional detail on our deposit base On Slide 15, which shows our diversity by industry and geography. We are 70% commercial, 17% individual and 13% wholesale at quarter end, which is consistent with our strategy. We operate largely in the Midwest and in strong markets and we outlined our deposit composition by state, which follows our branch footprint. We also have great diversity in depositors by industry, And we provided some detail by NICS code categories with no industry concentrations above 5% outside of trusts and banking institutions.

Speaker 3

Average deposit balances across our client base Further illustrates our good diversity. Our effective uninsured deposits percentage is 35% when considering pass through accounts. We also have additional capacity in our ICS program as needed to meet client requests And we saw a modest increase in utilization of our program in the Q1. In summary, we had a successful Q1 with strong earnings, margin and liquidity momentum heading into the rest of the year. Operator, we are now ready to begin the question and answer portion of the call.

Operator

Thank you very much. We will now begin the question and answer session. In the interest of time, please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Brady Gailey with KBW.

Operator

Please go ahead.

Speaker 4

Hey, thanks. Good morning, guys.

Speaker 2

Good morning, Brady.

Speaker 4

So wholesale and brokered were up, deposits were up about 400,000,000 In the Q1, I was just wondering what does that take the wholesale and brokered deposit bucket to? And how

Speaker 2

high of

Speaker 4

a concentration are you comfortable taking that to?

Speaker 3

Hey, good morning, Brady. It's Ben. That puts us at around 15%. Our goal is to clearly manage that below 20. That's our tolerance limit.

Speaker 3

And as you heard Randy say, we're very, very focused on maintaining and growing the Deposit base in particular DDA, but it is obviously tough out there for that. So in short, we have a little bit of room, but In the long term, it's our goal to manage that at the current level or below.

Speaker 2

Brady, we're going to manage our growth With core deposit growth and I think it's kind of interesting if you look back When we IPO ed, our wholesale funding was probably closer to 20% and our DDA percentage was probably in the 13%, 12%, 13%. So I kind of look at it pre pandemic and now with all the funny money that got put into the system, I'm still pretty encouraged that we've been able to grow the bank a couple of $1,000,000,000 and increase our DDA percentage by 3% or so.

Speaker 4

Yes. All right. And then, I mean, 8% to 10% loan growth is a great level, especially Do you think that deposits will grow at a similar rate as loans for the remainder of the year?

Speaker 2

Well, I mean, we're going to manage our loan growth based on our deposit growth. So yes, if we're going to grow We're going to grow loans 8% to 10%. We're going to grow deposits 8% to 10%.

Speaker 4

Okay. All right. And then I had a question just on capital. I know you all raised a modest amount of NCPP, But the stock said 80% of tangible book value, but you didn't repurchase any stock in the Q1, at least Nothing of a material size. How do you think about the share buyback with the stock trading below tangible book value?

Speaker 2

Well, it's obviously an attractive price, but we're also deploying our capital into growth. And We continue to see high quality opportunities in our markets and we also have New investments in Phoenix and in Denver and some of our verticals and we want to make sure that we maintain enough Capital to allow us to develop those verticals in those new markets. We're going to balance looking at the opportunity for buybacks, but also making sure we maintain enough capital for growth. And We still have a fair amount of room on the buyback authorization that was done, And so we'll be strategic.

Speaker 3

Yes. That's right, Brady. We have about $16,000,000 left on our prior authorization. And as Mike said, we'll be opportunistic about what we can do. That's the beauty of a buyback.

Speaker 3

It's completely flexible. At At this point, we're in a phase of building some capital and deploying it for loan growth.

Speaker 2

As you know, Brady, I mean, the world changed in early March. And so I think we along with everybody are just going to be super conservative and really continue to build our balance sheet. And look, when things change, We'll look at it, but right now, we're going to be as conservative as we can.

Speaker 4

Yes, that makes sense. My final question is just on the guidance slide, on Slide 16. I just want to make sure I'm understanding this correctly. The $340,000,000 to $355,000,000 NIM and the expenses of $35,000,000 to $36,000,000 per quarter, That's not the full year 'twenty three guidance. That's really just the remainder of the year, so call it like 2Q through 4Q?

Speaker 3

So Brady, the $35,000,000 to $36,000,000 is my expectation for Q2 through Q4, so the remainder of the year. And our NIM guidance at This point is all in. We think the year to date is going to land in that $3.40 to $3.55 range, which is obviously Some narrowing from our very strong Q1 level.

Speaker 4

Got it. All right, great. Thanks guys.

Speaker 2

Thanks, Freddie.

Operator

The next question comes from Michael Rose with Raymond James. Please go ahead.

Speaker 5

Hey, good morning, everyone. Thanks for taking my questions. Just wanted to follow-up on that last comment on the margin commentary. So I think if I'm understanding it right, you're saying that's for the full year, right? So I mean that the terminal margin could actually dip below the low end of that guidance range If you were to comment towards the lower, and I just want to make sure I understand that.

Speaker 5

Is that the way to think about it?

Speaker 3

Yes. I think that's possible, Michael. Yes, based on the range.

Speaker 5

Okay, perfect. And then just maybe more holistically on expenses, totally understand The outlook there, but you mentioned maybe some cost measures, time and place. Should we think about that as actual real cost tightening outside of the realization of cost saves from the deal? Or is it more of just like you guys have been really active hiring, building out different markets over the past few years and maybe you're just Conch slowing the pace of that investment down. Is that more of the way to think about it?

Speaker 5

Or is there actual real comp targeted cost measures in place? And if so, What would those

Speaker 3

be? I think the latter is the right way to think about it, Michael, at a high level from the $38,000,000 non interest expense level in the Q1. As we called out, we had $1,500,000 or so of Particular integration costs, which are not going to recur, compensation is always a little bit higher In Q1 because of the way taxes and benefits work, and then between Those 2 that gets us pretty close to the range I gave you. And then we're obviously looking at Other things that would be volume based linked potentially to loan growth or other discretionary costs that we might look at to make We're being prudent.

Speaker 2

Michael, we're just looking at everything and again trying to be conservative and There's a number of investments that might be in the would like to have bucket that we don't have to have. And if we're not going to maybe grow as much as we had planned, we're going to manage our expenses Accordingly, and we do believe we still have the opportunity to increase our operating leverage Because we have a lot of new investments that we've made and we think we've made the investments in technology and people To continue to grow at a fair pace and scale.

Speaker 5

Okay, great. Maybe just One more for me for Randy. Obviously, credit has been really good here for a while. I think there's some storm clouds building. And I think if you look at the most recent Moody's scenarios that I think came out yesterday, are starting to show some normalization in terms of Yes, unemployment, things the like.

Speaker 5

Just as we think about where you guys stand and some of The business build outs here over the past few years in new markets, would you actually potentially look to Maybe proactively build reserves per CECL in coming quarters or are you just still not kind of seeing anything yet that would indicate that there's really no Need to at this point to even think about that. Thanks.

Speaker 3

Yes. Hey, Michael, it's Randy. Michael, we're very proud of The movement in our credit metrics over the last year or so when we think about ending this quarter at our NPAs Level, our classified level, we feel good about that. We actually feel good about our reserve level. It's a total of 130.

Speaker 3

As you know, part of that split on funded and part unfunded, 1.15 on the funded side. We think over time our unfunded are going to come down and We'll be able to move some of those reserves from the unfunded to the funded. So I think about our total reserve level at a 1.3%. We're obviously watching the portfolio closely, having a lot of dialogue, Looking at trends within the portfolio and right now we're really not seeing a lot of disruption in the portfolio. So we'll continue to monitor that.

Speaker 3

But at this point, we feel good about our reserve level and feel like A lot of our future provisioning will be based on loan growth.

Speaker 5

Great. That's it for me. And Heather, it's It's been a real pleasure. You'll be missed. Thanks.

Speaker 1

Thanks, Michael.

Operator

The next question comes from Matt Olney with Stephens. Please go ahead.

Speaker 6

Hey, thanks. Good morning. I think you mentioned in prepared remarks, you've been pleased with deposit beta so far in the cycle. I'm curious about your expectations over the next few quarters with deposit betas and kind of what that guidance implies? And just any general color you have on the spot prices on deposits?

Speaker 6

Thanks.

Speaker 3

Sure. Good morning, Matt. It's Ben. Absolutely, we expect some pressure against our deposit beta. That's the updated NIM guidance.

Speaker 3

In our modeling, we are pushing the beta up about 5 From the mid-50s where it was into the low-60s under the assumption that we'll continue to experience some level of Pricing pressure and then obviously our mix has changed at quarter end As I mentioned in my comments.

Speaker 7

Okay, got it.

Speaker 3

Thank you. And Mike reminded me the second part of your question, our sort of jump off Rate at the end of the quarter was about 2.90. And you didn't Ask, but I'll offer that our new loan rate was 7.60.

Speaker 6

760, okay. That's helpful. Thank you for that. And I guess The loan yield sign, I know there's been some noise in the past results as far as loan yield. Any noise this quarter and specifically any of that accretable yield from the central deal this quarter?

Speaker 3

Yes. No noise in the quarter. So no accrual changes. We've had a number of those. So we had a nice quiet quarter.

Speaker 3

As I mentioned, dollars 760,000,000 was our New loan jumping off point, accretion specifically this quarter was about $650,000 from the deal that will remain around $500,000 a quarter for the rest of And Matt, this is Randy. On yield, I just want to point out, I said in my comments, but really We're seeing better pricing today than we've probably seen in the last 2 years. And so we are seeing those spreads widen. And I think as other banks sort of tighten their credit standards and liquidity is less prevalent, I think we'll see that continue. So We are very much focusing on pricing and making sure that we maintain our NIM through increasing our loan yields and think that's out there in the market.

Speaker 6

Okay. That's helpful, Randy. And I guess just on that note as far as loan growth, I've heard lots of talk about just managing overall loan growth this year. Any more commentary as far as what that means specifically when you manage the growth? Or is there any specific loan types that you're focused on or decreasing, is it more about pricing within each one of those?

Speaker 6

Just any more commentary on the whole managing the lung growth this year? Thanks.

Speaker 3

Yes. So we obviously had a very robust Q1 and we want to manage the growth moving forward. We do have a significant number of unfunded commitments Our real estate book that we know will continue to fund throughout the year as those projects build. So we're being very cautious On adding new real estate exposure because we know that that portfolio could increase, really the wild card there is the churn rate, What does the refinancing activity look like? But we know there's some built in growth there with the unfunded.

Speaker 3

We've seen nice growth in some of the newer Verticals, franchise finance, the sort of Energy 2.0 has seen increases. We've seen increases in our sponsor finance. So As we look at loan growth, we're really focusing on C and I Private Client and some of our verticals over the next several quarters.

Speaker 7

Okay.

Speaker 6

Okay. That's helpful, Randy. And I'll echo the previous comments. Heather, you will be missed. Thank you.

Speaker 1

Thanks, Matt.

Operator

The next question comes from Andrew Liesch with Piper Sandler. Please go ahead.

Speaker 7

Hi, good morning everyone.

Speaker 3

Good morning, Andrew.

Speaker 7

Just want to talk about the margin here going forward. I appreciate the guidance. But if there's been Thought of maybe locking in some of the higher rates with some swaps to protect against some downside for when rates are eventually cut?

Speaker 3

Good morning, Andrew. We do have some very modest hedging in place. We did a little bit Of hedging last year against rate rises, which we've locked in that will begin to impact our margin in 2024, those were forward swaps. And then we currently have a Pretty modest $250,000,000 notional collar in place, giving up some potential Upside on the top of the caller, but projecting against rate declines on the bottom, those swaps are also forward looking from 24 through 27. So there are a couple of things there that will protect us On the downside out in the future, I think our expectations continue to be by 2024 and beyond will likely be in a lower Great scenario than we are today.

Speaker 7

Got it. All right. That's helpful. And then, just curious on Some of the deposit trends, how have things progressed since quarter end? Has there been more migration out of the non interest bearing?

Speaker 7

Or was that Trend really expected early in the year, just given that some of those some of that money was parked in those accounts right at the end of December?

Speaker 3

Yes. Nothing of any significance that I think we've observed post quarter end, Andrew, to maybe put a little finer point on it of the $400,000,000 or so movement in DDA, just about half of that was client deployment, literally funds that We're parked here for part of the quarter that we knew would be deployed. 1 of those clients, for example, bought Treasuries, which we're unfortunately competing against today and the other couple of 100,000,000 migrated in To interest bearing accounts, but nothing new or different since quarter end that we've observed at all.

Speaker 7

Got it. All right. Thanks for taking the questions. And Heather, once again, great working with you and you'll certainly be best here.

Speaker 1

Thanks, Andrew. I appreciate it.

Operator

This concludes our question and answer session. I would now like to turn the call back to President and CEO, Mike Maddox, for any closing remarks.

Speaker 2

Well, hey, I want to thank everybody for joining us. Just really want to reiterate how proud I am of our team and really how confident we are in our positioning. We're in great markets and the team has done a great job of really putting us in a position to continue to have success. And so Really excited about our quarter, excited about the rest of the year. And then in closing, I too would like to thank Heather for all of her work here at Cross First, and we're really excited for you and Mason and your next chapters as you guys start your journey.

Speaker 2

And thank you so much for everything you've done for us and we really appreciate it. We're going to miss you, although you're still going to be Hang on around. We know where you live. So anyway.

Speaker 1

Thank you.

Speaker 2

Thank you so much. And thank you everybody for joining our call and we appreciate it.

Powered by Quartr