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spk02: Hello, and welcome to the first quarter 2022 earnings conference call for Cross First Bank Shares, Inc. All participants will be in a listen-only mode during the presentation. Please note that it's being recorded. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. I would now like to turn the call over to Heather Worley, Director of Investor Relations. Please go ahead.
spk01: Good morning, and thank you for joining us today for the Cross First Bank Shares first quarter 2022 earnings conference call. I'm Heather Worley, Director of Investor Relations. Before we begin, please be aware this call will include forward-looking statements that are based on current expectations of future results or events. Forward-looking statements are subject to both known and unknown 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. Statements made on this call should be considered together with the cautionary statements and other information contained in today's earnings release, our most recent annual report on Form 10-K, and in subsequent filings with the SEC. Our speakers for the call today are Mike Maddox, President and CEO, Ben Klaus, CFO, and Randy Rapp, Chief Risk Officer and Chief Credit Officer. At the conclusion of our prepared remarks, our operator, Tawanda, will facilitate our question and answer session. At this time, I'd like to turn the call over to Mike Maddox.
spk07: Mike? Thank you, Heather. Good morning, everyone, and thank you for joining us today as we discuss our first quarter 2022 results. The first quarter was great, not only at the bank, but also I'd be remiss if I didn't give a shout-out to my Kansas Jayhawks for winning the national championship. That was a fun one for me. Before we get into the numbers, I'd like to take a minute to talk about our strategic plan. We recently shared the highlights with our employees, and I'm excited to do the same with all of you today. Our plan for 2022 is focused on investing in talent and technology to drive responsible growth. The cross-first core values of character, competence, commitment, and connection combined with our one team, one bank, shared vision mindset defines our course of our strategy. One team is about our people who are the foundation of what we do. We are dedicated to recruiting the best talent and investing in their strengths and skills. This approach is at the heart of our culture and makes this highly desirable place to work. Last year, we were named one of the best places to work by the Kansas City Business Journal, and we've set a strategic goal this year to be recognized by Gallup as a best place to work company. We believe that a strong and consistent focus on employee engagement enhances our culture and leads to increased customer satisfaction, which supports our growth objectives. Our commitment to employee development starts with identifying and leveraging the strengths of our employees and coaching them to their full potential. We continue to explore different niches and verticals where we have the talent and experience to excel. As a part of that effort, we recently announced the hiring of Bobby Oliver to lead our restaurant finance group. He brings deep experience in providing customized banking solutions to companies in the restaurant space and will make a significant contribution to the bank. The recent addition of David Phelan to lead our Texas strategy, the further development of our Phoenix team, and now adding Bobby are a few examples of our commitment to investing in top talent. We are confident in the strength of the new hires we've made and their abilities to make an impactful contribution to our strategy, goals, and overall results. Our team knows growth without quality credit is not sustainable, and I'm proud of the improvements we've made in our credit profile and the framework that Randy and team have put in place. So as we look at the broader economy, know that we're keeping abreast of its changes and will prudently manage our risk profile. We continue to watch the geopolitical disruption, growing inflation, continued supply chain challenges, and the likelihood of additional rate hikes. Excuse me. These factors could dampen growth and slow the economy. We have ambitious objectives, but when we talk about growth, we know we must do so responsibly. That means we will manage risk appropriately by taking a balanced approach. This balance is key to how we build long-term value both as a company and for our shareholders. One Bank is about accelerating our transformation into a larger organization with organic loan and deposit growth, driving greater fee income, and looking to expand into new markets and new business verticals. Having the best talent and investing in personal relationships with our clients is critical, but we also know that more and more business is being done digitally. As such, it is imperative we invest in technology to provide an exceptional client experience. Today, we are fully engaged in the implementation of our technology strategy, which focuses on enhancing the digital experience for our clients. When completed later this year, we will have a unified digital platform across all channels. We have also invested in three bank-sponsored FinTech funds to ensure we gain exposure to developing technologies, which could provide more solutions for our clients. Lastly, the shared vision of our strategy is a balanced approach to drive shareholder value. We take seriously the role that we play in the overall health and well-being of our communities. I am so proud of the impact CrossFirst is making in all of our markets, as evidenced in our first corporate impact report published last year. We will do more of the same this year as we continue to support our strategic partners to make a difference in our communities. I am confident that our strategy for 2022 and beyond of one team, one bank with a shared vision will guide us on our path to deliver for our clients, shareholders, communities, and employees. Turning to this quarter's performance, we continued our momentum with earnings of $16.8 million or $0.33 per share. We grew loans at an annualized 12% growth rate, excluding PPP forgiveness. We remain focused on the overall economy and intend to be prudent ahead of a potential for a slowdown. Credit quality remains strong with modest improvement to a level we expect to maintain going forward. Our team is doing an outstanding job of continuing to diversify revenue by growing fee income. We are dedicated to the expansion of our credit card products, international banking services, and our full suite of treasury capabilities. With another quarter of solid earnings, we continue to add to our capital position while providing return and investing in our future. We accelerated the pace of our stock buyback initiative to take advantage of our stock price during the first quarter while making investments in technology and talent. We are actively evaluating the most attractive opportunities to deploy our capital, including M&A. We believe strongly in our proven organic growth model. However, we would consider M&A options that would allow us to enter new markets get us greater scale in existing markets, or augment our company through new lines of business with fee income products, which will further our ability to meet our customers' financial needs. We have a great team supporting dynamic markets. We are well positioned for the future, and I could not be more excited about what our team can accomplish the rest of the year and beyond. Now, I will hand the call over to Ben to cover the financial results in more detail. Good morning, everyone.
spk09: As Mike indicated, we had another solid quarter with net income of $16.8 million, or 33 cents per share. We adopted CECL on January 1 with minimal conversion impact and saw improvement in credit quality with a small release of reserves of $625,000. Mechanically, the new CECL adoption impact goes through equity, with the biggest change being the addition of a reserve for unfunded commitments. We started the year with strong loan growth, which was in line with our expectations. Quarterly return on average assets was 1.23%, and return on equity was 10.44%. These ratios were the result of strong core performance and were impacted slightly by the small release of reserves. We are pleased to see these performance ratios improve as a result of our earnings momentum driven by execution of our growth strategy. Our interest income in the first quarter was $47.8 million, which decreased $1.4 million from fourth quarter. Fewer days in the quarter, a positive fourth quarter impact of loans that returned to accruing status, and headwinds from PPP fees, which continue to decline, all offset positive expansion of interest income from loan growth and deployment of liquidity. Average loan balances were up 2.7% quarter over quarter. Interest expense was down for the quarter. We continue to have higher rate time deposits mature, which brought the deposit costs down for the quarter. As expected, our cost of funds declined primarily due to lower FHLB borrowing costs from last quarter's prepayment. Our percentage of demand deposits was consistent, and we experienced seasonality from client tax payments. Looking forward, a rising rate environment could impact the growth trajectory for non-interest-bearing accounts where our team is very focused. Net interest margin was relatively flat for the quarter at 3.29% on a fully tax equivalent basis. We expect margin to expand in the rising rate environment, although deposit migration and some remaining pressure on loan pricing will be headwinds. We are asset sensitive and we see opportunities as rates rise to lag deposit rate increases and potentially enhance our margins. Over two-thirds of our earning assets reprice or mature over the next 12 months, with much of that being in the first 90 days. With the first rate increase, we are now past more of the impact of loan floors, and we have greater sensitivity as rates move above those floors. We'll also see continued roll-off of higher-cost time deposits in the second quarter. Non-interest income for the quarter was $4.9 million and improved 3% over fourth quarter. The improvement was driven by higher analysis fees and consistent credit card growth, which remains solid areas of expansion for us and a focus of our team. Non-interest expenses for the quarter were $27.7 million, up 3.7% from the fourth quarter. Salaries and benefits were the largest driver and increased $1.5 million. This was due to hiring for production and technology talent in a very competitive environment, annual merit increases, and higher taxes and benefits due to incentive payouts this quarter, along with the resetting of tax and benefit limits at the beginning of the year. We added four new producers in the quarter in addition to four added during the fourth quarter. These increases were partially offset by lower legal costs and loan recoveries. Payroll taxes will moderate, and the run rate by the end of the quarter was in line with our expectations. We anticipate non-interest expense to be in a range of $27.5 to $28.5 million per quarter for the rest of this year, subject to our ability to continue to find opportunistic hires in a very competitive environment, and subject to revenue growth to support a higher cost base. We will continue to seek efficiency ratio improvement and focus on managing expenses with a balance between growing earnings and investing for the future. Our tax rate was 20% for the quarter and was down due to the impacts of stock-based compensation in the first quarter from the vesting of awards. We expect it to be in the range of 21% to 23% for the rest of the year. Our capital ratios remain strong as we generated significant earnings. We repurchased 1.1 million shares in the first quarter. This represented 2% of outstanding shares. Our buyback of shares has little tangible book value dilution. and a short earn-back period based on price levels so far that will in no way compromise our strong capital ratios. We experienced a swing in our unrealized gains on the investment portfolio to a net unrealized loss as long-term rates have increased. Given our duration around five years, we don't expect further movement unless there is additional change in the long end of the curve. We deployed some of our liquidity this quarter, which pushed up the loan-to-deposit ratio to 94%. Including our FHLB borrowings, we had a funding ratio of 90%, and we have significant capacity for additional borrowing or wholesale funding if needed in addition to deposit growth to fund our loans. Overall, we're pleased with the solid financial results for the quarter. and look forward to the rest of 22. I would like to turn the presentation over to Randy for a more detailed discussion of credit and the loan portfolio.
spk10: Thank you, Ben, and good morning, everyone. As Mike mentioned, in Q1, we reported a 3% quarter-over-quarter loan growth rate excluding PPP balance changes, or 12% on an annualized basis. growth was centered primarily in the commercial real estate and CNI portfolios. PPP loans decreased $34 million during the quarter to $31 million. The portfolio turnover rate decreased during the quarter but remains at an elevated level compared to historical averages, illustrating the higher continued level of loan payoff activity due to low permanent fixed rates and market cap rates. As permanent interest rates increase, we expect this turnover rate to continue to decrease. CNI line utilization decreased during the quarter to 42.5% from 45.7% in Q1 of 2021. In Q1, our primary credit metrics remained relatively stable. As slide 13 illustrates, in Q1 we saw improvement in our classified loan totals. Classified loans decreased 6.8% during Q1 to $73.3 million. Classified totals in the energy portfolio reduced 24% in Q1 to $16 million and now represent 22% of total classified loans. classified loan to total capital and combined allowance for credit loss reserve ratio ended the quarter at 10.7%, and we expect this ratio to remain in this range in 2022. In Q1, non-performing assets increased slightly to $35.6 million, or 0.64% of total assets to due primarily to a downgrade to non-accrual of a previously identified substandard loan in the CNI portfolio. Twenty-five percent of non-performing assets remain in the energy sector, which has been positively impacted by the sustained higher commodity prices. At the end of Q1, we had a combined allowance for credit losses to non-performing asset ratio of 169%. Moving to slide 14, net charge-offs for the quarter were minimal at 1.1 million and well below the 8.2 million reported in the same quarter of 2021. Q1 net charge-offs on an annualized basis were 10 basis points, and the trailing 12-month net charge-off rate was 13 basis points. We expect this rate to better represent the anticipated net charge-off activity for 2022. As previously messaged, we adopted CECL on January 1, 2022. The primary impact of the conversion related to establishing reserves for non-cancelable unfunded commitments, which added $5.2 million to the reserve level at conversion. The conversion to CECL increased the combined allowance for credit loss total by $3.4 million, or 5.9%. At the end of Q1, we reported a combined allowance for credit losses of $60.1 million, or 1.38% of total loans. The combined allowance includes the allowance for credit losses on loans of $55.2 million and reserve for unfunded commitments of $4.9 million. For the quarter, the bank reported a small release of reserves of $625,000. In closing, we are pleased with our loan growth for the quarter and continued stability in our credit metrics and net charge-off activity. Our team worked diligently to prepare for the conversion to CECL, and we are pleased that the conversion occurred with minimal impact to our financial statements. We continue to closely monitor the U.S. and global economic indicators, inflation rate, higher commodity prices and interest rates, potential supply chain disruption, and the effects of the war in Ukraine, on our clients, markets, and prospects as we evaluate our portfolio and new credit opportunities. I look forward to answering any questions you might have shortly. This wraps up our prepared remarks. And now I'll turn it back over to the operator to begin the Q&A portion of the call.
spk02: Thank you. We will now begin the question and answer session. To ask the question, you may press star then one on your touchtone telephone. If you're using a speakerphone, please pick up your headset before pressing the keys. To withdraw your question, press the pound key. Again, that's star one to ask the question. At this time, we will pause momentarily to assemble the roster. Our first question comes from the line of Matt Only with Stevens. Your line is open.
spk05: Hey, thanks. Good morning, everybody. Good morning. We're Matt. Wanted to start on the expense side, and Ben, you gave us some good guidance there from a quarterly standpoint, but it sounds like there is some flexibility in that guidance based off opportunities from hiring and based off the rate environment. So I guess the question is, if we do get the 200 bps of higher fed funds throughout the year that the market's expecting, would that increase that range that you provided or or does that already consider a similar rate environment that assumes higher rates? Thanks.
spk09: Good morning, Matt. That range I gave would include, you know, what we're all looking, you know, The point you reiterated is an important one. We're not going to grow our expense base at the top end of that range if we don't see revenue growth to support that. Mike, can I think about that as those two things moving together? We had a little bit of noise in particular in the net interest income in the first quarter that pushed our ratios a little bit, but that range would include anticipated rate changes and our sensitivity.
spk05: Okay. Thanks for that. I guess just as a follow-up to that response, what are the key metrics that you're looking for with respect to the positive operating leverage? You mentioned you don't want expenses to get ahead of the revenue, so is it specifically the percent revenue growth versus expense growth year over year, or what is it that you're kind of guiding you with respect to maintain the positive operating leverage?
spk09: It's definitely revenue growth and expense growth and making sure those move appropriately toward one another. But we're also very focused on the efficiency ratio. It's up this quarter because wages were up and revenue didn't move a whole lot because our growth was clouded a little bit by non-accrual changes. But We're very focused on continuing to find improvement to our efficiency ratio and to gaining some leverage as we continue to grow the bank. So I think those are the two key that I would point to, efficiency ratio and then, as you said, making sure expense growth isn't outpacing revenue growth.
spk07: Matt, we want to keep an efficiency ratio down in the mid to low 50s, and it's going to have some ups and downs as we invest in growth. And we also want to be entrepreneurial enough to invest in opportunities to grow the company. And we also want to get our capital deployed. We've got quite a bit of excess capital that we want to get deployed into growth. And so... some of the expense increase you see in the first quarter is related to some of that investment and growth. And we are confident that the revenue will catch up with some of those investments. For example, in Phoenix, we've made a pretty good investment in Phoenix, and they hit profitability for the first time in March. So we're excited about their opportunity to continue to scale and be a positive impact on the bottom line.
spk05: Okay. Thanks for that. And then I guess on that note, Mike, that 8% to 10% loan growth guidance for the year, just remind us, does that include or exclude the headwinds from the PPP?
spk07: We set 8% to 10% excluding the PPP.
spk05: Okay. Got it. And then just lastly for me, I think the guidance included the ACL ratio would be maintain that 130 to 145 ratio for the year. I assume that compares to that 138 that we saw this year, so it sounds like we should not anticipate any material change in the allowance ratio. Is that fair?
spk10: Hey, more than that, this is Randy. Yeah, that's fair. That's the way I would look at it.
spk05: Okay. All back in the queue. Thanks, guys.
spk02: Thanks, Matt. Thank you. Our next question comes from the line of Michael Rose with Raymond James. Your line is open.
spk06: Hey, good morning, everyone. Thanks for taking my questions. Just to follow up on the loan growth outlook, so obviously if you annualize this quarter, it's kind of above that range. And, you know, obviously you have Phoenix, as you just mentioned, you know, reaching profitability, you know, new restaurant franchise finance group, you know, further growth. In Texas, I guess those are the pluses. What would be kind of the negatives? Is it paydowns? Is it just general cautiousness? Because it does seem like the guide is potentially a little conservative. Thanks.
spk07: Well, you know, we're still fighting churn in the real estate portfolio with low long-term rates and low cap rates. We're still seeing that. Line utilization is still below historical levels. It's improved some, but it's got a ways to go. We've also been prudent in certain sectors of our portfolio, like we've continued to work on rationalizing our energy portfolio as an overall piece of the pie. And so, you know, there is some headwinds to growth, and we don't know what's going to happen in the economy over the rest of the year. There are a lot of red flags out there, and so we want to be prudent. We think our model and the team we have can still deliver that 8% to 10% growth despite maybe being in an environment that may or may not support outsized growth.
spk06: Okay, that's helpful. And then maybe for Ben, you know, just if we exclude, you know, rate hikes, there's obviously some pluses and, you know, potential negatives as you grow, just given where the loan to deposit ratio are and adding some, you know, higher beta, you know, sources of funding. You know, how should we think about kind of the nearer term kind of core margin here? I think we can all do the math around, you know, what rate hikes do. But as we think about the core margin, if you can just delve into a little bit more of the puts and takes of what happens there. Thanks.
spk09: Sure, Michael. Yeah, as you said, rate increases are generally good for us, and we're asset sensitive, like most banks of our size and scope. For us, we've spent a lot of time thinking about what our Deposit beta will look like going forward. In the last rate cycle, we had a rate increase cycle. We had a much different deposit composition than we do today. I think we are relatively conservative in our sensitivity modeling. And, you know, as I said last quarter, I'll repeat, we believe we have some opportunity to improve to lag deposit increases as the Fed brings up short-term rates, and we're working very, very closely with our client-facing market leaders to do that in the right way and ensure we don't impact client relationships in particular with a short-term focus. We're taking a long-term focus. With that said, the betas we're using look a lot different because the composition of our portfolio is, our deposit portfolio is a lot different. With that said, overall on non-maturity deposits, the betas we're assuming are relatively consistent when you take into account the composition of the last rate cycle. But if you peel that back a little bit, we're assuming lower betas, but we have much higher beta product composition than we did in the past, if that helps give a little color there.
spk06: Yeah, very much so. And then there's one final question for me. I'm just trying to figure out the dollar amount that you guys repurchased the scores to see how much you have left, and then Given the stock is still at around one, two intangible, fairly low earn back, what the appetite may be as we move forward and could you potentially look to do another program here just given you still have some excess liquidity? Thanks. Sure.
spk09: So we expended $16.8 million in the quarter on the buybacks. That's 1,058,000 shares, I think that figure might be in the deck. And so that works out that we have about 4.9 million of authorization left as of 3-31. So we'll seek another authorization for the board as this one ends. As you pointed out, our price-to-book value remains well in the range that we think buybacks continue to make sense, and we continue to have an appetite to do that. Very helpful. Thanks for taking my questions.
spk06: Sure. Thanks, Michael.
spk02: Thank you. Our next question comes from the line of Jennifer Demba with Truist. Your line is open.
spk04: Thank you. Good morning. Good morning. Just wondering if you could size up the market opportunity for the restaurant franchise business at this point, and are there any other lending lines that you're looking at entering over the foreseeable future? Thanks.
spk07: Yeah, we believe there's a substantial market there, and we already have about $63 million today in that space, and we believe that over time that could be somewhere between $250 and a half a billion over time contributor for us. So Bobby's really experienced and is well connected in the industry and I think combining him with the existing talent we have, we see a significant opportunity. That also drives fee income and deposits and ancillary business that goes along with it. We're constantly evaluating other lines of business, and it's really driven by our ability to find the right talent. We don't have anything immediate in our plans, but whether it's senior housing or equipment finance and some other things that we may look at over time.
spk04: Great. And if I could ask one other question. What do you feel like, I know you feel very confident about asset quality over the near term, but as rates go up, what areas of the portfolio do you feel are most vulnerable at this point?
spk10: Hey, good morning, Jennifer. This is Randy. So obviously you're watching our commercial real estate portfolio as the rates increase. You know, we've been stressing those assets individually in our underwriting pretty healthy and, anticipating a rise in interest rates. And one of the things we continue to see in the real estate portfolio is significant equity in projects, so 35%, 40% equity, which helps provide some buffer in a rising rate environment. And we're also trying to be disciplined in that portfolio to stay more in the multifamily industrial segments, which continue to have quite a bit of growth and the lower level of the cap rate. So we're looking at that portfolio. Another portfolio we think about is our EV, you know, leveraged lending portfolio, by nature those tend to carry a higher leveraged position and can be susceptible to rate increases. But, again, we've been stressing those for, you know, significant declines in EBITDA and significant declines in increases in interest rates as we do our underwriting. So those are a couple of segments of the portfolio that we're watching closely.
spk04: How big is the leveraged loan portfolio at this point?
spk10: That portfolio is about $380 million, but, again, that combines EV and leveraged lending. So of that, probably half of that meets the regulatory definition of a leveraged loan.
spk02: Thank you. Thank you. Our next question comes from the line of Brady Gailey with KBW. Your line is open.
spk03: Hey, thanks. Good morning, guys. Hey, Brady. Hi. So I'm just wondering your guidance on the loan growth side and on the expense side, you know, how much additional hiring do you need to do? And, you know, I'm looking here on slide nine. You talk about these potential target markets. You have, you know, seven or eight of them here. Does that guidance include expansion into additional markets or is that, you know, kind of the markets you're already in?
spk07: No, the guidance we've given today would just include the markets that we're in today, and we believe that we can deliver that growth with the team that we have on the field. So, you know, if we make further investment or we expand to new markets, we think we'll do better. But, right, the guidance we're providing is just on our existing markets with our existing team.
spk03: Okay. All right. And then to circle back to share repurchases, you repurchase about 2% of the company this quarter. Is there any reason why that would slow down for the rest of the year? Or do you think the activity we saw in 1Q could be what we could see throughout the rest of this year?
spk09: Well, Brady, there would really only be two reasons I think that would slow down. One, if our share price went way up, which I hope that happens. The other thing would be if we have something going on that precludes us from being in the market as a public company, that would be the only other reason. That occasionally happens as we run our business, but Those two things will continue to be as active as we can in the buyback.
spk07: Okay. We think it's a real opportunity. I mean, with our stock price trading where it is, we see great value in it. And so we think it's a great opportunity for our shareholders to do that, and we'll continue to do it.
spk03: Yeah, I agree. It's great to see. Finally for me, Mike, you mentioned briefly some interest in M&A. I know it's tough with your currency trading where it's trading kind of right on top of tangible book value. Maybe just expand on what sort of opportunities would get you excited on the M&A side.
spk07: With where our currency is trading today, M&A for us would certainly have to be cash opportunities that we could leverage our capital that way. And, you know, we're constantly looking for the right opportunities to partner with people who fit our culture and who fit in those markets that we're desirable of entering over time. And so, again, M&A could provide us a new market opportunity for if there was an opportunity to grow some scale in an existing market, or there was a partner we could find that provided some product and opportunities that we could cross-sell across our franchise, those would be the driving forces. But it's going to be driven by market, and it's going to be driven by talent and culture. And we want to make sure we maintain our branch-wide model. So that also limits the universe a bit on – on partners that would be a good fit for us. Got it. Thanks, Mike. Yep.
spk02: Thank you. Our next question comes from the line of Andrew Leisch with Piper Sandler. Your line is open.
spk08: Hey, good morning, everyone. Thanks for taking the question. So just a question on the new non-accrual C&I loans. I'm just curious what other details you can provide related to maybe industry or location. And is this more of a unique situation related to the borrower, or do you think this could be anything systemic for the industry or a larger issue down the line?
spk10: Sure, Andrew. This is Randy. Happy to answer that. So I can tell you that we took a slight charge on the credit in Q1. It is in the process of resolving, and we expect it to be fully resolved late in Q2 or early Q3. and we expect to fully recover our remaining book balance. And given the sensitivity to the process right now, that's pretty much what I can say about it. It is a unique credit. It is not a systemic issue. We don't have other credits in that space. Got it.
spk08: All right. That's very helpful. And then just how should we be looking at the securities portfolio right now? I'm guessing there's a client in it. We'll just resolve it from a fair value mark. But Are there plans to add more to it, or is really the goal to take whatever liquidity you have and fuel it in the loan growth?
spk09: Andrew, it's Ben. Good morning. We're taking a long-term view on our securities portfolio. You're correct, right? Rising rates have caused some unrealized loss in our fixed income portfolio. It's all fixed income. We like the flexibility that the AFS categorization offers, you know, if we need that for funding or it's very flexible for us to pledge, you know, for borrowing in particular with the FHLB. I think we'll continue to add to that portfolio in proportion to the growth of our balance sheet. We are able to get much better yields right now as rates have come up. You know, we're seeing, you know, munis beyond 4% from a tax equivalent yield perspective and mortgage backs, you know, around 3 or maybe as much as 325. So it continues to make sense for us, and we don't intend to make any major shifts strategically there in regard to the portfolio.
spk08: Got it. you've covered all my other questions. Thanks so much. Thank you, Andrew.
spk02: Thank you. Thank you. That's star one to ask the question. We have a follow-up question from the line of Matt Olney with Stevens. Your line is open.
spk05: Yeah, just to follow up on the M&A discussion, Mike, you gave us some good thoughts around strategic merits and kind of what the bank would consider What about on the financial side? What are the guideposts that you lean on the most with respect to the financial aspects of an acquisition?
spk07: Well, you know, we're going to look at, obviously, is it an opportunity that's accretive to earnings and creates franchise value for us? And we want to make sure that any dilution that would occur would be returned to, you know, within a, a reasonable period of time, you know, in that, you know, two and a half to three year range. And so, and then obviously we want to make sure that anything we do isn't going to negatively impact credit quality and some of the ways we do business. So it's just, it's got to be something that's going to be accretive. And we also look at people and, and, What's the ability to take that opportunity and expand it and grow it?
spk09: Matt, I would add one more thing, which I think we've talked about a little bit before, which is we have something in a range of 100 or 125 million of students capital that we could think about deploying from a regulatory perspective. And so that would be some sizing range for us as well.
spk05: Got it. Okay. Thanks for that. And then one more follow-up here. Ben, you mentioned a higher level of CDs that mature in 2Q. I'm just curious kind of what the strategy now is for time deposits. Are you trying to get customers to extend duration, any success, just more broadly kind of what the strategy there is at this point?
spk09: Well, our primary strategy is continuing to be relationship-focused with our clients, which has been our model all along, and we're not going to lose a client, you know, over time. over yield, and we're making sure that we're accommodative of that and responsive across all of our markets. We have, you know, for example, in second quarter, we'll have about 70 million of CDs roll off and another 40 to 45 million of borrowings and wholesale roll off. The CDs, you know, repricing ultimately or retention, we might not see a huge change in cost of funds. The borrowings and the wholesale will be pretty significant. And again, we're really focused on relationship basis and making sure we're strategic about the rates that we pay.
spk05: Ben, just to follow up there, if the loan growth expectations are 8% to 10% this year, should we think about the core deposit growth this year being below that, or do you think it would match a similar range this year?
spk09: Going forward for the rest of the year, I think our expectation is a similar range. We deployed a fair amount of liquidity in Q1, but going forward, we'll be focused on growing deposits and looking at the whole relationship, as you heard Mike say, and expect deposits to move in a range pretty close to loans. And and our teams continue to be focused on cross-selling and making sure that we're providing a full suite of services to clients to generate fee income growth as well.
spk05: Okay. Thanks, and congrats on the quarter.
spk09: Thanks, Matt. You're welcome. Thank you.
spk02: Thank you. Thank you. I'm not showing any further questions in the queue. This concludes our question and answer session. I would now like to turn the conference back over to President and CEO Mike Maddox for closing remarks.
spk07: Again, I want to thank everybody for joining our call. We're really, really proud of the quarter, and we're very, very excited about the opportunity we have to continue to grow and expand and drive shareholder value. And so we really appreciate all of your support. and look forward to talking to you next quarter, if not before. So have a great day.
spk02: Thank you. Please direct any follow-up calls to Heather at CrossFirst.com. That's Heather at CrossFirst.com. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Everyone have a wonderful day.
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