First Financial Bancorp. (NASDAQ:FFBC) Q1 2023 Earnings Call Transcript

First Financial Bancorp. (NASDAQ:FFBC) Q1 2023 Earnings Call Transcript April 21, 2023

First Financial Bancorp. beats earnings expectations. Reported EPS is $0.74, expectations were $0.7.

Operator: Hello and welcome to today’s First Financial Bancorp First Quarter 2023 Earnings Conference Call and Webcast. My name is Bailey and I will be your moderator for today’s call. I would now like to pass the conference over to Scott Crawley, Corporate Controller. Please go ahead when you are ready.

Scott Crawley: Thank you, Bailey. Good morning, everybody and apologies for any technical difficulties you might have had logging on this morning. Thanks for joining us on today’s conference call to discuss First Financial Bancorp’s first quarter 2023 financial results. Participating on today’s call will be Archie Brown, President and Chief Executive Officer; Jamie Anderson, Chief Financial Officer; and Bill Harrod, Chief Credit Officer. Both the press release we issued yesterday and the accompanying slide presentation are available on our website at www.bankatfirst.com under the Investor Relations section. We will make reference to the slides contained in the accompanying presentation during today’s call. Additionally, please refer to the forward-looking statement disclosure contained in the first quarter 2023 earnings release as well as our SEC filings for a full discussion of the company’s risk factors.

The information we will provide today is accurate as of March 31, 2023 and we will not be updating any forward-looking statements to reflect facts or circumstances after this call. I will now turn the call over to Archie Brown.

Archie Brown: Thank you, Scott. Good morning, everyone and thank you for joining us on our call. Yesterday afternoon, we announced our financial results for the first quarter. I will provide a few high level thoughts on our recent performance and then turn the call over to Jamie to provide further details. The first quarter was a strong quarter for First Financial and I am very pleased with our operating performance. The company achieved record revenue of $215 million. Net income and total revenue increased 70% and 46% respectively from the same quarter last year, with both increasing slightly compared to the linked quarter. Our quarterly results were driven by strong net interest income, moderate loan growth, an 8 basis point increase in our net interest margin, record leasing business income and another great quarter from Bannockburn and strong performance from our Yellow Cardinal Wealth Division.

We continue to effectively manage the significant increase in short-term rates. And during the first quarter, the increase in our asset yields exceeded the increase in total funding costs by 4 basis points. Average deposit balances increased slightly from the linked quarter as an increase in retail and brokered CDs offset outflows in public funds and business deposits, which were primarily seasonal. The majority of these outflows occurred in the first 2 months of the quarter. The deposit beta from the first quarter of 2022 through the first quarter of 2023 was 21%. From a liquidity standpoint, our loan-to-deposit ratio was 82% and we also maintain flexibility through our investment portfolio, which was classified as 98% available-for-sale as of March 31.

Credit quality remained stable in the first quarter. Net charge-offs were minimal and non-performing assets declined slightly as a percent of total assets from the linked quarter. Additionally, the ACL increased $8.6 million during the quarter, driven by loan growth, slower prepayments and changes in economic forecasts. As a result, the ACL was 1.36% as a percentage of total loan balances, which was a 7 basis point increase from the coverage ratio at year end. We are very pleased with the strengthening of our capital ratios this quarter. Our strong profitability and the recent decline in market rates led to a 52 basis point increase in our tangible common equity ratio. In addition, tangible book value per share increased 8% to $10.76. With that, I will now turn the call over to Jamie to discuss these results in more detail.

After Jamie’s discussion, I will wrap up with some additional forward-looking commentary. Jamie?

Jamie Anderson: Thank you, Archie. Good morning, everyone. Slides 4, 5 and 6 provide a summary of our financial results. As Archie stated, first quarter performance was excellent, driven by an expanding net interest margin, solid loan growth, elevated fee income and stable asset quality. Our balance sheet continued to react positively to the current interest rate environment, with our net interest margin increasing 8 basis points during the period. We anticipate modest margin contraction in the near-term due to fewer rate hikes and expected deposit pricing pressures. We were once again pleased with loan growth during the quarter. Total loans grew 5% on an annualized basis with the growth in the C&I, leasing and residential mortgage books and stable balances in the other portfolios.

Fee income remained strong in the first quarter with record results on an adjusted basis. Wealth Management and Summit both posted record quarters and Bannockburn had another strong quarter. Higher rates have resulted in sustained headwinds for mortgage banking with first quarter income relatively flat compared to the fourth quarter. Non-interest expenses declined from the linked quarter due to lower professional fees, tax credit investment write-downs, charitable contributions and incentive costs. While expenses were slightly higher than we anticipated at year end, this was due to elevated incentive compensation related to fee income. Asset quality was stable during the quarter with de minimis net charge-offs during the period. Classified assets increased during the quarter, primarily due to the downgrades of three relationships.

Additionally, we recorded $10.5 million of provision expense during the period, which was driven by loan growth, slower prepayment speeds and economic forecast in the model. As a result, our ACL coverage ratio increased by 7 basis points. From a capital standpoint, our regulatory ratios remain in excess of both internal and regulatory targets. Accumulated other comprehensive income improved during the period. As a result, tangible book value increased $0.79 or 8% and our tangible common equity ratio improved by 52 basis points. Slide 7 reconciles our GAAP earnings to adjusted earnings, highlighting items that we believe are important to understanding our quarterly performance. Adjusted net income was $71.9 million or $0.76 per share for the quarter.

Adjusted earnings exclude the impact of $500,000 of contract termination costs and $1.6 million of other costs not expected to recur. As depicted on Slide 8, these adjusted earnings equate to a return on average assets of 1.72%, a return on tangible common equity of 30%, and an efficiency ratio of 53%. Turning to Slides 9 and 10, net interest margin increased 8 basis points from the linked quarter to 4.55%. This increase was driven by an increase in asset yields due to elevated interest rates and a more profitable mix of earning asset balances during the period. The increase in asset yields was partially offset by higher funding costs. As a result of rising rates, asset yields surged during the period with loan yields increasing 62 basis points.

In addition, investment yields increased 26 basis points due to the repricing of floating rate securities and slower prepayments on mortgage-backed securities. Our cost of deposits increased 49 basis points compared to the fourth quarter and we expect these costs to increase further in reaction to sustained competitive pressures in the coming quarters. Slide 11 details the asset sensitivity of our balance sheet. We believe we are well positioned in the near-term as approximately two-thirds of our loan portfolio reprices fairly quickly. Slide 12 details the betas utilized in our net interest income modeling. Deposit cost increased with greater velocity in the first quarter, moving on current beta to 21% with our through-the-cycle beta expected to be approximately 35%.

Slide 13 outlines our various sources of liquidity and borrowing capacity. We continue to believe we have the flexibility required to manage the balance sheet through the expected economic environment. Slide 14 illustrates our current loan mix and balance changes compared to the linked quarter. As I mentioned before, loan balances increased 5% on an annualized basis, with growth driven by C&I, equipment leases and mortgage loans. The other loan portfolios were relatively flat when compared to period-end balances. Slide 15 provides details on our loan concentration by industry. We believe our loan portfolio is sufficiently diversified to provide protection from deterioration in a particular industry. Slide 16 provides some details on our office space loans.

As you can see, less than 5% of our total loan book is concentrated in office space and the overall LTV of the portfolio is strong. We believe that lending to borrowers of Class A and Class B assets in primarily suburban markets within our footprint mitigates our risk against the general strengths expected across the broader industry sector. Slide 17 shows our deposit mix as well as the progression of average deposits from the linked quarter. In total, average deposit balances increased $180 million during the quarter, driven primarily by a $662 million increase in brokered CDs. This increase offset mostly seasonal declines in public funds and business deposits. Slide 18 depicts trends in our average personal, business and public fund deposits as well as a comparison of our borrowing capacity to our uninsured deposits.

While personal deposit balances were relatively stable in the first quarter, business deposits continued to decline. This decline is primarily related to a post-COVID decline from record high balances as well as seasonal declines typically experienced in the first quarter. While we saw some runoff in reaction to the recent bank failures, this was not a major driver of the business deposit decline. Our decline in public fund balances has been driven by customers moving excess investable balances to funds managed by states in addition to some seasonal outflows. On the bottom right of the slide, you can see our adjusted uninsured deposits were $2.9 billion at March 31. This equates to 23% of our total deposits. We are comfortable with this concentration and believe our borrowing capacity provides sufficient flexibility to respond to any event that would stress our larger deposit balance.

Slide 19 highlights our non-interest income for the quarter, which was another record quarter. Both Summit and Wealth Management had the best quarter in the history of those businesses and Bannockburn posted another strong quarter. Consistent with the fourth quarter, mortgage demand remained soft due to higher rates. Non-interest expense for the quarter is outlined on Slide 20. On an operating basis and excluding Summit, expenses declined $4.9 million compared to the linked quarter, due primarily to lower professional fees, incentive compensation and charitable donations in the current period. Turning now to Slide 21, our ACL model resulted in a total allowance, which includes both funded and unfunded reserves, of $162 million and $10.5 million in total provision expense during the period.

This resulted in an ACL that was 1.36% of total loans, which was a 7 basis point increase from the fourth quarter. First quarter provision expense was driven by loan growth, economic forecast and slower prepayments fees, which increased the duration of the portfolio. Despite the increase in provision expense, credit quality remained stable. Net charge-offs were de minimis during the quarter. However, classified assets increased to $159 million due to the downgrades of three relationships. We continue to expect our ACL coverage to increase slightly in the coming periods as our model responds to changes in the macroeconomic environment. Finally, as shown on Slides 23, 24 and 25, regulatory capital ratios remain in excess of regulatory minimums and internal targets.

During the first quarter, tangible book value increased $0.79 or 8% and the TCE ratio increased 52 basis points due to our strong earnings. Accumulated other comprehensive income improved slightly compared to the linked quarter, but remains a drag on our capital ratios. Absent the impact from AOCI, the TCE ratio would have been 8.54% at March 31 compared to 6.47% as reported. We also included Slide 24 this quarter to demonstrate that our capital ratios would remain in excess of regulatory targets, including the unrealized losses in the securities portfolio. Our total shareholder return remains robust, with 31% of our earnings returned to our shareholders during the period through the common dividend. We believe our dividend provides an attractive return to our shareholders and do not anticipate any near-term changes.

However, we will continue to evaluate various capital actions as the year progresses. I will now turn it back over to Archie for some comments on our outlook going forward. Archie?

Archie Brown: Thank you, Jamie. Before we end our prepared remarks, I want to comment on our forward-looking guidance, which can be found on Slide 26. Loan demand remains solid, and we continue to expect Summit to be a significant contributor to loan growth early this year. However, we’re being more selective in certain segments and expect overall growth in the mid single digits in the near-term. Regarding securities, we will continue to utilize the portfolio cash flows to support loan growth. We expect deposit balances to stabilize in the near-term as seasonality subsides and our pricing strategies gain additional traction. There is still uncertainty around Fed rate management, loan demand and deposit pricing competition.

Our asset-sensitive balance sheet has driven substantial margin expansion thus far in the cycle. We expect modest contraction moving forward with the second quarter in a range between 4.35% to 4.45% based on one additional anticipated interest rate increase. Specific to credit, much uncertainty remains regarding inflation and the impact of higher rates to the economy and our customers. Over the second quarter, we expect continued stability in our credit quality trends and ACL coverage to be slightly higher. We expect fee income to be between $57 million and $59 million in the second quarter with growth in the leasing business being the primary driver. Specific to expenses, we expect to be between $118 million and $120 million, which includes the depreciation expense from the leasing portfolio.

Excluding the leasing expense, we expect expenses to be slightly lower in the second quarter. Lastly, our capital ratios remain strong, and we expect to maintain our dividend at the current level. The quarters had its challenges for the industry and there is still near-term uncertainty regarding the economy. We’re extremely pleased with our results and how we have managed the challenges to date. Overall, our first quarter performance was outstanding and record-breaking on many levels, and we believe we remain well positioned to manage future uncertainty due to our profitability, net interest margin, ample liquidity and strong levels of capital. We’ve made the strategic efforts to diversify our business lines in recent years, and we believe those efforts continue to position us to deliver industry-leading services to our clients and consistent, sustained industry-leading returns to our shareholders.

We will now open up the call for questions. Bailey?

Q&A Session

Operator: Thank you. Our first question today comes from the line of Daniel Tamayo from Raymond James. Please go ahead. Your line is now open.

Daniel Tamayo: Thank you. Good morning, everybody.

Archie Brown: Good morning.

Daniel Tamayo: Maybe we will start first on just the NII and NIM expectations. I appreciate the near-term guidance. But just curious your thought on how you see that playing out in the back half of the year with kind of where – you mentioned a 35% deposit beta. If you could give us a little idea of how you’re thinking that cadence plays out throughout the year?

Jamie Anderson: Yes, Danny, this is Jamie. So yes, we gave the outlook kind of near-term in the earnings deck on our margins. I mean we think our – still our – we’ve moved up a little bit, I would say, our overall outlook on the deposit beta just from what’s been going on here over the last 30, 45 days or so. Before that, we were saying we thought the overall deposit beta – and when we say deposit beta, just want to make sure for everybody, we’re talking about our total deposit beta, not just our interest-bearing deposit beta. So our total deposit beta before kind of 60 days ago, we were talking about a total deposit beta somewhere in the low-30s, so 30%, 32%. With everything going on in the last 30, 45 days, we think that has moved up a little bit and in that – in the mid-30s, so call it 35% to 37% range.

And so I think we – so moved up a little bit, but – and our margin will obviously be impacted. And I think what it did is it accelerated some of that movement that we were expecting to see anyway from a deposit pricing standpoint and just moved some of that forward into the next couple of quarters. So I think it’s just – I think we get close to the same spot, maybe a little bit higher from a cost of deposits and total cost of funds standpoint, but not significantly different. It just kind of moved everything forward.

Daniel Tamayo: Okay. And then on the deposit mix itself, you accessed the broker deposit market in the quarter. And loan-to-deposit ratio is still relatively low, at least when you look at that compared to other banks in the low-80s. Is that something that was kind of driven by what happened in March with the environment? Or do you expect to continue to access the brokered market going forward and just overall thoughts on how you think the deposit mix shakes out from a non-interest-bearing perspective and the rest of that portfolio? Thanks.

Archie Brown: Yes, Danny, this is Archie. Maybe Jamie and I’ll tag team on this a little bit. But I think our view was we’ve been – if you were to go back, we’ve been layering in some broker deposits for probably a couple of quarters now, and we just continued that in the fourth quarter and into the first quarter. And most of that had occurred in the first quarter occurred actually before March 1. And it was primarily to support loan – the loan demand that we were anticipating along with – we knew there were some seasonal outflows coming. We’ve left it – you can tell, we’ve left some of our other sources, primarily something like FHLB. We’ve let those kind of flat this quarter, but we like that source of funding.

We think it’s part of our primary source, and we hold that for later when needed. But I think low-80s is kind of just – it’s gradually moving up. And as the deposits stabilize with moderate loan growth, it’s going to continue to move some. But I think I guess in that order, that’s how we see the picture.

Jamie Anderson: And Danny, I mean, when we looked at the deposit flows during the quarter, I mean about two-thirds of the – so we were expecting some seasonal drop in the deposit base coming into the first part of the year. We were expecting that anyway. That was in our internal forecast. And obviously, what happened in March, it maybe exacerbated that. But when we looked at the deposit trends coming into the year, we were expecting some seasonal outflows, both from a – on the business side and the public fund side. And about – if you look at our month-to-month deposit trends, about two-thirds of the drop in those – and we really did – in those two categories, public funds and business side and on the AIB side, about two-thirds of that drop occurred in January and February.

So – and the other third obviously then occurred in March. But it’s – a lot of it is really those accounts. So we didn’t lose accounts. It was just customers and public funds lopping off that top – they – call it, the investable balance, not their operating balance and moving it out of the bank to potentially get some more yield, diversifying and/or – we also saw some movement over into our Wealth Management side.

Archie Brown: Danny, Slide 18 that Jamie covered was a good slide because it shows you – I think you’ll recall in the last quarter, we always have a seasonal uptick in public funds in the fourth quarter. So there was some of that in the balances that rolled off in the first quarter. And then we had a seasonal uptick in business deposits in the fourth quarter. And you can see that – looks like it’s about $80 million, $90 million in Q4 that rolled out along with, just as Jamie said, the general outflows from what we call the COVID surge. So again, these are things that we mostly anticipated. There was a little bit, and certainly after the news on the two banks, there is a little bit of money that moved out of some of our deposits and primarily to our Yellow Cardinal Wealth unit where they laddered in typically with treasuries. But it was a little bit – I’d say, less than 1% of our overall deposit base.

Daniel Tamayo: Great color. I appreciate that.

Operator: Thank you. The next question today comes from the line of Chris McGratty from KBW. Chris, please go ahead. Your line is now open.

Chris McGratty: Great. Good morning. Jamie or Archie, can you just – can I get a little bit more color on the three credits you were talking about in your prepared remarks?

Archie Brown: Yes, Chris, I’ll have Bill here just to give you a little color. Bill?

Bill Harrod: Yes. Well, when we take a look at what was downgraded to the quarter, what we’re really seeing is some businesses that are really tied to the – some COVID hangover, mostly in the inventory – over inventory due to fear, missing out during supply chain issues as well as some hospitality assets that haven’t rebounded as some of the other hotel properties. And there was one small office in that in the three that really launched right in the midst of COVID that has struggled to lease out during this period. But most of it is, as I said, very much tied to the remnants of COVID.

Chris McGratty: And in terms, you guys have been building your reserve, I mean how much of this quarter, the last couple of quarters have been, I guess, specific to these three or how should I think about just the incremental potential loss on these credits?

Jamie Anderson: Yes. Maybe I’ll cover the first part, Chris, in terms of the reserve. I would say the incremental amount due to the downgrade of these credits is relatively insignificant. I mean there is a small piece of it as things get downgraded to substandard. But it’s – the more significant piece over the last – really over the last couple of quarters in terms of the reserve build is due to really, I would say, two factors. Just the overall macroeconomic environment and the forecast that are coming through impacted the model a little bit. And then the bigger thing, though is, what we’re seeing is, as rates have moved up and prepayments speeds have slowed, you got a longer duration on the loan portfolio, which then – then that, under CECL, you’re looking at the life of loan, it obviously then spits out a higher required reserve.

So, those have really been the two bigger factors in terms of how the model is reacting to the environment and why that – you’re seeing that reserve build. So maybe, Bill, you can address the – like any potential losses or whatever like – Chris was asking about potential losses in those three credits at this point.

Bill Harrod: Yes. I mean at this point, we have various treatment strategies on each of them. We don’t anticipate any material charges at this point on the assets. We’re still early in the work-out process on it.

Chris McGratty: Great. Thanks.

Archie Brown: Yes. Chris.

Operator: Thank you. The next question today comes from the line of Scott Siefers from Piper Sandler. Please go ahead, Scott. Your line is now open.

Scott Siefers: Good morning, guys. Thank you.

Archie Brown: Hi, Scott.

Scott Siefers: Team, I wanted to – just wanted to revisit the deposit mix question again. So non-interest-bearing levels have come down, but are still around 30% of the total. I think it was like 25% prior to the pandemic. Do you see – are we going to go back to that level or do we blow through it a little just sort of in this new regime for bank deposits or how do you think about that?

Jamie Anderson: Yes. I think we slowly get close to those levels. I mean, what we’re – I mean when you look at where we – our deposit acquisition strategy at this point, I mean we are – we have money market specials out and CD specials, so you are going to see that shift over to a higher percentage of interest-bearing, maybe back to those levels and that 30%, 31% starts to migrate down. I mean where it ends 2 years or 3 years from now, I am not 100% sure. But I think we – I think it does start to bleed down to those – in those general levels.

Scott Siefers: Okay. Perfect. Thank you. And then I want to make sure I understood your response to a couple of questions ago just regarding where the margin ends up drifting. I think previously, you had sort of suggested kind of 4.10 to 4.20 would be sort of a good floor for the margin eventually. Did we just – are we going to maybe get back down there a little faster, or just given the higher beta, is that – do we maybe lower the floor a bit of where the margin could go?

Jamie Anderson: Yes. I think the floor comes down into the – more into the high-3s in that – so the 4.10 to 4.20 was really a – where the margin – when we were talking about that where it kind of migrating to before, that would have been maybe in that – in the fourth quarter of this year. And so I think just given the – I think the higher betas that we are going to see, that floor comes down a little bit more into that. It eventually settles. And this could be even out into the first quarter of ‘24 and maybe the second quarter of ‘24, but migrates down into that 3.90 to 4 range.

Scott Siefers: Alright. Wonderful. That’s good color. And then if I could sneak a final one in. Archie, so you guys are sort of fall outside the purview of sort of the sized banks that regulators might target for explicitly target regulation. And then I guess, aside from what’s going on with rate expectations and then industry deposit mix issues, you guys haven’t really been impacted by last month’s events. Even so, do you feel that there are changes that you or, more broadly, other banks your size might make to become just sort of more conservative or bulletproof just generally speaking going forward, even if you are not required to?

Archie Brown: Scott, I don’t know that we would contemplate anything there. My sense is we already are a little bit different in how we manage the securities book and in terms of making it available for sale. And I would tell you, even before what happened in mid-March, we were already, I think just taking a more conservative view of where the economy was going and how we thought about credit. I think we alluded to there, probably some segments, in particular, in our commercial real estate book that we – even during the COVID report, we were slowing. So, there is probably more conservatism there. I don’t know that it changes really our view of how we manage liquidity specifically. We will see how this unfolds for the industry, but we will continue to take a measured kind of, I think a conservative approach to how we manage the balance sheet in general.

Scott Siefers: Okay. Alright. Perfect. Thank you very much.

Operator: Thank you. The next question today comes from the line of Terry McEvoy from Stephens. Please go ahead. Terry, your line is now open.

Terry McEvoy: Everyone…

Archie Brown: Hi Terry.

Terry McEvoy: Hi. Maybe first call, could you maybe provide a refresher on the lease business revenue accounting as it will kind of be the growth of fee income and also drive some expenses? I had it from when you made the acquisition, about a third of the yield went through the residual realization, so maybe a discussion of what current yields are and how essentially those fees are generated? And then on the expense side, too, is there an efficiency ratio you target just so we can build that out accordingly?

Jamie Anderson: Yes. So, maybe I will touch on that. Terry, it’s Jamie. So, they are obviously generating both finance leases and operating leases. And currently, they are doing roughly 75% or so finance leases and then the rest operating leases. So, the operating leases, you have – we put that in – that runs through other assets. They typically have about a 4-year life. Those get depreciated and then we run the rental income through the fee income. And then, I guess overall, to answer your question about yields, when we look at the yield kind of all-in – well, I guess maybe in two parts. When we look at kind of the “coupon yield” of our leasing business right now, it’s somewhere in the 7s, so depending on the month, but in that 7 to 7.5 range.

And then on the back side, they will get residual income that will bump that yield up, call it, around – maybe around 9. And then that residual income, obviously then also runs through the fee income section. But when I look at that kind of the relative ratio in the fee income and the expense side, I mean you kind of look at generally a kind of a 1.5:1 ratio of fee income to expenses down there.

Terry McEvoy: Great. Okay. That’s helpful. Thank you. And then…

Archie Brown: Terry, this is Archie, just on efficiency, I don’t know that we are there yet to probably give you the right – what that looks like. They are still building. We went from a company that when we bought it was primarily originating and selling to building the balance sheet. So, it’s going to be a couple of more years to get that balance sheet built to get to kind of a more stabilized look at what the efficiency ratio will be. It’s going to be a lot more efficient than what you are seeing today, the way that balance sheet builds.

Terry McEvoy: Thanks for that. Very helpful. And maybe just as a quick follow-up, I appreciate the details on the office portfolio. That office – I am sorry, average LTV of 64%, is that – was that at origination, or has that been updated or refreshed since then?

Bill Harrod: Yes. That’s been updated as loans matured. We are pretty early in that process. Over the next several months, we have very few maturities, but they get updated as they go. So, it’s probably weighted more towards origination at this point.

Terry McEvoy: That’s great. Thank you very much.

Archie Brown: Thanks Terry.

Operator: The next question today comes from the line of Jon Arfstrom from RBC Capital Markets. Please go ahead. Jon, your line is now open.

Jon Arfstrom: Thanks. Good morning guys.

Archie Brown: Hi Jon.

Jon Arfstrom: I just want to say this is a good quarter. We have struggled through a lot of releases and yours looks good. I want to go back to the margin. You have had a couple of monster increases in the margin sequentially. And then you have got – in Slide 11, you have got the rate cut margin impact of down 100 and 6.3%. Do you guys do anything to protect the downside if the Fed starts to cut rates later, or is it just let it ride, or how do you think about that, Jamie?

Jamie Anderson: Well, yes. So, I really – I would say it’s two things. I mean there is a little bit of, call it, the let it ride philosophy there. I mean there is also some work that we are doing in terms of providing what I would call significant down rate protection. So, to buy protection for down 100, it doesn’t – isn’t really feasible. But for what I would call severe down rate protection and putting in some floors, we can do that. If you look back to where we – where our margin really got – really had some significant pressure back in the beginning of COVID when rates plummeted, we are trying to protect against that and putting in some floors where our margin went down to in that 3.15% range during that period of low rates. And so we are looking at providing some protection for the – what I would call the extreme rate cuts, not just – not buying protection for marginal Fed movements.

Jon Arfstrom: Okay. Good. And then the – just to clarify this, it’s probably annoying you get asked this every quarter, but that 4.35% to 4.45% margin range you are talking about, that’s Q2 and that compares to the 4.39% core that you did last quarter, is that right?

Jamie Anderson: Well, that would be 4.55% all-in margin and compared to the range that we gave in the outlook, yes.

Jon Arfstrom: Okay. So, that guidance is fully loaded, the 4.35% to 4.45%?

Jamie Anderson: All-in, yes.

Jon Arfstrom: Okay. Good.

Jamie Anderson: Yes. It’s a good point now. I mean Jon, the variability of the other things are, we don’t have a ton of accretion income anymore and the variation we have is really in loan fees, which are fairly steady at this point.

Jon Arfstrom: Okay. Archie, any changes in corporate behavior and kind of the mood of the borrowers over the last – you could say six weeks, but over the last couple of months?

Archie Brown: Jon, I think you mean in terms of just their outlook and how they are doing?

Jon Arfstrom: Yes. And I am thinking more about like that kind of 40% of the book that’s like commercial, small business franchise, that kind of stuff.

Archie Brown: Yes. I can tell you, we are showing kind of moderate loan growth expectations in the near-term, and it’s going to come primarily from commercial, our equipment leasing group, Oak Street, a little bit of mortgage as well. But they are still doing well. They still have good current demand. I think the outlook, when we talk with them, is a little more negative, the further you go out. But when you look at where they are over the next few months, there are still some really nice – we think some decent loan demand coming from those types of companies in the next few months.

Jon Arfstrom: Okay. Good. They are probably like us waiting for the big one. I don’t know once get hit – yes. Okay. And then just kind of following up on Terry’s question on take-out leasing, on non-interest income, you guys have a lot of records. And I think Bannockburn was a record last year as well. If you take out leasing, what do you expect from some of the bigger line items in non-interest income, maybe in kind of near to medium-term? Thanks.

Archie Brown: Sure. Well, I will start with Bannockburn and I think we are probably in that $14 million to $16 million range a quarter kind of just generally as you go out. I think we are probably thinking $14 million, $15 million coming up in the near-term, but they are hitting a level that’s a little – seems a little more sustainable at this high level, added a couple of more salespeople here, one recently, another one coming on. So, we think that they can kind of run at that level more consistently. Wealth is doing well, it’s not as large of a line for us. It’s doing well, and will continue to do well. I think do well as long as the market is holding up. Service charge income is, I think fairly stable for us. It may have some slight movement, obviously not going to be a big grower, but it seems pretty stable as well.

Mortgage, as you know has been soft. We do expect to see some seasonal improvement in mortgage as we get into the middle part of the year. But there is a lot of uncertainty about where that’s going to go. Some of that’s availability of inventory, some of that’s interest rates. But I do think we will see a little bit better mortgage performance than we have seen in the last couple of quarters. I think those are probably the bigger line items.

Jon Arfstrom: Okay. Alright. That helps. Appreciate it guys.

Jamie Anderson: Thanks Jon.

Operator: There are no additional questions waiting at this time. So, I would like to pass the call back over to Archie Brown for any closing remarks. Please go ahead.

Archie Brown: Thank you, Bailey. Thank everybody for joining the call today and hearing more about our quarter. We are really pleased with the quarter overall and look forward to reporting to you again next quarter. Have a great day. Bye now.

Operator: This concludes today’s conference call. Thank you all for your participation. You may now disconnect your lines.