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FB Financial Corporation (NYSE:FBK)
Q1 2021 Earnings Call
Apr 27, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to FB Financial Corporation's First Quarter 2021 Earnings Conference Call. Hosting the call today from FB Financial is Chris Holmes, President and Chief Executive Officer. He is joined by Michael Mettee, Chief Financial Officer; Greg Bowers, Chief Credit Officer; and Wib Evans, President of FB Ventures, who will be available during the question-and-answer session.

Please note FB Financial's earning release, supplemental financial information, and this morning's presentation are available on the Investor Relations page of the company's website at www.firstbankonline.com and on the Securities and Exchange Commission's website at www.sec.gov.

Today's call is being recorded and will be available for replay on FB Financial's website approximately an hour after the conclusion of the call. At this time, all participants have been placed on a listen-only mode. The call will be open for questions after the presentation.

And with that, I would like to turn the call over to Robert Hoehn, Director of Corporate Finance. Please go ahead.

Christopher T. Holmes -- President, Chief Executive Officer & Director

Thank you, Ann. During this presentation, FB Financial may make comments which constitute forward-looking statements under the federal securities laws. All forward-looking statements are subject to risks and uncertainties and other facts that may cause actual results and performance or achievements of FB Financial to differ materially from any results, expressed or implied by such forward-looking statements. Many of such factors are beyond FB Financial's ability to control or predict, and listeners are cautioned not to put undue reliance on such forward-looking statements. A more detailed description of these and other risks is contained in FB Financial's periodic and current reports filed with the SEC, including FB Financial's most recent Form 10-K. Except as required by law, FB Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events, or otherwise.

In addition, these remarks may include certain non-GAAP financial measures as defined by SEC Regulation G. A presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to comparable GAAP measures is available in FB Financial's earnings release, supplemental financial information and this morning's presentation, which are available on the Investor Relations page of the company's website at www.firstbankonline.com and on the SEC's website at www.sec.gov.

I would now like to turn the presentation over to Chris Holmes, FB Financial's President and CEO. Thank you, Robert. Good morning, everybody. Thank you for joining us this morning and we appreciate your interest in FB Financial. We had another successful quarter as we delivered adjusted EPS of $1.12 per share, adjusted ROAA of 1.89%, and adjusted return on tangible common equity of 20.9%. And we grew our tangible book value per share to $22.51, or 14.6% annualized. With each day that passes, our markets get a little closer to normal and that's reflected in a few of our numbers this quarter. We had $31 million in loan growth, excluding PPP, or 1.8% annualized. Through February, balances were actually down $89 million, but then we had a very strong March with $120 million in growth. As our markets bounced back, customer demand for loans continued to build. We still feel good about our mid- to high-single-digit annual loan growth target that we set for ourselves. We released $13.9 million from our allowance for credit losses this quarter, as continually improving economic forecasts dictate that we bring down our reserves. Following this reserve release, our allowance to loans, excluding PPP, is 2.29%, down from 2.48% last quarter. Assuming no further COVID waves or hiccups in the recovery, we would expect those releases to continue in the near term as economic outlooks continue to improve. Our full deferrals of principal and interest are down to $21 million, and we have $131 million of loans on interest-only payment schedules. Of the $131 million on interest-only schedules, $76 million are hotel loans. We continue to feel optimistic about the ultimate resolution of our loan deferrals. Our net charge-offs were 5 basis points this quarter. We're still cautious and we still have significant reserves, in case we do experience any credit demands, but we don't have any knowledge of anything specific that causes us any concern. With each passing quarter, we grow more optimistic that we will get through the pain of COVID without any serious credit losses. Beyond numbers, our associates have returned to the office. This is crucial for the internal projects that we are, that are considered our current focus. While remote world has been effective for most tasks and for a limited time period, face-to-face interaction is crucial for the goals that we have for ourselves this year. Each time we speak to investors individually, we harp on being better operators than our competitors. Most of the goals and initiatives from our strategic plan are geared toward ensuring that we were the better bank for our customers than our competitors do. Most services in banking are commoditized. So, our value proposition for our customers is to be faster with less friction, while providing better advice than our competitors, whether that's a bank, or credit union, or a fintech company. From an infrastructure standpoint, that means ensuring that a customer can attain any product with us they could, or [phonetic] with any of our competitor--, and with any other competitor; and second, that means enabling the customer to do business as conveniently as they can with any competitor, be it online, on the telephones, or through a branch location. From a personnel standpoint, we do that by setting up regions, investing our regional presence with the power to operate their regions as independent community banks. Each of our regions is divided into markets. Each market has a President and individual relationship manager report after [phonetic] their market presence. Very few banks of our size and larger have chosen to stick with the community banking model. From a risk and uniformity standpoint, it's simpler to go with the centralized line of business model. The unintended operational consequences of the centralized model are the reason that smaller community banks have historically been able to pick off talent and customers from larger banks. Relationship managers tend to distance fast [phonetic] with their work environments and customers grow frustrated by the lack of response in visits burdened by the broken centralized processes. So, that way, at FirstBank, our goal and desire have been to keep our community banking strategy and model, regardless of size. We've been able to maintain that well enough. But now, that we've $12 billion in assets and have a very strong--, and have very strong organic growth prospects across our footprint, we're taking the time and working hard to review and challenge the customer experience, support functions, risk management functions, and other processes that allow us to maintain our community bank model, and we will be scalable up to $20 billion, $30 billion, 40 million and even more. With that explanation about our regional model, we're excited to announce a newly formed Central Alabama Region with the hiring of our first four banking division associates in Birmingham, two of which are very experienced senior bankers. We have long had a more strong mortgage presence in Birmingham with our retail channels' leadership being based in Vestavia Hills. Our foothold in mortgage in Birmingham made it a logical market expansion for us and we couldn't be happier to welcome these associates to the FirstBank team. We have a loan production office in place currently and we're working through the branch application process with the goal to having a full-service branch later in the year. Two other financial points to make before turning the call over to Greg and Michael, the first is on mortgage. Our mortgage team delivered $16.3 million in direct contribution this quarter, which was 71% of our fourth quarter 2020 contribution, so within our previous guidance of 70% to 100% of the fourth quarter's adjusted contribution. We generally don't give much guidance, especially with mortgage, but we did last quarter because we were confident that we had good insight into the quarter and that the first quarter would be solid for our mortgage group, both in the retail channel and in the consumer direct channel. And it turned out, we were right. As we look into the second quarter and the remainder of the year, our retail mortgage channel continue to look strong. But with the increase in interest rates, we've seen a decline in refinance volumes, which has an outsized impact on our consumer direct delivery channel. As a result, the retail channel should have a solid second quarter, but that will be largely or entirely offset by the impact of the declining volumes and margins in consumer direct. The smaller pipeline will call the negative mark-to-market adjustment on the pipeline that we will absorb in the second quarter. With these headwinds, we are expecting a significant, if any, contribution from our mortgage operations in the second quarter. Once we digest the consumer direct volume decrease, we expect more normal operations in the second half of the year, where we would expect mortgage to be in the 10% range of total contribution during any given quarter, dependent on seasonality, of course. The second point is on our non-core commercial held for sale portfolio. We had offers that were close to acceptable for us, but we ultimately decided we were comfortable with the discount that we will be enacted [phonetic] to take on the portfolio, that we think remains reasonably strong. As long as we continue to hold the portfolio, we are likely to see some small movements in the valuation as we mark that to market each quarter; our third quarter was a $1.9 million gain, the fourth quarter was a $1.4 million gain, the first quarter was $853,000 loss. We continue to feel appropriately marked on the overall portfolio and believe that we will ultimately dispose of the portfolio, in line to ahead of the discounts that we have on the loans held. So, to summarize, we had a strong financial performance this quarter. Our regional leadership feels good about the growth prospects for the remainder of the year, and we added a new Central Alabama Region and key relationship managers in the quarter. We face a mortgage headwind in Q2, but feel good about the second half of the year. And we're focused on customer experience and the operational enhancements that allow us to deliver our community banking style, no matter ourselves. Now, Greg is going to give you some additional color on credit.

Greg Bowers -- Chief Credit Officer

Thanks, Chris. Good morning. Overall, the portfolio continues to perform satisfactorily and I'm reminded that it was almost exactly a year ago that we gave our first update in the pandemic world. It would be an understatement to say that we've seen a number of changes within our portfolio. And fortunately, due to good general underwriting by our teams, strong relationships, and the strength of our own balance sheet, we successfully managed through what appears to be the worst of this, part of the storm.

Those of you that had followed us for the past year, we will recall that in reaction to the pandemic, we assisted our customers by allowing for some form of payment deferral of approximately 20% of our portfolio; and today, that has been reduced to around 2% as previously noted and as shown on Slide 11. Of that 2% number, the minority, or only $21 million, are remaining on a full deferral of P&I, while the other $131 million in deferral are on an interest-payment schedule; those remaining interest-only deferrals are largely in the hospitality sector, as we pointed out previously. All of that has favored; glad to see how that has progressed. While we're on deferrals, it's a good time to highlight some of the major portfolio categories that we've been tracking, or our industries of concern, as it's pointed out in the deck. A year ago, we outlined six primary industry sectors, that based upon what we knew at the time, could potentially be more heavily impacted by the pandemic; retail, hotel, healthcare, restaurant, other leisure, and transportation. As we look back, we are pleased with the overall results in these sectors, especially in the light of the unknowns at the beginning of all this.

Slide 12 highlights the overall picture of those industry segments and you can see that credit quality has held up. Of these, we will call out two segments to highlight this quarter. In the hotel portfolio, with details broken out on Slide 13, our larger operators are reporting improved occupancies, and I believe, are optimistic about the future as markets continue to open, the number of vaccinations increase, and travel picks back up. They account for the majority of our exposure. On the smaller, less well-capitalized end of the market, we have seen a few operators not fared well and those account for some of the movement in the classified totals. I'm talking only about a few smaller ones. We're hopeful their results improve, so that now we could see further migration with a couple of these. But again, overall, I'm very pleased with how the hotel portfolio has come through this so far.

Second one I'd point out is in the healthcare portfolio, which is detailed on Slide 14. We saw a decline initially last year from the closures of the doctors' offices, but again that picked back up with the reopening of the markets. Exception to this has been in a few of our assisted living homes, which were hit with outbreaks at the beginning of this year, and their occupancies since discounts have been impacted. It just, excuse me, this is not be an indicative [phonetic] of our portfolio overall, but it is project-specific. At just over $20 million, a couple of these credits account for the rest of the increase in our classified numbers. Our teams are confident that with the increase in vaccination in these properties, we will be able to build the occupancy numbers back up, but this could be an extended time frame that we will be monitoring closely.

Slide 15 breaks out the restaurant group as we have done in the past, but results here are good overall and in line with our last report. I'll close on Slide 16, which displays our overall credit metrics. On the whole, we feel comfortable with the help of our loan portfolio; charge-offs were minimal this quarter at 5 basis points; non-performing ratios held relatively steady this quarter; our classified loans saw a bit of a jump, with that increases primarily related to the credits I just discussed, primarily the assisted living.

Lastly, we are remaining confident by having an allowance toward the upper end of our peers, 2.29%, excluding PPP.

With that, I'll turn it over to Michael.

Michael M. Mettee -- Chief Financial Officer

Thank you, Greg.

Speaking first of mortgage and expanding on some of what Chris spoke to earlier, the team produced another strong quarter in Q1, producing $16.3 million, a seasonal decline from Q4 of 2020, but was within the expected range. As mentioned last quarter, we saw a seasonal dip in margins, which have continued to compress as illustrated on Slide 6, with the rise in interest rates. As we have seen in the past, when interest rates rise quickly, the effects on margins and volumes impact the consumer direct lenders harder than the traditional retail channels. This is due to the consumer direct channel being more heavily refinance-focused than our traditional retail channel. And historically, the consumer direct line of business has been between 55% to 65% of our overall volume.

We do believe one of the positive outcomes from the pandemic, as it relates to mortgage, has been a shift in consumer behavior, and preference to utilize and leverage technology for their mortgage needs. This shift will provide our consumer direct business with continued growth prospects, especially as the team works to gain additional market share in the purchase space. We have seen successful strides enabled to move in that direction. But as in any business model, shift takes time to fully implement, and we will continue to take advantage of the refinance business as long as it exists. We do expect a solid purchase season, with the mortgage industry as a whole is facing its share of headwinds, including excess industrial capacity, and national and local housing shortages.

Moving on to net interest margin, we saw a decline in the headline number as our liquidity has continued to build. Adjusted for normalized liquidity levels, the margins held relatively flat around 3.41% compared to 3.44% last quarter, and that detail is on Slide 5 in the impact of excess liquidity line. We are still focused on bringing deposit costs down and we are able to do that this quarter, as cost of total deposits came down 5 basis points, while contractual yield on loans excluding PPP loans also came down 5 basis points. This trend is poised to continue as we have over $300 million of CDs repricing again this quarter in the 1.25% range.

We also continue to see progress on reducing our money market and interest-bearing checking rates as we've been picking up a basis point or so per week on the cost of those deposits recently. Liquidity is likely to continue to weigh on the margin and we would obviously like to redeploy that cash in the core lending relationships.

But, with the competitive environment and with liquidity continuing to flood into the system, we have ramped up our securities purchases. We had previously held off on investing too much in the securities portfolio, given the low rates and duration risks that were evident in our investment opportunities. However, with the recent uptick in rates, we've added $112 million to our portfolio in April at about 150 basis point yield, which is a nice short-term pickup, compared to the 12 basis points that we're earning on our cash. We will look to move our portfolio to approximately 12% to 13% of total assets.

Moving on to CECL and our allowance, we saw a release of $13.9 million this quarter, as economic forecasts continue to improve. As we had mentioned previously, we have been fairly model-driven with limited qualitative factors to this point. However, the initial release, based on our chosen Moody's forecast this quarter, was larger than we thought was prudent, given that the economic recovery is in its early stages and we're still facing headwinds. With that, we increased our qualitative factors this quarter in order to account for some of the uncertainty. Going forward, we will continue to weigh them, improving forecasts or skew factors that we believe are prudent to manage the allowance. However, we would currently expect further releases over the next few [phonetic] quarters, assuming outlets continue to improve.

I'll close my section by speaking to our expenses. The banking segment non-interest expense was a bit higher this quarter at $55.7 million, which excluding $4.5 million in FHLB pre-payment penalties compares to $52.9 million in the fourth quarter. This was related to some seasonal and one-time expenses, and not a run rate to base future estimates on. Between the seasonal expenses related to the annual incentive compensation payout and a few other onetime items, we're about $1.7 million higher this quarter than what we feel like our run rate is. We continue to expect low- to mid-single-digit percentage growth rate for 2021 and our annualized run rate from the fourth quarter, which would have been about $212 million.

I'll now turn things back over to Chris to close.

Christopher T. Holmes -- President, Chief Executive Officer & Director

And thank you, Greg, and thank you, Michael, for that color. Thank you, everyone, for--, again for your interest in our company. And operator, we would like to ultimately answer your questions [phonetic] at this point.

Questions and Answers:

Operator

We will now begin the question-and-answer session.

[Operator Instructions]

Our first question comes from Catherine Mealor of KBW. Catherine. please proceed.

Catherine Mealor -- KBW -- Analyst

Hi, good morning.

Christopher T. Holmes -- President, Chief Executive Officer & Director

Good morning, Catherine.

Michael M. Mettee -- Chief Financial Officer

Good morning, Catherine.

Catherine Mealor -- KBW -- Analyst

I just wanted to first follow up on your expense guide that you just gave. So, you're saying we should take about $1.7 million out of this run rate from this quarter and then grow at, kind of, a low-single-digit pace from there. Is that right?

Christopher T. Holmes -- President, Chief Executive Officer & Director

Yeah, low-to-mid rate...

Michael M. Mettee -- Chief Financial Officer

Low to mid, yeah, single-digit pace.

Catherine Mealor -- KBW -- Analyst

Low to mid, OK. Okay, great. And are you recently through all of your cost savings from the merger or, I wish I think about further cost savings, kind of, offset by just growth in investments in the franchise, and hiring, and technology investments and all that.

Christopher T. Holmes -- President, Chief Executive Officer & Director

Yes, to a couple of things. We hit our--, we hit the. I guess, we hit the num--, we hit the goals in terms of cost savings, but we still have a few things that will come out later in the year, primarily in the form of some sort of comp-related expenses and some leases.

Michael, for that, is there anything else that can come out?

Michael M. Mettee -- Chief Financial Officer

No, I think that's fair. I think we're seeing some improvement in real estate, so it's an improvement in the lease outlook too.

Catherine Mealor -- KBW -- Analyst

Okay.

Christopher T. Holmes -- President, Chief Executive Officer & Director

Yeah, that's a good point. We have some dormant branches and our markets are--, the real estate market is such that the prospects for those are better than when we initially took them in. And so, we'll probably going to get--, be able to get rid of some of those.

Catherine Mealor -- KBW -- Analyst

Okay. And then, my follow up is just on the loan growth. Great that you are forecasting to a return to the mid- to high-single digit on the back half of the year. Can you guys just talk about your pipeline looks like and just kind of the health of your market, and then kind of the risk of accelerated paydowns that you may see that may kind of eat into that growth? Thanks.

Christopher T. Holmes -- President, Chief Executive Officer & Director

Yeah. Yeah. I think your question actually. I could probably formulate into a pretty good answer. In my comments, I made a note that we were a little concerned in February because we were down significantly in loan balances, then we had a really strong March. So, if you look at our averages, they would reflect that. And so, as we continue to look forward, we got good demand. And so, we are seeing, the pipeline actually look quite good, but it did--, we're also, but we're also seeing paydowns, because obviously it's been a pretty good time to refinance your--, it's been a good time to refinance. And actually, it's a good time, especially, for some not-for-profits and others to pay off.

And so, we're seeing, whether they just own some [phonetic], be it both individuals, companies, and not-for-profit, just eliminating their debt altogether, so good for them by the way; not so good if you're the lender on a really strong solid credit. But, so, and we try to project that, I would tell you it's not easy. But, we, when we look at the pipeline today, it still feels pretty good, as we try to roll the year forward for mid- to high-single digits, when we take all those things into account. We are seeing--, but we are seeing it bounce around a lot. And I would say, actually, we saw really strong March, we've seen a weaker April. But if we look at the pipeline, again it gets a little stronger in the latter part of the quarter. So, if you--, and by the way, if you sit in my seat, that means you're little nervous always when it comes in at, later versus earlier in the year. But, so far, our folks have been right on target with what they've been projecting, so.

Catherine Mealor -- KBW -- Analyst

Okay, that's really helpful, thank you so much.

Robert Hoehn -- Director of Corporate Finance

Thanks, Catherine.

Operator

And our next question comes from Stephen Scouten of Piper Sandler. Stephen, please proceed.

Stephen Scouten -- Piper Sandler -- Analyst

Thanks, good morning, everyone.

Christopher T. Holmes -- President, Chief Executive Officer & Director

Good morning, Stephen.

Stephen Scouten -- Piper Sandler -- Analyst

I wanted to just see if you could give some additional color on that Birmingham team, maybe what size of bank, kind of, they're coming from? If there's any sort of specialty focus for that team, or if they're just kind of standard, kind of, core commercial bankers? And then, what your, maybe longer-term vision is for that market? And if it--, do you think that would entail M&A, or just other team left out? Kind of, how you think about the growth there longer term?

Christopher T. Holmes -- President, Chief Executive Officer & Director

Yeah. Thanks, Stephen. I can add, well, couple of things. I'd say folks are coming not from a single institution down there. We've had actually, probably two or three different contributors and that continues to be the case; they do have some experience, but it's a--, it's a variety of types of banks of folks that we are able to, have been able to acquire. Remember, that we do have some folks in the market that are very experienced in the market. We have, we're already in Huntsville and Florence. And so, again, we've got contacts there. And so, I'd say, it's fairly normal in terms of, just we're spreading and thus creating some opportunities, in parti--, on how we'll take folks up. So, I'd say, no, we're not--, we're certainly not targeting any institution or anything like that; it's just fortune shined on us there.

And what was the second part of the question?

Stephen Scouten -- Piper Sandler -- Analyst

Growth plan, what's your vision for...

Christopher T. Holmes -- President, Chief Executive Officer & Director

Yeah, I'm sorry. In terms of just total down there, yes, man, we would--, any market that we enter like that, we take a very long-term vision and approach to it. And so, we enter that thinking about how can we be the leading bank in that market over a decade or so. And so, we're thinking of all of the above; we would think about--, we would think about acquisitions, flat straight-up acquisitions of a bank; we think about a branch deal offer, if the right kind of branch deal popped up; we think about--, we're trying to acquire leading bankers in the market. And so, all of those would be a part of our strategy.

And if you go back and look at how we approached Nashville, and how we've approached Chattanooga, and how we approach Knoxville, that's--, that's the way we go into each market. It's with a long-term intent to be one of the dominant banks in the market and we will utilize all of those things to be able to achieve that over a longer period of time.

Stephen Scouten -- Piper Sandler -- Analyst

Great, that makes sense. Thanks, Chris.

And then, maybe if you guys could talk to the NIM a little bit. I know liquidity makes it almost impossible to kind of forecast. But, maybe if we thought about it, ex the incremental liquidity and kind of thought about, what do you think you're seeing on new loan yields and incremental pressure on loan yields? They were, I think, relatively stable, ex PPP, this quarter. And then, kind of, I guess if you think you'll see incremental investments in the securities, annexing kind of [phonetic] 12% to 13% of assets? But, kind of how you think about that balance of keeping the liquidity versus investing it and taking duration risk, etc.?

Greg Bowers -- Chief Credit Officer

Yeah, Stephen, it's Greg. Point I have, I don't think if you talked to us at the beginning of the quarter, we had expected 35% annualized deposit growth. So, that liquidity is weighing on us and others certainly. We are seeing loans pay off arrive at, kind of, higher yields, despite 4.46% in the month of March, coming in the high-3s, low 4% range NIM production, as the CDC a basis point or so every month of lower loan yields. And that's what we trying to get add at on lowering our deposit cost, right. We look to offset that decrease in loan yields to stabilize NIM. We certainly have started to pick up our securities purchases if opportunity arose, as rates moved up late March, early April, again we saw that 10-year go up 70 basis points to 80 basis point, and then settle back down a little bit.

So, got a lot more comfortable. Obviously, we'd like to deploy that excess liquidity into loan growth, Chris was just talking about. But, as we said 150 basis points on the investment portfolio feels a lot better than 12 basis points of cash. We will continue to make investments as prudent, but realizing we prefer to invest in that longer-term loan growth and relationships.

Christopher T. Holmes -- President, Chief Executive Officer & Director

Yeah. Hey, Steven, I'll just add this. When, it really is an unusual time. Margin is one of our most key metrics and it's hard to use that as a judgment of success right now, because liquidity is so abundant. And anything that we tell our folks, basically, any dollar of funding we take in, if we're paying more than 12 basis point on it, that's a loss for us. And so, by the way, we took in $800 million in the first quarter. And so, the margin, if you just look--, and so, I look at about three things, one, just about the yield on the loan portfolio, which is holding in pretty reasonably well. I look at deposit costs, which will continue to decrease. And so, there I think, we've got some optimism as we move forward.

And then, the other thing I look at it, just the wrong net interest income number, it was down quarter-over-quarter, which is disappointing for me and disappointing for us. And so, that's the one that we will be focused on just to try to get as much out of that liquidity as we can.

Stephen Scouten -- Piper Sandler -- Analyst

Got it, got it. And then, maybe just one last thing for me. I'm curious, we've seen some slight uptick back in the refi application numbers, as the 10-years moved back down on this mid 150 range. If you think, there could be some improvement throughout the quarter? And just to confirm, you said those fair value marks might make the contribution for 2Q, relatively neutral or close to zero, did I hear that correctly?

Christopher T. Holmes -- President, Chief Executive Officer & Director

Yes, you did hear that correctly. And yes, we offered it through [Indecipherable] before, so now we're always--, giving guidance on mortgage is really a tough thing. And so, but when you have the pipeline that we have, remember our business would look a little, our mortgage business is obviously robust and we've had five quarters of $100 million, if we roll the last five quarters, we had about $120 million of contribution, which is fantastic from a capital account standpoint. But, that also means we are going to, our pipeline is large. And so, we have a movement in that pipeline like we will have in the second quarter, as we do less in our consumer direct business, just so that mark to market can be substantial. It was really, if you remember, our margins related to mark to market were really large on the wait up as we grew the pipeline, as you end up shrinking the pipeline when volumes decrease, if you've got the other side of that.

So, it's a short-term phenomenon. But, yes, you're right, it could lead to just a second quarter, I guess, Michael, I'll call it, an anomaly. And might get, we've got a second-quarter phenomenon where we shrink the pipeline, that mark to market will be a negative for us.

Michael M. Mettee -- Chief Financial Officer

Yeah. Steven, and I think your refinance question with the move down, right. So, I think there could be some opportunity there. But, keep in mind, the industry has spent the last year building capacity. And so, now, Chris has touched on margins decreasing, so even with that increase in refinance, you've got people fighting for less business, because we are still down substantially from the refinance perspective over the last year, as an industry over the last six weeks. So, less than half.

Christopher T. Holmes -- President, Chief Executive Officer & Director

We hope you're right. We hope you're right. But, it's the realism in ourselves, let's don't count on it.

Stephen Scouten -- Piper Sandler -- Analyst

Yes, now, that's fair. But, it helped to grow our tangible book 23% year-over-year. So, I think, you'll take it. Congrats with that, Chris.

Christopher T. Holmes -- President, Chief Executive Officer & Director

Yeah, you're right, you're exactly right. We'll take it.

Operator

Our next question comes from Jennifer Demba of Truist Securities. Jennifer, please proceed.

Jennifer Demba -- Truist Securities -- Analyst

Thank you, good morning.

Christopher T. Holmes -- President, Chief Executive Officer & Director

Good morning, Jennifer.

Jennifer Demba -- Truist Securities -- Analyst

Can you just talk about interest in other hires and other markets in the Southeast that you may be targeting? And we're seeing obviously a lot of acquisitions being announced in the last several weeks. Can you talk about interest as it stands right now?

Christopher T. Holmes -- President, Chief Executive Officer & Director

Sure. On other hires, very interested in seasoned relationship managers in other markets. And so, that's something that will be our recruiting efforts. I would say, 2020 was a tough year in a lot of ways, but remember, we were also--, we grew from $6.1 billion [phonetic] to today $12 billion. And so, we were focused on a lot of conversion, a lot of our flawed [phonetic] things with our business model, a lot of risk management, as we have grown the company. And so, we probably haven't done as much of that. And so, that is a focus for us this year to continue to be able to add folks. And so, you'll, you'll see us, you will see that throughout the year, as we add some relationship managers in every, in each of our markets, and in different, all shapes and sizes, I guess, is the way I would put it, including mortgage bankers, as well as commercial bankers.

And then, also on the M&A front, we're always, we are always interested, is the way I would put it. But, we also--, going back to just what I just mentioned, we have been really focused internally on the business model, on the customer experience, on making sure that we have, that we're beating our competitors every day on the street. And when we talk about being a good operator, that's what we really mean. And so, again, with as much as we've grown and that's really our focus. And so, we get some calls, but frankly on most of them, we're to say and we've got other things on our mind. And we think that's where we are going to get the biggest dividend in the immediate future. And so, we never say never, but that's really not what we're, that's really not where our pursuit from a strategic standpoint is today.

Jennifer Demba -- Truist Securities -- Analyst

Thank you.

Operator

[Operator Instructions]

Our next question is coming from Matt Olney with Stephens Incorporated. Matt, please proceed.

Matt Olney -- Stephens Incorporated -- Analyst

Hey, thank you and good morning. Wanted to ask about the impact of higher interest rate, potentially next few years, on the company. Saw the disclosures in the 10-K from December, I don't know if there is a new disclosure I missed last night. But, I guess, the shock analysis suggests that the bank is one of the more asset-sensitive banks in the peer group. Would love to hear kind of what the--, what the drivers are and your expectations of higher rates, impact of loan floors and excess liquidity. Thanks.

Michael M. Mettee -- Chief Financial Officer

Hey, Matt, good morning. So, yeah, we feel pretty good about a rising rate scenario, especially on the short end of the curve. We're about 50% variable in our loan portfolio. And so, we will see a nice pickup in NIM, interest income as rates rise. And so, yeah, that disclosure that you're referencing is indicative of some of our optimism. As Chris mentioned, NIM being a key metric for us, we obviously, because we're asset-sensitive, we obviously performed pretty well in that environment. So, if we can get some inflation, we can get short-term rates to rise. We think we're well positioned with the way the balance sheet is structured. And obviously, that puts a little bit of pressure on some of our future assets by mortgage, but it's more than offset in the balance sheet.

Matt Olney -- Stephens Incorporated -- Analyst

And just as a follow up, what about loan floors behind that? Would it take a few short-term rate increases before you actually see, see a benefit because of those loan floors?

Greg Bowers -- Chief Credit Officer

Yeah, we would see it. It would take it with an increasing, we get some increasing benefit with each increment. But, we get small benefit from the earlier, that earlier stages of the increases. I'd have to--, I'd have to look exactly at the chart. But, we get some benefit from the earlier incremental rate increases.

Matt Olney -- Stephens Incorporated -- Analyst

Okay. And then, I mean...

Christopher T. Holmes -- President, Chief Executive Officer & Director

And I would just, I would say just thanks on the question and good to talk to you. [Indecipherable] and so, we actually got benefit from that mortgage and I talked about it ahead, it's been currently made over the last five quarters. And so, as rates go down, the way we try to build it is we get that--, we get that benefit, because our margins getting squeezed, but with rates, we think we're positioned well on the NIM and on our core banking business as of March. As corporate [phonetic] rates go up, you will see just like we talked about for Q2, you'll see some challenge and especially in that consumer direct piece of the mortgage market because it's so rate sensitive. But, as part of the plan and we think when we're growing both together, it makes for a really good shareholder value, kind of, proposition.

Matt Olney -- Stephens Incorporated -- Analyst

Good.

Operator

All right. [Operator Instructions]

Next question is coming from Alex Lau of JP Morgan. Alex, please proceed.

Alex Lau -- JP Morgan -- Analyst

Good morning, thanks for taking my questions. Can you talk about the growth in public fund deposits in terms of size and also what you expect in terms of seasonal impact as these run off? Thank you.

Christopher T. Holmes -- President, Chief Executive Officer & Director

Yeah. And so, on the growth in public fund deposits, we have, we bank, just about the vast majority of our public funds would be sort of centralized operating type accounts. And those accounts are funded up in the first quarter every year. And so, we're accustomed to seeing money come in in the first quarter and a big increase in those balances. And so, if we look at the increase in the first quarter, a majority of that would be driven by public funded accounts that are existing accounts, that are simply funding up in the quarter. So, it ended up actually adding farily significant majority, that will come down in the second quarter, and probably throughout the quarter, and maybe even a little bit into the third. So, that's a routine occurrence for us.

Michael M. Mettee -- Chief Financial Officer

Well, just to add on. I mean, there is a lot of money in the system, flown to the governments. And so, we're are supporting our communities and municipalities, so that creates a little bit of volatility, and that number has gotta increase because of how much money flown into governments across our major municipalities there.

Christopher T. Holmes -- President, Chief Executive Officer & Director

Does that answer correct, Alex?

Michael M. Mettee -- Chief Financial Officer

Alex, the day one CECL is not as pertinent to us because of what you just mentioned, right. We look a bit different from a balance sheet perspective after the merger. So, we don't necessarily have a target that we are looking to return to. Yeah, we're going through the process on a monthly, quarterly basis, looking at, obviously, loan growth, new loan balance sheet changes, and adjusting accordingly with the model. And then, based on what the outlook, what Franklin's economists said, I know that's a direct number, but that's kind of how we think about it.

Christopher T. Holmes -- President, Chief Executive Officer & Director

Yeah. I would just add that, as you can say, obviously, we're maybe at the top of our peer group; probably, we're not at the peering top, we're certainly in the top decile, and we understand that. And that's why maintain--, but we also have been approached it in about a prudent way. It's a new CECL, obviously, in just its first year of adoption. So, we feel like we have approached it prudently. We kind of approach most things conservatively because we're a bank. And so, we think we approached that conservatively as well. And you heard us say pretty openly, if things continue to improve, we would likely see releases at least in the near term on some of that. And so, that's, well, how that is, or what that would like, we take it quarter by quarter, as opposed to having any--, have any certain target that we're aiming for. From that, in our understanding of CECL, that's, I don't think, that's what CECL calls for.

Alex Lau -- JP Morgan -- Analyst

Appreciate that. And lastly, with your focus in innovating [phonetic] customer experience to compete with other banks and fintechs, does this require any additional investments in terms of technology that would be noticeable? Thanks.

Christopher T. Holmes -- President, Chief Executive Officer & Director

Eah. Technology, in our world, we're thinking as a consistent, I mean, it's a constant investment. I mean, we're making some investment in technology every quarter. And so, for us, it's trying to plan and it's trying to be routine about it. We have done a couple of things on the technology front, that we feel, gives us, keeps us on the front line in terms of what's emerging, what's happening. It keeps us thinking sharp, and thinking about that customer experience.

We were an early investor back a--, a few years back in a local fintech firm called FinTode [phonetic], which was managed by a friend of ours. And then, when I said we are a local investor, we were an investor, that is actually misstated. And I guess, I'd say a very large shareholder of that horse, it was our personal investor. But, because of that, we were able to get a lot of insight into their investments, what they're looking at. And so, that's--, and so, we have since made an investment in a fund, small investment in a fund, that is a fintech-focused. And so, again, we will sit on an advisory board there.

And with Jack Henry, our core processor, we're on their highest level advisory board, again where we are constantly evaluating and monitoring on the technology front. So that--, so wrapping all that into what we're doing and wrapping that into the customer experience focus and project that we have going on, so that we're in a position to continue to make sure that we are leading our competitors when it comes to that customer experience.

Alex Lau -- JP Morgan -- Analyst

That's great color, thanks for taking my question.

Christopher T. Holmes -- President, Chief Executive Officer & Director

Thanks, Alex.

Operator

This concludes the question-and-answer session. At this time, I would like to turn it back to Chris Holmes for any closing remarks.

Christopher T. Holmes -- President, Chief Executive Officer & Director

Okay, thanks everybody. And that wraps up Q1, we're almost for our way through Q2 at this point. So, we will look forward to being back--, back on with you at the end of the next quarter. And this quarter now, it's now concluded. Thanks, everybody. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Christopher T. Holmes -- President, Chief Executive Officer & Director

Greg Bowers -- Chief Credit Officer

Michael M. Mettee -- Chief Financial Officer

Robert Hoehn -- Director of Corporate Finance

Catherine Mealor -- KBW -- Analyst

Stephen Scouten -- Piper Sandler -- Analyst

Jennifer Demba -- Truist Securities -- Analyst

Matt Olney -- Stephens Incorporated -- Analyst

Alex Lau -- JP Morgan -- Analyst

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