Enterprise Financial Services Corp (EFSC) 2017 Q1 法說會逐字稿

Good day, everyone, and welcome to today's earnings conference call.

(Operator Instructions) Please note this call is being recorded.

At this time, I would like to turn the conference over to Mr. Peter Benoist.

Please go ahead.

(inaudible) and I wanted to take this opportunity to thank all of you for your interest and your support.

It's been a real honor and a privilege to serve as your CEO for the last 8 years.

Having said that, I have the utmost confidence that Jim Lally and his team will continue to deliver outstanding shareholder value for our investors.

I'll remain a consultant to the board and the management team through the end of this year, and it's with great pride that I turn this call over to Jim Lally.

Jim?

Thank you, Peter, and good afternoon, everyone, and thank you for taking time to join us for our first quarter earnings call.

I'm joined this afternoon by Keene Turner, CFO of our company; and Scott Goodman, President of Enterprise Bank and Trust.

We've continued our webcast format for this earnings call and I refer you to our corporate website for a copy of the accompanying presentation which will be the subject of the call.

The presentation and earnings release were furnished on SEC Form 8-K yesterday.

Please refer to Slide 2 of the presentation entitled Forward-Looking Statements and our most recent 10-K and 10-Q for reasons why actual results may vary from any forward-looking statements we make today.

Before we get into the numbers for the quarter, I want to recognize Peter for his exceptional leadership over the last 9 years, and wish him all the best in his retirement.

The first quarter has been a historical one for the company as we closed on the largest acquisition in the company's history.

The current integration of JCB has kept us very busy during the quarter, but despite this, we remain focused on sustaining our core growth trends and our longer-term strategic objectives.

Our financial scorecard is presented on Slide 4. The company's strong performance has continued into 2017.

Core EPS improved by 26% compared to the first quarter of 2016.

Continued strong loan growth and expansion of our net interest margin has driven year-over-year growth and net interest income dollars by 27% when compared to the same period in 2016.

These results are a product of steady loan and deposit growth throughout the year.

Our relationship-oriented approach continues to serve us well as seen through our rigorous defense of our net interest margin.

Compared to the first quarter of 2016, we saw net interest margin grow by 9 basis points to 3.63%.

Credit remains very solid.

Both nonperformers and classified assets improved from year-end 2016 and overall credit statistics compared favorably to our peer group.

Even with the additional expenses related to JCB, we continue to show the ability to positively leverage our fixed expense base as our efficiency ratio improved by 1% compared to a year ago.

However, it did increase compared to the linked quarter due to the acquisition expenses but we'd expect to see improvement of this ratio by the end of the year.

Finally, we are very proud of our continued ability to fund our loan growth with core deposits.

Our focus in this area coupled with our relationship approach is the key to this success.

Overall deposit growth, inclusive of JCB -- of the JCB acquisition, grew by 38% compared to 1 year ago.

As impressive, we were able to grow our deposits on an organic basis by 11% over the same time period.

I would now like to turn over to Scott Goodman, who'll provide more color as it relates to our loan and deposit growth as well as providing more insight to our achievements within our markets.

Thanks, Jim.

Loan growth continues on a healthy pace as outlined on Slide #5.

The growth in Q1 is a combination of acquired as well as ongoing organic activity.

The JCB portfolio added $678 million in new loans, pushing the 1-year growth rate to 36%.

Net of the acquired loans, organic sales channels also continued to produce strong results at a 12% rate over this same period.

Focusing on C&I lending, Slide #6 illustrates our ongoing double-digit pace.

TTM growth of 15% includes the addition of $79 million in C&I loans from JCB to the portfolio while organic regional and specialty businesses remains steady, also contributing to the growth at an annualized rate of roughly 10%.

Acquired and organic activities produced growth across all sectors of the portfolio in Q1, and Slide #6 and #7 breaks this down both by loan type and by market.

Specialized lending growth was led by a seasonally strong quarter for enterprise value lending.

Our existing private equity sponsors have been able to execute on some attractive investments recently, and our efforts to expand the sponsor base in new markets like Dallas and Boston are providing new relationship opportunities.

While market pressures stemming from higher purchase multiples are creating a challenge, our private equity partners generally remain disciplined as they develop alternative sources to service new opportunities.

Most also have a positive outlook for the lower middle market M&A and continue to successfully raise additional capital, consistent with historic investment parameters.

Life insurance premium finance also posted growth consistent with seasonally light first quarter expectations.

We are seeing some pricing pressures in this business, particularly from a couple of large regional banks.

We're remaining disciplined and protecting margin at this point based on our relationships with existing advisory firms and our strong reputation in the specialty.

We've seen the larger banks come in and out of this sector in the past and expect our value proposition of consistent execution and consultancy with the advisory firms to keep us competitive.

In Kansas City, we posted strong growth in the quarter with a net increase of $23 million or 22% annualized.

Results were a combination of growth across multiple sectors, including C&I, CRE and consumer.

The Kansas City Metro area and the urban core in particular continues its steady growth and expansion, and we're benefiting from new investors entering the market for industrial, commercial and residential projects.

We've also been able to leverage our tax credit expertise to win new relationships for institutions and C&I businesses expanding within the region.

Furthermore, our growth in this market has enabled us to attract talented and experienced bankers to our team.

Most recently, we've added 2 such bankers from larger competitors since year-end.

Both are relationships managers with 10-plus years of experience, handling large client portfolios in the middle market, C&I and CRE spaces.

In Arizona, we grew by $10 million or an annualized rate of 18% in the quarter.

As I mentioned last call, we transitioned several experienced bankers from our Kansas City region into Arizona recently to complement several other new local bankers that we have added to the platform there.

We look to capitalize on developing opportunities and growth in this market, and the expanded team has gained momentum quickly.

Growth in the quarter resulted from several new CRE projects and a large, new C&I relationship that was moved from a regional competitor.

In St.

Louis, the team has been highly focused on the integration of JCB.

And the addition of the JCB bankers and clients transforms our St.

Louis portfolio to $2.2 billion.

A large majority of the JCB book is commercial real estate which fits comfortably within the sector makeup of our existing portfolio.

From a personnel standpoint, we've been able to integrate their commercial bankers into our existing team and retain all key JCB branch personnel.

Our approach has been to minimize client disruption and maintain their relationships that were in place with JCB client-facing associates.

From an organic perspective during the quarter, St.

Louis continues to originate solid new C&I loan opportunities, complemented by select CRE projects with targeted investors.

Organic growth in the quarter was quelled by some large CRE payoffs resulting from various events, including project completions on SBA 504 loans, some property sales and several competitive rate decisions.

Looking forward and given competitive pressures in CRE lending, continued momentum for us in specialty and C&I origination pipelines provides flexibility for us to expand the CRE book thoughtfully and strategically.

Deposit growth is profiled on Slide #9.

It shows the impact of the JCB acquisition pushing total deposits above the $4 billion mark and vaulting us into the #4 position in the St.

Louis market overall.

The additional acquired deposits of $774 million have been complementary to our legacy portfolio.

The JCB branches have expanded our distribution into southern and western portions of the region while retaining an attractive deposit mix at roughly 26% noninterest-bearing accounts.

Organic deposits were also up for the quarter, consistent with seasonal growth expectations and show an increase of over 11% from the same period last year.

Our strategic focus on developing a sales process to emphasize deposit production has enabled us to maintain this double-digit growth pace required to support our lending activity.

Success has been the result of both focused initiatives and incorporating deposit production into our sales culture in general.

We've positioned dedicated leadership into roles which emphasize deposit growth, including our newly appointed Director of Deposits, regional consumer sales managers and several new commercial deposit RMs.

Much of our emphasis in the sales process moving forward will also be centered around initiatives that can help drive both the growth and cost-effective profile of our funding base.

Now I'd like to turn the call over to Keene Turner for a review of our financial performance.

Thank you, Scott.

First quarter results reflecting -- results continued to be strong and reflective of both our organic execution and recent acquisition efforts.

Slide 10 reconciles $0.56 of reported earnings per share to $0.59 of core earnings per share.

As you can see, noncore acquired asset contribution was relatively straightforward this quarter at $0.03 per share, and we also recorded $0.06 per share of merger expenses for JCB.

The merger-related items were comparable to the fourth quarter and the notably-higher acceleration activity from Q4 in the noncore acquired book drove the decrease in reported EPS.

Nonetheless, we're off to an excellent start for 2017 with a strong first quarter.

Core EPS was equal to our typically seasonally strongest quarter at $0.59 per share, and the return on average assets of 1.17% is a positive to start the year.

Additionally, we closed JCB early in the year and it was sooner than we had previously indicated.

Turning to Slide 11.

we'll walk through the changes in our core earnings per share from the linked fourth quarter.

Obviously, the income statement was affected by the results from JCB since February 10.

On this slide, we attempt to isolate those results on EPS and characterize the underlying fundamental performance which was encouraging, in my view, to start the year.

Those trends obviously bode well for our results for the quarters to come.

High level, we estimate that from an EPS perspective, JCB added about $0.01 per share when you reflect the share issuance and some finance cost assumptions.

On top of that, there was a $0.06 per share income tax benefit from the implementation of the new accounting standard for share-based awards.

We believe this item is core and we expect this to continue principally in the first quarter of future periods.

We posted a slightly higher provision for loan losses of $0.02 per share, and expenses and noninterest income were impacted by seasonality by $0.03 and $0.05, respectively.

Net interest income, however, expanded $0.03 per share in the linked quarter, and I'll walk through that more in detail on Slide 12.

Core net interest income increased to $37.6 million for the first quarter.

Of that increase, we estimate the legacy Enterprise earnings grew by approximately $1 million due to the impact of growth as well as strong net interest margin performance.

Our balance sheet and margin were both positively impacted by several interest rate factors.

First, the interest rate increase in December positively impacted our loan yields which expanded 21 basis points sequentially.

Additionally, we prepurchased a significant portion of the JCB investment portfolio in the fourth quarter and early in the first, so we had a full quarter with some higher investment rates in typical agency mortgage-backed paper that we buy at the 2.7% to 2.8% range, and that drove up the overall yield in the investment portfolio.

Further, the seasonally-high liquidity we had at year-end began to be deployed by customers, and we leveraged the sub debt offering that occurred early in Q4.

We reported that those items decreased the Q4 net interest margin by 3 and 7 basis points, respectively.

For the rest of our funding, interest rates on wholesale and other variable-rate borrowings increased, but we've seen our core deposit rates remain relatively stable.

We're always managing them closely in order to defend and protect funding levels and to support our growth.

Thus, the linked quarter increase was only 2 basis points and only 5 basis points from the prior year.

With all that said, core net interest margin increased 19 basis points in the linked quarter to 3.63%.

Again, the largest driver of the improvement was the underlying rate impact for legacy Enterprise.

JCB's historical margin was slightly lower but purchase accounting impacts blended that back and provided some aid to the first quarter margin.

To reaffirm what we are expecting going forward, we have targeted 2017 portfolio loan growth at or above 10%.

We were right around 7% in the first quarter, so we feel good about our progress thus far.

We're managing the balance sheet to remain modestly asset-sensitive and about $2.2 billion or 56% of the portfolio remains variable-rate, of which approximately 2/3 will experience some sort of repricing in the near term.

That composition was affected by the portfolio from JCB that came on and drove that down just slightly.

We're also yet to experience much of the impact from the March interest rate increase, so we're optimistic that we will again have some sequential core net interest margin expansion.

Thus said, our focus is on net interest income growth in dollars and not just from full quarter impact of JCB.

On Slide 13, credit trends continue to support our profitability.

We experienced modest net recoveries in the quarter, with $56 million of portfolio loan growth.

The $1.5 million provision in the quarter actually increased comparative coverage on the allowance for loan losses to total loans by 3 basis points to 1.23%.

This increased coverage was largely driven by provisioning on one nonperforming loan we've been discussing for the last couple of quarters.

Worth noting, the mark on JCB's loan portfolio was 3.5% and pro forma coverage on allowance to portfolio loans would then be 1.65%.

Our posture is to continue to provide for credit losses that may be inherent in the portfolio.

However, our credit performance over a prolonged period of time makes that increasingly challenging.

Nonetheless, coverage of nonperforming loans increased to 283% on March 31.

On Slide 14, noninterest income for the quarter was $7 million.

Seasonality and tax credits drove the decline from the fourth quarter which is our strongest sales quarter.

The growth in underlying fee businesses combined with $700,000 contributed from JCB, principally in deposit service charges, mitigated that seasonal decline.

Overall, fee income results are solid out of the gate as demonstrated in flat fees in card services businesses.

I'll try to take you briefly through expenses on Slide 15.

These expenses already exclude merger-related items of $1.7 million for the quarter.

High level roll forward for this quarter was $21.1 million in Q4 of expenses plus $0.8 million of seasonal payroll taxes for first quarter gets you to $22 million.

Add to that the JCB expenses for half the quarter of approximately $3 million.

Thus, we reported $25 million of operating expenses in the first quarter.

The efficiency ratio increased to 56% but we're still down 1% from the prior year even with JCB which is a positive in my view.

First quarter results include only a modest amount of run-rate cost savings from JCB as we've been running both core systems, among other things, since closing and we've almost a full second quarter until systems conversion in late May.

Thus, we expect the absolute level of expenses to increase in Q2, including the remaining merger-related charges.

After that, during the third and by the fourth quarter, we expect the efficiency ratio to improve as the cost savings are realized in the second half of 2017.

We will also have a full quarter of JCB revenues and we expect our current quarter results to drive continued revenue expansion.

So high-level efficiency ratio we're forecasting the current level is a reasonable estimate for next quarter with potential for modest improvement due to revenue expansion.

Moving forward in dollars, JCB's full quarter expenses are around $6 million.

Combined with our current level, that's $28 million total.

The synergies are estimated at $2 million per quarter fully phased-in.

As we continue to invest in the business, we'll have some core expense growth gradually throughout 2017.

I expect expenses by the fourth quarter to be relatively clean, assuming there are no material changes to plans or strategies as it relates to our core business or JCB.

The resulting range for the year is $25 million to $28 million on a quarterly basis, with the highest level for the second quarter.

We continue to pursue and build core profits and returns over time.

We will deploy some additional run rate expenses throughout the year but we expect to achieve revenue gains in the near and intermediate term that will continue to leverage the expense base as we've demonstrated consistently over the past years.

Slide 16 illustrates the gradual steps and improvement we have made from focusing on key drivers of profitability and executing our strategy and plan to improve each of them cumulatively.

It's worth noting that our core ROAA of 1.17% for the first quarter of 2017 has steadily increased over this period.

We're highly focused on driving profitable growth and our achievement of results will continue to expand both earnings and value for our shareholders as we further position EFSC for the future.

To start the year, we're encouraged by the positive results of our legacy company fundamentals, the early results from the JCB acquisition and those yet to come from our newly expanded organization.

Thank you for your interest in our company and for joining us today, and at this time, we'll open the line for questions.

(Operator Instructions) And we'll take our first question from Jeff Rulis.

Circling back on the expenses just on a pretax cost saves, I think you put it at about $8 million annually.

I guess, how much of that, if any, has been achieved at this point?

Jeff, it's very little at this point.

So we expect most of that is yet to come.

And really Q3, we expect to see that phase out and there may still be a little bit to go get in Q4 in terms of what we were planning.

So still a lot of that's yet to come, given we're running duplicative systems with duplicative people, by and large.

But the thought is that you'd secure the cost saves by Q4, that run rate will be all-in with a little bit of potential a little higher in Q4 but by year...

Yes, I expect what you'll see in Q4 will be a good indication of what the fundamental run rate of the combined companies is.

Got you.

And then on the merger cost, I think you pegged it at $10 million and I think initially, it was 30% prior to close and 70% after.

Is that kind of holding true?

Yes, I think we've got $4 million to $6 million, something like that, left is what's on the top of the head.

So yes, that fits in with where we are at this time.

And most of those again, will be next quarter as we have the onetime charges for systems principally.

Got it.

And then just switching gears to the fee income side, saw a modest contribution from JCB.

I guess, more expansion to come on that platform and maybe just the outlook for fee income in general.

Yes, so JCB's fee run rate was about $1.5 million, so we effectively got a half a quarter there.

I think you're seeing some good momentum in the wealth business in particular.

We're getting new clients and able to retain the ones that we had.

And then I think we're positioned in terms of cross-selling treasury management and other portions of the platform card into the Eagle portfolio, we'll say, as soon as we have conversion.

So that's really a second half item but I think we're feeling good about where we are to date both in the legacy Enterprise book and the run rates from what came over from JCB being level and represents the focus of their teams and our teams since announcement and through close.

We will take our next question from Mike Perito.

I guess, Peter, one last time, congratulations on retirement.

Thanks, Mike.

A couple of quick questions.

So just to clarify, Keene, on the expenses, not to beat a dead horse here.

But so, the $25 million to $28 million range, it sounds like you expect to be at the higher end next quarter.

Now, is that range inclusive of the $4 million to $6 million merger charges that you could incur?

No, Mike, sorry.

So we're...

That's just the core...

Yes, so that's the core.

The $4 million to $6 million is really outside, and that's kind of the onetime.

So right now, we're at the $25 million, basically.

So that's Q1 and then the $28 million is where we're looking broad brush strokes for next quarter, and then it improves from there.

So you've got the cost savings coming out and then you probably got Enterprise, legacy or investment in the business combined growth what you've seen historically in terms of the investments we're able to make when we pull people onto the platform and continue to expand in pursuit of revenue.

So just linking that back trending-wise, last year, we invested, I think, $0.16 in an $0.08 run rate and drove $0.50 of core revenue.

So we're -- magnitude may be different this year but that's how we think about the business, and that's how we build our plans.

Sometimes the timing of that's a little bit to be determined, and I expect it'll be a little bit more second half-weighted, given we're focused on the acquisition currently.

Okay, that makes sense.

And then maybe a question for Scott.

What are you seeing -- I mean, it seemed like your deposit cost held in really strongly but I guess, what are you seeing in the various markets from competitors?

And what are the expectations on the deposit side?

We had another rate increase in March, I mean, consensus estimates still kind of factor in at least 1 or 2 more this year.

What are your updated thoughts on the deposit funding side?

Yes.

I think certainly from a competitive standpoint, we're seeing deposit pricing creeping more into the markets.

Where you may see 3 or 4 banks that are kind of outliers on some rates, maybe now you see 8 or 10 in a market.

So I think it's certainly getting more emphasis.

I think our position there has been again, to incorporate it into everything we do every day.

And because it's part of our C&I calling, we're going after relationships, we're not chasing hot money or going after lumps of special product which keeps our cost lower.

That said, we are focused on expanding deposits in a similar fashion as we've expanded loans with some of the specialty niches, and that's really emphasis in getting some leadership into a position to elevate the deposit culture, how we see it, report on it, think about it and incent for it, as well as potentially some other special calling focuses, whether it's by industry, niche or product.

Okay, that's helpful.

And then maybe one last one for me on -- for Jim on the JCB acquisition.

Obviously, my guess is there's some similarities but also some differences culturally with the JCB team, just given kind of the business model and approach.

And just curious how that side of it's tracking thus far in the St.

Louis market and how the 2 teams are kind of meshing together.

We look at it 2 ways.

We look at it from the front end of the retail business, consumer business, which we've been in with them since, essentially, the announcement.

So that culture is going very well and Scott mentioned in his comments that the client-facing personnel there hasn't changed hardly at all.

So that's certainly has helped from a soft landing from a client perspective.

On the commercial side, if there was any changes just for them really was our process, which we've integrated very well.

As we looked at our team makeup, we've assimilated all Eagle partners within teams in Enterprise such as there's no islands created.

So we've created this quasi-buddy system to make sure that it's a soft landing for them as well.

But from an underwriting perspective, it's been -- the cultures have been very much aligned.

So that's not been problem at all in terms of the understanding of how we go to market, how they went to market, because they're very similar.

Okay.

And just wanted to follow up on that.

I guess, both my last 2 questions are follow-up for do you guys have a sense of what your deposit mix is in terms of more like retail consumer versus commercial?

I don't have that offhand.

We were 80% commercial.

Running the math on it, most of Eagle would be what we would have considered to be retail.

So that's probably down 20%.

Yes, they're probably more 20-80, where we're 80-20, so however the math works out.

So probably in the range of 1/3 retail, 2/3 commercial at this point?

Sure.

And maybe just to add to that given what we're talking about.

I mean, the Eagle balance sheet and deposit levels and loan levels has been really stable and steady since acquisition and even since announcement.

So we're pleased there in terms of what their teams have done and what our teams have done and working with them to make sure that the value of that franchise and early on, those results are really there.

So that's been a huge positive for us as well.

We will take our next question from Andrew Liesch.

Congratulations, Peter, on your retirement.

Just wanted to pass along my congrats.

Great.

Thank you, Andrew,.

Just one follow-up question for me on M&A.

Just it sounds like this JCB deal has gone pretty smoothly for you guys.

Just curious what is your appetite for more deals?

And then, are there any regions you're prioritizing?

Or any business lines specifically that you would like to add?

So we continue to be encouraged by this deal.

I think the value that we would continue to get out it has been the customized approach in terms of really understanding what was important to Eagle, what their culture was and the way that we bring that together.

That being said, we're constantly evaluating options and looking down the road from a longer term.

I don't know that you would necessarily see from a deal flow perspective, that we would rapidly follow on with a bunch of deals.

Because I think what we've really learned in this process for ourselves is the value is in really preserving and growing what Eagle had.

And also, we were fortunate enough to find something that was extremely unique in terms of the culture but it really fit well with ours.

But that being said, it's got to be accretive to earnings, talent and really, our strategy.

And principally, when we look for something, it's really expanded deposit capabilities and customer service.

So that's where we start and obviously, we'd like to be expansive in our existing markets, Kansas City, more in St.

Louis, Arizona if that opportunity comes around, but we're open-minded about what we look at.

And we're also thoughtful about what it means to be in a new market and look at that even more cautiously.

(Operator Instructions) We will take our next question from Brian Martin.

Just wanted to find out on the -- going back to the margins for just 1 minute.

I think, Keene, you said that there were maybe 2/3 of the loans that were going to reprice here in the short term, and then you have the March benefit that would kick in as well.

I mean, can you just talk a little bit about how you guys are thinking about second quarter for the margin and as it relates to both those items and the impact it has?

Yes.

So I would say this.

I think the first quarter margin performance was even beyond our expectations.

I think we had a lot of positives on the asset side and the funding side, particularly in the deposits didn't move.

We don't necessarily expect that same dynamic.

So I think we're thinking margin sequentially is up, but it's probably more like 5 basis points than the magnitude of what we saw in the first quarter here, and you're probably going to start to see a little bit more creep on the funding side.

We think that for a number of reasons, maybe not necessarily the absolute deposit trend, but we typically get a little bit seasonally tighter in terms of loan to deposit as we go through the middle of the summer.

And so just the reliance on wholesale funding would cause a little bit of a challenge for us.

And then we typically build liquidity back in later in the year to round out the asset growth we get throughout the year, and that's been our cycle for like the last 3 years.

And so with the wholesale cost now being pretty significantly above where the deposit costs are, we wouldn't have quite as much sequential expansion next quarter.

But there's still more to come on the loans side and that bodes well for both Q2, 3, 4, however long we can keep managing the funding side.

So the kind of the 5 basis point range is more realistic, assuming the funding costs and then we'll see how that dynamic changes over time.

So okay, that's helpful.

And then just the other part, when you talk about, I guess, just the C&I growth and just kind of your optimism on the loan growth this year, I mean, I guess, are there any -- is it fair to say that it still seems like a good chunk of it is focusing more on the specialty product?

It seemed like 2 of those were seasonally weaker this quarter.

So, I guess, just kind of curious, and you're certainly off to a nice start for the year, but any areas you're more encouraged by, whether it be geographically or a segment that you feel comfortable with the loan growth numbers so far?

Well, Brian, I would say that what we see certainly on the specialty side is consistent which has been pretty nice growth.

I think the partners we deal with on the EVL side are optimistic, and we've expanded our base of partners we're working with there.

So we don't -- that is a seasonal business somewhat towards the end of the year and the first quarter, but I see that being consistent.

Life insurance, as I said, there's a little bit of margin pressure there but the pipeline remains consistent.

So I think we're consistently optimistic on the specialty businesses.

I think as we've brought new talent on the platform both in Kansas City and Arizona, I feel good about our ability to compete there.

I think on the C&I side and using some of the specialty tools like the tax credit products we have, has allowed us to kind of stay out of the fray from some of the CRE competition that we see that competes both on price and on structure.

So it's tough.

I mean, it's consistently tough.

So don't get me wrong.

It's not easy, but I feel good about our team and our ability to execute the way we have going forward.

Okay, and have you guys seen a pickup or slowdown in payoffs?

Or has that been pretty consistent?

We saw some CRE payoffs.

I think we're seeing some of the large banks.

The product that we've seen out there that hit us in the first quarter was really some of the larger banks that have 10-year money, but we see them with buckets of 10-year money that kind of keep coming in and out of the market.

So while it hit us a little bit in the first quarter, I can't say that I'm worried about it long term.

So no, I don't see anything other than just normal payoffs on CRE when we do construction financing or SBA 504s or products like that, so...

And the lift-out, the 2 folks you guys hired.

What markets where they in?

Maybe you said Kansas City for one, or I just didn't catch that.

So the 2 I mentioned were in Kansas City.

As you recall, we took 2 of our seasoned Kansas City bankers and transitioned them out to Arizona.

So in filling their spots, we brought on some seasoned 10-plus year bankers from larger competitors in Kansas City, yes.

And we'll take our next question from Peyton Green.

Yes.

I was wondering maybe if you could comment, I don't know, we're only a month into it, but post the March move, have you seen any change in competitive behavior that maybe has -- or are you seeing credit spreads tighten and absorbing some of that market rate move?

Can you repeat, Peyton?

The question is have we seen competition increase?

Yes.

I mean, is competitive pressure reducing the credit spread that you're able to charge across any of the products relative to the market rate movement?

Sure.

Relative to pricing from competition, certainly I think again on that longer-term fixed rate product, if you just look at it on a spread basis, it's very tight.

We're seeing even 4% 10-year money from some of the big banks.

So again, those are -- that tends to be buckets.

I think from the smaller banks, it's a little hit and miss.

They tend to be coupon pricers rather than spread pricers.

And so when you look at it on a spread basis, it's probably not consistent with our expectations, and that's where we've tried it back away and really rely upon the premium risk-based pricing that we get in some of the niche areas, certainly EVL, for example.

On C&I, I think we're holding spreads there.

We're pricing on a relationship basis.

So we will get aggressive for good credit, where we can get a broad relationship with deposits and fee-based product, so -- but yes, I think I feel good that we're still able to compete on that basis with the competition that we see out there.

Peyton, I'll add to that.

What we do often is we take a maturity list that's 18 months into the future and take a look at those credits that we can get ahead of it.

So it's not a competitive bid process at a maturity, that we're out there with those clients ahead of time and working on what a solution would be prior to that maturity date.

Okay.

So beyond the 10-year commercial real estate money and the life insurance premium finance business, everything else is still fairly consistent and you're able to maintain solid spreads, is that fair?

That's fair.

Okay.

Peter, congratulations on doing a fabulous job for the shareholders.

They're certainly (inaudible)

Thanks, Peyton.

I appreciate it.

We will take a follow-up question from Mike Perito.

Keene, just a quick follow-up on the margin, and I apologize if you mentioned this already.

But I know you talked about how the March raise should benefit the core, and I think the rough range to that was 5 bps.

But the JCB deal, if I remember correctly, was a little dilutive to the margin.

It sounded like it was a little -- closed a little lower than where it was when the deal was announced.

And that was only the half quarter impact.

So I guess, how do you incorporate kind of -- if we incorporate both those pieces, is it enough to kind of offset one another or just the 5 basis points already take into consideration some additional drag from the JCB deal?

That already includes it, Mike.

It's a good memory and a good question.

When we announced the deal, the margins were relatively similar to ours, it just bounced a little bit more that early in the year as we got the benefit of the interest rate increase, but we did -- the purchase accounting a little bit helped mitigate that impact from JCB, so -- but the guidance I gave is reflective of what we've already reported and done, and so that there's no additional headwind.

That 5 is inclusive of that dilution, so to speak, from the margin.

At this time, we have no further questions.

Well, thank you everybody for your interest in our company.

We look forward to talking to you next quarter, if not sooner.

That does conclude our presentation for today.

Thank you so much for participating.

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