First Foundation Inc (FFWM) 2021 Q4 法說會逐字稿

Greetings, and welcome to the First Foundation's Fourth Quarter 2021 Earnings Conference Call. Today's call is being recorded. (Operator Instructions)

Speaking today will be Scott Kavanaugh, First Foundation's Chief Executive Officer; Kevin Thompson, Chief Financial Officer; and David DePillo, President.

Before I hand the call over to Scott, please note that the management will make certain predictive statements during today's call that reflect their current views and expectations about the company's performance and financial results. These forward-looking statements are made subject to the safe harbor statement included in today's earnings release. In addition, some of the discussion may include non-GAAP financial measures. For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements and reconciliations of non-GAAP financial measures, see the company's filings with the Securities and Exchange Commission.

And now I would like to turn the call over to Scott Kavanaugh.

Hello, and thank you for joining us. We would like to welcome all of you to our fourth quarter 2021 earnings conference call.

As highlighted in our earnings report, we had another strong quarter, which capped off a great year for First Foundation. But before I get into the details of the financial results we reported, let me share how impressed I am with what our team has been able to accomplish this quarter and frankly, for the entire year.

When the fourth quarter started, we had many initiatives underway and there were a lot of moving parts. We had several important projects planned for completion all at the same time. Complicating these matters was the rise of cases due to Omicron which hit many of our departments. We had to temporarily close some branches and there were a couple of days where entire departments were out. Yet through this herculean effort from our team, I am pleased to report we delivered on all of our projects while still reporting the strong financial results we did today. Before I get into the details of the financial metrics, let me touch on a few of those projects and what they mean for our organization.

First, we closed on our transaction with TGR Financial in Florida. This important transaction means a couple of things. We are now strategically positioned in another business-friendly state, with the ability to expand into some key markets within Florida. We also have a team of experienced bankers who know the local community. Keeping the local team in place is something we are very pleased we were able to do. In addition, this transaction gives us access to a very solid client base that we can offer complementary services to, whether it be additional banking solutions, wealth management or trust services. We are actively looking to recruit additional talent to build out these services from our Florida locations.

Another important project in 2021 was our expansion into Texas. We moved our principal office to Dallas in the second quarter and opened an LPO in Irving, and we are planning to open a retail branch in Plano in the first quarter of this year. Texas which, as you know, is another business-friendly state and has a ton of opportunity for our retail and commercial banking as well as our wealth management and trust services. You've heard me say it before. We are really excited about Texas. We continue to invest in our markets as well across Hawaii, Nevada and California.

We also launched our new mobile app in 2021 and the adoption of the app by our clients in the fourth quarter has been terrific. This new app transforms how we deliver our banking experience. Clients can now gain insights into all facets of their financial lives without leaving the First Foundation Bank environment. This solution will help our team better attract and target clients with complementary services. We expect to deepen our client relationships with this important new tool. This is something you're likely to hear more about in future quarters.

In addition, we recently announced the successful close of our $150 million sub-debt offering to strengthen our capital position. This attractive source of capital will fuel our future growth and allow us to continue to execute on our strategic plan without diluting our existing equity stakeholders.

During 2021, we also completed the following projects: the successful Freddie Mac securitization of multifamily loans; our preparedness for becoming a $10 billion bank; the kickoff of our Bitcoin project with NYDIG and Fiserv; working through the majority of our remaining PPP loans; and the continuation of our community giving program.

There were a host of other important projects we completed in 2021 that I didn't cover. In fact, we have 35 strategic projects on our plan that are slated to be completed. This reinforces our commitment to enhancing the client experience and our technology. I want to say the projects that I just mentioned would take most other banks years to complete, we did it in 12 months. And much of this activity occurred in the past 90 days, which is truly remarkable, a testament to the experienced team we have in place. Our ability to successfully operate and grow a bank is second to none in our industry, and I am pleased with everyone's contributions.

Okay. Now let me touch on some details related to our financial results for the quarter. Our earnings for the quarter were $23.9 million or $0.51 a share. Total revenues were $75.8 million for the quarter, a 20% increase over the prior year fourth quarter. Return on average assets was 1.15%, return on average tangible equity was 13.4%, and tangible book value per share remains strong at $14.92.

I'm also pleased to announce that we increased our dividend payment by 22% from $0.09 to $0.11 per share in the prior quarter. Each of our business contributed to our success. Our banking operations experienced another record quarter of growth as loan originations in the fourth quarter hit $1.2 billion and $3.9 billion for the year, while deposits grew in the quarter by $2 billion following the close of our acquisition of TGR Financial and $3 billion for the year.

I've mentioned this before, but the transformation of our business model has really taken shape and the diversification of our offering has only strengthened our position as a premier regional bank. This is evidenced yet again by another strong quarter of high-quality C&I originations, which reached a record $518 million in the quarter, and accounted for 43% of the $1.2 billion total that we originated in the quarter.

We also saw contributions from our equipment finance, public finance and builder finance teams as these businesses continue to ramp up. Our ability to generate high-quality loans is something I'm very proud of and our underwriting team has done an incredible job to ensure NPAs remain at industry-leading levels, decreasing to 14 basis points for the quarter.

Looking at deposits. Our core funding accounts for 99% of our total deposits, while our cost of funding continues to be favorable, with deposit costs remaining low at 15 basis points for the quarter. Our loan-to-deposit ratio improved to 84% at the end of the quarter. Our attractive deposit profile continues to be attributable to a reduction in our broker deposits and an increase in more business-related operating accounts.

Looking at our Wealth Management business, we had a strong quarter and year, both in terms of new clients and positive investment returns in our portfolios. Assets increased by $282 million in the fourth quarter and assets under management ended the year at a record $5.7 billion. Additionally, our wealth management and trust businesses saw a record combined pretax profitability of 25% for the quarter. Our ability to maintain this level of profitability across several quarters now shows that we are hitting scale for this business.

Again, I would remind everyone that we accomplished all this even as we completed several very important projects to close out the year. Kevin will provide some adjusted numbers for ease of comparison, but our reported numbers are strong even at face value.

I can't say enough about how our team rose to the challenge and delivered great results. All of what I've mentioned: our services, our expansion, the projects we completed, our team and our commitment to technology positions us well as we serve our clients. Our business model is designed to help clients wherever they are in their financial lives. And today's results indicate that our model is working very well across the diverse and dynamic markets we serve. It is truly an honor to be able to lead this organization comprised of extraordinary professionals serving our wonderful clients. I continue to be very excited about our future.

Now let me turn the call over to our CFO, Kevin.

Thank you, Scott.

Earnings per diluted share was $0.51 in the fourth quarter. As Scott mentioned, the return on assets was strong at 1.15% with a return on tangible common equity of 13.4%. These were especially good metrics, considering our onetime expenses related to closing the acquisition of TGR Financial. These merger-related expenses included a recognition of $1.1 million in noninterest expense as well as $5.6 billion related to the day 1 CECL loan loss provision for nonpurchased credit deteriorated loans. This is often called the CECL double count related to acquisitions. Adjusting for these items, our return on assets would have been around 1.4% and our return on tangible common equity would have been approximately 16%.

The TGR acquisition took place on December 17, so there are only a few weeks of income statement impacts from the merger. We're very proud of our performance for the full year of 2021. Our return on assets was 1.41% and our return on tangible common equity was 16.9% for the full year. Our investments in technology, talent and processes have really taken root and our operational leverage is evidenced in our metrics.

A few quarters ago, we announced our strategic investment in NYDIG, which is an industry leader in providing Bitcoin-related solutions to banks and institutions. While we are very excited to continue to work with NYDIG to implement these services for our customers, we are very pleased that our strategic investment has increased in value, and we recognized a $1.1 million gain on the investment this quarter.

The net interest margin increased to 3.17% in the quarter, which was due to slightly improving loan yields, lower average cash balances and a slightly improving cost of funds in the quarter. Our continued balance sheet discipline resulted in an increase in loan yields of 6 basis points and a decrease in cost of funding of 2 basis points.

We earned $561,000 in net PPP fee income in the quarter and we have $618,000 of fees remaining. We added $23 million of PPP loans through the acquisition of TGR Financial. With the paydown of $20 million of legacy PPP loans in the quarter and the addition of the acquired loans, $51 million of PPP loans remain.

The allowance for credit losses for loans increased $12.8 million to $33.8 million or 0.49% of total loans in the quarter. We recorded $15.1 million in additional allowance for credit losses associated with the acquisition of TGR Financial. Of this, $9.5 million was related to purchase credit deteriorated loans and $5.6 million was related to nonpurchased credit deteriorated loans. This increase due to the acquisition was offset by a reduction in the allowance of $2.4 million related to the bank's legacy loan portfolio due to improvements in the economic scenario outlook offset by an increase in legacy loan balances.

Asset management fees were strong with revenues of $9.6 million and our Advisory & Trust divisions achieved a record combined pretax profit margin of 25%. Noninterest expense increased $1.2 million to $39.6 million in the quarter. $1.1 million of professional fees and other expenses were related to the merger. With only 2 weeks of TGR Financial in our results, the corresponding noninterest expense was very small at around $600,000. The efficiency ratio was very strong at 51% for the quarter and 47.5% for the full year.

I will now turn the call over to David DePillo.

Thank you, Kevin.

As Scott mentioned, our team did an incredible job addressing some very important projects and the completion of those projects in the fourth quarter really is a testament to the team we have in place. The transformation of our balance sheet continues to develop nicely, and today, we are well positioned as a premier regional bank servicing a diverse client base. Overall, we generated a record $1.2 billion in loans in the fourth quarter.

As noted in previous calls, we anticipated higher fundings in the fourth quarter as our teams delivered. Consistent with last quarter, C&I loans continue to balance our overall funding with $518 million or 43% of our total for this quarter. Furthermore, 55% of those C&I loans that were generated this quarter were adjustable commercial revolving lines of credit, which is a strategic move for us, and we continue to shift the balance sheet to be more rate neutral.

The remaining C&I loans were comprised of $130 million of commercial term loans, $46 million of public finance loans, $32 million of owner-occupied commercial real estate loans and $25 million of equipment finance loans. These are all high-quality business loans that generate strong yields while continuing to diversify our own portfolio.

Looking more broadly at the $1.2 billion in loans we originated in the second quarter, the percentage breakdown is as follows: commercial, 43%; multifamily, 48%; single-family, 6%; and 3% other. It is also worth noting that our Texas lending activities are gaining steam as we originated $156 million for this year in the state, and as of year-end, we had $216 million of loans in Texas.

We continue to focus on originating high-quality loans and with high underwriting standards. As been mentioned, our NPA ratio remains very low at 14 basis points at year-end. I'm pleased to note that all forbearances and deferrals of our legacy portfolio were resolved this quarter. While forbearances and deferrals ended in the quarter at approximately $16 million or 22 basis points of total loans, these were all inherited from the acquisition of TGR Financial and will be resolved in consistency with our successful approach to date.

Let me touch briefly on PPP loans. At the end of the quarter, 86% of our total PPP loans have been forgiven and there is only about $600,000 of net PPP fee income that remains to be recognized. Our total remaining PPP balance stands at $50.8 million, which includes $23.1 million of PPP loans added through the acquisition of TGR Financial.

Looking ahead, the overall pipeline remains strong as we enter the first quarter and we expect production levels consistent with this quarter as our various lending teams continue to drive new business. Even despite record originations this quarter, we experienced only a slight dip in the weighted average rate at 3.38% on originations versus the third quarter, which was up 3.46%. We remain committed to achieving strong origination volumes while still defending the yield on our portfolio. We experienced a weighted average portfolio yield up 3.8% for the quarter versus 3.74% last quarter as the yield on payoffs have stabilized.

As of September 30, 2021 -- excuse me, December 31, 2021, our held-to-maturity portfolio consists of 42% multifamily loans, 31% commercial business loans, 11% owner-occupied CRE, 14% consumer and 2% line and construction.

Our deposit business also continues to perform well, and our deposit profile continues to be very favorable. The $8.8 billion in deposits that we ended the quarter with represents a combination of closing the acquisition of TGR Financial, which contributed approximately $2.2 billion in deposits, offset slightly by typical year-end seasonal outflows in our commercial deposit service group. Of note, our noninterest-bearing deposits accounted for 37% of our total deposits.

Commercial business deposits from our channel serving complex treasury management commercial customers and from our business banking customers served by our retail branches were 71% of core deposits as of December 31. Core deposits continue to improve, now accounting for 99% of total deposits. As said, our core deposits have continued to remain low and -- core deposit costs have continued to remain low and have stabilized at 15 basis points, consistent with the last quarter.

As Kevin mentioned, our NIM improved to 3.17% during the quarter as excess liquidity from our legacy cash prior to the acquisition of TGR Financial was deployed. While loan funding yields are stabilizing, the additional excess liquidity inherited in the end of the fourth quarter from TGR Financial will likely provide a short-term drag to NIM into the next quarter as we work to deploy the excess.

Finally, the success in the quarter could not have been achieved without the great team we have in place. Like Scott, I'm very grateful for all the dedication and hard work.

At this time, we are ready to take questions. I will hand it back to the operator.

And we will take our first question from David Feaster with Raymond James.

Maybe just starting on the growth outlook. I mean, loan growth has been phenomenal. Pipelines sound like they're pretty good. We've got expansion into some higher growth markets. Just curious, how do you think about organic growth as we head into '22? And just maybe could you touch on the pipeline and maybe how that composition has changed? How much is from Texas and Florida and just the amount of non-multifamily loans in the pipeline?

Dave, sure. Pipeline going into the year is at record levels across all product types, including multifamily. So proportionately, we would expect fundings for the year to kind of fall in line with what we've seen for this year. So we're probably about 50% to 55% multifamily and the remainder spread across our C&I and a little bit in our consumer platform.

We expect a little more traditional CRE to add into that mix next year due to the acquisition of TGR, that was a primary focus along with C&I that they -- and they also have some residential lending that we plan to continue to expand in the market. So what I would say is, I would expect this year to track very closely to last year with C&I continuing to round out at a very nice level.

Texas, we had some pretty good numbers coming out of not only income property, but equally or even greater in the C&I channel due to the fact that we just added teams recently but have traditionally had C&I relationships in Texas that continue to build. So our expectations are to continue to build those fundings in Texas.

It's going to take a while for Florida to really ramp to the levels that we expect on a long-term basis, but what we would say is we would like to be at a significantly higher run rate by the end of the year than we certainly have modeled to date. So I would expect their numbers to increase from historical levels that they had previously achieved due to a larger balance sheet and much -- we think, a greater depth of product that they will now have to offer across a state that is pretty deep and wide as far as availability.

So I would say we're very excited about heading into the year. Typically, the fourth quarter is a clean out of pipelines. However, we entered this year with pipelines stronger than we've seen in prior years.

Okay. That's helpful color. And then just maybe if you could give us an upgrade -- an update on the integration of the -- for acquisition. Where do we stand with cost saves. It's obviously still in the early innings. And then kind of how you think about expenses. Just if you could give us a good core expense run rate. And you obviously have got inflationary pressures and some of the investments that we have going on. Just kind of how do you think about expense growth as we head throughout '22?

Kevin, why don't you touch on the expenses?

Yes. You bet, and Dave can talk more about the integration. First part of your question, the integration is going very well. A very strong team at TGR Financial that adds a lot of talent to our team. Very pleased to have been able to retain a higher number of employees than we normally would in this type of transaction because they are cross-country in a market that we want to grow in. And so very pleased with the integration so far, with a lot of work to go as we finish much of that out in May.

So from an expense perspective, we had modeled 30% expense reductions. I believe we're on track for that. And hopefully, we can improve that over time. But again. We've retained talent as we dip into the $10 billion asset mark, we want to make sure that we're prepared from a regulatory and logistics perspective to be ready for that. So we've retained a lot of talent. Their run rate was $8 million a quarter or so. And so we do expect to save many of those expenses.

Our run rate going forward for the year, we're currently expecting $46 million to $47 million in noninterest expense for the year, and we'll see how that plays out based on loan growth, et cetera.

So from a -- look, first of all, from an efficiency standpoint, we still expect to be around 50% efficiency even with the combination of being over $10 billion. So our expectation is our revenues will grow commensurate with our expenses. So unlike some other financial institutions that are reporting an outsized expense growth, we expect it to be relatively in line to what we've seen traditionally as a percentage. As Kevin mentioned, we acquired this for growth. So we did have some initial cost saves due to some management turnover and some legacy costs that will now be absorbed via platform migration.

Our plan is still to do our core system conversion in May. We still have some additional employees that are on retention through that time that will probably roll off after that. But we would say that's probably not significant in the overall cost structure as we plan to add additional resources in the market and most likely would offset any of those cost savings that we would have going forward from there.

But being involved in many, many acquisitions over the year, our ability to do this at a very efficient cost structure. It was very low on a relative basis to what we see for an institution of this size. And we've been able to find additional cost saves in some of the restructuring of contracts and migration. So, so far so good, just from outright.

Yes. I'm also very pleased. Look, we made a decision that some of the management team, in particular, Gary Tice has remained on the board. Garrett Richter, who was their CEO, is now the Area Market President in Florida. And I think that's really important for the retention of clients. Those guys were very strong in knowing who their clients were and maintaining those relationships.

And along with the cost saves that Kevin and Dave just talked about, we modeled just like everybody does some losses of relationships and deposits, et cetera. I think we're going to do better than average as well. So I'm very optimistic on that.

That's great. That's extremely helpful color. And then maybe just touching on the margin, it was a lot better than expected, and I appreciate the commentary about the liquidity drag from TGRF. Could you maybe just walk us through some of the puts and takes with the margin?

It sounds like new loan yields hopefully -- or at least the decline is slowing hopefully, we're at a trough and maybe seeing some inflection just given the move in the tenure. Just any thoughts on the margin? And could you just remind us of the pro forma rate sensitivity?

It's interesting -- the margin is sensitive to, obviously, 2 areas. One is if we have cash effectively earning, I don't know, about on average, 25 basis points. If we can redeploy those into loans, yielding anything or securities, we have a tremendous amount of pickup. So you'll see a lot of the margin pickup related to that. The other is, there was a little bit of margin drag when we had higher yielding loans paying off on a relatively rapid basis from a few years ago due to the low interest rate environment that we were in.

So the benefit we got several years ago for those loans were now starting to impact our margin, not significantly as much as our liquidity overhang, but still had an impact. So loans that we're seeing in the mid-4s that we're refinancing into assets in the mid-3s. You lose 100 basis points on those as they cycle through. A significant portion and the majority of those have already cycled through the portfolio. So now that we see the portfolio yields bottoming out and actually starting to stabilize and rise with higher expectations of interest rates that will probably impact us more.

I would say, in the second quarter, we'll start to see asset yields starting to increase again, somewhat offset by cost of funds increases as those start to impact us. But we would expect not as much rate sensitivity going into this cycle as we experienced in the last cycle due to the lack of wholesale funding, the low beta on a lot of the deposits that we've gathered in through acquisition of TGR. So I think we're in a much, much better position to maintain our margin. And our current forecast is probably our margin will stabilize about where we're at now, maybe a little bit low. Yes.

And our next question will come from Steve Moss with B. Riley Securities.

Maybe just circling back to the origination pipeline here, $1.2 billion, or kind of the production levels, it sounds like for the first quarter, you expect with things growing as the year goes, so I guess it sounds like implying north of $5 billion in originations for 2022 is what you guys are thinking?

I would say we always look at modeling around $4 billion to $4.4 billion is kind of our expectations. So -- we could accelerate beyond that depending on the reactions of what happens with the Fed. If they start raising rates relatively rapidly, we may see a little bit of lull in some of the activity in the market as people's expectations start to catch up to a new rate environment. But I would say $5 billion is probably an aspirational number, but I would certainly think our run rate is a little over $4 billion.

The good thing is, Steve, CPRs are declining. So hopefully, that helps us a little bit if there is a law with raising rates.

Got to give us something to beat, Steve.

All right. That's helpful. And then maybe just in terms of expansion activities. Just kind of curious, you guys touched a little bit on expanding into additional markets in Florida. Kind of curious, the markets you're thinking of expanding into and maybe the pace of hires for both Florida and Texas.

Yes. So definitely, we are going to continue to look for M&A activity. predominantly in Florida and Texas. There -- I mean we're always hopeful that we can find something. There's no doubt that one way or another, we're going to continue to expand in both Texas and Florida. I would say California, Nevada, Hawaii, we feel like we've got pretty good coverage in those markets and that won't -- probably won't see us do a whole lot there unless something just falls in our lap. But we're continuing to look for teams in all markets.

In particular, I feel like we're starting to gain some traction on the investment management and trust services. I think I previously said that we're looking to gain our trust powers in Florida. We can't get it until we -- in Texas, until we have our branch operational, which should be later in this quarter or first part of the second quarter, but we are going to be seeking trust powers there. But we've turned up what we think are some pretty good candidates in both those sectors. We're starting to find some good C&I teams. So we're going to continue to try to ramp up and -- either find team or find an M&A deal.

Strategically, Scott, I think we talked in Florida really kind of migrating north along the West Coast first strategically and a lot of opportunity in the Panhandle on -- and -- so West Coast of Florida is probably -- we would see the a little bit of easy lifting. Dallas Metroplex is obviously our focus of growth right now, but we're looking at adjacent markets such as Austin, San Antonio, as great markets for us to find additional resources and grow.

And our next question comes from Matthew Clark with Piper Sandler.

First one for me on the C&I loan growth this quarter. How much of that was from higher line utilization? And how does that ratio compare to prepandemic at this point?

I don't have the exact numbers for you, but we could probably get them. There was a big chunk from line expansion or larger renewals, accordions. There's -- some of that was -- so I would say it's probably 50% new credit. But a lot of the new credits were borrowing base related expansions by companies that needed more access. So I would say the significant portion of it was really expansion of -- company expansion for borrowings based on higher levels of productivity.

Okay. Great. And then on your rate sensitivity, relatively neutral. I'm not sure what deposit beta you've assumed, though, in that analysis in your filings. But maybe you could let us know what the deposit beta is that you've assumed in that? And how do you think it might play out the cycle?

Kevin?

Yes. And are you talking our merger-related beta or our overall company beta?

Well, I guess it would be the deposit beta that's in your filings, what you assumed maybe for the first 100 basis points. And then how you -- I would think we'd take the under on that this cycle, but just want to get your thoughts on the sensitivity of your margin on the deposit side.

Understood. Yes. So we model -- and I think the spread is consistent with other banks. We model about 15% to 20% decay as well as a beta of 10%. Now our numbers that we're currently using, we're not assuming yet a rate increase until we start seeing that happen. But to your point, we believe, much like the last rate cycle, the deposit betas will be quite low and will be extended over a period of time.

Add that to our transition of balance sheet, having more core deposits, more relationship-based deposits, we anticipate that deposit beta being slow over time and the loan beta -- the loan yield beta outpacing the deposit yield beta over time. We still need time to model the current environment. It depends on how the yield curve plays out, and whether we actually see these rate increases happen this year. But I think we're set up, to your point, in a fairly neutral position to be able to handle it either way.

I guess the good news is the long end of the curve is already reacted to expectations of higher rates. So we should have some run rate on the loan side before the deposit side starts to adjust.

Agreed.

It also sounds like you have a remix opportunity. Knowing you have the loan growth that should help, too, I would think.

And then just shifting to expenses. How should we think about that $2.1 million run rate of customer service costs with each rate hike? And is that included in your $46 million to $47 million run rate of expenses this year?

That's fairly static, right, Kevin? That would increase. Although we don't think it's going to go pipe for hike. But because it's a little artificially higher than what -- we didn't bottom out to 0 on those costs. So we have a little bit of room on the way up.

That's right. And those are static numbers. Average, we made $47 million in noninterest expense for the year is assuming the current interest rate environment. So we will see some deposit beta in those. As we said, I think it's somewhat extended and low over time.

Yes, maybe model half of the rate adjustments into it.

Okay. And then just on the tax rate, how should we think about that rate with your growing presence in Florida and Texas?

We anticipate 28% or so for this year and then moving down over time as we have more loan production out of California.

(Operator Instructions) And we'll take our next question from Gary Tenner with D.A. Davidson.

Just had a follow-up on rate sensitivity. I just wondered, you gave some thoughts on deposits. Just thinking about the loan side now on the consolidated balance sheet. Could you kind of give us a sense of the percent of floating rate loans in the portfolio today? And then any impact of floors that will lag reaction to Fed rate hikes?

Do you have the breakdown, Kevin, of our actual, not just floating rate loans?

Yes. So we have about 16% fixed, the rest adjustable. Many of those adjustable, however, are within their first 5-year, 5 to 7 years.

(inaudible) period.

Yes, period. So in fact, the majority of it is. So we shouldn't see the existing portfolio moving too much with -- add to that quick -- that low durations. It's really the new production that I anticipate moving the needle more. And that depends a lot on the yield curve. It depends on competition. A lot of banks have high deposit balances to deploy. So that may be a little delayed as well, but I still anticipate loan yields moving quicker than deposit rates.

Yes. I would say on the floor issue since the majority of our C&I loans have had floors anywhere between 25 and 50 basis points, there may be a slight lag on some of those. Not -- I would say not tremendous. I think the bigger issue for us is, as Scott mentioned, our prepays are starting to slow in those higher-yielding loans that we're paying off, will have a much more dramatic impact to loan yields than any adjustments to the short end of the curve because those rates were probably a 100 wide of the previous environment. But now that those have kind of cycled through, we'll start to get the net benefit of new loans going on at higher rates.

Okay. And then second question, in terms of the increase in borrowed funds at 12/31, is there any portion of that, that would be kind of repaid as a result of the sub that you just issued or any changes in terms of kind of the full (inaudible) borrowed funds?

We've tried to repay everything that we could. Correct me if I'm wrong, Kevin, but most of what came on the balance sheet was TGRF borrowings.

That's correct.

Well, we had a next bank loan at the holding company, and we paid it down the very day that we received the proceeds from the sub debt deal. So I think we've paid everything down that we could.

Yes. Why don't you give a recap of the variant at year-end?

Yes, you bet. At year-end, there was, to Scott's point, $6 billion of a holding company line, the remaining came from TGR. $25 million is subordinated debt that we inherited in the acquisition. And the rest are actually repurchase agreements with customers that are much like a different way of doing deposits that some of the TGR customers really appreciate doing.

I think that's the majority of it.

That's the majority of it.

And we'll take the next question from [Brad Neff] with Coral Capital.

Can you just remind me what your profitability goals are, say, in a clean year, so maybe like in 2023 on an ROE and ROA basis?

I don't think it's changed much. I mean, I would hope that we could generate somewhere between 15% and 17% return on average common equity. And probably somewhere between 1.35% to 1.55% on assets. Dave, Kevin, you disagree?

Probably 1.25% ROA is kind of our normalized number, if you excluded some of more extraneous items.

That's right.

But yes, like mid-teens ROE and 1.25% ROA is -- it also depends how quickly the Fed moves and what reaction our deposit costs will have. But in a stabilized environment, that's pretty much where we kind of track to.

So the range seems kind of big. So from a normalized ROA from 1.25% to upwards to 1.55%, is that what I'm hearing?

It could be as high as that, depending on outside securities gains potentially that we've had historically that have helped bolster that on some other items that could have an impact. We've had some -- because of those outside securities gains have some pretty dramatic swings in our ROA, ROE. So depending on strategy, with or without, that's where you would probably see the biggest swing.

(inaudible)

So possibly -- okay. So I should think of it possibly 1.25%, but with security gains, it could be upwards to 1.55%?

Yes. 1.50%. Yes.

And this concludes our allotted time for today's question-and-answer session. I will now turn the call back over to Mr. Scott Kavanaugh for closing remarks.

Thank you again for participating in today's call. Very proud of our results that we reported. All our business lines are doing well, and I'm very pleased that's the path we're on. As a reminder, our earnings report and investor presentation can be found on the Investor Relations section of our website. Thank you, and have a great remainder of your day.

Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.