Good day, everyone. Welcome to the First Internet Bancorp Earnings Conference Call for the first quarter of 2023. My name is Jason. I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, please press star one on your telephone keypad. Please note that today's event is being recorded. I would now like to turn the conference over to Larry Clark from Financial Profiles. Please go ahead, Mr. Clark.
Thank you, Jason. Good day, everyone, thank you for joining us to discuss First Internet Bancorp's financial results for the first quarter of 2023. The company issued its earnings press release yesterday afternoon, it's available on the company's website. In addition, the company has included a slide presentation that you can refer to during the call. You can also access these slides on the website. Joining us today from the management team, our Chairman and CEO, David Becker, and Executive Vice President and CFO, Ken Lovick. David will provide an overview, Ken will then discuss the financial results. We'll open the call to your questions. Before we begin, I'd like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial condition of First Internet Bancorp that involve risks and uncertainties.
Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the company's SEC filings, which are available on the company's website. The company disclaims any obligation to update any forward-looking statements made during the call. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today, as well as a reconciliation of the GAAP to non-GAAP measures. At this time, I'd like to turn the call over to David.
Thank you, Larry. Good afternoon, everyone, and thanks for joining us today as we discuss our first quarter 2023 results. Before we walk through the financial and operating results for the quarter, I would like to start with some comments regarding the sustainability and resilience of our business in light of the stunning external events during March and the challenges faced by the banking system. You'll find these points on slide three in the earnings presentation. First, continued outflows of deposits in the banking sector during the quarter have brought deposit retention and liquidity to the forefront. First Internet Bank increased deposits by $181 million, or 5.3% from year-end.
Earlier in the quarter, we took advantage of consumer demand for CDs and brought in over $200 million in new CD volume, allowing us to build liquidity at pricing below forecasted increases in the Fed funds rate. The demand for CDs remained fairly strong later in the quarter as well. We also had the opportunity to increase certain larger deposit relationships. This calculated growth allowed us to easily absorb a decline in money market balances, some of which was due to outflows to money center banks in the U.S. Treasury market. While we experienced a modest decline in deposits from mid-March through quarter end, balances have rebounded and are up $135 million thus far in the month of April. As of March 31st, nearly 75% of our deposits were covered under FDIC insurance.
The percentage increases to over 80% when you exclude public fund deposits that are either insured or collateralized and other deposits under contractual agreements. Despite the volatility in the banking industry during March, our balance sheet liquidity remained strong, and we did not need to access any additional borrowings from either the Federal Home Loan Bank or any of the new emergency facilities established by the Federal Reserve in response to the events during March. Another hot topic at the moment is office commercial real estate exposure. Within our commercial portfolio, office exposure is limited to suburban and medical offices. There is no central business district exposure. Overall, it represents less than 1% of our total loan portfolio.
Our capital levels remain strong, with tangible common equity to tangible assets of 7.47% and a common equity tier one capital ratio of 10.35% at quarter end. Our securities portfolio has not been immune from the impact of higher interest rates. Regulatory capital ratios remained well above minimum requirements even after adjusting for unrealized losses in the securities portfolio. We did not go all in on buying securities back in 2020 and 2021 with excess liquidity when rates were an all-time low. Total unrealized security losses only represent 13.3% of our tangible shareholder equity at quarter end. Tangible book value per share was relatively stable at $39.43. This brings me to our financial and operating results, which are highlighted on slide four of the presentation.
For the first quarter 2023, we reported a net loss of $1.3 million and diluted loss per share of $0.14. The loss for the quarter can be largely attributed to two events. First, we had a partial charge-off of a $9.8 million commercial and industrial loan based on events we learned of after the end of the quarter. The partial charge-off was $4.7 million, which amounts to a per share impact of $0.41. I will come back to this loan and to credit quality generally in just a moment. Our results for the quarter also include $3.1 million of mortgage operations and exit costs and about $100,000 of mortgage banking revenue. In January, we announced our plan to exit this line of business.
We have completed substantially all originations that were in the pipeline. Costs associated with winding down the line of business were generally in line with our guidance and had a per share impact of $0.26. Adjusted for these two discrete items, net income was $4.8 million, and earnings per share were $0.53, which was in line with analyst expectations. In terms of our core operation, the performance for the quarter reflects the execution of our strategy we discussed last quarter. First, we focused on controlling what we can control, we look to expenses. Excluding mortgage costs, operating expenses across the organization declined 3.3% from fourth quarter of 2022.
We have also focused on positioning the loan portfolio to generate increased revenue in future periods with variable rate lending and construction, investor commercial real estate and SBA, and higher yielding fixed-rate lending in franchise finance and consumer lending. During the quarter, the weighted average yield on new funded originations was 7.76%, which was up 161 basis points over the fourth quarter of 2022. As the composition of the loan portfolio continues to migrate towards a more favorable mix of variable rate and new production at higher rates, we continue to believe that we will be well positioned to achieve higher earnings and profitability in future quarters once the Federal Reserve hits its terminal fed funds rate.
Commercial loan balances were up $89 million, or 3.3% compared to the prior quarter as cash flows from longer term fixed rate products were redeployed to support growth in franchise finance, small business lending, and construction and investor commercial real estate. Consumer loan balances increased $23.1 million, or 3.1% compared to the prior quarter as trailers, RV, and other consumer loan production remained solid despite the higher interest rate environment. With regard to asset quality, I would like to provide some more color around the C&I loan that we partially charged off. This particular account is a participation through a program we have been a part of for about nine years that allows smaller banks access to the leveraged loan market.
Historically, these loans have performed exceptionally well for us with only about 20 basis points of cumulative losses over the nine-year period up to this point. This loan began to demonstrate some weaknesses and was moved to non-accrual status late in the first quarter. Our credit team is highly engaged with the program manager on resolution strategies the borrower and the lending group are evaluating. Subsequent to quarter end, we were made aware of developments related to these resolution efforts that made it clear, in our opinion, the loan was impaired, which resulted in the partial charge off. Through this program, we had only $11.8 million of other loans in addition to this credit outstanding at quarter end, $2 million of which has been paid off in full in April. The remaining credits are performing well, and we see no signs of potential problems on the horizon.
Despite the developments on this particular loan, our overall levels of non-performing loans to total loans of 32 basis points and non-performing assets to total assets of 24 basis points are still relatively low compared to the rest of the banking industry. Furthermore, delinquencies 30 days and more past due declined during the quarter at 13 basis points, while net charge-offs, excluding the effect of the partial C&I charge off, remained low at 3 basis points of average loan balances. To wrap up the credit discussion, I want to emphasize that we believe the participation credit discussed earlier is an isolated incident within our portfolio. With less than $15 million now outstanding, loans from this program represent a very small portion of our portfolio and again, have historically performed extremely well. Speaking to our credit standards generally, our disciplined underwriting standards have remained consistent over time, regardless of market conditions.
We remain confident in the high quality of our loan portfolio, as evidenced by the continued low levels of delinquency and net charge off. Turning back to the operating highlights, our SBA team had an outstanding quarter, posting its highest level of quarterly gain on sale revenue to date, which was up over 40% compared to the prior quarter on increases in both sold loan volume and net gain on sale premiums. Our SBA pipeline has continued to build, which is a testament to the high performing team we have put together. It leaves us confident that we will achieve the growth targets we have set for them. Lastly, I want to provide an update on our banking-as-a-service and FinTech partnership initiatives. Programs that were in pilot are now live and gaining momentum.
We have a dozen programs either live or preparing to go live with our platform partner, Increase. From a total deposit standpoint, we now have over $80 million of banking-as-a-service deposits. Program fees contributed $125,000 to non-interest income during the quarter and will grow as more programs go live on the platform. Our partnership with the platform Treasury Prime continues to move forward. Similar to our partnership with Increase, we are looking at new opportunities regularly as we get ready to go live with Treasury Prime. To wrap up my prepared comments, I want to reiterate that we are focused on controlling what we can control to build an earnings stream that is resilient to changes in the economic and interest rate environments. We have a strong balance sheet and are well capitalized, allowing us to withstand the challenges of an uncertain economy.
Like you, members of the board and the bank senior leadership team are shareholders. We are committed to improvement in our financial performance in order to create shareholder value. With that, I'd like to turn the call over to Ken for more details of our financial results for the quarter.
Thanks, David. Turning to slide five. David covered the highlights for the quarter from a lending perspective, I will just add some additional color. In line with our focus on higher yielding asset classes, we were pleased to see that our first quarter funded portfolio loan originations continued to increase from the fourth quarter. Because of the fixed rate nature of some of our larger portfolios, there is a lagging impact of the higher origination yields on the overall loan portfolio. These originations should have a positive impact on the loan yields in future periods. Our SBA construction and franchise finance channels continue to have healthy pipelines. Our intent is to fund the majority of this production using cash flows from other loan portfolios as we continue to rebalance the composition of our total loan book. On to deposits on slides 6 through 8.
For the quarter, our deposit balances were up $181 million or 5.3% from the end of the fourth quarter. As David mentioned, early in the first quarter, we took advantage of strong consumer and small business demand and pulled forward deposit growth, primarily with CDs, which increased $296 million from the prior quarter, locking in rates ahead of the expected March Fed rate hike. Broker deposits increased $69 million from the end of 2022 as we proactively expanded existing contractual deposit relationships with certain customers and issued long-term fixed-rate callable brokered CDs. Non-maturity deposits, excluding BaaS deposits, decreased by $227 million compared to the linked quarter, with money market accounts, non-interest-bearing and interest-bearing demand deposits declining $165 million, $35 million and $23 million respectively.
We estimate that about half of the decline in money market balances was the result of outflows of uninsured deposits in mid-March, while the other portion of the decline was considered to be business as usual from our commercial and small business customers to fund ongoing operations. The decline in non-interest-bearing deposits was due primarily to drawdowns from commercial real estate development and construction clients contributing equity to projects we're financing, while the decline in interest-bearing demand was due to normal activity associated with the municipal deposit relationship. We more than doubled our BaaS deposits, which increased from $40 million at the end of 2022 to $82.4 million at the end of the first quarter. As a result of all the deposit and interest rate activity during the first quarter, the cost of our interest-bearing deposits increased by 79 basis points from the fourth quarter.
Looking at slide seven, at quarter end, we estimate that our uninsured deposit balances were $950 million or 26% of total deposits, down from 33% at the beginning of the year. This decrease was driven primarily by the decline in money market balances, conversions to reciprocal deposits, and the drawdowns on construction-related non-interest-bearing balances. Included in the uninsured balance total are Indiana-based municipal deposits, which are insured by the Indiana Board for Depositories and neither require collateral nor are reported as preferred deposits on the bank's call report, as well as certain larger balance collateralized public funds and accounts under contractual agreements that only allow withdrawal under certain conditions. After adjusting for these types of deposits, our adjusted uninsured balance drops to $695 million or 19% of total deposits, comparing favorably to the rest of the industry.
Moving to slide eight, at quarter end, we had total liquidity of $932 million, including cash and unused borrowing capacity. With the deposit growth since quarter end, we have increased cash balances by an additional $100 million. Currently, our cash and unused borrowing capacity represent 109% of total uninsured deposits and 149% of adjusted uninsured deposits. We continue to feel comfortable that we have the ability to meet any future customer liquidity needs if they arise. As David noted earlier, total deposit balances declined modestly from mid-March through quarter end and have since rebounded up $135 million through April 20th.
Turning to slides nine and 10, net interest income for the quarter was $19.6 million and $21 million on a fully taxable equivalent basis, down 9.7% and 9.1% respectively from the fourth quarter. Our yield on average interest earning assets increased to 4.69% from 4.4% in the linked quarter due primarily to a 24 basis point increase in the average loan yield, a 36 basis point increase in the yield earned on securities, and a 94 basis point increase in the yield earned on other earning assets. The higher yields on interest earning assets combined with growth in average loan balances produced strong top line growth in interest income, increasing 13.9% compared to the linked quarter.
Deposit costs, however, increased at a faster pace, resulting in the decline in net interest income. We recorded a net interest margin of 1.76 in the first quarter, a decrease of 33 basis points from the fourth quarter. Fully taxable equivalent net interest margin was also down 33 basis points to 1.89% for the quarter. This was down from the range we provided on last quarter's call for a couple of reasons. The primary one being the impact of pulling forward deposit growth and building liquidity with CDs. Additionally, average commercial loan balances, specifically construction and C&I loans, came in a bit lower than our forecast, which impacted top line loan income. The net interest margin roll forward on slide 10 highlights the drivers of change in fully tax equivalent net interest margin during the quarter.
Looking ahead with higher priced new loan originations and variable rate assets repricing higher, we believe that we will deliver another increase in total interest income for the second quarter. Currently, we expect the yield on the portfolio to be up around another 15-20 basis points for the second quarter. We also expect deposit costs to increase given forward rate expectations based on the Fed's continued language regarding rates and inflation, as well as the effect on deposit pricing following the events of March. The pace of increase will depend heavily on price competition as deposits continue to leave the banking system.
Given the expectations for higher short term interest rates in the near term, we anticipate the net interest margin and net interest income will contract further in the second quarter, although not at nearly the same pace as the past two quarters and are expected to increase thereafter. Turning to non-interest income on slide 11. Non-interest income for the quarter was $5.4 million, down $400,000 from the fourth quarter. Gain on sale of loans totaled $4.1 million for the quarter, up 42% over the fourth quarter and consisted entirely of gains on sales of U.S. Small Business Administration 7(a) guaranteed loans. Our SBA team continues to perform well as sold loan volume increased 16.4% and net premiums were up over 150 basis points as well.
Other income totaled $400,000 for the first quarter, down $1.2 million compared to the linked quarter due to distributions received on our fund investments in the fourth quarter. Mortgage banking revenue totaled less than $100,000 for the first quarter as we began to wind down our consumer mortgage business in late January. Moving to slide 12. Excluding $3.1 million of mortgage operation and exit costs, non-interest expense totaled $17.9 million for the first quarter, declining $600,000 or 3.3% compared to the linked quarter. Excluding the mortgage operations and exit costs, salaries and employee benefits expense decreased by $800,000 compared to the linked quarter due to lower incentive compensation and bonus accruals. Let's turn to asset quality on slide 13.
David covered the major components of asset quality for the quarter in his comments. I will just add some color around the provision and the allowance for credit losses. The provision for loan losses in the quarter was $7.2 million, up from $2.1 million in the fourth quarter of 2022. The increase in the provision was largely driven by the partial charge off of the C&I participation loan, as well as growth in the loan portfolio and changes in certain economic forecasts that impacted quantitative factors related to the allowance for credit losses in certain portfolios. The allowance for credit losses as a percentage of total loans was 1.02% as of March 31st, compared to 91 basis points as of December 31st.
The increase in the allowance for credit losses reflects the day one CECL adjustment of $3 million, which was in line with the estimate we provided last quarter. The increase also reflects the portfolio growth and the impact of economic forecasts mentioned earlier. With respect to capital, as shown on slide 14, our overall capital levels at both the company and the bank remain strong. Our tangible common equity ratio declined 47 basis points to 7.47% due to the combination of share repurchase activity, the day one CECL adjustment, and the reported net loss for the quarter, partially offset by the decrease in the accumulated other comprehensive loss as securities valuations improved since year-end.
During the quarter, we repurchased 161,691 shares of our common stock at an average price of $24.50 per share as part of our authorized stock repurchase program. In total, we have repurchased $36.2 million of stock under our authorized programs to date. As a result of share repurchase activity, tangible book value per share remained relatively stable at $39.43 at quarter end. Before I wrap up my comments, I would like to provide some additional comments on components of forward earnings. As we discussed on the expense side, excluding the impact of mortgage, total non-interest expense was down 3.3% compared to the prior quarter.
Along the lines of controlling what we can control, we do have levers we can pull to control expense growth and expect full year 2023 total non-interest expense to be in the range of $72 million-$74 million, which is a little lower than the previous guidance. Related to non-interest income, our solid performance in the first quarter sets us up to outperform the guidance provided on last quarter's call. For the full year 2023, we now expect total non-interest income to be in the range of $19 million-$21 million, which is up from our prior guidance. Our revised outlook reflects increased SBA origination and loan sale volume and modestly higher net gain on sale premiums.
We expect the next several quarters may continue to provide a level of uncertainty from an earnings perspective due to where deposit costs may trend in determining the right level of liquidity to maintain on the balance sheet. We also continue to remain very optimistic about 2024 and beyond. When the Fed begins to bring rates back down, whether in line with the forward curve expectations or the Fed dot plot, deposit costs should come down significantly with a meaningful and positive impact on net income and EPS. One final area I would like to address is our commitment to preserving and growing tangible book value per share. While the impact of operating in a challenging interest rate and deposit environment may be new to many bank management teams, we have operated successfully with our business model for decades.
Along with that, we have a demonstrated track record of building tangible book value per share. Regardless of what interest rate or economic scenario actually comes to fruition, the stability in our business model gives us the confidence that we will continue to build tangible book value per share over the long term. With that, I will turn it back to the operator so we can take your questions.
If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you'd like to remove that question, please press Star followed by two. Again, to ask a question, it is star one. Our first question is from Nathan Race with Piper Sandler. Your line is now open.
Yep. Hi, guys. Good afternoon.
Hi, Nate.
Hey, Nate.
Question just on the margin guidance. I appreciate all the details in terms of kind of the trajectory for 2Q. It sounds like you guys think you can kind of keep the margin stable in the back half of the year. I guess I'm just curious, what kind of rate environment does that contemplate? Does that just assume the Fed hikes in May and then is on hold from there? I guess what kind of gives you guys confidence that the deposit pricing pressures may moderate or at least the margin can stabilize with the Fed on hold in 3Q and 4Q?
Well, you know, Nate, at this point, we don't, we kinda model out several different scenarios. We're, you know, again, I think we're in line with, you know, the Fed raising one more time, perhaps another. Perhaps being done with that. You got the forward curve that says rates are gonna come down at the back end of the year. I don't know if we're convinced that that's gonna happen, so we look at a different, a few different sets of scenarios.
You know, I think the wild card, Nate, with deposit pricing and why it's hard to pin it down exactly is you got the effect of interest rates on deposits, but you also have deposits coming out of the system in a scarcity value for deposits. You know, as you've seen with your banks and others who've had to go to different deposit markets than they're used to, I mean, the cost and whether it's Fed funds or spread to Fed funds seems to vary by channel.
I think, you know, as we model it out, once the Fed stops, and again, assuming that, you know, spreads aren't really widening in that, we feel pretty good that the cost of deposits, whether it's the cost itself in percentage terms or the dollar amount, is gonna stabilize. Then it will be stable. Once rates start coming down, whether it's this year or next year, we're gonna pick up a lot of leverage on earnings because those deposit costs are gonna come down pretty rapidly.
Okay. Got it.
Yeah, one comment I'll add, Nate. We started a little higher than the rest of the folks did in coming into this marketplace. Our rates were higher to begin with. We haven't seen. Obviously, we had big jumps in the last couple of quarters, but on a percentage basis, it's not the, you know, some folks are looking at triple-digit increases in cost of funds. It's as Ken made in his closing comment, we've been doing this for two decades, so we're pretty adept at moving and adjusting rates when need be. We've increased deposits outstanding without going to the extremes of the market. As he stated, we did not go to any third parties to borrow funds to get it up there. Our world is pretty stable.
We've also increased the loan rates on the other side, we're funding a lot of that activity through repayments from longer-term, lower-cost loans. The real guess and hedge for us is how much liquidity do we need to hold on the balance sheet. You know, we don't have to go back out for additional deposits at this point. We've reeled in CDs and stuff, and we'll let it work, and we think the worst is kinda behind us by far. We have to see what happens. If First Republic blows up, it might send another shockwave through the system and have people clamoring, yet to be seen.
Right. Got it. That's helpful. Just turning to credit, you mentioned in the release, David, that your exposure to similar type loans is very limited. I was wondering if you could just size up kinda what the participation C&I loan portfolio looks like, what credit quality metrics are trending there in terms of criticized classified trends and so forth. And just maybe if you could shed any more light in terms of some of the uniqueness around this specific charge-off in one Q.
Yeah. That loan to BancAlliance, a partnership we've been a part of, for nine, 10 years. It was a company that during COVID, was absolutely booming. Unlike other companies when COVID started to go away, they readjusted the business model and slowed down. This company kept building product and got kind of out over their skis on development of product. It's really the biggest issue they got internally today is phenomenal excess inventory, and then spending millions of dollars on consultants, trying to figure out how to solve the problem. That's why, it's a good company. We had write-ups from S&P, Moody's. We've been privy to some potential sales discussions about the company.
There is still value there, but it's. The management team just did not keep track with what was going on post-COVID and wound up getting in over their head. The rest of the loan portfolio, we still have about $4 million, a little over $4 million of this loan on the books. We've got about $10 million in four or five other loans. They've all been on the books for years, performing as agreed. Never had a problem. They're all passed except for this one loan is on nonaccrual. The rest of our C&I portfolio had no degradations during the quarter. Everything is running kind of business as usual. Had we not moved this one to nonperforming, if this loan hadn't gone bad, we would have actually seen a $1 million decrease in non-performing assets over fourth quarter.
Literally, the bump up in all the statistics is due to this one loan. As I forecasted, you know, for the last couple of quarters, I'm not in the mindset of Jamie Dimon thinking that we're looking at a hurricane, but there would be a tornado or two that might come through and blow them up, and that's exactly what happened on this one. It's a little bit of the interest rate move, but more importantly, it's just somebody that didn't follow up post-COVID like they should have on the operations that got them into trouble.
Got it. That's very helpful. Sounds like just, you know, the broader participation book where you guys are the non-agent is fairly small.
Very, very small. We've got a couple C&I loans that we've done with a couple other banks in Indiana on some construction, but they're all as agreed. I couldn't even hazard a guess, Nate, but it's in the, I'm gonna say $25 million-$30 million in total exposure on participations with other financial institutions above and beyond BancAlliance. It's a small number.
Okay. Got it. Just maybe lastly, with the mortgage rightsizing, you know, seemingly largely behind you guys at this point, how should we be thinking about the tax rate going forward? Any other one-time costs in two Q and beyond?
Nate, are you asking if there's any more one-time costs in 2Q and beyond?
Yeah. Just the tax rate going forward. Obviously, you have the tax reversal in the quarter.
The first question, no. With mortgage, we took all of our one-time costs in the first quarter. There should be no more additional costs associated with exiting the mortgage business or any other one-time cost that we see on the horizon right now. You know, I'd say in a more, you know, normalized environment, I'd say that tax rate's probably closer to the 12%-15% that we've had. You know, with earnings being a bit lower than what they were a year ago, you know, the tax rate, I'm gonna tell you, we model internally at 12%, but, you know, reality, it's probably, you know, somewhere maybe 9%-12%.
Only because it's lower because we get a, you know, we get a benefit from the tax-exempt public finance portfolio we have. You know, as earnings are a little bit lower, the impact of that is much greater. That's probably the way that I'd look at it.
Okay. Got it. I appreciate all the color. I'll sit back. Thank you, guys.
Thank you.
Thanks, Nate.
Our next question is from Brett Rabatin with Hovde Group. Your line is now open.
Hey, guys. Good afternoon. wanted just to start.
Hey, Brett.
Hey, David. Just wanted to start strategically and just thinking about, you know, the balance sheet options. Is it not under consideration to maybe shrink down some of the balance sheet? Are there pieces of the loan book that maybe you could sell and just given the stock price, maybe retrench and buy back more stock? Or just any thoughts on the strategic opportunities that your stock price here might be giving you relative to the balance sheet?
At the current time, Brett, we do intend to continue to stock buyback, particularly at the price it's at today. It's ludicrous not to. On the sell off on some of the balance sheet or pulling back, if you'll note, if you compare individual categories to last quarter or even back into fourth quarter, single tenant leasing, some of the stuff that we have on the municipal lending, there are segments of the market that we're out of in total because the pricing is so low, it makes no sense for us to compete. When we're bringing in funds at a 4% level and we're putting it back out the door in the 8%, 9%, 10% level through the commercial side or excuse me, not municipal, SBA and the consumer, it makes sense to continue. It's good quality lending.
We're not buying business, and we're not growing the balance sheet for the sake of growth. If we can get a 300-400 point spread over what, the cost of the funds versus what we're able to reloan at, we're positioning it. We test in the market throughout the quarter, to sell segments of the portfolio, but we can't justify the hit we would take in the recycle to put it back to work. If you take that cost of the hit on the loss on the portfolio, we're making a better spread doing what we're doing. We'll just weather it out, and when we come out the other side, then we'll add value, and we could shrink a little bit if we need to, but we're still rock solid on the capital requirements.
We view this kind of business as usual. We've been through these cycles, as Ken stated several times, over the last 20 years, and we've survived them all and come out stronger on the other side, and we're gonna do that again.
Okay. From a repricing perspective, can you give us, I think you said, 15 basis points of improvement in asset yields in 2Q, if I caught that right? Just wanted to-
Well, that's.
make sure I had that.
Sorry, Brett. That's more like the loan book, 15%-20%. I mean, some of that is obviously. That's really no new loan yield generation. That's new loans coming on the books, not necessarily repricing, if you will. That's just new origination yields being up.
Okay. Okay. That's helpful, Ken. On the CD book, you know, how much do you have maturing in the next two quarters? It looks like you're paying a little over 5% for the 1-year CD. It looks like your money market rate is actually, you know, 3.56% on consumer. I'd be curious to hear what it is on the commercial.
It's 3.20 on the commercial side.
Well, Yeah, we also pay.
All right.
That's one thing on the, you know, on the money markets too, if you have a balance above certain amounts, we will pay a higher rate as well. In terms of what's maturing, say over the next two quarters, we got about $360 million of CDs maturing with kind of an average rate. Those are gonna be rolling off in kind of the, call it 2.70%-3% range.
Okay. Okay. Just last one, on the BaaS platform, how many people have you guys added in compliance? I'm just curious, thinking about that platform and how you've built that out over the past year or so in particular.
In the past year on the compliance side, we've added about six individuals, more than doubled the team that we had on board. Part of it was setting the stage, obviously watching some of our peers get in trouble for relying on the third party vendor or the fintech to do compliance efforts. We knew that wasn't the smart business play, so we built out both the technology and bodies internal tracking to be better positioned for BSA, KYC, KYB, all the regulatory play. Even though some of our fintech partners do check some of that and kind of comply to banking standards, we double-check everything. We have some good automation tools to process the volume and transactions back through. Our proposals and programs were audited by the FDIC and the DFI when they came through last fall.
The comment from one of them was it's one of the stronger programs that they've seen internally in banks, for the BaaS services. We're comfortable that we've got the T's crossed and the I's dotted, and we're continually reviewing and looking at it. Right now, we think it's very strong, very stable, and we're literally picking up some of the activity we're getting of folks leaving other financial institutions where they've gotten sideways with the regulators.
Okay, that's great, David. That kind of addresses what I was trying to get at, so appreciate the color there.
You're welcome.
Once again, if you would like to ask a question, it is star one on your telephone keypad. Our next question is from George Sutton with Craig-Hallum. Your line is now open.
Thank you. Dave, I wondered if you could just go further on what you were just referring to relative to the Fintech update. Just to take this a little higher level, the idea of creating this was to bring in low-cost deposits. Do you feel like this area can achieve that going forward? Can you give us a little bit more detail on the scarcity of the deposit sort of importance relative to bringing these potential partners in?
George, as you well know in the marketplace today, I don't think there is a free deposit of any kind out there. As we were analyzing and looking at all the stuff in preparation for the call and just getting a handle on our deposits. I'll give you a couple. For instance, we were looking at the First Century deal because we were gonna get $300 million in cheap deposits from them from the HOA side of things. We actually when we went through and did an analysis by zip codes, we actually have more HOA deposits on the books today than First Century had. They're not free, but they are lower level money market. There are services provided with them, and we're not reimbursing them for their accounting services that the HOA firm is having performed.
When you put the two together, kind of the net cost for us on those deposits is equal or lower than what would have been at First Century. The other side, there's still good money coming in on that end, all bets are off after the first quarter here. Everybody understands what money market rates are. Everybody understands what the Fed Fund program is today. We're not paying that. We're getting discounted below Fed Funds on everything that's coming in. With the BaaS deposits, depending on services and products, and part of it's in pricing, part of it's in yield and rate, we're getting them anywhere from 50 points below Fed Funds to we literally do have some zero cost deposits. It's growing quickly. Fee income is coming on strong.
We have one group that's on a monthly basis now, we're processing over $500 million in ACH transaction activity. We've got the increased customer base is really getting up to speed quickly. I think the offset with the revenue opportunity and lower cost of funds is what's in the marketplace today. I think it's still a great model for us, and it's a great opportunity, and we can scale it pretty effectively in the near term. I think there's gonna be a lot of consolidation going on in the fintech space. Folks are finding out when they're going for that B&C round of financing that if they don't have a path to profitability, they need to partner up or they need to do something else. There's gonna be a lot of shuffling.
As I've said before, I kind of think it's time for Fintech 2.0. There'll be some very strong good customers. There's going to be strong good customers on the market because the banks themselves did not invest. When you take a small community bank that's in BaaS services and they're opening 1,000 new accounts a month, and they don't do 1,000 new accounts in a calendar year as a traditional bank, things are going to blow up on them. We think we're well positioned. Is it free money? I don't think there's free money in the industry today, but it is lower cost funds than a lot of the outside sources we have, and the fee revenue and the partnerships have real value to us.
One other thing. Have you put in a reciprocal deposit program? My assumption is you probably have. I'm just curious the feedback you've gotten in terms of keeping some of those uninsured deposits.
We have. We've been part of IntraFi for the last couple years. Obviously when Silicon Valley blew up, we had virtually no request for it. It's kind of interesting, the fact that we offer it has taken the edge off a lot of our larger depositors. I think last number I saw, Dilip, this is gonna be probably two weeks old. We have about $60 million, $60 million-$70 million now that has moved to the IntraFi and spread their monies across multiple institutions. Again, it's still low cost. The service fee for that is nominal. It's one of those things, I think the comfort that we have it available kind of took the edge off from the consumer. Some of the deposits we did lose in March, we've regained.
That's part of the deposit growth here in April. Some of the customers looking for that have come back to us and have spread the monies through IntraFi. It's a nice tool. Again, if First Republic or another big bank goes down, I think it'll be a necessary tool for probably everybody in the industry to retain deposits. Right now it's more of a safety net than it is a true selling point.
All right. Good to hear. Thank you both.
Thank you.
Thanks, George.
Once again, if you would like to ask a question, it is star one. Our next question is from Nathan Race with Piper Sandler. Your line is now open.
Yeah, I appreciate you taking the follow-up, and I apologize if I didn't catch it in your prepared comments, Ken, but can you guys just remind me kind of what your outlook is for core deposit growth and loan growth over the next couple quarters?
Yeah. I think, you know, one of the things, Nate, that we've kind of, you know, that we've talked about a couple times here is, you know, it's a concept of kind of remixing the loan book and having the idea that, you know, I think overall loan balances over the course of the next, you know, two to three quarters really aren't expected to grow tremendously. It's really just more remixing it and using cash flows from public finance and healthcare and single tenant and mortgage, to fund growth in construction and ICRE and franchise and SBA, and our consumer channels where we're getting, you know, certainly the variable rate portfolios and a little bit more yield. That's really the way that I would look at it.
Okay. kind of a flat earning asset base, give or take from the level in one Q is the way.
Maybe just a little to maybe some slight growth. Again, it's really the concept of remixing the book organically versus, you know, growing the overall balance sheet. Again, the caveat to that, as David said in his comments was, you know, what is the right amount of liquidity to maintain on the balance sheet?
Right.
You know.
Yeah
with, you know, unforeseen events going forward, it probably is prudent to maintain more liquidity right now. As we all know, balance sheet growth isn't really driven by loans, it's driven more by deposits. That's just the one wild card on that.
Yep. Understood. Go ahead. Sorry. Go ahead, David.
Yeah. One real quick comment on the deposit side, Nate. I know one of the things that the investor community folks get antsy about, it has bothered us over the years. When the loan to deposit ratio gets north of 100%, everybody gets pretty nervous. If you want to factor the deposit side of things, we're now in a position where we're under one-to-one. It's still 98%, 99%. We'll focus on the deposit side to keep us at par with the loans. Loan growth are a little above so that we stay under that 100% loan to deposit ratio. That's how I would kind of model it. As Ken said, I'd see low single digits, 2%, 3% probably max in loan growth in future quarters.
Okay. Great. Sounds good. Thanks, guys.
Thank you.
Our next question is from Ross Haberman with RLH. Your line is now open.
How are you guys? I just had a quick question I got on late. Could you touch upon any weakness in any of the loan categories which you or are beginning to see or, like a lot of banks, you're not seeing any cracks yet? Thank you.
Yeah, Robert. At the current time, we're not seeing any cracks per se. Like I said, we had the one-off on this participation loan that we discussed earlier. Overall delinquency is down this quarter over last quarter. We do have one REO property. It's a home in Vermont. It's less than $200,000, and that's been in foreclosure process for three and a half years. It has nothing to do with the current economy. Overall, the portfolio is staying solid. No pending losses. Even the SBA world, which is kind of new to us, is staying phenomenally stable, working really solid. Small business community is doing what they always do. They're just knuckling down and keeping the work going on.
Yeah, across the board, we're not seeing any cracks yet at all. This one loan is a truly a one-off. We're pretty confident that, unless the Fed really goes nuts and ratchets those up to a 6.5% interest rate, which causes some pretty massive unemployment across the country, we're not, we're not worried about anything in the portfolio today.
Could just one follow-up? Could you refresh us how big is your total loan part-participation book as a % of the total loans? Thanks.
We have about $15 million through the BancAlliance program, which is where this one C&I loan was. That's what's left after we took the write down. As I said earlier, I think we're somewhere in that range of $20 million-$30 million max with other banks in the state of Indiana that we do a couple participations with. It's a real small percentage of our book. We like to control our destiny in the.
you're saying a total-
Go ahead.
You're saying a total of $45 million about in total? Does that sound right?
Yeah. In total, yeah.
Okay. Thank you.
Actually, it's closer to 30 in total. It's about 15 and 15, so 15 with our existing program and another 15 with the partner banks.
Thank you very much.
Yep.
Our next question is from Brett Rabatin with Hovde Group. Your line is now open.
Hey. Hey, thanks for the follow-up. On the buyback, I missed if you gave it the remaining authorization. Just, you know, and I know it probably depends on a lot of factors, but, you know, any kind of broad color on how much you think you might buy back the rest of the year and if there are capital ratios that would constrain that you wouldn't wanna go beyond, you know, just how you're thinking about the buyback specifically from here?
At the current time, Ken, correct me if I'm wrong, but I think we have a little over $19 million left on the $25 million that we started the year with. We're in the market buying today, and particularly at this price, we'll continue to do that. We're not gonna push ourselves below 7%, I guess, if you wanna look at a capital marker, by buying back the stock. Shy of that we're in consistently, and we'll stay there when the price is at this level. If it starts to climb back up again, we might reevaluate in the second half of the year. We're set to continue buying at this quarter at this price. We can't afford not to. It's the best use of capital that we have.
Okay. 7%, David, is that TCE, I assume?
Yes. Yes, correct.
Okay. Okay, great. Thank you.
Our next question is from Howard Henick with Scurry Dog Capital. Your line is now open.
Hey, guys. I've seen other banks in the past have issues with BancAlliance loans. I never really understand originating C&I loans in a consortium anyway, because obviously it's to some extent, a character loan. Are you still originating loans through BancAlliance or is that program shut down? Thank you.
I can't tell you the last one we've done with them. It's been several months. obviously the experience of this loan has kind of tainted us on the program. we've been in it nine years and we've only had 20 basis points of losses over nine years. We obviously don't participate in every loan that they do by any means. We probably, over the years have looked at maybe one in 20 of what's presented that we would take advantage of. we have not done anything in the last six, seven months.
What's out there today and just kind of that whole leverage market is crazy as the capital markets and the industry is in the future, the economics, we kind of backed off purposely and then taking the hit on this loan will make it even tougher for us to make a decision to go forward. We got good opportunities with our existing clients and demand out here that we don't have to go to the third party. I would tell you, I'm not gonna say we would never ever do another one, but it would have to be golden for us to take a look at it. We've got enough opportunity ourselves. We don't, we don't need to backfill the balance sheet with any more of their product.
Yeah, that. I agree. Okay. Thank you.
There are no more questions, I'll pass the call back over to David Becker.
Everybody, we thank you for joining us on today's call. We will continue to use all the tools at our disposal to maintain a strong balance sheet and liquidity position, as well as drive for more resilient earnings going forward. Again, as fellow shareholders, we remain very committed to driving improved profitability and enhanced shareholder value. We thank you for your time today, and have a good afternoon. Appreciate it.