Earnings Call Transcript - FBK Q1 2021

Operator, Operator

Good morning, and welcome to FB Financial Corporation's First Quarter 2021 Earnings Conference Call. On this call today from FB Financial is Chris Holmes, President and Chief Executive Officer. He is joined by Michael Mettee, Chief Financial Officer; Greg Bowers, Chief Credit Officer; and Wib Evans, President of FB Ventures, who will be available during the question-and-answer session. Please note, FB Financial's earnings release, supplemental financial information and this morning's presentation are available on the Investor Relations page of the company's website and on the Securities and Exchange Commission's website. Today's call is being recorded and will be available for replay on FB Financial's website approximately an hour after the conclusion of the call. And with that, I would like to turn the call over to Robert Hoehn, Director of Corporate Finance. Please go ahead.

Robert Hoehn, Director of Corporate Finance

Thank you, Ian. During this presentation, FB Financial may make comments, which constitute forward-looking statements under the Federal Securities laws. All forward-looking statements are subject to risks and uncertainties and other facts that may cause actual results and performance or achievements of FB Financial to differ materially from any results expressed or implied by such forward-looking statements. Many of such factors are beyond FB Financial's ability to control, and listeners are cautioned not to put undue reliance on such forward-looking statements. A more detailed description of these and other risks is contained in FB Financial's periodic and current reports filed with the SEC, including FB Financial's most recent Form 10-K. Except as required by law, FB Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise. In addition, these remarks may include certain non-GAAP financial measures as defined by SEC Regulation G. A presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to comparable GAAP measures is available in FB Financial's earnings release, supplemental financial information and this morning's presentation.

Chris Holmes, President and CEO

Thank you, Robert. Good morning, everybody. Thank you for joining us this morning. We appreciate your interest in FB Financial. We had another successful quarter as we delivered adjusted EPS of $1.12 per share, adjusted ROAA of 1.89% and adjusted return on tangible common equity of 20.9%. We grew our tangible book value per share to $22.51 or 14.6% annualized. With each day that passes, our markets get a little closer to normal, and that's reflected in a few of our numbers this quarter. We had $31 million in loan growth, excluding PPP, or 1.8% annualized. Through February, balances were actually down $89 million, but then we had a very strong margin with $120 million in growth. As our markets bounce back, customer demand for loans continues to build, and we still feel good about our mid- to high single-digit annual loan growth target that we set for ourselves. We released $13.9 million from our allowance for credit losses this quarter as the continually improving economic forecast indicated that we should bring down our reserves. Following this reserve release, our allowance to loans, excluding PPP, is 2.29%, down from 2.48% last quarter. Assuming no further COVID waves or hiccups in the recovery, we would expect those releases to continue in the near term as economic outlooks continue to improve. Our total deferrals of principal and interest are down to $21 million, and we have $131 million of loans on interest-only payment schedules. Of the $131 million on interest-only schedules, $76 million are hotel loans. We continue to feel optimistic about the ultimate resolution of our loan deferrals. Our net charge-offs were 5 basis points this quarter. We're still cautious, and we still have significant reserves in case we do experience any credit events, but we don't have any knowledge of anything specific that causes us any concern. With each passing quarter, we grow more optimistic that we'll get through the pain of COVID without any serious credit losses. Beyond numbers, our associates have returned to the office. This is crucial for the internal projects that are our current focus. While the remote world has been effective for most tasks and for a limited time period, face-to-face interaction is crucial for the goals we have for ourselves this year. Each time we speak to investors individually, we stress being better operators than our competitors. Most of the goals and initiatives from our strategic plan are geared towards ensuring that we run a better bank for our customers than our competitors do. Most services in banking are commoditizing. So our value proposition for our customers is to be faster with less friction while providing better advice than our competitors. From an infrastructure standpoint, that means ensuring that a customer can attain any product with us that they could with any competitor. And second, that means enabling the customer to do business as conveniently as they can with any competitor, whether that's online, on their telephones or through a branch location. From a personnel standpoint, we do that by setting up regions and investing our regional presence with the power to operate their regions as independent community banks. Each of our regions is divided into markets. Each market has a president, and individual relationship managers report up to those market presidents. Very few banks our size and larger have chosen to stick with the community banking model. From a risk and uniformity standpoint, it's simpler to go with a centralized line of business model. The unintended operational consequences of a centralized model are the reasons that smaller community banks have historically been able to acquire talent and customers from larger banks. Since I have been with First Bank, our goal has been to maintain our community banking strategy and model regardless of size. We've been able to maintain that well enough now that we have $12 billion in assets and continue to see very slow organic growth prospects across our footprint. We're taking the time and working hard to review and challenge the customer experience, support functions, risk management functions and other processes that allow us to maintain our community bank model and scale up to $20 million, $30 million, $40 million and even more. With that explanation about our regional model, we're excited to announce a newly formed Central Alabama region with the hiring of our first 4 banking division associates in Birmingham, two of which are very experienced senior bankers. We have long had a strong mortgage presence in Birmingham with our retail channel leadership based in Mabi Hills. Our foothold in mortgage in Birmingham made it a logical market expansion for us, and we're pleased to welcome these associates to the First Bank team. We have a loan production office in place currently, and we're working through the branch application process with the goal of having a full-service branch later in the year. I have two other financial points to make before turning the call over to Greg and Michael. The first is on mortgage. Our mortgage team delivered $16.3 million in direct contribution this quarter, which was 71% of our fourth quarter 2020 contribution. So within our previous guidance of 70% to 100% of the fourth quarter's adjusted contribution. We generally don't give much guidance, especially with mortgage, but we did last quarter because we were confident that we had good insight into the quarter, and it turns out we were right. As we look into the second quarter and the remainder of the year, our retail mortgage channel continues to look strong. However, with the increase in interest rates, we've seen a decline in refinance volumes, which has had an outsized impact on our consumer direct delivery channel. As a result, the retail channel should have a solid second quarter, but that will be largely or entirely offset by the impact of declining volumes and margins in consumer direct. The smaller pipeline will cause a negative mark-to-market adjustment on the pipeline that we will absorb in the second quarter. With these headwinds, we expect negligible contribution from our mortgage operations in the second quarter. Once we digest the consumer direct volume decrease, we expect more normal operations in the second half of the year, where we would expect mortgage to be in the 10% range of total contribution for any given quarter, depending on the seasonality. The second point is on our noncore commercial held-for-sale portfolio. We had offers that were close to acceptable for us, but we ultimately decided we were comfortable with the discount that we were being asked to take on the portfolio that we think remains reasonably strong. As long as we continue to hold the portfolio, we are likely to see some small movements in the valuation as we mark that to market each quarter. The third quarter was a $1.9 million gain. The fourth quarter was a $1.4 million gain. The first quarter was an $853,000 loss. We continue to feel appropriately marked on the overall portfolio and believe that we will ultimately dispose of the portfolio in line with or ahead of the discount that we have on the long term. To summarize, we had a strong financial performance this quarter. Our regional leadership feels good about their growth prospects for the remainder of the year, and we added a new Central Alabama region and key relationship managers in the quarter. We faced a mortgage headwind in Q2 but feel good about the second half of the year, and we're focused on customer experience and the operational enhancements that allow us to deliver our community banking style no matter our size. Now Greg is going to give you some additional color on credit.

Greg Bowers, Chief Credit Officer

Thanks, Chris. Overall, the portfolio continues to perform satisfactorily, and I'm reminded that it was almost exactly a year ago that we gave our first update in the pandemic world. It would be an understatement to say that we've seen a number of changes within our portfolio. Fortunately, due to good general underwriting by our teams, strong relationships, and the strength of our own balance sheet, we've successfully managed through what appears to be the worst of this part of the storm. Those of you that have followed us for the past year will recall that in reaction to the pandemic, we assisted our customers by allowing for some form of payment deferral on approximately 20% of our portfolio. Today, that has been reduced to around 2%, as previously noted and as shown on Slide 11. Of that 2% number, only $21 million are remaining on a full deferral of P&I, while the other $131 million in deferral are on an interest payment schedule. Those remaining interest-only deferrals are largely in the hospitality sector, as we pointed out previously. Overall, we're glad to see how that has progressed. While we're on deferrals, it's a good time to highlight some of the major portfolio categories that we've been tracking, or our industry is of concern, as it's pointed out in the deck. A year ago, we outlined six primary industry sectors that could potentially be more heavily impacted by the pandemic: retail, hotel, health care, restaurants, other leisure, and transportation. As we look back, we are pleased with the overall results in these sectors, especially in light of the unknown at the beginning of all this. Slide 12 highlights the overall picture of those industry segments, and you can see that credit quality has held up. Of these, I will call out two segments to highlight this quarter. In the hotel portfolio, with detail broken out on Slide 13, our larger operators are reporting improved occupancies and are optimistic about the future as markets continue to open. The number of vaccinations has increased, and travel is picking back up. They account for the majority of our exposure. On the smaller, less well-capitalized end of the market, we have seen a few operators not fare as well, and those account for some of the movement in the classified totals, but I'm only talking about a few smaller loans. We're hopeful their results improve, but if not, we could see further migration with a couple of these. However, on the whole, I'm very pleased with how the hotel portfolio has come through this so far. The second one I'd point out is the health care portfolio, which is detailed on Slide 14. We initially saw a decline last year from the closures of doctor's offices, but that picked back up with the reopening of the markets. The exception of this has been in a few of our assisted living homes, which were hit with outbreaks at the beginning of this year, and their occupancies have been impacted. This has not been indicative of our portfolio overall but is project-specific. At just over $20 million, a couple of these credits account for the rest of the increase in our classified numbers. Our teams are confident that with the increase in vaccinations, these properties will be able to build their occupancy numbers back up, but we will be monitoring closely as this could take an extended time frame. Slide 15 breaks out the restaurant group, and results here are good overall and in line with our last report. I'll close with Slide 16, which displays our overall credit metrics. On the whole, we feel comfortable with the health of our loan portfolio. Charge-offs were minimal this quarter at 5 basis points, and non-performing ratios held relatively steady this quarter. Our classified loans saw a bit of a jump, but that increase is primarily related to the credits I just discussed, primarily the assisted living. Lastly, we remain comforted by having an allowance towards the upper end of our peers at 2.29%, excluding PPP. With that, I'll turn it over to Michael.

Michael Mettee, Chief Financial Officer

Thank you, Greg. Speaking first to mortgage and expanding on some of what Chris spoke about earlier, the team produced another strong quarter in Q1, producing $16.3 million, a seasonal decline from Q4 of 2020 but was within the expected range. As mentioned last quarter, we saw a seasonal dip in margins, which have continued to compress, as illustrated on Slide 6, with the rise in interest rates. As we've seen in the past, when interest rates rise quickly, the effects on margins and volume impact consumer direct lenders harder than traditional retail channels. The consumer direct channel has been more heavily refinance-focused than our traditional retail channel. Historically, that line of business has accounted for 55% to 65% of our overall volume. We believe one of the positive outcomes from the pandemic is the shift in consumer behavior and preference to utilize and leverage technology for their mortgage needs. This shift will provide our consumer direct business with continued growth prospects, especially as the team works to gain additional market share in the purchase space. We have seen successful strides in April to move in that direction. However, as in any business model, it takes time to fully implement, and we will continue to take advantage of the refinance business as long as it exists. We do expect a solid purchase season, but the mortgage industry as a whole faces headwinds, including excess industry capacity and national and local housing shortages. Moving on to net interest margin, we saw a decline in the headline number as our liquidity has continued to build. Adjusted for normalized liquidity levels, the margin held relatively flat around 3.41% compared to 3.44% last quarter, and that details on Slide 5 highlight the impact of the excess liquidity line. We are still focused on bringing deposit costs down and we're able to do that this quarter, as the cost of total deposits came down 5 basis points, while contractual yield on loans, excluding PPP loans, also came down 5 basis points. This trend is poised to continue as we have over $300 million of CDs repricing again this quarter in the 1.25% range. We also continue to see progress on reducing our money market and interest-bearing checking rates, as we've been picking up a basis point or so per week on the cost of those deposits recently. Liquidity is likely to continue to weigh on the margin, and we would obviously like to redeploy that cash into core lending relationships. However, with the competitive environment and with liquidity continuing to flood into the system, we have ramped up our securities purchases. We had previously held off on investing too much in the securities portfolio given low rates and duration risks that were evident in our investment opportunities. However, with the recent uptick in rates, we've added $112 million to our portfolio in April at about a 150 basis point yield, which is a nice short-term pickup compared to the 12 basis points that we were earning on our cash. We will look to move our portfolio to approximately 12% to 13% of total assets. Moving on to CECL in our allowance, we saw a release of $13.9 million this quarter as economic forecasts continued to improve. We have been fairly model-driven with limited qualitative factors to this point. However, the initial release based on our forecasts this quarter was larger than we thought was prudent, given that the economic recovery is in its early stages and we're still facing headwinds. With that, we increased our qualitative factors this quarter to account for some of the uncertainty. Going forward, we will continue to weigh the improving forecast for factors that we believe are prudent to manage the allowance. However, we would currently expect further releases over the next few quarters, assuming outlooks continue to improve. I will close my section by speaking to our expenses. The banking segment noninterest expense was a bit higher this quarter at $55.7 million, which, excluding $4.5 million in FHLB prepayment penalties, compares to $52.9 million in the fourth quarter. This was related to some seasonal and one-time expenses and is not a run rate to base future estimates on. Between the seasonal expenses related to the annual incentive compensation payout and a few other one-time items, we're about $1.7 million higher this quarter than what we feel like our run rate is. We continue to expect a low to mid single-digit percentage growth rate for 2021, and our annualized run rate from the fourth quarter would have been about $212 million. I'll now turn things back over to Chris to close.

Chris Holmes, President and CEO

Okay. Thank you, Greg; and thank you, Michael, for that information. Thank you, everyone, for your interest in our company. And operator, we would like to open the line for questions at this point.

Operator, Operator

Our first question comes from Catherine Mealor of KBW.

Catherine Mealor, Analyst

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

Chris Holmes, President and CEO

Yes. Yes, low to mid, right?

Michael Mettee, Chief Financial Officer

Low to mid.

Catherine Mealor, Analyst

Great. And are you basically through all of your cost savings from the merger? Or how would I think about further cost savings kind of offset by just growth in investments in the franchise and hiring and technology investments and all that?

Chris Holmes, President and CEO

Yes. So a couple of things. We hit the goals in terms of cost savings, but we still have a few things that will come out later in the year, primarily in the form of some comp-related expenses and some leases. Michael, is there anything else that could come out?

Michael Mettee, Chief Financial Officer

No, I think that's fair. I think we're seeing some improvement in real estate. It's improved the lease outlook.

Chris Holmes, President and CEO

Yes, that's a good point. We have some dormant branches, and the real estate market is such that the prospects for those are better than when we initially took them in, so we're probably going to be able to eliminate some of those.

Catherine Mealor, Analyst

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

Chris Holmes, President and CEO

Yes. I believe I can respond well to your question. I intended to express that we were somewhat worried in February due to a significant decline in loan balances, but we experienced a very strong March. Our averages reflect that fluctuation. Looking ahead, we have solid demand, and our pipeline appears promising. However, we are also noticing paydowns, as many have taken advantage of favorable refinancing conditions. It’s particularly beneficial for some non-profits and others to clear their debts. While it’s advantageous for them, it's less favorable for lenders, especially when dealing with strong credit. Predicting these trends isn’t straightforward. Currently, our pipeline looks decent as we anticipate mid to high single-digit growth, considering all factors. Although we are experiencing some fluctuations, we had a robust March followed by a weaker April, yet the pipeline seems to strengthen toward the end of the quarter. For those invested in Masi, there’s a natural apprehension when results come in later in the year rather than earlier. Nonetheless, our team has been accurately forecasting these developments.

Operator, Operator

Our next question comes from Stephen Scouten of Piper Sandler.

Stephen Scouten, Analyst

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

Chris Holmes, President and CEO

Yes. Thanks, Stephen. A couple of things. I'd say folks are coming not from a single institution down there. We've had probably two or three different contributors, and that continues to be the case. They do have some experience, but it's a variety of types of banks that we have been able to acquire. Remember that we do have some folks in the market that are very experienced in the market. We're already in Huntsville and Florence, and we've got contacts there. I'd say it's fairly normal in terms of just word spreading and us getting some opportunity on how we're onboarding folks. So it is not that we're targeting any institution; fortune just shines on us there. And what was the second part of the question?

Michael Mettee, Chief Financial Officer

Great plan, what's the vision for.

Chris Holmes, President and CEO

Yes, I'm sorry. In terms of total down there, any market that we enter like that, we take a very long-term vision and approach to it. We enter that thinking about how can we be the leading bank in that market over a decade or so, so we're considering all options. We would consider acquisitions, finding opportunities for branch deals if the right branches come up, and we are trying to acquire leading bankers in the market. All would be part of our strategy. If you go back and look at how we've approached Chattanooga and Knoxville, that's the way we go into each market, with a long-term intent to be one of the dominant banks in that area, and we'll utilize all those methods to achieve that over time.

Stephen Scouten, Analyst

Great. That makes sense, Chris. And then maybe if you could talk to the NIM a little bit. I know liquidity makes it almost impossible to forecast, but maybe if we thought about it ex the incremental liquidity and kind of thought about what you think you’re seeing on new loan yields and incremental pressure on loan yields. They were relatively stable ex-PPP this quarter. And then how you think about that balance of keeping liquidity versus investing it and taking duration risk?

Michael Mettee, Chief Financial Officer

Yes. Steve, that's a great point. I don't think if you talked to us at the beginning of the quarter, we'd expected that 35% annualized deposit growth. So that liquidity is weighing on us and others. Yes, we are seeing loans pay off at higher yields; it's about 4.46% in March. Coming in the high 3s and low 4% range, new production. You do see a basis point or so every month, the lower loan yields, and that's what we were trying to get at on lowering our deposit costs, right? We look to offset that decrease in loan yields to stabilize NIM. We certainly have started to pick up our securities purchases. If opportunity arose as rates moved up late March or early April, you saw the continued 70 to 80 basis points and have settled back in a little bit. So we got a lot more comfortable. Obviously, we'd like to deploy that excess liquidity and the loan growth Chris was just talking about. But as we said, 150 basis points on the investment portfolio feels a lot better than 12 basis points on low cash. We'll continue to make investments as prudent, realizing we prefer to invest in longer-term loan growth and relationships.

Chris Holmes, President and CEO

Yes, Steve, I'll just add that this is an unusual time for us since margin is a key metric, and it's difficult to use it as a measure of success because liquidity is very abundant. Essentially, any funding we receive that costs us more than 12 basis points represents a loss. We brought in $800 million during the first quarter. When I evaluate the margin, I focus on three main factors. First, the yield on the loan portfolio has remained reasonably stable. Second, we anticipate that deposit costs will continue to decrease, which gives me optimism for the future. The third factor is net interest income, which saw a decline from the previous quarter, and that is disappointing for us. We will concentrate on maximizing our utilization of that liquidity.

Stephen Scouten, Analyst

Got it. And then maybe just one last thing for me. I'm curious, we've seen some slight uptick back in the refi application numbers as the 10 years have moved back down to this mid-150 range. If you think there could be some improvement throughout the quarter? And just to confirm, you said those fair value marks might leave the contribution for Q2 relatively neutral or close to zero. Did I hear that correctly?

Chris Holmes, President and CEO

Yes, you did hear that correctly. I also threw in a concept regarding volume and market changes. Our mortgage business is obviously robust; we've had five quarters of $120 million of contribution, which is fantastic from a capital standpoint. However, it also means our pipeline is large. We will have a movement of that over the second quarter, as we do less in our consumer direct business. That mark-to-market can be substantial. If you remember, our margins related to mark-to-market were large on the way up as we grew the pipeline. You will have the other side of that when you shrink the pipeline with decreasing volumes, hence the expectation for the second quarter anomaly. Just to put it simply, a mark-to-market will negatively impact us.

Michael Mettee, Chief Financial Officer

Yes. Stephen, I think your refinance question was about moving down. I think there could be some opportunity there, but keep in mind, the industry has spent the last year building capacity. Therefore, even with an increase in refinancing, you've got people competing for less business. We're still down substantially from a rate standpoint over the last six weeks as an industry.

Chris Holmes, President and CEO

We hope you're right. We hope you're right, but the realism in it says let's not count on it.

Operator, Operator

Our next question comes from Jennifer Demba of Truist Securities.

Jennifer Demba, Analyst

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

Chris Holmes, President and CEO

Sure. We are very interested in seasoned relationship managers in other markets. That will be the focus of our recruiting efforts. I would say 2020 was a tough year in many ways. But remember, we grew from $6.1 million to $12 million. We were focused on a lot of conversion, a lot of things with our business model, and a lot of risk management as we have grown the company. So we probably haven't done as much of hiring and hiring personnel, where you will see that throughout the year as we add some relationship managers in every DMA and across different shapes and sizes, including mortgage bankers and commercial bankers. On the M&A front, we're always interested is the way I'd put it. Nonetheless, as I just mentioned, we have been really focused internally on our business model, the customer experience, and ensuring that we beat our competitors every day on the street.

Operator, Operator

Our next question is going to come from Matt Olney at Stephens Inc.

Matt Olney, Analyst

I wanted to ask about the impact of higher interest rates potentially over the next few years on the company. I saw the disclosures in the 10-K from December; I don't know if there's a new disclosure I missed last night, but the shock analysis suggests that the bank is one of the more asset-sensitive banks in the peer group. Would love to hear kind of what the drivers are and your expectations of higher rates, impact of loan floors, and excess liquidity.

Michael Mettee, Chief Financial Officer

Matt, so yes, we feel pretty good about a rising rate scenario, especially on the short end of the curve. We're about 50% variable in our loan portfolio, and we will see a nice pickup in NIM and interest income as rates rise. The disclosure that you're referencing indicates some of our optimism. Chris mentioned that NIM is a key metric for us. We think we are well positioned in that environment.

Matt Olney, Analyst

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

Chris Holmes, President and CEO

Yes. We anticipate that while there are increasing benefits with each increment, the advantages from the earlier stages of the increases are relatively small.

Michael Mettee, Chief Financial Officer

I have to look exactly at the chart, but we get some benefit from the incremental rate increases.

Chris Holmes, President and CEO

I would just say, thanks for the question, and it's good to be talking with you. I would add that we are seeing a benefit from that mortgage, and I spoke about how we’ve had $120 million over the last five quarters. As rates go down, we benefit because our margin is getting squeezed. However, as rates rise, we believe we are positioned well regarding NIM and core banking business as those rates move up.

Operator, Operator

Next question is from Alex Lau of JPMorgan.

Alex Lau, Analyst

Can you talk about the growth in public fund deposits in terms of size? And also what you expect in terms of seasonal impact as these runoffs?

Chris Holmes, President and CEO

Yes. The growth in fund deposits mostly relates to centralized operating type accounts that fund up in the first quarter every year. We are accustomed to seeing an increase in these balances during this time. If we look at the increase in the first quarter, a significant majority of that is driven by public funds accounts that are existing accounts simply funding up in the quarter. That will come down in the second quarter and probably throughout the quarter and maybe even a little bit into the third quarter; this is a routine occurrence for us.

Michael Mettee, Chief Financial Officer

There’s a lot of money in the system that's flowed to governments who are supporting our communities and municipalities. That creates a little bit of volatility in that number increase because of how much money is flowed to governments across our major municipalities.

Alex Lau, Analyst

That does. And on your allowance for credit loss ratio, with the combination with Franklin, do you have an ACL ratio for day one CECL? I'm trying to get a sense of what a normal ratio would be as you release more reserves.

Michael Mettee, Chief Financial Officer

Yes, Alex, the day one CECL is not a target because of what you mentioned earlier. We look a bit different from a balance sheet perspective after the merger. We don't have a target we're looking to return to. We're going through the process on a monthly or quarterly basis, evaluating new loan balances on the balance sheet and adjusting accordingly with the model and the economic outlook. I know that's not a direct number, but that's how we think about it.

Chris Holmes, President and CEO

I would just add that we are likely at the top of our peer group in terms of reserves. If we’re not at the very top, we’re certainly in the top decile. We understand this; that’s why we approach it conservatively. You heard us say pretty openly, if things continue to improve, we would likely see releases at least in the near term.

Alex Lau, Analyst

Appreciate that. Lastly, with your focus inward on customer experience to compete with other banks and fintechs, does this require any additional investments in terms of technology that would be noticeable?

Chris Holmes, President and CEO

Yes. Technology in our world is a constant investment. We're making some investment in technology every quarter. It's about trying to plan and being routine about it. We have made some investments in technology that position us well for the future and keep us sharp in terms of customer experience. We're an early investor in a local fintech fund called Fintac, managed by a friend of ours. Again, we made a very large shareholder investment in a fund focused on fintech so we can provide insight into their investments. We've also made sure to have strong relationships with our core processor, Jack Henry, and we're on their highest-level Advisory Board; again, ensuring our focus on technology and customer experience.

Operator, Operator

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

Chris Holmes, President and CEO

Okay. Thanks, everybody. That wraps up Q1. We're already further into Q2 at this point, so we look forward to being back on with you at the end of next quarter. Everybody have a great day.

Operator, Operator

This concludes the conference. You are now free to disconnect at this time. Thank you. Have a great day.