FB Financial Corporation (FBK) Q4 2021 Earnings Call Transcript

FB Financial Corporation  (NYSE: FBK) Q4 2021 earnings call dated Jan. 18, 2022

Corporate Participants:

Robert Hoehn — Director of Corporate Finance

Chris Holmes — President and Chief Executive Officer

Michael Mettee — Chief Financial Officer

Wade Peery — Chief Administrative Officer

Analysts:

Brett Rabatin — Hovde Group — Analyst

Jennifer Demba — Truist Securities — Analyst

Matt Olney — Stephens — Analyst

Alex Lau — J.P. Morgan — Analyst

Catherine Mealor — KBW — Analyst

Kevin Fitzsimmons — D.A. Davidson — Analyst

Presentation:

Operator

Good morning, everyone and welcome to FB Financial Corporation’s Fourth Quarter 2021 Earnings Conference Call. Hosting the call today from FB Financial is Chris Holmes, President and Chief Executive Officer. He is joined by Michael Mettee, Chief Financial Officer. Wade Perry, Chief Administration Officer and Wib Evans, President of FB Ventures will also 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 at www.firstbankonline.com and on the Securities and Exchange Commission’s website at www.sec.gov.

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

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

Robert Hoehn — Director of Corporate Finance

Thanks, Jen. During this presentation, FB Financial may make comments, which constitute forward-looking statements under the Federal Securities laws. All forward-looking statements are subject to risks and uncertainties, and other facts that may cause actual results and performance or achievements of FB Financial to differ materially from any results expressed or implied by such forward-looking statements. Many of such factors are beyond FB Financial’s ability to control or predict, and listeners are cautioned not to put undue reliance on such forward-looking statements.

A more detailed description of these and other risks is contained in FB Financial’s periodic and current reports filed with the SEC, including FB Financial’s most recent Form 10-K. Except as required by law, FB Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise.

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

I would now like to turn the presentation over to Chris Holmes, our President and CEO.

Chris Holmes — President and Chief Executive Officer

Thank you, Robert, and good morning. Thank you all for joining us this morning. We have — always appreciate your interest in FB Financial..

We had an excellent quarter, as we delivered strong organic growth, reported EPS of $1.02 and continued growth in our tangible book value per share. Our tangible book value per share at year end was $24.67 that represents a compound annual growth rate of 15.5% since the Company became public in September of 2016. While our returns are slightly less than we’ve come to expect from ourselves, our return on average assets of 1.6% reported and 1.4% adjusted and our return on tangible common equity of 16.8% reported and 14.7% adjusted are sound given the extended ultra low rate environment.

Earnings for the quarter were strong and relatively straightforward. During last quarter’s call, I mentioned that our Regional Presidents thought [Phonetic] fourth quarter would show activity that could get us to double-digit loan growth for the year. As usual, they were right, and we had $315 million of net loan growth excluding PPP or 17% annualized for the quarter. This puts us at nearly 11% for the full year.

We also had very strong noninterest bearing deposit growth with 20% annualized for the quarter and 23% for the year. Our noninterest — I’m sorry, our net interest margin was stable for the fourth quarter at 3.19% in a zero rate environment. Expenses were stable. And as expected, our asset quality continues to be very strong with NPAs assets holding flat with the third quarter at 50 basis points and classified loans as a percentage of total loans dropping to 14 basis — dropping by 40 basis points to 1.66%.

Charge-off for the year were very manageable 8 basis points, and we had a provision release of $10.8 million in the quarter, which leaves our allowance for credit losses at a very healthy 1.65% loans HFI at year end.

We did have a significant gain on our commercial loans held for sale during the quarter, primarily related to two relationships that exited the bank, one of those had been written down materially prior to the Franklin merger and one paid-off and had a mark against it. We’ve been consistently described in this portfolio from the date of announcement in January of 2020 and till today, we marked it conservatively at the merger date. We have very capable people managing it, and we have continued to manage it to maximize returns, as we worked it out of the bank. We had $11.2 million of net gains over the portfolio in 2021, and we have $79 million in loans left. All those same factors that yielded positive results so far still hold, and we look forward to maximizing the value of the remaining portfolio in 2022. As for the core portfolio of the legacy Franklin Financial, its performance has been stellar.

As we enter 2022 and we think about our outlook, our long-term organic target for loans has been towards 10% to 12% annually. With the current environment and the momentum that we’re carrying into the year, we believe that we will be on the upper end of that range for 2022. We’re targeting similar growth in noninterest bearing deposits.

Our net interest margin should remain stable until rates rise, and we’re positioned for rising rates, and we expect margin expansion throughout the year, as rates move upward. Expenses will increase, as you would expect with healthy revenue growth. We expect an expense growth in mid to high single-digits in 2022.

Moving to mortgage, as expected the fourth quarter was a challenging environment, as [Phonetic] refinance volumes came down significantly. We expect these volumes, these conditions to persist in the first quarter. I don’t believe our mortgage contribution in the first quarter will look much different than it did in the fourth. In short, we believe that 2022 will present strong opportunities for organic growth.

One other area of opportunity became public last week, as was [Phonetic] announced, we were one of five founding bank members of the USDF Consortium, which will focus on doing foundational work to allow banks to leverage the breakthrough blockchain technology for responsible innovation and growth. We feel the use cases of USDF are nearly limitless, and in every case, it provides efficiency and an enhanced experience both for us and our customers. Our Chief Administrative Officer, Wade Perry is on the call. Wade has led our digital strategy and our innovations area, plus he is a Board member of the USDF Consortium.

We will also continue to evaluate acquisition opportunities. Nearly 18 months after our combination with Franklin, we have had very confidence in our ability to identify and negotiate and execute all mergers in a manner that delivers value for customers, associates and shareholders. In Franklin merger, we combined with the dominant community bank in attractive markets, and added new associates that play vital roles in managing the resulting company and significantly raise the overall talent level of the resulting institution.

The wishlist of partners that we’ve identified will have similar mass in markets that we want to be active in, both in footprint and contiguous to our footprint and all those banks are known in their local markets, as the cream of the community banking crop. For its [Phonetic] size, we don’t need to pursue acquisitions for the sake of growth. We’re very excited about our organic growth probabilities. If a bank hasn’t made our list that we are too focused on organic opportunities in front of us right now to distract our team with the care and effort that we put into the integration process.

So with that I’m going to turn it over to Michael to discuss our financial results in a little more detail.

Michael Mettee — Chief Financial Officer

Thank you, Chris, and good morning, everyone. Speaking first to mortgage and illustrated on Slide 6, mortgage faced the usual seasonality of the fourth quarter in a difficult operating environment due to excess capacity in the system and lower refinance volumes, ultimately resulting in downward pressure on margins. The Mortgage segment provided a $700,000 contribution for the fourth quarter. And with the recent rise in rates, continued decline in refinance volume and continued seasonality, we would anticipate similar results in the first quarter.

Before moving on to mortgage, I want to address our gain on sale margin and mark-to-market value chart in the bottom right of Slide 6. We have pointed to the mark-to-market valuation, as a leading indicator of gain on sale margin. This quarter we had a timing difference related to settlement of hedges versus loan sales, so our mark-to-market valuation was slightly lower, and our gain on sale margin are little higher than otherwise would have been. We expect those numbers to be more in the 220 [Phonetic] to 230 [Phonetic] range next quarter with mark-to-market closer to 2.2%, and the gain on sale margin closer to 2.3%.

Moving on to the net interest margin, for the fourth consecutive quarter, we saw the margin remained essentially flat at 3.19%. Deposit costs declined by a further 4 basis points in the quarter, which serve to mostly offset the 6 basis point decline that we experienced in our contractual yield on loans.

Yields on the new loan originations have held steady in the 3.8% range compared to the existing portfolio at 4.17%, and we continue to make incremental progress on lowering our cost of deposits, which offset some of the decline in asset yields. We expect our margin to remain in the same relative band until rates increase, which seems imminent, and our balance sheet is well positioned for that increase when it happens.

Our latest interest rate shock [Phonetic] scenario showed 10% upside to our net interest income and a plus 100 [Phonetic] scenario. We have $3 billion of variable rate loans that either don’t have floors or not currently receiving support from the floor. Those will reprice with any increase in rates, with the majority of those repricing within three months of a move. We then had an additional $500 million in loans that are within 25 basis points of their floors. We also still have $1.6 billion in interest bearing cash that will reprice with an increase in rates. Our interest income will increase materially in a rising rate environment.

What I think the industry is unsure of at this point is how quickly deposit cost will follow the increase in asset yields. The confluence of liquidity in the system and new non-bank competitors that weren’t nearly as prevalent during the last round of rate increases makes it difficult data [Phonetic] to predict.

Speaking to deposit growth in the quarter, we once again showed solid growth in noninterest bearing deposits. Excluding mortgage-escrow related deposits, our noninterest bearings grew by 31.8% annualized in the fourth quarter, however, interest bearing deposits grew even more at 33.7%. This growth was driven by an approximate $500 million increase in public funds, as those accounts began to seasonally fund up. We would expect those balances to remain elevated through April or May before beginning to decline.

Moving to the allowance at $10.8 million, our release was a bit larger than we expected. The economic forecast that we use in our CECL model stayed relatively flat from third quarter to fourth quarter and had minimal impact on the change in our levels of reserve this quarter. The primary driver of the change this quarter was the release of a portion of our COVID-related qualitative reserves.

We determined that release was appropriate, as economic activity had remained vibrant across our markets through the beginning of winter. However, with the sheer case counts of Omicron, we maintain some of our COVID-related reserves. We will continue to monitor the qualitative factor, and we may have further releases over the coming quarters in the absence of any renewed shutdowns or changes in consumer behavior that impacts our customers outlook. With our allowance currently at 1.65%, reserve releases in 2022 are likely to be slower than they were in 2021.

Speaking to expenses, Core Banking segment expenses of $50.87 million were down slightly from last quarter’s $58.8 million. Excluded from our core expenses this quarter were $1.4 million of charitable donations that are not run rate expenses going forward. In addition to normal growth, we would expect the first quarter to be elevated compared to the fourth quarter due to FICA and 401(k) contributions. For 2022, we expect expense growth to be higher, as we invest in innovations and technology and intend to aggressively recruit relationship managers, both of which we feel should lead to top line growth.

Excluding gains related to our non-core commercial loans held for sale portfolio of $9.9 million, our Banking segment noninterest income was $11.9 million. Quarter-to-quarter we’ve been in the $12 million to $12.5 million range, and we would expect that to continue with some growth until the second half of the year, at which point the Durbin Amendment’s impact on our interchange revenue will begin. We anticipate losing $2 million to $2.25 million per quarter as a result.

Touching last on capital management, we were able to redeploy the gains on the commercial loans held for sale portfolio, and our share repurchase plan, as we retired 7.2 [Phonetic] million of our stock during the quarter. We have a little over $92 million remaining on our current authorization, and we’ll continue to repurchase shares when the financial impact of such transactions makes sense.

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

Chris Holmes — President and Chief Executive Officer

All right. Thank you, Michael for the color. We’re pleased with our results for the quarter, and we’re particularly proud of the team for the loan growth and the noninterest bearing deposit growth. That concludes our prepared remarks. Thank you, again everybody for your interest. And operator at this point, we’d like to open up the line for questions.

Questions and Answers:

Operator

Ladies and gentlemen, at this time, we’ll begin the question-and-answer session. [Operator Instructions] And our first question today comes from Brett Rabatin from Hovde Group. Please go ahead with your question.

Brett Rabatin — Hovde Group — Analyst

Hey guys, good morning.

Chris Holmes — President and Chief Executive Officer

Good morning, Brett.

Michael Mettee — Chief Financial Officer

Good morning, Brett.

Brett Rabatin — Hovde Group — Analyst

Congrats on the strong loan growth. Wanted to just, I guess first start on that. You mentioned that you think that will be on the higher side of the 10% to 12%, but you usually are giving guidance too. And just wanted to see what segments you think that will come from and then maybe just thinking about the pipeline and the hires that you’re looking to make, maybe just talk about geographies and generally speaking what the pipeline bodes for this year.

Chris Holmes — President and Chief Executive Officer

Sure. Okay. Brett, thanks. First of all on the loans, we continue to be bullish and positive on loan growth and that’s because of the — because it’s not confined [Phonetic] to any single product. We see it across product lines this particular core our construction and development had the largest growth. But in different depending on which or you look at, it’s kind of been spread across the board. We had strong C&I growth as well. We continue to have strong residential growth. And so all of those are in a growth mode.

We had — if you go back a quarter or two, multifamily led the way, and so it’s both spread across product types, but it’s also spread across geographies. And so because of that we continue to feel pretty good about heading into next year. It’s hard to predict for the whole year. But again, we’ve consistently been able to deliver 10% to 12%. And obviously this quarter was significantly above that and in a year that was a — when we went into the year, the outlook for loan growth was very questionable, and we ended up with 11% [Phonetic] for the year, right in the middle of that range. So we feel we’re looking at the higher end of that range for next year what our expectation is.

And then on the hires, you know, we have — we generate a lot of capital. We have a lot of capital. We’re always trying to think of the best way to deploy that and acquisitions tend to grab most of the headlines. But frankly, being able to recruit folks, both in our existing geographies, as well as in — in — well, pretty much in our existing geographies, and there’s a chance we could do something on a de novo basis. We’re not out there searching for that, but sometimes it comes to us. And so those would be the two — the areas, where we would be active with that strategy. And there is not one particular geography, where we are — that we’ve got — move out a geography or a — or any particular competitors really not bad, it’s more a matter of being aggressive every day, having people talk about it every day and taking advantage of the opportunities when they present themselves.

Brett Rabatin — Hovde Group — Analyst

That’s very helpful, Chris. Appreciate it. And then maybe more a question for Michael on the margin and you mentioned the 10% upside to NII with the 100 basis points. If we get three rate hikes this year, I know people are talking about four, but if we assume we get three rate hikes this year starting in March, would seem like your margin could be up 20 basis points to 25 basis points, but I know there’s a lot of variables that go into that with the cash and liquidity and everything else. I’m curious, just from a margin perspective, assuming we do get three rate hikes this year, how you think the margin might progress?

Michael Mettee — Chief Financial Officer

Yeah. Brett, good morning. I think you’re thinking about that right in that 20 basis point, 25 basis point range. You did — you mentioned that the key point right, excess liquidity is still weighing on us about 22 basis points on margins. If we see some of that exit or redeploy into some things either loan growth or securities, you could see a little bit of benefit there as well. But I think in general, that 25 basis point range is pretty aligned [Phonetic].

Brett Rabatin — Hovde Group — Analyst

Okay. And then one last clarification, I just want to make sure I understood the mortgage guidance for the year. It sounds like you’re expecting the relative efficiency ratio and the contribution remain similar to 4Q levels for the — basically for the full year of ’22, is that a fair way to think about it?

Michael Mettee — Chief Financial Officer

No. We were — I was pointing to first quarter, it will look a lot like the fourth quarter, not the full year. We’re kind of in the wait and see approach on the full year at this point. We try to go quarter-to-quarter and get some — some decent guidance. And so that’s kind of what we’re looking at for the first quarter.

Brett Rabatin — Hovde Group — Analyst

Okay. Thanks for that.

Chris Holmes — President and Chief Executive Officer

And can I just add this more — Michael is, there was a lot about the mortgage business in addition to being the CFO, he’s got his background in the mortgage business. So he — I’ll start by saying, he knows a ton more than I do. And we’ve set a pattern of really not going after much more than a quarter. As we do think about the year, the seasonality pattern we do think should hold for the year, where the second quarter and the third quarter tend to be the quarters, where we certainly have the most contribution and the first quarter and the fourth quarter, tend to be more — tend to be the quarters, where we don’t have as much contribution. So…

Brett Rabatin — Hovde Group — Analyst

Okay. Great. Appreciate all the color.

Chris Holmes — President and Chief Executive Officer

All right. Thanks, Brett.

Operator

Our next question comes from Jennifer Demba from Truist Securities. Please go ahead with your question.

Jennifer Demba — Truist Securities — Analyst

Thank you. Good morning.

Chris Holmes — President and Chief Executive Officer

Good morning, Jennifer.

Jennifer Demba — Truist Securities — Analyst

I’m just curious about your expense growth guidance mid to high single-digit for ’22. What kind of hiring plan is baked into that assumption?

Chris Holmes — President and Chief Executive Officer

Yeah. So when we have made that — when we’ve looked out and we have done budget for the year and projected for the year, and we’ve baked in hirings in a lot — frankly in quite a few places. It mostly a lot of revenue producers, but not all revenue, because some of them are significant hiring in the operational side of our business and the technology side of the business and in our innovations unit. And so there are some significant hires there, own [Phonetic] revenue producers within the bank, I think are the major categories, Michael, I think is revenue producers within the bank, except a few in a — what I’ll call our operation support area and some in our innovations unit. We’ve mentioned the USDF Consortium and some things we’re doing there on the innovation side. And so that there is going to be some talent there.

And then the other thing that, that’s baked in there is, we are seeing our cost increase, our employee cost increase. We are headquartered in Nashville. Balance of our folks are — the biggest concentration of our folks are in Nashville. And we’re seeing cost increases not only there, but across the board. And so — one of the keys to us continuing to grow revenue is to continue to be a great place to work and continue to have — make sure our associates are taken care of. And so we intend to do that, both defensively and offensively. And so that’s an important part of our ’22 strategy.

Jennifer Demba — Truist Securities — Analyst

Okay. Thank you. Just follow-up question on asset quality. It looks like ’22 is going to be another great year in asset quality for you and industry. How well do you think this reserve could go, given the fact that you should be producing pretty strong double-digit loan growth?

Chris Holmes — President and Chief Executive Officer

So yeah, good question, Jennifer. And I’m knocking the wood, as we say that this looks like it’s going to be another great year for asset quality for the record. It seems like every time that we think that something negative happens to the industry. And so, but after knocking the wood, I’ll tell you, we feel actually quite good and have been able to do some pruning on portfolio wise. As far as [Phonetic] we look out on the asset quality front, we feel actually quite good.

And when we think about where that settles, let’s say just a normalized allowance for credit loss and settles out. Keep in mind our combination with Franklin — the FirstBank Franklin combination took place January — we announced it in January of ’22, we closed it in August — I’m sorry, January of ’20, we closed it in August of ’20. And so see that we’re also right in the — obviously right in the middle of the CECL adoption. We think probably a 130 to 150 [Phonetic] range is probably, where we will settle out, as I’ll call it normalized is really kind of what we think.

Jennifer Demba — Truist Securities — Analyst

Thanks so much.

Chris Holmes — President and Chief Executive Officer

Keep in mind, all those factors change — all those factors that we used to set that were evaluated by a committee, are audited. And we are — and those factors change every quarter, but that’s one of the range. So we think — we think it will probably settle out the 130 to 150 [Phonetic] range.

Jennifer Demba — Truist Securities — Analyst

Thank you.

Operator

Our next question comes from Matt Olney from Stephens. Please go ahead with your question.

Matt Olney — Stephens — Analyst

Thanks. Good morning, guys. I wanted to go back and ask about the loan floors, and Michael, you gave us some great details there. I wrote down $3 billion of variable rate loans without floors reprice immediately and another $500 million that will reprice another 25 bps higher move. What about anything beyond 25 bps or is that pretty much hit the $500 million? And then on variable rate side, are these prime or LIBOR, SOFR, any color on that?

Chris Holmes — President and Chief Executive Officer

Yeah. I’ll just say the biggest portion of the move comes in the first couple of rate bumps for us, and it’s a combination of prime and so — in prime, but mostly, most with prime and LIBOR, but mostly — go ahead, Michael, what you’re going to tell [Phonetic].

Michael Mettee — Chief Financial Officer

No, that’s right, prime and LIBOR. And then, actually transitioning, Matt [Phonetic], LIBOR to prime, this way [Phonetic] another we are doing some SOFR. But yeah, Matt as Chris mentioned it — it’s minimal beyond the 25 basis points, but $50 million to $100 million beyond that per rate hike.

Matt Olney — Stephens — Analyst

Okay. Got it. And then on the mortgage front, you gave us some great commentary for near-term, definitely appreciate tough to predict that. But I guess taking a step back and to try and appreciate, where the profitability of mortgage could be longer-term whatever metric you think is the best way to look at that? Where do you think that will eventually land?

Chris Holmes — President and Chief Executive Officer

Yeah. So we’ve said, if you look at our — at the bottom line of the Company, we think it should be somewhere more than 5%, but probably less than 10% of the total Company bottom line, and so which still kind of — we still think that. I will say that business as you said, Matt, thank you for say that — thank you for saying that, it’s hard — it’s always been hard to predict and project. We certainly do it and we project it, but we — but it’s hard to project. And so we don’t get too far out other than what we said. We do expect certainly a meaningful contribution during the year. But if you look at MBA predictions of volumes, I think they’re down what percent Michael.

Michael Mettee — Chief Financial Officer

35%-ish.

Chris Holmes — President and Chief Executive Officer

35%-ish year-over-year. And so we are — in addition to normal running of the business, where we’re trying — where we’re making sure that we’re trying to maximize our origination and trying to maximize the margin trend and trying to maximize our customer experience, we’re thinking about how we continue to evolve that business with things like either blockchain technology and other technologies. And so we’re also thinking about some investment in that business, so as we continue to move forward. So we want to continue to have a meaningful contribution, but also we are trying to think in an entrepreneur way about that business.

Matt Olney — Stephens — Analyst

Thank you.

Chris Holmes — President and Chief Executive Officer

All right.

Operator

Our next question comes from Alex Lau from J.P. Morgan. Please go ahead with your question.

Alex Lau — J.P. Morgan — Analyst

Hi, good morning. Can you…

Chris Holmes — President and Chief Executive Officer

Good morning, Alex.

Alex Lau — J.P. Morgan — Analyst

Good morning. Can you speak more on the USDF involvement and where some potential use cases for the blockchain technology in the near-term to be applied to your businesses, whether it’s the Core Banking or the Mortgage business? Thank you.

Chris Holmes — President and Chief Executive Officer

Yes. Alex and Wade Peery’s list [Phonetic] and I said he is on the — he is a Board member in USDF, so I’m going to let him talk just a little about a couple of things. But I’ll say this about the consortium one we’re very excited to be a founding member and do think it — as the industry continue to evolve, that’s going to be very important moving forward. And Wade, I’ll let you talk about it, maybe give an example of a use case or two that — and even some that could be specific to us, so.

Wade Peery — Chief Administrative Officer

Sure. Hi, good morning, Alex. So when we think about the blockchain technology what we know and recognize it’s revolutionary and it will have the potential change almost every aspect of the financial services industry. We see that and we’re watching closely what’s going on in the centralized finance ecosystem and that’s proving out to be true, and as you see that, that non-bank ecosystem growing. So we want to come together with technologists and regulators and find a way to utilize that inside the banking space, so that’s the — the intent of the Consortium is to do the foundational work there. And part of that has to be the creation of a stable coin, which is what we are working toward here with USDF and that is actually the coin.

So once you are able to allow banks to be in on-ramp [Phonetic] to use blockchain technology, then you basically have a set of opportunities, it can be quite expansive. So specifically for us, I mean, we’re looking at things that we have deep knowledge in, as we get started in this space, particularly around mortgage. We know that the manufacture and delivery and sale of mortgages can be done at a significantly less costly — in a significantly less costly manner using blockchain technology because truth replaces trust is that, that resonates with you. So that’s one of the spaces. And of course, we do a lot of — obviously our manufactured housing business is quite large. So we’re thinking about those two areas today.

And hence — and then, what can happen on the payments and settlement fraud, it has the potential to really help us with some of the things we’re facing, particularly around revenue loss and Durbin and those things. And as you look at the payment systems today that we actually run our economy are under [Phonetic] 40-plus years old, and we’ll be able to cut substantial costs out of those systems and get 24/7, 365 real-time settlement of blockchain. So particularly those two areas are starting places for us, but we have a quite a long list of opportunities that I think help us on both the revenue and expense side.

Chris Holmes — President and Chief Executive Officer

Very good. Thanks, Wade. Alex?

Alex Lau — J.P. Morgan — Analyst

Thank you for that. And a separate question just digging into the very strong loan growth, are you seeing any borrowers tap into the kind of the excess liquidity on their balance sheet to pay down loan at all or is the preference still to hold on to actual cash? And just — can you just speak on the recent pay down activity, if any? Thanks.

Chris Holmes — President and Chief Executive Officer

Yeah. We haven’t seen a big move towards tapping the liquidity on our balance sheet to pay down loans, that’s not something that we — that has been a notable move for us. We do still see customers at half point with their liquidity. And then, we see — we continue to see room in our utilization of lines, where it has not returned to normal levels for us.

If we go back to ’19, half point was over — it was well in the low 50%, so in terms of our utilization, and then we’d be in the low 40% today. And so we think part of our — again, the continued bullishness on loans is that we’re seeing great originations, and we still see room for additional draws on some of our commitments. And so — so that’s — so if that color helps, Alex.

Alex Lau — J.P. Morgan — Analyst

Yeah. That’s very helpful. Thank you for taking my questions.

Chris Holmes — President and Chief Executive Officer

Sure.

Operator

[Operator Instructions] Our next question comes from Catherine Mealor from KBW. Please go ahead with your question.

Catherine Mealor — KBW — Analyst

Thanks. Good morning.

Chris Holmes — President and Chief Executive Officer

Good morning, Catherine.

Catherine Mealor — KBW — Analyst

Just one follow-up on the margin discussion. The contractual loan yield is now 4.17%, where are you seeing new loan yields coming on, as we try to think about where that bottom before we start to get the lift from higher rates?

Michael Mettee — Chief Financial Officer

Hi, Catherine. It’s Michael. Good morning. Yeah. We — for the past couple of quarters…

Catherine Mealor — KBW — Analyst

Good morning.

Michael Mettee — Chief Financial Officer

We’ve consistently seen it in the 3.8% range and that’s been pretty steady for the back half of the year and what we’re seeing early on this year.

Catherine Mealor — KBW — Analyst

And would you say more of your current loan production is in the variable rate or fixed rate categories?

Michael Mettee — Chief Financial Officer

Yeah. It’s still pretty split. Obviously all of our customers want fixed rate and all of our — we prefer the variable. So there is a balancing act there. So it kind of ebbs and flows over time. But it’s been pretty consistent 50/50 split, maybe slightly more on the fixed rate here lately, but expected to go back to our historical norms.

Catherine Mealor — KBW — Analyst

Okay. And then on your ALCO modeling, you mentioned that there is 10% upside with 100 basis point rate move. Do you — what’s the deposit beta assumptions do you make within that? And also, is that a static balance sheet or are you assuming some deployment of your cash within that 10% [Phonetic] assumption too? Thanks.

Michael Mettee — Chief Financial Officer

It’s a great question. A [Phonetic] static balance sheet and deposit betas, as we mentioned really kind of difficult to truly look at on a — in this kind of new economy that Wade was just mentioning. But we’ve got about 0.3%, so 30 basis points on every 100 basis point, maybe we expect a third [Phonetic] on deposits. I would think that lag a little bit. But the time will tell as to how much we see competitive pressures on rates going up and what customers demand.

Catherine Mealor — KBW — Analyst

Okay. Awesome. Thank you. So that it feels like with your commentary than [Phonetic] that even 10% feels conservative if that cash is deployed more aggressively and deposit costs lag, is that a fair assumption or?

Michael Mettee — Chief Financial Officer

I mean, we are certainly sitting on a lot of excess liquidity. Yeah. We don’t, as you know, generally over deploy into the investment portfolio we’ve stuck at kind of 13%, 13.5% of assets and that’s where we kind of wound up, which we really appreciate now that the thing is [Phonetic] above 180 [Phonetic] this morning and have some opportunities there. We are conscious of the public funds and how long that sticks around the deposits. But yeah, I would say there’s definite upside.

Catherine Mealor — KBW — Analyst

Okay. Great. Thank you for the color.

Chris Holmes — President and Chief Executive Officer

Thanks, Catherine.

Operator

And our next question comes from Kevin Fitzsimmons from D.A. Davidson. Please go ahead with your question.

Kevin Fitzsimmons — D.A. Davidson — Analyst

Hey, good morning, everyone.

Chris Holmes — President and Chief Executive Officer

Good morning, Kevin.

Michael Mettee — Chief Financial Officer

Good morning, Kevin.

Kevin Fitzsimmons — D.A. Davidson — Analyst

All right. Just — I just wanted to follow up on your commentary on the M&A outlook, and I recognize your point that you don’t need it, you feel very confident in the organic growth. But I’m just curious what your assessment of the environment is like out there. On one hand, it seems like you guys are pretty selective in terms of your wish list and you know who those names are. On the other hand, when you look at the environment and now we’re moving toward higher rates, do you think that has an effect on would be sellers that maybe they’re not going to be in quite as of a hurry to sell as they might otherwise have been or just I guess and then just what your expectation, would you expect in ’22 to be announcing a deal, would you be disappointed if you didn’t, just trying to drill down to that? Thanks.

Chris Holmes — President and Chief Executive Officer

Yeah. Yeah. Good questions, Kevin. And I’m going to give — I’ll try to cover all that and don’t hesitate to tell me if I miss a piece you’re interested in. So as we look out, we are comfortable with our organic growth picture and again, that’s where we hit the highest return on capital. So we like going out in organic growth. And we have — I have said before, we can’t keep a targeted list, and we’ve talked some about that, but we also will entertain other opportunities that come our way, that folks bring to us like investment bankers or primarily investment bankers, and they map beyond our list.

I guess, more and more as we think about the environment going and moving forward, it’s probably more focused on the list and less focused on — let’s hope from this that somebody that’s not on the list would become a reality because with the things that Wade talked about, the things that are changing in the industry. And so we’ve got really strong opportunities there.

Now that being said, when we have the opportunity to get really geographies that we’re interested in, with a meaningful share, okay, geographies that really bring us a strong brand and strong people that’s something that we’re interested in. If you looked our list, every one would be a very strong community bank either in or near our markets. But again, there aren’t many of those, and we are always interested in the liability side of the balance sheet. We are very interested in noninterest bearing deposits. And so those are things that we really think about it and look at out there. And it’s not that others don’t have value, they certainly do. But when you look at our strategy that’s where the most value is. And so that’s — so we’re pretty focused on the things that we’re looking for, which leads to a relatively small list and so which leads to a relatively small list.

And when it comes to the higher rates, I think actually more than the sellers, I think what happens with higher rates is at least the higher stock prices, stock price, stock is usually going to lead [Phonetic] your currency. And so — and that usually leads to folks at least under the impression that they’re getting more, while on a relative basis, they actually may not be. But I think it leads peoples to feel better. And so I think what the really rate driver is the higher stock prices, is what it’s driven by rates.

And hey, the one other thing I want to mention is, and I want a big shout out here to the — to both the legacy Franklin folks and legacy FirstBank folks, integration on these things, Kevin, is really hard. And to actually put them together, get everybody in the same company and thinking the same way when they didn’t used to do that is not easy and it takes a lot of care and a lot of work and it’s really hard.

And so we’ve been able to do that with — and I think the — what you saw on — what we announced on the gain on the held for sale portfolio, what we announced in loan growth, we’ve been able to integrate those in a way that has made it work. But man, I think it takes a lot out of you and it takes your focus off of everything else. And so it’s got to be something that we — just like Franklin, that makes a big difference to the combined company for us to undertake that at this point. And so when we do it, it’s going to be something that we really, really want.

Kevin Fitzsimmons — D.A. Davidson — Analyst

All right. That was perfect. Thanks, Chris. Just one quick follow-up. Just Michael, I believe you mentioned in your commentary buybacks and apologies if you already covered this. But with the stock price where it is, is it and the preference for organic growth and funding that, is it fair to assume buybacks are really not going to be a big focus in the near-term?

Michael Mettee — Chief Financial Officer

Yeah. That’s fair. We’ve got better, more optimal use of the capital right now. And so we can [Phonetic] obviously continue to monitor that and deploy it appropriate.

Kevin Fitzsimmons — D.A. Davidson — Analyst

Okay. Thanks very much.

Michael Mettee — Chief Financial Officer

Thanks, Kevin.

Chris Holmes — President and Chief Executive Officer

Appreciate it, Kevin.

Operator

And ladies and gentlemen, with that we will be concluding today’s question-and-answer session. I’d like to turn the floor back over to Chris Holmes for any closing remarks.

Chris Holmes — President and Chief Executive Officer

All right. Thank you very much, everybody for being on the call. We really appreciate your interest, and we look forward to a fantastic 2022. Thanks, everybody.

Operator

[Operator Closing Remarks]