Q2 2022 Origin Bancorp Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the origin Bancorp, Inc. Second quarter 2022 earnings Conference call. All lines have been placed on a listen only mode and the floor.
Floor will be opened for questions and comments following the presentation. If you should require assistance throughout the conference. Please press star zero on your telephone keypad to reach a live operator. Please note. This event is being recorded I would now like to turn the conference over to Chris Riggleman head of Investor Relations. Please go ahead.
Good morning, Thank you for joining US today, we issued our earnings press release yesterday afternoon, a copy of which is available on our website along with a slide presentation that we will refer to during this presentation.
Please refer to slide two of our slide presentation, which includes our safe Harbor statements regarding forward looking statements and use of non-GAAP financial measures for those joining by phone. Please note. The slide presentation is available on our website at Www Dot origin Die Bank.
Please also note that our safe Harbor statements are available on page seven of our earnings release filed with the SEC yesterday.
All comments made during today's call are subject to the safe Harbor statements in our slide presentation and earnings release I'm joined this morning by origin, Bancorp's, Chairman, President and CEO Drake Mills.
Our Chief Financial Officer, Steve Brown.
President and CEO of origin Bank Lance Hall.
Our chief Risk Officer, Jim Crotwell, our chief credit and banking Officer Preston Moore.
After the presentation, we'll be happy to address any questions. You may have the call is yours right.
Thanks, Chris and good morning, Oregon had another impressive performance this quarter and I want to start by thanking our employees. They do an incredible job executing on our strategic plan and living out our vision every day, we are committed to our culture, while building valued relationships and this will continue to be our focus.
Our growth and success always points back to our employees and their unwavering loyalty and serving our customers communities and shareholders.
The results for the second quarter were strong our diluted earnings per share were 90 cents up from the previous quarter and a net income increase quarter over quarter at $21.3 million, we talk a lot of that relationship banking as well as our strategy of lifting out high quality bankers our loan growth for the quarter was a direct reflection of executing on that strategy total loans held.
For investment, excluding PPP and warehouse were $5 billion, which is a $336 $3 million or 29% annualized increase compared to the linked quarter.
We have discussed previously, Oregon is well positioned in a rising rate environment and we're seeing that play out as our net interest margin was three 3% for the quarter, a 37 basis point increase from the last quarter.
I'm certainly proud of our loan growth, but I'm equally as proud of our credit metrics for the quarter, Jim will walk you through the numbers, but I want to point out that we showed a reduction in charge offs past dues nonperforming and classified loans over the quarter. This is impressive when you think about the strong loan growth we experienced it speaks to the quality relationships that we have added.
Both organically and through lift outs.
So pleased with Jim Crotwell, Preston Moore and their teams for all they do to make our company stronger.
On slide eight youll, gaining a deeper understanding of the impressive growth we continue to see in our Texas markets are.
Our Texas franchise now represent 60% of loans held for investment excluding warehouse. This is important to the origin story and I think it's important to understand the wide array of opportunities we have in our Texas markets. We are also excited about the opportunities we have in east, Texas, Dallas Fort worth with the partnership with Dth. This past quarter, we received all regulatory and shareholder.
Approvals for the transaction and we are on pace to close at the beginning of the third quarter.
I've had the pleasure of being in every Bta's location have started developing great relationships in these markets. The team that Bta's has built is impressive and the shared culture and commitment to serving customers that both of our companies have is dynamic we.
We are getting commitments from the commercial lending teams throughout the BCH markets and we're excited about what this partnership means as well as the opportunities to enhance long term value.
Last Jim and Steve will get into specifics about the quarter Lance.
Thanks strike I'm very pleased with where we are at the halfway point of the year.
While I'm proud of the results I'm more so proud of our process and the way our team has followed and executed on our vision and our strategic plan.
The growth that we've seen throughout 2022 isn't accidental as per our plan. We strategically continue to leverage our award winning culture and our geographic management model to attract best in class bankers and banking teams.
Our belief is that the lift out strategy provides origin deep credit perspective, as well as growth opportunities because of our bankers insight into their long time relationships.
This creates an environment, where we can consistently create appropriate growth without compromising credit.
That's correct mentioned backing out PPP and warehouse, we saw over $336 million of loan growth in the second quarter compared to last and $834 million compared to the same time last year.
And 2022 we have grown loans, excluding PPP and warehouse by $497 million.
On slide 11, you can see the impressive growth throughout our loan portfolio.
We pride ourselves on being trusted advisors to our clients and we believe one of the more meaningful ways to measure that is through the growth in our C&I portfolio.
Which also leads to non interest bearing deposits Treasury management, and other services, which enhanced market profitability.
Quarter over quarter, we grew C&I, approximately $103 million or 8%.
We had nice growth throughout our portfolio, which came from all of our markets throughout Texas, Louisiana and Mississippi.
We really like our loan mix as we move into the second half of the year.
Moving to deposit trends on slide 12, you can see an overview of trends for the past year.
Total average deposits did decrease in the quarter, but this was based on two factors first the strategic decision to part with approximately $225 million of high priced market index deposits.
As well as the timing of deposits, which can be lumpy from quarter to quarter with some of our larger relationships.
We feel very confident in our ability to drive meaningful deposit growth through the second half of the year.
I'm very pleased with our performance related to average noninterest bearing deposits, we've increased over $450 million compared to the second.
And then that'd be now represent almost 35% of our total average deposits.
Steve will get into more detail on our cost of funds, but I'm proud of how we were able to hold deposit pricing in the second quarter.
Our strategy of attracting the right bankers to our team continued this past quarter, we added seven new producers, bringing our total for the past four quarters to 30.
We believe this strategy coupled with our seasoned team of existing bankers in the markets. We will continue to drive meaningful core loan and deposit growth.
Now I'll turn it over to Jim to go through our credit quality metrics.
Thanks Lance.
You can see on slide 13, we are extremely pleased to report the strong performance of our loan portfolio and the improvement in all of our credit metrics for the quarter.
Past due loans held for investment to total loans held for investment net of PPP loans ended the quarter at 0.13% a reduction from 0.42% as of March 31 of this year.
During the quarter classified loans held for investment decreased $18 $3 million or 26% reduction from Q1 2022 levels and represented 0.94% of total loans held for investment net of P. P P compared to a level of 1.36% as of Q1 2022.
We're also pleased to report a $7 1 million or 33, 5% reduction in nonperforming loans held for investment to total loans held for investment that a P. P. P coming in at 0.25% for the quarter down from a level of 0.41% for the prior quarter.
Lastly, annualized net charge offs for the quarter to average loans held for investment came in at 0.12%.
From 0.14% for Q1 2022 or.
Our continued focus on relationship banking, along with sound underwriting and credit structure are the drivers behind the solid performance of our loan portfolio.
For the quarter, we increased our allowance for credit losses to $63 1 million.
$950000 increase from the prior quarter to support our strong loan growth that Lance spoke to earlier.
As of 630, 2022 our reserve represented 1.14% of loans held for investment and 1.25% of loans held for investment net of P. P. P of mortgage warehouse loans, reducing from levels of one point to 1% and 1.33% respectively.
The decrease in the reserve on a percentage basis was driven by the continued improving credit metrics discussed previously.
While we continue to experience resiliency in our portfolio there exists uncertainty as to the impact of inflation and the potential for an economic recession as well as the continued pressures on labor supply wages supply chain disruptions and geopolitical concerns and their impact on the performance of our portfolio.
However, the markets. We serve are dynamic and currently reflect lower levels of potential recession impact than many other areas of the country as reported by Moody's analytics.
Based upon conversations with our customers, we agree and feel that the markets. We serve will be impacted to a lesser degree than other areas of the country. If we do experience a recession.
All in all we are pleased with the overall performance and outlook for our portfolio.
I'll now turn it over to Steve.
Thanks, Jim.
Slide 14 is our yields cost in loans held for investment portfolio slide door.
During the second quarter, our total yield on loans held for investment increased 18 basis points, which includes the impact of PPP loan forgiveness quarter over quarter.
Excluding this impact our yield on loans held for investment increased 26 basis points in Q2, which represents a loan beta of 33% when the quarterly average of prime and LIBOR indexes.
As we mentioned last quarter, we intended to have a minimum impact on all non indexed deposit products for the first 100 basis point increase of.
Rates for this past quarter, our cost of total deposits only increased two basis points, representing a 3% deposit beta.
When a bottom left graph you see our fixed and variable loan composition as an asset sensitive bank increased interest rates will be beneficial for origin.
We expect to generate an incremental $13 1 million or 5% and net interest income from a 100 basis point parallel shift in interest rates.
The increased interest rate affected our total loans at or above their floors. The bottom right graph shows at June 30th over 98% for $1 $9 billion of our prime and one month LIBOR index loans have a current interest rate at or above therefore interest rate.
Therefore, these loans have a 100% beta to interest rate increases.
At March 31st only 68% these loans were at or above their floors.
Slide 15 shows our recent net interest income and NIM trends the graph on the left shows a five quarter trend of NIM and income.
Our total net interest income increased $7 million during the quarter.
The largest contributor were higher loan volumes $1.8 million increase higher loan yields $2.8 million increase and higher investment yields $1.3 million increase.
Excluding PPP in mortgage warehouse loans, our net interest income increased from $46 2 million to 54.2 million were 17.4% quarter over quarter.
Greg mentioned earlier, our net interest margin was three 3% for the quarter.
37 basis point increase from last quarter.
Bottom graph details of 44 basis points increase in NIM, excluding PPP in mortgage warehouse.
The largest contributors to this increase was due to putting our excess liquidity to work by reducing cash balances and increasing loan balances.
Slide 16 is our investment security slide.
Top left graph shows a five quarter trend of investment average balance and yield.
The growth in average balances was due to excess liquidity during the periods presented during.
During this past quarter the vast majority of the investment purchases were made in the month of April .
Bottom left graph is the five quarter trend of our accumulated other comprehensive income or a OCI.
As short end of the yield curve continues to steepen during the second quarter. The net tax effect of the change in the unrealized loss fair values in our available for sale Securities was reported through a OCI.
To fund the future loan growth, we do not intend to sell any securities with an unrealized loss.
In addition to approximately $50 million a quarter and expected cash flows from the securities. We have the proven ability to grow our deposit base over $3 billion of additional available funding.
Over $400 million of available liquidity from the BCH partnership in the third quarter.
Slide 17 is our net revenue distribution the top graph shows our net revenue growth since our IPO. The $73 7 million second quarter net revenue represents a seven 8% increase from the first quarter.
The bottom left graph details our non interest income lines.
Banking revenues decreased $1 7 million from the first quarter driven by the volatility of the market interest rates and the fair value of our pipeline in MSR.
The insurance agency acquisition that closed on December 31, 2021 continue to drive year over year increase commission and fee income.
Slide 18 is our noninterest expense analysis, we reported total noninterest expense of $44 $2 million, an increase of $1.4 million increase.
The increase in salaries and employee benefits was primarily driven by addition of new employees that were hired during the quarter and the full impact of the cost of living increases and annual raises effective March 1st.
In addition, there were $807000 of merger transaction expense in the second quarter compared to $571000 in the first quarter.
When the top right graph, we show a five quarter trend of our efficiency ratio as well as our adjusted efficiency ratio.
As detailed in a later slide we exclude the mortgage insurance related income and expenses to calculate your adjusted efficiency ratio.
Moving to the next slide we show trends in our regulatory capital ratios as we continue to be well capitalized.
Bottom right graph reports the details of the change our leverage ratio.
Similar to the change of NIM, putting our excess liquidity to work by reducing cash balances was the primary contributor to higher leverage ratio.
Now I'll turn it back over to Drake.
Thanks, Steve.
We are committed to executing on our strategy and our proven throughout our history that we can successfully navigate economic cycles or just focus on people relationships with one of the main factors that have allowed us to be successful we are continually finding ways to strengthen our company by adding the right people to have a shared vision and deep commitment to origins future as.
As we strategically grow this company rose expand and additional opportunities arise.
We are adding Wally Wallace to the team as Chief Financial Officer, and Steve Brolly will devote his full time and energy Chief Accounting Officer.
This partnership between while he's staying in finance and accounting positions origin in a powerful way to capitalize on future opportunities.
Gartner shifts like this are not really within our executive team myself and Lance Hall is a great example, Jim Crotwell, our chief Risk Officer, Preston Moore, our chief credit and banking also have proven that by working together in risk in credit. We can produce amazing results I believe wholeheartedly that Wally and Steve will do the same with our finance and accounting teams.
As I mentioned earlier, we're ecstatic about where we are with the BCH partnership the opportunity. This presents to fuel our Texas growth of countless look we entered Dallas in 2008. This country was in the throes of an economic meltdown.
We got after.
Finally, remember being in that market. Most every week for the first three years talking to prospects about our relationship based approach to banking is paid off tremendously as I look at where we are today, we will continue to invest in people and markets that will drive long term value for this organization.
Origin is in a strong position I'm bullish on what we've done and what we will continue to do in creating value for our employees customers communities and shareholders.
Thank you for being on the call today now open up the line for questions.
Thank you ladies and gentlemen, the floor is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time, if youre using a speakerphone, we asked that while posing your question you pick up your handset to provide favorable sound quality once again, ladies and gentlemen, if you do have a question.
Please press star one on your telephone keypad. Please hold as we poll for questions.
And our first question comes from Matt Olney from Stephens. Please go ahead.
Hey, Thanks, good morning, everybody.
Good morning, Matt.
Hey, I want to start with loan growth robust levels in <unk> and even more so in <unk> well.
Loved to hear commentary about the back half of the year and how pipelines are shaping up and what the expectations are.
Yeah, Hey, good morning, Matt. This is Lance how are you doing.
Yes.
We've been incredibly bullish on our opportunity to grow at a double digit clip and I think that we've proven our ability to do it and it's it's just executing on the plan of of our lift out strategy as well as the markets that we serve.
So when we kind of talked at the beginning of the year I think we really thought we would be.
10, 11% loan growth.
It feels like some of that in the back half of the year, maybe got pushed into the quarter. As you look at a lot of the banks. It seemed like there was extraordinary growth for all the banks.
Ours I loved the mix of it and I love how spread it was.
Love to see and I'll focus it.
It was about $150 million in DFW 100 million in Houston, nice growth in Louisiana, as well as Mississippi.
We still have a strong pipeline.
As we kind of sit here and work on our forecast.
Thinking a.
100 million.
Loan growth in Q3, and another $100 million in Q4, not not counting pvp or warehouse.
And or for us.
So the lift out strategy continues to pay dividends and we'll probably talk about this later when we talk about deposit funding to us its a nice mix of employees that we've been able to bring over the last 12 months a combination of.
Really experienced bankers, but also people that are very focused on the funding side of the organization business development officers deposit specialists.
Understanding where we want to take this company and making sure that we have the appropriate.
Lone support in the hires that were doing it from a credit perspective, and making sure that this this engine is continuing to roll so.
Incredibly optimistic about our where we're going with this.
Okay. Thanks for that Lance and then you're right I guess deposits or the other important topic here I think you've mentioned you expect some meaningful deposit growth in the back half of the year I just want to.
Dig more on this are there any more index.
Index deposits that are moving out of the bank or do you think you captured all of that in <unk> and <unk> and I guess, just more broadly what's the plan for funding the growth the back half of the year is it purely on on deposit growth. It looks like you utilize some borrowings in <unk>.
Would you consider that incrementally in the third quarter and fourth quarter, just trying to appreciate kind of the funding plan for the back half of the year.
Yeah, I'll take a little bit of this in probably drags will speak to some of it as it affects BT H&R plans to how we can access liquidity from them as well.
I wouldn't see us pushing out any other any other deposits I think for US where we were at the end of Q1 with the cash buildup. We had we were wanted to understand.
How to really try to flip that into earning assets. So that was sort of a timing issue for us.
You know, Matt knowing us as well as you do.
For the benefit.
Of this organization is the strength of the ability to grow deposits in north Louisiana.
Versus maybe just a Texas only bank. So it's dragged always talks about it like it's worth, Texas, plus which I like.
So I think youll see us get much more aggressive on the deposit side, we understood that we had an opportunity in time to really enhance margin.
In the first 100 points of rate hike I think we took advantage of that and in a nice way I think we're still well positioned from a liquidity perspective.
Things that you'll see us do a nice job I think it can be a challenge for all banks on the deposit side as you see it's.
Brokerage companies and insurance companies are getting very aggressive with rates as you're seeing some customers use noninterest bearing to pay off debt in a rising rate environment. When all of that will be a challenge, but I think that we're well positioned by the way that we structure our company.
To be a winner when it comes to making sure we get this funding correct.
Matt This is Brian .
Had to Lance's comments I mean, it was it was really a strategic opportunity for us to take advantage.
To be able to.
To enhance NIM as we deployed cash but it was we did have an opportunity to reduce some expensive deposits. We did that those are still available, but I think the other aspect. When you talk about borrowings is that we knew that we were going to have an opportunity to mark <unk> investment.
Portfolio and market that and that would be very close to what our borrowings worse. So that in my mind is a temporary position, but it allowed us to really impact NIM for the quarter and moving forward.
Okay.
That's helpful. Thanks for that and I guess, just taking a step back obviously, some really good numbers in <unk> on both the NIM and the NII and it feels like there's more tailwind there and in the third and the fourth quarter with respect to.
Just the balance sheet growth higher rate and I guess you'd layer in PTH as well.
As you kind of blend all those things together and any commentary about how we should be thinking about the margin or the NII. The back half of the year as you kind of a mix of all these things together.
And first off Bta's, Let me, let me talk about B T. H I wont give you what I believe will look like without B T H from a NIM perspective, but.
B T. H is so far of their performance has been really good and when you look at.
No there.
I think from a from a gross standpoint I've been very pleased overall with where we thought they would be and where they are today.
Credit quality a proven it has been phenomenal they've done an unbelievable job and then look at net income for the full year 2021, I think it was $22 7 million and through the first half of 'twenty. Two there 15 billion. So very good progress, they're making I'm very pleased with.
What their what the addition is going to bring but you know for us less.
I'm looking at our net interest income I think there's going to be in let's say the 60.
465 range.
You know when when we look at what we expect pipeline and the impact of interest rates in our NIM.
I think it's going to be in that mid three range.
Through the end of the third quarter.
Okay. That's helpful Drake and just to clarify those numbers you gave me there at the end those are ex B T H, but obviously capture kind of the.
The rate move we got this week.
Absolutely.
Got it okay.
Okay guys.
I appreciate you, taking my questions and I'll hop back in the queue.
Thank you.
Thank you and our next question comes from Kevin Fitzsimmons from D. A Davidson. Please go ahead.
Yeah.
Hey, good morning, everyone.
Good morning, Jeff how are you.
Got it.
Good good hope you all are doing well.
Just curious about you know you detailed in your comments about the.
The team lift out strategy in the new producers that have been added I'm. Just wondering as you look out over the next few quarters, whether you think that's I know, it's something you always look for but is it something you all are.
You think there's going to be a bigger opportunity for you or or or not so much in terms of what youre seeing out there from competitors in inbounds.
In terms of interested loan officers coming in.
Thanks.
With the dislocation in the markets and I'm going to talk primarily even though we're seeing some opportunities in Mississippi that we just took advantage of but it's primarily Texas significant dislocation. We are taking our time because we're not just trying to ramp up a bunch of new people they've got to fit.
Their portfolios have to fit in with our portfolios. We are seeing are focused.
But what's been interesting about the opportunities we've seen in this past quarter is we had opportunities to pit to pick up some some deposit specialists and this is something this is a strategy that we deployed several years ago in Dallas to end and then even in Houston and ethane Preston Moore and his team with Carmen Jordan showed us that they could fund them.
Sales to some of the private banking and deposit specialists I had so we're seeing that activity pick up and we've been focused on that so what what great timing.
For us we've got about a third of the new hires.
Last quarter, where deposit specialist so we see that opportunity continuing but we're passing on some because again a lot of real estate that they might bring to table, that's not our mix and we're going to stay focused on what works for this company, but I do see opportunity going into the third and fourth quarter.
Okay. Thank strength.
Maybe.
As it goes to credit.
Understand the credit remains very strong in your comments that your footprint will probably hold up better.
Just curious how we should think about.
The pace of provisioning relative to loan growth, where you see that ACL ratio going can it still grind down lower or do you think that will.
Stayed pretty stable and so you'll get more clarity on the environment. Thanks.
Yeah, and then thanks for that because I I'll tell you I am.
Super Conservative in when you have all your eggs in one basket and you are going to do the things that puts you in a good position to make sure you whether any store we are very comfortable with.
What we think from from looking at numbers and even thinking about our analytics service in a recent publication that they made that showed our footprint held up extremely well in a potential recessionary period.
We are going to continue to look and push but methodology that as much as we can to ensure that we are what we can weather. The storm. So what I would say to your question is I see.
Flat to slightly increasing reserve, but nothing significant other than just for loan growth because.
Sure.
Our credit metrics are extremely good the best Ive seen them in my career and that's not just something that we.
We think is is just temporary everything we're doing is focused on ensuring that our credit quality continues to stay.
Christine.
Thanks, Jake and Im sure looking back over the past year or so you know I recall you describing some of the proactive steps you all took with client selection and a problem I'm.
I'm sure you're happy you did that now when Youre looking out at the potential for things slowing down.
Yeah, you heard in my opening comments, and then given Jim Crotwell impress nor credit, but I'll tell you is started and I in 2019.
The pandemic accelerated that and it continues and it's not just because the market is strong we are doing the things that are necessary for that credit doesn't fit we get it out of here and I would tell you.
I am so confident in our credit moving forward and not only that the credit metrics are good but what were putting on the books. We just don't see any any new problems and that's that gives us a very good indication that we're doing the right things 13 basis points of past dues that that's a great indicator of what was to come.
Okay, great. Thanks, very much everyone.
Thank you Kevin.
Thank you and our next question comes from Woody lay from Kb. Debbie you. Please go ahead.
Hey, good morning, guys.
Good morning.
Yes, maybe just say hey, credit one more time, I mean, the the improvement quarter over quarter and a lot of the metrics really was impressive just any color on what drove that improvement.
Yeah, I I feel like a dominate this and Jim Crotwell here and Jim.
And I tell you the job that he does in his <unk>.
Ability to manage this as exceptional someone asking them to give a color around that question appreciate wood Jim.
Good morning Woody.
I would say, it's a combination of a lot of hard work over.
Several quarters that came to fruition in the second quarter you know the most impressive I guess component of that is that we were successful you know had a significant amount of our payments are.
Either through.
Companies that were you know in the classified categories ultimately sold assets and paid us all.
We've had some that actually you know where they moved.
And refinanced or they or they sold a components of their business. So you know.
We're very very fortunate and we've been working towards that and like I said, we were able to to get many of those are.
You know across the finish line, if you will and to get to fruition of what we've been targeting to work toward so a good quarter. We will continue to as Drake said to really focus on asset quality and and and also as Drake said you know as we've been.
Fortunate to be able to move these out or work them down.
We're not seeing it backfill that I think that goes to what we've been focused on relationship banking.
And the client selection as we've talked about and so very very pleased overall credit profile.
Okay.
That all sounds great.
And then on the wound growth, Brian you know it sounds like growth is expected to remain strong in the back half of the year just that we get dth in the mix.
How should we think about the growth profile longer term that the B T H impacted at all or is it relatively unchanged.
No I think <unk> th impacts it but we.
Where we're going to try to drive this organization to two annually see 8% to 12% growth.
Loans, and we took advantage of some significant opportunities in the third quarter I mean, the second quarter I do think it was frontloaded into that quarter, why you'll see probably a $100 million of additional growth in the third and fourth quarter, but I've got to say this because I've spent some time.
Some meaningful time with all the B T H lenders their relationship managers have been in those offices, but spent time in east Texas.
I am so bullish on opportunities in east, Texas, and the incredible economy to have.
The opportunities that exist I believe we're going to see some significant improvement in gross.
In East, Texas as we give.
Right as we provide them with resources and.
Allow them to continue to grow but it's.
I just got to say this if you drew up.
The perfect deal and we stayed on the sideline we waited we passed on deals and we waited till the perfect deal, but if you had to draw it up.
B T. H is the perfect deal cultural fit geographic fit financial fit this footprint fit is just crazy good for us and so as we mentioned when we announced the Unicorn they are truly living up to the Unicorn. So we are we feel like we're in very good shape, but I will say that theyre going to be a significant addition and growth for us.
That's great to hear.
And then last for me just real quick I'm assuming the.
Plans are still stay under the 10 billion in asset threshold by year end.
Any changes there.
No I feel good about that where we are today I mean, we have we continue to see multiple level levers to pull to remix our balance sheet, while continuing our strong organic growth, but we are at.
Actually monthly we sit down and look at the the position in some of the reasons why you saw some of the deposit mix change in and move out and go to funding is and we didn't talk that earlier, but that's a big part of our 10 B strategy. So at this point I'm still very comfortable.
That will be able to maintain.
<unk> position by year end.
Alright, that's all from me thanks, guys.
Thank you.
As a reminder, ladies and gentlemen that star one if you do have a question or comment and we will go back to Matt Olney from Stephens. Please go ahead.
Thanks for taking the follow up I just wanted to ask about the mortgage warehouse. It looks like there was some nice market share gains in <unk> and.
<unk>.
Would love to hear the commentary about the back half of the year and then I guess longer term as you layer in <unk>.
Dth, the overall mix of the warehouse.
Relative the overall size of the balance sheet is going to decline so we'd love to hear kind of more about the short term plan for the warehouse, but also kind of a longer term plan as far as the size.
Yeah, well B T. H, a they were using mortgage warehouse is really an investment tool in participating in some deals where we're gonna be exiting that where we're going to continue to focus and met you. You know last couple of years as we went into this and started growing this business.
He said that I I would love to run that.
Through the cycles from 5% to 10% of the balance sheet and obviously, we're going to see that pair down because one thing that we are not going to do where we're going to because we're going to support our relationships and but we're not going to chase volume.
Just for the sake of keeping volume up because pricing is getting tougher we're just not seeing the reward at this point, but.
I see it as by the end of the third quarter.
We're going to be somewhere in the 6% of Outstandings and then by the end of the fourth quarter.
We might be slightly below that but but I see that range from 300 million to $500 million.
Over the next four quarters and end up but the next two quarters I think we're gonna see this is all about we've got a stall mortgage when strong mortgage markets. This is all about lack of of our inventory I wish we had the inventory because we'd see some pretty strong numbers of mortgage warehouse, but the way I see and then and what we're doing.
Try to increase balances I, just don't think that fits in especially with the consideration that we had strong loan growth at this point our loan opportunities. So we will continue to monitor that but I'm going to say for for now that we'll see that in the 6% range of Outstandings by the end of the third quarter.
Okay.
Got it I appreciate that and then going back to B T. H I think.
Closing I think you said this weekend, just remind us of the the conversion timeline and and and and the associated cost saves that we should be thinking about that that the back half of the year.
Yeah, I think what's been amazing about this deal even with the I O C considerations as Hal.
In line it is with what we announced and feel good about.
The cost saves were are going to close by Monday.
The conversion is going to be early October we feel very comfortable that map is going very well.
And then we will go through the the name change quickly after conversion. So good people working on this I do feel good about the cost saves are we are.
Our picking up I will tell you. This we're picking up some high quality people.
In and fill in some of our open positions now from B T. H. So it's working out in a very good way and I I'll also say, we're very fortunate that our with the labor markets. The way they are and how hard is to find great people one thing that B T. H did they hired high quality people.
Sending them and they are loyal to that organization and we're very blessed to be able to to partner with them. So I see good cost saves like there's nothing that right now the way that you can go back in our disclosures and look at what we announce that that I feel is out is there's not a lot.
Okay great.
And then just a few more here.
On the fee side it looks like insurance was strong and in <unk> I think we talked about a $21 million run rate for.
For the year is that still a number you feel.
On the insurance side or any any update to that outlook.
Yeah, yeah that increase that by $1 million.
I feel pretty comfortable with it conservatively.
Okay.
Okay, and then it looks like the tax rate has some noise in it.
And two Qs any any commentary on the tax rates over the next few quarters.
Hey, Matt it's Steve.
We expect the tax rate to be about where it is right now with the Aoc I for the various states that we're in we're actually leading to losses. So we're not gonna have state tax expense.
And then also with the PTH merger, there's going to be some transaction expenses that we.
He's gonna help so typically we would say 21% is where we normally look at it but somewhere around the 18th and 19th the next two quarters I think.
Pretty accurate.
Okay. Thanks for that Steve.
And I guess, just just lastly, Greg just thinking about strategic priorities.
You've closed on the insurance deals that we've talked about you're going to be closing on dth here. In these next few days just taking a step back and you think about the next year or two any other strategic priorities that are at the top of the list at this point.
Well, let's talk about.
The next six months before we get into two years, because I am one thing that's going to be extremely important to us is as we announced what I think because of down the fairway deal or B T H and bringing that one first off we are completely focused on flawless integration I think that's the next.
Piece of the puzzle that is going to be critically important.
And I can tell you I feel very good about our operational teams and what they're doing the mapping process said earlier, it's going extremely well and just the attitude of the B T H people towards integrating their customer base. So flawless integration, we're going to focus on and I'm going to say this in.
Our focus is going to still be on strong organic growth and taking advantage of the right lift outs at the right time, we have significant opportunities as I said earlier, we're not picking them all up because they they just don't fit the portfolio, but what does we're picking up and we're just continuing to see so we're going to focus on strong organic growth and moving that forward.
And then you know our methodical expansion as we close the gaps in the Metro markets is extremely important weight, we have picked up.
Several strong opportunities as I was saying in Preston Center, South like what we're looking at in Houston.
Gonna be meaningful from the standpoint of expense run rate, but it's going to be meaningful and fill in some of the holes. In these markets that are really starting to provide opportunities for us. So.
That's gonna be our strategic focus over the next six months.
Obviously from there.
<unk> to ensure that we're doing the right things to enhance.
Organic growth in these metro markets and to fully focus on east, Texas and provide them resources I think there's expansion opportunities in east Texas.
But lori assignment she will be involved in that process. Obviously their teams will be involved in that process, but I am so bullish on east, Texas I know, we talk about Dallas Fort worth, but east, Texas is going to be something that I think over the next year, we're going to have some significant strategic focus on.
Okay, great. Thanks, guys.
Thank you Matt.
Yeah.
And there are no further questions at this time I'd like to turn the floor back over to Mr. Mouse.
Well first of all thank everyone for their time today the opportunity to discuss the performance of the institution, but you know as we move into a recessionary period.
I can't.
Tell you how confident I am that our strategies along with the strength of our footprint.
As I said, a very strong position to continue to take advantage of significant opportunities in people infrastructure to ensure as I was saying with that that we have strong organic growth opportunities I am bullish on our footprint are bullish on our position.
Especially a condition of the bank with our capital position our credit quality. The people. We have the addition of Wally and Steve and how they'll be working to ensure that our decisions moving forward are right and also the partner opportunities that we see coming down the line, even though we're talking recession I'm bullish I appreciate each one of you are there.
Support your investment and we will do everything in our power to make sure that we continue to provide.
High performance and high returns on this investment so thank you for the opportunity. Thank you for your time today, well hope to see you soon.
Thank you ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
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