Q1 2023 South Plains Financial Inc. Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the South Plains Financial Inc. First quarter 2023 earnings Conference call.
During todays presentation, all parties will be in a listen.
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Following the presentation. The conference will be opened for questions with instructions to follow at that time.
As a reminder, this conference call is being recorded I would now like.
To turn the call over to Mr. Steve cockpit.
<unk> financial Officer, and Treasurer of South Plains financial. Please go ahead Sir.
Thank you operator, and good afternoon, everyone. We appreciate your participation in our first quarter 2023 earnings conference call.
With me here today are Curtis Griffith, our chairman and Chief Executive Officer.
Coordination, our president and Brent Bates, our Chief Credit Officer.
Replay of this call will be available on our website and two hours at the conclusion of the call until May 11 2023.
Additionally, a slide deck presentation to complement today's discussion is available on the news and events section of our website Www Dot Sps I think before we begin let me remind everyone that this call may contain forward looking statements and are subject to a variety of risks uncertainties and other factors that could cause actual results to differ materially.
And those anticipated future results.
Please see our safe Harbor statement in our earnings press release that was issued this afternoon and on slide two of the slide deck presentation available on our website.
All comments made during today's call are subject to those safe Harbor statements.
Any forward looking statements presented herein are made only as of today's date and we do not undertake any duty to update such forward looking statements, except as required by law.
Additionally, during today's call we may discuss certain non-GAAP measures, which we believe are useful in evaluating our performance.
Conciliation of these non-GAAP measures to the most comparable GAAP measures can also be found in our earnings release and on slide two of the slide deck presentation at.
At this point I'll turn the call over to Curtis.
Thank you, Steve and good afternoon all.
Today's call I'll briefly review the highlights of our first quarter 2023 results.
Well as the previously announced sale of our wind business, which we believe was a very good transaction for the bank and our shareholders.
Cory will discuss our loan portfolio and the investments that we're making in our deposit gathering franchise, which builds upon the success that we have achieved expanding our lending platform.
Steve will then conclude with a more detailed review of our quarter one results.
To start there are six key points that I hope you will take away from our results in today's call.
First the failures of Silicon Valley Bank and signature bank created widespread concern across the banking industry in the days following their collapse.
Our results this quarter speak directly to the strength and financial soundness of the bank as well as the customer relationships that we have developed over many years, which can also be seen in our first quarter deposit growth.
Second we ended the quarter with 17% of our deposits uninsured or uncollateralized, which is an improvement from 26% at year end 2022.
Third we are in a very strong liquidity position with $1.75 billion of available borrowing capacity at quarter end from the federal home loan bank and the Federal reserve discount window and bank term funding program, none of which we are currently utilizing fourth we further built capital.
This quarter through our earnings.
Our tier one capital to average assets ratio was 11, 2%.
The credit profile of our loan portfolio remains strong and stable from the fourth quarter of 2022.
And lastly, our markets remain healthy that was slowing as we posted 5.9% annualized loan growth in the first quarter.
Turning to our results in more detail on slide four of our earnings presentation. We delivered net income of $9 3 million or 53 cents per share as compared to $1.6 million or 71 cents per diluted common share for the fourth quarter of 2022.
This compares to net income of $14.3 million or 78 cents per diluted common share in the year ago first quarter.
We recorded a provision for loan losses of $1 million in the first quarter of 2023 as compared to a provision of $248000 in the fourth quarter of 2022.
The provision was mainly due to our organic loan growth in the quarter.
Looking forward, we believe we are well reserved for an uncertain economic environment.
The Texas economy continues to grow strong in migration and low unemployment.
That growth is slowing.
The ability of credit throughout the U S is broadly contracting which could negatively impact the Texas economy and the quarters ahead.
As a result additional provisions for loan losses may be necessary in future periods.
While economic activities moderating, we did experienced healthy loan growth of five 9% annualized as compared to the fourth quarter of 2022.
Our loan growth was driven by gains in both our community markets as well as our major metropolitan markets Corey will touch on this in more detail as well as our outlook for the rest of the year and at the moment.
We grew deposits $102 million or 12% annualized to 3.51 billion at March 31, 2023, as compared to the fourth quarter of 2022.
Our deposit growth was largely from public funds as we focused on liquidity through the first quarter, and which remains a high priority for our team.
While we did get more competitive with deposit interest rates to maintain relationships. We did not utilize time deposits outside of the normal course of business.
Additionally, while our cost of funds did rise during the quarter, especially around the failures of SBB and signature bank. We believe the pressure on deposit rates is now beginning to flatten out through April which is an encouraging sign and we believe we can remain below our original estimates of a 50% beta on interest bearing debt.
Part of it through the year.
The stability of our deposit franchise and strong liquidity position and further be seen on slide five which also highlights the competitive position, but south plains holes.
At quarter end, 82% of our deposits were in our rural markets with only 18% and our major metropolitan markets. Additionally.
Additionally, our average deposit account balance is approximately $35000 and only an estimated 17% of our deposits are uninsured our uncollateralized.
We also ended the first quarter in a strong liquidity position with $1 $75 billion of untapped borrowing capacity.
We have $988 million of availability from the federal home loan bank of Dallas.
$586 million of availability from the federal reserve discount window and $179 million of capacity from the Federal Reserve Bank funding program.
We are in a strong position with ample capital to take advantage of growth opportunities as they present themselves.
Turning to win Mark we completed the sale of Citibank wholly owned subsidiary to Alliance insurance services for $35.5 million in an all cash transaction with no earn outs.
When Barack offers a variety of crop insurance products through offices in Texas, Nebraska, and Colorado as well as by acting as the General agency for independent agents in 17 States.
When Mark was a terrific business for us since its inception in 1997.
That said, we knew that we were at the point, where we either had to commit significant additional capital and resources to sustain and grow the business or look to divest it.
Ultimately, we began exploring potential strategies with when Mark last year gave him the crop insurance is not core to south plains.
We believed alliant was a good theatrical when mark give them their ability to invest in the business combined with their commitment to retain our people and customers.
Looking forward our board of directors is reviewing the optimal usage furbish capital as the transaction provides for flexibility.
To further invest in our core business well all of meeting our capital base.
Given the uncertain economic environment combined with the dislocation in the banking sector, we will be patient and review a broad range of options to determine the best uses for this capital.
Return, a nice steady stream of capital to our shareholders through our quarterly dividend and share repurchases, what's been our focus since going public almost four years ago.
Along those lines our board of directors authorized a 13 cents per share quarterly dividend that was announced last week. This will be our 18th consecutive quarterly dividend to be paid on May 15, 2023 for shareholders of record on my first 2023.
In regards to our share buyback.
We utilize the remaining capacity on our share repurchase authorization in the fourth quarter of 2022.
Our board of directors is currently weighing the merits of another share repurchase program in light of the current economic environment.
Our management team and board.
Leave that our shares are currently trading well below their intrinsic value.
To conclude we are successfully navigating what is a challenging environment and believe we are well positioned for an uncertain economy.
We believe that we have a strong core deposit franchise ample liquidity and remain confident in the credit quality of our portfolio.
Importantly, we are positioned to take advantage of opportunities in the market that may come our way in the year ahead, but we believe that now is not a good time to pursue any acquisitions.
Now, let me turn the call over to Corey.
Thank you Curtis and good afternoon, everyone. Starting on slide six loans held for investment increased during the first quarter of 2023 $46 million or five 9% annualized compared to the fourth quarter of 2022.
Demand remained healthy despite the first quarter being seasonally slower combined with higher market interest rates.
Need to slow the economic activity overall, our loan growth continued to be primarily in the commercial real estate and residential mortgage sectors.
Our loan yield was up seven 8% in the first quarter, which compares to 5.59% in the fourth quarter of 2022.
And our loan yields continues to reflect our efforts to proactively price new loans to account for the higher market interest rate environment.
Which is contributing to rising funding costs, we believe that your loan yields are beginning to peak.
Just on managing our deposit growth and funding cost to mitigate margin pressure, which I will touch on in a moment.
Shifting to slide eight we grew our loan portfolio by $11 million or 5% annualized and our major metropolitan markets of Dallas, Houston, and El Paso as compared to the fourth quarter of 2022.
The commercial lenders that we have added in these markets continue to grow their loan portfolios by bringing new customer relationships to the bank.
We are also beginning to see competitors pull back across our market given the dislocation that has occurred.
Then we were focused on finding high quality loans with a good risk and return profile as we focus on the structure of new loans and are requiring more equity.
We'll never sacrifice credit quality for growth more so now than ever given this backdrop and our more cautious approach to growth. We will continue to look for experienced lenders to recruit to our MSA market.
We'll be more strategic and selective as we add to our team.
We are also watching the Texas economy closely given the slowing trend that we are beginning to experience and well manage our expense base accordingly.
We believe that low single digit loan brokers achievable for the full year, if the Texas economy avoids recession.
Skipping ahead to slide 10, we have not had $126 million of commercial real estate exposure in our loan portfolio at quarter end, which represented 33% of our total portfolio.
Our office exposure represented 16, 7% of our CRE portfolio.
One 8% up our total loan portfolio at the end of the first quarter of 2023.
32% of our office exposure is owner occupied and medical office comprised 13% of our Oh.
As Steve will discuss the credit quality of our loan portfolio remains stable through the first quarter.
Given our success expanding our commercial lending platform over the last two years, we were undertaking a similar initiative to expand our treasury management and liquidity team as we focus on growing deposits.
We began this initiative last year and had solid success growing our team having recently hired an experienced liquidity management professional from a $50 billion institution we.
We will focus on enhancing our retail and commercial funding strategy.
Well, we have many of the products today, we need to ensure that we have the right go to market strategy I understand the verticals that we're selling into and ensure that the products are working correctly.
We also need to improve how we sell our products to corporate treasurers and Cfos.
We've had success in this area, but we know we can do much better.
We are hiring experienced professionals across our market and believe this initiative will further build our core deposit franchise. It's we focus on relationships for the long term.
We will also be identifying the industries, where we can specialize as well as underbanked sectors, where we can take share.
Note that this initiative will be smaller in scope than our commercial lending expansion and do not expect a meaningful impact to our core expense run rate.
That said, we believe this initiative can have a meaningful impact on our deposit base and to a lesser degree our fee income over the medium term.
Turning to slide 11.
Our indirect auto loan portfolio increased by approximately $3 million to $300 million in the first quarter of 2023 as compared to the fourth quarter of 2022.
There was modest growth in this sector were maintaining a disciplined approach to underwriting is 61% of the indirect auto loan portfolio was originated with a credit score of 719 or better which is super Prime and 28% of the portfolio was originated with a credit score of 667 19, which has brought.
This strong credit profile position the portfolio for resilience across varying economic cycles, which can also be seen in our delinquency as our loans.
It's do 30, plus days percentage improved from 26 basis points of the portfolio in the fourth quarter of 'twenty two to 14 basis points in the first quarter.
Additionally, less than 3% of this portfolio is comprised of recreational vehicles and area, where we believe challenges could occur if the economy does experience a more severe recessionary environment.
Turning to slide 12, we generated $10 $7 million with noninterest income in the first quarter of 2023 compared to $12 $7 million in the fourth quarter of 2022.
This decrease was primarily due to seasonal decline of one $4 billion in income from insurance activities and a decline of $491000 in mortgage banking revenues.
During the first quarter mortgage loan originations declined to $86 million as compared to $125 million in the fourth quarter of 2022, given the impact of seasonality and higher interest rates.
Additionally, there was a write down of 2 million in the fair value of our mortgage servicing rights portfolio during the first quarter.
This was primarily due to some easing of mortgage rates noted at March 31st our secondary mortgage origination division, which excludes mortgage servicing activities lost less than 100000 in quarter one.
Looking forward, we will remain in the mortgage business as long as it makes sense and drives incremental business through cross selling.
For the first quarter of 'twenty twenty-three noninterest income was 24% of bank revenues as compared to 26% in the fourth quarter of 2022.
To conclude I'm very proud of our first quarter results as they demonstrate the strength and resiliency of Citibank.
We are well positioned for the current environment and successfully executing our initiatives designed to grow both our commercial loan portfolio and our deposit franchise.
I would now like to turn the call over to Steve.
Thank you Corey starting on slide 14, net interest income was $34 $3 million for the first quarter of 2023 as compared to $36 $3 million for the fourth quarter of 2022.
The decrease was primarily a result of a $3 2 million increase in interest expense due to the rise in short term interest rates.
We offset by $1 $2 million of increased interest income due to higher average loan balances and interest income on securities and other interest earning assets.
Our net interest margin calculated on a tax equivalent basis was $3 seven 5% in the first quarter 2023.
Compared to 3.88% in the fourth quarter of 2022.
Our net interest margin was impacted by a 39 basis point increase in our cost of deposits in the first quarter of 2023.
As compared to the fourth quarter of 2022. This was partially offset by our organic loan growth combined with a corresponding increase in our loan yields at 19 basis points as compared to the fourth quarter of 2022.
Our average cost of deposits was 136 basis points in the first quarter 2023, an increase from 97 basis points in the fourth quarter of 2022.
Corey discussed.
We have raised certain of our deposit interest rates through the first quarter maintained deposit relationships and an increasingly competitive environment.
Deposit cost did rise given the uncertainty created by the failures of SBB and signature bank.
They have flattened out in the week since and we believe are beginning to normalize through the second quarter.
Turning to slide 15.
Total deposits increased $101 $6 million in the first quarter to $3 five $1 billion.
As compared to the fourth quarter of 2022.
The majority of the growth in deposits was a result of our increased focus on liquidity and which occurred predominantly in our public fund deposits.
Overall, we are pleased with our deposit growth through the first quarter and the opportunities that we see to further build our core deposit franchise through our treasury management and liquidity initiatives, which Cory outlined.
Given the competitive landscape, we did see a modest mix shift as non interest bearing deposits decreased to 31, 7% of total deposits in the first quarter of 2023 as compared to 33, 8% of total deposits in the fourth quarter of 2022.
Turning to slide 16, we continue to believe that our loan portfolio remains appropriately reserved as our allowance for credit losses to total loans was 114% at March 31, 2023, as compared to 1.43% at December 31 2022.
As Curtis touched on we recorded a provision for credit losses of 1.0 a million dollars in the first quarter of 2023, which compares to a provision for credit losses of $248000 in the fourth quarter of 2022. This increase was largely due to our organic loan growth in the quarter.
Overall, we continued to experience stable credit metrics in our loan portfolio as can be seen in our nonperforming assets to total assets ratio, which improved to 19 basis points in the first quarter of 2023, and 20 basis points in the fourth quarter of 2022.
Nevertheless, future economic conditions remain uncertain due to the rising rate environment persistent inflation levels that are impacting consumers and businesses in the United States and the recent dislocations in the banking sector, which make which may make additional provision for credit losses necessary in future periods.
Skipping ahead to slide 18, our noninterest expense was $32 $4 million in the first quarter of 2023 as compared to $32 $7 million in the fourth quarter of 2022.
The decrease was primarily due to a decline of $837000 and professional services marketing and occupancy expenses, partially offset by an increase of $551000 in personnel expense.
There was approximately $500000 in expenses related to the sale of when Mark in the first quarter and we will record additional expenses related to the transaction in the second quarter.
Importantly, we continue to manage our personnel expense by implementing efficiencies and closely managing personnel to reduce mortgage overhead, which taken together has allowed us to manage wage inflation across the bank as we adapt to the current market.
Looking to the second quarter of 2023, and the year ahead, we expect core noninterest expense to modestly decline from the first quarter's level, while looking to also replace lost when Mark earnings moving ahead to slide 20, where.
We remain well capitalized with tangible common equity to tangible assets of 854% at the end of the first quarter of 2023, an increase from $8 five zero percent at the end of the fourth quarter of 2022.
The increase was driven by a $7.01 billion of net income after dividends paid and by $4 $7 million increase in accumulated other comprehensive income.
Which was attributable to the rise in the fair value of our available for sale securities and related fair value hedges net of tax.
Tangible book value per share increased by 62 cents to $20 19 since during the first quarter of 2023.
I will now turn the call back to Curtis for concluding remarks.
Thank you Steve.
Look I'm very proud of our results through the first quarter of the year.
We are successfully navigating a challenging industry environment as can be seen by our strong deposit growth ample liquidity and stable credit profile of our loan portfolio.
Additionally, the sale of when Mark will be beneficial with the incremental capital that it provides which we will use to create value for our shareholders in the year ahead.
I would like to thank our employees for their hard work and commitment to our customers and communities once again through the first quarter.
Thank you again for your time today operator, please open the line for any questions.
Thank you we will now begin the question and answer session.
To ask a question you May press.
Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
Your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Brad Milsap with Piper Sandler. Please go ahead.
Hey, good afternoon.
Hey, Brad.
I appreciate you taking my questions.
Steve wanted to make sure I understood the kind of the moving parts of the expenses I mean, it's pretty straightforward that the insurance revenue will drop to zero, but I think you said that operating expenses would kind of hang around the first quarter level I was thinking maybe you might see more expenses sort of fall out of the run rate.
But maybe those are being reinvested just wanted to make sure that if you could give me a little color on kind of what youre looking for in terms of trajectory unexpected maybe excluding any further charges related to the to the.
Disposition.
Sure Yeah, we have we definitely have some some of the expenses that were in there for Q1 Q2 and.
We will see additional transaction expenses that'll show up in noninterest expense.
Once once we worked through through that piece.
You know for.
For full year and you know our last last three Years' average noninterest expense has been about six point on $6 $2 million related to.
When mark so that.
And it fluctuates throughout throughout each quarter, but that's that's kind of what the annual run rate has been yes, we will see that that part will go away and there will be some additional.
Some additional items that then I think we will come back.
But we should we should see that number moderate on the on the core noninterest expense side.
Okay, Okay great.
Then.
Just maybe back to your loan growth guidance I think you said low single digits I mean, you're all.
So maybe a better start than you would typically be in <unk> I know that can be kind of seasonally soft just with <unk>, but I guess your guide would imply you know pretty modest growth from.
From here I guess it is core is that just you guys being conservative maybe do you do you think or are there a lot of payoffs you see coming or is it just more a function of you've got a really high bar for putting any loan on the books at this point in time.
You're going to see some pay offs and.
I mean, yeah, we didn't have a high bar, but we got really good customers that were really they're working with I'll give you. An example, though if you look at our pipeline. So if you take at 12 31 to 331 were up that's 10% higher than it was at the end of the year. So we've still got good opportunities, but I'm, telling you. We are so focused on dealing with relationships.
And how it in.
That type of a clientele, we have no problem turning some stuff they are but where we're gaining a lot of ground with some really good stuff that we're comfortable putting on our books and that's the thing that you know we're not afraid to ask for liquidity, we're not afraid to ask for more money coming into it but hitting the single digits.
I mean, it's realistic I mean, we think we can do it rents here with us.
No I agree I think back half I think we will see some payoffs were.
Through the probably first half second half of the year, but.
We've also got some unfunded commitments that were anticipating funding through the second half of the year that'll be a bit of a tailwind to that so.
Feel good about our low to you.
Low maybe mid single digits, there's a little bit payoff that youre going to see that it's a little bit by design that we've worked towards.
I'm proud of how it came about so that's I'd say, that's much more about astounded by the fall.
Yeah sure no I just felt like the below the low single look you know seemed fairly conservative just kind of based on kind of what you guys have done historically, but yeah. No I appreciate the color I'll I'll hop back into queue and let some other folks ask some questions. Thank you.
Thanks, Brian It's Brad.
Our next question comes from Joe <unk> with Raymond James. Please go ahead.
Yeah.
Good afternoon, how are you all doing.
Hi, Joe Joe Good to hear from you.
Great did you ever meal as well.
So I was hoping to stick with kind of loan growth I mean, I know that you just kind of discuss payoffs.
What would pay offs in the first quarter do you have that number handy.
Oh, I mean are paid off run rate for the.
Magnitude in the back half of the year or for the remainder of the year.
Yeah. This this spring our payout for run rate in the first quarter was a was not abnormal.
But I think what I think we're talking about are some specifics larger credits that were.
Uh huh.
We see that as a strategic payoffs up map that makes any sense that are abnormal maybe pay offs.
From the from the normal run rate, yeah, and as it go back to let's go back to what it is we've always talked about our approach of trying to identify a problem earlier.
So we are looking into the to the little bit of a downturn in the economy. We felt like there was something there that probably wasn't where we wanted to be and so we started way early working to an exit strategy.
Pretty much think they were kind of to that point.
It's but.
We don't think there's any true exposure, but we just don't we don't think we want to be locked arms route they're going into something to a downturn. So that's the stuff, we're talking about a little bit of a pay down.
Other than that I mean, no we're not seeing a lot of out of the ordinary payoffs drove this kurdish.
I think what we're going to see in this interest rate environment.
As I slowing a little bit of a regular normal expected pay downs because as you know we do a fair amount of construction.
And traditionally many of those projects would move on into secondary market.
Janssen after they breach any initial levels of stability.
Now with where rates are we think there's a pretty good chance, we'll keep some of those on our books longer than we would have in our core and a lower rate environment I'll say it that way, we've got those priced we think pretty well and as we've been indicating some.
Some of those are been on our books and they're all approved and the projects are moving but right now they're using they are investor money first yamana money first and Oh I haven't drawn much at all from us.
We'll start seeing those trials hit our books as we move on through the year.
We're going to have some some basically built him increases in there and.
I don't want to be overly conservative, but yeah, I do think that somewhere around low to mid single digit increase is very doable for us this year, Joe, but I had just a little bit more color to that though.
You look at some of the stuff we've had on the books at a little bit lower rate that might not go away as fast we think though that we've done a pretty good job with even the stuff that we're passing out it at high rates today.
We've got rethought penalties in knees and it's stuff that we think that will help us from that stuff just all gone away if rates start moving it in any significant amount. So we've really tried to look out not so much.
Taking care of today, but looking at two years from today on exactly where we want to be.
Okay, and then just kind of.
A follow up there and then just kind of dig a little deeper into the asset quality.
Where are these.
Where are these payoffs coming from that you know there could be you know potential problems are there any any sectors or geographies to call out and then in addition to that or are you starting to see you know any potential cracks in the portfolio at this time.
Well I think I can speak to the portfolio quality I mean, we know where we're really seeing good stable trends I mean that mirrors, our our ACL and what we're doing there.
As.
As far as payoffs to kind of give a little bit more background that you've got a number of different factors.
One Ben.
Credits that debt as Corey mentioned our.
Or kind of where we're pruning out of the portfolio.
But not necessarily in any one industry or geography.
They're more specific related.
Unrelated credits.
But when you think about payoffs you got to think about some of the business. We do want one of which is auto auto our indirect auto portfolio. We have a we have tightened up pricing and a bit on credit and quarter over quarter, we had flat growth in that area.
So that portfolio has a short time frame on it and automatically runs off if it's not replace so right now we're keeping up with that but we may choose to pull back on that likewise home. The homebuilder industry that we have a good business and primarily here and in the Lubbock market.
Those doors are pulling back on new activity. So we don't we see that as that portfolio pay it off as those houses sell and maybe that builder doesn't do as much activity as I did last year. So that's a little bit of color on kind of how the portfolio. We think it'll it'll wind up through the year, we still think were.
And that growth position, we've got other projects and unfunded commitment.
And our unfunded commitments that we expect to.
To find over the course of the.
The second half of the year.
Thus far funding out of equity.
That makes sense, yeah, just one comment.
Talk about.
Some of the payoffs theater come about a little bit by design and we mean it by that but it's more about we're not satisfied with the direction of management is taking taking that or the reporting that we're getting back.
We just we're not going away and that's kind of the position that will take we're not afraid.
To try to separate while it's still movable and make sure that we can just move on for it and so we do run a conservative from that side.
Understood a pretty thorough answer I appreciate that.
And then kind of lastly for me here and switching gears.
What where loan yields and the NIM for the month of March just trying to kind of understand the trajectory from here.
Steve you got that in front of you.
We ended.
I do not have it broken out.
A bad March they where they were.
Barely barely.
Factory.
Just the trajectory.
They they are increasing.
Sure.
Each each month they have gone up we do have we do have loans that do reprised along with the with the new loans that are being made that are out there at a higher a higher yield.
Overall, I would say March was probably.
15, 20 basis points higher than the than what the average was in.
In January .
Got it that's my loan yields right.
As loan yields yes.
Alright I appreciate it thank you for taking my questions.
Thanks, Joe.
But again, if you'd like to ask a question. Please press Star then one at this time.
Our next question comes from Brady Gailey with <unk>. Please go ahead.
Hey, Thanks, good afternoon guys.
I'm already writing right.
I think I heard Steve say.
There were some one time transaction costs from the sale of one market in the first quarter, what what what was that number.
That's about 500000.
And it would be mostly in the in the personnel line, but some legal and other costs.
Alright, and most of the expense reduction from the sale of the insurance is that also in the personnel line.
That that is where the biggest piece of that will be yes.
Uh huh.
The other part will be and just other noninterest expense, but does the bulk of it is in personnel.
Alright.
Yes, the <unk> margin of 375 feels like.
Given higher deposit costs, there could be some.
Some further compression in the margin in any way any idea on how to think about.
How much the margin could go down going forward or where is that right do you think it will compress.
I'll start, but I I I believe that it's a good.
Probability that it will what will compress.
You know unfortunately, we didn't see as much as we might have in the.
In the first quarter.
We again are able to keep putting on the loans, we're putting on at higher yields but.
That's definitely have had have increase in costs, but hopefully we can keep that keep that under control.
And in and limit the amount of compression, but I think I think we will see a little bit more compression I don't think I like the one other thing to keep in mind as we've done we've not strong herself out on deposit costs on long term.
We've kept that stuff very very short so even when we start seeing some downward rate movement, we're going to get some immediate response from that.
Oh I try I mean, I I do agree with Steve I think we might get a little more compression, but I don't think you're going to see very much.
[noise] wave, we have intentionally not been leading the market any categories on interest rates as Corey said, we're not running CD specials were not trying to push out any long term sheet as well if we just adjust our rates on our transaction accounts.
To stay competitive and.
As soon as we.
Start moving the other way and we get rates back down what can change those very quickly hopefully benefit from some of those loan rates that we're putting on the books right now.
So it'll I didn't I would not be surprised to see a slight additional compression, but I don't think it's going to be very much I don't either.
Okay Alright.
Alright, and then finally for me I just wanted to ask about.
The outlook for deposit growth.
Loan to deposit ratio is 80%, which is still relatively low versus some of your peers, but yeah. Do you hope to you'll have deposit growth to match loan growth or what what's the forecast for that.
I don't think there's any way its kind of match it.
I mean, we've got good loan demand.
I think when I when I.
Talking about the things that we've actually done focused on trying to drive the deposit gathering side of this I mean, we're focused on on relationships and I mean it is hardcore.
We had we address.
Building the deposit side of it and it's I mean, you know I talked about it in the presentation I mean, well, we're not going to go spend the kind of money. We spent adding lenders we are spending money, making sure that we've got representation in all the right markets and in all the right places chasing the deposit side of this.
Friday, one other thing that we've got an advantage on and of course, you can look at our numbers.
Are by far the biggest part of our deposits are out here in her Lubbock in more rural markets.
And with the recent and continuing.
Changes in ownership of some of the banks in those markets. We are getting some great opportunities we moved over a very substantial deposit relationship.
One of the banks that got acquired.
We're talking to some others.
Well you know I can't put a hard number on it obviously at this point that's a lot of our focus is to go after some of their long time larger depositors and moved those relationships over to us and we're having pretty good success with that.
Okay.
Alright, great. Thanks for the color guys.
Thanks, Brian right.
Our next question is a follow up.
Piper Sandler. Please go ahead.
Hey, Thanks for taking my follow up I just wanted to quickly maybe ask about mortgage banking, if I take out the MSR write down in the quarter. It looked like you guys had a gain on loan sale margin.
Close to 5% no a lot of banks have had good quarters in that regard would you guys expect that to settle down something less than 4% kind of where it's been historically or.
Do you think the environment is such you can you can kind of maintain this watermark I'm just curious if anything else at work there that there should be we should be aware of.
I'll I'll start.
I would say I would expect that to kind of settle back down to the range you're talking about.
Are you know part part of that.
It is just our mark to market at the end of the quarter and Theres still been a lot of volatility in.
In the market and what it was with rates and things so.
It may have shown a little bit higher there in Q1, we really expect that to kind of settle back down a little bit more.
Yeah. We were we think we did better in mortgage first quarter, even though I mean, you end up with a slight loss, but we knew it was just going to be from seasonality side of it it was going to be lower we think I guess, we're kind of proud of the fact that we are managing our expenses pretty well and then it.
Dissipating at this point that we probably ought to be up 25, 30% volume in the second quarter as we compared to the first.
Without a lot of overhead.
All of the suite so.
I think that.
We still think that the mortgage we're managing the overheated it pretty well.
Good and then just just a point of clarity on the overhead Steve.
You said 6 million of costs will fall out from from from the insurance Divesture, but it doesn't sound like.
Do you expect sort of a million five to drop out in the second quarter, you've got some other.
Merit raises and things like that that will that will eat up some of those savings is that is that how I should think about it.
So for so for Q2 excuse me, yes, well will have.
Again, just some of the transaction cost, yes, exactly those let's not let's not let's not include those I just yeah. It's exclude those there's not even think about those.
Yeah. So excluding that just if we're looking at core expenses.
We should be we should be down we won't be we won't be down that that full amount because some of the other some of it some other items will will take its place.
But yes it.
It should be down on a core run rate basis, but a lot of the merit raises and stuff or are they already in there.
Okay, Great. If you look at alright.
Okay.
Great Great. Thank you guys.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Mr. Kennedy for any closing closing remarks.
Thank you operator, we appreciate everybody participating in the call today.
Well, obviously, our banking as a little more challenging than we thought it might be a few months ago, we're pretty pleased with where we are all things considered we feel like we've got a.
Strong liquidity we have.
A very high capital levels, we have an excellent loan portfolio that we're monitoring very closely and we believe that moving forward. We can have decent profitability throughout the balance of the year.
And as I mentioned before we think right now.
Obviously, we can't make an announcement on it I didnt mention that Oh, we probably were not in the market to do any M&A work.
One reason for that is right now we'd be hard pressed to find a better buy than our own stock levels.
Levels that we've been at so clearly we think we've got some opportunities ahead of US we're very proud of getting the Widmark sale concluded and I look forward to having those members rollout in the second quarter and I'm sure everybody kind of what we've done gives us an opportunity to.
Utilize those for multiple well multiple uses as we go forward and we think that you're going to see some real benefits of shareholders. So again, thanks, everybody for their participation and for your continued their faces South Plains financial.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.