Q2 2023 Independent Bank Group Inc Earnings Call
Thank you.
I'll now turn the call over to Ann Quita, Perry Executive Vice President and Chief Legal Officer.
Good morning, and welcome to the independent Bank group's second quarter 2023 earnings call. We appreciate you joining us.
Related earnings press release, and Investor presentation can be accessed on our website at IR Dot I financial Dot com.
I would like to remind you that remarks made today may include forward looking statement. Those statements are subject to risks and uncertainties that could cause actual unexpected results to differ we intend such statements to be covered by safe Harbor provisions for forward looking statements. Please see page five of the text in the release or page two of the slide presentation.
Our safe Harbor statement.
All comments made during today's call are subject to that statement.
Please note that if we give guidance about future results that guidance is a statement of managements beliefs at the time. The statement is made and we assume no obligation to publicly update guidance.
In this call we will discuss several financial measures considered to be non-GAAP under the SEC's rules.
Reconciliations of these financial measures to the most directly comparable GAAP financial measures are included in our release.
I'm joined this morning by our Chairman and Chief Executive Officer, David Brooks, Our Vice Chairman, Dan Brooks, and our Chief Financial Officer, Paul Langdale.
At the end of their remarks, David will open the call to questions with that I will turn it over to David.
Thank you good morning, everyone and thanks for joining the call today second quarter adjusted earnings totaled $33 7 billion or 82 cents per diluted share during the quarter NII was impacted by higher deposit costs as we expect the terminal rate rose more than expected in noninterest bearing deposits shifted.
<unk> into interest bearing alternatives.
As Paul will discuss during the second quarter, we strengthened our balance sheet by reducing our lumpy deposit ratio to 95%, reducing FHA advances by $925 million.
Expanding our contingent liquidity availability and convincing the repayment of our holding company line of credit.
These efforts help optimize our earnings trajectory on a go forward basis and decrease risk in an uncertain environment.
During the quarter, we were pleased to see that a rebound in our mortgage origination volume bolstered our fee income while our other fee lines remain resilient.
In addition, our focus on expense discipline and further reduce adjusted noninterest noninterest expenses and we continue to pursue the most efficient gearing for the current environment.
As Dan will discuss credit quality remains excellent.
With low nonperforming assets and net recoveries of three basis points annualized for the quarter.
While we remain watchful for any signs of stress in our markets credit trends indicate that we continue to be supported by the strong foundation of conservative underwriting that we have maintained on these three decades.
Capital ratios ended the quarter in a healthy position as well with a tier one capital ratio of pinpoint one 3% a total capital ratio of 11, 95% and a TCE ratio of <unk>.
7.37% at quarter end.
And with that overview I'll turn it over to Paul to give you a few more details on the factors.
Thanks, David and good morning, everyone GAAP net income for the quarter was $33 1 million or 80 cents per diluted share compared to a net loss of $37 5 million or <unk> 91 per diluted share in the linked quarter. Adjusted non-GAAP net income for the quarter was $33 7 million or <unk> 82 cents per diluted share.
Compared with $44 1 million or $1 70 per diluted share in the linked quarter.
Net interest income was $113 6 million for the second quarter compared with $127 9 million in the linked quarter NII was primarily impacted by an accelerated remix of noninterest bearing deposits to interest bearing alternatives. During the first half of the year as well as higher rates paid on interest bearing deposit products due to competitive pressure.
NIM, excluding acquired loan accretion was $2 six 9% for the second quarter down 45 basis points from the linked quarter.
NIM was primarily impacted by the aforementioned remix of noninterest bearing deposits as well as higher rates paid on interest bearing balances, which were not offset by a corresponding increase in earning asset yields I'll also note that the second quarter NIM was negatively impacted by higher average on balance sheet cash balances carried following the macro liquidity events of this spring.
Jim.
While the trough for NIM improved lower than anticipated the NIM dynamics for the remainder of the year have positive tailwind that indicated near term inflection and the resumption of an upward trajectory in the fourth quarter that should persist as long as the fed holds rates flat.
In any scenario, where the fed cuts rates are liability sensitive sensitivity should give us meaningful immediate benefits.
While the Feds terminal rate has evolved to be higher than previously anticipated near term stabilization and downward slope in the forward curve should indicate funding pressures abating. This is helped by a meaningful stabilization in the deposit base during the second quarter. Additionally, total adjusted uninsured deposits excluding public funds.
In the second quarter to 31, 1% from 30 37, 4% in the linked quarter.
Uninsured depositors are now overwhelmingly paid highly competitive rates limiting additional downside risk to deposit costs for the bank as short term rates peak.
We also continue to pay down our higher rate borrowings such as F. Hlv advances and our holding company line of credit while increasing broker deposits, which are currently less expensive than short term borrowings at this point in the cycle.
Overall, we feel the actions we took during the second quarter have strengthened our balance sheet reduce the risk profile and positioned us to capitalize on increases in earning asset yields.
To that end, while contractual maturities were lower in Q2 maturities of our fixed rate loans will be higher for the remainder of the year and we should begin to see a meaningful lift from the repricing of loans at renewal.
This should provide a consistent tailwind to NII in the scenario, where the fed holds for a longer at the terminal rate.
Notably we are pleased with where new loan production yields are coming on the books, just above seven and seven eighths, while renewal rates are holding steady at about seven and three quarters. In addition, higher expected net loan growth should bolster earning asset yields.
Provision expense was 220000 for the second quarter and we continue to anticipate a base case provision of around 1% of net loan growth. This is of course dependent on all else being held equal in the CFO model, which could of course be impacted by changes to the macroeconomic forecast adjusted noninterest.
Noninterest income was $13 7 million for the quarter, an increase of $1 1 million versus the linked quarter. This increase was primarily driven by fees increases in retail mortgage income service charges and mortgage warehouse fees.
Adjusted noninterest expenses totaled $84 5 million for the quarter down from $84 $9 million in the linked quarter.
As David noted, we continue to pursue expense discipline and gear the organization appropriately for the current environment.
These are all the comments I have today, so with that I'll turn the call over to Dan.
Thanks, Paul.
Core loans held for investment excluding mortgage warehouse and PPP loans increased by $23 2 million or 7% annualized in the second quarter.
New loan production was slower during the first half of the quarter due to borrowers sitting on the sidelines amid a volatile rate environment.
However, as the rate environment stabilize towards the end of the quarter borrower appetite increase and we saw an uptick in deal flow across our footprint.
Through July our loan production has been running at a faster pace compared to the first half of the year.
Looking ahead, we expect larger production volumes and stronger net growth for the remainder of the year.
Average mortgage warehouse purchase loans were $413 2 million for the quarter up from 298 million.
In the prior quarter.
The rebound in mortgage warehouse volumes represents an uptick in mortgage origination volumes more broadly in addition to targeted efforts to gain market share as incumbents scaled back or exit the business.
We've also begun to see improved margins in this business as other banks pull back.
Credit quality metrics remained strong during the quarter.
Overall asset quality trends remained stable.
While we are always vigilant against emerging risks, we currently do not see any areas of concern across the loan portfolio.
These are all the comments I have related to the loan portfolio. This morning, so with that I'll turn it back over to David.
Thanks, Dan.
As we enter the second half of 2023, we are very encouraged by the outlook for our franchise.
As it stands today.
We are seeing a number of positive catalysts materializing in the form of stronger growth stabilizing them consistency in fees resilience in credit quality and discipline on expenses.
I'll also discuss the emerging.
Stability of the forward curve is a positive sign for the income statement.
Our current expectation is that funding costs are peaking on a spot basis and that a larger amount of growth and repricing activity for the remainder of the year will help bolster earning asset yields. Therefore, we expect NIM inflection in the NIM during Q3, and the resumption of NII growth in Q4.
Outlook is underscored by the continued strength of our four high growth markets across Texas, and Colorado, which are all buoyed by positive demographic trends and capital inflows that insulate them from broader macroeconomic volatility.
Especially encouraged by the incredible team, we have across our footprint, who are keenly focused on providing exceptional customer service and shepherding our culture of servant leadership.
Thank you for taking time to you want us to date will now open the line to questions operator.
Thank you.
Well now conduct a question and answer session.
If you'd like to ask a question at this time. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
You May press star two if you'd like to remove your question from the queue.
All participants are using speaker equipment may be necessary to pick up your handset before pressing the star keys.
Thank you and now I'll pause a moment to poll for questions.
Thank you. Our first question today comes from the line of Brady Gailey with <unk>. Please.
With your question.
Hey, Thanks, Good morning, guys good morning.
So I wanted to start just on the net interest margin that we've talked about.
Having a down quarter in <unk>, which we saw and then a little stability and then some NIM growth how can we think about the magnitude of how much the NIM could grow once the fed pauses, but you still get.
Loan repricing higher.
So as we think about earning asset yields Brady specifically, we're looking at the gross production that we expect between now and the end of the year to be at least a $1 billion that includes both the repricing as well is that the net growth that we expect for the remainder of the year as David mentioned in our opening.
Meant that our production has been higher so far this quarter and so we have a higher degree of confidence that lift off in earning asset yields as eminent as it pertains to funding costs, though we have seen stability in those costs. The NIM on a spot basis at quarter end was higher than the average NIM for the quarter. So we feel.
Positive about our ability to control funding costs get lift off in earning asset yields and see some meaningful inflection between now and the end of the year.
And what was the spot NIM at the quarter end.
It was I think just a couple of basis points higher than what the average was.
Okay.
And then I know you guys are very focused on expenses and expenses came a little lower this quarter. How are you thinking about expenses going forward. It is the <unk>.
<unk> run rate a good run rate or will it be a little different.
I think $85 million a quarter Brady between now and the end of the year as a good guide for expenses, we expect to hold them in that area. Obviously were looking hard across the expense base, making sure. We're geared appropriately for the current environment and are going to continue that discipline that we've had so far.
And then finally for me the loan to deposit ratio moved from a 100% to 95% which was good to see.
Are you happy with 95 or do you want to see that continue to go lower.
We're happy with 95 as it stands Brady and that gives us some flexibility in managing the funding base managing those funding costs that some optionality built into the balance sheet for us as we look across the next two quarters and also into 'twenty four.
Okay, great. Thanks, guys.
Thanks, Greg.
Our next questions are from the line of Brandon King with Truth Securities. Please proceed with your question.
Good morning, Thanks for taking my questions.
Morning, Brian in Britain.
Yes, so so wanted to get an impact as far as the NIM guidance.
Repricing and you know loan yields are up 18 basis points sequentially.
I just wanted to get a sense of what the expectation was for the back half of the year are you looking to see a similar type of increase quarter over quarter or could that potentially be higher.
I think we're expecting that loan yields will grow faster in the back half of the year than they did in the first two quarters.
The things that give us confidence on that is that we have another hike in where we don't expect a significant increase in deposit cost relative to earning asset yields. So we will get the benefit of the floating rate. If the fed moves. This Wednesday are in addition to that higher gross production for the third and fourth quarters is really going to be a tailwind to earning asset yields.
Yeah, we've seen a real pick up here Brandon early in the quarter.
Our loan pipeline is as good as it's been in a year, we've got a nice.
Largo.
The deals that are going to be funding and so as Paul said that really really gives us a lot of momentum with over we think over a billion dollars of these.
These higher yielding assets coming on the books here in the in the last half of the year, which then obviously it gives us.
And that continues to accelerate into 'twenty, four and 'twenty five the amount of loans that are maturing in the amount of loans that we expect to produce during those times. So so we feel like we'll get.
An increasing benefit as this year goes on and really get the tailwind in 'twenty four.
Got it.
And could you quantify the amount of maturities youre expecting in the second half of this year versus what occurred in the first half.
It's about twice the level of maturities in the second half of the year that we had in the first half.
Okay.
And then just lastly, with the expectation of stronger earnings asset growth there as well.
Production is it fair to assume that you're going to fund this production, Wisconsin brokered Cds or borrowings or are there any other funding sources that you're looking to fund that growth.
Our treasury team has made some good progress on some new initiatives and we do expect to grow the core deposits, we'll see how rapidly that ramps up but we do think we will.
We'll be able to grow our core deposits in the second half of the Brandon, but then yeah. We will have to fund it the margin and Paul and his team has done a great job of.
Keeping our funding very sure.
A lot of Optionality to find the best source of funding at the margin, but at the end of the day. We've Gotta go up core deposits and we think we can in the second half we were pleased brand and with our ability to grow interest bearing branch deposits. During the second quarter. So that gives us some incremental confidence that we'll continue to see that traction as we look through the third and fourth quarter.
For this year.
Thanks, I'll hop back in queue.
Thanks, Brian .
Our next question is from the line of Michael Rose with Raymond James. Please proceed with your question.
Hey, good morning, everyone. Thanks for taking my questions.
David.
Good morning, you guys sound, a little bit more positive on loan growth, which is which is good although it sounds maybe perhaps a little bit more of it is from kind of market share gain I know the markets are strong.
Maybe maybe less paydowns, but whats why do you think you've seen kind of the increase.
In production and is there any difference between kind of the Texas markets in the Colorado markets. Thanks.
We're seeing good good loan demand across our markets, Michael and in the strength and one of the reasons, we sound a little more positive as the strength in Dallas Fort Worth Austin, Houston, and Denver front range of Colorado.
It's really.
<unk> continued to improve the.
The the feelings or the optimism of our of our borrowers the wealthy families that we bank the investors that we bank.
Businesses that are looking to make investments all seems to be much more positive I felt like in the first half people were quite cautious.
A lot of people were talking about deep recession in and you know and with all the fed's aggressive moves maybe we go into some kind of a deep economic downturn and even people in the best markets were concerned we.
We since I think broadly as we've talked to our relationship officers across our footprint.
That people are feeling broadly more encouraged optimistic.
We see assets changing hands people selling real estate buying real estate a lot of our of our best borrowers had a lot of cash on the sidelines and was waiting for opportunities and we see that cash coming off the sidelines now into deals and so yeah.
We think you know as we've always said our markets are stronger, but now our borrowers.
And our team.
No really positive about where we're headed in that you know, we're certainly still economic uncertainty ahead, but it seems every quarter that goes by.
We're seeing terrific asset quality across our book and so you know it.
Things are just generally more positive as we enter into the third quarter here than they were a quarter or two ago.
That's encouraging to hear and I know last quarter, you guys had talked about kind of a 4% to 5% kind of annualized growth rate over the final three quarters of the year it sounds a little bit more positive.
And then that at this point.
Care to take a gander.
What we can expect.
Yeah. We are we were expecting to grow a little more than second quarter than we did I still think a mid single digit Michael you know, 46% for the second half of the of your annualized pace for the second half of the year is a good you know.
Kind of holding place.
We're hopeful there's upside to that but I think that's a good that's a good number as we think about it this morning.
Perfect and then just on the flip side, the warehouse was a little bit stronger I think.
Many of US were probably expecting I know one of your larger competitors.
The state got out of the business and also a smaller competitor.
You guys are only down about 12% year over year and an average warehouse balances can you just talk about.
You guys are expecting for that business. It seems like maybe there's some opportunities there for some market share pick up.
Hey, Michael This is Dan I'll take that one we were able to see some new like quality clients come on at some of the banks scale back or exited as you noted there.
And we expect that it will continue to be the case given the trends that are out there.
In addition, we've seen rates in that portfolio pick up some as well yeah. I think speaks to the change in the competition. Our average rates are going to be higher had been little bit higher here at the end of the second quarter and go on for the rest of the year.
Perfect and maybe just finally for me just kind of a broader question you guys have done a really good job addressing kind of.
The revenue headwinds with some.
Targeted expense cuts, but the efficiency ratio is still running a little bit higher than peers and you guys are obviously a growth bank and that's been a little bit more challenging in this in this backdrop and as we think about the next couple of years.
How should we kind of think about the balance between continuing to invest in the franchise versus kind of ongoing cost saving efforts and what that could translate to.
Efficiency and profitability perspective, what we see.
Thanks, and thanks for the compliment Michael.
We have done I think some some good work getting our expenses.
Down to fit the current environment.
That said you know we're going to continue to you know we're positive about the future here. We're a growth company, we expect that to be the case going forward, we expect growth to accelerate in the way. We're looking at 2024, it appears to be lining up for an even better more stable environment and in our in our growth.
Your environment.
But I think we've got a really strong team our customer facing team across the company.
And yes, I don't see us needing to add a lot to that here over the next year or two we think we can generate.
High single.
Low double digit kind of growth and a great market across our markets.
If the economy allows that we've got the team to do that is my point and and so so I think we're gonna be quite cautious about the expense growth Paul and his team have done a terrific job on really.
We've got <unk>.
Some new we had a really strong team, obviously non customer facing as well and they do.
They have really been kind of searching the company looking at every contract renewal looking at ways to negotiate.
Things and so we're seeing some positive we still going to have some positive results on that front, but you know we also have the reality of it.
Increasing.
Compensation for our teams and all of that in the days ahead. So so we're we're realistic that expenses are not going to be you know 85 million a quarter for the next three years, but but we think the growth will be slower than it had been previously.
That's great color, David Thanks for taking all my questions.
Thanks, a lot Mike.
Yeah.
Our next question is from the line of.
Stephen Scouten with Piper Sandler. Please proceed with your question.
Hey, good morning, everyone I appreciate the time.
Just one quick clarifying question from them.
Slide deck.
It looked like I don't know if this is the same number quarter over quarter, but it looked like the energy reserves may have declined.
It looks like it shows one 6% energy ACL on slide 16 versus.
It shows five 6% energy reserve last quarter is that accurate or.
If so what's the dynamic that's going on there.
Yeah, Thanks for asking Stephen.
The seasonal calculation I think we noted in our remarks in the earnings release.
Was subject to its normal annual review, we went through that process and.
The energy book of course, as we've described over time.
Totally changed over the years such that the quality of that book is just top notch best in class.
And is more reflective of the C&I category. So actually it was combined with C&I and the most recent model change and that ultimately did in fact reduce the amount of.
Reserves that are held specifically against energy, which we think was accurate and timely in terms of the way it came across but.
Essentially it was a change of it lining up with C&I, which is really what we believe that book looks like at this point.
Okay perfect very helpful.
And then as it pertains to the increase in the loan pipelines that you're seeing the strength and potential second half growth. How are you viewing growth in CRE today, given market dynamics. I mean are you seeing more opportunities because other competitors pull back and kind of you know given your.
Conveyed cautiousness around the economy and in the strength of your credit quality overall like how do you how do you what how does that push pull work as you potentially see cracks in the CRE environment overall.
Yeah, most of the demand appears to be high.
High quality dim.
Demand in our markets with our existing customers is it would be the profile of a lot of what's growing in the pipeline as I mentioned earlier Steven our.
Customers in and long time relationships getting active again or more active again in the markets and then of course, we're continuing to do.
<unk>.
Strong borrowers that we'd been calling on for years and.
There is a little bit of a dynamic in the market that has some banks have.
Either decided they don't want to make.
As many loans.
You know going forward or if they don't want to make CRE loans in particular going forward. Then there is there may be some opportunity at the margin, but that's not the bulk of the opportunity we're seeing the bulk as our customers our relationships.
Continues.
Continuing to do what they've done historically, which is take advantage of good opportunities and then.
There may be.
At the margin some opportunity for market share gains from our banks that are getting out of the market, but I.
I don't recall seeing a lot of that.
Okay, Great color there and then just maybe last thing for me.
On the stability you guys are seeing on the deposit front I mean, obviously funding is the biggest tension point here for every bank as we all know.
I'm calculating the interest bearing deposit beta at like 129% this quarter give or take.
I guess what is it gives you the confidence around that that stability in the face of it the next hike and maybe specifically around noninterest bearing deposits and where you think those might be able to bottom out as a percentage of deposits.
Yeah, absolutely we.
Been very fortunate to see stabilization in the noninterest bearing deposit base over the last 45 days really so if you think about that number at quarter end being around 26% of total deposits now our expectation is that may fall. Another point, but we don't really expect much contraction in the noninterest bearing deposit base after that.
When we look at interest bearing deposits, specifically were given a lot of confidence by the fact that pretty much all of our uninsured depositors are paid at overnight market rates really at the highest rates. So theres not a lot of room to run up in terms of those interest bearing deposit costs. In addition, where we have our products price right now is very competitive.
And we feel like the bulk of our deposit base is compensated fairly at this point in the cycle as we hit the terminal rate so that positions us nicely to see that stability in the deposit base as it pertains to just funding more broadly were of course opportunistic about maintaining funding on the margins we attempt to for our short duration funding that.
We supplement the balance sheet with the mindful of taking advantage of dislocations at different points in the curve and being mindful to catch a couple basis points of spread everywhere we can.
But I'll also note that we're paying down our holding company line of credit, which is over 7% today, which we will make another third of that payment. This quarter and then the final third of that payment our expectation is to make that in the third quarter. So that that's $100 million in total of relatively expensive funding that'll come.
The balance sheet it by the end of the third quarter.
Okay got it very helpful. Thank you all for the color on the time this morning.
Average loan yields were up 49 bps and <unk> as compared to the fourth quarter of last year. So are you, saying that the average loan yield improvement will be greater than 49 bps in the back half of the year. So we'll be well over 6% loan yields by the fourth quarter am I on the right page there.
It's our expectation that spot yields where we're putting on fixed rate loans were seeing higher improvement that'll push rates up obviously, we had a lot of rate increases in the first part of the year that helped with the floating rate portion of our book, but relative to as you think about deposit cost, we certainly expect greater expansion in the loan yields.
Hard to handicap, the exact increase in loan yields that we expect in the back half of the year, but it will be greater in terms of what we've seen the lift in the second quarter for the back half of the year.
Okay, alright, thanks for clarifying that Paul and then I guess thinking about the risk of that of the loan yields and not improving given these are more fixed rate maturities. It sounds like the the risk isn't really.
Fed funds, but but probably the risk is more on the on the yield curve more of a five five and 10 years or how do you typically prices.
We typically price based off of what we see in the market and so it hasn't really correlated with the five and 10 year Treasury, Matt So much as it is correlated with prime so as we see stability in the curve and specifically as other banks that we're funding loans at relatively cheap rates in the first half of the year have pulled back.
Alleviated some pricing pressure in the marketplace. It's allowed us to pass through some increased costs on that on that side and we feel confident about our ability to price loans, where we're currently pricing them, which I noted in the opening remarks on the call and so our expectation is that with the higher bulk production in the back half of the year, that's going to serve as a tailwind to loan yields.
Okay.
I appreciate that and then also you gave some good commentary on the non interest bearing deposits in the last 45 days seems to ability there.
And any color on the it looks like time deposit balances or the product that grew the most as far as on the average in <unk> any color on kind of spot balances of time deposits are what you're seeing more recently.
We have seen some people take advantage of our CD specials, which is positive that has contributed obviously to our interest bearing branch deposit growth as.
As you think about that all in Matt those are cheaper than the broker deposits that were getting so we're happy to have that growth in interest bearing branch deposits on the CD side on the time deposit side.
We if we do continue to see utilization or growth. There then we'll obviously some of those broker deposits are short duration. So it will allow those to run off from where we see growth in the branch deposits.
Okay, and I think you said Paul that the funding costs are now, peaking on a on a spot basis did I hear that right and any more color on kind of what we know.
Where that's where that's peaking right now.
Yes, that's it that's exactly right, Matt we are seeing funding costs peak on a spot basis, we've seen some stability in funding cost and as I mentioned the junior M was just a hair above where the average Q2 NIM wise. So that gives us some confidence that really as we are around five and a quarter. Those are our marginal funding cost at this point.
Okay.
Okay. Thanks for taking my questions guys.
Thanks, Matt.
Thank you as a reminder to ask a question today you May press star one from your telephone keypad.
Our next question is from the line of Brett Robinson with how group. Please proceed with your questions.
Hey, good morning.
Thanks, Brett.
Thanks for the questions I wanted to first come out the loan repricing Tom.
Topic from a different angle when I look at the regulatory filings indicates that.
You guys have about half of our loan portfolio in the one year to five year bucket can you talk maybe about how much of the loan portfolio doesn't reprice in the next year or so and Hasnt hasnt, so far I E. What's the what's the drag can be from them.
Piece of the book that Hasnt repriced yet.
Yeah, absolutely, Brad and it may be a little bit helpful color to add that when we do alone for greater than five years, specifically in commercial real estate loan. We typically have an adjustable pricing mechanism and that loan a maximum five years. After origination. So we generally expect some level of adjustability in the <unk>.
Five years on our commercial real estate book in total.
The key with commercial real estate, obviously for US has been payoffs and Paydowns, we do continue to see payoffs and Paydowns that perhaps you wouldn't expect from an economic standpoint, we had just the other day for example, an $18 million loan pay down that was yielding around $3 seven.
So we do see progress on that front as well as you start to see more price discovery as David mentioned in commercial real estate and assets are transacting at a higher volume. So our expectation is we.
We'll see meaningful gross production over the next several quarters and into 'twenty for Crescendo Ing up.
But as it pertains to that crescendo that crescendo is obviously going to increase over time over the next three years to four years, where our loan book has reliably repriced.
At any point on that spectrum. So we haven't typically seen duration beyond that and our loan book, especially in the CRE loan book, we do have a small portion of fixed rate mortgages on the book, but again, that's not a big portion of our balance sheet compared to what it is for a lot of our peers.
And also.
Brett I might add the color is as.
Paul said earlier, we think about well have about twice as much.
That type of re pricing in the second half of this year as we had in the first half.
That accelerates continues to accelerate dramatically in 'twenty, four and again in 'twenty five so.
As we look at it if this is helpful and make it to kind of the higher level of your question, which is you know.
We think over the next two and a half years.
The vast majority of that portfolio will either prepay or will reprice or or some that are more than half my guess would be a fair way to say it Paul and so if we had you know.
$67 billion of that coming in two days.
Some of it repriced in the first half of the year, but it really accelerates. So that's part of our encouragement if you will read about.
The second half of the year, but really even more so pointing into 2024 that were going to see significant uplift in our earning asset yields each quarter quarter by quarter accelerating in 'twenty four that's why we're encouraged.
That that are 24 results can be much stronger than the kind of results. We're seeing right now from a bottom line standpoint.
Okay. That's really helpful. And then maybe a question for Dan on credit quality.
The uptick in and maybe demand.
Obviously, you guys are really strict on credit quality in your markets are also a lot stronger.
Then most I'm just curious to hear from Dan is there anything that you don't want to be doing in this environment in terms of originations is there anything that you kind of view as well as maybe potentially risk.
Into the next cycle.
Yeah, Hey, Brett Good morning, Yeah. As you know we've always employed a very disciplined approach you've noted that and grown our book and effectively that's been no different even in the last five years as we look at what's been put on the books and I think the best way to think about that is that.
To be the case on any new opportunities that we have.
Honestly in their biomarin today Youre seeing.
Much more equity go on the deals and the underwriting that is in place that is reflective of the much higher rates just means in general type of book that's been booked at.
Incredibly proud of it.
In terms of an asset class in particular that we're looking.
Looking at honestly, we just continue to be mindful of the obvious ones right. All of US is a really high bar.
If there's an opportunity on that it would be rare to see that occur, but I would say the rest of the asset class because of the way, we underwrite and the quality of the clients. We have in the markets that we're in we're continuing to book really across the asset classes at this point.
Okay, and Dan is or is there any.
Segments that just don't pencil as well just given that you've got maybe you know increased.
Requirements, either on equity or debt service coverage.
I think a lot of it is.
Based on what the sponsors and the equity sources are willing to put in to get the returns that they want. So there certainly have been some deals or just haven't made that could be anywhere from multifamily in particular I think we've seen just the margins. They are center than we are.
Seen on.
A typical acquisition of a retail facility.
Property or something like that in the multifamily just by its nature has seen that and in some of those markets I think it is.
Somewhat tighter given.
Given the supply that's come in in order to make the deals flow with that kind of margin I think in a matter of equity going on has caused some of them to pull back, but we still see activity right. It's always location by location and some of our markets really good in that space, others are probably more built out and so it's a.
Little harder without putting a lot more equity so some of those deals just don't make but that's usually a decision made by the by the investor.
Okay.
Helpful. Appreciate all the color.
Thank you.
At this time, we have no additional questions and I'll hand, the floor back to management for any closing remarks.
Thank you Hey, I appreciate everyone, calling in today, we are it's been a difficult first half for us, but we feel.
Hopefully we conveyed this morning very positive about the second half of this year and 24 to come.
Really proud of our team it's been a difficult Oh really 12 months overall since the rate cycle has started to change.
And our teams both back office and frontline, but our customers have continued to focus on hey, we've got clients and we have to be great at taking care of their needs and so I. Appreciate my team and I appreciate the investors and your support and hope you have a great day. Thanks.
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