Q1 2024 ServisFirst Bancshares Inc Earnings Call
Operator: Greetings and welcome to the ServisFirst Bancshares First Quarter Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Davis Mange, Director of Investor Relations. Thank you, Davis. You may begin.
Greetings and welcome to the service first Bancshares first quarter earnings call.
At this time all participants are in a listen only mode.
Brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded it is now my pleasure to introduce you to your host Davis Mange director of Investor Relations. Thank you Davis you may begin.
Davis S. Mange: Good afternoon, and welcome to our first quarter earnings call. Today's speakers will cover some highlights from our core and then take your questions.
Davis S. Mange: Good afternoon, and welcome to our first quarter earnings call. Today's speakers will cover some highlights from the quarter and then take questions. We'll have Tom Broughton, our CEO, Henry Abbott, our Chief Credit Officer, and Kirk Pressley, our CFO. Now, I will cover our forward-looking statement disclosures. Some of the discussion in today's earnings call may include forward-looking statements. However, actual results may differ from any projections shared today due to factors described in our most recent 10-K and 10-Q filings. Forward-looking statements speak only as of the date they are made, and ServisFirst assumes no duty to update them.
Davis S. Mange: We will have Tom Broughton, our CEO, Henry Abbott, Chief Credit Officer, and Kurt <unk> our CFO.
Davis S. Mange: I'll now cover our forward looking statements disclosure.
Davis S. Mange: Some of the discussion in today's earnings call May include forward looking statements actual results may differ from any projections shared today due to factors described in our most recent 10-K and 10-Q filings forward looking statements speak only as of the date they are made.
Davis S. Mange: <unk> assumes no duty to update that I will turn the call over to Tom.
Davis S. Mange: With that, I'll turn the call over to Tom. Thank you, Davis. Good afternoon, and thank you for joining our first quarter earnings call. We do think the first quarter is off to a good start this year, and we are optimistic we'll see improvement on a quarterly basis. Kirk Pressley is going to talk about our margin and deposit activity in a few minutes. Our expenses are in line as expected.
Thomas Ashford Broughton: Thank you David Good afternoon, and thank you for joining our first quarter earnings call.
Thomas Ashford Broughton: We do thanks.
Thomas Ashford Broughton: First quarter is off to a good start of the year and we are optimistic we will see improvement on a quarterly basis.
Thomas Ashford Broughton: A press release I'll talk about our margin in deposit activity in a few minutes.
Thomas Ashford Broughton: Our expenses are in line as expected.
Thomas Ashford Broughton: Henry Abbott will talk about our continued strong credit quality shortly after that. Looking at loans, the first thing I'd say is we had really good growth. This is the fourth quarter with over $200 million in net loans. And more importantly, our lung pipeline is back to normal levels today and is increasing. 63% since year end. In recent weeks, our bankers are seeing greater activity. Projects that have been postponed or are ramping up again.
Thomas Ashford Broughton: Henry Abbott will talk about our continued strong credit quality shortly after that so looking.
Henry F. Abbott: Looking at loans first thing I'll say is we had really good growth in the quarter with over $200 million and net loans.
Henry F. Abbott: And more importantly, our line lung pipeline is is back to normal levels today units increased 63% since year end.
Henry F. Abbott: In recent weeks, our bankers are seeing greater activity.
Henry F. Abbott: And some projects that are postponed or ramping up again.
Thomas Ashford Broughton: And I'd say our pipeline is very close to normal levels. On the production side, we were fortunate to add nine new bankers in the first quarter, up from seven in the fourth quarter of 2023. Six of these producers are in the Memphis market.
Henry F. Abbott: And I'd say, our pipeline is very close to normal levels.
Henry F. Abbott: Production side, we were fortunate that they had nine new bankers in the first quarter up from seven in the fourth quarter of 2023.
Henry F. Abbott: Six of these producers are in the Memphis market.
Thomas Ashford Broughton: We also expect to announce a new market within a few weeks. We are working to better measure the productivity of our commercial bankers, as well as our support staff. Success is obvious for bankers. You know who's being productive, and you know who's not. There are no other metrics to better gauge the required inputs to success. We are optimistic we can be successful in the coming quarters given the current economic environment. Now I'm going to turn it over to Henry Abbott first to make some comments on credit quality. Thank you, Tom.
Henry F. Abbott: We also expect to announce a new market within a few weeks.
Henry F. Abbott: We are working to better measure productivity of our commercial bankers as well as our support staff succeed.
Henry F. Abbott: Success is obvious for bankers.
Henry F. Abbott: You know who's been productive neenah, who's not but were working on other metrics to better gauge the required inputs to success.
Henry F. Abbott: We are optimistic we can be successful in the coming quarters, given the current economic environment and I'm going to turn it over to hany.
Henry F. Abbott: Henry Abbott first to make some comments on credit quality. Thank you Tom.
Henry F. Abbott: The bank got off to a strong start in 2024 with the loan growth Tom previously mentioned. I'm pleased with our results and how the bank's loan portfolio has performed in the current interest rate environment. I'm also pleased to say with our loan growth, we experienced the largest segment of growth in our owner-occupied real estate segment, which grew by $120 million.
Henry F. Abbott: <unk> got off to a strong start in 2024 with a loan growth. Tom previously mentioned I am pleased with our results and how the banks loan portfolio has performed in the current interest rate environment. I'm also pleased to say with our loan growth we experienced in the largest segment of growth in our owner occupied real estate segment, which grew by 120.
Henry F. Abbott: Yeah.
Henry F. Abbott: Charge-off for the quarter was six basis points when annualized, which is less than the fourth quarter results of nine basis points and generally in line with the first quarter of 2023. We ended the quarter with only $17 million in past due loans, which is a 35% decrease from year-end 2023 and down from the same time last period. The allowance to total loans was 1.31, which is basically flat compared to when it was 1.32 at year end and generally consistent with the past few prior quarters.
Henry F. Abbott: Charge offs for the quarter six basis points, when annualized which is less than the fourth quarter result of nine basis points and generally in line with the first quarter 2023.
Henry F. Abbott: We ended the quarter with only $17 million in past due loans, which is a 35% decrease from year end 2023 and down from the same time prior period.
Henry F. Abbott: The allowance to total loans was 131, which is basically flat compared to when it was 132 at year end and generally consistent with the past few prior quarters.
Henry F. Abbott: Nonperforming assets did increase fourth quarter and this was primarily related to one credit.
Henry F. Abbott: Non-performing assets did increase for the quarter, and this was primarily related to one credit. This credit has been on our watch list for some time, and while the customer is current on all loan payments with ServisFirst, we felt the conservative thing to do was move the loan to non-accrual given recent changes with our borrower. We have significant collateral above and beyond the loan amount, and we're working with the borrower and other parties to find a smooth landing spot that is in the best interest of the bank.
Henry F. Abbott: This credit has been on our watch list for some time and while the customer is current on all loan payments with service first we felt the conservative thing to do with move the loan to non accrual given recent changes with our borrower.
Henry F. Abbott: We had significant collateral above and beyond the loan amount and we're working with the borrower and other parties to find a smooth landing spot is in the best interest of the bank.
Henry F. Abbott: Bank has been at or near historic lows for the past few years as it relates to non performing assets.
Henry F. Abbott: Bank has been at or near historic lows for the past few years as it relates to non-performing assets. Even with this one additional credit, at the end of the first quarter, NPAs to total assets were still only 22 basis points, which is significantly below our peers and less than half of where we were at the end of 2019, which was closer to 50 basis points and generally in line with where we were at the end of 2020 at 21 basis points. These are both good pre-COVID benchmarks.
Henry F. Abbott: Even with this one additional credit at the end of the first quarter NPA to total assets, we're still only 22 basis points, which is significantly below our peer and less than half of where we were at the end of 2019, which was closer to 50 basis points and generally in line with where we were at the end of 2020.
Henry F. Abbott: At 21 basis points. These are both good pre COVID-19 benchmark.
Henry F. Abbott: I'll also note that the allowance for credit losses, when compared to non accruals was 452% at quarter end and this is significantly greater than our peer group.
Henry F. Abbott: We continue to feel good about the bank's loan portfolio and credit quality I am pleased with how the bank ended 2023, and we continued that momentum in 2024 and now our loan growth are beginning to tick up as well as better pace.
Henry F. Abbott: I will also note that the allowance for credit losses when compared to non-approvals was 452% at quarter end, and this is significantly greater than our peer group. We continue to feel good about the bank's loan portfolio and credit quality. We are pleased with how the bank ended 2023, and we continued that momentum in 2024, and now our loan growth is beginning to tick up as well at a better pace. Thank you, Henry.
With that I'll pass it to Kirk.
Kirk: Thank you Andrew good.
Good afternoon, we are very pleased with the progress. The bank has made in the first quarter liquidity in capital continued to remain strong both loan and deposit pipelines continue to grow and fund.
Kirk: Net interest margin has not only stabilized but started to expand net interest income is at its highest level since the first quarter of 2023.
Kirk: Net interest margin percentage is up nine basis points to 266% as the rate paid on interest bearing liabilities was flat with last quarter.
Kirk: And the yield on interest, earning assets is up eight basis points dollar margin is up modestly over the fourth quarter. Despite there being one less day, our noninterest bearing deposits were stable in the first quarter and margins stabilized in Q4, 2023 and improved in Q1 2024.
Kirk Paul Pressley: Good afternoon. We are very pleased with the progress the bank has made in the first quarter. Liquidity and capital continue to remain strong. Both loan and deposit pipelines continue to grow and fund. The net interest margin has not only stabilized but started to expand. Net interest income is at its highest level since the first quarter of 2023.
Total deposits were down due to our deposit optimization actions during the quarter and seasonal deposit declines, we reduced more than $220 million of high cost transactional deposits during the first quarter.
Kirk: As Tom mentioned last quarter, our incentives for 2024 are balanced for deposit and loan growth. However, the base for deposit growth was set at March 1st we did not want to I heard employees 2020 for incentives for reducing high cost transactional deposits as directed.
Kirk Paul Pressley: The net interest margin percentage is up 9 basis points to 2.66% as the rate paid on interest bearing liabilities was flat with last quarter, and the yield on the interest earning assets is up eight basis points. Dollar margin is up modestly over the fourth quarter, despite there being one less day. Our non-interest-bearing deposits were stable in the first quarter, and margins stabilized in Q4 2023 and improved in Q1 2024. However, total deposits were down due to our deposit optimization actions during the quarter and seasonal deposit declines.
Kirk: The loan pipeline began to fund up during the first quarter and we expect that to continue the key to improving earnings per share is loan growth repricing loans, when possible and maintaining our cost of funds.
Kirk: Net interest margin increased to $102 $5 million in the first quarter versus $101 7 million in the fourth quarter of 2023.
Kirk: As I noted earlier, there was one less day in the first quarter of 2024.
Kirk: Approximately 70% of loan production in Q4, and Q1 was variable rate, 75% of variable rate loans have a floor.
Kirk: 43% of total loans are floating rate today.
Kirk Paul Pressley: We reduced more than $220 million of high-cost transactional deposits during the first quarter. As Tom mentioned last quarter, our incentives for 2024 are balanced for deposit and loan growth. However, the base for deposit growth was set at March 1. We did not want to hurt employees' 2024 incentives for reducing high-cost transactional deposits as directed.
Kirk: The average rate on loan production for the first quarter was just above 8%.
Kirk: As we noted last quarter, we've seen margin increasing throughout the year, we don't anticipate a significant increase in the cost of funds going forward, especially as compared to our peer banks, while we expect the yield on interest earning assets to continue to increase as fixed rate loans and investments continue to mature and reprice.
Kirk: First quarter is typically slow for repricing for example, covenant violations usually occur after taxes are filed and financial statements are received examples of our repricing efforts during the quarter are that approximately $120 million of loans had the right restructured this quarter. The primary reason was due to adverse.
Kirk Paul Pressley: The Lung Pipeline began to fill up during the first quarter, and we expect that to continue. The key to improving earnings per share is loan growth, repricing loans when possible, and maintaining our cost of funds. Net interest margin increased to $102.5 million in the first quarter versus $101.7 million in the fourth quarter of 2023. As I noted earlier, there was one less day in the first quarter of 2024.
Kirk: <unk> additional funds in repricing the new loan.
Kirk: These repricing activities increase the yield of those loans by $2 five 6%.
Kirk: The cumulative effect of this repricing will improve margin and earnings per share going forward.
Kirk: During the first quarter, we had $139 million of low rate securities mature at a rate of two 2%.
Kirk: We have approximately $120 million of maturing securities, yielding 216% during the second quarter and another $25 million year, yielding 293% in the third quarter.
Kirk Paul Pressley: Approximately 70% of loan production in Q4 and Q1 was variable rate, and 75% of variable rate loans have a floor. 43% of total loans are floating rates today. The average rate on loan production for the first quarter was just above 8%. As we noted last quarter, we see margin increasing throughout the year. We don't anticipate a significant increase in the cost of funds going forward. Thanks to our peer banks, while we expect the yield on interest-earning assets to continue to increase as fixed-rate loans and investments continue to mature and reprice. The first quarter is typically slow for repricing. For example, covenant violations usually occur after taxes are filed and financial statements are received.
Kirk: Reinvesting these proceeds will improve the margin going forward.
Deposit costs stabilize during the fourth quarter, we began our deposit optimization review focused on higher rate transactional deposits during the quarter, we reduced more than $220 million of high cost deposits, which resulted in a small reduction in deposit cost total deposits declined due to this effort and seasonal dip.
Kirk: Clients in the first quarter.
Kirk: During the first quarter of 2024, we realized a $1 $2 million death benefit on one of our bank owned life insurance policies. Our noninterest income was up modestly from Q4, excluding this extra Bowie income.
Kirk: Credit card income was a little low due to seasonally lower spend in the first quarter. We do feel good about the rest of the year as we have seen spend increase in March accounts are increasing and new correspondent banks are being added at a nice pace.
Kirk: In discussing noninterest expense, we're watching expenses closely as usual for us.
Kirk: I've said in the fourth quarter call that our normalized Q4 expense run rate was around $44 million. During Q1, the FDIC updated their estimate for the special assessment, which resulted in an additional $1 $8 million of FDIC expense.
Kirk Paul Pressley: Examples of our repricing efforts during the quarter are that approximately $120 million of loans had the rate restructured. This quarter, the primary reason was due to advancing additional funds and repricing the new loans. These repricing activities increased the yield of those loans by 2.56%.
Kirk: Excluding the special assessment, our noninterest expense for the fourth quarter was $44 5 million.
Kirk: Expenses were up modestly for Q4 run rate due to the expenses for the Memphis office and some lingering costs related to the Edp contract. It was terminated in Q4.
Kirk Paul Pressley: The cumulative effect of this repricing will improve margin and earnings per share going forward. During the first quarter, we had $139 million of low-rate securities mature at a rate of 2.2%. We have approximately 120 million maturing securities yielding 2.62% during the second quarter and another 25 million yielding 2.93% in the third quarter. Reinvesting these proceeds will improve the margin going forward. Deposit costs stabilized during the fourth quarter. We began our deposit optimization review, focused on higher-rate transactional deposits during the quarter. We reduced more than $220 million of high-cost deposits, which resulted in a small reduction in deposit costs. However, total deposits declined due to this effort and seasonal declines in the first quarter.
Kirk: We continue to grow our book value per share our capital ratios all improved during the quarter at quarter end, our CET one ratio increased to 11, 7% our tier one capital to average assets ratio increased to 944%.
Speaker Change: I'll give some additional color now on what we expect this year.
Speaker Change: We are optimistic about 2024 as a reminder, like most other banks Q1 2024 was significantly different than Q1 2023, the increase in the bank's funding cost out strictly increase yield on assets. During 2023. This compression looks like it might continue for a while for many other banks.
Speaker Change: As I said in the fourth quarter call. We think our increase in funding costs has largely been realized in the increases in the yield on assets is expected to grow both the dollar and percentage margin from December 31.
Speaker Change: The good news is our deposit costs seem to have stabilized as we expected and the yield on assets should naturally grow from here.
Speaker Change: Lower fixed rate loans and securities reprice.
Speaker Change: We feel good about the loan growth during the first quarter and expect it to continue although deposits retreated a little in the first quarter. We are still in a strong liquidity position. We frankly had more than we wanted we expect to grow deposits throughout this year.
Kirk Paul Pressley: During the first quarter of 2024, we realized a $1.2 million death benefit on one of our bank-owned life insurance policies. Our non-interest income was up modestly from Q4 excluding this extra BOLI income. Credit card income was a little low due to seasonally lower spend in the first quarter.
Speaker Change: We think our dollar margin bottomed out in the third quarter of 2023 and expect it to continue to grow from here.
Speaker Change: Davis.
Speaker Change: With that let's open up for questions.
Davis S. Mange: Thank you we will now be conducting a question and answer session.
Kirk Paul Pressley: We do feel good about the rest of the year as we have seen spend increase in March. Accounts are increasing, and new correspondent banks are being added at a nice pace. In discussing non-interest expense, we're watching expenses closely, as usual for us. I said in the fourth quarter call that our normalized Q4 expense run rate was around $44 million. During Q1, the FDIC updated its estimate for the special assessment, which resulted in an additional $1.8 million of FDIC revenue. Excluding this special assessment, our non-interest expense for the fourth quarter was $44.5 million.
Speaker Change: You would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Formation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Thank you.
Speaker Change: Question comes from the line of Steven Moss with Raymond James. Please proceed with your question.
Stephen M. Moss: Good afternoon.
Stephen M. Moss: Okay.
Stephen M. Moss: Maybe just starting to hear Tom with the uptick in the loan pipeline. After after a good quarter production just curious how youre thinking about total loan growth for 2024.
Kirk Paul Pressley: Expenses were up modestly for Q4 due to the costs of the Memphis office and some lingering costs related to the EDP contract that was terminated in Q4. We continue to grow book value per share. Our capital ratios all improved during the quarter. At quarter end, our CET one ratio increased to 11.07%. Our tier one capital to average assets ratio increased to 9.44%. I'll give some additional color now on what we expect this year. We are optimistic about 2024. As a reminder, like most other banks, Q1 2024 was significantly different from Q1 2023. The increase in the bank's funding costs outstripped the increase in yield on assets during 2023.
Stephen M. Moss: No.
Stephen M. Moss: Okay.
Stephen M. Moss: The pipeline is awfully good.
Stephen M. Moss: Never seems to close when do you think has come it always takes longer than you think is going to so.
Stephen M. Moss: So I looked at our FIFO thought I'd say, it's going to close.
Stephen M. Moss: 150 million a month, but I know things can go wrong with that and it drags out and it takes weeks and months longer than you think is going to because.
Stephen M. Moss: If you'd asked me what was going to close in the first quarter I would have told you.
Stephen M. Moss: Gross loan production of $150 million of muscle you.
Stephen M. Moss: You saw 200, so I was.
Stephen M. Moss: It's a good bit less than wood.
Stephen M. Moss: I would have anticipated, but I will say that it is.
Stephen M. Moss: What I'll say is approaching normalized levels I mean prior to.
Stephen M. Moss: The pandemic.
Stephen M. Moss: Huge run rate that we had in.
Stephen M. Moss: No in.
Stephen M. Moss: And the last the last big year of loan production.
Stephen M. Moss: But it is strong it is.
Stephen M. Moss: We're seeing an increased activity and of course, we focused on this.
Kirk Paul Pressley: This compression looks like it might continue for a while for many other banks. As I said in the fourth-quarter call, we think our increase in funding costs has largely been realized, and the increases in the yield on assets are expected to grow both the dollar and the percentage margin from December 31. The good news is our deposit costs seem to have stabilized as we expected, and the yield on assets should naturally grow from here as lower fixed-rate loans and securities reprice.
Stephen M. Moss: This year as Kurt said, we're equally focused on loan and deposit growth.
Stephen M. Moss: And so we see a lot of opportunity.
Stephen M. Moss: Loan growth opportunity this year.
Stephen M. Moss: I really do.
Stephen M. Moss: Okay and in terms of just the <unk>.
Stephen M. Moss: Mix of the pipeline just curious as to you know what.
Stephen M. Moss: What types of opportunities Youre seeing in geographically if there's any.
Stephen M. Moss: Concentration.
Speaker Change: Well, if you had to pick one area of the strongest you'd say, Florida.
Speaker Change: Obviously.
Kirk Paul Pressley: We feel good about the loan growth during the first quarter and expect it to continue. Although deposits retreated a little in the first quarter, we are still in a strong liquidity position. We frankly had more than we wanted. We expect to grow deposits throughout this year. We think our dollar margin bottomed out in the third quarter of 2023 and expect it to continue to grow from here.
Speaker Change: With a population boom theyre, having down there.
Speaker Change: Need to build everything except assisted living facilities.
Speaker Change: Those are overbuilt everywhere, including Florida is strong, but what is not.
Speaker Change: I assume.
Speaker Change: Pretty localized not localized at all in terms of what you're saying.
Speaker Change: Increased activity in most of our markets and I don't know Roger could you add anything to.
Roger: Well what <unk>.
Roger: Florida is obviously has been.
Roger: For several quarters.
Roger: But.
Roger: We're seeing a lot of opportunities with owner occupied I think Henry made comments.
Davis S. Mange: With that, let's open up the floor for questions.
Roger: $240 million rose to 100.
Roger: 20 odd was.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is busy. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we pull for questions. Thank you. Our first question comes from the line of Stephen Moss with Raymond James. Please proceed with your question.
Roger: Owner occupied stuff so.
Roger: It's quality stuff that we're seeing pretty evenly spread.
Speaker Change: Yeah, and I think some of our newer markets such as the longer sales cycle to bring on C&I customers in certain instances, so Charlotte coming on board some of our Florida markets are coming on board as you know.
Speaker Change: It's a longer sales cycle on some of these businesses and they seem to be.
Speaker Change: Maturing.
Speaker Change: Okay, Great really appreciate that color and then in terms of just the.
Speaker Change: The margin here.
Speaker Change: It seems pretty straightforward that yes.
Speaker Change: Your funding costs have stabilized and you get the asset price.
Speaker Change: Benefit here going forward.
Speaker Change: Just curious as to if you could.
Speaker Change: Give us an update as to what level of fixed assets you expect to reprice in 2024.
Speaker Change: On the on the loans and on the securities to low rate Securities.
Stephen M. Moss: Maybe I'm just starting here, Tom, with the uptick in the loan pipeline after a good quarter of production. I'm just curious, what are you thinking about total loan growth for 2020?
Speaker Change: The more long term loans that are maturing this year, I think youre going to be around similar to what we talked about in the fourth quarter, which is about $2 billion a year.
Thomas Ashford Broughton: The pipeline is awfully good. It just doesn't seem to close when you think it's coming. It always takes longer than you think it's going to. So, you know, if I looked at our pipeline, I'd say, you know, it's gonna close, you know, 150 million a month. But I know things can go wrong with that.
Speaker Change: Okay.
Speaker Change: Okay. That's helpful and just one last one for me on the non performer this quarter, just curious as to what industry.
Speaker Change: That is tied to.
Speaker Change: Yes.
Speaker Change: This is henry by the way and like I said I mean, they are current on their loans, but the businesses closing.
Henry F. Abbott: We're well collateralized this is owner occupied real estate.
Thomas Ashford Broughton: And it drags out, and you know, it takes weeks and months longer than you think it's going to because, You know, if you'd asked me what was going to close in the first quarter, I would have told you, you know, gross loan production of $150 million a month. But you saw it's 200, so.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you. Our next question comes from the line of David Bishop with Hub Group. Please proceed with your question.
David Jason Bishop: Good evening gentlemen.
David Jason Bishop: Hey, Doug.
Hey, Tom and gentlemen, just curious you said you are obviously, keeping a close eye on expenses in this in this environment you all have been pretty closely at $44 billion, but you've been.
Thomas Ashford Broughton: You know, it's a good bit less than I would have anticipated, but I will say that it is, when I say it's approaching normalized levels, I mean, prior to the, you know, the pandemic. In the last big year of loan production, but it's strong. We're seeing increased activity, and of course, we focused on this year, as Kirk said, we're evenly focused on loans and deposit growth. And so we see a lot of opportunity. You know, long growth opportunity this year. I really do.
Speaker Change: <unk> been adding.
David Jason Bishop: Bankers commercial bankers being opportunistic just curious where maybe you see.
David Jason Bishop: Operating expenses trending over the near to intermediate term, maybe from a growth rate or a dollar basis.
Speaker Change: I think what we were saying last quarter is probably still holding true that we expect the full year to be probably within the 180 to 185 million, it's really hard to dial it in closer than that but yes, a little bit higher than the current run rate is.
Speaker Change: As a compensation increases happened throughout the year, but not a whole lot more than where we're running.
Thomas Ashford Broughton: Okay, in terms of just the, you know, the business mix of the pipeline, just curious as to what types of opportunities you're seeing and, geographically, if there's any concentration.
Speaker Change: Got it and then.
Speaker Change: Turning back to the NIM discussion just curious.
Speaker Change: From the numbers it looks like the.
Speaker Change: The funding cost side is stabilizing.
Speaker Change: Just curious.
Thomas Ashford Broughton: Well, you know, if you had to pick one area that's strongest, you'd say Florida. Obviously, with the population boom they're having down there, they need to build everything except assisted living facilities. Those are overbuilt everywhere, including Florida, and pretty localized. I mean, not localized at all in terms of what we say and, you know, increased activity in most of our markets. I don't know, Rodney, could you add anything? Well, what do you think?
Speaker Change: If you look at the earning asset side, maybe where you see the yield on earning assets may be trending to and.
Speaker Change: It's sort of a sort of a terminal peak maybe.
Speaker Change: Maybe you hit this year or that's just curious where you are.
Speaker Change: Do you see those trending to over the near and intermediate term as well.
Speaker Change: I'm not going to give you a whole lot of detail on that but its next year then it will peak.
Speaker Change: It's not this year, but we will have really nice growth. This year I mean, if you. If you think about around $2 billion is rolling to more current rates.
Rodney Rushing: Well, what you named, Florida obviously has been in front for several quarters, but you know, we're seeing a lot of opportunities with Owner Occupied. I think Henry made comments about $220 million growth, 100 20-odd was, over-occupied stuff. It's quality stuff that we're seeing pretty evenly spread.
Speaker Change: We should have a nice lift this year and it'll it'll continue into next year. So holding these funding costs in this relevant range is really important and we.
Speaker Change: We've got a nice tailwind, we just have to see it through.
Speaker Change: I guess, we didn't have really any.
Speaker Change: Securities maturities last year at all.
Speaker Change: Alright.
Speaker Change: The low rate.
Speaker Change: The low rate.
Turning to reprice and substantial this year, it's charged off turn into real money, Dave over the course of the year.
Rodney Rushing: And I think some of our newer markets, it's just a longer sale cycle to bring in C&I customers in certain instances. So Charlotte's coming on board, some of our Florida markets are coming on board. It's a longer sale cycle for some of these businesses, and they seem to be maturing.
Speaker Change: And was that the $2 billion was that inclusive of loans maturing.
Speaker Change: Or is that solely be.
Speaker Change: That was the total sort of combination of securities laws.
Dave: No. That's the total that's the total below rate securities are probably like $280 million in the year a lot of it was during the first quarter I think.
Stephen M. Moss: Okay, great. Really appreciate that color. And then, in terms of just the margin here, I mean, it seems pretty straightforward that, you know, your funding costs have stabilized, and you get the asset price benefit here going forward. I'm just curious as to, you know, if you could give us an update as to what level of fixed assets you expect to reprice in 2024.
Dave: 130, or so I think it was in my script for the first quarter. So we've seen some of that already there is more to go but all of the fixed rate loans and low rate securities for the year are probably going to be around 2 billion.
Speaker Change: Great. Thank you.
Speaker Change: Youre welcome.
Speaker Change: We'll have a better feel.
Speaker Change: For the loan rate pricing.
Speaker Change: I think last year, the loan repricing was about $1 billion.
Speaker Change: No.
Speaker Change: Total it will have a better feel once we get into covenant season, and when we get financial statements that will be Oh.
Kirk Paul Pressley: on the loans and on the securities, the low-rate securities. I think you're going to be around similar to what we talked about in the fourth quarter, which is about $2 billion.
Speaker Change: A little bit better.
Speaker Change: Mature as much in the first quarter.
Speaker Change: As Curt mentioned so.
Stephen M. Moss: Okay, that's helpful. And just one last one for me on the non-performer this quarter; just curious as to what industry that is tied to. Yes.
Speaker Change: When we get into the second and the third quarter, we're going to have a pretty good feel of what well potentially already reprised player.
Speaker Change: And Tom does that.
Henry F. Abbott: Yeah, this is Henry, by the way, and like I said, they are current on their loans, but the business is closing. We're well collateralized. This is an owner-occupied property.
Speaker Change: The visibility of the optimism of the pipeline you said things are improving from a maybe a customer basis. Just curious what do you think is driving that as you get financials that are the borrowers just may be in better shape than they realized from our liquidity.
Stephen M. Moss: Okay, great. Thank you.
David Jason Bishop: Thank you. Our next question comes from the line of David Bishop with HvD Group. Please proceed with your question.
Speaker Change: Cash flow perspective, and that's giving them optimism to think about M&A or new business line investments just curious what was.
David Jason Bishop: Tom and gentlemen, just curious, you said you're obviously keeping a close eye on expenses in this environment, held in pretty closely at 44 million. But, you know, you've been adding bankers, commercial bankers being opportunistic. Just curious where maybe you get your operating expenses trending over the near to intermediate term, maybe from a growth rate or dollar base.
Speaker Change: Driving that across your markets.
Speaker Change: I think the recession payers are saving I think is the number one thing and take more than a shale projects for up to a year looking at moving forward with projects, whether it's sitting in our <unk>.
Speaker Change: Our commercial real estate and up.
Speaker Change: Oh wait.
Speaker Change: What problem are you able to say youre not allowed to mandate their profits have been so strong.
Speaker Change: You know with C&I and AG borrowers for the last couple of years.
Speaker Change: They've had a lot of dry powder until they haven't had to borrow money.
Kirk Paul Pressley: I think what we were saying last quarter is probably still holding true, that we expect the full year to be probably within the $180 to $185 million. It's really hard to dial it in closer than that, but a little bit higher than the current run rate as compensation increases happen throughout the year, but not a whole lot more than where we're running.
Speaker Change: It's almost been took profits mid two good we're happy for all of them of course, but but it don't wish to make any less but overall, we're just seeing a more optimistic attitude out there among the.
Speaker Change: Among the customer base.
Speaker Change: In most areas in many regards.
Speaker Change: Great I appreciate the color.
Speaker Change: Yeah.
Speaker Change: Thank you Vin.
Vin: Go ahead, I'm, sorry, Oh, sorry, I was just going to say there are no further questions at this time.
David Jason Bishop: Got it. And then, turning back to the NIM discussion, just curious, you know, obviously from the numbers, it looks like the funding cost side is stabilizing. Just curious. Where do you see the yields on earning assets maybe trending to, and is there sort of a terminal peak that maybe will hit this year or next? Just curious where you see this trending to over the near intermediate term as well.
Speaker Change: Thank you everybody for joining our call and appreciate your interest.
Speaker Change: Yeah.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Okay.
Speaker Change: [music].
Kirk Paul Pressley: I'm not going to give you a whole lot of detail on that, but it's next year that it'll... It's not this year, but we'll have really nice growth this year. I mean, if you think about around $2 billion is rolling to more current rates, we should have a nice lift this year and it'll continue. Holding these funding costs in this relevant range is really important.
Kirk Paul Pressley: I guess we didn't really have any securities maturities last year at all. The low rate, you know, the low right. Security repricing is substantial this year. This return is going to turn into real money, Dave, over the course of the year.
David Jason Bishop: And was that $2 billion, was that inclusive of loans, maturing, repricing, or was that solely the total sort of combination of securities and loans? No, that's the total. That's the total.
Speaker Change: Hum.
Speaker Change: [music].
Kirk Paul Pressley: No, that's the total. That's the total. Low rate securities are probably like 280 million a year.
Kirk Paul Pressley: A lot of it was during the first quarter. I think Davis helped me by 130 or so. I think it was in my Unknown Executive, Kirk Pressley, Graham Dick, Rodney Rushing, Unknown Executive, Kirk Pressley,
Speaker Change: Hum.
Speaker Change:
Speaker Change: [music].
Speaker Change: Okay.
Kirk Paul Pressley: We're welcome. We'll have a better feel for the loan repricing. I think last year the loan repricing was about a billion eight. Total. We'll have a better feel once we get into covenant season when we get financial statements. That'll be a little bit better. You know, there's nothing mature as much in the first quarter. Dave, when we get into the second and third quarters, we're going to have a pretty good feel of what potentially will reprise there.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Uh huh.
Speaker Change: [music].
David Jason Bishop: And Tom, does that, you know, the visibility or the optimism of the pipeline? You said things are improving from a maybe customer basis. Just curious, what do you think is driving that as you get financials? Or, you know, are the borrowers just maybe in better shape than they realize from a liquidity and cash flow perspective, and that's giving them optimism to think about M&A or new business line investments? Just curious what you think is driving that across your markets.
Speaker Change: Hum.
Speaker Change: [music].
Thomas Ashford Broughton: You know, I think the recession fears are receding, I think the number one thing. And people are, they've been on shelf projects for up to a year, or looking at moving forward with projects, whether it's C&I or commercial real estate. You know, we.
Speaker Change: Hum.
Speaker Change: [music].
Thomas Ashford Broughton: One problem we've had with C&I Loan Demand is that their profits have been so strong. You know, with C&I and Ag Borrowers for the last couple of years. They've had a lot of drought powder, so they haven't had to borrow money. But they don't wish to make any less.
Thomas Ashford Broughton: But, you know, overall, we're just seeing a more optimistic attitude out there among the customer base in most every way. Great, appreciate the color. Thank you. Go ahead. I'm sorry. Oh, I'm sorry.
Operator: Oh, I'm sorry. I was just going to say there are no further questions at this time.
Davis S. Mange: Thank you everybody for joining our call. I appreciate your interest. This concludes today's teleconference.
Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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Speaker Change: Hum.
Speaker Change:
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].