Q1 2024 FB Financial Corp Earnings Call
Operator: Good morning, and welcome to the FB Financial Corporation's first quarter 2024 earnings conference call. Hosting the call today from FB Financial are Chris Holmes, President and Chief Executive Officer, and Mr. Michael Mettee, Chief Financial Officer. Also joining the call for the question and answer session is Mr. Travis Edmondson, Chief Banking Officer.
Good morning, and welcome to the FB Financial Corporation's first quarter 2024 earnings conference call hosting the call today from FB financial or Chris Holmes, President and Chief Executive Officer, Mr. Michael Martin Chief Financial Officer also joining the call for the question and answer session is Mr. Travis Edmondson Chief Bank.
Operator: Please note FB Financial's earnings release, supplemental financial information, and this morning's presentation are available on the investor relations page of the company's website at www.firstbankonline.com and on the Securities and Exchange Commission's website at www.sec.gov. Today's call is being recorded and will be available for replay on FB Financial's website approximately an hour after the conclusion of the call. At this time, all participants have been placed in a listen-only mode.
Officer. Please note FB Financial's earnings release supplemental financial information and this morning's presentation are available on the Investor Relations page of the company's website at Www Dot first bank online dot com and on the Securities and exchange Commission's website at Www Dot S. E C Dot Gov today's call.
Is being recorded and will be available for replay on FB Financial's website, approximately an hour. After the conclusion of the call. At this time all participants have been placed in a listen only mode. The call will open for questions. After the presentation.
Operator: The call will open for questions after the presentation. During the presentation, FB Financial may make comments that constitute forward-looking statements under federal securities laws. Forelooking statements are based on management's current expectations and assumptions and are subject to risk and uncertainties. Other factors may cause actual results to differ materially, and performance or achievements of FB Financial to differ materially from any results expressed or implied by such forward-looking statements. Many sets of factors are beyond FB Financial's ability to control or predict, and listeners are cautioned not to place undue reliance on such forward-looking statements.
During the presentation FB financial May take may make comments, which cause which constitute forward looking statements under federal securities laws forward looking statements are based on management's current expectations and assumptions and are subject to risks and uncertainties. Other factors may cause actual results to differ materially.
And performance or achievements of FB financial to differ materially from any results expressed or implied by such forward looking statements.
Many sets of factors of beyond FB financial's ability to control or predict and listeners are cautioned not to place undue reliance on such forward looking statements a more detailed description of these and other risks that may cause actual results to materially differ from expectation.
Operator: A more detailed description of these and other risks that may cause actual results to materially differ from expectations is contained in FB Financial's periodic and current reports filed with the SEC, including FB Financial's most recent Form 10-K, except as required by law. FB Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation. Whether as a result of new information, future events, or otherwise, in addition, these remarks may include certain non-GAAP financial measures, as defined by SEC Regulation G. A presentation of the most directly comparable GAAP financial measures and reconciliation of the non-GAAP measures to comparable GAAP measures is available in FB Financial's earnings release.
It's contained in SB financial's periodic and current reports filed with the SEC, including FB Financial's. Most recent Form 10-K, except as required by law FB financial disclaims any obligation to update or revise any forward looking statements contained in this presentation, whether as a result of new information future events or otherwise.
Addition, these remarks may include certain non-GAAP financial measures as defined by SEC regulation G. A presentation of the most directly comparable GAAP financial measures and reconciliation of the non-GAAP measures to comparable GAAP measures is available in the F. F. B Financial's earnings released.
Operator: Supplemental financial information and this morning's presentation are available on the Investor Relations page of the company's website at www.firstbankonline.com and on the SEC's website at www.sec.gov. I would now like to turn the presentation over to Mr. Chris Holmes, FB Financial's President and CEO. Please go ahead, sir. Thank you.
Supplemental financial information and this morning's presentation, which are available on the Investor Relations page of the company's website at Ww Dot first bank online dot com and on the Sec's website at Www Dot SEC Dot Gov I would now like to turn the presentation over to Mr. Chris Holmes FB Financial's, President and CEO. Please go on.
Sir.
Christopher T. Holmes: Alright, Thank you Chuck.
Christopher T. Holmes: Alright, thank you, Chuck. Good morning, everybody, and thank you for joining us this morning. We always appreciate your interest in FB Financial. For the quarter, we reported EPS of $0.59 and adjusted EPS of $0.85. We've grown our tangible book value per share, excluding the impact of AOCI, at a compound annual growth rate of 13.5% since our IPO. We're pleased with our results for this quarter and believe that they show strong progress towards our goal of peer-leading financial performance.
Christopher T. Holmes: Everybody and thank you for joining us this morning.
We appreciate your interest in FB financial.
Christopher T. Holmes: For the quarter.
Speaker Change: We reported EPS of <unk> 59, and adjusted EPS of <unk> 80 Pops is we've grown our tangible book value per share excluding the impact of a OCI compound annual growth rate of 13% since our IPO.
Speaker Change: We're pleased with our results for this quarter and believe that they show strong progress towards our goal of peer leading financial performance.
Christopher T. Holmes: As we reported an adjusted return on average assets of 1.27% and adjusted PP&R return on average assets of 1.63% and grew adjusted earnings per share by 10% relative to the fourth quarter of 2023 and 12% relative to the year-ago quarter. When I provided my outlook for 2024 on our prior call, I noted that the bank was in an enviable position due to our strong balance sheet, the operating foundation that we'd spent the past two years reinforcing, and the earnings momentum that we were beginning to experience. I'm even more convinced of those points after our first quarter.
Speaker Change: As we reported an adjusted return on average assets of one point to 7% and adjusted <unk> in our return on average assets of 163%.
Speaker Change: And grew adjusted earnings per share by 10% relative to the fourth quarter of 2023 at 12% relative to the.
Speaker Change: The year ago quarter.
Speaker Change: When I provide my outlook for 2024 on a prior call I noted that the bank was in an enviable position due to our strong balance sheet. The operating foundation they've been we spent the past two years reinforcing.
Speaker Change: And the earnings momentum that we were beginning to experience them, even more convicted on those courts.
Speaker Change: After our first quarter.
Christopher T. Holmes: Our capital ratios continue to improve. We now have a tangible common equity to tangible assets ratio of 10% and a total risk-based capital ratio of 15%. The mix of our loan portfolios is trending towards optimal for a bank of our size operating in our growing market, with a construction development concentration of 83% and a CRE concentration of 255%. Both of those have a percent of misplaced capital.
Speaker Change: Our capital ratios continued to improve we now have a tangible common equity to tangible assets ratio of 10%.
Speaker Change: Total risk based capital ratio of 15%.
Speaker Change: The mix of our loan portfolios twinning trending towards optimal for a bank of our size our operating in our growing markets.
Speaker Change: With our construction and development concentration of 83% and our CRE concentration of 255% both of those as a percent of risk based capital.
Speaker Change: Okay.
Christopher T. Holmes: Operationally, we're performing well, and there's a cohesiveness across the team, as more direct communication lines have been established between our customer-facing and back-office associates. The efficiencies of improved processes and procedures are also beginning to come through, as our core efficiency ratio in the first quarter improved by over 500 basis points from the first quarter of last year. And finally, on our earnings momentum. We saw broad-based positive trends this quarter for net interest margin, non-interest income, and non-interest expense.
Speaker Change: Operationally, we're performing well and Theres a cohesive.
Speaker Change: Ah cohesiveness across the team.
Speaker Change: As more direct communication land been established between our customer facing and back office associates.
Speaker Change: The efficiencies of improved processes and procedures are also getting to come through as our core efficiency ratio in the first quarter improved by over 500 basis points.
Speaker Change: From the first quarter of last year.
Speaker Change: And finally, our earnings momentum.
Speaker Change: We saw broad based positive trends this quarter for net interest income I'm, sorry, net interest margin noninterest income and noninterest expense.
Christopher T. Holmes: On the net interest margin, our increase in the contracts will yield on loans held for investment outpaced our increase in the cost of interest-bearing deposits for the second quarter in a row, and our net interest margin was steady at 3.42% versus last quarter's 3.46%. For fee income, Mortgage had a solid quarter with a pre-tax contribution of $3.1 million, which is a testament to our expense initiatives because that contribution was on approximately the same amount of revenue as the first quarter of last year, when we had only $262,000.
On the net interest margin or increase in the contractual yield on loans held for investment outpaced our increase in the cost of interest bearing deposits for the second quarter in a row.
Speaker Change: And our net interest margin was steady at 342% versus last quarter's 344, 6%.
Speaker Change: For fee income mortgage had a solid quarter with a pretax contribution of $3 $1 million.
Speaker Change: Which is a testament to our expense initiatives because that contribution was on approximately the same amount of revenue as the first quarter of last year, when we had only a $262000 contribution.
Christopher T. Holmes: The $11 million in fee income that our banking segment produced in the first quarter was also strong. And driven by the efficiencies of our operating platform that I mentioned before, core non-interest expense was down 3.3% from the fourth quarter and down over 10% year over year.
Speaker Change: The $11 million in fee income that our banking segment produced in the first quarter was also strong and driven by the efficiencies of our operating platform that I mentioned before core noninterest expense was down three 3%.
Speaker Change: From the fourth quarter and down over 10% Oh year over year.
Christopher T. Holmes: All that led to growth in adjusted pre-provision net revenue of 12.8% compared to the fourth quarter of 2023. So, a strong quarter of operating results that, while not at our historical levels of profitability, are trending in the direction that we want them to. As we look to the remainder of the year, we'll be focused on how we can effectively deploy the capital that we've built in order to create long-term shareholder value. As we seek to deploy that capital, we always target organic growth first, which was one ingredient that was missing from our performance this quarter.
Speaker Change: All that led to growth in adjusted pre provision net revenue of 12, 8% compared to the fourth quarter of 2023.
Speaker Change: So.
Speaker Change: A strong quarter of operating results that while not at our historical levels of profitability is trending in the direction that we wanted to.
Speaker Change: As we look to the remainder of the year will be focused on how we can effectively deploy the capital that we've built in.
In order to create long term shareholder value.
Speaker Change: As we seek to deploy that capital, we always target organic growth first which was one ingredient that was missing from our performance this quarter while.
Christopher T. Holmes: While we're not thrilled with the $120 million contraction in loan balances we've experienced here in the quarter, we're comfortable with it as it was driven by a $128 million decline in construction lending and a $49 million payoff of one of our very few SNCC relationships as our customer was acquired, which, by the way, was a strong relationship with the bank. As a reminder, we have a bias against SNCC lending, but this was one of those very few that meets our criteria of relationship-based in geography with partners that we know. Excluding those two circumstances, we experienced slight growth on the remainder of our portfolio of around 2% annualized.
Speaker Change: While we're not thrilled with the $120 million contractual contraction in loan balances that we experienced here in the quarter, we're comfortable with it as it was driven by a $128 million decline in construction lending at a $49 million payoff.
Speaker Change: One of our very few snick relationships.
Speaker Change: As our customer was acquired which by the way was a strong relationship with the bank as a reminder.
Speaker Change: <unk>, we have a bias against snick lending, but this was one of those very few that meets our criteria of relationship based in geography with partners that we know.
Speaker Change: Excluding those two circumstances, we experienced slight growth on the remainder of our portfolio around 2% annualized we're targeting mid single digit organic loan growth for the year as we continue to feel confident about the economic health of our footprint and we intend to return to our historical 10% to 12% organic growth target in <unk>.
Christopher T. Holmes: We're targeting mid-single-digit organic loan growth for the year as we continue to feel confident about the economic health of our footprint, and we intend to return to our historical 10-12% organic growth target in 2025. To that end, we've hired a handful of seasoned revenue producers across our footprint in the first quarter, and we continually look for added team members. Given our size and excess capital, our growing presence and market share in our metropolitan markets across our footprint, our local authority operating model headed by strong leadership teams, and our long-term prospects, we're delivering a strong pitch to relationship managers to come join our team.
Speaker Change: <unk> 25, so that and we've hired a handful of season revenue producers or call sharply compared to the first quarter and we continually look for added team members.
Speaker Change: Given our size and excess capital are building presence and market share in our metropolitan markets across our footprint are local authority operating model headed by strong leadership teams and our long term prospects, we're delivering a strong pitch to relationship managers to our team.
Speaker Change: We expect to continue to moderate our construction and CRE concentration ratios and focus.
Speaker Change: More on operating accounts C&I relationships.
Speaker Change: We intend to operate in the 75% to 85% range on our C&D concentration and the CRE concentration of around 250% or less.
Christopher T. Holmes: We expect to continue to moderate our construction and CRE concentration ratios and focus more on operating accounts and C&I relationships. We intend to operate in the 75-85% range on our C&D concentration and a CRE concentration of around 250% or less and will not become over-concentrated in those buckets in the name of growth.
Speaker Change: It will not become over concentrated in those buckets and the name of growth.
Speaker Change: We have strong commercial capabilities and a very strong treasury management team and we will continue to benefit from the influx of corporate relocations that we're experiencing across our footprint. In addition to taking share from some larger competitors that continue to be disrupted by M&A and internal changes.
Christopher T. Holmes: We have strong commercial capabilities and a very strong treasury management team, and we'll continue to benefit from the influx of corporate relocations that we're experiencing across our footprint, in addition to taking share from some larger competitors that continue to be disrupted by M&A and internal changes. Our second priority for the deployment of capital is strategic M&A. We're well positioned as a potential partner for smaller banks in and around our footprint. We have significant excess capital that should allow us to absorb the interest rate mark prevalent in today's M&A.
Speaker Change: Our second priority for deployment of capital is strategic M&A.
Speaker Change: We're well positioned as a potential partner for smaller banks in and around our footprint.
We have significant excess capital that should allow us to absorb the interest rate more prevalent in today's M&A.
Speaker Change: And we have a very strong risk compliance and operations functions that we believe will be able to navigate the current regulatory and operating environment.
Speaker Change: Our third priority for capital.
Speaker Change: But it is improving our balance sheet and earnings through capital optimization transactions.
Speaker Change: In the quarter as you likely saw Michael and his team executed one such transaction as we sold just over $200 million of securities and reinvested the proceeds for a net pick up in spread of three 8%.
Christopher T. Holmes: And we have very strong risk compliance and operations functions that we believe will be able to navigate the current regulatory and operating environment. Our third priority for capital deployment is improving our balance sheet and earnings through capital optimization transactions. Late in the quarter, you likely saw Michael and his team execute one such transaction as we sold just over 200 million of securities and reinvested the proceeds for a net pickup and spread of 3.8%.
Speaker Change: With annual pretax income impact of just under $8 million, that's real money that comes with no risk of integration and no further execution risks.
Speaker Change: And we would allocate capital to similar transactions.
Speaker Change: Additionally, we recently had our $100 million repurchase plan stock repurchase plan reapproved in order to have that arrow in our waiver also and we purchased a rail for $8 million worth of stock in this reach a point in this current quarter.
Speaker Change: So to summarize I'm proud of our team for the results. This quarter are profitable profitability metrics are trending in the right direction I feel strongly that we have the team the platform and the footprint to be able to continue to build on this foundation.
Christopher T. Holmes: With an annual pre-tax income impact of just under $8 million, that's real money that comes with no risk of integration and no further execution risk, and we would allocate capital to similar transactions. Additionally, we recently had our hundred million dollar repurchase plan, the stock repurchase plan, reapproved in order to have that arrow in our quiver also. And we purchased around $4.8 million worth of stock in this recent way in this current order.
Speaker Change: Now I'm going to turn it over to Michael to give a little more detail on the financial results.
Michael: Thank you, Chris and good morning, everyone I'll first take a minute to walk through this quarter's core earnings we reported net interest income of 99 and a half million.
Michael: Reported noninterest income was $8 million adjusting for the loss of $16 2 million related to our securities restructuring trade in about 600000 on the sale of Oreo.
Christopher T. Holmes: So, to summarize, I'm proud of our team for the results this quarter; our probability metrics are trending in the right direction. I feel strongly that we have the team, the platform, and the footprint to be able to continue to build on this foundation. Now, I'm going to turn it over to Michael to give a little more detail on the financial results.
Michael: Oreo core noninterest income was $23 6 million of which $11 million came from banking.
We reported noninterest expense of $72 4 million and adjusting for a half a million dollars of FDIC special assessment expense core noninterest expense was $71 9 million $59.8 million of which came from banking.
Michael: Yeah.
Michael: Altogether adjusted pre provision net revenue earnings were $51 2 million and banking segment adjusted pre provision net revenue earnings were $48 2 million.
Michael M. Mettee: Thank you, Chris. And good morning, everyone. I'll first take a minute to walk through this quarter's core earnings.
Michael M. Mettee: We report a net interest income of $99.5 million, and reported non-interest income was $8 million. Adjusting for the loss of $16.2 million related to our securities restructuring trade and about $600,000 on the sale of OREO, core non-interest income was $23.6 million, of which $11 million came from banking. We reported non-interest expense of $72.4 million, and adjusting for a half a million of FDIC special assessment expense, core non-interest expense was $71.9 million, 59.8 million of which came from banking.
Michael: Going into more detail on the margin at 342% our net interest margin held relatively flat with the prior quarter's 346%.
Michael: Contractual yield on loans held for investment increased by 12 basis points.
Michael: But those gains were offset by a decline a decline in loan fees of eight basis points.
Michael: Due to a methodology update of our loan fee deferrals.
Michael: Going forward, we anticipate loan fees remaining in the same relative band and having less quarterly volatility than we've seen in the past.
Michael: Meanwhile, our cost of interest bearing deposits increased by nine basis points in the quarter.
Michael: For the month of March our contractual yield on loans held for investment was about $6 five 5%.
Michael: And yield on new commitments in March were coming in around eight 3%.
Michael M. Mettee: [inaudible]
Michael: As a reminder, a 49% of our loan portfolio remains floating rate with 2 billion of those variable rate loans repricing immediately with a move in rates and $1 8 billion of those loans repricing within 90 days of a change in interest rates.
Michael M. Mettee: Altogether, adjusted pre-provision net revenue earnings were $51.2 million, and banking segment adjusted pre-provision net revenue earnings were $48.2 million. Going into more detail on the margin, at 3.42%, our net interest margin held relatively flat with the prior quarter's 3.46%. Contractual yield on loans held for investment increased by 12 basis points, but those gains were offset by a decline in loan fees of 8 basis points due to a methodology update of our loan fee deferrals. Going forward, we anticipate loan fees remaining in the same relative band and having less quarterly volatility than we have seen in the past.
Michael: Of our $4 7 billion of fixed rate loans, we have 478 million maturing over the remainder of 2024 with a yield of 673%.
Michael: Yeah.
Michael: For the month of March.
Michael: Cost of interest bearing deposits was three 5% versus 349% for the quarter.
As I mentioned on last quarter's call. We now have a significant amount of index deposits that will reprice immediately with a change in the fed funds target rate.
Michael: Those balances stood at $2 9 billion.
Michael: As of the end of the first quarter.
Michael: As Chris mentioned, we are focused on building customer deposits and are continuing to target operating accounts.
Michael: We also anticipate that public funds will begin to build seasonally over the course of the second quarter and into the third quarter.
Michael M. Mettee: Meanwhile, our cost of interest-bearing deposits increased by nine basis points in the quarter. For the month of March, our contractual yield on loans held for investment was about 6.55%, and yield on new commitments in March was coming in around 8.3%. As a reminder, 49% of our loan portfolio remains floating rate, with $2 billion of those variable rate loans repricing immediately with a moving rate, and $1.8 billion of those loans repricing within 90 days of a change in interest rates.
As we made a focused effort to minimize our reliance on public funds over the past few years that build will be less dramatic for us than it has been in the years past.
Michael: And we anticipate our public funds topping out the $1 7 billion to $1 8 billion range in the second and third quarters as compared to the $1 6 billion that we had on the balance sheet at the end of the first quarter.
Michael: On the Securities portfolio, we sold $208 million of securities with a yield of $2, one, 4% and reinvested the proceeds of $5, 94% and we estimate the earn back was just a little over two years.
Michael: That transaction occurred in the second half of March So we saw very little benefit from that trade in the first quarter.
Michael M. Mettee: Of our $4.7 billion in fixed-rate loans, we have $478 million maturing over the remainder of 2024 with a yield of 6.73% for the month of March. Cost of interest-bearing deposits is 3.5% versus 3.49% for the quarter.
Michael: Continue to look for profitable profitable deployments of capital in order to improve earnings, but without sacrificing longer term growth and.
Michael: Tangible book value per share.
Michael: With all of those moving pieces, we expect the margin to stay relatively flat over the coming quarters and the absence of any rate cuts as repricing loan yields and rising deposit costs continue to mostly offset each other.
Michael M. Mettee: As I mentioned on last quarter's call, we now have a significant amount of index deposits that we'll reprice immediately with a change in the Fed Fund's target rate. Those balances stood at $2.9 billion as of the end of the first quarter. As Chris mentioned, we are focused on building customer deposits and are continuing to target operating accounts. We also anticipate that public funds will begin to build seasonally over the course of the second quarter and into the third quarter. As we have made a focused effort to minimize our reliance on public funds over the past two years, that build will be less dramatic for us than it has been in the past.
Michael: Moving to noninterest income non mortgage noninterest income continues to perform in the $10 million to $11 million range and we would expect it to remain in that band plus or minus for the remainder of the year.
Michael: Mortgage had a really strong quarter with a total pre tax contribution of $3 1 million, which we were very pleased with.
Michael: For the remainder of the year, we would expect quarterly contributions in the $1 million to $2 million range for mortgage depending on seasonal activity and the interest rate environment in any given quarter.
Michael: Our noninterest expense continued to continued to see the benefit of operational changes made over the past few years and the core banking segment expense was $59 8 million for the quarter as compared to $62 6 million in the fourth quarter of 2023.
Michael M. Mettee: And we anticipate our public funds topping out the $1.7 billion to $1.8 billion range in the second and third quarters as compared to the $1.6 billion that we had on the balance sheet at the end of the first quarter. On the securities portfolio, we sold 208 million of securities with a yield of 2.14% and reinvested the proceeds at 5.94%, and we estimate the earnback was just a little over two years. That transaction occurred in the second half of March, so we saw very little benefit from that trade in the first quarter.
And $66 8 million in the first quarter of 2023.
Michael: At this point, we'd bring our prior guidance for banking segment expenses down to $250 million to $255 million from our prior range of $2 $55 million to $260 million.
Michael: On the allowance for credit losses and credit quality.
Michael: Credit was mostly a non a band again this quarter as we experienced two basis points of charge offs.
Michael: As part of the operational improvements that we've made over the past couple of years, our internal analysis on our credit portfolio continued to improve.
Michael: Such.
Michael: While our non performers have ticked up over the past year, while we're paying close attention. There we feel reasonably confident with the quality of that portfolio and we feel comfortable that we are very well reserved.
Michael M. Mettee: We'll continue to look for profitable deployments of capital in order to improve earnings, but without sacrificing longer-term growth. Intangible Book Value for Shares. With all of those moving pieces, we expect the margin to stay relatively flat over the coming quarters in the absence of any rate cuts as repricing loan yields and rising deposit costs continue to mostly offset each other. Moving to non-interest income. Non-mortgage, non-interest income continues to perform in the 10 to 11 million dollar range, and we'd expect it to remain in that band, plus or minus, for the remainder of the year.
Michael: Speaking more to the allowance our ACL to loans held for investment increased a further three basis points during the quarter to 163%.
Michael: But our provision expense was always 782000 as continued decline in unfunded commitments led to a $1 1 billion release in reserves on those unfunded commitments.
Michael: On capital as Chris mentioned, we have developed very strong capital ratios with TCE to tangible assets of 10%.
Michael: <unk> common equity tier one ratio that is now over 12, 5%.
We continue to balance returning excess capital for organic and strategic growth against optimizing near term earnings through balance sheet restructuring with the goal of building long term shareholder value the strong and consistent CAGR for both earnings per share and tangible book value per share.
Michael: That I will turn the call back over to Chris.
Michael M. Mettee: Mortgage had a really strong quarter with a total pre-tax contribution of $3.1 million, which we were very pleased with. For the remainder of the year, we would expect quarterly contributions in the $1 million to $2 million range from Mortgage, depending on seasonal activity and the interest rate environment in any given quarter.
Christopher T. Holmes: Alright. Thank you Michal to conclude we're proud of our team for a strong start to the year.
Speaker Change: The company that they are building so.
Christopher T. Holmes: So that concludes our prepared remarks.
Christopher T. Holmes: Again, thank you to everybody for your interest and operator at this point, we'd like to open up the line for questions.
Speaker Change: Yes, Sir we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Michael M. Mettee: Our non-interest expense continued to see the benefit of operational changes made over the past few years, and the core banking expense was $59.8 million for the quarter, as compared to $62.6 million in the fourth quarter of 2023 and $66.8 million in the first quarter of 2023. At this point, we'd bring our prior guidance for banking segment expenses down to $250 million to $255 million from our prior range of $255 to $260 million on the allowance for credit losses and credit quality.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: Anytime your question has been addressed and you would like to withdraw your question. Please press Star then two and at this time, we will pause momentarily to assemble our roster.
Feddie Justin Strickland: And the first question will come from 30 Stricklin with Janney Montgomery Scott. Please go ahead.
Feddie Justin Strickland: Hey, good morning, guys.
Feddie Justin Strickland: Good morning.
Feddie Justin Strickland: Just want to start off clarifying on the NIM guidance are you expecting that to remain flat, even including that securities restructure impact.
Feddie Justin Strickland: Yeah, I mean, a very we think it's going to stay in that same range. I mean, you have a little bit of public funds coming in which is a little bit of an offset but get that kind of $3 43 to 45 range.
Speaker Change: Got it and also on the funding side and then this was the jump in other borrowings linked quarter did you guys cap.
Michael M. Mettee: Credit was mostly a non-event again this quarter as we experienced two basis points of charge-offs. As part of the operational improvements that we've made over the past couple of years, our internal analysis of our credit portfolio continued to improve.
Speaker Change: Term funding before it closed or.
Or was that something else.
Speaker Change: Yeah, we actually did that.
Speaker Change: The last couple of days of 2023, So you didn't see it in your an average balances for the fourth quarter.
Michael M. Mettee: As such,
Michael M. Mettee: While our non-performers have ticked up over the past year, and while we're paying close attention there, we feel reasonably confident with the quality of that portfolio, and we feel comfortable that we are very well reserved. Speaking more about the allowance, our ACL to loans held for investment increased a further three basis points during the quarter to 1.63%. But our provision expense was only $782,000 as continued decline and unfunded commitments led to $1.1 million release in reserves on those unfunded commitments.
Actually what that $130 million of shares for the first quarter and yes. It was it was done before it was gaps.
Speaker Change: Got it and just one last question for me and I'll step back I know theres been some weakness in equipment finance, particularly over the road trucking at some of your peers.
Speaker Change: Am I correct in assuming you have some some of that in your trucking equipment finance maybe in that transportation segment that you breakout in the deck can you speak to whether you're seeing any weakness there.
Speaker Change: Yes.
Speaker Change: Travis I'll, let you comment I'll make a comment and then we.
Travis: We do have.
Travis: Two or three trucking companies.
Travis: That are.
Travis: <unk>.
Travis: That are sizable but long established companies, let's see.
Michael M. Mettee: On capital, as Chris mentioned, we have developed very strong capital ratios with TCE to tangible assets of 10% and a common equity tier 1 ratio that is now over 12.5%. We continue to balance retaining excess capital for organic and strategic growth against optimizing near-term earnings through balance sheet restructuring with the goal of building long-term shareholder value through strong and consistent CAGRs for both earnings per share and tangible book values per share. With that, I'll turn the call back over to Chris.
Travis: Vividly.
Owned companies.
Travis: No.
Travis: And know as is frankly, the answer we haven't seen weaknesses in those.
In those clubs.
Travis: We don't do any just long term equipment leasing, where we don't do equipment leasing in that space, but we do have some trucking clients.
Yes, that's correct, Chris I mean, we have some wells types of clients that we've been through several cycles with them. The trucking industry is obviously, one that is up and down.
Travis: Here recently with our trucking clients and we.
Travis: We talked actually about this earlier this year.
Travis: Very good reports from them and we see no issues.
Christopher T. Holmes: Thank you, Michael. To conclude, we're proud of our team for a strong start to the year and for the company that they're building. So that concludes our prepared remarks. Again, thank you to everybody for your interest and to the operators. At this point, we'd like to open up the line for questions.
Christopher T. Holmes: Understood. That's helpful. Thanks for the color guys and congrats on a great quarter.
Christopher T. Holmes: Yes. Thank you alright. Thanks. The next question will come from Brett Rabat and with hub group. Please go ahead.
Brett D. Rabatin: Hey, guys good morning.
Brett D. Rabatin: Good morning, Brett.
Brett D. Rabatin: I wanted to start with the loan growth guidance of mid single digit this year.
Brett D. Rabatin: And it's obviously for 25 its low double digit can you guys talk about how much more you expect the construction portfolio to come in here and then you know.
Operator: Yes, sir. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. And at this time, we will pause momentarily to assemble our roster, and the first question will come from Feddie Strickland with Jannie Montgomery Scott. Please go ahead. Hey, good morning, guys.
Brett D. Rabatin: If youre going to have mid single digit growth in construction abatement does that mean that loan growth. This year could also be on a core basis.
Brett D. Rabatin: Closer to your double low double digit number.
Speaker Change: Yes so.
Speaker Change: First off on that.
Speaker Change: Constant drove the concentration.
Speaker Change: You know we're at 83%.
Speaker Change: Risk based capital.
Speaker Change: And we really would think a good spot for us to operate is probably 75% to 85% something like that.
Feddie Justin Strickland: Good morning, Feddie. Good morning.
Feddie Justin Strickland: Just sort of clarifying on the NIM guidance; are you expecting that to remain flat, even including that securities restructure impact?
Speaker Change: Some kind of in a I would.
Michael M. Mettee: Yeah, I mean, we think it's gonna stay in that same range. You have a little bit of public funds coming in, which is a little bit of an offset, but yeah, that kind of 340, 345 range.
Speaker Change: To support that this way, sometimes you could see maybe it especially even in this environment things go lower than some some they won't go lower that if you look at our geography.
Speaker Change: You actually live in our geography, so you know it well.
Speaker Change: The number of long term clients that we have in the in migration that continues in our geography, we feel pretty good at that level.
Feddie Justin Strickland: Got it. And also on the funding side, I noticed there was a jump in other borrowings linked quarter. Did you guys cap bank term funding before it closed, or was that something else?
Michael M. Mettee: Yeah, we actually did that in the last couple days of 2023, so you didn't see it in your average balances for the fourth quarter, but that's actually what that $130 million issue is for the first quarter, and yes, it was done before it was capped.
Speaker Change: The same way on the gist.
Speaker Change: Commercial real estate concentration.
Speaker Change: We think that 250%.
Speaker Change: <unk> is a pretty fair.
Speaker Change: Risk.
Speaker Change: Thoughtful.
Speaker Change: Oh concentration level for us.
Feddie Justin Strickland: Got it. Just one last question for me, and I'll step back.
Speaker Change: And so that's where we are.
Christopher T. Holmes: I know there's been some weakness in equipment finance, particularly over the road trucking, at some of your peers. Am I correct in assuming you have some of that in your trucking equipment finance, maybe in that transportation segment that you break out in the deck? Can you speak to whether you're seeing any weakness there?
Speaker Change: Those are targeted will be plus or minus on those but that's kind of the places that we that we target.
Speaker Change: Does that answer your question Brett.
Brett D. Rabatin: Yes to some extent that's helpful. So if I'm thinking about loan demand I think we had talked about it maybe some folks are waiting for rates what have you and so a lot of folks are saying demand is not as strong as maybe it might might end up or are you expecting demand to pick up that drives you know what.
Travis K. Edmondson: Yeah, and I will, Travis. I'm gonna let you comment. I'll make a comment.
Christopher T. Holmes: And we do have 23 trucking companies that are sizable but long-established companies. Let's see, privately-owned companies, and, and no is frankly the answer. We haven't seen weaknesses in those clients. We don't do any just long-term equipment leasing, or we don't do equipment leasing in that space, but we do have some trucking clients.
Brett D. Rabatin: Loan growth from here, what what are you expecting in terms of loan demand and you guys being selective I saw we got we're going to get a.
Brett D. Rabatin: A new highest tower downtown with the with a big Big New project.
Speaker Change: Yes, we're not on that one.
Speaker Change: [laughter] I know who is on that one yeah, it's a bit of a big projection we're.
Speaker Change: We're not all that with just for the record and so.
Speaker Change: Yes.
Speaker Change:
Speaker Change: Okay.
Speaker Change: Demand is softer.
Travis K. Edmondson: Yeah, that's correct, Chris. We have some well-established clients that we've been through several cycles with them. The trucking industry is obviously one that is up and down, but recently, with our trucking clients, we talked about this earlier this year, got very good reports from them, and we see no issues. Understand. That's helpful. Thanks to the color guys and congrats on a great quarter.
Speaker Change: Generally across the board it's softer.
Speaker Change:
Speaker Change: It's not it hasn't evaporated.
Speaker Change: But its softer and so.
Speaker Change: When we look out and we go to mid single digits for the year.
Speaker Change: There's a little bit of hope in that I guess is the way I would put it because we do see softer demand we deal.
Speaker Change: But again.
Speaker Change: Uh huh.
Speaker Change: Beating myself here, but but we do still do see some demand and it comes from all parts of our footprint not just military to see but we're seeing it in.
Feddie Justin Strickland: Thank you. All right, thanks.
Christopher T. Holmes: Thanks, Feddie.
Brett D. Rabatin: The next question will come from Brett Rabatin with Hovde Group. Please go ahead. Hey guys, good morning.
Brett D. Rabatin: Wanted to start with the
Speaker Change: North, Georgia, we're seeing it in Alabama were seated in East Tennessee.
Brett D. Rabatin: Loan Growth Guidance
Brett D. Rabatin: Transcripts provided by Transcription Outsourcing, LLC.
Speaker Change: Hum.
Speaker Change: So we're seeing it at all all those places we have a steady flow from West, Tennessee, which is a legacy legacy footprint and so that's kind of.
Brett D. Rabatin: Could also be on a core basis, you know, closer to your double, low double digit number.
Christopher T. Holmes: Yes, so first off on that. Concentrate on the concentration.
Speaker Change: Flat at this at this point Travis.
Christopher T. Holmes: You know, we're at 83% of risk-based capital, and we really would think a good spot for us to operate is probably 75 to 85%, something like that. You know, sometimes, and I would support that this way, sometimes you could see, maybe, especially in this environment, things going lower than some may want to go lower than that. If you look at our geography, you know, you actually live in our geography, so you know it well.
Travis: Would you add any color on that yeah, I mean, I think the demand has softened compared to 2022 ish.
Travis: Everybody was growing gangbusters, we still see a lot of we still see a lot of opportunities, but we continue to be disciplined in going after relationships and not transactions and so that's that's part of it as well and we will continue to do that and we will have some more run off on ADC, but we're getting to.
Christopher T. Holmes: And the number of long-term clients that we have and the in-migration that continues in our geography, we feel pretty good at that level. Same way on just commercial real estate concentration, we think that 250% is a pretty fair and risk thoughtful rate concentration level for us. And so that's where we, we, we. Those are targeted, you know, will be plus or minus on those. But that's kind of the places that we target, ahem. That'd be great.
Travis: To the point now in ADC in CRE, we will.
Travis: Start, replacing it with more relationships. So we just hope to take the contrary from that is not as significant as it has been in the last few quarters.
Travis: Okay.
Travis: Helpful. And then my other question Michael was just around the loan fees and the change there how much did that dollar wise or margin impact the quarter relative to <unk>.
Travis: Yeah.
Michael: Good question right, it's about $2 million.
Michael: But it's offset a little bit on the expense side. So it's a net neutral to the P&L.
Michael: And it's just part of our normal processes.
Michael: Look through your cost originate your loan durations.
Michael: And so we we modified some of our amortization and so that that pushes some of the fee recognition, but it was a couple million dollars on both sides.
Brett D. Rabatin: Yeah, to some extent, that's helpful. You know, so if I'm thinking about loan demand, you know, I think we talked about it, maybe some folks.
Michael: Think about that relative to the fourth quarter. You know we are at 19 out of the house, so you'd been right at one and a half ish.
Brett D. Rabatin: Transcribed by https://otter.ai
Michael: On that issue.
Michael: Okay.
That's helpful. Thanks for all the color guys.
Brett D. Rabatin: might end up are you expecting demand to pick up that drives you know one growth from here? What are you expecting in terms of Loan to Man and you guys being selective? I saw we got, we're going to get a new highest tower.
Michael: Sure.
Michael: The next question will come from Catherine Mealor with <unk> D. W. Please go ahead.
Catherine Fitzhugh Summerson Mealor: Thanks, I wanted to ask on expenses I know that you lowered the expense target for the core bank, Michael just by a little bit to 250, 50, 55, but I know that Chris you also mentioned that you had hired a few revenue producers this quarter and so just kind of curious on the give and take there with all of your new hires fully reflected in.
Brett D. Rabatin: Downtown with a big, new project.
Christopher T. Holmes: Yeah, we're not on that one just for the record.
Christopher T. Holmes: I know who's on that one. You have to bet, it's a big project.
Catherine Fitzhugh Summerson Mealor: The Guy that Michael gave and maybe talk a little bit about you know places that you are cutting in and how you are able to.
Christopher T. Holmes: Yeah, we're not on that one just for the record, and so yeah, demand is softer. I'd say, generally, across the board, it's softer.
Catherine Fitzhugh Summerson Mealor: To cut expenses, while you're still ramping up hiring.
Catherine Fitzhugh Summerson Mealor: Yes, so as we last year.
Christopher T. Holmes: It hasn't evaporated, but it's softer, and so when we look out and we go mid-single digits for the year, there's a little bit of hope in that, I guess, is a way I would put it, because we do see softer demand. But again, I'm kind of repeating myself here, but we still do see some demand, and it comes from all parts of our footprint, not just middle Tennessee, but we're seeing it in North Georgia, we're seeing it in Alabama, we're seeing it in East Tennessee, and so we're seeing it in all those places. We have a steady flow from West Tennessee, which is a legacy footprint, and so that's kind of flat at this point. Travis, would you add any color to that?
Catherine Fitzhugh Summerson Mealor: We were planning.
Catherine Fitzhugh Summerson Mealor:
And we as you know we underwent some.
Catherine Fitzhugh Summerson Mealor: Fairly significant expense reductions last year, but we also planned through that for some hires on board.
Catherine Fitzhugh Summerson Mealor: Revenue side, and some higher and some investments and so.
Catherine Fitzhugh Summerson Mealor: It wasn't it was a thoughtful process.
Speaker Change: Now I will add to that Catherine.
Catherine Fitzhugh Summerson Mealor: We say to our to our leadership team and to our managers, we say when we have a chance to get a bankers in our footprint will take them, we'll do it.
Regardless of the expense environment will take many time and so.
Catherine Fitzhugh Summerson Mealor: That could adjust it so let's say, we got a chance to hire 50 this quarter, we hired 50.
Brett D. Rabatin: Yeah, I mean, I think that demand has softened compared to 2022-ish, when everybody was growing gangbusters. We still see a lot of opportunities, but we've continued to be disciplined in going after relationships and not transactions. And so that's part of it as well, and we will continue to do that. We will have some more runoff on ADC, but we're getting to the point now on ADC and CRE where we'll start replacing it with more relationships.
Catherine Fitzhugh Summerson Mealor: And our expenses would be outside of that I don't think we're going to get the chance to hire 50, but we could get the chance to hire four to five.
Catherine Fitzhugh Summerson Mealor: And that might impact us a little bit, but it wouldn't have a huge impact because we got some of that built into our plan.
Speaker Change: Okay, Great and then so then maybe.
Speaker Change: Follow up to just that.
Speaker Change: Deferred fees conversation then again was really the main change in the expense guide related to that that fee change Michael Morris isn't anything else.
Brett D. Rabatin: So we just hope that the impact from that is not as significant as it has been in the last few quarters. Okay. That's helpful. And then my other question, Michael, was just around the loan fees and the change there. How much did that, dollar-wise or margin-wise, impact the quarter relative to 4Q?
Speaker Change:
Speaker Change: So partially I'd say I'm just quick math right if you.
Speaker Change: If you go down, it's probably 50% of it or so was.
Speaker Change: The fee change and then part of it is.
Speaker Change: Yes, we said this last quarter and you've known us for a while right is when we're going to deliver and then talk about it and so.
Michael M. Mettee: Yeah, it's a good question. It's about 2 million. But it's offset a little bit on the expense side, so it's net neutral to the P&L. And it's just part of a normal process; you look through your cost of origin, your loan durations. And so we, we modified some of our amortization. And so that pushes some of the fee recognition forward, but it was a couple million on both sides. So the way I think about that relative to the fourth quarter, you know, we're at 99 and a half. So you'd be right at a 101 and a half on that issue. Okay. That's helpful. Thanks for all the calls, guys.
Speaker Change: We continue to try to be mindful of those.
Speaker Change: Expense.
Speaker Change: Numbers and getting better about it every day through the management process.
Speaker Change: It's over delivery.
Speaker Change: And then a little bit of it's the.
Speaker Change: Loan deferral change fee deferral.
Speaker Change: Okay perfect.
Speaker Change: Helpful. Thank you just on the.
Speaker Change: The buyback it was great to see that.
Speaker Change: A little bit this quarter.
Speaker Change: You said it well.
Any growth first and then buyback and maybe M&A is after that when that comes back but is it fair to think as we move through the rest of the year as organic growth remains slow that youll continue to be active in the buyback really kind of until growth comes back or how do we think about that.
Speaker Change: That balance.
Catherine Fitzhugh Summerson Mealor: Mm-hmm, sure. The next question will come from Catherine Mealor with KDW. Please go ahead. Thanks.
Speaker Change: Yeah I would.
You know part of the buying back as a function of price.
Speaker Change: When you when you're really when you feel like your stock is discounted.
Christopher T. Holmes: I want to ask you something about expenses. I know that you've lowered the expense target for the core bank, Michael, just by a little bit to 250 to 255. But I know that, Chris, you also mentioned that you had hired a few revenue producers this quarter. And so, just kind of curious about the give and take there: are all of your new hires fully reflected in the guide that Michael gave? And maybe talk a little bit about, you know, places that you're cutting and how you're able to cut expenses while you're still renting or hiring. Thanks.
Speaker Change: So like it's a goodbye and so I'd say, that's a that's an impacting factor and then and then M&A would probably be the other impacting factor otherwise.
Speaker Change: We will.
Speaker Change: We'll be active.
To the extent that we have.
Speaker Change: Unapproved.
Speaker Change: And so.
Speaker Change: <unk>.
Speaker Change: So we'll continue to buy back as long as the stock continues to be discounted in their opinion.
Speaker Change: We always look at earn back on that capital those kinds of things and we stay within certain parameters.
Speaker Change: Great. Thank you.
Christopher T. Holmes: Yes, so as we did last year, as we were planning And we, as you know, we underwent some fairly significant expense reductions last year. But we also planned through that for some hires on the revenue side and some higher salaries and some investments. And so it wasn't it was a thoughtful cut process.
Speaker Change: And Catherine I'll say, one other thing on the expense side that just to kind of put maybe an exclamation point award of Michael's comments.
Speaker Change: Especially when it comes things like expansion initiatives.
Speaker Change: We don't really we don't tout them on the front end and we don't give away Tom on the backend, but we.
Christopher T. Holmes: Now, I will add to that, though, Catherine, we say to our leadership team and to our managers, we say, when we have a chance to get a banker in our footprint, we'll take them. We'll do it, regardless of the expense environment. We'll take them anytime. And so, you know, that could adjust it some.
Speaker Change: But when we.
Speaker Change: Last quarter in our call. We said, we have taken 20 million out of the run rate again, you've known us a long time so.
Speaker Change: You ought to know that it's going to be $20 million or more.
Speaker Change: Whatever we whenever we say on a protocol that is going between $20 million that means we get we're confident we've got at least that.
Speaker Change: That's.
Speaker Change: Partly why we gave a little additional guidance this quarter.
Christopher T. Holmes: Let's say we got a chance to hire 50 this quarter. We'd hire 50, and our expenses would be outside of that. Don't think we're gonna get the chance to hire 50, but we could get the chance to hire four or five, and that might impact us a little bit, but it wouldn't have a huge impact because we've got some of that built into our plan.
Speaker Change: That makes sense and yes, you're right on that [laughter] alright. Thank you.
Speaker Change: Alright. Thanks.
Speaker Change: Next question will come from Stephen Scouten with Piper Sandler. Please go ahead.
Stephen Kendall Scouten: Hey, good morning, everyone.
Stephen Kendall Scouten: Or historically of.
Stephen Kendall Scouten: Chris I wanted to remember when you talk about where brand organic growth first that does if I remember correctly include kind of the new hires and any team lift outs and touch that might occur and so I want to confirm that and then kind of if you could talk about how youre seeing that versus M&A opportunities today, given the rate environment earn back on.
Catherine Fitzhugh Summerson Mealor: Okay, great. And then, maybe as a follow-up to just the deferred fees conversation a minute ago, is really the main change in the expense guide related to that fee change, Michael, more so than anything else?
Stephen Kendall Scouten: Securities and such and kind of how you think that might play out through this year and maybe even into 'twenty five.
Michael M. Mettee: [inaudible] So partially, I'd say... Quick math, right? Transcripts provided by Transcription Outsourcing, LLC. We, yeah, we said this last quarter, and you've known us for a while, right? We're going to deliver and then talk about it. And so we continue to try to be mindful of those numbers and getting better about it every day through the management process. So a little bit of it's over delivery, and then a little bit of it's the loan deferral change, or fee deferral.
Stephen Kendall Scouten: Yes, so the on the we do and when we talk about organic growth, yes, part of what we're thinking about there is bringing on new people and new teams.
Stephen Kendall Scouten: The opportunities there and the capital that that takes.
Stephen Kendall Scouten: When folks when you bring those on of course, you bring on the expense burst.
Stephen Kendall Scouten: But if you.
Stephen Kendall Scouten: If it pays off in the way that you're always anticipate it will whenever you make those moves its a very good return on capital.
Catherine Fitzhugh Summerson Mealor: Great, that's helpful. So maybe just on the buyback, it was great to see you buy back a little bit this quarter. I know you said it was organic growth first, and then buyback, and maybe M&A is after that when you know that comes back. But is it fair to think, as we move through the rest of the year as organic growth remains slow, that you'll continue to be active in the buyback really until growth comes back? Or how do we think about that? The Debt Balance.
Stephen Kendall Scouten: Relative to just about any anything we can do and so that's that's always what we are.
Stephen Kendall Scouten: We're looking to do.
Stephen Kendall Scouten: Feel like.
Stephen Kendall Scouten: There is some tailwind we got some tailwind when it comes to <unk>.
Stephen Kendall Scouten: When it comes to that.
Stephen Kendall Scouten: Right now with kind of where the company sits from a SaaS standpoint from some other disruption in the market from.
Stephen Kendall Scouten: Our value proposition for our associates that are looking for good long term places to be.
Christopher T. Holmes: Yeah, I would, you know, part of buying back is a function of price. And, you know, when you're when you're really when you feel like your stock is discounted, like it's a good buy.
Stephen Kendall Scouten: So we think we've got some.
Stephen Kendall Scouten: Some tailwind is there and we feel that from folks frankly, reaching out to us and so.
Christopher T. Holmes: And so I'd say that's an impacting factor. And then, and then M&A would probably be the other impacting factor. Otherwise, you know, we will, we'll, we'll be active to the extent that we have an approval. And so we'll continue to buy back as long as the stock continues to be discounted, in our opinion.
Stephen Kendall Scouten: So that's why we're optimistic.
Stephen Kendall Scouten: And then on the M&A front.
Stephen Kendall Scouten: <unk>.
Stephen Kendall Scouten:
Stephen Kendall Scouten: We.
Stephen Kendall Scouten: So that's always a thoughtful.
Stephen Kendall Scouten: <unk> approach for us because there is a lot of risk in that and Theres a lot of execution risk in that even if if if the numbers line up you have to execute at a high level. It is not easy.
Christopher T. Holmes: We do, we always look to earn back on that capital, those kinds of things, and we stay within certain parameters.
Stephen Kendall Scouten: <unk>.
Stephen Kendall Scouten: That's reason we stay pretty.
Catherine Fitzhugh Summerson Mealor: Great. Thank you.
Targeted and focused on.
Christopher T. Holmes: Catherine, I'll say one other thing on the expense side that just to kind of put an exclamation point on one of Michael's comments, especially when it comes to things like expense initiatives, we don't generally tout them on the front end, and we don't generally tout them on the back end, but when we, last quarter, in our call, we said we had taken $20 million out of the run rate. Again, you've known us for a long time, so you ought to know that it's going to be $20 million or more whenever we say on the call that it's going to be $20 million. That means we've got it. We're confident we've got at least that. And so that's partly why we gave a little additional guidance this quarter.
Stephen Kendall Scouten: The things that we think work well for us.
Stephen Kendall Scouten: Versus just fielding calls from.
Stephen Kendall Scouten: Oh.
Stephen Kendall Scouten: Any anything that comes up for auction or any folks that we don't know already pretty well and so.
Stephen Kendall Scouten: But if we get one of those calls it's going to be something.
Stephen Kendall Scouten: If one of those.
Stephen Kendall Scouten: Becomes available to us or wants to talk to us.
Stephen Kendall Scouten: And we're going to be very very interested.
Stephen Kendall Scouten: That's part of the reason we have ourselves in a capital position that we're in so that we can.
Stephen Kendall Scouten: Make that happen.
Stephen Kendall Scouten: Even in <unk>.
Stephen Kendall Scouten: And I'm like like today, where you've got bigger with Aoc.
Stephen Kendall Scouten: And you've got some things that worked against you may be on your balance sheet.
Christopher T. Holmes: That makes sense. And yes, you're right about that. All right. Thank you, Chris.
Stephen Kendall Scouten: Yes.
Speaker Change: Helpful color appreciate that Chris.
Catherine Fitzhugh Summerson Mealor: All right, thanks.
Stephen Kendall Scouten: The next question will come from Stephen Scouten with Piper Sandler. Please go ahead. Hey, good morning, everyone. Good morning, Stephen. Chris, I want to remember that when you talk about organic growth first, that does, if I remember correctly, include kind of these new hires and any team lift-outs and such that might occur. And so I want to confirm that. And then kind of if you could talk about how you're seeing that versus M&A opportunities today, given the rate environment, earnings on securities, and such, and kind of how you think that might play out through this year and maybe even into 2025.
Speaker Change: And then as I'm thinking about your guidance here around flattish NIM, and then still kind of mid single digit loan growth for the year.
Speaker Change: Do you think.
Speaker Change: I've reached or maybe you're pretty close to the bottom from an NII perspective on a quarterly basis or maybe said another way do you think you can grow NII from from this kind of what was it about $100 million this quarter.
You grow off of that base throughout 'twenty four.
Speaker Change: Yes.
Speaker Change: We think we're at a place.
Speaker Change: Place, where we shouldnt really deteriorate much from here.
Speaker Change: Growth is going to depend on what are the growing NII.
Christopher T. Holmes: Yeah, so when we're talking about organic growth, yeah, part of what we're thinking about there is bringing on new people and new teams and the opportunities there in the capital that that takes. You know, when you, when folks when you bring those on, of course, you bring on the expense first.
Speaker Change: From here.
Speaker Change: It does some of that depends on what happens on the asset side.
Speaker Change: And how much we can we can grow the asset side.
Speaker Change: Close rates are always none of us know, what's going to happen, but thats where were at yourself safe question Steven and.
Christopher T. Holmes: But if you, if it pays off in the way that you always anticipate it will, whenever you make those moves, it's a very good return on capital, relative to just about anything we can do. And so that's, that's always what we are looking to do. And we feel like there are some tailwinds. We've got some tailwinds when it comes to that right now, with kind of where the company sits from a size standpoint, from some other disruption in the market, from our value proposition for associates that are looking for good long-term places to be.
Speaker Change: We've got some optimism around that.
Speaker Change: We we can do that over the next few quarters, but.
Speaker Change: But we're also we also have a dose of realism, what we do that.
Speaker Change: Michael's guidance wasn't overly aggressive noticed it hasnt been we havent given overly aggressive guidance.
Speaker Change: The last gosh, probably four or five quarters.
Speaker Change: You hear us being more optimistic on pretty much everything we have we'd be on.
Speaker Change: Sure.
Speaker Change: Yes.
Christopher T. Holmes: So we think we've got some tailwinds there, and we feel that from folks, frankly, reaching out to us. And so that's why we're optimistic. And then on the M&A front, of You know, we always take a thoughtful approach for us because there is a lot of risk in that, and there is a lot of execution risk in that, even if the numbers line up, you have to execute at a high level. It is not easy, and so that's the reason we stay pretty conservative.
Speaker Change: Margin and net interest income generally we did that on expenses and noninterest income and so.
Speaker Change: That's pretty much the big three and so we.
Speaker Change: We feel pretty good about being able to maintain that and then and so now we're thinking about how we build that.
Speaker Change: And like I said some of that comes from growth and growth in the right spots. We've got to continue to grow relationship based.
Speaker Change: Posit and we got to grow.
Speaker Change: Just.
Speaker Change: Good core loans at this point, yes, it's.
Speaker Change: David I'll just add to that.
Christopher T. Holmes: targeted and focused on the things that we think work well for us versus just fielding calls from any anything that comes up for auction or any any folks that we don't know already pretty well. And so if we get one of those calls, it's going to be something if one of those becomes available to us or wants to talk to us, then we're going to be
Certainly the investment portfolio trade benefits net interest margin kind of.
Speaker Change: Back to.
David: Betty's question I may not have answered it really well, but I will say.
David: Deposit new deposits are still expensive I mean so.
David: As you grow.
David: It can.
David: It can impede some of your net interest income.
David: Hopefully you're all set up with the loan growth that Chris was.
Unknown Executive: Unknown Executive, Alex Lau, Robert Hoehn, Travis Edmondson, FB Financial Corp Yeah, no, that's not it.
David: Talking about because you are earning nice <expletive> field as we mentioned eight 3% on new commitments on loans.
Stephen Kendall Scouten: That's a helpful color. I appreciate that, Chris.
David: The math works if you if you can find the growth but deposits are for a I'll say that.
Stephen Kendall Scouten: And then as I'm thinking about your guidance here around, you know, a flattish NIM and then still kind of mid single-digit loan growth for the year, do you think we're, I've reached, or maybe you're pretty close to the bottom from an NII perspective on a quarterly basis? Or maybe, said another way, do you think you can grow NII from this kind of, what was it about 100 million this Can you grow off of that base throughout 24?
David: And so theres a balance in there and a little bit of an unknown.
Speaker Change: Yeah, Yeah, no and that brings up maybe my last question would be kind of what are you seeing from a mix shift perspective at this point in time it looks like I mean, this quarter the noninterest bearing deposits on an end of period basis, where.
Speaker Change: Not down very much do you think we've kind of we're past a lot of those outflows and do you think the non interest bearing deposits. Maybe you can can stabilize here around 20 ish percent of deposits or what are you seeing there from a mix shift perspective.
Christopher T. Holmes: Yeah, We think we're at a place where we shouldn't really deteriorate much from here. Growth is going to depend on what the growing NII from from here. It does some of that depends on what happens on the asset side and how much we can grow the asset side. You know, of course, rates are always changing, none of us know what's going to happen, but that's, we're asking ourselves the same question, Stephen, and we've got some optimism around that, that we can do that over the next few quarters, but we also have a dose of realism when we do that, and that's why, you know, Michael's guidance wasn't overly aggressive. Notice it hasn't been—we haven't given you overly aggressive guidance.
Speaker Change: Yeah, I think from a.
Speaker Change: The reality is we went most of the quarter, where we were.
Speaker Change: Right on the prior quarter number from a mix.
And ended the quarter it dipped down we're back slightly up this quarter above and so that that 20% marker is something that.
Speaker Change: I keep pointing back to when I think about our combination with Franklin financial back in 2020, that's why our pro forma it out too.
Speaker Change: So you know that.
Speaker Change: That's probably the.
Speaker Change: The floor there.
Speaker Change: But.
Speaker Change: We're working every day to stay above it I'll say that and get those core operating accounts.
Christopher T. Holmes: The last, gosh, probably four or five quarters, you hear us being more optimistic on pretty much everything. You know, we had, we beat on, uh, margin in net interest income. Generally, we did that on expenses and non-interest income. And so that's pretty much the big three. And so we feel pretty good about being able to maintain that. And then, and now, we're thinking about how we can build on that.
Speaker Change: So it's it's remained fairly consistent.
Speaker Change: Yes.
Speaker Change: Okay. Thanks for all honey.
Speaker Change: Thanks.
Speaker Change: We watch it every day and so it's a you guys generally see a point to point.
Speaker Change: Like I said it was up most of the quarter, Michael and then just I mean literally the last week in the quarter.
Speaker Change: Dropped and then to the first week of the new quarter.
Christopher T. Holmes: Transcribed by https://otter.ai
Speaker Change: <unk>.
Speaker Change: And so right now it would.
Christopher T. Holmes: And like I said, some of that comes from growth and growth in the right spots. We've got to continue to grow relationship-based deposits, and we've got to grow just, you know, good core loans at this point.
Speaker Change: Be up versus where it was at the end of the quarter and so.
Speaker Change: So I say all that to say I think we're right in the zone, where we're going to be.
Speaker Change: Fairly fairly stable, where we are when it comes to the non interest bearing.
Michael M. Mettee: Yeah, Stephen, I'll just add to that the, yeah, certainly the investment portfolio trade benefits, net interest margin, kind of back to Feddie's question. I may not have answered it really well. But, yeah, I will say, deposits, new deposits are still expensive. I mean, as you grow deposits, it can impede some of your net interest income. Hopefully, you offset that with the loan growth that Chris was just talking about because you are earning nice sized yields, as we mentioned, 8.3% on new commitments on loans. So the math works if you can find the growth, but deposits aren't free, I'll say that. And so there's a balance in there, and a little bit of an unknown.
Speaker Change: That's great. Thanks for all the color.
Speaker Change: Hope you guys keep a under promising and over delivering we appreciate it.
Speaker Change: Thanks, David.
Speaker Change: The next question will come from Alex Lau with Jpmorgan. Please go ahead.
Alex Lau: Hi, good morning.
Good morning.
Alex Lau: I wanted to start off with mortgage can you talk about what drove the positive contribution from the change in fair value of loans and derivatives in the quarter and how do you think about this contribution to the one to 2 million quarterly expectations in the quarters ahead.
Speaker Change: Yeah, that's a good question.
Speaker Change: If you look on I guess, its slide 14 or <unk>.
Speaker Change: Typically in the mortgage slide in the deck.
Speaker Change: They are function of pipeline growth.
Speaker Change: The team did a really good job actually better than expected on.
Stephen Kendall Scouten: Yeah, yeah, no, and that brings up maybe my last question, which would be kind of, what are you seeing from a mixed shift perspective at this point in time? It looks like, I mean, this quarter, the non-interest-bearing deposits on an end-to-period basis were, you know, not down very much. Do you think we've kind of, you know, we're past a lot of those outflows, and do you think the non-interest bearing deposits maybe can stabilize here around 20-ish percent of deposits, or what are you seeing there from a mixed shift perspective?
Speaker Change: New rate lock commitments during the quarter. So we had call it 100.
Speaker Change: $35 million increase in the pipeline, which drives the fair value.
Speaker Change: Higher and some mortgage Reits you recognize income at all.
Speaker Change: A pull through basis on rate lock so that that was the driver there and I'll also give them credit.
Speaker Change: For continuing the other side.
Speaker Change: <unk> management, they've done a really good job as well we've talked a lot about banking segment expenses and total company.
Speaker Change: They continue to get more efficient.
Speaker Change: Certainly I go on I appreciate it.
Speaker Change: And then.
Christopher T. Holmes: Yeah, I think from a reality standpoint, we went most of the quarter where we were right on the prior quarter number from a mix, and at the end of the quarter, it dipped down. We're back slightly up this quarter, you know, above. And so that 20% marker is something that I keep pointing back to when I think about our combination with Franklin Financial back in 2020; that's where I pro-form it out to. So, you know, that's probably the floor there, I would hope, but we're working every day to stay above it. I'll say that and get those core operating accounts. So, it's remained fairly consistent.
Speaker Change: The second half of that question, how do we think about it go forward I think.
Speaker Change: The fourth quarter was probably the seasonal decline in the low 0.1st.
Speaker Change: First quarter better than expected on.
Speaker Change: Activity in the marketplace, and we see that kind of evening out here.
Speaker Change: Yeah, typically you'd see that pop in the second and third quarter rates have popped up a little bit.
Speaker Change: And now a little bit actually a lot.
Speaker Change: Since quarter end and say that that's moderated a bit.
Speaker Change: And so we'll just have to see how that kind of works its way through.
Speaker Change: In total for the interest rate environment.
Yes, one of the reasons.
Speaker Change: Little bit hard to forecast is what the first part of what Michael said is you've got that mark to market.
Speaker Change: On your for your pipeline.
Speaker Change: So is your pipeline is getting bigger generally that's going to go.
Christopher T. Holmes: It is. Okay. Thanks for all. Thanks.
Christopher T. Holmes: It's, you know, we watch it every day. And so it's a, you know, you guys generally see a point to point. And like I said, it was up most of the quarter, and then, literally, the last week of the quarter dropped. And then in the first week of the new quarter, it's up. And so right now, it would be up versus where it was at the end of the quarter. And so, I say all that to say, I think we're right in a zone where we're going to be fairly, fairly stable where we are when it comes to the non-interest barrier.
Speaker Change: Positive for you as your pipeline go smaller jewelry thats going to be a negative for you.
Pipeline was little bigger at the end of the board.
Speaker Change: Thank you for that and moving on to credit regarding your commentary in the press release for the reason to adding to your loan loss reserves, you mentioned being cautious on the economy and can you explain what asset classes are you more cautious on.
Speaker Change: And also how does this translate into your net charge off outlook and when does it is expected to normalize.
Speaker Change: Yeah. So so Alex we're listening to your bosses recently.
Speaker Change: A little higher.
Speaker Change: Yeah.
Speaker Change: We are.
Stephen Kendall Scouten: That's great. Thanks for all the color, and I hope you guys keep under promising and over delivering.
Speaker Change: So.
Speaker Change: If you look at asset classes.
Speaker Change: Remember we've got.
Stephen Kendall Scouten: We appreciate it. Bye. Bye, Stephen. Bye. The next question will come from Alex Lau with J.P. Morgan. Please go ahead. Hi, good morning.
Speaker Change: Again, we're pretty comfortable with our our concentration right now.
But we do still have.
Speaker Change: Some commercial real estate again, we're not over weighted but we do have some commercial real estate.
Alex Lau: Good morning.
Michael M. Mettee: I want to start off with mortgages. Can you talk about what drove the positive contribution from the change in fair value of loans and derivatives in the quarter? And how do you think about this contribution to the 1 to 2 million quarterly expectations in the quarters ahead?
Speaker Change: We like our we like the way that that's distributed.
Speaker Change: Among multifamily among office among.
Speaker Change: All types of.
Speaker Change: Asset assets there we also.
Speaker Change: Well.
If you look at our other.
Speaker Change: Asset types, we do have a consumer portfolio that comes with our manufactured housing.
Michael M. Mettee: Yeah, that's a good question. I mean, if you look at, I guess it's slide 14 or 15, the mortgage slide in the deck, it's really a function of pipeline growth. So Yeah, the team did a really good job, actually better than expected on new rate lock commitments during the quarter. So we had to call it a hundred and a $35 million increase in the pipeline, which drives the fair value higher. And, you know, with mortgage rights, you recognize the income on a pull-through basis on the rate lock. So that was the driver there.
Speaker Change: Our manufactured housing division that manufactured housing division, one we liked a lot and performed well for us, but we reserved heavily especially on the consumer side of that actually we can serve we when it goes on the books were jewelry reserving that at a 5% reserve. So yeah, Alex I'd just add I mean.
Speaker Change: Yeah.
The construction bucket you saw an increase there if you look on page 11 of the deck.
Speaker Change: And it wasn't it wasn't necessarily because there is.
Speaker Change: Problems in the portfolio, it's just unknown in that.
Michael M. Mettee: And I also give them credit for continuing the other side, you know, expense management. They've done a really good job as well. We talk a lot about banking segment expenses and total company expenses, but they've continued to get more efficient, which is certainly a goal and appreciated. And then the second half of that question, how we think about it going forward, I think, You know, the fourth quarter was probably the seasonal decline, the low point, and the first quarter better than expected on activity in the marketplace.
Speaker Change: Sorry, multifamily space, which we.
Speaker Change: We saw a slight uptick in our <unk>.
Speaker Change: <unk> commitments there.
Speaker Change: Percentage wise and now we're just trying to hold it flat.
Speaker Change: Given all the noise in the quarter.
Yeah kind of nationally Brad's question or you mentioned that the big projects here in Nashville that is R&R, but.
Speaker Change: Just being cautious on any type of contagion in and around our footprint.
Speaker Change: Yes, the second half of this question right was our charge off outlook, Yeah, and I think our commentary in the deck says Hey, we are 10 years, we've averaged five basis points.
Michael M. Mettee: And we see that kind of evening out here. Yeah, typically, you'd see that pop in the second and third quarter. Rates have popped up a little bit, and not just a little bit, actually a lot since quarter end, and so that's moderated a bit, and so we'll just have to see how that kind of works its way through in total for the interest rate environment.
Speaker Change: Per year.
Speaker Change: We're off to a pretty decent start there we debate this internally all the time as to what normal is and when that is going to return.
Speaker Change: And so.
Speaker Change: If we look through the portfolio.
I'd say were a bit off ways off from from whatever normal is.
Speaker Change: For the industry 15 to 20 basis points, but we don't see it yet, but there is probably something out there from a from an industry perspective, what we're trying to guard against Jets.
Christopher T. Holmes: Well, the reason that's that's a little bit hard to forecast is what the first part of what Michael said is, you've got that market on your pipeline. And so as your pipeline is getting bigger, generally, that's going to be a positive for you. As your pipeline goes smaller, generally, that's gonna be a negative for you. And our pipeline was a little bigger at the end of the board.
Speaker Change: It's a tough one.
Speaker Change: And Michael highlighted something that we've been highlighting we got we've averaged five basis points charge offs, Jackie just a shade under that.
Speaker Change: If you go over 10 year average and remember we've got our manufactured housing portfolio in there. So we're taking some we take every every single quarter, we take some charge offs on that.
Alex Lau: Thank you for that. And moving on to credit, regarding your commentary in the press release, for the reason to add to your loan loss reserves, you mentioned being cautious on the economy. And can you explain what asset classes you are more cautious on? And also, how does this translate into your net charge-off outlook? And when does it occur?
Speaker Change: Part of the portfolio think of that debt not unlike say a credit card piece or something and so it's a consumer piece, where you're just going to have some charge offs every quarter and so.
Speaker Change: Outside of that we had almost nothing.
Speaker Change: A decade and we just don't think that's normal we don't know what normal returns and we don't know what normal it will look like when it returns.
Christopher T. Holmes: Yeah, so, so Alex, we're listening to your boss for a reason.
Speaker Change: But we but we count ourselves being prepared so so whenever it does return.
Christopher T. Holmes: [inaudible]
Christopher T. Holmes: You know, if you look at asset classes, you know, remember, we've got, we're pretty comfortable with our concentrations right now, you know, but we do still have some commercial real estate. Again, we're not overweighted, but we do have some commercial real estate. We like our we like the way that that's distributed among multifamily, among office, among all types of assets there. We also, you know. If you look at our other asset types, we do have a consumer portfolio that comes with our manufactured housing division.
Speaker Change: Yeah.
Speaker Change: We plan to be prepared so we are prepared.
Speaker Change: Thank you for that and just a follow up on the NIM guidance, what do you assume for your rate cut outlook for this year.
Speaker Change: We had to.
Speaker Change: We have two we've had too and their boat back loaded September and November so it's very minimal.
Speaker Change: I think you are aware, we've been probably an outlier in our rate outlook.
If we cant.
Speaker Change: Forecast credit will probably even worse on interest rates.
Speaker Change: We are.
Speaker Change: I can give my team a little credit because when we built the budget.
Christopher T. Holmes: That manufactured housing division, one we like a lot and performs well for us, but we reserve heavily, especially on the consumer side of that. Actually, when that goes on the books, we're generally reserving that at a 5% reserve.
Speaker Change: In August and September.
Speaker Change: They put two rate cuts back into August and September of 'twenty three they had two rate cuts one in September one in November.
Speaker Change: August 23 so.
Speaker Change: We don't know what's going to happen, but that was certainly not consensus at the time that was built into our budget and we havent changed we've just weak.
Michael M. Mettee: Yeah, Alex, I just want to add, I mean, the construction bucket, you saw an increase there. If you look on page 11 of the deck, and it wasn't necessarily because there were transcripts provided by Transcription Outsourcing, LLC, you know, kind of nationally. Brett's question mentioned the big projects here in Nashville. Those aren't ours, but we're just being cautious about any type of contagion in and around the footprint. Yeah, the second half of his question, right, was our charge off Outlook.
Kept it like that.
Speaker Change: Great. Thanks for answering my questions.
Speaker Change: Thanks, Alex.
Speaker Change: The next question will come from Matt Olney with Stephens. Please go ahead.
Matthew Covington Olney: Hey, good morning, I just wanted to go back to the discussion around the new hires that you made I think you touched on it briefly but any more color on.
Matthew Covington Olney: You know what type of bank that came from.
Matthew Covington Olney: What geography.
Matthew Covington Olney: And just how many and then taking a step back on the loan growth guidance, just how much of the mid single digit guidance for this year is driven by those new hires.
Michael M. Mettee: And I think our commentary in the deck, you know, says, hey, we have 10 years, we've averaged five basis points per year. We're off to a pretty decent start there. We debate this internally all the time as to what normal is and when that's going to return. I'm sorry.
Speaker Change: Yeah. So.
Speaker Change: Bigger.
Speaker Change: Thanks.
Is where they come from.
Speaker Change: So.
Michael M. Mettee: We were, if we looked through the portfolio, you know, we would say we're a bit off the norm from whatever the normal is for the industry, 15 to 20 basis points, but we don't see it yet. But there's probably something out there from an industry perspective. We're, we're trying to guard against it.
Speaker Change: <unk>.
Speaker Change: All of them are bigger banks.
Speaker Change: So three of the five are bigger banks and two of them once they're both smaller banks.
Speaker Change: So combination.
Speaker Change: Sure.
Speaker Change: Bose.
Speaker Change: And.
Speaker Change: No we're not I guess that's one.
Speaker Change: Data point, we're saying we're talking about.
Speaker Change: Business coming on.
Speaker Change: Or mid mid single digit type growth.
Christopher T. Holmes: Yeah, it's a tough one, and Michael highlighted something that we've been highlighting. I mean, we've averaged five basis points of charge-offs to actually just a shade under that for 10, if you go over the 10 year average. And remember, we have a manufactured housing portfolio in there. So we take every single order; we take some charge-offs on that part of the portfolio. Think of that not unlike, say, a credit card piece or something. It's a consumer piece where you're just going to have some charge-offs every once in a while. And so outside of that, we had almost nothing. Unknown Executive, Alex Lau, Robert Hoehn, Travis Edmondson, FB Financial Corp
Speaker Change: That's a contributor but it's not the it's.
Speaker Change: The contributor it's not it's one one piece of it.
Speaker Change: <unk>.
Speaker Change: The organic growth picture some of that is taking share.
Speaker Change: And growing.
Speaker Change: Our own folks go in growing their business.
Speaker Change: Our folks have been with us for decades.
Speaker Change: Okay.
Speaker Change: And gosh, Chris following up there you mentioned before the bank is always opportunistic in terms of <unk>.
Speaker Change: New hires you're picking up on kind of what's what's out there how would you just characterize the opportunity set now for bringing over new talent on the production side.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: I think.
Speaker Change: Oh.
Speaker Change: Think there's never been a better time for us.
Alex Lau: Thank you for that. And just a follow up on the NIM guidance. What do you assume for your rate cut outlook for this year?
Speaker Change: Because we in terms of our.
Speaker Change:
Speaker Change: Positioning to do that if you if you consider size.
Speaker Change: We're big enough that we can hire from.
Michael M. Mettee: We had two, we have two, we've had two, and they're both back-loaded except September and November, so it's very minimal. I think y'all are aware we've been probably an outlier in our rate outlook, and if we can't forecast credit, we're probably even worse.
Speaker Change: Our bigger competitors and they can get their business done here.
Our model.
Speaker Change: Which which is heavy on local.
Sorry.
Speaker Change: Is one that is experienced bankers really like.
Christopher T. Holmes: We are, but I'm going to give Michael and his team a little credit because when we built the budget back in August and September, they put in two rate cuts back in August and September of 23. They had two rate cuts, one in September and one in November, back in August 23, so we don't know what's going to happen, but that was certainly not consensus at the time that that was built into our budget, and we haven't changed. We've just kept it like that.
Speaker Change: And.
Speaker Change: And I think we're seeing that just from the number of inbound calls that we get we are getting more inbound calls than we <unk>.
Speaker Change: Traditionally we're always we're always talking to folks.
Speaker Change: It's just as everybody else by the way I mean, you know, meaning youre doing business with folks in youre out in the market. So you.
Speaker Change: We always see.
Speaker Change: Other bankers, but there seems to be for whatever reason a few more male that has made it an indication that they would be looking to move.
Alex Lau: Great. Thanks for answering my question.
Christopher T. Holmes: Thanks, Alex.
Speaker Change: Yeah, Travis Travis is nodding affirmative and giving me a thumbs up on that so I think he would say the same thing.
Matthew Covington Olney: The next question will come from Matt Olney with Stevens. Please go ahead. Hey, good morning. Just want to go back to the discussion around the new hires that you made. I think you touched on it briefly, but any more color on what type of bank they came from, what geography, and just how many, and then, taking a step back on the loan growth guidance, just how much of the mid-single-digit guidance for this year is driven by those new hires.
Speaker Change: Okay, that's great color, Chris and then I guess going back to the M&A discussion I'm curious what your what you're hearing and what you're what you're seeing them from from that point of view and it's been it's been a quiet a few months, obviously, but there was a M&A deal announcement last night. So it's a good reminder, that there is still some M&A.
Speaker Change: It was kind of what you're hearing and seeing and just remind us of your strategic priorities when it comes to M&A.
Christopher T. Holmes: Yeah, so bigger banks are where they've come from. And so [inaudible] Is that right? Are they all bigger banks? Yeah, I was going to say.
Speaker Change: Yes sure.
Christopher T. Holmes: I'll take that.
Christopher T. Holmes: No.
Speaker Change: Back end of that question didn't go back to the.
Christopher T. Holmes: So, three of the five are bigger banks, and two of them, they're both smaller banks.
Speaker Change: Strategic priorities for us would be.
Speaker Change: <unk>.
Speaker Change: Yes.
Speaker Change: Culture is always comes first and so we want to look we will look at things that are similar to look look for four.
Christopher T. Holmes: So a combination of both, and no, we're not. I guess that's one. When we're talking about business coming on or mid-single-digit type growth, that's a contributor, but it's not the biggest contributor. It's one piece of the organic growth picture. Some of that is taking share and growing, our own folks going their business. Our folks have been with us for decades.
Speaker Change: Places that are similar to us and their way of thinking.
Speaker Change: And then secondly, we really are interested in deposit side of the balance sheet, We love those legacy deposit basis, we have about half of our deposit basis retail and so we we.
Speaker Change: We love retail component if they have it.
Christopher T. Holmes: Okay, and Chris, following up there. You mentioned before that the bank is always opportunistic in terms of
Speaker Change: <unk>.
Speaker Change: And then geographically.
Christopher T. Holmes: How would you characterize the opportunity set now for bringing in new talent on the production side?
Speaker Change: But.
Speaker Change: We're pretty good in smaller markets as well as metropolitan So we don't mind, if there was a smaller market component to it.
Christopher T. Holmes: [inaudible] I think so. Oh.
Christopher T. Holmes: I think there's never been a better time for us because we've got, in terms of our [inaudible] positioning, the ability to do that. If you consider size, we're big enough that we can hire from bigger competitors, and they can get their business done here. Our model, which is heavy on local authorities, is one that experienced bankers really like, And I think we're seeing that just from the number of inbound calls that we get.
Speaker Change: Which is sometimes where you will find that retail type type basis. So.
Speaker Change: Those are things that we consider of course, you're always going to look at the financial side. The net interest that has to work.
Speaker Change: For it to go anywhere so thats strategically and then geographically we're looking.
Speaker Change: Our geography, and geography and contiguous to our geography.
Speaker Change: Strategically what we what we look forward, what we think about.
Christopher T. Holmes: We're getting more inbound calls than we traditionally get. We're always talking to folks, as is everybody else, by the way, meaning you're doing business with folks and you're out in the market. So we always see other bankers, but there seems to be, for whatever reason, a few more now that have made an indication that they would be looking to move.
Speaker Change: And then the first part of that question was.
The overall environment the overall environment.
Speaker Change: You know.
Speaker Change: I think theres a lot of interest out there in the environment.
Speaker Change: And I think the interest is driven by.
Speaker Change: It's a harder operating environment.
Christopher T. Holmes: Yeah.
Speaker Change: And.
Christopher T. Holmes: Travis is nodding in the affirmative and giving me a thumbs up on that. So I think he would say the same thing.
Speaker Change: It's a harder operating environment, and it's a harder regulatory environment and I think as teams look forward maybe.
Matthew Covington Olney: Okay, that's great color, Chris. And then, I guess going back to the M&A discussion, I'm curious what you're hearing and what you're seeing from that point of view. And it's been a quiet few months, obviously, but there was an M&A deal announced last night, so it's a good reminder that there is still some M&A. I'm curious, Ken, what you're hearing and seeing, and just remind us of your strategic priorities when it comes to M&A.
Speaker Change: Maybe they're look forward and go in this.
Speaker Change: This looks like it might not be much fun over the next couple of years and they were they were thinking about what their options were R. R.
Speaker Change: And they've said they want to have a deep compensation about partnering.
Speaker Change: And so I think theres a lot of that going on I think it's hard.
Speaker Change: One of the things that I'm not sure everybody considers as there are fewer buyers there are fewer qualified buyers today.
Speaker Change: Then they are traditionally have been.
Christopher T. Holmes: Yeah, sure. I'll take that sort of... back into that question and then go back to the front.
Speaker Change: <unk>.
Speaker Change: For a lot of reasons.
Speaker Change: But some of those are again.
Christopher T. Holmes: Strategic priorities for us would be. [inaudible] Culture always comes first, and so we want to look at things that are similar to look for, places that are similar to us in their way of thinking. And then, secondly, we really are interested in the deposit side of the balance sheet. We love those legacy deposit bases.
Speaker Change: When you start to look at banks that have the size to be able to do it.
Speaker Change: And get regulatory approval.
Speaker Change: Think that weeds out.
Speaker Change: Buyers and then once the buyer gets tied up they might not be able to do anything for a year or more and so I think all of those things.
Christopher T. Holmes: We have, you know, about half of our deposit base is retail. And so we love a retail component if they have it. So, geographically, we don't mind; we're pretty good in smaller markets, as well as metropolitan areas. So we don't mind if there's a smaller market component to it, which is sometimes where you will find, you know, that retail type base. And so those are things that we consider. Of course, you're always going to look at the financial side; the financial side has to work for it to go anywhere. So that's strategically important.
Create an environment, where there's a lot of a lot of dialogue going on.
Speaker Change: Okay.
Speaker Change: Guys I appreciate the great commentary on great quarter. Thank you.
Speaker Change: Matt I appreciate it Matt.
Speaker Change: Next question will come from Steve Moss with Raymond James. Please go ahead.
Hi, good morning.
Stephen M. Moss: Good morning.
Stephen M. Moss: Gordon and Ed maybe just going back to credit here, just I know, it's a small increase but just curious as to what drove the increase in NPA this quarter.
Stephen M. Moss: And just wondering if that was also related to the increase in the reserves for construction.
Gordon: Yes, good morning, Steve.
Gordon: The increase in <unk> was Lucky Lucky noted slide and it's really just the normal churn of the portfolio. We had several additions, but we also had several upgrades coming out of it and we don't see anything systemic.
Christopher T. Holmes: And then geographically, we're looking contiguous to our geography in geography, and contiguous to our geography is strategically what we look for and what we think about. And then the first part of that question was, was it the overall environment? The overall environment, you know. I think there's a lot of interest out there in the environment, and I think that interest is driven by the fact that it's a harder operating environment. It's a harder operating environment, and it's a harder regulatory environment.
Gordon: But.
Speaker Change: We haven't gotten the all clear sign as our Chief lending Officer, Greg Bowers tells us quite frequently and.
Speaker Change: And then we talk about it in our earnings release, we put in some infrastructure over the last year year and a half.
Speaker Change: Specifically around the second line of defense and quite frankly, we just have more eyes on our portfolio than we have in years past and that's also probably attributed to us being more time, Lisa is a recognition of loans that we need to really pay attention to.
Christopher T. Holmes: And I think as teams look forward, maybe they're looking forward and going, this looks like it might not be much fun over the next couple of years. And they were thinking about what their options were or are, and they decided they wanted to have a deeper conversation about partnering. And so I think there's a lot of that going on. I think it's difficult. One of the things that I'm not sure everybody considers is that there are fewer buyers; there are fewer qualified buyers today than there traditionally have been, for a lot of reasons, but some of those are, again, when you start to look at banks that have the size to be able to do it and get regulatory approval, I think that weeds out potential buyers.
Speaker Change: And Steve it's not <unk>.
Speaker Change: Direct labor responsible for the increase in.
Speaker Change: The construction bucket I mean, that's just that.
Speaker Change: Sure.
Speaker Change: The model in the.
Speaker Change: Yeah.
Speaker Change: <unk> risk may lie on the economy.
Speaker Change: And NPA increases certainly impacts your reserve calculation.
Speaker Change: But that wouldnt be the driver.
Speaker Change: The increase.
Speaker Change: The major driver.
Speaker Change: Okay. That's helpful and then in <unk>.
Speaker Change: Terms of the office portfolio.
Speaker Change: Just curious here.
Speaker Change: I see the disclosures here on page nine of the deck are helpful.
Christopher T. Holmes: And then once a buyer gets tied up, they might not be able to do anything for a year or more. And so I think all of those things create an environment where there's a lot of dialogue going on.
Speaker Change: But with the class B and C portfolio I see that weighted average occupancy in the seventies. Just curious is that kind of normally when they come on.
Christopher T. Holmes: Alright guys, well I appreciate the great commentary and a great quarter. Thank you. Thanks, Matt. Appreciate it, man.
Speaker Change: Or is that kind of an effect of just lower office rent I was just curious how to.
Speaker Change: Think about those occupancy rates.
Matthew Covington Olney: I appreciate it, Matt.
Speaker Change: And credit performance.
Stephen M. Moss: The next question will come from Steve Moss with Raymond James. Please go ahead.
Speaker Change: Yeah, usually in the B and especially to see a lot of a lot of those relationships or value add where people buy maybe underperforming office buildings and use their expertise to get them more performing so the occupancy is a little bit lower.
Stephen M. Moss: Good morning. Borden, Ed, maybe just going back to credit here, just like I know it's a small increase, but just curious as to what drove the increase in NPAs this quarter and just wondering if that was also related to the increase in the reserves for construction. Yeah, good morning, Steve.
Speaker Change: And frankly, we underwrite it to a lower occupancy rate for that very reason.
Michael M. Mettee: The increase in NPAs was, like you noted, slight, and it's really just the normal churn of the portfolio. We had several additions, but we also had several upgrades coming out of it. And we don't see anything systemic.
Speaker Change: Okay.
Speaker Change: Great appreciate that and then in terms of the.
Speaker Change: With regard to.
Speaker Change: Balance sheet restructuring that you guys did put the.
Speaker Change: Curious transaction here in the quarter. It sounds like you have an appetite for doing additional transactions. Just curious if you could quantify like how much more youre looking to do or kind of.
Michael M. Mettee: But, you know, we haven't gotten the all-clear sign, as our Chief Lending Officer, Greg Bowers, tells us quite frequently. And then we talk about it in our earnings release; we put in some infrastructure over the last year and a half, specifically around the second line of defense. And quite frankly, we just have more eyes on our portfolio than we have in years past. And that's also probably attributed to us being more timely in the recognition of loans that we need to really pay attention to.
Speaker Change: I know we've had a lot of moving rates and maybe that has changed the dynamic here.
Speaker Change: A few weeks ago.
Speaker Change: Yes, David it's a lot less exciting than it was a few weeks ago. We're glad we did it when we did it I'll say that.
Speaker Change: Yeah, it's really a balance and priorities like Chris mentioned in.
Speaker Change: Theres organic opportunities first and then if we can find the right partner.
Speaker Change: You want to make sure that.
Michael M. Mettee: Yeah, and Steve, it's not directly responsible for the increase in the construction bucket. I mean, that's just a function of the model and the
Speaker Change: Capital.
Speaker Change: But look good in the combination and then so we kind of show Hey, we could we could restructure the entire portfolio and still be at 11 511, 6% on a common equity tier one b b well above well capitalized so we could do it.
Michael M. Mettee: Where risk may lie in the economy in NPA increases certainly impacts your reserve calculation, but that wouldn't be the driver of the increase, nor the major driver.
Michael M. Mettee: Okay, that's helpful. And then in terms of the office portfolio, I'm just curious here, you know. I see the disclosures here on page 9 of the deck are helpful. You know, but with the class B and C portfolios, I see that weighted average occupancy in the 70s. Just curious, is that kind of normally where they come on?
Speaker Change: And it would be quite accretive to EPS and we look at it I'll tell you we look at it.
Speaker Change: Every day, we have looked at the entire thing.
Speaker Change: But it's a matter of priorities and then balancing what opportunities may be out there and so it's a it's a.
Speaker Change: A daily discussion.
Speaker Change: Yes, Steve I'll just add.
Michael M. Mettee: Or is that kind of an effect of just lower office rental rates? Just curious how to think about those occupancy rates and credit. Yeah, usually in the B and especially the C, a lot of those relationships are value add, where people buy maybe underperforming office buildings and use their expertise to get them more performing. So the occupancy is a little bit lower. And quite frankly, we underwrite it to a lower occupancy rate for that very reason.
Stephen M. Moss: If you look at our metrics easily the one that is.
Speaker Change: The most maddening to me and as a return on tangible common equity not because our earnings are really poor, but because were sitting on so much tangible common equity and so we are thinking every day on how to deploy that.
Speaker Change: We hate.
Speaker Change: Diluting our tangible book value.
Stephen M. Moss: Okay. Great. I appreciate that. And then in terms of the balance sheet restructuring, you guys just pulled the period transaction here late in the quarter. It sounds like you have an appetite for doing additional transactions. Just curious, you know, if you could quantify, like, how much more you're looking to do or kind of, you know. I know we've had a lot of moving rates and maybe that has changed the dynamic here versus a few weeks ago.
Speaker Change: And so we're very thoughtful before we take any dilution to tangible book value as Michael.
Speaker Change: <unk> said in his comments this had a two part one year earn back on it and so we will do that.
Speaker Change: And that's the way that we think about those transactions, we're weighing that that dilution versus how much accretion we get on it and.
Michael M. Mettee: Yes, David, it's a lot less exciting than it was a few weeks ago, but we're glad we did it when we did it. I'll say that. Yeah, it's really a balance and priorities, like Chris mentioned, and there are organic opportunities first. And then, yeah, if we can find the right partner, you want to make sure that capital would look good and combination, and then it's a we kind of show hey, we could restructure the entire portfolio and still be at 11 and a half 11.6% on a common equity tier one, well above well-capitalized. So we could do it, and it would be quite accretive to EPS.
Speaker Change: And as Michael said, we will think about anything including <unk>.
Speaker Change: The restructuring the entire portfolio and we could easily do that and not endanger our capital ratios.
Speaker Change: So.
Speaker Change: But think about all of that but we pulled the trigger to the things that clearly make sense and we're trying to figure out hey, how do we how do we get a better return on our tangible common equity right now and so.
Speaker Change: We will take any suggestions to bottle [laughter].
Speaker Change: Alright, well I appreciate all the color. Thank you very much guys.
Michael M. Mettee: And we look at it. I'll tell you, we look at it every day. We've looked at the entire thing. But it's a matter of priorities and then balancing what opportunities may be out there. And so it's, it's a day.
Speaker Change: Okay. Thank you thanks Jay.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Mr. Chris Holmes for any closing remarks. Please go ahead.
Christopher T. Holmes: Alright. Thank you all for joining us today really appreciate the questions.
Michael M. Mettee: Yeah
Christopher T. Holmes: If you look at our metrics, man, easily the one that is the most maddening to me is our return on tangible common equity, not because our earnings are really poor, but because we're sitting on so much tangible common equity. And so we are thinking every day about how to deploy that.
Christopher T. Holmes: I'm sure we'll be speaking to some of your additionally for to get additional color, but we always appreciate your interest in <unk>.
Christopher T. Holmes: The financial.
Speaker Change: And we will.
Christopher T. Holmes: Talk to you again next quarter. Thank you.
Christopher T. Holmes: We hate diluting our tangible book value, and so we're very thoughtful before we take any dilution to tangible book value, as Michael said in his comments with this had a 2.1 year earned back on it. And so we'll do that. And that's the way that we think about those transactions. We're weighing that dilution versus how much increase we get on it. And, as Michael said, we don't think about anything including restructuring the entire portfolio.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [noise].
Christopher T. Holmes: And we can easily do that and not endanger our capital ratios. And so, we'll think about all that. But we're pulling the trigger on the things that clearly make sense. And we're trying to figure out, hey, how do we get a better return on our tangible common equity right now? And so we'll take any suggestions, too, by the way.
Speaker Change: Yes.
Speaker Change: [music].
Christopher T. Holmes: Transcribed by https://otter.ai All right. Well, I appreciate all the color. Thank you very much, guys.
Stephen M. Moss: Okay, thank you.
Christopher T. Holmes: Thanks, Dave. This concludes our question and answer session. I would like to turn the conference back over to Mr. Chris Holmes for any closing remarks. Please go ahead.
Christopher T. Holmes: All right. Thank you all for joining us today. I really appreciate the questions, and I'm sure we'll be speaking to some of you again to get additional color, but we always appreciate your interest in FB Financial, and we will talk to you again next quarter.
Operator: Thank you. The conference is now concluded. Thank you for attending.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ???