Q1 2024 Independent Bank Group Inc Earnings Call

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Operator: Greetings and welcome to the Independent Bank Group first quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I will now turn the call over to Ankita Puri, Executive Vice President and Chief Legal Officer. Thank you. You may begin.

Speaker Change: Greetings and welcome to the independent Bank Group first quarter 2024 earnings call. At this time all participants are in a listen only mode a brief.

Speaker Change: A question and answer session will follow the formal presentation.

Speaker Change: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.

Speaker Change: I'll now turn the call over to Ann Quita, Perry Executive Vice President and Chief Legal officer. Thank you you may begin.

Ankita Puri: Good morning, and welcome to the Independent Bank Group first quarter 2024 earnings call. We appreciate you joining us.

Speaker Change: Good morning, and welcome to the Independent Bank Group first quarter 2024 earnings call. We appreciate you joining us the related earnings press release, and Investor presentation can be accessed on our website at IR Dot I financial dotcom.

Ankita Puri: The related earnings press release and investor presentation can be accessed on our website at ir.ifinancial.com. I would like to remind you that remarks made today may include forward-looking statements. Those statements are subject to risks and uncertainties that could cause actual and expected results to differ. We intend such statements to be covered by the safe harbor provisions for forward-looking statements. Please see page 5 of the text in the release or page 2 of the slide presentation for our Safe Harbor Statement.

Ann Quita: I'd like to remind you that remarks made today may include forward looking statements. Those statements are subject to risks and uncertainties that could cause actual and expected results to differ we intend such statements to be covered by safe Harbor provisions for forward looking statements.

Ann Quita: Please see page five of the tax and the release or page two of the slide presentation for our Safe Harbor statement. All comments made during today's call are subject to that statement.

Ankita Puri: All comments made during today's call are subject to that statement. Please note that if we give guidance about future results, that guidance is a statement of management's beliefs at the time the statement is made, and we assume no obligation to publicly update guidance. In this call, we will discuss several financial measures considered to be non-GAAP under the SEC's rules. Reconciliations of these financial measures to the most directly comparable GAAP financial measures are included in our release.

Ann Quita: Please note that if we give guidance about future results that guidance is a statement of managements beliefs at the time. The statement is made and we assume no obligation to publicly update guidance.

Ann Quita: In this call we will discuss several financial measures considered to be non-GAAP under the Sec's rules reconciliations.

Ann Quita: The issuance of these financial measures to the most directly comparable GAAP financial measures are included in our release.

Ankita Puri: I am joined this morning by our Chairman and Chief Executive Officer, David Brooks, our Vice Chairman, Dan Brooks, and our Chief Financial Officer, Paul Langdale. At the end of their remarks, David will open the call to questions. And with that, I will turn it over to David.

I'm joined this morning by our Chairman and Chief Executive Officer, David Brooks, Our Vice Chairman, Dan Brown, and our Chief Financial Officer, Paul Langdale at the end of their remarks, David will open the call to questions and with that I will turn it over to David Thank.

David R. Brooks: Good morning, everyone, and thanks for joining the call today. First quarter adjusted net income totaled $26 million or $0.63 per diluted share compared to $25.5 million or $0.62 per diluted share in the fourth quarter. While the abrupt reversal in the rate markets and the non-interest-bearing deposit trends early in the quarter delayed the inflection of our NIM and NII, we were pleased to see continued steady performance on our fee lines and maintain expense discipline during the quarter.

David R. Brooks: Thank you. Thank you.

Good morning, everyone and thanks for joining the call today.

David R. Brooks: First quarter, adjusted net income totaled $26 million or 63.

David R. Brooks: For diluted share compared to $25 $5 million or <unk> 62 cents per diluted share in the linked quarter.

David R. Brooks: While the abrupt reversal in the right markets and the noninterest bearing deposit trends early in the quarter delayed the inflection of our NIM and NII. We were pleased to see continued steady performance on our fee lines and maintain expense discipline during the quarter net.

David R. Brooks: Net funded loan growth was slow as payoffs rose during the quarter. However, encouragingly, we saw $640 million in new commitments in the first quarter, and the pipelines remain healthy. That said, the slower pace of net growth this quarter allowed us to preferentially remix our liabilities and reduce borrowings to the lowest level in over a year. Going forward, we remain well-positioned to capitalize on any rate cuts that might transpire, and in a flat rate environment, we expect to continue expanding earnings asset yields.

Net funded loan growth was slow as payoffs rose during the quarter.

David R. Brooks: <unk>, we saw $640 million of new commitments in the first quarter and the pipelines remain healthy.

David R. Brooks: The slower pace of net growth this quarter allowed us to preferentially remix our liabilities and reduce borrowings to the lowest level in over a year.

David R. Brooks: Going forward, we remain well positioned to capitalize on any rate cuts that might transpire and in flight flat rate environment, we expect to continue expanding earning asset yields.

David R. Brooks: We continue to observe strength in our asset quality indicators for the first quarter, with zero annualized net charge-offs and low non-performing assets of 0.34%. We've continued to reprice our earning assets upward, with loan yields expanding by 10 basis points during the quarter, while observing no material issues and our borrowers' ability to absorb these higher rates. As Dan will discuss in greater detail, our credit migration trends remained positive, and the ratio of classified loans to bank capital stood at just 5.18% at quarter end, down from 5.74% in the linked quarter and 7.05% in the first quarter of 2023.

David R. Brooks: We continue to observe strength that our asset quality indicators for the first quarter with zero annualized net charge offs and low nonperforming assets up three 4%.

David R. Brooks: We've continued to reprice, our earning assets upward with loan yields expanding by 10 basis points during the quarter, while observing no material issues.

David R. Brooks: And our borrowers ability to absorb these higher rates as Dan will discuss in greater detail our credit migration trends remained positive and the ratio of classified loans to bank capital stood at just 5.18% at quarter end down from $5, 74% in the linked quarter and 7.05.

David R. Brooks: Percent in the first quarter of 2023.

David R. Brooks: Our key consolidated capital ratios grew in the first quarter, with the total capital ratio expanding by 11 basis points to 11.68%, and the Tangible Common Equity Ratio expanding by 7 basis points to 7.62%, consistent with our philosophy of providing consistent returns to our shareholders. Our Board of Directors declared a quarterly dividend of $0.38 per share payable to the holders of our common stock on May 16.

David R. Brooks: Our key consolidated capital ratios grew in the first quarter with total capital ratio expanding by 11 basis points to 11, 68%.

David R. Brooks: And the tangible common equity ratio expanding by seven basis points to 762%.

David R. Brooks: Consistent with our philosophy of providing consistent returns to our shareholders.

David R. Brooks: Our board of directors declared quarterly dividend of 38 cents per share payable to the holders of our common stock on may 16th.

David R. Brooks: Lastly, and perhaps most importantly, I'm excited to announce that we opened our first full-service branch in the San Antonio, Texas, market on March 6th. Entering this market has been a key focus of our strategic plan, and we opportunistically recruited a very highly thought of and talented team to serve as a beachhead there for our franchise. This first full service location will allow us to capitalize on a strong deposit and loan pipeline that we've already built in the market. And with that overview, I'll turn the call over to Paul to discuss the matter.

Speaker Change: Lastly, and perhaps most importantly, I'm excited to announce that we opened our first full service branch in San Antonio, Texas market on March the sixth.

Speaker Change: Entering this market has been a key focus of our strategic plan and we opportunistically recruited a very highly thought of and talented team to serve as a beachhead there for our franchise.

Speaker Change: This first full service location will allow us to capitalize.

Speaker Change: Our strong deposit and loan pipeline that we've already built in the market.

Speaker Change: That overview I'll turn the call over to Paul to discuss some matters.

Paul B. Langdale: Thanks, David, and good morning, everyone. Net income for the quarter was $24.2 million, or $0.58 per diluted share. Adjusted net income for the quarter was $26.0 million, or $0.63 per diluted share, which primarily excludes the impact of the $2.1 million supplemental FDIC special assessment, as well as a $345,000 Oreo impairment related to a closed branch property that was disposed of in the first quarter. As David mentioned, the NII and NIM inflection was delayed due to the abrupt reversal in rate markets experienced in February and March, as well as greater-than-anticipated non-interest-bearing deposit attrition experienced in late January and early February.

Paul: Thanks, David and good morning, everyone net income for the quarter was $24 2 million or <unk> 58 per diluted share adjusted net income for the quarter was 26.0 million or <unk> 63 per diluted share, which primarily excludes the impact of the $2 $1 million supplemental FDIC special assessment.

Men as well as a $345000 Oreo impairment related to a closed branch property that was disposed of in the first quarter as.

As David mentioned, the NII and NIM inflection was delayed due to the abrupt reversal in rate markets experienced in February and March as well as greater than anticipated noninterest bearing deposit attrition experienced in late January and early February while the NIM compressed by seven basis points to 2.42% for the first quarter or.

Paul B. Langdale: While the NIM compressed by 7 basis points to 2.42% for the first quarter, our spot NIM in March increased by 1 basis point from February, and non-interest-bearing balances have stabilized on an average basis. Average non-interest-bearing balances month-to-date in April were $3.41 billion, an increase from the March average of $3.35 billion. Currently, our modeling indicates that if these trends remain stable, we should see the expected inflection of both NIM and NII in the second quarter.

Paul: Spot in them in March increased by one basis point from February and noninterest bearing balances have stabilized on an average basis.

Paul: Average noninterest bearing balances month to date in April are $341 billion, an increase from the March average of $335 billion.

Paul: Currently our modeling indicates that if these trends remain stable, we should see the expected inflection of both NIM and NII in the second quarter. Furthermore, NII was impacted in the quarter by lower average loan balances and therefore NII should be bolstered by any growth in the average loan balance going forward.

Paul B. Langdale: Furthermore, NII was impacted in the quarter by lower average loan balances, and therefore, NII should be bolstered by any growth in the average loan balance going forward. We continue to maintain a significant liability sensitivity that will benefit our income statement in the event of rate cuts, but that should also stabilize our interest-bearing deposit costs as the Fed holds rates constant. During the quarter, we further bolstered our liquidity position and reduced borrowings to the lowest level in over a year.

Paul: We continue to maintain a significant liability sensitivity that will benefit our income statement in the event of rate cuts, but that should also stabilize our interest bearing deposit costs. If the fed holds rates constant.

Paul: During the quarter, we further bolstered our liquidity position and reduced borrowings to the lowest level in over a year, notably we paid our F. H L. B liabilities down to zero at quarter end, and we were able to reduce broker deposits by $97 million during the quarter as well our deposit pipelines remain robust and net growth in our core branch deposits will allow us.

Paul B. Langdale: Notably, we paid our FHLB liabilities down to zero at quarter end, and we were able to reduce broker deposits by $97 million during the quarter as well. Our deposit pipelines remain robust, and net growth in our core branch deposits will allow us to further optimize and manage our funding costs as we remain at the terminal rate. During the quarter, we recognized a $3.2 million release in our CECL reserve, which was driven partly by a reduction in the size of our loan portfolio, a further decline in classified loans, as well as an improvement in macroeconomic factors in Moody's forecast.

Paul: To further optimize and manage our funding cost as we remained at the terminal rate.

Paul: During the quarter, we recognized a $3 $2 million release in our seasonal reserve, which was driven partly by a reduction in the size of our loan portfolio. A further decline in classified loans as well as an improvement in macroeconomic factors and the Moody's forecast.

Paul B. Langdale: Adjusted non-interest income was $12.8 million in the first quarter, an increase from $12.4 million during the length of the year. The increase was primarily driven by increases in mortgage banking revenue due to stronger mortgage production in the first quarter. Adjusted non-interest expense was $86 million for the first quarter, an increase from $83.8 million in the linked quarter that was primarily driven by anticipated additions to salary and benefits expense due to annual compensation adjustments and merit awards.

Paul: Adjusted Noninterest income was $12 8 million in the first quarter, an increase from $12 $4 million in the linked quarter. The increase was primarily driven by increases in mortgage banking revenue due to stronger mortgage production in the first quarter.

Paul: Adjusted Noninterest expense was 86 million for the first quarter, an increase from $83 $8 million in the linked quarter that was primarily driven by anticipated additions to salary and benefits expense due to annual compensation adjustments and Merit awards going forward, we expect noninterest expense to remain around $86 million per quarter for the remainder of the year.

Paul B. Langdale: Going forward, we expect non-interest expense to remain around $86 million per quarter for the remainder of the year. As David mentioned, our consolidated risk-weighted capital ratios improved over the length of the quarter, with the Common Equity Tier 1 Capital Ratio improving 2 basis points to 9.60%, the Tier 1 Capital Ratio improving 1 basis point to 9.94%, and the Total Capital Ratio improving 11 basis points to 11.1.68%. Additionally, our tangible common equity ratio improved by 7 basis points to 7.62%.

Paul: As David mentioned, our consolidated risk weighted capital ratios improved over the over the linked quarter with a common equity tier one capital ratio improving two basis points to 960% of tier one capital ratio, improving one basis point to 994% and the total capital ratio improving 11 basis points to it.

Paul: 11, six 8%. Additionally, our tangible common equity ratio improved by seven basis points to 762%.

Daniel W. Brooks: These are all the comments I have today, so with that, I'll turn the call over to Dan.

Paul: Are all the comments I have today, so with that I'll turn the call over to Dan.

Dan: Thanks, Paul.

Daniel W. Brooks: Long sell for investment or $14.1 billion as of March 31, 2024, down $101.3 million from the linked quarter. Growth was seasonally slow during the first quarter, and payoffs rose to above average levels compared to recent quarters. Pipelines and funding indicate that net loan production will pick up in the second quarter. As David mentioned, we had gross loan production totaling $640 million in new commitments during the first quarter. Average mortgage warehouse purchase loans were $455.7 million for the quarter compared to $408.4 million for the fourth quarter of 2023.

Dan: Loans held for investment were $14 1 billion as of March 31, 2024 down to $101 3 million from the linked quarter.

Dan: Great with seasonally slow during the first quarter and payoffs range to above average levels compared to recent quarters.

Dan: Pipelines in fundings indicate that net flow and production will pick up in the second quarter.

Dan: As David mentioned, we had gross loan production totaling $640 million in new commitments during the first quarter.

Dan: Average mortgage warehouse purchase loans were $455 7 million for the quarter compared to $408 4 million for the fourth quarter of 2023.

Dan: Mortgage warehouse was supported during the quarter by higher ball.

Daniel W. Brooks: Mortgage Warehouse was supported during the quarter by higher borrowers, mortgage production driven by lower rates early in the quarter as well as recent exits and curtailment of the mortgage warehouse business by some of our competitors. While mortgage rates have begun to climb back up again alongside the broader rate markets, we do expect to be able to continue to maintain these levels of average balances going forward. As David mentioned, asset quality metrics continue to remain very strong.

Dan: Mortgage production driven by lower rates early in the quarter as well as recent exits and curtailment of the mortgage warehouse business, but some of our competitors.

Dan: While mortgage rates have begun deploying back up again alongside the broader rate markets. We do expect to be able to continue to maintain these levels of average balances going forward.

Dan: As David mentioned asset quality metrics continued to remain very strong.

Daniel W. Brooks: Net charge-offs were 0% annualized for the first quarter, compared to 0.01% annualized in the length of the quarter and 0.04% annualized in the first quarter of 2023. In addition, non-performing assets remain low at 0.34% of total assets. We observed a further decline in classified assets during the quarter, with classified loans representing just 5.18% of bank capital as of March 31st, 2024. These are the lowest levels of classified loans to bank capital that we've experienced in over 15 years.

Dan: Net charge offs were zero percent annualized for the first quarter compared to 0.01% annualized in the linked quarter and 0.04 annualized in the first quarter of 2023.

Dan: In addition, nonperforming assets remained low at three 4% of total assets.

Dan: We absorbed a further decline in classified assets during the quarter with classified loans, representing just 5.18% of bank capital as of March 31 2024.

Dan: These are the lowest levels of classified loans to bank capital that we've experienced in over 15 years.

Dan: We have managed our book with the same approach for the past 36 years with an eye toward conservatism and underwriting.

Daniel W. Brooks: We have managed our book with the same approach for the past 36 years, with an eye toward conservatism and underwriting and a focus on being nimble and proactive when risks emerge. We continue to be pleased with the performance of the portfolio, but, as always, we remain both vigilant in our internal stress testing and watchful for emerging risks that may arise. These are all the comments I have related to the loan portfolio this morning. So with that, I'll turn it back over to David.

Dan: On being nimble and proactive when risks emerge.

Dan: We continue to be pleased with the performance of the portfolio, but as always we remain both vigilant in our internal stress testing and watchful for emerging risks that may arise.

Dan: These are all the comments I have related to the loan portfolio. This morning, so with that I'll turn it back over to David.

David: Thanks, Dan.

David R. Brooks: Thanks, Dan. We remain very encouraged by the strength and resilience of our markets across Texas and Colorado. And we've been pleased to note growing demand for high-quality business from our core customers. Looking ahead, we will remain strategically focused on the disciplined management of our expense base, optimization of our funding stack, and the continued pursuit of through-cycle performance and healthy growth. We expect loan growth to remain slow, with pipelines indicating that net growth and loan balances should gradually accelerate over the coming quarter.

David: We remain very encouraged by the strength and resilience of our markets across Texas, and Colorado and we've been pleased to note growing demand for high quality business from our core customers.

David: Looking ahead, we will remain strategically focused on the disciplined management of our expense base optimization of our funding stack and the continued pursuit of through cycle performance and healthy growth.

David: We expect loan growth to remain slow with pipelines, indicating that net growth in loan balances should gradually accelerate over the coming quarter, notably we have made strategic investments in C&I and SBA lenders that we expect to begin yielding new production in the second quarter and we remain encouraged by our.

David R. Brooks: Notably, we have made strategic investments in C&I and SBA lenders that we expect to begin yielding new production in the second quarter. And we remain encouraged by our deposit production pipelines across all four of the metropolitan areas. Our entry into the San Antonio market should additionally help spur production for both loans and deposits. We are fortunate to be in dynamic and growing markets with strong fundamentals. The demographic and macroeconomic tailwinds in Texas and Colorado continue to support our goal of running a high-performance, purpose-driven company dedicated to serving our customers and communities.

David: Deposit production pipelines across all four of the metropolitan areas.

David: Our entry into San Antonio market should Additionally, helped spur a pro.

David: Duction for both loans and deposits.

David: We are fortunate to be in dynamic and growing markets with strong fundamentals.

David: Demographic and macroeconomic tailwind in Texas, and Colorado continues to support our goal of running a high performance purpose driven company dedicated to serving our customers and communities.

David R. Brooks: I remain tremendously grateful to our teams who are working tirelessly to deepen existing relationships and win new business across our footprint every day. Thank you for taking the time to join us today. We'll now open the line to questions. Operator.

David: I remain tremendously grateful to our teams who are working tirelessly to deepen existing relationships and win new business across our footprint every day.

Speaker Change: Thank you for taking the time to join US today, we'll now open the line to questions operator.

Operator: Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Again, that's star 1 to register a question at this time. Today's first question is coming from Brandon King of Truist Securities. Please go ahead.

Thank you the floor is now open for questions. If he would like to ask a question. Please press star one on your telephone keypad at this time, a confirmation tone will indicate your line is in the question queue.

Press Star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys I get that star one to register a question at this time.

Speaker Change: First question is coming from Brendan Haywood Securities. Please go ahead.

Brandon Thomas King: Hey, good morning. Thanks for taking my question. Good morning, Brandon.

Brendan Haywood: Hey, good morning, Thanks for taking my questions good.

Brendan Haywood: Morning, Brian.

Brendan Haywood: So with the the NIM and NII should be.

David R. Brooks: So with the NIM and NII flexion being pushed, second quarter. Could you give us a sense of the magnitude of expansion you're expecting throughout this year? and particularly in a stable rate of iris. Sure.

Brendan Haywood: Second quarter could you give us a sense of what the magnitude of expansion you're expecting throughout this year.

Speaker Change: Yeah, sure I mean, a stable rate environment sorry.

Brian: Sure I think I'll take you back to last quarter's call. We were really getting about 40 to 50 points basis points pick up on broker deposit spreads Ah that coupled with the noninterest bearing declines that we saw in the first quarter really was what drove that NIM compression, we've seen noninterest bearing ban.

Paul B. Langdale: I think, you know, I'll take you back to last quarter's call. We were really getting about 40 to 50 basis points of pickup on broker deposit spreads. That coupled with the non-interest-bearing declines that we saw in the first quarter really was what drove that NIM compression. We've seen non-interest-bearing balances come back actually, not just stabilize, but increase in the month of March and really into April. Those balances are stable as of this morning.

Brian: <unk> come back actually not just stabilize but increase in the month of March and really into April are those balances are stable as of this morning. So given that we should expect to knock some meaningful NIM expansion over the next few quarters as we continue to reprice, earning assets upwards. So I would expect earning asset yield.

Paul B. Langdale: So given that, we should expect to notch some meaningful NIM expansion over the next few quarters as we continue to reprice earning assets upwards. Hence, I would expect earnings asset yields to continue to expand at an accelerating pace. And that, with stable deposit costs, should get us back to where we expected to be at the end of the year in the last quarter. Okay, and so is the expectation that... Deposit costs have already peaked.

To continue to expand at an accelerating pace and that with stable deposit costs should cause should get us back to where you know close to where we expect it to be at the end of the year on the last call.

Brian: Okay, and so is the expectation that.

Brian: Deposit costs haven't have already peaked.

Brian: Yes.

And a couple of other color on that Brandon just to just to clarify we weren't able to run off some of the brokered funds and some of the excess liquidity that we're carrying on the balance sheet during the quarter. So average cash balances during the first quarter were a little higher than we will be able to carry them in the second quarter and the broker deposits the more expensive funding in the <unk>.

Paul B. Langdale: And Brandon, just to clarify, you know, we weren't able to run off some of the redeemed funds and some of the excess liquidity that we were carrying on the balance sheet during the quarter. So average cash balances during the first quarter were a little higher than we'll be able to carry them in the second quarter. And the broker deposits, the more expensive funding, and the FHLB advances that we paid down that came right at quarter end. So that should benefit us more meaningfully on the deposit cost side.

Brian: H L. B advances that we paid down that came right at quarter end, so that should benefit us more meaningfully on the deposit cost side in the second quarter.

David R. Brooks: Okay, okay. And then, lastly, long growth sounds like it's trending a little slower for the year. How much of that are you expecting commercial real estate to contribute to long growth this year, just given, you know, concentration?

Speaker Change: Okay. Okay.

Speaker Change: And then lastly loan growth it sounds like it was trending a little slower for the year how much of that are you expecting commercial real estate to contribute to loan growth. This year just given.

Concentration levels.

David R. Brooks: That's a great question, Brandon. We did see a slight decline in average loan balances, as you know, or at quarter-end loan balances, as you saw in the numbers. We still had strong production during the quarter, and that was more balanced this quarter. CNI, particularly energy, is getting some traction right now. With oil prices where they are, we're seeing a lot of companies picking up their drilling activities and seeing some nice demand there, companies advancing on their lines, etc., so increasing the funded debt there.

Speaker Change: That's a great question Brandon.

Speaker Change: We did see a slight decline in average loan balances as you know are at quarter end loan balances as you saw the numbers, we still had strong production during the quarter and that was more balanced this quarter.

Speaker Change: With C&I, particularly energy is getting some traction right now with oil prices, where they are we're seeing a lot of companies picking up their drilling activities and so seeing some nice demand there are companies advancing on their lines et cetera, so increasing the funded debt there and and we expect that trend to continue.

David R. Brooks: We expect that trend to continue, actually. End of the year, we've been careful as we have made lending hires over the last 12 months, primarily focused on CNI broadly, adding to our energy team, and I think to our SBA team as well. And again, when I say SBA, I wanna be careful to say that's a business line that we overlay in our markets, and it's not, we haven't embarked on a national SBA business or anything like that.

Speaker Change: Actually into the year, we've been careful.

Speaker Change: As we have made lending hires over the last 12 months are primarily focused on.

Speaker Change: C&I broadly, adding to our energy team, adding to our.

Speaker Change: Adding to our SBA team.

Speaker Change: Teen as well and again when I say S. P. I want to be careful to say that's a business line that we overlay in our markets and it's not we haven't embarked on a national SBA business or anything like that it's just really beefing up the SBA team across our footprint in order to capture a bigger percentage of our.

David R. Brooks: It's just really beefing up the SBA team across our footprint in order to capture a bigger percentage of our customers in our market. So, with those efforts, Brandon, I think we'll see positive loan growth in the second quarter, probably low to mid-single digits here in the first quarter, and we think that picks up as the year goes along to maybe mid-single digits. So, you know, something three to five this quarter and maybe five-ish for the balance for the second half of the year. And, you know, we feel good about what's coming on in a much more balanced way.

Speaker Change: <unk> are in our markets.

Speaker Change: So with those efforts brand and I think we will see positive loan growth in the second quarter, probably low to mid single digits here in the first quarter and we think that picks up as the year goes along to maybe mid single digits. So yeah, something three to five this quarter and maybe five ish for.

Speaker Change: The balance of the second half of the year and Oh, and we feel good about what's coming on.

Speaker Change: In a much more balanced are met then we also expect our deposits.

Brandon Thomas King: And we also expect our deposits, I think the overall numbers showed deposits declining, but those were wholesale and broker deposits that went out. We had core deposit growth in the first quarter, and we expect that to continue and accelerate as the year goes along. We've got really good trends in the pipeline for deposits and new deposit relationships along with new loan relationships, so we expect deposits to actually grow at or in excess of the pace of our loan growth for the year.

Speaker Change: I think the the overall number showed deposits declining but those are wholesale and in our broker deposits that went out we had core deposit growth in the first quarter and we expect that to continue and accelerate as year goes along.

Speaker Change: We've got really good trends in the pipeline on deposits and new deposit relationships along with the new loan relationships. So we expect.

Speaker Change: Deposits to actually grow at or in excess of the pace of our loan growth for the year.

David R. Brooks: Got it. I'll hop back in the queue. Thanks for taking my questions. Hey, thanks, Brandon.

Speaker Change: Got it.

Speaker Change: Back in the queue. Thanks for taking my questions Hey, Thanks Brent.

Operator: Thank you. The next question is coming from Michael Rose of Raymond James. Please go ahead.

Speaker Change: Thank you. The next question is coming from Michael Rose of Raymond James. Please go ahead.

Michael Edward Rose: Hey, good morning, guys. Thanks for taking my questions. I just wanted to go back to the margin discussion. Good morning.

Michael Edward Rose: Hey, good morning, guys. Thanks for taking my questions just wanted to go back to the margin discussion good morning.

David R. Brooks: I know you guys have talked about kind of around a 3% margin at the end of the year. That's a pretty steep ramp up in the back half of the year. Paul, maybe if you could just, you know, give us some of the asset repricing, you know, dynamics, whether it be, you know, how much in loans are expected to mature this year and what the yield pickup could be, and then, you know, kind of expectations on the deposit side, just trying to figure out what are the puts and takes to getting back there.

Michael Edward Rose: You guys have talked about kind of a round out.

Michael Edward Rose: A 3% margin at the end of the year, that's a pretty steep ramp in the back half of the year. Paul maybe if you can just you know.

Michael Edward Rose: Give us some of the the.

Michael Edward Rose: You know the the asset repricing dynamics, whether it would be yeah.

Michael Edward Rose: How much in loans are expected to mature this year and what the yield pick up could be and then you know kind of expectations on the deposit side, just trying to figure out.

Michael Edward Rose: What are the puts and takes them to get back there and you know if we don't get any cuts and we are higher for longer.

David R. Brooks: And, you know, if we don't get any cuts and we are higher for longer, particularly given it seems like a little bit slower loan growth, how should we kind of reconcile? You know, that is, you know, that steep ramp that you guys are still anticipating. Thanks.

Michael Edward Rose: Given it seems like a little bit slower loan growth.

Michael Edward Rose: How should we kind of reconcile.

Michael Edward Rose: That is a that steep ramp that you guys are are still anticipating thanks.

Paul B. Langdale: Sure, Michael. Happy to give you some color around that. A couple of the big moving pieces, we really do see an acceleration in earnings asset yield pickup. If you think about seasonality for our company vis-a-vis the loans that are maturing, we have slower seasonality in the first quarter always. So I'd expect the second, third, and fourth quarters, if you look at the year in which we had the originations that are now maturing, to pick up in terms of our ability to reprice those earning assets upwards. From this point on, through the remainder of the year, we have $640 million of net new commitments and gross new commitments in the first quarter.

Speaker Change: Sure Michael Happy to give you some color around that a couple of the big moving pieces, we really do see actually an acceleration in earning asset yield pick up if you think about seasonality for our company vis vis the loans that are maturing we have slower seasonality in the first quarter always so I'd expect the second third and fourth quarter. If you look at the year.

Speaker Change: And which we had the originations that are now maturing to pick up in terms of our ability to reprice those earning assets upwards from this point on through the remainder of the year, we had $640 million of met new commitments and the in sorry in gross new commitments in the first quarter I'd expect that pace to pick.

Paul B. Langdale: I'd expect that pace to pick up over the remainder of the year, and so I think you're going to be able to price those up reliably by 300 basis points on average. That's going to really be the tailwind that helps the NIM expansion for the remainder of the year. The wild card is our ability to manage non-interest-bearing balances. On the interest-bearing side, we have the ability to really manage those deposit costs a little bit more nimbly with slower net growth and the additional payoffs and paydowns that we're going to have for the remainder of the year.

Speaker Change: Up over the remainder of the year and so I think youre going to be able to price those up reliably 300 basis points on average and that's going to help really be the tailwind that helps the NIM expansion for the remainder of the year, but the wildcard is our ability to manage noninterest bearing balances on the interest bearing side we have.

Speaker Change: The ability to really manage those deposit costs, a little bit more nimbly with slower net growth and the additional payoffs and paydowns that were going to have for the remainder of the year. We did see a higher pace of pay offs in Q1, that's going to give us breathing room to manage those deposit costs down as I said earlier in response to an earlier.

Paul B. Langdale: We did see a higher pace of payoffs in Q1. That's going to give us breathing room to manage those deposit costs down. As I said earlier, in response to an earlier question, at the end of the quarter, we really were able to take some of those deposit costs down. And so we'll

Speaker Change: <unk> at the end of the quarter, we really were able to take some of those deposit costs down and so we'll get the benefit of that in the second quarter, which should help kind of kick start out a little bit as we work through the next three quarters.

Michael Edward Rose: Okay, that's helpful. And then, you know, I know you guys have talked about kind of a longer term, you know, end of 2025, margin outlook that was even higher than what you had for the year, you know, kind of in the 355 to 365 range. But how does that change in kind of a higher for longer rate environment? Does that get pushed out? And I know it's hard to guess on timing, but you do have a fixed asset repricing story. So just trying to understand if that's, you know, still what you guys are thinking if we don't get any rate cuts over time.

Speaker Change: Okay. That's helpful and then I know you.

Speaker Change: You guys have talked about kind of a longer term end of.

Speaker Change: 2025, you know margin outlook that was.

Speaker Change: Even even higher than than where you are in the year, you know kind of in the $3 55 to $3 65 range, but how does that change in kind of a higher for longer rate environment does that get pushed out and I know, it's hard to guess on timing, but you do have a fixed asset repricing sorry. So just trying to understand if that's still what you guys are thinking if we don't get any rate cut.

Speaker Change: Overtime. Thanks.

Paul B. Langdale: Sure. I mean, obviously, you know, spreads will still be very attractive at higher rates. As we think about repricing risk in the portfolio, we've really firmly established our ability to pass through higher rates to our customers, and we've been very disciplined about how we price our loans. So I would expect that even in a higher-for-longer environment, we're going to be able to get meaningful uplift on the earning asset yields to help offset some of that lack of rate cuts versus when we gave the last forecast.

Speaker Change: Sure I mean, obviously, you know spreads will still be very attractive at higher rates as we think about repricing risk in the portfolio. We've really firmly established our ability to pass through higher rates to our customers and we've been very disciplined about how we price our loans. So I would expect that even in a higher for longer environment.

Speaker Change: We're gonna be able to get meaningful uplift on the earning asset yields to help offset some of that lack of rate cuts versus when we gave the last forecast.

Paul B. Langdale: That said, I think it's a little bit of a longer road back to the historical NIM that we've had, but it's not going to push it out so far into the future that we're not going to get back there, you know, maybe the end of 25 being in that historical 350 range. I'd say that gets pushed out to 22.

Speaker Change: That said I think it's a little bit of a longer road back to the historical name that we've had but it's not going to push it out so far into the future to where you know we're not going to get back there.

Speaker Change: And maybe the end of 'twenty five being in that historical $3 50 range I'd say that gets pushed out to 'twenty six.

Speaker Change: And a higher for longer and higher for longer.

Speaker Change: Yep.

Speaker Change: Helpful and maybe just last one for me just just following up on <unk>.

Michael Edward Rose: And maybe just last one for me, just following up on loan growth, I know some of it is just what the market will give you, and you guys have definitely pulled back from kind of the higher growth days, and I think very prudently, and I think that speaks for your asset quality performance. But as we think about the intermediate term, just given that you have San Antonio coming online, David, you mentioned adding some folks in CNI and SBA, Pipeline's Healthy, as you mentioned in the release, you know, what do you think the kind of the intermediate term, you know, loan growth for IBTX is, as a kind of a $20 billion asset, you know, bank, you know, hopefully once we get past, you know, whatever slowdown we're going to have here, just how should we think about conceptually the loan growth engine at IBTX moving forward?

Speaker Change: On loan growth I know some of it is just what the market will give you and you guys have definitely pulled back from you know kind of a higher growth days and I think very prudently and I think that speaks.

Speaker Change: You know for your asset quality performance, but you know as we think about the intermediate term just given that you have to San Antonio comment on mind, David you mentioned, you're adding some folks in C&I and SBA pipeline is healthy as you mentioned in the release you know what do you think the the kind of the intermediate term you know loan growth for IDT acts as a kind of a $20 billion asset.

Speaker Change: You know bank hopefully once we get past the you know whatever slowdown we're gonna happier I'm just how should we think about conceptually the see that the loan growth engine at the at ITT <unk>.

Michael Edward Rose: Yeah, I think in a healthy economy, in a healthy market, where rates, you know, stabilize wherever they're going to be, Michael, we're still an 8 to 10% growth company organically in the markets, especially with San Antonio coming on and picking up a new pipeline there. And that's because we picked up a really strong team from a CNI-focused bank, and we're seeing a lot of traction there early. We had discussed, you know, doing an LPO at first and just getting going.

Speaker Change: Yeah, I think and.

Speaker Change: In a healthy economy and healthy market.

Speaker Change: Where rates stabilize wherever they're gonna be Michael we're still 8% to 10% growth company organically in the markets, we're in especially with San Antonio coming on and picking up a new pipeline. There are and that's we picked up a really strong team from our C&I focused bank and and.

Speaker Change: We're seeing a lot of traction there early we had discussed.

Speaker Change: Doing an L. P O first and just getting going but the demand is so good the quality of the customer base. There. So good that we felt like getting a branch open their full service branch as quickly as possible became the strategy and and and also a very balanced deposit core deposit and core loan growth.

David R. Brooks: But the demand is so good, the quality, the customer base there is so good that we felt like, you know, getting a branch open there, a full-service branch as quickly as possible became the strategy. And also, a very balanced deposit, core deposit, and core loan growth possibility there in San Antonio. So we're bullish on San Antonio. We've always liked that market. We were hoping to acquire into it over the years but just haven't.

Speaker Change: Possibility there in San Antonio.

Speaker Change: We're bullish on San Antonio we've always liked that market, we were hoping to acquire into it over the years and just having a there's some really terrific banks there, but we just haven't found the right timing on that yet.

David R. Brooks: There are some really terrific banks there, but we just haven't found the right timing on that yet. But in the meantime, we had a chance to get a really good team with a good balance of C&I and real estate.

Speaker Change: But in the meantime, we had a chance to get a really good team with a good balance of C&I and real estate.

Outlook.

Michael Edward Rose: Great, thanks for taking my questions. Hey, thanks, Michael.

Speaker Change: Great. Thanks for taking my questions.

Speaker Change: Hey, Thanks, Michael.

Speaker Change: Thank you. The next question is coming from Katherine Catherine Mueller of J P. W. Please go ahead.

Operator: Thank you. The next question is coming from Katherine Mueller of KBW. Please go ahead.

Speaker Change: Thanks, Good morning.

Michael Edward Rose: Good morning Catherine.

Katherine Mueller: Another question on the margin. Can we just zero in on loan yields? You saw a nice increase, I think, about 10 basis points on loan yields this past quarter. What do we just think about the repricing? I mean, you talked about average earning asset yields moving higher throughout the year, no matter what the right environment does. But is there any way to quantify, is this kind of 10 basis points a quarter pay something that's realistic to model, you know, in this kind of static rate environment? And then how does that kind of change with rate cuts as well?

Speaker Change: Another another question on the margin.

Speaker Change: Zero in on on loan yields you saw a nice increase that 10 basis points on linear this this past quarter.

Speaker Change: How do we just think about the repricing and he talked about average, earning asset yields moving higher throughout the year no matter what the rate environment does but is there any way to quantify it at this kind of 10 basis points a quarter pace something that's realistic to model you know in this kind of static rate environment.

Speaker Change: And then how does that.

Speaker Change: And then how does that kind of change with with rate cuts as well.

Paul B. Langdale: Based on what we're seeing in terms of maturities, and if payoffs remain at the same level they did in Q1, I would expect that to be a little bit higher, Catherine. We do have some nice tailwind of chunky earning assets repricing that will price up at a slightly higher spread. I think that's going to position us well for really nailing that NIM expansion. That earning asset yield is going to help drive it.

Speaker Change: Based on what we're seeing in terms of maturities and if payoffs remained at the same level. They did in Q1, I would expect that to be a little bit higher Catherine we do have some nice tailwind of chunky, earning assets repricing that will price up at a slightly higher spread I think that's going to position us well for him for really not.

Speaker Change: Seeing that NIM expansion that earning asset yield is going to help drive. It also Catherine This is David also.

David R. Brooks: Also, Catherine, this is David also... The fact that loans are down slightly in the first quarter versus what we expect going forward will also give some tailwind to that overall margin expansion. Yes, we feel like 10 basis points is the floor and that that should accelerate through the year. And that's how, as Michael was asking earlier, we can get back to a materially higher run rate NIM by the end of the fourth quarter.

David: Fact that loans were down slightly in the first quarter versus what we expect going forward will also give some tailwind to that overall margin expansion, yes, we feel like 10 basis points as the floor and that that should accelerate through the year and that's how I believe Michael was asking earlier, that's how we can get back to a materially higher.

Our run rate NIM by the end of the fourth quarter.

Speaker Change: Okay, that's great and then.

Katherine Mueller: That's great! And then how much in a I know you've talked about deposit cost stabilizing and maybe even coming down just because of the broker deposit dynamic, and maybe it's not interest-bearing deposits remain at higher balances as we move through next quarter, but is there a way to quantify just kind of if rates don't move to just kind of higher for longer scenario, where you think deposit costs could stabilize to and come down? Do we kind of moderate? Where would you say you have your deposit costs kind of moderate before we start to get the impact of cuts?

Speaker Change: No.

Speaker Change: I know you talked about deposit costs stabilizing and maybe even coming down just because of the brokered deposit down and I can maybe if noninterest bearing deposits remain at higher balances as we move through next quarter, but is there a way to quantify just kind of.

Speaker Change: Don't Miss this just kind of higher for longer scenario, where you think are the deposit costs could stabilize since we're coming down can we kind of moderate.

Speaker Change: And where would you say you havent your deposit costs kind of moderate before we start to get the impact of cuts.

Paul B. Langdale: I think we, given the deposit pipelines we have, as well as some of the growth initiatives we have out in the field, we've seen some robust production at lower rates than where our brokered funding is. So I think there's some meaningful upside, Catherine, on our ability to control deposit costs. It's hard to quantify exactly what that looks like, just because we need to see that production come in from the field first to have that confidence in our ability to get deposit costs down. But I do believe that there's some upside.

Speaker Change: I think we given the deposit pipelines, we have as well as some of the growth initiatives. We have out in the field you know we've seen some robust production at lower rates than where our brokered funding is so I think there is some meaningful upside Katherine on our ability to control deposit costs are hard to quantify exactly what that looks like just because we need to see that production.

Speaker Change: Come in from the field first to have that confidence in our ability to get deposits down deposit costs down, but I do believe that there's some upside there.

Speaker Change: Okay.

Katherine Mueller: Okay, and just one more follow-up on that. Could you comment on where incremental deposit costs are coming from and what the rate is on that?

Katherine Mueller: Oh, here's one rough up on that could you comment on where incremental deposit costs are coming in with what the rate is of that.

Paul B. Langdale: Sure, we have products; our most popular products are priced between $3.80 and about 5%, so all in all, that blended rate is much lower than where our brokered funds are.

Speaker Change: Sure we have products our most popular products are priced between 380 and about five 5%. So all in that blended rate is much lower than where our brokered funding is.

Katherine Mueller: Great, okay, that's helpful. Okay, thank you for the follow-up.

Speaker Change: Great. Okay. That's helpful.

Speaker Change: As a follow up.

Operator: Thank you. The next question is coming from Stephen Scouten on behalf of Piper Sandler. Please go ahead.

Speaker Change: Thank you. The next question is coming from Stephen Scouten of Piper Sandler. Please go ahead.

Stephen Kendall Scouten: Hey, good morning everyone. I guess I was curious first because you talked a little bit about investments to be made to not be so concentrated in CRE, and you talked about C&I and SBA. I guess as you think about those teams over the next year or two, how much more do you need to scale those up and kind of what do you anticipate that being as a percentage of the balance sheet, or kind of what are the aspirational goals there for growth?

Stephen Kendall Scouten: Hey, good morning, everyone.

Stephen Kendall Scouten: I guess I was curious first you've talked a little bit about.

Stephen Kendall Scouten: Investments to be made not not to be not so concentrated area and you talked about the C&I and SBA I guess as you think about those teams over the next year or two how.

Stephen Kendall Scouten: How do you how much more do you need to scale those up and kind of what do you envision that being as a percentage of the balance sheet or kind of what are the aspirational goals there for growth.

David R. Brooks: Well, Stephen, to be clear, we've already had an SBA vertical, so we are scaled up, and we are working. In SBA, it's embedded with our teams across Texas and Colorado.

Speaker Change: Well, Stephen and to be clear, we've already had an SBA vertical. So we are scaled up and we are working in SBA its embedded with our teams across Texas and Colorado, We just see opportunity to continue to grow that so where we see payback on those investments. It comes very quickly when we hire SBA lenders with C&I theres, a little bit longer of a ramp.

David R. Brooks: We just see opportunity to continue to grow that. So where we see payback from those investments, it comes very quickly when we hire SBA lenders. With CNI, there's a little bit longer of a ramp.

Paul B. Langdale: I'd probably say it takes about a year to really get a portfolio fully up to speed in terms of the production that we'd expect to see. That said, we're investing very opportunistically where we have the opportunity to notch early wins in the CNI space, and I think that I'll also point you to owner-occupied commercial real estate. If I look at the loan production report over the last quarter, we've had really nice production in owner-occupied commercial real estate, and I would expect that to continue over the course of the second quarter.

Speaker Change: You know I'd, probably say it takes about a year to really get a portfolio fully up to speed in terms of the production that we would expect to see.

Speaker Change: That said, we're investing very opportunistically, where we have the opportunity to notch early wins on the C&I space and I think that I'll also point you to owner occupied commercial real estate, if I look at the loan production report over the last quarter, we've had a really nice production and owner occupied commercial real estate and I would expect that to continue over the.

Speaker Change: Of course of the second quarter. So I think we're being very careful in how we make investments because we don't want too long of a ramp are we want to be able to see results relatively quickly to have that accountability that we need to really hit that growth target that we set for ourselves.

Paul B. Langdale: So I think we're being very careful in how we make investments because we don't want too long of a ramp. We want to be able to see results relatively quickly to have that accountability that we need to really hit that growth target that we've set for ourselves.

David R. Brooks: Stephen, I would add to that that because of our expense discipline and focus on controlling the things that we can control, we have self-funded, if you will, this mixed shift as we've had, you know, some real estate-focused lenders choose, you know, different career paths. We've taken those dollars and reinvested them on the commercial side. So it's not been – I don't want to leave the impression that we're embarking on a new ramp in our non-interest expense to ramp those up, that that is coming in a mixed shift as we move investments around across markets, across teams, where we've had opportunities to add team members where someone else has departed, we've added back on the commercial side. And that's a great point.

Speaker Change: Stephen I would add on to that debt.

Stephen Kendall Scouten: We have because of our expense discipline and focus on.

Stephen Kendall Scouten: Controlling the things that we can control we have self funded if you will these this mix shift as we've had.

Stephen Kendall Scouten: Some real estate focused lenders choose different career paths.

Stephen Kendall Scouten: We've taken those dollars and reinvest them on the commercial side. So so it's not been I don't want to leave the impression that we're embarking on a new ramp in our noninterest expense to ramp those up but that is coming in a mix shift as we move our investments around across markets across teams, where we got opportunities to add.

Speaker Change: Team members, where someone else's departed we've added back on the commercial side and that's a great point, David just to underscore we do expect the noninterest expense line to remain flat for the remainder of the year.

Paul B. Langdale: And that's a great point, David. Just to underline, we do expect the non-interest expense line to remain flat for the remainder of the year.

Stephen Kendall Scouten: Yep, yep, no good form of clarification. I appreciate that. And I would say, David, in my view, you sounded a little more constructive around the thoughts of M&A over the last couple quarters. How does this dynamic around the hire for longer environment, maybe a longer path to traditional profitability, how does that impact your view there? Does that become more of like a late 25, early 26 sort of conversation at this point in time?

Speaker Change: Yep Yep no good point of clarification appreciate that.

Speaker Change: And I would say David.

Speaker Change: In my view, you sounded a little more constructive around the thoughts of M&A over the last couple of quarters.

Speaker Change: Does this.

Speaker Change: Dynamic around the higher for longer environment, maybe a longer path to that.

Speaker Change: Traditional profitability, how does that impact your view there does that become more of like a late 'twenty five early 'twenty six sort of conversation at this point in time.

Speaker Change: Yeah, that's hard to tell my my broad view hasn't changed Stephen in terms of.

David R. Brooks: You know, that's hard to tell. But my broad view hasn't changed, Stephen, in terms of... that I think this industry is going to consolidate and that. All of the macro factors point that direction. I think long-term rates, rates staying higher for longer, and long-term rates shifting up as well over the last quarter are not helpful to the discussions. But I do believe there are a lot of thoughtful discussions going on across our space, whether it's community banks, regional banks, and even super regional banks, just a lot of discussions around what types of partnerships and what types.

Speaker Change: But I think this industry is going to consolidate and that.

Speaker Change: All of the macro factors point that direction.

Speaker Change: I think the long term rates are you know rates staying higher for longer and the long term rates shipping up as well over the last quarter is not helpful to the to the discussions but I do believe there are a lot of thoughtful discussions going on across our space, whether its community banks regional banks.

Speaker Change: And even the superregional banks are just a lot of of of discussions around what you know what types of partnerships and what types of pairings. You know makes sense as you look forward. So.

David R. Brooks: Pairings make sense as you look forward, so we're certainly always a part of downstream discussions and other types of M&A activity, but it is a tough environment, and your guess is as good as mine as to when the environment is going to get better. It would be nice if we had downshifting rates here. You know, we're not, as we talked about this morning, we're controlling what we control, and that is booking high-quality business in our markets, growing our core deposits, keeping our ability to remix those deposits as best we can as we grow, and doing the things we control, and the rest of this will work out when the time's right.

Speaker Change: Were certainly a part of always a part of your downstream discussions and other types of M&A activity.

Speaker Change: But it is a tough environment and yes, I mean.

Speaker Change: Your guess is as good as minus when the environment is going to get better it would be no.

Speaker Change: Nice if we got you know a down shift in rates here, but you know we're not as we've talked about this morning, where.

Speaker Change: We're controlling what we control and that is book in high quality businesses. Our market is growing our core deposits keeping our ability to remix those deposits as best we can as we grow and are doing the things we control and the rest of this will work out when the time's right.

Stephen Kendall Scouten: Yeah, makes sense. And maybe just last follow-up for me going back to the NIMM conversation, my one maybe point of confusion, I guess, is we were talking about like a 3% NIMM by fourth quarter, 24, last quarter, but I think the curve at the time, maybe it was showing eight to 10 cuts potentially. Now we're looking at three to four, but I think we can still get there. So is the ramp really not dependent upon lower rates, in your view, or has there been another change that kind of helps you to get there irrespective of that change in the forward curve and expectations? The ramp.

Speaker Change: Yeah makes sense and maybe just last follow up for me going back to the NIM conversation My one maybe point of confusion I guess it when you were talking about like a 3% NIM by.

Speaker Change: Fourth quarter 24 last quarter, but I think the curve at the time, maybe we show an eight to 10 cuts potentially now we're looking at three to four but think we can still get there. So is the ramp really not dependent upon lower rate in your view or has there been another change that kind of helps you to get there irrespective of.

Speaker Change: That change in the foreign curve and expectations there.

Paul B. Langdale: The ramp is slower at higher rates, but we still get back to where we expect to be. And I don't think we'll quite get to that 3% by the end of this year.

<unk> is slower at higher rates, but we still get back to where we expect to be Oh, no. I don't think we'll quite get to that 3% by the end of 'twenty four but that said Stephen if you think about spreads we do expect that spreads will remain relatively constant in our modeling so even though we would get that benefit.

Stephen Kendall Scouten: But that said, Stephen, if you think about spreads, we do expect that spreads will remain relatively constant in our modeling. So even though we would get that benefit on deposit costs that will come quicker in a downrate environment, we still are going to be able to notch some meaningful expansion from that earnings asset reprice. So the variability between those two scenarios is not as wide of a range as you'd expect when you look at the modeling on paper. Even in a flat rate environment, we're going to have some meaningful differences.

Speaker Change: Fed on deposit costs that will come quicker in a down rate environment, we still are going to be able to knock some meaningful expansion from that earning asset repriced. So that the variability between those two scenarios, it's not as wide of a range as you'd expect when you look at the modeling on paper, even in a flat rate environment, we're going to have some meaningful NIM expansion.

Stephen Kendall Scouten: Very helpful. All right. Great. Thanks, guys. Appreciate the time.

Speaker Change: Yeah very helpful. Alright, great. Thanks, guys. Appreciate the time thanks, Steve.

Operator: Once again, ladies and gentlemen, that is star number one to register a question. The next question is coming from Matt Olney of Stevens. Please go ahead.

Speaker Change: Once again, ladies and gentlemen that is star one to register a question. The next question is coming from Matt Olney of Stephens. Please go ahead.

Matthew Covington Olney: Hey, thanks. Good morning. Maybe I just follow up on that. Good morning.

Matthew Covington Olney: Hey, Thanks, Good morning, maybe just following up on that good morning, just following up on Steven's last question there any any change in the bank's interest rate sensitivity projections I think back in January we moved to incrementally more liability sensitive any any material changes from from then.

David R. Brooks: Just follow up on Stephen's last question there. Any change in the bank's interest rate sensitivity projections? I think back in January we moved to being incrementally more liability sensitive. Any material changes since then?

Paul B. Langdale: No, I'd say that the liability sensitivity remains. One thing that has changed a little bit, Matt, is that we paid off some of those short-duration brokered funds at the end of the quarter. That probably kicked us a notch back toward neutral, but not meaningful.

Matthew Covington Olney: No I'd say that the liability sensitivity remains the one thing that has changed a little bit Matt is as we paid off some of those short duration brokered funds at the end of the quarter that probably kicked up a notch back toward neutral, but not meaningful.

Paul B. Langdale: Okay, so Paul, you're saying that you're still liability-sensitive, but maybe not as much as you were in the fourth quarter. Is that right? Correct. Correct. Okay, that's helpful.

Matthew Covington Olney: Okay, So Paul you're saying still liability sensitive, but maybe not as much as you were in in the fourth quarter is that right correct correct.

Matthew Covington Olney: Okay. That's helpful. And then I guess going back to Catherine's question around deposit costs stabilizing in the near term.

Matthew Covington Olney: And then I guess going back to Catherine's question around deposit costs stabilizing in the near term, I think we're just trying to get more comfortable with this outlook since we did see deposit costs move up 20 bps this past quarter. And I understand a lot of that is going to be on non-dispairing deposits stabilizing. And Paul, you gave us some great details around the spot balances for NIBs. Do you happen to have the spot deposit costs that we can compare to the first quarter average, or just additional color on deposit costs by month in the first quarter, just any other details that can get us more comfortable with that?

Matthew Covington Olney: We're just trying to get more comfortable with this outlook since we did see deposit costs move up 20 bps this past quarter.

Matthew Covington Olney: And I I get a lot of that is gonna be on noninterest bearing deposit stabilizing.

Speaker Change: And Paul you gave us some great details around the spot balances for <unk> do you happen to have the spot or spot deposit cost that we can compare to the first quarter average or or just additional color on deposit costs by month in the first quarter just any other details that can get us more comfortable with that.

Paul B. Langdale: It's hard to pin down an exact spot deposit cost on a daily basis, Matt, but what I will say is that where we have seen, you know, rate exception requests in the first quarter, we haven't seen those really recurring in the second quarter. Where we had the ability to negotiate price a little bit more aggressively in March and April that we didn't have in February when you had that sharp reversal in the rate market, I think it was a little bit of depositor behavior that factored into it.

Paul: Hard to pin down an exact spot deposit cost on a daily basis, Matt, but what I will say is that where we have seen.

Paul: Rate exception request in the first quarter, we haven't seen those really recurring in the second quarter, where we have the ability to negotiate price a little bit more aggressively in March and April that we didn't have in February when you had that sharp reversal in rate market I think it was a little bit of depositor behavior that factored into it as everyone was pricing and those cuts people were.

Paul B. Langdale: As everyone was pricing in those cuts, people were trying to reach for yield, but as it became looking like it was going to be higher for longer, then it's been a more rational negotiation with folks on rate.

Paul: Trying to reach for yield, but as it became looking like it was going to be higher for longer than its been a more rational negotiation with folks on rate the big key though for US Matt as I mentioned earlier is going to be that production in the field and our ability to really grow those core deposits and that's where we see the traction and that's what gives us that incremental cost.

Matthew Covington Olney: The big key, though, for us, Matt, as I mentioned earlier, is going to be that production in the field and our ability to really grow those core deposits. And that's where we see the traction, and that's what gives us that incremental confidence that we're going to be able to manage those costs down because really, it's about running off that wholesale funding that bears the highest cost. Anything that we can do in the field is going to be a positive spread of that. It's going to be helpful.

Paul: That we're going to be able to manage those costs down because really it's about running off that that wholesale funding that bears the highest cost anything that we book in the field is going to be a positive spread to that it's going to be helpful for us.

Paul B. Langdale: Okay. I appreciate that, Paul.

Speaker Change: Okay I appreciate that Paul and then just lastly for me on the on the mortgage warehouse. It sounds like some of your competitors have stepped back and open up little opportunity for you guys. Just any more color behind that and I think you mentioned are.

Matthew Covington Olney: And then, just lastly for me on the mortgage warehouse, it sounds like some of your competitors have stepped back and opened up a little opportunity for you guys. Any more color on that? I think you mentioned kind of maintaining these current balances. Did I capture that right?

Speaker Change: Kind of maintaining these current balances did I capture that right.

Daniel W. Brooks: Yeah, Matt, good morning, this is Dan. I'll take that one.

Speaker Change: Yeah, Matt. Good morning. This is Dan I'll take that one we do expect the balances that we have enjoyed here for the last 90 days or last two quarters to continue to be at that level.

Daniel W. Brooks: We do expect the balances that we have enjoyed here for the last 90 days or the last two quarters to continue to be at that level. In fact, if you think about it, we're headed into the spring and summer season here, so there's kind of a normal pickup beyond what happens in the first quarter. There was a bit of a bump when mortgage rates dropped right at the beginning of the year, but we've actually seen ours hold and accelerate.

Dan: In fact, if you think about it we're headed into the spring.

Dan: Summer season here, so there's a kind of a normal pick up beyond what happens in the first quarter. There was a bit of a bump when mortgage rates dropped right at the beginning of the year, but we've actually seen ours hold and accelerate.

Daniel W. Brooks: Again, because the consumer seems to be more comfortable with the higher rates, and we have seen competitors continue to exit this, and that gives us plenty of confidence that our book will hold and, at these levels, maybe be up a little bit in the next quarter.

Dan: Again, because the consumer seems to have become more comfortable.

Dan: Comfortable with are the higher rates and we have seen competitors continue to exit this and that gives us plenty of confidence that our book will hold.

Dan: Certainly at these levels, maybe be up a little bit in the next quarter.

Matthew Covington Olney: Okay, perfect. Thanks, guys. Hey, thanks.

Speaker Change: Okay perfect. Thanks, guys.

David R. Brooks: Thank you. At this time, I'd like to turn the floor back over to management for any additional or closing comments.

Speaker Change: Thanks, Matt.

Thank you at this time I'd like to turn the floor back over to management for any additional or closing comments.

David R. Brooks: Thank you. I appreciate everyone joining us today. We feel, as you heard, incrementally encouraged about the NIM having bottomed out. We did have a slight increase in March and are expecting a slight increase in April here at our NIM run rate. So we're encouraged about that, and broadly, as you've heard, credit quality is as good as it has been in 15 years here. So we're encouraged by that and encouraged by what we see in the pipeline, both on deposits and loans. So we're looking for a good second quarter and hope everyone has a great day.

Speaker Change: Thank you I appreciate everyone. Joining today, we feel as you heard incrementally encouraged about the NIM, having bottomed out we did have a slight increase in March and expecting a slight increase in April here in our in our NIM run rate. So we were encouraged about that.

Speaker Change: And broadly as you've heard the credit quality is as good as it's been in 15 years here. So we're encouraged by that and encouraged by what.

Speaker Change: What we see in the pipeline both on deposits and loans. So we're looking for a good second quarter and hope everyone has a great day.

Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.

Speaker Change: Ladies and gentlemen. This concludes today's event you may disconnect your lines as log off the webcast at this time and enjoy the rest of your day.

Speaker Change: [music].