Q1 2024 Veritex Holdings Inc Earnings Call
Operator: Good morning, and welcome to the Veritex Holdings first quarter 2024 earnings conference call and webcast. All participants will be in a listen only mode. Please note this event will be recorded. I will now turn the conference over to Will Holford, CEO of Veritex.
Good morning, and welcome to the vertex Holdings first quarter 2024 earnings conference call and webcast all participants will be in a listen only mode. Please note. This event will be recorded I will now turn the conference over to Wil Holford with vertex.
Will Holford: Thank you. Before we get started, I'd like to remind you that this presentation may include forward-looking statements, and those statements are subject to risk and uncertainties that could cause actual and anticipated results to differ. The company undertakes no obligation to publicly revise any forward-looking statement.
Wil Holford: Thank you before we get started I'd like to remind you that this presentation may include forward looking statements and those statements are subject to risks and uncertainties that could cause actual anticipated results to differ.
Wil Holford: <unk> undertakes no obligation to publicly revise any forward looking statements.
Will Holford: If you are logged into our webcast, please refer to our slide presentation, including our Safe Harbor Statement, beginning on slide two. For those on the phone, please note that the Safe Harbor Statement and presentation are available on our website, veritexbank.com. All comments made today are subject to the Safe Harbor Statement.
Wil Holford: If you're logged into our webcast. Please refer to our slide presentation, including our Safe Harbor statement on slide two.
Wil Holford: Phone place that.
Wil Holford: Doctor Safe Harbor statement and presentation are available on our website <unk> dot com.
Wil Holford: All comments made today are subject to the safe Harbor statement, some financial metrics discussed will be on a non-GAAP basis, which management believes better reflects the underlying core operating performance of the business. Please see the reconciliation of all discussed non-GAAP measures in our filed 8-K earnings release, joining me today are Dunkin' Heartland, our chairman and C.
Will Holford: Some financial metrics discussed will be on a non-GAAP basis, which management believes better reflects the underlying core operating performance of the business. Please see the reconciliation of all discussed non-GAAP measures in our filed 8K earnings release. Joining me today are Malcolm Holland, our Chairman and CEO, and Terry Earley, our Chief Financial Officer. I will now turn the call over to Malcolm. Thank you, Will. Good morning, everyone.
And Terry Earley, our Chief Financial Officer, I will now turn the call over to Malcolm.
Malcolm: Thank you will good morning, everyone and welcome to our first quarter earnings call.
Malcolm Holland: And welcome to our first quarter earnings call. In the first quarter, we reported earnings of $29.1 billion, or $0.53 per share. Pre-tax free provision return was 1.42% or $43.7 billion. We continue our strategic plan of improving our balance sheet and our liquidity profile while at the same time adding to tangible book value, increasing our loan loss reserves, and decreasing concentration. Additionally, during the quarter, we announced a securities loss trade transaction that is anticipated to add five cents annually to EPS and a $50 million stock repurchase program.
Malcolm: First quarter, we reported earnings of 21, $29 1 billion or 53 cents per share.
Malcolm: Pre tax pre provision return was 114% or $43 7 million.
Malcolm: Continuing our strategic plan.
<unk> cheap liquidity profile, while at the same time, adding to tangible book value increase and our loan loss reserves and decreasing concentrations Adair.
Malcolm: Additionally, during the quarter, we announced the securities loss trade transactions that is anticipated to add five sets annually to EPS and a $50 million stock repurchase program.
Malcolm Holland: From a growth standpoint, we continue at a very cautious rate while we focus on our balance sheet transformation. For the quarter, loans were up 114.7 million, or around 1%, while deposits were up 316 million, or 12% annually. It is interesting to know that over the last 12 months, our loan growth is virtually flat, while deposits are up 18% or $1.6 billion. Progress is being made.
Malcolm: From a growth standpoint, we continue to very cautious right, but we focus on our balance sheet transformation for.
Malcolm: For the quarter loans were up $114 7 million or 1%, while deposits were up $316 million or 12% annualized interesting to note that over the last 12 months our loan growth is virtually flat.
Malcolm: Deposits are up 18% or $1 6 billion.
Malcolm: Progress is being made at our primary focus in addition to continuing deposit generation is a more advantageous mix of deposits and we'll continue to break down our funding cost.
Malcolm Holland: Our primary focus, in addition to continued deposit generation, is a more advantageous mix of deposits that will continue to bring down our funding costs. Looking into the rest of the year, we believe low growth will be in the low single digits, while deposits should be in the high single to low double digits with an improved mix. As we navigate the current rate outlook, uncertainty appears to be the name of the game. With that said, we remain focused on credit surveillance and monitoring of our loan portfolio. Staying with credit, metrics remained fairly stable over the previous quarter, with progress made on many specific credits.
Malcolm: Looking into the rest of the year, we believe loan growth will be in the low single digits, while deposits should be in the high single to low double digits with an improved mix.
Malcolm: As we navigate the current rate outlook uncertainty appears to be the name of the game.
Malcolm: We remain focused on credit surveillance and monitoring of our loan portfolio.
Malcolm: Staying with credit metrics remained fairly stable over the previous quarter with progress made on many specific credits.
Malcolm Holland: Our NPAs increased $6 million, or from 0.77% to 0.82% of total assets. The increase in NBAs was a result of a downgraded acquisition.
Malcolm: Our npa's increased $6 million or from <unk>, 77% to eight 2% of total assets.
Malcolm: The increase in NPA, so as a result of the downgrade acquired.
Malcolm: Specialty medical facility.
Malcolm Holland: During the quarter, we also foreclosed on a student loan, resulting in a $15.1 million increase in ORE, which represents 61% of the loan balance. Charges for the quarter were down 44% from the previous quarter to $5.3 million across four relationships, the most significant of which relates to the Houston office property totaling $4.3 million, which we wrote down to the discounted land day. Our loan loss reserve grew marginally during this quarter to $1.15.
Malcolm: During the quarter, we also forecast a student loan.
Malcolm: Built in a $15 1 million increase in ome, which represented 61% of the loan balance charge offs for the quarter down 44% from the previous quarter to $5 3 million across four relationships. The most significant of which relates to the Houston office property totaling $4 three.
Malcolm: We cheered broke down to the discount in Atlanta.
Malcolm: Our loan loss Reserve group margin later on its 401.15.
Malcolm Holland: Past news, excluding non-accruals, is down 63% from the previous quarter. We continue to see a reduction in our office exposure, which is down $117 million over the past 12 months. I'll now turn the call over to Terry.
Malcolm: Excluding non accruals are down 63% from the previous quarter, we continue to see reduction in our office exposure, which is down $117 million over the past 12 months I'll now turn the call over to Terry.
Terry S. Earley: Malcolm has covered the progress we've made in strengthening our balance sheet. I'm encouraged by the progress, but there's more work to do, especially on the deposit and credit sides. Starting on page 7, the allowance coverage now sits at 115 basis points, up meaningfully in the last four quarters as we have increased the reserve by over $13 million. Excluding our mortgage warehouse portfolio, the allowance coverage sits at 121 basis points.
Terry: Thank you Malcolm has covered the progress we've made in strengthening our balance sheet I'm encouraged by the progress, but there's more work to do especially on the deposit and credit side starting on page seven.
Terry: <unk> cartridge now sits at 115 basis points up meaningfully in the last four quarters as we have it.
Terry: Increase the reserve over $13 million, excluding our mortgage warehouse portfolio. The allowance coverage sits at 121 basis points.
Terry S. Earley: Our general reserves comprise 90% of the total allowance, a much stronger position than we were in a year ago. We continue to shift the economic assumptions to a more conservative approach, which seems appropriate in the higher for longer rates scenario, coupled with significant geopolitical risk.
Terry: General reserves comprised 90% of the total allowance.
Terry: A much stronger position than we've been in a year ago, we continue to shift to economic assumptions to a more conservative approach, which seems appropriate and the higher for longer rates scenario.
Terry: With significant geopolitical risk we've included a breakdown of the reserve level by loan portfolio at the bottom of the page. This reflects a significant build in non owner occupied and the owner occupied categories.
Terry S. Earley: We've included a breakdown of the reserve level by loan portfolio at the bottom of the page. This reflects a significant build in both the non-owner-occupied and the owner-occupied categories. Moving to page eight.
Terry S. Earley: Over the last four quarters, total capital grew approximately $45 million. The CET1 ratio has expanded by 8 bps during the quarter and by 105 basis points year-over-year and now stands at 10.37%, a significant contributor to the expansion in the capital ratios. There was a $624 million decline in risk-weighted assets year over year. Tangible book value per share increased to $20.33, which is a 9.1% increase on a year-over-year basis, including shareholder dividends.
Terry: Moving to page eight over the last four quarters total capital grew approximately $45 million.
Terry: <unk> ratio is expanded by eight bps during the quarter and by 105 basis points year over year and now stands at $10 three 7%.
Terry: <unk> contributor to the expansion into capital ratios has been a $624 million decline in risk weighted assets year over year.
Terry: Tangible book value per share increased to $20 33.
Terry: Which is a nine 1% increase on a year over year basis, including shareholder dividends.
Terry S. Earley: It's worth noting that since Veritex went public in 2014, it has compounded tangible book value per share at the rate of 11 and a half percent, including the dividends that have been paid to shareholders, on to page nine. Our strong deposit growth and low loan growth allowed Veritex to reduce its loan to deposit ratio from 107.7% at 331 23 to 91.7% at 331 24. The loan to deposit ratio is 86.9% if you exclude mortgage warehouse.
Terry: Worth, noting that since <unk> went public in 2014. It is compounded tangible book value per share at the rate of 11, 5%, including the dividends that have been paid to shareholders.
Terry: On to page nine our.
Terry: Our strong deposit growth and loan growth allowed very thanks to reduce its loan to deposit ratio.
Terry: 107, 7% at $331 23 to.
Terry: <unk> 91, 7% at $3 31 24.
Terry: Loan to deposit ratio was 86, 9% if you exclude mortgage warehouse the deposit growth also allowed a reduction in our wholesale funding reliance to 19, 5% from 32, 1% a year.
Terry S. Earley: The deposit growth also allowed a reduction in our wholesale funding reliance to 19.5% from 32.1% a year ago. As you can see in the bottom left graph, we've kept the time deposit portfolio short and have $2.7 billion in CD maturities over the remainder of 2024 at a rate between 5.1% and 5.15%. On the bottom right, we show the monthly cost of the total deposit. This was on a pretty steep rise through September 2023.
Speaker Change: Got it.
Speaker Change: As you can see in the bottom left graph, we've kept the time deposit portfolio sure.
Speaker Change: $2 $7 billion of CD maturities over the remainder of 2024.
Speaker Change: At a rate between five 1% and five 5% on the bottom right. We show the monthly cost of total deposits. This was on a pretty steep rise through September 2023. Since the answers is largely leveled out in our March cost of total deposits is below the rate in December of <unk>.
Terry S. Earley: Since then, it has largely leveled out, and our March cost of total deposits is below the rate in December. On slide 10, annualized loan growth was approximately 1.9% driven by increases involved in Family Cree and Mortgage Warehouse. We continue to make progress in reducing our CRE concentration.
Speaker Change: Slide 10.
Speaker Change: Annualized loan growth was approximately one 9% driven by increases in Baltar family Cree and mortgage warehouse.
Speaker Change: We continue to make progress in reducing our creek concentrations over the last year, we've reduced Cree to total risk based capital.
Terry S. Earley: Over the last year, we've reduced CRE to total risk-based capital from 334% to 319%. This has been driven by a significant decrease in ADC, total risk-based capital, from 129% to 108%. We remain committed to getting our CRE concentrations under 300% of total risk base and our ADC concentrations under 100% and think we should be there in the third quarter of 2024. Finally, please see the bottom right for commercial real estate maturities through the end of 2025.
334% to 319%. This has been driven by a significant decrease in ADC to total risk based capital from 129% to 108% we remain committed to getting our creek concentrations under 300% or total risk base and our ADC concentration to under 100%.
Speaker Change: We should be there in the third quarter of 2024.
Speaker Change: Finally, please see that bottom right for commercial real estate maturities through the end of 'twenty five as you can see fixed rate maturities do not represent undue risk to the bank at approximately $200 million for the balance of 2024 and approximately $325 million for all of 2025.
Terry S. Earley: As you can see, fixed rate maturities do not represent undue risk to the bank at approximately $200 million for the balance of 2024 and approximately $325 million for all of 2025. Slide 11 provides detail on the commercial real estate and ADC portfolios by asset class, including ones out of state. As Malcolm mentioned, the office portfolio continues to decline and is down $117 million, or 18%, in the last year and now comprises less than 5.5% of total loans.
Speaker Change: Slide 11 provides detail on the commercial real estate and ADC portfolios by asset class, including ones that stake.
Speaker Change: Welcome mentioned the office portfolio continues to decline and is down $117 million or 18% in the last year and now comprises less than five 5% of total loans.
Terry S. Earley: Slide 12 illustrates a breakdown of our out-of-state portfolio, including the significant impact of our national businesses and mortgage. The true percentage of our out-of-state portfolio is only 11.3%, and this is predominantly where we have followed Texas real estate clients to other geographies.
Speaker Change: <unk> 12 illustrates a breakdown of our out of state portfolio, including the significant impact of our national businesses and mortgage that three percentage of our out of state portfolio was only 11, 3% and this is predominantly where we have filed with Texas real estate clients to other geographies.
Terry S. Earley: On slide 13, it shows that interest income decreased by $2.7 million to almost $93 million during the first quarter. The biggest drivers of the decrease were higher deposit yields, lower day count, and an unfavorable asset mix shift, resulting from a lower loan to deposit ratio. This was offset by an increase in volume from a little bit of growth. The net interest margin decreased seven basis points from Q4 to 3.24%. The NIM is going to continue to feel pressure as we look to achieve a loan deposit ratio of below 90% and push excess funding into the investment portfolio. Client 14 loan yields are relatively flat, investment yields are up 15 basis points, and deposit costs for the quarter only increased five basis points. This is a welcome change from the average 38 basis points a quarter over the previous three quarters. Slide 15.
Speaker Change: On slide 13, net interest income decreased by $2 7 billion to almost $93 million during the first quarter.
Speaker Change: Cost drivers of the decrease were higher deposit yields lower day, count and an unfavorable asset mix shift, resulting from a lower loan to deposit ratio. This was offset by an increase in volume from a little bit of growth.
Speaker Change: Our net interest margin decreased seven basis points from Q4 to $3 two 4%.
Speaker Change: NIM is going to continue to feel pressure as we look to achieve a loan deposit ratio of below 90% and pushed excess funding into the investment portfolio.
Speaker Change: Slide 14 loan yields are relatively flat investment yields are up 15 basis points and deposit costs for the quarter only increased five basis points. This is a welcome change from the average of 38 basis points quarter over the previous three quarters.
Terry S. Earley: It shows certain metrics on our investment portfolio. Key takeaways are the portfolio is only 10.6% of the assets, the duration remains about four years, and 87% of the portfolio is held in AFS. As previously noted, we completed the loss trade in Q1, in which we sold investments earning 3.11% average yield and reinvested the proceeds at 6.26% average yield. The loss trade is expected to have a 1.8 year loss earn back and be three points accretive to the net interest margin and five cents to EPS.
Speaker Change: Slide 15 shows certain metrics on our investment portfolio key takeaways are the portfolio is going to be 10, 6% of asset the duration remains about four years and 87% of the portfolio is held in <unk>.
Speaker Change: <unk> is.
Speaker Change: As previously noted we completed the loss trade in Q1.
Speaker Change: We sold investments, earning $3, one 1% average yield and reinvested. The proceeds at 626 average yield. This is expected to have a 1.8 year loss earn back and be three points accretive to the net interest margin and five to EPS.
Speaker Change: Finally on this slide you see a snapshot of our cash and borrowing capacity, which totaled $6 4 billion.
Terry S. Earley: Finally, on this slide, you see a snapshot of our cash and borrowing capacity, which totals $6.4 billion. This represents 1.8 times the level of uninsured or under collateralized deposits. This available liquidity is up over 50% since March 31 of last year. However, the first quarter of 2024 was a disappointing quarter for fee income. The USDA business had no production, but some trailing revenue from the sale of a loan closed in the prior quarter. The lack of production is a function of government funding circuits and a challenging environment to get USDA loans approved.
Speaker Change: This represents one eight times the level of uninsured or.
Speaker Change: Collateralized deposits. This available liquidity is up over 50% since March 31 of last year.
Speaker Change: On slide 16, the first quarter of 2024, it was a disappointing quarter in fee income.
Speaker Change: SDA business had no production, but some trailing revenue from the sale of a loan closed in the prior quarter.
Speaker Change: Lack of production as a function of government funding circus.
Speaker Change: In a challenging environment to get USDA loans approved the.
Speaker Change: The bright spot for the quarter was our SBA business production was up August was up almost 30% over Q4, and the gain on sale premiums or close to 9%.
Speaker Change: Operating noninterest expenses were up for the quarter, which include normal beginning of the year cost higher.
Terry S. Earley: The bright spot for the quarter was our SBA business. Production was up almost 30% over Q4, and the gain on sale premiums was close to 9%. Operating non-interest expenses were up for the quarter, which included normal beginning-of-the-year costs. While higher than Q4-23 levels, they were very much in line with management expectations. Finally, the effective tax rate was higher for the quarter than in previous periods due to the tax treatment of equity awards vesting below the fair value award price. The effective tax rate is expected to return to approximately 21.75% for the remainder of the year.
Higher than Q4, 'twenty three levels they were very much in line with management expectations.
Speaker Change: Finally, the effective tax rate was higher in the quarter than in previous periods due to tax treatment of equity awards vesting below the fair value of award price effective tax rate is expected to return to approximately 21, 75% for the remainder of the year with that I'd like to turn the call over to Malcolm concluding comments.
Thank you Terry.
Malcolm: We continue to improve and reposition our balance sheet to a stronger position, while continuing to focus on earnings and TPG growth our credit teams under the leadership of our acting Chief Credit Officer Curtis Henderson have increased their surveillance activities and oversight that has already provided positive results.
Malcolm Holland: With that, I'd like to turn the call over to Malcolm for his concluding comments. Thank you, Terry. We continue to improve and reposition our balance sheet to a stronger position while continuing to focus on earnings and TPV growth. Our credit teams, under the leadership of our Acting Chief Credit Officer, Curtis Anderson, have increased their surveillance activities and oversight, which has already provided positive results. Our teams remain focused. Operator will now take any questions. Thank you.
Malcolm: Our teams remained focused operator, we'll take now take any questions.
Speaker Change: Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.
Operator: Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. One moment for questions. Our first question comes from Catherine Mueller with KVW. You may proceed.
Speaker Change: Our first question comes from Catherine Mealor with <unk> you May proceed.
Catherine Mealor: Hi, good morning.
Catherine Mealor: Thank you Catherine.
Catherine Mealor: Just one credit question.
Catherine Mealor: Slide where you show the change in classified assets.
Catherine Fitzhugh Summerson Mealor: I want to start with this one credit question. On your slide where you show the change in classified assets, it looks like substandard came down, but special mention came up a little bit. Can you just talk a little bit about some of the moves in and out of those two portfolios this quarter?
Speaker Change: Looks like the standard came down but special mentioned came up a little deck can you just talk a little bit about the.
Catherine Mealor: <unk>.
Catherine Mealor: The move in and out of his key portfolio this quarter.
Deck: Yes, we had a couple of weeks.
Deck: But we got good guys couple of payoffs actually.
Malcolm Holland: Yeah, we had a couple of what we call good guys, a couple of payoffs actually. Unknown Speaker. Unknown Speaker, that claims on that.
Deck: Well.
Deck: Okay.
Deck: The exact names on that.
And then we had a couple of it moved and so what are the things that we found ourselves in a place where we werent moving stuff off quick enough.
Malcolm Holland: And then we had a couple that moved in. And so one of the things that we found ourselves in a place where we weren't moving stuff off quickly enough, and so we weren't creating shelf space. And so we started to do just that.
Deck: And so we weren't creating shelf space and so we've started to do just that.
Deck: We have a.
Deck: Let's see.
Malcolm Holland: We had a substandard facility. We had one, two, three payoffs to one office, one C&I, and then one was a judgment cell that had the real estate behind it, about $23 million. And then we moved a couple in there on the substandard side. And then we had some upgrades out of substandard, and a C&I deal and a pretty large office deal that we moved to. It went to a land-only deal, but we re-underwrote it as a land deal, and it was turned into a past credit with some strong people behind it. So I think we're going to continue to see movement there, both in and out each quarter, but I do hope that the trends are starting to move downward, where they start shrinking.
Deck: Sub standard we had 123 pay off.
Deck: One office, one C&I and then one was the judgments that wed have the real estate behind it so.
Deck: About 23 billion and then we moved a couple.
Deck: Couple in there on the substandard side.
Deck: And then we had some upgrades out of sub standard.
Deck: Our C&I deal and a pretty large.
Deck: Office deal that we've moved to.
Deck: It went to Atlanta only deal with eight 300.
Deck: Underwrote it as a land deal and it was.
Deck: Turning to a past Greg.
Deck: <unk>.
Deck: People behind it so.
Deck: We can I think we're going to continue to see movement there.
Deck: <unk> in and out.
Deck: Each quarter, but I.
Deck: I do hope that the trends are starting to move down where they they start shrinking.
Malcolm Holland: Okay, great. Any, any trends with some of the credits that moved into substandard? Okay, what type of what type of credits, or just kind of give us a flavor of what's in that? I don't know.
Speaker Change: Okay, great any any trend or kind of the credit that moved into substandard.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: What type of credits or just kind of give us a flavor of what's in that.
Malcolm Holland: I don't think there's any trend or there's anything systemic. There are a few C&Is, there's a few real estate, but there was nothing that I would get concerned about in terms of a specific asset category.
Speaker Change: I don't think theres any trend or there's anything systemic.
Speaker Change: There is there is a few C&I there are few real estate, but there was that.
Speaker Change: With that I will.
Speaker Change: We'd get concerned about in terms of specific assay category.
Terry S. Earley: All right, and then on the buyback, and you just your capital position, you talked about how you want to lower your CRE to capital ratios and think you'll get there by the third quarter, but you've also initiated the buyback. So how do we kind of balance those two with hitting your CRE concentration levels, but then also being active on the buyback? Would you and maybe how aggressive should we expect you to be with that new authorization? Catherine Sherry.
Speaker Change: Okay.
Speaker Change: Alright, and then on the.
Speaker Change: On the buyback and.
Speaker Change: Just your capital position you talked about how you want to lower your CRE to capital ratio, then think you'll get there by the third quarter, but you also initiated the buyback. So how do we kind of how do we balance those two with heading your CRE concentration level.
Speaker Change: And then also being active on the buyback with you and maybe how aggressive should we expect you to be with that new authorization.
Terry S. Earley: Catherine, it's Terry. What I would say on the, it is a balance, you know, praise that very well. You know, our view is given the uncertainty around rates higher for longer and credit, it's not time to become overly aggressive on the buyback, which helps on the commercial real estate side. I expect usage this quarter, but I don't expect us to be underweight, if you will. You think about a one-year, you know, a one-year life on this buyback. I wouldn't expect equal weight or overweight.
Terry: Catherine This is Terry.
Terry: What I would say.
Speaker Change: It is a balancing act.
Catherine Mealor: You phrased that very well.
Terry: Our view is given the uncertainty around rates higher for longer and credit it's not time to become overly aggressive on the buyback which helps on the commercial real estate side obviously.
Terry: I expect usage this quarter, but I don't expect us I expect us to be underway. If you will you think about one year.
Terry: A one year life on this buyback I wouldnt expect equal weight or overweight I would expect underweight usage.
Terry S. Earley: I would expect underweight usage. So, we think it's undervalued. You will see us use it over the course of the next four quarters. But right now, I think patience is called for as we see what rates do and how that impacts credit given higher for the long term. Great, that makes sense.
Terry: So.
Terry: We want them. We think we can we think it's undervalued you will see us use it over the course of the next four quarters.
Terry: But right now I think patience is called for as we as we see what rates do and how that impacts credit given higher for longer.
Catherine Fitzhugh Summerson Mealor: Great, that makes sense. All right. Thank you very much.
Speaker Change: Great that makes sense great. Thank you very much.
Speaker Change: Thank you Catherine.
Speaker Change: Thank you.
Operator: One moment for questions. Our next question comes from Stephen Scouten with Piper Sandler. You may proceed.
Speaker Change: One moment for questions.
Speaker Change: Our next question comes from Stephen Scouten with Piper Sandler You May proceed.
Stephen Kendall Scouten: Hey, good morning, everyone. Unknown Speaker. I guess I was curious about the new CD pricing. I think, Terry, you laid out some of the CD's will roll off between 510 and 515. Just kind of wondering what you think, where you think you might be able to put new production on.
Stephen Kendall Scouten: Hey, good morning, everyone.
Thanks.
Stephen Kendall Scouten: Hey, guys I was curious around the new CD pricing I think.
Terry you laid out some of the.
Stephen Kendall Scouten: Cds roll off between $5 10, and 515, just kind of wondering what you think where do you think you might be able to put new production on.
Terry S. Earley: That's a great question. You know, I would say it's been going very well until the last Post-Quarter End Act. I think with rates kicking back up, and the market, and you know, look into two-year treasury bonds and what's been going on there. Teasing 5%. We've seen wholesale borrowing costs pick up 10 bps or so here in the last few days. And so I think, you know, I wouldn't be surprised to see, in the past, we've been able to roll out our CD portfolio, new CD production. It's been so flat. It's been amazing.
Terry: Well, that's a great question.
Terry: I'd say its been going very well until the last post quarter end actually.
Speaker Change: I think with rates ticking back up.
Speaker Change: In the market.
Speaker Change: Looking to two year treasury and what's been going on all their teasing 5%.
Speaker Change: We've seen wholesale borrowing cost pick up 10 bps or so here in the last few days and so I think.
Speaker Change: I wouldn't be surprised to see in the past, we've been able to roll our CD portfolio, New CD production, it's been so flat it's been amazing.
Terry S. Earley: But I'm not, I'm a little bit worried. And I think that's one of the headwinds to a very stable NIM is where will funding costs go? Because I would say competitiveness, or irrationality for pricing, has come down over the past several quarters, but it is still competitive out there. And I worry that with what's going on in the general markets and the fixed income markets, it's going to put a little bit of upward pressure on prices, like we're seeing. So maybe up 10. I think the downside case would be up 10. Right now, based on what we know.
Speaker Change: I'm, a little bit worried and I think that's one of the headwinds to a very stable NIM is.
Speaker Change: Funding costs go cost I would say competitiveness.
Speaker Change: Or irrationality for pricing has come down over the past several quarters, but it is still competitive out there and are worried that with what's going on in the general markets.
Speaker Change: In the fixed income markets. It is going to put a little bit of upward pressure back. We're seeing so it may be up I think the downside case would be up to you.
Terry S. Earley: I want to mention just the retention rates that we've had on those CDs. I mean, it's been remarkably consistent, month after month, 90% retention rate. Yeah.
Speaker Change: Right now based on what we can mention just the retention rates.
Speaker Change: We have on those Cds I mean, it's been remarkably consistent at month after box, a 90% retention rate.
Terry S. Earley: It has been very good. One of the things that helped us achieve a very flat total cost of deposit profile is that we actually went in early in the quarter, and we've lowered rates on some accounts, some by as much as 50-55 bps. And we haven't lost anything. It's actually grown in a money market that we lowered. So you know, we're just trying, we're taking a total portfolio approach, Stephen. I'm a little worried about the CDs. We're having great retention, though. And, you know, it's kind of hand to hand combat right now every day on that.
Speaker Change: It has been very good the other thing one of the things that helped us achieve this very flat.
Speaker Change: Total cost of deposit profile is we actually went in early in the quarter and we've lowered rates on some accounts some as much as $50 55 bps.
Speaker Change: Lost anything it's actually growth in our money market that we load. So we're just we're taking a total portfolio approach statements I'm a little worried about the Cds were having great retention, though.
Speaker Change: And.
Speaker Change: It's kind of hand to hand combat right now every day on that.
Malcolm Holland: Yeah, and that may answer my next question, I mean, in terms of continuing to improve the deposit mix and growing deposits. It's been really nice progress over the last 12 months. Are there any, you know... Significant kind of structural changes, or is it really just more, hey, blocking and tackling, incentivizing the right things, and letting this play out over time?
Speaker Change: Yes, and that May answer. My next question is in terms of continuing to improve the deposit mix and grow in deposits.
It's been really nice progress over the last 12 months are there any.
Speaker Change: Significant kind of structural changes or is it really just more blocking and tackling incentivizing the right things and letting this play out over time.
Malcolm Holland: It is definitely blocking and tackling, it's definitely incentives, but it's also just an effort for the last, I guess now five quarters, when we hired a guy at the beginning of last year to really focus on customer acquisition, new customer acquisition, we call it new logos. And you're starting to see some of that. It's been incredibly helpful.
Speaker Change: It is definitely blocking and tackling it's definitely incentives.
Speaker Change: But it's also just an effort for the last I guess now five quarters, when we hired a fellow at the beginning of last year to really focus on.
Speaker Change: Most of our acquisition new customer acquisition, we call it new logos.
Speaker Change: It's you're starting to see some of it.
Speaker Change: It's been incredibly helpful. The problem with it by design, it's very small and granular that's what we want and so it's very small and granular it takes a while.
Malcolm Holland: The problem with it, by design, is very small and granular. That's what we want. And so when it's very small and granular, it takes a while to see some movement, but you're seeing some movement. I mean, it's slow, but it is an accountability discipline we haven't had here for a long time that I think you're seeing some of the success. Two additional comments.
Speaker Change: See some movement, but youre seeing separately it's slow.
Speaker Change: But it's it is an accountability that we have we haven't accountability discipline add here for a long time that I think youre seeing some of the success of that two additional comments what mountains talk about talking about his franchise enhancing deposit growth, which should not something we've seen around.
Malcolm Holland: What Malcolm's talking about is franchise-enhancing deposits, which is not something we've seen around here in a long time. And some of it is structure. We've hired, we've made a concerted effort to hire in the small business space, focusing on companies with revenues under $10 million.
Speaker Change: Here in a long time and some of it is structural.
Speaker Change: We've hired we've made a concerted effort to hire of the small business space and focus on revenues companies with revenues under $10 billion.
Malcolm Holland: That is structural. It's showing great progress, takes time, and you're going to continue to see us. That's where we're going to push our investment dollars on the front end of the
Speaker Change: That is structural it's showing great progress its takes time and youre going to continue to see us that's where we're going to push our investment dollars on the front end of the business.
Stephen Kendall Scouten: Got it. Got it. That's very helpful.
Speaker Change: Okay got it got it that's very helpful. And then maybe just last thing for me on the.
Stephen Kendall Scouten: And then maybe just last thing for me on the USDA business. I mean, do you have any visibility through the rest of the year in terms of funding for that program and kind of how you think about that? Maybe not so much on a quarter of a quarter basis, but more so year over year. What's possible?
Speaker Change: USDA business I mean, do you have any visibility through the rest of the year in terms of funding for that program and kind of how you think about that maybe not so much on a quarter over quarter basis, but more so year over year with possible.
Terry S. Earley: Yeah, here's what I would say I would expect. Internally, we've taken our government guaranteed loan forecast down from 15 to 20.
Speaker Change: Yeah, Here's what I would say I would expect.
Speaker Change: Internally, we've taken our government guaranteed loan forecast down.
Speaker Change: 15% to 20%.
Terry S. Earley: Our SBA business is doing exceptionally well; in the USDA, it's harder to get loans approved. We need to move up the market in credit and down the market in loan size. And so, as you think about all of that, you just got to believe the revenue. That's what's led us to lowering our internal forecast. But but I do think it's it's above what we did this quarter. I mean, just, it was, as I said, the most disappointing thing of the quarter. But I think the rest of the year looks pretty good.
Speaker Change: Our SBA business is doing exceptionally well.
Speaker Change: And the USDA.
Harder to get loans approved.
Speaker Change: We need to move up market and credit and down market and loan size.
Speaker Change: And so when you think about all of that.
Speaker Change: You just got to believe that revenue and Thats whats led us to lowering our internal forecast.
Speaker Change: But I do think it's above what we did this quarter.
Speaker Change: And then it was as I said, it's the most disappointing thing in the quarter, but I think the rest of the year it looks pretty good so Steven.
Stephen Kendall Scouten: So Stephen, that's the best way I know to answer it right now. Okay, great. Well, I will
Speaker Change: Best way to answer it right now.
Steven: Okay, Great I will hop out, but thanks for taking the time.
Stephen Kendall Scouten: Okay, great. Well, I will hop out. Thanks for taking the time.
Speaker Change: Thank you.
Speaker Change: Thank you.
Operator: One moment for questions. Our next question comes from Ahmad Hassan with D.A. Davidson. Please proceed.
Speaker Change: One moment for questions.
Speaker Change: Our next question comes from <unk> with da Davidson You May proceed.
Ahmad Jamal Hasan: Good morning guys. This is Ahmad Hassan on for Gary Tenner. [inaudible] Thank you. And can you talk about slide nine, you mentioned term funding. You're on $2 billion maturing at a little over 5%. So would you reduce balance sheet liquidity there, or any thoughts on just replacing the funding and the relative costs or impacts on the NIM there?
da Davidson: Good morning, guys because of the amount of sign on for Gary Tenner.
da Davidson: Good morning.
da Davidson: Sure.
da Davidson: Thank you.
Speaker Change: Can you.
Gary Peter Tenner: Talk about the slide nine you mentioned term funding, yes around $2 billion maturing at a little over 5%.
Speaker Change: So would you reduce.
Speaker Change: Balance sheet liquidity there.
Speaker Change: Or any thoughts on this replacing the funding.
Speaker Change: And the relative costs or impact on the NIM.
Terry S. Earley: Well, I think I think, you know, as I was just saying earlier, I think the wholesale markets are clearly taking the lead in terms of pricing there, and but the cost of the NEM over the course of four quarters is, you know, one to two BIPs. That's, it's not, it's not that that's about what 10 BIPs on the wholesale portfolio costs; it's going to be between one and two, and probably closer to one to two in terms of the impact there.
Speaker Change: Well I think I think.
Speaker Change: I was just saying earlier.
Speaker Change: Okay.
Speaker Change: To the wholesale markets clearly taking up in terms of pricing there.
Speaker Change: And but the cost the cost to the NIM over the course of four quarters as you know.
Speaker Change: One to two bps.
Speaker Change: Not it's not that it's about what 10.
Speaker Change: 10 bps.
Speaker Change: The wholesale portfolio cost is going to be.
Speaker Change: <unk> wanted to and probably closer to 1% or two in terms of the impact there.
Terry S. Earley: You know, the more retail market, we've got to just see how that market evolves. And we're more relationship pricing there anyway. So, I mean, I think it's a headwind. But I don't think it's an insurmountable headwind to NIM by any stretch of the imagination.
Speaker Change: The more retail market.
Speaker Change: We've got to just see how that market evolves and we're more relationship pricing there anyway.
Speaker Change: So I mean, I think it's a headwind I don't think it's instrumental headwind to the NIM by any stretch of imagination. It's just one we've got to be aware of.
Terry S. Earley: It's just one we've got to be aware of. Unknown Speaker, you know, and we it's, you know, It's still our goal to stay relatively short because if rates come down, we want to be able to reprice down this deposit portfolio. I mean, as you see there, I mean, you got over $3 billion, and we want to reprice down as quick as we can. We do.
Speaker Change: Yeah.
Speaker Change: And it's.
Speaker Change: It's still our goal to stay relatively short because if rates come down we want to be able to reprice down on these on this deposit portfolio, mainly as you see there.
Speaker Change: <unk> got over $3 billion, and we want to reprice down as quick as we can we do I'm not going to get enticed by the inverted curve to go walk.
Terry S. Earley: I'm not going to get enticed by the inverted curve to go long.
Terry S. Earley: Great, that's helpful. And then maybe on the loan growth side, this quarter had pretty nice loan growth. So anything you're seeing there, like any specific sectors that you guys are excited about moving forward in the pipeline? Or any, is it coming from, like, geographically high-growth markets or not?
Speaker Change: Great that's helpful.
Speaker Change: And then maybe on the loan growth side.
Speaker Change: This quarter had pretty nice loan growth.
Speaker Change: Anything youre seeing there like any specific sectors that you guys are excited about moving forward in the pipeline or any is it coming from even geographically high growth markets.
Malcolm Holland: Yeah, I would say almost all of it is coming from our markets. There might be a few outside, but it's predominantly in our markets.
Speaker Change: Yes, I would say almost all of it is coming from our markets.
Speaker Change: There might be a few outside but it's predominantly in our markets. Our pipelines candidly are as strong as they've been.
Malcolm Holland: Our pipelines, candidly, are as strong as they've been in some time, but they're pipelines, and a lot of it is in the early stage of that pipeline. So we're seeing, as Terry mentioned, we have a concerted effort to focus on small business, the commercial CNI space. And so that's where we're seeing some pipeline growth. In the real estate market, there are some deals that are starting to come back as the industry kind of level sets with the new rate environment.
Speaker Change: Southern time.
Speaker Change: But their pipelines and a lot of it is in the early stage of that pipeline.
Speaker Change: So we are seeing.
Speaker Change: Is used as Terry mentioned, we have a concerted effort.
Speaker Change: To focus on small business, the commercial C&I space and so that's where we're seeing some pipeline growth.
Speaker Change: The real estate market.
Speaker Change: There are some deals that are starting to come back.
Speaker Change: As the industry kind of level set with the new rate environment.
Malcolm Holland: Things do catch up over time, but I would not predict or suggest that we're gonna be super active on the real estate side. Now, we may replace if we lose, but our number one goal, one of our goals, is to get our concentrations down, and we will do that by the third quarter. So we're not gonna go load up a bunch of real estate loans on them, but we do see pipelines stronger than they have been.
Speaker Change: Things do catch up over time.
Speaker Change: But I would not predict or suggests that we're going to be super active.
Speaker Change: On the real estate side out.
Speaker Change: They replace if we lose but our goal, but our number one goal one of our goals is to.
Speaker Change: Get our concentration is down and we will do that by the third quarter. So we're not going to load up a bunch of real estate loans on there but.
Speaker Change: But we do see pipelines stronger than they have been.
Malcolm Holland: But I'm not predicting. (inaudible)
Speaker Change: But I'm not predicting.
Malcolm Holland: Greater than, you know, low, mid, single digits at best. And that's assuming that we have the payoffs come through, which we have some visibility into right now.
Speaker Change: <unk>.
Speaker Change: Loan growth.
Speaker Change: Greater than <unk>.
Speaker Change: Low mid single digits at best and that's that's assuming that we have to pay offs come through.
Speaker Change: We have some visibility into right now.
Ahmad Jamal Hasan: Right, that makes sense. Thank you for taking the time to answer my question.
Speaker Change: Alright that makes sense. Thank you for taking my questions.
Speaker Change: Oh.
Speaker Change: Thank you.
Operator: One moment for questions. Our next question comes from Joey Anjunis with Raymond James. You may proceed.
Speaker Change: One moment for questions.
Speaker Change: Our next question comes from Julian <unk> with Raymond James You May proceed.
Julian: Good morning.
Julian: Good morning.
Joey Anjunis: So just to follow up on that last question, are you able to quantify the visibility that you have into payoffs in the near term?
Julian: So just a follow up on that last question, you're able to quantify the visibility that you have into payoffs in the near term.
Malcolm Holland: Yeah, I mean, we payoffs are, it's a little bit of a dark board game, but we get what I think, clearer and clearer visibility, but at the end of the day, you know, things may not refinance, things may not sell, that some of our bankers think would happen. But if you look back into 23, we had about a billion dollars worth of real estate loans paid off. You know, I don't believe we're going to get a billion dollars in 24. But, you know, we hope to get something close to that.
Julian: Yes.
Julian: Alastair.
Alastair: A little bit of a dartboard game.
Alastair: We get what I think clearer and clearer visibility, but at the end of the day things.
Alastair: Things may not refinance things may not sell.
Alastair: Some of our bankers.
Alastair: It happened, but if you look back into 'twenty, three we had about $1 billion worth of real estate loans pay off.
Alastair: I don't believe we're going to get $1 billion in 'twenty four but.
We hope, we hope to get something close to that.
Malcolm Holland: So it. My, our folks...
Alastair: So it's.
Malcolm Holland: Our folks, the only way to tell you this is that our folks stay really close to our people, our borrowers, but things change with borrowers quickly. And so the first quarter was not, it was the first quarter we kind of missed on what we thought our payoffs were as we looked forward to the fourth quarter. So we missed, but in the previous four quarters, we hit it pretty good. So, you know, we think we'll have, we'll go back to like fourth-quarter levels in the second quarter, but I can tell you that 90 days from now, we'll be successful.
Alastair: Matt.
Alastair: The only way I can tell you is our folks stay really close to our people our borrowers.
Alastair: Things change with borrowers quickly.
Alastair: And so the first quarter was not it was the first quarter, we kind of based on what we thought our payoffs were as we look forward back in the fourth quarter. So we missed but the previous four quarters, we hit it pretty good so.
Alastair: We think we will have we'll go back to like fourth quarter levels in the second quarter.
Alastair: I can tell you that 90 days from now whether we're successful.
Malcolm Holland: We forecast every month at From the Ground Up, Lung Balon, and Opeho. And we back tested. And so, I mean, is it perfect? No, but we've got really good visibility of what we think is going to happen over the next three quarters. Our bankers are optimistic about the year-on-payoffs, but the higher-for-longer rate scenario certainly adds an element to how you have to haircut that a little bit, as Malcolm mentioned.
Alastair: We forecast every month.
Alastair: From the ground up one below.
Alastair: Pay offs.
Alastair: And we back tested.
And.
Alastair: So I mean is it perfect no but.
Alastair: We've got really good visibility of what we think is going to happen over the next three quarters. Our bankers are optimistic about the your own payoffs, but the higher for longer rate scenario, certainly asked an element too.
Alastair: How you have to haircut that a little bit as Malcolm Malcolm mentioned.
Joey Anjunis: Got it. Appreciate that and kind of shifting over to expenses. I guess, how should we think about our quarter's non-interest expenses?
Speaker Change: Got it.
Speaker Change: I appreciate that and.
Speaker Change: Kind of shifting over to expenses.
Speaker Change: How should we think about out quarter non interest expenses and can you remind us when your annual merit increases occur.
Terry S. Earley: Annual Merit occurs on April 1. Yeah, that's right. And, you know, look, I was careful. I chose my words carefully so that they were in line with management expectations. But I know they're above consensus.
Speaker Change: Annual Merit incurs in April one.
Speaker Change: That's correct, yeah and.
Look I was carefully chosen words carefully if they were in.
In line with management expectations I know they are above consensus.
Terry S. Earley: But if we're going to fix this balance sheet and we're going to create franchise value in our deposit, we've got to invest in the C&I small business space. We're going to certainly try to be as thoughtful as we can and look for other ways to save money. But, you know, that's what's going to drive value here for us over the long haul. So, I mean, you know, we're... I can't see, a lot of it depends on performance over the course of the year and how variable comp goes. But certainly, you know, the FDIC insurance premiums aren't going down at all.
Speaker Change: If we're going to fix this balance sheet and we're going to create franchise value in our deposits. We've got it with best in the CNS small business space where else certainly.
<unk> tried to be as thoughtful as we can and look for other other ways to save money, but but.
Speaker Change: That's what's going to drive value here for us over the long haul.
Speaker Change: I mean.
Speaker Change: Kurt.
Kurt: Yes, I can't I can't see a lot of it depends on performance over the course of the year and higher variable comp goes, but certainly with the FDIC insurance premiums arent going down at all.
Terry S. Earley: I think, you know, so we're just, we're just trying to watch it all we can. I think the other thing that's going on that's not helping is we're in a transition year for internal audit. We're in, we're in the process of building, as you do when you go over 10, you have to build out a full internal audit staff, and we have started that process. And yet, we're still having to co-source a lot of this business.
Kurt: And.
Kurt: So we're just we're just trying to watch it all we can I think the other thing thats going on its not helping is we're in a transition year on internal audit.
Kurt: We're in the process of build as you do when you go over 10, you have to build out a full internal audit staff and we have started that process and but yet we're still having a co source a lot of this business. So it's a little bit of a double load on expenses. When you start this process if you will.
Terry S. Earley: So it's a little bit of a double load on expenses when you start this process, if you will. And clear, I mean, we've enhanced our financial stress testing, we've enhanced our information security staff, we've enhanced our vendor management, our third party risk management, our model risk management, and our stress testing. So, you know, look, don't don't look for expenses to go lower. And you notice most of those positions were non-production revenue type people. And so I would just echo what Terry said. I think that
Kurt: And clear I mean, we've enhanced their financial stress testing, we've enhanced there.
Kurt: Information security staff, we've been enhanced our vendor management, our third party risk management model risk management.
Kurt: Our stress testing.
Kurt: So.
Kurt: Look I don't look for expenses to go lower.
Kurt: As most of those positions were not <unk>.
Kurt: <unk> revenue type people and so.
Kurt: I would just echo what Terry said I think the management.
Joey Anjunis: Appreciate that. And last one for me here. I want to, I want to beat the nymph horse again. Um, so kind of given the compression, you know, this quarter, you know, in conjunction with the benefits from your recently completed securities portfolio restructuring, you know, how should we think about the NIM and NII trending in the near term? And do you have a sense for when NIM will bottom? I think
Kurt: Pretty good about our first quarter expense levels.
Speaker Change: I appreciate that and last one for me here I want to I don't want to beat the NIM horse again.
Speaker Change: So kind of given the compression this quarter in conjunction with the benefits from.
Speaker Change: You recently completed securities portfolio restructuring, how should we think about the NIM and NII trending in the near term and do you have a sense for when the NIM will trough.
Terry S. Earley: I think it's, I think it's largely troughed right now. I think it should be pretty stable over the balance of the year. But I've got, I've got to note, you know, I think there are three, three things that I'm watching really closely in regard to that current belief.
Speaker Change: I think it's I think it's largely trough right now I think it should be pretty stable over the balance of the year, but I've got I've got to note.
Speaker Change: I think theres three three things I'm watching really closely in regard to that current belief wholesale funding cost intra.
Terry S. Earley: Wholesale Funding Call. Interest reversals on credit with a higher for longer rate environment and deposit. And if those things don't go the way we think, then the NIM could feel that what we pick up, the benefits we get from the securities trade could be sacrificed and then more and then some. So, you know, that's the best way, interest reversals have been pretty painful for us for the last several quarters on the, you know, from loans going into non-approved. I don't see where it's going, I don't see more right now, but hire for longer. You just don't know.
Speaker Change: Interest reversals, all credit with a higher for longer rate environment.
Speaker Change: Deposit mix.
Speaker Change: And if those things don't go the way, we think then that the NIM could feel that.
Speaker Change: What we pick up the benefits, we get from that securities trade could be could be sacrificed it and then and then some.
Speaker Change: <unk>.
Speaker Change: That's okay.
Speaker Change: Thats the best way interest reversals have been pretty painful for us for the last several quarters.
From loans going into non accrual.
Speaker Change: See I don't see more right now, but higher for longer.
Speaker Change: Don't know.
Joey Anjunis: Understood. I appreciate you taking my question. Thank you. Here's the other thing I would say on that is we're currently planning
Speaker Change: Understood I appreciate you taking my questions.
Speaker Change: Here's the other thing I would say on that because we are currently planning two rate cuts.
Terry S. Earley: Here's the other thing I would say on that, is we're currently planning to rate cut. And so when I talk about NIM from here, that's what we're internally forecasting in mind.
Speaker Change: And so when I talk about.
Speaker Change: The NIM from here, that's that's what we're internally forecasting and modeling.
Speaker Change: Thank you.
Operator: One moment for questions. Our next question comes from Matt Olney, with Stephen. You may proceed.
Speaker Change: One moment for questions.
Speaker Change: Our next question comes from Matt Olney with Stephens you May proceed.
Matt Olney: Hey, thanks. Good morning, everybody. Unmanned. Unmanned. Um, I guess kind of on that last question around the margin, uh, Terry, you mentioned interest reversals, trying to appreciate why the loan yields went down this quarter versus the fourth quarter. I'm guessing it's related to reversals, but just any, any color there?
Matt Olney: Hi, Thanks, good morning, everybody.
Matt Olney: Hey, Matt.
Matt Olney: I guess kind of on that last question around the margin.
Matt Olney: Terry you mentioned interest reversals.
Matt Olney: I appreciate why the loan yields went down this quarter versus the fourth quarter I'm guessing that's related to reversals, but just any color there.
Terry S. Earley: Yeah, I mean, there's always a lot of things at play. I mean, interest reversals are certainly one of them. You know, and so other than that, I mean, it's not anything, you know, too, too significant. So I would say just some relationship pricing on some of our mortgage warehouse loans and deposits is also playing a factor there too. Specially with the seasonal, I mean, you saw the warehouse loan balances go up, deposit balances went up. And so that's, that's all you know, that's all playing into that too.
Terry: Yes, I mean, theres always a lot of things at play I mean interest reversals is certainly one of them.
Terry: <unk>.
Terry: So other than that I mean, it's not.
Terry: It's not anything.
Terry: Two significant I would say just relationship pricing on some of our mortgage warehouse.
Terry: Loans and deposits is also playing a factor there too.
Terry: Especially with the seasonal I mean, you saw the warehouse loan balances go up deposit balances went up and so that's all that's all playing into that too.
Matt Olney: Okay, okay, appreciate that. And then going back to the liquidity build that we've been talking about for a few quarters, if I look at just the securities portfolio and the build we saw there, any color on where you think this balance could be by the end of the year? And then at the end of the year, do you think that the liquidity build would be complete by then?
Terry: Okay.
Speaker Change: Okay I appreciate that and then going back to the liquidity build that we've been talking about the bank now for a few quarters.
Speaker Change: If I look at just the securities portfolio and the build we saw there any color on where you think this balanced could be by the end of the year.
Speaker Change: And then by the end of the year do you think that liquidity build would be complete by then.
Terry S. Earley: I mean, I would expect you will see us continuing to advance, you know, 100 million or so a quarter into the security side, assuming, you know, deposits and loans behave as forecast. So something something along those lines, I would say between You know, a billion six to a billion 750 at the end of the year is probably it. So that's one of the reasons I talk about this. I didn't say it.
Speaker Change: I mean, I would expect you will see us continuing to invest.
Speaker Change: $100 million or so a quarter into the security side assuming.
Speaker Change: Deposits and loans behave as forecast, so something something along those lines I would say between.
Speaker Change: A billion six 2 billion 750, ending the year its probably so thats one of the rates that I talked about this I didnt say it well.
Terry S. Earley: Well, but the balance sheet remake is going to have an impact on the down side. I talked a lot about that in the January earnings call. I think we've gotten a lot of, we've been able to offset a good bit of that with the lost trade, but, but still, you know, it's going to weigh a little bit.
Speaker Change: The balance sheet remake is going to have an impact on the NIM I talked a lot about that in the January earnings call.
Speaker Change: We've gotten a lot of it we've been able to offset a good bit of that with the loss rate, but still.
Speaker Change: Wait a little bit.
Terry S. Earley: Um, it was the second part of your question, you know, just that we would be done by the end of the year. And that, listen, that's the goal. The goal is for us to be, you know, sub-90 on the loan-deposit ratio, concentrations within limits, wholesale borrowings, which are already within limits but lower, and if we can get there, you know... I don't think we ever say, you know, job well done, move on, go to another topic. We're always going to be in that fight, but I do think I would say at the end of the year our goal would be that we've kind of passed our first big test.
Speaker Change: It was the second part of your question to authority.
Speaker Change: Just it would be done by Gary listen Thats the goal.
Speaker Change: Goal is for us to be.
Speaker Change: <unk> 90 on the loan deposit ratio concentrations within limits wholesale borrowings, which are already within limits, but lower.
Speaker Change: We can get there.
Speaker Change: I don't think we ever say job well done and move on to another topic, we're always going to be in that fight.
Speaker Change: But I do think.
Speaker Change: I would say at the end of the year our goal would be that we've kind of passed our first big test.
Matt Olney: Okay, I appreciate the color there. And I guess I'm just kind of following up on that same topic on the security side.
Speaker Change: Okay I appreciate the color there and I guess, just kind of following up on that same topic on the security side.
Matt Olney: Any more color on what some of the more recent purchases look like? I think you disclosed the restructure back in March that new yields were north of 6%. Is that still where we're at as far as the yields and any color on some of the products out there? Thanks.
Speaker Change: Any more color on what some of the more recent purchases look like I think you disclosed on the restructure back in March.
Speaker Change: The new yields were north of 6%.
Speaker Change: Is that still where we're at as far as the yields and just any color on kind of the products out there.
Terry S. Earley: Well, it's very much of a barbell strategy in the 16 cup space. If you want to protect for down rates, one, you can't find the product, two, you don't like the yields. So, it's a combination of you getting paid to be short. So, this stuff had a duration of, like, the last trade was like 2.3 years.
Speaker Change: But it's very much of a barbell strategy in the fixed income space.
Speaker Change: If you want to protect for down rates. Once you can't find the product two you don't like the yields.
Speaker Change: It's a combination of you get paid to be short.
Speaker Change: So Steph had a duration of life.
Speaker Change: The last trade was like two three years.
Terry S. Earley: So, you know, we're buying capital efficient, shorter duration securities where we can get paid and enhance yields. And that, you know, probably risk-weighted assets, I don't have the exact calculation, but it's probably somewhere in the 25% or something, 25 to 30%. It's not high-risk stuff by any stretch of the imagination. So, you know, and just the normal MBS carries about 20. So, anyway, Matt, I would expect us to continue to do that. Our focus on how we think about the portfolio and how we think about its usage or impact on risk-weighted assets is not going to change. Okay, thanks. Very capital efficient in that space.
Speaker Change: So.
Speaker Change: We're buying capitalization shorter duration securities, where we can be get paid an enhanced yield.
Speaker Change: And then.
Speaker Change: Probably risk weighted assets I don't have the exact count, but if you could.
Speaker Change: It's probably somewhere in the 25% or sub 25% to 30%, it's not high risk stuff by any stretch of imagination.
Speaker Change: So.
Speaker Change: And just the normal MBS carries about 'twenty.
Speaker Change: Anyway, that's Matt I would expect us to continue to do that our focus on how we think about the portfolio and how we think about its usage or impact on risk weighted assets is not going to change.
Speaker Change: Okay, Thanks, very capital efficient in that space.
Matt Olney: Okay, guys. Sounds great. Thank you, man. Thank you, bud.
Speaker Change: Okay, guys it sounds great.
Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Speaker Change: Thank you Matt Thank you Matt.
Speaker Change: Thank you. This concludes the conference. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
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