Q1 2024 First Bancshares Inc Earnings Call
Unknown Executive: Morning, everybody.
Good morning, everybody.
Okay.
Operator: Good day, and thank you for standing by, and welcome to the review of the first quarter 2024 financial results conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Hopi Cole, Chairman and CEO.
Speaker Change: Good day, and thank you for standing by and welcome to <unk>.
Speaker Change: First quarter 2024 financial results conference call at this time, all participants are in a listen only mode.
Speaker Change: After the Speakers' presentation there'll be a question and answer session to ask a question during the session you'll need to press star one on your telephone.
Speaker Change: Didn't hear an automated message at Biogen. Your hand is raised to withdraw your question. Please press star one again, please be advised that today's conference is being recorded.
Speaker Change: I'd now like to hand, the conference over to your speaker today hobby co chairman and CEO.
Milton Ray Cole: Morning everyone, and welcome to our first quarter earnings call. We've got several of our team members with us today. We have D.D. Lowery, our CFO, JJ Fletcher, our Chief Lending Officer, and George Noonan, our Chief Credit Officer, and each of those will give us some color on their respective areas after I cover a few highlights for the quarter. So, let's go ahead and dive right in.
Speaker Change: Good morning, everyone and welcome to our first quarter.
Speaker Change: Earnings call.
Speaker Change: We've got several of our team members with US today, we actually Larry our CFO, Jack Parker, our Chief lending Officer, and George noted, our Chief credit officer in each of those will give us some color on their respective areas well after I cover a few highlights for the quarter.
Speaker Change: Oh, let's go down right here and I thought it was a great quarter and a really good start to the year a strong we're getting point.
Milton Ray Cole: I thought it was a great quarter and a really good start to the year, a strong beginning point for 2024. Operating earnings were up 10% quarter over quarter, to $20.6 million. And that was due to reduced operating expenses and reduced provision expenses. And we did see some stabilization in the margin. Our core margin was only down four basis points compared to 19 basis points last quarter. Loan balances at quarter end decreased, but actually, average balances were up for the quarter.
Speaker Change: For 2024 operating earnings were up 10% quarter over quarter to $26 million.
Speaker Change: <unk> reduced operating expenses.
Speaker Change: Our reduced provision expense and we did see some stabilization in the margin our core margin was only down four basis points compared to 19 basis points last quarter.
Speaker Change: Balances at quarter end decrease, but actually average balances were up for the quarter, we got some unexpected.
Milton Ray Cole: We got some unexpected payoffs on a few large loans right at the end of the quarter. We also had some SBA loan sales, but pipelines grew pretty substantially, and JJ will give us a lot more in-depth color on that in his report. Credit quality remains strong, and we continue to do well with low pass dues at 26 basis points. We had an improvement in MTA, and chargoss was low at one basis point. So credit quality, remember, continues to perform extremely well.
Speaker Change: Back to the payoff of a few large loans right at the end of the quarter. We also had some SBA loan sale for pipelines grew pretty substantially and JJ will give us a lot more in depth color on that.
Speaker Change: Or.
Speaker Change: Credit quality remained strong and continue to do well.
Speaker Change: Past dues at 26 basis points, we had an improvement in MPA and charge offs were lower at one basis point.
Speaker Change: Credit quality remember continues to perform extremely well.
Milton Ray Cole: We grew our potential book value during the quarter by $0.35, or 2% on a quarterly basis. We increased our quarterly dividend by a penny a share to $0.25 per share per quarter or $1 per year, which has been an internal goal for quite some time. So, all in all, we thought it was a really strong start to the year, pleased with where we are, and pleased with what the progress looks like for the rest of the year. So, Dini, would you like to give us an update on the financial performance for the quarter?
Speaker Change: We grew our tangible book value during the quarter by 35% or 2% or quarterly basis.
Speaker Change: Increased our quarterly dividend by a penny a share to 25 cents per share per quarter or $1 per year, which is the internal golfer for quite some time. So all in all we thought was a really strong start to the year I'm pleased with where we are pleased with where what the progress looks like for the rest of the year. So David would you like to give us a update on the financials.
Speaker Change: Performance.
Donna T. Lowery: Sure. Thanks, Hoppy. Obviously, as Hoppy mentioned, a great quarter and the first time in several, several quarters that we had really no non-operating items, so very, very few thousand dollars. So it's great to not have all that noise in there for y'all to have to go through and explain. But on an operating basis, I do have to do that because the last quarter we had several things, but earnings did increase $1.9 million, which was six cents per diluted share, up to $20 million, $20.6 million from $18.7 million.
David: Sure. Thanks happy.
David: Obviously as I have mentioned.
David: At quarter end first time in several several quarters that we had really no non operating items.
David: Very few thousand dollar so it's great to have all that noise in there for you all to have to go can explain but arent operating basis that they'd have to do that because it last quarter. We had several things but earnings did increase one 9 million, which was six cents per.
David: Per diluted share.
David: 20 million $20 6 million from $18 7 million, so very pleased with that and and how it's helping mentioned most of that was driven by a decrease in our noninterest expenses by $1 million and then the.
Donna T. Lowery: So very pleased with that. And as Hoppy mentioned, most of that was driven by a decrease in our non-interest expenses by a million dollars. And then there was no provision needed this quarter, so provision expense was down $1.3 million, and we're still at an ACL reserve of $1.05. So those two were the big drivers.
David: No provision needed this quarter. So provision expense was down $1 3 million and were still at and ACL Reserve a one off effect. So those two are the big drivers in our net interest income was basically flat down about right at $300000 for the quarter.
Donna T. Lowery: Our net interest income was basically flat, down about right at $300,000 for the quarter. Our cost of deposits increased 24 basis points for the quarter to 178 basis points, still a really good number based on our granularity in our deposit portfolio. Our interest-bearing deposit costs increased 27 basis points to 245, and that drove our beta up to 43 from 38 last quarter. So about five basis points.
David: Hum.
David: Cost of deposits increased 24 basis points for the quarter to 100, and 178 basis points still a really good number based on our granularity in our in our deposit portfolio.
David: Interest bearing deposit cost increased 27 basis points to 245 and that.
David: Drove our beta at <unk>.
David: <unk> 43 from 38 last quarter, so about five basis points.
Donna T. Lowery: Our yield on our earning assets increased eight basis points, but we also had an obviously increased increase in our interest-bearing liabilities of 18 basis points. And so, as Hoppy mentioned, we did have a decrease in our core margin of four basis points, which is obviously less than we had last quarter and kind of what we kind of led up to for this quarter, that we would see compression this quarter and then into the next quarter, hopefully mid-year, maybe stabilize. And This was pretty good, too.
David: Our yield on earning assets increased eight basis points, but we also had an increase obviously in our interest bearing liabilities of 18 basis points and so it's happy to mention that we did have a decrease in our core margin of four basis points, which is obviously less than we had last go around kind of what we kind of led to.
David: For this quarter that we would see compression this quarter and then into the next quarter hopefully midyear maybe.
Donna T. Lowery: Four basis points is pretty good saying stable. I think we'll still see a little more compression into the second quarter. But you know, we're talking about a few basis points here. So I think it's, you know, depending on a few factors, could go either way on that.
David: Stabilizing this was pretty good four basis points.
David: It's pretty good staying stable I think we'll still see a little more compression into the second quarter, but you know we're talking about here a few basis point, though I think it's you know.
David: Depending on a few factors could cause.
Donna T. Lowery: But, you know, if no change in rates from the Fed, I think, you know, we're still going to see our cost of deposits go up some this next quarter, just from the competition we're still facing. With the Fed not cutting, we're still having to reprice, and we're still having to match competition. And our specials, you know, we had in the fourth quarter expired at the end of the year, but we're still offering higher rates close to what we were for those specials because of what's out there in the competition. So, we're still having to have increased costs.
Speaker Change: Go either way on that but yeah no.
Speaker Change: No change in rates from the fed I think you know, we're still gonna say or our cost of deposits go up. Some this next quarter just from the competition, we're still facing with the fed not cutting we're still having to reprice and we're still having to match competition.
David: And our specialist you know we had in the fourth quarter.
Donna T. Lowery: They expired at the end of the year, but we're still offering you know higher rates close to what we were for those specials because of what's out there on the competition. So we're still having to have an increased call. So until we see a cut on that I think our deposit costs are still going to be you know increasing a little bit as we go but but.
Donna T. Lowery: So, until we see a cut in that, I think our deposit costs are still going to be, you know, increasing a little bit as we go, but hopefully, we can start bringing that down some. Our loans, as Happy mentioned, did decrease $30.1 million, but our average loan actually increased $12.8 million. So, that was great on average for the quarter. JJ will give some more information on that.
David: Hopefully can start bringing that down some.
David: I was hoping you mentioned did decrease a $30 1 million, but our average loans actually increased $12 8 million. So that was great for on average for the quarter J J will give some more information on that deposits increased $247 5 million for the quarter.
Donna T. Lowery: Deposits increased $247.5 million for the quarter, and $256 million of that was public funds. So, if you exclude the public funds, we were down about $9 million, which really is basically flat for the quarter overall, a small decrease. And if you recall, this is our public fund season where we're increasing our public funds for a large amount, as we've talked about in the past, anywhere from $200 to $300 million. And then we'll see that spent out through the remaining part of the year. So, you know, be expecting that as we go forward.
Donna T. Lowery: That was a 256 million of that was public fine. So what it means going to public funds, we were down about 9 million, which really is basically flat for the quarter overall, a small decrease.
Donna T. Lowery: And if you recall this is our public filing season.
David: Increasing our public funds.
David: For a large amount as we've talked about in the past anywhere from two to 300 million and then we'll see that spend out through the remaining part of the year so be expecting that as we as we go forward. We also paid down our borrowings.
Donna T. Lowery: We also paid down our borrowings during the quarter by $280 million, and so we're down to $110 million still in the bank term funding program that will expire in December. And then I also want to talk a little bit about our non-interest bearing deposit portfolio. You will notice that it decreased this quarter. It was 28.6 last quarter, and it was 27.4% of total deposits this quarter, so down just a little over 1%. But a big part of that, almost all of that, is because the increase in deposits was from public funds, which are interest-bearing.
David: During the quarter by $280 million.
David: So we're down to 110 million are still at the bank funding program.
David: But that will expire in December.
David: And then also I wanted to talk a little bit about our noninterest bearing deposit portfolio. He noticed that decrease this quarter. It was $28 six last quarter and it was 27, 4% of total deposits. This quarter. So so down just a little over 1%, but a big piece of that almost all of that is because.
Donna T. Lowery: The increase in deposits was from public funds, which is interest bearing if you know if we could just remind us saying basically that all the influx of interest bearing are our noninterest bearing would have been about the same.
Donna T. Lowery: If, you know, if we had just remained the same, basically without all the influx of interest-bearing deposits, our non-interest-bearing would have been about the same. On our liquidity, our liquidity position still remains strong. Our ratios are well above our limits. Our loan deposit ratio is 77%. We have a borrowing capacity at the Home Loan Bank of $2.5 billion.
Donna T. Lowery: Our liquidity our liquidity position still remains strong our ratios are well above our limits on loan deposit ratios.
David: 7%, we have a borrowing capacity at the home loan bank of two and a half billion.
Donna T. Lowery: And then we have about 28% of our securities are in pledged, which is about $480 million. Over the next four quarters, our securities portfolio, estimated cash flows coming out of that, is about $210 million. And that's coming out at about 180 basis points. So, you know, part of it, kind of what we've been talking about for the last really several quarters is just kind of the restructuring of the ballot sheet. I think we'll continue to see that this year.
David: And then we have about 28% of our securities are Unpledged, which is about $480 million.
David: Over the next four.
Donna T. Lowery: Four quarters, our securities portfolio.
David: The cash flow, that's coming out of that is about $210 million and that's coming out at about a 190 basis points. So you know part of that kind of we've been talking about the last really several quarters is just kind of a restructuring of the balance sheet. I think we'll continue to say that this year is this these cash flows come up at that 180 it'll go in fed.
Donna T. Lowery: As these cash flows come off at that 180, they'll go into fed funds or loans. So we'll definitely see a pickup and some yield from that. But still kind of remixing the balance sheet this year is the plan. Our ratio for the quarter, ROA, was 103. And our return on average tangible common was 1348. And then our efficiency ratio was 61. All of our capital ratios were in line from last quarter. 8.1 TCE, a leverage ratio of 9.7, and a total risk base of 15.2. So, all of our last quarters and, overall, very pleased with where we're sitting today. That's all for me. Happy
David: Bonds or loans and so it will definitely pick up.
David: Neil from that but still kind of re mixing the balance sheet. This year is the plan or our ratios for the quarter ROA was a 103 and our return on average tangible common was 13 48, and then our efficiency ratio was 61 all of our capital ratios were in line.
David: From last quarter.
David: Eight one T C L.
David: A leverage ratio of nine seven and a total risk base of 15 point too so.
David: All of that will last quarter and overall very pleased with where we're sitting today.
Milton Ray Cole: Thank you, DeeDee. I appreciate that report. Dave, would you like to give us some follow-up with Lindy? Yes, sir.
Speaker Change: For me happy Thank you David I appreciate it.
Speaker Change: Yes.
JJ Fletcher: Thank you, Hoppe. As DeeDee and Hoppe both alluded to, we did have a slight decrease in net loans, but behind that, there were a lot of positive factors that happened during the quarter. First of all, again, the SBA division had a record quarter in terms of loans sold in the secondary market, about $23 million. And really, we were happy to see that because the legacy HSBI SBA group, which we did not have at first, we began integrating that through the company.
Speaker Change: Yes, Sir thank you Robby.
Speaker Change: <unk> and happy both alluded to we did have a slight decrease in net loans, but behind that there were a lot of positive factors that happen.
JJ Fletcher: During the quarter.
Speaker Change: First of all again, the SBA Division had a record quarter in terms of loan sold in the secondary market about $23 million and really we were happy to see that because the legacy HSBC.
JJ Fletcher: Oh, SBA group, which we did not have at the first we began integrating that through the company and so that was really result of a lot of referrals from legacy first bank and then also loans from HSBC had seasoned either construction or mature too.
JJ Fletcher: And so that was really a result of a lot of referrals from legacy First Bank and then also loans from HSBI that had seasoned either construction or matured to be able to be sold in the first quarter. So, really happy to see that and the income that came from it.
Speaker Change: To be able to be sold in the first quarter, So really happy to see that in the income that came from that.
JJ Fletcher: The other thing is that we did have, as Hoppe said, a couple of large payoffs at the end of the quarter. But on a positive note, about $35 million were made up in three credits, and the majority of that was priced at three and a quarter. So we'll be able to redeploy that in this quarter at much higher rates. And one of those credits, the largest one, was in the hospitality sector, which will give us some additional capacity in that area.
Speaker Change: The other thing we do.
Speaker Change: Did have is hoppe said a couple of large payoffs at the end of the quarter, but on a positive note about $35 million for made up in three credits and the majority of that were priced at three in a quarter. So we will be able to redeploy that in this quarter at much higher rates and one of those credits the largest one was in the hospitality sector, which will give us some additional <unk>.
JJ Fletcher: So again, a net decrease, but there are a lot of positive attributes to those numbers. Average yield did decline a little bit from 826 to 812. But again, if you look deeper into that number, we had two large credits in a very modest origination quarter that amounted to $35 million, one of which is a large CNI credit. The other, one of our top development groups that we have a full relationship with, and we were real competitive on those two deals.
Speaker Change: <unk> in that area. So again net decrease but a lot of positive attributes to those numbers.
JJ Fletcher: Average yield did decline a little bit from 826 to 812, but again, if you look deeper into that number we had two large credits.
JJ Fletcher: And a very modest origination quarter that amounted to $35 million, one of which is a large C&I credit the other.
JJ Fletcher: One of our top development groups that we have full relationship with that we have real competitive almost two deals absent of those two are yield would have been about $8 30 for the quarter.
JJ Fletcher: Absent those two, our yield would have been about 830 for the quarter. We did begin to see some pressure, though, through all the regions as the Fed signaled a pause and then potentially decreased rates in 24. Some banks did start pricing in the sevens, so we're seeing that more often in the mid-sevens on average in several markets.
JJ Fletcher: We did begin to see some pressure, though through all the regions as the fed signaled a pause and then potentially.
Speaker Change: Potentially decreased rates in 'twenty four.
Speaker Change: Some banks did start pricing them seven so we're seeing that more often.
JJ Fletcher: So we'll be looking at that on a go-forward basis. Probably the most positive thing from the quarter, Hoppy alluded to pipelines. We had a slight contraction at the end of the year, but at the end of the quarter, we were up almost 50% in total pipelines. And really, across the board, there was no one area that had such a substantial increase. It was really averaged out throughout the complete footprint. So we're looking very forward to that in the second and third quarters from a pipeline standpoint.
Speaker Change: In the mid Sevens on average in several markets. So we'll be looking at that on a go forward basis, probably the most positive thing from the quarter Hapi alluded to pipelines, we had a slight contraction at the end of the year, but at the end of the quarter, we were up almost 50% and total pipelines and really across the board there was no.
Speaker Change: One area that had that substantially increased it was really averaged out throughout the complete footprint. So we're looking very forward to that in the second and third quarter.
JJ Fletcher: Other than that, it was a pretty uneventful quarter regionally. Everybody had modest production, but pretty consistent. And, lastly, I would say that we've made a lot of progress in our systems. We always talk about that.
Speaker Change: From a pipeline standpoint.
JJ Fletcher: Other than that it was a pretty.
Speaker Change: Uneventful quarter regionally, everybody had modest production, but pretty consistent.
JJ Fletcher: Lastly, I would say that we've made a lot of progress in our systems, we always talk about that.
Speaker Change: George and his team we're rolling out a beta test for a small business express loan for 100000 and below which will help our commercial team quickly respond to those needs.
JJ Fletcher: George and his team, we're rolling out a beta test for a small business express loan for $100,000 and below, which will help our commercial team quickly respond to those needs. And then our centralized consumer underwriting platform should be integrated. George may have more to say on this, but really, this month or by the end of next month, so by the end of this quarter, that'll be fully integrated, which will add to our efficiency there on the consumer side.
JJ Fletcher: Needs and that our centralized consumer underwriting platform should be integrated George may.
JJ Fletcher: I have more color on this but really this month or by the end of next month. So by the end of this quarter that will be fully integrated with Shaw.
Speaker Change: Efficiency there on the consumer side, so all in all even though a net negative number on loan growth a lot of positives came out quarter from a lending standpoint. So.
JJ Fletcher: So all in all, even though a net negative number on loan growth, a lot of positives came out of the quarter from a lending standpoint. So thank y'all. George, credit calling. Thank you, Hoppy.
Speaker Change: Thank you operator.
Speaker Change: Thanks.
George Craig: George Craig Thank you.
George: We continue to see acceptable and generally improving trends for most of our credit quality metrics during the first quarter.
George Noonan: George, Credit Quality. Thank you, Hoppe.
Speaker Change: Our leading early indicator.
George Noonan: We continue to see acceptable and generally improving trends for most of our credit quality metrics through the first quarter. For example, our leading early indicator metric, 30-day delinquencies, was certainly favorable. We finished, as Hoppe said earlier, 30-day past dues of 26 basis points. That tracks really 12 basis points under our annual average in 2023, so good movement there. Asset quality, I think, reflected stability when compared to the quarter 4-23. Our loans on non-approval were up minimally by $270,000, but very manageable there.
George Craig: Metrics 30 day delinquencies was certainly favorable we finished as he said earlier 30 day past dues.
George Noonan: Basis points that tracks really 12 basis points under our.
George Noonan: Annual average in 2000 2030 so.
George Noonan: Baird.
George Noonan: Our asset quality.
Reflected stability when compared to the quarter 423, our loans on non accrual were up.
George Noonan: Emily about 270000, but very manageable.
Speaker Change: He has declined.
George Noonan: NPAs declined by $1.9 million in the quarter. That's a decrease of almost 9%. NPAs as a percentage of total loans and OREO remain level at 40 bips for the second consecutive quarter. We're still in positive territory for loan recoveries exceeding loan charge-offs by $106,000 for the quarter. When just looking at the loan charge-off net piece, we're at a minus 0.002% excluding DDHR charge-offs there. The ACL ratio remained level at 105.
George Craig: In the quarter.
George Noonan: Yes.
George Craig: Almost 9%.
George Noonan: As a percentage of total loans and Oreo remained level at 40 Bips for.
George Noonan: For the second.
George Noonan: Second quarter.
George Noonan: We're still in positive territory.
George Noonan: Loan recoveries exceeding charge.
George Noonan: Charge offs by one.
George Noonan: <unk> hundred 6000 for the quarter.
George Noonan: When just looking at the loan charge offs.
George Noonan: Oh.
George Noonan: A minus zero zero to 2%.
George Noonan: Exploiting.
George Noonan: Charge offs lawyer ACL ratio remained level at 105.
George Noonan: ACL as a percentage of NPLs increased favorably from 456% to 463% there. CRE concentration over time decreased a little bit by one basis point from 207% to 206% of risk-based capital, and that's comfortably below our 300% interagency guidance level. There was an uptick of 29 basis points for classified loans as a percentage of capital plus ACL. This resulted in a small, manageable increase in the ratio from 676 to 705.
George Noonan: ACL as a percentage of Npls.
George Noonan: <unk> favorably for them.
George Noonan: 456% to $4 63.
George Noonan: Sure.
George Noonan: CRE concentration over time decreased a little bit about one basis point to 7% to six of our risk base capital and Thats comfortably below our 300% interagency guidance level.
George Noonan: There wasn't up to.
George Noonan: 29 basis points for classified loans as a percentage of capital.
George Noonan: This resulted in a small manageable increase in the ratio.
George Noonan: 76 to seven.
George Noonan: That increase was really comprised of a handful of small, mid-sized relationships with really no delinquencies among them from a problematic standpoint. Overall, as you see in the pie charts, our overall loan portfolio continues to reflect a strategic balance among our major loan types. Owner-occupied CRE still stands at 25% of total loans; non-owner-occupied CRE 21%, one to four family 19%, C&I 15%, and C&D at 12%. And managing this segment continues to be a high priority from both the production and the credit side, especially with respect to the CRE and C&D segments.
George Noonan: That increase was really comprised of.
George Noonan: A handful of small.
George Noonan: It's relationships and really no delinquencies.
George Noonan: Among them.
George Noonan: Problematic standpoint.
George Noonan: Overall as you see in the pie charts are.
George Noonan: Overall loan portfolio continues to reflect a strategic balanced by our major loan types.
George Noonan: Owner occupied CRE still.
George Noonan: Still stands at 25% of total loans.
George Noonan: Owner occupied CRE 20, 114 family, 19% so.
George Noonan: So yes.
George Noonan: Yep.
George Noonan: Managing this segment continues to be a high priority for both production and the credits, especially with respect to CRE and C&I segments.
George Noonan: Our four major segments in C&D exposure, land development at 30%, multifamily 21%, other at 20%, and residential at 18% reflect pretty stable trends for the last year or so. In CRE, only two segments of our portfolio exceed 15% of the overall CRE portfolio.
George Noonan: Our four major segments.
George Noonan: The exposure.
George Noonan: Land development at 30% multifamily 21 other at 20%.
George Noonan: And residential with 18.
George Noonan: Pretty pretty stable.
George Noonan: Trends for the last year or so.
George Noonan: And CRE only two segments of our portfolio.
George Noonan: 80% of the overall CRE portfolio.
George Noonan: Pie chart, professional office at 25%, excuse me, 24%, retail center at 16%. Average loan size in the portfolio continues to remain conservative. We're at $228,000 for our average loan size bank-wide, and from a portfolio stack ranking, the largest single loan outstanding is at an outstanding of $28.6 million. And the top 20 loans in the bank represent only 6% of the total portfolio; at the borrower relationship level, the top 75 borrower relationships comprised 24.1% of total loans, and that ranges from relationships with 43 million down to $10 million.
George Noonan: Shorter professional office 20, excuse me, 24% retail center at <unk>.
George Noonan: Average loans and portfolio continues to remain conservative with 228000 for.
George Noonan: For our average loans and loans and.
George Noonan: And from a portfolio stack ranking.
George Noonan: The largest single loan outstanding.
George Noonan: Is it an outstanding of $28 6 million.
George Noonan: In the top 20 months in the bonds represent only 6% of the total portfolio.
George Noonan: On a borrower relationship level top 75 borrower relationships comprised 21% of total loans and that ranges from relationships with $43 million.
George Noonan: Professional office quality continues to perform well, with an average loan size of $726,000 for professional offices. We think we're positioned well with relatively no exposure to the metro office tower segment or buildings with heights over two to three floors. We continue to see minimal lease renewal issues, acceptable tenant stability, and very few credit issues in our office loan portfolio. We talked about this a little bit last quarter, though.
George Noonan: The bottom level.
George Noonan: Professional office quality.
George Noonan: Continuous form oil with an average loan size.
George Noonan: 726000, and professional offices, we think we're positioned well with relatively no exposure to the Metro office Tower segment.
George Noonan: Our buildings with high its over two to three floors, we continue to see minimal lease renewal issues acceptable tenants stability.
George Noonan: A few credit issues in our office portfolio.
George Noonan: And we talked about this a little bit last quarter, though we have seen insurance cost escalating across not only office, but all CRE segments.
George Noonan: We have seen insurance costs escalating across not only office but all CRE segments. We're continuing to monitor those closely for operating margin impact across our market. Substandard office loans were unchanged at 4.2% of our total office loans. Combined owner and non-owner occupied professional office loans make up about 9.4% of our total loan portfolio. And I think of particular note at the close of quarter one, professional office loans with 30-day delinquencies represented less than one basis point of our total outstanding professional office loans. So we like that trend.
George Noonan: We're continuing to monitor those closely for operating margin compression across our markets.
George Noonan: So a standard office lines were unchanged at four 2% of our total office loans.
George Noonan: Owner and non owner occupied a professional office loans.
George Noonan: 4% of our total loan portfolio.
George Noonan: Think of particular note.
George Noonan: At the close of quarter, one professional office loans with 30 day delinquencies represented less than one basis point of.
George Noonan: Of our total outstanding professional office alone.
George Noonan: In summary, asset and credit quality continues to demonstrate solid borrower resiliency across our markets. And recently, risk management enhancements have been added with a new internal loan review function within the bank. We think, combined with our ongoing external loan review process, that will certainly help us augment our continued credit quality improvement initiatives for 24 and beyond.
George Noonan: Tran.
George Noonan: In summary.
George Noonan: Credit quality continues to demonstrate solid borrower resiliency across our markets.
George Noonan: And recently risk management enhancement so.
George Noonan: Have been added with a new internal loan review.
George Noonan: And within the bi we find combined with our ongoing external loan review process that will certainly help us augment our.
George Noonan: Credit quality improvement initiatives.
Milton Ray Cole: Thank you George, a great report. If credit quality remains strong and resilient in the face of maybe some stresses out there in the market.
George Noonan: And beyond that.
Milton Ray Cole: George credit credit quality remains strong and resilient in the face of Maxim.
Milton Ray Cole: Great report. Appreciate that. That concludes our prepared comments. We'd open it up for questions now.
Milton Ray Cole: <unk> after markets.
Speaker Change: Great report.
Milton Ray Cole: Concludes our prepared comments, we'll open it up for questions now and thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby we compile the Q&A roster.
Operator: And thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Operator: Please stand by. We have compiled a Q&A roster. And one moment for our first question. And our first question comes from Brett Rabatin from Hobety Group. Your line is now open.
Operator: And one moment for our first question.
Brett D. Rabatin: And our first question comes from Brett We're Baton from Humpty Group. Your line is now open.
Brett D. Rabatin: Hey, good morning everybody. Hey, good morning. Wanted to start on the deposits again, and just thinking about, you know, the DDA was, it seems like it's gotten to a level of stabilization, but it, you know, could have also been somewhat seasonal. Any thoughts on the DDA levels? And then just the strong growth you had in the now and other times, you know, what, you know, what you would attribute that to, if anything? [inaudible]
Speaker Change: Hey, good morning, everybody.
Brett D. Rabatin: Sure.
Brett D. Rabatin: Wanted to start on the deposits again, and just thinking about the DDA was it seems like it's gotten to a level of stabilization, but it could have also been somewhat seasonal any any thoughts on the DDA levels.
Brett D. Rabatin: And then just the strong growth you had in the now and other.
Brett D. Rabatin: What you would attribute that to if anything.
Donna T. Lowery: Well, DDAs, yeah, there is some stabilization that will, and there's some seasonality to it because now we'll be coming into, you know, we've got pretty good market share in tourist markets, particularly in South Mississippi, South Alabama, the Panhandle of Florida, and the Tampa Market.
Brett D. Rabatin: Okay.
Donna T. Lowery: Yes, there is some stabilization of that book and there is some seasonality to it because now we'll be Kona and we've got a pretty good.
Donna T. Lowery: Market share in tourist markets, particularly in South, Mississippi, South, Alabama Panhandle of Florida.
Milton Ray Cole: So those markets will be into their seasons now; we'll see an increase or should see some increase in non-interest bearing DDAs as those monies cycle through the season. So we were at our low point probably at the end, at the beginning of the first quarter. And so we're going to see that stabilize a bit as we move forward. I think you want to talk about public influence? Yes, yes.
Donna T. Lowery: Ample markets. So those markets will begin to their seasons now and we will see an increase or we should see some increase in noninterest bearing DDA is with us.
Milton Ray Cole: Mining cycle through the season, so that we were a low point probably at the end at the beginning of the first quarter and so we're beginning to see that stabilize as we move forward.
Milton Ray Cole: Or maybe you were talking about the public inflows, yes, yes, or the now another.
Donna T. Lowery: Yes, yes, the NOW and other funds, really a big portion of that was our public funds. They're considered in that NOW account, and that was $256 million, I believe, was in the public fund inflow. So that's really most of it.
Donna T. Lowery: A big portion of that was our public funds. There. They are considered in that now account and that was.
Donna T. Lowery: 256 million I believe it was in the public finance, so that's really most of that.
Donna T. Lowery: The rate on the overall public fund book of business is about $270.
Donna T. Lowery: Okay, Great I'll, let Paul yes, the rate on the overall public fund.
Donna T. Lowery: Look our business is about 270.
JJ Fletcher: Okay, that's helpful. And then it sounds like the loan pipeline is building. And, you know, I think a lot of banks are talking about mid single-digit growth this year. Can you talk maybe about your expectations for loan growth and then how much of a remix we might see from securities to loans?
Donna T. Lowery: Yes.
JJ Fletcher: Okay. That's helpful.
JJ Fletcher: And then it sounds like the loan pipeline is building and.
JJ Fletcher: I think a lot of banks are talking about.
JJ Fletcher: Mid single digit growth. This year can you talk maybe about your expectations for loan growth and then how much remix we might see from them.
Milton Ray Cole: I don't know that we've changed guidance recently. You know, we had this little dip this quarter. Again, it's hard to tell one quarter over another, but currently, the pipeline's really had nice growth. You know, I don't really know where that goes for the rest of the year. We'll just have to kind of see. I think we're still thinking, you know, Brad, our budget's still mid-single digits, as you mentioned. That's our budget for the year. And a lot of that remix will be coming out of securities portfolios. So that's essentially using up all of that cash flow out of the securities portfolio remixed into the loan.
JJ Fletcher: Securities to loans this year.
Milton Ray Cole: Oh, no that we've changed guidance recently, you know we had this little dip this quarter again, it's hard to tell one quarter over another but currently the pipeline has really had a nice growth.
Milton Ray Cole: I don't really know where that goes the rest of the year, we'll just have to kind of say hey, we're still thinking.
Milton Ray Cole: But it's still mid single digits as you mentioned, that's our budget for the year and a lot of that rebates will be coming out of the securities portfolio. So.
Milton Ray Cole: That's essentially using up all of that cash flow, while the securities portfolio remix Standalone.
Donna T. Lowery: And then just last one, if I can sneak this one in on expenses, you know, it's good to see the expense management. Are there other pressure points from here relative to the 1Q level, or can you keep that fairly flat throughout the year?
Speaker Change: Yes, okay.
Donna T. Lowery: And then just last one if I can sneak this one in on expenses, it's good to see the expense management.
Donna T. Lowery: Is there other pressure points from here relative to the <unk> level or can you keep that fairly flat throughout the year.
Donna T. Lowery: I think that will be fairly flat. You know, usually in our fourth quarter, we have an uptick; usually end-of-the-year approvals needed. But I think the consensus out there is $178 million for the year, and I think that's a pretty good number, which would be a little bit of an increase from this $43.4 we had this quarter. But overall, I think I've been kind of talking about $44 or so million a quarter. Okay.
Speaker Change: I think that will be fairly flat you know usually our fourth quarter, we haven't.
Donna T. Lowery: An uptick usually end of the year for loans needed just but I think.
Donna T. Lowery: I think the consensus out there is $178 million for the year and I think thats pretty good number.
Donna T. Lowery: Which would be a little bit of an increase from this 43.4, we had this quarter, but overall I think.
Donna T. Lowery: Kind of talking about $44 million a quarter.
Brett D. Rabatin: That's helpful. Thanks for all the color.
Donna T. Lowery: Sure.
Donna T. Lowery: Okay.
Milton Ray Cole: Sure. Thanks, Brett. And thank you.
Brett D. Rabatin: That's helpful. Thanks for all the color.
Speaker Change: Thanks, Brett.
Speaker Change: Thank you.
Operator: And one moment for our next question. And our next question comes from Matt Olney from Stevens. Your line is now open.
Speaker Change: And one moment for our next question.
Operator: And our next question comes from Matt Olney from Stephens. Your line is now open.
Matthew Covington Olney: Hey, thanks, guys. Good morning. Hey, want to ask more about these deposit costs and the competition around that, and curious what you're seeing in your, in your markets in recent weeks. I think in your prepared remarks, you mentioned just a handful of competitors still with some, some higher promotional rates, any, I think you mentioned that back in January as well, just looking to see if there's any, any change in that in recent weeks, still the same level of pressure.
Speaker Change: Alright, thanks, guys good morning.
Matthew Covington Olney: Matt.
Matthew Covington Olney: Hey wanted to ask more about these deposit cost and the competition around that and Im curious what youre seeing in your in your markets in recent weeks I think in the prepared remarks, you mentioned just a handful of competitors there with them.
Matthew Covington Olney: Higher promotional rates any I think you mentioned that back in January as well just looking to see if there's any.
Matthew Covington Olney: Any change in that in recent weeks are still feel the same level of pressure.
Donna T. Lowery: I think it's changed a little, but we're still under the pressure of the competition, they're still running their specials. You know, we ended, as I mentioned, we had that six months, five and a quarter was our special last fall. And what we've dropped it to now is we have like a three month at 5%. But what we're seeing out there from big names is, you know, five months, eight months at, you know, five and five and a quarter.
Speaker Change: That's changed a little but it's still we're still with the pressure of the competition are still running their specials.
Donna T. Lowery: We ended as I mentioned, we had that.
Donna T. Lowery: Six months five in a quarter.
Donna T. Lowery: Our special last fall and what we've dropped it to now as we have like a three month at 5%, but what we're seeing out there.
Donna T. Lowery: Some big names is now five months eight months at five and five in the quarter.
Donna T. Lowery: So, you know, we had the one-offs, as I mentioned last quarter, from some smaller banks and, you know, different markets that are running a little bit higher, but I think it's, you know, and we still have a little bit of money market pressure. We had that special for the money markets, which was a six-month guaranteed rate. It was 5% for six months, and then it was going to drop. And so what we had set up, as those come due, or that six-month period ends for them, they're cycling into the tiered rate product that we have.
Donna T. Lowery: No.
Donna T. Lowery: So we had the one off as I mentioned last quarter from some smaller banks in different markets that are running a little bit higher but.
Donna T. Lowery:
Donna T. Lowery: Thank you and then we saw a little bit of money market pressure, we had that special for the money markets was six month guaranteed rate. It was 5% for six months and then it was going to drop and so what we had set up as those come so as those come due or that six month period ends for them their cycle.
Donna T. Lowery: Now to the tiered rate product that we have and so depending on their balance that's anywhere from three five to four and a quarter.
Donna T. Lowery: And so, depending on their balance, that's anywhere from 3.5 to 4.25. But as you know, when they're coming out, well, I just had five, and I need to be close to five because so-and-so has this. So we're still having to face a little bit of that, you know.
Donna T. Lowery: As you know when they are coming out.
Donna T. Lowery: I just had follow up and I'll need to be close to five because its also has this so we're still having the space a little bit of that great pricing pressure, but some will obviously reprice into these tiers that I've mentioned, but I don't think its quite as bad in the fourth quarter of definitely not.
Donna T. Lowery: I don't think it's quite as bad as the fourth quarter, though. Oh, definitely not the fourth quarter. Yeah, compared to the fourth quarter.
Donna T. Lowery: For the fourth quarter was really an intense battle.
Donna T. Lowery: There's a little pressure less pressure.
Unknown Executive: That's what we hear throughout the regions. Yeah, I agree.
David: Fair David.
Donna T. Lowery: That's what we're here throughout the regions Jeff Maggert.
Matthew Covington Olney: Okay, thanks for the commentary there. And then, in your prepared remarks, you mentioned the seasonality in the first quarter. Can you just remind us of the seasonality that we should be forecasting for the second quarter, just the overall size of the balance sheet? I think we've seen some contraction on the average balances of the last two years in 2Q. Just curious, kind of what you expect for the overall size of the balance sheet in 2Q of this year?
Speaker Change: Okay. Thanks for the commentary there.
Matthew Covington Olney: And then in your prepared remarks, you mentioned that seasonality in the first quarter can you just remind us of the seasonality that we should be forecasting for the second quarter just the overall <unk>.
Matthew Covington Olney: The balance sheet I think we've seen some contraction on.
Matthew Covington Olney: The average balances of last two years in <unk>.
Matthew Covington Olney: Just curious kind of what you expect for the overall size of the balance sheet and <unk> of this year.
Donna T. Lowery: Well, you know, I didn't look back at last year's 2Q, but I think, you know, we'll start, usually we still kind of get, if you're talking about public funds on that seasonality, we get a little bit still in April, maybe May, and then they'll start spending that, but we also have the seasonality that Hopi mentioned from our customers that are in the, you know, the destination places that So, I mean, I'm kind of thinking we'll kind of be where we are. Those kind of things kind of offset each other.
Matthew Covington Olney: Well.
Donna T. Lowery: I did look back at last year's to change, but I think you know well start usually we still kind of get if youre talking about public funds on that seasonality, we get a little bit still in April and maybe may and then they'll start spending that but we also have the seasonality that have been mentioned from our customers that are in the.
Donna T. Lowery: No.
Donna T. Lowery: The destination places that will pick up their balances.
Donna T. Lowery: Okay. Thank you and we will kind of be where we are those kind of things kind of offset each other.
Milton Ray Cole: Yeah, kind of flat, didn't you? You really kind of see it in the third quarter, more so in the fourth quarter when you've got sort of double things going on. You got public funds spending out the money, plus you've got the tourist markets are out of their season, so there's not enough money they've earned during the summer months. So you see probably the biggest contraction in the fourth quarter, Matt.
Milton Ray Cole: Flat in euro currency.
Milton Ray Cole: In the third quarter in Barcelona for Cameron, you got sort of a double claims when you've got public fund spending altamonte plus you've got.
Milton Ray Cole: The tourist markets are out of their season, so there isn't enough money they've earned her during.
Milton Ray Cole: During the summer months, so you see probably the biggest contraction in the fourth quarter Matt.
Matthew Covington Olney: Okay, that's helpful. Thanks for that.
Donna T. Lowery: And then, just lastly, on the security deals... I think we saw some of the benefits in the first quarter of that restructuring from a few months ago. I'm curious just what the appetite is for additional security sales and repurchases like you did previously. Kind of the appetite there, and then as you look at the market, you know, the financials of such a trade, is it reasonable to assume a similar trade today or, given, markets and the yield curve? I am just curious what you are seeing there.
Matthew Covington Olney: Okay. That's helpful. Thanks for that and then just lastly on the.
Donna T. Lowery: Securities yields.
Donna T. Lowery: <unk>.
Donna T. Lowery: I think we saw some of the benefits in the first quarter of that restructuring.
Donna T. Lowery: From from a few months ago I'm curious what the appetite is for additional security sales and repurchases like you did previously.
Donna T. Lowery: The appetite there and then as you look at the market.
Donna T. Lowery: <unk>.
Donna T. Lowery: Such a trade.
Donna T. Lowery: Is it reasonable to assume a similar trade today or given the.
Donna T. Lowery: Well, actually, we were just talking about it yesterday and starting to run the numbers on that process to see if we can do the same kind of trade and get the same pickup. You know, we did have some treasuries that we were able to sell that were, had been purchased in the past for kind of short-term; they were kind of Fed Funds alternatives back when rates were lower.
Donna T. Lowery: The markets in the yield curve.
Speaker Change: Just curious kind of what youre seeing there.
Donna T. Lowery: Well, we actually we were just we were talking about it yesterday and starting to run the numbers on that process to say.
Donna T. Lowery: If it.
Donna T. Lowery: If we can do the same kind of trying to get the same pickup.
Donna T. Lowery: We did have some treasury that way, we're able to sale that were had been purchased in the past for kind of short term that will kind of fed funds alternatives back when rates were lower and so we were able to sell those before and have a bigger day, so well run the numbers and obviously if we can if it makes sense then we can do something similar way.
Donna T. Lowery: And so we were able to sell those before and have a, you know, bigger gain. So we're running the numbers, and obviously, if we can, if it makes sense, and we can do something similar, we will do it again, I would say in this quarter, but we're running the numbers now for that.
Donna T. Lowery: We'll do it again I would say in this quarter, but we're running the numbers now for that so that's one.
Matthew Covington Olney: Okay. Thank you, and things.
Donna T. Lowery: Okay.
Speaker Change: Thank you. Thank you thank you Matt.
Operator: and thank you. And one moment for our next question, and our next question comes from Catherine Mealor from KBW. Your line is now open.
Speaker Change: And thank you.
Catherine Fitzhugh Summerson Mealor: And one moment our next question.
Operator: And our next question comes from Catherine Mealor from K BW. Your line is now open.
Catherine Fitzhugh Summerson Mealor: Thanks, good morning. Morning. I wanted to ask about the buyback. You announced the authorization earlier this quarter. Just curious about your thoughts on how active you think you'll be on. So we did that.
Catherine Fitzhugh Summerson Mealor: Thanks, Good morning.
Speaker Change: <unk> Catherine.
Catherine Fitzhugh Summerson Mealor: Wanted to ask on the buyback.
Catherine Fitzhugh Summerson Mealor: Announced the authorization earlier this quarter just curious your thoughts on how active you think you'll be on that.
Milton Ray Cole: So we did announce it earlier in the quarter and got it renewed. We still look to use that as one of our capital management tools. The stock price at 25 is not as attractive, but if it gets down to the lower 20s, Captain, I think it makes a lot more sense for us.
Milton Ray Cole: So we did announce earlier in the quarter and got it renewed we still look to use that as one of our capital management tools.
Milton Ray Cole: Stock price of 25 is not as attractive as it gets down to lower corning's Catherine. Thank you. Thanks, a lot more sense for us.
Milton Ray Cole: Yes.
Speaker Change: Okay great.
Catherine Fitzhugh Summerson Mealor: They're more price sensitive than And then on the margin, how should we think about it? So you gave guidance for the margin to be down just a little bit more this next quarter. How do you think about if we don't see rate cuts in the back half of the year? How do you think your margin will trend? Do you see any
Speaker Change: Price sensitive then.
Speaker Change: Okay. Thanks.
Catherine Fitzhugh Summerson Mealor: And then.
Catherine Fitzhugh Summerson Mealor: Yes.
Catherine Fitzhugh Summerson Mealor: Yes.
Catherine Fitzhugh Summerson Mealor: How should we think about so you gave guidance for the margin to be down just a little bit more.
Catherine Fitzhugh Summerson Mealor: This next quarter.
Catherine Fitzhugh Summerson Mealor: How do you think about if we don't see rate cuts in the back half of the year. How you think your margin will trend do you see more downside as just deposit costs keep pricing up or.
Donna T. Lowery: Yeah, I think part of what we kind of have been talking about was looking at, you know, our modeling and our projections on looking forward, and that's, you know, a higher single-digit increase in margin. But that also has the two cuts of July to November built in.
Donna T. Lowery: Is there a scenario, we could see or your NIM actually start to expand even in a higher for longer environment.
Donna T. Lowery: Okay.
Donna T. Lowery: Yeah, I think part of it.
Donna T. Lowery: What we kind of have been talking about was looking at in our modeling and our projections on.
Donna T. Lowery: Looking forward in that.
Donna T. Lowery: Yes.
Donna T. Lowery: Higher single digit increase in margin, but that's also has the two the two cuts in July and November cut built and so.
Donna T. Lowery: So I think I think we'll still see pickup and yield on our loans. There's still some room for those things to reprice the cash flows out of that and new loans that are going on. We'll see some pickup in that, but I don't think as much as we have seen in the past few quarters as it has been increasing on the loan yield. But I still see pick-up from that.
Donna T. Lowery: I think.
Donna T. Lowery: I think we'll still see.
Donna T. Lowery: We will still see pick up in yield on our loans.
Donna T. Lowery: Some room there as I was saying is those reprice of cash flows out of that and new loans that are going on and we will face some pick up on that I don't think as much as we have seen the past few quarters as it has been increasing on the loan yields.
Donna T. Lowery: Still see pick up on that I think pickup from whether its in the loan yields or and just deposits from the cash flow coming out of that investment, but we will see a pickup in yield on that so those may offset what I think if there is no change in rates some of the deposit pressure because we're really we're still re price in a few things.
Donna T. Lowery: I see pickup from whether it's in the loan yields or in just deposits from the cash flow coming out of the investment book; we'll see pickup and yield on that. So, you know, those may offset what I think if there is no change in rates, some of the deposit pressure because we're still repricing a few things that people, believe it or not, after how many years has it been now with the price cuts going two and a half or just now saying, hey, I've only earned it this much. I need a better rate.
Donna T. Lowery: <unk> people believe it or not after how many years and it's been now with the right cause Cohen.
Donna T. Lowery: Two and a half just now, saying hey, I'm only earn this much I made a better rate in your line of thinking.
Donna T. Lowery: And you're like thinking, Where have they been? But, you know, which I'm glad about. We have an occasional one of those come up. But I think, you know, hopefully, we're just kind of maintaining and it looks like when you look at the deck on the deposit cost, when we label it out for you per month, January, February, March, and then looking at April, April is trending pretty much in line with March.
Speaker Change: Thanks, Dan.
Donna T. Lowery: Yes.
Speaker Change: Go ahead.
Donna T. Lowery: Have a case on one of those come out, but I think hopefully, we're just kind of maintaining and it looks like looking at when you look at the deck on the deposit cost.
Donna T. Lowery: Label It out for you per month January February March and then looking at April April is trending pretty much in line with March So I think.
Donna T. Lowery: So I think that we shouldn't see a whole lot of difference, but I'm still, you know, I'm still always leaning toward a little bit of compression just because we are still facing some competition in pricing a few things. I'm always going to be on that side. Stabilize it a bit. I think so. Yeah, there's just a lot of little moving pieces there, but it seems very positive, I think, and with it just being down four basis points, that's good.
Donna T. Lowery: We should say a whole lot of difference, but I'm still.
Donna T. Lowery: I'm still always leaning toward a little bit of compression just because we are still facing some competition in pricing a few things.
Donna T. Lowery: I'm always going to be on that side stabilize a bit.
Donna T. Lowery: Yes, it's just a lot of moving pieces there but.
Donna T. Lowery: It seems very positive I think.
Donna T. Lowery: And with that just being down four basis points.
Donna T. Lowery: That allows us time to reprice up the curve and then also the cash flow coming out of it. So, seeing the substantial increase in the loan pipeline really gives me some comfort around, you know, helping the margin in the back half of the year because we'll be able to use that cash flow coming out of the bond portfolio at 181 and reprice that back up the curve, hopefully, you know, something with an eight in front of it for the most part. Yeah,
Donna T. Lowery: Targa reprice of the curve or the envelope, but then also the cash flow coming out of it so.
Donna T. Lowery: Actual accretion loan pipeline really gives me.
Donna T. Lowery: Gives me some comfort around.
Donna T. Lowery: The margin in the back half of the year, because that will be able to use that cash flow coming out of.
Donna T. Lowery: The bond portfolio of 180 border reprice that back up the curve hopefully.
Donna T. Lowery: Okay.
Donna T. Lowery: Yeah.
Catherine Fitzhugh Summerson Mealor: That makes sense. And then on loan yields, when you've seen a really nice increase in loan yields the past couple of quarters, are you saying that should moderate a little bit in the next couple of quarters until growth picks up? I think so. Okay, great. Thank you.
Speaker Change: That makes sense.
Catherine Fitzhugh Summerson Mealor: And then on loan yields when you've seen really nice increase in loan yield for the past couple of quarters that youre sandy that should moderate a little bit in the next couple of quarters until growth picks up I think so.
Catherine Fitzhugh Summerson Mealor: Okay. Okay, great. Thank you.
Operator: And thank you. In one moment for our next question. And our next question comes from Christopher Marinac from Janie Montgomery Scott, LLC.
Speaker Change: And thank you.
Christopher William Marinac: And one moment for our next question.
Christopher William Marinac: And our next question comes from Christopher <unk> from Janney Montgomery Scott LLC.
Christopher William Marinac: Hey, thanks. Good morning.
Christopher William Marinac: I just want to drill down on the office portfolio just for a second. So Hoppy, we should be thinking of this holistically as the combination of your construction office, the non-owner occupied, and then a residual component in the owner occupied. Is that correct to get us to that total number that was cited in the slides?
Christopher William Marinac: Hey, Thanks, Good morning, just wanted to drill down on the office portfolio just for a second so happy we should be thinking that as holistically as the combination of your construction office. The non owner occupied and then a residual component in the owner occupied is that correct to get us to that total number that was cited in the slides.
Christopher William Marinac: Yes, that would include all of those components. Okay.
Christopher William Marinac: Sure.
Hoppy: Yes that would be.
Christopher William Marinac: All of those components.
George Noonan: Great, just want to clarify. And then can you walk us through kind of the process for debt service coverage and stressing those? And you know, to what extent is that already done? Or is that kind of something that may adjust on criticizing classifieds as this year unfolds?
Christopher William Marinac: Hey.
George Noonan: Greg just wanted to clarify and then can you walk us through kind of the property.
George Noonan: Process for debt service coverage and stressing those and to what extent is that already done or would that be kind of a something that may adjust the criticized and classifieds as this year unfolds.
George Noonan: We're stressing right now We're still using essentially a 300 basis point shock in most of our stress methodology, realizing that we're probably, you know, at the top of the curve at this point, but that's still the shock bandwidth, if you will, that we use. And of course, with all renewals, and You know, we're looking at a similar every loan approval has a similar rate shot up to 300 basis points as we're looking at those from an approval standpoint. So, we really have not changed our methodology there.
George Noonan: Yes.
George Noonan: Oh.
George Noonan: We're expressing right now we're still using essentially a 300 basis point shock and most of our stress methodology.
George Noonan: Realizing that we're probably.
George Noonan: At the top of the curve at this point, but thats still the Shaw family.
George Noonan: I guess, if you will that we use.
George Noonan: And of course with all.
George Noonan: Renewals.
George Noonan: We're looking at a similar.
George Noonan: Every loan approval as a similar rate shock.
George Noonan: 100 basis points as we're looking at those from an approval standpoint.
George Noonan: Okay.
George Noonan: Great, thanks for that. And I guess a similar question on the multifamily side, just you know, what are you seeing in multifamily for either construction or for permanent that you are keeping on the balance sheet? Just any trends that are different there.
George Noonan: Really have not changed our methodology here.
George Noonan: Great. Thanks for that and just I guess, a similar question on the multifamily side, just what are you seeing in multifamily.
George Noonan: The construction of a permanent that you're keeping on the balance sheet.
George Noonan: Any trends that are different there.
George Noonan: We still have, I think, eight or ten projects to move over from construction into PERM, and the most recent of those are right on track for their absorption forecasts.
George Noonan: We still have a.
George Noonan: I think eight or 10 projects to move over from construction in the Perm.
George Noonan: The most recent of those or right on track for their absorption.
George Noonan: We're in some very good markets for multifamily and are seeing good occupancy. A lot of our apartment complexes are not necessarily in the larger metropolitan areas where competition tends to be maybe more predominant, and so there are fewer options. And when you're the newest shiny object complex in a smaller market, I think it helps shorten the absorption period. So we're not really seeing any problems there. Most of our permanent loans, as we look at those around the footprint, we don't see rent concessions being made among our multifamily developers and things that you see in some of your larger, maybe oversaturated, larger metropolitan markets.
George Noonan: Yes.
George Noonan: We're in some good markets in multifamily.
George Noonan: Or seeing good RFP.
George Noonan: Occupancy a lot of our apartment.
George Noonan: Apartment complex.
Speaker Change: Not necessarily.
George Noonan: Larger metropolitan.
George Noonan: Areas, where competition tends to be maybe.
George Noonan: Predominant.
George Noonan: And so there are fewer options in one year the newest shiny.
George Noonan: <unk>.
George Noonan: <unk> accomplished.
George Noonan: While our market I think it helps the shortened the absorption period.
George Noonan: We're not really seeing any problems there.
George Noonan: Most of our peers.
George Noonan: Permanent loans as we look at those around the footprint.
George Noonan: We don't see rent concessions.
George Noonan: Among our multifamily developers.
Christopher William Marinac: Got it. Great. Thank you for that background. And then, you know, Hoppy, just a quick question for you from a strategic standpoint: do you find that other banks are more willing to engage with you now than in the past? Or is that sort of just, you know, a conversation still? eCommerce
Christopher William Marinac: And things that you see in some of your larger maybe over saturated larger metropolitan markets.
Speaker Change: Got it great. Thank you for that background and then happy just I guess a quick question for you from a strategic standpoint.
Milton Ray Cole: I think conversations are kind of still going on, I think people are thinking about it, but again, the math is somewhat challenging, and there's a lot of uncertainty in the market. And gosh, you know, you saw the new guidance that came out or the new proposal that came out from the FDIC, I guess, on mergers, things they'll be using to decide mergers on application approval. So I don't know, it doesn't, you know, it's not a ton or we haven't seen a ton of conversations going on right now.
Hoppy: Do you find that other banks are more willing to engage with you now that in the past or is that sort of just conversation is still the same.
Milton Ray Cole: The conversations are kind of still I think people are thinking about it but again the bank is somewhat challenging and there's a lot of uncertainty in the market.
Milton Ray Cole: Oh My Gosh you.
Milton Ray Cole: You saw the new guidance okay.
Milton Ray Cole: The new proposal that came out from the FDIC I guess.
Milton Ray Cole: Tom merger thanks.
Christopher William Marinac: Great. Thank you for taking all my questions. Thanks, Chris. And thank you. And I'm showing no further questions. I would now like to turn the call back over to Hoppy Cole for closing remarks. And thank you. And I'm showing no further questions. I would now like to turn the call back over to Hoppy Cole for his closing remarks.
Milton Ray Cole: <unk> been using in Sop mergers application approval. So I don't know if it doesn't there's not a ton or we haven't seen a ton of conversations going on right now.
Milton Ray Cole: Great. Thank you for taking all my questions.
Milton Ray Cole: Thanks for interest and thank you.
Milton Ray Cole: Im showing no further questions I would now like to turn the call back over to hobby Cole for closing remarks.
Milton Ray Cole: Well, good. Thanks everyone. We appreciate you participating this morning. Again, we think we had a really good quarter and a strong start to the year and a really good position for the ballots of the year. So, if there are no further questions, that will conclude our call for this morning on this quarter.
Speaker Change: Okay, well. Thanks, everyone. We appreciate you participating this morning again, we think we haven't really good quarter and a strong start to the year in a really good position for the balance of the year. So there are no further questions that will conclude our call for this morning this quarter.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change: Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Operator: Okay.
Operator: [music].
Operator: Okay.
Operator: Okay.