Q2 2024 The First Bancshares Inc Earnings Call
Hoppy Aldeo: As is our custom, we'll start with several prepared remarks this morning and open up to questions at the end. We've got several team members with us this morning, Denny Lowery, our CFO, JJ Fletcher, our Chief Lending Officer, and George Noonan, our Chief Credit Officer. So, for the second quarter, we were very pleased with the performance of the company in terms of growth, profitability, and credit quality. Loans grew by $111 million, so they were up about 8.6% on an annualized basis.
If our customer will start with several prepared remarks before opening up to questions.
And we've got several team members with US This morning, Jimmy Lowry our CFO.
Our chief lending officer, and George David Our Chief Credit Officer.
So to the second quarter, we were very pleased with the performance of the company in terms of growth profitability and credit quality.
While <unk> grew by $111 million. So they were up about 6% on an annualized basis, our markets continue to provide us ample growth opportunities.
Hoppy Aldeo: Our markets continue to provide us with ample growth opportunities. We were able to see margin expansion, and our margin expanded six basis points, and our core margin was actually up nine basis points. Credit quality remained strong, with only four basis points of net charge-offs and three basis points of migration and MPAs. Although net income was down a little bit, it was now primarily due to the $1.7 million provision that we took associated with the loan growth. Actually, pre-tax, pre-provisioned income was up $800,000, or 2.9%. So again, we were very pleased with the performance of the company, sort of all around. Demi, would you like to talk about something?
Where you are able to see margin expansion in our margin expanded six basis points, our core margin was up actually nine basis points.
Credit quality remained strong with only four basis points of net charge offs of three basis points vibration of Npa's.
Net income was down a little bit was down primarily due to the one 7 million a provision that we took associated with the line grow actually pre tax pre provision income was up 800000 or two 9%. So.
Again, we were very pleased with the performance of the economy.
Hello, all around maybe would you like to talk about our financial performance a little more detail sure happy Thanks as choppy out there that what he said, we're very pleased with the quarter end.
Donna T. Lowery: Sure, Hoppy, thanks. And as Hoppy Aldeo said, we're very pleased with the quarter and very happy with all-around solid results. But we did report net earnings of $19.7 million, which was 62 cents on a diluted share. That was now $900,000 from the first quarter, but we did record a $1.7 million provision expense this quarter and zero for last quarter. That is basically accounting for the difference there. Pre-tax, pre-provision operating earnings totaled $27.4 million compared to $26.6 million. So we did have a 2.9% increase for the quarter when you look at pre-tax and pre-provision. As Hoppy mentioned, our core margin did increase nine basis points to 319.
I'm very happy with all around our solid results, but we did report a net earnings of $19 7 million, which was 62 cents on a diluted share that was down 900000 pounds.
Quarter, but we did record a $1 $7 million provision expense this quarter and zero for last quarter. So.
It's basically accounting for the difference there pre tax pre provision operating earnings totaled $27 4 million compared to $26 6 million, but we did have a two nine.
Percent increase for the quarter when you look at pre tax pre provision.
We mentioned in our core margin did increase nine basis points to 319 the cost of deposits.
It remained the same at 178, which would be like.
Okay.
Finally on our deposits.
Donna T. Lowery: Our yield on our earnings asset increased one basis point, and then, of course, on our interest-bearing liabilities, we had a decrease of three basis points. Our non-interest-bearing assets increased 3 basis points, and our portfolio actually increased both in dollars and percent this quarter back to 28%. Our interest-free deposit costs increased one basis point to $246,000, and our cumulative beta stayed the same at 43% for this quarter.
Yes.
Our yield on them.
On a GAAP increased one basis point and then of course on our interest bearing liabilities, we had a decrease of three basis points, though.
Our non interest bearing.
Portfolio actually increased both in dollars and percent this quarter.
28%.
Our interest bearing deposit costs.
<unk> increased one basis point to $2 46, and our cumulative beta stayed the same at 43% for this quarter.
Donna T. Lowery: Our deposits did decrease this quarter by $84.2 million, which was about 1.3%, but $38.3 million of that was related to public funds. And as you know, following us, we will continue to see a decrease in deposits throughout the rest of the year because of our public fund portfolio, so that was expected. On our liquidity position, we still remain very strong. Our ratios are well above our limits.
Part of it did decrease this quarter $84 2 million, which was about one 3% but 38.
<unk> 3 million of that was related to public funds and as you know following us we will continue to see a decrease in deposits throughout the rest of the year.
Because of our public fund portfolios, so that was expected.
Donna T. Lowery: Our loan deposit ratio is 79%. We have $2 billion available at the Home Loan Bank for borrowing, and we have about 38% of our securities portfolio unpledged. So we're all pleased with all of those numbers, and actually, over the next four quarters, we have about $266 million in cash flows coming off the securities book into cash over the next four quarters. And then our ratios for the quarter, looking at our operating ratios, we had an ROA of 101, and our return on average tangible common equity of 1,276, and an efficiency ratio of 60.65. And then our capital ratios, TCE, increased to 8.3. Our leverage ratio was 10, and our total risk base was 15.3, which were all in line with last quarter. So overall, we're very pleased. Thank you, ma'am.
On our liquidity position still remain very strong our ratios are well above our limits our loan deposit ratio of 79%.
We have to point to.
2 billion available at the home loan bank for a borrowing borrowing and we have about 38% of our securities portfolio Unpledged.
We're all pleased with all of those numbers and actually over the next four quarters, we have about 266 million in cash flows coming off the securities book.
Into cash over the next four quarters, and then our ratios for the quarter looking at our operating ratios Ah we'd had an ROI of 101 and our return on average tangible common equity of 12 76, an efficiency ratio of 66, five and then our capital ratios, our TCE increased to $8 three or <unk>.
Average ratio with 10, and our total risk base was $15 three which all are in line with last quarter or so.
Overall, we're very pleased.
Unknown Executive: Great report. JJ, would you like to talk about, give us a little color on the loan portfolio and loan originations for the quarter? Yes, sir.
Great report.
Talk about give us a little color.
<unk> for the quarter, yes, Sir Thank you Avi topping said, we had a great quarter second quarter in terms of loan growth net increase of about $111 million originations were very robust at about $450 million from about $2 53 in the first quarter construction lending and lines continued at a solid pace with approximately 40%.
JJ Fletcher: Thank you, Hoppy. As Hoppy said, we had a great quarter, second quarter in terms of loan growth, a net increase of about $111 million. Originations were very robust at about $450 million, up from about $253 million in the first quarter. Construction lending and lines continued at a solid pace, with approximately 40% of those loans being originated reserved for future funding. After a large increase in the first quarter, you all remember in the pipeline. We did see a modest decrease, which is expected based on originations in the first quarter.
<unk> of those.
Loans being originated reserved for future funding.
After a large increase in the first quarter you all remember in the pipeline. We did see a modest decrease which is expected based on originations in the first quarter I would note that.
JJ Fletcher: I would note that we do track the amount to be funded at origination, and at the end of the second quarter, that number was actually higher than the first quarter. So, both well entering the back half of the year, we think. Loan yield did contract slightly from $812 million to $792 million for the quarter, but overall, we're at $799 million, or basically 8% year-to-date. Regionally, the Mississippi team had an incredible quarter.
We do track the amount to be funded at origination and at the end of the second quarter that number was actually higher than the first quarter. So it bodes well enter in the back half of the year. We think our average yield did contract slightly from 812 to 792 for the quarter, but overall, we're at 799 or basically 8% year to date.
Regionally the Mississippi team had an incredible quarter, they actually at 35% of the entire banks production in Georgia for the first time since our merger had their strongest showing and they accounted for about a quarter of all new originations. So we're glad to see that.
George Noonan: They actually had 35% of the entire bank's production, and Georgia, for the first time since our merger, had their strongest showing, and they accounted for about a quarter of all new originations. So, we're glad to see that. Lastly, operationally, we migrated the rest of the legacy branches into the centralized consumer platform, and then George may speak to this, too, but we're continuing to refine our small business platform, expanding that, and plan to have the 1071 implementation done by the end of the year ahead of schedule.
Lastly, operationally we migrated the rest of the legacy branches into the centralized consumer platform and then George May speak to this too, but we're continuing to refine our small business platform expanding that and plan to have the $2 71 implementation.
By the end of the year ahead of schedule. So overall, great quarter I appreciate all the lending staff.
George Noonan: So, overall, great quarter; I appreciate all the lending staff, lenders, and all the support folks to make that happen, and I couldn't be more pleased with the quarter. Thanks, JJ. Great report. George, did you get a notice on credit quality? Thank you, Howard.
Lenders and all support folks to make that happen and I couldn't be more pleased with the quarter alright. Thanks, Greg.
Great report.
Georgia Douglas on credit quality.
George Noonan: We did continue to see good performance across most of our credit metrics. The leading indicator, 30 days past due, was manageable. We did see a slight uptick over quarter one, but I think it is still very acceptable at 40 basis points at the quarter end. The year-to-date average continues to be good at 35 and a half dips. Most of the metrics, as I said, we did see some moderate movement. A few upticks here and there. Non-accruals were up five dips. All total, NPAs ticked up about 3 bps to 26 bps. That's a very manageable level for us, we believe. Net charge-offs at 4 bps, as Deedee's already alluded to.
Thank you.
We did continue to see good performance across most all of our credit metrics, the leading indicators of 30 day past dues.
Were manageable, we did see a slight uptick over quarter, one, but I think still very acceptable 40 basis points.
At quarter end year to date average continues to be good at 35 bps.
Most of the metrics as I said, we did see some moderate movement few upticks here and Theyre non accruals were up five bips.
All total NPA has ticked up about three bps to 26 be upset some bigger manageable level for us we believe.
Net charge offs at four Bips as David David has already alluded to one.
George Noonan: And then the $1.7 million provision kept our ACL at 105, as it was in the last quarter. CRE concentrations ticked up a little bit, 9 bps, but still at 215% of RBC. We think that's a comfortable margin below the 300% interagency guidance level. And we saw C&D actually come down a bit. So we're at 69% of RBC, and that's well below the 100%
$147 million provision.
Provision kept our ACL that one off.
As it was in last quarter.
CRE concentrations ticked up a little bit, but still at 250% of RBC.
Thats, a comfortable margin below the 300% interagency guidance level than we saw.
They actually come down a bit so we're at 69% of RBC and thats well below 100% level.
George Noonan: Classified loans as a percentage of capital plus ACL, they did move up about 47 BIPs but were still manageable at 7.52%. When you combine those with criticized loans, we actually came down by 4 BIPs, and I would note that we continue to see borrower capacity in our substandard loans to pay off loans. We actually had almost 5.8 million in substandard loans paid off in the second quarter. So that has continued a trend that we've been seeing quarter after quarter.
Five loans as a percentage of capital plus ACL. They did move up about 47, bips, but still manageable at seven 5% 2%.
When you combine those with criticized.
Actually came down by four Bips and I would note that we continue to see borrower capacity and our sub standard loans.
To pay off loans.
Actually hit almost $5 8 million in substandard loans payoff.
The second quarter. So that has continued a trend that we've been seeing quarter over quarter overall.
George Noonan: Overall, the loan portfolio continues to reflect the strategic balance that we see. Non-owner occupied CRE at 24%, non-owner occupied at 22, one for family 19%, and then 13 and 12%, respectively, C&I and C&D.
Overall loan portfolio continues to reflect the strategic balance that we see.
Owner occupied CRE at 24% non owner occupied at 20, 214 family, 19% and 13 and 12% respectively for C&I in C and D. We.
George Noonan: We continue to try to balance all of our subsets. C&D exposure is very evenly apportioned among four major categories, as you see in the deck. Land development represents only 3.68% of total loans. Multifamily construction, 2.4%. And then other construction and residential construction, under 4% as well. Kind of the same trend for CRE.
<unk> to try to balance all of our subsets.
The exposure is very evenly apportioned among four major categories as you see in the deck.
Land development represents only 368% total loans multifamily construction two four.
And then other construction and residential construction under 4% is oil kind of the same trend for CRE.
George Noonan: Our professional office is at 9.1% of total loans, but that's pretty well evenly split between owner-occupied and non-owner-occupied. Retail center at 6.29%, hotel at 5.53%, and warehouse industrial at 4.33% of total loans. So we monitor these categories very closely. Non-owner occupied office is at 3.75% of Total Loans, and we've seen our average non-office loan balance remained pretty constant over the last year. $713,000 is the average size in our non-owner occupied office category.
Our professional office is at nine 1% of total loans, but thats pretty well evenly split between owner occupied.
Retail center at 629 hotel at $5 53, and warehouse industrial it for three 3%.
Total loans. So we monitor these categories pretty closely non owner occupied office is at 375%.
Of total loans and we've seen our average non office loan.
Balance remained pretty constant over the last two years 713000.
George Noonan: And we see about 18.32% of office loans maturing in the next 18 months. So we think that's a very manageable horizon for that. Our largest single loan continues to hover at about $28.5 million. The top 20 loans represent only about 6.35% of our total portfolio, and the top 75 borrower relationships comprise about a quarter of the loan portfolio. In the CRE category, we have continued to see very, really minimal lease renewal and turnover issues.
Average size than our non owner occupied office category can we say about approximately $18 three 2% of office loans maturing in the mixed 18 months. So we think thats a very manageable.
<unk>.
Horizon for that.
Our largest single loan continues to hover at about 28, and a half million top 20 loans represent only about $6 three 5% of our total portfolio.
75, borrower relationships comprise about a quarter of the loan portfolio.
In the CRE category, we have continued to see.
Really minimal lease renewal and turnover issues, we've seen good tenants stability.
George Noonan: We've seen good tenant stability and very few credit issues in our office loan portfolio, thank goodness. But we have witnessed, as all banks have, insurance cost escalations are putting some pressure on OPEX expenses for some borrowers, but we're monitoring that very closely across the markets as well as multiple CRE segments. So, in summary, we're witnessing some nominal basis point increases across some of the categories due to the tighter rate environment and OPEX pressures, but we've really been very fortunate to see very few troublesome issues with delinquencies, charge-offs, or unacceptable risk migration. We really expect to see similar outcomes for the balance of the year and into 2020.
And.
Very few credit issues in our in our office loan portfolio to thank goodness, we have witnessed as all banks have insurance cost escalations are putting some pressures.
On the Opex expense for some borrowers, but we're monitoring that very closely across the markets as well as multiple seal already segments.
In summary, we are witnessing some nominal basis point increases across some of the categories.
Tighter rate environment that opex pressures, but.
We've really been very fortunate CBP troublesome issues with delinquencies charge offs are unacceptable risk migration. So we really expect to see similar outcomes for the balance of the year and into 2020.
Thank you Harvey.
Unknown Executive: Thank you, Hobby. Thank you, George. Great report. That concludes our prepared comments. We would open it up for questions now.
George Great report.
Concludes our prepared comments, we will open it up for questions now.
Operator: Certainly, as a reminder, to ask a question, please press star 11 on your touchtone telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Certainly as a reminder to ask a question. Please press star one on your Touchtone telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster one moment for your first question.
Operator: Please stand by while we compile the Q&A roster. 1 moment for our 1st question. And our first question will be coming from Matt Olney of Stevens. Your line is open.
And our first question will be coming from Matt Olney of Stephens. Your line is open.
Matthew Covington Olney: Hey, thanks. Good morning, everybody.
Hey, Thanks, good morning, everybody.
Unknown Executive: I'll start on the loan growth front, really strong loan growth trends, a good report overall. If I take a step back and just look at the long-term growth for the first half of the year, I think we're at about a 3% annualized pace. Just curious if this is a reasonable pace we should expect for the back half of the year. It sounds like the report earlier, and it sounds like the pipelines still look really strong even after the 2Q results, so just curious about expectations for loan growth in the back half of the year.
Matt.
I'll start on the loan growth front really strong loan growth trends are good report overall.
I'd take a step back and just look at the loan growth. The first half of the year I think we are at about a 3% annualized pace.
Just curious if this is a reasonable pace, we should expect for the back half of the year.
It sounds like the report from earlier it sounds like the pipelines to look really strong even after the <unk> results I'm just curious on expectations for loan growth for the back half of the year.
Unknown Executive: Yeah, I think so, Matt. I think that the expectations for level low growth of what we saw this last quarter would be about that mid-single-digit range.
Yes, I think so I think that expectations for level loan growth of what we saw this last quarter would be.
About that mid single digit range.
Unknown Executive: I think if you take the two quarters together, we had a lot of stuff that kind of got pushed early into the second quarter, kind of leveling it out at that 4% tight range. I think it's fair.
Okay. The two quarters together I'll, just say, we had a lot of stuff that kind of got pushed early in the second quarter kind of level. It out at that 4% type range I think is fair.
Unknown Executive: Okay, that's helpful. And then on the deposit cost side, really encouraging to see some of that pressure ease up quite a bit in 2Q. Would love to hear any more color, whether it's by month or kind of what you saw, any kind of an inflection, any color at all on deposit cost pressure easing, and then same thing, expectations for the back half of the year.
Okay. That's helpful and then on the deposit cost side really encouraging to see some of that pressure ease up quite a bit.
And <unk> would love to hear any more color on whether it's by month or kind of what you saw any kind of an inflection just any color at all on deposit cost pressure easing and then same danica expectations for the back half of the year.
Donna T. Lowery: I mean, we are still seeing some pressure in our markets with some specials. We're still, as Hoppy said a while ago when I was celebrating a little, and you know, it's still out there, hand in hand battle market, you know, going through and matching some things. But, you know, when we looked at it kind of monthly, you know, when we looked at the first quarter and kind of talked about where it was looking like we were kind of there through April and May. And so when you look at that, April was $177, May was $182, and June was down to $174.
I mean, we are still.
<unk>.
So you had some pressure in our markets with some specials are still choppy.
Hello, Brian.
It's still out there hand in hand battle market.
Matching some things but.
We had when you look at it kind of monthly.
We had looked at the first quarter and kind of talked about where it was looking like we were kind of there.
Through April and May and so.
When you look at that.
Donna T. Lowery: So it looks like I think we'll be tracking around where we are. Now we do have a couple of things in play. As I mentioned about the public fund, we will continue to have runoff for the rest of the year for that. And then also, we do have some brokered CDs that I had mentioned, and a group of those are maturing tomorrow. And we replaced those and added a little bit to it, the same cost that that was, but just some additional dollars.
April with 177, nine with 182 and June was down to 174.
It looks like.
I think we'll be tracking around where are we.
We are now we do have.
A couple of things in play as I mentioned about the public funds.
We will continue to have run off the rest of the year for that.
And then also we do have some brokered Cds.
That I have mentioned and that is good but those are mature and tomorrow, and we were replacing those and adding a little bit to it.
I'm confident that was but just some additional dollar size.
Donna T. Lowery: So I feel like overall, with those couple of things that I really feel like the just not just the deposit cost but kind of the margin should kind of stay right where we are, I would say, give or take a couple of basis points, just kind of projecting forward, projecting those decreases in public funds. The reduction in homo-bite borrowings and then... um, the broker TD, so I feel like kind of projecting those forward. We should kind of stay where we are.
Overall with.
That is a couple of things that.
I really feel like they're just not just the deposit costs, but kind of the margin should kind of stay right where we are.
Thank you ever take a couple of basis points, just kind of projecting forward projecting those decrease in public funds.
The reduction in home loan bank borrowings and then.
No brokered Cds.
I feel like kind of.
Projecting those forward, we should kind of stay where we are.
Donna T. Lowery: Margin relatively stable from what we saw in 2Q. You mentioned some of the balance sheet movements in the third quarter, and also public funds could be a little bit lower. Any color on just the overall average or any assets in the third quarter? Are we going to see any asset levels move down a little bit, I guess, given some of the puts and takes that you mentioned?
Yes.
Okay. That's helpful. So it sounds like margin relatively stable from what we saw in <unk> you mentioned some of the balance sheet movements in the third quarter and also public funds could be a little bit lower any color on just the overall.
Average, earning assets in the third quarter or are we going to see earning asset levels.
Move down a little bit I guess, given some of the.
Puts and takes that you mentioned.
Donna T. Lowery: I think some of those, you know, really what I was talking about on the liability side really kind of wash a little bit on that side. So, you know, we could see some increase in earning assets if you know what the loan book does for the third quarter and what the expectations are for there because we would probably more than likely end up funding it from cash flows out of the securities books, so that could fund some of that. So, you could see a slight increase or just a fall.
Yes.
I think some of those.
Really what I was talking on the liability side really kind of broad.
So a little bit on that side so.
Yes.
We could see some increase in earning assets.
With the loan book does for the third quarter with what the expectations are for there.
Because we would probably more than likely end up funded from cash flows off the securities book that could.
Some of that so you could say a slight increase or just flat.
Unknown Executive: Okay, that's helpful. Thanks for taking my questions. One moment for our next question, which will be from Brett Rabatin of Hogue Group.
Okay. That's helpful. Thanks for taking my questions.
Thanks, Matt.
Our next question.
Which will be coming from Brett Robinson of whole group. Your line is open.
Brett D. Rabatin: Hey, good morning, everybody. Good morning, Brett.
Hey, good morning, everybody.
JJ Fletcher: Wanted to ask, first on the, I think if I heard it correctly, 450 million in loan originations. Is that a function, as you see it, of customers, you know, looking to draw on lines or do projects? Or are you guys maybe moving some market share from competitors?
Good morning, Brett.
Wanted to ask.
First on the I think if I heard it correctly $450 million of loan originations is that fair.
<unk> as you see is you see it of customers.
Looking to draw on lines are our two projects or are you guys, maybe moving some market share from competitors.
JJ Fletcher: So those are new originations really, I think, moving from competitors. And again, we've got that legacy, really strong look of business. A lot of that is still internally generated by our clients, you know, doing new projects or making acquisitions. It's kind of a. You know, and we also have the new lending teams. I know we talked about that for two quarters, but don't lose sight of that.
So those are new originations really.
I think moving from competitors and again, we've got that legacy really strong book of business a lot of that is still internally generated by our clients.
Do a new projects are making acquisitions.
And we also have the new lending teams I know, we've talked about that for two quarters, but don't lose sight of that were still getting new credits coming over from those groups too. So it's really a combination.
JJ Fletcher: We're still getting new credits coming over from those groups, too. So it's really a combination of all those factors, I think. But a lot of new originations or new projects are being done. They're new. Yeah. And we've had some refinances out of the non-recourse market, and those for good, longstanding customers. So it's been a combination.
All of those factors I think all of them.
There is a nice start new projects.
Yeah.
And we've had some refinances other nonrecourse market, Brian those for good long standing customers. So it's been a combination.
Unknown Executive: Okay, that's helpful. And then, you know, any thoughts on, obviously, with the stock fire, I think people are gonna talk about M&A more. You know, Hoppy, any thoughts on M&A and just how you see that playing out for you guys, the back half of the year, if you think you might be looking to acquire or what you're seeing out there.
Okay. That's helpful and then.
Any thoughts on obviously with stock fire I think people are going to talk about M&A more hopping any any thoughts on M&A and just how you see that playing out for you guys back.
Speaker Change: Back half of the year, if you think it might be.
Speaker Change: Looking to acquire or what youre seeing out there.
Hoppy Aldeo: Well, so valuation certainly helped that, as everybody knows. So we always, you know, keep our optionality open. We're always having conversations. There's a number of interesting banks out there that would fit our profile, but we always talk. We're always developing relationships.
Speaker Change: Also valuation certainly helped that as everybody.
Speaker Change: So we always keep our Optionality open.
Speaker Change: We're always having conversations there.
Speaker Change: Interesting.
Speaker Change: Thanks out there.
Speaker Change: Would fit our profile, but we always talk we're always developing relationship.
Unknown Executive: Okay. And then just lastly, back on the margin, I wanted to make sure I understood. So, Dede, the margin is expected to be flattish in the back half of the year. And that's a function of the brokered CDs that you're going to need to use to replace public funds, you know, offsetting some additional improvement in earnings asset yields. Just want to make sure I understood the narrative on that. Okay.
Speaker Change: Okay, and then just just lastly back on the margin.
Speaker Change: Wanted to make sure I understood Didi the margin is expected to be flattish in the back half of the year and Thats a function of the brokerage Cds that youre going to need to use to replace public funds.
Speaker Change: Offsetting some additional improvement in earning asset yields just want to make sure I understood.
Donna T. Lowery: Right, I was, you know, basically kind of looking at those three things as far as on the balance sheet side, what the impact of additional funding on the brokered CDs, with paying down the Home Loan Bank advances and then some of the public funds running out, just trying to see kind of what that looked like and really not giving any credit to the earning assets side as far as increased loans, those kind of things, but really kind of looking at what that cost was going to do to us is kind of what I was more, you know, decades ago, get that loan book rolling and they're going to do their thing. Conservative forecast.
Speaker Change: Narrative on that.
Speaker Change: Right.
Speaker Change: It's really kind of looking at those three things as far as on the balance sheet side, what the impact of additional funding on our brokered Cds.
Speaker Change: Paying down the home loan bank advances and then some of the public funds running out just trying to see kind of what that look like.
Speaker Change: And really not giving any credit to the earning asset side as far as increase in loans.
Speaker Change: So it really kind of look at what that cost was going to do to us is kind of well it's mark.
Speaker Change: Well get that loan, but Ron and Mike.
Donna T. Lowery: I have to look on the conservative side, what is, what am I adding to where we currently are, and what does that impact? So that's kind of what I was looking at. So, I mean, we obviously always hope that we'll do a little better and always try to be more conservative on the cost side.
Speaker Change: A conservative forecast.
Speaker Change: The concern is that what is what am I, adding to where we currently are and what does that impact. So that's kind of what I was looking at that so I mean, we obviously you always hope that will do a little better.
Speaker Change: Our China model more conservative on the cost side.
Speaker Change: Okay. That's helpful. It's good to see the cost of funds flatten out that's nice thanks for all the color.
Brian: Thanks, Brian.
Brian: One moment for our next question.
Unknown Executive: [inaudible]
Brian: Our next question will be coming from Catherine Mealor of <unk>. Your line is open Katherine.
Brett D. Rabatin: Okay, that's helpful. It's good to see the cost of funds flatten out. That's nice. Thanks for all the color.
Speaker Change: Thanks, Good morning.
Operator: One moment for our next question. Our next question will be coming from Catherine Mealor of KBW. Your line is open, Catherine.
Brian: Catherine.
Speaker Change: One follow up on the margin.
Catherine Fitzhugh Summerson Mealor: The yield on loans was down a little bit this quarter any any outlook on just the pace of loan yield increases in the back half of the year.
Speaker Change: And also maybe what drove the decline this quarter.
JJ Fletcher: Some of that decline, Casinolla, JJ had about the loan yield piece, but some of that was driven by some late fees, decreasing some fees.
Speaker Change: Some of that decline Catherine I'll, let Jay add about the loan yield piece, but some of that was driven by some late fee decreases in phase.
JJ Fletcher: So I don't expect; I really don't expect that to continue. That was a little bit of a kind of a one-time deal during the quarter. So, but, JJ can address the actual loan yield piece; mine was one of the fees.
Jay: So I don't expect I really don't expect that to continue that was a little bit of a kind of a one time deal during the quarter. So.
Speaker Change: Yes, I can address the actual loan yield pace bylaws.
Unknown Executive: Yes, and we're talking about that this morning. If you looked at our notes from the first quarter, we kind of guided to that. We were seeing pressure. And most of the markets go in into the sevens. We've been in the eights pretty consistently for several quarters. So I think really it's competition. Maybe the potential rate cuts are driving some banks to start pricing in early, but to get good competitive deals. And of course, you know, there's a lot of banks that are sort of on the sidelines right now, but the ones that do have liquidity.
Catherine Fitzhugh Summerson Mealor: Thanks. Good morning.
Speaker Change: Yes.
Speaker Change: Now we're talking about that this morning, if you looked at our notes from first quarter, we kind of guided to that we were seeing pressure and most of the markets going into the sevens, we've been in the eights pretty consistently for several quarters.
Unknown Executive: One follow-up on the margin. I noticed that yield on loans just was down a little bit this quarter. Any outlook on just the pace of loan yield increases in the back half of the year? And also, maybe what drove the decline this quarter?
Speaker Change: So I think really as competition.
Speaker Change: Maybe the potential rate cuts or driving some banks to start pricing in early but to get good competitive deals and of course, there's a lot of banks that are sort of on the sidelines right now, but the ones that do have.
Unknown Executive: I think they're pricing the strong deals. And we only really try to stay in the eight plus credit markets, as you all know, we don't credit. So, I'd think we're seeing pressure there. Not the at the, that's what we're seeing at Committee every week, seems like. There's no question about it, but now you're doing a reasonable just right under eight, about seven, nine. Yeah. That's still, but it still comes to eight percent of new origination.
Speaker Change: Liquidity I think their pricing strong deals and we only really try to stay in the a plus credit markets. As you. All know we don't guide on credit so.
Speaker Change: I think we're seeing pressure there.
Speaker Change: Coffee I think that's what we're seeing in committee every week seems like.
Speaker Change: No question about it but now your new originations came on just broad underwriting about seven body.
Speaker Change: Yes.
Speaker Change: It's still close to 8% on new originations.
Unknown Executive: So for the quarter, the real quarter, the quarter comparison had more to do with the life feed or curled than it did.
Speaker Change: So for the quarter, the real quarter to quarter comparison, it had more to do with the with the late fee accrual than it did actual loan yet.
Unknown Executive: Excellent. Okay, that makes sense.
Unknown Executive: And then, would you say there's still enough. Fixed rate repricing opportunity. And then, I mean, if your new ones are still coming on. You know, seven, 90, even if that comes down a little bit, I mean, the portfolio that, you know, 586.
Okay that makes sense and then would you say theres still enough.
Speaker Change: Fixed rate repricing opportunity and then I mean, if your new loans are still coming on.
Speaker Change: 790, even if that comes down a little bit I mean, the portfolio is it.
Unknown Executive: So it's still fair to assume that the overall portfolio still continues to move higher over the next couple of orders. Yeah, we've got roughly 250 million rest of the year in fixed rate. And those are going to be in the lower sixes. So we'll get some, some ball there on the only existing book as well.
Speaker Change: <unk> hundred 86 so.
Speaker Change: It's still fair to assume that.
Speaker Change: They're all portfolio still continue to move higher over the next couple of quarters.
Speaker Change: Yes, we've got roughly 250 million rest of the year and fixed rate and those are going to be in the lower <unk>. So we'll get some some bonds there on the on the existing book as well.
Speaker Change: Okay great.
Unknown Executive: And then, just back to the deposit gross commentary that you made, D.D. I know that public funds fluctuate. It feels like we're hearing from other banks. There's going to be more of an effort to push higher-cost public funds out of the bank. But I'm interested to pay for business for y'all.
Speaker Change: And then just back to the deposit growth commentary that you made BD.
Speaker Change: No the public funds fluctuate.
It feels like for <unk>.
Speaker Change: Hearing from other banks, there's kind of more of an effort to push higher cost public fund out of the bank, but Andrew the tanker business for you. All is there any way to size the amount of decline you expect this year either.
Unknown Executive: Is there really a way to size the amount of decline you expect this year out of public funds?
Unknown Executive: And then if we model next year, do you think the peak will be at high, or are there less reliance on that deposit date? It is easy overall when you kind of look back. We continue that think continues to increase every year. Really, COVID was a big increase, and then at post that on public funds. But I think we usually run to the 300 million dollar increase. And so I may decrease over the course of the year.
Speaker Change: Public funds.
Andrew: And then the U S and then as we model next year do you think the peak will be at high or is there less reliance on that deposit types.
Speaker Change: Save the overall when you kind of look back that we continue that pace continues to increase every year. It really COVID-19 wasn't making inquiries and then at how does that all public bonds.
Andrew: I think we usually.
Andrew: Brian.
Brian: Inquiries and decrease over the course of the year.
Unknown Executive: So I can't remember exactly at the top of my hand what First Quarter was. But with this 38 million, I mean, I think we still have. I mean, we still could have 100 plus million the rest of the year decrease. Right. But it's been a good source for the course, and it's still, I think, last report was just under like 272. Right overall cost of all the costs of public fund deposits was 270. 270 is a change. So we're not trying. We're not legally trying to run it all. We're not out there at rest. We've been new.
Speaker Change: So I can't remember exactly on top of my head first quarter was but with this 38 million I mean, I think we still have.
I mean, we still could have a 100 plus million the rest of the year decrease Brian.
Speaker Change: But it's been a good source other quarter, it's Phil.
Speaker Change: Last report was just under 272 right. Our overall cost of all of the cost of public fund deposits was $272 70, and some change so we're not we're.
Brian: We're not particularly trying to run it off.
Unknown Executive: No. Right.
Speaker Change: Risks remain.
Unknown Executive: So what do you see in the world of seasonality and not a replacement to do money? Yeah.
Speaker Change: Good morning.
Speaker Change: <unk>.
Speaker Change: So what you see.
Analogy not a replacement.
Unknown Executive: Great. Okay.
Speaker Change: Good morning.
Unknown Executive: That makes sense.
Speaker Change: Great Okay that makes sense.
Unknown Executive: Okay.
Unknown Executive: Great.
Catherine Mealor: And then anyone more on just the outlook for fees. I'm sorry. I'm not I'm not fees.
Speaker Change: Okay, Great and then maybe one more on just the outlook for fees.
Catherine Mealor: She's the Outlook for expenses. I think Catherine looking at where we are. I think we're still pretty much in line. I've kind of given 176 million for the year. And so I think we were at 43 points. Four last quarter and 43.7. And you know, as we go through the year, they'll take up a little bit. I still think we're in line to be around that 176, 177 million for the year.
Speaker Change: I'm sorry, Matt fees is the outlook for expenses.
Speaker Change: I think Catherine looking at where we are I think we're still pretty much in line with kind of given.
Speaker Change: $76 million for the year and so.
Catherine Fitzhugh Summerson Mealor: I think we were at $43 four last quarter and $43 seven and as we go through the year that will tick up a little bit, but I still think we're in line to be around that 170 $677 million for the year.
Unknown Executive: Okay. Perfect. Yeah.
Unknown Executive: That's usually very steady for you.
Speaker Change: Okay perfect yet.
Unknown Executive: All right. Great. Thank you. Great quarter.
Speaker Change: It's usually very steady for Ya alright, great. Thank you great quarter.
Unknown Executive: Thank you.
Christopher Marinac: The next question. Our next question will be coming from Christopher Marinette of Jenny Montgomery Scott, LLC. Your lines open.
Catherine.
Donna T. Lowery: Some of that declined, Catherine, I'll let JJ add to the loan yield piece, but some of that was driven by some late fees and a decrease in some fees, so I don't expect, I really don't expect that to continue. That was a little bit of a, kind of a one-time deal during the quarter, so, but JJ can address the actual loan yield piece; mine was more on the fees.
Speaker Change: Our next question.
JJ Fletcher: Yes, and Catherine Hoppe and I were talking about that this morning. If you looked at our notes from the first quarter, we kind of referred to that. We were seeing pressure, and most of the markets were going into the sevens; we've been in the eights pretty consistently for several quarters. So I think really it's competition. Maybe the potential rate cuts are driving some banks to start pricing in early to get good competitive deals.
Speaker Change: Our next question will be coming from Christopher <unk> of Janney Montgomery Scott LLC. Your line is open.
JJ Fletcher: And of course, you know, there's a lot of banks that are sort of on the sidelines right now, but the ones that do have liquidity, I think they're pricing in strong deals. And we only really try to stay in the A-plus credit markets. As you all know, we don't cut on credit. So I just think we're seeing pressure there. Hoppe, I think that's what we're seeing.
Christopher Marinac: Hey, thanks. Good morning. Just want to drill down on expenses a little further.
Christopher: Hey, Thanks, Good morning, just wanted to drill down on expenses a little further what's your thought on this expense rate as a guide going into the next couple of quarters and just maybe any kind of inflationary expense, we should expect next year.
Unknown Executive: What's your thought on this expense rate as a guy going into the next couple of quarters and just maybe any kind of inflationary expense. We should expect next year. I think, you know, just kind of is talking a little bit about that. I think we were kind of showing 176, 177 for the year. So I think we'll be in the 44 and some change on operating expenses the next two quarters. Because, you know, in a typically the fourth quarter, our area being true. So I think we'll be 44 and some change of third quarter and fourth quarter as well.
Hoppy Aldeo: No, there's no question about that. But now your new originations came on just right under eight, about 790. Yeah, still close to 80% on new originations. So for the quarter, the real quarter-to-quarter comparison had more to do with the Lightsey accrual than it did with the actual loan here.
Speaker Change: Okay.
Speaker Change: Just kind of talk a little bit about that I think we were kind of showing 171, 7% for the year. So I think we'll be in the 44 anthem.
Speaker Change: And some change.
Operating expenses in the next two quarters because.
Speaker Change: Typically the fourth quarter, our here in banks.
Speaker Change: I think we will be 44 and some change.
Speaker Change: Third quarter and fourth quarter as well.
Unknown Executive: And then I think you know, we usually budget an increase of three or four percent. So I think that's what we're looking at for next year.
Speaker Change: And then I think we usually budget an increase of.
Speaker Change: 3% to 4%, so I think that.
Speaker Change: We're looking at for next year.
Unknown Executive: Great. That's helpful. And hobby.
Unknown Executive: Okay, that makes sense. And then, would you say there's still enough? fixed rate repricing opportunity. And then, I mean, if your new loans are still coming on 790, even if that comes down a little bit, the portfolio is at, you know, 586. So it's still fair to assume that the overall portfolio still continues to move higher over the next couple of quarters. Yeah, we've got
Speaker Change: Great that's helpful and hobby I just wanted to follow back up on the deposit cost conversation from earlier do you or did you see any deposit campaigns by other mid sized or bigger banks that happened maybe in June that would've happened below the surface and didn't necessarily impact you, but we're out there just.
Christopher Marinac: Just want to follow back up on the deposit cost conversation from earlier.
Unknown Executive: Do you or did you see any deposit campaigns by other, you know, midsize or bigger banks that happen maybe in June that would have happened below the surface and didn't necessarily impact you, but were out there just for the team to kind of, you know, have to work with. Not as much pressure out there, Chris. That's our husband. We didn't see as many of those campaigns. It was more common one-off match and then the actual campaign.
Speaker Change: For the team too.
Speaker Change: We have to work with.
Speaker Change: No not as much pressure out there Chris.
Speaker Change: See as many of those campaigns it was more kind of a one off margin.
Speaker Change: Actual campaign.
Unknown Executive: Okay.
Unknown Executive: And I guess the same would be true for credit unions, where they impact you in various markets. Yeah, we just think much out of credit unions.
Speaker Change: Okay, and I guess, the same would be true for credit unions, where they impact you in various markets.
Unknown Executive: Yeah, we've got roughly 250 million for the rest of the year at fixed rate, and those are going to be in the lower sixes, so we'll get some ball there on the existing book as well.
Speaker Change: Yes.
Speaker Change: <unk> seen much out of the credit unions.
Unknown Executive: Great.
Unknown Executive: Thank you very much for all the background this morning. Thanks, Chris.
Speaker Change: Great. Thank you very much for all the background. This morning.
Chris: Thanks, Chris.
Matt Olney: And one moment for next question. And our next question will come from Matt Olney. Stephen, here line is open.
Speaker Change: And one moment our next question.
Catherine Fitzhugh Summerson Mealor: And then just back to the deposit growth commentary that you made, DeeDee. I know public funds fluctuate. It feels like that.
Donna T. Lowery: We're hearing from other banks, there's kind of more of an effort to push higher-cost public funds out of the bank, but it's a bigger business for y'all. Is there any way to size the amount of decline you expect this year out of public funds? And then as we model next year, do you think the peak will be as high, or they're less reliant on that deposit?
Donna T. Lowery: It seems the overall, when you kind of look back, that peak continues to increase every year. Really, COVID was a big increase and then posted that on public funds, but I think we usually brought in about the $300 million increase, and I mean decrease, over the course of the year. So I can't remember exactly off the top of my head what the first quarter was, but with this $38 million, I mean, I think we still have... I mean, we could still have 100 plus million the rest of the year.
Speaker Change: And our next question will come from Matt Olney of Stephens. Your line is open.
Donna T. Lowery: But it's been a good source of funding for us, and it's still, I think, the last report was just under, like, $272,000. Right. Our overall cost of public fund deposits was $272,000 and some change.
Speaker Change: Hey.
Speaker Change: Yes.
Matthew Covington Olney: I realize you got to go around Hawaii.
Donna T. Lowery: So we're not trying, we're not particularly trying to run it off. But we're not out there aggressively bidding on new money, either. Right. So what you see is more of a seasonality in it, not a replacement of new.
Matt Olney: Lucky me, I guess.
Unknown Executive: Money. Yeah. Great. Okay. Okay, great. And then maybe one more on just Outlook for fees. I'm sorry, I'm not fees. She's Outlook for Expenses.
Matthew Covington Olney: Lucky Lucky me I guess.
Donna T. Lowery: I think Catherine looking at where we are, I think we're still pretty much in line. I've kind of given 176 million for the year, and so I think we were at 43.4 last quarter and 43.7, and you know, as we go through the year, that'll tick up a little bit, but I still think we're in line to be around that 176 177 million.
George Noonan: I want to follow up with George. I think George mentions, and the interesting about the baller capacity to pay down some substandard loans in some cases. Any more color on kind of those examples? Are these just guarantors adding additional equity to the project, or any more color on that top could be, would be interesting? You know, it's sort of a variety, Matt, but I would say in several specific instances, actually, the assets were sold. And so there was an outside buyer that had negotiated a deal, and it was sufficient enough. The loans were seasoned enough that the principal balances had been reduced.
Matthew Covington Olney: I wanted to follow up with George I think George mentioned something interesting about the borrower capacity the pay down sub standard loans in some cases any more color on kind of those examples are these just guarantors, adding additional equity to the project or any more color on that topic would be it would be in.
Unknown Executive: Okay, perfect. Yeah, that's usually very steady for y'all.
Speaker Change: Resting.
Speaker Change: Okay.
Speaker Change: It's sort of a variety Matt but.
Speaker Change: I would say.
Speaker Change: And in several specific instances.
Speaker Change: Actually the assets were sold.
Speaker Change: And so there was an outside buyer so.
Speaker Change: Had negotiated a deal and it was sufficient enough the loans were seasoned enough that the principal balances had been reduced.
George Noonan: So I would say probably of this past quarter, that was a predominant exit, if you will, or just asset sales, even though we had already marked down the risk rate a little bit. So that was, that was the main driver of this past quarter.
Speaker Change: So I would say probably of this past quarter that was the predominant.
Speaker Change: If you will or just asset sales, even though we get.
Speaker Change: Mark down the risk grade a little bit.
Speaker Change: So that was that was the main driver of this past quarter.
Unknown Executive: Okay.
Catherine Fitzhugh Summerson Mealor: All right. Great. Thank you. Great quarter. We're open for our next question.
Unknown Executive: All right. Thanks for that, George.
Speaker Change: Okay, alright, thanks for that George and then maybe just if I could sneak in one more.
Unknown Executive: And then maybe just, if I could think in one more, I'd be curious about the Banc's appetite for any kind of securities restructuring. I think you guys completed something maybe late last year or first part of this year, right to move down a little bit lower of last few weeks. Just curious about the Banc's appetite to sell some securities and reinvest that. Thanks. Yeah, we did actually get to fail accomplished at the last week of December, and then purchase those bonds in January of this year. So we are talking about it and looking at it and run the numbers.
Operator: Our next question will be coming from Christopher Marinac of Janney Montgomery Scott, LLC. Your line is open.
Christopher William Marinac: Hey, thanks. Good morning. I just want to drill down on expenses a little further. What's your thought on this expense rate as a guide going into the next couple of quarters and, maybe, any kind of inflationary expenses we should expect next year?
Speaker Change: I'd be curious about the bank's appetite for any kind of securities restructuring I think you guys completed something maybe late last year or first part of this year.
Speaker Change: Great to move down a little bit lower over the last few weeks just curious about the bank's appetite to sell some securities and reinvest that thanks.
Operator: in one moment for our next question. And our next question will come from Matt Olney of Stevens. Your line is open. I didn't realize you got to go around twice.
Donna T. Lowery: I think, you know, just kind of talking a little bit about that. I think, you know, we were kind of showing $176, $177 for the year. So I think we'll be in the $44 and some change on operating expenses for the next two quarters because, you know, and then typically the fourth quarter, all these year-end banks true up. So I think we'll be at $44 and some change in the third quarter and then fourth quarter as well. And then I think, you know, we usually budget for an increase of three or 4%. So I think that's what we're looking at for next year.
Matthew Covington Olney: Lucky, lucky me, I guess. I want to follow up with George. I think George mentioned something interesting about the borrower capacity to pay down substandard loans in some cases. Any more color on any of those examples? Are these just guarantors adding additional equity to the project? Or any more color on that topic would be interesting.
Hoppy Aldeo: Great, that's helpful. And Javi, just want to follow back up on the deposit cost conversation from earlier. Did you or did you see any deposit campaigns by other, you know, midsize or bigger banks that happened maybe in June that would have happened below the surface and didn't necessarily impact you but were out there just for the team to kind of, you know, have to work with? Not as
George Noonan: You know, it's sort of a variety, Matt, but I would say in several specific instances, actually, the assets were sold, and so there was an outside buyer that had negotiated a deal, and it was sufficient enough, the loans were seasoned enough that the principal balances had been reduced. So, I would say probably of this past quarter, that the predominant exit, if you will, were just asset sales, even though we had already marked down the risk rate a little bit. So, that was the main driver of this past quarter.
Hoppy Aldeo: Not as much pressure out there, Chris, as there has been. We didn't see as many of those campaigns. It was more of a one-off match than the actual campaign.
Speaker Change: Yes, we did actually.
Unknown Executive: Okay. All right. Thanks for that, George.
Unknown Executive: Okay, and I guess the same would be true for credit unions where they impact you in various markets. Yeah, we just did.
Unknown Executive: And then maybe just if I could stick in one more, I'd be curious about the bank's appetite for any kind of securities restructuring. I think you guys completed something maybe late last year or the first part of this year. Rates have moved down a little bit lower over the last few weeks. Just curious about the bank's appetite to sell some securities and reinvest that. Thanks. Yeah, we did.
Unknown Executive: Yeah, we just haven't seen much out of the credit union.
Speaker Change: If the sale accomplished at the last week of December and then purchase as bonds and in January of this year. So we are talking about it and looking at it wrong number. So I think if we can do something that.
Unknown Executive: Great. Thank you very much for all the help.
Unknown Executive: Yeah, we did actually get the sale accomplished in the last week of December and then purchased those bonds in January of this year, so we are talking about it and looking at it and running the numbers, so I think if we can do something that... kind of looks like that. As far as the loss on the ironback, we would consider doing it again. So probably something about the same size. We're not, you know, anything big, and just we're looking at running the numbers. If it makes sense, we'll obviously pull the trigger.
Unknown Executive: So I think if we can do something that kind of looks like that. As far as the loss on the armbit, we would consider doing it again. So probably something about the same size. We're not, you know, nothing big, and just we're looking at run the numbers that makes sense. Well, obviously we'll pull the trigger on it. Okay.
Speaker Change: It looks like that as far as the loss on the arm that we would consider doing it again so.
Speaker Change: Probably something about the same size, we're not nothing big and guess what.
Speaker Change: Can that run the numbers it makes sense, we'll obviously, we'll pull the trigger on it.
Unknown Executive: All right. Thanks, great quarter.
Unknown Executive: All right, thanks, a great quarter. I'm sure there are no further questions. I would now like to turn the call back to Hoppe for closing remarks. Well, thanks. Thanks, everyone.
Speaker Change: Okay.
Alright.
Speaker Change: Thanks, Great quarter Alright.
Alright.
Unknown Executive: I'm sure no further questions.
Speaker Change: Sure.
hobby: And I'm showing no further questions I would now like to turn the call back to hobby for closing remark.
Hoppy: I would now like to turn the call back to Hoppy for closing remarks. Well, thanks, thanks everyone. Appreciate your attendance this morning. Again, a good quarter. Very pleased with what performance during the quarter, and we'll circle back out of the next quarter. Thank you. Thanks.
Hoppy Aldeo: Well, thanks everyone. I appreciate your attendance this morning. Again, a good quarter, very pleased with the performance during the quarter, and we'll circle back out next quarter.
hobby: Well. Thanks. Thanks, everyone. Appreciate your attendance this morning again.
hobby: A good quarter very pleased with what <unk>.
hobby: <unk> during the quarter and we'll see.
hobby: Circle back up next quarter.
Speaker Change: Thank you thanks.
Unknown Executive: That concludes today's conference call. Thank you for participating. You may now disconnect. Thank you.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
hobby: Okay.
hobby: [music].
hobby: Okay.
hobby: Okay.
hobby: [music].
hobby: Yes.
hobby: [music].