Q3 2024ServisFirst Bancshares Inc Earnings Call

Unknown Executive: Greetings and welcome to the ServisFirst Bancshares third quarter earnings call. At this time, all participants are in a listen-only mode.

Unknown Executive: Greetings and welcome to the ServisFirst Bancshares third quarter earnings call. At this time, all participants are in a listen only A question-and-answer session will follow the formal presentation. If you require operator assistance during the conference, please press star zero on your telephone keypad.

Greetings and welcome to the surface first Bancshares third quarter earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If you require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder.

Unknown Executive: A question and answer session will follow the formal presentation. If you require operator systems during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Unknown Executive: As a reminder, this conference is being recorded.

Speaker Change: This conference is being recorded it is now my pleasure to introduce you to your host Davis meets director of Investor Relations. Thank you Davis you may begin.

Davis Mange: It is now my pleasure to introduce you to your host, Davis Mange, Director of Invest Relations.

Davis Mange: It is now my pleasure to introduce you to your host, Davis Mange, Director of Investor Relations.

Unknown Executive: Thank you, Davis. You may begin.

Unknown Executive: Thank you, Davis. You may begin.

Unknown Executive: Good afternoon and welcome to our third quarter earnings call. Today's speakers will cover some highlights from the quarter and then take the questions. We'll have Tom Broughton, or CEO, Henry Abbott, or Chief Credit Officer, and Ed Woody, or Controller.

Thomas Broughton: Good afternoon, and welcome to our third quarter earnings call. Today's speakers will cover some highlights from the quarter and then take a question. We'll have Tom Broughton, our CEO, Henry Abbott, our Chief Credit Officer, Kirk Pressley, our CFO, and Ed Woodie, our Controller.

Davis meets: Good afternoon, and welcome to our third quarter earnings call. Today's speakers will cover some highlights from the quarter and then take your questions.

Tom Broughton: Tom Broughton CEO.

Speaker Change: Abbott Chief Credit officer are expressly our CFO.

Speaker Change: Our control.

Unknown Executive: I'll now cover our forward-looking statements to disclosure. Some of the discussions in today's earnings call may include forward-looking statements. Actual results may differ from any projection share today due to factors described in our most recent 10-K and 10-Q file. Forward-looking statements speak only as of the date they are made, and ServisFirst assumes no duty to update.

Unknown Executive: I'll now cover our forward-looking statements and disclosures. Some of the discussions in today's earnings call may include forward-looking statements. Actual results may differ from any projections shared today due to factors described in our most recent 10-K and 10-Q filings. Board looking statements speak only as of the date they are made and ServisFirst assumes no duty to update.

Davis: I'll now cover our forward looking statements disclosure.

Davis: Some of the discussion in today's earnings call May include forward looking statements actual results may differ from any projections shared today due to factors described in our most recent 10-K and 10-Q filings.

Davis: Forward looking statements speak only as of the date. They are made and service first assumes no duty to update them.

Davis Mange: With that, I'll turn the call over to Tom.

Davis Mange: With that, I'll turn the call over to Thomas.

Speaker Change: I'll turn the call over to Tom.

Thomas Broughton: Thank you, Davis. Good afternoon, and thank you for joining our third quarter earnest call. We were very pleased with the quarter's metrics and we're pleased with Outlook for the future.

Thomas Broughton: Thank you, Davis.

Tom Broughton: Thank you guys. Good afternoon, and thank you for joining our third quarter earnings call we were.

Thomas Broughton: Good afternoon, and thank you for joining our third quarter earnings call. We were very pleased with the quarter's metrics, and we're pleased with outlook for the future. I'll start by talking about loans and sort of outlook there. Our pipeline is very strong, and we had great loan growth in the second quarter and not in the third quarter. We are here in the line waiting until after the election, more than I would have expected. Though our loan balance did not grow in the quarter, we had early payoffs on $126 million loans and an average rate of 4.89%.

Tom Broughton: Very pleased with the quarter's metrics and we're pleased with the outlook for the future and I'll start by talking about loans and sort of the outlook there.

Thomas Broughton: Start by talking about loans and sort of outlook there. Our pipeline is very strong. You know, we had great loan growth in the second quarter, not in the third quarter. We are here in the line waiting till after the election more than I would have expected. Though our loan balances did not grow in the quarter, we had early payoffs on $126 million of loans and an average rate of 4.89%, so that was good news. for the shareholders. In addition, we had repricing on $105 million of loans in the quarter of low rate fixed rate loans.

Tom Broughton: Our pipeline is very strong and.

Tom Broughton: We had great loan growth in the second quarter not in the third quarter. We argued in the line why do you until after the election and more than I would have expected.

Tom Broughton: Though our loan balances did not grow in the quarter, we had early fail $126 million loans at an average rate of four 9%. So that was good news.

Thomas Broughton: That was good news for the shareholders. In addition, we had repricing on $105 million of loans in the quarter. This will contribute to the approved margin going forward, as Kurt will discuss in more detail in a few minutes, and we'll explain our policy. He'll also explain our positive balance sheet outlook. Loan remains very robust in one segment, hospitality, but that's certainly a segment where we have limits on our exposure to the industry. We do typically see a very strong loan growth at year end, and I'm assuming we'll see rebound and closings in the fourth quarter.

Tom Broughton: For the shareholders.

Tom Broughton: In addition, we had re pricing on $105 million of loans in the quarter of low rate fixed rate loans.

Thomas Broughton: This will contribute to the improved margin going forward, as Kirk will discuss in more detail in a few minutes.

Tom Broughton: This will contribute to improved margins going forward as Kirk will discuss in more detail in a few minutes.

Thomas Broughton: and we'll explain our He'll also explain our positive balance sheet out. Loan demand is very robust in one segment, hospitality, but that's certainly a segment where we have limits on our exposure to the industry. We do typically see very strong long growth at year end and I'm assuming we'll see rebounding closings in the fourth quarter. The election delay is typical, but after a strong second quarter, I thought that we would not see that issue this year, but we did. It could also be at some customers waiting to see if we have more fed rate cuts come after the one that was in the very end of the third quarter.

Tom Broughton: And we will explain our.

Tom Broughton: Possibly it will also explain our forces balance sheet outlook.

Tom Broughton: One demand very robustly in one segment hospitality, but that's certainly a segment, where we have limits on our exposure to the industry.

Tom Broughton: We do typically see very strong loan growth at year end and I'm assume minimal see rebound in closings in the fourth quarter.

Thomas Broughton: The election delay is typical, but after a strong second quarter, I thought that we would not see that issue this year, but we did. We could also be at some customers waiting to see if we have more fair rate cuts come after the one end that was in the very end of the third quarter. We got nothing if you all know until the very end of the third quarter. I also think some borrowers want to see more certainty on rate cuts. If some projects do not cancel out at current rates in many cases and demand for new product on many segments of commercial real estate is suppressed just due to over building in the last couple of years and some segments.

Tom Broughton: The election delay is typical but after a strong second quarter I felt that we would not see that issue this year, but we did.

Tom Broughton: It could also be at some customers waiting to see when we have more fed rate cuts come after the one it was at the very end of the third quarter, We got nothing as you all know.

Thomas Broughton: We got nothing as you all know, until the very end of the third quarter. I also think some borrowers won't receive more certainty on rate cuts. Some projects do not pencil out at current rates in many cases. And demand for new product on many segments of commercial real estate is suppressed. just due to over building in the last couple of years in some sight. From the deposit side, we did have one larger municipal outflow, one municipal account outflow in the third quarter. We expected to return in the fourth quarter. We are trying to be disciplined on loan pricing.

Tom Broughton: Until the very end of third quarter.

Also think some borrowers will save more certainty on rate cuts as such.

Tom Broughton: Projects do not pencil out at current rates in many cases and.

And demand for new product many segments of commercial real estate is suppressed.

Tom Broughton: Just due to overbuilding in the last couple of years in some segments.

Thomas Broughton: From the positive side, we did have one larger municipal outflow, one municipal count outflow in the third quarter. We expected to return in the fourth quarter. We are trying to be just in a loan pricing, and we do have great options with the way, as you know, no broker deposits or federal home loan bank advances on our balance sheet. We do continue to see more pricing; this one from our major competitors, but that's a very good thing. Henry will discuss loan losses, continue to be quite benign, and we still do not have not seen any normalization as they refer to these days.

Speaker Change: From a deposit side, we did have one larger municipal outflow.

Speaker Change: One municipal accounts outflow in the third quarter, we expect it to return in the fourth quarter, we are trying to be disciplined on loan pricing.

Thomas Broughton: And we do have great options when we have, as you know, no broker deposits or federal home loan money advances on our balance sheet. We do continue to see more price in this one from our major competitors. So that's a very good As Henry will discuss, loan losses continue to be quite benign. And we still have not seen any normalization as referred to these days. The bottom line is the economy continues to be quite good. Having said that, we have said for a long while that we need to see higher margins, because we expect higher loan losses at some point in the future.

Speaker Change: We do have great options. When we have as you know no broker deposits or federal home loan advances on our balance sheet.

Speaker Change: We do continue to see more pricing discipline from our major competitor. So that is a very good thing.

Speaker Change: As Andrew will discuss loan losses continued to be quite benign.

And we still do not have not seen any normalization as you referred to these days.

Thomas Broughton: The bottom line is the economy continues to be quite good. Having said that, we have said for a long while that we need to see higher margins because we expect higher loan losses at some point in the future. Loan losses are often lumpy, and we can see large increases in a quarter. Nothing expected today, but it's always best to expect the unexpected. The rate cuts will help some of our developers have been pinched by the rate increases. A good example is one of our larger relationships as a workforce housing real estate developer; the experienced tight cash loads in the last year, as their interest rate has just have expired.

Speaker Change: The bottom line as the economy continued to be quite good.

Speaker Change: Having said that we have said for a long while that will need to see higher margins, because we expect higher loan losses at some point in the future.

Thomas Broughton: Loan losses are often lumpy, and we could see large increases in a quarter. Nothing expected today, but it's always best to expect the unexpected. The rate cuts will help some of our developers who have been pinched by the rate increase. A good example is one of our larger relationships as a workforce housing real estate developer that experienced tight cash flows in the last year as their interest rate hedges have expired. Due to Hurricane Helene, their payments were delayed past month-end, past quarter-end, and as an abundance of caution, we've downgraded all their nine projects to special mention.

Speaker Change: Loan losses are often lumpy and we could see large increases in a quarter.

Speaker Change: Nothing unexpected today, but it's always best to expect the unexpected.

Speaker Change: The rate cuts will help some of our developers have been enhanced by the rate increases.

A good example is one of our larger relationships as a workforce housing real estate developer that experienced tight cash flows over the last year as their interest rate hedges have expired.

Thomas Broughton: Due to Hurricane Elaine, their payments were delayed past month end, past quarter end, and, as a bunch of caution, we've been ready to all their nine projects, a special mission. One of those projects was played all past the quarter end of the $10 million loan. They have one project that has permitting delays or require them to do a capital call with their investments. The customer does have a very solid balance sheet, net worth, and even a spouse personally guarantee the debt. So this is an example of how rate cuts will help some customers whose cash flow is impacted by higher rates.

Speaker Change: Due to Hurricane lane their assignments were delayed past month and last quarter and an abundance of caution we bound ready at all of their nine projects special mentioned.

Thomas Broughton: One of those projects was paid off after quarter end of a $10 million loan. They have one project that has Permitting delays will require them to do a capital call with their investors. The customer does have a very solid balance sheet and net worth. He and his spouse personally guarantee the debt. So this is an example of how rate cuts will help some customers whose cash flow is impacted by higher rates. I'm surprised not seeing more of this in our customer base, but many customers have been able to pass on an interest rate increase. to their customers in the form of higher prices, including the form of higher rents on apartment complexes.

Speaker Change: One of those projects was paid off after quarter end up $10 million loan. They have one project that has.

Speaker Change: Remaining delays will require them to do a capital call with investors the customer does have a very solid balance sheet net worth.

Speaker Change: Espoused personally guarantee the debt.

Speaker Change: So this is an example of how rate cuts will help some customers, whose cash flow was impacted by higher rates.

Thomas Broughton: I'm surprised not seeing more of this in our customer base, but many customers have been able to pass on interest rate increases through their customers in the form of higher prices, including the form of higher rents, own apartment complexes, and other properties, warehouses. In any event, we are pleased with where we are from a credit quality standpoint. We expect loan demand rebound in the fourth quarter, and so some extend at least and pleased with our pipeline in the future. So from a standpoint of where we are with our teams, we did add forward new bankers in the quarter.

Speaker Change: I'm surprised you're not seeing more of this in our customer base, but many customers have been able to pass on interest rate increases through the customers in the form of higher prices, including in the form of higher rents.

Speaker Change: Apartment complexes.

Thomas Broughton: and other properties, warehouses. So in any event, we are pleased with where we are from credit quality standpoint. We expect loan demand rebound in the fourth quarter, to some extent at least. pleased with our pipeline in the future.

Speaker Change: And other properties warehouses.

Speaker Change: In any event, we are pleased with where we are from credit quality standpoint.

Speaker Change: We expect loan demand rebounded in the fourth quarter to some extent at least in.

Speaker Change: Pleased with the with our pipeline in the future so.

Thomas Broughton: So from a standpoint of where we are with our, our teams, we have, we did add four new bankers in the quarter, we have a total of 155 frontline bankers today, those are all commercial and private banks. We are very pleased with our new market.

Speaker Change: From a standpoint of where we are without our teams. We have we did add four new bankers in the.

Speaker Change: Quarter, we have a total of 155 frontline bankers today those are all commercial and private bankers.

Thomas Broughton: We have a total of 155 frontline bankers today. Those are all commercial and private bankers.

Thomas Broughton: We are very pleased with our new markets, Memphis and Auburn, and the newest markets, and they really need to want to have a permanent office yet, but they're both making great progress on that front.

Speaker Change: We are very pleased with IV market meant.

Thomas Broughton: Memphis and Auburn are the newest markets, and neither one of them have a permanent office yet, but they're both making great progress on that front.

Speaker Change: Memphis and Oliver in our newest markets and they are really neither one of them have a permanent office, yet, but they are both making great progress on that front. So I'll turn it over to Henry now talk in more detail about credit quality.

Henry Abbott: So I'll turn it over to Henry now to talk in more detail about credit quality.

Thomas Broughton: So I've started over to Henry now to talk in more detail about credit quality.

Henry Abbott: Thank you, Count. I'm pleased with our credit quality and have a loan portfolio formed in the third quarter. We sell minimal charge-offs and increased our HR-blow. Our annualized net charge-off to total average loans was only 9 basis points for the quarter, and that was down from 10 basis points in the second quarter, and a 40% reduction from the 15 basis points we experienced in the third quarter of 2023. We grew our loan loss reserve by $4 million for the quarter, and the loan loss reserve to total loans increased to 1.31%, which is the same percentage we had at the first quarter of the year, and the same time prior period in 2023.

Henry Abbott: Thank you, Tom. I'm pleased with our credit quality and how the loan portfolio performed in the third quarter. We sell minimal charge-offs and increased our ALLL. Our annualized net charge-off to total average loans was only nine basis points for the quarter, and that was down from 10 basis points in the second quarter and a 40 percent reduction from the 15 basis points we experienced in the third quarter of 2023. We grew our loan loss reserve by $4 million for the quarter, and the loan loss reserve to total loans increased to 1.31%, which is the same percentage we had at the first quarter of the year and same time prior period in 2023.

Henry: Thank you Tom I'm pleased with our credit quality and how the loan portfolio performed in the third quarter.

We saw minimal charge offs and increased our triple out.

Henry: Our annualized net charge offs to total average loans was only nine basis points for the quarter and that was down from 10 basis points in the second quarter and a 40% reduction from the 15 basis points, we experienced in the third quarter of 2023.

Henry: We grew our loan loss reserve by $4 million for the quarter and the loan loss reserve to total loans increased to 131%, which is the same percentage we had at the first quarter of the year and same time prior period in 2023.

Henry Abbott: We did create a special Hurricane Selina Reserve $2.7 million. We continue to get our arms around the impact of Hurricane Selina and now Milton. Some of our clients operate businesses that are dependent on tourism. As the infrastructure in the affected areas is restored, our clients will be positioned to help repair and rebuild the impacted areas in both Florida and North Carolina. Our NPAs, the total assets, were only 25 basis points in the third quarter, and as always, we continually monitor all segments of the loan portfolio. I'm also pleased to say our ADNC as a percent of capital dropped 80%, which is the lowest that has been in more than three years.

Henry Abbott: We did create a special Hurricane Helena reserve of $2.7 million. We continue to get our arms around the impact of Hurricane Helena and now Milton. Some of our clients operate businesses that are dependent on tourism. As infrastructure in the affected areas is restored, our clients will be positioned to help repair and rebuild the impacted areas in both Florida and North Carolina. Our NPAs, the total assets, were only 25 basis points in the third quarter, and as always, we continually monitor all segments of the loan portfolio. I'm also pleased to say our AD&C as a percent of capital dropped 80%, which is the lowest that has been in more than three years.

Henry: We did create a special hurricane Selena reserve to $7 million.

Henry: We continue to get our arms around the impact of Hurricanes Helena and now Milton.

Henry: Some of our clients operate businesses that are dependent on tourism as the.

Henry: Infrastructure in the affected areas is restored our clients will be positioned to help repair and rebuild the impacted areas in both Florida and North Carolina.

Henry: Our NPA to total assets were only 25 basis points in the third quarter and as always we continually monitor all segments of the loan portfolio.

Henry: I'm also pleased to say our AT&T as a percent of capital dropped 80%, which is the lowest that has been in more than three years.

Henry Abbott: As Tom mentioned, the Federal Reserve 50 basis point decrease was a welcome sign into our customers and various projects with decreased debt service. I'm pleased with the results of the third quarter and our positive momentum as we continue to build in new markets and continue to grow out core markets.

Henry Abbott: As Tom mentioned, the Federal Reserve's 50 basis point decrease was a welcome sign to our customers, and various projects would decrease debt savings. I'm pleased with the results of the third quarter and our positive momentum as we continue to build in new markets and continue to grow out core markets.

Speaker Change: As Tom mentioned, the Federal Reserve 50 basis point decrease was a welcome sign to our customers and various projects with decreased debt service.

Speaker Change: I am pleased with the results of the third quarter and a positive momentum as we continue to build in new markets and continue to grow our core markets with that I'll hand, it over to Kirk.

Henry Abbott: With that, I'll end it over at Kirk.

Kirk Pressley: With that, I'll hand it over to Kirk.

Kirk Pressley: Thank you, Henry.

Kirk Pressley: Thank you, Henry.

Kirk: Thank you Henrik and good afternoon.

Kirk Pressley: Good afternoon. We are very pleased with the progress the bank has made so far this year. We continue to make great progress on the margin. As usual, I'm going to focus my comments today on linked quarter, because the trends are very meaningful, and it will highlight our momentum. Net income is up approximately 15% from the second quarter. Diluted EPS, about the same. Margin is up an impressive 9%. We did benefit from the timing of some tax credit investments and positive return to accrual adjustments that reduced the tax rate for the quarter by a few percent.

Kirk Pressley: Good afternoon. We are very pleased with the progress the bank has made so far this year. We continue to make great progress on the margin. As usual, I'm going to focus my comments today on linked quarter because the trends are very meaningful and it will highlight our momentum. Net income is up approximately 15% from the second quarter. Deluted EPS about the same. Margin is up an impressive 9%. We did benefit from the timing of some tax credit investments and positive return to accrual adjustments to reduce the tax rate for the quarter by a few percent.

Kirk: We are very pleased with the progress the bank has made so far this year, we continue to make great progress on the margin as usual I'm going to focus my comments today on linked quarter because the trends are very meaningful and then we'll highlight our momentum net income is up approximately 15% from the second quarter diluted EPS.

Kirk: At the same margin is up an impressive 9%.

Kirk: We did benefit from the timing of some tax credit investments and positive return to accrual adjustments that reduced the tax rate for this quarter by a few percent.

Kirk Pressley: Even excluding these tax benefits, we had great growth in net income and EPS. That growth was led by the net interest margin. Margin increased to 115 million dollars in the third quarter versus 106 million in the second quarter. The margin is increasing from the continued repricing of our fixed rate loans and securities and from the strong loan growth during the second quarter, along with doing a good job at managing the cost of liabilities. The yield on interest earning assets increased by 11 basis points, while the rate paid on interest bearing liabilities only increased by three basis points.

Kirk Pressley: Even excluding these tax benefits, we had great growth in net income and EPS. That growth was led by the net interest margin. Margin increased to $115 million in the third quarter versus $106 million in the second quarter. The margin is increasing from the continued repricing of our fixed rate loans and securities and from the strong loan growth during the second quarter, along with doing a good job at managing the cost of liability. The yield on interest-earning assets increased by 11 basis points, while the rate paid on interest-bearing liabilities only increased by 3 basis points. The net interest margin percentage increased by five basis points over the prior quarter while holding, on average, about $600 million more in cash, which negatively impacts the NIM percentage calculation.

Kirk: Even excluding these tax benefits, we had great growth in net income and EPS.

Kirk: That growth was led by the net interest margin margin increased to $115 million in the third quarter versus $106 million in the second quarter the.

Kirk: The margin is increasing from the continued re pricing of our fixed rate loans and securities and from the strong loan growth during the second quarter, along with doing a good job at managing the cost of liabilities the.

Kirk: The yield on interest, earning assets increased by 11 basis points, while the rate paid on interest bearing liabilities only increased by three basis points.

Kirk Pressley: The net interest margin percentage increased by five basis points over the prior quarter, while holding on average about 600 million more in cash, which negatively impacts the nip percentage calculation. As we have noted in the past, we are slightly liability sensitive. We realize much of the benefit of a rate decrease in the first few months. We benefit from the rate decline in general, but even more early on as about 45% of the variable rate loans reprice over a 30-day period. The Fed rate change in September had a modest positive impact on the quarter. We'll continue to benefit from the rate drop, but that benefit will decline over time as assets reprice at the current lower rates.

Kirk: The net interest margin percentage increased by five basis points over the prior quarter, while holding on average about $600 million more in cash, which negatively impacts the NIM percentage calculation as.

Kirk Pressley: As we have noted in the past, we are slightly liability. We realize much of the benefit of a rate decrease in the first few months. We benefit from the rate decline in general, but even more early on as about 45% of the variable rate loans reprice over a 30-day period. The Fed rate change in September had a modest positive impact on the quarter. will continue to benefit from the rate drop but that benefit will decline over time as assets reprice at the current lower rate. As you know, liability sensitive means that liabilities move faster, but the asset repricing will eventually catch up.

Kirk: As we have noted in the past we are slightly liability sensitive we realize much of the benefit of a rate decrease in the first few months, we benefit from the rate decline in general, but even more early on is about 45% of the variable rate loans re price over a 30 day period the.

Kirk: The fed rate change in September had a modest positive impact on the quarter.

Kirk: We will continue to benefit from the rate drop but that benefit will decline over time as assets re price at the current lower rates as you know liability sensitive means that liabilities move faster, but the asset repricing will eventually catch up.

Kirk Pressley: As you know, liability sensitive means that liabilities move faster, but the asset repricing will eventually catch up. We try and structure the balance sheet to be neutral. We aren't making rate bets. Our strong margin tailwind from the repricing of fixed rate loans and securities will continue over the next few years, within the current projected rate. Obviously, the lower the rates, the less the benefit from the repricing, and as time goes on, more of the repriced assets will be from more recent higher-rate instruments. Of course, our cost of funds will be dropping too. In other words, we continue to be happy with the tailwind, and we think we have a few years left of that benefit.

Kirk Pressley: We try and structure the balance sheet to be neutral. We aren't making rate bets. Our strong margin tailwind from the repricing of fixed rate loans and securities will continue over the next few years within the current projected rate. Obviously, the lower the rates, the less the benefit from the repricing. And as time goes on, more of the repriced assets will be from more recent higher rate Of course, our cost of funds will be dropping too. In other words, we continue to be happy with the tailwind, and we think we have a few years left of that benefit.

Kirk: We try and structure of the balance sheet to be neutral, we arent, making rate bets are strong margin tailwind from the repricing of fixed rate loans and securities will continue over the next few years within the current projected rates.

Kirk: Obviously, the lower the rates the less the benefit from the repricing and as time goes on more of the repriced assets will be from more recent higher rate instruments of course, our cost of funds will be dropping to in other words, we continue to be happy with the tailwind and we think we have a few years left of that benefit.

Kirk Pressley: Before we get to the other parts of the income statement, I'd like to take a second to discuss the AK that we filed today about my resignation. I'm resigning from the bank for personal reasons. I would like to say that this is an amazing bank, which has been proven over many years in many different operating environments. The bank has great employees, and it is positioned for a great future. Tom Rodney and Henry are consistent and proven leaders who have built this amazing bank into what it is today.

Kirk Pressley: Before we get to the other parts of the income statement, I'd like to take a second to discuss the AK that we filed today about my resignation. I'm resigning from the bank for personal reasons. I would like to say that this is an amazing bank, which has been proven over many years in many different operating environments. The bank has great employees and it is positioned for a great future. Tom, Rodney, and Henry are consistent and proven leaders who have built this amazing bank into what it is today.

Speaker Change: Before we get to the other parts of the income statement I'd like to take a second to discuss the 8-K that we filed today about my resignation.

Speaker Change: Presenting from the bank for personal reasons I would like to say that this is an amazing bank, which has been proven over many years and many different operating environments. The bank has great employees and it is positioned for a great future, Tom Rodney and Henry our consistent and proven leaders who have built this amazing bank into what it is today and Woody.

Kirk Pressley: Ed Woodie, who has been the longtime controller of the bank, has been named as the interim CFO. Ed is an incredibly talented individual and will do a fantastic job.

Kirk Pressley: Ed Woody, who has been the long time controller of the bank, has been named as the interim CFO. Ed is an incredibly talented individual and will do a fantastic job.

Speaker Change: <unk>, who has been a longtime controller of the bank has been named as the interim CFO and as an incredibly talented individual and will do a fantastic job.

Ed Woody: I'd like to turn it over to Ed now to go through the rest of the income statement.

Ed Woodie: I'd like to turn it over to Ed now to go through the rest of the income statement.

Speaker Change: I'd like to turn it over to Ed now to go through the rest of the income statement.

Ed Woody: Thank you, Kirk.

Ed Woodie: Thank you, Kirk, and good afternoon, everyone. Non-interest income performed well again in the third quarter. Positive fees have increased each quarter this year. We experienced another quarter of higher mortgage fee income in the third quarter, and we expect the trend to continue through the fourth quarter indicated by strong lockdowns during the past few weeks. We see most of our originations in secondary market laws and in purchase money. Credit card net revenue decreased modestly in the quarter, but we expect it to return to more normal levels in the fourth quarter. On non-interest expenses, as usual, we controlled expenses and the efficiency ratio fell below 37%.

Ed: Thank you Kirk and good afternoon, everyone non.

Ed Woody: Good afternoon, everyone. Non-interesting kind of performed well again in the third quarter. The positives have increased each quarter this year. We experienced another quarter of higher mortgage fee income in the third quarter, and we expect the trend to continue through the fourth quarter, indicated by strong enough value during the past few weeks. We see most of our originations in secondary market laws and in purchase money loans. Credit card net revenue decreased modestly in the quarter, though we expected to return to more mobile weapons in the fourth quarter. Non-interest expenses, as usual, we controlled expenses, and the efficiency ratio fell below 37%.

Ed: Noninterest income performed well again in the third quarter.

Ed: Posit fees have increased each quarter this year.

Speaker Change: We experienced another quarter of higher mortgage fee income in the third quarter and we expect that trend to continue through the fourth quarter indicated by strong lockdown during the past few weeks.

Speaker Change: We see most of our originations in secondary market loans and a purchase money loans.

Card net revenue decreased modestly in the quarter, but we expect it to return to more normal levels in the.

Speaker Change: Fourth quarter.

Speaker Change: On noninterest expenses as usual, we controlled expenses and the efficiency ratio fell below 37%.

Ed Woody: As a reminder, during the second quarter call, we discussed implementing a new accounting treatment for qualifying tax credits. This resulted in some noise and non-interest expenses and income tax. We said our core run rate for expenses for the second quarter was 44.8 million. The third quarter was 1.8% above the core second quarter amount. A little more than we expected, but it did include some one-time EDP costs to exit contracts for services we no longer need. Also, salary and benefit expenses increased modestly due to our new Auburn, Alabama staff being in place for a full quarter.

Ed Woodie: As a reminder, during the second quarter call, we discussed implementing a new accounting treatment for qualifying tax credit. This resulted in some noise and non-interest expenses and income. We said our core run rate for expenses for the second quarter was $44.8 million. The third quarter was 1.8% above the core second quarter amount. A little more than we expected, but it did include some one-time EDP costs to exit contracts for services we no longer need. Also salary and benefit expenses increased modestly due to our new Auburn Alabama staff being in place for a full quarter. As Kirk just mentioned, we did realize some income tax benefits during the quarter.

Speaker Change: As a reminder, during the second quarter call, we discussed implementing a new accounting treatment for qualifying tax credits.

Speaker Change: This resulted in some noisy noninterest expenses and income tax.

Speaker Change: We said our core run rate for expenses for the second quarter was $44 8 million.

Speaker Change: Third quarter was one 8% above the corps second quarter now.

Speaker Change: Little more than we expected.

Speaker Change: It did include some onetime edp costs to exit contracts for services, we no longer need.

Speaker Change: Salary and benefit expenses increased modestly due to our new Auburn, Alabama staff being in place for a full quarter.

Ed Woody: As Kirk just mentioned, we did realize some income tax benefits during the quarter. Our second quarter rate was higher due to the implementation of the new accounting for tax credits. Our rate for the first half of 2024 was 19.7% compared to the rate in the third quarter of 17.2%. This rate differential was primarily due to positive adjustments related to filing our 2023 tax returns and adjustments related to some tax credit investments. We believe our tax rate for the fourth quarter will be around 19%.

Speaker Change: As Kirt just mentioned, we did realize some income tax benefits during the quarter and our second quarter rate.

Ed Woodie: Our second quarter rate... is hired due to the implementation of the new accounting for tax credit. Our rate for the first half of 2024 was 19.7% compared to the rate in the third quarter of 17.2%. This rate differential is primarily due to positive adjustments related to filing our 2023 tax returns and adjustments related to some tax credit investments. We believe our tax rate for the fourth quarter will be around 19%.

Speaker Change: Was higher due to the implementation of the new accounting tax correct.

Speaker Change: Our rate for the first half of 2024 was 19, 7% compared to the rate in the third quarter at 17, 2%.

Speaker Change: This rate differential was primarily due to positive adjustments related to filing our 2023 tax returns and adjustments related to some tax credit investments.

Speaker Change: We believe our tax rate for the fourth quarter will be around 19%.

Tom Broughton: And with that, I'll turn the call back over to Tom.

Thomas Broughton: And with that, I'll turn the call back over to Tom.

With that I'll turn the call back over to Tom.

Tom Broughton: Thank you, Ed.

Thomas Broughton: Thank you, Ed.

Tom: Thank you Ed.

Thomas Broughton: I want to comment on one thing. We have $45 million a quarter of core expenses. I was thinking back 19 years ago, we opened the bank with 19 employees. And if you told me 19 years later that we would have $45 million of expenses in a quarter, I would not have believed you. I knew the bank could grow, but I didn't know we would grow to the extent that it's hard me to think now that we could operate a bank with 19 employees with all it seems like we need now to operate.

Tom Broughton: I want to comment one thing. We have $45 million in the quarter of core expenses. I was thinking back 19 years ago, we opened the bank with 19 employees. And if you told me 19 years later that we would have $45 million with expenses in the quarter, I would not have believed. I need a bank to grow, but I didn't know we would grow to the extent that it's hard for me to think now that we could operate a bank with 19 employees with all it seems like we need now to operate.

Speaker Change: Hello.

Tom: Comment one thing.

Tom Broughton: We have $45 million a quarter of core expenses I was thinking back 19 years ago. We opened the bank with 19 employees and if you told me in 19 years later that we would have $45 million of expenses in the quarter I would not be believed needed the bank to grow but I didn't know we could grow the expense that.

Tom Broughton: You saw me to think now that we could operate a minus with 19 employees with all claims with what like we need now to operate so.

Thomas Broughton: So in any event, we're very pleased with a quarter. I do want to thank Kirk for his contributions. He joined us in June of last year. He came at sort of a critical time because we had some back office turnover. And he did a fantastic job of helping get all that fixed, get the back office, you know, in order. And he did a great job with that.

Tom Broughton: In any event, we're very pleased with the quarter. I do want to thank Kurt for his contribution. He joined us in June of last year. He came up sort of a critical time because we had some back office turnover. And he did a fantastic job of helping. and get all that fixed, get the back office in order and he did a great job with that and then of course when Bud Foshee retired he took over to CFO has done a fantastic job and has helped us professionalize the Bancs in many cases. His V from coming from a larger Banc has been very helpful to us and helping especially from standpoint of making sure we're ready for growth in the future.

Tom Broughton: In any event.

We're very pleased with the quarter I do want to thank Kurt for his.

<unk> joined US in June of last year. It came in sort of a critical time, because we have some back office turnover.

Tom Broughton: And he did a fantastic job of helping.

Tom Broughton: Get all of that fixed.

Tom Broughton: Get the back office in order and you did a great job with that and then of course when Budd.

Thomas Broughton: And then when, of course, when Bud Foshee retired, he took over as CFO and has done a Wish you well.

Tom Broughton: <unk> retired he took over as CFO is done them.

Tom Broughton: Hey, Thanks, good job and has helped us to professionalize the bias in many cases.

Tom Broughton: <unk> from coming from a larger bank.

Tom Broughton: Very helpful to us in helping especially from the standpoint of making sure we're ready for growth in the future. So.

Tom Broughton: So we want to fight Kirk. We appreciate the contributions and wish you well, and we've been ready to take any questions you have now. Thank you.

Tom Broughton: Kurt Kurt we appreciate your contributions and.

Tom Broughton: Wish you well.

Unknown Executive: We'll be ready to take any questions you have now. Thank you. You will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the line. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start. One moment, please, while we pull. Thank you.

Tom Broughton: We'd be ready to take any questions you have now thank you.

Speaker Change: Thank you we will now be conducting a question and answer session.

Unknown Executive: You'll now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation to indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you.

Speaker Change: I would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys one.

Speaker Change: Please while we poll for questions.

Speaker Change: Thank you. Our first question comes from the line of Steve Moss with Raymond James. Please proceed with your question.

Steve Moss: Our first question comes from the line of Steve Moss with Raymond James. Please proceed with your question.

Steve Moss: Our first question comes from the line of Steve Moss with Raymond James. Please proceed with your question. Good afternoon. I just want to go a little further on the loan pipeline here. You talked about the pipeline being very strong. Just kind of curious.

Steve Moss: Good afternoon. Hasty Hey, Tom, you just want to go a little further on the loan pipeline here. You know, you talked about the pipeline being very strong, just kind of curious, you know, do you think like for the fourth quarter, we'll probably see something similar to what we saw in the second quarter?

Steve Moss: Good afternoon.

Hi, Steve.

Steve Moss: Hey, Tom.

Just wanted to go a little further on loan loan the loan pipeline here.

Tom Broughton: You talked about the pipeline being very strong just kind of curious.

Thomas Broughton: Do you think like for the fourth quarter will probably see something similar to what we saw in the second quarter and just kind of like how you're thinking about maybe the early look into 2025? Steve, it's a real check in our question. If I told you, I thought it was going to be as good as a second quarter; that second quarter was outstanding, and that was probably more than I would hope for in the fourth quarter, though it's possible. You tend to get a lot of closings before companies buy and sell in the fourth quarter. Assets buy and sell.

Tom Broughton: Do you think like for the fourth quarter, we'll probably see something similar to what we saw in the second quarter and just kind of like how you're thinking about maybe the early look into 2025.

Thomas Broughton: And just kind of like how you're thinking about maybe the early look into 2025? You know, Steve, that's a real, you're asking a hard question. If I told you I thought it was going to be as good as the second quarter, that second quarter was outstanding. And that was probably more than I would hope for in the fourth quarter, though, it's possible. You tend to get a lot of closings. Companies buy and sell in the fourth quarter. Assets buy and sell. Like I said, we did see a lot of assets sell, I think, prior to the election in the third quarter.

Tom Broughton: Steve has real traction.

Speaker Change: Next question.

Speaker Change: If I told you I thought it was going to be as good as the second quarter, our second quarter was outstanding and that was up.

Speaker Change: Probably more than I would hope.

Speaker Change: Hope for in the fourth quarter, though as possible you tend to get a lot of closings paperwork.

Speaker Change: Companies buy and sell in the fourth quarter assets five sale.

Thomas Broughton: Like I said, we did sell a lot of assets sell prior to the election in the third quarter. We saw some people probably concerned about tax rates going up. We saw some companies and businesses. I think I just think the opportunity is always there in the fourth quarter because of the year end. We've always had a good fourth quarter. I expect to have at least a decent closing amount, and the pipeline is there. We're like everybody. We've got some playoffs coming to Steve. When people go on a permanent market and in a few cases we're trying to hold over some loans that could go to Fannie and Freddie, and we're trying to talk to them about staying with us for a bit longer on some of those projects.

Speaker Change: Like I said, we did see a lot of asset sale I think prior to the election.

Thomas Broughton: We saw some people probably concerned about tax rates going up and so some companies invested. So I think we're, you know, I just think the opportunity's always there in the fourth quarter because of the year end. We've always had a good fourth quarter, so I expect to have at least a decent, you know, closing amount, and the pipeline is there. So of course we got, you know, we're like everybody, we've got some payoffs coming too, Steve. And, you know, when people go into, you know, permanent market, and you know, in a few cases we're trying to hold on to some loans that are, you know, that could go to Fannie and Freddie, and we're trying to talk to them about staying with us for, you know, a bit longer on some of those projects.

Speaker Change: In the third quarter, we saw some people probably concerned about tax rates going up so some companies or businesses.

Speaker Change: So I think we are.

Speaker Change: I just think the opportunity is always there in the fourth quarter because of the year and we've always had a good fourth quarter. So I expect to have at least a decent.

Speaker Change: Closing amount and the pipeline is there so I just forgot one like everybody we've got some payoffs commentary Steve.

Speaker Change: When people go on a.

Speaker Change: Apartment market and in.

Speaker Change: In a few cases, we're trying to hold our own with some loans that are.

Speaker Change: Could go to Fannie and Freddie and we're trying to talk to them about staying with us for.

A bit longer on some of those projects. So I'm not giving you a very good answer on that Steve.

Steve Moss: So I'm not giving you a very good answer, I know, Steve.

Steve Moss: I'm not giving you a very good answer. I know Steve. That's okay, Tom. I get it.

Steve Moss: That's okay, Tom, I get it.

Steve Moss: Okay, that's okay, Tom I get it.

Thomas Broughton: And then just, you know, in terms of just loan pricing here, kind of curious as to what you guys are seeing for the rate on new loans. Obviously, we've had volatility in the five-year treasury here, so, you know, curious as to how you're thinking there. Well, it's consistent with where we've been in prior orders, I would think as close Right, it came down a little bit this quarter, but that's because the mix has changed a little bit. We've done probably a little more fix this quarter, I think, than... Yeah, sorry, just so but it's held up really well.

Thomas Broughton: And then just in terms of just loan pricing here, kind of curious as to what you guys are seeing for the rate on new loans. Obviously, we've had volatility in the five-year Treasury here, so curious as to how you're thinking there. Well, it's consistent with when we've been in product orders. I would think it's close to, you know, right at 8%. It came down a little bit this quarter, but that's because the mix has changed a little bit. We've done probably a little more fixed this quarter, I think. Yeah, sorry, just looking so, but it's held up really well.

Speaker Change: And then just in terms of just loan pricing here kind of curious as to what you guys are seeing for <unk>.

Steve Moss: The rate on new loans, obviously, we've had volatility in the five year Treasury here So no cure.

Steve Moss: How are you thinking there.

Tom Broughton: Well, it's consistent with where we've been.

Steve Moss: Barack orders I would think as close to them.

Tom Broughton: At 8% right.

Tom Broughton: Came down a little bit this quarter, but that's because the mix has changed a little bit.

Tom Broughton: Probably a little more fixed this quarter I think Ben.

Speaker Change: Yeah, sorry, just looking.

Speaker Change: But it's held up really well I don't I don't see a pricing issue going forward.

Thomas Broughton: I don't I don't see a pricing issue going forward. Obviously, I'm saying that we didn't have a whole lot of new loan volume this quarter, but the pricing has been holding up very well. And again, remember, we're happy that we got $126 million or so of loans pay off. That was a low fixed rate amount. So that's a that's a win for the shareholders there. Yeah, I mean, that's a great point. Obviously, we benefited in the third quarter from the great loan growth in the second quarter. But even more than that, was the repricing the maturities and the cash flows at a fixed rate.

Thomas Broughton: I don't, I don't see a pricing issue going forward. Obviously, I'm saying that we didn't have a whole lot of new volume this quarter, but the pricing's been holding up very well. Okay, we're happy that we got 126 million dollars or so of loans to pay off. That was a lot of things: right amount. So that's a that's a win for the shareholders there. Yeah, I mean, that's a great point. Obviously, we've benefited in the third quarter from the great loan growth in the second quarter, but even more than that was the repricing, the maturity in the cash flows of the fixed rate.

Speaker Change: Obviously, I'm, saying that we didn't have a whole lot of of new loan volume this quarter, but the pricing has been holding up very well.

Speaker Change: Okay.

Speaker Change: Happy that we got $126 million or so of loans pay off that was a low fixed rate in Miami. So that's one that's a win for the shareholders Bayer Yeah. I mean, that's a great point, obviously, we benefited in the third quarter from the great loan growth in the second quarter, but even more than that was the repricing the mature.

<unk> and the cash flows of the fixed rate I mean for us to go up $9 million in the quarter. We've got some we've got some really good stuff going on.

Thomas Broughton: I mean, for us to go up 9 million in the quarter, we've we've got some we've got some really good stuff going on. Right. Okay, definitely hear you on that.

Thomas Broughton: I mean, for us to get like nine million in the quarter, we've we've got some we've got some really good stuff going on. Right. Okay, definitely hear you on that.

Speaker Change: Right. Okay definitely hear you on that and then just in terms of.

Henry Abbott: And then just in terms of the, you know, Tommy mentioned a large borrower you placed on special mention, just kind of curious, you know, how large is that borrower and kind of like, what's the total criticized and classified loans for you guys? So the total relationship for that borrower is currently, as Tom mentioned, we had a $10 million payoff. After quarter-end, the relationship size for them is at $97 million, and it's all granular. It's divided up now into eight different projects. So the numbers on individual projects are much smaller, you know, $6 million, $10 million, large one being $20 million.

Henry Abbott: And then just in terms of the, you know, Tommy mentioned a lot large borrow your place on special mention. Just kind of curious, you know, how large is that borrower and kind of like what's the total criticize and classified loans for you guys? Yeah, so the total relationship for that borrower is currently, as Tom mentioned, we had a 10 million dollar pay off after quarter, and the relationship size for them is 97 million. And it's all granular. It's divided up now into eight different projects. So the numbers on individual projects are much smaller: you know, six million, 10 million, large one being 20 million.

Speaker Change: The.

Speaker Change: Tom You mentioned, a large borrower you placed on special mention just kind of curious how large is that borrower and kind of like what's the total criticized and classified.

Speaker Change: Loans for you guys.

Speaker Change: Okay.

Speaker Change: So the total relationship.

Speaker Change: That borrower is currently as Tom mentioned, we had a $10 million payoff.

Speaker Change: After quarter end that that relationship size for them is at $97 million.

Speaker Change: And it's all granularity divided up now into eight different projects. So the numbers on individual projects are much smaller at $6 million $10 million large $120 million yes.

Henry Abbott: Yeah, they're special mission, not... not so standard. That's correct. Right.

Henry Abbott: Yeah, there's a special mention, not some standard. That's correct. Right. And just kind of curious. And, you know, is there any beyond that one? Is there any significant change in your total special mention and sub standards? No, that was the biggest message. Okay. Great.

Speaker Change: <unk> mentioned not not not sub standards that's correct.

Henry Abbott: And just kind of curious on, you know, is there any beyond that one? Is there anything that could change your total special mention and substandard? No, that was the biggest mess.

Speaker Change: Right and just kind of curious.

Speaker Change: Is there any beyond that one is there any significant change to your total special mentioned and sub standards.

Speaker Change: No that was it.

Speaker Change: Vegas Vanessa.

Steve Moss: Okay, great. Well, I appreciate all the color and I'll step back in the queue.

Speaker Change: Okay, great well I appreciate all the color and I'll step back in the queue.

Steve Moss: Well, I appreciate all the color, and I'll step back in the queue. Thank you.

Unknown Executive: Thank you, Steve. Thank you.

Speaker Change: Thank you Steve.

Speaker Change: Thank you.

Stephen Scouten: Our next question comes from the line of Stephen Scouten with Piper Sandler. Please proceed with your question. Hey, thanks. Good afternoon, everyone. I guess just sticking to those special mention increase there, I assume at this time, you don't really expect any significant loss content there, given the movement in the reserve and, you know, keeping that kind of flat quarter record. Is that is that fair to say, based on on how you're thinking about and looking at this credit? Yeah, we, we, there's no, there's no reserve on any of those. They only have one project, as I mentioned, as I said, in my remarks earlier, they only have one project that is a problem.

Stephen Scouten: Our next question comes from the line of Steven Scouton with Piper Sandler. Please proceed with your question. Hey, thanks. Good afternoon, everyone. I guess just sticking to those that special mention increase there, I assume at this time you don't really expect any significant loss content there, given the movement in the reserve and, you know, keeping that kind of flat core of record. Is that fair to say based on how you're thinking about and looking at those credits? Yeah, we, there's no reserve on any of those.

Speaker Change: Our next question comes from the line of Stephen Scouten with Piper Sandler. Please proceed with your question.

Stephen Scouten: Hey, Thanks, good afternoon, everyone.

Speaker Change: Right.

Stephen Scouten: I guess just sticking to those.

Stephen Scouten: Special mentioned increase there I assume at this time, you don't really expect any significant loss content there given the movement in the reserve.

Stephen Scouten: Keeping that kind of flat quarter over quarter is that is that fair to say based on how youre thinking about and looking at those credits.

Yes.

Stephen Scouten: Theres no Theres no reserve on any of those they only have one project as I mentioned and as I said in my.

Henry Abbott: They only have one project, as I mentioned. As I said on my remarkable, they only have one project that is a problem, and it's a problem because they had construction delays for a year. with the city, it's a city in Alabama, North Alabama, an excellent city but they had problems with the city so they've gotten that straightened out and they'll get back relevant with that project and again this is, you know this is workforce housing rehab so, you know we like to asset class and we like to borrow or we think they're just, they just had some short term, you know because of the hurricane they had some payment delays and we felt we needed to downgrade it as abundance of caution.

Stephen Scouten: Our remark thorough they only have one project that is.

Stephen Scouten: Problem and his problem Mccall site.

Henry Abbott: And it's a problem because they, they had construction delays for a year. with the city, it's a city in Alabama, North Alabama, excellent city, but they had problems with the city. So that's, they've gotten that straightened out, they'll get back rolling with that project. And again, this is, you know, this is workforce housing rehab. So, you know, we like the asset class, we like the ballroom, we think they're just, they just had some short term, you know, because of the hurricane, they had payment delays and we felt we needed to downgrade it as abundance of cost.

Stephen Scouten: They had a construction delay for a year.

Stephen Scouten: The city.

Stephen Scouten: City in Alabama, and North, Alabama, excellent city, but they had problems with the safety so they've.

Stephen Scouten: <unk> gotten that straightened out and they'll get back relevant will that project again. This is this is workforce housing rehab. So we like the asset class and we liked the borrower we think theyre just they just add some short term.

Also the Hurricanes I have some.

Stephen Scouten: Payment delays when we felt we needed a downgrade is abundance of caution.

Stephen Scouten: Yeah, yeah, so I'm like a lot of conservatism, so that's great to hear.

Stephen Scouten: Sound like a lot of conservatism, so that's great to hear. Perfect. On the- On the loan growth trend, I know you mentioned four new hires in the quarter. Are those in Auburn?

Speaker Change: Yeah, Yeah, it sounds like a lot of conservatism. So that's great to hear.

Thomas Broughton: Perfect, on the long growth trend, I know you mentioned four new hires in the quarter. Are those in Auburn, Memphis, the newer markets, or is there any particular focus on expansion in any other markets to drive that incremental or low growth or kind of a resumption of the long growth trend? I think one of those or two of those were in Auburn of like a market and other two, I forget, you know maybe one in Nashville and one in Florida. So we're continuing to hire and we expect the contribution from the new hires. We were many for us this year, we've hired a large number of new people and it takes them about six months to start making a contribution.

Speaker Change: Perfect.

Speaker Change: Sure.

Speaker Change: On the loan growth trends I know you mentioned.

Speaker Change: For new hires in the quarter or are those in.

Speaker Change: Auburn.

Thomas Broughton: Memphis, the newer markets, or is there any particular focus on expansion in any other markets to drive that incremental or loan growth or kind of a resumption of the loan growth next quarter? think I think one of those are two of those were in in Auburn of like a market and other two, I forget, you know, maybe one in Nashville and one in in Florida. So we're, we're continuing to hire and we expect contribution from the new hires. were many for us this year. We hired a large number of new people and it takes them about six months to start making a contribution.

Speaker Change: Memphis, the newer markets or is there any particular focus on on expansion and any other markets to drive that incremental or loan growth or kind of a resumption of the loan growth next quarter.

Speaker Change: I think one of those are two of those were in Auburn of like a market and the other two I forget maybe one in Nashville and one in.

Speaker Change: In Florida, So where we're continuing to hire and we expect that.

Speaker Change: The contribution from the new hires which were mainly for US. This year, we hired a large number of new people and it takes them about six months to start making a contribution. So we expect to start seeing that we're just now we're seeing a great contribution to our team we hired in Montgomery last year.

Thomas Broughton: So we expect to start seeing that, you know, we just now, we're seeing a great contribution. Our team we hired in Montgomery last We hired a four-person team from another bank last year. So we're just now seeing the contributions from that team. So I don't say just now seeing it, but it takes a while to start moving things. And so we're optimistic that we've got, with all the new producers we have, like I said, they're pretty large teams in both Memphis and the Auburn-Opelika market. So we feel good about.

Thomas Broughton: So we expect to start seeing that, you know we just now, we're seeing a great contribution from our team we hired in Montgomery last year. We hired a four person team from another bank last year, so we're just now seeing the contribution from that team. So I don't say just now see it, but it takes a while for the, you know, to start moving things. And so we're optimistic that we've gotten, with all the new producers we have, like I said, a pretty large change in both Memphis and the Auburn. I was like a market, so we feel good about the feature there.

Speaker Change: We hired a four person team from another bank last year. So we're we're just now seeing the contribution from that team. So I don't say, just now saying it but it takes a while for that.

Speaker Change: To start moving things and so.

Speaker Change: We're optimistic that we've got with all the new producers we have.

Speaker Change: Like I said, it's pretty large teams of both Memphis, and Melbourne Opelika market. So we feel good about those.

Stephen Scouten: See you later. Got it. That's helpful, Tom. And then I guess maybe the last thing for me, the loan yields, I know you touched on those briefly, did move up much more significantly this quarter. Was there anything kind of one-time in nature or unusual about that, especially with the $126 million in early payoffs you mentioned? I'm just kind of wondering if there's prepayment penalties or anything in that jump in loan yields that might, you know, kind of reverse back out next quarter in any way. There's nothing that I would say was a one time. I mean, this is this is a recurring theme.

Speaker Change: Future there.

Thomas Broughton: Got it, that's helpful, Tom, and then I guess maybe lasting for me the loan yields, and then you touched on those briefly, did didn't move up much more significantly this quarter. Was there anything kind of one time in nature or unusual about that, especially with the hundred and twenty-six million and early payoffs you mentioned? I'm just kind of wondering if there's prepayment penalties or anything in that jump and loan yields. That might, you know, kind of reverse back out next quarter in any way. There's nothing that I would say was a one time. I mean this is this is the recurring theme. You know we've been we've been signaling for a long time we expected the velocity to pick up on the margin increase, and I think you saw at this quarter.

Speaker Change: Got it that's helpful. And then I guess, maybe last thing for me that the loan yields I know you touched on those briefly did didn't move up.

Much more significantly this quarter.

Speaker Change: Was there anything.

Speaker Change: Kind of onetime in nature or unusual about that especially with the $126 million and early payoffs you mentioned I'm just kind of wondering if there is prepayment penalties or anything in that jump in loan yields that might.

Speaker Change: Kind of reverse back out next quarter in any way.

There is nothing that I would say it was a one time I mean this is this is a recurring theme we've been we've been signaling for a long time, we expected the velocity to pick up on the margin increase and I think you saw it this quarter.

Thomas Broughton: You know, we've been we've been signaling for a long time, we expected the velocity to pick up on the margin increase. And I think you saw it this quarter. Now remember, the second quarter loan growth. helped a lot, too. Well, right, it came later in the quarter, sure. We finally are seeing that, Stephen, I think, in terms of of course, you know, everybody says it's the other person that's paying up too much. I mean, I'm painfully aware of that. So I say that with all humility of not trying to blame everybody else. You know, we're doing everything right.

Thomas Broughton: Now remember the second quarter loan growth helped a lot too. Well, he came later in the quarter. I think that's we finally have seen that Steve and I think in terms of the course everybody says it's the other person that's paying up too much. I'm painfully aware of that, so I say that with all humility of not trying to blame everybody else. You know we're doing everything right. They're doing everything wrong. I'm not saying that, but we are we are seeing more rational pricing industry wise.

Speaker Change: I remember the second quarter loan growth.

Speaker Change: It helped a lot too.

Speaker Change: Obviously it came late in the quarter sure rational deposit pricing I think that's.

Speaker Change: We finally have seen that Steve and I think in terms of of course.

Speaker Change: If ever.

Speaker Change: Everybody says just the other person that's tying up too much.

Speaker Change: Yeah.

Speaker Change: I am painfully aware of that so.

Speaker Change: I say that with all humility.

Speaker Change: I'm not trying to blame everybody else that we're doing everything right, they're doing everything wrong I'm, not saying that but we are we are seeing more rational pricing industry wide.

Stephen Scouten: They're doing everything wrong. I'm not saying that, but we are. We are seeing more rational pricing industry wise. Yeah.

Thomas Broughton: Yeah, and maybe just touch you on that one last question for me. What are you guys seeing on new pricing for CD currently? Down pretty quickly, you know. I mean, you know, it seemed like, it seemed like if I'm making this up 45 days ago people were playing 5% on the 6th month and now they're paying 4 and a quarter. I think that sort of the trend we're seeing right now is they're moving down pretty quickly; they're below treasury a bit on in terms of CD yields. Of course, you still have some of the small community banks that are, you know, underperforming the outliers, as you might imagine. But, you know, for major operators, we're seeing, you know, much more rational CD price.

Speaker Change: Yeah.

Stephen Scouten: And maybe just touching on that one last question for me. What are you guys seeing on new pricing for CDs? I'm down pretty quickly, you know, I mean, you know, it seemed like. It seemed like, if I'm making this up, 45 days ago, people were paying 5% on a six-month and now they're paying four and a quarter, and I think that's sort of the... The trend we're seeing right now is they're moving down pretty quickly, they're below treasury a bit in terms of C.D. yield. And so that's there. Of course, you still have some of the small community banks that are, you know, underperforming outliers, as you might imagine.

Speaker Change: And maybe just touch on that one last question for me what are you guys seeing on new pricing for Cds.

Speaker Change: Currently down pretty quickly.

Speaker Change: It seemed like.

Speaker Change: The same like if I.

Speaker Change: Im making this up 45 days ago people finance, 5% almost six months and now they're paying for.

Speaker Change: For the quarter.

Speaker Change: That sort of the trend we're seeing right now is they're moving down pretty quickly there below treasury.

Speaker Change: A bit.

Speaker Change: In terms of say the yields.

Speaker Change: So.

Speaker Change: Of course, we still have some of the small community banks that are out.

Speaker Change: Underperforming outliers as you might imagine but.

Stephen Scouten: But, you know, for major operators, we're seeing much, much more rational CD price. And we don't have a large CD. I think in the fourth quarter, we have 300 million plus in CDs maturing at a rate in the high fours. So 480, 490, 485 to Ed to be precise. So there's room there to pick up here and there, adds up to real money after a while. Definitely. Great.

Speaker Change: For major operators, we're seeing.

Speaker Change: Much much more rational price and then we don't have a large city, but I think in the fourth quarter, we have three.

Stephen Scouten: And then we don't have a large CD, but I think in the fourth quarter we have 300 million plus, and CD mature in a rate in the high fours. So 480 at 490, you know, 485 to add, to be precise. So there's, you know, there's room there to pick up here and there, add up the real money after a while. Definitely, great. Thanks for all the color. Appreciate the time.

Speaker Change: 300 million plus in Cds maturing at a rate in the high fours.

Speaker Change: So or 84 nine a yield play.

Speaker Change: Oh 85 to be precise so theres room, there to pick up here and there as a real money after a while.

Speaker Change: Definitely.

Stephen Scouten: Thanks for all the color. Appreciate your time.

Speaker Change: Great. Thanks for all the color I appreciate the time.

Unknown Executive: Thank you.

David Bishop: Thank you. Our next question comes from the line of David Bishop with HubD Group. Please proceed with your question. Yeah, good evening, gentlemen. How you doing? Hey, Thomas, you noticed or noted in the preamble, some build and short term liquidity cash, maybe drug the margin down a little bit. Just here is what sort of the draw that that increase was that, you know, related to maybe customer flows, just curious what sort of that increase in cash.

Speaker Change: Thank you.

David Bishop: Our next question comes from the line of David Bishop with Hovde Group.

Speaker Change: Our next question comes from the line of David Bishop with Husky.

David Bishop: Please proceed with your question.

Speaker Change: Please proceed with your question.

Thomas Broughton: Yeah, good evening, gentlemen. Hey, Thomas, you got you noticed, or noted in the preamble, some build and short term liquidity cash, maybe drug the margin down a little bit. Just curious what sort of drove that that increase was that, you know, related to maybe customer flows? Just curious, what drove that increase in cash?

Speaker Change: Yeah, Good evening guys settlement.

Speaker Change: Hi, Doug.

Speaker Change: Hey, Tom if you've got.

Speaker Change: Or noted in the preamble.

Speaker Change: Some built in short term liquidity cash maybe.

Speaker Change: Drove the margin down a little bit just curious about sort of what drove that increase with that.

Speaker Change:

Speaker Change: So maybe customer flows just curious what drove that increase in cash.

Kirk Pressley: So I'm going to jump in here for a second. So the cash really didn't go up that much during the quarter. It did during the quarter and came back out with one municipal outflow. What I was saying was if you look at the average balance of cash in the second quarter and the third quarter, it was about 600 million higher in the third quarter with about the same loans. For at the end of the quarter. So the cash, the calculation, the name calculation had a lot more cash. It kind of a break even on it.

Kirk Pressley: So I'm going to jump in here for a second. So the cash really didn't, didn't go up that much during the quarter. It did during the quarter and came back out with one municipal outflow. What I was saying was, if you look at the average balance of cash in the second quarter, and the third quarter was about 600 million higher in the third quarter with about the same loans. for at the end of the quarter. So the cash, the calculation, the NEM calculation had a lot more cash at kind of a break even on it.

Speaker Change: So I'm going to jump in here for a second.

Speaker Change: The cash really didn't.

Speaker Change: Didn't go up that much during the quarter. It did during the quarter and came back out with one municipal outflow. What I was saying was if you look at the average balance of cash in the second quarter and the third quarter was about 600 million higher in the third quarter with about the same.

Speaker Change: At the end of the quarter. So the cash the calculation. The NIM calculation has a lot more cash or kind of a breakeven on it it doesn't hurt the NIM dollars as you can see based on the run up in it but the percentage if you kind of normalize for that extra cash.

Kirk Pressley: It doesn't hurt the name dollars, as you can see based on the run-up in it. But the percentage, if you kind of normalize for that extra cash, it would have been even higher. Does that make sense?

Kirk Pressley: It doesn't hurt the NEM dollars, as you can see, based on the run up in it. But the percentage, if you kind of normalize for that extra cash, it would have been even higher.

Speaker Change: It would have been even higher.

Kirk Pressley: Does that make sense?

Speaker Change: Is that makes sense.

Kirk Pressley: Yeah, then maybe just talk about puts and takes there from a funding perspective. Should we see that sort of come down as you expect to fund loans this quarter? Yes. And that's one reason why it was higher in the third quarter versus the second. Tom has always run the bank where he tries to build the liquidity ahead of time. And that's why you don't have FHLV advances. And that's why you don't have broker deposits. The deposits that flowed out; it was a high rate minister for deposits today. That's why we weren't too terribly upset about it.

Kirk Pressley: Yeah, then maybe just, you know, talk about, you know, puts and takes there from a funding perspective. Should we see that sort of, you know, come down as you expect that the fund lows this quarter? Yes. And that's, that's one reason why it was higher in the third quarter versus the second. It was, we, Tom has always run the bank where he tries to build the liquidity ahead of time. And that's why you don't have FHLB advances. And that's why you don't have broker deposits. The deposit that flowed out, it was a high rate municipal deposit today, that's why we weren't too terribly upset about it.

Speaker Change: Yes, maybe just talk about puts and takes there from a funding perspective should we see that sort of come down or do you expect that to fund loans this quarter.

Speaker Change: Yes, and that's that's one reason why it was higher in the third quarter versus the second.

Speaker Change: We Tom has always run the bank, where he tracks available liquidity ahead of time.

That's why you don't have that <unk> advances and that's why you don't have broker deposits.

Speaker Change: The deposits that flowed out it was a high rate municipal deposit today, that's why we werent too terribly upset about it.

Kirk Pressley: It's not a crazy name come at all. It's a slight negative; it's hard to, we may not take it all back when it's all, if and when, it's all for back to us too.

Kirk Pressley: It's not accreted to income at all. It's a slight negative, so...

Speaker Change: It's not accretive income at all.

Speaker Change: It's a slight negative.

David Bishop: It's hard to, we think it'll, we may not take it all back when it's, if and when it's offered back to us too. Got it.

Speaker Change: It's hard to say.

Speaker Change: We think it will.

Speaker Change: We might not take it all back when it when it if and when it's offered bastos.

Speaker Change: So.

Kirk Pressley: Got it, maybe Outlook for Core Offering Census from here. We said in the second quarter, we're operating about 44.8 million. We think that's probably still realistic. We think, we may have some adjustments in our annual incentive of growth for the fourth quarter, so we think that number's still realistic. Certainly no more than 45 million. Got it.

Speaker Change: Got it maybe.

Ed Woodie: Maybe I'll look for. I'll look for core operating expenses from here.

Speaker Change: Outlook for.

Speaker Change: Outlook for core operating expenses from here.

Ed Woodie: Yeah, Dave, this is Ed Woodie. We, uh... We said in the second quarter we're operating at about $44.8 million. We think that's probably still realistic. We may have some adjustments in our annual incentive accrual for the fourth quarter, so we think that number is still realistic, certainly no more than $45 million. Got it.

Speaker Change: Yeah, Dan This is Scott.

Speaker Change: Sure.

Scott: We said in the second quarter, we're operating about $44 8 million, we think thats probably still realistic.

Speaker Change: We think with May.

Speaker Change: It may have some adjustments in our annual incentive accrual for the fourth quarter. So we think that that number is still realistic certainly no more than $45 million.

Got it.

David Bishop: And it, my line broke up a little bit, Tom, in the beginning, you said the low, the low yielding loans paid off. What was that average rate that was paid off? Alrighty then. 489? Yes. Got it. Perfect.

Thomas Broughton: And it, my line broke up a little bit. Time in the beginning, it said the low yielding loans paid off. What was that average rate that was paid off? 49. 49? Yes. Got it. Perfect.

Speaker Change: Ed.

Ed: My line broke up a little bit Tom in the beginning you said the low yielding loans paid off or was that average rate that was paid off.

Speaker Change: Hawaii Nan.

Speaker Change: 489.

Speaker Change: Yes.

Speaker Change: Got it perfect ill hop off.

David Bishop: I'll hop off and let someone else ask some questions. Thanks.

Unknown Executive: I'll hop off in the thumbnail for some questions next. Thank you. Yes, we'll be done.

Speaker Change: So some questions. Thanks.

Speaker Change: Thank you.

Unknown Executive: Yeah, we'll be done.

Yes, we'll be done.

Unknown Executive: If there are no further questions, that'll close the call. Thank you all. Thank you, everybody.

Unknown Executive: If there are no further questions, that will close the call. Thank you all. Thank you, everybody.

Speaker Change: If there are no further questions that will close the call.

Speaker Change: Thank you everybody.

Speaker Change: Yeah.

Unknown Executive: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Thank you.

Unknown Executive: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time.

You for your participation.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Unknown Executive: David Bancshares, Stephen Scouten, Davis Mange, Henry Abbott, Thomas Broughton, Henry Abbott, Thomas Broughton, Henry Abbott, Thomas Broughton, Henry Abbott, Thomas Broughton, Henry Abbott.