Q3 2024 Third Coast Bancshares Inc Earnings Call
Greetings and welcome to the third coast Bancshares' third quarter 'twenty 'twenty four earnings conference call.
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The question and answer session will follow the formal presentation.
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Speaker Change: It is now my pleasure to introduce Natalie Hairston from Investor Relations. Thank.
Speaker Change: Thank you Natalie you may now begin.
Natalie Hairston: Thank you operator, and good morning, everyone. We appreciate you joining us for third Coast Bancshares Conference call and webcast to review our third quarter 2024 results with me today is Bart Caraway, Chairman, President and Chief Executive Officer, John Mcwhorter, Chief Financial Officer, and Audrey Duncan Chief Credit Officer.
Natalie Hairston: First a few housekeeping items, there will be a replay of today's call and it will be available by webcast on the investors section of our website at IR Dot third coast Deutsche Bank.
Natalie Hairston: There will also be a telephonic replay available until November 1st and more information on how to access. These replay features was included in yesterday's earnings release.
Natalie Hairston: Please note that the information reported on this call speaks only as of today October 24th 2024, and therefore, you are advised that time sensitive information may no longer be accurate at the time of any replay listening or transcript reading. In addition, the comments made by management. During this conference call may contain forward looking statements.
The meeting at the United States Federal Securities Laws. These forward looking statements reflect the current views of management. However, various risks uncertainties and contingencies could cause actual results performance or achievements to differ materially from those expressed in the statements made by management the listener or reader is encouraged to read the annual rich.
Natalie Hairston: <unk> on Form 10-K that was filed on March seven 2024 to better understand those risks uncertainties and contingencies.
Natalie Hairston: The comments made today May also include certain non-GAAP financial measures additional details and reconciliation to the most directly comparable GAAP financial measures were included in yesterday's earnings release, which can be found on the third test website.
Speaker Change: Now I would like to turn the call over to <unk>, Chairman, President and CEO, Mr. Bart Caraway Bart.
Bart Caraway: Good morning, everyone and thank you Natalie welcome to the <unk> third quarter earnings call I'll start by giving the highlights for the quarter, followed by John's financial reviews, and Audrey as credit quality review and then I will discuss our outlook for the fourth quarter.
Bart Caraway: I'm pleased to highlight that we've achieved another record setting earnings quarter with diluted earnings per share, reaching 74 cents. In addition, it was a strong quarter for loan production with $131 million and net loan growth over the prior quarter.
Bart Caraway: All while demonstrating improving credit quality trends, which are already better than average.
Bart Caraway: I'd like to recognize the entire bank team for the outstanding progress in our 1% efficiency campaign.
Bart Caraway: Your drive for continuous improvement has led to a much improved return on assets of 1.14%.
Bart Caraway: And the efficiency ratio of $59, five 7% and a return on equity are better than 12%.
Bart Caraway: We also paid down debt expanding capital ratios and improved asset quality, we had net recoveries of $57000 for the fourth for the quarter and are on pace to achieve our annual goal of less than 10 basis points in charge offs.
Bart Caraway: I also would like to congratulate the team for its 11 basis points improvement in net interest margin for the quarter, resulting from superior balance sheet planning and execution the.
The bank has achieved 13 consecutive quarters of net interest income growth showcasing the continual progress of our original strategic plans.
Bart Caraway: Our goal has always been to become a high performing company and we believe last quarter's results are no anomaly.
Bart Caraway: But in fact are the outcome of multiple initiatives working together, reflecting the careful planning and execution of our strategy. We expect the current and future company performance will continue to prove that our exceptional team talent and thoughtfully calculated and implemented business plan or <unk>.
Bart Caraway: Building, a company or an extraordinary quality.
With that I'll turn the call over to John for the company's financial update John.
John McWhorter: Thank you Bart and good morning, everyone. As Bart mentioned, we made significant progress this quarter towards our goal of becoming a high performing bank.
John: Loans grew $131 7 million in the quarter, primarily in the commercial category, which grew $137 9 million.
John: Loan mix also improved as lower yielding municipal loans declined 39 million.
John: Notably much of our loan growth occurred late in the quarter as evidenced by period end loans being $87 9 million more than our quarterly average.
John: Investment Securities grew $5 9 million, even though we sold $15 6 million in low yielding mortgage backed securities for a loss of 480000.
John: Yield on investment securities declined slightly to $5, 99%.
John: Cumulated other comprehensive income improved to a gain of $7 8 million.
John: Deposits increased $138 8 million with quarterly average noninterest bearing demand up $14.8 million and ending balances up $25 3 million.
John: Turning to the income statement net interest income was up $1.5 million or three 9%. This.
John: This increase was driven primarily by better loan mix better deposit mix and balance sheet growth. Previously mentioned this was our 13th consecutive quarterly increase in net interest income.
John: Noninterest expenses declined $75000 to $25 6 million. This was our fourth consecutive quarter of declines in noninterest expense.
John: Additionally, we paid down $5 million in senior debt for the quarter and another $4 million in October and have now paid down a total of 16 million.
Speaker Change: That completes the financial review at this point I'll pass the call to Audrey for our credit quality.
Audrey Duncan: Thank you John and good morning, everyone credit quality remained strong this quarter in our loan portfolio remains well diversified classified assets declined $3 2 million or 8% during the third quarter, primarily from the payoff in full the $3 $1 million sub standard loans.
Audrey Duncan: Nonperforming loans to total loans improved slightly to 0.62% from 0.65% the previous quarter.
Audrey Duncan: The bankrupt ported net recoveries of $57000 compared to net charge offs of $1 8 million the previous quarter.
The loan portfolio remained well diversified with percentages similar to previous quarters, C&I loans increased slightly to 38% of total loans construction development and land loans increased slightly to 21%, while owner occupied and non owner occupied.
Audrey Duncan: CRE represented 12% and 16% of total loans respectively.
Audrey Duncan: Office represented three 5% of total loans with approximately 55% of that being owner occupied medical office was another 1.4% of total loans.
Audrey Duncan: Insistent with previous quarters for your office portfolio generally consistent class B with some owner occupied space and is all located in our Texas footprint.
Audrey Duncan: The average LTV of our office portfolio is approximately 60% and the average LTV for medical office is approximately 59% multifamily represented three 3% of total loans and has an average LTV of 59%.
Speaker Change: With that I'll turn the call back to Bart Barthes.
Bart Barthes: Thank you Audrey well before we take your questions I'd like to provide some additional color on our outlook and strategic focus.
Bart Barthes: Or a 1% improvement initiative continues to enhance our operational efficiency positioning us well to navigate the evolving interest rate environment. This program has delivered tangible benefits and streamline processes reduce cost and improve productivity all the while driving.
Bart Barthes: <unk> revenue growth.
Bart Barthes: In the face of changing interest rates. This increased efficiency has proved invaluable, allowing us to adapt quickly and maintain our competitive edge.
Bart Barthes: Regarding loan growth.
Bart Barthes: We're maintaining our target of $50 million to $100 million per quarter.
Bart Barthes: This quarter, we exceeded that target with $131 million and growth, while also improving our loan mix by reducing exposure to certain sectors.
Bart Barthes: This conservative approach coupled with our improved deposit mix has contributed significantly to the enhance net interest margin.
Bart Barthes: In terms of credit quality.
Bart Barthes: We expect it to remain strong our charge offs for the year are currently at about nine basis points well below industry averages, we anticipate maintaining this strong performance and asset quality moving forward.
Bart Barthes: While we're pleased with our performance we remain vigilant about potential challenges in the broader economic environment are adaptable strategy and robust risk management practices position us well to navigate any headwinds we may encounter.
Bart Barthes: Our efficiency ratio has dipped below 60% hitting $59 five 7%. This quarter. This achievement, which we reached ahead of schedule and underscores our commitment to operational excellence and cost management, we're confident in our ability to sustain this level of efficiency.
Bart Barthes: <unk> seen moving forward.
Bart Barthes: We remain optimistic about the opportunities in our robust, Texas markets. The economic energy in this region continues to provide excellent growth prospects and we're well positioned to capitalize on these opportunities our strong presence and deep understanding of these markets have allowed us to benefit from emerging trends.
Bart Barthes: And to meet the evolving needs of our customers.
Bart Barthes: Looking ahead, we remain confident in our ability to deliver high performing results. This confidence is rooted in several factors first our team.
Bart Barthes: We have the right people in place with the skills experience and dedication needed to implement our strategy effectively.
Bart Barthes: Second.
Bart Barthes: Our strategic focus we're just not aiming for short term gains our initiatives are designed to create sustainable long term value for our stockholders. This includes ongoing investments in technology talent development and market expansion.
Bart Barthes: Lastly, our adaptability.
Bart Barthes: In today's rapidly changing financial landscape the ability to pivot quickly as crucial our lean operational structure, coupled with our deep market insights position us well to navigate the challenges and siebel and seize opportunities as they arise in conclusion, we're entering the fourth quarter with strong moment.
Bart Barthes: Tom.
Tom: Our team's execution of our strategic plan combined with our focus on maintaining strong asset quality managing expenses and driving loan growth positions us well for continued success.
Tom: As we've demonstrated for 13 consecutive quarters of net interest income growth. Our approach is sustainable and we're confident in our ability to continue to deliver strong results I am pleased to share that we are well on our way to achieving our goal of becoming a high performing bank in creating long term.
Tom: Term value for our stockholders.
Tom: This concludes our prepared remarks, now I'd like to turn the call back to the operator to begin the question and answer session operator.
Speaker Change: Thank you well now be conducting a question and answer session.
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Speaker Change: One moment, please where we poll for questions once again Thats star one thank you.
Speaker Change: Thank you.
Speaker Change:
Speaker Change: Our first question is coming from the line of Matt Olney with Stephens. Please proceed with your question.
Matt Olney: Hey, Thanks, good morning, everybody.
Speaker Change: Good morning.
Speaker Change:
Matt Olney: On the loan growth outlook, Bart I know, you said $50 million to $100 million in the fourth quarter.
Matt Olney: If we can look just beyond that do you see anything that would slow down this loan growth momentum.
Matt Olney: In that range as you look into the 2025 or at least the first Powerpoint twenty-five eye.
Speaker Change: You mentioned, you're reducing exposure to certain asset classes. She's just didn't know how how material that was.
Speaker Change: Yeah, I mean first of all I'd caution that I mean, we still will be somewhat lumpy I mean, if you look at our history. You know we kind of on average when you look over a 12 month period, we generally hit the guidance that we gave you but sometimes it comes in different waves I'll tell you the fourth quarter seem to be sure.
Speaker Change: Taking up maybe slightly on the higher side of what we range we talked about.
Speaker Change: Kind of hard to tell into next year, you know we're in the budgetary process right now where we want to be but I think the pipelines are right now we're looking like a kind of a continuation of what we guided to this year.
Speaker Change: Okay, Great and then I guess, specifically on those asset classes, you want to reduce exposure to there anything worth calling out specifically on those asset classes.
Speaker Change: Yeah, Matt This is John the the bond anticipation note was the primary thing that that we haven't done as much of that we've let run off and those were down to I think one loan at quarter end. So there is nothing left there so probably you probably won't see.
Speaker Change: See anything more there. So obviously growth would have been a lot higher in the third quarter had we not led I don't remember what the number was 30, some odd million roll off on those bands.
Bart Caraway: So yeah as Bart said, we may be well certainly I think beyond the high end of the range for this quarter.
Bart Caraway: For the rest of the portfolio I think it's going the direction that we want I would just call. It more of a refinement not any kind of big levers are being pulled on that I think it's more just continuation of directionally going where we want to do go in terms of the concentrations.
Speaker Change: Okay, Great and then on the net interest margin some nice performance in the third quarter, we got the fed I guess and the impact of the 50 bps cut from late third quarter and maybe some more fed cuts here in the fourth quarter, Johnny any any thoughts on the margin more near term.
Speaker Change: Yeah, I mean, this quarter surprised us a little bit and we weren't expecting to be plus 11 on the margin.
Speaker Change: It seemed like every little piece.
Speaker Change: We outperformed relative to expectations and main letting all of those band roll off we had more noninterest bearing demand I think our average loan to deposit ratio was probably a little bit higher the increase in demand was probably the biggest thing.
If I look back at the numbers, we had declines in monthly noninterest bearing demand for like almost nine months in a row and finally demand deposits are up so not only were they up during the quarter, but they're up again in October so I'm feeling pretty good about the margin going forward.
Speaker Change: I'd guide to certainly flat I don't think its going to be down even though when our Q comes out it's going to show that were asset sensitive.
Speaker Change: Those models are only as good as your assumptions are and I think on the first interest rate cut we outperformed what the model assumptions were if that makes sense.
Speaker Change: It's hard to know if that will continue going forward, but I think having one of the the higher cost of funds in the industry, probably gives us more room to cut rates than most.
Speaker Change: I like where we're positioned I'm pretty pretty comfortable with where the margin is now.
Speaker Change: Okay and just following up on that John One thing you mentioned was the loan to deposit ratio, maybe a little higher than you expected just remind me kind of where your overall.
Speaker Change: Comfort zone is on that ratio kind of in the short term and kind of longer term.
John McWhorter: Yeah. Good question I mean, we don't want to have too much as far as excess deposits go but we do have a technology company that has a lot of seasonal deposits and we've already seen pretty big deposit inflows here for the fourth quarter remember last year our deposit.
John McWhorter: It's we're up several hundred million dollars and we think that's probably going to be true again. This year that may be good for ROE, it's not necessarily good for the margin or ROA that but we expect the loan to deposit ratio. Even if we have a big quarter is probably going to be lower at year end than than not.
John McWhorter: Okay.
Speaker Change: Okay, Great I'll step back in and congrats on the quarter.
Speaker Change: Okay. Thank you.
Speaker Change: Yes.
Speaker Change: Our next question is from the line of Michael Rose with Raymond James. Please proceed with your questions.
Michael Rose: Hey, good morning, everyone. Thanks for taking my questions just wanted to touch again on the deposit.
Speaker Change: Side of the equation John as you as you mentioned you have one of the higher costs.
Michael Rose: The industry out there.
Michael Rose: Some of that is reflective of the strong loan growth that you've had can.
Michael Rose: Can you just remind us of some of the initiatives that you have in place and then.
Michael Rose: Maybe what what percentage of the deposits.
Michael Rose: Are either index or exception price that may have some leverage is deferred.
Michael Rose: Cuts.
Michael Rose: Cuts rates and it was nice to see the niv mix.
Michael Rose: Group with some nice.
Michael Rose: Demand growth this quarter can you just remind us of some of the again some of the initiatives you have in place and maybe over time, where that where that Mexico could potentially migrate too. Thanks.
Speaker Change: Yeah, Michael I'll I'll start first with some of the initiatives.
Speaker Change: We started this probably remember well over a year ago that every line of business had their own goals and own initiatives on deposit side. So you know the nice thing is the commercial group as a whole and there are several lines of business in that in that commercial group all have.
Speaker Change: Very strong incentives for deposit growth, it's both financial because probably the biggest part of their incentive packages deposits, but it's also certain kind of even some fund goals that we have and certainly we want to emphasize treasury in particular that treasury itself has its own goal.
Speaker Change: As well as some calling initiatives going after deposit only customers as well. So that's been a does have worked very well together to give us some nice improvements.
Speaker Change: We also have.
Speaker Change: Our retail group that has launched several initiatives and had been very instrumental in bringing in small business and retail customers.
Speaker Change: It really showed a lot of benefits last year, almost 100 billion in deposits that they they brought in as well and then in addition to that we have this relationship with Ameriprise, that's been successful and either helping us bring in deposits or new customers or at least maintain our relationships. So that we keep you know more deposits.
Speaker Change: More customers in house, so I think all together.
Speaker Change: It hasn't been a home run in any particular areas, but it has been every line of business, having some great base hits that made a difference and I do think they're all spinning up to to have even better year. This year perhaps.
Speaker Change: Yeah, and Michael regarding how much is index so.
Speaker Change: We have about 12% noninterest bearing demand our Cds are about the same so that leaves 75% roughly there's money market accounts and you know there is a decent amount of assets indexed but all of it is certainly variable from from our perspective. So we have.
Speaker Change: 75% that we can price down I think that's probably more than peer partially because we have a lesser noninterest bearing demand. So it didn't feel as good on the way up but it should be good on the as rates are coming down and that's where I was talking about being able to kind of over perform versus.
Speaker Change: Our modeling because.
Speaker Change: We.
Speaker Change: Attracted deposits by paying relatively high rates, but now that everyone expects rates to be down it hasn't been particularly hard to lower rates just as fast so that that's gone well for us.
Speaker Change: Okay.
Speaker Change: That's great color and maybe just on the.
Speaker Change: A corollary to that would just be on the.
Speaker Change: The loan pricing side.
Speaker Change: You guys saw average loan yields tick higher can you just talk about where new production yields are.
Speaker Change: I'd assume that they're going to start to come down just given that rates have come down but but.
Speaker Change: Not certain it's obviously going to vary by category things like that but just wanted to get sense for because I think what you are talking about is relative NIM stability at least for the next.
Speaker Change: A couple of quarters, so just trying to understand both sides of the equation. Thanks.
Speaker Change: Yeah, you know, we have an internal pricing model and plus we have some very seasoned bankers that understand where we're trying to go. So certainly were looking at prime plus on on new deals and there are certain margins that we tried to hit internally, what we call hurdle rates.
Speaker Change: And what we're seeing is all of this production is fitting in those categories. We have very few exceptions to that.
Speaker Change: Michael I talked about 75% money market accounts that would be floating on the deposit side and the asset side is similarly structured in that close to 80% of our loan portfolio was either floating or variable one or the other.
Speaker Change: The stuff is floating versus so for we typically don't do a deal that so for less then plus 300.
Speaker Change: The community Bank deals are typically priced off prime and Theyre typically prime plus so we're averaging in that prime sort of area, maybe plus synthes puts us a little over 8%. So when we're raising noninterest bearing demand deposits is certainly very good for the margin, that's where we had the big uptick this month.
Speaker Change: Quarter.
Speaker Change: Very helpful. And then maybe just one last follow up for me.
Speaker Change: You guys have done a really good job keeping the head count flat.
Speaker Change: Flat to down and continuing to add assets to the balance sheet has created a really nice.
Speaker Change: You've seen the efficiency ratio come down pretty materially.
Speaker Change: Go forward I assume that you're going to have to start adding bankers.
Speaker Change: Some point to continue to grow at these levels or potentially higher as we move forward and then I assume that there's going to be some incentive compensation accruals things like that.
Speaker Change: As we think about next year.
Speaker Change: Can you just give us thoughts around that and then.
Speaker Change: Are you expecting further improvements in the efficiency ratio or are we going to start to think about that beginning to level off here in the kind of mid to high fifty's. Thanks.
Speaker Change: Yeah. So you know this is just our initial goal to get below 60%. So you know our internal goals are to get the efficiency ratio down much further and so it's a process as you know it takes time quite frankly, where we are today is probably two quarters ahead of where even into.
Speaker Change: <unk> goals were so the team.
Speaker Change: Outperformed in every way and it's been quite amazing to watch and figure out ways to.
Speaker Change: To have savings.
Speaker Change: There's a few other things that we're working through.
Speaker Change: That could help the efficiency ratio and cost reductions.
Speaker Change: Going to happen through 2025.
Speaker Change: As far as personnel.
Speaker Change: We've done a really good job of kind of reallocating resources internally.
Speaker Change: We help manage that head count naturally.
Speaker Change: Our growing because we're growing we're eventually going to have to add head count and truthfully.
Speaker Change: In terms of where that goes we're probably down a couple of underwriters that we'll need to backfill probably have some portfolio managers that come on board to help as these loan portfolios continue to grow. So we will have some investment in terms of.
Speaker Change: Just continuing to build but they're sort of very selective that we're doing it and so we really believe revenues can grow still much faster than expenses and.
Speaker Change: It may not necessarily be flat or it may go up a little bit. We think revenue is going to go up a lot faster.
Speaker Change: Yeah.
Speaker Change: Very helpful. Thanks for the color everyone.
Speaker Change: Thank you.
Speaker Change: Our next questions are from the line of Woody lay with K VW. Please proceed with your question.
Speaker Change: Hey, good morning, guys.
Speaker Change: Good morning.
Speaker Change: Wanted to talk about deposit growth it looks like time deposits were up.
Speaker Change: A little bit in the quarter.
Speaker Change: Any any color you could give on the go forward deposit strategy from here.
Speaker Change: Okay.
Speaker Change: You know this this one particular customer that I talked about it their deposits come in the form of money market.
Speaker Change: You know because.
Speaker Change: We certainly do have some wholesale funding.
Speaker Change: As it's somewhat difficult to predict when the loan growth is going to happen in the last three years September has been our biggest month of the year for reasons kind of unknown to even us. So some of those deposits that you saw it tick up in the fourth quarter was was on the brokerage side, we did bring in some brokered CD.
Speaker Change: And interestingly the cost of those was probably 100 basis points less than they were six months ago or something like that but those were short term set to set to roll off as soon as we replace it with more permanent money, but it didn't want the loan to deposit ratio to creep over.
Speaker Change: 100% didn't want to borrow from the home loan bank and still have plenty of capacity. There. So that was just kind of a short term.
Speaker Change: Fix for the the big loan growth that we had and I think I alluded to this in my talk that loans for the month of September were up over $100 million just for the single month. So that's.
Speaker Change: It's hard to predict growth quite so fast for one month.
Speaker Change: Got it that's helpful and then maybe shifting over to the loan pipeline. It sounds like the mix is in line with historical levels is that the right way to think about it.
Speaker Change: I think so yeah, I I feel like it's.
Speaker Change: It's more of a continuation.
Speaker Change: Of what you've seen in the last probably three quarters that's fair.
Speaker Change: Alright, thanks for taking my questions.
Speaker Change: Thank you Woody.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of Bernard <unk> with Deutsche Bank, Let's see with your question.
Speaker Change: Hey, guys good morning.
Speaker Change: You know in your closing remarks, you mentioned, how the Texas market has been robust and strong growth prospects and yet you've been able to capitalize on those opportunities.
Speaker Change: You added your 19 branch location.
Speaker Change: Press release is.
Speaker Change: As we think about going into 2025 anything you can share on how youre thinking about just future expansion.
Speaker Change: Yeah. So most of our branches were built around bankers and part of this is still filling out some of the needs from the hires that we had post pandemic.
Speaker Change: But we mostly satisfied.
Speaker Change: Branch needs that we have at this point.
Speaker Change: You will not see the branch expansion based on our current strategy.
Speaker Change: Much past, where we have right now unless there's something that's opportunistic so true de novo branching.
Speaker Change: It is certainly going to slowdown and were mostly where we need to be.
Speaker Change: We're opening our early our last branch with Grand opening next week and.
Speaker Change: I think thats pretty well, where youll see our branches are for the next 12 to 24 months I think we're going to build off of that network.
Speaker Change: Got it no that's helpful.
Speaker Change: Just moving to <unk> quickly.
Speaker Change: Quickly.
Speaker Change: No.
Speaker Change: Taking out the securities losses, which performed better than expectations.
Speaker Change: You know the service charges were much higher I know loan growth with as well.
Speaker Change: Just anything seasonally higher and that line item.
Speaker Change: Be mindful of and if you could just provide some color.
Speaker Change: How do you expect like fees.
Speaker Change: Kind of like go forward from here.
Speaker Change: Yes, Bernie we talked about this a little bit last quarter and that our Treasury group in particular, the numbers are relatively small, but they are growing at a rate 50% to 75% given enough time that that really adds up so I would probably give them credit for.
Speaker Change: For for a lot of the fee income on the Treasury side, that's been where a lot of the increase has come from and noninterest bearing demand in the service charges and then we also had a relatively big loan fee. This quarter on a deal that we had led and those are going to be a little bit lumpy I don't know if we can.
Speaker Change: Can say that we will have made.
Speaker Change: Maybe one a quarter, maybe it's two or three times a year, it's hard to know when those larger loan fees may may come into play.
Speaker Change: But we did have one for this quarter.
Speaker Change: And then any expectations on how how to think about the income.
Speaker Change: Two and a half.
Speaker Change: In a quarter kind of range it sounds right or anything you can provide on that.
Speaker Change: And I think that sounds about right just because we don't know on those those lumpy sort of fees with the $2 5 million plus we're pretty comfortable with that number yes.
Speaker Change: Okay, great. Thanks for taking my questions.
Speaker Change: Thank you.
Speaker Change: Thank you as a reminder, if you'd like to ask a question you May press star one at this time.
Speaker Change: The next question is from the line of Dave stores with Stonegate Capital Partners. Please proceed with your questions.
Speaker Change: More on them.
Speaker Change: Good morning, Dave.
Speaker Change: Just wanted to circle back offline is a little bit.
Speaker Change: So you mentioned that you are targeting the 59% growth on it.
Speaker Change: It looks like commercial industrial.
Speaker Change: Really strong quarter in growth.
Speaker Change: Above and beyond that as you mentioned is that more emblematic of total alignment that you highlighted earlier was that just one large customer.
Speaker Change: Should we think about that.
Speaker Change: How that looks going forward.
Speaker Change: Yeah, I think it's growth in general Audrey and I were just talking about Andre I don't know if you want to pipe in on this one.
Andre: I would say, it's just growth in general primarily from our corporate lending group, but it does kind of the middle market.
Andre: Somewhat larger loans many of these not just one loan.
Andre: It's just growth in that group.
Speaker Change: Understood very helpful. Thank you and then just one more for me you mentioned in your prepared remarks that you paid down some more debt in the quarter.
Speaker Change: How much more runway do you feel like or is there kind of what's your comfort with that.
Speaker Change: Okay.
Speaker Change: Yeah, that's a good question.
Speaker Change: It depends on growth it depends on earnings obviously.
Speaker Change: Im.
I don't expect we will pay down any more this year and next year is kind of yet to be determined.
Speaker Change: Given enough time, certainly we want to pay it down to zero.
Speaker Change: Our highest cost of funds, it's about seven 5%.
Speaker Change: A little less than seven 5% is the rate that we're paying on that so to the extent that we have excess capital. We think that's kind of the.
Speaker Change: The highest and best first use and particularly since it's a revolving line. If we decide we need more we can just re borrow it but I'd say no more for this year and we will reevaluate in the first quarter and.
Speaker Change: Maybe it's 5 million a quarter next year it just depends.
Speaker Change: Understood. Thanks for taking my questions and congrats on the quarter.
Thank you.
Speaker Change: Thank you.
Speaker Change: At this time, we've reached the end of our question and answer session and I'd like to turn the floor back to Mr. <unk> for closing remarks.
Speaker Change: Thank you Rob.
Speaker Change: Much appreciate it and thanks, everybody on the call for the questions and support.
Speaker Change: Feel really good about where we're positioned and where we're going with and look forward to releasing earnings next quarter and visiting with you all again have a good day.
Speaker Change: Thank you. This does conclude today's teleconference. We thank you for your participation you may now disconnect your lines at this time.