Q3 2024 SmartFinancial Inc Earnings Call
Okay.
[music].
Speaker Change: Hello, and welcome to Smart financial third quarter 2024 earnings release and conference call. My name is and I'll be your coordinator today, if you would like to ask a question. Please press.
Speaker Change: Star followed by one on your telephone keypad now if you change your mind. Please press star followed by two I will now hand, you over to your host Nate <unk> director of strategy to begin please.
Please go ahead.
Nate: Thanks, Debbie Thanks, Andrea and good morning, everyone and welcome to today's <unk> financials third quarter 2024 earnings Conference call. During today's conference call. We will reference the slides and press release that is available in the Investor Relations section on our website alright, Thanks, Dotcom, Billy Carroll our president.
Nate: Chief Executive Officer will begin our call followed by Ron <unk>, Our Chief Financial Officer, who will provide some additional commentary we will be able to answer your questions at the end of the call.
Comments include forward looking statements. These statements are subject to subject to risks and uncertainties and the actual results could vary materially.
Nate: The factors that might cause these results to differ materially in our press release and in our SEC filings, which are available on our website, we do not assume any obligation to update any forward looking statements because of new information early developments or otherwise.
Nate: May be required by law during.
Speaker Change: During the call, we will reference non-GAAP financial measures related to the company's performance you will see the reconciliation of these measures in the appendices at the earnings release and Investor presentation filed on October 21, 2024, with the SEC and now I'll turn it over to Billy Carroll, Our President and Chief Executive Officer to open our call Kelly. Thanks Nate.
Good morning, everyone, great to be with you and thank you for joining us today and for your interest in SMB Kay.
Speaker Change: Open our call today, with some commentary and hand, it over to Ron to walk through the numbers in some greater detail. After our prepared comments, we'll open it up with Rod Nate Rhett Miller and myself available for Q&A, So let's jump right in.
Speaker Change: Really had a nice quarter and executed on what we've been messaging, we posted net income GAAP and operating of $9 $1 million for the quarter or <unk> 54 per diluted share I'm proud of the way our team is performing and I am excited to watch this gain operating leverage as we had anticipated.
Speaker Change: We had a couple of pennies a boost from a tax strategy as well that we implemented but even without that we had outstanding earnings trajectory jumping into the highlights I'll be referring to the first few pages in our deck pages, three four and five.
Speaker Change: First in my opinion, one of the most important metrics. We continue to increase the tangible book value of our company moving up to $22 67 per share, including the impacts of LCI and $23.69 excluding that impact that.
Speaker Change: 19% annualized quarter over quarter increase, including a OCI movements and 9% excluding it very nice tangible book growth looking at the graph on the lower right on page five you will see the value increase we continued to deliver for shares.
Speaker Change: We again had a very solid loan growth quarter over 16% annualized and that's coming off an 11% annualized prior quarter.
Speaker Change: We saw continued growth in new relationships as well as an increase in funding online.
On the deposit side of the balance sheet, we used the quarter to reposition some funding we had an opportunity to exit a public fund relationship. We felt had gotten a little larger and a little more costly than we had wanted so we leveraged our strong liquidity position and utilized our wholesale.
Speaker Change: Running lighter to fill the gap.
Speaker Change: Net of that account and wholesale adjustments core growth was over 5%. So when we drill down on deposits. We had a very nice core growth quarter and continue to bring in some outstanding relationships. We also saw our overall costs ticked down to 254%.
Speaker Change: Our history of strong credit continues with the metrics holding very low at 26 basis points in Npa's, both NBA <unk> and charge offs were just slightly higher than the prior quarter, but still extremely low that movement continues to be a few lingering fountain equipment credits, we've worked through and our equipment finance subsidiary that.
Speaker Change: Group continues to be a very profitable arm for us and we anticipate those isolated item slowing soon.
Speaker Change: Total revenue came in at $44 $1 billion in net interest income continued to expand with an inflection point. We've discussed we also had a stronger than expected noninterest income quarter that Ron will talk about in a bit non.
Speaker Change: Noninterest expenses were just slightly up at $38 million I still feel very good that we can hold our expense growth to very reasonable levels as we look forward.
Speaker Change: The operating leverage we've talked about on prior calls is starting to happen as we continue to grow the revenue line with minimal investments on the extensive looking.
Speaker Change: Looking at the chart on page five highlighting the operating PNR slide the movement up his started after a couple of flattish quarters looking forward and expected to see that trend continue.
Speaker Change: So just a couple of additional high level comments for me on growth. We're very pleased with the results on the loan side, we were up $114 million again about 16% annualized for the quarter and over 10% annualized year to date, our regional sales teams are doing a very nice job growing our clients yields on the loan.
Speaker Change: Syed expanded with the full portfolio's average loan yield up 15 basis points to 595% and our loan mix was almost identical to the second quarter.
Speaker Change: I mentioned, the Remixing of the deposit side I really like the work we've done here, particularly this quarter leveraging our position of strength to move out of larger chunkier deposits to lower our overall cost and focus on replacing with more granularity.
Speaker Change: We pushed the loan to deposit ratio up to 86%, which is a nice spot for US. We also continued to hold our noninterest bearing mix around 20% not an easy feat in this environment.
Speaker Change: Our balance sheet pipelines feel very solid and I'm still holding to our past guidance of mid to high single digits on growth as we look at a couple of quarters, even though we've been able to beat that so far this year. I also think we can pace deposits to organically fund this growth.
Speaker Change: Also <unk>, Ron and his finance team as well as their tax advisers on executing a strategy that should lower our go forward tax rate that should be a nice little tailwind added as well. So let me go and hand, it over to rod to dive into the details Ron.
Ron: Interesting and good morning, everyone.
Ron: I'll start by highlighting some key deposit results as Billy had mentioned during the quarter the bank significantly reduces exposure to a larger public fund relationship.
Ron: This was a tough decision due to our desire support municipalities, where we do business. The account was highly interest rate sensitive and service quality intention rather than fee driven.
Ron: As a result, the bank made a strategic decision to minimize this relationship and pursue temporary more cost effective brokered funding.
Our total deposits remained flat linked quarter at $4 3 billion, which includes 100 and you did $95 million deposits added to offset the reduction in <unk>.
He mentioned relationship.
Ron: Excluding this relationship impact deposit screening 50 move during the quarter and the weighted average cost of non brokered production was 366%.
Ron: Total interest bearing cost for the deposit portfolio decreased three basis points to 320% and were three 8% for the month of September.
Ron: Noninterest bearing deposits to total deposits remained relatively in line with previous quarters at 20%.
In the future, we anticipate replacing our temporary broker deposits with core deposits as client liquidity balances billed and our relationship managers continued to win net new deposit business.
Ron: Our net interest margin expanded quarter over quarter, increasing 14 basis points to three 1%.
This expansion is attributable to several factors, including the previously mentioned deposit repositioning efforts and.
Ron: The favorable 740 weighted average yield on new loan originations, resulting in a total portfolio yield increased to 6.02%, which includes accretion and fees for the quarter.
Ron: Looking ahead, we expect consistent margin expansion into 2025, primarily driven by new loan production.
Ron: Lower yielding fixed and adjustable rate loan amortization and maturities and the bank's liability sensitive interest rate position.
Ron: Bank's balance sheet is in a strong position for enhanced profitability in the event of any future fed rate cuts.
Ron: As a result of these factors and current market conditions, we anticipate a margin and a $3 131, 5% range.
Ron: Our quarterly provision expense for credit losses were elevated primarily as a result of higher than forecasted loan growth and a slight increase in charge offs stemming from our equipment Finance division overall, the bank's asset quality remains very strong with nonperforming loans to total loans at two 6%.
Ron: Operating noninterest income for the quarter reached $9 1 million, reflecting solid performance across all categories, notably the bank generated significantly higher income from customer swap transactions and investment services, which rose by 940000 and 579000, respectively.
Ron: Operating expenses were $38 million slightly elevated from our previous guidance. The increase was primarily primarily attributable to increases in our performance based incentive accruals and commissions and the hiring of several commercial sales team associates.
Ron: Moving forward, we will continue our focus on expense control as part of our ongoing cost management efforts.
Ron: Looking ahead to the fourth quarter, we are forecasting noninterest income in the mid to high $7 million range and noninterest expense in the range of 31 to $31 5 million.
Ron: Salary and benefit expenses, comprising 19 to $19 5 million as accruals for performance based incentives fluctuate.
Ron: Additionally, during the quarter the bank established a newly formed real estate investment Trust subsidiary to monitor and manage the performance of certain real estate loans and to create a more tax favorable structure.
Ron: The REIT subsidiary will result in a lower effective tax rate during future periods by lowering the bank state income tax expense.
Ron: As a result, we anticipate the future corporate effective tax rate of approximately 20%.
Ron: I'll conclude with capital the Companys consolidated TCE ratio increased 33 basis points, 8.0% and total risk based capital total risk based capital ratio decreased slightly by five basis points to 11, 6% overall, we continue to be in a well capitalized position with an optimistic credit and earnings out.
Ron: Look with that said I'll turn it back over to Billy.
Billy Carroll: Thanks, Ron.
Billy Carroll: To reiterate again the value proposition with our company drawing your attention bye okay.
Billy Carroll: Seven of our deck, we've we've been on the road a lot in 'twenty for reminding our investors and our stakeholders of what we've accomplished recently, we are seeing the inflection and the movement in our numbers and we have a clear vision of our return targets.
Billy Carroll: <unk> the investments we've made when you look at the franchise. We're building we're in arguably some of the most attractive markets in the country and have put together a team that is moving this company forward in a great way.
Billy Carroll: I saw this quarter from our sales teams was really really good and the byproduct of the work we've done this year on ourselves and prospecting process, we're not leveraging the functionality of Aaron's Zeno platform and utilizing the sales force front end to consistently create a stronger prospecting process for our sales team.
Billy Carroll: And we're also waiting on the pricing profitability systems to coach our teams and the value of full relationships. The regional presidents structure, we have and the accountability, we're putting on the zones is really starting to bear fruit.
Billy Carroll: We are continuing to look to add sales talent that fits our culture. We've added 15, new sales team members. This year and have several currently in our talent pipeline, we're adding some outstanding regional bankers to our team as I believe we continue to be one of the regions banks of choice for great bankers.
Billy Carroll: I also want to mentioned the execution of our operations for our ops teams are doing some great work as they refine our back of the house and moved to Kpis, driven workflows and management.
Billy Carroll: It seems like this that people don't see that we'll be paying big dividends for us as we look ahead. So to summarize I love, where we're sitting we are executing growing our revenue line and getting the operating leverage we are expecting margin is expanding back credit continues to be very sound and we're seeing great new client growth and the sales energy is out.
Billy Carroll: All said, a very nice quarter for Air company as we continue to build a profitable attractive franchise I. Appreciate the work of their smart financial Smart Bank team and the efforts that are near 600 associates. This team is continuing to perform well and build a great culture as evidenced by our recent great place to work certification I'm very.
Billy Carroll: Proud of what we're what we have going on here at SMB K. So we'll stop there and open it up for questions.
Speaker Change: Thank you very much to ask a question. Please press star followed by one on your telephone keypad now when preparing to ask your question. Please ensure your devices on mute locally if you change your mind. Please press star followed by two.
Speaker Change: Our first question from Russell Gunther with Stephens your.
Speaker Change: Your line is now open. Please go ahead.
Russell Gunther: Hi, good morning, guys.
Russell Gunther: Good morning, Good morning, Russell My first question would be.
Russell Gunther: My first question would be on loan growth. So I appreciate all the color.
Russell Gunther: As well as the expectations over the next couple of quarters for mid to high single digits.
Russell Gunther: Certainly I'll punch that over the past two.
Russell Gunther: So wondering if you could just share whether it's.
Russell Gunther: Our sense of conservatism built into the near term.
Russell Gunther: Look are you expecting an acceleration of normalization of Paydowns that might way just trying to piece together the outlook relative to what has been a much stronger result over the last couple of quarters.
Russell Gunther: Yeah, I'll start and then I'll ask Brett to give a little color to Russell Yeah for us the growth has been been been really solid we've had two back to back in early first quarter.
Russell Gunther: Really we've got to really back to back nice nice quarter I think as we look I think you always anticipate we didn't we had we had some payoffs and paydowns. This quarter, we were able to kind of get through that and still post a bright growth quarter.
Russell Gunther: Quarter, but I think we always try to anticipate some additional pay downs, yes, if we don't get some pay downs, we could be a little bit higher but I think just trying to be conservative in our projections and in our estimates in our guidance is where we like to stay but as I've mentioned that the sales teams are doing a nice job.
Speaker Change: Give some color on kind of what youre seeing in the pipeline as well as you look ahead. The next next few months. Thank.
Speaker Change: Thank you Roland.
Speaker Change: Our pipeline continues to stay.
Speaker Change: Relatively strong quarter to quarter, even as we close what was in the pipeline, we're seeing consistent new activity rolling into the pipeline for future periods. So we're very optimistic that that trend will continue I think a lot of that is supported by.
Speaker Change: Strong economics and are in the footprint that we operate in our markets are continuing to do well at collateral continued to do well.
Speaker Change: And so as we progress towards the first.
Speaker Change: First quarter, we still see a quite a bit of.
Speaker Change: Of new opportunity requests coming through the of the different mortgage it's very spread across our geography, we're not concentrated in any particular segment of our footprint all of our markets. We're seeing good strong activity and then on the <unk>.
Speaker Change: Outside the us.
<unk>.
Speaker Change: We had a little higher volume of that earlier in the year than we've seen in the past quarter.
Speaker Change: We have a few more coming in fourth quarter is always a possibility, but we do have.
Speaker Change: Still a very robust real estate market in our footprint.
Speaker Change: Oh.
Speaker Change: Boy, I foresee and opportunities to sell.
Speaker Change: Assets here and there and so we do get payoffs from time to time, primarily from asset sales by our clients.
Speaker Change: But we still feel optimistic about these though these predictions.
Speaker Change: That's great color guys I really appreciate it and then switching gears to the margin. Another really good result, this quarter.
Speaker Change: You laid out an expectation for the NIM I believe of call. It $3 10 to $3 15 and was just curious if that is a new.
Speaker Change: Near term fourth quarter projection or does that extend.
Speaker Change: Into 2025, and with that if you could just give us a sense of what your.
Speaker Change: Fed cut projections are as well as how you would expect the deposit beta that trend.
Speaker Change: Rates reduce.
Speaker Change: Yeah, Ron do you want to take that sure yes, yes <unk>.
Speaker Change: <unk> margin is.
Speaker Change: Excuse me $3 15 margin is for fourth quarter.
Speaker Change: As we said last last call our trajectory is such that we are.
Speaker Change: We're expecting margin expansion.
Speaker Change: 2025, Mister were down rate cut.
Speaker Change: With that said.
Speaker Change: With that said we're looking at.
Speaker Change: Our rates up data, we probably were in the $45, 50% range our goal.
Speaker Change: Probably see the same on the downward side well at this point, we're modeling near 40% data.
Speaker Change: On the way down.
Speaker Change: We're not giving 2025 guidance, there's still a lot of variables in and bouncing items, but we still feel we still feel very strong of our trajectory going forward.
Speaker Change: I appreciate it guys. That's it for me. Thank you for taking my question.
Speaker Change: Thank you Russell.
Speaker Change: Our next question is from Brett Robinson with hub group Bret. Your line is now open. Please go ahead.
Brett Robinson: Hey, good morning, everyone.
Brett Robinson: Wanted to start on fee income.
Brett Robinson: Hey, guys I wanted to start on fee income and just obviously really good quarter on swaps and an investment.
Brett Robinson: <unk> this quarter any thoughts on just the strength of those two items.
Brett Robinson: And <unk> and then obviously with the with the guidance in the fourth quarter.
Brett Robinson: Were those kind of onetime nature transactions or just any thoughts on those businesses specifically going forward.
Speaker Change: Yes, Brad I'll start and I'll hand, it over to Ron maybe talk a little bit about kind of the.
Speaker Change: One time versus versus continuing I think for us.
Speaker Change: We've talked about it on some prior calls from the investment side I'll start date of the Investor side has been really good you know as we continued to surely add some some some talented financial advisors to our platform over the last couple of years and getting those folks kind of up on playing we're seeing that that consistency consist.
Speaker Change: Cincy, and our Smart Bank investments group.
Speaker Change: Continue to grow we're doing it we're doing a nice job in cross selling that into our private banking pipeline now so it's nice to see that AUM grow and we've moved to a two.
Speaker Change: A more of a fee based purchase transactional base in that business over the last couple of years. So so I think I think we feel good about that continuing as long as mark and market obviously has been good.
Speaker Change: That doesn't hurt as well.
Speaker Change: But overall the investment side, we continue to be bullish on we think there is some consistency in that number.
Speaker Change: As we move forward.
Speaker Change: Let Ron talk a little bit about swaps as he works primarily with the capital market that was a little more of a function of what rates and kind of what some of the some of the curves are doing that as to lengthening some of these.
Speaker Change: Some of these terms to get some attractive fixed rates, but Ron do you want to talk about that and maybe thoughts around.
Speaker Change: Thoughts around that swap fee and what that might look like looking ahead, yes sure.
Speaker Change: Right now we did came down our noninterest income projection, we did have an excellent third quarter.
Speaker Change: Swaps for Q3.
Speaker Change: We had a lot of opportunities due to our loan originations and the shape of the inverted yield curve led us to place more swaps.
Speaker Change: We won't be doing $1 million plus Q4, we do have a pipeline, but not as strong as what we've seen in Q3, so other than that.
Speaker Change: We don't see any any.
Speaker Change: Other opportunities at this point that will really lead to a higher noninterest income as what we've seen in Q3.
Speaker Change: Okay.
Speaker Change: That's helpful. And then just on deposits can you guys. Maybe you talked about growing core deposits to replace some brokered Cds can you maybe just talk about initiatives on the deposit front and just.
Speaker Change: If you've already lowered deposit rates, what youre seeing maybe competitively in some of your key markets.
Yeah, I'll take that and you guys anybody can can can chime in yeah, I think what we've seen and we did we felt very good about our ability to grow deposits is that as I commented earlier, we really had a nice core deposit growth quarter. It was masked a little bit by just some of the mix shift that we did.
Speaker Change: And so as we've really started working our teams our sales teams are doing a nice job of bringing in both sides of the balance sheet.
Speaker Change: Obviously, we were in a position of strength at the beginning of the year with some little bit of a stronger liquidity position, we've been able to leverage that a little bit in 2004, so kind of looking ahead for us.
Speaker Change: We're going to we're going to continue to really try to balance we need to we want to grow the deposit side, but we also want to do is conscious of where the rate environments are so we're fortunately from a competitive standpoint, you're still seeing some some one offs in some outliers do some.
Speaker Change: Theres, some theres some above market pricing, but for most part it feels like that a lot of that is settling down and some of the market. So we've been able to push air rates down think we continue to do that.
Speaker Change: Fed cuts continue.
Speaker Change: But from <unk> standpoint, I think we're just.
Going to really try to try to strike the right balance of getting the growth and do it at the right rate levels, but Ron I mean, any thoughts <unk> got around that youre working on to deposit pricing.
Speaker Change: Groups say today, yes.
Speaker Change: I think we're finishing up on the deposit promo now.
Speaker Change: We took the opportunity to lower some of our hard tier deposits and we didn't get much client pushback again, we are we are really still in market rates.
Speaker Change: R. R. R. R reductions are roughly in line with fed cuts and we Havent really got much pushback on that and.
Speaker Change: Again, the momentum of the sales team on.
Speaker Change: On where deposits are coming from it's pretty positive yeah, well enough and Brian I'll add too I think that's one of the things that we've been talking about it.
Speaker Change: A lot is we're starting to do our forecasting.
Speaker Change: 25 is Ah is continue to focus on that and put more emphasis on that in our <unk>.
Speaker Change: Producer incentive plans and those things. So that's already we continue to feel very optimistic there our team members. The bankers that we've hired understand selling both sides of the balance sheet and.
Speaker Change: I'm really pleased with how how thats going and kind of what that outlook appears to be.
Speaker Change: Okay, Great I appreciate all the color.
Speaker Change: Thanks Brent.
Speaker Change: Our next question is from Steve Moss with Raymond James.
Speaker Change: Steve Your line is now open. Please go ahead.
Steve Moss: Hi, good morning, guys.
Speaker Change: Good morning, starting here on on.
Steve Moss: Morning start on loan pricing here, just kind of curious we've had a fair amount of volatility and a five year and obviously expectations around more fed rate cuts curious as to where youre seeing.
Speaker Change: New loans priced today.
Speaker Change: And any color you can give there.
Speaker Change: I'll start and then guys just any anecdotal color you can give.
Speaker Change: Obviously with the cut.
Speaker Change: We've seen we've seen we've seen a little bit of reduction in and on and on.
Speaker Change: Ongoing.
Speaker Change: Yields overall were doing a pretty good job of holding.
Speaker Change: The right levels.
Speaker Change: Yes, I think obviously competition is going to impact that.
Speaker Change: The fed cut had a little bit of an impact that we're seeing especially the variable rate compression on spread the variable numbers are coming down a little bit.
But overall, we think we can continue to hold.
Speaker Change: How reasonable levels, Ron I don't know if you've got any color on kind of what youre seeing kind of going on here just in the last few weeks, but.
Speaker Change: A little bit lower I think but overall still pretty solid.
Speaker Change: As I referenced for the quarter originations were in the second floor.
Four zero range, but for September.
Speaker Change: 10 basis points less so we'll probably see that I do believe for probably the remainder of the quarter, we should probably see above.
Speaker Change: Above 7% range, so we will see a little bit.
Speaker Change: Decreasing rates, but.
Speaker Change: Now looking at much at this point in time.
Speaker Change: Okay, Great I appreciate that and then.
Speaker Change: I guess my other question here just curious I know you guys talked a lot about building positive operating leverage and definitely seen this quarters results.
Speaker Change: You have shown momentum there.
Speaker Change: Just curious as we headed towards 45, if youre thinking of any investments.
Speaker Change: Additional talent just kind of your thought process around expenses here.
Speaker Change: And Ron I mean again I think we're trying to we're currently working through our final forecasting and budgeting for 'twenty, five, but really not a lot Steve I think for us.
Speaker Change: We've messaged that we're just kind of we're hunkered down to make sure that we can drive the growth that we will have some just the overall cost of the.
Steve Moss: Yeah, well have just inflation.
Steve Moss: Contract increases and things along those lines, so but that we think that should be pretty minimal I think the increases that we'll see going into 25 will be probably more.
Steve Moss: On the talent side of the house.
Steve Moss: Anything.
Steve Moss: But I think overall I think we can hold these expense lines in a pretty reasonable range as we look into 'twenty, five again, allowing allowing the balance sheet tied to kind of reset with rates get this new production on let some of the lower rate stuff. That's on there was a law that amortize down so.
Steve Moss: When you look at when we look out.
Steve Moss: And the latter part of 'twenty, five, especially when we start to kind of glimpse into 26 now we feel really good.
Steve Moss: About where.
Speaker Change: We can go with this operating leverage I don't know Ron any any additional color there.
Speaker Change: You said it all.
Speaker Change: We will produce I look at it as a percentage of expense to net revenue, we will be creating an operating leverage throughout 'twenty five in there going forward. So operationally we're in great shape. So as you said just our ability to execute the quality bankers are always being recruited and well and I think that is and I think that's a great.
Speaker Change: Point Miller I think we are I mean, we're saying again, we're selective we're very selective in our recruiting I mean.
Speaker Change: And we've always been that way and we're going to continue to be that way, but we're always looking for great opportunities to bring in folks that fit our culture.
Speaker Change: Been able to find some of that this year, we actually <unk> point.
Speaker Change: We think we can continue to do that as we go forward. So we're going to continue to invest in.
Speaker Change: And key talent quality versus quantity yet.
Speaker Change: And.
Speaker Change: We've never been ones that go out just add tons of.
Speaker Change: People.
Speaker Change: But if we can find good folks we're going to look to looked at them and we've been able to do that here over the last couple of quarters.
Speaker Change: Okay, Great I really appreciate all the color and nice quarter.
Speaker Change: Thank you thanks Jay.
Speaker Change: Okay.
Speaker Change: Our next question is from Steven Scouten with Piper Sandler Steven Your line is now open. Please go ahead.
Steven Scouten: Hey, good morning, everyone.
Speaker Change: Yeah.
Okay. So let me.
Speaker Change: Just moving forward and you talked about a lot of any potential expense growth would come from new hires which.
Speaker Change: So it should produce revenue as well.
Speaker Change: Is it fair to think about expense growth similar to the last couple of years like 6% to 7% range again, I know youre not trying to give guidance, but is that just kind of a fair ballpark of what the franchise should trend towards over long term.
Speaker Change: Brian you want to kind of share your thoughts around what exactly that probably 5% to 7%. That's a good a good goal a good range for that.
Speaker Change: Okay, great. Okay, and then on the CRE concentration I think.
Speaker Change: So looking at that correctly, maybe up to 288% does that limit potential CRE growth from here at all or does it make you pushed into other verticals more so than you would have up to this point.
Speaker Change: Just curious if that's a headwind at all to future growth.
Speaker Change: Yeah.
Speaker Change: We've taken the advantage to add some some some some good real.
Speaker Change: Real estate loans to the portfolio over the last couple of quarters, and we see that I'll, let Rick give some color there Steven.
Speaker Change: But yeah overall I don't view it as a headwind.
Speaker Change: Obviously, when we're doing that and we have we're going to continue to do it we want to make sure.
Speaker Change: But it's not transactional real estate that it's full relationship.
Speaker Change: Type of CRE lending, which we've been able to do and again again, making sure. It's priced accordingly, but you want to give any color on kind of all.
Speaker Change: On CRE growth I think we anticipate having a little bit more of that and we say it a little bit in the pipeline do you want to give any any feedback yet I would say that we.
Speaker Change: Probably we will see.
Speaker Change: Metric.
Speaker Change: Pick up a little from where it is here today, we do certainly focused amazed that within the guidance.
Speaker Change: Guidance Thats always been.
Speaker Change: A target of ours.
Speaker Change: Some of the some of the growth is just the timing of different projects. We do have some projects that will be completing funding and then either paying office as they still have their own or or digitally transition out.
Speaker Change: So we are I would say, maybe a little bit of back filling there.
Speaker Change: Some of the projects that will that will transition out of the buckets in the near term.
Speaker Change: But I do think we will still continue to see activity. The other upside there is also.
Speaker Change: The opportunities that we're seeing in space. It also with our ability to continue to be very staunch and our credit standards I mean, where you are.
Speaker Change: We're picking the best Apple home with research.
Speaker Change: We're funding so we feel very good about what we are putting a critical one.
Speaker Change: Yes, Thats really good color. Thank you for that and then just last thing for me I know we've talked about in the past in past calls trying to reach toward the $50 million operating number for <unk> 25 in that range given the current environment maybe.
Speaker Change: The fed has moved do you think there is any sort of timing impediment to getting to that number or you still think that's an achievable path forward in the medium term.
Speaker Change: Yeah.
Speaker Change: Definitely think so.
Speaker Change: We forecast, obviously rates if rates stay brakes don't move down at all then.
Speaker Change: But a little bit of a headwind there, but really no that $50 million revenue number that we've kind of said publicly is something we're still shooting for the end of next year.
On a quarterly run rate basis, and still felt very good about that I mean, obviously, we've got to continue to execute on on on.
Speaker Change: On leveraging.
Speaker Change: This balance sheet.
Speaker Change: And growing loans growing deposits, but.
Speaker Change: Yeah, No I don't think there's anything that we're seeing right now that causes us to.
Speaker Change: Want to change the target date on that.
Perfect. Thanks, Bill I appreciate all the time today.
Bill: Yes, Thanks, David.
Our next question is from Christopher Murray not quick Janney Montgomery Scott Christopher Your line is now open. Please go ahead.
Christopher Murray: Thanks, very much and thanks for hosting US all this morning, I wanted to get into.
Christopher Murray: The net customer gains you've had this year because it clearly seems that you're picking up market share. If you look cumulatively in the last three or four quarters and just kind of curious on how you see that and kind of how that can evolve next year.
Christopher Murray: Yeah.
No great great comment, Chris and yeah.
Speaker Change: We are I think we're continuing to gain share and really.
Christopher Murray: All of these zones and a lot of it.
Christopher Murray: I commented on it.
Christopher Murray: It's just the sale side.
Christopher Murray: We've really worked hard the process that.
Christopher Murray: We've put in place.
Christopher Murray: Over the course of this year is really starting to take shape. So we're going out and we're looking at every one of our markets every one of our regions we're identifying.
Christopher Murray: Clients that we don't want to go target that some of those some of those sales cycles are longer. So yes, I mean, we're working we're working really hard on on clients that we don't have the pipeline today, but we feel very good about the ability to get them in the pipeline and 25 and so.
Christopher Murray: I think you will continue to see air air markets gain share and grow.
Christopher Murray: Again, and Red alluded to this I think it's really an important point too and it's not just their new stuff.
Christopher Murray: We've got a lot of newer markets that we've added over the last couple of years by some big investments in those markets and those markets are really performing extremely well, but our legacy markets are also continuing to perform well I think just as we're continuing to build this build this franchise build our brand in these market.
Christopher Murray: Especially with the size that we are now I think we can operate from a position of strength.
Christopher Murray: And a number of the situations.
It's really been good for us and I do think we can continue to gain share Christopher I. Appreciate you've mentioned that in calling that out because we have done a good job of client acquisition and working all clients and sell side gets a lot of credit, but I want to do.
Christopher Murray: Thank you to the upside because the sales side couldn't do what they do with the scale that I do is that op support in supporting them tremendously, but it's a it's a great team effort for sure.
Speaker Change: Good thanks for expanding on that guys I appreciate it and just a follow up about the hurricane last month or in late September what can you see from your eastern franchise, what type of influx of new business in insurance proceeds can that happen.
Speaker Change: See that being a slight benefit in the future.
Speaker Change: Yes.
Speaker Change: Well, yes, just a devastating situation in a number of our upper East, Tennessee counties. We don't offer we don't have offices in a number of those but we've got clients in a number of those and so we're kind of seeing a little bit more of the impacts on the periphery.
Speaker Change: So from our standpoint, we don't anticipate any direct impact, we actually had probably a little bit of direct impact read on it we had some payments that got delayed and that's one of the reasons, we got a small tick up in some past days because your payments were delayed over the.
Speaker Change: Rail issues over quarter end.
Speaker Change: But I think for us.
Speaker Change: A lot of it is just going to be.
Speaker Change: Just trying to figure out how to support.
Speaker Change: Some of those efforts up there I was talking with.
Speaker Change: Yesterday I was talking with.
Speaker Change: Our foundation is decline of ours, it's doing a lot of work up in that area they've been very public about their fund raising efforts.
Speaker Change: They put together some great fund raising partners over the last few weeks and so a lot of US is just going to be just trying to help facilitate some of that so from.
Speaker Change: From our standpoint from a balance sheet standpoint, probably just a little bit of near term deposit growth with some of that funding, but fortunately that money should be going right back out and helping these folks in need.
Speaker Change: It sounds good thanks again.
Speaker Change: Yes, Thank you Chris.
Speaker Change: Just as a reminder to ask a question. Please press star one on your telephone keypad now.
Speaker Change: Our next question is from Katherine Miller with K B W. Catherine Your line is now open. Please go ahead.
Katherine Miller: Thanks, Good morning.
Katherine Miller: Good morning Arun.
Katherine Miller: Just a follow up on the margin.
Katherine Miller: Great you are repricing schedule slide is really helpful and so on.
Katherine Miller: I feel like we can model the loan yields on the deposit cost I really appreciate your.
Katherine Miller: Just kind of a forward look into the cumulative data being about 40% over the cycle.
Katherine Miller: But any kind of near term commentary you didn't give us on deposit costs, maybe where spot rates were at the end of the quarter.
Katherine Miller: Youre seeing in specific kind of deposit categories. The first is he doesn't move.
Speaker Change: Hey, Ron you want to you want to jump in and what we saw during the first cut and maybe maybe some spot rate color. Yeah. We managed we've managed to.
Speaker Change: Let's take a step back.
Speaker Change: Our deposits are 24% of our deposit base is indexed.
Speaker Change: As index to an end to see the remaining another 14% is kind of an internal industry. So we have about 40% of our deposits that will move.
Speaker Change: With the rate movements, and we were able to achieve that.
Without we didnt get really any pushback on that whatsoever. We expect to continue that as we go forward again, a lot of this is market driven Catherine and and we have to pay attention to our competitors and how theyre pricing, but right now we expect to to apply the same methodology going forward and just.
Speaker Change: And just manage and monitor.
Speaker Change: Our customer accounts, making sure the outflows aren't leaving because of rate.
Speaker Change: Other than that I think.
Speaker Change: I think we are we're in a good shape going forward with or if there are rate cuts to keep our deposit portfolio.
Speaker Change: Portfolio steady spot rate spot rate spot rate thoughts it's in the system.
Speaker Change: Our our new production for September was was 381%, but that did include broker deposits.
Speaker Change: So it's it's.
Speaker Change: Excuse me.
Speaker Change: $3 eight 1% without brokered deposits. So I think as we ran some promos near the end of September from the relationship exit. So I don't have any spot rate going forward, but we are seeing deposit rates going down accordingly.
Catherine Fitzhugh Summerson Mealor: And just get in the amount you have indexed; would it be fair to model that 40% dated to show up pretty quickly? Or how much of a lad do you feel like there isn't that?
Speaker Change: Okay, and just given the amount you have indexed would it be fair to Murdo that 40% data to show up pretty quickly here how much of a lag do you feel like okay great.
Unknown Executive: No, we will show pretty quickly. There will not be a lot, but that's 40%.
Speaker Change: We will show pretty quick ones is.
Speaker Change: We will not be aligned with that 40%.
Unknown Executive: Great.
Speaker Change: Great Alright, that's all of that Chris had a great quarter guys.
Catherine Fitzhugh Summerson Mealor: All right, that's all. I'd appreciate a great quarter, guys.
Unknown Executive: Thank you.
Thank you Ken Thanks Catherine.
Unknown Executive: Thanks, Catherine. Thank you very much.
Speaker Change: Thank you very much that ends our Q&A session. We do not have any more questions. So I'll hand back to Miller for any closing remarks.
Unknown Executive: That ends our Q&A session. We do not have any more questions, so I will hand back to Miller for any closing remarks.
Miller: Thanks, Ezra. We appreciate each of you investors, analysts, and associates for your continued support. We look forward to finishing 24 strong and feel free to reach out to any of us if you have any further questions or comments.
Miller: Thanks, Ezra we appreciate each of you investors analysts and associates for your continued support and we look forward to finishing 24 strong and feel free to reach out to any of US. If you have any further questions or comments have a great day.
Miller: Have a great day.
Unknown Executive: Thank you very much, Miller, and thank you everyone for joining.
Speaker Change: Thank you very much Miller and thank you everyone for joining that concludes today's call. You may now disconnect your lines.
Unknown Executive: That concludes today's call. You may now disconnect your lines.
[music].