Q3 2024 South Plains Financial Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the South Plains Financial Inc. Third quarter 2024 earnings Conference call.
During todays presentation, all parties will be in a listen only mode. Following the presentation. The conference will be opened for questions with instructions will follow at that time.
As a reminder, this conference call is being recorded.
Speaker Change: To turn the conference over to Steve Crockett, Chief Financial Officer, and Treasurer of South Plains financial.
Speaker Change: Go ahead.
Thank you operator, and good afternoon, everyone. We appreciate you joining our earnings conference call with me here today are Curtis Griffith, our chairman and CEO.
Speaker Change: Knutson, our president and Brent Bates, Thanks, Chief Credit Officer.
Speaker Change: The related earnings press release and earnings presentation are available on the news and events section of our website S. P. If I don't think.
Speaker Change: Before we begin I'd like to remind everyone that this call may contain forward looking statements and are subject to a variety of risks uncertainties and other factors that could cause actual results to differ materially from those anticipated future results.
Speaker Change: Please see our safe Harbor statement in our earnings press release and in our earnings presentation.
All comments made during today's call are subject to the safe Harbor statement.
Any forward looking statements presented herein are made only as of today's date and we do not undertake any duty to update such forward looking statements, except as required by law. Additionally, during today's call. We may discuss certain non-GAAP financial measures, which we believe are useful in evaluating our performance a reconciliation of these.
Speaker Change: non-GAAP financial measures to the most comparable GAAP financial measures can also be found in our earnings release and in the earnings presentation.
Speaker Change: Let me hand, it over to you.
Speaker Change: Thank you, Steve and good afternoon.
Speaker Change: I'm pleased with our third quarter results, which I believe demonstrates that the bank is performing at a high level.
Speaker Change: We remain well capitalized and focused on managing our loan portfolio.
Speaker Change: The environment continues to normalize.
Against this backdrop, we are maintaining our credit discipline and not stretching to chase loan growth.
Speaker Change: We're also building liquidity as we expect the federal reserve to continue reducing their market interest rates to stimulate economic growth in the year ahead.
Speaker Change: Looking forward, we remain confident in the credit profile of our loan portfolio and are cautiously optimistic that we will see loan growth accelerate in the quarters ahead.
Speaker Change: Turning to slide four of our earnings presentation, we delivered third quarter diluted earnings per share of 66 cents, which is in line with the second quarter of 'twenty 'twenty four.
Speaker Change: I would like to point out that our third quarter earnings were negatively impacted by three cents per share after tax for the following items.
Speaker Change: Sixth sense from a decrease in the fair value adjustment of our mortgage servicing rights or Msr's give him a decline in interest rates from the linked quarter, partially offset by three cents for a gain from insurance proceeds received in the quarter.
Speaker Change: Loans held for investment declined by approximately $57 million during the third quarter because of loan pay offs and the continued managed decline of our indirect auto portfolio.
Speaker Change: As Cory will touch on in more detail, we've been disciplined on new loan pricing in our indirect auto portfolio, which has resulted in the portfolio declining by more than $50 million over the course of 'twenty 'twenty four.
Speaker Change: Importantly, we believe the portfolio is beginning to stabilize which should remove this it went into the year ahead.
Overall, we are seeing 11 of optimism from our customers that we have not seen for the last seven or eight quarters.
But our new business production pipeline is the strongest it has been in more than two years, which bodes positively for loan growth in the year ahead.
Speaker Change: Quality of our loan portfolio also remains solid as we have seen no adverse trends over the third quarter as we maintained our high credit standards.
Additionally, we have an agreed resolution in place on the multifamily loan accused that we placed on nonaccrual last quarter that includes credit enhancements.
Speaker Change: The loan is continuing to pay as agreed which is a positive sign.
Speaker Change: Overall, we remain cautiously optimistic we believe our loan portfolio remains well positioned for varying economic conditions.
Speaker Change: Additionally, the federal Reserve's 50 basis point reduction in their market interest rate in September.
Speaker Change: L J improved customer sentiment and our lenders are having more positive conversation.
Speaker Change: As the Federal reserve is expected to continue to reduce their market interest rate over the coming quarters. We believe economic growth will improve through the first half of 2025, which in turn will accelerate loan growth turning to deposits. We had good success in the third quarter driving deposit growth.
Speaker Change: For the third quarter deposits increased approximately $95 million.
Speaker Change: For more than 10% annualized as compared to the linked quarter. We continue to benefit from the dislocation in our markets. As a result of competitor mergers, which has created customer dissatisfaction with respect to a number of our competitors.
Speaker Change: At South Plains, we remain focused on our customers as we strive to build long term relationships and our customers value the stability and consistency that they know they can rely on at Citibank.
Speaker Change: Our strong customer satisfaction can also be seen in our deposit share or sell.
Speaker Change: South Plains is number one in Lubbock market with an 18% deposit share at June 32024.
Speaker Change: The number two competitor in the market has a 14% share while the number three competitor has a 12% share.
Speaker Change: We now hold a $454 million lead over our nearest competitor in Lubbock, which is the largest in our history.
Speaker Change: Likewise across our rural Texas, and New Mexico markets, we hold strong number one or number two deposit share positions in many of our markets, which speaks to our strong and stable community base deposit franchise that will provide the necessary liquidity as we look to improving loan growth in the euro.
Speaker Change: Yeah.
We also believe that we are in excellent position to capitalize on opportunities to drive growth and for Brian camera company, each significantly exceed the minimum regulatory levels necessary to be deemed well capitalized.
Speaker Change: At September 30 of 'twenty 'twenty four our consolidated common equity tier one risk based capital ratio was 13.25%.
Speaker Change: Our tier one leverage ratio was 11.76%.
Speaker Change: Additionally, our loans held for investment to deposit ratio stood at 82% at quarter end.
Speaker Change: Given our capital position, we remain focused on both growing the bank. While also returning a steady stream of income to our shareholders through our quarterly dividend.
Speaker Change: This past week, our board of directors authorized a 7% increase to our quarterly dividend to 15 cents per share.
Speaker Change: This will be our 20 <unk> consecutive quarterly dividend to be paid on November 12, 2024 for shareholders of record as of.
Speaker Change: October 28 2024.
Speaker Change: We also have a $10 million stock repurchase program in place, which our board authorized in February.
Speaker Change: During the quarter, we repurchased 40000 shares.
Speaker Change: We expect our buyback activity to remain more muted as we balance liquidity for growth as well as being mindful of the continued economic uncertainty that exists and the continued improvement in our share price.
Speaker Change: Additionally, we expect community bank M&A activity to pick up in the coming quarters as the unrealized securities losses on bank balance sheets decline with the drop in interest rates.
Speaker Change: We continue to have discussions and are watching the market closely.
Speaker Change: Any potential deal needs to meet a high hurdle for our team to even consider it.
Speaker Change: First and foremost there needs to be a strong cultural fit as we do not want to repeat the mistakes of our peers, which have created so much opportunity for south plains over the last few years.
Speaker Change: Any potential acquisition would also need to have minimal dilution a reasonable earn back and make real sense for the bank and our shareholders.
To conclude our third quarter results demonstrate that the bank is doing well and is positioned we believe to drive organic growth across both our community and metropolitan markets.
Speaker Change: Being well prepared for varying economic conditions as we have proactively manage the credit quality of our loan portfolio to ensure we are staying ahead of any challenges.
Speaker Change: I remain excited for the many opportunities that lie ahead now.
Speaker Change: Now, let me turn the call over to Corey.
Corey: Thank you Carlos and good afternoon, everyone.
Starting on slide six our loan portfolio declined by $57 million to $3 $4 billion in the third quarter as compared to the linked quarter as furnished touched on we experienced several large payoffs as well as the continued managed decline.
Corey: Indirect auto portfolio. Additionally, the homebuilders in our markets had been discipline through the year, having reduced their building and carefully managing inventories.
Corey: We feel very good about the level of home inventories in our markets and believe construction levels are stabilizing.
Corey: Along with balances in our indirect auto portfolio.
Corey: Yields in our loan portfolio was 668% in the third quarter.
Corey: Eight basis points as compared to $6, 6% linked quarter.
Corey: Given the slide eight flows at our major metropolitan markets of Dallas, Houston, and El Paso declined by $20 million in the third quarter to 1.15 billion.
Corey: This was largely a result of two large loan payoffs totaling approximately $23 million, which impacted the growth in balances this quarter.
Corey: At quarter end, our major metropolitan loan portfolio still represented 34, 5% of our total loan portfolio demonstrating the seal that our lenders have achieved.
Corey: Skipping to slide 10, our indirect auto loan portfolio declined $19 billion to $235 million at the end of the third quarter.
As we have discussed we are carefully managing the portfolio with a focus on maintaining its credit quality as competitors continue to be more aggressive at the higher end of the credit spectrum, while volumes have declined overall the credit quality of the portfolio remains strong with 30 plus days past due at 34 basis points, a modest rise from the 20th.
Corey: Basis points in the second quarter.
Corey: Looking forward, we expect the decline in our indirect portfolio to begin to stabilize over the next several quarters as interest rates continued to decline in industry volumes improve.
For the fourth quarter, we expect our loan growth to be relatively flat as we typically see agricultural loans began to pay off seasonally.
Corey: Could continue to see an elevated level of loan payoffs importantly, the underlying momentum in our business is building our customers are becoming more optimistic and activity is accelerating.
Corey: This can also be seen in our new business pipeline, which is at its highest level since the middle of 'twenty to 'twenty two.
Corey: This combined with a significant headwinds to our growth beginning to diminish provides optimism for the pace of loan growth in 2020.
Speaker Change: Alright, just slide 11, we generated $10 $6 million of noninterest income in the third quarter as compared to $12 $7 million in the linked quarter.
Speaker Change: This was primarily due to a $1.5 million decrease in mortgage banking revenues, mainly from a $1 $4 million decrease in the fair value adjustment of our MSR as interest rates declined in the quarter.
Speaker Change: We also experienced a decrease of $750000 in bank card services and interchange revenue, mainly as a result of incentives received during the second quarter and a decrease of $315000 in income from investments in small business investment companies. These decreases were partially offset by 700.
Speaker Change: In dollars of non reoccurring insurance proceeds received in the third quarter.
Speaker Change: Paul we have effectively managed the decline in mortgage volumes haven't kept the business running at or near breakeven pace at the trough of the cycle through disciplined expense management.
Speaker Change: We believe our mortgage business is well positioned to take advantage of the eventual pick up in residential purchase volumes as rates decline.
Speaker Change: We are also seeing the success from the expansions we have made in our Treasury management team to meet the customer demand that we see across our markets in the third quarter. Our Treasury management team contributed to our deposit growth that we experience, while also helping with more than 18% year over year growth.
And deposit service charge fee income through commercial account analysis.
Speaker Change: For the third quarter noninterest income was 22% of bank revenues as compared to 26% in the second quarter.
Speaker Change: Continue to grow our noninterest income remains a focus of our T. I would now like to turn the call over to Steve.
Steve Crockett: Thanks, Cory for the third quarter diluted earnings per share of 66 unchanged.
Steve Crockett: Unchanged from the linked quarter.
Speaker Change: As Curtis noted our third quarter earnings were negatively impacted by <unk> <unk> per share after tax for the MSR adjustment net of the nonrecurring revenue item.
Steve Crockett: Turning to slide 13, net interest income was $37 3 million for the third quarter as compared to $35 9 million for the linked quarter.
Steve Crockett: Interest income increased $2 $4 million in the third quarter as compared to the linked quarter, primarily comprised of increases of $934000 in loan interest income and $1 $5 million in interest income on other interest earning assets.
Steve Crockett: The growth in loan interest income was due to a rise of eight basis points in the yield on loans, partially offset by a decrease in average loans of $13 million.
Steve Crockett: Our net interest margin calculated on a tax equivalent basis was 365% in the third quarter as compared to $3 six 3% in the linked quarter.
Steve Crockett: The two basis point increase churn in <unk> was primarily due to higher loan yields more than offset the rise in our cost of deposits.
Steve Crockett: Of note, our noninterest bearing deposits modestly increase through the third quarter to 26, 9% of total deposits as compared to 26, 3% in the linked quarter.
Steve Crockett: As outlined on slide 14 deposits increased by 95 million to $3 72 billion at September 30th.
Steve Crockett: Our average cost of deposits was 247 basis points in the third quarter, an increase of four basis points from the linked quarter.
Steve Crockett: Turning to slide 15, our ratio of allowance for credit losses to total loans held for investment was 1.41% at September 32024.
Steve Crockett: An increase of one basis point from the end of the prior quarter.
Steve Crockett: We recorded $495000 provision for credit losses in the third quarter, which was largely attributable to net charge off activity, partially offset by a decrease in loan balances during the quarter.
Steve Crockett: Our non performing loans totaled $24 7 million at the end of the third quarter, a slight increase from $23 $5 million in the second quarter.
Steve Crockett: Over 80% of the third quarter total is the $20 million multifamily loan on nonaccrual that Curtis discussed.
Steve Crockett: Go ahead to slide 18 or.
Steve Crockett: Noninterest expense was $33 $1 million in the third quarter as compared to $32 $6 million in the linked quarter.
Steve Crockett: $556000 increase was largely the result of a rise of $226000 in net occupancy expenses, primarily from increased utilities.
Steve Crockett: And growth of $155000 in marketing and development expenses.
Steve Crockett: Looking ahead to the fourth quarter.
Steve Crockett: We expect noninterest expense to be relatively flat compared to the third quarters level.
Steve Crockett: Moving to slide 21, we remain well capitalized with tangible common equity to tangible assets of 977% at the end of the third quarter.
Steve Crockett: An increase of 33 basis points from the end of the second quarter.
Steve Crockett: Tangible book value per share increased to $25.75 as of September 32024.
Steve Crockett: $24 15 as of June 32024.
Steve Crockett: The growth was primarily driven by $16 $6 million improvement in accumulated other comprehensive income as the fair value of available for sale securities increased coupled with $8 $9 million of net income after dividends paid.
Speaker Change: I'll give the call back to hardest for concluding remarks.
Speaker Change: Thank you Steve.
Speaker Change: To conclude I'm very proud of our third quarter results.
Speaker Change: We remain well capitalized and focused on managing our loan portfolio as the credit environment continues to normalize we.
Speaker Change: We have taken proactive steps to ensure we maintain the credit quality of our loan portfolio, which we believe continues to be well positioned for varying economic conditions.
Speaker Change: We have also built liquidity to take advantage of what we believe will be accelerating economic activity and loan growth.
Speaker Change: Interest rates continue to decline in coming quarters.
Speaker Change: Overall I believe we are well positioned to continue to grow the bank and I remain very optimistic on the future for South Plains. Thank you again for your time today operator, please open the line for any questions.
Speaker Change: Great. Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two to remove yourself into the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.
Speaker Change: One moment please poll for questions.
Speaker Change: Our first question is from.
Speaker Change: Robert <unk> from <unk> Group. Please go ahead.
Speaker Change: Hey, good afternoon, everyone.
Speaker Change: Wanted to start on deposits and this was the first quarter and a year DTA in the period up linked quarter and I didn't quite catch one how much I heard I think treasury help these 18% year over year, but I didn't hear how much true.
Speaker Change: He helped DDA and then just any thoughts on any seasonality in DDA and your your outlook on perhaps lowering the cost of funds from here as rates decline.
Speaker Change: Hey, Brett this is Cory and I will I'll kick it off and I figure Steve's going to come in and help me out with just a little bit, but I think one of the things that has really contributed to our DDA DDA balances being up is I mean, we continue to.
Speaker Change: We have more requirements on the loans, leading relationships, we have on requiring the deposit relationship being right here at the bank and we're really seeing some outcome come from that.
Speaker Change: I think one thing I want to really give treasury the rat.
Speaker Change: In that context surrounding what treasury desk has really helped us deliver the right kind of service and make sure that we continue to deliver to our clients.
Speaker Change: The best way to do business with us.
Speaker Change: Where our lenders have really done a really good job at.
Speaker Change: That's requiring more balances coming in as we do new loans and the relationships that we have.
Speaker Change: Yeah, Brian Congrats to Steve I'll jump in and just say I mean as you know there are a lot of a lot of moving parts on the deposit side I mean, we did see a good increase on noninterest bearing there could be some of that.
Speaker Change: That has some seasonality and a few different markets, but I mean, there's there's definitely some some growth that that has occurred there as we continue to stress as Corey mentioned.
Speaker Change: With our treasury folks in an R. R.
Speaker Change: Actual lenders.
Speaker Change: <unk>.
Speaker Change: I wish to push that but no no real big one one item.
Speaker Change: That would that would account for that maybe that would be a short term deal.
But we'll definitely see some some puts and takes in that.
Speaker Change: And that portfolio.
Speaker Change: The costs I mean, we will continue to manage.
Speaker Change: Manage the overall cost.
Speaker Change: That's deposits down I mean, the fact that we were able to grow noninterest bearing definitely helps that.
Speaker Change: Just trying to make sure we manage to the right level of liquidity and not not overpay for what we what we've got what we need.
Speaker Change: One of the things that we've really been focused on as well.
We wanted to make sure as the opportunities continue to come our way that we were going to be prepared to fund it and our focus has been very much driven on driving the deposit growth of this company and I think our liquidity numbers have shown and continue to show that we've done a good job managing that.
Speaker Change: Brett This is Curtis and now it's gorgeous.
Curtis: Core deposits has been really job one around here.
Curtis: For us I think youre seeing the effect of that treasury as part of it but we're also just getting some additional deposits from other sources from folks moving business from other banks.
Curtis: And going forward and you mentioned seasonality I really don't think that much of a factor right now.
Curtis: In fact in some ways, we will probably have more seasonality effect.
Curtis: We get toward the end of the first quarter and ended the first quarter.
Curtis: <unk> has many public funds as we have youre going to see some tax receipts come in.
Curtis: You'll also see farmers selling crops few others range, but we want we are going to be very cognizant of is doing the very best we can on the beta and the market rates move down I don't know how strong we can be but we've had some discussions that we want to be bigger.
A bigger number on the beta going down and then we did on the brighter coming up so we'll see how well we did.
Curtis: Okay.
Speaker Change: That's all really helpful guys.
Speaker Change: Wanted to also ask about loan growth and you know I heard the guidance for flattish from the fourth quarter and you have confidence that that growth.
Speaker Change: Growth will re emerge.
Speaker Change: Maybe thereafter, and I know there's uncertainty with.
Speaker Change: Some folks waiting for C election results, where taxes ended up all that kind of good stuff is there anything that you can kind of point to for 'twenty five in terms of initiatives with you.
Speaker Change: Any of the various segments of the loan portfolio that'll be a focus.
Speaker Change: And then I know you probably haven't done your budget yet, but it is as you think about it you know any thoughts on.
Speaker Change: Mid mid digit high single digit or double digit you know how you might think about this coming year.
Speaker Change: If you if you look at where we are I mean, we're going to be pretty conservative in looking at kind of flat through the balance of the year.
Speaker Change: I think that's why it's going to be here.
Here's the thing that we're so proud of.
Speaker Change: You go back and look at it I can't give you guidance on what we're gonna be legible.
Speaker Change: Budget wise or anything else, but what I can tell you is our pipeline looks better today.
Speaker Change: With the quality of things that we have on our pipeline that our guys are working right now that is lifting two years and thats the kind of stuff that you're going to start seeing really take effect. We may get some of that stuff funded prior to it but youre really going to start seeing it affect our numbers starting in the first quarter and that's probably the thing I'm most excited about right yes.
Speaker Change: Top of that Brett.
Brett Curtis: Last 12 months, we've seen a contraction in both indirect and our homebuilder portfolio as our homebuilders.
Brett Curtis: We have intentionally reduced their inventory to kind of ours to this to the sales environment right now, where we're starting to see signs that that's slowing down and and potentially approaching kind of a bottom for both of those two categories and it's a it's been a big contraction for both both of those.
Brett Curtis: Indirect side that contraction really was driven in part by our pricing model.
Brett Curtis: For that portfolio, but also industry trends.
Brett Curtis: And here lately, we think we are starting to see signs that that's slowed down substantially that contraction so that.
Brett Curtis: That could turn to be a positive for 25 for us.
Brett Curtis: Okay.
Speaker Change: Great if I can sneak in one last one just around the margin.
Speaker Change: It seemed like lower rates would be pretty beneficial to you guys any thoughts on the margin from here either with or without rate cuts.
Speaker Change: Yeah.
Speaker Change: I'll start I mean are we.
Speaker Change: We've done well I think overall on where we've been on margin.
Speaker Change: I'm glad where we ended up.
Speaker Change: Quarter.
Speaker Change: We're projected again, just based off of projections.
Speaker Change: Oh it is.
Speaker Change: Static balance sheet too.
Speaker Change: To be able to improve NIM as rates go down and we're not we're not a drastic improvement.
And fairly.
Speaker Change: Fairly neutral asset sensitive.
Speaker Change: It is a liability sensitive.
Speaker Change: We do project to show improvement. The one caveat is we are a little bit we are a little bit more liquid.
Speaker Change: Today, just given some of the some of the loan Paydowns that you saw in the growth in deposits.
Speaker Change: You know I mean, there could be a little bit a little bit of short term.
Speaker Change: Pressure on NIM just from that.
Speaker Change: Well, we continue to try to manage that overall liquidity position.
Speaker Change: Where that would not be a meaningful number but one thing that we have.
Speaker Change: Intentionally.
Speaker Change: I'm kind of proud of the challenge that we may face, we know what we know what pipelines look like and we know we've got to be able to find them.
Speaker Change: And if I were.
Speaker Change: We're sitting here trying to balance between trying to manage through for the next month or couple of months trying to make sure that we can keeping those balances in place to be ready to fund likely want to when we tell you that our pipeline looks better. It really does look better now you got to get that slipped to the finish line and I think we're all cognizant of that.
Speaker Change: But the quality of the conversations that we're having with our clients are real and they are really good and as we've said on more than one occasion, it's good to be in Texas.
Speaker Change: Brent.
Brent: Corey you kind of alluded to this.
Speaker Change: Yeah.
Speaker Change: Well, we really don't expect significant loan growth in the fourth quarter. We are continuing to I'll just call. It stockpile I guess some core deposits because we had a lot to just our philosophy with lot rather fund as long coming alone growth that we do believes out there with core deposits instead of having to do short term.
Speaker Change: Brokered funds or other things just from fund alone that shows up and what we're doing we'll probably as Steve indicated negatively impact NIM, a little bit, but nevertheless, I think you can watch and see that.
Speaker Change: We have put some money.
Speaker Change: We're paying a little bit sore and we're growing noninterest bearing as well, but we're putting it out an overlap places are readily available liquidity places and we will continue to have more a lot more but we learn more than we're buying so we're still going to be enhancing and kind of a little bit by doing this.
Okay great.
Speaker Change: We appreciate all the color.
Speaker Change: Thanks Britta Schmidt.
Yeah.
Speaker Change: The next question is from Woody lay from K BW. Please go ahead.
Speaker Change: Hey, good afternoon.
Speaker Change: What do you see already.
Woody Lay: Wanted to dive a little bit deeper into a sort of deposit pricing trends. So we got we got the 50 basis point cut towards the end of the quarter could you just walk us through the trend you saw sort of pre and post cut or are the deposit betas coming in line with what you were expecting.
Woody Lay: Steve.
Steve Crockett: Yeah, I would I would say so.
Steve Crockett: Again, we've got we've got a few a few deposits.
Steve Crockett: Primarily in our public fund arena that are that are that have some rate reset days. They may just be monthly.
Steve Crockett: And so maybe a full a full amount may not.
Steve Crockett: Happen immediately, but it'll it catches up fairly quickly.
Steve Crockett: So overall, what we've seen.
Steve Crockett: In October through today, I think we're where we're trending in the direction that I would have anticipated what do you think it is important to keep in mind, though.
We didnt raise it to the top like a lot of them did and so as we start to move back down the more cuts we get the better it will be for US. We knew we knew the first little cut would be a little bit I mean, it would be beneficial, but it won't be as beneficial as the next cuts I think it will be.
Steve Crockett: And I think it's helped US that's one way, we kind of tried to maintain our NIM.
Steve Crockett: After this point we are seeing.
Steve Crockett: Some softening CD rates across most of our markets.
Steve Crockett: Some out there that are badly in need of phones currently and there is still playing out.
Look across the general universe here.
Steve Crockett: Competition, I think everybody has backed off some.
Steve Crockett: Realizing you know people see that 50 basis point cat and recognize it is going to affect what they get for their deposits. So the competitive situation is just not quite as harsh as it was.
Speaker Change: That's helpful.
Speaker Change: And then real quick on the payoffs you saw in the quarter. There was a couple of elevated payoffs.
Speaker Change: Did that impact NII at all and then did you recognize any larger prepayment fees that were a boost to the NIM.
No we didn't have any larger prepayment fees on those.
Speaker Change: I don't think I don't think at all.
Got it alright perfect.
And then lastly, I just wanted to hit on mortgage, though I think if I adjust for the MSR impact of over the past two quarters. It looks like mortgage fees were down about 800000 in the quarter am I thinking about that right and and.
Speaker Change: Sort of what the what the mortgage outlook for me I know, we're about to hit a couple of about sort of weaker seasonal quarters, but do you think we could start to see an inflection from here.
Speaker Change: You know I mean, you're exactly right. We're not we're not headed into our stride for mortgage I mean youre looking at in the fourth quarter I think with all the holidays, a separate company I mean it.
Speaker Change: It will be slower now.
Speaker Change: When we set out our budget for the year, we budgeted this to be exactly what's happening we knew we would do better off with the first of the year and we've tried to stay so careful in managing the expense factor you're still trying to keep our infrastructure in place without let it might have been too much of it of a burden for us we still believe that having the ability to do that it's going to be good.
Speaker Change: And I really anticipate we're going to see more of that activity kind of probably at the first of the year.
Speaker Change: Well I mean.
That being said I mean, we've got some of our some of our lenders are closing more loans as they close last year on the mortgage side, but it's just I mean.
Speaker Change: We're still waiting for rates just to make it a little bit more of a movement for people to actually.
Speaker Change: For the for it to see a big bump.
Speaker Change: I think it's I think everybody sees this deck when we briefly have rights in the sixes.
We're getting a lot of more excitement and interest out there and people were talking about doing something and of course things we've seen the long end.
Speaker Change: For 10 year move up now Rebecca Seven's and threw cold water on it quite a lot, but I do think that the team. We've got her students were doing some business.
Speaker Change: Just tough, but they arent childrens business.
Speaker Change: Yeah.
Speaker Change: There is some opportunities there for us as we do some of the construction stuff that leads into some of the mortgages for a long term that stuff works works with them as much but I mean, the cheapest rates. We've seen most recently on mortgages were the day before the cut.
Speaker Change: So it's just.
Speaker Change: It is what it is for a little one.
Speaker Change: But I do like the fact that we've been able to manage our expenses through this though we're still coming back up we're coming out on track right now, where we thought we would be with mortgage.
Speaker Change: Yeah, Yeah that's.
Speaker Change: That's all great and so alright, thanks for taking my question.
Speaker Change: Thanks Lee.
Speaker Change: As a reminder, if you'd like to ask a question. It is star one.
Speaker Change: Your next question is from Joe <unk> from Raymond James. Please go ahead.
Good afternoon gentlemen.
Speaker Change: Hi, Joe Hi, Joe.
So I wanted to circle back to Lowe's real quick.
I know you talked about a robust pipeline, which you believe will start to kind of come through in the first quarter of next year.
Speaker Change: Yes, there was a wave of loans coming due you expect colonial's can continue to March higher from here.
Speaker Change: I mean, I do no we're getting good pricing on our loans.
We have segments of our portfolio that continually reprice and we benefit from that but.
Speaker Change: I mean, we've got a lot of good opportunities kind of a good mix between C&I.
Speaker Change: CRE in construction.
Speaker Change: You know kind of depends a little bit on on.
Speaker Change: On what the fed doesn't rights, but I'll.
Speaker Change: I think it's important to keep in mind, though.
I think Brent exactly right. We think we will see some improvement in the yield on our loans, but a lot of it's going to come from the repricing of some of the cheaper stuff we have on our books today.
Speaker Change: So I was in the 25 that we're going to see the more of that in 'twenty six.
Speaker Change: Yeah, Yeah for sure it'll it'll depend on how far they cut.
Speaker Change: <unk>.
Speaker Change: We benefited during this year.
Speaker Change: One of the benefits in the indirect portfolio a lot of that stuff that got put on was.
Speaker Change: Back in 2021 rates.
Speaker Change: Sure.
Speaker Change: Their all time lows and as that stuff is amortized off and pay down that's improved the overall year.
Speaker Change: On the loan side so yes.
Speaker Change: Got those competing factors here are new new loans, we're going to put on the books on the commercial side.
Speaker Change: Those will be beneficial to us.
Speaker Change: We do have some of those loans are.
Speaker Change: Spread out through 'twenty, five 'twenty, six and into 'twenty seven that that reprice.
Speaker Change: But there.
Speaker Change: The variable stuff, we've got right now is that repricing down.
Speaker Change: Hum.
Speaker Change: Again, hopefully we can we can keep that loan yield somewhere in the neighborhood of where we're at today. So I'll give you a little peek behind the curtain I mean, we've had lots of conversations with our lenders and trying to figure out what market pressures exist.
Speaker Change: We're reacting to them and in a very good manner, all while being very careful with our our credit quality, but the one thing we're not really struggling on us right.
Speaker Change: And it's not like it's not like a sport.
Speaker Change: That's just not been we think we're pretty competitive with it and we like the stuff we're putting on.
Speaker Change: So I do think that we'll see some improvement.
Speaker Change: I appreciate that that was very thorough answer.
Speaker Change: And then you just talked about.
CD rates for CD rates coming down in your markets.
Can you discuss how your CD rates have trended kind of subsequent to the rate card.
Speaker Change: And then kind of the expected maturity schedule, just trying to get a sense on the near term opportunity to reprice those down.
Speaker Change: Well I'll, let Steve jump in on this to give you a little more.
Steve Crockett: Relevant that younger guests on our C DS, but keep in mind.
Speaker Change: Deposits Cds right below peer anyway. So yeah, we are cutting rates on some we just don't have a lot of demand for longer term Cds most of our people have been putting in with us that do have Cds have been six months 12 months Oh opportunities out there so Steve relatively speaking what have you.
What are you seeing out there I mean, we won't be repricing some downward what came on in the past 12 months, we are yes.
Speaker Change: Yes.
Speaker Change: The majority of our Cds are all.
Speaker Change: They are definitely one year or less and most of them are.
Speaker Change: Probably going to be in the six month or less period. So those those are.
Speaker Change: Beginning to reprice and even some of the ones. We had we had done.
Speaker Change: Earlier in the year have.
Speaker Change: Began to reprice down so we we did drop dropped the C D rates.
Speaker Change: Just just right after the fed cut.
Speaker Change: In that you know in that six months to the year a year timeframe are.
Anywhere from 25 to 50 basis points, but remember we weren't putting high rate Cds, because I mean, we weren't already about marketed by any stretch.
Speaker Change: Right Alright.
Speaker Change: I appreciate that then kind of last one for me on the bond bucket. It looks like you added a little bit in the quarter.
Kind of what were you, adding and where do you expect a kind of a bump up to the front burner.
Speaker Change: Oh on the on the Bond book, we actually did not.
Speaker Change: Add anything at the increase should it just been the increase in the fair value.
Speaker Change: As a security so we really have not added any any securities in a little while or all of our salespeople would love for us to.
Speaker Change: Be doing that but there.
Speaker Change: I think there was anything during the quarter.
Speaker Change: We've got other people out there that are taking.
Speaker Change: Taking the opportunity to reposition big chunks of their bond book.
Speaker Change: We've chosen not to do that we had various analysis run.
Speaker Change: The pros cons on it too and for US right now as we've said before we have a fairly significant piece of our municipals that are hedged and with that in place.
Speaker Change: Nobody knows how fast this thing will come down, but I do believe we are on a downward trajectory now.
Speaker Change: We've got an election coming in.
Speaker Change: I'm not even going to forecast what would happen depending on the way the election comes out, but we think we're in a fairly safe position right. Now we don't think it's a good time to use our capital just to go.
Speaker Change: Restructure the whole bond books, or we'll sit here with what we got we're not going to really be buyers right now on much unless it's.
Speaker Change: Super Super short things just for some of that excess liquidity, we've been talking about.
Speaker Change: I appreciate it I actually fed, but I do have one more question here.
Speaker Change: As we think about non interest expenses.
Speaker Change: Or are there any large items that we should be thinking about as we move into 2025.
Speaker Change: Where do you think it'll be pretty much a normalized year.
Speaker Change: I would hope it's as a normalized year.
Speaker Change: We will definitely be seeing pressure on the.
On the personnel cost side, I think just with what's gone on over the last.
Speaker Change: Year plus inflation.
Speaker Change: I T as always are.
Okay.
Speaker Change: As always more things out there available to upgrade and and.
Speaker Change: So we will try to try to keep keep keep that under control outside of that I'm not I'm not aware of any any significant item. Yeah. I don't think it's going to be pretty much it'll be pretty flat going forward.
Speaker Change: That doesn't mean that we won't be still be doing stuff that we'll have other stuff. That's rolling off and I think I think our team does a pretty good job of trying to manage that step out right. We've had that planned for quite a while but.
Speaker Change: On the technology side operationally generally there.
Speaker Change: We do things in increments not huge chunks. This past year was actually relatively large chunk for us because of some cloud migration, we were doing was noncore products.
Speaker Change: The.
The forecast out there that I'm looking at is yes, we have a soft landing and a normalization in the economy generally yes, we do think that we're picking up some good loan opportunities.
Speaker Change: The game plan here is to get a little more loan growth in 'twenty, five and what we got 24, but not a whole lot more we need to do it manageable and use our core deposits and put them to work and do that with quality loans in micro loan spread.
Speaker Change: That's that's what we're looking forward to it.
Speaker Change: Well, thank you for taking my questions.
Speaker Change: Thanks, Joe.
Speaker Change: Yeah.
Speaker Change: This concludes the question and answer session I would like to turn the floor back to you Curtis Griffith for any closing comments.
Thanks, operator.
Speaker Change: Yeah.
Curtis Griffith: And thanks to everybody that joined us on the call. This afternoon.
Curtis Griffith: To reiterate we think our third quarter results demonstrate the bank is performing very well, we do continue to focus on our customers.
Curtis Griffith: Long term relationships that can be seen in strong deposit share we're holding the number one number two position in many of our rural markets across Texas and New Mexico.
Curtis Griffith: Additionally, we're going to try to drive strong deposit growth overall, providing liquidity for the loan growth coming in the year ahead, we think and very importantly, we are seeing a level of optimism from our customers that we haven't seen in some time translating into as we've mentioned several times strongest new business pipeline that we've had more than two years.
Curtis Griffith: And <unk>, we've been experiencing from the managed decline in our indirect auto portfolio and our builder customers have been reducing inventories. We think those bumps up stabilize so taken together I'm pretty optimistic about the future, especially I do want to thank our employees for their dedication to the bank and to our customers our success.
Would not be possible without them. Thanks again for your time today.
Curtis Griffith: Okay.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.
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