Q1 2025 FB Financial Corp Earnings Call
© transcript Emily Beynon
We have Travis Edmondson, Chief Banking Officer [inaudible]
During this presentation, FB Financial may make comments which constitute forward-looking statements under the federal securities laws. Forward-looking statements are based on management's current expectations and assumptions.
A More Detailed Description of These
and other risks [inaudible]
that may cause actual results to materially differ from expectations.
accepted as required by law, FB Financial Disclamings, any obligation to update or revise any forward looking statements contained in this presentation, whether as a result of new information, future events or otherwise.
In addition, these remarks may include certain non-GAAP financial measures as defined by SEC regulation G, a presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to comparable GAAP measures is available in FB Financial's earnings release.
Supplemental Financial Information, and this morning's presentation.
which are available on the Investor Relations page of the company's website at www.firstbankonline.com and on the SEC's website at www.sac.gov
Speaker Change: I would now like to turn the presentation over to Mr. Holmes, FB Financial's president and CEO .
Speaker Change: and before we move into our prepared comments around 1st quarter, I'd like to take just a minute to acknowledge the remarkable life of Mr. Jim Ayers. Earlier this month, our former chairman for more than 35 years, Jim Ayers passed away peacefully at his home.
Speaker Change: We knew him as a caring role model, a dear friend, and a relentless entrepreneur.
Speaker Change: That became one of the largest and most successful in that industry, and he'd go on to lead and grow multiple businesses including his involvement in first bank [inaudible]
Speaker Change: Jim's success led to a friend Steve White approaching him about buying former state bank.
Speaker Change: Jim and Steve bought the bank, which had less than 20 million in assets at the time in 1984 with each partner owning 50%.
Speaker Change: Ultimately Jim acquired the 50% he didn't own from his partner and because of Jim's leadership that single branch bank through growth and acquisition transformed into the first bank brand that we are today.
Speaker Change: Or no not Jim I encourage you to look into the initiatives of the Ers Foundation, which is already provided for the college education of thousands of students from rural Tennessee communities through the Air scholarship program, the lasting impact of Jim's life will evolve through this program and through the culture of companies like ours.
With that.
Speaker Change: I'll now turn to our usual business.
Speaker Change: A couple of weeks back on March 31, we announced our planned combination with southern States Bank.
Speaker Change: In our announcement call I discussed how the cultural fit market opportunity and financial profile of this kind of combination made a lot of sense.
Speaker Change: And I can say 15 days later that our conviction around this deal is stronger today than at the announcement.
Speaker Change: In the days following our announcement myself and our leadership team made personal visits to all of the southern States location, where we had the opportunity to meet the great people that underpin the southern States organization. Since then our team has established an integration office form key work streams outlined our timelines and begun collaborations with.
Speaker Change: Southern States counterparts.
Speaker Change: As we said previously.
Speaker Change: We still envision a Q3 close and our teams will be prepared.
Speaker Change: This announcement.
Speaker Change: Rounded out the quarter brought team, where we balanced our attention between the southern states transaction and continuing to grow and improve our existing first bank franchise.
Speaker Change: For the quarter, we reported EPS of <unk> 84.
Speaker Change: And adjusted EPS of <unk> 85 cents.
Speaker Change: We've grown our tangible book value per share excluding the impact of biopsy I at a compound annual growth rate of 12, 8% since our IPO in 2016.
Speaker Change: Okay.
Speaker Change: Pre tax pre provision net revenue was $51 $1 million or $52.2 million on an adjusted basis.
Speaker Change: During the quarter, our team continued to grow organically focusing on forming new relationships across our markets and deepen current relationships through additional products and services as a result loan balances grew by $169 million.
Speaker Change: And that an annual.
Speaker Change: Annualized rate of 7.14%.
Speaker Change: Primarily in focus areas like C&I and owner occupied CRE, while continuing to decrease construction exposure.
Speaker Change: At quarter end, we ended with approximately $9.8 million in million dollars in loans held for investment.
Speaker Change: We maintained our returns this quarter reporting an adjusted return on average assets of one point to 3% our adjusted return on average 10 private equity.
Speaker Change: 12, 3% is below our internal targets are partially because were holding a lot of capital.
Speaker Change: We ended the quarter with a tangible common equity to tangible assets ratio 10, a half percent preliminary CET, one crop one 8% and our preliminary total risk based capital ratio of 10 point I'm sorry, 52%.
Speaker Change: As we grow both organically and through a combination of opportunities like the one that southern states I continue to emphasize the strength of our operating foundation, our teams and technology are in place to scale and our financial position capital liquidity credit earnings.
Speaker Change: Are all on sound footing with positive momentum.
Speaker Change: With this we remain poised for any economic environment.
Speaker Change: The past few weeks, we've seen volatile market with a flood of economic news and policies coming out of Washington, but any change administration, we knew the policy changes would impact the broader economic picture.
Speaker Change: Economic uncertainty has been on the rise and we're watching and trying to determine impact on our clients and communities just like al just like everyone else.
Speaker Change: When faced with uncertainty we believe two things first our mission as an organization.
Speaker Change: Asia remains unchanged building.
Speaker Change: Building, a better future by serving our customers and communities well, providing a great place to work and grow for our associates.
Speaker Change: And managing our organization to provide solid solid returns to our shareholders.
Speaker Change: While were classified as a regional bank and we touched five states in the southeast.
Speaker Change: Our focus remains on our customers and our communities, it's times of uncertainty, where our customers need us most.
Speaker Change: And they need us most to provide timely service quality products.
Speaker Change: In a place of security for their financial resources, and that's what we're going to continue to do secondly, we also believe that history shows that times of uncertainty bring great opportunity that for those that are disciplined and prepared.
Speaker Change: We believe that with a smart capable team in place a solid financial foundation and a favorable geography, our company is poised to advance through any economic cycle.
Speaker Change: We will of course continue to monitor markets tariff policy tax rule regulatory requirements, and we'll react as necessary to steer our company, but in times of uncertainty our playbook.
Speaker Change: As to first make sure we understand second formulate a plan and third to execute.
Speaker Change: And it's through these principles that will be the changing landscape in the data com.
Speaker Change: Now to provide a deeper look at the quarter financial results and some insight into the tactical steps, we're taking around the economic uncertainty.
Michael <unk>: I'd like to pass the call over to our Chief Legal Officer, Michael <unk>.
Speaker Change: Thank you, Chris and good morning, everyone I'll take a minute to walk through this quarter's earnings and touch on our outlook as we move through 2025.
Speaker Change: We reported net interest income of $107 6 million and noninterest income of $23 million for the quarter, resulting in solid revenue even with two less days in the quarter reported noninterest expense was $79 5 million or <unk> $79 1 million on an adjusted basis and provision expense.
Speaker Change: <unk> came in at $2 $3 million for the quarter.
Speaker Change: All in reported net income was $39 4 million or $40 1 million on an adjusted basis.
Speaker Change: Looking at margin for the quarter net interest margin was up five basis points on a tax equivalent basis to three 5%.
Speaker Change: Which is within our previously guided range we.
Speaker Change: We saw contractual interest rates on loans decreased nine basis points, while our yield on interest, earning assets decreased 10 basis points to 591%.
Speaker Change: The first quarter included the first full quarter of impact from rate cuts from the prior year.
Speaker Change: This impact was partially offset by yields on new loan production, which averaged right over 7% in the first quarter.
Speaker Change: On the liability side of the balance sheet, we continue to see benefits from cost of funds management and deposit repricing during the quarter.
Speaker Change: Our cost of total interest bearing deposits decreased 24 basis points, reflecting our efforts to manage down brokered another high cost deposit balances.
Speaker Change: We will continue to reprice these portfolios along with about $600 million in CD deposit balances that are set to renew in the second quarter.
Speaker Change: Or at a weighted average rate of about four 2% and then we have an additional $775 million in the back half of the year at a weighted average rate of three 8% that will reprice in the lower market rates.
Speaker Change: On a dollar basis net interest income was down 740000, largely impacted by the two fewer days in the quarter, which accounted for about $2 million in headwinds more than offset by the positive margin gains I previously noted.
Speaker Change: Through 2025, I'll reiterate our market margin expectation to remain between 3.55% and $3 60 on a standalone basis and once combined with other states, we anticipate to solidify the margin in the upper end of that range.
Speaker Change: Our noninterest income, we remain relatively flat reporting $23 million or $23 6 million.
Speaker Change: On an adjusted basis.
Speaker Change: Mortgage banking benefited from lower market interest rates, which benefited our lock volumes during the quarter when compared to the fourth quarter.
Speaker Change: Our mortgage servicing economics improved during the quarter as well, resulting in mortgage banking income being up about $1.8 million.
Speaker Change: These gains were slightly offset by lower swap fees and other fee related revenue streams that were impacted by fewer days in the quarter.
Speaker Change: Looking at expenses core noninterest expense increased to $79 2 million as compared to $72 7 million in the fourth quarter, resulting in a core efficiency ratio of 59, 9% compared to 54.6 in the prior quarter.
Speaker Change: Compensation expense was higher in part due to performance based compensation and seasonally higher HR related expenses, such as payroll tax and four one K match restart.
Speaker Change: Month of Merit long term incentive compensation and incremental increases in other employee focus benefits.
Speaker Change: Finally, as we noted last quarter, we had a $2 6 million to our franchise tax benefit in the fourth quarter, which did not repeat in the first quarter.
Speaker Change: Accounting for almost half of the quarter over quarter increase.
Speaker Change: Looking forward, we expect our <unk> expense range in our banking segment to approximately be $66 million to $68 million in the second quarter.
Speaker Change: On credit charge offs remain higher than historical levels with an annualized net charge off rate of one 4%.
Speaker Change: This was driven by a credit in the C&I portfolio that was largely reserved for but ultimately charged off during the quarter.
Speaker Change: In total our allowance for credit loss balance decreased to $151 million during the quarter and our ACL to H F <unk> decreased to 1.54% from 1.58%.
Speaker Change: From the prior from the fourth quarter.
Speaker Change: The moving pieces in our allowance included a reserve build due to loan growth offset by the charge off and a shift in portfolio mix from higher reserve construction loans to lower reserves C&I loans.
Speaker Change: We maintained our baseline scenario as we continue to evaluate the economic uncertainties surrounding tariffs and the ultimate impact on our customers as.
Speaker Change: As we deal with the changing landscape, we're analyzing specific industries larger relationships and ultimately spending time with customers to understand the potential impact on their business.
Speaker Change: Finally on capital, we continue to maintain strong capital ratios, including tangible common equity to total assets of 10, 5% and a preliminary common equity tier one ratio of 12, 8%.
Speaker Change: Our team continues to look for ways to put our capital to work for example, during the first quarter. We brought bought back about $10 million in stock and we announced the combination with southern States Bank and after this deal our capital levels will remain strong and will be ready for additional deployment opportunities.
Speaker Change: With the ultimate aim of delivering consistent long term growth in earnings and tangible book value for our shareholders.
Speaker Change: With that I'll turn the call back over to Chris Alright, Thanks, Michael for the color and to conclude I am pleased with our results for the quarter and look forward to keeping you all updated as we move through the combination with southern states over the coming months. Thank you again for your interest in FB financial and operator at this time, we'd like to open the line for questions.
Speaker Change: Yes, Sir we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if you're using a speaker phone. Please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Stephen Scouten with Piper Sandler. Please go ahead.
Hey, good morning, everyone.
Speaker Change:
Speaker Change: I guess I would love to touch on kind of loan growth.
Speaker Change: <unk> trends, what you're seeing kind of boots on the ground. Obviously the markets are telling us one thing about uncertainty people are getting maybe a little bit more spooked about C&I lending just at a high level. So I'm wondering if you could give us some color kind of what you're seeing and hearing from your customers. How you feel about continued growth in C&I and kind of how youre thinking about loan growth for the <unk>.
Speaker Change: Rest of the year given all the uncertainty.
Speaker Change: Yeah, Hey, Steven Good morning, Chris.
Speaker Change: So I would say a couple of things.
Speaker Change: At the macro level.
Travis: Some of it Travis.
Travis: Comment because our chief banking officer, Who's with US this morning.
Travis: But I would say from a macro level you do here.
Travis: Here are some.
Travis: Reticence about major projects and make a move but I think it's.
Travis: Little more micro and client level.
Travis: You generally get.
Travis: Again some of the same.
Travis: But all of them smaller.
Travis: To a smaller degree continuing to move forward with more business as usual.
Travis: But maybe some aversion to new big projects until there's a little more of a stable.
Travis: So Travis.
Travis: Yeah, Yeah, that's right Chris across our geographies. Our pipeline has actually remained fairly robust we haven't seen a drastic movement in our anticipated loan activity throughout the rest of this year now that could change based on how all these things land.
Travis: Every time you read the paper, it's a little bit different but as of today I think our outlook remains in that that high single low double digits.
Travis: <unk>.
Travis: Yeah.
Travis: Sure and good.
Travis: If we look more near term.
Travis: We haven't seen a lot of fallout.
Travis: The fact of the matter on the near term.
Travis: In the very near term.
Travis: Got it okay, that's very helpful and how about.
Travis: Asheville, and Tuscaloosa in particular, I mean, I know, it's still really early innings. There as you continue to build out.
Travis: Kind of in those new markets, but what are you seeing there maybe even anecdotally and just kind of how you feel about the pace of expansion in those newer markets.
Travis: Yeah, Hey, this is Travis again, we feel really good about both of those markets Tuscaloosa has gotten off to a real strong start.
Travis: The team down there has already brought on a lot of a lot of key relationships. The Ashland team with all the that they've been through second half of last year.
Travis: They they had more important things to worry about getting getting their families back situated but we're starting to see that pick up to throughout the first quarter and we expect a lot of a lot of momentum to continue in both those markets throughout this year.
Travis: It's David I'll, just add to that yeah. It's Michael we did hire non new revenue producers in the first quarter and those are two places where we continue to add talent.
Travis: <unk>.
Speaker Change: And it appears and we're hearing that that will.
Speaker Change: That momentum will continue.
Speaker Change: We as we grow there so we're very very positive on the Tuscaloosa, Nashville and the opportunity.
Speaker Change: Yeah, Okay and then.
Speaker Change: Oh, sorry.
Speaker Change: I'd just add one last point is in both of those markets.
Speaker Change: We didn't jump at the first opportunity we had to go there in each of those we've had a we've entertained.
Speaker Change: The opportunities before but we.
Speaker Change: The quality of the people make all the difference in the world and so we.
Speaker Change: Really pleased with our teams there and we have.
Speaker Change: And both of those places entertained.
Speaker Change: Opportunities before we before we actually pull the trigger.
Speaker Change: Got it got it and that new hire activities is helpful. I think.
Speaker Change: Looking at my notes correctly, you had nine new revenue producers in the fourth quarter as well and maybe like 32 for the year last year. So is that kind of a ratable pace at this point or does that slow with the southern states merger or do you kind of just continue to add personnel given all of the excess capital and the desire to kind of continue to build the <unk>.
Speaker Change: Yes.
Speaker Change: Yeah, No we don't want that to slow we want if anything we wanted to gain momentum and we we.
I made reference in our call I think I may have used this phrase on Colorado I use it internally, we have to walk and chew gum at the same time and so.
Speaker Change: We want to continue to add in that.
Speaker Change: And in our existing markets.
Speaker Change: As we add new markets with combination with southern states.
Speaker Change: So we'll continue that.
Speaker Change: We will aim to continue that pace.
Speaker Change: Okay, Great and one just point of clarity with the with the share repurchase I mean, it looks like if I'm doing the math right you bought back stock around $48 in the quarter.
Speaker Change: Obviously, unfortunately, it's trading a bit lower than that today, and if I'm doing the math right you have maybe $73 million left in that authorization, how should we think about the.
Speaker Change: Potential aggressiveness at these levels with the deal pending.
Speaker Change:
Speaker Change: We we have the capital.
Speaker Change: And.
Speaker Change: Oh.
Speaker Change: And we want them.
Speaker Change: And we do have 70 through as you said, we've got about $73 million remaining on the authorization and so when we think the stock is undervalued.
Speaker Change: It still makes sense for us to be in the market.
Speaker Change: So I would think of it as if we.
Speaker Change: We think the stock is undervalued and we're going to be in the morning.
Speaker Change: Yeah.
Speaker Change: Great. Thanks, so much for the color appreciate the time as always.
Speaker Change: Alright, Thanks, Steve.
Brett Robinson: The next question comes from Brett Robinson with Hubby Group. Please go ahead.
Brett Robinson: Hey, guys good morning.
Speaker Change: One wanted to start off with the balance sheet and <unk>.
Speaker Change: Last year, you started off the year kind of in the same way, where the balance sheet overall kind of flattish in the first half of the year and then the growth really took off in the back half of the year and with the deal pending you know kind of looks to me like Youre managing the deposit costs. You know, obviously youll have some liquidity with the <unk>.
Speaker Change: Do you use some.
Speaker Change: During the quarter with cash balances lower should we expect <unk> to be somewhere and you guys are kind of just managing deposit costs.
Speaker Change: Until the deal closes or shall we expect stronger balance sheet growth.
Speaker Change: Irrespective of the transaction.
Speaker Change: Yeah, Brad good morning.
Speaker Change: I guess the quarter did look a lot like last year and the way that I've never been a quiet quarter.
Speaker Change: Front half back half most of the loan growth occurred in March really had a lot of pay offs early in the quarter.
Speaker Change: So there was no reason to kind of be overfunded on some of the higher cost deposits, we paid down brokered by about $50 million.
Speaker Change: So we will continue to manage as we have been.
Speaker Change: Balancing liquidity margin growth.
Speaker Change: But.
Speaker Change: But as Travis mentioned, our pipelines are pretty strong, which means we always say the same thing internally and externally we've got to continue to grow core relationships and deposits.
And so that's why we're out focused doing everyday as they've tried to get operating accounts.
Speaker Change: Core customers.
Speaker Change: And so if they're if theres people willing to pay what we consider to be above market on deposits. That's got a excess interest or hotter money, then that doesn't always make sense for us to hold onto them. If you can find cheaper and so that's kind of the way we approach it.
Speaker Change: Our markets.
Speaker Change: Customers up about 19% in the quarter.
Speaker Change: And some of that more corporate type deposit activity was what balance this out to flat. So it's.
Speaker Change: Its men's in the balance sheet will continue to do that as we go into.
Speaker Change: It's a combination but also just part of our ethos.
Speaker Change: Yeah.
Speaker Change: I would just add one thing to that Brett is.
Speaker Change: Theres always is as you know I mean, there's always a number of moving underneath the surface and so.
Speaker Change: We try to bring to light on calls like this.
Speaker Change: If you looked at our core customer numbers.
Speaker Change: On deposit they would actually be pretty good for the first quarter and if we can but we also as Michael said, we were able to take some higher cost up I'm just letting it go frankly that that wasn't really what will call for a customer where do they were deposits, but they were they were really.
Speaker Change: This base purchase pool customer and so.
Speaker Change: If we if we continue which we anticipate we will have to have that good core customer and through adding customers and growing balances.
Speaker Change: Then we would see a little more actually I'll call. It total asset balance sheet growth in the second quarter.
As opposed to just in the back half of the year. So we do want to we do want to do that.
Speaker Change: As Michael said, an important point.
Speaker Change: We didn't really see the loan growth come in until March we were monitoring the pipelines, we kind of knew what was going to happen there and so.
Speaker Change: It was okay with us to have a little bit less of some high cost stuff.
Speaker Change: And that went out in the first quarter.
Speaker Change: Net net it too.
Speaker Change: Yeah.
Speaker Change: And okay growth number, but but underneath we were actually pretty accurately.
Speaker Change: Okay. That's that's great color on that and then the other question I wanted to ask was just around construction.
Speaker Change: And I think this is the first quarter and at least the last four or five that you've actually had an increase in commitments to construction.
Speaker Change: And it is.
Speaker Change: What worries me a little bit that Nashville wants as many hotel rooms, as they do to host the Super Bowl, but.
Speaker Change: See how that plays out.
Speaker Change: Just wanted to hear what you guys thoughts on the.
Speaker Change: The increase in construction commitments and just if you think there's opportunities in that potential bucket from here.
Speaker Change: Yeah. So we're still on our concentration ratio of about 64% and so we're still in good shape there from a risk overall risk standpoint.
Speaker Change: And so that that doesn't bother us.
Speaker Change: And remember not all of our construction.
Speaker Change: And also Knoxville, and Chattanooga, and <unk>, and Dalton and Birmingham, and so it's kind of spread around.
Speaker Change: Nashville continues to be.
Speaker Change: The strongest geography in our region, but we are watching some of the same things that you talk about.
Speaker Change: We are we haven't booked hosting the Super Bowl, yet, but we are.
Speaker Change: [laughter] Oh, it's so.
Speaker Change: We we are I.
I guess the way we would envision it would we think about our hospitality concentration.
Speaker Change: Overall, we manage that.
Speaker Change: It's certainly within our within our range in terms of concentration.
Speaker Change: And.
Speaker Change: But but.
Speaker Change: The hospitality space, especially in certain markets is one that we watch watch carefully.
Speaker Change: Including frankly Nashville right now there are there are theres a ton of.
Speaker Change: Supply.
Speaker Change: The.
Speaker Change: But if you've noticed on sales of hotel recently, they seem to have kind of capped out that Canada actually backing off a little bit on the.
Speaker Change: Cost per door things like that and so we're watching those and.
Speaker Change: And not adding a lot to that has hospitality.
Speaker Change: <unk> right now we do have I can think of one deal that we do have it's actually not in Nashville.
Speaker Change: And this is what we're going to look at more than anything it's with a customer that we know well we've done tons of transaction with and they they guarantee it and were happy as a clam to get get to do it okay.
Speaker Change: But again that Atwood happens to not be in Nashville.
Speaker Change: Okay.
Speaker Change: Great appreciate all the color.
Speaker Change: Thanks, Brett.
Speaker Change: The next question comes from Russell Gunther with Stephens.
Speaker Change: Please go ahead.
Russell Gunther: Hey, good morning, guys.
Speaker Change: Good morning Russell.
Speaker Change: On the margin so.
Speaker Change: Legacy SDK and near term outlook.
Speaker Change: Could you just let us know what you are contemplating from.
Speaker Change: Fed cut and shape of the curve perspective in there and then second part the pro forma NIM guide around 360 does that consider plans to liquidate the target securities portfolio, and either reinvest higher or pay down borrowings.
Speaker Change: Hey, Russell and good morning.
Speaker Change: Yeah.
Speaker Change: Travis mentioned that every time, we pick up the newspaper the economic.
Speaker Change: Outlook changes I actually don't read the newspaper.
Speaker Change: Electronic stuff to track the economy.
Speaker Change: Yes.
Speaker Change: Ex I guess not.
Speaker Change: A not so subtle.
Speaker Change: So.
Speaker Change: Now we're more at bat I, just don't Wanna say, we're more advanced in the paper a newspaper.
Speaker Change: But we're not smart enough to predict rates at least I'm not.
Speaker Change: What we have in the model.
Speaker Change: Basically two rate cuts, which is what we've had the whole year I would say.
Speaker Change: We were expecting steepness in the yogurt and you know over the past two weeks, it's inverted an inverted.
Speaker Change: And so we're playing playing right along with whatever is happening right now.
Speaker Change: So from a forecast perspective, we just havent, we havent changed from the beginning of the year because just like on tariffs.
Speaker Change: Whether we're picking up a newspaper turning on the TV.
Speaker Change: So like Jason is chasing goes at this point.
Speaker Change: We expect.
Speaker Change: More status quo deposits to reprice.
Speaker Change: Lower loans reprice modestly lower as well and that's why we're pretty stable at our margin outlook. Obviously, the economy is kind of a wildcard.
Speaker Change: The combined entity.
Speaker Change: Yeah like I said, we're on the high end.
Speaker Change: You know.
Speaker Change: Your question was really about liquidity and gaining some liquidity and maintaining that and so we're kind of playing that by ear as the economy plays out there's certainly room.
Speaker Change: To liquidate the investment portfolio and reinvest we'd love to reinvest right and loans not in bonds.
Speaker Change: Not a whole lot of wholesale funding to pay down, but there's some upside there.
Speaker Change: Some of the I'll call it conservatism in that.
Speaker Change: And the guide is we just we don't know what's happening while we're on this call globally from an economic basis.
Speaker Change: Just keep doing what we're doing.
Speaker Change: Yes, no I fully understand and appreciate the color on your guys stop there.
Speaker Change: Maybe then switching gears to fee income in the mortgage banking outlook you addressed.
Speaker Change: So much stronger performance this quarter, how are you guys thinking about that into Q relative.
Speaker Change: To the <unk> resolved and then the impact that might have on the aggregate noninterest expense guide for.
Speaker Change: <unk>.
Speaker Change: Yeah actually.
Speaker Change: Yeah, I'm glad you brought mortgage up we're pretty we're pleased with their performance, where we're not expecting a great first quarter given.
Speaker Change: Where rates were and housing and affordability.
Speaker Change: So strong quarter.
Speaker Change: From a walk on operating basis.
Speaker Change: We have made.
Speaker Change: Money.
Speaker Change: On the pure origination basis, and then servicing we had less loans refinance or pay off and so that yeah that helps.
Speaker Change: On servicing income as well the volatility helped with kind of hedge performance.
Speaker Change: So early.
Speaker Change: Early April I'd say, we're off to a pretty good start regarding when the 10 year went down below four.
Speaker Change: Lot of momentum.
Speaker Change: I heard a little bit, but pipelines as Travis mentioned pipelines on the commercial side.
Speaker Change: Spent some time with some of our originators on on Sunday, and they said Hey, our pipelines people were just wait we're ready to go if rates move.
Speaker Change: Lower lot of volatility of 100 basis points in the right range of mortgage in two weeks.
Speaker Change: Could dampen some of that enthusiasm would dampen if it stays in the upper sixes.
Speaker Change: There are five straight quarters of <unk>.
Speaker Change: Profitability.
Speaker Change: So probably a little bit longer than that and so we expect that to continue.
Speaker Change: Love to see.
Speaker Change: Similar performance.
Speaker Change: But it's also very economically dependent.
Speaker Change: And then for the NII guide in total and we kind of think about it right.
Speaker Change: We'll take we'll take additional noninterest expense right in mortgage as long as we're getting that efficiency ratio in the mid eighties, we'd love to be low to mid eighties got a little bit of low to mid eighties on mortgage by mortgage. Thank you clarifying point.
Speaker Change: And so yeah that and I will go up.
Speaker Change: Generally why we point to banking is because that's a little bit of a wildcard because it follows.
Speaker Change: All that revenue.
Russell Gunther: Got it okay. Thank you Michael and then just last one for me sort of on your charge off expectations for the year.
Speaker Change: Last couple of quarters have been really credit specific.
Speaker Change: So just curious as to line of sight, you have going forward and then if there were to be negative surprises or weakness related to the current.
Speaker Change: Macro volatility where would you be most concerned about that showing up in your book.
Speaker Change: Yeah Yeah.
Speaker Change: I'll.
Speaker Change: Go for a couple of things.
Speaker Change: Let's say, let's say, we would expect the year to actually be b.
Speaker Change: Probably a little less than.
Speaker Change: Then the where we started the year in the first quarter.
Speaker Change: Oh.
Speaker Change: And so.
Yeah. We've historically if you go back just about 11 or 12 years, we've historically been a little less than where we are.
Speaker Change: It looks like that that would be.
Speaker Change: Yeah.
Speaker Change: Kind of where we would stay for the year would be a little below where we were we were in the quarter.
Speaker Change: And then the second.
Speaker Change: Part of your question on where we would expect thing where we've seen things has really been on the C&I front as opposed to more on the real estate front.
Speaker Change: So that's probably the continues to be the case.
Speaker Change: We've seen a real estate bump or two but they haven't they just been things that we needed to work through as opposed to things that had a.
Speaker Change: Any charge off our loss content to them and so that's been that's been the case, yes.
Speaker Change: Just to give some color around the charge off this quarter that that's a that's a company that we've been working with for for over eight years, they've got into a bad contract along law suit and they've been they've been.
Speaker Change: Very forthcoming with their issues and we've worked with them and just came time were where we needed to charge off the credits but.
Speaker Change: Overall, our Npa's and Npls both improved this quarter. So we're seeing some positive trends and I would just echo Chris we don't expect.
Speaker Change: Elevated charge offs through the remainder of the year from where we were in the first quarter.
Speaker Change: Yeah and okay.
Speaker Change: <unk> talked about it a lot, but 14 basis points.
Speaker Change: Industry wide.
Speaker Change: That's a pretty good work by your team.
Speaker Change: So.
Speaker Change: Elevated at 14.
What else would take note of the fact that Travis you used the word elevated with 14 basis points and so that's.
Speaker Change: That's kind of the if that's if that's any indication so yeah no I.
Speaker Change: And I appreciate you guys, taking my question.
Russell Gunther: Thanks, Robert Thanks Russell.
Catherine Mealor: The next question comes from Catherine Mealor with <unk>. Please go ahead.
Speaker Change: Good morning.
Speaker Change: Good morning Beth.
Speaker Change: Just one follow up question on expenses.
Speaker Change: Can you kind of came in at the high end of the range that you gave last quarter, Michael and then I feel like for the full year, you had been talking about a 4% to 5%.
Speaker Change: But if we look at the range of expense guide that you gave for next quarter and just bring that for the full year. It looks like we're now it's like around a 9% or so growth range and so just kind of curious where that.
Speaker Change: Where that higher expenses is coming from I'm, assuming it's just from the hires that you would continue to have an and so just curious if that does anything to kind of forward thinking on efficiency.
Speaker Change: Or with that higher expense level I'm, assuming we should assume revenue pretty quickly with it but just kind of curious you know.
Speaker Change: Or what maybe changed since last quarter.
Catherine Mealor: Good morning, Catherine Youre quick on the modeling I guess.
Speaker Change: Yeah.
Speaker Change: Yeah, there were a lot of questions before me so I was able to do a little work.
Speaker Change: [laughter] make yourself.
Speaker Change: So.
Speaker Change: So yes, we were on the higher end.
Speaker Change: Better there are most of it was kind of compensation related things that kicked in the clock starts on expenses on either.
Speaker Change: They want at midnight and the revenue did come kind of later in the quarter. So we expect that operating leverage to pick back up there.
Speaker Change: There are a couple of lumpy things in the first quarter that led to the Miss Yes I would.
Speaker Change: We had a.
Speaker Change: Pretty good year in 2024, so proud of that.
But that leads to higher payroll taxes in the first quarter and.
Speaker Change: Some are a few awards that we have a report that gets expense.
Speaker Change: In the first quarter, and so that that Lumpiness kind of comes out through the rest of the year.
Speaker Change: Which.
<unk> us to perform at a more normal expense base, we have hired as.
Speaker Change: Already mentioned on the call is significant amount of our.
Speaker Change: Revenue producers and you just said that there's a lag there.
Speaker Change: Which can push our expense base higher 9% would not be something that would be.
Speaker Change: Digestible.
In this room.
Speaker Change: So.
Speaker Change: It would be on the lower end of that at the Q. If you look at that 5% to 5% to 7% range by the six so certainly slightly higher.
Speaker Change: <unk> invested a lot in our employees our associates.
Speaker Change: And we're happy about that we think it deserves but theres a couple of things that.
Speaker Change: We're a bit higher this quarter that will get back in line.
Okay. That's helpful. And then they don't take the 66 to 68 million run rate into next quarter, and then grow that we might even kind of that's where all of that.
Speaker Change: Thank you for the back half of the year.
Speaker Change: That's right, it's more about stability.
Speaker Change: That number then it grows off that number okay. That's great that makes sense.
Speaker Change: It definitely does okay. That's great.
Speaker Change: <unk>.
Speaker Change: And then I think you touched on this a little bit earlier, but just to on the growth piece can you help us.
Speaker Change: Just kind of think about the risk of a C.
Speaker Change: <unk> pay downs.
Speaker Change: As we get to the back half of the year and how sensitive do you think that has kept the 10 year and kind of any large payoffs do you see kind of had that may offset some of that new origination growth.
Speaker Change: That you're seeing.
Speaker Change: Yeah.
Speaker Change: So pay downs I kind of think about it all the way through 26, with probably roughly 20% to 25% of the book.
Speaker Change: Matures yeah call. It in the next what is that now.
Speaker Change: 19 months or so 18 months.
Speaker Change: Should reprice higher actually.
Speaker Change: We are we have seen some really good activity on which.
Speaker Change: Which we take as a positive all that moves off the balance sheet in the first quarter. We had some elevated payoffs Chris mentioned multifamily we had some things go to the permanent market when rates dipped.
Speaker Change: I'd say black so when it dipped below 450 ish down in that 425 range. So we did see elevated payoffs, but that that's opportunity for us we've got.
Speaker Change: Really strong relationships, Chris mentioned the construction when.
Speaker Change: These are reoccurring customers. So while they may go to the permanent market generally we're in the driver's seat for the next deal.
And so that's a positive the CRE piece of it our credit team.
Speaker Change: Every month, we get a report and they're looking at individual credits in there or reprice risk.
Speaker Change: Debt service ratios and making sure that Ed.
Speaker Change: Everything is still cash flows and we I'll, let travis upon but we haven't seen anything of concern.
Speaker Change: And we've been able to overcome kind of the payoff side with growth.
Speaker Change: As well so we expect that to continue but I'll, let travis.
Speaker Change: No we do expect.
Speaker Change: Two to continue to see just the cycle of our business right, where we bring on a project. The project goes to the permanent market, which is which is a good thing for our overall health of.
Speaker Change: Of our borrowers so we don't expect much change over the next 18 months.
Speaker Change: Okay, great. Thank you and our condolences to Mr. Aaron's family and friends I've really enjoyed working with him over the years and he does leave an incredible legacy I appreciated your comments at the start of the call Chris.
Speaker Change: Thanks.
Chris: Alright, Thank you so much Kevin.
Chris: The next question comes from Christopher Merrimack with Janney Montgomery Scott. Please go ahead.
Speaker Change: Hey, Thanks, Good morning, Chris it's been two weeks since our last call with you and all of this external noise I'm just curious to what extent this may or may not influence kind of how you think of the reserve in future quarters and I appreciate the detail in the slides about how you allocate I'm just kind of curious if that is going to lead a behavior change for you or even what you see your customers doing this.
Chris: Next several months.
Chris: Yeah.
Chris: It's been two weeks, but it feels like two months, maybe even two years.
Speaker Change: Given all that's transpired remember we added to that in our case the loss of Mr. Ayers and all that goes around that and so it's been it has been a very eventful two weeks and so sort of a tired crews sitting around the table. This morning.
Chris: And so Michael you might let you comment on how do we think of that.
Speaker Change: Good morning, Chris said, it's interesting.
Speaker Change: The desk pretty heavily internally the Moody's model, we use Moody's baseline.
Speaker Change: Actually.
Speaker Change: In the first quarter had economic improvement right. There wasn't any tariffs loaded into thing there was a lot of noise.
Speaker Change: But we start with baseline, but we made sure that we.
Speaker Change: We felt like the ACO was appropriate for the risk we knew about at the time and as Ken as Travis mentioned.
Speaker Change: Every time, you start looking at our portfolio and start going down a path.
Speaker Change: You see the next news flash that says yes, that's all.
Speaker Change: So the benefit of our banking model.
Speaker Change: Solid banking is we spent a lot of time with our customers our relationship managers are.
Speaker Change: Our.
Speaker Change: In contact with our customers a lot and so we're spending a lot of time focused on the individual credits and relationships in the industries to try to figure out what that should look like.
Speaker Change: And on top of that.
Speaker Change: With southern States, we have very similar balance sheet profile fixed and floating.
Speaker Change: Combined the combined entity.
Speaker Change: It looks very good and so we've got some credit mark in there that brings brings their ACL up to ours and so we should be appropriately reserved there as well as we kind of wait to see what happens and it's.
Speaker Change: It is a minute by minute.
Speaker Change: Kind of exercise at this point and we hope.
Speaker Change: That will get some more consistency as we as we kind of look forward.
Speaker Change: Yes.
Speaker Change: Hey, Chris can I add just one thing.
Speaker Change: As we think about it.
Speaker Change: We build our balance sheet.
Speaker Change: And one of our I guess dropping.
Speaker Change: Dropping back from that key part of our value proposition frankly, it just peace of mind, and we want to make sure our customers and our associates have that so that we.
Speaker Change: We look at.
Speaker Change: Volatility or potential Oh, I won't use the R word, but potential challenges download down the line as.
Speaker Change: Frankly times with opportunity and so we look at R. R.
Speaker Change: If you look at where our capital is if you look at where our reserves are if you look at the granularity of our balance sheet and you look at the geographic diversity of our balance sheet.
Speaker Change: All of that makes for a very high degree of stability, especially in Rocky times and so.
Speaker Change: So you won't see us.
Speaker Change: You'll see us continue to keep all of those things enforced, especially over the next couple of quarters and we're working through so you'll see us continue to maintain a pretty high cap level high levels of reserve.
Speaker Change: So to you.
Speaker Change: Youll see us intentionally.
Speaker Change: Do that maintain those at least through the.
Speaker Change: The next couple of quarters.
Speaker Change: Great. Thank you both for that color and I guess my only follow up just I know, it's early but you know it.
Speaker Change: If you think of a range of outcomes is it possible that customers want to build more lines of credit with you and Andrew or tap those as we head into the next few months.
Speaker Change: Yeah, I think absolutely it's fast, it's very possible, but our utilization on our lines.
Speaker Change: Year to date has been very stable compared to historical numbers, but that is a possibility we're keeping it all.
Speaker Change: Sounds good. Thank you all I appreciate it.
Speaker Change: Thanks, Chris discussed.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: The next question comes from Steve Moss with Raymond James. Please go ahead.
Steve Moss: Good morning.
Speaker Change: Good morning Mig.
Speaker Change: Just following up on Michaels comments from earlier with regard to loan pricing it sounds like in terms of loan yields going.
Speaker Change: Going forward here I mean, with the expectation of fed rate cuts will be coming down, but just curious.
Speaker Change: Where are new new loans coming on the books these days.
Speaker Change: Hey, Steve Good morning, Yeah, Theyre coming on around between seven and 710 kind of on average I think and we have this conversation internally a lot with rates coming down that means a lot of things right.
Speaker Change: Generally that's on the short end and if you get some steepness in the curve the price off the belly of the curve you should see some stability in there we're seeing certainly seeing rates come down on new production.
Speaker Change: With all of the fed rate cuts.
Speaker Change: But when there's low seven today.
Speaker Change: On a combined basis.
Speaker Change: Okay, Great and then I guess just in terms of.
Speaker Change: Any.
Speaker Change: It sounds like you guys are not willing to or not looking to hedge the balance sheet in any way just maintained kind of fixed and floating rates.
Speaker Change: Vision that you guys have versus putting on swaps or anything synthetic to maybe make yourselves liability sensitive or anything of that nature.
Speaker Change: Yeah actually.
Speaker Change: That's a great question, because what we've talked about this yesterday Dr. <unk>, our treasurer last night about it and because we're constantly evaluating right the cost benefit of that generally for us.
Speaker Change: The cost of hedging has outweighed the benefit.
Speaker Change: And yes, we're going to manage our our deposit side of the balance sheet.
Speaker Change: And our loan side and our team does a pretty good job of that especially in periods of stability.
Speaker Change: We can have margin expansion.
Speaker Change: Hadn't been that stable lately globally. There is a lot of noise I think as Chris said.
Speaker Change: But underneath the water here, it's been pretty stable with discipline on loan and deposit pricing and the team is doing a good job so for now.
Speaker Change: We're not putting on any hedges, but we do evaluate it constantly as to when it would be appropriate to do it.
Speaker Change: Okay great.
Speaker Change: That's everything for me really appreciate all the color there. Thank you very much.
Speaker Change: Thanks, Dave.
Steve: Thanks, Steve.
Steve: This concludes our question and answer session I would like to turn the conference back over to Chris Holmes for any closing remarks.
Chris Holmes: Alright. Thank you all very much for joining us today, we always appreciate your interest.
Steve: And we look forward to.
Steve: Getting into the second quarter and.
Steve: And we look forward to.
Steve: Reporting again in another three months, so everybody have a great day.
Steve: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Steve: Yeah.
Steve: Okay.
Steve: Yeah.
Steve: [music].
Steve: Yeah.
Steve: [music].
Steve: Okay.
Steve: [music].