The First Bancshares, Inc.

Good morning, everybody, and welcome to the First Bank Chair's third quarter conference call. I'll give a few high-level highlights of the quarter and then turn it over to other members of our teams in their respective areas. This morning, I've got D.D. Lowry, our CFO, with us, George Newton, our Chief Credit Officer, and J.J. Fletcher, our Chief Lending Officer. Generally, the quarter we thought was a solid quarter given what everyone knows is a very difficult operating environment. We had talked last quarter about some of the seasonality of our deposits, some of the loan growth we expected, and some of that materialized this quarter. Our gap net income for the quarter increased 2.5% to $24.4 million. However, operating income decreased 2.8 million or 10% due to some one-time items that were associated with the gap net income increase. core net interest margin compressed about 16 basis points and we talked about that last quarter that we felt like there'd be some compression the back half of the year as many of you know we have a seasonal deposit portfolio in terms of our public monies and so part of that is that and also we felt like we have to be a bit more aggressive on deposits given what we thought would be our low growth profile for this quarter and that did materialize So loans grew 78.9 million or 6.3% on annualized basis for the quarter, and JJ will give us more color on that during this part of the presentation. Our credit metrics remain really strong with low past dues, low non-performers, low charge-offs. George will talk about some of the credit quality indicators and metrics and dig into some detail in the credit administration. We also, during the quarter, received a $6.2 million grant from CDFI Fund, an economic recovery program grant, and that's COVID relief money to further our CDFI and CRA investments in some of the more impacted markets from COVID around the Southeast. And then finally, if you look back over the last 12 months or so, we've been able to grow, well actually over the last 12 months, we've been able to grow our intangible book value by over 4%, but given the fact that we closed the largest acquisition we've ever done in January of this year, $1.7 billion of the Heritage Southeast merger, we also have had increased marks on the interest rate marks on the bond portfolio, which would deduct from tangible book value. But then we also increased our dividend 21% from 76 cents to 92 cents last quarter. So given all that, we're pretty pleased with the fact we were able to even continue to grow our tangible book value over the last 12 months. With that, again, we felt like it was a fairly solid quarter. We knew there would be some margin compression, some deposit headwinds due to the seasonality of our deposit book, some of the loan growth we experienced. With that, I'll come over to Dede for a little more color on our financials.

Great. Thanks, Hoppy. Yeah, as Hoppy mentioned, you know, we are pleased with the quarter, and I felt it was a solid quarter, and with the expectation of the increased deposit costs we could see coming, we feel good about it. We did have noise again, as he mentioned, a small amount of acquisition expenses, but with the grant, the ERP grant from the Treasury, a $6.2 million, and then the associated expenses, $5.2 million related to that, and that is in the form of advertising, consulting, and contributions that will be spent from that money to further our mission as a CDFI. And so those expenses are in the numbers as well. But for the quarter, we did report earnings of $24.4 million, 77 cents, That was at $600,000 from last quarter, or $0.02 per share. On an operating basis, when you exclude those acquisition charges of $400,000 net of tax and then the grant net of associated expenses, that's about $800,000. to that number. So earnings were 24 million on operating basis or 76 cents per share. And that compared to 26.8 million or 85 cents per share for the second quarter of 23. And that was a decrease of 2.8 million. And that decrease of 2.8 million in operating earnings compared to last quarter can be summed up in a couple of things. If you remember last quarter, we had the increase in accretion income related to the acquisition from Heritage and loading that on our system. 2.3 million and then our increase in our deposit cost specific well in our interest expense but specifically in our deposit cost of was 4.8 million um so those two items really are the big the drivers of uh our decrease in operating earnings for the quarter um expenses were 47.7 million for the quarter but when you back out those one-time expenses that brings that down to 41.9 million which is a lot more in line with where we talked about last uh last quarter And, you know, if you recall from our last quarter's call, we did expect margin to compress the third and fourth quarter this year, partially due to the seasonality of our deposit book, as well as we have runoff in our public funds, which we normally talk about that happens part of the year. and usually leads to additional borrowings, which is our typical behavior pattern because of the seasonality of those public funds that run out the last part of the year and then start coming back in late first quarter of next year. We also talked about the increase in deposit costs if we were to be more aggressive in our deposit gathering due to funding loan growth. um and and loans did increase as happy mentioned 78.9 million or 6.3 percent annualized um about 30 percent of those loans uh were booked too late in the quarter so our average loan growth a quarter was 56.6 million so you can see a big chunk went on right at the end of the quarter um that'll help and obviously go forward to next quarter We also initiated a deposit gathering campaign. We had talked a little bit about that last quarter that we were working on getting that together. And so we have that and as well as we're still playing some defense with some a little bit more aggressive deposit pricing in our markets. And so both of those actions are reflected in that increased deposit cost. Our core net interest margin decreased 16 basis points to 327. And we do expect, obviously, this kind of trend to continue into the fourth quarter, just with the increased deposit costs with the campaign and then still with the competitive pressures that we're seeing. I mean, we want to play defense and obviously keep our customers, our core customers safe. Our yield, a couple of notes due to the accretion, our yield on earning assets reflects in our release a two basis points decline. But if you back out that extra accretion that we talked about last quarter that was from Heritage, we actually had an increase of 16 basis points to $4.95 from $4.79 yesterday. In that same scenario, obviously, when you look at the loan yield, it actually increased 18 basis points up to 592 from 574. And that's, you know, when you just kind of go back and take that out of that last quarter's number. So good increases in both of those sections for the quarter. Our deposit cost, our cost of deposits, though, increased 30 basis points for the quarter. Our interest-bearing deposit cost increased 44 basis points to 176, and then our cumulative beta since the beginning of this cycle is 31%, and that was up from 22% last quarter. Our deposit cost increased from 91 basis points to 120 basis points, so it was a 30 basis point increase, but we still feel that's a pretty good number given our granular deposit base and happy right now with that number. Our loans, as I mentioned, did increase 78.9%, our 6.3 annualized. JJ will give you a little more information about that. Our deposit runoff declined this quarter from last with a decrease of 12.2 million. But when you look at that we actually acquired some brokerage CDs during the quarter of $110 million, the actual deposit decline was $122.2 million, or 1.9%, which that has been in line with our prior quarters when we have discussed each quarter and then taking out some of the broker deposits that we've had. So that's still kind of in line with where we've been. The public funds and some seasonality in some of our accounts accounted for $51.7 million. that decline, so leaving just about $70 million in runoff. Our non-interest-bearing deposit portfolio did decrease slightly from 32% to 30% from last quarter end, and part of that is due to some of the seasonality in our deposit base as well. Our liquidity position remains strong. Our ratios are well above our limits. Loan deposit ratio is right at 79%. Our borrowing capacity is $2.2 billion, and then we still have about 39% of our investment portfolio is unpledged, which is about $700 million. And out of our investment, our securities book, we have about $230 million that will cash flow in over the next four quarters. So that will be generated from our portfolio. And then the following ratios, we kind of highlighted in there for the quarter on an operating basis. Our ROA was 122. Our return on average tangible common equity was 17.7, and our efficiency ratio was 56%. Our capital ratios are all still in line from last quarter with a TCE of 7.3. Our common equity tier one was 12. Our leverage was 9.6, and our total risk base was 15.1. All in line with our quarter, so... I think I'll turn it back over to you, Hoppy.

Thank you, Dede. Thanks for that report. JJ, would you like to talk about the loan report a little bit?

Yes, sir. Thank you, Hoppy. I think we've heard now three or four times that we were very pleased with the overall net loan growth of almost $79 million for the quarter. And just historically, if you recall, that's up $36 million in the first quarter and about $41 in the second quarter. Again, finished the high note on the quarter in September with about $115 million in originations. And one thing to note too, we also had an increase in actual funded loans in September of about 70% of overall originations compared to about 55 to 60, which we've seen in prior months. So that really helped us get those outstandings up for the end of the quarter. Unfunded construction backlog remains strong and in line with previous quarters. Pipelines did contract about 10% at the end of this quarter, but relatively speaking, remain healthy and within historical averages. Regionally, the Legacy Mississippi team had a great quarter, as did the Tampa market. We also began to see a positive contribution from the new New Orleans team. that was hired in during the second quarter. Private bank division continues to be a strong performer, particularly in the specialty healthcare division. As to yield, and DeeDee mentioned on the uptick here in September, we finished the month of September at 798. At the end of the first quarter, 736, and the second quarter, 762. So we continue to see improvement in our loan yields month to month. Outside of the numbers, continue to improve workflow and process management with the acquired HSBI team. We've recently integrated our small business platform with that entire group, and proud to say we've got upwards of 90% retention in the lending staff of HSBI, and also just brought on new mortgage and treasury groups to support that team. So overall, very pleased with the quarter, and I'll turn it back over to you, Hoppy.

Thank you, JJ. Appreciate that one.

George, our credit administration. Thank you, Hoppy. We continue to see, I think, real stability in our credit metrics for the quarter. Throughout most measurements, delinquencies remained very manageable. We ended the quarter with 31 basis points finished at the end of September, and that tracks actually 10 basis points below our year-to-date average. of 41 basis points. So a good positive trend in delinquencies. Year-to-date loan recoveries. We moved out of the red into the black on an annual basis or year-to-date basis with loan recoveries now exceeding charge-offs by about 0.04%. So pleased with that. Total criticized and classified loans were reduced over the prior quarter by 15.6 million. So a good trend in criticized and classified assets. That improved to 8.94% of capital plus ACL compared to 957 at the end of quarter two. And as we mentioned last quarter, we did continue to see a positive trend in actual payoffs of a number of our fee and fee loans. We had borrowers pay off some $96 million in criticized and classified loans during the quarter. So very pleased with that trend. Again, evidence of good liquidity still out there, enabling some borrowers to move those loans or pay them off. Again, positive. All NPAs did tick up slightly from 43.3 bips at quarter two to 44.1. That was really mostly attributable to one larger credit, and we expect that to start a liquidation process in the and we really do not expect any material loss in that credit if it goes through a liquidation process. So NPAs outside of that were pretty well flat. In your deck, you have pie charts showing kind of the segments of the C and D and non-owner occupied CRE slides. I'm referring to page 16, but as a percentage of total loans, I think we still continue to maintain a nice balance in our CRE categories. Retail centers are one of the larger segments at 6.61% of total loans, followed by hotels at 515. Our owner-occupied professional office is 540 of total loans, whereas non-owner-occupied is 410. And then warehouse industrial is just under 4%. So, some nice balance across all those categories that we probably most closely track. For one that we do most closely track, definitely non owner-occupied professional office. Again, not particularly typified by larger loans. The average loan size in that category is 737,000. We've got a manageable maturity range in terms of preparing for pricing resets with about 15% of that portfolio maturing through 2025. So some good stratification in the maturities there. Unacceptable credit quality. uh in the uh non-owner occupied office segment we currently have about a 4.4 percent of the loans in that category rated substandard uh and again as we've talked about in in prior calls uh we really have an absence of uh bid and higher rise office buildings in our portfolio uh civil business district type office lines. Most of ours are suburban or smaller rural and mid-market situations. So we are just not in that category of larger office hours. Concentration management in CRE and C&D remains well maintained with a range of 208% of risk-based capital across the year. uh and our credit risk management group uh continues to manage uh ongoing stress analysis within the cre portfolio is quite focused on not only rate movement but occupancy levels and topics especially escalating insurance expenses that's one thing that is really on our radar across many of our markets now to make sure that we're providing some mitigation for rising insurance costs as we see that in most markets right now. And then additionally, our annual term loan credit update on all income-producing properties of a million and a half or more requires updated cash flow and coverage analysis, so we're keep a good handle on possible stresses. So in closing, continuing to monitor all aspects, which could be considered early indicators in our credit weaknesses, responding accordingly. Fortunately, we have seen very little evidence of that. We hope to see the same trends continue throughout the balance of the year in 2024. Thank you.

Thank you, George. Appreciate it. That concludes our prepared remarks and commentary about the quarter. We'd open it up for questions.

Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw a question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Will Jones with KBW. Your line is now open.

Hey, great. Thanks. Good morning. Hey, so DeeDee, I just wanted to start on maybe deposit beta expectations here. I know last quarter we talked about landing in the third quarter around the 26 to 27%, but that's, you know, obviously now a little closer to 30% as we stand, but understanding that, you know, the deposit environment remains, you know, challenged, and you guys had that promo that was really running all quarter, but just hoping to get a sense of where you feel like we might ultimately land on deposit betas, you know, following this kind of expected catch-up we saw this quarter.

Well, I think kind of probably just generally maybe the same kind of increase we had this quarter. Like you said, I was kind of calculating and thinking that we might be around 26%. That was giving, you know, really no change for the campaign and to be aggressive for the loan growth. So I think that this will continue because, you know, we're really kind of running our special right now throughout this quarter. So I think we'll see kind of a repeat of this.

Okay, great.

That's helpful.

Maybe just on, you know, flip side, loan yields, just hoping to get a sense of where you feel like the trajectory of loan yields goes from here. You know, I know loan betas, if you will, still remain relatively low. But, you know, I know you guys have, you know, a larger piece of fixed rate loans and, you know, relatively short term. So, just hoping to get an idea of, you know, maybe scheduling of what's coming due in this coming year and where you see, you know, some opportunity to reprice, you know, I think the hope is, you know, maybe this turns into a tailwind as we move into next year.

Right, and I think you will see kind of that consistent pricing because of so much more we have in the fixed rate portfolio over the floating. And then when you look kind of at our ALM modeling and what it's showing currently, it's showing about a margin expansion next year, by the end of next year, of about eight basis points from our most recent run. So I think that's kind of consistent with what you're seeing this could turn into because we're still obviously putting new loans on at higher yields, but still re-pricing because we have so much of a fixed book.

Do you want to add, Hoppy? Well, I just will. Keep in mind, I know we talk about it, but if you look back at the seasonality of our margin, we kind of see a similar pattern. Dee alluded to it in her comments, in her prepared comments. but we'll continue to see public money run off this quarter. So that's gonna, we're gonna have to replace that funding with higher cost funding because our current cost on our public deposit book is 242. So then that money will turn around and come back in over the first quarter and second quarter. So we would expect market expansion during that quarter, all things remaining consistent because there'll be an influx of funds that comes in. So really looking at the margin over a four quarter average is really,

So, the messaging is really like, maybe next quarter we see a bit of a bottom and then just to grind higher as we kind of run through 2024. Is that the right way to think about it? I think so, yeah. That's what we're thinking about. Okay, awesome. That's great. Thank you for that. And then just on expenses, DeeDee, I know we talked about lower expenses last quarter and we kind of saw that. Especially if you really kind of normalize for a jump in FTSC premiums. Do you still expect even next quarter we'll see an even further reduction in the expense base? As we kind of see the last tranche of cost has come through. So maybe we exit the year at our lowest expense run rate.

I don't think so. I've kind of, you know, I'm looking ahead at where we are and looking at that 41.9, pretty consistent with the increased FDIC premiums in there. I think we'll see that same amount for next quarter. So, you know, I'm thinking that 41.9 could be increased just a little bit because of kind of year-end sometimes. I mean, it's, you know, just... Different things you'll have expenses in the 4th quarter related personnel related issues. Um, you know, I think that could be just a little bit.

You know, it could be for 500,000 over this quarter.

Okay, that's very helpful. Thanks. Thanks for the questions.

Sure, thank you. Thank you so much. 1 moment for our next question. All right, our next question comes from the line of Kevin Fitzsimmons with BA-Davidson. Your line is now open.

Hey, good morning, everyone. Hey, good morning, Kevin. Just wondering, we've had some banks announce bond restructuring transactions, which, you know, I think it's all about what that earn back is, and can you reprice or reallocate those bonds? proceeds quicker than waiting for them to come. And it's not, you know, I acknowledge it's not always the right thing to do. There's a lot of different variables to that. But just wondering, is that something you guys are looking at contemplating on the radar? Like, how would you describe that? Thanks.

It absolutely is. We're in the process of analyzing that, running our numbers right now, Kevin, something that we're taking a look at. Although we've got, you know, pretty good, we've got good liquidity, but to your point, what does the impact look like? So that's something we definitely are concerned.

And I guess when you look at it, is it something where it's better to pay down barlings or better to reinvest at higher rates or it's either or?

I think it's either or. You know, depending on what the level of borrowings are, we'll pay those down and then reinvest in higher rates and really potentially use it to fund some of the loan growth we feel like is coming.

Okay. Great.

And can you remind us with the CDFI grant? So are there going to be more of those coming? What kind of frequency and what's the ability for what you can do with that? Is it pretty much pretty open in terms of funding loans, buying back stock or a number of different options?

There's several different grant programs that go all that really kind of three. There's one called the Financial Assistance Grant. There's one called the Bank Enterprise Award. And then this was the grant that we just got was a special one. It wasn't a reoccurring grant. It was a one-time grant out of the COVID relief money. So I wouldn't expect a grant of that level to come back. There's nothing on the drawing board for that right now. The other grants are or on an annual basis, and they're generally about two and a half million dollars or so, depending on how much money is allocated through the CDFI fund. So those are more reoccurring. And so it's not near to the $6.2 million level. The usage for this grant, it was to increase our lending and increase our investments in those most affected COVID markets. And so, you know, so many of our markets are, underserved markets that we don't have any the compliance piece of that we don't have an issue with given our normal business function growing our loans in those markets uh it meets the requirements in fact we probably already met the compliance requirements for that okay great and one last one from the uh hoppy and i think last quarter you were pretty upbeat about the potential for m a opportunities and and just given the environment and what

small banks must be facing. But what we're hearing from a lot of banks is just given, you know, what it would trigger in terms of having to mark the market securities and extend or inflate tangible book dilution. It kind of seems like it has quieted down a lot of potential activity. So just wondering if that's what you're seeing or are you seeing something a little different? Thanks.

I would concur with that view, Kevin. I'm not as optimistic on it now as I was, say, last quarter, but I think you're right. I think there's still pretty significant headwinds out there in the M&A space. I think there's a lot of deals that would probably like to get done, but it's just difficult to get them to the table.

Yeah. And without M&A, Hoppy, is there potential to... you know, do lift-outs in strategic markets. Is that something you're looking at?

I think there absolutely is that, and that's a very good point. We've seen an increase in that opportunity as of late, particularly some of the larger banks are looking at cost-cutting features or cost-cutting programs, and in some of our markets that we've expanded in Atlanta, Tampa, Jacksonville,

cutting cost reductions. Okay, great. Thanks very much. Thank you, Kev.

Thank you so much. One moment for our next question. All right. Our next question comes from the line of Brett. Sorry if I said that incorrect. Your line is now open.

Thanks. Good morning, everyone. Hey, good morning. Wanted to go back to the margin for a second and just make sure I understand, you know, so it sounds like in the fourth quarter, you know, the narrative is you've got some public funds that you have to replace and so or that come in and so your margin is down a little bit in the fourth quarter, but it should should rise through 24 with loan portfolio repricings. Can you guys give us a little more color on the quarterly progression of loan portfolio repricings in 24?

JJ, do you happen to have that in here with you? I didn't bring my ALM report in here, I believe.

Yeah, I've got this one charity scheduled for 24.

I got you, okay, yeah. About half a billion and about 6%. Yeah, this looks like a little over $100 million a quarter that's maturing, so potentially be repricing.

That's maturing. It doesn't count cash flows. It doesn't count cash flows, just maturing, yeah. If you look back, the whole portfolio is about 20% repriced during the pandemic. the whole year in terms of cash flow coming off that plus maturity distribution.

Okay. And then one is to go back to loan demand and just get maybe a little more color around what you're seeing in the different markets. You know, borrowers, are they pulling back some? Are you seeing deals because others have pulled back? Maybe just a little more color around loan demand and How that might shape out for 24 in terms of loan growth potential.

So, this is JJ, I think, you know, pipelines, I said, we're down a little bit, but from a historical perspective, they're still pretty much in line. So I have not seen George and I were talking about that this morning. I have not really felt a lot of deals being shelved or put on the sideline. I do think it's becoming a little more challenging with the more equity equity requirements. we're wondering when that does become a hindrance because, you know, if developers are putting in another 10 or 20%, we've seen them doing that, but how many times are they going to do that on the next deal and the next deal? So I'm not sure, George, if you have any commentary on that. I think the jury's still out, but as of today, our client base is still, you know, doing deals and, you know, Demand seems to be pretty good. We're picking up some in Atlanta. Tampa had a good quarter. We mentioned New Orleans. That team, they've got a really strong pipeline for this quarter. Overall, things appear to be still fairly strong.

Yeah, I concur, JJ, and we've seen some instances in recent months where maybe a traditional group of investors that have done projects with us in the past may have brought some additional equity partners into their groups to fund some of that equity requirement. So that is fascinating.

That's a good point. There's still cash out there. I think some of our guys might be diluting themselves a little bit of ownership, but they're finding the equity to do it. Yes.

Okay, that's helpful. Maybe one last one for me. I think it sounded like the expense fund rate will be slightly higher in 4Q, if I heard that right. But you've done a pretty good job holding expenses flottish since the beginning of the year. Was just curious if there was anything out there that you were thinking about investing in given the environment for the longer term in 24 that might raise the expense run rate? Or do you think you'll kind of run the same kind of strategy in 24 of keeping expenses as wide as you can?

Yeah, I think the same strategy in regards to that, just because of the compressed margin. And, you know, hopefully we'll see, as we talked about, a little bit of expansion in that next year. But overall, I think our focus is going to be on expenses, something that we can hopefully – we can try to control on our side. We are – we have talked about the last couple quarters – kind of our can be initiative um and so we have um hired some new folks actually this this last quarter and third quarter um a chief compliance officer a fair lending officer um uh which mentioned before the last quarter i believe our chief legal counsel so we have you know we are and we hired crow to come in and do our 10b gap analysis so you know we do have expenses kind of associated with that as we build up a little bit and to you know get processes and procedures in place for 10b but that's probably the only real initiative um we're kind of in the middle of that right now but otherwise you know i'm gonna keep trying to get the hammer down on them

All right, thanks. Thanks for all the color.

All right, thank you so much for your question. 1 moment for our next question. All right, our next question comes from the line of Matt only with. Your line is now open.

Hey, thanks. Good morning, everybody. I want to go back to the deposit gathering campaign that was mentioned earlier. Any more color you can provide on that campaign? What products you're leading with and what are some of the costs on some of the promotional products?

Yes, sure. What we came out with and what we're doing is two things. One is just a CD special. We have a lot of CD specials in our market. We are doing a six-month at $5.25. And then we also, on the deposit gathering side, kind of for a money market as well, it's a 5% money market guaranteed for six months. But, you know, with that is a non-interest-bearing deposit. So we've opened up a separate product for that. So hopefully we can gather some non-interest-bearing while we're, you know, doing this money market special. Okay.

Okay, that's helpful. And any more color on when those specials were introduced to the market? And have there been any changes to those rates more recently?

No, we started that right at the beginning of September, kind of just internally. We just recently started with a little bit of advertising on social media. So we kind of had it in place to to raise, you know, some funds to the end of the year. So, kind of right now, we're looking at keeping it to the end of the year, but.

Yeah. And it's really just to replace some of those seasonality and the public fund monies and support some of the loan growth in that.

Yep. And it's thoroughly, I guess, in the campaign, but how would you characterize the volume you're receiving in that versus your initial expectations?

We're a little under half so far for the two months. So, I think that's good. Yeah, I think it's been good. Yeah.

Okay. Appreciate the color there. And then, I guess, changing gears on the credit front, I think there was a report in the deck you put out there that criticized classifieds had a nice decline in the quarter, if I read that right. Any more color on that decline?

You know, about 60% of it, I guess, was a result of actual payoffs. The rest of it was, you know, attributable to some upward migration, maybe in reclassifying some grades. Frankly, I don't expect to see the level of payoffs continue at the pace that we've seen in the last couple of quarters. But in going through our quarterly rounds of criticized classified reporting with our loan officers and regional credit officers, we do see some. potential opportunities to maybe now that, particularly now that we're receiving financials with the tax filing deadline passing us now, we're getting updated financials that may give us some opportunities to get some additional upgraded risk rates. So I think more of it will come from that direction maybe as a proportion of what we see.

Okay. Appreciate that, George. And then maybe just one more. DD, I think that the fees are strong this quarter. Any color on the fees and the outlook from here?

I think the loan fees, or you're talking about the non-interest income fees? Non-interest income.

Right. The non-interest income fees.

Okay, not interest income. Yeah, I think this was, we had a little bit of increase there in our interchange fee income that I think will be not recurring in the next quarter. So that could be down just a little bit in the next quarter. It's like our one-time annual kind of payment we received. So it's probably a little higher this quarter, but I don't think it'll be that going forward.

Okay. Okay, guys. Thank you. All right.

Thank you so much for your question. One moment for our next question.

All right. Our final question comes from the line of

Christopher Marninak, sorry, with Janie Montgomery Scott, LLC. Your line is now open.

Thank you very much. Hoppy, I wanted to ask a question about the CDFI and from a strategic standpoint. What does it mean to you to be a CDFI these next couple of years, and how do you see it kind of continuing to build franchise value for the first?

Well, there's a lot of unknowns around the CDFI. now Chris they're talking about changing what the qualifications and so you know where we've always qualified I don't know what those new qualifications are going to be in order to be a CDFI but it means to us you know it goes in lockstep with our CRA requirements and serving underserved markets and so there's grant programs to go on with it we talked about which is a couple million dollars a year but it's also growing the franchise across the southeast there's a lot of underserved so it gives us an opportunity to invest in those markets, to lend in those markets as we move forward. I don't know on the grant side, it's hard to predict. Those are typically appropriated by Congress, so it's hard to tell how much grant money comes and when, with the exception of those sort of reoccurring grants that we talk about. And even the BA award, which is the Bank Enterprise Award, and the FAA Financial Assistance Award are subject to congressional, So, you know, we think those will continue on, but again, it's an important part of our mission.

Got it. Thanks for that. And back to the office real estate discussion from earlier in the call. You have a predominant amount of sort of low-story buildings. I'm presuming two-story buildings dominate the portfolio, which means under an adverse scenario where you had to take one back, you really could repurpose that and probably have a lot different loss experience better than your peers. Is that the fair kind of way of thinking about it?

I think that's a fair statement. It would be much more difficult to repurpose a mid-rise or high-rise tower for residential or any other use otherwise. But a two-story or maybe even a three, I think you'd have a lot more optionality to be able to do that. I would say even in our non-owner-occupied segment, a fair amount of square footage in many of those properties is from an owner occupying at least part of the building. So there's that also in consideration as well. But, yeah, I think your statement is right on to that point.

TAB, Mark McIntyre:" Great thanks for that and dd just a quick one for you on on on the accretion income does that level out as we get deeper into 2024 just kind of trying to think you know beyond the next few quarters kind of how that will proceed.

Yeah, I think that's a fair statement. You know, we had that big increase last quarter because we basically, you know, got all the loans from Heritage on the system, and it's just a function of getting them loaded on an individual basis. So now, you know, this quarter we had, you know, from all of our acquisitions, they're all on the system and accreting as they pay down or pay off. So I think that's a fair statement to hopefully level out right here where we are, you know, going through next year. Okay.

Great. Thank you all for the background and information this morning. It's very helpful.

Thanks, Chris.

All right. Thank you so much for your question. And as a reminder, everyone, if you would like to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. All right. I'm showing no further questions at this time. I would now like to turn it back to Hoppy Cole for closing remarks.

Well, thanks, everyone, for your participation this morning. Thanks for your reports. We'll look forward to visiting again after next quarter's results. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.