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spk15: Thanks for holding. We appreciate your time and patience. Please stay on the line, and we'll be back in just a moment.
spk00: Good morning, everyone, and welcome to the Pinnacle Financial Partners first quarter 2024 earnings conference call. Hosting the call today from Pinnacle Financial Partners is Mr. Terry Turner, Chief Executive Officer, and Mr. Harold Carpenter, Chief Financial Officer. Please note Pinnacle's earnings release and this morning's presentation are available on the Investor Relations page of their website at www.pnfp.com. Today's call is being recorded and will be available for replay on Pinnacle's website for the next 90 days. At this time, all participants have been placed on a listen-only mode. The floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your touch-tone phone. Analysts will be given preference during the Q&A. We ask that you please pick up your handset to allow for optimum sound quality. During this presentation, we may make comments which may constitute forward-looking statements. All forward-looking statements are subject to risks, uncertainties, and other facts that may cause the actual results performance or achievements of Pinnacle Financial partners to differ materially from any results expressed or implied by such forward-looking statements. Many of such factors are beyond Pinnacle Financial's ability to control or predict, and listeners are cautioned not to put undue reliance on such forward-looking statements. A more detailed description of these and other risks is contained in Pinnacle's financial annual report on Form 10-K for the year ended December 31, 2023. and its subsequently filed quarterly reports. Pinnacle Financial disclaims any obligations 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 the comparable GAAP measures will be available on Pinnacle Financial's website at www.pnfp.com. With that, I am now going to turn the presentation over to Mr. Terry Turner, Pinnacle's President and CEO.
spk10: Thank you, Paul, and thank all of you for joining us here this morning.
spk11: Most of you have been doing these calls, and so you know we're going to begin every one of these calls with this shareholder value dashboard. These metrics are really our north star. There are a lot of interesting things that can be talked about, and obviously Harold will talk about more things in more detail here in just a few minutes, but ultimately we're here to produce shareholder value, and this is how we think you do it over time, looking at the gap measures first, And then the adjusted numbers, which really better reflect how we run the business. At a glance, you can see that we continue to grow revenue more rapidly and reliably than peers, and we continue to grow our balance sheet volumes more rapidly and reliably than peers, which is the fuel for our future revenue growth. And then we relentlessly focus on compounding tangible book value. And then across the bottom, now the key asset quality metrics we focus on, reflecting both problem loan formation and losses. In general, those metrics continue to be among the best in the peer group, and as you can see, compare favorably to our longer-term historical averages. But that said, during the quarter, we increased our allowance for credit losses on loans from 1.08% to 1.12%, primarily as a result of further deterioration in a previously disclosed problem borrower, and to provide additional protection given a higher for longer rate scenario. So from 30,000 feet this quarter, we've got the reserve bill on one side, largely being offset by the recognition of a commercial mortgage servicing right and lower expenses in the form of reduction in associate incentives. Nevertheless, for me, there's a lot to celebrate here, particularly in terms of revenue growth with growth in both non-interest income and net interest income, double-digit core deposit growth, and even net growth in non-interest-bearing deposits. So with that, Harold, let's take a more in-depth look at the quarter.
spk09: Thanks, Jerry. Good morning, everybody. Another strong quarter on deposit growth. We were also pleased with how our non-interest-bearing deposits performed in the quarter, giving us additional optimism about where those balances might be headed for the year. As to 2024 deposit growth, still believing we can grow deposits within the previous range of high single to low double digits this year. Obviously, the latest FOMC meeting will impact our rate projections for the remainder of the year. As a result, we've taken more time looking at the back book on deposits. Two years ago, 100% of our MFAs had rates less than 2%. Today, only 15% are at rates less than 2%. Also today, 65% of our money markets are at rates greater than 4%. So we feel that our deposits are priced very competitively. We have made some preemptive strikes here late in the quarter, successfully reducing some of our more expensive accounts, as well as a deep dive on our pool of reciprocal deposits. This effort is helpful to our outlook as we enter the second quarter. As to new accounts added to our ledgers in the first quarter, the average onboarding rate was around 3.75%. As we've said, we like our position as to deposit rates in our markets, so for us, deposit rates will likely be more like a slow creep from here, not any sort of rapid increase. I've listened to a few conference calls of late, particularly the large caps, as some believe they've acknowledged outsized deposit spread and are letting people know that benefit may be going away in the near future. That said, we believe as we head into the second quarter, deposit rates for us may increase a few basis points, but it won't be a lot. Loans came in slightly less than we anticipated. We did have some large payoffs late in the quarter, which impacted our EOP balances. Still feel like we will be outside of loan growers for the year. Call it 9% to 11% growth. Still believe that we are doing a good job on spreads, particularly for prime and SOFA price credit. and fixed rate spreads continue to come along nicely. One of the keys to our financial plan is repricing our fixed rate loans. We're expecting about $3 billion in cash flows from our fixed rate loan books, which are scheduled to come in over the remainder of 2024 with, call it, an average yield of around 465. As to renewals and new fixed rate loans originated in the first quarter, we averaged around 7.35% with a target of 7.5% to 8%. I think our RMs are doing a great job here and are looking forward to seeing what happens in the second quarter, as it is the most important quarter as far as net interest income growth for 2024 is concerned, given we have a lot of opportunity to influence the success of this initiative in the second quarter. Our loan growth targets, which we feel good about, coupled with our efforts on fixed rate repricing, will go a long way to hitting our net interest income outlook for the year. We did see some contraction in the margin this quarter at 304 after two quarters of 306. We said last time that we were optimistic that we would see NIM expansion in 2024. We feel confident that we will see margin expansion happen in the second quarter. We've modified our interest rate forecast from four cuts to two, and with the two not happening until later in the year, one in September and one in November. That said, given the volatility of the data, we could decide that no rate cuts will happen this year as the trends seem to point to fewer at this point. We feel like the no rate cut scenario on the short end of the curve is likely neutral to our current outlook as we move through the year. As you might expect, we just would like to see the intermediate part of the curve continue to steep. So at March 31, you might ask, is PNFP asset-sensitive or liability-sensitive? Considering our technical balance sheet modeling as well as how we think our RMs and their clients typically respond to these sort of environments, for net extra income, initially higher for longer is probably helpful, but longer-term deposit rates will likely rise somewhat and potentially squeeze the margin over time. As for credit, we're again presenting our traditional credit metrics. We mentioned one non-performing credit in the fourth quarter press release that weakened further during the first quarter. As we noted above, this credit contributed to the four basis point increase in our allowances This loan started out in 2020 as a $40 million loan to a borrower that leases highly specialized healthcare facilities to operators in various states. We did record a partial charge off of $2 million relating to this credit in the first quarter. The operators of the borrower's buildings were impacted by COVID as the operators were unable to collect sufficient and timely reimbursement, which was needed to recover the incremental cost of inflation for their clients and patients. As a result, the operators incurred revenue shortfalls, still labor left, census went down, et cetera. Our borrower is cooperative and is helping facilitate resolutions which could take a few quarters. This is one where the lesson learned is a hard pill to swallow. Much reliance on the wisdom of the management team that we had banked for many years, the management team had executed a similar business model before and done it successfully and was experienced in the very specific corners of the healthcare industry. We will work to resolve this matter as quickly as possible and minimize loss to our firm. The buildings are in good markets and are in attractive areas in those markets. So given all the above, we're anticipating a net charge-off rate of 20 to 25 basis points for 2024, inclusive of the loan I mentioned previously. Currently, we have no reason to believe that our allowance account will increase from here, so we are flattish on the reserve for the rest of 2024. More about commercial real estate, and just so you know, we've added some more information on credit primarily for CRE and construction in the supplemental deck. Our CRE construction portfolio continues to perform very well. As you might expect, our credit officers continue to pay particular attention to our multifamily hospitality and office portfolios. We continue to push for lower exposure in construction. Our target of 70% of total risk-based capital, we believe, can be achieved before year-end 2024. Our appetite is noted by the almost solid red table on the bottom right. It's largely unchanged, and we don't anticipate any change as to appetite in 2024, even when we go below 70%. We continue to be somewhat interested in high-quality real estate, primarily warehouse and some multifamily, but let me stress, any new commitments to this space are limited to strategic client relationships only. In no way should anyone perceive we're on any sort of offense here. As to the impact of hire for longer, lots of discussion around liquidity and takeout availability in the institutional CRE space. We would agree that liquidity is tight for say downtown multi-tenant office, power center retail, high-end hospitality, and other specific segments where COVID and now inflation has been very impactful. We just don't have much, if any, exposure to these segments. For our segments, we, like other banks, are seeing our institutional borrowers delay decisioning regarding any sort of exit from these projects, whether it be marketing for sale or securing a permanent loan. I know there's a lot of noise out there that lenders are panicked and borrowers are desperate to get out of these construction projects, not so for the property type PNFP has long supported. There remains ample liquidity, which recently appears to be getting somewhat more attractive to our borrowers, specifically takeout from life insurance companies and the agency lenders, Fannie Mae and Freddie Mac. These capital sources are generally more favorably priced than our bank debt, usually by 1% to 2% in most cases. We're seeing 10-year terms from insurance firms and agencies in the 7% range versus bank rates, call it between 8% and 8.5%. The CMBS market is also available. However, our borrowers are typically not big fans given the inherent inflexibility of the CMBS debt structure. All in for now. Many borrowers are elected to remain with banks by executing the embedded extension options in their original construction loan contracts, right-sizing the outstanding balance if necessary, and thus waiting for a better rate environment to sell or refinance. Again, some select information on CRE credit and various asset quality measurements. We have added some LTV information to this slide. Our LTVs, we believe, are solid and, as the chart indicates, with lots of room for valuation adjustments should the markets require. We have also analyzed recent loan renewals for non-owner-occupied commercial real estate with principal balances greater than $5 million and have seen some modest declines in LTV for these credits. The worst was a $22 million office loan where the LTV went from 34% in January 2020 That was before the start of COVID and before work from home was a thing to now 45% currently. An 11% reduction, but still very comfortable at 45%. The best result was longer term, an $11 million hotel loan that moved from an LTD of 59% to now 38%. Both of these loans are performing, and we have no reason to believe there's any issues with them. We have experienced some increase in credit metrics and classified assets and NPLs from a year ago, but these levels remain enviable in our humble opinion. Additionally, as to our market data, our occupancy levels remain strong and rental rates have experienced several years of increases, which has served to strengthen our sponsors. Some of that information is also in the supplemental deck. Now on to fees, and as always, I'll speak to BHG in a few minutes. Excluding BSG and various other non-recurring items, fee revenues are up 11.4% length of quarter. We're pleased to report that our wealth management units had a strong first quarter and fully expect the efforts of our wealth management professionals will continue in the remainder of 2024. The BOLI work we did last quarter is performing as planned, so expect to see incremental revenue from that work, some in the second quarter, but also into the third quarter. As to the mortgage servicing right asset that Terry mentioned earlier, we elected to record it this quarter. We have been serving Freddie Mac SBL loans since we merged with Magna Bank in Memphis several years ago. SBL is the small business lending program Freddie Mac offers. It's really the standard for agency-backed small apartment financing with loan amounts of $1 million to $7.5 million. PNFP originates the loan for Freddie, who purchases the loan with PNFT retaining the services. Over the years, and as we do each year, we perform strategic assessments on various business lines to determine strategic fit, growth potential, cultural alignment, so on and so forth. As rates escalated, the value of the servicing right increased, especially over the last several quarters. We've also increased the volume of loans being serviced in that unit in recent years. In light of that, we obtained a third-party appraisal to determine the value at $11.8 million, which we will now need to revalue every quarter. All in, we are raising guidance for fee revenues this year, primarily driven by the growth in our primary fee businesses. A range of 10% to 14% seems reasonable, given the performance of several of our primary business lines in the first quarter. First quarter expenses came in slightly less than we anticipated after backing out the FDIC Special Assessment. We, like everyone else, recorded the FDIC Special Assessment accrual of $7.25 million in additional expense in the first quarter. Importantly, we've lowered our incentive target from 100% to 120% payout in fiscal year 2024 to now 80% here at the end of the first quarter. Obviously, our goal is to bring it back to target this year, but that can't happen unless we feel like we're going to achieve our financial targets. In the end, the relationship we've created since we started the firm between our financial performance and our incentive plan works is intentional and helps ensure that we don't sacrifice one to benefit the other. We have elected to keep our expense outlook unchanged at $950 to $975 million for the year. You might ask, why not lower it more? We have some reason to believe that we can fight our way back into this, so we hope to get back some of the incentive we eliminated in the first quarter but we also have other ways to manage our costs, and we will deploy those as considered necessary. We believe our overall expense outlook for 2024 is largely intact, so we're going to keep it consistent for now.
spk10: Now to VHG.
spk09: As the slide indicates, our realization trends were down in the first quarter given the tighter credit box and the impact of the macro interest rate environment. Last quarter, we had anticipated a flash year as to production. BHG believes that their 2024 production target is still in reach, but a higher for longer rate environment could impact those assumptions. As to placements, it was again a very strong quarter for sales into the bank network, and they also closed on their ninth securitization for $300 million, and as we mentioned in the press release last night, with a net spread of greater than 10%, which we were all very excited to see. Also, my understanding is that over 35 firms participated in the issuance, thus great demand for BHG paper. Also, keep in mind the securitization added more than $30 million in provision expense to the first quarter results. BHG doesn't anticipate another ABS issuance until probably the fourth quarter of this year. As to spreads, auction platform spreads did widen during the first quarter to 8.1% while the balance sheet spreads are fairly consistent with the prior quarter. All in, VHG believes spreads are holding in this rate environment. VHG believes when rate decreases start, that will be a good thing for them, not only from a volume perspective, but also from a spread perspective. On reserves, and there's a lot of information on this slide, VHG did increase reserves during the first quarter for both on and off balance sheet loans. Modest uptick in the first quarter for credit losses for the off-balance sheet business going from 3.1% to 3.3%. On-balance sheet was at 6.8%. But the news is good as it pertains to BSU's credit experience. We have been anticipating for at least a year or more that the first half of 2024 was critical to our assumptions around credit improving. Even though the charge-off rates for on-balance sheet increased during the first quarter, the actual dollar value of charge-offs for on-ballot sheet decreased along with average balances. That's why the charge-off rate increased because the average balances went down. Even though the charge-off rate for both on and off-ballot sheet was up in the first quarter, B&G believes that they may have turned the corner on tackling the COVID overhang of great inflation in 2021 and 2022. As the bottom left chart indicates, client delinquencies, which are past dues greater than 30 days for all of VHG's loans, both on and off balance sheet, appear to have topped off over the last few months and are bending down at the end of the first quarter, especially in consumer credit. Also, VHG believes, based on information gathered from the rating agencies, their loss experience thus far post-COVID will be better than that of other FinTech competitors. Again, as the past due chart indicates, the consumer line is very encouraging. It's too early to declare victory, but BHG has worked tirelessly to get back to their pre-COVID credit environment. More progress to come over the next few quarters. As to origination and earnings, achieving the same level of originations as last year will take great effort. That said, BHG is not, and emphasis on not, interested in adjusting their credit models to achieve volume goals. Suffice it to say, as to placing BHG's originated credit The appetite for BHG's credit is as strong as ever. That in and of itself should help spreads going forward. As to earnings, BHG is holding to their mid-single-digit earnings growth target for this year. Additionally, BHG has tactics they can deploy to help their bottom line and increase potential earnings. The important assumption for BHG this year is what happens with credit. If improvement continues, like we believe it will, BHG will have an impressive year. With that, I'll turn it back over to Terry.
spk11: Thanks, Harold. In general, it seems to me that the operating environment for banks is both difficult and volatile. Inflation appears to be more difficult to tame than predicted, even as recently as several weeks ago by Jerome Powell. It seems to me that rates are now more likely to stay higher for longer, resulting in an inverted yield curve for longer. And with all the uncertainty and rapidly changing market conditions, bank stock investors are obviously finding it challenging to forecast bank earnings and discern the dependable creators. And so, in my opinion, in this environment, a company like PNFP that over the longer term has been able to generate such reliable growth should be an attractive alternative. We built a truly differentiated model that attracts the industry's best talents like none of its competitors. and creates raving fans like none of its competitors, which results in persistent growth of clients and therefore persistent growth in loans, deposits, and net interest income over the long haul. It's how we consistently grew our EPS over the last decade without having to take on many of the risks that some in our industry have taken, which almost always come home to roost in times of volatility. In fact, we produced the highest total shareholder return among our peers over the last decade, a decade that witnessed a great deal of volatility. Over the decade, I watched bank management take extraordinary risk and investor themes change with every swing in market conditions. During the pandemic, slow growth and no growth banks came into favor, and we saw PEs for banks with net negative balance sheet growth be significantly higher than for the growth banks. During the liquidity crisis, we saw valuations pick up for the money-centered banks on one end and slow-growth rural markets on the other versus high-growth regionals like PNFP. During the Fed tightening cycle, we saw low-deposit beta banks highly rewarded while high-beta banks like PNFP were skewed. But through all of that, at Pinnacle, we simply focused on rapidly and reliably growing our earnings stream, not betas, not margins or trending niches, earnings. Our approach at Pinnacle reminds me of the old John Houseman commercials for Smith Barney where he said, they make money the old-fashioned way. They earn it. During the last decade, our price the next 12 months EPS contracted meaningfully. So then it becomes obvious that it was our ability to arrive and grow earnings that accounted for our peer-leading total shareholder return and not any pickup in the multiple that investors were assigning based on their most recent thesis. And so let me be clear, at PNFP, our focus is primarily on sustainable long-term growth and earnings and tangible book value. Now, I'm not saying that deposit cost betas are of no importance. I'm not saying it's meritless to scream for NIMs or ROAs or efficiency ratios. I'm just saying at Pinnacle, our principal objective is sustainably compounding earnings and compounding tangible book value. So, you know, we could slow hiring, reduce non-interest expense, and improve our short-term earnings. We can concentrate on lowering our deposit beta instead of funding a high-growth balance sheet and forego the once-in-a-generation opportunity we have to continue taking market share from all our competitors. But instead, our focus is on sustainable growth and earnings and compounding tangible book value. And if you focus on sustainable earnings growth and compounding tangible book value, There's no chance you're going to take a temporary influx of liquidity based on government stimulus and put it in securities to goose your short-term earnings at a time when interest rates are near all-time lows. And you can't accept the duration risk of loading the balance sheet with unhedged long-term fixed-rate mortgages when yields are at all-time lows. You just accept a lower net interest margin in order to protect hard-earned tangible book value. That's your focus. You protect loss-absorbing capital. There are banks that win best when rates are falling, and there are banks that win best when rates are rising, and there are banks that have really low average deposit balances, all of which have garnered lofty multiples at one time or another over the last decade. But in the banking business, perhaps the only way to consistently and reliably produce total shareholder returns better than peers over the long haul is to have a sustainable competitive advantage, a differentiated model, and that's what I believe we have at Pinnacle. This is the 2023 market tracking data from Greenwich Associates, or Coalition Greenwich, as they refer to themselves now. The data is for businesses with annual revenues from $1 million to $500 million in our market area, which for these purposes is defined as Tennessee, North Carolina, South Carolina, Washington, D.C., and Atlanta, Georgia. It compares the top 10 banks in the footprint. More specifically, in addition to Pinnacle, the top 10 banks in that footprint include Truist, Bank of America, Wells Fargo, First Citizens Bank and Trust, PNC, First Horizon, J.P. Morgan, Regions, and South State. Looking at client satisfaction on the left of the slide, the crosshairs are set at the mean for the market penetration on the Y-axis and the percentage of excellent client satisfaction ratings on the X-axis. So the banks in the top left quadrant are the large share banks with the lowest level of client satisfaction. That's what we refer to as vulnerable competitors. Banks in the lower right quadrant are the banks providing the highest level of client satisfaction, theoretically the market share takers. And as you can see, PNFP provides the single highest level of client satisfaction in our footprint. That's differentiation, and a particularly wide differentiation when compared to the largest, most vulnerable banks in the market. And on the right side of the slide, you can see that the banks at the top with the highest overall client satisfaction are generally the market share takers. Those are the banks with improving market penetration over the last year, as shown in the rightmost column. And the banks at the bottom of the list are the lowest client satisfaction banks, and they are indeed giving up market share penetration. Honestly, more important than client satisfaction scores is the net promoter score. Satisfied clients will many times leave if they get a better offer, while net promoters are substantially less likely to leave because they're emotionally engaged with the brand. Not surprisingly, PNFP has the highest level of net promoters, not by a little, but by a lot. And not only do we have far and away the highest percentage of promoters, but the Greenwich survey data found no detractors, literally zero. Hopefully, as you study this comparison of the top 10 banks and the southeastern footprint, our sustainable competitive advantage is beginning to crystallize. It's no secret that for relationship-managed banks like us, the quality of the relationship managers must be the principal differentiator. Greenwich has identified seven important metrics that are valued by business clients. You see them listed in the first column there. In the rightmost column, you see the peer comparison ratings for the same 10 competitors in our footprint that I just walked through. The blue bars represent the range of scores for that set of 10 banks on that metric. The white line is the median score, and the white circle is the pinnacle score for that metric. Happily, you can see that PNFP is the market leader for every single relationship management metric. Think about that in terms of a sustainable competitive advantage. Not only are we widely viewed to be the most prolific hirer of relationship managers in our footprint, but the quality of those we've attracted are literally the best in the market. And as a slight digression, I want to make this point. When we provide our outlook for loan growth, as an example, which is substantially higher than peers, some might fear that the risk profile is elevated as a result of the high growth in loans. But hopefully, as you think about the fact that we're not only hiring the most relationship managers in our footprint, which explains the high growth, but we're hiring the best relationship managers in our footprint, which in my judgment should produce a lower risk profile, not a higher risk. Much has been said and written about the advantage that the large money center banks have as a result of their technology budgets, and there's no doubt that every money center's tech spend would substantially swamp ours. But using a similar graphic for client perceptions regarding treasury management and the digital experience for the top 10 banks in our footprint, again, you can see that Pinnacle actually has the single best perception among businesses surveyed by Greenwich in our footprint, both in terms of capability and delivery. This is one of the clearest examples of how we combine tech and touch to create this sustainable competitive advantage. And ultimately, there's no more powerful brand among businesses in our footprint than Pinnacle's. Greenwich has identified five pillars of brand perceptions among businesses, and as you can see, the range of scores for the top 10 banks in our footprint is pretty wide. But again, Pinnacle's the leader on every single pillar. And so as you think about sustainable competitive advantage, it's highly unlikely that competitors can easily address their market perceptions for how easy they are to do business with, how trustworthy they are, or whether they value long-term relationships and so forth. Even if they recognize these substantial deficiencies, and even if they have the will to change, and even if they're successful addressing all the root causes of why they're so hard to do business with and why they're not trusted and why they're viewed to not value long-term relationships, those reputations with customers are more likely built over decades. And so attempting to connect the dots for you on exactly why we've been able to gather clients faster than competitors, why we've grown our interest earning assets faster than peers, and therefore our net interest income faster than peers, and therefore our EPS faster than peers over the last decade, is because of the very hard work we've done to build the kind of work environment that attracts not only the most, but the best talent in the industry and to create a demonstrably differentiated level of service. That's why substantially less clients can see any vulnerability in their relationship with us, and substantially more clients intend to reward us with more business over the next six to 12 months by far than for any of our competitors. That's the linkage from the work environment, which was recently ranked by Forbes magazine as the 11th best in all the United States, to the recruiting effectiveness, to the client experience, to the volume clients intend to move to us. And all of this bears on our outlook for the remainder of 2024 and for the next decade, for that matter. So, Harold, let me turn it over to you.
spk09: Thank you, Terry. Now to our slide on our outlook for 2024. We've tightened our expectations in some cases and modified others. In the end, we've concluded that our overall outlook for 2024 is basically consistent with last quarter. I've listened to a few conference calls this quarter. There's a lot of chatter around world events, inflation, M&A, politics, so on and so forth, and how those events are impacting their outlooks for 24 and 25. For me, I find myself thinking a lot about interest rates and credit. I have a lot of confidence in where our balance sheet sits with respect to both. I've mentioned to a few of my CFO friends over the last few years how I was a bit envious of their asset sensitivity. Our goal is and has been managing our balance sheet with an aim towards interest rate risk neutrality. We may drift slightly to either asset or liability sensitivity from time to time, but in the end, our belief is that we let the client gathering engine be what drives our earnings growth. As to credit, I personally spent a lot of time with our credit team. I also spent a lot of time with RMs and in recent quarters, particularly our real estate lenders. I likely will spend even more time with all of them for the rest of this year to try to better understand what happens to credit when rates go up or go down, as I should and as you would expect. For what it's worth, our folks are at the line of scrimmage, actively working with our borrowers every day, ensuring we deliver great service and protect the financial soundness of this firm. Because of that, I feel good about where we are, where we're headed in 2024, and what we all hope 2025 will shape up to be, even after you consider what we know today about world events, inflation, so on and so forth. With that, Paul, the group I know is thankful that I am done. And if you would, let's open it up for Q&A.
spk00: Thank you. The floor is now open for your questions. If you'd like to ask a question at this time, please press star 1 on your touchtone phone. We ask that in the interest of time. Participants today limit themselves to one question and one follow-up. Analysts will be given preference during the Q&A. Again, we do ask that when you ask your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Once again, that's star one if you wish to ask a question on today's call. And please hold while we poll for questions. And the first question today is coming from Casey Hare from Jefferies. Casey, your line is live.
spk10: Yeah, thanks.
spk01: Good morning, everyone. Quick question on the, I guess, the NIM outlook. You guys mentioned that you expect it up in the second quarter, and the spot deposit costs are down relative to the first quarter, but some of the yields, the loan yields, spot yields are lower than where they were in the first quarter, and then the muni bond yields were also lower. Just trying to get a sense of what's going on on the yield side.
spk09: Well, Casey, this is Harold. I think the muni bottle yields, there's a volume issue there, but I think we should see some of that recover here in the second quarter. The deposit rate forecast I think will be just a small creep. What's really dependent on our NIM forecast is how well we do on fixed rate loan repricing and whether our DDA accounts hang in there like we think they'll hang in there. So if those two things happen, we think our NEM forecast is solid. Obviously, loan growth is an important element to all that. And so we still feel pretty good about the 9% to 11% loan growth for the year.
spk01: OK, very good. And then I guess just switching to the BHG outlook, The guide implies a pretty steep ramp in the remaining quarters here. Harold, you mentioned credit as a pretty significant wild card. Just wondering, how do you get the PHG run rate up to that sort of mid $20 million level to hit that guide? Is it credit or is it more originations? Just some color there.
spk09: Yeah, we think originations are going to be probably a little better here for the rest of the year. What impacted the first quarter a lot was that ABS placement. I don't think they're going to spend as much time working on balance sheet kind of growth, and they'll spend more time on the gain-on-sale part. But you're right. The credit is the issue. We're all optimistic to see those bars turn south, and they feel pretty good about where they are right now.
spk10: Very good. Thank you.
spk00: Thank you. The next question is coming from Steven Alexopoulos from J.P. Morgan. Steven, your line is live.
spk04: Hey, good morning, everyone. Harold, maybe to start, to go back to the question Casey just asked, when I look at the margin, it's pretty flat. Earnings after yields were pretty flat. Deposit costs were pretty flat this quarter. It's not really clear to me what's driving the expectation for NIM expansion in the second quarter.
spk09: All right, well, like I said, we've got a lot more fixed rate loans to reprice this quarter. We think also the work we did at the end of the quarter on some deposit preemptive strikes into the deposit book should also be helpful. So that and DEA balances hanging in there are the primary kind of tailwind to the margin uplift.
spk04: Got it. Okay, so you're expecting... earning asset yield to pick up a bit in 2Q and deposit costs to come down a bit. Is that what you're saying? That's right. Got it. Okay. And then on the expense side, we know you guys took the incentive comp down to 80% of target, but kept the full year expense outlook intact. Could you just run through a little more detail what's expected to fill that bucket up while we're still same expense outlook?
spk09: All right, so what we elected to do is not take it down. So we're going to keep it the same. We felt like as that played into our overall outlook for 2024, that was the fair thing to do. If the incentive accrual gets reapplied, you know, so we add back to call it the 30 million bucks into the incentive accrual for the year, that would come out obviously with revenue increases. But we have other opportunities to kind of manage our expense outlook to kind of keep that still within that $950 to $975, if that makes sense. Okay.
spk04: Yep. Yeah, that makes sense. I guess the one last part is the new hiring was really solid as far as 37 new hires. What is embedded in the expense outlook? Is this going to be a much stronger year than typical for hiring, just given the pipeline?
spk09: Yeah, I think we put in, as far as the plan for this year, basically the same hiring profile for 2024 as 2023. I'll have to go back and look at my numbers, but I think overall headcount was up 100 people or so last year, something like that. So that includes revenue producers and everybody. Yeah, it was 115, something like that. So if you dissect that, the revenue producer plan was basically the same this year as it was what we did last year.
spk04: Okay. Thanks for all the color.
spk00: Thank you. The next question is coming from Catherine Naylor from KBW. Catherine, your line is live.
spk07: Thanks. Good morning. Once we're on the margin, so good morning. One more on the margin, Harold. So you mentioned that even in a no rate cut scenario, that's neutral to your outlook on your NII guide. How should we think about the downside risk to growth if we don't see rate cuts later on this year?
spk09: Yeah, that's a great question, Catherine. I think it will impact growth maybe to the low end of our number, but at the same time, A lot of our growth, if you look, there's a chart in the back that shows where our loan growth came in the first quarter, and it all came from new markets, new people. That's what we're leaning into as far as basically our loan growth for the whole year. We're not expecting any significant growth. If it's 9 to 11 overall, we might be looking in the legacy markets for call it 5 to 7. That chart in the back would show that we didn't have hardly any growth. In fact, we had negative growth in the legacy markets in the first quarter.
spk07: Okay, great. And then similarly, on the margin in a scenario where we don't have cuts, do you feel like there's enough momentum in DDA balances holding in and you've got better fixed rate loan rate repricing for the back half of the year that the margin continues to expand throughout the rest of the year? with cuts or even without cuts?
spk09: Yeah, we're keeping our fingers crossed on that for sure. Right now, our average DDA balances, as far as individual accounts, are pretty consistent with pre-COVID. There might be a little excess there that we need to worry about. But so far, so good with respect to that. But that's a real important kind of component to the overall kind of net interest income plan for the year.
spk07: For sure. Okay. Great, thanks. And one just really small question if you don't mind. Service charges were a lot higher this quarter. Any color on what's going on there? Is that a good run rate to grow from?
spk09: I don't think there's anything specific that we can talk about. Maybe Terry's got some ideas here. But I think we did do some kind of like everybody looking under rocks, looking at fee waivers, looking at things like that where we've over the years kind of just gotten into maybe some some places with certain clients where we need to kind of go readdress some of those charges.
spk11: But I don't think we did any kind of... There were no universal price changes. There were some initiatives that were aimed at reviewing long-term waivers, long-term special pricing, those kinds of things that I think have made a difference.
spk00: Okay.
spk07: Great. Great. Thank you.
spk00: Thank you. The next question is coming from Brandon King from Truist Securities. Brandon, your line is live.
spk06: Hey, good morning. Thanks for taking my questions.
spk00: Hey, Brandon.
spk06: So just to run out of the deposit cost question, I think I've heard mixed names. So are you expecting interest-bearing deposit costs to incrementally creep a little higher from here? Is that correct?
spk09: Yeah, I think they will creep, but it'll be one to two basis points. I don't think it'll be any more than that. I think our group is doing a good job of holding the line on deposit costs. So long as our core deposit kind of growth continues, I think that'll be accurate. If for some reason core deposit growth doesn't happen and we have to go to the wholesale market, that money's really expensive, and we're hoping not to do that. So...
spk10: So far, so good.
spk06: Okay. Okay. And then, Harold, in your prepared remarks, you mentioned that there could be other ways to manage costs besides, you know, the incentive accrual. So, do you care to go into more details about what could potentially be done on that front?
spk09: Oh, yeah. Well, we can always delay hiring. For all practical purposes, our hiring plan for support units is really restrictive right now, not to put a damper on the cost. we can do that. We can delay hiring. We've got some projects that are slated to start this year. We can delay those. There are several things that we can do in order to kind of bring the expense number back in line if we need to.
spk06: Okay. And then just lastly, on BOLI, it came in around $11 million in the quarter. I think you mentioned that you could see some incremental revenue from that. So should we expect that kind of $11 million figure to increase incrementally, or should that normalize to a smaller amount?
spk09: Well, I think probably, you know, call it $10 million is probably a fair number to think about going forward. There were some death benefits in the first quarter, but yeah, I think somewhere, call it $10 million is just probably a fair number for bowling.
spk00: Okay.
spk06: Thanks for taking my question.
spk09: Thanks, Brandon.
spk00: Thank you. The next question will be from Steven Scouten from Piper Sandler. Steven, your line is live. Hey, thanks. Good morning.
spk08: I guess one of my first questions here was just curious around customer kind of appetite for the higher fixed rate loan yields today versus maybe last quarter or previous. Do you feel like customers are becoming more maybe acclimated with this rate environment and you're not getting as much pushback or, you know, kind of what are the dynamics there as you reprice these loans?
spk11: I think it is fair that, you know, there is more acclimation on the client's part to, you know, higher fixed rate quotes. So that's a true statement. But I wouldn't want to act like it's easy. I mean, you know, it's a dogfight for sure. But, you know, I think during the quarter our – our repricing was at $7.35, the target $7.50 to $8.00. So, you know, we're within striking distance and it's, you know, way up from where it was. So, again, I don't want to act like it's easy. It's not easy, but we are getting it done. And I think, you know, it's the combination of, the client's acclimation to the rate. I think some of the distinctive service levels and so forth, you know, the client loyalty is an important variable in there as well.
spk08: Yeah, that makes sense. And I would think, I mean, the renewal spreads look like they continue to widen a bit. And is that largely a function of just, you know, the 2021 kind of vintage originations being the lowest yielding fixed rate loans that remain on the books?
spk09: Yeah, I think, Steven, I don't know if I got all the questions, but there's that chart that's on the loan slide. That first bar is the biggest as far as rates. I think it came in like 490 is what the renewal rate is coming into the second quarter. And the reason is that is probably at the tail end of where before rates started coming down back a few years ago. So that's why that line on that chart is highest at 490, and then it drops pretty meaningfully down into the 460s, down into the 440s over the rest of this year. Does that make sense?
spk08: Yep, that's perfect. Thanks for pointing that out. And then just last thing for me, I know there were times in the past, you know, 10, 12 years when you guys have done a really good job of having floors in place before rates went down and taking them off as rates went higher. Do you have any meaningful floors in the portfolio today, or has that been a part of the pricing conversation at this point in time?
spk09: Yeah, we've got floors in place, and we've got some balance sheet floors. I think we've got $3 to $4 billion in covering some of the floating rate credit. But largely, we've encouraged floors at the line of scrimmage into individual loan contracts. I don't have the number as to what that is today, but I'll dig it out and I'll get it to you.
spk08: Okay, great. Thanks for the time today. Appreciate it. Thank you.
spk00: Thank you. The next question will be from Michael Rolls from Raymond James. Michael, your line is live.
spk05: Hey, good morning, guys. Thanks for taking my questions. Harold, I know you guys have a pretty – robust assumption for deposit betas on the way down. Has there been any change to that, and what is the kind of swing factor there if we don't get any cuts this year as it relates to, you know, kind of the NII guide? Thanks.
spk09: Yeah, I think on the short end, I don't think there's a whole lot of change to our NII guide today, Michael. We still plan on, and our relationship managers are well aware and they've been informing their clients that when rates do come down, we will be aggressive on the downside. I think we've gone back and looked at what our beta was on the way up on our negotiated rates. It was like 70 or 80%, somewhere in that range. So we intend to be aggressive on the way down. I think the critical question is around what happens if rates don't move from here. Again, I think on the short end, And also for the near term, we feel like it's fairly neutral.
spk05: Okay, that's helpful. And then maybe just on the deposit growth, you know, you guys have done a great job over a very long period of time growing deposits. Can you just talk about the complexion of the growth, maybe how much will come from some of the more expansionary markets that might, you know, be higher cost in nature just given you know, maybe some introductory or teaser rates as you build out those markets versus what you're expecting in the, you know, in the legacy markets and, you know, how that could, you know, from a yield or from a cost perspective, how that could be a swing factor, you know, if we are higher for longer. Thanks.
spk11: Yeah, Michael, I think when we look at the deposit growth that really we generated for the better part of last year and our outlook for 2024, the biggest single component of that deposit growth is the deposit specialties that we've developed over the last several years. And, you know, I won't go through or bore you with all those things, but I think you're familiar, you've heard us talk about, you know, deposit products that we have for escrow accounting, deposit products that we have for captive insurance businesses, deposit products that we have for bankruptcy trustees. I mean, there are a variety of these specialties that we've focused on and built over the last several years, really trying to make sure we had some value add for particularly large pools of money. And so we've developed a mechanism where we've got market champions in every market for all those products and There's a lot of energy on targeted calling on clients that utilize those particular products. In all honesty, I think the biggest piece of the growth comes from what we're able to produce through those deposit specialties. There is no doubt we're also benefited by what goes on in our market extensions. You're growing off the base of zero, so all the numbers look pretty good there. But as it relates to teaser rates and so forth, I'd just say keep in mind, you know, those strategies are not retail in any way, shape, or form. So we're not doing rate promotions or any of that kind of thing. You know, there's no doubt you're moving market share. You're generally not going to convince a client to move from where they are to here and, you know, pay them a lot less than what they're getting paid. So, again, I don't mean to act like there's no price pressure. There certainly is. Again, it's not a retail teaser rate kind of strategy. But, again, I'd point you back to the deposit specialties.
spk05: No, I appreciate the context. And maybe just the last one for me. I know you had two credits that have drove a little bit of an increase in MPLs, obviously very low level. You built the reserves. Can you just help us get comfortable? I know there's been a lot written about multifamily supply coming online in some of your markets, particularly Nashville. and down to Atlanta as being some of the highest. Just as it relates to kind of your specific reserves against commercial real estate, I think they're, you know, sub 1% for the last call reports. So can you just help us, you know, get comfortable that you guys are kind of well-reserved and, you know, you'll see migration, but, you know, aren't overly worried about credit.
spk10: Thanks.
spk09: Yeah, the, you know, what we're leaning into is, Probably one of the, well it is, my most, my highest performing segment in my loan portfolio is my commercial real estate segment. And that's been true for many, many, many years. Where we get choppy is in the CNI book when things happen. So I think it has to do with just looking at the macro environment where we are with these loan values and Our multifamily book we think is as strong as it's ever been. Rental rates are at 95, 98% loan values in the 60% range. I think it's by and large on the macro side is where we get it. I think where else I get comfort is when I interview my real estate lenders and my credit officers, they're able to talk in very granular granular way about all these multi-family projects and sponsors so i i believe we're on them and i think we understand what the markets are uh i don't think we have any significant appetite at all for multi-family right now i think we believe that we like our book and we like our sponsors great thanks for taking all my questions thanks mike
spk00: Thank you. The next question is coming from Timor Brazile from Wells Fargo. Timor, your line is live.
spk02: Hi, good morning. Hi, Timor. I wanted to follow up on expenses. The 80% incentive kind of accrual rate right now, is that based on the guidance that you're giving? Like you said, you can work your way back to kind of hitting those numbers. I guess what is the expectation for performance needed to hit that 80%?
spk09: Yeah, I'm not going to get into actual EPS targets, what it takes to get to an 80% kind of award. You can look at the proxy and see how it works over time and the tiering and how the revenue component flows through it and all that. But basically, we have to reconcile where we think we're going to be for the year to what we're going to accrue in that incentive bucket every quarter. And that's not only true for cash, but also for equity. So we have to go through a process to try to make sure we right-size that accrual every quarter to where we think the tiering is with the plan for the year. I don't know if that gets at your question generally, but maybe a follow-up, maybe I can help you out.
spk02: Yeah, I guess just relative to the guidance, if you hit your guidance, does that equal 80% on the incentive, or is there upside to that number if the guidance is hit, downside to that number if the guidance is hit? I guess just that 80% relative to your broader guidance.
spk09: Yeah, it is. The outlook would give us a range of results for the year, and that's kind of like where we believe it's going to end up, you know, within that range.
spk02: Okay, got it. And then maybe on the loan book.
spk10: I'm sorry, go ahead.
spk02: No, no, go finish your thought.
spk10: No, no, I'm good. Please go ahead.
spk02: I guess on the loan book, just looking at link quarter construction loans, that reduction there and your broader commentary around where you want to get that as a percentage of capitals. I guess what does the contractual funding look like in the construction book? Has a lot of that already taken place from Origination's book in prior years? Or is that comment on working that down on a relative basis to capital more so just other segments growing faster than the construction bucket?
spk09: Well, we went effectively, we went pencils down on construction about a year, maybe a year and a half ago. So new commitments we limited to already kind of to developer sponsors that we had already previously committed. So we're still funding up on some of those commitments. But as it's turning out now, the funding on these older projects is not keeping up with the projects that are getting their certificate of occupancy. So once they get that certificate of occupancy, they move out of construction and they either go to the permanent market They either get paid off, or the project gets sold, or we move it into commercial real estate. So we anticipate that over the rest of the year, that will still happen, that our funding for new construction will not be large enough to make that 70, we'll still go down towards that 70%, based on actual fundings, and then projects, as they complete, will move out of that construction bucket.
spk10: Got it. Thanks for the question. Sure.
spk00: Thank you. The next question will come from Brett Rabaton from Hovde Group. Brett, your line is last.
spk13: Hey, guys. Good morning. Wanted to start with the hires, and I know that you doubled the the Jacksonville team already. I'm curious where, you know, what geographies you're more interested in growing from here. And if anything that's going on with interest rates, you know, or higher rates for longer, maybe that slows some of your projects. Are there any new markets on the table at this point?
spk11: So, uh, Brad, I think, you know, in, in terms of, uh, hiring, um, um, Jacksonville obviously is a key area of hiring as are the other newer markets you know specifically DC Atlanta and so forth so the so we're there is incremental hiring all over the footprint I would say it's a pretty good time for us to be attracting talent universally but clearly there's a concentration in the newer markets which is where the hiring is currently occurring and And then I guess as it relates to new markets, I know you've heard me say this before. We love the southeastern markets, all the large urban markets in the southeast. The principal voids are in Florida. But the catalyst for when we go is when there's availability of a team that we feel like can build us a big bank. And so that was the catalyst for why we went to Jacksonville. When we did, we had a fabulous leadership team that I think is really extraordinary and going to build something special there. And we may find our way to other markets when that same phenomenon occurs, but we're not trying to get to other markets. We're not working on how to get to other markets and so forth. So I hope I'm addressing what you asked, Brett.
spk13: Yeah, that's helpful, Terry. And then the other quick question was around slide 23, where you have the customer penetration and the overall satisfaction levels. I'm curious if, you know, I get that the national banks are the higher customer penetration levels, but is that an area of opportunity for you, you know, either client by client or product set to grow the penetration on your clients?
spk11: Absolutely. That's really the whole point to me, Brett, is across that whole footprint, we have markets we dominate like a national, but across the whole footprint, we're in some really handsome markets where we're a low-share player. As I look at that chart, what I'd say is, okay, what I want to do is attack those banks that are in the top left because then they've got all the share and all the vulnerability. And so that's exactly the play that we have been making. That's where we've produced our share growth over the last, you know, almost for a decade now, and that's where I would expect growth to continue to come.
spk13: And any idea, Terry, where your national penetration would be versus the overall footprint?
spk11: What our penetration across the United States would be?
spk13: No, the Nashville MSA penetration of customers versus... Yeah, I'm sorry.
spk11: I got it. In Nashville, I can't recite the number, but it would be a 30% sort of penetration.
spk13: Okay. Great. That's helpful. Thanks for all the color guides.
spk00: All right. Thank you. The next question will be from Matt Olney from Stevens. Matt, your line is live.
spk15: Thanks. Good morning. I want to go back to the discussion around loan yields. And I think the loan yields increased this quarter around five bps. And I think you mentioned the benefits of the fixed rate repricing tailwinds could build throughout the year. Any color for us as far as how we can be modeling those loan yields over the next few quarters, assuming no rate changes?
spk09: Well, I think if you can, I think our loan growth will be fairly, we should get into that 9% to 11% range. So I don't think there's any kind of meaningful seasonality there, Matt. So as you plan out the loan growth, you know, do that. And then I think you'll have to back into what our margin expectations are. The loan yields, we believe, will be accretive. We think we'll do more accretion here in the second quarter than we did in the first quarter. Gosh, I'm trying to give you some direction here. I think $3 billion, if you weigh $3 billion of new loans coming in at, call it $735 or $740, that would be helpful.
spk15: Okay, got it. We'll look at that. And then I guess kind of a similar question, Harold, on the securities yields. You had some nice repricing all through 2023. I think you've got one of the higher yielding securities books in the peer group. Any more benefits this year if we assume higher for longer, or are we kind of topping out here?
spk09: Well, I think we're getting close to kind of the top, but we ought to see some accretion in the Call it the second quarter. It won't be a lot, but hopefully we'll see some, especially on the cash side. We had a kind of a larger mix of, call it cash balances versus the Fed account here in the first quarter than we typically carry. So we're likely to see more money at the Fed earning the higher rate on the cash side.
spk14: Okay.
spk10: Thanks, guys. Appreciate it. Thank you, Matt.
spk00: Thank you. The next question will be from Samuel Varga from UBS. Samuel, your line is live.
spk12: Hey, good morning. I just wanted to go back to the 6-8 loan yields for a moment. The current originations are obviously a little bit below the target range of the 7.5 to 8, and so I wanted to get a sense of, yes, especially with the potential rate hike in September, do you expect to hit the low end or the middle of that range for that target range, or should we just sort of expect that this is going to stay below 750 for 2Q, 3Q?
spk09: As far as new accounts go, Samuel, we're actually pretty pleased with their hit in 735. We did have I call it a handful of larger credits that booked in the first quarter at, call it in the high sixes, that did dilute, you know, that target from 750 down to 735. Am I getting to your question?
spk12: Yeah, that's perfect. That's very helpful. Thank you, Harold. And then the other question was just on credit. So you upped the NCO guide a little bit, obviously gave some commentary around that MPA and the specific reserve. I just wanted to get a sense of, like, the move to the 20 to 25 basis points. Do we expect that to be a chunky sort of outcome, or is this a more broad-based sort of expectation of moving up in lost content?
spk09: Yeah, for our planning, I think that's a great question. I think it will end up being chunky, but right now we're saying it's fairly consistent. So we don't see a big rise in it in the second quarter versus the third quarter versus the fourth quarter. I think what we're planning is to be fairly consistent from here on out.
spk12: Understood.
spk00: Thanks for taking my question. All right, Samuel. Thank you. The next question will be from Jared Shaw from Barclays. Jared, your line is live.
spk03: Thanks. Hey, guys. You know, maybe just looking at the – going back to the penetration – market penetration slide. How should we be thinking about maybe longer-term loan growth from here, like, you know, looking out 25, 26, as you're able to take market share in these high-growth markets?
spk11: I'm not sure. Ask it again. Jared, I'm sorry. I'm not – I didn't quite get it.
spk03: Yeah, I'm just – with all the hiring you've been doing, with people who are the best in their markets and going into higher growth markets? How should we be thinking about longer term loan growth if we look out maybe over 25 and 26 as you are able to successfully or hopefully successfully take market share in these markets?
spk11: Yeah, my expectation is that it will work like it has worked. And when I say that, you know, I think the last few quarters we've had a slide up in the actual call presentation deck that sort of showed what was coming from all the new hiring versus not from the new hiring. And, of course, as you know, it's substantially from the new hiring. I think that slide found its way to the back of the deck, as in the additional slides in the back. But you can see the percentages coming from there. And so my expectation is that phenomenon will continue out for 2025 and 2026. both because we'll continue to hire more people and they'll continue to move those books. And so what I think, you know, I mean, 6% loan growth is a pretty good number, at least based on what I expect other people are able to produce. But that is being done with legacy markets that have more tepid growth. And so once you get to a better economic landscape and you get the growth out of those legacy markets, as we've talked a lot, Jared, the growth that comes from the new hires is not dependent upon economic conditions, but the growth in the legacy markets is. And so anyway, I don't mean to go on too much, but I expect that phenomenon to continue. We'll hire more people. They'll move their clients. It will produce outsized growth as it has for some time and so forth, and then if you get a tailwind here when economic conditions improve, you ought to produce even more outsized growth.
spk03: Okay, thanks. And then just finally for me on BHG, I mean, Harold, maybe where do you see reserves peaking there?
spk09: Yeah, I can't really – yeah, just What they've told me, Jared, is that they believe the reserves will probably maybe tweak up some from here, but basically flat is from here on out. They feel like they're in pretty good shape with respect to the absolute levels, well, the percentage levels in relation to loans.
spk10: Great. Thanks.
spk00: Thank you. The next question will be from Brian Martin from Johnny Montgomery. Brian, your line is live. Hey, guys.
spk14: Most of mine have been answered here. Just a couple minor things. Harold, just on the loan repricing that occurs at the 300 basis points, it's helpful. Is there a significant amount or a similar amount of that repricing that goes in next year as well? Just kind of thinking further out on the fixed rate side.
spk09: Yeah, I think that chart would show, Brian, something like, I think the blue bars go down to like $750 million or something a quarter. in 2025, in some neighborhood like that. One thing, and I hope Matt's still on the phone, that I remembered, is that the mix of our new loan generation now has gone from a 60-40 floating rate to a 60% floating to 40% fixed. Today it's running probably around 75% floating to 20-25% fixed. So those floating rate credits are coming on at a higher yield than the 735 or the 754 fixed rate. So that's another kind of tailwind that we've had to loan use. That'll happen again in the second quarter.
spk14: Gotcha. So that margin should continue to ramp if that repricing occurs and the deposits are stabilizing. So, okay. And then, Harold, just housekeeping on the equity investment line and the fee income line, was there anything funky this quarter or was that a pretty clean, you know, a pretty normal type of level on those equity investments?
spk09: Yeah, I don't recall anything going on. We did have a solar gain again this quarter, but we think that's going to be replicated throughout the year. So we didn't point out any kind of unusual number for that line item.
spk14: Okay, understood. And then just the last one was just on the deposit, you know, the proactive preemptive strikes you talked about. Is that continuing in second quarter? Or I guess have you kind of, you know, backed off that? Or I guess is that, you know, do you expect that to kind of continue and also support your to your margin commentary?
spk11: Brian, it's a great question. What we have done is conduct an initiative where we ask people to go through and review and gave lists and try to provide infrastructure and basis for decent rates and so forth. So that initiative has been done. But I mean, My view of it in this environment is it's a war. You know, we'll continue to look for ways to provide emphasis and opportunities to drive our cost of funds lower. I can't recite what they are right this minute. But, you know, again, we'll be continuing to push on it. But I think the specific point we were trying to make is Harold expressed some optimism about a lower cost that's a function of an initiative that has been conducted.
spk14: Gotcha. Okay. Perfect. Thank you for taking the questions.
spk00: Thank you. Thank you. And that does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you all for your participation.
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