Smartfinancial Inc. Q1 FY2023 Earnings Call

Hello and welcome to the SmartFinancial First Quarter 2023 Earnings Call. My name is Elliot, and I will be your coordinator for today’s call. I would now like to hand over to Nate Strall with SmartFinancial. The floor is yours. Please go ahead.

Thank you, Elliot. Good morning, everyone. I am Nate Strall, Director of Corporate Strategy, and thank you for joining us for SmartFinancial’s first quarter 2023 earnings conference call. During today’s call, we will reference the slides and press release that are available within the Investor Relations section of our website, smartbank.com. Chairman, Miller Welborn will begin the call followed by Billy Carroll, our President and Chief Executive Officer; Ron Gorczynski, Chief Financial Officer; and Rhett Jordan, Chief Credit Officer will also provide commentary. We will be available to answer your questions at the end of the call. Our comments include forward-looking statements. These statements are subject to risks and uncertainties and the actual results could vary materially. We list the factors that might cause results to differ materially in our press release and our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements because of new information, early developments or otherwise, except as may be required by law. During the call, we will reference non-GAAP financial measures related to the company’s performance. You will see the reconciliation of these measures in the appendices of the earnings release and investor presentation filed on April 24, 2023, with the SEC. And now, I will turn it over to Chairman, Miller Welborn to open our call.

Thanks, Nate. Good morning to all of you, and we appreciate you joining us today for our Q1 2023 earnings call. We are excited to be on the call this morning to visit with each of you about our bank. We continue to make great progress on all fronts and execute better every quarter and deliver quality shareholder returns. We thank you for the interest that you have in our progress, and it’s important for us to hear your questions, comments, and feedback. The first quarter of this year has been an interesting and challenging quarter for the banking industry, but at the same time, a very rewarding quarter for our company. SmartBank has been very focused on our clients, and we have had hundreds, if not thousands, of conversations with our clients and others in the communities we serve. These conversations have allowed us to tell our SmartBank story and also to share with others about the strength and the importance of the community banking system in the Southeast. We are very proud of what we were able to accomplish for the quarter. Our Q1 2023 versus Q1 2022 increase in earnings for the bank was strong, and I also believe we executed much better than most of our competition for the quarter. I am proud of the entire team for the focus and continued improvements we have made this quarter. With that, I am going to turn it over to Billy.

Thanks, Miller, and good morning, everyone. Well, what a way to start 2023 for our industry. But as I tell our team all the time, challenges can open a lot of doors, and I believe, as you will see as we walk through the state of our company, SMBK is positioned well to navigate the current environment. Rhett and Ron will dive into the details on credit, balance sheet, and earnings momentarily, but I wanted to hit on some key numbers and some key points to open our call today. We had a solid quarter to start the year. You can refer to page three of the deck for some of those highlights. We reported $11.5 million in operating earnings, equating to $0.68 per share, noting year-over-year revenue growth of 15%. Our balance sheet growth was solid for the quarter, growing deposits by $152 million or 15% annualized and loans by $53 million or 7% annualized. We experienced some of the same pressure on NIM as many of our peers, as some competitors were forced to push deposit rates higher than we wanted, but we stayed competitive on those clients and didn’t allow funds to move for clients we deemed core. All in all, I felt we held our own as it relates to deposit betas. I also felt extremely good about us finishing the quarter with no borrowings or additions to brokered funding. Prudent use of those funding vehicles is absolutely fine, but to go through a quarter like our industry has and for us not to tap either shows the strength we have built in our balance sheet over the last several years. Our model is showing its value in a time like this. We built this company through acquiring some great core funded community banks with nice granular deposit bases over the last several years, and we have coupled that with strong commercial banking talent obtained through lift-outs in recent years. We have a unique ability to pivot and lean on the strengths of both strategies in a time like this. We have also got some great balance sheet flexibility with about 36% of our bond portfolio coming back to us in cash in the next 18 months. This is a huge reinvestment in earnings opportunity that Ron will discuss in a moment. Our credit quality remains outstanding with NPAs maintaining at 11 basis points and we continue to feel very good about our loan book. There’s been a lot of talk about CRE and office exposure of late. There’s minimal office exposure in our book and what we have is strong, leveraged appropriately with outstanding positions. I don’t think I would trade any of them, well, maybe except to reprice a couple with today’s rates, but Rhett is going to dive into this more in a moment. As you can see on pages four and five in our deck, we operate in some of the country’s best markets with great growth opportunities and population inflows. That, coupled with our historically strong credit culture, gives me great confidence in the strength of our bank. As a wrap-up to my opening comments, a couple of other highlights for the quarter. First, we merged our two insurance agencies and converted them into a common core system. We rebranded the agency SBK Insurance to capitalize on our company’s strong brand position, but still to maintain independence and autonomy. I remain extremely excited about the future of this business line, and we are now synced up and ready to grow. Our Fountain Equipment Finance subsidiary continues to perform very well. We increased our outstandings in that line of business to over $128 million, up from the $55 million when we acquired it just a couple of years ago, and recently added new team members in Birmingham and Atlanta. Lastly, we just announced the addition of an outstanding group of financial advisers in our SmartBank Investment Services team in our Dothan, Alabama market. Dothan has been a great market for us from a commercial and private banking standpoint, and this investment team is a great addition. Our wealth program now has over $1.2 billion in assets under management. All in all, a really good start to the year. So let me hand it over to Rhett and then onto Ron to dive into some details, and I will close with some additional comments in a moment.

Thank you, Billy. For the first quarter of 2023, the bank saw total loans and leases grow at roughly a 7% quarter-over-quarter annualized pace. As you can see on slide six, the portfolio mix saw very little change with total loans outstanding of just under $3.3 billion. Average loan yields continued to rise for the latter half of the year in 2022, and we saw that continued yield improvement through the first quarter. As we ended the reporting period, we had an average portfolio yield of 5.57%, our strongest quarter yield since 2018. Improved interest rates on new loan production and renewals, coupled with our short-term variable rate loans continuing to generate stronger yields, were all contributors to this improvement. Slide seven shows a balanced and diversified commercial real estate portfolio as well. Non-owner-occupied non-construction represents 27% of the bank’s total portfolio with our largest segment concentration continuing to be in the hospitality sector, representing roughly 33% of all non-owner-occupied loans. As Billy referenced in his opening remarks, office space is a segment of the sector that has had considerable questions about long-term viability and pressure on occupancy rates in a post-COVID business operation environment. However, our office segment represents a very manageable 14% of the overall non-owner-occupied CRE portfolio. This limited segment is also well diversified across our geography and very granular and scalable. None of our geographic regions represent more than 30% of the office portfolio exposure with the average loan size being roughly $1 million. We have a diversified tenant profile across the portfolio as well, with our largest segment being medical offices at 36% of the segment. The relationships have solid debt coverage profiles, very strong performance, and an average loan-to-value across the space of just over 50%. In the construction segment, the space is also very strongly diversified by product segment and by geography with no more than 32% of the segment held in any one of our geographic regions and an average loan transaction for approximately $450,000. As we stated previously, we feel very comfortable with our positioning in the CRE space, as we believe the risk profile of our portfolio has continued to demonstrate solid performance, and our overall credit metrics are strong with only 0.19% of the CRE segment balances impacting the over 30-day past dues position for the quarter end and 0.20% of the CRE segment balances carrying a classified risk rate. As the next slide indicates, our portfolio of credit quality was consistently strong quarter-over-quarter. While we did see some slight increases in some of the metric balances over fourth quarter 2022 results, a large portion of that was the result of transitioning our allowance method to the CECL model and the subsequent loss of applicable credit discounts in the acquired loan pool, as well as transitioning a few former PCI loans into a non-accrual classification in conjunction with the applicable accounting change. But despite these slight dollar increases, slide eight shows solid performance among our core asset quality metric ratios. NPAs, past dues, and classified loans to total loans are all in line with fourth quarter 2022 and consistent with our metrics throughout last year. Our CRE portfolio ratios have continued their downward quarter-over-quarter trend from 2022, and we continue to see the segment below regulatory targets in both total and C&D segments. Overall, our first quarter loan production was lower than recent quarters as predicted, but credit quality metrics continue to hold steady. We are cautiously optimistic about the near-term outlook and believe that should the economic challenges that are forecasted become reality, our footprint’s regional outlook is expected to perform above average compared to other parts of the country. We believe that will be beneficial to our client base in navigating the next few quarters which, coupled with our conservative historical underwriting standards, will keep our portfolio performing strongly. Now I will turn it over to Ron to talk to our allowance, deposit portfolio, and additional earnings details.

Thanks, Rhett, and good morning, everyone. Let’s move forward to slide nine, our allowance for credit losses. On January 1st, we officially adopted CECL. In conjunction with the adoption, we added $8.7 million to our allowance, increasing it to $32 million, bringing our ACL to total loans to 0.99%. Additionally, we had $10.2 million of fair value discount that was transferred to an unamortized fee account, which will be subsequently recognized over the life of the loans. We also recorded a $3.1 million unfunded commitment liability. The adoption resulted in a reduction to equity net of tax of $6.6 million. On to slide 10, our deposit portfolio increased by $153 million, or over 15% annualized for a quarter ended loan-to-deposit ratio of 78%. This impressive growth is directly attributable to the deep client relationships built over time by our outstanding relationship managers even as we have continued to be judicious in our approach to raising deposit pricing. That said, significant pricing competition from less local competitors has caused rates to increase quickly. Our total deposit costs increased 71 basis points to 1.56% for the quarter and were 1.76% for March. We do anticipate this upward pricing pressure to continue, albeit at a more moderate pace throughout the remainder of the year. On slide 11, we provide a detailed look at the composition of our deposit portfolio. A few takeaways we would like to highlight: Our average deposit account balance is $39,000, spread across approximately 87,000 accounts with our average commercial and consumer account balances being approximately $103,000 and $23,000, respectively. Approximately 74% of our deposits are either guaranteed or collateralized. We have approximately $964 million in public funds, of which $550 million is guaranteed through reciprocal deposit programs and the majority of the remainder is collateralized by pledged securities. Lastly, our total reciprocal deposits totaled almost $800 million, which includes the $550 million of public deposits previously mentioned. Overall, we are extremely fortunate to have such granularity in our deposit base as we have intentionally built our business around serving the needs of a diversified range of clients across a broad spectrum of industries and geographies. Moving on to slide 12, in light of the recent events, we have added some additional information regarding our liquidity position. We currently have over $1.6 billion of liquidity, consisting of cash, unpledged securities, and collateralized lines of funding available from the FHLB and discount window, representing over 1.4 times coverage of our uninsured deposits. More broadly, during 2021 and 2022, we adopted a conservative approach to deploying excess liquidity, opting to hold cash in short-term securities to fund future loan growth rather than deploying to longer-term securities. While this approach was to the detriment of our short-term earnings, we are now, unlike many of our peers, not beholden to a large underwater securities position. Instead, we now have sufficient funding without the need for costly borrowings or wholesale funding. On slide 13, at quarter end, our securities portfolio was at $880 million with a 69% AFS, 31% HTM mix of securities, and an effective duration of 3.1 years. Our strategy to invest in short-term in 2021 and 2022 is now set to provide significant earnings tailwinds as over $307 million of principal will be returned to our balance sheet over the next year. This $307 million is currently yielding 1.8%, redeployed at a current market rate of 5%, results in an earnings stack of over $9.8 million in additional revenue. On slide 14, you will see that this quarter, we had an increase in both cash and more notably, securities. As one may think, why are we buying securities at this point of time? Simple, we took advantage of a unique opportunity to purchase approximately $50 million of SBA floating rate securities at a deep discount from a distressed institution. These securities have a three-year average life with yields in the mid-6% range, and at quarter end, had an unrealized gain of over $1.7 million. Our first-quarter net interest margin was 3.31%, representing a 20-basis-point quarter-over-quarter contraction. Our yield on interest-earning assets increased by 47 basis points, primarily as a result of an increase in our base loan portfolio yield and 37 basis points of loan fees, which included 18 basis points or $1.4 million of loan fees associated with an acquired loan that paid off. For the quarter, our loan portfolio yield less fees was 5.20%, and for the month of March, it was 5.27%. Our interest-bearing liabilities increased 85 basis points, driven by increased deposit costs, which totaled 2.05% for the first quarter and for the month of March was 2.27%. At quarter end, our cumulative deposit beta during the cycle has been approximately 28%. Looking ahead, we estimate our second quarter cumulative beta to be approximately 32%, and we are modeling a cumulative beta of 36% by the end of the year. Our margin and rate guidance should be taken with the understanding that we are in an extremely dynamic market and any guidance is subject to change rapidly. That said, we are modeling second quarter loan yields in the 5.60% range, interest-bearing deposit costs in the 2.35% range, and net interest margin in the range of 3.05% to 3.1%. Given these margin projections, coupled with the non-interest income and expense projections we will discuss momentarily, we anticipate maintaining operating revenue in the $42 million range. On slide 15, you will see that we experienced a shift from a generally neutral position at 12/31 to a slightly liability-sensitive position at quarter end. This shift was primarily driven by the movement of approximately $90 million of existing money market deposits from sheet rate to an index pricing rate, and additionally, new money market growth of approximately $75 million, also at an index pricing rate. To counter this impact, we are not only reinforcing pricing disciplines in our markets but also looking at various balance sheet strategies to ease some of the funding pressures. On slide 16, our operating non-interest income remained flat quarter-over-quarter. While our first quarter results were lighter than expected, the slowdown was attributable to decreased capital markets and wealth management activity, both of which are heavily impacted in times of market volatility. As markets stabilize, we expect our entire platform to return to stable recurring income production. Looking ahead, we anticipate our non-interest income to be in the $7 million range for the next several quarters. On slide 17, you see we did a great job managing our operating non-interest expenses, coming in better than our quarterly guidance and virtually unchanged from the prior linked quarter. While the efficiency ratio did rise to 64% for the quarter, it was a result of external market pressures on revenue rather than internal expense increases. Looking at next quarter, we are forecasting an expense run rate in the $28 million range, with salary and benefit expenses of $16.9 million, which represents a full quarter of merit increases and associated taxes. As we said before, longer term, we do expect ebbs and flows in various expense categories as we reinvest in our ability to acquire and serve clients and ultimately drive shareholder value. On slide 18, capital. During the quarter, our capital benefited from strong earnings and positive movement in our AOCI position. As we move through 2023, we fully anticipate generating earnings at a rate sufficient to fund growth and build our capital ratios. While we continuously monitor our capital levels and are prepared to adjust quickly if needed, today, we are well capitalized and strategically aligned to deliver strong ROEs and tangible book value growth. With that said, I will turn it back over to Billy.

Thanks, Ron. As you can see from Ron and Rhett’s comments, we are seeing some of the same impacts that everyone is dealing with during this cycle, but our positioning remains very sound while we adjust in real-time to what’s happening in our markets. I am hoping we will see funding pressures ease a bit, but we are prepared to defend our base. Loan yields are starting to edge up, and repricing loan maturities will continue to help bolster asset yields. However, as Ron alluded to, we will probably continue to experience a flat margin environment in the near term. We feel we will continue to see growth and believe mid-single digits on both loans and deposits is a fair outlook. This is the time where we do plan to keep it in the fairway, but we will still continue to take swings. We are seeing some nice opportunities in areas where others may be pulling back, and our team is leveraging those to grow full relationships. We are definitely open for business. There’s no doubt this is an unusual time, but disruption creates opportunities. So we are going to continue to play offense prudently and cautiously, but sometimes it’s just harder for us to work on deals in an 8% prime rate environment. However, when they do work, we are going to take a look at them. We continue to handle this rate environment with a heightened focus on non-interest-bearing and low-interest-bearing deposits. We have ramped up our treasury platform and resources and continue to make this an area of emphasis for the bank. We are also continuing our focus on our non-interest income areas like investments in insurance. While recognizing the industry headwinds, I firmly believe what investors want in a time like this are banks with a history of strong credit, flexibility in their balance sheet, and management teams that can capitalize on uncertain markets. Check, check, and check for SMBK, and the loyalty our clients have shown our bank has been so reassuring and confirms that what we are building isn’t just deposit and loan transactions, but strong relationships with very strong advocates. Our earnings momentum remains solid as we continue our focus on revenue and EPS, and our business model and culture have us well positioned to be opportunistic. We continue to remain very bullish about our future. And to close, just a big thanks to our SMBK team for continuing to do such a great job for this company and for taking such great care of our clients. I will stop there and open it up for comments.

Thank you. Our first question today comes from Will Jones from KBW. Your line is open.

Hey. Thanks. Good morning, guys. This is Will stepping in for Catherine. How’s everybody?

Hey. Good morning, Will.

Good morning, Will.

Thanks for your guidance; it's always appreciated. I was considering the margin. I understand you are slightly revising down your guidance for the next quarter, but it seems like there may be some positive factors coming in for the upcoming year. You mentioned that you are exploring different strategies for balance sheet restructuring and that you expect to benefit from significant bond cash flows at the end of this year. Could you elaborate on what strategies you are contemplating regarding the balance sheet?

We are considering various options, particularly in terms of hedging some pay-fixed strategies involving swaps related to funding. It is a key focus for us as we contemplate our next steps with the $300 million maturing next year. While nothing is finalized, most of our discussions are currently at a strategic level.

Yeah. Got it. And as we think about that $300 million that will be coming due and you guys do contemplate how to kind of deploy those funds. Would you expect to kind of instantaneously reinvest in the bond book or would you just be methodical with it and deploy it evenly in loans and bonds? How should we think about that $300 million?

I will tell you, this is Billy. It’s difficult to predict that far in advance, even if it's not too distant. For our forecast, we are planning to reinvest most of that amount. As Ron mentioned in his comments about reinvesting at market rates, there is still some uncertainty around it. We will evaluate the situation at that time to see how the market is shaping up, but internally, we are expecting to reinvest it.

Got you. Very helpful. And then just lastly for me on the margin, on the margin gap for this upcoming quarter, it’s great that you guys provide the deposit beta expectations. Helps a lot with the visibility. What do you assume for further mix shift? I don’t know, interest-bearing and into more interest-bearing accounts?

Yeah. At this point, no, we went from 26% non-interest-bearing to 23%. For the remainder of 2023, we are modeling to go down to the 21% level. I think more of the shift will go into money market funds rather than any other category. But the non-interest-bearing will get squeezed a little bit as time goes on for 2023.

Hey, guys. Good morning.

Good morning, Graham.

Good morning.

I just wanted to, I guess, just start on the securities purchases that you guys mentioned quickly: the SBA portfolio. Can you just talk a little bit about how that deal came about, how you all found it, your propensity to do more of that in the future, or if you think those opportunities still exist out there?

Well, I hope we don’t have opportunities to buy distressed stuff from banks, Graham. But, again, just kind of our mantra is to be opportunistic, and just through relationships we had with some different brokers, we were able to take advantage of some bonds that needed to be sold quickly. I really don’t anticipate something like that popping up again, but if they did, we would definitely look to take advantage of it.

Yeah. This is Ron. We haven't seen as much activity as we did in the first quarter; there may be some slight changes. I believe most of the significant changes have already taken place. Other than the expected movement from non-interest bearing accounts to money markets, we don't anticipate much more change at this time. However, everything could shift depending on market conditions and competitors, but for now, this is our current outlook.

Okay. This may be a broader question, but there has been significant strategic activity at your bank over the past few years, and I understand that the revenue environment is currently quite challenging. Considering your overall business, is there a specific profitability metric you are focused on? Even amidst these challenges, is there something that investors or analysts can look to as a guide for your direction?

I will begin. I believe much of this comes back to our revenue growth and EPS growth. As I mentioned earlier, we are currently in a market where maintaining our position for a few quarters isn't necessarily negative. While that may appear somewhat flat for a short period, our primary focus remains on increasing revenue and EPS, and we feel confident in our long-term ability to achieve that. You might notice a bit of flatness in the coming quarters, but it will give us the opportunity to observe the market and adjust as needed. This is still our main focus. Additionally, the efficiency ratio has increased slightly and may stay higher than we would prefer over the next year, but we continue to aim for it to be in the low 60s and even lower in the long run. These are the areas we will keep concentrating on, even in the current landscape.

Okay. Great. That’s it for me. Thanks, guys.

Hey, guys. Good morning.

Hi, Kevin.

Hi, Kevin.

Most of my questions have already been addressed, but I would like to take a step back. I appreciate the detailed guidance on margins and the cost of deposits. If we consider the net interest income in terms of dollar amounts, should we expect more margin pressure in the second quarter as you mentioned? Looking ahead to the second half of the year, assuming the Fed raises rates once more and then pauses, do you anticipate net interest income to start stabilizing, or do you think it will continue to decline due to funding competition?

Yeah. Hi, Kevin. This is Ron. Yeah. We are modeling another 25 basis points in May, and for dollar-wise, the income will stabilize. That’s what we are forecasting at this point in time. So not grinding lower, just kind of hanging in Q3, Q4, pretty much steady as she goes.

Then, I think, as we look ahead, we think that number is going to expand.

Thank you for the update. Billy, you mentioned that there was a clear effort to increase deposits this quarter, and while the mix is still shifting, we expect loan and deposit growth to proceed at a similar rate moving forward. It seems we'll maintain a comparable loan-to-deposit ratio. Is the strategy to fund our loan growth with deposits, and given the decline in non-interest-bearing accounts, will we rely more on money markets or CDs to counterbalance that? Is it accurate to view these two areas growing at roughly the same rate?

I think we feel optimistic about our ability to grow, even though it may be somewhat slower compared to what we've experienced over the past year. We're committed to focusing on self-funding, and if necessary, we can use some CDs to bridge any gaps that may arise. Overall, we believe our balance sheet will remain stable in the near term. As Ron mentioned, there might be some fluctuations, but we intend to utilize the most effective and cost-efficient funding options available. We aim to maintain a steady pace, likely in the mid-single digits for growth in the near future.

But it’s no secret it’s a competitive market out there.

Yeah.

Hey. Good morning, everybody.

Good morning, Feddie.

Good morning, Feddie.

Just wanted to ask a question on the FHLB contingent liquidity figure. I know you have already got a good bit of contingent liquidity with them. But is there potentially even more capacity there if you pledge additional loans or securities, or is that more or less the firm limit at that FHLB?

Yeah. No. That’s what we currently have. No, we do have more capacity at the FHLB.

Got it. Okay. I was just curious. I have seen a couple of different banks disclose that differently. So I was just curious there. And then one additional one, is the average deposit balance figure that you disclosed skewed a little bit by some of the larger public funds, just curious over whether that has an impact on it?

Obviously, the average balance is higher. We did have some short-term inflows and outflows of deposits during the quarter, so that’s probably why it looks a lot. Again, it was kind of an expected in and out that we don’t expect to repeat during Q2. It was for a sale of some companies that happened during the portfolio.

Hey, guys. Good morning.

Good morning.

Hi, Brett.

I wanted to first mention that I joined a little late due to an issue, but I was trying to note everything you discussed regarding guidance. I heard you correctly that the operating revenue for the second quarter is expected to be $42 million. Is that correct, with a margin of 3% to 3.10%? I'm sorry, I meant 3.05% to 3.10%.

Correct.

So if I just back into this, it would seem like if I am backing that number with a $7 million fee income run rate, it would seem like you are expecting some solid average earning asset growth in 2Q. Is that a fair assessment?

It is, yes. Probably similar, we are looking at the mid-single digits of asset growth. Again, sometimes it may trend higher, but that’s what we are modeling at this point in time.

Okay. And then, if I heard you correctly, you're expecting loan yields in the second quarter to be about 5.6% versus the 5.57% in 1Q. Does that essentially mean that your variable rate loans are repriced to kind of market, and from here, you are just kind of waiting for the fixed rate loans to reprice over the next year?

Well, remember, the first quarter had some additional loan fees from the paid-off loan. At this point…

Okay.

We are still expecting our loan portfolio to adjust a few basis points, around 5 to 10 basis points every quarter going forward, likely closer to 5 basis points.

Thank you. Billy, you mentioned that there was a clear effort to grow deposits this quarter, and while the shift in the mix is ongoing, it appears that moving forward, we can anticipate loan and deposit growth to proceed at a similar rate. This suggests that the loan-to-deposit ratio may remain consistent. Is the strategy essentially to fund our loan growth with deposits, and as non-interest-bearing deposits decline, we'll utilize money market accounts or CDs to compensate? Should we consider that both of these elements are growing at about the same rate?

It is. I think we feel quite positive about our growth potential, but it will likely be somewhat less than what we've experienced over the past year. What you mentioned aligns with our approach. We plan to focus on self-funding. If necessary, we can add some certificates of deposit or similar options to address any small gaps. We are confident that our balance sheet can remain stable for the time being. As Ron mentioned, there may be some fluctuations, and we will aim to utilize the best and most cost-effective funding options available. Overall, we plan to maintain a steady growth rate in the mid-single digits for the foreseeable future.

Good morning. Apologies if I miss here, but on…

Hi, Steve.

Just apologies if I miss this, but on loan pricing here, just kind of curious where are you seeing new loans coming on the books for these days?

Steve, to start, I believe we are in the 7-ish range, give or take. Looking at the spot in March, we were coming in at the high 6s. Moving forward, I think we'll be in that high 6 to low 7 range.

That’s high, Steve.

It could always be higher. We are pushing every lever we can. However, there is still some competitive margin pressure on some of those yields. If we can’t achieve those yields, we are not proceeding in today’s environment. It’s a straightforward situation. We are observing yields around 7%, occasionally a bit higher.

I do. Yeah. Steve, we have got about $83 million or so that will be maturing between now and the end of the calendar year that will be repricing. 2024 we have got another $93 million, $94 million or so. So we do have a decent segment in that bag that will be maturing and thus, subject to repricing…

Okay. That’s helpful. Got it. Great. That’s helpful. As we think about the remix on deposits, I'm curious about how much the non-interest-bearing deposits might shift towards money market accounts or CDs if rates remain at 5% or higher in the future.

Ron, I think you will allude to that a little bit or you touched on that I believe. But, I think, Ron, you can add any detail. But I think we are probably looking for a few basis point shift down. I still think we can hold a reasonably good level probably in that 20%, 21% even going forward, even if rates edge up a little bit more, but Ron?

Yeah. Exactly. I think we would like to say 20% would be our floor, but again, market conditions if the rate environment keeps going up further, who knows at this point. But we are modeling 21%, but I think 20% probably should be our bottom at this point in time.

Thanks, guys. I think this concludes our Q&A. I will now hand back to Miller Welborn for any closing remarks. Thanks again to each of you for joining us today. As always, please reach out to us directly if you have any additional questions and have a great week. Goodbye.

Ladies and gentlemen, today’s call has now concluded. We would like to thank you for your participation. You may now disconnect your lines.