The First Bancshares - Q2 2023
July 27, 2023
Transcript
Speaker 0
Good day and thank you for standing by. Welcome to the review of Second Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr.
Hoppy Cole, CEO. Sir, please go ahead.
Speaker 1
Thank you, and good morning. I've got several of our team members with me this morning. I have Judy Lowrey, our CFO JJ Fetcher, our Chief Lending Officer and George Noonan, our Credit Officer, the agenda for today, I'll give a few highlights of the quarter, and then I'll let each of the respective team members I'll give us some more detail in the areas of management. So we were very pleased with the quarter, particularly with the Performance of our balance sheet and the resiliency and consistency of our earnings stream given the very difficult operating environment, I think everybody knows that You're fighting for every basis point of margin out there as deposits are certainly pretty difficult to keep. When you talk about operating earnings, when you talk about pretax fee provision, however, you want to measure our core earnings.
Again, I talked about consistent quarter over quarter. We produced operating earnings per share of $0.85 for the 2nd quarter, return on assets operating of 1.36 And return on tangible common operated of $19.35 all return metrics that we're very pleased with. We also talked about Reflects the performance of our balance sheet, particularly on deposit base. As you know, we have a highly granular retail oriented office base across the Southeast. That really shined again this quarter in the ability to manage our margin.
We had a really good we did a really good job of managing our margin. Our GAAP margin actually increased 13 basis points due to some fair value adjustments relative to the HSP acquisition. But maybe more importantly, our core margin only compressed 4 basis points quarter over quarter. Again, given all the headwinds out there in terms of margin management, we're Very pleased with that. As D and D's analysis, she'll dig into the margin in a lot more detail.
In terms of loan portfolio, We were pleased to see modest loan growth of $41,000,000 at 3.3 percent on an annualized basis. As we noted in last quarter's call, pipelines were down a bit From year end for the Q1, but in our travels and, JJ, I was thinking it's a little more granular detail, it feels like pipelines are building back and really business seems like it's picking up a bit in terms of loan portfolio. We also believe given the position of our balance sheet We're well capitalized. This is going to be a real opportunity for us, particularly on the organic side of the business, as some other people pull back In terms of types of loans that they make, the ability for us to manage our concentration levels and to get fully priced, particularly in the construction Ariel, we think it's going to be an opportunity for us. We've been able to add several banking teams around the footprint, particularly Tampa St.
Pete As well as new warrants and again JJ will talk a little more about that in this presentation. Just to note, JJ and I spent a couple of days down in Tampa With our team recently, Tampa and St. Pete making calls, gosh, we're so excited about that. As you remember, the Beach Group, both in the Panhandle, Florida And in Tampa, St. Pete area, they are really getting their feet under them, begin to focus on growth and really lever the advantages that our balance sheet brings to them.
Their system integration was last December, so they're a good 7 months, 8 months post system integration. So They're past the point figuring out sort of new processes and procedures, and now they're really beginning to hit their stride in terms of focusing on growth again. And then the Georgia Group is coming on extremely well coming on extremely good as well. They're about 90 days post system integration. And so Thank you very much.
I'm beginning to think now more about getting over that sort of uncertainty with new processes, procedures and beginning to focus and build their pipelines back, particularly in the Atlanta area and the coastal region. Credit quality was good. Were as good as they've been in quite some time. We saw improved outperformance and
Speaker 2
reduction in
Speaker 1
non accrual loans And also charge offs were somewhat muted. So those are some high level comments about the quarter. Again, we're pleased with the We think our balance sheet continues to perform well in this environment. And with that, Deane, would you like to give us some detail around the financials for the quarter?
Speaker 3
Yes, sir. Thank you. Well, again, this feels like our normal trend of noise in the quarter acquisition expenses. And so We have to kind of go through the GAAP and the operating earnings, but that's okay. We don't mind.
So we as Tapi said, we are very pleased with the quarter and feel like we, by kind of staying really on top of where we were last quarter With the pre tax pre provision being the same or the core being down about $300,000 we're very pleased with that. Our GAAP earnings were $23,800,000 or $0.76 per share, but we Excludes those acquisition charges of $3,100,000 after tax, that's $26,800,000 or $0.85 diluted, and that compares $27,100,000 so $300,000 difference there compared to the Q1. A couple of notes, if you kind of stay flat, Same as last quarter, but just a couple of things that bring out, we did have There's additional accretion income related to Heritage of about $2,500,000 or so and it's really getting Those marks loaded on the core system to start accreting with each loan. And so there were some pay downs from Heritage During the 1st 5 months of the year, that kind of all got caught up in this quarter with the accretion. And then provision expense this quarter, we took $1,250,000 versus last quarter was 273,000 When you back out what was needed for the sequel day 1, so the extra $1,000,000 there in provision expense this quarter compared to last quarter.
We had about $1,000,000 of extra expenses this quarter. I know we talked about seeing maybe a decrease $100,000 in expenses for this quarter. So we had a couple of things that weren't one time to be noted as not core. They are operating expenses that happens with banks. It just was kind of a bigger number this quarter, about $1,000,000 worth of several items Write down on ORE and then as well some check fraud.
So it was just kind of up there a little bit bigger number this quarter and worth Commenting and hopefully not expecting that to move forward, so feel like when you take those out, we're really on top of our expenses for the last quarter And then still hoping to decrease as we go forward. We are budgeting a decrease as we go forward in the next quarter as we talked about last quarter. Also, if you recall from last quarter, we did we talked about from the Q4 to the first that we would have margin expansion In the Q1 and with contract going forward, and that was really due to adding the heritage portfolio in the Q1 and We see that margin expansion for that. But our core and they did expand this quarter because of the additional accretion we talked about, 13 basis points, but our core margin, when you back out those marks, decreased 4 basis points, which we're very pleased with. And still we still are expecting margin compression this year as we talked about last quarter.
We're still matching. We're still fighting for deposits as we kind of talked about the first last Well, matching and keeping our defense on our customers fighting some of the specials out there, But we are kicking off and as we said last quarter, we would kind of move on the offense if we felt like our pipelines were there and The loan volume was picking up and that we needed to kind of go on the offense. So we're going to kind of be playing both sides of that ball going forward this year. I think with a program, kind of a campaign coming out and it's more relationship driven, Not so much being the highest rate in the market for a CD, but it's going to be a relationship product campaign. So We're excited about trying to get that kicked off next month.
But so we still feel like we can see some contractions on that just still fighting with deposit costs. We did provide a page in the deck that talks about and shows our net interest margin impact and kind of each category That breaks that margin down and the changes and you can see you're looking at the margin with How much was for the loan yield minus that accretion? And so our loan yield minus accretion still increased 22 basis points And then our deposit cost, about 14 basis points of that. So we're still seeing that improvement. The big I guess the biggest change this quarter was probably in the borrowings of cost.
We talked about last quarter being in the bank term funding program. We did at $250,000,000 we did take an additional $30,000,000 of that during the quarter. So And we had a full quarter of that compared to last quarter. So you can see that breakdown and From last quarter to this quarter detailed in our deck, so with just looking at the yield on our earning assets of 42 basis points And then our cost of funds, 19 basis points for the quarter, and that was a 19 basis point increase. We're at 91 basis points from 72.
So still very pleased with that as we go forward. Our interest bearing costs did increase 28 basis points up to 132, and that brings our cumulative Deposit beta since the beginning of the cycle to 22% from 18% last quarter. So I think that's still minimal increase and still looks good and where we've kind of been talking about thinking this might be Loans did increase $41,000,000 That's annualized a little over 3%. JJ I'll give a lot more color on the loan book in just a minute. Deposit run off for this quarter did decline from what we had seen last quarter.
It was a little over 3% when you look at the decline from the brokered CDs in the last quarter. But when you look at this quarter, it's And then we also had our public funds decreasing and both of those items was approximately half of that decline. So that really just left the remaining half of that $88,000,000 with a decrease in our retail base, our money market our money market book. So if you recall on our public funds, this is kind of starting the cycle of them spending their public funds, those up in the 1st part of the year and spend out as we go. So, we'll start seeing that portion decline as we go forward.
Our non interest bearing deposits increased another percent, increased even though the Deposit portfolio balances were down. It increased as far as percentage and dollars. We did see an increase in our interest bearing dollars And then at 1% to 32%. So we feel very good about our deposits book, as Hopi mentioned. Our liquidity position, we remain strong.
Our ratios are well above limits. Our non deposit Ratio did increase a little bit this quarter to 77%. Our deposit I mean, excuse me, our borrowing capacity is at 2,200,000,000 And then we still have we have about 41% of the securities portfolio on pledge, which is about $750,000,000 so available. And then we have about $230,000,000 coming due off our bond portfolio over the next quarter next 4 quarters. So we feel like we're in very good shape with our liquidity position as we go forward.
Our brokered I did mention our brokered CDs did mature 27,400,000 And we did increase our bank term funding program by $30,000,000 Our original $250,000,000 was at 4.69 for a year and then this last 30 is at 4.82%. So both still good rates in this environment we're in as well. And obviously, as a reminder, before that year is up, we can if rates decline, we can pay that off and or refinance at a lower rate for a year as well. So, Hoppy did mention a few of our operating results, ratios that For the quarter, about ROA 136, our return on average tangible capital our common equity was 19.35 And our efficiency ratio remained about the same as last quarter at 53.87. All great numbers and we'll provide those.
Capital ratios, TCE, 7.4, into the quarter and then our leverage ratio of 9.1 and our total risk base of 14.5. So, all in line with last quarter. And I think that's all my prepared comments. I'll turn it back over to you.
Speaker 1
Thank you, DB. So Gary, you give us some color on the loan portfolio?
Speaker 2
Sure, Hadi. Thank you. I think we've already covered the $41 plus 1,000,000 net number everybody. So I won't cover that one. But overall, pay downs, lading the business quarter, which was good.
We did finish the month of June on a high note with about 100 $60,000,000 new originations, that's against about $362,000,000 for the entire quarter. Construction lending continues to be a strong proponent, Accounts for about half of the total loans originated, so that's giving us more reserve for future funding. Hafi mentioned pipelines. We had a contraction there at the end of 'twenty two. So good increase in the Q1 and continued Uptick here in the Q2, so we really feel good about pipelines for the rest of the year hopefully.
Average yield, as Hafi said, we're fighting for every point, $762,000,000 for June, that was up from $736,000,000 at the end of the Q1. Regionally, private bank division Continues to be our strongest performer. We've got the Healthcare Specialty division, which is really getting traction in the metro markets. Hafi also mentioned legacy HSBI and Beach enhanced capacity in Modi markets, enter the metro markets, Starting to see some new relationship opportunities and really some enhanced opportunities with existing And we're able to leverage that. We're really starting to see some traction in those areas.
And Didi mentioned this in the release and Hopi as well. Probably for me, the most exciting thing about the quarter was really from talent acquisition and new market opportunities. So St. Pete, We opened that just about 30 days ago with 2 new lenders. New Orleans is an area we've worked on for years, and we finally were able to recruit A 3 person team is already seeing traction there from that group.
And then also, we were able to attract a 30 year plus Corporate banker in Tampa and Hoppy mentioned calls. He and I were down there a few weeks ago making several calls with him and we're really excited about opportunities from that lender. So and also I would say that most of those new lenders except for 1 in St. Pete Really came on at the very end of the quarter, so those pipeline numbers are not really impacted materially any files away. So we really look forward to the 3rd quarter here and see what happens.
So overall, it's been a positive quarter from both numbers and a talent acquisition standpoint, We just hope to keep the momentum going back half of the year.
Speaker 1
Thanks, J. J. George, you have
Speaker 2
Portable Credit Quality. Thank you, Hoppy. Just touch on a few key performance metrics for the quarter and then talk a little bit about professional office space. For the quarter, we were generally pleased with asset quality and performance metrics, moderately improving, we think. Delinquency showed very good improvement.
We finished the quarter at 25 basis points. That's well below our year to date As well as our annual average for 'twenty two, so good work there on part of all of our lending and credit teams. Loans on non accrual were reduced about $1,300,000 compared to quarter 1. NPAs were down a little bit, dollars 800,000 and so really unchanged on NPAs to total assets at about 28 basis points compared to quarter 1. Net charge offs did tick up a little bit.
We moved from 1 basis 0.7 basis points. And some of that we think was not necessarily Credit related directly, but we did see a little tick up there. ACL remained relatively unchanged. We ended the quarter at a $105,000,000 allowance compared to $106,000,000 last quarter. And I think particularly noteworthy, we did see total criticized and classified loans.
Those balances Came through payoffs. So our lenders and our credit people are working well on exit strategies for some of these Substandard and special mention loans and that's an intense focus as we go through this credit cycle and great Teamwork there from the production and credit side. Talk a little bit about professional office. As we know, that's been of heightened interest in a lot of quarters. And to give you a little bit of our kind of a flavor for our profile, Of our total office portfolio, only 44% is non owner occupied.
The average loan size in that subgroup is about 758,000. So not Big large exposures on a loan by loan basis. And almost all of our office Buildings are 1 to 2 floor type facilities. We've got a few 3 story buildings, but Our portfolio does not consist of any large, in fact, we have no central business district, Mid rise or suburban, actually mid rise buildings in that 4, 5, 8, 4 range. So What you'd expect, I think, from a community bank of our size.
Our largest non owner Our office loan is $18,000,000 that was recently it's anchored by a Fortune 500 credit tenant And we just recently renewed the lease, so we feel very good. But then you see a big drop down. The 2nd largest On our occupied office loan, it's $7,500,000 So we're in that $5,000,000 to $7,500,000 sweet spot on a number of those credits. I would say Of that, if you look at the maturities, which is in your deck, I think on Page 17, only 8.27% Our non owned occupied office loans have matured between now and 2020 the end of 2025. So we've got a good 2.5 year run rate We worked through a little over 8% in our maturity loans, so we feel good about our exposure there.
In general, we are obviously monitoring very closely both our renewals as well as our new opportunities for credits. Sticking to the underwriting guidelines that have historically served us very well and we're going to do that for the rest of the year, we feel like We'll get any early signs of any potential credit accumulation and be able to address it very adequately. So That's pretty much it for credit at this point.
Speaker 1
Thank you, George. Appreciate it. Well, that concludes our prepared comments. We will open it up for questions now.
Speaker 0
Thank One moment please for our first question. Our first question will come from Brett Rabatin of Hovde. Your line is open.
Speaker 4
Hey, good morning, everyone. Thanks for the questions. Wanted to first ask, Didi, you talked about the 22% deposit beta and obviously your cost of deposits is A lot lower than peers. Can you go back over what you were expecting the deposit beta to do from here? And then I guess the risk is that you have some sort of catch up quarter where maybe the beta moves up just given your relative level of funding costs versus the market?
Speaker 3
Well, I'm not sure that we would have a catch up quarter. We Are still kind of doing the same thing we've been doing really this year and that's kind of matching and playing defense with the other competitors In the market, so I don't see that that would be any different going forward. As I mentioned, we do have this campaign that we're coming out with That will be more of a relationship campaign. So the kind of what we're looking at internally is if we try to continue on the same pace, What does that look like for beta going forward and maybe our cost and deposits going forward? And If we kind of continue on the same trend, it looks like that 22% could be 26% or 27%, maybe next Quarter around that.
So I mean, that's still kind of just increasing that cost of deposits on our interest bearing side up about 30 Almost 30 basis points. And so we're not really unless something majorly changes in the market, I don't see that We're going to be doing anything different or any kind of a catch up besides kind of what we've been doing and we had that 25 basis point hike last quarter. So I hope that answers your question. It's just okay.
Speaker 4
Yes. That's very helpful. And it's good to hear. You guys obviously have a much better cost of funds advantage than most. Do you have a question I wanted to ask?
Speaker 3
I'm sorry, Brett, I was going to say it in the follow-up. I didn't answer the rest of that. But if you kind of carry that same calculation forward With the $160,000,000 on the interest bearing, that puts that cost of deposits to about $110,000,000 So Kind of using the same average balances, if that kind of stays the same, that 26%, 27% Beta would be about $110,000,000 cost deposits next quarter.
Speaker 4
Okay. That's really helpful. And then the other thing I just wanted to ask was around The accretion, obviously, you mentioned the catch up on that, just given that system online. Can you give us any idea of what obviously payoffs will impact it to some extent, but any idea of the scheduled Accretion from here in the back half of the year and maybe 2024?
Speaker 3
Well, obviously, like you said, it depends on payoffs and on the loans. But I think that number I would think for next quarter and going Forward, if we back off, as I mentioned, I think about $2,500,000 was kind of that catch up for loan payoff. I think It's probably at least for the heritage piece, I'm going to pull my number right here in front of me. For the quarter, it was yes, I feel like we will probably be in, I would say, for the quarter In that $3,500,000 to $4,000,000 time like we were last quarter, unless there's just more payoffs or continued payoffs. The Q1 The Heritage book was just kind of a straight line calculation until it got loaded after conversion on each loan.
So It's just hard to tell. I know it's not very good information, but I would say I'd back off a couple $23,000,000 off this quarter and kind of carry that forward.
Speaker 1
That's kind of offset by the expenses you detailed? Yes.
Speaker 4
Okay. And just last one, if I could sneak it in. Just if I understood correctly, there's some things in the expense bucket That are not core, but that are ongoing. With the expense base in the back half of the year, I didn't quite understand the guidance on that. Is that The back half of the year a little bit higher than 2Q or flattish?
I didn't quite understand that.
Speaker 3
Well, we will I'm sorry. I'm sorry if I was confusing. But 1st quarter, we were like $41,800,000 in core expenses. This quarter, it was $42,800,000 And I was saying there's about $1,000,000 of Kind of extra expenses within those, the write downs, those things that are still core, but we feel like it was kind of one time for this quarter. That puts us in line with last quarter.
But going forward, we are budgeting a decrease for 3rd Q4 coming from our cost saves of our acquisitions. And so we feel like we would see We'll probably see down $500,000 or so next quarter $25,000,000 next quarter and the next for those cost saves.
Speaker 4
Relative to 2Q?
Speaker 3
Yes.
Speaker 4
Okay. Great. Appreciate all the color. Congrats on the quarter.
Speaker 3
Thank you.
Speaker 0
Thank you. One moment please for our next question. Our next question will come from Catherine Mealor of KBW, your line is open.
Speaker 3
Hey, good morning. Good morning. Good morning. Hi, Petey. I just want to make sure I'm doing the expense trajectory right.
So you said you're lower next quarter. Is that relative to just the stated operating expenses this quarter or backing out that kind of $1,000,000 or so of kind of extra stuff you had? Well, I was saying backing out the extra and then being down is what we're hopeful because of our cost saves. Now I got to keep my writing loud. But yes, that's what we have budgeted to be down due to our cost base.
Got it. Okay. So that's an expense run rate kind of around $41,000,000 or $40,000,000 About $41,000,000 yes. $41,000,000 Okay.
Speaker 5
All right.
Speaker 3
To make sure I was doing that right. Okay, great. Thank you. And then how about loan yields? Can you talk about just trajectory of how you're thinking about loan yield repricing in the back half of the year and even really how you're thinking about it into next year, I feel like that's been a lag for you, but should provide a tailwind to kind of support the margin to move potentially higher next year once rate once our deposit costs stabilize?
Speaker 1
Yes. You're right, Catherine. And the way our balance sheet is constructed, particularly on the earning asset side On the loan side is we don't have as many pure floating rate loans, but we do have a relatively short fixed rate. So we are continuing to reprice up A prudent material amount every month, they're fairly every day, every month, every quarter. So where a lot of folks who have pure floating rates got a lot of There's yield already for the limits in prime.
We're getting ours a little it's a little bit elongated. So I think you're right. We think that The continued improvement in loan yields, we'll continue to get it this quarter, the next quarter, into next year as we reprice the fixed rate book.
Speaker 3
And do you know what the duration on your fixed rate book is or maybe just the amount that is Re pricing are coming due this year or in the next year?
Speaker 1
It's about $300,000,000 or so a quarter at just straight repricing.
Speaker 3
Great.
Speaker 1
And just loans.
Speaker 3
Yes. Got it. On the fixed rate piece, not your floating piece. Got it. Okay, perfect.
Okay. And then any what are you seeing on the credit side? Your credit metrics It looks really good this quarter. You made some comments on that. But are you seeing anything within your borrowing base that gives you concern that you're any downgrades within your watch or classified that we don't So you're going on behind the scenes or not seeing any of the unperformers yet?
Speaker 2
Catherine, I wouldn't say anything that's been extraordinary at this Point, I'm not kind of just what you would see in a normal routine year. Now we think that Just from a common sense perspective, we might expect some of that. But even as we saw With some of the payoffs on some of our substandard and special mentioned loans, We were able to exit a number of those relationships and there was somebody else to step in and those folks found a home. So I think We're obviously watching it. We're doing the stress analysis.
We're doing a Loan review, and we have gone now to a quarterly loan review, as opposed to a couple of times a year, Just so we can keep a more fresh look at a lot of our loan portfolio. So that has been One thing that we've implemented to help us, churn a certain segment of our portfolio on a more frequent basis. So we're taking a look at it. But Thus far, we have not identified any material weakness on any kind of systemic basis.
Speaker 3
Okay. And then maybe just last one on just loan growth outlook. This growth was a little bit slower this quarter because of the pay downs you mentioned. But it feels like your reservation volume has a good pipeline. So any commentary on what your growth expectations are for the back half of the year?
Speaker 2
Yes. Actually, we're up a few million over quarter 1. I would think we should be consistent and maybe a slight uptick. You talked about all the new folks coming on board. We've got You
Speaker 1
got comp like mid single digit?
Speaker 5
Yes. I think
Speaker 2
5% I think that will be right
Speaker 5
to be top end.
Speaker 3
Okay. Great. Thank you.
Speaker 4
And being very cautious
Speaker 2
on the credit side, as always.
Speaker 3
Yes. Would expect nothing less from you. Thank you.
Speaker 1
Thank you, Catherine.
Speaker 0
Thank you. One moment please for our next question. Our next question will come from Christopher Marinac of Gannon Montgomery Scott, LLC. Your line is open.
Speaker 6
Thanks. Good morning. I wanted to ask just a clarification It's on Slide 26, just about the cash flow that comes back from the securities. Would that roughly 15% by year end 'twenty four, Would that be kind of a straight line in terms of how the AOCI impact would benefit you? Or would it be more or less just given those precise securities.
Speaker 1
I think about that. What we're asking, Chris, is the maturity schedule is pretty level? Correct. Yes, it is. It's the portfolio structure that is fairly level.
So if you kind of straight line it,
Speaker 2
I think you'd be real close.
Speaker 6
Okay. That's what I thought. I just want to clarify. Okay, great. And then, can you just comment further on kind of new business in terms of loan yields, what's coming on, whether it's Portfolio in general or even the sort of anecdotal example that you were making about the Tampa lenders and the opportunities there?
Speaker 2
Well, I think it's really a mix of the markets. We're trying to be as competitive as we can be, but we're foregoing some really low rate opportunities we seeing in some other markets, we're trying to hold yield. It really is market specific and deal specific, but we're going to raise our hurdle rate, which is really a prime for all smaller stuff that's under like $1,500,000 that we call business banking. But I think we're just taking it case by case and trying to hop the preaches every day, increase yields, get in more depth. So that's what we're trying to do.
Speaker 1
So seeing that ticked up 30 bps quarter over quarter, it feels pretty good that we can sustain that. It's kind of what Catherine asked earlier about we're repricing Up the curve in our fixed rate portfolio and the new stuff is coming on at 8% or approximately at 8%. So combined, Chris, we feel pretty good about loan yields continuing to do well.
Speaker 6
Got it. That's helpful. Thank you for that. And I guess just the last one for me is, Hoppy, can
Speaker 4
you kind of
Speaker 6
refresh Ourselves, everything included with the recent acquisitions and that kind of where kind of average deposit life is of your relationships. I feel like as Cost of funds maybe stabilizes in the future quarters that kind of going back to that kind of deposit tenure that you have for so long is kind of worth Bringing it back up.
Speaker 1
So again, those are and you know, Chris, our balance sheet is in that deposit base, there's a lot of smaller community banks Across the Southeast that are many of them are 80 or 100 years old. So it's a long term sticky deposit base, and it's really shown that in this market. Earlier in the year, deposit runoff was much faster than it sort of decelerated over the last quarter. So we think that a return that would continue Again, excepting out the seasonality of public money, it's got a long life. In terms of average life, I'm not sure exactly what the year is, but it's a long term debt deposit portfolio.
Speaker 3
We're actually It's a study to that. So we'll have that in the next quarter. In the quarter,
Speaker 1
we should have some exact numbers in terms of decay rates.
Speaker 6
Right. That's safe to say it's multiple years, which I think all of us know. I just want to kind of put some groundwork around that.
Speaker 1
Yes. We don't have much wholesale hot money, if you bring it.
Speaker 6
Right. Perfect. Thank you for taking my questions. We appreciate all of the disclosure.
Speaker 1
Thank you, Chris. Appreciate it.
Speaker 0
Thank you. And again one moment for our next question. Our next question will come from the line of Matt Olby of Stephens. Your line is open.
Speaker 5
Hey, thanks. Good morning. Just want to follow-up on the expense discussion. And Didi, you gave us some good data points around the puts and takes. Just at a higher level, thinking about cost savings, just remind us of the overall level of cost savings that's still Remaining, that's not in the 2Q run rate that we could see the next few quarters.
Speaker 3
And that's really, Matt, what I was giving is between that $500,000 $1,000,000 I think down next quarter And the next would really come from that. Really, that's what I'm projecting and budgeting is the cost savings from that. So I think those numbers I gave you to hold around that 41 would come from those deals. Heritage, as we talked about closed I mean, converted end of March. And so we still had a lot of folks that stayed on through probably the end of May.
So really, we'll have a full quarter coming up of that. So that's kind of where we're pulling it from.
Speaker 5
Okay. And to clarify, the 1st fully loaded quarter of
Speaker 4
cost savings, is that 3Q or is that more in 4Q?
Speaker 3
I think it should be more Probably the full quarter 4, but majority of the 3rd quarter. We kind of get through July, I would say, Yes, 2 months this quarter and maybe the full quarter next the Q4.
Speaker 5
Okay. Okay, that's helpful, Gidi. Thanks for that update. And then I guess, George, going back to the commentary you made a few times on the payoffs of some loans that were maybe a little lower quality. Can you just clarify, are those loans being moved off?
Are they being refinanced by other banks and still in the banking system? Or are these just borrowers paying down the debt with their own liquidity?
Speaker 2
Most of those were actually taken out by other lenders, So and not through borrowing liquidity. In fact, I would say the majority of them were.
Speaker 5
And any color on the profile of banks that are refinancing some of these loans?
Speaker 2
And exit strategies differ loan by loan, but a combination of Maybe pricing on renewal or and some of them came up at the renewal point. And so maybe some of our underwriting terms were a little more stringent than others, but I would say Probably in most cases, they were.
Speaker 1
George, I think it's the 2 items, I don't know about all of them because it's broader. Those were smaller community banks
Speaker 5
Okay. That's helpful. Thanks for that.
Speaker 3
And then
Speaker 5
I guess just lastly for Hafi. Hafi, it's been a while since we've talked about M and A, so we've had a few announcements this week, so we'd love to get your view of M and A in the Southeast. Just help us appreciate How much chatter you're hearing in the Southeastern markets? And then in the past, the bank's been heavily involved in M and A. We'd love to just appreciate the appetite of M and A from the bank at this point.
Thanks.
Speaker 1
Well, we hear A lot of talk about it kind of slowed down after the 1st part of the year after the bank failures, but now there's an awful lot, I think the conversation is going on right now. So we'll It's part of our business model. We think we've been a preferred acquirer in the Southeast. We continue to look for opportunities to grow our company. We're just below $8,000,000,000 now.
So thinking about $10,000,000,000 and how you cross that is certainly part of our strategic plan. I think we talked a lot about the preparations that we're making for that $10,000,000,000 mark. So we think there'll be a lot of For us coming out of this cycle or in this cycle, I should say, because of the stresses that are felt, Particularly for downstream banks, smaller banks, the world's not getting any easier. I mean, it's just getting more and more Complicated with potentially higher degrees of regulation, but then the deposit pressures, the margin pressures. And we're fortunate to be have a pretty solid balance sheet.
Our earnings are ramping up materially, so we're accruing capital Pretty rapidly, so the ability to be selective and sort of treat people what we want is out there. So I think we have an We've done that. We continue to think about doing it as a way to grow it further. We've done a tailwind over the last few quarters of the last two acquisitions we've done. And so we I think, Matt, we always say nimble.
It's more of the same as strategic plan really hasn't changed over the last 15 years. It's continued to look for opportunities to grow Our company is provided proof of return to our shareholders.
Speaker 5
Okay. That's great commentary, Hoppy. Appreciate taking my questions.
Speaker 1
Thank you,
Speaker 0
Matt. Thank I am seeing no further questions in the queue. I would now like to turn the conference back to Javi Cole for closing remarks.
Speaker 1
Well, thanks, everyone. We're very pleased with the
Speaker 0
This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.