The First Bancshares - Q2 2023
July 27, 2023
Transcript
Operator (participant)
Good day, 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 speaker's presentation, there will be a question-and-answer session. To ask a question during that session, you will need to press star 11 on your phone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. 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.
Hoppy Cole (CEO)
Thank you, good morning. I've got several of our team members with me this morning. I have DeeDee Lowery, our CFO, J.J. Fletcher, our Chief Lending Officer, and George Noonan, our Chief Credit Officer. The agenda for today, I'll give a few highlights of the quarter, then I'll let each of the respective team members give us some more detail in their areas of management. 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 have been certainly pretty difficult to keep.
When you talk about operating earnings, when you talk about pre-tax pre-provision, or however you want to measure our core earnings, again, I thought they were consistent quarter-over-quarter. We produced operating earnings per share of $0.85 for the second quarter, return on assets operating at 1.36%, and return on tangible common operating at 19.35%, all return metrics that we're very pleased with. We also talked about the performance on our balance sheet, particularly our deposit base. As you know, we have a highly granular, retail-oriented deposit base across the Southeast. That really shined again this quarter in the ability to manage our margin. 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 HSBI acquisition. 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 were very pleased with that. In DeeDee'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 million, at 3.3% on an annualized basis. As we noted in last quarter's call, pipelines were down a bit from year-end for the first quarter, but in our travels, J.J., I think, will give us 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, that we're liquid, we're well capitalized, that 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 area, we think is going to be an opportunity for us. We're able to add several banking teams around the footprint, particularly Tampa, St. Pete, as well as New Orleans, and again, JJ will talk a little more about that in his presentation.
You know, 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 of Florida and in Tampa, St. Pete area, they are really getting their feet under them, beginning to focus on growth and really lever the advantages that our balance sheet bring to them. As you know, their system integration was last December. They're a good seven months, eight months post-system integration. They're past the point of 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.
The Georgia group is coming along extremely well, coming along extremely good as well. They're about 90 days post-system integration. They very much are 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 regions. Credit quality was good. Past dues were as good as they've been in quite some time. We saw improved nonperformers and reduction in nonaccrual loans, and also charge-offs were somewhat muted. Those are some high-level comments about the quarter. Again, we're pleased with the performance. We think our balance sheet continues to perform well in this environment. With that, DeeDee, would you like to give us some detail around the financials for the quarter?
DeeDee Lowery (CFO)
Yes, sir. Thank you. Again, this feels like our normal trend of noise in the quarter, acquisition expenses, we have to, you know, kind of go through the GAAP and the operating earnings. If that's okay, we don't mind. As Hoppy 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 $23.8 million or $0.75 per share.
When you exclude those acquisition charges of $3.1 million after tax, that's $26.8 or $0.85 diluted, that compares to $27.1 - $300,000 difference there, compared to the first quarter. A couple of notes, if you, you know, kind of stay flat, same as last quarter. Just a couple of things to bring out. We did have additional accretion income related to Heritage of about $2.5 million or so, it's really getting that those marks loaded on the core system to start accreting with each loan. There were some pay downs from Heritage during the first, you know, five months of the year, that kind of all got caught up in this quarter with the accretion.
provision expense this quarter, we took $1.25 million, versus last quarter was $273,000, when you back out what was needed for the CECL Day One. The extra $1 million there in provision expense this quarter compared to last quarter. We had about $1 million of extra expenses this quarter. I know we talked about, you know, seeing maybe a decrease of a few hundred thousand in expenses for this quarter, but we had a couple of things that weren't one time to be noted as, you know, not core. They are operating expenses that happens with banks. It just was kind of a, a bigger number this quarter, about $1 million worth of several items, write down on ORE, and then as well as some check fraud.
It was just kind of up there, a little bit bigger number this quarter, and we're commenting and hopefully not expecting that to move forward. Feel like when you take those out, we're really on top of our expenses for 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 talked about, from the fourth quarter to the first, that we would have margin expansion in the first quarter and would contract going forward. That was really due to adding the Heritage portfolio in the first quarter and receive that margin expansion for that.
You know, our core, and it did expand this quarter because of the additional accretion we talked about, 13 basis points. Our core margin, when you back out those marks, decreased 4 basis points, which we're very pleased with. 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 quarter as well. Matching and keeping our defense on our customers, fighting some of the specials out there.
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. We're gonna 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 gonna be a, a relationship product campaign. We're excited about trying to get that kicked off, next month. You know, we still feel like we can see some contraction from that, just still fighting the deposit cost.
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. You can see, you're looking at the margin with how much was for the loan yield minus that accretion. Our loan yield minus accretion still increased 22 basis points, and then our deposit cost about 14 basis points of that. We're still seeing that improvement. I guess, the biggest change this quarter was probably in the borrowing cost. We talked about, you know, last quarter being in the bank term funding program. We did at 250, we did take an additional $30 million of that during the quarter.
We had a full quarter of that compared to last quarter. You can see that breakdown from last quarter to this quarter detailed in our deck. With just looking at the yield on our earning assets, that's 42 basis points. Then our cost of funds, 19 basis points for the quarter. That was a 19 basis point increase. We're at 91 basis points from 72. Still very pleased with that as we go forward. Our interest-bearing cost did increase 28 basis points up to 132. That brings our cumulative deposit beta since the beginning of the cycle to 22%, up from 18% last quarter. I think that's still a minimal increase and still looks good.
Where we've kind of been talking about thinking this may be, you know, trying to hang around kind of where we were in the last cycle in the mid-20s. We're just at 22 this quarter. Loans did increase $41 million, that's annualized a little over 3%. J.J. will give a lot more color on the loan book in just a minute. Deposit runoffs 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 last quarter. When you look at this quarter, it's 2.6%, $175 million, which is down from last quarter.
We did have one remaining piece of the brokered CD mature, and then we also had our public funds decreasing. Both of those items was approximately half of that decline. That really just left the remaining half of that $88 million, with a decrease in our retail base, our money market, our money market book. If you recall, in our public funds, this is kind of starting the cycle of them spending their public funds. It's uptick in the first part of the year and spend down as we go. 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 at 1%-32%. We feel very good about our deposit book, as Hoppy 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, excuse me, our borrowing capacity is at $2.2 billion, we have about 41% of the securities portfolio unpledged, which is about $750 million, so available. We have about $230 million coming due off our bond portfolio over the next four quarters. We feel like we're in very good shape with our liquidity position as we go forward.
I did mention our broker CDs, it did mature $27.4 million, and we did increase our bank term funding program by $30 million. Our original 250 was at 4.69% per year, and then this last 30 is at 4.82%. Both still good rates in this environment we're in as well. 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. Hoppy did mention a few of our operating results ratios for the quarter, our ROA 1.36%, our return on average tangible capital, our common equity was 19.35%, and efficiency ratio remained about the same as last quarter at 53.87%.
All great numbers, and we're proud of those. Capital ratios, TCE 7.4% into the quarter, and then our leverage ratio of 9.1%, and our total risk base at 14.5%. All in line with last quarter, and I think that's all my prepared comments. Hoppy, I'll turn it back over to you.
Hoppy Cole (CEO)
Thank you, DeeDee. J.J., can you give us some color on the loan portfolio?
J.J. Fletcher (CLO)
Sure, Hoppy. Thank you. I think we've already covered the $41+ million net number by everybody, I won't cover that one. Overall, pay downs waned a bit this quarter, which was good. We did finish the month of June on a high note with about $160 million in new originations. That's against about $362 million for the entire quarter. Construction lending continues to be a strong component, accounts for about half of the total loans originated, that's giving us more reserve for future funding. Hoppy mentioned Pipelines. We had a contraction there at the end of 2022. Saw a good increase in the first quarter and continued uptick here in the second quarter, we really feel good about Pipelines for the rest of the year, hopefully.
Average yield, as Hoppy said, we're fighting for every point. 7.62% for June. That was up from 7.36% at the end of the first quarter. Regionally, Private Bank Division continues to be our strongest performer. We've got the Healthcare Specialty Division, which is really contraction in the metro markets. Hoppy also mentioned Legacy HSBI, and each enhanced capacity in those markets, particularly the metro markets, starting to see some new relationship opportunities and really, some enhanced opportunities with existing client relationships, that we're able to leverage that. We're really starting to see some traction in those areas. DeeDee mentioned this in the release and Hoppy as well. Probably for me, the most exciting thing about the quarter was really from talent acquisition and new market opportunities.
St. Pete, we opened that just about 30 days ago with two new lenders. New Orleans is an area we've worked on for years, and we finally were able to recruit a three-person team, and already seeing traction there from that group. 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. I would say that most of those new lenders, except for one in St. Pete, really came on at the very end of the quarter, so those pipeline numbers are not really impacted materially any positive way.
We really look forward to the third quarter here and see what happens in those new markets. Overall, I think, positive quarter from both numbers and talent acquisition standpoint, and we just hope to keep the momentum going the back half of the year.
Hoppy Cole (CEO)
Thanks, J.J., George, you want to credit quality?
George Noonan (CCO)
All right. 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 average, as well as our annual average for 2022. Good work there on the part of all of our lending and credit teams.
Loans on nonaccrual were reduced about $1.3 million compared to quarter one. NPAs were down a little bit, $800,000. So really unchanged on NPAs to total assets at about 28 basis points compared to quarter one. Net charge-offs did tick up a little bit. We moved from 1 basis point, 7 basis points. 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 allowance compared to 106 last quarter. I think particularly noteworthy, we did see total criticized and classified loans. Those balances declined by $9.2 million quarter-over-quarter.
Frankly, a big portion of that, some $8.5 million, came through payoffs. Our lenders and our credit people are working well on exit strategies for some of these, you know, substandard and special mention loans. That's an intense focus as we, you know, 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. Give you a little bit of our kind of a flavor for our profile. 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. Almost all of our office buildings are one to two floor type facilities. We've got a few three-story buildings, but our portfolio does not consist of any large. In fact, we have no central business district midrise or suburban actually midrise buildings in that four, five, eight-floor range. What you'd expect, I think, from a community bank of our size. Our largest non-owner occupied office loan is $18 million. That was recently, it's anchored by a Fortune 500 credit tenant, and we just recently renewed the lease, so we feel very good.
You see a big drop down, the second largest non-owner occupied office loan is seven and a half million. We're in a, you know, that $5 million to $7.5 million sweet spot, on a number of those credits. I, I would say, of that, if you look at the maturities, which is in your deck, I think on page 17, only 8.27% of our non-owner occupied office loans have matured between now and the end of 2025. We've got a good two-and-a-half-year run rate to work through, a little over 8% in our maturity loans, 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 continuation and be able to address it very adequately. That's pretty much it for credit at this point.
Hoppy Cole (CEO)
Thank you, George. Appreciate it. That concludes our prepared comments. We would open it up for questions now.
Operator (participant)
Thank you. As a reminder, to ask a question, please press star one, one on your phone and wait for your name to be announced. To withdraw your question, please press star one, one again. Stand by as we compile the Q&A roster. One moment, please, for our first question. Our first question will come from Brett Rabatin of Hovde. Your line is open.
Brett Rabatin (Director of Research)
Hey, good morning, everyone. Thanks, thanks for the questions. Wanted to first ask, you know, DeeDeee, you talked about the 22% deposit beta, 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? 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.
DeeDee Lowery (CFO)
Well, you know, I'm not sure that we would have a catch-up quarter. You know, 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. I don't see that would be any different going forward. As I mentioned, we do have this campaign that we're coming out with that'll be more of a relationship campaign. The kind of what we're looking at internally is if we kind of continue on this same pace, you know, what does that look like for the beta going forward, and maybe our cost of deposits going forward? You know, if we kind of continue on the same trend, it looks like, you know, that 22 could be.
26 or 27, you know, maybe next quarter around that. 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. Unless something majorly changes in the market, I don't see that we're gonna be doing anything different or any kind of a catch-up, besides kind of what we've been doing. We had that 25 basis point, you know, hike last quarter. I hope that answers your question. It's just.
Brett Rabatin (Director of Research)
Yeah.
DeeDee Lowery (CFO)
Okay.
Brett Rabatin (Director of Research)
Yeah, that's very helpful, and it's good to hear. It's, you guys obviously have a much better cost of funds advantage than most.
DeeDee Lowery (CFO)
And then-
Brett Rabatin (Director of Research)
The other question I wanted to ask.
DeeDee Lowery (CFO)
I'm sorry, Brett.
Brett Rabatin (Director of Research)
Go ahead, I'm sorry.
DeeDee Lowery (CFO)
To follow up, I didn't answer the rest of that, but if you kinda carry that same calculation forward, with the 160 on the interest bearing, that puts that cost of deposits to about 110. Kinda using the same average balance, as if that kind of stays the same, that 26, 27 beta would be about a 110 cost deposits next quarter.
Brett Rabatin (Director of Research)
Okay. That's, that's really helpful. The other thing I also wanted to ask was around the, the accretion. Obviously, you mentioned the catch up on that, you know, getting that system online. Can you give us any idea of what, you know, 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?
DeeDee Lowery (CFO)
Well, obviously, like you said, it depends on, you know, payoffs and on the loans. I think that number. I would think if for next quarter and going forward, if we back off, as I mentioned, I think about $2.5 million was kind of that, a catch up for loan payoffs. I think it's probably, at least for the Heritage piece, I'm trying to pull my number up right here in front of me. For the quarter, it was. Yeah, I feel like we'll probably be in, I would say, for the quarter in that $3.5 million-$4 million, kinda like we were last quarter, unless there's just, you know, payoffs or continued payoffs.
You know, the first quarter for the Heritage book was just kind of a straight line calculation until it got loaded, after conversion on each loan. It's just hard to tell. I know it's not very good information, but I, I would say I'd back off a couple, $2 million-$3 million off this quarter and kinda carry that forward.
Hoppy Cole (CEO)
But that's kinda-
Brett Rabatin (Director of Research)
Okay.
Hoppy Cole (CEO)
Offset by the expenses you detailed.
DeeDee Lowery (CFO)
Yeah. Oh, yeah.
Hoppy Cole (CEO)
Yeah.
Brett Rabatin (Director of Research)
Okay. Just last one, if I could sneak it in. Just if I understood correctly, you know, there's some things in the expense bucket that are not core, but they're ongoing. You know, 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.
DeeDee Lowery (CFO)
Well, we were.
Brett Rabatin (Director of Research)
That one.
DeeDee Lowery (CFO)
I'm sorry. I'm sorry if I was confusing, but, you know, first quarter, we were, like, $41.8 in core expenses. This quarter it was $42.8, and I was saying there's about $1 million of kinda extra expenses within those, the write-downs. Those things that are, you know, still core, but we feel like was kinda one time for this quarter. That puts us in line with last quarter. Going forward, we are budgeting a decrease for third and fourth quarter coming from our cost save of our acquisitions. We feel like we would see, we'd possibly see down $500,000 or so next quarter, between $500,000 and $1 million next quarter and the next for those cost saves.
Brett Rabatin (Director of Research)
relative to 2Q?
DeeDee Lowery (CFO)
Yes.
Brett Rabatin (Director of Research)
Okay.
DeeDee Lowery (CFO)
Yes.
Brett Rabatin (Director of Research)
Great. Appreciate all the color. Congrats on the quarter.
DeeDee Lowery (CFO)
Thank you.
Hoppy Cole (CEO)
Thanks, Brett.
Operator (participant)
Thank you. One moment, please, for our next question. Our next question will come from Catherine Mealor of KBW. Your line is open.
Catherine Mealor (Managing Director of Equity Research)
Hey, good morning.
DeeDee Lowery (CFO)
Morning.
Catherine Mealor (Managing Director of Equity Research)
Hi, DeeDee, I just wanna just make sure I'm doing the expense trajectory right. 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 million or so of kind of extra stuff you had?
DeeDee Lowery (CFO)
Well, I would say in backing out the extra and then being down is what we're hopeful because of our cost saves. Now, you know, I gotta keep everybody in line, you know? Yeah, that's what we have budgeted to be down due to our cost saves.
Catherine Mealor (Managing Director of Equity Research)
Got it. Okay, that's an expense run rate, kind of around $41 million or.
DeeDee Lowery (CFO)
About $41 million, yeah.
Catherine Mealor (Managing Director of Equity Research)
41? Okay. All right, just wanna make sure I was doing that right. Okay, great. Thank you. How about loan yields? Can you talk about just the trajectory of how you're thinking about loan yields 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 deposit costs stabilize.
Hoppy Cole (CEO)
Yeah, you're right, Catherine, and the way our balance sheet's 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. you know, we are continuing to reprice up a pretty material amount every month, every, really every day, every month, every quarter. where a lot of folks who have pure floating rates got a lot of their yield already because of movements in prime, we're getting ours it's a little bit elongated. I think you're right. We think that continued improvement in loan yields will continue to get it this quarter, next quarter, in the next year, as we reprice the fixed rate book.
Catherine Mealor (Managing Director of Equity Research)
Do you know what the duration on your fixed rate book is? Or maybe just the amount that is repricing or coming due this year or within the next year?
Hoppy Cole (CEO)
It's about $300 or $400, $350 million or so a quarter. Yeah, just straight repricing.
Catherine Mealor (Managing Director of Equity Research)
Great.
Hoppy Cole (CEO)
just loans.
Catherine Mealor (Managing Director of Equity Research)
Yep, got it. On the fixed rate piece-
Hoppy Cole (CEO)
Right.
Catherine Mealor (Managing Director of Equity Research)
not your floating piece. Got it. Okay, perfect. Okay, what are you seeing on the credit side? Your credit metrics, you know, looked really good this quarter, and you had some comments on that. Are you seeing anything within your borrowing base that gives you concern? Any downgrades within your watch, your classified, that, you know, we don't seem to be going on behind the scenes or we're not seeing in the nonperformers yet?
George Noonan (CCO)
Catherine, I wouldn't say anything that's been extraordinary at this point, and not kind of just what you would see in a normal 18 year. We think that, you know, just from a common sense, perspective, we might expect some of that. Even as we saw, with some of the payoffs on some of our substandard and special mention loans, we were able to exit, you know, a number of those relationships, and there was somebody else, to step in and those folks found a home. I think, you know, we're obviously watching it. We're doing, you know, 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, you know, fresh look, at a lot of our loan portfolios. That has been one thing that we've implemented to help us, churn a certain segment of our portfolio on a more frequent basis. We're taking a look at it, but thus far, we have not identified any material weakness, on any kind of systemic basis.
Catherine Mealor (Managing Director of Equity Research)
Maybe just last one on just loan growth outlook. The growth was a little bit slower this quarter just because of the pay downs you mentioned, but it feels like the origination volume has a good pipeline. Any commentary on what your growth expectations are for the back half of the year?
J.J. Fletcher (CLO)
Yeah, actually, we were up a few million over quarter one. I would think, you know, we should be consistent and maybe a slight uptick. When we talked about all the new folks coming on board, we've got, you know-
Hoppy Cole (CEO)
Kind of like a mid-single digit.
J.J. Fletcher (CLO)
Yeah.
Hoppy Cole (CEO)
5%, 6%, quite well.
J.J. Fletcher (CLO)
I think that might be top end.
Hoppy Cole (CEO)
Yeah.
J.J. Fletcher (CLO)
Yeah.
Catherine Mealor (Managing Director of Equity Research)
Okay, great. Great. Thank you.
J.J. Fletcher (CLO)
Be very cautious on the credit side, as always.
Catherine Mealor (Managing Director of Equity Research)
Yes, of course. Would expect nothing less from you. Thank you.
Hoppy Cole (CEO)
Thank you, Catherine.
Operator (participant)
Thank you. One moment, please, for our next question. Our next question will come from Christopher Marinac of Janney Montgomery Scott, LLC. Your line is open.
Christopher Marinac (Director of Research)
Thanks. Good morning. I wanted to ask just a clarification that's on slide 26, just about the cash flow that comes back from the securities. Would that, you know, roughly 15% by year-end 2024, 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, you know, precise securities?
Hoppy Cole (CEO)
got to think about that. What you're asking, Chris, is the maturity schedule is pretty level?
Christopher Marinac (Director of Research)
Correct.
Hoppy Cole (CEO)
Yeah, it is. It's the portfolio structure then it's fairly level, so if you kind of straight line it, I think you'd be real close.
J.J. Fletcher (CLO)
Okay. That's what I thought. I just wanted to clarify. Okay, great.
Christopher Marinac (Director of Research)
Then, can you just comment further on kind of new business in terms of loan yields, what's coming on? You know, whether it's the portfolio in general or even the, the sort of anecdotal example that you were making about the Tampa lenders and the opportunities there.
J.J. Fletcher (CLO)
Well, I think it's really a mix of the markets. You know, we're trying to be as competitive as we can be. We're foregoing some really low-rate opportunities we've seen in some other markets where we're trying to hold yield. Really, it's market specific and deal specific. We're going to raise our hurdle rate, which is really prime for all smaller stuff, you know, that's under like $1.5 million that we call business banking. I think we're just taking it case-by-case and trying to hockey preaches every day, increase yields, get 10 more bits. That's what we're trying to do.
Hoppy Cole (CEO)
Seeing that tick up 30 bits 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's coming on at 8% or approximately at 8%. You know, combined, Chris, we feel pretty good about loan yields continuing to move up.
Christopher Marinac (Director of Research)
Got it. That's helpful. Thank you for that. I guess the, the last one for me is, you know, Hoppy, can you kind of refresh our ourselves of, you know, everything included with the recent acquisitions, and kind of where kind of average deposit life is of your relationships? I feel like as cost of funds maybe stabilizes in future quarters, that kind of going back to that kind of deposit tenure that you had for so long is kind of, you know, worth bringing it back up.
Hoppy Cole (CEO)
Yeah, again, those are and you know, Chris, our balancing is, and that deposit base is a lot of smaller community banks kind of across the Southeast that are, many of them are 80, 100 years old. It's a, it's a long-term sticky deposit base, and it's really shown that in this market. Earlier in the year, you know, deposit runoff was much faster than it's sort of decelerated over the last quarter. We think that, that a return, you know, it would continue. Again, accepting out the seasonality of the public money, which, you know, it's got a long life of. I don't in terms of average life, I'm not sure exactly what the, you know, year is, but it's a long-term deposit portfolio.
DeeDee Lowery (CFO)
Well, actually, we know a study for that, so we'll have that information.
Hoppy Cole (CEO)
Next quarter, we should have some exact numbers in terms of decay rates.
Christopher Marinac (Director of Research)
Right. Safe to say it's multiple years, which I think all of us know. I just wanted to kind of put the time work around that.
Hoppy Cole (CEO)
Yes, we don't have much wholesale hot money, as you might get.
Christopher Marinac (Director of Research)
Right. Perfect. Thank you for taking my questions. We appreciate all of the disclosure.
Hoppy Cole (CEO)
Thank you, Chris. Appreciate it.
Operator (participant)
Thank you. Can you give one moment for our next question? Our next question will come from the line of Matt Olney of Stephens. Your line is on me.
Matt Olney (Equity Research Analyst)
Hey, thanks. Good morning. Just want to follow up on the expense discussion. DeeDee, you gave us some good data points around, you know, 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, the two key run rate that we could see the next few quarters.
DeeDee Lowery (CFO)
That's really, Matt, what I was giving you, you know, between that $500,000 and $1 million, 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. I think those numbers I gave you to hold around that 41 would come from those deals. Heritage, you know, as we talked about closed, I mean, converted into March, we still had a lot of folks that stayed on through probably the end of May. Really, we'll have a full quarter coming up of that. That's kind of where we're pulling it from.
Matt Olney (Equity Research Analyst)
Okay. To clarify, the first fully loaded quarter of cost savings, is that three Q, or is that more in 4Q?
DeeDee Lowery (CFO)
I think it should be more probably the full quarter four, but majority of the third quarter, to kind of get through July. I would say, 2 months this quarter and maybe the full quarter next, the fourth quarter.
Matt Olney (Equity Research Analyst)
Okay. Okay, that's helpful, DeeDee, thanks for that update.
DeeDee Lowery (CFO)
Sure.
Matt Olney (Equity Research Analyst)
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?
George Noonan (CCO)
Most of those were actually taken out by other lenders, not through borrower liquidity. In fact, I would say the majority of them were.
Matt Olney (Equity Research Analyst)
Any color on the profile of banks that are refinancing some of these loans?
George Noonan (CCO)
[crosstalk] I'm sorry about that.
You know, exit strategies differ loan by loan, but a combination of, you know, maybe pricing on a renewal or some of them came up at the renewal point. So maybe some of our underwriting terms were a little more stringent than others, but I would say probably in most cases, they were.
Hoppy Cole (CEO)
George, I think it's the few I know about, I don't know about all of them to this point. You know, those were smaller community banks that took those out.
George Noonan (CCO)
That's right.
Hoppy Cole (CEO)
They weren't the larger banks, Matt. They were smaller banks.
Matt Olney (Equity Research Analyst)
Okay, that's helpful. Thanks for that.
George Noonan (CCO)
Yeah.
Matt Olney (Equity Research Analyst)
I guess just lastly, for Hoppy. Hoppy, it's been a while since we've talked about M&A, but we've had a few announcements this week, so would love to get your view of M&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&A. Would love to just appreciate the appetite of M&A from the bank at this point. Thanks.
Hoppy Cole (CEO)
Well, we hear a lot of talk about, you know, it kind of slowed down after the first part of the year, after the bank failures, but now there's an awful lot, I think, of conversations going on right now. You know, it's part of our business model, and we think we've been a preferred acquirer in the Southeast. We continue to look for opportunities to grow our company. You know, we're just below $8 billion now. Thinking about $10 billion and how you cross that is certainly part of our strategic plan. We, I think, you know, we've talked a lot about the preparations that we're making for that $10 billion mark.
We think there'll be a lot of opportunity for us coming out of this cycle or in this cycle, I should say, because of the stresses that are felt, particularly down 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. you know, the deposit pressures, the margin pressures, and, you know, we're fortunate to have a pretty solid balance sheet, where our earnings are ramping up materially, so we're accreting capital pretty rapidly. The ability to be selective and sort of cherry-pick what we want is out there. I think we have an appetite for it. Premonite, we've done that. We continue to think about doing it as a way to grow.
It's certainly been a tailwind over the last few quarters of the last two acquisitions we've done. I think, Matt, we always stay nimble. It's more of the same, and strategic plan really hasn't changed, you know, over the last 15 years. It's continued to look for opportunities to grow our company and provide improved return to our shareholders.
Matt Olney (Equity Research Analyst)
Okay. That's great commentary, Hoppy. Appreciate you taking my questions.
Hoppy Cole (CEO)
Thank you, Matt.
Operator (participant)
Thank you. Again, to ask a question, please press star one one on your phone and wait for your name to be announced. To withdraw your question, please press star one one again and stand by as we compile the Q&A roster. I am seeing no further questions in the queue. I would now like to turn the conference back to Hoppy Cole for closing remarks.
Hoppy Cole (CEO)
Well, thanks, everyone. We're very pleased with the quarter. We appreciate your participation this morning and support of the company. Have a great day, and we'll visit again next quarter.
Operator (participant)
This concludes today's conference call. Thank all for participating. You may now disconnect and have a pleasant day.