The First Bancshares - Q4 2023

Transcript

Speaker 0

Good day and thank you for standing by. Welcome to the review of 4th 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 session. Please be advised that today's conference call is being recorded.

I would now like to hand the call over to Hoppy Cole, CEO. Please go ahead.

Speaker 1

Good morning, everyone, and welcome. I've got several team members with us today in the room. We've got Eddie Lowery, our CFO I have George Noonan, our Chief Credit Officer and J. J. Fletcher, our Chief Lending Officer.

I'll cover a few high level items for the For the Q4 of 2023, operating earnings were lower than Q3. We expected some margin compression during the quarter and we experienced that about 13 basis Point of core margin compression, primarily due to deposit campaign that we talked about in the previous earnings call Associated with being a bit more aggressive toward the end of the year to support our loan growth and stem deposit outflows. Credit was solid. Again, for the quarter, we had $80,000,000 of debt loan growth, it's on 6.3% on an annualized basis. Credit quality metrics remain strong.

We had 6 basis points of charge offs, dollars 2,000,000 reduction in NPAs The past dues at a pretty low point of 23 basis points. Deeni will also talk about in her presentation, we did a bond restructure during the quarter in order to reposition a portion of the portfolio to improve our yield, improve our EPS. For the full year 2023 has performed extremely well. As you remember, we closed our acquisition of Heritage Southeast Bank on January 1 last year And about $1,700,000,000 in assets to the overall organization. Through the year, our operating income increased 41.6 percent to $96,000,000 gave us Our ROA for the year of $122,000,000 and a return on tangible common equity of 17.5%.

We grew our tangible book value by 7% during the year to $2.35 at year end and we increased our dividends 21%, $0.74 a share to $0.90 a

Speaker 2

share for our shareholders. So All in all

Speaker 1

a good year, good growth year, good year in terms of profitability. And with that, I will turn it over to DeDe Lowry for a financial presentation.

Speaker 3

Great. Thanks, Hoppy. And welcome, everyone. And I'd just like to say and kind of reiterate as well that I think we did have a very solid quarter despite the increased costs on deposits that we knew were coming. We had great loan growth as Hopi mentioned 6.3% annualized, which was the same as the Q3, both consistent there.

And then also Our deposits were basically flat when you back out the public funds. So this is the Q1, I guess, in the past 4 that we basically maintained our deposits. So And that obviously is due to the deposit special and we'll talk a little bit more about that. But we did have a couple of obviously non operating items this quarter, acquisition charges and as well as the loss on the And as well as the loss on the securities from the restructure and we'll talk about that in a minute. But When you look at our reported earnings, it was $11,000,000 or $0.35 which was down $13,300,000 from last quarter.

But on an operating basis, when we back out the acquisition charges that were about $400,000 net of tax And then the loss on the sale of the securities was $7,300,000 net of tax. Earnings were $18,700,000 or $0.59 per share. And this compared to $24,000,000 or $0.76 per share for the quarter ended September, which was a decrease of about $5,300,000 And when you look at that $5,300,000 decrease compared to last quarter, It can really be summed up from basically interest expense and obviously increasing more than our interest income. Interest income did increase $3,000,000 For the quarter, but our interest expense increased $6,100,000 with about $1,000,000 in non Deposit related interest expense, but excluding the securities loss, our non interest income was basically Flat down $1,000,000 mostly related to interchange fee income, which was elevated last quarter with a one time fee income, but It's in line with the 1st and second quarters of the year, so non interest income look very comparable. Expenses were up from They were, I'm sorry, dollars 44,000,000 they were up $1,800,000 from the previous quarter.

If you back out all the expenses that we mentioned last quarter related to the grant money, That was expensed last quarter. So that $1,800,000 is represented by $1,000,000 related to salary expense and that is our year end accrual And also, solo vacation expense as well, which is a one time item at the end of the year. I had given estimates basically last quarter about where expenses might fall and these are a little bit more than that. I believe I'd say that could be up to $43,000,000 So This was just a little over that for the Q4. And as Hopi mentioned and if you recall from our call last quarter, we did expect Our margin to compress for the Q4 obviously due to a couple of things, the runoff in our public funds, it normally happens in the fall And especially in the Q4, which usually leads to additional borrowings, and then as well as our increased deposit costs related to the deposit gathering campaign, And also as well as market competition, we still have competition for deposits in our markets.

Some banks still running some higher priced CD specials, so we're still facing that competition as well. Our specials ended at the end of the year and to remind you, we had a 5.25 6 month CD and a 5% 6 month rate guarantee on a money market account, with and you had to have non interest bearing accounts with us as well to have those specials. But we did bring in about $183,000,000 in new money over the course of, I guess, 4 months or so when we ran the campaign. And then obviously both of those items we've talked about that led to the increased deposit costs for the quarter. And as we talked about that last quarter.

We would be on the aggressive side with the campaigns due to the loan growth, which we had both quarters, I believe was You know $150,000,000 to $60,000,000 in loan growth for the 2 quarters combined. So, our core margin did decrease 13 basis points Down to 314. I expect to see compression again in the Q1. And then looking at hopefully that Stabilizing in the Q2 of the year, we've got still with these market competition on these specials, we're still repricing Some deposits, but then obviously the 6 all these specials will be coming due throughout the next 6 months. We had A lot of folks got on the specials in September October and then again in December right before we ended.

So we could see all of that pricing through, I guess really through the Q2, but as those come in and reprice, obviously hoping to reprice those down because we're not Specials and be able to, so that's kind of what we're looking at as far as hopefully the stabilization will be in the Q2 due to that. We did have a yield on our interest bearing assets did increase 15 basis points for the quarter, but our rate on interest bearing liabilities increased 42 basis points. Our cost of deposits increased 33 basis points for the quarter to 154 basis points, Still a respectable number due to our granular deposit portfolio and compared to some of our peers. Our interest bearing deposit cost It increased 42 basis points to 2.18 and that drove our beta to 38%, which was up from 31% through last quarter. As I mentioned, the deposit runoff obviously declined this quarter from our previous quarters to basically almost flat.

It was down $17,000,000 but public funds was right at $15,000,000 of that. So just a couple of $1,000,000 so that was very good number for us 4th quarter. Our non interest bearing deposit portfolio changed 1 basis points. We were 29 basis points to total deposits, Down from 30 last month. So, overall, still very happy with those numbers as well.

On a year to date basis, a Couple of just highlights, I think to point out, operating earnings for the year increased 28,400,000 That was 40 right at 42 percent, up to $96,700,000 Our loans Excluding the acquisition of Heritage on oneone increased 6.3% for the entire year, which was $237,000,000 Assets overall grew $1,500,000,000 up to $8,000,000 and our cost of our deposits averaged 109 basis points for the year. And then our net interest margin on fully tax equivalent basis on a year over year basis actually increased 40 basis points. Just a couple of notes on the bond sale. We did put in that case, you didn't see that I'll go over really quick for you, but We did

Speaker 1

have a

Speaker 3

$9,700,000 loss on $123,000,000 bonds that we sold. They had a weighted average book yield of 1.12% And an average life of 3 years, so $92,000,000 of that was reinvested, yielding estimated 0.33 percent and then we paid off $30,000,000 of our bank term funding program that had a rate of 482. So overall with that Shifting of the balance sheet, we earned the earn back will take 2.1 years. That's expected $4,700,000 increase in our net interest income And then about 8 basis points related to margin improvement. Couple of notes, just in general and other, our liquidity position Remain strong, loan deposit ratio is 80%.

We still have about $2,200,000,000 in our borrowing capacity And 40% of our securities are unpledged, which is about $680,000,000 Over the next this year, really 2024, We have about $205,000,000 in cash flows that will generate out of our bond portfolio. And then our capital ratios We're in line with CCE 7.9%, leverage of 9.7% and total risk base 15%, all in line basically with last quarter. Our return on average assets operating was 95 basis points and efficiency ratio was 62 basis points. So All in all, I think it was solid. It's just deposit increase deposit costs were up as expected and Looking forward.

Speaker 0

Thank you, Hapi.

Speaker 1

Appreciate the report. Today, you give us some quarterly loan growth.

Speaker 4

Yes, sir. Thank you, Hapi. I think for the 3rd time, I mentioned about $80,200,000 in loan growth. So very happy to see that and as Didi and Hoppy both mentioned in line with 3rd quarter, so about 6.3% annualized really for the whole back half of the year. So I think we were encouraged with loan production really for the second half of the year.

December finished on a high note, which you never know at the end of the year how things are going to pan out, but we had over $100,000,000 in originations and also saw an uptick in our actual funded Loans as compared to Bank for Future Construction at about 70% were funded in December, That historically has been 50% to 60%. So that gave us a boost at the end of the year. Unfunded construction commitments, however, Remained steady and virtually unchanged since quarter 3. So we still have enough underfunded commitments to run out For 2024, so we're encouraged by that as well. Small contraction and pipelines at the end of the year, I think we did close a lot By December 31, but anecdotally at the end of the year and into the 1st couple of weeks of January, a lot of conversation about New credit, so very encouraged about where we're starting 2024.

Regionally, I just want to mention Louisiana had a great Quarter, we talked about on our last call, the integration of the new team there in New Orleans. They actually contributed about $38,000,000 in net Loan growth for the quarter just in that market, so very encouraging there. Tampa and Private Bank, as I usually say, had great quarters As well. And then we also saw a pretty nice uptick in our cash value lending program in the heritage legacy market, Really for the first time had a nice increase in the outstandings in the 4th quarter. So, as Didi mentioned, average yields For the quarter continued to tick up, we got to 826 for the quarter for the 4th quarter.

We finished the 3rd quarter at 767. We have a pretty rigid pricing model nowadays with hurdle rates and anything above certain rates have to go to myself or Hoppy. So I think we've been diligent in our pricing The last quarter, actually the last couple of quarters. And then regarding personnel, a lot of exciting movement. In the Q4, we had a couple of hires, one particularly in our North Atlanta market that we're very excited about, bringing a lot of experience in the commercial and construction market To augment that team and then we actually had 4 offers out before the end of the year, 3 of which Have been onboarded as of the date of this call.

So we're very excited there. Most strategically, new regional executive for the Tampa St. Pete market, That gentleman brings about 40 years of experience in that market with a high level of experience in commercial, wealth management and private banking. So we're very excited about 24 in Tampa. Lastly, and George may correspond on this, we had Migrated the rest of the HSBC team to our LOS platform and then with George's help continue to add efficiency to our small business Lending Group during the quarter.

So very encouraging quarter and I think 2024 hopefully starting out as well. So Turn it back over to you, Hapi.

Speaker 1

Thank you, J. J. George, can you talk about credit quality?

Speaker 5

Thank you, Hapi. We continue to see acceptable and Moderately improving trends for most of all of our credit quality metrics during the year and certainly in the 4th quarter. The leading indicator metric for credit quality trend analysis 30 day delinquencies reflected a year end improvement to 23 basis points. That was the best quarter finish of the year and nicely below our annual average of 38.4 basis points. So good trend there.

Asset quality continued to show improvement throughout the year and using that end of quarter 1 as a benchmark as that was the 1st full quarter operating post merger with HSB. Loans on non accrual approved from 17 point $3,000,000 down to $10,700,000 at the end of quarter 4. That's an improvement of 38% in non accrual loans for the 3 quarters Full operating post HSP merger. Over the same time period, NPA assets So as a percentage of total loans improved from 45.1 bps at the end of Q1 To 39.3 bps at quarter endquarter 4. Net loan charge offs, as Hopi mentioned, were 6 bps total criticized and classified loans also tracked very positively reflected by a reduction from Q1 At $143,000,000 down to $107,000,000 at year end, we saw a decrease Quarter over quarter, at the end of quarter 4 of $11,200,000 over quarter 3, that included payoffs of 5,800,000 And criticized and classified loans.

So as a percentage of capital plus ACL, the C and loan ratio improved year over year from 15% down to 12.39%. Again, a strong emphasis on our balance in our loan portfolio mix, owner occupied CRE at 25%, Non owner occupied CRE at 21%, 1 to 4 family at 19%, C and I at 15% and C and D at 12. Those represent the major categories in the balance and continued focus on that. In CRE, we do continue to place a lot of emphasis on maintaining our balance there. As the exposure chart on Page 18 of your deck illustrates and to note professional office at 24% CRE does represent both the owner occupied and non owner occupied categories.

And of course, retail center, retail standalone, Hotel, warehouse and industrial round out our top CRD categories as depicted in today. A closely watched asset class, of course, our professional office credit quality has held up very well Throughout the year, substandard office loans were 4.2% of our total office portfolio, With an average loan size of 733,000 in the non owner occupied office category, our preference To stick with smaller and minimally vertically constructed building types under 4 floors Across both our legacy as well as our acquired markets has served us very well. We've noted in the past that even in our non owner occupied Loan portfolio, a number of office property loans in that category have a fairly sizable Our related entity owner occupancy presence about them. So even in that category, there's a good mix Owner vested ownership. We've seen minimal lease renewal issues in office, acceptable tenant quality And very few credit issues in our office loan portfolio.

Though insurance costs have had an impact some borrowers that issue will be watched very closely for operating margin depression throughout the year and as One item to really provide some focus on this year. In dollar terms, with only 14 They've been maturing in a more favorable rate environment in terms of borrower coverage capacity. So Not that big of a slice, if you will, at 14% in the next 2 years. And in summary, asset and credit quality really did reflect a strong resiliency for the year and by applying the same principles in management Through our credit approval and administrative processes in 2024, we look forward to supporting the bank in a similar fashion.

Speaker 1

Thank you, George. That concludes our prepared comments. I think we're open it up for questions now.

Speaker 3

Thank

Speaker 0

One moment while we compile the Q and A roster. The first question that we have Today is coming from Catherine Miller of KBW. Your line is open.

Speaker 3

Thanks. Good

Speaker 6

morning. Hey,

Speaker 1

good morning, Catherine.

Speaker 5

I want to

Speaker 6

start with the margin. And as you mentioned, it was a little bit more Compression this quarter than expected, but honestly the cost of interest bearing deposits wasn't really That much higher than where you were thinking, Didi. I remember, I think I had in my notes last quarter, you thought it'd be somewhere between 210 and 215 when you came in at 218. You're just a little bit above that. Was there anything else within kind of the maybe the balance sheet or the margin, The composition of your margin that really drove the greater compression this quarter.

And then Curious how you're thinking about how the margin is going to react over the course of the year if we get rate cut. I think last quarter you also had said You thought the margin could get back to 3.60 by the end of the year, but that's a much bigger delta from where we are today. So just curious What you think that potential upside could be as we work through the year? Thanks.

Speaker 3

Yes. On the start, I think we had kind of indicated That we could kind of have the same amount of compression in the Q4 that we did in the Q3. And I really think probably A little higher than what it was, was just more of the repricing of our current book with that special. We had a lot of The non new money that repriced during the quarter really I think drove that more than we probably expected that would reprice. On the margin compression, I mean on the comment for the margin for

Speaker 2

I'm sorry, what was the second question?

Speaker 1

Well, it's about getting the margin back up.

Speaker 3

Yes, yes, yes, I'm sorry. Yes, I'm sorry, what I had said last quarter I had

Speaker 6

a long winded question for you, Didi. So you said it's my fault.

Speaker 3

I thought you had over here right I'm sorry. Anyways, what we had said last quarter was our modeling was showing that for 2024, We could have expansion of 8 basis points or so in our current modeling and our ALM modeling.

Speaker 1

That was prior to the bond restructuring.

Speaker 3

That was prior to bond restructuring, yes. That was just what our current modeling was showing for 2024 and we had kind of indicated That we felt like that would be in the latter part of the year with getting when we started maybe having some expansion But that 8 basis points just that would be later in the year. So I believe that's kind

Speaker 6

of what we had seen. And that's with or without rate cuts?

Speaker 3

That's without rate cuts. That's just what we're modeling right now. I believe our modeling has no change built in right now.

Speaker 6

Okay. So still the 8 bps upside, but maybe we're coming from a lower base. Yes. But then you added the bond restructure, so maybe your net is about the same.

Speaker 3

Right. And so I indicated, I look back, Our net interest margin, fully tax equivalent at 3.52% last quarter, if you're adding 80 to that for the 3.60%. But I'm still looking at our modeling is showing about 8 basis points next year. I don't have December's in yet, but through November, it was still showing about 8. So Yes, obviously it's off a lower base, so I don't think the 360 is where that will be.

Speaker 6

Got it. Okay. And good first, how do you think your balance sheet will react when we start to get rate cuts?

Speaker 1

Well, I think that we'll have more opportunity on the deposit side to increase our rates than hopefully on the loan side Hopefully, it's pressure on the loan side, given our fixed rate nature of our portfolio that we'll be able to reprice deposits quicker than re pricing loan rates down.

Speaker 3

Yes, so I would say, kind of like it's been on the outside, we've been slower as the rates went up to increase on the asset Just because the fixed nature of the portfolio, so I think that would definitely be slower and more opportunity on the deposit side.

Speaker 6

Okay, great. So Still enough momentum on the fixed rate side to offset, you know, to kind of help the margin and millennials move up even with rate cuts? Say that one more time. Even with rate cut, There is enough momentum in your back book to reprice upward to still push the margin higher?

Speaker 3

I think so. Yes, because of where those are coming out of, yes, for sure.

Speaker 6

Great. Okay. And I think last quarter you had said you had about $100,000,000 in fixed rate loans repricing each quarter. Is that still where you stand

Speaker 4

24? We just were looking at that. That sounds reasonable. We're pulling that right now for next week.

Speaker 6

And about as we model that, about where is your I mean, I know I can look at your entire loan book and it's at around Percent, but is there a way to think about where the current fixed rate loan book is and where that's repricing up to?

Speaker 4

So we're actually George and I were talking about that this morning. I could get you that data more specifically. But what it has been in the last couple The renewals are in the mid-five range because these are typically 5 years back, so before the rate cuts, so typically in that 5, 5.5 And then those are all really going into the 8 plus range right now, unless on an exception basis. So 300 basis. 2 to 300, yes, I think that's reasonable.

250 probably is a good number.

Speaker 6

Okay, great.

Speaker 4

But I think what Catherine was saying earlier, as we are slower back down, if rates come down, we're still going to pick up maybe 2 points. So we'll have more runway there.

Speaker 3

Yes. Got it. Okay. And as

Speaker 6

I know, you've got a lot of analysts, so I'll step out and I'll I can't have any more questions after everyone gets in. Thank you so much.

Speaker 0

Thanks, Catherine. Thanks, Catherine. Thank you. One moment for our next question. And our next question will be coming from Matt Lowly Stephen, please go ahead.

Your line is open.

Speaker 7

Hey, great. Thanks. Good morning, everybody. So, coming back on the margin discussion, I think, Didi, you mentioned that there'd be some pressure on that margin in the Q1. Can you help us kind of ring fence what that compression could look like in 1Q?

And I think in 1Q, there's usually a handoff of funding as The borrowings come down from the Q4 and the public funds come in a little bit higher. Any more color on this handoff and what that 1Q NIM could look like?

Speaker 3

I think that hand off from the public funds and the debt versus that will probably be really Well, how much impact from the Q1 that normally kind of starts probably in March with really getting some of the income the inflows of that. So I don't see it having a big impact on the Q1, but kind of looking at it, I think What we're kind of looking at anticipating is maybe half as much compression that we had this quarter, maybe a little less than that. But I just think with what we're facing with the what we're seeing so far in January as a tail on what's repricing really In this market competition and people still trying to get in even though our specials ended, we still got people pricing. I mean, we have a 5.5 we have a bank offering 5.5 right now for 8 or 9 months on a CD. We still got some in 5 5.40 range.

So I mean we're still having some market competition. So I just don't see it. I think max About half of what we had this time, but hoping for a little less.

Speaker 1

Much more compression. Deposit inflows from the public money really take effect, I mean, At the end of

Speaker 7

the Q1. Okay. All right. That's helpful. And I guess, I would have thought that restructure that you did in a few weeks ago that you announced, I would have thought that that Would have further supported the margin than you're saying, but I guess goes back to the deposit competition.

It's kind of just more than offsetting that. Is that right?

Speaker 3

Well, Matt, we didn't sell. We did that the last week of the year. So we sold those security by December 27 or 28 and then Reinvested that this in January. So I mean we really just got all that done, 10th or so of January on the Repurchase side, so it really didn't have any impact this quarter.

Speaker 1

This

Speaker 3

month. This month or Q4, yes.

Speaker 7

And just to clarify that restructure that will see more impact in the Q1 that is embedded in Margin commentary you just provided, I assume for 1Q, is that right?

Speaker 3

Yes, because that's really 2 I mean that's Two basis points a quarter anticipated from that 8 for the year. So that's really just like 2 basis points.

Speaker 7

Okay, understood. And then as far as that deposit special that you mentioned, I think you said you ended that, I think that was at the end of the year, so no real impact In January, is that right?

Speaker 3

That's right. It did end, but it still had some people trying to come in and get it, obviously, with Competition I mentioned. So but as some of those start coming out, that will be February, March And so hopefully we'll get some reduction in.

Speaker 1

Yes, for sure.

Speaker 7

Okay. Thanks guys. I'll hop back in the queue.

Speaker 1

Thanks

Speaker 0

Matt. Thank you. One moment for the next question. And the next question that we have is coming from Christopher Marinac of Janney Montgomery and Scott. Your line is open.

Speaker 2

Hey, thanks. Good morning. Hoppy, I'm sure this has not been your first deposit special over your career. So I'm kind of curious what Market intel kind of gives you and what you may be able to do with that as the rest of the year goes on, either it's on the deposit side or even pricing earning assets too?

Speaker 1

No, it's not. So we were stop the deposit outflow and take up the tonnage basis is critical to us. The ability to get it down and give us some margin. Freeway as rates come down, we will reprice that. So we've got the phone going on here.

I don't know if you can hear it. But we'll be able to reprice that down as those maturities come up.

Speaker 2

Got you. Thanks for that. And then on the new hires you mentioned in Atlanta and Tampa, Are these replacing anybody or is this kind of net new additions just to enhance your growth profile?

Speaker 4

So in Tampa, that was replacing a Former market exec who came over with Beach but then left after the 1st year of integration. Most of the others are well, it's a mixture. We've got some placements overall. We still got personnel Gaps that we need to fill, but how do you want to look at it? From a budget standpoint, they're probably replacements.

But we are Strategically hired in markets where we see the need or where talents present itself from fallout from other banks.

Speaker 2

And I guess Atlanta specifically, you had always wanted to push what you inherited with Heritage Southeast into the central and northern parts So that's probably a long term.

Speaker 4

Yes, most of the lenders have stayed. I think we talked Last quarter we were at 90%. No one left in the Q4 and our retention agreements are up and everybody's intact. This was really we had 1 or 2 spots, but a great To hire this gentleman with a construction background, which as you may know is a lot of our work up there in the South Atlanta market. So Yes, we're always looking also in the Atlanta market, I will say, we're trying to acquire or recruit a private banker for that Because we really don't have a specialty private bank unit there in Atlanta, which is something we need.

Speaker 2

Got it. And then last question just more kind of big picture on credit. As you look across your footprint, particularly in the Gulf Coast areas, Are any kind of areas softer than they would have been 6, 9 months ago? I'm just kind of curious of how the temperatures are across the footprint?

Speaker 5

I don't know that we would single out or point out any particular area Across the very coastal markets, obviously, Real Estate, residential real estate might have seen a little bit of a slowdown in the 1 to 4 family category particularly in maybe some of our Tourism related markets. So a little bit there, but generally We've seen as JJ could speak to pipeline contribution from Every area of the bank across the footprint.

Speaker 7

Great. Thank you for taking my questions today.

Speaker 1

Thank you, Chris.

Speaker 0

Thank you. One moment. And we do have a follow-up question coming from Matt Loney of Stephens. Your line is open.

Speaker 7

Hey guys, this is Matt. Can you hear me? Yes. Okay. Thanks for taking the follow-up.

Just want to revisit just on the deposit pricing competition. I guess we're just hearing Stains from the banks this quarter as far as competition easing in submarkets, but remaining pretty intense in other markets. Anything for us to appreciate from

Speaker 4

our side as far as

Speaker 7

when you look at your various states and markets, where there's more intense competition And are these coming from the multi state regional banks or are these from the smaller private community banks?

Speaker 3

I'll let some others answer as well, but I know a couple here at local and Hasbourn, we're dealing with a couple of these, but they're smaller Private banks are listed on a not really traded. So I think we're facing some of that and then

Speaker 1

Well, I think across the footprint, the competition Fairly intense. I mean, it's a mix, Matt. It's both the local smaller banks, but then also some of the larger Some of the larger regional banks, so it just seems to be real competitive in most really most all

Speaker 2

of our markets out there.

Speaker 7

And Hapi, you're obviously in some rural markets, but also some more metro markets from that perspective. How would you characterize The competition relative to where it was maybe a few months ago?

Speaker 1

I'd say that the rural markets probably picked up where it was a few months ago. I think when it started out, they lagged a bit, but now they're kind of catching up to the metro markets. It's kind of the feel, Matt.

Speaker 7

Sure, understood. Okay. And then on the expense side, Operating expenses, I think, Didi, you mentioned they were a little heavier this quarter than you expected. I think you mentioned it, but I just didn't write it down. What was Color of the heavier expenses quarter and then the outlook for 24, any change from what you said last quarter?

I think it was $170,000,000 to $171,000,000 for 'twenty four.

Speaker 3

So the real difference was about 1,800,000 Quarter over quarter on expenses, dollars 1,000,000 of that was related to salaries and benefits, about $500,000 was related to Sold vacation, folks don't use it, they can sell it back and then about $500,000 was just Year end accrual on our non exempt staff for the last 5 days of the month, so of the year. Those two things were $1,000,000 and then our professional services was also up as well And that was really driven by some of our 10b expenses. And we've mentioned before about in the middle of that doing our GAAP analysis and so We had some of that in the Q4 as well. Those were the 2 main things. I think on for 2024, I'm still working through all that and trying to tie down that exactly for 2024, but I think it's probably going to be Kind of looking at where we've been the last two quarters and that run rate probably more closer to the $44,000,000 a quarter.

When you look at where we were this quarter, the $44,400,000 and back out the acquisition charges, I think Even though we had that extra $1,000,000 there, I think just $44,000,000 a quarter is probably where we'll be next year.

Speaker 7

Okay. And I assume that's a quarterly average comment or is that more just

Speaker 6

you?

Speaker 3

Yes.

Speaker 7

Okay. That's helpful. And then on the fee side, fees looked a little bit light sequentially In the Q4, anything you see in there that was unusual and just any thoughts on kind of where that we should start off the year on 2024?

Speaker 3

Well, it was light down compared to last quarter, I think about $1,000,000 but That was in the interchange fee income, but if you look at last quarter, that was elevated. And so when you look at 4th quarter Non interest income and compared to 1st and second, it's all really it's in line. So we really kind of been right around that $12,000,000 a quarter and the non interest income section.

Speaker 7

Got it. Okay.

Speaker 0

And we have another follow-up question coming from Catherine Mealor of KBW, your line is open.

Speaker 6

Matt hit my expense question. So I was going to ask, but One other one I have for you is just on just your M and A outlook. I feel like it's been really slow for the industry, but you Typically are an active acquirer, so just what are your thoughts on potential deals over the next year or so?

Speaker 1

Well, I think things are we're kind of focused internally In the first half of the year and the back half of the year, I think we would be more open to thinking about potential things for next year. So I think things are still slow, Catherine. We had not a lot of conversations going on out there.

Speaker 6

Great. Thanks for the update. Appreciate it.

Speaker 0

Thank you. That concludes our Q and A session. Would like to go ahead and turn the call back over to Hoppy Kohl, CEO for closing remarks. Please go ahead.

Speaker 1

Thanks, everyone. Appreciate your This morning, and that's all we have for this quarter, and look forward again to seeing talk to you all next quarter. Thanks.

Speaker 0

Thank you for participating in today's conference call. You may all disconnect.