ServisFirst Bancshares - Q3 2023
October 16, 2023
Transcript
Operator (participant)
Greetings, and welcome to the ServisFirst Bancshares Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to our host, Davis Mange, Director of Investor Relations. Thank you, Davis. You may begin.
Davis Mange (Director of Investor Relations)
Good afternoon, and welcome to our Third Quarter Earnings Call. We'll have Tom Broughton, our CEO, Rodney Rushing, our Chief Operating Officer, Henry Abbott, our Chief Credit Officer, and Bud Foshee, our CFO, covering some highlights from the quarter, and then we'll take your questions. I'll now cover our forward-looking statements disclosure. Some of the discussion in today's earnings call may include forward-looking statements. Actual results may differ from any projections shared today due to factors described in our most recent 10-K and 10-Q filings. Forward-looking statements speak only as of the date they are made, and ServisFirst assumes no duty to update them. With that, I'll turn the call over to Tom.
Tom Broughton (Chairman, President, and CEO)
Thank you, Davis. Good afternoon, and thank you for joining us for our call as we review the third quarter. I thought I'd start by reviewing the current economic outlook. You know, going back to late spring, the conventional wisdom, of which included mine, was that we were pretty much headed for a hard economic landing. Much of that outlook was due to, you know, we'd seen rapid escalation in interest rates. We've seen bank deposit disintermediation for over, close to a year at that point, and then we'd see credit tightening by most banks. You know, the demand for goods and services continues to be, you know, amazing. The consumer appears to be very resilient. You know, they, they're sort of hooked on living large, it seems, since the pandemic started.
They, they were buying stuff when they were stuck at home, and now they're consuming stuff. So, you know, it seems like we're in a little bit better spot than we've been in. We have seen a slowdown in demand for credit, both CRE and C&I. It's probably a combination of borrower caution and higher interest rates. You know, I was with a customer last week and, you know, he said, "The best way I can make $16 million is to pay down $200 million of debt that I owe 8% of." He said, "That's the, that's the best way for me to, to improve my earnings. I'm not going to buy any more capital goods." So I think that's probably a, a prevailing thought. I know our bank and others are watching for late cycle credit cracks.
Henry Abbott will discuss a little bit more in a few minutes on the credit side. You know, we don't run our bank based on any kind of economic forecast because they're all wrong. But it does appear we are headed for more of a soft landing than we envisioned a few months ago. The recent disinversion of the yield curve will be helpful to us as we move towards a normal yield curve, and really, the higher for longer rate environment, we think benefits us, our future earnings for the bank. So, that's sort of a brief overview of where we are, and I'll get down into a little more granular information here. Start talking about deposits. We have focused on building core deposits over the last four quarters. We've seen really fantastic results.
Our people have done an outstanding job, but they've done what we've asked them to do. Very few banks can demonstrate the deposit growth we've seen, combined with zero Federal Home Loan Bank advances and zero broker deposits. Our municipal clients have received significant COVID funding this year. It'll take a bit of time for that to be spent. The most COVID funds I know have to be committed by the end of 2024 and spent by the end of 2026, but I do have faith that most politicians can spend it more quickly than that. Our deposit pipeline is down a bit from the record level last quarter. Still, it's still strong. We're looking for granular new relationships that are sticky.
On the correspondent side, Rodney Rushing will give an update in a few minutes when I finish. Our total new accounts are up 19% year-over-year, while our commercial accounts are up 20% year-over-year. You know, this is indicative of broad-based deposit growth, which is what we wanted. We think our emphasis on deposit growth over current liquidity will set the stage for improved profitability in 2024. We're seeing cash on hand stay consistently at the $2 billion level in October. We are pleased to have built this liquidity, this level, during the industry disruption we've seen. And while it may reduce the net interest margin, it does not affect net interest income. So very pleased with the deposit situation. Talking a little bit about loan demand.
We did turn the loan spigot back on a few months ago, and it started with a trickle, as it always does after you've shut off the tap. Our loan pipeline today is up 74% over the prior quarter, and though it's not back to levels from early 2022, it is back to late 2022 levels. We have seen increased activity in the past 30 days, and loans grew $87 million in the month of September. We are seeing increased confidence by borrowers, both C&I and CRE. Our liquidity position, we think gives us a significant competitive advantage in the industry. On the production side, we previously announced we added a great new team of bankers in the Montgomery region, four new bankers there. We had a total of five in the quarter.
From a headcount standpoint, we were down three for the quarter. We are focused on adding the right people and right-sizing our team this year. We think that'll be, you know, certainly coming to an end as we go towards the end of the year, and we'll have the right group here. We will open our new Lake Norman office in the Piedmont region soon, and it'll be a community banking office that's very similar to the offices in Tallahassee, Panama City, and Asheville, North Carolina. These community banking offices do produce good granular and sticky deposits and have improved margins. So with that, I'll turn it over to Rodney to discuss the correspondent side.
Rodney Rushing (EVP and COO)
Thank you, Tom. Correspondent banking had a strong deposit rebound, closing the quarter with total fundings just over $2 billion. Our deposit growth at September 30th was 12.3% for the quarter. Most of that increase came from Tennessee, and our new Texas market expansion was just over $275 million in new deposit relationships coming from those markets. I need to also mention or remind you that correspondent balances are not hot or temporary funding sources, as our rates paid are market rates, not rate specials. 70% of all correspondent balances are tied to settlement relationships with these downstream banks. The division is well diversified in both correspondent bank sizes and geography. Seven new bank relationships were opened during the quarter in five different states.
Correspondent participation loans and new relationship pipelines are strong for the remainder of the year and also into 2024. Our correspondent agent bank credit card program has 15 new banks in our pipeline that are in various stages of the sales process. There are three new state banking associations reviewing our American Bankers endorsed agent credit card program to determine if they would like to participate. We currently have nine state endorsements at this time. This has expanded our reach, and as the existing pipeline includes banks in Connecticut, Virginia, Texas, Georgia, Montana, Missouri, and New York, just for an example of how wide that market has grown. Correspondent deposits and fundings in summary, correspondent balances stabilized in the early second quarter, and we had impressive strong growth, as you can see, for the third quarter.
With that, I'll turn it over to Henry Abbott, our Chief Credit Officer.
Henry Abbott (SVP and Chief Credit Officer)
Thank you, Rodney. ServisFirst had a very strong third quarter, and we're pleased with the bank's results. Past due loans to total loans were down to only 8 basis points. This represents a 45% reduction from the second quarter and a 50% drop from the first quarter. Our asset quality continues to remain strong, and I'm pleased to say non-performing assets to total assets decreased from 16 basis points in the second quarter to only 15 basis points in the third quarter. With the current economic outlook, the bank felt it appropriate to maintain its ALL to total loans of 1.31%, which is consistent with the prior quarter. AD&C, as a percentage of risk-based capital, was 91% at the end of the third quarter, and income producing CRE and AD&C to risk-based capital was 312%.
Both of these figures are down from when we started 2023. We had no material downgrades to the watch list in our CRE portfolio, and we continue to focus on and monitor our AD&C bucket. We also review and stress our entire CRE portfolio via both internal and external sources. We use an industry leader in commercial real estate data and analytics to help provide stress testing and real-time data on the portfolio. A reminder, our CRE exposure is primarily in the Southeast, which continues to remain one of the strongest areas, and we have no material downtown urban office exposure. Charge-offs for the quarter were 15 basis points when annualized, and year-to-date annualized charge-offs were only 11 basis points. Charge-offs for the quarter were not related to income-producing CRE or any SNCs.
I know those are items of interest and impacted the charge-offs at some of our peer banks. I continue to feel very good about our diverse and granular loan portfolio and how it performed in the third quarter. With that, I'll hand it over to Bud Foshee.
Bud Foshee (CFO)
Thank you, Henry. Good afternoon. We are very pleased with the progress the bank has made in the third quarter with deposit growth, liquidity, capital, and improving loan pipelines. Our non-interest-bearing deposits were stable in the third quarter, with the exception of $100 million in deposit runoff related to COVID funds. We were pleased with the total deposit growth of $854 million in the quarter.
We saw loans grow in a quarter after several quarters of decline or flat. The key to improving EPS is loan growth, and our team is focused on a more balanced approach to loan and deposit growth going forward. We had a goal of $1 billion in liquidity, and we have exceeded that goal with $2 billion at quarter end. Our loan repricing initiative will contribute to market expansion later in the year. Examples of our repricing effort: $390 million of loans where the rate has been restructured, loans paid off early, $104 million. We have $188 million pending in loan repricing. Loan repricing is the best opportunity to improve profitability combined with loan growth.
Loans that reprice or paid off in the third quarter were $276 million, which combined with loan paydowns on fixed rate loans totals to $2 billion on an annualized run rate. Cumulative effects of this repricing will improve margin and EPS over time. Net interest margin stabilized in the third quarter, $100 million in the third quarter versus $101 million in the second quarter. 89% of our new loans are floating rate, and about 41% of total loans are floating rate today. Our adjusted loans and deposit ratio at September 30, 2023, was 80.5%. This ratio includes the correspondent that funds purchase. We saw improvement in core non-interest income in the quarter, with improvements in both credit card and mortgage. We expect continued improvement over the balance of the year.
As a reminder, the second quarter non-interest income included a death benefit of $890,000. Discussing non-interest expense, we have made an effort to hold the line on expense growth in 2023. We have experienced increases in non-core expenses. Problem credit, which was primarily legal expenses related to credits, check fraud, and credit card fraud, and we had one case of $600,000 in credit card fraud. These items increased by $1.4 million from the first quarter of 2023. We also experienced an increase in FDIC insurance, $825,000 from the first quarter. We have built our staffing and our new offices and do not expect additional headcount for any existing offices. Our teams are performing quite well and have grown new accounts 19% year-over-year. We continued our growth in book value per share.
Our CET1 ratio was 10.69%, and our Tier 1 leverage ratio was 9.35. Our capital continues to be a strength. That concludes my remarks, and I'll turn the program back over to Tom.
Tom Broughton (Chairman, President, and CEO)
Thank you, Bud. You know, if we made a list of the 20 most important metrics in managing a bank, we are performing extremely well on almost all of those, except for the one that's the most important, which is earnings per share. We've, we've got to get our earnings back up to where they were. It's going to take, you know, a few quarters, we think, but we, we'll get there. So, we think our performance on all those other metrics will lead to improved earnings per share in the future. So we'll open it up now for questions. I'll be glad to see what you have to... on your mind.
Operator (participant)
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we pull for questions. Thank you. Our first question comes from Kevin Fitzsimmons with D.A. Davidson. Please proceed with your question.
Kevin Fitzsimmons (Managing Director and Senior Research Analyst)
Hey, guys. Good afternoon.
Tom Broughton (Chairman, President, and CEO)
Hi, Kevin.
Kevin Fitzsimmons (Managing Director and Senior Research Analyst)
I'm just trying to, I know there's a number of contributors into your, to the margin, but I'm just trying to, like, unpack. I think when we were on the last conference call, we talked about the NIM maybe stabilizing in third quarter and then beginning to expand in fourth quarter. And, you know, there's-- looks like there's maybe a couple contributors here, and maybe you can kind of go through them in, you know, in terms of what contributed. So it looks like on the one hand, you talked about repricing the loans, and maybe that's going to help earnings in the future, but it seems like that might have led to less substantial loan growth than you might have had otherwise, and then coupled with pay downs.
On the funding side, you know, you had a very successful quarter growing deposits, and building up that liquidity, but I guess it comes at a cost to that ratio. And I know you don't, you talked about not necessarily managing to that ratio, but, you know, and then the loan-to-deposit ratio looks like it came into. And so I'm just trying to, like, weigh all those. Was the increased funding exceeding that goal of $1 billion-$2 billion? Was that more a byproduct of just the movement you saw in the correspondent network and elsewhere, or was it a deliberate aim?
Because most banks are talking about, you know, I'm not sure if you guys put it this way, but, but really, you know, loan growth being governed by the pace of deposit growth, and in this case, we saw a big, big delta between deposit growth and loan growth. So I know that's a lot, but I just wanted to set up on helping us understand where the margin goes from here. Thanks.
Tom Broughton (Chairman, President, and CEO)
Yeah, let me. You know, Bud will have to give you some actual numbers, you know, but my take on it is that the improvement in loan repricing has been swallowed up by deposit repricing to this point in time. So that's why you hadn't seen the margin improve yet because of that. You know, if, if we think the rate increases are behind us, you know, then, then it stabilizes from this point forward pretty well, and as we reprice loans, more of that starts flowing to, to net income instead of flowing to reprice deposits. So that's the first thing, I think. And, you know, of course, you know, we had no idea the deposits. You know, we asked our people 15 months ago to focus solely on growing deposits.
Our incentive plan is skewed almost 100% to that for the year 2023. So, you know, you probably heard me say, people do what you incent them to do, and they've done what we incented them to do. They have grown deposits. So, you know, now we've actually gone back and, you know, for the last three months of the year, we've put in a special incentive to grow loans, you know, from October 15th to January 15th, to have an incentive to grow loans about, you know, a fair amount of money to try to, you know, get the loan pipeline restarted.
But I guess, Bud, I don't know, you know, obviously, when you add that much in deposits, the sitting at the Fed, it does not do anything to help the net interest margin at all, but that, that wasn't the point. You know, the point. It doesn't hurt the net interest income, and that's, you know, we think showing liquidity today, we will start rationalizing deposit costs as we go forward. We had a, you know, call with our, our regional executives, you know, a couple of weeks ago, and we're starting to try to rationalize some of that cost because we're in a pretty good spot. And we think, again, we think having all this excess liquidity is a significant competitive advantage, with our in the industry. But I, I probably didn't answer your question, Kevin.
Kevin Fitzsimmons (Managing Director and Senior Research Analyst)
No, no, that was, that was helpful, Tom. I just—I guess it. You know, I, I know there's a lot of moving parts to it, but are you, do you guys feel like that, you know, that it sounds like you're overshot, not overshot, but, I mean, it's never too. You can never have too much of it. But is it—and, and it's just one quarter, but do you feel, you know, assuming the Fed is mostly done here, do you feel we're getting closer to that ratio stabilizing and then maybe built up to expand in 2024? Is that where, what you would expect?
Tom Broughton (Chairman, President, and CEO)
Yeah, we mentioned that, you know, our municipal clients have had big liquidity. These are existing customers, you know, we're not, you know, there are core relationships. We're not out bidding on money with municipalities. In fact, we're not bidding on money with municipalities. We're not going to do that. These are core relationships at some reasonable price, you know, that doesn't leave you a lot of profit when you put--give the money to the Fed to hold. But nevertheless, we're not going to tell a good client we won't take their money, you know, so that's-
Kevin Fitzsimmons (Managing Director and Senior Research Analyst)
Right.
Tom Broughton (Chairman, President, and CEO)
That's the bottom line. But they're not, it's not, you know, again, we don't have any, we don't have any brokered deposits, and we don't have any home loan bank advances, so we're in really, you know, kind of a spot I don't think most of the industry would, would trade places with us if they could.
Kevin Fitzsimmons (Managing Director and Senior Research Analyst)
Tom, just on loan growth, typically, you guys have seen more back half of the year heavy in loan growth, if I recall correctly.
Tom Broughton (Chairman, President, and CEO)
That's right.
Kevin Fitzsimmons (Managing Director and Senior Research Analyst)
It gains momentum over the course of the year. So, on the one hand, you mentioned that a lot of customers are looking to pay down debt. There's the impact of rates, there's the impact of you guys being, you know, tightening standards, but on the other hand, you cite, you cited, if I heard it correct, a big increase in the loan pipeline, and last quarter, you were kind of, you know, it seemed like much more optimistic on the economy. Do you feel like loan growth is just going to grind higher at this point, not necessarily in leaps and bounds?
Tom Broughton (Chairman, President, and CEO)
Yeah, we do. Now, you know, again, like I say, our loans grew $87 million in the month of September. We've seen a lot of activity just in the last 30 days. It seems like we've seen things really, you know, pick up. Borrowers are getting a little bit more confidence in the economy and, you know, starting with projects in both C&I and CRE. So, you know, and again, we're being a little bit more creative in trying to find, you know, sources of loan demand right now, Kevin, and I think, you know, that's what we had to do after 2008, 2009, 2010, after the, you know, people weren't buying boats and airplanes during that period of time, and we had to, you know, try to finance operating equipment for, for-
You know, trucking companies and things that were, you know, still growing and doing well. So that's what we're trying to do this time. We just have to be a little more creative in finding the loan demand out there than you do when times are really good.
Kevin Fitzsimmons (Managing Director and Senior Research Analyst)
Right. Okay. All right, well, thank you very much, Tom. I'll hop out and let others hop in. Thanks.
Tom Broughton (Chairman, President, and CEO)
Thank you, Kevin.
Operator (participant)
Thank you. Our next question comes from Steve Moss with Raymond James. Please proceed with your question.
Steve Moss (Managing Director)
Good afternoon.
Tom Broughton (Chairman, President, and CEO)
Hey, Steve.
Steve Moss (Managing Director)
Tom, you spoke about the, you know, the loan pipeline improving here. Just kind of curious, you know, what is the rate you're seeing these days? And kind of, you know, hearing you say $87 million of growth in September, kind of feels like maybe we'll see a decent step up in growth for the fourth quarter on loans.
Tom Broughton (Chairman, President, and CEO)
Go ahead, Bud.
Bud Foshee (CFO)
Oh, yeah. We think that loans can increase. The rate that new loans went on during September was 8.35, so we feel like it'd be that or above. And like Tom said, we put in an extra incentive for loans in the fourth quarter, so we expect loans to increase. I mean, fourth quarter is always our best quarter.
Tom Broughton (Chairman, President, and CEO)
Steve, what I can't project is what kind of payoffs we're going to have. Then, you know, when looking at Henry Abbott, you know, if we've got a multifamily developer looking at going to permanent financing with Fannie Mae, I mean, their rate's going up, but it's still less than what we're charging them, you know? I mean, they might pay 6% at Fannie, but they're going to pay us, you know, they're paying us 8.25%-8.5%. So there's what I can't predict, Steve.
Steve Moss (Managing Director)
Right. And then maybe just curious in terms of, you know, the underlying mix in the pipeline, is that a little more weighted towards CRE and construction these days? Or, you know, is there a healthy C&I component? Just kind of curious business mixes.
Henry Abbott (SVP and Chief Credit Officer)
Yeah, I mean, I think, I think it's a mix. I mean, we're seeing a lot of AD&C opportunities, but at the same time, we know we've got a limited bucket, so we're being more selective on those and obviously trying to point our incentive and our folks to go after C&I opportunities, and those are certainly what we're looking for and striving for.
Tom Broughton (Chairman, President, and CEO)
Yeah, we think we need, we think we need to kind of stay under that 100% AD&C, you know, exposure level. That seems to be a bright line with, you know, might—it might become more of a bright line with the regulators, we're not sure, but that was our thought on that.
Steve Moss (Managing Director)
Right. Okay, and then just in terms of thinking about just the liquidity on balance sheet here, you guys achieved, you know, the goal of having $1 billion on balance sheet. Curious, let's just say there's a healthy step up in loan growth and it's maybe sustained for the next quarter or two. You know, are you willing to dip below that $1 billion of liquidity? Or kind of how do we think about, you know, funding loan growth? Will it be more by deposits or existing liquidity?
Tom Broughton (Chairman, President, and CEO)
Yeah, we, you know, so we've got $2 billion in cash at the Fed today, and I guess we've got some short-term Treasuries that are about $250 million, Bud?
Bud Foshee (CFO)
We do.
Tom Broughton (Chairman, President, and CEO)
So you say we got $2.25 billion, you know, we really think that of that, we could put, you know, $1.5 billion probably into the loan bucket, you know, over time. Now, you know, again, some of these municipal deposits are going, you know, again, they're going to spend it. You know, politicians always find a way to spend money, as you know. So it'll burn a hole in their pocket a bit, but it'll take a couple of years to burn some of it off, and we'll replace it by then with other deposits. But, you know, right now, we feel good about where we are. We just, again, are actively looking for the right, you know, we're still being careful on loans.
I mean, we're not really talking to, we're trying to talk to the people we've always done business with or, or, you know, rather than somebody that just walks in the door.
Steve Moss (Managing Director)
Got it. One last one for me here, just on the reserve ratio. You guys had built it up for a number of quarters. This quarter, kind of flat. Just curious, you know, is this kind of as high as it can go in terms of what, you know, maybe the auditors are comfortable with? Or, you know, is there any, are you guys just more comfortable with credit and hence, the reserve ratio not climbing up as much or not climbing?
Henry Abbott (SVP and Chief Credit Officer)
I mean, I think the primary driver, as Tom mentioned in his remarks, was kind of the economic outlook improved over the past two or three quarters. So, I mean, that's where we were able to maintain where we are. You know, it just depends on kind of the key drivers, being unemployment and GDP, are gonna impact the model and the outlook on those.
Tom Broughton (Chairman, President, and CEO)
Yeah, unfortunately, you know, there's a limit on what you can, you know, I think bankers, by nature, would have a much higher loan loss reserve if we were left to our own, you know, desires, but we're not. And subject to these CECL models are, you know, they can, they can switch, change on a dime, as you well know.
Steve Moss (Managing Director)
Right. Okay. Well, I appreciate all the color, and I'll step back. Thanks, guys.
Tom Broughton (Chairman, President, and CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from Graham Dick with Piper Sandler. Please proceed with your question.
Graham Dick (VP of Equity Research)
Hey, good evening, guys.
Tom Broughton (Chairman, President, and CEO)
Hey, Graham.
Graham Dick (VP of Equity Research)
I just wanted to circle back with something you, you just touched on, is that, that $1.5 billion number of deployment into loans. Do you... What's sort of the ideal time horizon for achieving that?
Tom Broughton (Chairman, President, and CEO)
You know why I'm laughing, Graham? I don't know. You know, I mean, at this point, I, you know, you—I don't know. I just don't know how quickly we can book, get the loans on the books, and I don't know what will pay off. You know, our loan pipeline is pretty robust, but it's nothing like $1.5 billion, I can tell you that. So that is a $64,000 question, which is, you weren't born when the $64,000 question came about, Graham, but Google it sometime.
Graham Dick (VP of Equity Research)
Okay, fair enough. Fair enough. Okay.
Tom Broughton (Chairman, President, and CEO)
Good question.
Graham Dick (VP of Equity Research)
So then I guess I wanted to just talk a little bit more about deposits, as it relates to the pipeline. You mentioned that the pipeline is smaller than it was last quarter now. Can you just provide what the pipeline was heading into 3Q and then also what it was heading into 4Q?
Tom Broughton (Chairman, President, and CEO)
Yeah, it's a, you know, it's not a scientific number, and we don't ever, you know, discuss it, but let me see. Where are the, I don't have it. Probably down, probably down, you know, $200 million from the last quarter, Graham.
Graham Dick (VP of Equity Research)
Okay.
Tom Broughton (Chairman, President, and CEO)
So, you know, we put it on the books, so we, we got it on the books. So. And again, we're, we're trying to rationalize deposit costs now. It's time to start, you know, improving profitability.
Graham Dick (VP of Equity Research)
Yeah.
Tom Broughton (Chairman, President, and CEO)
We've got to-
Graham Dick (VP of Equity Research)
Yeah.
Tom Broughton (Chairman, President, and CEO)
We got to be a little bit smarter about it.
Graham Dick (VP of Equity Research)
Okay. And then on that front, with, with deposit costs, I mean, it seems like most of the, the growth has been in money market recently. I guess most of that's probably fully indexed and floating, right? So as you start to adjust your strategy on the deposit pipeline and, and pricing perspective, what does that sort of look like for you guys? Is it saying, like, no more index money market and just time at, you know, a rate below Fed Funds? Or how do you guys kind of approach that from here, I guess?
Tom Broughton (Chairman, President, and CEO)
Well, it depends on the, you know, what as a percent of—as a percent of Fed Funds, what is the rate? You know, is it? You know, you don't—you're not interested in 100% of Fed Funds, you're interested in some, some percentage of Fed Funds. So, you know, that—you got to have some margin in what. You want at least to have some margin in what you leave sitting at the Fed, because we got a lot of cash sitting in the Fed right now. Of course, the other question is, when do you start buying securities? And we got to buy securities again someday, but, you know, given we've got so much, you know, we, we don't—we, we want a little bit more floating rate assets on the book, so, you know, we're hesitant to, to move into, you know, longer term.
When I say longer term, I say a two- to five-year, you know, Treasuries. So that, that's, you know, you might be smart to start doing it now, but we're not going to be smart because we're not going to do it now. So we're just waiting on that. But again, we're going to have to all do it someday.
Graham Dick (VP of Equity Research)
Yep, understood. And I guess just one more follow-up on the deposit front and the costs. So that money market piece, just correct me if I'm wrong, that's like, that's fully floating, right? So that, there's not a lot of... There's no maturities in that thing or any, you know, I guess, exception pricings within that segment that's gonna cause that to have any further catch-up. So for example, if we get no more rate hikes, it's probably going to stick around 4.25% on cost, right?
Tom Broughton (Chairman, President, and CEO)
We think so, Graham.
Graham Dick (VP of Equity Research)
Okay. All right, that's helpful. That's all I had. Thanks, guys.
Tom Broughton (Chairman, President, and CEO)
Bye, Bud. Thank you.
Operator (participant)
Thank you. Our next question comes from Dave Bishop with Hovde Group. Please proceed with your questions.
Dave Bishop (Senior Equity Research Analyst)
Hey, good evening, gentlemen. How are you?
Tom Broughton (Chairman, President, and CEO)
Good, Dave, from Hovde Group.
Dave Bishop (Senior Equity Research Analyst)
Yes, thank you for clarifying that. Hey, yeah, Tom, you know, you noted the revamp and the incentive plans, and obviously, they were, you know, very successful on the funding side this quarter. From an operating expense standpoint, does that imply maybe an acceleration of operating expenses into the last quarter of the year? And how should we think maybe about expense growth into the next year?
Tom Broughton (Chairman, President, and CEO)
No, we've already caught up. We accrued more in the third quarter, a good bit more in the third quarter, Dave. I don't know the exact number, Bud's got it over there, but, you know, we're gonna accrue more in the third and the fourth quarter to account for that. So we've already started doing that in the... Because we have been wildly successful at raising deposits, and they've done what we asked them to do.
Dave Bishop (Senior Equity Research Analyst)
Got it. And then circling back to the liquidity and maybe securities outlook here, and then maybe answer that last question or so, but there's been, you know, a lot of chatter, and I think you even noted we're probably in a higher for longer, you know, scenario, economic outlook here, interest rate outlook moving forward. Is there a potential to potentially restructure the securities portfolio and maybe, I don't know, you know, sell off some of the lower yielding stuff, pay off some of the borrowings to improve the margin and profitability? Just curious how we should think about that.
Tom Broughton (Chairman, President, and CEO)
Hey, Dave, it's Bud. I don't see us selling anything. I think we'll continue to buy. If we buy, we'll buy Treasury short term, six months to a year. Just takes a long time to for that to be paid back and earn money. I just—I don't know, just something I don't want to do. We rather just hold it to maturity.
Dave Bishop (Senior Equity Research Analyst)
What if rates drop? You know-
Tom Broughton (Chairman, President, and CEO)
Yeah.
Dave Bishop (Senior Equity Research Analyst)
I mean, probably, my salesman can always show you a Bloomberg run that shows that it makes you a lot of money to reposition securities.
Tom Broughton (Chairman, President, and CEO)
Got it. No, understood. Understood.
Dave Bishop (Senior Equity Research Analyst)
And then, a housekeeping question, I guess maybe for Bud. Good tax rates to assume moving forward, it looks like there were some, you know, lower than trend tax rates this quarter. Curious, how should we think about next quarter and into-
Tom Broughton (Chairman, President, and CEO)
Yeah, I would-
Dave Bishop (Senior Equity Research Analyst)
2024?
Tom Broughton (Chairman, President, and CEO)
Yeah, I would say 18% would be a good rate for fourth quarter.
Dave Bishop (Senior Equity Research Analyst)
18%?
Tom Broughton (Chairman, President, and CEO)
18, yeah.
Dave Bishop (Senior Equity Research Analyst)
Got it. Great. Thank you.
Operator (participant)
Thank you. There are no further questions at this time. I'd like to turn the floor back over to management for closing comments.
Tom Broughton (Chairman, President, and CEO)
Thanks. I think we're done. Thank you, everybody, for joining us.
Operator (participant)
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.