SmartFinancial Inc
NYSE:SMBK
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
American Express Co
NYSE:AXP
|
Financial Services
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Target Corp
NYSE:TGT
|
Retail
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
19.165
36.7784
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Estee Lauder Companies Inc
NYSE:EL
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Church & Dwight Co Inc
NYSE:CHD
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
American Express Co
NYSE:AXP
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Target Corp
NYSE:TGT
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
Mueller Industries Inc
NYSE:MLI
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
SmartFinancial Inc
You don't have any saved screeners yet
Hello, everybody. And welcome to today’s conference call titled SmartFinancial Second Quarter 2023 Earnings Release and Conference Call. My name is Ellen, and I will be coordinating the call for today. [Operator Instructions]
I will now hand over to our host Nate Strall, Director of Corporate Strategy to begin. Nate, please proceed, whenever you are ready.
Thanks, Ellen. Good morning, everyone and thank you for joining us for SmartFinancial’s second quarter 2023 earnings conference call. During today’s call, we will reference the slides and press release that are available within the Investor Relations section on our website, smartbank.com.
Chairman, Miller Welborn will begin the call followed by Billy Carroll, our President and Chief Executive Officer; Ron Gorczynski, our Chief Financial Officer; and Rhett Jordan, our Chief Credit Officer will also provide commentary. We will be available to answer your questions at the end of our call.
Our comments include forward-looking statements. These statements are subject to risks and uncertainties and the actual results could vary materially. We list the factors that may cause results to differ materially in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements because of new information, early developments or otherwise, except as may be required by law.
During the call, we will reference non-GAAP financial measures related to the company’s performance. You may see the reconciliation of these measures in the appendices of the earnings release and investor presentation filed on July 24, 2023, with the SEC.
And now, I will turn it over to Chairman, Miller Welborn to open our call.
Thanks, Nate, and good morning to everyone, and thanks for joining us today. The second quarter of this year was a challenging quarter for the entire banking industry. There's been a tremendous amount of turmoil and quite frankly, a ton of bad press about the stability of our banking industries. I'm very proud of how our team has remained steadfast to our mission and our objectives for the company. We have made a strong effort to be in our communities and share our thoughts and updates about not only SmartBank but also the Southeastern region and the industry as a whole.
SmartBank has been very focused on our clients and we've had held multiple town hall gatherings in many of our markets. These conversations have allowed us to tell our SmartBank story and also to share with others about the strength and the importance of the community banking system in the Southeast. We're very proud of what we were able to accomplish for the quarter. I'm proud of the entire team for the focus and continued improvements we've made this quarter.
With that, I'm going to turn it over to Billy.
Thanks, Miller, and good morning, everyone. Our second quarter was a good one for the company. But like many others, we had to battle a few headwinds. I think our industry is seeing some stabilization because it looks like the pace of rate increases appears to be slowing. We're going to walk through the state of our company today. And as I believe you will see, SMBK is positioned well to navigate the environment looking forward.
I'll open with some comments and in a moment, Rhett and Ron will dive into details on credit, balance sheet and earnings. First, it was a solid quarter for us. You can refer to Page 3 of the deck for some of those highlights. We reported $8.8 million in operating earnings, equating to $0.52 per share and held our double-digit return on tangible common equity coming in at 10.6%. We also continue to move our book -- tangible book value higher, now at $21.84, excluding the impact of AOCI and $19.78, including it.
Our income numbers were within our forecasted range, although slightly lower on revenue, driven primarily by increased funding costs and seasonal cash balance declines. We did make up some of that headwind with expense controls.
I was also a little surprised with some irrational pricing in our markets over the last few months. So we battled through that and ended up having to push rates higher than anticipated on some core client balances, which compressed the NIM a bit. That's temporary though.
At the end of the day, we kept the deposits we wanted and have not been out trying to aggressively gather funds while the market seems to have been unreasonable. That said, we held balances with only a slight contraction for the quarter and most importantly, maintained our mix, including 24% in noninterest-bearing accounts.
We had a number of great net new clients this quarter, and we continue our focus on the sales side on lower-cost checking and treasury clients. Loan growth continued at a pace we had anticipated coming in at 7% annualized for the quarter. Yields on new production are continuing to move up.
So with that and our loan repricing on maturities, we do feel the margin should be bottomed out. Ron will discuss this a little bit more shortly, along with the huge opportunity we have with cash flows coming off large bond maturities in early 2024.
We also felt extremely good about finishing the quarter with no borrowings or hardly any brokered funding. Fruit use of these funding vehicles is fine, but to go through another quarter like this with much higher rates and for us to continue to fund with our core base shows the strength we've built in the balance sheet over the last several years.
Our credit quality remained outstanding, with NPAs maintaining at 12 basis points, and even a net recovery position related to charge-offs. There continues to be a lot of talk around CRE and office exposure, but we continue to feel very good about our CRE book. Rhett will deep dive into this in just a minute.
As I wrap my opening comments, a couple of notes on great growth opportunities for our bank. This quarter, we opened our Tallahassee, Florida full-service office, and we're really excited to be in the state capital of one of the country's fastest-growing states.
We also officially added a great group of wealth professionals to SmartBank Investment Services in our Dothan, Alabama market. Dothan has been a great market for us from a commercial and private banking standpoint, and this investment team is a great addition. Our wealth program now has over $1 billion in assets under management.
So all in all, a good quarter where I think holding serve for a couple of periods is okay, while the balance sheet recalibrates. I'll close with some additional comments in a moment, but let me hand it over to Rhett and then over to Ron to dive into some greater details. Rhett?
Thank you, Billy. As Billy mentioned, bank's loan portfolio continues to grow at a moderate pace, while maintaining very solid credit performance metrics.
In second quarter, we saw the loan portfolio grow of $3.3 billion measuring a 7% quarter-over-quarter annualized organic loan growth, spread across the bank's geographies and across different segments of the portfolio, led by commercial and industrial lending. The loan portfolio also saw a 19 basis point increase in average portfolio yield moving that metric up to 5.39% for the period. Overall, the portfolio composition maintained what has been a very stable mix over the last several quarters.
Our construction portfolio saw a slight increase in outstanding balances being up approximately $8 million, but holding steady at 12% total loans and 89% of total capital. The majority of this funding was existing construction projects continuing to move towards completion as our percent dispersed in the segment moved up from 60% to just under 65% quarter-over-quarter.
Our total CRE portfolio held steady at $883 million outstanding, resulting in the portfolio moving down from 27% to 26% of total loans and from 288% to 286% of total capital period-over-period. If the owner-occupied construction financing is removed from those results, our nonowner-occupied construction portfolio moved down to approximately 66% of total capital and total non-owner-occupied CRE down to approximately 263% of capital.
Office exposure is minimal for our bank at 14% of our total non-owner-occupied CRE portfolio with average LTV of 56% and 1.75 times average debt coverage ratio in the segment. Our office portfolio is predominantly made up of smaller project office buildings with an average loan size of $1.3 million and about 35% of that being medical office space in purpose.
Overall, our CRE ratios have continued to gradually trend down since year-end 2022. Overall, our credit performance metrics held steady with NPAs, delinquency, and classified asset ratios being relatively unchanged period-to-period, while the bank recorded a slight recovery in the portfolio loss ratio for the quarter.
Our client base has been reporting stable trends and an optimistic outlook for their operations despite historical interest rate increases increased hurdles in their capital costs.
Our markets continue to report strong housing activity with supply and demand maintaining a sound balance evidenced by continued strong average home prices as well as strong market absorption times.
While some market trends may be down slightly when directly compared to certain key statistics this time last year, even a slightly down metric today still reflects extremely good outcome compared to historical averages for the area. This is causing existing home availability shortages to be intensified across our geography as the inflow of new residents battles against the lack of existing home listings as current homeowners are reluctant to lose their existing mortgage rates when looking at the cost of financing a new home purchase. That dynamic, coupled with a continued outlook for lot shortages across many of our key MSAs over the next couple of years, leads us to feel we will see continually healthy price performance and solid demand levels in our housing segment for the next year.
The balance of previously mentioned steady loan growth being offset by continued strong credit quality performance and a quarter-over-quarter reduction in unfunded commitments within the loan portfolio held our allowance steady at 0.98% of total loans and leases in the second quarter.
Overall, loan demand continues to hold its course as forecast, while the loan portfolio continues to maintain strong top-of-class credit metrics and performance with a positive outlook.
Now, I'll turn the call over to Ron to talk about deposit composition, liquidity, and other key financial --
Thanks Rhett and good morning everyone. Let's start on slide nine. Despite continued industry volatility and aggressive market competition, our deposit portfolio remained stable, declining $30 million from the prior quarter, primarily as a result of seasonality.
Additionally, we were extremely pleased to see our non-interest-bearing deposits increased by almost 6% linked quarter annualized to represent 24% of total deposits. Our focus on relationship banking continues to drive positive mix shift and a healthy liquidity position with minimizing the need to utilize wholesale funding. As a result, we ended the quarter with a loan-to-deposit ratio of 79%.
For the quarter, our total deposit costs increased 33 basis points to 1.89% and was 2.01% for the month of June. As we move into the second half of 2023, we intend to be cautious in our approach to growing and defending deposits where rate is the only factor. That said, we do anticipate upward pricing pressure to continue, albeit at a more moderate pace throughout the remainder of the year.
However, as previously mentioned, and as shown on slides 10 and 11, our deposit granularity and access to liquidity gives us confidence in our ability to navigate funding headwinds in a cost-effective manner.
On slides 12 and 13, we highlight our securities and liquidity management detail. During the quarter, we deployed some liquidity, primarily to fund new loan production. Our overall liquidity position, which includes cash and securities, remained strong at 22% of total assets. Included in the securities portfolio is over $250 million in US treasuries with a weighted average yield of approximately 1.8% that will mature in Q1 and early Q2 of 2024. These maturities will provide significant cash on hand for redeployment and represent a potential increase of over $8 million to interest income, when redeployed at today's rate.
Our net interest margin for the quarter was 2.93%, representing a 38 basis point contraction. Adjusting for the $1.4 million loan fee included in our Q1 margin, our margin contraction was 25 basis points. Our loan production base yield, which excludes loan fees and accretion, was 5.39%, a 19 basis point increase from the prior quarter, and the June portfolio spot-based yield was 5.43%. Yields, our new commercial loan originations are currently in the 7.5% to 8% range, depending on various business aspects and revenue opportunities associated with the project.
Our interest-bearing deposit costs increased 41 basis points to 2.46% for the quarter and were at 2.60% for the month of June. The weighted average cost of new deposit production during June was 3.39%. Our cumulative deposit beta during the cycle to date is approximately 32%. Looking ahead, we are modeling the third quarter cumulative beta of 36% and a year-end cumulative beta of 38% to 40%.
While market compression has been challenging, we anticipate margin stabilization through the remainder of 2023, with funding cost increases being offset by new and renewing loan production. That said, we are modeling third quarter net interest margin in the range of 2.9% to 2.95%. Lastly, with yet another challenging quarter behind us, our forecast indicates, we should have reached the bottom for our operating revenue.
Looking ahead at the next few quarters, we expect to maintain operating revenue in the range of $39 million before returning to our previous $42 million plus run rate by midyear 2024.
We have details of our noninterest income and expense on slides 15 and 16. Operating noninterest income was $7.1 million in line with our previous guidance. We are pleased to see our ongoing efforts to generate stable recurring income. Looking ahead, we anticipate noninterest income in the low to mid $7 million range for the next several quarters.
On the expense side, we did a great job managing costs coming in at $27.4 million, better than our previous quarterly guidance. While our efficiency ratio increased to 71%, it was a result of revenue pressure rather than expense increases. We did offset increases in our FDIC insurance, occupancy and other expenses by reductions in professional fees and loan related expenses. Additionally, we had a reduction in salary expenses from revisions made to our company-wide incentive plans, as well as being diligent around replacing employees lost through attrition. Moving forward, we project noninterest expenses in the $27.5 million range and salary and benefit expenses of $16.2 million.
And lastly, on slide 17, we continue to build our capital ratios with this quarter seeing the company come close to or surpass the 8%, 10%, 12% threshold on our leverage of CET1 -- on our leverage CET1 and total risk-based capital ratios. In line with our strategic plan, we are pleased to see our capital ratios move to and pass these milestones and feel we are poised to deliver strong ROEs and tangible book value growth.
With that said, I'll turn it back over to Billy.
Thanks Ron. As you can see with our trends, we're positioned well and still playing offense. Our legacy markets provide a great foundation, and as we gain more clarity on rates in the economy, our expansion markets are poised to provide even greater growth in new client relationships.
Revenue growth is a key focus and I remain confident in our ability to execute on that front. As Ron mentioned, we are controlling -- we're continuing our control and internal focus on efficiency and expenses. Outside of a little occupancy expense with facilities in our lift-out markets, expense growth should be fairly well-contained.
We're planning very limited hiring unless there's a good revenue growth opportunity associated with it. My outlook on loans is still fairly bullish. We are lending and feel we can continue the same mid-single-digit pace, maybe better. And with that, deposits need to be growing at the same pace and we feel like we can grow internally there as well.
As Miller mentioned, we've spent several days on the road over the last few months doing market roundtables and meeting with clients and prospects throughout our entire footprint. The momentum in our markets is outstanding and continues to gain steam.
As these rates settle, our loan balances grow and reprice, plus our ability to utilize the outsized investment cash flows coming early next year, our company is very well-positioned.
I'll close with a shout out to our 600-plus outstanding associates we have in this company. These team members recently received their sixth consecutive Regional Top Workplace Award and we continue to build phenomenal culture here at SmartFinancial and SmartBank.
I'll stop there and open it up for questions.
Thank you. We'll now enter our Q&A session. [Operator Instructions] We'll take our first question from Brett Rabatin from Hovde Group. Brett, your line is now open, please go ahead.
Hey guys. Good morning.
Good morning Brett.
Thanks for the questions. Wanted to first ask -- it's good to hear that you think the margin is -- basically is going to stabilize from here. Can you talk maybe about how much of a loan portfolio reprices in 3Q and 4Q? And then I was just curious to hear if you think the competitive landscape is ebbed a bit with one regional competitor having completed their campaign.
Ron, you want to you take -- you have the information on the repricing?
Yes. What we think in Q3, we're probably looking around -- at this point, about $30 million and then $50 million for Q4 of 2023. And as we go into 2024, we have $180 million that we'll reprice pretty much ratably throughout next year. That includes both variable and fixed rate loans. And these variable rate loans are the ones that have a little bit longer than three-month maturities on our reset marks.
And then, Brett, I'll take the other question related to market pricing. Yes, I think it is. I think we're all a little -- as I commented, I think we're all a little surprised with the aggressiveness of some pricing that we saw in the market. But again, I go back, a lot of this is temporary. And so you just kind of battle through it.
It seems to have settled maybe a little bit throughout really all of our markets. But obviously, there are still folks out there pricing up. So we're still having to battle a little bit from that standpoint. But I do think it's it has, I would say, settled as we talk to our regional presidents throughout our footprint.
Okay. And then just thinking about mix shift change, you're in a little better position than some peers with the balance sheet in terms of the loan-to-deposit ratio, and you talked about kind of mid single-digit growth, maybe better. Does the balance sheet itself stay relatively flat from here as you maybe mix shift change a little bit of the asset base, or do you continue to grow it?
We've -- I would say, we're going to look to grow it. We've just kind of taken the last few months trying to watch the markets stay flat, see what's kind of -- just kind of gauge what's going on in the economy. I'm feeling -- I think most of our markets have really stayed bullish. I've continued to feel very bullish as rate on. Greg and I talk about where we want to take the company from a growth standpoint. The opportunities are there.
So we just want to make sure that we're doing the right thing from a rate standpoint. From a structure standpoint, I think, we can grow it. We'll probably stay relatively flat. I would imagine just kind of looking at next quarter, probably flat-ish again, maybe will some growth. I think we get the growth on the loan side and just kind of hold deposits steady. But I do think you'll see the -- I think we get the balance sheet growth picking back up as we look ahead a few quarters out.
Okay. Great. And then maybe just one last quick one. You've got that nice slide, slide 5 that shows the market area. Are you seeing more of the opportunities in the expanding markets or in the legacy markets in terms of growth from here?
Yes. It's a little of both, but I think the expansion markets, the lift-out markets, that we've added over the course of the last 1.5 years, 2 years are really showing some nice growth. I mean, those folks have got great opportunities to pull relationships. We're pulling them in our legacy markets, too, but the pace in our lift-out markets is greater. We're just adding -- I think we're adding more net new in those markets.
And those folks are continuing to execute extremely well. I couldn't be more pleased with what we're seeing in those zones. As Miller alluded to in his opening comments, we've been out a lot over the course of the last couple of months and really getting their markets in a lot of roundtables, meeting clients, prospects and there really is. We've got such a phenomenal energy right now in our company. And so I think what we're doing, we're a couple of temporary headwinds and as Ron alluded to, we think that's -- we think this number grows from here. The revenue numbers and back to our revenue run rates where we want them to be here real soon. And so it's just our momentum is great. We've got a lot of really positive things going on in all the…
And that's the clients as well as the bankers really positive from the industry side.
Okay. That’s great. Appreciate all the color.
Thanks, Brent.
Yes. Thanks, Brett.
Thank you. Our next question comes from Catherine Mealor from KBW. Catherine, your line is now open. Please go ahead.
Thanks. Good morning.
Good morning, Catherine.
Good morning.
Good morning.
I just wanted to follow-up on loan yields. I appreciate the commentary about how much is repricing. How about where new loan yields are coming on today relative to where your portfolio yield is?
We're saying that, and I think Ron said it, kind of, mid-7s, 8% range. If you've got something that might have a little bit tighter spread on a float might be a little lower in that 7.5%, but we're -- I think we're in a pretty good spot, call it, mid-7s with new productions.
Okay. All right, great. So, I mean, as you think about the margin guidance that you gave around $2.90 for next quarter and maybe stabilize there for the back half of the year. How are you thinking about where loan yields end up within that guidance? Are you -- do you get above 6% as you exit 2023?
I'm looking at Ron…
I’m not sure, we get up above 6%, but let me -- no, I think we get closer to the 5.75, 5.80. We'll have incremental growth month-over-month, but we probably won't hit that 6% amount at this point in time -- by year-end, yes, sorry.
Okay. Got it. And then on the deposit side, we've heard commentary from a lot of your peers in your markets just we're all talking about First Horizon's deposit campaign and what that did to the market. But I feel like there's been commentary that, that's stabilized a little bit as the quarter has continued on, and maybe June was a little bit less competitive or crazy as it was earlier in the quarter. I'm just curious if you're seeing that same dynamic in your markets and maybe what the deposit conversations are like today versus a month ago?
We are. It has, as I'm speaking with the previous caller, it really has settle some. I mean, obviously, rates are higher. We're still having a lot of those same conversations. But I don't think we're getting, I call it, the external pressures as much with promotional banners hanging out in front of buildings or direct mail cards in everyone's mailbox. So that -- I think that has at least settled it a little bit. So, yeah, I think the last few weeks we've seen that abate some.
And FHN, I mean, I think that was the biggest pricing pressure. They look like their specials ended at the end of June. So I think the market has, as Billy indicated, has slowed down a little bit.
Okay. Great. And then maybe just one last one on just non-interest-bearing remix. I know it's a shot in the dark. But as you just look forward, what's your gut on where that bottoms as non-interest-bearing deposits as a percentage of deposits. Is there just an inherent kind of bottom as you think about maybe transaction accounts, or just kind of core customers that you are less likely to move their deposits into an interest-bearing account to where that stabilizes?
It's a tough call. We think we can hold in this range. I think we've talked about -- could it drift into the low 20s? Possibly. We just don't see it going much lower than that low 20s. So it might -- could it tick down a couple of basis points from here? Sure. But I still think we're in a spot -- our sales focus is on these operating accounts, a lot of these expansion markets that we have, we're having a lot of success bringing in these net new full relationship clients. So, yeah, I'm pretty optimistic that we can hold in this range. It could edge down a little bit, possibly, maybe a couple of basis points, maybe 22% if you're asking for a number, that's probably a fair number, wouldn't it be Ron?
But it's certainly a bank-wide focus.
Absolutely, yes.
Billy has on top of that, and so our markets.
We're really modeling -- we kind of changed our outlook. We're probably modeling 23% for the most part. So, not much different than where we're at today. I know we're a little tick higher, but trying to stable going forward.
I'll tell you, Catherine, one of the things that I've really -- I've enjoyed why -- you've seen a transformation in our company over the course of the last couple of years. A lot of these expansion markets just kind of the way we are selling as a company now. I think we're a few years ago, a little more of a lending focused efforts. Now you're just seeing that full relationship effort that is kind of permeating through all of our markets.
And so, it's really -- I'm very excited about the way we're selling now in this company and the way that we're moving or like I said, I think we've got a little bit of a temporary squeeze with just kind of some of the funding, and as Ron said, a little bit of just some seasonality this quarter but really feel good about us being able to maintain those core relationship balances moving forward.
Great. Thank you for the commentary.
Thanks, Catherine.
Thanks, Catherine.
Thank you. Our next question comes from Kevin Fitzsimmons from D.A. Davidson. Kevin, your line is now open. Please proceed with your question.
Hey, good morning, everyone.
Hi, Kevin.
Hi, Kevin.
Just following up on Catherine's question there. I mean, non-interest-bearing, not -- you're talking about maintaining it. You guys actually grew it this quarter, which I don't think I've seen yet this earnings season. So was there anything unusual, or in terms of -- look, there's -- I would assume, on the one hand, there's a steady remix going on in terms of non-interest-bearing flowing out and going into interest-bearing. But was there any big relationship win or unusual item that might have drove that increase in non-interest-bearing? Thanks.
I mean, Ron, I think nothing has jumped. As far as a relation…
One-time.
Yes, I think it's just -- I think it's pretty granular, Kevin. It goes back to my comments, I mean the focus shift that we've had in this company over the last year or two years has really been -- I think we're seeing it and say, we're turning into a pretty good deposit sales company. And so, I think that's one of the things that as one of the reasons you hear kind of the optimism in our commentary today. There's some great stuff going on, and we feel like we can continue to grow that. And like I said, if we can hold the mix, grow the mix, I always try to be a little more conservative on the outlook, but I do think we've got some good momentum there.
Yes, I think it's three words: focus, effort and attention.
Got it. Great. Thank you. And on the bond portfolio, so Ron, I was trying to keep up, my pen wasn't keeping up with your commentary, but if you can just reiterate what those cash flows you expect are? And then if that's pretty significant, I would assume you're not contemplating like a larger one-time bond restructuring where you would take a loss upfront to get those at higher rates faster? But is that a good assumption or not?
Yes, we're always contemplating, always looking at different strategies, but Kevin, on our Page 12 of the slide deck, we kind of have it spelled out quarter-to-quarter on what our returning principle is -- what I said was on -- specifically for our treasuries, we're looking to get $250 million in over the next -- Q1 and Q2 of 2024. And deployment of those were still kind of strategizing, it all depends on where we're at on our liquidity side at that point of time. But we do have a lot of options to us. And it will give us a nice income pop, once we execute those options. But we are strategizing now on what is the best way to handle it either today or wait for the maturities to occur.
Okay. Great. And one last one for me on the loan-to-deposit ratio. I see here on the slide you point out that you guys are below the peer average. So still a nice liquid position. It sounds like Billy, if I heard you right, it sounds like mid-single-digit loan growth have maybe even a little higher, holding deposit balances flat to maybe growing some. So we should expect that loan-to-deposit ratio to drift higher into the '80s. Does that seem reasonable?
Yes, nothing – I think that probably low rates. We -- like I said, I think we think we can continue to fund the growth internally just with new deposit relationships and deposit growth. And so -- but again, we're going to be prudent on chasing the higher-yield stuff and so for us, that might mean we drift up a little bit. And I think that's a fairly safe assumption.
It is.
Okay. Thanks very much, guys.
Thanks, Kevin.
Thanks, Kevin.
Thank you. Our next question comes from Graham Dick from Piper Sander. Graham, your line is now open. Please go ahead.
Hey, good morning, guys.
Hey, Graham.
I just wanted to touch on something, I guess, a little bit further out into 2024. I know you said that you think operating revenue probably returns back to the $42 million number at some point maybe mid-year, how are you guys thinking about the efficiency ratio at that point in time? Are there any targets you guys have in mind that you'd like to get under, or is it sort of still too far out to project, I guess?
Yes, it's probably not too far out, Graham. I think -- I go back to what we said several quarters ago. You kind of rewind, I mean we need to be down there. We need to be back down there in the -- around 60%. I'd love to be sub-60%. I think our goal is we've gotten it down into that kind of that lower 60 range before we had a little bit of this rate bar and we definitely have a path to get it back down into the lower 60s by the end of next year.
Okay. All right. That's very helpful. And then I guess just one quick thing on the NIM. I noticed that the other earning assets line, it was -- the yield dropped by 75 basis points this quarter. I'm just wondering what drove that, if there's anything like one-time in there, and if you expect it to snap higher again in 3Q, just as we try and reconcile NIM staying flat essentially with higher deposit costs at the same time, I think, I feel like this is a bigger piece of what drove downside this quarter?
Well, one, the downside on lower earning liquidity was one of them, too, we did have a right -- we did have an adjustment through that, that dropped the yield for Q2, but we do expect it can bounce back into Q3. So again, that's part of our -- that reclass additionally also drove some of the margin pressure downward. Not much, but some. It was a $300,000 reclass that we did. So we start -- we'll pick it back up to probably Q1's rate as we go forward.
Okay. That's really helpful, Ron. Thank you. And I guess the last thing for me just to be on credit. I feel like I got to ask about it, but it sounds like everything is, I mean, just as good as it's ever been in your own markets and it continues to buck the trend that people expect to occur. So I just wanted to hear a little bit from you guys on your clients and how they feel about the economy now versus, I guess, the last time we talked with 1Q and your outlook for credit as a result of the conversations you guys are having with them and what that might -- the provision line going forward?
Rhett, do you want to get and take that first?
Sure. Yes. I mean, as you can see, I mean, the metrics continue to hold extremely steady. And I think as Mill and Billy both mentioned, this meeting we have with clients, town halls we've done talking to our customer relationships. Obviously, none of them like the fact that most of their interest expense line items or on our income statements are going up for their borrowings. But overall, they're still optimistic about the business activities of top line revenues. They're being able to hold their margins to profitability. And so the feedback we're getting from them. Graham, this was good. I mean we're still very optimistic about being able to hold metrics where they are. Hopefully, interest rate increases will begin to taper all and we'll kind of hit that ceiling, so to speak. And then I think that will make borrowers fill a whole lot better as they forecasted in the next year.
Yes, like I said, we've been Graham, we've been -- Mill and I have been out of line and Brad has to -- I mean we're keeping our thumb on the pulse of what's happening in these markets. And really, there's just not a lot of negativity. I mean, you might have some businesses that have got a little bit of an impact for one reason or another. But we feel really good about our credit book, our underwriting. We're always -- we've always been conservative underwriters. I think going back to even when you looked at -- I remember when we had some of those early calls, coming through the pandemic. We just didn't have any concern about clients during that time. And so for us, I think for us, it's one of the reasons we might take -- we take a little bit less loan yield because I think we really focus on a higher quality credit. And so I think overall, we feel good about it and think it will continue to hold.
And I think to expand a little bit on these town hall meetings, we are going to each of the markets. We are inviting 10 to 30 different businessmen and women in those communities, various industries, clients and nonclients and just really a town hall asking as many questions and getting their feedback and it is literally across the footprint, very positive about where the economy is today, their outlook over the next year, even if it slows down a little bit in the Southeast, it's still extremely busy. They are very optimistic as we are.
Okay. That’s helpful. I appreciate it guys. Thank you.
Thank you.
Thank you. [Operator Instructions] Our next question comes from Feddie Strickland from Janney Montgomery Scott. Feddie, your line is now open. Please go ahead.
Hey, good morning.
Good morning, Feddie.
Good morning, Feddie.
I wanted to go back to the balance sheet growth. I appreciate your color there, Billy. But should we expect lower earning asset growth in the first quarter 2024 in particular, just given the magnitude of the security -- maturing securities that quarter?
I don’t -- Ron, I don't think?
No. We didn't adjust our growth for that, because we're just converting it to cash or whatever we put it to.
Yes, I don't. I think our thought and our forecast, Feddie and Ron, correct me, if I'm wrong. I think we're looking at -- we're looking today, our forecast is basically rolling back those investments into another earning asset rather than deleveraging at this point. I mean, obviously, something we can take a look at other strategies. But at the end of the day, I think our thought is just to continue to roll that into some other earning assets, keeping those -- that total earning asset number at or above where it is today.
Understood. That's helpful. And then another clarifying piece. Ron, I think you talked about this a little bit earlier, too. But in your opening remarks, I think you said there was roughly $8 million potential increase in interest income from the securities portfolio maturing being redeployed. What was the time horizon for that? Was that the next four quarters, or I didn't quite catch over what period that $8 million would come in?
The $8 million, again, back to that Slide 12, we will have that $8 million at today's rates are coming in at really the end of Q1, beginning of Q2. That's where our $250 million treasuries will mature. And then actuality, over the next 12 months, we have about $300 million coming through with agencies and it’s a pay downs, but that big burst of principal will be Q1, Q2 time frame.
Feddie, I think, Ron, I think we were just kind of looking at it hypothetically, if that was to reset today.
You got to reset today.
I think we were saying if that resets today, you're looking at an $8 million delta. So…
We might as well get.
We don't know what rates are going to be at that time. But if they hold, then we're looking at about an $8 million delta.
Yes.
Got it. And one last one for me. Along that same line of questioning. If we get two more rate hikes this year than the Fed stops, given everything we talked about with the loan repricing and securities maturity schedule, could we see the margin come back up in 2024 over 3% if the Fed just holds rate flat?
Yes, we do. We do. That's kind of what we're modeling at this point. We are -- we know we have the 25% coming in probably 125 in November time frame. But yes, we are modeling to get over that 3% margin range in 2024.
All right. Thanks for the color. That's all I had.
Thanks, Feddie.
Thank you. Our next question comes from Steve Moss from Raymond James. Steve, your line is now open. Please proceed with your question.
Good morning.
Good morning, Steve.
Just a follow-up on the -- just following up on the margin here. With that expectation to 2024 above 3%, are you guys thinking of the deposit beta maxing out at a total of 38% to 40% cumulative beta, just kind of curious on, how you're thinking there.
At this point, that's our anticipation. So probably -- we kind of looked at it at Q4, but probably dribbling into Q1 of 2024 and then it's over. So yeah, I think 40% and pretty much getting back to where we started with our historical was. Our historical wasn't that far off. So that's what we're looking at now.
Okay. That's helpful. And then I apologize I hopped on a bit late. But just Billy, you sounded optimistic on loan growth here. You've had good C&I -- high growth for a number of quarters now, including this quarter. Just kind of curious as you look forward here, how much of the driver going forward do you think will be C&I driven versus maybe CRE?
Yeah. And I'll let Rhett chime in on that, Steve. But I think we're still -- when you look at our pipelines day, Rhett, I believe we're a little more heavily C&I a –
Yeah, we’re definitely.
Can you give maybe a little color on kind of what you're seeing next couple of quarters?
Yeah. It's -- yeah, you look at our pipeline we're definitely seeing that same trend as far as the split definitely heavier C&I. That is the area that we would anticipate seeing more of the new production success in the next couple of quarters.
Okay. Great. I appreciate that. And then lastly for me, just on -- you've been very much organically focused, but you've done acquisitions in the past. Just curious have discussions on the M&A front picked up here in the last month or two, we've seen some stability in the market, or just any thoughts around that versus organic expansion?
Steve, I'll jump in on that one. The -- we're glad to see the deal get done this morning. That was a good announcement from the Atlantic Coast. That's optimistic for the industry. Bill and I talk off and we spend a lot of time in the markets, upstream, downstream, generating relationships. And we think they're continued discussions today. And they just -- I think the outlook is optimistic for that in the future.
Yeah. And I think for us, obviously, valuation plays into that. For us, we've been very successful doing M&A. When we look absolutely would love to find some opportunities. I think those probably limited -- but we're always open to look at strategic alternatives. And if there's something that pops up that makes sense, we'll look at it. I do think you'll see more of that, as Miller said, nice to see an announcement this morning. I think you'll see more of those types of things occurring. And so we're going to keep our eye on it and figure out how we might be able to participate
All right. Great. Thank you very much. Nice quarter.
Thank you. Our last question today comes from Jordan Ghent from Stephens. Jordan, your line is now open. Please go ahead.
Hey, good morning, guys. Thanks for taking my question. I just had one -- I just had one quick question actually on the loan yields. So back in April, it looks like you guys were expecting loan yield to be in the 560 range. Looks like they came down a little bit off that for this quarter, can you kind of give some color on what happened?
Well, the loan yields themselves have been incrementally increasing month-over-month, quarter-over-quarter. I think the contraction was -- last quarter, we did have really excessive loan fees that didn't repeat itself for this quarter. So, we had $1 million to $1.4 million, which we talked about and additionally, we had other loan fees that hit. But going forward, we should -- we will incrementally build our -- the loan fees -- again, going forward, I apologize for that.
Perfect. That was my one question. Appreciate it.
Great. Thank you.
Thanks Jordan.
Thank you. We have no further questions. So, I'll now hand back to Miller Welborn for any closing comments.
Thanks Ellen, and thanks again each of you for joining us today. As always, please feel free to reach out to any of us directly if you have any additional questions. And I hope you each have a great week. Thanks.
Bye.
That concludes today's conference call, everybody. Thank you all for joining. You may now disconnect your lines. Have a lovely rest of your day.