Hilltop Holdings Inc (HTH) 2024 Q3 法說會逐字稿

Good day, everyone and welcome to today's Hilltop Holdings third quarter, 2024 earnings conference call and webcast. At this time, all participants are in a listen-only mode later. You will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and one on your telephone keypad. You may withdraw yourself from the queue by pressing star to please note this call is being recorded and I will be standing by if you need any assistance. It is now my pleasure to turn the conference over to Matt Wood.

Thank you. Before we get started, please note that certain statements during today's presentation that are not statements of historical fact, including statements concerning such items as our outlook, business strategy, future plans, financial condition, credit risks and credit trends in credit allowance for credit losses, liquidity, and sources of funding funding costs, dividends and impacts of interest rate changes as well as such. Other items referenced in the preface of our presentation are forward-looking statements.

These statements are based on management's current expectations concerning future events that by their nature are subject to risks and uncertainties.

Our actual results, capital liquidity and financial condition may differ materially from these statements due to a variety of factors including the precautionary statements referenced in the preface of our presentation and those included in our most recent annual and quarterly reports filed with the SEC.

Please note that the information presented is preliminary and based upon data available at this time. Except to the extent required by law. We expressly disclaim any obligation to update earlier statements as a result of new information. Additionally, this presentation includes certain non GAAP measures including tangible common equity and tangible book value per share.

A reconciliation of these measures to the nearest GAAP measure may be found in the appendix to this presentation which is posted on our website at Ir dot Hilltop dotcom. I will now turn the presentation over to Hilltop President and CEO Jeremy Ford.

Thank you, Matt and good morning for the third quarter. Hilltop reported net income of approximately $30 million or 46¢ per diluted share return on average assets for the period was 0.8% and return on average equity was 5.5%.

Favorable operating results from the banking and broker dealer business units help to produce a quarter over quarter increase in pre provision net revenue and net income while maintaining the balance between our consolidated earnings profile and strong liquidity position. Hilltop realized a quarter over quarter improvement in net interest income primarily due to a growth in average earning assets though consolidated net interest margin at hilltop and net interest margin at the bank did experience modest compression in the quarter.

We will comment further on the bank's name later in our prepared remarks during the quarter. Plains capital Bank generated $48 million of pre tax income on $12.8 billion of average assets representing a return on average assets of 1.14% average loans at the bank declined by $40 million in the quarter. Primarily due to elevated levels of loan payoffs and a lower pull through rate on the bank's loan pipeline from heightened competition across our footprint.

However, as borrowers expectations of declining interest rates grew, the bank saw an increase in client activity throughout the quarter and a corresponding growth in our loan pipeline.

We expect it will take several quarters for increased borrower activity to materialize into an increase in funded loans held for investment.

Our average deposit balance increased by 1% during the quarter which was driven by an increase in core interest bearing deposits for the third straight quarter.

This growth was partially offset by a modest decline in non interest bearing deposits.

Results in the quarter at Plains Capital Bank included a reversal of credit losses of $1.4 million . This recapture primarily due to positive credit migration in the loan portfolio and an improvement in collective economic conditions though partially offset by changes in specific reserves will is going to provide further commentary on credit. In his prepared remarks, the bank realized the five basis point compression in net interest margin from the second quarter to 3.05%.

This change was primarily attributable to an increase in the cost of interest bearing deposits and a mix shift in average earning assets overall. The bank continues to perform well and has prudently managed liquidity and funding over the past handful of volatile quarters, we remain dedicated to responsibly growing our high quality relationship based core loan portfolio as we move in to an anticipated declining interest rate environment, moving to prime lending where the company reported a pre tax loss of $8.7 million during the quarter, the quarter over quarter decline in operating results was driven by a reduction in origination volume of $72 million and a decline in the gain on sale margin of four basis points to 224 basis points.

Further the trend of downward pressure on loan origination fees as a percentage of origination volume continued through the third quarter.

Additionally, primely recognized a valuation adjustment related to the MS R asset of $4.2 million during the third quarter which negatively impacted its financial results.

While there is increased optimism regarding industry wide mortgage origination volumes for 2025 we believe the coming quarters will remain a challenging operating environment for prime lending as the business moves into the seasonally slower. Fourth and first quarters of the calendar year in the third quarter, Hilltop Securities generated pretax income of $17 million on net revenues of $124 million for a pretax margin of 14%. Speaking to the business lines at Hilltop securities, public finance services produce flat net revenues compared to the third quarter last year. As municipal advisory fees increased by 4% on strong offering volumes. Structured finance, net revenues increased by $4.4 million from the third quarter, 2023. This year, over year improvement was driven by expanded availability within down payment assistance programs from select state housing clients which resulted in strong TB a lock volumes and further by elevated by side demand for call protected collateral and wealth management. That revenues declined by $2.1 million compared to last year's third quarter. As balances in our FDIC Suite program continued to subside.

The decline in sweep revenue was partially offset by an increase in investment and securities advisory fees within wealth management.

Finally, while our fixed income business remains pressured due to challenging market conditions, the business unit did produce an increase in net revenues year over year of $3.1 million .

Overall. Hilltop securities had continued positive performance in public finance and a strong quarter from both the structured finance and wealth management business line.

The broker dealer generated a year over year increase in net revenues and a low 10s pretax margin which reflects the firm's ability to perform well in a variety of rate environments and market conditions.

Moving to page 4, Hilltop maintains robust capital levels with a common equity tier one capital ratio of 20.5%. Additionally, our tangible book value per share increased from year end 2023 by ¢94 to $29.¢29.

During the period, we returned $11 million to shareholders through dividends.

Thank you. And now I will turn the presentation over to will to discuss our financials in more detail.

Thank you, Jeremy. I'll start on page 5.

As Jeremy noted for the third quarter of 2024 Hilltop reported consolidated income attributable to common stockholders of $29.7 million equating to ¢ 46 per diluted share.

Quarter's results included the impact of a $4.2 million valuation adjustment related to the signing of an LO I to sell approximately $43 million of the remaining Mr MS R assets at prime lending largely offsetting the MS R charge for gains and positive valuation adjustments in our merchant making unit will top opportunity. Partners lower health care related costs during the period and a modest reduction in the allowance for credit losses.

Discuss the allowance in more detail. I'm moving to page 6 billops allowance for credit losses declined during the quarter by $4 million to $111 million .

As is noted in the graph specific reserves increased in the period by $1.2 million impacted by the ongoing evaluation and related adjustments for the two large auto lending credits we discussed last quarter and various small adjustments to other specifically reserved credits.

For addition, additional reference materials regarding our auto lending portfolio, we provided a slide on page '21 of this presentation that outlines the size of this portfolio including recent trends and the allowance coverage maintained on this portfolio as of September 30th, offsetting the additions to the spec specific reserves were positive migrations in the collectively assessed portfolio which reduced the allowance for credit losses by $2.2 million .

This reflects the modest improvement of certain client cash flow and operating results.

Lastly, during the third quarter, management decided it was appropriate to move away from the Moody's S seven scenario and move to the Moody's S five scenario which provides for slow economic growth into the future and does not include an immediate recession.

Further the five scenario more closely aligns to management's views on the trajectory of interest rates in the future.

Of note, the impact of change in economic conditions assessment between the scenarios from period to period was approximately a $300,000 reduction to the AC L.

We continue to monitor the entire portfolio closely focusing on areas that we believe may pose future risk to the bank that said we do expect that the ongoing cash flow challenges facing existing clients, as well as new projects driven by higher interest rates and ongoing inflation could lead to negative credit migration over time.

As has been evident since the adoption of Cecil AC L can be volatile as it is impacted by economic assumptions as well as changes in the mix and make up of the credit portfolio.

We continue to believe that future changes in the allowance will be driven by net loan growth in the portfolio, credit migration trends and changes to the macroeconomic outlook over time.

Given the current uncertainties regarding inflation, interest rates, the future outlook for GDP growth and unemployment volatility could be heightened over the coming quarters turn to page 7.

That interest income in the third quarter equated to $105 million including approximately $700,000 of purchase accounting accretion to the prior year. Third quarter, that interest income decreased by $'11 million or 9% driven primarily by higher yields on deposits and declining earning assets.

During the third quarter. That interest margin decreased versus the second quarter of 2024 by six basis points to 284 basis points.

The decline in nim was largely driven by the continuing migration of deposits and the higher cost products including our top tier money market product.

Further lower accretion in the period accounted for approximately half of the time related to accretion. We have been and continue to expect the recognition of the discount to decline over time. And while this quarter was lower than prior periods, it is somewhat indicative of the expected long term trend.

Our current internal rate outlook includes 225 basis point rate reductions which we have forecast to occur in November and December.

Based on this rate scenario, we expect that nim levels could drift lower with anticipated additional rate cuts in the fourth quarter of '24 and '25 as deposit rate reductions likely to lag behind both cash yields and variable rate loan repricing.

I'm turning to page 11rd quarter. Average total deposits are approximately $10.5 billion and have declined by $759 million or 7% versus the third quarter of 2023.

Driving the decline versus the prior year is the decline in broker dealer sweep deposits held on the balance sheet which have been reduced by $672 million on average.

And the return of virtually all broker deposits, which is equated to a decline of $392 million on average.

Given the magnitude of these changes, we are pleased with the growth in our non broker dealer sweep and non broker deposits over the past year which approximates $305 million on average on a linked quarter ending balance basis deposits increased during the third quarter by $418 million largely driven by $288 million of growth in the money market products. At Plains Capital Bank, interest bearing deposits continue to migrate modestly higher. Increasing by three basis points from the second quarter levels to 262 basis points during the third quarter is our expectation that interest bearing deposit costs have peaked and will begin to move lower at a modest pace as we focus on lowering deposits in step with the Federal Reserve's moves on short term interest rates.

We remain focused on balancing our competitive position with our long term customer relationships and we continue to focus on prudent management of net income over time. However, the current environment remains competitive and we expect the intensity of competition for deposits will continue moving to page 9 in the upper left chart on the page. We provide some historical detail regarding Hilltop's overall asset sensitivity. Currently in the up 100 scenario for a parallel yield shift and a static balance sheet. Hilltop remains approximately 7% asset sensitive.

We continue to work towards a more neutral position by evaluating reinvestment options in the securities portfolio, increasing retention of mortgage loans from prime lending and reducing net cash levels at the Federal Reserve by redeploying broker dealer sweep deposits in the table in the lower right of the page. We provide details regarding the current variable rate loan reset periods that's going to be seen in the chart. The majority of our variable rate loan book recess quickly within one month of a rate change of note related to interest bearing deposit data. A cumulative interest bearing deposit data for the rising rate cycle was 68%.

Our current modeling and estimates assume that we will manage a 50 to 55% interest bearing deposit beta in the declining rate portion of this rate cycle move to page '10 total non interest income for the third quarter of 2024 equated to $200 million versus the same period in the prior year, mortgage revenues declined by $8.8 million including the aforementioned negative MS R valuation adjustment of $4.2 million versus the same period in the prior year, origination volumes were modestly higher and gain on sale margins for those loans sold to third parties improved by '25 basis points to 224 basis points.

But we believe revenues and production from the mortgage segment have begun to stabilize at this lower level. We also feel that it remains important to note the ongoing challenges in mortgage banking or by a combination of higher interest rates, home affordability, limited housing supply and ongoing overcapacity in terms of mortgage originators remains restrictive to the market that said even in the face of these challenges, we do expect that the overall mortgage market is slowly improving and we expect that improvement could continue into 2025 to that end. The leadership team at prime lending is focused on growing our client facing sales team across the country and optimizing our pricing to support profitable growth in the future.

Structured finance business line, which has benefited from the down payment assistance support provided by certain of our client states significantly contributed to the $5.4 million improvement in securities and investment advisory revenues.

This increase in revenue versus the prior year was driven primarily by improved secondary market conditions which resulted in higher net spreads in that business.

In addition, fixed income services, business line results improved versus the prior year period by $2 million million. Also contributing to the growth in revenues during the third quarter. Growth and other income resulted from internal consolidation of sweep fees between the bank and the broker dealer.

And this consolidation impact accounted for approximately $6 million of the change reported in the table turn to page 11 on interest expenses increased from the same period in the prior year by $4 million to $264 million to $264 million .

The increase in expenses versus the prior year third quarter was driven by increases in variable compensation, largely related to higher non interest revenue production at the broker dealer.

Looking forward, we expected expenses other than variable compensation will remain relatively stable at current levels as we remain diligently focused on fruited growth of revenue producers while continuing to gain efficiencies across our middle and back office functions.

Turning to page 12, third quarter, average HF I loans equated to $8 billion on a period ending basis. HF I loans declined versus the second quarter of 2024 by $194 million driven largely by payoffs in commercial real estate and C&I lending.

During the quarter, we experienced significant paydowns from customers who had either sold their business or moved to the permanent funding markets which due to appear to be more active, clients were somewhat offset by growth in the mortgage warehouse lending business which grew by '$26 million or 9% versus the second quarter of 2024.

In addition, commercial lending pipelines to expand during the third quarter. And while this is a positive trend, the market for funded loans remains intense with competitive pressures coming from both pricing and structure.

As a result of these competitive pressures, we expect that loan growth could continue to be challenging for the coming quarters as a result of the paydowns noted previously, we now expect full year average total loans to decline by 0 to 2% from 2023 levels excluding mortgage warehouse lending and any retained mortgages from prime lending.

Turning to page '13 starting in the upper right chart. NP A levels have declined from the second quarter of 2024 by $15 million to $94 million .

The decline from the last quarter largely reflects $12 million of paydowns on the two large auto note loans we discussed last quarter related to these two auto note loans. We continue to work with the business leaders and guarantors to find ways to exit these loans over time.

While progress has been made, it remains too early to determine if additional reserves or losses will be incurred in the future related to these credits.

Moving to the bottom left chart, the charge offs for the quarter equated to $2.9 million or '15 basis points of the overall loan portfolio.

While net charge offs have been more volatile over the last few quarters, you're not seeing any definable or systematic trends in the losses outside of the aforementioned auto note portfolio.

As is shown in the graph on the bottom right of the page, the allowance for credit loss coverage at the bank into the third quarter at 1.45% including mortgage warehouse lending, turning to page '14 as we move into the fourth quarter of 2024 there continues to be a lot of uncertainty in the market regarding interest rates, inflation and the overall health of the economy. Given these uncertainties, we remain focused on controlling what we can to produce quality outcomes for our clients, associates and the communities we serve as is noted in the table. Our current outlook for 2024 reflects our current assessment of the economy and the markets where we participate further as the market changes and we adjust our business to respond. We will provide updates to our outlook on future quarterly calls.

Operator that concludes our prepared comments. I will turn the call back to you for the Q&A section of the call

At this time. If you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star to once again that is star and one to ask a question, we will pause for a moment to allow questions to queue.

And we'll take our first question from Brady Gailey , KBW. Your line is open.

Hey, good morning guys.

Good morning. Good morning.

Wanted to start on structured finance. So as you mentioned, you know, the, the business benefited from the, the down payment assistance programs. We've seen a spike in prior quarters from, from similar trends. Do, does it feel like these programs have more leg to them which could, could lead to a more prolonged opportunity in the structured finance space?

But well, good morning. We, you know, I I it's a, it's not in our control, I think is the, is the short answer from, from, from each of the states. Budgetary concerns considerations. You know, we've been pleased to see reasonably consistent support provided certainly by, by certain states. We'd like to think that will continue, but again, it is in the state state control and those legislatures will have to make decisions as to whether they continue to appropriate funds in that way or not. So, they are somewhat episodic from our perspective.

Got it and then, and then maybe shifting over to fixed income fees. I mean, it was a good quarter in that business as well. Just given some of the rate volatility towards the end of the quarter. Do you think that business can continue to trend higher in the fourth quarter?

I think our view on on fixed income, certainly, we, we were pleased with the third quarter results. I think as we look forward, you know, lower rates, generally a help sloping yield curve as a practical matter are beneficial to that business. So we do expect to continue to see it continue to improve. But again, as I've said, you know, with each call, the results both in structured finance and fixed income services can be volatile as it relates to kind of all the market rates. But again, a an upward sloping yield curve as well as generally speaking, lower rates is net beneficial to that business.

Got it. And then lastly just shifting over to mortgage expenses, the fixed mortgage expenses continue to to move lower in the third quarter. But it sounds like trends are, are slowly improving and you're looking to, you know, make some, make some hires in the business. Do you do you think the fixed expenses have troughed and we begin to see it modestly increase from here.

I think, I think our expectation is they're going to remain reasonably stable. They may, they may start to pick up slowly into the first half of next year. But again, as you noted, and as we noted in our comments, we are fundamentally out in the market, looking for quality, quality loan originators and producers, client facing associates.

And we'll continue to do that, but we're also continuing to be very focused on middle and back back office call. So we recognize while we say that mortgage business, we believe the mortgage industry is improving. We recognize this could be a slow and and steady path. We are we are focused on kind of maintaining those expenses in our overall overall productivity levels to try to manage to profitability in the future.

Got it. Alright. Thanks for taking my questions.

Thank you.

Thank you. We'll take our next question from Michael Rose with Raymond James. Your line is open.

Hey, good morning guys. Thanks for taking my questions. Just wanted to start on some of the comments around the margin, having a little bit more pressure as we as we move forward and just wanted to, to get some thoughts on on loan yields and and also deposit costs. You know, looks like loans held for investment, the the yield was down '16 or '17 basis point, you know, Q on Q just what, what drove that and then from a deposit pricing standpoint, do you, do you think we're nearing a peak? And, and do you have a sense for kind of what the spot rates were at the end of the quarter? Thanks.

Yes. So let's, we'll, start with loan yields. You know, we, we did see some, some average balance movement in our, in the, in the hilltop holdings level kind of HF I yield. But I I focus you on the annualized bank HF I loan yield which I think more indicative of kind of where the trends are. You saw that bank loan HF I yields dropped from 611 to 607 in the period about three basis points of that decretion. So that that, that explains a portion of it. We did see and can have continued to see customers with the expectation of rates going lower preemptively starting the process of of kind of negotiating rates lower.

And so, so that's out there. And we also had the, the September 18th fed reduction and as we noted in, in the interest rate sensitivity tables and, and loan reset tables, our, our variable rate loans are going to reset quickly within kind of that one month period of a of a of a rate change. So not, not surprising from a, from a where, where loan rates loan yields went.

I think. The next piece of that is, is, is as rates continue to move lower. If the fed does, does reduce rates, we are expecting bank loan yields to continue to decline from here. At, at, at a pace, you know, similar to what we saw during the uprate cycle in, in terms of overall overall loan data, which the loan beta for that uprate cycle is about 40%.

If you go to, if you think about deposits, you know, we've, we've kind of talked at some length now about deposits and deposit yields and the overall deposit costs increased to 362 from 359. And then our total deposit cost increased by five basis points to 267. So there's two things that were happening. First, a lot of the inflows of deposits went into our to our, to our higher cost money market products and we've got a CD product out there that's also got got a, got a pretty attractive rate on it.

And then our and from a total deposit cost, the difference between that interest bearing and, and and total deposit cost is the fact that we continue to see some migration from nib into into our interest bearing product. So we, we expect to continue to see nib trend into interest bearing deposits over time as customers continue to seek yield for those, for those excess deposits. And but we do expect that interest bearing deposit costs again at 362 has peaked and will start to move lower to some extent in, in, in step with the fed fed rate reductions for the current for the first rate reduction. You know, our target is to have a 50 to 55% data. I think the rate reduction actions we've taken post that first 50 basis point action by the fed put us in a position, put us in a position to achieve that.

Well, thanks for walking through that, that was very thorough. I, I guess, you know, to put a finer point on it, it would seem that you would have, you know, probably some continued modest, you know, at the, at the, at the consolidated level, some continued modest, you know, margin pressure as we move through at least the next couple quarters before hopefully reaching stabilization. Is that the way putting all those pieces together, the way we should, conceptually think about it.

Yeah, that, in alignment with my comments and I think we're, we'll drift a little lower and again, it's, it's some of it's timing and then some of it's the the the the data that are impacted. So our deposit actions will be timely and prudent, but also reflect kind of market pressures and competition. The loan resets as well as, and, and I'd highlight this the cash balances which increased to, you know, $1.7- $1.8 billion in the period at the end, those cash balances reset immediately. So when the fed makes the rate change the next morning, they are earning, they're earning less in the context of, of the moving rates lower.

So the cash balances the variable rate loan resets and we do expect the deposit, the deposit benefits of our of our rate reduction actions will, will lag that. So to your point, we would expect to see, you know, I'd say modest but ongoing pressure in the nim for the for the coming quarters until we reach a more stable interest rate scenario,

Very helpful and and then maybe just just one follow up, you know, loan growth has been, you know, fairly anemic for, for you and the industry just as it relates to the, the willingness to continue to portfolio, you know, mortgage loans, a a any thought process on on bringing that number higher, particularly as activity picks up just to spur some some loan balance sheet growth as we move through the year just to get some some momentum on the ni I front. Thanks.

I think a good question and, and certainly in my comments, tried to address some of that. So we we are going to be and continue to retain loans from prime lending. They're principally going to be the hybrid hybrid arm product. And we're doing that for, for two reasons both to bolster, you know, earning assets, but also to kind of move or replace some of the cash.

So we're, we're trying to move out of some of our cash position into what I call more loan, loan assets, which we believe provides us a better, a better net return here is as the rate environment kind of plays out if it plays out to our expectations. So while the guidance is 0 to $20 million per month, so somewhere between zero and $60 million balance sheeted per period, we'll stick to that guidance as we sit here. But but I understand will likely be more aggressive closer to the to the to the middle top end of that over the coming quarters versus kind of at the lower end.

Very helpful. Thanks for taking my questions.

Thank you.

Thank you. We'll take our next question from Steven Scouten with Piper Sandler. Your line is open.

Yeah, thanks guys, appreciate it. The the movement in in NPL S is pretty positive this quarter and obviously you guys lowered the guidance for the loan loss provision moving forward. So, and the and the moody scenario, so it feels like you, you're seeing more positive around credit kind of what are you seeing that leads to some of this positivity. And do you think you can kind of see continued improvement in the non performers from here?

Well, a lot of the, a lot of the improvement in what I'd call non non accrual loans was driven again as, as I said in my notes, by about $12 million of paydowns we received in that auto note auto note portfolio related to two large credits we talked about. So we saw improvement of $14 million.'12 of that '12 of that was from those two in terms of pay downs and we, we certainly had to charge off. So, I think, I think overall we are cautious on credit. We are seeing and did see during the period, improved financial results come in from some of our clients and that caused some positive migration across the portfolio.

Nothing I'd call that was systemic or otherwise substantial, but nonetheless, some positive trends on some of the, some of the customers that were re re scored in the period. But that our our cautiousness continues because, you know, with, with, with higher rates, rates are still materially higher than in certain cases, our customers have existing loans. And so as those loans reset, cash flows are going to be pressured. Inflation still exists, prices aren't coming down.

And so their input costs still remain, remain elevated on construction deals and the other and the impact of, of kind of needing higher equity and transactions also continues to, pressure pressure new deals. So from our perspective, we see I'd say favorable, but we are cautious on, how credit will, will trend here over the coming quarters. And what we've seen and what we expect is there will continue to be episodic, episodic items that come along that cause us to, to have to react in the in the reserves and, and or with charge offs,

Got it very helpful. And then just a couple of finer points on the on the NIM trend looks like I know you said the the drop in accretion obviously with more material this quarter, but indicative of the trends we should see. So I mean, if we're looking at, I don't know, four or $5 million in accretion this year, what's the kind of pace of expected decline based on what you have remaining? Is that like a does it get cut in half next year? Which is kind of an incremental change it expected?

Yeah, on a model basis, it would fall somewhere between '15 and 25% a year and

That's without any, any specific activity in the portfolio.

Sure makes sense. And then as, as we think about the floors that you laid out in the slide deck, it looks like maybe 49% of variable rate loans that are above floors, how many how many of those loans would have floors? And do you have any feel for like the degree of those that have floors, how soon we could get to them with incremental rate cuts if that makes sense?

Yeah. So I, I say about 75 or 80% of our variable rate loans have got floors. Those floors are generally structured to be between 153 -100 basis points below the the kind of starting rate for that customer. And so it's going to take, I'd say a reasonable amount of kind of fed activity to cause those four to be in the money.

Got it extremely helpful. And then maybe just last thing for me kind of curious on like a talent acquisition update. I know you guys have talked about that could be the real driver of future growth and upside, maybe especially in the middle market Business Bank, just kind of wondering how aggressive you guys are on that path today, any, any progress there or any, anything worth noting on the on the hiring front.

So in the bank, we have had the positive recruiting in the quarter. And, but it has, you know, and with the bank, we're very selective on bankers that we hire and, and the right fit. So I think it'll be, it's not going to be a huge push on and in increasing our total bankers, but really just trying to fill out, particularly some of the footprints that we are, you know, not as big in.

Okay. Makes sense. Thank you all for the time this morning. Appreciate it.

Thank you.

Thank you. We'll take our next question from Jordan J with Stevens. Your line is open.

Hey, good morning. I just had a quick question. And I think you got to touched on it will with the overnight cash balances and the liquidity, you know, right, or as of recently, they had been ranging from 1 to $2 billion billion, if you go back four years, you know, it looks like you guys have kept it below that billion market. And I was just wondering where you guys see it going forward. And I know you talked about maybe replacing that or kind of hinted about that of with the balance sheeting some of those mortgages, maybe if you kind of talk about the range you're expecting for those overnight liquidity be.

Yes. So they they had moved under a billion dollars. We've said that our target kind of operating range is $300 million to $750 million With, with the, with the, with the pay downs we had in the quarter coupled with the strong deposit flows, customer deposit flows we had in the quarter obviously seen that cash balance move higher and move move to a level above where we would otherwise generally consider target operating and so we do expect that we'll continue to, we'll work that down. We'd like to keep it under a billion dollars again.

In that operating range, the 300 to $750 million would be the target range. It's going to take some time for us to get there. But as, as I noted, we are going to rotate, and begin rotating both in the securities portfolio as well as, as well as the retained mortgages to start to just, you know, transition those dollars out of cash and into, I'd say other earning assets that we believe better position the balance sheet long term.

Got it. Thanks for that. And then maybe just one other question about the loan growth. I know you talked about payoffs have been stronger and then also it's going to take a few quarters for some of these new loans to fund up, you know, projects to fund up. Is there any insight you could kind of give us as we look past the next few quarters of where you're seeing loan growth and kind of like as far as originations and kind of what's just coming down the pipe

Could look out beyond the next few quarters and we'll give, we'll give full year guidance on our January January update call. But, you know, as I, as I noted, we are and have seen, you know, improved pipelines and, and largely that's in commercial real estate, those are commercial real estate loans and construction projects. But we also continue to see a customer base that's you know, cautious as they are evaluating, you know, this political cycle, the interest rate environment where, where the fed is going. And, and, and the overall economy in general, which I'd say for the state of Texas in particular, remains, remains reasonably robust.

So, you know, our view is we're going to need, we're going to continue to try to be aggressive on price. We're going to hold our credit structures and maintain, maintain our credit quality and you know, work to win as much business as we can. But again, largely the growth will come in the form of commercial real estate based on kind of where the pipeline sits today.

Got it. Thanks for taking my questions.

Thank you.

Thank you. And it appears that we have no further questions at this time. I will now turn the program back over to our presenters for any additional or closing remarks.

We have none.

All right, perfect. That concludes today's teleconference. Thank you for your participation. You may now disconnect.