SFBS
#Thank you, <UNK>, and good afternoon to all.
I will cover again if you've been on our call before, we don't restate the obvious and read to you from our press release.
We will just cover what we think are the highlights in the press release and then answer a few questions.
Let me start by saying typically in the first quarter we have minimal loan growth and zero or negative deposit growth typically.
Last year in 2015 in the first quarter, we had some nice loan growth and we actually surpassed that this year so this is the best first-quarter loan growth we have ever had.
And as well, our deposit growth was annualized 11% in the first quarter so we had some nice deposit growth as well in this quarter.
So from a loan growth standpoint, it was pretty well spread throughout our footprint, it was led from a dollar standpoint the loan growth was led by our Birmingham, Nashville, Charleston, Atlanta and Mobile.
And from a percentage standpoint in terms of loans, it would be linked to Charleston, Nashville, Atlanta, Mobile and Birmingham.
From a deposit growth standpoint again, it was pretty well widespread throughout the Company but we were led by our Dothan, Birmingham, Huntsville, Montgomery and Mobile regions.
Our pipeline at ---+ again I'll caution you by saying that I don't believe that pipelines are exactly a good predictor of future loan growth but I would prefer to have a high pipeline than a low pipeline to be very obvious there.
So our pipeline at the end of March surpassed the high point that we reached last year.
It was above that, it was above last September's loan pipeline and up some $175 million above where we were at year-end.
We did have some producers join us in the first quarter.
We are up to 122 or 21% annualized in the first quarter.
<UNK>, I will turn it over to you to make some comments on the financials.
Thank you, <UNK>.
Good afternoon.
In 2015, we over accrued on incentives and the related taxes on incentives by $1.3 million.
We will reverse that over the entire year.
We didn't take back all that in the first quarter; it will be spread out over the entire year.
From a net interest margin standpoint, we increased 1 basis point during the quarter.
We were at 3.57.
Excess liquidity actually increased in the first quarter, went up by $22 million.
Excellent credit quality, nonperforming loans to total loans 0.15, it was 0.18 at the end of 2015.
Nonperforming assets to total assets also decreased 0.2 versus 0.26 at year end.
Net charge-offs for the quarter low at 333,000 in net charge-offs.
Occupancy expense, we will move into a new building in mid-2017 so we accelerated the tenant improvement depreciation for our existing buildings so that increased occupancy expense for the quarter.
Also in Nashville and Charleston, they moved into new permanent locations in the first quarter so they had increased rent expense and tenant improvement depreciation.
Tax rate, 32.8% for the first quarter and the fourth quarter on our conference call, I had estimated 32.5% so we were a little above my estimated rate from a tax standpoint.
That is my summary and I will turn it back to <UNK> for any more comments.
We got a little lucky with the lack of charge-offs in the first quarter.
From the standpoint of I guess when I meet with investors, people say do you see ---+ what kind of trends do you see.
Clarence ---+ if anybody has any specific questions, Clarence Pouncey is in the room, our Chief Operating Officer, he can answer credit questions better than I.
But the answer that I give is we don't see any credit trends.
The loans that we see that are migrating to our watchlist or substandard are due to poor business practices, not due to any industry.
There is no trend that we see of any kind other than most people, they have credit problems is because they are their own worst enemy, not because of an industry.
We don't have any significant energy exposure and what little energy exposure we have is doing quite well that we have no rated credits at all from.
We have very minor oil and gas and we have some coal and it is all doing quite well at the present time.
I'll just say that because some of the investors on the call and I know they want to ask questions but we don't see any trend toward problems.
In fact I am surprised ---+ you read I mean obviously the dollar is very strong versus the rest of the world's currencies and I know it is hurting, on a national basis, it is obviously hurting manufacturing in the United States but we don't see, I don't think we have any manufacturers on our watch list, Clarence, or at all.
So we don't see any trends there that are of a negative nature from that standpoint.
We are certainly attuned to it and trying to watch for anything that might pop up but we don't see anything at this point in time.
<UNK>, I don't have anything else other than we were glad to have a nice quarter and any of us would be happy to answer any questions any of you might have.
You know, it was very widespread, the loan growth.
It was led by those regions, those were just the top regions, <UNK>.
There is not anywhere ---+ there might have been a couple where they didn't have any significant loan growth but that is pretty typical in the first quarter and if a region had a significant payoff or paydown, that would affect them as well.
But the growth was widespread throughout the Company without regard to from a loan type standpoint, if you look at our loan growth, 31% was C&I, 31% owner-occupied commercial and that trends ---+ the numbers are right in line with what our portfolio is at this point in time.
Our consumer growth was negative in the first quarter but we don't have much consumer anyway from that standpoint.
I don't if I answered your question, <UNK>, but they were not ---+.
No, it is very widespread, it is very spread out and widespread in terms of where the loan growth was.
No, that is really hard to forecast.
I guess I look at it positive.
We had that excess liquidity so we are fine to fund loan growth in the coming quarters.
It starts ---+ over time, it starts getting better in the second quarter, third quarter, fourth quarter.
So we expect improvement, it is hard to forecast when those excess funds will shrink but I would say we would probably start seeing improvement in the second quarter.
Our last three to four years, we have been pretty consistent on margin so we expect that to continue.
Not knowing really what the Fed is going to do, we still think we can be pretty consistent from a margin standpoint based on what we have done in the last few years.
290,000
Not a lot of difference.
That number will play out, probably in early 2017 that number will play out.
Brad, it is <UNK>.
I think we talked about in the road show, you can only do so much from a loan-loss standpoint.
You can't really project the charge-offs and based on our current mix of loans, just based on net growth, we provide about 72 basis points for that growth in our current environment.
Beyond that, I don't know if I can really give you a good number.
We look at impairments each quarter, charge-offs, all that goes into the model and that is how it comes out.
I can't tell you it is going to be a certain percentage of the loan portfolio.
You are limited from an accounting standpoint on what you can really do.
Might not be a good answer.
That is just how we look ---+ we go through the analysis and that is kind of what it shakes out to be each quarter.
You did add a reserve for new markets in this quarter.
We did.
We added some additional reserve for our new markets but beyond that, it was the usual analysis we do on the reserve each quarter.
No, without additional hires, no, I don't see anything that would do that right now.
We are just opportunistic and we don't really have a forecast.
We might find, we have such huge growth ---+ I think last year we went from 91 to 116.
So percentage standpoint, that was tremendous growth in staff in 2015.
So I think it will certainly moderate in ---+ you don't see that sort of growth in 2016.
So we are always looking for quality people but we are not at this point, talking to any very large teams.
They are all pretty small groups that we are talking to, Brad.
Yes, I guess Nashville is not new but we started as an LPO almost ---+ this is the third year for Nashville and they are hitting their stride.
They are doing extremely well and have become profitable and it will get more profitable as the year goes on and they have done a tremendous job.
From the standpoint of Charleston, their losses will start dropping every month this year.
They have moved into their permanent headquarters and they just got in their permanent office about 45 days ago.
So Charleston will become more profitable.
They won't be profitable this year but they've got a shot at reaching certainly at reaching breakeven this year.
From a standpoint of Tampa Bay of course, they just ramped up their expenses.
They probably hadn't hit high water mark of expenses yet and they are in a temporary office in Pasco County, Florida to avoid some noncompete issues in Hillsborough County.
So from that standpoint, they probably won't see the expenses continue.
We continue to hire people in the Tampa Bay office in our office in Pascoe County and does that answer your question.
<UNK>, this is <UNK>.
I'm going to ask <UNK>.
Wouldn't we typically see fed funds run off, <UNK> or <UNK>, a couple hundred million dollars in the first quarter if we didn't see runoff.
And we typically see no deposit growth and we had really nice deposit growth in the first quarter.
So you know what we typically see, it isn't really a problem, it doesn't cost us any net income, it doesn't hurt net income and it is kind of nice to have liquidity.
I know it messes with your models a bit but it doesn't hurt numbers per share and I would rather have excess liquidity than need money.
So ---+ but <UNK>, go ahead and answer.
Like first quarter, the net loan growth was $125 million.
That is above normal, like <UNK> said, that was a record first quarter.
But we also had very strong deposit growth plus we had about $130 million increase per quarter in Fed Funds purchased from our Correspondent.
So like I said on an average, we went up by $22 million in the first quarter.
We don't normally see that much growth and it was just a good quarter all the way around.
Yes, I would agree with <UNK>'s comment.
We usually in the first quarter see some runoff in funds sold to us from our Correspondent.
We actually didn't see that.
Our existing customers were pretty consistent with the funding that they were giving us.
The other thing is our new markets in Correspondent have continued to grow in regions Florida and Tennessee and Texas.
We are in 11 states now.
The growth in the Correspondent relationships, it was first quarter as <UNK> said, we grew funding to Correspondent about $130 [million].
So <UNK>, I would tell you it is as much a growth in the relationships as seasonality.
On the deposit side, Wally, we paid up a little bit on some special ---+ we've got customers that we pay above stated rate on.
We paid up on five or six accounts.
I know in the first quarter people would have $30 million to $70 million in balances with us so that had an impact from a deposit standpoint.
I don't think we really see the loan pricing pressure.
If it is a long-term fixed-rate deal, we walk away from it.
So we really haven't seen that so far in any market that I am aware of from a ---+.
We are just not going to give business away.
Wally, on the Fed Funds purchase side is probably where we saw a little bit more liability cost go up.
And let me from a loan yield standpoint, we continue to see very consistent loan yields.
We again don't ---+ like to restate what <UNK> just said, we don't see really pressure there.
Luckily with our balance sheet we've got a lot of money market accounts and I don't think any of the [OutCo] models are especially good.
And I know everybody's model shows that they are asset sensitive.
But by saying this, time has taught me, taught us that CDs are a lot more price sensitive than money markets and we've got almost no ---+ we've got very little CDs and we've got a lot of money market and so that is a rate that we can administer a lot better.
So we feel good about where we are in a rising rate environment with the type of liabilities that we have on our balance sheet.
I didn't follow that, Wally.
The purchase accounting is not really too meaningful anymore really.
Right.
I think that will stay pretty consistent for 2016.
I'm just saying all that ---+ the accretion will go away in early to mid-2017 the way it has being accreted.
But $290,000 a quarter is not a major deal with the margin.
It is really excess funds.
I mean deposit costs, I don't see changing that much and loan pricing is pretty consistent.
If we were fully staffed today, I would say we would be pretty consistent rest of the year.
But like <UNK> said, we are looking at people in Tampa, there is still some people ---+ I just don't think it will increase significantly from the first quarter level.
What we have to look at, I don't know if it will be a significant number but they have the new FDIC regulations out there which will go into effect sometime this year.
It has sort of gone into effect for banks over $10 billion and that will impact us somewhat when those go into effect but it will impact everybody because you have to increase the fund up to 1.3 by 2018 and right now it is right at 1.15.
So we will all be paying more in FDIC insurance going forward.
Hopefully it is not going to be a big, major number.
We don't think it will be a major number for us and we are going to do some things to keep it from being a major number which there aren't that many things we can do.
But one thing we can do is force some cash down from the holding company to the bank to improve.
That reduces the premium.
So we certainly are going to do that prior to the ---+.
I think they could kick in as early as third quarter, <UNK>.
So that is something we are keeping an eye on.
I will be glad when we have a final regulation when we know what to (multiple speakers).
I would say 32.8 to 33%.
I was a little bit low so 32.8% to 33% will probably be a good number.
