Nicole Stokes

Great. Thank you Palmer for the third quarter. We're reporting net income of $99.2 million or a $44 per diluted share. As Palmer mentioned, we recorded a $5.2 million gain on the sale of a second portion of our MS R portfolio in the quarter. And we also recorded about $150,000 of hurricane related expenses excluding these items. Our adjusted net income was $95.2 million or a dollar 38 per diluted share. You know, two signs of our strong core performance. This quarter is our adjusted return on assets which improved to a 143 and our adjusted return on tangible common equity that improved to 15%. We remain focused on growing shareholder value, and we added a dollar 72 per share to tangible book value this quarter, that's an annualized growth rate of about 19.1% to end the quarter with tangible book of 3,751 per share. We didn't repurchase any stock this quarter, but the board did renew our buyback plan for another $100 million through October of 2025. Our interest income for the quarter increased $7.8 million over last quarter while our interest expense only increased 5.7 allowing an increase in net interest income of about$ 2.1 million million. However, as I mentioned last quarter, we had about $2.3 million of nonrecurring bond interest income in the second quarter. So, considering that known anomaly, our core net interest income actually grew about $4.4 million for the quarter or 8% growth linked quarter over quarter, we continue to maintain a strong margin at 351. Now, remember last quarter, we had that four basis points of onetime margin expansion from the bond portfolio that I just mentioned that we did not expect to reoccur this quarter. So we really only had three basis points of margin compression, which was right in line with our guidance on margin kind of bouncing up or down around a few basis points each quarter, but maintaining right around 350 you know, the three basis points of core margin compression was related to our funding mix this quarter and it was only slightly impacted by our asset sensitivity during the quarter. We reported a $6.1 million provision for credit losses, maintaining our coverage ratio at 160 of loans and improving to 336% of portfolio NPL. You know, while I'm on credit, let me mention that with the sale of our genie may servicing assets, our total non-performing assets as a percentage of total assets improved from 74 basis points down to just 44 basis points. And our charge off improved again this quarter to just '15 basis points compared to '18 basis points last quarter. Adjusted non-interest income decreased about 6.7 million this quarter, mostly in the mortgage division due to the decrease in production and a reduced gain on sale margin of 217 which was down from 245 last quarter. We continue to focus on efficiency. And our adjusted efficiency ratio improved down to 54.25 in the third quarter, total adjusted noninterest expense decreased $4.6 million in the quarter, mostly in the mortgage division related to the variable comp from the decreased production. On the balance sheet side, we ended the quarter with total assets of $26.4 billion compared with $25.2 billion at the end of the year. Total earning assets ended at $24.3 billion and our average earning assets increased 7.6% annualized from the second quarter to the third quarter. Loans both held for sale and portfolio loans were fairly flat quarter over the quarter. However, the average balance of portfolio loans during the quarter increased $203 million from last quarter. Much of the increase in two Q balances were from the summer seasonality in our warehouse lines. It does fluctuate day by day. So, they happen to end the quarter down about $85 million But total loan production in the quarter was $509 million. The highest we've seen in the past four quarters, many of these loans will fund in future quarters and are at a blended rate of a little over 9% which will be accretive over our current loan yield of about 6% for the year-to-date period. Portfolio loans have increased $695.7 million or 4.6% annualized and deposits have increased $1.17 billion or 7.6% annualized. This success has improved our loan to deposit ratio and our noninterest bearing deposits still represent a healthy 30% of total deposits. And our brokered CDs represent only 7% of total deposits. We continue to anticipate 2024 loan and deposit growth in the mid-single digits and expect that deposit growth will continue to be the governor on loan growth. And with that, I'll wrap it up and turn the call back over to Danielle for any questions from the group.

Question and Answer Session

Operator

Thank you. We will now begin the question-and-answer session to ask a question. You may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time, your question has been addressed and you would like to withdraw your question. Please press star. Then two. The first question comes from William Jones from KBW. Please go ahead.

William Jones

Yeah. Hey, thanks. Good morning everyone.

Operator

Good morning.

William Jones

Will. Hey, so Nicole, I wanted to start on the margin. You know, I I know we kind of talked last quarter a little bit about, you know how the Phil you were. You know, if, if you guys continue to see good growth that, that maybe you were willing to give a little bit on percentage as long as you know, the tradeoff was still the NII dollars grow and then we kind of saw that come through a little bit this quarter. Just, just curious if you still carry that same kind of mindset as, as we roll through the balance of the year and, and in the early 2025 or if, if there's a point where you, where you feel like you may need to get a little bit more defensive on the margin.

Nicole Stokes

No, I think that that's a great point and no, our our guidance there really hasn't changed. I mean, we feel like we have a strong healthy margin that, you know, even at 351 is above peer in a healthy margin. And you know, we're very, very proud of our, of our deposit base and we will protect that deposit base and then we will also, you know, look to continue to grow that. And when we think about margin expansion, you know, we're still right at just slightly asset sensitive, we're about as neutral as we can be. So any margin expansion that we come that we see coming in is going to come from growth in earning assets. So we continue to look for that growth in NII and focus on that, which again, we had, like you mentioned about 8% linked quarter growth and in this quarter, which was strong. So even though we had a little bit of margin compression, we still continue to see that NII growth and that continues to be our focus.

William Jones

Yeah. Okay. That's helpful. And, and I just, just while we're on the margin, could you just remind us all what, where you guys stand with the, you know, index or, or, or higher beta deposits? And then just, just maybe an early read on how you feel like deposit beta could trend as, as we start this season cycle.

Nicole Stokes

Yes. So we have very few less than 2% that are index deposits. However, we have a large portion that behave like index deposits. So and the approach that we've taken is that those higher, higher beta deposits on the way up are the higher beta deposits on the way down. We were very aggressive with reducing deposits the day after the FED moved. Our operations team did a great job implementing all of those changes and we really so far knock on wood have not seen any. You know, I think, I think the big outlier could be is that if we start seeing competitors not move and what we've seen so far is that our competitors moved as well. So we don't have a lot of market disruption from anybody not being able to move. And so we don't have any reason to believe that we would be able to continue that with FED cuts to continue to have a strong data on the downside.

William Jones

Yeah. Okay. Very helpful. Thank. Thanks. For that and then Palmer maybe just one for you. You know, I, I know we have, you know, similarly the capital conversation most every quarter and I certainly can appreciate you guys, you know, very, very thoughtful approach and, and prudent approach to, just preserving capital. But, you know, at the same time, this is, you know, a really a pretty powerful earnings environment for Aeris. You guys are recruiting capital, you know, at a nice clip, nearly every quarter is, is there a point in time where, you know, I don't think aggressive is the right term, but, but maybe you think more, opportunistically about deploying some of your excess capital.

Palmer Proctor

Absolutely. I don't think that time is now though. I think to your point on being prudent and disciplined, we remain in that camp for now, I think until we get a little more clarity, get postelection, see how things shake out. But it's a good problem to have, right? So we're very pleased with where the capital levels are. It gives us once again a lot of that optionality I talked about earlier. So for now we're kind of in a capital building mode and then we'll see how, what kind of clarity we have after the 1st year. But the nice thing is that we are in a position to capitalize on that through several different fronts if we choose to do so.

William Jones

certainly, a nice position be for you guys. Well, thanks for the questions.

Operator

The next question comes from Christopher Marinac from Janney. Please go ahead.

Christopher Marinac

Thanks. Good morning. I had a question on the reserve as it pertains to do you grow into the reserve from here or would the reserve still kind of grow with loan growth? And then obviously quarter to quarter may vary on chargeoffs and you know, criticized trends.

Doug Strange

Chris, that's a good question. This is Doug you know, the reserve is, is going to be model driven. We're happy with the 160. We think that's that bodes well for us into the future. And, and, you know, we would we would just let the models manage it from there on out along with our, our indices that we have that influence our, our model.

Christopher Marinac

And anything new on the, on the C&I side in terms of trends on losses in the next year. Would any of that differ from what we've seen recently?

Doug Strange

You know, our, our C&I book is, is very diversified, not only in loan product but also geography as well. So if, if you, you know, take $5 billion roughly in C&I, you've got equipment, finance, premium, finance, mortgage, warehouse life insurance. We've got and then, you know, you, you strip those out and then you get down to core C&I to answer your question, you know, we've got about a billion dollars of core C&I, and we don't see much stress if any at all in that portfolio, maybe about 10 or 11 basis points of charge all through the year.

Christopher Marinac

Sounds good, Doug, thank you for that. And Nicole just a quick beta question as it pertains to loan betas, how would those be similar on the way down in the, in a rate easing cycle as we saw the last two years?

Nicole Stokes

Yes, we don't have any reason to think that our loan betas are going to be different. And again, you know, our mix there is about 60 40 fixed variables, but we have a lot of or some fixed rate loans that behave like variable rate. So we end up really kind of being more of a 5,050 split when you think about, for example, premium finance lines, they are fixed rate but they're a '10 month maturity. So they're going to behave like a variable. So when you think about behavior, it's going to be more 5,050 split.

Christopher Marinac

Got it. Great. Thank you all for taking us our questions this morning.

Palmer Proctor

Thank you, Chris.

Operator

The next question comes from Russell Gunther from Stephens. Please go ahead.

Russell Gunther

Hey, good morning, guys. Nicole,

Palmer Proctor

Good morning

Russell Gunther

I wanted to follow up, good morning, Palmer to follow up on the NIM discussion just to clarify is, is the guide and I understand the NI I versus Nim. Component addressed is the near term guide for the nim unchanged in the 350 ish range or how should we think about the next couple quarters with some additional cuts coming?

Nicole Stokes

Yeah. No, I think the guide in general stays the same that we've said we, you know, up or down a few basis points each quarter, but bouncing around that 350. So maybe we dip to a 348 jump up to a 353 you know, but kind of hanging around that 350 which is the same guidance that we've been saying because we're so close to asset, asset sensitive neutral. We're, we're like I said, less than 1%. So, about every 25-basis point basis point is about one basis point of margin based on the model. But then every incremental growth is going to be margin accretive. So that's kind of what's driving that margin guidance is knowing that growth is accretive to margin at this point. But we are, we still have some repricing asset sensitivity on the balance sheet.

Russell Gunther

Perfect. Thanks for the clarification and then switching gears to loan growth. I appreciate the comments you guys provided is the message the same there too in terms of diversified mid-single digits and maybe just taking that as we look ahead into 25 balancing some things like the potential for paydowns to pick up. And in the past, you've talked about maybe some gain on sale for Balboa. So just wondering how you're thinking about the volume outlook.

Palmer Proctor

Yeah, we still feel very confident in our guidance. And when we started out the year, we're right in line with what we said, obviously, with the volatility in the markets, you're going to have some quarters that are higher than others. As we saw last quarter, we saw the big growth in the warehouse lines which we knew were going to pull back. So when you look at the growth, so we're right in line with the guidance, we feel comfortable with what we have guided to through the fourth quarter and then you look to 2025. That's where I feel like we're just so well positioned. Not only because of the diversification of the business lines, but also the markets that we operate in. And if you, you know, look at this quarter for instance, and exclude the Jie May sale, which was a very positive for us. It moved out a lot of the, the NPAs and the warehouse cyclicality, the loan growth was about 3% annualized for the third quarter. And then we feel like fourth quarter will stay right in line with what we've guided all year. And as you look into, as we get more clarity into 2025 we just feel very confident about our ability to capitalize on any growth opportunities that may exist out there. If and when it's appropriate. We've invested heavily in a lot of new hires as, as you're well aware of on the commercial front and through the treasury front throughout the year. So we are, we're well positioned from a talent standpoint and a lot of these growth markets to jump on that and accelerate that when, when appropriate.

Russell Gunther

I appreciate it, Palmer. Thank you both for taking my questions.

Operator

The next question comes from Manuel Navas from D A Davidson. Please go ahead.

Manuel Navas

Hey, on mortgage. In the past you've had up to about 150 more employees in prior years. Do you, is there any capacity constraints if we do get a 200-basis point decline or, or another 150-basis point decline in the fed funds rate? And kind of how are you thinking about mortgage next year initially?

Palmer Proctor

Yeah, you know, it's, it's kind of looking through a crystal ball at this point. I think we had all anticipated more of a tailwind from the decline in rates earlier, but that has not parlayed into, into the 10-year having a whole lot of movement other than moving up. All I can tell you is with the infrastructure we have in place. And more importantly, the when I say infrastructure, I'm talking about systems, technology, we are going to be able to capitalize on that. I don't feel there are any constraints to answer your question. Specifically in regards to a surge in activity. We've got the, the systems in place, the talent in place, more importantly, the relationships in place to, to capitalize on that. We run a very efficient model as you know, through the mortgage operation and keep in mind too, we would probably see that same type of, if there were an increase, we'd see the same lift in, in the warehouse activity too. So that remains a tailwind for us. But I think in looking through my crystal ball now, I probably see that occurring if we're fortunate as an industry or in the second quarter next year, into the second quarter, next year than we would in the first quarter just given on where, where the long bond is right now. So we'll just have to wait and see what happens with the election and what kind of economic clarity we get going forward. But that's certainly, you know, when you look at banks and look at tailwinds, and I like to use that term that could certainly be a huge incremental lift for us in terms of, of income.

Manuel Navas

That that makes a lot of sense. I appreciate. That is, is I understand the NIM guide in that 350 ish range. If we get to the end of rate cuts by middle of next year, this is hypothetical and we've got a little bit steeper curve. Could, could you kind of talk about what you could see happen to your NIM and growth prospects.

Nicole Stokes

Yeah. No, if we get a and again, this is really crystal ball typically don't guide three quarters out. But if we get to the middle of next year and the, the rates have come down, the curve has normalized, I think we're going to have two really big positives. One is going to be, our potential tailwind for mortgage. If rates come down, that's going to be a big tail to our noninterest income. And then on the margin side, if we, if the economy hits a soft landing and everything works out, We, any growth that we anticipate putting on is coming in as margin accretive. So even though the model shows us as neutral, neutral, the more growth we have, the more upside we have for, for margin expansion from growth. But again, margin expansion at this point is going to come from growth in NII and growth in earning assets and not necessarily from the behavior of the balance, the current balance sheet.

Manuel Navas

And that's helpful. And I understand it's some, some of this hypothetical we've been waiting for a steeper Y curve for a while. Can I switch over just the deposit growth kind of more near term? What are kind of the drivers that really benefited it this quarter? Commercial versus retail? And, and, and kind of what's driving it near term to kind of really keep, keep ahead of low growth right now. So just kind of, can you talk through some of what's working on the deposit side?

Nicole Stokes

Sure. So I think there's a couple of things different is that, you know, we are a relationship bank and we've been focused that way for a long time. And if you go back to two or three years ago, when everybody was flushed with deposits, we started thinking about how we grow deposits and we started making all of our, you know, getting our employees and our, our, our what were loan officers to now be bankers. And really kind of changing the, the mindset there. And so we have had core organic deposit growth quarter after quarter. And that comes from our organic strategies and our core strategies that we have going on within the, within the relationship side of building relationships. And when we look at the number of accounts we are growing, you can see that in the, in the investor presentation that we continue to grow the number of accounts and the way you do that is by new relationships and new customers. So we've been focused on that. We have a few, you know, I can't give all the secret sauce here, but we do have a few strategies that have been very successful for us on the deposit gathering side. Now, one thing that we haven't initially talked about is we have the cyclicality that comes in at the end of the year. So we have, we bank several large public entities. So we will have an influx of deposits at the end of the year. So every year, our balance sheet looks a little bulging, you know, 5 to $600 million of public funds and some ag money that comes in. So when you really take that out of the of the year, if you adjust that kind of where we are December to September, we've had very significant, strong core deposit growth for the year and that comes from those just core banking strategies.

Palmer Proctor

And the other thing that's encouraging always for us is is the growth and relationship units that Nicole was talking about and that's coming in two fronts. One, when you look at the retail side of the company, they're doing an excellent job of opening up new accounts and granted those are smaller balances. But with those balances and those relationships comes fee income and other opportunities. So we've seen a lot of growth through the retail sector. And then on top of that, the investments we made in treasury over the last two or three years have really started to pay off too. So we're very encouraged by what we're seeing and the trends we're seeing on the deposit front and that does remain, you know, a big governor for us in terms of our loan growth too, as you well know.

Manuel Navas

Yeah, that's great. I appreciate it. I'll, I'll step back into the queue.

Operator

The next, the next question comes from David Feaster from Raymond James. Please go ahead.

David Feaster

Hey, good morning, everybody

Palmer Proctor

Good morning, David.

Nicole Stokes

Good morning

David Feaster

I wanted to follow up kind of on the deposit side. I mean, you touched on being pretty aggressive, repricing deposits. Lower competition is helping that as well. You're their, they repricing stuff lower. I'm just curious how has reception been with your clients thus far? How do you find that pressure points that where clients are going to accept a lower rate without leaving? And and maybe where are you able to drive, you know, new court? Like what, what blended rate are you able to drive core deposit growth today?

Nicole Stokes

Sure. So I'll start with kind of the the core deposit growth. So before the for the month of September, which is a, a pretty good judge for us. Our blended coming on rate of new production was right under 3%. And that was split, that CDs were a little bit high of about four and a quarter between four and a quarter and 430 money markets came in between three and 325. Now and savings obviously, we were pretty low. So that kind of came in at a blended rate right between 275 and 3%. When you take all deposit growth including the noninterest bearing growth. So again, you know, a 3% kind of coming on rate. And I think your other question was, how do you know, how do we know the pressure point and, and how, how fast and furious can we cut? And so I think some of that has to do with communication. I think I've talked about this maybe before on some calls that we have very good communication and we have weekly pricing meetings. So we really can kind of keep our finger on the pulse of what's going on in the market. And we have conversations there about if we do see any competitors. We can also talk there about pricing exceptions that, that our leaders are seeing. And so if we've cut a little bit too far, we haven't cut enough, we can get that just through open communication with our market leaders and that, that seems to be working very well.

Palmer Proctor

But the biggest thing for us, David, as you know, we are big on the human touch side of things. So when you look at the commercial bank or even the retail side, that's where I think our folks do an exceptional job of staying in front of their customers to the point where you always want to have the option to increase that rate and not have them just quietly go away and pull money out. So staying in front of the clients on a regular basis has always been part of our culture and DNA and I think that relationship community bank kind of, of high touch feel is really what's kept us close and, and to Nicole's point, we monitor it to see if we're starting to see any knee swings from one way or the other. But the real key to it is just staying on top of your customer base, which kudos to the team out there for, for doing that on a regular basis.

David Feaster

Yeah, that's great. And, and I just want to touch on on premium finance for a second. I mean, that's, that's been a pretty nice growth vehicle. Obviously profitability in that segment has been really solid, seems a nice operating leverage. I'm just kind of curious, you know, as you scale larger, I'm curious, what are you seeing in that vertical and the pipeline there? And just, you know, how do you think about premium finance? Probably?

Palmer Proctor

Yeah. No, that that's probably one of the bright spots when you look at the different verticals that are out there, not just for us, but anybody that knows what they're doing in the space from a credit standpoint, there are no problems in that space if you do it right, it's more execution risk as you well know, the yields are pretty good on that. I think we could probably do a better job on garnering additional deposits which we're heavily focused on from some of these premium finance clients that we have. So we're heavily focused on that. But that, that is a line of business that I think when you look at volatility in the markets in terms of different verticals, that one has been pretty stable for us and been a good provider. So we feel very bullish about the opportunity to maintain and grow that that particular sector.

David Feaster

Okay? That's helpful and, and, and then just last one for me, I mean, you know, appreciate all the guidance on the margin. I don't want to beat a dead horse here, but I mean, you know, looking at it, I mean, given the, the commentary that we just talked about on the on the funding side, and then kind of where you're repricing or, or you're putting on new loans and new originations, obviously, you know, the floating rate side could be a headwind, but it, it actually seems like there's some pretty healthy tailwinds on, on the margin front. I mean, I guess at what point do you think we could start seeing margin expand? Because again, just given some of those repricing dynamics, it feels like maybe in, in the middle of next year, we could actually start seeing margin expand. Is, is that a fair characterization or am I thinking about it wrong?

Palmer Proctor

Well, I hope you're right and I think the thing to think about is where you're starting with your margin and when you look at where we are relative to a lot of our peers. We're already at a high point relative to a lot of our peers. So, I would tell you that if we can stay where we are in incrementally garner additional margin, that would just be icing on the cake. But I'm hopeful to your point that if we have a soft landing and we see some development out there opportunities for additional growth. We, we to your point, it should be additional tailwinds for a company like ours because our coming on rates on the loans are certainly improving and then the cost of the deposits are going down. So conceptually, you're right and I hope that everything plays out that way, but we're starting from a position of strength. And so, our, our focus is to maintain that and then grow it in incrementally. And I think if, if the stars align in terms of the economy, we will be able to do that.

David Feaster

Okay. All Right. Thanks everybody.

Operator

Thanks David. The next question comes from Brandon King from Truist Securities. Please go ahead.

Brandon King

Hey, Good morning,

Nicole Stokes

Good morning

Brandon King

Nicole on the margin guide for 350. What deposit beta are you assuming to get to that number?

Nicole Stokes

And we are assuming the same deposit beta that we had on the model going up, so about a 55 beta and we're hoping that we can beat that.

Brandon King

Okay. And that's initially that's not no lag effects.

Nicole Stokes

That's right.

Brandon King

Okay. Okay. And the mortgage gain on sale margins declined in the quarter. Are you expecting that to bounce back up next quarter or is it just a good run rate to go off of going forward?

Palmer Proctor

No, I think you'll see that bounce back next quarter. A lot of that as you know, just has to do with timing. And so we expect that.

Manuel Navas

To go back up next quarter.

Brandon King

Okay. So, to levels near second quarter levels, is that fair to?

Palmer Proctor

Yeah, we, we've kind of got it. That would be between 250 -275 on the high end. So we would expect to see it start bouncing back towards that.

Brandon King

Okay. Thank you for that. And then lastly, Palmer in your remarks, you mentioned, you know, TC is plus 10% now and you mentioned taking advantage of growth opportunities in your footprint. So, is it fair to assume moving into 2025 that you're potentially more open to? M&A.

Palmer Proctor

No, I don't think it's fair to assume that I think what you have to assume is what, what the market environment looks like when we get to 2025. But what you can assume is that with the optionality we've created, you know, first and foremost, our, our focus is always going to be all organic, but having that excess capital that does allow us to kind of look at things from an M&A front if the right opportunity came along, but it would have to be something very special for us because we're pretty disciplined in that regard and we want things that help raise the vote, not weight it down. So that's certainly an option. But our focus remains primarily on organic growth.

Brandon King

All right. Thanks for taking my questions.

Palmer Proctor

You bet.

Nicole Stokes

Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Palmer Proctor for closing remarks.

Palmer Proctor

Great. Thank you very much and we appreciate your participation in today's call and we look forward to sharing our results with you next quarter. We remain committed to top of class results and we thank you again for your time and interest in the (inaudible)

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.