Participants

Christopher Holmes; President, Chief Executive Officer, Director; FB Financial Corp

Michael Mettee; Chief Financial Officer; FB Financial Corp

Travis Edmondson; Chief Banking Officer; FB Financial Corp

Stephen Scouten; Analyst; Piper Sandler

Brett Rabatin; Analyst; Hovde Group

Russell Gunther; Analyst; Stephens

Catherine Mealor; Analyst; KBW

Christopher Marinac; Analyst; Janney Montgomery Scott

Steve Moss; Analyst; Raymond James

Presentation

Operator

Good morning, everyone, and welcome to the FB Financial Corporation's first quarter 2025 earnings conference call. Hosting the call today from FB Financial are Chris Holmes, President and Chief Executive Officer; and Michael Mettee, Chief Financial Officer. Also joining the call for the question-and-answer session we have Travis Edmondson, Chief Banking Officer.
Please note FB Financial's earnings release, supplemental financial information and this morning's presentation are available on the Investor Relations page of the company's website at www.firstbankonline.com and on the Securities and Exchange Commission's website at www.sec.gov. Today's call is being recorded and will be available for replay on FB Financial's website approximately an hour after the conclusion of the conference call. (Operator Instructions)
During this presentation, FB Financial may make comments, which constitute forward-looking statements under the federal securities laws. Forward-looking statements are based on management's current expectations and assumptions and are subject to risks, uncertainties and other factors that may cause actual results and performance or achievements of FB Financial to differ materially from any results expressed or implied by such forward-looking statements.
Many of such factors are beyond FB Financial's ability to control or predict, and listeners are cautioned not to put undue reliance on such forward-looking statements. A more detailed description of these and other risks that may cause actual results to materially differ from expectations is contained in FB Financial's periodic and current reports filed with the SEC, including FB Financial's most recent Form 10-K.
Except as required by law, FB Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise. In addition, these remarks may include certain non-GAAP financial measures as defined by SEC Regulation G.
A presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to comparable GAAP measures is available in FB Financial's earnings release, supplemental financial information, and this morning's presentation, which are available on the Investor Relations page of the company's website at www.firstbankonline.com and on the SEC's website at www.sec.gov.
I would now like to turn the presentation over to Chris Holmes, FB Financial's President and CEO.

Christopher Holmes

All right. Thank you, Drew, and thank you all for joining us on the call this morning. We always appreciate your interest in FB Financial. And before we move into our prepared comments around the first quarter, I'd like to take just a minute to acknowledge the remarkable life of Mr. Jim Ayers.
Earlier this month, our former Chairman for more than 35 years, Jim Ayers, passed away peacefully at his home. Many of you on this call knew Jim professionally as a strong and tough leader. But more than that, we knew him as a caring role model, a dear friend and a relentless entrepreneur.
From humble beginnings, Jim began his entrepreneurial journey, shining shoes as a child in his hometown of Parsons, Tennessee. Eventually, he went on to attend the University of Memphis, where he would earn an accounting degree, start his family and pursue his professional career. Jim started a nursing home company at the age of 26 that became one of the largest and most successful in that industry, and he'd go on to lead and grow multiple businesses, including his involvement in FirstBank.
Jim's success led to a friend, Steve White, approaching him about buying Farmer State Bank. Jim and Steve bought the bank, which had less than $20 million in assets at the time in 1984, with each partner owning 50%. Ultimately, Jim acquired the 50% he didn't own from his partner. And because of Jim's leadership, that single branch bank through growth and acquisition transformed into the FirstBank brand that we are today.
While we're now a publicly traded company with $13 billion in assets, a few know that our history beckons back to Scottsdale, Tennessee, where to this day, the Farmer State Bank branding remains because of a handshake deal that the name of the bank would not change in that community and that Jim insisted that we honor that handshake even as we grew. It's principles like this that Jim instilled in his companies and continue to ground FirstBank today.
In conclusion, I'd like to honor Jim as an entrepreneur, businessman, friend and mentor, but most of all, as a person dedicated to excellence and service in all that he did. For any of you that may not have known or known of Jim, I encourage you to look into the initiatives of the Ayers Foundation, which has already provided for the college education of thousands of students from rural Tennessee communities through the Ayers Scholarship program. The lasting impact of Jim's life will have on through this program and through the culture of companies like ours.
With that, I'll now turn to our usual order of business. A couple of weeks back on March 31, we announced our planned combination with Southern States Bank. In our announcement call, I discussed how the cultural fit, market opportunity and financial profile of this combination made a lot of sense. And I can say 15 days later that our conviction around this deal is stronger today than at the announcement. In the days following our announcement, myself and our leadership team made personal visits to all the Southern States locations where we had the opportunity to meet the great people that underpin the Southern States organization.
Since then, our team has established an integration office formed key work streams, outlined our time lines and begun collaborations with Southern States counterparts. As we said previously, we still envision the Q3 close, and our teams will be prepared. This announcement rounded out the quarter for our team where we balanced our attention between the Southern States transaction and continuing to grow and improve our existing FirstBank franchise.
For the quarter, we reported EPS of $0.84 and adjusted EPS of $0.85. We've grown our tangible book value per share, excluding the impact of AOCI at a compound annual growth rate of 12.8% since our IPO in 2016.
Pretax pre-provision net revenue was $51.1 million or $52.2 million on an adjusted basis. During the quarter, our team continued to grow organically, focusing on forming new relationships across our markets and deepen current relationships through additional products and services. As a result, loan balances grew by $169 million and at an annualized rate of 7.14%, primarily in focus areas like C&I and owner-occupied CRE while continuing to decrease construction exposure.
At quarter end, we ended with approximately $9.8 million in loans held for investment. We maintained our returns this quarter, reporting an adjusted return on average assets of 1.23%, our adjusted return on average tangible common equity of 12.3% is below our internal targets partially because we're holding a lot of capital.
We ended the quarter with a tangible common equity to tangible assets ratio of 10.5% at preliminary CET1 of 12.8% and a preliminary total risk-based capital ratio -- I'm sorry, 15.2%. As we grow, both organically and through combination opportunities like the one with Southern States, I continue to emphasize the strength of our operating foundation. Our teams and technology are in place to scale and our financial position, capital, liquidity, credit, earnings are all on sound footing with positive momentum.
With this, we remain poised for any economic environment. Over the past few weeks, we've seen volatile markets with a flood of economic news and policies coming out of Washington. As with any change in administration, we knew the policy changes would impact the broader economic picture. Economic uncertainty has been on the rise, and we're watching and trying to determine impact on our clients and communities just like everyone else.
When faced with uncertainty, we believe two things. First, our mission or an organization remains unchanged, building a better future by serving our customers and communities well, providing a great place to work and grow for our associates and managing our organization to provide solid returns to our shareholders.
While we're classified as a regional bank and we touch five states in the Southeast, our focus remains on our customers and our communities. It's times of uncertainty where our customers need us move and the need us most to provide timely service quality products in a place of security for their financial resources, and that's what we're going to continue to do.
Secondly, we also believe the history shows that times of uncertainty bring great opportunity for those that are disciplined and prepared. We believe that with a smart, capable team in place, a solid financial foundation and a favorable geography, our company is poised to advance through any economic cycle. We'll -- we will, of course, continue to monitor markets, tariff policy, tax rules, regulatory requirements, and we'll react as necessary to steer our company. But in times of uncertainty, our playbook is to, first, make sure we understand, second, formulate a plan and third, to execute. And it's through these principles that will view the changing landscape in the days to come.
Now to provide a deeper look at the quarter's financial results and some insight into the tactical steps we're taking around the economic uncertainty.
I'd like to pass the call over to our Chief Financial Officer, Michael Mettee.

Michael Mettee

Thank you, Chris, and good morning, everyone. I'll take a minute to walk through this quarter's earnings and touch on our outlook as we move through 2025. We reported net interest income of $107.6 million and noninterest income of $23 million for the quarter, resulting in solid revenue even with two less days in the quarter, reported noninterest expense was $79.5 million or $79.1 million on an adjusted basis and provision expense came in at $2.3 million for the quarter. All in, reported net income was $39.4 million, or $40.1 million on an adjusted basis.
Looking at margin for the quarter. Net interest margin was up 5 basis points on a tax equivalent basis to 3.55%, which is within our previously guided range. We saw contractual interest rates on loans decreased 9 basis points, while our yield on interest-earning assets decreased 10 basis points to 5.91% as the first quarter included the first full quarter of impact from rate cuts from the prior year. This impact was partially offset by yields on new loan production, which averaged right over 7% in the first quarter.
On the liability side of the balance sheet, we continue to see benefits from cost of funds management and deposit repricing during the quarter. Our cost of total interest-bearing deposits decreased 24 basis points, reflecting our efforts to manage down brokered and other high-cost deposit balances. We will continue to reprice these portfolios, along with about $600 million in CD deposit balances that are set to renew in the second quarter. Those are at a weighted average rate of about 4.2%. And then we have an additional $775 million in the back half of the year at a weighted average rate of 3.8% that will reprice in the lower market rates.
On a dollar basis, net interest income was down $740,000, largely impacted by the two fewer days in the quarter, which accounted for about $2 million in headwinds more than offset by the positive margin gains I previously noted. Through 2025, I'll reiterate our margin expectation to remain between 3.55% and 3.60% on a stand-alone basis. And once combined with Southern States, we anticipate to solidify the margin in the upper end of that range.
On noninterest income, we remain relatively flat, reporting $23 million or $23.6 million on an adjusted basis. Mortgage banking benefited from lower market interest rates which benefited our lock volumes during the quarter when compared to the fourth quarter, and our mortgage servicing economics improved during the quarter as well, resulted in mortgage banking income being up about $1.8 million. These gains were slightly offset by lower swap fees and other fee related revenue streams that were impacted by fewer days in the quarter.
Looking at expenses. Core noninterest expense increased to $79.2 million as compared to $72.7 million in the fourth quarter, resulting in a core efficiency ratio of 59.9% compared to 54.6% in the prior quarter. Compensation expense was higher in part due to performance-based compensation and seasonally higher HR-related expenses such as payroll tax and 401(k) match restart, month of merit, long-term incentive compensation and incremental increases in other employee-focused benefits.
Finally, as we noted last quarter, we had a $2.6 million franchise tax benefit in the fourth quarter. We should not repeat in the first quarter, accounting for almost half of the quarter-over-quarter increase. Looking forward, we expect our expense range in our banking segment to approximately be $66 million to $68 million in the second quarter.
On credit, charge-offs remain higher than historical levels with an annualized net charge-off rate of 0.14%. This was driven by credit in the C&I portfolio that was largely reserved for but ultimately charged off during the quarter. In total, our allowance for credit loss balance decreased to $151 million during the quarter, and our ACL to HFI decreased to 1.54% from 1.58% from the prior -- from the fourth quarter.
The moving pieces in our allowance included a reserve build due to loan growth, offset by the charge-offs and a shift in portfolio mix from higher reserve construction loans to lower reserve C&I loans. We maintain our baseline scenario as we continue to evaluate the economic uncertainties surrounding tariffs and the ultimate impact on our customers. As we deal with the changing landscape, we're analyzing specific industries, larger relationships and ultimately spending time with customers to understand the potential impact on their business.
Finally, on capital, we continue to maintain strong capital ratios, including tangible common equity to total assets of 10.5% in a preliminary common equity Tier 1 ratio of 12.8%. Our team continues to look for ways to put our capital to work. For example, during the first quarter, we brought -- bought back about 10 million in stock and we announced the combination with Southern States Bank. And after this deal, our capital levels will remain strong, and we'll be ready for additional deployment opportunities, with the ultimate aim of delivering consistent long-term growth in earnings and tangible book value for our shareholders.
With that, I'll turn the call back over to Chris.

Christopher Holmes

All right. Thanks, Michael, for the color. And to conclude, I'm pleased with our results for the quarter and look forward to keeping you all updated as we move through the combination with Southern States over the coming months. Thank you again for your interest in FB Financial.
And operator, at this time, we'd like to open the line for questions.

Question and Answer Session

Operator

(Operator Instructions) Stephen Scouten, Piper Sandler.

Stephen Scouten

Hey, good morning, everyone. I guess I would love to touch on kind of loan growth trends, what you're seeing kind of boots on the ground. Obviously, the markets are telling us one thing about uncertainty people are getting maybe a little bit more spooked about C&I lending just at a high level. So I'm wondering if you could give us some color kind of what you're seeing and hearing from your customers, how you feel about continued growth in C&I and kind of how you're thinking about loan growth for the rest of the year, given all the uncertainty?

Christopher Holmes

Yeah. Hey, Stephen. Good morning. It's Chris. So I would say a couple of things say at the macro though on I'll let Travis comment because he's our Chief Bank Officer, who's with us this morning. But I would say from a macro level, you do hear some reticence about major projects and major moves.
But I think a little more micro in client level, you generally get -- again, some of the same but on a smaller -- to a smaller degree continuing to move forward with more business as usual, but maybe some aversion to new big projects until there's a little more of a stable path forward. So Travis --?

Travis Edmondson

Yes, that's right, Chris. Across our geographies, our pipelines actually remained fairly robust. We haven't seen a drastic movement in our anticipated loan activity throughout the rest of this year. Now that could change based on how all these things land every time you read the paper, it's a little bit different, but as of today, I think our outlook remains in that high single, low-double digits area.

Christopher Holmes

Yeah. True. And good -- as we look more near term, we haven't seen a lot of fallout is the fact of the matter on the near term. So in the very near term.

Stephen Scouten

Got it. Okay. That's very helpful. And how about Nashville and Tuscaloosa in particular? I mean, I know it's still really early innings there as you continue to build out kind of in those new markets. But what are you seeing there, maybe even anecdotally and just kind of how you feel about the pace of expansion in those newer markets?

Travis Edmondson

Yeah. This is Travis again. We feel really good about both those markets. Tuscaloosa has gotten off to a real strong start. The team down there has already brought on a lot of key relationships.
The Nashville team, with all the -- that they've been through second half of last year, they had more important things to worry about getting their families back situated. But we're starting to see that pick up to throughout the first quarter, and we expect a lot of momentum to continue in both those markets throughout this year.

Michael Mettee

Yeah. And Stephen, I'll just add to that. this is Michael. We did hire no new revenue producers in the first quarter, and those are two places where we continue to add talent. And -- and it appears and we're hearing that, that momentum will continue as we grow there.

Christopher Holmes

So we're very, very positive on Tuscaloosa and Nashville and the opportunity. I'll just add one last point is in both of those markets, we didn't jump at the first opportunity we had to go there. In each of those, we've had -- we've entertained opportunities before, but we -- the quality of the will make all the difference in the world. And so we are really pleased with our teams there, and we have in both of those places entertained opportunities before we actually pull the trigger, so.

Stephen Scouten

Got it. Got it. And that new hire activity is helpful. I think -- if I'm looking at my notes correctly, you had nine new revenue producers in the fourth quarter as well and maybe like 32 for the year last year. So is that kind of a ratable pace at this point? Or did that slow with the Southern States merger, you kind of just continue to add personnel given all the excess capital and the desire to kind of continue to build the franchise?

Christopher Holmes

Yeah. No, we don't want that to slow. We won't -- if anything, we wanted to gain momentum, and we -- I made reference in our call. I think I may have used this phrase on the call know that internally, we have to walk in the gum at the same time. And so we want to continue to add in that -- in our existing markets as we add new markets through the combination with Southern States. And so we'll continue to -- we'll aim to continue that pace.

Stephen Scouten

Okay. Great. And one just point of clarity. With the share repurchase, I mean, it looks like if I'm doing the math right, you bought back stock around $48 in the quarter, obviously, unfortunately, it's trading a bit lower than that today. And if I'm doing the math right, you have maybe $73 million left in that authorization. How should we think about the potential aggressiveness at these levels with the deal pending?

Christopher Holmes

We have the capital and we want to -- and we do have $73 million. As you said, we got about $73 million remaining on the authorization. And so we think the stock is undervalued, then it's going to make sense for us to be in the market. So I would think of it as we think the stock is undervalued, then we're going to be in the market.

Stephen Scouten

Great. Appreciate the time as always.

Operator

Brett Rabatin, Hovde Group.

Brett Rabatin

Hey, guys. Good morning. I want to start off with the balance sheet. And last year, you started off the year kind of in the same way where the balance sheet overall is kind of flattish in the first half of the year and then the growth really took off in the back half of the year. And with the deal pending, it kind of looks to me like you're managing the deposit costs. Obviously, you'll have some liquidity with the deal. You use some during the quarter with cash balances lower.
Should we expect 2Q to be similar and you guys are kind of just managing deposit costs until the deal closes? Or should we expect stronger balance sheet growth irrespective of the transaction?

Michael Mettee

Yeah, Brett, good morning. I guess the quarter did look a lot like last year in the way that I'd even the quarter front half, back half, most of the loan growth occurred in March, really had a lot of payoffs early in the quarter, so there was no room to kind of be overfunded on some of the higher cost deposits. We paid down brokered by about $50 million.
So we'll continue to manage as we have been balancing liquidity, margin growth, but as Travis mentioned, our pipelines are pretty strong, which means we always say the same thing internally and externally. We've got to continue to grow core relationships and deposits. And so that's what we're out focused doing every day is try to get operating accounts and core customers.
And so if there's people willing to pay what we consider to be above market on deposits that's kind of excess interest or higher, it doesn't always make sense for us to hold on to them if you can fund cheaper. And so that's kind of the way we approach it.
Our markets customers up about 9%, 10% in the quarter, and some of that more corporate-type deposit activity was what balance us out to flat. So it's managing the balance sheet. We'll continue to do that as we go into the combination, but also just part of our ethos.

Christopher Holmes

Yeah. And I would just add one thing to that, Brett. It is there's always -- as you know, I mean, the numbers moving underneath the surface and so that we try to bring to light on calls like this. And so if you look at actually our core customer numbers, on deposits, they would actually be pretty good for the first quarter. And if we can -- but we also as Michael said, we were able to take some higher cost of and just letting put it go, frankly.
That wasn't really what we'll call core customer, they were deposits, but they weren't -- they were really price base versus core customer. And so if we continue, which -- and we anticipate we will to have that good core customer through adding customers and growing balances then we would see a little more actually, I'll call it, total asset balance sheet growth in the second quarter as opposed to just in the back half of the year.
And so we do want to do that, as Michael said, an important point, we didn't really see the loan growth come in until March. We give it monitoring pipelines. We kind of knew what was going to happen there. And so it was okay with us to have a little bit less of some high-cost stuff that went out in the first quarter that netted to an okay growth number, but underneath, we were actually pretty happy with it.

Brett Rabatin

Okay. That's great color on that. And then the other question I wanted to ask was just around construction. And I think this is the first quarter in at least the last four or five that you've actually had an increase in commitments to construction, and it worries me a little bit that Nashville wants as many hotel rooms as they do to host the Super Bowl, but we'll see how that plays out. Just wanted to hear what you guys thoughts on the the increase in construction commitments and just if you think there's opportunities in that particular bucket from here?

Christopher Holmes

Yeah. So we're still on our concentration ratio about 64%. And so we're still in good shape there for risk -- overall risk standpoint. And so that doesn't bother us. And remember, not all of our construction comes and also Knoxville and Chattanooga and Dalton and Birmingham.
And so it's kind of spread around. Nashville continues to be the strongest geography in our region, but we're watching some of the same things that you talk about. We haven't booked hosting the Super Bowl yet, but we're -- and so we are -- I guess the way we would envision would we think about our hospitality concentration number overall. We missed that. It's certainly within our range in terms of concentration.
And -- but the hospitality space is especially in certain markets is one that we watch carefully, including, frankly, Nashville right now. There are -- there's a ton of supply, the -- if you noticed on sales of hotels recently, they seem to have kind of capped out and they're kind of actually backing off a little bit on cost per door, things like that.
And so we're watching those in and not adding a lot to that hospitality concentration right now. We do have -- I can think of one deal that we do have. It's actually not in Nashville, but it's with -- and this is what we're going to look at more than anything. It's with a customer that we know well. We've done tons of transactions with and they guarantee it, and we're happy as a clam to get to do it, okay. But again, that one happens to not be in Nashville.

Operator

Russell Gunther, Stephens.

Russell Gunther

Hey, good morning, guys. On the margin, so the legacy FBK near-term outlook, when could you just let us know what you're contemplating from a Fed cut and shape of the curve perspective in there? And then second part, the kind of pro forma NIM guide around 3.60%, does that consider plan to liquidate the target securities portfolio and either reinvest higher or pay down borrowing?

Michael Mettee

Russell, Travis mentioned that every time we newspaper economic outlook changes actually don't read the newspaper. I use electronics to track -- the economy side, yes, X -- I guess, that was a not so shuttle. No, we're more -- I just want to say we're more advanced than the paper -- newspaper but we're not smart enough to predict rates, at least I'm not. What we have in the model is basically two rate cuts, which is what we've had the whole year. I would say we were expecting steepness in the yield curve.
And over the past two weeks, it's inverted, un-inverted. And so we're playing right along with whatever is happening right now.
So from a forecast perspective, we just haven't -- we haven't changed from the beginning of the year because just like on tariffs, whether we're picking up a newspaper or turning on the TV, it's like -- it's chasing goes at this point. So we expect more quote deposits to reprice lower loans reprice modestly lower as well. And that's why we're pretty stable in our margin outlook. Obviously, the economy is kind of a wildcard.
The combined entity, like I said, we're on the high end the prior question was really about liquidity and gaining some liquidity and maintaining that. And so we're kind of playing that by a year as the economy plays out. There's certainly room to liquidate the investment portfolio and reinvest.
We'd love to reinvest right in loans, not in bonds, not a whole lot of wholesale funding to pay down, but there's some upside there. Some of the, I'll call it, conservatism in the guide is we just -- we don't know what's happening while we're on this call globally from an economic basis. So we'll keep doing what we're doing.

Russell Gunther

Yeah, no, I fully understand and appreciate the color and your guys' thoughts there. Maybe then switching gears to fee income and the mortgage banking outlook, you addressed the somewhat stronger performance this quarter. How are you guys thinking about that in 2Q relative to the 1Q results and then the impact that might have on the aggregate noninterest expense guide for 2Q?

Michael Mettee

Yeah. Actually, I'm glad you brought mortgage up. We're pretty -- we're pleased with their performance. We're not expecting a great first quarter given where rates were and housing and affordability. So strong quarter from a, what we'll call operating basis made money on the pure origination basis.
And then servicing, we had less loans refinance or pay off, and so that helped on servicing income as well, the volatility help with kind of hedge performance.
So early April, I'd say we were off to a pretty good start when the 10-year went down below four, a lot of momentum has slowed a little bit, but pipelines -- Travis mentioned pipelines on the commercial side, spent some time with some of our originators on Sunday, and they said, hey, our pipelines, people are just waiting ready to go if rates move lower.
A lot of volatility of 100 basis points in rate range of mortgage in two weeks, which could dampen some of that enthusiasm would dampen if it stays in the upper 6s. So there are five straight quarters of profitability, actually probably a little bit longer than that. And so we expect that to continue. We'd love to see similar performance but it's also very economically dependent.
And then for the NII guide in total, and we kind of think about it, right, as we'll take we'll take additional noninterest expense right in mortgage as long as we're getting that efficiency ratio in the mid-80s, we'd love to be low to mid-80s. I got a little bit of mid-80s on mortgage. Clarifying point. And so the NII yield go up, generally why we point to banking is because that's a little bit of a wildcard because it follows revenue.

Russell Gunther

Got it. Okay. And then just last one for me, sort of on your charge-off expectations for the year. Last couple of quarters have been really credit specific. So just curious as to line of sight you have going forward? And then if there were to be negative surprises or weakness related to the current macro volatility, where would you be most concerned about that showing up in your book?

Christopher Holmes

Yeah. So I'll go for a couple of things. I'd say we expect the year to actually be probably a little less than the -- where we started the year in the first quarter. And so we've historically -- if you go back, guess about 11 or 12 years, we've historically been a little less than where we are.
It looks like that would be kind of where we'd say for the year would be a little below where we were in the quarter.
And then the second part of your question on where we would expect things. Where we've seen things has really been on the C&I front as a boost to more on the real estate front. And so that's probably the -- continues to be the case. We've seen a real estate bumper two, but they haven't -- they've just been things that we needed to work through as opposed to things that had any charge-off or loss content to them. And so that's been the case.

Travis Edmondson

Yeah. And just to give some color around the charge-off this quarter. That's a company that we've been working with for over eight years. They got into a bad contract and a long lawsuit and they've been very forthcoming with their issues and we've worked with, and we just came time where we needed to charge off the credits. But overall, our NPAs and NPLs both improved this quarter.
So we're seeing some positive trends, and I would just echo, Chris, we don't expect elevated charge-offs through the remainder of the year from where we were in the first quarter.

Michael Mettee

Yeah. And you try to talk about this a lot, but 14 basis points on a kind of industry wide I'd say, pretty good work by your team. And so elevated at 14. Yes. That's what I was going to take note of the fact that Travis used the word elevated with 14 basis points. And so that's kind of if that's any indication, so.

Operator

Catherine Mealor, KBW.

Catherine Mealor

Thanks. Good morning. I Just have one follow-up question on expenses. You kind of came into the high end of the range that you gave last quarter, Michael. And then I feel like for the full year, you had been talking about a 4% to 5% kind of growth rate. But if we look at the range of expense guide that you gave for next quarter and just bring that for the full year, it looks like we're now at like around a 9% or so growth range. And so just kind of curious where that or where the higher expenses is coming from?
I'm assuming it's just from the hires that you continue to have. And so just curious if that does anything to kind of forward thinking on efficiency or with that higher expense level, I'm assuming we should assume revenue comes pretty quickly with it. But just kind of curious what maybe changed since last quarter.

Michael Mettee

Catherine, you're quick on the modeling, I guess.

Catherine Mealor

There were a lot of questions before me, so I was able to do a little work.

Michael Mettee

So -- so yes, we were on the higher end, a little bit of -- or most of it was kind of compensation-related things that kicked in. The clock starts on expenses on day one at midnight. And the revenue did come -- is coming later in the quarter, so we expect operating leverage to pick back up. There are a couple of lumpy things in the first quarter that led to the miss. Yes, we had a a pretty good year in 2024.
So proud of that. But that leads to higher payroll taxes in the first quarter and some RSU awards that we have a little work that gets expensed in the first quarter.
And so that lumpiness kind of comes out through the rest of the year, which enables us to perform it at a more normal expense base. We have hired a already mentioned on the call, a significant amount of revenue producers, and you just said it, there's a lag there, which can push our expense base higher, 9% would not be something that would be digestible in this room. And so it would be on the lower end of that. I think if you look in that 5% to 7% range -- 5% to 6%. So certainly slightly higher.
We've invested a lot in our employees, our associates, and we're happy about that. We think it's deserved, but there's a couple of things that were a bit higher this quarter that we'll get back in loan.

Catherine Mealor

Okay. That's helpful. So don't take this $66 million to $68 million run rate into next quarter and then grow that. We might even kind of that come to the low end of the range as we get to the back half of the year.

Michael Mettee

That's right. It's more about stability in that number and it grows off that number.

Catherine Mealor

Okay. That's great. Yes, it definitely does. Okay. That's great. And then I think you touched on this a little bit earlier, too, but just on the growth piece, can you help us just kind of think about the risk of CRE paydowns as we get to the back half of the year and how sensitive do you think that is to the 10-year and kind of any large payoffs do you see kind of a head that may offset some of the new origination growth that you're seeing?

Michael Mettee

Yeah. So paydowns, and I kind of think about it all the way through '26, probably roughly 20%, 25% of the book matures, call it, in the next -- what is that or 18 months, should reprice higher, actually, we have seen some really good activity on -- which we take as a positive, although it moves off the balance sheet, in the first quarter, we had some elevated payoffs. Chris mentioned multifamily. We had some things go to the permanent market when rates dipped. I'd say Blackstone want to dip below 450-ish down in that 25 range.
So we did see elevated payoffs, but that's opportunity for us. We've got really strong relationships. Chris mentioned the construction on -- these are reoccurring customers. So while they may go to the permanent market, generally, we're in the driver seat for the next deal.
And so that's a positive. The CRE piece of it, our credit team, every month, we get a report, and they're looking at individual credits and their reprice risk and that service ratios and making sure that everything is still cash flows. And we -- I'll let Travis upon, but we haven't seen anything of concern and we've been able to overcome kind of the payoff side with growth as well. So we expect that to continue, but I'll let Travis.

Travis Edmondson

No. Well said. No, we do expect to continue to see just the cycle of our business, right, where we bring on a project, the project goes as a permanent market, which is a good thing for our overall health of our borrowers. So we don't expect much change over the next 18 months with that.

Catherine Mealor

Great. Thank you. And our condolences to Jim Ayer's family and friends. I really enjoyed working with him over the years. And he does leave an incredible legacy. So I appreciated your comments at the start of the call, Chris. Thanks.

Operator

Christopher Marinac, Janney Montgomery Scott.

Christopher Marinac

Hey, thanks. Good morning. Chris, it's been two weeks since our last call with you and all of this external noise. I'm just curious to what extent this may or may not influence kind of how you think of the reserve future quarters. And I appreciate the detail on the slides about how you allocate. I'm just kind of curious if that is going to lead to behavior change for you or even to what you see your customers doing these next several months?

Christopher Holmes

Yeah. It's been two weeks, it feels like two months, maybe even two years, given all that's transpired, remember, we add to that, in our case, the loss of Mister Ayer and all that goes around that. And so -- so it's been -- it has been a very eventful two weeks. And so you sort of a tired crew sitting around the table this morning. And so Michael, let you comment on how we think of that.

Michael Mettee

Yea, hey. Good morning, Chris. It's interesting, we've debated this pretty heavily internally. The Moody's model, we're using Moody's baseline actually, in the first quarter, had economic improvement, right? There wasn't any tariffs led into thing. There was a lot of noise. So we start with baseline, but we make sure that we felt like the ACO was appropriate for the risk we knew about at the time.
And again, as Travis mentioned, Marinac, every time you start looking at a portfolio and start going down a path you see the next news flash that says, yes, that's off.
So the benefit of our banking model in our style banking is we spend a lot of time with our customers, our relationship managers are in contact with our customers like. And so we're spending a lot of time focused on the individual credits and relationships and industries to try to figure out what that should look like.
And -- on top of that, with Southern states, we have very similar balance sheet profile, fixed and floating at the combined entity looks very good. And so we've got some credit mark in there that brings their ACL up to ours. And so we should be appropriately reserved there as well as we kind of wait to see what happens.
It's a minute-by-minute kind of exercise at this point. And we hope that we get some more consistency as we kind of look forward.

Christopher Marinac

Great.

Christopher Holmes

Hey, Chris, can I going to add just one thing to it, and as we think about it, we build our balance sheet -- and one of -- I guess even dropping back for a key part of our value proposition, frankly, is just peace of mind, and we want to make sure our customers and our associates have that. So that we look at volatility or potential -- I won't use the word, but potential challenges down the line as, frankly, times of opportunity.
And so we look at our -- if you look at where our capital is, if you look at where our reserves are, if you look at the granularity of our balance sheet and you look at the geographic diversity of our balance sheet, all of that makes for a very -- a high degree of stability, especially in rocky times.
And so you won't see us -- you'll see continue to keep all of those things in force, especially over the next couple of quarters as we're working through. So you'll see us continue to maintain a pretty high capital level, high levels of reserve. So you'll see us intentionally do that and maintain those at least through the next couple of quarters.

Christopher Marinac

Great. Thank you so much for that color. And I guess my only follow-up just is I know it's early, but if you think of a range of outcomes, is it possible that customers want to build more lines of credit with you and/or tap those as we head into the next few months?

Christopher Holmes

Yeah. I think absolutely, it's possible.

Michael Mettee

Yeah, it's very possible. But our utilization on our lines year-to-date has been very stable compared to historical numbers, but that is a possibility that we're keeping an eye on.

Operator

(Operator Instructions) Steve Moss, Raymond James.

Steve Moss

Hi, good morning. Just following up on Michael's comments from earlier with regard to the loan pricing. It sounds like in terms of loan yields going forward here, I mean, with the expectation of that rate cut those will be coming down. But just curious where are new loans coming on the books for these days?

Michael Mettee

Hi, Steve. Good morning. Yeah, they're coming on around -- between 7, 7.10, in of on average. I think -- and we have this conversation internally a lot. With rates coming down, that means a lot of things, right? And generally, that's on the short end. And if you get some steepness in the curve, you price off the belly of the curve, you should see some stability in there.
We've seen -- certainly seen rates come down on new production with all the Fed rate cuts. But we're in those low 7s today on a kind of combined basis.

Steve Moss

Okay. Great. And then I guess just in terms of any -- it sounds like you guys are not willing to -- or not looking to hedge the balance sheet in any way just to maintain kind of fixed and floating rates position that you guys have versus putting on swaps or anything synthetic to maybe make yourselves liability sensitive or anything of that nature?

Michael Mettee

Yeah. Actually, that's a great question because we talked about this yesterday. I talked to our treasurer last night about it. And because we're constantly evaluating, right, the cost benefit of that. Generally, for us, the cost of hedging has outweighed the benefit.
And we've got to manage our deposit side of the balance sheet and our loan side. And our team does a pretty good job of that, especially in periods of stability we can have margin expansion, hadn't been that stable lately globally. There's a lot of noise, I think, as Chris said.
But underneath the water here, it's been pretty stable with discipline on loan and deposit pricing and the team is doing a good job. So for now, we're not putting on any hedges, but we do evaluate it constantly as to when it would be appropriate to do it.

Steve Moss

Okay. Great. Well, that's everything for me. I really appreciate all the color there.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Chris Holmes for any closing remarks.

Christopher Holmes

All right. Thank you all very much for joining us today. We always appreciate your interest, and we look forward to getting into the second quarter, and we look forward to reporting again in another three months. So everybody, have a great day. Thanks.

Operator

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