Q3 2022 Veritex Holdings Inc Earnings Call
[music].
Yeah.
Good day and welcome to the vertex holdings third quarter 'twenty two.
22 earnings conference call and webcast.
All participants will be in a listen only mode. Please note. This event will be recorded I would now like to turn the conference over to MS. Susan Caudle Investor Relations Officer, and Secretary to the board of vertex Holdings.
Thank you before we get started I would like to remind you that this presentation may include forward looking statements and those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ the company undertakes no obligation to publicly revise any forward looking statement.
At this time, if you're logged into our webcast. Please refer to our slide presentation, including our Safe Harbor statement beginning on slide two for those of you joining us by phone. Please note that the safe Harbor statement and presentation are available on our website vertex bank Dot com.
All comments made during today's call are subject to that safe Harbor statement.
Some of the financial metrics discussed will be on a non-GAAP basis, which our management believes better reflects the underlying core operating performance of the business. Please see the reconciliation of all discussed non-GAAP measures in our filed 8-K earnings release.
Joining me today are Malcolm Holland, our chairman and CEO , Terry Earley, our Chief Financial Officer, and Clay Riebe, Our Chief Credit Officer, I will now turn the call over to Malcolm.
Good morning, everyone and welcome to our third quarter earnings call vertex continues to operate at a very high and efficient level producing record dollar earnings.
<unk> growth and improved credit metrics slide five gives you a summary of our third quarter results, which are candidly the best in our company's history.
Starting with earnings we reported $43 6 million in net income or <unk> 80 per share up from 55 cents per share in Q2.
Our pretax pre provision income continues to climb up to $63 million or two 2% on average assets.
This metric continues to show the earnings power of vertex Terry will give you additional color on the components of our income much of which is solid sustainable profit.
Our growth profile remains strong, but it's down from the previous quarters for.
<unk> loans grew 595 million or 30% and for the first nine months of the year, 31% annualized.
We see growth continuing to slide down as we expect the fourth quarter to be in the low twenties and forecast 2023 loan growth to be in the low double digits.
Our pipelines are currently down one third from the previous quarter.
And we have had over $150 million in payoffs during the first three weeks of October .
Keep in mind much of our growth. We have had this we've had has come from new hires since we have made since the start of the pandemic for the third quarter, 42% of our growth was from our new hires we consider this growth more of a market share grab versus the region's economic growth, which we see beginning to slow a bit in.
Our DFW and Houston markets.
While we have slowed our hiring for new bankers in many areas of the bank, we will always be opportunistic in adding quality people to our team when they become available.
Deposit growth has continued with the quarter during this quarter showing growth of $231 million or 10, 7% as we think about deposit growth going forward is my team's greatest focus.
We have proven that loan growth is a strong core competency of our company. While we have shown that we can grow deposits and has our attention and focus to bring our deposit growth numbers very much in line with our loan generation numbers as I look over the last 12 months, our noninterest bearing growth is up 300 million or 16%.
And our interest bearing money market accounts are up $737 million or 36%. These.
These are numbers that we're very proud of and shows our ability to grow both sides of the balance sheet. Despite some of the noise in the markets our credit metrics continue to trend in a positive direction for the eighth consecutive quarter Npa's declined falling this quarter 14 bps.
Two 6% past dues greater than 30 days also remain in very good shape producing numbers lower than <unk> levels.
Despite improvements in credit metrics, we find it prudent to continue to perform deep dive analysis on our portfolio and our concentrations and stress our credits at levels. We don't think we will see.
With this stress testing, we do not see any significant weakness in our portfolio at this time I will now turn it over to Terry.
Thank you Malcolm starting on page six Q3 was a very strong quarter for very tact for vertex one of the best I've seen in my 40, plus year career, our operating return on tangible common equity is almost 18%. This is on an equity basis more than 17% larger than it was at the beginning of the year.
Our efficiency ratio was under 45%, reflecting our branch light business model asset sensitivity and strong growth.
Net interest income grew almost 20% on a linked quarter basis.
Lingering spot of underperformance was fee in call I will discuss this later.
Comments, we don't have a presentation table on operating leverage, but let's start our discussion there revenue growth since Q3, 'twenty. One has been 31, 2% even with weaker fees in Q3.
Expense growth over the same period has been 22, 5%, reflecting significant investments in talent.
This results in eight 7% with positive operating leverage.
If you adjust Q3 'twenty one for the nonrecurring impact of PPP fees than revenue growth goes up to 32, 5% and operating leverage improves to 10% those results indicate our investments in talent, which are a significant factor in our growth profile are generating strong returns with tangible book value per share only <expletive>.
Climbed by one 6%, reflecting the rise the impact of rising rates on <unk>. It has grown by six 7% over the last four quarters, adding back the impact of the dividend.
On slide seven Malcolm has already mentioned our loan growth for the quarter. This loan growth includes the purchase of approximately $40 million in owner occupied mortgage pools vertex has delivered a loan growth CAGR of over 18% since the beginning of the pandemic.
On slide eight huge progress being made in our C&I business year to date year to date growth in 2022 was up by approximately $775 million over 2021, one of the key drivers is the DSW team that has attracted 16, new C&I relationships.
They have served as lead or joint lead arranger on over $1 billion in credit commitments Lastly, the insurance related vertical is showing real promise with both sizeable loan commitments and deposit opportunities advances.
Advances on the ADC portfolio for approximately $430 million per quarter, and our average mortgage warehouse balances decreased six 4% in the third quarter. We're certainly pleased with both the great great results and the brisk mitigation steps given what is going on in our mortgage industry.
On slide nine we produced $1 7 billion in loans. This brings the total for the last four quarters to $6 billion in production.
On slide 10, net interest income increased by $16 6 million or almost 20% from Q2 to $101 million in Q3, the two biggest items and to increase our growth, which accounted for $6 6 million of the increase in the fed raising short term interest rates, which represents $8 4 million.
The net interest margin increased 35 basis points from Q2 to 377% the NIM got stronger as the quarter progressed, given the timing of the fed rate hikes, and the lag and the reset of one month's sofa and LIBOR based loans.
NIM for the month of June was 387% and has strengthened further in October has contractual loan yields on the portfolio have increased another 33 basis points through mid month.
As you look to model net interest income in future periods to keep the following in mind.
First.
Our average balances are up just a little bit so keep that in mind, creating somewhat of a jump ball given the market expectations of 150 basis points and additional fed rate hikes. This will add significantly to net interest income.
Great, Texas asset sensitivity has decreased since Q2, but so has our down rate risk we have been intentionally hedging floating rate loans for three to four years to mitigate falling short term rates out through 2026 on.
On Slide 11. Please note that our during Q3, our loan yield was up 85 basis points to five points <unk>, 1%, while deposits only increased 48 bps the loan portfolio accrual rate on 930 was five 2%.
Q3 loan originations were 85% floating these floating rate loans carry an interest rate at the end of the quarter of almost five 7%.
Slide 12.
Noninterest income increased by two 7% to $13 million.
Most of the increase was due to our customer interest rate swaps.
Which increased $2 1 million to $3 4 million in total we did more swap revenue in the third quarter than in than in any previous full year revenue.
Related to our government related businesses remained weak at approximately 600000.
One correction on this page we stated in the bullet in the bottom left the slot the servicing asset valuation adjustment of $2. One was taken in <unk> 'twenty. Two we actually took a $1 5 million write down in <unk>, we had a $560000 write up of the servicing asset in Q3 the combined.
Change from Q2 to Q3 was $2 1 million, so a $560000 write up from Q3.
Noninterest expense increased $2 7 million to 56, reflecting the investments in talent, we've been discussing for many quarters.
Even though operating expenses are up operating leverage remains strong and the efficiency ratio is in the 44% range regarding the increase in Q3 noninterest expense, 65% of the increase is in variable comp.
About 25% of the increase is in salaries. So just think about that as you go forward and model expenses. So far in 'twenty, two we've incurred approximately $145 million and operating expenses. We will believe we believe we will be at the top end of the range and our expense guidance, which was 185 to 190.
$5 million for the full year looking forward the pace of hiring is slowing this seems prudent as we see production slowing in 2023 slower loan growth will translate into stronger capital ratios and improving to the loan to deposit ratio.
These steps coupled with lower variable compensation should slow the growth of NII in 2023.
Turning to slide 13, Q3 was another bumpy quarter for North Avenue capital as the USDA continued centralization of our loan funding decisions in Washington, We were unable to get any USDA loans closed during the third quarter. Our pipeline has grown to 100, it's grown a $100 million in third quarter and we are.
Expecting closings in the fourth quarter, our SBA business continues to build momentum as our new leadership in recent hires gain traction the pipeline is up about $15 million since the end of the second quarter gain on sale premiums for the government guaranteed business have declined about another 10% since the end of Q2.
It's likely that if gain on sale premiums in the USDA and SBA market remain under pressure the vertex will choose not to sell a portion of our production rather we will portfolio of the loans given their strong pricing and favorable capital treatment.
We're going to make the right long term economic decision for vertex even if it means forgoing some short term revenue moving to thrive vertex recorded in equity method loss of just over $1 billion. This funded volume decreased approximately 50% in Q3, while the MBA has been forecasting a 30% decline for the same period.
Higher interest rates and significant rate volatility have created a very challenging environment.
<unk> has been able to maintain their gain on sale margins and even expanded this quarter due to the high percentage of volume coming from Sunbelt States now you've always had more reliance on purchased business versus refi. They continued to aggressively manage costs and staffing levels, while successfully hiring origination teams in different parts of the country that should add meaningfully to <unk>.
Casted volumes going forward.
Moving forward to slide 14, a good quarter on the deposit front with growth of $230 million and a 20% CAGR since the beginning of 2020.
Total deposit cost increased 48 basis points to 76 basis points, our cycle to date deposit beta is approximately 27% as total deposits have increased 58 bps and the average fed funds effective rate has moved up 212 basis points.
On Slide 15, total capital grew approximately $44 million during the quarter to $1 4 billion CET ratios have expanded by 34 basis points year over year.
Looking forward on capital, we believe that moderating loan growth coupled with higher earnings from rising interest rates should allow us to achieve our CET one target of 10% by the end of 2023.
Finally on slide 16, Malcolm has already mentioned the improving credit trends.
I just want to note in Q3, we increased the weighting on the downside economic scenarios to 35%.
Reduce the waiting on the baseline scenario to 65%.
That drove that little over $4 million increase in provision you see there with that I'd like to turn the call back over to Mark.
Thanks, Terry we continue to see some very positive results and momentum from our markets and the incredible team we've assembled at <unk>.
<unk> results produced strong metrics 151 return on average assets pre tax pre provision to 2%.
Return on capital tangible capital, 18% efficiency ratio of 44% and Npa's down 14 bps quarter over quarter.
I am proud of our company continues to perform in these uncertain economic times and grateful for the opportunities we've had to add to our business with that I'll open the line for any questions.
Thank you.
<unk> to ask a question you will need to press star one one on your telephone.
Please standby, while we compile the Q&A roster.
One moment for our first question.
Our first question comes from Brady Gailey of <unk>. Please proceed.
Hey, Thanks, good morning, guys.
Hey, Brady.
I feel like fee income has a lot of moving pieces here and you just had a monster.
<unk> quarter, but mortgage lost money.
USDA market was still close in <unk>, but that's about to kick in in <unk>. So how do you I know, it's volatile and I know it's tough to.
I think as you look to <unk> and the 2023.
How should we think about total fee income.
Yes.
Brady it's Terry.
Here's the way I think about it is that it.
It's going to be hard to replicate a swap quarter is good is that when you do more than you've ever done in any year in one quarter. So I think I think swap income comes down some I think SBA and USDA go up and I think thrive as basically a breakeven business.
So.
I mean, I kind of feel like the current level, while the mix is going to change the absolute current level of fee income feels pretty good right here as we go into next year.
Okay Alright.
And then on to the expense base.
As the hiring slows I think you said.
Expense growth should be less in 2023 versus 2022.
Maybe just quantify if expenses come in close to the 50 million dollar level that will put you close to a $195 million for 2022.
So off that base.
The way to guess what the expense creep could be in 2023.
Probably high single digits.
10% percent in Korea.
Okay.
When you think about our current run rate around $51 million, you analyze that and when you annualize that and you are close to 205.
So depending on how you are looking at it. If you are looking at 2022 to 2023, I think somewhere close to.
Hi.
High single digits, I think if youre looking at it based on annualized Q3 run rate not high single digits from there, but should you can you can put about mid single digits on that and get to that similar level.
One of the difficult things there Brady is the variable comp piece for those loans.
As loan production comes down a lot of our loan production for next year is embedded already in through the.
Unfunded commitment piece, but as that comes down variable comp comes down.
We're still going to hire some people we have some areas, where we need some folks, but I don't think youre going to see it by hiring levels that we had in 2022.
Okay, Alright that makes sense and then finally for me.
Just on the margin I mean, a nice step up here again in the margin, which we've seen from a lot of banks.
Had some banks talk about.
How the margin could the growth and the margin could really start to moderate here as deposit betas start to pick up.
How do you guys think about I mean, I know you are still.
Growing the company, it's our NII growth should still be very strong, but on the percentage now.
Do you think it's close to a peak here or is there still room for expansion.
Well, it's still room for expansion.
I've said in the second quarter earnings call.
That we believed when we model for every 25 basis point rise in fed funds rate, we could pick up five basis points in the NIM. So this quarter, we got $6 25 basis point moves our NIM grew 35, so we were actually closer to six bps per move.
I don't think we can stay at fixed but maybe we come back to four to five for every move.
Look I think Q4 is not really the question. It's really a Q1, it's when the fed slows as when the NIM is really going to come under pressure I think thats going to be Q1, there still might be a 25 bps move after they do $1 25 to $1 50 and moves over the rest of the year, so that should drive NIM expansion.
But when the fed start to slow in the deposit betas catch up.
It's when you get youre going to feel the pressure on the NIM and People's Nims will start to contract included including ours, having said all of that.
I know everybody and somebody is probably going to ask this question about mobile hadn't answered.
Yes, I mean, I think when you think about deposit betas.
For vertex or any other high growth bank with a higher loan to deposit ratio.
Especially if they are heavily floating rate debt.
I just don't have the same impact.
I've got a 60% deposit beta.
And I've got all this stuff and all of this extra funding and the investment portfolio with fixed rates than the deposit data means an awful lot, but when youre sitting here in your <unk> and your 75% portfolio is floating 85% of your production is floating.
It's pretty well and you're not sitting on any floors, and it's pretty well synced up if you will so you can.
It's still matters, but I don't think it needs to be the most important metric in the world every body when your balance sheet structured like ours is theres other banks I could name that are just like us and I think they saw great them expansion 30 bps that type thing because they're heavily floating so anyway I just wanted to.
Alfre that up and say it matters, we're very focused on data, but when you have the asset side structured the way, we do and the earning asset mix. The way we do the impact of the deposit beta is just not as material in <unk> as it is on some of our peers.
Sorry for market model.
Yeah.
That makes total sense, great well, thanks for all the color guys.
Hey, Thanks Brady.
Thank you one moment for our next question.
Okay.
Okay.
And our next question comes from Gary Tenner of D. A Davidson. Please go ahead.
Thanks, Good morning, guys.
Thank you Terry jumping off your point, a moment ago about kind of the NIM in 2023.
And kind of what that looks like in terms of pressure when the fed stops raising rates.
And the commentary about slower loan growth relative to deposit growth next year.
Can you talk about any kind of deposit initiatives that you're kind of focused on right now to try to keep up with that pace of loan growth we saw.
This quarter obviously.
Deposit growth lag, but.
Slowing next year shouldn't be as much of an issue just wondering how you think about deposits over the longer term in the next couple of quarters.
Yes, Gary.
Answer that one we as a company have spent an inordinate amount of time over the last 90 days just talking about deposits talking about funding our offsite strat session was dominated by this topic.
And candidly everything around my table Theres always a discussion about funding at some at some level and so we've we've we've started an initiative here.
Listen there is there is no magic bullet there is no single solution to our deposit growth it is a.
It's kind of.
Just a focus.
That being an important or more important part of our business going forward and so we put together a team actually we've hired a consultant theres a couple of people, we're going to hire and it's going to be focused strictly on.
Improving our funding mix and which in turn will increase our deposit flows and so the goal on our side is we want to grow deposits.
At the same level that we grow loans, we've proven for 12 years. The length of this company that we're pretty good loan growers.
And now we're going to prove out that we're really good deposit growers now.
It's in a market that's really hard.
Not only are we major metro, but everybody's asking the same questions.
But I think you'll see that our initiative and our focus on this part of the business is going to be as strong as any.
And.
We've got the right people involved so I'm not trying to Dodge. Your question because there is no single answer it's about seven or eight different levers the one place where we've been really successful.
Growing deposits is in our community bank.
This bank is built on the community Bank Foundation.
Most of the banks that we acquired were community banks in our community bankers are heavy relationship people and so our community bank is about 25% on a loan side, but it provides almost double that in funding and so that's an area, where we're going to really pay attention.
When I said, we're going to make some hires I'll bet you, we're going to make some in the community bank space. How are we going to open a branch or two because theres. Some locate you can probably count on them. We're good at that and so we think that's one of the levers one of many levers.
Terry mentioned the insurance space, we have some folks onboard now that are very good at that that's a very good deposit business.
We still have a small fintech group.
That's not going to solve our problems, but that's going to be another lever and so you go to treasury products you got to incentives and you just go to a change in culture and just change in thinking.
And I think youre going to see us be fairly successful on the deposit side.
I appreciate that maybe just asked another follow up on the topic.
When you had the interlink transaction queued up.
The thought process was get into loan deposit ratio down to 85% or thereabouts, it sounds like from what Youre, saying.
At least over the intermediate term, you're you're comfortable with keeping it up around 100% range maybe longer term, there's deposit initiatives that you could outpace.
So lower that number but for the kind of it for the near future, 100% plus or minus is kind of where vertex holdings.
Yes. So the answer is we still achieved.
Want to get to that 85% loan deposit ratio Thats, our goal and we have a longer term plan that just 23 to get there but.
You are right on I mean, we're going to be operating in the high nineties.
For a while as we.
Become more and more efficient on growing the deposits out of our bank, but.
Yes, if I was modeling it I'd be I'd be in the high 90 days on the loan deposit side.
Alright, guys. Thank you.
Thanks Kerry. Thank you one moment for our next question.
And our next question comes from Brad Millsaps of Piper Sandler. Please proceed.
Hey, good morning.
Good morning, Brett.
Hey, Terry I wanted to start on the on slide 10, the interest rate sensitivity chart in the bottom right hand corner.
Your base case this quarter is up to 400 almost $68 million that's.
That's up from $405 million last quarter last quarter I think the up 100 was 425 now we're at $4 83.
Can you kind of walk me through the change I would assume the base. This quarter is basically the up 100 is all of that related to loan growth I. Just can't recall, what you were assuming as terminal fed funds last quarter I would assume it's about 100 basis points higher now, but just wanted to kind of walk through that kind of the moving pieces. There. So you kind of go from.
What was the up 100 last quarter or two with the base case is now in some of the assumptions there underlying.
I think theres two big changes in assumptions.
Yeah.
No change in assumptions I think the balance sheet.
Materially bigger that's 0.1 0.2 is we model. This before we do our shocks we model out the forward curve consensus forward curve.
So it's much higher.
It's probably 100 bps I don't have the the actual reports in front of me from <unk>.
But I did look at the Q3 reports last night and it's got fed funds, peaking at four five which seems kind of low to me, but that toward the curve was at the end of the quarter.
So Brett that's the big thing a bigger balance sheet, a better earning asset mix and higher terminal rates.
Okay.
Got it and I think I think you threw out.
With the 60% deposit beta that you threw out more just kind of a number I think you were talking $40 to 45.
With 60% just kind of say hey, if it is there we still have so much.
Assets that repriced above that level it doesn't really matter or do you think you'll actually get 60 this time around.
No sorry, no I was talking about others are at loan to deposit ratios of 60% and when you. If thats, where you are and you have that much in your blown portfolios balanced 50, 50 fixed versus floating and you've got a bigger investment portfolio, a greater allocation of earning assets there than the deposit the importance of the depart.
Beta is greater than that structured balance sheet than ours with half loading low low low investment portfolio allocation.
The deposit beta just doesn't have the same impact, but last quarter I said 40 to 40 mid 40 <unk>.
Mid $40 40 to mid forties in the deposit beta that's still what we think but let me tell you. This is a hard one because.
Week to week, the impact of deposit pricing competition isn't going down it's going up so I mean, I won't say, that's still our estimate but it's.
It's truly an estimate because of just the competitive nature.
I've always said in my 40 plus year career.
That is the most difficult pricing market I've ever been in.
It is hand to hand combat pre pandemic it was hand to hand combat and it's getting back to that band.
So.
But no we're not we're not moving up our deposit beta assumptions for the cycle.
It was just.
Maybe I misspoke, if I did when I was talking about loan to deposit ratios I apologize.
But I think he may have met September , but just wanted to see what they do.
Oh, my bad about 387.
<unk> <unk>.
Okay, sorry perfect.
No problem I may have misheard alright that thank you guys you know you're you're right on that one moment Malcolm's, telling me your <unk> and I'd like to go to <unk>.
Just had a record I have to say you only miss starting to them for the quarter by one bill So that was pretty strong too [laughter]. Okay. Thank you gotcha I appreciate it.
Brad.
Thank you one moment for next question.
Okay.
And our next question comes from Michael Russ Freeman James. Please proceed.
Hey, good morning, guys how are Ya.
Okay.
Yeah. So I just wanted to go back to Brady's question on on the fees understanding some of the the puts and takes in I hear Ya on.
On thrive and you know the the Swabbing com, which will likely come off but you know in a year over year basis, you guys actually think that you can grow b N com just with some of the.
Puts and takes that you laid out.
Let's see you can sleep I think sir.
Yeah, I mean, we do because we've had such a difficult year getting a loan clothes in the U S D a space.
Think that and we.
We've made us we've made some meaningful significant investments in SPL I.
I think those are the two things those are the two drivers that are gonna increase our fee incomes next year, no management and the and the S. B a space.
Huge our new guys been here for three or four months is that right less less than that okay and in the Usda's space. It's been a kind of a perfect storm on a whole bunch of different fronts. Those guys are hustling their tails off.
Their pipelines are really strong they're super competent people.
Somebody makes asked me well you'll be glad you bought that business absolutely. We've just been in a in a difficult spot so I <unk>.
I personally Michael I see both of those areas outperforming 22 by a pretty wide margin I think swaps theories you already mentioned it it's and you know.
And and thrive is gonna just kind of move along they they'd made some acquisition system people along the way and this last quarter, so and so they're I think they're gonna be opportunistic the difference between thrive in some of the independents out there they may not independent thinking to make it thrive got a pretty good partner and very tax and so we're gonna be able to actually.
Be opportunistic in that space and certainly spreads are important but volume is too so.
To answer your question our fees are gonna be I believe our fees will be greater than twenty-three then 22, yeah, yeah I mean.
I mean, if you take Q3, an annualized you at about $52 million, depending on what your view is of what Q for these will be but but I I you know I I'm not I don't lose any sleep, but we're having a fee number in 2023, that's going to be 50 million I just know I just stopped.
Okay helpful. And then maybe just one follow up question.
For me it just give them where the stock is and you know.
Just like the Mcapple that you guys have any thoughts on.
A buyback at this point and.
You know being somewhat aggressive just given where the stock is I I no longer up is kind of slow right a little bit but it seems like the capital should continue to build so I just wanted to get any update your thoughts on a cap or we tucker. Thanks.
Well in the absence of any other.
No issue sure the Zip disk valuation level, we even not you've seen us over the past three years be active on the buyback, but not right now, especially going into this economy was unknown credit stress of how are we going to have the recession. If we do how deep how long I just don't think that that makes a lotta sense at the current time.
And with US for the first time, I believe putting out there at 10% C E T. One gulp.
Given the economy everything else I don't see us doing a lot with the especially.
<unk> in the year to there's a there's a clear economic picture and capital ratios have built it you know if we get through our if we get through our target then they'd have something will think about some of this depends on how much does loan growth due to the economy and how much does it slow so I mean, it's a great question I, just don't see it especially in the.
And you say the first half of 23, I think it becomes a more relevant question in the back half depending on the economy and where capital ratios are yeah.
Totally got it thanks for taking my questions.
Thanks, Michael.
Thank you one moment for our next question.
And our next question comes from <unk> Army S. Stevens. Please proceed.
Hey, Thanks, Good morning wanted to go back to the the fun the funding strategy for the fourth quarter and into next year.
I appreciate the commentary on the deposit growth initiatives and thank all makes sense I guess I'm curious how much you plan on leaning into borrowings and other wholesale products in the short term and then also on the securities portfolio. How much is this casually at this point and to what degree do you expect Castro.
To help fund loan growth next year.
No no mats. Good question I mean, I think you will see us use wholesale broker those type things FHL b.
You know maybe for <unk> as you think about the rest of two four even going into 23. Our goal is not to let that type of funding brokerage wholesale get above 20%.
Incremental funding.
As it relates to cat on the investment portfolio don't expect us to be adding to that and it's gonna spin off maybe about 75 million something.
Hi between 75, and 100 million next year.
And cash flows coming off the portfolio and so that will certainly help the funding of the Lone Grove, which was gonna be down and will improve the earning asset mix, which should help from them.
[noise] got it okay that makes sense.
Then on the loan yields we saw the nice improvement in the third quarter any noise isn't that number in and three Q or should we assume that the lone beta as in the fourth quarter would be similar to what we saw in the in the third quarter.
No noise in the number that I that I'm aware of nothing of any size.
And so I said, the ending loan yields further loan loan contractual yields for up to like 522, something like that I think I said.
And I also said that after the end of the quarter alone yields from from 930 through.
Mid last week or up another 33, bip, So I think you're going to get some list on the loan yield sought.
And and what about some of the newer newer production on some of your newer newer loans and what have you seen as far as the over there.
Two three loan production ending yield for the quarter was 569.
Okay, 95% of that production being floating.
And then just lastly for me when I think about loan growth next year, you gave us some primary as far as the size that long ago and the amounts what about the mix of loan growth what kind of type of growth could we see next year and half of that differ from what we're seeing in this year.
I think you're gonna see a higher loan growth on the CNI side, that's been our focus listen we're really good real estate lenders will always be in that business certainly the construction side of the real estate lending business.
For all intents and purposes, not because we decided but the market decided that.
There's just no appetite for that right now and so that's also an area where we have all those unfunded commitments. It will bleed those off over 20 twenty-three, but really our growth is going to be in the.
Commercial CNI side and the community Bank side, we've made some recent hires on the private bank side, I think you're gonna see some growth there.
So I think you'll see a little bit different mix again. This is part of our deposit initiative.
We're gonna go I Cheat banking officer research is always telling me, we gotta do it would be a better job in selecting our clients and we are selecting clients and the CNI commute.
Community Bank private bank space, because they provide some funding for us. So that's a that's another you know answer to the deposit question, but yeah, I I think you'll see a little bit different mix.
Because we have relied a fair amount of real estate candidly, we didn't rely on it Matt we just got really really good at it.
In order to market.
<unk> going crazy delivering a lotta opportune exactly and our folks are just really really good so and that's okay.
And as far as the construction funded balances she should be thinking about maybe one more quarter of growth. There is is the unfunded gets funded and then they pay down some <unk> balance next year.
No no.
The you know we've got over $2 billion in unfunded that that that thing is going to bleed down over the next five quarters, if I had to put a stake in the ground I think that's it's probably going to be is still be about a billion dollars at the end of 23.
So with with I mean, that's just with what's on the portfolio now so.
But it's going to be so you're gonna see growth a lot of this really hinges on payouts very much Ah you know our real estate payoffs have been running a like a $150 million or so Malcolm referenced earlier, probably two thirds of that in the real estate values and the and the first two to three weeks of October .
So I think you know I think the the unknown is what's going to happen on the payoffs side, but the growth in the production and the funding of unfunded is going to continue.
Okay makes sense thanks, guys.
Alright, thank Matt.
Thank you.
This concludes today's conference call. Thank you for participating and you may now disconnect.
The conference will begin to T to raise your hand during Q&A you can dial 911.
[music].