Q4 2022 Alerus Financial Corp Earnings Call
Good morning, or good afternoon, everyone and welcome to the Irish Financial Corporation Earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the stocky advisory right.
After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded.
This call May include forward looking statements and the company's actual results may differ materially from those indicated in any forward looking statements.
For some factors that could cause actual results to differ materially from those indicated in the forward looking statements are listed in the earnings release and the Companys SEC filings.
I would now like to turn the conference that's Aleris Financial Corporation, President and CEO Katie Lorenson. Please go ahead.
Thank you Emily and thank you everyone for joining our call. This morning.
2022 was a year of significant transitions in our company as I moved into my current role and spent the better part of the air building the executive leadership team, including our new Chief Financial Officer, Although along who joins me on the call today, along with card tailor a chief risk officer in June we recorded it recruited a new chief banking and revenue Officer, who is also here with me today.
In the twin cities and in July we were we promoted from within to long tenured employees to round out the new executive team of Valera I am so proud of the professionals across the company, who I get to work with every day as we take <unk> to new height.
Recruiting and retaining talent beyond the executive leadership team is a key strategic initiative, we remain committed to as we build our commercial treasury and private banking franchise to support our historical strong client growth scale and brand we have already established in our wealth management retirement and mortgage division.
On Monday, we announced another win on the talent side with the addition of three high performing commercial bankers to the alerts team and this week. We also welcomed our new head of Treasury management and deposit strategy to our company.
Consistent with the rest of the industry 2022, with full of unpredictable and unprecedented headwind to our company.
The power of the <unk> diversified business model, our collaborative one alert culture and our hard working team members continued to focus on what we could control attracting talent acquiring new clients expanding relationships with existing clients managing expenses and constantly improving the client experience.
The results of these efforts across the company are creating embedded tailwind for the coming years, when the pressure points on the balance sheet and in the markets subside.
Specific strategic highlights for 2022 included the acquisition and clothing of Metro Phoenix Bank, our largest acquisition in company history, and a transformational deal for alerts Arizona franchise.
Another successful lift out of a team of bankers, who exceeded our expectations and closed over $200 million and high quality loans in 2022 less than a year with alere.
In 2022 with their path to sales milestone with another record year of record levels of new business growth in wealth management and retirement well constantly building on the synergies from the businesses, including synergistic deposit balances, reaching nearly $700 million at the end of 2022.
We remain committed to exceptional asset quality and in 'twenty 'twenty. Two we continued building on our strong foundation of credit and risk management to support our future growth, including the additions of regional credit officer additional technology enhanced administration and moderate monitoring robust stress testing and reporting as well as changes to own policy.
We strategically exited the payroll business is small and no margin product, which we replaced with formal referral partnerships with other payroll providers.
We've done a good job of managing expenses, while thoughtfully improving the processes and the client experience.
Right the inflationary headwinds, we continued to make progress in building efficiencies and scale in our company.
The company and the client base have grown while expenses in the number of employees continue to trend downward.
Looking ahead to 2020 three we have put the pieces together and this team is focused on the fundamentals that drive sustainable long term outperformance.
We remain committed to the work of right sizing our infrastructure investing in experienced talent entrenched in our markets and building our business.
We remain committed to exceptional asset quality and our laser focus on client selection as we grow.
We will take the positive lending market share and grow our company through new client acquisition, expanding and deepening relationships with current clients and reducing attrition by taking our service levels and the client experience to new Heights.
All while making the company more efficient and improving long term shareholder return.
With that I will now turn it over to Al Bill a lot of alerts CFO for financial comments on the quarter.
Thanks Katie.
I'll start my commentary on page 14 of our Investor deck that is posted in Investor relations part of our web site.
For the fourth quarter of 2022 reported average loans increased four 3% on a linked quarter basis. The increase in core average loans was driven by a six 4% growth in commercial real estate and commercial construction.
Average deposits declined one 1% on a linked quarter basis as clients continue to put liquidity to work.
Due to the decline in deposits, we had to increase our short term borrowings over $124 million or 49% increase to fund continued loan growth and especially with the addition of Metro Phoenix Bank as we continue to expand in Arizona.
I will discuss later the impact of these increased borrowings.
Turning to page 15.
Credit continues to remain very strong.
We had net recoveries of three basis points in the fourth quarter.
Nonperforming assets as a percentage was 10 basis points compared to 17 basis points in the prior quarter.
Our allowances one point to 7% of period end loans, which includes our recent acquisition of Metro Phoenix Bank.
We will be transitioning to seasonal in 2023, we are currently expecting a $5 million to $7 million day, one allowance increase this will impact our CET one capital ratio by 20 to 25 basis points based on risk weighted asset levels for the fourth quarter.
Turning to page 16, our core funding mix remains very strong.
We saw an increase in our cost of funds due to rising interest rates.
Given the further rise in interest rates and a highly competitive deposit environment. We have responded by increasing our deposit rates.
At the end of the third quarter, our deposit beta was only $3 six 5%, which is one of the lowest in the industry as we lag deposit pricing through the first nine months of the year.
However, competitive pressures escalated as many banks in our footprint so their loan to deposit ratio exceeded 100%.
Due to escalated competition for deposits, we raised pricing several times, which increased our overall deposit beta tenfold to 36%, which is in line with our historical experience.
Despite the competitive pressures and deposit declined slightly our funding base remains very strong and sticky as our loan to deposit ratio was at 83, 8% with no broker deposits.
On page 17, our capital base remains very strong as our common equity tier one ratio was at 13, 4%.
As a frame of reference the medium common equity tier one for the largest financial institutions objected to the Dodd Frank stress test was around 8%.
On this slide you'll also notice that we have over $2 billion in potential liquidity.
Given increasing concerns of potential economic uncertainty, we're all what we are well positioned from both a capital and liquidity standpoint.
Turning to page 18, our key revenue metrics.
On a reported basis net interest income declined four 8% on a linked quarter basis.
The decline was driven primarily by increased funding costs as deposit pricing roads and as borrowings increased to support loan growth and our Arizona market as previously discussed.
Non interest income declined five 5% on a linked quarter basis, mainly due to a decrease in mortgage.
I'll go into detail, but our fee income segments in later slides.
Turning to page 19.
Net interest margin was 3.09% in the fourth quarter, a decrease of 12 basis points from the prior quarter, which was lower than expected primarily due to a rise in cost of funds.
As Youll see in the last page of our earnings release, we saw our cost of funds rise across the board.
Interest bearing deposit cost increased 284% to 50 basis points.
Money market and savings deposit costs increased 248% to 139 basis points.
And short term borrowings increased 59% to 382 basis points.
Overall, the cost of our interest bearing liabilities increased 120% to 145 basis points.
We expected our liability cost to rise given our sensitivity, but the magnitude and speed were more dramatic given the competitive environment.
Offsetting this increase purchase purchase accounting accretion from the Metro deal impacted net interest margin positively by 10 basis points.
Turning to page 20.
Over $1 billion or over 30%, 37% of our loans are floating as you can see at the top left of the slide.
You see almost all of our variable loans or above the state of Florida or have no floors.
Now on the bottom left you can see a waterfall for our net interest income and net interest margin.
You'll see that impact of our liability sensitivity in the waterfall waterfall table.
The net effect of asset and liability rate changes negatively impacted net interest income by four 7%.
As we did as we disclosed at our last latest 10-Q.
We are liability sensitive in the near term and.
And a plus 300 to 400 basis points scenario, we would expect our net interest income to be down 10% to 13% in the upcoming 12 months.
Taking a step further that means we have approximately a $12 million headwind embedded in our current balance sheet for 2023.
However, due to recent balance sheet strategies and Remixing, we should see our net income growth resume after one year, even when assuming no loan growth.
Net interest income will contract in 2023 under a static balance sheet basis I expect this coiled spring and net interest income to bounce back in 2024.
Yeah.
On page 21, I'll provide some highlights on our retirement business.
AUM increased five 1% due mainly to hybrid domestic bond and equity markets in the fourth quarter revenues.
Revenues were stable on a reported basis, but up four 6%. If you clued onetime if you exclude onetime restatement fees of $721000 in the third quarter. This increase was in line with our expectations.
Turning to page 22, you can see highlights for our wealth management business revenues increased here by 6%, which was better than our expectations.
AUM increased four 2% from the prior quarter, mainly due to improved equity and bond markets again and also strong production.
Turning to page 23, I'll talk about our mortgage business.
Mortgage revenues declined $1 $6 million from the prior quarter due to lower originations as the environment remained challenged.
Mortgage originations decreased approximately 45% from the prior quarter, while originations of 812 $812 million for 2022 came in in line with our lowered expectations. As a reminder, the first quarter and fourth quarters of a calendar year are typically the weakest quarters for originations for us due to seasonality.
Lastly, turning to page 24 is an overview of our noninterest expense.
During the quarter noninterest expense decreased 11, 3%, which was better than our original expectations of a mid single digit decline.
Compensation expense declined mainly due to lower mortgage reached compensation from a decrease in mortgage originations.
Our tech expense declined due to timing of new contracts and we do not expect that benefit to occur again.
Our efficiency ratio improved over 500 basis points to 69, 6% and we achieved a positive operating leverage that was previously guided to.
Before I provide guidance I want to highlight again that do toward near term liability sensitivity. We have some strong headwinds in 2023 for net interest income.
We are making changes to reposition and remixed the balance sheet.
That will take some time.
But the coiled spring that I referred to earlier will take shape in 2024 and beyond.
When interest rates eventually stopped rising and actually declined that coiled spring will only become more powerful given our current positioning.
Now I'll provide some guidance for the first quarter and for 2023.
For the first quarter, we expect the following.
We expect net interest income to be done to be down high single digits.
Our net interest margin should decline further as we expect our cost of funds increase led by the repricing of our index liabilities.
The increased interest expense will be offset by modest loan growth.
On the fee income side.
All segments will be heavily influenced by the macroeconomic landscape.
While new business production has been strong in both wealth and retirement revenues will be influenced by market conditions.
Mortgage revenues will continue to be challenge as interest as interest rates remain high and we are in a seasonally weaker quarter for originations.
On a reported basis, we expect noninterest expenses to be stable relative to the fourth quarter, we have begun right sizing our infrastructure, while also adding some talent that Katie referred to to help drive future revenue growth and deposit growth.
We expect credit remained benign in the first quarter.
Now I will comment on some metrics for the full year 2023.
As discussed previously net interest income will be challenged due to our liability sensitivity, where most of the challenge will come in the first half of the year.
To offset some of the 10% to 13% decline or approximately $12 million pretax headwind embedded in our current balance sheet, we expect some modest loan growth and deposit growth.
We continue to expect the mortgage business to be challenged as the mortgage bankers Association purchase index is forecast to be down 8% to 9% in 2023.
Excluding market impact, we do expect retirement fee income on a reported basis to be down a little due to the exiting of payroll, which had reported revenues of $1 $4 million.
As we reviewed as we reposition remix rightsize and add talent, we are focused on controlling expenses in 2023.
2023 will be a year, where that spring coils back, but we remain confident that we will with all the strategic initiatives being put into place during the year that will springboard noticeably in 2024 and beyond.
As a coiled spring jumps forward after the challenges have been absorbed in 2023.
We will return to our strategic goals of achieving EPS growth of 10% or more and a 12% up.
Or are we a 12% or more.
In 2024 and beyond we expect continuous improvement in our efficiency ratio as we are laser focused on investing in talent and infrastructure to make us more efficient in the way we operate.
While continuing to offer a high level of service for our clients.
With that I will now open it up for Q&A.
We will now begin the question.
Okay.
To ask a question you May press Star then one on your touch time fine if youre using a speakerphone. Please pickup your handset before pressing the keys to withdraw your question. Please press Star then case.
At this time, we will pause momentarily to assemble our roster.
Our first question today comes from Jeffrey Ellis with D. A Davidson. Please go ahead Jeff.
Thanks, Good morning.
We're <unk> to you.
Hi.
Katie you alluded to.
The number of hires that you've made in the last year, but significant in trying to get a sense for if you.
Growth slows in 'twenty three.
Rolls have been filled.
The hiring pace slowdown in I guess is that the second question to that is.
How that translates to the expense growth in 'twenty three maybe a question for Paul on the second one.
Sure.
Thanks, Jeff in regard to the talent and.
We will continue to add <unk>.
<unk> with expertise in our market.
We will balance that level of investment.
As we work through and reposition them talent throughout the company in regards to the support side.
And so you know from al can give guidance in regards to the expenses, but that's that's how we look at the talent additions.
And in regards to growth.
I will hand, it off to.
Thanks, Dave This is Jim Collins, I will say that as we looked at that talent that can you just talked about we're looking at focused talent and specialized verticals to bring that value add to our customer base. We will consistently look for adding that talent in all of our markets, but we're going to be a little picky.
We're going to make sure we're adding the right team to to us.
We will offset that expense with expense saves a repositioning of of different expenses already in the bank, but the intent is to.
Harvest talent during this time when when we can.
Hey, Jeff it's al so on.
On the noninterest expense side, we are.
<unk> alluded to in our call a laser focus on continuous improvement on our infrastructure. We're looking on trying to achieve some expense saves this year and we are looking to have that reported.
Non interest expense to be down slightly on a year over year basis, but a lot of that will be determined on the timing of those expense saves.
As we also have two of them trying to add talent to and that's going to be also too as well.
Yes.
Just trying to I know that you have.
Got it.
Alluded to.
Q4, maybe incrementally lower but do we look at kind of full year close to $1 59.
You're down slightly as is that a good number to think about for the full year something inside of that number absent maybe.
Opportunistic hires in there.
Yeah, when I look at that like the $158 eight ish, we're looking for that to be down year over year from that level.
Correct.
Okay.
And then how.
Well I got you that the margin.
Thinking about.
That may trough.
It sounds like some pressure in Q.
You talked about.
Coiled spring thereafter, but.
Trying to get.
A read on where that where do you think that.
Yes.
Yes, that's a good question there Jeff So I said, it's going to be the first half I'd say, a good brunt of it'll be for felt in the first quarter.
A little bit more in the second quarter, and then we're hoping to rebound from there, but again a lot of the timing is going to come from the interest rate environment. So you know I feel comfortable saying that you know in the first half of the year and maybe even the first quarter will feel the brunt of it and then a little bit less so in the second quarter, and then probably starting to rebound in the last in the second half of the year again timing will be.
We determined in the mid <unk> mid point of view based on what the curve does.
Yeah.
I appreciate it.
Last one just on the it was modest but wanted to look at the non accrual.
Drop anything.
Specific to there was that just a miscellaneous or was there one large loan that.
It came back on accrual.
And we had a couple of pay offs, Jeff This is carey.
Okay. So just a handful of us I appreciate it thanks.
Thanks, Jeff.
The next question comes from Nathan race with Piper Sandler. Please go ahead Nathan.
Yes. Thank you good morning, everyone. Thank you for taking my question.
Just wanted to drill down to the.
For this year I appreciate your comments around.
There's a decline in the first quarter.
I guess just kind of thinking further out if we just did.
Two more fed rate hikes in the first half of this year you see.
Flattish gross after presumably will trough.
In the second quarter, how are you guys kind of thinking about our growth prospects in the back.
Oh really picks up after being somewhat seasonally soft.
First quarter.
Yeah, So Jeff sorry, Nathan this is.
The timing of the you know we kind of gave the guidance already on the previous question in terms of our margin and I'd say, our NII is going to fall somewhat a similar cadence to a lot of that those two will be influenced by the talent adds we've had and also the loan growth. We're doing from a you know our current team.
Team so.
I would say right now.
A good portion of that.
Sensitivity liability sensitivity will be felt in the first half of the year, which impacted NII and then kind of gradually dissipate as we get through the year. So as we get through the first six months I think youll see those storm clouds on net liability sensitivity kind of stuff.
Turning to dissipate and then start turning to more bluebirds, guys I would say for us in the back half of the year.
Okay great.
And just within that context curious how you guys are thinking.
The overall balance sheet.
From here.
With some of the deposit runoff.
Over the course of last year do you think that's largely run its course at this point and we can speak to us a bit more kind of stable.
Average, earning assets relative to the <unk>.
Yeah.
That's a that's a question that's going to happen.
We're gonna have to see how the year goes because right now the deposit environment is very competitive I mean, we've added talent right now and we're very positive about right now and very excited about is done on the Treasury management side, we're bringing you know it's very experienced capabilities in our footprint.
Maybe I'll switch it here to Jim in a second but as we you know as we build buildup to Treasury management and also our HOA capabilities. We think we can take market share out there because this isn't there.
Theyre, bringing into level of experience that is very high for us and I'll switch it over to Jim here.
So I'd make the comment that else right.
Deposits, it's going to be hard to see what happens to our current deposits. We have a lot of commercial customers that are just going to use their deposits instead of taking on debt, but we are building out and continue to build out our team and bringing in experts and other verticals such as repositioning one of our commercial executives into building out.
<unk> services right.
Focus have more focus on commercial deposit focused bankers slash wholesale deposit group and we have the HOA group that we acquired in Arizona.
Middle of last year, and looking at ways to leverage that to garnish more deposits and of course building out and enhancing our private banking group, which harvest is a lot of deposits. So it's a hard question to answer but I think we're doing all the right things in order to build up our deposit base.
And Nate just to kind of clarify one last thing here in terms of you know.
Our NII, if you think about the cadence here.
Hopefully it trough somewhere mid year, but we do expect our NII to start growing again in the back half of the year, especially in the fourth quarter.
And I would say the same thing about them as well.
And then in the back half.
Half of this year does that contemplate just to put on pause or you actually see some growth.
Growth potential post rates, just given the indexed deposits repricing lower.
Where did the repricing lower.
Yes, Okay grew rapidly.
Okay helpful.
<unk>.
And then maybe just two.
Turning to fee income mortgage love to get you guys updated thoughts on just kind of expectations for 2023 in terms of just overall kind of wealth management, our BNS revenue growth assuming.
Equity markets on a stabilized and we don't see much more.
Hmm.
The ratio pressures from here with some initiatives that you guys are.
We are taking in terms of driving more durable kind of less market sensitivity within those.
Business you guys had some growth in the segment.
Again, assuming more stable equity markets this year.
Yes.
I'll take that one yes, the simple answer is yes.
If.
Everything stabilizes.
Going forward with the additional focus that we have done with line of business in that group along with our current product set and our long standing initiatives that we have put in place with the wealth group we plan for additional growth.
I'm just going to also piggyback off of that two we did see record production in both our wealth and retirement business in 2022, and we expect that.
Those tailwind from all the strong effort from the teams in those segments to continue forward into 2023 as well.
Mhm.
Okay great.
Maybe one last one for Katie would be curious to get your updated thoughts on the acquisition.
Going forward.
Mr lessons.
Adding fuel to some degree at this point and maybe Theres more of a focus on permits.
Platform.
Patients degree.
We're just kind of any thoughts on what youre seeing.
The landscape in those three arenas.
Sure, Yes, so retirement benefits fee income acquisitions always a high priority for us.
Consistently building the pipeline networking building relationships across the landscape.
On the banking side, we're obviously, having great success in lifting out talent and so that's where we're focused but I'm working on building partnerships and relationships across that network also.
Okay, Great and I'm, sorry, if I could just ask one more just on Covid reserve outlook from here I. Appreciate the guide in terms of the seasonal impacts in the first quarter, both perhaps asking that.
Is it fair to expect provision, we can be pretty negligible just given youre still.
Clearly robust reserve level as a percentage of loans in <unk> coverage on Npls well.
So is there any kind of thoughts.
Sure.
Apart from just the seasonal impact in the first quarter from here.
Sure. Nate this is Karen I think that characterization is accurate of course is the switch to T cells.
What's happening in the macro environment matters.
Now that we're somewhat forecast dependent so.
But certainly we don't see anything.
Early in the year that would cause me to think we're going to have volatility outside of those macroeconomic factors.
Okay great.
Is there anything of note.
Criticized loans in the quarter.
That increase was the result of a downgrade of one commercial relationship.
That client is experiencing some stress, which we believe to be temporary and we are working with them as they improve their results in 2023.
Okay, Great I appreciate all the color and you guys taking the questions.
Thanks, Nick.
So we take our next question as a reminder, if you have a question. Please press Star then one on your telephone keypad now.
Our next question comes from Eric <unk>, who is a private investor. Please go ahead.
Yeah.
Thank you.
I have a few things for you.
First thing is I want a little bit of clarification youre kind of describing 2023 is.
Maybe a bit of a write off you know nothing great it's going to happen.
A year out from now.
So with the margin.
Were you, saying that the margin so let's just focus on where you are at the end of the quarter at 309, Okay.
As your margins going to trend much lower from here or is it going to break 3% and our euro dollars of NII I thought you said the dollars of NII are going to be lower in 2023, and 2022, but I understand that correctly.
Okay.
Yes, So would we gave on the call we said that using looking at a static balance sheet right now embedded in that is a $12 million headwind.
So if you take that into on a static balance sheet basis, you could probably calculate out the pressure on the margin there.
Okay and that $12 million headwind is.
Increased deposit pricing as well, what's the $12 million.
The $12 million is based on ours.
If you look at our ALLL modeling that is disclosed on page 62 of our 10-Q, you'll see that.
Up 300 to 400 basis point scenario. It does decrease our NII, mainly due to repricing of our liabilities, which is going to be mainly our money market and interest bearing deposits now also to what's impacting that now because of our increased borrowings to support our increased loan growth and our Arizona market.
We have also increased borrowings to.
Yeah.
Okay. So.
Obviously like.
A number of banks core deposits were not exactly as maybe core deposit as everybody thought given the big increase in the.
The rate that you.
Provided customers at least in the <unk>.
Last quarter, So you know.
When I'm looking at your <unk>.
Money markets, primarily that's the big chunk of it at the end of the day.
Is there much more I mean is that is that number going to be hitting 2% next quarter.
I'm, just trying to understand I understand the $12 million, you're pointing to the 10-Q that that's fine but.
There's a practical side of what really happens and maybe you can talk a little bit about what is in your market.
Who's been who's been jam on the deposit side. That's caused this kind of a headache for you maybe you could talk a little bit about that and where you expect those deposit cost to go.
Sure I'll start.
Thank you for the question.
In regard to our core deposit franchise.
Exceptionally strong now they are long tenured relationships and there are also significant balances so they absolutely have.
Pricing some pricing power and we are not going to lose core deposit clients and we've been very focused on building a quite a powerful franchise.
For a decade in regards to the money markets.
Certainly a portion of those relate to our synergistic deposits.
Our index, they do repriced quarterly.
In regards to the total cost of funds for those they have no servicing costs. I'm of course, then you have no acquisition cost the overall.
Although the rate is high the total all in cost of deposits is fairly well.
Yeah, and I'd, just like to say when you asked about where is it coming from the pressure I'd like to just highlight and when you look at.
Community banks within our footprint, we have approximately 30 banks that have loan to deposit ratios in excess of 100 plus percent. So thats, where the pricing pressure is coming from as those banks need liquidity and our deposit ratio loan to deposit ratio remains well below 100%. They are coming after our deposit base as well, so thats where the pressures.
Has been coming from.
Okay. So let me ask a question if I went on your website or walked into a branch right now.
What would I be offered on our money market deposit accounts.
Great wise.
Hi.
Right now you would be given the market rate right now and that would be roughly.
Roughly around.
The 85 basis points.
Okay.
You're showing $1 39, and the average for the quarter.
Yeah of course, it's a hard to not being realistic.
Yeah, but that those are synergistic deposit that do not come in at the branch level. So they are coming from our retirement services side.
Okay, Okay, so thats, where youre, having to pay up more for the.
With the possibility to indicate you're expecting yet.
Do you expect the niv and other noninterest bearing to you.
Do you expect to continue to lose volume there and you made that comment about some of your commercial customers are drawing down a long.
Drawing down their own liquidity as opposed to taking bonds.
More of a dent on that.
Tony.
I think thats and that generally is a trend in the in the fourth quarter for all commercial clients as they are paying dividends are getting money out of the entities.
I think it's safe to say line utilization is a big question Mark on what will happen in 2000 and the rest of this year.
It has creeped up towards the end of last year.
But we have seen a lot of customers instead of taking a terminal for a piece of equipment just using cash.
I think it could come down a little bit, but I don't think thats enough at this point, that's going to be impactful.
Okay. Let me just switch gears for a second the mortgage banking business, obviously, unless something drastic happens in rates, it's not going to come back online anytime soon.
The way, you're operating that business now, giving them where the revenue volume is.
Is it fair to say it is breakeven or are you losing money on it all in.
We are making money in that business alright.
You are okay.
And then last thing.
On the expense side, you talk about cuts and things like that but.
If this revenue environment stays subdued for you or there's maybe more of a surprise with the margin you know the model is what the model is but the rubber hits the road with what your competitors do right you can't control that.
To what extent.
Do you see your comp line coming down at the operating level and at the executive management level. This year.
Yeah.
Okay.
From an expense standpoint.
We're doing the right things, we just completed a restructure we eliminated several positions in the company and but we're thoughtful right on this.
This company has run for the long term.
And we are going to be opportunistic in adding talent, where we can while thoughtfully repositioning the support to make sure that talent has even more capacity in the company.
How how Katie how much or I guess, how far are you through that sort of plan to streamline more maybe that's my own words not yours.
In 2023 are you right at the beginning of doing in or you're mostly through it I realized with Metro Phoenix.
A lot of churn.
Churn, there and things you have to get through.
To the positive but.
I assume you're talking more about the core the core bank outside of what happened with Metro Phoenix. The acquisition. So are you is it is this sort of a new step or or how.
Are you halfway through it.
You know a new step.
First step was here just a couple of weeks ago and it really was on restructuring the team to formalize the structure around our go to market strategy and so as we bring in.
<unk>.
An experienced producers in their vertical.
We have realigned the support side and dedicated support side to those team members.
So that our speed to market can improve as long as the client experience and again just the overall capacity of.
All of those team members.
Okay, and then just one last thing.
The stock at a premium valuation on it for quite some time that premiums come off quite a bit have and again. This is sort of like a financial metric, but is there anything you would consider on the stock buyback side, if the stock stays weak here or not.
We do have others.
We do have a current authorization out there, but we've been very also watching making sure our capital levels are adequate because we also are aware that the investor base and stakeholders out there very closely watching TCE.
Yeah, and I would just everything were all the steps we're taking are what fundamentally.
Value and create value.
So our balance sheet is not in the us in the position, it's in but where we're doing the right things and taking the right steps and I expect we'll return to that valuation.
Okay.
Okay. Thanks very much.
Thank you Eric.
Yeah.
Our next question is a follow up from Nathan race with Piper Sandler. Please go ahead Nathan.
Yeah.
Yes.
A follow up.
Last question.
Around valuation I mean, the stock is.
Doncaster one Epicentral book.
Where it's trading today, how do you guys think about buybacks.
Within the context of what I'll describe in terms of the five year capital ratios are well above peers and so forth today.
Right so.
We do have an authorization out there were watching closely because we want to make sure that we manage.
That authorization to make sure that we don't also put us in a TCE position that people would be concerned about us. So we are carefully watching but you know.
Now our stock is very cheap right now and I'd love to be active in the market, but also to.
With the acquisitions, we've done on the retirement side. We also have to make sure that our TCE it doesn't cause us concern as well.
Right understood.
Could you just.
Mind us in terms of how much of your deposit base in the short term rates I don't think that's something we've talked a lot about in the past.
Nate let me get back to you offline on that one.
I just want to make sure I got the exact numbers for you on that one.
Okay, Great and then just one housekeeping question on the tax rate going forward.
Yes, I mean, we're losing.
Our tax rate has been on the lower side was expecting somewhere in the low twenties still I think that's a pretty fair to go forward.
Okay, great. Thank you for taking the follow ups.
Okay. Thanks, Nick.
Our next question comes from Ben <unk> with Telsey Group. Please go ahead Ben.
Hey, Ben Hey, guys.
Quite a bit of a fire and brimstone and the tenor today.
I guess a modeling question.
I'm trying to bring a little bit of that here, but I'm just kind of thinking. This. Thank you I don't know 10000 or 100000 foot view.
With the recent hires are sold I'm pretty solid pedigree and if you look at when you guys have done on the core bank it.
It seems like growth is solid our should be solid and you shouldn't really have a credit risks you think philosophically you could ever see red revenue.
Above fee income in terms of revenue.
Generation I think longer term.
You guys have a charter clearly and focusing on being a bank because that's what we need for all of your kind of flywheel type businesses and across the income when you get the fee incomes come a market that gives you. The result of our E mortgage.
Fireeye to some degree, but when you're just thinking bigger picture a lot.
Mark key hires have been in the bank and that's clearly the focus but is that just because that's the lowest hanging fruit or the easiest change I'm just trying to figure out for the next two or three steps here and turn the ship around.
Yeah sure I'll take that so strategically as we've talked about on our our wealth management a retirement our mortgage division has.
Historically had strong performance.
Within our banking division, we know that scale is important and moving up market is important we're in great markets and so what.
What we bring in terms of an opportunity for talented producers really resonate.
They see a very an opportunity to be part of a very special growth story and do more with their client base and so we have had great success in building the expertise within the banking franchise so far.
We intend to keep going and I do anticipate that you will see our mix of revenue.
Start to trend towards the banking side, but we will always be focused on how to being a diversified company with high levels of <unk>.
Income.
Okay Fair enough and then being that you're.
Fee income strategies are more diversified than your branch footprint I guess, you can say about you like kind of the Denver area.
But when you think loan production do you think theres OPO opportunities don't necessarily carry the overall cost of our branch network extinction.
Yes, so definitely a strategy, we're looking into and could see us deploying that strategy in the future.
Alright sounds good.
I appreciate the time.
Thanks Ben.
Okay.
Again, if you have a question. Please press Star then one now.
This concludes our question and answer session I would like to turn the conference back over to Katie Lorenson for any closing remarks.
Before we go to closing remarks, I just wanted to provide one answer that Nate asked on the call about 15% of our total deposit base is directly indexed to short term money market rates, so with that I'd like to turn it over now to Katie Alright. Thank you al.
Thank you for joining the call today. Thank you for the question 2023 is a pivotal year for <unk>. The work. We are doing this year will set the stage for Alere to return to high performing return ratios in 2024 and beyond our enviable diversified business model with industry, leading recurring fee income strong core deposit franchise with access to synergistic deposits.
Robust reserves and regulatory capital and historically strong asset quality position, our company well for attracting and retaining talent and growing our client base. We are committed to constant improvement throughout our company and expect to see continuous improvement in our efficiency ratio and return metrics.
The balance sheet headwinds subside in 2024 and beyond we believe the work we are doing on the fundamentals and the powerhouse of professionals in experienced bankers and producers we are bringing into the company will the catalyst for the long term value we are creating for our shareholders I want to thank our <unk> team members for all they do and thank you all of our shareholders for your investment in our.
Thank you all for joining our call today.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
Yes.
Okay.