Sandy Spring Bancorp Inc. Q1 2023 Earnings Call
Yes.
Good afternoon, ladies and gentlemen, welcome to the Sandy Spring Bancorp, Inc. Earnings Conference call and webcast for the first quarter. My name is Chiquita I will be your moderator for today's call all lines, we didn't need it in the presentation portion of the call with an opportunity for questions and answers that they can't if you would like to add.
Ask a question. Please press star followed by one or your telephone keypad I would now like to pass the conference over to your house and dangerous graduate with Sandy Springs Bancorp. Please go ahead.
Thank you and good afternoon, everyone. Thank you for joining our call to discuss Sandy spring Bancorp's performance for the first quarter of 2023. This is Dan Schreiter speaking and I'm joined here.
My colleagues, Phil Mantua, our Chief Financial Officer, and Aaron Kaslow General Counsel and Chief administrative officer.
Today's call is open to all investors analysts and media there will be a live webcast of todays call and a replay will be available on our web site. Later today before we get started covering highlights during the quarter and taking your questions Aaron will provide the customary safe Harbor statement.
Thank you Dan and good afternoon, everyone Sandy spring Bancorp will make forward looking statements in this webcast that are subject to risks and uncertainties. These forward looking statements include statements of goals intentions earnings and other expectations estimates of risks and future costs and benefits assessments of expected credit losses assessments of market risk.
And statements of the ability to achieve financial and other goals. These forward looking statements are subject to significant uncertainties because they are based upon our affected by managements estimates and projections of future interest rates market behavior, other economic conditions future laws and regulations and a variety of other matters I wish their very nature are subject to significant uncertainties.
Because of these uncertainties Sandy spring Bancorp's actual future results may differ materially from those indicated in addition, the companys past results of operations do not necessarily indicate its future results.
Thanks Darren.
Despite challenges in the banking industry, we have remained strong and committed to achieving long term success for our clients and our shareholders.
Our core earnings for the first quarter with $52 3 million, representing an increase of 16% compared to the prior year quarter.
Our credit quality remains solid and we've maintained a strong capital base and a rigorous risk management program.
Our loan to deposit ratios are portfolios.
Our diverse and represent long standing relationships here in the greater Washington.
The events last months added to an already challenging operating environment that includes high inflation ongoing interest rate increases and some recessionary pressures. However.
However, our fundamentals are solid which will serve us well as we navigate the complex issues facing our company and our industry.
Our priorities for the balance of the year remain growing our core funding as well as managing expenses.
Given our revised outlook on the market and other economic factors, we made several changes to our plans for the year, which I will outline for you on the call today.
We will also dig into the details of our deposit portfolios and commercial real estate position.
As always we look forward to taking your questions at the conclusion of our comments with that let's review the details of our financial performance.
Today, we reported net income of $51 3 million or $1 14 per diluted common share for the quarter ended March 31, 2023. This compares to net income of $43 9 million or <unk> 96 per diluted common share for the first quarter of 2022 and $34 million.
$4 76 per diluted common share for the fourth quarter of 2022.
As mentioned core earnings were $52 3 million or $1 16 per diluted common share compared to $45 1 million or 99 per diluted common share for the quarter ended March 31 of 2022, and $35 3 million or <unk> 79 per diluted common share for the quarter ended December 31, two.
'twenty two.
The increase in core earnings is primarily the result of the provision for credit losses, which was a credit of $21 5 million compared to a charge of $1 6 million for the first quarter of 2022, and a charge of $10 8 million for the fourth quarter of 2022.
The credit to the provision.
<unk> improved regional unemployment rate forecast also the lack of loan growth in the first quarter and continued strong credit performance of our loan portfolio.
Taking a look at the balance sheet total assets increased 9% to $14 1 billion compared to $13 billion at March 31 2022.
And $13 $8 billion in the linked quarter.
Total loans remained relatively stable at 11 4 billion compared to the linked quarter as a result of intentionally reduced loan originations in commercial real estate, coupled with softness in demand and lower payoff activity during the quarter.
To give you a little more detail commercial loan production in the first quarter of 2023 totaled $423 million, yielding $156 million million in funded production.
This compares to commercial loan production of $662 million in the fourth quarter of last year that yielded $342 million in funded originations and looking at the first quarter of 2022 production totaled $874 million with funded production of $545 million.
Over the past 12 months total commercial loans grew by $902 million or 12%.
For the next couple of quarters, we do not expect funded loan production to exceed $150 million each quarter essentially matching expected run off as we continue to focus on deposit acquisition and retention.
As we see core deposit growth pick up we will increase funded loan activities.
Pages 21 through 24 of our supplemental information provided this morning gives more detail on the composition of our loan portfolios the granularity of our commercial real estate portfolio and specific.
<unk> composition in the urban markets of DC and Baltimore.
Realizing the commercial real estate has become top of mind in the current environment I am pleased to report that our book continues to perform very well and we are not seeing signs of weakness or deterioration within the client base.
We recently completed an analysis and re underwriting of our office portfolio, which affirmed the underlying quality accuracy of risk ratings and overall strength.
We routinely perform stress tests on portfolio of segments and external loan reviews to obtain an outside evaluation of our underwriting in this rating systems and as the current economic environment unfolds, we remain very close to our clients in all segments and we will continually assess the performance of our portfolios.
Shifting to deposits total deposits increased 1% to $11 1 billion at March 31, 2023, compared to <unk> 11 billion at December 31.
Given all of that occurred in March I'm really pleased to report that we have a stable core deposit base.
Excluding brokered relationships core deposits represented 88% of total deposits at the end of the quarter compared to 92% at the end of the linked quarter.
Total insured deposits represented approximately 65% of total deposits with the majority or 79% from within the commercial portfolio slide.
Slide 16 of the supplemental deck provide that breakdown.
During the quarter depositors' rotated into higher yielding deposit products, resulting in 12% attrition in noninterest bearing deposits, primarily commercial checking accounts and an 8% increase in interest bearing deposits.
Excluding broker time deposits total deposits declined 3% during the quarter, we feel very good about our success managing through the Silicon Valley Bank and signature bank failures.
Our employees did an exceptional job mitigating deposit outflows by providing reciprocal deposit arrangements, which provide FDIC insurance for accounts that exceed $250000.
We've had the products and processes in place for many years. So we were able to seamlessly make this product available to clients in the immediate aftermath of the bank failures during the quarter.
Overall, our clients have been very receptive to our approach and have expressed their loyalty and appreciation.
Slide 17 of the supplemental deck provides more color on our commercial deposit portfolio, which represents 61% of our core deposit base. The majority of which is in a combination of noninterest bearing and money market accounts.
With an average length of relationship with nine years, the portfolio is well diversified with no concentration in a single industry or client and.
In fact, no commercial client represents a relationship exceeds 2% of total deposits.
Likewise on slide 18 of the supplemental deck you can see the breakdown of our retail deposit book, which is more diversified and composition among DDA money market and time deposits.
With an average length of relationship of 12 years, the retail deposit portfolio is also well diversified with no concentrations.
At March 31, 2023 contingent liquidity amounted to $3 8 billion or 101% of the amount of uninsured deposits.
With an additional one 5 billion in available fed funds, which provides total coverage of 138% of uninsured deposits.
This amount of contingent liquidity does not include any consideration of the held to maturity or available for sale investment portfolios. The.
The details are available contingent liquidity and the impact of excess cash and <unk> securities are on slide 19 of the supplemental materials.
The results of our stress testing at the end of the quarter demonstrates a strong liquidity position with sufficient liquidity and most severe scenarios.
Given the current economic environment liquidity demands are significant so we are keenly focused on growing core deposits throughout 2023.
As I previously shared we have several near and long term efforts underway to respond to these challenges.
Our efforts include sales outreach through our branch network revamped incentive models and enhanced digital capabilities that allow us to use data analytics to strategically target both clients and prospects.
Most notably we recently launched a more sophisticated online account opening platform.
The new platform provides clients and prospects with 24 hour access to all of our consumer deposit products and an end to end account opening process that takes less than eight minutes.
Our advanced systems have reduced fraud improved operational and compliance efficiency and expanded funding up expanded funding options. We've also streamline the flow for opening multiple products, resulting in an average opening deposits of nearly $8200.
Overall, our new digital capabilities have given us the opportunity to expand our customer base and provide a seamless and efficient account opening experience.
Also providing the flexibility to access deposit relationships and adjacent markets, which we are testing now.
Shifting to non interest income for the first quarter of 2023, noninterest income decreased $4 6 million or 23% compared to the prior year quarter.
This decline reflects the ongoing impact of the economic and rate environment is having on mortgage banking activities and wealth management income.
Also the decline in insurance Commission income given the disposition of our insurance business in the second quarter of last year and lower bank card income due to the regulatory restrictions on fees since we became subject to the Durbin Amendment.
Compared to the linked quarter income from mortgage banking activities increased $500000 in total mortgage loans grew $45 million.
Our expectations for mortgage banking revenue should fall in the $1 billion five to $2 $5 million range per quarter going forward.
Wealth management income also increased by 500000 compared to the linked quarter assets under management at quarter end totaled $5 5 billion, representing a four 2% increase since December 31.
Our teams in Sandy Spring Trust and our two well subsidiaries continued to do a great job growing new client relationships. Despite the volatility that exists in the wealth markets.
Let's talk a bit about margin for the first quarter of 2023. The net interest margin was $2 99 compared to $3 49 for the first quarter of 2022 and three to six for the fourth quarter of 2022.
The erosion in our net interest margin for the current quarter was due to higher rates paid on interest bearing liabilities, which outpaced the increase in the yield on interest earning assets. The overall rate of yield increases were driven by the multiple fed funds rate increases that occurred as the preceding 12 months, coupled with the competition for deposits in our market.
Compared to the first quarter of 2022 the rate paid on interest bearing liabilities rose 223 basis points, while the yield on interest, earning assets increased 98 basis points, resulting in a margin compression of 50 basis points.
Looking ahead, we see the margin remaining sub 3% for the remainder of 2023 with the second quarter settling in in the mid $2 <unk> and then gradual increments throughout the remaining two quarters.
This outlook assumes one additional 25 basis point move by the fed in May and then no other action throughout the rest of the year.
Noninterest expense for the current quarter increased $4 2 million or 7% compared to the prior year quarter, driven primarily by increases in the FDIC insurance assessment professional fees and services and other expenses.
We expected certain compensation related costs early in the year and increases to the run rate related to some of our completed technology initiatives. However, the cost of funding and the economic realities of the past quarter have intensified it intensified our need to manage operating expenses.
To offset these overall profitability pressures, we are taking immediate action.
Clothing, halting plans to add staff.
We will only hire mission critical this year.
We're also assessing our current staffing to ensure we are aligned with business volumes and market demands.
And lastly, we are delaying over half dozen projects until early 2024, and scaling back discretionary spending in categories such as consulting fees.
We will look to manage operating expenses and the $63 million to $64 million per quarter range fully realized in the third quarter.
Absent of any significant growth in revenues, we look to manage quarter over quarter growth by targeting a non-GAAP efficiency ratio within the range of $54, 55% as more significant revenue growth. We occurs we'd look to manage this ratio of more towards the 50% to 52% range.
The non-GAAP efficiency ratio was 50, 687% for the first quarter of 2023 compared to $49 34 for the prior year quarter and $51 46 for the fourth quarter of last year the.
The increase reflecting a decrease in efficiency in the current quarter compared to previous quarter and the first quarter of the prior year was a result of declines in net revenue from the prior periods coupled with growth in noninterest expense.
And then shifting to credit quality, our level of nonperforming loans to total loans improved 41 basis points compared to 46 basis points in the prior year quarter. These level of nonperforming loans compared to 35 basis points for the linked quarter and continue to indicate stable credit quality during a period of significant loan growth and a dig.
Three of economic uncertainty.
Loans placed on non accrual during the current quarter amounted to $19 7 million compared to $1 5 million for the prior year quarter and $5 5 million for the fourth quarter of 2022.
We realized net recoveries of 300000 for the first quarter of 2023 compared to net charge offs of 200000 for the first quarter of 2022, and 100000 recoveries for the fourth quarter of 2022.
Slide 25 of the supplemental deck displays the change in allowance for credit losses based on our current seasonal methodology the.
The components of the change are mainly qualitative and are based on more favorable economic forecast assumptions less portfolio concentration in investor real estate loans and improvement in overall credit administration across all portfolios.
And lastly at March 31, the company had a total risk based capital ratio of $14 43, a common equity tier one risk based capital ratio of $10 53, a tier one risk based capital ratio also at $10 53, and a tier one leverage ratio of 944.
So that wraps up our general comments for today and operator now we can move to the questions.
Absolutely if we would like to add.
Ask a question. Please press star followed by one or your telephone keypad. If for any reason you would like to remove that question. Please press star followed by.
Again to ask a question Chris Stark one.
Derek.
Speaker phone, please remember to pick up your handset before asking your question.
We will pause briefly of questions already Sir.
Your first question comes from the line of Casey Weitman with Piper Sandler you May proceed.
Tim.
Hi, Casey just wanted to hi.
Just wanted to start out the commentary around flattening loan growth for the foreseeable future does that are you also assuming then deposits are pretty flat and then the overall balance sheet will remain flat or are you hoping to build cash so yeah look on the funding side.
Casey, It's Phil yes.
Yes, we are anticipating flat.
Flat position on the deposit side as well.
Let me, maybe one 5% overall overall.
Overall growth, but by and large flat.
They are probably going to maintain that.
The current cash position here.
Here, which is about $300 million over where we would traditionally have carried it throughout.
So foreseeable future.
If some of that deposit growth comes back and we see some other opportunities that will change our stance, but I think we're basically looking at an overall flat balance sheet here for the remainder of 'twenty three.
Got it.
Can you walk us through so that the deposit trends I guess monthly through the quarter.
Specifically in the noninterest bearing category well was there and then walk US through also is there some seasonality towards the end of the quarter or just.
That'd be helpful. Just to sort of see what was going on monthly.
Yes, Casey this is Phil so.
First couple of months of the quarter.
We continued to see some of the traditional.
Kind of we saw some of the traditional run off the seasonality seasonal runoff in the first part of the quarter and just about as we were starting to see it turn the other way when SBB STB situation occurred.
Which really changed the dynamic completely so we were starting to see.
Some normal behavior.
Especially in the demand deposit area up until the point, where the whole environment changed.
We have probably run down overall deposits in those first couple of months about $100 million each month before we started seeing it going the other way and it has gone the other way because we had introduced some additional.
Great and products during that period of time, and we're starting to get a little bit of traction there.
And then of course from that point forward as Dan reported.
The run off in.
And transfer of the DDA balances over into those.
Areas like Ics, which gave the client the greater.
Security in terms of their deposit insurance and Ics grew guarding during the month of March by $283 million, which is pretty much what we saw come out of DDA for the most part and move over there.
And the Ics that's included in the third bucket right.
It is yes it is okay.
Alright.
Yes.
For insured number actually improved as we move through the end of the quarter as well, partly because of that transfer into that other other product lines.
Okay.
And then last question would be can you guys give us a sense for how you ended the quarter with either the cost of funds our cost of deposits or just how we.
Yes.
How we ended the quarter, but I appreciate the margin guidance.
With that yes.
Yes, Mark it's marches overall margin was around $2 93, but that did include one.
Interest recovery that occurred at the end of the quarter. So the pure margin that really kind of started this quarter with was in the mid $2 80 range.
And Thats kind of where were and why we are guiding towards what we have here in terms of.
$2 80 ish kind of levels for the foreseeable future and then over the rest of the year kind of migrating back up at a pattern that we've really been anticipating from before just that.
At a lower lower starting point and overall lower levels.
Going going forward.
And sorry, just one more.
That expense range you guys gave would you could you get to that as early as the second quarter or is that a little bit too because that seems like a big jump down from the first quarter level is that sort of what you hope to get hope to get to by the end of the year or is it going to be immediate.
It's what we're striving to get to.
Fully fully realized in the third quarter so.
Second quarter second quarter will have some some additional.
Additional noise as we look at at postponing some projects as well as realigning resources.
Based on current volumes.
Got it.
Alright, Thank you guys.
Thanks Casey.
Thank you.
The next question comes from the line of Catherine Mealor with <unk> you May proceed.
Thanks, Good afternoon.
Good afternoon Catherine.
I wanted to dig into the ACL release, and just I know you mentioned that part of that was just from a lower regional unemployment rate but.
Just hoping you could give us a flavor for.
Sure.
It's kind of interesting that we would release of reserves.
Magnitude at this part of the cycle at a point where everyone.
And a building or anticipating in our credit issues over the next couple of years.
And if there are other factors at play.
You bet.
That drove that or is it just really just an unemployment rate assumption.
Yeah. Catherine this is Phil there were clearly other qualitative factors.
Based on just what happened with the underlying portfolio the change in mix the lack of.
Growth in certain categories.
It came back during the quarter.
And contributed to the overall credit that was involved.
There are other components to it other than the one that piece related to forecast forecast piece I think alone was around $5 million.
And then of the $21 million and there was another $2 million.
Related to the unfunded commitments. So the remainder was really all qualitative in nature and that included.
And adjustment to one of the qualitative factors that is connected to the way we do the forecast that would also was implemented during the quarter.
So those are the components that really drove.
Drove what occurred but.
Just from the forecast change alone, which was set up.
We didn't anticipate that Moody's forecast for unemployment in this market is actually going to improve during the quarter that by itself would have driven the credit even without the other things that went on from a qualitative standpoint.
And I noticed that you.
Youre tied to March Moody's is how much of it do you have on the baseline case versus some of the more adverse scenarios Keith scenario with it like that as well.
We look at those but we don't use those per se in the capital in the base calculation.
We use those when we do our stress testing and alike.
For capital purposes, but we don't use the other scenarios other than the one factor that we have in there now, which we've talked about before which is related to the potential for a recessionary period. There. We do use one of the other scenarios, but thats solely in that factor.
And the profitability by the way that we used for recession did not change this quarter. So thats part of why that one didn't move.
Really much at all either direction.
Okay.
And by the way.
Yes.
I am sorry, Catherine.
Yes.
A moderate recession, it's not for anything too severe.
Got it okay.
And then I'm going to beat a dead horse.
So I noticed Moody's April is out just for the whole U S. I don't know if the regionals are out yet so is there.
And Moody's increase their unemployment.
The U S. In April is there any any sense as to what they've done for the regional space yet.
Yes.
Actually the one that we the one we used.
Also reflected the national unemployment rate actually moving up it was the fact that we've been traditionally using the local one that happened to go down. So we did we did recognize that.
We just we just chose to stay consistent with our methodology, which use the local MSA, which for whatever reason there was improvement in the unemployment rate.
Got it.
Okay.
Yes.
It is aside from the reserve Bill just generally from what Youre seeing on the ground here with your clients.
Kind of flavor or color you can give us on Jeff.
Elsevier at your client base and what you are concerned with Dan mentioned Youre going into this stress testing on the CRE and office space and you got great disclosures I think were really helpful.
Frame that but just kind of walk us through what youre seeing in your markets in terms of where the mist.
The concern you have today and what your clients are saying.
Yes Catherine.
Dan.
Ed obviously, staying extremely close to our clients and I guess, what occurred with SBB and signature had us reaching out to our.
Top clients, which many of those are borrowing relationships.
I think theres, probably more concerned about how what the.
What will happen from a recessionary standpoint, and how it is going to affect their business as opposed to them feeling.
Pain from anything specific in the market.
When we look at particularly our pre book.
Cash flows occupancy continues to be.
Good obviously cap rates are having an impact on ltvs for those that might be looking to two.
To sell a property.
But not we're not seeing significant concern from from the client base, obviously office and we obviously did some more disclosure to help understand kind of what our offices, which tends to be more kind of professional office space not big floor plates.
Our five.
Our five largest.
Office loans in our portfolio all range from 20% to $30 million in total exposure.
So we're not making big bets on large large office and so we're particularly seeing close to that more around that.
The trends have returned to work and.
And that but.
In terms of color from our client base I think it's.
Steady as she goes.
We spent a lot of time.
Holding hands with clients and helping them discern kind of what they are reading in the media was.
Was legitimate or whether it was hype about the degree of concern regional banks that seems to have settled down but in terms of credit itself not seeing signs of.
A concern but like everyone.
We're looking closely and we will continue to monitor things as we go through the year.
Can you give a sense as to how.
What percentage of your commercial real estate book matures in the next year.
Year or two and then as Youre seeing some of it as maturities.
It comes through.
Can you talk about how what the impact of the higher rate is given to your clients are they able to afford that John for where we're at.
That stress this evening.
Yes, so so far we've been good we've got about <unk>.
<unk>, 13% to 14% of.
The commercial real estate book, this is total including including a D&C.
Maturing within the next year another another another 10% in the year after.
So we haven't seen pressure.
Pressure as it relates to.
Two rates.
The rate impact on the portfolio as of yet.
Not to say it couldn't happen on select select relationships, but but not.
Thus far so we over the next two years, you're talking about 23, 24% of the book maturing.
Great. Thank you.
Thanks for the additional color appreciate it.
Thanks.
Yes.
Thank you.
The next question comes from the line of Mango nervous with D. A Davidson you May proceed.
Hey, good afternoon.
With your adjustments to expenses.
Is that what.
What kind of counts as mission critical and doesn't in terms of.
Our initiatives to look at like C&I lenders are higher some new.
<unk>.
More like.
Diversified product set at Lindbergh.
Yes, I think Manuel this is Dan I think it's on the on.
The revenue side as well as on infrastructure side. So we are so let me speak to infrastructure first from a mission critical standpoint, having cross $10 billion a couple of years back.
There is still some infrastructure.
Builds that we're doing in technology.
And in data data governance.
And those are.
Compliance related type of expectations around how the organization matures and so we're going to be.
We don't want to obviously lose momentum in some of that build.
And then on the on the revenue side.
We.
We have.
Indicated previously and we will continue to focus on driving.
Our ability to generate more C&I commercial deposit commercial loan business with less reliance on commercial real estate.
And so as those as those resources and skill sets become available we certainly want to have.
Attract that to the to the organization, but Mike.
My comments with regard to expense management in the short term actions, we're taking there it's really about looking at where we have.
Our expectation is we certainly mentioned is that our volume of.
Lending is going to be off.
This year as we focus on deposit gathering.
And we want to make sure we are aligning from kind of frontline to back office in accordance with the realities of the market and market demand at the same time, while we build in areas, we need to build so mission critical would be key infrastructure key technology compliance and.
With an eye towards the revenue areas, where we need help.
Okay.
That's helpful.
What if somebody in your deposit flows.
Is that mainly.
Some of the DDA decline does that mainly mutual funds and you still have those clients or are you actually did you actually see some clients.
Okay change thanks.
Yes.
By and large we've retained client relationships, even if the balances themselves.
Either fluctuated in or out or shifted within the within the balance sheet.
But overall.
Over the course of the three months of the quarter. Our overall total number of clients actually went up.
Two to a small degree, but nevertheless, it was a net increase not a net decrease so we didn't we didn't reflect client losses by any means if nothing else we picked up some additional relationships.
Okay, great great.
A lot of similar credit questions had been Oh go ahead.
No what I was going to mention what we did experience. We haven't commented on in the call yet today during the quarter post SBB in signature.
It is probably a handful of clients, but important on the less ware.
They were they were the local or regional branch of of our National enterprise that.
That kind of demand at the local the local office move their deposits to a larger institution for a period of time.
Which was not a loss of the relationship. It was a decrease in balances that we believe we can.
We can attract back to the company.
To have settled down a bit.
Alright, I appreciate that color that's already starting to happen here in April .
I don't know if it started happening yet.
In April , but thats been the indication from the client base.
Okay and what's the current.
What's the current level.
Youre offers in the marketplace on deposit side lending market.
Yes, well this is Phil again.
Top top offer great. At this point is 88 month CD special at four five followed by a 14 month at quarter to quarter.
And our <unk>.
<unk> introduced high yield savings account.
Account, that's it for the quarter as well so those things lead us lead the market for us.
And then premier money market guarantee rate for six months is still in the $3 50 range, we really did.
Feel compelled during the last part of the quarter, but everything else going on.
Move the rate.
Positioned to any large degree.
Given that we felt that what was going on was not necessarily rate related but going forward here will be back.
In that vein looking at.
How we need to continue to be competitive.
As rates continue to shift.
I appreciate that.
Most of my credit questions have been answered, but how should we think about the provision going forward just to kind of.
Alright, if things.
Covered net charge offs the reserve relatively steady.
And then there might be some model adjustments, but taking those model adjustments out of the equation is that the right way to think about it.
Yes, Phil again.
I don't see the provision.
The amount of the provision and therefore, the build to reserve being terribly significant throughout the rest of the year without any loan growth or any change in.
The overall charge off position.
I mean, I think it will be fairly muted as we move through the rest of the year at this point given given that those things play out as we as we expect them to.
Okay I appreciate that thank you.
Youre welcome.
Thank you.
The next question comes from the line of Russell Gunther with Stephens You May proceed.
Hey, good afternoon guys.
Our next question.
Hey, guys.
I just had a point of clarification, so the loan growth guidance the $1 50.
Is that a net number or is that.
Your expectation, but runoff will eat into it so kind of flat balances for the time being the.
The latter Russell that $1 50 of approximates, what we expected run off yet.
And then Dan how should we think about the bogey you wanted to achieve before you are.
Appetite or willingness to grow loans return does it.
Loan to deposit ratio in a certain range or just trying to think.
And what we should look for.
Yes, Russell this is Phil I think that we are.
We're quickly coming to the realization that.
The ability to run the balance sheet with a loan to deposit ratio over 100% is.
Probably not going to be realistic as we move forward. So I think that that ratio needs to clearly approach 100 or get below it before.
We think that will be in a position to kind of completely re engage on the on the loan side.
Okay.
Very good and then.
I appreciate all the color and follow up on margin expectations, we could.
Probably triangulate a bit but do.
Do you have a formal kind of shift in view on what your through the cycle deposit beta.
Where that will ultimately shake out.
Then the follow up will be.
Any change in your expectations when rates begin to move the other way.
Yes, Ross fulfill again.
I think that we've been fairly consistent to the way in reality to the way that we've modeled.
Beta in that 40% range now I think it was elevated some here in the last.
The last portion of.
The quarter just because.
The fed change was 25 basis points, it was larger and yet our costs continue to escalate.
Yes.
To some degree.
But for us.
We've said it before we need the fed to stop and then we need them to start ultimately to your question cutting and going in the other direction.
And we model it the same way on the downside to that to the degree that we can we can really introduce those kinds of changes.
Into the market on that kind of a commeasure at basis. So.
If we can go faster and still retained in Newark.
Deposits to the table, we will do so but I think we've kind of look at it in somewhat of a parallel fashion at this point.
Okay.
And so is that sort of order of magnitude with the rate cuts still.
Five to 10 basis points roughly.
In terms of wide improvement in the margin.
Yeah. Once we start to start to see the fed cut or have been.
The dynamics quarter alright.
Okay.
Yes, I would say if we're talking about on the downside, yes that seems that seems to still be a reasonable assumption.
Okay.
Fantastic you guys tackled all of my other questions already so I appreciate your help.
Sure.
Thanks Ross.
Hello, Sir.
Again, ladies and gentlemen, if you would like to ask a question. Please press star one.
There are no additional questions waiting at this time.
I would now like to pass the conference back to the management team for closing remark.
Thank you.
Thank you everyone for your engagement. This afternoon, please provide feedback to us on ways that we can.
Enhance the call for future quarters, and thanks again for your time and have a great afternoon.
Yes.
That concludes today's conference call. Thank you for your participation you may now disconnect your lines.