Q3 2023 First Horizon Corp Earnings Call
[music].
Thank you for joining I would like to welcome you to the first Horizon Corp, third quarter 2023 earnings Conference call.
My name is pretty clear and I'll be your moderator for today's call.
Ooh line, Amit the presentation portion of the cool because.
But there's opportunity for questions and answers at the end.
If you would like to ask a question at this time. Please press Star then one on your telephone keypad.
I would now like to pass the conference over to your house.
Luckily Flanders head of Investor relations to begin so naturally you may begin when you're already.
Thank you Britta.
Good morning, welcome to our third quarter 2023 rental conference call. Thank you for joining us.
Our chairman President and CEO , Bryan Jordan, and Chief Financial Officer hooked on Chomsky will provide prepared remarks, and then we'll be happy to take your questions.
We're also pleased to have our chief credit officer, Susan Springfield characteristics with Chris' questions as well.
Our remarks today will reference our earnings presentation, which is available on our website at IR Dot first horizon Dot com.
As always I need to remind you that we will make forward looking statements that are subject to risks and uncertainties. Therefore, we ask you to review the factors that may cause our results to differ from our expectations on page two of our presentation and in our SEC filings.
Additionally, please be aware that our comments will refer to adjusted results, which exclude the impact of notable items is.
These are non-GAAP measures. So it's important for you to review the GAAP information in our earnings release and on page three of our presentation.
And last but not least our comments reflect our current views and you should understand that we're not obligated to update them.
I'll turn things over to Brian .
Thank you Madeleine good morning, everyone and thank you for joining our call.
Our third quarter results reflect the quality of our franchise and we've highlighted some of our key strengths.
Over the past five months.
I'm increasingly confident in our ability to serve our customers and communities and deliver strong shareholder returns.
Our team of associates, who are highly experienced we've retaining 90% of our talent over the past year.
<unk> been with us over nine years on average.
We have an extraordinary client base, that's been one of those along with the medium tenure at <unk>.
Our team's dedication to serving clients as a key driver of our ability.
Unknown Executive: Thank you all for joining.
breaker: I would like to welcome you all to the first Horizon Corp, third quarter 2023 earnings conference call. My name is Breaker and I'll be your moderator for today's call.
91% of our clients over this past year.
With our experienced bankers focus on excellent customer service and our ability to deploy capital through loan and deposit growth.
breaker: All lines are on mute, the presentation portion of the call. The opportunity for questions and answers at the end. If you would like to ask a question at this time, please press the start and one on your telephone keypad.
Seeing solid momentum.
Our businesses right.
I am grateful for the hard work of our associates as they deliver value for our clients communities and shareholders.
breaker: I would now like to pass the conference over to your host.
On slide six for some of the financial highlights from this quarter, which hope will cover with you in more detail.
Natalie Flanders: Natalie Flanders, head investor relations to begin. So, Natalie, you may begin when you are ready. Thank you, Bruno.
We delivered adjusted EPS of 27 per share.
Natalie Flanders: Good morning. Welcome to our third quarter 2023 results conference call. Thank you for joining us. Today our chairman's president and CEO, Brian Jordan and Chief Financial Officer, Hope Dmuchowski will provide prepared remarks and then we'll be happy to take your questions. We're also pleased to have our Chief Credit Officer, Susan Springfield here to assist with questions.
Pretax pre tax.
Pre provision net revenue of $319 million, resulting in a return on tangible common equity of nine 2%.
Our results were impacted by an idiosyncratic charge off of $72 million that we communicated earlier this quarter.
Natalie Flanders: Thank you all for joining us. Today our chairman's president and CEO Brian Jordan and Chief Financial Officer, Hope Dmuchowski will provide prepared remarks and then we'll be happy to take your questions. We're also pleased to have our Chief Credit Officer, Susan Springfield here to assist with questions. Questions as well. Our remarks today will reference our earnings presentation, which is available on our website at ir.furturizon.com. As always, I need to remind you that we will make forward-looking statements that are subject to risks and uncertainties.
This credit loss was related to a company who unexpectedly converted from a chapter 11, the chapter seven bankruptcy.
Otherwise the balance sheet continues to perform very well period end deposits were up $1 $6 billion.
Natalie Flanders: Therefore, we ask you to review the factors that may cause our results to differ from our expectations on page two of our presentation and in our SEC filing. Additionally, please feel aware that our comments will refer to adjusted results, which exclude the impact of notable items. These are non-gap measures, so it's important for you to review the gap information in our earnings release and on page three of our presentation. And last but not least, our comments reflect our current views and you should understand that we're not obligated to update them.
242, 4% from last quarter as we continue to have success in acquiring customers throughout our deposit franchise and campaigns.
We opened over 19000, new deposit accounts this quarter, bringing in $1 billion in balances with over a third of the balances going into checking product.
Our loan to deposit ratio improved to 92% deposit growth outpace loan growth of just under 1%.
Natalie Flanders: And with that, I'll turn things over to Brian. Thank you, Natalie.
Brian Jordan: Good morning, everyone. Thank you for joining our call. Our third quarter result for collective quality of our franchise and we have highlighted some of our key strengths on July 5th. Over the past five months, I've become increasingly confident in our ability to serve our customers and communities and deliver strong shareholder returns. Our team of associates are highly experienced. We've retained 90% of our talent over the past year who have been with us over nine years on average.
These are relatively flat to the prior quarter as our countercyclical businesses have stabilized at cyclical lows.
But we need to make some investments over the next year or two we have a proven track record of managing our expense base and we will be disciplined in our reimbursement strategy.
Our capital position continues to be very strong with our CET one ratio flat to the prior quarter at 11, 1%.
Brian Jordan: We have an extraordinary client base that's been with us a long time with a medium tenure of 16 years. Our team's dedication to serving clients is the key driver of our ability to retain 91% of our clients over this past year. With our experienced bankers focus on excellent customer servers and our ability to deploy capital through loan and deposit growth, we're seeing solid momentum and our businesses right now. I'm grateful for the hard work of our associates is that it delivered value for our clients, communities and shareholders.
As we look toward 2024.
We will be evaluating our options to repatriate capital to our shareholders with an eye towards longer term CET one ratio range of nine 5% to 10 in Manhattan.
Overall.
Sentiment of our bankers and clients remain cautious, but positive inflation in labor supply continue.
It's Alex however, the economies in our footprint are performing well.
Additionally.
We recently released the results of our most recent stress test, which demonstrated our capacity to maintain capital levels well in excess of regulatory minimums, even in the fed's severely adverse scenarios.
Brian Jordan: On July 6th, some of the financial highlights from this quarter which hope will cover with you in more detail. We delivered a just an EBS of 27 cents per share on pre-tax for the pre-tax, pre-provision net revenue of $319 million resulting in a return on tangible common equity of 9.2. 1.5% 4% from last quarter, as we continue to have success in acquiring customers throughout our deposits at a franchise and campaigns. We opened over 19,000 new positive counts as quarter bringing in $1 billion in balances, with over a third of the balances going into checking products. A loan to deposit ratio improved 92% as deposit growth outpaced loan growth of just under 1%. These are relatively flat to the product order as our counter-cyclical businesses have stabilized cyclical lows.
In short given our stable and diversified business base attractive footprint.
<unk> credit culture, we feel confident in our ability to profitably navigate any economic scenario.
Our experienced team is.
<unk> track record of delivering high quality service and meet our clients and communities.
This yields long tenured deep relationships that enable us to produce top quartile returns over the cycle.
With that I'll hand, the call over to hope to run through this quarters financial results.
Thank you Brian Good morning, everyone turning to slide seven.
We provide adjusted financial and key performance metrics for the quarter, we generated <unk> of $318 million down modestly from second quarter.
Main driver was a $26 million decline in net interest income driven by higher deposit costs fees.
These expenses are relatively stable to the prior quarter.
As Brian already mentioned, we experienced an idiosyncratic credit loss of $72 million, which drove the $60 million increase in provision expense to $110 million in the quarter.
This single credit impacted adjusted earnings per share by approximately <unk> 10 cents.
Brian Jordan: So we need to make some investments over the next year or two. We have a proven track record of managing our expense base and we'll be disciplined in our reinvestment strategy. Our capital position continues to be very strong with our CET-1 ratio of flat to the prior quarter at 11.1%. As we look toward 2024, we will be evaluating our options to refatriate capital to our shareholders with an eye toward the longer term CET-1 ratio range of 9.5% to 10.5%.
Other charge offs of $23 million were in line with the prior quarters.
Tangible book value per share came in at $11.22 with adjusted earnings per share of 27 <unk>.
Partially offsetting the <unk> 41 impact of higher marks on securities and hedges.
15th of dividend.
On slide eight we outlined a couple of notable items in the quarter, which reduced our results by four cents per quarter third quarter notable items, including a pre tax restructuring spend of $10 million related to streamlining our market structure. In addition to some reductions in <unk>.
Brian Jordan: Overall, sentiment of our bankers and clients remain cautious for positive inflation and labor supply continued to be a talent. However, the economies in our footprint are performing well. Additionally, we recently released the results of our most recent stress test, which demonstrated our capacity to maintain capital levels well in excess of regulatory metals, even in the fed severely adverse scenario. In short, given our stable diversified business makes attractive footprint, a strong credit culture, we feel confident in our ability to profitably navigate any economic scenario. Our experienced team has proven track record of delivering high quality service, and meet our clients and communities. This year's long tenure, deep relationships, and enable us to produce top core tower turns over the cycle.
Force, primarily within mortgage as we continue to look at operational efficiencies within our businesses to offset increasing costs.
In addition to the tax impact of the restructuring there are two notable tax items.
A $24 million tax liability related to the book value surrender of approximately $214 million of separate account Foley.
This was triggered by the Fitch downgrade of the U S from Triple a 288, plus which caused noncompliance with the underlying investment guidelines of the rack provider.
Lower corporate tax rates and higher interest rates made a surrender the policy the most attractive option to exit this low yielding asset and redeploy the cash into higher yielding and more liquid alternatives.
Partially offsetting this is an $11 million of tax benefits primarily related to amended returns on prior acquisition.
Hope Dmuchowski: With that, I'll hand the call over to Hope to run through this forward financial results. Hope. Thank you, Brian. Good morning, everyone. Turning to slide seven, we provide adjusted financials and keep performance metrics for the quarter. We generated TPR of 318 million down modestly from second quarter. The main driver was a 26 million decline in net interest income driven by higher deposit cost. These and expenses are relatively stable to the prior quarter.
On slide nine I will walk through net interest income and margin.
NII of $609 million and net interest margin of 317 remained strong despite moderating from cyclical highs.
Interest bearing deposit cost increased 81 basis points, partially driven by a full quarter impact of the second quarter deposit campaign.
Hope Dmuchowski: As Brian already mentioned, we experience an idiosyncratic credit loss of 72 million which drove the 60 million increase in provision expense to 110 million in the quarter. This single credit impacted adjusted earnings per share by approximately 10 cents. Other charge-offs of 23 million were in line with the prior quarters. The value per share came in at $11.22 with adjusted earnings per share of 27 cents. Partially offsetting the 41 cent impact of higher marks on securities and hedges and 15 cents of dividends.
Offsetting this increase was a partial quarter benefit of the July rate hike on floating rate assets as we remain asset sensitive.
And fourth quarter, we will have the opportunity to reprice the promotional money market accounts acquired in the second quarter as well as the full benefit of july's rate type, giving us the ability to improve our NII and margin from third quarters level.
The cumulative interest bearing deposit beta reached 63% this quarter, we expect this to be the high watermark for us in this cycle.
Our success in continuing to grow customer deposits enabled the payoff of all remaining S. H L. D borrowings this quarter.
Hope Dmuchowski: On slide 8, we outlined a couple of notable items in the quarter which reduced our results by four cents per quarter. Third quarter notable items include a pre-tax restructuring expense of 10 million related to streamlining our market structure. In addition to some reductions in force, primarily within mortgage as we continue to look at operational efficiencies within our businesses to offset increasing cost. In addition to the tax impact of the restructuring, there are two notable tax items.
Over time margin will also benefit from the continued repricing of fixed rate cash flows and widening credit spreads.
As two thirds of our loan portfolio was floating rate, we remain well positioned to benefit in a rising rate environment.
As you can see on slide 10, we're still seeing strong inflows from our deposit campaigns.
Period end deposits were up two 4% from last quarter, demonstrating our ability to expand market share.
Hope Dmuchowski: A 24 million tax liability relates to the book value surrender of approximately 214 million of separate accounts. This was triggered by the Fitch downgrade of the US from AAA to AA plus which caused non-compliance with the underlying investment guidelines of the RAP provider. Lower corporate tax rate and higher interest rates made us render the policy the most attractive option to exit this low yielding asset and redeploy the cash into higher yielding and more liquid alternatives. Partially offsetting this is an 11 million of tax benefits primarily related to amended returns on prior acquisition.
As the fed H eight data shows deposits are essentially flat for the industry as a whole.
Deposit growth was driven by new customer acquisition and deepening existing relationships.
We opened over 19000, new to bank deposit accounts, bringing over 1 billion, including approximately $400 million of checking account balances.
The average rate on our new customer deposits was four 2% down over 100 basis points from our second quarter promotional rate.
Additionally, the customer as we brought in during last quarter's promotion increased their balances by approximately $200 million.
The full quarter impact of the successful deposit campaign and a higher fed funds rate drove an increase in interest bearing deposit costs from $2 55 in Q2 to 336 in Q3.
Hope Dmuchowski: On slide 9, I will walk through net interest income and margin. NII of 609 million and net interest margin of 3.17 remains strong despite moderating from cyclical highs. Interest bearing deposit cost increased 81 basis points partially driven by a full quarter impact of the second quarter deposit campaign. Offsetting this increase was a partial quarter benefit of the July rate hike on floating rate assets as we remain asset sensitive.
With our strong liquidity position our focus is on privacy.
We are launching a promotional cash offer for checking accounts that meet privacy benchmarks overtime.
Our customers acquired in second quarter.
The rate guarantees on money markets will come up for repricing in the back half of the fourth quarter, we will have the opportunity to moderate funding costs as we focus on converting from promos.
I'm missing.
On slide 11, you'll see that period end loans of $61 8 billion were up $483 million or 1% linked quarter.
Hope Dmuchowski: In fourth quarter, we will have the opportunity to reprice the promotional money market accounts acquired in second quarter as well as the full benefit of July's rate hike giving us the ability to improve our NII and margin from third quarter's level. The cumulative interest bearing deposit beta reached 63% this quarter. We expect this to be the high water mark for us in this cycle.
Loans to mortgage companies declined $454 million due to seasonality and the impact on volumes from higher mortgage rates.
Loan growth was diversified across our markets and portfolios.
C&I growth was diversified across multiple industries geographies and lines of businesses.
Hope Dmuchowski: Our success in continuing to grow customer deposits enabled to pay off of all remaining FHLB borrowings this quarter. Over time, margin will also benefit from the continued repricing of fixed rate cash flows and widening credits for it. As two-thirds of our loan portfolio is floating rate, we remain well-positioned to benefit in a rising rate environment.
<unk> growth was largely driven by fund ups from existing loans, primarily in multifamily while commitments remained flat.
We have focused our on balance sheet mortgage production on the medical Doctor program with over 60% of new balances coming through that channel this quarter.
This has been an attractive vertical for us as we can deepen these relationships with wealth management and other products.
Hope Dmuchowski: As you can see on slide ten, we're still seeing strong inflows from our deposit campaigns. Period and deposits are up 2.4 percent from last quarter, demonstrating our ability to expand market share.
Our bankers are focused on expanding spreads and deepening relationships through increased cross sell depository treasury and wealth management products.
Spreads on new fundings have increased almost 30 basis points since last quarter, and approximately 60 basis points year over year.
Hope Dmuchowski: As the Fed's eight-eight data shows the deposits essentially flat for the industry as a whole. Deposit growth was driven by new customer acquisitions and deepening existing relationships. We opened over 19,000 new to bank deposit accounts bringing over 1 billion, including approximately 400 million of checking account balances. The average rate on our new customer deposits was 4.2 percent down over 100 basis points from our second quarter promotional rate. Additionally, the customer we brought in during last quarter's promotion increased their balances by approximately 200 million. The full quarter impact of the successful deposit campaign and a higher Fed funds rate drove an increase in interest bearing deposit costs from 255 in Q2 to 336 in Q3.
Yeah.
I will cover fee income trend on slide 12.
Fee income is stable at $173 million versus $175 million in the prior quarter. However, excluding deferred compensation fee income increased by $6 million.
Other noninterest income was up $8 million, including an increase of $5 million in S. H L. D dividends from higher borrowing levels last quarter, and a $1 million increase in swap fees again, I'll reiterate we have paid off all of our S. H L. D borrowings in Q3 with a new to bank customer deposits.
Our countercyclical fee businesses are stabilizing near the cyclical lows.
We saw a modest decrease of $2 million in fixed income with average daily revenues down due to the challenging market conditions.
Hope Dmuchowski: With our strong liquidity position, our focus is on primacy. We are launching a promotional cash offer for checking accounts that meet primacy benchmarks over time. For customers acquired in second quarter, the rate guarantees on money markets will come up for re-cricing in the back half of the fourth quarter. We will have the opportunity to moderate funding costs as we focus on converting from pro to primacy.
Mortgage banking income was up $1 million as we slightly modified our pricing strategy to drive volume into the secondary market.
Okay.
Moving on to expenses on slide 13.
Excluding deferred compensation adjusted expenses are up 12 million.
This is largely driven by the 11 million of merger related retention expenses moving into core results this quarter.
Hope Dmuchowski: On slide 11, you'll see that period and loans of 61.8 million were up 483 million or 1 percent length quarter. Lonesome mortgage companies declined 454 million due to seasonality and the impact on volumes from higher mortgage rates. Lone growth was diversified across our markets and portfolios. CNI growth was diversified across multiple industries, geographies, and lines of businesses. CRE growth was largely driven by fund ups from existing loans primarily in multi-family while commitments remain flat.
Personnel expenses declined 2% or $4 million and there are a couple of different moving parts.
First defeat.
Deferred compensation declined by $8 million.
Which is offset in the corresponding fee income line.
Second as I previously mentioned, the geography change of the $11 million of merger related retention expense moving into core results.
Lastly, we had an $8 million reduction in other variable compensation.
Other expenses were up $7 million as the prior quarter included the benefit of a few discrete nonrecurring items, which included lower franchise and realty taxes.
Hope Dmuchowski: We have focused our on balance sheet mortgage production on the medical doctor program with over 60 percent of new balances coming through that channel this quarter. This has been an attractive vertical for us as we can deepen these relationships with wealth management and other products. Our bankers are focused on expanding spreads and deepening relationships through increased cross-cell depository, treasury, and wealth management products. Spreads on new funding have increased almost 30 basis points since last quarter and approximately 60 basis points year over year.
With a challenging economic environment expense discipline remains a focus and we continue to look for operational efficiencies within our business.
This quarter, we restructured our regional bank by consolidating into two fewer regions and moderated our mortgage business our efficiency ratio was at 59% in Q3.
I will cover asset quality and reserves on slide 14.
Loan loss provision increased by $60 million from Q2 to $100 million in Q3.
Hope Dmuchowski: I will cover fee income trends on slide 12. The fee income is stable at 173 million versus 175 million in the prior quarter. However, excluding the third compensation fee income increased by 6 million. Other non-interest income was up 8 million including an increase of 5 million in FHLB dividends from higher borrowing levels last quarter and a 1 million increase in swap fees. Again, I'll reiterate we have paid off all of our FHLB borrowings in Q3 with a new to bank customer deposits.
The increase was driven by a single C&I charge off of $72 million.
This loan was a shared national credit, where we were the lead bank.
We initially anticipated a recovery through a chapter 11 bankruptcy sale. However, there wasn't unexpected conversion to chapter seven in August at which point, we charged off the full amount of the loan.
We did not have a specific reserve for this credit as we had an updated third party valuation that supported our carrying value and we anticipate an imminent sale within the quarter.
Hope Dmuchowski: Our counter-cyclical fee businesses are stabilizing near the cyclical lows. We saw a modest decrease of 2 million and fixed income with average daily revenues down due to the challenging market conditions. Including deferred compensation, adjusted expenses are up 12 million. This is largely driven by the 11 million of merger-related retention expenses moving into core results this quarter. Personnel expenses decline 2% or 4 million, and there are a couple different moving parts. First, deferred compensation declined by 8 million, which is offset in the corresponding fee income line.
We are working with outside counsel to identify evaluate and pursue potential recovery. At this time, we have no estimate of the timing or ultimate amount of recoveries if any.
Total charge offs were 95 million in Q3.
Excluding the idiosyncratic loss charge offs would have been $23 million in line with the prior quarter.
ACL coverage ratio increased one basis point to 1.36, reflecting loan growth and continued caution around the macro economic outlook.
The vacancy rate in our office Cree portfolio is 11%, which compares favorably to the industry, which is experiencing vacancy up 19% in the south east.
Like others, we are seeing credit normalize from historically low loss levels during the pandemic.
Hope Dmuchowski: Second, as I previously mentioned, the geography change of the 11 million of merger-related retention expense moving into core results. Lastly, we had an 8 million dollar reduction in other bearable compensation. Other expenses were up 7 million, as a prior quarter included the benefit of a few discrete non-recurring items, which included lower franchise and royalty taxes.
Though commercial credit can be variable, we do not expect significant broad based deterioration in our portfolios.
Okay.
On Slide 15, you can see that we continue to have exceptionally strong capital levels. Our CET one ratio of 11, 1% remained flat to the prior quarter, even as we organically deployed capital to loan growth.
Hope Dmuchowski: With the challenging economic environment, expense discipline remains a focus, and we continue to look for operational efficiencies within our business. This quarter, we restructured our regional banks by consolidating into two fewer regions and moderated our mortgage business. Our efficiency ratio was at 59% in Q3.
Even after adjusting for the marks on our security portfolio and loan book, our pro forma CET, one ratio would be eight 6%.
Tangible book value per share was $11.22 in Q3, a slight decrease from the prior quarter due to a 41 cent reduction from higher mark to market impacts that were partially offset by 29 of adjusted <unk>.
Hope Dmuchowski: I will cover asset quality reserves on 514. Lone loss per vision increased by 60 million from Q2 to 100 million in Q3. The increase was driven by a single CNI charge-off of 72 million. This loan was a shared national credit where we were the lead bank. We initially anticipated recovery through a chapter 11 bankruptcy sale. However, there was an unexpected conversion to chapter 7 in August at which point we charged off the full amount of the loan.
Total capital also remained very strong at 13, 6%.
Yeah.
On slide 16, we have made a couple of tweaks to our outlook, though we continue to believe that P. PNR will be within the guidance. We gave at Investor day in June .
We update our loan growth expectations from 3% to 5% to 7% to 9% as our success in raising deposits has enabled us to win organically deploy excess capital into meeting our clients' borrowing needs and strategically acquiring new clients.
Hope Dmuchowski: We did not have a specific reserve for this credit as we had an updated third-party valuation that supported our carrying value and we anticipated an imminent sale within the quarter. We are working with outside counsel to identify, evaluate, and pursue potential recovery. At this time, we have no estimate of the timing or ultimate amount of recoveries if any. Total charge-off for 95 million in Q3, excluding the idiosyncratic loss charge-off would have been 23 million in line with the prior quarter.
The net charge off outlook is updated to include this quarter's idiosyncratic loss, but we expect other charge offs should be within prior guidance.
The new capital or range.
The impact of the updated loan guidance. This assumes no share buybacks, but as Brian mentioned, we intend to evaluate capital deployment as we head into 2024.
Yeah.
To wrap up on slide 17, I am very proud of how this team navigated 2023, so far with passion and commitment to our clients. Despite the macroeconomic environment and the unique challenges we have faced our.
Hope Dmuchowski: ACL coverage ratio increased one basis point to 1.36, reflecting loan growth and continued caution around the macroeconomic outlook. The vacancy rate in our office pre-fortfolio is 11%, which compares favorably to the industry which is experiencing vacancy of 19% in the South.
Our success in client retention and acquisition would not be possible without the consistent focus of our associates that they have on serving our clients through any cycle or challenge.
Hope Dmuchowski: East. Like others, we are seeing credit normalize from historically low loss levels during the pandemic. Though commercial credit can be variable, we do not expect significant broad-based deterioration in our portfolio. On CET-1 ratio of 11.1% remained flat to the prior quarter, even as we organically deployed capital to loan growth. Even after adjusting for the marks on our security portfolio and loan book, our pro forma CET-1 ratio would be 8.6%. Pandable book value per share was $11.22 in Q3, a slight decrease from the prior quarter due to a 41-cent reduction from higher mark-to-mark impacts that were partially offset by 29 cents of adjusted niac.
We are well positioned to capitalize on the opportunities of our diversified business model highly attractive franchise and asset sensitive balance sheet.
We are making strategic investments to support clients with products.
Services and technology upgrades that will result in improved efficiency, we will continue to look for operational efficiencies to offset our investments we.
We remain committed to delivering attractive returns for shareholders through the cycle now I will hand, it back to Brian .
Thank you.
Oh really are roughly reiterate something hope said a moment ago.
Over the course of our history, we have demonstrated our ability to execute and changing and sometimes unusual economic environments.
Know how to pull the necessary levers in order to operate profitably.
Our footprint and our team give me tremendous confidence in our ability to generate strong returns for our shareholders.
Hope Dmuchowski: Total capital also remained very strong at 13.6%. On 5.16, we have made a couple of tweaks to our outlook, though we continue to believe that PPR will be within the guidance we gave an investor day in June. We updated our loan growth expectations from 3-5% to 7-9% as our success in raising deposits has enabled us to organically deploy excess capital into meeting our client's borrowing needs and strategically acquiring new clients. The net charge-off outlook is updated to include this quarter's idiosyncratic loss, but we expect other charge-offs to be within prior guidance. The new capital range forgave the impact of the updated loan guidance. This assumes no share buyback, but as Brian mentioned, we intend to evaluate capital deployment as we head into 2024.
Well 2044 economic conditions are likely to soften somewhat.
I expect that we will grow revenue control expenses and record positive operating leverage next year.
I am confident that this company has the people resources and the determination to do what's necessary.
Border communities and shareholders throughout the economic cycle.
Brito, we can now open the call for questions.
Thank you.
We would like to ask a question. Please press Star then one on your telephone keypad now.
If you change your mind piece for stocking.
Pause for a moment most people to change Q&A.
Yeah.
We have the first question from Abraham.
Water from Bank of America.
Okay.
Good morning.
Hey, Brian .
Good morning, I guess, maybe first question just a hole thanks for running through kind of the promotion rate.
Hope Dmuchowski: To wrap up on slide 17, I am very proud of how this team navigated 2023 so far with passion and commitment to our clients, despite the macroeconomic environment and the unique challenges we have faced. Our success in client retention and acquisition would not be possible without the consistent focus of our associates that they have on serving our clients through any cycle or challenge. We are well positioned to capitalize on the opportunities of our diversified business model, highly attractive franchise and asset sensitive balance sheet.
Maybe about this quarter versus last as we think about the.
The NII guide I guess full year or you can back into four to 6% to 9%.
Give us a sense of how fourth quarter shakes out higher end versus lower end of that guidance range.
And then as we think about moving forward you still have promotional Cds or promotional deposits rolling off.
This should this be the trough in Illinois and that growth continues to exceed the first half of 'twenty four.
I didn't really think about it and again the 69% what makes it not even with a six.
Hope Dmuchowski: We are making strategic investments to support clients with products, services and technology upgrades that will result in improved efficiency. We will continue to look for operational efficiencies to offset our investments. We remain committed to delivering attractive returns for shareholders through the cycle.
Okay.
Thank you Abraham for many questions in one I'll try to get all of them covered apologies if I. Miss one you you can hold me accountable first we have not updated our ranges to a very specific percentage, but we expect next quarter to look similar to current quarter trends with the exception of NII that we do expect to increase our.
Brian Jordan: Now, I will hand it back to Brian. Thank you, Hope. I will reiterate roughly reiterate something Hope said a moment ago.
Non interest margin our.
Net interest margin that we do expect to increase next quarter as we're able to take advantage of the expanding yields and lower deposit costs, our investor day guidance that we reiterate here. We believe we'll end up on a P P and our basis right in the middle of that with revenue being a little bit towards the lower side as well as expenses coming in on the lower side.
Brian Jordan: Over the course of our history, we have demonstrated our ability to execute and change in and sometimes unusual economic environment. Conference. We know how to poll the necessary levers in order to operate profitable. Our footprint and our team give me tremendous confidence in our ability to generate strong returns for our shareholders. While 2024 economic conditions are likely to soften somewhat, I expect that we will grow revenue, control expenses, and record positive operating leverage next year. I am confident that this company has the people, the resources, and the determination to do what's necessary to support our communities and shareholders throughout the economic cycle.
On how we think about it.
Sorry go ahead.
No.
[laughter].
Yes.
As to how we think about going into next.
Next quarter and next year as we said in our prepared remarks, we continue to be focused on disciplined lending and bringing down our core deposit rates that we did as we've talked about multiple times in Q2, we went out with a very large promotion in order to re energize our franchise, our bankers and our clients and we plan to walk those rights back.
Unknown Executive: Rita, we can now open it up to call for questions.
I believe that the billion six that we were able to bring in in the quarter at 420 shows that we're able to acquire new clients and walk back existing client right.
Unknown Executive: Thank you. If you would like to ask a question, please put star in one on your telephone keypad now. If you change your mind, please press that key.
Unknown Executive: We will put it for a moment, also in order to save Q&A.
Got it thanks for that and just a separate question if I completely get that.
That you had this quarter would be do you think that it but.
Ebrahim Poonawala: We have the first question from Ebrahim Poonawala from Bank of America. Take good morning. Morning, Ebrahim. Good morning. I guess very first question, just hope, thanks for running through the promotion rates where they were this quarter versus last. As we think about the NII guide, I guess, full year, or we can back into 4-6-9%, give us a sense of how full quarter shakes out, higher end was a lower end of that guidance range, and then as we think about moving forward, you still have promotional CDs, or promotional deposits rolling off.
But Brian Macdonald.
So heavy lifting pools dfc in clean.
Of this balance sheet.
As you went through discredited does this.
Cause you to revisit the loan book to look at some of the larger credits kind of do it on the deep dive on the portfolio review to make sure. There are no other kind of big chunky surprises just talk to us about this.
Ebrahim. This is Susan Springfield, I'll I'll take that and then Brian can add any comments.
During really any economic downturn, we take an opportunity to do portfolio reviews across.
Sectors as well as market.
So we are we are doing that we or all of our lines of business specialty lines as well as regional thing.
Ebrahim Poonawala: If this should be the drop in an eye, and that growth continues to, at least the first half of 24, is that the right way to think about it, and again, the 6-9% could it, what makes it 9-6? Thank you, Ebrahim, for many questions in one. I'll try to get all of them covered, apology by this one. You can hold me accountable.
The other thing is anytime we have any kind of loss. So we do a I'll call. It a spilt milk analysis tool.
Look at where there are things that we could have done differently, whether it was the original the original underwriting.
The servicing timing communication et cetera. So we obviously do take that very seriously and are in the process of evaluating them.
Hope Dmuchowski: First, we have not updated our ranges to a very specific percentage, but we expect next quarter to look similar to current quarter trends, with the exception of NII that we do expect to increase, and not interest margin, net interest margin, that we do expect to increase next quarter as we're able to take advantage of the expanding yields and lower deposit costs. Our investor-day guidance that we reiterate here, we believe, will end up on a PPMR basis right in the middle of that, with revenue being a little bit towards the lower side, as well as expenses coming in on the lower side.
And that could be improved.
So related to the outcome of that credit.
That being said I do feel that both Brian and host indicated very good about the portfolio we have.
A history of strong client selection being consistent.
And conservative.
Underwriting and staying on top of our servicing.
Oh to Susan's comments.
Hope Dmuchowski: On how we think about, sorry, go ahead. As to how we think about going into next quarter, and next year, as we said in our prepared remarks, we continue to be focused on disciplined lending and bringing down our poor deposit rates that, you know, we did. As we've talked about multiple times in Q2, we went out with a very large promotion in order to re-energize our franchise, our bankers, and our clients, and we plan to walk those rates back, and I believe that the billion and six that we were able to bring in in the quarter at 420 shows that we're able to acquire new clients and walk back existing clients rates.
The economy is.
Started to tighten financial conditions have slowed down so much.
Unknown Executive: Gordon, thanks for that.
Our interest cost is going to have impact and so when you see those things happening.
We not only continue what we typically do in terms of credit monitoring and we do some focus reviews.
We expect this credit will soften some but we think we start extraordinarily good place with strong borrower selection strong underwriting.
Credit structure, and ultimately strong collateral values. So we.
We have said in.
For the effort that we undertook to understand what happened with this one individual idiosyncratic credit.
Brian Jordan: And this is a separate question. So I completely get this credit that you had, this quarter was bad using credit, but Brian, you've done a ton of heavy lifting post, UFC, in cleaning of this balance sheet. As you went through this credit, that calls you to revisit the loan book to look at some of the larger credits, kind of do another deep dive on the portfolio review to make sure there are no other kind of big chunk surprises.
We will learn from that but we believe the fundamentals of our credit selection underwriting and delivery process will position us very well for our economy is likely to result in some over the course of the next year or so.
Thanks for taking my questions.
Susan Springfield: Just talk to us about that. Keep looking ahead to Steven Springfield. I'll take that and then hope that Brian can add any comments. During really any economic downturn, we take an opportunity to do portfolio reviews across sectors as well as markets. So we are doing that for all of our lines of business, especially lines, well regional banks. The other thing is anytime we have any kind of loss, we do a, I call it a still milk analysis, to look at where they're saying that we could have done differently, whether it was original, original underwriting, servicing, timing, communication, etc.
Thank you.
Thank you.
Your next question comes from Casey Haire with Jefferies. Your line is going to.
Great. Thanks, good morning, everyone.
Wanted to touch on expenses, so if I'm looking at the at the guide I mean year to date, they're up 3%.
Versus last year, and you guys are still talk holding to that 6% to 8%.
It would imply a pretty big step up in the fourth quarter is.
Is is.
Is that accurate or is that conservative and then.
I'll start there.
Casey. Thank you for the question I would say you know reiterating my response to Abraham on expenses, we're probably going to be on the low side. We are trying to deploy a lot of new projects and technology that have not yet come into our run rate some of those will start in Q4.
Susan Springfield: So we obviously do take that very seriously and are in the process of evaluating anything that could be improved related to the outcome of that credit. That being said, I do feel that both Brian and Hope indicated very good about portfolio. We have a history of strong client selection being consistent, conservative in our underwriting and staying on top of our servicing. I would add to Susan's comments, the economy has started to tighten financial conditions to slow down to some extent.
And then the bigger unknown is really where our cyclical businesses have Q4, they are such a variable revenue base and so even though we're at 3% we have set a pretty low level for S. H N and we are expecting a little bit of an uptick in Q4 that would drive that expense up.
Okay.
Feels like it feels like you would have to come in below that from us.
Anyway, Okay, and then Brian just following up on your comments about positive operating leverage next year.
I believe at your Investor Day, you were talking about.
Expenses being up another 6% to 8% next year.
Susan Springfield: Our interest cost is going to have impact. So when you see those things happening, Susan said we not only continue what we typically do in terms of credit monitoring, we do some focus reviews. And we expect this credit will soften some, but we think we start in an extraordinarily good place with strong borrowers, elections, strong underwriting and credit structure, and ultimately strong collateral value. So we have, as Susan said, an effort that we undertook to understand what happened with this one individual idiosyncratic credit.
Does that your your your hope for positive operating leverage and 24 does that.
Does that still contemplate that 68% expense guide or is there a possibility of flex that lower.
Well [laughter].
Uh huh.
I do think expenses will be up somewhat next year part of it is we're hope just talked about in terms of the reinvestment in the franchise and making some investments in technology and.
Really doing some of the.
Remedial.
Work that we have talked about in the past that's.
That said I do still believe that we can drive positive operating leverage.
Susan Springfield: And we will learn from that, but we believe the fundamentals of our credit selection underwriting and delivery process will position us very well for our economy to slightly dissolve in some over the course of the next year or so.
I'm very optimistic in our ability to do.
To continue to drive.
Loan growth and particularly water spreads on all of our lending portfolios and as I've mentioned, a couple of different times in ways. We think we'd have the ability to bring the cost of deposits down over the course of the next year. So all of that said I think expenses can be up we're not going to spend a dollar.
Unknown Executive: Well, thanks for taking my questions.
Unknown Executive: Thank you.
Katie: Your next question comes from Katie has Jeffrey. Your line is now open. Great. Thanks.
Or that we don't need to spend and so we're going to control expenses.
Hope Dmuchowski: Good morning, everyone. One of the touch on expenses. So if I'm looking at the at the guide, I mean, year to date, they're up 3% versus last year. And you guys are still talking holding to that 6 to 8%, which would imply a pretty big step up in the fourth quarter is. Chris, is that accurate or is that guy conservative? And then, yeah, I'll start there. Casey, thank you for the question.
At the end of the day, though I think we can still generate with even slightly higher expenses positive operating leverage.
Okay very good and just lastly on the capital return you guys. Obviously are warming up to the buyback is what it sounds like to me just wondering what what is.
You guys have been fairly consistent on this front and saying like it's just not the time you know macro wise just given all the uncertainty.
It is.
Hope Dmuchowski: I would say, you know, reiterating my response to Abraham on expenses, we're probably going to be on the low side. We are trying to deploy a lot of new projects and technology that have not yet come into our run rate. Some of those will start in Q4. And then the bigger unknown is really where our cyclical businesses have Q4, they have such a variable revenue base. And so even though we're at 3%, we have set at 3 low levels for FHN and we are expecting a little bit of an uptick and Q4 that would drive that expense up.
As if you know that uncertainty is going to improve in the 'twenty four I'm. Just wondering what is what is driving that decision.
Increased appetite for share buyback.
Yeah, I think it's.
Fair enough.
Sort of break it into two pieces, one we said longer term in prepared comments it would probably be in that nine and half to 10, 5% range and and I think thats, probably a fair way to think about our business through varying economic cycles as we sit here today, we're a little north of.
Hope Dmuchowski: Okay, it feels like it feels like you would have to come in below that unless. Anyway, okay, and then Brian, just following up on your comments about positive operating leverage next year. I believe that you're invested in you were talking about expenses being up another 60% next year. You know, is that your your your hope for positive operating leverage in 24? Is that does that still contemplate that 68% expense guide or is there a possibility of flex that lower?
11.
And I think as we looked at 24, we may not bring it down much below 11 or into that range, but we don't believe that we need to let that capital continue to accumulate so dependent on what happens with the balance sheet in terms of of any growth.
We think there's still excess capital to repatriate shareholders and hold those ratios in this current 11 11, one area that they are in the day. So we think we can do both maintaining strong capital levels, which which are important in an economic situation, that's probably less certain then.
Hope Dmuchowski: Well, I do think expenses will be up somewhat next year. Part of it is what hope just talked about in terms of their reinvestment in the franchise and making some investments in technology and really doing some of the remedial work that we have talked about in the past. That said, I do still believe that we can drive positive operating leverage. I'm very optimistic in our ability to to continue to drive long growth and particularly wider spreads on on our lending portfolios.
Many of us might like at the same time, we don't need to let that capital base continued to grow from here.
Great. Thank you.
Thank you guys.
Your next question comes from the line as Michael already from Raymond James.
Your line is open.
Yeah.
Hey, good morning, Thanks for taking my question just following up on the last two.
<unk> cases questions.
Hope Dmuchowski: And the folks mentioned a couple of different times and ways. We think we have the ability to bring the cost of deposits down over the course of the next year. So all that said, I think expenses can be up. We're not going to spend a dollar that we don't need to spend. And so we're going to control expenses. At the end of the day, though, I think we can still generate with even slightly higher expenses, positive operating leverage. Okay, very good.
Guess, what I'm trying to I'm struggling with here is the ability to actually drive positive operating leverage, especially if countercyclical businesses specifically in mortgage in fixed income are going to be under pressure and it does look like fig.
Our fixed income will be under continued pressure on your own higher for longer scenario. So hope maybe if you can just help us.
Kind of understand the drivers of how you actually drive positive operating leverage since I think that's something that we're all struggling with them certainly yes. Thanks.
Brian Jordan: And just lastly, on the capital return, you guys obviously warming up to the buyback is what it sounds like to me. Just wondering what is, you know, you guys have been fairly consistent on this front and saying like it's just not the time macro wise to skipping all the uncertainty. You know, it's not as if, you know, that uncertainty is going to improve in the 24 just wondering what is what is driving that decision to, you know, more up increased appetite for a share by back.
Michael Good to hear from you and I appreciate the the third question and I'll try to answer it as well as like having a little bit more detail I think Casey said it best it's gonna be hard for us to hit the 6% to 8% expenses, Brian followed up what we are looking for ways to drive down expenses, you know, we're only four and a half months.
Post the deal termination and we're really looking at our franchise and trying to figure out how we make investments in how we've offset that this quarter. We reorganized two of our regions. We've downsized our mortgage business. We are continuing to look at how can we bring back deposits costs. So we're gonna it'll be you know, we're gonna be able to increase margin in future.
Brian Jordan: Yeah, I think it's fair to sort of break it into two pieces. One, we said longer term and prepared comments. It would probably be in that nine and a half to 10 and a half percent range. And I think that's probably a fair way to think about our business through varying economic cycles as we sit here today. We're a little north of 11 and I think as we look at 24, we may not bring it down much below 11 or into that range.
We believe that this is our high watermark for the cost side of margin, we're going to see we do expect that our odd business will have a better year in 2024 and 2023 as we see stabilization in rates next year and we are going to continue to keep a disciplined focus on expenses.
Brian Jordan: But we don't believe that we need to let that capital continue to accumulate. So depending on what happens with the balance sheet in terms of, of any growth. We think there's still access capital to repatriate the shareholders and hold those ratios in this current 11-11-1 area that they're in today. So, we think we can do both maintain strong capital levels, which are important in an economic situation that's probably less certain than any of us might like at the same time. We don't need to let that capital base continue to grow from here in Arfstrom.
We're just in a cycle now as looking at what 2020 for Curt will be from a budget perspective, and we're looking at every opportunity to bring down expenses and drive revenue I would love to give you 2024 guidance, we just need a little bit more time to finalize everything but I think you should see the regional bank restructure that we did as well as the mortgage.
Unknown Executive: Great, thank you.
Michael Rose: Thank you, Jason.
Of us getting out pretty quickly you know the first full quarter. After the deal was terminated and looking at how we can run our businesses more efficiently and redeploy that to investments to improve the client experience.
Okay, and then just just stepping back and Michael one other note I'll mention.
Go ahead Michael.
You got no go ahead.
When we look at the retention expenses coming back to core I know, we mentioned on our prior quarter and came up with Barclays as well.
Michael Rose: Your next question comes from the line of Michael Rose, the Raymond James, the line of talent. Hey, good morning, thanks for taking my question. Just following up on the last two on Ebrahim's and Casey's questions. I guess what I'm trying to, what I'm struggling with here is the ability to actually drive positive operating leverage, especially if you know countercyclical businesses, specifically in more recent fixed income are going to be under pressure and it does look like, you know, we'll fix income will be under continued pressure under a higher for longer, you know, scenarios.
Year over year increase not only $5 million, so even though we only have a half year. This year, a core and a full year next year because the first portion pays out it may it is not as big of a year over year increase I think some of you have in your model. I think you guys are taking your $11 million assuming that was almost double next year. That's when you look at the expense of that I see in your models. I think you guys are over weighting that piece.
Okay helpful. And then again I know, it's too hard for for 2024 at this point, but I mean is.
Michael Rose: So hope maybe. You can just help us, you know, kind of understand the drivers of how you actually drive positive operating leverage, because I think that's something that we're all struggling with. I'm certainly getting some emails. Thanks.
Is there an expectation just broadly that you can actually grow NII I certainly understand all the.
Tailwind as it relates to the margin, but is that does that actually baked into you know at least preliminary expectations.
Hope Dmuchowski: Michael, good to hear from you and I appreciate the third question, and I'll try to answer it as well as I can in a little bit more detail. I think you know, Casey said if that's going to be hard for us to hit the six to eight percent expenses. Brian, you follow up what we are looking for ways to drive down expenses. You know, we're only four and a half months post the deal termination and we're relooking at our franchise and trying to figure out how we make investments and how we both set that this quarter.
In the current rate scenario, yes, we believe flat to up it is a strong for US we do have a rate curve that has you know continuing increases are for.
The 2024 year end no decreases in being asset sensitive that is positive for NII.
Alright, thanks for taking my questions.
Thanks Martin.
Hope Dmuchowski: We reorganize to our regions. We've downsized our mortgage business. We are continuing to look at how can we bring back the positive cost. So we're going to, this will be, you know, we're going to be able to increase margin in future quarters. We believe that this is our high watermark for the cost side of margin. We're going to see, we do expect that our on business will have a better year in 2024 and 2023 as we see stabilization and rates next year.
The next question comes from.
Question.
UBS.
Your line is open.
Hey, good morning, everyone.
Good morning, Brian .
Yeah.
Oh, sorry to beat a dead horse, but I just wanted to put a finer point on the expenses you know to get to the low end of your guidance range I need this stuff expenses up to $520 million for the fourth quarter to $55 million linked quarter increase which seems steep if not kind of like numerically impossible to kind of flex the model that.
Hope Dmuchowski: And we are going to continue to keep a discipline focus on expenses. You know, we're just in the cycle now as looking at what 2024 can get will be from a budget perspective and we're, you know, looking at every opportunity to bring down expenses and drive revenue. I would love to give you 2024 guidance. We just need a little bit more time to finalize everything, but I think you should see the regional bank restructure that we did as well as the mortgage of us getting out pretty quickly. You know, the first full quarter after a deal was terminated and looking at how we can run our businesses more efficiently and redeploy that to investments to improve the client experience.
Hi, So can you can you tell me why like specifically what is going to drive the $55 million increase to get to the low end of the guidance.
Yeah, I think the low end of the guidance you know five six also round up to six right are 551, and so you know as we look at it we're sitting here at about 4% and we're still haven't seen a lot of our technology projects start and again, we have a variable compensation model S. H N. We're sitting at a quarter that was a.
Kind of a low watermark for them and we are expecting increased revenue, there, which coupled with increased compensation.
Hope Dmuchowski: Okay, and then just stepping back. I'll mention. Sorry, go ahead, Michael. You go. No, go ahead. When we look at their retention expenses coming back to core, I know we mentioned this on a prior quarter, it came up at Barclays as well. The year over your increase in that is only five million. So even though we only have a half year this year core and a full year next year, because the first portion pays out in May.
We also have additional marketing campaign tied to our new checking account program that we just launched as well as acquiring new deposits.
But is there anything left from the deferred compensation from the TD deal that still needs to work its way into the run rate and if so can you tell me what the dollar amount is there.
But in the fourth quarter, it's in it's in the same basically the.
Hope Dmuchowski: It is not as big of a year over your increase because I think some of you have in your model. I think you guys are taking the 11 million, assuming that was almost double next year. And you look at the expense that I see in your models. I think you guys were over waiting that. Thank you. Okay, helpful. And then again, I know it's too hard for 2024 at this point, but I mean, is there an expectation just broadly that you can actually grow NII?
The same ZIP code that you had in the third quarter by $11 million incremental in the third quarter expense base should be about the same in the fourth quarter.
Got it thank you for that.
You guys have been out with the spot interest bearing deposit rate was at 930, and then you talked about kind of moderating moderating deposit costs from here do you have a view on where you expect that spot rate to move two by 12 31.
Hope Dmuchowski: I certainly understand all the, you know, tailwinds as it relates to the margin, but is that is that actually baked into, you know, at least preliminary expectations. In the current rate scenario, yes, we believe lack is strong for us. We do have a rate curve that has you know, continuing increases for the 2024 year and no decreases and being at the sensitive that is positive to our NII. All right, thanks for taking my questions.
We do have the current spot rates at 339, and we are looking to work that down I don't want to put a rate out. There every time I put a beta out there right out there we seem to miss it so far we've missed our beta guidance at a rate guys who've been able to raise deposits quicker. We do have almost 6 billion repricing in Q4 related to.
The money we brought on in Q2's, the deposit campaign and so I think it's really tied to how quickly what our ability is to walk that back as well as bring new deposits and if we can continue to bring them in at a 420 average rate that we'll be able to walk it back a lot more but most of that re prices in the second half of November and December So we've really got to see.
Brodie Preston: The next question comes from Brodie Preston, a few B.S. Your line is open. Hey, hey, good morning, everyone.
What our ability is what we're seeing some steeped competition on deposit pricing and so how that changes how our competitors change their deposit pricing from now until November December what arris reprice won't really kind of generate how much I think we can walk back the other big factor.
Hope Dmuchowski: I hope sorry to be the dead horse, but I just wanted to put a finer point on the expenses, you know, to get to the low end of your guidance range, I need to step expenses up to $520 million for the fourth quarter. So $55 million a like quarter increase, which seems steep, if not kind of like numerically impossible to kind of flex the model that high, so can you can you tell me why like it's specifically what is going to drive the $55 million increase to get to the low end of the guidance.
It is the shift in mix as money moves from noninterest bearing to interest bearing that naturally moves that call. So well so it's a.
There are a lot of leverage deployed we think in the aggregate as you sort of highlighted.
Hope Dmuchowski: Yeah, I think the low end of the guidance, you know, 5.6 also rounds up to six right or 5.51 and so, you know, as we look at it, we're sitting here at about 4% and we're still haven't seen a lot of our technology projects start. And again, we have a variable compensation model at the end, we're sitting at a quarter that was a kind of a low watermark for them and we are expecting increased revenue there, which comes with increased compensation.
Prepared comments.
The new money that we brought in in the third quarter was on a mixed basis significantly lower than it was in the second quarter.
Terminal blended cost.
And we think as deposit promo restored to reprice, we have the opportunity to bring those costs down more in line with where we've been bringing new balances all over time.
Hope Dmuchowski: We also have additional marking campaigns tied to our new checking account program that we just launched as well as a firing new deposit. And is there anything left from the deferred compensation from the TD deal that still needs to work its way into the run rate and so can you tell me what the dollar amount is there. It's not in the fourth quarter, it's in, it's in the same basically the same zip code that you had in the third quarter by 11 million dollars incremental in the third quarter expense, and it should be about the same in the fourth quarter.
Got it.
Maybe switching gears for the loan portfolio do you happen to have what.
What your exposure is to shared national credits and of that what portion of your lead.
The lender on.
Yeah, I think that that information in terms of shared national credits.
As a percent of Oh.
<unk> represents about a little.
The less than 14% of our balances.
And we're in the lead on about around 3%, 3% to 3.5% of that.
Hope Dmuchowski: Got it. Thank you for that. Do you guys have an ad with the spot interest bearing deposit rate was at 930 and then you've talked about, you know, kind of moderating moderating deposit cost from here, you know, do you have a view on where you expect that spot rate to move to by 1231. We do have the current spot rates at 339 and we are looking to walk that down. I don't want to put a rate out there every time I put a beta out there right out there.
Okay, great. Thank you very much Nathalie and then the last one for me before I hop was just a two parter on the office exposure specifically on the non medical office.
Do you happen to have what the allowances that you have set aside against the non medical office currently and then do you have a sense for what the average LTV on those properties are.
Hope Dmuchowski: We seem to miss it so far. We've missed our beta guidance and our rate guidance. We've been able to raise the deposit quicker. We do have, you know, almost 6 billion repricing in Q4 related to the money we brought on in Q2 for the deposit campaign. And so I think it really ties to how quickly what our ability is to walk that back as well as bring new deposits in if we can continue to bring them in at 420 average rate.
So we don't I don't have it broken out in that detail in terms of that field.
<unk>.
But in terms of.
Our London.
Loan to values on an office.
Non medical office correct.
Yes, that's correct.
Hope Dmuchowski: We'll be able to walk it back a lot more, but you know, most of that reprices in the second half of November and the summer. So we're really going to see what our ability is. We're seeing some steep competition on deposit pricing. And so how that changes how our competitors change their deposit pricing from now to November and December when energy price will really kind of generate how much I think we can walk it back.
Just the traditional office.
Hum.
And our portfolio of the day, all traditional office stuff.
Average upfront equity we have is about 35% and on a stabilized wanted to value basis, we're at about 60%.
Got it.
Thank you very much everyone and I appreciate you taking my questions.
Hope Dmuchowski: Good a big factor. It's a host comment is the shift in mix is money moves from non interest bearing the interest bearing and naturally moves that call stuff as well. So it's a there are a lot of leverage to play.
Thanks, Brian .
Thank you.
Hi, Brady.
K B W.
You May proceed when you're ready.
Hope Dmuchowski: And we think in the edges of how I didn't are prepared comments. The new money that we brought in in the third quarter was on mixed basis significantly lower than it was in the second quarter. In terms of lending cost and and we think it's just deposit promo we start to reprise we have the opportunity to bring those cost down more in line where we've been bringing new balances all over time. Got it.
Thank you good morning, guys.
Hey, Brian .
We've had two big quarters of deposit growth, which has been good to see it help lower your loan to deposit ratio how should we think about that.
Going forward in <unk> and as we head into next year are you still targeting to have deposit growth outpace loan growth and is there a target you have in mind as far as where you want to get your loan to deposit ratio.
Well.
It's.
Hope Dmuchowski: And do you, maybe searching gears for the, in the loan portfolio, do you have to have what, what your exposure is to share national credits and, and of that, you know, what portion are you the lead lender on? Yeah, we've got that information. In terms of sheer national credits, as a percent of the portfolio represents about less than 14% of our balances, and we're the lead on about around three percent, three and a half percent of that.
Interesting discussion, hoping to talk about the loan to deposit ratio.
We clearly want to grow deposits.
And I would say, it's less about the balances then it is the relationship.
Unknown Executive: Okay, great. And thank you very much, Natalie.
Customer acquisition to us and we want to be in a position to continue to broaden and deepen and grow customer relationships.
Our loan to deposit ratio ended the quarter at about nine two.
And.
If you blend that that's probably a little bit higher than peers would it be broad securities, which we tend to have a relative much road smaller relative portfolio with shorter widened and one.
Hope Dmuchowski: And the last one for me before I was just a two-parter on the office exposure specifically on the non medical office. Do you happen to have what the allowances that you have set aside against the non medical office currently, and then do you have a sense for what the average LPV on those properties are? Yeah, we don't have it broken out in that detail in terms of the allowance, but in terms of our loan devalues on, on office, you're talking about non medical office, correct?
We think to the extent that we can grow relationships that we grow deposits.
Gives us the fuel to continue to support customer needs on the credit side as well and so we are not proactively as much managing the loan to deposit ratio is we are trying to proactively manage our ability to serve our customers and our communities in a profitable fashion.
At the end of the day, if we have the opportunity to grow attractively priced deposits and relationships absolutely we're going to continue to do that.
Hope Dmuchowski: Yeah, that's correct. It's just a traditional office. So, and hopefully on the day, on traditional office, the average upfront equity we have is about 35% and on the stable ones, one on the value basis, we're at about 60%. Got it.
Brady, what I'll add to that.
You know we feel like we're in a great place because we have now two quarters of deposit growth. We've shown that we can do it and we also have a capital position that allows us to deploy that we don't have to build capital and build our capital base. So our ability to continue to grow deposits and deploy that into higher yielding loans.
Unknown Executive: Thank you very much, everyone. I appreciate you taking my questions. Thanks, Brody.
Is what we're looking at 90 chewed loan to deposit ratio as Brian said, when we add securities and there were any of the peer median we feel really good about the trajectory. We're on which is why we believe that we will improve our margin in the coming quarters.
Brodie Gailey: Thank you. We now have Brody Galey and KBW. You may proceed when you're ready. Thank you.
The final point is look we're fortunate in the fact that we'd get to do business and great markets, great economies and on a relative basis, we think that they will outperform the U S economy. So we're I think we're in a good spot.
Brian Jordan: Good morning, guys. We've had two big quarters of deposit growth, which has been good to see it's held, you know, lower your loan or deposit ratio. So, how should we think about that, you know, going forward in 4Q, and as we had it next year, are you still targeting to have deposit growth, outpace loan growth? And is there a target you have in mind as far as where you want to get your loan or deposit ratio?
See positive momentum in our deposit base.
It's good to be in the south.
Great.
And then just my last question is to follow up on your comments about buyback into 'twenty four.
If I heard you correctly it sounds like you instead of getting a common equity tier one down to that nine five to 10.
Brian Jordan: Yeah. Well, it's an interesting discussion, hoping I'll talk about the loan deposit ratio. We clearly want to grow deposits, and I would say it's less about the balances than it is the relationship. It's customer acquisition to us, and we want to be in a position to continue to broaden and deepen and grow customer relationship. Our loan deposit ratio into the quarter at about 0.92, and you know, if you blend that, that's probably a little bit higher than peers, but if you grow on securities, which we tend to have a relatively much smaller relative portfolio, we're sort of right in line.
I just want to hold it relatively flat at 11 did I understand that correct and then what what would it take for you to consider.
A more elevated level of buybacks that could potentially get that common equity tier one.
<unk> down into your range is it more economic uncertainty or what would you like to see to.
Take that lower.
Yes, that's.
What you said as a rough approximation what else it which is that you know.
As we look at it today, we're likely to keep that CE tier one ratio given the board support at a constant level around that 11% area of 11, 1% area to bring it down further I think we and the board would have to be confident that we have greater certainty about the direction of the economy and how.
Brian Jordan: We think the extent that we can grow relationships that we grow deposits, it gives us the fuel to continue to support customer needs on the credit side as well. And so we are not proactively as much managing the loan to deposit ratio as we are trying to proactively manage our ability to serve our customers and our communities in a profitable fashion. So I would say at the end of the day, if we have the opportunity to grow attractively priced deposits and relationships, absolutely, we're going to continue to do that.
We're more likely to play out so.
That's not to say that that's completely off the table, but as we sit here today. It still feels like 2024 in terms of rates and the economic outlook is still a little more uncertain than we would like we.
We don't see it as extremely negative we just see it as more uncertainty than we think maintaining a strong capital base tends to be more in our favor then they're bringing it down pretty materially.
Brian Jordan: Brady, what I'll add to that is we're in a great place because we have now two quarters of deposit growth. We've shown that we can do it. And we also have a capital position that allows us to deploy that we don't have to build capital base. So our ability to continue to grow deposits and deploy that into a higher yielding loans is what we're looking at, 92 low deposit ratios, Brian said when we add securities and they're right at the pure median, we feel really good about the trajectory we're on, which is why we believe that we will improve our margin in the coming quarters.
Okay got it thanks, Brian .
Alright. Thanks.
You now have Steven.
Okay.
From JP Morgan.
Hi, everyone. This is Anthony Elian on for Steve.
In the second quarter, you added about 6 billion in deposits from the new campaigns and then you added another $1 billion in <unk>.
The rates on these campaigns move lower in <unk>.
How confident are you that you can retain both these deposit balances as well as most more importantly, the overall client relationship so you've got it.
Brian Jordan: One of the final point is, look, we're fortunate in the fact that we get to do business in great markets, great economies and on a relative basis. We think that they will outperform the US economy. So we're, I think we're in a good spot to see positive momentum in our deposits. It's good to be in the South.
Yeah.
So we've we recognize that the when you attract new customer relationships I think the number was something like 32000 in the second quarter about 25000 of those being retail I think it was about 19000 new.
Brian Jordan: I agree.
Brian Jordan: And then just my last question is to follow up on your comments about buyback into 24. If I heard you correctly, it sounds like you're instead of getting comedy tier one down to that nine and a half to 10 and a half. You kind of just want to hold it relatively flat at 11. Did I understand that correct? And then what, what would it take for you to consider? You know, more elevated level of buyback that could potentially get that common equity tier one number down into your range and the more economic uncertainty or what would you like to see to, you know, take that lower?
Bank accounts.
The third quarter.
Not only is it important that you're attracting new relationship that you broaden and deepen it.
And our bankers all across our markets are working every single day to broaden and deepen the relationships with those new customer relationships new to bank customer. So we have a high degree of confidence that we will retain a significant portion of those.
Don't sit around and think we're going to retain every one of them, but we have a high degree of confidence that we can broaden deepen with a significant number of those relationships.
Brian Jordan: Yeah, that's what you said is a rough approximation, what I'm saying, which is that, you know, as we look at it today, we're likely to keep that CT one ratio given the board support at a constant level around that 11. 1% area 11.1% area to bring it down further. I think we and the board would have to be confident that we had greater certainty about the direction of the economy and how things were more likely to play out. It's not to say that that's completely off the table, but as we sit here today, it still feels like 2024 in terms of great economic outlook is still a little more uncertain than we would like.
Okay.
Then total deposit growth was really strong in the quarter supported by the campaigns with our noninterest bearing deposits continued to decline on the guidance slide you point to DDA balances returning to pre pandemic levels, but it looks like you're very close to.
That level of 27%, so I guess, how much more do you see to get there and by what time.
On a pre pandemic percentage, you're right, where we're at it's about a 27% which is where we were on a absolute value were about 2 billion higher we've done the analysis of operating accounts and we think on the downside when we look at how much is in the account versus how much they're using there's only about two to 3 billion.
Brian Jordan: We don't see it as extremely negative, we just see it as more uncertain than we think, maintaining a strong capital, but it tends to be more in our favor than bringing it down prematurely. Okay, Donna, thanks, Brian. All right, thanks.
Of our additional credit versus debit each quarter. So we don't feel you know, we're not losing clients. It's balances that have moved to interest bearing and its clients are holding less cash in their operating accounts the inflationary environment that they have the macroeconomic environment and they're working and they are holding less cash in operating accounts and that we think if you look at the absolute.
Stephen Alexi-Gullis: We now have Stephen Alexi-Gullis from J.P. Morgan. Hi, everyone.
We value they really got to a point, where we had the exact same amount of debits and credits and every client account, we'd be exactly kind of a dollar wise, where we are we are working very hard to attract new DDA clients as well as we mentioned, we just launched a new program. This coordinated marketing campaign in this current quarter and a program to go after that it is a factor of two.
Anthony Elian: This is Anthony Leonan for Steve. In the second quarter, you added about 6 billion deposits from the new campaigns, and then you added another 1 billion and 3Q as the rates on these campaigns move lower in 4Q. How confident are you that you can retain both these deposit balances, as well as most more importantly, the overall client relationships that you've added? Yeah, so we recognize that when you attract new customer relationships, I think the number was something like 32,000 in the second quarter, about 25,000 of those being retail.
Anthony Elian: 19,000, and the bank account in the third quarter, that it not only is it important that you attract a new relationship that you brought in the deep in it, and our bankers all across our markets are working every single day to brought in the deep in the relationships with those new customer relationships, new bank customers. So we have a high degree of confidence that we will retain a significant portion of those. I don't sit around and think we're going to retain every one of them, but we have a high degree of confidence that we can broaden deep in significant number of those relationships.
Things, there, which is the one with the mix we saw earlier in the year and to just our clients have less cash on hand of their operating accounts. These days.
Okay and then my last question, Adam That's really what you provided in our OTC range of 15% to 18% through the cycle, but your adjusted RTC. This quarter was just over 9% I know the elevated charge offs. This quarter weighed on that but how are you thinking about the previous.
Our range of 15% to 18% for OTC that you provided at Investor day. Thank you.
Yeah, that's a through the cycle number and we still believe that will be the number if you look at this quarter and we take out the one charge off of it we added about three 2% back to our OTC. So we get closer to a range.
As Brian and I talked about earlier, we aren't looking to create positive operating leverage we're looking to return capital to shareholders and so we still do.
Run our company and look at through the cycle that being our target range. We have no reason to believe that we can't hit that word that we should bring that down.
As we've talked about a number of different times, we're running at a higher capital levels.
Brian Jordan: Okay, and then total deposit growth was really strong in the quarter supported by the campaigns, but then non-interest bearing deposits continue to decline. On the guidance slide, you point to DDA balances returning to pre-pandemic levels, but it looks like you're very close to that level of 27%. So I guess how much more do you see to get there and by what time? On a pre-pandemic percentage, you're right, we're at about 27%, which is where we were, but on an absolute value, we're about 2 billion higher.
And we believe as soon.
Sure the through the cycle range as well that has an impact on that so we still have.
Degree of confidence through the cycle, we can drive those foods.
Sort of a mid teens royalty shoes.
Thank you.
Thank you.
Yeah.
Thank you.
We now have Christopher Merrimack.
<unk> Montgomery Scott.
Brian Jordan: We've done the analysis of operating accounts, and we think on the downside, and we look at how much is in the account versus how much they're using. There's only about 2 to 3 billion of additional credit versus debit to each quarter, so we don't feel we're not losing clients. It balances that have moved to interest bearing, and its clients are holding less cash in their operating accounts. The inflationary environment that they have, the macroeconomic environment, they're working in, they are holding less cash in operating accounts, and so we think if you look at an absolute value, they really got to the point that we had the exact same amount of debit and credit in every client account, we'd be exactly kind of a dollar wise where we are.
Hey, Thanks, good morning.
I wanted to ask Susan about criticized loan trends and kind of what she is seeing this quarter and also maybe what she participate would expect the next few quarters looking into early 'twenty four.
Thanks, Chris.
Seeing.
Some increase in criticized assets.
It's sluggish at this point.
We are up.
I guess about $100 million in terms of criticized assets.
And the quarter.
And it will.
Brian Jordan: We are working very hard to attract new DDA clients as well, we mentioned we just launched a new program, this new marketing campaign in this current quarter, and a program to go after that. It is a factor of two things there, which is the one was the mix we saw earlier in the year, and two, just our clients have less cash on hand in their operating accounts these days.
We've continued to have some upgrades we're.
We're seeing a little bit more in commercial real estate and we are in C&I.
But again, it's a handful of credits I'm not seeing anything systemic.
I'm, just kind of credit normalization at this point.
How fast is that changed reserved levels.
<unk>.
Hope Dmuchowski: Okay, and then my last question, at investor day you provided an ROTC range of 15 to 18% through the cycle, but your adjusted ROTC this quarter was just over 9%, I know the elevated chargeoffs this quarter weighed on that, but how are you thinking about the previous range of 15 to 18% for ROTC that you provided at investor day? Thank you. That's a through the cycle number, and we still believe that will be the number.
Okay.
Yeah, I mean, obviously, we've got a slight increase in terms of for.
Reserve coverage, we were up about a day.
Very well and then <unk>.
Just on the the Snick information that you gave us a few minutes ago are there any other sort of like club type deals I wouldn't define as snacks that would be above and beyond that 14% number.
Hope Dmuchowski: If you look at this quarter, can we take out the one charge off, if we add about 3.2% back to ROTC, so we had closer to our range. As Brian and I talked about earlier, we are looking to create positive operating leverage, we're looking to return capital to shareholders, and so we still do run our company and look at through the cycle that being our target range. And we have no reason to believe that we can't hit that word that we should bring that down.
That 1% more.
Okay great.
Thank you for taking my question.
Okay. Thanks, Chris.
Yeah.
We now have David <unk> of Wedbush Securities you may begin.
Hope Dmuchowski: As we've talked about a number of different times, we're running at higher capital levels that we believe is sort of the through the cycle range as well, and has an impact on that. So we still have high degree of confidence through the cycle, we can drive those, who's sort of mid-to-hard-teens ROTC.
Hi, Thanks, you've previously mentioned about how you are open to doing a potential MLP for scale benefits and crossing the 100 billion in assets I was wondering what factors could accelerate a potential deal and what factors could push out a perpetual deal any updated thoughts there would be helpful.
Unknown Executive: Thank you.
Yeah.
There are more factors pushing it out and there are bringing it in.
You know, they're opposite sides of the same coin in some sense.
I think the M&A environment is likely to be.
Christopher Marinac: We now have Christopher Marinac of Jenny Montgomery Scott. Hey thanks good morning.
Very very minimal over the next couple of years part of that is economic part of that is interest rate marks and I still think.
Susan Springfield: I wanted to ask Susan about criticized loan trends and kind of what she is seeing this quarter and also maybe what she would expect the next few quarters looking in there early 24. Thanks Chris. We are seeing some increase in criticized assets but it's why it's a point. We're up I guess about a hundred million in terms of criticized assets quarter and quarter and it's we've also had to we've continued to have some upgrades.
As demonstrated over the last few quarters uncertainty about regulatory approval processes. In addition to the proposed rules around Basel III and like anything unlikely.
In the near term and I would guess.
Our view is it's probably two three years before anywhere from a year and a half or three years before you really start to see a pick up in M&A activity. So thats not something thats on our radar screen today.
Makes sense, thanks for that and shifting over to loan growth and the increased guidance to 7% to 9% I was curious what areas are you leaning into with the increased loan growth guidance.
Susan Springfield: We're seeing a little bit more in commercial real estate than we are in C&I but again it's a you know a handful of credits I'm not seeing anything systemic just kind of credit normalization at this point.
Okay.
But we do see some opportunities where other banks have pulled out completely and so we've got some opportunity in mortgage warehouse lending we've.
Susan Springfield: Is that change reserve levels? Okay. Yeah we obviously we've got a tight increase in terms of reserve coverage we were at the very well and then you know based on the the snake information that you gave us a few minutes ago. Any other sort of like club type deals that wouldn't define as snakes that would be a button be all on that 14% number. That 1% or? Okay great.
Unknown Executive: Thank you for taking off questions. Okay. Thanks Chris.
We've got some opportunities in what I would just call.
For commercial in our markets.
We can talk about generational opportunity to bring over.
The family owned companies in the markets that we can continue to serve their.
There's also some opportunities in asset based lending.
One of the reasons that we think could be attractive to us we are seeing cause somebody to have widened.
Widening spread.
And even more conservative underwriting.
Things like more upfront equity better covenants.
More opportunities to have guarantor and sparks or.
Great for that kind of thing.
David: We now have David. He's really neat of what the security you may begin. Hi thanks.
We're always thanks very much.
I'm sorry to interrupt we're always opportunistic as we think about that.
Brian Jordan: You previously mentioned about how you're open to doing a potential MOE for scale benefits and crossing the hundred billion in assets. I was wondering what factors could accelerate a potential deal and what factors could push out a potential deal. Any updated thoughts there would be helpful. Yeah. I think there are more factors pushing it out and there are bringing it in. I think they're opposite sides of the same coin in some sense.
We grow high value relationships and that's through all economic cycles, and so we're always thinking about how we grow the business.
The thing that's driving the growth if you look at a substantial portion of the growth in the third quarter of this year again used to be.
What I've described in the past the spring loaded nature of our balance sheet and that we have some continued fund up a construction assets, which is driving the growth organic growth has slowed it does feel like lending activity more broadly in the economy and what we see from customers.
Brian Jordan: I think the M&A environment is likely to be very very minimal over the next couple of years. Part of that is economic part of that is interest rate marks and I still think as demonstrated over the last recorders uncertainty about regulatory approval processes. In addition to the proposed rules around Basel 3, you make anything unlikely in the near term and I would guess our view is it's probably two, three years before two. Anywhere from a year and a half to three years before you really start to see a pick up and M&A activity.
Float and is likely to continue to slow, but we will be opportunistic and look.
To grow our business and to grow our customer base by using our balance sheet appropriate ways to support customers and communities.
Helpful color. Thank you.
Yeah.
Thank you.
We now have John Awesome with RBC capital. Please go ahead.
Brian Jordan: So that's not something that's on our radar strain today.
Hey, good morning, everyone.
Brian Jordan: Thanks for that, and shifting over to loan growth and the increased guidance to 79%. Let's curious, what areas are you leaning into with the increased loan growth guidance? We did see some opportunities where other banks have pulled out completely, so we've got some opportunities in mortgage warehouse lending. We've got some opportunities in what I was just called for commercial in our markets. We can talk about generational opportunities to bring over family and companies in the market that we continue to serve.
Morning, just a quick.
Question on loan growth too.
David kind of stole my question, but that's okay. I guess the question for you. Brian is this do you feel like this is a sustainable pace of growth was kind of 1% to 2% sequential.
Sequential growth as you look out into 'twenty four.
Well.
Right now I think.
I tried to mention.
So articulate some of the growth is just going to be natural in the fund up of some of these construction loans as projects get completed.
These are projects that Susan has described that need to be on track and continues to look good so that will drive some of it.
Brian Jordan: There's all six opportunities in asset-based lending. One of the reasons that we think could be attractive to is we are things and the ability to have widening trends and even more conservative underwriting. Some things like more upfront equity that are covenants, more opportunities to have guarantor and parts or recourse that kind of thing. We're always optimistic. We're always opportunistic as we think about how we grow our value relationships and that's through all economic cycles and so we're always thinking about how we grow the business.
In the middle of this quarter it started to feel a little more like Oh.
Really in the back half of this word started to feel like starting to slowdown in customer demand customer activity. So it does feel like things will be a bit slower, but but I do think there's opportunities there.
Can you just selectively add relationships and credits.
And a.
A lot of euphemisms are out there about the <unk> and things like that.
Not in that mode. We do think that we can use our balance sheet to support customers and communities and it's one of the benefits.
Having a strong capital base.
And being in a position to.
Brian Jordan: The other thing is driving the growth that you look at a substantial portion of the growth in the third quarter of this year continues to be what I've described in the past, the spring-loaded nature of our balance sheet in that we have some continued fund up those construction assets which is driving the growth. Organic growth has slowed. It does feel like lending activity more broadly in the economy and what we see from customers has slowed and it's likely to continue to slow. But we will be opportunistic and look to grow our business and to grow our customer base by using our balance sheet and appropriate ways to support customers and communities.
To compete effectively for new relationships, when we see as Susan described generational opportunities or otherwise to strengthen our customer.
Total across the entire franchise we serve.
Okay.
Brian Jordan: Thank you.
And just somewhat related.
I know you were at the Investor day, but the balance sheet growth expectations that your size.
Feels like you have a couple of year runway and maybe you think about 100 billion.
That threshold later, but any limits on your balance sheet growth in the near term.
No real short term limits I think we've got you know.
A few years of runway.
If necessary, we can tread water, so we understand where that bright line is and where.
We're going to be very intentional about not inadvertently stumbling over that threshold. So until we get greater clarity about what that regulatory landscape looks like we will we will do all we can to grow the balance sheet.
Unknown Executive: We now have your own offshore of all BC capital. Please go ahead.
Unknown Executive: Hey, good morning, everyone. Just a question on long growth to David can't install my question, but that's okay. I guess the question for you, Brian, is this do you feel like this is a sustainable pace of growth is kind of one to two percent sequential growth as you look out into 24? Well, right now, I think, you know, as I've tried to mention or study articulate some of the growth is just going to be natural in the fund up of some of these construction loans as projects be completed.
Same time, not inadvertently stumble over but we think we've got a few years, it's not a amazing concern in the near term.
Okay. Good.
Just a small one to one of the numbers.
Flagged was the 19000, new checking accounts as part of the deposit campaign.
Is that a material number to you I know, it's just a quarterly number.
What drove that and is that repeatable.
Well, it's it's a it's an important number because it's it's 19000 new relationships.
Unknown Executive: And, you know, these are projects that ensues and then describe continue to be on track and continue to look. That's that will drive some of it. In the middle of this quarter, it started to feel a little more like really in the back half of this, where it started to feel like of starting to slow down and customer man, customer activity. So it does feel like they will be a bit slower, but, but I do think there's opportunities to continue to selectively add relationships and credit, and a lot of euphemisms are out there about RWA nights and things like that.
Probably compares to them, but it compares to a base of around call. It 900000 customer relationships. So it's not an insignificant number.
And in any given quarter, we'll lose a few as well, but it is important to note that our bankers are out there front footed that they're acquiring customer relationships in the marketplace across the entire footprint.
<unk>.
As I said earlier in.
This call clearly, it's not just about that first account. It is we want to build a relationship I've mentioned the tenure of our customer relationships, we want to broaden and deepen those relationships.
Unknown Executive: We're not in that mode. We do think that we can use our balance sheet to support customers in communities. And it's one of the benefits of having a strong capital base and being in a position to compete effectively for new relationships when we see a Susan described generational opportunities or otherwise, as the strength in our customer pool across the entire franchise we serve. And just somewhat related, I know you're asked this investor day, but the balance sheet growth expectations at your size feels like you have a couple of year runway and maybe you think about 100 billion in asset threshold later, but any limits on your balance sheet growth from the near term.
I guess it's.
What's the old proverb about every every journey starts with the first step that first account and then we broaden and deepen from there is our goal.
John This is hope the other reasons that you know we've called that out is it shows that we're growing our deposits one client at a time, we're not out there buying big municipal fundings is not broker deposits were truly acquiring clients and that's why our deposits are growing I know others have flat deposits with all the groups that we're talking about CD. It we're talking about big chunks of money.
We are doing it one client at a time and because we believe the way that our franchise will excel.
Excel and succeed is to bring these clients and with their first product and then sell them to make them long deep relationships that are with us for 510 15 20 years.
Unknown Executive: No real short term limits. I think we've got a few years of runway and if necessary, we can tread water. So we understand where that bright line is and we're going to be very intentional about not inadvertently stumbling over that threshold. So until we get greater clarity about what that regulatory landscape looks like, we will we will do all we can to grow the balance sheet and at the same time, not inadvertently stumbling over, but we think we've got a few years.
Yes.
Makes sense, okay. Thank you very much.
Thank you we now have a question from Tim Huff. Please yeah.
Wells Fargo Securities.
Your line is open.
Hi, This is John Rowe on through tumor.
Yes.
Kind of a longer term question about your CET, one youre long term CET one target in the NASA 10, 5% range.
I guess is there any been has there been any preliminary work done on what that could move to if at all.
Unknown Executive: It's not an immediate concern in the near term. Okay, good. That just a small one to one of the numbers that you flagged was the 19,000 new checking accounts as part of the deposit campaign. Is that a material number to you? I know it's just a quarterly number and what drove that is that repeatable? Well, it's an important number because it's 19,000 new relationships. It probably compares to a base of around, call it 900,000 customer relationships.
As if you were to cross the 100 billion mark or does that.
Any factor into the range provided.
And just how that would maybe impact your long.
In terms of capital return plans.
Yeah, we have done some very preliminary work with given the.
Sort of state of flux.
The Basel III proposals and how it impacts various tiers of both.
Above the 100 billion dollar threshold, we haven't really factored that into our long term goals at this point.
Unknown Executive: So it's not an insignificant number. We in any given quarter will lose a few as well. But it is important to note that our bankers are out there front footage that they're acquiring customer relationships in the marketplace across the entire footprint. And as I said earlier in this call, clearly it's not just about that first account. It is we want to build a relationship. I mentioned the 10 year of our customer relationships.
If in fact, we.
We do something that puts us above that 100 billion dollar threshold.
Whether it's.
Through organic growth or otherwise, we'll update at that point.
Okay.
And then just one clarification question on <unk>.
Expense guidance.
Does the guidance for the full year assume that the FDA.
Unknown Executive: We want to broaden and deepen those relationships. So I guess it's what's the old proverb about every journey starts with the first step. I mean, it's that first account. And then we've brought them in from there. John, this is how the other reasons that, you know, we've called that out is it shows that we're growing our deposit, you know, one client at a time. We're not out there buying big municipal funding.
CIP special assessment Hudson <unk> or.
Has that not been included yet.
No. We don't have that in expenses, we have that as an adjusted item. It is it is in our capital forecast, but for the expense guidance, where excluding that as an adjusted item.
Okay. That's helpful.
Unknown Executive: It's not worker deposits. We're truly acquiring clients. And that's why our deposits are growing. I know others have black deposits for public groups, but they're talking about CD's, they're talking about, you know, big chunks of money. We are doing it one client at a time. And because we believe the way that our franchise will excel and succeed is to bring these clients in with their first product and then sell them and make them long deep relationship that are with us for five, 10, 15, 20 years. Yeah, yeah, makes sense.
That's all that I had thank you very much.
Unknown Executive: Okay, thank you very much.
Unknown Executive: Thank you.
Thank you.
Okay.
Thank you.
We have no further questions I'd like to turn it back to Bryan Jordan for any final remarks.
Thank you, Brian and thank you all for taking time to join US. This morning, we appreciate your time and attention.
And any questions. Please reach out if theres any additional information that you need from us and hope everyone has a great day.
Thank you all for joining I can confirm that does conclude today's call. Please have a lovely rest of your day and you may now disconnect your line.
Unknown Executive: We now have a question from Timur Braziler, as well as FOG security. Your line's very good, Timur. Hi, this is Jon Rao, I'm from Timur. Just kind of a longer term question about your CT1, your long term CT1 target in the 9.5 percent range. I guess, has there any been, has there really any preliminary work done on what that could move to if at all, as if you were to cross that 100 billion mark, or does that already factor into the range provided, and just how that would maybe impact your long term, capital return plans?
[music].
Unknown Executive: Yeah, we have done some very preliminary work, but given the sort of state of flux of the Basel 3 proposals and how it impacts the various tiers above the 100 billion dollar threshold, we haven't really factor that into our long term goals at this point. And if in fact, we do something that puts us above that 100 billion dollar threshold, whether it's through organic growth or otherwise, we'll update that one.
Hope Dmuchowski: Okay, and then just one clarification question on the expense guidance. Does the guidance for the full year assume that the FBIC special assessment, it's in 4Q, or is that not been included yet? No, we don't have that in expenses. We have that in the adjusted item. It is in our capital forecast, but for the expense guidance, we're excluding that in the adjusted item. Okay, that's all that I had. Thank you very much. Thank you.
Unknown Executive: As we have no further questions, I'd like to hand it back to you for any final remarks. Thank you, Brita. Thank you all for taking time to join us this morning. We appreciate your time attending question. Please reach out if there's any additional information that you need from us. Hope everyone has a great day. Thank you all for joining.
Unknown Executive: I can't confirm that that was concluded today's call.
Unknown Executive: Please have a lovely rest of your day, and you may now disconnect your line.