Q3 2023 Cadence Bank Earnings Call

Unknown Executive: Web site. I would remind you that the presentation along with our earnings release contain our customary disclosures around forward-looking statements and any non-get metrics that may be discussed. The disclosures regarding these forward-looking statements contain in those documents apply to our presentation today.

Mind, you that the presentation, along with our earnings release contain our customary disclosures around forward looking statements and any non-GAAP metrics that may be discussed the disclosures regarding these forward looking statements contained in those documents apply to our presentation today.

Unknown Executive: And now I'll turn to Dan for his opening comments.

And now I'll turn to Dan for his opening comments.

Good morning, everyone. Thank you for joining us we would like to take some time. This morning during our third quarter 2023 earnings conference call to also discuss the announcement of our agreement to sell cadence insurance to Arthur J Gallagher <unk> company.

Dan: Good morning everyone. Thank you for joining us. We would like to take some time this morning during our third quarter of 2023 earnings conference call to also discuss the announcement of our agreement to sell Cadence Insurance to Arthur J. Gallagher in company.

Dan: Following our prepared remarks, our Executive Management team will be available for questions. The first several slides in our deck today provide some detail regarding the sale of our insurance agency. The total deal value of nearly $1 billion represents a multiple of 5.4 times the last 12 months revenue. The achievement of this multiple is a tremendous testament to the growth and accomplishments of Cadence Insurance under the leadership of Marco McKnight, Chris Boone, Amy Kilpatrick, and their entire executive team.

Following our prepared remarks, our executive management team will be available for questions.

First several slides in our deck today provides some detail regarding the sale of our insurance agency. The total deal value of nearly $1 billion represents a multiple of five four times the last 12 months revenue.

Achievement of this multiple is a tremendous testament to the growth and accomplishments of cadence insurance under the leadership of Mark Mcknight, Chris Boone, Amy Kilpatrick and their entire executive team.

Dan: While we've repeatedly said we like the insurance business, the opportunity to monetize this business at historically high valuation levels is a huge win for our shareholders. It's also a tremendous win for our insurance teammates and clients with access to additional resources and product offerings of an agency with the size and scale of Gallagher. We value the relationships we've built with these teammates and we look forward to continuing to work with them in their new roles as Gallagher will be the preferred insurance partner of Cadence Bank.

While we've repeatedly said, we like the insurance business the opportunity to monetize this business at historically high valuation levels is a huge win for our shareholders. It's also a tremendous win for our insurance teammates and clients with access to additional resources and product offerings of an agency with the size and scale of Gallagher.

We value the relationships, we've built with these teammates and we look forward to continuing to work with them in their new roles as Gallagher will be the preferred insurance partner of cadence bank.

Dan: From a shareholder perspective, we are able to significantly enhance our capital metrics and change will book value per share while focusing our efforts on supporting and growing our core banking business. Value will provide some more color on the performance impact of the transaction as well as plan uses of the proceeds and just a moment. As we move to financial results for the quarter, we reported quarterly net income available to common shareholders of 90.2 million or 49 cents per deleted share and adjusted net income available to common shareholders of 103.9 million or 56 cents per deleted common share.

From a shareholder perspective, we were able to significantly enhance our capital metrics and tangible book value per share, while focusing our efforts on supporting and growing our core banking business Valerie will provide some more color on the pro forma impact of the transaction as well as planned uses of the proceeds in just a moment.

As we move to financial results for the quarter, We reported quarterly net income available to common shareholders of $90 2 million or <unk> 49 per diluted share and adjusted net income available to common shareholders of $103 9 million or <unk> 56 per diluted common share with the primary difference being non routine expenses largely associated.

Dan: With the primary difference being non routine expenses largely associated with our efficiency initiatives that we've discussed on our second quarter call. Our balance sheet was relatively stable for the quarter loans were essentially flat for the quarter at 32.5 billion while reported deposits declined to 357 million. The deposit decline included our intentional reduction in brokerage CD balances as well as a seasonal decline in public funds. Before the impact of those total core customer deposits actually increased just over 500 million or 5% annualized.

With our efficiency initiatives that we've discussed on our second quarter call.

Our balance sheet was relatively stable for the quarter loans were essentially flat for the quarter at $32 5 billion, while reported deposits declined $357 million.

The deposit decline included our intentional reduction in brokered CD balances as well as the seasonal decline in public funds before the impact of those total core customer deposits actually increased just over 500 million or 5% annualized this growth reflected success in both our corporate and community banking segments.

Dan: This growth reflected success in both our corporate and community banking segments, particularly given the ongoing competitive environment for deposits. The deposit trends also reflected a slower pace of deposit mixed shift compared to the most recent quarters as non-interest bearing deposits represented 25.2% of total deposits at the end of the third quarter compared to 26.4% three months ago. These balance sheet trends contributed to stability in our net interest margin which was 2.98% for the third quarter.

Particularly given the ongoing competitive environment for deposits.

<unk> trends also reflected a slower pace of deposit mix shift compared to the most recent quarters as noninterest bearing deposits represented 25, 2% of total deposits at the end of the third quarter compared to 26, 4% three months ago. These.

These balance sheet trends contributed to stability in our net interest margin, which was $2 nine 8% for the third quarter.

Dan: The third quarter increase in deposit costs slowed considerably, representing roughly half of the increase we experienced during each of the first two quarters this year. We anticipate this margin stability to continue in the fourth quarter as well. From a credit quality standpoint, net charge-offs were elevated as a result of the charge-off of two CNI credits that were previously identified as impaired. These two credits have been on our radar and reflected in our credit metrics for several quarters now.

The third quarter increase in deposit costs slowed considerably representing roughly half of the increase we experienced during each of the first two quarters. This year.

We anticipate this margin stability to continue in the first quarter and the fourth quarter as well.

From a credit quality standpoint, net charge offs were elevated as a result of the charge off of two C&I credits that were previously identified as impaired. These two credits have been on our radar and reflected in our credit metrics for several quarters now.

Dan: Otherwise, both of our non-performing as well as our criticized and classified asset totals were stable compared to the second quarter of 2023. We reported a provision for credit losses of $17 million for the quarter driven by slower loan repayment expectations and credit outlook. Overall, despite the volatility in the macro environment, our risk identification process is working well and credit quality expectations remain stable. Finally, we continue to make progress in our efficiency initiatives.

Otherwise both of our nonperforming as well as our criticized and classified asset totals were stable compared to the second quarter of 2023.

We reported a provision for credit losses of $17 million for the quarter, driven by slower loan repayment expectations and credit outlook overall, despite the volatility in the macro environment, our risk identification process is working well and credit quality expectations remained stable.

Dan: This progress is evidenced in our headcount decline. Total FTEs had declined over 300 during the third quarter and over 400 since the end of last year. We expected the client of additional 80 headcount prior to the end of this year. We expect the fruits of these efforts to be more visible in our numbers during the fourth quarter and the first part of 2024. Before factoring in the insurance sale impact, we are working hard toward holding our 2024 expenses flat through these and other efforts.

Finally, we continue to make progress on our efficiency initiatives. This progress is evidenced in our head count decline total ftes have declined over 300 during the third quarter and over 400 since the end of last year, we expect a decline of additional 80 head count prior to the end of this year, we expect the fruits of these efforts.

Be more visible in our numbers during the fourth quarter and the first part of 2024.

Before factoring in the insurance sale impact we are working hard toward holding our 2024 expenses flat through these and other efforts I'll now turn the call over to Valerie for her comments salary.

Valerie: Now turn the call over to Valerie for her comments. Valerie. Thank you, Dan.

Thank you Dan.

Valerie: I would like to start by making a few brief comments on the pro-former financial impact and expected uses of proceeds on the Cages Insurance Transaction, which is highlighted on slide 5 through 7. The financial metrics of this transaction are extremely attractive. We estimate that the transaction will result in additional capital of approximately 620 million, including a net book gain of approximately 520 million, which represents approximately 160 basis points of additional CET1 and 24 percent tangible book value accretion. Further, we estimate the transaction to be net neutral to earnings by simply applying the cash proceeds toward the paydown of wholesale funds before any use of the generated capital.

On the cases insurance transaction, which is highlighted on slide 537.

The financial metrics of this transaction are extremely attractive we estimate that the transaction will result in additional capital at approximately $620 million.

Adding a net gain of approximately $520 million, which represents approximately 160 basis points of additional CET, one and 24% tangible book value accretion.

Further we estimate the transaction to be net neutral to earnings by simply applying the cash proceeds towards the pay down of wholesale fund before any use of the generated capital.

Referencing slide seven.

Valerie: Referencing slide 7, a phone completion of the sale. In addition to the paydown of borrowings, we anticipate executing on a securities repositioning of at least 1.5 billion of the security portfolio whereby we would use a portion of the generated capital to sell securities yielding under 1.2 percent and use the proceeds to reinvest in earning assets at market value rates, likely with higher yielding securities. The pro-former earnings and margin impacts of these actions are impressive.

Alicia the sale in addition to the pay down of borrowings we anticipate executing on our securities repositioning of at least $1 5 billion of the securities portfolio, whereby we would use a portion of the generated capital to sell securities yielding under one 2%.

The proceeds to reinvest in earning assets at market value rates flat.

Lastly, with higher yielding securities.

The pro forma earnings and margin impacts of these actions are impressive.

Valerie: Using consensus estimates for 2024, we estimate EPS accretion of 11 percent, an incremental net interest margin pickup of over 20 basis points, and an improvement in the efficiency ratio of 530 basis points. After fast entering in an estimate of the related loss associated with the sold securities, the pro-former net impact to our CET1 is still nearly 120 and Richard Blake. We also anticipate both the gain from the insurance transaction and a subsequent loss from the security sales to occur in the same reporting period in support of a set of efficient tax management. On the remaining generated capital, we ultimately aim to maintain capital strength and flexibility. Whether it be in additional securities, portfolio restructuring, share by that or various other forms of future growth.

Using consensus estimates for 2024, we estimate EPS accretion of 11% and incremental net interest margin pick up over 20 basis points.

And then improvement in the efficiency ratio of 530 basis points.

After factoring in an estimate of the related loss associated with <unk> Securities.

The pro forma net impact to our CET, one is still nearly 120 basis points.

We also anticipate both the gain from the insurance transaction and the subsequent loss in the securities sales to occur in the same reporting period in support of effect.

Tax management.

On the remaining generated capital, we ultimately aim to maintain capital strength and flexibility.

Whether it be in additional securities portfolio restructuring share buyback.

Yes, other form for future growth.

Valerie: If I found excited, I am. This is a unique opportunity that we believe has meaningful shareholder value.

I found excited I am this is a unique opportunity that we believe has meaningful shareholder value.

Moving onto our financial resort results for the quarter looking at our balance sheet and margin highlights beginning on slide 18, we reported net interest income of $329 million for the third quarter, a decline of $4 5 million compared to the second quarter of 2023.

Valerie: Maybe on to our financial resorts results for the quarter, looking at our balance sheet and margin highlights beginning on slide 18. We reported net interest income of $329 million for the third quarter, a decline of $4.5 million compared to the second quarter of 2023. Our net interest margin was 2.98% for the third quarter, down five basis points from our second quarter margin of 3.03%. Our total cost of deposits increased at 2.14% at 27 basis points from the second quarter, which is roughly half of the increase we experienced in each of the first two quarters of a year.

Our net interest margin was 298% for the third quarter down five basis points from our second quarter margin of three 3%.

Our total cost of deposits increased to one 4% up 27 basis points from the second quarter, which is roughly half of the increase we experienced in each of the first two quarters of the year.

Valerie: While it's clearly still very competitive, pressure on deposit balances and pricing seems to have moderated over the last several months. We also saw a reduction in the pace of migration from non-interest bearing products to interest bearing products. Non-interest bearing balances represented 25.2% of total deposit to the end of the third quarter compared to 26.4% at the end of the second quarter. Our yield on net loans, excluding accretion was 6.31% for the third quarter up 13 basis points in the prior quarter. As slowing in new originations, contributing to a reduction in the pace of loan yield increases compared to prior quarters.

While it's clearly still very competitive pressure on deposit balances and pricing seems to have moderated over the last several months.

We also saw a reduction in the pace of migration from noninterest bearing products to interest bearing products.

Non interest bearing balances represented.

25, 2% of total deposits at the end of the third quarter compared to 26, 4% at the end of the second quarter.

Our yield on net loans, excluding accretion was $6 three 1% for the third quarter up 13 basis points from the prior quarter.

A slowing in new originations.

Shifting to a reduction in the pace of loan yield increases compared to prior quarters.

Noninterest revenue highlighted on slide 21, with $119 million on a reported basis, excluding $6 7 million in facility and finance write downs associated with the branch closures during the third quarter, which is reflected in the other income line item total adjusted non interest revenue was 112.

Valerie: Non-interest revenue highlighted on slide 21 was $119 million on a reported basis, excluding 6.7 million in facility and signage right now associated with the branch closures during the third quarter, which is reflected in the other income line item. Total adjusted non-interest revenue was 125, excuse me, 125.6 million, a 6.6 million declines in the prior quarter. About half of this decline was driven by mortgage banking income with the remainder being driven by a combination of other revenue sources, including credit-related fees and brokerage income.

Five excuse me $125 6 million, a $6 $6 million decline from the prior quarter.

About half of this decline was driven by mortgage banking income with the remainder being driven by a combination of other revenue sources, including credit related fees and brokerage income.

Valerie: Mortgage banking production and servicing declined by a million, primarily as a result of slow purchase activity. Additionally, the MSRF fed adjustment was a negative .2 million for the third quarter compared with a positive 1.6 million to the second quarter.

Mortgage banking production and servicing declined by $1 million, primarily as a result of slowed purchase activity.

Additionally, the MSR asset adjustment was a negative <unk> <unk>.

$2 million for the third quarter compared with a positive $1 6 million for the second quarter.

Moving on to expenses, which are highlighted on slides 22, and 23 total adjusted noninterest expense was $301 million for the quarter, reflecting stability across most of the major expense categories.

Valerie: Moving on to expenses which are highlighted on slide 22 and 23, total adjusted non-interest expense was $301 million for the quarter, reflecting stability across most of the major expense categories. Balleries and employee benefits increased $1.3 million compared to the second quarter, as the headcount declines that Dan mentioned earlier allowed us to stay relatively flat on compensation expense, despite the July 1st effective date for annual merit income. Creases. We reported a 2.7 million increase in deposit insurance assessment expense, which was driven by an increase in uninsured deposit, higher second quarter loan balances, and changes in certain of the credit quality metrics that impact the assessment.

Our recent employee benefits increased $1 3 million compared to the second quarter as the head count declines that Dan mentioned earlier allowed us to stay relatively flat on compensation expense. Despite the July one effective date for annual Merit increases.

We reported a $2 7 million increase in deposit insurance assessment expense, which was driven by an increase in uninsured deposit higher second quarter loan balances and changes in certain of our credit quality metrics that impact the assessments.

Valerie: Then, spoke to the progress on our efficiency initiatives, but to briefly recap, we expect our total FTE to be down by over 480 since the end of last year, or an 8% reduction excluding insurance. We also closed 35 branches in the third quarter, reducing our total branch count by 12% since merger.

Dan spoke to the progress on our efficiency initiatives.

Briefly recap, we expect our total FTE to be down by over 480 since the end of last year or an 8% reduction excluding insurance.

We also closed 35 branches in the third quarter, reducing our total branch count by 12% since merger.

Valerie: And, of course, all of this is before factoring in the impact of the pending sale of the insurance company. We believe the combination of these and other efforts will prove will provide a meaningful, positive impact on our performance and efficiency.

And of course all of this is before factoring in the impact of the pending sale of the insurance company.

We believe the combination of fees and other efforts will prove will provide a meaningful positive impact on our performance and efficiency.

Finally speaking to credit quality on slide 16, Dan addressed most of this provision for the quarter was $17 million up slightly from the $15 million provision in the second quarter of this year.

Valerie: Finally, speaking to credit quality on slide 16, Dan addressed most of this. Provisioned for the quarter was 17 million up slightly from the 15 million provision in the second quarter of this year. Net charge does increase the 34.2 million of third quarter, or 42 0.42% of average loans on an annualized basis, primarily due to two credits that were identified as impaired and reserved for in prior quarters as Dan mentioned. Our non-performing loans and non-performing asset totals were stable length quarter at 0.49% of loans and 0.33% of assets respectively.

Net charged off increased to $34 2 million of third quarter or <unk> 40 to <unk>, 42% of average loans on an annualized basis, primarily due to two credits that were identified as impaired and reserved for in prior quarters as Dan mentioned.

Our possible nonperformer excuse me, our nonperforming loans and non performing asset totals were stable linked quarter at <unk>, 49% of loans and <unk> three 3% of assets respectively.

Valerie: Our criticized loan totals were also stable compared to the second quarter, while our classified loans increased slightly to 2.10% of total loans. We saw some migrations from special mention to substandard, primarily the result of higher interest rates and inflationary pressures on loan grades. We continue to monitor credit quality very closely, while higher rates and other macro factors have clearly impacted certain borrowers, our near-term outlook on credit remains stable. Our allowance coverage is solid at 1.37%, and we continue to appreciate the diversification of our loan book, both in type and geography.

Our criticized loan totals were also stable compared to the second quarter, while our classified loans increased slightly to $2 one zero percent of total loans.

We saw some migration from special mention to substandard, primarily the result of higher interest rates and inflationary pressures on loan grades.

We continue to monitor credit quality very closely while higher rates and other macro factors have clearly impacted certain borrowers our near term outlook on credit remained stable.

Our allowance coverage was solid at 137% and we continue to appreciate the diversification of our loan book, both in type and geography.

Valerie: A closing, I can't help that use the word excited again, because we simply are. It has been nice to see the stabilization in our balance sheet and margin this quarter, highlighting the value of our court deposit franchise, and our efficiency initiatives are progressing as planned.

In closing I can't help it use the word excited again, because we simply are it's been nice to see the stabilization in our balance sheet and margin this quarter highlighting the value of our core deposit franchise and our efficiency initiatives are progressing as planned.

Valerie: Finally and importantly, the pending insurance sale transaction is a transformative step in our efforts to improve our performance and enhance shareholder value.

Finally, and importantly, the pending insurance sale transaction is a transformative step in our efforts to improve our performance and enhance shareholder value.

Operator: Operator, we would now like to open the call to questions. We will now begin the question and answer session. To ask a question, you may press star than one on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star than two. In the interest of time, please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster.

Operator, we would now like to open the call to questions.

We will now begin the question and answer session.

Ask a question you May press Star then one on your Touchtone phone.

If you are using a speakerphone please pick up your handset before pressing the keys.

If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

In the interest of time, please limit yourself to one question and one follow up.

At this time, we will pause momentarily to assemble our roster.

Manan Gosalia: The first question today comes from Man in Ghazaliyah with Morgan Stanley. Please go ahead. Good morning.

The first question today comes from Manan <unk> with Morgan Stanley . Please go ahead.

Hey, good morning.

Hey, good morning.

Dan: I was wondering can you talk to the rationale for the insurance sale, why now? Was it a function of rates rising further and reaching a break even point for you? Or was the economics of the deal much better than you would have originally got said at the start of the year? Maybe help us think so that? I think we talked about it on this call for the last couple of quarters, that we were, you know, we like the insurance business, we've always liked the insurance business, we knew we had what we thought was the premier bank owned agency, as we continue to talk to potential partners that it were out there, the valuation just continued to be, you know, a big number.

I was wondering can you talk to the rationale for the insurance sale why now.

Is it a function of rates rising. So then reaching breakeven point for you or what.

The economics of the deal much better than you would've originally got say at the start of the or maybe help us think through that.

Dan: And when we look at the multiples that we received, I think it proves the process out that we did have the premier bank owned insurance agency out there. And the numbers that we're publishing out here can show that, you know, the value of the agency represents about 25% of our total market cap and the agency produced 5% give or take of our net income. So, you know, the disconnect there, which is too big and the benefit that it brings to our shareholders, we work for our shareholders, we've got to be shareholder focused. You know, as we look at our performance, we know we've got to continue to improve our performance, we're not pleased with where we are.

Sure.

I think we've talked about it on this call for the last couple of quarters that we were we like the insurance business. We've always liked the insurance business. We knew we had what we felt was the Premier Bank owned agency.

We continue to talk to potential partners that are out there the valuation just continued to be.

A big number and when we look at the multiples that we received I think it proves the prompts us out, but we did have the Premier Bank owned insurance agency out there in the numbers that we're publishing out you can show that.

But the value of the agency represents about 25% of our total market cap and the agency produced 5% give or take of our net income so.

The disconnect there was just too big and the benefit it brings to our shareholders. We work for our shareholders. We've got to be shareholder focused as we look at our performance. We know we've got to continue to improve our performance. We're not pleased with where we are and this is an opportunity for us to benefit our shareholders.

Dan: And this is an opportunity for us to benefit our shareholders. Got it. And in terms of the capital benefit, you're generating a pretty meaningful 160 basis points of capital through the deal. You know, you're using about a quarter of that. And, you know, I think you're suggesting that there's some upside to that as you use more of that capital freed up over time. But can you help us think to any constraints that you might have there?

Got it and in terms of the capital benefit to generating a pretty meaningful 160 basis points of capital through the deal.

Youre using about a quarter of that and I think you're suggesting that theres some upside to that as you use more of that capital freed up over time.

But can you help us think to any constraints that you might have there. So for instance, if there is a higher level of CET, one that you want to hold over time.

Dan: So, you know, for instance, if there's a high level of CET1 that you want to hold over time, or if there's a certain level of liquidity you want to hold, you know, how you're thinking about the asset sensitivity and doing more of the securities, yield resets, et cetera. So, maybe help us think through that as well. Yeah, you know, we've got some examples in the deck that we've published this morning. And I think that the securities repositioning is something that we're going to do that gives us lots of options.

There's a certain level of liquidity you want to hold.

Thinking about the asset sensitivity and doing more.

<unk>.

The securities yield resets et cetera, So maybe help us think through that as well.

Yes.

We've got some examples in the deck that we published this morning, and I think that the securities repositioning is something that we're going to do.

That gives us lots of options I think today, we don't have a number that we need to hit we don't have.

Dan: I think today we don't have a number that we need to hit. We don't have a capital number that we're worried about. This is a tremendous benefit to us. And it gives us all the options in front of us. But are there any constraints like why not do even more? And we certainly can as far as I know there are no constraints. We want to make sure that we take all the information that we have before and make good decisions. Got it.

Unknown Executive: Thank you.

Our capital number that we're worried about this as a tremendous benefit to us and it gives us puts all the options in front of us.

But are there any constraints like why not do even more.

We certainly can as far as I know there are no constraints, we want to make sure that we take all of the.

Information that we have before us and make good decisions.

Got it thank you.

Michael Rose: The next question comes from Michael Rose with Raymond James. Please go ahead. Morning, Michael. Hey, good morning, everyone. Hey, good morning. Thanks for taking my questions. Maybe Valerie, I just haven't had a chance to run through all the numbers yet. But what were the expenses, the annual expenses associated are expected for the insurance business next year. Obviously we forecast the revenues, but maybe not explicitly break out the expenses. I just wanted to get a sense for what that is.

The next question comes from Michael Rose with Raymond James. Please go ahead.

Morning, Michael Hey, Good morning, everyone, Hey, good morning, Thanks for taking my questions.

Maybe Valerie I, just haven't had a chance to run through all the numbers yet, but what were the expenses Daniel expenses associated are expected for the.

The insurance business next year, obviously, we forecast the revenues, but maybe.

Maybe not explicitly break out there. So I was just wanted to get a sense for what that is and then just separately. If you could discuss kind of the appetite for potentially using some of the proceeds for for a buyback or is it just a better used to maybe look at.

Dan: And then just separately, if you could discuss kind of the appetite for potentially using some of the proceeds for a buyback or is it just the better use to maybe look at investing in lenders of the franchise. And in other ways, thanks. Thanks. I'll take the second half of that one, and the Valerie can give you some numbers on the expenses. I think we want to have all the tools in our toolkit.

Investing in lenders of the franchise and otherwise.

<unk>.

I'll take the second half of that one of the probably can give you. Some numbers on the expenses I think we want to have all the tools in our toolkit and so we would not want to say that we're not interested in doing buybacks I think we want to make sure that we've got that option in front of us, but we want to make smart decisions. So I think where we have not been in the buyback game I think this gives us the opportunity should the market move against us.

Dan: And so we would not want to say that we're not interested in doing buyback. I think we want to make sure that we've got that option in front of us, but we want to make smart decisions. So I think this where we had not been in the buyback game, I think this gives us the opportunity should the market move against us to be able to execute on a buyback if we wanted to.

To be able to execute on our buyback if we wanted to or you want to talk about expenses, yes, sure. So Michael I want to make sure to that you saw the updated deck that we sent out and has the updated slides that include not only our earnings release slides that alphabet.

Valerie: Valerie, you want to talk about expenses? Yeah, sure. So Mike, I want to make sure to that you saw that updated decks that we sent out as the updated slides that include not only are earnings release slides, but also the the three different insurance slides at the beginning of that. And on page six of that deck at the top right corner, there's some discussion there of the adjusted revenue and just an income for the last 12 months. So if you look back at the last 12 months, the total expenses were about 140 million. Okay, I'm sorry, I missed that. Thanks for thanks for pulling that out.

Three different entrants slides at the beginning of that and on page six of that deck at the top right corner. There is some discussion there would be adjusted revenue adjusted net income for the last 12 months. So if you look back at the last 12 months. The total expenses were about $140 million.

Okay, sorry, I missed that thanks for thanks for pointing that out.

Valerie: Maybe just, you know, separately, if you could just give a little more detail on the securities for structuring, maybe how you came up with that amount. Just the process there, I'm certainly appreciate the benefit that the transaction provide you. Thanks. Well, I think this is all estimates today. We haven't closed the transaction. It's going to take some time to get the transaction closed. We certainly want to make sure that we make.

Maybe just.

Separately.

If you could just give a little more detail on the securities restructuring, maybe how you came up with that amount.

Just the process there certainly appreciate the benefit that the transaction provide you. Thanks.

Well I think this is all estimates today, we haven't closed the transaction, it's going to take some time to get the transaction closed we certainly want to make sure that we make.

Valerie: That we take advantage of the opportunity in front of us to offset this tax loss in the same quarter. And so, depending upon when we close, which we currently expect that we can do this quarter, then we would want to make sure that we can execute in this quarter and the market can move between them. And so you've got a whole bunch of what ifs built into this and is the last question for modern was, was you know, there's no right size here.

But we take advantage of the opportunity in front of us to offset this tax loss in the same quarter and so depending upon when we close which we currently expect that we can do this quarter than we would want to make sure that we can execute in this quarter in the market can move between now and then so you've got a whole bunch of what is built into this and as the last question for monitoring.

Was there is no right size here. This is just an example, we're committed to do a securities repositioning what we've shown in here was the lowest yielding quickest payback that we could do and then we can look and see what else we could do.

Valerie: This is just an example that we're committed to do is securities repositioning what we've shown in here was the lowest yielding quickest payback that we could do. And then we can look and see what else we could do.

Okay helpful. I'll step back thanks for taking my questions.

Michael Rose: Okay, helpful. I'll I'll step back. Thanks for taking my question. Thanks, Michael. Yeah, the new deck was posted out this morning if you didn't pick it up.

Thanks, Michael.

The new deck was posted this morning, if you didn't pick it up.

Kevin Fitzsimmons: The next question comes from Kevin fit Simmons with GA Davidson. Please go ahead. Kevin. Hey, good morning, Dan. Hope you're all doing well. Maybe just shifting gears looking at the funding side. So you you guys highlighted that proactive reduction and broker deposits. I'm just curious if that is, you know, more, you got it down to a level you'll probably keep or could you see further could that be further proactive. Reductions that thanks.

The next question comes from Kevin Fitzsimmons with D. A Davidson. Please go ahead.

Hey, Kevin.

Hey, good morning, Dan Hope, you're all doing well.

Maybe just shifting gears looking at the funding side. So you guys highlighted that proactive reduction in brokered deposits.

Curious if that.

As you know.

You got it down to a level youll, probably keep it where could you see further could there be further proactive.

The reductions there.

Dan: I'm not a fan of brokerage CD from any former fashion. I think the team here knows that well. I'm really proud of what we did in the last quarter and growing deposits. The corporate bank, the community bank, the whole team is focused on deposits. You heard in my comments if you pull back the loss of corporate CDs and seasonal decline in public funds. Customer deposits was up 500 million in the quarter.

I'm not a fan of brokerage Cds in any form or fashion I think the team here knows that well.

Dan: We're really proud of that. I think we've got the ability to continue to play in a highly competitive deposit game. And I would like to see our team continue to win those customer deposits in and I'd like to see us move those broker deposits further down. That clearly is dependent upon what we can do on the loan desk and you saw loans were flat this quarter. We clearly intend to continue to grow loans.

I'm really proud of what we did in the last quarter in growing deposits. The corporate bank. The community bank. The whole team is focused on deposits.

You heard in my comments, if you pull back.

Loss of brokerage Cds and <unk>.

Seasonal decline in public funds core customer deposits was up $500 million in the quarter. We're really proud of that I think we've got the ability to continue to play in a highly competitive deposit game and I would like to see our team continued to win those customer deposits in and I'd like to see us move those broker deposits further down that clearly is the.

Pendant upon what we can do on the loan desk and you saw loans were flat. This quarter, we clearly intend to continue to grow loans, we're seeing opportunities out there, but it's much slower than it was before where on the funding side I'm really proud of what the team's doing Chris or Hank do you want to jump in on deposits.

Dan: We're seeing opportunities out there, but it's much slower than it was before. On the funding side, I'm really proud of what the teams doing. Chris or Hank, you want to jump in on deposits? Nothing to add on the deposit side now. I think he's pointed well. I think on the loan side, you know, I think. Rates have definitely clearly moderated some of the opportunities, but we're still seeing opportunities, but we're also focused on deposits as part of those opportunities.

And to add on the deposit side I think.

Explained it well I think on the loan side I think.

Rates are definitely clearly moderated some of the opportunities that we are.

We're still seeing opportunities, but we're also focused on deposits as part of those opportunities.

Dan: And in we're assessing the economic impacts that are out there right now. And we still have good year-to-date loan rates. I think we've got the engine, I think it's just been a bit of a picking and choosing right now, Hank. We've just built on that a little bit. I would say, certainly, you know, loan activity is down. I would call it moderate. It's a great activity, really the focus and the drive on the deposit side.

And we are assessing the economic.

Impacts that are out there right now so and we still have a good year to date loan growth. So I think we've got the engine I think it's just been a bit of a we're picking and choosing right now.

Just build on that a little bit I would say certainly loan activity is down I would call it moderate activity, but really the focus and the drive on the deposit side and when you look at the pipelines, especially on both corporate and community bank, they're very active in gathering deposits. So I'm optimistic and obviously, we had a good quarter.

Dan: And when you look at the pipelines, especially on both corporate and community bank, they're very active in gathering deposits. So I'm optimistic. And obviously, we had a good quarter in loan or deposit growth as well. I would just add that of the cash proceeds from the insurance sale, we do intend on bringing down our deposit, excuse me, bringing down our borrowing. And that would include burger CD. Right. That's in that in that base case, right, Valor? Yep. Exactly. We've got about 830 million of burger CDs that mature between in the fourth quarter in January. Got it. Okay.

In loan and deposit growth as well.

I would just add that the cash proceeds from the insurance sale, we do intend on bringing down our deposit excuse me, bringing down our borrowings.

And that would include brokerage right.

That's an in that base case right Valerie.

Exactly we've got about $830 million of brokered Cds that mature between them in.

In the fourth quarter in January .

Got it Okay. One quick follow up just with the.

Kevin Fitzsimmons: One quick follow up just with the, you know, that credit, that one lumpy credit issue, which is up the number of banks, I'm just curious what your share of actual credit exposure is now. If you can have a candy and even in dollars or percentage of loans are both, hopefully, thanks. Bill, you want to jump in on that? Valor? Why don't you do the numbers and then Billy can jump in with a little more color.

That credit that one lumpy credit issue, which you up the number of banks I'm just curious what your shared national credit exposure is now if you can have it handy.

Or percentage of loans are both hopefully thanks.

Bill do you want to jump in on that Valerie will give you the numbers and then belly can jump in with a little more color. We've got $4 3 billion in our shared national credit portfolio at 13%, that's pretty consistent with where we've been running.

Kevin Fitzsimmons: We've got 4.3 billion in our share national credit portfolio at 13%. That's pretty consistent with where we've been running. Did I have any color to that? Yeah. And I mean, the one color I would add is usually the follow on is, you know, how active are we? And share national credit is just one piece of our multi bank exposure. The bulk of our multi bank exposure is actually smaller, clubby deals that aren't share national credit.

Add any color to that.

Yes.

The one color I would add is usually the follow on is.

How active are we in.

Kevin Fitzsimmons: And within those, we're almost 30% of those we lead. So we have a controlling basis and a lot of our multi bank deals that fall outside of that share national credit exposure. Thanks, Billy. Thanks. Thank you.

Shared national credits, just one piece of our multi bank exposure of the bulk of our multibank exposure is actually smaller club deal that are.

Shared national credit and within those were almost 30% of those leads so we have a controlling basis in a lot of our multibank deals that fall outside of that shared national credit exposure.

Thanks Bill.

Thank you.

Unknown Executive: Who should have come?

Appreciate it Kevin.

Katherine Mueller: The next question comes from Katherine Mueller with KBW. Please go ahead. Morning, Katherine. Hey, good morning. What question on expenses? Appreciate the comment here to keep flat expenses year over year. Just as we think about the fourth quarter, I think we're going to get a, we're going to see more as to move kind of the branch closures and the cost of initiatives that you put through.

Our next question comes from Catherine Catherine Mealor with <unk>. Please go ahead.

Good morning, guys.

Hey, good morning.

A question on expenses.

The commentary to keep flat expenses year over year, just as we think about the fourth quarter.

I think we're going to get.

Gonna see more I assume thats kind of the branch closures and the cost of the initiatives that you've put through so any kind of near term guide on where you think the fourth quarter expenses should land within a range.

Valerie: So any kind of near term guide on where you think the fourth quarter expenses should land within a range? With the noise that we're going to create in the insurance world, it's going to be a noisy quarter. I can assure you, you know, so let's just talk through the things that you've already seen. So that the head count reduction that you saw with the lower head count at the end of the third quarter, we're seeing benefit of that this quarter.

With the noise that we're going to create in the insurance world is going to be a noisy quarter I can assure you.

So, let's just talk through the things that you've already seen so that the head count reduction that you saw with the lower head count at the end of the third quarter, we're seeing benefit of that this quarter, so salaries and benefits should be off we've still got more head count reduction that will take place in this quarter outside of the insurance change so as we get to <unk>, we will see the full.

Valerie: So sorry, the benefits should be off. We've still got more head count reduction that will take place in this quarter outside of the insurance change. So as we get to one here, we'll see the full benefit of the people piece of that puzzle on the branch side. Those branches all closed on July 31st, I think. And so that's fully baked into the fourth quarter of the run rate altogether. So there's no more to do there.

Benefit of the people piece of that puzzle on the branch side those branches. All closed on July 31, I think and so that's fully baked into the fourth quarter run rate altogether. So theres no more to do there. So you've got some down down pressure there Robert do you want to talk numbers.

Valerie: So you've got some down pressure there. Valor, do you want to talk numbers? No, but I think you're exactly right. And those will drive the core expenses down in the fourth quarter. Today, at the point, it is going to be a noisy quarter. So just bear with us and, you know, we expect the first quarter of 24. That's even that the insurance transaction does close in the fourth quarter as we anticipate that first quarter should really be much, much cleaner.

Well I think youre exactly right and those will those will drive the core expenses down in the fourth quarter to Dan's point. It is going to be underweight the quarter. So just bear with us and we expect that first quarter at 24.

That's even that the insurance transaction does close in the fourth quarter as we anticipate that first quarter should really be much much cleaner.

Okay.

Valerie: And then one clarification on the capital gain from the insurance sale, does that $620 million capital impact? Is that include taking out the 90, nothing's like 91 million of goodwill associated with the insurance bill? Okay, that's like that includes that number. Yes. Right. That's right. Okay. Okay, great.

And then one clarification on the capital gain from the.

Insurance sale does that 620 million capital impact does that include taking out the 90.

That looks like $91 million of goodwill associated with <unk>.

Yes, I think that includes that number.

Yes, that's right okay.

Okay, Great and then just to circle back on the capital it is there.

Valerie: And then just a circle back on the capital. Is there a capital ratio that you target, be it CET1 or TCE that you just, I mean, this is a great capital creative event. And so now that we've got our capital ratio back up to levels that I think we all feel better about, is there just a bottom in either of those ratios that you really don't want to get below as you think about bond restructuring and buybacks into next year?

Is there a capital ratio that you target.

CET, one or or TCE that you just I mean this is a great capital accretive event is now that we've got our capital ratios back up to levels that I think we all feel better about is there just a bottom in either of those ratios that you really don't want to get below as you think about bond restructuring and buybacks into next year.

No I think we want to make good decisions and I don't think we want to be trapped by one basis point or two basis points on some ratio we want to make good intelligence smart decisions at the time.

Valerie: No, I think we want to make good decisions. And I don't think we want to be trapped by, you know, one basis point or two basis points on some ratio. We want to make good intelligence mark decisions at the time. Okay. Thank you so much. Thanks, Catherine.

Great. Okay. Thank you so much.

Thanks, Kevin.

Okay.

Broderick Preston: The next question comes from Brody Preston with UBS. Please go ahead. Hey, Brody. Good morning, everyone. Congrats on the deal. I wanted to ask Valerie just maybe if you could talk a little bit about the movement parts on NII. I was wondering where the spot rate on interest bearing deposits were at quarter and and also could you talk about the loan repricing the expect going forward, we had previously spoken about a 50% loan beta cycle the date, but I think you're running closer to 44% now.

The next question comes from Brody Preston with UBS. Please go ahead.

Hey, good morning, everyone. Congrats on the deal.

I wanted to ask.

Valerie just maybe if you could.

Talk a little bit about the moving parts on an NII I was wondering where the spot rate on interest bearing deposits were.

At quarter end and also could you talk about the loan repricing you expect going forward, we had previously spoken about a 50%.

One beta cycle to date, but I think youre running closer to a 44% now.

Broderick Preston: So any kind of comments are you can give around those two items. I'd appreciate it. Yeah, sure. So, you know, we did see our non-interest bearing mix moderate pretty meaningfully during the quarter, where non-interest bearing really only came down, well, it was 26, little over 26% in the second quarter, little over 25% in the third quarter. And so that obviously is a positive impact. And, you know, as we also mentioned, the cost of deposits, you know, well, when at 27 base points, it was half of what it had done in the prior quarter, prior couple of quarters.

So any kind of commentary you can give around those two items I'd appreciate it.

Yeah sure so.

We did see our noninterest bearing mix moderate pretty meaningfully during the quarter were noninterest bearing really only came down while it was 26 little over 26% in the second quarter, let alone 25% in the third quarter and so that obviously has a positive impact.

And as we also mentioned the cost of deposits went up 27 basis points. It was half of what it had done in the prior quarters. Prior couple of quarters. So all of that is meaningful if you take a look at slide.

Broderick Preston: So all of that is meaningful. If you take a look at slide 20, you know, that that shows, you know, the standard repricing that we've talked about and kind of where things are, the floating category, and then where things are in the next 12, 3 to 12 months. And that obviously flows into our margin and helps improve that loan yield. One of the things that we saw this quarter was because we didn't have net loan growth, the pace of that loan yield increase was down from or with moderated impact, anyway, that impact was moderated because of the lack of the new loans.

Slide 20.

That shows.

The standard rate pricing that we've talked about and kind of where things are at the floating category and then where things are in the next 12 three to 12 months and that obviously flows into our margin and helps improve that loan yield one of the things that we saw this quarter was because we didnt have net loan growth.

The pace of that loan yield increase was down prime or with moderate it anyway that impact with moderated because of the lack of the naval loans and so that's and that is bringing down our beta assumptions as we go forward and the loans, excluding accretion direct for the third quarter.

Broderick Preston: And so that is bringing down our beta assumptions as we go forward. The loans excluding accretion direct for the third quarter was the flat, the beta for it was flat at 44% compared to the second quarter. As we look towards your end, you know, it's probably going to inch up a little bit. And again, some of that depends on the volume of loan growth, but probably, you know, it'll be some 50, I think at this point, from what we saw this quarter, but you know, it'll be up a couple of percent probably 2, 3 along that line on the deposit beta side.

With flat debate effortless flat at 44% compared to the second quarter.

As we look towards year end, it's probably going to inch up a little bit and again some of that depends on the volume of loan growth.

It'll be sub 50, I think at this point.

From what we saw this quarter, but it'll be up a couple of percent probably.

Q3, along that line on the deposit beta side.

Broderick Preston: You know, again, that slowed. It was 35% of the cumulative basis in the second quarter, 38% now. Similarly, I think it, you know, will probably move a little bit between now and your end. But, you know, 2, 3 basis points kind of. Craig, Purpose Finish Point. That's your Brody? Yep, that's helpful. And then Dan, I wanted to ask just, you know, how do you think about, you know, we talked about buybacks, we talked about securities, restructure.

Again that slowed it was 35% on accumulative basis in the second quarter, a 38% now.

Currently I think it will probably move a little bit between now and year end, but.

Two to three basis points kind of thing.

Four percentage points.

Got it.

Yes, that's helpful.

And then Dan I wanted to ask just.

How do you think about.

We've talked about buybacks, we're talking about securities restructure we haven't talked about whole bank M&A.

Broderick Preston: We haven't talked about whole bank M&A at all. I think that we've seen, we saw at least one other bank kind of, you know, use proceeds of an insurance sale to buy another bank up in the Northeast. You know, at BXS, you'd send a kind of prolific buyer of smaller banks, and then you did the MOE. So any thoughts around using some of the proceeds or, you know, a bigger kind of inorganic transaction.

At all I think that we've seen.

So at least one other bank kind of use use proceeds of insurance sale to buy another bank up in the northeast.

Bx BSS you viewed.

Kind of prolific buyer of smaller banks and then you did the MLR so any thoughts around using some of the proceeds.

For a bigger kind of inorganic transaction and then secondly.

Broderick Preston: And then secondly, I did want to get your thoughts about how you think about overall levels of profitability and where you'd like to drive those to, you know, at some point, over the medium term, you know, I think the, the ROA target, when you do that. When you did the deal, the MOE was like a one three ROA, I think with this transaction, it gets you back to one. So just trying to think about longer term, getting, you know, how do you get back to that kind of trajectory that you have laid out before?

I just wanted to get your thoughts about how you think about overall levels of profitability and where you'd like to drive those two at some point over the medium term.

Thank you.

ROA target.

When you did the deal.

The Mou was like a 1% ROA I think with this transaction that gets you back to one so just trying to think about longer term getting.

Do you get back to that kind of a trajectory that you had laid out before.

Yes, I think we will take that one first.

Broderick Preston: Yeah, I think we'll take that one first. You know, we clearly have room to improve. And we need to continue to focus on that. That's why we're working through the initiatives that we've been working through to eliminate expenses to consolidate branches, to take advantage of opportunities there in front of us. And we still need to continue to improve. There's no question about that. I think when we look at it, where we want to be, and you use the word target, we've never had any targets.

Really.

To improve and we need to continue to focus on that that's why we're working through the initiatives that we've been working through to eliminate expenses.

Expenses to consolidate branches to take advantage of opportunities that are in front of us and we still need to continue to improve there is no question about that I.

I think when we look at where we want to be when you use the word target. We've never had any targets. We had some pro forma numbers that we put out at the time of the merger was we're not targets those were based upon what we saw at the time based upon the economic environment at the time, obviously things have changed a little since then but when you look at us and you compare us to what's going on in the market.

Broderick Preston: We had some propel on the numbers that we put out at the time of the merger. Those were not targets. Those were based upon what we saw at the time and based upon the economic environment at the time. Obviously things have changed a little since then. But when you look at us and you compare us to what's going on in the market, we're not where we want to be. Nobody's willing to hide from that.

Not where we want to be nobody nobody is willing to hide from that.

Broderick Preston: We've got to improve. And I think this transaction gets us some tools and our toolkit to allow us to improve. And I think when we look at what we've got going in the future, I think we can continue to make headway on that. When you talk about M&A activity that's out there, there's not a lot of activity out there. That's not there's nobody knocking our door down and we're certainly not out chasing anything at this point.

We've got to improve and I think this transaction gives us some tools in our toolkit to allow us to.

Improve and I think when we look at what we've got going in the future I think we can continue to make headway on that.

When you talk about M&A activity, that's out there theres knock off activity out there that's not there's nobody knocking our door down and we're certainly not out chasing anything at this point.

Broderick Preston: I think we think we need to take care of our business right here at home. And we think that's probably the best use of what we've gotten from us today. Yeah, that's that's very helpful. I appreciate that. And if I could squeak just one more and I did want to just ask around the the Smith portfolio. What percent of that are you guys kind of the lead agent on and then as any of that, been then reviewed by regulators lately has been some discussion around the industry this morning about about snick reviews taking place.

We think we need to take care of our business right here at home and we think Thats, probably the best use of what we've got in front of us today.

Got it that's very helpful. I appreciate that and if I can sneak just one more and I just wanted to ask around the snick portfolio.

What percent of that are you guys kind of the lead agent on and then is there.

Any of that.

Ben been reviewed by regulators lately, there's been some discussion.

Around the industry. This morning about without snick reviews, taking place.

We're like every other bank that has those absolutely the regulators are in and looking at them. All the time I don't know that we have a number on what we're leading Billy was given some of that information a few minutes ago I think when you look at our overall loan portfolio, we're no different than anybody else. That's out there that's getting looked at every day.

Broderick Preston: We're like every other bank that has those absolutely the regulators are in and looking at them all the time. I don't know that we have a number on what we're leading Billy was given some of that information a few minutes ago. I think when you look at our overall own portfolio, we're no different than anybody else that's out there. Let's get looked at every day. Thank you guys. I appreciate it. Thanks much.

Got it. Thank you guys I appreciate it.

Much.

Brandon King: The next question comes from Brandon King with True Security. Please go ahead. Hey, Brandon. Hey, good morning. So I wanted to get some commentary on what you're saying as far as the positive trends within the corporate versus community bank, just to get a sense of how those flows have behaved recently. I know last call you mentioned how you wish things were more rational. So I just wanted to get a sense of how things are shaping up between the two sides.

The next question comes from Brandon King with tourists Securities. Please go ahead.

Brenda.

Yeah.

So I wanted to get some some commentary on what you're seeing as far as deposit trends within corporate versus community Bank.

Just to get a sense of how those flows have behaved.

Recently, I know last call you mentioned, how you as.

Things of a more rational so I just wanted to get a sense of how things are shaping up between the two sides.

Well I think as I said a minute ago. The fact that we grew core customer deposits have $1 billion in the quarter.

Brandon King: Well, I think, as I said a minute ago, the fact that we grew core customer deposits, you know, half a billion dollars in the quarter. And that came both in the community bank and the corporate bank. I think the depositors are calming down gross. I'm happy for you guys to jump in here on the corporate side. We've definitely seen a reversal. We're able to get many of those deposits back that left earlier in the year.

<unk> both in the community banking in the corporate Bank I think the depositors are calling down.

Gross I think I'm happy for you guys to jump in here on the.

Corporate side, we've definitely seen a reversal, we're able to get many of those deposits back that left earlier in the year.

Brandon King: We're continuing to really focus on the deposit growth. And it certainly, you know, rates. We have attractive rates for our borrowers, but there's a stabilized and improving is way out of the categorized in the corporate side. Stabilized and improving. That's good. I think I would agree with that across the whole bank. I mean, the difference of what we consider our secret sources, the relationship bankers in the field. So we've got great bankers across our complete footprint and there in those communities.

We're continuing to really focus on the deposit growth and it's certainly.

Rates, we have attractive rates for our borrowers, but there is a stabilized and improving his way I would categorize it in the corporate center stabilized and improving that's good.

I think I would agree with that across the whole bank I think the difference of what we consider our secret sauce is the relationship bankers in the field. So we've got great bankers across our complete footprint and they are in those communities. They know.

Brandon King: They know the clients that have opportunities to grow deposits and they're out there calling on them. And everybody's focused. On deposits 100%. Yeah, that that's executive management all the way down some of our executive management team is out asking for deposits from customers all the time. So it works all the way up and down the line. Got it. And just given the success you've seen this quarter. How does that inform county expectations for the deposit makes next year, particularly when we talk about not just bearing deposits?

The clients that have opportunities to grow deposits and theyre out there, calling on them and everybody's focused on deposits 100%.

Yes.

Executive management, all the way down some of our executive management team is not asking for deposits from customers. All the time. So it works all the way up and down the loan.

Got it.

Just given the success you've seen this quarter, how does that inform kind of your expectations for the deposit mix next year, particularly when we talk about non interest bearing deposits.

Well I think we've been we've been pretty open on our forward look on noninterest bearing deposits better you've got the numbers we've been talking about for some time as we model out where we're going.

Brandon King: Well, I think we've been we've been pretty open on on our board. We've got a forward look on non-intersparing deposits now, or you've got numbers we've been talking about for some time as we model out where we're going. Yeah, so given the the slow pace that we saw this quarter, we are, you know, projecting that to probably be just a little south of 20% by the end of next year. That's just what's in our modeling that based on, you know, an assumption that there continues to be significant deposit pressure in the industry based on some of the macro environmental factors.

So.

Given the slower pace that we saw this quarter, we are projecting that to probably be just a little south of 20.

10% by the end of next year.

That's what's in our modeling that's based on an assumption that there continues to be significant deposit pressure in the industry.

Based on some of the macro environmental factors.

Brandon King: But that's, you know, really kind of what we're modeling out today, kind of on a gradual pace. Okay, and is that assuming great space they will next year? We are projecting some declines in the latter half of next year based on the forward curves. That's really, you know, we primarily rely on the forward curves for use in our modeling. Okay, they take my questions. You got the ground up for sure.

That's really kind of what were modeling out today kind of on a gradual pace.

Okay and is that assuming rates stay stable next year.

<unk>.

We are projecting some declines in the latter half of next year based on the forward curve. That's really we primarily rely on the forward curves for use in our modeling.

Okay.

Taking my questions you bet.

Brad I appreciate it.

Steven Scouten: The next question comes from Steven Scouton with Piper's handler. Please go ahead. Hi, Steven. Morning. So I just wanted to get some clarity on the expenses. Flat expenses sounded like a goal or a target, but I don't want to misconstrue that. And then is that is the best way to think about that? Just strip in the 140 million out from the insurance business and think about that base is flat year over year. I think that's a good way to do that. Yes, the expense, the drive to hold expenses flat is excluding insurance. So yes, I think that's a good way to look at that.

The next question comes from Stephen Scouten with Piper Sandler. Please go ahead.

Hey, Steven.

Good morning.

Just wanted to get some clarity on the expenses flat expenses sounded like.

Goal or a target, but I don't want to misconstrue that and then is that is the best way to think about that just stripping the $140 million out from the insurance business and thinking about that.

Basis flat year over year.

I think that's a good way to do that yes.

Drive to hold expenses flat as excluding insurance. So yes, I think that's a good way to look at that bar or you want to Paragon.

Valerie: Valerie, you want to tag in? I think you said it well. Look at our adjusted expenses for 2023. We'll be working hard to keep those flat 2024. And again, excluding insurance and all that.

Yes, I think you said it well and looking at our adjusted expenses for 2023, we'll be working hard to keep those flat 2024 and again.

Excluding insurance and all that.

Alright perfect.

Dan: And then, the only other question is around brain transplant and transplanting. Another bank I consider somewhat of a peer had maybe a little bit of a weakness or took up reserves around that business. I'm just curious if you're seeing any degradation in your book or anything that gives you a pause around that segment of the business. That's good. Well, typically when you have that industry, it's a little higher leverage. And certainly with interest rates moving where they were, we have seen some pressure.

And then.

My other question is around the franchise finance lending.

Another another bank that I consider somewhat of a peer had had maybe a little bit of a weakness or took up reserves around that business I'm. Just curious if youre seeing any degradation in your book or anything that gives you pause around that segment of the business.

That's good so typically when you have that industry that it's a little higher leverage and certainly with interest rates moving where they where we have seen some pressure.

Dan: I think they've worked through most of their kind of issues as far as expense and are able to also increase some pricing. But yes, we have seen some pressure in that area of the bank. Okay, any major challenge in the reserves related to those loans, I guess, according to no material change in those reserves, just going through our process that we indicated earlier, we're active in looking at them and where we need to increase reserves. We're doing that throughout the bank. Okay, great. Thanks for the color and congrats on the answer. You bet.

I think they've worked through most of their kind of issues as far as expense and are able to also increase some pricing, but yes, we have seen some pressure in that area of the bank.

So nothing major.

A major challenge in the reserves related to those loans I guess accordingly, no material change in those reserves just going through a process that we indicated earlier, we're active in looking at them and where we need to increase reserves were doing that throughout the bank.

Okay, great. Thanks for the color and congrats on the insurance.

You bet. Thanks Steven.

Operator: Thanks, Susan. As a reminder, if you wish to ask a question, please press stars and one to enter the question queue.

As a reminder, if you wish to ask a question. Please press Star then one to enter the question queue.

John Armstrong: The next question comes from John Armstrong with RBC capital markets. Please go ahead. Thanks.

The next question comes from John Armstrong with RBC capital markets. Please go ahead.

Dan: Good morning. Lauren and John, Dan, you don't have to talk about how the insurance business impacts your efficiency ratio going forward. I think I've heard that about 20 times. The numbers are in the deck for you this morning, John. Yeah, I appreciate that. Just had a couple of follow up questions. One on CNI, I understand the big loan that you identified last quarter that moved out, but the balances are still down a little bit.

Good morning.

Good morning, John .

Dan you don't have to talk about how the insurance business impacts your efficiency ratio going forward.

I think I've heard that about 20 times.

Although the numbers are in the deck for you. This morning, John Yeah I appreciate it.

I just had a couple of follow up questions.

One of them on C&I.

I understand the big loan that you identified last quarter that moved out but the balances were still down a little bit.

Dan: What's going on in CNI? Is it the market? Is it you? There were two credits that we talked about for the last couple of years that are charged off and moved out. And then we're thank you using you to talk about where we are production wise. Yeah, John, appreciate the question. And I would say as I mentioned earlier, we have an active portfolio, but it's moderately active. We're managing the growth there, obviously, based on the funding, kind of funding, kind of outlook that we have.

What's going on in C&I as it is that the market is it you just.

There were two credits that we've talked about for the last couple of years.

Charged off and moved out and then just can you talk about where we are production wise.

Yes, John I appreciate the question and I would say as I mentioned earlier, we have enacted portfolio, but it's moderately active.

We are managing the growth there obviously.

Based on the funding.

Kind of funding.

Kind of outlook that we have and so I mean, there are deals out there its very competitive.

Dan: And so there are deals out there. It's very competitive. We're obviously working through the deposit side as well, so any new credit or any credit we're looking at is going to have a liability associated with it as well. And we're managing our growth, but I mean the activity is there, but I would say it's down from the peak clearly. Let me just add to that a little bit. We do have putting capacity to with the relationship managers that we have, and they continue to focus on the existing relationships to build on that.

Obviously, you're working through the deposit side as well so any any new credit or any color. You were looking at is going to have a liability associated with it as well.

And we're managing our growth, but the activity is there.

But I would say it's down from the from the peak clearly.

Okay.

So let me just add a little bit we do have plenty of capacity to with our relationship managers that we have and they continue to focus on the existing relationships to build on that so.

Dan: So, you know, going out and needing new additional teams, we obviously at this point don't see that as something that we would be active in, but unless it presents itself in an area that we could grow in. Okay, so other than that, it's probably a little better outlook in that category, you know. Yeah, I would want to brag on the team. We've got a great team that are producing business every day.

Going out and needing new additional teams. We obviously at this point don't see that as something that we would be active in but unless it presents itself in an area that we could grow it.

Okay. So other than.

It's probably a little better outlook in that category CNR.

I would want to brag on the team we've got a great team there producing business every day.

Dan: You know, the market certainly has pulled back and slowed down and people are asking more questions which is all helping and good. But the markets that we serve are going to continue to give us opportunities. You know, we had a great quarter for production down from where we've been and that's why you didn't see growth in the quarter. But I think the team is up there mixing it up every day. And we're able to get into some credits where the pricing may be better than it has been historically in terms that certainly that way as well.

The market certainly has pulled back and slowed down and people are asking more questions, which is all healthy and good but the markets that we serve we're going to continue to give us opportunities.

We haven't we had a great quarter for production down from where we've been and that's why you didn't see growth in the quarter for that but I think the team is out there like some of it up every day.

And we're able to get into some to some credits where the pricing may be better than it has been historically in terms of certainly.

That way as well.

Good to hear.

You know Stephen asked.

Dan: Stephen asked a commercial segment question, so I'll ask on energy as well. I mean, it's 5% of the company, but it seems like it's a pretty dynamic environment right now. What's your appetite like there and you know, what are terms in pricing like in energy? Arms and pricing are better. Yeah, I would say they are. If you're willing to extend credit, you can get these terms in credit, decent terms and decent pricing.

Commercial segment question, so I'll ask on energy as well.

It's 5% of the company, but it seems like it's a pretty dominant dynamic environment right now what's your appetite like there.

And what are the terms and pricing like in energy.

In terms of pricing or better yes, it really I would say I would say they are if you're willing to extend credit you can get these terms and credit.

The terms and decent pricing.

Dan: You know, we're active in alternatives and not as much energy service but in upstream. And certainly we have an existing client base that we're going to continue to build on. And so I think there are opportunities there. Last one, any changes in your economic assumptions or overlays in your reserve this quarter? Or is it just largely the same as last quarter? All right. I think it's the same as past. I mean, there's always a little bit of movement, but I would say there's nothing notable to call out on that.

Our active and alternatives and not as much energy service, but in upstream.

And certainly we have an existing client base that we're going to continue to build on so I think there are opportunities there.

Last one any changes in your economic assumptions are overlays and your reserve this quarter or is it just largely the same as last quarter.

Alright, I think it's the same as past.

I mean, there's always a little bit of movement.

I would say, there's nothing notable to call out on that.

Alright, Thank you congrats.

Dan: All right. Thank you. Congrats. Thank you. Thank you for your time. This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. All right. Thank you all again for joining us today. We manage our company for our shareholders. And as I've said for some time, we know we had the premier bank owned insurance agency. And this obviously proved true with the valuation multiple that we were able to achieve.

Alright, I appreciate your time.

This.

Our question and answer session I would like to turn the conference back over to management for any closing remarks.

Alright. Thank you all again for joining US today, we manage our company for our shareholders and as I've said for some time, we know we have the Premier Bank owned insurance agency and this obviously proved true with the valuation multiple that we were able to achieve the ability to improve our capital position improve our earnings position and improve our efficiency was just too good to pass up.

Dan: The ability to improve our capital position, improve our earnings position, and improve our efficiency which is too good to pass up. This unique opportunity where everyone is a winner. Our shareholders win. Our insurance team makes win. Our insurance clients win. The communities we serve win. As we look forward, we're committed to improving our performance. Our planned bond restructuring will obviously be a benefit to us as the options this transaction provides will allow us to fast forward some of our improvement plans and reward our shareholders. Thanks again for joining today. We look forward to visiting with you all soon. The conference has now concluded.

This unique opportunity where everyone is a winter our shareholders, a whim or insurance teammates when our insurance clients when the communities. We serve when as we look forward, we're committed committed to improving our performance our planned bond restructuring will obviously be a benefit to us as the options. This transaction provides will allow us to fast forward some of our.

Our improvement plans and reward our shareholders. Thanks again for joining today, we look forward to visiting with you all soon.

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

Unknown Executive: Thank you for attending today's presentation.

Operator: You may now disconnect.

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