Q3 2023 BOK Financial Corp Earnings Call
Greetings and welcome to be OK Financial Corporation third quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being on a contract. It is not my pleasure to introduce your host marquee Crunched, Chief Financial Officer for <unk> Financial Corporation.
Mr. Lance you may begin.
Good morning, and thank you for joining us today, our CEO Stacy <unk> will provide opening comments, Marc Maun executive Vice President for regional banking will cover our loan portfolio and related credit metrics.
Got Brower executive Vice President of wealth management, who will cover our fee based results I will then discuss financial performance for the quarter and our forward guidance.
The slide presentation and third quarter press release are available on our website at <unk>.
Uh huh.
We refer you to the disclaimers on slide two regarding any forward looking statements. We make during this call I will now turn the call over to Stacy kinds.
Good morning, and thanks for joining us to discuss financials third quarter financial results.
Starting on slide four third quarter, net income was $134 million or $2.04 per diluted share. Our team had another solid quarter of earnings driven by our diverse business model, which prudently balances interest revenue with noninterest revenues and allows us to perform well in a variety of business requirement.
B in commission revenues were 40% of total revenue for the quarter.
This quarter, our public corporate Finance group established new record for investment banking fees, which materially offset last quarter's record high derivative fees.
Additionally, we continue to focus on opportunities for growth given the economic vitality of our core geographic footprint as we take advantage of our capital and liquidity strength.
Total loans have increased almost 9% from last year in our core commercial and industrial loans were up 8%.
We're pleased to introduce our full service banking model into the payments how do you market with the addition of a fixed income sales and trading office in Memphis, We are confident both will drive long term shareholder value.
Turning to slide five period end loan balances increased $486 million or two 1% linked quarter with growth in both C&I and commercial real estate.
Period end and average deposits continued to grow during the quarter, our loan to deposit ratio increased slightly to 75% at the end of the quarter as loan growth outpaced deposit growth.
Our cost of deposits did increase linked quarter. However, the pace did slow.
As Marty will detail later, our reported net interest margin continues to be diluted by the expanding trading activity this quarter with our core margin, excluding the trading activities of $3 one 4%.
Although it will take a few quarters to become clear we are seeing early signs of loan spreads increasing in our footprint as credit.
Deposit costs remained high.
The pressure on our net interest margin from increased funding costs resulted in a 21 million linked quarter decline in net interest revenue.
<unk> in an efficiency ratio above 60%, which is more typical for us given the mix of noninterest revenue.
Credit quality is still strong and we have a combined reserve of 325 man or 137% of outstanding loans at quarter end, which is notably above the median of our peer group.
Finally.
We repurchased 700500 shares this quarter to reflect our long term confidence in the company.
<unk> attractive repurchase valuations.
I'll provide additional perspective on our results before starting the Q&A session, but now Marc Maun will review the loan portfolio and our credit metrics in more detail I'll turn the call over to him.
Thanks, Stacy turning to slide seven period end loans were $23 7 billion up two 1% linked quarter total C&I loans increased $185 million or one 3% linked quarter with year over year growth of $1 1 billion or 8% commercial real estate loans increased $270 million of five.
4% linked quarter and have increased $767 million or 17% year over year.
Compared to December 31, 2020, CRE balances have grown at a modest three 8% annualized growth commitments up five 8% during that same period.
Growth this quarter was primarily driven by multifamily properties with an increase of 232 million 15, 4% linked quarter industrial.
Facilities loans grew $83 million or six 1% linked quarter, which was offset by a $24 million or two 4% linked quarter decline in loans secured by office facility and $982 million in outstanding office loans is at its lowest point since June 2020, and there's only 4% of total outstanding loan balance.
The year over year, CRE growth et cetera, and $67 million was predominantly driven by multifamily and industrial alone.
We have an internal limit of 185% of tier one capital and reserves to total CRE commitment and we're presently at the upper end of that limit. We do expect continued modest growth and outstanding CRE balances as construction loans fund up.
As of September 30th CRE balances represented 22% of total outstanding loan balances a ratio well below our peers.
Combined services and general business loans, our core C&I loans increased $112 million or one 6% linked quarter with year over year growth of 716 billion or 11%.
These combined categories were 30% of our total loan portfolio.
Healthcare balances increased $92 million or two 3% linked quarter and have grown $257 million or six 7% year over year, primarily driven by our senior housing sector healthcare sector loans represented 17% of total loans at quarter end.
<unk> balances decreased $18 million linked quarter and have increased $119 million or three 5% year over year with period end balances at 15% total period end loans.
Year over year loans have grown $1 9 billion or eight 9%, excluding triple P loans Q3, 2023 extend the linked quarter loan growth to eight consecutive quarters. Our current pipeline is strong and we're confident we have momentum to drive additional growth in our loan portfolio well into next year.
Turning to slide eight you can see that credit quality continues to be exceptionally good across the loan portfolio and well below historical norms and pre pandemic levels nonperforming assets, excluding those guaranteed by U S government agencies decreased $12 million this quarter.
Non accruing loans decreased $13 million linked quarter, primarily driven by a decrease in commercial real estate loans.
The provision for credit losses of $7 million in the third quarter reflects strong asset quality continued loan growth and modest changes in our economic forecast, we remain in a solid credit position today with a ratio of capital allocated to commercial real estate is substantially less than our peers and the history of outperformance during <unk>.
Past credit cycles, we believe we are well positioned should an economic slowdown materialize in the quarters ahead.
The markets continue to be focused on the office segment of real estate given the trends in workforce preferences. Although the verdict is still out as to whether that will be sustained as the pendulum seems to be shifting back to more time in the physical office.
Our office segment maturities are generally ratable over the next three to four years and we have a mini perm option. If the markets are not conducive to long term permanent financing.
The average loan to value ratio in the office space is below 65% and average cash flow coverage exceeds 1.3 times based on our most recent review at the end of 2022.
Net charge offs were $6 5 million or 11 basis points annualized for the third quarter and have averaged 13 basis points over the last 12 months far below our historic loss range of 30 to 40 basis points looking forward, we expect net charge offs to remain low.
The combined allowance for credit losses was $325 million or 137% of outstanding loans at quarter end.
Total combined of violence is available for law and any apples to apples industry comparison should include the combined reserves.
This ratio to remain stable as loan growth continues and economic conditions persist.
Turn the call over to Scott.
Thanks, Marc turning to slide 10, total fees and commissions were 198 million for the third quarter down slightly linked quarter.
Wealth segment continues to set new quarterly highs for fees and commissions at $123 6 million this quarter eclipsing the previous high set last quarter.
Fees and commissions for the second quarter included record results for energy customer hedging as well as annual tax service fees.
Although energy hedging customer and tax service fees were down linked quarter. These were partially offset by record results this quarter and our public and corporate finance groups driving up $5 3 million increase in other investment banking fees.
The two and a half million linked quarter decline in trading fees was primarily related to fees from our municipal bond trading portfolio down $3 5 million linked quarter, which was influenced by rising interest rate environment and evolving market expectations during the third quarter.
This was partially offset by a $1 1 million increase in our MBS trading activities.
Fiduciary and asset management fees were $52 million for the third quarter, a 1.4% linked quarter decreased due to the second quarter's annual tax service fees.
Our assets under management or administration were 99 billion at quarter end.
Our asset mix for assets under management or administration moves slightly this quarter with 43% fixed income, 32% equities, 16% cash and 9% alternatives.
We are proud of our diversified mix of fee income, which we believe is a strategic differentiator for us when compared to our peers, especially during times of economic uncertainty, we consistently rank in the top decile for fee income as a percentage of total net interest revenue and noninterest fee income.
Our revenue mix averaged 37% during the last 12 months that consistently supports a revenue stream that is sustainable through a wide variety of economic cycles.
I'll now turn over the call to Marty.
Thank you Scott turning to slide 12 third quarter net interest revenue was 301 million a $21 million decrease linked quarter net interest margin was 269% or 31 basis point decrease versus Q2, I will note that eight basis points of the 31 basis point margin decline was.
<unk> growth in the trading securities.
The trading securities grow is dilutive to the net interest margin as it grows earning asset and a narrower spread compared to the rest of the balance sheet.
Net of the eight basis point impact from trading and the remaining 23 basis point decline was driven by the competitive deposit environment.
Average interest bearing deposit cost increased by 61 basis points linked quarter.
Our cumulative interest bearing deposit beta increased to 58% from the third quarter and noninterest DDA continued to shift into interest bearing DDA as a percent of total deposits was 29, 6% as of September 30.
This slide shows net interest margin and net interest revenue with and without the impact of the trading business to better highlight trends in comparability for the third quarter of 2023, the net interest margin excluding the impact of trading assets was $3, one 4% versus 336 in the second quarter.
Growth in earning assets during the quarter was driven by trading securities and loans, partially offset by a decline in our fair value option securities used to hedge our mortgage servicing asset.
Turning to slide 13 liquidity and capital continue to be very strong on an absolute basis and versus peers.
Total deposits grew $358 million on a period end basis and the loan to deposit ratio was 75% up slightly from the previous quarter.
Average total deposits increased $918 million linked quarter with average interest bearing deposits up $1 8 billion, partially offset by an $840 million decline in the demand deposits.
Brokerage Cds had recently been a topic for our industry and we note that our usage of that funding source over time is generally low, but not zero brokered Cds were $688 million or less than 2% of total funding at quarter end and declined $72 million versus the prior quarter.
Our tangible common equity ratio was 774% down five basis points linked quarter due to balance sheet growth and increase in interest rate interest rates, but up 11 basis points from year end 2022.
Adjusted TCE, including the impact of unrealized losses on held to maturity securities and 735% consistent with year end soon.
CET, one is 12, 1% and if adjusted for ASC I would be nine 7%.
As the recent regulatory capital proposal is largely focused on banks over $100 billion, we have ample capital to support continued organic growth while at the same time, allowing for continued share buyback during.
During the third quarter, we repurchased 700500 shares at an average price of $84 17 per share.
Turning to slide 14 linked quarter total expenses increased by $5 6 million or one 8% personnel expense was flat linked quarter as increases related to our San Antonio Memphis expansions were mostly offset by a decrease in employee benefits.
Non personnel operating expense grew $5 5 million occupancy and equipment increased $2 5 million driven by the retirement of certain Atms as we upgrade our network.
FDIC insurance expense increased $1 million.
Combined all other expense categories increased $3 3 million much of that related to an accrual for a certain disputed matters.
Year over year total operating expense increased $30 million or 10%.
<unk> expense increased $20 million or 12%, however, $3 million of the year over year increase was related to a onetime benefit during the second quarter of 'twenty two.
The dissolution of our pension plan.
Bind with linked quarter market adjustments for deferred compensation.
Third quarter 2023 also includes $2 6 million of expansion related to personnel costs.
Cash based compensation related to new business production increased $6 8 million.
The remaining $8 million year over year increase was primarily regular salaries and benefits with that directly related to annual merit increases and a much lower level of open position.
Year over year, other operating expense increased $9 million or seven 3%.
Occupancy and equipment increased $3 3 million with $2 $5 nine related to the ATM retirements FDIC insurance increased $3 7 million as both the assessment base and the rate increase and data processing increased $3 9 million, primarily due to continued investments in technology.
These were partially offset by $1 1 million decrease in mortgage banking costs as MSR amortization flow.
Turning to slide 15, I will note that we are in the middle of our 2024 financial planning process. So we are not ready to provide forward looking assumptions with the same level of detail as we have for the last few quarters. However, I will provide the following higher level expectations for the next 15 months.
We continue to expect upper single digit annualized loan growth economic conditions in our geographic footprint remain favorable and continue to be supported by business in migration from other markets.
They've environment for loans should be a tailwind for us.
We expect to continue holding our available for sale securities portfolio flat and to maintain a neutral interest rate risk position.
We expect total deposits to be stable or grow modestly and the loan to deposit ratio to remain in the love seventies.
Currently we are assuming no additional rate changes by the federal reserve in 2023 or 2024.
We believe the margin will migrate modestly lower over the next couple of quarters as interest bearing deposit betas level out and demand deposit balance attrition runs its course.
In aggregate, we expect total fees and commissions revenue to grow at a mid single digit growth rate on a year over year basis, and our strategic expansion initiatives to positively impact growth rates for 2024.
We expect expenses to increase modestly as we continue to invest in strategic growth and technology initiatives with revenue growth following at a slight lag.
We expect the efficiency ratio to increase with net interest margin changes then migrate downward as revenue growth is realized. This does not include the impact of the FDIC special assessment, which could be finalized in the fourth quarter of 2023.
Our combined allowance level is above the median of our peers and we expect to maintain a strong credit reserve given our expectations for loan growth and the strength of our credit quality, we expect quarterly provision expense near recent levels to continue in.
And an eventual move towards normal credit costs later in 2024 changes in the economic outlook will affect our provision expense.
Additionally, we expect to continue our opportunistic share repurchase activity.
I'll now turn the call back over to Stacy kinds for closing commentary.
Thanks Marty.
This quarter highlights the benefits of our diverse revenue mix and our strong risk management culture, as we and the industry experienced pressure on the margin from increased funding costs.
While margin pressure is a reality for us and our peers are diverse fee based businesses supply a strong core revenue base sets us apart.
Excluding the volatile mortgage refinance to ease during the second and third quarters of 2020.
The last five consecutive quarters are the highest for fee income in the company's history.
We continue to grow and invest in our fee businesses as shown by our recent expansion into Memphis, and our talented teams collaborate well to ensure we grow our company the right way.
Way that is sustainable through all economic cycles.
While the market continues to focus on capital liquidity and credit I see this as a unique opportunity to use our strength in these areas to grow organically and invest in new markets or other financial institutions, maybe more internally focused.
We are focused on using the strength of our geographic footprint to grow both in today's climate and in the years ahead.
With that we are pleased to take your questions operator.
Thank you we will now be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
Information to them will indicate your line isn't the question queue.
Scott if you would like to remove your questions from the queue.
For participants using speaker equipment it.
We messaged suite to pick up your handset before.
Passing stocky one moment please poll for questions.
Our first question comes from the line of Bradley Gailey with <unk>. Please go ahead.
Yeah, It's Brady and good morning, guys.
Good morning Brady.
But I was just wondering in your guidance for some continued net interest margin pressure, we saw a big move in the third quarter. How do you think about the magnitude of how much the margin could decline over the next quarter or two.
Yeah.
Yeah. Good question Brady so.
I think the way to think about the next quarter or two maybe you can give you a little context, so number one I kind of set aside the trading impacts.
There's really no reason to think that that would be any different it'll react to the markets and even if it's different that's really denominator effect and don't doesn't really drive the numerator so much.
So Q3 margin decline ex trading was 23 basis points and so the positive drivers there were.
The bond portfolio repricing.
The fixed rate portions of the loan book repricing.
And loan growth.
The negatives were the DDA mix shifts and the deposit beta piece. So Q4 should basically see the same positives at very similar magnitudes.
But the negatives in aggregate will be smaller so we expect to see a smaller decline than that 23 basis points in the core margin Q3 to Q4, but still probably in the low double digit to basis points.
Uh huh.
It's really the beta slowing down that's going to be.
<unk> that helps there going into Q1, and we still think that.
Positives are about the same in magnitude.
But the negatives will still outweigh those positives to a lesser degree and we'll see another but probably smaller margin decline and then after that it is increasingly likely that the balances the positive balance out or outweigh the negatives, but we'll give you some more color on that in January.
Okay.
Then.
Loan growth at a high single digit pace.
It was pretty robust today, I mean relative to your peers, there's not many banks growing at that level. So how are you able to kind of grow at that elevated pace relative to your peers in the industry today.
Yes, Brady this is Marc Maun.
Fundamentally our balance sheet is well positioned to allow us to grow with the liquidity the loan to deposit ratio of above 70%, we have the liquidity capacity to grow.
Our credit metrics are as good as they've ever been I mean with criticized levels of half where they were pre pandemic and we don't see any significant issues on the horizon.
So we've been able to focus on our sales efforts in getting out.
In energy.
Real estate, we are expecting some modest growth just because of our own internal limits, but we don't we have no reason to discontinue that effort and we're going to be very focused on that in this quarter and in 2024.
Brady This is Stacy I, just might add that I think that.
Mark really hit on it it's been a real focal point for us as we've seen the disruption in the industry as others are having to manage the liquidity and capital constraints were not this is a really unique opportunity. We have at maybe you get once every 15 years or so to definitely take market share and grow.
There are less able to do that and so that's been a real significant focus for us and what I like about the growth is how it's been core C&I growth.
We're really over the last year energy is such an important part of our business, but energy hasn't driven that historically a lot of times. When we have strong C&I growth energy is the big driver we've had huge growth in commitments there.
But the outstandings have not and so if you think about my market, it's really been been across our footprint. Each of the markets has really had a strong year in terms of growth in C&I, particularly.
It's been a focus for us and so I think.
We're optimistic that we can maintain that.
Okay, Alright, and then finally for me is just on the fee income side it.
It's been such a great story for be Okay. This year growing fee income is there any pieces of your fee income that you think are.
Over earning right now that could that could normalize lower or is all of this growth real you know mid single digit fee growth is great for this year. You like is that is that the way we should kind of think about fee income growth longer term for be okay. In this mid single digit level.
Yes, Brady this is Marty yeah, we do think that.
That is good solid franchise growth that we've been able to generate and if you look out over any 12 month or so period, we're able to grow that consistently at that mid single digit level and we feel the same about that today than we did a quarter ago.
Brady This is Scott I would add to that if you look at the.
Components second quarter to third quarter, we had.
Record highs in the second quarter in a couple of different lines. So our energy had we had different pieces that.
At the top of the list in the second quarter that's alternated.
In the third quarter, where we have investment banking and other areas. So it's not coming from any one particular segment or piece. So you've got diversification of those fee and commission revenue sources, just like we do at the top of the house from a revenue perspective, So we feel good about the fact that.
The various business lines.
Have the ability to generate fees and commissions just all types of fee revenues, regardless of what cycle. We're in.
Okay got it thanks guys.
Thank you next question comes from the line of Peter Winter with D. A Davidson. Please go ahead.
Hi, Good morning, I was wondering can you provide some guidance Marty how youre thinking about net interest income in the fourth quarter.
Just.
Any moving parts and how youre thinking about the the trading portfolio and where do you think.
Net interest income would bottom do you think it's kind of the second quarter, we took up the bottom.
Yes, so Peter let me just give you a little bit of color on the net interest revenue kind of the components.
So.
Loan growth that'll give you something like it we had about $450 million.
Loan growth and that's coming on at a $2 50 spread thats one year positives.
Bond portfolio reprice.
That averages $450 million, a quarter and you kind of get a runoff right around $2 70, 275 basis points and our reinvestment yield thats, what our current market rates were by the end of the third quarter, we're able to do that at $5 50.
Fixed rate loan reprice, that's about another $350 million, that's repricing up each quarter 300 basis points and so those are the positives.
Deposit betas were still a pretty large impact in Q3.
We saw a nice slowdown in the pace of.
Increase in September and so we ended the quarter with there.
58% cumulative beta.
So we can see that flowing until that slowdown will.
We will benefit Q4 and forward and then the DDA mix shift, we still see that as a.
A higher number in Q4 with.
Likely slow down after that.
Peter This is Stacy I think the answer to be specific I think that that.
Marty just kind of provided the pieces there, but our view is that you'll have more margin deterioration in the fourth quarter last in the in the first quarter and our current view is that it's likely in the first quarter that both margin and net interest revenue or kind of where are they a trough and then we begin to build back from there plus or minus.
Not a high degree of precision.
Around the absolute numbers, but certainly directionally. We think then we likely bottom somewhere around the first quarter.
Okay.
Got it thank you.
And then Stacy just.
Expenses, so if I think about.
The company and the strategy and I understand with.
Competitors pulling back and Youre, taking advantage of this opportunity and investing.
Is there any thought of maybe slowing down some of these investment spending next year, just given somewhat of a challenging revenue environment.
No I mean, if you think about I mean, Peter you've followed us for most of my career here. It feels like I mean, our view is we're running this company not for the next quarter or for the next year, but for the next five years or 10 years or 15 years.
And so you get these opportunities like this you have to take advantage of it and I understand the optics, but.
Because of our mix of fee revenue, we're not a sub 60% efficiency ratio company, we've never been.
And so having a low 60% efficiency ratio doesn't bother us at all because we've got 40% to 50% of our revenues from fee based businesses that carry a higher efficiency ratio.
And so we're going to be prudent about expenses, we're not going to do anything.
That's been prudent there, but we're going to grow the company and we're going to think about things from a long term perspective, not a short term perspective that may be the most distinctive advantage, we have as a financial institution and we're going to take advantage of that.
Okay and just my last question just.
Deposit betas.
The outlook was 64% by year end I'm, just wondering if you could update that and how youre thinking about it next year.
Yes, we are thinking about that still is $64 65 for the end of this year and then we do expect that to slow quite a bit next year.
Any idea where kind of settles out on it.
Yes, it's probably a little too early to tell but quite a bit lower I mean, we saw some nice slowdown in September.
And we expect to see that slowdown.
<unk>.
Got it thank you.
Thank you next question comes from the line of John.
Jon <unk> from RBC capital markets. Please go ahead.
Hey, Thanks, good morning.
Good morning, John.
Mark maybe a question for you in your prepared comments you talked about some limits on commercial real estate concentrations.
I'm just curious.
What that means for overall commercial real estate growth.
Particularly interested in the multifamily and industrial because theres been such such big drivers of growth for you guys.
Right.
What I talked about was we do try to manage our exposure in real estate to a certain percentage of <unk>.
Capital and were at the upper end of that range. So we have seen growth.
A lot of the growth that we've seen this year has been funding up of existing deals and construction loans and the number of pay offs have have slow due to the situation and long term market.
So we expect that we still have room for modest growth in that next year, but it's not going to be at the double digit rate that we've seen year over year in CRE. So far we are focused on multifamily and industrial that's where the growth has been we don't see those markets slowing down too much.
We're not focused on retail and certainly not on the office piece.
So.
Again, it will be something modest it won't be in the same kind of growth rate. We had overall this year.
Okay. Okay.
Also.
On that same slide to talk about what Youre doing in office I know, it's not huge exposure for you, but I do see it's down.
And you talked to you you made a comment about a mini perm option.
I saw some potential issues can you talk a little bit about that.
All right.
Currently our office portfolio is very strong from a credit standpoint, if we reach a maturity with one of the office loans.
At this point in time, they are all in good shape and we would have the ability.
To extend that loan for a short period of time until long longer term markets may open up.
But we really have no credit no significant credit issues at all in the office portfolio at this time, so John for US a mini perm would be some kind of.
20 year amortization on a three year term.
Three year maturity.
Based on the property continuing to perform.
Agreed.
The borrower doesn't have defined a permanent refinancing source, we can give them a short maturity, but a longer am.
Consistent with the permanent markets to bridge them until when the permanent markets are more healthy.
Okay makes sense.
And then your stocks getting beat up a little bit this morning.
It's on the NII and margin guide I think primarily but.
You've been active in the buyback I'm, just curious and you bought a lot higher.
Quite frankly, so I'm just curious your kind of buyback appetite.
<unk>, especially where the stock is thanks.
Yes, I think you can assume that given where the stock is today and given where we bought it in the third quarter, we would have a very high appetite for repurchasing shares.
And capacity in general.
Yes, we have very strong capital ratios and we've got the capacity we need to do that.
Okay.
Okay. Thank you.
Thank you.
Question comes from the line of Brandon King.
Teresa. Please go ahead.
Hey, good morning.
Morning, Brandon.
Yeah, So I wanted to get more context around how you're thinking about the efficiency ratio trends over next year, So maybe beyond a year.
Giving you know your initiatives and you know how the net interest income is trending in fee income just when do you think that efficiency ratio finally peaks and you finally see maybe some stability or maybe it's coming down.
Brendan the efficiency ratio has never been a metric that we manage to and so we're obviously in the middle of our budget preparations for next year. So we're not going to provide guidance around that today, but.
But what I can tell you is every business that we have has a target kind of efficiency ratio that we think about and so what changes our efficiency ratio over time more than anything else is the mix of fee businesses. When fee businesses are a higher percent of total revenue the efficiency ratio comes out and we net interest revenue as a higher percentage than the efficiency ratio will go down.
But we will continue to look at that by line of business.
And manage each line of business inside of our kind of implied expectations for efficiency will.
We will continue to look for opportunities.
As we go through this fall season to look for opportunities for efficiency, but we don't run our company that way because so much of the mix of revenue guide to that efficiency ratio. So that's not how we think about nor how we run the company.
Okay, and just to follow up on that.
With these initiatives and.
Expectations for when that revenue growth will be realized.
I know, there's a lot of moving parts around that.
But could you just give us some more context on how you're thinking about when in the timing of that.
She's based off of preliminary planes.
Yes, just to give you a couple examples Brandon. So if you think about our Memphis expansion is one of those.
That debt sales and trading producers so that had a fairly rapid ramp up just given the nature of that business.
San Antonio investment.
That's commercial and wealth.
Yes, primarily and so those all have longer sales cycles, and so that'll take a little bit longer to ramp that up then when compared to the Memphis expansion. So it.
It's kind of an individual investment centric so hopefully that helps.
Okay, Okay, and then on the technology initiatives.
Give us more color on kind of what Youre planning on doing that you're currently not doing now and.
Expect that to ramp as you try to manage the company over next five years.
So Brandon over the last several years, we've made material investments in our treasury platform and our customer interface into our commercial and corporate interface into our existing technology systems, we have significant investments in our wealth platform that are underway.
We're continuing to work through and so.
As I mentioned previously we're running the company for the long term not the short term and so we continue to make investments to ensure our technology platforms are competitive in providing our customers with a really positive experience when they interface with us.
Okay, I will hop back in the queue. Thanks for taking my questions.
Thank you.
Next question comes from the line of Matt Olney with Stephens, Inc. Please go ahead.
Hey, Thanks, Good morning, I wanted to go back to loan growth and I think it's good to hear you guys.
His talk about them at the bank, taking advantage of some competition pulling back some as they manage their capital and liquidity.
Any commentary about how much of the growth is from larger size deals or or syndications I just want to appreciate.
Actually the growth is larger deals existing syndications versus taking on new customers.
Well, it's a combination of all of that actually we have not had a material increase like in the third quarter and the number of snacks that were involved with our leveraged loans are actually going down. So we're focused on businesses, where we can develop a relationship that's broad based and so we're getting.
Our mix of new.
New customers as well as.
Finding our way into some club deals et cetera, but nothing we're not focused on just getting into syndicated deals and buying participation, where we don't have a significant opportunity for relationships core middle market right down the middle of the fairway as we consistently are over time.
Hey.
As Mark mentioned, the snick members mixes and different for us between second quarter and third quarter.
To the extent that we're in a shared national credit there is a direct relationship with the borrower. We typically have other business associated with them I think the growth that we're seeing is really and why I am excited about it because it is it is core it is direct relationships people that we've been calling on opportunities are being.
Created and so that's really important to us and its franchise building over the long term.
Yes.
Okay. That's helpful guys. My questions have been addressed thank you.
<unk>.
Thank you a reminder to all the participants that the Star then one to ask a question.
Question comes from the line of two more placebo, but Wells Fargo Securities. Please go ahead.
Hi, good morning.
Following up on that last line of commentary do you have the total balance of shared national credits and participations in the quarter.
Yes.
The shared national credit volumes are about 24% of our total portfolio.
And thats kind of mostly in the energy and C&I space that made those two areas make up about 80% of the total shared national credits, we do Asia about a quarter of those.
And about 80% of them are in our local markets. So we're not going outside of our footprint.
Tracking down those kinds of loans.
Okay.
Switching to the deposit base.
The decline linked quarter in demand deposits still pretty elevated demand is now less than 30% of the total basin is below pandemic levels. I guess, what are you seeing from a liquidity standpoint from your borrowers I know you said that that pressure seems to be abating I guess.
What's the outlook for demand deposits.
As we go into the fourth quarter and into 'twenty four.
Yes, so we saw.
DDA average balances down $840 million in Q2 to Q3 and when that happens that's a shift from DDA to interest bearing.
Within the firm.
So we will see going from Q3 to Q4.
We expect the decline to be near that amount going Q3 to Q4 and then in Q1, we expect to see that rate of decline slowed quite a bit. So when we look at kind of deeper into the portfolio and look at size cohorts. We can see the rate of change slowing and Thats what gives us some <unk>.
Since that we will see a slowdown here over the next six months.
Okay.
<unk> will still be still be a higher number.
Okay, and I guess as you guys are thinking about funding the high single digit loan growth next year.
And pairing that with the comment first stable to maybe slightly growing deposits. How are you thinking about funding that growth and I guess it appears that the spreads are getting on that loan growth relative to the funding sources is shrinking and I'm just wondering.
Obviously, you have the longer term outlook, but why growing loans at such a fast pace when that spread is going to be shrinking and there is broader economic uncertainty out there right now.
Yes. So if you look at the incremental loan growth the spread on that incremental loan volume is actually widening so we've been able to see a widening of spreads on new production and that the economics of that new production is strong not to mention the fact that that's coming with full relationships, so theres deposits et cetera, but that.
That incremental loan growth does have incrementally positive and wider spreads.
The funding question, it's going to be a mix of yes.
Some deposit growth and there may be some smaller amount of wholesale.
Funding in there as well, but either way it doesn't matter, which side of the whether its funded with wholesale are ore deposits that is incremental and profitable to be sure.
Okay. Thanks for that color.
Thank you.
Today's question and answer session I would like to know understood back over to Martin <unk> for closing comments.
Thanks, everyone again for joining us today and if you have further questions. Please email us at IR at <unk> Dot com have a great day everyone.
Thank you.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Okay.
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Yes.
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