Q4 2023 Horizon Bancorp Inc Earnings Call
Okay.
Good morning, everyone and welcome to the Horizon Bancorp, Inc.
<unk> call to discuss financial results for the fourth quarter and full year 2023.
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Before turning the call over to management.
Please remember that today's call may contain statements that are forward looking in nature. These statements are subject to risks uncertainties and other factors that could cause actual results to differ materially from those discussed.
Including those factors noted in the slide presentation.
Additional information about factors that could cause actual results to differ materially is contained in horizon's. Most recent Form 10-K, and its later filings with the Securities and Exchange Commission and.
Management: In addition management may refer to certain non-GAAP financial measures that are intended to help investors understand horizon's business reconciliations for these measures are contained in the presentation.
Management: The company assumes no obligation to update any forward looking statements made during the call.
Management: Or anyone who does not already have a copy of the press release and supplemental.
Presentation issued by Horizon yesterday, they can be accessed at the company's website horizon Bank Dot com.
Management: Representing horizon today, our executive Vice President and Chief Commercial Banking Officer, Lynn Herbert Executive Vice President and senior operations Officer, Cathy The writer Executive Vice President Corporate Secretary and General Counsel, Todd Etzler Executive Vice.
Management: Ice President and Chief Financial Officer, Mark C Corps.
Thomas frame: <unk>, Chief Executive Officer, and President Thomas frame.
Thomas frame: At this time I would like to turn the call over to Mister Thomas Sprain.
Thomas frame: Please go ahead Sir.
Thomas Sprain: Good morning, and thank you for participating in Horizon's earnings call. We're pleased to share our fourth quarter and full year 2023 results. The fourth quarter experienced many positive trends highlighted by strong lending results. They were led by our commercial banking team, which posted a 13% annualized growth rate in Q4.
Thomas Sprain: Horizon also continues to see excellent credit metrics with low nonperforming loans and charge offs with provision expense for the quarter, primarily reflective of our positive loan growth and modest charge offs.
Thomas Sprain: In Q4, we were pleased to see net interest income expand as a result of our disciplined pricing strategy and the resiliency of our core deposit base.
Thomas Sprain: Late in the quarter, we also executed on a balance sheet restructuring, which position the company exceptionally well heading into 2024.
Thomas Sprain: Further enhance our financial performance with significant excess cash that can be deployed into higher yielding assets and a meaningful reduction in lower yielding securities and liquidity ready to fund our robust loan pipeline.
Thomas Sprain: Within our comments today, we will update the fourth quarter and full year results. The positive momentum in our core revenue platforms going into 2020 for financial details from the balance sheet restructuring and progress in our new leasing division.
Additionally, we will provide insight to our continued disciplined operating model as well as our well positioned capital and liquidity levels that will continue to build throughout 2024.
Lynn Herbert: To offer more detail into our fourth quarter results, let me introduce linker, our executive Vice President and Chief commercial banking officer to shed light on our lending and credit performance Lynn.
Lynn Herbert: Yeah.
Lynn Herbert: Thank you Thomas.
Lynn Herbert: Beginning on slide five we are pleased to report commercial loans increased $85 $7 million for the fourth quarter or 13, 1% on an annualized basis.
Lynn: Net fundings were 117 million for the quarter versus 96.8 million for the third quarter.
Thomas Sprain: Our average commercial loan portfolio yield increased from 5.80% for the third quarter to 6.05% for the.
Lynn Herbert: Fourth quarter, and new production yields increased from 7.50% to seven.
Lynn Herbert: 87% in the fourth quarter.
Lynn Herbert: New loan originations continue to be very diverse across our markets and industries in the fourth quarter, 25% of our new fundings were C&I and 11% owner occupied commercial real estate with the balance of 64% being diversified across the various commercial real estate categories.
Lynn Herbert: It's our equipment Finance division ramps up in 'twenty 'twenty four we expect C&I production should stand measurably as a proportion of both new originations and a total commercial portfolio.
Lynn Herbert: We have hired several key managers for the equipment financing division and expect balance sheet growth in Q1 with continued expansion throughout the second quarter.
Lynn Herbert: The overall commercial pipeline increased from 145 million at September 30th two 167 million as of December 31st.
Lynn Herbert: Activity continues to be well diversified by industry and geography and this pipeline.
Lynn Herbert: The new equipment finance business, which we expect to contribute over 100 million in 2020 four.
Lynn Herbert: Commercial credit quality remained strong with year to date net charge offs of two basis points on an annualized basis.
Lynn Herbert: On slide six we have an overview of the loan portfolio as of December 31st 2023, with a mix of 61% commercial 15% residential and 23% consumer.
Thomas Sprain: Year over year commercial loans increased $208 million.
Thomas Sprain: In our residential mortgage increased 4% and consumer loans increased 5%, which is a net effect of an increase in home equity loan and decrease in indirect loan.
Thomas Sprain: Also provided for your reference as a break down of key sectors, and our commercial portfolio, which demonstrates no significant concentration in any one sector, including office, which represents just three 5% of our total portfolio and less than 6% of commercial loans, we bill.
Thomas Sprain: Our portfolio breakdown is well balanced and represents the disciplined nature of horizons risk profile.
Thomas Sprain: Turning to slide seven you will see the consumer direct loan balances increased $27 million during the quarter driven principally by the addition of transactional home equity lines of credit.
Thomas Sprain: Indirect auto loans decreased by $38 million in the quarter, which is consistent with our stated strategy of reducing exposure in this lower performing loan category and redeploying capital to higher yielding product types.
Thomas Sprain: The average consumer direct yield increased from 8.05% to 8.26% for the portfolio with an average of $8 95 per cent for new production there.
Lynn Herbert: The average yield for consumer indirect was 3.27%, which is consistent with recent quarters.
Lynn Herbert: Credit remains positive and in line with expectation.
Lynn Herbert: Year to date net recoveries consumer direct at one basis point and consumer indirect charge offs at 36 basis points.
Lynn Herbert: Slide eight highlights our mortgage loan performance for our quarter, our portfolio was stable and consistent with our expectations for 2023 aligning with industry trends mortgages increased $5.7 million in the fourth quarter, representing a three 4% increase on an app.
Lynn Herbert: Unlike basis.
Lynn Herbert: The average mortgage loan yield was 4.32% for the portfolio and 7.50% for new production with zero charge offs for the quarter. This portfolio continues to reflect high quality borrowers with significant payment capacity and equity in their homes.
Lynn Herbert: Our asset quality metrics continue to be strong as outlined on slide nine.
Lynn Herbert: Past dues over 30 days were 0.38%, a slight increase which was spread across all portfolios.
Lynn Herbert: Nonperforming loans increased slightly from $19 4 million to $19 6 million. However, they decreased one basis point as a percent of total loans.
Lynn Herbert: The increases were primarily in retail loan offset by reduction in commercial nonperforming loans.
Lynn Herbert: Net charge offs for the fourth quarter were 785000, representing two basis points of average loans.
Lynn Herbert: The provision of $1 1 million was primarily due to loan growth with replenishment of the reserve for charge off loans in the fourth quarter.
Lynn Herbert: Allowance represents 1.13% of total gross loans, which we believe is appropriate given credit performance and current economic forecast.
Lynn Herbert: Future reserve amount and related provision will be driven by loan growth and mix economic forecasts and credit trends.
Lynn Herbert: Quality across all of our lending classes is performing well and reflects our history of consistent and well balanced approach to lending.
Thomas Sprain: Now I'd like to turn things back to Thomas who will provide an overview of how our earnings asset mix and deposit franchise and flexible funding profile are contributing to horizon's performance.
Thomas Sprain: Thank you Lynn and truly appreciate the insight and detail.
Thomas Sprain: On Slide 10, you can see the positive impact of the team stewardship towards loan pricing and the strategic efforts to shift to higher yielding assets, we feel confident in continuing this momentum in 2024 as we begin to redeploy our abundant cash position horizon is achieving meaningful increases in loan yields with an intense.
Thomas Sprain: And I'll focus on loan pricing discipline, while we continue to maintain our historical conservative credit culture.
Thomas Sprain: Our securities portfolio is now strategically smaller and exhibits on slightly increased yield from Q3.
Thomas Sprain: And our cash position has increased significantly late in the quarter the impact on our margin was minimal.
Thomas Sprain: We will realize the full effect of this balance sheet repositioning in Q1, as we were well positioned to fund the growth of higher yielding assets throughout 2024.
Thomas Sprain: As I stated in my opening remarks, we're also very pleased with our fourth quarter deposit performance, which slide 11, providing detail on the resiliency of the portfolio and are upbeat view about its strength our court of consumer and commercial relationships were slightly up in Q4 with minimal changes in total balances.
Thomas Sprain: Combined portfolio balances experienced a positive growth of 1.14 for the quarter with noninterest bearing deposits relatively flat from the third quarter.
Thomas Sprain: Funds balances were strategically down in the quarter align with the objective to reduce exposure to these higher cost funding sources. The leadership team will continue to be well balanced in its approach to this segment focusing on full client relationships and.
Thomas Sprain: An expansion of our Treasury management services.
Thomas Sprain: The quarter closed out with brokerage Cds and other fixed rate borrowings unchanged with ample capacity if needed as mentioned previously.
Thomas Sprain: We ended the quarter with approximately $416 million in excess cash.
Thomas Sprain: Beyond the ability to reinvest into higher yielding assets. This excess liquidity provides great flexibility in our funding strategies limits, our dependency at higher cost funding sources provides flexibility to our go forward deposit pricing.
Thomas Sprain: The consistency and discipline of our pricing strategy of loans and deposits as yield very positive results this quarter and the added flexibility of excess cash further advances horizon's revenue growth options.
Thomas Sprain: On slide 12, you'll see that horizon's margin improved from the third quarter.
Thomas Sprain: Horizon deal than interest bearing assets increased 23 basis points during the quarter.
Thomas Sprain: Compared to the liability costs, increasing 19 basis points in purchase accounting down two basis points.
Thomas Sprain: We believe these results as an indication that we've hit the floor on margin compression based on current expectations for short term rates.
Thomas Sprain: The contribution of the balance sheet restructure it was minimum during the quarter due to the timing of settlement throughout December as the lower yield investments were liquidated and moved into cash later in the quarter.
Thomas Sprain: As previously mentioned, we anticipate a portion of the cash from the restructure will be redeployed into higher yielding assets throughout 2024, including funding the growth of our leasing platform.
Thomas Sprain: Let me hand, the presentation over to executive Vice President and Chief Financial Officer, Mark C Corps, who will walk through some other key financial metrics and our outlook for the beginning of 2024 Mark.
Thank you Tama.
Thomas Sprain: With slide 14, excluding the $31.6 million loss on the sale of securities in the quarter noninterest income was down slightly from the linked quarter, primarily due to lower gain on sale of mortgages and lower bully income from the balance sheet restructure.
Thomas Sprain: The company continues to diversify core fee income through key talent add in Treasury management and expanded private wealth capability to elevate noninterest income performance and expand our relationship banking model.
Thomas Sprain: Slide 15, noninterest expenses were 1.98% of average assets annualized for the fourth quarter compared to 1.81% in the linked quarter.
Lynn Herbert: The increase reflected $705000 of extraordinary expenses from previously announced personnel changes there.
Lynn Herbert: Art up of Horizon's equipment finance.
Lynn Herbert: And the talent ads and our Treasury management Division.
Lynn Herbert: We also had additional employee benefit costs due to an adjustment to variable deferred compensation costs as we ended the year.
Lynn Herbert: Excluding extraordinary items annualized noninterest expense would have represented 1.94% of average assets in the quarter or 1.85% for all of 2023.
On FDIC insurance expense horizon was not subject to the special assessment that recently impacted another bank given our relatively low level of uninsured deposits.
Lynn Herbert: Our regular FDIC assessment.
Lynn Herbert: With $1 2 million in the fourth quarter and we currently believe that is a good baseline run rate for the full year of 2024.
Lynn Herbert: Overall, the full year of 'twenty 'twenty four we expect noninterest expenses to be slightly higher than last year. This is primarily due to annual merit increases. The addition of the equipment finance business and 'twenty 'twenty four investments in digital banking and technology.
Lynn Herbert: Designed to improve our customer acquisition capabilities and drive additional revenue.
Lynn Herbert: We will provide guidance on the first quarter expenses in the upcoming slide.
Lynn Herbert: Moving to the investment portfolio on slide 16.
After the sale of $383 million of HFF securities in the fourth quarter, we wanted to provide detail on the remaining portfolio.
Lynn Herbert: The portfolio totaled $2 5 billion at the end of quarter down $339 million from September 30th netting out the cash flows failed and the decrease in unrealized losses during the quarter.
The portfolio had a book yield of 2.25% and an effective duration of approximately seven years at the end of the quarter.
Lynn Herbert: As longer term investments were originally identified as held to maturity duration for that portfolio is approximately one year longer than the available for sale portfolio.
Lynn Herbert: <unk> cash flows from investments are estimated to be approximately 34 million for the first quarter of 'twenty 'twenty four and a total of $105 million over the next 12 months.
We will continue to actively manage our portfolio for opportunities to create shareholder value in the future.
Slide 17.
Lynn Herbert: Horizon continues to maintain solid regulatory capital ratios after the balance sheet restructure.
Lynn Herbert: Capital ratios are well above the requirements to be considered well capitalized and we believe we have sufficient capital to be open to additional options to improve our earnings outlook in the foreseeable future.
Lynn Herbert: We anticipate that growth in capital will outpace the growth in total assets. During the next 12 months, providing strength and flexibility to pursue strategic growth option.
Lynn Herbert: As we deploy the liquidity from the balance sheet restructure we do anticipate risk weighted assets to increase and there will be a slight decline to risk weighted capital ratios.
Lynn Herbert: Looking ahead on slide 18, we provide you with an update on our current expectations for 'twenty 'twenty four.
Lynn Herbert: We expect sustainable loan growth in both our commercial and direct consumer portfolios, which should be valuable contributors to core earnings for.
Lynn Herbert: For the first quarter of 'twenty 'twenty, four we expect 4% to 5% total loan growth annualized.
Lynn Herbert: Our net interest margin and net interest income trend should continue to benefit from our balance sheet restructure and pricing management.
Lynn Herbert: We expect a net interest margin of greater than two 5% for the first quarter as well as pre provision net interest income of greater than $43 8 million.
Lynn Herbert: As stated we believe horizon's net interest margin has reached its floor in the third quarter of 2023, assuming the fed funds target is that its terminal rate.
Lynn Herbert: Noninterest income should continue near recent levels with the anticipation of consistent fee income from our investments in Treasury management, and private wealth, coupled with seasonal softening in mortgage originations and lower bully income.
Lynn Herbert: The expected range is $10 million to $10 5 million and noninterest income in the first quarter.
Lynn Herbert: Noninterest expenses continued to be proactively managed across the organization.
Lynn Herbert: In this segment of our business impacted by rising rate, such as mortgage and consumer lending.
Lynn Herbert: As discussed we have invested in revenue generating talent and our lease build out and our Treasury management teams, which are expected to contribute to revenue growth in 2024.
Lynn Herbert: As a result, we expect noninterest expense to range from about 37 million to $38 million in the first quarter.
We also expect noninterest expense to continue to remain below 2% of average assets.
Thomas Sprain: Now I'll turn it back over to Thomas for some final comments.
Thomas Sprain: Yeah.
Thomas Sprain: Thank you Mark I appreciate the insight.
Thomas: So why invest in horizon.
Thomas Sprain: Our investment thesis is simple.
Thomas Sprain: On slide 19, we are located in attractive Midwest growth markets. These markets have desirable economic environments significant infrastructure investment and flourishing ecosystems for both businesses and for our communities.
Horizon Deal: Horizon has made significant progress executing on our strategy of shifting its balance sheet to higher yielding assets in 2023.
Horizon Deal: We are entering 2024, with an expanding margin and abundant cash position to further reinvest in higher yielding assets.
Horizon Deal: On the growth of our new equipment leasing platform and to continue the flexibility in our revenue strategies.
Horizon Deal: The franchise has resilient and loyal deposit base that is actively managed by leadership to create shareholder value.
Horizon Deal: Additionally, horizon has excess liquidity of $2 9 billion, providing nimbleness to our operating model as needed.
Horizon Deal: Horizon has a disciplined operating culture that consistently displays a low ratio of operating expenses to average assets.
Horizon Deal: We expect this remain less than 2%, even with the strategic investments in new revenue teams.
Horizon Deal: Additionally, horizon has a proven conservative credit profile displayed through its practical credit underwriting and proactive portfolio management.
Horizon Deal: These efforts have consistently delivered low nonperforming loans and annual charge offs.
Horizon Deal: And lastly, even with the recent positive trends in our stock performance. We believe horizon is still a compelling value supported by our commitment to our dividend.
Horizon Deal: With shares recently trading less than nine times 2023, adjusted EPS, an offering of four 8% dividend yield.
Horizon Deal: Horizon has a track record of 30 plus years of uninterrupted quarterly cash dividends to our shareholders.
Horizon Deal: As always we thank you for joining our presentation. This morning. This concludes our prepared remarks and I'll now ask our operator to please open up the lines for questions.
Horizon Deal: We will now begin the question and answer session.
Horizon Deal: Ask a question you May press Star then one on your telephone keypad.
Horizon Deal: If you were 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.
At this time, we will pause momentarily to assemble our roster.
Horizon Deal: The first question comes from Terry Mcevoy with Stephens.
Terry Mcevoy: Please go ahead.
Yeah.
Terry Mcevoy: Questions.
Terry Mcevoy: Maybe a couple of modeling questions Mark could you just talk about the size of the balance sheet in 2024.
Mark Corps: Where do you think the loan growth will be kind of offset by declining cash cash balances.
Thomas: Thanks, Terry This is Thomas I appreciate the question as we look at our asset growth strategy, you're pretty much spot on we would see that we use a portion of our cash balances and then reinvest them into her into our loan growth, but still keeping liquidity and our cash position for any type of fluctuations in other parts of the balance sheet.
Thomas: Yeah.
Lynne Herbert: Thanks, and I think Lynne pointed out about $100 million of new leasing new leases in 2024.
Lynne Herbert: Leases I'm guessing carry higher yields there's a fee component as well as maybe longer term higher charge offs. So can you just help us kind of understand the growth dynamics the profitability and maybe some long term charge offs. So you would expect out of that portfolio.
Lynne Herbert: Sure. Thanks for your question and good morning.
Lynne Herbert: Relative to the lease portfolio, we are focusing on small ticket and Laura and middle market ticket and U.
Lynne Herbert: As you may have.
Lynne Herbert: Please see our press releases.
Very strong and experienced leader.
Lynne Herbert: Israel is relative to originations in that portfolio.
Lynne Herbert: Looking at approximately 100 million for the year.
Lynne Herbert: You're correct the yields would be a little bit higher than our normal.
Lynne Herbert: Commercial portfolio.
Lynne Herbert: Anticipated spread.
Lynne Herbert: That's higher than commercial C&I typically.
Terry Mcevoy: As far as losses go we are still modeling some of that based on the credit quality that we're targeting and so I am probably going to potentially get back to you on that Terry but I.
Terry Mcevoy: I would expect that it would be a little bit higher than our core commercial experience has been over recent years.
Terry Mcevoy: Thank you that's the answer to it maybe just a little bit more color on that I think if you look at the balance sheet and look at the momentum there in different parts.
Terry Mcevoy: The leasing assets at a higher yield I completely agree with limb that we'll probably see somewhere around a $100 million or so this year. We're also anticipating a continued trend and indirect auto which is a much lower yielding.
Lynn Herbert: Asset with higher credit losses, So as you look at the net debt I would say from the credit exposure, it's probably going to parse out what would the two if not when might get a slight pick up so I wouldn't see that the leasing parking changing that had significantly the overall credit profile of the organization because the indirect auto book continued to decline.
Lynne Herbert: Right. Thank you Thomas and thank you Lynne.
Lynne Herbert: The next question comes from Nathan race with Piper Sandler. Please go ahead.
Nathan Race: Yes, hi, everyone. Good morning, Thanks for taking the questions good morning.
Nathan Race: Was curious just in terms of thinking about the.
Nathan Race: As of the.
Nathan Race: The addition of <unk>.
Nathan Race: <unk>.
Nathan Race: Of that going forward it looks like borrowings were kind of flat quarter over quarter. So I'm. Just curious how you guys are maybe thinking about using some of that dry powder post our repositioning and for you to maybe pay down some.
Nathan Race: Wholesale.
Sources over the next quarter or two.
Mark Corps: Thanks, Nate and good morning, this is mark.
Mark: We for for the immediate future and then you know next period, we don't plan on seeing any reduction in the borrowings. It is a desire to reduce the borrowings.
Mark: Down the road, we'd like to see that with deposit growth.
Mark: But the cash that we have currently.
Mark: Planned to go into the lending and it can be able to keep for liquidity. So we don't see any additional borrowings either as we see our loans grow.
Mark: Got it and then I appreciate the margin guidance for the one two and just kind of think about the cadence of the margin over the course of them.
Mark: The rest of this year.
Mark: In terms of just the impact from fed cuts and kind of maintaining that liability sensitive balance sheet with the borrowing is expected to remain kind of flat and using that dry powder to support loan growth. So I'm just trying to think about kind of the life facilities sensitivity of the balance sheet and.
Mark: And how the.
Mark: Margin should react to some fed rate cuts expected at some point this year.
Lynn Herbert: Yeah, we would expect it to be positive on the borrowing on the deposit side.
Lynn Herbert: At competition will drive a little bit of how quickly we can lower rates when it comes to some of the some of the funding, but we would anticipate trying to bring down those funding costs.
Lynn Herbert: If there are rate cuts.
Lynn Herbert: Sure.
Lynn Herbert: Okay, Great and then just this.
Thomas: This is Thomas on your question there around the liability central Mark spot on and also from a model, where we're anticipating a rate cuts in the second half of the year.
We're not anticipating into I think we have a conservative profile there with two cuts later in the second half of the year. So.
Thomas: Completely agree with Mark Bristow and a liability sensitive position and that we have moved have are probably up a nice pick up if something happens a little bit earlier.
Okay, so putting those pieces together it sounds like the margin can continue to trend higher at least in the second quarter.
Thomas:
Mark Bristow: If there aren't any rate cuts in <unk>.
Mark Bristow: And then maybe greater expansion in <unk> and <unk>, if we do have those cuts.
Mark Bristow: In fed rates.
Mark Bristow: That would be our expectation.
Mark Bristow: Okay, Great and then just one lastly for me on expenses I appreciate the guidance for <unk> and just given some of the.
Mark Bristow: The initiatives that you guys have laid out on the equipment leasing side of things and elsewhere.
Lynn Herbert: So we should kind of maybe thinking about the cadence of expense growth in two to three at June <unk>, and just kind of any guidepost you can provide in terms of overall year over year expense growth in 2024.
Lynn Herbert: Yeah, we gave the guidance for the first quarter. So we don't get too far ahead, but there would be no.
Lynn Herbert: A higher end of that range as we get into the second half and as we continue to build out but we also anticipate the revenue generation as those teams continue to to grow and start to get active that will start to offset the expense as we get into the later part of the year.
Lynn Herbert: Okay, Great and then I'm, sorry, if I could just squeeze one last one on the tax rate going forward obviously some.
Lynn Herbert: Noise this quarter, but I think historically, it's been in the 7% to 9% range is that still a good turning to use going forward.
Lynn Herbert: Yeah, I think you can go back to the norms that we saw this year.
Lynn Herbert: Okay Alright, great.
Lynn Herbert: Thanks.
Lynn Herbert: Again, if you have a question. Please press Star then one.
Lynn Herbert: The next question comes from Damon Delmonte with K G. W.
Damon Delmonte: Please go ahead.
Damon Delmonte: Hey, good morning, guys hope everybody's doing well today morning, Dan just want good morning, just wanted to to check on the.
Damon Delmonte: The outlook here for provision you know as you onboard these new.
Damon Delmonte: Equipment finance.
Damon Delmonte: Leasing or financing loans do you feel like youre going to need to kind of add to the provision since there.
Damon Delmonte: Tend to be shorter duration, you know a higher levels of charge offs and I guess kind of you know when you look at your reserve I think it ended at like 1.13% last quarter. You know do you think that's an adequate level or do you kind of plan for some some build here.
Lynn Herbert: Yeah. Thanks for that question.
Lynn Herbert: So as far as the reserve, we do think that's appropriate for our current state as far as our credit quality and economic.
Lynn Herbert: Forecast as we sit here today.
Lynn Herbert: Moving forward into 2024.
Lynn Herbert: The provision is going to be really driven by two main factors.
Lynn Herbert: First as credit quality trends, so we're always going to cover.
Lynn Herbert: Covering our charge offs.
Lynn Herbert: And replenishing those and then loan growth and so it's going to really come down to the mix and in the new originations how.
Lynn Herbert: How much commercial residential and adding the leasing and the leasing as I said, we're working on our credit policies right now and credit metrics, we have done some modeling around that.
Lynn Herbert: As you would expect it's going to be a little bit different risk profile.
Lynn Herbert: But the originations this year compared to our overall portfolio are still going to be a fairly small person.
Lynn Herbert: Got it Okay. That's helpful. Thanks, and then I don't know if this is for Thomas or Lynn here, but as far as like the commercial growth that we saw this past quarter can you just talk a little bit about.
Lynn Herbert: You know some of the key drivers of that solid growth and kind of how the pipelines are shaping up as we head into 2024. Please.
Lynn Herbert: Sure.
Lynn Herbert: As mentioned in my comments on our pipeline.
Lynn Herbert: As currently positioned at a $167 million as we came into the quarter.
Lynn Herbert: That that's new origination does not always mean fundings mm for Q4.
Lynn Herbert: We really had a very strong quarter.
Lynn Herbert: I would say we had several things contributing to that.
Lynn Herbert: One we had some longtime customers that way.
Lynn Herbert: <unk> had been working with some projects on and those came together in the fourth quarter.
Lynn Herbert: We also had some contribution from some of our construction loans that were funding up and in late December and so we've kept a pretty even cadence.
Lynn Herbert: On originations and so we expect that to continue at this point in time.
Lynn Herbert: Got it okay great.
Lynn Herbert: All that I have for now thank you very much. Thank.
Lynn Herbert: Thank you.
The next question comes from Brian Martin with Janney Montgomery Scott. Please go ahead.
Brian Joseph Martin: Hey, good morning, guys.
Brian Joseph Martin: Hey, Brian Good morning, Brian.
Brian Joseph Martin: Can you comment at all about this I know, it's just expenses, but any other changes you might be making as far as additional hires as far as the equipment finance team or just other yeah.
Brian Joseph Martin: Considering some of the changes that were made in the fourth quarter, just maybe just talk a little bit about what on the expense side or any other initiatives you have going on.
Brian Joseph Martin: As you look into 2024 great.
Lynn Herbert: Great. Thank you for the question I'll, let Lynn give detail on the equipment finance I'd say we've.
Lynn Herbert: We made significant progress in both the church management, an equipment finance, so I'll, let him give detail there more around the leadership team was put in place. We had a couple of strategic hires also on Treasury management, we've made nice progress in the fourth quarter, which would be in our run rate and I'll give let know though.
Look forward to talk a little bit more detail, but we're gonna see.
Lynn Herbert: We had some additional FTE in the leasing and or at least envision over the next quarter quarter in house.
Yeah. Thank you.
Lynn Herbert: As far as you can see them and we are really focusing on our key leadership roles right now.
Lynn Herbert: We've hired a three key individuals and have.
Lynn Herbert: Couple of other key management roles that will be adding and over the next month.
Lynn Herbert: Then we're going to really just start focusing on standing up the tenants and getting that operation.
Lynn Herbert: As far as new originations.
Lynn Herbert: And syndication type activity.
Lynn Herbert: Don't see a lot of.
Lynn Herbert: Sales and servicing type ads until probably late second quarter, and and then ramping up third quarter fourth quarter. So as far as dollar amounts I don't know that I can give you that specificity. This morning, but it's going to ramp up and I think you'll see it be aligned with.
Lynn Herbert: New originations and in that cadence, what kind of match and align with some of our expense outlays later in the year.
Lynn Herbert: Gotcha. Okay. Thank you for that and then just two last ones just in terms of the mortgage contribution this year I guess it sounds like.
Lynne Herbert: Consistent with the industry outlook I guess your expectations for mortgage with just I guess is it I guess it mortgage would be improving in 2024 is that number what that with number one and number two is just on the credit front given how strong the performance has been any areas you'd point to as far as that youre, a little bit more concerned with today are watching more closely.
Lynn Herbert: Within the portfolio.
Lynn Herbert: Yes.
Thomas Sprain: Thomas Thank you for the question as far as the mortgage piece, whereas sustaining aligned with.
Thomas Sprain: What the MBA forecast is which would be a little bit soft for Q1, and some recovery coming back in Q2.
Thomas Sprain: Probably more aligned with the 2023 production as we can.
Thomas Sprain: In the second half of half of the year.
Thomas Sprain: Mortgage piece for us we have not seen anything of material.
Lynn Herbert: And the credit quality, there and got most of our assets are sold with servicing retained the assets that we do put on our balance sheet. Our exceptional quality as you can see from the slide around fight goes and that's income ratio similar I'd say, we're pretty good we're a relatively conservative bar strategy. There, we do feel though with our excess liquidity that is going to give us an opportunity.
Lynn Herbert: Turning to portfolio some higher quality clients as we go forward because the rates that are accepted in the market right now and where we have excess liquidity is going to give us some flexibility. There. So we do think there's.
Mark Corps: Opportunity, there, but that would that be fee income driving driven there'll be more of a balance sheet growth for us.
Mark Corps: Yeah.
Gotcha Okay.
Mark Corps: Perfect. Thank you very much.
Mark Corps: I appreciate the question to Brian.
Mark Corps: This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
Mark Corps: Thank you and again, thank you for participating in todays earnings call.
Mark Corps: We are very optimistic about 2024.
Mark Corps: Our lending platforms, and our excess liquidity to your own positions the franchise well to continue to fuel the strategy of growing how youre able to assets and increasing topline revenue.
Mark Corps: Our core community banking platforms are gaining momentum and we expect to see additional lift as our equipment financing team comes to life in subsequent quarters.
Mark Corps: We believe the balance sheet is extremely well positioned for potential Dorian rates later in 'twenty 'twenty four and the resiliency of our horizons deposit portfolio continues to deliver promising results even in an extended elevated rate environment.
Lynn Herbert: Positive tail wins add to the value created by how ryzen is disciplined operating model and our conservative credit culture.
Lynn Herbert: Lastly, as we close out the call. It today I wanted to thank our industry partners and peers, who reached out to provide support and well wishes regarding the passing of our independent director Spiro Valla Venice.
Lynn Herbert: Spirit was a member of the company's board of directors since 2000, and the bank sports since 1998.
Lynn Herbert: Organization significantly benefited from Spiro <unk> experience as a rep and reputation as a successful entrepreneur and community leader.
Lynn Herbert: But who would be most remembered as a dedicated father grandfather, and a friend who had the pleasure of many of them.
Lynn Herbert: On behalf of all of US at Horizon, One express our condolences to Bill's family and thank them for sure in spirit with the horizon family for over two decades.
Lynn Herbert: Thank you again for your attendance today, and we look forward to our next update in April.
Lynn Herbert: Yeah.
Lynn Herbert: This concludes the conference call today. Thank you for attending today's presentation you may now disconnect.
Lynn Herbert: [music].
Lynn Herbert: Okay.
Lynn Herbert: [music].
Lynn Herbert:
Lynn Herbert: Yeah.
Lynn Herbert: [music].