Q4 2023 Bank OZK Earnings Call

January 19, 2024

Okay.

Thank you for standing by and welcome to BankOZK's 4th Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Thank you for standing by, and welcome to BankOZK's 4th Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. I would now like to hand the call over to Director of Investor Relations and Corporate Development Jay Staley. Please go ahead. To ask a question during the session, you will need to press star 1-1 on your telephone. To remove yourself from the queue, you may press star 1-1 again. I would now like to hand the call over to Director of Investor Relations and Corporate Development Jay Salen. Please, go ahead. Good morning.

Thank you for standing by and welcome to Bank O Z case fourth quarter 2023 earnings Conference call. At this time all participants are in a listen only mode to ask a question. During the session you will need to press star one one on your telephone.

To ask a question during the session, you will need to press star 1-1 on your telephone. To remove yourself from the queue, you may press star 1-1 again. I would now like to hand the call over to Director of Investor Relations and Corporate Development, Jay Salen. Please, go ahead.

Remove yourself from the queue you May press Star one one again I would not like to hand, the call over to director of Investor Relations and corporate development James Daly. Please go ahead.

Jay Salen: Good morning. I'm Jake Bailey, Director of Investor Relations and Corporate Development for Bank of the UK. Thank you for joining our call this morning and participating in our question and answer session. In today's Q&A session, we may make forward-looking statements about our expectations, estimates, and outlooks for the future. Please refer to our earnings release, management comments, and other public guidelines for more information on the various factors and many more. Joining me on the call to take your questions are George Gleason, Chairman and CEO; Brandon Hamblin, President; Tim Hicks, Chief Financial Officer; and Cindy Wolfe, Chief Operating Officer.

Good morning, I'm, James Bailey director of Investor Relations and corporate development for bankers U K. Thank you for joining our call. This morning and participating in our question and answer session.

Jay Salen: In today's Q&A session, we may make forward-looking statements about our expectations, estimates, and outlooks for the future.

In today's Q&A session. We may make forward looking statements about our expectations estimates and outlook for the future. Please refer to our earnings release management comments and other public filings for more information on the various factors.

I'm Jay Staley, Director of Investor Relations and Corporate Development for Bank OZK. Thank you for joining our call this morning and participating in our question-and-answer session. In today's Q&A session, we may make forward-looking statements about our expectations, estimates, and outlook for the future. Please refer to our earnings release, management comments, and other public filings for more information on the various factors in the business that may cause actual results or outcomes to vary from those projected in or implied by such forward-looking statements.

Jay Salen: Please refer to our earnings release, management comments, and other public guidelines for more information on the various factors and

Jay Salen: and many more.

That may cause actual results or outcomes to vary from those projected or implied by such forward looking statements.

Jay Salen: Joining me on the call to take your questions are George Gleason, Chairman and CEO, Brandon Hamblin, President,

Joining me on the call to take your questions are George Gleason, Chairman and CEO Brannon Hamblen, President, Tim Hicks, Chief Financial Officer, Cindy Wolfe Chief operating officer.

Speaker Change: Tim Hicks, Chief Financial Officer, and Cindy Wolfe, Chief Operating Officer. We'll now open up the lines for your questions. I'd like to now ask our operator, Lateef, to remind our listeners how to cue in for questions. We will now open up the lines for your questions. Let me now ask our operator, [ Latif ], to remind our listeners how to queue up for questions. We will now open up the lines for your questions. Let me now ask our operator, [ Latif ] to remind our listeners how to queue for questions.

We'll now open up the lines for your questions. Let me now ask our operator to remind our listeners how to queue in for questions.

Yeah.

Lateef: Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. Again, that's star one one on your telephone to ask a question. To remove yourself from the queue, you may press star one one again. Please stand by while we compile the Q&A roster. [Operator Instructions] Our first question comes from the line of Stephen Scouten on Piper Sandler. So impressive NII growth again this quarter, and I know you guys have talked a lot about this kind of horse race that will be occurring with average earning asset growth versus NIM compression moving forward.

Thank you.

Did you ask a question you will need to press star one one on your telephone again Thats Star one one on your telephone to ask a question to remove yourself from the queue. You May Press Star one again, please standby, while we compile the Q&A roster.

Jay Salen: In today's Q&A session, we may make forward-looking statements about our expectations, estimates, and outlooks for the future. Please refer to our earnings release, management comments, and other public guidelines for more information on the various factors and many more, many more. Joining me on the call to take your questions are George Gleason, Chairman and CEO; Brandon Hamblin, President; Tim Hicks, Chief Financial Officer; and Cindy Wolfe, Chief Operating Officer.

Speaker Change: Our first question comes from the line of Stephen Scouten of Piper Center.

Our first question comes from the line of Stephen Scouten of Piper Sandler.

Okay.

Stephen Scouten: Hey, everyone. Good morning. So, impressive NIA growth again this quarter, and I know you guys have talked a lot about this kind of horse race that will be occurring with average earning asset growth and NIM compression moving forward. I'm kind of wondering as we look out into 2025, which I know is hard to project, but how you kind of see that potentially playing out based on projected rate cuts and how that dynamic should occur as we look further out and, presumably, I guess, your guidance, RISG repayments accelerate a little bit.

Everyone. Good morning, so impressive growth again this quarter.

And I know you guys have talked a lot about this kind of a horse race that will will be occurring with average earning asset growth versus.

Stephen Scouten: NIM compression moving forward. I'm kind of wondering as we look out into 2025, which I know is hard to project, but how you kind of see that potentially playing out based on projected rate cuts and kind of how that dynamic should occur as we look further out and presumably, I guess, your guidance, RISG repayments accelerate a little bit.

NIM compression moving forward I'm kind of wondering as we look out into 2025, which I know, it's hard to project, but how you kind of see that potentially playing out based on on projected rate cuts and kind of how that dynamic should occur as we look further out and presumably I guess to your guidance our ESG.

Lateef: I'm kind of wondering, as we look out into 2025, which I know is hard to project, but how you kind of see that potentially playing out based on projected rate cuts and how that dynamic should occur as we look further out? And presumably, I guess, on your guidance, RESG repayments accelerate a little bit?

Stephen Scouten: NIM compression moving forward. I'm kind of wondering, as we look out into 2025, which I know is hard to project, but how you kind of see that potentially playing out based on projected rate cuts and kind of how that dynamic should occur as we look further out and, presumably, I guess, your guidance, RISG repayments accelerate a little bit.

To accelerate a little bit.

Stephen Scouten: Stephen, we hadn't anticipated you starting off with a question about 2025. But I would -- what I would tell you on that, and, of course, the answer is tremendously dependent upon Fed action. But our approach in our budget and planning for this year is that we're likely going to have 3 Fed cuts in 2024, and those are probably going to be July, September, and November cuts.

Speaker Change: Stephen, we hadn't anticipated you starting off the question about 2025, but, you know, I would...

Speaker Change: Stephen, we hadn't anticipated you starting off the question about 2025, but, you know, I would... What I would tell you about that, and of course, the answer is,

Steven we're adding we hadn't anticipated starting off with the question turned about 2025 right.

Lateef: Our first question comes from Stephen Scouten of Piper Sandler. So, impressive NII growth again this quarter, and I know you guys have talked a lot about this kind of horse race that will be occurring with average earning asset growth versus NIM compression moving forward. I'm kind of wondering, as we look out into 2025, which I know is hard to project, but how you kind of see that potentially playing out based on projected rate cuts and how that dynamic should occur as we look further out? And presumably, I guess, on your guidance, RESG repayments accelerate a little bit?

At.

Speaker Change: What I would tell you on that, and of course the answer is,

What I would tell you on that in and of course the answer is.

Speaker Change: Thank you for joining us.

Tremendously dependent upon.

Bad actually.

Speaker Change: But our approach in our budget and planning for this year is that we're likely going to have three Fed cuts in 2024.

Speaker Change: But our approach in our budget and planning for this year is that we're likely going to have three Fed cuts in 2024, and those are and those are It's probably going to be July, September, and November cuts. So we've taken a little more conservative view in line with the Fed's guidance, ignoring the fact that the market's gotten a little farther ahead on that. So we've taken a little more conservative view in line with the Fed's guidance, ignoring the fact that the market's gotten a little further ahead on that. Assuming that scenario is correct, which is anybody's guess, and assuming that we have another further 4 Fed cuts in 2025 or 5 Fed cuts in 2025, you'll begin to have the floors kick in on the loans in 2025 in earnest, and we'll be effectively rolling over a large part of our deposit portfolio.

But our our approach and in our budget and planning for this year is that we're likely going to have three fed cuts in 'twenty 'twenty four and that was her.

Speaker Change: and those are

Speaker Change: It's probably going to be July, September, and November cut.

Probably going to be July September and November.

Speaker Change: So we've taken a little more conservative view in line with the Fed's guidance, ignoring the fact that the market's gotten a little farther ahead on that.

We've taken a little a more conservative view in line with the guidance ignoring the fact that the market's gotten a little farther ahead on that.

Speaker Change: Assuming that scenario is correct, which is, you know, anybody's guess.

Speaker Change: Assuming that scenario is correct, which is, you know, anybody's guess, and assuming that we have another three or four Fed cuts in 2025 or five Fed cuts in 2025, and assuming that we have another three or four Fed cuts in 2025 or five Fed cuts in 2025, You'll begin to have the floors kick in on the loans, and and we'll be effectively rolling over a large part and and we'll be effectively rolling over a large part So we, while we think the horse race is fully in play every quarter in 2024, we're generally thinking, if that scenario plays out, we're going to have a more constructive net interest income environment in 2025, even with a lot of RESG payoffs coming in there. So that's our current thinking on it.

Assuming that scenario is correct, which is anybody's guess.

Speaker Change: and assuming that we have another three or four Fed cuts in 2025 or five Fed cuts in 2025,

And assuming that we have another three or four fed cuts in 2025 or five fed cuts in 2025.

Speaker Change: You'll begin to have the floors kick in on the loans.

Speaker Change: You'll begin to have the floors kick in on the loans, and we'll be effectively rolling over a large part. So we, while we think the horse race is fully in play every quarter in 2024, we're generally thinking, if that scenario plays out, we're going to have a more constructive net interest income environment in 2025, even with a lot of RESG payoffs coming in there. So that's our current thinking on But it's -- 2025 is quite a ways out, and a lot of things are going to happen between now and then.

You'll begin to have the floors kick in on the loans.

Speaker Change: and

And in.

Speaker Change: and we'll be effectively rolling over a large part

2025 in earnest.

And will be affected like rolling over a large part of our.

Speaker Change: Um...

Speaker Change: Deposit Portfolio

Speaker Change: Deposit Portfolio So we While we think the horse race is fully in play every quarter in 2024, we're generally thinking if that scenario plays out, we're going to have a more constructive net interest income environment in 2025, even with a lot of RESG payoffs coming in there. So that's our current thinking on it, but 2025 is quite a ways out, and a lot of things are going to happen between now and then.

Deposit portfolio.

Speaker Change: So we...

So we are while we while we think the horse race is fully in play every quarter and 'twenty 'twenty four.

Speaker Change: While we think the horse race is fully in play every quarter in 2024,

Speaker Change: It's probably going to be July, September, and November. So we've taken a little more conservative view in line with the Fed's guidance, ignoring the fact that the market's gotten a little farther ahead on that. So we've taken a little more conservative view in line with the Fed's guidance, ignoring the fact that the market's gotten a little further ahead on that. Assuming that scenario is correct, which is anybody's guess, and assuming that we have another further 4 Fed cuts in 2025 or 5 Fed cuts in 2025, you'll begin to have the floors kick in on the loans in 2025 in earnest, and we'll be effectively rolling over a large part of our deposit portfolio.

Speaker Change: We're generally thinking if that scenario plays out, we're going to have a more constructive net interest income environment in 2025.

We're generally thinking if that scenario plays out we're going to have a more constructive net interest income environment in 2025.

Speaker Change: even with a lot of RESG payoffs coming in there.

Even with a lot of our ESG payoffs coming in there.

Speaker Change: So that's our current thinking on it, but 2025 is quite a ways out and a lot of things are going to happen between now and then.

So that's our current thinking on it but it's it's 2025 is quite a ways out and a lot of things going to happen between now and then.

Speaker Change: No, that's right. Yeah. And I assume, like you said, we'll start seeing that chart come back to your management comments with the floors and kind of how that protects your loan book. So that's obviously very helpful. And then I'm kind of curious about origination trends. I mean, for those of us that aren't in. No, that's right. Yes. And I assume, like you said, we'll start seeing that chart come back in your management comments with the floors and kind of how that protects your loan book. So that's obviously very helpful. And then I'm kind of curious about origination trends.

No that's right, yeah, and I assume like you said, we will start seeing that chart come back in your management comments with the.

Speaker Change: But it's -- 2025 is quite a ways out, and a lot of things are going to happen between now and then. So we, while we think the horse race is fully in play every quarter in 2024, we're generally thinking, if that scenario plays out, we're going to have a more constructive net interest income environment in 2025, even with a lot of RESG payoffs coming in there. So that's our current thinking on it. But 2025 is quite a ways out, and a lot of things are going to happen between now and then.

With the floors and kind of how that protects your loan book because that's.

Very helpful.

Yeah, and then I'm kind of curious around origination trends I mean for those of us that aren't in that.

Speaker Change: That real estate business on a daily basis and not...

Speaker Change: That real estate business on a daily basis and not.., you know seeing what you guys see daily I think a lot of folks on this side would have expected more of a slowdown but Originations has stayed extremely strong so I don't know if Brandon you could talk about some of those dynamics whether it's competitive whether it's you know still an appetite for current projects or what's keeping that Maybe loan origination demand higher than some of us on this side of the world would have expected.

That real estate business on a daily basis or not.

Speaker Change: you know seeing what you guys see daily I think a lot of folks on this side would have expected more of a slowdown but Originations has stayed extremely strong so I don't know if Brandon you could talk about some of those dynamics whether it's competitive whether it's you know still an appetite for current projects or what's keeping that

Steve What you guys see daily I think a lot of folks on this I would have expected more of a slowdown but originations have stayed extremely strong.

Brandon you could talk about some of those dynamics, whether it's competitive whether it.

Still an appetite for current projects or what's keeping that.

Speaker Change: Maybe loan origination demand higher than some of us on this side of the world would have expected.

Maybe loan origination demand higher than some of us on this side of the world would have expected.

Speaker Change: Brennan, go ahead.

Brian go ahead.

Brennan: Stephen, happy to answer that question. It's a great question. Although, you know, coming off a record 13.8, you know, sometimes get more, more, you know, it should be stronger. But we're so proud of what our team has done in 2024. You saw the number, you know, increase at the end of the year. And, and, and I would say that, you know, moving into Q1, we've, we've got a decent pipeline there. But, but no, you're right. There are a lot of different headwinds for Origination. This year, I would say from a, from an equity confidence point of view has been, been the lowest that we've seen in a long time. But that's juxtaposed with a lot of, a lot of capital that's out there. We hear about funds that, you know, fund managers out there looking to start new funds and getting pushbacks on investors because they haven't invested the, you know, the money. The funds they already have existing. So, you know, their, their, but their, their reticence in the recent past has definitely shown up in the, in the number of deals that have moved forward or number of deals that have.

Brennan: Stephen, I'm happy to answer that question. It's a great question. Although, you know, coming off a record 13.8, sometimes you need more, more, you know, it should be stronger. But we're so proud of what our team has done in 2024. You saw the number, you know, increase at the end of the year. And, and, and I would say that, you know, moving into Q1, we've got a decent pipeline there. But, but no, you're right. There are a lot of different headwinds for Origination. This year, I would say from an equity confidence point of view, has been the lowest that we've seen in a long time.

Stay here and happy to answer that question. It's a great question, although coming off of a record $13 eight.

Speaker Change: I mean, for those of us that aren't in that real estate business on a daily basis and not seeing what you guys see daily, I think a lot of folks on this side would have expected more of a slowdown, but originations have stayed extremely strong. So I don't know if, Brandon, you could talk about some of those dynamics, whether it's competitive, whether there's still an appetite for current projects. Or what's keeping that maybe loan origination demand higher than some of us on this side of the world would have expected? No, that's right. Yes. And I assume, like you said, we'll start seeing that chart come back in your management comments with the floors and kind of how that protects your loan book.

Sometimes get more more well as it should be stronger, but we're so proud of what our team has done.

In 2024.

You saw the number.

Kris.

The year end.

And I would say that moving into Q1, we've got a decent pipeline there, but no you are right. There are a lot of different headwinds for originations.

Brennan: Brandon, go ahead. Stephen would be happy to answer that question. It's a great question. Although coming off of a record 13.8%, it sometimes gets more -- should be stronger. But we're so proud of what our team has done in 2024. You saw the number increase at the end of the year, and I would say that moving into Q1, we've got a decent pipeline there. But no, you're right. There are a lot of different headwinds for origination. This year, I would say, from an equity confidence point of view, has been the lowest that we've seen in a long time. But that's juxtaposed against a lot of capital that's out there.

Brennan: Stephen, I'm happy to answer that question. It's a great question. Although coming off of a record 13.8%, it sometimes gets more -- should be stronger. But we're so proud of what our team has done in 2024. You saw the number increase at the end of the year, and I would say that moving into Q1, we've got a decent pipeline there. But no, you're right. There are a lot of different headwinds for origination. This year, I would say, from an equity confidence point of view, has been the lowest that we've seen in a long time. But that's juxtaposed against a lot of capital that's out there.

This year.

I would say from a from an equity confidence point of view has been the lowest that we've seen in a long time.

Brennan: But that's juxtaposed with a lot of capital that's out there. We hear about funds that, you know, fund managers out there looking to start new funds and getting pushback from investors because they haven't invested the money. The funds they already have existing. So, you know, their, their, but their reticence in the recent past has definitely shown up in the number of deals that have moved forward or the number of deals that haven't.

But that's juxtaposed against a lot of a lot of capital that's out there we hear about funds that.

Fund managers out there looking to start new funds and getting pushback from investors because they haven't been invested.

The funds they already have existing so.

You know, they're there, but they're they're reticence.

Speaker Change: So that's obviously very helpful. And then I'm kind of curious about origination trends. I mean, for those of us that aren't in that real estate business on a daily basis and not seeing what you guys see daily, I think a lot of folks on this side would have expected more of a slowdown, but originations have stayed extremely strong. So I don't know if, Brandon, you could talk about some of those dynamics, whether it's competitive, whether there's still an appetite for current projects. Or what's keeping that maybe loan origination demand higher than some of us on this side of the world would have expected?

In the recent past has definitely shown up in the in the number of deals that have moved forward or number of deals that have.

Brennan: that have, you know, sort of been on the table and then pulled back. I think...

Brennan: that have, you know, sort of been on the table and then pulled back. I think... You know, the positive trend that you see there for us is It's simply a result of what we talked about, quarter in, quarter out, around being built to be in the market every day, every year, every cycle. And our guys continue to benefit from their well-deserved reputation for execution in that space. And we continue to, you know, when there aren't nearly as many competitors on the field, you tend to get calls that you might not have received before.

You know sort of been on the table and then pulled back I think.

Brennan: You know, the positive trend that you see there for us is

Brennan: You know, the positive trend that you see there for us is It's simply a result of what we talked about, you know, quarter in, quarter out, around being built to be in the market every day, every year, every cycle. And our guys continue to benefit from their well-deserved reputation for execution in that space. And we continue to, you know, when there aren't nearly as many competitors on the field, you tend to get calls that you might not have received before. And our guys have done a phenomenal job of converting on new relationships and, obviously, loans with existing relationships.

The positive trend that you see there for us is <unk>.

Brennan: It's simply a result of what we talked about, you know, quarter in, quarter out around being built to be in the market every day, every year, every cycle. And our guys continue to benefit from their well-deserved reputation for execution in that space. And we continue to, you know, when there aren't nearly as many competitors on the field, you tend to get calls that you might not have received before. And our guys have done a phenomenal job of converting on new relationships and obviously loans with existing relationships. So the pie has been smaller without question. We're just able to, you know, take a proportionally larger slice of that pie with our team. And, you know, this year will be very interesting. And, you know, In terms of, you know, how things play out, but as we'll talk about, George has already alluded to, in terms of our thoughts around rate moves, you know, if we would expect, given the amount of capital that's sort of been sitting on the sideline needing to be invested, that with, you know, if we continue to get some positive signs there, we'll start to see that, you know, the number of deals in the market increase. Of course, competition could increase as well. But we, as we stated, believe that, you know, we could see being at or above the volume we had in 23 for the 12 months in 2024.

Brennan: It's simply a result of what we talked about, you know, quarter in, quarter out, being built to be in the market every day, every year, every cycle. And our guys continue to benefit from their well-deserved reputation for execution in that space. And we continue to, you know, when there aren't nearly as many competitors on the field, you tend to get calls that you might not have received before. And our guys have done a phenomenal job of converting on new relationships and, obviously, loans with existing relationships. So the pie has been smaller without a question. We're just able to, you know, take a proportionally larger slice of that pie with our team.

Simply a result of what we've talked about quarter in quarter out around being built.

Brennan: We hear about funds that fund managers out there are looking to start new funds and getting pushback from investors because they haven't invested the funds they already have. So there -- but their reticence in the recent past has definitely shown up in the number of deals that have moved forward or a number of deals that have sort of been on the table and then pulled back.

To be in the market every day every year every cycle and our guys continue to benefit from.

They are well deserved reputation for execution in that space and we continue to.

When there arent nearly as many competitors on the field you tend to get calls that you might not have received before.

Brennan: And our guys have done a phenomenal job of converting on new relationships and, obviously, loans with existing relationships. So the pie has been smaller without question. We're just able to take a proportionally larger slice of that pie with our team. And, you know, this year will be very interesting. And, you know, in terms of, you know, how things play out, but as George has already alluded to, in terms of our thoughts around rate moves, you know, we would expect, given the amount of capital that's sort of been sitting on the sidelines needing to be invested, that with, you know, if we continue to get some positive signs there, we'll start to see that, you know, the number of deals in the market But we, as we stated, believe that, you know, we could see being at or above the volume we had in 23 for the 12 months in 2024.

And.

Our guys have done a phenomenal job of converting on new relationships.

Brennan: So the pie has been smaller without a question. We're just able to, you know, take a proportionally larger slice of that pie with our team. And, you know, this year will be very interesting. And, you know, in terms of, you know, how things play out, but, as we'll talk about, George has already alluded to, in terms of our thoughts around rate moves, you know, we would expect, given the amount of capital that's sort of been sitting on the sidelines needing to be invested, that with, you know, if we continue to get some positive signs there Of course, competition could increase as well. But we, as we stated, believe that, you know, we could see being at or above the volume we had in 23 for the 12 months in 2024.

Obviously.

Brennan: But no, you're right. There are a lot of different headwinds for origination. This year, I would say, from an equity confidence point of view, has been the lowest that we've seen in a long time. But that's juxtaposed against a lot of capital that's out there. We hear about funds that fund managers out there are looking to start new funds and getting pushback from investors because they haven't invested the funds they already have. So there -- but their reticence in the recent past has definitely shown up in the number of deals that have moved forward or a number of deals that have sort of been on the table and then pulled back.

Brennan: I think the positive trend that you see there for us is simply a result of what we talked about quarter in, quarter out about being built to be in the market every day, every year, every cycle. And our guys continue to benefit from their well-deserved reputation for execution in that space. And we continue to -- when there aren't nearly as many competitors on the field, you tend to get calls that you might not have received before. And our guys have done a phenomenal job of converting on new relationships, and, obviously, loans with existing relationships. So the pie has been smaller, without a question. We're just able to take a proportionately larger slice of that pie with our team.

Loans with existing relationships, so that the pie has been smaller without question.

We're just able to take.

Brennan: And, you know, this year will be very interesting. And, you know, in terms of, you know, how things play out, but as George has already alluded to, in terms of our thoughts around rate moves, you know, we would expect, given the amount of capital that's sort of been sitting on the sidelines needing to be invested, that with, you know, if we continue to get some positive signs there, we'll start to see the number of deals in the market increase.

Take proportionately larger slice of that pie with our team.

Yeah.

This year will be very interesting in terms of how things play out but.

We will talk about in Georgia already alluded to in terms of our thoughts around rate news.

We would expect given the.

The amount of capital that's sort of been sitting on the sideline needing to be invested.

Whereas if we continue to get some positive signs there will start to see that.

The number of deals in the market increase.

Brennan: Of course, competition could increase as well. But we, as we stated, believe that, you know, we could see being at or above the volume we had in 23 for the 12 months in 2024.

Course competition could increase as well, but but we as we stated I believe that we could we can see being at or above.

Brennan: So the pie has been smaller, without a question. We're just able to take a proportionately larger slice of that pie with our team. And this year will be very interesting in terms of how things play out. But as we'll talk about, and George has already alluded to in terms of our thoughts around rate moves, we would expect, given the amount of capital that's sort of been sitting on the sidelines needing to be invested, that with -- if we continue to get some positive signs there, we'll start to see the number of deals in the market increase. Of course, competition could increase as well. But we, as we stated, believe that we could see being at or above the volume we had in '23 for the 12 months in 2024.

The volume we had in 2003 for the for the 12 months in 2024.

Speaker Change: Yeah, and if I could squeeze in one last quick one, it's just as you guys think about maybe passing the baton to some of these other loan categories and investments you've made in the bank through the last few years, is there a way to kind of stack rank where the potential is, whether it's ABL, CBS, like where you think the most potential is to kind of, you know, make that handoff in terms of growth in the longer run?

Speaker Change: Yeah, and if I could squeeze in one last quick one, it's just as you guys think about maybe passing the baton to some of these other loan categories and investments you've made in the bank over the last few years, is there a way to kind of stack rank where the potential is, whether it's ABL, CBS, like where you think the most potential is to kind of, you know, make that handoff in terms of growth in the longer

Brennan: And this year will be very interesting in terms of how things play out. But as we'll talk about, and George has already alluded to in terms of our thoughts around rate moves, we would expect, given the amount of capital that's sort of been sitting on the sidelines needing to be invested, that with -- if we continue to get some positive signs there, we'll start to see the number of deals in the market increase. Of course, competition could increase as well. But we, as we stated, believe that we could see being at or above the volume we had in '23 for the 12 months in 2024.

Yes.

And if I can squeak squeak in one last quick one is just as you guys think about maybe passing the baton to some of these other loan categories of investments you've made in the bank through the last few years is there a way to kind of stack rank, where the potential is whether it's ABL CBS.

Where you think the most potential is to kind of.

Make that handoff in terms of growth in the longer run.

Speaker Change: Sure. You know, I think you mentioned ABL. Those guys have another good year. We expect that they'll have another good year coming at us. I would tell you that our lending groups, no surprise, have been as focused as ever on deposit gathering relationships. And, you know, we've, I don't want to say restricted, but that heavy focus has sort of narrowed the focus around what, for example, ABL has been doing. I think those guys have potential to really sort of, just in time might be an overstatement, but to really sort of open, stick it up a bit more as we move. Look at what, you know, REST may be facing in terms of pay down in 2025. So that's a group that comes to mind. But right behind us, as you said, would be our fund finance and our capital solutions group. Continue to make progress and, you know, never know what the future holds, but we feel like we're pretty well positioned as an institution to look at other opportunities in the commercial space. We're thinking about that. We're looking at those and watching closely for opportunities we might be able to tackle, rise on. So that's where our head's at today.

Speaker Change: Sure. You know, I think you mentioned ABL. Those guys have another good year. We expect that they'll have another good year coming up against us. I would tell you that our lending groups, no surprise, have been as focused as ever on deposit gathering relationships. And, you know, we've, I don't want to say restricted, but that heavy focus has sort of narrowed the focus around what, for example, ABL has been doing. I think those guys have the potential to really sort of, just in time, maybe that might be an overstatement, but to really sort of open up, stick it up a bit more as we move.

Sure.

Thank you mentioned ABL those guys had had another good year and we expect.

They will have another good year coming at US I would tell you that our lending groups.

Surprise had been as focused as ever on deposit gathering.

<unk> ships and you.

You know we've we've.

I don't want to say restricted but that heavy focus is it sort of narrowed the focus.

Speaker Change: Sure. And if I could squeeze in one last quick one, Just as you guys think about maybe passing the baton to some of these other loan categories and investments you've made in the bank over the last few years, is there a way to kind of stack-rank where the potential is, whether it's ABL, CBS, like where you think the most potential is to kind of make that handoff in terms of growth in the longer run? Sure. I think you mentioned ABL. Those guys had another good year. We expect that they'll have another good year coming up.

Around what for example, ABL has been doing I think those guys have.

Potential to really sort of.

Just in time might be an overstatement, but to really.

Speaker Change: Look at what, you know, REST may be facing in terms of pay down in 2025. So that's a group that comes to mind. But right behind us, as you said, would be our fund finance and our capital solutions group. Continue to make progress, and you never know what the future holds, but we feel like we're pretty well positioned as an institution to look at other opportunities in the commercial space. We're thinking about that. We're looking at them and watching closely for opportunities we might be able to tackle, rise above. So that's where our head's at today.

Sort of open the stick it up a bit more.

As we as we look at what our ESG may be facing in terms of pay down in 2025. So that's that's a group that comes to mind, but right behind it as you said would be our fund finance and our capital solutions group.

You can make progress.

Yes.

Never know.

What the future holds but we feel like we're pretty well positioned as the institution.

Just to look at opportunities other opportunities in the commercial space.

We're thinking about those and watching closely for opportunities, we might be able to capitalize on.

Speaker Change: I would tell you that our lending groups, no surprise, have been as focused as ever on deposit gathering relationships. And we've, I don't want to say restricted, but that heavy focus has sort of narrowed the focus around what, for example, ABL has been doing. I think those guys have potential to really sort of, just in time might be an overstatement, but to really sort of open up to pick it up a bit more as we look at what RESG may be facing in terms of paydown in 2025.

So.

That's where our heads out today.

Speaker Change: Fantastic. Thanks for all the color and congrats on a great year.

Speaker Change: Thank you.

Thank you.

Speaker Change: Thank you.

Thank you.

Speaker Change: Please stand by for our next question.

Please standby for our next question.

Speaker Change: Our next question comes from the line of Matt Olney of Stephen James.

Speaker Change: Our next question comes from the line of Matt Olney, from Stephen James.

Our next question comes from the line of Matt Olney of Stephens, Inc.

Matt Olney: Hey, thanks for taking my questions. I wanted to ask about the pace of loan growth in 2024 and any insight you can provide about if the pace will be weighted towards the front half or the back half. And then on the topic of loan repayments, I'm curious what you're hearing from the sponsors on some of these RASU loans that have reached stabilization but still remain at the bank. It seems like you'd be getting more requests given the dip we've seen in rates here, but just curious any comments you have there.

Hi, Thanks for taking my questions I wanted to ask about the that the pace of loan growth in 2024, and any insight you can provide about the pace will be weighted towards the front half or the back half and then on the topic of loan repayments.

Curious what youre hearing from the sponsors from some of these are ESG loans that have reached stabilization, but still remain at the bank.

Speaker Change: Sure. I think you mentioned ABL. Those guys had another good year. We expect that they'll have another good year coming up against us. I would tell you that our lending groups, no surprise, have been as focused as ever on deposit gathering relationships. And we've, I don't want to say restricted, but that heavy focus has sort of narrowed the focus around what, for example, ABL has been doing. I think those guys have potential to really sort of, just in time might be an overstatement, but to really sort of open up to pick it up a bit more as we look at what RESG may be facing in terms of paydown in 2025.

Matt Olney: So that's a group that comes to mind. But right behind it, as you said, would be our Fund Finance group, and our Capital Solutions Group continues to make progress. We never know what the future holds, but we feel like we're pretty well positioned as an institution to look at other opportunities in the commercial space. We're thinking about those and watching closely for opportunities we might be able to capitalize on. So that's where our head is at today.

It seems like you'd be getting more request given the the that we've seen in rates here, but just curious any comments you have there.

Matt Olney: Brandon, you want to comment on the second part of Matt's question?

Matt Olney: Brandon, do you want to comment on the second part of Matt's question?

Brandon you want to comment on.

The second part of Matts question.

Brandon Hamblin: Absolutely. Matt, good to hear from you. Thanks. Yeah, so it's largely a timing issue, Matt, and also lender supply out there. You know, there are a lot of institutions that have been less active, but there have also been those that have pushed in and, you know, there are some names, non-bank names that we're seeing that are active in that space. But, you know, I think the proceeds from a refi today are not what they were when a sponsor kicked off his project. So I think a little bit is just managing expectations and trying to find, you know, that particular point in time where they feel like they, you know, whether it's, you know, they want to burn off some concessions if it's a multifamily deal perhaps. Or, you know, get that, you know, the next turn and link that up to the, you know, the optimal interest rate. So it's a combination of factors. I mean, we're given the environment that we've been in. We're pleased with the payoff activity we've had. But, you know, we've talked about it a good bit. It's, you know, as the short term comes down, and I focus on the short term because not all of these are going to go to permanent financing. Some will jump, you know, from presumably a lower proceed loan with us to a higher proceed loan with, you know, trying to minimize the interest rate impact, but certainly getting higher proceeds, but not necessarily permanent loans. So the short term rates are more in play there. And you guys all know what's happening with the curve there. So there may be some delay. We're waiting to get further down the curve and pull the trigger on that.

Brandon Hamblin: Absolutely. Matt, it's good to hear from you. Thanks. Yeah, so it's largely a timing issue, Matt, and also lender supply out there. You know, there are a lot of institutions that have been less active, but there have also been those that have pushed in, and, you know, there are some names, non-bank names, that we're seeing that are active in that space. But, you know, I think the proceeds from a refi today are not what they were when a sponsor kicked off his project. So I think a little bit of it is just managing expectations and trying to find that particular point in time where they feel like they, you know, whether it's, you know, they want to burn off some concessions if it's a multifamily deal, perhaps.

Absolutely Matt good to hear from you. Thanks.

Yeah. So.

It's largely a timing issue Matt.

And also lender.

Lender supply out there you know there are a lot of institutions that have.

Been less active but there have also been those that have pushed in and.

There are some names non bank names that were seeing.

Brandon Hamblin: Fantastic. Congratulations on a great year.

Brandon Hamblin: Our next question comes from Matt Olney of Stephens Inc. I wanted to ask about the pace of loan growth in 2024. Any insight you can provide about if the pace will be weighted towards the front half or the back half? And then on the topic of loan repayments? I'm curious what you're hearing from the sponsors of some of these RESG loans that have reached stabilization but still remain at the bank. It seems like you'd be getting more requests given the dip we've seen in rates here, but just curious, any comments you have there?

That are active in that space, but but.

I think.

Brandon Hamblin: I wanted to ask about the pace of loan growth in 2024. Any insight you can provide about whether the pace will be weighted towards the front half or the back half? And then on the topic of loan repayments, I'm curious what you're hearing from the sponsors of some of these RESG loans that have reached stabilization but still remain at the bank. It seems like you'd be getting more requests given the dip we've seen in rates here, but just curious, any comments you have there?

The proceeds from from a refi today.

Or.

Not what they were when a sponsor kicked off as projects. So I think a little bit is just managing expectations and trying to find.

That particular point in time, where they feel like they've.

No.

It's <unk>.

Brandon Hamblin: Or, you know, get that next turn and link that up to the, you know, the optimal interest rate. So it's a combination of factors. I mean, given the environment that we've been in, we're pleased with the payoff activity we've had. But, you know, we've talked about it a good bit. It's, you know, as the short term comes down, and I focus on the short term because not all of these are going to go to permanent financing. Some will jump, you know, from presumably a lower proceed loan with us to a higher proceed loan with, you know, trying to minimize the interest rate impact, but certainly getting higher proceeds, but not necessarily on permanent loans. So the short-term rates are more in play there. And you guys all know what's happening with the curve there. So there may be some delay. We're waiting to get further down the curve before we pull the trigger on that.

Want to burn off some concessions, if it's a multifamily deal perhaps or get that.

The next turn.

And links add up to the.

The optimal answer interest rate. So it is it's a combination of factors I mean, we're we're given the environment that we've been in.

We're pleased with the payoff activity we've had.

But yeah, we've talked about it a good bit.

Brandon Hamblin: Brannon, do you want to comment on the second part of Matt's question? Absolutely. Matt, it's good to hear from you. Thanks. Yes. So it's largely a timing issue, Matt, and also lender supply out there. There are a lot of institutions that have been less active, but there have also been those that have pushed in, and there are some names, nonbank names, that we're seeing that are active in that space. But I think the proceeds from a refi today are not what they were when a sponsor kicked off this project. So I think a little bit of it is just managing expectations and trying to find that particular point in time where they feel like they've, whether it's -- they want to burn off some concessions, if it's a multifamily deal, perhaps, or get that next turn and link that up to the optimal interest rate. So it's a combination of factors.

It is.

The short term comes down and I'll focus on the short term because.

Not all of these are going to go to permanent financing some some will.

From.

Presumably.

Lower proceeds loan with us to a higher proceeds loans.

Speaker Change: With.

I'm trying to minimize the interest rate impact, but certainly getting higher proceeds, but not necessarily a permanent loans. So the short term rates are more in play there and you guys all know what's happening with the curve there.

<unk>.

There may be some delay waiting to get further down the curve and pull the trigger on that.

Speaker Change: Yeah, and Matt, as we alluded to in our management comments, we think that the lower interest rate levels that, you know, were much lower a couple of weeks ago and have gotten higher the last week or two, but still relatively lower in the expectation that that's not going to increase rates further, and the next direction is down. We think that that is going to create a higher level of payoffs in 2024, either to bridge financing, as Brandon alluded to from. I mean, we're -- given the environment that we've been in, we're pleased with the payoff activity we've had.

Yes.

Matt as we alluded to in our <unk>.

Management comments, we think that the.

Lower interest rate levels.

We're much lower a couple of weeks ago, they've gotten higher the last week or two but still relatively lower in the expectation of the pads not.

Going to increase rates further in the next direction is down in rates, we think that that is going to.

Speaker Change: create a higher level of payoffs in 2024, either to bridge financing, as Brandon alluded to from

Create a.

Higher level of payoffs.

In 2020 cohort either to bridge financing is Brandon alluded to from construction <unk> construction loan to a bridge loan.

Speaker Change: I mean, given the environment that we've been in, we're pleased with the payoff activity that we've had. But we've talked about it a good bit, if -- as the short term comes down, and I focus on the short term because not all of these are going to go to permanent financing. Some will jump from presumably a lower proceed loan with us to a higher proceed loan with trying to minimize the interest rate impact, but certainly getting the higher proceeds, but not necessarily on permanent loans. So the short-term rates are more in play there, and you guys all know what's happening with the curve there. So there may be some delay waiting to get further down the curve and pull the trigger on that.

Speaker Change: Construction, from our construction loan to a bridge loan or from our loan to a permanent financing, which is happening on a lot of apartment deals. They're still very active.

From our loan to permanent financing, which is happening on a lot of apartment deals. They are still a very active briefing.

Speaker Change: Great Finance Market on the apartments.

Speaker Change: Great Finance Market on the apartments out there, um, uh, out there, um, uh

Great Finance market.

Apartments.

Speaker Change: out there um uh

Out there.

Speaker Change: The first part of your question is can we give you some guidance on growth quarter to quarter. I think the best presumption we could probably give you at this point is that that's probably going to be fairly linear over the course of the year.

Speaker Change: The first part of your question is, can we give you some guidance on growth from quarter to quarter? I think the best presumption we could probably give you at this point is that it's probably going to be fairly linear over the course of the year. It will vary from quarter to quarter, but we can't predict that. It will vary from quarter to quarter, but we can't predict that. We would have expected a higher level of originations and the quarter just ended, but several pretty significant opportunities got delayed or are otherwise terminated, I guess because of the fact that sponsors were having trouble putting equity together on them which is, yes.

The first part of your question is can we gave you some guidance on on growth quarter to quarter.

Speaker Change: But we've talked about it a good bit, if -- as the short term comes down, and I focus on the short term because not all of these are going to go to permanent financing, some will jump from presumably a lower proceed loan with us to a higher proceed loan with trying to minimize the interest rate impact, but certainly getting the higher proceeds, but not necessarily on permanent loans. So the short-term rates are more in play there, and you guys all know what's happening with the curve there. So there may be some delay waiting to get further down the curve and pull the trigger on that.

Thank you.

The vast presumption, where you could probably give you at this point is that that's probably going to be fairly linear over the course of the year.

Sure.

Speaker Change: It will vary from quarter to quarter, but we can't predict.

It will vary from quarter to quarter, but but we cant predict that we would have expected.

Speaker Change: We would have expected a higher level of originations and the quarter just ended, but several pretty significant opportunities got delayed or

Speaker Change: We would have expected a higher level of originations and the quarter just ended, but several pretty significant opportunities got delayed or are otherwise terminated, I guess because of the fact that sponsors were having trouble putting equity together on them which is, yes. And Matt, as we alluded to in our management comments, we think that the lower interest rate levels that were much lower a couple of weeks ago and have gotten higher over the last week or 2, but still relatively lower, and the expectation that the Fed's not going to increase rates further in the next direction is down.

Higher level of originations in the quarter just ended.

But.

Several pretty significant opportunities got delayed or are otherwise terminated I guess, Eric because of that.

Speaker Change: are otherwise terminated I guess because of the fact that sponsors were having trouble putting equity together on it which is

Speaker Change: Yes. And Matt, as we alluded to in our management comments, we think that the lower interest rate levels that were much lower a couple of weeks ago and have gotten higher over the last week or 2, but still relatively lower, and the expectation that the Fed's not going to increase rates further in the next direction is down. We think that that is going to create a higher level of payoffs in 2024, either from bridge financing, as Brandon alluded to, from construction -- from our construction loan to a bridge loan or from our loan to permanent financing, which is happening on a lot of apartment deals. There's still a very active refinance market for apartments out there.

Sponsors were having trouble putting equity together on it which is.

Speaker Change: and Adam Brannon alluded to the equity guys had a very challenging year and getting new equity for new projects is...

Speaker Change: and Adam Brannon alluded to the equity guys having a very challenging year, and getting new equity for new projects is... more challenging than it was a couple of years ago, and interesting things that are on the drawing board that get late in the process. For one reason or another, they don't get closed or get delayed, and it takes another few months to get everything together. Deals are moving fairly slowly. So we have a projection for every quarter this year, and if we were confident that those quarter-to-quarter closing numbers were going to be close, how could I share those?

And Adam Brandon alluded to the equity guys had a very challenging year.

Getting new equity for new projects.

Speaker Change: is more challenging than it was a couple of years ago.

Is more challenging than it was a couple of years ago.

Speaker Change: and interesting things that are on the drawing board that get late in the process.

Speaker Change: Matt, as we alluded to in our management comments, we think that the lower interest rate levels that were much lower a couple of weeks ago and have gotten higher over the last week or 2, but still relatively lower, and the expectation that the Fed's not going to increase rates further in the next direction is down in rates. We think that that is going to create a higher level of payoffs in 2024, either from bridge financing, as Brandon alluded There's still a very active refinance market for the apartments out there.

And you are saying things that are on the drawing board they get late in the process that.

Speaker Change: For one reason or another, don't get closed or get delayed, and it takes another few months to get everything together. Deals are moving fairly slowly. So we have a projection for every quarter this year, and if we were confident that those quarter-to-quarter closing numbers were going to be close, how could I share those? But those things are moving around from one or two quarters, plus or minus. But some things are getting done sooner than expected. We had a couple of those in the last quarter, and a number of things from the last quarter got delayed.

Speaker Change: For one reason or another, deals don't get closed, or they get delayed, and it takes another few months to get everything together. Deals are moving fairly slowly. So we have a projection for every quarter this year, and if we were confident that those quarter-to-quarter closing numbers were going to be close, how could I share those? But those things are moving around from one or two quarters, plus or minus. But some things are getting done sooner than expected. We had a couple of those in the last quarter, and a number of things from the last quarter got delayed.

For one reason or another don't get closed or get delayed and it takes another few months to get everything together.

Deals are moving fairly slowly so.

We have a projection for every quarter this year.

If we were confident that those quarter to quarter.

Speaker Change: We think that that is going to create a higher level of payoffs in 2024, either from bridge financing, as Brandon alluded to, from construction -- from our construction loan to a bridge loan or from our loan to permanent financing, which is happening on a lot of apartment deals. There's still a very active refinance market for apartments out there.

Housing numbers, where we're going to be close to accurate I'd share those but those things are moving around.

From one or two quarters, plus or minus but some things are getting done sooner than expected. We had a couple of those in the last quarter and a number of things from the last quarter got delayed.

Speaker Change: But those things are moving around from one or two quarters ahead, plus or minus. But some things are getting done sooner than expected. We had a couple of those in the last quarter, and a number of things from the last quarter got delayed. The first part of your question is, can we give you some guidance on growth from quarter-to-quarter? I think the best presumption we could probably give you at this point is that it's probably going to be fairly linear over the course of the year. It will vary from quarter-to-quarter, but we can't predict that. We would have expected a higher level of originations in the quarter just ended.

Speaker Change: For a while or perhaps indefinitely. So it's hard to predict quarter to quarter. I think your best assumption would be to

Speaker Change: For a while, or perhaps indefinitely. So it's hard to predict quarter to quarter. I think your best assumption would be to assume a fairly even distribution.

For a while or perhaps indefinitely. So it's hard to predict quarter to quarter I think your best assumption or data.

Speaker Change: The first part of your question is, can we give you some guidance on growth quarter-to-quarter? I think the best presumption we could probably give you at this point is that it's probably going to be fairly linear over the course of the year. It will vary from quarter-to-quarter, but we can't predict that.

Speaker Change: assume a fairly even distribution.

I assume a fairly even.

Distribution.

Speaker Change: Okay. All right. Appreciate the commentary. And then this is a follow-up. I think in the management commentary, you mentioned the residue loan concentration, 65% of non-purchase loans. It sounds like that will likely increase in 2024 before contracting in 2025 and 2026.

Okay, Alright, I appreciate the commentary.

And then just as a follow up I think in the management commentary you mentioned the <unk> loan concentration 65% of non purchase loans. It sounds like that will likely increase in 2024 before contracting and 25 and 26.

Speaker Change: We would have expected a higher level of originations in the quarter just ended, but several pretty significant opportunities got delayed or otherwise terminated, I guess, because of the fact that sponsors were having trouble putting equity together on them, which is an item Brandon alluded to. The equity guys had a very challenging year, and getting new equity for new projects is more challenging than it was a couple of years ago. There are interesting things that are on the drawing board that get late in the process that, for one reason or another, don't get closed or delayed, and it takes another few months to get everything together.

Speaker Change: I had thought that the previous commentary assumed that Reddit Eats could peak in 23 and would work lower in 24. I could be a mistake on that, but any color on kind of why that's now and collections now being pushed out to 25? Thanks.

Speaker Change: I had thought that the previous commentary assumed that Reddit Eats could peak at 23 and would work lower in 24. I could be a mistake on that, but any color on why that's now and collections now being pushed out to 25? Thanks.

I had thought that the previous commentary assume that Rajiv could peak in 'twenty, three and we would work lower in 'twenty four I could be mistaken on that but any any color on kind of why that's now and collection is now being pushed out to 'twenty five.

Speaker Change: But several pretty significant opportunities got delayed or otherwise terminated, I guess, because of the fact that sponsors were having trouble putting equity together on them, which is an item Brandon alluded to. The equity guys had a very challenging year, and getting new equity for new projects is more challenging than it was a couple of years ago. There are interesting things that are on the drawing board that get late in the process that, for one reason or another, don't get closed or delayed, and it takes another few months to get everything together.

Speaker Change: Yeah, well, I don't know that we specifically gave that comment in 23, but I could certainly understand why you would infer that. And the reason that the red 2%, which got down to about 62, I think, percent is back up to 65, it's simply because of the slower rate of refinancings and payoffs. And, you know, that's a coil spring that's going to spring probably in 2025. So you're correct that we would expect when that spring uncoils that that will, you know, lead to an elevated level of RESG payoffs at some point. And our best guess is that is a meaningful number in 2025.

Speaker Change: Yeah, well, I don't know that we specifically gave that comment in 23, but I could certainly understand why you would infer that. And the reason that the red 2%, which got down to about 62, I think, percent, is back up to 65, is simply because of the slower rate of refinancings and payoffs. And, you know, that's a coil spring that's going to spring probably in 2025. So you're correct that we would expect when that spring uncoils that it will, you know, lead to an elevated level of RESG payoffs at some point. And our best guess is that it will be a meaningful number in 2025.

Yes, well.

I don't know that we specifically gave that comment and Tori <unk>.

I can certainly understand why you would infer that.

And the reason that the raise cheap percentage, which got down to about 62.

Per sand is back up to 65 is simply because of the slower rate of refinancings and payoffs.

And that's a coiled spring thats going to spring probably in 2025. So you are correct that we would expect when that spring on calls but that will.

Late two.

And elevated level of our ESG payoffs at some point in our best guess is that is a meaningful number in 2025.

Speaker Change: So we're cognizant of that. The second thing I would tell you is, you know, we enjoyed mid to high 20% loan growth last year. And as was alluded to in Brandon's comments, we have constrained the growth potential of our equipment, finance, capital solutions, and ABL groups and fund finance groups, frankly, by limiting them to relationships that also included substantial deposits. So those guys would have grown a lot more, could have grown a lot more in 2023 had we not constrained their growth. So we knew we were going to have a higher level of RESG-driven growth in 2023 because sales were slowing as the year unfolded, and substantial deposits.

So we're cognizant of that the second thing I would tell you is.

Speaker Change: Deals are moving fairly slowly. So we have a projection for every quarter this year. And if we were confident that those quarterly-to-quarter closing numbers were going to be close to accurate, I'd share those, but those things are moving around from 1 or 2 quarters plus or minus. But some things are getting done sooner than expected. We had a couple of those in the last quarter, and a number of things from the last quarter got delayed for a while or perhaps indefinitely. So it's hard to predict quarter-to-quarter. I think your best assumption would be to assume a fairly even distribution.

We enjoyed mid to high 20% loan growth last year and is.

As alluded to in Brandon's comments.

Of constrained.

The growth potential of our equipment finance capital solutions in ABL.

Hips and try and finance groups frankly.

By limiting them to relationships and also included.

Speaker Change: substantial deposits. So those guys would have grown a lot more, could have grown a lot more in 2023 had we not constrained their growth. So we knew we were going to have a higher level of RESG driven growth in 2023 because sales were slowing as the year unfolded.

Speaker Change: I appreciated the commentary. And then, just as a follow-up, I think in the management commentary, you mentioned the RESG loan concentration, 65% of nonpurchased loans. It sounds like that it will likely increase in 2024 before contracting in '25 and '26. I had thought that the previous commentary assumed that the RESG could peak in '23 and would work lower in '24. But I could be mistaken about that. But any color on kind of why that's now inflation is now being pushed out to '25?

Substantial deposits. So those guys would have grown a lot more.

Could have grown a lot more in 'twenty two 'twenty three.

Not constrained their growth.

So we knew we were going to have a higher level of our ESG driven growth in 2023, because payouts for slowing as the year unfolded.

Speaker Change: So those guys would have grown a lot more, could have grown a lot more in 2023 had we not constrained their growth. So we knew we were going to have a higher level of RESG-driven growth in 2023 because sales were slowing as the year unfolded.

Speaker Change: You could see that. So we limited the ability of the other business units to grow. And that's why we're pretty confident that as we do begin to see that RESC payoff wave materializing, we would hope those other business units would still have the opportunities to grow that they have. I think they will. Time will prove that out. But that's why we think we're going to have a very smooth handoff of growth in 2025 from RESG that's going to have a lot of paydowns and the balances they'll probably more or less stagnate for a year to AVLG, structured finance, fund finance, capital solutions, equipment finance groups that will exercise the ability that they've already demonstrated they have to achieve the goals that they have. That's why we're going to have a higher growth.

Speaker Change: You could see that. So we limited the ability of the other business units to grow. And that's why we're pretty confident that as we do begin to see that RESC payoff wave materializing, we would hope those other business units would still have the opportunities to grow that they have. And I think they will. Time will prove that out. But that's why we think we're going to have a very smooth handoff of growth in 2025 from RESG that's going to have a lot of paydowns, and the balances will probably more or less stagnate for a year to AVLG, structured finance, fund finance, capital solutions, and equipment finance groups that will exercise the ability that they've already demonstrated they have to achieve the goals that they have

You could say that so we are we limited the ability of the.

Other business units to grow.

And that's why we're pretty confident that as we do begin to say that our ESG payoff Wyatt materializing.

We would hope those other business units would still have the opportunities to grow but they have I think they will time will prove that out but that's why we think we're going to have a very smooth handoff.

Speaker Change: Yes. Well, I don't know that we specifically gave that comment in '23, but I could certainly understand why you would infer that. And the reason that the RESG percentage, which got down to about 62%, I think, is back up to 65%, is simply because of the slower rate of refinancings and payoffs. And that's a coiled spring that's going to spring probably in 2025. So you're correct that we would expect, when that springs back in, that that will lead to an elevated level of RESG payoffs at some point, and our best guess is that will be a meaningful number in 2025. So we're cognizant of that.

Growth in 2025 from our ESG, that's kind of have a lot of pay downs in the balances there probably more or less stagnate for year, two IV LG structured finance.

<unk> finance capital solutions.

Exercise the ability that <unk> already demonstrated they have to achieve a higher growth rate.

Speaker Change: Yep, okay, that makes sense.

Speaker Change: That's why we're going to have higher growth. Yes. Well, I don't know that we specifically gave that comment in '23, but I could certainly understand why you would infer that. And the reason that the RESG percentage, which got down to about 62%, I think, is back up to 65%, is simply because of the slower rate of refinancings and payoffs. And that's a coiled spring that's going to spring probably in 2025. So you're correct that we would expect when that springs up in coils, that that will lead to an elevated level of RESG payoffs at some point. And our best guess is that it will be a meaningful number in 2025. So we're cognizant of that.

Speaker Change: Yep, okay, that makes sense.

Yes, okay that makes sense.

Speaker Change: Thanks, guys. Thanks.

Thank you.

Yeah.

Speaker Change: Thank you.

Thank you.

Speaker Change: Please stand by for our next question.

Please standby for our next question.

Speaker Change: Our next question comes from the line of Ben Gerlinger of Citi.

Our next question comes from the line.

Speaker Change: The second thing I would tell you is that we enjoyed mid- to high 20s percent loan growth last year. And, as was alluded to in Brannon's comments, we have constrained the growth potential of our equipment finance, capital solutions, and ABL groups and fund finance groups, frankly, by limiting them to relationships that also included substantial deposits. So those guys would have grown a lot more and could have grown a lot more in 2023 had we not constrained their growth.

Ben Garlinger of Citi.

Ben Gerlinger: Hey, good morning, guys.

Hey, good morning, guys.

Ben Gerlinger: Good morning.

Ben Gerlinger: Good morning. I think last week or two weeks ago I went to my local OECD branch here in Georgia and spent some time bothering the bankers and tellers. So anyway, so it seems like you guys are emphasizing a key rate that's a bit shorter than before; the people that I spoke with at that one specific branch were kind of focusing on the eight months, but it kind of coincides with your expectations for a July cut. I was just kind of curious in terms of deposit gathering efforts in general; how do you guys feel about gathering deposits even?

Good morning.

So I.

Ben Gerlinger: I think last week or two weeks ago I went to my local OECD branch here in Georgia and spent some time annoying the bankers and tellers. So anyway, so it seems like you guys are...

I think last week or two weeks ago I went to my local or SDK branch here in Georgia spent some time in knowing the bankers tellers.

Anyway. So it seems like you guys are.

Ben Gerlinger: Emphasizing a key rate that's a bit shorter than previous, the people that I spoke with at that one specific branch were kind of focusing on the eight months, but kind of coincides with your expectations for a July cut. I was just kind of curious in terms of deposit gathering efforts in general, how do you guys feel about gathering deposits even?

Emphasizing SCE rate, that's a bit shorter than previous one.

People that I spoke with one specific a branch we're kind of focusing on the eighth.

Coincides with your expectations for a July cut.

Kind of curious where does deposit gathering efforts in general.

Ben Gerlinger: I think last week or two weeks ago I went to my local OECD branch here in Georgia and spent some time annoying the bankers and tellers. So anyway, it seems like you guys are emphasizing a key rate that's a bit shorter than before; the people that I spoke with at that one specific branch were kind of focusing on the eight months, but it kind of coincides with your expectations for a July cut. I was just kind of curious in terms of deposit gathering efforts in general; how do you guys feel about gathering deposits, even?

How do you guys still own gathering deposits, even though.

Ben Gerlinger: kind of difficult brain environment, I get that.

Ben Gerlinger: So we knew we were going to have a higher level of RESG-driven growth in 2023 because payoffs were slowing as the year unfolded. You could see that. So we limited the ability of the other business units to grow. And that's why we're pretty confident that, as we do begin to see that RESG payoff weight materializing, we would hope those other business units would still have the opportunities to grow that they have.

Ben Gerlinger: kind of difficult brain environment; I get that.

Kind of a difficult rate environment I get that you probably want to be a bit more nimble but.

If you have growth you kind of need to pay up so I'm just curious how you feel about the loan to deposit or or any other deposit gathering effort.

Holly.

You can pull over the next seven ish months before we get to the first rate cut.

Speaker Change: Yes, you're correct in your observations that we have, starting in the last week or two of November and incrementally shifting, we've kind of twisted our focus on maturities.

Speaker Change: Yes, you're correct in your observations that we have, starting in the last week or two of November and incrementally shifting, we've kind of twisted our focus on maturities, to get a little shorter maturity distribution in that deposit book, to get a little shorter maturity distribution in that deposit book.

Yes, we are.

You are correct in your observations that we have.

Starting the last week or two of November and incrementally shifting we've kind of twisted our focus on maturities.

Speaker Change: to get a little shorter maturity distribution in that deposit book.

To get a little shorter maturity distribution in that deposit book.

Speaker Change: I think they will. Time will prove that out. But that's why we think we're going to have a very smooth handoff of growth in 2025 from RESG that will have a lot of pay-downs, and the balances there probably will more or less stagnate per year to ABLG structured finance -- fund finance, capital solutions, equipment finance groups -- that will exercise the ability that they've already demonstrated they have to achieve a higher growth rate.

Speaker Change: hoping that we can get that book lined up more.

Speaker Change: hoping that we can get that book lined up more tightly with the feds' rate-cutting scenarios. So you're correct in that eight, seven months is the focus there on wholesale deposits. We're moving those in even shorter. We are continuing to pay them up, as you noted, because we're growing so much. You know, we grew and so forth, and so forth, and so forth, tightly with the feds on rate-cutting scenarios. So you're correct in that eight, seven months is the focus there on wholesale deposits. We're moving those in even shorter. We are continuing to pay them up, as you noted, because we're growing so much. You know, we grew up and so forth, and so forth, and so forth.

Speaker Change: I hope that we can get that book lined up more tightly with the feds' rate-cutting scenarios. So you're correct in that eight, seven months is the focus there on wholesale deposits. We're moving those in even shorter. We are continuing to pay them up, as you noted, because we're growing so much. You know, we grew and so forth, and so forth, and so forth, closely with the feds on rate-cutting scenarios.

Hoping that we can get that book.

Lined up more.

Speaker Change: tightly with the feds.

Tightly with the feds.

Speaker Change: rate-cutting scenarios. So you're correct in that eight, seven months is the focus there on wholesale deposits. We're moving those in even shorter. We are continuing to pay up, as you noted, because we're growing so much. You know, we grew

Right cutting scenarios. So you are correct in that.

Seven month is the focus there on wholesale deposits, where we're moving those and even even shorter.

We are.

Continuing to pay up as you as you noted because were growing so much weight group.

Speaker Change: and so forth, and so forth, and so forth.

Positive last year as Cindy was our $5 $5 billion almost $6 billion.

Speaker Change: That makes sense. Thanks. Our next question comes from Ben Gerlinger of Citi. I think last week or 2 weeks ago, I went to my local OZK branch here in Georgia and spent some time getting to know the bankers and tellers. So anyway, it seems like you guys are emphasizing a CE rate that's a bit shorter than previous, like the one -- the people that I spoke with -- one specific brand was kind of focusing on the 8 months, which kind of coincides with your expectations for a July cut. I was just kind of curious about just deposit gathering efforts in general.

And.

To do that in an environment, where.

Speaker Change: Our next question comes from Ben Gerlinger of Citi. I think last week or 2 weeks ago, I went to my local OZK branch here in Georgia and spent some time getting to know the bankers and tellers. So anyway, it seems like you guys are emphasizing a CE rate that's a bit shorter than previous, like the one -- the people that I spoke with -- one specific brand was kind of focusing on the 8 months, which kind of coincides with your expectations for a July cut. I was just kind of curious about just deposit gathering efforts in general.

The fed's, taking liquidity out of the system and most banks are experiencing shrinking balance sheets was a heck of an accomplishment par deposit guys.

Dire.

Speaker Change: We're fully ready to do that again this year if we need to do that. We feel really, really confident in our ability to do it. And we're now, you know, the biggest focus is achieving the growth we need to achieve while shifting the mix of the deposit book to align more closely with the expectation that rates are going to head down at some point in the year and also minimize our cost of deposits. So we're making adjustments weekly, sometimes daily in that regard. And I think our deposit team is doing a great job. But I appreciate the fact that you're...

Speaker Change: We're fully ready to do that again this year if we need to do it. We feel really, really confident in our ability to do it. And now, you know, our biggest focus is achieving the growth we need to achieve while shifting the mix of the deposit book to align more closely with the expectation that rates are going to head down at some point in the year and also minimize our cost of deposits. So we're making adjustments weekly, sometimes daily in that regard. And I think our deposit team is doing a great job. But I appreciate the fact that you're... Paying attention to what's going on at the local level in the branches because our 228 or 2930 branches, however many it is, are where all this good stuff on the deposit side is happening.

Fully ready to do that again this year, if we need to do that.

Speaker Change: So you're correct in that eight, seven months is the focus there on wholesale deposits. We're moving those in even shorter. We are continuing to pay them back, as you noted, because we're growing so much. You know, we grew up and so forth, and so forth, and so forth.

Feel really really confident in our ability to do it and we are now.

Our biggest focus is achieving the growth we need to achieve while shifting the mix of day deposit book to align more closely.

With the expectation that rates are going to head down at some point in the year and also minimize our cost of deposits. So we're making adjustments weekly.

Sometimes daily in that regard and.

I think our deposit team is doing a great job, but I appreciate the fact that.

Speaker Change: How do you guys feel about gathering deposits even in this kind of difficult rate environment? I get that you probably want to be a bit more nimble, but if you have growth, you kind of need to pay up. So I'm just curious about how you feel able to on the deposit or any other deposit gathering effort that you could probably -- leverage you could pull over the next 7, 8 months before we get to the first rate cut.

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Speaker Change: Paying attention to what's going on at the local level in the branches because our 228 or 2930 branches, however many it is, are where all this good stuff on the deposit side is occurring.

Paying attention to.

What's going on at the local level in the branches, because our 228 or 29 and 30 branches. How many it is sort of where all of this good start on the deposit side is occurring.

Speaker Change: Yeah, I guess I'm going to have to actually open a check-in calendar, otherwise you're going to get suspicious on my constantly visiting. I was just curious if we could...

Speaker Change: Yeah, I guess I'm going to have to actually open a check-in calendar, otherwise you're going to get suspicious of my constantly visiting. I was just curious if we could... Just kind of sort of curious here, on figure 14, you prepared a mark, you had the appraisals obtained, and it seems like there's obviously some oscillation with every appraisal, the valuation may be a little bit different, but there's three that kind of stuck Yes. We are -- you're correct in your observations that we have -- starting in the last week or 2 of November and gradually shifting, we've kind of twisted our focus on maturities to get a little shorter maturity distribution in that deposit book, hoping that we can get that book lined up more tightly with the Fed's rate cutting scenarios.

Yes.

So I'd have to actually open up a checking account or whether theyre going to get especially currently constantly visiting.

Just curious if we could.

Speaker Change: Just kind of sort of curious here, on figure 14, you prepared a mark, you had the appraisals obtained, and it seems like there's obviously some oscillation with every appraisal, the valuation may be a little bit different, but there's three that kind of stuck out a little bit.

Just kind of switch gears here.

Figure in 2014 prepared remarks, they had the appraisal obtained seems like there is obviously some oscillation with every appraisal valuation is going to be a little bit different but there are three that kind of stuck out a little bit.

Speaker Change: I think last week or 2 weeks ago, I went to my local OZK branch here in Georgia and spent some time getting to know the bankers and tellers. So anyway, it seems like you guys are emphasizing a CE rate that's a bit shorter than before, like the one -- the people that I spoke with -- one specific brand was kind of focusing on the 8 months, which kind of coincides with your expectations for a July cut. I was just kind of curious about just deposit gathering efforts in general. How do you guys feel about gathering deposits even in this kind of difficult rate environment?

Speaker Change: Yes. We are -- you're correct in your observations that we have -- starting in the last week or 2 of November and gradually shifting, we've kind of twisted our focus on maturities to get a little shorter maturity distribution in that deposit book, hoping that we can get that book lined up more tightly with the Fed's rate cutting scenarios. So you're correct in that 8, 7 months is the focus there on wholesale deposits. We're moving those in even shorter.

Speaker Change: Two office and a multifamily. The work office change seemed to be a little less than a 50% haircut in the overall valuation.

Speaker Change: Two offices and a multifamily. The work office change seemed to be a little less than a 50% haircut on the overall valuation.

Two office and multifamily in the worst office changes seem to be a little less than a 50% haircut overall valuation.

Speaker Change: I think everyone knows at this point all of them.

I think everyone knows at this point offers.

Speaker Change: Thank you for your time, and I'll see you next time.

David.

A little higher but it's such a illiquid market in general there's just a lot of transaction worthy.

These valuations kind of what you were expecting or is there anything idiosyncratic in nature I don't really have an issue. It's a credit overall, but with those kind of marks down I'm just kind of curious what your thoughts are.

Speaker Change: So you're correct in that 8, 7 months is the focus there on wholesale deposits. We're moving those in even shorter. Just kind of sort of curious here; on figure 14, you prepared a mark, you had the appraisals obtained, and it seems like there's obviously some oscillation with every appraisal; the valuation may be a little bit different, but there were three that kind of stuck out a little bit.

Speaker Change: A couple of them.

A couple of loans.

Speaker Change: Brandon, do you want to comment on that? Absolutely, absolutely, man, great question. And, yeah, I think the short answer is we're generally seeing what we would expect. In terms of idiosyncratic moves, I think there are certain markets. We are continuing to pay up, as you noted, because we are growing so much. Deposits last year were over $5.5 billion, almost $6 billion. And to do that in an environment where the Fed is taking liquidity out of the system and most banks are experiencing shrinking balance sheets was a heck of an accomplishment for our deposit guys. And they are fully ready to do that again this year if we need to do it. We feel really, really confident in our ability to do it.

Brian you want to comment on that absolutely absolutely I mean, great question.

Yeah.

I think the.

The short answer is.

We're generally seeing what we would expect.

There.

Speaker Change: I get that you probably want to be a bit more nimble, but if you have growth, you kind of need to pay up. So I'm just curious about how you feel able to on the deposit or any other deposit gathering effort that you could probably -- leverage you could pull over the next 7, 8 months before we get to the first rate cut.

In terms of idiosyncratic moves.

I think there are certain markets that.

Brandon Hamblin: that are probably hit harder with respect to the cap rate moves, but you hit the nail on the head. There is just a real dearth of transactions out there upon which these valuations can draw for cap rate data, and the fact of the matter is appraisers are human, and you've got to make an estimate, and sometimes that estimate can, in hindsight, be a bit severe, but we're extremely pleased with what we feel like over the course of these quarters that we've given you guys this data. The majority of these loans are falling in that sort of up-down 10% range, which, given our really low basis, is not a good thing. We've had a lot of those are down, and where the ups are, generally speaking, aligns with what we would think, but we're pleased that those have been of a limited nature, and if you look back historically...

Brandon Hamblin: That are probably hit harder with respect to the cap rate moves, but you hit the nail on the head. There is just a real dearth of transactions out there upon which these valuations can draw for cap rate data, and the fact of the matter is appraisers are human, and you've got to make an estimate, and sometimes that estimate can, in hindsight, be a bit severe, but we're extremely pleased with what we feel like we' The majority of these loans are falling in that sort of up-down 10% range, which, given our really low basis, is not a good thing. We've had a lot of those down, and where the ups are, generally speaking, aligns with what we would think, but we're pleased that those have been of a limited nature, and if you look back historically...

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Are probably hit harder with respect to the cap rate moves and but you hit the nail on the head there.

Just a real dearth of transactions out there upon which they use.

<unk> can can draw for cap rate data and.

The fact of the matter is it appraisers are human and you got to make an estimate and sometimes that estimate.

Brandon Hamblin: And we're now -- the biggest focus is achieving the growth we need to achieve while shifting the mix of the deposit book to align more closely with the expectation that rates are going to head down at some point in the year and also minimize our cost of deposits. So we're making adjustments weekly, sometimes daily in that regard. And I think our deposit team is doing a great job. But I appreciate the fact that you're paying attention to what's going on at the local level in the branches because our 228 or 229, 230 branches, however many it is, are where all the good stuff on the deposit side is happening.

Can can in hindsight be a bit severe.

But we're extremely pleased with what we feel like over the course of these quarters that we've given you guys. This data.

Yes.

Speaker Change: We are continuing to pay up, as you noted, because we are growing so much. Deposits last year were over $5.5 billion, almost $6 billion. And to do that in an environment where the Fed is taking liquidity out of the system and most banks are experiencing shrinking balance sheets was a heck of an accomplishment for our deposit guys. And they are fully ready to do that again this year if we need to do it. We feel really, really confident in our ability to do it.

Majority of these loans are falling and that sort of up down 10% range.

Which.

Base, given our really low basis is not at all a bad place to be and when we've had.

A lot of those are down.

<unk>.

Where the ups are generally speaking.

It aligns with what we would think but we're pleased that those have been limited nature and if you look back historically.

Brandon Hamblin: at what our portfolio LTV is, and we've been re-appraising projects through a pretty long cycle of uncertain economic conditions and lack of activity, lack of transactions, you're seeing a solid, it's incremental, but a solid positive trend in our portfolio LTV, and a lot of that's driven by the fact that our guys do such a great job of originating loans, low LTV, low LTC, putting these sponsors in a position with a lot of skin in the game and a reason to put more in to protect us, but there's another reason that our LTVs don't move more than they do. So, you know, and we'll continue to re-appraise projects through the year, and we'll continue to do that. And, you know, we'll see changes, but generally speaking, I think it'd be accurate to say we're not really surprised by most of the results, given especially the lack of data in office in particular to support, you know, any other cap rates and what appraisers are using.

What our portfolio LTV is and we've been reappraising.

Projects for.

There are pretty long.

Brandon Hamblin: But I appreciate the fact that you're paying attention to what's going on at the local level in the branches because our 228 or 229, 230 branches, however many it is, are where all the good stuff on the deposit side is occurring.

Brandon Hamblin: Yes. I guess I would actually have to open a checking account if I was going to get to a specialist I'm constantly visiting. I was just curious if we could just kind of switch gears here. On Figure 14 in the prepared remarks, you had the appraisals of [indiscernible] and it seems like there's obviously some oscillation; with every appraisal, the valuation is going to be a little bit different. But there's 3 that kind of stuck out a little bit in office and multifamily. And the [ worst ] office change seemed to be a little less than a 50% haircut in the overall valuation.

Yes.

Cycle of uncertain economic conditions and lack of activity lack of transactions.

Youre seeing a.

Solid.

Incremental but a solid positive trend in our portfolio of LTV and a lot of thats driven by the fact that our guys do.

It's a great job of originating loans at a low LTV loan L. P C.

Putting these sponsors in a position with a lot of skin in the game and a reason to put more into protective.

It's another reason that our Ltvs don't don't move more than they do.

Brandon Hamblin: So, you know, and we'll continue to re-appraise projects through the year, and we'll continue to do that. And, you know, we'll see changes, but generally speaking, I think it'd be accurate to say we're not really surprised by most of the results, given the especially lack of data in office in particular to support, you know, any other cap rates and what appraisers are using.

So.

And we will continue to.

Reappraise projects through the year and and.

We will see changes, but generally speaking I think you'd be accurate to say.

We are not.

Not really surprised by by most of the results given especially the lack of data and office in particular.

Brandon Hamblin: I think everyone knows at this point office space, as stated, is probably a little higher, but it's such an illiquid market in general. There's just not a lot of transactions. Were these valuations kind of what you were expecting? Or is there anything idiosyncratic in that nature? I don't really have an issue with your credit overall, but with those kind of marks down, I'm just kind of curious what your thoughts are on just those couple of loans. I think everyone knows at this point that office, as stated, is probably a little higher, but it's such an illiquid market in general.

To support any other cap rate.

And what appraisers are using.

Brandon Hamblin: Then I would point out also that

Dan I would just point out also that.

Speaker Change: All of those loans that you mentioned on the re-appraised list there are pass-rated credits. That pass rating takes into account the higher loan value on the ones where the LTV went up, but they're still pass-rated credits, so we don't consider those a problem. And I would, Brandon made an excellent point. If you look back over the last eight quarters from a portfolio perspective,

Speaker Change: All of those loans that you mentioned on the re-appraised list are pass-rated credits. That pass rating takes into account the higher loan values on the ones where the LTV went up, but they're still pass-rated credits, so we don't consider those a problem. And I would say Brandon made an excellent point. If you look back over the last eight quarters from a portfolio perspective, Brannon, do you want to comment on that? Absolutely, absolutely. I mean, great question. And yes, I think the short answer is we're generally seeing what we would expect. In terms of idiosyncratic moves, I think there are certain markets that are probably hit harder with respect to the cap rate moves, and you hit the nail on the head. There is just a real dearth of transactions out there upon which these valuations can draw for cap rate data.

Host: Thank you for standing by, and welcome to BankOZK's 4th Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. To ask a question during the session, you will need to press star 1-1 on your telephone. To remove yourself from the queue, you may press star 1-1 again.

All of those loans that you mentioned on the <unk>.

Where your price list there are pass rated credits.

That pass rating takes into account.

A higher loan to value on the ones, where the LTV went up.

But there is still past rated credits. So we don't consider those are problems in our brand and made an excellent point. If you look back over the last eight quarters from a portfolio perspective.

Jay Salen: I would now like to hand the call over to Director of Investor Relations and Corporate Development Jay Salen. Please, go ahead. Good morning. I'm Jake Bailey, Director of Investor Relations and Corporate Development for Bank of the UK. Thank you for joining our call this morning and participating in our question and answer session. In today's Q&A session, we may make forward-looking statements about our expectations, estimates, and outlooks for the future. Please refer to our earnings release, management comments, and other public guidelines for more information on the various factors and many more. Joining me on the call to take your questions are George Gleason, Chairman and CEO, Brandon Hamblin, President, Tim Hicks, Chief Financial Officer, and Cindy Wolfe, Chief Operating Officer.

Speaker Change: Our loan-to-cost on the entire portfolio and our loan-to-value on the portfolio, and the loan-to-value is kind of a 42%, 43% loan-to-value range, that has not moved more than a point or two in the aggregate over that whole period of time. And that's because while we're having some loans, like these three you mentioned, where the appraised loan-to-value has gone up in a meaningful way, we're also having a number where we've got accretive pay-downs, we're also having a lot of new originations where we're originating

Our loan to cost on the entire portfolio and our loan to value on the portfolio and the loan to values, Canada 42, 43% loan to value range that is that has not moved more than a point or two in a in the aggregate over that whole period of time.

Brandon Hamblin: There's just not a lot of transactions. Were these valuations kind of what you were expecting? Or is there anything idiosyncratic about that nature? I don't really have an issue with your credit overall, but with those kind of marks down, I'm just kind of curious what your thoughts are on just those couple of loans.

And.

That's because.

While we are having some loans.

<unk> phase three you mentioned where they are.

Price along the value has gone up.

And in a meaningful way, we're also having a number where we've got accretive paydowns.

We're also having a lot of new originations, where we're originating that.

Speaker Change: You know, high 30s or very low 40s loan-to-value. So the aggregate condition of the portfolio is continuing to perform very well.

Speaker Change: You know, high 30s or very low 40s loan-to-value. So the aggregate condition of the portfolio is continuing to perform very well on that LTV matter.

Jay Salen: We'll now open up the lines for your questions. I'd like to now ask our operator, Lateef, to remind our listeners how to cue in for questions. Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. Again, that's star one one on your telephone to ask a question. To remove yourself from the queue, you may press star one one again.

Hi, <unk>.

Speaker Change: Brannon, do you want to comment on that? Absolutely, absolutely. I mean, great question. And yes, I think the short answer is we're generally seeing what we would expect. There -- in terms of idiosyncratic moves, I think there are certain markets that are probably hit harder with respect to the cap rate moves and -- but you hit the nail on the head. There is just a real dearth of transactions out there upon which these valuations can draw for cap rate data.

Very low forty's loan to value.

Aggregate condition of the portfolio is continuing to perform very well on that LTV metrics.

Speaker Change: on that LTV matter.

Speaker Change: But we're extremely pleased with what we feel like, over the course of these quarters that we've given you guys this data, the majority of these loans are falling in that sort of up, down 10% range, which, given our really low basis, is not at all a bad place to be. And we've had a lot of those down. And the fact of the matter is appraisers are human, and you have to make an estimate, and sometimes that estimate can, in hindsight, be a bit severe. But we're extremely pleased with what we feel like, over the course of these quarters that we've given you guys this data, the majority of these loans are falling in that sort of up, down 10% range, which, given our really low basis, is not at all a bad place to be. And we've had a lot of those down.

Speaker Change: Catherine. I hope you call us. Appreciate it.

Speaker Change: Catherine, I hope you will call us. I appreciate it.

Gotcha, that's helpful color I appreciate it thank you.

Speaker Change: Right.

Host: Please stand by while we compile the Q&A roster. Our first question comes from the line of Stephen Scouten of Piper Center. Hey, everyone. Good morning.

Sure.

Speaker Change: The taste is that.

Speaker Change: The taste is that of

Latif Who's next.

Speaker Change: Please stand by.

Please standby.

Speaker Change: Our next question

Our next question.

Speaker Change: comes from the line of Catherine Mealor of KBW. Please go ahead, Catherine.

Comes from the line of Catherine Mealor of K BW. Please go ahead Catherine.

Catherine Mealor: Thanks, good morning.

Catherine Mealor: Thanks, good morning. Good morning, Jeff. Good morning, Jeff.

Thanks, Good morning.

Catherine Mealor: Good morning, Jeff.

Catherine Mealor: And where the ups are, generally speaking, aligns with what we would think, but we're pleased that those have been of a limited nature. And if you look back historically at what our portfolio LTV is, and we've been reappraising projects through a pretty long cycle of uncertain economic conditions and lack of activity, lack of transactions, you're seeing a solid, it's incremental, but a solid positive trend in our portfolio LTV. And a lot of that's driven by the fact that our guys do such a great job of originating loans at low LTV, loan But it is another reason that our LTVs don't move much more than they do.

Catherine.

Stephen Scouten: So, impressive NIA growth again this quarter, and I know you guys have talked a lot about this kind of horse race that will be occurring with average earning asset growth and NIM compression moving forward. I'm kind of wondering as we look out into 2025, which I know is hard to project, but how you kind of see that potentially playing out based on projected rate cuts and how that dynamic should occur as we look further out and, presumably, I guess, your guidance, RISG repayments accelerate a little bit. Stephen, we hadn't anticipated you starting off the question about 2025, but, you know, what I would... What I would tell Thank you for joining us.

Catherine Mealor: Just to follow up on your credit conversation, you mentioned in your prepared remarks or your management comments that you still have a goal to grow EPS in 2024, which is pretty big coming off of a year where you grew, you know, 37% had a record year. And so if I think about 24, I think, and we all know the NIM and growth headwinds that we're going to potentially see if we have weight cuts. But I think a big question is where is the provision, and so I'm curious how you think the provision should trend kind of versus dispatcher's level to reach an EPS growth goal in the future.

EPS in 2024.

Which is pretty big coming off of a year, where you grew 37% had a record year and so if I think about 24 I think.

Catherine Mealor: and we all know the NIM and growth headwinds that we're going to potentially see if we have weight cuts. But I think a big question is where is the provision? And so I'm curious how you're thinking about how the provision should trend kind of versus dispatcher's level to reach an EPS growth goal in the future.

The NIM and growth headwinds that we're going to potentially see if we have rate cuts, but I think the big question is where is the provision and so just curious how youre thinking about how the transition to <unk>.

And kind of versus this past year's level to reach an EPS growth goal.

This year.

Speaker Change: Well, great question, and yes, you're spot-on correct there with the guidance that we've given on tax rates.

Well, great question, and yes, you're spot on correct there with.

Guidance that we've given on <unk>.

George G. Gleason: But our approach in our budget and planning for this year is that we're likely going to have three Fed cuts in 2024, and those are probably going to be July, September, and November cuts. So we've taken a little more conservative view in line with the Fed's guidance, ignoring the fact that the market's gotten a little farther ahead on that. Assuming that scenario is correct, which is, you know, anybody's guess, and assuming that we have another three or four Fed cuts in 2025 or five Fed cuts in 2025, you'll begin to have the floors kick in on the loans, and we'll be effectively rolling over a large part of our Deposit Portfolio. So we... While we think the horse race is fully in play every quarter in 2024, we're generally thinking if that So that's our current thinking on it, but 2025 is quite a ways out, and a lot of things are going to happen between now and then. No, that's right.

Tax rates in.

Speaker Change: Non-interest expense and the net interest margin, net interest income number being horse race on net interest income every quarter. You know, we think it's a reasonable scenario that for the year we will put up improved EPS versus last year.

Speaker Change: Non-interest expense and the net interest margin, the net interest income number being a horse race on net interest income every quarter. You know, we think it's a reasonable scenario that for the year, we will put up better EPS versus last year.

Non interest expense and net interest margin net interest income number being a horse race on net interest income every quarter.

We think it's a reasonable scenario that part of the year, we will put up improved EPS versus last year.

Speaker Change: So -- and we'll continue to reappraise projects through the year. And we'll see changes. But generally speaking, I think it'd be accurate to say we're not really surprised by most of the results given, especially the lack of data in office, in particular, to support any other cap rate than what appraisers are using.

Speaker Change: I don't know that we have an improving EPS trend every quarter next year like we did this year. It may be some quarters are up EPS and record and some quarters are a little off the record pace.

Speaker Change: I don't know that we will have an improving EPS trend every quarter next year like we did this year. It may be some quarters are up EPS and on record, and some quarters are a little off the record pace. But we expect a good EPS story and expect the company's 2023 to beat our expectations. Ben, I would point out also that all of those loans that you mentioned on the reappraised list are pass-rated loans. That pass rating takes into account the higher loan-to-value on the ones where the LTV went up, but there's still pass-rated credit, so we don't consider those problems.

I don't know that we have an improving EPS trend every quarter next year like we did this year. It it may be some quarters are up EPS and record in some quarters are a little off the record pace.

Speaker Change: But we expect a good EPS story and for the year expect to beat our 2023.

But we expect a good EPS story and for the year expect too big.

Our 2023.

Speaker Change: Ben, I would point out also that all of those loans that you mentioned on the reappraised list are pass-rated credits. That pass rating takes into account the higher loan-to-value on the ones where the LTV went up, but there's still pass-rated credit. So we don't consider those problems.

Speaker Change: net income and EPS numbers. So our assumption on provision expense in our budget and our guidance on that is predicated upon the Fed achieving a relatively stable landing to the economy. I don't know if that's a soft landing or just not a real hard landing.

Net income and EPS numbers so.

Our assumption on provision.

Expanse in our budget and our guidance on that is predicated upon that pad achieving relative.

Relatively stable planning to the economy I don't know if thats, a soft landing or just not a real hard landing.

Speaker Change: uh... we have assumed in our ACL calculations that

We have assumed in our ACL calculations.

Speaker Change: And I would -- Brannon made an excellent point. If you look back over the last 8 quarters from a portfolio perspective, our loan to cost on the entire portfolio and our loan to value on the portfolio, and the loan to value is kind of a 42%, 43% loan-to-value range. And that has not moved more than 1 point or 2 in the aggregate over that whole period of time. And that is because, while we're having some loans like these 3 you mentioned where the appraised loan-to-value has gone up in a meaningful way, we're also having a number where we've got accretive paydowns. We're also having a lot of new originations where we're originating at high 30s or very low 40s loan to value.

Speaker Change: consistently for a number of quarters now five six seven quarters we've been heavily weighted

Speaker Change: Consistently for a number of quarters, now five, six, seven quarters, we've been heavily weighted to the downside scenarios. So, as you know, last year we grew our ACL over $100 million last year. Part of that was due to our significant growth, and part of it was due to the fact that we were leaning heavily on Moody's downside model, CS4 and the S6 model. We continue to lean that way, so we think our ACL is appropriate and pretty well positioned for a range of scenarios if, unless, we have a landing of the economy that's consistent with the S4, S6 scenarios. The economy lands in a more benign fashion than that, and we're going to probably look back and see that the aggregate condition of the portfolio is continuing to perform very well on that LTV metric.

Consistently for a number of quarters now 567 quarters, we've been heavily weighted.

Speaker Change: To the downside scenarios. So as you know, last year we grew our

Speaker Change: To the downside scenarios. So, as you know, last year we grew our ACL over $100 million. Part of that was due to our significant growth, and part of it was due to the fact that we were leaning heavily on Moody's downside model, CS4 and the S6 model. We continue to lean that way, so we think our ACL is appropriate and pretty well positioned for a range of scenarios if, unless, we have a landing of the economy that's consistent with the S4, S6 scenarios. The economy lands in a more benign fashion than that, and we're going to probably look back and see that the aggregate condition of the portfolio is continuing to perform very well on that LTV metric.

To the downside scenarios.

As you know last year, we grew our ACL over $100 million last year.

Speaker Change: ACL over $100 million last year. Part of that was due to our significant growth. Part of it was due to the fact that we were leaning heavily on the Moody's downside model, CS4 and the S6 model.

Speaker Change: ACL made over $100 million last year. Part of that was due to our significant growth. Part of it was due to the fact that we were leaning heavily on the Moody's downside model, CS4 and the S6 model. We continue to lean that way, so we think our ACL is appropriate and pretty well positioned for a range of scenarios unless we have a landing of the economy that's consistent with the S4, and the S6 scenarios. The economy lands in a more benign fashion than that, and we're going to probably look back and see that the aggregate condition of the portfolio is continuing to perform very well on that LTV metric.

Part of that was due to our significant growth.

Stephen Scouten: Yeah. And I assume, like you said, we'll start seeing that chart come back to your management comments with the floors and kind of how that protects your loan book. So that's obviously very helpful.

Part of it was due to the fact that we're leaning heavily on the Moody's downside models <unk> models.

Speaker Change: We continue to lean that way, so we think our ACL is...

Continue to lean that way so we think our ICL is.

Stephen Scouten: And then I'm kind of curious about origination trends. I mean, for those of us that aren't in. That real estate business on a daily basis and not seeing what you guys see daily, I think a lot of folks on this side would have expected more of a slowdown, but originations have stayed extremely strong, so I don't know if Brandon you could talk about some of those dynamics, whether it's competitive, whether there is still an appetite for current projects, or what's keeping that, maybe loan origination demand higher than some of us on this Brennan, go ahead.

Speaker Change: appropriate and pretty well positioned for

Appropriate them pretty well positioned for.

Speaker Change: you know a range of scenarios if the unless we have a

A range of scenarios.

If the.

Last we have a.

Speaker Change: landing of the economy that's consistent with the S4, the S6 scenarios.

Landing of the economy, that's consistent with the ASP for the ASIC scenarios.

Speaker Change: The economy lands in a more benign fashion than that, and we're going to probably look back and...

The economy lands in a more benign fashion.

Then that then we're going to probably look back in.

Speaker Change: I think we could look back and assume that 2023 was kind of a high point in provisioning so we're not there yet with with that conclusion but I think you could draw a scenario pretty clearly that would suggest we could have some downsides in what we provision each month or each quarter and and the flip side of that of course is also true if the

Speaker Change: We continue to lean that way, so we think our ACL is appropriate and pretty well positioned for a range of scenarios if, unless, we have a landing of the economy that's consistent with the S4, S6 scenarios. The economy lands in a more benign fashion than that, and we're going to probably look back and see that the aggregate condition of the portfolio is continuing to perform very well on that LTV metric.

I think we could look back and assume that 2023 was kind of a high point in provisioning. So.

Speaker Change: Just a follow-up on the credit conversation. You mentioned in your prepared remarks or your management comments that you still have a goal to grow EPS in 2024, which is pretty big coming off of a year where you grew 30-some percent and had a record year. And so as I think about '24, I think we all know the NIM and growth headwinds that we're going to potentially see if we have rate cuts, but I think a big question is, where is the provision? And so just curious how you're thinking about how the provision should trend kind of versus this past year's level to reach an EPS growth goal this year.

We're not there yet.

With that conclusion, but I think you could draw a scenario.

Pretty clearly that would suggest we could have some downside.

Brandon: Stephen, I'm happy to answer that question. It's a great question. Although, you know, coming off a record 13.8, sometimes you need more, more, you know, it should be stronger. But we're so proud of what our team has done in 2024. You saw the number, you know, increase at the end of the year. And, and, and I would say that, you know, moving into Q1, we've got a decent pipeline there. But, but no, you're right.

We provision each month or each quarter and the flip side of that of course has also triggered.

Speaker Change: uh

Speaker Change: Uh, geopolitical, global issues, obesity, congressional issues, you know, government shutdowns, whatever, where they somehow all coalesce into a hard lane for the economy, we could have higher provision expenses. But those scenarios seem to be... getting mitigated and the chance for the Fed to actually engineer a pretty decent landing for the economy, geopolitical, global issues, fatness, Congressional issues, you know, government shutdowns, whatever, where they somehow all coalesce into a hard lane for the economy, we could have higher provision expense. But those scenarios seem to be... getting mitigated, and the chance for the Fed to actually engineer a pretty decent landing for the economy. It seems to be growing a little bit, which should hopefully lead to lower provision expenses. It seems to be growing a little bit, which should hopefully lead to lower provision expenses.

Speaker Change: Uh, geopolitical, global issues, obesity, congressional issues, you know, government shutdowns, whatever, where they somehow all coalesce into a hard lane for the economy, we could have higher provision expenses. But those scenarios seem to be... getting mitigated, and the chance for the Fed to actually engineer a pretty decent landing for the economy, geopolitical, global issues, obesity, congressional issues, you know, government shutdowns, whatever, where they somehow all coalesce into a hard lane for the economy, we could have higher provision expense. But those scenarios seem to be... getting mitigated, and the chance for the Fed to actually engineer a pretty decent landing for the economy.

Speaker Change: geopolitical, global issues, fatness,

Geopolitical global issues fab.

Speaker Change: Congressional issues, you know, government shutdowns, whatever, where they somehow all...

Congressional issues.

Government shutdowns for whatever whereas somehow.

Speaker Change: coalesce into a hard lane for the economy, we could have higher provision expense. But those scenarios seem to be...

Coalesce into a hard landing for the economy, we could get out higher provision expense, but those scenarios.

Same debate.

Speaker Change: getting mitigated and the chance for the Fed to actually engineer a pretty decent landing for the economy.

Getting mitigated in.

The chance for the fed to actually engineer, a pretty decent landing for the economy is.

Speaker Change: It seems to be growing a little bit.

Seems to be growing a little bit so that could.

Speaker Change: hopefully lead to lower provision expenses.

Hopefully lead to lower provision expense next year.

Speaker Change: Well, great question, and yes, you're spot-on correct there with the guidance that we've given on tax rates and noninterest expense and the net interest margin -- the net interest income number being a horse race on net interest income every quarter. We think it's a reasonable scenario that, for the year, we will put up improved EPS versus last year. I don't know that we will have an improving EPS trend every quarter next year like we did this year, and maybe some quarters are up EPS at a record pace, and some quarters are a little off the record pace. But we expect a good EPS story and, for the year, expect to beat our 2023 net income and EPS numbers.

Speaker Change: That's really helpful. It feels like a nice offset if you see, if you do see lower margins and more paydowns in the loan book, you know, an offset to that head when it's going to be this provision that we are in that stop-lending scenario. Well, we still didn't expect good loan growth. We still didn't expect good loan growth, I would say.

Speaker Change: That's really helpful. It feels like a nice offset if you see lower margins and more paydowns in the loan book, you know, an offset to that head when it's going to be this provision that we are in that stop-lending scenario. Well, we still didn't expect good loan growth, I would say, for the nine-year graph.

Brandon: There are a lot of different headwinds for Origination. This year, I would say from an equity confidence point of view, has been the lowest that we've seen in a long time. But that's juxtaposed with a lot of capital that's out there. We hear about funds that, you know, fund managers out there looking to start new funds and getting pushback from investors because they haven't invested the money. The funds they already have existing.

That's really helpful and it sounds like a nice offset to FCC.

<unk> has lower margins than more paydowns in that.

Loan book.

Yeah, and offset to that headwind is going to need a provision that soft landing scenario.

Speaker Change: It seems to be growing a little bit, which should hopefully lead to lower provision expenses. It seems to be growing a little bit, which should hopefully lead to lower provision expenses.

Great loan growth, we still expect good loan growth I would.

Speaker Change: for the nine-year graph.

I'll remind you of that.

Yes.

Speaker Change: And then, just another call up on credit, just can you give us, or kind of talk us through how the Chicago land loan could play out from here? It feels like you went from special mention to substandard accrual this quarter, so we're still performing, you know, but I noticed that your cash reserve did decline, so.

Speaker Change: And then, just another call on credit, just can you give us, or kind of talk us through how the Chicago land loan could play out from here? It feels like you went from special mention to substandard accrual this quarter, so we're still performing, you know, but I noticed that your cash reserve did decline. I feel that maybe it's just performing because of the interest reserve, but, you know, kind of curious how that's playing out right now and kind of how much time, how many quarters we have until potentially that runs out, and this may flip to non-performing if you're not able to resolve the credit before that time period.

Yes.

And then.

Just another follow up on credit just can you give us kind of talk us through all of the Chicago land loan could play out from here. It feels like we went from special mention.

Brandon: So, you know, their, their, but their reticence in the recent past has definitely shown up in the number of deals that have moved forward or the number of deals that have, you know, sort of been on the table and then pulled back. I think... You know, the positive trend that you see there for us is simply a result of what we talked about, you know, quarter in, quarter out around being built to be in the market every day, every year, every cycle. And our guys continue to benefit from their well-deserved reputation for execution in that space.

Standard accrual this quarter still we are still performing.

But I noticed that your your cash reserve to decline so.

Speaker Change: I feel that maybe it's just performing because of the interest reserve, but, you know, kind of curious how that's playing out right now and kind of how much time, how many quarters we have until potentially that runs out and this may flip to non-performing if you're not able to resolve the credit before that time period. It's going to walk us through.

Correct me, if I'm wrong it feels like maybe it's just performing because of the interest reserve.

Curious, how that's playing out right now and kind of how much time or how many quarters, we had until potentially that runs out.

Speaker Change: So our assumption on provision expense in our budget and our guidance on that is predicated upon the Fed achieving a relatively stable path for the economy. I don't know if that's a soft landing or just not a real hard landing. We have assumed in our ACL calculations consistently for a number of quarters now, 5, 6, 7 quarters, we've been heavily weighted to the downside scenarios. So as you know, last year, we grew our ACL over $100 million last year. Part of that was due to our significant growth, and part of it was due to the fact that we were leaning heavily on Moody's downside models, the S4 and the S6 models. We will continue to lean that way.

This may slip to nonperforming if youre not able to resolve the credit before that that time periods, just kind of walk us through.

Speaker Change: It's going to walk us through. I feel that maybe it's just performing because of the interest reserve, but, you know, kind of curious how that's playing out right now and kind of how much time, how many quarters we have until potentially that runs out, and this may flip to non-performing if you're not able to resolve the credit before that time period. It's going to walk us through it.

Speaker Change: How that credit could kind of be passed forward to that credit over the next couple of weeks.

How that credit.

The path forward for that credit over the next couple of quarters.

That's great.

Speaker Change: That's a great question, and obviously the fact that we went from a special mention to a substandard classification on that credit in the quarter just ended.

Speaker Change: That's a great question, and obviously the fact that we went from a special mention to a substandard classification on that credit in the quarter just ended, uh... reflect reflects the fact that, you know, we were, we were, uh... reflect reflects the fact that, you know, we were, we were,

Great question, and obviously, the fact that.

We went from a special mention to a sub standard.

Speaker Change: Classification on that credit in the quarter just ended.

Speaker Change: uh... reflect

Brandon: And we continue to, you know, when there aren't nearly as many competitors on the field, you tend to get calls that you might not have received before. And our guys have done a phenomenal job of converting on new relationships and, obviously, loans with existing relationships. So the pie has been smaller without question.

Reflect.

Speaker Change: reflects the fact that, you know, we were, we were,

It reflects the fact that.

We were we were <unk>.

Speaker Change: I'm concerned about the sponsors pace in their recapitalization efforts here. They've been working hard on this. This is an excellent sponsor with whom we have done a number of pieces of business. They've got a very successful track record.

Speaker Change: I'm concerned about the sponsors' pace in their recapitalization efforts here. They've been working hard on this. This is an excellent sponsor with whom we have done a number of pieces of business. They've got a very successful track record. So, you know, they're still working very hard on this and are still positively all disposed and engaged in it. We've got that going for us, and we've got a good sponsor who's working hard and still out there diligently pursuing that. The fact that they've not gotten that recap done yet caused us to do the downgrade.

Concerned about the sponsors pace.

Their recapitalization efforts here they've been working hard on that.

This is an excellent sponsor with whom we have done.

Number of pieces of business, they've got a very successful track record.

Speaker Change: So, you know, they're still working very hard on this and still positively

So.

No.

They are still working very hard on that and still positively.

Brandon: We're just able to take a proportionally larger slice of that pie with our team. And, you know, this year will be very interesting. And, you know, in terms of, you know, how things play out, but as George has already alluded to, in terms of our thoughts around rate moves, you know, we would expect, given the amount of capital that's sort of been sitting on the sidelines needing to be invested, that with, you know, if we continue to get some positive signs there, we'll start to see that, you know, the number of deals in the market But we, as we stated, believe that, you know, we could see being at or above the volume we had in 23 for the 12 months in 2024.

Speaker Change: are all disposed and engaged on it.

Disposed and engaged on it so.

Speaker Change: So we think our ACL is appropriate and pretty well positioned for a range of scenarios.

Speaker Change: We've got that going for us and we've got a good sponsor who's working hard and still out there diligently pursuing that. The fact that they've not gotten that recap done yet caused us to do the downgrade. And with that downgrade also, that changed the risk rating on the loan and the risk rating drives our provision for the loan. So our ACL on this loan is now, as we disclosed in the management comment, $32.8 million.

We've got that going for us and that we've got a good sponsor who is working hard and still out there diligently pursuing that.

Speaker Change: If the -- unless we have a landing of the economy that's consistent with the S4, the S6 scenarios, if the economy lands in a more benign fashion than that, then we're going to probably look back, and I think we can look back and assume that 2023 was kind of a high point in provisioning.

The fact that they have not gotten that recap done yet caused us to do the downgrade and with that downgrade also.

Speaker Change: And with that downgrade also, that changed the risk rating on the loan, and the risk rating drives our provision for the loan. So our ACL on this loan is now, as we disclosed in the management comment, $32.8 million. So, you know, they're still working very hard on this and are still positively all disposed and engaged in it. We've got that going for us, and we've got a good sponsor who's working hard and still out there diligently pursuing that. The fact that they've not gotten that recap done yet caused us to do the downgrade. And with that downgrade also, it changed the risk rating on the loan, and the risk rating drives our provision for the loan. So our ACL on this loan is now, as we disclosed in the management comment, $32.8 million.

That changed the risk rating on the loan and the risk rating drives our our provision for the loan so our ACL on this loan is now as we disclosed in the management comments $32 $8 million.

Speaker Change: So we've pretty much...

Speaker Change: So we've pretty much... We're not there yet with that conclusion, but I think you could draw a scenario pretty clearly that would suggest we could have some downside in what we provide each month or each quarter. And the flip side of that, of course, is also true. If the geopolitical, global issues, Fed, congressional issues, government shutdowns, whatever, were to somehow all coalesce into a hard landing for the economy, we could have higher provision expenses. But those scenarios seem to be getting mitigated, and the chance for the Fed to actually engineer a pretty decent landing for the economy seems to be growing a little bit. So that could hopefully lead to lower provision expense next year.

So.

We've pretty much.

Speaker Change: provision this thing for a

Speaker Change: Provision this thing for a and Adverse Outcomes.

Provision this thing for a.

Speaker Change: and Adverse Outcomes.

Adverse outcome.

Speaker Change: You're correct. They are using their cash reserve, which is their money, to pay interest on the loan, and they've got enough cash reserve there to go several more months. I don't know the exact timing of that, but when they get to the end of that cash reserve, they'll have to make a decision if they want to and can support it with further interest payments to buy more time. to work out their recapitalization and develop their ultimate plan for this property or if they've run out of gas. So we'll just have to see, but the downgrade reflected in the increase in the ACL for the loan reflected what we call an appropriate adjustment for the risk in it at this time.

Speaker Change: You're correct. They are using their cash reserve, which is their money, to pay interest on the loan, and they've got enough cash reserve there to go several more months. I don't know the exact timing of that, but when they get to the end of that cash reserve, they'll have to make a decision if they want to and can support it with further interest payments to buy more time to work out their recapitalization and develop their ultimate plan for this property, or if they've run out of gas. So we'll just have to see, but the downgrade reflected in the increase in the ACL for the loan reflected what we call an appropriate adjustment for the risk in it at this time.

You are correct.

Are using their cash reserve, which is their money to pay interest on the loan.

Speaker Change: They've got enough cash reserve there to go several more months I don't know the exact timing of that.

But.

Speaker Change: When they get to the end of that cash reserve they'll have to make a decision if they want to and can support it with <unk>.

Brandon: Yeah, and if I could squeeze in one last quick one, it's just as you guys think about maybe passing the baton to some of these other loan categories and investments you've made in the bank over the last few years, is there a way to kind of stack rank where the potential is, whether it's ABL, CBS, like where you think the most potential is to kind of, you know, make that handoff in terms of growth in the longer Sure. You know, I think you mentioned ABL.

Further encourage payments to buy more time.

To work out their recapitalization and develop their ultimate plan for those property or if they've run out of gas. So we'll just have to say, but the downgrade reflected.

And the increase in the ICL for alarm reflected what we felt was an appropriate adjustment for the risk in it at this time.

Speaker Change: We're monitoring it closely, and, of course, will there be anything that we can do, or doing everything we can do to assist the sponsor in their efforts? But we're the lender, and they're the equity, so the ball's really in their court. We're monitoring it closely, and, of course, will there be anything that we can do, or doing everything we can do to assist the sponsor in their efforts? But we're the lender, and they're the equity, so the ball's really in their court.

Speaker Change: We're monitoring it closely, and of course, will there be anything that we can do, or doing everything we can do to assist the sponsor in their efforts, but we're the lender and they're the equity, so the ball's really in their court.

We're monitoring it closely and of course, we are.

Is there anything that we can do and are doing everything we can do to.

Speaker Change: So we're not there yet with that conclusion, but I think you could draw a scenario pretty clearly that would suggest we could have some downside in what we provide each month or each quarter. And the flip side of that, of course, is also true. If the geopolitical, global issues, Fed, congressional issues, government shutdowns, whatever, were to somehow all coalesce into a hard landing for the economy, we could have higher provision expense. But those scenarios seem to be getting mitigated, and the chance for the Fed to actually engineer a pretty decent landing for the economy seems to be growing a little bit. So that could hopefully lead to lower provision expenses next year.

Speaker Change: That's really helpful. And it feels like a nice offset if you see -- if you do see lower margins and more paydowns in the loan book, an offset to that headwind is going to be this provision if we are in that soft landing scenario. And then...

Assess the sponsor and their efforts, but where the lender in there the equity so the bottle Australia in their court.

Speaker Change: Thanks for the call. I appreciate it.

Great makes sense, thanks for the color I appreciate it.

Speaker Change: Thank you.

Thank you.

Speaker Change: Thank you.

Thank you.

Speaker Change: Our next question comes from the line of Manan Gosalia of Morgan Stanley.

Our next question comes from the line.

And on the failure of Morgan Stanley.

Speaker Change: We still do expect good loan growth. I would remind you of that. Yes.

Manan Gosalia: Hi, good morning. I wanted to ask on the loan floors you spoke about earlier, can you talk about where those floors are on average for the portfolio on the books right now? How long will the benefit of that last given the shorter duration of some of your loans and if the capital markets open up? And if you can comment on any recent trends there, have there been any changes in the floors you've been able to negotiate more recently? Given the outlook for late cuts.

Manan Gosalia: Hi, good morning. I wanted to ask about the loan floors you spoke about earlier. Can you talk about where those floors are on average for the portfolio on the books right now? How long will the benefit of that last given the shorter duration of some of your loans and if the capital markets open up? And if you can comment on any recent trends there, have there been any changes in the floors you've been able to negotiate more recently? Given the outlook for late cuts,

Brandon: Those guys have another good year. We expect that they'll have another good year coming up against us. I would tell you that our lending groups, no surprise, have been as focused as ever on deposit gathering relationships. And, you know, we've, I don't want to say restricted, but that heavy focus has sort of narrowed the focus around what, for example, ABL has been doing. I think those guys have potential to really sort of, just in time might be an overstatement, but to really sort of open up, stick it up a bit more as we move. Look at what, you know, REST may be facing in terms of pay down in 2025. So that's a group that comes to mind.

Hi, good morning.

I wanted to ask on the.

Manan Gosalia: Yes. And then just another follow-up on credit. Just can you give us or kind of talk us through how the Chicago land alone could play out from here? It feels like we went from special mention to substandard accrual this quarter. So we're still performing. But I noticed that your cash reserve did decline. So, correct me if I'm wrong, it feels like maybe it's just performing because of the interest reserve, but I'm kind of curious how that's playing out right now and kind of how much time or how many quarters we have until potentially that runs out. And this may flip to non-performing if you're not able to resolve the credit before that time period. Just kind of walk us through how that credit could -- what the path forward for that credit would be over the next couple of quarters?

Speaker Change: Loan floors, you spoke about earlier.

Could you talk about where those floors out on average for the portfolio.

<unk> right now.

How long will the benefit of that loss given the shorter duration of some of your launch and if the capital markets open up.

And if.

If you can comment on any recent trends has there been any changes in the floor is <unk> been able to negotiate more recently given the outlook for rate cuts.

Speaker Change: Great question, Manon. You know, in kind of the run-up to mid-last year and I guess even third quarter, fourth quarter of last year, a lot of the loans that we were originating in RESG had floors at the start rate of the loan.

Speaker Change: Great question, Manon. You know, in kind of the run-up to mid-last year and, I guess even, the third quarter, fourth quarter of last year, a lot of the loans that we were originating in RESG had floors at the start rate of the loan. So the expectation, you know, when the expectation is that the Fed's going to be continuing to raise rates as it was throughout 2022, it's pretty easy to get, you know, loans at the start, floors at the start rate of the loan. As 2023 progressed, so the expectation, you know, when the expectation is that the Fed's going to be continuing to raise rates as it was throughout 2022, it's pretty easy to get, As 2023 progressed,

Speaker Change: Great question, Manon. You know, in kind of the run-up to mid-last year and, I guess even, the third quarter and fourth quarter of last year, a lot of the loans that we were originating in RESG had floors at the start rate of the loan. So the expectation, you know, when the expectation is that the Fed's going to be continuing to raise rates as it was throughout 2022, it's pretty easy to get loans at the start, floors at the start rate of the loan.

Great question.

And.

Kind of a run up too.

Mid last year, and I guess, even third quarter fourth quarter of last year, a lot of the loans that we were originating in our ESG had floors at the start rate of the loan so.

Speaker Change: So the expectation, you know, when the expectation is that the Fed's going to be continuing to raise rates as it was throughout 2022, it's pretty easy to get, you know,

The expectation when the expectation is that.

<unk> got to be continuing to raise rates as it was throughout 2022.

Pretty easy to get.

Brandon: But right behind us, as you said, would be our fund finance and our capital solutions group. Continue to make progress, and you never know what the future holds, but we feel like we're pretty well positioned as an institution to look at other opportunities in the commercial space. We're thinking about that.

Speaker Change: Loans at the start, floors at the start rate of the loan. As 2023 progressed,

Loans at Star floors at the start right at alone.

2023 progressed.

Speaker Change: That's a great question, and obviously, the fact that we went from a special mention to a substandard classification on that credit in the quarter just ended reflects the fact that we were concerned about the sponsor's pace in their recapitalization efforts here. They've been working hard on this.

Speaker Change: and you know customers began to look forward

Speaker Change: and you know customers began to look forward to winning the pad. To win the pad, more pressure came in to negotiate that floor rate to something below the start rate of the loan, and those floors have moved. I would tell you today we're still getting floors in some loans at the start rate of the loan. In some loans, the floor is in the REST portfolio 100 or even slightly more points below the start rate, and those floors have moved. I would tell you today that we're still getting floors on some loans at the initial rate of the loan.

And.

Speaker Change: As 2023 progressed, so the expectation, you know, when the expectation is that the Fed's going to be continuing to raise rates as it was throughout 2022, it's pretty easy to get, As 2023 progressed,

Customers began to look forward.

Speaker Change: to win the pad was going to reverse course.

When the fed was going to reverse course.

Speaker Change: More pressure came in to negotiate that floor rate to something below the start rate of the loan.

More pressure came in to negotiate that floor right to something below the start right at it alone.

Speaker Change: and those floors have moved. I would tell you today we're still getting floors in some loans at the start rate of the loan. In some loans, the floor is in the REST portfolio 100 or even slightly more points below the start rate.

And.

Those floors have moved I would tell you today.

Speaker Change: This is an excellent sponsor with whom we have done a number of pieces of business. They've got a very successful track record. So we've got that going for us and that we've got a good sponsor who's working hard and still out there diligently pursuing this. The fact that they've not gotten that recap done yet caused us to do the downgrade. And with that downgrade also, it changed the risk rating on the loan, and the risk rating drives our provision for the loan. So our ACL on this loan is now, as we disclosed in the management comments, $32.8 million.

Stephen Scouten: We're looking at those and watching closely for opportunities we might be able to tackle, rise on. So that's where our head's at today. Fantastic. Thanks for all the color and congrats on a great year.

We're still getting floors in some loans at the start right at the loan.

And.

Some loans the floor is is in the <unk>.

<unk> portfolio of 100, or even slightly more points below 30 basis points below the start right.

Host: Thank you. Please stand by for our next question. Our next question comes from the line of Matt Olney from Stephen James. Hey, thanks for taking my questions.

Speaker Change: so they're meaningful floors and

Speaker Change: So they're meaningful floors, and they vary from loan to loan, and that depends on and, you know, other features, just all the myriad of details and how you negotiate and structure one of these credits. They vary from loan to loan, and that depends on and, you know, other features, just all the myriad of details and how you negotiate and structure one of these loans.

Theyre meaningful floors.

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Speaker Change: they vary from loan to loan and that depends on

They vary from loan to loan and that depends on.

Speaker Change: and, you know, other features, just all the myriad of details and how you negotiate and structure one of these credits.

Other other features just all the myriad of details and how you negotiate and structure. One of these credits. So they are important for us.

Matt Olney: I wanted to ask about the pace of loan growth in 2024 and any insight you can provide about if the pace will be weighted towards the front half or the back half. And then on the topic of loan repayments, I'm curious what you're hearing from the sponsors on some of these RASU loans that have reached stabilization but still remain at the bank. It seems like you'd be getting more requests given the dip we've seen in rates here, but just curious about any comments you have there. Brandon, do you want to comment on the second part of Matt's question? Absolutely. Matt, it's good to hear from you.

Speaker Change: In some loans, the floor in the REST portfolio is 100 or even slightly more points below the start rate. More pressure came in to negotiate that floor rate to something below the start rate of the loan, and those floors have moved. I would tell you today we're still getting floors in some loans at the start rate of the loan. In some loans, the floor is in the REST portfolio 100 or even slightly more points below the start rate, and those floors have moved. I would tell you today we're still getting floors in some loans at the start rate of the loan. In some loans, the floor is in the REST portfolio at 100 or even slightly more points below the start rate.

Speaker Change: So they are important for us the I can't give you the

Speaker Change: So they are important for us, and I can't give them to you.

I can't give you the.

Speaker Change: Breakdown will probably start next quarter and quarter after giving you a

Breakdown will will probably start next quarter to quarter after giving you.

Speaker Change: A table in our management comments. I think Stephen asked for that in our management comments that shows, you know, where the floors are on various loans. We're obviously getting old loans paid off for a billion dollars. So we've pretty much provisioned this thing for an adverse outcome. You're correct. They are using their cash reserve, which is their money, to pay interest on the loan, and they've got enough cash reserve there to go several more months. I don't know the exact timing of that, but when they get to the end of that cash reserve, they'll have to make a decision if they want to and can support it with further interest payments to buy more time to work out their recapitalization and develop their ultimate plan for this property, or if they've run out of gas. So we'll just have to see.

A table in our management comments.

Steven asked for that.

Our management comments that shows.

Where the floors are on various loans.

We're obviously getting our loans paid off at $1 billion.

Speaker Change: a quarter more or less and those old loans have floors that are usually far below

Speaker Change: A quarter more or less, and those old loans have floors that are usually far below current rates because they were set in an environment before the Fed started raising rates, and the floor may have been 25, a social floor, 25 basis points, which would have been a four-something floor at the time or something. So those floors are getting reset about a billion dollars a quarter. We're also having loans that don't have as bright an extension rights that we're doing extensions on. On a business-as-usual sort of basis, we're attempting to reset the floors higher on those loans with a fair degree of success, but obviously that's a negotiating point with every customer.

Yes.

A quarter more or less in those auto loans have floors that are usually far below.

Brandon: Thanks. Yeah, so it's largely a timing issue, Matt, and also lender supply out there. You know, there are a lot of institutions that have been less active, but there have also been those that have pushed in, and, you know, there are some names, non-bank names, that we're seeing that are active in that space. But, you know, I think the proceeds from a refi today are not what they were when a sponsor kicked off his project. So I think a little bit of it is just managing expectations and trying to find that particular point in time where they feel like they, you know, whether it's, you know, they want to burn off some concessions if it's a multifamily deal, perhaps, or, you know, get that next turn and link that up to the, you know, the optimal interest rate. So it's a combination of factors. I mean, we're given the environment that we've been in.

Speaker Change: You know, current rates because they were set in an environment before the Fed started raising rates and the floor may have been 25, a social floor, 25 basis points, which would have been a four-something floor at the time or something.

Current rates because they were set in an environment before the fed started raising rates in the floor might have been 25, so for floor 25 basis points, which would've been a four something floor at the time or something so.

Speaker Change: So those floors are getting reset about a billion dollars a quarter. We're also having loans that don't have as a bright extension rights that we're doing extensions on.

Those floors are getting very sad about $1 billion quarter. We're also having loans that don't have as a brand extension rights that were doing extension zone.

Speaker Change: On a business-as-usual sort of basis, we're attempting to reset the floors higher in those loans with a fair degree of success, but obviously that's a negotiating point with every customer.

On a business as usual sort of basis were attempting to reset the floor is higher in those loans with.

A fair degree of success, but obviously, that's a negotiating point with every customer and we're rolling out those loans with lower floors, and putting on new loans with higher floors. So.

Speaker Change: You know, current rates because they were set in an environment before the Fed started raising rates, and the floor may have been 25, a social floor, 25 basis points, which would have been a four-something floor at the time or something. So those floors are getting reset about a billion dollars a quarter. We're also having loans that don't have as bright an extension rights that we're doing extensions on. On a business-as-usual sort of basis, we're attempting to reset the floors higher on those loans with a fair degree of success, but obviously that's a negotiating point with every customer.

Speaker Change: But the downgrade and the increase in the ACL for the loan reflected what we thought was an appropriate adjustment for the risk in it at this time. We're monitoring it closely, and, of course, we'll do anything that we can do and are doing everything we can do to assist the sponsor in their efforts, but we're the lender, and they're the equity. So the ball is really in their court on this.

Speaker Change: and we're rolling off those loans with lower floors and putting on new loans with higher floors. So, you know, this story gets better every time, which is why we have said.

Speaker Change: and we're rolling off those loans with lower floors and putting on new loans with higher floors. So, you know, this story gets better every time, which is why we have said. A higher for longer scenario is better for our net interest margin because every month we reset the floors on the portfolio on average height. And so if the Fed doesn't cut rates until July as opposed to March, that's really good for us because we've got another four months of floors reset. If they waited until September, that's even better because we get another six months of floors reset.

Speaker Change: So we've pretty much provisioned this thing for an adverse outcome. You're correct. They are using their cash reserve, which is their money, to pay interest on the loan, and they've got enough cash reserve there to go several more months. I don't know the exact timing of that. But when they get to the end of that cash reserve, they'll have to make a decision if they want to and can support it with further interest payments to buy more time to work out their recapitalization and develop their ultimate plan for this property, or if they've run out of gas. So we'll just have to see.

This story gets better every time, which is why we have said.

Speaker Change: A higher for longer scenario is better for our net interest margin because every month we reset the floors on the portfolio on average height.

Speaker Change: A higher for longer scenario is better for our net interest margin because every month we reset the floors on the portfolio on average height. And so if the Fed doesn't cut rates until July as opposed to March, that's really good for us because we've got another four months of floors reset. If they waited until September, that's even better because we get another six months of floors reset. Those floors will hold on those loans, you know, for the duration of the loans. And they're three-year loans, and typically, they'll hold for any extension duration. So the fact that we've got – and we typically have minimum interest protection on these loans. Great. It makes sense. I appreciate it.

A higher for longer scenario is better for our net interest margin because every month, we have re.

Brandon: We're pleased with the payoff activity we've had. But, you know, we've talked about it a good bit. It's, you know, as the short term comes down, and I focus on the short term because not all of these are going to go to permanent financing. Some will jump, you know, from presumably a lower proceed loan with us to a higher proceed loan with, you know, trying to minimize the interest rate impact, but certainly getting higher proceeds, but not necessarily on permanent loans. So the short-term rates are more in play there, and you guys all know what's happening with the curve there.

<unk> set the floors on the portfolio on average higher.

Speaker Change: And so if the Fed doesn't cut rates until July as opposed to March, that's really good for us because we've got another four months of floors reset. If they waited until September, that's even better because we get another six months of floors reset. Those floors will hold on those loans, you know, for the duration of the loans. And they're three-year loans, and typically they'll hold for any extension duration. So the fact that we've got – and we typically have minimum interest protection on these loans.

<unk>.

So if the fed doesn't cut rates until July as opposed to March that's really good for us because we've got another four months of floors, where he said if they waited till September that's even better because we got another six months of floors.

Race at that.

Those floors will hold on those loans.

Speaker Change: Those floors will hold on those loans, you know, for the duration of the loans. And they're three-year loans, and typically, they'll hold for any extension duration. So the fact that we've got – and we typically have minimum interest protection on these loans is great. Makes sense. I appreciate it. Our next question comes on the line from Manan Gosalia of Morgan Stanley.

The duration of the loans in their three year loans and typically they will hold for any extension duration. So the fact that we've got and we typically have minimum interest protection on these loans.

Speaker Change: So somebody's not going to refinance a construction loan, typically mid-construction, because we've got an eighth floor in it and suddenly they can get 6% money. The minimum interest and other features and the complexity and cost of moving that loan will tend to keep them there. So those floors will hold.

Speaker Change: So somebody's not going to refinance a construction loan, typically mid-construction, because we've got an eighth floor in it, and suddenly they can get 6% money. The minimum interest and other features, and the complexity and cost of moving that loan will tend to keep them there. So those floors will hold, and they're going to be an important part of, hopefully, us expanding them in 2025.

Somebody is not going to refinance construction loans typically mid construction because we've got an eight floor and inside of that if I can get 6% money.

Speaker Change: Our next question comes from Manan Gosalia of Morgan Stanley. I wanted to ask about the loan floors you spoke about earlier. Can you talk about where those floors are on average for the portfolio on the books right now? And how long will the benefit of that last given the shorter duration of some of your loans? And if the capital markets open up, and if you can comment on any recent trends there. Have there been any changes in the floors you've been able to negotiate more recently given the outlook for rate cuts?

The minimum interest and other features in the complex and cost of moving that line will tend to keep them. There. So those floors will hold.

Speaker Change: I wanted to ask about the loan floors you spoke about earlier. Can you talk about where those floors are on average for the portfolio on the books right now? How long will the benefit of that last given the shorter duration of some of your loans? And if the capital markets open up? And if you can comment on any recent trends there. Have there been any changes in the floors you've been able to negotiate more recently given the outlook for rate cuts?

George G. Gleason: So there may be some delay. We're waiting to get further down the curve before we pull the trigger on that. Yeah, and Matt, as we alluded to in our management comments, we think that the lower interest rate levels that, you know, were much lower a couple of weeks ago and have gotten higher the last week or two, but still relatively lower in the expectation that that's not going to increase rates further and the next direction is down in rates. We think that that is going to create a higher level of payoffs in 2024, either from bridge financing, They're still very active.

Speaker Change: and they're going to be an important part of hopefully us expanding them.

And theyre going to be an important part of hopefully us expanding them and.

Speaker Change: in 2025.

Speaker Change: 2025.

Speaker Change: Great question, Manan. In kind of the run-up to mid-last year and, I guess, even the third quarter and fourth quarter of last year, a lot of the loans that we were originating in RESG had floors at the start rate of the loan. So the expectation -- when the expectation is that the Fed is going to be continuing to raise rates as it was throughout 2022, it's pretty easy to get loans at the -- floors at the start rate of the loan.

Speaker Change: That's very helpful. So it sounds like the current interest rates matter more than the forward look. So I guess the floors are not going down, just because the rate outlook has gone down over the last couple of months.

Speaker Change: That's very helpful. So it sounds like the current interest rates matter more than the forward look. So I guess the floors are not going down just because the rate outlook has gone down over the last couple of months. You know, the fact that the rate outlook is, the forward curve is down, the rate outlook is down is causing sponsors to, in some cases, negotiate harder and push more on our negotiations on the floor. But we know that's a very important part of our business, so we're pushing hard to retain as much of that floor as possible.

That's very helpful. So it sounds like your.

The current interest rates matter more than the forward look so.

The floors are not going down just because the rate outlook has gone down over the last couple of months.

Speaker Change: You know, the fact that the rate outlook is, the forward curve is down, the rate outlook is down is causing sponsors to, in some cases, negotiate harder and push more on our negotiation on the floor. But we know that's a very important part of our business, so we're pushing hard back to retain as much of that floor as possible. And, you know, if we can't get a floor that we think gives us an appropriate risk-adjusted return and a dynamic rate environment, we're just not going to do it.

Speaker Change: You know, the fact that the rate outlook is, the forward curve is down, the rate outlook is down is causing sponsors to, in some cases, negotiate harder and push more on our negotiations on the floor. But we know that's a very important part of our business, so we're pushing hard back to retain as much of that floor as possible. And, you know, if we can't get a floor that we think gives us an appropriate risk-adjusted return and a dynamic rate environment, we're just not going to do it. As 2023 progressed, and customers began to look forward to when the Fed was going to reverse course, more pressure came in to negotiate that floor rate to something below the start rate of the loan.

The fact that the rate outlook is.

The forward curve is down the right outlook is down is causing sponsors to in some cases negotiate harder and push more on our negotiation on the floor, but.

We know that's a very important part of our business. So we're pushing hard back to retain as much of that floor as possible.

If we can't get a floor that we think gives us an appropriate risk adjusted return and a dynamic rate environment. We're just not.

Speaker Change: And, you know, if we can't get a floor that we think gives us an appropriate risk-adjusted return and a dynamic rate environment, we're just not going to do it. As 2023 progressed, and customers began to look forward to when the Fed was going to reverse course, more pressure came in to negotiate that floor rate to something below the start rate of the loan.

Speaker Change: So we're negotiating very hard on those floors and it's a very important part of our business model and our origination team understands that and is very dialed in on it.

Speaker Change: So we're negotiating very hard on those floors, and it's a very important part of our business model, and our origination team understands that and is very dialed in on it, really pushing that point with them, so they're doing a really good job managing those negotiations to an acceptable or better outcome.

Going there so we're negotiating very hard on those floors I mean, it's a very important part of our business model and our.

George G. Gleason: Great Finance Market on the apartments out there. The first part of your question is, can we give you some guidance on growth quarter to quarter? I think the best presumption we could probably give you at this point is that it's probably going to be fairly linear over the course of the year. It will vary from quarter to quarter, but we can't predict. We would have expected a higher level of originations in the quarter just ended, but several pretty significant opportunities got delayed or otherwise terminated, I guess because of the fact that sponsors were having trouble putting equity together on them, which Adam Brannon alluded to the equity guys had a very challenging year, and getting new equity for new projects is... is more challenging than it was a couple of years For one reason or another, deals don't get closed, or they get delayed, and it takes another few months to get everything together. Deals are moving fairly slowly. So we have a projection for every quarter this year, and if we were confident that those quarter-to-quarter closing numbers were going to be close, how could I share those?

Our origination team understands that and is very dialed in on it.

Speaker Change: really pressed that point with them, so they're doing a really good job.

Really pressed that point with them. So they are doing a really good job of.

Speaker Change: Managing those negotiations to an acceptable or better outcome.

Managing those negotiations to an acceptable or better outcome for us.

Speaker Change: And those floors have moved; I would tell you today, we're still getting floors in some loans at the start rate of the loan, and some loans, the floor is, in the RESG portfolio, 100 or even slightly more points below the base rate below the start rate.

Yeah.

Speaker Change: That's very helpful. And then on capital, I know you have a high 10.8% CET1 ratio. You're also looking forward at what loans you put on the balance sheet and what the loan growth eventually is. But as we think through 2024, how should we think about buybacks? Is the flex only about what the balance sheet growth is? Or given some of the uncertainties you mentioned in the environment, do you want to keep an extra capital buffer until the environment changes?

Speaker Change: That's very helpful. And then on capital, I know you have a high 10.8% CET1 ratio. You're also looking forward at what loans you put on the balance sheet and what the loan growth eventually is. But as we think through 2024, how should we think about buybacks? Is the flex only about what the balance sheet growth is? Or, given some of the uncertainties you mentioned in the environment, do you want to keep an extra capital buffer until the environment changes?

Got it Thats very helpful.

And then on capital I know you have a high tempo on 8% CET one ratio.

Speaker Change: So they are meaningful floors, and they vary from loan to loan, and that depends on other features, just all the myriad of details in how you negotiate one and structure one of these loans. So they are important for us. But I can't give you the breakdown. We'll probably start next quarter and quarter after giving you a table in our management comments that shows where the floors are on various loans. We're obviously getting old loans paid off at $1 billion a quarter, more or less. And those old loans have floors that are usually far below current rates because they were set in an environment before the Fed started raising rates, and the floor may have been 25 -- a [ softer ] floor of 25 basis points, which would have been a 4-something floor at the time or something.

We're also looking forward at what.

Lawrence you put on the balance sheet and what the loan growth eventually is but as we think through 2024.

Should we think about buybacks is there a flex only about what the balance sheet growth is or given some of the uncertainties. You mentioned in the environment do you want to keep that extra capital buffer until the environment changes.

Speaker Change: Tim, you want to take that? Yeah, aiming on.

Speaker Change: Tim, you want to take that? Yeah, I'm aiming on.

Sam you want to take that yes, he meant on.

Timothy D. Hicks: Yeah, I mean, as you said, we've got really strong capital levels now. I think you've seen our risk-based capital levels really stabilize at current levels the last three quarters. I think we've been within 10 basis points of where we are this quarter, even with the substantial growth we've had during those quarters. I feel like we'll have good growth this year, good earnings retention as well, so I feel like we'll have risk-based capital ratios for this year staying relatively, give or take, where we are now or slightly above, and so moving from there on share repurchases, you know, we're going to focus on, you know, kind of where we are from our current capital levels, see where the growth is for this year and in later years, but know that that's always an option, a lever that we can pull if need be.

Yes, I mean as you said, we've got really strong capital levels now I think you've seen our risk based capital levels really stabilize at current levels. The last three quarters I think we've been with them.

Speaker Change: 10 basis points of where we are this quarter, even with the substantial growth. We've had are in those quarters.

Timothy D. Hicks: I feel like we'll have good growth this year, good earnings retention as well, so I feel like we'll have risk-based capital ratios for this year staying relatively, give or take, where we are now or slightly above.

Timothy D. Hicks: I feel like we'll have good growth this year, and good earnings retention as well, so I feel like we'll have risk-based capital ratios for this year staying relatively, give or take, where we are now or slightly above, and so moving from there on share repurchases, we're going to focus on, you know, kind of where we are from our current capital levels, see where the growth is for this year and in later years, but know If our growth moderates in a certain year, we can certainly pull that lever and get a reauthorization, the repurchase if necessary, and so moving from there on share repurchases, we're going to focus on, you know, kind of where we are from our current capital levels, see where the growth is for this year and in later years, but know that that's always an option, a lever that we can pull if If our growth moderates in a certain year, we can certainly pull that lever and get a reauthorization and a repurchase, if necessary.

I feel like we'll have good growth. This this year.

Speaker Change: Good earnings retention as well.

So I feel like we will have risk based capital ratios for this year staying.

George G. Gleason: But those things are moving around from one or two quarters, plus or minus. But some things are getting done sooner than expected. We had a couple of those in the last quarter, and a number of things from the last quarter got delayed.

Relatively give or take where we are now or slightly above.

Timothy D. Hicks: and so moving from there on share repurchases, you know, we're going to focus on, you know, kind of where we are from our current capital levels, see where the growth is for this year and in later years, but know that that's always an option, a lever that we can pull if need be. If our growth moderates in a certain year, we can certainly pull that lever and get a reauthorization, the repurchase if necessary.

And so moving from there on share repurchases.

George G. Gleason: For a while or perhaps indefinitely, so it's hard to predict quarter to quarter. I think your best assumption would be to assume a fairly even distribution.

We're going to focus on kind of where.

Where we are from our current capital levels and see where the growth is for this year and in years.

Speaker Change: I can't give you the breakdown. We'll probably start next quarter and quarter after giving you a table in our management comments. I think Stephen asked for that in our management comments that show where the floors are on various loans. We're obviously getting old loans paid off at $1 billion a quarter, more or less. And those old loans have floors that are usually far below current rates because they were set in an environment before the Fed started raising rates, and the floor may have been 25 -- a [ softer ] floor of 25 basis points, which would have been a 4-something floor at the time or something.

Timothy D. Hicks: So those floors are getting reset for about $1 billion a quarter. We're also having loans that don't have, as a bride, extension [ rights ] that we're doing extensions on. On a business as usual sort of basis, we're attempting to reset the floors higher and those loans with a fair degree of success, but obviously, that's a negotiating point with every customer. And we're rolling off those loans with lower floors and putting on new loans with higher floors.

But no no that that's always an option a lever that we can pull.

Matt Olney: Okay. All right. I appreciate the commentary.

Timothy D. Hicks: If our growth moderates in a certain year, we can certainly pull that lever and get a reauthorization, the repurchase if necessary, and so moving from there on share repurchases, we're going to focus on, you know, kind of where we are from our current capital levels, see where the growth is for this year and in later years, but know that that's always an option, a lever that we can pull if If our growth moderates in a certain year, we can certainly pull that lever and get a reauthorization and a repurchase, if necessary.

If need be.

If our growth moderates in a certain year, we can certainly pull.

George G. Gleason: And then this is a follow-up. I think in the management commentary, you mentioned the residue loan concentration, 65% of non-purchase loans. It sounds like that will likely increase in 2024 before contracting in 2025 and 2026. I had thought that the previous commentary assumed that Reddit Eats could peak in 23 and would work lower in 24.

Pull that lever.

Reauthorization of the repurchase of our share prices depressed.

Timothy D. Hicks: Our share price is depressed. We can also look at it for that purpose as well. But right now, our focus is growing the bank and finding ways to do that.

Timothy D. Hicks: Our share price is depressed, so we can also look at it for that purpose as well. But right now, our focus is growing the bank and finding ways to do that.

Can also look at it for that for that purpose as well.

But you're.

Right now our focus is growing the bank and finding ways to do that.

Speaker Change: Great, appreciate all the color. Thank you.

Speaker Change: Great; I appreciate all the color. Thank you.

Great I appreciate all the color. Thank you.

Speaker Change: Thank you.

Thank you.

Speaker Change: So this story gets better every time, which is why we have said a higher for longer scenario is better for our net interest margin because, every month, we've reset the floors on the portfolio, on average, higher. And so if the Fed doesn't cut rates until July, post March, that's really good for us because we've got another 4 months of floors reset. If they waited until September, that's even better because we get another 6 months of floors reset.

Speaker Change: And bye for our next question.

Antibody for our next question.

George G. Gleason: I could be a mistake on that, but any color on kind of why that's now and collections now being pushed out to 25? Thanks. Yeah, well, I don't know that we specifically gave that comment in 23, but I could certainly understand why you would infer that.

Speaker Change: Our next question comes from the line of Brandon King of Truist. Please go ahead, Brandon.

Our next question comes from the line of Brandon King ups Truest. Please go ahead Brendan.

Brandon: Hey, good morning.

Brandon: Hey, good morning. Good morning, Rand.

Hey, good morning.

Brandon: Good morning, Rand.

Good morning, Brian.

Brandon King: So, a follow-up on the Chicago Land Credit. Being that such a strong sponsor is having some issues with their recapitalization, does that give you more concern broadly when you think about your customer base and sponsors being able to support their projects when they run a team?

George G. Gleason: And the reason that the red 2%, which got down to about 62, I think, percent, is back up to 65, it's simply because of the slower rate of refinancings and payoffs. And, you know, that's a coil spring that's going to spring probably in 2025. So you're correct that we would expect when that spring uncoils that that will, you know, lead to an elevated level of RESG payoffs at some point. And our best guess is that will be a meaningful number in 2025. So we're cognizant of that. The second thing I would tell you is, you know, we enjoyed mid to high 20% loan growth last year. And as was alluded to in Brandon's comments, we have constrained the growth potential of our equipment, finance, capital solutions, and ABL groups and fund finance groups, frankly, by limiting them to relationships that also included substantial deposits. So those guys would have grown a lot more, could have grown a lot more in 2023 had we not constrained their growth. So we knew we were going to have a higher level of RESG-driven growth in 2023 because sales were slowing as the year unfolded. You could see that.

So just a follow up on the Chicago land credit being such a strong sponsor is having some issues with their recapitalization.

Does that give you more coupon broadly when you think about your customer base in spots as being able to support.

Their projects when they run into issues.

Speaker Change: Brandon, that's a good question, and I think the answer that I would give you is if I, you know, with answering a yes or no is no, that doesn't give me a lot of pause.

Speaker Change: Brandon, that's a good question, and I think the answer that I would give you is if I, you know, with answering a yes or no is, "no," that doesn't give me a lot of pause. Those floors will hold on those loans for the duration of the loans, and they're 3-year loans, and typically, they'll hold for any extension duration. So the fact that we've got -- and we typically have minimum interest protection on these loans, so somebody is not going to refinance a construction loan typically mid-construction because we've got an 8th floor in it, and suddenly they can get 6% money. The minimum interest and other features and the complexity and cost of moving that loan will tend to keep them there. So those floors will hold, and they're going to be an important part of, hopefully, us expanding NIM in 2025.

Brandon that's a good question.

I think the answer that I would give you is if I am.

Yes for now is no it doesn't give me a lot of policy.

Speaker Change: You know, sponsors come in two different flavors, or really more, but you can kind of divide sponsors into a couple of groups. One is sponsors that invest their own money but also are dependent upon equity capital, press equity, you know, partners in their transactions, either as prep or co-joining them as common equity, and then sponsors who have a huge balance sheet themselves, and their equity comes internally from their own balance sheet. The sponsor in this case, while they have a tremendous track record, they've done a lot of transactions and a lot of big transactions, deployed mostly equity of third parties.

Sponsors come in.

Two different flavors.

We're really more but you can kind of divide sponsors into a couple of groups. One is sponsors that invest their own money, but also are dependent upon equity capital <unk> equity.

Speaker Change: um, uh,

<unk>.

Partners in their transactions, either as prep, our coe joining them as common equity and then sponsors who.

Have a huge balance sheet themselves and their equity comes internally from their own balance sheet.

Speaker Change: The sponsor in this case, while they have a tremendous track record, they've done a lot of transactions and a lot of big transactions.

The sponsor in this case, while they have a tremendous track record they have done a lot of transactions in a lot of big transactions.

Speaker Change: deployed mostly equity of third parties.

Speaker Change: That's very helpful. So it sounds like your -- the current interest rates matter more than the forward look. So I guess the floors are not going down just because the rate outlook has gone down over the last couple of months?

Deploys, mostly equity of third parties, so when they're recapping a day out of their app.

Speaker Change: Partners in their transactions, either as prep or co-joining them as common equity, and then sponsors who have a huge balance sheet themselves, and their equity comes internally from their own balance sheet. The sponsor in this case, while they have a tremendous track record, they've done a lot of transactions and a lot of big transactions, deployed mostly equity of third parties.

Speaker Change: So when they're recapping the bill, they're out.

Speaker Change: So when they're recapping the bill, they're out, explaining their vision and their plan for the bill to a variety of potential equity partners to entice, and those equity partners at the end of the deal and as Brandon mentioned it's just it's a explaining their vision and their plan for the bill to a variety of potential equity partners to entice, and those equity partners at the end of the deal and as Brandon mentioned it's just it's a

Speaker Change: explaining their vision and their plan for the bill to a variety of potential equity partners to entice.

Explaining their vision and their plan for the deal too.

Speaker Change: Those floors will hold on those loans for the duration of the loans, and they're 3-year loans, and typically, they'll hold for any extension duration. So the fact that we've got -- and we typically have minimum interest protection on these loans, so somebody is not going to refinance a construction loan typically mid-construction because we've got an 8th floor in it, and suddenly they can get 6% money. The minimum interest and other features and the complexity and cost of moving that loan will tend to keep them there. So those floors will hold, and they're going to be an important part of, hopefully, us expanding NIM in 2025.

A variety of potential equity partners to in past.

Speaker Change: and those equity partners at the end of the deal and as Brandon mentioned it's just it's a

Equity partners into the deal and as Brandon mentioned is.

Speaker Change: The fact that the rate outlook is -- the forward curve is down, the rate outlook is down, is causing sponsors to, in some cases, negotiate harder and push more on our negotiations on the floor. But we know that's a very important part of our business, so we're pushing hard back to retain as much of that floor as possible. And if we can't get a floor that we think gives us an appropriate risk-adjusted return in a dynamic rate environment, we're just not going to go there.

Hi.

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Speaker Change: Thank you for your time, and I'll see you next time.

Challenging environment for equity in these transactions because.

It's a high rate environment, a high cost environment, the risk that the economy is going to slow so it's.

It's a chat.

Challenging thing to raise equity and these guys are good at it they've done it.

Speaker Change: They're accustomed to doing it. They've got a good story for the project that makes sense. They've just got to match all that up.

Speaker Change: They're accustomed to doing it. They've got a good story for the project that makes sense. They've just got to match all that up, with an equity investor who with an equity investor who

They are accustomed to doing it and they've got a good story for the project that makes sense.

George G. Gleason: So we limited the ability of the other business units to grow. And that's why we're pretty confident that as we do begin to see that RESC payoff wave materializing, we would hope those other business units would still have the opportunities to grow that they have. I think they will. Time will prove that out.

They just got to match all that up.

Speaker Change: with an equity investor who

With an equity investor who.

Speaker Change: Lacks that story and they're working on it.

Speaker Change: It lacks that story, and they're working on it. It doesn't give me any Paul's about our portfolio. It doesn't give me any Paul's about our portfolio. So we're negotiating very hard on those floors, and it's a very important part of our business model, and our origination team understands that and is very dialed in on it. We've really pressed that point with them, so they're doing a really good job of managing those negotiations to an acceptable better outcome for us. So we're negotiating very hard on those floors, and it's a very important part of our business model, and our origination team understands that and is very dialed in on it. We've really pushed that point with them, so they're doing a really good job of managing those negotiations to an acceptable better outcome for us.

Lacks that story and they are working on that so it doesn't give me.

Speaker Change: It doesn't give me any...

Any any.

Speaker Change: Paul's about our portfolio.

Pause about our portfolio I think.

Alright.

Speaker Change: unique thing to this asset.

The unique thing to their SaaS asset they are working on this there are other projects out there that we say every quarter that are making a lot of sands that are new projects there.

Speaker Change: They're working on this. There are other projects out there that we see every quarter that are making a lot of sense.

Speaker Change: They're working on this. There are other projects out there that we see every quarter that are making a lot of sense, that are, you know, new projects that the very skilled, very experienced, knowledgeable sponsors are having trouble putting their equity together. Listen, it's got it. That's very helpful. And then on capital, I know you have a high 10.8% CET1 ratio. You're also looking forward at what loans you put on the balance sheet and what the loan growth eventually is. But as we think through 2024, how should we think about buybacks? Is it only about balance sheet growth?

George G. Gleason: But that's why we think we're going to have a very smooth handoff of growth in 2025 from RESG that's going to have a lot of paydowns, and the balances will probably more or less stagnate for a year to AVLG, structured finance, fund finance, capital solutions, and equipment finance groups that will exercise the ability that they've already demonstrated they have to achieve the goals that they have. That's why we're going to have higher growth. Yep, okay, that makes sense. Thanks, guys. Thanks. Thank you.

Speaker Change: that are, you know, new projects.

Speaker Change: that the

Very.

Speaker Change: Very skilled, very experienced, knowledgeable sponsors are having trouble putting their equity together. Listen, it's a...

Very scaled very experienced knowledgeable sponsors are having trouble putting their equity together own lesson.

It's a.

Speaker Change: It is a tough environment, correct?

Speaker Change: It is a tough environment, correct? The cost of delivering a project has gone up due to inflation. Interest rates to carry that project during construction have gone up. You've had all the COVID delays and impacts; you've had shifts in the demand side because of concerns about the economy. It is a tough environment for our sponsors and us. The cost of delivering a project has gone up due to inflation. Interest rates to carry that project during construction have gone up. You've had all the COVID delays and impacts; you've had shifts in the demand side because of concerns about the economy. It is a tough environment for our sponsors, and we

It is a tough environment for equity.

Speaker Change: The cost of delivering a project has gone up due to inflation. Interest rates to carry that project during construction have gone up. You've had all the COVID delays and the impacts you've had shifts in the demand side because of concerns about

Cost of delivering a project have gone up due to inflation.

First rights to carry that project during construction have.

Ghana <unk> had all of the Covid delays and the impacts you've had shifts and.

Demand side because of concerns about.

Speaker Change: The economy. It is a tough environment for our sponsors.

Economy.

It is it is a tough environment for our sponsors.

Host: Please stand by for our next question. Our next question comes from the line of Ben Gerlinger of Citi. Hey, good morning, guys. Good morning.

Speaker Change: we

Speaker Change: Or given some of the uncertainties you mentioned in the environment, do you want to keep an extra capital buffer until the environment changes? that are, you know, new projects that the very skilled, very experienced, knowledgeable sponsors are having trouble putting their equity together. Listen, it's got it. That's very helpful. And then on capital, I know you have a high 10.8% CET1 ratio. You're also looking forward at what loans you put on the balance sheet and what the loan growth eventually is. But as we think through 2024, how should we think about buybacks? Is it only about balance sheet growth? Or, given some of the uncertainties you mentioned in the environment, do you want to keep an extra capital buffer until the environment changes?

Speaker Change: See that thing and hear that thing from our sponsors.

Speaker Change: See that thing and hear that thing from our sponsors on a regular basis; the on a regular basis,

Say that pain in here that pain from our sponsors.

Speaker Change: on a regular basis.

On a regular basis.

Speaker Change: the

<unk>.

Yes.

Speaker Change: The reason that our portfolio metrics are so good and that our challenges on asset quality have been relatively benign and limited to a handful of transactions

Speaker Change: The reason that our portfolio metrics are so good and that our challenges with asset quality have been relatively benign and limited to a handful of transactions Tim, do you want to take that? Yes. I mean, as you said, we've got really strong capital levels now. I think you've seen our risk-based capital levels really stabilize at current levels. The last 3 quarters, I think we've been within 10 basis points of where we are this quarter, even with the substantial growth we had during those quarters. We feel like we'll have good growth this year and good earnings retention as well.

Raisin that our portfolio metrics are so good in that are.

Ben Gerlinger: I think last week or two weeks ago I went to my local OECD branch here in Georgia and spent some time annoying the bankers and tellers. So anyway, it seems like you guys are... Emphasizing a key rate that's a bit shorter than previous, the people that I spoke with at that one specific branch were kind of focusing on the eight months, but it kind of coincides with your expectations for a July cut. I was just kind of curious in terms of deposit gathering efforts in general; how do you guys feel about gathering deposits even? kind of difficult brain environment; I get that.

Our challenge is on asset quality have been relatively benign and limited to a handful of transactions is because of the fact that we've got great sponsors we focus on great projects that are new construction.

Speaker Change: is the cause of the fact that we've got great sponsors. We focus on great projects that are new construction.

Speaker Change: is the cause of the fact that we've got great sponsors. We focus on great projects that are new construction. You know, so they're state-of-the-art projects that have a quality advantage versus older products in the market that are not as well designed or well located or well built, and the fact that we structure these transactions very carefully, more than ever, and the fact that we structure these transactions very carefully, more than ever. And the fact that we're in these transactions at around 52-53% of cost. 42 to 43% of appraised value, that you know, so they're state-of-the-art projects that have a quality advantage versus older products in the market that are not as well designed or well located or well built, and the fact that we structure these transactions very carefully, more than ever, and the fact that we structure these transactions very carefully, more than ever, and the fact that we're in these transactions at around 52-53% of cost. 42 to 43% of appraised value, meaning that

Speaker Change: You know, so they're state-of-the-art projects that have a quality advantage versus older product in the market that's not as well designed or well located or well built.

So there are state of the art projects that have a quality advantage versus older.

Other product in the market, that's not as well designed well located well built.

Speaker Change: and the fact that we structure these transactions very carefully.

And the fact that we structure these transactions very carefully and.

Speaker Change: more than ever

More than ever.

Speaker Change: The fact that we're in these transactions at around 52-53% of cost.

Fact that were in these transactions at around 50, 253% of cost and 42% to 43% of appraised value.

Speaker Change: 42 to 43% of appraised value.

Speaker Change: that

Speaker Change: So I feel like we'll have risk-based capital ratios for this year staying relatively, give or take, where we are now or slightly above. Tim, do you want to take that? Yes. I mean, as you said, we've got really strong capital levels now. I think you've seen our risk-based capital levels really stabilize at current levels. For the last 3 quarters, I think we've been within 10 basis points of where we are this quarter, even with the substantial growth we had during those quarters. We feel like we'll have good growth this year, and good earnings retention as well. So I feel like we'll have risk-based capital ratios for this year staying relatively, give or take, where we are now or slightly above.

Net.

That.

Speaker Change: And so moving from there on share repurchases, we're going to focus on kind of where we are from our current capital levels, see where the growth is for this year and in [ a few ] years, but know that that's always an option, a lever that we can pull if need be. If our growth moderates in a certain year, we can certainly pull that lever and get a reauthorization to repurchase. If our share price is depressed, we can also look at it for that purpose as well. But right now, our focus is growing the bank and finding ways to do that.

Ben Gerlinger: You probably want to be a bit more nimble, but if you have growth, you kind of need to pay up. I'm curious how you feel about the loan-to-deposit or any other deposit-gathering effort that you could probably leverage over the next seven-ish months before we get to the first rate cut. Yes, you're correct in your observations that starting in the last week or two of November and gradually shifting, we've kind of twisted our focus on maturities to get a little shorter maturity distribution in that deposit book, hoping that we can get that book lined up more tightly with the feds' rate-cutting scenarios. So you're correct in that eight, seven months is the focus there on wholesale deposits. We're moving those in even shorter. We are continuing to pay them up, as you noted, because we're growing so much. You know, we grew up and so forth, and so forth, and so forth.

Speaker Change: Extreme low leverage of our portfolio.

Speaker Change: Extremely low leverage of our portfolio. Make sure that people who are inferior to us in the capital stack have a tremendous amount of money at risk in front of us to protect our assets and to give them the incentive to protect their assets. So, the way we built this portfolio is really probably about the best construction you could get for this kind of environment, where it's very, very challenging on the

Extreme low leverage of our portfolio.

Speaker Change: Make sure that people who are inferior to us in the capital stack have a tremendous amount of money at risk in front of us.

Make sure that people, who are inferior to us in the capital stack have a tremendous amount of money at risk in front of us.

Speaker Change: to protect our possession and to give them the incentive to protect their possession.

To protect our position and to give them the incentive to protect their precession. So.

Speaker Change: So, the way we built this portfolio is really...

The way we built this portfolio is really.

Speaker Change: probably about the best construction you could get for this kind of environment where it's very very challenging on the

Probably about the best constructed you get for this kind of environment, where it's very very challenging on the equity gas.

Speaker Change: Got it. That's a very helpful color. And then my next question would be in regards to competitive dynamics in regards to lending. How has that trended lately? Are you still finding yourself maybe as the only lender competing for certain projects or are you seeing maybe more appetite from other lenders?

Speaker Change: Got it. That's a very helpful color. And then my next question would be in regards to competitive dynamics in regards to lending. How has that trended lately? Are you still finding yourself maybe as the only lender competing for certain projects, or are you seeing maybe more appetite from other lenders?

Got it.

Very helpful color.

And then.

Next question would be in regards to competitive dynamics in regards to lending.

How has that trended lately are you still find yourself, maybe as the only lender competing for certain projects or are you seeing maybe more appetite from other lenders in the market.

Speaker Change: Our next question comes from the line of Brandon King of Truist.

Speaker Change: Well, there's competition out there, but the competition in the space is significantly lower than it was.

Well there is competition out there but.

Speaker Change: So just a follow-up on the Chicago land credit. Being that such a strong sponsor is having some issues there with capitalization, does that give you more concern broadly when you think about your customer base and sponsors being able to support their projects when they run into issues?

Competition in the space is significantly.

Lower.

Then it was two.

Speaker Change: Two years ago, or three years ago, for sure, the number of people out there to provide financing to commercial real estate is, you know, all the visitors, the people who are in it when it's easy and fashionable and run from it when it's...

Speaker Change: Two years ago, or three years ago, for sure, the number of people out there to provide financing for commercial real estate was, you know, all the visitors, the people who are in it when it's easy and fashionable and run from it when it's...

Two years ago or three years ago for sure.

Number of people out there to provide financing of commercial real estate is all the visitors, but people who are in it when it's easy and fashionable and run from it when it's.

George G. Gleason: We're fully ready to do that again this year if we need to do it. We feel really, really confident in our ability to do it. And now, you know, our biggest focus is achieving the growth we need to achieve while shifting the mix of the deposit book to align more closely with the expectation that rates are going to head down at some point in the year and also minimize our cost of deposits. So we're making adjustments weekly, sometimes daily in that regard. And I think our deposit team is doing a great job. But I appreciate the fact that you're... Paying attention to what's going on at the local level in the branches because our 228 or 2930 branches, however many it is, are where all this good stuff on the deposit side is happening. Yeah, I guess I'm going to have to actually open a check-in calendar, otherwise you're going to get suspicious of my constant visiting.

Speaker Change: Thank you for your time today.

Speaker Change: Brandon, that's a good question. And I think the answer that I would give you, if I were answering it yes or no, is no. That doesn't give me a lot of pause. Sponsors come in 2 different flavors, or really more. But you can kind of divide sponsors into a couple of groups. One type is sponsors that invest their own money but also are dependent upon equity capital, preferred equity, partners in their transactions, either as preferred or co-joining them as common equity. And then there are sponsors who have a huge balance sheet themselves, and their equity comes internally from their own balance sheet.

Speaker Change: Brandon, that's a good question. And I think the answer that I would give you, if I were answering it yes or no, is no. That doesn't give me a lot of pause. Sponsors come in 2 different flavors, or really more. But you can kind of divide sponsors into a couple of groups. One type is sponsors that invest their own money but are also dependent upon equity capital, preferred equity, partners in their transactions, either as preferred partners or co-joining them as common equity.

Speaker Change: Thank you for your time today, pretty much understand commercial real estate and are committed to it as an asset class, pretty much understand commercial real estate and are committed to it as an asset class.

More challenging and requires more sophistication and expertise all of those guys are gone.

So the people that are out there lending today.

Speaker Change: pretty much understand commercial real estate and are committed to it as an asset class.

Pretty much understand commercial real estate and are committed to it as an asset class.

Speaker Change: I would say I think we're the leader among that group of folks and that's why we're generating good volumes even in an environment where the pie

Speaker Change: I would say I think we're the leader among that group of folks and that's why we're generating good volumes even in an environment where the pie is massively smaller than it was, as Brandon alluded to in his earlier remarks. We're going to do things that make sense. We're not going to let a competitive offer from someone else drive us to do something that doesn't make sense, you know that's always our mantra. That's why we've been successful in my 45 years, and Brandon alluded to in his earlier remarks. We're going to do things that make sense.

I would tell you I think we're the later among that group of folks and that's why we're generating good volumes, even in an environment, where the pie is.

Speaker Change: Massively smaller than it was.

Massively smaller than it was us.

Speaker Change: and Brandon alluded to in his earlier remarks.

Brandon alluded to in his earlier remarks so.

Speaker Change: We're going to do things that make sense. We're not going to let...

We're going to do things that make sense, we're not going to let a.

Speaker Change: A competitive offer from someone else drives us to do something that doesn't make sense.

Competitive developer from someone else drive us to do something that doesn't make sense.

Speaker Change: And then there are sponsors who have a huge balance sheet themselves, and their equity comes internally from their own balance sheets.

Speaker Change: you know that's always our mantra that's why we've been successful and in my 45 years

That's always our mantra.

While we've been successful in my 45 years as CEO, we've never lost money in a single year, because we just don't do things that don't make sense to us when we do them.

Speaker Change: CEO, we've never lost money in a single year because we just don't do things that don't make sense to us when we do.

Speaker Change: We're not going to let a competitive offer from someone else drive us to do something that doesn't make sense, you know that's always our mantra. That's why we've been successful, and in my 45 years as CEO, we've never lost money in a single year because we just don't do things that don't make sense to us when we do. Massively smaller than it was, as Brandon alluded to in his earlier We're going to do things that make sense. We're not going to let a competitive offer from someone else drive us to do something that doesn't make sense. You know that's always our mantra. That's why we've been successful in my 45 years, and Brandon alluded to in his earlier remarks. We're going to do things that make sense. We're not going to let a competitive offer from someone else drive us to do something that doesn't make sense. You know that's always our mantra. That's why we've been successful and in my 45 years.

Speaker Change: CEO, we've never lost money in a single year because we just don't do things that don't make sense to us when we do them.

Speaker Change: The sponsor, in this case, while they have a tremendous track record, done a lot of transactions, and a lot of big transactions, deploys mostly equity from third parties. So when they're recapping a deal, they're out explaining their vision and their plan for the deal to a variety of potential equity partners to entice those equity partners into the deal.

Speaker Change: are all pretty disciplined, so there is competition.

Speaker Change: They are all pretty disciplined, so there is competition.

We're pretty disciplined so there is competition out there that I wouldn't say it's changed much in the last 90 or 190 days.

Speaker Change: I wouldn't say it's changed much in the last 90 or 180 days.

Speaker Change: Great, thanks for taking my question.

Great. Thanks for taking my questions.

Speaker Change: Thank you.

Thank you.

Yes.

Speaker Change: Thank you.

Thank you.

Our next question.

Speaker Change: Our next question.

Speaker Change: Our next question comes from the line of Brian Martin. Okay, then it comes from the line of Brian Martin. Up until then,

Speaker Change: comes from the line of Brian Martin. Up then.

It comes from the line, Brian Martin of Janney.

Speaker Change: And as Brannon mentioned, it's a challenging environment for equity in these transactions because it's a high rate environment, a high-cost environment, and the risk that the economy is going to slow. So it's a challenging thing to raise equity. And these guys are good at it. They've done it before. They're accustomed to doing it. They've got a good story for the project that makes sense. They just have to match all that up with an equity investor who likes that story, and they're working on that.

Hey, good morning.

Brian Martin: Hey, good morning.

Brian Martin: Good morning, Brian. Say, just one question, George, just on hiring. I know you talked about some opportunities as you kind of look into 24 here. Just wondering if you can give any commentary on just where you see the opportunities potentially as far as hiring goes and if that kind of involves new business segments as you kind of talk about this handoff to with RISG. Are there things you're looking to do here or seeing opportunities to add new business lines or just add to existing business lines? Just kind of curious about that hiring process.

Brian Martin: Good morning, Brian. Say, just one question, George, just on hiring. I know you talked about some opportunities as you kind of look into 24 here. Just wondering if you can give any commentary on just where you see the opportunities potentially as far as hiring goes and if that kind of involves new business segments as you kind of talk about this handoff with RISG. Are there things you're looking to do here or seeing opportunities to add new business lines or just add to existing business lines? Just kind of curious about that hiring process; we're all in that position.

Good morning, Brian.

Say just.

One question George.

On hiring.

I know you talked about some opportunities as you kind of look into 'twenty four we're here and I'm. Just wondering if you can give any commentary on just.

Where you see the opportunities potentially.

Ben Gerlinger: I was just curious if we could... Just kind of sort of curious here, on figure 14, you prepared a mark, you had the appraisals obtained, and it seems like there's obviously some oscillation with every appraisal, the valuation may be a little bit different, but there's three that kind of stuck out a little bit. Two offices and a multifamily. The work office change seemed to be a little less than a 50% haircut in the overall valuation. I think everyone knows them all at this point. Thank you for your time, and I'll see you next time. There are a couple of them.

Speaker Change: As far as hiring goes and if that kind of involves new business segments.

You kind of talk about this handoff to.

Are there things you are looking to do here are seeing opportunities to add new business lines or just add to existing business line, just kind of curious probably that hiring.

Brian Martin: were all in that position.

Position looks today.

Speaker Change: Yeah, the answer to that is yes, yes, and yes, I think, you know, we are, as I alluded to, I think it was a couple of quarters on this call, I think talent.

Speaker Change: Yeah, the answer to that is yes, yes, and yes. I think, you know, we are, as I alluded to, I think it was a couple of quarters on this call, I think we have talent. So it doesn't give me any pause about our portfolio. I think it's a unique thing about this asset that they're working on this. There are other projects out there that we see every quarter that are making a lot of sense that are new projects that the very skilled, very experienced, knowledgeable sponsors are having trouble putting their equity together on. So it doesn't give me any pause about our portfolio. I think it's a unique thing to this asset that they're working on this.

Yeah, the answer to that is yes, yes, and yes I think.

We are as I alluded to I think it was a couple of quarters Galambos, Karl I think talent.

Speaker Change: is a short in supply.

As I.

Short in supply.

Speaker Change: Commodity

Speaker Change: commodity in our economy and certainly in our industry, and we are trying and have been trying for years, really trying for our economy and certainly in our industry. We are trying and have been trying for years, really trying.

Commodity.

Speaker Change: in our economy and certainly in our industry.

And our economy and certainly in our industry.

Speaker Change: and we are trying and have been trying for years and really

And we are trying and it's been trying for years and really.

Speaker Change: The Accelerator on this the last year or so, really trying to upgrade the quality of our talent. So when we have a position become vacant,

Speaker Change: The Accelerator on this in the last year or so has really been trying to upgrade the quality of our talent. So when we have a position become vacant,

Brandon: Brandon, do you want to comment on that? Absolutely, absolutely, man, great question. And, yeah, I think the short answer is we're generally seeing what we would expect. In terms of idiosyncratic moves, I think there are certain markets that are probably hit harder with respect to the cap rate moves, but you hit the nail on the head. There is just a real dearth of transactions out there upon which these valuations can draw for cap rate data, and the fact of the matter is appraisers are human, and you've got to make an estimate, and sometimes that estimate can, in hindsight, be a bit severe, but we're extremely pleased with what we feel like over the course of these quarters that we've given you guys this data.

Hit the accelerator on this the last year or so really trying to upgrade the core.

Quality of our talent, so when we have a position become vacant.

Speaker Change: Listen, it is a tough environment for equity. The cost of delivering a project has gone up due to inflation; interest rates to carry that project during construction have gone up. You've had all the COVID delays and impacts. You've had shifts on the demand side because of concerns about the economy. It is a tough environment for our sponsors, and we see that and hear that pain from our sponsors on a regular basis.

Speaker Change: We're trying to fill that position with a person that was better than the person that left. We're trying to continuously upgrade talent. And obviously, as we've alluded to in prior management comment documents, we're adding talent. I mean, obviously we grew.

Speaker Change: We're trying to fill that position with a person who was better than the person that left. We're trying to continuously upgrade talent. And obviously, as we've alluded to in prior management comment documents, we're adding talent. I mean, obviously, we grew. You know, high 20% last year on loans, deposits, and everything else. You can't achieve that kind of growth without adding.

We're trying to fill that position, where the person that was better than the person that left we're trying to continuously upgrade talent and obviously.

As we've alluded to prior management comment documents.

We're adding talent I mean, obviously regroup.

Speaker Change: You know, 20, high 20% last year on loans, deposits, and everything else. You can't achieve that kind of growth without adding.

Speaker Change: There are other projects out there that we see every quarter that make a lot of sense that are new projects that the very skilled, very experienced, knowledgeable sponsors are having trouble putting their equity together on.

Speaker Change: You know, high 20% last year on loans, deposits, and everything else. You can't achieve that kind of growth without adding. We expect to continue to grow. We expect to continue to have talented people. And most importantly, we expect to continually upgrade talent, as we're adding talent or replacing talent that is left.

20 high 20% last year on loans deposits and everything else that you can achieve that kind of growth without adding people. We expect to continue to grow we expect to continue to add talent and most importantly, we expect to continually upgrade talent.

Speaker Change: We expect to continue to grow. We expect to continue to have talented people. And most importantly, we expect to continually upgrade talent, as we're adding talent or replacing talent that is left.

Speaker Change: We expect to continue to grow. We expect to continue to have talent. And most importantly, we expect to continually upgrade talent.

Speaker Change: as we're adding talent or replacing talent that is left.

Where we're adding talent are replacing talent that is left so that we'll keep an upward pressure on our salary expense line because of the.

Speaker Change: The reason that our portfolio metrics are so good and that our challenges with asset quality have been relatively benign and limited to a handful of transactions is because of the fact that we've got great sponsors and we focus on great projects that are new construction. So they're state-of-the-art projects that have a quality advantage versus older products in the market that are not as well designed or well located or well built. And the fact that we structure these transactions very carefully, and more than ever, the fact that we're in these transactions at around 52%, 53% of cost and 42% to 43% of appraised value, that extreme low leverage of our portfolio makes sure that people who are inferior to us and the capital stack have a tremendous amount of money at risk in front of them to protect our position and to give them the incentive to protect their position.

Speaker Change: So that will keep an upward pressure on our salary expense line because of the

Speaker Change: So that will keep an upward pressure on our salary expense line because of the new applicable AITPA guidance. You know, some of our non-interest expense in 24 and going forward has moved to the tax line on those tax credit sort of investments. So, you know, our non-interest expense year over year will show a rise on those tax credit sort of investments. So, you know, our non-interest expense year over year will show a 0-3% sort of growth rate, probably 1-2-3%, low single digits I think is what we've got, but the salary and benefits line of that is going to show some continued good growth because we're adding talent to support our growth, and we're constantly trying to improve the quality of our talent.

Speaker Change: New applicable AITPA guidance, you know, some of our non-interest expense in 24 and going forward has moved to the tax line.

Speaker Change: New applicable AITPA guidance, you know, some of our non-interest expense in 24 and going forward has moved to the tax line on those tax credit sort of investments. So, you know, our non-interest expense year over year will show a tax credit sort of investment. So, you know, our non-interest expense year over year will show a 0-3% sort of growth rate, probably 1-2-3%, low single digits I think is what we've got, but the salary and benefits line of that is going to show some continued good growth because we're adding talent to support our growth, and we're constantly trying to improve the quality of our talent.

New applicable CPA.

Got it.

Some of our noninterest expense in 'twenty, four and going forward is moved to the tax line.

Speaker Change: on those tax credit sort of investments. So, you know, our non-interest expense year over year will show a

On those tax credit sort of investments so.

Our noninterest expense year over year will show.

Brandon: The majority of these loans are falling in that sort of up-down 10% range, which, given our really low basis, is not a good thing. We've had a lot of those are down, and where the ups are, generally speaking, aligns with what we would think, but we're pleased that those have been of a limited nature, and if you look back historically.., at what our portfolio LTV is, and we've been re-appraising projects through a pretty long cycle of uncertain economic conditions and lack of activity, lack of transactions, you're seeing a solid, it's incremental, but a solid positive trend in our portfolio LTV, and a lot of that's driven by the fact that our guys do such a great job of originating loans, low LTV, low LTC, putting these sponsors in a position with a lot of skin in the game and a reason to put more in to protect us, but there's another reason that our LTVs don't move more than they do.

Speaker Change: 0-3% sort of growth rate, probably 1-2-3%, low single digits I think is what we've got.

Zero to 3% sort of growth rate, probably 1% to 3% low single digits. I think is what we've got it.

Speaker Change: but the salary and benefits line of that is going to show some

But.

The salary and benefits line of that is going to show some.

Speaker Change: continue good growth because we're adding talent to support our growth and we're constantly trying to improve the quality of our talent. I think the excellent team that we have

Continued good growth because we're adding talent to support our growth and we're constantly trying to improve the quality of our talent.

Speaker Change: I think the excellent team that we have is one of our best, if not our best, competitive advantage. I mean, we've got a great business model that's unique in the industry. It generates higher returns and lower credit losses than, but the salary and benefits line of that is going to show some continued good growth because we're adding talent to support our growth, and we're constantly trying to improve the quality of our talent. I think the excellent team that we have is one of our best, if not our best, competitive advantage. I mean, we've got a great business model that's unique in the industry. It generates higher returns and lower credit losses than

The excellent team that we have.

Speaker Change: is one of our best, if not our best, competitive advantage. I mean, we've got a great business model that's unique in the industry. It generates higher returns and lower credit losses than

As one of our best if not our best competitive advantage I mean, we've got a great business model is unique in the industry and generates higher returns and lower credit losses than.

Speaker Change: The industry averages by far

Speaker Change: The industry averages by far, year in, year out. So we're very confident in our business model, but the key to the business model working is our talent, year in, year out. So we're very confident in our business model, but the key to the business model working is our talent.

The industry averages by far.

Speaker Change: year in, year out. So we're very confident in our business model, but the key to the business model working is our talent.

Year end year out so we're very confident in our business model, but the key to the business model working as our talent.

Speaker Change: So the way we built this portfolio is really probably about the best constructed you could get for this kind of environment where it's very, very challenging for the equity guys.

Speaker Change: and our people are our companions at the command.

Speaker Change: and our people are our companions at command.

And our people are our competitive advantage.

Speaker Change: Gotcha. Okay, I know that's helpful. And then it sounds like the reserve build is, you know, you've talked about in the last 12 months or even further going back, you know, the heavy lifting of that is done. Is that kind of how to think about it, given your, you know, commentary on credit? I know you mentioned in the comments about charge us being maybe up a little bit in 24 versus 23. Just try and understand, you know, the aggressive reserve build. If a lot of that's in the rearview mirror based on kind of how you're looking about the world today.

Speaker Change: Gotcha. Okay, I know that's helpful. And then it sounds like the reserve build is, you know, you've talked about in the last 12 months or even further back, you know, the heavy lifting of that is done. Is that kind of how you think about it, given your, you know, commentary on credit? I know you mentioned in the comments about charging us being maybe up a little bit in 24 versus 23. Just try and understand, you know, the aggressive reserve build. If a lot of that's in the rearview mirror based on kind of how you're looking at the world today.

Gotcha, Okay, no thats helpful.

And then just it sounds like the reserve build is.

Speaker Change: Got it. That's a very helpful color. And then my next question would be in regards to competitive dynamics in regards to lending. How has that trended lately? Are you still finding yourself maybe as the only lender competing for certain projects? Or are you seeing maybe more appetite from other lenders in the market?

You've talked about over the last 12 months or even further going back.

The heavy lifting of that's done is that kind of how to think about it given your.

Commentary on credit I know you mentioned in the <unk>.

Brandon: So, you know, and we'll continue to re-appraise projects through the year, and we'll continue to do that. And, you know, we'll see changes, but generally speaking, I think it'd be accurate to say we're not really surprised by most of the results, given the especially lack of data in office in particular to support, you know, any other cap rates and what appraisers are using. Then I would point out also that all of those loans that you mentioned on the re-appraised list are pass-rated credits. That pass rating takes into account the higher loan value on the ones where the LTV went up, but they're still pass-rated credits, so we don't consider those a problem. And I would agree. Brandon made an excellent point.

Management comments about charge offs, being maybe up a little bit and 24 versus 23%.

Speaker Change: Just try and understand, you know, the aggressive reserve build. If a lot of that's in the rearview mirror based on kind of how you're looking at the world today.

Trying to understand.

The aggressive reserve buildup, if a lot of that is in the rearview mirror based on kind of how you are looking about the world today.

Speaker Change: Well, as I said earlier, you know, that is going to depend on the economy if the Fed and world events and Washington events somehow crash the economy.

Speaker Change: Well, as I said earlier, you know, that is going to depend on the economy if the Fed and world events and Washington events somehow crash the economy. Well, there's competition out there, but the competition in the space is significantly lower than it was 2 years ago or 3 years ago, for sure. The number of people out there to provide financing and commercial real estate is -- all the visitors, the people who are in it when it's easy and fashionable and run from it when it's more challenging and requires more sophistication and expertise, all those guys are gone. So the people that are out there lending today pretty much understand commercial real estate and are committed to it as an asset class.

Well as I said earlier.

That is going to depend on the economy.

The fed and world events and.

Washington did events some are priced their economy.

Speaker Change: and we could have more reserve bill. The whole industry could have a lot more reserve bill if the economy crises.

Speaker Change: and we could have more reserve bill. The whole industry could have a lot more reserve bill if the economy crises, in an ugly way. But increasingly, I think we're beginning to migrate to the camp that

And we could have more reserve build the whole industry can have a lot more reserve build if the economy crisis.

Speaker Change: in an ugly way. But increasingly I think we're beginning to migrate to the camp that

In an ugly way.

But are are increasingly I think we're beginning to migrate to the camp that.

Speaker Change: Thank you.

Speaker Change: The prospects of some sort of soft or relatively benign landing.

Speaker Change: The prospects of some sort of soft or relatively benign landing, are getting more likely, time will tell, we'll know as the year goes on, but if that is the case, given the are getting more likely, time will tell, we'll know as the year goes on, but if that is the case, given the Fairly conservative selection of economic scenarios we've used to build our reserve and we can shift to a more benign set of assumptions in our reserve bill than that, conservative selection of economic scenarios we've used to build our reserve and we can shift to a more benign set of assumptions in our reserve bill than that. Fairly conservative selection of economic scenarios we've used to build our reserve and we can shift to a more benign set of assumptions in our reserve bill than that, conservative selection of economic scenarios we've used to build our reserve and we can shift to a more benign set of assumptions in our reserve bill than that.

The prospects of some sort of soft or a relatively benign landing.

Speaker Change: are getting more likely, time will tell, we'll know as the year goes on, but if that is the case, given the

Are getting more likely time will tell we'll know as the year goes on.

But if that is the case given the.

George G. Gleason: If you look back over the last eight quarters from a portfolio perspective, our loan-to-cost on the entire portfolio and our loan-to-value on the portfolio, and the loan-to-value is kind of a 42%, 43% loan-to-value range that has not moved more than a point or two in the aggregate over that whole period of time. And that's because while we're having some loans, like these three you mentioned, where the appraised loan-to-value has gone up in a meaningful way, we're also having a number where we've got accretive pay-downs, and we're also having a lot of new originations where we're originating, you know, high 30s or very low 40s loan-to-value. So the aggregate condition of the portfolio is continuing to perform very well on that LTV matter. Catherine said:

Speaker Change: Fairly

Fairly.

Conservative selection of economic scenarios, we've used to build our reserve and we can shift to add more.

Speaker Change: conservative selection of economic scenarios we've used to build our reserve and we can shift to a more benign set of assumptions in our reserve bill than that.

Speaker Change: And I would tell you, I think we're the leader among that group of folks, and that's why we're generating good volumes even in an environment where the pie is massively smaller than it was, as Brannon alluded to in his earlier remarks.

Benign set of assumptions in our reserve build in that.

Speaker Change: would give us the room for provision expense to come down over the course of next year. Those events have got to play out, and again, I would caution, and Tim would want me to caution you that if

Speaker Change: would give us the room for provision expenses to come down over the course of next year. Those events have got to play out, and again, I would caution, and Tim would want me to caution you that if We're not going to let a competitive offer from someone else drive us to do something that doesn't make sense. That's always been our mantra. That's why we've been successful. And in my 45 years as CEO, we've never lost money in a single year because we just don't do things that don't make sense to us when we do them.

Would give us the room for provision expense to come down over the course of next year those events have got to play out.

Speaker Change: Well, there's competition out there, but the competition in the space is significantly lower than it was 2 years ago or 3 years ago, for sure. The number of people out there to provide financing and commercial real estate is -- all the visitors, the people who are in it when it's easy and fashionable and run from it when it's more challenging and requires more sophistication and expertise, all those guys are gone. So the people that are out there lending today pretty much understand commercial real estate and are committed to it as an asset class.

Again, I would caution in Tam with Huawei to caution you that.

If.

Speaker Change: Prospects for the economy get worse instead of better. You know, there'll be more reserve bills needed. And obviously we're going to grow.

Speaker Change: The prospects for the economy get worse instead of better. You know, there'll be more reserve bills needed. And obviously, we're going to grow. We've talked about that quite a bit, so we're going to have to increase our dollar volume of ACF to accommodate our growth.

Prospects for the economy get worse instead of better.

There'll be more reserve bills made it and obviously, we're going to grow.

Speaker Change: We've talked about that quite a bit, so we're going to have to increase our dollar volume of ACF for our growth.

We've talked about that quite a bit so we're going to have to increase our dollar volume of Ics for our growth.

Speaker Change: Gotcha, that's what I understood. Okay, and then just the last one for me was, you know, on the margin, you know, it sounds as though you've got a little bit more weakness here with the funding costs still catching up the next couple quarters and you've got loans, you know, maybe under a bit of pressure early on as rates start to cut and then

Got you understood. Okay, and then just the last one for me it was.

On the margin it sounds as though you've got a little bit more weakness here with the funding costs still catching up the next couple of quarters and you have got loans may be under a bit of pressure early on as rates start to cut and then.

Speaker Change: So there is competition out there, though. I wouldn't say it's changed much in the last 90 or 180 days.

Ben Gerlinger: I hope you call us. I appreciate it. All right. The taste is that.

Speaker Change: The floor is kicking in and the depository pricing, I guess, I mean, does the general outlook, you know, seem as though that the margin, you know, you know, kind of bottoms or stabilizes mid-year or maybe a little bit lower in the second half and then it's up in 25 is how to kind of think about, you know, big picture without getting specifics on the actual level?

Speaker Change: The floor is kicking in, and the depository pricing, I guess, I mean, does the general outlook seem as though the margin, you know, you know, kind of bottoms or stabilizes mid-year or maybe a little bit lower in the second half, and then it's up in 25 is how to kind of think about the big picture without getting specifics on the actual level?

The floor is kicking in in the deposits repricing I guess.

Speaker Change: We're pretty disciplined, so we're going to do things that make sense. We're not going to let a competitive offer from someone else drive us to do something that doesn't make sense. That's always been our mantra. That's why we've been successful. And in my 45 years as CEO, we've never lost money in a single year because we just don't do things that don't make sense to us when we do them. We're pretty disciplined.

As a general outlook seem as though that the margin.

Host: Please stand by. Our next question comes from the line of Catherine Mealor of KBW. Please go ahead, Catherine.

Speaker Change: Our next question comes from the line of Brian Martin of Janney. Just one question, George, on -- just on hiring. I know you talked about some opportunities as you kind of look into '24 here. And just wondering if you can give any commentary on just where you see the opportunities potentially as far as hiring goes, and if that kind of involves new business segments as you kind of talk about this handoff to, with RESG, are there things you're looking to do here or seeing opportunities to add new business lines or just add to existing business lines?

Kind of bottoms or stabilizes midyear, maybe first of all the lower in the second half and then its up in 'twenty five is how to kind of think about big picture without getting specifics on <unk> level.

Catherine Mealor: Thanks, good morning. Good morning, Jeff. Just to follow up on your credit conversation, you mentioned in your prepared remarks or your management comments that you still have a goal to grow EPS in 2024, which is pretty big coming off of a year where you grew, you know, 37% had a record year. And so if I think about 24, I think, and we all know the NIM and growth headwinds that we're going to potentially see if we have weight cuts. But I think a big question is, where is the provision?

Speaker Change: Our scenario, Brian, is that we're

Our our scenario Brian is.

Sure.

Speaker Change: Working toward and planning for is that we need to get our floors and our loans set.

Speaker Change: Working toward and planning for is that we need to get our floors and our loans set, and that we could have enough magnitude of break cuts in 25 that would really make those floors active and important, and as those floors kick in and we get to lock those rates at a good level in a falling rain environment, our cost of deposits could could.., dropped faster in 25 than our run rate, because of the poor in those loans, and that we could have enough magnitude of break cuts in 25 that would really make those floors active and important, and as those floors kick in and we get to lock those rates at a good level in a falling rain environment, our cost of deposits could could.., dropped faster in 25 than our run rate, because of the poor in those loans.

Working toward and planning for as we need to get our floors.

Our loans set.

Speaker Change: and that we could have enough magnitude of break cuts in 25 that would really make those floors active and important.

And that.

We could have enough magnitude of rate cuts in 'twenty five.

We make those floors active and important.

Speaker Change: and as those floors kick in and we get to lock those rates at a good level in a falling rain environment, our cost of deposits could

And as those floors kick in and we get to lock those rates at a good level in a falling rate environment, our cost to deposits could.

Speaker Change: could...

Could.

Speaker Change: dropped faster in 25 than our run rate.

Drop faster in 25, then our loan rates.

Speaker Change: Just kind of curious where that hiring position looks today. Just one question, George, on just hiring. I know you talked about some opportunities as you kind of look into '24 here. And just wondering if you can give any commentary on just where you see the opportunities potentially as far as hiring goes, and if that kind of involves new business segments as you kind of talk about this handoff to, with RESG, are there things you're looking to do here or seeing opportunities to add new business lines or just add to existing business lines? Just kind of curious where that hiring position looks today.

Speaker Change: because of the poor in those loans.

Because of the floors and those loans.

Speaker Change: Yes. The answer to that is yes, yes, and yes, I think. We are, as I alluded to, I think it was a couple of quarters ago on this call, I think talent is a short-supply commodity in our economy and, certainly, in our industry. And we are trying, and have been trying for years, and really hit the accelerator on this the last year or so, really trying to upgrade the quality of our talent. So when we have a position become vacant, we're trying to fill that position with a person that is better than the person that left. We're trying to continuously upgrade talent.

Speaker Change: That would then give us

Speaker Change: That would then give us a favorable gym experience like we had in 2010, uh, three when or in 22 in 2022 when our loan yields adjusted really quickly and our deposit costs adjusted more slowly. We could have the reverse of that scenario in 25 if we can get these floor rates set.

That would then give us.

Speaker Change: a favorable gym experience like we had in 2010.

Favorable <unk>.

Catherine Mealor: And so I'm curious how you think the provision should trend kind of versus dispatcher's level to reach an EPS growth goal in the future. Well, great question, and yes, you're spot-on correct there with the guidance that we've given on tax rates. Non-interest expense and the net interest margin, the net interest income number being a horse race on net interest income every quarter.

Im experience like we had in 'twenty.

Speaker Change: uh three when or in 22 in 2022 when uh our loan yields adjusted really quickly

Three.

R 22 and 2022.

<unk>.

Our loan yields adjusted really quickly.

Speaker Change: and our deposit costs adjusted more slowly, we could have the reverse of that scenario in 25 if we can get these floor rates set.

And our deposit cost suggested more slowly we could have the reverse of that scenario and 25. If we can get these floor rates at effectively and enough for the portfolio and then say the fed cut rates dramatically and that's what we've been.

Speaker Change: Thank you for watching.

Speaker Change: Thank you for watching, dramatically, and that's what we've been trying to position ourselves for us to get another nice spread in our Neiman core spread, and kind of the dramatic. And that's what we've been trying to position ourselves for us to get another nice spread in our Neiman core spread, and kind of the

Speaker Change: dramatically, and that's what we've been

Speaker Change: trying to position ourselves for us to get another nice spread in our Neiman core spread.

George G. Gleason: You know, we think it's a reasonable scenario that for the year, we will put up improved EPS versus last year. I don't know that we will have an improving EPS trend every quarter next year like we did this year. It may be some quarters are up EPS and on record, and some quarters are a little off the record pace.

Trying to position ourselves far as to get another nice spread in our NIM and core spread.

Speaker Change: and kind of the

In Canada.

Speaker Change: Second inning or third inning of the Fed cutting rates when they start cutting rates by getting those floors and then being able to get our deposit costs down even more. A lot of variables in that scenario, but we've been working on that scenario for seven quarters now. From the time the Fed started increasing the rates, we started planning for that flip side.

Inning third inning of the fed.

Cutting rights when they start cutting right now.

Getting those floors, and then being able to get our deposit costs down even more.

Speaker Change: And obviously, as we've alluded to in prior management comment documents, we're adding talent. I mean, obviously, we grew by a high 20% last year on loans, deposits, and everything else. You can't achieve that kind of growth without adding people. We expect to continue to grow. We expect to continue to add talent. And, most importantly, we expect to continually upgrade talent as we're adding talent or replacing talent that has left.

A lot of variables in that scenario, but we've been working on that scenario for seven quarters now from the time the pad started increasing rates, we started planning for that flip side of that.

George G. Gleason: But we expect a good EPS story and for the year, expect to beat our 2023 net income and EPS numbers. So our assumption on provision expense in our budget and our guidance on that is predicated upon the Fed achieving a relatively stable landing in the economy. I don't know if that's a soft landing or just not a real hard landing, uh... we have assumed in our ACL calculations that consistently for a number of quarters now, five, six, seven quarters, we've been heavily weighted to the downside scenarios. ACL lost over $100 million last year.

Speaker Change: I'll go in the other direction.

That scenario going the other direction.

Speaker Change: Perfect. Okay. I appreciate you taking the question, George. Thanks.

Speaker Change: Perfect. Okay. I appreciate you taking the time to answer the question, George. Thanks.

Perfect. Okay. I appreciate you taking the questions George Thanks.

Speaker Change: Thank you.

Speaker Change: Thank you. Thank you.

Thank you.

Speaker Change: Thank you.

Thank you.

Speaker Change: Our next question.

Speaker Change: Our next question comes from the line of Michael Rose of Raymond James. So that will keep an upward pressure on our salary expense line because of the new applicable AICPA guidance. Some of our noninterest expense in '24 and going forward has moved to the tax line on those tax credit sort of investments. So our noninterest expense year-over-year will show a 0% to 3% sort of growth rate, probably 1%, 2%, 3%, low single digits, I think, is what we've guided. But the salary and benefits line of that is going to show some continued good growth because we're adding talent to support our growth, and we're constantly trying to improve the quality of our talent.

Our next question.

Speaker Change: comes from the line of Michael Rose of Raymond James.

It comes from the line of Michael Rose of Raymond James.

Michael Rose: Hey, good morning. Thanks for taking my questions. Just two follow-up ones. Just on the expense outlook, what are the puts and takes of that? It was a little bit lower than I think I was anticipating and obviously good to see. Just wanted to see what investments are made and where you guys are having some offsets to growing costs. Thanks.

Michael Rose: Hey, good morning. Thanks for taking my questions. Just two follow-up ones. Just on the expense outlook, what are the puts and takes on that? It was a little bit lower than I think I was anticipating and obviously good to see. I just wanted to see what investments are made and where you guys are having some offsets to growing costs. Thanks.

Good morning, Mark.

Hey, good morning, Thanks for taking my questions just two <unk>.

Follow up on just on the expense outlook, what are the puts and takes of that it was a little bit lower than.

I was anticipating obviously good to see just just wanted to see what investments are made and where you guys are having some offsets too.

George G. Gleason: Part of that was due to our significant growth. Part of it was due to the fact that we were leaning heavily on Moody's downside model, the S4 and the S6 models. We continue to lean that way, so we think our ACL is appropriate and pretty well positioned for a range of scenarios unless we have a landing of the economy that's consistent with the S4, and S6 scenarios. The economy lands in a more benign fashion than that, and we're probably going to look back and... I think we could look back and assume that 2023 was kind of a high point in provisioning, so we're not there yet with that conclusion, but I think you could draw a scenario pretty clearly that would suggest we could have some downsides in what we provision each month or each quarter. And the flip side of that, of course, is also true if the, uh, geopolitical, global issues, obesity, Congressional issues, you know But those scenarios seem to be... getting mitigated, and the chance for the Fed to actually engineer a pretty decent landing for the economy. It seems to be growing a little bit, which should lead to lower provision expenses. That's really helpful.

To growing costs. Thanks.

Speaker Change: Yeah, hey, Michael, as we point you to page 33 of management comments, we try to do our best in outlining what the offsets would be there. As George alluded to just a while ago, we do expect salary expense, to continue to increase as we're hiring, additional staff to continue to support our growth. Probably the biggest offset to that is the to continue to increase as we're hiring, additional staff to continue to support our growth. Probably the biggest offset to that is the

Yeah, Hey, Michael would point you to page 33 of management comments.

<unk> tried to do our best in outlining what the offsets would be there as George alluded to just just.

Speaker Change: While ago, we do expect salary expense to continue to increase.

Speaker Change: to continue to increase as we're hiring.

Speaker Change: As we are hiring.

Speaker Change: additional staff to continue to support our growth. Probably the biggest offset to that is the

Additional staff to continue to support our growth.

Probably the biggest offset to that is the <unk>.

Speaker Change: We categorize into that utilization expense on our low-income housing tax credits and our renewable energy tax credits we are adopting.

Speaker Change: We categorize that utilization expense on our low-income housing tax credits and our renewable energy tax credits we are adopting.

<unk> categorization of that amortization expense on our low income housing tax credits in our renewable energy tax credits we are adopting.

Speaker Change: I think the excellent team that we have is one of our best, if not our best, competitive advantage. I mean, we've got a great business model that's unique in the industry, and it generates higher returns and lower credit losses than the industry averages by far, year in, year out. So we're very confident in our business model, but the key to the business model working is our talent. And our people are our competitive advantage.

Speaker Change: So that will keep an upward pressure on our salary expense line because of the new applicable AICPA guidance. Some of our noninterest expense in '24 and going forward has moved to the tax line on those tax credit sort of investments. So our noninterest expense year-over-year will show a 0% to 3% sort of growth rate, probably 1%, 2%, 3%, low single digits, I think, is what we've guided. But the salary and benefits line of that is going to show some continued good growth because we're adding talent to support our growth, and we're constantly trying to improve the quality of our talent.

Speaker Change: I do a county standard effective January 1 of 24 that really transfers what was $28 million last year into the tax expense line.

Speaker Change: I do a county standard effective January 1 of 24 that really transfers what was $28 million last year into the tax expense line. Um, um, So that's kind of an offset and, of course, you know, FDIC special assessment, not expecting one of those in 24, and we eliminated the analyzation of our intangibles because they are all fully amortized in 2023. So those are the offsets to the otherwise increasing growth in other categories, primarily in our salary and benefits, not expecting one of those in 24, and we eliminated the analysis of our intangibles because they are all fully amortized in 2023.

A new accounting standard effective January one of 24 that really transfers what was $28 million.

Last year.

The tax expense line.

Speaker Change: um

So thats kind of an offset in of course.

Speaker Change: So that's kind of an offset and of course, you know, FDIC special assessment.

So you're a special assessment.

Speaker Change: not expecting one of those in 24 and we eliminated the analyzation of our intangibles because they became

I'm not expecting one of those in 'twenty four.

We eliminated the amortization of our intangibles because they became fully amortized in 2023. So those are the offsets to the otherwise increasing grew.

Speaker Change: are all fully amortized in 2023. So those are the offsets to the otherwise increasing growth in other categories, primarily in our salary and benefits.

Speaker Change: Got you. Okay. No, that's helpful. And then just -- it sounds like the reserve build is -- you've talked about over the last 12 months or even further going back, the heavy lifting of that is done. Is that kind of how you think about it given your commentary on credit? I know you mentioned in the management comments about charge-offs being maybe up a little bit in '24 versus '23. Just trying to understand the aggressive reserve build, if a lot of that is in the rearview mirror based on kind of how you look at the world today.

Growth in other categories, primarily in our salary and benefits.

Speaker Change: Yeah, I just meant excluding some of those changes. I appreciate you guys explaining all that. Excluding that, it was still a little bit better than I think I was expecting, even if I normalized for the accounting change, but I appreciate it. So the last question I had was just on the new mortgage initiative. And, you know, maybe I know it started from zero this quarter, but, you know, what do you guys expect, you know, for that initiative as we think about the next couple of years, you know, and hopefully some lower rates that would help disperse some demand on the mortgage fund. So just from Ebony, thoughts there. Thanks.

Speaker Change: Yeah, I just meant excluding some of those changes. I appreciate you guys explaining all that. Excluding that, it was still a little bit better than I think I was expecting, even if I normalized for the accounting change, but I appreciate it. So the last question I had was just about the new mortgage initiative. And, you know, maybe I know it started from zero this quarter, but, you know, what do you guys expect for that initiative as we think about the next couple of years, you know, and hopefully, some lower rates that would help disperse some demand for the mortgage fund. So just from Ebony, thoughts there. Thanks.

Yes, I just meant excluding some of those changes I. Appreciate you guys explaining all of that it was just even excluding that it was still a little bit better than I think I was.

Speaker Change: So those are the offsets to the otherwise increasing growth in other categories, primarily in our salary and benefits. So that's kind of an offset and, of course, you know, FDIC special assessment, not expecting one of those in 24, and we eliminated the analyzation of our intangibles because they became are all fully amortized in 2023. So those are the offsets to the otherwise increasing growth in other categories, primarily in our salary and benefits. We are not expecting one of those in 24, and we eliminated the analyzation of our intangibles because they are all fully amortized in 2023.

Expecting even if I normalize for the accounting change, but I appreciate it.

Catherine Mealor: It feels like a nice offset if you see, if you do see lower margins and more paydowns in the loan book, you know, an offset to that head when it's going to be this provision that we are in that stop-lending scenario. Well, we still didn't expect good loan growth. I would say, for the nine-year graph.

Last question I had was just on the on the new mortgage initiative and maybe I know it started from zero this quarter, but what we what you guys expect for that initiative as we think about the next couple of years.

And hopefully some lower rates that would help to spur some demand on the mortgage front. So just would love any thoughts there. Thanks.

Speaker Change: Now, you know, we're going to continue to take a very intentional approach to that.

Yes.

We're going to take continue to take a.

Very intentional.

Our approach to that.

Speaker Change: Well, as I said earlier, that is going to depend on the economy. If the Fed and world events and Washington events somehow affect the economy, then we can have more reserve build; the whole industry can have a lot more reserve build if the economy crises in an ugly way.

Speaker Change: and we do expect to start originating probably in

Speaker Change: and we do expect to start originating loans probably in taking applications maybe in late February or March. We hope to close a handful of loans in March. We will get it going in one market, probably a month or two later. And we will get it going in a second market. Of course, we serve a lot of different markets with our branch footprint. We will start taking applications maybe in late February or March. I hope to close a handful of loans in March, and we will get it going in one market probably a month or two later. Get it going in a second market. Of course, we serve a lot of different markets with our branch footprint.

Catherine Mealor: And then, just another call on credit, just can you give us, or kind of talk us through how the Chicago land loan could play out from here? It feels like you went from special mention to substandard accrual this quarter, so we're still performing, you know, but I noticed that your cash reserve did decline. I feel that maybe it's just performing because of the interest reserve, but, you know, kind of curious how that's playing out right now and kind of how much time, how many quarters we have until potentially that runs out, and this may flip to non-performing if you're not able to resolve the credit before that time period. It's going to walk us through it.

And we.

We do expect to start originating probably in.

Speaker Change: Taking applications maybe in late February or March. Hope to close a handful of loans in March. We will get it going in one market probably a month or two later. Get it going in a second market. Of course, we serve a lot of different markets with our branch footprint.

Taking applications might be in late February or March helped to close.

Handful of loans in March.

We will get it going in one market probably.

Months or two lighter.

Get it going in a second market of course, we serve a lot of different markets with our branch footprint.

Speaker Change: But our -- increasingly, I think we're beginning to migrate to the camp that the prospects of some sort of soft or relatively benign landing are getting more likely. Time will tell. We'll know as the year goes on. But if that is the case, given the fairly conservative selection of economic scenarios we've used to build our reserve, we can shift to a more benign set of assumptions in our reserve build, and that would give us the room for provision expense to come down over the course of next year. But those events have got to play out.

Speaker Change: So we'll roll it out and it will continue to roll out and expand throughout Q2 of 2024 through year-end 2025.

Speaker Change: So we'll roll it out and it will continue to roll out and expand throughout Q2 of 2024 through year-end 2025. I think we pretty much get most of the footprint we're going to cover covered by 2025. It will be a Martin. Drag on net income and EPS probably in 2024 because we'll be We'll get one unit up and running and originating. It will be a Martin. Drag on net income and EPS probably in 2024 because we'll be We'll get one unit up and running and originating. A month or two or three later, they'll start having some revenue, but we'll have added another unit, so the expenses will pretty much stay ahead of the revenue during the early part of that build-out phase, probably an immaterial impact for the year of our 10th or 12th month, and then uh you know we would hope in 2025 that that begins to turn positive where we actually have positive net income maybe it's a neutral EPS net income impact for the full year of 2025 as we get probably an immaterial impact for the year of our 10th or 12th month, and then uh you know we would hope in 2025 that that begins to turn positive where we actually have positive net income maybe it's a neutral EPS net income impact for the full year of 2025 as we get

So we will roll it out and it will it will continue to rollout and expand throughout <unk>.

Q2 of 2024 through year end 2025.

Speaker Change: I think we pretty much get most of the footprint we're going to cover covered by 2025.

Speaker Change: I think we pretty much get most of the footprint we're going to cover covered by 2025. It will be a Martin. Drag on net income and EPS probably in 2024 because we'll be We'll get one unit up and running and originating. It will be a Martin. Drag on net income and EPS probably in 2024 because we'll be We'll get one unit up and running and originating. A month or two or three later, they'll start having some revenue, but we'll have added another unit, so the expenses will pretty much stay ahead of the revenue during the early part of that build-out phase, probably an immaterial impact for the year of our 10th or 12th month, and then uh you know we would hope in 2025 that that begins to turn positive where we actually have positive net income maybe it's a neutral EPS net income impact for the full year of 2025 as we get probably an immaterial impact for the year of our 10th or 12th month, and then uh you know we would hope in 2025 that that begins to turn positive where we actually have positive net income maybe it's a neutral EPS net income impact for the full year of 2025 as we get

I think we pretty much get most of the footprint and we're going to cover a covered by 2025.

Speaker Change: It will be a...

It will be.

Speaker Change: Martin.

Modest drag on net income and EPS, probably in 2024, because we will be.

Speaker Change: Drag on net income and EPS probably in 2024 because we'll be...

Speaker Change: We'll get one unit up and running and originating.

We'll get one unit up and running and originating in.

Speaker Change: A month or two or three later, they'll start having some revenue, but we'll have added another unit, so the expenses will pretty much stay ahead of the revenue during the early part of that build-out phase, probably an immaterial impact for the year of our 10th or 12th month, and then uh you know we would hope in 2025 that that begins to turn positive where we actually have positive net income maybe it's a neutral EPS net income impact for the full year of 2025 as we get The full build out of this thing done.

Month, or two or three later they'll start having some revenue but will have added another unit. So the expenses will pretty much stay ahead of the revenue during the early part of that build out we're talking.

George G. Gleason: How that credit could kind of be passed forward to that credit over the next couple of weeks. That's a great question, and obviously the fact that we went from a special mention to a substandard classification on that credit in the quarter just ended reflects the fact that, you know, we were, we were, I'm concerned about the sponsors' pace in their recapitalization efforts here. They've been working hard on this. This is an excellent sponsor with whom we have done a number of pieces of business. They've got a very successful track record.

Speaker Change: probably an immaterial impact for the year of our 10th or 12th month.

Probably an immaterial impact for the year of a penny or two at most.

Speaker Change: And again, I would caution, and Tim would want me to caution you, that if prospects for the economy get worse instead of better, there'll be more reserve builds needed. And obviously, we're going to grow. We've talked about that quite a bit. So we're going to have to increase our dollar volume of ACL for our growth.

Speaker Change: and then uh

<unk>.

And then.

We would hope in 2025 that that begins to turn positive where we actually have positive net income and <unk>.

Speaker Change: you know we would hope in 2025 that that begins to turn positive where we actually have positive net income

Speaker Change: maybe it's a neutral EPS net income impact for the full year of 2025 as we get

Speaker Change: Maybe it's a neutral EPS net income impact for the full year of 2025 as we get the.

Speaker Change: The full build out of this thing done. So where it probably becomes important to income, net income in EPS is 2026 after we've got it pretty much fully matured and fully rolled out.

Speaker Change: The full build out of this thing is done. So, where it probably becomes important to income, net income in EPS is 2026 after we've got it pretty much fully matured and fully rolled out.

Speaker Change: So where it probably becomes important to income, net income in EPS is 2026 after we've got it pretty much fully matured and fully rolled out.

The full build out of this thing so.

Where it probably becomes important to income net income and EPS as 2026. After we've got it pretty much fully matured and fully rolled out.

Speaker Change: Got you. That's understood. And then just the last one for me was, on the margin, it sounds as though you've got a little bit more weakness here with the funding costs still catching up in the next couple of quarters, and you've got loans on maybe under a bit of pressure early on as rates start to cut, and then the floor is kicking in, and the deposits are repricing, I guess. I mean, does the general outlook seem as though the margin kind of bottoms or stabilizes midyear or maybe just a little bit lower in the second half and then it's up in '25, is how to kind of think about the big picture without giving specifics on the actual level?

Speaker Change: That's right next to the last paragraph in the management comments, it's not going to be a big deal for a while.

Speaker Change: That's why I got the next to the last paragraph in the management comments. It's not going to be a big deal for a while.

George G. Gleason: So, you know, they're still working very hard on this and are still positively disposed and engaged in it. We've got that going for us, and we've got a good sponsor who's working hard and still out there diligently pursuing it. The fact that they've not gotten that recap done yet caused us to do the downgrade.

Speaker Change: But it is important to our husbands.

But it is important to our customers and Thats. The reason were doing that we continue to have a lot of customer.

Speaker Change: And that's the reason we're doing it. We continue to have a lot of customers.

Speaker Change: And that's the reason we're doing it. We continue to have a lot of customers,

Speaker Change: and

Request in and sell.

Speaker Change: Sending that business a different direction is not

Speaker Change: Sending that business in a different direction is not good for our long-term customer experience. So this is a customer-driven initiative.

And that business a different direction is not.

Speaker Change: Good for our long-term customer experience. So this is a customer driven initiative.

Good for our long term customer experience. So there is a customer driven initiative.

Speaker Change: I mean, does the general outlook seem as though the margin kind of bottoms or stabilizes midyear or maybe just a little bit lower in the second half and then it's up in '25, is how to kind of think about the big picture without giving specifics on the actual level?

Totally got it thanks for taking my questions.

Speaker Change: Totally get it. Thanks for taking my question.

Speaker Change: I totally get it. Thanks for taking my question.

Speaker Change: All right, thank you.

Speaker Change: Alright. Thank.

George G. Gleason: And with that downgrade also, that changed the risk rating on the loan, and the risk rating drives our provision for the loan. So our ACL on this loan is now, as we disclosed in the management comment, $32.8 million. So we've pretty much..., provisioned this thing for an adverse outcome. You're correct.

Thank you.

Speaker Change: Thank you. Our next question.

Speaker Change: Thank you. Now, our next question.

But thank you.

Our next question comes from the line of Brody Preston of UBS.

Speaker Change: comes from the line of Brody Preston of UBS.

Brody Preston: Hey, good morning everyone.

Hey, good morning, everyone.

Brody Preston: I just wanted to ask real quick, George, on CET1, you know, if you're not buying back stock, say you don't buy back stock this year, just given the, you know, the unfunded commitment trends and the fact that growth is still going to be strong, but probably slower than it was.

Brody Preston: I just wanted to ask real quick, George, on CET1, if you're not buying back stock, say you won't buy back stock this year, just given the, you know, the unfunded commitment trends and the fact that growth is still going to be strong, but probably slower than it was.

I just wanted to morning, Brad real quick I, just wanted to ask real quick George on CET, one if youre not buying back stock and you say you don't buy back stock this year just given.

Brody Preston: Our scenario, Brian, is that we're working [more than planning for] that we need to get our floors in our loan set and that we could have enough magnitude of rate cuts in '25 that would really make those floors active and important. And as those floors kick in, and we get to lock those rates at a good level, in a falling rate environment, our cost of deposits could drop faster in '25 than our loan rates because of the floors in those

On the unfunded commitment trends and the fact that growth is still going to be strong, but probably slower than it was this past year do you actually think you could see CET, one reverse course and start to rebuild again, just given the profitability levels.

George G. Gleason: Absolutely. I actually think you could see CEC1 reverse course and start to rebuild again.

George G. Gleason: Absolutely. I actually think you could see CEC1 reverse course and start to rebuild again, given the profitability level.

George G. Gleason: They are using their cash reserve, which is their money, to pay interest on the loan, and they've got enough cash reserve there to go several more months. I don't know the exact timing of that, but when they get to the end of that cash reserve, they'll have to make a decision if they want to and can support it with further interest payments to buy more time. to work out their recapitalization and develop their ultimate plan for this property, or if they've run out of gas.

George G. Gleason: given the profitability level.

George G. Gleason: Sam

Tim.

Speaker Change: Yeah, hey, Brody. Yeah, it'll depend on growth. Certainly feel like we can maintain or slightly improve it from here. And then, you know, really growth in 2025 will be dependent on where it goes after this year.

Speaker Change: Yeah, hey, Brody. Yeah, it'll depend on growth. Certainly, I feel like we can maintain or slightly improve it from here. And then, you know, really, growth in 2025 will be dependent on where it goes after this year.

Yeah, Hey, Brody.

It will depend on growth.

Certainly feel like we can maintain or slightly improve it from here.

And then.

Really growth in 2025.

Speaker Change: We will be dependent on where it goes after this year.

Speaker Change: I wanted to circle back to the floors. If I take the spread commentary from last quarter, George, and work my way backwards a little bit to maybe a slightly less widespread or something like that, depending on the competitive environment, going back several quarters, I'd look at your fourth quarter 21 to fourth quarter 22 originations. Those were the biggest kind of origination quarters for you, that five-quarter time span. But, you know, Fed Funds, you know, LIBOR was...

Speaker Change: I wanted to circle back to the floors. If I took the spread commentary from last quarter, George, and worked my way backwards a little bit to maybe a slightly less widespread or something like that, depending on the competitive environment, going back several quarters, I'd look at your fourth quarter 21 to fourth quarter 22 originations. Those were the biggest kind of origination quarters for you, that five-quarter time span. But, you know, Fed Funds, you know, LIBOR was...

Got it and then I wanted to just circle back to the floors.

Speaker Change: That would then give us a favorable NIM experience like we had in '23 -- or in '22, in 2022, when our loan yields adjusted really quickly and our deposit costs adjusted more slowly. We could have the reverse of that scenario in '25, if we can get these floor rates set effectively and enough of the portfolio and then see the Fed cut rates dramatically.

If I kind of take the spread commentary from last quarter, George and kind of work my way backwards, a little bit maybe a slightly less widespread or something like that depending on the competitive environment.

George G. Gleason: So we'll just have to see, but the downgrade reflected in the increase in the ACL for the loan reflected what we call an appropriate adjustment for the risk in it at this time. We're monitoring it closely, and, of course, will there be anything that we can do, or doing everything we can do to assist the sponsor in their efforts? We're the lender, and they're the equity, so the ball's really in their court. Thanks for the call.

Back several quarters I look at your fourth quarter, 21% to fourth quarter and 22 originations those were the biggest kind of origination quarters for you that five quarter time span.

Fed funds LIBOR was decently low for a bit of that and so I kind of like back end.

Speaker Change: Decently low for a bit of that and so I kind of like back in the, you know, floor rates that are in anywhere from the low 3s to the mid 5s for most of that and, you know, maybe the fourth quarters and the 7%-ish.

Speaker Change: Decently low for a bit of that, and so I kind of like back in the, you know, floor rates that are in anywhere from the low 3s to the mid 5s for most of that and, you know, maybe the fourth quarters and the 7%-ish. Is that an accurate description, and if so, would that mean that, you know, if the forward curve comes to pass here in 24, the floors wouldn't necessarily matter as Is that accurate?

Floor rates that are in anywhere from the low threes to mid fives for most of that in maybe the fourth quarters in the 7% ish.

Speaker Change: And that's what we've been trying to position ourselves for us to get another nice spread in our NIM and core spread in kind of the second inning or third inning of the Fed cutting rates when they start cutting rates, by getting those floors and then being able to get our deposit costs down even more.

Speaker Change: is that an accurate description and if so would that mean that you know if the forward curve comes to pass here in 24

Kind of range is that an accurate description.

And if so would that mean for the fall.

Catherine Mealor: I appreciate it. Thank you. Our next question comes from the line of Manan Gosalia of Morgan Stanley. Hi, good morning.

Darren curve comes to pass here in 'twenty four.

Speaker Change: The floors wouldn't necessarily matter as much for 2024. Is that accurate?

The floor is wouldn't necessarily matter as much for 2024 is that accurate.

Manan Gosalia: I wanted to ask about the loan floors you spoke about earlier. Can you talk about where those floors are on average for the portfolio on the books right now? How long will the benefit of that last given the shorter duration of some of your loans and if the capital markets open up? And if you can comment on any recent trends there, have there been any changes in the floors you've been able to negotiate more recently? Given the outlook for late cuts? Great question, Manon!

Speaker Change: Well, I think the floors will matter for 2024 and 2025, but you are correct that, you know, you've got to look at the vintage of origination of the loans to determine the floor. And obviously, the floors that we got in 4Q of 2022 were much higher floors than we got in 1Q of 2022 before the Fed started increasing interest rates.

Speaker Change: Well, I think the floors will matter for 2024 and 2025, but you are correct that, you know, you've got to look at the vintage of the origination of the loans to determine the floor. And obviously, the floors that we got in 4Q of 2022 were much higher than we got in 1Q of 2022 before the Fed started increasing interest rates. There are a lot of variables in that scenario, but we've been working on that scenario for 7 quarters now. From the time the Fed started increasing rates, we started planning for the flip side of that scenario going the other way.

Well I think the floors will matter for 2024, and 2025 and but you are correct that.

<unk> got to look at the vintage of origination of the loans to determine the floor and obviously the floors that we got in <unk>.

2022 were much higher floors than we got in <unk> 2022, before the fed started increasing interest rates.

Speaker Change: Perfect. Okay. I appreciate you taking the questions, George. Thanks.

Speaker Change: We've never been able to negotiate floor rates that were higher than the contractual start rate of the loan.

We've never been able to negotiate floor rates that were higher than the contractual start rate of the loan.

Speaker Change: Our next question comes from the line of Michael Rose of Raymond James.

Speaker Change: So, and as I said earlier, in the first part of 2022 and most of 2022, we were getting floors at the start rate on the vast majority of loans, but it was at the start rate now.

So.

And as I said earlier in the in the first part of 2022 and most of 2022, we were getting floors at the start right on that.

Speaker Change: Just 2 follow-up ones, just on the expense outlook. What are the puts and takes of that? It was a little bit lower than I think I was anticipating, but it was obviously good to see. I just wanted to see what investments are made and where you guys are having some offsets to growing costs.

George G. Gleason: You know, in kind of the run-up to mid-last year and, I guess even, the third quarter and the fourth quarter of last year, a lot of the loans that we were originating in RESG had floors at the start rate of the loan. So the expectation, you know, when the expectation is that the Fed's going to be continuing to raise rates as it was throughout 2022, it's pretty easy to get loans at the start, floors at the start rate of the loan. As 2023 progressed, and you know customers began to look forward to winning the pad was going to reverse course, more pressure came in to negotiate that floor rate to something below the start rate of the loan, and those floors moved.

The vast majority of loans, but it was at the start right.

Speaker Change: There are a lot of variables in that scenario, but we've been working on that scenario for 7 quarters now. From the time the Fed started increasing rates, we started planning for the flip side of that scenario going the other way.

Speaker Change: and I hire right so you're correct and again honoring the request earlier we'll probably put in

Speaker Change: and I hire right, so you're correct and again honoring the request earlier; we'll probably put it in.

Not not.

Higher rate. So you are correct.

Again honoring the request earlier.

Probably put in.

Speaker Change: Our next quarterly management comment is a chart that shows

Our next quarterly management comments.

A chart that shows.

Speaker Change: Michael, I would point you to Page 33 of management comments. We tried to do our best in outlining what the offsets would be. As George alluded to just a while ago, we do expect salary expenses to continue to increase as we hire additional staff to continue to support our growth.

Speaker Change: You know, what the floor rates look like on the portfolio at that point in time. I don't have that information with me today.

Where the what the floor rates look like on those on the portfolio at that point in time I don't have that information with me today, but.

Speaker Change: We'll work to provide that in the future.

We will work to provide that in the future disclosure.

Speaker Change: Got it. Maybe if I could just extend this into 2025 specifically, though, George, if I'm kind of correct in my thought processes, is there a point if the forward curve does come to pass where as the stuff that you originated in 2023 starts to fund up, you know, the loan yield could actually reverse course and start to inflect just by the nature of the 2023 commitment starting to fund up because those floor rates are more in the, you know, 8 to 9 percent-ish. Kind of.

Speaker Change: I got it. Maybe if I could just extend this into 2025 specifically, though, George, if I'm kind of correct in my thought processes, is there a point where, if the forward curve does come to pass where as the stuff that you originated in 2023 starts to fund, the loan yield could actually reverse course and start to inflect just by the nature of the 2023 commitment starting to fund because those floor rates are more in the, you know, 8 percent range?

Got it.

Maybe if I could just extend this into 2000 22025 specific you know George.

If im correct in my thought process is there a point if the forward curve does come to pass where as the stuff that you originated in 2023 starts to fund up.

Speaker Change: Probably the biggest offset to that is the recategorization of that amortization expense on our low-income housing tax credits and our renewable energy tax credits. We are adopting a new accounting standard effective January 1 of '24 that really transfers what was $28 million last year into the tax expense line. So that's kind of an offset.

The loan yield could actually reverse course and start to inflect just by the nature of the 2023 commitments starting to fund up because those floor rates are more in the 8% to 9% ish kind of range.

Speaker Change: Thank you.

Speaker Change: Okay.

George G. Gleason: I would tell you today we're still getting floors in some loans at the start rate of the loan. In some loans, the floor is in the REST portfolio 100 or even slightly more points below the start rate, so they're meaningful floors and they vary from loan to loan and that depends on, you know, other features, just all the myriad of details and how you negotiate and structure one of these credits.

Hey.

Yeah.

George G. Gleason: You know, again, 2025 is hard to predict, and where the Fed's going to be in 2025 and what they're going to do in 2025 is very hard to predict. So I'm going to let you develop and go with your own pieces on that based on the information we provided, because I'm not comfortable trying to give you that number. And, of course, the FDIC special assessment, not expecting one of those in '24. And we eliminated the amortization of our intangibles because they became fully amortized in 2023. So those are the offsets to the otherwise increasing growth in other categories, primarily in our salaries and benefits.

Again, 2025 is hard to predict and where the fed is going to be in 2025, and what theyre going to do in 2025 is very hard to predict so.

I'm going to I'm going to let you develop and go with your own all that based on the information we provided because I am not comfortable trying to give you that number.

George G. Gleason: Understood.

George G. Gleason: understood.

Understood.

Speaker Change: Do you mind kind of, you know, giving me some insight for the non-res G loans, you know, ABL, you know, the RV, all that kind of stuff. What's the origination yield on those loans currently?

Speaker Change: Do you mind kind of, you know, giving me some insight on the non-res G loans, you know, ABL, you know, the RV, all that kind of stuff? What's the origination yield on those loans currently?

Do you mind kind of alert.

Speaker Change: Yes, but I just meant excluding some of those changes. I appreciate you guys explaining all that. It was even -- excluding that, it was still a little bit better than I think I was expecting, even if I normalize for the accounting change, but I appreciate it.

No.

Giving you some insight for that for the non res G loans ABL.

Yeah.

The RV all that kind of stuff, what's the origination yields on those loans currently.

Speaker Change: Oh, gosh.

Speaker Change: Oh, gosh. You know, in the AVL world, it's The last question I had was just about the new mortgage initiative. And maybe -- I know it's starting from 0 this quarter, but what we -- what you guys expect for that initiative as we think about the next couple of years, and hopefully, some lower rates that would help disperse some demand on the mortgage front. So just would love any thoughts there. You know, in the AVL world, the last question I had was just on the new mortgage initiative. And maybe -- I know it's starting from 0 this quarter, but what we -- what you guys expect for that initiative as we think about the next couple of years, and hopefully, some lower rates that would help disperse some demand on the mortgage front. So I just would love any thoughts or comments there.

Oh gosh.

George G. Gleason: So they are important for us. The I can't give you the breakdown, but the breakdown will probably start next quarter and quarter after giving you a table in our management comments. I think Stephen asked for that in our management comments that shows, you know, where the floors are on various loans. We're obviously getting old loans paid off for billions of dollars, a quarter more or less, and those old loans have floors that are usually far below current rates because they were set in an environment before the Fed started raising rates, and the floor may have been 25, a social floor, 25 basis points, which would have been a four-something floor at the time or something.

Speaker Change: You know, in the AVL world, it's...

George G. Gleason: And, of course, the FDIC special assessment, not expecting one of those in '24. And we eliminated the amortization of our intangibles because they became fully amortized in 2023. So those are the offsets to the otherwise increasing growth in other categories, primarily in our salaries and benefits.

And the real world.

Very dependent and.

Speaker Change: very dependent and

Speaker Change: very dependent, and Most of the ABL loans have a spread matrix that is dependent upon the total leverage or availability utilization of the line, so a spread matrix that is dependent upon the total leverage or availability utilization of the line, so It's hard to comment on those because they're so deal specific, and there may be four tranches of spread. Three or four tranches of spread in those loans typically. Most of the ABL loans have a spread matrix that is dependent upon the total leverage or availability utilization of the line, so it's hard to comment on those because they're so deal-specific, and there may be four tranches of spread. Three or four tranches of spread in those loans typically.

Speaker Change: Very dependent, and Most of the ABL loans have a spread matrix that is dependent upon the total leverage or availability utilization of the line. So a spread matrix that is dependent upon the total leverage or availability utilization of the line. So it's hard to comment on those because they're so deal specific, and there may be four tranches of spread. Three or four tranches of spread in those loans typically.

Speaker Change: Most of the ABL loans have a

The.

Most of the ABL loans have a.

Speaker Change: a spread matrix

Spread matrix.

Speaker Change: that is dependent upon the total leverage or availability utilization of the line.

That is dependent upon.

Total leverage or our availability of utilization of <unk>.

<unk> so.

Speaker Change: so

Speaker Change: It's hard to comment on those because they're so deal specific and there may be four tranches of spread.

It's hard to comment on those because theyre, so deal specific and there might be four tranches of spread.

Speaker Change: Three or four tranches of spread in those loans typically.

Speaker Change: Yes, we're going to take -- continue to take a very intentional approach to that, and we do expect to start originating probably in taking applications maybe in late February or March, and we hope to close a handful of loans in March. We will get it going in one market, probably a month or 2 later get it going in a second market. Of course, we serve a lot of different markets with our branch footprint.

Three or four tranches of spread in those loans typically that is.

Speaker Change: That is, you know, dependent upon their total leverage.

Speaker Change: That is, you know, dependent upon their total leverage, for their position and utilization of available bonds, and many others, for their position and utilization of available bonds, and many others. Oh. Oh.

Dependent upon their their total leverage position.

Speaker Change: for their position and utilization of available bonds.

Utilization of available borrowing.

Speaker Change: and many others.

Numbers.

So those are hard to comment on the.

Speaker Change: Most of the ABL loans have a spread matrix that is dependent upon the total leverage or availability utilization of the line, so it's hard to comment on those because they're so deal-specific, and there may be four tranches of spread. Three or four tranches of spread in those loans are typically.

Speaker Change: Oh.

Speaker Change: Indirect stuff is

Indirect stuff is.

Speaker Change: Again, depending upon credit score of the borrower and so forth, those are all fixed rate loans in the indirect lending world. So, you know, we're probably around

Speaker Change: Again, depending upon the credit score of the borrower and so forth, those are all fixed rate loans in the indirect lending world. So, you know, we're probably around 8 plus or minus, I would guess on that. I actually am not. So we'll roll it out, and it will continue to roll out and expand throughout 2024 through year-end 2025. I think we pretty much get most of the footprint we're going to cover covered by 2025. It will be a modest drag on net income and EPS probably in 2024 because we'll be getting one unit up and running and originating, and a month or 2 or 3 later they'll start having some revenue, and we will have added another unit. So the expenses will pretty much stay ahead of the revenue during the early part of that build-out phase. We're talking probably about an immaterial impact for the year of $0.01 or $0.02 at the most.

Again dependent upon credit score of the borrower and so forth those are all fixed rate loans in the indirect lending moral so.

George G. Gleason: So those floors are getting reset for about a billion dollars a quarter. We're also having loans that don't have as bright an extension rights that we're doing extensions on, on a business-as-usual sort of basis. We're attempting to reset the floors higher on those loans with a fair degree of success, but obviously that's a negotiating point with every customer, and we're rolling off those loans with lower floors and putting on new loans with higher floors. So, you know, this story gets better every time, which is why we have said.

Sure.

Probably around eight plus or minus our guests on that I actually am not.

Speaker Change: 8 plus or minus I would guess on that. I actually am not.

Speaker Change: 8 plus or minus, I would guess on that. But I actually am not. So we'll roll it out, and it will continue to roll out and expand throughout 2024 through year-end 2025. I think we pretty much get most of the footprint we're going to cover covered by 2025. It will be a modest drag on net income and EPS probably in 2024 because we'll be getting one unit up and running and originating, and a month or 2 or 3 later they'll start having some revenue; we will have added another unit. So the expenses will pretty much stay ahead of the revenue during the early part of that build-out phase.

Speaker Change: I'm guessing, oh man, I don't know, try to you now.

Speaker Change: I'm guessing, oh man, I don't know, try it on for yourself now.

Speaker Change: Im guessing on that I don't I don't know JV you know.

Speaker Change: Yeah, yeah.

Speaker Change: Yeah, yeah, and those are all fixed-rate loans, you know every

That feels Directionally correct, yes, yes, yes so.

Speaker Change: and those are all fixed-rate loans.

<unk>.

And those are fixed rate loans so.

Speaker Change: you know every

However.

Speaker Change: Every month we're rolling out.

Speaker Change: Every month we're rolling out millions of dollars of Lower Right Lines on millions of dollars of newly originated at current market rates loans in that portfolio. So that's helping incrementally improve our margin. And the same phenomenon is going on in our securities portfolio, which is pretty much all fixed rate. You know, we expect to roll off about a billion dollars of that portfolio in 2024.

Every month, we are rolling off.

Speaker Change: millions of dollars of

<unk> of dollars of.

Speaker Change: Lower Right Lines

Lower rate loans.

Speaker Change: are rolling on millions of dollars of newly originated at current market rate loans in that portfolio. So that's helping incrementally improve our margin. And the same phenomenon is going on in our securities portfolio, which is pretty much all fixed rate. You know, we expect to roll off about a billion dollars.

Rolling on millions of dollars of newly originated at current market rate loans in that portfolio. So that that's helping incrementally improve our margin and the same phenomenon going on in our securities portfolio, which is pretty much all fixed rate.

We expect to roll off of about a billion dollars of.

Speaker Change: all of that portfolio in 2024.

But that portfolio in 2024.

Speaker Change: Thank you very much.

Speaker Change: And then we would hope in 2025 that that begins to turn positive, where we actually have positive net income, and maybe it's a neutral EPS net income impact for the full year of 2025 as we get the full build-out of this thing done. And then we would hope in 2025 that that begins to turn positive, where we actually have positive net income, and maybe it's a neutral EPS net income impact for the full year of 2025 as we get the full build-out of this thing done.

George G. Gleason: A higher for longer scenario is better for our net interest margin because every month we reset the floors on the portfolio on average height. And so if the Fed doesn't cut rates until July as opposed to March, that's really good for us because we've got another four months of floors reset. If they waited until September, that's even better because we get another six months of floors reset.

Either will not replace it or if we do replace I suspect, it's going to be substantially higher yields and what's rolling off so those fixed rate components of our of our earning assets, whether its securities or indirect or other fixed rate loans.

Speaker Change: We're talking about probably an immaterial impact for the year of $0.01 or $0.02 at the most.

Speaker Change: So we'll roll it out, and it will continue to roll out and expand throughout 2024 through year-end 2025. I think we pretty much get most of the footprint we're going to cover covered by 2025. It will be a modest drag on net income and EPS probably in 2024 because we'll be getting one unit up and running and originating, and a month or 2 or 3 later they'll start having some revenue; we will have added another unit. So the expenses will pretty much stay ahead of the revenue during the early part of that build-out phase. We're talking about probably an immaterial impact for the year of $0.01 or $0.02 at the most.

Speaker Change: that are well enough will help.

That are rolling off will help us.

Speaker Change: Reprise

Speaker Change: Recapture some elements of the loan book and the security staff at a more favorable price.

Right price.

Speaker Change: some elements of the loan book

Speaker Change: Some.

So the loan book and the Securities book at a more favorable pricing.

Speaker Change: and the security staff at a more favorable price.

Speaker Change #100: Got it. I just got one last one on the margin and then a couple more on credit. So I guess if I pick and tie all the commentary that you just gave, George, and then the commentary earlier on deposits, so where it probably becomes important to income, net income, and EPS, in 2026, after we've got it pretty much fully matured and fully rolled out. That's why I got the mix of the last paragraph in the management comments mixed in. It's not going to be a big deal for a while. But it is important to our customers, and that's the reason we're doing it.

Got it I just got one last one on the margin and then a couple more on credit.

George G. Gleason: Those floors will hold on those loans, you know, for the duration of the loans. And they're three-year loans, and typically, they'll hold for any extension duration. So the fact that we've got – and we typically have minimum interest protection on these loans – so somebody's not going to refinance a construction loan, typically mid-construction, because we've got an eighth floor in it, and suddenly they can get 6% money. The minimum interest and other features and the complexity and cost of moving that loan will tend to keep them there.

So I guess, if I take an tied all of the commentary that you just gave George and then the commentary earlier on deposit rates.

Speaker Change #100: I understand that you're baking three cups.

Speaker Change #100: I understand that you're baking three cups, to your and I outlook, but say we did get

I understand that Youre Bacon three cuts in your NII outlook, but.

Speaker Change #100: to your and I outlook, but say we did get

We did get six cuts five or six cuts like the forward curve, how would that change what you think the trajectory of the NII is for 2024.

Speaker Change #101: Thank you for joining us today.

Speaker Change #101: Thank you for joining us today, through Indiana, through Indiana.

Speaker Change #101: through Indiana.

Speaker Change #101: Well, if we bake in five or six cuts in 24, that's certainly a more challenging scenario for us because we don't have our floors and our loans set as broadly in the portfolio as we would like to have set for a year.

Well, if we're at <unk> five or six cuts in 'twenty four.

That certainly having a more challenging scenario for us because.

We don't have our floors in our loans said is broadly in the portfolio is where you would like to have set forth.

Speaker Change #101: The Climbing Right Environment

Declining rate environment.

<unk>.

Speaker Change #101: So that would be a more challenging NIMS scenario for 24.

Speaker Change #100: We continue to have a lot of customer requests, and sending that business in a different direction is not good for our long-term customer experience. So this is a customer-driven initiative. So where it probably becomes important to income, net income, and EPS is in 2026, after we've got it pretty much fully matured and fully rolled out. That's why I got the mix of the last paragraph in the management comments. It's not going to be a big deal for a while, but it is important to our customers. And that's the reason we're doing it. We continue to have a lot of customer requests, and sending that business in a different direction is not good for our long-term customer experience. So this is a customer-driven initiative.

Speaker Change #101: So that would be a more challenging NIMS scenario for 24. I totally get it. I totally get it.

So that would be more challenging NIM scenario for.

24.

George G. Gleason: So those floors will hold, and they're going to be an important part of, hopefully, us expanding them in 2025. That's very helpful. So it sounds like the current interest rates matter more than the forward look. So I guess the floors are not going down just because the rate outlook has gone down over the last couple of months. You know, the fact that the rate outlook is, the forward curve is down, the rate outlook is down is causing sponsors to, in some cases, negotiate harder and push more on our negotiations on the floor. But we know that's a very important part of our business, so we're pushing hard back to retain as much of that floor as possible. And, you know, if we can't get a floor that we think gives us an appropriate risk-adjusted return and a dynamic rate environment, we're just not going to do it. So we're negotiating very hard on those floors, and it's a very important part of our business model, and our origination team understands that and is very dialed in on it, really presses that point with them, so Managing those negotiations to an acceptable or better outcome. That's very helpful.

Speaker Change #101: Our next question comes from the line of Brody Preston of UBS.

Okay.

Speaker Change #102: Okay, and then I had two last ones on credit. The current Oreo loan that you called out in the release is planning on, you know, the plan is to close the sale of that by the 31st.

And then I just had to ask one on credit.

The current Oreo loan that you called out in our release is planning on the plan is to close the sale of that by the 31.

Speaker Change #102: Good morning, everyone. I just want to ask real quick, George, on CET1. If you're not buying back stock, say you won't buy back stock this year just given the unfunded commitment trends and the fact that growth is still going to be strong but probably slower than it was this past year. Do you actually think you could see CET1 reverse course and start to rebuild again just given the profitability levels?

Speaker Change #102: of March, and I think you said you don't expect to take a loss. Are you all planning on financing the sale of that property to the eventual buyer?

Of March and I think you said you don't expect to take a loss.

Are you all planning on financing.

The sale of that property.

The eventual buyer.

Speaker Change #103: Brandon, you want to comment on that?

Speaker Change #103: Brandon, do you want to comment on that?

Brandon you want to comment on that.

Brandon: Sure, sure. Yeah, you read our comments correctly. We do not expect.

Brandon: Sure, sure. Yeah, you read our comments correctly. We do not expect that sale to result in a loss. And, you know, in terms of the transaction that's going forward, I think we told you guys in the past that we... And, you know, in terms of the transaction that's going forward, I think we told you guys in the past that we...

Sure sure.

Yes, you read our comments correctly, we do not expect.

Brandon: for that sale to result in a loss. And, you know, in terms of the transaction that's going forward, I think we told you guys in the past that we...

For that sale to result in a loss.

And.

Brandon: Tim? Brody, yes, it will depend on growth. Certainly, we feel like we can maintain or slightly improve it from here, and then really, growth in 2025 will be dependent on where it goes after this year. Brody, yes, it will depend on growth. Certainly, we feel like we can maintain or slightly improve it from here, and then really, growth in 2025 will be dependent on where it goes after this year.

In terms of the transaction Thats going forward I think we got we told you guys in the past that we.

Or under.

Brandon: are under a confidentiality agreement around the transaction. So we've tried to share with you everything we can without.

The confidentiality agreement around the transaction. So we've tried to share with you everything we can without.

Speaker Change #104: without being in breach of that transaction. So beyond that, George, if there's anything else you feel safe to share.

Speaker Change #104: without being in breach of that transaction. So beyond that, George, if there's anything else you feel safe to share,

Without being in breach of that transaction so.

Speaker Change #104: I got it. And then I wanted to just circle back to the floors. If I kind of take the spread commentary from last quarter, George, and kind of work my way backwards a little bit to maybe a slightly less widespread or something like that, depending on the competitive environment, going back several quarters, I look at your fourth quarter '21 to fourth quarter '22 originations. Those were the biggest kind of origination quarters for you, that 5-quarter time span. Fed funds, LIBOR was decently low for a bit of that. And so I kind of like back into floor rates that are anywhere from the low 3s to the mid-5s for most of that, and maybe the fourth quarter is in the 7%-ish kind of range. Is that an accurate description? And if so, would that mean that if the forward curve comes to the past year in '24, the floors wouldn't necessarily matter as much for 2024? Is that accurate?

<unk>.

Beyond that now George if Theres anything else you feel you can take share but.

George G. Gleason: It is under a confidentiality agreement. Everything's moving forward in terms of the sponsor's due diligence.

George G. Gleason: It is under a confidentiality agreement, and everything's moving forward in terms of the sponsor's due diligence. You know, they're the normal closing conditions and due diligence that would be attached to a transaction like that, but the sponsor continues to move forward with all their due diligence there. So, as we got it a quarter ago, we still expect a sale to happen inside of March 31st this year.

It is under a confidentiality agreement everything is moving well.

<unk> in terms of the sponsors due diligence.

George G. Gleason: You know, they're the normal closing conditions and due diligence that would be attached to a transaction like that, but the sponsor continues to move forward in all their due diligence there. So, as we got it a quarter ago, we still expect a sale to happen inside of March 31st this year.

There.

There are the normal closing conditions.

Due diligence that it would be attached to a transaction like that but the sponsor continues to move forward.

All their due diligence there.

So as we guided a quarter ago, we still expect the sale to happen inside of March 31. This year.

Manan Gosalia: And then on capital, I know you have a high 10.8% CET1 ratio. You're also looking forward at what loans you put on the balance sheet and what the loan growth eventually is. But as we think through 2024, how should we think about buybacks? Is the flex only about balance sheet growth? Or, given some of the uncertainties you mentioned in the environment, do you want to keep an extra capital buffer until the environment changes? Tim, do you want to take that?

Speaker Change #105: got it okay and then my last one was just on that Chicago land loan um with the reserves that they have that they're paying interest out of I think

Speaker Change #105: I got it okay, and then my last one was just on that Chicago land loan, with the reserves that they have that they're paying interest on, I think.

Got it Okay and then my last one just on that Chicago land loan.

Would the reserve and if they have if theyre paying interest out of it.

Speaker Change #106: I think you said, George, maybe it's a handful of months or less that they, you know, would have to pay for the interest of that reserve. You know, at the end of that, if there was a moment where they decided, you know, maybe this doesn't make sense anymore, would that loan kind of go the same way as this other L.A. land loan one where you guys would take it into Oreo and then, you know, try to look for, you know, a similar kind of sale process?

Speaker Change #106: I think you said, George, maybe it's a handful of months or less that they would have to pay for the interest on that reserve. And at the end of that, if there was a moment where they decided, you know, maybe this doesn't make sense anymore, would that loan kind of go the same way as this other L.A. land loan where you guys would take it into Oreo and then, you know, try to look for, You know, again, presuming you're OK, I think the floors will matter for 2024 and 2025.

Thank you said, George maybe it's a handful of months or less that they.

It would have to pay for the interest of that reserve.

At the end of that if there was a.

A moment, where they decided maybe it doesn't make sense anymore that loan kind of go the same way as this out there.

Land loan one or you guys would take it into Oreo and then try to look for a similar kind of sale process.

Speaker Change #106: You know, again, presuming you're...

Timothy D. Hicks: Yeah, aiming on. Yeah, I mean, as you said, we've got really strong capital levels now. I think you've seen our risk-based capital levels really stabilize at current levels over the last three quarters. I think we've been within 10 basis points of where we are this quarter, even with the substantial growth we've had during those quarters. I feel like we'll have good growth this year, and good earnings retention as well. So I feel like we'll have rich states' capital ratios for this year staying relatively, give or take, where we are now, or slightly above, and so moving from there on share repurchases, we're going to focus on, you know, kind of where we are from our current capital levels, see where the growth is for this year and in later years, but If our growth moderates in a certain year, we can certainly pull that lever and get a reauthorization and a repurchase, if necessary, because our share price is depressed.

Speaker Change: Yeah.

Again presuming that your subs.

Speaker Change #107: There's a supposition there that the sponsor gives up on it.

Speaker Change #107: There's a supposition there that the sponsor gives up on it, says they're done. Then, yes, I would assume that would be a fairly similar scenario.

Our position there is that the sponsor gives up on it and <unk> and <unk>.

Speaker Change #107: says they're done, then yes, I would assume that would be a fairly similar scenario.

Theyre done then yes that would I would assume would be a fairly similar scenario.

Speaker Change #108: Thank you very much for taking my questions, everyone. I appreciate it.

Got it okay, great. Thank you very much for taking my questions everyone I appreciate it alright.

Speaker Change #106: But you are correct that you've got to look at the vintage of origination of the loans to determine the floor. And obviously, the floors that we got in 4Q of 2022 were much higher than we got in 1Q of 2022 before the Fed started increasing interest rates. We've never been able to negotiate floor rates that were higher than the contractual start rate of the loan. So, and as I said earlier, in the first part of 2022 and most of 2022, we were getting floors at the start rate on the vast majority of loans.

Speaker Change #109: All right, thank you.

Alright, thank you.

Okay.

Speaker Change #110: Thank you. Our next question comes from the line of Timur Bradler of Wells Fargo.

Thank you.

Our next question comes from the line of Timur <unk> of Wells Fargo.

Timur Bradler: Hi, good morning. Thanks for the question. Of the $20 billion in remaining commitments from the 2022 and 2021 vintages in RE&G, what portion of that $20 billion has yet to fund up?

Timur Bradler: Hi, good morning. Thanks for the question. Of the $20 billion in remaining commitments from the 2022 and 2021 vintages in RE&G, what portion of that $20 billion has yet to be funded?

Hi, good morning, Thanks for the question.

Of the 20 billion in remaining commitments from the 2022 and 2021 vintages in our ESG what portion of that $20 billion has yet to fund up.

Okay.

Yeah.

Timur Bradler: If you'll look at the cadence chart.

Okay.

If you look at the.

If you look at the <unk>.

Guidance chart.

Speaker Change #112: Here, Brian, Tim, page 11. Page 11, yeah.

Timur Bradler: So you're correct. And again, honoring the request earlier will probably put in our next quarterly management comments a chart that shows where the floor rates look like on the portfolio at that point in time. I don't have that information with me today, but we'll work to provide that in future disclosures.

Speaker Change #112: Here, Brian, Tim, page 11. Page 11, yeah.

And the hair brands Tim page.

Speaker Change #106: But it was at the start, not a higher rate. You know, again, presuming you're right. I think the floors will matter for 2024 and 2025. But you are correct that you've got to look at the vintage of origination of the loans to determine the floor. And obviously, the floors that we got in 4Q of 2022 were much higher than we got in 1Q of 2022 before the Fed started increasing interest rates. We've never been able to negotiate floor rates that were higher than the contractual start rate of the loan. So, and as I said earlier, in the first part of 2022 and most of 2022, we were getting floors at the start rate on the vast majority of loans. But it was just at the start, not at a higher rate.

11.

Brian Martin: Yeah, so there is the 21, there's...

Brian Martin: Yeah, so there is the 21, there's... 6.21 billion, and a 22, there's 13.74 billion, that is, no, I'm sorry, you have to subtract.

Yes, so there is.

The 21 there is.

Manan Gosalia: We can also look at it for that purpose as well. But right now, our focus is growing the bank and finding ways to do that. Great, I appreciate all the color.

Brian Martin: 6.21 billion

Second 0.2 1 billion.

Brian Martin: and a 22, there's 13.74 billion.

And a 22 there is 13 seven 4 billion.

Brian Martin: that is, no, I'm sorry, you have to subtract

That is no I'm, sorry, you have to subtract.

Host: Thank you. Thank you. And bye for our next question. Our next question comes from the line of Brandon King of Truist. Please go ahead, Brandon.

Speaker Change #113: Did I answer that? I ran and answered that.

Speaker Change #113: Got it. Maybe if I could just extend this into 2025 specifically, George, if I'm kind of correct in my thought process. Is there a point if the forward curve does come to pass where, as the stuff that you originated in 2023 starts to fund, the loan yield could actually reverse course and start to inflect just by the nature of the 2023 commitment starting to fund? Because those floor rates are more in the 8% to 9%-ish kind of range.

Speaker Change #113: Did I answer that? I ran and answered that.

Jay answer this.

To answer that.

Speaker Change #113: Well, yeah, that graph is focused on what remains that hasn't been repaid out of those vintages, George. Jay, I don't think we've disclosed.

Speaker Change #113: Well, yeah, that graph is focused on what remains that hasn't been repaid from those vintages, George. Jay, I don't think we've disclosed that yet.

Yes.

That graph is focused on what remains it hasnt been repaid out of those vintages, George J I don't think we've disclosed.

Brandon King: Hey, good morning. Good morning, Rand. So, a follow-up on the Chicago Land Credit. Being that such a strong sponsor is having some issues with their recapitalization, does that give you more concern broadly when you think about your customer base and sponsors being able to support their projects when they run a team? Brandon, that's a good question, and I think the answer that I would give you is if I, you know, with answering a yes or no is, "no," that doesn't give me a lot of pause. You know, sponsors come in two different flavors, or really more, but you can kind of divide them into a couple of groups. One type is sponsors that invest their own money but also are dependent upon equity capital, press equity, you know, um, uh, partners in their transactions, either as prep or co-joining them as common equity, and then sponsors who have a huge balance sheet themselves, and their equity comes internally from their own balance sheet.

Speaker Change #114: The unfunded by year of origination. So I don't believe we have that number.

The unfunded by year of origination.

So I don't.

I don't believe we have that number.

No that's okay.

Speaker Change #115: No, that's better.

Yeah.

Speaker Change #116: Yeah, not a lot of these options.

Yes, my apologies.

Speaker Change #116: Took you to the wrong chart.

Speaker Change #116: I took you to the wrong chart. Okay, but just using the prior, you know, prior comments of kind of 12 to 18 months for these loans to fund up, it sounds like much of the 2022 originations are going to be funding up here in 24. Is that fair or separate? Okay, but just using the prior, you know, prior comments of kind of 12 to 18 months for these loans to fund up, it sounds like much of the 2022 originations are going to be funding up here in 24. Is that fair or separate?

Take you to the wrong chart.

Speaker Change #116: Okay, but just using the prior, you know, prior comments of kind of 12 to 18 months for these loans to fund up, it sounds like much of the 2022 originations are going to be funding up here in 24. Is that fair or separate?

Okay, but just using the prior prior comments of kind of 12 to 18 months for these loans to fund off it sounds like much of the 2022 originations are going to be funding up here and 24 is that fair assessment.

Speaker Change #116: Again, 2025 is hard to predict and where the Fed is going to be in 2025 and what they're going to do. 2025 is very hard to predict. So I'm going to let you develop and go with your own thesis on that based on the information we provided, because I'm not comfortable trying to give you that number.

Speaker Change #116: Yeah.

Yes.

Speaker Change #117: Very sorry about that.

Speaker Change #117: Very sorry about that. Okay, and then maybe looking at the deposit side, so a little continued mix shift out of non-interest bearing into time deposits. I'm assuming the fundings, the strong fundings here expected at 24 are going to be leaning on time deposits again. Just with 52% of the deposit base now being time deposits, are there internal concentration limits for time deposits that you guys are monitoring? And where could we see that concentration maybe trending up to? Sure. Okay, and then maybe looking at the deposit side, so a little continued mix shift out of non-interest bearing into time deposits.

Very thorough.

Speaker Change #117: Okay, and then maybe looking at the deposit side, so a little continued mix shift out of non-interest bearing into time deposits. I'm assuming the fundings, the strong fundings here expected at 24 are going to be leaning on time deposits again. Just with 52% of the deposit base now being time, are there internal concentration limits for time deposits that you guys are monitoring? And where could we see that concentration maybe trend up to? Sure.

Okay, and then maybe looking at the deposit side.

A little continued mix shift out of noninterest bearing into time deposits I'm, assuming the the fundings. The strong fundings are expected at 24 are going to be leaning on time deposits again, just with 52% of the deposit base now being time are there internal concentration limits for time deposits that you guys are monitoring.

Speaker Change #117: Okay. Do you mind kind of giving me some insight on the non-res loans ABL, the RV, all that kind of stuff? What's the origination yield on those loans currently?

Where could we see that concentration maybe trend up til.

Speaker Change #118: We have a variety of concentration limits on deposits, but there's not a limit on time, non-time. So if that number, you know, continues to rise, that's not a problem. Obviously, we're working hard every day to originate as much business as we can in the, you know, checking account, trading account, money market account area.

We have a variety of concentration limits on deposits, but there is not a limit on time non time.

George G. Gleason: The sponsor in this case, while they have a tremendous track record, they've done a lot of transactions and a lot of big transactions, deploys mostly equity from third parties. So when they're recapping the bill, they're out, explaining their vision and their plan for the bill to a variety of potential equity partners to entice, and those equity partners at the end of the deal, and as Brandon mentioned, it's just, it's a, Thank you for your time, and I'll see you next time. They're accustomed to doing it.

Speaker Change #117: I'm assuming the fundings, the strong fundings here expected at 24 are going to be leaning on time deposits again. Just with 52% of the deposit base now being time deposits, are there internal concentration limits for time deposits that you guys are monitoring? And where could we see that concentration maybe trending up to? Sure.

If that number.

Speaker Change #118: Oh, gosh. In the ABL world, it's very dependent. And the -- most of the ABL loans have a spread matrix that is dependent upon the total leverage or availability of the line. So it's hard to comment on those because they're so deal specific, and there may be 4 tranches of spread, 3 or 4 tranches of spread, in those loans, typically, that are dependent upon their total leverage position and utilization of available borrowing numbers. So those are hard to comment on.

<unk> to rise that's not a that's not a problem.

Obviously, we're working hard every day to.

Originate as much business as we can and.

Checking account savings account money market account areas.

Speaker Change #118: obviously with rates higher and CD rates being high across the

Speaker Change #118: Obviously, with rates higher and CD rates being high across much of the industry, and other alternative industrial rates being high, and a lot of customers have much of the industry, and other alternative industrial rates being high, and a lot of customers have taken their excess liquidity out of their money market tokens and checking accounts and put it to work at higher yields, the entire industry. We've seen that phenomenon. So here we're continuing to add large numbers of new account holders every month, and we'll continue to do our part in that effort. So we feel good about that.

Slate with rights higher and CD rates being high across the <unk>.

Speaker Change #118: much of the industry.

Much of the industry.

Speaker Change #118: and other alternative industrial rates being high.

And other alternative investment rates being high.

Speaker Change #118: and a lot of customers have

A lot of customers who have.

George G. Gleason: They've got a good story for the project that makes sense. They've just got to match all that up with an equity investor who lacks that story, and they're working on it. It doesn't give me any... Paul talks about our portfolio, a unique thing to this asset. They're working on this. There are other projects out there that we see every quarter that are making a lot of sense, that are, you know, new projects that the very skilled, very experienced, knowledgeable sponsors are having trouble putting their equity together. Listen, it's a...

The.

Speaker Change #118: Drain their excess liquidity out of their money market tokens and checking accounts and put it to work at higher yields, the entire industry.

Speaker Change #118: Drain their excess liquidity out of their money market tokens and checking accounts and put it to work at higher yields; the entire industry. We've seen that phenomenon. So here we're continuing to add large numbers of new account holders every month, and we'll continue to do our part in that effort. So we feel good about that. But as we continue to have really good growth in the balance sheet, we will be. The indirect stuff is, again, dependent upon the credit score of the borrower and so forth. Those are all fixed-rate loans in the indirect lending world. So we're probably around 8 plus or minus on that. Actually, I'm not -- I'm guessing on that. I don't know Jay, do you know?

Drain their excess liquidity out of their money market savings and checking accounts and put it to work at higher yields the entire industry.

Unnamed Speaker: All of those loans that you mentioned on the reappraised list are pass-rated credits. That pass rating takes into account the higher loan-to-value on the ones where the LTV went up, but they're still pass-rated credits, so we don't consider those a problem. And Brandon made an excellent point.

Speaker Change #118: We've seen that phenomenon. So here we're continuing to add large numbers of new account holders every month and we'll continue to do our part on that effort. So we feel good about that. But as we continue to have really good growth in the balance sheet, we will be...

Seen that phenomena.

We're continuing to add large numbers of new account holders every month and we will continue to work hard on that effort. So we feel we feel good about that so that as we continue to.

Unnamed Speaker: If you look back over the last eight quarters, from a portfolio perspective, Our loan-to-cost on the entire portfolio and our loan-to-value on the portfolio, and the loan-to-value is kind of a 42%, 43% loan-to-value range, that has not moved more than a point or two in the aggregate over that whole period of time, and that's because while we're having some loans, like these three you mentioned, where the price along the value has gone up in a meaningful way, we're also having a number where we've got accretive paydowns, we're also having a lot of new originations where we're originating, high 30s or very low 40s loan to value. So the aggregate condition of the portfolio is continuing to perform very well, on that LTV match. Catherine.

Half really.

Good growth in the balance sheet, we will be.

Speaker Change #118: and a somewhat more dependent upon time deposit, 5% of the total.

Speaker Change #118: But as we continue to have really good growth in the balance sheet, we will be. The indirect stuff is, again, dependent upon the credit score of the borrower and so forth. Those are all fixed-rate loans in the indirect lending world. So we're probably around 8 plus or minus on that. Actually, I'm not -- I'm guessing on that. I don't know Jay, do you know?

Speaker Change #118: and a somewhat more dependent upon the time deposit, 5% of the total.

Somewhat more dependent upon time deposits as a percent of the total.

George G. Gleason: It is a tough environment, correct? The cost of delivering a project has gone up due to inflation. Interest rates to carry that project during construction have gone up. You've had all the COVID delays and the impacts; you've had shifts in the demand side because of concerns about the economy. It is a tough environment for our sponsors; we see that thing and hear that thing from our sponsors on a regular basis. The reason that our portfolio metrics are so good and that our challenges with asset quality have been relatively benign and limited to a handful of transactions is the cause of the fact that we've got great sponsors. We focus on great projects that are new construction. You know, so they're state-of-the-art projects that have a quality advantage versus older products in the market that are not as well designed or well located or well built, and the fact that we structure these transactions very carefully, more than ever, and the fact that we're in these transactions at around 52-53% of cost.

Speaker Change #119: Understood. And then just two quick ones on credit. The three reappraisals that had the 25 point plus move in LTVs, can you provide the geography for those three loans?

Speaker Change #119: And then just two quick ones on credit. The three reappraisals that had the 25 point plus move in LTVs, can you provide the geography for those three loans?

Understood and then just two quick ones on credit the three reappraisal as that had the 25 point plus move in Ltvs can you provide the geography for those three loans.

Speaker Change #119: That feels directionally correct, yes. Yes. Yes, so -- and those are fixed-rate loans. So every month, we're rolling off millions of dollars of lower-rate loans and rolling on millions of dollars of newly originated at the current market rate loans in that portfolio. So that's helping incrementally improve our margin. Yes, yes, and so -- and those are fixed-rate loans. So every month, we're rolling off millions of dollars of lower-rate loans and rolling on millions of dollars of newly originated at the current market rate loans in that portfolio. So that's helping to incrementally improve our margin.

Speaker Change #119: Brandon, do you have that? Yeah, I actually do. So a couple of those were in the Northwest, in the Seattle CDSA, and another was in the Minneapolis.

Speaker Change #119: Brandon, do you have that? Yeah, I actually do. So a couple of those were in the Northwest, in the Seattle CDSA, and another was in Minneapolis. And the same phenomenon is going on in our securities portfolio, which is pretty much all fixed rate. We expect to roll off about $1 billion of that portfolio in 2024, and either we will not replace it, or if we do replace it, we would suspect it's going to be a substantially higher yield than what's rolling off. So those fixed rate components of our earning assets, whether it's securities or indirect or other fixed rate loans that are rolling off, will help us reprice some elements of the loan book and securities book at a more favorable price.

Brandon do you have that yes actually do so a couple of those were in the northwest and the Seattle.

Speaker Change #118: We've seen that phenomenon. So here we're continuing to add large numbers of new account holders every month, and we'll continue to do our part in that effort. So we feel good about that. But as we continue to have really good growth in the balance sheet, we will be. The indirect stuff is, again, dependent upon the credit score of the borrower and so forth. Those are all fixed-rate loans in the indirect lending world. So we're probably around 8 plus or minus, I would guess, on that. Actually, I'm not -- I'm guessing on that. I don't know, Jay, do you know?

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And another was.

In the Minneapolis.

Speaker Change #119: BF-WATCH TV 2021

Geography.

Speaker Change #119: Geography

Sure.

Speaker Change #119: Okay.

Okay.

Speaker Change #119: And then I guess just lastly, if we look at the allowance for funded loans versus the allowance for unfunded loans,

Speaker Change #119: And then, I guess just lastly, if we look at the allowance for funded loans versus the allowance for unfunded loans, that gap seemed to have widened throughout the course of the year with the funded allowance up 27 basis points, while the unfunded allowance up only 5 basis points. Can you maybe talk through the dynamic as to why a higher allowance on the funded balance isn't translating directly to higher allowance for the unfunded component?

And then I guess, just lastly, if we look at the allowance for funded loans versus the allowance for unfunded loans that gap seemed to have widened throughout the course of the year with funded allowance up 27 basis points, while unfunded up only five basis points I guess can you maybe talk through that dynamic.

Speaker Change #119: That gap seemed to have widened throughout the course of the year with funded allowance up 27 basis points while unfunded up only 5 basis points. I guess, can you maybe talk through the dynamic as to why higher allowance on the funded balance isn't translating directly to higher allowance for the unfunded component?

Unnamed Speaker: Let's hope for color. I appreciate it, by the way. Right, or Tesus Rex. All right, please stand by.

As to why higher allowance on the funded balance isn't translating directly to higher allowance for the unfunded component.

Operator: Our next question... comes from the line of Catherine Mealor of KVW. Please go ahead, Catherine. Thanks. Good morning. Good morning, Jeff. Just to follow up on the credit conversation, you mentioned in your prepared remarks or your management comments that you still have a goal to grow EPS by 20% in 2024, which is pretty good coming off of a year where you grew 37% on a record year. And so, if I think about 24, I think we all know the NIM and growth headwinds that we're going to potentially see if we have late cuts, but I think a big question is where is the provision? And so I'm curious how you think about how the provision should trend versus dispatcher's level to reach an EPS growth goal in the future.

Speaker Change #120: Yeah, Samir, is this really about the mix, you know, our unfunded balances?

Speaker Change #120: Yeah, Samir, is this really about the mix, you know, our unfunded balances? A higher mix towards RESG. The funded balance is a higher mix than others, a higher mix towards RESG.

Yes, Sameer, it's just really about the mix.

Our unfunded balances.

Speaker Change #120: A higher mix towards RESG. The funded balance is a higher mix to others.

A higher mix towards our ESG.

The funded balance of a higher mix to others.

Speaker Change #120: Got it. I just got one last one on the margin and then a couple more on credit. So I guess if I tick and tie all the commentary that you just gave, George, and then the commentary earlier around deposit rates, I understand that you're baking 3 cuts into your NII outlook, but say we did get 6 cuts, 5 or 6 cuts like the forward curve, how would that change what you think the trajectory of the NII is for 2024?

Speaker Change #120: and obviously um

Speaker Change #119: And the same phenomenon is going on in our securities portfolio, which is pretty much all fixed rate. We expect to roll off about $1 billion of that portfolio in 2024. And either will not replace it, or if we do replace that, we would suspect it's going to be substantially higher yield than what's rolling off. So those fixed rate components of our earning assets, whether it's securities or indirect or other fixed rate loans that are rolling off will help us reprice some elements of the loan book and securities book at a more favorable price.

Speaker Change #120: and obviously, um, it just depends on the models that it's being run through. So, I mean, there's a lot of factors that go into it, but certainly the mix of the makeup of those in the unfunded is a component of it. Obviously, everything in the unfunded is a component of it, and it is a pass-rated credit as well, so you obviously have some other ratings, typically in the funded balance.

And obviously.

It just depends on the models that are being run through so.

Speaker Change #120: It just depends on the models that it's being run through. So, I mean, there's a lot of factors that go into it, but certainly the mix of the makeup of those.

George G. Gleason: 42 to 43% of appraised value, that is, extremely low leverage of our portfolio. Make sure that people who are inferior to us in the capital stack have a tremendous amount of money at risk in front of us to protect our position and to give them the incentive to protect their position. So, the way we built this portfolio is really... probably about the best construction you could get for this kind of environment where it's very, very challenging on the, Got it. That's a very helpful color.

There's a lot of factors that go into it but certainly the mix of the makeup of those.

Speaker Change #120: in the unfunded is a component of it. Obviously, everything in the unfunded is a component of it.

And the unfunded.

As a component of it and obviously everything in the unfunded.

Speaker Change #120: is a pass rated

In the past rated.

Speaker Change #120: credit as well so you obviously have some other ratings typically in the funded balance

Credit as well so you obviously have some other ratings typically in the in the funded balance.

Speaker Change #121: Great. Thank you for that, Howard.

Great. Thank you for that color.

Okay.

Howard: Thank you. I would now like to turn the conference back to George Gleason for closing remarks. All right. Thank you, guys. We appreciate you joining the call today. I appreciate all the questions. Have a great quarter, and we'll see you in about 91 days. Thanks so much. Have a great one.

Speaker Change #121: Well, if we bake in 5 or 6 cuts in '24, that's certainly a more challenging scenario for us because we don't have our floors in our loans set as broadly in the portfolio as we would like to have them set for a declining rate environment. So that would be a more challenging NIM scenario for '24.

Howard: Thank you. I would now like to turn the conference back to George Gleason for his closing remarks. All right. Thank you, guys. We appreciate you joining the call today. I appreciate all the questions. Have a great quarter, and we'll see you in about 91 days. Thanks so much. Have a great one!

Thank you I would now like to turn the conference back to George Gleason for closing remarks, Sir Alright. Thank you guys. We appreciate you joining the call.

Operator: Well, great question, and yes, you're spot-on correct there with the guidance that we've given on tax rates, non-interest expense, and the net interest margin, the net interest income number being horse rates on net interest income every quarter. You know, we think it's a reasonable scenario that for the year, we will put up improved EPS versus last year. I don't know if we'll have an improving EPS trend every quarter next year like we did this year. It may be that some quarters are up EPS on record, and some quarters are a little off the record pace.

Call today and appreciate all the questions have a great quarter, and we will see you in about 91 days. Thanks, so much <unk>.

George G. Gleason: That concludes our column.

Brandon King: And then my next question would be in regards to competitive dynamics in regards to lending. How has that trended lately? Are you still finding yourself maybe as the only lender competing for certain projects, or are you seeing maybe more appetite from other lenders? Well, there's competition out there, but the competition in the space is significantly lower than it was. Two years ago, or three years ago, for sure, the number of people out there to provide financing for commercial real estate was, you know, all the visitors, the people who are in it when it's easy and fashionable and run from it when it's... Thank you for your time today. You pretty much understand commercial real estate and are committed to it as an asset class. I would say I think we're the leader among that group of folks and that's why we're generating good volumes even in an environment where the pie is massively smaller than it was, as Brandon alluded to in his earlier remarks.

That concludes our call.

Yes.

Speaker Change #123: Ladies and gentlemen, thank you for participating. You may now disconnect.

Ladies and gentlemen, thank you for participating you may now disconnect.

Okay.

[music].

Unnamed Speaker: But we expect a good EPS story and for the year, expect to beat our 2023 net income and EPS numbers. So our assumption on provision expense in our budget and our guidance on that is predicated upon the Fed achieving a relatively stable landing for the economy. I don't know if that's a soft landing or just not a real hard landing.

Okay.

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Unnamed Speaker: We have assumed in our ACL calculations consistently for a number of quarters, now five, six, seven quarters, we've been heavily weighted to the downside scenarios. ACL was over $100 million last year. Part of that was due to our significant growth, and part of it was due to the fact that we were leaning heavily on Moody's downside models, the S4 and the S6 models. We continue to lean that way, so we think our ACL is appropriate and pretty well positioned for, you know, a range of scenarios. If the, unless we have a landing of the economy that's consistent with the S4 and S6 scenarios, the economy lands in a more benign fashion than that, then we're going to probably look back and...

Okay.

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George G. Gleason: We're going to do things that make sense. We're not going to let... A competitive offer from someone else drives us to do something that doesn't make sense. You know that's always our mantra. That's why we've been successful, and in my 45 years as CEO, we've never lost money in a single year because we just don't do things that don't make sense to us when we do, we're all pretty disciplined. So there is competition. I wouldn't say it's changed much in the last 90 or 180 days.

Yes.

Okay.

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No.

Hum.

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Yes.

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Brandon King: Great, thanks for taking my question. Thank you. Our next question comes from the line of Brian Martin. Up then. Hey, good morning. Good morning, Brian.

Yes.

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Okay.

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Yes.

Okay.

Brian Martin: Say, just one question, George, just on hiring. I know you talked about some opportunities as you kind of look into 24 here. Just wondering if you can give any commentary on just where you see the opportunities potentially as far as hiring goes and if that kind of involves new business segments as you kind of talk about this handoff to RISG. Are there things you're looking to do here or seeing opportunities to add new business lines or just add to existing business lines? Just kind of curious about that hiring process; we were all in that position.

Okay.

Unnamed Speaker: I think we can look back and assume that 2023 was kind of the high point in provisioning. So we're not there yet with that conclusion, but I think you could draw a scenario pretty clearly that would suggest we could have some downsides in what we provision each month or each quarter. And the flip side of that, of course, is also true: geopolitical, global issues, Fed.

Yes.

Okay.

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Yes.

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Okay.

Unnamed Speaker: Congressional issues, you know, government shutdowns, whatever, would somehow all coalesce into a hard landing for the economy. We could have a higher provision expense. But those scenarios seem to be... getting mitigated, and the chance for the Fed to actually engineer a pretty decent landing for the economy. Things could be growing a little bit, so that could hopefully be related to lower provision expenses. That's really helpful, and it feels like a nice offset, so if you do see lower margins and more pay-downs in the loan book, an offset to that headline is going to be this provision that we are in that stop lending scenario for Manager of Briar. And then, just another follow-up on credit, just can you talk us through how the Chicago van loan could play out here?

Sure.

Okay.

[music].

Yes.

George G. Gleason: Yeah, the answer to that is yes, yes, and yes. I think, you know, we are, as I alluded to, I think it was a couple of quarters on this call, I think talent is short supply. Commodity, in our economy and certainly in our industry, and we are trying, and have been trying for years, and really The Accelerator on this the last year or so, really trying to upgrade the quality of our talent. So when we have a position become vacant, we're trying to fill that position with a person that is better than the person that left.

Okay.

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Yes.

So.

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George G. Gleason: We're trying to continuously upgrade talent, and obviously, as we've alluded to in prior management comment documents, we're adding talent. I mean, obviously, we grew.

Okay.

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Okay.

George G. Gleason: You know, 20% high 20% last year on loans, deposits, and everything else. You can't achieve that kind of growth without adding. We expect to continue to grow. We expect to continue to have talent.

Unnamed Speaker: It feels like you went from special mention to substandard accrual this quarter, so we're still performing, you know, but I noticed that your cash reserve did decline, so... I feel that maybe it's just performing because of being so preserved, but I'm kind of curious how that's playing out right now and kind of how much time or how many quarters we have until potentially that runs out, and this may flip to non-performing if you're not able to resolve to credit before that time period.

Okay.

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Okay.

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George G. Gleason: And most importantly, we expect to continually upgrade talent, as we're adding talent or replacing talent that is left. So that will keep an upward pressure on our salary expense line because of the new applicable AITPA guidance. You know, some of our non-interest expense in 24 and going forward has moved to the tax line on those tax credit sort of investments. So, you know, our non-interest expense year over year will show a 0-3% sort of growth rate, probably 1-2-3%, low single digits I think is what we've got, but the salary and benefits line of that is going to show some continued good growth because we're adding talent to support our growth, and we're constantly trying to improve the quality of our talent. I think the excellent team that we have is one of our best, if not our best, competitive advantage.

Yeah.

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Sure.

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Unnamed Speaker: It's going to walk us through how that credit could kind of be passed over to that credit over the next couple of quarters. That's a great question, and obviously the fact that we went from a special mention to a substandard classification on that credit in the quarter just ended reflects the fact that, you know, we were concerned about the sponsor's pace in their recapitalization efforts here. They've been working hard on this. This is an excellent sponsor with whom we have done a number of pieces of business. They've got a very successful track record.

Okay.

Yes.

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So.

Hum.

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Unnamed Speaker: So, you know, they're still working very hard on this and are still positively disposed and engaged in it. You know, we've got that going for us and that we've got a good sponsor who's working hard and still out there diligently pursuing it. The fact that they've not gotten that recap done yet caused us to do the downgrade.

Yes.

Okay.

Yes.

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Okay.

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Brian Martin: I mean, we've got a great business model that's unique in the industry. It generates higher returns and lower credit losses than the industry averages by far, year in, year out. So we're very confident in our business model, but the key to the business model working is our talent, and our people are our companions at command. Gotcha. Okay. Okay, I know that's helpful.

Okay.

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Unnamed Speaker: And with that downgrade also, you know, that changed the risk rating on the loan, and the risk rating drives our provision for the loan. So our ACL on this loan is now, as we disclosed in the management comment, $32.8 million. So we've pretty much, for being here, an adverse outcome. You're correct, they are using their cash reserve, which is their money, to pay interest on the loan, and they've got enough cash reserve there to go several more months. I don't know the exact timing of that, but, you know, when they get to the end of that cash reserve, they'll have to make a decision if they want to and can support it with further interest payments to buy more time to work out their recapitalization and develop their ultimate plan for this property, or if they've run out of gas.

Okay.

George G. Gleason: And then it sounds like the reserve build is, you know, you've talked about in the last 12 months or even further back, you know, the heavy lifting of that is done. Is that kind of how you think about it, given your, you know, commentary on credit? I know you mentioned in the comments about charging us being maybe up a little bit in 24 versus 23. Just try and understand, you know, the aggressive reserve build.

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Brian Martin: If a lot of that's in the rearview mirror based on kind of how you look at the world today. Well, as I said earlier, you know, that is going to depend on the economy. If the Fed and world events and Washington events somehow crash the economy, and we could have more reserve bills. The whole industry could have a lot more reserve bill if the economy crises, in an ugly way. But increasingly, I think we're beginning to migrate to the camp that, Thank you. The prospects of some sort of soft or relatively benign landing are getting more likely, time will tell, we'll know as the year goes on, but if that is the case, given the fairly conservative selection of economic scenarios we've used to build our reserve, and we can shift to a more benign set of assumptions in our reserve bill than that, would give us the room for provision expense to come down over the course of next year. Those events have got to play out You know, there'll be more reserve bills needed, and obviously, we're going to grow.

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Unnamed Speaker: So we'll just have to see, but the downgrade reflected, and the increase in the ACL for the loan reflected what we call an appropriate adjustment for the risk in it at this time. We're monitoring it closely, and of course, we'll do anything that we can do and are doing everything we can to assist the sponsor in their efforts, but we're the lender and they're the equity, so the ball's really in their court. Thanks for the call; I appreciate it. Thank you. Bye. Our next question comes from the line of Manan Ghasalia of Morgan Stanley. Hi, good morning.

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Unnamed Speaker: I wanted to ask about the loan floors you spoke about earlier. Can you talk about where those floors are on average for the portfolio on the books right now? How long will the benefit of that last given the shorter duration of some of your loans and as the capital markets open up? And if you can comment on any recent trends there, have there been any changes in the floors you've been able to negotiate more recently, given the outlook for red cards? Great question, Manan.

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George G. Gleason: We've talked about that quite a bit, so we're going to have to increase our dollar volume of ACF for our growth. Gotcha, that's what I understood. Okay, and then just the last one for me was, you know, on the margin, you know, it sounds as though you've got a little bit more weakness here with the funding costs still catching up the next couple quarters and you've got loans, you know, maybe under a bit of pressure early on as rates start to cut and then, The floor is kicking in and the depository pricing, I guess, I mean, does the general outlook, you know, seem as though that the margin, you know, you know, kind of bottoms or stabilizes mid-year or maybe a little bit lower in the second half and then it's up in 25 is how to kind of think about, you know, big picture without getting specifics on the actual level?

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Unnamed Speaker: You know, in kind of the run-up to mid last year and, I guess even, the third quarter, fourth quarter of last year, a lot of the loans that we were originating in RESG had floors at the start rate of the loan. So the expectation, you know, when the expectation is that the Fed's going to be continuing to raise rates as it was throughout 2022, it's pretty easy to get loans at the start, floors at the start right of the loan. As 2023 progressed, and you know, customers began to look forward to when the Fed was going to reverse course, more pressure came in to negotiate that floor rate to something below the start rate of the line. And those floors have moved.

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Unnamed Speaker: I would tell you today we're still getting floors in some loans at the start rate of the loan. In some loans, the floor is in the REST portfolio, 100 or even slightly more points below the base points below the start rate. So, they're meaningful floors, and, um, um... They vary from one to one, and that depends on.

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George G. Gleason: Our scenario, Brian, is that we're working toward and planning for that we need to get our floors and our loans set, and that we could have enough magnitude of break cuts in 25 that would really make those floors active and important, and as those floors kick in and we get to lock those rates at a good level in a falling rain environment, our cost of deposits could drop faster in 25 than our run rate because of the poor quality of those loans. That would then give us a favorable gym experience like we had in 2010, uh, three when or in 22 in 2022 when our loan yields adjusted really quickly and our deposit costs adjusted more slowly. We could have the reverse of that scenario in 25 if we can get these floor rates set.

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Unnamed Speaker: You know, other features, just all the myriad of details in how you negotiate and structure one of these tracts. So they are important for us. The breakdown will probably start next quarter and quarter after giving you a table in our management comments, I think Stephen asked for that, in our management comments that shows, you know, where the floors are on various lines. We're obviously getting old loans paid off at a billion dollars a quarter, more or less, and those old loans have floors that are usually far below, you know, current rates because they were set in an environment before the Fed started raising rates and the floor So those scores are getting reset for about a billion dollars a quarter.

George G. Gleason: Thank you for watching, dramatically, and that's what we've been trying to position ourselves for us to get another nice spread in our Neiman core spread and kind of the second inning or third inning of the Fed cutting rates when they start cutting rates by getting those floors and then being able to get our deposit costs down even more. There are a lot of variables in that scenario, but we've been working on that scenario for seven quarters now. From the time the Fed started increasing interest rates, we started planning for that flip side.

Unnamed Speaker: We're also having loans that don't have the same bride extension rights that we're doing extensions on, on a business-as-usual sort of basis. We're attempting to reset the floors higher on those loans with a fair degree of success, but obviously that's a negotiating point with every customer. And we're rolling off those loans with lower floors and putting on new loans with higher floors. So, you know, this story gets better every time, which is why we have said.

Brian Martin: I'll go in the other direction. Perfect. Okay. I appreciate you taking the time to answer the question, George.

Unnamed Speaker: A higher for longer scenario is better for our net interest margin because every month we reset the floors on the portfolio higher on average. And so, if the Fed doesn't cut rates until July, I suppose, to March, that's really good for us because we've got another four months of floors reset. If they wait until September, that's even better because we get another six months of floors reset.

George G. Gleason: Thanks. Thank you. Our next question comes from the line of Michael Rose of Raymond James. Good morning, Mark. Hey. Hey, good morning.

Michael Rose: Thanks for taking my question. Just two follow-up ones. Just on the expense outlook, what are the puts and takes of that? It was a little bit lower than I think I was anticipating, and obviously good to see.

Unnamed Speaker: Those floors will hold almost loans, you know, for the duration of the loans, and they're three-year loans, and typically they'll hold for any extension duration. So, the fact that we've got, and we typically have minimum interest protection on these loans. So somebody's not going to refinance a construction loan, typically mid-construction, because we've got an eighth floor in it, and suddenly they can get six percent money. The minimum interest and other features, and the complexity and cost of moving that loan will tend to keep them there. So those floors will hold, and they're going to be an important part of, hopefully, us expanding now, in 2025. That's very helpful.

Michael Rose: Just wanted to see what investments are made and where you guys are having some offsets to growing costs. Thanks. Thanks. Thanks. Thanks. Thanks. Thanks. Thanks. Thanks. Thanks. Thanks. Thanks. Thanks. Thanks. Thanks. Thanks. Thanks. Thanks. Thanks. Thanks. Thanks.

Timothy D. Hicks: Yeah, hey, Michael, as we point you to page 33 of management comments, we try to do our best in outlining what the offsets would be there. As George alluded to just a while ago, we do expect salary expense to continue to increase as we're hiring additional staff to continue to support our growth. Probably the biggest offset to that is the We categorize into that utilization expense the utilization of our low-income housing tax credits and our renewable energy tax credits we are adopting. I do a county standard effective January 1 of 24 that really transfers what was $28 million last year into the tax expense line. Um, so that's kind of an offset and, of course, you know, FDIC special assessment, not expecting one of those in 24, and we eliminated the an So those are the offsets to the otherwise increasing growth in other categories, primarily in our salaries and benefits. Yeah, I just meant excluding some of those changes.

Unnamed Speaker: So it sounds like your current interest rates matter more than the forward look. So I guess the floors are not going down. I am just picking the rate out that has gone down over the last couple of months. You know, the fact that the rate outlook is, the forward curve is down, the rate outlook is down, is causing sponsors to, in some cases, negotiate harder and push more on our negotiation on the floor, but we know that's a very important part of our business, so we're pushing hard back to retain as much of that floor as possible, and, you know, if we can't get a floor that we think gives us an appropriate risk So we're negotiating very hard on those floors, and it's a very important part of our business model, and our origination team understands that and is very dialed in on it, really presses that coin with them, so they're doing a really good job, managing those negotiations to an acceptable or better outcome. Sorry, that's not very helpful.

Michael Rose: I appreciate you guys explaining all that. Excluding that, it was still a little bit better than I think I was expecting, even if I normalized for the accounting change, but I appreciate it. So the last question I had was just on the new mortgage initiative. And, you know, maybe I know it started from zero this quarter, but, you know, what do you guys expect for that initiative as we think about the next couple of years, you know, and hopefully, some lower rates that would help disperse some demand on the mortgage fund? So just from Ebony, thoughts there.

George G. Gleason: Thanks. Now, you know, we're going to continue to take a very intentional approach to that, and we do expect to start originating probably in late February or March, taking applications maybe in late February or March, and hope to close a handful of loans in March. We will get it going in one market probably a month or two later, and get it going in a second market.

Unnamed Speaker: And then on capital, I know you have a high 10.8% CT1 ratio. You're also looking forward at what loans you put on the balance sheet and what the loan growth eventually is. But as we think through 2024, how should we think about buybacks? Is the flex only about balance sheet growth? Or, you know, given some of the uncertainties you mentioned in the environment, do you want to keep an extra capital buffer until the environment changes? Damn, do you wanna take that? Yeah, aim and iron.

George G. Gleason: Of course, we serve a lot of different markets with our branch footprint. So we'll roll it out, and it will continue to roll out and expand throughout Q2 of 2024 through year-end 2025. I think we pretty much get most of the footprint we're going to cover covered by 2025. It will be a... Martin.

Unnamed Speaker: Yeah, I mean, as you said, we've got really strong capital levels now. I think you've seen our risk-based capital levels really stabilize at current levels in the last three quarters. I think we've been within 10 basic points of where we are this quarter, even with the substantial growth we've had during those quarters. I feel like we'll have good growth this year, and good earnings retention as well, so I feel like we'll have rich states capital ratios for this year staying relatively, give or take, where we are now, or slightly above, and so moving from there on share repurchases, we're going to focus on, you know, kind of where we are from our current capital levels, and see where the growth is for this year and in the years ahead.

Michael Rose: Drag on net income and EPS probably in 2024 because we'll be... We'll get one unit up and running and originating. A month or two or three later, they'll start bringing in some revenue, but we'll have added another unit, so the expenses will pretty much stay ahead of the revenue during the early part of that build-out phase, probably an immaterial impact for the year of our 10th or 12th month, and then, uh, we would hope in 2025 that that begins to turn positive, where we actually have positive net income, maybe it's a So where it probably becomes important to income, net income in EPS is 2026 after we've got it pretty much fully matured and fully rolled out. That's why I got the next to the last paragraph in the management comments. It's not going to be a big deal for a while. But it is important to our husbands.

Unnamed Speaker: But know that that's always an option, a lever that we can pull if need be; if our growth moderates in a certain year, we can certainly pull that lever and get a reauthorization of the repurchases. If our share price is depressed. We can also look at it for that purpose as well. But right now, our focus is growing the bank and finding ways to do that. Great. I appreciate all the coverage. Thank you. Thank you.

Michael Rose: And that's the reason we're doing it. We continue to have a lot of customers, and sending that business in a different direction is not good for our long-term customer experience. So this is a customer-driven initiative. I totally get it.

Michael Rose: Thanks for taking my question. All right, thank you. Thank you. Our next question comes from the line of Brody Preston of UBS. Hey, good morning everyone.

Unnamed Speaker: Bye-bye for our next question. Our next question comes from the line of Brandon King of Truist. Please go ahead, Brandon. Hey, good morning. Good morning, everyone.

Brody Preston: I just wanted to ask real quick, George, on CET1, if you're not buying back stock, say you don't buy back stock this year, just given the, you know, the unfunded commitment trends and the fact that growth is still going to be strong, but probably slower than it was. Absolutely. I actually think you could see CEC1 reverse course and start to rebuild again, given the profitability level. Sam, Yeah, hey, Brody.

Unnamed Speaker: So a follow-up on the Chicago Land Credit, being that such a strong sponsor is having some issues with their recapitalization, does that give you more concern broadly when you think about your customer-based sponsors being able to support their projects when they rent? Brandon, that's a good question, and I think the answer that I would give you is if I, you know, were answering yes or no, if no, that doesn't give me a lot of pause. You know, sponsors come in two different flavors, or really more, but you can kind of divide sponsors into a couple of groups. One type is sponsors that invest their own money but are also dependent upon equity capital, perhaps equity, you know, partners in their transactions, either as prep or co-joining them as common equity.

George G. Gleason: Yeah, it'll depend on growth. I certainly feel like we can maintain or slightly improve it from here. And then, you know, really, growth in 2025 will be dependent on where it goes after this year. I wanted to circle back to the floors.

Brody Preston: If I take the spread commentary from last quarter, George, and work my way backwards a little bit to maybe a slightly less widespread or something like that, depending on the competitive environment, going back several quarters, I'd look at your fourth quarter 21 to fourth quarter 22 originations. Those were the biggest kind of origination quarters for you, that five-quarter time span. But, you know, Fed Funds, you know, LIBOR was... Decently low for a bit of that, and so I kind of like back in the, you know, floor rates that are in anywhere from the low 3s to the mid 5s for most of that and, you know, maybe the fourth quarters and the 7%-ish, kind of range. Is that an accurate description?

Unnamed Speaker: And then sponsors who have a huge balance sheet themselves, and their equity comes internally from their own balance sheet. They sponsors, in this case, have a tremendous track record, they've done a lot of transactions and a lot of big transactions, deploy mostly equity from third parties. So when they're recapping the bill, they're out explaining their vision and their plan for the bill to a variety of potential equity partners who entice, don't take these partners into the Dell. And as Brandon mentioned, it's a challenging environment for equity in these transactions because, you know, it's a high rate environment, a high cost environment, and the risk that the economy is going to slow. So, you know, it's a challenging thing to raise equity, and these guys are good at it; they've done it. They're accustomed to doing it.

George G. Gleason: And if so, would that mean that, you know, if the forward curve comes to pass here in 24... The floors wouldn't necessarily matter as much for 2024. Is that accurate? Well, I think the floors will matter for 2024 and 2025, but you are correct that, you know, you've got to look at the vintage of the origination of the loans to determine the floor. And obviously, the floors that we got in 4Q of 2022 were much higher floors than we got in 1Q of 2022 before the Fed started increasing interest rates. We've never been able to negotiate floor rates that were higher than the contractual start rate of the loan.

George G. Gleason: So, and as I said earlier, in the first part of 2022 and most of 2022, we were getting floors at the start right on the vast majority of loans, but it wasn't the start right now, and I hire right, so you're correct, and again honoring the request earlier. We'll probably put in our next quarterly management comment is a chart that shows, you know, what the floor rates look like on the portfolio at that point in time I don't have that information with me today. We'll work to provide that in the future. I got it. Maybe if I could just extend this into 2025 specifically, George, if I'm kind of correct in my thought processes, is there a point where, if the forward curve does come to pass where as the stuff that you originated in 2023 starts to fund, the loan yield could actually reverse course and start to inflect just by the nature of the 2023 commitment starting to fund because those floor rates are more in the, you know, 8 to 9 percent-ish Kind of.

Unnamed Speaker: They've got a good story for the project that makes sense. They just got to mash all that up with an equity investor who likes that story, and they're working on it. It doesn't give me any.. All about our portfolio, unique things to the past that are working on this. There are other projects out there that we see every quarter that are making a lot of sense, that are new projects, that the very skilled, very experienced, knowledgeable sponsors are having trouble putting their equity together. Listen, it's a...

Unnamed Speaker: It is a tough environment, correct? The costs of delivering the project have gone up due to inflation. Interest rates to carry that project during construction have gone up. You've had all the COVID delays and the impacts.

Unnamed Speaker: You've had shifts in the demand side because of concerns about. It is a tough environment for our sponsors. We say that time and hear that time from our sponsors on a regular basis. The reason that our portfolio metrics are so good and that our challenges with asset quality have been relatively benign and limited to a handful of transactions is the cause of the fact that we've got great sponsors and we focus on great projects that are new construction. So they're state-of-the-art projects that have a quality advantage versus older products in the market. It's not as well designed or well located or well built.

Brody Preston: Thank you. You know, again, 2025 is hard to predict, and where the Fed is going to be in 2025 and what they're going to do in 2025 is very hard to predict. So I'm going to let you develop and go with your own pieces on that based on the information we provided, because I'm not comfortable trying to give you that number. Understand? Do you mind kind of, you know, giving me some insight on the non-res G loans, you know, ABL, you know, the RV, all that kind of stuff? What's the origination yield on those loans currently? Oh, gosh.

Unnamed Speaker: And the fact that we structure these transactions very carefully and, more than ever, the fact that we're in these transactions at around 52, 53% of cost, 42-43% of appraised value, that, uh, that. Extreme Low Leverage of Our Portfolio, make sure that people who are inferior to us in the capital stack have a tremendous amount of money at risk in front of us to protect our position and to give them the incentive to protect their position. So the way we've built this portfolio is really, probably about the best constructed you could get for this kind of environment where it's very, very challenging on the, got it. That's a very helpful color.

George G. Gleason: You know, in the AVL world, it's very dependent, and Most of the ABL loans have a spread matrix that is dependent upon the total leverage or availability utilization of the line, so it's hard to comment on those because they're so deal specific, and there may be four tranches of spread. Three or four tranches of spread in those loans typically. That is, you know, dependent upon their total leverage, their position and utilization of available bonds, and many others. Indirect stuff is, Again, depending upon the credit score of the borrower and so forth, those are all fixed-rate loans in the indirect lending world. So, you know, we're probably around 8 plus or minus, I would guess on that. I actually am not.

George G. Gleason: I'm guessing, oh man, I don't know, try this on for yourself. Yeah, yeah, and those are all fixed-rate loans. Every month we're rolling out millions of dollars of Lower Right Lines, rolling on millions of dollars of newly originated at current market rates loans in that portfolio. So that's helping incrementally improve our margin. And the same phenomenon is going on in our securities portfolio, which is pretty much all fixed rate. You know, we expect to roll off about a billion dollars, all of that portfolio, in 2024. Thank you very much. That will help.

Unnamed Speaker: And then my next question would be in regards to competitive dynamics in regards to lending. How has that trended lately? Are you still finding yourself maybe as the only lender competing for certain projects, or are you seeing maybe more appetite from other lenders? Well, there's competition out there, but the competition in the space is significantly lower than it was two years ago or three years ago, for sure. The number of people out there to provide financing for commercial real estate is, you know, all the visitors, the people who are in it when it's easy and fashionable and run from it when it's... more challenging and requires more sophistication and expertise. All those guys are gone, so the people that are out there winning today pretty much understand commercial real estate and are committed to it as an asset class.

George G. Gleason: Reprise, some elements of the loan book, and the security staff at a more favorable price. Got it. I just got one last one on the margin and then a couple more on credit. So I guess if I pick and tie all the commentary that you just gave, George, and then the commentary earlier on deposits, I understand that you're baking three cups, to your and my outlook, but say we did get, Thank you for joining us today, through Indiana. Well, if we bake in five or six cuts in 24, that's certainly a more challenging scenario for us because we don't have our floors and our loans set as broadly in the portfolio as we would like to have set for a year. The Climbing Right Environment So that would be a more challenging NIMS scenario for 24.

Unnamed Speaker: I would say I think we're the leader among that group of folks, and that's why we're generating good volumes, even in an environment where the pie is massively smaller than it was, as Brennan alluded to in his earlier remarks. We're going to do things that make sense, we're not going to lie, and a competitor, also from someone else, got us to do something that doesn't make sense. That's always our mantra. That's why we've been successful, and in my 45 years... CEO, we've never lost money in a single year because we just don't do things that don't make sense to us when we do them. We are pretty different, so there is competition. I wouldn't say it's changed much in the last 90 or 180 days. Great. Thank you for taking my question. Thank you. Our next question comes from the line of Brian Marshall. Hey, good morning. Good morning, Brian.

Brody Preston: Okay, and then I had two last ones on credit. The current Oreo loan that you called out in the release is planning on, you know, the plan is to close the sale of that by the 31st of March, and I think you said you don't expect to take a loss. Are you all planning on financing the sale of that property to the eventual buyer? Brandon, do you want to comment on that?

Brandon: Sure, sure. Yeah, you read our comments correctly. We do not expect that sale to result in a loss.

George G. Gleason: And, you know, in terms of the transaction that's going forward, I think we told you guys in the past that we are under a confidentiality agreement around the transaction. So we've tried to share with you everything we can without being in breach of that agreement. So beyond that, George, if there's anything else you feel safe to share, it is under a confidentiality agreement.

Unnamed Speaker: Hey, just one question, George, on just hiring. I know you talked about, you know, some opportunities as you kind of look into 24 here. And just wondering if you can give any commentary on just, you know, where you see the opportunities potentially, you know, as far as hiring goes and if that kind of involves new business segments. As you kind of talked about this handoff to, you know, with RISG, are there things you're looking to do here or seeing opportunities to, you know, add new business lines or just, you know, add to existing business lines? Just kind of curious about that hiring and Matt Olney.

George G. Gleason: Everything's moving forward in terms of the sponsor's due diligence. You know, they're the normal closing conditions and due diligence that would be attached to a transaction like that, but the sponsor continues to move forward with all their due diligence there. So, as we got it a quarter ago, we still expect a sale to happen inside of March 31st this year. Got it okay, and then my last one was just on that Chicago land loan. With the reserves that they have that they're paying interest on, I think, I think you said, George, maybe it's a handful of months or less that they would have to pay for the interest on that reserve. You know, at the end of that, if there was a moment where they decided, you know, maybe this doesn't make sense anymore, would that loan kind of go the same way as this other L.A. land loan where you guys would take it into Oreo and then, you know, try to look for, you know, a similar kind of sale process? You know, again, presuming you're...

George G. Gleason: Yeah, the answer to that is yes, yes, and yes. I think, you know, we are, as I alluded to, I think it was a couple of quarters ago on this call, I think talent is short supply in our economy and currently in our industry. And we are trying and have been trying for years and really accelerating this in the last year or so, really trying to upgrade the quality of our talent. So when we have a vacant position, it becomes vacant. We're trying to fill that position with a person who was better than the person that left.

Brody Preston: There's a supposition there that the sponsor gives up on it, says they're done, then yes, I would assume that would be a fairly similar scenario. Thank you very much for taking my questions, everyone. I appreciate it. All right, thank you. Thank you. Our next question comes from the line of Timur Bradler of Wells Fargo. Hi, good morning.

George G. Gleason: We're trying to continuously upgrade talent, and obviously, as we've alluded to in prior management comment documents, we're adding talent. I mean, obviously, we grew, you know, high 20% last year on loans, deposits, and everything else. You can't achieve that kind of growth without adding things. We expect to continue to grow, we expect to continue to add talent, and, most importantly, we expect to continually upgrade talent as we're adding talent or replacing talent that is left. So that will keep an upward pressure on our salary expense line because of the new applicable AICPA guidance. You know, some of our non-interest expense in 20-4 and going forward has moved to the tax line on those tax credit sort of investments.

Timur Bradler: Thanks for the question. Of the $20 billion in remaining commitments from the 2022 and 2021 vintages in RE&G, what portion of that $20 billion has yet to be funded? If you'll look at the cadence chart.

George G. Gleason: So, you know, our non-interest expense year-over-year will show a 0 to 3% sort of growth rate, probably 1, 2, 3%, low single digits, I think is what we've got. But the salary and benefits line of that is going to show some good growth because we're adding talent to support our growth and we're constantly trying to improve the quality of our talent. I think the excellent team that we have is one of our best, if not our best, competitive advantage.

George G. Gleason: Here, Brian, Tim, page 11. Page 11, yeah. Yeah, so there is the 21, there's... 6.21 billion, and a 22, there's 13.74 billion, that is, no, I'm sorry, you have to subtract. Did I answer that?

George G. Gleason: I ran and answered that. Well, yeah, that graph is focused on what remains that hasn't been repaid out of those vintages, George. Jay, I don't think we've disclosed the unfunded by year of origination. So I don't believe we have that number. No, that's better. Yeah, not a lot of these options.

George G. Gleason: I took you to the wrong chart. Okay, but just using the prior, you know, prior comments of kind of 12 to 18 months for these loans to fund up, it sounds like much of the 2022 originations are going to be funding up here in 24. Is that fair or separate?

George G. Gleason: I mean, we've got a great business model that's unique in the industry, and it generates higher returns and lower credit losses than the industry averages by far, year in, year out. So we're very confident in our business model, but the key to the business model working is our talent, and our people are our competitive advantage.

Timur Bradler: Yeah. I'm very sorry about that. Okay, and then maybe looking at the deposit side, so a little continued mix shift out of non-interest bearing into time deposits. I'm assuming the fundings, the strong fundings here expected at 24, are going to be leaning on time deposits again. Just with 52% of the deposit base now being time deposits, are there internal concentration limits for time deposits that you guys are monitoring? And where could we see that concentration maybe trend up to? Sure. We have a variety of concentration limits on deposits, but there's not a limit on time, non-time.

Unnamed Speaker: Okay, I know that's helpful. And then, it sounds like the reserve build is, you know, you've talked about in the last 12 months or even further, going back, you know, the heavy lifting of that is done. Is that kind of how you think about it, given your, you know, commentary on credit? I know you mentioned in the comments about charge-offs being maybe up a little bit in 24 versus 23, just trying to understand this, you know, the aggressive reserve build. If a lot of that's in the rearview mirror, based on kind of how you're looking at the world today.

Unnamed Speaker: Well, as I said earlier, you know, that is going to depend on the economy, if the Fed and world events and Washington events somehow crash the economy, then we could have a more reserved bill, the whole industry could have a lot more reserved bill if the economy crisis, in an ugly way, but increasingly, I think we're beginning to migrate to the camp that the prospects of some sort of soft or relatively benign landing, are getting more likely, time will tell, we'll know as the year goes on, but if that is the case, given the conservative selection of economic scenarios we've used to build our reserve, and we can shift to a more benign set of assumptions in our reserve bill than that, would give us the room for provision expense to come down over the course of next year. Those events have got to play out, and again, I would caution, and Tim would want me to caution you that if.., prospects for the economy get worse instead of better, you know, there'll be more reserve bills needed. And obviously we're going to grow. We've talked about that quite a bit, so we're going to have to increase our dollar volume of ACF for our group. Got you, that's understood.

Timothy D. Hicks: So if that number, you know, continues to rise, that's not a problem. Obviously, we're working hard every day to originate as much business as we can in the, you know, checking account, trading account, money market account area, obviously with rates higher and CD rates being high across much of the industry, and other alternative industrial rates being high, and a lot of customers have to drain their excess liquidity out of their money market tokens and checking accounts and put it to work at higher yields across the entire industry. We've seen that phenomenon before.

Unnamed Speaker: Okay, and then just the last one for me was, you know, on the margin, you know, it sounds as though you've got a little bit more weakness here with the funding costs still catching up in the next couple quarters, and you've got loans, you know, and maybe under a bit of pressure early on as rates start to cut and then all these rising trends, and then the significance at four's kicking in, and the deposits rep I mean, does the general outlook assume as though the margin kind of bottoms or stabilizes mid-year, or maybe just a little bit lower in the second half, and then it's up in 25? Is that how you kind of think about the big picture without getting specifics on the actual level? Or is it more, or are we paying too much attention to the brokers or how much capital is going to be out there? I guess, to be frank, we took a pretty shallow increment on large figures.

Timur Bradler: So here we're continuing to add large numbers of new account holders every month, and we'll continue to do our part in that effort. So we feel good about that. But as we continue to have really good growth in the balance sheet, we will be... and somewhat more dependent upon time deposits, 5% of the total. And then just two quick ones on credit. The three reappraisals that had the 25 point plus move in LTVs, can you provide the geography for those three loans? Brandon, do you have that? Yeah, I actually do.

Brandon: So a couple of those were in the Northwest, in the Seattle CDSA, and another was in Minneapolis. BF-WATCH TV 2021, Geography, Okay. And then, I guess just lastly, if we look at the allowance for funded loans versus the allowance for unfunded loans, that gap seemed to have widened throughout the course of the year with the funded allowance up 27 basis points, while the unfunded allowance up only 5 basis points. Can you maybe talk through the dynamic as to why a higher allowance on the funded balance isn't translating directly to higher allowance for the unfunded component? Yeah, Samir, is this really about the mix, you know, our unfunded balances? A higher mix towards RESG. The funded balance is a higher mix than others, and obviously, it just depends on the models that it's being run through. So, I mean, there are a lot of factors that go into it, but certainly the mix of the makeup of those in the unfunded is a component of it. Obviously, everything in the unfunded is a component of it, and it is a pass-rated credit as well, so you obviously have some other ratings, typically in the funded balance. Great.

Unnamed Speaker: You know, our scenario, Brian, is that we're working board and planning board that we need to get our floors and our lines set, and that we could have enough magnitude of grade cuts in 2025 that would really make those floors active and important. And if those floors kick in and we get to lock those rates at a good level in a falling rain environment, our cost of deposits could... get faster in 25 than our run rate because of the pores in those lungs. That would then give us a favorable yearly experience like we had in 2010, three, or 22, in 2022 when our loan yields adjusted really quickly. And our deposit costs have adjusted more slowly.

Unnamed Speaker: We could have the reverse of that scenario in 2025 if we can get these floor rates down effectively in enough of the portfolio and then say the Fed cuts rates dramatically, and that's what we've been trying to position ourselves to get another nice spread in our New England Corps spread, in Canada, second inning or third inning of the Fed cutting rates when they start cutting rates by getting those floors and then being able to get our deposit costs down even more. There are a lot of variables in that scenario, but we've been working on that scenario for seven quarters now. From the time the Fed started increasing the rates, we started planning for that flip side, that scenario going in the other direction.

Timothy D. Hicks: Thank you for that, Howard. Thank you. I would now like to turn the conference back to George Gleason for his closing remarks.

George G. Gleason: All right. Thank you, guys. We appreciate you joining the call today. I appreciate all the questions. Have a great quarter, and we'll see you in about 91 days. Thanks so much. Have a great one. That concludes our column. Ladies and gentlemen, thank you for participating. You may now disconnect.

Unnamed Speaker: Perfect. Okay. I appreciate you taking the time to answer the question, George. Thanks.

Unnamed Speaker: Thank you. Our next question comes from the line of Michael Rose of Raymond James. Good morning, Mark. Hey. Hey, good morning.

Unnamed Speaker: Thanks for taking my questions. Just two follow-up ones. Just on the expense outlook, what are the puts and takes of that? It was a little bit lower than I think I was anticipating, and obviously, good to see.

Unnamed Speaker: Just wanted to see what investments are made and where you guys are having some offsets to growing costs. Yeah, hey Michael, I would point you to page 33 of Management Comments. We try to do our best in outlining what the offsets would be. As George alluded to just a while ago, we do expect salary expenses to continue to increase as we're hiring, and our additional staff to continue to support our growth. Probably the biggest offset to that is the re-categorization of that utilization expense on our low-income housing tax credits and our renewable energy tax credits we are adopting, a new accounting standard effective January 1 of 24 that really transfers what was $28 million last year into the tax expense line.

Unnamed Speaker: So that's kind of an offset, and of course, you know, the FDIC is special effects now, not expecting one of those in 24, and we eliminated the analyzation of our intangibles because they became... fully amortized in 2023. So those are the offsets to the otherwise increasing growth in other categories, primarily in our salary and benefits. Yeah, I just meant including some of those things.

Unnamed Speaker: I appreciate you guys explaining all that, including that it was still a little bit better than I think I was expecting, even if I normalize for the economic change, but I appreciate it. The last question I had was just about the new mortgage initiative. I know it started from zero this quarter, but what do you guys expect for that initiative as we think about the next couple of years and hopefully some lower rates that would help disperse some demand on the mortgage front? So just remove any thoughts there.

Unnamed Speaker: Thanks. Now, you know, we're going to take, continue to take, a very intentional approach to that. And we do expect to start originating probably in late February or March, taking applications maybe in late February or March, and hope to close a handful of loans in March. We will get it going in one market, probably a month or two later, get it going in a second market. Of course, we serve a lot of different markets with our branch footprint, so we'll roll it out, and it will continue to roll out and expand throughout Q2 of 2024 through year-end 2025. I think we'll pretty much get most of the footprint we're going to cover covered by 2025.

Unnamed Speaker: It will be a... Martin, drag on net income and EPS probably in 2024 because we'll be We'll get one unit up and running and originating. A month or two or three later, they'll start having some revenue, but we'll have added another unit. So the expenses will pretty much stay ahead of the revenue during the early part of that build-out phase. You know, we're talking... probably an immaterial impact for the year of a penny or two a month.

Unnamed Speaker: You know, we would hope in 2025 that that begins to turn positive, where we actually have positive net income. Maybe it's a neutral EPS net income impact for the full year of 2025 as we get the full build out of this thing done. So where it probably becomes important to the income, net income in EPS is 2026, after we've got it pretty much fully matured and fully rolled out. That's why I got the next to the last paragraph in the management comments. It's not going to be a big deal for a while, but it is important to our customers. And that's the reason we're doing it.

Unnamed Speaker: We continue to have a lot of customers. Request and, You know, sending that business in a different direction is not good for our long-term customer experience, so this is a customer-driven initiative. So again, thanks for taking my question. All right, thank you. Thank you. Our next question... comes from the line of Brody Preston of UBS. Hey, good morning, everyone.

Unnamed Speaker: I just want to ask real quick, George, on CET1, if you're not buying back stock, say you don't buy back stock this year, just given the, you know, the unfunded commitment trends and the fact that growth is still going to be strong, but probably slower than it was. You asked me, do you actually think you could see C1 reverse course and start to rebuild again? given the profitability level, and, Yeah, hey, Brody. Yeah, it'll depend on growth. Certainly feel like we can maintain or slightly improve it from here. And then, you know, really growth in 2025 will be dependent on where it goes after this year. And then I wanted to just circle back to the floors.

Unnamed Speaker: You know, if I kind of take the spread commentary from last quarter, George, and kind of work my way backwards a little bit, maybe slightly less widespread or something like that, depending on the competitive environment, going back several quarters, I look at your fourth quarter 21, and fourth quarter 22 originations. Those were the biggest kind of origination quarters for you in that five-quarter time span. But you know, Fed funds, you know, LIBOR was with us next, kind of range. Is that an accurate description?

Unnamed Speaker: And if so, would that mean that, you know, if the forward curve comes to pass here in 24... The floors wouldn't necessarily matter as much for 2024. Is that accurate? Well, I think the floors will matter for 2024 and 2025, but you are correct that, you know, you've got to look at the vintage of the origination of the loans to determine the floor. And obviously, the floors that we got in 4Q of 2022 were much higher floors than we got in 1Q of 2022 before the Fed started increasing interest rates. We've never been able to negotiate floor rates that were higher than the contractual start rate of the law.

Unnamed Speaker: So, and as I said earlier, in the first part of 2022 and most of 2022, we were getting floors at the start right on the vast majority of loans, but it wasn't the start right now, due to higher rates. So you're correct, and again, honoring the request earlier, we'll probably put in our next quarterly management comment is a chart that shows where the floor rates look like on those, on the portfolio at that point in time. I don't have that information with me today. We'll work to provide that in the future. I got it. Maybe if I could just extend this into 2025 specifically, George, if I'm kind of correcting my thought processes, is there a point if the forward curve does come to pass where as the stuff that you originated in 2023 starts to fund, the loan yield could actually reverse course and start to inflect just by the nature of the 2023 commitment starting to fund because those four rates are more on the, you know, eight to nine percentage kind of, Thank You know, again, 2025, hard to predict, and where the Fed's going to be in 2025 and what they're going to do in 2025 is very hard to project.

Unnamed Speaker: So I'm going to let you develop and go with your own thesis on that based on the information we provided because I'm not comfortable trying to give you that number. Understand? Thank you. Would you mind kind of giving me some insight on the non-RESG loans, you know, ABL, the RV, all that kind of stuff? What's the origination yield on those loans currently? Oh gosh, um, I, um... You know, in the AVL world, it's very dependent and Most of the ABL loans have a spread matrix that is dependent upon the total leverage or availability or utilization of the line.

Unnamed Speaker: So it's hard to comment on those because they're so deal-specific and there may be four tranches of spread, 3 or 4 tranches of spread in those loans, typically, that is dependent upon their total leverage, position, and utilization of available bonds. So those are hard to comment on.

Unnamed Speaker: Indirect stuff is... Again, dependent upon the credit score of the borrower and so forth, those are all fixed rate loans in the indirect lending world, so, you know, we're probably around 8 plus or minus on that, I actually am not. I'm guessing. I don't know. Yeah, yeah, and those are all fixed right now. You know, every month we're rolling out Vandervliet.

Unnamed Speaker: Thank you. Lower right line. You know, we've got about half a trillion dollars in funds in our solid state bond portfolio, while the other half of that is moving toward paying millions of dollars of newly originated current market rate loans in that portfolio. So that's helping incrementally improve our margin. Then the same phenomenon is going on in our securities portfolio, which is pretty much all fixed rate, of that portfolio in 2024. Here, those that are rolling off will help. Ray Cross, some elements of a long book, security spoke at a more affordable price, got it.

Unnamed Speaker: I just got one last one on the margin and then a couple more on credit. So I guess we might take in time all the commentary that you just gave, George, and then the commentary earlier around deposit, and I understand that you're making three cups to your NI Outlook, but, you know, say we did get it, and I'll see you next time. Well, if we bake in five or six cuts in 24, that's certainly a more challenging scenario for us because we don't have our floors and our loans set as broadly in the portfolio as we would like them set for a Declining Right Environment. So that would be a more challenging NIMS scenario for 24.

Unnamed Speaker: Okay, and then I had two last ones on credit. The current Oreo loan that you called out in the release as planning on, you know, the plan is to close the sale of that by the 31st of March, and I think you said you didn't expect to take a loss. Are you all planning on financing the sale of that property to the eventual buyer? Brannon, do you want to comment on that?

Unnamed Speaker: Sure, sure, yeah, you read our comments correctly; we do not expect that to fail to result in a loss. And, you know, in terms of the transaction that's going forward, I think we told you guys in the past that we were under a confidentiality agreement around the transaction, so we've tried to share with you everything we can without..., without being in breach of that transaction. So beyond that, I don't know, George, if there's anything else you'd feel safe to share, but... It is under a confidentiality agreement. Everything's moving forward in terms of the sponsor's due diligence. They're the normal closing conditions and due diligence that would be attached to a transaction like that, but the sponsor continues to move forward with all their due diligence there.

Unnamed Speaker: So as we got it a quarter ago, we still expect the sale to happen inside of March 31st of this year. Got it okay, and then my last one was just on that Chicago land loan. With the reserves that they have that they're paying interest on, I think you said, George, maybe it's a handful of months or less that they would have to pay for the interest on that reserve. You know, at the end of that, if there was a moment where they decided, you know, maybe this doesn't make sense anymore, would that loan kind of go the same way as this other L.A. land loan one, where you guys would take it into OREO and then, you know, try to look for, you know, a similar kind of sale process? Again, presuming that you're... And I think the supposition there is that the sponsor gives up on it and says they're done, then yes, that would, I would assume, would be a fairly similar scenario.

Unnamed Speaker: Got it. Okay, great. Thank you very much for taking my questions, everyone.

Unnamed Speaker: I appreciate it. All right, thank you. Thank you. Our next question comes from the line of Tamur Brasmer of Wells Fargo. Hi, good morning.

Unnamed Speaker: Thanks for the question. Of the $20 billion in remaining commitment from the 2022 and 2021 Vintages and RESG, what portion of that $20 billion has yet to be funded? If you'll look at the cadence chart here, Brian, and Tim. Page 11. Page 11, yeah. Yeah, so there is the 21 there's, take a point to one billion, and a 22, and there's 13.74 billion, that is, no, I'm sorry, you have to subtract.

Unnamed Speaker: J answer there, or an answer there. Well, you know, that graph is focused on what remains that hasn't been repaid out of those vintages, George. Jay, I don't think we've disclosed the unfunded by year of origination, so I don't believe we have that number, and others.

Unnamed Speaker: Thank you. Yeah, my apologies, Matt, for taking you to the wrong chart. Now, okay, but just using the prior comments of kind of 12 to 18 months for these loans to fund up, it sounds like much of the 2022 originations are going to be funding up here in 24, is that fair or second? Yeah. Great. Sorry about that.

Unnamed Speaker: Okay, and then maybe looking at the deposit side, so a little continued mishness out of non-interest bearing into time deposits. I'm assuming the funding, the strong funding here expected at 24 is going to be leaning on time deposits again. Just with 52% of the deposit base now being time deposits, are there internal concentration limits for time deposits that you guys are monitoring? And where could we see that concentration maybe trend up to? We have a variety of concentration limits on deposits, but there's not a limit on time-on-time.

Unnamed Speaker: So, if that number, you know, continues to rise, that's not a problem. Obviously, we're working hard every day to originate as much business as we can in the, you know, checking accounts, savings accounts, money market account area, obviously with rates higher and CD rates being high across much of the industry, and other alternative industrial rates being high. A lot of customers have taken excess liquidity out of their money market savings and checking accounts and put it to work at higher yields, the entire industry.

Unnamed Speaker: We've seen that phenomenon, so here we are continuing to have large numbers of new account holders every month, and we'll continue to work hard on that effort, so we feel good about that, but as we continue to have really good growth in the balance sheet, we will be somewhat more dependent upon time deposits as a percent of the total. Okay. And then just two quick ones on credit.

Unnamed Speaker: The three reappraisals that had the 25-point-plus move in LTVs, can you provide the geography for those three loans? Brandon, do you have that? Yeah, I actually do. So a couple of those were in the Northwest, in the Seattle CDSA, and another was in Minneapolis, and Matt Olney.

Unnamed Speaker: Okay. And then, I guess just lastly, if we look at the allowance for funded loans versus the allowance for unfunded loans... That gap seemed to have widened throughout the course of the year with the funded allowance up 27 basis points, while the unfunded allowance was up only five basis points. I guess, can you maybe talk through the dynamic as to why higher allowance on the funded balance isn't translating directly to higher allowance for the unfunded component? Yeah, Samir is just really about the mix, you know, our unfunded balances, a higher mix towards RESG, the funded balance is a higher mix towards others, and obviously, it just depends on the models that it's being run through. So, I mean, there's a lot of factors that go into it, but certainly the mix of the makeup of those in the unfunded is a component of it. Obviously, everything in the unfunded is a pass-rated, a credit as well, so you obviously have some other ratings typically in the funded balance.

Unnamed Speaker: Great. Thank you for that, Howard. Thank you. I would now like to turn the conference back to George Gleason for his closing remarks. Sir. All right.

George G. Gleason: Thank you, guys. We appreciate you joining the call today. I appreciate all the questions. Have a great quarter, and we'll see you in about 91 days. Thanks so much. Have a great day. That concludes our call. Ladies and gentlemen, thank you for participating. You may now disconnect.

Operator: Greg Corlett Thanks for watching! I'm going to play a song that I wrote when I was a kid, and I'm going to sing it to you. I'm going to play a song that I wrote when I was a kid, and I'm going to sing it to you. I'm going to play a song that I wrote when I was a kid, and I'm going to sing it to you and Leonard Parry next! Stephen Scouten-Mealor, Michael Rose, Gregory McKinney, George Gleason, Timothy Hicks, Gregory McKinney, George Gleason, Michael Rose, Gregory McKinney, Timothy Hicks, Gregory McKinney, Gregory Mealor, Gregory McKinney, Jeffrey McKinney, Gregory McKinney,

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