Q4 2023 Associated Banc-Corp Earnings Call

Good afternoon, everyone and welcome to associated Banc Corp's fourth quarter 2023 earnings Conference call. My name is Diego and I will be your operator today at.

At this time all participants are in a listen only mode. We will be conducting a question and answer session at the end of this conference.

Copies of the slides that will be referenced during today's call are available on the company's web site at Investor Dot associated Bank Dot Com as a reminder, this conference call is being recorded.

Diego: As outlined on slide one during the course of the discussion today management may make statements that constitute projections expectations beliefs or similar forward looking statements.

Diego: <unk> actual results could differ materially from the results anticipated or projected in any such forward looking statements.

Diego: Additional detailed information concerning the important factors that could cause associated actual results to differ materially from the information discussed today is readily available on the Sec's website and the risk factors section of associated most recent Form 10-K, and subsequent SEC filing.

Diego: <unk>.

Diego: These factors are incorporated herein by reference.

Diego: For a reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call. Please refer to pages 29 through 31 of the slide presentation.

Diego: Pages, 10, and 11 of the press release financial tables.

Diego: Following today's presentation instructions will be given for the question and answer session.

Diego: At this time I would like to turn the conference over to Andy Harmening, President and CEO for opening remarks. Please go ahead Sir.

Well good afternoon, everyone and welcome to our fourth quarter earnings call I'm, Andy Harmening, and I'm joined here once again by Derek Meyer, our Chief Financial Officer, and Patty Egan, our Chief Credit Officer.

Andy Harmening: I'd like to start by sharing some highlights for the fourth quarter, and then 2023 as a whole from there Derek you guys send it update on margin income statement and capital trends and then Pat will provide an update on credit quality.

Andy Harmening: Now it's safe to say that 2023 was an extraordinary year for regional banks from rapid interest rate hikes to credit concerns to all our bank failures. The industry is forced to grapple with new challenges that created uncertainty in the first half of the year here.

Pat Smith: Here associated we weren't immune to the volatility that impacted the regional banking group as a whole, but we weathered the strong storms are decisive actions that bolstered our liquidity and communication that was transparent with our customers.

Pat Smith: Importantly, we also remain forward looking.

It's enabled us to pivot quickly and maintain momentum with our strategic plan.

Pat Smith: Over the course of the year, we reached several important milestones on our phase one initiatives.

Pat Smith: We reached nearly $700 million and combined balances in our asset based lending and equipment finance verticals, we surpassed $2 billion in Outstandings in our Prime Super Prime Auto book and expanded the business within our own footprint.

Pat Smith: We launched a new brand campaign made several product enhancements and sharpened our digital sales capabilities driving a 19% increase in consumer checking household acquisition and a 7% decrease in attrition.

Pat Smith: We continue to punch above our weight in digital launching 11 major platform upgrades and achieving a three year high in consumer digital customer satisfaction scores.

Pat Smith: We maintained strong momentum in mass affluent where we added over $730 million and net new deposit since launch at the end of 2022.

Pat Smith: And all of these efforts helped us grow our core customer base by over 3% in the back half of 2023 with growth in both our consumer and our commercial segments.

Andy Harmening: To further build on this momentum we announced a multi faceted second phase of our strategic plan in November the dressing expense control organic growth and balance sheet repositioning simultaneously.

Andy Harmening: The expense cuts and repositioning were completed in the fourth quarter multiple leadership positions have already been filled with top industry talent and R. M. Hiring is ahead of schedule simply put we are on track.

Andy Harmening: Now as we look at forward macro questions that remain with with regards to the economy and credit and geopolitical landscape closer to home. However, we're confident in our markets, where unemployment rates in Wisconsin, Minnesota and several other Midwestern states remain below the national average of three 7%.

Andy Harmening: We're confident in our associated Banc team, who have consistently proven that they can drive best in class service, while continuing to bring new ideas to life.

Andy Harmening: And we're confident in our plan that promotes growth and diversification to enhance our profitability without abandoning our foundational discipline on credit and expense management.

Andy Harmening: With all these factors coming together at once we're well positioned to deliver enhanced value to all stakeholders in 2024 and beyond.

Andy Harmening: With that I'd like to walk through some highlights from the fourth quarter as well as the full year 2023, starting on page to slide two.

Andy Harmening: On a GAAP basis, our fourth quarter results were impacted by one time items tied to the balance sheet repositioning we announced back in November and the FDIC Special assessment that was finalized during the quarter.

After excluding these one time items the momentum of our core business was reflected through adjusted earnings per share of 53 cents.

Andy Harmening: During the quarter, we continue to transform our balance sheet by executing on initiatives that helped us lower our funding costs and improve our liquidity position, while improving earning asset yields on.

Andy Harmening: On the funding side, our focus remains squarely on growing core customer deposits. After growing these core customer deposits by 2% in Q3, we add an additional 1% growth in Q4 with growth once again coming from both the consumer and commercial sides of the business.

Andy Harmening: All in all we grew core customer deposits by over $800 million in the back half of the year as we continue to realize the impacts of our customer acquisition and relationship deepening initiatives.

Andy Harmening: We also added broker Cds during the quarter as a way to replace F. H L. B advances these actions and business results led to an overall decrease in our wholesale funding of 9%.

Andy Harmening: Within our loan portfolio, our fourth quarter results were skewed by the $969 million in mortgage loans, we sold towards the end of the quarter, but on an adjusted basis, we were essentially flat for the quarter on.

Andy Harmening: On the consumer side, we continue to see steady growth in our prime Super Prime Auto book. This was offset by a decrease in our commercial portfolios, which was primarily driven by a decrease in mortgage warehouse balances.

Andy Harmening: Commercial loan balance growth slowed in the back half of the year, we still saw loan balance it balance growth by 5% relative to 2022 on an adjusted basis.

Andy Harmening: Moving to the income statement.

Andy Harmening: Funding cost pressures have lingered in this dynamic rate environment, but this pressure has continued to abate each quarter here in Q4, our net interest income was essentially flat versus Q3 in our NIM decreased by just two basis points.

Andy Harmening: Due to the mid quarter timing of our Q4 balance sheet transaction, we expect to see full benefit from our asset sales beginning in Q1 of 'twenty 'twenty four.

Andy Harmening: The garage to noninterest income our GAAP numbers impacted by one time items tied to our balance sheet repositioning during Q4, but on an adjusted basis, we saw another slight quarterly increase.

Pat Smith: Taken together, despite the significant funding cost pressures the industry experienced in 2023, we were still able to grow our total adjusted revenue by 5% for the year.

Andy Harmening: In 2023 were once again able to demonstrate an ability to control our expense run rate by identifying cost saves in underperforming areas and redirecting those funds into targeted investments that help us grow our customer base deepened relationships and enhance our profitability profile.

Andy Harmening: We did see a slight uptick in personnel expense late in the year, but that was largely driven by the acceleration of our previously announced hiring plan through our initiatives.

Andy Harmening: As we execute on our growth strategy, our conservative credit culture remains foundational and we've continued to monitor asset quality closely in Q4, our NCO ratio decreased four basis points and our ACL ratio increased by six basis points. We continue to see modest signs of a gradual normalization to pre COVID-19 levels, but.

Andy Harmening: Not yet seen indications of broader issues impacting specific industries or geographies.

Andy Harmening: Now with several extraordinary items impacting our financials during the fourth quarter, we provided a detailed breakdown of EPS impacts from notable one time items on slide three these items can be summarized into two categories first the balance sheet repositioning we announced during the quarter impacted our income statement for a 133 million.

Andy Harmening: Net loss from the sale of mortgages and another $65 million net loss in the securities sale, we completed.

Andy Harmening: Combined these losses impacted our GAAP EPS by $1 30.

Andy Harmening: Secondly, the FDIC special assessment of added $31 million to our noninterest expense during the quarter, which further impacted GAAP EPS by <unk> 20.

Andy Harmening: Net of tax our EPS came in at a positive 53 cents for the quarter.

Andy Harmening: This adjusted number underscores the strength of our business gives us confidence that we're on the right path with our strategic plan and then importantly, it sets us up for continued success in 2024.

On slide four.

Andy Harmening: We provide a bit more context for why we're bullish heading into 2024 as we've discussed previously the first phase of our strategic plan announced back in 2020. One was about laying the foundation through the addition of new loan verticals, new relationship focus deposit gathering initiatives and the launch of an open architecture digital platform that Abe.

Andy Harmening: <unk> us to control our own destiny.

Andy Harmening: Through these efforts we've proven that we can execute as a company by driving diversified loan growth riding the ship on multi well multi year pattern household attrition and achieving three year highs in digital customer satisfaction.

Andy Harmening: The second phase of our strategy is designed to build on our momentum and position us for future. The future success as a company. This plan. This plan was dynamic and that would enable us to address expenses enhanced organic growth and accelerate balance sheet repositioning inorganically all at the same time.

Andy Harmening: We knew we need to start by managing expenses, and we did identify and executed on $25 million to $30 million expense run rate reductions, including a 3% reduction in force around.

Andy Harmening: A round of branch closures and additional spending cuts these actions while difficult set us up to reinvest dollars into initiatives that will help us accelerate household growth deepen relationships remix our balance sheet and improve our profitability profile.

Andy Harmening: During the fourth quarter. We also completed the sale of mortgage loans and securities designed to further accelerate the financial benefits of our organic initiatives by disposing of low yielding assets in high cost funding, we sold nearly $1 billion of low yielding mortgages and nearly $800 million of securities, enabling us to free up funding capacity and reinvest it.

Andy Harmening: Higher rates.

Andy Harmening: Now successful execution of any strategy hinges on having the right talent in the right places and we've made significant strides in bolstering our leadership team with top talent across the Midwest, who align with our culture and have a skill set to drive our plan forward.

Andy Harmening: As our plan has picked up steam in the marketplace. We're seeing that the message is resonating not just our cost not just for our customers are where our existing colleagues, but for others in the industry, who are starting to view associated bank as an employer of choice.

Andy Harmening: It's how we've been able to grow our RM base by 33% since 2021, and that's how we've been able to add talented leaders across key business segments in the past 12 months.

Andy Harmening: Attracting top talent is the first step towards execution and it's clear we're off to a strong start.

Andy Harmening: Moving to slide six.

Andy Harmening: The second wave of organic initiatives, we announced back in November on track in fact in some cases, we're ahead of schedule and the two and a half months since we made our announcement, we made significant progress, adding commercial and small business our ams throughout our footprint.

Andy Harmening: We've also already launched several marketing product and digital initiatives designed to drive customer acquisition relationship deepening and retention. We expect to continue rollout. These enhancement rolled these enhancements out of a steady cadence throughout 2024.

Andy Harmening: Taken together between the success, we've seen in phase one of our initiatives and the progress we've already made in phase two of our initiatives, we're well on our way down the path to building a higher return profile for our company. That's what gives us confidence as we get into 2024 and beyond.

Andy Harmening: With that I'd.

Andy Harmening: I'd like to highlight a few balance sheet trends for the fourth quarter beginning on slide seven.

Andy Harmening: As we've discussed previously the first half of 2023 was marked by industry ride volatility and an ongoing battle for deposits. These dynamics combined to drive significant funding cost pressures and forced banks to rethink their funding strategies well.

Andy Harmening: While we're not immune from this volatility associated we saw meaningful stabilization of balanced flows and cost pressures in Q3 and that stabilization carried forward into Q4.

Andy Harmening: And this more stable environment the impacts of a relationship focused deposit gathering initiatives, we're seeing much more clearly throughout the back half of the year.

Andy Harmening: After growing core customer deposits by 2% in Q3, we saw incremental core deposit growth of another 1% in Q4 in both quarters. We saw net growth in both consumer and commercial loan balance of commercial deposit balances demonstrating the broad based impact.

Andy Harmening: Posit gathering efforts.

Andy Harmening: During the fourth quarter. We also did flex into some brokerage Cds as a means to help pay down F. H L. B advances, which decreased by $1 8 billion during the quarter.

Andy Harmening: As a reminder, our strategy is to fund our loan growth primarily with customer deposits. We expect the whole wholesale network funding levels in check as we move through 2024, and we remain confident.

Andy Harmening: Confident in our ability to fund our growth at a reasonable cost going forward based on our initiatives.

Andy Harmening: On slide eight.

Andy Harmening: We show an annual view of our deposit trends, we've consistently grown our average annual deposits as our balance sheet has expanded over the years and twenty-three was no different but that said our 2023 annual deposit numbers clearly demonstrate a mix shift from noninterest bearing products into higher yielding savings and CD accounts.

Andy Harmening: This dynamic reflects the impacts of the rising rate environment and the period of volatility we saw in the first half of the year.

Andy Harmening: And as mentioned however, the back half of the year called a different story, because our core customer deposit while our core customer deposit shrank by 2% during 2023, they grew by over 3% in the back half of the year.

Andy Harmening: On slide nine.

Andy Harmening: You'll see our deposit growth has come as a direct result of initiatives. Our deposit initiatives are designed to attract new customers deepen existing relationships and enhanced retention throughout 2023, we've seen proof points can Permian, we're on the right track across the bank.

Andy Harmening: As of the fourth quarter, our consumer household acquisition rate was up 19% versus the same period, a year ago and our attrition was down 7% for the full year of household levels were essentially flat, but we consider this a key turning point for household growth as it comes on the heels of multiple years of shrinking total households.

Andy Harmening: Digital has also been instrumental in our success and we continue to make regular enhancements to our offerings. After a very busy 2023. Recent launches include an upgraded digital platform for commercial customers and a tool that provides easier switching for new new checking customers.

Finally, since launching our new mass affluent strategy, we've added over $730 million and net new deposits. In this segment during 2023 more than doubling our full year ago. This growth represents a roughly 14% increase from a prelaunch baseline.

Andy Harmening: In the face of a very challenging environment in 2023, we've steadily continued to execute this plan with proven results in 'twenty 'twenty four we expect to drive core customer deposit growth between 3% and 5%.

Andy Harmening: Moving to slide 10, we highlight our loan trends through the fourth quarter on a quarterly average basis loan balances grew by $68 million, but they decreased by $977 million on an end of period basis, a reflection of the $969 million mortgage loan sale that settled towards the end of December.

Andy Harmening: Yeah.

Andy Harmening: On both an average and period end basis Q4 loan growth was led by our auto finance business, where we continue to steadily add prime and Super Prime balances to our book as a reminder, we do not intend to become disproportionately reliant on auto loans, but we view this portfolio as a means to diversify our customer book with high quality yield.

Andy Harmening: Renly loans without stretching on credit.

Andy Harmening: On the commercial side, we saw growth from our utilities business offset by net outflows in other verticals, including mortgage warehouse and general C&I.

Andy Harmening: Within the C&I bucket the quarterly outflow was primarily driven by a subset of lower quality credits strategically moved out of the bank at par.

Andy Harmening: Across our broader portfolio, we continue to seek selective growth it emphasizes relationships quality and diversification, while delivering accretive returns. This enables us to deemphasize lower yielding non relationship asset classes over time.

Andy Harmening: On slide 11.

Andy Harmening: We show loan trends on an annual basis average annual loans grew by by $3 $3 billion in 2023, a trend that reflects the torrid pace of broad based loan growth. We saw in the back half of 2022 point.

Point to point, we grow total we grew total loans by over $400 million during 2023 and that 1% growth figure is inclusive of the $969 million in mortgage balances that were pulled off our books in December.

Andy Harmening: Excluding that sale, we saw total loan growth of nearly $1 $4 billion or 5% for the year.

Andy Harmening: Consistent with the rest of the industry, it's clear that lending activity slow going into the going into the end of the year as our customers took a more cautious approach and the uncertain macro environment.

Andy Harmening: With that said, we've continued to see encouraging signs of activity in our markets. We also expect to benefit over time from the key leaders in our EMS, we've already hired throughout our footprint as they get up and running.

Andy Harmening: Taking into taking into account the current lending environment and the anticipated impacts of our initiatives, we expect to drive total loan growth of 4% to 6% in 2024.

Andy Harmening: With that I'll pass to Derek to walk through the income statement and capital trends there. Thanks.

Derek Smith: Thanks, Andy I'll start with our asset and liability rate trends through the year end on slide 12, well fed funds rates stabilize in the back half of 2023, our total asset yields have continued to rise due to our remixing loan book and the repricing nature of a large segment of commercial loans.

Derek Smith: Since the fourth quarter of 2021 total, earning assets have increased by 292 basis points at roughly 56% of the increase in fed funds target rate over the same period.

Derek Smith: This trend has been led by rising yields in commercial CRE and auto respectively.

Derek Smith: On the liability side, it's no secret that rising rates liquidity pressures and a mixed shift in customer deposits combined to create significant funding cost pressure for the industry in the first half of 2023.

Derek Smith: In the back half of the year. However, these trends stabilize meaningfully associated in aggregate our interest bearing liability costs have now increased by 328 basis points since the fourth quarter of 2021 were roughly 62% of the move in fed funds target.

Derek Smith: Our interest bearing deposit beta has now climbed to roughly 59% since the start of the rate cycle.

Derek Smith: On the left side of Slide 13, you can see clear evidence of this stabilization pattern in our net interest income and net interest margin trends, our NIM decreased by 27 basis points in Q2 nine basis points in Q3, and only two basis points here in Q4.

Derek Smith: On a dollar basis, our Q4, NII was essentially flat decreasing by less than $1 million during the quarter.

Derek Smith: Well it is true that this flattening effect was a function of the stabilization I described previously we also received partial benefit from the balance sheet repositioning we announced during the fourth during Q4.

Because the sale of mortgage loans did not officially settle until late December the benefit. We saw was primarily driven by the securities sale and reinvestment that settled in November.

Derek Smith: Assuming both transactions were completed at the beginning of Q4. This would have represented approximately 11 basis points of incremental lift to our NIM during the quarter we.

Derek Smith: We expect the full impact of our balance sheet repositioning to take hold here in the first quarter.

Derek Smith: As we've discussed throughout the year. However, we're not relying solely on the rate environment or balance sheet repositioning to dictate our earnings going forward.

Derek Smith: Our organic initiatives are designed to improve economics on both sides of the balance sheet to drive more durable interest income in future quarters.

Derek Smith: Whether it's adding high quality customer loans, attracting and deepening core customer deposit relationships are layering in interest rate hedges. These actions had been designed to enable our company to achieve a higher level of profitability through the cycle.

Derek Smith: Altogether, the funding cost pressures from elevated rates and mix shift has slowed to a trickle, but they haven't stopped completely as such we have not yet call. It a bottom on our NIM, but we believe we're nearly there.

Derek Smith: Based on our current expectations for balance sheet growth deposit betas and fed action, we expect net interest income growth of between two and 4% in 2024.

Derek Smith: This guidance assumes 625 basis point fed rate cuts throughout the year beginning in March.

Derek Smith: On slide 14, we continue to manage our securities book to remain within our 18% to 20% target during the fourth quarter.

Andy Harmening: With benefits of our securities repositioning and starting to take hold in Q4. The average yield on our Securities book is now driven by rising by 86 basis points since the same period a year ago.

Andy Harmening: We also leverage the securities repositioning as a way to build our cash position during Q4.

Andy Harmening: Largely as a result of the macro rate improvements we saw during the quarter and our security sale, we saw meaningful improvement in our <unk> in Q4 after adjusting our CET one capital ratio would include the impacts of the OCI. This impact would have represented 50 to 52 basis point hit to CET. One in Q4, the spread of this impact narrows significantly when compared to Q3.

Andy Harmening: Hi.

As a percentage of total assets, our investment security and cash positions grew to roughly 21% during Q4.

Andy Harmening: For 2024, we will continue to target investments to total assets of between 18% to 20%.

Andy Harmening: Our noninterest income trends are highlighted on slide 15, as Andy mentioned, our GAAP results reflected a net loss for the fourth quarter and this loss was driven by one time items tied to the balance sheet repositioning we announced in November.

Derek Smith: Specifically, we recognized a one time $136 million loss on the sale of mortgages and another $65 million loss on the security sale.

Andy Harmening: Adjusting for these results our fourth quarter noninterest income came in at $70 million, representing a slight increase for the fourth consecutive quarter.

Andy Harmening: Our underlying results were primarily driven by a $6 million gain on the sale of visa B shares along with increases in wealth management capital markets Bali and other income.

Derek Smith: These results were partially offset by a $5 million decrease in mortgage banking fees and $2 million decrease in service fees.

Derek Smith: Taken together, we view our core trends as evidence of durability in our fee income in a year that was challenged by market dynamics and changes to fee structure.

Derek Smith: As we look to 2024, we expect noninterest income to compressed by zero to 2% as compared to our adjusted 2023 base of $264 million.

Derek Smith: Yeah.

Derek Smith: Moving to slide 16, our fourth quarter expenses were also heavily impacted by a one time item the special.

Derek Smith: Assessment finalized by the FDIC during the quarter resulted in a $31 million expense added to our results.

Derek Smith: Excluding this one item our adjusted noninterest expense came in at $209 million in Q4, the bulk of the quarterly increase stemmed from investments in our organic initiatives.

Derek Smith: Of note severance associated with the reduction in force, we announced in Q4 in tandem with an acceleration of hiring drove a $4 million increase in personnel expense for the quarter.

Andy Harmening: As Andy mentioned, we've seen strong momentum in the hiring of talent, where they're filling key leadership roles are adding commercial bankers to our footprint.

Andy Harmening: Thanks to a strong candidate pool and a growing view the associated as an employer of choice in the marketplace. We've been able to pour hiring plans forward. This acceleration did drive an increase in Q4 expense, but it also positions us to accelerate execution on our strategy.

Andy Harmening: For the full year 2023, our adjusted noninterest expense came in at 783.

Andy Harmening: While we continue to invest in our strategy is to support our growth aspirations. We are committed to keeping expense growth in check over the long term on an ongoing basis. We will continue to review our expense base and optimize where possible.

Derek Smith: With that in mind, we expect total noninterest expense growth of between two and 3% in 2024 off of our adjusted 2023 base of $783 million we.

Derek Smith: We also expect annual operating leverage of between negative, 1% and zero percent in 2024.

Derek Smith: Shifting to slide 17, we saw 23 basis point improvement in our TCE ratio during the quarter, finishing the year at 17, 7.11%.

Derek Smith: Our regulatory capital levels fell slightly as a result of the balance sheet repositioning we announced in Q4, but our CET one ratio still remains well within our target range at 93, 9% as of 12 31.

Derek Smith: Given market current market conditions, and the expectation for short term rates to remain elevated in the near term, we expect TCE to remain in a range of between $6 75, and $7 75. In 2024, we also expect <unk> to remain in a range of 9% to 10% over the same timeframe.

Derek Smith: I'll now hand, it over to our Chief Credit Officer, Patty adhering to provide us an update on credit quality.

Patty adhering: Thanks, Derek I'd like to start with an allowance update on slide 18.

Patty adhering: We utilized the Moody's November 2023 baseline forecast for our seasonal forward looking assumptions the Moody's baseline forecast remains consistent with a resilient economy. Despite the high interest rate environment.

Patty adhering: Baseline forecast contains no additional rate hikes slower, but positive GDP growth rates are cooling labor market continued deceleration of inflation.

Patty adhering: R E C O L increased by $5 million during the quarter to $386 million. Our allowance continues to be driven by loan growth in select areas such as auto nominal credit movement in general macroeconomic trends that reflect the stability of our Midwest footprint.

Andy Harmening: As such our reserves to loan ratio increased by six basis points versus the prior quarter and by 10 basis points versus the same period, a year ago landing at 132% in Q4.

Andy Harmening: Note that the loan sale and the corresponding portfolio reduction contributed three basis points of the six total increase or a $1 two 9% adjusted from $1 two 6% in Q3.

Andy Harmening: Moving to slide 19, our portfolio has largely continued to hold up well as evidenced by our core credit quality trends.

Andy Harmening: During the fourth quarter, we saw net decreases in nonperforming assets non accrual loans and charge offs, we did see a slight uptick in our delinquent loans during ratio during the quarter.

Andy Harmening: This increase from recent levels was primarily focused within a few credits managed by our special loan group.

Andy Harmening: As with Mommy workout credits negotiations can be prolonged and the resolution for most of these credits did not take place until after year end.

Andy Harmening: Overall outside of these specific situations, we remain comfortable in the normalized level of delinquencies around the bank.

Andy Harmening: Also impacting this ratio was the mortgage sale, we completed in Q4, reducing the denominator by the $969 million. This sale represented about a one basis point of impact.

Andy Harmening: In Q4, we added another $21 million and provision a $1 million decrease from the prior quarter.

Andy Harmening: The decrease was the result of a $3 million release from mortgage sale, partially offset by a build from limited credit movement and macro trends.

Andy Harmening: As we shift into 2024, we remain focused on monitoring the uncertainty in the macro economy to ensure current underwriting reflects the elevated inflation supply chain disruption and labor cost to name just a few economic concerns in.

Andy Harmening: In addition, we continue to maintain specific attention to the effects of elevated interest rates on the portfolio, including growing interest rate sensitivity analysis bank wide.

Going forward, we expect any provision adjustments to continue to reflect changes in risk rates economic conditions loan volumes and other indications of credit quality.

Andy Harmening: Finally, as we've done in prior quarters, we've provided a refreshed set of key metrics for our CRE portfolio on slide 20.

Andy Harmening: As we've discussed our conservative approach to credit has been optimized over the course of the past several years as we've built a diverse portfolio of high quality commercial loans across our portfolios and a focus on prime and Super Prime consumer portfolios.

Andy Harmening: While CRE continues to be cited as an area of risk in the industry, we feel well positioned given the well positioned given the conservative approach we've applied across the bank.

Andy Harmening: And building our CRE portfolio, we focused on partnering with well known developers and built a portfolio of predominantly in stable and Midwest markets.

Andy Harmening: Over two thirds of our CRE portfolio is based in the Midwest with an emphasis on multifamily and industrial properties.

Andy Harmening: Office loans represent just 326% of our total loans as a bank and within that portfolio, we are weighted towards non urban class a properties.

Derek Smith: The uptick in delinquencies, where some of those same special loan group credits referenced earlier.

We continue to take a proactive approach to CRE office credits with the majority of those maturing in the first half of 2024 already having strategies in place whether that be refinanced sale or qualifying for extensions at prevailing underwriting standards.

Derek Smith: While we feel well positioned given our business model approach in the markets. We operate in we continue to monitor this in all of our portfolios closely.

Andy Harmening: With that I will now hand, it back to Andy to share some closing thoughts.

Andy Harmening: So I'll close out our formal presentation by reiterating a couple key points from our presentation on slide 21 first our.

Andy Harmening: Strategy is designed to drive quality relationship focused loan growth that decreases our reliance on lower yielding non relationship balances and enhances our profitability profile.

Andy Harmening: On the expected benefits of our plan in the current macro outlook, we expect total loan growth of between 4% and 6% in 2024.

Andy Harmening: On the other side of the balance sheet. The deposit environment is much more stable than it was just six months ago, but it remains competitive coming off two straight quarters of core deposit growth gives us confidence we're on the right track with our initiatives and we expect to benefit further as phase II initiatives ramp up as such we expect core.

Customer deposit growth of 3% to 5% in 2024.

Andy Harmening: Shifting to the income statement, we were just at our most recent forecast for balance sheet growth deposit betas and the rate environment. Our current forecast assumes six fed rate cuts beginning in March taking all these factors into account, we now expect to deliver net interest income growth of between 2% and 4% in 2020.

Andy Harmening: Sure.

Andy Harmening: And lastly, our disciplined approach to expenses remains found a foundational focus for our company.

Andy Harmening: While we will continue to seek smart investments for organizational growth.

Andy Harmening: We'll look to offset those costs, where possible by shifting dollars from on underperforming areas taken together with current market conditions, we expect noninterest expense growth of 2% to 3% in 2024.

Andy Harmening: With that.

Andy Harmening: Open it up for questions.

Andy Harmening: Thank you.

Andy Harmening: At this time, we will conduct a question and answer session. If you would like to ask a question press star one on your telephone keypad.

Andy Harmening: You May press Star followed by the number two if you would like to remove your question from the Q.

Andy Harmening: One moment, please while we poll for questions.

Andy Harmening: Our first question comes from Daniel Tamayo with Raymond James Please state your question.

Andy Harmening: Thank you good afternoon everybody.

Daniel Tamayo: Maybe just starting with a clarification on the on the margin guidance first.

Daniel Tamayo: When you say you're you're not.

Daniel Tamayo: I'm not calling a bottom on the NIM, but it could.

Daniel Tamayo: It could move down slightly I'm, assuming you are taking into account the 11 basis point benefit of the restructuring and the.

Daniel Tamayo: Like a pro forma NIM before.

Daniel Tamayo: That or is it are you talking about on an absolute basis.

Daniel Tamayo: Let me start that off and I'll have Bob Derrick finish that Daniel what we're saying is the core underlying business outside of the inorganic action is pretty close to bottom.

Bob Derrick: Could it go down one basis point or two basis points, perhaps but we're pretty darn close we don't see a lot of volatility in the underlying margin on top of that we expect to see the full force of the increase that we outlined from the inorganic actions starting in Q1, and then based on what we're doing on our production.

Bob Derrick: Balance sheet, we expect to have a positive trend.

Bob Derrick: Throughout the year.

Bob Derrick: I think that's right and Youre right were talking about.

Bob Derrick: Looking at our start point levels at the pro forma $2 79.

Bob Derrick: Okay, Alright. Thank you I just wanted to make sure.

And then I guess, sorry go ahead.

Bob Derrick: Okay.

Bob Derrick: And that's.

Bob Derrick: Yeah, No just just following up on a on the NIM guidance, you've got fixed rate cuts in there wondering if you.

Bob Derrick: Can kind of frame for us.

Bob Derrick: You know, what what that looks like either on a on a per cut basis or.

Bob Derrick: If if it was going to be more in line with the fed's guidance of three cuts in the back half of the year, how that would impact the guidance.

Bob Derrick: Yeah, I think the easiest the only one that the only way we've modeled this worst recently to develop any sensitivities is what if you don't get the first cut so you get five cuts and that pulls through and you don't get the March cuts, that's probably worth about two or three basis points to us for the year.

Bob Derrick: Okay.

Bob Derrick: And.

Andy Harmening: Just to be clear so the rate cut is a punitive to the margin here.

Bob Derrick: But youre, saying why are you still asset sensitive.

Bob Derrick: We are still asset sensitive.

Bob Derrick: You can get into a longer discussion about what what do you does the front end of the curve get cut or do you have a parallel shift but the most likely scenario is we've tried to plan conservatively with a fixed rate cuts and then thought about what if you don't get all six and that does reflect asset sensitivity.

Bob Derrick: Okay I appreciate that.

Bob Derrick: And then my second question.

Bob Derrick: Just wanted to get a little high level here.

Bob Derrick: No. Andy you you guys have taken on some some pretty big changes since you've.

Bob Derrick: Been associated I'm, just curious given the.

Andy Harmening: Uncertainty going forward, but certainly what you the changes that you've made if theres any kind of profitability.

Andy Harmening: <unk> forecast that you are not forecast, but targets that you had in mind.

Andy Harmening: They that you could share or you know just.

Andy Harmening: Kind of guideposts that we should be thinking about as the bank goes through these transformations.

Daniel I just wanted to say, we expect profit to go up and I was going to stop after that but.

Daniel Tamayo: In all seriousness, what I would say is the plans that we've put together when you expand your lending verticals. When you expand your product offering when you modernize your digital platform and decrease your attrition when you see a turning point on household growth when you start deepening customer segments on the deposit side you know the re.

Daniel Tamayo: Isn't that we think that we have and opportunities because we've put in the work in phase one phase two is simply extending what we've done in the past so when we extend on the commercial side. The pieces that we've had when we extend on the on the marketing side to the platforms that we already have.

Daniel Tamayo: With a company that has a large wholesale.

Daniel Tamayo: Reliance on the funding side, we can we can either replace that or fund the loan growth. We have in either way that leads to increased profitability. So what I would say is I don't have a specific number outside of the guidance. We've just now given.

Daniel Tamayo: But we feel very good about achieving the guidance that we've given.

Daniel Tamayo: Terrific. Thank you for all the color.

Daniel Tamayo: You're welcome.

Danielle: Thanks Danielle.

Danielle: Our next question comes from Scott Cyphers with Piper Sandler. Please state your question.

Scott Siefers: Good afternoon, guys. Thanks for taking the question.

Derek Smith: So Derek wanted to I guess I just wanted to try to be as clear as possible on the on the margins. So just thought of.

Derek Smith: As stated basis, the margin should go up right from.

Derek Smith: From here to.

Derek Smith: Yep.

Derek Smith: Okay, good and the starting point for sort of the corner at this point is like a 279 and we get some some some additional benefit due to the full quarter impact of the restructuring is that a good way to frame it.

Derek Smith: Yeah, So just to connect the dots we expected about <unk>.

Derek Smith: 16 basis point.

Derek Smith: Improvement right, we got and located about five of it this quarter, we got another 11 to go.

Derek Smith: And so any other movement in NIM as the underlined via U.

Derek Smith: Okay.

Derek Smith: Trying to get out about what they were calling a bottom but on a reported basis, we expect to go up.

Andy Harmening: Okay perfect. Thank you and then Andy just on the notion of positive operating leverage and that's going to be sort of close calls this year.

Kind of feels to me like a rounding error at more or less if it's zero to a negative one 1% if maybe.

Andy Harmening: The major levers that in your in your view would make it harder or easier to achieve and I guess sort of a related question Derik just to go back on the trajectory of rates if we only got.

Andy Harmening: If we got fewer rates on the sexy, but you've assumed that would be better for your NII guide is that correct.

Andy Harmening: Correct.

Andy Harmening: Okay.

Andy Harmening: Yeah going back to it I mean.

Andy Harmening: Wanna be can try it on this but we're in the business of doing loans and deposits and the deposit market. If we had a significant headwind that that could create a challenge what gives me confidence going into 2024 is the second half of 2023. So the deposit market was challenged for the year, but we had a six.

Andy Harmening: Month growth rate of 3% so.

Andy Harmening: Clearly if you have a funding issue that costs more than you have a challenge, but we don't see that as the trend right now the second piece of it is we emphasized with the team as the importance of getting out of the gate with good commercial bankers.

Andy Harmening: And I say good commercial bankers, we have a very good team already.

Andy Harmening: We've attracted talent over the last two years that I am pleased with them. Then we have people that were here before that our talented so when we add 10 bankers over the course of tenant to two and a half months.

Andy Harmening: We're adding very high quality bankers and so it takes 90 days to ramp up then you accelerate it six months nine months 12 months so.

Andy Harmening: For that the question is how quickly can we get quality bankers in the answers so far is quite quickly.

Andy Harmening: The next question is how quickly can they ramp up their pipeline.

Andy Harmening: And we'll see what that timing is and so that that could be a positive.

Andy Harmening: For us and that that could create the biggest execution risk, but as I sit here and I look at the hiring and where they come from and what they've done in their past that gives me some confidence that we're right on track with what we've suggested the third part of it is I do think expenses are controllable.

Andy Harmening: And going through the exercise expense exercised line by line of business by business category by category and the detail that we went through that and already outlined it and have specific measurements on it. It gives me confidence that we'll be able to execute on the expense line item.

Andy Harmening: Of the budget.

Andy Harmening: Perfect. Okay. Thank you very much.

Scott Siefers: Thank you thanks Scott.

Scott Siefers: Our next question comes from Terry Mcevoy with Stephens. Please state your question.

Speaker Change: Hi, good evening everybody.

Speaker Change: Maybe just start with an expense question could you maybe just talk about the trajectory of quarterly expenses in 2024, given kind of some of the hiring plans and initiatives throughout the year.

Derrick: Yes, Terry the way this is Derrick the way it works out in our current forecast is it's pretty flat for most of the most of the quarters during the year. So.

Derrick: That implies coming down a little bit off the core fourth quarter that we have and then flat going forward.

Derrick: The hiring plans, obviously you started this quarter and.

Derrick: Ben.

Derrick: On a pleasantly.

Pat Smith: We've got Pleasant result at the speed and interest.

Pat Smith: So we don't want to slow that down and then we're obviously look at other areas, where we have control and discretionary expenses to make sure that we have a balanced timing, but theres not a hockey stick implied in there where we're mindful of where we're going to finish the year.

Pat Smith: Delivering economics and setting ourselves up for 2025 also.

Pat Smith: Yeah.

Andy Harmening: And then the company has aggressive deposit growth goals this year versus peers and Andy just ran through what gives you guys the confidence.

Andy Harmening: Derek I guess for you how are you modeling deposit betas, where do you think they'll peak and if the forward curve is correct and we get the rate cuts how are you thinking about betas on the way down.

Derek Smith: Yeah. So we think they will.

Derek Smith: Peak.

Derek Smith: Obviously at the end of the first quarter.

Derek Smith: Around 61, 62%.

Derek Smith: <unk>.

Speaker Change: You could if you there's a number of ways of looking at them, but if you start the beta is going down we're probably looking at.

Speaker Change: <unk> 45 and 55.

Speaker Change: Percent, but the challenge as you know is how long after the last rate hike and hopefully we've had ours do.

Pat Smith: This competition to keep rates high before they start cutting it.

Pat Smith: And we tested that in the fourth quarter I may have shared before.

Pat Smith: With lowering some of our CD rates and competitors, even large banks kept the rates high and so we went back to our seven months, 5% CD.

Pat Smith: Because of that but.

Pat Smith: So.

I feel good about our plans, they're not all rate driven but rates matter.

Andy Harmening: So I think that's that's hard to answer that Terry I'll also reiterate you know when I got here almost three years ago now we were quite asset sensitive and we've drawn that asset sensitivity significantly down. So we're not playing in the same spaces. We were three years ago relative to the market where are you.

Andy Harmening: Our bank.

Andy Harmening: Thanks for taking my questions.

Andy Harmening: Thank you.

Andy Harmening: Our next.

Andy Harmening: Comes from John Armstrong with RBC capital markets. Please state your question.

Thanks, Good afternoon.

John Armstrong: Hey, John and Jeremy.

John Armstrong: A question on loan growth drivers, but slide 10.

John Armstrong: That you lay out I guess, it could be 11 as well but.

What do you think that looks like in a year, where you're seeing the opportunities to generate that kind of loan growth.

John Armstrong: Well.

John Armstrong: A few different areas, we'll have very modest growth in CRE and be mindful of what the market is key.

John Armstrong: Clearly if we add 20 to 25 commercial bankers, we expect for them to increase their productivity in right.

John Armstrong: Right now, we're saying that should be about for the year I think it's roughly a quarter of a $1 billion increase versus what.

John Armstrong: Run rate is and the question of what run rate really is and I would tell you that I think utilization was slightly down last year and I think that's unlikely I think there's a dislocation in the regional banking market.

John Armstrong: Don't anticipate having again this year, we had some purposeful runoff in C&I that we were able to get out of some loans.

John Armstrong: At par that we thought would be wise, if there's softening.

Daniel Tamayo: And so when I look at commercial I think between the quality of people. We have in the program, we have and the focus we have and those other items I mentioned and the additional addition of RMS I fully expect that to be one of the significant drivers of growth for us we will have steady growth in <unk>.

Daniel Tamayo: Aldo and that steady growth will kind of grow at a decreasing pace each year that we go along as we execute on our commercial plans and the other thing is and I know you asked about 'twenty four but this is a program that continues to build on itself as you well know when you're bringing quality commercial bankers. It takes time for them to grow their pipeline and their portfolio.

We had an end to the end of the year, having had people on as we got 10 people on and we will have significant amounts of this hiring done in the first half of the year, meaning that they will have fully formed pipelines as we head into the end of the year heading into 2025. So I think you can see that as a continuation of the balanced re shift of our portfolio.

Andy Harmening: That leads to profitability.

Improvement.

Okay. Okay fair enough, John maybe I can maybe I can add one K, but also because.

Andy Harmening: Andy remind me later that I didn't bring it up.

Andy Harmening: We do expect and that's part of the strategy our strategy with the transaction we did four.

Andy Harmening: The portfolio growth.

Andy Harmening: To change from a residential real estate orientation that we had before so.

Andy Harmening: We are in that business, we have switched.

Andy Harmening: Product mix and made investments too.

Andy Harmening: Support <unk>.

Andy Harmening: Originate to sell.

Pat Smith: And then judiciously use our portfolio for arms and wealth, but that mix.

Daniel Tamayo: Of our total loans should drop.

Daniel Tamayo: By the end of 2020 forward about 25% of our loans being <unk> into 2025, something more like 23%. So you sort of have to have that piece in the equation to help make the.

Daniel Tamayo: NII and the NIM guidance work the way we expect it to.

Andy Harmening: Translated for mortgage the importance of that is we are doggedly determined to lend to our customers our customers define that people that do full business relationships people that deposit with us and tend to do that on the construction lending side for depositors and intend to do that on our core business, but the third party origination is is something that we no longer.

Andy Harmening: Doing that will change the trajectory over time of the residential real estate book.

Speaker Change: Okay, Okay got it and I guess mass affluent as probably tied in with that as well.

Speaker Change: <unk>.

Andy Harmening: It absolutely is yep, Okay, just just two more kind of more hypothetical but back to Scotts positive operating leverage question. Andy would you would you be spending and investing more if the revenue environment, we're more robust or do you feel like you have everything you need from a budget point of view right now.

Andy Harmening: That's a great question.

Andy Harmening: Well, what I would say is we're being pretty aggressive on the hiring on the commercial bankers side and now we're not looking to fill seats, we're looking to hire talent and so you know as we get good folks and if there's opportunity. We've I've said all along to each line of business. If you find somebody that you believe is a game changer you should.

Andy Harmening: Higher than so we will but that being said, there's only so fast youre going to be able to hire responsibly and so we like the plan that we have if we add the 'twenty to 'twenty five bankers this year and they're all very strong.

Andy Harmening: I like where this company is going based on everything else that we have in flight that being said I promise halfway through the year I will be asking our executive leaders. Okay. Now what what's next on the deposit front what other initiatives can drive returns what is the next.

Daniel Tamayo: Phase of what we see being imported banking and to me really that's just the way you stay ahead of the curve and I will tell you over the last almost three years now I felt like we had a first phase and we ran hard to get that as foundation all the second phases additive and the third phase is let's get ahead of the market. So I like the path, we're on and we will think about.

Daniel Tamayo: Investments that way.

Andy Harmening: Frankly for as long as I'm here.

John Armstrong: Okay, alright, good although in the interest of time I'll leave it there and see if the others.

Andy Harmening: Andy Thank you.

Andy Harmening: Right.

Andy Harmening: Yeah.

Our next question comes from Timur <unk> with Wells Fargo Securities. Please state. Please state your question. Thank you.

Andy Harmening: Hi, good afternoon.

Andy Harmening: Looking at the deposits looking at the deposit guidance for 24 can you just maybe talk us through the expectation for mix shift and what the potential for mix shift out of noninterest bearing remains here in the near term.

Andy Harmening: You want to take that Terry I'll take I'll answer the first part of it.

The <unk>.

Andy Harmening: Big Challenge, obviously has been aside from interest bearing has been what's happening in the noninterest bearing that has slowed down quite a bit.

Andy Harmening: It's.

Andy Harmening: The way, we've got our outlook shaping up as we expect.

Andy Harmening: The us to bottom at about five eight or $5 9 billion and finished the year up a little over $6 billion.

Andy Harmening: People use the shorthand that percent of deposits, but that includes brokered and this is easier for us to communicate.

Andy Harmening: Absolute dollar expectation and that's what's in our guidance.

Andy Harmening: Our expectations are.

Andy Harmening: I'll, just say that a different way is that we're pretty low point on noninterest bearing that's what gives me confidence to say that I don't think there's a big story in margin distraction in the first quarter, so whether we call bottom right now or we call. It during the first quarter I think you're only talking.

Andy Harmening: Zero, one or two basis points and so I think the story comes into can you shift your balance sheet can you bring and KOL relationships can you put loans on the books that have a little bit better.

Andy Harmening: Yielding can you grow deposits overall, so I think from a position of margin.

Andy Harmening: Decreased.

Andy Harmening: Quickly at closing in on the bottom.

Andy Harmening: Okay. Thanks for that and then as we start looking at rate cuts Derek did I hear correct that betas on the way down you're expecting 45% to 55%.

Derek Smith: Thats not correct and I guess on the way down what do you expect the deposit beta to be and is there going to be a lag for the first couple of rate cuts before that data actually kicks in.

Derek Smith: That assumption includes a lag assumption, but we don't.

Derek Smith: I can't say, we've formalized a view on it we're going to try and.

Derek Smith: B as early as we can while still hitting our growth numbers and we positioned the balance sheet that way or our brokerage CD portfolio has a contractual maturity that it runs the whole thing down and gives us options by the end of the year.

Daniel Tamayo: Of our $2 $8 billion in the accustomed with Cds.

Daniel Tamayo: $1 7 billion of that is scheduled a rollover this year, 95% of that by the end of July. So we're trying to be very opportunistic, while still growing and giving us lots of pricing options. So that we can take advantage of.

Daniel Tamayo: Any opportunities and keep the beta where we'd like to have it.

Daniel Tamayo: Great and then just last for me you mentioned this briefly in your prepared comments, but maybe can you just talk to the cadence of office Paydowns in 'twenty four.

Daniel Tamayo: Office Paydowns, yes, I mean, we saw I think in 23, a good trend of office, we had a handful of probably half of the deals that we came through our maturities and a 23, where pay offs I think it's still going to be.

Daniel Tamayo: Kind of a similar pattern, but it's all case by case.

Daniel Tamayo: We've got about I think the ones that were kind of circled for the first half of 2024 about 40% of them are going to either refinance or sell and that's the strategy put in place. The others are going to world. We have extensions in place or they qualified for extensions, but thats under the current environment.

Daniel Tamayo: So it's still a mixed bag.

Daniel Tamayo: Clients are starting to the office market is hard to tell I think that stabilization is still early to call that I think in other areas. We're seeing payoffs from multifamily is.

Daniel Tamayo: Long term rates have come down I think we're starting to see a lot of clients kind of move off the sidelines there.

Daniel Tamayo: And the industrial market as well, we're still it's not as hot as it was two years ago, certainly, but still a pretty steady pace of.

Daniel Tamayo: Lease up and therefore sale in that in that asset class as well.

Daniel Tamayo: Okay, and then just the maturities for office both in the first half and for the year. If you have those numbers.

Daniel Tamayo: We've got.

Daniel Tamayo: First half of the year, we've got about $140 million in maturing office loans coming up and like I said, we've kind of circled the majority of those with strategies in place.

Daniel Tamayo: I'll just close out on commercial real estate by saying, we've had five straight quarters without a charge off we like how the portfolio is holding up where all over both.

Daniel Tamayo: Both the office portfolio and the overall CRE portfolio.

Andy Harmening: Frankly, the experience level of our bankers and the CRE group has is very strong and I think relative to the industry.

Andy Harmening: We feel pretty good about the position we're in certainly it can be lumpy as time goes by but.

Andy Harmening: I have a pretty good handle on that.

Andy Harmening: Thank you for the questions.

Andy Harmening: Our next question comes from Chris Mcgratty with VW. Please state your question.

Nick <unk>: Hi, This is Nick <unk> on for Chris Mcgratty I guys doing.

Nick <unk>: Go ahead Nick.

Nick <unk>: I you know maybe just on on the capital levels.

Nick <unk>: Given as you move through 2024, and further out any appetite for buying.

Nick <unk>: Buyback or even further.

Nick <unk>: Tweaking or de risking.

Nick <unk>: Or of the loan portfolio.

Nick <unk>: As we look more longer term.

Nick <unk>: Sure.

Nick <unk>: Nick I like our organic plan, if we can hire the most talented in the industry and grow our balance sheet and the carry key areas that we have I believe the investment community I'd be happy with the return so that's where our entire focus is right now.

Nick <unk>: With regards to another action on the portfolio, we don't have anything planned.

Nick <unk>: At this time.

Nick <unk>: And buyback site.

Nick <unk>: That is not front and center for me I think we have ways to use our capital that we'll be happy with the midterm and long term.

Nick <unk>: Results.

Nick <unk>: Okay, Great and then just.

Nick <unk>: Just on the cash flow from the Bond book do you guys have the quarterly cadence of of runoff for the securities.

Nick <unk>: It's about 150 to 200.

Nick <unk>: And because we're growing it with fixed assets you would expect to reinvest maybe 300 to think about.

Nick <unk>: 150 to 200 runoff 300.

Nick <unk>: Oh.

Nick <unk>: Purchase a quarter and then the <unk>.

Nick <unk>: Fred on that runoff rate versus the buy rate would be 150 to 200 basis point difference.

Nick <unk>: Okay.

Nick <unk>: Great. Thank you for taking my questions.

Nick: Thank you Nick.

Nick: Our next question comes from Brody Preston with UBS. Please state your question.

Brody Preston: Hey, good afternoon, everyone.

Brody Preston: Hey, Brody.

Brody Preston: Hey, I just wanted to ask a handful of questions on the on.

Brody Preston: On the NII.

Derek Smith: Derek just wanted to put a finer point on the beta commentary there was that $45 to 55.

Derek Smith: What do you expect to achieve by year end 'twenty four or is that more of a comment about whether there will be over the next couple of years.

Derek Smith: That's March to December.

Derek Smith: Of this year.

Derek Smith: March through summer. Thank you very much for that.

Derek Smith: Within the core deposit growth guidance that you guys have laid out how much of that is coming from Cds.

Derek Smith: I don't think we've provided that level of detail I guess does it depend on the market.

Derek Smith: Okay.

Derek Smith: I'd be happy with the mixed detail I gave you already on the noninterest bearing deposits and the residential real estate.

Derek Smith: I want it all there.

I wanted to say.

Derek Smith: When you said five questions or six questions or whenever it was.

Derek Smith: I did ask Eric why it's providing so much detail and you said bruni demands it.

Derek Smith: This is true.

Bruni: True I am a little bit of a pain in the butt.

Bruni: I just wanted to also ask on the <unk> I noticed.

Bruni: In the appendix you you kind of called out how much you're having capacity I wanted to ask how much of a <unk> views at this point.

Bruni: As of the end of the year.

Bruni: Okay.

Bruni: Very much for that.

Bruni: Oh I felt like I had one more for you guys brought it up I feel.

Bruni: On Friday, I feel compelled to say that I wouldnt be afraid to draw on that in fact, I think there is a reason that is put in place and if we can get advantageous terms relative to the market then we'll use it.

Bruni: Got it.

Bruni: Yes.

Bruni: Last couple for me.

Bruni: On the on the loan growth guide.

Bruni: I wanted to better understand you know another mix question, how much of that how much of the growth you are expecting to come from the auto portfolio.

Bruni: We're looking at similar levels that you've seen quarter after quarter. So in dollar terms, it's about 200 to 250.

Bruni: Got it and then the loss will add for you just on the auto yields.

Bruni: Pick up this quarter was pretty strong at 35 basis points, we wanted to.

Bruni: And if given the growth guidance that you just outlined for auto what we could expect for maybe the yield cadence from a repricing perspective within that book.

Bruni: And we're not providing specific guidance on that.

Bruni: Nice try but I think you had a nice pick up from the fourth quarter look the business is a good business for us and the average FICO in December was 786. So when you think about an opportunity when you see the yields that we're getting and you see the quality of the credit.

Bruni: We've said before we don't want to just be the auto bank, but it is it's a nice it's a nice portfolio for us that is performing well that we're getting a good yield on them and has a very very strong underlying credit yeah.

Bruni: What is what is fair to say abroad. Despite my snarky comment there was.

Bruni: Yes.

Bruni: The spreads that we've seen and I've talked about.

The sweet spot has been getting sweeter I think I've said that a couple of times. It really did stay that way fourth quarter and has stayed that way now so the inputs that are driving that sequential type of rate increase are still strong.

Bruni: Got it and most of the book is most of your auto business used used Colorado use data.

Bruni: No maybe two thirds or so 70% I think in the last quarter was what we saw in the used stuff.

Awesome. Thank you very much for taking my questions.

Thank you Brody well look I think that's all the questions. We have Tonight. We really appreciate your interest we are bullish on the plans that we have and we're glad that we could explain the story of 2023, and frankly ready to turn the page and get into 24. Thank you everyone and have a great night.

Thank you. This concludes today's conference all parties may disconnect have a great day.