Q4 2023 FB Financial Corp Earnings Call
Good morning, and welcome to SB Financial Corporation fourth quarter 2023 earnings Conference call.
Hosting the call today from FB financial or Chris Holmes, President and Chief Executive Officer, and Michael Mcmurray, Chief Financial Officer.
Also joining the call for the question and answer session is Travis Edmondson Chief Banking officer.
Please note FB Financial's earnings release supplemental financial information and this morning's presentation are available on the Investor Relations page of the company's website at Www Dot first bank online Dot com.
And on the Securities and exchange Commission's website at Www Dot S E G L b.
Today's call is being recorded and will be available for replay on FB Financial's website, approximately an hour after the conclusion of the call.
At this time, all participants have been placed in a listen only mode.
The call will be opened for questions. After the presentation.
During this presentation FB financial May make comments, which constitute forward looking statements under the federal Securities laws.
Forward looking statements are based on management's current expectations and assumptions and are subject to risks uncertainties and other factors that may cause actual results and performance or achievements.
Cancel could differ materially from any results expressed or implied by such forward looking statements.
Many of such factors are beyond FB financial's ability to control or predict and listeners are cautioned not to put undue reliance on such forward looking statements.
A more detailed description of these and other risks that may cause actual results to materially differ from expectation is contained in the SB financial's periodic and current reports filed with the SEC.
Including FB Financial's, most recent Form 10-K.
Except as required by law FB financial disclaims any obligation to update or revise any forward looking statements contained in this presentation.
Whether as a result of new information future events or otherwise.
In addition, these remarks may include certain non-GAAP financial measures as defined by SEC regulation G.
A presentation of the most directly.
Comparable GAAP financial measures and a reconciliation of the non-GAAP measures to comparable GAAP measures is available in FB Financial's earnings release supplemental.
Financial information and this morning's presentation, which are available on the Investor Relations page of the company's website at Www Dot first bank online dot com and on the Sec's website at Www Dot.
Dot G L E.
I would now like to turn the presentation over to Chris Holmes, FB Financial's, President and CEO. Please go ahead.
Christopher T. Holmes: Hi, good morning, and thank you Andrea.
Thank you everybody for joining us. This morning, we appreciate your interest in FB financial.
For the quarter, we reported EPS of <unk> 63 cents and.
Christopher T. Holmes: And adjusted EPS of <unk> 77.
Christopher T. Holmes: We have grown our tangible book value per share excluding the impact of the OCI.
Christopher T. Holmes: At a compound annual growth rate of 13.8% since our IPO.
Christopher T. Holmes: We close out 'twenty, three and enter 'twenty four and what we believe is an enviable position due to three factors.
We have a very strong balance sheet.
Two we've redesigned and reinforced our operating foundation and three we have some profitability momentum after hitting an inflection point in the second half of 2023.
Christopher T. Holmes: And believe that we should be able to continue that momentum into 2024.
Christopher T. Holmes: Well my first point, our strong balance sheet comes from our capital position.
Christopher T. Holmes: Quiddity position, our credit profile, and our granular diversified loan and deposit portfolios.
Christopher T. Holmes: Capital reflects safety and we got an imperative to maintain the maintained sound capital ratios at all times.
Christopher T. Holmes: But it gets extra attention in times of uncertainty and volatility.
Our ratio of tangible common equity to tangible assets is among the highest of our peers at 97%.
Christopher T. Holmes: We keep no held to maturity securities so 100% of our unrealized loss on our investment portfolio was reflected in that 9.7% TCE to ta ratio.
Christopher T. Holmes: Our regulatory capital ratios are also quite strong when you adjust.
Christopher T. Holmes: Unrealized losses out of the regulatory ratios, we also rig with a top of the class.
Christopher T. Holmes: So those strong capital levels.
Christopher T. Holmes: Our comfortable liquidity profile as our ratio of loans plus security to deposits continues to stay near 100% at 103% currently.
Christopher T. Holmes: We have access to $7 1 billion in available liquidity services.
Christopher T. Holmes: Sources.
Christopher T. Holmes: On the credit side.
Christopher T. Holmes: We keep a balanced granular diversified loan portfolio with only a handful of blending relationships.
Christopher T. Holmes: Over $30 million and none approaching our legal lending limit of over $200 million.
Christopher T. Holmes: Alright.
Christopher T. Holmes: Following the Franklin financial acquisition, we had a concentration in construction lending.
Christopher T. Holmes: But currently our ADC to tier one ratio.
Christopher T. Holmes: I'm, sorry, our ADC to tier one plus ACL ratio is 93%.
Christopher T. Holmes: Our CRE ratio is 265%.
Christopher T. Holmes: We've averaged less than five basis points of annual net charge offs as becoming a public company seven years ago, and we remain exceptionally well reserved as our ACL to loans held for investment.
Christopher T. Holmes: Is one 6%.
Christopher T. Holmes: And finally on the deposit side, we have a granular customer focused funding base.
Christopher T. Holmes: We've had a higher level of public bonds, we like Franklin acquisition in 2020, but we continue to consciously remix those deposits into customer funds, reducing those public funds by 23%.
Christopher T. Holmes: Since the fourth quarter of 2022.
Christopher T. Holmes: To around 15% of our deposit base, so a very strong balance sheet.
Christopher T. Holmes: To my second point.
Christopher T. Holmes: To understand our redesign and reinforce operating foundation.
Christopher T. Holmes: We have to add some context.
In the early months of 2022 we took stock of the economic conditions.
Christopher T. Holmes: <unk> forecast of higher interest rates recession, and quantitative tightening.
Christopher T. Holmes: Our view of challenges ahead.
Christopher T. Holmes: Reinforced when we heard Jamie Diamond statement that he was preparing for the worst and forecast that the U S with spacing and economic Hurricane.
Christopher T. Holmes: Even though that economic hurricane never materialized, we made some decisions and we began working on capital liquidity and loan concentrations to end up the balance sheet that I just described.
Also at that time, we had grown to $12 7 billion in assets from $3 2 billion at the time of our IPO in September 2016, and.
Christopher T. Holmes: And it grow loans and deposits at organic compound annual growth rates of <unk>.
Christopher T. Holmes: And a half percent and 16, 4% respectfully respectively over.
Christopher T. Holmes: Over that period, it had completed or.
Christopher T. Holmes: Four acquisitions over four years that added a total of $5 7 billion in assets.
Christopher T. Holmes: While we had made significant investments along the way much of our organizational structure and operating process had been reinforced through additional head count and incremental improvements in pack on additions prior to our recent rebuild that structure.
Christopher T. Holmes: Beginning to feel like it had been cobbled together reactively and out of necessity no longer allowed for the proper efficiencies of scale.
Christopher T. Holmes: And had led to some expense creep.
Christopher T. Holmes: The risk of sluggish growth environment in the industry is that the industry has experienced over the past several quarters, well time for us and we were able to.
Christopher T. Holmes: We were able to Uh huh.
Christopher T. Holmes: Focus on constructing the organizational structure enables us to properly scale into the future.
Christopher T. Holmes: The overall talent level, a key support functions has increased while the expense base has shrunk we've improved accountability and efficiency of interactions between the support functions and our relationship managers. This enabled us to maintain our local authority community banking model rather than moving to the centralized business line model.
Christopher T. Holmes: Most banks our size utilized.
Christopher T. Holmes: This model is a key brachiator or associate and customer satisfaction, which allows for organic growth and we also believe it makes us a more attractive merger partner for smaller community banks.
Christopher T. Holmes: Okay, My third point or being able to continue some of the earnings momentum that we've seen in the past two quarters. We're excited about the excess capital that can be put to work improving returns and profitability.
Christopher T. Holmes: <unk> for the deployment of that capital or organic growth burst strategic M&A second and.
Christopher T. Holmes: Capital and profitability optimization through things like security stray share repurchases and redemption of capital third.
Christopher T. Holmes: Speaking of organic growth in the fourth quarter, we saw our loan portfolio grow by $122 million.
Christopher T. Holmes: A five 2% annualized pace, even as we reduced our construction exposure by $135 million.
Christopher T. Holmes: 'twenty 'twenty four we anticipate mid single digit growth as the economy slows and as we continue to be selective and financing certain asset types that we see as being at higher risk in the short term.
Christopher T. Holmes: 'twenty 'twenty four is loan growth will be funded by customer deposit growth, we saw deposit costs moderate in the fourth quarter.
Christopher T. Holmes: And while the competitive environment continues to make it difficult to grow deposits were encouraged by the deposit pricing trends that we saw in the fourth quarter.
We remain active in relationship manager outreach and recruitment.
Christopher T. Holmes: It's primarily a footprint. We're also open to adding strong teams and markets adjacent to our existing footprint and as the economic environment continues to improve.
Christopher T. Holmes: We would expect to return to our 10% to 12% organic growth Tom.
Christopher T. Holmes: Target rate, given our exceptional markets across Tennessee, Alabama, North, Georgia, Southern Kentucky.
Christopher T. Holmes: Based on what we hear from fellow bankers, there should be good opportunities for bank combinations over the next couple of years public valuations are moving in the right direction and Walsh.
Christopher T. Holmes: Credit uncertainty and interest rate marks remain a hurdle.
Christopher T. Holmes: For those.
Christopher T. Holmes: For those handful of banks that draw our attention, we know and are comfortable with their credit cultures and credit portfolios. So we don't view that as a significant obstacle as a reminder.
Christopher T. Holmes: All our financial parameters, we valued by X hold their work and performance rather than our ability to pay.
Christopher T. Holmes: As we think broadly about the M&A landscape and more specifically about our place in that landscape. We believe that we're due for some consolidation.
Christopher T. Holmes: No.
Christopher T. Holmes: Based on the lack of activity over the past 18 months as.
Christopher T. Holmes: As well as how much more burdensome inexpensive, it's becoming neurotic community bank.
Christopher T. Holmes: The relative lack of acquirers compared to our footprint compared to what our footprint. It had in the past our operational platform and strong markets.
Christopher T. Holmes: We believe that we have a compelling story for those banks that are interested.
Moving to our third priority.
Christopher T. Holmes: Michael and his team continue to evaluate opportunities such as last quarter securities trade that improved profitability optimized capital.
Christopher T. Holmes: While limiting any book value dilution.
Well to summarize before I hand, the call over to Michael.
Michael McMurray: We spent significant time over the past few quarters laying a solid foundation.
Michael McMurray: We.
Michael McMurray: Oh I'm sorry over the past two years lay the solid foundation.
Michael McMurray: We've always felt strongly.
Michael McMurray: But the value of our local local authority.
Michael McMurray: Community banking model.
Michael McMurray: Creates.
Michael McMurray: The value in our footprint.
Michael McMurray: We also feel strongly that we have the processes procedures systems and team in place to scale. Our mill to that end, we've constructed a balance sheet that should enable us to capitalize on our opportunities.
Michael McMurray: So I had to see what our team builds on this foundation over the coming years and at this point I'm going to let Mike will go into a little more detail on our financial results.
Mike: Thank you, Chris and good morning, everyone.
Mike: This quarter had a number of moving pieces to it so I'll take a minute to walk through our core earnings.
Mike: We reported net interest income of 101.1 million reported non interest income was about $15 3 million adjusting for a loss of 3 million.
Mike: As the last loan in our commercial commercial loan held for sale bucket left the balance sheet and a net loss of 300000 between sell the Oh.
Mike: Oreo and securities.
Mike: Core noninterest income was $18 7 million of which $10 2 million came from banking.
Mike: We reported noninterest expense of $82 million adjusting for 4 million of severance early retirement and branch closure expenses and $1.8 million of FDIC Special assessment from the bank failures earlier this year core noninterest expense was $74 4 million.
Mike: $63 7 million of which came from banking.
Altogether adjusted pre tax pre provision earnings were 45 $44 million.
Mike: In banking adjusted pre tax pre provision earnings were $47 5 million.
Mike: Yeah.
Mike: Going into more detail on the margin at 3.46% our net interest margin held in better than expected as cost of interest bearing deposits increased by seven basis points in the quarter, while contractual yield on loans held for investment increased by nine basis points.
Mike: On the whole yield on earning assets increased by nine basis points versus cost of interest bearing liabilities increasing by six.
Mike: This was the first quarter that the increase in yield on assets has outstripped the increase on cost of liabilities.
Mike: Okay.
Mike: In the first quarter of growth in net interest income since the third quarter 2022, and we're optimistic about that inflection, although with fewer days of the quarter. This will likely be difficult to replicate in the first quarter of 'twenty four.
Mike: For the month of December our contractual yield on loans held for investment was $6 four 4% and yield on new commitments in December were coming in around eight 1%.
Mike: <unk>, 49% of our loan portfolio remains floating with 2 billion of those variable rate loans repricing immediately with the move in rates and 1.85 billion of those loans repricing within 90 days of a change in interest rates.
Mike: And the $4 5 billion in fixed rate loans, we have 336 million maturing in the first half of 'twenty 'twenty four with a yield of six 4%.
Mike: In two point or.
Mike: 213 million maturing in the second half of 'twenty, four with a yield of 637%.
Mike: Or combined 550 million maturing through year end 2024.
Mike: The weighted average yield of 639%.
Mike: For the month of December cost of interest bearing deposits was 34, 4% versus $3 40 for the quarter.
As we focus on exiting some of our more transactional higher cost public funds in 'twenty three we expect to have less build on subsequent runoff of public funds that we have in years past.
Mike: We ended the year with $1 6 billion on balance sheet at year end.
Mike: We expect those balances to increase slightly during the first quarter before they begin their seasonal outflow in the second quarter.
Mike: Another evolution in our deposit base is the amount of index deposits that we currently have which was not a significant number for us in the past.
Mike: We now have $2 8 billion in deposit accounts that will reprice immediately with a change in the fed funds target rate.
Mike: Looking at C. D's, we have $694 million at a weighted average cost of 4% set to reprice in the first half of the year.
The current weighted average rack rate on those for those pockets would be repricing. There is approximately 30 basis points higher than the maturing deposits.
Mike: We do expect some slight contraction in the margin and are maintaining our prior guidance for the margin being in the 330 to $3 40 range over the next two quarters.
Mike: As public funds build seasonally.
Okay.
Mike: Moving to noninterest income non mortgage noninterest income continues to perform that 10 million to $11 million range and we expect that to remain in that band plus or minus the next few quarters.
Mike: Our noninterest expense saw the benefit of the actions we took in the third quarter as adjusted banking segment expenses were $63 7 million.
Mike: Is that discussed previously.
Mike: We had some expected noise this quarter and as of now we are unaware of any one time charges to expect in 2024.
Mike: As I mentioned last quarter, our expectation for banking segment expenses for 24 would be approximately $255 million or $260 million.
We would anticipate mortgage related expenses of $45 million to $50 million for 24, and all told we anticipate total noninterest expenses of $305 million to $310 million for 24.
The caveat to that expense guidance would be that.
Mike: $255 million and $260 million banking expenses do not include any significant revenue producer hires in that mortgage could take higher interest rate lock volumes pick up.
Mike: On the ACL and credit quality credit remained benign this quarter as we experienced four basis points of recoveries.
Mike: We experienced net charge offs of less than one basis point for the year.
Mike: And six of our eight years as a public company, we've had charge offs of less than 10 basis points and in four of those years, we've had charge offs of two basis points or less.
Mike: We had the last of our commercial loans held for sale leave the balance sheet.
Mike: From close of the Franklin merger to today, we ultimately realized a $7 $2 million net gain on that portfolio relative to our initial mark and as Chris mentioned, we reduced our outstanding construction balances by 16% or $260 million during the year and we reduce unfunded commitments for construction loans by 56%.
Mike: Or $913 million as well.
Mike: Our ratio of construction loans to bank level tier one capital plus ACL is 93%, which is just outside of our targeted operating range of 85% to 90%.
Mike: Related to the decline in construction balances this quarter, we did see our multifamily increase as construction projects moved to permanent financing.
Mike: Our ratio of ACL to loans held for investment increased by three basis points during the quarter to one 6%.
Mike: But our provision expense was only 305000 is continued decline in unfunded commitments led to a $2 8 million release in reserves on unfunded commitments.
Mike: We feel well reserved for the current economic outlook and don't expect material movements in our ratio of ACL to loans absent a material change in the consensus outlook.
On capital, we have built significant excess capital and now stand at over 12% common equity tier one and a <unk>, 7% tangible common equity to tangible assets, which puts us solidly positioned well.
Mike: While there is still a broad range of potential economic outcomes for 2024, we feel very comfortable with where we stand should there be any downturn and are increasingly ready to deploy that capital across profitable strategic and.
Mike: Financial opportunities as they arise.
Mike: I will now turn the call back over to Chris.
Christopher T. Holmes: Alright, Thank you Michael.
Christopher T. Holmes: And this concludes our prepared remarks again, thank you for your interest and operator at this point, we'd like to open the line for questions Michael and myself are here together Travis Edmondson is on the phone with US our chief banking officer. He was not able to be here in person because we are.
Speaker Change: Under the same.
Snow storm that a lot of.
Speaker Change: Folks around the country are and were snowed in in downtown Nashville.
Speaker Change: So, but he is with us on the phone. So operator, we will open it up for questions.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
Speaker Change: If you are using a speakerphone please pick up your handset before pressing the key.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble the roster.
Speaker Change: And our first question will come from Catherine Mealor Keefe VW. Please go ahead.
Speaker Change: Thanks, Good morning.
Speaker Change: Good morning Catherine.
Speaker Change: Sure the margin and it was euthanized.
Speaker Change: Kind of a positive momentum in the margin this quarter and.
Speaker Change: Yes, I can totally appreciate the guidance for the first part of the year still coming down a little bit in the $3 30 to $3 40 range just given public funds in.
Speaker Change: Okay, and then funding base.
Speaker Change: Curious.
Speaker Change: More broadly how you're thinking about how your balance sheet will react when we start to get a rate cut.
Speaker Change: And at the Index deposit information you gave Michael was really interesting that seems like a bigger number than I had I appreciate it at $2 8 billion and so.
Speaker Change: If you could just kind of walk us through how you're thinking about.
Speaker Change: How quickly your deposit base could.
In our respond when you're starting to see rate cuts and then how you think about.
Speaker Change: So kind of is it down or that the loan side.
Speaker Change: As well just so we can kind of price and potentially where that margin can go once you start to see fed cut.
Speaker Change: Yeah, perfect. Good morning, Catherine so yeah.
Speaker Change: The B at the 2.8 billion then indexed deposits is something as Chris mentioned kind of the balance sheet over the last two years that we've.
Speaker Change: Really been cognizant of.
Speaker Change: Years past, we didn't have that lever and so.
Speaker Change: Deposit cost lagged when.
Speaker Change: When rates went down so so that's been something we've really focused on we are yeah.
Speaker Change: Slightly asset sensitive still so you know I would expect if if there were.
Speaker Change: Material rate cuts that you would see some NIM compression, but we feel like we've taken a lot of that staying out.
Speaker Change: If you think back to 2020, when we saw some pretty large NIM compression with a rapid drop in rates.
Speaker Change: So we are prepared for that but we feel like we're a much better balance the deposits reprice.
Speaker Change: Effectively.
Speaker Change: The index ones will reprice as soon as the fed cuts.
Speaker Change: A lot of the loan side as either indexed to prime or to some some.
Speaker Change: Some other treasury rates, sometimes 90 days. So it is a slow slower move down on the on the loan side.
And then of course for the non indexed deposits.
Speaker Change: We will have to be very cognizant of moving those down in line with rates.
Speaker Change: From a management perspective as well.
Speaker Change: Hey, Catherine.
I'd just add one other point remember we were.
Speaker Change: Faster to rise on deposit costs.
Speaker Change: And then some others, especially the bigger national.
Speaker Change: And superregional banks.
Speaker Change: <unk>.
Speaker Change: Listening to a few of the result, so far.
Speaker Change: Today from some of those banks they think they're there.
Speaker Change: Costs are going to continue to rise.
Speaker Change: Part of our index was a value play for customers, but it's also a blade.
Speaker Change: That that we thought they were going to raise any way and we think that index should allow those to move down a little more.
Speaker Change: With a little more speed than maybe some others. So it's a.
Speaker Change: A little fast rise, but will take a little faster drop them on the deposit side.
And then.
Speaker Change: And then Chris you mentioned at some point, you think youll return to that 10% to 12% growth rate.
Speaker Change: What's your crystal ball targeting the timing, but just as you kind of see your pipeline and the outlook near term you know where do you think the growth looks like maybe for the first part of the year.
Speaker Change: Or at least for 'twenty for kind of how are you thinking about the size of the balance sheet.
Speaker Change: Yes.
Speaker Change: So.
Speaker Change: I will say this before.
Speaker Change: I'm joking here, Catherine, but no I did not say, 10% to 12% loan growth rate I said, 10% to 12% growth rate.
Speaker Change: And I would make that sort of a wisecrack because specifically took the word loan out of that for our whole team.
Speaker Change: Because that growth rate has to be both loan and deposit growth rate ultimately for us to be successful and so.
Speaker Change: We're thinking both sides of the balance sheet, when we say that that 10% to 12% and we lagged sometimes on the deposit side, but that's an important really important metric for us.
Speaker Change: But specifically to your question.
Speaker Change: On the on the loan side.
Speaker Change: I'm sorry.
Speaker Change: In terms of growth in the first.
Speaker Change: Half of the year, probably going to be a little slower.
Speaker Change: We're saying mid single digits frankly.
Speaker Change: We're not terribly confident one way or another and what growth is going to look like in the first half of the year.
Speaker Change: So where we are.
Speaker Change: We're kind of projecting mid single digits.
Speaker Change: And we're hopeful that that'll be the case, we don't think it'll be higher than that in the early part of the year, but we think the later part of the year.
Speaker Change: Actually.
Speaker Change: We could we could pick up some momentum.
Speaker Change: That's where our head is.
Speaker Change: Thanks.
Pardon.
Speaker Change: Sure part of that is because we're still doing a little bit of really managing our concentrations and and have still.
Speaker Change: While we're we're optimistic we actually think good things about the economy, both locally and nationally.
Speaker Change: Think it's still tend to be fairly prudent to.
Speaker Change: Really prudent actually concentrations over the next.
Speaker Change: Next couple of quarters as we are.
Speaker Change: As we think the economy gained steam throughout the year.
Speaker Change: I totally appreciate that loan and deposit.
Speaker Change: Clarification, then really important to thank you for highlighting that.
Speaker Change: Yes.
Speaker Change: It's important for us to reinforce it to our team.
Speaker Change: It seems like daily so I want to just.
Speaker Change: Make sure we reinforced it to everybody.
It's an important metric for us.
Speaker Change: Okay.
Speaker Change: The next question comes from Brett Robinson of Telsey Group. Please go ahead.
Brett Robinson: Hey, good morning, Chris and Michael.
Hey, Matt good morning.
Speaker Change: Wanted just to start off with the deposit strategy from here.
Speaker Change: Your cost of funds has leveled out but you are still having some creep in the various components away from now.
Non interest bearing DDA and I know that the public funds.
Speaker Change: But the decision process.
Speaker Change: Those costs could you maybe talk about I saw the highest circle partners announcement.
Speaker Change: This morning can you maybe talk about your deposit strategy this year and.
Speaker Change: As Katherine noted, it's great to see that you've got quite a bit of index deposits will reprice lower.
Speaker Change: But maybe if you are growing loans at a good pace, how do you how do you grow deposits at a similar level.
Speaker Change: Yeah Brett.
A couple of things are grown deposits as a longer term business proposition.
Speaker Change: It's just hard work and so that's what when that I wish I wish I could tell you we had a magic bullet we don't.
Speaker Change: We do.
<unk>.
Speaker Change: Again, it'll be it'll be.
Speaker Change: Growing customer deposits.
Speaker Change: We say often our balance sheet is not wholesale which customers on both the loan and deposit side. So it's it's hand to hand combat.
Speaker Change: And that's also why.
Speaker Change: When we were answering Catherine's question that we emphasize it all the time.
Speaker Change: So there's no magic bullet is just we do have some advantages we do have a retail component as well as commercial.
Speaker Change: Ponant.
Speaker Change: To that.
Speaker Change: We.
Are doing some work to really redefine reinforce our value proposition on that side.
Speaker Change: And just just takes focus and execution and so that's what we anticipate.
Speaker Change: In 2024.
Speaker Change: Yeah.
Speaker Change: You mentioned harsh circle, we didn't have.
Speaker Change: Banking as a service capability.
Speaker Change: Not that I don't want to.
Speaker Change: <unk>.
Speaker Change:
Speaker Change: For us that's perhaps different than some others, we really wait into that.
Speaker Change: As opposed to Dab into that it's not a strategy that we really even.
Speaker Change: We're counting on from let's say from a budget projection standpoint.
Speaker Change: But we have the capability and that's a lever we try to keep levers on the deposit side and the funding side.
Speaker Change: I've mentioned, the fact that we we focus on the customer.
Speaker Change: Balances noticed we do whereas you know we do very little on the wholesale side, that's always a lever to help us sort of even out our loan growth, but its never a long term play for us and so.
Speaker Change: All of those strategies come into play on the deposit side again, it's not one single thing.
Speaker Change: Okay.
Speaker Change: That's helpful and then Michael you've been.
Speaker Change: Helpful with the multifamily market here on here in Nashville, and I've seen some discounting, but and some free rent months, but perhaps that's actually healthy just kind of given the strength of the market.
Speaker Change: Wanted just to talk a little bit about multifamily and just how you see that space playing out for middle Tennessee. This year.
Yeah.
Speaker Change: I'll, let travis jump in here because he is the expert but.
While we have seen a lot of units absorbed specifically in that from the last 12 months.
Speaker Change: As Youre aware.
Speaker Change: Pretty much everybody on the call I'm sure, although your local and we've got about 20000 units coming online and so.
Speaker Change: I think it takes a couple of years to probably absorb at still staying in the positive in migration.
Speaker Change: Uh huh.
Speaker Change: I think that the latest count 96 people a day or something it's what I saw in the business Journal.
Speaker Change: I think that that it gets absorbed over time, but they are certainly.
Speaker Change: A lot to absorb and concessions have picked up I think for new.
Speaker Change: Communities are four communities.
Speaker Change: Just going to take a little bit.
And hopefully bring down somebody's rent prices I would say for.
Speaker Change: For the people maybe NAND Travis is there anything you'd add to that.
No I think I think that's pretty spot on Michael.
Speaker Change: Are worried about the absorption, but we're not super worried about it there's a lot of new units coming on but they seem to be absorbing at a normalized pace.
The waiting list or not as drastic as they used to be so people are having a little bit easier time, finding a unit.
Speaker Change: Some people could be on waiting list for many many months so theres still.
Speaker Change: Some demand out there, but we're keeping a close eye on it, especially downtown Nashville, We don't have a whole lot of exposure to downtown Nashville, multifamily, where most of those units are coming on.
So overall, we think it's still healthy.
Speaker Change: Area, we still think multifamily is a healthy asset class, but we're we're not jumping in to try to do more construction in that.
Speaker Change: In that arena.
Okay.
Speaker Change: One lakh one last quick one.
Speaker Change: Finishing up Jim errors book, which is really good and I was curious just culturally if there's anything.
Speaker Change: From his presence that you think is a key point for VF became franchise in terms of what what he's instilled in either management or rank and file people.
Speaker Change: Yeah Brett.
Speaker Change: You know it.
Speaker Change: The list is long and Jim's presents even today I mean, he's not here in the office every day, but he is.
Speaker Change: Absolutely, 100% keyed in and include into what goes on with the company. He still owns 22% of the company and to.
Speaker Change: You won't find a higher.
Speaker Change: A higher more respected you know more.
Respected guy in our eyes in terms of.
Speaker Change: His legacy round here and like I said, it's a legacy but it continues today.
Speaker Change: His presence continues today.
Speaker Change: You know.
Speaker Change: Here's one but is it just off the cuff response to your question. It's funny I was thinking of this quote just this morning.
Speaker Change: One of the things that he and I used to say back and forth to each other all the time was don't don't get effort confused with results and that was a line we would.
Speaker Change: We would we would use a lot towards each other and towards the others in the company and if you go back to our performance our financial performance, we usually talk about our financial performance post the IPO because it's all that's that's all on the record and documented and it's you know when you're a private company it's lesser so.
Speaker Change: So, but if you look at our performance record.
Speaker Change: Four.
Speaker Change:
Speaker Change: Almost a decade before we were a public company it would've still it would've break very very high among our peer group and so you know.
Speaker Change: That that DNA.
Speaker Change: Four months in winning is the one thing I would say that.
Speaker Change: That is <unk> strongest legacy is at the end of the day, it's all about winning that weaved into the company's DNA and it comes directly from generics.
Speaker Change: Okay.
Great appreciate all the color.
Speaker Change: Sure. Thanks, Brett.
Speaker Change: The next question comes from Thomas Wendler of Stephens. Please go ahead.
Thomas Wendler: Hey, good morning, everyone.
Thomas Wendler: I thought it went down.
Thomas Wendler: Last quarter, we saw CD balances contract in line with your guidance down to the 92% of capital you highlighted earlier can you give us any more color on your expectations for C. N D. Moving forward in the 'twenty 'twenty four and maybe any of the other concentrations you're managing.
Thomas Wendler: Yeah.
Speaker Change: Travis I'll, let you comment I'm going to make just a couple of comments as well.
Speaker Change:
Travis Edmondson: We've got.
Travis Edmondson: Oh man I don't know dozens of concentration.
Travis Edmondson: Management metrics the knee.
Travis Edmondson: The headline metrics that become.
Travis Edmondson: Public.
Travis Edmondson: And then the ones a couple I'll comment on Sandy.
Travis Edmondson: Michael but actually make some reference to.
Travis Edmondson: We'd like to manage that down closer to say, 85%, maybe up to 90% it's at 93%.
Travis Edmondson: We view that as just breyer, our sort of risk tolerance and.
Risk appetite that we would.
Travis Edmondson: Manage it down just a little bit from where it is.
Travis Edmondson: But it's at a very very.
Travis Edmondson: Very manageable range right now same way on the overall CRE. We're at $2 65, again, we would manage that down just a little bit from where we are and we'd be down $2 50 or less or so just again just a.
Travis Edmondson: Very manageable from where we are but we'd like to manage each of those down just a little bit and then we manage.
Travis Edmondson: A couple of the ones that just come to mind.
Travis Edmondson: All of the major asset classes, but even within those I think about managing.
Travis Edmondson: [laughter] hospitality within CRE, I think about it which we don't want to get too high right now.
Travis Edmondson: We've talked about multifamily, we're watching that that concentration.
Travis Edmondson: Fairly closely.
Travis Edmondson: And then I think it goes all the way down to concentration in things like rent to own.
Travis Edmondson: Things like that where we have some some specific concentration limits.
Travis Edmondson: And so.
Speaker Change: Michael or Kravets, either one do you have any other comment on that.
Michael McMurray: The only other comment I would have is we do watch.
Michael McMurray: Multiple concentrations internally, obviously the ones that.
Michael McMurray: We're getting a lot of the headlines right now, which is office and multifamily, which we just talked about those are hard our last well within our tolerances internally on those so we don't have a hard stop but we'll be very mindful of any time, we get a request in those categories.
Michael McMurray: Chris alluded to the ADC did a really good job of explaining that so we still have a ways to go and reducing our exposure to ADC.
Michael McMurray: We're probably in that 75% to 85% ranges, where we want to be over the next few quarters and quite frankly, we would want to stay there so not significant growth in that category over the coming quarters.
Michael McMurray: Yeah.
I'd play on the other side of the balance sheet and gets less focus externally we have deposit concentrations that were constantly monitoring.
Michael McMurray: Well around municipal deposits public funds yeah.
Michael McMurray: Cds types and stuff like that.
A lot of focus internally on that granular deposit base that Chris talked about and relationships in fact.
Hey, guys for both sides of the balance sheet, when you're managing concentrations.
Speaker Change: That was a lot of great color I really appreciate that.
Speaker Change: Sure.
Speaker Change: I would say is.
Speaker Change: Just a just a point of commentary is.
Speaker Change:
Speaker Change: We consider that a really strong risk management on the liquidity side.
Speaker Change: Because you know where you are.
Speaker Change: 2023.
Uh huh.
Speaker Change: And we talk about.
Speaker Change: I think I used the word granular maybe three times in my prepared comments.
Speaker Change: And really where we're thinking of loans and deposits there but.
Speaker Change: We view that as a really strong risk mitigate is the granularity of both those loan and deposit portfolios and so we actually manage that quite closely.
Speaker Change: Because we.
We think again, that's a really strong risk mitigate and it's a really big.
Speaker Change: Liquidity advantage for us.
Speaker Change: If things.
Speaker Change: If we experience things like we did in March.
Speaker Change: 23 again.
Speaker Change: And with the way that the way that money moves today.
Speaker Change: Again, we like our we like our position.
Speaker Change: Thank you for that and then just one more for me moving over to mortgage I appreciate the mortgage visibility usually pretty poor.
Can you give us an idea of how youre thinking about mortgage and the 'twenty 'twenty four.
Speaker Change: Yeah, Tom obviously.
Speaker Change: Mortgage had.
Speaker Change: Tough fourth quarter.
Speaker Change: Specifically in the year it kind of fell off volume was off a cliff at the last couple of weeks of the year, even though the rates were.
A bit lower.
Speaker Change: Seen mortgage kind of come back to life here in the first couple of weeks of January.
Speaker Change: Yeah, we don't expect.
Speaker Change: Mortgage could be a huge contributor in 2024, we also had unexpected mortgage to lose money and yes. There is there are some benefits to that.
Speaker Change: The held for sale pipeline spits off interest income.
Speaker Change: There are some other benefits, but it's.
Speaker Change: A core piece of the company.
Speaker Change: Chris talked about.
Speaker Change: Retail earlier, we think mortgages is very important piece of the retail story.
Speaker Change: And something that is a critical product and I think brighter days are ahead for the mortgage industry, but.
Speaker Change: Yes, the whole industry is not out of the woods, yet and we'll see.
Speaker Change: How things develop with.
Speaker Change: As you know.
Speaker Change: Rates, but also affordability within the industry, which is a challenge in most of our markets.
Alright, thank you for that.
Speaker Change: Hey, Tom I'm going to add just one thing on mortgage.
Speaker Change: Two things two or three things one we had a good quarter, we felt like a pretty good pretty pretty solid.
Speaker Change: <unk> quarter in spite of mortgage mortgage did not have.
Speaker Change: Have a good quarter.
Speaker Change: And so when we look at it there are no sacred cows.
Speaker Change: In any part of our business, including mortgage so it stays under constant analysis again, just like all the other parts of our business well one of the things that we recognize that we don't talk a lot about it will we don't give any.
Speaker Change: Net interest income credit, we don't give any.
Speaker Change: And any credit for that part of our business on what happens to net interest income, which that's that.
Speaker Change: That distorts the profitability picture, just a little bit.
Speaker Change: It's a business it doesn't take a lot of capital outside of the mortgage servicing rights. The other part of the origination part of the business doesn't it doesn't take much capital and it has a significant upside and as Michael said from a retail standpoint.
Speaker Change: We think it's key customer acquisition part of our go forward retail strategy and so.
Speaker Change: As we look into next year, we think that we.
Speaker Change: We don't have a lot of matter of fact, we really don't have much at all in our our projections for next year.
Speaker Change: And but we will also.
We will make sure we ensure against any downside and so that is how our unit as we step forward here.
Alright, those are my questions. Thank you guys good quarter.
So I can start.
Speaker Change: The next question comes from Alex Lau of Jpmorgan. Please go ahead.
Alex Lau: Hi, good morning.
Alex Lau: Good morning, Alex.
Alex Lau: Following up on the question comment around reduction of construction concentration and looking at the impact of your provision forecast do you expect this to be frontloaded in the year or more gradual throughout the year.
Yeah.
Alex Lau: Yes.
Alex Lau:
Alex Lau: Okay.
Alex Lau: It's a good question it'll be perhaps.
Alex Lau: Slightly front loaded.
Alex Lau: But I'd say just slightly front loaded because like I said, where we are where we're at 93%. We don't want to go up from here.
And so you could see a little more front loading.
Speaker Change: Uh huh.
Speaker Change: It will gradually work it down from here.
Speaker Change: So you could see a little more front loading but but.
Speaker Change: But again once we get down in the 85 range, you'll see it begin to be much more Brad.
Speaker Change: Yeah, and Alex Yeah, you have to kind of phenomenon there right you had the.
Speaker Change: As they go from unfunded does.
Speaker Change: Balances are reduced.
Speaker Change: <unk> <unk>.
Speaker Change: Creates a release from the unfunded bucket and then you have migration on the ICL side. So as you go from a.
Speaker Change: Construction reserve of.
Speaker Change: <unk>, 2.53%.
Speaker Change: Call it a multifamily or.
The CRE bucket.
Speaker Change: While those balances got you can you stay in that kind of weighted $1 60 range, but it creates a little bit less impact.
So.
So Chris has pointed out will be gradual but that's.
That's why you see some of that relief coming from.
Speaker Change: Thank you and then my follow up question can you give some color on the C&I loans that moved into non accrual. This quarter are these idiosyncratic or was there any trend that you would highlight there.
Speaker Change: Yeah, Travis you want you want to take that one I'll add some color.
Speaker Change: Sure.
Travis Edmondson: Good morning, Alex.
Travis Edmondson: The C&I loans that moved this quarter, we're just kind of one offs there was no.
Travis Edmondson: No pattern or anything we've seen we still see just normal course loans moving in and out of the classified assets moving into special mention moving out upgrades downgrades.
Travis Edmondson: It's still pretty normal out there and what we're seeing in credit quality.
Travis Edmondson: In fact, the one credit we talked about last quarter. That's got a lot of positive momentum and so that one is trading where it probably won't be.
Travis Edmondson: An issue in the coming months.
Travis Edmondson: Everything we're cautiously optimistic if everything keeps going the way. It is so no systemic issues that we're seeing right. Now is just continual portfolio management and you always have one or two that you're worried about.
Thank you.
Speaker Change: One follow up question on NIM and NII, you mentioned moving.
Speaker Change: Moving back to the 333 40 range and also some optimism on in an inflection point in NII, maybe in the second quarter.
Speaker Change: What are you assuming for the the weaker scenario.
Speaker Change: Yeah.
Speaker Change: Alex we're probably.
Speaker Change: A little bit of an outlier in the way, we think about rates because we.
Speaker Change: We don't see a whole lot of impetus to lower rates.
Speaker Change: And you know that.
Speaker Change: That's watching CNBC this morning, and they were talking about the forward rate curve.
Speaker Change: A slightly larger financial that patient.
Speaker Change: Talking about it a diverse and.
Speaker Change: And yeah, they had four price, Dan and $4 25.
Speaker Change: So we're trying to think about it basically status quo.
Speaker Change: In our budgeted numbers.
Speaker Change: And we just expect to see is as Chris mentioned needing when he made deposit growth you had deposit growth, we've got a great core relationships, but we.
We also believe in a fair.
Speaker Change: Customer proposition value proposition and so we think that that.
Speaker Change: It includes paying interest on deposits.
Speaker Change: So that's where that are lower.
Speaker Change: Our net interest margin comes from and just composition.
But yeah. The the forward curve has been wrong for the last.
Speaker Change: Oh in two years.
Speaker Change: And so we've been we're slightly less.
Speaker Change: Less conservative there yeah.
Speaker Change: We you know we could have a bump or two down in the second half.
Speaker Change: Again, just our view and it's worth less than.
Speaker Change: Then.
Speaker Change: Michael said the view that you could have gotten on CNBC. This morning from a much larger bank CEO.
Speaker Change: But.
Speaker Change: We again, we don't see.
Speaker Change: The moves down that debt.
Speaker Change: <unk> are being forecasted we could get a couple in the second half of the year.
Speaker Change: It's more our view as we think about moving forward.
Great. Thanks for answering my questions.
Speaker Change: Thanks, Alan Thanks, Alex.
Speaker Change: The next question.
Speaker Change: Western comes from Stephen Scouten of Piper Sandler. Please go ahead.
Hey, good morning, everyone.
David: Thanks, David.
Stephen Kendall Scouten: So what's worse, even less than your view on rates would be my view on rates, but I'm with you I don't really see what the forward curve is telling us today that said, if we did see more cuts in 'twenty four and 'twenty five can.
Stephen Kendall Scouten: Can you help frame up the potential for what the mortgage business could return on them from a profitability standpoint today in an upside scenario because obviously, it's a very different business than it was in 'twenty. One when we last had probably a pretty robust market. There. So just trying to think about how to frame that up.
Speaker Change: Yes, David I think there's there's pent up demand out there.
Speaker Change: Specifically for first time homebuyers.
Speaker Change: You know people.
Speaker Change: It's a 6% mortgage rates a lot different than.
Speaker Change: Then the eight and so you could see some refinance activity.
Speaker Change: There.
Speaker Change: There's very likely if you kind of read all the publications.
Speaker Change: Publications that Theres people that had been waiting to move because they don't want to get out of the three or 4% mortgage. So I think there is upside as you mentioned.
Speaker Change: Thank you have a 25 $30 million mortgage contribution year, because we've as Chris said taken a lot of the downside off the table has been a process and so with that you take some of the upside off but.
Speaker Change: I think you you could certainly see margin return.
Speaker Change: To a respectable level.
Speaker Change: And have a.
Speaker Change: The high single digit low double digit kind of mortgage contribution.
Speaker Change: If rates move down far enough because theres still a lot of people that want to be in our markets and there may have been here and looking to buy houses.
Speaker Change: Where purchase oriented retail origination shop of about 85% of our loans are purchased.
Speaker Change: Which does create.
Speaker Change: Refinance opportunities down the road with those customers, but you know.
Speaker Change: Our focus is on building business that way in the purchase market.
Speaker Change: Yes, Steve Thanks, Tom.
Speaker Change: I think I think also a couple of things the business.
Speaker Change: Has thinned out and will thin out even further.
Speaker Change: Both in a bit of a mortgage companies, but also some of your largest banks.
That debt.
Speaker Change: That have exited and so I think it actually creates a pretty nice spot for us.
Speaker Change: I'll call it the larger regionals and the smaller regionals boat and so I.
Speaker Change: I think there.
Speaker Change: I think that's a reason we we analyze as I said earlier.
Speaker Change: Why are we in the business and do we need to be in the business and the answer is yes. We do think there is upside and so so if you. If you think also about theres, some pent up purchase demand so as rates.
Speaker Change: Uh huh.
Speaker Change: As rates stabilize and maybe even move down just a little bit that probably kicks up the purchase demand, which is which improves.
Speaker Change: Outlook and then if you get six or eight rate bumps down when that does basically happen even if it's two years from now that does.
Speaker Change: Sure.
Speaker Change: That's a catalyst for the refinance market, which which which will probably kick in in a significant way once you get to that level of break decreases and sue.
Speaker Change: That's.
Speaker Change: That again, when you add to it our retail side, which we think it's important to and you add to it the fact that it's.
Speaker Change: It's a good contributor to our net interest income.
Speaker Change: We like all those pieces of it.
Speaker Change: Yeah that sounds good okay.
Speaker Change: Curious you know you you noted your second priority from a capital.
Speaker Change: Strategy standpoint is its kind of M&A.
Speaker Change: Rank those but you also noted this local decision, making prowess versus a centralized approach being a great benefit to you, which I would agree is there a point, where you think hey, we do a couple more deals we get to a certain size, where you're no longer able to have that structure or is that kind of integral to how you guys think about running the bank irrespective massage moon.
Speaker Change: Yeah.
Speaker Change: Yeah again insightful questions Steven.
Speaker Change: And.
Speaker Change: Were pretty emphatic on the answer it is integral to how we run the bank and so when we talk about spending two years to take a step back and really.
Speaker Change: Kind of evaluate our structure evaluate our efficiency evaluate our scalability.
Speaker Change: We think that's the right way to run the bank and so we thought about.
Speaker Change: Thinking about every day, but we're.
Speaker Change: We're not finished.
Speaker Change: The scalability.
Speaker Change: When we think about risk also.
Speaker Change: There's not.
Speaker Change: Not only credit risk, which is perhaps the most traditional.
Speaker Change: Risk type of risk that you think about when we think about.
Compliance risk we think about.
Speaker Change: Our reputation risk all of those those those things are.
Speaker Change: With that model and so we've been very thoughtful in how we continue to design it.
Speaker Change: For the long term and so we do think you have to look if we do.
Speaker Change: An acquisition that adds a.
Speaker Change: Good 3 billion in assets to the company or and then another one that adds another two or three and then another one that adds five we think the model is still going to be tomorrow.
And we think Thats important.
And and we think it's a we think that's a very significant competitive advantage for.
Speaker Change: For the types of institutions that we'd like to partner with them, we think we'd like to partner with us because they typically are going to have some retail density to them.
Speaker Change: A big deposit side to get deposits are really key to us.
Speaker Change: And we think that's that's important and so we've designed it to continue that model a good question one that we ask ourselves all the time, one that just reinforces our commitment to the model.
Speaker Change: That's great helpful. And then maybe just lastly for me and this is.
Speaker Change: Kind of a super high level and you may not have an answer for this but you know.
Speaker Change: The market seems have gotten the banking segment wrong throughout a lot of the last half of 'twenty three right.
It was what it was and you always me and then all of a sudden we got this huge runs in November I'm, just kind of wondering at a high from a high level of business perspective has there been anything that surprised you.
Speaker Change: To the upside whether it's continued credit performance customers acceptance of higher loan rate.
Speaker Change: And just kind of you know as you look at your markets and the business anything that's kind of been a surprise either to the positive or the negative.
Speaker Change: Oh, Yeah, I'll I'll give a maybe a thing or two.
Speaker Change: Michael travelers you guys chime in if there's something.
Michael McMurray: One thing is as we went through the challenges of 20 <unk>.
Michael McMurray: 2023.
Where.
Michael McMurray: The two biggest two biggest were ones where the failures in marks and our the failures in the early half of the year.
Michael McMurray: Silicon Valley.
Michael McMurray: Signature.
For first Republic.
Back matter is our customers didn't.
Michael McMurray: Never.
Michael McMurray: Wavered in terms of confidence in our institution.
And so we prepared like crazy with messages and with materials to show our safety and soundness.
Michael McMurray: But our customers.
Michael McMurray: It was almost like why you can I know, you're saying I know I'm in a good spot and so that that that was a big positive surprise.
Michael McMurray: I would say in the same.
Michael McMurray: With.
I'd say, what's been a positive surprise is as rates have gone up and it's treasuries.
Michael McMurray: Have.
Michael McMurray: I have really the interest rates interest or that you can earn or treasury versus maybe a deposit account.
Michael McMurray: Again, the willingness of customers to have a conversation about that instead of media spend enough money zone.
Michael McMurray: And we going back to I think it was Catherine's question in his mother's about how we are we really think about that fairness of value as a part of our value proposition and customers understand that and that's been that's been a positive surprise.
Speaker Change: Yeah I mean.
Speaker Change: Not a surprise that Stephen but I think maybe a surprise to the industry.
Speaker Change: The downfall of that.
Speaker Change: The community banking system.
Speaker Change: Which resolved all over the news headlines in March April.
Speaker Change: Uh huh.
Speaker Change: We actually.
Speaker Change: Chris mentioned.
Speaker Change: We're steadfast in the other corner and I think that that's been proven out in fact, we here.
Speaker Change: Some customers all the time.
Speaker Change: I still believe and really back to your other question the model the local decision, making the serving of the customer, let's say, so not a surprise to us but maybe.
Speaker Change: Maybe a surprise to the aforementioned same DC crowd, a little bit but.
Speaker Change: Yeah Yeah.
Speaker Change: Yes.
Speaker Change: So that's super helpful. I appreciate all the commentary.
Speaker Change: Hey, Stephen I got one more.
Stephen Kendall Scouten: Yeah suppressed.
Speaker Change: That deposit insurers remains.
Speaker Change: Maybe it's not a surprise, but this is a plea deposit insurance remains antiquated.
Speaker Change: Would be a surprise that it's not a surprise because we have trouble getting anything out of Washington.
But.
Speaker Change: You knew the deposit insurance system needs to be.
Speaker Change: Before and there needs to be some thoughtful folks that.
Speaker Change: That change how deposits get insured and at the end of the day.
Speaker Change: That side of the FDIC to ensure it's big.
Speaker Change: We're excited to see is a.
Speaker Change: Big Mutual insurance company with the banks that are the customers and therefore, the owners and the funders of that and.
Speaker Change: We.
Speaker Change: Regulatory from a from a by law and regulation, what kind of Bard from doing much with it.
But it's a surprise that we.
Speaker Change: We just can't get any momentum too to modernize it so.
Speaker Change: Yeah, Yeah, it's a second Matt please [laughter] thanks, Chris.
Speaker Change: Alright, very good thanks man.
Speaker Change: The next question comes from Betty strict Glynn of Janney Montgomery Scott. Please go ahead.
Betty Glynn: Hey, good morning, gentlemen.
Betty Glynn: Good morning, good morning.
Just wanted to ask a clarifying point to kick off on the public funds flows. So it sounds like that was deliberate that they were a little lower.
Betty Glynn: And what we would normally see this quarter.
Betty Glynn: Well, we will we see still some flow in in the first quarter and then it sounds like going forward.
Betty Glynn: Tax from public funds should be a little lower.
Betty Glynn: Just as you said, you're prioritizing some more of the relationship public bonds is that right.
Betty Glynn: Yeah. Good morning, it's Michael definitely deliberate in the fourth quarter.
Betty Glynn: And really going forward.
Betty Glynn: Kind of put in a plug for deposit concentration deposit management.
Betty Glynn: We have a lot of really solid relationships.
Betty Glynn: On the public fund sides I don't want that to get lost and we have actual.
Betty Glynn: Core deposit relationships, where these are strong customers, where we really focused in on is some of the more transactional higher interest kind of excess funds.
Betty Glynn: There's a couple of things going on there you have some some other financial institutions were still paying fed funds plus.
Some of those deposits, which we did.
Betty Glynn: We're not willing to do on excess interest and then yeah. There are some state funded insurance.
Betty Glynn: Posit rates that are actually pretty high right now and so some of those it's just better for those municipalities yeah, they're doing what's best for their taxpayers.
Betty Glynn: They may have some funding over there.
Betty Glynn: I would expect first quarter right, you've got taxes coming in.
Betty Glynn: You still see some of that flow higher in the first quarter. So you'll still see it but we are managing it just like we manage all of our other relationships and.
Betty Glynn: Trying to be fair to everyone, but.
Shareholders and institutions and and our customers are expected to flow up where we're really working on.
Betty Glynn: That's been a much smaller impact to the overall deposit base.
Speaker Change: Understood that's helpful and.
Kind of along the same line of questioning I think Christian you made briefly mentioned this earlier, but can you talk about how you use brokered deposits as part of your funding base going forward I mean, do we see those decline all the way to zero or is there some.
Speaker Change: Small degree that may be stays on the balance sheet as a sort of asset liability management tool.
Speaker Change: Yeah. So the way that we use broker deposits. If you noticed they went down this quarter.
Speaker Change: And we.
Speaker Change: We use we do not use brokered deposits as a as a.
Speaker Change: To fund our loan growth Okay for us it's a it's a vehicle that we will use to.
Speaker Change: Maybe lower our cost our overall cost of funding at different points, when we see some value in that particular funding channel.
Speaker Change: But that's that's why you will see it go to zero from time to time and matter of fact.
Well if you went over the last five years.
Speaker Change: If you went pre Franklin transaction, you would've seen it sits at zero for long periods of time and so.
Speaker Change: So we don't use it we view it as we don't use it to fund road, we use it as one more.
Speaker Change: Funding source to basically lower our cost of overall funding and that's why we're in and out of it from time to time.
Speaker Change: Got it that makes sense one last quick one for me just I think I've pegged at 57% core bank fish are thanks, Ashley ex mortgage this quarter.
Speaker Change: Last I think last quarter, we were talking about potentially getting down in the mid <unk> on the core bank on efficiency do you still think that's potentially achievable in 2024, even with all these moving parts.
Speaker Change: Yeah, we do actually think its potentially achievable.
Speaker Change: Key is what happens on the revenue side we.
Speaker Change: We're going to continue to monitor and manage the expenses very closely and tightly threat.
Speaker Change: Throughout 2024, and frankly every day always.
Speaker Change: We want to make sure that we're doing that and so it's a little bit dependent on the revenue side, what happens with the margin.
Speaker Change:
Speaker Change: What happens with <unk>.
Speaker Change: All of our other incomes or to other revenue sources like mortgage birth.
Speaker Change: Got it thanks for taking my question.
Speaker Change: Appreciate it.
Speaker Change: The next question comes from Steve Moss of Raymond James. Please go ahead.
Stephen M. Moss: Good morning, guys.
Stephen M. Moss: Hey, Steve Good morning.
Stephen M. Moss: Just following up here on a couple of things maybe just curious.
Stephen M. Moss: On loan pricing I'm, just curious what you guys are seeing for new and renewables with regard to C&I and CRE loans. These days.
Michael McMurray: Yeah, Steve It's Michael.
And Travis you jump in here.
Just whenever but.
Speaker Change: New loans.
Speaker Change: That's.
Speaker Change: Coming in at about over 8% still I think we're about 810 in December So you know.
Speaker Change: Scott was asking earlier about surprises for the year, we did we have seen our customers adjust.
Speaker Change: Up to the new normal which is 8% plus.
Speaker Change: All loans and commitments and so.
Speaker Change: As has been a pause it's been that way for the better part of the back half of the year for sure.
Speaker Change: And we continue to see that.
Speaker Change: Even though kind of longer term treasuries have come down it hasn't adjusted kind of loan pricing.
Speaker Change: The way, we we say, which is typically more towards the short end of the curve. So <unk>.
Speaker Change: Anything you'd add to that.
Speaker Change: No I think that's spot on.
Speaker Change: Okay. That's helpful. And then just curious Chris you spoke earlier in the call about M&A and your expectations for transactions to increase here in the next 12 to 18 months, just curious has the pace of discussions pick.
Speaker Change: Picked up here.
Speaker Change: Since our October November.
Speaker Change: No.
Speaker Change: It is not as a matter of fact, if anything probably less.
Discussion.
I'd say without but where the.
You get into holidays and.
Speaker Change: Not a lot of discussions soon.
For us anyway keep in mind. This is research of one here you'll hear from others as we go throughout earnings season, but.
We haven't seen a pickup.
Speaker Change:
Speaker Change: Oh really.
Speaker Change: Just call it like you see it we haven't seen a pickup in conversation.
Speaker Change: Okay great.
Speaker Change: Most of all of my questions have been asked and answered so really appreciate all the color here.
Speaker Change: Alright, Thanks, Steve Thank you.
Speaker Change: Okay.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Chris Holmes for any closing remarks.
Christopher T. Holmes: Alright. Thank you all very much for joining us we again, we always appreciate your interest and support and.
Christopher T. Holmes: We will.
Christopher T. Holmes: Look forward to a great 2024.
Christopher T. Holmes: Hi.
Christopher T. Holmes: The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
[music].