Q4 2023 Business First Bancshares Inc Earnings Call

Good afternoon. My name is Krista and I'll be your conference operator.

Good afternoon, My name is Krista and I'll be your conference operator today at this time I would like to welcome everyone to the business first Bancshares fourth quarter 2023 earnings conference call.

Krista: At this time, I would like to welcome everyone to the Business First Bankers Fourth Quarter 2023 Earnings Conference.

Krista: All lines have been placed on mute to prevent any backrooms.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad and if you would like to withdraw your question again press Star one.

Krista: After the speaker's remarks, there will be a question and answer.

Krista: If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, again, press star one. Thank you. I will now turn the conference over to Matt Seeley, Senior Vice President, Director of Corporate Strategy and SPNA. Matt, you may begin your conference.

I will now turn the conference over to Matt Sealy Senior Vice President director of corporate strategy and S. P. N. A knot you may begin your conference.

Matt Olney: Thank you, Krista. Good afternoon, everyone, and thank you all for joining. Earlier today, we issued our fourth quarter 2023 earnings press release, a copy of which is available on our website, along with the slide presentation that we will reference during today's call. Please refer to slide three of our presentation, which includes our safe harbor statement regarding forward-looking statements and the use of non-gap financial measures.

Thank you Kristen and good afternoon, everyone and thank you all for joining earlier today, we issued our fourth quarter 2023 earnings press release, a copy of which is available on our website along with the slide presentation that we will reference during today's call.

Please refer to slide three of our presentation, which includes our safe Harbor statements regarding forward looking statements non-GAAP financial measures to those of you joining by phone. Please note. The slide presentation is available on our website at www Dot <unk> Dot com.

Matt Olney: For those of you joining by phone, please note the slide presentation is available on our website at www.b1bank.com.

Matt Olney: Please also note our safe harbor statements are available on page 7 of our earnings press release that was filed with the SEC today.

Please also note our safe Harbor statements are available on page seven of our earnings press release that was filed with the SEC today.

Matt Olney: All comments made during today's call are subject to the State Farber Statement Center slide presentation and earnings release.

All comments made during today's call are subject to the safe Harbor statements in our slide presentation and earnings release.

Speaker Change: I'm joined this afternoon by Business First Bank President and CEO, Jude Melville, Chief Financial Officer, Greg Roberts.

I'm joined this afternoon by business first.

President and CEO, Jim Melville, Chief Financial Officer, Greg Robinson, Chief Banking Officer, Philip Guerdon, and Chief administrative officer, Jerry back to you.

Speaker Change: banking officer, Phillip Jordan, and chief administrative officer, Jerry Baxter.

Speaker Change: After the presentation, we'll be happy to address any questions you may have. And with that, I'll turn the call over to you, Jim.

After the presentation, we'll be happy to address any questions you may have.

With that I'll turn the call over to you Jim.

Jim: Okay, thanks Matt and thanks everybody for doing this. We understand the demands of the season and appreciate you prioritizing this conversation with us.

Okay. Thanks, Matt and thank you everybody for joining us we understand the demands of the season and I appreciate you're prioritizing this conversation with us.

Jim: I'll briefly overview our fourth quarter highlights and then take a step back to place the year in a broader context.

I'll briefly overview, our fourth quarter highlights and then take a step back the places you're in a broader context.

Jim: Our team closed out an eventful year positively with another quarter of solid and consistent fundamental performance.

Tim close out at the full year positively with another quarter of solid and consistent fundamental performance.

Jim: Greg will go into detail in a few minutes on our non-poor adjustments, but once they're shipped out, we generate a core ROAA of 1.03%.

Greg will go into detail in a few minutes on our noncore adjustments, but once they're shut down we generated core ROA of one point over 3%.

Jim: Core ROAEE of 12.27%, a core efficiency ratio of 52.6%, and a core EPS of 66 cents, all exceeding consensus expectations.

Or our O N E a 12.27%.

The ratio of 62, 6%.

Core EPS of <unk> 66 cents, all exceeding consensus expectations.

Jim: We accomplished this in a similar manner to our last couple quarters, by managing expenses prudently, by maintaining excellent credit quality, and by funding responsible loan growth through internally generated capital and liquidity.

We accomplished this in a similar manner to our last couple of quarters by managing expenses prudently.

Excellent credit quality and by funding responsible loan growth through internally generated capital and liquidity.

Jim: Again, Greg will go into detail on some of the non-core items, but I'd like to specifically mention two items that I consider highlight worthy.

Okay, and Greg will go into detail on some of the noncore items.

But I think it's.

Specifically mentioned two items that I consider highlight worthy.

Jim: First, you'll remember last quarter we hired a seasoned individual to bring in-house the SWAP capability. This quarter we experienced our first meaningful pickup of nearly a million dollars in non-interest income through Nathan's SWAP-funded business.

First you will remember last quarter, we hired a seasoned individuals to bring in house the swaps capabilities. This quarter, we experienced our first meaningful pickup with nearly $1 million in noninterest income through this Nathan swaps line of business while.

Jim: While we don't expect to replicate as far as an income number on a consistent basis in the year term, we are encouraged by the successful execution and the resulting client satisfaction.

While we don't expect to replicate this large of an income number on a consistent basis in the near term.

Encouraged by the successful execution and the resulting client satisfaction.

Jim: Perhaps more important than the fee income generated, the SWAP enabled us to close the significant credit-worthy loan in terms that we might not have been generated and accepting from that liability management perspective without the SWAP protection, which enabled us to match both our and the prospective client's needs by winning combinations.

Perhaps more important than the fee income generated swap enabled us to close a significant credit worthy loan in terms that we might not have been as interested in accepting from an asset liability management perspective, without the swap protection, which enabled us to match, both our prospective clients needs winning combination.

Jim: Second, our finance team with the aid of our asset management firms, Michelle and Wilson, repositioned the portion of our investment portfolio by divesting $71.5 million of securities.

Second our finance team with the aid of our asset management firms. That's shown at Wilson repositioned a portion of our investment portfolio by divesting $71 5 million of securities.

Jim: While we recognize the $2.5 million pre-tax sales, we're also able to reinvest the full amount at a rate generating a projected 1.1 year earn back.

While we recognize the $2 $5 million pretax loss sales. We're also able to reinvest in full amount at a rate generating a projected one one year earn back.

Jim: It was another example of in-house capabilities allowing us to conduct transactions for our own balance sheet at a lower cost and with more control than if we had relied on outside vendors.

It is another example of in house capabilities, allowing us to conduct transactions for our own balance sheet at a lower cost and with more control of and we are really.

On outside vendors.

Jim: Between this transaction, improvement in AOTI through movement in yield curve, base valuations, and the accumulation of capital through earnings, we accreted 14 basis points to Consolidated TRPC and 52 basis points to TTE in the quarter, increasing our TTE levels to 7.28%.

Between this transaction improvement in Aoc through movement of the yield curve based evaluations and the accumulation of capital through earnings we accreted 14 basis points of consolidated Trp's EBITDA in <unk>.

82 basis points to TCE in the quarter, increasing our TCE levels to 7% to 8%.

Jim: All in all, the fourth quarter was a solid closing for a successful and challenging year. We finished the year in a strengthened capital position with solid asset quality, ample, diverse, and granular liquidity, and arguably most important, an employee base that's been through and grown from the challenges of 2023. Just as over the course of our time together as an institution, we've gone through and grown from the pandemic and its aftermath, various energy crashes, and the great financial crisis.

All in all the fourth quarter with a solid closing so successful and challenging year we.

<unk> finished the year and a strengthened capital position with solid asset quality ample diverse and granular liquidity and arguably the most important and employee base that's been through and grown from the challenges of 2023, just as over the course of our time together as institution, we've gone through and grown the pandemic and its aftermath various energy crashes in the great financial.

Prices.

Jim: While we've been successful practice managers, stepping back to the 10,000 foot view, I'd like to call your attention to pages 9 and 10 of the deck, which illustrates the success we've had not just playing defense, but also rolling on the offensive and sustaining those efforts over time.

Well, we've been successful prices managers stepping back to the 10000 foot view I'd like to call your attention to pages nine and 10 of the deck, which illustrates the success. We've had not just playing defense, but also going on the offensive and sustaining those efforts over time.

Jim: On page 9 you will note the consistency of our core ROAA performance, over 1% in each of the past 5 years.

On page nine you will note the consistency of our core ROE a performance over 1% in each of the past five years. We've also grown our OE CEO over that time period.

Jim: We've also grown our ROA-TE over that time period, with a five-year average of 11.46% and roughly 12.5% for each of the past three.

Five year average of 11, 4%, 6% roughly 12, 5% for each of the past III.

Jim: This page details our consistent and balanced growth in loans and deposits, with each up roughly 190% over the past five years.

This page details, our consistent and balanced growth in loans and deposits with EGF appropriately 190% over the past five years.

Jim: More specifically, for loans, you'll note that we have, during that time, over-doubled our exposure in our original markets in Louisiana while growing our Texas-based exposure by multiple of nearly eight times, leaving us as well-balanced geographically as we've ever been and approaching 40% of our exposure in Texas, Dallas and Houston specifically.

More specifically for loans Youll note that we have during that time over doubled our exposure and our original markets in Louisiana.

Growing our Texas based exposure by a multiple of nearly eight times, leaving us as well balanced geographically as we've ever been and approaching 40% of our exposure in Texas, Dallas and Houston specifically.

Jim: Moreover, we've accomplished this without sacrificing credit quality. It's a very similar metric across the whole of our system.

Moreover, we have accomplished this without sacrificing credit quality very similar metrics across the whole of our footprint.

Jim: On page 10, we detail a near four times our increase in aggregate core earnings and a near doubling of core earnings on a per share basis, even with solution accumulated from multiple M&A opportunities.

On page 10, we detail our near four times increase in aggregate core earnings and a near doubling of core earnings on a per share basis, even with dilution accumulated from multiple M&A opportunities.

Jim: The increased scale at which we now operate has resulted in a 500 basis point decline in our efficiency ratio over that time period. Most important, our tangible book value per share, XAOCI, even with the investments required to fund this growth, has grown 36% with a 9.3% CAGR over the past three years as returns have begun to accelerate.

Kris scalar, which we now operate as a resulted in a 500 basis point decline in our efficiency ratio over that time period, most important our tangible book value per share ex a OCI, even with the investments required to fund. This growth has grown 36% with a nine three CAGR over the past three years as returns have begun to accelerate.

Jim: Poorly results are important, but franchises are built over time, and these results clearly demonstrate that our team has been doing the right things in the right ways over time.

Quarterly results are important but franchises are built over time and these results clearly demonstrate that our team has been doing the right things in the right way silver Tommy.

Jim: Despite this lengthening track record, we enter 2024 excited not so much by past results as by the potential we've positioned ourselves to achieve in upcoming years.

Despite this lengthening track record we entered 2024 excited not so much of our past results and by the potential we have positioned ourselves to achieve in upcoming years.

Speaker Change: Thank you again for your time and attention and I'll turn the microphone over to our CFO Greg Robertson to review the results in greater detail.

Speaker Change: You again for your time and attention I will now turn the microphone over to our CFO, Greg Robertson to review the results in greater detail.

Greg Robertson: Thank you, Jude, and good afternoon everyone. I'll spend just a few minutes reviewing our Q4 highlights, including some of the balance sheet and income statement trends, and we'll also discuss our updated thoughts on the current outlook.

Thank you June and good afternoon, everyone I'll spend just a few minutes reviewing our Q4 highlights including some of the balance sheet and income statement trends at all and we will also discuss our updated thoughts on the current outlook.

Greg Robertson: Fourth Quarter Gap Net Income and EPS Available Comma Shareholders with $14.47 Million and $0.57

Fourth quarter, GAAP net income and EPS available to common shareholders was $14 7 million at 57.

Greg Robertson: and included several non-core items including 2.5 million pre-tax loss on sale of securities that Jude mentioned and also the $13,000 gain on sale of our Bank Branch closure in Leesville in the third quarter, the $432,000 write-down on former bank premises, and a $63,000 acquisition related expense. Including these non-core items, non-GAAP

That included several non core items, including $2 5 million pre tax loss on sale of Securities that you had mentioned in the <unk> and also the $13000 gain on sale of our Bank branch.

Closure in Leesville in the third quarter.

The $432000 write down on former bank premises and a $63000 acquisition related expense. Excluding these noncore items non-GAAP core net income and EPS available to common shareholders was $16 8 million or 66 kind of SaaS per share EPS.

Greg Robertson: Core net income and EPS available to common shareholders was $16.8 million and 66% per share of EPS. It came in better than we expected, driven by solid expense management, strong non-interest revenue, and lower loss reserve expense.

And better than we expected driven by solid expense management strong noninterest revenue and lower loan loss reserve expense.

Greg Robertson: There were several items included in our core results that we would consider outside of our run rate earnings figure, however these items essentially offset what we feel like the Q4 23 fee income and expense figures are relatively clean run rates when thinking about 2024.

There were several items included in our core results that would we would consider outside of our run rate earnings are earnings figure. However, these items essentially offset so we feel like the Q4 'twenty three.

Fee income and expense figures are relatively clean run rates when thinking about 2024.

Greg Robertson: I would however like to mention our fourth quarter loan loss expense figure of $119,000 was roughly $600,000 lower than you would expect from us during a quarter where we generated $70 million in net loan growth but looking at 2023 more holistically the Q4 provision translates into 116 basis points of reserve for the full year net loan growth which is above our long-term target of one percent for every new loan generated

Speaker Change: I would however, like to mentioned our fourth quarter loan loss expense figure of 119000 was roughly 600000 lower than you would expect from us during a quarter, where we generated $70 million and net loan growth, but looking at 2023 more holistically. The Q4 provision translates into 116.

Basis points of reserve for the full year net loan growth, which is above our long term target of 1% for every new loan generation.

Greg Robertson: What quarter of non-GAAP court non-interest expense was $39.2 million, and we feel like this is a fairly clean number. However, I want to point out a couple of factors to consider regarding our 2024 non-interest expense outlook. Just an example to give you some color here. Q4 did benefit from lower seasonal accruals to payroll tax and 401k match. Also, our salaries figure will increase from our annual merit and cost of living increases, which were implemented. During the first quarter of each year.

Fourth quarter non-GAAP core noninterest expense was $39 2 million and we feel like this is a fairly clean number however, I want to point out a couple of factors to consider regarding our 2020 for noninterest expense outlook. Just an example.

Give you some color here Q4 did benefit from lower seasonal accruals to payroll tax and 401K match also our salaries figure will increase from our annual merit and cost of living increases which were implemented during the first quarter of each year.

Greg Robertson: Regarding salaries and personnel, we will continue with our philosophy of investing in talent with a few new hires coming in online in Q1. So in summary, we do expect Q1 non-interest expense to experience an increase due to accrual resets and salary increases. I think somewhere in the 6% to 8% increase off the Q4 non-interest expense stage is probably a fair estimate for the first quarter.

Regarding salaries and personnel.

We will continue with our philosophy of investing in talent with a few new hires coming in online in Q1. So in summary, we do expect Q1 noninterest expense to experience an increase due to accrual resets and salary increases I think somewhere in the 6% to 8% increase off of the Q4 noninterest expense base is probably a fair estimate.

For the first quarter.

Greg Robertson: Moving on to non-interest income, fourth quarter gap non-interest income of $6.4 million included $2.5 million of the pre-tax loss on sale of securities we mentioned earlier and a $13,000 gain on the sale of the bank branch. Excluding these items,

Speaker Change: Moving on to noninterest income fourth quarter GAAP noninterest income was $6 4 million included $2 5 million of the pre tax loss on sale of Securities. We mentioned earlier and a $13000 gain on the sale of the bank branch excluding these items.

Greg Robertson: on core non-interest income was $8.9 million. We feel like this core $8.9 million figure is a fairly good run rate. As you mentioned earlier, we are very excited about our swap platform potential. It's too early to claim that $900,000 is a good run rate for the swap unit, but we are optimistic about the future. In terms of our outlook, I would say 6% to 8% growth off of our core Q4 base is a good range to consider for 2024 speed income.

Core noninterest.

Income was $8 $9 million, we feel like this this core $8 9 million figure is a fairly good run rate as Jude mentioned earlier, we are very excited about our swap platform potential too early to claim. The 900000 is a good run rate for the swap.

Unit, but we are optimistic about the future in terms of our outlook I would say, 6% to 8% growth off of our core Q4 base is a good range to consider for 2024 as fee income.

Greg Robertson: If I can direct you to slide 20, I'd like to show you the credit quality remained solid during the fourth quarter with NPLs, NPAs, and net charge-offs stable to improving compared to the prior quarter.

If I can direct you to slide 20, I'd like to show you. The credit quality remained solid during the fourth quarter with Npls, Npa's and net charge offs stable to improving compared to the prior quarter.

Greg Robertson: loan loss provision expense during the fourth quarter was $119,000. Going forward we'll continue to target our one percent loan loss reserve on net new loan growth. I should, however, point out that we did adopt CECL in

All in loss provision expense during the fourth quarter was it was 119000 going forward, we will continue to target our 1% loan loss reserve on net new loan growth.

However point out that we did adopt Cecil.

Greg Robertson: The first quarter of 2023 which distorts some of our credit metrics when comparing the prior years. For example, four-year 2023 reported net charge-off for 11 basis points.

The first quarter of 2023, which dessert distorts some of our credit metrics when comparing to prior years. For example, full year 2023 reported net charge offs were 11 basis points.

Greg Robertson: Adjusting for Cecil, that charge-off would have come in at just six basis points due to the adjustment related to purchase acquired credits and the marks assigned to each of those credits.

Adjusting for seasonal net charge offs would have come in at just six basis points due to the adjustment related to purchase acquired credits and the marks assigned to each of those credits.

Greg Robertson: Moving on to the balance sheet, please reference slide 14 in the investor presentation where we include some information about a recent security repositioning initiative mentioned earlier. We sold $70 million of investment securities at or 8.13% of our total portfolio at a weighted average book yield of 1.98% and reinvested at a new weighted average book yield of 5.17%.

Moving on to the balance sheet. Please reference slide 14 in the in the Investor presentation, where we include some information about our recent securities repositioning initiative mentioned earlier, we sold $70 million of investment securities at or eight 3% of our total portfolio at a weighted average.

Average book yield of 198% and reinvested at a new weighted average book yield of five 7%.

Greg Robertson: We then recognized a $2.5 million pre-tax loss

We then recognize $2.5 million pre tax loss.

Greg Robertson: with an estimated 1.1 year earn back.

Speaker Change: With an estimated $1 one year earn back.

Greg Robertson: This strategy helps us achieve improved profitability while extending the overall portfolio life to only 0.3 years.

This strategy helped us achieve improved profitability, while extending the overall portfolio for only <unk>.

Three years.

Sure.

Greg Robertson: As far as loan growth goes with the balance sheet, the trends remain healthy during the quarter with loans growing 72.5 million or 5.85% annualized, which translates to 386.6 million for the full year of 2023, or 8.4%, which is right in line with our longer-term target to achieve high single-digit growth.

As far as loan growth goes with the balance sheet.

The trends remained healthy during the quarter with loans growing $72 5 million or $5 <unk>.

Eight 5% annualized which translates to $386 6 million for the full year of 2023.

Or eight 4%, which is right in line with our longer term target to achieve high single digit growth.

Greg Robertson: Growth was driven by our Dallas market with just over 50% of growth coming from Dallas during the fourth quarter.

Growth was driven by our Dallas market with just over 50% of the growth coming from Dallas during the fourth quarter.

Greg Robertson: As of year-end 2023, Texas represents 37% of our total loans, as page 9 illustrates. We are not only pleased with the geographic distribution of our loan growth, but also the mixed shift in our growth away from C&D throughout 2023 and more weighted towards C&I and CRE. For example, during 2023, C&I and CRE loan portfolios increased $200 million each, whereas the C&D loan portfolio decreased about $50 million during the year. We are pleased with the fact that C&D loans dropped below 100% of regulatory capital during the fourth quarter. More specifically, we ended the year at 92% of regulatory capital.

As of year end 2023, Texas represents 37% of our total loans is page nine illustrates we're not only pleased with the geographic distribution of our loan growth, but also the mix shift in our in our growth away from CND throughout 2023, and more weighted towards C&I and CRE for example.

During 2023, C&I and CRE loan portfolios increased $200 million, each whereas the C&D for loan portfolio decreased about $50 million. During the year. We are pleased with the fact that C&I loans dropped below 100% of regulatory capital during the fourth quarter more specifically we ended the year at 92% Reg.

<unk> capital.

Greg Robertson: Deposits increased about $58.1 million during Q4, a 4.4% annualized. We continued in our success in Q4 with our Money Market Special, which generated about $160 million of new deposit production during the quarter and added to a total of $350 million during the year. Non-interest-bearing deposits continue to remain a challenge. We ended Q4 with our non-interest-bearing deposits representing 24.8% of our total deposits, which is relatively consistent with a previous outlook to year-end of 2023 at 25%.

Deposits increased about $58 1 million during Q4 or four 4% annualized we continued and our success in Q4, where their money market specials, which generated about $160 million of new deposits production during the quarter and added to the.

A total of $350 million during the year.

Noninterest bearing deposits continue to remain a challenge we ended Q4 with our noninterest bearing deposits representing 24, 8% of our total deposits, which is relatively consistent with our previous outlook to year end in 2023 and 25%.

Greg Robertson: Q4 gap net interest margin of 3.5% included $1.9 million in loan discount accretion, which was $400 higher than what we expected. We expect accretion to drop back closer to $1 million per quarter going forward. Fourth quarter core net interest margin, excluding loan discount accretion, contracted 8 bps from $346 in Q3 to $338 in Q4. Looking ahead in Q1, we expect the core margin to remain stable, but do anticipate modest expansion through the full year.

Q4, GAAP net interest margin of three 5% included $1 9 million in loan discount accretion, which was 400 higher than what we expected we expect accretion to drop back closer to $1 million per quarter going forward fourth quarter core net interest margin, excluding loan discount accretion contracted <unk>.

Speaker Change: Eight bps from $3 46 in Q3 to $3 38 in Q4 looking ahead in Q1, we expect the core margin to remain stable, but do anticipate modest expansion for the full year.

Greg Robertson: I'd also like to mention slide 22. This is the slide where we reworked last quarter, and it depicts the repricing opportunity within our loan portfolio. As you'll see, even if we do get a couple of grade cuts next year, we have $446 million in fixed rate loans sitting on the books at an average rate of $1,000,000.

I'd also like to mention Slide 22. This is a slide where we work rework last quarter and it depicts the repricing opportunity within our loan portfolio as Youll see even if we do get a couple of rate cuts next year, we have $446 million of fixed rate loans sitting on the books at an average.

Greg Robertson: 5.9 weighted average rate.

$5 nine weighted average rates.

Greg Robertson: When you consider our new and renewed loan yields coming on in the mid-8% range, even if we do get a couple rate cuts, this portfolio should reset 200 to 250 basis points higher.

When you consider our new and renewed loan yields coming on in the mid 8% range. Even if we do get a couple of rate cuts. This portfolio should reset 200 to 250 basis points higher we.

Greg Robertson: We feel the outlook for core NIM to be flat in Q1 and expand modestly for full year 2024 is reasonable, even conservative considering the repricing tailwinds and new origination yields we have conservatively assumed. As we've already all said, I continue funding pressure.

We feel the outlook for core NIM to be flat in Q1 and expand modestly for full year 2024 is reasonable even conservative considering the repricing tailwind in new origination yields. We are conservatively assume is largely offset by continued funding pressure.

Speaker Change: How will we think our ability to control funding pressure will be helped by efforts to become more liability sensitive over the last six months?

However, when we think of our ability to control funding pressure will be helped by our efforts to become more liability sensitive over the last six months.

Speaker Change: While 2023 was a challenging year for the industry, we are pleased to ultimately generate a strong 105 ROA for the second year in a row. All things considered, we are very pleased with that level of profitability and consistency.

Speaker Change: While 2023 was a challenging year for the industry. We are pleased to ultimately generate a strong 105 ROA for the second year in a row all things considered we're very pleased with that level of profitability and consistency over the challenging prior two years and with that I'll hand, the call back over to Judy for anything you'd like to add.

Speaker Change: over the challenging prior two years. And with that, I'll hand the call back over to you for anything you'd like to add.

Speaker Change: Nothing to add to this, Tom. Happy to answer any questions that you might have.

Nothing at this time happy to answer any questions.

Speaker Change: Yeah.

Speaker Change: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad.

As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.

Speaker Change: Your first question comes from the line of Matt Olney from Stevens Incorporated. Please go ahead. Your line is open.

Your first question comes from the line of Matt Olney from Stephens incorporated. Please go ahead. Your line is open.

Matt Olney: Hey, thanks guys. Good afternoon.

Hey, Thanks, guys good afternoon.

Speaker Change: Hey, Matt. Hey, Matt. Good afternoon, Robbie.

Hey, Matt Hey, Matt Good afternoon.

Speaker Change: Yes.

Speaker Change: Thanks for all the good commentary there. I'll start on that core margin commentary that Greg just mentioned. I think I heard stable in the first quarter and then moving higher throughout the year.

Thanks for all the good commentary there.

I'll start on that core margin commentary that Greg just mentioned I think I heard stable in the first quarter and then moving higher throughout the year.

Speaker Change: Can you help us appreciate the sensitivity of both the margin and the NII with respect to short-term rates? And if the Fed doesn't move this year versus, you know, moves a few times, can you help us appreciate how much that could swing the margin and the NII? Thanks.

Can you help us appreciate the sensitivity of both the margin and the NII with respect to short term rates.

And if the fed.

It doesn't move this year versus you know movie a few times just help us appreciate how much that could swing the margin and Eni.

Speaker Change: Yeah, I think what my kind of last comment, Matt, with that was we've been working real hard over the last six to nine months and trying to become, move the banks at the sensitivity position to more neutral. So we, as of the end of the fourth quarter, have achieved that. And we feel like whether rates stay flat or they go down 25 basis points or 50 basis points at this point, it's hard to guess. We're in a position to where the margins will be held pretty stable. You know, obviously in a down rate environment, we should be able to move the liability side.

Yes, I think what.

Last comment Matt with that was we've been working real hard over the last six to nine months and trying to become.

<unk> moved the bank's asset sensitivity position to more neutral.

So we as of the end of the fourth quarter had achieved that and we feel like.

Are the rates stay flat or are they go down 25 basis points or 50 basis points at this point is hard to.

Our to gas.

We're in a position to where the margin will be held pretty stable.

Speaker Change: Obviously in a down rate environment.

We should be able to move the liability side.

Speaker Change: with some degree with all the money market accounts that we brought on the books. And then also, as I mentioned, that repricing on the fixed rate maturities, we feel like there's some pickup in that area. So our moving parts, but all that said, we feel pretty confident we should be able to keep it stable, slightly increasing, even if rates stay where they are or go down, either aspect to learn new travel.

With some degree.

With all the money market accounts that were brought on the books and then also.

As I mentioned that repricing almost fixed rate maturities, we feel like there is some some pickup in that area. So a lot of moving parts, but all of that said, we feel pretty confident that we should be able to keep it stable to slightly increasing even if rates stay where they are or go down either either aspect because our neutrality.

Speaker Change: Okay, got that.

Speaker Change: Okay got that.

Speaker Change: um

Speaker Change: and then you mentioned those low-yield

And then you mentioned those loan yields in the fourth quarter. It looks like the core loan yields moved up.

Speaker Change: In the fourth quarter, it looks like the core loan yields moved up, I think it was eight basis points this quarter. Is that in line with your expectations that we just saw? Any more color on that number? And as you reprice some of these fixed-rate loans higher, any general update you can share as far as conversations or discussions with borrowers and any kind of pushback you're receiving?

I think it was eight basis points.

This quarter.

Is that is that in line with your expectations that we just saw any more color on that number and as you as you reprice some of these fixed rate loans higher.

The general update you can share as far as comp.

Conversations or discussions with borrowers in any kind of pushback you're receiving.

Speaker Change: yeah I can um I'll start and I think December's new and originated loan yields were um 863 so still holding in there um quite nicely once in the beginning of the quarter we did see a little bit lower loan you origination yields down closer to 830. I would say that that that was influenced by um a larger deal that you mentioned with with our swap capability uh we took the the floating side of a pretty large transaction on there that that'll help us in the future from a asset pensability standpoint but this it did influence the early part of the quarter but we did um December those headlines were 863 on new and renewed so we were pleased with that and that's why I made the comment of even if we did get a rate cut or two with that point 146 million of loans that are maturing in 2024 the average rate on that is 593 so we think

Yes, I can.

I'll start and I think december's, new an originated loan yields were.

Speaker Change: 863, so still holding in there.

Quite nicely once in the beginning of the quarter, we did see a little bit lower loan yield origination yields down closer to $8 30.

Say that debt that was influenced by.

A larger deal that you had mentioned with our swap capability.

We took the floating side of a pretty large transaction on there that that will help us in the future from our asset sensitivity standpoint, but did.

It did influence the early part of the quarter, but we did.

Speaker Change: December those headlines rate 63 on new and renewed so we're pleased with that and Thats why I made the comment of even if we get a rate cut or two with that $446 million of loans that are maturing in 2024. The average weight weighted rate on that is $5 93, So we think.

Speaker Change: We should be able to pick up 200 to 250 basis points for that group. It should help us

Sure.

We should be able to pick up 200 to 250 basis points for that group that should help us.

Speaker Change: all said any headwinds by the variable book of pricing downwards.

All sets any headwinds by the variable book pricing.

Pricing downward.

Speaker Change: Matt, one thing that I'd add to that is looking ahead over the next 12 months, the book that's going to reprice that roughly $2.3 billion that's sitting on the books at $7.89 weighted average rate right now, if we're looking at mid to high 8% new and renewed yields on that, that's a 76 basis points pickup, which translates to about 28 basis points pickup in earning at-fit yields. So that's kind of the starting point on the left-hand side of the balance sheet in the repricing opportunity. And so when we look to the right-hand side of the balance sheet, the question is what are the funding pressures, how do those persist, and what are the assumed betas on that? And a little taller on what we're assuming those funding pressures translate to is about a 13% increase in cycle-to-date interest-bearing deposit betas over 2024. That compares to about a 24% increase in cycle-to-date interest-bearing deposit betas in 2023. So digging one step deeper into that, the December month and interest-bearing deposit costs were only four basis points higher than the total Q4 interest-bearing cost of deposit. So I mention that because that's a pretty decent step back and step down in the delta between month's end for the quarter and full quarter interest-bearing deposit costs. It feels like funding pressures are slowing some, and that's why I feel like if we're assuming the increase in cycle-to-date betas, it's still a 13% increase compared to a 24% increase during 2023, where I feel like we got the majority of the repricing kind of baked in. I feel like that's a pretty conservative beta assumption, and it's a great point how the 28 basis would pick up an earning asset yield on just the 12-month repricing portion of the loan book. Okay.

Yes, Matt one thing that I'd add to that is looking ahead over the next 12 months the book that's going to reprice.

Roughly 2.3 billion Thats sitting on the books at 789 weighted average rate right now if we're looking at mid to high 8%, new and renewed yields on that that's a 76 basis point pickup which translates to about 28 basis points pickup in earning asset yields. So that's kind of the starting point on the left hand side.

Speaker Change: On the balance sheet and the repricing opportunity.

So when we look to the right hand side of the balance sheet. The question is what are the funding pressures have those persist and what are the assumed betas on that and a little color on what were assuming those funding pressures translate to is about a 13% increase in cycle to date interest bearing deposit betas over 2024 that compares to about 20%.

4% increase in cycle to date interest bearing deposit betas in 2023.

Digging one step deeper into that.

December months, and interest bearing deposit cost or only four basis points higher than the total Q4 interest bearing cost of deposits. So.

Operator: Good afternoon,

Mentioned that because thats, a pretty decent step back and step down and the delta between months and for the quarter and full quarter interest bearing deposit cost it feels like funding pressures.

Krista: My name is Krista, and I'll be your conference operator.

Krista: At this time, I would like to welcome everyone to the Business First Bankers Fourth Quarter 2023 Earnings Conference.

Speaker Change: Slowing some and that's why I feel like if we're assuming the increase in cycle betas.

Krista: All lines have been placed on mute to prevent any backroom discussions. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, again, press star one. Thank you. I will now turn the conference over to Matt Seeley, Senior Vice President, Director of Corporate Strategy and SPNA.

13% increase compared to a 24% increase during 2023, where I feel like we got the majority of the repricing kind of baked in.

I feel like that's a pretty conservative beta assumption and to Greg's point, how the 28 basis point pick up in earning asset yield on just the 12 month repricing portion of the loan book.

Speaker Change: basically assuming that a large part of that gets absorbed by the repricing and the new funding costs. It's conservative because we hope that we can kind of manage and use the December month end and the Q4 quarter end as the launching point, those trends moving in the right direction where there's not much of a doubt between month end and quarter end to manage funding costs through the balance of 2024 and actually experience some take-up and good accretion in the margins of the balance of the year.

Speaker Change: Basically assuming that a large part of that gets absorbed by the repricing of the new funding costs.

Matt, you may begin your conference. Thank you, Krista.

It's conservative because we hope that we can kind of manage and use the.

Good afternoon, everyone, and thank you all for joining us.

The December month, and in the Q4 quarter end as the launching point those trends moving in the right direction, where theres not as much of a delta between month end and quarter end to manage funding costs and the balance of 2024 and actually experienced some pickup in good good accretion in the margin for the balance of the year.

Earlier today, we issued our fourth quarter 2023 earnings press release, a copy of which is available on our website, along with the slide presentation that we will reference during today's call. Please refer to slide three of our presentation, which includes our safe harbor statement regarding forward-looking statements and the use of non-gap financial measures. For those of you joining by phone, please note the slide presentation is available on our website at www.b1bank.com. Please also note our safe harbor statements are available on page 7 of our earnings press release that was filed with the SEC today. All comments made during today's call are subject to the State Farber Statement Center slide presentation and earnings release.

Speaker Change: Howard, uh, I just

Our.

Speaker Change: I'd like to go into your question about client sentiment. I'll have to fill up the way on that, but I'll just say numerically that the pipeline felt strong in the fourth quarter, and we obviously grew loans at a faster rate than we did in the second and third. In the fourth quarter, the pipeline enhancement was during a time when there was already an expectation it began to be built in that rates would drop in the future. So we actually, even though there is an expectation, and you might say, oh, it finds my way for rates to drop, we didn't actually experience that effect in the fourth quarter, but we did want you to appreciate that, and I would say that the forecast for the next couple of quarters looks the same, obviously, that clients are aware of the environment and are expecting an increase in pricing, but our pipeline remains strong.

The tail end of your question about <unk>.

Client sentiment I'll ask Phil to weigh in on that but I have to say numerically.

The pipeline felt strong in the fourth quarter and we obviously grew loans at a faster rate than we did in the second and third and fourth quarter was the pipeline enhancement was during a time when there was already an expectation began to be built and their rates were dropped in the future. So so we actually even though there is an expectation that.

I'm joined this afternoon by Business First Bank President and CEO Jude Melville, Chief Financial Officer Greg Roberts, banking officer Phillip Jordan, and chief administrative officer Jerry Baxter.

You might say of clients by wait for rates to job, we didn't actually experience that effect in the fourth quarter, but no royalty.

After the presentation, we'll be happy to address any questions you may have.

Jim: And with that, I'll turn the call over to you, Jim. Okay, thanks Matt and thanks everybody for doing this. We understand the demands of the season and appreciate you prioritizing this conversation with us. I'll briefly discuss our fourth quarter highlights and then take a step back to place the year in a broader context. Our team closed out an eventful year positively with another quarter of solid and consistent fundamental performance. Greg will go into detail in a few minutes on our non-poor adjustments, but once they're shipped out, we generate a core ROAA of 1.03%. Core ROAEE of 12.27%, a core efficiency ratio of 52.6%, and a core EPS of 66 cents, all exceeding consensus expectations.

Do you want.

We did most of you would appreciate that and I would just.

Davidson.

Forecast for the next couple of quarters look the same obviously the clients here are aware of the environment.

We expect them to increase the pricing on.

But our pipeline remains strong.

Okay.

Speaker Change: Okay, appreciate the commentary and just lastly on the funding strategy, I just want to appreciate if there's any kind of a shift or I guess product change there. It looks like the time deposit balances came down quite a bit during the quarter and based on Greg's update, it sounds like you're maybe leaning more on money markets more recently, any color behind the product shift there?

Okay I appreciate the commentary and just lastly on the funding strategy.

I just want I. Appreciate there is any kind of a shift or I guess product change there. It looks like the the time deposit balances came down quite a bit during the quarter and based on Greg's update it sounds like you were maybe leaning more on money markets more recently any color behind the product shift there.

Speaker Change: Yeah, I would say

Yes, I would say.

Speaker Change: Probably in the beginning of the third quarter and obviously all of the fourth quarter, we were very focused on that money market special with a conscious effort to moving some of the renewed balances that were coming up for renewal in our CD book into that money market product. We figured the sacrifice and the shorthand of the rate would give us flexibility with being able to manage those rates going forward if and when rates do fall. So that's not a new strategy this quarter. We've actually been doing that probably for the balance of the second half of the year and seem to be fairly successful without a lot of runoff in our CD book as well.

Yes.

Speaker Change: Really in <unk>.

Third quarter, beginning of the third quarter and average sale in the fourth quarter we were.

Very focused on that.

Money market special.

With a conscious effort to moving some of the renewed balances that were coming up for renewal in our CD book into that money market product.

Speaker Change: We figured the sacrifice on the short end of the rate would be.

Give us flexibility.

With being able to manage those rates going forward, if and when rates do fall. So.

That's not a new strategy this quarter, we actually been doing that product for the balance of the second half of the year.

Jim: We accomplished this in a similar manner to our last couple of quarters, by managing expenses prudently, by maintaining excellent credit quality, and by funding responsible loan growth through internally generated capital and liquidity.

Speaker Change: And seem to be fairly successful with.

Without a lot of run off in the CD book as well.

Yes.

Speaker Change: Alright guys, thanks for the commentary

Okay guys. Thanks for the commentary.

Speaker Change: Thanks, Matt.

Thanks, Matt.

Speaker Change: Your next question comes from the line of Graham Dick from Piper Sandler. Please go ahead. Your line is open.

Your next question comes from the line of Graham <expletive> from Piper Sandler. Please go ahead. Your line is open.

Jim: Again, Greg will go into detail on some of the non-core items, but I'd like to specifically mention two items that I consider highlight worthy. First, you'll recall last quarter we hired a seasoned individual to bring the SWAP capability in-house. This quarter, we experienced our first meaningful pickup of nearly a million dollars in non-interest income through Nathan's SWAP-funded business. While we don't expect to replicate such a high income number on a consistent basis in the year term, we are encouraged by the successful execution and the resulting client satisfaction. Perhaps more important than the fee income generated, the SWAP enabled us to close the significant credit-worthy loan in terms that we might not have been able to generate and accept from that liability management perspective without the SWAP protection, which enabled us to match both our and the prospective client's needs in winning combinations.

Graham Dick: Hey, good evening, guys.

Hey, good evening guys.

Speaker Change: Hey Graham

Okay.

Graham Dick: I just wanted to go back to the funding side quickly, specifically on non-interest bearing

Graham: I just wanted to go back to the funding side quickly.

And specifically on noninterest bearing balances.

Speaker Change: Greg, so with that NIM guide or outlook, whatever you want to call it, for next year, what are you assuming in terms of remix out of knowledge sharing? Where are you assuming that percentage goes from the current level of about 25%?

So with that NIM guide or outlet whenever you want to call. It for next year. What are you. What are you assuming in terms of remix out of non interest bearing like why are you assuming that that percentage goes from the current level of about 25%.

Greg: We're forecasting that this non-interest bearing continues to have a little bit of headwind and we think that that will settle somewhere around 23% by the end of 2024.

Yes, we are.

We're forecasting that the noninterest bearing.

Continues to have a little bit of headwind and we think that that will be will settle somewhere around 23% by the end of 2024.

Speaker Change: all right that's helpful and then I guess

Okay, Alright, that's helpful. And then I guess just on I guess, the size of the balance sheet and with loan growth and deposit growth.

Speaker Change: on, I guess, the size of balance sheet.

The push pull there do you think that.

Speaker Change: I guess Lone Grove is going to continue to just slightly outpace the positive growth from here or you think you can start to reverse that cycle?

I guess loan growth is going to continue to just slightly outpaced deposit growth from here or do you think you can start to reverse.

I guess that cycle and actually reduced the loan to deposit ratio a little bit more going forward.

Speaker Change: Padraic.

Padraic: yeah we're actually we finished the quarter about 95% we would like to get that closer to 90 so in the near term we see match funding for the long growth obviously if there's some opportunities for men to continue to keep that long growth in the six to eight percent range and outpace it with deposits to shift the long deposit ratio downward a little bit that'd be great

Yes, we're actually we finished the quarter at about 95%, we would like to get that closer to 90. So in the near term we see match funding for the loan growth. Obviously, there are some opportunities to win.

Jim: Second, our finance team, with the aid of our asset management firms, Michelle and Wilson, repositioned the portion of our investment portfolio by divesting $71.5 million of securities. While we recognize the $2.5 million pre-tax sale, we're also able to reinvest the full amount at a rate generating a projected 1.1 year earn back. It was another example of in-house capabilities allowing us to conduct transactions for our own balance sheet at a lower cost and with more control than if we had relied on outside vendors. Between this transaction, improvement in AOTI through the movement in the yield curve, base valuations, and the accumulation of capital through earnings, we accreted 14 basis points to Consolidated TRPC and 52 basis points to TTE in the quarter, increasing our TTE levels to

To continue to keep that loan growth in those 6% to 8% range and and outpace it with deposits to ship the loan to deposit ratio downward a little bit that'd be great.

Padraic: I will point out that over the course of the year, we decreased the loan-to-deplacement ratio, even with the macro environment and the liquidity pressures. So, we do – although –

I will I will point out that over the course of the year, we decreased our loan to deposit ratio, even even with the macro environment.

Graham: Liquidity pressures so we do.

Graham: No.

Padraic: you know in the fourth quarter we did grow loans slightly faster than deposits you know one of the reasons that we did so was because we had made room earlier in our borrowing capacity with our borrowing capacity so we definitely want to be thoughtful about about how we fund loans so we're in a position now where we continue to to try to decrease that on the deposit ratio but we also are have the flexibility that we didn't have a year ago to to make sure that we're using all the tools that are available to us and do the right thing each quarter but over the course of the year we certainly would like to continue that trend of moving closer to 90 percent.

In the fourth quarter, we did grow loans slightly faster than deposits.

One of the reasons that we did so because we have made room earlier and our borrowing capacity with our borrowing capacity. So we definitely want to be.

We are thoughtful about about how we fund loans, where we are in a position now where we continue to.

To try to decrease half on the deposit ratio, but we also.

Has the flexibility that we didn't have a year ago to to make sure that we're using all the tools that are available to us and do the right thing each quarter, but over the course of the year, we certainly would like to continue that trend.

Moving closer to 90%.

Graham: Yes.

Speaker Change: and Greg I think you gave it a number for expenses to start the year. I guess if you look out

Okay. That's helpful. And then Greg I think you gave a number for <unk>.

Expenses to start the year.

Greg Robertson: As you look out for the full year of 2024.

Speaker Change: full year 2024. Where do you think expense growth would shake out relative?

Jim: All in all, the fourth quarter was a solid closing for a successful and challenging year. We finished the year in a strengthened capital position with solid asset quality, ample, diverse, and granular liquidity, and, arguably most important, an employee base that's been through and grown from the challenges of 2023.

Where do you think expense growth would shake out relative to maybe a run rate of this this <unk> number we saw.

Speaker Change: have run.

Speaker Change: yeah I think that starting at that 4q number and then building on that with a six to eight percent growth rate annually and just chop that up by quarters escalating step stepping up I think is probably the fairest way to look at it

Yes, I think just starting at the <unk> number and then building on that with a 6% to 8% growth rate annually, just chop that up.

Greg Robertson: By quarters.

Escalating stair stepping up I think is probably the fairest way to look at it.

Speaker Change: Okay, that's helpful. I thought you had said before that there was 68%

Okay. That's helpful. I thought you had said before that there was 6% to 8% growth in the first quarter. So okay. That's helpful. Just throughout the year then.

Speaker Change: and that's just throughout the year.

Speaker Change: Correct.

Greg Robertson: Correct.

Speaker Change: Yeah, I'd say that if you look at the 10, specifically that's on the expense outlook, reflects the core non-interest expense base in Q4. So if you look at that range of 6% to 8% growth, analyze that, that's kind of the full-year number to target. And so if you want to make some assumptions in terms of stair-stepping to that full-year number, that 6% to 8% is reflective of the actual full-year expense number. Just, you know, you make your assumption on how you expect to get there on a full-year basis. But that is what happens, like.

Yes.

Jim: Just as, over the course of our time together as an institution, we've gone through and grown from the pandemic and its aftermath, various energy crashes, and the great financial crisis. While we've been successful practice managers, stepping back to the 10,000 foot view, I'd like to call your attention to pages 9 and 10 of the deck, which illustrate the success we've had not just playing defense but also rolling on the offensive and sustaining those efforts over time.

I would say that if you look at again, specifically that's something that the outlook reflects the core noninterest expense space in Q4. So if you look at that range of 6% to 8% growth annualized that's kind of the full year <unk> target and so if you want to make some assumptions in terms of stair stepping to that full year number that 6% to 8% is reflective of.

The actual full year expense in beverages.

You make your assumptions on how you expect to get there on a full year basis, but.

Jim: On page 9, you will note the consistency of our core ROAA performance, over 1% in each of the past 5 years. We've also grown our ROA-TE over that time period, with a five-year average of 11.46% and roughly 12.5% for each of the past three. This page details our consistent and balanced growth in loans and deposits, with each up roughly 190% over the past five years. More specifically, for loans, you'll note that we have, during that time, over-doubled our exposure in our original markets in Louisiana while growing our Texas-based exposure by a multiple of nearly eight times, leaving us as well-balanced geographically as we've ever been and approaching 40% of our exposure in Texas, Dallas and Houston specifically Moreover, we've accomplished this without sacrificing credit quality.

Greg Robertson: That is what that reflects.

Speaker Change: Okay.

Okay.

Speaker Change: All right, great guys. Thank you very much.

Alright, great guys. Thank you very much.

Speaker Change: Mike Graham, thank you. Your next question comes from the line of Michael Rose from Raymond James. Please go ahead. Your line is open.

Thanks Grant.

Your next question comes from the line of Michael Rose from Raymond James. Please go ahead. Your line is open.

Michael Edward Rose: Hey, good afternoon, everyone. Thanks for taking my questions. Maybe just following up on some of the deposits.

Hey, good afternoon, everyone. Thanks for taking my questions.

Maybe just following up on some of the deposit.

Michael Edward Rose: questions that have been asked. Can you just remind us

Questions that have been asked can you just remind us.

Michael Edward Rose: What your assumptions are for the ability to reduce deposit costs, assuming we do get a couple rate cuts, meaning how much your deposits are indexed, what are your assumptions around the ability to break down costs and savings and money markets?

Greg Robertson: What your assumptions are for the ability to reduce deposit costs, assuming we do get a couple of rate cuts meaning.

How much your deposits are indexed what are your assumptions around the ability to bring down costs and savings in money market.

Michael Edward Rose: you know accounts and I don't know if this was asked but you know where you'd expect NID Mix

Accounts and.

I don't know if this was asked but where you would expect niv mix to.

Michael Edward Rose: I think you, the mix this quarter was a little bit greater than kind of the 100 to 200 basis points that you guys had talked about last quarter. So just trying to appreciate the ability to kind of offset.

To kind of stabilize I. Thank you.

Greg Robertson: This quarter was a was a little bit greater than kind of the 100 to 200 basis points that you guys had talked about last quarter. So just trying to appreciate the.

Jim: It's a very similar metric across the whole of our system.

The ability to kind of offset.

Jim: On page 10, we detail a near four times increase in aggregate core earnings and a near doubling of core earnings on a per share basis, even with the solution accumulated from multiple M&A opportunities. The increased scale at which we now operate has resulted in a 500 basis point decline in our efficiency ratio over that time period.

Michael Edward Rose: with the ability to bring down the cost as rates hopefully fall with a couple rate cuts here.

With the ability to bring down deposit costs as rates.

Greg Robertson: Hopefully fall with a couple of rate cuts here. Thanks.

Speaker Change: Yep. The deposit costs, I think today we've increased our non-interest bearing, and I'll throw it out and let Matt kind of follow up. Non-interest bearing deposits move to 25% right at the end of the year, and we think forecasting...

Yes.

Greg Robertson: The deposit cost.

I think today, we've increased our.

Noninterest bearing and I'll start out and let Matt kind of follow up.

Noninterest bearing deposits move to 25% right at the end of the year and we think forecasting.

Jim: Most important, our tangible book value per share, XAOCI, even with the investments required to fund this growth, has grown 36% with a 9.3% CAGR over the past three years as returns have begun to accelerate. Quick results are important, but franchises are built over time, and these results clearly demonstrate that our team has been doing the right things in the right ways over time.

Speaker Change: this is this is tough in this space over the last 12 months for sure but we think 2024 that should settle in at around 23 percent so obviously from a funding cost standpoint that is the big catalyst or need mover we do better than that obviously that that helps us a whole lot as far as the money markets I spoke of we have about a billion four of those accounts on deposit and we would be able to move that with downward rate movements and I'll let Matt talk about the beta assumptions for each of those categories but we we do think and that's part of the reason why

Greg Robertson: This is this is tough in this space over the last 12 months for sure, but we think 'twenty.

Greg Robertson: 2024 that should settle in at around 23% so.

Obviously from a funding cost standpoint that is the big catalyst or needle mover, if we do better than that.

Greg Robertson: So that that helps us.

What.

As far as the money markets I spoke of we have about a 1 billion four of those accounts on deposit.

Jim: Despite this lengthening track record, we enter 2024 excited not so much by past results as by the potential we've positioned ourselves to achieve in the coming years.

Greg Robertson: And we would be able to.

Move that with downward rate movements.

And I'll, let Matt talk about the beta assumptions for each of those categories.

Jude: Thank you again for your time and attention, and I'll turn the microphone over to our CFO, Greg Robertson, to review the results in greater detail.

But we do think and Thats one of the reason why <unk>.

Speaker Change: I mentioned it earlier that we've been focused really hard on moving a lot of those accounts into that money market area. So as far as forecast, next year for every 25 basis points, Matt. Yeah, Michael. So the Q4 total interest-bearing cycle in 8 days is about 62%. That includes a little bit lower cost core interest-bearing deposits. So if we look at the actual repricing opportunity with a rate cut scenario, the higher cost deposit base we're assuming north of the 70% plus beta, and on the more core lower cost deposit base, we're assuming more like a 60% beta assumption on those. And I would say that,

Greg Robertson: Thank you, Jude, and good afternoon everyone. I'll spend just a few minutes reviewing our Q4 highlights, including some of the balance sheet and income statement trends, and we'll also discuss our updated thoughts on the current outlook. Fourth Quarter Gap Net Income and EPS Available to Comma Shareholders with $14.47 Million and $0.57, and included several non-core items, including a 2.5 million pre-tax loss on the sale of securities that Jude mentioned and also the $13,000 gain on the sale of our Bank Branch closure in Leesville in the third quarter, the $432,000 write-down on former bank premises, and a $63,000 acquisition related expense.

I mentioned it earlier that we've been focused really hard on moving a lot of those accounts into that money market.

Area.

So as far as forecast next year for every 25 basis points.

Yes, Michael So the Q4 total interest bearing <unk> beta was about 62% that includes a little bit lower cost core interest bearing deposits. So if we look at.

The actual repricing opportunity with a rate cut scenario the higher cost deposit base, we're assuming.

North of 70% plus beta.

And.

On the on the more core.

Greg Robertson: Lower cost.

Posit base, we're assuming more like a 60%.

Greg Robertson: Including these non-core items, non-GAAP, Core net income and EPS available to common shareholders was $16.8 million and 66% per share of EPS. It came in better than we expected, driven by solid expense management, strong non-interest revenue, and lower loss reserve expense. There were several items included in our core results that we would consider outside of our run rate earnings figure, however these items essentially offset what we feel like the Q4 23 fee income and expense figures are relatively clean run rates when thinking about 2024. I would however like to mention our fourth quarter loan loss expense figure of $119,000 was roughly $600,000 lower than you would expect from us during a quarter where we generated $70 million in net loan growth but looking at 2023 more holistically the Q4 provision translates into 116 basis points of reserve for the full year net loan growth which is above our long-term target of one percent for every new loan generated, What quarter of non-GAAP court non-interest expense was $39.2 million, and we feel like this is a fairly clean number.

The assumption on those.

And I would say that.

Speaker Change: Looking ahead for 2024, the base assumption that we're making is that we don't get a dramatic change in interest rates.

Greg Robertson: Looking ahead for 2024.

The base assumption that we're making sure that we don't get a dramatic change in interest rates.

Speaker Change: and I do think that there is some opportunity to reprice the deposits down.

And.

I do think that there is some opportunity.

To reprice deposits down.

But.

Speaker Change: but I would say that it's

But I would say that it's.

Speaker Change: It's probably going to move somewhat in tandem with some portion of the increase that we saw in the betas in 2023. That would translate to...

It's probably going to move somewhat in tandem.

Some portion of the increase that we saw and debated in 2023 that would translate to.

Speaker Change: the base deposits that are going to mature and are indexed, some percentage of that 24% increase year over year. I don't know if it's 20% or 15%, but I think a chunk of that data would actually translate through and we would recognize anywhere from the 60% data on the downside of any rate cuts against that portfolio that Greg had just mentioned.

The base deposits that are going to mature in our index.

Some percentage of that 24% increase year over year, I don't know, if its 20% or 15%, but I think a chunk of that beta would actually.

Greg Robertson: Translate through and.

We would recognize.

Anywhere from 60%.

Peter on the downside of any rate cuts against that portfolio that Greg just mentioned.

Speaker Change: Okay, yeah, very helpful.

Greg Robertson: However, I want to point out a couple of factors to consider regarding our 2024 non-interest expense outlook. Just an example to give you some color here. Q4 did benefit from lower seasonal accruals to payroll tax and 401k match. Also, our salaries figure will increase from our annual merit and cost of living increases, which were implemented. During the first quarter of each year. Regarding salaries and personnel, we will continue with our philosophy of investing in talent, with a few new hires coming in online in Q1. So in summary, we do expect Q1 non-interest expense to experience an increase due to accrual resets and salary increases. I think somewhere between a 6% to 8% increase off the Q4 non-interest expense stage is probably a fair estimate for the first quarter.

Okay, Yes.

Helpful.

Speaker Change: I think most of my other questions have been asked and answered, but I did notice the loan loss reserve ratio did come down a little bit. Credit remains really good for you guys. You guys are in a great market.

I think most of my other questions have been asked and answered, but I did notice the loan loss reserve ratio did come down.

A little bit credit remains really good for you guys. You guys are in great markets anything on the horizon, because we are starting to see some some of your peers.

Speaker Change: anything on the horizon because we are certain

Speaker Change: short for normalization

It's just a normalization.

Speaker Change: Anything, you know, on the horizon that you guys are taking a closer look at? I'm sorry if I missed it, but what would you change and criticize under classified balances this quarter?

Anything.

Greg Robertson: On the horizon that you guys are taking a closer look at and sorry, if I missed it but.

What was the change in criticized and classified balances this quarter. Thanks.

Speaker Change: the change in those this quarter was they stayed relatively flat so we continue to feel really good about our credit book you know and Michael I think one of the things that I mentioned on call is the you know we've we've seen a real-time

Yes.

The change in those this quarter was stay put relatively flat so.

We continue to feel really good about our credit book.

Speaker Change: And Michael I think one of the things that I mentioned on our call.

As the <unk>.

We've seen a real time.

Speaker Change: Uh...

Speaker Change: We've reported that 3 of 11 Mesa's wants to charge off this year, but that is including us because of the conversion of Cecil.

We reported the street 11 basis points charge off this year, but that is including us.

Greg Robertson: Moving on to non-interest income, fourth quarter gap non-interest income of $6.4 million included $2.5 million of the pre-tax loss on the sale of securities we mentioned earlier and a $13,000 gain on the sale of the bank branch. Excluding these items, core non-interest income was $8.9 million. We feel like this core $8.9 million figure is a fairly good run rate. As you mentioned earlier, we are very excited about our swap platform potential. It's too early to claim that $900,000 is a good run rate for the swap unit, but we are optimistic about the future. In terms of our outlook, I would say 6% to 8% growth off of our core Q4 base is a good range to consider for 2024 speed income. If I can direct you to slide 20, I'd like to show you that credit quality remained solid during the fourth quarter, with NPLs, NPAs, and net charge-offs stable to improving compared to the prior quarter. loan loss provision expense during the fourth quarter was $119,000.

The conversion is seasonal.

The.

Speaker Change: Inclusion of the purchase required credits and the sign mark for each of those credits. So if you remove that out of that, that would be about six basis points for the year, which would fall right in line with our five-year average, which is about seven basis points.

Speaker Change: Inclusion of the the purchase acquire credits and the assigned Mark for each of those credits. So if you remove that.

Out of that.

That would be about six basis points for the year.

Which would fall right in line with our five year average, which is about seven basis points.

Speaker Change: so we feel like the credit looks good we haven't seen any deterioration so far you know we're now approaching the halfway point in the quarter almost and so it's hard to imagine without any major issues popping up on the radar that we would see any big movements in net charge-offs for 2024 outside of what we're forecasting which is which is a statement

So we feel like the credit looks good.

We haven't seen any deterioration so far.

<unk> now.

Speaker Change: Approaching the halfway point in the quarter almost.

And so.

Speaker Change: It's hard to imagine without any major issues popping up on our radar that we would see.

Any big movements in net charge offs for 2024 outside of what we're forecasting which is which is stable.

Speaker Change: Subtitles by the Amara.org community

Speaker Change: helpful, and then maybe just one last one, just on slides.

Helpful. And then maybe just one one last one just on slide 16, the AUM at Ssw.

Speaker Change: The AUM at SSW has, you know, fallen for the past couple quarters.

I'll answer the past.

Quarters.

Speaker Change: in the fourth quarter just given the market.

Would've increased in the fourth quarter, just given the market appreciation can you just help us appreciate the.

Speaker Change: appreciates me. Can you just help us appreciate the, uh,

Speaker Change: The dynamics there that maybe drove the decline in the fourth quarter. Was there any loss of clients or anything like that?

The dynamic that it may be.

Greg Robertson: Going forward, we'll continue to target our one percent loan loss reserve on net new loan growth. I should, however, point out that we did adopt CECL in the first quarter of 2023, which distorts some of our credit metrics when comparing the prior years.

That drove the decline in the fourth quarter and was there any loss of clients or anything like that thanks.

Speaker Change: Yeah, we didn't lose any clients, so we're seeing for the second half of the year, it's just what you would expect from the diminution in the value of the bond market as a whole. We're expecting AUM, and, you know, to your point, you would expect to see some increase potentially at the end of the fourth quarter. But a lot of our clients...

Yes, we didn't lose any clients so.

Speaker Change: What you're seeing for the second half of the year just.

What you would expect from diminishing in the value of the bond market as a whole.

It would affect the AUR.

To your point, if you expect to see some increase potentially at the end of the fourth quarter.

Greg Robertson: For example, the four-year 2023 reported net charge-off of 11 basis points. Adjusting for Cecil, that charge-off would have come in at just six basis points due to the adjustment related to purchase acquired credits and the marks assigned to each of those credits. Moving on to the balance sheet, please reference slide 14 in the investor presentation where we include some information about a recent security repositioning initiative mentioned earlier. We sold $70 million of investment securities, or 8.13% of our total portfolio, at a weighted average book yield of 1.98% and reinvested at a new weighted average book yield of 5.17%.

But a lot of our clients.

Speaker Change: I should say a lot. A number of our clients did a similar restructuring to the one that we did. And we reinvested a full amount. A number of our clients took part of the proceeds and paid down debt with cash. So, K&P shrunk their investment portfolios to pay down debt to a certain extent. So, that's the impact that you're seeing in the AUM, not any loss of clients.

I shouldn't say a lot a number of our clients did a similar restructuring to the one that we did and whereas we reinvested therefore amount number of our clients to a part of the proceeds.

Debt with cash so can be shrunk their investment portfolio to pay down debt to a certain extent so that's.

The impact that Youre seeing in the AUM not not any loss of clients.

Speaker Change: We were pleased to be able to help them.

We were pleased.

Yes, we were pleased to be able to help them.

Speaker Change: structure those restructurings just as we did for ourselves.

Our structure of those those restructurings.

We did for ourselves.

Speaker Change: makes a lot of sense. Thanks Jude. And thanks for everyone for taking my question.

Makes total sense, thanks, David and thanks for everyone for taking my questions.

Speaker Change: Thank you.

Greg Robertson: We then recognized a $2.5 million pre-tax loss with an estimated 1.1 year earn back. This strategy helps us achieve improved profitability while extending the overall portfolio life to only 0.3 years. As far as loan growth goes with the balance sheet, the trends remain healthy during the quarter with loans growing 72.5 million, or 5.85% annualized, which translates to 386.6 million for the full year of 2023, or 8.4%, which is right in line with our longer-term target to achieve high single-digit growth. Growth was driven by our Dallas market, with just over 50% of growth coming from Dallas during the fourth quarter. As of year-end 2023, Texas represents 37% of our total loans, as page 9 illustrates. We are not only pleased with the geographic distribution of our loan growth but also the mixed shift in our growth away from C&D throughout 2023 and more weighted towards C&I and CRE. For example, during 2023, the C&I and CRE loan portfolios increased $200 million each, whereas the C&D loan portfolio decreased about $50 million during the year. We are pleased with the fact that C&D loans dropped below 100% of regulatory capital during the fourth quarter. More specifically, we ended the year at 92% of regulatory capital.

Thanks, Michael.

Speaker Change: Your next question comes from the line of Brett Rabatin from Huffington.

Speaker Change: Your next question comes from the line of Brett Robertson from have D Group. Please go ahead. Your line is open.

Brett D. Rabatin: Go ahead, your line is open.

Brett D. Rabatin: Hey guys, good afternoon. Thanks for the question.

Hey, guys. Good afternoon, thanks for the questions.

Speaker Change: I wanted to start

Gregory I wanted to start just.

Speaker Change: Hey, Jude. We wanted to start back on the expense guidance of 6% to 8% and wanted to get a little more color around, you know, what that number entails and, you know, if you're looking to add anybody in the Texas markets, you know, with that 6% to 8% included in there.

Hey, Jude I wanted to start back on the expense guidance of 6% to 8% and wanted to get a little more color around what that what that number entails and if youre looking to add anybody in the Texas markets with that 6% to 8% include any strategic hires around Len.

Speaker Change: strategic hires around lenders or anything else that you're planning on doing in 2020?

<unk> or anything else that you are planning on doing in 'twenty four.

Speaker Change: I'd like Greg and Matt to talk a little bit about the details, but just a general overview. We're not looking at 2024 as a year in which we'll do a lot of hiring. We'll certainly look for talent on one-off occasions and would expect to have some, but we still feel like the...

But I'll, let Greg talk and Matt talked a little bit about the details, but just general overview, but we're not looking at 2024 is a year in which we'll do a lot of hiring we'll certainly look for talent on one off occasions and would expect that some but.

We still feel like the.

Speaker Change: The teams of bankers that we've brought on over the past three years have capacity to continue to grow their portfolios, particularly given our

Teams of bankers that we've brought on over the past two or three years have.

Capacity to continue to grow their portfolios, particularly given our.

Our.

Speaker Change: are kind of maturation of our target levels when you think about our growth rates within our our routine earnings so we thought we have a good matchup of talent and capabilities

Our kind of maturation of our targeted levels. When you think about our growth rates within our retained earnings. So we feel like we have good matchup.

Talent and capability.

Speaker Change: new hires should probably be more centered around support staff to help them do all that they can do I'll let Greg talk a little bit about the added costs much of which is natural, whatever hires we did have last year, we'll have full years conserved for them this year we are like all of our clients experiencing increased health care costs and increased insurance costs and things that every business has to face but we're not anticipating any major investment in personnel over the year. Yeah, I think Greg the way to think about it is kind of in four different areas that you mentioned

Speaker Change: New hires should probably be more centered around support staff to help them.

All of them.

All of that they can do.

Greg Robertson: Deposits increased about $58.1 million during Q4, a 4.4% annualized rate. We continued our success in Q4 with our Money Market Special, which generated about $160 million of new deposit production during the quarter and added to a total of $350 million during the year. Non-interest-bearing deposits continue to remain a challenge. We ended Q4 with our non-interest-bearing deposits representing 24.8% of our total deposits, which is relatively consistent with a previous outlook to year-end of 2023 at 25%. Q4's gap net interest margin of 3.5% included $1.9 million in loan discount accretion, which was $400 higher than we expected. We expect accretion to drop back closer to $1 million per quarter going forward. Fourth quarter core net interest margin, excluding loan discount accretion, contracted 8 bps from $346 in Q3 to $338 in Q4. Looking ahead, we expect the core margin to remain stable, but we do anticipate modest expansion through the full year.

Speaker Change: I'll, let Greg talk a little bit about.

The added cost.

Much of which is natural.

Whatever hires we did have last year, we will have full year expense burden for them. This year, we are alike.

Like all of our clients experiencing.

Increased health care costs.

Increased insurance.

Cost and things that every business has to pester base, but.

We're not anticipating any major investment in personnel over the year.

Thanks for the way to think about it is kind of in four different areas that you'd mentioned.

Greg: First part is the increase of the impact of the hires we made in 2023, pulling those through for the full year impact of 2024. Second would be health care costs. That's gone up for us year over year in excess of $1.5 million. You know, as he also mentioned, just the other insurance costs to run the company. And I think the last piece that we'll continue to invest is, you know, preparing to be a company approaching $10 billion. We don't want to wake up and be at $10 billion without all the preparations in place from a CapEx standpoint as well. With software and technology, we have four different software initiatives that we've...

First part is the increase of the impact of of the hires we made in 2023 pulling those through for the full year impact of 2024.

Second would be health care costs.

That's gone up for us year over year in excess of 1 million tonnes.

As he also mentioned.

Just the other insurance costs to run the company and I think the last piece that will continue to invest as well.

We are preparing to be a company.

<unk> 10 billion, we don't want to wake up and.

Be a $10 billion without all the preparations in place from a capex standpoint, as well with <unk>.

With software and technology.

Four.

A different software initiatives that we have.

Greg: on board at the end of 2023, which will help us from an efficiency standpoint as we look out into the future and grow the skincare of our company.

On boarded.

End of 2023, which will help us from an efficiency standpoint, as we look out into the future and grow this and scale the company.

Greg: and most of those are very invested in helping us be more specific in our targeting of production opportunities to make sure that we are

Greg Robertson: I'd also like to mention slide 22. This is the slide that we reworked last quarter, and it depicts the repricing opportunity within our loan portfolio. As you'll see, even if we do get a couple of grade cuts next year, we have $446 million in fixed-rate loans sitting on the books at an average rate of $1,000,000. 5.9 weighted average rate. When you consider our new and renewed loan yields coming in at the mid-8% range, even if we do get a couple rate cuts, this portfolio should reset 200 to 250 basis points higher. We feel the outlook for core NIM to be flat in Q1 and expand modestly for full year 2024 is reasonable, even conservative considering the repricing tailwinds and new origination yields we have conservatively assumed.

And most of those are CRM best in helping us.

To be more specific and are targeting a production opportunities make sure that we are.

Greg: monetizing at a level that both makes sure that we're getting the right return but also does my clients in a more specialized manner so they're all

Monetizing better.

At a level of that.

So let's make sure that we're getting the right return, but also <unk>.

Speaker Change: Satisfied clients.

And a more specialized manner. So they are all.

Greg: production-based software investments, but things that as we, again, as Greg said, approach the $10 billion mark, want to be sure that we've got it ironed out and ready to go when we get there.

Production based software investments, but things that as we got as Greg said approach the $10 billion Mark wanted to be sure that.

We've got it ironed out and ready to go when we get there.

Speaker Change: And one thing that I would just add is think about the increase in 2024 over 2023. We made, obviously, some hires throughout the year in 2023, but some of those were back-end loaded. So when you're looking at a full year over full year, you're going to have a full year impact from the back half folks that we hired in 2023 that will be in for the full year in 2024. So that kind of contributes to part of the little bit larger increase on a year-over-year basis, just those folks coming in at the end of the year. And in Q4, as you guys know, we've mentioned in the past that there's some seasonality in accruals in Q4. And in Q1, what we have is we have a reset of those accruals, looking at a full-year basis and just recognizing on a quarterly basis. So Q4, there's seasonality in kind of accrual catch-ups. And then in Q1, there's a reset of those accruals, which reflects the full-year expectations on various line items.

Speaker Change: And one thing that I would just add is think about the increase in 2024 of our 2023, we made obviously some higher throughout the year in 2020, but some of this we are backend loaded so when youre looking at a full year of our full year and you're going to have a full year impact from the back half folks that we hired in 2023 that will be in for the full year 2024.

Greg Robertson: As we've already all said, I continue to see funding pressure. How do we think our ability to control funding pressure will be helped by efforts to become more liability sensitive over the last six months? While 2023 was a challenging year for the industry, we are pleased to ultimately generate a strong 105 ROA for the second year in a row. All things considered, we are very pleased with that level of profitability and consistency over the challenging prior two years. And with that, I'll hand the call back over to you for anything you'd like to add.

Speaker Change: That kind of contributes to part of the.

Bill.

Larger increase on a year over year basis, just as folks coming in at the end of the year and then Q4 as you guys know we've mentioned in the past that there are some.

Seasonality in accruals in Q4 and in Q in Q1 that we have is we have a reset of those accruals looking at a full year basis, and just recognizing on a quarterly basis.

<unk> Q4, there is seasonality in kind of accrual catch ups.

And then in Q1, there is a reset of those accruals, which reflect that full year expectations on various line items.

Speaker Change: okay that's helpful um and then and then back on just the funding in the in the mix I wasn't

Jim: I have nothing to add to this, Tom, but I'm happy to answer any questions that you might have.

Okay.

That's helpful and then back on just the funding.

And the mix.

Speaker Change: Quite clear, I may have missed it. What's the plan to replace the bank term funding program money, assuming that, you know, it's up in March?

Wasn't quite clear I may have missed it what's the plan to replace the bank term funding program money, assuming that you know is up in March.

Speaker Change: just thinking about the margin dynamics later this year. Given the repricing of loans, could you have

Operator: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad.

<unk>.

Speaker Change: Thinking about the margin dynamics later this year with given the repricing of loans could you have.

Speaker Change: Liability is actually your pricing lower in terms of the net cost versus increasing asset yield still through the pricing.

Matt Olney: Your first question comes from the line of Matt Olney from Stevens Incorporated. Please go ahead.

Liabilities actually repricing lower in terms of the net costs versus increasing asset yields still due to repricing lower yielding loans.

Speaker Change: Lower Yield

Matt Olney: Your line is open.

Speaker Change: I'll start with the first question.

Matt Olney: Hey, thanks guys.

I'll start with the first question.

Matt Olney: Good afternoon,

Unidentified Speaker: Hey, Matt.

Speaker Change: Parthas

Unidentified Speaker: Hey Matt, good afternoon, Robbie. Thanks for all the good commentary there. I'll start on that core margin commentary that Greg just mentioned. I think I heard stable in the first quarter and then moving higher throughout the year. Can you help us appreciate the sensitivity of both the margin and the NII with respect to short-term rates? And if the Fed doesn't move this year versus, you know, moves a few times, can you help us appreciate how much that could swing the margin and the NII? Thanks. Yeah, I think my kind of last comment, Matt, with that was we've been working real hard over the last six to nine months and trying to become, move the banks at the sensitivity position to more neutral.

Speaker Change: I think what we're prepared to do with VTFB specifically is we're going to look at optionality on this, whatever makes the most economic sense for us. But we've been carrying probably 50% of the balance to pay off the VTFB in cash on the balance sheet.

I think we are prepared to dues with PTSD specifically is.

We're going to look at Optionality illness, whatever makes the most economic sense for us, but we've been carrying.

Probably 50% of the balance to pay off the <unk> and cash on the balance sheet.

Speaker Change: because of the ability to earn fed funds at the rate it is today. So we're prepared to pay it at all.

Because of the ability to earn fed funds rate is today so.

Speaker Change: We are prepared to pay that off.

Speaker Change: and it's at least in part or in whole by certain different options. One of those options could be, depending on economics, you could extend VTSD for another 12 months the day before the program expires. So we'll look at all the options on that. And I think the second part of your question was the funding on the liability side. I think you're exactly right. What we've tried to position is that money market focus to be able to quite possibly lower the cost of the liability side while still experiencing some pickup in yield on the loan side with some of the repricing. So we'll try to be opportunistic with that as well.

And at least.

In part or in whole by certain different options one of those options could be depending on economics.

Speaker Change: You could extend Bts P for another 12 months the day before the program expires. So we'll look at all the options on that.

Unidentified Speaker: So, as of the end of the fourth quarter, we have achieved that. And we feel like whether rates stay flat or they go down 25 basis points or 50 basis points at this point, it's hard to guess. We're in a position where the margins will be held pretty stable. You know, obviously, in a down rate environment, we should be able to move the liability side to some degree with all the money market accounts that we brought on the books. And then also, as I mentioned, that repricing on the fixed rate maturities, we feel like there's some pickup in that area. So our moving parts, but all that said, we feel pretty confident we should be able to keep it stable, slightly increasing, even if rates stay where they are or go down, either aspect to learn new travel. Okay, got that, um, and then you mentioned those low-yield. In the fourth quarter, it looks like the core loan yields moved up. I think it was eight basis points this quarter.

And I think the second part of your question was the funding both on the liability side.

Speaker Change: Youre exactly right.

<unk> tried to position is that money market focus to be able to to Pos quite possibly lower the cost of the liability side, while still experiencing some pickup in yield on the loan side with some of the repricing. So.

We'll try to be opportunistic with that as well.

Speaker Change: Okay, that's great. Thanks for telling me.

Okay.

Great. Thanks for all the color.

Speaker Change: Thanks, Brett.

Thanks, Brett.

Speaker Change: Your next question comes from the line of Steady Strickland from Janie Montgomery Scott.

Your next question comes from the line of Debbie Jack Glenn from Janney Montgomery Scott. Please go ahead. Your line is open.

Steady Strickland: go ahead, your line is open

Steady Strickland: Hey, good evening.

Hey, good evening gentlemen.

Steady Strickland: Take care, everybody.

A fairly competitive.

Speaker Change: I just want to ask your thoughts on capital

Speaker Change: Just wanted to ask your thoughts on capital management.

Speaker Change: Further Dividending

Speaker Change: Further dividend increases over time or potential repurchases or is there still more of a focus on just building capital to support organic growth or maybe M&A and longer term.

Speaker Change: Time, or potential rebates.

Speaker Change: and more of us at

Speaker Change: and Kevin Fitzsimmons.

Unidentified Speaker: Is that in line with your expectations that we just saw? Any more color on that number? And as you reprice some of these fixed-rate loans higher, any general update you can share as far as conversations or discussions with borrowers and any kind of pushback you're receiving? yeah I can um I'll start and I think December's new and originated loan yields were um 863 so still holding in there um quite nicely once in the beginning of the quarter we did see a little bit lower loan you origination yields down closer to 830. I would say that that that was influenced by um a larger deal that you mentioned with with our swap capability uh we took the the floating side of a pretty large transaction on there that that'll help us in the future from a asset pensability standpoint but this it did influence the early part of the quarter but we did um December those headlines were 863 on new and renewed so we were pleased with that and that's why I made the comment of even if we did get a rate cut or two with that point 146 million of loans that are maturing in 2024 the average rate on that is 593 so we think We should be able to pick up 200 to 250 basis points for that group.

Speaker Change: Curious how you're thinking about capital.

How youre thinking about the capital stack.

Kevin Fitzsimmons: I think our priority

Yes, I think our priority.

Kevin Fitzsimmons: has been and is to incrementally grow the capital levels to prepare for opportunities to see what M&A might come up or what other lift outs or additions. While we're not planning on a significant amount of hiring this year, certainly we want to be.

Has been and is to incrementally grow the core.

Capital levels to prepare for opportunities to see.

What M&A might come up or what other lift outs or or additions.

But we're not planning on.

A significant amount of hiring this year, certainly we want to be.

Kevin Fitzsimmons: prepared for opportunities and believe in the word optionality. So having a stronger capital stack, we're just in a better position to be able to take advantage of those opportunities. We have, you know, we did raise the dividend last quarter and that marked five years in a row in which we've increased the dividend, if I remember correctly. And I do think that there is, we have a mix of shareholder-based investments

Prepared for opportunities and believe in the word optionality, so having a stronger capital stack.

Puts us in a better position and be able to take advantage of those opportunities.

We have we did raise the dividend last quarter.

At March five years in a row in which we <unk>.

<unk> increased the dividend and if I remember correctly and I do think that there is although we have a mix of both.

The shareholder base.

Kevin Fitzsimmons: there is a healthy percentage of our shareholder base that's retail and I appreciate the return of that dividend and we feel like that's an important return that we provide and we'll continue to certainly do that and in an ideal world, assuming everything goes well, we'll try to stick with increasing it incrementally on an annual basis but we'll take it quarter by quarter and see what opportunities we have from

There is a healthy percentage of our shareholder base with retail and those.

Got you I appreciate it.

That return to that dividend and we feel like that's an important.

Thanks.

An important return that we provide.

So we'll continue to certainly do that in <unk>.

In an ideal world, assuming everything goes well.

I'll try to stick with.

Increasing it incrementally on an annual basis.

Well, we'll take it quarter by quarter and see what opportunities we have.

Kevin Fitzsimmons: open to M&A should that possibility arise.

Open to M&A should that possibility horizon.

Kevin Fitzsimmons: had the opportunity to look at a number of deals in 2023 and didn't feel like those were the right decisions at the time for us, but certainly taking that on a real-time decision basis, so I would say that

And the opportunity to look at a number of deals in 2023 and didn't feel like it was right. Those were the right decisions at the time for us, but certainly taking that on.

Real time decision.

Unidentified Speaker: It should help us, all said any headwinds by the variable book of pricing downwards. Matt, one thing that I'd add to that is looking ahead over the next 12 months, the book that's going to reprice that roughly $2.3 billion that's sitting on the books at $7.89 weighted average rate right now, if we're looking at mid to high 8% new and renewed yields on that, that's a 76 basis points pickup, which translates to about 28 basis points pickup in earnings at-fit yields So that's kind of the starting point on the left-hand side of the balance sheet for the repricing opportunity.

Speaker Change: Basis, So I would say that.

Kevin Fitzsimmons: could have answered your question pretty succinctly if I had chosen to, but basically we want to prioritize, continue to incrementally increase our capital, grow within that retained earnings stream, and we think increasing the capital base over time will give us some optionality to take advantage of opportunities, which we think we've done a good job of that over time. In my comments at the beginning, I outlined some of the successes that we've had, and we've done so through a combination of organic and M&A growth, and would expect that that would continue.

The answer to your question pretty pretty distinct.

Chosen too, but basically we want to prioritize continuing to incrementally.

Increase our capital.

Grow within that retained earnings stream.

And we think increasing the capital base over time will give us some optionality to take advantage of opportunities, which we think we've done a.

A good job of that over time and that in my comments at the beginning.

Outlines some of the successes that we've had and we've done so through a combination of organic and M&A growth.

Yes.

Speaker Change: I appreciate the color dudes and just one last clarifying question I think you may have already answered this but I just want to make sure I got it right

Got it I appreciate the color and just one last clarifying question I think you may have already answered this but I just want to make sure I got it right.

Unidentified Speaker: And so when we look to the right-hand side of the balance sheet, the question is what are the funding pressures, how do those persist, and what are the assumed betas on that? A little higher on what we're assuming those funding pressures translate to is about a 13% increase in cycle-to-date interest-bearing deposit betas over 2024. That compares to about a 24% increase in cycle-to-date interest-bearing deposit betas in 2023. So digging one step deeper into that, the December month and interest-bearing deposit costs were only four basis points higher than the total Q4 interest-bearing cost of deposit.

Speaker Change: Overall

Speaker Change: Overall, we should see the margin grow if we only get.

Speaker Change: See the margin grow if we only get

A handful of rate cuts just simply because of this repricing opportunity that you laid out in the deck.

Speaker Change: Great Touch is simply the

Speaker Change: Thank you.

Speaker Change: down on the deck.

And potentially the opportunity that some of the other analysts have discussed with.

Speaker Change: Stop.

Speaker Change: are in on this.

Speaker Change: and Matt Olney.

On the liability side it seems like the margin should add some.

Speaker Change: level tailwinds.

Level of tailwind.

Future quarters is that fair.

Speaker Change: I think that's fair. We think it should incrementally grow as the year progresses, even if we get a couple of cuts.

I think that's fair we think.

It should incrementally.

Grow as the year progresses, even if we get a couple of codes.

Yes.

Understood. Thank you for taking my question.

Speaker Change: I would just add to that too as Greg mentioned in his prepared remarks we've worked pretty hard for the last six months or so to move more and more to a rate neutral position by moving the right hand side of the balance sheet the liability side to be a little bit more rate sensitive there so assuming a rate cut scenario I think we're better positioned now to at least hold them maybe pick up a little bit in a down rate environment as soon as we don't get some dramatic shock of 100 bps or something like that

I would just add to that.

Unidentified Speaker: So I mention that because that's a pretty decent step back and step down in the delta between month's end for the quarter and full quarter interest-bearing deposit costs. It feels like funding pressures are slowing some, and that's why I feel like if we're assuming the increase in cycle-to-date betas, it's still a 13% increase compared to a 24% increase during 2023, where I feel like we've got the majority of the repricing kind of baked in. I feel like that's a pretty conservative beta assumption, and it's a great point how the 28 basis would pick up an earning asset yield on just the 12-month repricing portion of the loan book. Okay, basically assuming that a large part of that gets absorbed by the repricing and the new funding costs.

Greg mentioned in his prepared remarks, we've worked pretty hard over the last six months or so.

Speaker Change: More and more to a interest rate neutral position by moving the right hand side of the balance sheet, the liability side to be a little bit more rate sensitive there. So assuming a rate cut scenario I think we are better positioned now to at least hold up.

Have you pick up a little bit.

Speaker Change: In a down rate environment, assuming we don't get some dramatic shock of 100 bps or something like that.

Speaker Change: got it. The 25 basis point increments are probably more

Got it so the 25 basis point increments are probably more manageable because you can make incremental shifts over time right.

Speaker Change: That's right.

That's right.

Speaker Change: Got it. That's it.

Got it that's it from me thanks, guys.

Speaker Change: Thanks, Brady.

Speaker Change: Thanks Pat.

Speaker Change: Your next question comes from the line of Matt Olney from Stevens Incorporated. Please go ahead. Your line is open.

Your next question comes from the line of Matt Olney from Stephens incorporated. Please go ahead. Your line is open.

Speaker Change: Matt, you're double-drifting, man. Sorry, guys. My follow-up question was already addressed. Appreciate it, though. Thank you.

Okay.

You double dip.

Sorry, guys. My follow up question is already addressed I appreciate it. Thank you.

Speaker Change: All right, sorry about that.

Thank you.

Hi, sorry about that.

Speaker Change: We have no further questions in our queue at this time. I will now turn the conference over to Jude Melville for closing remarks.

Okay.

Unidentified Speaker: It's conservative because we hope that we can kind of manage and use the December month end and the Q4 quarter end as the launching point, those trends moving in the right direction where there's not much of a doubt between month end and quarter end to manage funding costs through the balance of 2024 and actually experience some take-up and good accretion in the margins of the balance of the year. Howard, uh, I just, I'd like to go into your question about client sentiment. I'll have to fill in the way on that, but I'll just say numerically that the pipeline felt strong in the fourth quarter, and we obviously grew loans at a faster rate than we did in the second and third.

Have no further questions in our queue at this time I will now turn the conference over to Jude Melville for closing remarks.

Jude Melville: I'll just close, thanks everybody for joining us and just want to express the pride I am of our team and the work that we've done, not just over the past quarter or the past year, but over the past years.

Okay, well I'll just close thanks, everybody for joining us.

Just want to express.

I'm proud I am of our team and the work that we've done.

Not just over the past quarter over the past year, but over the past years and.

Jude Melville: I realize that these calls tend to focus more on expectations going forward, which we're, you know, we certainly spend much of our time doing that, but I also want to speak to our investors and our teammates to, again, highlight the fact that, or highlight the

I realize that these calls tend to focus more on.

Expectations going forward.

Which we certainly spent much of our time doing that but I also.

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Speaker Change: I want to speak to our investors and our and our teammates too.

Just again highlight the fact that our highlight.

Jude Melville: The growth that we've experienced, and I don't mean growth just in terms of assets, but growth in terms of capabilities and profitability and managerial experience and all the things that when we went public in 2018 that we said we would do and work on have essentially come to fruition. So we're proud of that record and excited about it.

The growth that we've experienced in our main growth just in terms of assets where growth in terms of.

Unidentified Speaker: In the fourth quarter, the pipeline enhancement was during a time when there was already an expectation, and it began to be built in that rates would drop in the future. So we actually, even though there is an expectation, and you might say, oh, it finds its way, for rates to drop, we didn't actually experience that effect in the fourth quarter, but we did want you to appreciate that, and I would say that the forecast for the next couple of quarters looks the same, obviously, that clients are aware of the environment and are expecting an increase in pricing, but our pipeline remains strong. Okay, appreciate the commentary, and just lastly on the funding strategy, I just want to know if there's any kind of a shift or, I guess, product change there. It looks like the time deposit balances came down quite a bit during the quarter, and based on Greg's update, it sounds like you're maybe leaning more on money markets more recently. Any color on the product shift there?

Speaker Change: Capabilities and profitability and.

Speaker Change: Managerial experience and.

All of the things that when we went public in 2018.

We said we would we.

We would do and work on <unk>.

<unk> essentially come to fruition and so we're proud of that record and excited about.

Jude Melville: seeing how we can continue to build upon that track record. So thank you for being with us and thank you for the investment and look forward to talking to you next quarter.

Seeing how we can continue to build upon that that track record. So thank you for being with US and thank you for the investment and look forward to talking to you next quarter.

Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.

This concludes today's conference call. Thank you for your participation and you may now disconnect.

Speaker Change: Thank you for watching. Thank you for watching. Thank you for watching. Thank you for watching. Thank you for watching.

[music].

Sure.

Unidentified Speaker: Yeah, I would say, probably in the beginning of the third quarter and, obviously, all of the fourth quarter, we were very focused on that money market special with a conscious effort to move some of the renewed balances that were coming up for renewal in our CD book into that money market product. We figured the sacrifice and the shorthand of the rate would give us flexibility with being able to manage those rates going forward if and when rates do fall. So that's not a new strategy this quarter. We've actually been doing that probably for the balance of the second half of the year and seem to be fairly successful without a lot of runoff in our CD book as well. Alright guys, thanks for the commentary. Thanks, Matt. Your next question comes from the line of Graham Dick from Piper Sandler. Please go ahead. Your line is open.

Okay.

Yes.

[music].

Okay.

Unidentified Speaker: Hey, good evening, guys. Hey Graham, I just wanted to go back to the funding side quickly, specifically on non-interest bearing, Greg. So with that NIM guide or outlook, whatever you want to call it, for next year, what are you assuming in terms of remix out of knowledge sharing? Where are you assuming that percentage goes from the current level of about 25%? We're forecasting that this non-interest bearing continues to have a little bit of a headwind, and we think that that will settle somewhere around 23% by the end of 2024. All right, that's helpful, and then I guess on the size of the balance sheet. I guess Lone Grove is going to continue to just slightly outpace the positive growth from here, or do you think you can start to reverse that cycle?

Unidentified Speaker: Padraic, yeah we're actually we finished the quarter about 95% we would like to get that closer to 90 so in the near term we see match funding for the long growth obviously if there's some opportunities for men to continue to keep that long growth in the six to eight percent range and outpace it with deposits to shift the long deposit ratio downward a little bit that'd be great I will point out that over the course of the year, we decreased the loan-to-deplacement ratio, even with the macro environment and the liquidity pressures. So, we do – although – you know in the fourth quarter we did grow loans slightly faster than deposits you know one of the reasons that we did so was because we had made room earlier in our borrowing capacity with our borrowing capacity so we definitely want to be thoughtful about about how we fund loans so we're in a position now where we continue to to try to decrease that on the deposit ratio but we also are have the flexibility that we didn't have a year ago to to make sure that we're using all the tools that are available to us and do the right thing each quarter but over the course of the year we certainly would like to continue that trend of moving closer to 90 percent, and Greg I think you gave it a number for expenses to start the year.

Yes.

Unidentified Speaker: I guess if you look out full year 2024, where do you think expense growth will shake out relative? have run, Yeah, I think that starting at that 4Q number and then building on that with a six to eight percent growth rate annually and just chopping that up by quarters escalating step stepping up is probably the fairest way to look at it. Okay, that's helpful. I thought you had said before that there was 68%, and that's just throughout the year.

Unidentified Speaker: Correct. Yeah, I'd say that if you look at the 10, specifically that's on the expense outlook, it reflects the core non-interest expense base in Q4. So if you look at that range of 6% to 8% growth, analyze that, that's kind of the full-year number to target. And so if you want to make some assumptions in terms of stair-stepping to that full-year number, that 6% to 8% is reflective of the actual full-year expense number. Just, you know, you make your assumptions on how you expect to get there on a full-year basis. But that is what happens, like. Okay. All right, great guys. Thank you very much. Mike Graham, thank you. Your next question comes from the line of Michael Rose from Raymond James.

Michael Edward Rose: Please go ahead.

Unidentified Speaker: Your line is open.

Unidentified Speaker: Hey, good afternoon, everyone.

Michael Edward Rose: Thanks for taking my questions.

Unidentified Speaker: Maybe just following up on some of the deposits questions that have been asked. Can you just remind us what your assumptions are for the ability to reduce deposit costs, assuming we do get a couple rate cuts, meaning how much your deposits are indexed, what are your assumptions around the ability to break down costs and savings and money markets? You know accounts and I don't know if this was asked, but you know where you'd expect NID Mix to be. I think the mix this quarter was a little bit greater than kind of the 100 to 200 basis points that you guys had talked about last quarter. So just trying to appreciate the ability to kind of offset the cost as rates hopefully fall with a couple rate cuts here.

Unidentified Speaker: Yep. The deposit costs, I think today we've increased our non-interest bearing, and I'll throw it out and let Matt kind of follow up. Non-interest bearing deposits move to 25% right at the end of the year, and we think forecasting.., this is this is tough in this space over the last 12 months for sure but we think 2024 that should settle in at around 23 percent so obviously from a funding cost standpoint that is the big catalyst or need mover we do better than that obviously that that helps us a whole lot as far as the money markets I spoke of we have about a billion four of those accounts on deposit and we would be able to move that with downward rate movements and I'll let Matt talk about the beta assumptions for each of those categories but we we do think and that's part of the reason why I mentioned it earlier that we've been focused really hard on moving a lot of those accounts into that money market area.

Unidentified Speaker: So as far as forecasts go, next year for every 25 basis points, Matt. Yeah, Michael. So the Q4 total interest-bearing cycle in 8 days is about 62%. That includes a little bit lower cost core interest-bearing deposits. So if we look at the actual repricing opportunity with a rate cut scenario, the higher cost deposit base, we're assuming north of the 70% plus beta, and on the more core lower cost deposit base, we're assuming more like a 60% beta assumption on those. And I would say that, Looking ahead for 2024, the base assumption that we're making is that we don't get a dramatic change in interest rates, and I do think that there is some opportunity to reprice the deposits down, but I would say that it's probably going to move somewhat in tandem with some portion of the increase that we saw in the betas in 2023.

Unidentified Speaker: That would translate to... the base deposits that are going to mature and are indexed, some percentage of that 24% increase year over year. I don't know if it's 20% or 15%, but I think a chunk of that data would actually translate through, and we would recognize anywhere from the 60% data on the downside of any rate cuts against that portfolio that Greg had just mentioned. Okay, yeah, very helpful. I think most of my other questions have been asked and answered, but I did notice the loan loss reserve ratio did come down a little bit. Credit remains really good for you guys. You guys are in a great market. Anything on the horizon because we are certain short of normalization? Anything, you know, on the horizon that you guys are taking a closer look at?

Unidentified Speaker: I'm sorry if I missed it, but what would you change and criticize under classified balances this quarter? The change in those this quarter was they stayed relatively flat, so we continue to feel really good about our credit book, you know, and Michael. I think one of the things that I mentioned on the call is that we've seen a real-time, Uh... We've reported that 3 of 11 Mesa wants to charge off this year, but that is including us because of the conversion of Cecil.

Unidentified Speaker: Inclusion of the purchase required credits and the sign mark for each of those credits. So if you remove that out of that, that would be about six basis points for the year, which would fall right in line with our five-year average, which is about seven basis points, so we feel like the credit looks good we haven't seen any deterioration so far you know we're now approaching the halfway point in the quarter almost and so it's hard to imagine without any major issues popping up on the radar that we would see any big movements in net charge-offs for 2024 outside of what we're forecasting which is which is a statement Subtitles by the Amara.org community, helpful, and then maybe just one last one, just on slides.

Unidentified Speaker: The AUM at SSW has, you know, fallen for the past couple quarters in the fourth quarter just given the market appreciates me. Can you just help us appreciate the, uh, the dynamics there that maybe drove the decline in the fourth quarter? Was there any loss of clients or anything like that? Yeah, we didn't lose any clients, so what we're seeing for the second half of the year is just what you would expect from the diminution in the value of the bond market as a whole.

Unidentified Speaker: We're expecting AUM, and, you know, to your point, you would expect to see some increase potentially at the end of the fourth quarter. But a lot of our clients... I should say a lot. A number of our clients did a similar restructuring to the one that we did.

Unidentified Speaker: And we reinvested the full amount.

Unidentified Speaker: A number of our clients took part of the proceeds and paid down debt with cash. As a result, K&P shrunk their investment portfolios to pay down debt to a certain extent. So, that's the impact that you're seeing in the AUM, not any loss of clients. We were pleased to be able to help them, structure those restructurings just as we did for ourselves. It makes a lot of sense. Thanks Jude. And thanks to everyone for taking my question. Thank you.

Brett D. Rabatin: Your next question comes from the line of Brett Rabatin from Huffington.

Unidentified Speaker: Go ahead; your line is open.

Brett D. Rabatin: Hey guys, good afternoon.

Unidentified Speaker: Thanks for the question. I wanted to start with, Hey Jude. We wanted to start back on the expense guidance of 6% to 8% and wanted to get a little more color around, you know, what that number entails and, you know, if you're looking to add anybody in the Texas markets, you know, with that 6% to 8% included in there, strategic hires around lenders or anything else that you're planning on doing in 2020. I'd like Greg and Matt to talk a little bit We're not looking at 2024 as a year in which we'll do a lot of hiring. We'll certainly look for talent on one-off occasions and would expect to have some, but we still feel like the...

Unidentified Speaker: The teams of bankers that we've brought on over the past three years have capacity to continue to grow their portfolios, particularly given our, are kind of maturation of our target levels when you think about our growth rates within our our routine earnings so we thought we have a good matchup of talent and capabilities new hires should probably be more centered around support staff to help them do all that they can do I'll let Greg talk a little bit about the added costs much of which is natural, whatever hires we did have last year, we'll have full years conserved for them this year we are like all of our clients experiencing increased health care costs and increased insurance costs and things that every business has to face but we're not anticipating any major investment in personnel over the year. Yeah, I think Greg the way to think about it is kind of in four different areas that you mentioned, First part is the increase of the impact of the hires we made in 2023, pulling those through for the full year impact of 2024.

Unidentified Speaker: Second would be health care costs. That's gone up for us year over year in excess of $1.5 million. You know, as he also mentioned, just the other insurance costs to run the company. And I think the last piece that we'll continue to invest is, you know, preparing to be a company approaching $10 billion. We don't want to wake up and be at $10 billion without all the preparations in place from a CapEx standpoint as well. With software and technology, we have four different software initiatives that we've.., on board at the end of 2023, which will help us from an efficiency standpoint as we look out into the future and grow the skincare of our company, and most of those are very invested in helping us be more specific in our targeting of production opportunities to make sure that we are monetizing at a level that both makes sure that we're getting the right return but also does my clients in a more specialized manner so they're all production-based software investments, but things that as we, again, as Greg said, approach the $10 billion mark, want to be sure that we've got it ironed out and ready to go when we get there.

Unnamed Speaker: Basically, I am assuming that a large part of that gets absorbed by the repricing and the new funding cost. It's conservative because we hope that we can kind of manage and use the December month end and the Q4 quarter end as the launching point, so the trend's moving in the right direction where there's not much of a gap between month end and quarter end to manage funding costs through the balance of 2024 and actually experience some pickup and good accretion in the margin for the balance of the year. So to your question about client sentiment, I'll have to fill in the weight on that.

Unidentified Speaker: And one thing that I would just add is think about the increase in 2024 over 2023. We made, obviously, some hires throughout the year in 2023, but some of those were back-end loaded. So when you're looking at a full year over a full year, you're going to have a full year impact from the back half folks that we hired in 2023 that will be in for the full year in 2024. So that kind of contributes to part of the little bit larger increase on a year-over-year basis, just those folks coming in at the end of the year. And in Q4, as you guys know, we've mentioned in the past that there's some seasonality in accruals in Q4. And in Q1, what we have is we have a reset of those accruals, looking at them on a full-year basis and just recognizing them on a quarterly basis. So in Q4, there's seasonality in the kind of accrual catch-ups.

Unnamed Speaker: But I'll just say numerically that the pipeline fell strong in the fourth quarter, and we obviously grew loans at a faster rate than we did in the second and third. And fourth quarter, the pipeline enhancement was during a time when there was already an expectation beginning to be built in that rates would drop in the future. So we actually, even though there is an expectation, you might say, I will find my way for rates to drop. We didn't actually experience that back in the fourth quarter.

Unidentified Speaker: And then in Q1, there's a reset of those accruals, which reflects the full-year expectations on various line items, okay, that's helpful. Um, and then back on just the funding in the mix. I wasn't quite clear, I may have missed it. What's the plan to replace the bank term funding program money, assuming that, you know, it's up in March? just thinking about the margin dynamics later this year. Given the repricing of loans, could you have the Liability is actually your pricing lower in terms of the net cost versus increasing asset yield still through the pricing. Lower Yield, I'll start with the first question. Parthas, I think what we're prepared to do with VTFB specifically is we're going to look at optionality on this, whatever makes the most economic sense for us. But we've been carrying probably 50% of the balance to pay off the VTFB in cash on the balance sheet because of the ability to earn Fed funds at the rate it is today.

Unnamed Speaker: But we did want you to appreciate that, and I would say that this is what we'd ask for in the next couple of quarters. But the thing, obviously, is that clients are aware of the environment and expect an increase in pricing. But our pipeline remains strong. Okay, I appreciate the commentary.

Unnamed Speaker: And just lastly, on the funding strategy, just want to know if there's any kind of a shift or, I guess, a product change there. It looks like the time deposit balances came down far better in the quarter. And based on Greg's update, it sounds like you're maybe leaning more on money markets more recently. Any color behind the product shift there?

Unidentified Speaker: So we're prepared to pay for it at all, and it's covered, at least in part or in whole, by certain different options.

Unidentified Speaker: One of those options could be, depending on the economics, you could extend VTSD for another 12 months the day before the program expires. So we'll look at all the options on that. And I think the second part of your question was the funding on the liability side. I think you're absolutely right. What we've tried to position is that money market focus to be able to quite possibly lower the cost of the liability side while still experiencing some pickup in yield on the loan side with some of the repricing. So we'll try to be opportunistic with that as well. Okay, that's great. Thanks for telling me.

Unnamed Speaker: Yeah, I would say... Probably in the beginning of the third quarter and, obviously, all of the fourth quarter, we were very focused on that money market special with a conscious effort to move some of the renewed balances that were coming up for renewal in our CD book into that money market product. We figured the sacrifice on the shorthand of the rate would give us flexibility with being able to manage those rates going forward if and when rate 2 falls. That's not a new strategy this quarter; we've actually been doing that probably for the balance of the second half of the year and seem to be fairly successful without a lot of runoff in our CD book as well. Okay, alright guys, thanks for the commentary. Thanks Matt. Your next question comes from the line of Graham Dick from Piper Sandler. Please go ahead; your line is open. Hey, good evening, guys. Hey, Graham.

Unidentified Speaker: Thanks, Brett. Your next question comes from the line of Steady Strickland from Janie Montgomery Scott. Go ahead, your line is open. Hey, good evening. Take care, everybody. I just want to ask your thoughts on capital, Further Dividending, Time, or potential rebates, and more from us at and Kevin Fitzsimmons. Curious how you're thinking about capital. I think our priority has been and is to incrementally grow the capital levels to prepare for opportunities to see what M&A might come up or what other lift-outs or additions.

Unidentified Speaker: While we're not planning on a significant amount of hiring this year, certainly we want to be prepared for opportunities and believe in the word optionality.

Greg: I just wanted to go back to the funding side quickly, and specifically on the non-interest bearing balance. Greg, with that NIM guide or outlook, whatever you want to call it, for next year, what are you assuming in terms of remix out of the knowledge stream? Like, where are you assuming that percentage goes from the current level of about 25%? Yes, we're forecasting that non-interest bearing continues to have a little bit of a headwind, and we think that that will settle somewhere around 23% by the end of 2024. All right, that's helpful, on the size of the balance sheet and with loan growth and deposit growth, the push-pull there. I guess one group is going to continue to just slightly outpace the positive grades from here, or you can start to reverse that cycle. Yeah, we actually finished the quarter at about 95%. We would like to get that closer to nine.

Unidentified Speaker: So having a stronger capital stack, we're just in a better position to take advantage of those opportunities. We have, you know, we did raise the dividend last quarter and that marked five years in a row in which we've increased the dividend, if I remember correctly.

Unidentified Speaker: And I do think that there is, we have a mix of shareholder-based investments there is a healthy percentage of our shareholder base that's retail and I appreciate the return of that dividend and we feel like that's an important return that we provide and we'll continue to certainly do that and in an ideal world, assuming everything goes well, we'll try to stick with increasing it incrementally on an annual basis but we'll take it quarter by quarter and see what opportunities we have from open to M&A should that possibility arise, had the opportunity to look at a number of deals in 2023 and didn't feel like those were the right decisions at the time for us, but certainly taking that on a real-time decision basis, so I would say that could have answered your question pretty succinctly if I had chosen to, but basically we want to prioritize, continue to incrementally increase our capital, grow within that retained earnings stream, and we think increasing the capital base over time will give us some optionality to take advantage of opportunities, which we think we've done a good job of that over time.

Unnamed Speaker: So in the near term, we see match funding for long growth. Obviously, if there are some opportunities for men to continue to keep that long growth in the six to 8% range and outpace it with deposits to shift the long deposit ratio downward a little bit, that'd be great. I will point out that over the course of the year, we decreased the loan to deposit ratio even with the macro environment and the liquidity pressure. So, we do have a level.

Unidentified Speaker: In my comments at the beginning, I outlined some of the successes that we've had, and we've done so through a combination of organic and M&A growth, and would expect that that would continue. I appreciate the color dudes and just one last clarifying question I think you may have already answered this but I just want to make sure I got it right, Overall See the margin grow if we only get, Great Touch is simply the, Thank you, down on the deck. Stop, are in on this, and Matt Olney, level tailwinds. I think that's fair. We think it should incrementally grow as the year progresses, even if we get a couple of cuts. I would just add to that too as Greg mentioned in his prepared remarks we've worked pretty hard for the last six months or so to move more and more to a rate neutral position by moving the right hand side of the balance sheet the liability side to be a little bit more rate sensitive there so assuming a rate cut scenario I think we're better positioned now to at least hold them maybe pick up a little bit in a down rate environment as soon as we don't get some dramatic shock of 100 bps or something like that, got it.

Unnamed Speaker: In the fourth quarter, we did grow loans that were slightly faster than deposits. One of the reasons that we did so was because we had made room earlier in our borrowing capacity. So we definitely want to be thoughtful about how we fund loans. We're in a position now where we continue to try to decrease that loan-to-deposit ratio, but we also have the flexibility that we didn't have a year ago to make sure that we're using all the tools that are available to us and do the right thing each quarter. But over the course of the year, we certainly would like to continue that trend of moving closer to 90%.

Unidentified Speaker: The 25 basis point increments are probably more, That's right. Got it. That's it. Thanks, Brady. Your next question comes from the line of Matt Olney from Stevens Incorporated.

Matt Olney: Please go ahead.

Unidentified Speaker: Your line is open.

I think you gave a number for expenses to start the year. I guess, as you look out for the full year 2024, where do you think expense growth will shake out relative to the year before? and Ron Rabin.

Matt Olney: Matt, you're double-drifting, man.

Unidentified Speaker: Sorry, guys.

Unidentified Speaker: My follow-up question was already addressed. I appreciate it, though. Thank you. All right, sorry about that. We have no further questions in our queue at this time.

Unnamed Speaker: Yeah, I think starting at that 4Q number and then building on that with a 6-8% growth rate annually and just chopping that up by quarters, escalating, step-stepping up, is probably the fairest way to look at it. Okay, that's helpful. I thought you had said before that there were six acres, and others just throughout the year. Sure.

Unidentified Speaker: I will now turn the conference over to Jude Melville for closing remarks. I'll just close, thank everybody for joining us and just want to express the pride I am of our team and the work that we've done, not just over the past quarter or the past year but over the past years.

Unidentified Speaker: I realize that these calls tend to focus more on expectations going forward, which we're, you know, we certainly spend much of our time doing that, but I also want to speak to our investors and our teammates to, again, highlight the fact that, or highlight the, The growth that we've experienced, and I don't mean growth just in terms of assets, but growth in terms of capabilities and profitability and managerial experience and all the things that when we went public in 2018 that we said we would do and work on have essentially come to fruition.

Unnamed Speaker: Yeah, I'd say that if you look at the K specifically, that's on the expense outlook, it's like the core non-interesting expense base in Q4. So if you look at that range of six to eight percent growth, analyze that, and then think about it, that's kind of the four-year number to target. And so if you want to make some assumptions in terms of stair-stepping to that four-year number, that six to eight percent is reflective of the actual four-year expense number. You know, you make your assumptions on how you expect to get there on a four-year basis, but that is what happens. OK. Alright, great guys, thank you very much from Raymond James. Please go ahead; your line is open. Hey, good afternoon, everyone.

Unnamed Speaker: Thanks for taking my questions. Maybe just following up on some of the deposits, questions that have been asked. Can you just remind us, and Robert Nishinaga, you know, accounts, and I don't know if this was asked, but where you'd expect an ID miss to kind of stabilize. I think you, the mix this quarter was a little bit greater than kind of the 100 to 200 basis points that you guys had talked about last quarter. So just trying to appreciate the ability to kind of offset with the ability to bring down deposit costs as rates, hopefully, fall with a couple of rate cuts here. The deposit costs, I think today we've increased our non-interest bearing, and I'll start out and let Matt kind of follow up. Non-interest-bearing deposits moved to 25% right at the end of the year, and we think forecasting. This has been tough in this space over the last 12 months, for sure. But we think in 2024, that should settle in at around 23%. So obviously, from a funding cost standpoint, that is the big catalyst or meat mover. But we do better than that.

Unidentified Speaker: So we're proud of that record and excited about it, seeing how we can continue to build upon that track record.

Unidentified Speaker: So thank you for being with us and thank you for the investment. I look forward to talking to you next quarter. This concludes today's conference call. Thank you for your participation, and you may now disconnect. Thank you for watching. Thank you for watching.

Unidentified Speaker: Thank you for watching.

Unidentified Speaker: Thank you for watching.

Unnamed Speaker: Obviously, that helps us a whole lot. As far as the money markets I spoke of, we have about $1.4 billion of those accounts on deposit. And we would be able to move that with downward rate movements. And I'll let Matt talk about the beta assumptions for each of those categories. But we do think, and that's part of the reason why.

Matt: I mentioned earlier that we've been focused really hard on moving a lot of those accounts into that money market area. So as far as forecasting goes, next year for every 25 basis points, Matt. Yeah, yeah, Michael, so the Q4 total interest-bearing cycle in 8 days is about 62 percent. That includes a little bit lower cost core interest-bearing deposits, so if we look at the actual repricing opportunity with the rate cut scenario, the higher cost deposit base we're assuming north of the 70 percent plus beta, and on the more core lower cost deposit base, we're assuming more like a 60 percent beta Looking ahead for 2024, the base assumption that we're making is that we don't get a dramatic change in interest rates, and I do think that there is some opportunity to re-price deposits down. But I would say that it's, um...

Unnamed Speaker: It's probably going to move somewhat in tandem with some portion of the increase that we saw in the betas in 2023. That would translate to... The base deposits that are going to mature and are indexed, some percentage of that 24% increase year-over-year. I don't know if it's 20% or 15%, but I think a chunk of that data would actually translate through, and we would recognize anywhere from the 60% data on the downside of any rate cuts against that portfolio that Greg had just mentioned. Okay, yeah, very helpful.

Unnamed Speaker: I think most of my other questions have been asked and answered, but I did notice the loan losses ratio did come down, you know, although the credit remains really good for you guys. You guys are in great markets. Anything, you know, on the horizon, because we are a third.

Unnamed Speaker: I'll be here shortly; anything you know on the horizon that you guys are taking a closer look at, and sorry if I missed it, but what would you change in criticized and or classified balances this quarter? The change in those this quarter was that they've stayed relatively flat. So, we continue to feel really good about our credit book. You know, and Michael, I think one of the things that I mentioned on the call is that, you know, we've seen a real-time, Uh... We've reported a stream of 11 basis points of charge-off this year, but that is including us because of the conversion to TESOL, inclusion of the person acquired credits, and the sign mark for each of those credits. So if you remove that out of the equation, that would be about six basis points for the year, which would fall right in line with our five-year average, which is about seven basis points. So we feel like the credit looks good. We haven't seen any deterioration so far.

Unnamed Speaker: We're now approaching the halfway point in the quarter almost, and so it's hard to imagine without any major issues popping up on the radar that we would see any big movements in net charge-offs for 2024 outside of what we're forecasting, which is a statement, helpful, and then maybe just one last one. On slide 16, the AUM at SSW has fallen for the past couple of quarters. That was the response that it would have been in the fourth quarter, just given the market. Can you just help us appreciate the..., you know, the dynamics there that maybe, you know, drove the decline in the fourth quarter? And, you know, was there any loss of clients or anything like that?

Unnamed Speaker: We didn't lose any clients, so we're seeing, for the second half of the year, just what you would expect from the diminution in the value of the bond market as a whole, which is affecting AUM. And to your point, you'd expect to see some increase potentially at the end of the fourth quarter. But a lot of our clients... I should say, a number of our clients did a similar restructuring to the one that we did, and, of course, we reinvested the full amount; a number of our clients took part of the proceeds and paid down debt with cash. So can't they shrink their investment portfolios to pay down debt to a certain extent?

Unnamed Speaker: So that's the impact that you're seeing in the AUM, not any loss of clients. We were pleased to be able to help them. I'm going to talk to you about how to structure those restructurings just as we did for ourselves. It makes a lot of sense. Thanks, Jude, and thanks everyone for taking my question. Thank you all. Your next question comes from the line of Brett Rabatin from Huffy Group. Please go ahead; your line is open.

Brett D. Rabatin: Hey guys, good afternoon. Thanks for the question. Hey Jude.

Unnamed Speaker: We wanted to start back on the expense guidance of 6% to 8% and wanted to get a little more color around what that number entails and if you're looking to add anybody in the type of markets with that 6% to 8% included in the... and Jeremy Helens. I'd like Greg, Mark, and Matt to talk a little bit about the details, but you know, just a general overview. We're not looking at 2024 as a year in which we'll do a lot of hiring, but we'll certainly look for talent on one occasion, and we expect to add some, but we still feel like the teams of bankers that we've brought on over the past three years have the capacity to continue to grow their portfolios, particularly given our kind of measurement of our target levels when you think about our growth rates within our return earnings. So we thought we had a good match-up of talent and capability.

Unnamed Speaker: New hires will probably be more centered around support staff to help them do all that they can do. I'll let Greg talk a little bit about the added costs, much of which is just natural. Whatever hires we did have last year, we'll have full years transferred to them this year. We are, like all of our clients, experiencing increased healthcare costs and increased insurance costs and things that every business has to face. We're not anticipating any major investment in personnel over the year.

Greg: Yeah, I think, Greg, the way to think about it is kind of in four different areas that you mentioned. The first part is the increase in the impact of the hires we made in 2023, pulling those through for the full year impact of 2024. Second would be health care costs.

Unnamed Speaker: That's gone up for us year over year by in excess of $1.5 million. You know, as he also mentioned, just the other insurance costs to run the company. I think the last piece that we'll continue to invest in is preparing to be a company approaching $10 billion. We don't want to wake up and be at $10 billion without all the preparations in place from a cap-ex standpoint as well as with software and technology. We have four different software initiatives that we've been working on on board at the end of 2023, which will help us from an efficiency standpoint as we look out into the future and grow the security of our company, and most of those are very invested in helping us be more specific in our targeting of production opportunities to make sure that we are monetizing at a level that both makes sure that we're getting the right return but also can satisfy clients in a more specialized

Unnamed Speaker: But I think that as we, again, as Greg said, approach the 10 billion dollar mark, we want to be sure that we've got it ironed out and ready to go when we get there. And one thing that I would just add is think about the increase in 2024 over 2023. We made, obviously, some hires throughout the year in 2023, but some of those were back-end loaded. So when you're looking at a full year over full year, you're going to have a full year impact from the back half folks that we hired in 2023 that will be in for the full year in 2024. So that kind of contributes to part of the slightly larger increase on a year-over-year basis, just those folks coming in at the end of the year.

Unnamed Speaker: And in Q4, as you guys know, we've mentioned in the past that there's some seasonality in accruals in Q4. And in Q1, what we have is we have a reset of those accruals looking at a full year basis and just recognizing on a quarterly basis. So in Q4, there's seasonality in the kind of accrual catch-ups, and then in Q1, there's a reset of those accruals, which reflects the full year expectation on various line items.

Unnamed Speaker: Okay, that's helpful. And then back on just the funding in the mix, I wasn't quite clear; I may have missed it. What's the plan to replace the bank term funding program money, assuming that, you know, it's up in March and just thinking about the margin dynamics later this year? Given the repricing of loans, could you have a... Liability to actually repricing lower in terms of the net cost versus increasing asset yield still due to repricing. Lower Yield. I'll start with the first question. Powered by www.

Unnamed Speaker: ElectricUnicycles.com: I think what we're prepared to do with BGFP specifically is we're going to look at optionality on this, whatever makes the most economic sense for us. But we've been carrying probably 50% of the balance to pay off the BGFP in cash on the balance sheet because of the ability to earn VET funds at the rate it is today. So we're prepared to pay that off, and Matt Olney. So, there are a couple of different options that you can do, and you can lease in part or in whole by certain different options.

Unnamed Speaker: One of those options could be, depending on economics, you know, you could extend VTSC for another 12 months the day before the program expires. So, we'll look at all the options on that. And I think the second part of your question was funding on the liability side. I think you're exactly right.

Unnamed Speaker: What we've tried to position is that money market focus to be able to quite possibly lower the cost of the liability side while still experiencing some pickup in yield on the loan side with some of the repricing. So, we'll try to be opportunistic with that as well. Okay, that's great. Thanks for all the time. Thanks, Brett. Your next question comes from the line "Steady Strickland" by Janie Montgomery Scott.

Steady Strickland: Please go ahead. Your line is open. Hey, good evening, Joe.

Kevin Fitzsimmons: Keep reading and keep studying. Um, just want to ask your thoughts on Capitol Hill, further dividend increases over time, or potential repurchases. There's still more of a focus on Kevin Fitzsimmons. I'm just curious how you're thinking about capital. Yeah, I think our priority has been and is to incrementally grow the capital levels to prepare for opportunities to see what M&A might come up or what other lift-outs or additions. While we're not planning on a significant amount of hiring this year, certainly we want to be prepared for opportunities and believe in the word optionality, so having a stronger capital stack puts us in a better position to be able to take advantage of those opportunities. We have, you know, we did raise the dividend last quarter and that marked five years in a row in which we've increased the dividend, if I remember correctly, and I do think that there is, we have a mix of shareholder base.

Kevin Fitzsimmons: There is a healthy percentage of our shareholder base that's retail and does value and appreciate the return of that dividend, and we feel like that's an important return that we provide, and in an ideal world, assuming everything goes well, we'll try to stick with increasing it incrementally on an annual basis, but we'll take it quarter by quarter and see what opportunities we have, open to M&A should that possibility arise. We had the opportunity to look at That's not for us, but certainly, taking that on a real-time decision basis, I could have answered your question pretty succinctly if I had chosen to, but basically, we want to prioritize, continue to incrementally increase our capital, and grow within that retained earnings stream, and we think increasing the capital base over time will give us some optionality to take advantage of opportunities, which we think we've done a good job of doing over time In my comments at the beginning, I outlined some of the successes that we've had, and we've done so through a combination of organic and NACROs, and I would expect that that would continue. I appreciate the color dudes.

Unnamed Speaker: And just one last clarifying question. I think you may have already answered this, but I just want to make sure I got it right. Overall, we should see the margin grow if we only get Matt Olney.

Matt Olney: Thanks for watching. We'll see you next time, out of the deck, with our analysts and Matt Olney. Thank you. Thank you. I think that's fair; we think it should gradually grow as the year progresses, even if we get a couple of cuts. I would just add to that, as Greg mentioned in his prepared remarks, we've worked pretty hard for the last six months or so to move more and more to a straight neutral position by moving the right-hand side of the balance sheet, the liability side, to be a little bit more rate sensitive there. So assuming a great cut scenario, I think we're better positioned now to at least hold them, maybe pick up a little bit in a down rate environment, assuming we don't get some dramatic shot of 100 pips or something like that. The 25 basis point increments are probably more manageable.

Unnamed Speaker: That's right. Got it. That's it for me.

Unnamed Speaker: Thanks, everybody. Your next question comes from the line of Matt Olney from Stevens Incorporated. Please go ahead. Your line is open. Thank you. You've got your double drip in there.

Matt Olney: Sorry guys, my follow-up question was already addressed. I appreciate it though. Oh, thank you. Sorry about that.

Jude Melville: We have no further questions in our queue at this time. I will now turn the conference over to Jude Melville for closing remarks. I'll just close, thank you everybody for joining us, and I just want to express the pride I have in our team and the work that we've done, not just over the past quarter or the past year, but over the past years. I realize that these calls tend to focus more on expectations going forward, which we certainly spend much of our time doing that, but I also want to speak to our investors and our teammates to just, again, highlight the fact that, not So we're proud of that record and excited about seeing how we can continue to build upon that track record. So thank you for being with us and thank you for the investment. I look forward to talking to you next quarter. This concludes today's conference call. Thank you for your participation, and you may now disconnect. See you!