Q4 2023 FNB Corp Earnings Call
Good morning, everyone and welcome to the F N B Corporation fourth quarter 2023 earnings Conference call.
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Speaker Change: At this time I'd like to turn the floor over to you is the high do.
Speaker Change: Manager of Investor Relations Ma'am.
Ma'am: Please go ahead.
Ma'am: Thank you good morning, and welcome to our earnings call. This conference call.
Ma'am: And the reports it files with the Securities and Exchange Commission and forward.
Ma'am: Forward looking statements and non-GAAP financial measures non-GAAP financial measures are often used in addition to and not ethanol part of it for our reported results prepared in accordance with GAAP reconciliations of GAAP to non-GAAP reporting measure most directly comparable GAAP financial measure are included in our presentation materials and in our earnings release, please refer to.
Ma'am: These non-GAAP and forward looking statements disclosure contained in our related materials reports and registration statements filed with the Securities and Exchange Commission and available on our corporate website.
Ma'am: A replay of this call will be available until Friday January 26, and the webcast link will be posted to the about US Investor Relations section of our corporate website.
Ma'am: I'll now turn the call over to Vince <unk>, Chairman President and CEO.
Thank you.
Ma'am: And welcome to our fourth quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer.
Gary Guerrieri, our Chief Credit Officer.
Ma'am: Fourth quarter net income available to common shareholders was 49 million on a reported basis and one <unk>.
Ma'am: $39 million on an operating basis.
Ma'am: Year 2020, threes operating performance.
Ma'am: By record revenue of $1 6 billion record net income available to common shareholders of 569 million and record earnings per diluted common share.
Ma'am: Tangible book value per share has increased 15% year over year to a record high of $9 47 appreciated steadily approaching $10 milestone.
Ma'am: Since 2009, F&B as internal capital generation, representing tangible book value and dividends has been strong with 10% compounded annually.
Ma'am: With this strong profitability.
Full year positive operating leverage totaled one 5%.
Ma'am: And is expected to be.
Ma'am: I'm, sorry on a peer relative.
F&B exceptional financial performance in 2023 was a direct result of the consistent execution of our strategic initiatives.
Ma'am: Banking disruption in the first quarter or at least the spot.
Ma'am: Hum.
Ma'am: Balance sheet resilience, including our deposit base strong capital and liquidity position and prudent underwriting.
Ma'am: It also reinforced the value of our quality customer relationships and comprehensive delivery Chi.
These attributes have always been integral to F&B long term strategy.
Ma'am: She has been proven through multiple cycles over the last decade and are in green and the foundation upon which.
Our commitment to maintain a stable deposits.
Ma'am: As evident in our total deposits which ended.
The $34 7 billion.
Unchanged from prior year, even with the elevated competition for customers.
Ma'am: Noninterest bearing deposits to total deposits ended.
Ma'am: We ended the year at 29, 1%.
We achieved customer migration from noninterest bearing deposits, we continue to substantially outperform our peers in the industry and our total deposit costs and overall cost of funds.
Ma'am: Our spot deposit cost ended the year below 2% means over 50 basis points better than our peers.
Ma'am: Yeah.
Ma'am: Our better than peer funding cost and strong liquidity provide balance sheet optionality.
Tangible common equity to tangible.
Seven 8% is the highest level in company history and exceed peer meeting.
F&B remains committed to optimally deploy capital in a manner.
Ma'am: Fully aligned with our shareholders' interest.
<unk> positioned.
Ma'am: Future success.
Ma'am: As part of that commitment F&B recently.
Ma'am: Approximately 650 billion available for sale Securities.
Ma'am: The redemption of the $110 million preferred stock, we transferred 350 million of indirect auto loans to held for sale.
Ma'am: <unk> is expected to close in the first quarter.
Ma'am: Together these actions resulted in a capital neutral transaction that improves forward returns and earnings.
Ma'am: <unk> EPS accretion in the low single digits.
Ma'am: Our continued ability to meet our clients' needs is critical to us.
Ma'am: F&B has continuously made strategic investments in our deliveries.
Ma'am: To deepen customer relationships gain market share and further outpace our competitors.
Ma'am: In June 2023, we introduced the E store common application, the Jordan where consumer loan.
And recently introduced other products suffered allowing customers to want to up to 18 consumer deposit and loan products simultaneously.
Ma'am: Our goal for 2024 is to bring small businesses.
Ma'am: Okay.
Ma'am: Business loans deposits and payments included in common application.
Ma'am: These additional features further enhance customer experience and deepen product penetration as customers can apply for multiple loan and deposit fees.
Ma'am: And a very streamlined manner eliminating keystrokes.
Why do you want to upload supporting documents and automating account fund.
Ma'am: We also made significant enhancements.
Leverage in 2023.
Ma'am: In addition to expanding our footprint or de Novo locations, we entered into a partnership with the Washington Metropolitan area Transit.
Ma'am: That establishes F&B business sold ATM provider for the third largest heavy rail system in the United States.
Ma'am: With ATM banking services in every Metro station the partnership will add more than 120 machines.
<unk> network in 2020.
Ma'am: Our physical delivery channel is approaching 2000, combined branches Atms and interactive TV.
Ma'am: Paired with our digital Easter F&B has significantly.
Speaker Change: Yes sure.
Current and future customers, while augmenting brand awareness process.
With the success of our E store.
Speaker Change: Sectional bankers over loans and leases ended the year at a record 32 4 million.
Speaker Change: The increase of $2 4 billion since year end to that.
Speaker Change: We are beginning of the year from a strong position.
Speaker Change: <unk> closely monitoring the macroeconomic environment.
ARCUS specific trends to manage risk proactively as part of our core credit philosophy.
Speaker Change: We will remain steadfast in our approach to consistent underwriting and risk management to maintain a balanced well positioned portfolio.
Speaker Change: <unk> economics.
Speaker Change: I will now turn the call over to Gary to provide additional information on the quarter's credit.
Speaker Change: Gary.
Gary: Thank you Vince and good morning, everyone.
Gary: Ended the quarter and year end period, with our asset quality metrics remained at solid levels.
Gary: Total delinquency finished the year at 70 basis points seasonally up seven basis points from the end of September and down one basis point from the prior year period.
Gary: Npls and Oreo decreased two basis points from the prior quarter and five bips from the year ago period, and did a very good level at 34 bps.
Gary: Criticized loans were down 13 basis points compared to both prior quarter and year end, but net charge offs for the quarter and full year at 10, and 22 basis points respectively.
Gary: I'll conclude my remarks, with an update on our credit risk management strategies and CRE portfolio.
Total provision expense for the quarter stood at $13 2 million, providing for loan growth and charge offs.
Gary: Additionally, the expense at a positive benefit from a reduction in criticized moms and npls.
Gary: Our ending funded reserve increased $4 9 million in the quarter and stands at $406 million or a solid 1.25% of loans, reflecting our strong position relative to our peers.
Gary: When including acquired Unamortized loan discounts our reserve stands at 139% and our NPL coverage position remains strong at 419% inclusive of the unamortized loan discounts.
We remain committed to consistent underwriting and credit risk management to maintain a balanced well positioned portfolio throughout economic cycles.
Gary: Each quarter, we performed specific in depth reviews of our portfolios. In addition to ongoing full portfolio stress test.
Gary: Our stress testing results for this quarter have shown lower forecasted net charge offs and stable provisions compared to the prior quarter's results again, confirming that our diversified portfolio enables us to withstand various economic downturn scenarios.
Regarding the non owner occupied CRE portfolio and.
Gary: 'twenty two 'twenty three we were successful in addressing maturities and the impact of the rising rate environment.
Gary: All of them.
Gary: In 2024, and we will continue with the same strategy monitoring the rate environment and proactively addressing upcoming maturities.
Gary: At year end delinquency and then for the non owner occupied CRE portfolio continues to remain very low at 32, and 18 basis points, respectively, which confirms our consistent underwriting and strong sponsorship.
Gary: In closing asset quality metrics ended the year at very good levels, and we are well positioned going into 2024.
We continue to generate diversified loan growth in attractive markets and a competitive environment for high quality borrowers all maintaining our consistent underwriting standards.
We closely monitor macroeconomic trends and the individual markets in our footprint and we'll continue to manage risk aggressively while maintaining a consistent credit profile across all of our portfolio.
Speaker Change: I will now turn the call over to Vince Calabrese, our Chief financial Officer for his remarks.
Vincent J. Calabrese: Thanks, Gary and good morning.
Vincent J. Calabrese: Now I will focus on the fourth quarter's financial results.
Vincent J. Calabrese: What additional detail recent actions taken to further optimize our balance sheet and off our guidance for 2024.
Vincent J. Calabrese: Fourth quarter operating net income available to common shareholders totaled 139 million or <unk> 38 per share.
Vincent J. Calabrese: Excluding a $114 million of significant items impacting earnings.
Vincent J. Calabrese: On a full year basis operating earnings totaled a record $1 57 per share tangible book value totaled 947, 15% increase from December 2022.
Part of our ongoing proactive balance sheet management strategy, we took several actions to enhance future profitability and capital positioning.
Vincent J. Calabrese: Late in the fourth quarter, we sold approximately $650 million of available for sale investment Securities.
Vincent J. Calabrese: Transferring $355 million of indirect auto loans to held for sale and announced redemption of $110 million of the series E preferred stock issued 10 years ago.
Vincent J. Calabrese: The cumulative impact of these balance sheet actions generate incremental earnings.
The tangible book value of our back period of less than one year versus an earn back of five years for a stock buyback.
Retaining capital flexibility in 2024.
Vincent J. Calabrese: The sale of investment Securities resulted in a realized loss of $67 4 million in the fourth quarter as we sold securities yielding Huawei on average and reinvested the proceeds into securities yields approximately 350 basis points higher with similar duration convexity profiles.
We recorded a $16 $7 million negative fair value Mark and the other noninterest expense on the indirect auto loans classified as held for sale at December 31st.
Vincent J. Calabrese: Changes in interest rates on the time of origination.
Vincent J. Calabrese: So all of these loans is expected to close during the first quarter with the proceeds being used to repay borrowings would have a similar yield to the sold loans.
Vincent J. Calabrese: Our year end loan to deposit ratio benefited by approximately 100 basis points.
Excluding the $355 million of held for sale indirect auto loans.
Vincent J. Calabrese: They're buying period end loan growth was 8% since year end 2022.
Vincent J. Calabrese: Fourth quarter loan production reflected high quality loans across our diverse footprint.
Commercial loan growth of $351 million.
Vincent J. Calabrese: Loan growth of $178 million.
Vincent J. Calabrese: That's in our portfolio remained essentially flat linked quarter and $7 2 billion inclusive of the securities portfolio restructuring.
Vincent J. Calabrese: It remains a fairly even split between <unk> and HCM with 45% and available for sale at the end of the year.
Vincent J. Calabrese: The duration of our securities portfolio at December 31 is four two years similar to last quarter.
Vincent J. Calabrese: Total deposits ended the year at $34 7 billion, a slight increase of 96 million linked quarter.
Vincent J. Calabrese: As of December 31st non interest bearing deposits comprised 29, 4% total deposits compared to 39% at September 30.
Vincent J. Calabrese: Given our granular stable deposit base, we believe we will continue to outperform the industry with a favorable mix of noninterest bearing deposits to total deposits and lower deposit costs, which meaningfully outperformed the peers as our team remains actively focused on managing deposit mix.
Vincent J. Calabrese: With our spot deposit costs ending the year at 193, our cumulative deposit beta totaled 34, 3% in line with our expectations discussed last quarter.
Vincent J. Calabrese: The fourth quarter's net interest margin was $3 21.
Vincent J. Calabrese: Kind of only five basis points, which was better than our expectations as discussed last quarter.
Vincent J. Calabrese: Yield on earning assets increased 14 basis points to 525 due to higher yields on both loans and investment securities.
Vincent J. Calabrese: Total cost of funds increased 21 basis points to $2 14 at the cost of interest bearing deposits increased 29 basis points to 65.
Vincent J. Calabrese: Net interest income totaled 324 million, a slight decrease of $2 6 million from the prior quarter.
Vincent J. Calabrese: Turning to noninterest income and expense.
Operating non interest income totaled $80 4 million adjusting for the $67 4 million realized loss on investment securities restructuring.
Mortgage banking operations income increased $3 1 million linked quarter due to improved gain on sale margins aided by the decline in mortgage rates in the fourth quarter.
Vincent J. Calabrese: Other non interest income declined $2 4 million.
Vincent J. Calabrese: Business investment company funds income decreased reflecting normal situations based on the performance the underlying portfolio companies.
Vincent J. Calabrese: Additionally, we broke out our service charges fee income line on the income statement and to service charges and a new line item for interchange in card transaction, which.
Vincent J. Calabrese: Which was previously captured in the service charge line.
Vincent J. Calabrese: Create better transparency into our various revenue streams noninterest income.
Vincent J. Calabrese: Operating noninterest expense $218 9 million relatively stable compared to the prior quarter when adjusting for the fair value Mark on the held for sale indirect auto loans of $16 seven and a $29 9 million FDIC special assessment related to replenishment of the deposit insurance fund for the <unk>.
Vincent J. Calabrese: [noise] failures.
Vincent J. Calabrese: The linked quarter increase in outside services of $2 4 million reflects higher third party costs.
Shares in franchise taxes declined $2 3 million, reflecting charitable contribution that qualify for Pennsylvania, Bancshares' tax credits and marketing expenses decreased $1 2 million due to the timing of digital marketing campaigns in the third quarter.
Vincent J. Calabrese: The fourth quarter efficiency ratio of 52, 5% continues to be in the top quartile of our peers.
Vincent J. Calabrese: Efficiency ratio of 51, 2% on a full year basis demonstrates our commitment to effectively managing costs, while growing our diverse revenue streams.
Vincent J. Calabrese: We ended the year with our capital ratios some of the strongest levels in recent history.
Vincent J. Calabrese: CET one ratio of 10, 1%, which includes the impact of the previously discussed balance sheet management items any FDIC special assessment remains above our stated operating target.
Vincent J. Calabrese: Tangible common equity totaled seven 8% when excluding the 54 basis point impact LCI equal to eight 3%.
Vincent J. Calabrese: Tangible book value for common share was 947 at December 31.
Vincent J. Calabrese: An increase of 45 per share from September 30.
Vincent J. Calabrese: <unk> reduced the tangible book value per common share by 65 cents as of year end compared to $1 six last quarter, primarily due to the impact of interest rates on the fair value of available for sale Securities.
Vincent J. Calabrese: Because of the investment Securities that were sold in December we're in available for sale. The realized loss did not incrementally impact TCE or tangible book value since the market values already reflected.
Vincent J. Calabrese: Hi.
Vincent J. Calabrese: Let's now look at the 2024 guidance for both the first quarter and the full year, starting with the balance sheet.
Vincent J. Calabrese: On a full year spot basis, we expect loans to grow mid single digits as we continue to increase our market share across our diverse geographic footprint.
Vincent J. Calabrese: Total projected deposit balances are expected to grow low single digits on a year over year spot basis.
Vincent J. Calabrese: Full year net interest income is expected to be between one point to 95, and 1.3 45 billion.
Vincent J. Calabrese: But the first quarter of 2024 between 318 and $328 million.
Vincent J. Calabrese: Our guidance assumes 325 basis point rate cuts aligning with the fed's dot plot, which we're projecting to incur in May July and November 24.
Vincent J. Calabrese: Why don't you just income is expected to continue to benefit from our diversified fee based income strategy.
Vincent J. Calabrese: The full year results between 325 $345 million in the first quarter between 80 and $85 million.
On your guidance for noninterest expense is expected to be between 895 $915 million.
Vincent J. Calabrese: The impact of approximately $6 million of rent expense during the build out phase of our new headquarters.
Vincent J. Calabrese: Still occupy our current office space.
Vincent J. Calabrese: Adjusting for this impact the midpoint of our expense guidance results in a three 7% increase from 2023.
Vincent J. Calabrese: <unk> levels.
Vincent J. Calabrese: The first quarter noninterest expense is expected to be between 225 $230 million of compensation expense is higher in the first quarter largely due to normal seasonal long term stock compensation and higher payroll taxes start of the year.
Vincent J. Calabrese: Full year provision guidance to $80 million to $100 million and it's dependent on net loan growth charge off activity.
Vincent J. Calabrese: Lastly, the full year effective tax rate should be between 21, and 22%, which does not assume any investment tax credit activity.
Kurt.
Vincent J. Calabrese: With that I'll turn the call back to Vince.
Vincent J. Calabrese: During 2023, F&B completed a number of initiatives that align with our strategic priorities, including introducing the east to a common application for consumer loans and deposit models, expanding our physical delivery channel and investing in systems and processes that enable us to <unk>.
Vincent J. Calabrese: Line operation.
Vincent J. Calabrese: We continued to expand our data analytics capabilities and the use of AI to improve performance.
Vincent J. Calabrese: These strategic initiatives.
Speaker Change: Correct, we contributed to our peer relative outperformance in 2023 amidst the banking industry disruption.
Speaker Change: Any generating record operating EPS of $1 57, and strong organic loan growth of two 4 billion.
Speaker Change: Positive balances remain flat with noninterest bearing deposits comprising 29, 4% of total deposits.
Speaker Change: Top quartile cost of deposits.
Speaker Change: We have completed over 75 million off savings over the last five years excluding acquisition.
Speaker Change: Leading to positive operating leverage and efficiencies in the efficiency ratio in the top quartile relative to peers.
Speaker Change: 51, 2%.
Speaker Change: Operating return on average tangible common equity totaled 18%.
Speaker Change: Book value is 15% to a record $9.
Speaker Change: <unk>.
Our asset quality continues to be a stream because we ended the year at or near historically low levels.
Speaker Change: This year's exceptional performance was made possible by our employees and their commitment to F. N B's mission and values drive success for all of our stakeholders.
Speaker Change: In 2023, our teams efforts were evident.
Speaker Change: <unk> received.
Speaker Change: <unk> prestigious awards.
Multiple independent organizations recognize the F&B used in engine performance outstanding culture, and innovative technology with new store earnings internationally.
Speaker Change: We believe these honors in our performance are a direct result of our engaging and rewarding workplace environments.
Speaker Change: I am proud of what we've built together.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: I ask a question you May press Star and then one using a touchtone telephone.
Speaker Change: With your all your questions you May press star two if.
If you are using a speaker phone we do ask you. Please pick up your handset prior to pressing the numbers to ensure the best sound quality.
Speaker Change: Once again that is star and then one to join the question queue.
Speaker Change: We will pause momentarily to assemble the roster.
Speaker Change: Oh.
Speaker Change: And our first question today comes from Daniel Tamayo from Raymond James. Please go ahead with your question.
Speaker Change: Yeah.
Good morning, guys.
Daniel Tamayo: Maybe we start on the.
Daniel Tamayo: On the <unk>.
Impact to the balance sheet restructuring on the margin I appreciate the guidance for 2024, but.
Daniel Tamayo: Just as we think about the impact in the first quarter curious if you can walk through how you're thinking about the impact of the restructuring.
Daniel Tamayo: Yeah.
Daniel Tamayo: Looking at it is it five or six basis point impact.
Daniel Tamayo: Relative to kind of just continued deposit pressure and then how that the path of the margin as it moves throughout the year in Europe and your assumptions.
Speaker Change: Yeah, I would say a couple of things.
Speaker Change: First of all if we look at the fourth quarter.
Speaker Change: The go forward net interest income only declined $2 6 million linked quarter, which was the same as the prior quarter the.
Speaker Change: The NIM compression for the quarter was only five basis points last quarter was 11 <unk>.
Speaker Change: November and December were at 320, so that level kind of stabilize there.
Speaker Change: Those two months the restructuring is fully baked into our guidance that we provided.
Speaker Change: As far as the past with the margin here I would still say, what we said last quarter that probably bottom somewhere in the first half year.
Speaker Change: I have some slight.
Speaker Change: From there as you get into the <unk>.
Speaker Change: What happened to you, but there's a lot to happen right.
Speaker Change: We have three fed cuts at ours under three four or five.
Speaker Change: <unk> felt most reasonable to us that's what's baked into our guidance.
Speaker Change: The benefit of the restructuring.
We have over time will continue to actively go after bank deposits.
Speaker Change: Focus here I think are a percentage of total deposits has performed very well relative to peers.
Speaker Change: The changes in that bucket of bulk salt kind of stack up very well.
Speaker Change: Yeah, the NII guide kind of had everything baked into it.
Speaker Change: No I understand and I appreciate that I guess, another way of asking maybe you do do you think the.
Speaker Change: The deposit pressure in the first quarter offsets the I mean, it sounds like you're saying.
Speaker Change: We still maybe get more.
Speaker Change: Compression in the first quarter on an overall basis. So you think that offsets more than offsets the balance sheet restructuring and that just continues in the first half.
Speaker Change: During the first quarter, but we're not going to guide to the market.
Speaker Change: Going to specifically comment op margin for the quarter right now the net interest income.
With all of that baked in the mix shift that has happened during the quarter. We've continued to see customers going after higher rate products.
Speaker Change: Natural people are sitting here feeling like okay. If that is at the top and raise rates since July when are they going to start to cut so there's definitely been some of that mix shifts occurring.
Speaker Change: In the first quarter, our demand deposits, that's usually our weakest quarter seasonally because of municipal deposits kind of bottom of that build out. So all of that does put some pressure on the margin and then the restructuring helps offset some of those impacts in the first quarter private one way that I could comment on that.
Speaker Change: Got it okay.
Speaker Change: I guess, just lastly, just digging in on the on the balance sheet sensitivity side.
Speaker Change: Just curious how we should be thinking about you know you mentioned bottoming in about in the middle of the year I think.
Speaker Change: The past, we've talked about maybe being liability sensitive.
Speaker Change: In the medium term, but but maybe asset sensitive and in the near term with with rate cuts. That's still how we should be thinking about it perhaps some.
Speaker Change: Some are negative impact early on and then maybe.
Speaker Change: After a few quarters, that's when you start to benefit more from rate cuts.
Speaker Change: Yeah, No that's definitely the right way to think about it.
Speaker Change: The sensitivity, whether we get additional cuts beyond the three.
Speaker Change: As you know there's a lot of moving parts to this question and Theres actions, we may take depending on the economics, so but as you described the timeframe is key right in the short run you have a negative impact.
Speaker Change: Particularly from the question. Additional question then I think the deposit lags will catch up over time, I mean, historically look at our beta today were around 34%.
Speaker Change: <unk> upgrade cycle.
Speaker Change: Max out at 35.
Speaker Change: Reasonable to assume that that would take to kind of more in the medium term longer term, we catch back up probably the medium term deposit rate locks that catch up and have that benefit and as you know we've taken a lot of actions.
Speaker Change: The CD book has been growing in the shorter term, 7% and 13 month type area or our total average maturity of the CD portfolio right. Now is 10 months, so theres opportunity there too.
Speaker Change: The price that as we go forward I think the timing of when the fed would move.
Speaker Change: But yeah I think that's we're still slightly asset sensitive then really philosophically managing to neutral and then you take that.
Speaker Change: If you look at our margin path for the year. So it was kind of more of a neutral with the expected three thoughts that we have baked in.
Speaker Change: Okay, great. Thank you for all the color I appreciate it.
Speaker Change: Sure sure.
Speaker Change: Our next question comes from right Sharar Shroudie from Piper Sandler. Please go ahead with your question.
Sharar Shroudie: Good morning.
Sharar Shroudie: I'm just wondering if you could talk a little bit about the dynamics of loan growth versus deposit growth here and you. Obviously you know your guide as you're getting closer to a 100% loan to deposit over time, just trying to think through what might be the main governor on loan growth here in and how you bring in a deposit dollars.
Sharar Shroudie: And the door.
Sharar Shroudie: What continues to be a pretty competitive environment.
Sharar Shroudie: Yeah.
Speaker Change: Yes, I think let me start out and then I can turn it over to Vince Calabrese.
Vincent J. Calabrese: First of all I think some of the things that we talked about.
Speaker Change: Eric comments.
Ziv to acquiring and clients as a way for us to drive deposit balances I mean, adding the ability to simultaneously open a deposit account with a loan application without additional keystrokes that's huge for us.
Speaker Change: So I think that'll help once the field starts utilizing these tools and customer start engaging online and realize that they can do that.
Speaker Change: Increase our probability of capturing more of the client relationship, particularly the deposit side. So when the loan request comes in we'll be able to act quickly.
Speaker Change: Turning to deposit accounts. So that's one thing that we planned for and we think will help us as we move forward. If you look at engagement with the E store, we've looked at we've rolled that out about mid year. So if you look at the six months in 'twenty two versus the six months in 'twenty three.
Speaker Change: In the same period when you compare the number of applications that we were able to obtain online.
Speaker Change: So we doubled the number of consumer loan application, that's without the deposit account opening capability by the way and 30% of those client 30% of those applications were with non F&B customers. So that's one piece of it the enhancements to the digital strategy.
Speaker Change: The opportunity for us is really in small business and middle market banking on the TM side, we've invested pretty heavily in our treasury management capabilities, we have some.
Speaker Change: Product capabilities coming online, we mentioned that we're going to bundle products.
Speaker Change: In the small business space and 24.
Speaker Change: Towards the latter half of the year, we'll be rolling that out that will also help us roll deposit balances and if you look at what we've done historically, we've we've historically grown deposit balances around a 10, 8% to 10% range organically.
Speaker Change: I think we've kept pace.
With the organic loan growth that we've achieved which is similar right.
Speaker Change: For a long period of time and I think some of the things that we've done strategically.
Speaker Change: Entering into new markets.
Speaker Change: More opportunities because of population growth and business formation.
Speaker Change: To be able to continue to achieve our objective, which is to fund our loan growth with deposit balances.
Speaker Change: For new customers I don't know Vince do you want to add anything numeric yes.
Vincent J. Calabrese: No all I would add Frank is that we don't get all the way to 100 within our guidance. We're in that 90, 590, 697% kind of area.
Vincent J. Calabrese: End of forecast it out, but you know as we've done in the past historically when we got the 97 going back a bunch of years. We took action we took action this quarter selling.
Vincent J. Calabrese: Selling the indirect.
Vincent J. Calabrese: Auto loans cranes more shelf space for us.
Vincent J. Calabrese: It was a percent obviously.
Vincent J. Calabrese: So when we will manage that level, we won't go all the way to 100 or in the mid nineties, what's baked into the guidance as I mentioned.
Vincent J. Calabrese: We will start to mature and we get to 95, Oh look at whats the environment, how faster lowest rolling in and we will take action as we always have to kind of manage that you know for us it's not a function. It's not a question as to whether or not we can fund our balance sheet deposit growth, we can do that.
Vincent J. Calabrese: We have the capability of doing it it would just be a margin a rubber right. So we're trying to balance it all out right.
Speaker Change: Got it got it and I'm very confident and good growth on a price up we want to compete with everybody else. The other prices apart our Cds in our money market rates, we could bring a lot of money that we brought in $1 three.
Speaker Change: Half of the year, it's a function of trying to manage it all so that we maintain relative profitability. Our goal is to outperform so we're not trying to give everything away or for balloon our balance sheet.
Speaker Change: We understand what our funding constraints to potentially be in the tradeoff is margin. So we have to be getting it on the other side with the loan originations to justify it.
Speaker Change: That's how we looked at it.
Speaker Change: Sure Oh, no under Saddam's to it that's great color. Thanks, and then I guess, just a follow up there Vince you mentioned, making some room with the smaller sales.
Speaker Change: Of the loans.
Obviously, you know you're always thinking about balance sheet optimization, but that being said I just wonder if you know if this is.
Speaker Change: If you see more opportunities here in the near term to do just that maybe jettison some some.
Speaker Change: Smaller pieces that for whatever reason.
Speaker Change: You know the total returns.
Speaker Change: Not there.
Speaker Change: Is that a way in the near term to continue to hold the loan to deposit ratio, where it is or is it or do you see this as more of like a one and done but in the near term.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: A lot of times during the fourth quarter sizing, what we wanted to do as far as the amount of securities.
Speaker Change: None of the loans.
Speaker Change: We don't have any plans to do any additional sales that we're sitting here today I think we're finally instead.
Speaker Change: You bet.
Speaker Change: Throw the deposits we've got it forever.
Speaker Change: So at this point I wouldn't say, one and done forever right, because we're always studying the balance sheet and if there's opportunities we'll look at it but there's no plans right now that like I said, we spent a lot of time sizing it and.
Speaker Change: Came up with what we what we executed on if the rate environment.
Speaker Change: Naples us to unload low yielding assets and we get a gain and we can roll that into something else sure. We've done that historically, we've sold over $1 billion.
Speaker Change: Over the years, so we will look selectively Frank and we constantly look at the balance sheet. Our objective is to produce the highest returns possible.
Speaker Change: We will look at opportunities to get out, particularly with the.
Speaker Change: Indirect auto.
Speaker Change: <unk>.
Speaker Change: Limited relationship right I mean, we will look at that and we will trade out of it or we will pare it back.
Speaker Change: We used <unk>.
Speaker Change: Pricing mechanisms to move.
Speaker Change: The portfolio around.
Speaker Change: We will see it.
Speaker Change: As a function of what the interest rate environment is what demand looks like at higher yielding categories with our risk profile.
Speaker Change: The balance sheet looks like we take all of that into consideration and make decisions based on that but where our plan is to manage in the range from a loan to deposit perspective that we have historically, we're not looking to move outside of that.
Speaker Change: Yeah, I would just say too Frank we're not we don't feel constrained as far as loan growth that we would want to go after the mid to high single digits that we've done we can do that we've done things like Vince was describing and then like in the mortgage business has been adjusted our pricing a little bit there take more salable product. So we're kind of reducing the amount of growth is going on to the balance sheet.
Speaker Change: Part of how we manage the balance sheet. So theres a lot of you know.
Speaker Change: A lot of different levers there.
Speaker Change: Right, Okay. Thanks for the color.
Speaker Change: Alright, thank you.
Speaker Change: Our next question comes from Samir.
Samir: From Wells Fargo. Please go ahead with your question.
Samir: Hi, good morning.
Samir: Maybe starting with.
Speaker Change: You had made a comment positive operating leverage in 'twenty three look to be in the top quartile and operating leverage going forward does that click positive operating leverage on the table for 'twenty four or is the revenue backdrop challenging enough for that more likely.
Speaker Change: Not going to happen next year.
Speaker Change: Yes, I think as we move through this interest rate cycle. It becomes more challenging obviously right because youre seeing declining revenue in your expense base is pretty much fixed.
Speaker Change: Taking expense out, but it's hard to do.
Speaker Change: I think the second half of the year.
Speaker Change: I certainly would expect us to go produce positive operating leverage so as we move through that inflection point that Vince spoke about earlier.
Speaker Change: Margin compression with the rate cuts, we should be able to move through that and into the second half of the year experience positive operating leverage if you look at F. N b on a full year basis in 2023, Yep warms others right. Because we produced full year operating leverage was negative operating leverage all over the place.
Speaker Change: At least based on what I saw so I think you know I would expect us to.
Speaker Change: We can be in a similar position in 2004.
Speaker Change: Okay.
Speaker Change: Okay that helps.
Speaker Change: Okay. That's helpful. Yeah. That's helpful. Thank you and then one for Gary just looking at the office maturities in 'twenty four it looks like 20% of that book is maturing I'm just wondering how much of that maturation is for loans kind of vintage 2019.
Gary: Earlier, and then as you look at your portfolio again looking at the vintages 2019 and earlier how different are those loans from a credit quality standpoint, just given how different the world is today versus pre pandemic.
Speaker Change: Yeah in general generally speaking.
Speaker Change: No we're going to underwrite those things from the from the origination date.
Speaker Change: In the low to high.
Speaker Change: Sixties range.
Speaker Change:
Speaker Change: So when you when you look at when you look at those maturities.
Speaker Change: In addition to that LTV level, which has been very helpful. Through this cycle so far.
They're also underwritten.
Speaker Change: Very short.
Speaker Change: So with maturities inside of five years or slightly less.
Speaker Change: In some cases, so a number of those number of those transactions.
Speaker Change: You know have been not been renewed over the last year or two.
Speaker Change: Many of those borrowers right size those transactions.
Speaker Change: It has been our intent to keep those maturities very short.
Speaker Change: And we will continue to do that during during these times.
That all said we still.
Speaker Change: <unk> is focused as we are on that office space as is everyone. We feel quite good.
Speaker Change: Good about the portfolio at this point.
Speaker Change: We've only had a couple of credits.
Speaker Change: Over the last number of years since this this space has taken a tough.
Speaker Change: Tough go of it from from all of the pandemic issues that we've seen.
Speaker Change: And we've only got a couple of credits that we've got to deal with for velocity.
Speaker Change: So we feel good about the position of it.
20% roll rates.
Speaker Change: In the coming year.
Speaker Change: And we expect to move to do that with our sponsors which have shown the ability to right size.
Speaker Change: Most of this will be good.
Speaker Change: Serves to pay down debt, but bring it back to 120 type of debt service. So we will continue to do the same thing in 24 that we did in 23 of them.
Speaker Change: On to what Gary said, I think from a prudent underwriting perspective.
Speaker Change: Most of the transactions that we would have underwritten in 2019 would've had long term leases that go out.
Speaker Change: Longer than the maturity date, Gary mentioned, having a shorter maturity date, what that means is that while cap rates may change in the valuation may change with a lower LTV and a longer.
Speaker Change: Lease term that the.
Speaker Change: Debt service coverage remains intact.
Speaker Change: So.
Speaker Change: A lot easier to deal with the devaluation because of the rise in cap rate if you have substantial liquidity.
Speaker Change: And our long term tenant locked up so I think that.
Most every case, that's what we would look at when we would underwrite.
These transactions, which gives us a great degree of confidence I also can tell you that.
Speaker Change: Most of the portfolio the vast majority of the portfolio sits outside of the urban office.
Speaker Change: Scenario, so I think that we have quite a bit of protection in that.
Speaker Change: Suburban office in higher growth areas is not.
Speaker Change: Subject to vacancy like you see in the large cities.
Speaker Change: The other the other add to the size of it.
Speaker Change: Layers.
Speaker Change: 40% of the portfolio is less than $5 million in terms of loan size.
Speaker Change: Move that up the five to 10 is another 17, so you're pushing 60% of the portfolio is less food.
Speaker Change: 60% is less than $10 million.
Speaker Change: Then you can move that up one more level to the <unk>.
Speaker Change: $15 million.
Speaker Change: When youre at 70% of the book of business.
Speaker Change: And in total.
<unk>.
Speaker Change: The top 25 credits averaged right at just a touch above $30 million I think it is right at a 31 million. So the portfolio is very granular I think we've been very prudent in taking granular hold positions across the space and it's really showing them the performance through what's.
Speaker Change: The difficult part is geographically diverse too.
Speaker Change: Read across seven states.
Speaker Change: Concentrated in one city.
Speaker Change: One specific area.
Speaker Change: That you know, we obviously, it's something we watch it.
Speaker Change: It's definitely weakness in urban office.
So it's a good question.
Does that help.
Speaker Change: Are we good.
Speaker Change: That's helpful. Yes, I appreciate the color. Thank you.
Speaker Change: Okay.
Speaker Change: Our next question comes from Casey Haire from Jefferies. Please go ahead with your question.
Great. Thanks, Good morning, guys.
Casey Haire: Wanted to follow up on the NII guide so Vince see if.
Casey Haire: It sounds like deposit beta.
Casey Haire: Is going to peak at around June deposit betas peaks around 35% just wondering when does that take place relative to your first fed cut and then.
Casey Haire: What is your guide assume for deposit beta on the way down.
Casey Haire: <unk> 24.
Speaker Change: Yeah, I would say, we would drift a little higher.
Speaker Change: We ended the year $34 three of them.
Right.
Speaker Change: Yeah, well, just a little bit higher here another point or two is what we're what we're thinking.
Speaker Change: And then you know.
Speaker Change: When that happens for a second quarter.
Speaker Change: Consistent with the margin bottoming in the per cap.
Speaker Change: And then you know what we were thinking I mentioned the update is spend 35 now twice on the upside I think we as we look to the point when the fed pivot starts to reduce rate using a similar over the medium term right, 35% makes sense to us, but within 24, depending on the timing of the fed cuts right, we get some portion of that.
I get more than half of it but you wouldn't get 35, all in calendar 'twenty four or so.
Speaker Change: As we have been actively managing our deposit pricing.
Speaker Change: And our weekly pricing Committee meeting priority you start to talk about lower rates some of our competitors have so we're going to monitor very closely.
Speaker Change: Well I'll take the.
Speaker Change: Alright action at the right time, but.
Speaker Change: Somewhere in that no.
Speaker Change: Yes.
Speaker Change: So in that 30, but might get this year.
Got you. Thank you <unk>.
Speaker Change: Okay just.
Speaker Change: Yeah, no understood understood.
Speaker Change: And then just switching to credit Gary if I, if I'm here, if I'm interpreting your remarks correctly. It sounds like you're you expect no.
Gary: Net charge offs.
Gary: Just to go to go to decline this year I'm, just wondering what kind of loss rate your provision guide contemplates.
Speaker Change: Yeah, I mean in term in terms of the provision guide at the 80 to 100.
Speaker Change: Naturally that supports loan growth as well as charge offs.
Speaker Change: The specific charge off level.
Speaker Change: <unk>.
Speaker Change: We've got baked into our plans.
Speaker Change: That's a number we don't disclose.
Speaker Change: But I would I would concur with your thoughts.
Speaker Change: Do you expect for <unk>.
Speaker Change: <unk>.
Speaker Change: To be stable to slightly.
Speaker Change: Right.
Speaker Change: But I think Casey if you go to page nine.
Speaker Change: Our presentation.
Casey Haire: You can see net charge offs.
Casey Haire: Average loans you know the third.
Third quarter 'twenty three has.
Have that one time event.
Casey Haire: Event occurs.
Casey Haire: So I mean, we're.
Speaker Change: Yeah fair enough that's that was converted.
Speaker Change: Okay.
Speaker Change: That's quite okay, what youre seeing in your charge offs.
Speaker Change: If you look over the last three years Casey.
Speaker Change: Hmm.
Speaker Change: Last three years would've been six basis points six basis points.
Speaker Change: One in three would have been 10 basis points, excluding that one item.
Speaker Change: So you've got you've got really solid steady performance there over a very you know pretty sizeable extended and somewhat tumultuous period.
Speaker Change: And like I said, we like the position of the portfolio we feel.
Speaker Change: Quite good about it going into 2020 four naturally we're all concerned a bit about where does this economy going.
Speaker Change: And what will that all mean.
That has to play out as we all know.
Speaker Change: But we've seen the.
Speaker Change: Good steady.
Speaker Change: Performance and stable stable.
Both.
Speaker Change: Okay, Great and just last one for me.
Speaker Change: Essentially you you you mentioned you know your TCE is at the highest level.
Speaker Change: I think in your history.
Speaker Change: C G one above 10.
Speaker Change: Hi, how are you guys thinking about Oh, what's the share buyback appetite with with your capital ratios are at current levels.
Speaker Change: We still have.
Speaker Change: We have authorization to purchase shares from the board.
Speaker Change: We plan on evaluating that as we move along if we see opportunities to buy shares back.
Speaker Change: We're certainly going to do it if the earn back is reasonable right.
Speaker Change: I mean because.
Speaker Change: To manage tangible book value levels as well. So I think we're going to continue to look at it and evaluate it and opportunistically.
Speaker Change: Execute transactions, if they make sense.
The deployment of capital as we move forward really.
Speaker Change: We're looking at.
The potential for changes in the economy and loan growth as well because we want it.
Speaker Change: Floyd that capital in the most meaningful way, but we see.
Speaker Change: Slowness.
Speaker Change: Just going to sit here and.
Speaker Change: To build.
Speaker Change: It'll.
Speaker Change: We have to do to make sure the returns are.
Speaker Change: Yes.
Speaker Change: I don't know if that answers your question or not in another words still on the table and we're still going to consider it as we move along.
Speaker Change: Got you thanks, guys.
Speaker Change: Our next question comes from Michael Perito Prieto from Cape PW. Please go ahead with your question.
Speaker Change: Hey, guys good morning.
Speaker Change:
Speaker Change: For all the color so far I really just have one one last question I wanted to hit on for Gary on the credit piece just.
Yesterday.
Speaker Change: Cover our reported earnings and had some uptake on the consumer side in their Prime book, you know why is it credit autos and things of that nature. Just curious what you guys are seeing on the consumer side from a credit health perspective, most of those portfolios outside the mortgage book I think shrunk. This year, just what type of growth is baked into 2024 and and.
Speaker Change: What or somebody that may be the key things that could draw.
Speaker Change: Drive some some better growth performance on the consumer side is it just kind of a macro health department as a pricing competitive dynamics, just just would love some color around all of those topics that'd be great. Thanks.
Speaker Change: Yeah.
Speaker Change: Yes, total total delinquency across the all.
Speaker Change: All inclusive portfolio.
Is it right at about $12 billion.
Speaker Change: 89 basis points.
Speaker Change: That's that's all in consumer.
Speaker Change:
Speaker Change: Fourth quarter its always up.
Speaker Change: Little bit seasonally.
At the end of the year with the holidays and whatnot, but if you look if you look over a rolling 13 month.
Speaker Change: Timeframe.
Speaker Change: It's been from 70 basis points.
Speaker Change: Low ninety's.
Speaker Change: So we've seen very consistent performance across the portfolio.
Speaker Change: The underwriting that we do there.
Speaker Change: I feel very good about I think it's very.
Speaker Change: Very prudent and very stable, we're able to generate good good loan growth.
Speaker Change: You know through those portfolios.
And you know what.
Speaker Change: When you look at the investment that we've made.
Speaker Change: And the teams there it's an important part of our business. So you know as we look forward.
Speaker Change: We continue to expect good solid growth there.
Speaker Change: And that means slightly higher range in this environment.
Speaker Change: Mid to high single digit range in this environment.
Speaker Change: And expect that portfolio to continue.
Speaker Change: Two performed well through the <unk>.
Speaker Change: Michael.
Speaker Change: Okay.
Speaker Change: That's helpful. So it sounds like in the mid single digit growth guidance, there's some consumer growth baked into that for 24, that's the expectation as you stand today.
Speaker Change: Yes, yes.
Speaker Change: Including mortgage if you stripped out work, we're still expecting growth.
Speaker Change: And again I think some of the investments we've made in the digital tools. The fact that we're spread across a pretty broad geography 60 million consumers.
Speaker Change: Our footprint.
Speaker Change: Some of the build out with the ATM delivery channel the Titans.
Speaker Change: Provides consumers with accessibility to cash in.
Speaker Change: Sure.
Speaker Change: And I think all of that.
Speaker Change: Just a little bit of confidence even though.
Speaker Change: I would say the consumer with inflation.
Speaker Change: Some of the changes economically that are going on are going to be a little challenge that I think we're in a pretty good spot.
Speaker Change: But not as robustly as we haven't in the past I know, it's been last year was tough.
Speaker Change: Things are going to stabilize and we should see in a lower rate environment, some opportunities to grow that portfolio.
Speaker Change: That's baked into the guide.
Speaker Change: Right very helpful. Thank you guys for all the other color. This morning appreciate it.
Speaker Change: Okay. Thank you.
Speaker Change: Our next question comes from Russell Gunther from Stephens. Please go ahead with your question.
Russell Gunther: Hey, good morning, guys.
Russell Gunther: Wanted to follow up on the balance sheet repositioning.
Russell Gunther: Around the tangible book value earn back Matt.
Russell Gunther: So I get the securities repositioning I just wanted to confirm that the preferred stock dividend savings included in that calculation and then just ask for some additional color on the indirect auto piece.
Russell Gunther: What break borrowings would be paid down whether theres any reserve release associated with those loans included in that math, just trying to get the puts and takes.
Russell Gunther: Okay.
Speaker Change: Yes, so Russell.
Speaker Change: As you know the securities repositioning was done on the available for sale portfolio. So that was already baked into the tangible book values. There is no incremental hit from that.
Speaker Change: There's very slight head from the loan sale.
Speaker Change: But just given the overall strong earnings accretion from from the combined transaction that earn back is less than a year.
When you add in the preferred dividend.
Still stayed obviously, because thats accretive to that would be less than a year.
Speaker Change: So pretty strong earn back metrics.
Anything I'm, sorry did I address all your questions there okay.
Speaker Change: Oh, the auto piece.
Just kind of puts and takes of the savings or Theyre just the bar the rate of borrowings you would expect to pay down and whether there's any.
Speaker Change: Reserve releases associated with those loans that's included in that calculation.
Speaker Change: Gotcha, Yeah, no. So the borrowings that we talked about paying off at a similar rate as the yield on our loans. So we're talking roughly five to five 5%.
Speaker Change: Type yield on those loans.
Speaker Change: So net net.
Speaker Change: Net pay down borrowings at a similar rate and just as a reminder, that loan sale hasn't closed yet so we actually havent seen the capital benefits from the full transaction.
Speaker Change: So just on a pro forma basis, you know when the alarms do go off the balance sheet.
Speaker Change: We would expect to see if you wanted to increase an estimated 10 basis points of Mtbc's embraces roughly six basis points as well.
Speaker Change: <unk>.
Speaker Change: Okay, Okay, great and Theres no way, Chris So additional income statement attacks Russell in the first quarter, because with us marking it to the market that captures everything in the fourth quarter. So really it's just actually executing the sale itself.
Speaker Change: <unk>.
Thank you guys and then I guess just the last follow up then would be.
Speaker Change: Back to the CET, one discussion pro forma is still north of that 10%.
Speaker Change: You guys addressed to repurchases, but also sensitivity around earn back so.
Not willing to let capital accretive.
Speaker Change: Additional securities repositioning is on the table or how are you thinking about that.
Speaker Change: Yeah.
No I think you know we.
Speaker Change: Spent a lot of time in the fourth quarter.
What we did so.
Speaker Change: Any plans to do any additional secured yourself sitting here I remember during the last few years I mean, we stayed short belmar investment portfolio, we stayed conservative in.
Speaker Change: How we manage that so.
The total dollar amount that we did there.
Speaker Change: Kind of the total were looking to do.
Speaker Change: Additionally.
Speaker Change: And then from a capital ratio perspective within our guidance and in our capital ratios will drift up as you go through the year.
Speaker Change: Which is important and then eventually point earlier opportunistically that will create an ability that you can share buybacks if it makes sense.
Speaker Change: And I like to see tangible book value you know above 10 Bucks right.
Speaker Change: That would be that'd be something that we can all celebrate because I think ultimately that translates into a higher valuation.
Speaker Change: Given our profitability.
Speaker Change: But.
Speaker Change: So we're gonna be managing all of that we're gonna be watching all of that and making smart decisions based upon return progression.
Speaker Change: Understood. Thank you guys I appreciate you all taking my questions.
Yeah. Thank you.
Our next question comes from Manuel Navies from D. A Davidson and company. Please go ahead with your question.
Speaker Change: Yeah.
Manuel Navies: Hey, good morning, just wanted to get a bit of your.
Economic.
Manuel Navies: Backdrop behind your loan growth guidance and then behind the.
Manuel Navies: Provisioning guidance.
Manuel Navies: I mean economic environment.
Manuel Navies: Kind of what the consensus economists would be saying I mean, it's slowing loan growth in the second half in Europe.
Manuel Navies: We're not making kind.
Manuel Navies: Costs at our own.
Manuel Navies: Looking at what the expectations are.
Manuel Navies: Throughout the country, and that's kind of what's baked in.
Manuel Navies: GDP Scott in our plant goes down to zero point, but it's still growth.
On average what average for the year right.
Speaker Change: Okay, So if the expectation and Scott right.
Speaker Change: That environment.
Speaker Change: I'm sorry go ahead.
Speaker Change: So that expectation if it was to worsen would with the provision.
Speaker Change: Love the range.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Well I think we're very comfortable with the range. We have right now we feel we feel very comfortable with.
Speaker Change: At this point.
Speaker Change: Where are the economies.
All of the portfolio.
Speaker Change: And then loan growth the pace has been really strong here to close the year.
Speaker Change: Is that kind of more front end loaded as it kind of slows across the back half of a year or is it.
Speaker Change: You're used to feel pretty good about that mid single digits kind of staying consistent figure.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: I mean, there is seasonality within the originations depending on the portfolio and if you look at the commercial book that tenant.
Speaker Change: It tends to grow more in the second into the third quarter.
Speaker Change: If you look at.
Speaker Change: Mortgage banking and the move that up a little bit maybe a quarter.
Speaker Change: Really.
Speaker Change: First and second quarter, it's really it starts to take off so there are differences in the portfolios I just use those two as an example, but you know I think when we build our plan to give a consensus we look at both macro and micro scenario. So basically we built our plant from the ground up.
Speaker Change: We survey our business units, we look at our production capability to historically in the markets. We're in and then we look at the macroeconomic environment say is this achievable in whats happening and we basically use that's why Ben said.
Speaker Change: We use consensus estimates by economists, we don't forecast ourselves.
Speaker Change: Elses.
Speaker Change: Forecast and then we apply that to our model. So it's all kind of baked in what we give you. So we're building it from inside of our own company and then we're looking at the macroeconomic factors that could influence that goes for provision expense loan growth commercial consumer and mortgage kind of break it down by segment.
Speaker Change: And then.
Speaker Change: From the ground up.
Speaker Change: So.
Speaker Change: I think given where we are in the cycle and.
Speaker Change: What we're seeing in.
Speaker Change: Hard to predict but we're a little more optimistic than we were a quarter ago going in to next year and I think that's reflected in the guide on the loan growth.
Speaker Change: I'm, hoping we can do better if you look at our pipelines.
We did pretty well commercially.
Speaker Change: In the last quarter and it's reflected in the loan growth and the surge in the fourth quarter.
Speaker Change: That that can change from year to year commercially, but we did well last quarter. So when you look at our pipelines moving forward were relatively flat. So you don't have big pipeline that we're looking at that says hey, yes, we're going to achieve.
Speaker Change: Three or four 5% or whatever.
Single digit net portfolio.
Speaker Change: So I would say that you know.
Speaker Change: I feel pretty confident about what we're putting forward given what we know about the economy today.
Speaker Change: I don't know what scale.
Speaker Change: That's really helpful.
Speaker Change: No that's great.
Speaker Change: Okay.
Speaker Change: Could I add is is there any kind of a regional takeaways from your E store performance.
Speaker Change: Your you have a lot of activity do you have a lot of non account holders using the E store. It could you break it down regionally at all or is it just.
Speaker Change: Just great trends in general.
Speaker Change: Yes.
Speaker Change: That's an interesting, especially and I just asked our people that question. So I asked the same question internally, it's still relatively new.
Speaker Change: We're trying to figure out how to devise reported gets us as granular, yes, as granular as we need to be from an origination perspective, when they initially looked at it it's pretty much across the board.
Speaker Change: It's interesting it wasn't in one particular geography.
Speaker Change: Spread across a pretty broad geographies. So I think anywhere we have name recognition branch locations right, we tend to get more action.
Speaker Change: Once you move outside of that we don't advertise a lot. So you don't see as much activity.
Speaker Change: Which is part of the reason why we decided to go with branded Atms and do the ATM deployment, because our theory was that the more frequently consumers see us the more likely they are to engage us digitally.
Speaker Change: He was part of the strategy.
Speaker Change: So it seems to be working if you if you look at where.
Speaker Change: Our geographic locations are where we have signage and some recognition there is more activity digi.
Speaker Change: That's great I appreciate that thank you guys.
Speaker Change: And then obviously, we're going to go.
Speaker Change: Although we've added.
Speaker Change: The deposit products in December we are going to start advertising. So we will.
Speaker Change: Try to get through some advertising bring some awareness the consumer up the capability.
Speaker Change: I know locally I saw during the Super Bowl.
So they are the not the Super Bowl.
Speaker Change: National Championship for the college football.
Speaker Change: Outside of my decision I don't know what else. Thank you.
Speaker Change: Others are already out to them.
Speaker Change: <unk>.
Speaker Change: But we did some we get some support let's put it this way we were in the playoff game. We ran during the steel of Buffalo Bills game, we ran during the National Championship probably locally.
Speaker Change: <unk>.
Speaker Change: Because we have customers that.
Speaker Change: Are in tune with those events. So we ran some advertising and some people commented on.
Speaker Change: Then the branding.
Speaker Change: Of the buildings in certain markets has helped us with visibility, particularly Pittsburgh.
Speaker Change: Seen more activity from a prospect prospecting perspective, because of the signage on our headquarters building in that activity and that's brought some people in.
Speaker Change: And then the sponsorships with the Penguins.
Speaker Change: No the way Jersey the patch.
Speaker Change: <unk> got.
Speaker Change: A lot of play on that as well.
Speaker Change: Anyway, that's how we're trying to build awareness.
That's great. Thank you I appreciate it.
Speaker Change: Once again, if he would like to ask a question. Please press star and then one night. Thank you withdraw your questions you May press star and two.
Speaker Change: Our next question comes from Brian Martin from Janney. Please go ahead with your question.
Brian Martin: Hey, good morning, guys.
Brian Martin: Yeah.
Brian Martin: Most of my most of my questions have been answered.
Brian Martin: One question Vince you answered it I think the last question was just on the cadence of that.
Brian Martin: The commercial growth of the commercial pipeline it sounds like it's a little bit slower to start here, given what fourth quarter looks like but the pipe built from there. That's just in general what what I heard is that fair.
Brian Martin: Yeah.
Speaker Change: Yes, yes.
Speaker Change: We had a really strong third quarter, so kind of cleared out the 90 day bucket.
Speaker Change: One.
Speaker Change: And that has to rebuild.
Speaker Change: So with relatively flat we had good production of the Carolinas.
There is double digit.
Speaker Change: Well, it's been some of the Carolina portfolios.
Speaker Change: Positive without CRE.
Without a big contribution from CRE. So we're pretty excited about that and I think there'll be opportunity.
Speaker Change: In the Midwest and into more east as well from a C&I perspective, as we move into next year, the latter half of next year.
Speaker Change: Gotcha, Okay, and then just one for Gary Gary the credit just it sounds very strong I mean, I guess, if you point to one area today that your you know.
Speaker Change: Maybe a bit more watchful of that.
Speaker Change: The criticized it sounds like they were down this quarter, but just in general is there any area that you're paying a bit more attention to as you kind of head into 24, given the strength of the portfolio.
Speaker Change: Yeah.
Speaker Change: Well I think I think the CRE book just in general I mean, we.
Speaker Change: I've been all over that.
The team has done enough.
Speaker Change: A really nice job of building out our risk management practices around the Tom Fischer and his team are all over those books of business is the are the rest of the portfolio.
Speaker Change: The office space naturally and no we've said it for years.
Speaker Change: That was going to be the longer term.
Speaker Change: You know portfolio segment in the industry.
Speaker Change: That is going to have to be dealt with over time.
Speaker Change: Now that change was I would say not temporary you know theres been a permanent change in that market.
Speaker Change: Fortunately I think we've chosen well there over time.
Speaker Change: Good solid sponsors that have liquidity and I think that's why the portfolios continue to perform as it does to this point, but you know that's CRE space.
Speaker Change: And that office portfolio I think of it as a way to go to that Bryan. So we'll continue to be all over that.
Okay, perfect and then move forward.
And then maybe just last two just on the fee income side, just kind of look at it the pick up in mortgage and you talked a little bit about kind of a little bit of a changing strategy. There just kind of the puts and takes on mortgage outlook for here and then just the capital markets revenue and it was pretty consistent.
Speaker Change: Maybe a little bit lower level from where it was previous year is just kind of wondering how to think about that or just how the pipeline looks there.
Speaker Change: Yes, I would just say the noninterest income again showed the benefit of patents.
Speaker Change: Revenue base right.
Speaker Change: <unk> had another good quarter above 80.
Speaker Change: Above 80.
Speaker Change: Six out of the last seven quarters getting their different ways, but again the benefit of diversification. So you know capital markets.
Speaker Change: Solid quarter for Us I mean, it's up from the prior quarter, it's down from last year and it had a 10 handle.
Speaker Change: Theres still a lot of opportunity there.
Speaker Change: I think when the rate environment starts to shift we will continue to be opportunity there.
Speaker Change: We have really solid contributions from all the components there.
Spot perspective international syndication to capital markets. So there's a lot of because even within that business and then the mortgage bounce back I mean, we had a really strong <unk>.
Speaker Change: Three I mean.
Speaker Change: In an environment, where the market was down from an origination standpoint.
Speaker Change: While industry was down we were up.
Speaker Change: And we're forecasting apart from an origination standpoint, you know close to double digit increase in originations and 24 versus 23, and then my comments on pricing with more just about scalable versus portfolio that really affecting the level of origination, but kind of what we bring on the balance sheet, what we sell.
Speaker Change: The other thing I would say is that.
Speaker Change: In a lower rate environment, if we do get the rate decreases we shouldn't see more activity in derivatives more activity in debt capital markets with our large corporate customers.
Speaker Change: Going to market.
Raise capital.
Speaker Change: And syndication should pick up in the second half of the year, So and then the mortgage business.
Speaker Change: On sale should accelerate so.
Speaker Change: Like Vince said, having.
Speaker Change: Our portfolio and then we've had good steady growth I should mention.
Speaker Change: Our asset management.
Speaker Change: And the wealth and trust shops have done extraordinarily well.
Speaker Change: They're up in revenue net income and <unk>.
Growing net assets a record level.
Speaker Change: We're at record levels. So we're in good markets, where we should see continued growth.
Speaker Change: Isn't that book.
Speaker Change: So we have a good balanced set of the generators that I think.
Speaker Change: The coming year.
Speaker Change: If rates play out the way.
Speaker Change: Some are forecasting we should do okay.
Speaker Change: Noninterest income and then initiatives on the small business and PM side will be attitude.
Speaker Change: Yeah, no the business as you guys have built out are really paying dividends here like you said the diversification and I guess on the mortgage I was just trying to understand if part of the increase this quarter was really just us selling more and if so if you do have an increase in originations next year and you continue to sell at a higher rate.
Speaker Change: Maybe you know that also contributes to a better outlook for 'twenty four.
Speaker Change: Okay.
Speaker Change: The gain on sale margins lower though.
Speaker Change: It depends on the rate environment.
Speaker Change: So when you look at it we may have.
We're not making as much per unit, we're just moving it off the balance sheet as the rate environment provide us do that so we're remember we focused principally on purchase money.
Speaker Change: That activity has been lower right I mean, we don't we're not in a.
Speaker Change: Finding rate environment, we would see more refinance activity, even though we focus more on purchase money, we would get some benefit from the refinance market.
Speaker Change: If there is trade offs.
I think it's a pretty balanced approach and I think that's I think we've been able to sustain our fee income levels.
Speaker Change: Even with declining consumer.
Speaker Change: Well.
Speaker Change: Pretty good.
Speaker Change: Yeah, Brian I would just add the mortgage income in the fourth quarter had benefit from rates coming down to the fair value Mark on the pipeline has contributed to that in the fourth quarter.
Brian Martin: Gotcha Okay.
Speaker Change: And then just the last one for me was just on the margin Vince since he's just the one question just remind me I mean, some of the variable rate perspective, I mean, the percentage of variable rate loans and then if a 25 basis point cut on that on that piece that you know how much does that move the margin for each.
Speaker Change: 25 basis point cut.
Speaker Change: We need to look at the whole balance sheet.
Speaker Change: Our percentage is still up only 7% of loans.
Speaker Change: Loans that are at or very little just down in that way.
Speaker Change: Talking about still there and you have all the different moving parts to Cds or 10 months average maturity. So.
Speaker Change: Pluses and minuses, there that's kind of all baked into that.
Speaker Change: Our guy kind of bottoming in the first half of the year, Brian and then.
Speaker Change: Yeah.
Speaker Change: Yeah, Yeah, yeah, okay.
Speaker Change: Helps out 47, so alright I appreciate thanks for taking the questions guys.
Speaker Change: Okay.
Speaker Change: And ladies.
Showing no additional questions I'd like to turn the floor back over to Vince belief for any closing remarks.
Speaker Change: Okay.
Vincent J. Calabrese: Yes, I'd like to thank everybody for the questions great questions.
Vincent J. Calabrese: Thank you for your interest.
Vincent J. Calabrese: <unk>.
Vincent J. Calabrese: I think given what's gone on this year F&B has performed very well and many of the key strategies that we've deployed that we've talked about over the years.
Vincent J. Calabrese: It really played out.
Vincent J. Calabrese: The liquidity.
Vincent J. Calabrese: Prices earlier this year you got to see.
Vincent J. Calabrese: Firsthand, what we've been talking about in terms of client primacy the quality of our deposit.
Vincent J. Calabrese: With polio.
Vincent J. Calabrese: Our credit underwriting.
Vincent J. Calabrese: I think it's I think it's.
Vincent J. Calabrese: It really showed itself this year and I'm very excited about moving into next year, hopefully moving into a better economic environment.
Vincent J. Calabrese: <unk> to 'twenty four, particularly in the latter half of 'twenty four.
Vincent J. Calabrese: Again, we'd like to thank our employees, because they step up and get things done.
Vincent J. Calabrese: And did an admirable job.
Vincent J. Calabrese: Last year. So thank you. Thank you everybody.
Vincent J. Calabrese: Take care.
Speaker Change: Ladies and gentlemen, with that we'll conclude today's conference call and presentation. We thank you for joining you may now disconnect your lines.