Q4 2023 Cadence Bank Earnings Call
Our goal is to build upon our accomplishments in 2023. Looking back, we set out to improve our capital ratios, improve our portfolio yield, lower our efficiency ratio by lowering our expenses, and, after March, enhance our liquidity. As we review our results, you will hear about significant progress on all of these measures, which certainly sets the stage for our continued improvement this year and beyond. As we look at strategic accomplishments, we completed the closure of 35 branches in the third quarter. We completed our voluntary retirement program in the fourth quarter, lowering our headcount, including branch closures and excluding the sale of Cadence insurance, by almost 500 from the beginning of the year.
In 2023.
Looking back we set out to improve our capital ratios improve our portfolio yield lower our efficiency ratio by lowering our expenses and after March enhance our liquidity.
As we review our results you will hear about significant progress in all of these measures, which certainly sets the stage for our continued improvement this year and beyond.
As we look at strategic accomplishments, we completed the closure of 35 branches in the third quarter, we completed our voluntary retirement program in the fourth quarter, lowering our head count, including the branch closures and excluding the sale of cadence insurance by almost 500 from the beginning of the year.
Finally, we unlocked the extraordinary value of Cadence Insurance. This transaction, completed in November, generated additional capital for our company of approximately $620 million, including an after-tax gain of $520 million. During December, we leveraged just over half of that gain to restructure over 25% of our available-for-sale securities portfolio, allowing us to reinvest the proceeds at much higher yields and reduce wholesale deposits, all while meaningfully increasing our tangible book value and capital ratio. Valerie will give more color in a moment on these restructuring transactions, but I'm excited about the significant positive impact this will have on our margin and core operating performance going forward In looking specifically at our financial results for the quarter, it's important to note that our financials are now broken out between continuing and discontinued operations. The results of our insurance business prior to the sale and the related gain from the sale are included in discontinued operations.
Finally, we unlocked the extraordinary value of cadence insurance. This transaction completed in November generated additional capital for our company of approximately $620 million, including an after tax gain of $520 million.
During December we leverage to just over half of that gain to restructure over 25% of our available for sale securities portfolio, allowing us to reinvest the proceeds at much higher yields and reduced wholesale deposits, all while meaningfully increasing our tangible book value and capital ratios.
Valerie we will give more color in a moment on these restructuring transactions, but I'm excited about the significant positive impact. This will have on our margin and core operating performance going forward.
Valerie: And looking specifically at our financial results for the quarter. It's important to note that our financials are now broken out between continuing and discontinued operations. The results of our insurance business prior to the sale and the related gain from the sale are included in discontinued operations continuing operation.
Continuing operations includes all other financial results for the bank, including the loss on securities restructuring. For comparative purposes, we will focus on adjusted continuing operations results, which excludes the loss on the securities restructuring, as well as certain other non-routine items consistent with our past practice. Valerie will, of course, provide more detail on these items in her comments in a moment.
Valerie: It includes all other financial results for the bank, including the loss on Securities restructure.
Valerie: For comparative purposes, we will focus on adjusted continuing operations results, which excludes the loss of the securities restructure as well as certain other non routine items consistent with our past practice.
Valerie: Valerie we will of course provide more detail on these items in her comments in a moment.
We reported gap net income, which includes both continued and discontinued operations, of $256.7 million, or $1.41 per common share, which results in annual net income of $532.8 million, or $2.92 per common share. We reported adjusted net income from continuing operations for the fourth quarter of $72.7 million, or $0.40 per common share, bringing annual adjusted net income from continuing operations to $401.2 million, or $2.20 per common share. From a balance sheet perspective, loan balances grew $2.1 billion, or over 7% for the year. And we were flat for the quarter.
Valerie: We reported GAAP net income, which includes both continued and discontinued operations for the fourth quarter of $256 7 million or $1 41 per common share.
Valerie: Which results in annual net income of $532 8 million or $2 92 per common share.
Valerie: We reported adjusted net income from continuing operations for the fourth quarter of $72 7 million or <unk> 40 per common share, bringing annual adjusted net income from continuing operations to $401 2 million or $2 20 per common share from a balance sheet perspective loan balances grew $2 one.
Valerie: Our over 7% for the year.
Valerie: And were flat for the quarter.
Our loan growth for the year was dispersed across our geographic footprint, as well as the various loan types, primarily within corporate and mortgage. Looking into 2024, I'm confident our team of bankers will be able to win business and grow our balance sheet now that the economic stresses of 23 are in the rearview mirror, and the economy within our footprint remains relatively strong. We had another nice quarter from a deposit growth perspective, demonstrating the strength of our community banking business, with total deposits increasing over $160 million. Excluding the planned and continued reduction in brokered deposits, we reported growth of $625 million, or 6.5% annualized. About half of this growth came from core customer deposit growth, with the remainder driven by seasonal increases and public fund balance. For the full year, core deposits were essentially flat, while growth in community bank deposits of $1.2 billion, or just over 4%, offset the decline in corporate and public fund balance. I'm confident our teams will be able to build on the momentum we experienced in the latter half of 2023.
Valerie: Our loan growth for the year was dispersed across our geographic footprint as well as the various loan types, primarily within corporate and mortgage.
Looking into 2024, I'm confident our team of bankers will be able to win business and grow our balance sheet now that the economic stresses of 'twenty three are in the rearview mirror and the economy within our footprint remains relatively strong we.
Valerie: We had another nice quarter from a deposit growth perspective, demonstrating the strength of our community banking business with total deposits increasing over $160 million. Excluding the planned and continued reduction in broker deposits, we reported growth of $625 million or six 5% annualized about half of this growth.
Valerie: Came from core customer deposit growth with the remainder driven by seasonal increases in public fund balances for the full year core deposits were essentially flat, while our growth in the community bank deposits of $1 2 billion or just over 4% offset the decline in corporate and public fund balances.
Valerie: I am confident our teams will be able to build on the momentum we experienced in the latter half of 2023.
This balance sheet activity contributed to an increase in our net interest margin to 3.04% for the fourth quarter. Valerie will dive further into the details, but our earning assets, both loans and securities, continue to reprice up. In addition, pressure on deposit costs has slowed, as has the migration from non-interest to interest-bearing products.
Valerie: This balance sheet activity contributed to an increase in our net interest margin to three 4% for the fourth quarter Valerie will dive further into the details, but our earning assets both loans and securities continued to reprice up.
Valerie: In addition pressure on deposit cost has slowed as has the migration from non interest to interest bearing products. So the securities repositioning obviously accelerates our margin improvement efforts given the December timing of our bond restructure we anticipate additional positive impact from this repositioning in the first quarter margin.
The security's repositioning obviously accelerates our margin improvement effort. Given the December timing of our bond restructure, we anticipate additional positive impact from this repositioning on the first quarter margin. Moving on to credit, our total criticized loans remained stable another quarter at 2.09% of net loans and leases for the quarter.
Valerie: Moving on to credit our total criticized loans remained stable on another quarter at two 9% of net loans and leases for the quarter. We did experienced a negative migration of a handful of credits within our previously criticized population that drove the increase in nonperforming assets. This migration is reflected in an <unk>.
We did experience the negative migration of a handful of credits within our previously criticized population that drove the increase in non-performing loans. This migration is reflected in an increase in credit provision to $38 million for the fourth quarter. Net charge-offs were 22 basis points for the year, in line with our expectations, and our allowance coverage ended the year at a healthy 1.44% of loans. Finally, our capital metrics improved significantly as a net result of the insurance and securities transaction. CET1 was 11.6% at year-end, and total capital was 14.3, both of which improved over 130 basis points compared to the third quarter of 23. This improvement provides us with tremendous flexibility with respect to capital management and deployment in 2024 and beyond. I will now turn the call over to Valerie for her comments. Valerie?
Valerie: Increase in credit provision to $38 million for the fourth quarter net charge offs were 22 basis points for the year in line with our expectations and our allowance coverage ended the year at a healthy 144% of loans.
Valerie: Finally, our capital metrics improved significantly as a net result of the insurance and securities transactions CET. One was 11, 6% at year end and total capital was $14 three both of which improved over 130 basis points compared to the third quarter of 2003.
This improvement provides us with tremendous flexibility with respect to capital management and deployment in 2024 and beyond.
I will now turn the call over to Valerie for her comments Valerie.
Thank you, Dan. I recall we promised you a noisy quarter, and I think we outperformed there, but when you break it all down, we believe this was a transformative quarter in setting the stage for positive momentum into 2024. And describe the continued and discontinued operations dynamic. We added a few slides this quarter to reconcile our GAAP earnings that combines everything to our adjusted earnings from continuing operations. Slide 5 includes these items for the full year.
Valerie: Thank you Dan.
Valerie: Recall, we promised you a noisy quarter and I think we outperformed there.
Valerie: When you break it all down we believe that once they transform transformative quarter in setting the stage for positive momentum into 2024.
Valerie: And describe the continued and discontinued operations dynamics, we added a few slides this quarter to reconcile our GAAP earnings that combines everything to our adjusted earnings from continuing operations slide.
Valerie: Slide five includes these items for the full year slide seven and eight include both the current and prior quarters as well as major variances.
Slides 7 and 8 include both the current and prior quarters, as well as major variants. I will focus most of my comments this morning on the adjusted continuing operations fourth quarter results of $73 million in net income available to Commons, at $0.40 per share. On a pre-tax basis, these adjusted results exclude the $385 million loss of securities restructure, as well as about $60 million in non-routine expense items, as we wrapped up some of the key activities Dan commented on. These routine expenses included a $12 million pension settlement charge driven by early retirement.
Speaker Change: I will focus most of my comments. This morning on the adjusted continuing operations fourth quarter results of 73 million and net income available to common.
Speaker Change: <unk> <unk> 40 per share.
Speaker Change: On a pretax basis. These adjusted results exclude the $385 million loss on the securities restructuring as well as about $60 million and non routine expense items as we wrapped up some of the key activities Dan commented on.
Speaker Change: These routine expenses included a 12 million pension settlement charges driven by the early retirement.
$7.5 million in incremental merger-related expenses, legal expenses, and $36 million for the industry-wide FDIC special assessment. The bottom of slide 8 highlights a few additional variances that I will touch on as we move through the financials. Before we dive into the details, I would like to take a minute to summarize and add a little more color around the strategic transactions executed in the fourth quarter. To summarize, the first was the sale of the insurance company on November 30th, enhancing capital by $620 million. We then leveraged that gain by selling $3.1 billion in par value available-to-sell securities during December at an after-tax loss of $294 million. These securities, a mix of mortgage-backed agencies and municipal bonds, were yielding 1.26% with an average duration of just over four years.
Speaker Change: Seven 5 million in incremental merger related expense legal expense and $36 million for the industry wide FDIC special assessment.
Speaker Change: The bottom of slide eight highlights a few additional variances that I will touch on we made through the financials.
Before we dive into the details I would like to take a minute to summarize and add a little more color around the strategic transactions executed in the fourth quarter.
Speaker Change: <unk> first was the sale of the insurance company on November 30th enhancing capital by $620 million.
Speaker Change: We then leverage that gain by selling $3 1 billion in par value of available for sale Securities. During December at an after tax loss of $294 million.
Speaker Change: These securities are mix of mortgage backs agencies and municipal bonds, yielding 126% with an average duration of just over four years.
As of year-end, we have reinvested $1 billion of the $2.7 billion in sale proceeds in securities yielding an average 5.6% with a duration of approximately two years. Another $645 million was used to lower year-end brokered deposits that were costing us 5.47%, with another $235 million at 5.4% reduced in January. The remaining proceeds are temporarily in cash at the Fed, earning 5.4 percent.
Speaker Change: As of year end, we had reinvested 1 billion of the $2 7 billion in sale proceeds in securities yielding an average five 6% with a duration of approximately two years.
Speaker Change: Another $645 million was used to lower year end broker deposits that were costing us 547%.
Speaker Change: With another 235 million at five 4% reduced in January.
Speaker Change: The remaining proceeds are temporarily in cash at the fed, earning five 4% and we anticipate investing a portion of that the securities in the first quarter.
And we anticipate investing a portion of that in securities in the first quarter. Finally, we were able to refinance the $3.5 billion bank term funding program borrowings from 5.15% to 4.84%, and actually to 4.76% as of today. As a reminder, this funding can be repaid at any time without penalty.
Speaker Change: Finally, we were able to refinance that $3 5 billion Bank term funding program borrowings from five 5% to $4, eight 4% and actually $4, 76% as of today.
As a reminder, this funding can be repaid at any time without penalty.
So the combined effect of all of these fourth-quarter efforts using static rates is an estimated annual incremental positive impact on net interest income of over $120 million and, combined with the fourth-quarter results, resulted in an increase in common equity tier one of 130 basis points and an improvement in tangible book value per share of 28%. All in all, great results that will benefit us in years to come. Moving on to the detailed financials for the quarter, beginning on slide 16, we reported net interest income of $335 million for the fourth quarter, an increase of $5.6 million compared to the prior quarter. Our net interest margin was 3.04% for the fourth quarter, up six basis points. Our total cost of deposits increased at the slowest pace all year of 18 basis points to 2.32%, as reflected on slide 17. Non-interest-bearing deposit balances ended the year at 24% of total deposits, down just slightly from 25.2% at the end of the third quarter.
So the combined effect of all of these fourth quarter efforts using static rates is an estimated annual incremental positive impact on net interest income of over $120 million and combined with our fourth quarter results resulted in an increase in common equity tier one of 130 basis points.
Speaker Change: And an improvement in tangible book value per share of 28%.
Speaker Change: All in all great results that will benefit us in years to come.
Speaker Change: Moving onto the detailed financials for the quarter beginning on slide 16, we reported net interest income of $335 million for the fourth quarter, an increase of $5 6 million compared to the prior quarter.
Speaker Change: Our net interest margin was 3.0% to 4% for the fourth quarter up six basis points.
Our total cost of deposits increased at the slowest pace all year up 18 basis points to 232% as reflected on slide 17.
Speaker Change: Noninterest bearing deposit balances ended the year at 24% of total deposits down just slightly from 25, 2% at the end of the third quarter.
Given the yield curve forecast in 2024, we expect pressure on deposit pricing to improve as we move through the year. Our yield on net loans excluding accretion was 6.43% for the fourth quarter, up 12 basis points in the prior quarter, reflective of new and renewed loans coming on the balance sheet at higher yields than the portfolio. Finally, our Securities and Short-Term Investment Shield was up 41 basis points to 2.96% in the fourth quarter due to the restructuring activity in December. Given the late timing of that activity, we anticipate net interest margin and net interest income to further improve in the first quarter, as well as throughout 2024. Non-interest revenue, highlighted on slide 19, was $73.1 million on an adjusted basis, which excludes the restructuring securities loss, compared to $80.6 million for the third quarter. The decline was driven by two items, one, a negative variance on our mortgage servicing rights valuation of $4.9 million, and two, an $8 million reduction in service charge fee income in the fourth quarter as a result of certain deposit service charge changes.
Speaker Change: Given the yield curve forecast in 2024, we expect pressure on deposit pricing to improve as we move through the year.
Speaker Change: Our yield on net loans, excluding accretion was 643% for the fourth quarter up 12 basis points in the prior quarter reflective of new and renewed loans coming on the balance sheet at higher yields than the portfolio.
Speaker Change: Finally, our securities and short term investments yield was up 41 basis points to 296% in the fourth quarter due to the restructuring activity in December.
Speaker Change: Given the late fourth quarter timing of that activity, we anticipate net interest margin and net interest income to further improve in the first quarter as well as throughout 2024.
Speaker Change: Noninterest revenue highlighted on slide 19 was $73 1 million on an adjusted basis, which excludes the restructuring securities loss.
Speaker Change: Paired to $80 6 million for the third quarter.
The decline was driven by two items, one a negative variance on our mortgage servicing rights valuation of $4 9 million.
Speaker Change: And to an $8 million reduction in service charge fee income in the fourth quarter as a result of certain deposit service charge changes.
These changes are expected to result in a decline in fees of approximately $3 million annually in 2024. Aside from these two items, all other fee revenue is expected to increase by about $5.5 million, including wealth management, card fees, and other categories. Looking forward, we anticipate total revenue to increase at a mid to single-digit growth rate for 2020. Moving on to expenses. Highlighted on slides 20 and 21, total adjusted non-interest expense was $269.8 million for the quarter, reflecting a linked quarter increase of $5.6 million. As expected, salaries and employee benefits declined $5.7 million compared to the third quarter due to the efficiency work done in 2023.
Speaker Change: These changes are expected to result in a decline in fees of approximately $3 million annually in 2024.
Speaker Change: Aside from these two items all other fee revenue increased about $5 5 million, including wealth management card fees and other categories.
Speaker Change: Looking forward we anticipate.
Total revenue to increase at a mid single digit growth rate for 2024.
Speaker Change: Moving onto expenses highlighted on slides 20, and 21 total adjusted noninterest expense was $269 8 million for the quarter, reflecting a linked quarter increase of $5 6 million.
As expected salaries and employee benefits declined $5 7 million compared to the third quarter due to the efficiency work done in 2023.
This decline was offset by increases in several other line items, including advertising and public relations, which increased $1.9 million, in line with typical fourth quarter seasonal increases. Legal increased $2.6 million, driven by an accrual related to the settlement of a legal matter. And finally, data processing and software increased $3.9 million, primarily the result of continued focus on our product, service, and technology, as well as inflationary increases in certain vendor costs, with a smaller portion being time. As we commented last quarter, we continue to anticipate flat operating expenses for the full year 2024 compared to 2023 adjusted. Finally, let's take a look at credit quality on slides 14 and 15. Importantly, our criticized and classified loan totals continue to remain stable, with the criticized total declining to 2.6% of loans and classified totals remaining flat at 2.09% for the linked quarters.
Speaker Change: This decline was offset by increases in several other line items, including advertising and public relations, which increased $1 9 million in line with typical fourth quarter seasonal increases.
Speaker Change: Legally increased $2 6 million driven by an accrual related to the settlement of a legal matter and finally data processing and software increased $3 9 million, primarily the result of continued focus on our product service and technology as well as inflationary increases in certain vendor cost with a smaller portion being <unk>.
Speaker Change: <unk>.
Speaker Change: As we commented last quarter, we continue to anticipate flat operating expenses for the full year 2024 compared to 2023 adjusted results.
Speaker Change: Finally, let's take a look at credit quality on slides 14 and 15.
Speaker Change: Importantly, our criticized and classified loan totals continue to remain stable with the criticized total declining to two 6% of loans and classified totals remaining flat at $2, 9% linked quarter.
Other credit metrics this quarter, including increased provision, net charge-offs, and non-performing totals, were the result of some further deterioration in a small number of credits that were identified as criticized or impaired in prior quarters. Our non-performing loans and non-performing asset totals increased in line order to 0.67% of loans and 0.45% of assets, respectively. The provision for the quarter was $38 million, bringing our allowance coverage to a solid 1.44% at year-end. Net charge-offs declined in the fourth quarter to 24 million, or 29 basis points of average loans on an annualized basis, resulting in a full-year net charge-off of 22 basis points.
Speaker Change: Other credit metrics this quarter, including increased provision net charge offs and nonperforming totals were the result of some further deterioration in a small number of credits that were identified as criticized or impaired in prior quarters.
Speaker Change: Our nonperforming loans and nonperforming asset totals increased linked quarter to 0.67% of loans and 0.45% of assets respectively.
Speaker Change: The provision for the quarter was $38 million, bringing our allowance coverage to a solid 144% at year end net charge offs declined in the fourth quarter to $24 million or 29 basis points of average loans on an annualized basis, resulting in the full year net charge offs of 22 basis points.
While certain of our credit metrics for the quarter increased, our processes to timely identify issues continue to work well, and there are indications that macro environmental factors may be stabilizing or improving. As we look forward, based on what we see now, we'd expect our 2024 net charge-offs to be within a range relatively comparable to our 2023 full-year total. Our capital is shown on slide 22, and as Dan noted previously, the ratios all improved meaningfully, providing strength and flexibility from a capital management standpoint. Tangible common equity to tangible assets also improved 27% to 7.44% at year end.
Speaker Change: While certain of our credit metrics for the quarter increased our processes to timely identify issues continue to work well and there are indications that macro environmental factors may be stabilizing or improving.
As we look forward based on what we see now we would expect our 2024 net charge offs to be within a range relatively comparable to 2023 full year totals.
Speaker Change: Our capital as shown on slide 22, and as Dan noted previously the ratios all improved meaningfully providing us strength and flexibility from a capital management standpoint tangent.
Tangible common equity to tangible assets also improved 27% to 744% at year end.
There were a lot of moving parts in the fourth quarter and in all of 2023 for that matter, but all for the benefit of driving future momentum and enhancing shareholder value as we look forward. Looking back, it was just over a year ago that we converted the systems and merged the brands of Bancorp South and Cadence Bank into one. Since then, we have further integrated our teams and technology, meaningfully refined our branch network and staffing levels, completed a transformative sale of our insurance company, executed a highly profitable restructuring of our securities portfolio, materially improved our capital and liquidity, and importantly, expanded our loans and core customer deposits. We spoke to some of our expectations for 2024. We have also laid those out for you on slide four. We are energized and focused and remain excited about the future of Cadence Bank.
Speaker Change: There were a lot of moving parts in the fourth quarter and in all of 2023 for that matter, but all for the benefit of driving future momentum and enhancing shareholder value as we look forward.
Speaker Change: Looking back it was just over a year ago that we converted the systems and merge the brands of Bancorp, South and cadence bank into one.
Speaker Change: Since then we have further integrated our teams and technology meaningfully refined our branch network and staffing levels.
Speaker Change: <unk>, a transformative sale of our insurance company.
Speaker Change: Executed a highly profitable restructuring of our securities portfolio materially improved our capital and liquidity and importantly expanded our loans and core customer deposits.
Speaker Change: We spoke to some of our expectations for 2024, and we have also laid those out for you on slide four we are energized and focused and remain excited about the future of cadence bank.
Operator: Operator, we would like to open the call to questions. Thank you. As a reminder, if you would like to ask a question, please press star then 1. If your question has already been addressed and you'd like to remove yourself from the queue, please press star then 2. Today's first question comes from Kathryn Mueller with KBW. Please go ahead. Thanks, good morning. Morning, Catherine.
Operator, we would like to open the call to questions. Please.
Thank you as a reminder, if you would like to ask a question. Please press Star then one.
Speaker Change: Your question has already been addressed we would like to remove yourself from queue. Please press Star then two.
Speaker Change: Today's first question comes from Catherine Mealor with <unk>. Please go ahead.
Catherine Mealor: Thanks, Good morning.
Operator: I want to start with your revenue guide, Valerie, that you said was kind of mid-single digit, and you have on your slides is 4 to 6 percent. I noticed on this slide you say that you're following the forward curve with that, and so just curious within that expectations of revenue growth, how much does, number one, I'm assuming the forward curve includes six cuts this year, and so then within that, how much, okay, and so then how much of that is influencing some of that revenue growth guide, and then if we're actually in a scenario where we get less cuts, what would perhaps be Now, we've said for a long time that we like higher temperatures for longer. And certainly, the pace of the cuts and the number of cuts is higher than
Catherine Mealor: Good morning Catherine.
Catherine Mealor: I wanted to start on your revenue guide Valerie that you thought that you said was kind of mid single digit and you have in your slides is 4% to 6% I noticed in the slide.
Catherine Mealor: You say that you are following the forward curve with that and so just curious within that.
Catherine Mealor: Vacations of revenue growth.
Catherine Mealor: How much does that number one I am assuming the forward curve includes six cuts this year.
Catherine Mealor: So then within that how much okay and so then how much of that is influencing some of that revenue growth guide and then if we're actually in a scenario, where we get less cuts what would perhaps be the sensitivity to that to that growth.
Now we've said for a long time, we like higher for longer.
Catherine Mealor: Certainly the pace of the cuts.
Number of cuts.
Catherine Mealor: Higher than we would like but we model off the forward curve, yes, that's just something that we've always chosen to do because there is.
So many different variations out there, particularly lately and.
Doing the forward curve allows us to be consistent and hopefully you guys can understand better what we're doing but to your question. We are slightly asset sensitive but were actually closer to neutral now then we've really been in quite some time.
Catherine Mealor: Plus 100 on a shock basis is plus <unk>, 7%.
Catherine Mealor: That being said if rates don't decline if they were to stay right, where they were it would impact our net interest income positively by the range of $16 million give or take a few million dollars.
Catherine Mealor: So it would be positive for us on the net interest income side if rates were to me.
Catherine Mealor: Move slower perhaps than another.
Catherine Mealor: Alright.
Catherine Mealor: Our hottest bar.
Speaker Change: That's great. Okay. That's helpful.
Speaker Change: And then I know it's.
Speaker Change: Yes.
The margin is so many moving parts, but as you kind of think about.
Where we are going into the first quarter do you have any any kind of range that you can give us on where you think we are going to be starting the margin. I know you said up but you had a big bond restructure and you've still got loans repricing up. So just kind of curious if you could help us get a starting point for the margin in the first quarter.
Speaker Change: Yes.
Speaker Change: Definitely we are positive not only about the first quarter, but really as we look out throughout the rest of next year and for.
For the fourth quarter net interest margin improved six basis points and I'd say that was backend loaded so for the first quarter, we would expect.
Speaker Change: Double double plus.
Speaker Change: That rate of improvement in both the net interest margin and net interest income.
Speaker Change: Okay. So at least another 12 deaths in the first quarter and we'll just see.
Speaker Change: That's a reasonable expectation, yes, okay, okay, great I'll hop out of the queue, but thanks, so much appreciate it.
Speaker Change: Thanks Shlomo.
Speaker Change: And our next question comes from Stephen Scouten with Piper Sandler. Please go ahead.
Stephen Kendall Scouten: Yeah. Thanks, good morning, guys.
Stephen Kendall Scouten: Just one clarifying question around the fee.
Stephen Kendall Scouten: How do we think about this.
Stephen Kendall Scouten: Service charge, the $3 million reduction in the $8 million charge. This quarter. I mean are we working off of $16 million to $17 million quarter number or or when you think about it on an annual basis.
Stephen Kendall Scouten: The $3 million reduction as an annual number.
Stephen Kendall Scouten: The $8 million, a onetime reduction from last year as we cleaned up and worked through the issues, we need to deal with but the forward look.
Stephen Kendall Scouten: $3 million on an annualized basis lower fees.
Stephen Kendall Scouten: Okay, so kind of take the $62 million for the year got it three.
Stephen Kendall Scouten: $3 million less.
Speaker Change: Yes, Stephen that wouldn't be off of the $8 million reduction 8 million, it's really kind of isolated item on its own right right got it.
Okay great.
Speaker Change: More direct.
Speaker Change: And then subtract three.
Speaker Change: Yeah understood. Okay. Thank you.
Speaker Change: And then just kind of thinking about.
Speaker Change: The benefit that could come throughout the year on the deposit side.
Speaker Change: Are there any large CD maturities or otherwise that we should be aware of that will kind of help expedite some of that improvement that we might see when rates do decline.
Speaker Change: Yes, so we do have a solid pace of CD maturities coming and particularly in the first half of the year as well as in the third looking just at next quarter, we've got about $2 billion.
Speaker Change: <unk> that are maturing, but remember the biggest product that we're pushing in the field is an eight month product and so they roll pretty fast yeah. That's right that's right and so a portion of those we still have a promotional rate out there for Cds, but then a large portion of those also just rollover into some of that kind of a routine levels. So as you look at the year.
Speaker Change: We do anticipate some.
Speaker Change: Average improvement from those CD rollovers.
Speaker Change: Okay, Great and then just last thing for me I am curious about the share repurchase obviously, you built capital extremely nicely with the insurance sale.
Speaker Change: How you think about that moving forward, if it's kind of a total payout percentage do you think about if it's opportunistic or just that kind of potential thoughts around capital return.
Speaker Change: Yes in the past we have used that as an opportunistic way I think as we look at where we sit with capital a day I think we've got all the tools in the toolkit, we are ready to use all of them. So.
I think we feel really good about what we did in the fourth quarter from a capital standpoint, and it lets us.
Speaker Change: Lets us execute however, we want to go in 2024 and beyond.
Speaker Change: Great. Thanks, so much for the time appreciate it.
Speaker Change: Thank you Steve.
Speaker Change: And our next question comes from Casey Haire with Jefferies. Please go ahead.
Casey Haire: Yes, good morning, guys. Good morning, everyone.
Casey Haire: So.
Couple of NIM questions.
Dan You mentioned, so you model towards the forward curve just wondering.
Casey Haire: And where you expect the Q beta to peak versus that 41% level and then.
Casey Haire: And when you do get these cuts what kind of.
Casey Haire: Peter you have for 24, when when rates are declining.
Yeah. So.
Our total.
Deposit beta right now for the fourth quarter with 41% as compared to 38% last quarter, we actually because of the forward curve.
Casey Haire: Rate cuts in that modeling began in March we actually had.
Casey Haire:
Casey Haire: Deposit cost, peaking in the first quarter of next year before coming back down and so from a beta perspective, I don't have a specific number for you, but just very slightly we saw deposit costs.
Casey Haire: Like I said increase at the lowest pace its fourth quarter, and we would expect that pace to further decline.
Casey Haire: A little bit in the first quarter as well.
Speaker Change: Gotcha Okay.
<unk>.
Speaker Change: I appreciate that the.
Speaker Change: Guide on the on the first quarter NIM up double digits at least or but just can you can you guys provide.
The spot securities yield and borrowing rate just so we get.
A better starting point.
Borrowing rates. So we're borrowing today in the bank term loan fund if thats, what youre asking about.
Speaker Change:
Speaker Change: I think thats, what youre asking about yes, yes, yes, yes. So I think you said so that goes to 480 and then the securities yield the spot securities yield at $12 31.
Speaker Change:
Speaker Change: Yes, so at 12 31.
I think that the overall securities bucket is close to $2 60.
Speaker Change: Given where the changes are.
Speaker Change: Okay, Great and just last one so slide 18 is great.
Speaker Change: You guys mentioned, so it looks like the real opportunities that you guys are little last 9 billion of fixed rate loans.
Speaker Change: With a $4 60 weighted average yield.
Speaker Change: How much of that matures this year and then.
Speaker Change: Within your bond book, you've got $1 three coming back at you.
Speaker Change: Do you have the weighted average yield for that just trying to get a sense on the fixed asset repricing tailwind you have for the margin this year.
Yeah. So on the bond that we don't have a weighted average yield because part of that is cash flow off of some of the longer term. One so I would just really factor in.
Speaker Change: Just kind of think about the overall securities yield as a whole, it's probably not going to get you to.
Speaker Change: On some of those and then on your on your loan question. Some of those maturities. Some of those are simply repricing either actually combined in there, but obviously as we generate new loans that offset some of those changes that are coming on at higher rates as well.
Speaker Change: Okay, but no color as to how much of that 9 billion comes this year.
Speaker Change: Okay.
Speaker Change: I guess I'm confused on the floating rate. So if you yes, if you take a look at slide 18, the very first to Collin.
Speaker Change: R.
Speaker Change: Basically the repricing within the first year. So we've got 49% of our total loans that actually repriced within the next year is that what your question sorry, Yes, I'm actually looking at if you look all the way to the right.
Speaker Change: It looks like.
Speaker Change: Your point like the.
Speaker Change: The three months or less is 829 and that's pretty much.
Speaker Change: At market rates in the $600000, but the real opportunity is the $4 62, all the way over to the right.
Speaker Change: Which which had about $9 billion right and I'm just wondering how much of that 9 billion comes.
Re prices or matures within 24.
Speaker Change: Yes got you.
There is.
Speaker Change: It's probably close to $1 billion give or take a little bit of that that's actually maturing this year, but that doesn't reflect early payoffs and refinancing anything like that so it's always it's always higher than that.
Speaker Change: Excellent. Thanks for taking all my questions. Thanks, guys.
Speaker Change: I appreciate it.
Speaker Change: And our next question comes from Ronan.
Ronan: With Morgan Stanley. Please go ahead.
Hi, good morning.
Ronan: I wanted to start on credit.
Your guide for 2024 employees, essentially flat Ncos versus 2023.
I guess youre seeing limited signs of new credit deterioration.
You expand a little bit on that and what part of that includes an improvement in credit once the fed cuts rates of us as you know is there.
Ronan: Are there any.
Deterioration that could still come through in credit if you.
Ronan: You only get.
Three or four rate cuts here.
Ronan: Yeah. Thanks for the question this is Billy.
So what we've seen over the last several quarters is just a nice stable manageable level of our criticized portfolio.
Billy: From a percentage standpoint, the population has turned a little but I would say the bulk of that population has remained in that criticized category. So.
Speaker Change: And we see improvement.
I would anticipate that there is there is favorable pressure towards the later half of the year, if that improvement come but what we're assuming for now.
Speaker Change: That stability remained we keep our processes capturing the the bulk of the portfolio that has been.
<unk> identified over the last several quarters.
Speaker Change: The deterioration that we have seen has been within that population is just a handful corporate credits so nothing real very idiosyncratic.
Speaker Change: Independent name basis deterioration, but I would expect to stay manageable within this level is slightly down as the year goes like we've seen since Q1 of 'twenty three.
Got it so does that also mean that the ACL ratio goes down from here as some of those jobs.
Speaker Change: Charge offs come through and you don't see too much additional deterioration.
Speaker Change: Under those assumptions I would say, yes, that's accurate statement.
Speaker Change: Got it Okay, and then just separately on the capital side, just as a follow up.
Speaker Change: Now that we have more clarity on the trajectory for rich as well as macroeconomic outlook.
Speaker Change: Do you have a target of where you'd like to maintain that CET one ratio I mean, it seems that they should move lower from here, but but how much lower.
Speaker Change: Yes, we don't we don't have a CET one target.
But that's out there.
Speaker Change: We agree with you that if you want is healthy today in <unk>.
Speaker Change: Again, we're hoping that we have clarity on rates, but I would like for them not to do what the forward curve. So as I would like for them to stay a little more stable.
Speaker Change: Got it thank you.
Thank you.
Speaker Change: Thank you and our next question comes from Brett Robinson Humphrey. Please go ahead.
Hey, good morning, everyone.
Speaker Change: Morning, Brett asked on.
Speaker Change: Hey, I wanted to ask on the on the balance sheet.
Speaker Change: $1 billion that you have remaining to reinvest maybe Valerie kind of how you think about that $1 billion.
Speaker Change: Looking forward from a duration and yield perspective, and then just.
Speaker Change: Jana Valerie any any thoughts on replacing the three 9 billion.
Speaker Change: The bank term funding program, what you might what you might do to replace that.
Speaker Change: I'll start with that one.
Speaker Change: We're really proud of what we've been able to do from a deposit growth perspective in the community bank over the last couple of quarters.
Speaker Change: And we've challenged the team to continue doing that so if we can continue to go.
Speaker Change: Those core customer deposits that are out there that will allow us to continue to reduce wholesale funding.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: I'm sorry, what was your other question, yes, what was the first quarter the remaining $1 billion.
Yes, we got distracted.
Speaker Change: There is about 1 billion left of that that will probably do a little bit more on purchases and securities in the first half and we've been able to average five to six years, so given where rates are right now that's probably not an unrealistic expectation for some of that the other half say give or take is really it.
Speaker Change: Could begin securities that could be in <unk>.
Speaker Change: Various funding first quarter has a little bit of volatility with some of our public fund deposits that could be lowering some of that bank term funding program.
Speaker Change: Borrowings were really kind of playing it by ear on what the balance sheet does and what's going to make the most benefit for us from yield perspective.
Speaker Change: Okay.
Speaker Change: And then secondly on the <unk> and the formation I heard I heard Billy earlier, So I was just going to presume.
It seems like credit is fairly stable, but there's been some migration through through criticized nonperforming and my question is.
Is there anything that's.
Speaker Change: Underlying that is in health care, which is my guess, but are there any other industries that might be moving through the pipeline so to speak.
Speaker Change: Yes, I think criticized has been basically flat now for multiple quarters and I could go back to $3 31, which is actually higher than we are today on criticized.
Speaker Change: Perspective, it's been really stable.
Speaker Change: It's very well spread across multiple industries multiple geographies. It is.
Speaker Change: The one area and we've highlighted this for several quarters.
And again, it's a couple of credits we're not talking about widespread but I would say restaurant is something that continues to have some follow through impact. It's not any specific brands now are there any specific geography like I said those are idiosyncratic cases, but they are that industry otherwise.
Otherwise.
Speaker Change: Other industry that we've seen some.
Speaker Change: Senior living if that's what you mean by healthcare then that's the one piece of health care, where I would agree otherwise in health care, we're seeing pretty much stability.
Okay.
Speaker Change: Could sneak in one last one maybe just on the DDA balances and average size of commercial and consumer checking accounts are those getting to levels, where you think.
The drain of those accounts is not going to impact the balance sizes as much from here and maybe they stabilize to move higher with with new customer creation.
Speaker Change: No we haven't seen a big change in average balance size right, Yes, I think youre talking about on noninterest bearing deposit right right, but I don't think a big change in average.
Speaker Change: Bridge accounts right not an average right now, but a little bit of movement between the two.
So we've continued teed up for two quarters in a row now it's been kind of a consistent slower pace about a 1% movement. Our forecast, we do continue to be a little bit conservative and that our forecast has those.
Speaker Change: Noninterest bearing to total deposits going down to 21% by the end of the year.
Speaker Change: But.
Speaker Change: Obviously, thats a big focus for our sales teams and our community banks is to bring in those operating accounts and bring back some of those noninterest bearing deposits that flowed out there and that they actually did flow out they flowed into higher yielding products for the most part.
Speaker Change: In 2023, so yes, there is some opportunity there.
Speaker Change: Okay.
Speaker Change: That's really helpful. Thanks for all the color.
Speaker Change: Okay.
Speaker Change: And our next question today comes from Brandon.
Securities. Please go ahead.
Brandon: Hey, good morning.
Brandon: Good morning.
So valerie on loan yields and data.
Thank you.
Scenario, where loan yields actually stays stable in.
Brandon: Fed rate cuts and just how you're thinking about loan betas from here.
Yes.
Valerie: So yes, the loan beta excluding accretion.
<unk> went up to 46%.
Valerie: And in the quarter down from our up from 44% in the prior quarter as we look into next year like I said, because we have we're forwarding or we're forecasting that forward rate curve.
Valerie: We likewise have that yield.
Valerie: Our earning assets, which includes alone actually continued to improve slightly through the first half of next year, but really kind of stabilizing off and thats because of a couple of things one and significantly is that level of repricing of loans as they are coming on the balance sheet and.
Valerie: We showed on that slide 18, as well as of course, the impact of loan growth.
Being higher at higher yields than the overall portfolio. So that will continue to drive that up.
<unk>.
Valerie: There is some.
Valerie: Changes in the interest rate environment, there is a moderating impact on that but on a net net basis. We believe it's all going to be positive to the NIM.
Valerie: Okay.
And then with your loan growth expectations for the year could you talk about what areas, you're seeing the most opportunities and the strongest growth and kind of how your customers are starting to show now that potentially may be hitting a soft landing.
Valerie: And if there is more optimism just as far as investing in their own businesses.
Valerie: Yes, it's Chris I'll kick it off our view is it will be broad based we had a great loan generating teams out there and we argue with me we can grow in all aspects and all areas and all geographies.
Valerie: As we look forward, especially if the rates do what they say, they're going to do that is going to generate some excitement and activity in the borrowing level.
Valerie: Yes completely agree with Chris This is Hank.
Hank: One thing we have is to continue advancing in our CRE portfolio CRE portfolio of multifamily construction loans, you will see some modest growth there.
Hank: And as the as the calendar changed in 2024, and we used our review and pipelines.
Speaker Change: We're encouraged by what we're seeing.
Speaker Change: It's pretty broad based as Chris mentioned.
Cited about the bankers that we have in place in our footprint as Dan mentioned in the opening remarks, and so iPhone optimism category.
Speaker Change: Great. Thanks for taking my questions.
Thanks Brandon.
Julien Tumors: And our next question today comes from Julien tumors with Raymond James. Please go ahead.
Julien Tumors: Good morning.
Julien Tumors: Hey, good morning so.
Julien Tumors: The $3 1 billion of securities restructuring during the fourth quarter was a little bit larger than the.
Julien Tumors: $1 5 billion minimum that you kind of laid out when the sale was announced.
Julien Tumors: What drove the decision to land on that number and.
Julien Tumors: What are you buying with two years duration of five 6% yield.
Good questions I think when we look back at what happened to us. So when we were when we came out with our announcement of the sale of cadence insurance.
Julien Tumors: Remember.
We weren't sure where we're going to be at the time of the close we weren't sure where rates were going to be we were looking at what our opportunities where we gave you a minimal number in that presentation. As we look forward rates actually moved in our favor and so as we were looking at what portion of the game, we could offset against a loss.
We actually came in much lower on a loss than we thought we would.
Julien Tumors: And that allowed us to do a larger portion of the bonds that have the low yield so to be able to eliminate $3 1 billion or $1 26 return.
Julien Tumors: We felt that was.
Speaker Change: Good answer for US what are we buying Valerie is for the next question yes.
Julien Tumors: Yes.
A variety of different products.
Front end sequential Ginnie Mae Cmo's.
Julien Tumors: <unk> treasuries, a few SBA floaters out there but.
But really some of the lateral product and again focusing on the duration that is shorter focusing on products that ensure adequate cash flow. The cash flow is important to us coming off the securities portfolio again, focusing on liquidity and flexibility with our loan growth.
The root of all the characteristics the restructure shorten duration lowered risk waiting for.
Julien Tumors: The improved cash flow, let me just to win every way you slice it.
No absolutely I appreciate that just felt more from me here.
Speaker Change: So your loan and deposit guidance kind of implies your loan deposit ratio ticking up a little bit.
Speaker Change: From the 84% level, you're at 12 31.
What kind of range are you looking for or what range would you be comfortable managing.
Speaker Change: The balance sheet and that we've said for a long time, we've said for a long time, we're certainly comfortable where we are and moving up towards 90%.
Speaker Change: Is very comfortable for us.
Speaker Change: Great and then the last one for me.
Speaker Change: Yes, it did within your revenue guidance, what's the split between net interest income and fee income growth.
Speaker Change: Let's say that one more time the split.
Speaker Change: What does the NII.
NII and fee income growth and your revenue guidance.
Speaker Change: I don't have that.
Speaker Change: Yes.
Speaker Change: We didn't provide it that way just because of the variability between the two but.
It's not going to be materially different on each category, obviously that net interest income is a much larger dollar amount, but from a percentage standpoint.
Speaker Change: It's within a couple of percentage points of view.
I think when you look at fees in 'twenty three 'twenty four I mean, clearly mortgage was a big way in 2008.
Speaker Change: And if rates do fall as Theyre talking Theres real opportunity there.
Speaker Change: Sure.
Speaker Change: Great I appreciate you taking my questions.
Speaker Change: Thank you.
Speaker Change: Our next question today comes from Matt Olney from Stephens. Please go ahead.
Matt Olney: Great. Thanks, Hey, good morning, everybody.
Matt Olney: I heard the comments that you think that the balance sheet is now fairly neutral.
Matt Olney: But it seems like that restructuring and the build of overnight liquidity would result in increased asset sensitivity in the fourth quarter, but it sounds like you think it moderated any more color you can help us appreciate kind of why you think thats more moderate now than than last quarter.
Speaker Change: Yes, it's really as we look out over the next 12 months.
Speaker Change: So I would say, yes, there is more sensitivity on the short end to that.
Speaker Change: But as you look out over the next 12 months and really kind of a normalized.
Speaker Change: Great.
Speaker Change: It's a little more neutral.
Speaker Change: But we definitely have some upside with the cash in place right now.
Okay. So no other movements are migrations on the balance sheet beyond that restructuring that we've already recovered.
No nothing nothing else of note.
Speaker Change: Okay I appreciate that and then on the deposit.
Speaker Change: Go ahead I'm sorry.
Speaker Change: Let's.
Speaker Change: Let's say you bet go ahead okay.
Speaker Change: On the deposit growth outlook I think the guidance calls for low single digit growth would love to hear more about just expectations of where this could come from which products.
Speaker Change: And any any color on the incremental funding costs more recently thanks.
Speaker Change: Our funding cost.
Speaker Change: Slower in the fourth quarter than it had been.
Speaker Change: When you look at that overall financial expectations page on page four I think our desire was to put some confidence behind the the consensus numbers that are out there today.
Speaker Change: We think that we're in good shape on that front and specifically the <unk>.
<unk> to grow deposits.
Speaker Change: As a piece of that I think thats. The community Bank team has certainly been growing on the interest bearing deposit side.
We continued to enhance and improve our treasury management product and so I know the team is out there winning some business on that front.
Speaker Change: Good morning, and Malone discussion there was a good customer coming in.
Speaker Change: And there so I think we continue to feel really good about where we are.
Speaker Change: The other thing of note there Matt is the deposits at the end of the year include just shy of $400 million of broker deposits and about half of that already came down in January and so included in that growth number is a reduction of brokered deposits.
Further got it further reduction.
Speaker Change: Okay.
Speaker Change: Got it.
Speaker Change: Thanks, guys.
Speaker Change: Thank you Matt Thank you Matt.
Our next question today comes from Ben Garlinger with Citi. Please go ahead.
Hi, good morning.
I was curious.
Ben Garlinger: Point of clarification really so your guidance does that assume the bts P static throughout the entire year, because if I did.
Ben Garlinger: How do you guys getting rid of it there is some flex in that NII outlook.
Speaker Change: Yes, I think that I guess it depends on what happens with rates that has a fixed rate product and so if rates begin to fall I don't know that we want to leave that out there at a fixed rate product. So I think there is some some questions in there as to how what happens and when it happens today, it's good price funding for us if rates.
Then to drop as early as the curve says. They are then we could lose some of that advantage and you'd want to find other sources of funding that would that would change yes.
Speaker Change: Yes, that's exactly right and that's exactly what the model is assuming is that once the rates have come in opportunities that we would.
Speaker Change: Okay. So it is a bit of a dynamic model on that one okay.
And then yes.
Speaker Change: We're very philosophical in nature.
Speaker Change: Dan I know you can't speak for other management teams, but what do you think the market is looking for for M&A to started strictly just a political election outcome in December or looking for some rate cuts like why are we not seeing much M&A today.
Yes, I think the politics is a piece of that I think some clarity from the regulatory bodies on what theyre looking for and some speed.
Speaker Change: Approval would be helpful and so I think theres just some unknowns that are out there I think there is.
Speaker Change: The marks is still a question, but I think a lot of people talking theres a lot of discussion going on there's a lot of desire to continue to get bigger there is a lot of there's a benefit from a scale perspective scale still plays.
Speaker Change: We're really proud of what we've been able to do over the last two years, we think we've got capacity.
Speaker Change: We've got ability we know our team can play.
The marks and the unknown regulatory questions are still holding things back.
Speaker Change: Yes, Yes, that's fair and then if I can sneak one in.
Speaker Change: If you did do M&A and you had all those question marks kind of answered what would be the kind of the wheelhouse for an opportune size.
Speaker Change: Yes, I think we want to continue to be opportunistic. So I think we like our footprint I don't know that we need to go outside of our existing footprint, we'd like to continue to grow market share within the footprints we serve we like the.
Speaker Change: The dynamic growth markets that we serve so certainly as you look at our footprint.
The bigger markets that we're in from Dallas, Houston, Austin, Atlanta, Nashville Tampa.
Anywhere in those markets would be beneficial to us, but more more market share within our existing footprint as a target for us and clearly it needs to be big enough to make a difference. So several billion dollars would be what you'd be wanting to get to.
Sure.
Speaker Change: Got it that's helpful. I appreciate that.
Speaker Change: Alright, Thank you Beth.
Speaker Change: And our next question comes from Brody Preston with UBS. Please go ahead.
Brody Preston: Hey, good morning.
Brody Preston:
Brody Preston: Valerie I was I just wanted to circle back I think you said the spot yield on the Securities book was two six and.
Brody Preston: I guess when I, just kind of try to do the back of the envelope math and back into kind of where it would be for the securities that you.
Brody Preston: Put on versus taken off.
Brody Preston: It looks to me like it should be more in like the $2 85 ish kind of range on a spot basis and.
Brody Preston: I am getting this question from a few investors as well what are what are we missing that's kind of making it more in the $2 $6 range versus the mid 200 <unk>.
Brody Preston:
Speaker Change: Yes, I'm not entirely sure and.
Or the amount that youre considering.
Speaker Change: That $2 seven.
Speaker Change: 7 billion net that we sold late reinvest at a $1 billion into securities and so it's not the entire 2007 with you some of it to pay down debt.
Speaker Change: Average deposits et cetera.
The number you say sounds sounds a little high so I'm not sure I'm tracking like you can go through more detail there that's pretty granular to be able to get to here yet okay, but two six is a good number to work off of the spot rate then is what youre, saying.
Yeah, Yeah, I think that's pretty reasonable yes.
Speaker Change: Okay cool and so I guess any if I, if I consider kind of what you're having cash at the fed at five 4% versus.
Speaker Change: Anything incrementally you might do on the Securities front.
Speaker Change: In terms of purchases.
Speaker Change: A mild benefit to it but it feels to me like any securities purchases from here might be more about.
Speaker Change: Alco than necessarily earnings accretion is that a fair kind of.
Point.
Speaker Change: And im not sure Im complete.
Completely tracking with you I mean, we definitely believe that there is some opportunity to further invest the cash that we have held and to further benefit our margin as we look forward.
I guess, what I'm, saying is there's not that much of a difference between five 6% and five 4% and so the earnings pickup from redeploying, yes, no at this point it is going to be.
Speaker Change: <unk>, that's a fair point absolutely.
Okay.
Speaker Change: Thank you for that and then.
Speaker Change: Dan I wanted to ask you just.
Speaker Change: The.
Speaker Change: Head of the OCC.
Speaker Change: <unk> had some comments and they put out.
Speaker Change: In MPR on.
Speaker Change: On M&A yesterday, I know yarn OCC regulated but it feels like they're taking a little bit firmer stance in terms of like embedding each individual transaction when you consider future.
Speaker Change: M&A does that make you think about lean in one way versus the other in terms of acquiring an FDIC institution versus an OCC institution.
Speaker Change: No I don't know that.
Speaker Change: Familiar enough with yesterday's guidance, but youre talking about but no I don't I don't really think Theres a difference the acquiring institution.
<unk> has to make approval, so where its coming from is usually not.
Speaker Change: The.
Impactful in the decision process, but I think giving some clarity as I said, a few minutes ago getting some clarity on what process. The regulators want to use to get approval faster is going to be really important it's very damaging for both institutions and things out of our merger when things delay.
Speaker Change: Things go on and on and on it's very difficult.
Speaker Change: Got it.
Speaker Change: Come back actually on that security.
Speaker Change: 260 is is not tax equivalent.
Speaker Change: Apologize about that but actually if you go back in and you get the tax equivalent adjustment, it's closer to $2 75.
Speaker Change: Awesome I appreciate that follow up the last one I had for you.
Speaker Change: Lastly, and help clarify thank you.
Speaker Change: The last one I'd add for you was just.
Speaker Change: You're assuming the forward curve I was hoping you might give us some insight as to what youre, assuming for Youre down deposit beta either on an interest bearing basis or a total basis within the guidance.
And yes, I don't have that forward.
Speaker Change: Data available, but we do like I said show that deposit cost, peaking in the first quarter and then starting to gradually come down but simply given the.
Speaker Change: The redeployment of cash flows into loans the loan growth that loan repricing that we have.
Speaker Change: And combined with obviously the securities repositioning.
Speaker Change: Again, anticipating positive net interest margin quarterly throughout 'twenty four if you look back at 2023 and you look at the growth.
Deposits that have come in yet.
Speaker Change: <unk> share of the huge majority of that is eight months and so you can back into how fast that can roll off.
Awesome. Thank you very much for taking the questions everyone I appreciate it.
Thanks, Brian.
Speaker Change: Our next question today comes from Gary Tenner with D. A Davidson. Please go ahead.
Thanks, everybody good morning.
Gary Tenner: I had a couple of balance sheet questions moving forward.
Gary Tenner: Once you get through the additional reinvestment of the.
Gary Tenner: Bond sale proceeds here in the first quarter do you expect that for the rest of the year Securities book is pretty flat and you're just reinvesting cash flows or is there a number where that might trend through otherwise.
Gary Tenner: Over the course of the year.
Gary Tenner: Yes, it really depends on the opportunities within loan growth that are the highest growth in kind of the pace of that and so it may bounce around a little bit I would say on a.
Gary Tenner: Kind of as a floor and not a hard floor, but the 15% to total asset range is probably a range that we would like to keep our securities portfolio to total assets just.
Gary Tenner: For budget purposes liquidity purposes et cetera.
Speaker Change: Okay, Great I appreciate it and then the follow up to that is as you think about the <unk> repayment, whether it's sometime earlier in 'twenty four or at the end of the year.
<unk>.
Speaker Change: I'm, assuming part of that comes out of available cash whats the kind of.
Cash target level on your balance sheet, even as we're taking out.
To the end of the year or into 'twenty five some some minimum on balance sheet cash liquidity.
Speaker Change: Yes, Thats changed after March of last year.
Speaker Change: Yes.
Speaker Change: It's probably a 1 billion and a half or so that would be anticipated as kind of a base level. There's a lot of volatility in some of our customer activity and just just maintaining a fairly stable level of cashes is probably always going to be there to some extent that being said, we do have more cash than that right now and so there is opportunity.
Speaker Change: As we look forward.
Speaker Change: Large availability at the federal home loan Bank, which is where we were funding prior to the Bts.
Speaker Change: Absolutely.
Speaker Change: Brian It may drag it down a little below that target level time to time.
Speaker Change: Thank you.
Speaker Change: Variable.
Brian: Thanks Kurt.
Speaker Change: Thank you.
Speaker Change: And our next question today comes from Jon <unk> with RBC capital markets. Please go ahead. Thanks, Good morning, Hey, John.
Jon: Good morning call popular call today.
Jon: <unk>.
Jon: Just.
Jon: A few questions.
Jon: Slide 20, you referenced the FTE being done by 125 and <unk>, excluding the sale.
Jon: Whats left to do there and what do you think is the right.
<unk> C level for the company going forward, where do you want to be.
Speaker Change: Yes, so ask that question one more time I want to make sure I'm hearing.
Yes, whats left to do.
Speaker Change: FTE and.
Speaker Change: Where are you, adding where you're trimming.
Speaker Change: And what do you think is the right efficiency level for the company going forward efficiency ratio.
Speaker Change: Yes, clearly the efficiency numbers came down with the sale of insurance and with the.
Speaker Change: Four or 500 people less that are.
Speaker Change: Came out of the system in 2023, we continue to look for opportunities to be more efficient I think theres a lot of hand to hand combat whats going on on efficiency today, whether that's technology investment that turns into efficiency whether that's.
Speaker Change: Another.
Speaker Change: Move in restructuring to consolidate some areas, where we can consolidate more together.
Speaker Change: The head count reduction from here, probably is not anything to get excited about I would anticipate that we would be hiring.
Speaker Change: On the other side. So we continue to invest in our franchise. We continue to look for people that can help us grow and so as we can reduce head count in one place that's coming back in in another place. So I don't know that Theres, a big drop in people from here I think when Youre looking at the efficiency. We do believe we can continue to drive efficiency down.
Speaker Change: And part of that through the revenue.
Alright.
Speaker Change: Okay.
Salaries that is the adjusted expense number from the fourth quarter is that a good jumping off point for the first quarter.
Speaker Change: Yes, yes, yes, I think that's right remember the first quarter has.
All of that FICA expense and the <unk> matching and all those other things, but you can kind of see that trend in our past between the first and second quarter.
Speaker Change: That's on page four.
Speaker Change: Yeah, Yeah yeah.
Speaker Change: Yeah.
I wanted to ask about page four as well, but a quick one on page three.
But I am not trying to be smart Alec here, but what do you think that looks like in a year slide three are there any big initiatives that you have out there or do you feel like.
Speaker Change: Things will be relatively clean from here going forward.
Speaker Change: I hope, we're a lot cleaner in 2024.
Valerie said, we worked really hard to muddy the water up for you guys. We promised you noise and we outperformed on the noise in the quarter.
Speaker Change: But and.
There were there were a number of things I mean, I said it John.
Converted just over a year ago, and we knew that there were a number of things that we could gain that we really needed to get pass that step and so this past year was really active on that front, but to what Dan said, we're going to continue working on improving the performance on driving the revenue I'm, making sure we're efficient and so theyre going to be things.
Speaker Change: Incrementally I would say always but from that.
The size of what we did this past year.
Speaker Change: We won't have that that will have a comparable year. This year, yes, I think as the team looks.
And what we're working on from a strategic look forward. We've got a laundry list of items that we can continue to execute on but none of them.
Speaker Change: We're come close to what we've done in the past year.
Speaker Change: Okay. Okay.
And then last question for me on Slide four.
Speaker Change: Our <unk>.
Speaker Change: <unk> cuts.
Speaker Change:
Speaker Change: Good or bad for your outlook compared to zero cuts.
Speaker Change: And I think I said in my note.
Speaker Change: Okay quarter, but the outlook, a little bit better and I guess why.
Big Picture question is when you think about this outlook.
Speaker Change: And are you in it how much did you scrubbed, this and where some of the bigger variables.
Speaker Change: And some of the guidance items that you've laid out.
Speaker Change: Yes, I think when we're looking at page four you've asked several questions in there I think just the overall look of page four we're pretty confident in where the street has us with consensus earnings for 2024, we feel good about where we are on that front I think from a rate cut.
Speaker Change: <unk> no rate cut would be my preference in the process right now for 24 that would be a big benefit for us higher for longer continues to be a benefit for us continues to allow us to reprice loans at the top.
Speaker Change: That's a win for us lower.
Speaker Change: Yes, no I think you said it well I mean, there's obviously moving parts.
Speaker Change: And all the different pieces that are higher for longer is definitely better on the net interest income side.
The question is what is that daily.
Speaker Change: <unk> be detrimental to some of the expense costs et cetera.
I would say that's incremental or anything.
Speaker Change: Overall, the ability to continue to reprice.
Speaker Change: The loans at a higher rate.
Speaker Change:
Is it net net beneficial stability stability.
<unk> been talking about we've moved through a lot of process changes project changes overhauls in this.
Speaker Change: <unk> and we did a lot in 2023, I think stability stability in rates stability in our operational stability and what we're doing out there has talked about the team.
Speaker Change: We've got a fantastic team of bankers across our footprint, who are winning business every day.
Speaker Change: Just being stable in what we're doing every day, we think can turn into some real growth for us as a company.
Speaker Change: Okay, Alright, thank you very much I appreciate it.
Speaker Change: Thanks, John.
Speaker Change: Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to the management team for closing remarks.
Speaker Change #100: Alright. Thank you again, everyone for taking time to join US today once again I am very proud of the progress that we made in 'twenty three it's obvious the work our team put in during 2023 has laid the foundation for improved performance. We had a very nice year from organic growth loan growth perspective, while also holding deposits very stable in a very competitive deposit environment.
Speaker Change #100: And finally, the insurance transaction and the subsequent securities portfolio restructure will further enhance our efforts to improve operating performance. While we are excited about the positive impact of these accomplishments. We are committed to continuing on our path to improved performance in 2024 and beyond. Thank you all again for joining US today, we look forward to visiting with you soon.
Okay.
Speaker Change #101: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect. Your lines will have a wonderful day.
Yes.
Speaker Change #101: [music].