Q4 2023 SmartFinancial Inc Earnings Call
Hello everyone and welcome. My name is Drew and I'll be your conference operator today. At this time I would like to welcome everyone to the Smart Financial fourth quarter 2023 earnings release and conference.
Hello, everyone and welcome my name is Joe and I'll be your conference operator today at this time I would like to welcome everyone to the small financial fourth quarter 2023 earnings release and conference call.
All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, please press start followed by one on your telephone keypad. To withdraw your question, please press start followed by two. I will now turn the call over to your host, Nate Stroll. Please go ahead.
Joe: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question answer session to ask a question. Please press star followed by one of your telephone keypad to withdraw.
Joe: Your question. Please press star followed by tape.
Joe: Now I'll turn the call over to your highest names true. Please go ahead.
Nate Stroll: Good morning, everyone, and thank you for joining us for Smart Financial's fourth quarter 2023 earnings conference.
Joe: Good morning, everyone and thank you for joining us for smart financials fourth quarter 2023 earnings conference call.
Nate Stroll: During today's call, we will reference the slides and press release that are available within the investor relations section on our website, smartbank.com. Chairman Miller-Welborn will begin the call, followed by Billy Carroll, our president and chief executive officer. Ron Gorczynski, chief financial officer, and Rhett Jordan, chief credit officer, will also provide comments.
Joe: During today's call, we will reference the slides and press release that are available within the Investor Relations section on our web site Smart Bank Dot Com Shannon Miller Welborn will begin the call followed by Billy Carroll, Our President and Chief Executive Officer, Ron Gorczynski, Chief Financial Officer, and Rhett Jordan Chief Credit Officer will also provide commentary.
Nate Stroll: We will be available to answer your questions at the end of the call. Our comments include forward-looking statements. These statements are subject to risks and uncertainties and actual results could vary materially.
Speaker Change: We will be available to answer your questions at the end of the call. Our comments include forward looking statements. These statements are subject to risks and uncertainties and actual results could vary materially we.
Nate Stroll: We list the factors that might cause these results.
Speaker Change: We list the factors that might cause these results to differ materially in our press release and in our SEC filings, which are available on our website.
Nate Stroll: to differ materially in our press release and in our SEC filings, which are available on our website.
Nate Stroll: We do not assume any obligation to update any forward-looking statements because of new information, early developments, or otherwise, except as maybe they are required by law. During the call, we will reference non-GAAP financial measures related to the company's performance.
Speaker Change: Do not assume any obligation to update any forward looking statements because of new information early developments or otherwise, except as may be required by law. During the call. We will reference non-GAAP financial measures related to the company's performance you may see the reconciliation of these measures in the appendices of the earnings release and Investor presentation filed on January 20.
Nate Stroll: You may see the reconciliation of these measures in the appendices of the earnings release and investor presentation filed on January 22nd, 2024 with the SEC. And now I'll turn it over to Chairman Miller-Wellborn to open our call.
Speaker Change: 2024, with the SEC and now I'll turn it over to Kevin Miller Welborn to open our call.
Wesley Miller Welborn: Thanks, Nate.
Speaker Change: Thanks Nate.
Wesley Miller Welborn: The fourth quarter of 2023 was another quarter of incredibly busy activity for SmartBank. As we all know, last year was a very challenging year for our entire industry, and we couldn't be more proud of how our team performed.
Speaker Change: The fourth quarter of 2023 was another quarter of incredibly busy activity for smart bike as we all know last year was a very challenging year for our entire industry and we couldnt be more proud of how our team performed.
Wesley Miller Welborn: We have made a strong effort to improve every line of business that we operate, and I do sincerely believe we are poised for a bright future.
Speaker Change: We have made a strong effort to improve every line of business that we operate and I do sincerely believe we are poised for a bright future.
Speaker Change: The economy in our southeastern footprint remains strong and we're very optimistic about every aspect of our company as we begin a new year. I'm proud of the entire team for the focus and continued improvements we made in the fourth quarter. With that, I'm going to turn it over to Billy.
Economy in our South Asian footprint remains strong and we're very optimistic about every aspect of our company as we begin a new year I'm proud of the entire team for the focus and continued improvements we made in the fourth quarter with that I'm going to turn it over to Billy.
William Young Carroll: Thanks, Miller. And good morning, everyone. Great to be with you today. I'm going to jump right into this morning and discuss our fourth quarter highlights. You'll see most of these on slide three of our deck. I will say it was good to put a bow on 2023, an unusual year for our industry and one where we had impacts from higher rates. This quarter went, as we had forecasted, with some stabilization in margin and an inflection point in our revenue line coming after a couple of quarters of contraction. That was very nice to see. As usual, I'll be discussing primarily non-GAAP operating metrics today, and Ron will dive into more financial details momentarily.
William Young Carroll: Thanks, Bill and.
And good morning, everyone great to be with you today.
William Young Carroll: Im going to jump right into this morning, and discuss our fourth quarter highlights Youll see most of these on slide three of our deck.
William Young Carroll: I will say it it was good to put a bow on 2023.
William Young Carroll: And then usual year for our industry and one where we had impacts from higher rates. This quarter went as we had forecasted with some stabilization in margin and an inflection point in our revenue line coming after a couple of quarters of contraction that was very nice to see as usual I'll be discussing primarily non-GAAP operating metrics today and Ron.
Ronald J. Gorczynski: I will dive into more financial details momentarily.
William Young Carroll: We came in at 41 cents on operating EPS or $6.9 million in net income. We continue to grow both sides of the balance sheet with both loans and deposits increasing 8% and 2% annualized respectively during the quarter.
Ronald J. Gorczynski: We came in at 41 cents on operating EPS of $6 $9 million and net income.
Ronald J. Gorczynski: We continue to grow both sides of the balance sheet with both loans and deposits, increasing 8%, 2% annualized respectively. During the quarter.
William Young Carroll: Our loan-to-deposit ratio was staying healthy at right around 81%, and our liquidity position remains very sound, continuing to give us nice flexibility on growth.
Ronald J. Gorczynski: Our loan to deposit ratio was staying healthy right around 81% and our liquidity position remains very sound continuing to give us nice flexibility on growth.
William Young Carroll: Credit is strong with an NPA ratio of only 20 basis points. That number did tick up slightly from last quarter related to an Alabama credit moving to substandard and a little weakness in our trucking sector for Fountain Equipment. Brett will dive into these metrics more in a moment, but we continue to feel very good about the quality of our loan book.
Credit is strong with an NPA ratio of only 20 basis points that number did tick up slightly from last quarter related to an Alabama credit moving to sub standard and a little weakness in our trucking sector for fountain equipment Rep will dive into these metrics more in a moment, but we continue to feel very good about the quality of our loan book.
William Young Carroll: And a key number we focus on here, tangible book value continues to increase now at $22.29, excluding the impacts of AOCI and $20.76, including.
Ronald J. Gorczynski: And a key number we focus on here at tangible book value continues to increase now at $22.29, excluding the impacts of <unk> and $20 76, including it.
William Young Carroll: You will note we had a couple of non-recurring items this quarter. We had a great opportunity to assist one of our rural Alabama markets with the donation of a former office location. This was a nice win-win, helping the community with a qualifying CRA donation. The other was an accrual on a lingering legal matter that we're working to finalize. Ron's going to provide a little bit of color on those in a moment.
Ronald J. Gorczynski: You will note we had a couple of nonrecurring items. This quarter, we had a great opportunity to assist one of our rural Alabama markets with the designation of overall. This location. This was a nice win win helping the community with a qualifying CRA donation.
Ronald J. Gorczynski: There was an accrual on a lingering legal matter that we're working to finalize raws are going to provide a little bit of color on those in a moment.
Ronald J. Gorczynski: We did feel the ship begin to turn back on net interest income after a couple of quarters of tightening. Deposit rates have stabilized, and as we continue to grow loan balances and reprice assets, it did feel good to see that revenue line bounce back.
Ronald J. Gorczynski: We did feel the shift begin to turn back on net interest income after a couple of quarters of tightening deposit rates have stabilized and as we continue to grow loan balances and reprice assets. It did feel good to see that revenue line bounce back.
Ronald J. Gorczynski: As I look back at 2023, I was not happy with the revenue contraction we saw. Revenue growth and EPS growth are key to what we look to accomplish every year. The rate environment hampered that over the last few quarters, but I'm confident now we're trending back. We have built an outstanding foundation at this company that will allow us to gain earnings momentum as these rates stabilize.
Ronald J. Gorczynski: As I look back at 22023.
Ronald J. Gorczynski: I was not happy with the revenue contraction, we saw revenue growth and EPS growth are key to what we look to accomplish every year.
Ronald J. Gorczynski: The right environment hampered that over the last few quarters, but I'm confident now we're trending back we have built an outstanding Foundation at this company that will allow us to gain earnings momentum as these rates stabilize.
Ronald J. Gorczynski: We did accomplish some key initiatives that will benefit our bank as we look to the coming year. We made a number of operational changes to better position our five billion dollar company
Ronald J. Gorczynski: We did accomplish some key initiatives that will benefit our bank as we look to the coming year, we made a number of operational changes to better position or $5 billion company.
Ronald J. Gorczynski: including a new data aggregating and reporting system clear of us. Also our commercial loan platform is now fully utilizing Encino as well as their pricing and profitability system. We're also moving to Encino's consumer platform in Q1 to help us gain better efficiencies on smaller loans. All in all a good quarter where we shift our focus for growth to 2024 and I'll close with some additional comments in a moment but let me first hand it over to Rhett to discuss the loan portfolio and then on to Ron for a deeper dive into the numbers.
Ronald J. Gorczynski: Including our new data aggregating and reporting system player of us.
Ronald J. Gorczynski: Also our low air commercial loan platform is now fully utilizing encino as well as the pricing and profitability system.
Ronald J. Gorczynski: We're also moving to incentives consumer platform in Q1 to help us gain better efficiencies on smaller loans all in all a good quarter, where we shift our focus for growth to 2024 and I'll close with some additional comments in a moment, but let me first turn it over to rich to discuss the loan portfolio and then on to Ron for a deeper dive into the numbers.
Ronald J. Gorczynski: Brett.
Rhett Jordan: Thank you, Billy. The bank had a really strong production quarter with annualized organic loan growth of 8% quarter over quarter.
Rich: Thank you Bill the bank had a really strong production quarter annualized organic loan growth of 8% quarter over quarter and continuing to maintain strong overall composite and geographic diversification across our product segments.
Rhett Jordan: continuing to maintain strong overall composite and geographic diversification across our products.
Rhett Jordan: We saw a slight increase in our C&I space, which was a primary focus of our growth efforts throughout the year, while other categories remained level except for reductions in C&D loans and a slight increase
Rich: We saw a slight increase in our C&I space, which was a primary focus of our growth efforts throughout the year, while other categories remained level, except for reductions in C&I loans and a slight increase.
Rhett Jordan: and non-owner occupied CRE due primarily to existing construction projects completing and transitioning into permanent financing.
Rich: Non owner occupied CRE due primarily to existing construction projects, completing and transitioning into permanent financing basis. The overall composition of the portfolio transitioned as we had expected through this growth cycle, while we continue to see improved pricing parameters and an overall nine basis point increase in average portfolio yield.
Rhett Jordan: The overall composition of the portfolio transitioned as we had expected through this growth cycle while we continue to see improved pricing parameters and an overall nine basis point increase in average portfolio
Rhett Jordan: Our construction portfolio continues to decline in outstanding balances as expected.
Rich: Our construction portfolio continues to decline in the outstanding balances as expected.
Rhett Jordan: and was down about 63 million quarter of a quarter, reducing from 11% to 9% of total loans and down from 84% to 72% of total capital.
It was down about 63 million quarter over quarter, reducing from 11% to 9% of total loans and down from 84% to 72% of total capital.
Rhett Jordan: As we had mentioned in prior quarters, with higher interest rate environments and continued above normal construction costs creating more challenging project metrics in the commercial construction space, starts were slower during 2023 and these changes in balance positions are an expected result of those dynamics.
Rich: As we had mentioned in prior quarters with higher interest rate environments and continued above normal construction costs, creating more challenging project metrics in the commercial construction space start for slower during 2023, and these changes imbalanced positions or unexpected result of those dynamics are non owner occupied non construction CRE portfolio grew very.
Rhett Jordan: Our non-owner occupied non-construction CRE portfolio grew very slightly in outstanding balances for the quarter from completion of construction projects as previously mentioned that held relatively steady at 27% of total loan.
Rich: Lately and outstanding balances for the quarter from completion of construction projects as previously mentioned that held relatively steady at 27% of total loans.
Rhett Jordan: The total CRE ratio came in at 280% of total capital, down about 5% from last period. Again, steady performance with diversified production results and strategic movement in the targeted segments of the portfolio.
Rich: The total CRE ratio came in at 280% of total capital down about 5% from last period again steady performance with diversified production results and strategic movement in the targeted segments of the portfolio.
Rhett Jordan: As you will note, we did see a minor increase in our NPA and delinquency ratios for the fourth
Rich: As you will note, we did see a minor increase in our NPA and delinquency ratios for the fourth quarter period. This movement was the result of two very specific factors first the small trucking segment of our fountain equipment subsidiary saw above normal levels in past dues and classifieds as the year progressed, while some operators in this part of the portfolio.
Rhett Jordan: This movement was the result of two very specific
Rhett Jordan: First, the small trucking segment of our fountain equipment subsidiary saw above normal levels in past dues and classifieds as the year progressed. While some operators in this part of the fountain portfolio experienced some challenging conditions in
Rich: Variance of challenging conditions in 2023, we did observe a flattening of the trend line in both problem account activity and valuations of the underlying equipment assets in the marketplace as the second half of the year progressed I think it's important to recognize that.
Rhett Jordan: We did observe a flattening of the trend line in both problem account activity and valuations of the underlying equipment assets in the marketplace as the second half of the year progressed. I think it's important to recognize
Rhett Jordan: That outside of this minor subset of our fountain trucking segment, the majority of the fountain portfolio performed quite well and overall our fountain equipment subsidiary had a very strong performance year with solid profitability and an average portfolio yield above 10% at year end.
Rich: That outside of this minor subset of our fountain trucking segment. The majority of the fountain portfolio performed quite well and overall, our fountain equipment subsidiary had a very strong performance year with solid profitability and an average portfolio yield above 10% at year end the.
Rhett Jordan: The second driver for our NPA movement last quarter was the direct result of a single credit relationship in our Alabama
Rich: The second driver for our NPA movement last quarter was the direct result of a single credit relationship in our Alabama footprint was held with a large multi state mortgage broker operation for whom we had some equipment and real estate assets financed our exposure to the operator was secured term debt and format minimal in size for our portfolio and a very small as a percentage of total debt that comes.
Rhett Jordan: was held with a large multi-state mortgage broker operation for whom we had some equipment and real estate assets financed. Our exposure to the operator was secured term debt in format, minimal in size for our portfolio, and a very small as a percentage of total debt that company held with its overall creditor base. We have positioned what we believe to be a satisfactory reserve allocation for this exposure and are working through the collection process presently. This was an isolated relationship within a space to which we have a minimal exposure in our portfolio.
Rich: Any help with its overall creditor base, we have physicians, what we believe to be a satisfactory reserve allocation for this exposure and are working through the collection process. Presently this was an isolated relationship within our space to which we had a minimal exposure in our portfolio.
Rhett Jordan: Outside of the impact from those two specific matters, our general portfolio credit metrics continue to show very strong performance. Delinquencies, NPAs, and classified assets all saw reductions the prior quarter when excluding the impact of the two aforementioned items.
Rich: Outside of the impact from those two specific matters are general portfolio credit metrics continued to show very strong performance delinquencies NPA and classified assets all saw reductions to prior quarter when excluding the impact of the two aforementioned items.
Rhett Jordan: CRE concentrations continued to reduce and our overall diversification and general performance of the portfolio held strong. Our annualized loss ratio held steady to prior period at .04% in fourth quarter with 99% of those fourth quarter losses and 72% of the annual losses we did realize concentrated to the small trucking segment of our family.
Rich: CRE concentrations continued to reduce our overall diversification and general performance of the portfolio held strong.
You'll have loss ratio held steady to prior periods it points to a 4% in fourth quarter with 99% of those fourth quarter losses, and 72% of the annual losses, we did realize concentrated to the small trucking segment of our foreign subsidiary.
Rhett Jordan: As to our allowance positioning, overall we saw a slight increase from 1% to 1.02% of total
Rich: As to our allowance positioning overall, we saw a slight increase from 1% to 1.0% to 2% of total loans real loss provision for the quarter that drove this increase resulted predominantly from the specific reserve we were holding against the Alabama credit until that is fully resolved.
Rhett Jordan: Realized provision for the quarter that drove this increase resulted predominantly from the specific reserve we're holding against the Alabama credit until that is fully resolved. Combine that with the impact from our loan production balance growth in fourth quarter and normal CECL model input factor movements in the model. That is the basis for our 0.02% increase in the reserve.
And behind that with the impact from our loan production balanced growth in fourth quarter and normal seasonal model input factor movements in the model that is the basis for our point to your 0.0% to 2% increase in the reserve.
Rhett Jordan: Overall, loan demand continues to be good with a positive outlook as we progress into 2021.
Rich: Overall loan demand continues to be good with a positive outlook as we progress into 2024, while we did see some very isolated matters in Q4 that caused some undesired impact and our credit ratios for the quarter. We do not believe this is systemic in any way and we are beginning 2024 really continued commitment in maintaining our bank's long history of top request credit quality pristine.
Rhett Jordan: While we did see some very isolated matters in Q4 that caused some undesired impact in our credit ratios for the quarter, we do not believe this is systemic in any way, and we are beginning 2024 with a continued commitment in maintaining our bank's long history of top-of-class credit quality, pristine portfolio management, and targeted, profitable portfolio growth. Now I'll turn the call over to Ron to discuss direct deposit composition, liquidity, and other...
Rich: In portfolio management and targeted profitable portfolio growth now I will turn the call over to Ron to discuss.
Ronald J. Gorczynski: Deposit composition liquidity and other key financial metrics.
Ronald J. Gorczynski: Thanks, Brett. And good morning, everyone. Let's start on slide 10.
Ronald J. Gorczynski: Thanks, Brett and good morning, everyone.
Ronald J. Gorczynski: Start on slide 10.
Ronald J. Gorczynski: During the fourth quarter, we had continued deposit growth of over 21 million and year-over-year growth of over 190 million, or 6% annualized, and keeping a loan deposit ratio at 81%.
Ronald J. Gorczynski: During the fourth quarter, we had continued deposit growth of over $21 million and year over year growth above a $190 million or 6% annualized and keeping our loan deposit ratio at 81%.
Ronald J. Gorczynski: Moving into 2024, we anticipate momentum in our expansion market areas coupled with growth in our legacy markets that will drive mid-single-digit deposit growth.
Ronald J. Gorczynski: Moving into 2024, we anticipate momentum in our expansion market areas, coupled with growth in our legacy markets that will drive mid single digit deposit growth as.
Ronald J. Gorczynski: As expected, we did see continued migration from non-interest bearing deposits into interest bearing accounts.
Ronald J. Gorczynski: As expected we did see continued migration from noninterest bearing deposits into interest bearing accounts.
Ronald J. Gorczynski: but at a much slower pace.
Ronald J. Gorczynski: At a much slower pace.
Ronald J. Gorczynski: Our total deposit costs increased 15 basis points to 2.35% and were 2.40% for the month of December.
Ronald J. Gorczynski: Our total deposit costs increased 15 basis points to 235% and were $2 four zero percent for the month of December.
Ronald J. Gorczynski: Looking ahead, we do expect some additional migration, but at a muted pace, which will continue to relieve the upward pressure on funding costs.
Ronald J. Gorczynski: Looking ahead, we do expect some additional migration put out a muted pace, which will continue to relieve the upward pressure on funding costs.
Ronald J. Gorczynski: On slides 11 and 12, you'll see the details of cash flows from our securities and loans over the next 24 months.
Ronald J. Gorczynski: On slides 11, and 12, you'll see the details of cash flows from our securities and loans over the next 24 months as.
Ronald J. Gorczynski: As we've mentioned for several quarters, we have $110 million maturing later this quarter, which we are currently reviewing strategies for its deployment. In total, we have over $420 million in assets with a weighted average rate of 3.94% maturing or repricing by year-end.
Ronald J. Gorczynski: As we've mentioned for several quarters, we have 110 million maturing later this quarter, which we are currently reviewing strategies for its deployment in total we have over $420 million in assets with a weighted average rate of 394% maturing are repricing by year end with.
Ronald J. Gorczynski: With nearly 10% of the bank's earning asset base set to reprice this year, we look forward to continued profitability improvements.
Ronald J. Gorczynski: With nearly 10% of the bank's earning asset base set to reprice. This year, we look forward to continued profitability improvement.
Ronald J. Gorczynski: On slides 13 and 14, we provide an overview of the bank's liquidity sources and our liquidity position, which, including cash and securities, remained unchanged at 22% of total assets.
Ronald J. Gorczynski: On slides 13, and 14, we provide an overview of the bank's liquidity sources, and our liquidity position, which including cash and securities remained unchanged at 22% of total assets.
Ronald J. Gorczynski: The net interest margin was 2.86% for the quarter, representing a five basis point quarter over quarter improvement.
Ronald J. Gorczynski: Net interest margin was 286% for the quarter, representing a five basis point quarter over quarter improvement for.
Ronald J. Gorczynski: For Q4, the weighted average cost of new deposit production was 3.96%, and the weighted average yield on commercial loan originations was 7.63%.
Ronald J. Gorczynski: For Q4, the weighted average cost of new deposit production was 396% and a weighted average yield on commercial loan originations was 763%.
Ronald J. Gorczynski: Our contractual yield on loans expanded nine basis points to 5.61% versus 5.52% last quarter.
Operator: Hello everyone, and welcome.
Drew: My name is Drew, and I'll be your conference operator today.
Ronald J. Gorczynski: Our contractual yield on loans expanded nine basis points to 561% versus 552% last quarter.
Operator: At this time, I would like to welcome everyone to the Smart Financial fourth quarter 2023 earnings release and conference.
Ronald J. Gorczynski: While we were pleased to see the yield and interest-earning assets outpace the cost of interest-bearing liabilities, we caution that deposit migration and competitive pressures can quickly impact these improvements. To counter this, we continue to exercise careful loan pricing discipline and thoughtful deployment of excess proceeds from our asset reposition.
Ronald J. Gorczynski: While we were pleased to see the yield on interest, earning assets outpaced the cost of interest bearing liabilities, we cautioned that deposit migration and competitive pressures can quickly impact. These improvements to counter this we continued to exercise careful loan pricing discipline and thoughtful deployment of excess proceeds from our asset repositioning.
Operator: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, please press start followed by one on your telephone keypad. To withdraw your question, please press start followed by two. I will now turn the call over to your host, Nate Stroll.
Ronald J. Gorczynski: As our margin stabilization continues, we project operating revenue to remain in the lower $39 million range and gradually return to our previous $42 million plus quarterly run rate in the second half of 2024.
Please go ahead.
Ronald J. Gorczynski: As our margin stable as our margin stabilization continues we project operating revenue to remain in the lower 39 $39 million range and gradually return to our previous $42 million plus quarterly run rate in the second half of 2024.
Good morning, everyone, and thank you for joining us for Smart Financial's fourth quarter 2023 earnings conference.
During today's call, we will reference the slides and press release that are available within the investor relations section on our website, smartbank.com.
Ronald J. Gorczynski: On slide 15, we have our interest rate sensitivity information.
Ronald J. Gorczynski: On slide 15, we have the interest rate sensitivity information.
Chairman Miller-Welborn will begin the call, followed by Billy Carroll, our president and chief executive officer.
Ronald J. Gorczynski: We have approximately 42% of loan portfolio at a variable rate with $829 million repricing within three months.
Ronald J. Gorczynski: We have approximately 42% of loan portfolio that are variable rate.
Ron Gorczynski, chief financial officer, and Rhett Jordan, chief credit officer, will also provide comments. We will be available to answer your questions at the end of the call. Our comments include forward-looking statements. These statements are subject to risks and uncertainties, and actual results could vary materially.
Ronald J. Gorczynski: With $829 million repricing within three months.
Ronald J. Gorczynski: For our deposits, we have 35% of our interest-bearing deposits that will reprice immediately in conjunction with any movements to the Fed rate, along with $208 million of CDs repricing during this current quarter.
Ronald J. Gorczynski: Our deposits, we have 35% of our interest bearing deposits that will reprice immediately in conjunction with any movements to the fed rate along with $208 million of Cds repricing. During this current quarter.
Ronald J. Gorczynski: We have details of our non-interest income and expenses on slide 16 and 17.
We list the factors that might cause these results to differ materially in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements because of new information, early developments, or otherwise, except as may be required by law. During the call, we will reference non-GAAP financial measures related to the company's performance. You may see the reconciliation of these measures in the appendices of the earnings release and investor presentation filed on January 22nd, 2024 with the SEC. And now, I'll turn it over to Chairman Miller-Wellborn to open our call.
Ronald J. Gorczynski: We have details of our noninterest income and expenses on slide 16 and 17.
Ronald J. Gorczynski: both operating non-interest income and expense were in line with previous provided guidance at $7.6 million and $28.8 million, respectively.
Ronald J. Gorczynski: Both the operating noninterest income and expense were in line with previous provided guidance at $7 6 million and $28 $8 million, respectively. We are pleased with the noninterest income revenue streams and remain focused on capturing customer relationship income opportunities as they present themselves.
Ronald J. Gorczynski: We are pleased with the non-interest income revenue streams and remain focused on capturing customer relationship income opportunities as they present themselves.
Ronald J. Gorczynski: As with non-interest income, we anticipate continued expense consistency going into 2024, as well as having our efficiency ratio to start trending downward over the next several quarters.
Ronald J. Gorczynski: As with noninterest income, we anticipate continued expense consistency going into 2024 as well as having our efficiency ratio to start trending downward over the next several quarters looking.
Thanks, Nate. The fourth quarter of 2023 was another quarter of incredibly busy activity for SmartBank. As we all know, last year was a very challenging year for our entire industry, and we couldn't be more proud of how our team performed.
Ronald J. Gorczynski: Looking ahead, we expect first quarter non-interest income in the mid $7 million range and non-interest expense in the $28.5 to $29 million range, with salary and benefit expenses making up $16.5 to $17 million of those expenses.
Ronald J. Gorczynski: Looking ahead, we expect first quarter noninterest income in the mid $7 million range, and noninterest expense and the $28 $5 million to $29 million range with salary and benefit expenses, making up $65 million to $70 million of those expenses.
Ronald J. Gorczynski: And finishing off on slide 18, total capital grew $13 million during the quarter to almost $460 million, driven by both earnings and $8 million from the decrease in ASCI losses due to interest rate changes.
We have made a strong effort to improve every line of business that we operate, and I do sincerely believe we are poised for a bright future. The economy in our southeastern footprint remains strong, and we're very optimistic about every aspect of our company as we begin a new year. I'm proud of the entire team for the focus and continued improvements we made in the fourth quarter.
Ronald J. Gorczynski: And finishing off on slide 18, total total capital grew $13 million during the quarter to almost $460 million driven by both earnings and $8 million from the decrease in <unk> losses due to interest rate changes over.
Ronald J. Gorczynski: Over the past 12 months, we've made significant progress repositioning our balance sheet through various liquidity and capital management strategies.
Over the past 12 months, we've made significant progress repositioning our balance sheet through various liquidity and capital management strategies, we remain in a strong well capitalized position and most importantly continue to execute on our primary mission to grow and defend tangible book value.
Ronald J. Gorczynski: We remain in a strong, well-capitalized position and, most importantly, continue to execute on our primary mission to grow and defend tangible book value. With that said, I'll turn it back over to Billy.
With that, I'm going to turn it over to Billy.
William Young Carroll: Thanks, Miller. And good morning, everyone. Great to be with you today.
William Young Carroll: I'm going to jump right in this morning and discuss our fourth quarter highlights. You'll see most of these on slide three of our deck. I will say it was good to put a bow on 2023, an unusual year for our industry and one where we had impacts from higher rates. This quarter went, as we had forecasted, with some stabilization in margin and an inflection point in our revenue line coming after a couple of quarters of contraction. That was very nice to see.
That said I will turn it back over to Billy Thanks.
William Young Carroll: Thanks, Ron. As you all can see with our trends, we are positioned well. We knew that 23 was going to be a holding serve year, which we didn't like, but was still the case. But even with that, we had nice balance sheet growth. And as I stated earlier, we had some very good operational accomplishments that are going to make us more efficient.
William Young Carroll: Thanks, Ron.
As you all can see with our trends we are positioned well.
William Young Carroll: The 23 was going to be a holding serve year, which we didnt like but was still the case, but even with that we had nice balance sheet growth and as I stated earlier, we had some very good operational accomplishments that are going to make us more efficient with the stabilization. We've discussed more clarity on the rate forecast and our discipline spending I feel confident we have metric improvements on the horizon.
William Young Carroll: With the stabilization we've discussed, more clarity on the rate forecast and our discipline spending, I feel confident we have metric improvements on the horizon.
William Young Carroll: As usual, I'll be discussing primarily non-GAAP operating metrics today, and Ron will dive into more financial details momentarily. We came in at 41 cents on operating EPS or $6.9 million in net income.
William Young Carroll: Ryzen.
William Young Carroll: My outlook for growth is still fairly bullish. As we continue to see nice pipelines, we are lending and feel we continue at this same pace, this same mid-single digits pace. With that, deposits, we anticipate growing at around that same pace, and we feel like we can continue to fund our growth internally. Summarizing a few key areas, we've built a great foundation over the last several years through both M&A and organic growth, and as a result, we have a very strong balance sheet that is diversified and granular, as well as a lot of strength in the liquidity we have available.
William Young Carroll: My outlook for growth is still fairly bullish as we continue to see nice pipelines. We are lending until we continue at this same pace. The same mid single digit pace with that deposits, we anticipate growing at around that same pace and we feel like we can continue to fund our growth internally summarizing a few key areas, we built a <unk>.
William Young Carroll: We continue to grow both sides of the balance sheet, with both loans and deposits increasing 8% and 2% annualized, respectively, during the quarter.
William Young Carroll: <unk> Foundation over the last several years through both M&A and organic growth and as a result, we have a very strong balance sheet that is diversified and granular as well as a lot of strength in the liquidity we have available.
William Young Carroll: Our loan-to-deposit ratio was staying healthy at right around 81%, and our liquidity position remains very sound, continuing to give us nice flexibility on growth. Credit is strong with an NPA ratio of only 20 basis points. That number did tick up slightly from last quarter related to an Alabama credit moving to substandard and a little weakness in our trucking sector for Fountain Equipment. Brett will dive into these metrics more in a moment, but we continue to feel very good about the quality of our loan book. And a key number we focus on here, tangible book value continues to increase, now at $22.29, excluding the impacts of AOCI and $20.76, including.
William Young Carroll: As you've heard, we do have some outsized cash flows coming back to us in 2024 and that will have us a very positive impact for it.
William Young Carroll: As you've heard we do have some outsized cash flows coming back to us in 2024.
William Young Carroll: And that will have a very positive impact for us to say that again, we have a very nice balance sheet.
Speaker Change: Say that again, we have a very nice balance.
Speaker Change: As we discuss our footprint, our company operates in some of the best markets in the southeast and that will continue to provide a tailwind for us. Geography matters and as I travel our regions, the vibrancy is real.
William Young Carroll: As we discuss our footprint our company operates in some of the best markets in the southeast and that will continue to provide a tailwind for us geography matters and is that traveler regions. The vibrancy is real.
Speaker Change: When you have a couple of those markets, we have a couple of those markets that just have got some outstanding teams that we've built over the years and we're going to continue to build those. And when you look at us holistically, we have a very nice value proposition.
William Young Carroll: When you have a couple of those markets. We have some we have a couple of those markets. It just got some outstanding teams.
William Young Carroll: We built over the years and we're going to continue to build those and when you look at as Holistically, we have a very nice value proposition.
William Young Carroll: You will note we had a couple of non-recurring items this quarter.
William Young Carroll: We had a great opportunity to assist one of our rural Alabama markets with the donation of a former office location. This was a nice win-win, helping the community with a qualifying CRA donation. The other was an accrual on a lingering legal matter that we're working to finalize. Ron's going to provide a little bit of color on those in a moment. We did feel the ship begin to turn back on net interest income after a couple of quarters of tightening. Deposit rates have stabilized, and as we continue to grow loan balances and reprice assets, it did feel good to see that revenue line bounce back. As I look back at 2023, I was not happy with the revenue contraction we saw.
Speaker Change: A couple of other items to note as I close. We added a great executive to our senior team, Martin Shrope. Martin joined us recently as chief banking officer during the last quarter and comes to us with an outstanding background in regional and large community banks. We're very excited to have Martin on our team.
William Young Carroll: A couple of other items to note is that close we added a great executive to our senior team Martin Schroeter Martin joined US recently as Chief Banking officer during the last quarter and comes to US with an outstanding background in regional and community and a large community banks, we're very excited to have Martin on our team.
Speaker Change: We're also excited to move to the New York Stock Exchange in December. We look forward to working with the NYSE and having a great long-term partnership.
William Young Carroll: We're also we're also excited to move to the New York Stock Exchange in December we look forward to working with the NYSE and having a great long term partnership with them.
Speaker Change: I'll close with a big thank you to our 600 plus outstanding associates that we have in this company. These team members have worked extremely hard during the last year and they continue to build a great culture for smart financials. So I'll stop there and we'll open it up for questions.
William Young Carroll: I'll close with a big Thank you to there are 600, plus outstanding associates that we have in this company. These team members have worked extremely hard during the last year and they continue to build a great culture for smart financials. So I'll stop there and we'll open it up for questions.
William Young Carroll: Revenue growth and EPS growth are key to what we look to accomplish every year. The rate environment hampered that over the last few quarters, but I'm confident now that we're trending back. We have built an outstanding foundation at this company that will allow us to gain earnings momentum as these rates stabilize. We did accomplish some key initiatives that will benefit our bank as we look to the coming year. We made a number of operational changes to better position our five billion dollar company, including a new data aggregating and reporting system clear of us.
Thank you we will now start today's Q&A session, if you'd like to ask a question. Please press star followed by one on your telephone keypad now.
Speaker Change: Thank you. We will now start today's Q&A session. If you would like to ask a question, please press start followed by one.
Speaker Change: Thank you for listening to Keypad Now. If you change your mind, please...
William Young Carroll: Please press star followed by <unk>.
Speaker Change: Our first question today comes from Stephen Scouten from Piper Sandler. Your line is now open.
William Young Carroll: Last question today comes from Stephen Scouten from Piper Sandler Your line is now open.
Stephen Kendall Scouten: Yeah, hey, good morning, everyone. How you doing?
Stephen Kendall Scouten: Yeah, Hey, good morning, everyone. How are you doing.
William Young Carroll: Also, our commercial loan platform is now fully utilizing Encino as well as their pricing and profitability system. We're also moving to Encino's consumer platform in Q1 to help us gain better efficiencies on smaller loans. All in all, a good quarter where we shift our focus for growth to 2024, and I'll close with some additional comments in a moment, but let me first hand it over to Rhett to discuss the loan portfolio and then on to Ron for a deeper dive into the numbers.
Speaker Change: and many more.
Speaker Change: I guess one question I have...
Stephen Kendall Scouten: I guess one question I had.
Stephen Kendall Scouten: Yes.
Speaker Change: Thanks. I guess I just had one question around this, you know, the news around the South Alabama Panhandle team. I'm just kind of wondering what the total size of that team was from what you brought on in 21 and kind of.
Speaker Change: Thanks, I guess I just had one question around this the news around the South Alabama Panhandle team Im just kind of wondering what the total size of that team was from what you brought on in 'twenty, one and kind of.
Speaker Change: You know, what that loan book, how much of those folks remain, just kind of if there's any material risk to any outflows from that respect.
Speaker Change: What would that loan book, how much of those folks remain just kind of if there's any material risk to any outflows from that respect.
Speaker Change: Yeah, of course, no material risk and outflows. We did have, we had basically, see, we had two producers leave that represented two marks in that coastal region. And as you know, we've had very little of that in our history. All I'll say to it is sometimes folks feel that they'll fit better in other places. And when that's the case, it's been my experience that it usually works out best for everybody. We've got a nice plan in place, feel we're better positioned as we wrap up some near-term recruiting efforts, and we see no real impact from those departures. We've got a good strategy and we had a good backup plan.
Thank you, Billy.
Speaker Change: Yes approach no no no material risk in outflows, we did have we had basically saying they had too.
The bank had a really strong production quarter with annualized organic loan growth of 8% quarter over quarter, continuing to maintain strong overall composite and geographic diversification across our products. We saw a slight increase in our C&I space, which was a primary focus of our growth efforts throughout the year, while other categories remained level except for reductions in C&D loans and a slight increase and non-owner occupied CRE due primarily to existing construction projects completing and transitioning into permanent financing. The overall composition of the portfolio transitioned as we had expected through this growth cycle, and while we continue to see improved pricing parameters and an overall nine basis point increase in average portfolio, our construction portfolio continued to decline in outstanding balances as expected, and was down about 63 million for a quarter of a quarter, reducing from 11% to 9% of total loans and down from 84% to 72% of total capital. As we mentioned in prior quarters, with higher interest rate environments and continued above-normal construction costs creating more challenging project metrics in the commercial construction space, starts were slower during 2023, and these changes in balance positions are an expected result of those dynamics.
Speaker Change: Two producers.
Speaker Change: Leave.
Speaker Change: That represented two marks of that coastal region.
Speaker Change: We've had very little of that in our history, all I'll say to it is sometimes folks feel that they'll they'll fit better in other places and when that's the case, it's been my experience that usually works out best for everybody.
Speaker Change: We've got a nice plan in place.
Speaker Change: Feel we're better positioned as we wrap up some near term recruiting efforts.
Speaker Change: And we see no real impact from those departures.
Speaker Change: We've got a good strategy and we had a good good backup plan.
Speaker Change: Okay, great. And apologies if I missed any commentary on this, but the non-interest bearing deposits, it looks like the pace of decline has kind of slowed, which is good, but still moving downward. Do you expect to see that continue? Do you think the mixed shift can kind of stabilize from here on the deposit side?
Speaker Change: Okay great.
Speaker Change: And then apologies if I missed any commentary on this but the noninterest bearing deposits. It looks like the pace of decline has kind of slowed which is good but still moving downward do you expect to see that continue or do you think the mix shift and kind of stabilize from here on the deposit side.
Speaker Change: Yeah, that's a good question. We are seeing the slowdown of the rate of increase. We do expect the mixed shift to probably, hopefully, floor at 20%. So I think from here, we're seeing a lot of stabilization over the last quarter and looking forward. So not much more on the deposit side, but we still will have a little bit of still deposit creep going forward, expense creep going forward.
Speaker Change: Yes, that's a good question.
Speaker Change: We are seeing the slowdown of the rate of increase.
Speaker Change: We do expect a mix shift probably.
Speaker Change: Hopefully.
Our non-owner occupied non-construction CRE portfolio grew very slightly in outstanding balances for the quarter from completion of construction projects, as previously mentioned, that held relatively steady at 27% of total loan. The total CRE ratio came in at 280% of total capital, down about 5% from the previous period. Again, steady performance with diversified production results and strategic movement in the targeted segments of the portfolio. As you will note, we did see a minor increase in our NPA and delinquency ratios for the fourth quarter. This movement was the result of two very specific First, the small trucking segment of our fountain equipment subsidiary saw above normal levels in past dues and classifieds as the year progressed. While some operators in this part of the fountain portfolio experienced some challenging conditions, we did observe a flattening of the trend line in both problem account activity and valuations of the underlying equipment assets in the marketplace as the second half of the year progressed. I think it's important to recognize that, outside of this minor subset of our fountain trucking segment, the majority of the fountain portfolio performed quite well, and overall, our fountain equipment subsidiary had a very strong performance year with solid profitability and an average portfolio yield above 10% at year end.
Speaker Change: Floor at 20%.
Speaker Change: I think from here, we're seeing a lot of stabilization over the last quarter and looking forward. So not much not much more on the deposit side, but we still have a little bit of Oh.
Speaker Change: Still deposit.
Speaker Change: Keep going forward expense creep going forward.
Speaker Change: Okay, got it. Makes sense. Okay. And then just last thing for me is you guys are talking about this 2024 profitability recovery and seeing the trajectory, which is great and definitely can see that. Well, you know, from what you saw in 2023 on a profitability standpoint, what do you think the possibility is to return to what sort of level in maybe 24, 25 from my numbers are correct, maybe like a 73 basis point ROA here this year in full?
Speaker Change: Okay got it makes sense, Okay and then just last thing for me is you guys are talking about this.
Speaker Change: 2020 for profitability recovery and seeing the trajectory, which is great and definitely can see that.
Speaker Change: From what you saw in 2023 on a profitability standpoint, what do you think the possibility is to.
Speaker Change: To return to what sort of level and maybe 'twenty four 'twenty five from my numbers are correct, maybe like a 73 basis points ROA here this year in full.
Speaker Change: Yeah, at this point, you know, we, with our, with our repricing that's occurring in our production, we should see, you know, we will see the lift starting, you know, second half of this year, but getting back to that 1% pre, you know, pre downward rate looking, excuse me, pre downward ROA, probably like the second half of 2025. I think we'll be back on plane. That's what we're expecting at this point. Stephen, I'll add, you know, we've, we've looked at, obviously, that's, that's where we want to get back to where we were, you know, just about 18 months ago.
Speaker Change: Yes at this point.
Speaker Change: With our with our re pricing that's occurring in our production we should see.
Speaker Change: We'll see the lift starting.
Speaker Change: Second half of this year, but getting back to that 1%.
Speaker Change: Pre.
Speaker Change: Pre downward.
Speaker Change: Right looking excuse me pre downward.
The second driver for our NPA movement last quarter was the direct result of a single credit relationship in our Alabama office was held with a large multi-state mortgage broker operation for whom we had some equipment and real estate assets financed. Our exposure to the operator was secured term debt in format, minimal in size for our portfolio, and very small as a percentage of total debt that the company held with its overall creditor base. We have positioned what we believe to be a satisfactory reserve allocation for this exposure and are working through the collection process presently. This was an isolated relationship within a space to which we have minimal exposure in our portfolio.
Speaker Change: Like the second half of 2025, I think it will be back on plane, that's what works.
Speaker Change: Steven outlined we've looked at obviously, that's where we want to get back to where we were just about 18 months ago.
Speaker Change: not unlike others you know you get a little bit of squeeze but I we feel really good about kind of where the company is positioned now as Ron's alluded to you know the repricing you throw in some asset growth and what we're looking at we're kind of modeling a lot of this in kind of a flat rate scenario we're trying to take a look at a fairly conservative approach you know if you get you know if the market projections hold true and you get a little bit of a downward shift I think that that accelerates that recovery for us and gets us back to those normalized metrics even faster so feel pretty good about it we know we can get there it'll just be a little bit of function of what what the Fed does.
Speaker Change: Not unlike others, you get a little bit of squeeze, but we feel really good about kind of where the company is positioned now as Ron alluded to the repricing you throw in some asset growth and what we're looking at we're kind of modeling a lot of this in kind of a flat rate scenario, we're trying to take a look at a fairly conservative approach.
If you get if.
Speaker Change: If the market <unk>.
Speaker Change: <unk> hold true when you get a little bit of a downward shift I think that that accelerates that.
Outside of the impact of those two specific matters, our general portfolio credit metrics continue to show very strong performance. Delinquencies, NPAs, and classified assets all saw reductions the prior quarter when excluding the impact of the two aforementioned items. CRE concentrations continued to reduce, and our overall diversification and general performance of the portfolio held strong. Our annualized loss ratio held steady to the prior period at.04% in the fourth quarter, with 99% of those fourth-quarter losses and 72% of the annual losses we did realize concentrated in the small trucking segment of our family.
Speaker Change: That recovery.
Speaker Change: For us it gets us back to that.
Speaker Change: Normalized metrics, even faster so feel pretty good about it we know we can get there.
Speaker Change: Be a little bit a function of what what fed does.
Speaker Change: Got it. Makes sense. And does that imply like a really big ramp from an operating revenue perspective, like that kind of $42 million number? Does that need to ramp pretty significantly in 25 to get to that level? Because it just feels like a pretty...
Speaker Change: Got it makes sense and does that imply like a really big ramp from an operating revenue perspective, like that kind of $42 million number does that need to ramp pretty significantly in 'twenty five to get.
Speaker Change: To that level, because it just feels like a pretty.
Speaker Change: big jump back in a relatively short period of time.
Speaker Change: Big jump back in a relatively short period of time.
Speaker Change: Well, I think from going forward, we'll consecutively, quarter over quarter, increase it. You know, we're looking in the mid-2025. We're probably starting to hit the $50 million net revenue bogey. So, yeah, we will have considerable ramp. But, again, with all the repricing that's occurring, we feel confident we'll get there.
Speaker Change: Well I think from going forward will consecutively quarter over quarter increase that we're looking into mid 2025, we're probably starting to hit the $50 million net revenue.
As to our allowance positioning, overall, we saw a slight increase from 1% to 1.02% of total Realized provision for the quarter that drove this increase resulted predominantly from the specific reserve we're holding against the Alabama credit until that is fully resolved. Combine that with the impact from our loan production balance growth in the fourth quarter and normal CECL model input factor movements in the model. That is the basis for our 0.02% increase in the reserve. Overall, loan demand continues to be good, with a positive outlook as we progress into 2021. While we did see some very isolated matters in Q4 that caused some undesired impact on our credit ratios for the quarter, we do not believe this is systemic in any way, and we are beginning 2024 with a continued commitment to maintaining our bank's long history of top-of-class credit quality, pristine portfolio management, and targeted, profitable portfolio growth.
Speaker Change: Bogey. So yes, we will have considerable ramp, but again with all the repricing thats occurring.
Speaker Change: We feel confident we'll get there.
Speaker Change: Okay, that's extremely helpful. Thanks, guys. Appreciate the time.
Speaker Change: Okay. That's extremely helpful. Thanks, guys appreciate the time.
Speaker Change: Thanks, Steve.
Speaker Change: Thanks, Andy Thanks, David.
Speaker Change: Our next question comes from Matt Olney from Stevens. Your line is now open.
Speaker Change: Our next question comes from Matt Olney from Stephens. Your line is now open.
Matt Olney: Hey, Greg. Good morning, everybody.
Matt Olney: Hey, great good morning, everybody.
Matt Olney: Hey, I want to ask more about balance.
Hey, I wanted to ask about one of them.
Greg: Good morning.
Speaker Change: Good morning.
Greg: I want to ask more about the balance sheet liquidity. And you mentioned you've got some nice cash flows coming due here pretty quickly. And we've talked about this for a while. It does provide some nice optionality. Any updated thoughts you can provide us with around what you expect to do with improved liquidity?
Speaker Change: I wanted to ask more about the balance sheet liquidity and you mentioned you've got some nice cash flows coming due here pretty quickly.
Speaker Change: And we've talked about this for a while it does provide some nice optionality.
Speaker Change: Updated thoughts you can you can provide us with around.
Speaker Change: What do you what do you expect to do with that improved liquidity.
Speaker Change: Thank you.
Speaker Change: Ultimately, we'd like to fund loan growth with it, but being that we're still targeting our 12% asset to security ratio, so we are strategizing pretty much to put $100 million to work over the next month or two to kind of buffer that 12% bogey that we're trying to get to or maintain. So we will have investment purchases over the next two months.
Speaker Change: Sure.
Speaker Change: Ultimately, we'd like to fund loan growth with it but being that we were still targeting our 12% asset the security ratio. So we are strategizing pretty much to put $100 million to work over the next month or two.
Ronald J. Gorczynski: Now I'll turn the call over to Ron to discuss direct deposit composition, liquidity, and other... Thanks, Brett. And good morning, everyone. Let's start on slide 10. During the fourth quarter, we had continued deposit growth of over 21 million and year-over-year growth of over 190 million, or 6% annualized, and we kept a loan deposit ratio at 81%. Moving into 2024, we anticipate momentum in our expansion market areas coupled with growth in our legacy markets that will drive mid-single-digit deposit growth. As expected, we did see continued migration from non-interest bearing deposits into interest-bearing accounts, but at a much slower pace. Our total deposit costs increased 15 basis points to 2.35% and were 2.40% for the month of December. Looking ahead, we do expect some additional migration, but at a muted pace, which will continue to relieve the upward pressure on funding costs. On slides 11 and 12, you'll see the details of cash flows from our securities and loans over the next 24 months.
Speaker Change: To kind of buffer that 12% bogey that we're.
Speaker Change: We're trying to get to or maintain so we will have investment purchases over the next two months.
Speaker Change: okay so so so loan growth and and partially into securities um and on the loan growth front um
Speaker Change: Okay, So so loan growth and partially into securities.
Speaker Change: And on the loan growth front.
Speaker Change: I heard some commentary on that. I heard the deposit growth guidance. I may have missed the loan growth guidance. What's the range of expectations for loan growth this year?
Speaker Change: I heard some commentary on that I heard the deposit growth guidance any I may have missed the loan growth guidance, what is the range of expectations for loan growth this year.
Speaker Change: Matt, I think we're, we're projecting kind of, we're, we're staying in a kind of that mid singles, you know, I think we can, we can be somewhere there, hopefully north of 5%, you know, air, air, air bogey internally is about 7% ish on both sides of the balance sheet. You know, when you look at balance sheet growth, you know, we've got, again, we, we, we, we feel, we feel good about the way the year's starting. I mean, pipelines continue to continue to look good as, as, as we sit down with our regional presidents and, and look at our growth prospects. We feel, feel, feel good about getting that. So, you know, we're still kind of in that, kind of in that, that upper, not, I wouldn't say high singles, but kind of mid, mid plus singles. Um, uh, balance sheet growth for the year.
Speaker Change: Yes, Matt I think we're projecting kind of that we're staying in that kind of that mid singles I think we can we can be somewhere there hopefully north of 5%.
Bogey internally is about 7% ish on both sides of the balance sheet. When you look at balance sheet growth.
Speaker Change: Yeah, We've got again, we feel we feel good about why the year, starting I mean pipelines continue to continue to look good.
Speaker Change: As we sit down with our regional presidents and look at our growth prospects.
Ronald J. Gorczynski: As we've mentioned for several quarters, we have $110 million maturing later this quarter, and we are currently reviewing strategies for its deployment. In total, we have over $420 million in assets with a weighted average rate of 3.94% maturing or repricing by year-end. With nearly 10% of the bank's earning asset base set to reprice this year, we look forward to continued profitability improvements. On slides 13 and 14, we provide an overview of the bank's liquidity sources and our liquidity position, which, including cash and securities, remained unchanged at 22% of total assets. The net interest margin was 2.86% for the quarter, representing a five basis point quarter over quarter improvement. For Q4, the weighted average cost of new deposit production was 3.96%, and the weighted average yield on commercial loan originations was 7.63%. Our contractual yield on loans expanded nine basis points to 5.61% versus 5.52% last quarter. While we were pleased to see the yield and interest-earning assets outpace the cost of interest-bearing liabilities, we caution that deposit migration and competitive pressures can quickly impact these improvements.
Speaker Change: Phil Phil feel good about getting that we're still kind of in that kind of in that that upper not I Wouldnt say high singles, but kind of mid mid plus singles.
Speaker Change: Balance sheet growth for the year.
Matt Olney: Okay, that's helpful. Thank you for that. And then as far as the Alabama credit that was mentioned before, any more color you can provide on this, just the size of that loan? And it sounds like you feel good about the collateral. What type of collateral is that?
Speaker Change: Okay. That's helpful. Thank you for that and then as far as the.
Speaker Change: The Alabama credit that was that was mentioned before any more color you can provide on this just the size of that loan.
Speaker Change: And it sounds like you feel good about the collateral what is that what.
Speaker Change: What type of collateral.
Speaker Change: Yeah, Brett, if you want to walk into that. I think it's a mix. You've got some mixed collateral in it. Total size of, I mean, it wasn't a single long. It was a...
Speaker Change: Yeah, Brett do you want to you want to walk and walk ins.
You got some mixed collateral and its total size of it it was it wasn't a single loan that was it.
Speaker Change: and a group of loans but the total size of all of them is about 3 million in balances and the collateral is predominantly real estate and then there was some office equipment associated with some of that.
Speaker Change: Group of loans, but the total size of all of this is about $3 million in balances.
Speaker Change: The collateral is predominantly real estate and then there was some ball office equipment associated with some of that as well.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: And as far as resolution of that type of credit, is that a near-term event or could this drag out for a little while, you think?
Speaker Change: And as far as resolution of that type of.
Speaker Change: Credit is that a near term event or could this drag out for little while you think.
Speaker Change: I don't think it'll drag out for a long period, Matt. I mean, it may take us, it may take us up a quarter or a little more just depending on the
Ronald J. Gorczynski: To counter this, we continue to exercise careful loan pricing discipline and thoughtful deployment of excess proceeds from our asset repositioning. As our margin stabilization continues, we project operating revenue to remain in the lower $39 million range and gradually return to our previous $42 million plus quarterly run rate in the second half of 2024. On slide 15, we have our interest rate sensitivity information. We have approximately 42% of our loan portfolio at a variable rate with $829 million repricing within three months. For our deposits, we have 35% of our interest-bearing deposits that will reprice immediately in conjunction with any movements to the Fed rate, along with $208 million of CDs repricing during this current quarter. We have details of our non-interest income and expenses on slides 16 and 17, both operating non-interest income and expense were in line with previous provided guidance at $7.6 million and $28.8 million, respectively.
Speaker Change: I don't think it will drag out for a long period math I mean, it may take us.
Speaker Change: This quarter, a little more just depending on the your.
Speaker Change: and some of the legal process we go through but and the positioning location some of those assets but I don't think it's going to be a drug out thing and like I said we went ahead and positioned an allowance factor against what we believe to be the risk there so we feel pretty good about where
Speaker Change: Some of the legal process, we go through but in the positioning of the location of some of those assets but.
Speaker Change: I don't think it's going to be a drug ethane and like I said.
Speaker Change: We went ahead and positioned in allowance of factor against what we believe to be the risks there. So we feel pretty good about where we're positioned at this point.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay guys, that's all from me. Thank you.
Speaker Change: Okay guys. That's all from me. Thank you.
Speaker Change: Thanks, Matt.
Speaker Change: Thanks, Matt Thanks, Matt.
Speaker Change: Our next question today comes from Freddy Strickland from Janie Montgomery Scott. Please go ahead.
Speaker Change: Our next question today comes from Freddie Strickland from Janney Montgomery Scott. Please go ahead.
Feddie Strickland: Hey, good morning, gentlemen.
Feddie Strickland: Hey, good morning, gentlemen.
Feddie Strickland: I wonder if I did that.
Feddie Strickland: Good morning.
Feddie Strickland: Yes.
Feddie Strickland: I just wanted to ask, I know there's been some discussion and I appreciate the detail and the securities rolling off.
Feddie Strickland: Just wanted to ask.
Feddie Strickland: I know theres been some discussion I appreciate the detail on the securities Rolling off.
Feddie Strickland: What kind of yields are you getting on
What kind of yields are you getting on new securities that you are reinvesting into just so we can have a sense of maybe how much pick up.
Speaker Change: Thank you for your time.
Feddie Strickland: You could have on the on the Securities book over time.
Ronald J. Gorczynski: We are pleased with the non-interest income revenue streams and remain focused on capturing customer relationship income opportunities as they present themselves. As with non-interest income, we anticipate continued expense consistency going into 2024, as well as our efficiency ratio starting to trend downward over the next several quarters. Looking ahead, we expect first quarter non-interest income in the mid $7 million range and non-interest expense in the $28.5 to $29 million range, with salary and benefit expenses making up $16.5 to $17 million of those expenses. And, finishing off on slide 18, total capital grew $13 million during the quarter to almost $460 million, driven by both earnings and $8 million from the decrease in ASCI losses due to interest rate changes. Over the past 12 months, we've made significant progress repositioning our balance sheet through various liquidity and capital management strategies.
Speaker Change: At this point, we're looking probably, it's over probably 525 range, somewhere plus or minus, depending on the exact security we're getting into, but it's definitely over 5% that we're looking to reinvest into.
Feddie Strickland: At this point, where we're looking probably it's over probably $5 25 range somewhere plus or minus depending on the exact security, we're getting into but it's definitely over 5% that we're looking to reinvest into.
Speaker Change: Gotcha. So we should just kind of pay attention to, you know, whatever Fed Funds does and use that as a bit of a barometer.
Speaker Change: Got you. So we should just kind of pay attention to whatever fed funds does is that it is a bit of a <unk>.
Speaker Change: Sure.
Speaker Change: I would think, yeah, probably, you know, 5, 10 basis points maybe below that Fed funds, but yeah.
Speaker Change: I would think probably 510 basis points, maybe below that fed funds, but yeah.
Speaker Change: And then you mentioned, yeah, I think you're right thinking about it, but yeah, as funds move.
Speaker Change: Gotcha.
Speaker Change: And then you mentioned that yes, you are right thinking about it but yes.
Speaker Change: Funds move.
Speaker Change: Yeah, I was going to say, Feddie, I think as funds move, obviously, you know, we're, again, trying to figure out, do you go ahead and ladder out a little bit of duration in a market where you're seeing the curve kind of, you know, move a little bit on you. So, again, trying to balance that kind of short-term versus long-term benefits. But as Ron said, you know, we're still going to get decent yields on these.
Speaker Change: Yes, I was going to say, but I think as funds move obviously.
Speaker Change: Again trying to figure out the go ahead and ladder out a little bit of duration.
Speaker Change: Where.
Speaker Change: Youre seeing the curve kind of.
Speaker Change: Move a little bit on yes, so again trying to balance that kind of short term versus long term benefits, but as rod said, we're still getting worse, they're gonna get decent yields on to him.
Speaker Change: That makes sense. Thanks for the color on that. And I wanted to switch gears. You know, if we do start to see rate cuts next year, will we likely see a bit of a lag on deposit repricing, at least
Speaker Change: That makes sense. Thanks for the color on that and I wanted to switch gears. If we do start to see rate cuts next year will we likely see a bit of a lag on deposit repricing at least in the community.
Ronald J. Gorczynski: We remain in a strong, well-capitalized position and, most importantly, continue to execute on our primary mission to grow and defend tangible book value.
Speaker Change: consumer and commercial side until potentially a second cut but maybe a faster benefit on municipal deposits repricing just trying to understand you know how those deposit portfolio would act on the way down
William Young Carroll: With that said, I'll turn it back over to Billy. Thanks, Ron. As you can see from our trends, we are positioned well. We knew that 23 was going to be a holding serve year, which we didn't like, but it was still the case. But even with that, we had nice balance sheet growth, and as I stated earlier, we had some very good operational accomplishments that are going to make us more efficient. With the stabilization we've discussed, more clarity on the rate forecast, and our disciplined spending, I feel confident we have metric improvements on the horizon.
Speaker Change: What sorry, consumer and commercial side.
Speaker Change: So potentially a second cut but maybe a faster benefit on municipal deposits re pricing just trying to understand.
Speaker Change: How this deposit.
Speaker Change: Folio would act on the way down.
Speaker Change: Yeah. And Rod, I think Rod gave a little bit of guidance there just kind of on what we've got this repricing immediately on the liability side. But I think it's a mix. You know,
Yeah, and Rod I think Rob gave a little bit of guidance. There just kind of on what we've got this repricing immediately on the liability side, but I think it's a mix.
Speaker Change: No.
Speaker Change: I think where we're at we are in a position with our liquidity that kind of allow us to move rates, maybe a little quicker than some.
William Young Carroll: My outlook for growth is still fairly bullish.
William Young Carroll: As we continue to see nice pipelines, we are lending and feel we can continue at this same pace, this same mid-single digit pace. With that, deposits, we anticipate growing at around that same pace, and we feel like we can continue to fund our growth internally. Summarizing a few key areas, we've built a great foundation over the last several years through both M&A and organic growth, and as a result, we have a very strong balance sheet that is diversified and granular, as well as a lot of strength in the liquidity we have available. As you've heard, we do have some outsized cash flows coming back to us in 2024, and that will have a very positive impact Say that again: we have a very nice balance.
Speaker Change: And we've done we've done all of that is a lot of.
Things with our deposit growth being a little bit softer this quarter. Some of that was because we pushed there were some higher cost stuff that we just didnt want to match and move some things out.
Speaker Change: For us yes.
Speaker Change: We've got some flexibility there.
Speaker Change: Yeah.
There might be a little lag, but we're going to we're going to try to push as hard as we can push but rather have you got any any other comments no exactly as bill indicated push hard the first cut or two and then see what the market what the market will bear but it's.
Speaker Change: We definitely want to take advantage of it just kind of like fairly it's kind of like when we saw rates going up I mean, you end up you end up kind of fighting for that rate sensitive core.
Speaker Change: I think we're going to.
William Young Carroll: As we discuss our footprint, our company operates in some of the best markets in the southeast, and that will continue to provide a tailwind for us. Geography matters, and as I travel through our regions, the vibrancy is real. When you have a couple of those markets, we have a couple of those markets that just have got some outstanding teams that we've built over the years, and we're going to continue to build those. And when you look at us holistically, we have a very nice value proposition. A couple of other items to note as I close. We added a great executive to our senior team, Martin Shrope. Martin joined us recently as chief banking officer during the last quarter and comes to us with an outstanding background in regional and large community banks. We're very excited to have Martin on our team.
Speaker Change: We're going to look at some of that kind of more market by market and client by client.
Speaker Change: But at the end of the day, we want to make sure. We're retaining we know what the market is we want to retain those.
Speaker Change: Our core business, but we're going to be as aggressive as we can on the way down.
Speaker Change: Got it. That's helpful. One last quick one. Just curious if you've given a second look at the bank term funding program. I know some banks have used some arbitrage there. Just not sure if that's something you guys have looked at or not.
Speaker Change: Got it that's helpful and one last quick one just curious if you've given a second look at the bank funding program.
Speaker Change: Some banks have eased some arbitrage there.
Speaker Change: Not sure if that's something you guys looked at or not.
Speaker Change: We have been looking at it, and again, we're developing a lot of strategy over the next hundred million dollars that we're going to deploy. And that is, you know, that is a consideration in our thought process. We haven't really picked the ideal purchases yet or how we're going to do it, but that's part of the candidates.
Speaker Change: We have been looking at it and again, where we're developing a lot of strategy over the next $100 million that we're going to deploy and that is that is a consideration in our thought process.
Speaker Change: We havent really picked the ideal.
Speaker Change: Purchases, yet or how we're going to do it but that's part of that's part of the candidates.
Speaker Change: Got it. Thanks Ron. Thanks for taking my question.
Speaker Change: Got it thanks, Ron Thanks for taking my question.
Speaker Change: Our next question
Speaker Change: Thanks, Pat next question.
Speaker Change: Our next question comes from Brett Rabatin from Hobbs Group. Your line is now open.
Speaker Change: Our next question comes from Brett Robinson from Health Group. Your line is now open.
William Young Carroll: We're also excited to move to the New York Stock Exchange in December.
William Young Carroll: We look forward to working with the NYSE and having a great long-term partnership.
Brett D. Rabatin: Hey guys, good morning.
Brett Robinson: Hey, guys good morning.
Brett D. Rabatin: Wanted to start with the fee income outlook. I know you...
William Young Carroll: I'll close with a big thank you to our 600 plus outstanding associates that we have in this company. These team members have worked extremely hard during the last year, and they continue to build a great culture for smart financials.
Brett Robinson: One of them.
Brett Robinson: Wanted to start with.
Brett Robinson: Some outlook.
Speaker Change: Hey, guys. Wanted to start with the fee income outlook. I know you mentioned seven and a half million in the first quarter. Billy, can you maybe talk about, I know you've got some initiatives and some thoughts on some products and maybe SBA. Are there any variables that would lead to stronger fee income performance in 24 relative to 23, you know, any initiatives that might push that?
Brett Robinson: Hey, guys wanted to start with the fee income outlook and I know you mentioned $75 million.
Brett Robinson: In the first quarter Billy can you maybe talk about I know, you've got some initiatives and some thoughts on some products and maybe SBA are there any variables that would lead to stronger fee income performance in 'twenty four relative to 'twenty three initiatives.
William Young Carroll: So I'll stop there, and we'll open it up for questions.
Operator: Thank you. We will now start today's Q&A session. If you would like to ask a question, please press start followed by one. Thank you for listening to Keypad Now. If you change your mind, please...
Stephen Kendall Scouten: Our first question today comes from Stephen Scouten on behalf of Piper Sandler. Your line is now open.
Speaker Change: Push that.
William Young Carroll: You know, kind of mid-single-digit number higher than 24.
William Young Carroll: Kind of mid single digit number higher in 'twenty four.
Yeah, hey, good morning, everyone.
William Young Carroll: Brett, I guess you're speaking to just that non-interested income line. Yeah, I think there could be. Obviously, we've continued to put resources into our smart bank investments group, as well as insurance. I think that could be a big piece of it. But again, if we can continue to grow that AUM, our investments group now has about $1.2 billion in AUM, and it's starting to become a little more, you see it becoming a little more impactful on our income statement. And insurance, while still relatively small, could provide some upside, too. Yeah, I think bigger things for us, TM and Treasury are important. We're continuing to put much more in the way of resources. We're continuing to put much more in the way of resources behind that, especially in an environment where we're really looking to grow deposits. And those corporate deposits are big. So, you know, the TM side of it is very important. And, you know, I'd also mention their new chief banking officer, Ad Martin Shrote. Martin's got some great ideas related to experience he's had in some of the regional banks that he's worked with that I think, you know, that could provide some upside there. So, you know, I think it's a variety. I think it's a variety of things. At the end of the day, can I think we can improve on Ron's guidance? Absolutely. Swap these two. You know, when you look at our capital markets group, you know, this curve continues to stay a little bit in, get some inversion in the curve, you know, using swaps to lock in some lower, longer rates for clients with us floating them are out there as well. So, I'm throwing a bunch of stuff out there. I think it's a little bit of all of it, I guess, is my answer to your question. At the end of the day, but the great thing about it is we built, you know, we built these different business lines. We've got a number of different levers that we can do. So, I think it'll just be a function of kind of what the market gives us. But I do think there's nice upside.
Speaker Change: Yeah, Bryan I guess Youre speaking to just that that non interest income line, yes, I think there could be obviously, we've continued to put.
How are you doing?
and many more. I guess one question I have...
Thanks. I guess I just had one question about this, you know, the news around the South Alabama Panhandle team.
Speaker Change: Put resources into Air Smart Bank investments group.
As well as insurance.
I'm just kind of wondering what the total size of that team was from what you brought on in 21 and, kind of, what that loan book, how much of those folks remain, just kind of if there's any material risk to any outflows from that respect. Yeah, of course, no material risk and outflows. We did have, basically, see, we had two producers leave that represented two marks in that coastal region. And as you know, we've had very little of that in our history. All I'll say about that is sometimes folks feel that they'll fit better in other places. And when that's the case, it's been my experience that it usually works out best for everybody. We've got a nice plan in place, feel we're better positioned as we wrap up some near-term recruiting efforts, and we see no real impact from those departures.
Speaker Change: I think thats.
Speaker Change: I think that could be that could be a big piece of it.
Speaker Change: Again, we continue to grow that that AUN. Our investments group now has about $1 2 billion in <unk> and it's starting to become a little more.
It's becoming a little more impactful.
Speaker Change: On the on our income statement and insurance, while still relatively small it could provide some upside too.
Speaker Change: Think bigger things for us TM and Treasury are important we're putting continuing to put.
Speaker Change: Much more in the way of resources behind that especially in an environment, where we're really looking to grow deposits.
Speaker Change: And those corporate deposits were big so the TM side of it.
Speaker Change: <unk> is very important.
I'd also mentioned, our new Chief Banking Officer add Martin Schroeter, Martin has got some great ideas.
Speaker Change: Related to experience he's had in some of the regional banks that he's worked with that I think they could provide some upside there so yes.
We've got a good strategy, and we have a good backup plan. Okay, great. And apologies if I missed any commentary on this, but for non-interest bearing deposits, it looks like the pace of decline has kind of slowed, which is good, but still moving downward. Do you expect to see that continue? Do you think the mixed shift can kind of stabilize from here on the deposit side? Yeah, that's a good question. We are seeing a slowdown of the rate of increase.
Speaker Change: I think it's a variety of things at the end of the day cannot they can I think we can improve on on Ron's guidance absolutely swap. These two when you look at our capital markets Group. This curve continue to stay a little bit and get some inversion in the curve.
Speaker Change: Using swaps to lock in some lower longer rates for clients with us floating number are out there as well so I'm throwing a bunch of stuff out there I think it's a little bit of all of it I guess is my to answer your question at the end of the day, but but the great thing about it is we built we built these these different <unk>.
We do expect the mixed shift to probably, hopefully, floor at 20%. So I think from here, we're seeing a lot of stabilization over the last quarter and looking forward. So not much more on the deposit side, but we still will have a little bit of deposit creep going forward and expense creep going forward. Okay, got it. Makes sense. Okay. And then just last thing for me is you guys are talking about this 2024 profitability recovery and seeing the trajectory, which is great and definitely can see that. Well, from what you saw in 2023 on a profitability standpoint, what do you think the possibility is to return to, say, 24, 25 from my numbers, if they are correct, maybe like a 73 basis point ROA here this year in full?
Speaker Change: Business slides, we've got a number of different levers that we can do so I think it'll just be a function of kind of what the market gives us, but I do think theres nice upside there.
Speaker Change: Okay. And you specifically mentioned insurance, and I know we've talked about it. I know you like the business. Any thoughts on what some other folks have done in terms of monetizing high valuations to redeploy capital in the core bank business?
Speaker Change: Okay, and you specifically mentioned insurance I know, we've talked about it I know you liked the business any thoughts on what some of other some other folks have done in terms of monetizing high valuations to redeploy capital in the core bank business.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah, we've seen that. We've watched. I know Nate and I talk about it. Nate works a lot on that side with me and we talk about it a lot. Again, like the business, think that we've got the ability to continue to grow it and grow that revenue line. But we're aware of what's going on in the markets and we're keeping an eye on that.
Speaker Change: Yes, we've seen that we've watched and have night not talk about it works a lot on that side with me and we talk about it a lot again like the business that we've got the ability to continue to grow it.
Yeah, at this point, you know, we, with our, with our repricing that's occurring in our production, we should see, you know, we will see the lift starting, you know, second half of this year, but getting back to that 1% pre, you know, pre downward rate looking, excuse me, pre downward ROA, probably like the second half of 2025. I think we'll be back on plane. That's what we're expecting at this point. Stephen, I'll add, you know, we've, we've looked at, obviously, that's, that's where we want to get back to where we were, you know, just about 18 months ago, not unlike others you know you get a little bit of squeeze but I we feel really good about kind of where the company is positioned now as Ron's alluded to you know the repricing you throw in some asset growth and what we're looking at we're kind of modeling a lot of this in kind of a flat rate scenario we're trying to take a look at a fairly conservative approach you know if you get you know if the market projections hold true and you get a little bit of a downward shift I think that that accelerates that recovery for us and gets us back to those normalized metrics even faster so feel pretty good about it we know we can get there it'll just be a little bit of function of what what the Fed does.
Speaker Change: And grow that revenue line.
Speaker Change: But we're aware of what's going on in the markets and we're keeping an eye on that.
Speaker Change: Okay.
And then just lastly for me I know you guys have a lot of experience in trucking and several board members are involved what can you maybe give us an outlook on what youre seeing specifically in the trucking industry.
Speaker Change: Kind of core outlook from a just a fundamental perspective for that for that business.
Speaker Change: Miller mill are still fairly involved that number once you take that just kind of your trucking outlook.
Speaker Change: Thank you.
Speaker Change: Optimistic about the trucking and transportation industry.
Speaker Change: Specifically the bigger more stable carriers that have been in it for years I think you have some excess capacity came into the market with some inexperienced operators kind of COVID-19 area pushed COVID-19 era pushed up a little bit of the <unk>.
Speaker Change: Demand, but I think that is kind of sorted out now and I would say.
Speaker Change: Probably bullish on the industry as a whole, it's just such a vital part of the economy.
Speaker Change: Stable operators will do better in margin will continue to improve for them. So yes no.
Speaker Change: No worries at all about that industry.
Speaker Change: Okay, Great appreciate all the color.
Speaker Change: Thanks, Brett.
Got it. It makes sense. And does that imply a really big ramp from an operating revenue perspective, like that kind of $42 million number? Does that need to ramp pretty significantly in 25 to get to that level? Because it just feels like a pretty..., big jump back in a relatively short period of time. Well, I think from going forward, we'll consecutively, quarter over quarter, increase it. You know, we're looking in the mid-2025. We're probably starting to hit the $50 million net revenue bogeyman. So, yeah, we will have a considerable ramp-up. But, again, with all the repricing that's occurring, we feel confident we'll get there. Okay, that's extremely helpful. Thanks, guys. I appreciate the time. Thanks, Steve.
Our next question today comes from Steve Moss from Raymond James. Please go ahead.
Stephen M. Moss: Good morning.
Stephen M. Moss: Maybe just starting off on the revenue guide here.
Speaker Change: Ron you mentioned.
Speaker Change: Good morning, Ron You mentioned 42 million and total operating revenue for the second half of 'twenty four just wondering if you're incorporating any rate cuts into that guidance.
Speaker Change: Okay.
No. We're not we're assuming a flat rate environment and any rate cuts will make our performance that much better so.
Speaker Change: Wanted to be conservative in our in our looking forward guidance.
Speaker Change: Okay great.
Speaker Change: Just on that related to just curious I missed the number you mentioned I.
Speaker Change: I missed how much of your interest bearing deposits are indexed.
Matt Olney: Our next question comes from Matt Olney from Stevens.
Matt Olney: Your line is now open.
Speaker Change: Sure.
Hey, Greg.
Speaker Change: We're doing a 35% or $1 1 million excuse me $1 1 billion.
Good morning, everybody. Hey, I want to ask you something about balance.
Good morning. I want to ask more about balance sheet liquidity. And you mentioned you've got some nice cash flows coming due pretty quickly. And we've talked about this for a while. It does provide some nice optionality. Any updated thoughts you can provide us with around what you expect to do with improved liquidity? Ultimately, we'd like to fund loan growth with it, but being that we're still targeting our 12% asset to security ratio, we are strategizing pretty much to put $100 million to work over the next month or two to kind of buffer that 12% bogeyman that we're trying to get to or maintain. So we will have investment purchases over the next two months, okay so so loan growth and partially into securities. And on the loan growth front, I heard some commentary on that.
Speaker Change: Our indexed.
Two.
And we also have another $300 million debt.
Speaker Change: It's to an internal index, but we feel confident that we can go ahead and follow the fed rate cuts as appropriate.
Speaker Change: Okay.
Speaker Change: Great.
Speaker Change: That's helpful and then in terms of.
Our contractual yield on loans expanded nine basis points to 5.61% versus 5.52% last quarter. While we were pleased to see the yield on interest-earning assets outpace the cost of interest-bearing liabilities, we caution that deposit migration and competitive pressures can quickly impact these improvements. To counter this, we continue to exercise careful loan pricing discipline and thoughtful deployment of excess proceeds from our asset repositioning. As our margin stabilization continues, we project operating revenue to remain in the lower $39 million range and gradually return to our previous $42 million-plus quarterly run rate in the second half of 2024. On slide 15, we have our interest rate sensitivity information.
Speaker Change: Yes.
Speaker Change: Bill you're upbeat on on the <unk>.
Loan pipeline here, just curious what youre seeing for the underlying business mixture going forward into 2024, it sounds like more C&I in.
Speaker Change: Owner occupied commercial real estate.
Speaker Change: Yeah, I think it's I think it's a good mix out Red you got you add any color you want to but I think it's a mix.
Speaker Change: Obviously, yes, we looked at a little more C&I growth in 2020. Three we think we will want to continue that same pace.
I heard the deposit growth guidance, but I may have missed the loan growth guidance. What's the range of expectations for loan growth this year? Matt, I think we're, we're projecting kind of, we're staying in a kind of that mid singles, you know, I think we can, we can be somewhere there, hopefully north of 5%, you know, air, air, air bogey internally is about 7% ish on both sides of the balance sheet. You know, when you look at balance sheet growth, you know, we've got, again, we, we, we, we feel, we feel good about the way the year's starting. I mean, pipelines continue to continue to look good as, as, as we sit down with our regional presidents and look at our growth prospects.
Speaker Change: But we're still when you look at our CRE ratios right you can speak to that we still we're still seeing some some nice.
Speaker Change: Lower risk CRE opportunities out there to get any color you want to add.
Speaker Change: Great.
Speaker Change: Thank you.
We have approximately 42% of our loan portfolio that is variable rate, with $829 million repricing within three months. For our deposits, we have 35% of our interest-bearing deposits that we'll reprice immediately in conjunction with any movements to the Fed rate, along with $208 million of CBs repricing during this current quarter. We have details of our non-interest income and expenses on slides 16 and 17. Both operating non-interest income and expense were in line with previous guidance at $7.6 million and $28.8 million, respectively.
Speaker Change: The pipeline currently in most of what our teams are out of bounds.
Speaker Change: Finding opportunities and is still predominantly C&I owner occupied.
Speaker Change: Projects.
Speaker Change: Bill its point I do think.
For the year, if we do see some of the interest rate movements that are forecast it will help.
Speaker Change: The CRE aspect, though just because of the metrics associated with underwriting outperformance of incomplete income producing properties.
Speaker Change: <unk> creates some opportunities in this space that are just.
Speaker Change: We're a little stronger in the profile than what we saw with rich going up at the pace. They did last year. So it could be it could be a really good mix as we go through the year.
We feel, feel, feel good about getting that. So, you know, we're still kind of in that, kind of in that, that upper, not, I wouldn't say, high singles, but kind of mid, mid plus singles. Um, uh, balance sheet growth for the year. Okay, that's helpful. Thank you for that. And then, as far as the Alabama credit that was mentioned before, any more color you can provide on that, just the size of that loan? And it sounds like you feel good about the collateral. What type of collateral is that?
We are pleased with the non-interest income revenue streams and remain focused on capturing customer relationship income opportunities as they present themselves. As with non-interest income, we anticipate continued expense consistency going into 2024, as well as our efficiency ratio starting to trend downward over the next several quarters. Looking ahead, we expect first quarter non-interest income in the mid $7 million range and non-interest expense in the $28.5 to $29 million range, with salary and benefit expenses making up $16.5 to $17 million of those expenses.
Speaker Change: Okay great.
Speaker Change: Helpful and then in terms of just the.
On credit here, just curious how large is the small trucking.
Of the fountain portfolio that you guys talked about where you're seeing some stress.
Speaker Change: The overall portfolio for fountain.
Speaker Change: The trucking industry is about up about 40% of the weight, but the ones the.
Speaker Change: So the challenge for operators that we were working.
And finishing off on slide 18, total capital grew $13 million during the quarter to almost $460 million, driven by both earnings and $8 million from the decrease in ASCI losses due to interest rate changes. Over the past 12 months, we've made significant progress repositioning our balance sheet through various liquidity and capital management strategies. We remain in a strong, well-capitalized position and, most importantly, continue to execute on our primary mission to grow and defend tangible book value. With that said, I'll turn it back over to Billy.
Speaker Change: Through as the year progressed is about little about little over one 5% of our total portfolio. So it's a small group of operators, we feel like we'd have identified.
Yeah, Brett, if you want to walk into that, I think it's a mix. You've got some mixed collateral in it. The total size of, I mean, it wasn't a single long. It was a group of loans, but the total size of all of them is about $3 million in balances, and the collateral is predominantly real estate, and then there was some office equipment associated with some of that. Okay. And as far as resolution of that type of credit is concerned, is that a near-term event, or could this drag out for a little while, you think? I don't think it'll drag out for a long period, Matt. I mean, it may take us up to a quarter or a little more just depending on the, and some of the legal process we go through, but and the positioning of some of those assets, but I don't think it's going to be a drug out thing and, like I said, we went ahead and positioned an allowance factor against what we believe to be the risk there, so we feel pretty good about where. Okay. Okay guys, that's Thank you.
Speaker Change: Vast majority dockyard, so there won't be one or two here or there.
Speaker Change: That may have an issue as we go through 'twenty four but we think the majority of the ones that are.
Better at a higher leverage point, we've identified are working through those most of the challenge just simply comes in the valuation of the underlying asset marketplace.
Billy: Thanks, Ron. As you can see from our trends, we are positioned well. We knew that 23 was going to be a holding serve year, which we didn't like, but it was still the case.
Speaker Change: Fluctuated as if you're with but as I've stated, we certainly have seen that plateau.
Speaker Change: We think it's going to go into hold a little more favorably as we go through this next year at very minimal.
Billy: But even with that, we had nice balance sheet growth, and as I stated earlier, we had some very good operational accomplishments that are going to make us more efficient. With the stabilization we've discussed, more clarity on the rate forecast, and their disciplined spending, I feel confident we have metric improvements on the horizon. Moreover, my outlook for growth is still fairly bullish. As we continue to see nice pipelines, we are lending and feel we can continue at this same pace, this same mid-single digit pace. With that, deposits, we anticipate growing at around that same pace, and we feel like we can continue to fund our growth internally. Summarizing a few key areas, we've built a great foundation over the last several years through both M&A and organic growth, and as a result, we have a very strong balance sheet that is diversified and granular, as well as a lot of strength in the liquidity we have available.
Okay, Great maybe just curious also.
Speaker Change: Is that what.
Speaker Change: Are any of those credits appearing in the.
Speaker Change: The line item the release of restructured loans and leases not included in nonperforming assets.
Speaker Change: Up to $4 2 million.
Speaker Change: Just wondering if thats the driver there.
Speaker Change: Yeah.
Speaker Change: Yes, no that's included in the non performing assets.
Okay, and then maybe just what is driving that bucket there.
Thanks, Matt.
Our next question today comes from Freddy Strickland on behalf of Janie Montgomery Scott. Please go ahead.
Our restructured loans and leases I'm sorry.
Hey, good morning, gentlemen.
Speaker Change: Yes.
Speaker Change: I'll say, what I think your question was what's driving that was that right, yes correct.
I wonder if I did that.
I just wanted to ask, I know there's been some discussion, and I appreciate the detail and the securities rolling off. What kind of yields are you getting on these? Thank you for your time. At this point, we're probably looking for, it's probably in the 525 range, somewhere plus or minus, depending on the exact security we're getting into, but it's definitely over 5% that we're looking to reinvest into. Gotcha. So we should just kind of pay attention to, you know, whatever the Fed Funds does and use that as a bit of a barometer. I would think, yeah, probably, you know, 5, 10 basis points, maybe below that Fed Funds rate, but yeah. And then you mentioned, yeah, I think you're right about thinking about it, but yeah, as funds move.
Speaker Change: Correct, what's driving the bucket of restructured loans and leases not included in non performing.
Billy: As you've heard, we do have some outsized cash flows coming back to us in 2024, and that will have a very positive impact on us. To say that again, we have a very nice balance. As we discuss our footprint, our company operates in some of the best markets in the Southeast, and that will continue to provide a tailwind for us. Geography matters, and as I travel our regions, the vibrancy is real.
Speaker Change: Just trying to think.
Speaker Change: As far as <unk> restructured loans and leases.
Speaker Change: I'll have to we'll have to get back to you off top my head Im not sure what.
Speaker Change: Metric.
Speaker Change: No.
Speaker Change: I'll get you that information.
Billy: When you have a couple of those markets, we have some we have a couple of those markets that just have got some outstanding teams that we've built over the years. And we're going to continue to build those. And when you look at us holistically, we have a very nice value proposition. There are a couple of other items to note as I close. We added a great executive to our senior team, Martin Schroep. Martin joined us recently as Chief Banking Officer during the last quarter and comes to us with an outstanding background in regional and large community banks. We're very excited to have Martin on our team.
Speaker Change: Okay.
Speaker Change: I don't have it front of them.
Speaker Change: Okay.
Speaker Change: I appreciate all color. Thank you very much guys.
Speaker Change: Thanks for that.
Yeah, I was going to say, Feddie, I think as funds move, obviously, you know, we're, again, trying to figure out, do you go ahead and ladder out a little bit of duration in a market where you're seeing the curve kind of, you know, move a little bit on you. So, again, trying to balance that kind of short-term versus long-term benefits. But as Ron said, you know, we're still going to get decent yields on these. That makes sense. Thanks for the color on that.
Speaker Change: Our next question today comes from Catherine Mealor from.
VW Your line is now open.
Catherine Mealor: Thanks, Good morning.
Catherine Mealor: Good morning morning.
VW: It feels like some of your commentary on the call. So far it feels like we've got some really good revenue momentum, especially if we get cut.
Billy: We're also excited to move to the New York Stock Exchange in December. We look forward to working with the NYSE and having a great long-term partnership. I'll close with a big thank you to our 600 plus outstanding associates that we have in this company.
VW: This is the kind of into 25 with the loan repricing opportunity and so as we think about improving revenue through the back half of the Charlotte next how do you think we should balance that with expense growth do you think expense growth.
Unnamed: And I wanted to switch gears. You know, if we do start to see rate cuts next year, will we likely see a bit of a lag on deposit repricing, at least on the consumer and commercial sides until potentially a second cut but maybe a faster benefit on municipal deposit repricing, just trying to understand how those deposit portfolios would act on the way down. Yeah. And Rod, I think Rod gave a little bit of guidance there just kind of on what we've got this repricing immediately on the liability side. But I think it's a mix. You know, I got it. That's helpful. One last quick one. Just curious if you've given a second look at the bank term funding program. I know some banks have used some arbitrage there. I'm just not sure if that's something you guys have looked at or not.
Operator: These team members have worked extremely hard during the last year, and they continue to build a great culture for smart financials. So I'll stop there, and we'll open it up for questions. Thank you. We will now start today's Q&A session. If you would like to ask a question, please press start followed by 1.
VW: Accelerates a little bit is that revenue rebound or is this going to be a really big switch in your profitability you get some bigger operating leverages as move into next year.
Speaker Change: Yeah, I'll start and then Ron you Chad.
Stephen Kendall Scouten: Now, if you change your mind, please. Our first question today comes from Stephen Scouten on Piper Sandler. Your line is now open. Yeah, hey, good morning, everyone. How are you doing?
Speaker Change: I think Catherine obviously <unk>.
Ronald J. Gorczynski: Expenses, Yes, I think we've done a nice job when you look at when you look at when you look at our efficiency ratio. The ratio was elevated just because of net interest income.
Stephen Kendall Scouten: Um, I guess one question I have... Thanks. I guess I just had one question about this, you know, the news around the South Alabama panhandle team.
Speaker Change: I'm getting a little echo there I'm sorry.
Speaker Change: But I think at the end of the day I think we can control a lot of those expenses you know theres not a lot we will have a little bit of occupancy add this year with some some branches that we have got.
Billy: I'm just kind of wondering what the total size of that team was from what you brought on in 21 and kind of, you know, that loan book, how much of those folks remain, just kind of if there's any material risk to any outflows from that respect. Yeah, of course, no material risk and outflows. We did have, we basically, see we had two producers leave that represented two marks in that coastal region. And as you know, we've had very little of that in our history.
Speaker Change: Adding down in Alabama, and particularly.
Unnamed: We have been looking at it, and again, we're developing a lot of strategy over the next hundred million dollars that we're going to deploy. And that is, you know, that is a consideration in our thought process. We haven't really picked the ideal purchases yet or how we're going to do it, but that's part of the candidates.
Speaker Change: But.
Speaker Change: And then there is obviously some variable component in there in that salary line related to incentives, but those only those typically are going to be that should that should ramp as revenue ramps.
Speaker Change: I think at the end of the day, we'll see some some increase in there, but we're going to work very hard to make sure that that's contained in right now if you've got any just comments related to expense growth. Yes. It really is a percent of revenues for first quarter were estimating noninterest expense to revenues at 72% and that.
Ronald J. Gorczynski: Thanks, Ron.
Unnamed: Thanks for taking my question. Our next question comes from Brett Rabatin from Hobbs Group.
All I'll say to that is sometimes folks feel that they'll fit better in other places. And when that's the case, it's been my experience that it usually works out best for everybody. We've got a nice plan in place, feel we're better positioned as we wrap up some near-term recruiting efforts, and we see no real impact from those departures. We've got a good strategy, and we have a good backup plan. Okay, great. And apologies if I missed any commentary on this, but for non-interest bearing deposits, it looks like the pace of decline has kind of slowed, which is good, but still moving downward. Do you expect to see that continue? Do you think the mixed shift can kind of stabilize from here on the deposit side? Yeah, that's a good question.
Your line is now open.
Unnamed: Hey guys, good morning.
Speaker Change: We're expecting that to widen out so meaning that by the time of our Q4 of 2024. It represents 6700, 68% of the revenue. So the revenues will widen out quicker than the expenses will increase so that makes sense.
Unnamed: I wanted to start with the fee income outlook. I know you...
Unnamed: Hey guys, wanted to start with the fee income outlook. I know you mentioned $7 and a half million in the first quarter.
William Young Carroll: Billy, can you maybe talk about, I know you've got some initiatives and some thoughts on some products and maybe SBA?
Speaker Change: It does thats great.
Speaker Change: Are there any kind of expense investment teams technology process does anything that you've been holding back on while we've been in this constrained revenue environment that we may see or you kind of feel like you've got the infrastructure that you need.
Unnamed: Are there any variables that would lead to stronger fee income performance in 24 relative to 23, you know, any initiatives that might push that? You know, kind of a mid-single-digit number higher than 24.
Speaker Change: <unk> revenue, where do you see going.
Speaker Change: Interest.
Speaker Change: Yeah.
Speaker Change: I think we've got a pretty good spot, we're continuing to evaluate some tech.
We are seeing the slowdown of the rate of increase. We do expect the mixed shift probably, hopefully, floor at 20%. So I think from here, we're seeing a lot of stabilization over the last quarter and looking forward. So not much, not much more on the deposit side, but we still will have a little bit of deposit creep going forward, expense creep going forward. Okay, got it. Makes sense.
Brett, I guess you're speaking to just that non-interested income line.
Speaker Change: Options with.
Unnamed: Yeah, I think there could be.
Speaker Change: With some digital platforms Theres some things that we have got on the horizon, we don't necessarily have in 'twenty.
William Young Carroll: Obviously, we've continued to put resources into our smart bank investments group, as well as insurance. I think that could be a big piece of it. But again, if we can continue to grow that AUM, our investments group now has about $1.2 billion in AUM, and it's starting to become a little more impactful on our income statement. And insurance, while still relatively small, could provide some upside, too. Yeah, I think bigger things for us, TM, and Treasury, are important. We're continuing to put much more in the way of resources. We're continuing to put much more in the way of resources behind that, especially in an environment where we're really looking to grow deposits. And those corporate deposits are big.
Speaker Change: <unk> 24 forecast.
Speaker Change: Because we want to make number one want to make sure that the revenue growth comes back as we as we project but.
Speaker Change: Not a lot not a ton of spend out there.
Speaker Change: Systems are in place there'll be a little bit here and there, but within seen in <unk> and <unk> being in.
Okay. And then just the last thing for me is you guys are talking about this 2024 profitability recovery and seeing the trajectory, which is great, and I definitely can see that. From what you saw in 2023 on a profitability standpoint, what do you think the possibility is to return to what sort of level in maybe 2024-2025 from, if my numbers are correct, maybe like a 73 basis point ROA here this year in full? Yeah, at this point, you know, we, with our repricing that's occurring in our production, we should see, you know, we will see the lift starting, you know, the I think we'll be back on the plane.
Speaker Change: We've got a lot of this stuff's already already built in and built into our run rates. So.
Speaker Change: Yes, Theres a couple of broader strategic things that we might want to look at as we get into the later part of the year.
Speaker Change: Related to potential upgrades of some digital platforms.
Speaker Change: You got to stay relevant.
That said, we've got to make sure that we've got the right tools.
William Young Carroll: So, you know, the TM side of it is very important. And, you know, I'd also mention their new chief banking officer, Ad Martin Shrote. Martin's got some great ideas related to the experience he's had in some of the regional banks that he's worked with that I think, you know, that could provide some upside there. So, you know, I think it's a variety. I think it's a variety of things. At the end of the day, do I think we can improve on Ron's guidance? Absolutely not.
Speaker Change: But we feel like most of that's already into the run rate, we will evaluate as the year goes on and see how the revenue line, if they're making sure the revenue lines.
Speaker Change: Back like we like we anticipate Ron I don't know if you've got any other color no exactly.
Speaker Change: Operationally were sound were solid.
I think it's more it related to.
Speaker Change: For fraud related items software and also as we as we keep our infrastructure.
Unnamed: Swap these two.
William Young Carroll: You know, when you look at our capital markets group, you know, this curve continues to stay a little bit in, get some inversion in the curve, you know, using swaps to lock in some lower, longer rates for clients with us floating them out there as well. So, I'm throwing a bunch of stuff out there. I think it's a little bit of all of it, I guess, is my answer to your question. At the end of the day, but the great thing about it is that we built, you know, we built these different business lines. We've got a number of different levers that we can pull. So, I think it'll just be a function of kind of what the market gives us. But I do think there's a nice upside.
Speaker Change: Customer focused so we'll always have opportunities to enhance it but right now we're in a good spot.
Billy: That's what we're expecting at this point. Stephen, I'll add, obviously, that's where we want to get back to where we were, you know, just about 18 months ago. Not unlike others, you get a little bit of a squeeze, but we feel really good about kind of where the company is positioned now, as Ron's alluded to, you know, the repricing, you throw in some asset growth. And what we're looking at, we're kind of modeling a lot of this in kind of a flat rate scenario. We're trying to take a look at a fairly conservative approach. You know, if you get, if the market projections hold true, and you get a little bit of a downward shift, I think that that accelerates that recovery for us and gets us back to those normalized metrics even faster. So I feel pretty good about it.
Speaker Change: Great very helpful. Thank you.
Speaker Change: Thanks Catherine.
Speaker Change: Our final question today comes from Stephen Scouten from Piper Sandler Your line is now open.
Stephen Kendall Scouten: Hey, guys I just wanted to jump in for a follow up I think you had said you might have some color around that.
Litigation issue I'm not sure if I might have missed that but just was wondering if theres any.
Stephen Kendall Scouten: Any information you could.
Stephen Kendall Scouten: And on that front.
Unnamed: Okay.
And you specifically mentioned insurance, and I know we've talked about it.
Speaker Change: Ron you want.
Unnamed: I know you like the business. Any thoughts on what some other folks have done in terms of monetizing high valuations to redeploy capital in the core bank business? Yeah. Yeah, we've seen that. We've watched.
Ronald J. Gorczynski: It really is its ability to indicated the accrual as nonrecurring relates to our pending litigation that we expect to be resolved during the first during this quarter.
Billy: We know we can get there. It'll just be a little bit of function of what the Fed does. Got it. It makes sense. And does that imply a really big ramp from an operating revenue perspective, like that kind of $42 million number, does that need to ramp pretty significantly in 2025 to get to that level? Because it just feels like a pretty big jump back in a relatively short period of time.
Ronald J. Gorczynski: No other material amounts will be will be accrued for.
Ronald J. Gorczynski: I honestly nothing unusual here, it's sort of litigation that many banks have been seeing lately and.
William Young Carroll: I know Nate, and we talk about it all the time. Nate works a lot on that side with me, and we talk about it a lot.
William Young Carroll: Again, like the business, I think that we've got the ability to continue to grow it and grow that revenue line. But we're aware of what's going on in the markets, and we're keeping an eye on that.
Ronald J. Gorczynski: Just kind of.
Ronald J. Gorczynski: That's pretty much the number.
Ronald J. Gorczynski: More much more to say on that.
Speaker Change: Okay, great. Thanks for let me back in.
Stephen Kendall Scouten: Well, I think from going forward, we'll see consecutive quarter over quarter increases. You know, we're looking in the mid 2025, we're probably starting to hit the $50 million net revenue bogey. So yeah, we will have a considerable ramp. But again, with all the repricing that's occurring, we feel confident we'll get there. Okay, that's extremely helpful. Thanks, guys. I appreciate the time.
Speaker Change: Thanks, David appreciate it.
Speaker Change: I'd like to turn the session back over to Bill <unk> for any final remarks.
Bill: Thanks drew and thanks again to each of you for joining us today as always if you have any additional questions. Please feel free to reach out to any of us directly with any questions you might have and hope you have a great week goodbye.
Bill: That concludes today's smart financial fourth quarter 2023, adding release and conference call. You May now disconnect your lines.
Operator: Our next question comes from Matt Olney from Stephens. Your line is now open. Hey, great. Good morning, everybody. Hey, I want to ask more about balance. Good morning.
Bill: [music].
Matt Olney: I want to ask more about the balance sheet liquidity, and you mentioned you've got some nice cash flows coming due pretty quickly. And we've talked about this for a while; it does provide some nice optionality. Any updated thoughts you can provide us with around what you expect to do with that improved liquidity? Here, we, you know, ultimately, we'd like to fund loan growth with it. But being that we, you know, we're still targeting our 12% asset to security ratio.
So we are strategizing pretty much to put $100 million to work over the next month or two to kind of buffer that 12% bogey that we're trying to get to or maintain. So we will have investment purchases over the next two months. Okay, so loan growth and partially into securities. And on the loan growth front, I heard some commentary on that. I heard the deposit growth guidance, but I may have missed the loan growth guidance. What's the range of expectations for loan growth this year?
Billy: Matt, I think we're projecting kind of we're staying in a kind of that mid singles, you know, I think we can we can be somewhere there, hopefully north of 5%, you know, our air bogey internally is about 7% ish, on both sides of the balance sheet, you know, when you look at balance sheet growth, you know, we've got, again, we, we, we feel good about the way I mean, pipelines continue to continue to look good as we sit down with our regional presidents and look at our growth prospects. We feel feel feel good about getting that.
Matt Olney: So I, you know, we're still kind of in that kind of upper, not I wouldn't say high singles, but kind of mid-mid plus singles balance sheet growth for the year. Okay, that's helpful. Thank you for that.
Billy: And then as far as the Alabama credit that was mentioned before, any more color you can provide on just the size of that loan? And it sounds like you feel good about the collateral. What is that?
Brett D. Rabatin: What type of collateral is that? Yeah, Brett, you want to walk into that, and I think it's a mix. You got some mixed collateral in it. The total size of it wasn't a single long loan. It was a group of loans, but the total size of all of them is about $3 million in balances. The collateral is predominantly real estate, and then there was some office equipment associated with some of that as well. OK. And as far as resolution of that type of credit is concerned, is that a near-term event, or could this drag out for a while, you think? I don't think it'll drag out for a long period, Matt.
Billy: I mean, it may take us a quarter or a little more, just depending on the legal process we go through and the positioning and location of some of those assets, but I don't think it's going to be a drug-out thing. And like I said, we went ahead and positioned an allowance factor against what we believe to be the risk there, so we feel pretty good about what we're doing. OK. Okay guys, that's all from me. Thank you. Thanks, Matt. Our next question today comes from Freddie Strickland on behalf of Janie Montgomery Scott. Please go ahead. Hey, good morning, gentlemen.
Feddie Strickland: I don't know. I just wanted to ask, you know. I know there's been some discussion, and I appreciate the detail on the securities rolling off. What kind of yields are you getting on the securities that you're reinvesting into just so we can have a sense of maybe how much pickup you could have on the securities book over time. At this point, where we're looking probably at the 525 range, somewhere plus or minus depending on the exact security we're getting into, but it's definitely over 5% that we're looking to reinvest into. Gotcha, so we should I would think, yeah, probably, 5, 10 base points, maybe below that, Fed funds, but yeah, gotcha, and then you mentioned yeah, I think you're right thinking about it as funds move. Yeah, I was gonna say, Feddie, I think it's fun to move. Obviously, we're again trying to figure out, do you go ahead and ladder out a little bit of duration in a market where you're seeing the But as Ron said, you know, we're still good; we're still going to get decent yields on the. That makes sense. Thanks for the color on that.
Billy: And wanted to switch gears, you know, if we do start to see rate cuts next year, will we likely see a bit of a lag on deposit repricing at least on the consumer and commercial side until potentially a second cut, but maybe a faster benefit on municipal deposit repricing. Just trying to understand, you know, how the deposit portfolio would act on the way down. Yeah, and Ron, I think Ron gave a little bit of guidance there just kind of on what we've got this repricing immediately on the liability side, but I think it's a mix. I think we are in a position with our liquidity that can allow us to move rates maybe a little quicker than some. We've done that before.
One of the things with our deposit growth being a little bit softer this quarter, some of that was because we pushed; there were some higher cost stuff that we just didn't want to match and move some things out. I think for us, we've got some flexibility there. There might be a little lag, but we're going to try to push as hard as we can. Ron, I don't know if you've got any other comments. No, not exactly.
Billy: As Billy indicated, push hard on the first cut or two and then see what the market will bear. We definitely want to take advantage of it. It's kind of like when we saw rates going up; you end up fighting for that rate-sensitive core. I think we're going to look at some of that kind of thing more market by market and client by client. But at the end of the day, we want to make sure we're retaining. We know what the market is, and we want to retain the core business, but we're going to be as aggressive as we can on the way down. Got it. That's helpful. One last quick one.
Feddie Strickland: I'm just curious if you've given a second look to the bank term funding program. I know some banks. There's some arbitrage there. I'm just not sure if that's something you guys have looked at or not. We have been looking at it, and again, we're developing a lot of strategy over the next hundred million dollars that we're going to deploy, and that is a consideration in our thought process. We haven't really picked the ideal purchases yet or how we're going to do it, but that's part of the consideration. Got it. Thanks, Ron.
Operator: Thanks for taking my question. For our next question, our next question comes from Brett Rabatin from Hobb Group. Your line is now open. Hey guys, good morning.
Brett D. Rabatin: Wanted to start with the fee income outlook, and I know you mentioned seven and a half million in the first quarter. Billy, can you maybe talk about, I know you've got some initiatives and some thoughts on some products and maybe SBA. Are there any variables that would lead to stronger fee income performance in 24 relative to 23?
Brett D. Rabatin: You know, any initiatives that might push that kind of mid-single-digit number higher in 24. Yeah, Brett, I guess you're speaking to just that non-interested income line. Yeah, I think there could be.
Billy: Obviously, we've continued to put resources into our smart bank investments group, as well as insurance. I think that could be a big piece of it. Again, if we can continue to grow that AUM.
Billy: Our investments group now has about $1.2 billion in AUM, and it's starting to become a little more impactful on our income statement. And insurance, while still relatively small, could provide some upside too. Yeah, I think bigger things for us, your TM and Treasury, are important. We're continuing to put much more in the way of resources behind those, especially in an environment where we're really looking to grow deposits. And those corporate deposits were big.
Billy: So yeah, the TM side of it is very important. I'd also mention their new Chief Banking Officer, Ad Martin Schrode. Martin's got some great ideas related to the experience he's had in some of the regional banks that he's worked with that I think could provide some upside there. So yeah, I think it's a variety of things. At the end of the day, do I think we can improve on Ron's guidance? Absolutely. Swap these two.
Billy: When you look at our capital markets group, this curve continues to stay a little bit in, with some inversion in the curve. Using swaps to lock in some lower, longer rates for clients with us floating them is out there as well. So I'm throwing a bunch of stuff out there. I think it's a little bit of all of it, which is my answer to your question at the end of the day.
Billy: But the great thing about it is we've built these different business lines. We've got a number of different levers that we can pull. So I think it'll just be a function of kind of what the market gives us. But I do think there's nice upside. Okay.
Brett D. Rabatin: You specifically mentioned insurance, and I know we've talked about it. I know you like the business. Any thoughts on what some other folks have done in terms of monetizing high valuations to redeploy capital in the core bank business?
Billy: Yeah. Yeah, we've seen that, you know. We've watched. I know Nate and I talk about it. Nate works a lot on that side with me, and we talk about it a lot. Again, like the business, I think that we've got the ability to continue to grow it and grow that revenue line. But, we're aware of what's going on in the markets, and you know, we're keeping an eye on that.