Q4 2023 Stellar Bancorp Inc Earnings Call
And maybe just touching on the loan declines. Actually, maybe before I go there, how do you think about your ability to reprice deposits and the sensitivity of those clients? I mean, you know, again, we were pretty slow to increase deposit rates. Do you think we'll be able to, you know, given the liquidity challenges in the market? I'm just curious how you think about repricing some of those deposits or, you know, considering the competitive landscape? Now, I think where you get the most ability to reprice is going to be in your exception universe, as well as your, but naturally, wholesale funding that stays pretty short, and you can reprice it. Hey David, I would just add to that Paul mentioned that probably our largest opportunity is in that money market where on our sheet rate, we took a very measured approach, so that might be, we really weren't very aggressive on the up, so on the down, it would probably be similar, but as we handled the exception pricing, that would be where we would target first. The time deposits that we put on during this time were short term, and then, of course, you enjoy a 40% plus Nib, so I think, as Paul mentioned, it would be in that money market bucket.
Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time your lines again will be placed on music hold thank you for your patience.
[music].
David, I'd just add, as you think about our approach to the positive side... when the market changed, and people were really aggressive about trying to fund their balance sheets, we felt like we didn't want to get into that competition, it was above what we wanted to pay for, and we wanted to retreat back to something that made sense for us and still maintained our great deposit franchise. Now, as deposit rates start to level out... We can be as competitive as anyone on the positive side, and we feel like we've got the ability to do what we need to do on a revised basis to compete in the market. So we just want rates to level out or give us some kind of idea that we're not going to be paying an outside price. Okay, that's helpful.
And maybe just touching on the loan side and the declines in the core, I'm just curious, how much of that is strategic and tightening and pushing higher pricing to kind of slow growth versus weaker market demand and just uncertainty in the economy from the client perspective and just your appetite for growth today where you're seeing opportunities and, you know, kind of where pricing is holding up. David, I think it's a combination of both that you mentioned, both our underwriting approach as well as some demand pressure and that, you know, as our customers are trying to get used to this new environment. And so we're standing on both fronts, you know; we have a number of quarters in a row. Our construction and development originations have declined, and that has been strategic, while our C&I has remained pretty constant, so as a percentage, C&I has increased a little bit.
Good morning, My name is Krista and I'll be your conference operator today at this time I would like to welcome everyone to the stellar Bank Corp fourth quarter earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you.
Yes. Good question during that time simply press star followed by the number one on your telephone keypad and if you would like to withdraw your question again press Star one. Thank you I would now like to turn the conference over to coordinate Curio, Chief Accounting Officer Courtney you May begin your conference.
Courtney: Thank you operator, and thank you to all who have joined our call today. Good morning, our team would like to welcome you to our earnings call for the fourth quarter of 2023.
Courtney: This morning's earnings call will be led by our CEO, Bob Franklin and CFO Paul <unk>.
Courtney: Also in attendance today are Steve Retzloff executive Chairman of the company raises here Lee President of the company.
Oh of the bank and Joe with Senior Executive Vice President and Chief Credit Officer of the bank.
Before we begin I need to remind everyone that some of the remarks made today constitute forward looking statements.
In the fourth quarter, we did drop a little bit compared to the third quarter in total originations, but we feel really good about where those came in rates, still with an 8-handle on our new loans, and we renewed another $600 million, also with an 8-handle, so we're pretty pleased with that as well. Terrific, that's great. Last one for me, maybe just touching on the expense side.
Defined in the private Securities Litigation Reform Act of 1995 as amended.
I understand all such statements to be covered by the safe Harbor provisions for forward looking statements contained in the act.
Also note that if we give guidance about future results that guidance is only a reflection of management's beliefs.
At the time that the statement is made and Thats beliefs are subject to change we disclaim any obligation to publicly update any forward looking statements, except as maybe required by law.
You know core expenses picked up a bit a lot of moving parts in the quarter. I'm just curious what you think about a good core expense level and then just the run rate through this year. I mean, how do you think about managing expenses just in light of some of the revenue challenges that we talked about? Prove how you think about We've got the 2024 expected expense on a core basis of around $280 million. There are a lot of drivers that we're going to be focused on, on optimization, as Bob said, to see the extent to which we may be able to do a little better.
Just in the last page of the text in this morning's earnings release, which is available on our website at IR Dot seller drop bank for additional information about the risk factors associated with forward looking statements.
At the conclusion of our remarks, we will open the lines and allow time for questions I will now turn the call over to our CEO Bob Franklin.
Alright, excuse me, thank you Courtney and good morning, and welcome to the stellar Bancorp fourth quarter.
Earnings call as we concluded 2023 I'll begin by thanking the outstanding team at stellar bank their hard work and dedication allowed us to bring two banks together, while dealing with the external pressures of foreign economic circumstances.
Today, we make strides in developing the scholar one.
Our team is working hard to Engrain, our values across our organization and our culture becomes more clear each day.
David Feaster: But ultimately, we feel like to achieve what we want to achieve and into persuading issues we want to pursue in 2024 to position it as best we can. So, that's the spend level and the plan. Now, the first quarter tends to have some seasonality to it, so that's going to be a little higher than if you were to divide that by four, but that's where we're targeting. Terrific. Thank
We are pleased with our results for 2023, given all of the industry stresses, while we focused on capital liquidity and credit our.
Our discipline around these tenants allowed us to build capital and stabilize our valuable deposit franchise maintain strong net interest margin, while maintaining good credit metrics and finished the year with a nice return on shareholders' equity for our shareholders.
Thank you. Your next question comes from the line of Matthew Onley from Stevens. Please go ahead; your line is open.
Our mantra is 2024 for 2024 is optimize the heavy lifting is behind us.
Have a great day. Good morning everybody, and I'm on that. I'll start on the professional fees. I think Paul mentioned professional fees were elevated due to some these initiatives of crossing 10 billion dollars in assets. Any more color on these initiatives and how do you see that line item trending in 2024? It was more of a timing dynamic, as you saw, the third quarter was relatively flat with a dip from the second quarter, and a lot of work has been done here in the fourth quarter to kind of achieve the goals we wanted to achieve by the end of the year as it relates to all things in the new standards of being over $10 billion in assets. When we look forward, we think about a run rate of professional fees that would be, certainly lower than this fourth quarter. I'd probably say more like two and a half million dollars, but you know that has some timing variation on a quarterly basis similar to what we saw in our trend when you look at that line from the second quarter to the third quarter in the fourth quarter. Okay, and I assume that's all embedded in that 24 guidance you mentioned, Paul, Thanks, Jack. All right. That's helpful. And then, I guess, switching over to the loan yields, if I take out the accretion levels, I'm getting a pretty nice uptick in the core loan yields. Do you see any color on the drivers there?
We must seek to optimize process.
People and future.
We will keep our focus on capital liquidity and credit as we expect a less robust economy in 'twenty four is the federal reserve continues to tame inflation.
However, we operate in some of the best markets in the country and we will be we are well positioned to take advantage of the opportunities we expect to be presented to us over the year.
Paul <unk>: We believe that these efforts and market dynamics will provide for a rewarding value creation for our shareholders I will now turn the call over to Paul <unk>, our CFO for more details on the quarter and the year.
Thanks, Bob and good morning, everybody.
After a year marked by industry disruption, we are very pleased to close out a strong and transformational 2023 for stellar bancorp.
Our net income for the year, which was $135 million representing diluted earnings per share of $2 45.
Anoro AA, 121% and return on tangible common equity of 15, 75%.
As Bob noted our focus entering into 2023 was on capital liquidity and credit.
We feel we have performed well on all of these fronts.
All while protecting earnings power, notwithstanding significant industry turbulence and competitive pressure during the year.
On capital in particular, we were very successful growing our regulatory capital ratios in 2023.
And then just remind us of the fixed rate loan repricing dynamics of the bank. Remind us what you expect to reprice higher during the year. And I heard Ray mention some of these newer yields are still at the 8% level. Just remind us of their pricing dynamics where they're coming from in some cases. Thanks. Matt, on the renewed loans, we have a run rate of around $600 million a quarter for renewed loans. And so for the fourth quarter, those came on at 8, renewed at 851, coming off of 779.
We increased our total risk based capital ratio to 14, 2% at year end from a starting point of $12 three 9% at year end 2022.
Showed similar improvement across all of our regulatory capital ratios.
Driving this capital build with our growth in tangible book value, which grew 21, 4% over the year to $17 <unk> per share at the end of 2023 from $14 <unk> per share at the end of 2022.
During the year. We also maintained a very strong funding profile marked by 40% noninterest bearing deposits along with a disciplined strategy with respect to our interest bearing funding.
As a result, we've been able to manage pretty well through a competitive high interest rate environment to maintain healthy margins and core earnings.
So, yeah, I think going forward... It'll probably get closer, obviously, but probably coming off of something in the sevens and then renewing it at something in the eights is what we would expect. And then, again, on the new. The new was $250 million in new loans that came on at 8 percent. So let that help you with what you're expecting in the fixed rate repricing. I mean, obviously, there's fixed and floating rates in that $600 million that I'm referring to, so I don't have handy what the fixed rate portion of that is. Yeah, that's helpful.
All the while we've been able to maintain a strong credit profile.
Turning our focus to the fourth quarter.
We earned 27.
Paul <unk>: $3 million or <unk> 51 per diluted share, making for an Roe of.
Paul <unk>: A one 2% and a return on tangible common equity of $12 six 1%.
This was despite a higher expense load during the quarter due primarily to nonrecurring items that I will detail shortly.
Fourth quarter earnings were incrementally lower than the $39 million or <unk> 58 per diluted share earned in the third quarter due mostly to higher non interest expenses more than offsetting higher noninterest income and lower provision.
I guess you mentioned the floating portion, and I think in our models we're all assuming various things behind what the Fed does this year. Remind us of what's floating at the bank and if the Fed were to cut at some point this year, just a dollar amount of loans that would reprice downward pretty quickly from the yield side. A little over 40% is variable, but truly floating, you'd be talking about a little over 20%. So that's what we'll use more immediately, relative to SOFR in particular. Yeah, Jeff.
Notable among noninterest items during the quarter was a nearly $2 4 million in other noninterest income from FDIC investment.
Paul <unk>: And on the expense side, we recognized a $2 $4 million expense relating to the FDIC special assessment $1 9 million of severance expense and elevated professional fees during the quarter relating mostly to initiatives associated with crossing the $10 billion asset threshold.
Paul <unk>: During the fourth quarter, we saw our net interest margin pick up a few basis points from the third quarter net interest margin was four zero percent during the fourth quarter up from $4 three 7% in the third quarter.
Okay, perfect. And then on the deposit side, you have some leverage you can pull on there if rates were to move lower. But what about on the non-interest-bearing side?
And excluding purchase accounting accretion NIM was 391% in the fourth quarter relative to 387% in the prior quarter.
A little bit of give up in the fourth quarter, but still one of the highest levels amongst the peers. Any more color or thoughts on where you see the balances kind of stabilizing and on what timeline? You know, we see, I would ask you to look at the average for the quarter. Point in time, at 1231, it looked like it would appear that we went from kind of 42% or 41.5% to right at 40% on that Nib ratio. But if you take it more on an average basis, or if you were to say point in time today, we have enjoyed around 41 or so percent of Nib deposits. And so far, we're really, really pleased with the resilience of that holding up. A little bit of what occurred at 1231, in particular, was a large growth in interest-bearing demand, and when that huge growth happens, you obviously kind of drown out the MIB, and MIB actually point to point was slightly down.
We've been very pleased with the relative stability in our net interest margin during the back half of 2023 as the continued repricing of our assets has kept pace to offset an upward trend in funding costs.
It has showed some signs of leveling off in the fourth quarter.
We feel pretty good about stabilization in our margin trend and outlook, which continues to compare favorably with favorably relative to the industry and we also feel good about our ability to protect our relatively strong profitability profile in this challenging environment.
With respect to purchase accounting items, we ended the year with $106 8 million and loan discount remaining and a core deposit intangible assets.
Intangible asset of $116 7 million.
Strong earnings notwithstanding accelerated amortization of CDI expense has been a really strong driver to our internal capital generation in 2023, and we like our prospects for continued internal capital generation in 2024 as well.
In summary, we believe stellar is well positioned to perform in 2024, our capital funding and liquidity position puts us in a good spot to maintain favorable margins and earnings power.
So we're really pleased with the resilience of our non-interest bearing portfolio of customers, and we look forward to maintaining a really strong proportion of MIBs going forward. Okay guys, I appreciate all the commentary, and congrats on the quarter. Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. Your next question comes from the line of John Frodis from Fannie Montgomery Scott. Please go ahead; your line is open.
On credit we feel appropriately reserved given current economic unknown and we otherwise take comfort in our credit underwriting discipline and perhaps most importantly, the fact that we operate in some of the strongest markets in Texas and the country.
Thank you I will now turn the call back over to Bob.
Thank you.
Thank you Paul and operator, we'll be happy to take questions.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
First question is from the line of David Feaster from Raymond James. Please go ahead. Your line is open.
Hey, good morning, guys. Um, looking at switching gears, looking at the income, what were the... SBIC impacts in the quarter? $2.4 million. We recognize $2.4 million of revenue on another DOC game. And how should we, I mean, that's not really a problem, I know you have it sometimes, but how should we think about that going forward? Yes, since we can't set our watch to how we recognize games there, we are very..., conservative as it relates to how we think about that source of revenue.
Hey, good morning, everybody.
Good morning, Joe.
Maybe just starting on.
The rate sensitivity side.
You've obviously got a great core deposit franchise.
Paul <unk>: Core margin expansion throughout this rising rate cycle, but.
Today, you actually screen closer to rate neutral, maybe modestly liability sensitive just given the increased prospects of rate cuts I am curious how you think about the impacts of potential cuts on the margin and how quickly you would expect to be able to re price deposits lower if we do get cuts this year.
We take comfort in that and really a neutral interest rate risk profile.
So I would look at our non-interest expense base, X, 2.4 million, think about that as our Peace in 2020. We are always working on initiatives to build that, and Ray knows, Ray has..., can speak to that. Paul, just one other question on fee income. The card fees were down, I don't know, about $400,000 from the third quarter. Anything going on there?
And our mantra another mantra for 2020 for us to be ready for anything and that's true on the interest rate sensitivity, we are very neutral.
<unk>.
Paul <unk>: To the extent, we see rates down there is a measure of sensitivities of the front end of the curve, particularly money market and really short CD funding. So we see our ability to re price there.
How should we think about that number going forward? Interchange, a gardening piece, that's our gardening impact, so just working hard as a team to have more penetration in our cards to try to overcome that. We've seen a really good story on our new account onboarding, and so I just hope to grow through that and overcome that decrease we've had from very recently. Okay, but the hit started in the third quarter, so it was down, and then it was down even some more in the fourth quarter, so...
To be pretty strong.
But once again, we're not trying to make a bet on rates with our interest rate position and we feel well positioned for really any rate outcome in 2024.
Maybe just touching on.
The loan declines.
Actually maybe just want to go there how do you think about your ability to reprice deposits in the sensitivity of those those clients I mean again, we were pretty slow to increase.
But nothing unusual or anything like that outside of Durban in that line item. We have observed that the impact of Durban was a little bit higher than initially expected, and then just one other question guys, I guess and I know this is a little bit harder, but just on the provisioning, you know, maybe how should we think about the provision level going forward. Wow, all right. It's Formula German, guys, so because we're based on what happens with our loan portfolio, good or bad, and what the increases in that portfolio are as far as loan positions go, and I'll see you in the next video. Peace out. It's hard to project that, almost as hard as it is.
What rates do you think we'll be able to.
Kind of given the liquidity challenges in the market I'm just curious how you think about repricing some of those deposits or.
Including the competitive landscape.
No I think where you would get the most ability to re price is going to be in your and your exception universe as well as your.
Okay.
Naturally the wholesale funding that staying pretty short you can reprice.
Yeah, David I would just add to that.
Paul mentioned that are probably our largest opportunities in that money market where.
On our sheet rates, we took a very measured approach so that might be we really werent very aggressive on me up so on the on the down there probably would be similar but we did as we handle the exception pricing that would be where we would target first this time deposits that we put on during this time, where short term and then of course, we enjoy a.
Thank you very much. We do expect credit, and we have a conservative stance on credit, especially given economic unknowns. The way we planned is for a more normalized level of charge-offs in the industry in 2024. And that obviously plays into reverse. Paul, when you say normal, what do you think is more normal? I would say normal to elevated.
David: 40% plus nib, so I think as Paul mentioned that we'll be in that money market bucket.
Okay.
As you think about our approach to the deposit side.
When the market the market changed and people were really aggressive about trying to fund their balance sheets.
For us, both legacy companies have been able to maintain, for the most part, single-digit net charge-off numbers. So when you think about the industry and what's a prudent expectation to set when there is an expectation of a credit cycle finally hitting the industry, you have to assume something in the high teens or low 20s in net charge-offs just to provide a little bit of a baseline. And we feel really good about our ability, on a relative basis, because of where we operate, to do better than whatever the industry's nationwide metrics end up being. Okay, thanks for the talk. Paul, just one other question. The tax rate is around 20%.
We felt like we didn't want to get into that competition.
<unk> above what we wanted to pay and we wanted to retreat back to something that makes sense for us.
Still maintain our great deposit franchise now as deposit rates start to level out.
David: We can be as competitive as anyone on the deposit front and we feel like we've got the ability to do what we need to do.
On a reprice basis.
To compete in the market. So we just want we want rates to level out or give us some kind of idea that we're not going to be paying outsized prices for leasing.
Okay. That's helpful and maybe just a question on the loan side and the declines in the quarter I'm just curious how much of that is strategic.
And tightening and pushing higher pricing to kind of slow growth versus weaker market demand and just uncertainty in the economy from the client perspective.
Still a good number? Yep. Thank you guys. Thanks John. Your next question comes from the line of Matthew Olney from Stephen. Please go ahead, your line is open. Yeah, guys, thanks for the follow-up. Just want to go back to the core margin.
Your appetite for growth today, where youre seeing opportunities and kind of where we're pricing pricing is holding up.
David I think it's a combination of both that you mentioned, both our underwriting approach as well as some demand.
Pressure and that as our customers are trying to get used to this rate environment and so we're seeing it on both fronts we have.
We saw stabilization in the fourth quarter, I think, if you take out the accretion levels. I think a quarter ago you were a little hesitant to call for the bottom, but assuming the Fed holds off on any moves for a few quarters, any call on kind of what's the confidence level that the core NIM has, in fact, bottomed here in the fourth quarter? You know, it's a really uncertain backdrop; you're going to have a hard time choosing out a bottom out of us, but we feel really good about how positioned we are to defend our margin and defend our net interest, and we will let the results speak for themselves. Okay, and then on the capital front, I think, Paul, maybe as your prepared remarks on the call indicated, lots of good capital build, not just in the fourth quarter but also Any updated thoughts around deployment this year? Could this be a year of you leaning towards stock buybacks, or do you think the environment for something more significant is something you want to focus on, and maybe buybacks will take a backseat this year? Alright. Yeah, I think so.
A number of quarters in a row.
Sure.
Our construction and development.
Originations have declined and that has been strategic.
While our C&I has remained pretty constant so as a percentage of C&I has increased a little bit.
In the fourth quarter, we did drop a little bit compared to the third quarter and total originations, but feel real good about where those came on as rates still with an eight handle on our new loans and we renewed another $600 million also with an eight handle so we're pretty pleased with that as well.
Okay terrific.
Terrific. That's great last one for me, maybe just touching on the expense side core expenses ticked up a bit.
Moving parts in the quarter.
I'm just curious how do you think about a good core.
David: Expense level and then just the run rate through this year I mean, how do you think about managing your expenses just in light of some of the revenue challenges that we've talked about.
Curious, how you're thinking about that.
We guide to 2024 expected expense on a core basis of around $280 million.
There's a lot of drivers that.
We spend a lot of time making sure that we build capital back to where everyone feels a lot more comfortable and gives us options on the things that we want to do. We want to have as many options available to us as possible, and capital provides that. Um, it'll be interesting to see how the year plays out. I know there's a lot of expectation of rates coming down, but I don't know if that's going to be the case or not. I think the economy still seems to be clipping along okay. Although there's a little, we're probably going to have some slowdown at some point during the year.
We're going to be focused on optimization as Bob said.
To see the extent to which.
We may be able to.
Do do a little better, but ultimately we feel like to achieve what we want to achieve in oleds into.
David: Pursue the initiatives, we want to pursue in 2024 to position us best.
That's the spend level in the plan now.
David: First quarter tends to be have some seasonality to it that that's going to drive going to be a little higher than if you were to divide that by four.
David: But that's where we're targeting.
David: Terrific. Thanks, everybody.
Sir: Thanks, Sir.
Sir: Your next question comes from the line of Matthew only from Stephens. Please go ahead. Your line is open.
So I think until we get a little more certainty around where interest rates are and what the economy is going to do, we're going to continue on the same path that we've been on. But all this is leading into making sure that we have optionality, and if we have the opportunity, M&A, whatever the deployment might be of that capital, invest in it. We want all of those options available to us, and we'll try to choose the right one for the sheriff.
Hey, great. Thanks, good morning, everybody.
Matt: Good morning, Matt.
I'll start on the professional fees I think Paul mentioned professional fees was elevated due to some of these initiatives of crossing $10 billion of assets and any more color on these initiatives and then how do you see that line item trending in 2024.
Yeah.
It's more of a timing dynamic.
Matt: If you saw the third quarter was relatively.
The dip from the second quarter and a lot of work has been done here in the fourth quarter to kind of achieve the goals. We wanted to achieve by the end of the year as it relates to all things and the new standards of being over $10 billion in assets when.
Okay. Thanks for that, Bob. And let me ask it this way.
The capital level is built really nicely in 2023. It looks like they're going to build considerably in 2024, absent any kind of other actions. Would that be acceptable, you think, for capital levels to continue to build? Or at what point do you feel more urgency to deploy capital? I'm trying to figure out if this is something where we're getting close to that, or given the uncertainty, could we let capital levels go here for a while before we feel any urgency to deploy it? That's a great question, Matt. I enjoy the shouts. If we think about where we might be from an economic standpoint, if life comes true and we get five interest rate cuts this year, or whatever somebody might project, to me that means unemployment's going up, the economy's slowing down, maybe credit starts to move in a certain way. I don't know. I don't think there's much certainty around it.
Now when we look forward, we think about a run rate of professional fees that would be.
Certainly lower than the fourth quarter.
I would say.
Matt: Hmm.
More like $2 $5 million, but that has some timing variation on a quarterly basis similar to what we saw in our trend. When you look at that line from the second quarter to the third quarter and the fourth quarter.
Matt: Okay.
Okay, and I assume thats all embedded in that 24 guidance, you mentioned pall of the $280 million.
Exactly.
Matt: Okay.
That's helpful.
And then I guess switching over to the loan yields if I take out the accretion levels.
Getting a pretty nice uptick in the core core loan yields any color on the drivers there and then just remind us on the fixed rate loan repricing dynamics of the bank remind us what you expect to reprice higher during the year and I heard I heard Ray mentioned some of these newer yields there.
Interest rates stay the way they are, maybe a couple of small cuts, uh, gives us a better idea, and I think we'll have more clarity as we move into the second and third quarter. But we're not against buybacks; we actually like buybacks. But we want to make sure that we have good, solid, and Okay guys, appreciate all the commentary, and I'll see you guys in a few weeks. Thank you. We have no further questions in our queue at this time. I will now turn the call over to Bob Franklin, Chief Executive Officer, for closing remarks. Thank you everyone for your interest today. We look forward to 2024 and continuing to build Stellar Bank in a great way. Thank you very much. This concludes today's conference call. Thank you for your participation, and you may now disconnect.
Ray: Still at the 8% level, just remind us on kind of on the price dynamic what they're coming from and in some cases.
Matt on the on the renewed loans, we've been we've been we have a run rate of around $600 million a quarter of.
Of renewed loans and so for the fourth quarter those came on at eight.
Renewed at 851.
Coming off of 779 so.
Yes, I think going forward.
It will probably get closer, obviously, but probably coming off of something in the Sevens and then renewing at something in the eight is what we would expect.
And then again on the new the new was.
$250 million of new loans that came on at 8% So.
Hope that helps you with your what you are expecting in the fixed rate repricing, I mean, obviously, theres fixed and floating and that $600 million that im referring to so that I don't have them.
Andy: Hey, Andy.
What the fixed rate portion of that is.
Yes.
Andy: That's helpful. I guess, you mentioned the floating portion and I think in our models, we're all assuming various.
Various things behind what the fed does this year remind us of what's what's floating at the bank.
And if that were to come.
Andy: But at some point this year just the dollar amount of loans that would reprice downward pretty quickly from that.
From the on the yield side.
Around a little over 40% is variable, but truly floating you'd be talking about a little over 20%. So that's what we'll do.
More immediately relative to.
So for in particular.
David Yes.
Okay perfect.
Then on the deposit side you hit on some.
Oh levers you can pull there if rates were to move lower.
On the non interest bearing side little bit of give up in the fourth quarter, but still one of the one of the highest levels amongst appears any more color or thoughts on where you see the balances kind of stabilizing.
And what timeline.
We see I would ask you to look at the average for the quarter.
Point in time at 12 31.
Andy: It looked like it was.
It appear that we went from kind of 42% or 41, 5% to right at 40% on that ratio.
But if you take it more on an average basis or if you were to say point in time today.
We we have enjoyed.
Around 41% or 7% of nib deposits.
Andy: And so far we're really really pleased with the resilience of that holding up a little bit of what occurred at 12 31 in particular was.
Large growth in the interest bearing demand.
That that.
And that piece growth U.
Obviously kind of drowned out.
The nib and May have actually point to point was slightly down. So we're really pleased with the resilience of our noninterest bearing portfolio of customers.
And we look forward to maintaining really strong.
Proportion of nib going forward.
Andy: Okay guys I appreciate all the commentary congrats on the quarter.
Thanks, Matt.
If you'd like to ask a question. Please press star one on your telephone keypad.
Our next question comes from the line of John <unk> from Janney Montgomery Scott. Please go ahead. Your line is open.
Hey, good morning, guys.
Hey, Jonathan.
Just looking at.
Switching gears looking at fee income what was the.
Sci's impacts in the quarter.
$2 4 million.
We recognized $2 4 million.
Of revenue.
On that FDIC gain and.
And how should we.
I mean, that's not really.
No you have it sometimes but how should we think about that going forward.
Yes.
Since we can set our wants to how we recognize gains there.
We are very.
Conservative as it relates to how we think about that source of revenue so I would.
Look at our noninterest expense base X $2 4 million.
And and.
And think about that as our.
<unk>.
Pace in 2024.
Okay and then.
He's working.
We are always working on initiatives to build that.
And <unk>.
Can you speak to that.
Andy: Okay.
Yes.
Okay.
Paul just one other question on fee income the card fees were down I don't know about 400000 from the third quarter.
Anything going on there how should we think about that number going forward.
Interchange the Durban piece.
Andy: Our durbin impact.
Just working working hard as a team to.
To have more more penetration into our cards to try to overcome that.
We've seen good really good story on our new account Onboarding and so just hope to grow through that and overcome those.
That decrease we've had from Durbin.
Okay.
But to hit was started in the third quarter. So it was down and then it was down even some more in the fourth quarter. So okay.
Yes, but nothing unusual.
Unusual or.
Andy: Outside of Durbin and that line item.
But we have been.
We have observed that the impact of Durbin was a little bit higher than we initially estimated.
Okay, and then just one other question guys I guess and I know this is a little bit harder, but just on the provisioning.
Maybe how should we think about provision level going forward.
Okay.
Wow.
That formula driven guy so okay.
Andy: Yes.
Based on.
What happens with our loan portfolio, good or bad and what the increases in our portfolio are all drive drive loan provision.
And it's hard to project that almost as hard as interest rates.
Yes.
We do expect credit.
We are we have a conservative stance on credit, especially given <unk>.
Economic unknown, so where.
The way we.
Planned.
For a more normalized level of charge offs.
And the industry in 2024.
And that obviously plays into reverse.
Paul what.
What when you say normal what do you think is more normal.
I would say normal to elevated for us both legacy companies had been able to maintain for the most part.
Single digit net charge off numbers, but when you think about industry and what's a prudent expectation that said when there is an expectation of a credit cycle finally, hitting the industry.
You have to assume something in the high teens low <unk>.
Net charge offs, just to provide a little bit of a baseline.
And we feel really good about our ability on.
On a relative basis, because of where we operate to do better than whatever the industry nationwide metrics end up being.
Okay. Thanks for the thoughts Paul just one other question the tax rate is around 20% still a good number.
Yes.
Yes.
Andy: Okay.
Thank you guys.
Andy: Thanks, Jeff.
Your next question comes from the line of Matthew Olney from Stephens. Please go ahead. Your line is open.
Yes, guys. Thanks for the follow up.
Just want to go back to the core margin.
We saw the stabilization in the fourth quarter I think if you take out the accretion levels I think a quarter ago, you were a little hesitant to call for the bottom, but assuming the fed holds off on any moves for a few quarters any color on kind of what's the confidence level that the core NIM hasnt bottomed here in the fourth quarter.
It's a real uncertain backdrop, youre going to youre going to have a hard time teasing out a.
Andy: A bottom out of it but we feel really good about how positioned we are to defend our margin and defend our net interest income.
And.
<unk>.
We'll let the results speak for themselves.
Sure.
Okay.
And then on the capital front I think.
Paul maybe it was your prepared remarks.
On the call lots of good capital Bill not just in the fourth quarter, but also throughout the year.
Updated thoughts around deployment this year.
Could this be a year of you lean into stock buybacks or do you think the environment for something more significant is it something you want to focus on and maybe buybacks take a take a backseat this year.
Well.
Matt I think.
We've spent a lot of time, making sure that we build capital.
Back to where everyone feels.
A lot more comfortable and give us optionality on the things that we want to do and so.
Andy: No.
Andy: We want to have as many options available to us as possible and capital provides that.
It'll be interesting to see how the year plays out I know, there's a lot of expectation of rates coming down.
Andy: No thats going to be the case or not I think the economy still seems to be clipping along okay.
Andy: Although there is a little probably going to have some slowdown at some point.
During the year, but.
And.
So I think until we get a little more certainty around around <unk>.
Our interest rates are and what the economy is going to do we're going to continue on the same path we've been on.
But all of this is and is leading into.
Making sure that we have optionality and if we have the opportunity.
Whether it's buybacks.
M&A whatever the whatever the deployment might be of that capital.
Dividend.
We want all of those options available to us.
We will try to choose the right one for the shareholder.
Okay. Thanks for that Bob and let me ask it this way the capital levels built really nicely in 'twenty three it looks like theyre going to build considerably in 'twenty four absent any kind of.
Other other actions.
Would that be acceptable you think for capital levels to continue to build or what point do you feel more urgency to deploy capital and trying to figure out. If this is something where we're getting close to that or give the uncertainty we could we could let capital levels build here for a while before we feel any urgency to deploy it.
That's a great question, Matt I enjoy the joust.
If we think about.
Where we might be from an economy standpoint.
Yes life comes true and we get five interest rate cuts this year or whatever somebody might project to me that means unemployment has gone up economy slowing down.
Maybe credit starts to move in a certain way I don't know I don't think theres much certainty around it interest rates stay the way. They are maybe a couple of small cuts.
It gives us a better and I think we will have more clarity as we move into the second and third quarter.
But we're not against buybacks.
Andy: We like buybacks.
But we want to make sure that we have.
Good solid.
Capital base to operate on that no one has a question.
Our ability to do what we want to do.
Andy: And we want to keep our options open and we will we certainly understand.
What we can do with that capital and we're going to we're going to do the best thing for the shareholders.
Yeah.
Okay, guys I appreciate all the commentary and.
So you guys in a few weeks.
Thanks, Matt.
And we have no further questions in our queue. At this time I will now turn the call over to Bob Franklin Chief Executive Officer for closing remarks.
Thank you everyone for their interest today, we look forward to.
2024.
And continuing to build stellar bank and a great way. Thank you very much.
This.
Concludes today's conference call. Thank you for your participation and you may now disconnect.
Okay.
Yes.