Q4 2023 The Bancorp Inc Earnings Call
Please press star zero for the operator this call is being recorded on Friday January 26, 2024, I would now like to turn the conference over to Mr. Andreas The Rustler. Please go ahead Sir.
Thank you operator, good morning, and thank you for joining us today for the Bancorp's fourth quarter and fiscal 2023 financial results conference call on the call with me today are Damian Kozlowski, Chief Executive Officer, and Paul Frankel, Our Chief Financial Officer.
This call is being webcast on our website at www dot the Bancorp dotcom there'll be a replay of the call available via webcast on our website beginning at approximately 12 P. M. Eastern time today the dial.
Island for the replay is 18776747070 with a confirmation code of 545154 before I turn the call over to Damian I would like to remind everyone that when using this conference call. The words believes anticipates expects and similar expressions are intended to identify forward looking statements within the meaning of the prime.
Securities Litigation Reform Act of 1095, such statements are subject to risks and uncertainties, which could cause actual results performance or achievements to differ materially from those anticipated or suggested by such statements for further discussion of these risks and uncertainties. Please see the bancorp's filings with the SEC.
The centers are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date hereof. The Bancorp undertakes no obligation to publicly release the results of any revisions to forward looking statements, which may be made to reflect events or circumstances. After the date hereof or to reflect the occurrence of unanticipated events now I'd like to turn the call over to the Bancorp's Chief Executive Officer Damian.
Damian M. Kozlowski: Cause lawsky Damian.
Damian M. Kozlowski: Thank you Andres and good morning, everyone. Excluding the tax effected impact of a one time write off the company's only trust preferred securities purchased in 2006. The Bancorp earned <unk> 95, a share with year over year revenue growth of 16% and expense growth of 5%. Excluding the trust preferred write off ROE was <unk>.
Damian M. Kozlowski: Sex NIM expanded to 526 from $5 seven quarter over quarter and 421 year over year.
Damian M. Kozlowski: GDP increased 13% year over year in total fees from all Fintech activities increased 15% for the full year 'twenty three the bank or generated $3 63 per share excluding the net of tax 14th <unk> impact of the trust preferred write off first.
Damian M. Kozlowski: First and foremost we have completed a major year long strategic review and built a new business plan for our company. We are pleased to announce apex 2030 details on this strategy appear in our investor presentation on our website.
Damian M. Kozlowski: Strategic blueprint includes the monetization of our capabilities in Middle office technology, and infrastructure and the ability to keep our balance sheet under 10 billion.
apex 2030: Recycling, both our assets and liabilities off balance sheet. These enhanced capabilities will create significant fee generation opportunities and services credit sponsorship and asset distribution.
apex 2030: As I discussed in our last earnings call as a result of our investments in growth and efficiency. Our ROE is driving a continued increase in our regulatory capital ratios.
apex 2030: The Reg II Durbin balance sheet limit of $10 billion Bank Corp is fast approaching the maximum equity capital needed to support our business growth into the future.
apex 2030: Therefore, we are significantly increasing our buyback and 24 by $100 million to $200 million or $50 million a quarter.
apex 2030: Since the inception of our bag a buyback in 2019, we have created approximately $75 million of value to our shareholders based on our December 31, 23 share price. We believe our stock continues to be significantly undervalued valued when considering our long term equity returns and EPS growth prospects. Therefore, our capital return.
apex 2030: <unk> will remain focused on stock buybacks rather than dividends.
apex 2030: We are also confirming 24 guidance of $4 25, a share without including the impact of share buybacks. This is approximately 17.
<unk> earnings growth over 23 earnings per share excluding the impact of the trust preferred write off and we expect the bank or to continue to meaningfully outperform our peers and deliver superior growth and continued improvements in Roe.
apex 2030: I'll now turn the call over to Paul Frankel for more color on the fourth quarter and full year 'twenty three.
Paul Frenkiel: Thank you Damian as a result of it is variable rate loans and securities Bancorp performance continues to benefit from the cumulative impact of federal reserve rate increases.
Paul Frenkiel: <unk> 2023 decreases in S block and I blocked balances offset the impact of other loan growth total related net paydowns in the fourth quarter were significantly lower than in every other quarter of 2023.
Paul Frenkiel: The impact of the Federal reserve rate increases was reflected in the 20% increase in net interest income.
Paul Frenkiel: In addition to the rate sensitivity of the majority of our lending lines of business management as structured the balance sheet to benefit from a higher interest rate environment. Accordingly over a period of years. It is largely allowed its fixed rate investment portfolio to pay down but limited purchases were focused on variable rate instruments Adil.
Paul Frenkiel: Additionally, the rates on the majority of loans adjust more fully than deposits.
Paul Frenkiel: Federal reserve rate changes as a result in Q4 2023, the yield on interest, earning assets has increased to seven 5% from five 9%.
Paul Frenkiel: In Q4, 2022, or an increase of one 6%.
The cost of deposits in those respective periods increased by only <unk>, 8% to two 5%.
Paul Frenkiel: Those factors were reflected in the 5% to 6% NIM in Q4, 2023, which represented another increase over prior periods.
Paul Frenkiel: Provision for credit losses was $4 3 million in Q4, 2023 compared to $2 8 million in Q4 2022.
Paul Frenkiel: Of the total $4 3 million approximately one 1 million resulted from growth in loan principle between the third and fourth quarters of 2023 against which cumulative six of loss and qualitative percentages are applied an additional 1 million resulted from increasing the seasonal economic fab.
Speaker Change: Actor on real estate bridge loans.
Speaker Change: The balance of the provision primarily reflected the impact of leasing related charges, approximately 900000 of which were in long haul and local trucking total.
Paul Frenkiel: Total principal exposure and dose and related categories was approximately $39 million at December 31st 2023.
Paul Frenkiel: Prepaid debit and other payment related accounts, our largest funding source and the primary driver of noninterest income total.
Paul Frenkiel: Total fees and other payments income of $25 million in Q4, 2023 increased 15% compared to Q4 2022.
Paul Frenkiel: Noninterest expense for Q4, 2023, with $45 6 million, which was 5% higher than Q4 2022.
Paul Frenkiel: Salaries and benefits expense was flat year over year, reflecting a reduction in incentive compensation expense.
Paul Frenkiel: Book value per share at quarter end increased 22% to $15 17, compared to $12 46 a year.
Paul Frenkiel: A year earlier, reflecting the impact of retained earnings quarterly share repurchases should continue to reduce shares outstanding.
Damien: Now I'll turn the call back to Damien.
Damian M. Kozlowski: Thank you so much Paul operator could you open the line for questions.
Damian M. Kozlowski: Yes, Sir thank you, ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the number one on your Touchtone phone you only assay tongue palmed acknowledging your request should you wish to declines on the polling process. Please press star followed by the number.
Damian M. Kozlowski: Kim.
Damian M. Kozlowski: One moment. Please for your first question.
Paul Frenkiel: Our first question comes from the line of Michael Perito from <unk>. Please go ahead.
Paul Frenkiel: Hey, guys. Good morning, Thanks for taking my questions.
Paul Frenkiel: Good morning, Mike.
Paul Frenkiel: A couple of a couple of short term shorter term questions couple of longer term questions, but first just start on the 24 guide Paul I was wondering if you could maybe provide a little bit more context around two things one kind of how rates could maybe if you know what kind of rate assumptions you have in the in the guide most recently and and and how you know me.
Paul Frenkiel: Some variability on that could impact that the guide ex buyback and then also would love a little color too just kind of thoughts around opex growth for 'twenty four and if you guys are kind of in a net growth position here, adding some head count or just would love a little update there as well.
Paul Frenkiel: Okay, So Mike before I turn it over to Paul Theres, a couple of things.
Mike: We do not our base case is not the market's view of fixed interest rate cuts.
Mike: We made we think there might be a couple.
Paul Frenkiel: Maybe starting in June.
Paul Frenkiel: Our forecast of the 425 does not include any bond purchases.
Paul Frenkiel: So we're expecting a normalization of the yield curve and significant amount of bond purchase.
Paul Frenkiel: In order to.
Paul Frenkiel: Mitigate or 60%.
Paul Frenkiel: Positive data, we've already made a lot of progress on that by adding fixed rate exposure in our loan portfolio. So were far less asset sensitivity than we were in the beginning of the year I think about 14% less as a percentage of our balance sheet.
Paul Frenkiel: And our expense growth is going to be.
Paul Frenkiel: Much less than this year, there was a big impact.
Paul Frenkiel: Across the entire economy.
Paul Frenkiel: Especially employee pay we felt that also but were talking mid mid single digit type of expense growth this year.
Not.
Paul Frenkiel: Double digit.
Growth rates that we saw on base pay.
Paul Frenkiel: In 2023, Paul would you like to add something.
Paul Frenkiel: I think Thats I think thats a good summary, I would also add that we're relatively conservative in terms of really every aspect of the budget. So we feel that.
Paul Frenkiel: Even if we get a little bit more.
Paul Frenkiel: The rate cuts and so forth that we have enough flexibility in some of our other categories to make up that shortfall in again.
Paul Frenkiel: We don't include the impact of share repurchases. We think that's another question and if you look at the history of of our budgetary projections on which.
Paul Frenkiel: Our guidance is based we've been pretty accurate and fulsome and that sense of conservatism in the budget has really served us well in terms of meeting the expectations.
Paul Frenkiel: That's helpful can we maybe just to spend another minute on the margin and rate stuff did you have a sense of after the the actions you've taken already.
Paul Frenkiel: What kind of the immediate impact would be of a rate cut too to NIM generally and then secondly, what else do you plan to do in the next quarter or two here before rate cuts began I mean is there some.
Something specific that you're kind of waiting for to buy some more bonds or just would love a little bit more color. There. If you guys are willing.
Paul Frenkiel: The answer is we wanted the gate we were remember we opened.
Paul Frenkiel: Our balance sheet after buying bonds in 2018.
Paul Frenkiel: And the pandemic getting interest rates at zero, we became extremely asset sensitive let the bond portfolio run off all the way down under $800 million.
Operator: For this call, you require immediate assistance. Please press star zero for the operator.
Operator: This call is being recorded on Friday, January 26, 2024. I would now like to turn the conference over to Mr. Andres Viroslav. Please go ahead, sir.
Paul Frenkiel: And we waited for the interest rate increase.
Paul Frenkiel: The majority of it to be finished before.
Paul Frenkiel: We decided to put on fixed rate exposure that's happened over the last year, we've closed that gap substantially.
Thank you, Operator. Good morning, and thank you for joining us today for the Bancorp's fourth quarter and fiscal 2023 financial results conference call. On the call with me today are Damian Kozlowski, Chief Executive Officer, and Paul Frenkiel, our Chief Financial Officer. This morning's call is being webcast on our website at www.thebancorp.com. There will be a replay of the call available via webcast on our website beginning at approximately 12 p.m. Eastern time today. The dial-in number for the replay is 1-877-674-7070 with a confirmation code of 54515.
Paul Frenkiel: And with the purchase of bonds anywhere between $1 billion 1 billion and a half we will close we might be a little asset sensitive.
Paul Frenkiel: But we will close the majority of the deposit beta so we believe that as we approach the real rate hike probably in the June timeframe Youll get.
Paul Frenkiel: A D inversion of the yield curve at which time, we will add very low risk agency and mortgage backed security exposure, thus closing the majority of that.
Before I turn the call over to Damian, I would like to remind everyone that when using this conference call, the words believes, anticipates, expects, and similar expressions are intended to identify forward-looking statements within the meaning of the Private Secretary's Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties, which could cause actual results, performance, or achievements to differ materially from those anticipated or suggested by such statements. For further discussion of these risks and uncertainties, please see Bancorp's filings with the SEC. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Bancorp undertakes no obligation to publicly release the results of any revisions to forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Now, I would like to turn the call over to the Bancorp's Chief Executive Officer, Damian Kozlowski. Damian?
Paul Frenkiel: Asset sensitivity, therefore, you will not see an impact.
Paul Frenkiel: A substantial impact.
Paul Frenkiel: On a profitability. However, obviously NIM will fall and the NIM will fall because the bond purchases are likely to be at a lower coupon than some of our loan portfolio. However, our profitability it'll be intact on a run rate basis, but additive.
Paul Frenkiel: If the yield curve disinvest youll get additional net income and.
Paul Frenkiel: Additional Roe and ROA returns.
Paul Frenkiel: Okay that makes sense.
Paul Frenkiel:
So we should kind of see.
Paul Frenkiel: So you guys are going to be patient on the bond side.
Damian M. Kozlowski: Thank you, Andres, and good morning, everyone. Excluding the tax-affected impact of a one-time write-off, the company's only trust-preferred security purchased in 2006, The Bancorp earned $0.95 a share, with year-over-year revenue growth of 16% and expense growth of 5%. Excluding the Trust Preferred Write-Off, ROE was 26%, NIM expanded to 5.26% from 5.07% quarter-over-quarter and 4.21% year-over-year, and GDV increased 13%. Year-over-year and total fees from all fintech activities increased 15%. For the full year, 23, the Bancorp generated $3.63 per share, excluding the net of tax, $0.14 impact of the Trust Preferred Write-Off. First and foremost, we have completed a major year-long strategic review and built a new business plan for our company. We are pleased to announce APEX 2030.
Paul Frenkiel: Until the Super passionate yeah, Okay. We can only go ahead.
Some margin down side on an absolute basis, but you know with the actions you've taken already and then the flexibility still to buy more bonds you feel like you can neutralize.
Paul Frenkiel: The vast majority of of that assay sensitivity, yes.
As you know the NIM is for banks. The NIM is very important if you're a traditional bank right, but weird situation, we can actually lower our NIM.
Paul Frenkiel: And.
Paul Frenkiel: Substantially increased our net income just by getting a spread on our bond purchases right. So that usual correlation where you see the NIM drop Oh no profitability is going to go down now ours will actually go up. So we think we are being very cautious.
Paul Frenkiel: This is the hourly thing for US we won we're using history as a guide.
Damian M. Kozlowski: Details of this strategy appear in our investor presentation on our website. The strategic blueprint includes the monetization of our capabilities in middle office technology and infrastructure and the ability to keep our balance sheet under 10 billion by recycling both our assets and liabilities off the balance sheet. These enhanced capabilities will create significant fee generation opportunities in services, credit sponsorship, and asset distribution. As I discussed in our last earnings call, as a result of our investment in growth and efficiency, our ROE is driving a continued increase in our regulatory capital ratio. With the REG-II Durbin balance sheet limit of $10 billion, Bancorp is fast approaching the maximum equity capital needed to support its business growth into the future.
Paul Frenkiel: There should be that inflection point, where we start putting on that bond exposure well it would be a positive spread to the bank.
Paul Frenkiel: Lock in long term rates and then it will mitigate our deposit beta which you know is all being driven by our program management and are locked in long term contracts. So we know what our funding is so I think we're in a very unique flexible position on the balance sheet and this is this is it has been.
Paul Frenkiel: <unk> that.
Paul Frenkiel: As tight over five years, not just the last five months and we've been very careful and I think we're in the right position.
In order to close that gap and.
Paul Frenkiel: That incremental profitability to our shareholders.
Paul Frenkiel: Agreed.
Paul Frenkiel: That's all very helpful. Thank you and then I wanted to ask a question or two about the apex third 2030.
Paul Frenkiel: My Hunch is and please correct me if I'm wrong, but my hunch is you know there's going to be quite a bit of ramp and kind of the fee contribution.
Damian M. Kozlowski: Therefore, we are significantly increasing our buyback in 2024 by $100 million to $200 million or $50 million a quarter. Since the inception of our buyback in 2019, we have created approximately $75 million of value for our shareholders based on our December 31, 2023 share price. We believe our stock continues to be significantly undervalued when considering our long-term equity returns and EPS growth prospects. Therefore, our capital return policy will remain focused on stock buybacks rather than dividends. We are also confirming 24 guidance of 425p a share without including the impact of share buybacks.
Paul Frenkiel: To hit these targets do you have a sense of what that is like it but by the time you get to a billion plus of revenue our fees over half of the revenue pool.
Paul Frenkiel: And have you guys are you guys willing to kind of provide any guardrails around that and is most of that fee ramp opportunity off balance sheet deposit earnings and kind of credit as a service gain on sale type type earnings that are going to keep the balance sheet sub 10 billion is there anything else. We should be thinking of is as you guys ramped in noninterest income.
Paul Frenkiel: <unk> to hit that billion dollar number.
Paul Frenkiel: Yes, so we'll we'll be saying a lot more there's a lot of work so we've decided which areas to play we've given some very general guidance in our investor presentation that re re dead and put on our website and will be giving much more detail now in the near term we have another $3 billion a room of credit on our <unk>.
Paul Frenkiel: This is approximately 17% earnings growth over 23 earnings per share, excluding the impact of the trust-preferred write-off. And we expect the Bancorp to continue to meaningfully outperform our peers and deliver superior growth and continued improvements in ROE and ROA. I now turn the call over to Paul Frenkiel for more color on the fourth quarter and full year 2020. Thank you, Damian.
Paul Frenkiel: Balance sheet so.
Paul Frenkiel: Even though our fees are growing very quickly.
Paul Frenkiel: We will continue to get probably higher growth.
Paul Frenkiel: On the <unk>.
Paul Frenkiel: The interest income side, and then it'll stop because we won't have any more balance sheet left and then youll get a situation will you'll you'll you'll have.
Paul Frenkiel: A stabilization of that of that interest income generally much slower growth and then youll get it all in fees. So it's going to come from and you're exactly right from credit sponsorship, but it's going to be a mix of a very diverse mix of different type of programs some of them facilitated by the balance.
Paul Frenkiel: As a result of its variable rate loans and securities, Bancorp Performance continues to benefit from the cumulative impact of Federal Reserve rate increases. While 2023 decreases in S-block and I-block balances offset the impact of other loan growth, photo-related net paydowns in the fourth quarter were significantly lower than in every other quarter of 2023. The impact of the Fed rate increases was reflected in the 20% increase in net interest income.
Paul Frenkiel: <unk> and others extremely light and underwritten assets that are sold into the market and we're talking about not one or two programs were talking here in five years, a diversified mix of 2025 programs where in certain cases, we're not taking any credit exposure at all part of our balance sheet will be for that all the other <unk>.
Paul Frenkiel: Services that we will provide will be fee based so if you're talking about.
Paul Frenkiel: Any of the compliant services, we do today in things like transaction monitoring.
Paul Frenkiel: The Middle Office Technology services, we provide those will all be fee based and we will give much more guidance.
Paul Frenkiel: As we get more clarity ourselves all we have done is put a structure and framework together to to kind of look into the future and build a model and understand what we want our bank to be within the competitive and market environment and we're and we've done so much in the path to better build our ecosystem and we're trying to look forward.
Paul Frenkiel: In addition to the rate sensitivity of the majority of our lending lines of business, Management has structured the balance sheet to benefit from a higher interest rate. Accordingly, over a period of years, it has largely allowed its fixed-rate investment portfolio to pay down, while limited purchases were focused on variable-rate incentives. Additionally, the rates on the majority of loans adjust more fully than deposits.
Paul Frenkiel: To 2030 and say this is what our company is going to look like and you don't think about all the big trends that are happening.
Right now like AI.
Paul Frenkiel: Uh huh.
Paul Frenkiel: We have to build into that vision. So we're going to be saying a lot more this year is a lot of work the area that youre going to see.
Paul Frenkiel: The Federal Reserve Rates. As a result, in Q4 2023, the yield on interest-earning assets had increased to 7.5% from 5.9% Thank you for 2022 for an increase of 1.6%. The cost of deposits in those respective periods increased by only 0.8% to 2.5%.
Paul Frenkiel: Real fee generation and spread generation will be in the credit sponsorship area, but it'll be a couple of years.
Paul Frenkiel: Before you see meaningful parts of our balance sheet use for credit sponsorship or fees for other services and we will give you more guidance as as we as we get through this year on what that might look like.
Paul Frenkiel: Just a tremendous amount of resources and work will need to be done.
Paul Frenkiel: But the opportunity is enormous because of our.
Position and banking as a service and providing this middle office technology and services, we really do have a unique opportunity to sell those for fees broadly in financial services and to our other partners throughout the payments ecosystem, so where.
Paul Frenkiel: Those factors were reflected in the 5.26% NIM in Q4 2023, which represented another increase over prior periods. The provision for credit losses was $4.3 million in Q4 2023 compared to $2.8 million in Q4 2022. Of the total $4.3 million, approximately $1 million resulted from growth in loan principal between the third and fourth quarters of 2023, against which cumulative CESA loss and qualitative percentages are applied. Additionally, $1 million resulted from increasing the CECL economic factor on real estate bridges.
Paul Frenkiel: I mean, we're just actually calling.
Paul Frenkiel: From Miami today, where we had our.
Paul Frenkiel: Our senior management Offsite going through all this.
Paul Frenkiel: We are all very very enthusiastic about the future and are really looking forward to.
Paul Frenkiel: To continue to build on all the achievements we've made in going into a new future look that I think will be even more profitable faster growth and much more fee based.
Paul Frenkiel: Yes.
Paul Frenkiel: So we I appreciate all the color Damien Paul Thanks, and congrats to 'twenty three was really a great year. So kudos to you guys have a good weekend.
Paul Frenkiel: I appreciate it Mike Thank you.
Paul Frenkiel: Yes.
Paul Frenkiel: Okay.
Paul Frenkiel: Ladies and gentlemen, just a reminder, so do you have a question. Please press star followed by the number one and you touched on fine we have our next question coming from the line of Frank Schiraldi from Piper Sandler. Please go ahead.
Paul Frenkiel: The balance of the provision primarily reflected the impact of leasing-related charges, approximately $900,000 of which were in long-haul and local trucking. Total principal exposure in those and related categories was approximately $39 million at December 31st, 2023. Prepaid debit and other payment-related accounts are our largest funding source and the primary driver of non-interest income. Total fees and other payments income of $25 million in Q4 2023 increased by 15% compared to Q4 2022. Non-interest expense for Q4 2023 was $45.6 million, which was 5% higher than Q4 2022. Salaries and benefits expense was flat year over year, reflecting a reduction in incentive compensation.
Good morning.
Frank Joseph Schiraldi: Good morning, Frank.
Looking at the.
Frank Joseph Schiraldi: Presentation and looking at some of the numbers here in the long term financial target of greater than 40% Roe.
Paul Frenkiel: 4% ROA.
Frank Joseph Schiraldi: Obviously, some pretty impressive numbers I guess in terms of the long term aspect. If you were to put a timing on it I guess that 2030 year is when you think you could get to those sort of numbers is that reasonable.
Paul Frenkiel: Yeah to be honest, that's giving us a little bit more time, we're not that patient to be honest.
Paul Frenkiel: If you think of us only as a bank you're going to Miss the story.
Paul Frenkiel: If you look just at this quarter, our efficiency ratio was 38% and we still have $3 billion of balance sheet to deploy.
Damian M. Kozlowski: Book value per share at quarter end increased 22% to $15.17 compared to $12.46 a year earlier, reflecting the impact of retained earnings. Quarterly share repurchases should continue to reduce shares outstanding. I will now turn the call back to Damian. Thank you so much, Paul.
Paul Frenkiel: Building our business so the.
Paul Frenkiel: <unk> the Roe.
Paul Frenkiel: It's not it's not really a bank ROA and a lot of ways.
Paul Frenkiel: Services and distribution Roe.
Paul Frenkiel: I think we can get there sooner I think the ramp time to Mike's point before is going to be a couple of years to get a meaningful part by.
Operator: Operator, could you open the line for questions? Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star, followed by the number one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. Similarly, should you wish to decline from the polling process, please press star, followed by the number one on your touchtone phone.
Paul Frenkiel: By that time, our balance sheet will be filled up.
Paul Frenkiel: But I can see that happening within the next.
Paul Frenkiel: Three to five years to get there and then.
We could be even better by 2030 now would I be happy in 2030 to have those numbers, which bank what other banker in the world when it so we're very conservative.
Paul Frenkiel: As you know we're very rigorous we think we've got some real niches and opportunities out there to build.
Operator: One moment, please for your first question. Our first question comes from the line of Michael Ferrito from KBW. Please go ahead. Hey guys, good morning. Thanks for taking my questions. Good morning, Mike.
Paul Frenkiel: But we're realistic we know we need management time, we need investment.
Paul Frenkiel: And we need patients. So, yes, 2030, we'd be incredibly happy for that to happen, but I think we can do it sooner.
Paul Frenkiel: Okay.
Paul Frenkiel: And then just thinking about again the balance sheet.
Damian M. Kozlowski: A couple short-term, shorter-term questions, a couple longer-term questions, but first, you know, just start on the 24 guide. Paul, I was wondering if you could maybe provide a little bit more context around two things. One, kind of, rates could maybe, you know, what kind of rate assumptions you have in the guide most recently, and how, you know, maybe some variability on that could impact the guide X buyback. And then also, we'd love a little color, too, on just kind of thoughts around OPEX growth for 24, and if you guys are kind of in a net growth position here, adding some headcount, or just would love a little Okay, Mike, before I turn it over to Paul, there are a couple of things.
Paul Frenkiel: Staying below 10 billion.
Paul Frenkiel: So no need for additional capital I guess the next question is when you get to those numbers I mean, what do you do with all of that capital. It seems like you're going to run out of shares to buy.
Paul Frenkiel: Yeah.
Paul Frenkiel: Special dividend that you look at it I mean any sort of thoughts on.
Paul Frenkiel: When you're generating capital on the balance sheet is in great. Okay.
Paul Frenkiel: It's not our money.
Our perspective, we're shareholder advocates it's not our money we're borrowing it from our shareholders it's their money.
Paul Frenkiel: We which economically advantaged to our investors at our current pay to return it through buybacks when when the stock gets adequately valued considering high multiple for high performing banks plus a premium on our key activities in the Fintech world.
Paul Frenkiel: Then we will return it.
Paul Frenkiel: The stock is fairly valued or overvalued, we will return to the big dividends will just simply.
Paul Frenkiel: Give it back and we're not going to we.
Damian M. Kozlowski: We do not, and our base case is not the market's view of six interest rate cuts. We think there might be a couple, maybe starting in June, but our forecast of the 425 does not include any bond purchases. So we're expecting a normalization of the yield curve and a significant amount of bond purchases in order to mitigate our 60% deposit beta. We've already made a lot of progress on that by adding fixed rate exposure in our loan portfolio. So we're far less asset sensitive than we were at the beginning of the year. I think about 14% less as a percentage of our balance sheet. And our expense growth is going to be much less than this year. There was a big impact across the entire economy, especially employee pay. We felt that also, but we're talking about mid single-digit types of expense growth this year, not double digit employee growth rates that we saw on base pay in 2023. Paul, would you like to add something?
Paul Frenkiel: We've talked about this before.
Paul Frenkiel: We're not we're not looking to build a big institution that is not high performance or doing acquisitions that arent accretive we may do you know.
Paul Frenkiel: Acquisitions, but there'll be smaller and there'll be accretive so that's our mentality.
Paul Frenkiel: We want to be very rigorous in doing that and.
Paul Frenkiel: And we just I'll take my opportunity to thank all the shareholders for temporarily using their money and I promise to return it.
Okay Fair enough and then on.
Paul Frenkiel: Just the.
Paul Frenkiel: GDP just going back to the club the nearer term 'twenty.
Paul Frenkiel: 24 in terms of GDP is that sorry, if I missed it but is that something youre still expecting to outstrip historic levels, So still which I guess would be 15% plus is that still reasonable expectation.
Paul Frenkiel: Yes for the for the full year so.
As you know it bounces around but I think 15, plus looks very doable.
Paul Frenkiel: And we think we're going to see higher fee growth than we have.
Paul Frenkiel: That difference between <unk> and key fee growth, we saw in the fourth quarter.
Paul Frenkiel: I think that's a good summary. I would also add that we're relatively conservative in terms of really every aspect of the budget. So we feel that even if we get a little bit more of the rate cuts and so forth, we have enough flexibility in some of our other categories to make up that shortfall. And again, we don't include the impact of share repurchases because we think that's another cushion. And if you look at the history of our budgetary projections, on which our guidance is based, we've been pretty accurate and fulsome, and that sense of conservatism in the budget has really served us well in terms of meeting expectations. That's helpful.
15% with 13% and that's because we're getting.
Paul Frenkiel: Other services.
Paul Frenkiel: And that.
Paul Frenkiel: H line and push to card line, we will see higher growth. This year, so on an aggregate basis.
Paul Frenkiel: Could see extremely good.
Paul Frenkiel: Instead of the 910, 11%, we could see more like 12 13, 14% fee growth. So excited about those lines to it and as you know we've got great visibility and we've been adding partners and we'll make announcements.
Paul Frenkiel: And there's been a lot of regulatory pressure within the banking as a service space something that we've avoided by making all the investments we did over the last five years. So we've got a great position.
We've got.
Damian M. Kozlowski: Maybe just to spend another minute on the margin and rate stuff. Do you have a sense of, after the actions you've taken already, you know, what kind of immediate impact would a rate cut to NIM generally have? And then secondly, what else do you plan to do in the next quarter or two here before rate cuts begin? I mean, is there something specific that you're kind of waiting for to buy some more bonds, or just want a little bit more color there if you guys are willing? The answer is we want to negate. We were, remember we opened our balance sheet after buying bonds in 2018 and the pandemic, getting interest rates at zero. We became extremely asset sensitive, let the bond portfolio run off all the way down under 800 million. And we waited for the interest rate increase, the majority of it to be finished before we decided to put on fixed rate exposure. That's what happened over the last year.
You know a very broad rigorous ecosystem.
Paul Frenkiel: A majority of the large players in the industry and all those things work together in order to add increasing amount of volumes from larger players that are established and are now working with other banks.
Paul Frenkiel:
Paul Frenkiel: And then additionally on fees, maybe I misread.
Paul Frenkiel: Something to realize but I thought you also had some <unk>.
Paul Frenkiel: Talk about move in deposits and loans off balance sheet.
Paul Frenkiel: Overtime to stay under that $10 billion I thought I read that you had $300 million in deposits off balance sheet that end of period does that is that right and is that are those generating fees.
Paul Frenkiel: Those are not we've moved those off with our partner.
Paul Frenkiel: So those were higher.
Paul Frenkiel: Cost deposits. So those are not generating fees, they would actually cost us money to have on the balance sheet because their savings like deposits. So we as you know we have a lot of liquidity right now in order to buy bonds. So we don't want to.
Damian M. Kozlowski: We've closed that gap substantially. And with the purchase of bonds, anywhere between a billion and a billion and a half, we'll close, we might be a little asset sensitive, but we'll close the majority of the deposit beta. So we believe that as we approach the real rate hike, probably in the June timeframe, you'll get a de-inversion of the yield curve, at which time we'll add very low-risk agency and mortgage-backed security exposure, thus closing the majority of that asset sensitivity. Therefore, you will not see an impact, a substantial impact, on our profitability. However, obviously, NIM will fall.
This is more of a management tenant rather than maybe it's not totally economic at all times, but we try to match.
Paul Frenkiel: Appropriately assets and liabilities and liquidity, we always are very liquid. So we do not want to keep a lot of excess deposits on the balance sheet, if theyre not necessary. So we try to match those sometimes there might be a little economic negative to it but long term, we believe and rigorous fiscal management and the matching of assets and liabilities.
Paul Frenkiel: As a general tenant of managing the bank.
Paul Frenkiel: Yes on that front in terms of the asset sensitivity you talked about being reduced by maybe 14%.
Paul Frenkiel: Just trying to think through numbers here, so I think on the deposit side.
You basically 40.
Damian M. Kozlowski: And the NIM will fall because the bond purchases are likely to be of a lower coupon than some of our loan portfolio. However, our profitability will be intact on a run rate basis. But additively, if the yield curve disinverts, you'll get additional net income and additional ROE and ROA return. Okay, that makes sense.
Paul Frenkiel: Tied to fed funds moves you got 40% of that move through deposit cost is.
Paul Frenkiel: Is it right now about 60% of the earning assets move with fed funds or what's the number on the asset side.
Paul Frenkiel: On the deposit side.
Paul Frenkiel: Yes, it's 40% so.
And versus 60, so if it if it.
Damian M. Kozlowski: So we should kind of be patient on the bond side until there's more clarity. But either way, there's some margin downside on an absolute basis, but with the actions you've taken already, and then the flexibility still to buy more bonds, you feel like you can neutralize a vast majority of that asset sensitivity. Yeah.
Paul Frenkiel: We get 60% and our clients get 40, so for US it was 60%.
Paul Frenkiel: Deposit beta so.
Paul Frenkiel: We got down to under 25% at one point.
Paul Frenkiel: <unk>.
Paul Frenkiel: Of.
Paul Frenkiel: Fixed rate assets, including our bonds and now we're approaching 40. So that is how much we've closed the gap and we've got to get the 60. So we have another 20% to go of which almost all of that can be close by birch purchasing bonds.
Damian M. Kozlowski: As you know, NIM is, for banks, NIM is very important if you're a traditional bank. Right? But in our weird situation, we can actually lower our NIM and substantially increase their net income just by getting a spread on our bond purchase. Right?
Damian M. Kozlowski: So that usual correlation where you see the NIM drop, oh, no, the probability is going to go down. No, ours will actually go up. So we think we're being very cautious. We, you know, this is an hourly thing for us. We want, we're using history as a guide.
Paul Frenkiel: Bond and everyday we get less asset sensitive because everyday we put on fixed rate instruments.
Paul Frenkiel: In lungs, and as you can see it also impacts our NIM. So we've got a longer duration portfolio thats much more fixed now than a year ago and I.
Damian M. Kozlowski: There should be that inflection point where we start putting on bond exposure where it will be a positive spread to the bank. It'll lock in long-term rates, and then it will mitigate our deposit beta, which is all being driven by our program management and our locked-in long-term contracts. We know what our funding is, so I think we're in a very unique, flexible position on the balance sheet. And this has been a game that has been played over five years, not just, you know, the last five months.
Paul Frenkiel: I think we're on the precipice of closing it in its entirety.
Paul Frenkiel: As you are seeing a narrowing obviously of the yield curve.
Paul Frenkiel: And the anticipation of the cut in rates.
Paul Frenkiel: Okay.
Paul Frenkiel: And do you still think you can lock in a 5% NIM in this environment.
Paul Frenkiel: There's a lot of variables there but.
Paul Frenkiel: That kind of a target.
Paul Frenkiel: That would be that would be great [laughter] of course, it totally depends on how many bonds, we buy at what at what price.
Damian M. Kozlowski: And we've been very careful. And I think we're in the right position in order to close that gap and get incremental profitability for our shareholders. Agreed. That's all very helpful. Thank you.
Paul Frenkiel: And how much.
Paul Frenkiel: Origination we have on our other businesses that are going to be fixed rate longer maturity loans. So it's incredibly hard to predict I'd be happy.
Damian M. Kozlowski: And then I wanted to ask a question or two about Apex 2030. You know, my hunch is, and please correct me if I'm wrong, but my hunch is, there's going to be quite a bit of a ramp up in kind of the fee contribution to hit these targets. Do you have a sense of what that is? Like, by the time you get to a billion plus or revenue or fees over half of the revenue pool? And have you guys, are you guys willing to kind of provide any guardrails around that? And is most of that fee ramp opportunity off balance sheet deposit earnings and kind of credit as a service gain on sale type earnings that are going to keep the balance sheet sub 10 billion? Is there anything else we should be thinking of as you guys ramp up the non-interest income portion to hit that billion dollar number? Yes, so we'll be saying a lot more. There's a lot of work, so we've decided which areas to play in.
Paul Frenkiel: Once again at $4 50, it's fine for its fine because it's not going to we're not a traditional bank and its not going to affect our profitability. When we when we get it the inversion of the yield curve. We buy the bonds are net income is going to go up in ROE is going to go up but it's going to go up.
Paul Frenkiel: Because we don't have the same constraints.
Paul Frenkiel: No we don't have to grow the balance sheet.
Paul Frenkiel: It doesn't it really if the NIM was 1% ROE we would still be 28.
Paul Frenkiel: Yes.
It doesn't matter.
Paul Frenkiel: The math is different than it would be for attritional back hopefully locking down above 1%, though.
Paul Frenkiel: Yes.
Damian M. Kozlowski: We've given some very general guidance in our investor presentation that we redid and put on our website, and we'll be giving much more detail. Now, in the near term, we have another $3 billion of room of credit on our balance sheet. So even though our fees are growing very quickly, we will probably continue to get higher growth on the interest income side. And then it'll stop because we won't have any more balance sheets left. And then you'll get a situation where you'll have a stabilization of that interest income, generally much slower growth, and then you'll get it all in fees. So it's going to come from, and you're exactly right, from credit sponsorship, but it's going to be a mix of a very diverse mix of different types of programs, some of them facilitated by the balance sheet, and others, extremely light and underwritten assets that are sold into the market.
Paul Frenkiel: Well, it's going to be way above the market, So where is the market now and some of the big banks are like 180, and the whole markets or just over three and we're off.
Paul Frenkiel: We added another 20 plus basis points this quarter and that's going to continue to increase until we buy the bonds.
Paul Frenkiel: This one is a real tough one to predict where it will be.
Paul Frenkiel: And then just just lastly, I know you've got a lot of questions on the rebel loans people look at that industry that has seen some some pain elsewhere away from you guys and.
Paul Frenkiel: You did see some some migration into criticized and classified last quarter.
Paul Frenkiel: Just wondering what you saw this quarter on that front and then any change to to your general thoughts on that on that paper.
Paul Frenkiel: It's.
Damian M. Kozlowski: And we're talking about not one or two programs; we're talking about, in five years, a diversified mix of 2025 programs where, in certain cases, we're not taking any credit exposure at all. Part of our balance sheet will be for that. All the other services that we will provide will be fee-based.
Paul Frenkiel: I think we have a more secure portfolio because there was a real lowering of cap rates and structure structurally in the.
Paul Frenkiel: Multifamily market things like subordinated debt lower reserves.
Paul Frenkiel: Not buying it.
Paul Frenkiel: Proper interest rate, we didn't do any of that we strip we were very strict in the underwriting.
Damian M. Kozlowski: So if you're talking about any of the compliance services we do today and things like transaction monitoring, some of the middle office technology services we provide, those will all be fee-based, and we'll give much more guidance as we get more clarity ourselves. All we have done is put a structure and framework together to kind of look into the future and build a model and understand what we want our bank to be within the competitive and market environment. And we've done so much in the past to build our ecosystem, and we're trying to look forward to 2030 and say, "This is what our company is going to look like." And think about all the big trends that are happening right now, like AI, that we have to build into that vision. So we're gonna be saying a lot more. This year is a lot of work.
Paul Frenkiel: Our portfolio has matured so it's we do have some <unk>.
Paul Frenkiel: A firm and this is very natural though.
Paul Frenkiel: No write offs no no we don't believe any substantial risk of default.
Paul Frenkiel: And loss, but as you mature that it's hard to know whether it's just the maturing portfolio, where you have some people who have finished the product projects or it's more based on the economy. It has not.
Paul Frenkiel: It is not abnormal.
Paul Frenkiel: Not seeing anything abnormal yet from ours now we you hear a lot of these stories in the market, but those arent our type of deals those arent our type of structures and the markets that we.
Paul Frenkiel: Inhabit with the type of developers that we have so we haven't seen the same stress that you might have read about in other areas.
Damian M. Kozlowski: The area that you're gonna see real fee generation and spread generation will be in the credit sponsorship area, but it'll be a couple of years before you see meaningful parts of our balance sheet used for credit sponsorship or fees for other services. And we'll give you more guidance as we get through this year on what that might look like. Just a tremendous amount of resources and work will need to be done, but the opportunity is enormous because of our position in banking as a service and providing this middle office technology and services. We really do have a unique opportunity to sell those for fees broadly and financial services and to our other partners throughout the payments ecosystem. So we're just actually calling from Miami today, where we had our senior management offsite going through all this. We are all very, very enthusiastic about the future and are really looking forward to continuing to build on all the achievements we've made and going into a new future look that I think will be even more profitable, faster growth, and much more fee-based. Sweet. I appreciate all the color.
Paul Frenkiel: Sure I mean, just thinking about is it fair to assume that that <unk>.
<unk> bought assets will increase and that's in this business for you guys, but just you won't see the losses is that kind of a.
Paul Frenkiel: A reasonable expectation.
Paul Frenkiel: Coming quarters, that's yes, that's the expectation just on a.
Paul Frenkiel: The usual aging of a fifth of our floating rate portfolio that's transitional.
Paul Frenkiel: So we're very.
Paul Frenkiel: We worked with the sponsors of these deals and theyre going to improve our property and sometimes they can't get the refrigerators or they can't they.
Paul Frenkiel: Take longer than they expect in order to finish the project, even though they might be leasing it up and finished rebuilding. So this is comment whether that.
Paul Frenkiel: Driven by economic.
Paul Frenkiel:
Paul Frenkiel: What's happening in the economy, we don't believe that's the major factor in it.
Paul Frenkiel: Possible, but I can't I can't give you an answer because there's really not an answer we're not saying there is once again still a significant need for the type of housing we do which is workforce housing. The economy is robust. We just had three point to GDP and the vacancy rates are very very high.
Paul Frenkiel: Where we do business.
Damian M. Kozlowski: Damian, Paul, thanks and congrats. 23 was really a great year, so kudos to you guys. Have a good weekend.
Paul Frenkiel: We're not doing pickle ball courts and.
Paul Frenkiel: The 10, new buildings in Philadelphia, we don't do that type of stuff. So so we haven't seen.
Paul Frenkiel: Those type of issues.
Damian M. Kozlowski: We appreciate it, Mike. Thank you. Ladies and gentlemen, just a reminder, should you have a question, please press star followed by the number one on your touchstone phone. We have our next question coming from the line of Frank Schiraldi on Piper Sandler. Please go ahead. Good morning.
Paul Frenkiel: Okay.
Paul Frenkiel: Alright, I appreciate all the color. Thank you.
Paul Frenkiel: Thank you so much Frank.
Damian M. Kozlowski: There are no further questions at this time I'd now like to turn the call back over to Mr. Kozlowski for final closing comments.
Damian M. Kozlowski: Thank you operator is great year for the bank core we're going to be focused on delivering in 2024. Thank you. So much for your time operator, you can disconnect the call.
Frank Joseph Schiraldi: Good morning, Frank. Just looking at the presentation and looking at some of the numbers here and the long-term financial target of greater than 40% ROE, 4% ROA. Obviously, some pretty impressive numbers, I guess, in terms of the long-term aspect. If you were to put a timing on it, I guess that 2030 is when you think you could get to those sort of numbers. Is that reasonable?
Paul Frenkiel: Thank you, Sir ladies and gentlemen. This concludes your conference call for today, we thank you for participating and asked US to please disconnect your lines have a lovely day.
Damian M. Kozlowski: B E.
Damian M. Kozlowski: B.
Damian M. Kozlowski: Yeah, to be honest, that's giving us a little bit more time. We're not that patient, to be honest. You know, if you think of us only as a bank, you're going to miss the story. You know, If you look just at this quarter, our efficiency ratio was 38%, and we still have $3 billion of balance sheets to deploy building our business. The ROE isn't really a bank ROE in a lot of ways. It's a services and distribution ROE. I think we can get there sooner. I think the ramp time to Mike's point before is going to be a couple of years to get a meaningful part.
Damian M. Kozlowski: [music].
Damian M. Kozlowski: By that time, our balance sheet will be filled up, but I can see that happening within the next, you know, three to five years to get there. And then it's, you know, we could be even better by 2030. Now, would I be happy in 2030 to have those numbers? Which bank, what other banker in the world wouldn't? So, you know, we're very conservative. As you know, we're very rigorous.
Damian M. Kozlowski: We think we've got some real niches and opportunities out there to build, but we're realistic. We know we need management time. We need investment, and we need patience. So, yes, by 2030, we'd be incredibly happy for that to happen, but I think we can do it sooner.
Frank Joseph Schiraldi: And then just thinking about, again, the balance sheet staying below 10 billion. And so there is no need for additional capital. I guess the next question is, when you get to those numbers, what do you do with all that capital?
Damian M. Kozlowski: It seems like you're gonna run out of shares to buy. Is it, you know, a special dividend that you look at? I mean, any thoughts on when you're generating that sort of capital and the balance sheet isn't growing? It's not our money. If you know our perspective, we're shareholder advocates. It's not our money. We're borrowing it from our shareholders. It's their money.
Damian M. Kozlowski: It's economically advantageous to our investors at our current PE to return it through buybacks. When the stock gets adequately valued, considering the high multiple for high-performing banks plus a premium on our fee activities in the FinTech world, then we will return it. If the stock is fairly valued or overvalued, we will return it in big dividends. We'll just simply give it back. We're not going to; we've talked about this before.
Damian M. Kozlowski: We're not looking to build a big institution that isn't high-performance or doing acquisitions that aren't accretive. We may do acquisitions, but they'll be smaller, and they'll be accretive. So that's our mentality. We want to be very rigorous in doing that, and I'll take this opportunity to thank all the shareholders for temporarily using their money, and I promise to return it. Okay, fair enough.
Frank Joseph Schiraldi: And then on just the GDV, just going back to the nearer term, 2024, in terms of GDV, is that, sorry if I missed it, but is that something you're still expecting to outstrip historic levels? So, you know, still, you know, which I guess would be 15% plus, is that still a reasonable expectation? Yes, for the full year. As you know, it bounces around, but I think 15-plus looks very doable.
Damian M. Kozlowski: And we think we're going to see higher fee growth than we have, that difference between GDV and fee growth. We saw it in the fourth quarter, 15% with 13%. And that's because we're getting other services like in that ACH line and push to card line. We'll see higher growth this year. So, on an aggregate basis, We could see extremely good results, you know, instead of the 9, 10, 11%, we could see more like 12, 13, 14% fee growth. So excited about those lines to it.
Damian M. Kozlowski: And as you know, we've got great visibility, and we've been adding partners, and we'll make announcements. And there's been a lot of regulatory pressure within the banking as a service space, something that we've avoided by making all the investments we did over the last five years. So we've got a great position. We've got, you know, a very broad, rigorous ecosystem.
Damian M. Kozlowski: We have a majority of the large players in the industry, and all those things work together in order to add an increasing amount of volumes from larger players that are established and are now working with other banks. And then additionally on fees, maybe I misread something in the release, but I thought you also had some. You talked about moving deposits and loans off the balance sheet over time to stay under that $10 billion. I thought I read that you had $300 million in deposits off the balance sheet at the end of the period. Is that right? And are those generating fees? No, they are not.
Damian M. Kozlowski: We've moved those off with our part. So those were higher cost deposits; those are not generating fees; they would actually cost us money to have on the balance sheet because they're savings-like deposits. As you know, we have a lot of liquidity right now in order to buy bonds, so this is more of a management tenant rather than—maybe it's not totally economical at all times, but we tried to match, appropriately assets, liabilities, and liquidity. We are always very liquid.
Damian M. Kozlowski: So we do not want to keep a lot of excess deposits on the balance sheet if they're not necessary, so we try to match those. Sometimes there might be a little economic downside to it, but long-term, we believe in rigorous fiscal management and the matching of assets and liabilities as a general tenet of managing the bank. Yeah, on that front, in terms of the asset sensitivity, you talked about being reduced by maybe 14%. Just trying to think through the numbers here.
Frank Joseph Schiraldi: So I think on the deposit side, you're basically 40, you know, you're tied, Fed funds move, you get 40% of that move through deposit costs. Is it right now about 60% of the earnings assets move with Fed funds? Or what's the number on the asset side? On the deposit side, it's... Yeah, that's 40%. So the inverse is 60.
Damian M. Kozlowski: So if we get 60%, and our clients get 40, so for us, it's a 60% deposit beta. So we got down to under 25% at one point of fixed rate assets, including our bonds, and now we're approaching 40. So that's how much we've closed the gap, and we've got to get to 60.
Damian M. Kozlowski: So we have another 20% to go, of which almost all can be closed by purchasing a bond. And every day, we get less sensitive because every day we put on fixed rate instruments on loans. And as you can see, it also impacts our NIM.
Damian M. Kozlowski: So we've got a longer duration portfolio that's much more fixed now than a year ago, and I think we're on the precipice of closing it in its entirety as you're seeing a narrowing, obviously, of the yield curve and the anticipation of the cut in rates. And do you still think you can lock in a 5% NIM in this environment? I know there's a lot of variables there, but is that kind of a target? That would be great.
Damian M. Kozlowski: Of course, it totally depends on how many bonds we buy and at what price, and how much origination we have on our other businesses that are going to be fixed rate, longer maturity loans. So it's incredibly hard to predict. I'd be happy, once again, at 450. It's fine.
Damian M. Kozlowski: At four, it's fine, because we're not a traditional bank, and it's not going to affect our profitability. When we get a de-inversion of the ill care, we buy the bonds, our net income is gonna go up, and ROE is gonna go up, and ROA is gonna go up, because we don't have the same constraints. No, we don't have to grow the balance sheet. Yeah, it doesn't, it really does. If the NIM was one percent, our ROE would still be 28. You know, it doesn't matter. The math is different than it would be for a traditional bag. Hopefully, you can lock it in above the lumbar.
Damian M. Kozlowski: Yeah, well, it's going to be way above the market. So where is the market now? You know, some of the big banks are like 180. And, you know, the whole market is just over three. And we've, you know, we added another 20 plus basis points this quarter, and that's going to continue to increase until we buy the bonds. This one is a real tough one to predict where it will be.
Damian M. Kozlowski: And then, just lastly, I know you get a lot of questions on the rebel loans. People look at that industry; they've seen some pain elsewhere away from you guys. And you did see some migration into the classified last quarter. Just wondering what you saw this quarter on that front, and then any change to your general thoughts on that paper? It's um, I think we have a more secure portfolio because there was a real lowering of cap rates and structurally in the multi-family market, things like subordinated debt, lower reserves, not buying the proper interest rates. We didn't do any of that. We were very strict in the underwriting.
Damian M. Kozlowski: Our portfolio has matured, so we do have some deferments. This is very natural, though; no write-offs; we don't believe there is any substantial risk of default and loss. But as you mature that portfolio, it's hard to know whether it's just a maturing portfolio where you have some people who haven't finished the projects or it's more based on the economy. It's not abnormal.
Damian M. Kozlowski: We're not seeing anything abnormal yet from ours. Now, you hear a lot of these stories in the market, but those aren't our type of deals. Those aren't our type of structures in the markets that we inhabit with the type of developers that we have. So, we haven't seen the same stress that you might have read about in other areas. Sure, I mean, just thinking about whether it's fair to assume that classified assets will increase in this business for you guys, but, you know, just you won't see the losses. Is that kind of a reasonable expectation? coming quarters? So we're very, you know, we work with the sponsors of these deals, and they're going to improve a property. And sometimes they can't get the refrigerators, or they can't, you know; they take longer than they expect in order to finish their project, even though they might be leasing it out. They didn't finish three buildings.
Damian M. Kozlowski: So this is common, whether that's driven by the economic.. uh, what's happening in the economy? We don't believe that's a major factor in it. I can't give you an answer because there's really not an answer. We're not saying there is, once again, still a significant need for the type of housing we do, which is workforce housing. The economy is robust. We just had a 3.2 GDP, and the vacancy rates are very, very high where we do business. We're not doing pickleball courts in the 10 new buildings in Philadelphia. We don't do that type of stuff. So we haven't seen those types of issues.
Frank Joseph Schiraldi: OK. All right. I appreciate all the color. Thank you. Thank you so much. There are no further questions at this time.
Damian M. Kozlowski: I'd now like to turn the call back over to Mr. Kozlowski for final closing comments. Thank you, operators. Great year for Bancorp. We're going to be focused on delivering in 2024.
Operator: Thank you so much for your time. Operator, you can disconnect the call. Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.