Q4 2023 Cadence Bank Earnings Call
Participants
Will Fisackerly; IR; Cadence Bank
James Rollins; Chairman and CEO; Cadence Bank
Valerie Toalson; Chief Financial Officer; Cadence Bank
Presentation
Operator
Good day, and welcome to the Cadence Bank fourth-quarter 2023 webcast and conference call. (Operator Instructions) Please note today's event is being recorded.
I'd now like to turn the conference over to Will Fisackerly, Director of Finance. Please go ahead.
Will Fisackerly
Good morning, and thank you for joining the Cadence Bank fourth-quarter 2023 earnings conference call. We have members from our executive management team here with us this morning: Dan Rollins, Chris Bagley, Valerie Toalson, Hank Holmes, and Billy Braddock.
Our speakers will be referring to prepared slides during the discussion. You can find the slides by going to our Investor Relations page at ir.cadencebank.com, where you'll find them on the link to our webcast, or you can view them at the exhibit to the 8-K that we filed yesterday afternoon. These slides are also in the Presentations section of our Investor Relations website.
I would remind you that the presentation, along with our earnings release, contain our customary disclosures around forward-looking statements and any non-GAAP metrics that may be discussed. The disclosures regarding forward-looking statements contained in those documents apply to our presentation today.
And now, I'll turn to Dan for his opening comments.
James Rollins
Good morning. We appreciate your interest in Cadence Bank. I will make a few comments regarding both our fourth-quarter and full-year 2023 results, and then Valerie will dive into the financials in more detail. Our executive management team will be available for questions following our remarks.
Oh what a year 2023 was for our industry and specifically for our company. I'm extremely proud of our team's efforts throughout the year. We came into 2023 focused on improving our performance. And as we look into 2024, our goal is to build upon our accomplishments in 2023.
Looking back, we set out to improve our capital ratios, improve our portfolio yield, lower our efficiency ratio by lowering our expenses and, after March, enhance our liquidity. As we review our results, you will hear about significant progress in all of these measures, which certainly sets the stage for our continued improvement this year and beyond.
As we look at strategic accomplishments, we completed the closure of 35 branches in the third quarter. We completed our voluntary retirement program in the fourth quarter, lowering our headcount, including the branch closures and excluding the sale of Cadence Insurance, by almost 500 from the beginning of the year.
Finally, we unlocked the extraordinary value of Cadence Insurance. This transaction, completed in November, generated additional capital for our company of approximately $620 million, including an after-tax gain of $520 million. During December, we leveraged just over half of that gain to restructure over 25% of our available for sale securities portfolio, allowing us to reinvest the proceeds at much higher yields and reduce wholesale deposits, all while meaningfully increasing our tangible book value and capital ratios. Valerie will give more color in a moment on these restructuring transactions, but I'm excited about the significant positive impact this will have on our margin and core operating performance going forward.
And looking specifically at our financial results for the quarter, it's important to note that our financials are now broken out between continuing and discontinued operations. The results of our insurance business prior to the sale and the related gain from the sale are included in discontinued operations. Continuing operations includes all other financial results for the bank, including the loss on securities restructure. For comparative purposes, we will focus on adjusted continuing operations results, which excludes the loss of the securities restructure, as well as certain other non-routine items, consistent with our past practice. Valerie will, of course, provide more detail on these items in her comments in a moment.
We reported GAAP net income, which includes both continued and discontinued operations for the fourth quarter of 256.7 million or $1.41 per common share, which results in annual net income of $532.8 million, or $2.92 per common share reported adjusted net income from continuing operations for the fourth quarter of $72.7 million, or $0.4 per common share, bringing annual adjusted net income from continuing operations to $401.2 million or $2.20 per common share. From a balance sheet perspective, loan balances grew $2.1 billion or over 7% for the year and were flat for the quarter. Our loan growth for the year was dispersed across our geographic footprint as well as the various loan types, primarily within corporate and mortgage looking into 2024, I am confident our team of bankers will be able to win business and grow our balance sheet now that the economic stresses of 23 are in the rearview mirror and the economy within our footprint remains relatively strong. We had another nice quarter from a deposit growth perspective, demonstrating the strength of our community banking business with total deposits increasing over 160 million excluding the planned and continued reduction in brokered deposits, we reported growth of $625 million or 6.5% annualized. About half of this growth came from core customer deposit growth with the remainder driven by seasonal increases and public fund balances. For the full year, core deposits were essentially flat while growth in the community bank deposits of $1.2 billion or just over 4% offset the decline in corporate and public fund balances. I'm confident our teams will be able to build on the momentum we experienced in the latter half of 2023. This balance sheet activity contributed to an increase in our net interest margin to 3.04% for the fourth quarter. Valerie will dive further into the details, but our earning assets, both loans and securities continued to reprice up. In addition, pressure on deposit cost has slowed as has the migration from noninterest to interest-bearing products. The securities repositioning obviously accelerates our margin improvement efforts given the December timing of our bond restructure, we anticipate additional positive impact from this repositioning in the first quarter margin.
Moving on to credit, our total criticized loans remained stable with other quarter at 2.09% of net loans and leases. For the quarter, we did experience the negative migration of a handful of credits within our previously criticized population that drove the increase in nonperforming assets. This migration is reflected in an increase in credit provision to $38 million for the fourth quarter. Net charge-offs were 22 basis points for the year, in line with our expectations and our allowance coverage ended the year at a healthy 1.44% of loans.
Finally, our capital metrics improved significantly as a net result of the insurance and securities transactions. CET. one was 11.6% at year end, and total capital was 14.3, both of which improved over 130 basis points compared to the third quarter of 23. This improvement provides us with tremendous flexibility with respect to capital management and deployment in 2024 and beyond.
I will now turn the call over to Valerie for her comments. Valerie?
Valerie Toalson
Thank you, Dan. I recall we promised you a noisy quarter and I think we outperformed there. But when you break it all down we believe this was a transform transformative quarter in setting the stage for positive momentum into 2024 and describe the continued and discontinued operations dynamics.
We added a few slides this quarter to reconcile our GAAP earnings that combines everything to our adjusted earnings from continuing operations.
Slide 5 includes these items for the full year. Slides 7 and 8 include both the current and prior quarters as well as major variances. I will focus most of my comments this morning on the adjusted continuing operations, fourth quarter results of $73 million in net income available to common or $0.4 per share on a pretax basis. These adjusted results exclude the 385 million loss on securities restructure as well as about $60 million in non-routine expense items as we wrapped up some of the key activities. Dan commented on these routine expenses included a $12 million pension settlement charge driven by the early retirements, $7.5 million in incremental merger-related expense, legal expense and 36 million for the industry-wide FDIC special assessment.
The bottom of slide 8 highlights a few additional variances that I will touch on as we move through the financials.
Before we dive into the details, I would like to take a minute to summarize and add a little more color around the strategic transactions executed in the fourth quarter.
To summarize, first was the sale of the insurance company on November 30th, enhancing capital by 600 million we then leverage that gain by selling 3.1 billion in par value available for sale securities during December at an after-tax loss of 294 million. The securities, a mix of mortgage backs, agencies and municipal bonds were yielding 1.26% with an average duration of just over four years. As of year end, we had reinvested 1 billion of the $2.7 billion in sale proceeds in securities yielding an average 5.6% with a duration of approximately two years, another 645 million was used to lower year end brokered deposits that were costing us 5.47% with another 235 million at 5.4% reduced in January. The remaining proceeds are temporarily in cash at the Fed earning 5.4%, and we anticipate investing a portion of that in securities in the first quarter. Finally, we were able to refinance that $3.5 billion bank term funding program borrowings from 5.15% to 4.84%, and actually 4.76% as of today. As a reminder, this spending can be repaid at any time without penalty. So the combined effect of all of these fourth quarter efforts using static rates is an estimated annual incremental positive impact on net interest income of over $120 million and combined with the fourth quarter results resulted in an increase in common equity Tier one of 130 basis points and an improvement in tangible book value per share of 28%. All in all great results that will benefit us in years to come.
Moving on to the detailed financials for the quarter, beginning on Slide 16, we reported net interest income of $335 million for the fourth quarter, an increase of $5.6 million compared to the prior quarter. Our net interest margin was 3.04% for the fourth quarter up six basis points. Our total cost of deposits increased at the slowest pace all year at 18 basis points to 2.32% as reflected on slide 17, non-interest bearing deposit balances ended the year at 24% of total deposits, down just slightly from 25.2% at the end of the third quarter. Given the yield curve forecast in 2024, we expect pressure on deposit pricing to improve as we move through the year. Our yield on net loans, excluding accretion, was 6.43% for the fourth quarter, up 12 basis points from the prior quarter, reflective of new and renewed loans coming on the balance sheet at higher yields than the portfolio.
Finally, our securities and short-term investments. Yield was up 41 basis points to 2.96% in the fourth quarter due to the restructuring activity in December. Given the late fourth quarter timing of that activity, we anticipate net interest margin and net interest income to further improve in the first quarter as well as throughout 2020.
For noninterest revenue highlighted on slide 19 was 73.1 million on an adjusted basis, which excludes the restructuring securities law compared to $80.6 million for the third quarter. The decline was driven by two items, one, a negative variance on our mortgage servicing rights valuation of 4.9 million and to an 8 million reduction in service charge fee income in the fourth quarter as a result of certain deposit service charges changes. These changes are expected to result in a decline in fees of approximately 3 million annually in 2024 aside from these two items, all other fee revenue increased about $5.5 million, including wealth management, card fees and other categories. Looking forward, we anticipate total revenue to increase at a mid single digit growth rate for 2024.
Moving on to expenses, highlighted on slides 20 and 21. Total adjusted noninterest expense was to 69.8 million for the quarter, reflecting a linked quarter increase of $5.6 million. As expected, salaries and employee benefits declined 5.7 million compared to the third quarter due to the efficiency work done in 2023. This decline was offset by increases in several other line items, including advertising and public relations, which increased $1.9 million in line with typical fourth quarter seasonal increases. Legal increased 2.6 million, driven by an accrual related to the settlement of a legal matter. And finally, data processing and software increased 3.9 million, primarily the result of continued focus on our products, service and technology, as well as inflationary increases in certain vendor costs with a smaller portion being timing as we commented last quarter, we continue to anticipate flat operating expenses for the full year 2024 compared to 2023 adjusted results.
Finally, let's take a look at credit quality on slides 14 and 15. Importantly, our criticized and classified loan totals continue to remain stable, with the criticized total declining to 2.6% of loans and classified totals remaining flat at 2.09% linked quarter. Other credit metrics this quarter, including increased provision, net charge-offs and nonperforming totals were the result of some further deterioration in and a small number of credits that were identified as criticized or impaired in prior quarters.
Our nonperforming loans and nonperforming asset totals increased linked quarter to 0.67% of loans and 0.45% of assets respectively. That provision for the quarter was 38 million, bringing our allowance coverage to a solid 1.44% at year end. Net charge-offs declined in the fourth quarter to $24 million or 29 basis points of average loans on an annualized basis, resulting in the full year net charge-offs were 22 basis points. While certain of our credit metrics for the quarter increased our processes to timely identify issues continue to work well and there are indications that macro environmental factors may be stabilizing or improving as we look forward, based on what we see now, we'd expect our 2024 net charge-offs to be within a range relatively comparable to 2023 full year totals our capital as shown on Slide 22. And as Dan noted previously, the ratios all improved meaningfully, providing us strength and flexibility from a capital management standpoint, tangible common equity to tangible assets also improved 27% to 7.44% at year end. There were a lot of moving parts in the fourth quarter and in all of 2023 for that matter, but all for the benefit of driving future momentum and enhancing shareholder value as we look forward.
Looking back it was just over a year ago that we converted the systems and merged the brands of BancorpSouth and Cadence Bank into one. Since then, we have further integrated our teams and technology meaningfully refined our branch network and staffing levels completed a transformative sale of our insurance company, executed a highly profitable restructuring of our securities portfolio, materially improved our capital and liquidity and importantly, expanded our loans in core customer deposits. We spoke to some of our expectations for 2024, and we have also laid those out for you on slide 4, we are energized and focused and remain excited about the future of Cadence Bank.
Operator, we would like to open the call to questions, please.
Question and Answer Session
Operator
(Operator Instructions) Catherine Mealor, KBW.
Thanks. Good morning. Lauren, I gather I'm going to start on your revenue guide Valor that you thought you said was kind of mid-single digit and you have in your slides is 4% to 6%. I noticed in the slide you say that you're following the forward curve with that. And so just curious within that expectations of revenue growth? Yes. How much does Number one? I'm assuming the forward curve includes six cuts this year. And so then within that, how much. Okay. Considering how much of that is influencing some of that revenue growth guide? And then if we're actually in a scenario where we get less cuts, what would perhaps be the sensitivity to that TAM to that growth.
James Rollins
We've said for a long time, we like higher for longer head. And certainly this pace of the cuts and the number of cuts is higher than we would like, but where we model off the forward curve.
Valerie Toalson
Yes, that's just something that we've always chosen to do because there's there's so many different variations out there, particularly lately, and I'm doing them the forward curve levels to be consistent and hopefully you guys can understand better what we're doing.
But to your question, we are slightly asset sensitive, but we're actually closer to neutral now than we've really been in quite some time. And plus 100 on a shock basis is plus 0.7%.
And that being said if rates don't decline if they were to stay right where they were, it would impact our net interest income positively by the range of, say, 16 million, give or take a few million dollars, and certainly it would be positive for us on the net interest income side, if rates were to can move slower perhaps than another.
James Rollins
I have right slower out as far.
That's great.
Okay.
That's helpful. And then I know it's early and the margin has so many moving parts. But as you kind of think about where we are going into the first quarter. Do you have any any kind of raise that you can give us on where you think we're going to be starting the margin? I know you said up, but you had a big bond restructure and you've still got loans repricing up. So just kind of curious if you could help us get a starting point for the margin in the first quarter?
Valerie Toalson
Yes, no, definitely, we're positive not only about the first quarter, but really as we look out throughout the rest of next year and for the fourth quarter net interest margin improved six basis points, and I'd say that was back-end loaded. So for the first quarter, we would expect double to double plus of that rate of improvement in both the net interest margin and net interest income
and things have at least another $0.12 in the first quarter. And what I see,
Valerie Toalson
I think that's a reasonable expectation.
Yes, okay. Can I ask about the key that, Adam? Thanks so much. Appreciate it,
James Rollins
and I don't know that.
Operator
Stephen Scouten, Piper Sandler.
Yes, thanks. Good morning, guys. Just one clarifying question around the fees. How do we think about this on the service charge, the $3 million reduction and the $8 million charge this quarter? I mean, are we working off a 16, $17 million quarter number, or are you thinking about it on an annual basis for the 3 million reduction is an annual number. The 8 million is a onetime reduction from last year as we cleaned up and work through the issues we need to deal with. But the forward look was 3 million on an annualized basis.
Lower fees.
Okay. Kind of take this $62 million a year on ending at 3 million less?
Yes, Stephen, that wouldn't be off of the 8 million reduction, 8 million is really kind of an isolated item on its own.
Right, right?
Yes, yes, so.
Perfect.
Okay, great. Then be more be more direct at the back and then subtract three fit?
Yes, yes, understood. Okay.
Thank you.
And then just kind of thinking about the benefit that can come throughout the year on the deposit side, are there any large CD maturities or otherwise that we should be aware of that will kind of help expedite some of that improvement that we might see when rates do decline yes, yes.
So we do have a solid pace of CD maturities coming and particularly in the first half of the year as well as in the third and looking just at next quarter, we've got about 2 billion of CDs that are maturing.
Remember, the biggest product that we're pushing in the field as of a month product. And so they roll pretty first.
Yes, that's right. That's right.
And so you do a portion of those.
We still have a promotional rate out there for CDs, but then a large portion of those also just rollover into some of that kind of routine levels. So as you look at the year, we do anticipate some average improvement from those CD rollovers.
Okay, great. And then just last thing for me. I'm curious about the share repurchase. Obviously, you built capital extremely nicely with the insurance sale. Kind of how you think about that moving forward, if it's kind of a total payout percentage. Do you think about if it's opportunistic or just the kind of potential thoughts around capital return?
Yes.
In the past, we have used that as an opportunistic way. I think as we look at where we sit with Capital Day, I think we've got all the tools in the toolkit and we're ready to use all of them so I think we feel really good about what we did in the fourth quarter from a capital standpoint. And it lets us lets us execute how we want to go in 2024 and beyond.
And great.
James Rollins
Thanks so much and it has to hit.
Thank you, sir.
Operator
Casey Haire, Jefferies.
Jeff Martin, and good morning, everyone.
So a couple of them questions. Dan, you mentioned so you model towards the forward curve. Just wondering the where you expect the cume beta to peak versus that 41% level. And then and when you do get these cuts, what kind of a beta you have for 24 when when rates are declining?
Yes.
So our total deposit beta right now for the fourth quarter was 41% as compared to 38% last quarter. We actually because of the forward curve, those rate cuts in that modeling began in March. We actually have deposit costs peaking in the first quarter of next year before coming back down. And so from a beta perspective, I don't have a specific number for you, but just very slightly, we saw deposit costs, like I said, increase at the lowest pace this fourth quarter, and we would expect that pace to further decline a little bit in the first quarter as well.
Got you.
Okay.
And appreciate the guide on the first quarter, NAM up double digits, at least or but just can you can you guys provide the spot securities yield and borrowing rates just so we get a a better starting point borrowing rate.
So we're borrowing today and the bank term loan fund, if that's what you're asking about. I think that's what you're asking about.
Yes, you see actually, I think you said so that that goes to four 80 and then the securities yield the spot securities yield at 1230 and yes, what 1231, you don't think that the overall securities book is closer to 60 given where the changes are.
Okay, great.
And just last one. So Slide 18 is great. You guys mentioned. So it looks like the real opportunities that you got a little less $9 billion of fixed rate loans with a 40 60 weighted average yield on how much of that matures this year.
And then within your bond book, you got 1 billion, three coming back at you and do you have that the weighted average yield for that? Just trying to get a sense on the fixed assets repricing tailwinds you have for the margin this year?
Yes.
So when the blended, we don't have a weighted average yield because part of that is cash flow off of some of the longer-term one. So I would just really factory in and you know, just kind of think about the overall securities yield as a whole is probably not going to get you too far off on some of those.
And then on your on your loans question, some of those maturities, some of those are simply repricing.
They're actually combined in there. But obviously, as we generate new loans that offset some of those changes, those are coming on at higher rates as well.
Okay.
But no color as to how much of that 9 billion comes this year.
But when you I guess I'm confused on a floating rate.
So yes, if you take a look at on that slide 18, the very first two columns, our and basically the repricing within the 1st year. So we've got 49% of our total loans that actually reprice within the next year because that richer questions, REM?
Yes, I'm actually looking if you look all the way to the right on the capital, it looks like, you know, like I think to your point like the the three months or less is a 29, that's pretty much at market rates in the six 20s. But the real opportunity is the four all62 the way over to the right, which which had about $9 billion.
Right.
And I'm just wondering how much of that 9 billion comes it reprices or matures within 24?
Yes, catching up. And there is it's probably close to $1 billion, give or take a little bit of that that's actually maturing this year, but that doesn't reflect early payoff and refinancing anything like that. So it's always it's always higher than that.
Excellent. Thanks for taking all the questions.
Thanks.
Guys and for sure.
Operator
Manon Brasilia, Morgan Stanley.
Saigon morning and I wanted to start on credit and your guide for 2024 implies essentially flat NCOs versus 2023. I guess you're seeing limited signs of new credit deterioration. Can you expand a little bit on that? And what part of that includes an improvement in credit once the Fed cuts rates versus, you know, is there any deterioration that could still come through in credit if you only get it three or four rate cuts here?
Valerie Toalson
Yes, my question is Billy on. So what we've seen over the last several quarters is just a nice, stable, manageable level of our criticized portfolio. And from a percentage standpoint, the population has turned a little, but I would say the bulk of that population has remained in that criticized category. So and we see improvement and I would anticipate that there's there's favorable pressure towards the later half of the year if that improvement comes. But what we're assuming for now is that and that stability remained, we keep our processes capturing the the bulk of the portfolio that has been identified over the last several quarters. The deterioration that we have seen has been within that population is just a handful of corporate credits. So nothing real, the very idiosyncratic, independent name basis of deterioration, but I would expect to stay manageable within this level slightly down as the year goes like we've seen since Q1 of 2013.
Got it, sir.
So does that also mean that the ACL ratio goes down from here as some of those charge-offs come through?
Valerie Toalson
And you don't see too much additional deterioration under those assumptions, I would say yes, that's accurate statement.
Got it.
Okay.
And then just separately on the capital side, just as a follow-up now that we have more clarity on the trajectory for rates as well as the macroeconomic outlook. Do you have a target of where you'd like to maintain that CET1 ratio? I mean, it seems clear they should move lower from here, but but how much lower?
Yes, we don't we don't have a CEP. one target that's out there. We agree with you that CET. one is healthy today. And again, I'm we're hoping that we have clarity on rates, but I would like for them not to do what the forward curve says I'd like for them to stay a little more stable.
Got it.
Thank you.
Thank you.
Operator
Brad Robinson, Humphrey Group.
Valerie Toalson
Hey, good morning, everyone. From Walmart asked on on, Hey, wanted to ask on the on the balance sheet, the 1 billion that you have remaining to reinvest, maybe Valerie kind of how you think about that $1 billion and what's what you're looking for from a duration and yield perspective?
And then just on Ghana, Valerie, any thoughts on replacing the 3.5 billion with the bank term funding program, what you might what you might do to replace that?
Yes, I'll start with that one. I think we're really proud of what we've been able to do from a deposit growth perspective in the community bank over the last couple of quarters, and we've challenged the team to continue doing that. So if we can continue to grow those core customer deposits that are out there that will allow us to continue to reduce wholesale funding can be added.
Yes, I'm sorry.
What was your other question.
What was the first question? Remaining billion 1 billion now in the environment that, yes, we got distract him. He will hum.
There is about 1 billion left of that, that we'll probably do a little bit more in purchases of securities in the first half, and we've been able to average five to six year.
So given where rates are right now, you know, that's probably not an unrealistic expectation for some of that.
The other half, say, give or take is really it could be in securities that could be in, you know, various funding. First quarter has a little bit of volatility with some of our public fund deposits that could be lowering some of that bank term funding program.
Some borrowings were really kind of playing it by year on what the balance sheet does and what's going to make the most benefit for us from a yield perspective.
Okay.
Valerie Toalson
And then secondly, on the the NPAs and the formation are not heavily earlier. So I'm just going to I presume on it seems like credit is fairly stable, but there's been some migration through through criticized to nonperforming. And my question is, is there anything that's some underlying that is it in healthcare, which is my guess, but are there any other industries that might be moving through the pipeline, so to speak.
Yes, I think criticized has been basically flat now for multiple quarters, and I could go back to three 31 was actually higher than we are today on criticized. So that perspective, it's been really stable.
Valerie Toalson
There's it's very well spread across multiple industries, multiple geographies, it is and the one area, and we've highlighted this for several quarters. And again, it's a couple of credits. We're not talking about widespread, but I would say restaurant is something that continued to have some follow-through impact. It's not any specific brands not any specific geography. Like I said, those are reducing credit cases, but they are that industry or otherwise. And the other industry than we've seen some on this kind of senior living, if that's what you mean by health care than that's the one piece of healthcare where I would agree. Otherwise, in health care, we're seeing pretty much stability there.
Okay.
Valerie Toalson
If I could sneak in one last one. Maybe just on the DDA balances and average size of commercial and consumer checking accounts, are those getting to levels where you think the drain of those accounts is not going to impact the balance sizes as much from here and maybe they stabilize to move higher with new customer creation.
We haven't seen a big change and average balance size right now, I think you're talking about on non-interest bearing deposits, right?
Right.
But I don't think a big change in average account.
So that's not an Amazon announced, but a little bit of movement between the two and Yes.
So we've continued over two quarters in a row now.
It's been kind of a consistent, slower pace about a 1% movement. Our forecast we do tend to be a little bit conservative in that. Our forecast has those noninterest-bearing to total deposits going down to 21% by the end of the year. But obviously, that's a big focus for our sales teams and our community banks is to bring in those operating accounts and bring back some of those noninterest-bearing deposits that flowed out during that they actually then flow out that flowed into higher yielding products for the most part in 2023. So yes, there is some opportunity there Okay.
Will Fisackerly
That's really helpful central with similar Social Solutions from brand and true true securities.
Please go ahead and good morning.
Morning.
So on Valley on loan yields and betas, you have a scenario where loan yields actually stay stable in the event of Fed rate cuts? And just how you think about loan betas from here?
Yes. So yes, the loan beta, excluding accretion and went up to 46% and in the quarter down from or up from 44% in the prior quarter.
As we look into next year, like I said, because we have we're forwarding or we're forecasting that forward rate curve. We likewise have that yield on our earning assets, which includes loan actually continued to improve slightly through the first half of next year, but was really kind of stabilizing off.
And that's because of a couple of things.
One and significantly is that level of repricing of loans that are coming on the balance sheet and that we showed on that slide 18 as well, of course, the impact of loan growth being higher at higher yields than the overall portfolio. So that will continue to drive that up. Once there's some changes in the interest rate environment, there is a moderating impact on that. But on a net-net basis, we believe it's all going to be positive to them.
Okay.
And then with your loan growth expectations for the year, could you talk about what areas you're seeing the most opportunities and the strongest growth and kind of how your customers are starting to feel now that pertains to maybe hitting a soft landing and if there's more optimism, just as far as you know, investing in their own businesses?
Valerie Toalson
Yes, Chris, I'll kick it off our view that it will be broad based. We have a great loan generating teams out there and we argue would be we can grow in all aspects in all areas and all geographies.
As we look forward, especially if the rates do what they say they're going to do, that's going to generate some excitement and activity in the borrowing or?
Valerie Toalson
Yes, I completely agree with Chris. This is saying one thing we have is a continued advancing in our CRE portfolio, CRE portfolio of multifamily construction loans, you'll see some modest growth there. And as the calendar changed in 2024 and we start reviewing pipelines, I'm pretty encouraged by what we're seeing. And it's pretty broad-based. As Chris mentioned, we're excited about the bankers that we have in place in our footprint, as Dan mentioned in the opening remarks. And so I'm hopeful and optimism.
Yes, good Great.
That's taking my questions.
Thanks Per annum that we're in.
Operator
Julien Smith, Raymond James.
Good morning, Phil. Good morning.
Valerie Toalson
So the 3.1 billion securities restructuring in the fourth quarter was a little bit larger than the 1.5 billion minimum that you kind of laid out when the sale was announced. What drove the decision to land on that number? And what are you buying with two years' duration, 5.6% yield?
James Rollins
Good questions.
I think when we look back at what happened to us when we came out with our announcement of the sale of Cadence insurance in November, we weren't sure where we were going to be at the time of the close, we weren't sure where rates were going to be. We were looking at what our opportunities were, and we gave you a minimum number in that presentation as we look forward rates actually moved in our favor. And so was we were looking at what portion of that gain we could offset against a loss. We actually came in much lower on a loss than we thought we would. And that allowed us to do a larger portion of the bonds that had the low yield. So to be able to eliminate 3.1 billion at one 26 return. We thought that was a good answer for us.
What are we buying? Mallory is the next question?
Yes, there are a variety of different products on the front end sequential Ginnie Mae CMOs, laddered treasuries, a few SBA floaters out there, but really some of a laddering product. And again, focusing on the duration that is shorter, focusing on products that ensure adequate cash flow.
The cash flow is important to us coming off the securities portfolio, again, focusing on liquidity and flexibility with our loan growth and the revolver characteristics, the restructure, shorten duration, lowered risk weighting and improved cash flow, but it's just a win everywhere like that.
Valerie Toalson
No, absolutely. I appreciate that. Just some more for me here. So your loan and deposit guidance kind of implies your loan deposit ratio ticking up a little bit from the 84% level. You're at 1231 what kind of range are you looking for or what range would you be comfortable managing the balance sheet?
And now we've said for a long time, we've said for a long time. We're certainly comfortable where we are and moving up towards 90%. He's very comfortable for us.
Great.
Valerie Toalson
And then the last one for me. Yes, it did within your revenue guidance, what's the split between net interest income and fee income growth? Let's say that one more time explain what is the split between NII and fee income growth in your revenue guidance.
I don't have the yet and really we didn't we didn't provide it that way just because of the variability between the two. But I mean, it's not going to be materially different on each category. Obviously, the net interest income is a much larger dollar amount, but from a percentage standpoint, it's within a couple of percentage points because I think when you look at fees in 23 and 24.
I mean, clearly, mortgage was hurt in a big way in 23. And if rates do fall as they're talking, there's real opportunity there and for sure, by all great everything.
Valerie Toalson
Jay, my questions.
Thank you.
Operator
Matt Olney, Stephens.
Please go and have had great thanks.
Valerie Toalson
Hey, good morning, everybody. On I heard the comments that you think that the balance sheet is now fairly neutral, but it seems like that restructuring and the build of overnight liquidity would result in increased asset sensitivity in the fourth quarter, but it sounds like you think it moderated. Any more color you can help us appreciate kind of why you think that's more moderate now than last quarter?
Yes, it's really as we look out over the next 12 months.
And so I would say, yes, there is more sensitivity on the short end of that. And then as you look out over the next 12 months and really kind of in a normalized F'08, it's a little more neutral. So we definitely have some upside with with the cash in place right now.
Okay.
Valerie Toalson
So no other movements or migrations on the balance sheet beyond that restructuring that we've already covered?
No, nothing. Nothing else of note.
Okay, appreciate them.
Valerie Toalson
And then on the deposit Go, go ahead.
I'm sorry, guys, just saying You bet, go ahead program on the deposit growth outlook.
Valerie Toalson
I think the guidance calls for low single digit growth. Would love to hear more about just expectations of where this could come from, which products from any.
Any color on the incremental funding costs and more recently, funding cost was increased slower in the fourth quarter than it had been when you look at that overall financial expectations.
Page on page 4, I think our desire was to put some confidence behind the consensus numbers that are out there today. We think that we're in good shape on that front. And specifically, the ability to grow deposits is a piece of that. That's the Community Bank team. It's certainly been growing on the interest bearing deposit side. We continue to enhance and improve our treasury management product. And so I know the team is out there winning some business on that front this morning in the long discussion, there was a good customer coming in there. So I think we continue to feel really good about where we are.
The other thing that of note there, Matt, is the deposits at the end of the year include just shy of 400 million of brokered deposits and about half of that already came down in January. And so included in that growth number is a reduction of brokered deposits for further data just yet further reduction.
Okay. Got it.
Thanks, guys.
Thank you, Matt, and thank you, sir.
Operator
Bangor Berliner, Citi.
Morning. I was curious on just kind of point of clarification really. So your guidance does that assume the BTFP. static throughout the entire year? The because the bank, if I have you guys getting rid of it there's some flex and an outlook.
Yes, I think that I guess that will depend on what happens with rates. That's a fixed rate product. And so if rates begin to fall I don't know that we want to leave that out there to fix or hit product. So I think there's some some questions in there as to how what happens and when it happens today. It's good price funding for us. If rates begin to drop as early as the curves as they are, then we can lose some of that advantage. And you'd want to find other sources of funding that would that would change?
Yes, that's exactly right. And that's exactly what the model is assuming is that once the rates become inopportune that we would pay it.
Okay.
So it is a bit of a dynamic model and that was okay. Then it's very philosophical in nature, Dan, I know you can't speak for other management teams. But what do you think the market is looking for for M&A to start? Is it strictly just a political election outcome in December or looking for some rate cuts why are we not seeing much M&A today?
Yes, I think the politics is a piece of that. I think some clarity from the regulatory bodies on what they're looking for and some speed they get approval would be helpful. And so I think there's just some unknowns that are out there. I think there's bookmarks is still a question, but I think a lot of people talking.
James Rollins
There's a lot of discussion going on.
There's a lot of desire to continue to get bigger. There's a lot of that is there's a benefit from a scale perspective, scale still plays. We're really proud of what we've been able to do over the last two years. We think we've got capacity. We think we've got ability, we know our team can play. I think there's the marks and unknown regulatory questions are still holding things back.
Yes, that's fair.
James Rollins
And then if I could sneak one in, if you did do M&A and you had all those question marks kind of answered.
What would be the kind of the wheelhouse for an opportune size?
James Rollins
Yes, I think we want to continue to be opportunistic.
So I think we like our footprint. I don't know that we need to go outside of our existing footprint. We'd like to continue to grow market share within the footprints we serve. We like the dynamic growth markets that we serve. So certainly, you know, as you look at our footprint, the bigger markets that we're in from Dallas, Houston, Austin Atlanta, Nashville, Tampa, anywhere in those markets would be beneficial to us. But more more market share within our existing footprint is a target for us. And clearly, it needs to be big enough to make a difference. So, you know, several billion dollars would be what you'd be wanting to get to.
Yes.
Got you. That's helpful color. I appreciate that. So thank you, Ben.
Operator
Brody Preston, UBS.
Hey, good morning, Tom.
Valerie, I was I just wanted to circle back. I think you said the spot yield on the securities book was two six. And I guess when I just kind of trying to do the back of the envelope math and back into kind of where it would be for the securities that you put on versus taken off. It kind of looks to me like it should be more like the two 85 ish kind of range on the spot basis. I am getting question from a few investors as well. What are what are we missing? That's kind of making it more in the 26 range versus the two mid to 80s.
And yes, I'm not entirely sure. And or the amount that you're considering.
I mean, we have that too 0.7 billion net that we sold, we reinvested EUR1 billion into securities. And so it's not the entire 2007. We used some of it to pay down brokered deposits, et cetera.
And the number you say sounds sounds a little high, so I'm not sure I'm tracking with you.
We can go through more detailed rules for a drug to be able to hear Yes.
Okay.
But two sixes is a good number to work off the spot rate then is what you're saying?
Yes, yes, I think that's pretty reasonable, yes.
Okay, cool. And so I guess any, you know, if I consider kind of what you have in cash at the Fed at 5.4% verse, anything incrementally that you might do on the securities front in terms of purchases is a mild benefit to it, but it feels to me like any securities purchases from here might be more about, you know, Alcoa than necessarily earnings accretion?
Is that a fair kind of you're no point and I'm not sure I'm completely tracking with you.
I mean, we definitely believe that there's some opportunity to further invest the cash that we have held and to further benefit our margin as we look forward.
I guess I'm saying is there's not that much of a difference between 5.6% and 5.4%.
And so the earnings pickup from redeploying that no, at this point are going to be incremental recruitment.
That's a fair point, absolutely.
Okay, Tom, thank you for that. And then, Dan, I wanted to ask you just, you know, I think the head of the OCC, you had some comments and they put out a foot out bidding on NPR on on M&A yesterday. I know you are OCC regulated, but it feels like they're taking a little bit firmer of a stance in terms like vetting each individual transaction. When you consider future M&A, does that it makes you think about lean in one way versus the other in terms of acquiring an FDIC. institution versus an OCC institution?
No, I don't know that I'm familiar enough with yesterday's guidance that you're talking about. But no, I don't I don't really think there's a difference for the acquiring institution that that's who has to make approval. So where it's coming from is usually not that impactful and the decision process. But I think getting some clarity, as I said, a few minutes ago, getting some clarity on what process the regulators want to use to get approval faster is going to be really important. It's very damaging for both institutions and inside of a merger when things delay and it just get rid of things that go on and on and on, it's very difficult guy at many, many candidate that acts like on that security money.
The two 60 is not tax equivalent and I apologize about that. But actually, if you go back in and you get the tax equivalent adjustment, it's closer to 75, and I appreciate that.
Follow up the last one I had for you that Valerie is lapsing and help clarify.
Yes, thank you.
And the last one I had for you was just if you're assuming the forward curve, I was hoping you might kind of give us some insight as to what you're assuming for your down deposit beta either on an interest-bearing basis or total basis within the guidance.
And yes, I don't have that forward beta available, but we do, like I said, show the deposit cost kicking in the first quarter and then started to start gradually come down, but simply given the redeployment of cash flows into loans, the loan growth, the loan repricings that we have and combined with obviously the securities repositioning and again, anticipating positive net interest margin quarterly throughout 24.
If you look back at 2023 and you look at the growth and the time deposits that have come in, get the lion's share of the huge majority of that is eight months. And so you can back into how fast that can roam on us.
And thank you very much taking the questions, everyone.
Will Fisackerly
I appreciate.
Thanks.
Operator
Gary Tenner, D.A. Davidson.
Thanks, everybody. Good morning. I had a couple of balance sheet questions moving forward on once you get through the additional reinvestment of the bond sale proceeds here in the first quarter, do you expect that for the rest of the year, the securities book is pretty flattish, just reinvesting cash flows or is there a number where that might trend to otherwise over the course of the year?
Yes, you know, it really depends on the opportunities within loan growth at our deposit growth, the kind of the pace of that. And so it may bounce around a little bit. I would say on a Adam kind of a floor and not a hard floor, but the 15% total asset range is probably a range that we would like to keep our securities portfolio to total assets just and for budget purposes, liquidity purposes, et cetera.
Okay.
Great. Appreciate it.
Valerie Toalson
And then the follow-up to that is, as you think about the BTFP. repayment, whether it's sometime earlier in 24 or at the end of the year, what I'm assuming part of that comes out of available cash, what's the kind of your cash target level on your balance sheet even as we're thinking out to the end of the year or into 25, some some minimum on balance sheet cash liquidity?
Yes, that's changed after March of last year, and there's probably 1 billion in an episode of that that would be anticipated as kind of a base level. There's a lot of volatility in some of our customer activity and just maintaining it fairly stable level of cash is probably always going to be there. To some extent.
That being said, we do have more cash than that right now.
And so there is opportunity as we look forward from large available to the Federal Home Loan Bank, which is where we were funding prior to the beauty of?
Yes, absolutely. We're only measuring it now a little below that target level time to time again.
Yes. Thanks, Gur.
Operator
Jon Arfstrom, RBC Capital Markets.
Thanks. Good morning, John. Laurie, I don't recall the popular call today.
Tom, just to add a few questions, slide 20, you referenced the FT. being down by 100, 25 in 4Q, excluding the sale? And what's left to do there and what do you think is the right efficiency level for the Company going forward, where do you want to be?
Valerie Toalson
Yes.
So I ask that question one more time.
I want to make sure I'm hearing you get what's left to do on FT. and where are you adding where you're trimming and what do you think is the right efficiency level for the Company going forward?
Efficiency ratio?
So clearly, the efficiency numbers came down with the sale of insurance and with the four or 500 people less that are came out of the system in 2023. We continue to look for opportunities to be more efficient. I think there's a lot of hand-to-hand combat that's going on on efficiency today, whether that's technology investment that turns into efficiency, whether that's another minute move and restructuring to consolidate some areas where we can consolidate more together. The headcount reduction from here probably is not anything to get excited about. I would anticipate that we would be hiring on the other side. So we continue to invest in our franchise. We continue to look for people that can help us grow. And so as we can reduce head count in one place that's coming back in and another place. I don't know that there's a big drop in people from here. I think when you're looking at the efficiency, we do believe we can continue to drive efficiency down.
And part of that through revenue growth will come into Bell.
That is the adjusted expense number from the fourth quarter.
Is that a good jumping off point for the first quarter?
Yes, yes, yes, I think that's right. Remember, the first quarter has, you know, all the bike expense and the borough one k. matching and all those other things, but you can kind of see that trend in our past between the first and second quarter.
Yes, that's that's on page 4.
Yes, yes.
Okay.
I want to ask about Page 4 as well, but a quick one on page three. Just I'm not trying to be a smart aleck here, but what do you think that looks like in a year.
Slide 3. Are there any big initiatives that you have out there? Or do you feel like some things will be relatively clean from here going forward?
James Rollins
I hope we're a lot cleaner than 2024 that we will hurt.
As Valerie said, we worked really hard to muddy the water up for you guys. We promised you noise and we outperformed on the noise in this of the quarter, but and there were there were a number of things.
I mean, I said it, John, that we converted just over a year ago.
And we knew that there were a number of things that we could do that we really needed to get past that step. And so this past year was really active on that front. But to what Dan said, we're going to continue working on improving the performance on driving the revenue or making sure we're efficient. And so they're going to be things incrementally, I'd say always, but from that, that's the size of what we did this past year. And we will have no doubt that we'll have a comparable year this year there.
I think as the team looks out of what we're working on from a strategic look forward, we've got a laundry list of items that we can continue to execute on but none of them anywhere come close to what we've done in the past year.
Okay.
And then last question for me on Slide 4. Some are six cuts from good or bad for your outlook compared to zero cuts. And I think I said in my note, okay, quarter, but the outlook's a little bit better. And I guess my big picture question is when you think about this outlook, how confident are you in it? How much did you scrub this and where are some of the bigger variables in some of the guidance items that you laid out?
Valerie Toalson
Yes.
I think when we're looking at page 4, you've asked several questions in there. I think just the overall look of page 4, we're pretty confident and where The Street has us with consensus earnings for 2024, we feel good about where we are on that front. I think from a rate cut perspective, no rate cut would be my preference in the process right now for 2024. That would be a big benefit for us. Higher for longer continues to be a benefit for us continues to allow us to reprice loans at the top of that. So that's a win for us now.
Yes.
No, I think you said it well.
I mean, there's obviously moving parts and all the different pieces that are higher for longer is definitely better.
On the net interest income side, there's the questions. What does that do you know, could that be detrimental to some of the expense costs, et cetera, you know, I'd say that's incremental, if anything.
And overall the ability to continue to reprice the loans at a higher rate, it's net-net beneficial stability stability in our on what you've been talking about, we moved through a lot of process changes, project changes, overhauls and this but something else. And we did a lot in 2023, I think stability stability and rate stability in our operations, stability and what we're doing out there. Hank talked about the team. We've got a fantastic team of bankers across our footprint who are winning business every day and just being stable and what we're doing every day, we that can turn into some real growth for us as a company.
Okay. All right.
Thank you very much.
Appreciate it.
Thanks, John.
Operator
So ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to the management team for closing remarks.
All right. Thank you again, everyone, for taking time to join us today for once. Again, I'm very proud of the progress that we made in 23. It's obvious the work our team put in during 2023 has laid the foundation for improved performance. We had a very nice year from organic growth loan growth perspective, while also holding deposits very stable in a very competitive deposit environment.
And finally, the insurance transaction and the subsequent securities portfolio restructure will further enhance our efforts to improve operating performance. While we are excited about the positive impact of these accomplishments, we are committed to continuing on our path to improve performance in 2024 and beyond.
Thank you all again for joining us today, and we look forward to visiting with you soon.
Operator
Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
