Q4 2023 Fulton Financial Corp Earnings Call

Participants

Matthew Jozwiak; Director of Investor Relations & Corporate Development; Fulton Financial Corp

Presentation

Matthew Jozwiak

Yes, good morning, and thanks for joining us for Fulton Financial's conference call and webcast to discuss our earnings for the fourth quarter and year ended December 31st, 2023. Your host for today's conference call is Curt Myers, Chairman and Chief Executive Officer. Joining here is Mark McCollom, Chief Financial Officer. Our comments today will refer to the financial information and related slide presentation included with our earnings announcement, which we released yesterday afternoon. These documents can be found on our website at FULT. dot com by clicking on Investor Relations. And then on News. The slides can also be found on the Presentations page under the Investors under Investor Relations on our website and on this call, representatives of Fulton may make forward-looking statements with respect to Fulton's financial condition, results of operations and business. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors and actual results could differ materially. Please refer to the Safe Harbor statement on forward-looking statements in our earnings release and on page on Slide 2 of today's presentation for additional information regarding these risks, uncertainties and other factors full undertakes no obligation, other than as required by law to update or revise any forward looking statements In discussing Fulton's performance, representatives of Fulton may refer to certain non-GAAP financial measures. Please refer to the supplemental financial information included with Fulton's earnings announcement released yesterday and Slides 16 through 20 at today's presentation. For a reconciliation of those non-GAAP financial measures to the most comparable GAAP measures.
Now I'd like to turn the call over to your host, Curt Myers.

Thanks, Matt, and good morning, everyone. For today's call I'll be providing some high-level thoughts on the year. I will discuss our fourth quarter business performance and share some key objectives for us in 2024. Then Mark will review our financial results in more detail and step through our guidance for 2024. After our prepared remarks, we will be happy to take any questions you may have on our performance in 2023 was a result of an extraordinary effort by our team in what was an unprecedented year in 2023. Our commitment to our customers was on display as we adapted quickly to customer needs and delivered on their expectations. As a result, in a very challenging environment, we grew customer households and now serve more than 534,000. We continued to invest in growing our market presence and enhancing the customer experience. We added four new financial centers to new loan production offices and talented team members throughout our company to support our continued growth. We continue to invest in and develop our customer digital experience with customers now using our digital solutions over 6 million times a month. We also made tremendous positive impact on the communities we serve. In 2023, we launched our diverse business banking program, accelerating our outreach to businesses that have been traditionally underserved by our industry. Through this program, we are adding new customers and new revenue for our company while making a difference in our communities for more information on our overall community impact, please review our 2022 corporate social responsibility report that was issued in 2023. In this report, you can see how we are changing lives for the better our 2023 financial performance was very solid. Pre-provision net revenue eclipsed $400 million, a new record, and our operating EPS of $1.71 was the second best in the long history of our company while continuing our strong focus on pricing, profitability and credit strength, loan growth exceeded $1 billion for the 2nd year in a row, we increased our liquidity during the year, maintaining $8 billion in committed liquidity. At year end, our net interest margin expanded 15 basis points during the period of significant interest rate volatility. We managed and deployed capital with discipline during the fourth quarter, we increased our common dividend for a second time during the year, returning $0.64 in common dividends to our shareholders in 2023. In addition, we repurchased just over 5 million shares of Fulton stock throughout the year at a blended cost of $15.15. Even with these capital actions. We maintained strong capital ratios. We also navigated the credit environment effectively in 2023 as performance was even better than we anticipated at the beginning of the year. And as a result, we delivered a 15% return on tangible common equity in 2023. Overall, we were pleased with our performance and the results our team generated this year we look forward to continuing to execute on our corporate strategy to grow the Company by delivering effectively for customers and operating with excellence so that we can serve all of our stakeholders.
Now let me turn to our quarterly performance, with particular emphasis on growth, credit and our forward outlook. Operating earnings per share for the quarter was $0.42. Loan growth moderated as we anticipated during the quarter to $174 million or 3% on an annualized basis. Deposit growth was modest. At total, deposit balances grew $116 million or 2% on an annualized basis. During the quarter, our loan to deposit ratio ended at 99.1%, relatively stable with the last quarter and well within our long-term operating target of 95% to 105%.
Turning to our noninterest income, diversity and our fee income businesses continues to serve us well noninterest income was $59.4 million with wealth, commercial and consumer and small business continuing to deliver solid results on an overall basis.
Moving to credit, the provision for credit losses was $9.8 million, down slightly from $9.9 million last quarter. We saw some migration in our credit quality metrics during the quarter and remain focused on how higher interest rates and higher costs are impacting our customers are cautious in our outlook for 2024.
Now looking forward, this year will be full of opportunity for us. Our focus remains on growth and profitability, actively managing credit and taking action on improving efficiency. Overall, even with solid results for the quarter and the year, we acknowledge the need to grow appropriately in this market and improve our productivity and efficiency in 2024. As you saw in our press release, we took implementation charges related to a new initiative we launched in the fourth quarter. This initiative named Fulton. First is a process to evaluate and improve all aspects of how we operate to support our continued growth. We recognize and have begun to act on the need to streamline operations, create efficiencies and leverage our significant investment in technology. We have three key tenets driving our strategic transformation, simplicity, focus and productivity we are very excited about form first and believe that over the next several years, it will accelerate our growth rates and improve our operating efficiency on a sustained basis, we will have more discrete details to share with you during the year. The 2024 impact of Fulton first will be most visible in our expense line items as it will help us meet the limited expense growth rate in our guidance longer term, fourth and first will also support accelerated growth. Mark will step you through the 2024 guidance in a moment. These high-priority initiatives and the leadership team that we have in place will drive performance and deliver the next phase of long-term success for our Company.
Now I'll turn the call over to Mark to discuss our financial performance and 2024 guidance in more detail.

Thank you, Kurt, and good morning to everyone on the call. Unless I note otherwise, the quarterly comparisons I will discuss are with the third quarter of 2023 and the loan and deposit growth numbers I will be referencing are annualized percentages on a linked-quarter basis starting on slide 6. Operating earnings per diluted share this quarter were $0.42 on operating net income available to common shareholders of $68.8 million. This compares to $0.43 of operating EPS in the third quarter of 2023.
Moving to the balance sheet, as Curt noted, loan growth was modest during the quarter, growing $174 million or 3% annualized. Commercial lending contributed $120 million of this growth or 3% annualized. Construction lending grew $142 million, driven by additional draws and new originations during the quarter, commercial real estate lending growth slowed to $22 million or 1% annualized, and C&I lending declined modestly down $32 million or 3%. Consumer lending produced growth of $54 million or 3% during the quarter, while at a slower pace, we continue to originate and portfolio adjustable rate mortgages. Total deposits increased $116 million during the quarter. Growth in CDs and brokered deposits more than offset seasonal outflows in our municipal deposit business of approximately $220 million. Our non-interest bearing DDA balances ended the year at $5.3 billion or 24.7% of total deposits, which was modestly better than we anticipated during our third quarter earnings call. Our shift from noninterest-bearing deposits to interest-bearing was $552 million for the second half of 2023 versus a shift of $1.1 billion in the front half of the year. Our NII guidance for 2024 assumes we'll continue to see migration from non-interest bearing deposits into interest-bearing products throughout 2024, but at a slower pace than we saw in 2023. We currently expect non-interest bearing deposits to end 2024 at approximately 22% of total deposits. Our investment portfolio was relatively flat for the quarter, closing at $3.7 billion. During the quarter, we did repurchase a small portion of subordinated debt, $5 million, which generated a $750,000 gain reflected in other expense. This gain was offset by similar level of securities losses as we sold $120 million of securities yielding 1.4% using the proceeds to pay down overnight borrowings at 5.35%. This very small repositioning will add modestly to our net interest income and net interest margin in 2024 and is included in the guidance, which I'll step through in a few minutes, putting together all of these balance sheet trends on page or on slide 8, our net interest income was $212 million, a $2 million decline linked quarter. We were pleased with how well our net interest margin held up declining only four basis points to 3.36% versus 3.4% last quarter. Loan yields expanded 11 basis points during the period increasing to 5.83 versus 5.72% last quarter. Cycle to date, our loan beta has been 49%. Our total cost of deposits increased 23 basis points to 179 basis points during the quarter. Cycle to date, our total deposit beta has been 34%.
Turning to asset quality, nonperforming loans increased $12.7 million during the quarter, which led to our NPL to loans ratio increasing from 67 basis points at September 30th to 72 basis points at year end, net charge-offs of $8 million or 15 basis points were diversified with no individual charge of greater than $2 million. Overall, loan delinquency increased modestly modestly, but remains at a low level increasing to 1.19%. Our allowance for credit loss as a percent of loans was relatively flat at 1.37% at year end Turning to noninterest income on Slide 10. Wealth management revenues were $19.4 million, consistent with the third quarter. As a reminder, wealth management represents about a third of our fee-based revenues with over 80% of these revenues. Recurring the market value of assets under management and administration increased over $500 million during the quarter to $14.8 billion at year end, a new record for our company. Commercial banking fees increased $1 million to $20.8 million as capital markets and SBA revenue increases drove the quarter consumer banking fees of $12.1 million were consistent with the third quarter in all areas and continue to deliver a very consistent fee income stream. Mortgage banking revenues declined 900,000 to $2.3 million and were driven by a seasonal decline in mortgage originations as well as a decline in gain on sale spreads. A net market value change of $1.1 million in other fee income was recorded during the period related to the Libor to suit for transition.
Moving to slide 11, non-interest expenses on an operating basis were $171 million in the fourth quarter, in line with the prior quarter. Material items excluded from operating expenses were charges of $6.5 million for the special FDIC assessment and $3.2 million related to our Fulton first initiative. Additionally, our operating expenses were impacted by $1.6 million increase in marketing expense and a $700,000 gain on the aforementioned debt extinguishment.
Turning to Slides 12 and 13, we're providing you with updates on our capital base. As of December 31st, we maintain solid cushions over the regulatory minimums and our bank and parent company liquidity remains strong. We've also provided you with an alternative view of our regulatory ratios, including the impact of AOCI. Our tangible common equity ratio improved to 7.4% at year end, a 60 basis point increase during the quarter, driven by solid earnings and a material decrease in AOCI due to lower interest rates. Our accumulated other comprehensive income balance on the available-for-sale portion of our investment portfolio and derivatives is currently $299 million versus $480 million last quarter on Slide 13, including the loss on our held to maturity investments, which is $140 million after-tax on an HTM portfolio of $1.3 billion. Our tangible common equity ratio would still be 7% at December 31st, representing $1.9 billion of tangible capital.
On Slide 15, we are providing guidance for 2024. Our guidance assumes a total 75 basis points of Fed funds decreases occurring in the second half of the year. Our 2024 guidance is as follows. We expect our net interest income on a non FTE. basis to be in the range of $790 million to $820 million. We expect our provision for credit losses to be in the range of $45 million to $65 million. We expect our noninterest income, excluding securities gains to be in the range of $235 million to $250 million. We expect noninterest expenses on an operating basis to be in the range of $670 million to $690 million. This estimate excludes any potential charges we may incur as a result of Fulton first throughout the year. And lastly, we expect our effective tax rate to be in the range of 17% to 18% for the year.
With that, we'll now turn the call over to the operator for your questions to ask questions.

Question and Answer Session

Operator

(Operator Instructions) Daniel Tamayo, Raymond James.

Yes, morning, guys. Thanks for taking my question again and morning, Bob, maybe just to start on the Fulton first initiative. I appreciate your comments, Curt, on kind of what's behind it, but just curious if there are any profitability initial targets or goals associated with that program? And then if there's I think you mentioned that the expense guidance doesn't include any other potential charges in 2024. If you have an estimate of what that might be coming in that line would be great.

Thanks. Yes, Danny, thanks. Thanks for the question. On immunology, our team is really excited about the fall and First initiative. We're really focused on the long-term growth strategy for the Company as well as the operating efficiency. And we're being really transparent with the program early on because we wanted to help you understand some short-term cost impacts that happened this past quarter and then explain how we're going to meet the guidance specifically on the expense guide going forward because it's probably a little light relative relative to expectations so we're are being very strategic in an overall review of the Company. It's not just a simple cost cutting initiative, but really a strategic initiative to grow more efficiently over time.
So to answer your specific question, we don't have targets at this point, but we feel it's initiative is going to help us meet our 2024 guidance and then probably even more importantly, lead to long-term sustained improved efficiency for the Company.
But at this point, we don't have any specific targets. I'm going to share more over time, and we wanted to be early with this so that we are transparent and that you could understand some of the initial costs as we launch the initiatives.

Are you sort of are you expecting this to be kind of a longer term than in terms of the costs that you're taking? I mean, or is it is the bulk of it what you took in the fourth quarter? Or should we expect this to be kind of an ongoing initiative in terms of cost you're taking?

Yes, Danny, I mean, we will have ongoing onetime costs to implement the changes that we decide to implement, and then we'll match them with cost saves and revenue expectations as we move forward.
So more to come, this is the beginning of the initiative, and we're being very, very thoughtful, diligent about working through the process, and we wanted to be transparent with everyone. It is not not just a simple cost cutting initiative, but there will be cost cutting that that associated with it. We'll keep you informed on throughout the year.

Okay, Bob, and then maybe one for Mark on on credit. And I guess the the range that you gave for provision for the for the year. I'm just curious how you're thinking about what may drive the low and the high end of that range if that's mostly and just credit volatility or if there's a balance sheet growth element embedded in that as well.

And just a comment for me and then Mark can add to it if he wants. As we look at the provision, it's predominantly our charge-offs are normalizing. Your charge-offs were 15 basis points in the last quarter. Our long-term average and charge-offs has been a little less than 20 to 20 basis points in recent history. So charge-offs drive that and then our growth rate would drive that.

What's the unknown variable for everybody is just economic it conditions as we move forward in the base allocation of it with what we know right now. And that's the range we're comfortable with. Would you say the midpoint is what's the assumption for if you were to hit that $55 million? Is that I guess, soft landing? Or how should we think about what your baseline assumptions?

Danny if you think about the baseline assumption, the baseline assumption right now from Moody's does assume a softer landing. So so our baseline assumption would be, again, continuing to revert in the fourth quarter, we got closer to our long-term average on net charge-offs, but at the midpoint of our guide would assume we get back to that longer-term average of between 15 and 20 basis points in net charge-offs and then a growth rate in loans that's consistent with them. You know that that kind of 4% to 6% probably was more of the lower end of that range, you know, for 2024.

Got it. Thank you for all the color. I'll step back. I appreciate it.

Thanks, Dave.

Thanks, Dan.

Operator

Frank Schiraldi, Piper Sandler.

Great. Just wondering if I go to your view, obviously, the growth in the quarter was in part loan growth in the quarter was you talked about March driven by construction balances with them, some of that being additional drawdowns and some of that being new origination. I wonder if you could just talk a little bit about your thoughts on growth going forward in the loan book and done and what that complexion of growth might look like, and it was a more opportunity on the commercial real estate side given and where your concentration limits are. And on just general thoughts there Thanks.

Yes, I mean, Frank, if you think about for us historically, we tend to operate on an organic basis in that kind of 4% to 6% range. I would say for what you've seen in the back half 23 has been kind of at the low end of that range. And I think you should expect that to continue into 2024, and we've been protecting profitability in the fourth quarter.
New originations pretty much across all channels. We're in that kind of high sevens yield, about seven 77, 75 it was kind of our on our rate on new originations. And so with that, until we would see any kind of expected rate decreases, which again, we currently expect are expecting in the back half of 2024, I would expect to see growth continue to be moderate, but we are open for business. We are not heal. You're shutting down any any lines of business on as maybe as you've seen from others.

Okay. And then on the assumption, you mentioned the three rate cuts in the back half of the year on any sort of color you can provide? I know you talked about it last quarter on the way up that the and I would be impacted, you know, given the variable rate book about a little over $20 million on annually for me, a 25 basis point move in rates are on. Is that the right way to think about the same on the way down on offset by the back-book repricing. What's your what is the incremental 25 basis points kind of due to full year margin or NII?

Yes, yes. On an annualized basis, we have about $10 billion of loans tied to so for about nine of that $10 billion or adjustable rate loans, which would reset within 30 days of after that rate move occurs. So absent any moves to our non-maturity deposit book, that's how you get to that $20 million on an annualized basis for 25 basis point move. What we've assumed is we've taken what we think is a conservative stance that for the first couple of rate moves downward that you're not necessarily going to see deposit pressures abate. But at some point, whether that's 50 basis points, 75 basis points, 100 basis points at some point, I think the industry will start to feel relief on deposit pricing pressure and be able to react within that non-maturity deposit book.

Okay. So maybe the incremental rate cuts would be less impactful to the bottom line, just given hopefully deposits start repricing or providing them some benefit on the deposit side to offset any contraction on the loan yield side.

So the way to think about, that's correct. And overnight borrowings costs obviously resets and immediately quite.

Okay. Thanks.

Operator

Feddie Strickland, Janney Montgomery Scott.

Hey, good morning, Curt and Mark. Just wanted to start on deposit costs. I know you've discussed this a little bit, but are you starting to see that pressure less than a little bit, but the pause in rates and seeing different behavior from competitors there as well.

Yes. The one other thing there is that when we've been obviously repricing our CD book and we've been growing CDs throughout the year, and those have been repricing higher as you've seen kind of roll rates of what matures per quarter. In the first quarter of 24, we have $1.1 billion roughly of deposits that will mature CDs that will mature, but that cost now of what's maturing is now up to almost 40 40. And so that so that churn that you've been seeing upward in our CD cost is definitely going to lessen throughout 2024 so that will provide some relief and allow those betas to ultimately slow.

Got you. That was -- you actually beat me to my second question. So that was $1.1 billion of CDs maturing book?

What was the cost they were rolling off versus what's rolling on at four 40 is what they're rolling off that and then rolling on it would depend on, obviously whether they're retail or broker.

Got it. And have I'll just sorry, go beyond its current.

I'm just going to add that we continue to have high roll rates bond roll rates in CDs. So as we're adding customers, we still have really strong metrics in the blind roll rate and promote promotional acquisition rate. Blend roll rate are different so that helps as well that we've been able to continue to do a good job for customers and roll a lot of CDs over and keep that business.

Understood. That's helpful. And then just switching gears for a second here. Appreciate the continued disclosure and office in the deck. Is that $683 million outstanding inclusive of medical office and if so do you have on hand ballpark how much is medical office?

And it does include a whole lot of it depends on the use overall. We're giving there for the stratification in as we look, we're looking for here just them for office. Overall balances came down linked quarter. We actually had a really positive. We have one trending in the wrong direction and was already in a classified criticized that is about $30 million that paid off and we originated the new $30 million. That's a really strong credit that kind of replace that. So we're seeing as we continue to manage that, that overall book on have we continue to manage effectively through those dynamics. And we were pleased with being able to move out a significant credit trending in the wrong way this past quarter.
So we have the numbers here the Healthcare is really split. It depends on use some of that would be in our healthcare outstandings as some would be in office as well. So we'd have to follow up with your one on that specific number that's in the office that would be specific on specific medical office.

Sure. That would be great. Yes. Just know it's generally perceived as a little lower risk. So just curious how much was there. But anyway. Thanks for taking my questions.

Got you. Got you.

Operator

Manuel Navas, DA Davidson & Co.

Thank you. Good morning. Can you kind of comment on what name you kind of expect with your NII. estimates like a 4Q 24 exit NAM assumption? I know that the rate forecast can definitely change, but just kind of congrats on that.

Yes. Yes, we are. We have purposely been well over the last couple of years kind of backed away from giving specific guidance and instead by giving UNIIN. and you guys can calculate your own balance sheet change and come up with that number. And what we have said is that we do expect in the first half of 2024, again, for what I mentioned about deposit pricing pressure to continue on I would expect in the first half of the year, you would continue to see our deposit costs going up more than that, our loan yields. So I would expect it would be sometime in the back half of 20 fours when you would see that trough and then and then margins start to expand from there. Okay.

I'm shifting gears a bit it is, does a Falcon first initiative contemplate any like improvement to the fee, our improved growth, any new fee lines or anything that is helpful on that side of things.

Yes, it certainly will consider fee income businesses, and we feel there's opportunities to accelerate growth in loan deposit business as well as field service business. So it's a comprehensive our review of the entire company?

And then with kind of the a little bit better swing in AOCI that any shift in your appetite for buybacks or any other capital deployment and thoughts and can you just hear the latest on that, Frank on?

Yes. So as we look forward, we renewed our buyback in December. The Board renewed that. So we have that pool availability for us for the year, we will have $125 million on. We will look at that opportunistically over time. If you look back over this past year, we've been pretty active throughout the year. And if it's conducive the environment conducive to that going forward, we will continue to be active.

Appreciate it. I'll hop back into the queue.

Operator

David Bishop, Hovde Group.

Good morning, gentlemen.

Thank you, David.

Think of it Mark, in terms of the fee income guidance there. Just curious on how we should think about the individual components. Wealth wealth management was up, I guess, mid-single digits, commercial banking, high single digits. You know, consumer maybe down mid single digits. And just in terms of deriving that forecast, are you thinking about maybe some of the individual components this year?

We continue on to be very bullish on what our wealth group, again, hitting a high watermark for assets under management administration. And with a lot of those revenues you tied to that balance as we continue to grow customers and grow assets. The revenue will come with it, and we have some commercial banking also had a very strong year, eclipsing $80 million in fees, which I think was I may have also been a record for the year or close to it on.
There's a little bit more volatility in there in our capital markets business. But there's good fundamentals in there in you in merchant and cash management, which will continue on Consumer Banking has been been down a little bit about both due to some it changes. We made to overdraft at the beginning of 2023 in addition to mortgage banking being impacted by the current rate environment. But when you think about those all together, each of those is going to be somewhere right around a third of our total revenue this past year in consumer has been a little bit lower because we've been off a little bit in in mortgage banking, but we made up some of that then with stronger results in commercial banking. So we really like the kind of balance that we have in those fee income of businesses in total.

Appreciate the color. And then how should we think about maybe the overall level maybe of investment securities there?
I think it'll be about 13%, 14% of average earning assets. We think that's sort of a near floor here at this point and remind us what the annual cash flow expectations are on that portfolio?

Yes, yes. You're right now on cash flows of pretty small is about $10 million a month. And I do think it's hard for me. I mean, our target there is kind of between where it sits today and about 15% of the balance sheet. We purposely run it on maybe a little bit know a little bit skinnier than some others do because we don't view our investment portfolio as an earnings enhancement stream, but it's really there truly just a balance liquidity and depending on where overall loan deposit ratios are. And so I think I think somewhere between where we sit today and 15%, the balance sheet is a good place for you to model.

Great. Appreciate the color.

You bet.

Operator

Matthew Breese, Stephens Inc.

Hey, good morning, Matt.

I was hoping to touch on expenses. The $670 million to $690 million guide implies an average quarterly run rate of roughly $170 million. So pretty in line with where we were in the fourth quarter. Do you expect with that in mind, do you expect the quarterly expense run rate to basically hold flat from here throughout the year? Or are there or is there going to be any sort of undulations on as the year progresses? And that's important because our exit pace for 2024 into 2025 is impacted by some of them. So I'd love some color there.

Yes. Yes, sure, Matt. As you as Curt noted in his prepared remarks, I mean, we for the expense guide for the year, we have assumed that we'll start to see some of the productivity enhancements from Fulton first in the back half of the year. And so in the first half of the year, I would expect to see expenses higher than what that kind of exit number is going to be in the fourth quarter of 24 going into 2025.
On yield. We also have, as a reminder, you in the first quarter, um, you're kicking in in April, we have annual merit, which for us historically, then always kind of takes your second quarter expenses up a little bit. And but the year as we work through full first full First, we'll have those growth initiatives, which will tend to tend to be a little bit longer term in terms of when those are realized. But the productivity enhancements, we'd expect to start seeing some of those come through in the back half of 24 with then more of them and an annualized run rate impact of those really manifesting themselves in 2025 and beyond.

Just along those lines, I'm curious, you've mentioned productivity improvements a couple of times, you've also mentioned kind of leveraging technology. Can you give us some examples that are going to drive your overall productivity improvements across the the bank?

Yes. And skirt on it. We have a lot of things that we're taking a look at. So productivity could just be operating productivity contracts, different things that create opportunities for us from a cost or utilization standpoint. So it's either cost or benefit realization from the activities that technology and digital platform provide for us.
And then as we look at focusing the business on certain things around growth opportunities, and we're going to have expense offer opportunity as we move forward.

And maybe moving on to the NIM. and just deposit balances, I would love some color on how DDA balances trended throughout the quarter, given where we are in the rate hiking cycle. It feels like most businesses and consumers should have if they were going to move from rate they would have already done so. So I'm curious if you're seeing kind of a lag effect there and it sounds like it will persist for a little bit longer. And then I would love some color just on how the margin performed on a monthly basis to get a sense for the NI starting point in 24 Yes.

Yes, sure, Matt. So on your first on DDA, yes, you're correct. I would say the consumer feels like we're nearing a trough on kind of that migration out of non-interest bearing and interest bearing products. So where we are still seeing impact is on the commercial side where you still have, I think some of the remnants of stimulus money on is migrating from non-interest bearing and interest bearing. As you know, we also had just kind of the seasonal impact in the fourth quarter migration in our municipal deposits book, which had a little bit of non-interest bearing DDAs, but a lot of interest bearing DDAs that migrated out as tax receipts were spent on.

And then remind me the second half of your question again, I was looking for the monthly mean if you had right that if you have it because I mean, but from where we are now and I was it the guidance implies a pretty healthy step down in the quarterly pace of NI. And I just wanted to get a sense for kind of where we should end up in the first quarter so I have a good idea of where the year will end up.

Yes, yes. I mean, if you take on our December NIM. was within a basis point of our quarterly NIM is. So So really for us, as we give our guide, as I said, you know, our assumption which may prove to be conservative, you know, but our assumption is that we're going to continue to see deposit pricing pressure throughout our markets, which will cause our deposit costs to continue to increase even when you get to the back half of the year and start to see those first couple of rate cuts if we are wrong on that. And that's certainly going to provide upside to this guidance. And we'll be refreshing that as the year plays out.

Appreciate that. Last one from me. You had mentioned in the release just generally weakening credit trends. Obviously NPAs were up a little bit charge-offs were up a little bit. Is there anything else you're watching or seeing that drove that comment?
I would just just I really appreciate some additional color on the on the credit front, what you're seeing on the ground?

Yes. I mean, it's really based on that comment. I mean, we had four consecutive quarters of NPLs coming down, classified criticized being stable or down. So those trends just ticking up, as you know, is what we're referring to on. That could be, you know, just event-driven time at the time of the year driven or it could be could be something as we move forward. But it's modest changes, but it's the first we've really had any changes in an upward direction versus continuing to improve. We've been really pleased with credit over the last six, eight quarters. And this is the first where we saw any ticket in or a wrong direction. So with no more color than what you're seeing there. We're just being prudent and cautious as we look as we look at those numbers.

Great. That's all I had. I appreciate taking my questions. Thank you.

Operator

(Operator Instructions) Chris McGratty with KBW.

I just had a clarifying question on the NII sensitivity. Um, I want make sure I heard your comments right. I'm looking at your 10 Q disclosures. I think in a down 100 shock, it was around I don't know, five, $738 million bucks for 100, which would work out to like $9 million for every 25. I thought I heard in a higher number of earlier in the call, you guess it's closer to 20 on an annualized. I guess where my what number would you point me to?

Yes, yes. Again, on the 20. Again, that 20 is just on the variable portion of our of our loan book on the loans that are tied to so far and you're on an annualized basis. So when you're and when you're looking at our 10 K disclosures in our Q disclosures, I mean those are based off a parallel instantaneous shock on where this is where I'm giving you more guidance on a ramp downward. And in that ramp, we're assuming that again in the first 25 or 50 basis points down that you wouldn't see corresponding decreases to our non-maturity deposits and but we may be conservative on that. And the market might start to see deposit relief earlier than 50, 75 basis points of.

Okay. Okay. Got it. Thank you. And then maybe somebody asked on the buybacks. Any any signs of fine in the M&A market, maybe more books going or any kind of commentary on the?

Yes, we have a M&A opportunity that we're looking at, you know, continues to be challenging to make the math work on on rate marks and things. But we have I would say it is compared to six months ago on the I think environment is different and improved for pursuing appropriate M&A as we move forward.

And on that, Curt, just done, can you just remind us in this kind of environment, what would what would be that kind of sweet spot in the video, size-wise business mix kind of like?

Yes. Thanks for that question. And we really look at it in two buckets. The $1 billion to $5 billion community bank, we that acquisition would supplement our growth add to our franchise, have lower execution risk and we're really really focused on those of the five than $15 billion that would fill out. What we would be willing to look at that $5 billion to 15 billion are much more significant and strategic. There's very few on that list that we would consider. I think those are still harder to do in this environment, but we that's how we look at it in those two two buckets, but the lower the $1 billion to $5 billion makes a lot of sense in the market with what's going on right now. And if we have those opportunities and we can come to terms with folks we would we feel we're in a position to do that.
It feels like at some point, it would be the smaller end based on what I'm hearing unless something really materially changed direct.

Got it. Okay, perfect. Thank you.

Operator

Frank Schiraldi, Piper Sandler.

I guess just to follow up on them, we talked about the variable rate book and the size there. And just I'm trying to think through the rest of the book and the back book repricing and generally, you know, the reasonable I think in 2024, maybe even a little affect of that book reprices? And if so, I'm just trying to get a sense of where rates are going on the books versus, you know, coming off where they're repricing, Tim?

Yes, Frank, in the fourth quarter, pretty much across most of our material loan categories. We were coming on somewhere between 7 to 15 8% is the average for the quarter at about 70 70 and is that so that's the current kind of new money across the board.

Okay, great. And I guess you mentioned that last quarter, whether we pricing from I would assume that hasn't changed much from quarter over quarter?

Yes, correct.

So guidance still good. And then I guess just while I got you just a last one on them. You talked I think in the deck about cash levels returning to sort of a $50 million to $100 million level over time. I just wondered in your guidance for 2024 are we seeing a significant move lower from wherever it is now to 50 down to that towards that level? Or how much excess liquidity I guess is baked into that guide now?

No, nothing's really changed in the past quarter with respect to cash and liquidity.

So you're not in 2024 guide doesn't assume really much of a change than from where you guys were in the 4Q?

That's correct.

Okay. All right. Great. Thanks.

Thanks, Frank.

Operator

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Curt Myers for closing remarks.

Well, thank you again for joining us today. We hope you'll be able to be with us as we discuss first quarter results in April. Thank you, everyone.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.