Q4 2023 Veritex Holdings Inc Earnings Call
Participants
Clay Riebe; Senior Executive Vice President, Chief Credit Officer of the Bank; Veritex Holdings Inc
Presentation
Operator
Good morning and welcome to the Veritex Holdings Fourth Quarter 2023 Earnings Conference Call and Webcast. All participants will be in a listen only mode. Please note This event will be recorded. I will now turn the conference over to will hold with FairTax morning.
Thank you for joining Perion, Texas Fourth Quarter and 2023 earnings call. Before we begin please be aware, this call will include forward-looking statements that are based on our current expectations of future results or events. Forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from these statements. Our forward-looking statements are as of the date of this call, and we do not assume any obligation to update or revise the statements made on this call and should be considered together with cautionary statements and other information contained in today's earnings release and our most recent annual report on Form 10 K and subsequent filings with the SEC. We will refer to investor slides during today's presentation, which can be found along with the press release in the Investor Relations section of our website at Veritex.com. Our speakers for the call today are Chairman and CEO, Malcolm Holland, our CFO, Terry Earley, and our Chief Credit Officer, Clay repeat, at the conclusion of our prepared remarks, we will open the lines up for a Q&A session. I will now turn the call over to Malcolm.
Thank you. Very well through morning, everyone. Today we'll recap both our fourth quarter results as well as our 2023 Annual Results. As you will see, we continue to strengthen our balance sheet and add to tangible book value with a clear commitment to the things that will add long-term value to our shareholders.
For the quarter, we reported operating earnings of $31.6 million or $0.58 per share in pretax pre-provision operating return on average assets of 1.4% on 0.54% for the year 2023, we reported operating earnings of 142.1 billion or $2.60 per share, with a pretax pre-provision operating return on average assets of 1.81%. Although not the year we had hoped for from an earnings perspective, we were able to use our earnings power to reposition our balance sheet to a much stronger place and still make a nice return for our shareholders.
Our continued profitability also allowed us to meet our goal of CYT. one being greater than 10% ending the year at 10.29% of over 120 bps over here in 2022, we were able to slow down our loan growth for the year to 1.7% or just 160 million, a far cry from our 2022 loan growth of 30 plus percent. This was accomplished by a focused strategy to move out and found relational borrowers, continued loan payoffs and general market decline. Concurrently, we were able to grow deposits during the year by 13.3% or $1.2 billion again, this was a focused strategy that went into place in the third quarter of 2022, which we're now seeing some of the expected outcomes coming to fruition. Certainly a heavy lift and a testament to the resolve of our people during some challenging and volatile times.
Looking forward to 2024, our primary priorities will remain the same, improving funding and its related costs and adding new clients that represent full relationships for 2024, we believe we can grow deposits at a high single digit pace, while loans will grow in the mid-single digits. As we mention every quarter, our credit remains a top priority. Our NPA to total assets increased from 80 million to $96 million or 77.77%. The net increase of $16 million were comprised of one data center loan of $10.5 million, a C&I credit in the plastics industry of 3.8 million and several government guaranteed loans totaling 15 million. It should be noted on those specific loans that $5.2 million as a firm government guarantee and as a reminder, we have a $5 million holdback that will be used for future losses in those in that loan category. We also have one large C&I upgrade out of the NPA category, our ACL was one 14, flat over 3Q, but up 21% over 1231 22. While criticized loans remained stable quarter over quarter as well as year over year, we did have net charge-offs of 9.5 million to the quarter, 23.7 for the year or 25 bps five. I'll provide some greater color on this shortly. I'll now turn the call to Terry.
Thank you, Malcolm PPP, we've made good progress and not from coveted and strengthening our balance sheet. I'm thankful for the progress, but the job is not done at all to spend time, primarily drilling into the results for the year ended 1231, 23, net little for the fourth quarter. I think this is important because some of our businesses are seasonal and we think about them on an annual basis and not just quarterly, starting on page 3, our strong deposit growth and low loan growth allowed Veritex to reduce its loan-to-deposit ratio from 104.4% at 1231 22% to 93.6% at 1231 23. The deposit growth also allowed us to reduce our wholesale funding reliance to almost 20% at year end. Capital is significantly stronger, and we made progress on reducing our commercial real estate concentrations.
On page 4, we knew that strengthening our balance sheet is going to come at a cost. Thankfully, thankfully, we have the earnings power to absorb it. Pretax pre-provision operating earnings were 222 million for the year, up slightly from 2020 to tangible book value per share increased to $20.21, up $1.57 for the year or 12.7%. When you add back the dividends, this is the first time that Veritex has grown over $20 per share and tangible book value.
Finally, we've grown CYT. ones, Malcolm mentioned by 120 basis points to 10.29. We had a goal of 10%. We got there a quarter early, and we continue to strengthen capital.
Moving Slide 5. Veritex continues its progress in improving its liquidity and funding profile over the fourth quarter. During the quarter, we grew deposits by $142 million or 5.6%, with little change in brokered deposits. The deposit growth combined with no loan growth allowed us to pay down expensive FHLB and FHLB advances and invest $200 million into the investment portfolio. As we have said before, Veritex shifted its focus to the right side of the balance sheet late in the third quarter of 2022, we started slowing loan growth. We shifted our loan production focus away from Korea and ADC to C&I small business. We changed our banker incentive program at the beginning of 2023 to give deposits a higher weighting. We have reallocated marketing spend to deposit products and launched a multi wave direct marketing campaign in February. Additionally, our digital bank, which we started in second quarter is making a meaningful impact on deposit growth. All these efforts are showing promise, as evidenced by the fact that our new net new account growth in 2023 was 172% higher than in 2022 non-interest bearing deposits declined during the quarter by $145 million due to seasonal outflows in our mortgage escrow deposits. This is reversed early in Q1. Deposit pricing competition continued to be strong, but not quite as intense as it was a few quarters ago. That being said, with our desire to move our loan-to-deposit ratio below 90% before the end of 2024. We're going to continue to feel pressure on the deposit beta.
And I'm now on Slide 6 and thinking about the loan portfolio. He noticed that loan production declined to 80% from 2022 to 2023, stepped away from Korean agency showing progress. As stated earlier, our concentration level increase moved down during the year from 325% to 320%, and the level of ADC declined from 132% to 119%. The goal is to continue to move these levels down below the regulatory guidelines. Payoffs and the Korean ADC portfolios remained strong and were slightly over 900 million for the year. Unfunded 80 CD commitments declined $1.2 billion in 2023 and now set at 900 billion heading into 2020. For looking forward into 2024, we forecast 80 C fundings to declined by 75% as compared to 2023.
Slide 7 provides detail on the commercial real estate and ADC portfolios by asset class, including what is at stake.
Moving to slide 8, we're frequently asked about our out-of-state loan portfolio. And as you can see, our national businesses in mortgage loans comprised 14% of our total loan portfolio, our true upstate portfolio was 1.1 billion and makes up just under 12% of the total book, almost 70% of the out-of-state portfolio are the ones where we have followed Texas developers. The rest are six syndicated loans that Sienna on slide 9, net interest income decreased by 3.9 million to just over 95 million in Q4. The biggest drivers of the decrease were higher deposit costs and lower loan yields offset by higher yields on the investment portfolio. Net interest margin decreased 15 basis points from Q3 to 3.31%. The net change was primarily related to the same drivers. As stated earlier, the name is going to continue to feel pressure as we work to achieve a loan-to-deposit ratio below 90%. This will require us to invest between 506 hundred million in excess funding into the investment portfolio during 2020. For this additional investment in debt securities will drive eight to 10 basis points of NIM contraction. Additionally, the NAM will contract approximately four basis points for every 25 basis point reduction in the Fed funds rate on slide 10, loan yields are relatively flat, slight decline. Investment yields are up and deposit costs increased 23 basis points.
On Slide 11. This shows certain metrics on our investment portfolio. Key key takeaways are currently only 10% of assets. The duration has remained steady at around four years. It's 4.1% and 86% of the portfolio was held in the available for sale. Overall, the mark-to-market on the portfolio has a minimal impact on tangible equity and our capital ratios since it's excluded. We did purchase 205 billion in securities in the first half of Q4. These securities were capital-efficient and delivered a hedge spread of 133 basis points over the next three years.
On slide 12, operating noninterest income increased slightly in 2023 to almost 54 million. The biggest drivers were government guaranteed loan businesses, which increased their gain on sale revenue by 42% over 2022. Operating noninterest expenses were flat quarter over quarter but increased almost $30 million year over year. Significant drivers of the increase are IC. insurance, lower cost deferral from limited loan production, higher legal and professional fees, largely associated with being over $10 billion and marketing cost. This was offset by lower variable compensation.
On Slide 13. During 2023, total capital grew approximately 105 million. Cet1 ratios expanded by 18 points during the quarter and 120 basis points for the year. The significant contributor to the expansion into capital ratios has been a 612 million decline in risk-weighted assets it's worth noting that since Veritex went public in 2014, it is compounded tangible book value per share at a rate of 11.4%. When you include the dividends that have been paid to shareholders.
Finally, on slide 14, 2023 was a year of building the ACL since the beginning of 2023. We've grown it by 19 million or 21%. These additions to the allowance increased by 18 basis points to 1.14%. Given all the uncertainty facing the US and Texas economy, we decided to allocate more weighting to the downside scenarios in the model. Two factors continued to make up a sizable part of the ACL.
With that, I'd like to turn the call over to Clay for comments on credit.
Clay Riebe
Thank you, Terry, and good morning, everyone.
This quarter has been a mixed bag of credit improvements and challenges on the improvements that was a reduction in the bank's office exposure by 65 million or 10% over the last 90 days. That does not include an $8.5 million substandard office loan that paid off post quarter end. And secondly, our classified assets were reduced by $17 million or 7% due to the diligent efforts of our team to resolve problem credits, classified assets were at their lowest amount for 2023 in the fourth quarter on the challenge side was an increase in NPAs, as previously discussed by Malcolm, 9.5 million in charge-offs and elevated past due past dues are elevated in the 30 to 60 days past due category, primarily due to a $15 million multi-family loan that matured and renewal discussions were in process on an ongoing at year end two. Other loans totaling 21 million were past due 30 days at year end and are now current commercial real estate relationship and the amount of 8.8 million was past due at year end and is awaiting payoff charge. Our charge offs for the quarter were spread out across eight borrowers the largest of which was a $2.9 million charge-off on the data center office property that was moved to NPA during the quarter. Second largest charge-off in the amount of 2.5 million. It was taken to exit the Atlanta office property that was moved to NPA in Q2. A $2.6 million charge-off was taken on a medical practice that was filed for bankruptcy in 2023. And there are a few other smaller charge-offs that amounted to $1.2 million spread across various C and I loan types. The year-over-year increase in net charge-offs is driven by the Atlanta office building charge-off. A five year look-back on charge-offs is provided as context for the year charge offs of acquired credit makes up 72% of all charge-offs for the previous five years.
And with that, I'll turn it back over to Malcolm can follow on.
Thank you, Clay. As we think about 2024, we believe it will be somewhat challenging from a growth and rate standpoint. Despite that, our team is fully engaged on building a stronger balance sheet that will perform at the highest level regardless of the time we find ourselves in but committed to our purpose with unwavering persistence, well-being and patient to make the right moves at the appropriate times.
Operator, we can now take questions.
Question and Answer Session
Operator
(Operator Instructions) Matt Olney.
I just to start off on capital. You guys met your 2023 capital goals. And I was wondering if you had any set goals for 2024?
In fact, Greg, good questions. You know, we're going to probably continue to build capital a little bit. We don't have any explicit targets. We will certainly, I think as much as anything we'd like to see growth get back to the mid-single digits and be able to leverage that capital and in an efficient way, continue to pay our dividends. And you'll probably see capital build but slower in 24 and it has 23.
Okay. Thank you. I appreciate the color there. And then one more for me. You guys laid out the impacts of the 25 bit cuts throughout 2024. Can you give us an idea of what you're internally modeling for cuts?
Yes. If I had a crystal ball, I mean, look, the Fed said fix the market Class three through data. I know it's a reasonably structured. The comment the way I did you guys, I think are modeling three, so you know, but it is volatile as rates have proven to be making a statement. It's just not prudent on their part as to what we think our job is to insulate our balance sheet as best we can from rate movements and the hedge the risk as best we can. And that's all we can do.
I appreciate the color. Thank you.
Operator
Brady Gailey, KBW.
It's Brady. Good morning, guys. So I understand the commentary about the NIMI. seeing some additional pressure. I mean, you're growing deposits faster than loans and put it in the bond book side. Understand that dynamic. When you look at NI dollars, do you expect to see some downside in E&I dollars relative to 4Q? Or do you think that could be stable to increasing?
I think it's I think it should relative to 4Q. I think it should be relatively stable in the front half of this year and maybe we start to build some some positive, but momentum and growth in the back half because I think our loan growth is going to help that end, you know, obviously with a lot of focus on deposit costs as well.
Okay. And then how are you thinking about on expenses, your expenses have been growing at a double-digit pace for the last few years, but it seems like it could be less than that this year on how you're thinking about expense growth in 24?
And that's certainly the goal. Very. We've had a lot of discussion around expenses at the Company and continue to do and that is the issue as we run a pretty efficient company today. And obviously, the biggest driver of any expense for a bank is people. And we continue to see opportunities in certain areas Dom's made it pretty good focus on ours on our small business, our business banking group, and that's going to require some folks that continue to grow that area. So our goal is to hold it somewhat flat. Some of this stuff out of our control. Maybe we look back at last last year and FTIC. insurance, you had benefits costs, you had some marketing dollars that were driving some of these deposits, lower cost deferrals because our loan production was down 80% of the Allfast 91 rule. You know, it was definitely lower. So we still feel pretty good about expenses. But looking forward, our goal is to hold them pretty flat if we can, but there's going to be some there's certainly going to be some growth.
I think it's probably fair to say we're paying more attention to expenses going into 2024 and at least my five year history with the Company and my 13, Heska and for ER.
Got it. Got it. That's good color. And then lastly for me, just back to the capital question. I mean, your profitability is pretty good. It feels like you'll be able to still accumulate a decent amount of capital this year. I mean, the stock's at nine times earnings. One wanted tangible, is this the year that you more seriously consider share buybacks?
Listen, it's certainly something we have to look at. And we had a Board meeting yesterday and we it was a topic of discussion. Capital is king and I love to have some dry powder, but there may be a situation at some point in time in 24, very trying to put something in place and protect ourselves if the stock were to see some dips. So to answer your question is like expenses we've had and we've had conversations about it. We don't have any in place today, but I wouldn't be surprised that we didn't have something in place very shortly.
Okay. Got it. Thanks, guys.
Thanks, Brady.
Operator
Brett Rabatin of of the group.
Hey, guys, good morning. I wanted to just start off back on the margin and just thinking about the outlook on this decision to increase the securities portfolio. Is that is that purely from a liquid balance sheet liquidity perspective? Or can you guys talk about the decision to grow the securities book at this point.
It's really it's just a remixing of earning assets. It's building liquidity on the balance sheet, I think is what we've done through the fourth quarter has been to lock in good spreads by using that relative funding rates and the swap curve versus the investment to lock in good spreads for three years. I think going forward. So we're going to there's going to be an additional important top factor, which is we're not going to hedge it as much, and we want to have it for downright protection. It did help mitigate the pressure on the way down. So that's that's it is going to kind of shift as rates have moved as the Fed's gotten clear up what has been what it's going to do with rates. We're tweaking a little bit as we look forward for the rest of 24 and the investing we've got to do to help provide that protection.
And Brent, I would just say go back about 18 months and we decided that we were going to change our balance sheet. And this is an overall balance sheet strategy. And in order to get it down below 90% on a loan deposit ratio, you've got to put your liquidity somewhere. And so there's got to be a bigger securities book. So that's a RE/MAX, as Terry said, but it's all part of the strategy that we started 18 months ago to remake this balance sheet.
And we just don't think it makes sense to leave at certain short short rates overnight at the Fed because that's only going to exacerbate our downgrade risk.
Okay. On. And then given the commentary around the betas. You know, I know Malcolm, you've got quite a few deposit initiatives in place. Can you give us maybe an update on the deposit initiatives relative to the guidance for betas to continue to increase?
I mean, the initiatives continue. I mean, there's no different this quarter than it was the prior quarter and what we're doing. And again, we've got seven or eight different levers that we pull and some are more expensive than others. We're trying to stay away and reduce our wholesale funding dependence, if you will. But we're seeing some. We're seeing some good movement. I think I can pick out a couple right now on that data that is actually done quite well.
And this is the time a year where we see every bank, I think sees a little bit of deposit shrinkage because of taxes, bonuses or both or what have you. But we've actually at a pretty decent start to the year in terms of betas Terry, you might like?
Well, I may not it. I mean I just think in general, it's been it has been so competitive and that's driven the deposit betas up. I would say this we talked on the last call the Q3 call about bringing more balance to pricing and volumes. We saw that during the quarter and we've seen it already in Q1. Our total deposit cost as of two days ago, it declined that not a lot, but a few blips, and I'm encouraged about that on the margin, our production rates right now are around for 64 for new deposits. So all that to say it's moving starting to move and work. And as you can tell from the new client acquisition of 172% of new accounts. I mean, we're getting traction. Is it, you know, it's just it just takes time to rebuild remake our deposit base and bring pricing balance to it, and that's what we're all about every day.
Okay. That's helpful. If I could sneak in one last one Velcom. How do you feel about North Avenue this year and this may be fee income generally speaking,
North Avenue had really candidly from a revenue standpoint, they did a revenue from a reduction standpoint they're about $180 million in 23. Candidly, I would expect that or maybe a little bit more in 20 forward. They've got some good momentum as we've talked about it time and time again about the government constraints we have from time to time whether they're funding stuff or not. But as a bank, we're helpful because we can do some of these these entering the funnel on funding that is actually a huge advantage in this space. But listen, I think they're engaged. They have their pipelines are huge and I expect, I think, losing production. I mean, the revenue was $20 million in fees last year, approximately. And you know, the one thing about that business and I think people do miss is saying they still have some book. There's loans on the books and they're spread and governments as spread income is covering the expenses of the company that the fee income is kind of the upside to it. So I expect at least what they did last year and to 24, and it just isn't on that fee business, the SBA business we have it will be unfair to say we've remade it in 23, but we hired some a new, a new guy to run it and he has done a phenomenal job, and we expect a lot more out of SBA with what he's been able to do, and we've hit the ground running already. So I would say the fee businesses will outperform 23.
And there too, the SPA in Q4 production is indicative of the momentum you're seeing. I mean, they did 40% to 45% of their production in Q4. And I really encourage I agree with everything Mountain said on the USDA, but I think the SBA has not been as big a contributor, but it's our outlook on that is really has really brought.
Okay. That's really helpful.
Operator
Stephen Scouten, Piper Sandler.
Yes, thanks. Good morning, guys. I wanted to start with the OEM loan and deposit new production spread that you listed in slide 10. It looked like a pretty big jump quarter over quarter, which was nice to see some kind of wondering that 493 basis points, what does that bake like what is that actually from a from a new loan perspective and a new deposit perspective? And could that lead to some core NIM expansion apart from kind of the potential for rate cuts and and the debt securities that you noted?
Well, the new loan production that the problem with the question is, is it new deposit production towards new loan production, the spread that's good. But there is enough of it is new new loan productions in a profit of about 9% and ITO new deposit production. This is been in the force.
So yes, but just a much higher pace of deposit growth that makes sense.
We get the volume of loan side, Stephen, you're going to see something possibly, but, you know, we're not we're not budgeting for that production. But if we were able to find that even mid single digits is going to be helpful.
Exactly. Yes. I mean, we're I mean, we're going to grow in the low to mid single digits. You know, let's just use 5% sits at mid-single digits. That's about 480 million. If we grow deposits that means we need to grow deposits $1 billion. So that's 480 million. It's going to have a really good spread. But the other five, 20, not so much the cost of funding and where you can invest for 2024 is going to be about flat, but it's going to be new diluted, but it's going to help going into 2020.
How if that's the point I was going to make is once you make up that delta of that 500 or so now you're kind of on solid footing where you know, if you want to do it $1 and load, you only need $1.10 and above today, the double back together about 21 to 25, you should hit the ground running, assuming we do the $1 billion in deposits and half a day and in one sense, and
I think 25 is also going to be once we get the balance sheet where we want it, 25 is going to be a year about optimizing deposit price because we're not going to need the excess growth to get the balance sheet where we want to correct.
Yes, that all makes sense. Okay. And what I know you mentioned maybe not hedging, Kate, to kind of bring down your overall rate sensitivity in the future? I mean, do you think you can move that four basis points for every 25 basis point cut? I mean, is that a number you're trying to cut in half? I mean, do you think you can work that number down or is it more just around the edge?
No, I think we can work that number down with with a combination of things, what is how we how aggressively we price on the way down, as we said, we exceeded expectations during the pandemic. And so we just got to replicate what we did before, coupled with the way we're making more fixed rate loans today, as you know, and there's a lot more discussion on that. Veritex has never been a big fixed rate lender are certainly have a much greater appetite for that. And there's a lot more discussions going on there and from a, you know, and then hedging as well. The problem with hedging write down rate risk right now, what's the shape of the forward curve. Look, it's just so expensive to hedge it. And I would rather I think I would rather not do it in the derivative space, but do it in the cash space with fixed rate loans secured.
Yes, makes sense. Okay. And then just the last thing for me is kind of moving back to credit from the earlier conversation to me, it sounds like the spike in past-dues, maybe it resolved itself to a large degree since quarter end, um, but I mean, as you think about charge-offs for next year, what's kind of a regional type based off this off the elevation we saw and 23 largely related to that one office credit line?
Clay Riebe
Sure, sure. And thanks for the question. Yes, I think if I'm sitting here today, looking forward into 2023, I couldn't identify more than 15 million in potential charge-offs today. But we're not we're not budgeting for that or budgeting for our downside than that.
Yes. I mean, I think yes, line there, Clay said, we did average a 27 bps improvement over the last five years. Subset analyses sounds like a great place to start. We think we'll do better. But 27 events has been our historical number.
And the answer to your question on best is yet we get 27 plus million is already current on two deals that I would recognize me Steven, I would just say I would rather you guys think the consensus charge-off number for the year 29, 30 bps. I'd rather outperform on that good policy. Anybody drop the estimate, to be honest with you here.
No. Understood. And I guess I mean, from a provision standpoint, obviously, even with some of the migration, there wasn't a need for provision build so it's not as if you see any in a large scale degradation that makes you see the need to build that correct?
Correct.
Clay Riebe
Correct.
And I would not I think going back to risk to grow anywhere close to what the amount of growth this year.
No.
Perfect. Thanks for all the color, guys. Appreciate the time.
Thanks, Stephen.
Operator
Gary Tenner, D.A. Davidson.
Hey, guys. This is Emma on for Gary Tenner. Good morning. So firstly, a bit I might have missed this, but any color on the credit that went nonaccrual and generated 1.9 million in interest reversal?
We didn't have 1.9 billion in interest reversals. I don't think I think it was 600,006. That's 6 billion or seven bps. I think it is somewhere in that range. So I agree with that part. The rest was that was the move in the non-accruals that affected that now.
All right, thanks. And going through 2024 and the wholesale funding reliance is I take over 20% at the end, where would you like this target ratio could be?
Yes, it's already down meaningfully in the first quarter, it's been as low as 17% so far this year probably lag for it to end somewhere between 15 and 17, 18%, somewhere in that range. If it's lower. I'm going to be happy because we've done it, Nick. We've out performed on the deposit growth in the core deposit growth side, but I would expect somewhere in the 15 to 18.
All right. And lastly, I know you talked a bit about this, but thinking about the loan growth outlook for 2024, particularly given that the ET. one is over 10%. How are you thinking about growing risk-weighted assets for the next year?
I mean, A., where we're going to be more measured in their growth on the risk-weighted asset side. We, as we've mentioned many calls ago that we I've got that little bit over our skis on our unfunded and what have you. But and I think the goal now is to always keep that number inside our capital number, and that's what you should expect some of that growth.
I would say it's definitely going to stay at side I think as we as our commercial real estate in ADC. ratios get below 300 to 100, do you think you will see production of 80 C and 24 higher than it's been in 23. That will add some to the unfunded, some to the risk-weighted assets. But net-net, I still say it. So instead of unfunded shrinking they are probably going to grow a little, but not a not a lot. So I think that's going to be one of the things is going to keep the CET1 ratio from growing as much as it did in 2023. But we're going to stay very we're going to look for capital, efficient investments in the investment portfolio. And you know, we're going to if we have more loan growth that's going to help, you know, it would be utilized or deployed the CDT. one and some unfunded increase, but nothing like we've seen in the past.
Thank you for the great color. And a quick follow-up on that. Within the loan book and unfunded construction commitments under 1 billion, should we expect a larger year-over-year decline in balances in that segment versus the 50 million decline in 23?
No, we expect it to be flat, maybe a little growth, nothing meaningful.
Good. That's it.
Thank you.
Operator
Michael Rose, Raymond James.
Hey, everyone. Thanks for taking my questions. Just two quick follow-ups, and I'm sorry if I missed this, Terry, but come certainly I understand the desire to bring the loan-to-deposit ratio down, what should we expect for or what are your expectations for noninterest bearing mix? I assume some of the growth is going to be in some higher costs categories, but do you have a sense for I mean, I'm sorry if I missed this where that could trough out and what terminal beta expectations could be? Thanks.
Yes, we'd expect it to be pretty flat from a year from now. If we if we execute well, I would expect it to be pretty pretty flat. And that means our small business, our community bankers our commercial C&I guys are hitting their targets. I would expect it to be flat. There's always seasonality, like I said, in the fourth quarter, there's some outflows now that have come back in the first quarter already. But generally, we're going to see those outflows again in the fourth quarter of 24 or so, Michael, that's our best guess right now.
Okay. That's helpful. And then just going back to credit quality, I know there's the two office CRE loans that comprise, I think 60% of your MPAs at this point. Any sort of update there? And what's the outlook for potentially a move in moving those credits outside the bank? Thanks.
It's just wonderful, Brian. Just it's just that one had we actually had that one node sale working on it if it fell out late. So we wrote it down to where the adult sale was going to be. We do have a participant in that partner and that so we obviously have to work with them. But hard are anticipation is that that asset will be gone this quarter either through probably through a note sale of some sort. But we were really we were really close. It just fell out at the end.
Okay. Great. And then maybe just finally for me, and I know this was kind of touched on earlier in the call. But Terry, do you have a sense for how if we do what the delta would be from kind of what you talked about in terms of rate cuts, you know, kind of us being at three forward curve being at six, what that delta could look like a if we don't get any cuts and then b, if we get the full forward curve at this point, just trying to look for the sensitivities since I assume it's not linear. Thanks.
Well, I mean, you know, if if pay, it's about 1 million a quarter for every basis point of death. And so if you know if it's six cuts, you know, B, you get 20 to 24 basis points in net reduction. There's there's your math there. And if it stays flat, that there is a you know it so it can improve if rates were to stay flat is pretty meaningful to NINDEP., but I don't see it. No, I'm not no thinking by thinking we're going to end the year flat. So that's the best way I know to answer like now.
That's very helpful, Terry, appreciate you guys taking my questions. Thanks.
Thanks, Michael.
Operator
Thank you all for your time today. This concludes today's conference call. You may all disconnect.
