FB Financial - Earnings Call - Q4 2024
January 21, 2025
Executive Summary
- Q4 2024 GAAP EPS was $0.81 and adjusted EPS was $0.85; total revenue rebounded to $130.4MM as the prior quarter’s securities restructuring loss rolled off, while core efficiency improved to 54.6%.
- Net interest income rose to $108.4MM; NIM slipped 5 bps to 3.50% as FBK held more cash to pre‑fund 2025 loan growth, but cost of total deposits fell 13 bps to 2.70% as indexed and repriced deposits moved lower.
- Credit absorbed a single, previously reserved C&I charge-off; annualized NCOs were 0.47% with ACL at 1.58% of loans, NPLs/Loans improved to 0.87%, and capital remained strong (CET1 12.8%, TCE/TA 10.2%).
- 2025 setup: management guided Q1 2025 NIM to 3.54–3.61% and banking noninterest expense to $64–$66MM; full-year bank expense growth outlook is ~4–5% and targeted loan growth is high single‑digit to low double‑digit, skewing to C&I.
- Subsequent development: FBK raised its quarterly dividend by 12% to $0.19 per share on Jan 29, 2025, underscoring capital strength and earnings durability (potential stock catalyst).
What Went Well and What Went Wrong
- What Went Well
- Organic growth and funding momentum: core deposits grew 10.8% annualized and loans 5.22% annualized; net interest income increased to $109.0MM (TE) with securities yields +19 bps QoQ from Q3’s repositioning.
- Operating leverage improved: core efficiency ratio fell to 54.6% (Banking segment 50.2%) on stronger revenue and disciplined expenses; CFO: “Improvement in operating efficiency was a highlight this quarter”.
- Capital/liquidity strength sustained: CET1 12.8%, TCE/TA 10.2%, on‑balance sheet liquidity $1.64B (12.5% of assets) and diversified borrowing capacity.
- Management tone: “operating momentum position us well moving into 2025” and “we will continue to build the Company by adding and expanding on core banking relationships”.
- What Went Wrong
- Margin mixed: NIM dipped 5 bps to 3.50% due to elevated interest‑earning cash while pre‑funding growth; loan contractual yield fell 22 bps sequentially with lower benchmarks.
- Noninterest‑bearing deposits declined seasonally; mix shift kept deposit beta management in focus despite headline cost of deposits falling to 2.70%.
- Mortgage banking softened sequentially (to $10.6MM from $11.6MM) amid typical Q4 seasonality, even as the business stayed profitable.
- Credit headline from a single C&I charge‑off lifted NCOs to 0.47% annualized (management emphasized it was previously reserved and idiosyncratic).
Transcript
Speaker 1
Good morning, everyone, and welcome to the FB Financial Corporation's Fourth Quarter 2024 Earnings Conference Call. Hosting the call today from FB Financial are Chris Holmes, President and Chief Executive Officer, and Michael Mettee, Chief Financial Officer. Also joining the call for the question-and-answer session is Travis Edmondson, Chief Banking Officer. Please note FB Financial's earnings release, supplemental financial information, and this morning's presentation are available on the Investor Relations page of the company's website at www.firstbankonline.com and on the Securities and Exchange Commission's website at www.sec.gov. Today's call is being recorded and will be available for replay on FB Financial's website approximately an hour after the conclusion of the conference call. At this time, all participants have been placed in a listen-only mode. The call will be open for questions after the presentation.
During this presentation, FB Financial may make comments which constitute forward-looking statements under the federal securities laws. Forward-looking statements are based on management's current expectations and assumptions and are subject to risks, uncertainties, and other factors that may cause the actual results and performance or achievements of FB Financial to differ materially from any results expressed or implied by such forward-looking statements. Many of such factors are beyond FB Financial's ability to control or predict, and listeners are cautioned not to put undue reliance on such forward-looking statements. A more detailed description of these and other risks that may cause actual results to materially differ from expectations is contained in FB Financial's periodic and current reports filed with the SEC, including FB Financial's most recent Form 10-K.
Except as required by law, FB Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events, or otherwise. In addition, these remarks may include certain non-GAAP financial measures as defined by SEC Regulation G. A presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to comparable GAAP measures is available in FB Financial's Earnings Release, Supplemental Financial Information, and this morning's presentation, which are available on the Investor Relations page on the company's website at www.firstbankonline.com and on the SEC's website at www.sec.gov. I would now like to turn the floor over to Chris Holmes, FB Financial's President and CEO.
Chris Holmes (President and CEO)
All right. Thank you, Jamie, and thank you for joining the call this morning. We always appreciate your interest in FB Financial. For the quarter, we reported EPS of $0.81 and an adjusted EPS of $0.85 per share. We've grown our tangible book value per share, excluding the impact of AOCI, at a compound annual growth rate of 12.9% since our IPO in 2016. On a full-year basis, we reported EPS of $2.48 or adjusted EPS of $3.40, which represents a year-over-year increase of 13%. Full-year pre-tax pre-provision net revenue was $158.7 million or $217.1 million on an adjusted basis, which represents a 20% year-over-year increase. These results were driven by our team's focus on growing core banking relationships, covered with our continued focus on balance sheet optimization and managing our expenses.
For the full year, we grew total assets by $553 million, approximately 4.4%, funded through the growth of our core deposit balances of $343.5 million, or about 3.3%. The themes I've emphasized over the past several quarters have circled around the strength of our operating foundation, including our solid capital and liquidity positions, while maintaining our earnings momentum. And this quarter's results reflect a continuation of those efforts. This quarter's earnings resulted in a GAAP return on average assets of 1.14% and a return on average tangible common equity of 11.5%. Our capital position remains very strong as we reported tangible common equity to tangible assets of 10.2% and a preliminary CET1 ratio of 12.8% and a primary - I'm sorry, preliminary total risk-based capital ratio of 15.2%. Our fourth quarter and full-year 2024 results reflect the unique strengths of the company, which continue to distinguish us among our peer group.
First, among those, we have intensely built our company with a local market authority model, which allows us to bring a personalized community banking approach to our customers while still having the size and resources to provide product and technology depth and breadth and top-of-the-line services. While this model is not new in theory, it is unique to banks our size and larger, and as a result, we've experienced growth in our customer base, and we've seen continued interest from high-performing bankers in our region who seek to join our franchise. Second, we operate in a highly desirable geography. As the Southeastern United States continues to experience growth, our geography presents an advantaged opportunity for organic growth and a wealth of attractive places nearby for de novo expansion.
Our capability to capitalize on both metro and community market opportunities throughout our footprint gives us a unique opportunity and allows us to entertain a lot of growth options as the banking landscape evolves. And then lastly, we have an experienced and ambitious leadership team. Our team has the right mix of experience and forward-thinking vision that's required to take our company into its next phase of growth. Our team, which is a relatively younger team compared to our peers, continues to produce results for our customers and shareholders. This history of success by this relatively young team gives us confidence in the staying power of our franchise and the opportunity to generate meaningful long-term value. Ultimately, the combination of our business model, our geography, our leadership, and our performance track record sets the stage for an ambitious future.
Looking into 2025 and what can you expect from us, well, you can actually expect us to do more of the same. Our focus has been and is going to continue to be on deploying capital to grow earnings per share and create long-term shareholder value. That's not changing. Our first priority has been and always will be organic growth. We've remained focused on growing organically through both our retail and commercial businesses and in metro and community markets that we serve today, and we expanded on that this quarter with the addition of nine new revenue-producing bankers. That's for a total of 32 for the year. We're also continuing to pursue new markets as we aim to take our banking model into markets that are contiguous with our footprint.
Last quarter, we announced our expansion into Tuscaloosa, Alabama, and we're pleased to announce this quarter that we are expanding into Asheville, North Carolina. This is our first step into North Carolina, and we're pleased to move into this market at a unique time in its history as many there are rebuilding their lives and businesses. The impact of Hurricane Helene on the Asheville community has been devastating, and we are ready and eager to bring our expertise and capital resources to this market as it rebuilds. While much of the media coverage has moved on to other stories in the news cycle, our team views Asheville as a permanent part of our story, and we look forward to being part of the rebuilding efforts and helping provide the much-needed capital investment for this community.
In both Asheville and Tuscaloosa, we've brought on strong leadership, begun hiring production teams with local roots in those communities, and will soon be establishing a physical presence in both of those new markets. You can expect us to continue doubling down on our value proposition by additional investment in both existing and expansion markets. Our second priority for capital deployment is bank acquisitions. We remain interested in combination opportunities that align culturally, geographically, and financially. We believe, like many, that we're headed into a more accommodative M&A environment, and we're prepared when the right opportunities present themselves. We're routinely building relationships with banks that look like us, and if they operate in community-focused organizations, serve both retail and commercial customers, have meaningful market share, and fit well with our existing branch footprint.
Lastly, before I pass it over to Michael, I'd love to congratulate our team on another strong quarter and a successful year. When we assess our performance against the ambitious goals that we set for ourselves for 2024, you all have been rock stars, and I appreciate every one of you. I look forward to what we can accomplish together in 2025. I'll now hand the call over to Michael to go further into our financial results.
Michael Mettee (CFO)
Thank you, Chris, and good morning, everyone. I'll first take a minute to walk through this quarter's earnings and touch on our outlook for 2025. We reported net interest income of $108.4 million for the quarter. Reported non-interest income was $22 million or $24.2 million on an adjusted basis after adjusting for approximately $2.2 million in non-recurring facilities-related charges during the quarter. Non-interest expense was $73.2 million, and provision expense came in at $7.1 million. All in reported net income was $37.9 million or $39.8 million on an adjusted basis. On a full-year basis, we reported net interest income of $416.5 million. Reported non-interest income was $39.1 million or $95.6 million on an adjusted basis. Full-year non-interest expense was $296.9 million or $294.9 million on an adjusted basis, and provision expense came in at $12 million.
All in, our full-year reported net income was $116 million or $159.3 million on an adjusted basis. Looking at margin for the quarter, net interest margin was down a couple of basis points to 3.5%, which was within our previously guided range, impacted by a four-basis-point drag due to carrying excess interest-bearing cash during the quarter. We saw contractual interest rates on loans decrease 22 basis points, and our yield on interest-earning assets decreased 19 basis points to 6.01%, due in large part to the decrease in overall benchmark interest rates. On a dollar basis, net interest income was $2.4 million on a higher net asset base in the quarter, largely due to growth in loans and interest-earning cash balances.
An increase in securities income of $1 million also contributed to the overall increase due to the first full quarter of benefit from the recent securities repositioning from the third quarter. The securities yield was somewhat impacted by the change in benchmark rates but still resulted in an increased yield of 19 basis points. On the liability side, we executed on targeted deposit repricing in line with market interest rates as we aim to prudently manage our cost of funds in the shifting interest rate environment. Cost of interest-bearing deposits decreased 21 basis points to 3.37% in the quarter, bringing down our cost of total deposits to 2.7%. As Chris referenced previously, we continue to prioritize organic deposit balances as our means to growing our business, with core deposit balances at 10.8% on an annualized basis in the quarter.
Brokered deposits remain a small percentage of our deposit balance, and that will continue. We anticipate that a portion of these higher-cost deposits will run off over the next year as market interest rates decline, as reflected in the 9.7% decrease noted this quarter. In 2025, we'll continue to focus on growing both sides of the balance sheet, as Chris mentioned, and we expect our net interest margin to land between 3.54% and 3.61% in the first quarter. Moving to adjusted non-interest income, we reported core non-interest income of $24.2 million during the quarter, which reflects a slight increase over the previous quarter. Amidst a seasonal slowdown in mortgage, the company maintained strong fee income levels through our investment services and swap fees in the fourth quarter.
Looking at expenses, over the past few years, we've made investments in our team and technology as we prepare for our next phase of growth as a company. As we move into 2025, we're prepared to capitalize on that investment. Our expense strategy in 2025 is to align capital investment directly with revenue opportunities to drive increased profitability for the organization, such as new banking teams, business units, or taking opportunities to enhance the customer experience. In the quarter, core non-interest expense decreased to $72.7 million as compared to $76.2 million in the third quarter, resulting in a core efficiency ratio of 54.6% compared to 58.4% in the prior quarter. The decline in non-interest expense was concentrated within the Banking segment, resulting in a banking segment core efficiency ratio of 50.2% compared to 54.1% in the prior quarter.
The decrease is primarily attributable to adjustments in our short-term incentive expense as we right-size our accrual to close the year and a one-time franchise tax benefit recognized in the fourth quarter. In 2025, we're expecting to grow banking expenses at about 4%-5% as we continue to grow the business and execute on our near and long-term vision. Specific to the first quarter of 2025, we anticipate banking non-interest expense to land in the range of $64 million-$66 million. On credit, our charge-off levels were elevated this quarter, driven by the full charge-off of a single previously reserved C&I relationship totaling $10.5 million. We discussed this relationship in our second quarter call when we established the specific reserve. It's a credit and a services industry that underwent a series of challenges specific to licensing and employee fraud, which ultimately led to bankruptcy.
These circumstances were specific to the borrower and not an indication of anything deeper or systemic within the loan book. As we communicated in the second quarter call, and as expected, we did reach a resolution on this credit by year-end. The charge-off drove a decrease in our overall ACL and non-performing loans to total loans ratio during the quarter. Absent the impact of this relationship, our fourth quarter annualized net charge-off rate was approximately three basis points, which is more in line with our normal run rate. Our total ACL balance at year-end was $152 million, or 1.58% of loans held for investment. Partially offsetting the decrease mentioned was a reserve build of $7 million, primarily due to new allowance on loan growth and updates in our reserve modeling.
On capital, we continue to maintain very strong capital ratios, including an equity-to-total assets ratio of 11.9% and a preliminary CET1 ratio of 12.8%. As Chris mentioned, our team remains focused on the deployment of that capital to deliver consistent long-term growth in earnings and tangible book value. With that, I'll now turn the call back over to Chris.
Chris Holmes (President and CEO)
All right. Thanks, Michael, for the call. As we conclude, we're pleased with our quarterly and full-year results, and we're proud of the progress that we've made as a company over the past year. We believe we're poised for a strong year in 2025 and look forward to sharing that progress with all of you. Thank you again for your interest in FB Financial. Operator. At this time, we'd like to open the line for questions.
Operator (participant)
Ladies and gentlemen, at this time, we will begin the question and answer session. To ask a question, you may press star and then one using a touch-tone telephone. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality. To withdraw your question, you may press star and two. At this time, we'll pause momentarily to assemble the roster. Our first question today comes from Stephen Scouten from Piper Sandler. Please go ahead with your question.
Stephen Scouten (Managing Director)
Hey, good morning, guys. I guess if we could talk a little bit about the new hires, just a little more detail there. I know you said there were nine this quarter, and that's 32 on the year. And I think you'd called out five mortgage producers maybe elsewhere in the presentation. So can you maybe just give us a feel for maybe the disciplines of those hires that you're bringing on in terms of where they're focused and kind of what you would think would be a viable target for next year to continue to bring in new people?
Chris Holmes (President and CEO)
Yeah. In general, what we're talking about is, I would call them, core C&I frontline bankers. I mean, as you know, we're not complicated as an organization, and so there's not a lot of, it's a pretty direct number in terms of what we call a relationship manager or a producer. And it's sort of an elite title and group in our organization. So I'd say it's pretty much core C&I frontline bankers. What else is in there besides that? Is it Travis or Michael?
Travis Edmondson (Chief Banking Officer)
No, I think that that's the majority of it. And also, it's pretty diverse geographically as well. It's not where we've had in this quarter a lift out of nine in one location. It's pretty diverse of geographies.
Chris Holmes (President and CEO)
Yeah, that's right. And as we think about 2025, Stephen, we don't set a target that we're going to go out and hire 42 revenue producers. It's more about opportunities, finding the right fit. These things take years to recruit the right people to fit what we do. And so they kind of come to you as they come to you. And that's what happened in the Mortgage area and some of the people we've added in the east. We've been recruiting for a while, and then we added a couple in Asheville as well as we build out that team. And I would say this about as we look forward to 2025 and beyond, recruiting is a never-ending process. You have to do it every day.
And so the reason, you noticed we didn't used to mention that very much, but we mention it now because we are getting a lot of inbound opportunities, and we expect that to continue and perhaps maybe even gain more momentum if there's disruption in the market. And so I would tell you that we're pretty optimistic based on just conversations that we're having around our geography.
Stephen Scouten (Managing Director)
Yeah, that makes a lot of sense. And is that optimism around hiring what seems to give you more optimism around growth coming up into this year? Are there other signs that you're seeing that leads to kind of this optimism? And as you guys talked about in the release, building deposits now for what you expect to be a ramp-up in growth here next year?
Chris Holmes (President and CEO)
Yeah. So as we look forward and fourth quarter, which is not traditionally the most robust quarter, and we've had a net loan growth of 5.2%. As we talk about through this year, there's a little bit of what we anticipate next year from that hiring of folks. And then there's just the normal, I'd say, what I'll call normal organic growth of our geography, which is an advantage geography, which I talked about in the prepared remarks. So it's that, and it's less, it takes a little bit of time for those folks as they come on to really begin to bring volume, and especially if they have some type of something that restricts their calling. We abide very strictly by those when we have those in place.
And so, but we do have some folks that have been here for now close to a year, and we really expect those folks to really begin to be the ones that hit the stride. And so that's a portion of the growth, but it's not totally dependent on that. We expect our existing roster of relationship managers to be out acquiring accounts as well.
Stephen Scouten (Managing Director)
Got it.
Chris Holmes (President and CEO)
Okay.
Stephen Scouten (Managing Director)
Yeah, that makes sense, and then maybe just lastly for me, oh, sorry. Yep.
Chris Holmes (President and CEO)
I would say one other thing there because you mentioned the deposit side. We have bulked up on deposits, and I say bulked up, that's probably the wrong term. We've continued to grow at a measured pace on the deposit side. If you'll notice, our loan to deposit ratio has shrunk some, and so as we look into next quarter in anticipating loan growth, but we also have some potentially maturing deposits at some higher cost that we may or may not retain depending on the relationship. I would say they're not core relationship deposits, but they're relationship, but maybe not core relationship deposits, and so we're also managing through that, say, in the first quarter, so.
Stephen Scouten (Managing Director)
Makes sense. Nice to have that flexibility. Just the last thing for me maybe is your comments around M&A, Chris. I know kind of in the past, you've talked about maybe needing to have some patience around deals because you don't know if you could get more than one deal approved a year or what that timeline might look like. But we just saw one deal get approved in less than three months of some decent size. So does what you're seeing and hearing, does it lend you to be slightly more aggressive and think about, "Okay, if it might be a B-plus deal, not an A-plus deal, but I might still go after it in this kind of environment"? Does it change your mindset there at all?
Chris Holmes (President and CEO)
Yeah, it does. It does shape our view and changes it somewhat from where it was in much the way you alluded to. I think under the previous regulatory leadership that was in place, I mean, you were looking at one deal in an 18-month period. And so I think you had to be quite judicious about what you got into because the opportunity cost could be great. And I think as long as you don't get yourself over your skis, and I think that's an important point, as long as you don't get yourself over your skis in acquisitions, you can certainly do that. And I think as long as you manage it well, I think your regulatory agencies are going to work with the parties that want to do a transaction in a more constructive way. And so that all remains to be seen.
But as you said, we just saw a deal get approved fairly quickly. I think that was Federal Reserve transaction. I think it was regulated there, but we saw it get approved relatively quickly. And hopefully, that's a sign of things to come because that timing, as you know, and as folks that have done those transactions before, that length of time, that approval time is risk, is just additional risk on the transaction. And so the shorter time, it improves the risk picture.
Stephen Scouten (Managing Director)
Yeah, makes a lot of sense. Thanks for the time, and congrats on a great 2024.
Chris Holmes (President and CEO)
All right. Thanks, Stephen.
Operator (participant)
Our next question comes from Brett Rabatin from Hovde Group. Please go ahead with your question.
Brett Rabatin (Director of Research)
Hey, guys. Good morning.
Chris Holmes (President and CEO)
Morning, Brett.
Brett Rabatin (Director of Research)
Wanted to start on credit, and I'm sure you guys saw locally that Wheelock sold the old FAC Tower, Philips Plaza, and Parkway Towers at pretty significant discounts. And obviously, the common theme there seems to be age of building. And so I know office is only about 4% of the portfolio, but just wanted to see if you guys had any thoughts on office in Nashville, any age properties, and if you guys had any kind of median or average age for the portfolio for you guys and just how you see the commercial real estate market here.
Chris Holmes (President and CEO)
Yeah, Brett. Good question, and we did see that, and we couldn't miss it, so we did see that. We did have two transactions that took place, two office transactions where they took place at a loss, where they sold the buildings at a loss. Both of them were bought some time ago, I think even pre-COVID, maybe. They were bought pre-COVID. One of them was substantial loss. But I think that's, I think you have to look at a couple of things there, Brett. First, I think fundamentally, I think the first question is, man, does that mean that we need to be questioning where Nashville is economically or Middle Tennessee, let's say, because that's the market we zeroed in on with these transactions, and so is there something going on there fundamentally? I would say the answer to that is no.
One, a lot of the things that have caused Nashville to have this growth momentum, those things are still in place. In-migration still occurs. The corporate relocation pipelines are still solid. The inquiries are still solid with the chamber and the ECD. And so those things are still quite positive, and that's what's driven a lot of the growth. On those two particular properties, two of those properties, I think the two that you talked about that sold at a loss, and I don't know if you mentioned this one, but there was a third that sold in suburban Nashville also at auction. Every one of those were older properties. Two of those, the first two you mentioned, were center city properties or downtown properties that were older buildings that had some occupancy issues. And if you noticed, they were out of town.
They were acquired by a fund from out of town that may not have had the best knowledge coming in. And so I see those as being not unusual. By the way, they weren't financed locally either. And then on the suburban one, that one sold at auction, but at a very small loss to the entity that financed it. As a matter of fact, well under a million dollars in terms of their, so the lender got out on that one. And by the way, on the flip side, the same week that those two sold at auction, there was another property that sold at a record $2,870 per sq ft, a 26,000-sq-ft building on Broadway that sold for $75 million.
And so, like any market, I think you have to go in, especially when you're in the real estate business. You need your eyes wide open, and ours is no different.
Brett Rabatin (Director of Research)
Okay. But to the question, and I saw that on Broadway. That was an interesting price. But the question I had was, those to me seem to be outliers, but they also seem to indicate that maybe properties that were 35-40 years old might have an issue. So the question was, it sounds like you're saying you don't really see anything commercial real estate-wise, but just was curious if you guys had an average or median age for your office portfolio for the buildings.
Chris Holmes (President and CEO)
Yeah. We don't have that right here at our fingertips. And remember, our office portfolio, we don't do in any of our markets, we don't do much center city-type office financing. And so we don't have a lot of comparables to what's sold here at a discount, so.
Brett Rabatin (Director of Research)
Okay. The other question I wanted to ask was around the margin. Maybe Michael, and just talking about the improvement in the first quarter, and my suspicion is that a large part of it could be driven by a reduction in liquidity, i.e., using some cash to fund loans. Just wanted to hear, maybe Michael, if that's the case, any other thoughts on what would drive the margin in the first quarter, and then just as you guys see it for the full year, assuming the Fed's not changing interest rates just to keep it static, if you guys can kind of outrun the local deposit market that's still pretty robust.
Michael Mettee (CFO)
Yeah. Brett, you nailed it. It's loan-to-deposit ratio. Chris mentioned that earlier. We're down 85%. So we either deploy some of the excess liquidity, or as Chris mentioned, if we have higher-cost deposits that we don't renew or they run off at their non-core relationship, yeah, that could be a boon to margin. And also, we like stability in the interest rate environment, right? So we tend to perform better as an institution in kind of more methodical moves in rates. And the team's done a good job as rates have gone down on the deposit side. Keep in mind, half of our loan portfolio is floating, and it happens within 90 days. You get a little bit of a peak down in interest rates on the loan side. And so as things stabilize, yield curve steepens, we think we'll see some margin expansion.
Brett Rabatin (Director of Research)
Okay, thank you. I appreciate the call. Or, congrats, guys, on a solid 2024.
Chris Holmes (President and CEO)
Thanks, Brett.
Michael Mettee (CFO)
Thank you, Brett.
Operator (participant)
Our next question comes from Russell Gunther from Stephens. Please go ahead with your question.
Russell Gunther (Managing Director)
Hey. Good morning, guys.
Chris Holmes (President and CEO)
Good morning, Russell.
Russell Gunther (Managing Director)
I just want to follow up on the loan growth discussion earlier. You guys have a lot of good proof points around an optimistic 2025. I think in the past, you've talked about being able to accelerate the growth rate into the double digits. I'm just wondering if that's still the case or if the backup in rates puts a little caution on that. How are you seeing that transpire over the course of the year?
Chris Holmes (President and CEO)
Yeah. So Russell, as we look into 2025, we see some continued good things and some continued momentum. And we're looking at that low double digit, high single digit, high single digit, low double digit type of loan growth rate is what we're targeting. So far, that feels good. And it's never easy, but so far, it feels pretty good, and that's what we're going to continue to target.
Russell Gunther (Managing Director)
Understood. Okay. Great. And then switching gears a bit, you guys are in a very comfortable excess capital, excess reserve position. You touched on the pickup in organic growth as well as the potential to put that to use via M&A in 2025. You've also been opportunistic in 2024 around securities repositionings and the buyback. So how are you thinking about those levers, or is it kind of capital build mode for M&A?
Chris Holmes (President and CEO)
Yeah. You noticed we didn't necessarily mention that on restructuring and buybacks, but they're always on the table. We like the first two options that Chris talked about as better capital deployments, which is no change from what you've heard us say. But we really think those will materialize here in 2025. So we'll be opportunistic on securities restructuring and/or on share buybacks if they don't materialize as quickly. But at this point, we're certainly focused on organic opportunities and then M&A secondly.
Russell Gunther (Managing Director)
Got it. Okay. Great. Last one for me. Appreciate the commentary, on the core expense growth rate within the commercial bank. How are you thinking about expenses within the mortgage vertical and any improved efficiencies there?
Chris Holmes (President and CEO)
Yeah. First of all, we've got four straight quarters of positive mortgage contributions. So 2024 wasn't exactly an easy year in the Mortgage business. So proud of kind of the turnaround they had there. And we expect them to continue to improve. We want to be better than the market with regard to mortgage. We expect to be better operators. And so we'd expect them to continue to improve in 2025 in that efficiency ratio. I don't think the overarching housing market and interest rate market's going to allow for just blowout years in mortgage, but that's okay. We've taken a lot of the peaks and valleys out of mortgage and expect to operate more efficiently in 2025 than we did in 2024. And we operated more efficiently in 2024 than we did in 2023.
Russell Gunther (Managing Director)
All right. Very good. Guys, that's it for me. Thanks for taking my question.
Chris Holmes (President and CEO)
Thanks, Russell.
Operator (participant)
Our next question comes from Catherine Mealor from KBW. Please go ahead with your question.
Catherine Mealor (Managing Director)
Thanks. Good morning.
Chris Holmes (President and CEO)
Good morning, Catherine.
Catherine Mealor (Managing Director)
Just want to follow up on the margin. I want to see if you could talk a little bit about deposit cost. And I think one thing that we're trying to figure out as an industry is just what deposit. I think deposit betas have been a lot better for everybody so far. But as we start to see better growth in 2025, what happens to deposit cost as growth becomes stronger? And so just kind of curious, maybe as you put on new deposits, what are those average costs are and how you're kind of thinking about deposit costs over the course of 2025? Thanks.
Chris Holmes (President and CEO)
Yeah. Good morning, Catherine. As you kind of alluded to, it's still competitive, right? Especially in some of these higher-growth markets, it's expensive to move deposits. We actually also saw a little bit of a shift into some interest-bearing from non-interest-bearing late in the quarter where people were taking advantage of rates. So even though you would have thought that would have happened earlier, excuse me, so still pretty aggressive. We're seeing CDs kind of in some of our markets still above 4.5%. And we're not putting on CDs at that rate, but we're seeing that competitively. In the kind of Middle Tennessee area, it's not quite as bad here as we're seeing in some more of our community markets. But you're going to have to be in that 80%-90% of Fed funds to get new deposits. And so that's where we expect it to come on.
We know that they're not going to come on much cheaper than that. So it will be a competitive year when you're trying to grow relationships and deposits. And we've got to work both sides of the balance sheet.
Catherine Mealor (Managing Director)
Great. But then on the flip side with loan pricing, would you say that you still are seeing an expansion in your net interest margin just given where you're seeing loan pricing and expectations for growth to be better?
Chris Holmes (President and CEO)
Yeah. Yeah. Expansion. I'd say it's holding pretty steady. We're seeing kind of 720-ish on new loan origination. And so if you think about that, it's in that kind of 350-400 basis point margin spread, not margin spread range. So loans are also competitive. As things have slowed a tad bit and for, I guess, modestly slowed, that makes loan growth and loan pricing a little bit more aggressive as well. So that's why I mentioned we have to work both sides of each relationship, make sure we get the deposits and the loans. But so far, loan yields have kind of held in there. The steepening of the yield curve can create some challenges as to how competitors price, if they're priced off the short end or the middle of the curve. And so we've got to maintain our discipline with regard to that as well.
Catherine Mealor (Managing Director)
That's great. And then maybe one more on the margin, just kind of holistically. If we are in a kind of higher, let's look at the Fed doesn't move rate, so we're kind of in a higher-for-longer rate environment. Do you believe that you can still see continued expansion throughout the next couple of years?
Chris Holmes (President and CEO)
Yeah. I think we should see expansion of a basis point or two a quarter, right, if you're just naturally repricing the balance sheet. And so it's not going to be gangbusters, but we'll move modestly higher over time.
Catherine Mealor (Managing Director)
Okay. Great. And then maybe just one other question just away from the margin on just growth. As you think about hitting high single digit to low double digit growth in 2025, are you seeing more opportunities in C&I versus commercial real estate? Or if you could just kind of help us talk about where you're seeing more pipeline opportunities today. The 10-year is making us nervous that CRE growth may not be as robust this year, but just kind of curious what you're seeing from your customers.
Travis Edmondson (Chief Banking Officer)
Yeah. Good morning. This is Travis. We're seeing growth opportunities in both, honestly. We have concentrated more on the C&I space over the last 12 months, and going forward, we have some room in the CRE bucket, but we're not going to go over any regulatory thresholds, so we don't really have a headwind there, but we're not going to grow gangbusters there. We will see some marginal growth in the CRE portfolio, but we're getting a lot of good opportunities. We're really taking care of our existing relationships in those areas, but the net new relationships are primarily coming from the C&I space.
Catherine Mealor (Managing Director)
Great. Thanks so much.
Chris Holmes (President and CEO)
Catherine.
Catherine Mealor (Managing Director)
Oh, go ahead.
Chris Holmes (President and CEO)
This is Chris. And Travis, I think it'd be fair to say we see a lot, actually, of CRE relationships that we just don't pursue.
Travis Edmondson (Chief Banking Officer)
Correct.
Chris Holmes (President and CEO)
I'm sorry. We see a lot of CRE opportunities, I mean, relationships that we just don't pursue because we are trying to maintain a certain distribution of the portfolio and not get overly concentrated in any one area. But there's still a lot of CRE out there to be financed that we're, frankly, not able to take advantage of some of that. And so just because we're trying to make sure we strike the right balance.
Catherine Mealor (Managing Director)
Makes sense. All right. Great. Thank you. Great quarter and great year.
Chris Holmes (President and CEO)
Thanks, Catherine.
Operator (participant)
Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Our next question comes from Steve Moss from Raymond James. Please go ahead with your question.
Steve Moss (Managing Director)
Good morning, guys.
Chris Holmes (President and CEO)
Good morning, Steve.
Michael Mettee (CFO)
Good morning.
Chris Holmes (President and CEO)
Most of my questions have been asked and answered here, but I just want to follow up, just for clarification on credit here. With the loan that was charged off, you guys mentioned the specific reserve. Was that specific reserve built ahead of this quarter, or was that the driver of the provision this quarter?
Travis Edmondson (Chief Banking Officer)
The specific reserve for the charge-off was prior quarters.
Chris Holmes (President and CEO)
Yeah. Second quarter. Most of that was established in the second quarter.
Steve Moss (Managing Director)
Okay. So then the provision for this quarter was a mix of growth and other credit-specific reserves, maybe?
Chris Holmes (President and CEO)
No. It was loan growth, yes. And then marginally worse economic forecast. Yeah. We generally moved each baseline and got modestly worse, which was the reason for that. There wasn't any other specific credit that drove it higher. And there was a little bit of cleanup on that charge-off as well. I think it was just not a material amount, but there was a little bit of cleanup on that charge-off where it was slightly over that specific reserve, but that was a lesser piece of that provision.
Steve Moss (Managing Director)
Okay. Great. And then just one more thing. In terms of margin sensitivity here, we'll see where the Fed goes for the upcoming year. But just kind of curious where your balance sheet is positioned today for additional Fed rate cuts, whether we get one, two, or more than that, just how you think about the margin?
Chris Holmes (President and CEO)
Yeah. We're slightly asset-sensitive, Steve. So again, sticking in this range or no rate cuts is fine with me. We have a steepening yield curve, which should benefit at least the balance sheet. Makes it a little bit tougher on the Mortgage side, but well-positioned, slightly asset-sensitive today, and it changes, especially here recently, every 24, 48 hours. We think there probably will be a couple of rate cuts this year. But we got them kind of back half of the year as we see how things develop. Wouldn't be surprised if they're zero. So yeah, we got to be able to operate no matter what the Fed does, and we expect to do so. So we would feel pretty good if it stayed where it was.
But if we got surprised and rates really went down in a material way, keep in mind we have a lever with the mortgage capability that would probably get ramped up significantly. And so that's part of the position.
Steve Moss (Managing Director)
Great. Well, I really appreciate all the call here today and the next quarter, guys.
Chris Holmes (President and CEO)
Thank you, Steve.
Operator (participant)
And ladies and gentlemen, at this time, we're at the end of today's question and answer session. I'd like to turn the floor back over to Chris for any closing comments.
Chris Holmes (President and CEO)
All right. Thanks, Jamie. And I would just like to say thanks once again to everybody for joining us on the call. We always appreciate your interest. We appreciate your participation. And we will look forward to joining again next quarter. Thank you.
Operator (participant)
Ladies and gentlemen, with that, we'll be ending today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.