The First Bancshares - Q4 2022
January 26, 2023
Transcript
Speaker 0
Good day and thank you for standing by and welcome to the review of 4th Quarter 2022 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Hoppy Cole.
Please go ahead.
Speaker 1
Well, good morning, everybody. I'm Hoppy Cole, President and CEO of First Bancshares and we've got several of our team members with us today. We have Dede Lowry, our CFO We have J. J. Fletcher, our Chief Lending Officer George Noon, our Chief Credit Officer and Leonard Mooreland, who I'm proud to say is the former CEO of Heritage Southeast Bank and is currently the Regional President for Georgia in our company.
And as always, we've got some prepared comments and we'll talk about some high level Events that went on during the quarter, then I'll give it over to the individual areas and they'll talk about ask additional color in each of their respective Areas of expertise. So to start, we had a good quarter, but an exceptional year. We're really excited given all that we accomplished in 2022 about how we're positioned and some of the tailwinds that we're going to enjoy from some of the acquisitions that we did and some of the organic growth that we had in 2022. So for the quarter, we closed the Heritage Southeast transaction effective oneone. We're very excited because we stayed within 150 days from announcement to actual legal day 1, which in this environment we were very pleased with.
The systems conversion is scheduled for March 31 on Heritage Southeast. During the quarter, we also completed the system conversion with Leach Bank. Early December, we converted and the transaction went very smooth with minimal client impact. So if you look together, those two acquisitions $2,300,000,000 in assets approximately $2,300,000,000 in assets to the company. And so today, we're about $8,100,000,000 in total assets.
In addition to providing increased scale, it really is an inflection point for the growth opportunities for our company In that these two acquisitions give us a meaningful precedent in new markets in Atlanta, Georgia, Savannah, Jacksonville, Tampa and really increased our market share in the Florida Panhandle. It's not just scale, it's not just opportunities, they gave us also a real high quality And again, we think that that's these markets are really an inflection point and will help us enjoy some tailwinds going into 2023. In addition to the acquisitive growth, we had a great year and a great quarter in terms of organic growth. For the quarter, we were up $55,000,000 in net Loans are 6% on an annualized basis. For the year, dollars 316,000,000 of net loan growth or 11%.
So a really good year, really good sort of tailwind pushing us in terms of unfunded commitments as well. JJ, I'll dig into that a little more And we feel really good about where we're going in terms of growth for 2023. We're also pleased during the quarter with How where the margin came out on the core margin was only down 3 basis points. If you guys remember, we guided the margin compression in the 4th quarter Because of the seasonality of our deposits and if you look back over history because we've got pretty good public buying deposit portfolio, they tend to Cycle through the year, the 4th quarter is our seasonal low point. So we're really pleased we were able to manage the margin and only keep it relatively flat or essentially We'll keep it relatively flat quarter over quarter.
D. V. Will offer a lot more color in terms of margin management and where we came out for the quarter. We also took an interesting strategy. At the end of the Q3, we made a really strong move in terms of our Posted deposit rates and on a percentage basis, normally that we would usually do.
So we moved from the lower end of tier of our Our competitors across our markets for interest bearing deposits, we moved to the midpoint and then we backed off of it. So we made a Fairly large move at the end of the quarter, so that when people open their statements at the beginning of Q4, they would see we made a fairly large move and it would slow some of the runoff that we We're experiencing it. So I think we were pleased to essentially only have deposits down 1% quarter over quarter. We haven't moved our posted rate since then. We've just been matching around the margin sort of when we had to.
And then finally, credit metrics continue to improve. George will dig into that a little bit, but Pass through non performers improved during the quarter and during the year. So again, a good quarter. We're pleased with the quarter, but an exceptional year. We think we enjoy some tailwinds, some real tailwinds in terms of growth and earnings going into 2023.
So with that, I'll hand it off to Didi to dig into financials a little bit more.
Speaker 2
Okay, great. Thanks, Hopi. And obviously, as Hopi mentioned on our 2 acquisitions, we do have a little noise again in this quarter, really related to acquisition charges on both of each transaction and then the Heritage HSPI transaction that closed January 1. But a couple of things I wanted to kind of reiterate that we discussed last quarter Was that we did expect margin compression and really that was coming from as we have in the past prior to COVID Due to the seasonality of our deposit portfolio, we would be in a borrowed position, typically Late Q3, Q4 into the beginning of the year until some of the public funds money come back in the beginning of the year. So We talked about that a lot last quarter and wanted to kind of bring that up again to mention.
And then Also, we talked about that we would have increased deposit costs due to our rate increases on our deposit portfolio. We mentioned a few minutes ago about how we did make a big a significant move at the end of September to bring us from kind of well below our peers to kind of right at our peer average. And we did that early and increased our deposit costs and impacted October, but then it leveled off for November December and we are matching And managing our good key core deposit relationships on a case by case basis and continuing to do that And some of the other competition is offering some higher rate specials and we're just managing them case by case. But for the Q4, we did report earnings of $16,300,000 or $0.67 On an On a per day basis, it was earnings were $17,200,000 or $0.71 This did compare to $19,600,000 last quarter, $0.85 which was a decrease of about $2,400,000 But if you recall Quarter, we talked about the non accrual interest income recapture we had in the Q3 of $1,500,000 That was 10 basis points to the margin and also $1,500,000 for this decrease.
And then during the Q4, we always have kind of year end additional expenses related to year end accruals, salary benefits It was about $700,000 So those are a couple of big items that we know to compare between 3rd Q4. We are very pleased that we remained flat for the quarter on our margin I mean, on our income here, we feel like With those two items that we basically maintained where we were, and really less contraction that we initially thought we might have on the margin, But we have a great low cost diversified deposit base and I think that showed this quarter for us. And so we're very pleased with our quarter. On a yearly basis, as we mentioned, we had a great year and we reported 62,900,000 dollars on an operating basis that was $68,300,000 and that compared to $64,400,000 for 2021. That was The 6% increase or $3,900,000 And also just as a note, 2021 did include $11,500,000 in PPP fee income that was only $1,700,000 in 'twenty two.
So We feel like basically overcoming that $9,500,000 of PPP fee income and then increasing that 4,000,000 dollars year over year was a great year for us. We were we just hoped kind of at the beginning to cover the PPPP And we did that and more, so we're very happy to do that. As we mentioned, our margin Did contract on a core basis 3 basis points because if you remember, we reported 3.50 last quarter, the 10 basis points of that was related to That recapture. So really the 3.40%, we mentioned we would have contraction and we did 3 basis points to 3.37%. Loan yields did increase 31 basis points when you adjust out for that recapture for last quarter for the 3rd quarter.
So we were very pleased with loan yields increasing 31 basis points and then our deposit cost of deposits increased 31 basis points as well for the Q4, which we feel is a really acceptable beta of that increase. And when you look at our cost of deposits for the whole year, where we were Q4 of 2021 to Q4 of 2022, It's basically the same increase. We were at basically 19 business cost of deposits for the Q4 of last year and then You increased 32 basis points for this quarter. So I think given that fed Fund increased 125 basis points over that course of 2022 and our deposit costs increased 31 basis points. So we're very happy with that.
We also mentioned last quarter that we projected our margin to be in the range of 3.50 to 3.60 With a pay close rate of $4.50 and we're still reiterating that today. We do have Heritage, obviously, coming on oneone that will add to our margin. So we feel like that's still acceptable for 2023. A couple of notes on our ratios. Our operating ratios for the Q4, our ROA was 107 And our return on our average tangible common equity was at $16.83 and our efficiency ratio operating was 59.34.
So We feel kind of given everything that happened in the Q4 with the increasing cost of deposits and those were great metrics for the quarter. Our capital ratios are TCE of 6.9 and our leverage ratio was 9.4 and our total risk based capital was 16.7. So So all of our capital ratios are still very good and we're very pleased with the quarter. So that's all my prepared remarks, Hoppy, if you want to take it back over.
Speaker 1
Thank you, J. D. J. D. Now would you give us some color on the loan portfolio for the quarter?
Speaker 3
Yes. Thank you, Hopi. And as Hopi said, we were pleased with organic loan growth of about $55,000,000 in the quarter, particularly given the headwinds and rising rate environment very timely in picking up yield at every opportunity during the quarter. And a bit of an outlier and George may cover this, we also have About $8,000,000 in criticized and classified loans that paid off at the end of very end of the year, mostly in, I think, the hospitality field as a result of COVID downgrade. So Very positive there.
4th quarter was also the 1st full quarter of integration with the Beach legacy portfolio. Happy to report that they had a very positive contribution to the overall bank. Out of that $55,000,000 approximately 20,000,000 That growth was attributable to the Beach Bank portfolio, our legacy portfolio. We also finished the year on a high note with about $106,000,000 in originations in So a strong close to the year, which helped our year end numbers. We continue to track our loan payoffs and paydowns.
About 10% loss Competition remained constant. We focus on that to make sure that we are not losing business to our competitors. Also with the integration of Beach, our trailing unfunded commitments that we track pretty closely that range from $350,000,000 to $370,000,000 We had a nice bump there to about $424,000,000 at the end of the year with the lines and availability from the Beach Bank portfolio. Pipelines, as we expected, did compress about 20% at year end. However, we're comparing that to really record year throughout 2022.
So about $422,000,000 in total combined portfolio pipeline at the end of the year. So we're pleased with that number. And then also note that we had some areas of positive gain, Private Bank for 1, which continued a Stellar year in 2022. And then Tampa, Beach Bank Tampa region actually had an increase at year end in their pipeline. So And I'll just close with Private Bank.
I wanted to notate that also with the integration of Beach, we were able to fully put in our Specialty Healthcare division in Q4, and we have those locations strategically along the Alabama, Mississippi, Florida, Gulf Coast area and then in Tampa. So we're looking forward to expanding that throughout the year in 2023. So, Hapje, I'll turn it back over to you.
Speaker 1
Thanks, J. J. I appreciate the update. George, could you give us some color on our credit metrics and performance for the quarter?
Speaker 4
J. Juvekar:] Will do, Hoppy. Thank you. Just to give you some Basically kind of on an annual look to key credit metrics highlights. Hafi referred to delinquencies.
Our 30 day past due loans for the year averaged what we think is a very manageable 33.5 basis points for the year and continued to improve from Q1 through the Q4, so continuing improvement there. Our total past dues plus loans on non accrual at year end were acceptable about 49 basis points compared to total loans. So we think that's pretty good place to be at year end. Non performing assets as a percentage of loans plus OREO were actually, we were able to get those Cut in half during the year, we started quarter 1 with about 100 basis points in that metric and we finished the year at right at 47 basis points. So some good performance and results there.
A lot of that came as a result of one transitional change in a large non accrual, But we had a lot of other OREO progress too, which we'll cover in a minute. Our loans on non accrual were reduced by a little over 50 Yes. So that had a very positive impact. While we do show an actual increase in OREO for a net increase of about $1,990,000 for the year. We keep in mind that that also includes taking on in August approximately $8,100,000 in Beach Bank OREO in The 3rd at the end of the Q3.
So, that did have an impact on our year end OREO, but we were able to reduce of that $8,100,000 we got up to $1,990,000 for the year in terms of increase. And we managed through the sale of OREO throughout the year to end up with about a $214,000 net gain on sale. So good marketing efforts and interest in our OREO and it's always good to have a net gain on sale Charge offs for the year were manageable. We had $660,000 in charge offs, but that was offset by recoveries of almost 2,500,000 So we had net recoveries actually of $1,880,000 So essentially for every dollar we charged off, we recovered $3.85 So we like that ratio and hope that will continue into 2023. And as far as our risk rating of our loan portfolio, criticized and classified loans showed some good improvement.
We had a net reduction of criticized and classifieds for the year of a little over $30,000,000 And that, of course, included taking on the Beach Bank CNC loans, and we're working with those to try to and $58,500,000 for sub standards. And just on a comparative basis, CNC loans at quarter 1 were 24% of capital plus ACL, we ended the year at 15%. So positive trend there. And we believe we're adequately reserved With an ACL in the 103 basis point range, we took $6,900,000 in provisions during the year. That included a 4th quarter $705,000 provision as well as the Provision for in the end of the Q3 for the Beach Bank PCB to market about $1,300,000 So Those were our key metrics for the year and generally stable and very first to begin.
Obviously, with the macroeconomic trends out there in the direction we're all expecting, we are maintaining a lot of focus As well as being adaptive while still adhering to our long standing corporate credit culture, We remain focused on stressing interest rates on our maturing loans. We have a little over 30 to $10,000,000 or so in loans maturing in 2023. And the average weighted rate For that segment of portfolios, a little under 5%. So we can expect to see 250 basis point to 300 basis Elevation in rates on that segment of the portfolio. We are looking Closely at gross and operating margins of our borrowers for increased elevated expenses that are impacting those margins And obviously, there are continued capacity for acceptable coverages on the leverage side.
For non owner occupied commercial real estate segments, we are ongoing monitoring for tenant lease quality, Strength, terms and conditions, that is one area. In a lot of our sub segments in CRE such as Can be adjusted outside of the fixed lease. So we are paying close In particular to the retail side. And in closing, I'd say, I believe we're
Speaker 1
Thank you, George. Appreciate the comments, additional color on the credit book. So that concludes our prepared comments and I think Well, I'll wait a minute. I almost said, Danny had to remind me Leonard, I'm sorry, Leonard. Leonard Moore was the former CEO of Heritage And our current regional President will update us on Heritage performance for the quarter.
Sorry about that, Leonard.
Speaker 5
That's all right, Matthew. Thank you, everyone. Glad to have this opportunity. First, I'd like to just say, it was our goal at HSBI to not only deliver a quality organization into the first organization, but also do so with a lot of momentum for the 2023 year. For the quarter, Culminating in our year end closing, the transaction
Speaker 1
in the
Speaker 5
quarter and the year are as follows. Total assets at $1,600,000,000 This was down substantially from the 3rd quarter Ending assets of 1.7 percent and the reduction of the transactions involving the alignment of the company's balance sheet with that of the first and the retirement of the HSBC debt. Deposits declined during the quarter $103,000,000 to 1 point $4,000,000,000 approximately $40,000,000 of this decrease is associated with normal cyclical activities by our business clients. The remaining roughly $60,000,000 was related to clients seeking higher rates of returns than the bank was offering on interest bearing deposits. The liquidity position of HSBCI allowed the retention of core low cost deposits while allowing higher caused single service clients to move outside of the bank.
Loans grew during the quarter of $49,000,000 and concluded the year at $1,200,000,000 a $136,000,000 or 12.9 percent increase for 2022. Loan growth was robust across all sectors with non farm, non residential and commercial and industrial leading the way with double digit Asset quality remains strong with total delinquencies including non accruals of 0.33% of total loans. Total non performing assets ended the year at 0.22 percent of total assets and net charge offs for the year were 2 basis points of total loans. Earnings for the quarter were impacted by the merger. Net income before tax For the quarter, it was a loss of $8,800,000 Core earnings would have been approximately $8,200,000 pretax per share for the Q3 2022 excluding transaction related costs.
The net interest margin continues to improve and concluded the year at 4.65%. The team of bankers at HSB has spent over the past 6 months of working with the First team to ensure a smooth transition over the coming months and we're off to a great start. With that, Hapie, I'll conclude my comments.
Speaker 1
Thank you, Leonard. Great quarter. Appreciate it. Well, as you can see, we're really about how we're positioned going forward for the coming year and beyond. We've got some real significant tailwinds, particularly in terms of new opportunities for growth Some real tailwinds in terms of EPS growth, we believe.
So that concludes our prepared comments and we'll open it up for questions. Thank
Speaker 0
And one moment for our first question. And our first question comes from Matt Olney from Stephens. Your line is now
Speaker 6
open. Thanks. Good morning, everybody.
Speaker 1
Hey, Matt. How are you?
Speaker 6
I'm great. I'm great. Thanks for all the Prepaid remarks, just a few questions here. I want to clarify on the deposit commentary. I think what you said was you made the big move in posted rates in September.
So 4th quarter would have received the full impacted this and you've not made any meaningful changes to those posted rates since then. So I guess, 1, is that right? And then 2, As you look at your current posted rate versus your competition and what they're doing, how do you feel about the need to make another catch up in
Speaker 1
You're exactly right on the timing, right? The last week of the month, we made a material move to get to the midpoint of our competitive set. And so we got the full impact of that in the quarter, but we just haven't seen any that's really stymied or slowed down So, we saw some of those interest bearing accounts and we haven't felt the need to move those, and not only interest bearing transaction accounts, but city rates as well. So we haven't had to move those to maintain our deposit base and given where we think the cash flow coming back to us, the growth in public money, The combination with HSPI, the liquidity that's going to provide us because we'll liquidate their bond or in the process of liquidating their bond portfolio And we'll take that to pay down the borrower. We were net borrowed for the quarter last quarter, which normal seasonality we would Probably when we come back, we paid it off anyway, but we're kind of getting a $200,000,000 head start with liquidating the bond portfolio at HSPI.
So we don't think we're we don't feel like we're going to have the same percentage increase at least over the next quarter or 2 that we had in this last quarter.
Speaker 6
Okay. That's helpful. Hoppy, thanks for that. And I think Didi mentioned that there were some Higher borrowings in the 4th quarter from the seasonal aspect, have those also been paid down since the quarter?
Speaker 2
We're working on that right now, Matt. As Hafi mentioned, the public funds tend to come in a little bit more later in January February, But we're in the process of selling the bond portfolio from Heritage. And so we have reduced that one It was 1.30 at year end. We have reduced that so far, but we're not completely gone yet, but we anticipate that will be Shortly.
Speaker 1
Shortly about mid February? Yes. Somewhere in
Speaker 2
that regard, yes.
Speaker 6
Okay. Got it. And then just to clarify, Habje, I think you said You already sold the $200,000,000 of securities from the transaction. Is that right? And just remind me of expectations of securities cash flows over the course of the year?
Speaker 1
So, we've done about a third of it so far Because it's a whole bunch of smaller securities. And so we've done about a third of it so far, but we should have it complete in a couple of weeks. And that's why we feel pretty confident about paying out that borrower position as well as public money is coming in.
Speaker 6
Okay. And then as far as the margin that you talked about, the $350,000,000 $360,000,000 just clarify The timing of when that's set for and then, does that include or exclude some of the accretion from the transactions?
Speaker 2
Thanks. Generally, we're kind of looking at that excluding some of the accretion from the transaction For Heritage, but I think the timing will really kind of pick up probably into the second Quarter or so because we still have the borrowing costs on for this portion of this quarter. So I anticipate hoping to start that increasing up later in the year.
Speaker 1
Way we think about it matters, we're starting the year at 3.37 and we would average, say, 3.50 or so for the year. So it can kind of linear So averaging in for that. That makes sense?
Speaker 6
Yes. That makes sense. Okay. I'll step back in the queue. Thank you.
Speaker 2
Thanks, Matt. Thanks, Matt.
Speaker 0
And thank you. And one moment for our next question. And our next question comes from Catherine Mealor from KBW. Your line is now open.
Speaker 7
Thanks. Good morning.
Speaker 1
Good morning, Catherine. How are you today?
Speaker 7
I'm great. How are you?
Speaker 1
Doing great. Can't complain.
Speaker 2
Nice to
Speaker 7
see the NIM guidance was unchanged, very different from what we're seeing in other banks. So thank you for that. One other thing I wanted to talk
Speaker 2
about was just the size
Speaker 7
of the balance sheet and growth your growth outlook for the year. I feel like when we were thinking about the first With the big deal and heritage, we thought that growth would actually kind of accelerate as we moved into 2023, but most are lowering their growth guidance for the So how are you thinking about just kind of organic growth
Speaker 2
for you all this coming year?
Speaker 1
In terms of growing the size of the balance sheet, you think Kind of flattish. That's what we're projecting to try to be conservative, Catherine. But we do think there will be a remix and we talked about being able to Essentially redeploy some of this liquidity we've got coming out of the bond portfolio and that we're going to get out of Heritage Southeast. We're going to use that to fund our loan growth as we move forward. So I would say we're forecasting an increased loan to deposit ratio and more of a remix into the loan book and a 5% or so Growth rate in terms of loan net loan growth and essentially funding that organic funding that through the existing deposit structure, not having to go out really Grow the size of the balance sheet and pay up to do that.
Speaker 2
Okay, great.
Speaker 7
And then back on the securities book, so You will if you're selling most of Heritage's securities, but in terms of just your core book, do you expect That's also declined throughout the year as you kind of as you just mentioned, you're remixing the balance sheet. How much of kind of a decline outside of Heritage would you expect
Speaker 1
So the way the bond book is set up is it provides us about a quarter about $250,000,000 or so a year of cash flow out of So it's laddered out so that we get about $1,000,000,000 or so over the next 4 years. So that $250,000,000 plus prepayment fees and things will provide significant cash flow out of the loan portfolio to be able to fund that 5% to 7% loan growth.
Speaker 2
Great. Okay, perfect.
Speaker 7
And then how about the expense guide? I know you all are typically very quick in realizing cost savings. Can you just help us Think about the timing of the heritage cost savings and maybe how we're seeing about the expense run rate in the
Speaker 2
next couple of quarters? Well, I think the heritage cost savings will be, I think we modeled I think we modeled 50%
Speaker 1
75%
Speaker 2
for 2023. But as Hopi mentioned earlier, we're anticipating that Merger, I meant the systems conversion March 31. So typically that through that period and then a couple of months after The staffing, typically the average interest agreement stay on for a couple of months post that. So I would be 4th quarter will be 3rd quarter as far as salaries and benefits piece of that. But run rate, I'm kind of looking at I'm still trying to finish up my budget for 2023, but I'm thinking that kind of looking at there where they've been in hours It's probably going to be $40 ish $42,000,000 or so $1,000,000 a quarter in expenses.
That's just kind of What I'm looking at right now, but I'm still working through the budget. So give or take a 1,000,000 or so there. 1,000,000. 1,000,000 That sounds good. The 1Q, would you expect to
Speaker 7
your point with the conversion in March, 1Q should be higher than that?
Speaker 2
Yes. Yes. And then when I get to that Go ahead, Catherine.
Speaker 7
I would say, so your higher 1Q, but then you get into that Maybe $40,000,000 to $42,000,000 level as you move through the year.
Speaker 2
Exactly. Yes, I was kind of looking at A total 165 or so somewhere in that range, but yes, it'll take the later part of the year to get to that 42 probably. Got it. Okay. That makes sense.
Speaker 7
All right. That's great. It's all valid. I'll pop out of
Speaker 2
the queue. Thank you. Thanks, Catherine.
Speaker 0
Thank you. And our next question comes from Christopher Marinac from Janney. Your line is now open.
Speaker 8
Hey, thanks. Good morning. Thanks for hosting the call. Just want to get back to the loan to deposit ratio. Appy, you mentioned it, but I didn't fully catch it.
Would it increase I understand the point about funding internally with the measures you just said.
Speaker 1
All right. Because I think you said, Do we expect loan to deposit ratio to increase?
Speaker 8
Correct.
Speaker 1
Yes, we do. We do We don't plan on growing the size of balance sheet per se in order to fund the loan growth. So we'd like to add some more leverage and we think that we can swing into the quarter.
Speaker 2
About 68 on average.
Speaker 1
I think we're projecting a 72% loan to deposit ratio is kind of our visibility, Chris.
Speaker 8
Okay. So a few points from here. Great. And then would your use of the debt, which I know is low, would that kind of stay the same or would that actually go down Just given how you're funding internally.
Speaker 2
You said that, Chris?
Speaker 8
Yes. All the borrowings combined.
Speaker 2
Yes. No, all the borrowers, those would be, those would decline. We hope to, as we took it down the path, the seasonality of those public funds come in, The selling of Heritage's portfolio, we expect them to not be borrowed
Speaker 1
as the Q1. And Leonard Chris Leonard noted in his comments, Part of the reduction in the size of their balance sheet was paying off some of the debt that they had as we put the 2 balance sheets together.
Speaker 8
Yes, I caught that. Thank you for that as a reminder. And I guess just to go back to the deposit data, I know you mentioned in Mac's question earlier about just the pricing in Our betas in general going to have a little bit more lift at the moment or would they actually sort of trend down? And I guess I'm curious if you If you think about betas holistically, but also maybe on some of the perceived sensitive areas like the public funds, would those have any more movement than you have historically
Speaker 1
seen? Well, I can't tell you I've ever managed or we've ever managed through some of the scenarios we've had over the last couple of years. I've talked to my other day, Hi, this commercial bank is supposed to be boring. We're not so talented volatility. But in any event, We just we don't feel the deposit pressure right now that we felt at the end of literally, we looked up at the end of September and $200,000,000 It went away like just in a matter of weeks.
And so that's why we agonized over that decision, should we move on a percentage basis This large, but I think it was the right decision because it really stymied the runoff. So we continue to see banks out They're doing deposit specials that are really high and our strategy has been, we don't feel the pressure to move right now on our Transaction rates in our CD specials, we're still keeping below our competitors because we're just trying to retain the money that we have Because we don't have to grow the balance sheet to make our returns because of remixing and taking our we're so liquid, the ability to redeploy that in the loan book, We don't have to now that doesn't mean we're not going to go up where we find opportunity. I don't mean that. We just don't feel that we need to have
Speaker 4
to get there and compete at
Speaker 1
the top end of the market. So having said that, I don't it doesn't feel that way now. And it seems like the consumer When they were first hearing how much rates are going up, they're going, well, gosh, rates are skyrocketing. But now the field is kind of rates are plateauing a bit. And I know I've read some other guidance where people are talking about beta is accelerating.
I just I don't and I could be way off. We just we don't feel it right now.
Speaker 2
We put that CD special in, I can't remember exactly what month that was. We had adjusted that once during the quarter, but That's been we haven't changed that. And I really don't think we're just doing these one off matches. We've been doing that basically November, December and continuing Little bit in January, but I didn't see it moving our deposit costs that much, more poor because we're
Speaker 1
Chris, the poster grade on our current special is no secret. Our current special is 9 months CDs for 305. And we're 170 Okay. What's the $175,000,000 $175,000,000 for 19 months. And we've been able to kind of retain at that.
So then again, those are posted, everybody knows they're out there. We're just fighting around the margin. The other thing I would say to you is what we've talked about not necessarily Growing about being aggressive and having to pay up to grow the balance sheet, where we started this, the markets that we added this last Very different and definitely an inflection point for our company. So the ability to grow non interest bearing deposits is even greater in Tampa, Savannah, Jacksonville, Atlanta, particularly Atlanta, Jacksonville, Tampa, where we have a much more C and I or there's much more C and I opportunity, Our treasury management services become much more important. So we definitely will grow the balance sheet or have a strategy to grow non interest bearing deposits as we get more C and I focused.
Speaker 8
Now that's helpful background. Thank you both for that. And I guess just my follow-up, I'll be just more strategically. Are you comfortable not doing an acquisition this next 12 months? I mean, you have a lot to do internally and obviously have many great things ahead of you as you discussed.
Speaker 1
We are. We absolutely are. As you know, we've done a number of acquisitions and a lot of that has in order to drive our profitability and growth, We sort of need those acquisitions, but the markets I just talked about, we feel strongly will provide the sort of growth we need to make the returns that we've sort of put out there.
Speaker 8
Great. Thanks again for taking my questions this morning.
Speaker 1
Thank you, Chris. Thanks, Chris.
Speaker 0
And thank you. And we have a follow-up question from Matt Olney from Stephens. Your line is now open.
Speaker 6
Thanks. Just want to ask about the non Interest income in the 4th quarter a little bit slower, it looks like mortgage drove that. Just any other commentary on the 4Q fees and the outlook from Thanks.
Speaker 1
You're right, Matt. It was basically all mortgage was off more than we really anticipated. That continues to be a little bit flat. As you know, we have a pretty good private banking market share. So we do a lot of 1 to 4 family in that book for For the high net worth individuals, those pipelines look pretty good, but the basic mortgage pipeline, I think, is still pretty slow.
Speaker 6
Okay. And then I think Heritage had a pretty decent fee income platform. So when we kind of layer this together, Didi, what kind of fee range can you give us for the Q1?
Speaker 2
Let me see one second right here, Matt. I would say maybe in the 10, 12, maybe, I really haven't finished that section kind of going through all that detail adding Heritage in. So I really hate to give a number, but I think it definitely may be $10,000,000 or $11,000,000 there, but that's just kind of a guess, I mean, a good guess at the moment.
Speaker 6
Okay. Maybe we can follow-up on that later.
Speaker 2
Yes, we can. You've been around, BD, know
Speaker 1
her guesses are pretty good though.
Speaker 7
That's right.
Speaker 6
Exactly right. Well, I guess just stepping back a little bit, Hafi, when you announced the Heritage deal last year, I think you mentioned a goal of achieving that $4 EPS run rate with the full integration of Beach, full integration of Heritage. And since we talked about that, I think the that change in deposits the world has been, they could impact that $4 EPS goal Or any other puts and takes that are material that we should think about in relation to that $4 EPS goal? Thanks.
Speaker 2
I mean, Yes. I think so, Matt. I mean, what we're looking at and going through and working through right now, I still think because of where I think on the asset earnings side, we did pick up as far as besides just looking at increased cost on deposit side. I think with the savings in adding heritage, I still think by the end of the year, we can shoot for that $4 run rate for next year.
Speaker 1
We still feel confident in that, Matt. One thing we didn't really talk about, but we still are slow. Legacy Bank has slots of the assets Since the end of the quarter, but HSBI really improves our asset sensitivity on hold. So we still think there's a little and that's why we're guiding back to sort of $3.50 margin, dollars 3.50, dollars 3.60 we're talking about, because that kind of gets us back to that $4,000,000 EPS run rate back half of the year. And at this point, what we see is we feel confident in that.
Speaker 2
I would like to add, I had my notes here, I didn't mention just for reference. We did issue 6,900,000 in new shares to the heritage on HSBCI shareholders. So when you all are For your calculations, we all have the same share.
Speaker 1
You'll be giving a follow-up call from DB about making sure your share counts are right.
Speaker 2
$6,9,200,000 $422,000,000 how about that?
Speaker 6
Yes, I'll make sure to capture that in the model update.
Speaker 2
Thanks.
Speaker 6
Thanks, guys.
Speaker 1
Good deal. Thanks, Matt.
Speaker 0
And thank you. And I'm showing no further questions. I would now like to turn the call back Over to Hoppy Cole for closing remarks.
Speaker 1
Well, thanks everyone. Appreciate your attendance today. As you can see, we think we're in a really good shape and look forward for 2023. So thanks for joining and we'll be in touch next quarter.
Speaker 0
This concludes today's conference call. Thank you for participating. You may disconnect.