Financial Institutions - Q3 2023
October 27, 2023
Transcript
Operator (participant)
Hello, and welcome to today's Financial Institutions, Inc. announces Q3 2023 results. My name is Elliot, and I'll be coordinating your call today. If you would like to register a question during today's event, please press Star, followed by one on your telephone keypad. I'd now like to hand over to Kate Croft, Director of Investor Relations. The floor is yours. Please go ahead.
Kate Croft (Director of Investor Relations)
Thank you for joining us for today's call. Providing prepared comments will be President and CEO, Marty Birmingham, and CFO, Jack Plants. They will be joined by additional members of the company's finance and leadership teams during the question and answer session. Today's prepared comments and Q&A will include forward-looking statements. Actual results may differ materially from forward-looking statements due to a variety of risks, uncertainties, and other factors. We refer you to yesterday's earnings release and investor presentation, as well as historical SEC filings, which are available on our investor relations website for a safe harbor description and a detailed discussion of the risk factors relating to forward-looking statements. We'll also discuss certain non-GAAP financial measures intended to supplement and not substitute for comparable GAAP measures. Reconciliations of these measures to GAAP financial measures were provided in the earnings release filed as an exhibit to Form 8-K.
Please note, this call includes information that may only be accurate as of today's date, October 27, 2023. I'll now turn the call over to President and CEO, Marty Birmingham.
Martin Birmingham (President and CEO)
Thank you, Kate, and good morning, everyone, and thank you for joining us today. Q3 results were highlighted by healthy deposit growth and a continuation of stable credit quality metrics. Both of which position us well for the remainder of 2023, and give us confidence in our ability to effectively navigate the operating environment in 2024, including capitalizing on opportunities. Q3 net income available to common shareholders was $13.7 million or $0.88 per diluted share, down from $14 million or $0.91 per share in the Q2 of 2023, and in line with the prior year results of $13.5 million or $0.88 per share. Like much of the country, competition for deposits remains fierce in our markets, and I'm incredibly proud of our team's ability to drive 6% deposit growth during the quarter.
The fact that this growth was led by core non-public deposits is all the more noteworthy. With retail, banking as a service or BaaS, and commercial all contributing. A significant driver of non-public deposit growth was the 5% money market account campaign that you'll recall we launched in late July. In addition to helping us deepen relationships with existing customers, we have introduced more than 800 new retail customers to Five Star Bank in our relationship-based approach to community banking through this campaign. These new customers brought in approximately $72 million in balances through October fourteenth. In addition to balances deposited by our long-standing customer base. We plan to continue the campaign through mid-November, providing a strong start to the Q4. BaaS also gained momentum during the Q3, with approximately $77 million in related deposits at quarter end.
We consider these to be an attractive alternative to higher cost wholesale funding. While these deposits have come on slower than we originally anticipated, our approach to onboarding new partners includes a thoughtful governance process before transitioning them on to our BaaS platform. We look forward to continued growth in 2024 and beyond, as we build out our pipeline of Fintech and non-bank partners. Our commercial banking franchise also supported deposit growth in the quarter as we implemented changes earlier in the year to incentivize our commercial lenders to focus on deposit gathering initiatives. Public deposit balances at September 30, 2023, were up compared to the end of the Q2, largely reflecting seasonal inflows that we typically experience late in the Q3.
Reciprocal deposits also grew during the quarter, as this continues to be an attractive option, affording our larger customers the benefit of FDIC insurance on accounts greater than $250,000. Setting aside our Q3 deposit growth, the latest data from the FDIC Summary of Deposits underscores the strength of our position in our markets. Based on June 30, 2023 deposit balances, our company ranked top 3 in 10 of the 14 Upstate New York counties where we reported deposits. In addition, we are among the top 10 financial institutions serving Erie and Monroe Counties, home to Buffalo and Rochester, respectively. Growth in these cities is an important element of our community bank franchise growth strategy, and accordingly, our recent money market campaign was heavily focused on these markets.
Total loans were relatively stable on a linked quarter basis at $4.4 billion, as modest growth in residential and commercial lending was partially offset by a decline in our indirect portfolio. Other consumer loans were also up slightly, reflecting a relatively small amount of solar panel financing related to a BaaS client focused on climate positive banking. With respect to commercial lending, as anticipated, CRE growth slowed significantly in the Q3 due to a combination of softer demand amid a challenging economic environment, higher pricing hurdles, and our effort to moderate production. Competition remains strong for C&I loans in our markets, but we are seeing opportunities from prospects looking for a true local community bank.
Our residential loan portfolio grew during both the three and 12 months ended September 30, 2023, despite the higher interest rate environment and tight housing inventory that has impacted home sales in our market. We continue to see success through our partnerships with select new home builders in the Western New York region.... Consumer indirect loan balances declined again in the Q3 as expected, primarily as a result of our internal efforts to moderate production. While we did see an uptick in charge-offs associated with this portfolio in the Q3, I would remind you that our Q2 indirect charge-offs were exceptionally low as a result of strength in recoveries. We remain comfortable with this asset class and the quality of our portfolio, given the deep experience of our management team and long track record of this line of business.
Q3 consumer and direct charge-offs were partially offset by a commercial recovery, as outlined in our earnings press release, resulting in annualized NCOs to average loans of 14 basis points. Our commercial portfolio asset quality remains sound, and we are confident in the strength of the underlying credits. Our relationship managers have been and continue to be in close contact with their customers amid what has been a volatile operating environment. And we recently completed additional internal stress testing on loans larger than $1 million within our multifamily and office portfolios, set to mature in the next 24 months. As part of this analysis, we ran a variety of scenarios, stressing loans larger than $1 million in these segments with NOI downside and higher interest rates, even above where current rates have transitioned in the last 12-18 months.
Under these scenarios, the large majority continue to have debt service coverage ratios at or greater than 1:1 coverage. After individually analyzing any that would fall below that threshold, we found that guarantor strength, access to capital, project progress or completion, and the overall strong quality of sponsors all reinforce our confidence. We anticipate incorporating this focused exercise into our management routines for the foreseeable future. We remain comfortable with our allowance coverage ratio, with an allowance for credit losses to total loans of 112 basis points and 521% of non-performing loans as of September thirtieth. This concludes my introductory comments, and it's now my pleasure to turn the call over to Jack for additional details on results and updates on our guidance for 2023.
Jack Plants (CFO)
Thank you, Marty. Good morning, everyone. As Marty noted, net income was down modestly from the linked quarter, due in part to higher funding costs as we work to successfully defend and grow our deposit base in the current interest rate environment. Results were also impacted by lower non-interest income and a modest increase in non-interest expenses that were partially offset by a lower level of provision in the most recent quarter. Net interest income of $41.6 million was down $660,000 from the Q2 of 2023, as our overall cost of funds increased 27 basis points during the quarter to 230 basis points. We continued to experience margin compression in the Q3, though at a more moderate pace.
Net interest margin on a fully taxable equivalent basis was 291 basis points for the quarter, compared to 299 basis points in the linked quarter. Relative to the magnitude of FOMC rate increases that occurred in 2022 and so far in 2023, our total deposit portfolio has experienced a cycle-to-date beta of 38%, including the cost of time deposits. Excluding the cost of time deposits, the non-maturity deposit portfolio had a beta of 18%. Non-interest income totaled $10.5 million in the Q3, down $980,000 on a linked quarter basis. While our earnings release provides additional detail on our diverse fee-based revenue sources, I would like to touch on a few key areas this morning.
Our investment, advisory, and insurance businesses are the largest contributors of non-interest income, making up about 40% in the Q3. Insurance income increased as a result of the timing of commercial renewals as well as business development. Declines in our investment advisory income were attributable to the Q3 market downturn and the impact on AUMs, coupled with our strategic decision to focus on wealth management services for high net worth individuals as opposed to our retail branch network. While this has negatively impacted transaction-related fees in the near term, we believe this move will support enhanced profitability in this line of business moving forward. Swap income was down, as expected, given our lower level of commercial loan activity during the quarter.
Non-interest expenses were up less than 3% on a linked quarter basis, as higher salaries and benefits, occupancy and equipment, computer and data processing, and FDIC insurance expenses were partially offset by lower professional services expense. Income tax expense was $2.4 million in the quarter, representing an effective tax rate of 14.8%, relatively consistent with the linked quarter. Our accumulated other comprehensive loss stood at $161.4 million at September 30, 2023. We reported a TCE ratio at September 30 of 5.25% and tangible common book value per share of $20.69. Excluding the AOCI impact since December 31, 2021, the TCE ratio and tangible common book value per share would have been 7.69% and $30.31, respectively.
We continue to expect these metrics to return to more normalized levels over time, given the high credit quality and cash flow nature of our investment portfolio. Earlier this month, we sold approximately $54 million of agency mortgage-backed securities at an after-tax loss of $2.8 million, reinvesting the proceeds into higher-yielding Ginnie Mae and Freddie Mac bonds. The after-tax income benefit of $1.4 million annually translates to an earn back of two years. I would now like to provide an update on our outlook for 2023 in key areas. We now expect full year NIM of 295-300 basis points, 5 basis points lower than previous guidance, given the impact of higher interest rates on our funding base. Our forecast assumes Fed activity remaining muted for the remainder of the year.
Given the continued strength of our credit quality metrics, we expect full year net charge-offs of between 15 and 20 basis points, 10 basis points lower than previous guidance. We now expect the 2023 effective tax rate to fall within a range of 15%-16%, down 200 basis points from previous guidance, reflecting the impact of the amortization of tax credit investments placed in service in the current quarter in recent years, coupled with the impact of revised margin guidance on pre-tax income for the remainder of 2023. We are lowering our guidance for flat non-interest income to a single-digit decrease, given the pressures we have seen on investment advisory fees and slower onboarding of BaaS initiatives than anticipated.
This guidance excludes the impact of securities gains or losses, limited partnership income, and non-recurring items such as enhancement on company-owned life insurance and gains on the sale of indirect loans. Our expectations for mid-single digit full-year expense growth, mid-single digit growth in nonpublic deposits, low-double digit growth in loans, and an ROA between 85-95 basis points remain unchanged. That concludes my prepared remarks and updated guidance. I'll now turn the call back to Marty.
Martin Birmingham (President and CEO)
Thank you, Jack. We were off to a solid start in the Q4 and remain focused on balance sheet management, as well as opportunities to enhance margin and manage non-interest expenses. We have an incredibly strong team in place, and several promotions and appointments we announced recently underscore that. Within key internal functions, like information security and accounting, we have identified experienced and well-prepared internal candidates ready to step into leadership roles. In addition, just this week, we announced a leadership succession at our wealth management subsidiary, Courier Capital. James E. Iglewski, who joined our firm in mid-2022 after more than two decades in private banking with several large U.S. banks, has been promoted to President. He succeeds longtime leader Thomas J. Hanlon, who transitions to the role of Executive Vice President of Wealth Management and Co-Chief Investment Officer.
We believe that this new leadership structure allows Courier Capital to continue serving its wealth management, retirement plan, and institutional services clients at the highest level, while positioning us for continued growth moving forward, following the merger of our two RIA subsidiaries earlier this year. And finally, in addition to these internal appointments, we recently hired Blake Jones as Chief Marketing Officer. She brings more than 20 years of branding and communications experience and will lead both marketing and analytics on an enterprise-wide basis, focusing on strategy, brand and performance marketing, along with customer and prospect insights. With diversified and complementary lines of business, including consumer and commercial banking, wealth management, insurance, and BaaS, our company has excellent opportunity to deepen relationships with existing clients and attract new customers across our footprint and beyond. Operator, that concludes our prepared remarks. Please open the call for questions.
Operator (participant)
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. First question comes from Nick Cusimano with Hovde Group. Your line is open.
Nick Cusimano (Equity Research Associate)
Good morning, everyone. How are you?
Jack Plants (CFO)
Morning, Nick.
Martin Birmingham (President and CEO)
Nick.
Nick Cusimano (Equity Research Associate)
Just a question on the banking-as-a-service strategy. Just referencing slide five, there was a large step up in total clients from June to September. Do you anticipate a period where you slow new client relationships and focus more on monitoring and cultivating the existing relationships? Or do you have capacity to continue adding partnerships at a strong pace?
Martin Birmingham (President and CEO)
So, thanks for pointing that out because, you know, we've got some assumptions built into our balance sheet and related deposits for the year, and that's being impacted by the timing of onboarding clients. And, you know, we have spent a lot of time upfront ensuring that our management and our governance routines, as well as our controls, are right for this line of business as it's new activity. So, that has impacted our timing overall of onboarding clients to our platform. We're very comfortable with the clients that we've added to this point, but Sean Willett is here, who leads that line of business for us. I'd ask you to comment, please.
Sean Willett (EVP and Chief Administrative Officer)
Yeah. Good morning, and thank you for the question. I would just say that we have capacity to continue to bring on clients, but that being said, as Marty's indicated, we will continue to be hyper-selective and ensure that those opportunities fit with our risk appetite and the thesis-driven approach that we've taken to client selection.
Nick Cusimano (Equity Research Associate)
Just to follow up there, when do you anticipate a material impact on the non-interest income side from these partnerships, or is that already occurring?
Jack Plants (CFO)
... Yeah, Nick, this is Jack. I can take that one. This is Jack. I can cover that for Sean. You know, our first strategy was to have an impact on the balance sheet outstandings, which we've seen through deposits, which were up about $78 million in the quarter in this line of business. And that is something that I think is critical to franchise success, particularly in this environment, given that they have a lower cost relative to funding that we're raising in our current market footprint. Now, on the non-interest income side, that's been slower to translate as the fee sharing is coming in a little bit later than the deposits. I would expect to see some marginal contribution in the Q4 and beyond.
I'll ask Sean to discuss the partnerships that we're onboarding and how they can contribute in future periods.
Martin Birmingham (President and CEO)
Yeah. So I think you're spot on, Jack, in terms of the opportunities that we're going after are deposit acquisition. And then with that, as we start to see activity from those partners, then we start to see contribution not only on the platform side, but also on interchange income.
Nick Cusimano (Equity Research Associate)
That's very helpful. Maybe just a follow-up on the NIM after the revised guidance. I understand it's too early for 2024 commentary, but can you help us think about the direction of the margin as we turn the page on a new year?
Jack Plants (CFO)
Yeah, Nick, this is Jack again. So, we've had some success with repositioning the liability side of the balance sheet during the quarter. We were successful with the retail money market campaign coming on board, success in the BaaS deposits, growth in commercial deposits, which allowed us to pay off, well, you know, a little over $300 million in higher-cost wholesale borrowings. We'll see the full quarter benefit of that in the Q4, as well as the benefit of the securities repositioning, which should help to limit the margin compression that we've observed throughout this year and quarter to date. Now, it appears to be slowing, and it certainly feels like we're approaching a bottom.
Our guidance that we provided for full year, which was revised to 295-300 basis points, would assume that if we reach a low point of 280 basis points in the Q4, that would put us at that lower end of our full year guidance of 295 basis points. So, it, it certainly feels like we're approaching the bottom there.
Nick Cusimano (Equity Research Associate)
That's helpful. And then lastly, do you have the AUM for Courier at September thirtieth? I'm just trying to gauge the impact of the weaker equity markets in the quarter.
Jack Plants (CFO)
Yes, it was $2.7 billion.
Nick Cusimano (Equity Research Associate)
Thank you for taking my questions.
Operator (participant)
Our next question comes from Damon Del Monte with KBW. Your line is open.
Damon Del Monte (Managing Director and Senior Equity Research Analyst)
Hey, good morning, everyone. Hope everybody's doing well today. Just wanted to ask a couple of questions here, starting off with probably for Jack. On the securities portfolio, we saw, you know, a pretty decent decline this quarter. You know, I think in the past, you've given projected cash flow expectations. Could you just remind us of what your quarterly cash flows are and kind of your thoughts on where the, you know, security settle in as a percentage of average earning assets?
Jack Plants (CFO)
Yeah. The cash flow that we're projecting is $140 million annually on the securities portfolio. Relative to the percentage of assets, I look at the securities portfolio as a collateral source for our public deposit base, but we also have alternative sources available through Federal Home Loan Bank, municipal letters of credit, which we've been able to bolster our position there through additional collateral that's been posted. So I think that we can drift a little bit lower on the securities portfolio outstanding as we take cash flow off and let it reinvest into loan outstandings, and then we'll use alternative sources to support our public deposit base.
Damon Del Monte (Managing Director and Senior Equity Research Analyst)
Got it. Thank you. That's helpful. And then I guess, you know, Marty, can you just give a little bit more perspective on your outlook for loan growth here, kind of going into the Q4? Do you think things kinda stay moderate through year-end? And kind of given the forward look on pipelines, do you think things kind of pick up as we move into and through 2024?
Martin Birmingham (President and CEO)
So, you know, definitely, as we're continuing our conversation this morning, Damon, you know, we've seen loan growth moderate in the second half of the year. That will continue through the Q4. And, you know, we are in our midst of our planning season for 2024, and we're looking at a lot of different scenarios. As, you know, we've had a hard-fought year as an industry this year, we want to make sure as we drive loan growth, that we are driving acceptable spreads, risk-adjusted returns, you know, saving space on our balance sheet for those where we've got the deepest relationships. So, you know, my comment at this point would be that loan growth will be, you know, moderate in 2024. Moderated.
Damon Del Monte (Managing Director and Senior Equity Research Analyst)
Got it. Okay. And then just lastly, kind of broadly on credit, are there any concerns throughout the portfolio? You know, I know there's a little bit of an uptick in indirect auto. That's not a real meaningful concern at this point, but just kind of like your commercial real estate portfolio, any areas there, like office, where you might be seeing a little bit of degradation there?
Martin Birmingham (President and CEO)
We've not seen any degradation to this point. In my, you know, prepared comments, I did talk about a routine that we're going to continue to build on, which is taking a deep dive, deeper dives into our commercial real estate portfolio and across those loan categories. So, you know, we've done some pretty strong sensitivity relative to, you know, those loans that we have underwritten in the lower interest rate environment and, you know, sensitizing them to the current rate environment, plus more interest rate, less net operating income, and looking at those, those outcomes. So we feel very good relative to a severe stress downside scenario where we end up with. Most of that analysis showed that we are at or around one debt service coverage or above, and we'll monitor it.
You know, as we think about those with tighter debt service going forward and maturities in the next 24 months, we're supported by our fundamental underwriting approach, which includes personal recourse and dealing with sponsors with long track records and access to alternative—their own capital and alternative forms of capital. We have seen our CRE portfolio continue to cycle off some of our construction loans, you know, cycling through to the agency funding. So, you know, so far so good, but we are going to continue to monitor it with discipline and consistency.
Damon Del Monte (Managing Director and Senior Equity Research Analyst)
Great. Okay. I appreciate all that color. Thank you very much.
Operator (participant)
Our next question comes from Alex Twerdahl with Piper Sandler. Your line is open.
Alex Twerdahl (Managing Director and Senior Research Analyst)
Hey, good morning.
Jack Plants (CFO)
Morning, Alex.
Alex Twerdahl (Managing Director and Senior Research Analyst)
Hey, a couple of questions. First, Marty, I think in your prepared remarks, you said something along the lines of being ready to capitalize on opportunities. I was just curious, is that just a blanket statement, or are there some specific opportunities that you're alluding to?
Martin Birmingham (President and CEO)
So it's the fundamentals of, you know, operating our full-service community bank. You know, in terms of consumers who are open to switching and making a change, we've had good success with our money market offering and, you know, bringing in average balances of close to $100,000 with those that have chosen to take advantage of our offer. And that provides real nice upside to driving relationship and showing them how we do business versus where they've come from. And then as well, I think on the commercial industrial, there is significant opportunity for us relative to, you know, long-standing, solid companies that have been operating in our footprint that have experienced unsatisfactory interactions with their existing banks.
It seems to me, as I think about it, that we're building some momentum there, which is consistent with where I think the industry and certainly where we're trying to emphasize, you know, our commercial activity, given the more higher probability to have full relationships.
Alex Twerdahl (Managing Director and Senior Research Analyst)
Got it. And then, you know, the securities transaction that you alluded to, Jack, seems like a good start. I'm just curious, is that sort of the full capacity of what you're willing to take on right now? Or are you sort of in the midst of a more deep dive onto the securities portfolio and, you know, looking at for more opportunities that could potentially help to really stabilize the NIM heading into 2024?
Jack Plants (CFO)
Yeah, thanks, Alex. We continue to look at more opportunities there. I think this is the start of the first repositioning that we could see.
Alex Twerdahl (Managing Director and Senior Research Analyst)
Okay. And then can you just remind us, you know, sort of—I know you've done a bunch in the wealth business, you know, merged the businesses together, you made some changes to leadership. Sort of where are we in that sort of restructuring process? And, you know, in terms of the revenues, it seems like we're—I think you, like, sort of said we're sort of backing up to get a running start, you know, sort of rejiggering the model there. Sort of what the outlook might be, and then also, you know, are there some expense considerations that we should be thinking about as well?
Martin Birmingham (President and CEO)
Jack, go ahead.
Jack Plants (CFO)
Yeah, so the new leadership change there with Jim Iglewski was meant to provide more of a strategic focus on building out the sales culture at the institution, to cultivate more clients through new wealth managers and more of an aggressive approach to the client base. Typically, our new business was achieved through referrals from existing clients, so I would expect to see some growth there across the institutional base and more of the high net worth individuals over the coming time frame. Those institutional clients do take time to come on board through an RFP process, but we do have expertise on that front. And on the expense side, we've operated that business on a pretty lean infrastructure historically.
I would expect that we're just going to continue to drive revenue there rather than cut expenses in wealth management.
Alex Twerdahl (Managing Director and Senior Research Analyst)
Okay. And then, you know, you talked a bunch about this, the 5% money market campaign. Does that-- I mean, is there a point where that 5% clicks down to a different rate or, you know, like, how should we be thinking about that kind of money from a modeling standpoint in terms of, how it could impact, deposit betas?
Jack Plants (CFO)
Alex, that 5% rate was guaranteed for a 12-month time frame, which we thought was reasonable, given the Fed's outlook on where they expect to maintain rates over the next year. And afterwards, we have the ability to adjust that to market levels.
Operator (participant)
... Great. Thanks so much for taking my questions.
Martin Birmingham (President and CEO)
Thanks, Alex.
Operator (participant)
As a reminder, if you'd like to ask any further questions, please press star one on your telephone keypad now. We now turn to Matthew Breese with Stephens. Your line is open.
Matthew Breese (Managing Director and Senior Research Analyst)
Hey, good morning, everybody.
Martin Birmingham (President and CEO)
Hi, Matt.
Jack Plants (CFO)
Morning, Matt.
Matthew Breese (Managing Director and Senior Research Analyst)
Jack, I was hoping, along with your NIM comments, if you could provide the monthly NIM throughout the quarter, specifically the September NIM, and you'd made a comment that, you know, if we come in at 280 for the Q4, then we'd be at the low end of the full-year range. I just wanted to get a sense for whether or not you thought that was a realistic outcome.
Jack Plants (CFO)
Yeah, I do think that 280 is, on the downside, a realistic outcome. So that was what guided to our 295 range. September came in at 288. So, I think that's a good proxy for outlook for the remainder of the quarter.
Matthew Breese (Managing Director and Senior Research Analyst)
As you look out into 2024, I guess, where do you see the point at which deposit costs stabilize, and, and where do you see a point at which the, the NIM begins to stabilize?
Jack Plants (CFO)
So we haven't completed the 2024 budget yet, but, you know, anecdotally, I feel like we're approaching the bottom from a margin perspective. There continues to be, you know, pressure in our deposit space for commercial accounts and public deposits through what's offered by NYCLASS and the local government investment pools. But when we think about our balance sheet positioning overall, we have $1 billion of cash flow that comes off the portfolio and is repricing at current market rates. And given the Fed outlook that we maintain this current level, to me, that feels like we have stability in our margin over the next 12 months.
Matthew Breese (Managing Director and Senior Research Analyst)
Great. Okay. Maybe moving on to the indirect auto book. Could you just remind us of the underlying FICO scores within that book and maybe what the lower kind of quartile FICO scores are? And then what caused the pickup in charge-offs? 92 basis points is higher than historical averages. I also wanted to get a sense for what kind of early-stage delinquencies for this book look like today versus prior quarters.
Martin Birmingham (President and CEO)
Well, Matt, you've watched our company for a while and seen several cycles. So, our underwriting of the remains consistent. You know, 65% or so, 60%-65% is what we call Tier One, 700 above FICO score. 680 and above gets us to 92% of our originations. We're not a subprime lender. I'll have to ask for some assistance on the lower quartile, but it's not really material. We've been focused on credit fundamentally. You know, in terms of the delinquency and the uptick, some of that deals with the pressure consumers are feeling. Some of it deals with timing of liquidation of collateral and underlying collateral values in terms of our charge-offs.
But Jack, do you have anything further that you could add to the response?
Jack Plants (CFO)
Yeah. When we look at the, credit metrics of the portfolio as far as FICO is concerned, about 86% of our portfolio is 670 and above, and 65% of our portfolio is over 700, if that answers your question, Matt.
Matthew Breese (Managing Director and Senior Research Analyst)
Yeah, that's great color. Do you have the early-stage delinquencies, the 30-89 days past due for auto? I want to get a sense for whether or not, you know, given the persistence of some of the challenges you cited, Marty, if we should expect this level of charge-off to continue for the time being.
Martin Birmingham (President and CEO)
Jack?
Jack Plants (CFO)
Matt, this is Jack. I'll take that one. So I would expect that our Q3 charge-off experience to be representative of expectations for the next couple of quarters. The Q2 experience was exceptional because we had a significant amount of recoveries, but the Q3 looks like what I would expect to see come through in the, at least for the fourth and first quarters.
Matthew Breese (Managing Director and Senior Research Analyst)
Do you have the early-stage delinquencies, the 30-89 days past due?
Martin Birmingham (President and CEO)
Well, Matt, let us get back to you on that.
Matthew Breese (Managing Director and Senior Research Analyst)
Okay. Last question for me. I don't, I don't know if you have any, but I was just curious what the overall exposure to syndicated loans are, what the performance of that book looks like, and, and how much of it is out of market?
Martin Birmingham (President and CEO)
That's not something we've pursued in terms of shared national credits, Matt. You know, we've done several club deals that we've initiated relative to some of our ongoing commercial exposures, CRE and C&I. But in terms of large syndicated credits, it's been. It's very limited. I would say it's not material for our commercial book of business, and it would relate to companies that are headquartered in and around our franchise or that we know have professional relationships with the management team.
Matthew Breese (Managing Director and Senior Research Analyst)
... Got it. Okay, last one for me. Just the overall tangible common equity to tangible asset ratio, thoughts around capital adequacy, and you know, if this type of environment persists, you know, what kind of position does this level of capital leave you in in 2024 if we were to see an uptick in loan growth?
Martin Birmingham (President and CEO)
So that's, you know, relative to our 2024 planning, that's where my earlier comment, Matt, we're looking at several scenarios and, you know, ultimately, our goal is to continue to drive and accrete capital through the performance and how we manage the balance sheet. And so, generally, I think thematically, that equates to and translates to slower growth, moderating growth. And I think, you know, that's one way we're thinking about it. We're well aware of where our TCE ratio stands today, and, you know, we know from feedback and conversations like this, that it's low, and that's something that's on the top of our management team's mind right now.
Matthew Breese (Managing Director and Senior Research Analyst)
We've seen a couple of your, your larger peers go ahead and sell insurance companies or other, you know, wide fee income businesses to, to help on the, on the trapped AOCI and, and overall capital front. Is, is that something you're considering?
Martin Birmingham (President and CEO)
So we've, we're aware of that. You know, strategically, it's been a good move for us relative to the diversification of revenues and the increase that it represents in terms of non-interest revenues, in terms of what we've done with our wealth and our insurance business. But, you know, we're open to any possibility from a capital, you know, efficient use of capital and allocation perspective, for that line of business or any other line of business we have in terms of what you just said, unlocking value.
Matthew Breese (Managing Director and Senior Research Analyst)
Got it. Okay. I know I went over where I said I would stop my last question, so I apologize, and thank you for taking the couple extras. Appreciate it.
Martin Birmingham (President and CEO)
Thanks, Matt, for your questions.
Matthew Breese (Managing Director and Senior Research Analyst)
Thank you, Matt.
Operator (participant)
This concludes our Q&A. I'll now hand back to Marty Birmingham, President and CEO, for closing remarks.
Martin Birmingham (President and CEO)
I want to thank everybody. Thanks to our analysts and those that are participating on the call this morning. We look forward to talking with you again in January.
Operator (participant)
Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.