Operator: And ladies and gentlemen, our next question today comes from Catherine Mealor with KBW. Please go ahead.
Catherine Mealor: Thanks. Good morning.
Chris Holmes: Hi, Catherine.
Catherine Mealor: Chris, you talked a lot about efficiency initiatives that you profitability this year, can you give any guidance on just core bank expense growth outlook excluding some of the mortgage noise? And then separately, maybe kind of thoughts around efficiency initiatives that you specifically have within mortgage as well? Thanks.
Chris Holmes: Yes, sure, Catherine. So, a couple of things. When I talk about efficiency initiatives, again remember also historically where we’re coming from, we went from 6 billion at the start of 2020 to 13 billion today in asset size or two acquisitions that we closed in there, both in 2020. One was converted later €“ one was converted later, but we closed two acquisitions in 2020 remotely, by the way, during COVID and then we went through the barrier. And so with all that, we just said, it’s a good time in 2022 to be able to really do a deeper dive on our core banking model, make sure that scalable. We refer to ourselves as a scalable community bank and so make sure that we’ve got the right scalability, we’ve got the right model that we were moving forward with.
That’s a collection of the things we’ve learned over the years. And so, we’ve done that. And so, as we implement different pieces of that in phases, we’re excited about what that means to us. It frankly is not intended to be an efficiency ratio in terms of the efficiency €“ an efficiency exercise in terms of the efficiency ratio, that’s not why we did it. We did it for scalability purposes and to make sure that we had the model right. But one of the outcomes is, we’re going to gain some efficiency from it. And so, we frankly haven’t spent a lot of time quantifying those. That being said, we’re looking at a 6% to 7% type of expense growth over fourth quarter as we go into next year. And we feel pretty good about that. On the mortgage front, the second part of your question, we’ve been through, I’d call it two phases of expense reduction there.
And at this point, it’s now, sort of also, I’d say a very vigilant approach to expenses in that part of the business. And when we look in, again, we said, then it’s been hard to try to forecast mortgage is still is hard. We’re forecasting it to have a €“ certainly have a positive contribution next year, but we’re frankly not comfortable saying much more than that. Other than we’ll experience the normal seasonality, we’ll be able to lower in the first quarter, lower in the fourth quarter, but the second, third quarters should be €“ that’s where we should really see a higher level of contribution. So, I don’t know if that helped you on mortgage other than the fact that it’s, you know given where it is, it’s a constant expense initiative for us.
Catherine Mealor: Got it. And to , so your comment on the 6% to 7% growth rate, so for that, are you saying I should take this fourth quarter 2022 ex-mortgage expense base of about 67 million and then grow that at 6% to 7% and that’s my annual expense number for 2023?
Michael Mettee: That’s right, Catherine. If you basically, when I was €“ in my comments, you take that 67 million and annualize that, and then grow it off that base of 6% to 7% is where we think we’d end up. And yes, I will say, there’s some regulatory stuff in there. You have expense going up and some of that as well. So, little bit fungible, but that should be the range.
Catherine Mealor: Got it. And then with that, should we €“ I mean, you’re still growing at a slower pace than obviously you were last year, but still I feel like you still got, kind of an expectation for balance sheet growth into next year. And if that’s coming at still an incremental 4%-ish margin just given your kind of December NIM guide and the difference in your deposit costs and new loan yields, I mean, that 6% to 7% expense growth is still coming with NII growth in 2023. Is that correct?
Michael Mettee: You’re right. Yes.
Catherine Mealor: Great. And then do you have flexibility in your expense plan if the NII growth comes in less than expected? I guess the question is, how much flexibility do you have to kind of control that operating leverage if the margin compresses more than expected as we move through the year?
Michael Mettee: Yes. So, we do have some levers, Catherine. We feel like in a couple of places on both sides of that equation. And again, that’s what we were trying to create in the fourth quarter, was trying to give ourselves a little bit of some levers that we can pull on the side and then we also have leverage that we pull on the expense side.
Catherine Mealor: Great. Thanks for the commentary.
Michael Mettee: Thank you.
Operator: Thank you. And our next question today comes from Brett Rabatin with Hovde Group. Please go ahead.
Brett Rabatin: Hey, guys. Good morning.
Michael Mettee: Good morning, Brett. How are you doing?
