Brett Rabatin: Doing great. Thanks. Wanted to use a football analogy, Chris, and college football analogy. And you know, you guys are usually in the playoffs in terms of profitability, but obviously mortgage banking has been a stymie to that here in the past year. And so, my question is, you’re obviously in a better position than a lot of the industry related to the reserve build need, but my question is, do you really need mortgage banking to get back to a solid level of profitability to get back in the playoffs? Or do you think that this first bank way and then initiatives you have in place could get you back in the play offs?
Chris Holmes: Yeah. Like your analogy, by the way. And so, I’m going to give you one back. At the risk of €“ Michael was pointing to as University of Alabama sucks, which he has on. And so, at the risk of €“ I won’t know, I’ll keep this short, but I use an analogy. I do have €“ I do orientation for all of our folks. Every single new hire I spend about two hours with all the new hires going through culture and mission and values. And Brett, I use a football analogy. I use a college football analogy because that’s big in our part of the world. And one of the things I tell them is, hey, you joined First Bank, you need to feel like you €“ and some people by the way would really like this analogy and some people are envious of it, but I’d say you need to feel like you just signed a scholarship with University of Alabama to play football because we go to €“ that’s exactly what €“ I’d say, we compete for the national championship every year.
Okay. We go to the college football playoff almost every year. We expect to be there all the time and realize that’s what you just signed on for when you took a job with First Bank. So, I use the €“ almost a very, very similar analogy when I talk to all of our folks. And when you said, you missed the playoffs this year, I’d say another term I use, I’m going to refer to the book, the Confront the Brutal Facts. I use that one internally a lot. And I would say our internal talk is a little tougher than you missed the playoffs this year. You need to confront the brutal facts that we haven’t had a good year in terms of profitability. And if you go back, since we’ve been a public company, we’ve never had a return on assets less than 1.5% until this year.
And so, , right in front of you ask about levers we could pull, we have levers that we can and we’ll pull because this organization doesn’t miss the playoffs. We do not. We also don’t like, I tell them unless we’re in the top quartile, then it’s not acceptable performance. And so, now to a couple of specifics, mortgage has been a great contributor for us. You’ll have to go back to 2020 when we had $105 million contribution from mortgage. And so, it’s been a great contributor for us. It’s been an important additive for us. We do not have to have mortgage and we’re very specific. You’ll notice a lot, we talk about the bank segment a lot. That bank segment actually had a pretty good year. And if you look at some of the numbers on the bank segment, again, a pretty good year there.
And we would be certainly well in the top half of our peer group. It’s probably top quartile on our peer group as a bank standalone. We had a significant €“ more than a $0.20 EPS close to a $0.30 impact of mortgage negative this year. And we’ve made some changes there and we’ll continue to make a few more. So, we don’t have to have mortgage to be that 1.5% ROA, but with it, we expect to be actually higher than that. So that’s the way that we view it.
Brett Rabatin: Okay. That’s a lot of great color. And the other thing I wanted just to make sure I understood was you obviously linked quarter improve the liquidity, some extra cash on the balance sheet at the end of the quarter and you talked about managing it similar going forward. What can you maybe go into the interplay between the seasonal funds increase and how much that might come back down? And if you’re expecting any other €“ I know it’s tough in this environment and the other mix shift change to affect what you do with the balance sheet in the near term?
Chris Holmes: Yes. Just €“ Michael, I’ll let you come in. I’ll make a couple of comments. So, we had some Federal Home Loan Bank borrows, actually 540 million at the end of the third quarter. We paid that down significantly by the end of the year. We subsequently, by the way, paid it off and so it’s zero today. That’s post the end of the year. And so, we expect to €“ we have always funded our balance sheet through customer deposits. And we intend to continue to do that. Public funds, they usually actually stay pretty robust through the first quarter and so it will be late second quarter when they start to pay down some and they’ll pay down into the third quarter, but then start funding usually at the end of the year. And so, that’s the cycle we see and we manage around that. Michael, .
Brett Rabatin: Okay. Yes, that’s great color. Appreciate it.
Operator: Thank you. And our next question today comes from Stephen Scouten with Piper Sandler. Please go ahead.
Stephen Scouten: Hey, good morning, everyone.
Chris Holmes: Good morning, Stephen.
Stephen Scouten: I wanted to follow back around the funding costs a little bit and just, I’m curious, one if you could remind us kind of how much of the public funds deposits are more directly indexed and maybe more like a 100% made on those public funds versus some that are maybe longer-term or tied to different metrics? And then, kind of what you expect to see in terms of incremental interest-bearing deposit betas? I think you said Michael, we were looking at 40% cycle to date so far and just kind of where you think that can play out maybe on your core customer deposits in particular?
Michael Mettee: Yes. On the public funds first and Stephen, I’m sure I don’t have exactly how much of that is tied to an index, but I will say, it’s a mixture. We have a mixture in there of even non-interest bearing some indexed a little bit of time and some that sits in a non-time instrument that is not indexed. And the bulk of it would be in the non-time non-indexed, as well as the non-time indexed would be the bulk of it. There’s not a lot in, not a lot in time, but there’s a loan that €“ and those are all negotiated over time. And frankly, that’d be the least. We will have a lot of time, but there’s just a little bit. So
Chris Holmes: Yes. And Stephen, on the go forward beta, I mean, the fourth quarter, obviously, with our deposit grade, there you saw betas accelerate significantly. There is a cycle if you look back through February where we came to that, kind of 40% range on interest-bearing and low 30s on total deposits. Yes, I would expect that we’ll see in that mid-40 beta range, kind of as we look in 2023, but it is highly dependent on really what our peers do. We feel like we can maintain this level and recognizing deposit costs are going to go up. I will say on index, we don’t have a whole lot of stuff that indexed 100% to any rate. So, just as Chris mentioned, not on that exact number, but it’s not a 100% one for one Fed fund gives up, deposit cost goes up on the accounts.
There’s not, kind of that stuff. So, while it is a percentage, it varies and we have certainly seen deposit costs go up expecting to incrementally move higher, but definitely right type of here with the Fed and we’ll get a normal operating environment.
