David Brooks: Make a lot of that depends, Brady, on what happens with the markets and the economy and stock prices. But we’ll be opportunistic and continue to look for opportunities to buy our stock at attractive prices. I’d say that, obviously, we’re all watching to see what’s going to happen. Capital is precious. We do like the way our balance sheet has held up, with tangible equity, as you mentioned, still in the upper 7s. That’s quite different than a number of banks in our peer group. You have handles and 4 handles on their tangible capital ratio. So we do think we’ve got some room and we’ll be opportunistic but we’re not anxious to give away capital in this environment either.
Brady Gailey: All right. And then last question for me is just I know you guys have been focused on improving the profitability profile of the bank. Any color on where you would like to get ROA or ROE or efficiency ratio or whatever metric you’re focused on, any color on what the targeted profitability ratios are for Independent?
David Brooks: Sure. again, every question, I guess, we answer and I’ll put but every question we answer is in light of everything we don’t know about 2023 to come. And so our discussion right here has been about being nimble and everything we do from expense base to growth to the credit side, all of that, just being nimble watching what is coming our way and acting accordingly. But you asked the question last quarter and I appreciated it which is, you guys have historically been a high-performing bank. Your numbers right now wouldn’t fit in that category and what are you going to do about it? That’s not exactly how you asked it but it was — I think the answer is, Brady, we — you can’t — you can’t turn a ship on a dime, so to speak.
So we’ve been undertaking the things that we believe will return us to the kinds of metrics that we want to be at, that we have traditionally been at. So I would expect that our return on tangible common equity to be mid-teens and up from there and our ROAs to be in the 120s and 130s and rising. We won’t be there in the first quarter of this year given the continued pressure on deposit rates and things. But I think when you get to the back half of this year, Brady, those are the kind of numbers come third quarter, fourth quarter, we should be able to generate given our base economic assumptions of what’s going to happen this year. So I think if you had an ROA in the 120s and 130s and return on tangible equity in the 15% to 18% range but that would be where we’ve been traditionally and where we expect to be back to by the end of this year.
Operator: Our next question comes from the line of Michael Rose with Raymond James.
Michael Rose: Just wanted to go back to Slide 20. I appreciate the color here but the loan-to-deposit ratio at the warehouse is creeping up there a little bit. Just can you walk us through in more specific detail some of the strategies? I know there’s a push-pull with the nonprimary sources of deposit funding. But can you just update on some of the initiatives you have in place? And maybe if you change incentive structure, just anything that you’re doing more specifically on the deposit side to kind of balance that loan-to-deposit ratio with the funding needs as you continue to grow?
Paul Langdale: Sure. Thanks for the question, Michael. I will say this, we were very deliberate in the fourth quarter about preventing runoff in our core deposit book and we were successful at doing that and defending with rate, some of our core deposit relationships that we’ve had. As a relationship bank, we’re always keen to make sure that if we have to pay for deposits, we’re paying it to our customers and we’re taking care of them. That being said, we have incentivized the teams with very explicit deposit goals heading into 2023. It’s an all-hands-on-deck approach in terms of ensuring that everyone is focused on making sure that we keep our costs down on the deposit side of the house as much as possible. Our expectation heading into the first quarter is that as the Fed hits the terminal rate, we’ll see the deposit cost pressures abate and we’ll be able to, especially as the curve points a little bit further down in both the brokered and the FHLB arenas, we’ll be able to selectively take some different tenors of deposit there.
We obviously want to keep the deposit book short but we’re going to be opportunistic in using the significant capacity we have in both the broker, the specialty and the other wholesale verticals in order to maximize our rate outlook on deposits for 2023.
Michael Rose: Okay. That’s helpful. And then just maybe separately, just on the loan growth outlook, obviously, keeping the guide just about the same but it does seem from the tone that maybe things are going to get a little bit more challenging just with rates, as you mentioned, David, in the 4s going up to the 7 or 8? And how much of the growth is kind of intentionally maybe pulling back a little bit, just given uncertainty in the economy? Or is it truly just rates moving a lot higher and your customers may be looking for alternative options out there for funding their own growth? And then just separately, if you can just give us an update, I know this has been a multiyear process but where you stand on some of the C&I initiatives. It looks like growth was double-digit annualized but if you back out the energy loans, looks to be a little bit softer. So I know a lot in there but just any color would be great.
David Brooks: Yes. Thanks, Michael. I may not remember all the questions embedded in that question, so you may have to help me remember some of them. But yes, the — we believe, overall, at the highest level, the amount of economic activity and the amount of deal flow is going to slow. It is already slowing deals, income-producing well at 8% as they do at 4% . So there’s — that’s going to be a bit of a drag. The positive side of that has been the payoffs and refinancings and sales of assets and all that have slowed. So therefore, we don’t have the payoff headwind that we had in the last couple of years. So we won’t have to generate as many loans to net that mid-5%, 6%, 8% — 7%, 8% that we expect for the year. So that’s it at a high level.
We continue to be committed to diversifying our balance sheet. You mentioned the energy loans. We think that’s a positive for us. We’re seeing great opportunities there. We threw only about 4% of — about 4% of our overall loan book in energy. So we think that’s an area that can continue to grow a little bit as we go forward. And we’ll continue to look at other lines of business but it’s not as easy as this — it’s not as easy as snapping your fingers and making it happen. But, yes, we’re committed to continue to diversify our lines of business. But your other one comment, Michael, was embedded around are we intentionally being cautious and the answer to that is yes. In this environment, heading into the uncertainties ahead, there’s no easy button here.
And as a long time shareholders and owners of this company, we’ve been running for 35 years and we’re not going to start in our 35th year, 36th year here looking for an easy button to go, “Oh, gosh, let’s go hire a team and book a bunch of this kind of loan or this kind of loan.” We’re — and obviously, our credit sizes being lower generally, our hold sizes being well lower than our peer averages, those are things that are core to our credit philosophy and risk management philosophy and we’re not going to change that in our 36th year. And yes, there are avenues, Michael, out there which some banks may take, where you can go book a lot of really big loans or you can get into lines of business that you haven’t been in historically. And we think that’s a uniquely bad thing to do at this point in the cycle.
So we’re not going to be doing those kinds of things. We’re going to be growing our loan book with our customers and our markets and continue to watch our risk.
