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spk09: Good morning, and welcome to the Bridgewater Bank Shares 2022 Fourth Quarter Earnings Call. My name is Joe, and I will be your conference operator today. All participants have been placed in a listen-only mode during the duration of the call. After Bridgewater's opening remarks, there will be a question and answer session. To ask a question, please press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. And to withdraw a question, please press star and 2. Please note that today's call is being recorded. Now, at this time, I would like to introduce Justin Horstman, Director of Investor Relations, to begin the conference call. Please go ahead.
spk02: Thank you, Joe, and good morning, everyone. Joining me on today's call will be Jerry Bock, Chairman, President, and Chief Executive Officer, Joe Chbosky, Chief Financial Officer, Jeff Shelberg, Chief Credit Officer, and Nick Place, Chief Lending Officer. In just a few moments, we will provide an overview of our 2022 fourth quarter financial results. We will be referencing a slide presentation that is available on the investor relations section of Bridgewater's website, investors.bridgewaterbankmn.com. Following our opening remarks, we will open it up for questions. During today's presentation, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We caution that such statements are predictions and that actual results may differ materially. Please see the forward-looking statement disclosure in our 2022 fourth quarter earnings release for more information about risks and uncertainties which may affect us. The information we will provide today is as of December 31st, 2022, and we undertake no duty to update the information. We may also disclose non-GAAP financial measures during the call. We believe certain non-GAAP financial measures, in addition to the related GAAP measures, provide meaningful information to investors to help them understand the company's operating performance and trends. AND TO FACILITATE COMPARISONS WITH THE PERFORMANCE OF OUR PEERS. WE CAUTION THAT THESE DISCLOSURES SHOULD NOT BE VIEWED AS A SUBSTITUTE FOR OPERATING RESULTS DETERMINED IN ACCORDANCE WITH GAP. PLEASE SEE OUR 2022 FOURTH QUARTER EARNINGS RELEASE FOR RECONCILIATIONS OF NON-GAP FINANCIAL OR NON-GAP DISCLOSURES TO THE COMPARABLE GAP MEASURES. I WOULD NOW LIKE TO TURN THE CALL OVER TO BRIDGEWATER'S CHAIRMAN, PRESIDENT, AND CEO, JERRY BACH.
spk08: THANK YOU, JUSTIN, AND THANK YOU, EVERYONE, FOR JOINING US TODAY FOR OUR FIRST-EVER EARNINGS CALL. We're excited to begin hosting quarterly earnings calls as we think it will be a good way for us to provide more insight into our financial results and share more about what we're seeing across the business. Starting on slide three, we provide an overview of our strong full-year 2022 earnings. Since our IPO in 2018, our results have consistently been highlighted by robust balance sheet growth, a highly efficient business model, and superb asset quality. This was the case again in 2022, as we saw loan growth of 27% and an efficiency ratio of 41.5%, and non-performing assets to total assets of just one basis point, all of which are among the best in the industry. As a result, we had another record earnings and revenue year in 2022. Our sustained growth throughout the year was due to the hard work of our team members as we continue to build and develop client relationships as well as deepening our brand presence and the ongoing market disruption in the Twin Cities. Finally, one of the most important metrics to us is tangible book value, as it is a good measure of shareholder value we are creating. We're able to grow tangible book value by 6.5% in 2022, despite the market value depreciation of the securities portfolios related to rising interest rates, which puts significant pressure on tangible book value across the industry. Turning to slide four, we reported 2022 fourth quarter earnings per share of 45 cents, which was driven by a continuation of our strong growth, efficiency, and asset quality trends, as well as emerging funding pressures, which impacted the net interest margin as interest rates continued to rise. Loan growth remained strong, with balances increasing 22% annualized during the quarter as we continue to get in front of high-quality deals. Given the level of loan growth we've seen that we've been able to generate during the year and where we are in the interest rate cycle, it's not surprising to us that we've started to run up against funding pressures. While our teams continue to work to bring in core deposits, we have supplemented these with higher cost wholesale funding and borrowings to support our loan growth. Coupled with increased competition on interest rates to retain current deposit clients, we saw our net interest margin decline to 3.16% in the fourth quarter. Joe will provide more color on the margin, how we plan to manage the balance sheet as we head into 2023. We continue to operate very efficiently during the quarter with an efficiency ratio of 44%, even as we invest in our people, technology, and overall scalability of the business. Finally, asset quality was superb once again, as NPA has remained extremely low levels and we saw no net charge-offs in the fourth quarter. In fact, we finished 2022 with net recoveries for the year. As we head into a more uncertain environment in 2023, we're taking steps to proactively assess our portfolio. But at this point, we're really not seeing any early warning signs. With that, I will turn it over to Joe Chbosky.
spk06: Thank you, Jerry. Turning to slide five, I'll provide some more details on net interest income and the net interest margin compression we saw during the quarter. Over the last few years, we have seen strong growth trends in net interest income driven by a relatively stable margin and robust loan growth. However, these trends have become more challenging to maintain based on where we are in the current cycle, as well as the further inversion of the yield curve. Last quarter, we indicated our expectation for flattening net interest income over the near term as we saw funding costs begin to rise. Coupled with our strong loan growth outlook, this implied a meaningful drop in the net interest margin, and this is largely what we saw in the fourth quarter. Our margin declined 37 basis points during the quarter, which was a bit more than we expected, as robust loan growth resulted in the need for additional wholesale funding and borrowings. As a result, net interest income declined to $32.9 million. We were anticipating this margin reset for a couple of reasons. First is the recent growth in higher beta deposits and borrowings to support our robust loan growth. Second, we have a more sophisticated higher balance deposit client base, that tends to be more sensitive to rising interest rates and has the wherewithal to move, especially given the unprecedented competition we have seen from the treasury market with yields north of 4%. Lastly, two-thirds of our loan portfolio is made up of fixed rate loans, which means a slower pace of repricing initially. This is evident on slide six, as you can see that funding costs have increased faster than loan yields so far. We expect loan portfolio yields to continue grinding higher for the foreseeable future, especially with yields on new originations today typically coming on at a 6.5% or higher rate, many of which are being structured with strong prepayment penalties, which will help make these higher yields stickier for longer. In addition, we have over $400 million of fixed rate and adjustable rate loans scheduled to reprice over the next year, and over $500 million of variable rate loans at or above their floors. On the funding side, we expect the steeper increase in funding costs to continue into the first quarter before beginning to stabilize. This all implies additional net interest margin pressure from our fourth quarter margin of 316. Looking ahead to the first quarter of 23, we expect to see a similar pace of margin compression as we just saw in the fourth quarter, with stabilization thereafter and the potential for margin expansion in the back half of the year as funding costs flatten and loan yields continue to expand. Obviously, this is all with the caveat that the interest rate outlook is uncertain and can always change. Our expectations assume Fed funds peaks at 5% and remains there throughout 2023. Turning to slide seven, we have demonstrated a long track record of strong revenue and profitability. This was impacted in the fourth quarter by the margin compression we discussed, given that the vast majority of our revenue is spread-based. However, total revenue was still up 14% year over year, On the fee side, non-interest income was up 25% during the quarter, as other non-interest income included elevated rate lock fees, which we don't typically or we don't expect to recur. Turning to slide eight, we continue to operate with a high level of efficiency, given our branch-light model and CRE-focused loan portfolio. Our efficiency ratio remained in the low 40% range at 43.8%. We typically look to grow expenses in line with asset growth, which we did in 2022, as core expense growth of 19% came in below our asset growth of 25%. Expense growth in the fourth quarter was a bit higher at a 29% annualized rate, primarily due to derivative collateral fees, which we expect to remain elevated in 2023. With that, I'll turn it over to Nick, please.
spk03: Thanks, Joe. Turning to slide nine, we continue to generate robust loan growth as balances increased 22% annualized in the fourth quarter and nearly 27% year over year. Overall, we have seen a decline in demand in recent months as fewer deals are penciling out due to higher interest rates. However, our teams are continuing to get in front of good, high-quality clients with good-yielding loans in our core business lines. For example, there are many large names in the Twin Cities that we have been trying to bring on board for years. We were able to bring some of these clients over during the quarter as other banks pulled back. This is similar to what we did in 2008 to 2010 to develop some of the long-term client relationships we still have today. So despite the funding pressures our growth is creating in the near term, we believe it puts us in a better position for the long term. We have certainly demonstrated a comfort level with growing the loan portfolio in excess of 20%, but we are also aware that our loan-to-deposit ratio is close to 105% as we enter 2023. near the top end of our comfort range. We are taking several actions to help manage the growth of the portfolio going forward, including selling participations on new loans, being more selective on pricing and credit, and requiring increased compensating deposit balances on new and renewed loans. We do expect a much slower pace of loan growth in 2023 as we look for better alignment with core deposit growth. Turning to slide 10, Given the reduced loan demand in the market, we continue to see a slower pace of originations and advances, which totaled $313 million in the fourth quarter, down 13% year over year. However, this is being more than offset by the decline in payoffs and paydowns, which is contributing to the continuation of our robust loan growth. Payoffs and paydowns declined 37% from a year ago, as many borrowers have interest rates below current market rates, making refinancing less attractive. As I mentioned, We have also been selling participations on new originations to help manage our growth. Over the past two quarters, we have sold 116 million of participations or 17% of our total originations and advances. Our loan participation portfolio balance is now over 425 million and over 580 million, including unfunded commitments. In addition to helping manage our growth, this servicing provides an added revenue benefit as well. On slide 11, you can see we had strong fourth quarter loan growth across the various loan types led by multifamily, which continues to be a key growth driver given our expertise in the Twin Cities market and the low-risk characteristics of the portfolio. We also saw good growth in the construction and development portfolio, which we would expect to continue in 2023 given the upcoming construction draws on existing loans. As these projects complete their construction phase, some of the balances will migrate into other loan portfolios, similar to what we saw in prior quarters. In addition to continued growth in the CNI portfolio, we are taking steps to expand our CNI function to help drive incremental growth and diversification of our loan portfolio, while also creating new deposit growth channels over time. This is a long-term initiative we are building out in 2023 that will take time to implement, but we expect to see the benefit in future years. Turning to deposits on slide 12, Growth has remained strong as balances increased 13% annualized during the fourth quarter and 16% year-over-year. As we've mentioned, generating sufficient core deposit growth to keep up with our loan growth became more challenging later in 2022. In addition, new deposit relationships don't always come in a linear fashion, given the larger nature and sophistication of our commercial deposits, which have longer and less precise onboarding than our loan pipeline. As a result, we brought in more higher beta broker deposits and borrowings during the fourth quarter than we have in the past. Over the course of 2023, our focus will be on funding more of our loan growth with lower beta core deposits. It is worth noting that we have the cumulative beta on our core interest-bearing deposits has been well controlled at 31% cycle to date. Increased funding from core deposits should help our overall spreads, even as betas are likely to continue trending higher. I'll now turn it over to Jeff Schellberg.
spk07: Thanks, Nick. Turning to slide 13, our asset quality continues to be superb. Non-performing assets have been steadily declining from already low levels and totaled just 0.01% of total assets at year end. In addition, we had no net charge-offs for the second consecutive year. In fact, we have had cumulative net charge-offs of just $381,000 over the last five years. This is largely due to our measured risk selection consistent underwriting standards, active credit oversight, and experienced lending and credit teams. While we have seen an extended period without credit issues, we do expect normalization at some point given the higher interest rate environment and potential recession on the horizon. Therefore, we are taking proactive steps to address our future credit concerns. For example, we are evaluating loan repricing risk by assessing our client's ability to meet loan covenants in the current interest rate environment. It's worth noting that our fixed rate loan portfolio actually helps from a credit standpoint as it reduces some of the repricing risk. In addition, we will be adopting CECL in the first quarter and we do not expect a material day one impact given our low historical losses. In terms of classified assets, we saw a decrease of 2.7 million in the fourth quarter. The bottom of slide 14 provides more detail on our classified assets, which made up less than 1% of total loans and just over 5% of total capital. The majority of the classified assets are C&I loans. In the fourth quarter, we saw a $9.5 million increase in watch list balances, primarily due to two relationships we moved to watch. These relationships included a multifamily and C&I relationship and reflect our ongoing monitoring of the loan portfolio. Overall, we feel good about the risk profile of the portfolio and feel it is well-positioned as we head into 2023. I'll now turn it back over to Joe.
spk06: Thanks, Jeff. Slide 15 highlights our strong capital and liquidity positions. We remain comfortable with our current capital levels as CET1 ratios finish the year at 840 and tangible common equity at 748. We did see our capital ratios trend lower in 2022, primarily due to robust loan growth and $10.8 million of common stock we repurchased throughout the year, although we did not purchase any stock during the fourth quarter. We will be looking to build our tangible common equity and CET1 ratios back up throughout 2023 as we slow the pace of loan growth and continue to retain earnings. From a capital priority standpoint, organic growth remains our primary focus. Beyond that, we continue to review and evaluate potential M&A opportunities. We also have a new $25 million stock repurchase program that was approved by the board in 2022. However, it is unlikely we will repurchase shares in the near term as we look to build capital levels from here, but will remain opportunistic based on market conditions. We also remain comfortable with our liquidity position as we maintained $1.4 billion of on and off balance sheet liquidity at year end, with our investment portfolio being completely unencumbered. Turning to slide 16, I'll summarize our thoughts on our near-term expectations as we head into 2023. We expect overall balance sheet growth to slow as we look to better align loan growth with core deposit growth and reduce our reliance on higher beta funding sources over the course of 2023. Coupled with a loan pipeline that is about one-third of what it was at its peak in mid-2022, we expect loan growth in the high single-digit to low double-digit range for 2023. The more core deposit growth we're able to bring in, the more loan growth we will be comfortable with. There are a couple of factors to keep in mind here. First, the level of payoffs and paydowns is difficult to predict and can affect our net growth. Second, we already have built-in fundings coming in throughout 2023 on previously originated construction loans, totaling approximately 5% of our loan portfolio today. Overall, we plan to maintain a loan-to-deposit ratio in the 95% to 105% range. As I mentioned earlier, we expect margin compression in the first quarter to be similar to what we just saw in the fourth quarter. However, we expect the margin to then stabilize near first quarter 2023 levels with the potential for expansion in the back half of the year as loan repricing catches up to the funding side. Once the margin stabilizes, growth in net interest income will again be tied to the pace of loan growth. similar to what we have seen over the past several years. We expect our efficiency ratio to move slightly higher into the mid-40% range, which is still very strong as margin pressure impacts revenue. We also expect non-interest expense growth to slow a bit and align with our slower pace of asset growth. And as I mentioned, from a capital standpoint, we will look to build our tangible common equity and CET1 ratios throughout 2023. I'll now turn it back over to Jerry.
spk08: Thanks, Joe. Before we open up for questions, I want to take a minute to look back at the 2022 strategic priorities we identified and a look ahead to our priorities in 2023. On slide 17, our first priority in 2022 was to continue our balance sheet growth trajectory, which we did as loan growth was very strong. We also invested in our business scalability, including the launch of Encino commercial origination system in March. This is in addition to other partnerships we've established, such as ServiceNow and Salesforce. As we've mentioned, we continue to operate one of the most efficient business models in the industry, with expense growth coming in lower than asset growth. And lastly, we recruited, developed, and retained top talent. While we didn't add as many people as we were expecting due to the challenging hiring environment, our employee base still increased 12% during the year, including key hires across all areas of the bank. Finishing up on slide 18, our strategic priorities for 2023 are based on positioning the bank for long-term success. First, we want to manage high-quality balance sheet growth by better aligning our loan growth with core deposit growth over the course of 2023. Second, we want to maintain our strong efficiency while continuing to invest in the business. Given the slower pace of balance sheet growth, this means pulling back on some expenses, which we plan to do by looking at areas of discretionary spend we can eliminate, while also continuing to leverage and embrace technology investments we have made in recent years. Third, we want to proactively assess asset quality and repricing risk as we expect credits to normalize at some point. Jeff shared his thoughts on this earlier. Lastly, we want to implement initiatives that prepare us for longer-term success. This includes the C&I build-out initiative Nick mentioned earlier, as well as preparing to be opportunistic as M&A opportunities become available. Overall, while the environment remains challenging as we begin 2023, we remain optimistic that the actions we are taking now will allow us to continue to be our usual strong growth and high-efficiency bank over the long term. With that, we're going to open this up for questions.
spk09: As a reminder, to ask a question, please press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause just momentarily to assemble our roster. And our first question here will come from the line of Brendan Nose with Piper Sandler. Please go ahead.
spk04: Hey, good morning, guys. Hope you're well. Maybe to start. To start off here, just on the margin question, kind of after the first quarter, it really feels like a slowdown in deposit pricing increases is really the key to getting that stabilization, if not conflation, later in the year. So just talk about your confidence that you can actually realize that slowdown in stability and funding pressures rather than just a continuous grind higher kind of throughout the year.
spk06: Yeah, Brandon, this is Joe. I'll take that one. I think for us, I mean, if you look at the growth that, you know, in the third and fourth quarter, you know, with the pace of loan growth and having to kind of fill the gap with higher cost wholesale funding or broker deposits, I mean, when we highlighted the core deposit betas that we've experienced and we feel confident in our ability to grow core deposits throughout 2023, And I think, you know, given those beta levels, those are obviously meaningfully lower than where it is to borrow overnight or in the wholesale markets. So that's really the, from your funding cost question, I think, you know, our ability to continue to grow core deposits, which, you know, we have line of sight to real opportunities and feel good about them throughout 2023. We feel like, you know, those coming in at lower betas than really the wholesale markets should certainly, you know, that's definitely margin accretive from there. And then I think on the flip side, you know, on the asset side, as we talked about, I mean, the more time passes, the more time for the loan book to reprice in this higher rate environment. And I think also the other piece to talk about is really the slowdown in paydowns and payoffs that we experienced in 2022. I mean, obviously, there's a component to the margin that's loan fee based. And so, you know, you saw in the last quarter that was in half compared to what it was in the third quarter and certainly you know, quarters historically. So I feel like if loan payoffs do pick up and you do see an acceleration of that loan fee income, obviously that's margin positive as well.
spk04: Okay, understood. That's helpful, Collar. Maybe one more from me. Just kind of given the intentional slowdown in loan growth, I'm just kind of curious how you keep your lending staff motivated in light of that after a very long track record of years of much higher growth.
spk08: This is Jerry Brennan. We had a meeting with our whole lending staff last night, actually, and talked through that. I mean, obviously, we're incentivizing them and to eagerly go out and get deposits versus loans, which it is a change in their thought process on how they go out and sell. But, you know, our staff's been really good at representing the bank out there and kind of pivoting when they need to. And I'll probably let Nick maybe talk a little bit more about it since he manages all of them.
spk03: Yeah, hey, Brandon. This is Nick. Yeah, the only thing I'd add to that is, and we touched on it in our presentation, I think we will continue to find good new loan opportunities. I think we're just encouraging our staff to be diligent about focusing on those types of opportunities that will help bring really good long-term growth for the organization through acquiring core, well-known long history, well-heeled clients that we can do good business with in the long term. So we had some of those wins in the fourth quarter. We've got some additional wins that we're working on now. And then we're just really focusing on the deposit aspect, as Jerry mentioned, which allows us to continue to fund the transactions of our long-term historical clients, which is really where we're trying to put our time and energy today. So I echo Jerry's comments that our staff feels good about you know, the game plan going forward and how we're going to try to continue to manage the balance sheet through 2023.
spk04: Great. Thank you for taking the questions.
spk09: Our next question will come from Jeff Moons with DA Davidson. Please go ahead.
spk05: Thanks. Good morning. Appreciate the deck. and sort of the outlook slides, those are helpful. So I think you framed it up well. I just wanted to kind of get into the mind of your deposit customers, that sort of sophisticated bunch that, you know, sensitive to rate. Just want to see if, you know, fourth quarter and into the first quarter as you have approached them and had those conversations, do you feel like, they've received the catch-up rate that they need and maybe aligns with your thought that kind of troughing margin beyond Q1 and then kind of stabilizing, if that's a piece of it. In other words, are customers now, you feel like that's satisfied and you've gone through the round of delivering a little bit better rate?
spk03: Nick's going to handle that one.
spk08: Jeff.
spk03: Hey, Jeff. Good morning. Yeah, great question. I think, you know, the deposit customers that we've – our core deposit customer, you know, we've got great relationships with them. I think what we continue to be pleased by is that, you know, that relationship that we have is giving us the opportunity to keep those deposits. So, you know, while we have seen some increased betas on some of those sophisticated clients as, you know, treasuries and, you know, other high-yield savings accounts are attractive to them, you know, we do have a goodwill and relationship with the client where we get the calls, where we at least have the ability to try to, you know, retain and potentially reprice that deposit up. You know, I think the other thing to note is, you know, given some of our niche deposit markets that we've been in, You know, those industries have seen just overall industry declines and balances. So like some examples of that would be, you know, some 1031 clients that we have that that industry and that has slowed. Title company balances are down as interest rates are higher and mortgage refinances have slowed. So, you know, some of it is just structural in nature due to some of their businesses. And then just on the new business side of things, I mean, Joe touched on this briefly. I mean, we do feel good about and we have shown historically a really strong ability to grow core deposits. You know, that has not changed. And our attention to that has really only increased in recent months. So I feel good about our ability to continue to bring on, you know, core deposit customers, you know, that will have betas that are much lower than sort of borrowings and other wholesale funding. So we feel good about our ability to do that. So maybe that's just some insight on the customer. Joe, I don't know if you have anything else on the margin.
spk06: No, I think you nailed it. I think that's, as Nick said in his prepared remarks too, I mean, I think it's not linear either like a loan pipeline, right, where you have a real precise time period of which that lands. But I think to reiterate Nick's point that we when we look out on 23 and we see the relationship opportunities that are in our deposit pipeline, you know, we feel like we have good visibility to those landing and it's, you know, it's certainly less precise and it's chunky when it hits and it takes time to bring over. But I think if you continue to get in front of those relationships, keep that momentum, there's a huge opportunity in this market as we've, we've talked about, you know, in prior quarters and certainly since we went public, I mean, there's been, material disruption here, and I think we continue to get in front of some really high-quality relationships, and we certainly are confident in our ability to out-serve relative to our competitors. And so, obviously, continue that momentum. It takes time, but we feel good about it. Got you.
spk05: Just to pivot a little bit to the expense side, how expectations for that to slow, my guess is A bit of that's a function of incentive comp with slower growth. But also, do you intend to kind of gear back hiring? Is that sort of tabled or take a pause on that end?
spk08: Yeah, I mean, you know, we're always going to – if we find some great treasury management people, you know, we'd be all over that. Outside of that, it's really just some key replacements and upgrades to some of our staff in the risk area. But yeah, generally overall, we don't expect a lot of hires in 2023. But obviously, we're also going to continue to build and scale our business. So if the right people come along that we think adds to the value of our bank long term, we're not going to shy away from that either.
spk05: Okay, thanks. And maybe one last one, if I could. Just the mention of the CECL adoption upcoming, you know, maybe a question for Jeff. Just, I guess, how would you expect that to impact reserve levels? I mean, at this, you know, NPA level, pretty skinny, but just want to kind of see what the kind of dual track kind of modeling looks like if you expect a big adjustment there.
spk06: Hey, Jeff, this is Joe. I'll actually, I'll take that one. Yeah, we don't, as we said in prepared remarks, we don't expect a material impact to day one. I think as we talked, I mean, within 5% of current levels, you feel really good about that percentage in the portfolio. And obviously, you know, as macro conditions can change on a future basis, that certainly can change. But I think, you know, today where we sit, the reserve levels, you know, under CECL, we do feel those are appropriate.
spk09: Thanks for the call. And our next question will come from Ben Gerlinger with HubD Group. Please go ahead. Hey, good morning, everyone. Hey, Ben.
spk01: I was just curious. In the prepared remarks, you guys said that the linked quarter change from 3Q to 4Q on margin compression is likely to be similar. So you're kind of guiding towards a call it roughly 2.8, 2.85 type range, and then therefore kind of bottoms in the first half and then increases. I just wanted to confirm that I got that, and then I'll follow up based on that.
spk06: Yep, yeah, I think you think about it the right way.
spk01: Okay, so based off of that, I know you have repricing throughout the back half of the year, and let's assume that the Fed kind of slows things down. Can you get above 3 again before... the end of FY23, or is it rather muted? I mean, I get that there's upside and upside is good, but once you kind of hit the bottom, I'm just trying to look at the magnitude, assuming that Fed kind of stops here at, let's call it 5% terminal.
spk06: Yeah, I mean, I think it's certainly an uncertain rate environment. I think when we consider all the variables on both sides of the balance sheet, I mean, we feel comfortable in the back half of the year that expansion is possible. I mean, I won't specifically call it a number. I just think when you consider those inputs on the loans and the deposit, core deposit growth, you know, and given our rate outlook, I mean, we're assuming a 5% Fed funds rate. You know, I think, you know, we're comfortable with expansion in the back half. So I'll leave it at that.
spk01: Fair enough. And then it's more philosophical in nature, given that of slow things down a little bit intentionally i mean just given the market is assuming higher rates across the board bod's cause makes sense i think you guys are doing a good job from a shareholder value perspective so when you think longer term is there are you taking things off the table in terms of initiatives intentionally for a year or is it kind of more so really dependent upon the franchise growth of the deposit base longer term. I get that you guys manage expenses and you're slowing things down intentionally to retain profitability. But let's say deposits, I mean, growing deposits is the hardest part of the business. I'm trying to think about the out years and I get that we're pretty far from 24 or beyond. I'm just trying to think, does the strategy change or are you just tapping the brakes a little?
spk08: No, I wouldn't say that. that our overall strategy has changed at all. I mean, we continue to take market share. I mean, as you're well aware, I mean, U.S. Bank and Wells control a big part of the Twin Cities market here. And, you know, we continue to get in front of great long-term clients of theirs, you know, decades-long clients. And so, I mean, we continue to be in front of people, take market share. And I'd say, yeah, we certainly are pausing on the loan side compared to the super strong growth we've had in the past, but we're certainly still out in the community, continuing to network, continuing to be in front of clientele and trying to grow the business. I'll let Joe follow up on anything with that.
spk06: Yeah, and I'd speak more, Ben, to just the internal initiatives, if there's part of your question there, too. I think You know, we've done a lot of scaling the business over the last couple of years, a lot of technology investment. You know, I think we're just starting to really harness and really see the value. And so a lot of it's really just optimizing, you know, that technology investment that we've really, you know, has been internally focused to help us better serve our clients. You know, as Jerry said, if hiring is muted from an FTE standpoint You know, we feel comfortable a lot of the technology investment internally will allow us to, you know, use the same amount of staff from an FTE standpoint and still get, you know, more productivity. So I think a lot of those internal initiatives over the last couple of years are really starting to bear fruit. And, you know, we feel good about a lot of the efficiency technology-based investment that we should continue to scale and optimize, you know, even while we might on an asset basis, you know, see more muted growth.
spk01: Awesome. Sounds good. Thanks, guys.
spk09: This concludes our question and answer session. I would like to turn the call back over to Jerry Locke for any closing remarks.
spk08: I just want to thank everybody for taking the time today. We appreciate it, and we'll be in touch soon.
spk09: The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.
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