Earnings Call Transcript - BFST Q4 2023

Operator, Operator

Good afternoon. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Business First Bancshares Fourth Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there'll be a question-and-answer session. I will now turn the conference over to Matt Sealey, Senior Vice President, Director of Corporate Strategy and FP&A. Matt, you may begin your conference.

Matthew Sealy, Senior Vice President, Director of Corporate Strategy and FP&A

Thank you, Krista. Good afternoon, everyone, and thank you all for joining. Earlier today, we issued our fourth quarter 2023 earnings press release, a copy of which is available on our website along with the slide presentation that we will reference during today's call. Please refer to Slide 3 of our presentation, which includes our safe harbor statements regarding forward-looking statements and the use of non-GAAP financial measures. For those of you joining by phone, please note the slide presentation is available on our website at www.b1bank.com. Please also note our safe harbor statements are available on Page 7 of our earnings press release that was filed at the SEC today. All comments made during today's call are subject to the safe harbor statements in our slide presentation and earnings release. I’m joined this afternoon by Business First’s President and CEO, Jude Melville, Chief Financial Officer, Greg Robertson; Chief Banking Officer, Philip Jordan; and Chief Administrative Officer, Jerry Vascocu. After the presentation, we'll be happy to address any questions you may have. And with that, I'll turn the call over to you, Jude.

Jude Melville, President and CEO

Okay, thanks Matt, and thank you everybody for joining us. We understand the demands of the season and appreciate your prioritizing this conversation with us. I'll briefly overview our fourth quarter highlights and then take a step back to place the year in a broader context. Our team closed out an eventful year positively with another quarter of solid and consistent fundamental performance. Greg will go into detail in a few minutes on our non-core adjustments, but once they're taken out, we generated a core ROAA of 1.03%, core ROAE of 12.27%, a core efficiency ratio of 62.6%, and the core EPS is $0.66, all exceeding consensus expectations. We accomplished this in a similar manner to our last couple quarters by managing expenses prudently, by maintaining excellent credit quality and by funding responsible loan growth through internally generated capital and the diversification of our portfolio. Again, Greg will detail some of the non-core items from the quarter, but I'd like to specifically mention two items that I consider highlight-worthy. First, you'll remember that last quarter we hired a seasoned individual to bring in-house our swaps capabilities. This quarter, we experienced our first meaningful pickup of nearly a million dollars to non-interest income through this nascent swaps line of business. While we don't expect to replicate this large of an income number on a consistent basis in the near-term, we are encouraged by the successful execution and the resulting client satisfaction. Perhaps more important than the fee income generated, the swap enabled us to close a significant credit-worthy loan under terms that we might not have been as interested in accepting from an asset liability management perspective without the swap protection, which enabled us to match both our and the client's needs. Second, our finance team, with the aid of our asset management firms, Smith Shellnut Wilson, repositioned a portion of our investment portfolio by divesting $71.5 million of securities. While we recognized a $2.5 million pre-tax loss on sales, we're also able to reinvest the full amount at a rate generating a projected 1.1-year earn back. It was another example of in-house capabilities allowing us to conduct transactions for our own balance sheet at a lower cost and with more control than if we had relied on outside vendors. Between this transaction improvement in AOCI through movement and yield curve-based valuations and the accumulation of capital through earnings, we created 14 basis points to consolidated TRBC and a 52 basis points to TCE in the quarter, increasing our TCE levels to 7.28%. All in all, the fourth quarter was a solid closing to a successful and challenging year. We finished the year in a strengthened capital position with solid asset quality, ample diverse and granular liquidity, and arguably most importantly, an employee base that's been through and grown from the challenges of 2023. While we've been successful crisis managers, stepping back to the 10,000-foot view, I'd like to call your attention to Pages 9 and 10 of the deck, which illustrates the success we've had, not just playing defense, but also going on the offensive and sustaining those efforts over time. On Page 9, you'll note the consistency of our core ROAA performance over 1% in each of the past five years. We've also grown our ROACE over that time period with a five-year average of 11.46% and roughly 12.5% for each of the past three. This page details our consistent balanced growth in loans and deposits, with each up 190% over the past five years. More specifically for loans, you'll note that during that time, we've more than doubled our exposure in our original markets in Louisiana, while growing our Texas-based exposure by nearly 8x, leaving us as well balanced geographically as we've ever been and approaching 40% of our exposure in Texas, particularly in Dallas and Houston. Moreover, we've accomplished this without sacrificing credit quality, with very similar metrics across the whole of our footprint. On Page 10, we detail our near 4x increase in aggregate core earnings and near doubling of core earnings on a per share basis even with dilution accumulated from multiple M&A opportunities. The increased scale at which we now operate has resulted in a 500 basis point decline in our efficiency ratio over that time period. Further results are important, but franchises are built over time and these results clearly demonstrate that our team has been doing the right things in the right ways over time. Despite this lengthening track record, we enter 2024 excited not so much by past results but by the potential we've positioned ourselves to achieve in upcoming years. Thank you again for your time and attention. I'll now turn the microphone over to our CFO, Greg Robertson, to review the results in greater detail.

Greg Robertson, Chief Financial Officer

Thank you, Jude, and good afternoon everyone. I'll spend just a few minutes reviewing our Q4 highlights, including some of the balance sheet and income statement trends. Fourth quarter GAAP net income and EPS available to common shareholders was $14.47 million and $0.57, and included several non-core items, including a $2.5 million pretax loss on the sale of securities, as Jude mentioned, along with a $13,000 gain on the sale of our bank branch closure in Leesville in the third quarter. There was also a $432,000 write-down on former bank premises and a $63,000 acquisition-related expense. Excluding these non-core items, non-GAAP core net income was $16.8 million or $0.66 per share EPS, coming in better than we expected, driven by solid expense management, strong non-interest revenue, and lower loan loss reserve expense. There were several items included in our core results that we would consider outside of our run rate earnings figure. However, these items essentially offset. So we feel like the Q4 '23 fee income and expense figures are relatively clean run rates when thinking about 2024. I would, however, like to mention that our fourth quarter loan loss expense figure of $119,000 was roughly $600,000 lower than you would expect from us during a quarter where we generated $70 million in net loan growth. But looking at 2023 more holistically, the Q4 provision translates to 116 basis points of reserve for the full year net loan growth, which is above our long-term target of 1% for every new loan generated. Fourth quarter non-GAAP core non-interest expense was $39.2 million, and we feel like this is a fairly clean number. However, I want to point out a couple of factors to consider regarding our 2024 non-interest expense outlook. Just as an example to give you some context here, Q4 benefited from lower seasonal accruals to payroll tax and 401(k) match; also our salaries figure will increase from our annual merit and cost of living increases, which were implemented during the first quarter of each year. Regarding salaries and personnel, we will continue with our philosophy of investing in talent with a few new hires coming online in Q1. So in summary, we do expect Q1 non-interest expense to experience an increase due to accrual resets and salary increases. I think somewhere in the 6% to 8% increase off the Q4 non-interest expense base is probably a fair estimate for the first quarter. Moving on to non-interest income. Fourth quarter GAAP non-interest income of $6.4 million included the $2.5 million pre-tax loss on the sale of securities we mentioned earlier and a $13,000 gain on the sale of the bank branch. Excluding these items, non-core non-interest income was $8.9 million. We feel like this core $8.9 million figure is a fairly good run rate. As Jude mentioned earlier, we are very excited about our swap platform potential. It's too early to claim the $900,000 is a good run rate for the swap unit, but we are optimistic about the future. In terms of our outlook, I would say that 6% to 8% growth off of our core Q4 base is a reasonable range to consider for 2024's fee income. If I can direct you to Slide 20, I'd like to show you that credit quality remained solid during the fourth quarter with NPLs, NPAs, and net charge-offs stable to improve when compared to the prior quarter. The loss provision expense during the fourth quarter was $119,000. Going forward, we'll continue to target our 1% loan loss reserve on net new loan growth. I should, however, point out that we did adopt CECL in the first quarter of 2023, which distorts some of our credit metrics when comparing to prior years. For example, full year 2023 reported net charge-offs were 11 basis points. Adjusting for CECL, net charge-offs would have come in just 6 basis points due to the adjustment related to purchased acquired credits and the marks assigned to each of those credits. Moving on to the balance sheet. Please reference Slide 14 in the investor presentation, where we include some information about our recent securities repositioning initiative mentioned earlier. We sold $70 million of investment securities or 8.13% of our total portfolio at a weighted average book yield of 1.98% and reinvested at a new weighted average book yield of 5.17%. We recognized a $2.5 million pre-tax loss, with an estimated 1.1-year earn-back. This strategy helped us achieve improved profitability while extending the overall portfolio life to only 0.3 years. As for loan growth with the balance sheet, the trends remained healthy during the quarter, with loans growing $72.5 million or 5.85% annualized, which translates to $386.6 million for the full year of 2023, with 8.4%, which is right in line with our long-term target to achieve high-single-digit growth. Growth was driven by our Dallas market, with just over 50% of the growth coming from Dallas during the fourth quarter. As of year-end 2023, Texas represents 37% of our total loans. We are not only pleased with the geographic distribution of our loan growth but also the mix shift in our growth away from construction and development throughout 2023 and more weighted towards commercial and industrial and commercial real estate. For example, during 2023, C&I and CRE loan portfolios increased $200 million each, whereas the C&D loan portfolio decreased about $50 million during the year. We are pleased with the fact that C&D loans dropped below 100% of regulatory capital during the fourth quarter, ending the year at 92% of regulatory capital. Deposits increased about $58.1 million during Q4 or 4.4% annualized. We continued our success in Q4 with our money market special, which generated about $160 million of new deposit production during the quarter and added to the total of $350 million during the year. Non-interest-bearing deposits continue to remain a challenge. We ended Q4 with our non-interest-bearing deposits representing 24.8% of our total deposits, which is relatively consistent with our previous outlook to year-end 2023 at 25%. Q4 GAAP net interest margin of 3.5% included $1.9 million in loan discount accretion, which was $400,000 higher than what we expected. We expect accretion to drop back closer to $1 million per quarter going forward. Fourth quarter core net interest margin, excluding loan discount accretion, contracted 8 basis points from 3.46 in Q3 to 3.38 in Q4. Looking ahead in Q1, we expect the core margin to remain stable but do anticipate modest expansion through the full year. I'd also like to mention Slide 22. This is a slide we reworked last quarter, where we depict the repricing opportunity within our loan portfolio. As you'll see, even if we do get a couple of rate cuts next year, we have $446 million of fixed rate loans sitting on the books at an average 5.9% weighted average rate. When you consider our new and renewed loan yields coming in the mid-8% range, even if we do get a couple of rate cuts, this portfolio should reset 200 to 250 basis points higher. We feel the outlook for core NIM to be flat in Q1 but expand modestly for the full year 2024 is reasonable, even conservative, considering the repricing tailwinds and new origination yields we have conservatively assumed, which is largely offset by continued funding pressure. However, we think our ability to control funding pressure will be helped by our efforts to become more liability-sensitive over the last six months. While 2023 was a challenging year for the industry, we are pleased to ultimately generate a strong 1.05% ROAA for the second year in a row, all things considered. We are very pleased with that level of profitability and consistency over the challenging prior two years. And with that, I'll hand the call back over to Jude for anything he'd like to add.

Jude Melville, President and CEO

Nothing to add at this time; happy to answer any questions that I might have.

Operator, Operator

Your first question comes from the line of Matt Olney from Stephens Incorporated.

Matthew Olney, Analyst

Thanks for all the good commentary there. I'll start on that core margin commentary that Greg just mentioned. I think I heard stable in the first quarter and then moving higher throughout the year. Can you help us appreciate the sensitivity of both the margin and the NII with respect to short-term rates and if the Fed doesn't move this year versus moves a few times? Just help us appreciate how much that could swing the margin and the NII?

Greg Robertson, Chief Financial Officer

I think what my kind of last comment, Matt, was we've been working real hard over the last six to nine months trying to move the bank's asset sensitivity position to more neutral. So we, as of the end of the fourth quarter, had achieved that. And we feel like if rates stay flat or they go down 25 basis points or 50 basis points, at this point, it's hard to guess. We're in a position where the margin will be held pretty stable. Obviously, in a down-rate environment, we should be able to move the liability side with some degree with all the money market accounts that we brought on the books. And then also, as I mentioned, that repricing on the fixed-rate maturities, we feel like there's some pickup in that area. So, a lot of moving parts. But all that said, we feel pretty confident that we should be able to keep it stable to slightly increasing even if rates stay where they are or go down either aspect because of our neutrality.

Matthew Olney, Analyst

And then you mentioned those loan yields in the fourth quarter. It looks like the core loan yields moved up, I think it was 8 basis points this quarter. Is that in line with your expectations that we just saw? Any more color on that number? And as you reprice some of these fixed-rate loans higher, any general update you can share as far as conversations or discussions with borrowers and any kind of pushback you're receiving?

Greg Robertson, Chief Financial Officer

I'll start by saying that December's new and originated loan yields were 8.63%, which is holding up well. At the beginning of the quarter, we did see lower origination yields closer to 8.30%. This was influenced by a larger deal mentioned earlier that involved our swap capability. We took the floating side of a significant transaction that will benefit us from an asset sensitivity perspective in the future, but it affected the early part of the quarter. However, in December, the yields were 8.63% for new and renewed loans, which we find favorable. I also want to note that even if we experience one or two rate cuts with $446 million of loans maturing in 2024, the average weighted rate on those loans is 5.93%. We believe we can achieve an increase of 200 to 250 basis points for that segment, which should help us mitigate any downward pressure from variable book pricing.

Unidentified Company Representative, Unidentified Company Representative

Matt, one thing I want to add is that looking ahead over the next 12 months, we have about $2.3 billion on the books at a 7.89% weighted average rate that will be repriced. If we anticipate mid-to-high 8% yields on new and renewed loans, that results in a 76 basis point increase, which translates to about a 28 basis point rise in earning asset yields. This is the starting point on the left-hand side of the balance sheet regarding repricing opportunities. On the right-hand side, we need to consider the funding pressures and their persistence, along with the expected betas. We are assuming a 13% rise in cycle-to-date interest-bearing deposit betas throughout 2024, compared to a 24% increase in 2023. Looking more closely, the interest-bearing deposit costs at the end of December were only 4 basis points above the total interest-bearing cost of deposits for Q4. This indicates a notable reduction between the month-end costs and the full quarter’s interest-bearing deposit costs. It appears that funding pressures are easing somewhat, which supports my belief that a 13% increase in cycle-to-date betas is still conservative compared to the previous year's 24% increase, where we accounted for most of the repricing already. In relation to Greg's point, this 28 basis point rise in earning asset yields from the 12-month repricing of the loan book assumes that a significant portion will be offset by the repricing and new funding costs. This assumption is cautious, and we hope to leverage December’s month-end and Q4 quarter-end as a foundation to manage funding costs throughout 2024, ultimately gaining some margin improvement as the year progresses.

Jude Melville, President and CEO

I would like to address your question regarding client sentiment. I'll have Philip provide some insight on that. However, I should mention that the pipeline appeared robust in the fourth quarter, and we saw loan growth accelerate compared to the second and third quarters. This pipeline enhancement took place while expectations were rising that rates would decrease in the future. Even with these expectations, which might suggest clients would wait for rates to drop, we did not observe that impact in the fourth quarter. Philip, would you like to add anything?

Philip Jordan, Chief Banking Officer

We did appreciate that. And I would say that the forecast for the next couple of quarters looks the same. Obviously, the clients are aware of the environment. We expect an increase in pricing, but our pipeline remains strong.

Matthew Olney, Analyst

And just lastly, on the funding strategy, I just want to appreciate if there's any kind of shift or product change there? It looks like the time deposit balances came down quite a bit during the quarter. And based on Greg's update, it sounds like you're maybe leaning more on money markets more recently. Any color behind the product shift there?

Greg Robertson, Chief Financial Officer

Yes, I would say probably in the third quarter and certainly all in the fourth quarter, we were very focused on that money market special, with a conscious effort to move some of the renewed balances for our CD book into that money market product. We believed that the short-term sacrifice in the rate would provide us with flexibility to manage those rates going forward if and when rates decline. This is not a new strategy for this quarter; we have actually been implementing it for the second half of the year and it appears to have been fairly successful, with minimal runoff in the CD book as well.

Operator, Operator

Your next question comes from the line of Graham Dick from Piper Sandler.

Graham Dick, Analyst

I just wanted to go back to the funding side quickly, and specifically on noninterest-bearing balances. And Greg, so with that NIM guide or outlook then, whatever you want to call it, for next year, what are you assuming in terms of remix out of noninterest-bearing? Like where are you assuming that percentage goes from the current level of about 25%?

Greg Robertson, Chief Financial Officer

We're forecasting that the noninterest-bearing continues to have a little bit of headwind, and we think that will settle somewhere around 23% by the end of 2024.

Graham Dick, Analyst

Okay. All right. That's helpful. And then I guess, on the size of the balance sheet and with loan growth and deposit growth, the push-pull there, do you think that I guess, loan growth is going to continue to just slightly outpace deposit growth from here? Or do you think you can start to reverse, I guess, that cycle and actually reduce the loan-to-deposit ratio a little bit more going forward?

Greg Robertson, Chief Financial Officer

We finished the quarter at about 95%. Our goal is to get that closer to 90%. In the near term, we anticipate match funding for loan growth. There are opportunities to maintain loan growth in the 6% to 8% range and exceed it with deposits, which would help lower the loan-to-deposit ratio, and that would be beneficial.

Jude Melville, President and CEO

I want to highlight that throughout the year, we reduced the loan-to-deposit ratio despite the macro environment and liquidity pressures. However, in the fourth quarter, we did see loan growth slightly exceed deposit growth. A key reason for this was our earlier efforts to create more borrowing capacity. We are mindful of how we fund loans with this capacity. Currently, we are working to further decrease the loan-to-deposit ratio, but we also have greater flexibility than we did a year ago to utilize all available tools and make informed decisions each quarter. Overall, we aim to continue this trend towards a ratio closer to 90%.

Graham Dick, Analyst

And then, Greg, I think you gave a number for expenses to start the year. But I guess as you look out for the full year 2024, where do you think expense growth would shake out relative to maybe a run rate of this Q4 number we saw?

Greg Robertson, Chief Financial Officer

I think starting at that Q4 number and then building on that with a 6% to 8% growth rate annually and just chop that up by quarters, escalating stair-stepping up, I think, is probably the fairest way to look at it.

Graham Dick, Analyst

I thought you had said before that there was 6% to 8% growth in the first quarter. So okay, that's helpful just throughout the year then.

Greg Robertson, Chief Financial Officer

Correct.

Jude Melville, President and CEO

Yes. If you consider the outlook, it reflects the core noninterest expense base in the fourth quarter. A growth range of 6% to 8% annualized gives you a target for the full year. If you want to make some assumptions about how to reach that full year number, the 6% to 8% growth indicates the actual full year expense number.

Operator, Operator

Your next question comes from the line of Michael Rose from Raymond James.

Michael Rose, Analyst

I'd like to follow up on some of the deposit questions that have come up. Can you remind us of your assumptions regarding the reduction of deposit costs if we see a few rate cuts? What portion of your deposits is indexed? What are your expectations for reducing costs and savings in money market accounts? Additionally, where do you anticipate the non-interest bearing mix will stabilize? This quarter's mix seemed to be a bit higher than the 100 to 200 basis points you mentioned last quarter. I'm trying to understand your capacity to offset deposit costs as rates are expected to decline with a couple of rate cuts.

Greg Robertson, Chief Financial Officer

The deposit cost has increased in our noninterest-bearing accounts, which reached 25% at the end of the year. Forecasting this has been challenging over the past year, but we expect it to stabilize around 23% in 2024. This will be a significant factor for our funding costs. If we perform better than this prediction, it would be beneficial for us. Additionally, we currently have about $1.4 billion in money market accounts, and we can adjust that with any downward rate changes. I'll let Matt discuss the beta assumptions for these categories. This focus on moving accounts into the money market area is a key strategy for us. As we look to next year, for every 25 basis points...

Matthew Sealy, Senior Vice President, Director of Corporate Strategy and FP&A

The total interest-bearing cycle-to-date for Q4 is approximately 62%, which includes slightly lower costs for core interest-bearing deposits. In a rate cut scenario, we expect the higher-cost deposit base to have a beta north of 70%, while we anticipate a beta around 60% for the core, lower-cost deposits. For 2024, we are assuming there won't be a significant change in interest rates. There is potential to reprice deposits down, likely in line with part of the beta increases we experienced in 2023. This could affect the base deposits set to mature, reflecting a year-over-year increase of around 24%. I'm unsure if it will be 20% or 15%, but a portion of that beta is expected to carry over, allowing us to recognize about a 60% beta on any rate cuts against the portfolio previously mentioned by Greg.

Michael Rose, Analyst

I think most of my other questions have been asked and answered, but I did notice the loan loss reserve ratio did come down a little bit. Credit remains really good for you guys. You guys are in great markets. Anything on the horizon? Because we are starting to see some of your peers show some normalization. Anything on the horizon that you guys are taking a closer look at? And I'm sorry if I missed it, but what was the change in criticized and/or classified balances this quarter?

Greg Robertson, Chief Financial Officer

The change in those for this quarter was mostly stable. We are confident about our credit portfolio. As I mentioned in our call, we reported an 11 basis points charge-off this year, which includes adjustments due to the transition to CECL, along with the acquired credits and their assigned marks. If we exclude those, the charge-off would be around 6 basis points for the year, aligning closely with our 5-year average of about 7 basis points. Overall, the credit portfolio looks healthy, and we have not observed any deterioration thus far. As we approach the midpoint of the quarter, it seems unlikely that we will see significant changes in net charge-offs for 2024, apart from our projections, which indicate stability.

Michael Rose, Analyst

And then maybe just one last one. Just on Slide 16, the AUM has fallen for the past couple of quarters. I would have expected that it would have increased in the fourth quarter just given the market appreciation. Can you just help us appreciate the dynamics that maybe drove the decline in the fourth quarter? And was there any loss of clients or anything like that?

Matthew Sealy, Senior Vice President, Director of Corporate Strategy and FP&A

No, we didn't lose any clients. What you've seen for the second half of the year is just what you would expect from a decrease in the value of the bond market as a whole, which would affect the AUM. And to your point, you expected to see some increase potentially at the end of the fourth quarter. But a number of our clients did a similar restructuring to the one that we did. And as we reinvested the full amount, a number of our clients took part of the proceeds and paid down debt with cash. So they shrunk their investment portfolios to pay down debt to a certain extent. So that's the impact that you're seeing in the AUM, not any loss of clients. So we were pleased that we were able to help them structure those restructurings, just as we did for ourselves.

Operator, Operator

Your next question comes from the line of Brett Rabatin from Hovde Group.

Brett Rabatin, Analyst

I wanted to begin by asking about the expense guidance of 6% to 8% and would like to understand what that figure involves. Are you considering adding any personnel in the Texas markets, and does that 6% to 8% include any strategic hires related to lenders or other plans you have for 2024?

Jude Melville, President and CEO

I'll let Greg talk a little bit about the details, but just be an overview. But we're not looking at 2024 as a year in which we'll do a lot of hiring. We'll certainly look for talent on one-off occasions and would expect to add some. But we still feel like the teams of bankers that we've brought on over the past two or three years have the capacity to continue to grow their portfolios, particularly given our kind of maturation of our target levels when you think about our growth rates within our retained earnings. So we felt like we have a good match-up of talent and capability. New hires will probably be more centered around support staff to help them do all that they can do. I'll let Greg talk a little about the added costs, much of which is just natural. Whatever hires we did have last year, we'll have full-year expense burden for them this year. We are, like all of our clients, experiencing increased health care costs and increased insurance costs and things that every business has to face. But we're not anticipating any major investment in personnel over the year.

Greg Robertson, Chief Financial Officer

I think, Brett, the way to think about it is kind of in four different areas that you've mentioned: First part is the increase or the impact of the hires we made in 2023, pulling those through for the full-year impact of 2024. Second would be health care costs. That's gone up for us year-over-year in excess of $1.5 million. As we also mentioned, just the other insurance costs to run the company. And I think the last piece that we'll continue to invest in is preparing to be a company approaching $10 billion. We don't want to wake up and be at $10 billion without all the preparations in place from a CapEx standpoint as well with software and technology. We have four different software initiatives that we've onboarded at the end of 2023, which will help us from an efficiency standpoint as we look out into the future and grow and scale the company.

Matthew Sealy, Senior Vice President, Director of Corporate Strategy and FP&A

Most of those are CRM-based and assist us in targeting production opportunities more precisely to ensure we are monetizing correctly, both to achieve the right return and to meet client needs in a more specialized way. They are all investments in production-based software. As Greg mentioned, as we near the $10 billion mark, we want to ensure that we are well-prepared and ready when we get there.

Greg Robertson, Chief Financial Officer

I would like to point out that when considering the increase in 2024 compared to 2023, we have made some hires during 2023, with a number of them being added later in the year. This means that when examining the full year-over-year impact from the new hires who joined in the latter half of 2023, we can expect a larger increase year-over-year as they will be present for the entire year in 2024. Additionally, in the fourth quarter, we typically experience some seasonality and accruals, which we've discussed in previous calls. In the first quarter, we will see a reset of these accruals, which takes into account our expectations for the full year and reflects across various line items.

Brett Rabatin, Analyst

And then back on just the funding in the mix. I wasn't quite clear. I may have missed it. What's the plan to replace the bank term funding program money, assuming that is up in March? And just thinking about the margin dynamics later this year, given the repricing of loans, could you have liabilities actually repricing lower in terms of the net cost versus increasing asset yields still due to repricing lower-yielding loans?

Greg Robertson, Chief Financial Officer

I'll start with the first question. I think what we're prepared to do with BTFP specifically is to look at the optionality on this, whatever makes the most economic sense for us. We have been carrying probably 50% of the balance to pay-off BTFP in cash on the balance sheet because of the ability to earn said fund if the rate is today. So we're prepared to pay that off in part or in whole by certain different options. One of those options could be, depending on economics, you can extend BTFP for another 12 months the day before the program expires. So we will look at all the options on that. And I think the second part of your question was the funding on the liability side. I think you're exactly right. We've tried to position as that money market focus to be able to quite possibly lower the cost of the liability side while still experiencing some pickup in yield on the loan side with some of the repricing. So we'll try to be opportunistic with that as well.

Operator, Operator

Your next question comes from the line of Feddie Strickland from Janney Montgomery Scott.

Feddie Strickland, Analyst

Just wanted to ask your thoughts on capital management. Could we see further dividend increases over time or potential repurchases? Or is there still more of a focus on just building capital to support organic growth or maybe M&A in the longer term? Just Curious how you're thinking about the capital stack?

Jude Melville, President and CEO

Yes. Our focus has been on gradually increasing our capital levels to prepare for potential opportunities in mergers and acquisitions or other strategic moves, although we do not plan to make significant hiring this year. We want to be ready for opportunities and believe in having flexibility. A stronger capital foundation positions us better to seize those chances. We raised the dividend last quarter, marking five consecutive years of increases, if I recall correctly. We have a diverse shareholder base, and a significant portion consists of retail investors who value the dividend return, which we view as an important aspect of our commitment. We aim to maintain this practice and ideally increase it gradually each year. However, we will evaluate it on a quarterly basis as new M&A possibilities arise. We looked at several deals in 2023 and determined they weren't the right choices for us at the time, but we will continue making real-time decisions. In summary, we are focused on gradually increasing our capital and growing our retained earnings, as we believe enhancing our capital base over time will provide us with opportunities, and we believe we have effectively managed this in the past.

Feddie Strickland, Analyst

And just one last clarifying question. I think you may have already answered this, but I just want to make sure I got it right. Overall, we should see the margin grow if we only get a handful of rate cuts just simply because of this repricing opportunity that you laid out in the deck and potentially the opportunity that some of the other analysts have discussed with the liability side, it seems like the margin should have some level of tailwind in future quarters. Is that fair?

Jude Melville, President and CEO

I think that's fair. We think it should incrementally grow as the year progresses even if we get a couple of cuts.

Matthew Sealy, Senior Vice President, Director of Corporate Strategy and FP&A

Feddie, I would like to add that, as Greg mentioned in his prepared remarks, we have worked diligently over the past six months to shift our balance sheet towards an interest rate neutral position by making the liability side more sensitive to interest rate changes. This should position us better in the event of a rate cut, allowing us to maintain or possibly increase our margins in a lower rate environment, unless there is a significant shock of 100 basis points or more.

Matthew Olney, Analyst

Sorry guys, my follow-up question was already addressed. Appreciate it, though.

Operator, Operator

We have no further questions in our queue at this time. I will now turn the conference over to Jude Melville for closing remarks.

Jude Melville, President and CEO

Good. I want to thank everyone for joining us. I want to express how proud I am of our team and the work we have accomplished, not just in the past quarter or year, but over the years. While these calls often focus more on future expectations, which we've spent a good amount of time discussing, I also want to address our investors and teammates to emphasize the growth we have achieved. This growth is not only in terms of assets but also in capabilities, profitability, and managerial experience—all the elements we committed to when we went public in 2018 have come to fruition. We take pride in this record and are eager to see how we can continue to build on it. Thank you for your support, and I look forward to speaking with you next quarter.

Operator, Operator

This concludes today's conference call. Thank you for your participation, and you may now disconnect.