BFST - NASDAQ

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. [Operator Instructions] 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.

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.

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 shipped out, we generate 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 [Indiscernible]. Again, Greg will go into detail on 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 last quarter we hired a seasoned individual to bring in-house to 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 encouraged by the successful execution and the resulting client satisfaction, perhaps more important than the fee income generated, swap enabled us to close a significant credit worthy loan in terms that we might not have been as interested in accepting from asset liability management perspective without the swap protection, which enabled us to match both our and the client perspective client's needs, but winning combination. 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 the $2.5 million pre-tax in 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 challenging year. We finished the year in a strengthened capital position with solid asset quality, ample diverse and granular liquidity, and arguably most important an employee base that's been through and grown from the challenges of 2023, just as over the course of our time together as institution, we've gone through and grown from the pandemic and its aftermath, various energy crashes and the great financial crisis. 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 and loans in deposits with each up 190% over the past five years, more specifically for loans, you'll note that we have during that time over doubled our exposure in our original markets in Louisiana, while growing our Texas based exposure by multiple of nearly 8x, leaving us as well balanced geographically as we've ever been and approaching 40% of our exposure in Texas, Dallas, and Houston specifically. Moreover, we've accomplished this without sacrificing credit quality with very similar metrics across the whole of our footprint. On page 10, we detail a near 4x our 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. Most important, our tangible book value per share at ex-AOCI, even with the investments required to fund this growth has grown 36% with a 9.3 CAGR over the past three years as returns have begun to accelerate. 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 as 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.

Thank you, Jude, and good afternoon everyone. I'll spend in just a few minutes reviewing our Q4 highlights, including some of the balance sheet and income statement trends and all, and we'll also discuss our updated thoughts on the current outlook. Fourth quarter GAAP net income and EPS available common shareholders was $14.47 million and $0.57 and included several noncore items, including $2.5 million pretax loss on sale of securities, as Jude mentioned, in the 13th -- and also the $13,000 gain on sale of our bank branch closure in Leesville in the third quarter. The $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 and EPS available to common shareholders was $16.8 million of $0.66 per share EPS, and came 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 our fourth quarter loan loss expense figure of $119,000, was roughly $600,000 lower than you would expect from us during the quarter where we generated $70 million in net loan growth. But looking at 2023 more holistically, the Q4 provision translates into 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 an example, to give you some color here. Q4 did benefit 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'll -- we will continue with our philosophy of investing in talent with a few new hires coming in 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 $2.5 million of the pre-tax loss on 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, 6% to 8% growth off of our core Q4 base is a good 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. On 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 purchase 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 at 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 then recognize $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 far as loan growth goes 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 or 8.4%, which is right in line with our longer-term target to achieve high-single-digits 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, as Page 9 illustrates. We are not only pleased with the geographic distribution of our loan growth, but also the mix shift in our growth away from C&D throughout 2023 and more weighted towards C&I and CRE. 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 drop below 100% of regulatory capital during the fourth quarter. More specifically, we ended the year at 92% of regulatory capital. Deposits increased about $58.1 million during Q4 or 4.4% annualized. We continued in 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. Noninterest-bearing deposits continue to remain a challenge. We ended Q4 with our noninterest-bearing deposits representing 24.8% of our total deposits, which is relatively consistent with our previous outlook to year-ended 2023 at 25%. Q4 GAAP net interest margin of 3.5% included $1.9 million in loan discount accretion, which was $400 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 bps from 346 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 where we reworked last quarter, and it depicts 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 on 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 and expand modestly for full year 2024 is reasonable, even conservative considering the repricing tailwinds and new origination yields we have conservatively assumed 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.

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

[Operator Instructions] Your first question comes from the line of Matt Olney from Stephens Incorporated.

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 moved a few times? Just help us appreciate how much that could swing the margin and the NII?

I think what my kind of last comment, Matt, with that, was we've been working real hard over the last six to nine months of trying to become 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 will the 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 to 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 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 our neutrality.

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?

I'll start, and I think December's new and originated loan yields were 863, so still holding in there quite nicely. Once -- in the beginning of the quarter, we did see a little bit lower loan yield origination yields down closer to 830. And I would say that, that was influenced by a larger deal that you mentioned, with our swap capability. We took the floating side of a pretty large transaction on there that will help us in the future from an asset sensitivity standpoint, but it did influence the early part of the quarter, but we did -- December, those headlines were 863 on new and renewed. So we're pleased with that. And that's why I made the comment of even if we get a rate cut or two with that $446 million of loans that are maturing in 2024. The average weighted rate on that is 5.93%. So we think we should be able to pick up 200 to 250 basis points for that group that should help us offset any headwinds by the variable book pricing downward.

Matt, one thing that I'd add to that is looking ahead over the next 12-months, the book that's going to reprice that roughly $2.3 billion that's sitting on the books at 7.89% weighted average rate right now. If we're looking at mid-to-high 8% new and renewed yield on that. That's a 76 basis point pickup, which translates to about 28 basis points pickup in earning asset yields. So that's kind of the starting point on the left-hand side of the balance sheet and the repricing opportunity. And so when we look to the right-hand side of the balance sheet, the question is, what are the funding pressures? How do those persist? And what are the assumed betas on that? And a little color on what we're assuming those funding pressures translate to is about a 13% increase in cycle-to-date interest-bearing deposit betas over 2024. That compares to about a 24% increase in cycle-to-date interest-bearing deposit betas in 2023. So digging one step deeper into that. The December month end interest-bearing deposit costs were only 4 basis points higher than the total Q4 interest-bearing cost of deposits. So I mentioned that because that's a pretty decent step back and step down and the delta between months end for the quarter and full quarter interest-bearing deposit cost. So it feels like funding pressures are slowing some, and that's why I feel like if we're assuming the increase in cycle-to-date betas, it's still a 13% increase compared to a 24% increase during 2023, where I feel like we got the majority of the repricing kind of baked in. I feel like that's a pretty conservative beta assumption. And to Greg's point, how the 28 basis point pickup in earning asset yields on just the 12-months repricing portion of the loan book. Basically assuming that a large part of that gets absorbed by the repricing and the new funding costs. It's conservative because we hope that we can kind of manage and use the December month end and the Q4 quarter end as the launching point, those trends move in the right direction where there's not much of a delta between month end and quarter end, to manage funding costs through the balance of 2024 and actually experience some pickup and good accretion in the margin for the balance of the year.

I would just tail into your question about client sentiment. I'll ask Philip to weigh in on that. But I would just say numerically that the pipeline felt strong in the fourth quarter, and we obviously grew loans at a faster rate than we did in the second and third and fourth quarter, was the pipeline enhancement was during a time when there was already an expectation began to be built and the rates would drop in the future. So -- so we actually -- even though there is an expectation and you might say clients might wait for risks to drop, we didn't actually experience that effect in the fourth quarter. But Philip if you want to...

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

And just lastly, on the funding strategy, I just want to appreciate if there's any kind of shift or, I guess, 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?

Yes, I would say probably in third quarter -- beginning of the third quarter, and obviously, all in the fourth quarter, we were very focused on that money market special, with a conscious effort to moving some of the renewed balances that were coming up for renewal in our CD book into that money market product. The -- we figured the sacrifice in the short hand of the rate would give us flexibility with being able to manage those rates going forward, if and when rates do fall. So that's not a new strategy this quarter. We actually have been doing that probably for the balance of the second half of the year and seemed to be fairly successful without a lot of run-off in the CD book as well.

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

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%?

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

Okay. All right. That's helpful. And then I guess just on, I guess, 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?

We're actually -- we finished the quarter at about 95%. We would like to get that closer to 90%. So in the near-term, we see match funding for the loan growth. Obviously, there's some opportunities to win to continue to keep that loan growth in the 6% to 8% range and outpace it with deposits to ship the loan-to-deposit ratio downward a little bit, that would be great.

I will point out that over the course of the year, we decreased the loan-to-deposit ratio even with the macro environment, and liquidity pressure. So we do -- although in the fourth quarter, we did grow loans a little slightly faster than deposits. One of the reasons that we did so was because we had made room earlier in our borrowing capacity -- with our borrowing capacity. So we definitely want to be thoughtful about how we fund loans. So we're in a position now where we continue to try to decrease that on the deposit ratio, but we also have the flexibility that we didn't have a year ago to make sure that we're using all the tools that are available to us and do the right thing each quarter. But over the course of the year, we certainly would like to continue that trend of closer to 90%.

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 4Q number we saw?

I think the starting at that 4Q 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.

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.

Correct.

Yes. I'd say that if you look at the -- and specifically, that's on that -- the outlook reflects the core noninterest expense base in Q4. So if you look at that range of 6% to 8% growth, annualize that, that's kind of the full year number to target. And so if you want to make some assumptions in terms of stair stepping to that full year number, that 6% to 8% is reflective of the actual full year expense number. Just you make your assumption on how you expect to get there on a full year basis, but that is what that reflects.

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

Maybe just following up on some of the deposit questions that have been asked. Can you just remind us, what your assumptions are for the ability to reduce deposit costs, assuming we do get a couple of rate cuts how much of your deposits are indexed. What are your assumptions around the ability to bring down costs and savings and money market accounts? And I don't know if this was asked, but where you'd expect NIB mix to kind of stabilize, I think you -- the mix this quarter was a little bit greater than kind of the 100 to 200 basis points that you guys had talked about last quarter. So just trying to appreciate the ability to kind of offset or what the ability is to bring that deposit costs as rates hopefully fall with a couple of rate cuts here?

The deposit cost, I think we -- today, we've increased our noninterest-bearing, and I'll start out and let Matt kind of follow-up. Noninterest-bearing deposits moved to 25% right at the end of the year. And we think forecasting -- this is tough in this space over the last 12-months for sure. But we think 2024, that should settle in at around 23%. So obviously, from a funding cost standpoint, that is the big catalyst or need mover. If we do better than that, obviously that helps us a whole lot. As far as the money markets I spoke of, we have about $1.4 billion of those accounts on deposit, and we would be able to move that with downward rate movements. And I'll let Matt talk about the beta assumptions for each of those categories. But we do think -- and that's one of the reasons why I mentioned it earlier that we've been focused really hard on moving a lot of those accounts into that money market area. So as far as forecast next year for every 25 basis points, Matt?

So the Q4 total interest-bearing cycle-to-date is about 62%. That includes a little bit lower cost core interest-bearing deposits. So if we look at the actual repricing opportunity with a rate cut scenario. The higher cost deposit base, we're assuming north of a 70% plus beta. And on the more core lower cost deposit base. We're assuming more like a 60% beta assumption on those. And I would say that looking ahead for 2024, the base assumption that we're making is that we don't get a dramatic change in interest rates. And I do think that there is some opportunity to reprice the deposits down. But I would say that it's probably going to move somewhat in tandem with some portion of the increase that we saw in the betas in 2023, that would translate to the base deposits that are going to mature and are indexed some percentage of that -- 24% increase year-over-year. I don't know if it's 20% or 15%. But I think a chunk of that beta would actually translate through and we would recognize anywhere from the 60% beta on the downside of any rate cuts against that portfolio, that Greg had just mentioned.

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?

The change in those -- this quarter was stay relatively flat. So we continue to feel really good about our credit book. And Michael, I think one of the things that I mentioned on our call is the, we've seen a real-time -- we reported the [indiscernible] 11 basis points charge-off this year, but that is including us because of the conversion to CECL. The inclusion of the purchase acquired credits and the assigned mark for each of those credits. So if you remove that out of that, that would be about 6 basis points for the year, which would fall right in line with our 5-year average, which is about 7 basis points. So we feel like the credit book is good. We haven't seen any deterioration so far. We're now approaching the halfway point in the quarter almost, and so it's hard to imagine without any major issues popping up on the radar that we would see any big movements in net charge-offs for 2024 outside of what we're forecasting, which is stable.

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

No, we didn't lose any clients. So -- which you are seeing for the second half of the year is just -- what you would expect from a diminishing in the value of the bond market as a whole would affect the AUM. And to your point, you expect to see some increase potentially at the end of the fourth quarter. But a lot of our clients, I shouldn't say a lot, a number of our clients did a similar restructuring to the one that we did. And we as we reinvested the full amount, a number of our clients took part of the proceeds and pay down debt with cash. So [indiscernible] 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 [indiscernible] but yes, we're pleased to be able to help them structure those restructurings, just as we did for ourselves.

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

I wanted to start just -- I wanted to start back on the expense guidance of 6% to 8% and wanted to get a little more color around what that what that number entails? And if you're looking to add anybody in the Texas markets, with that 6% to 8% including any strategic hires around lenders or anything else that you're planning on doing in '24?

I'll let Greg talk and Matt 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 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 bit 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.

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. The -- 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 is preparing to be a company approaching $10 billion. We don't want to wake up and be it $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.

And most of those are CRM-based and helping us be more specific in our targeting of production opportunities to make sure that we are monetizing at a level -- that both to make sure that we're getting the right return, but also can satisfy clients in a more specialized manner. So they're all production based software investments. And as Greg said, as we approach the $10 billion mark, we want to be sure that we got it ironed out and ready to go when we get there.

And one thing that I would just add is that when you think about the increase in 2024 over 2023, we made obviously some hires throughout the year in 2023, but some of those were back-end loaded. So when you're looking at a full year over full year impact from the back half folks that we hired in 2023 that will be in for the full year in 2024. So that kind of contributes to part of the -- a little bit larger increase on a year-over-year basis, just those folks coming in at the end of the year. And then Q4, as you guys know, we've mentioned in the past that there's some seasonality and accruals in Q4. And in Q1, what we have is, we have a reset of those accruals looking at a full year basis and just recognizing on a quarterly basis. So Q4, there's seasonality and kind of accrual catch-ups. And then in Q1, there's a reset of those accruals, which reflect the full year expectation on various line items.

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.

I'll start with the first question. I think what we're prepared to do is with BTFP specifically, is we're going to look at the optionality on this, whatever makes the most economic sense for us but we have been carrying probably 50% of the balance to pay-off the BTFP in cash on the balance sheet because of the ability to earn said fund if the rate it is today. So we're prepared to pay that off and at least 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.

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

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 longer term? Just Curious how you're thinking about the capital stack?

Yes. I think our priority has been and is to incrementally grow the capital levels to prepare for opportunities to see what M&A might come up or what other lift outs or additions or we're not planning on a significant amount of hiring this year. Certainly, we want to be prepared for opportunities and believe in the word optionality. So having a stronger capital stack puts us in a better position to be able to take advantage of those opportunities. We have -- we did raise the dividend last quarter, and at March 5 years in a row in which we've increased the dividend, if I remember correctly. And I do think that there is -- the we have a mix of shareholder base -- there is a healthy percentage of our shareholder base that's retail, and those value and appreciate the return of that dividend, and we feel like that's an important thing to an important return that we provide. And so we'll continue to certainly do that. And in an ideal world, assuming everything goes well, we'll we try to stick with increasing it incrementally on an annual basis. But we'll take it quarter by quarter and see what opportunities we have open to M&A, should that possibility rise? And had the opportunity to look at a number of deals in 2023 and didn't feel like it was the right -- those were the right decisions at time for us, but certainly taking that on real-time decision basis. So I would say that could have answered your question pretty succinctly if I had chosen to, but basically, we want to prioritize, continue to incrementally increase our capital, grow within that retained earnings stream. And we think increasing the capital base over time will give us some optionality to take advantage of opportunities, which we think we've done a good job of that over time. And in my comments at the beginning, I outlined some of the successes that we've had, and we've done so through a combination of organic M&A growth, and we'd expect that, that would continue.

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?

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

Feddie, I would just add to that, too, as Greg mentioned in his prepared remarks, we've worked pretty hard over the last six months or so, to move more and more to an interest rate neutral position by moving the right-hand side of the balance sheet, the liability side to be a little bit more rate sensitive there. So assuming a rate cut scenario, I think we're better positioned now to at least hold -- maybe pick up a little bit in a down rate environment, assuming we don't get some dramatic shock of 100 bps or something like that.

So the 25 basis point increments are probably more manageable too, because you can make incremental shifts over time, right?

That's right.

Your next question comes from the line of Matt Olney from Stephens Inc.

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

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

Good. Well, I'll just close. Thanks, everybody, for joining us. And just want to express, I'm proud of our team and the work that we've done, not just over the past quarter or the past year, but over the past years. And I realize that these calls tend to focus more on expectations going forward, which we're -- we certainly spent much of our time doing that. But also want to speak to our investors and our teammates to just again highlight the fact that -- or highlight the growth that we've experienced and I don't mean growth just in terms of assets, but growth in terms of capabilities and profitability and managerial experience and all the things that when we went public in 2018, that we said we would we do and work on, have essentially come to fruition. And so we're proud of that record. And excited about seeing how we can continue to build upon that track record. So thank you for being with us, and thank you for the investment and look forward to talking to you next quarter.