Hello, and welcome to today's Sandy Spring Bancorp, Inc. Earnings Conference Call and Webcast for the Third Quarter. My name is Jordan and I'll be coordinating your call today. [Operator Instructions] I'm now going to hand over to Dan J. Schrider, President and CEO to begin. Dan, please go ahead..

Thank you and good afternoon, everyone and thank you for joining our call to discuss Sandy Spring Bancorp's performance for the third quarter of 2023. This is Dan Schrider and I'm joined here by my colleagues Phil Mantua, Chief Financial Officer; and Aaron Kaslow, our General Counsel and Chief Administrative Officer.

Our today's call is open to all investors, analysts and the media. There is a live webcast of today's call, and a replay will be available on our website later today. Before we get started covering highlights from the quarter and then moving to your questions, Aaron will give the customary Safe Harbor statement..

Thank you, Dan. Good afternoon, everyone. Sandy Spring Bancorp will make forward-looking statements in this webcast that are subject to risks and uncertainties.

These forward-looking statements include statements of goals, intentions, earnings and other expectations, estimates of risks and future costs and benefits, assessments of expected credit losses, assessments of market risk and statements of the ability to achieve financial and other goals.

These forward-looking statements are subject to significant uncertainties because they are based upon or affected by management's estimates and projections of future interest rates, market behavior, other economic conditions, future laws and regulations and a variety of other matters, which by their very nature, are subject to significant uncertainties.

Because of these uncertainties, Sandy Spring Bancorp's actual future results may differ materially from those indicated. In addition, the Company's past results of operations do not necessarily indicate its future results..

Thanks Aaron. When we spoke with you last quarter we underscored that some of our most pressing priorities included growing core funding, improving liquidity and expanding our client base. And I'm pleased to report today that we're showing impressive results on all those fronts.

These gains are not only important to our performance today, but they pave a way for us to continue to deepen and expand our client base in the future. We're also moving the needle on key metrics, such as reducing our loan to deposit ratio and commercial real estate concentration as well as our reliance on noncore funding.

And additionally, our credit quality remains very strong as we enter the season of greater economic uncertainty. And to add to this momentum, we are preparing to launch this month a more sophisticated, secure and user-friendly digital banking platform.

This platform will give our clients more control and make it easier for them to bank when and how they want to bank with us. This enhancement comes on the heels of an improved online account opening platform that we launched just six months ago.

Between our highly competitive products, talented bankers and now seamless account opening process, we achieved over 1% client based growth this quarter, representing over 1500 new clients to our bank.

So we're already gaining traction and seeing results and we're confident these investments will continue to unlock additional growth opportunities for us. So with that, let us review our third quarter financial results.

Today, we reported net income of $20.7 million or $0.46 per diluted common share for the quarter ended September 30, compared to net income of $24.7 or $0.55 per diluted common share for the second quarter and $33.6 million or $0.75 per diluted common share for the third quarter of 2022.

The decline in the current quarter's net income compared to the linked quarter was the result of the one-time pension settlement expense associated with the previously disclosed termination of the company's pension plan, coupled with lower net interest income.

Current quarter core earnings were $27.8 million or $0.62 per diluted common share compared to $27.1 million or $0.60 per diluted common share for the previous quarter and $35.7 million or $0.80 per diluted common share for the quarter ended September 30, 2022.

The increase in core earnings compared to the previous quarter was a result of the lower provision for credit losses, lower salaries and employee benefit expense and lower marketing expenses, offset by reduced net interest income.

The provision for credit loss is directly attributable to funded loan portfolio for the current quarter was $3.2 million compared to $4.5 million in the prior quarter and $14.1 million in the prior year quarter.

This quarter's provision was primarily the result of increases in individual reserves on a few commercial lending relationships which were partially offset by a qualitative adjustment related to the reduced probability of recession.

Additionally, during the current quarter, the company reduced its reserve for unfunded commitments by $800,000 as a result of higher utilization of lines of credit. Shifting to the balance sheet, total assets remained stable at $14.1 billion compared to $14 billion at June 30.

Total loans declined by $69.3 million or 1% to $11.3 billion at September 30, compared to $11.4 billion at June 30, 2023. Total commercial real estate and business loans declined $79.2 million quarter-over-quarter due to a $107 million or 10% decline in the ADC portfolios.

Investor and owner occupied commercial real estate loan portfolios remain relatively unchanged and commercial business loans and lines increased $31.1 million or 2%. Residential mortgage loans grew $16 million or 1%, mainly due to the migration of construction loans into the permanent residential mortgage portfolio.

Overall, the loan portfolio mix remained relatively unchanged compared to the previous quarter. Commercial loan production totaled $323 million, yielding $96 million in funded production. This compared to commercial loan production of $313 million yielding $160 million in funded production in the second quarter of the year.

Given softer loan demand as a result of both the rate and economic environment, we expect funded loan production to fall between $100 million and $200 million per quarter over the next couple quarters.

While we continue to focus on the deposit acquisition and retention side, we're closely monitoring loan demand and core deposit growth to determine the appropriate level of funded loan activity.

Pages 22 through 24 of our supplemental deck provide more detail on the composition of our loan portfolios, the granularity on our commercial real estate portfolio and specific commercial real estate composition in the urban markets of DC and Baltimore.

Shifting to deposits, total deposits increased $192.1 million or 2% to $11.2 billion compared to $11 billion at June 30. During this period, total interest bearing deposits increased $258.1 million or 3% while noninterest bearing deposits declined $66 million or 2%.

Growth in interest bearing deposit categories was driven by savings accounts and core time deposits, which increased by $277.4 million and $263.7 million respectively.

These increases were partially offset by the $155.8 million decrease in broker time deposits as we reduced our reliance on wholesale funding sources and the $177.5 million decrease in money market accounts.

So excluding broker deposits, total deposits increased $349.5 million or 4% quarter-over-quarter and represented 90% of total deposits compared to 88% in the linked quarter, reflecting the continued stability of the core deposit base.

The deposit growth during the quarter resulted in the loan to deposit ratio declining to 101% at September 30 from 104% at June 30, 2023. Total uninsured deposits at September 30 were approximately 33% of total deposits.

As I've shared in prior quarters, we continue to offer our customers reciprocal deposit arrangements, which provide FDIC deposit insurance for accounts that would otherwise exceed deposit insurance limits. During the quarter ended September 30, 2023, balances in the company's reciprocal deposit accounts increased by $131.6 million.

Slide 17 of the supplemental deck provides more color on our commercial deposit portfolio, which represents 58% of total core deposits, the majority of which is in a combination of noninterest bearing and money market accounts.

With an average length of relationship of 9.5 years, the portfolio is well diversified with no concentration in a single industry or single client. Likewise, on Slide 19 of the supplemental deck, you can see the breakdown of our retail deposit book.

With an average length of 11.5 years the retail deposit portfolio represents 42% of our core deposit base with no single client accounting for more than 2% of total deposits. Total borrowings declined by $57.8 million or 4% at September 30 compared to the previous quarter, driven by a $50 million reduction in FHLB advances.

The outstanding balance of borrowings through the Fed's bank term funding program remained unchanged at $300 million at quarter end.

At September 30, contingent liquidity, which consists of available FHLB borrowings, Fed funds, funds through the Bank Term Funding program, as well as excess cash and unpledged investment securities, totaled $6.1 billion or 168% of uninsured deposits.

At September 30, total cash and cash equivalents were $717.6 million, an increase of $287.5 million or 67% compared to the linked quarter, primarily result of the strong deposit growth I mentioned earlier.

Noninterest income for the third quarter of 2023 increased by 1% or $200,000 compared to the linked quarter and grew by 3% or $0.5 million compared to the prior year quarter.

The current quarter's increase was driven by higher wealth management income and higher lending related fees and was partially offset by lower BOLI income due to mortality proceeds received in the second quarter. Income from mortgage banking activities decreased $135,000 compared to the linked quarter and total mortgage loans grew $47 million.

Future levels of mortgage gain revenue is expected to fall between $1 million and $1.5 million in the fourth and first quarters. Wealth management income increased $360,000 to $9.4 million and assets under management at quarter end totaled $5.6 billion representing a 3% decrease since June 30.

For the third quarter of 2023 the net interest margin was 255 compared to 273 for the second quarter of 2023 and 353 for the third quarter of 2022. As we shared last quarter, the margin continues to be impacted by high market rates, fierce deposit competition and clients moving excess funds out of noninterest bearing accounts.

Compared to the linked quarter, the rate paid on interest bearing liabilities were 36 basis points, while the yield on interest earning assets increased 8 basis points, resulting in a quarterly margin compression of 18 basis points. The margin for the month of September came in at 2.5%.

We anticipate the margin will compress in the high 240s in the fourth quarter and potentially maintain a similar level in the first quarter of 2024. We will look for 5 to 7 basis points of margin expansion per quarter for the rest of 2024.

This expectation is predicated on one more Fed bump of 25 basis points before year end and then no further increases or any rate cuts throughout 2024. Noninterest expense increased $3.3 million or 5% compared to the linked quarter and $6.7 million or 10% compared to the prior year quarter.

As I stated earlier in the call, this quarter included a one-time $8.2 million pension settlement expense related to the termination of our defined benefit plan and the previous quarter included $1.9 million of severance related expense associated with staffing adjustments.

So excluding these items from the current and previous quarter, total noninterest expense declined by $2.9 million or 4% driven by lower expenses associated with salaries, employee benefits expense and market. Excluding the pension settlement costs, third quarter expenses totaled approximately $64.3 million.

The fourth quarter run rate of expenses will include some additional spends related to our technology initiatives as certain capitalized costs and related current period costs are expected to be recognized.

2024 expense levels are currently being evaluated as part of our annual planning process with the current expectation for overall core expenses excluding the pension and severance related costs to increase by no more than 3% to 4% on a year-over-year basis.

The non-GAAP efficiency ratio was 60.91 for the third quarter of 2023 compared to 60.68 for the second quarter of 2023 and 48.18 for the prior year quarter. Both GAAP and non-GAAP efficiency ratios have been negatively impacted by the declines in net revenue and growth in noninterest expense as we continue to invest in the future.

So while the recognition of our technology investments comes at an inopportune time, when revenue is under pressure, we will be well positioned to grow using newly introduced digital capabilities as the rate environment improves, the shape of the yield curve normalizes and the economy expands. So let's shift to credit quality.

Overall credit quality remained stable as the ratio of nonperforming loans to total loans was 46 basis points compared to 44 basis points last quarter. These level of nonperformers compared to 40 basis points for the prior year quarter and continue to indicate stable credit quality during this period of economic uncertainty.

At September 30, nonperforming loans totaled $51.8 million compared to $49.5 million at June 30 and $44.5 million at September 30, 2022. Total net charge offs for the current quarter amounted to $100,000 compared to $1.8 million for the second quarter of 2023 and $0.5 million of net recoveries in the third quarter of 2022.

The allowance for credit losses was $123.4 million or 1.09% of outstanding loans and 238% of nonperforming loans compared to $120.3 million or 1.06% of outstanding loans and a coverage ratio of 243% at the end of the previous quarter.

At September 30, the company had a total risk based capital ratio of 14.85, a common equity Tier 1 risk based capital ratio of 10.83, a Tier 1 risk based ratio of the same 10.83, and a Tier 1 leverage ratio of 9.5% and all of these ratios remain in excess of mandated minimum regulatory requirements.

And before we move to your questions, I'd like to acknowledge a leadership announcement that we made last month. Our Chief Financial Officer, Phil Mantua, will retire from the Bank at the end of March 2024.

As you all know on the call, throughout Phil's 24-year tenure he has played an instrumental role in our growth and we all want to extend our sincere appreciation and congratulations to Phil and we are actively interviewing for his successor, so please stay tuned. And with that, Jordan, we can move to our first question..

Hey, good afternoon, guys..

Hi, Russell..

Hey, Russell..

Hi. I wanted to start on loan balances. So I hear you on the funded production for the next couple quarters down a bit from where we've been in the past few, what are the guideposts we should be looking for in terms of when you might be able to hit the switch to more net loan growth.

Deposits are improving, wholesale funding is coming down, but what more do we need to see?.

Yes, Russell, this is Dan and Phil might chime in as well. You know the last couple of quarters we've kind of targeted funded loan production to kind of match runoff as we were working on improving the liquidity position which we've done. Our appetite for funded loan production is higher than that 150 now.

I think it's really more of a function of demand and demand that is rationally priced. So we could probably today move to $250 million in funded production, which would net out at about $100 million of growth a quarter.

But demand, the uncertainty in the economy is really soft in demand and there are still some players on the smaller bank side that are not pricing commensurate with today's yield curve. And so we're picking our spots and as soon as we see availability in the market, we're prepared today to increase the funded loan production..

Okay, that's very helpful color Dan, thank you.

Just switching gears to the margin, I appreciate the outlook there and given the higher state of funding to date, how would you think about the new, absence of Fed hike and then kind of similarly a question, what do rate cuts mean to you and I know that that's not something you're currently contemplating?.

Yes, Russell, this is Phil. I don't know that that next anticipated 25 basis point move really or absence thereof really makes a whole lot of difference in our current thinking about where the NIM goes in the next quarter or two.

We have already just in terms of now having experienced some nice pickup in growth and growth in categories that we would like to see on the deposit side, pull back on some of the rates that we're currently offering on the high end. So for example, we have been running a 5.5% CD offering I think it was an 8-month CD for a number of months.

We've pulled that back completely and other things by at least 50 basis points to test to see whether or not we can try to preserve a little bit of margin here even in the face of the possibility of the of the Fed making that move.

So either way, I think that the guidance here into that high 240s takes kind of all of that into consideration and then from the standpoint of looking into 2024 as Dan mentioned in his comments, without anything else going on from the Fed standpoint, 5 to 7 basis points in pick up certainly that can be accelerated when and if they decide to cut rates because I think we would be pretty quick to try to follow that downward trend.

And then then that expansion might be more like double what we suggested 5 to 7 being more like 10 to 15. And I think we've commented on that in the past as it relates to a margin pickup quarter-over-quarter. Like what we saw on the way up.

Depends on how quickly they cut and what chunks they cut on the way down, which probably clearly won't be as nearly as aggressive as what we saw on the way up..

All right, Phil, thank you. And then just last one for me on the expense side of things, sorry if I missed it, but your thoughts on 4Q, I mean great result this quarter getting the cost saves.

Just what type of step up do you expect to see from the digital transformation that comes online? And I know you're working through 2024, but just bigger picture, does this tech then step you up beyond perhaps just an inflationary growth rate or how should we directionally think of noninterest expense going forward?.

Yes, Russell, good question.

And so the technology piece as it relates to what's coming on board here in the fourth quarter as we put things into motion is probably on a run rate basis about $1 million quarter-to-quarter and then with -- in addition to that in the fourth quarter there are costs of just doing this that that initial kickoff which is probably worth another $0.5 million.

That part shouldn't reoccur. But the cost that's related to just the ongoing element of bringing that what's been on a CapEx basis into the run rate is probably about $1 million into the fourth quarter and beyond.

And then from that point on, looking at the inflationary piece as well is where we guided towards that 3% to 4% into year-over-year relative to 2024 and 2023. So that's been taken into consideration..

Okay, great. Thank you, Phil. That's it from me guys. Thanks for taking my questions..

Sure..

Sure. Thanks, Russell..

Our next question comes from Casey Whitman of Piper Sandler. Casey, please go ahead..

Hey, good afternoon..

Good afternoon..

Good afternoon, Casey..

Just going back to the margin, maybe if we just switch gears to the asset side, first can you kind of ballpark where new loan production is coming on or where it was in the month of September?.

Yes, I'd be glad to.

So overall commercial pricing the average yield on all production during the month of September was around 8 in the quarter and it has been at that level for a couple of months here and so we would anticipate, again given that we want to price appropriately for the growth or the production that we are willing to take on, would like to see it in that same vein and with that about 80% to 85% of that production at those levels was variable or floating rate in nature..

Okay.

And so maybe can you walk us through sort of the quarterly repricing we can expect to see on the loan side just in a static rate environment to get to sort of your margin expectations for 2024?.

Yes. So on the asset side, it relates to the, to what would help feed that 5 to 7 basis points to the margin.

On the loan side, it would probably be, if we look into the fourth quarter and beyond we probably see a pickup of about 8 to 10 basis points in the next quarter and then probably similar to the margin, 5 to 7 basis points on a quarter by quarter basis..

All right.

And then switching gears, just as the environment may stabilize in a bit and just given your growth outlook, what's your current appetite for buybacks at the stock price or what would it take for you to get more aggressive there?.

Yes, Casey, this is Dan. I think we mentioned the last time we continue to have an authorization out there and it's probably more a function of looking for the next couple of quarters and making sure we feel as confident as we do today with regard to the credit environment.

So I would say sitting here at the moment just make -- there's a lot of uncertainty out there. It's become more uncertain with world events and so I think capital is pretty important, but we could feel different in the short run and be active particularly at where we're trading right now..

Understood. And just going back, this is just thinking about the loan deposit ratio, obviously, that came down this quarter.

But do you have a spot where you're kind of comfortable with that running, and how does that kind of play into the outlook, the loan growth outlook?.

Yes, Casey, this is Phil. I think we're very comfortable right where we are today, hovering around 100%. I think as we move forward in time and not any time being immediately thereafter, we would probably want to manage it further down into the mid 90% range, but again, not any quarter in the more current couple of quarters out.

So, I think you would probably expect with what we were just talking about, margin wise and otherwise, to see it staying around kind of around 100% level..

Okay, makes sense. Thank you..

You're welcome..

Thanks, Casey..

Our next question comes from Catherine Mealor of KBW. Catherine, the line is yours..

Thanks. I just wanted to ask a quick clarifying question on the expense guide you gave Dan.

So when you said 3% to 4% growth in 2024 for 2023, I thought you said it included the pension expense? Or did you mean that off of an operating expense number?.

Yes, I was netting out the pension expense number..

Great. Okay, so take that out, and then….

Yes..

That's all right. No, I didn't want to grow it up with a 275 number. Okay, great..

You want to take the pension -- yes, you want to take the pension and the severance costs from this year, which are roughly $10 million away from the base for 2023, and then apply the 3% or 4% growth rate on that number..

Great. Okay. Are there any -- that's still relative to where your revenue is, that still potentially could give you a year of negative operating leverage, just depending on how things go with the margin.

Are there other things you can do on the expense side if revenue still seems really challenging next year or is there just we just need to kind of wait until we get in a better rate environment to really see us pull back into positive operating leverage mode?.

Yes, Catherine there are always things that we can continue to look at, and we will. I don't have anything to announce today, but between continued looking at headcount in certain areas, branch rationalization, those things tend to take a little more time.

I think the real turn of performance is going to come in a better rate environment in all reality..

Yes, I would agree, I mean that's kind of things that Dan's suggesting and maybe some other things that we could consider kind of what was alluded to in part of the planning process comment early into the call was we're evaluating all the different things that we might have at our disposal.

But I think when it's all said and done, the puts and takes, I think that's kind of where we think we're going to end up..

Okay, understood. And Dan on credit, you talked about just a couple of specific reserves coming on some commercial loans.

Can you just give us some commentary on kind of what you're seeing on those credits that are seeing incremental stress and then any change to classifieds or criticized loans that we should be aware about this quarter as well?.

Yes, trends and criticized classified still are nonevents, Catherine, I think the -- I hate to refer to anything happening in credit as one off because it just comes back to bite you in the butt.

But what we are seeing thus far are give you a little color real estate loan, that owner gets notified that a tenant is not going to renew, but that's still a year out and we're recognizing that if they don't, then there could be cash flow issues and as a result, taking a conservative approach to setting aside some reserves. That's an example.

We're not seeing anything thematically. If you think about our book, we've talked a lot about office, which for us is predominantly suburban with minimal exposure in the urban areas and most importantly, mostly professional office space with number of units that are a little easier to turn as opposed to large floor plate type of exposure.

So, I think the risk we're trying to understand and manage in that is probably more around rates higher for longer as that book reprices over the course of time than what we're seeing from an occupancy standpoint in near term. Our hospitality portfolio I think, weathered very well during the pandemic, and that continues to perform.

Our retail portfolio, which is the largest exposure within CRE, also performed extremely well during the pandemic when it was under some pressure when everybody was locked up at home. So, we're continuing to look out 12 months, 24 months.

It's what's coming on the repricing side and getting ahead of that and then doing the same with we have a multifamily portfolio that with some coming out of construction into perm and monitoring those absorption rates compared to what was expected, and some of those are getting extended out.

But we've got credible borrowers and guarantors that can stand behind that. So, I think it's realistic that over the course of time, if we end up in more of a credit cycle, there's going to be scratches and dents as we drive through that.

But we're not seeing anything thematically that gives us concern about our reserve levels, our percentage of nonperformance coverage and the like. So the teams -- I think team is doing a good job, but we'll continue to be transparent with you if we see things changing as we have been in the past..

Great. And then maybe if I could ask one last one. Just on deposit remix, it was nice to see the non-interest bearing mix shift flow a little bit from the levels we've seen earlier in the year.

What’s your -- I know it's hard to know, but what's your gut on where that kind of percentage as a percentage of deposits balances out?.

Yes, Casey, this is Phil again. I think -- I'm sorry, Catherine, my bad. I think we feel like that the DDA piece has stabilized now to a good place.

I'm not sure we anticipate a lot of growth necessarily there in the short-term, but I also think we're pretty confident we're not going to see much more of to your question, the remix of the DDA declining from its current levels around 27%, 28% of total deposits.

If anything, the remix kind of behind the scene is as we continue to allow the brokered wholesale money to run down and run off the balance sheet, which is already occurring through the current quarter where we've already had an additional $100 million roll off, and there's another $150 million scheduled to mature that we don't plan to reengage on because we are still seeing really good growth in those other interest bearing categories.

So that's probably more where we see the remix than anything related to DDA. But again, we feel good about where it's landed and that it's fairly stable..

Great. All right, that's all I got and congrats on your retirement, Phil..

Thank you..

Thank you, Catherine..

Our next question comes from Manuel Navas of D.A Davidson. Manuel, please go ahead..

Hey, guys.

In your NIM outlook for kind of the turn into next year, does that assume any difference in the rate of growth on the loan side?.

No, not really. Manuel, this is Phil. No, I think that's implied at this point as well is the – in general guidance as it relates to just matching off with funding at the moment..

Okay..

Correct..

Should we just kind of assume a beta that kind of matches that guide? Do you have kind of a rough deposit beta peak with that NIM assumption?.

Yes, I would say that in terms of looking at the forward aspect of the deposit side, I mean it's clearly, as it has been here, a much slower pull in terms of the overall movement in the cost of interest bearing deposits. So I would think it's again similar to four or five bps quarter-to-quarter within that on the funding side as well.

Just, again because of some of the remix that I mentioned earlier and our desire to try to control it at this point, given my earlier comments about pullback on the rates..

No, that was great. That's going to lead into kind of my next question. So you pulled back on rates, and it sounds like you're easily feeling good about running off some of the broker deposits. You pulled back on rates and you're still seeing success on the promotions is what I'm trying to get to..

Yes. I mean, that's still got to play itself out. That's just kind of current practice here within the last couple of weeks. So we've got to see that we can prove that out. But that is the current thinking behind the way we're looking at it for the foreseeable future. Yes..

With the savings growth and the CD growth, you've been experimenting with different channels over the last couple of quarters. What channel has kind of worked best? I know there was at the periphery of your footprint and there's been a lot of [indiscernible] outreach in your branches.

What channel has kind of driven this deposit growth most?.

Yes. Manuel, this is Dan. Good afternoon. I think it's really been a blend of things. We've had success with our online storefront that we launched earlier in the year, and that's generated about 1800 new accounts over the course of the year, not just the quarter, and it's been more than half of that has been like new client balances coming in.

But at the same time, we've used some digital outreach to prospective clients through some data that we combined with internal data and some purchase information to reach out specifically to kind of the affluent client that or the heavy depositor client in the marketplace. And we've had tremendous success in bringing dollars into that.

And so that's been digital outreach with branch person follow up. And that's probably been the biggest piece.

And then third would be the activities from the commercial bankers, who, quite frankly, ever since the end of the first quarter with SVB failure and what followed was a much greater outreach and connectivity to our commercial deposit base, initially from a retention standpoint.

But the follow on activity has been growth in those deposit relationships and expanding them, so I would say than more than one initiative, but all three have been additive..

Yes, Manuel. Well, I would also add that that high yield savings growth, which is really that balance is really up to date, more than doubled, has been on a non-advertised basis. So as Dan outlined, it's been more direct marketing and contact than it was any kind of an advertised type of special. And we still had that kind of significant success..

I really appreciate the color here. On the commercial lender piece, that's great. Is there kind of a pipeline expected there? Is that something you can I know it's lumpy I'm sure.

Is there a way to kind of quantify kind of the pipeline there and kind of overall deposit growth over into next year?.

I don't think there's a way to quantify it as we look forward, other than to say that the commercial I think we've gone from, this is probably an easy way to say commercial lenders to commercial bankers, and that's not a criticism of the bankers.

For the last, obviously, several years, focus has been on asset growth because funding it was not an issue, and the world changed. And so they have done a tremendous job of really changing and shifting focus to include deposit gathering along with asset generation. And that will continue.

And that's been built into their reward mechanisms in terms of incentive plans and pipeline management and overall expectations of production. So that's not going to change as we go into 2024..

All right. I appreciate that.

My last question, is talent acquisition still an important driver or do you kind of feel that you've shifted behaviors among your now commercial banker base that you feel comfortable with it as it stands, at least through 2024?.

Yes, I think the shift in expectation and behavior has been really solid, but we will always be looking for folks that will help us expand client relationships, not just in commercial banking and C&I specifically, but also in the wealth space.

Now the challenge for us is to make sure we're doing that while maintaining our overall headcount at a reasonable level to fit that expense growth expectation that Phil spoke of. So I think we always have to be open to adding good talent to the organization..

Thank you for the commentary..

Yep. Thanks, Manuel..

Thank you..

[Operator Instructions] Our next question is a follow up from Russell Gunther of Stephens. Russell, please go ahead..

Hey, guys, thanks for taking it. I just forgot to ask you earlier. We have seen some hiccups in shared national credits this quarter, industry wide. I just was hoping for some commentary about your thoughts on the asset class and then what your exposure is today..

Yes, we do have a participation book. Right now, our total participations bought is just north of $186 million but they're all like, club deals with local banks that we've helped out and vice versa. On the flip side, we have about $250 million that have been put out in terms of sole participations, but we're not active in [indiscernible] business..

That's great. All right. Thanks, Dan. Thanks for taking the follow up, guys..

Sure..

We have no further questions on the phone line, so I'll hand back to Dan for any closing remarks..

Thank you, Jordan. Thanks, everyone, for joining today's call, and we love your feedback. If there are things we could do to make our call more effective, so please reach out. But thanks again for your time and have a great afternoon..

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines..