Q4 2023 Independent Bank Group Inc Earnings Call

Presentation

Operator

Greetings. Welcome to Independent Bank Group's fourth quarter 2023 earnings call. (Operator Instructions) Please note this conference is being recorded, and I'll now turn the conference over to Ankita Puri, EVP & Chief legal officer. You may now begin.

Good morning, and welcome to the Independent Bank Group fourth quarter 2020 earnings Call. . We appreciate you joining us. The related earnings press release and investor presentation can be accessed on our website at ir.ifinancial.com. I would like to remind you that remarks made today may include forward-looking statements. Those statements are subject to risks and uncertainties that could cause actual and expected results to differ. We intend such statements to be covered by safe harbor provisions for forward-looking statements. Please see Page 5 of the text in the release or Page 2 of the slide presentation for our safe harbor statement. All comments made during today's call are subject to that statement.
Please note that if we give guidance about future results, that guidance is a statement of management's beliefs at the time the statement is made, and we assume no obligation to publicly update guidance. In this call, we will discuss several financial measures considered to be non-GAAP under the SEC's rules. Reconciliations of these financial measures to the most directly comparable GAAP financial measures are included in our release. I'm joined this morning by our Chairman and Chief Executive Officer, David Brooks; our Vice Chairman, Dan Brooks; and our Chief Financial Officer, Paul Langdale. At the end of their remarks, David will open the call to questions.

Thank you, Ankita, and good morning, everyone, and thanks for joining the call today. Fourth quarter earnings totaled $14.9 million, or $0.36 per diluted share. Excluding the onetime impact of the $8.3 million of FDIC , special assessment and other one-timers. Our adjusted fourth quarter earnings were $25.5 million or $0.62 per diluted share. During the quarter, we were pleased to see the continuation of healthy organic core loan growth, which came in seasonally strong at 11% annualized as pent-up demand from our relationship borrowers drove originations higher for the full year loan growth totaled 4.2%. This healthy growth will help support NI on a going-forward basis and was driven by the needs of our core customers across growing Texas and Colorado economies. Credit quality remains excellent with low nonperforming assets and net charge-offs totaling just one basis point annualized for the second quarter in a row. And our capital ratios ended the quarter in a healthy position with a Tier one capital ratio at 9.93%, the total capital ratio at 11.57%. Notably our TCE ratio strengthened to 7.55% as of December 31. And we grew tangible book value by 5.8% to $32.90 per share with that overview. I'll now turn the call over to Paul to give more details on the financials.

Thanks, David, and good morning, everyone. As David mentioned, net income for the quarter was $14.9 million, which includes $8.3 million related to the FDIC special assessment and $4.8 million of OREO related charges that Dan will discuss in more detail. Adjusted income for the quarter was $25.5 million, or $0.62 per diluted share compared to $32.6 million or $0.79 per diluted share in the linked quarter. Net interest income was $106.3 million in the fourth quarter compared with $109 million in the linked quarter. Our NIM. for the quarter was impacted several basis points more than expected by the incremental loan growth during the quarter as we carried higher amounts of marginal liquidity to support the loan fundings.
Encouragingly, we saw deposit cost peaked during the quarter and we have started to reprice some of our marginal liquidity downward is brokered rates have moved meaningfully lower of the $2.5 billion of brokered funds noted on slide 20, the weighted average rate is 5.36%, approximately $1.8 billion of the brokered portfolio is in CDs. While the remainder is in money-market funds tied primarily to an index. Of the CDs, $1.3 billion will mature by the end of May. And currently, we are repricing these new brokered CDs below 5% on an all-in basis.
As soon as the Fed moves, the index brokered funds will move in tandem as well. Additionally, the overwhelming majority of our public funds book is indexed to Fed funds, which will move immediately with rate cuts. We have almost $2.1 billion in promotional CDs, $1.1 billion of which are our 5.5% APY. six month promotional CDs with a weighted average life of between three and four months.
Beginning today, we have reduced the renewal rate on the six month CDs to 5.15% APY., consistent with the market, which should also helped drive expenses down. In addition to our enhanced liability sensitivity, which will be reflected in our IRR and one-year GAAP disclosures. We also expect to continue repricing our fixed rate loan portfolio upward. Our modeling indicates steadily expanding earning asset yields over the course of the year in both flat and down rate scenarios.
We anticipate that these factors acting in concert will allow us to grow Min and NI from quarter to quarter throughout 2024 and beyond. Total borrowings were just $621.8 million at December 31, a slight increase from the linked quarter. Still borrowings remain at a low level relative to earlier in 2023. Additionally, we may explore utilizing VTFP. during the first quarter to replace higher cost FHLB advances as one year OIS. has evolved favorably to FHLB rates, the substantial contingent funding capacity available to us and low level of borrowing utilization strengthens our balance sheet against any subsequent shocks and positions us well to capitalize on sustained growth in earning asset yields. We reported a provision of $3.5 million for the fourth quarter, which supported the net growth we experienced during the quarter, despite an improvement in the LTVs in the CECL model. Going forward, we expect provision that represents about 1% of loan growth. This is, of course, dependent on all else being held equal in the CECL model, which could, of course, be impacted by further changes to the macroeconomic forecast or specific reserves.
Adjusted noninterest income was $12.4 million for the quarter, down slightly from adjusted noninterest income of $13.4 million for the linked quarter adjusted noninterest expense totaled $83.8 million for the quarter, up from $81.3 million in the linked quarter. Going forward, I expect noninterest expense to be between $85 million and $86 million per quarter. These are all the comments I have today.
So with that, I'll turn the call over to Dan landfall.

Core loans held for investment, excluding mortgage warehouse loans increased by $383.6 million or 11% annualized in the fourth quarter. For full year 2023, loans grew by $569.9 million or 4.2%, both for the fourth quarter and for the full quarter was supported by demand from our core customers across our markets in Texas and Colorado. Average mortgage warehouse purchase loans were $408.4 million for the quarter, down 4.1% from the third quarter averages. Overall, we saw relative stability in these balances on a month-to-month basis, and we anticipate these balances to generally remain stable moving forward, credit quality metrics continue to remain strong during the fourth quarter, nonperforming assets were down one basis point to 0.32% of total assets at quarter end. And the bank again at just a single basis point of annualized charge-offs for the quarter.
For the full year 2023 net charge-offs also totaled just one basis point of average loans. We were successful in moving a property held in ORE out of the bank during the quarter, which resulted in a loss on sale of $1.8 million. We also took a $3 million write-off related to the one repossessed property remaining in ORE as we reposition that property for an eventual sale. This is consistent with our overall philosophy of disposing of ORE in an expedited manner overall asset quality trends are very positive. And while we are always vigilant against emerging risks, we currently do not see any areas of concern across the loan portfolio. We are particularly encouraged that classified assets fell by 34% from $191.1 million at September 30 to $126 million at December 31st due both to payoffs and upgrades in classified loans plus ORE, bank capital was just 6.2% at year end, indicative of the overall health of the portfolio, even in a higher rate index.
These are all the comments I have related to the loan portfolio this morning. So with that, I'll turn it back over to David.

Banks can while 2023 was a difficult year for our company and our industry. We are happy to be through it, and we remain very encouraged heading into 2024. We expect earning asset yields to continue to march upward, while short-duration funding cost pressures have already begun to abate as the forward curve points to mean for rate cuts on the horizon as Paul noted, we have already been able to reprice some of our marginal funding down in the first quarter, and we expect to see net expansion and NIR growth in the first quarter. In addition, we will maintain our discipline on the expense front, reallocating expenses to only the most strategic investments in our franchise. And to that end, we're excited to announce that we're opening our first full-service branch in San Antonio in the first quarter. This will allow our talented team already operating there to better serve our customers with a full spate of deposit products. Our company is fortunate to be supported by the growing Texas and Colorado economies, both of which are experiencing sustained inflows of labor and capital that insulate them from broader macroeconomic volatility, we're able to capitalize on this position of strength because across four of the most dynamic metropolitan markets in the country because of the incredible teams that we have across our footprint. I'm perennially thankful to our employees, all of whom are committed to serving our customers and communities by working together to provide outstanding service and fostering meaningful lasting relationships.
Thank you for taking the time to join us today. We'll now open the line to questions. Operator?

Question and Answer Session

Operator

Thank you. (Operator Instructions)
Brandon King, Truist Securities

Hey, good morning and thanks for taking my questions.

Good morning, Brendan.

Yes, so Paul, I appreciate all the commentary around NI deposits, but I was hoping to get a better sense of how you're thinking about the pace of NII growth in 2024.

I think in the first and second quarters, Brandon, we're going to see an inflection in NI some growth that will accelerate through the back half of '24 and then continue to accelerate through '25.
As we think about our balance sheet today compared to where it was even just a quarter ago, we have substantially enhanced liability sensitivity. As I mentioned in my prepared remarks, that's going to prepare us to really capitalize on any rate cuts that we see over the next six to eight quarters as well as just get the natural lift that we would have even in a flat rate environment from our earning assets repricing. So what we've tried to do strategically is prepare ourselves for any scenario that the Fed throws at us to benefit from after 2023.

Okay. That's helpful. And is there any way you could potentially quantify how much higher maybe kind of exit rate 2024 4Q '24 is higher and I could be relative to what it was this quarter?

If we think about it on a net basis brand. And I think we have the opportunity to get back to our historic levels of profitability by year end '25. It's really a it's really a six to eight quarter push for us. So I think we'll see some meaningful lift really accelerating, as I said, through the back half of this year.

And then within the NII expectations, what are you expecting on the loan growth front? It was pretty strong this quarter or expecting potentially a slightly slower pace going forward?

Yes, Brandon, the loan growth was outsized this quarter. And really just a lot of factors. Some deals from Q3 got pushed to the fourth and a number of our long-time clients. We're being opportunistic to pick up some assets here before the rates start coming down and cap rates start coming down on that, but we're expecting mid-single digit growth for the for the year. The pipeline is We indicated that the fourth quarter pipeline was really strong going into the quarter first quarter. We've still got a nice pipeline, but it's not it's not like it was going into the fourth quarter so we do expect that growth to moderate mid-single digits, 4% to 6% in that range. We do expect also we've done a lot of work the last couple of quarters in terms of our treasury and and our relationship officers and helping them understand the dynamic of growing deposits as well. So we're going to our base model budget and plan and commitment that is to grow our deposits at the same rate or approximately the same pace or faster than we grew our loans this year. So so we know understand the value and the importance of continuing to grow that core deposit base as we grow the loans, we expect both to be mid-single digits.

Thank you. I'll hop back in queue. Thanks a lot.

Operator

Brady Gailey with KBW.

Hey, thanks. Good morning, guys from already, but I know it's tough to forecast nowadays. But when you look at your sensitivity to down rates like say, in a down 100 basis points scenario, what does the model say about how much that could benefit spread income.

So our gap, just for example, Brady has doubled quarter to quarter. So we've substantially, as I said, enhanced liability sensitivity. I think you'll get meaningful double digit pickup in net income for even down 100. Right.

All right. And then, Paul, I heard your comment about getting back to kind of your historic profitability level by the end of next year. So the end of 2025, how do you guys think about historic profitability? Like what is that in terms of a core ROA or ROE or whatever metrics you guys focus on.

I think that as we think about it, Brady, but by second half of '25, depending on how much and how quickly the Fed rates come pull rates down, we should see us be able to achieve our more historic and then in the mid threes. So 350, 360 in that range is what our forward model show in the back half of '25. That happens more quickly if rates come down more quickly. But again, just I think what we think of the middle of the road assumption gets us to that level at that level, given what we've done with our cost structure, we would get back into that 120, 125 return on assets and then that should translate depending on any deal. What the capital level is, of course, would put us somewhere in the middle mid , 15% to 16% ROTCE. So those are the numbers, we think we will be back at by second half of '25.

All right. That makes sense. Then finally for me, I know independent has been a great organic grower over the years, but also a pretty good bank buyer. And you if you look at what's happened with the long end of the curve, like the 10-year bond yield went from five to basically 4% now. So that kind of helps with the interest rate mark piece of M&A. But maybe just an update on M&A following here. Do you expect it to be active this year, do you expect IBTX. to be still involved and interested in M&A?

Yes, we remain interested remain at close to a lot of really there are a lot of really high-quality banks, as you mentioned, like us that have struggled with margin and some of the banks have struggled with bigger AOCI. marks as you alluded to, Brady. So this does help immensely. We've been obviously focused on our own situation, mostly by trying to get our earnings and and I know back to more of moving back toward historic levels, but we remain interested. I do think there will be some M&A. I think right now that there's seems to be more of a let's wait and let this settle out for another quarter or two. So my guess is probably back half of it of '24. And we will definitely be interested and be a participant in that. Obviously, we we need to perform and we need our own stock to perform well in order to be at that table. But we expect to be there for our Creditex to Ricardo's.

Thanks, great.

Operator

Matt Olney with Stephens.

Hey, thanks. Good morning.Just wanted to go back to the discussion around the NINIM. outlook, the theme that we've been talking about stabilization for a while, but the results continued to erode lower. I think investors are looking for more details as far as the outlook here. So in the fourth quarter than it was, call it 249 and the ENI was $106.3 million. Can you be more specific about your near-term expectations and we talk about stabilization and inflection? I think those terms can be kind of used loosely sometimes. So any more details you can provide on on both the NI. and NIM. in the first quarter?

Thanks.
Sure, Matt. Happy to happy to give you a little bit more color on that as we look at our modeling multiple scenarios that we show in both flat and down rate environments and we modeled three scenarios specifically, we modeled the flat rate environment. We modeled the forward curve and we model the Fed Summary of Economic Projections. And as we talk through those in our out, though, all of those three scenarios show us growing them by five to seven basis points in the first quarter from there that growth accelerates to where we can get back to call it a 3% minimum by the end of '24. And then as we mentioned, back to a $3.5 million by the end of '25. So that's our target. And that's really what we're focused on as I mentioned again, I mean, we moved a lot of pieces around on the balance sheet in the fourth quarter to enhance our liability sensitivity and capture that upside of down rate environments. So we wanted to make sure that we were optimally positioned to recapture the earnings that we lost on the way up for rates when rates come back down. And so that that's more of just a modifier from the flat rate scenario where we're still going to grow them, starting, as I said, by five to seven basis points. And then board accelerating over the back half of the year.

Okay. That's helpful, Paul, thank you for that.
And I guess if the name is going to move higher in the first quarter from I would assume that on a monthly basis, the NIM. has already inflected at some point late in the fourth quarter. Is that a reasonable assumption? Any color there that is

that is a reasonable assumption.

Okay, perfect.
Thanks. And then I guess switching gears on the on the expense side, I think you gave us the $85 million, $86 million, Alec from here a touch higher than what we've seen over the last few quarters. As far as expectations, anything to call out there,?

Just a normal first quarter expenses are generally higher for us. We have obviously merit and bonus season. And as we think about some investments that we have to make, obviously, Matt will remain focused really on expense discipline and we'll be mindful of trying to find any offsets we can to where we have expense increases. That's something that, as you know, has been a focus of ours for the last six quarters. And that's something that we're going to remain focused on in 2024.

And just to clarify the $85 million to $86 million, that's a that's a guidance or a goal for the next several quarters that I'm going to catch that right?
Was that just the first quarter?

Yes, yes, that's my expectation. Really around 85 million for the next several quarters.

Perfect. Thanks, guys.

Thanks, Matt.

Operator

Thank you. Our next question comes from the line of Michael Michael Rose with Raymond James. Please ask your question.

Good morning, everyone. Thanks for taking my questions on maybe what, Dan, I just wanted to get some color. Good morning. Just want to get some color on the via the CRE credit this quarter. And what the resolution could potentially look like there? And then I was also just curious as to why some of the oil loss flowed through fee income as opposed to charge-offs would just like some clarification there.

So good morning, Michael. This is Dan. The credit that we moved to nonaccrual, which I'm assuming is what you're asking about, was one one property in Houston, and that has been you it does. But keeping that loan remains current and owners are preparing to sell that asset. And we just felt like it was in a position that there might be a slight loss on it. So we just positioned it for that, but we expect that that will be resolved sometime here in the first part of the year.

And as it relates to as it pertains to the accounting treatment, Michael, we've always taken OREO expenses and income into non-interest income and non-interest expense, respectively. We've recently moved I think I noted on the third-quarter call, Oreo income and expense to offset each other into non-interest expense. But when we book a gain or loss on sale, we put that through the fee line, consistent with what our what our auditors and what our internal accounting teams feel is the appropriate accounting treatment.

Okay. That's helpful. And then maybe just I know we've probably beaten the margin question a lot here. But just to kind of follow up on that, what does your kind of baseline forecast include in terms of cuts for this year.
And I guess on the step-up from here to kind of what you talked about, I guess for mid to late next year in the mid 350, 360s, is a really big ramp. And I think that's going to be probably difficult for some investors to kind of see. So can you kind of just give us the help to help us with the bridge yet to kind of get there and kind of what it really needs to go.
Right. And your baseline scenario isn't correct. What could that range look like if we're if we're higher for longer, for instance, or you're you have more growth and you have to fund it with the higher cost deposits, kind of et cetera. Just looking for kind of a favorable base kind of case for the margin?

Sure. Happy to walk you through the modeling logic there. As we think about a base case scenario, we're assuming a flat rate environment. As you know, over the last four quarters, we've really talked about our ability to reprice earning assets due to our fixed rate CRE book and our ability to roll those loans over new volume rates are coming on right at 8% right now. So we've been able to continue to expand earning asset yields even as short-term rates have peaked, and that's something that we're going to be able to do even in an environment where you see several Fed cuts. So we're focused obviously on expanding the margin topping out those deposit costs even in a flat rate environment. And as I noted, because the curve is pointing down and because we have run two other scenarios with 75 basis points and 180 basis points under 25 basis points of cuts, respectively. And we are going to be able to capture a substantial amount of deposit cost decreases on the way down, which will help drive that margin even higher. All of our marginal funding is held really short. And as you know, Michael, that's really expensive to do at the top of the cycle. We've done that so that we can really focus on optimizing NI and then growth in 2024.
If I look across the portfolio, I look at the FHLB advances, for example, are right at 543. As I mentioned, the brokered portfolio at 536, our six month branch CDs, $1.1 billion of those at 550 APY for us, we have a significant opportunity even in the first quarter to reduce all of those costs as all of those individual components, I've seen 30 basis points, 40 basis points of pickup on spread as we begin to reprice those having helped shore, that's really what's going to drive the margin, the upside to reducing the funding costs is ultimately what's going to create the delta between a base case scenario where you have a flat then funds rate environment and an upside case where you have down one 50 call it.

Okay. That's really helpful. Thanks for taking my questions, guys.

Thanks, Michael.

Operator

Stephen Scouten with Piper Sandler.

Yes, thanks. Good morning.
Hey, Paul.
I wanted to follow up, I think I heard you say that the down 100 basis points scenario was going to be and up double digit and I kind of percentage. And I'm just kind of wondering versus the last Q, I think where it showed 1.66%, down 100 basis points like what I was saying, whether it's in the modeling or what you guys did from a hedging or a structural standpoint to create the delta that seems to have kind of if there's

Three things there, I'll correct you slightly double digit net income and I is right on the cusp of double digits. But yes, I mean, it's a substantial increase in our liability sensitivity from last quarter. Two things really driving that. One is the updated deposits study that we do and the remixing of non-maturity deposits into short duration time deposits and other wholesale types of funding and the back for us has substantially enhanced our liability sensitivity.
The additional thing, as I noted, Stephen, is the indexation of a substantial portion of our deposit base to Fed funds. So our ability to drop deposit costs, whereas in a normal down rate environment, if we have exception pricing as a tool that we use to negotiate with our depositors. It's a little bit harder to bring those costs down for us. Now we have that index tool that's going to be able to drop our deposit costs instantaneously with Fed. So all of those actions that we undertook to enhance that portion of our deposit base and increase that liability sensitivity. But really the reduction of those non-maturity deposits was the single largest driver of that model.

Okay. And I think last quarter you had said it was $3 billion to $4 billion in index deposits or has that number gone up further on a quarter over quarter basis?

That doesn't include the six month CDs, the promo CDs as well as some of the broker CDs. So if you look at the portfolio in total, we're going to be able to move roughly half of the deposit book, which is really a substantial portion of the interest-bearing deposit book inside of four months for any move in Fed funds.

Okay, great. That's extremely helpful.
Thanks. And then I guess just my only other follow-up is kind of I'm curious what you guys are seeing around new CRE demand obviously put up really strong growth this quarter. And then I respect you heard I heard the comment that pipelines maybe aren't quite as strong, but still guiding towards positive loan growth, how what's kind of the pushback on these 8% rates within the CRE markets? And do you think we'll see kind of a pickup in the back half if we do indeed get the projected rate cuts?

Yes, the granularity of our loan requests continues to be the theme, Steven, as we as we go forward, we've seen a lot of requests generally smaller your requests, acquiring families, acquiring assets, investment groups, acquiring assets is what we've seen on the CRE side. We have seen a drop in demand for large CRE deals. We're not seeing much construction and haven't been doing much construction lending so on. And so we haven't seen much there. We're really looking weak as we plan for 2024, '25 STEVEN. We've invested, as Paul mentioned earlier, in doing what we can to balance our our future growth away from being so CRE concentrated. We're in the process of hiring some additional commercial industrial lenders in our major markets, adding to the teams we already have there. And then also SBA is something, again, given our granular nature of our requests, we do have some SBA requests. We haven't set that up as a big national business or anything, but in terms of assisting our customer. So we think we've missed some opportunities there. So we've added to our SBA team are adding to our SBA team in Houston and in Austin in particular. So we're doing what we can on that front. But it's partly also why we're thinking, Stephen, that it's kind of a mid-single digit growth because of the uncertainty out there in the CRE market and our desire to really balance up our loan growth with our deposit growth. So we think those are all achievable for 2024.

Great. Makes a lot of sense. Thanks for all the color, guys. Appreciate it. Thanks a lot.

Thank you.

Operator

Brett Rabatin with Hovde Group.

Hey, guys, good morning. I wanted to go back, Paul to a question of to a comment you made earlier about the bank term funding program. It sounds like you were going to utilize that to some extent this quarter, presuming that does run out at some point was was the usage of the some of the BTFP., is that going to be to replace? I didn't quite catch if that was to replace some of the borrowings or if you indicate intended to kind of ride the spread that a lot of banks seem to be enjoying at the present time.

Yes, so for example, Brad, if I'm looking at the FHLB advances, which at 1231 were cost us 543 basis points. And I look at where one year OIS. is today, even at 490, a 50 basis point spread from where that funding is. And so that would be an example of where we would utilize BTFP. prior to its expiration to lock in that funding. And it's a way to reduce our liquidity costs.

Okay. And then you've talked quite a bit about the funding side of the equation.
Can we talk about of the lending side and just how much of the fixed rate loan portfolio reprices on this year and maybe in 1Q specifically?

We anticipate about $2 billion of fixed rate assets in variable rate variable sorry, adjustable assets to reprice over the course of 2024. That starts in the first quarter with $700 million, and then we'll accelerate from there through the end of the year. So really the bulk of the repricing activity is pretty evenly distributed, but it's a slight acceleration from the beginning of the year. We're looking at a maturity schedule, some of those contractual maturities. Obviously, we expect to be able to reprice those up about 300 basis points similar to the adjustable notes. So if you think of our three to five-year fixed-rate CRE loan book, if we ever make alone past that NCRE. we have an adjustable mechanism at the five-year mark. So that's what I'm referring to. When I talk about the adjustable rate book, in addition, you still do have some prepayments. So we still are seeing even at much lower level, some prepayments coming from our core customers. Obviously, as we've booked loans at the top, we put in prepayment penalties, it usually in the form of three to one to trying to mitigate the down rate environment risk that we would have to earning asset yields.
So all in Brett, we do expect some meaningful repricing of assets over the course of the year that should lift earning asset yields.

Okay. And then lastly, just from and I know mortgage is tough to predict, but you know, in terms of thinking about fee income this year, obviously fee income was kind of flat down and '23. Any drivers. I think you talked a little bit about treasury, David, any drivers to fee income in '24 that might be notable aside from a possible increase in mortgage, assuming that gets back to a more normal level at some point?

Yes.
Brett, I think you hit the nail on the head. I mean, apart from mortgage, which is a wildcard and obviously if rates come down some more, we could see some meaningful lift in mortgage demand, we would expect relative stability in the other areas of fee income.
We're focused on fees.
Obviously, to the extent that we can optimize those lines, we're going to do it. But I think mortgage is really what's going to swing that line from one direction to the other.

Okay, great. Appreciate the color.

Operator

Brandon King with Truist Securities.

Hey, I had a few follow-ups. I just want to understand the potential range of outcomes for the new home seems like 350 by the back half of 2025 is kind of a baseline scenario. So is it fair to assume that if the forward curve does play out that the margin could be closer to 4% and the 2024.

So I think I think, Brandon, in a scenario where we have 100 call, it 150 basis points of cuts, 125 basis points because that's really going to get us to that 355 to 365 range in a scenario where we have flat rates, it's going to take just a little bit longer to get there. But no, the helpful thing for our balance sheet, obviously is if we're able to continue repricing our earning assets at current rates, i.e., the curve doesn't move that's going to position us for continued expansion as well. So if you think of all the moving pieces together, the range of outcomes between those three scenarios is maybe a little tighter than you might anticipate, even though we have progressed our liability sensitivity that really offsets any impact on earning asset yields in a down rate environment.

Okay. No, that makes sense. And then you seem pretty confident in hitting those net interest margin targets, which are modeling forecast. But could you just talk about any risks that could prevent you from getting to where you think you are?

Of course, that macro economic and liquidity environment is always going to pose a risk to the outlook. It's hard to forecast the unknown unknowns, as you know, Brandon, but I think we've been pleasantly surprised in the soft landing narrative how the economy continues to perform how we continue to see available liquidity, how we're able to reduce some of our marginal funding costs. And obviously, if the liquidity environment changed or if we saw any meaningful reduction of liquidity in the banking system that could create some upward pressure on funding costs even in a down rate environment. I'd say that's probably the biggest risk, although as it stands today. I really don't see that.

Okay. Very helpful. Thanks for taking my follow-up questions.

Operator

At this time, I'll hand the call back to you, David Brooks for closing remarks.

Thank you for joining us today. We as I said in my prepared remarks, it was a difficult year in 2023, but we feel very encouraged and positive about the trajectory of the bank's margins and earnings here going forward. So appreciate everyone's time. Hope they're going to integrate.

Operator

This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.