Good morning, ladies and gentlemen, welcome to the Amalgamated Financial Corp. Fourth Quarter 2022 Earnings Conference Call. During today's presentation, all parties will be on a listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Jason Darby, Chief Financial Officer. Please go ahead, sir.
Thank you, Operator, and good morning, everyone. We appreciate your participation in our fourth quarter 2022 earnings call. With me today is Priscilla Sims Brown, President and Chief Executive Officer. As a reminder, a telephonic replay of this call will be available on the investor section of our website for an extended period of time. Additionally, a slide deck to complement today's discussion is also available on the investor section of our website. Before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We caution investors that actual results may differ from the expectations indicated or implied by any such forward-looking statements or information.
Investors should refer to slide two of our earnings slide deck as well as our 2021 10-K filed on March 11th, 2022 for a list of risk factors that could cause actual results to differ materially from those indicated or implied by such statements. During today's call, we will discuss certain non-GAAP measures which we believe are useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with the U.S. GAAP. A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release as well as on our website. Let me now turn the call over to Priscilla.
Thank you, Jason. Good morning, everyone. We appreciate your time and your interest today. This morning, I will provide an update on the progress we have made on our Growth for Good strategic plan and my thoughts on the next leg of our strategy journey. Jason will provide an in-depth review of our fourth quarter financial results. With 2022 concluded, culminating in our third consecutive quarter of record earnings, I feel good about what we've accomplished and confident that we can execute the next leg. Before discussing future plans, I'd like to spend some time on the quarterly and full-year results. Starting off, we reported another record quarter of earnings at $0.80 per share, while we reported core earnings of $0.83 per share. For the full year 2022, we grew earnings per share of 56% to $2.61.
We delivered 6.1% loan growth as compared to the linked quarter, increasing nearly 24% or $785 million to $4.1 billion over the year. Our net interest income was $67 million for the quarter and increased $66 million or 37.6% to $240 million over the year. I have spoken often about our commitment to credit quality and the efforts we have undertaken beginning over 18 months ago to better condition our balance sheet against future credit risk. Over the course of the year, non-accrual loans decreased to $22 million or 0.5% of total loans. Equally as important, credit quality greatly improved as classified or criticized assets declined by $125 million or 54.3% to $106 million.
At the beginning of 2022, we set a macro target of a 1% return on average assets. While modest as an industry peer comparison, this target represented a 25% increase from our previous year performance. Given our improved profitability and earnings power, the return profile of the bank has markedly improved, and our return on average assets expanded 24 basis points to 1.05% by year-end 2022. Before leaving our results discussion, I'd like to take a moment now to discuss our fourth quarter deposit metrics. Average deposits decreased by $576 million to $6.7 billion, largely due to the $513 million expected runoff of our political deposits following the congressional elections.
The runoff during the quarter was at the high end of the estimates that we communicated during our third quarter call as this election cycle was highly competitive, evidenced by the thin margin of both majorities in Congress. We were very pleased that our political deposits grew to approximately $1.3 billion during the year. Our political deposit trends are interesting as both our high and our low balance points have grown over previous cycles. With another highly contested presidential election already in its early phase, political deposits have started to build already through January. We expect our political deposits to grow steadily throughout the year by approximately $250 million. During the quarter, we had some nice non-political deposit wins. I am encouraged by our deposit pipeline.
Although we expect our deposit base, including political, to be more rate sensitive in 2023 based on a protracted higher rate environment, we believe our deposit-gathering franchise and mission-aligned thesis will be a differentiating competitive advantage. Over a year ago, we described the fundamentals of the first leg of our strategy were to accelerate loan growth and improve our profitability, managing our risk exposure prudently, and growing our positive impact on society. Underlying these fundamentals were a set of financial targets that focus on us being the most improved bank in the country for financial performance. The combination of credit profile improvement, lending execution, deposit retention strategies, and our core earnings strength positions us well for a changing economic environment and success as we are on the precipice of our second century as a U.S. banking institution.
As we celebrate our full first 100 years, I could not be more inspired by the team we have in place to propel this great bank into its next centennial. The expansion of our lending platform has been a priority for our management team. The lending and credit risk management teams we have built over the last six quarters should continue to deliver results in the segments of the market where we see opportunity to grow, including real estate, sustainability, and not-for-profit. In particular, we believe sustainable lending holds significant opportunity where it is estimated that $3 trillion will need to be invested in the United States to achieve net zero emissions by 2050. This is a significant market opportunity, which we believe will be less impacted by economic or cyclical factors.
Our bankers are experts in sustainability and underwriting commercial loans across the sector, such as storage for solar energy, geothermal projects, and biodiesel projects. We also anticipate that the fee increases that we negotiated with our customers last year in the trust business will take effect in 2023. I'm confident that the rolling of our trust business under our chief banking officer will provide the unified customer focus needed to drive better results. Similar to our digital and customer strategy, we see substantial growth to cross-sell banking services to our trust customers and trust and asset management services to our banking customers. As mentioned on previous calls, we will be focused this year on executing our digital transformation. We see a tremendous opportunity to tie our commercial business into a reimagined consumer business and reach through our commercial customers to their members.
For instance, if we're doing business with a large nonprofit, we want to attract their members and donors who are naturally aligned with Amalgamated. To be successful, we need to offer products and services that are competitive and meet their needs, as well as enhance the customer experience for both our commercial and consumer customers. To date, we have conducted an RFP for a digital plan, and we expect to make a selection during the first quarter. The combination of our efforts in both marketing and digital were reflected in the fourth quarter expense rate that we expect to remain constant on those expenses through 2023. We recognize these investments need to be made. As was the case with our lending strategy, we will make disciplined choices funded through profitability with a requirement for timely returns.
I am excited moving Amalgamated into its next centennial and the next leg of our Growth for Good strategy. Our supportive issues that are consistent with the social responsibility of a bank and importance to our employees, our customers, and the majority of Americans will always be core to our mission. I expect continued discussion around positions we have taken, and I understand this and encourage a sensible dialogue to build a better understanding of views. Ultimately, I believe our mission paired with our financial performance this year shows the resilience of our strategy. Now let me turn the call over to Jason.
Thank you, Priscilla. Net income for the fourth quarter of 2022 was a record $24.8 million, or $0.80 per diluted share, compared to $22.9 million or $0.74 per diluted share for the third quarter of 2022. The $1.9 million increase for the fourth quarter of 2022 was primarily a result of a $0.7 million decrease in non-interest expense, a $0.9 million decrease in provision for loan losses, and a $1.3 million decrease in income tax expense related to an electric change in taxable income recognition, offset by a $0.3 million decrease in net interest income and a $0.8 million decrease in non-interest income.
Beginning on slide five, exclusions related to solar tax equity investments were $1.7 million in accelerated depreciation for the fourth quarter of 2022. Because of the income statement volatility associated with the accounting for these investments, we believe metrics excluding the timing impact of tax credits or accelerated depreciation is a helpful way to evaluate our current and historical performance. Core net income excluding the impact of solar tax equity investments, a non-GAAP measure for the fourth quarter of 2022 was $27.2 million or $0.87 per diluted share, compared to $24.8 million or $0.80 per diluted share for the third quarter of 2022.
Turning to slide seven, deposits at December 31st, 2022 were $6.6 billion, a decrease of $565.3 million from the third quarter of 2022. The decline in spot balances was primarily due to the expected decline in political deposits given the conclusion of the congressional elections in the fourth quarter of 2022. Through January 20th, 2023, deposits have increased by approximately $225 million to $6.8 billion, including approximately $135 million of brokered time deposits strategically issued to reduce fundings costs.
Non-interest-bearing deposits represent 53% of average deposits and 51% of ending deposits for the quarter ended December 31st, 2022, contributing to an average cost of deposits of 34 basis points in the fourth quarter of 2022, a 20 basis point increase from the previous quarter due to our repricing actions in response to the more competitive environment for deposits in our markets. Deposits held by politically active customers were $643.6 million as of December 31st, 2022. A decrease of $513.7 million on a linked quarter basis. As noted on our previous call, political deposit trends are difficult to predict, but we are at the natural low point of our balances as the election cycle concluded in November.
We expect political deposits to begin rebuilding in the first quarter of 2023. We have experienced $5.2 million of political deposit inflows through January 20th, 2023. Turning to slide 12, total loans receivable net of allowance and deferred fees and costs at December 31st, 2022 were $4.1 billion, an increase of $231.8 million or 6.1% compared to September 30th, 2022. The increase in loans is primarily driven by a $120.6 million increase in Commercial and Industrial loans, an $82.7 million increase in multifamily loans, and a $39.8 million increase in residential loans.
Offset by a $3.8 million decrease in consumer and other loans, a $1.3 million decrease in construction and land development loans, and a $2.9 million decrease in commercial real estate loans as we continue to reduce that asset class exposure. During the quarter, we had $12.7 million of payoffs of criticized or classified loans as the bank's credit quality continued to improve. The yield on our total loans was 4.24% compared to 4.11% in the third quarter of 2022. On slide 13, our net interest margin was 3.56% for the fourth quarter of 2022, an increase of six basis points from 3.5% in the third quarter of 2022.
The margin increase was driven by continued loan growth, which substantially improved our asset yield mix, offset by increased rates and average balances of interest-bearing liabilities, particularly in short-term borrowings. This increase in funding costs was expected, as we communicated during our third quarter call, that borrowings would elevate in the fourth quarter in relation to the decline in political deposits. Prepayment penalties earned and loan income contributed one basis point to our net interest margin in the fourth quarter of 2022, compared to four basis points in the third quarter of 2022. Core non-interest income, excluding the impact of solar tax equity investments, a non-GAAP measure, was $7.3 million for the fourth quarter of 2022, compared to $7.5 million for the third quarter of 2022.
The decrease of $0.2 million was primarily related to slightly lower trust department fees, a $0.2 million loss on the disposition of an OREO property, and a $0.6 million loss on the sale of non-performing held-for-sale loans. Mostly offset by increased business banking fees and a one-time beneficiary income on bank-owned life insurance. Core non-interest expense and non-GAAP measure for the fourth quarter of 2022 was $35.6 million, a decrease of $0.7 million from the third quarter of 2022. This is primarily driven by a $1.5 million decrease in professional fees, offset by a $0.5 million increase in advertising and promotion expense, and increased other expenses related to recruiting services.
Looking forward, we expect our non-interest expense to modestly rise as we embark on the next leg of our Growth for Good strategy, as Priscilla discussed earlier in the call. Moving to slide 17, non-performing assets totaled $34.8 million or 0.44% of period-end total assets at December 31st, 2022. A decrease of $19.5 million compared with $54.3 million or 0.7% on a linked quarter basis. The decrease in non-performing assets was primarily driven by the sale of $9.6 million of restructured residential loans held-for-sale and $12.7 million of payoffs related to criticized and classified loans. Our criticized assets declined $7.4 million or 7% to $105.6 million on a linked quarter basis.
The allowance for loan losses increased $2.9 million to $45 million at December 31st, 2022, from $42.1 million at September 30th, 2022, primarily due to higher loan balances. At December 31st, 2022, we had $27.8 million of impaired loans, for which there was a specific allowance of $5.7 million compared to $38.2 million of impaired loans for which a specific allowance of $5.2 million was made. The ratio of allowance to total loans was 1.10% at December 31st, 2022 and 1.09% at September 30th, 2022. The ratio of allowance to non-accrual loans was 207% at December 31st, 2022.
Provision for loan losses totaled $4.4 million for the fourth quarter of 2022 compared to $5.4 million for the third quarter of 2022. The decrease in provision expense in the fourth quarter of 2022 was primarily related to $1.6 million in charge-offs related to Non-Performing Loans that were transferred to held-for-sale in the previous quarter and subsequently sold in the current quarter. Adjusted our provision for loan losses in the current quarter increased by $0.6 million related to higher loan balances, increases in certain specific reserves, and elevated charge-offs in our consumer solar loans.
Moving along to slide 18, our core return on average equity and core return on average tangible common equity, excluding the impact of solar tax equity, were 21.8% and 22.6% respectively for the fourth quarter of 2022. We did not repurchase shares of our common stock during the fourth quarter and have $28 million of remaining capacity under our $40 million share repurchase program. Additionally, we have declared our quarterly dividend of $0.10 per share. Our capital position remains solid to support our ongoing growth initiatives and improved to 7.52% during the quarter.
Slide 20 shows a reconciliation of the change in tangible common equity and related tangible book value. As expected, during the fourth quarter, the Federal Reserve Board continued its cycle of interest rate increases with a 75 basis point and 50 basis point increase at each of the November and December meetings, respectively. The Fed has also messaged further rate increases to occur in the first half of 2023. Despite the consistent rising interest rate environment through the fourth quarter, the Fed stepped down the rate increase in December, which reduced the market volatility in the fourth quarter and resulted in very little change to our tax-affected mark-to-market adjustment to the fair value of our securities portfolio from the third quarter.
As such, as of December 31st, 2022, tangible book value per share, a non-GAAP measure, was $16.05 compared to $15.37 as of September 30th, 2022, increasing almost entirely related to quarterly earnings. We are also pleased with our tangible common equity to tangible assets of 6.30% for the quarter in comparison to 6% from the previous quarter, reflecting our conservative balance sheet management and capital position against our general target of 6%. As a reminder, fluctuations from mark-to-market changes have no impact on our Tier 1 capital position.
Following the trajectory of the third quarter, our loan growth exceeded our expectations in the fourth quarter as demand for our mission-aligned real estate lending and our sustainability lending continues to increase based on fiscal spending projects and increased funding in our focus segments, paired with the investments we made in talent where needed. That said, we anticipate net loan growth to moderate in 2023 to approximately 2%-3% sequential growth, led mainly by our commercial portfolios. As the industry pivots to an overall conservative outlook relative to the uncertainty that exists for 2023, we have implemented actions relative to expense and balance sheet management, which correlate to closely managing our solid current liquidity position, access to capital, and borrowing capacity to avoid realized losses.
Turning to slide 21, considering the economic uncertainty and the forward curve suggesting further rate increases in the first half of 2023, we are initiating full-year guidance for 2023, which includes core pre-tax, pre-provision earnings ex solar of $142 million-$148 million and net interest income of $256 million-$263 million. As the Fed continues to raise interest rates, generally speaking, the benefit to our net interest income from asset sensitivity reduces. Going forward, we estimate an approximate $0.5 million increase in annual net interest income from a parallel 25 basis point increase in short-term rates and a decline of approximately $0.7 million if only short-term rates increase by 25 basis points.
We are taking a cautious view towards the economy given the risk of recession as the Federal Reserve has aggressively raised rates over the last year. We are focused on optimizing our loan portfolio by continuing to replace older, lower-yielding loans with higher-yielding loans and expect modest margin expansion and net interest income growth as we improve our loan yields while also reducing high-cost borrowings over the course of the year. That said, we anticipate net interest income to decline to approximately $63 million-$65 million in the first quarter of 2023 as we recognize the impact of the borrowings used to offset our political deposit outflow. Looking forward, we know we will need to be more competitive to maintain and attract deposits, which will continue to drive upward pressure on our funding costs.
That said, we will still be repaying high-cost borrowings at lower cost deposits throughout the year. We believe this is a significant opportunity to drive earnings. As Priscilla noted, we are pleased with the bank's third consecutive quarter of record results, which demonstrates the resilience of our sustainability-focused lending segments and strategic initiatives designed to grow the bank while improving our profitability and returns. With that, I'd like to ask the operator to open up the line for any questions. Operator?
Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, you may press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Janet Lee with JP Morgan. Please proceed with your question.
Hi. Good morning. I want to start off with your NII guidance of $256-$263. Are you guys still assuming that 33% interest-bearing deposit beta that you guys gave in the third quarter? Hello?
Of a 40% beta on any incremental rate rises. When we think about how we're modeling it out, you know, it's really based on any forward increases to the Fed rate. But we're not taking it as 40% kind of across the entire portfolio on a blended basis if that makes sense. You know, as you've probably seen in the first 300 basis points of rate rises, you know, our deposit beta was very low. Only more recently in the last hikes that happened in November and December, and as we're projecting into January, I'm sorry, the February meeting and beyond, you know, 40% on those numbers.
We think that overall, you know, our cost of funds should remain relatively stable, when factoring in kind of the previous performance of the deposit base, over the first 300 basis points of rate rise.
Okay. Just to make sure I understand this correctly. If we look at it in terms of the cycle to date, I mean, through the cycle interest-bearing deposit betas, is it gonna be lower than 40%? Is that what you said?
I'm just saying, I think on the incremental increases that are coming from the Fed in the current year, we're gonna look at 40% on the interest-bearing deposits. That's kind of our model. I'm not taking that as a number across the entire portfolio. I'm sorry, as a 40% beta. What I'm trying to say is, I think there's an implied benefit that we've received in the first 300 basis points of rate rise. I think, you know, our overall blended cost of funds should remain, you know, stable from where we've been right now other than the increases that we've seen in, you know, in the November or the December Fed hikes and then what we're projecting going forward.
It's really kind of a prospective 40% beta on interest-bearing and nothing, on any retrospective rate hikes.
Okay. All right, got it. I think there's a lot of moving pieces with the, with like the debt pay down. So in terms of the trajectory of NIM directionally through 2023. It's fair to assume a step down in margin from the 4Q 2022 levels starting in 1Q 2023. Are you assuming a stabilized NIM after first quarter? How should we think about the trajectory of NIM?
I think that's exactly the way to think about it and the way we're thinking about it. There should be a little bit of margin compression in Q1 as the full effect of the deposit repricings we did at the, you know, near the end of the fourth quarter and also the effect of the borrowings that we've had, you know, take hold in our, in our margin calculation in Q1. We do expect that to stabilize. Then, you know, as we look out throughout the remainder of the year, you know, our ability to really drive deposits, you know, through the, through the deposit gathering franchise, you know, could favorably impact the margin if we're able to pay down more borrowings than we're modeling right now.
Okay. That's helpful. Just on the deposit growth, you're expecting around 3% balance sheet growth for 2023. Can you just give us more color around how you're seeing your deposit trends being in 2023? I know there's a lot of, you know, seasonality to your deposit trends on a period end basis. If you look at it on an average deposit balance, like how should we think about that growth prospect in 2023 versus full year 2022?
Yep. I think we're trying to take a very conservative view on deposit growth throughout the year and be realistic relative to the deposit market and the competitive environment that we're in. You know, as the liquidity has continued to tighten in the Fed, you know, we're expecting a protracted higher rate environment. You know, a lot of what we're showing in our projections, you know, is assuming a conservative approach. If I were to think about it, you know, probably generally speaking, we'd see a 5% opportunity to grow deposits on an average basis, you know, throughout the year.
You know, I would look at that as sort of accelerating, as we get into Q2, three and four, you know, particularly as we would expect the, you know, the political deposits to start to build, at a more rapid pace, you know, leading up to the 2024 elections. That's, that's generally how we're thinking about it right now, Janet.
Okay. 5% on a full year basis for average deposits.
That's our conservative model, yes.
Okay. I wanna shift to credit. It's good to see your NPLs going down. Looking at your net charge-offs in the fourth quarter, it looks like all of your charge-offs were coming from solar loans. If I'm doing some rough math here, I think I'm getting about 1.5% loss ratio on that consumer solar loan balance, which is a little bit up from that 75-100 basis point range you mentioned in the previous call. How comfortable are you with that credit risk on this portfolio? I know you guys should be working on the CECL adoption started in January. I assume you guys have done, you know, there's some, you know, expectation that you guys have with that portfolio.
Do you expect a continued sort of tick up in loss rates on that segment? Can you just help us think about that?
Yep, absolutely. Yeah, the consumer solar charge-offs have ticked up a bit from where we were originally thinking they were going to be. I think, you know, as rates have accelerated, you know, and remained in a little bit of a higher place, you know, we've seen a little bit more stress in a little bit of a faster fashion in that portfolio than we were originally anticipating. You know, that said, I think we're still just under some of the thresholds that we have with loss protections that we've got built into some of our arrangements right now. Most of the charge-offs that you're seeing, you know, are coming in before some of those protections kick in.
I feel like there's a little bit of a governor, on that, you know, on that charge-off ratio kind of moving forward. It is something that, you know, we think is going to be a little bit higher than 1%. You know, whether it gets to 1.50% on an annualized basis is a little tough for us to project. Right now, I think, there's really two things in the solar portfolio. Number one, you know, we're really not adding any more solar in the consumer space throughout at least the first half of this year, maybe some minor things.
More importantly, I think what we've seen now is, you know, an opportunity for us to really tighten up on the credit box that we, you know, that we're offering. I'm sorry, that we're requiring for additional purchases that we're going to be doing. You know, with regard to things that are already on the books, you know, we're paying very, very, very close attention to the individual loans that are in fact going delinquent. We're working with the providers right now to make sure that, you know, that we're getting all the benefit of what they offer in terms of collection services and other things that, you know, would potentially put a governor on this consumer solar charge-offs.
To your point on CECL, obviously it's a significant component of CECL. You know, we factored that into, you know, what we've been doing to model right now. You know, in terms of how it would lay out, you know, we're not quite ready to talk about that since we haven't vetted, you know, our entire control structure, you know, through our audit team yet. What we do see is the, you know, not a significant impact on capital when we do the adoption and the build through retained earnings. Probably we'll have an overall increase in our coverage ratio, a triple O , you know, that would obviously have a component of it related to solar.
Okay, great. Thanks for taking my questions.
Thank you, Jane.
Our next question will come from the line of Alex Twerdahl with Piper Sandler. Please proceed with your question.
Hey, good morning.
Hi.
Good morning.
Hey, Alex.
Wanted to ask about loan growth. I know you guys did a lot of hiring at the end of 2021, early 2022. I'm just curious, you know, as those teams or if those teams and people that you've hired are now kind of fully up to speed, or if there's additional kind of low-hanging fruit to expand the loan portfolio early in the new year.
Yes, Alex, you're right. You know, we've talked about this on prior earnings calls too, which is that our we had a robust pipeline due to the banker growth and hiring initiatives that took place back in first and second quarter of 2022, and that materialized through both the third and fourth quarter as those banker relationships developed into securing loan originations at a pace ahead of plan. You know, in the quarter, the biggest drivers were our commercial portfolio, with our C&I book, at $120.6 million, primarily a function of our unique climate finance products. And we had an increase of $82.5 million or so in multifamily. The retail resi book was also supportive at nearly $40 million. That was, that was the quarter.
We think that you'll still continue to see nice opportunities coming our way and a very nice pipeline on both the multifamily book and also in the areas of sustainability. You know, when you've got a net zero sector that's looking like it's valued at around $3 trillion, we've got bankers now, both existing and some of those that we brought on, with unique skills and expertise in these areas. We're really seeing the opportunity to bring on additional loans. Also, you know, we have the opportunity to be quite choosy in this environment and bring on the kind of quality that we want to see in the book.
Oh, great. Then, you know, when you think about the sustainability loan, C&I loan, since I think a lot of us probably aren't familiar exactly what that might look like, what sort of spreads or pricing or indexes would those be repricing off of? Kind of what are new loan yields today that we could maybe help to think about where the overall loan yield could be going over the next couple of quarters?
Yeah. Let's maybe focus a little bit more on the, on the yields. You know, I think they're coming in right now, call it, you know, 5.75%- 6%. They move around a little bit. Depends on sort of the, you know, the underwriting criteria, Alex. I think in general, you know, the spreads are fairly wide, you know, for us in terms of, you know, being able to have profitability and good return on those. I'd have to get back to you on some specifics. It might be easier. 'Cause I need to break it down a little bit between the types of sustainability deals that we get into.
It might be a little bit easier to share some detail that way. Right now, I'd say generally speaking, you know, they're coming on in the upper 5%-6% range.
Okay. you know, just kind of looking forward a little bit, you know, you guys are pretty asset sensitive. You really enjoyed the lift up in rates. Bless you. seeing that the forward curve now has a number of rate cuts baked into them, just curious what kind of steps you're taking to try to shield net interest income for the possibility of rates going down at some point towards the end of this year or early next year.
Yeah, that's a great question. I mean, I think we've been kind of doing that, you know, throughout the year. You know, we've been in certain cases, we've been taking security sales losses and repositioning those proceeds into fixed rates. Trying to blend down, you know, the overall portion of our portfolio, particularly in securities, for example, to more of a 50/50 mix between fixed and floating. If you recall, we were much higher, you know, on the floating side as we entered the year, slowly we've been mixing that down, you know, to sort of put in built-in hedges to interest rate declines.
I think the more important thing has been, you know, kind of the overall migration from the really from the securities portfolio and from cash into the lending portfolio. The, the more we grow the lending book, and we're up, you know, almost $800 million this year, in net loans. You know, the more we grow the lending book, you know, roughly 75%-80% of that book is fixed rate. We're really doing a lot to sort of protect ourselves from that from that down interest rate sensitivity. I, you know, I would think if I were to characterize ourselves, you know, right now we're probably pretty close to neutral in terms of sensitivity to a, to an interest rate drop at this point.
Great. Thank you for taking my questions.
Thanks, Alex.
Thank you.
As a reminder, it is star one to ask your question. Our next question comes from the line of Christopher O'Connell with KBW. Please proceed with your question.
Morning, Chris.
Hey, Chris.
Hey, good morning, Priscilla. Morning, Jason. I was hoping to dig a little bit into, you know, the commentary around deposit pricing and being a little bit more rate sensitive for next year. Could you give us a breakdown of, you know, how much of the political deposit business is, you know, non-interest bearing and, you know, what might be subject to some sort of rate sensitivity next year? How much kind of longer term, you expect to kind of remain in non-interest bearing?
Yep. Yeah. Thanks, Chris. You know, normally we've been operating at about a 2/3 DDA or non-interest bearing and 1/3 interest bearing. That number's been sort of moving, you know, over time in the past year towards almost the exact opposite direction. You know, right now I would say we're probably at about 40% DDA and 60% interest bearing at this point in time. The way we sort of think about it is, you know, of the, you know, remaining $650 million that we have right now, you know, roughly $150 million is how we model out as being potentially subject to shifting, you know, from here, I'm sorry, from a non-interest bearing to an interest bearing position.
That's sort of the risk that we have baked into our DDA mix right now, for cost of funds adjustments. You know, in general, what we think will happen this year is, you know, because it's sort of a building year for political deposits, you know, we think more of those will come in, requiring some form of compensation. We don't think it's going to be, you know, top of the market in terms of pricing. I think there's still very much a mission-aligned value proposition that has, that has benefit for the bank in terms of when these deposits come on, even if they are interest bearing.
Over the course of this year, it's likely that there'll be some form of compensation that'll be required for these deposits because they'll be in a building phase. You know, as we move into next year, 2024, and we become much more in a transactional style year heading up to the election, you know, I think we would naturally expect there to be less requirement for pricing on those deposits and just more, you know, more ability for it to be placed and then, you know, executed in terms of the way campaigns typically want their accounts serviced by a bank.
Got it. It sounds like some modest near-term pressure, but given, you know, the high velocity of those deposits in general, that, you know, they're still pretty insulated from rates longer term.
I think that's a fair characterization.
It's not totally insulated, you would say, partially insulated. I mean.
Yeah. Yeah.
In other words, we think that this unusual rate environment is going to lead to a greater focus on rates than we would have had, you know, in the first 300 basis points, but we don't expect to have to go to market.
Yep. For the, you know, you mentioned some success recently and some pipeline success potentially, you know, from kind of the, you know, rest of the, you know, sustainability or.
That's right.
You know, broader clients, outside of political deposits, for deposit gathering. You know, maybe just, you know, some of the categories or types of clients that you guys are having success there outside of political deposits?
Yep. I think one of the interesting things, you know, we gave a little bit of an update on deposits through January 20th, and, you know, we're up $225 million or so. Now granted, $135 million is our issued brokered CDs, but, you know, that leaves a $90 million delta, which is all new customer attraction. It's been, you know, things that we were talking about towards the end of Q4 update where we thought the pipeline looked good, and we still think it does even after these wins.
You know, they've been kind of spread across, some of them are union-based customers, some of them were really relationship-driven accounts based on the real estate lending we've been doing prior. There's been others that have been very mission-aligned in the philanthropic space.
Yeah.
Priscilla, do you want to share an example of that?
Yes, that's right. They've been not-for-profits. That's where you're going to see that. Continue as we look at the pipeline today.
Great. On the on the trust segment and those fees, when do the 2023 kind of fee adjustments take hold? How material is that increase on those fees? Just any other kind of success or updates that you're having on that side of the business.
Why don't I start with just generally what's happening. You might have the numbers.
Sure.
Those fee adjustments and also cost adjustments, meaning the pass-through of some of our costs related to custody, those adjustments are you're starting to see come through in the beginning of 2023 and on through. maybe you have.
Yeah. You know, it's gonna be an evolutionary process in the trust business. There's a lot of opportunity for us to drive, you know, to drive results out of that business. I think, you know, it's gonna be a staged approach. I think in the, you know, in the current year, we'll see some incremental benefit to the trust fee line as it runs through the income statement. I don't have an exact number to quote for you, Chris. You know, I do think you can think of where we are right now or how we finished the year at about $13 and a half million as sort of a baseline and that it should be improving from there.
It's gonna be based on, you know, on the existing book of pension-based business. It's not really new products or anything that, you know, that we're kind of hoping. It's really things that are already embedded and just additional, you know, margin contributions that we've been working with our partners to be able to accommodate on. I think, you know, over time, we'll continue to focus on the trust business. As it pertains to overall non-interest income, you know, I don't think it'll have a significant, you know, impact relative to the, to the ratio of our non-interest income to interest income over the course of 2023.
Understood. Appreciate the color. Thanks for taking my question.
Welcome.
There are no further questions in the queue. I'd like to hand the call back to Priscilla Sims Brown for closing remarks.
Okay. Well, thank you all. Thanks for your questions and thanks for your interest today. Thanks for listening to our optimism for the bank as we go forward this year in particular, with great enthusiasm in our 100th anniversary. We look forward to follow-up calls with most of you, one-on-one as we go through the rest of the day and next week. Thank you for your participation.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.