Misako Stewart: Good morning. So as you mentioned the credit quality and the credit management of our portfolio is still pretty solid, I mean — or very solid, I would say. In terms of managing the credit, you mean it’s a close management. Every quarter, we’re getting updated information. We’re looking at values, and we’re talking to our borrowers. I mean, of our classified loans, all of them are supported by personal guarantees or the owners or the direct borrowers. And so we are constantly in discussions with them on how to kind of remediate or find resolution, find a mutual agreement, compromise on how to rightsize or get the loan to a more conforming level, if you will. And that conversation continues. The balances in our graded loans is not always a great reflection of the movement that we see, and there is a lot of movement up and down in our portfolio.
And last quarter, we had very little by a way of migration from past to criticized or classified and even in the downgrades to — from our special machine to our substandard. Majority of those are vacancy issues, but they’re not necessarily that vacancies have gotten worse. They just haven’t gotten better. And with the passage of time, it warrants closer attention, and those are the reasons for the downgrade. So we do take a pretty aggressive approach in how we monitor the credit and how we risk rate.
David Feaster: Okay. That’s helpful. And then just kind of another part was — just help the CRE market across your footprint?
Misako Stewart: I’m sorry?
Tim Myers: Say that again, David. Sorry.
David Feaster: Just help the CRE market across your footprint?
Tim Myers: Misako, you want to take that?
Misako Stewart: Yes. It depends on the asset class. I think industrial still continues to perform well. And it depends on our footprint. Office is not bad in every market that we’re in, and same with retail. So it is different. Multifamily is still — continues to be a strong asset class for us. So it’s hard to say how it is overall since it is different in each market.
Tim Myers: Yes. It is uneven, David. And the valuation declines, obviously, are most pronounced in our footprint in office. But even then within office, it can be 20% decline from someone region up to the kind of declines we’re seeing 40%, 50% in San Francisco, again, heavily dependent on the size of the property, all that kind of stuff. So it is uneven. Industrial is strong in a lot of our footprint. So — and as Misako said, multifamily is strong, and we haven’t had a lot of issues there that aren’t just weird, idiosyncratic, unrelated to what’s going on in the world. So it’s holding up in many of these categories.
David Feaster: Okay. That’s great. And then I just wanted to touch on — just kind of get a high-level thoughts on how you think about managing the balance in a higher-for-longer environment. You’ve noted that there’s some opportunities that you’re considering. You guys have already been active with the securities book, with cost saves, still investing in the franchise with new hires. But I’m just curious what types of initiatives you’re considering. And given the like, again, last quarter, we’re talking about rate cuts. Now we’re talking about a higher-for-longer environment, what are your thoughts on managing the balance sheet have changed at all?
Tim Myers: We are actively contemplating all those things and I’ll let Tani jump in here.
Tani Girton: Yes. So we had a series of sales last year. We did about $83 million in the second quarter and then another $132 million in the fourth quarter. We still have a significant AFS portfolio that gives us a lot of flexibility to opportunistically sell those securities and get those funds redeployed into higher-yielding investment loans, whatever opportunities we have there. So the timing is important, but we are looking at it, as Tim said, very — in a very concentrated manner and we’ll continue to do so.
David Feaster: All right. Thanks everybody.
Tim Myers: Okay. Thank you.
Operator: The next question will come from the line of Andrew Terrell with Stephens. Your line is now open.
Andrew Terrell: Hey, good morning.
Tim Myers: Hey, Andrew. How are you?
Andrew Terrell: Doing well. How are you guys?
Tim Myers: Good.
Andrew Terrell: Maybe if I could start just on the deposit front. Looks like the interest-bearing deposit costs increased this quarter was actually maybe a little bit of an acceleration from 4Q. I’ve got up 33 basis points and it was 31, I believe, in the fourth quarter. I’m just trying to maybe square that with some of your commentary around the deposit cost deceleration and maybe you mean more on kind of a month-to-month basis throughout 1Q. So maybe it would be helpful, could you share just kind of how deposit costs progressed throughout the first quarter?
Tim Myers: You’re 100% right and I’m sorry if that was unclear. So, yes, we saw a couple of basis point increase in the overall cost quarter-over-quarter, but a big deceleration. Tani can give you specifics. But by the time you hit March there, it was the lowest level we’ve seen since before this crisis.
Tani Girton: Yes. So if you look back at March ’23, we had a 60 basis point pop on interest-bearing and 29 overall. So I’ll stick with the overall cost of deposits. So that has trended down on a monthly basis. It fell down pretty steeply to 16 and 12, and then it popped up a little to 14. Then by July of ’23, it was down to 6 and then 5. Then it popped up a little bit in September and stayed up a little bit around 7 to 9 and then peaked in January at 10 and then back down to 6 and 2. So the — it’s a clear trend down. There are some peaks and troughs in that trend, but it is a pretty solid trend down.
Andrew Terrell: Got it. Okay. Very good. So 10, 6 and 2 in January, February, March. Definitely seems like a big step-down into March, though. And then if I could ask another one kind of margin-related as well. I think the release mentioned about a 260 basis point spread for new originations versus what was being paid off this quarter. I’m just curious your thoughts on — if I look at what paid off most heavily this quarter was construction, which I would imagine is a little higher yield. Just as we contemplate, Tim, you guys getting back to that kind of mid-single-digit-type loan growth, so growth ramping later this year, would you expect that spread of new originations to payoffs to widen from this 260 level?
