On the asset sales side, I — you know, I know that’s been a bit of a recurring theme for us, but really is marginal in terms of the things we can control. Between assets, sales, and people just paying off debt with cash, that was almost 40% of that total. A couple larger or mid-sized, I would say, construction projects that completed and, as expected, and paid off. Only $3 million of that total refinanced and went to another institution. And then we had about $12 million of those payoffs that we put in the workout category, things we were doing that caused them to look for financing elsewhere. But that helped us get rid of some of our largest classified loans So we view that as a positive. In the end, did that depress the overall net loan growth?
Of course, but in the long run, that was a positive for us.
David Feaster: Terrific. Thanks, everybody.
Tim Myers: You’re welcome.
Tani Girton: Yes.
Operator: Our next question will come from the line of Woody Lay with KBW. Your line is unmuted. Please go ahead.
Woody Lay: Hey, good morning, guys.
Tim Myers: Good morning, Woody.
Tani Girton: Good morning.
Woody Lay: It was good to see the continued balance sheet management. I mean, do you think to the extent that, you know, loan growth opportunities remain elevated? Do you think we could see further restructuring in the quarters ahead?
Tim Myers: Well, I’ll start with high level and then Tani can jump in if she wants. But we, you know, throughout that second-half of the year, we look for opportunities to shed lower yielding, some mix of lower yielding, but also that has a lower impact in terms of the losses on the sale of the securities. And we’ll continue to look at that. Yes, I mean, we’re seeing with the deposit trends, we expect those to continue to trend upward overall outside of seasonal fluctuations. We’re outside of the line. I’m not super anxious to take losses on sales, but if we start seeing a real pickup in loan activity and that trade-off of those lower yielding securities and the higher yielding loans at these levels. Yes, we’ll continue to look at that. Tani, do you want to add anything to that?
Tani Girton: Yes, I would just say, you know, the ones that we’ve sold, those had pretty low earn back periods, very low earn back periods relative to loan rates and pretty low earn back periods relative to paying off borrowings and putting money into cash. So we picked the best securities to sell for those based on that criteria. Now, if we, as Tim said, if we have significant loan growth, we would easily be able to target loan or low earn back periods in order to repurpose cash from securities into the loan book.
Woody Lay: Got it. That’s super helpful color. Wanted to shift to deposit trends? I mean, they sound pretty positive so far in January. I was just curious how the non-interest bearing deposit trends are faring so far in January?
Tim Myers: I think that’s where we saw the bigger fluctuations. That’s where certainly some of the seasonal outflow was in terms of business transactions, whether normal vendor tax type payments versus those more one-time or unique things like a business sale where proceeds go to investors or purchase of real estate or a business. Again, we’ve seen the non-interest bearing increase upwards of $100 million throughout the month. So it does fluctuate. And so it is hard to tell with the seasonality that we see. But again, we’re not losing a lot of money out the back door, losing very few to other institutions. And the pace of money moving out of non-interest bearing into both interest bearing and into non-bank financial markets like money markets, that is dissipating. So I don’t know how to prognosticate, but we continue to see positive trends there.
Tani Girton: Yes, and if I could just add that a significant portion, so we had a little lift in our interest bearing deposits over the course of the fourth quarter, but a pretty large portion of that was new money from existing customers, as well as new relationships. So I think that’s an important data point.
Woody Lay: Got it. And then last for me, I know you’re pretty aggressive on the grading process with credit, but just any color you can share on what drove the increase to special mention loans in the quarter?
Tim Myers: Yes, so I’ll start really high level and then hand it off to Misako Stewart, but we are pretty conservative or aggressive depending on how you look at that and looking things in a watch category, you know, very finite time period that we let stuff sit there. And so we do have stuff move from watch as a pass credit into criticize, but we also are constantly looking at those that we can upgrade. So I’ll let Misako jump in on the specifics.
Misako Stewart: Right, right. So we did continue to see risk-free migration in the quarter, kind of moving in both directions. But in the special mention category, like Tim was talking about, we do tend to take a more aggressive approach in our watch category that if we don’t see improvements over about two or three quarters, we will move it into special mention. And so the increase primarily came from those situations, all kind of with individual kind of different situations, but not necessarily further deterioration, just not any, you know, meaningful improvement over the last couple of quarters. However, we are expecting a number of upgrades to pass in the first quarter after we get results from year-end. And so again, like I mentioned, we are going to continue to see migration in both directions.
And just in our substandard category, again, that actually balance went down by quite a bit just due to some, you know, some active and successful workout situations. Although we did have two more loans put into our non-accrual category as well. But overall, you know, that’s we will continue to see migration, I think, in all grades.
Woody Lay: Yes. All right. That’s all for me. Thanks for taking my questions.
Tim Myers: Thank you, Woody.
Operator: Next question will come from Jeff Rulis with D.A. Davidson. Your line is now open. You may begin.
Jeff Rulis: Thanks. Good morning.
Tim Myers: Good morning, Jeff.
Jeff Rulis: Just to stay on the credit side. That classified balance, $32 million is any way to kind of break out the larger segments that are kind of most represented what’s in that bucket?
Misako Stewart: Yes. So the largest loan that we have in that is an office building in San Francisco that I think has been mentioned before, which was downgraded, I think, three Decembers ago, and that makes up nearly half of that balance. We continue to work with the borrower, loan is continuing to pay as agreed. We have not restructured and there’s borrowers continuing to still make contractual payments there. And we continue to monitor that very closely. But that makes up the bulk of the substandard.
