Catherine Mealor: Yes. And then just another follow-up on credit. Just can you give us or kind of talk us through the Chicago land alone could play out from here. It feels like we went from special mention to substandard accrual this quarter. So we’re still performing. But I noticed that your cash reserve did decline. So correct if I’m wrong, it feels like maybe it’s just performing because of the interest reserve, but kind of curious how that’s playing out right now. And kind of how much time or how many quarters we have until potentially that runs out? And this may flip to non-performing if you’re not able to resolve the credit before that time period. Just kind of walk us through how that credit could – kind of path forward for that credit over the next couple of quarters?
George Gleason: That’s a great question. And obviously, the fact that we went from a special mention to a substandard classification on that credit in the quarter just ended reflects the fact that we were concerned about the sponsor’s pace in their recapitalization efforts here. They have been working hard on this. This is an excellent sponsor with whom we have done a number of pieces of business. They have got a very successful track record. So they are still working very hard on this and still positively disposed and engaged on it. So we’ve got that going for us and that we’ve got a good sponsor who’s working hard and still out there diligently pursuing that. The fact that they have not gotten that recap done yet caused us to do the downgrade.
And with that downgrade also, that changed the risk rating on loan, and the risk rating drives our provision for the loan. So our ACL on this loan is now, as we disclosed in the management comments, $32.8 million. So we’ve pretty much provisioned this thing for an adverse outcome. You’re correct. They are using their cash reserve, which is their money, to pay interest on the loan, and they have got enough cash reserve there to go several more months. I don’t know the exact timing of that. But when they get to the end of that cash reserve, they’ll have to make a decision if they want to and can support it with further interest payments to buy more time to work out their recapitalization and develop their ultimate plan for this property or if they have run out of gas.
So we will just have to see. But the downgrade reflected and the increase in the ACL for the loan reflected what we thought was an appropriate adjustment for the risk in it at this time. We’re monitoring it closely, and of course, we will do anything that we can do and are doing everything we can do to assist the sponsor in their efforts, but we’re the lender and they are the equity. So the ball is really in their court on this.
Catherine Mealor: Great. Makes sense. Thanks for the color. Appreciate it.
George Gleason: Thank you.
Operator: Thank you. Our next question comes on the line of Manan Gosalia of Morgan Stanley.
Manan Gosalia: Hi, good morning. I wanted to ask on the loan floors you spoke about earlier. Can you talk about where those floors are on average for the portfolio on the books right now? How long will the benefit of that last given the shorter duration of some of your loans? And if the capital markets open up. And if you can comment on any recent trends there. Have there been any changes in the floors you’ve been able to negotiate more recently given the outlook for rate cuts?
George Gleason: Great question, Manan. In kind of the run-up to mid-last year and, I guess, even third quarter, fourth quarter of last year, a lot of the loans that we were originating in RESG had floors at the start rate of the loan. So the expectation – when the expectation is that the Fed is going to be continuing to raise rates as it was throughout 2022, it’s pretty easy to get loans at the – floors at the start rate of the loan. As 2023 progressed and customers begin to look forward to when the Fed was going to reverse course, more pressure came in to negotiate that floor rate to something below the start rate of the loan. And those floors have moved, I would tell you today, we’re still getting floors in some loans at the start rate of the loan, and some loans, the floor is, in the RESG portfolio, 100 or even slightly more points below the, basis points, below the start rate.
So they are meaningful floors. And they vary from loan to loan, and that depends on other features, just all the myriad of details in how you negotiate one and structure one of these credits. So they are important for us. I can’t give you the breakdown. We will probably start next quarter and quarter after giving you a table in our management comments. I think Stephen asked for that in our management comments that shows where the floors are on various loans. We’re obviously getting old loans paid off at $1 billion a quarter, more or less. And those old loans have floors that are usually far below current rates because they were set in an environment before the Fed started raising rates and the floor may have been 25 – a SOFR floor of 25 basis points, which would have been a 4-something floor at the time or something.
So those floors are getting reset about $1 billion a quarter. We’re also having loans that don’t have, as a bride, extension rights that we’re doing extensions on. On a business as usual sort of basis, we’re attempting to reset the floors higher. And those loans with a fair degree of success, but obviously, that’s a negotiating point with every customer. And we’re rolling off those loans with lower floors and putting on new loans with higher floors. So this story gets better every time, which is why we have said a higher for longer scenario is better for our net interest margin because, every month, we’ve reset the floors on the portfolio, on average, higher. And so if the Fed doesn’t cut rates until July, post March, that’s really good for us because we’ve got another 4 months of floors reset.
