And that’s what we have been trying to position ourselves for us to get another nice spread in our NIM and core spread in kind of the second inning or third inning of the Fed cutting rates when they start cutting rates, by getting those floors and then being able to get our deposit costs down even more. A lot of variables in that scenario, but we have been working on that scenario for seven quarters now. From the time the Fed started increasing rates, we started planning for that flip side of that scenario going the other direction.
Brian Martin: Perfect. Okay. I appreciate you taking the questions, George. Thanks.
George Gleason: Thank you.
Operator: Thank you. Our next question comes from the line of Michael Rose of Raymond James.
George Gleason: Good morning Mike.
Michael Rose: Hi. Good morning. Thanks for taking my questions. Just two follow-up ones. Just on the expense outlook. What are the puts and takes of that? It was a little bit lower than I think I was anticipating and obviously good to see. Just wanted to see what investments are made and where you guys are having some offsets to growing costs. Thanks.
Tim Hicks: Yes. Hi Michael. I would point you to Page 33 of management comments. We tried to do our best in outlining what the offsets would be there. As George alluded to, just a while ago, we do expect salary expense to continue to increase as we are hiring additional staff to continue to support our growth. Probably the biggest offset to that is the re-categorization of that amortization expense on our low-income housing tax credits and our renewable energy tax credits. We are adopting a new accounting standard effective January 1, ‘24, that really transfers what was $28 million last year into the tax expense line. So, that’s kind of an offset. And of course, FDIC special assessment, not expecting one of those in ‘24. And we eliminated the amortization of our intangibles because they became fully amortized in 2023. So, those are the offsets to the otherwise increasing growth in other categories, primarily in our salary and benefits.
Michael Rose: Yes. I just meant excluding some of those changes. I appreciate you guys explaining all that. It was even – excluding that, it was still a little bit better than I think I was expecting even if I normalize for the accounting change, but I appreciate it. The last question I had was just on the new mortgage initiative. And maybe – I know it’s starting from zero this quarter, but what we – what you guys expect for that initiative as we think about the next couple of years, and hopefully some lower rates that would help disperse some demand on the mortgage front. So, just would love any thoughts there. Thanks.
George Gleason: Yes. We are going to take – continue to take a very intentional approach to that. And we do expect to start originating probably in taking applications maybe in late February or March, hope to close a handful of loans in March. We will get it going in one market, probably a month or two months later get it going in a second market. Of course, we serve a lot of different markets with our branch footprint. So, we will roll it out, and it will continue to roll out and expand throughout Q2 of 2024, through year-end 2025. I think we pretty much get most of the footprint we are going to cover covered by 2025. It will be a modest drag on net income and EPS probably in 2024 because we will be – we will get one unit up and running and originating, and a month or two months or three months later they will start having some revenue, we will have added another unit.
So, the expenses will pretty much stay ahead of the revenue during the early part of that build-out phase. We are talking probably an immaterial impact for the year of $0.01 or $0.02 at the most. And then we would hope in 2025 that, that begins to turn positive, where we actually have positive net income and maybe it’s a neutral EPS net income impact for the full year of 2025 as we get the full build-out of this thing done. So, where it probably becomes important to income, net income and EPS, is 2026 after we have got it pretty much fully matured and fully rolled out. That’s why I got the mix of the last paragraph in the management comments. It’s not going to be a big deal for a while. But it is important to our customers. And that’s the reason we are doing it.
We continue to have a lot of customer request and sending that business a different direction is not good for our long-term customer experience. So, this is a customer-driven initiative.
Michael Rose: Totally get it. Thanks for taking my questions.
George Gleason: Alright. Thank you.
Operator: Thank you. Our next question comes from the line of Brody Preston of UBS.
Brody Preston: Hi. Good morning everyone. I just wanted to ask real quick, George, on CET1, if you are not buying back stock, like you say you don’t buy back stock this year just given the unfunded commitment trends and the fact that growth is still going to be strong, but probably slower than it was this past year, do you actually think you could see CET1 reverse course and start to rebuild again just given the profitability levels?
George Gleason: Tim?
Tim Hicks: Yes. Hi Brody. Yes, it will depend on growth. Certainly, we feel like we can maintain or slightly improve it from here. And then really growth in 2025 will be dependent on where it goes after this year.
Brody Preston: Got it. And then I wanted to just circle back to the floors. If I kind of take the spread commentary from last quarter, George, and kind of work my way backwards a little bit to maybe a slightly less widespread or something like that, depending on the competitive environment, going back several quarters. I look at your fourth quarter ‘21 to fourth quarter of ‘22 originations. Those were the biggest kind of origination quarters for you, that five-quarter time span. Fed funds, LIBOR was decently low for a bit of that. And so I kind of like back into floor rates that are anywhere from the low-3s to the mid-5s for most of that, and maybe the fourth quarter is in the 7%-ish kind of range. Is that an accurate description? And if so, would that mean that, if the forward curve comes to past year in ‘24, the floors wouldn’t necessarily matter as much for 2024, is that accurate?
