We do see some purchase opportunities in the market, some of them driven by 1031 exchanges. So that’s a good credit environment for us. Some people are just taking profits and deferring the taxes and getting themselves into the best asset they can. So that will drive some prepayment activity. But we would expect real estate prepayments to be considerably more muted than they were in 2022 and it’s also the case that we don’t — the customers that paid off portfolios, for example, in third quarter, the one customer that sold their entire portfolio and paid us off completely in several other lenders. There’s not those concentrations in the portfolio at this time where we see a massive pay down like that. So one, fewer concentrations, and two, slower market activity equals lower prepayment rates in 2023.
Equipment finance is relatively stable, principally amortization. But from time-to-time, we do see some early terminations. In our case, that’s probably favorable. It gives us more cash to redeploy at a higher yield in almost all cases in that environment. And then commercial finance isn’t so much a question of prepayments as it is to the volatility in line usage. It’s not unusual for us to see a draw of $5 million, $7 million, $8 million, $10 million in a week, get a pay down two weeks later of the same amount or a little more. So for that matter, it’s line utilization week-by-week, month-by-month, hard to predict in the extreme. But with greater commitments out there and overall lower liquidity along those fire walls , we still expect to see somewhat higher utilization.
Brian Martin: Okay. And is utilization back to kind of a normal level or is it still well below where it was running kind of pre-pandemic?
F. Morgan Gasior: It’s not quite where it was before. It’s probably retraced about 50%. And so that’s why we think there’s some runway ahead of us in a more normalized liquidity environment. And also, even though in the healthcare space, many of our customers are enjoying somewhat higher reimbursement rates at the state level. Their expenses are going up, too, especially in states that have organized labor as part of their workforce. So the margins will remain relatively stable. But in an intra-period basis, their expenses are going up, which means their draws are going up and we will then, therefore, see somewhat higher utilization on those credits, almost no matter what. If it retraced — that’s what we are saying, if it retraced all the way back to, shall we say, the 2019 level, we would pick up at least $140 million of utilization. Right now, we are expecting $20 million in our official business plan.
Brian Martin: Got you. Okay. That color is helpful. And maybe just last one or two for me. Morgan, the margin, and I think, we talked about in the past, the margin may be peaking in the upper 3 to 3.70, 3.80 type of level. Has anything changed in your outlook there? I know maybe it’s a back half event. Just trying to understand when the margin peaks and if there’s any real difference in your outlook on that level today versus a quarter ago?
F. Morgan Gasior: No. I actually think that, as I said earlier, we have an opportunity to expand the margin in the second half of the year. It will depend on the mix and it will particularly depend on us being successful in commercial finance growth. But if we are successful, I wouldn’t necessarily call a peak to net interest margin. Obviously, too, the part of that is deposit interest expense. If things remain relatively stable, we are able to maintain the funding base at the levels we are talking about. Then, again, I see some opportunity for margin expansion. And if we are able to bring in commercial deposits and reduce the overall marginal cost of funds, there’s yet another opportunity to expand margin. So I would say that, the higher end of the range for the year would be in the upper 3s.
