And I’m trying to figure out like what the hell does a margin look like at this company with this balance sheet in a normal rate environment that has actual steepness to the curve. And are you basically a 3% margin bank now, because you’ve taken away the asset sensitivity?
Jim Herzog: We have bounced around quite a bit over time, Steven, and we didn’t necessarily think that was always a great thing. I do think stability is important. The rate environment is one factor. Again, just the overall construction of the balance sheet and the lumpiness and the amount of cash we’re carrying or securities we’re carrying is also a factor. And just again, our business model creates a little bit more lumpiness in that regard. So, we would like a little bit more stability. As I mentioned in the — in Peter’s question, I do see our trajectory going north of where we ended here, and I think we’ll continue to go north as we move through 2025. So, we’re above 3% on a normalized basis, and I think we are going to have a much more stable NIM and net interest income earnings capacity going forward. Don’t necessarily want to give an exact number, but it is north of 3% for sure.
Steven Alexopoulos: Okay. That’s helpful, but keep in mind that’s why generalists don’t put their money in regional banks, because the black box that the management teams don’t really help shed some light on what expectations are. I want to ask on expenses, too. So, you guys are guiding to around 3% operating expense growth in 2024, and that’s with the benefit of the new initiatives. Just a big-picture view, why is expense growth at the company so much higher than other regionals? I’m sure you look at all the other regionals, it’s higher. And then, if we think about 2025, if you don’t announce another initiative, should we expect the growth rate to lift off of 3%? Thank you.
Jim Herzog: Many of the expenses that we have in 2024 and a lot of the investment we’re making is not ongoing run rate. A lot of it is more one-time effort to get some of these initiatives up and running, whether they’re on the revenue side, the product side, or the risk management framework side. So, I wouldn’t necessarily assume that the expenses that we are incurring in ’24, all carry over to 2025. But we are in investment mode. I mean, I think we may be underinvested in certain years, if you go back historically. So, I do think there’s a little bit of catch-up going on, but we are committed to make sure that we can compete in the years coming forward, and we do think a certain amount of investment is required there and we feel comfortable it’s going to pay off.
Steven Alexopoulos: Can you expand on that, Jim, like, where did you underinvest and where are you catching up now?
Jim Herzog: Well, I would say, number one, some of it is just moving with the times, with the digitization and some of the online capabilities. But I would also say that whether it be risk management framework or some of the product innovation, I just don’t think we necessarily always invested as much as we could have historically. And rather than trailing on that front, we’d rather be leading. So, we think the easier thing to do would be to hunker down and just starve the company. And that’s not something we want to do. So, we feel like we’re doing the right thing and we do feel like it’s going to pay off with positive operating leverage as we move forward.
Steven Alexopoulos: Got it.
Curt Farmer: Steve, this is Curt. I just would add that we — as I said earlier, we are focused on top-line revenue growth. We believe we have opportunities on both the fee income side and with the loan portfolio. But certainly, if we do not see growth materializing, if the economy does not move in the right direction, if interest rates don’t move in the right direction, allowing us to get some relief on deposit betas, et cetera, then we’ll continue to look at expense opportunities. I might also add that part of this from a risk framework standpoint is continued investment in preparation for potentially being over $100 billion, or if Basel III requirements step down to banks sub a $100 billion kind of in our category at $86 billion.
Steven Alexopoulos: Got it. Okay. Thanks for taking my questions.
Curt Farmer: Thanks, Steve.
Operator: Thank you. Next question is coming from Chris McGratty from KBW. Your line is now live.
Curt Farmer: Good morning, Chris.
Operator: Perhaps your phone is on mute, Chris.
Chris McGratty: Sorry about that. Good morning. Sorry about that. On the expenses, Jim, I think you’ve talked historically about roughly $50 million for the $100 billion rules, as you kind of know of them today. How much — I guess, how much — can you remind us how much you’ve accrued is in the guide for 2024 related to that?
Jim Herzog: I would say we have a small portion of that in the guide for 2024. The vast majority of that [$50 billion] (ph) is probably more likely to be in future years as we get closer to $100 billion. But there are several million dollars in there as we really try to address those things of Category IV that we think have a longer runway to get ready for. So, those items that we think would take, say, two, three, four years to really be ready, we’re getting those things in motion now. There’s a — the majority of the Category IV requirements we either already have, or if we don’t have them, we think we could complete them within one to two years. And so, we’re holding up on that. So, the majority of the $50 million is still out there in the future, but we do have some of that in the run rate in ’23 and a little bit more in ’24.
Chris McGratty: Okay. Great. And then maybe one for Curt. I think the Street has got you roughly at a low-teens return on tangible common equity in this year and next. Can you maybe elaborate on how you think of the return potential of this company? Obviously, you’ve got a much more stable margin over time, but you’re also balancing some of the investments.
Curt Farmer: Yeah, I wouldn’t maybe give a forecast exactly around returns or even multiples on the company, but I would say that we believe that based on the comments we made earlier, certainly, ’23 was a disruptive year and a reset for the industry, and ’24, I think, is some recalibration. I believe that interest rates are going to come down. And when they do, I think it will have a positive impact on NII for us. And we believe, as we said earlier, that in the latter half or second half of the year, that we will start seeing NII return. We think we’ve got great opportunities on the fee income side, and we showed that in 2023. And we think we’ve got good growth opportunities in terms of the loan portfolio. And so, our goal is to get to positive operating leverage and believe that we can return at a level that’s commensurate with the industry overall or better from a longer-term perspective. But ’24 will be somewhat of a continued inflection year.
Chris McGratty: Okay. Great. Thanks for the color.
Operator: Thank you. Next question today is coming from Brody Preston from UBS. Your line is now live.
Brody Preston: Hey, good morning, everyone.
Curt Farmer: Good morning, Brody.
Brody Preston: Jim, I was hoping maybe you could help me nail down the cadence of the kind of BSBY swap amortization, the accretion into NII. How much of that? I think you said most of it’s in ’25 and then into ’26. But how much of it happens in 2024 and then how much happens in ’25 and ’26?
Jim Herzog: Yeah. Good morning, Brody. Yeah, we don’t have a 100% clear line of sight into that, because out of those $7 billion of BSBY hedges, or hedges dedicated to BSBY loans, a little less than $3 billion of them are not redesignated yet because we have not generated enough SOFR loans to redesignate those particular hedges. We do expect to have that complete, or at least largely complete, by the end of the first quarter. And I think at that point, we’ll actually have a fair amount of certainty as to how it lays out. But in general, the way it looks right now and with the forward curve, and this is exclusive of what I offered in the guidance, because, again, there’s a lot of uncertainty there, there was likely a very somewhat mild negative impact in 2024 to the extent there is any kind of negative impact, you just accrete that back in later years.
