Customers Bancorp, Inc. (NYSE:CUBI) Q4 2023 Earnings Call Transcript

Customers Bancorp, Inc. (NYSE:CUBI) Q4 2023 Earnings Call Transcript January 26, 2024

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Operator: Good morning. My name is Rob, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Customers Bancorp, Inc. Fourth Quarter and Full Year 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session [Operator Instructions]. Thank you. David Patti, Director of Communications.

David Patti: Thank you, Rob, and good morning, everyone. Thank you for joining us for the Customer Bancorp’s earnings call for the fourth quarter and full year of 2023. The presentation deck you will see during today’s webcast has been posted on the Investors web page of the Bank’s Web site at customersbank.com. You can scroll to Q4 ’23 results and click Download Presentation. You can also download a PDF of the full press release at the spot. Our investor presentation includes important details that we will walk through on this morning’s webcast. I encourage you to download and use the document. Before we begin, we would like to remind you that some of the statements we make today may be considered forward-looking. These forward-looking statements are subject to a number of risks and uncertainties that may cause actual performance results to differ materially from what is currently anticipated.

Please note that these forward-looking statements speak only as of the date of this presentation and we undertake no obligation to update these forward-looking statements in light of new information or future events, except to the extent required by applicable securities laws. Please refer to our SEC filings, including our Form 10-K and 10-Q, for a more detailed description of the risk factors that may affect our results. Copies may be obtained from the SEC or by visiting the Investors section of our Web site. At this time, it is my pleasure to introduce Customers Bancorp Chair, Jay Sidhu.

Jay Sidhu: Thank you, Dave, and good morning, ladies and gentlemen. Welcome to Customers Bancorp fourth quarter and full year 2023 earnings call. Joining me this morning are President and CEO of the Bank, Sam Sidhu; Customers Bancorp CFO, Carla Leibold; Customers Bank CFO, Phil Watkins. I will give you some introductory comments and then my colleagues will provide details of the quarter and for the full year 2023 for you. While the banking industry has largely recovered following the events from last spring, there is still a lot of uncertainty and lot of headwinds facing our industry. However, customers, banks, differentiated strategy, bucked industry trends gaining strong momentum in 2023 and we expect that to continue into 2024.

We continue to execute on our strategic priorities and are pleased to report that we are delivering another strong quarter for our shareholders. We are also very excited about the prospects and look forward to sharing our outlook for 2024 with you later on in this presentation. As a forward-thinking bank with strong risk management, we believe we are creating tremendous franchise value across the bank through execution of our profitable customer centric model. In addition, we have and will continue to capitalize on market disruption as an opportunity to create new and deeper existing client relationships, resulting in stronger loan and deposit growth. As you know, we are reporting $1.90 of core EPS for Q4 2023 with continued deposit transformation, higher margin, no expense growth during the quarter.

We generated $1.1 billion of core deposit growth in the quarter. We used these deposits to improve the overall quality of our funding base, including the planned exit of BMTX deposits from our bank on December 1st, as well as paying off about over $700 million of high rate wholesale CDs during Q4. Capital levels increased substantially again with our tangible common equity to tangible asset ratio now over 7% and our CET1 increasing to 12.2%. We are extraordinarily proud of our ability to meet and exceed our capital goals that we outlined to you earlier last year. Asset quality remains exceptional with our NPA ratio down in the quarter and reserve levels are robust at almost 500%. We have only about a 1% loan exposure to the office sector of commercial real estate.

And our average loan size to the office is less than $4 million. We believe the office sector will continue to create challenges for the industry in the coming quarters. In addition to the future benefit from continued benefit from our deposit franchise, as well as top quartile capital ratios, we are seeing attractive origination opportunities. These are primarily loans where we have a holistic and primary relationship with the client. We have ample liquidity and capital to support a 10% to 15% loan growth in 2024. Moving on to Slide 4, I’d like to take a moment to reflect back on the promises we made going back to our 2018 Investor Day, just about five years ago. Today, on the fifth anniversary of this Analyst Day, we are thrilled to day that we have delivered on all these promises, the promises that we made to you at that time.

Here they go. Here let me share those with you. Number one, we are now, as I said earlier, 7% TCE ratio. And at that time, we were talking about perhaps getting to 7%. Number two, we’ve delivered 15% average annual tangible book value growth. And at that time, we were shooting for just under 10%. We’ve achieved a NIM of 3.31. And at that time, we were at 2.40 NIM. We have a core ROA of 1.22% and our goal was at least 1%. We are reporting a return on common equity of 18.3% and our goal was at least 10%. And we delivered $7.72 of core EPS in 2023, surpassing our $6 EPS goal for 2025. So we are at least two years ahead. And most important is that we maintained a strong risk management culture throughout this period. Turning to Slide 5. We again reiterate our priorities to you which remain absolutely unchanged.

They are moderating growth during these uncertain times while strengthening our balance sheet and having a strong risk management culture. We are so proud of what we’ve accomplished in 2023 in an extremely challenging environment for our industry. Our commitment to risk management and a client first mindset, where clients say, wow, is positioning us well to navigate in this challenging environment. I want to salute and express our gratitude and thanks to all our team members for their hard work and their continued dedication to serving our clients flawlessly. Lastly, we want to recognize all our investors for their support and confidence in us. As you know, Customers Bancorp was the number one performing publicly traded bank stock in the United States in 2023 as measured by stock price and total shareholder return.

Clearly, the markets are recognizing the strength of our performance. And we commit to doing everything in the long run and the short term to serve our clients and provide solid returns to our investors. Before I pass the call on to Sam, I want to welcome Hal Goetsch to the call. Hal joins the call from B. Riley Securities, where he recently initiated coverage on Customers Bancorp. We want to thank all of the research analysts for their efforts and the insights that they bring to the bank and to the investment community. With that, I’ll turn it over to Sam to cover the key activity and results of the quarter in much more detail.

Sam Sidhu: Thanks, Jay, and good morning, everyone. We will provide more detailed guidance on 2024 at the end of the presentation, but we did want to flag our key areas of focus for the year in my initial comments. Number one, continuing our deposit transformation remains a key priority, which we will achieve through market share gains supported by treasury management and transaction banking build-outs. We’ve made significant strides in 2023, positively remixing 15% of our deposits in just the last three quarters alone. Having said that, we’re just getting started and continue to have a strong pipeline, which we’re looking to bolster with deposit focus, talent and teams. Number two, as Jay mentioned, we bucked the industry trend by expanding margin in 2023.

We’ll look to sustain that momentum in ’24 with continued improvement of our deposit franchise and also by remixing into higher yielding loans. Number three, we’re focused on driving profitability through our steadfast commitment to operational excellence and expanding fee income opportunities. The hard work in ’23 to improve our technology and human capital infrastructure we expect will pay huge dividends in ’24 and beyond. Number four, we will continue to maintain a strong capital base and liquidity while growing our loan portfolio. Number five, we will never deviate from our credit first principles. We will achieve this through ensuring the right client selection where we have a fulsome two-way relationship. Number six, making our clients say wow, is what increases customer engagement and build franchise value, especially given the void created by the recent market disruption.

Moving to Slide 7. You can see our GAAP financial highlights for the fourth quarter and the full year ’23. Turning to Slide 8. I’ll comment on our core results for the quarter and year. In the fourth quarter of ’23, we produced extremely strong results across all profitability metrics, earning $1.90 in core EPS on net income of $61.6 million. For the full year of ’23, we produced core EPS of $7.72 on net income of $248 million. 2023 was an exceptional year in which we delivered a record $687 million in net interest income. This record is all the more impressive given that prior years benefited significantly to the tune of hundreds of millions of dollars from our efforts in PPP. Our core ROA for the fourth quarter was 1.22% and our core ROE was 16.9%.

For the full year ’23, our core ROA was also 1.22% and our core ROE was 18.3%. We continued our margin momentum in the quarter. The combination of our strong deposit growth and interest earning asset yield increase led to margin expansion of 11 basis points in the fourth quarter to 3.31%. This was up from 3.2% last quarter after adjusting for the outsized accretion from the portfolio we acquired from the FDIC. We continued to transform the quality of our deposit balances, which I’ll provide more detail on shortly. The modest decline in deposits in the quarter was driven by the planned outflows of service deposits that we previously disclosed as well as by the repayment of over $700 million of high rate wholesale CDs. This is a very strong base for us to grow off of in ’24.

Credit quality remained strong as evidenced by our NPA ratio of just 13 basis points, and reserve levels remained robust at almost 500% of NPLs. While we do not see any signs of weakness in the portfolio, we remain highly focused on portfolio management. Turning to Slide 9. I want to provide some additional color on the impact of the delivery of promises Jay discussed earlier. Over the last five years alone, we have grown our balance sheet at a 17% compounded annual growth rate. But more importantly, we’ve also more than doubled our deposits over the same time period. We accomplished this growth without raising a single dollar of common equity capital. Our loan-to-deposit ratio is now 72% as compared to 120% at the end of 2018. And our liquidity position has increased about 10 times with our cash and short duration available for sale securities portfolio available to provide us ample liquidity to reinvest into loan growth in ’24.

Now let’s turn to Slide 10 to discuss how this transformation has improved our core profitability. Over the same five year time period, we have increased net interest income by a 22% CAGR and improved our net interest margin by more than 70 basis points. Diluted EPS is up by more than 4 times and our return on equity has increased by more than 900 basis points. While we are very proud of the transformation we have accomplished, we believe the best days for Customers Bancorp are ahead of us. The investments in talent and technology that we made over the last several years are reflected in our best-in-class performance metrics in ’23. Looking ahead, there are still many strategic opportunities for us over the near term. We continue to see a large opportunity to capitalize on the once and generation dislocation in the banking industry putting commercial clients and most importantly, deposit teams in motion, especially in verticals where we have existing deep expertise.

If we capture mere basis points of market share, it will have a material impact on our franchise and anything in percentage point terms will be truly transformational. We have been extremely focused on operational excellence by improving our people, processes and technology and expect these continued efforts will pay dividends, driving positive operating leverage. This operational excellence is evidenced by the doubling of our balance sheet since 2018 but our employee count is down by almost 20% over a similar time period. As Carla will provide more detail on later, starting late in 2022 and accelerated early in ‘23, we undertake efforts to exit non-strategic relationships to materially increase our capital levels. These efforts are now bearing fruit as we have ample risk weighted capital and liquidity to fund strategic franchise enhancing loan growth.

We look forward to delivering for our clients and shareholders again in ’24 and beyond. Turning to Slide 11, the highlight of the franchise. We again generated strong core deposit growth of $1.1 billion in the quarter. This represents our third consecutive $1 billion-plus growth quarter and enabled us to repay $743 million in high cost wholesale CDs in the quarter. The $3.1 billion of deposit growth in just the past three quarters represents a 15% positive remix of our deposit franchise. It is worth noting that our noninterest bearing deposits increased by over about $1 billion over the same time period and $2.5 billion over the course of 2023. This is a huge testament to the power of our team in action. Similar to last quarter, I want to highlight not just the quantity but also the quality and granularity of this deposit growth.

The growth we achieved was a team effort across the franchise. Once again, more than 20 of our deposit channels saw growth in the quarter. More than 40% of these deposit channels experienced growth of $25 million or more, demonstrating the broad based nature and quality of our deposit transformation. Total new commercial accounts opened in the quarter again was impressive and an excess of 500. As expected, our cost of deposits increased slightly by 15 basis points in the quarter, due in large part to the planned noninterest bearing service deposit outflows. I’d note that our interest expense continued to trend in the right direction, declining by $3 million in the quarter, positively impacting our net interest income. This is in contrast to all of the industry and driven by our deposit gathering successes.

We remain deeply focused on the quality and stability of our deposits. And at the end of the quarter, 77% of our deposits were either insured or collateralized. This metric keeps us in a very strong position relative to regional bank peers. Even after our success in the quarter, our core deposit pipeline remains robust at approximately $1.5 billion as we continue to backfill the previous growth. We anticipate onboarding this pipeline over the next two to three quarters. Turning to Slide 12. Here, we highlight both the success we’ve had in gathering core deposits as well as in paying down wholesale funding. The $3 billion of inflows in the last couple of quarters has been used to pay down more than $2.3 billion of wholesale CDs and $850 million of FHLB advances, but there remains a significant and impactful opportunity ahead.

Approximately $2 billion of wholesale CDs will come due in 2024, which provides a significant value creation opportunity as we look to convert our deposit pipeline over the next coming quarters. While this opportunity is meaningful, it is important to remind everyone that like most banks, there will always be a place for some level of wholesale funding in our balance sheet. Moving to Slide 13. Our net interest income was $173 million in the fourth quarter. This number is in line with our previous quarter, adjusting for the outsized accretion. Despite the modest reduction in interest earning assets, our net interest margin in the quarter was 3.31%, which exceeded our 3.20% to 3.25% target guide for the quarter and represents 11 basis points of margin expansion on an apples-to-apples basis.

We hope to continue this trend of funding mix and cost improvement in ’24. With that, I’d like to turn the call over to Carla to provide additional detail.

Carla Leibold: Thank you, Sam, and good morning, everyone. On Slide 14, you can see the trends in our loan portfolio, the yield on loans and our loan-to-deposit ratio. We reduced our loan balances by about $600 million in the fourth quarter as we remain disciplined on loan prices and selectively extending credit and using balance sheet capacity for holistic banking relationships. The consumer held for investment loan portfolio continued to decline, given normal planned runoff while our consumer held-for-sale loan strategy continues to gain momentum. In the fourth quarter, we achieved our $10 million annual run rate goal for fee and fee like income from our held-for-sale program. We expect that to continue in 2024. As a reminder, this fee like income comes with strong credit protection.

We have completed our strategic loan portfolio remix and are excited about resuming loan growth. As you will hear from Sam and our 2024 guidance, we have strong conviction in our ability to resume loan growth across the bank and to do so at accretive yields. We will reinvest securities cash flows, excess cash balances and deposit growth this year into new loan originations. Today, our cash and securities are earning roughly the federal funds rate. Once deployed into loans, that liquidity will generate approximately 300 basis points of additional yield based on recent origination trends. We have an enviable loan-to-deposit ratio compared to our regional bank peers, given the success and continued momentum of our core deposit generating initiatives.

Our strong liquidity position provides us the flexibility to generate holistic relationship based loan growth without significantly increasing the overall size of the balance sheet. Moving to Slide 15. We are pleased to report another quarter of core noninterest expenses in line with our guidance. Like many banks our size and those much larger, we incurred a special assessment from the FDIC as a result of the banking failures in early 2023. Our onetime expense associated with this special assessment was close to $4 million and was fully accrued in the fourth quarter. Our core noninterest expense to average assets remains best-in-class at 1.67%. Our core efficiency ratio also remained strong at 47%, which was in line with our third quarter ratio after adjusting for the outsized accretion in that period.

We will discuss our forward expectations later in the presentation, but I want to provide a few points of commentary right now. We committed significant resources during 2023 to find expense optimization opportunities that we can redeploy to create customer satisfaction and shareholder value. Importantly, none of these expense reduction opportunities will take away from client facing positions, risk management and compliance or critical technology investments. In fact, these are the areas we plan to enhance even further by redeploying savings. Many of our anticipated expense savings will come from items like contract negotiation, vendor optimization and reduction in outside service utilization. On Slide 16, we continue to operate with robust levels of liquidity as evidenced by more than 200% of immediately available liquidity to uninsured deposits.

Total overall liquidity remained strong at $11.4 billion at year end 2023. During the fourth quarter, we redeemed $340 million of callable Federal Home Loan Bank advances, which had a cost of close to 6%. We also sold $295 million of securities at roughly book value. The combination of these two actions had a positive impact on our capital levels and will have a positive impact on margin going forward. On Slide 17, we highlight a very important component of shareholder value, growth and tangible book value per share. In 2023 alone, we grew tangible book value per share by an impressive 22% to $47.61. We also have $4.34 of AOCI marks that will be recovered into tangible book value per share going forward. We expect to recover about $1.50 of that in 2024.

The 22% growth in tangible book value per share in 2023 compares favorably to our regional bank peers that generated 13% growth. Our longer term track record is even more differentiated. If you look over the past five years, we’ve generated a compounded annual growth rate of 15% while our regional bank peers have generated only 4% growth. We believe we are among the best in the industry on this metric. Based on our current outlook for earnings and recovery of AOCI in 2024, we also expect to end 2024 with more than $55 of tangible book value per share. I’ll also point out that our tangible book value and GAAP book value are virtually the same. Turning to Slide 18. Our TCE ratio ended the fourth quarter at over 7%, which was an increase of 50 basis points in a single quarter and over 100 basis points in the last two quarters.

AOCI continues to negatively impact this ratio by about 64 basis points. Our estimated CET1 ratio ended the fourth quarter at 12.2%, which was an increase of 260 basis points for 2023. Adjusted for AOCI, this ratio was 11.2%, which is top quartile among banks with an asset size between $10 billion and $100 billion. The improvement in our CET1 ratio of 260 basis points is among the top 5% of all publicly traded US banks during 2023. In 2023, we executed successfully on our goals and significantly improved our capital levels. Given the continued uncertainty in the market, we feel it is prudent to continue to maintain higher levels of capital going forward. On Slide 19, credit quality in our portfolio remains strong across all metrics. Non-performing loans ended the fourth quarter at $27 million and our nonperforming asset ratio was just 13 basis points.

Net charge-offs overall came in line with our expectations. Commercial net charge-offs remain at very low levels and consumer net charge-offs remain within our modeled expectations. Our provision expense of $13.4 million came in well below expectations in the fourth quarter, primarily due to the reduction in loan balances held for investment, which benefited provision expense by roughly $6 million. Absent this, provision would have been in line with our previous estimates. Our reserve level in dollars declined modestly quarter-over-quarter given the lower loan balances I just discussed. We feel we are well reserved at a coverage ratio of 114 basis points of total loans held for investment, which increased 2 basis points during the fourth quarter.

We remain extremely well positioned for the potential challenges ahead for the commercial real estate market. The office and retail sectors of commercial real estate each only account for approximately 1% of our total loan portfolio and continue to perform well. With that, I’ll pass the call back to Sam to discuss our outlook for 2024 and some concluding remarks.

Sam Sidhu: Thank you, Carla. Turning to Slide 20. We wanted to provide you our outlook for 2024. We’ve broken our guidance into three categories. Firstly, our financial targets. These metrics included ROA, efficiency ratio and net interest margin. You will note that as opposed to providing specific expense guidance, we will manage the business to an attractive efficiency ratio. We believe this provides us the flexibility to make investments if we see meaningful positive operating leverage. Secondly, from a growth outlook perspective. Our deposit growth story in ’24 will be focused on continuing and building off of the success we achieved in 2023. Modest growth in overall balances with a focus on bringing in more high quality deposits will allow us to further reduce wholesale funding.

We expect loan growth to resume in 2024. We’re seeing attractive opportunities across our franchise led by our national corporate businesses. The strength of our capital and liquidity position provides us the ability to book 10% to 15% loan growth. As we mentioned previously, we anticipate this will be funded with securities and cash in ’24 as opposed to meaningfully increasing the overall size of our balance sheet. These efforts should allow us to generate PPNR growth between 10% to 15% in ’24 after adjusting for the PPP, NII and Q3 outsized accretion income. Number three, operating assumptions. Our operating assumptions are consistent with what we disclosed with you over the course of the year. We will target a CET1 ratio of about 11.5% and a TCE ratio of about 7.5%.

Our tax rate is expected to be between 22% and 24%. With that, I’d like to finish on Slide 21 with some concluding perspectives. This was another incredibly strong quarter and year that we’re very proud of at Customers Bank. I’ll mention again, we generated over $3 billion of core deposit growth in the last three quarters alone, significantly improving and transforming the quality of our deposit franchise. Continuing to improve our deposit franchise remains our top priority in ’24 and we are prepared to continue this march with our robust pipeline. Our net interest margin improved substantially over the course of the year and drove higher profitability on a more liquid and better capitalized balance sheet. Our industry is looking to reach a NIM trough by the middle of this year, while we achieve that in 2022 and have increased since then.

We attained our goal to build capital at an extraordinary pace due to strong organic earnings generation and a relatively flat and optimized balance sheet. Our credit quality remains exceptional, but we will stay vigilant in monitoring our portfolio. Our business model is highly focused on risk management and our ability to perform in all macroeconomic environments. With our differentiated and now deposit led business model and the strategic opportunities ahead of us, we believe we are very well positioned for success in the years to come. With that, I’d like to open the call to any questions you may have.

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Q&A Session

Operator: [Operator Instructions] Your first question is from the line of Hal Goetsch from B. Riley Securities.

Hal Goetsch: Congratulations on a terrific year and quarter. The loan growth guidance is simply an outlier and pretty terrific in this environment. Can you give us a feel for the areas or industries that are contributing to this growth? And if I could ask one follow-up on expense growth, it’s been flat for the last three quarters. And what can we expect for expense growth in 2024?

Sam Sidhu: Really appreciate it, and welcome officially and formally. So firstly, to focus on the loan growth and the loan portfolio. 2024 is going to be a year of franchise enhancing loan growth as we replace the nonstrategic assets we removed beginning in the first quarter, accelerated in the second quarter of the year with a capital call, nonstrategic line sales and then the runoff that we’ve targeted in the second half of the year, which has also helped us build our capital levels. So really bilateral and in many cases deposit rich customers, which include venture banking, fund finance. We also are expecting contributions from community banking C&I, we also like our fixed rate equipment finance business. But all in all, we’re remaining very selective.

But with a 72% loan-to-deposit ratio, we have a tremendous amount of flexibility on our balance sheet. So ’23 was the year of deposit transformation and ’24 is — that’s going to continue in ’23, but ’24 is really going to be rebuilding the loan book frankly to directionally close to levels that we started at the beginning of 2023. So the pipelines are strong, and hopefully, that answers your question on the growth part of your question. The second question you had was, I believe, on noninterest expense. So I think we’ve done a really good job. Carla talked about a couple of things. Firstly, we’ve managed our quarterly number at about $89 million, plus or minus, of core noninterest expense over the last three quarters. She also talked about some operational excellence initiatives with some detail.

And really, our focus, as you saw in the guidance slide is going to be managing to an efficiency ratio. And we will continue to focus on trying to drive savings in the core recurring expense base. Having said that, we’ll continue to invest wherever we see opportunities. You heard me talk about deposit teams and really, we won’t hold back on expenses and reinvesting those savings. However, we will always hold half the governor of that efficiency ratio. So a long way of saying we’ll look to — I think we’re sort of at the high 40s right now. We’re going to get to the mid-40s in ’24 and we’ll look to, at a minimum, look to maintain directionally our core expense base, but really driving that revenue growth, which is going to help us get to that efficiency ratio target.

Operator: Your next question comes from the line Casey Haire from Jefferies.

Casey Haire: So apologies if I missed this, but can you guys — your NIM guide of [320 to 340], what kind of Fed funds forecast is embedded within that, and what kind of deposit beta are you assuming if you do have cuts in there?

Sam Sidhu: I’m happy to take that. And Carla, feel free to jump in with any clarification that I missed. So the NIM guidance is pretty wide. There’s a lot of deposit remixing and loan remix that’s happening. You also heard me talk about the deposit side, the $2 billion plus or minus more of wholesale CDs that are maturing in ’24. So really, the high end of the range we would sort of assume cuts that would be more in line with the Fed dot plot but you could have faster loan originations that happened earlier in the year as opposed to middle to later part of the year. And it could assume higher pace and faster pace of deposit inflows at lower cost earlier in the year versus later. And then the inverse really on the lower end of the range. So the range, to be clear, is about 3 to 6 cuts depending on the market and the Fed dot plot. So on the lower end of the range would be higher and faster cuts and really the inverse of what I just described.

Casey Haire: So 3, 6 cuts, 6 cuts would — I would assume, get you to that [323] would be to the higher end of [340]. And then just underneath that, what kind of — like the deposit beta, like on the first…

Sam Sidhu: Yes, it’s embedded — it’s really embedded in the guidance. The way to think about deposit betas on the way up, we had a high deposit beta, which really impacted us in ’22, but really tapered off in ’23. And in fact, we peaked in the first quarter of last year. High deposit beta, high cost of funds benefits you on the way down, and we expect a high beta on the way down.

Casey Haire: And just lastly, on your — the deposit remix, so $2.2 billion of wholesale CDs maturing this year. First off, what is the rate on those maturities? And then if I’m doing the math correctly, it looks like you’ve got core deposits up $1.5 billion to $2 billion. And if all-in deposits are growing low single digits, there’s going to be some rollover of that $2 billion. Just wanted to make sure that’s correct.

Sam Sidhu: So overall, we’ll look to remix most, if not all of that and with core deposit growth. It really depends on the overall pipeline and mix. The cost of that in this year is actually pretty close to 5%. So there’s a tremendous opportunity from a cost of funds perspective. So hopefully — one of the things I did mention is that we’re down to about 18% of wholesale CDs from our peak a couple of quarters ago. Our business model is branch light so there’s always going to be a place for some portion of wholesale funding in our balance sheet, and we’ll look to be thoughtful about recasting any small portion of that over the course of the year. But again, most, if not all of that, we’d look to remix through the course of the year with core deposits.

Operator: Your next question comes from the line of Peter Winter from D.A. Davidson.

Peter Winter: I wanted to ask about the balance sheet sensitivity. I mean as of 3Q, the balance sheet is fairly asset sensitive. So I’m just wondering were you able to reduce any of that sensitivity in the fourth quarter, and what’s the plan on trying to reduce some of that in ’24?