Scott Goodman: Yes. I think if you look at the two ends of the spectrum there, life insurance premium finance, just given the liquid collateral behind those loans, that’s the lower risk end of the profile where we have to watch that portfolio’s yield. And we’ve been pretty steady in terms of our expectations there, and we’ve been able to get the growth we’re looking for. But that’s certainly something we can turn off and on a little bit easier. I think on the sponsor finance side, probably not surprisingly at the other end of the spectrum, just given the nature of that book is cash flow based with a little higher leverage profile. That said, we look really hard at that portfolio. We review every loan in detail quarterly. And right now, we’re really pleased with the performance of that book.
The leverage is typically in the 3 times and under range and coverage is strong. So — but that would probably be the one that we’re continuing to watch closely given the economic environment.
Jeff Rulis: Okay. You put SBA and maybe with the government backing and tax credit, you put those kind of in the middle in terms of risk profile of those four categories?
Scott Goodman: Yes. I would say it’s closer to life insurance, right, than sponsor. As I mentioned, we’re continuing to be bullish on origination activity there. What we’ve had to do in terms of holding some of the book though is shift a little bit to a fixed structure, which holds some of those loans on the books, but does affect the ability to sell those loans in the market, and we’ll just continue to evaluate that risk versus reward as we move forward. But I think that sector, certainly as we see banks pull back from traditional lending, maybe as the yield curve normalizes and if the economy does soften, that’s a countercyclical niche that we should do well for us over time.
Jeff Rulis: Great. Thanks, Scott.
Operator: Next, we’ll go to Andrew Liesch with Piper Sandler. Your line is open.
Andrew Liesch: Hey, good morning, guys. Thanks for taking my question. Just on the funding of the loan growth, recognizing that reinvesting in the securities portfolio, it doesn’t sound like that’s going to be a priority anymore. So, I’m just curious, what are the cash flows coming off that? And then is that going to be sufficient to fund loan growth? It sounds like you’re going to be bringing out some FHLB in keeping some of those in the funding mix. Just kind of curious the outlook of funding the loan growth.
Keene Turner: Yes, Andrew, thanks for the question, because I think maybe my comments misled a little bit of where we are. So, we do not anticipate long-term remixing out of the investment portfolio in the loans. I think we haven’t really remixed anything already. We’re just — we have an investment subsidiary and that cash that we didn’t reinvest is just — it’s kind of sitting there. We wanted to get through the next 90 days, so to speak, 60 days, whatever it is. And then, I think, resume balance sheet management as normal. In our view, the balance sheet has the right size and it has a target for the investment portfolio and where we were at the end of the year largely reflects that. So, our assumption when we model out net interest income and margin is that we’re going to keep the investment portfolio relatively the same size.
Obviously, fair value has moved that around a little bit, but reinvest the roughly $250 million of cash flows that we expect this year. And that — we think that’s a sound approach from an interest rate risk management perspective. And then, I think based on my comments, although maybe the timing of this is uncertain, I think there is a path to generally customer funding the growth that we expect for this year. I think enterprise has historically struggled to grow deposits in the first half of the year with the commercial base. We’ve got a lot of tax payments and after year-end bonuses that come out of the system and then certainly what happened in March caused some additional pressure there and maybe put us on our back foot a little bit in terms of use of broker versus overall flows.
But I think our path would be forward that, particularly as we ramp up the effort in recent weeks and then as we move into the second quarter and the remainder of the year that we’re able to grow customer funding, we’ll have some stabilization of the competition and the remixing in the industry. And while we’ll use FHLB to manage the ups and downs of the specialized businesses, we expect that we’re going to get growth overall. And we’ll generally have some reasonable path to core funding the balance sheet in the second half. So, I think that’s our expectation. I think that drives continued opportunity to defend the level of earnings per share and the operating revenue, and we don’t see it remixing, albeit it might be slightly more profitable in the short term.
It creates, I think, some longer-term challenges and that concentrate interest rate risk in an environment where I think we’re more exposed to down rates than we probably want to be. So I think it’s — as Jim said, continuing to build the franchise and moving forward with acquisition of relationships and really trying to find the funding along the way.
Andrew Liesch: Got it. You’ve covered all the other questions I had. I will step back.
Keene Turner: Great. Thanks, Andrew.
Operator: Next, we’ll go to Damon DelMonte with KBW. Your line is open.
Damon DelMonte: Hey, good morning, guys. Hope everybody is doing well, and thanks for taking my question. I joined kind of late, so I apologize if this was covered. But when you look at the deposit mix, the noninterest-bearing are down to 38% of total deposits from 43% last quarter. Keene, can you just give a little perspective as to kind of where you see the ultimate remixing kind of landing for the noninterest-bearing deposits?
Keene Turner: I would say we don’t necessarily have a hard and fast percentage that we’ve looked at. We are down subsequent to March 31, and that’s primarily business flows and tax payments and a lot of that, as you would expect, come out of DDA. We are seeing some remixing still in the CDs and CDARS shockingly. But we also saw some good activity in the specialized space that’s made up for that in the first half of March. So, we know it’s down, and I think our forecast suggest there’s further remixing. Whether that settles in at 35% or 31% or some other magical percentage, I really can’t forecast that. I think we generally, to some of Scott’s comments have identified and are tracking vigorously the deposit flows more so than we ever have.
And we’re just making sure that if something left, we’re at the table to follow up and see what we can do to get that back structurally. So, I think our overall expectation is that certainly, deposit costs are going to rise, I’ll say, significantly from where they were from the first to the second quarter, but maybe not so materially from the 125 basis points that I indicated we were at in March, and that does assume some level of remixing. And I think that overall, when we look at the overall cost of the deposit base and how it’s behaved relative to where Fed funds is and then when we look back historically to where — how it behaved in the overall cost, where it was like in 2019, we’re at a similar level of cost for the deposit base today with almost twice the Fed funds rate.
So, we feel pretty good about that. And we’ve got a little bit of room to give there on the DDA percentage while still maintaining net interest income and profitability. So, I know you wanted a number, but I don’t have a good one there, but that’s how we’re looking at it and how we’re thinking about it.
Damon DelMonte: That’s okay. That’s good color. Thank you. And then, did you say that the loss on the sub debt security was $5 million?
