Michael Mettee: Yes. You know, Alex, we’re probably a little bit of an outlier in the way we think about rates because we don’t see a whole lot of impetus to lower. And you know, I was watching CNBC this morning, and they were talking about the forward rate curve. A CEO of a slightly larger financial institution was talking about it at Davos, and they had four priced in and four in ’25. So we kind of think about it basically status quo in our kind of budgeted numbers, and would just expect to see, as Chris mentioned, needing — when you need deposit growth, you have deposit growth. We’ve got to grow core relationships, but we also believe in a fair customer proposition — value proposition, and so we think that that includes paying interest on deposits. So that’s where that lower net interest margin comes from and just composition. But the forward curve has been wrong for the last two years and so we’ve been — we’re slightly less conservative there.
Chris Holmes: Yes. We could have a bump or two down in the second half. Again, just our view, and it’s worth less than, as Michael said, the view that you could have gotten on CNBC this morning from a much larger bank CEI. But we — again, we don’t see the moves down that are being forecasted and we could get a couple in the second half of the year is more our view as we think about moving forward.
Alex Lau: Great. Thanks for answering my questions.
Chris Holmes: Thanks, Alex.
Michael Mettee: Thanks, Alex.
Operator: The next question comes from Stephen Scouten of Piper Sandler. Please go ahead.
Stephen Scouten: Hey, good morning, everyone.
Chris Holmes: Hi, Stephen.
Stephen Scouten: So what’s worse, even less than your view on rates would be my view on rates, but I’m with you. I don’t really see what the forward curve is telling us today. That said, if we did see more cuts in ’24 and ’25, can you help frame up the potential for what the mortgage business could return from a profitability standpoint today in an upside scenario because obviously, it’s a very different business than it was in ’21 when we last had probably a pretty robust market there so just trying to think about how to frame that up?
Michael Mettee: Yes. Stephen, I think there’s pin-up demand out there specifically for first-time home buyers. People — 6% mortgage rate is a lot different than the 8%, and so you could see some refinance activity. There’s very likely, if you kind of read all the publications, that there’s people that have been waiting to move because they don’t want to get out of a 3% or 4% mortgage. So I think there’s upside. As you mentioned, I don’t think you have a $25 million, $30 million mortgage contribution year because we — as Chris said, taken a lot of the downside off the table has been a process, and so with that, you take some of the upside off. But I think you could certainly see margin return to a respectable level and have a high-single-digit — low double-digit kind of mortgage contribution if rates move down far enough because there’s still a lot of people that want to be in our markets, and they’re moving here and looking to buy houses.
So we’re a purchase-oriented retail origination shop. About 85% of our loans are purchased, which does create refinance opportunities down the road with those customers. But our focus is on building business that way in the purchase market.
Stephen Scouten: Thanks. Great.
Chris Holmes: Yes, Stephen. I think also a couple of things. The business has thinned out and will thin out even further from both independent mortgage companies, but also some of your largest banks that have exited. And so I think it actually creates a pretty nice spot for, I’ll call it, the larger regionals and the smaller regionals both and so I think that’s a reason. We analyze, as I said earlier, hey, why aren’t we in the business and do we need to be in the business? And the answer is yes. We do think there is an upside. So if you think also about there’s some pin-up purchase demand so as rates stabilize and maybe even move down just a little bit, that probably kicks up the purchase demand, which improves the outlook. And then if you get six or eight rate bumps down, when that does eventually happen, even if it’s two years from now, that’s a catalyst for the refinance market, which will probably kick in in a significant way once you get to that level of rate decreases.
And so that’s — that again, when you add to it our retail side, which we think it’s important too and you add to it the fact that it’s a contributor to our net interest income, we like all those pieces of it.
Stephen Scouten: Yes, that sounds good. Okay. Curious, you know, you noted your kind of second priority from a capital strategy standpoint is kind of M&A if you stack rank those, but you also noted the local decision-making process versus a centralized approach being a great benefit to you, which I would agree. Is there a point where you think, hey, we do a couple more deals, we get to a certain size where you’re no longer able to have that structure? Or is that kind of integral to how you guys think about running the bank irrespective of size moving forward?
Chris Holmes: Yes. Again, insightful question, Stephen. And we’re pretty emphatic on the answer. It’s integral to how we run the bank. And so when we talk about spending two years to take a step back and really kind of evaluate our structure, evaluate our efficiency, evaluate our scalability, we think that’s the right way to run the bank. And so we thought about and we’re thinking about every day because we’re not finished scalability, and we think about risk also. There is not only credit risk, which perhaps the most traditional risk type of risk that you think about, but we think about compliance risk, we think about reputational risk, all of those things with that model, and so we’ve been very thoughtful in how we continue to design it for the long-term.
And so we do think, look, if we do an acquisition that adds, I don’t know, $2 billion or $3 billion in assets to the company, or, and then another one that adds another two and three and then another one that adds five, we think the model is still going to be the model, and we think that’s important. And we think it’s a very significant competitive advantage for the types of institutions that we’d like to partner with and we think would like to partner with us because they typically going to have some retail density to them, a big deposit side. Again, deposits are just really key to us, and we think that’s important and so we’ve designed it to continue that model. A good question, one that we ask ourselves all the time and one that just reinforces our commitment to the model.
Awesome.
Stephen Scouten: That’s great. Helpful. And then maybe just lastly, for me, and this is kind of super high level, and you may not have an answer for this. But the market seems to have gotten the Banking segment wrong throughout a lot of the last half of ’23, right? It was what was me, what was me, and then all of a sudden, we got this huge run since November. I’m just kind of wondering at a high — from a high-level business perspective, has there been anything that surprised you to the upside, whether it’s continued credit performance, customers’ acceptance of higher loan rates? As you look at your markets in the business, anything that’s kind of been a surprise, either to the positive or the negative?
