We have I think it’s 175 employees there roughly and it’s a really nice complement to the strong commercial banking team that we built out in California a few years back in terms of expanding the middle market footprint. So, we expect to see growth in that area. And then lastly, on the industry vertical side, aerospace, defense, transportation and TMT are the places where the pipelines have — we’re seeing some pickup in the pipelines.
Scott Siefers: Okay. Perfect. Thank you very much. And then, Bryan, I was hoping you could discuss — I know that the numbers aren’t huge here, but maybe you could discuss sort of the fluctuations in kind of reserve building versus reserve releasing outlook. I know it sounded like from your comments it’ll be a little reserve build in connection with loan growth, but I think you were among the fewer sort of mid quarter when you said maybe a little release. So, just curious sort of the puts and takes as you see now.
Bryan Preston: Yeah. Thanks, Scott. I think the main thing there is two items. For the guidance for the rest of the year, that is under the assumption that there is no change to the economic outlooks as provided by Moody’s. A big driver of the release this quarter was the economic outlook from Moody’s did get better. So that was a factor. We also had end-to-period decrease in loans sequentially. So that was an item that drove the release as well. Next quarter, we did guide to stability on loans. So that’s what we’re saying kind of zero to $25 million. Mix could cause a little bit of build, but we do expect end-of-period loan growth in the second half of the year and that’s where you get the larger numbers.
Scott Siefers: Perfect. Okay. Wonderful. Thank you very much.
Operator: Next question comes from Gerard Cassidy from RBC Capital. Your line is now open.
Gerard Cassidy: Hello. Can you hear me?
Tim Spence: We can. There we are. Good morning, Gerard. We couldn’t for a minute there.
Gerard Cassidy: Good morning, Tim. Yeah, thank you. Bryan, just to pick up on your comments about Moody’s and the outlook, can you share with us how it’s kind of evolved over the last two or three quarters? And what is their current outlook for the US economy in ’24? Are they still calling for a slowdown or a recession, or are they actually in the camp now that we’re going to have positive real GDP growth for 2024?
Bryan Preston: Their baseline scenario has had a bit of stability. It’s certainly — I don’t think it is a significant — there’s no slowdown in 2024. They continue to push out their baseline expectations. They’ve also improved their downside scenario. That’s had a little bit of a bigger impact on our reserve calculation. But overall, they’re now in the camp of the economy continues to be moving well, and I don’t think that they’re expecting a significant slowdown at this point in 2024.
Gerard Cassidy: Got it. Thank you. And then, Tim, coming back to the growth, particularly in the commercial side, you gave us some very strong numbers, of course, particularly in your Southeast franchise. Can you take it a little deeper or give us a little more color? Once you bring on these clients like you mentioned about the customers that came in this quarter based on payments, how long does it take to get them to a return that you find — passes your hurdle rate and you guys are happy with it? Is it a 12-month, 24-month period? Can you walk us through that kind of waterfall on how you get there? How many more products do they need in addition to payments or in addition to a loan to get them to your return levels?
Tim Spence: Yeah, sure. So, I’m going to do payments first and then we’ll start with the loan, because payments is easy. So, the payments clients meet their return thresholds essentially out of the gate, Gerard, because you don’t have credit attached, which means the capital you’re holding is op risk capital. And it can take as long as 30 to 45 days to board a client, but because of some investments we made fortuitously for us prior to the deposit crisis last spring, we can board a client provided that the client is ready to do it in six days now on average. And that then allows for a very quick ramp and that’s what’s supporting the — I think it’s 11% growth in commercial payments fees year-over-year, that current pace. A high single-digit pace has been the goal there for a while and it requires us to get ramped quickly every time we add a new client.
On the credit side of the equation, I think the beauty of the focus that we have on granularity right now is when we move a middle market relationship, it’s generally a single bank relationship. And that means the credit comes on. It will take a month or two to move payables and receivables and otherwise and to get the payments flowing, but you hit the return threshold very quickly I would say generally well within a year on what we do in middle market. Where we are playing either at the upper end of middle market or in corporate banking, the return profile can develop over a longer period because quite often then the ancillary that we’re focused on is not payments. It’s the capital markets revenues. Where we lead, we get the returns quickly.
Where we are a participant, we’re a participant because we believe we can grow the relationship over time. And then, there is a strong discipline here to go back through the book every year. We do an operating review in every region with every corporate vertical and we have them show us the 25 lowest returning relationships in their portfolio, and there’s either a relationship plan that we believe, or we exit.
Gerard Cassidy: And real quick, Tim, just to follow-up on that payments, the new customers that you’ve referenced.
Tim Spence: Yeah.
Gerard Cassidy: Are you — are those customers that don’t have a payments product already or are you taking them from a fintech company or a competitor?
