Unidentified Analyst: Well, I congratulate you on all what you’re doing. We were – we’ve been major investors for a long time. But I – we see you as a Southeastern opportunity and presence. And I mean, I think good governance, low crime, responsible government is where at least we continue to put our equity assets into, because we want to stay out of states that basically can’t get their act together. I mean we don’t own any property in Chicago or Baltimore or San Francisco, and we run away from areas where governance is just too crazy to – when you have 12% marginal tax rate, everybody just worked with their feet. So, your Southeastern presence is what gives you a real premium over the time. So thank you for your good job. Please to keep doing a good job.
Mark Mason: Well, thank you. We appreciate the questions and the comments, sir.
Unidentified Analyst: Okay. Thank you.
Operator: We now have Woody Lay with KBW. You may proceed with your question, Woody.
Woody Lay: Hey good afternoon guys. Wanted to touch on deposits. So, if you adjust for the acquired balances, they were down about 10% quarter-over-quarter, which was mostly from that brokered deposit bucket. Can you just walk through the dynamics that were at play in that segment? Were the declines really from losing the deposits due to competition? Just trying to figure out what drove that decline and sort of do you think the broker deposits can continue to increase from here?
Mark Mason: So, we use broker deposits interchangeably with borrowings. We are conscious of our loan-to-deposit ratio, but we look at the cost of funds, right? And last year, the cost of broker deposits was much more attractive to borrowings. It’s a little less attractive recently. And that’s why you see the decline in broker deposits relative to borrowings, plus the attractiveness of the Federal Reserve program, I forget the initial.
John Michel: term.
Mark Mason: Bank term funding program. We decided to use some of that as well. To the larger question, though, the real small loss of deposits in the quarter, that was primarily in March. We did very well in January and February. March, I think, highlighted – everything that happened in March highlighted the yield opportunity. It’s amazing to me how slowly a lot of deposits have recognized the change in yield opportunity in the market. And it’s a good thing, and this is true for all banks, right? That our customers really are loyal to us and really do like banking with us and that they’re willing to accept a lower yield than maybe the absolute highest yield they could find some place in the marketplace. But over time, a certain number of customers, sort of each month make that decision, either to move inside of our products, let’s say, from rack rate money market to a promotional money market or a promotional CD account and/or move money out.
And you can always find – even though we have a very competitive rate structure on our promotional products, it is not the absolute highest in the marketplace, right. An example, our highest promotional CD rate today is 4.25%. Obviously, you can find them with over 5% in the market today. And it’s kind of an art, not a kind of. It is an art today to price deposits. Because if you’re not careful, you can raise your deposit costs and not increase the number of new customers that you attract. And yet, you’ll reprice existing customers at levels higher than they would happily accept. And we did a little bit of that recently. We had one point over the last month, a 4.75% higher rate. And we found that we didn’t raise materially any more new money.
We just repriced existing money at a higher level. So, we dropped it back down to 4.25%. It’s an interesting market. I do feel that, because we have such a low level of uninsured deposits, that our run-off experience to date, and that include last year’s run-off, is going to slow, I believe. Because the smaller the deposit balance, the smaller the motivation for the customer to seek higher yields. It just happens like that, right? A lot of this money sticks around because the depositors don’t have very large savings accounts. They like to move money in and out of them. They’re very happy with the service. And – but that’s the franchise, right? That’s why it has value. So, I don’t know if that’s a full answer, but that’s, sort of what we’ve experienced.
John Michel: Yeah. Woody, one other comment on the broker deposits.
Woody Lay: Yes.
John Michel: We utilized traditional broker deposits. We do not have relationships that are classified as broker deposits. We usually go through the open market and get broker deposit in that way, dealers. So, we don’t have relationships that are coming in and out, and they decided not to be with us in our broker deposits, if that makes sense.
Woody Lay: Got it. Yes. No, that makes sense. And then maybe on those acquired deposits at quarter-end, they’re about 322 million. Have you seen those balances stabilize so far in April?
Mark Mason: We believe we have, though April has seasonal outflows for taxes, and it’s a little hard right now to read through what our tax payment losses or other reductions. We’re going to know better next month.
Woody Lay: Got it. All right. And then last for me. Can you just sort of talk through the rationale of lowering the dividend to $0.10 versus suspending it all together? And maybe if you could just give us some overall thoughts on your capital position.
Mark Mason: Sure. First, we believe that we still have a solid capital position, right? Our CET1 is still about 8%.
John Michel: Over 8%.
Mark Mason: Over 8% today and substantially more level of capital at the bank, of course, right. So, we feel comfortable that we have sufficient capital today to provide for any growth. Of course, we’re not trying to grow the balance sheet and our risk profile today. Why do we lower the dividend? Well, we lowered the dividend because we are concerned that the level of profitability this year may not be sufficient to feel comfortable continuing to pay our regular quarterly dividend that we’ve had over the last year. And we do that in an abundance of caution. Part of our job as managers of the bank is to make sure that we are sufficiently conservative in distributions in relation to the capital needs of the company, the risk profile.
And today, the environment and the level of uncertainty in the environment about the range of future results led the Board with the decision to reduce the dividend. We did not eliminate the dividend because we believe the company is going to remain profitable. We are concerned about the predictability of the level of profit given the range of outcomes this year. And so, the Board determined that it was appropriate at this time to lower the dividend to a level that they felt very comfortable with.
Woody Lay: Got it. Alright. That’s all from me. Thanks for taking my questions.
Mark Mason: Thanks, Woody.
Operator: Thank you. We now have . You may proceed with your question.
Unidentified Analyst: Hi, good afternoon gentlemen. It’s . I guess my biggest concern after listening to you all speak for about an hour is, Mark, you’ve cited several times that you’re hoping and waiting for interest rates to level out or go down. And I think we all are on the same page on that, but that’s not a business strategy. So my point is, do you have a playbook where long rates go to 5% or 7%? Obviously, that’s not positive, but you need to be prepared for the worst and hope for the best. And I guess I’m just – I’m struggling with your hope of rates going down versus how you manage the business. Could you just talk a little bit about your positioning on that?
Mark Mason: Sure. Well, look, we’re essentially positioned for that today, right? Everything we do today is focused on managing the balance sheet, maintaining liquidity, having a competitive deposit product and trying to manage pressure on funding, right. My comments about a lower interest rate environment really relate to the structure of our balance sheet. I mean, the reality is, we are structured somewhat liability-sensitive. And we – this balance sheet and these lines of business, and not insignificant of which is mortgage lending, they performed better and stable to falling rate markets. And so to say our only business strategy is hoping for a decline is not necessarily true. It’s an observation on the structure of our businesses. So, hopefully, I didn’t suggest our only strategy was a hope.
John Michel: And I would add that we have taken steps to address the potential for, as you say, prepare for the worst and hope for the best. We’ve put over $1.3 billion of fixed rate financing in our – between our FHLB advances and the bank term funding program to lock in those rates. So that if rates do go up, we do not have adverse impact from that. And then that’s a significant portion of our borrowings today.
Unidentified Analyst: Excellent. And then just one other follow-up. I think in a prior comment, you had mentioned on the investments portfolio that your average duration was about 4 to 4.5 years, excuse me. So, in theory, we could be – you could be in a position where your net interest margin and your earnings per share, net earnings are going down, but yet your book equity is actually going up, because that’s being pulled back into the balance sheet. Is that a fair assessment of, kind of how those dynamics work?
Mark Mason: That could occur, right? It obviously depends on deposit costs, right, and in general, rates, among a lot of things, including loan volume and expenses and a whole bunch of stuff, right? But you’re right, that could happen.
Unidentified Analyst: Okay. And then just a funny clarification, but you had said deposit security anxiety, is that a new like psychological disorder or how would you clarify that?
Mark Mason: Well, I don’t know what the popular term is, but when – several banks notably lost a lot of deposits in March, right. I would call that depositor anxiety, right. Now we did not experience much. In fact, it was very hard to identify any material about, but that was a marketplace issue at the end of the quarter.
Unidentified Analyst: Alright. Thank you guys.
Mark Mason: Thank you for the questions.
Operator: Thank you. We now have a follow-up from Matthew Clark of Piper Sandler. You may proceed Matthew.
Matthew Clark: Thanks for the follow-up. Just back on capital. What do you and the Board view as your most constraining capital ratio? I mean, Tier 1 is, I think, down a little bit linked quarter into the mid-8s. Total risk based at the Holdco, I think, . You have additional margin erosion coming, lower earnings. Fortunately, you cut the dividends. That’s going to help, I think, stabilize some of the capital ratios. But I guess getting back to, kind of what do you view as the most constraining capital ratio or at least the Board’s view?
Mark Mason: Well, today, I think that’s Tier 1. That’s the ratio that we believe, most sensitive today.
