Operator: Our next question comes from the line of Brandon King with Truist Securities.
Brandon King: So yes, could you please talk a little more about your confidence in the assumptions that deposit rates will peak soon after the rate pause, in particular, in an environment where we could be in a higher for longer rate environment still be long out there and a lot of your competitors are still finding and scratching for deposits?
Paul Langdale: Sure, Brandon. And back to what I had mentioned on the previous answer to a question, we were deliberate in getting in front of the rate increases. So we wanted to make sure we could retain our core deposit relationships, those relationships that we’ve had for some time upwards of 3 decades. And the way that we did that is we were very focused on making sure we paid a higher rate as the Fed was hiking not waiting for the noise after the Fed hit the terminal rate and then as you mentioned, scratching and clawing and trying to play hand-to-hand combat for deposits against our competitors who are trying to take our customers. So we’ve been more generous on the front end with deposit increases for those core customers with the expectation that once the Fed does hit and hold at the terminal rate, that, that should provide us some alleviation of pressure on deposit rates as we continue to see that higher-for-longer environment that you mentioned.
Brandon King: Okay. And does that also — are you also assuming that kind of the non DDA noninterest-bearing mix stays kind of cost from here? Or are you also assuming kind of a mix shift from noninterest-bearing to interest-bearing as well?
Daniel Brooks: We’re expecting a very slight mix shift in our forward forecasting but it’s not very meaningful.
Brandon King: Okay. Okay. And then a question on expenses, just as far as how you evaluate the expense run rate going forward? How do you feel about kind of your current headcount? And do you still see potentially room for there to get more efficient going forward?
David Brooks: Look, I think, costs, Brandon, are going to be on everyone’s plate in 2023. And so everyone is going to be — our industry has been through unique time where from PPP revenues to the liquidity and system keeping interest rate, deposit costs down, et cetera. We’ve had a season here the last 2 or 3 years where costs haven’t — people have been able to invest as we have in our infrastructure and building out business lines and things like that. But we’re entering a time now where if we’re going to have an economic slowdown, rates are going to level out at a higher level, then the only of the lever that financial institutions are going to have to use their cost base. And so we took a hard look at ours in the fourth quarter and trying to position ourselves for what to be nimble and be able to react to what could come our way in 2023.
I think other banks will do similarly as the rates level out here in the second quarter. I think our headcount is right where we need it to be. We’ve invested in a lot of businesses. We have the best teams out customer-facing teams we’ve ever had and we’re going to take great care of our customers. We’re going to grow with our customers in our markets and we’ll invest and hire more people as we see the need to do it. So we’re — but I think, right now, we’re right where we need to be and looking good here as we go into ’23.
Operator: Our next question comes from the line of Matt Olney with Stephens Inc.
Matt Olney: Want to go back to the outlook for the NII and I appreciate all the comments on the funding. On the other side, you mentioned the loan repricing tailwinds that should provide some offsetting benefits. Any more color you could give us on how quickly this book will turn? Just trying to appreciate why this would be a offsetting some of the funding headwinds as you move into, I think you said 2Q of ’23 at the back half would offset some of the funding headwinds?
Paul Langdale: Sure, Matt. Thanks for the question. As David — to echo a theme that David spoke to, there are a lot of potential outcomes for the broader economy in 2023. And obviously, the macroeconomic picture is going to influence the payoff and paydown trends. That being said, we have a bulk of our book is those fixed rate, 5-year CRE loans. And the contractual maturities for those will continue to provide a tailwind even in an environment with subdued payoffs or paydowns. As we look back on the fourth quarter, we did see payoffs and paydowns slow a little bit. Some of that is typically a seasonally slower Q4 that we see but some of it is a slowing of paydowns more broadly. Our expectation is to see some blend of the 3Q and 4Q rates on a go-forward basis from a payoff and paydown perspective.
So we are optimistic that we will continue to have a pretty good lift from the repricing of those fixed rate loans, especially as contractual maturities happen over the course of the next 4 to 8 quarters.
Matt Olney: Okay. I appreciate that, Paul. And then I guess, David, in the past, you’ve talked about the bank’s goal of achieving the positive operating leverage every year. And looking to 2023, is that still a reasonable goal to achieve this operating leverage given the macro headwinds that you’re facing in the industry spacing?
David Brooks: SP1 We believe it is. Matt, given, again, everything we know today, we believe it is. We think our cost. We’ve got a very good handle on our cost structure now. And we’ll continue to look, as Paul said, for ways to incrementally improve. We’re taking a hard look at all our contracts and all those things that you would expect the bank like ours to do on an ongoing basis. So we’ll continue to look for things like that. That will be helpful, I guess, as we fight that there are so many things, as Paul mentioned, from FDIC to contracts and contractual increases in pricing and things like that. And obviously, increases merit and pay increases to our teams and all of that we’re creating the headwind. So we tried to get ahead of it in the fourth quarter by having some cost reductions across the company and then positioning ourselves to hold the line here, if you will, in 2023.
But it’s a continued, not only focus of ours, Matt but it’s a commitment we have to our shareholders to continue to improve the operating leverage of the company.
