Paul Langdale: Sure. Happy to walk you through the modeling logic there. As we think about a base case scenario, we’re assuming a flat rate environment. As you know, over the last four quarters, we’ve really talked about our ability to reprice earning assets due to our fixed rate CRE book and our ability to roll those loans over. New volume rates are coming on right at 8% right now. So, we’ve been able to continue to expand earning asset yields even as short-term rates have peaked. That’s something that we’re going to be able to do even in an environment where you see several Fed cuts. So, we’re focused obviously on expanding the margin, topping out those deposit costs even in a flat rate environment. As I noted, because the curve is pointing down, and because we have run two other scenarios with 75 basis points and 150 basis points, 125 basis points of cuts, respectively, we are going to be able to capture a substantial amount of deposit cost decreases on the way down, which will help drive that margin even higher.
All of our marginal funding is held really short. And as you know, Michael, that’s really expensive to do at the top of the cycle. We’ve done that so that we can really focus on optimizing NII and NIM growth in 2024. If I look across the portfolio, I look at the FHLB advances, for example, are right at 543. As I mentioned, the brokered portfolio at 536, our six-month branch CDs, $1.1 billion of those at 550 APY. For us, we have a significant opportunity even in the first quarter to reduce all of those costs as all of those individual components have seen 30, 40 basis points of pickup on spread as we begin to reprice those. Having held short, that’s really what’s going to drive the margin. The upside to reducing the funding costs is ultimately what’s going to create the delta between a base case scenario where you have a flat Fed funds rate environment and an upside case where you have down 150, call it.
Michael Rose: Okay. That’s really helpful. Thanks for taking my questions, guys.
Operator: Our next question is from the line is Stephen Scouten with Piper Sandler. Pleased. Please proceed with your question.
Stephen Scouten: Yes, thanks. Good morning. Hey, Paul, I wanted to follow up, I think I heard you say that the down 100 basis point scenario was going to be an up double digit NII kind of percentage. And I’m just kind of wondering versus the last Q, I think where it showed 1.66% and then down 100 basis points, like what change, whether it’s in the modeling or what you guys did from a hedging or structural standpoint to create the delta that seems to have come about
Paul Langdale: Three things there. I’ll correct you slightly. Double-digit net income, NII is right on the cusp of double digits, but yes, I mean, it’s a substantial increase in our liability sensitivity from last quarter. Two things really driving that. One is the updated deposit study that we do and the remixing of non-maturity deposits into short duration time deposits and other wholesale types of funding. That, for us has substantially enhanced our liability sensitivity. The additional thing, as I noted, Stephen, is the indexation of a substantial portion of our deposit base to Fed funds. So, our ability to drop deposit costs, whereas in a normal down rate environment, if we have exception pricing as a tool that we use to negotiate with our depositors, it’s a little bit harder to bring those costs down.
For us now, we have that indexed tool that’s going to be able to drop our deposit costs instantaneously with Fed. So, all of those actions that we undertook to enhance that portion of our deposit base and increase that liability sensitivity, but really the reduction of those non-maturity deposits was the single largest driver of that model.
Stephen Scouten: Okay. And I think last quarter you had said it was $3 billion to $4 billion in index deposits. So, has that number gone up further on a quarter-over-quarter basis?
Paul Langdale: That doesn’t include the six-month CDs, the promo CDs, as well as some of the broker CDs. So, if you look at the portfolio in total, we’re going to be able to move roughly half of the deposit book, which is really a substantial portion of the interest-bearing deposit book inside of four months for any move in Fed funds.
Stephen Scouten: Okay, great. That’s extremely helpful. Thanks. And then I guess just my only other follow-up is kind of, I’m curious what you guys are seeing around new CRE demand. Obviously, put up really strong growth this quarter, and I respect – heard the comment that pipelines maybe aren’t quite as strong, but still guiding towards positive loan growth. What’s kind of the pushback on these 8% rates within the CRE markets, and do you think we’ll see kind of a pickup in the back half if we do indeed get the projected rate cut?
David Brooks: Yes. The granularity of our loan requests continues to be theme, Stephen. As we grow forward, we’ve seen a lot of requests, generally smaller requests, acquiring families, acquiring assets, investment groups acquiring assets, is what we’ve seen on the CRE side. We have seen a drop in demand for large CRE deals. We’re not seeing much construction and haven’t been doing much construction lending. So, we haven’t seen much there. We’re really looking – as we plan for 2024 and 2025, Stephen, we’ve invested, as Paul mentioned earlier, in doing what we can to balance our future growth away from being so CRE concentrated. We are in the process of hiring some additional commercial industrial lenders in our major markets, adding to the teams we already have there.
And then also SBA is something, again, given our granular nature of our request, we do have some SBA requests. We haven’t set that up as a big national business or anything, but in terms of assisting our customers. So, we think we’ve missed some opportunities there. So, we’ve added to our SBA team, are adding to our SBA team in Houston and in Austin in particular. So, we’re doing what we can on that front, but it’s partly also why we’re thinking, Stephen, that it’s kind of a mid-single digit growth because of the uncertainty out there in the CRE market and our desire to really balance our loan growth with our deposit growth. So, we think those are all achievable for 2024.
Stephen Scouten: Great. Makes a lot of sense. Thanks for all the color, guys. Appreciate the time.
Operator: Thank you. The next questions come from the line of Brett Rabatin with Hovde Group. Please proceed with your questions.
