Brett Rabatin: Hey guys, good morning. Wanted to go back, Paul, to a question – to a comment you made earlier about the bank term funding program, and it sounded like you were going to utilize that to some extent this quarter, presuming that does run out at some point. Was the usage of the BTFP, is that going to be to replace – I didn’t quite catch if it was to replace some of the borrowings, or if you had just intended to kind of ride the spread that a lot of banks seem to be enjoying at the present time?
Paul Langdale: Yes, so for example, Brad, if I’m looking at the FHLB advances, which at 12/31 were – cost us 543 basis points, and I look at where one year OIS is today even at490, I mean, it’s a 50 basis point spread from where that funding is. And so, that would be an example of where we would utilize BTFP prior to its expiration to lock in that funding, is a way to reduce our liquidity costs.
Brett Rabatin: Okay. And then you talk quite a bit about the funding side of the equation. Could we talk about the lending side and just how much of the fixed rate loan portfolio over prices this year and maybe in 1Q specifically?
Paul Langdale: Yes, we anticipate about $2 billion of fixed rate assets in variable rate – variable – sorry, adjustable assets to reprice over the course of 2024. That starts in the first quarter with several hundred million dollars, and then we’ll accelerate from there through the end of the year. So, really the bulk of the repricing activity is pretty evenly distributed, but it’s a slight acceleration from the beginning of the year, if we’re looking at a maturity schedule. Some of those contractual maturities, obviously, we expect to be able to reprice those up about 300 basis points, similar to the adjustable notes. So, if you think of our three-to-five-year fixed rate CRE loan book, if we ever make a loan past that in CRE, we have an adjustable mechanism at the five-year mark.
So, that’s what I’m referring to when I talk about the adjustable-rate book. In addition, you still do have some prepayments. So, we still are seeing, even at much lower levels, some prepayments coming from our core customers. Obviously, as we’ve booked loans at the top, we’ve put in prepayment penalties, usually in the form of 3, 2, 1 to try to mitigate the down rate environment risk that we would have to earning asset yields. So, all in, Brett, we do expect some meaningful repricing of assets over the course of the year that should lift earning asset yields.
Brett Rabatin: Okay. And then I know lastly just for me, and I know mortgage is tough to predict, but in terms of thinking about fee income this year, obviously fee income was kind of flat down in 2023. Any drivers – I think you talked a little bit about treasury, David. Any drivers to fee income in 2024 that might be notable, aside from a possible increase in mortgage, assuming that gets back to a more normal level at some point?
Paul Langdale: Yes, Brett, I think you hit the nail on the head. I mean, apart from mortgage, which is a wild card, and obviously if rates come down some more, we could see some meaningful lift in mortgage demand, we would expect relative stability in the other areas of fee income. We’re focused on fees. Obviously, to the extent that we can optimize those lines, we’re going to do it. But I think mortgage is really what’s going to swing that line from one direction to the other.
Brett Rabatin: Okay, great. Appreciate the color.
Operator: Thank you. The next question is on the line of Brandon King with Truist Securities. Please proceed with your questions.
Brandon King: Hey, I had a few follow-ups. And I just want to understand the potential range of outcomes for the NIM. Seems like that 350 by the back half of 2025 is kind of a baseline scenario. So, is it fair to assume that if the forward curve does play out, that the margin could be closer to 4% by end of 2025?
Paul Langdale: No, I think, Brandon, in a scenario where we have 100 – call it 150 basis points of cuts or 125 basis points of cuts, that’s really going to get us to that 355 to 365 range. In a scenario where we have flat rates, it’s going to take just a little bit longer to get there. But the helpful thing for our balance sheet, obviously, is if we’re able to continue repricing our earning assets at current rates, i.e., the curve doesn’t move, that’s going to position us for continued NIM expansion as well. So, if you think of all the moving pieces together, the range of outcomes between those three scenarios is maybe a little tighter than you might anticipate. Even though we haven’t enhanced our liability sensitivity, that really offsets any impact to earning asset yields in a down rate environment.
Brandon King: Okay. No, that makes sense. And then you seem pretty confident in hitting those net interest margin targets with your modeling forecast, but could you just talk about any risks that could prevent you from getting to where you think you’ll get to?
Paul Langdale: Yes, of course the macroeconomic and liquidity environment is always going to pose a risk to the outlook. It’s hard to forecast the unknown unknowns, as you know, Brandon, but I think we’ve been pleasantly surprised in the soft landing narrative, how the economy continues to perform, how we continue to see available liquidity, how we’re able to reduce some of our marginal funding costs. Obviously, if the liquidity environment changed or if we saw any meaningful reduction of liquidity in the banking system, that could create some upward pressure on funding costs, even in a down rate environment. I’d say that’s probably the biggest risk, although as it stands today, I really don’t see that.
Brandon King: Okay. Very helpful. Thanks to take my follow-up questions.
Operator: Thank you. At this time, I’ll hand the call back to David Brooks for closing remarks.
David Brooks: Hey, thank you for joining us today. As I said in my prepared remarks, it was a difficult year in 2023, but we feel very encouraged and positive about the trajectory of the bank’s margins and earnings here going forward. So, appreciate everyone’s time. Hope everyone has a great day. Thanks.
Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
