Matt Olney: Okay. Appreciate the clarification. And then just to follow-up on BHG, I guess, I appreciate the guidance you gave us there. It sounds like cost-cutting will be a driver of the positive — modest positive fee growth there. Any more color on the moving parts? How much do you expect the BHG revenues to decline year-over-year? And then for you to hit that kind of guidance you put out there, how much do we need to see expenses decline? Thanks.
Harold Carpenter: Yeah. They had a pretty significant decrease in the fourth quarter from the third quarter. I don’t think they will have that much more here in the next year, but they will see, call it, some reduction in 2024 expenses in comparison to 2023. They had a cost-cutting exercise in the fourth quarter. That will be the primary contributor to that. I think their revenues should shape up to be flattish maybe next year. I think they’re optimistic with respect to growth there, but the whole idea is to right-size the franchise and get it more focused on their core products and then get into kind of a sustainable growth rate going into 2025.
Operator: Thank you. Your next question is coming from Stephen Scouten from Piper Sandler. Your line is live.
Stephen Scouten: Yeah, thanks. I guess my first question is just around the Jacksonville expansion. I may have missed this, but is the belief that this can be 1 billion to 2 billion in asset bank and then with — you also have Louisville noted on the map, and I’m wondering if that’s just the construct of the map or if that’s intentional?
Terry Turner: Two things, Stephen. I think in the case of Louisville, we have started a de novo operation there. I guess Harold helped me three or four quarters ago or something like that. So it’s an early-stage build out using the same model that we have market leadership with a long career at Wells Fargo that’s leading our effort there. In the case of Jacksonville, yes, we do believe — I think you use the number 1 billion to 2 billion. Generally, our target is a $3 billion bank in a five-year period of time. As you may know, generally for these build-outs, we cross breakeven anywhere from four to seven quarters, depending upon how steep or what the trajectory is there. But we’re expecting a pretty rapid build-out in Jacksonville that would likely resemble what we’ve done in DC.
Stephen Scouten: Okay, great. And then just my follow up is around net charge-off expectations. I think it was 16 basis points this year, and you said 2024 should be consistent with that. What’s kind of embedded within those expectations in terms of overall economic scenario? I mean, are we thinking about a soft landing? And if things get worse overall, that could be worse as well, or is that just a function of you-all’s book itself and the strength of your internal book?
Harold Carpenter: Yeah, Stephen. Yes. Go ahead, Terry.
Terry Turner: No, go ahead.
Harold Carpenter: I think I’ll say yes to all of that. I think, you know, before we release earnings, we have some conversations with the special asset people. We have conversations with the credit officers. They feel pretty good about where the book sits today. They feel pretty good about what borrowers are doing and how they’re cooperating with us for those that might be under some kind of special considerations. So, we don’t sense that in order we sense that [Technical Difficulty] is presenting huge challenges for the portfolio at large. So, we think that was really healthy here this time going into 2024. And we believe also that many of the uncertainties that were around this time last year are not nearly as uncertain. Appreciate that we could have a recession.
It could be a soft landing. And I believe our assertion as to where we think charge-offs will be in 2024 is under kind of a soft landing, no recession kind of scenario. Who knows what happens if we get into a hard landing? But anyway, I would say yes to all the items that you talked about, Stephen.
Terry Turner: Stephen, I don’t know if it’s additive, but, yeah, I think our assumption is that we are most likely to have a soft landing, perhaps a modest recession. And given the health and strength and current performance of the portfolio that guidance ought to hold up. I think to Harold’s point, if you have a great recession, I don’t think you ought to assume we’re going to have 16 basis points in net charge-offs.
Operator: Thank you. Your next question is coming from Catherine Mealor from KBW. Your line is live.
Catherine Mealor: Thanks. Good morning.
Harold Carpenter: Hey, Catherine.
Terry Turner: Hey, Catherine.
Catherine Mealor: A follow-up on BHG and just thinking about how to model the revenue for BHG next year. If you look back at the size of the balance sheet and the loans that stayed on balance sheet for BHG, that grew a lot throughout 2020 and ’22 as they were kind of shifting from the gain on sale strategy to more on balance sheet. And of course that goal this year and the balance sheet was basically flat in ’23, just given the rate environment. How do you think about how that looks as we move through ’24, just as we kind of think about how much of origination stay on balance sheet versus how much go out into the bank network or move off-balance sheet in the private sales transaction?
Harold Carpenter: Yeah, I think, what’s going to happen this year is, I believe based on conversations I’ve had with their CFO, you should see more headed into the bank network this year than last year. I think it was fairly close to an even split in 2023. I think they’ll try to lean into the bank network a little more this year than last. I think still are planning one or two ABS issuances here in 2024. They were able to get one accomplished in the fourth quarter, which we think was great news for them. But yeah I think they will use the bank network with a little more intensity in 2024.
Catherine Mealor: Okay, great. And then on just the big picture kind of ’24 outlook and just thinking about EPS growth, and I know you’ve kind of answered this in a bunch of different ways, but, I mean, your target for full — maybe question one is what is the incentive comp in ’24 versus ’23? I think it started out the year at 125 last year. So curious what that looks like for this year, assuming a full payout. And then maybe within that, I’m assuming that even with a full payout that is assuming you are going to grow EPS year-over-year kind of off of a, let’s call it a $7 number in 2023. And so, again, just want to reiterate, there isn’t a scenario where you’re going to have this kind of mid-double-digit expense growth pace and have decline in EPS or have mid-single-digit revenue growth.
And just want to kind of clarify how you’re thinking about how those two pair together and ultimately what you think is an appropriate EPS growth rate to have in ’24 to get a full incentive comp.
