Harold Carpenter: Yeah. As we put together kind of our earnings number and we’ve headed to do this in the past, but I think it’s probably beneficial to do it. We’re talking low to mid-single-digit kind of earnings growth for this year. And so, with that, what we have to do is build a plan that will get our associates their incentive. We’re starting at, call it, 120% of target, and then we’ll tier it upwards to where we think our earnings number needs to be for the year, and it’ll go all the way down to zero as far as payout. Last year, where you’re right, we started at 125. We ended at 62. So, basically, from what our associates were looking at the beginning of last year to work [Technical Difficulty] we cut it basically in half.
For this, for 2024, we’re starting with, like, call it 120% payout. And that number is somewhere in the $100 million range, if we can afford it. But you’re right, the earnings have to show up. And if they don’t show up, that $100 million begins to get less fairly quickly.
Terry Turner: Hey, Catherine. I might jump in and add to Harold’s comments, and I know you know this, but I get questions over time which make me believe some people don’t understand this, but that earnings target that gets set there, we’ve never set it to be less than a top quartile. As you know, this year, top quartile is not all that high. But again, we are projecting earnings growth here. It will be top quartile. And that earnings growth that we’re projecting contemplates the full payout of the annual cash incentive plan. And in the event that the revenues don’t materialize to produce the earnings at the targeted level, the way you pay for that is you trim the incentive expense. And so, again, I think, I know there are a lot of companies that have all kinds of incentive plans where if they make some, then they pay out all this other stuff.
I mean, that’s not the way it works for us. The incentive is built into the earnings projection. When the earnings show up, we pay it out. In the event they don’t, we retrieve that or harvest that to fuel earnings to the shareholders. So I don’t know if that’s a helpful explanation or not, but.
Catherine Mealor: No, it is, and it’s certainly what we saw this past year. And it’s just tough in a year where the rest of, to your point, peers in general are forecasting a decline in EPS year-over-year. And so top quartile may look really good, but you may be have top quartile, but you still may be kind of flat EPS growth. So I was just trying to kind of think about how you were thinking about EPS growth and marry that with the full payout to make sure we’re thinking about an EPS target appropriately.
Terry Turner: Yeah, I think Harold gave it to you, didn’t he?
Catherine Mealor: Yeah, he did. I’m good. Very helpful. Thank you.
Harold Carpenter: I got [indiscernible].
Terry Turner: All right. Thanks, Catherine.
Operator: Thank you. Your next question is coming from Brody Preston from UBS. Your line is live.
Brody Preston: Hey. Good morning, everyone.
Harold Carpenter: Hey, Brody.
Brody Preston: Harold, I’m sorry to beat a dead horse on expenses, but I just wanted to put a pretty fine point on it. So excluding the FDIC surcharge, you’re at 858.8 million of expenses for the year. If I look at the guidance slide, I take kind of mid to high teens to imply 14% to 19% kind of range. So the midpoint of that would imply $1 billion number off of your $858.8 million versus the $960 million to $985 million you gave, which is about $972.5 million. So it’s about a 3% difference there. And I was just wondering what’s driving the delta between what you said on the call versus what’s implied in the deck last night.
Harold Carpenter: Yeah. Thanks, Brody. That’s a great question. I think our number is more like 13 to 18 first. So we call that mid to high. I think the delta is around 120% payout versus 100% payout and some other things that I’m aware of in our plan where I think we have some cushions. So that’s what got me to the $960 million to $985 million number I talked about earlier.
Brody Preston: Got it. That’s very helpful color. I appreciate it. And then I did just want to ask on NII a couple of questions. And one here. Harold, you said in May, I think for the first cut. First part of the question is, could you clarify within your NII guidance, when the other three cuts you have occurring are? And then secondly, just when I look at the loan growth guidance and compare it on an average basis, it implies about 11 plus percent average loan growth. And so, I guess, I’m wondering, you know, is there the opportunity where you guys could kind of outperform even the high-end of the guidance range that you’ve given, just given the low double-digit average loan growth you’re expecting combined with pretty significant fixed rate repricing throughout the year?
Harold Carpenter: Yeah. I think on, first of all, on the rate cuts and don’t hold me to this, but I had that question for some people here yesterday. I think it was — I think we’ve got embedded July, September and November. Maybe don’t hold me to that. I think those are kind of splitting the dot plot. But anyway, I’ll go with that. It’s just a steady decrease. I think along with that, you should assume a high beta on our deposit cost. We had a high beta going up. We think we’ll have a high beta going down. So, we will try to recoup as much of those rate decreases as we can from our deposit book or try to get as close to 100% as we can. As far as loan growth, and I’ll let Terry also talk to this as well, I think that the guardrails we have on loans are related to capital and related to client deposit growth.
We can’t let loans just outgrow deposits extended. In the fourth quarter, we were like 700 million to 200 million, something like that. We need to push deposit growth up. At the same time, we’ve been steadily accreting capital over the last year or two. We think that’s healthy. We think that we will continue to do that, but we can absolutely beat the loan growth target that we — in the — on the outlook slide.
Brody Preston: Got it. Could I ask just one quick follow-up? I just wanted to follow-up on Brandon’s question that he had on the spot rate on the interest-bearing deposits being below the average for the quarter. So if we don’t see any — I know you said to expect further creep, but I’m just trying to think mathematically. If you guys aren’t raising rates at this point, what drives the average up if the spot rate is below where it was for the fourth quarter?
Harold Carpenter: Yeah. I think what could contribute to increased deposit rates is just new accounts, new clients trying to move money across the street from somebody else. I think that would be one of the primary contributors. Additionally, mix shift could occur primarily around our public fund deposits. We think the — we believe the bulk of our public fund depositors have already built their balances up, but we could see some increase in their balances. Most of those accounts are indexed. And so consequently, as they collect property taxes and whatnot, that money finds its way to our bank.
