Gary Small: I’ll start with fierce competition. I think that the client base is appropriately moderating their expectations for this business out there, but folks are — there is enough uncertainty in the economic environment right now and in the world in general, while their order board still look healthy. Capital commitments and expansion commitments are probably more modest to be sure than in a normal year. So, it’s really a matter of, it’s a little bit more moderate supply. Having said that, we’ve all over the last year, generally reduced our — a little bit of our new client prospecting and so forth because we wanted to maintain the capital and the deployed dollars that we put out for existing clients, and I think that’s just been more the approach of the competition in the markets as well.
So, we’ll all probably get to a point where we’re ready to go back into the market as we are, more so than we were in ’23, but each bank will be a bit different story on that. The market as a whole, there is business there. I would say on the investment real estate side, we still see business in multi-family, but it’s pretty quiet outside the multi-family space right now. Our markets fortunately are not bubble markets, so it’s not as if there is huge absorption issues or anything to be dealt with. And that’s — I think we’re in an advantage over our peers on the coast in that regard.
Nick Cucharale: That’s great color. And then just one last one from me. It sounds like a modest increase on the expense front for the year. How far along is the Company on the path to $10 billion and what are the rough costs you expect to incur on that front in 2024?
Paul Nungester: Yes. Good question, Nick. We’re still early days on that path. We did start incurring some of those costs last year in ’23, but just the beginnings of it and we do have in our plans for this year, continuing to start to build that as we head towards that mark. But the modest growth we’ve got, that’s still a few years off. So, we’re not racing to get those costs in place today. Obviously, we’ll bring it along as the growth in the overall organization can support it. From beginning to end, what we’ve estimated is that once we get to that point, it will have added about $7 million or so in annual cost to our base. So, we’ve probably added on an annualized basis, maybe $1 million of that so far and we’ll add some more here in ’24 and just keep incrementally building towards that as we add the right talent to be here and develop the programs needed for that $10 billion space, always working at our systems and our controls and you name it.
So, it’s an incremental path there, Nick.
Nick Cucharale: Thank you for taking my questions.
Gary Small: Thanks, Nick.
Operator: We will now take our next question from Christopher Marinac from Janney Montgomery. Christopher, your line is now open. Please go ahead.
Christopher Marinac: Thanks. Good morning. I wanted to dive into the increase in criticized assets, and just curious on if there is anything driving that and if there is a path that those may retreat from here.
Gary Small: Hey, Chris, it’s a good question. We did have movement in the last quarter as well. What I can say is, relative to those, mostly for all three its cash flow versus capital requirement. They’re missing a little bit on, say, the initial I need 120 coverage coming off cash flow-wise and they are slipping on that. Each has good capital support, good guarantors. It’s just because they are missing on our originally underwritten marks, we blast them into that space and expect them to work out accordingly. I don’t think — if we look at the three, I don’t think any of them will be in a position in the next six months that we will be changing that movement. But things do move in and out, and we’ve just had a couple of larger credits that we’re doing some expansion and that expansion has been taking a little bit longer versus the revenue expectations for one of the clients and the others got CapEx adjustments to make so that they can live within the cash flow that they are now generating.
So, just the typical adjustments we look at. And if you go back a couple of years, the numbers that we’re looking at are not that abnormal, that it’s just got so good for us, we got so low that the movement was noticeable. And as I mentioned in the fourth quarter, you feel that movement when we move a reasonable-sized credit into that space, we can feel it in our provision and so forth, but they also move back to pass credits for the most part, support, and we don’t anticipate anything different here. Three different industries, no commonality in the story and whatnot, just situations.
Christopher Marinac: That’s very helpful. And it sounds like the growth of reserves is modest and not really signaling any true change in loss content at the end of the day.
Gary Small: That’s our expectation.
Christopher Marinac: And then just a follow-up on current deposit pricing. Are you still seeing exception pricing out there or is that slowed down and again the progress on money markets that you talked about, looks like, it sounds like you have flexibility on pricing to some extent given the success in Q4.
Gary Small: We do. We operate in eight markets and where the opportunities are different between the markets. There are markets where — we’ve got three markets where we have extensive market share and that means you’ve got repricing risk on a pretty good sized book to think about as well. We’ve got other markets where we have very minimal consumer market share, we have the commercial and building our consumer and we can be a little bit more aggressive there as we’re trying to build more households and dollar balances in this environment. So, I think to your original question, we still see promotional pricing. I think until the Fed turns, there is still a market expectation from a customer standpoint for those that are watching rate, it better start with a 4% or 5% or we’ll be — we’ll be looking elsewhere.
