Manan Gosalia: And that’s loans re-pricing about 3-ish percentage points higher?
Asylbek Osmonov: On the fixed and variable loans, yes, that’s out of – that 65% out of $5 billion, that’s the re-pricing by additional 3%, but floating is floating, so it’s…
David Zalman: Already re-priced.
Asylbek Osmonov: Yes, it’s already re-priced.
Manan Gosalia: Sorry, I meant the numbers you gave for the last three quarters were all of those re-pricing three percentage points higher, or was it only half of that, or can you help us think through that?
Asylbek Osmonov: I think that’s the same percentage as what we said…
David Zalman: 65% of that $1.4 billion, $1.5 billion is fixed or variable, that is re-pricing higher. The other 35% is…
Asylbek Osmonov: Floating.
David Zalman: …is floating. So…
Asylbek Osmonov: Yes. The composition is very similar to that, what we had experienced cash flows and what we expect.
Manan Gosalia: Got it. As we think through your model for NIM to improve over a 6, 12 and 24 month timeframe, how much of that improvement is coming from the securities maturing and pay downs in higher cost funding versus re-pricing in loans?
Asylbek Osmonov: I would say this Manan, our – the model that we disclosed, that’s a fixed balance sheet…
David Zalman: Static, yes…
Asylbek Osmonov: Static balance sheet, what we have that’s getting – we have $2.1 billion on the bond portfolio and $5 billion on the loan. And that’s assuming also just make sure that model assumes that deposit static stays flat and there is no significant re-pricing in the bond – I am sorry in the deposit cost. But with the competition and all that, you don’t know where we’re going to be, but that’s our model. So that’s a variable we use.
David Zalman: I mean, basically what we’re saying is everything is static, the amount of money in Federal Home Loan Bank, amount of loans, amount of deposits, this is just re-pricing and duration changes that bring this net interest margin up.
Asylbek Osmonov: That’s correct.
Manan Gosalia: Got it. That’s very helpful. And if I could just get a clarification, I think in the prepared comments, you mentioned that if rates increase more than you anticipate, that NIM trajectory could change. Does that mean that if rates are higher than you anticipate, then the NIM would be higher because of the re-pricing dynamic or would it imply it would be lower either because of duration or because of deposit re-pricing?
Asylbek Osmonov: I mean, our balance sheet, we are pretty neutral on that standpoint. So if longer rate stays higher is a benefit for us because it’s longer time for our assets to re-price. But on the deposits, I think we assume what we have right now is a little bit just re-pricing of maturity CDs, but other than that, we don’t have any additional increases in the deposits in our model.
David Zalman: I can make an overall statement that higher rates or lower rates, we still have the three – still a significant increase in net margin where it does affect you, at least what I’m looking at in the model is more in the short term on the 6 and 12-month time horizons. So if you look at a 12-month, you actually might do better. You might do better – interestingly down 100 than you are if they stay the same. On the other hand, over 24 months, we still do better interest rates going up or down, 300 basis points.
Asylbek Osmonov: Yes.
David Zalman: I know it gets kind of complicated.
Asylbek Osmonov: Yes, it is. I mean, if Fed cuts the rates tomorrow, it will benefit because our overnight borrowing is going to be re-priced lower.
David Zalman: We actually do better it looks like if they do cut. If interest rates went down 100 basis points, we actually do better, a little bit better.
Manan Gosalia: It’s very helpful.
David Zalman: Not much.
Manan Gosalia: It’s very helpful, thank you.
Operator: The next question comes from Bill Carcache with Wolfe Research. Please go ahead.
Bill Carcache: Hi, thank you for taking my questions. As the debate continues around how long the Fed will keep rates higher for longer, do you think you have a good handle on which of your customers put on swaps a couple, say, two to three years ago when we were still under [indiscernible] and have so far been isolated from the impact of higher rates? Or your customer is not using swaps, just curious how you’re thinking about that sort of interest rate reset risk across your commercial customer base.
Kevin Hanigan: Yes, this is Kevin. We don’t have a ton of swaps on the books. In the early days when people were talking about swaps, we offered them a fixed rate just straight out for five years or seven years, and we can question the wisdom of that. Those are our re-pricing opportunities today. So the amount of swaps we have in the book is pretty negligible. Most of the client base we have is generally, in our opinion, not sophisticated enough for swaps. We tend to do smaller, middle-market clients where you’re educating them on swaps. The ones we have are larger companies, but there is just not a – we don’t have a lot of swaps on the books.
David Zalman: There’s really, I mean, you have some smaller ones, but most of our swaps are in the middle-market lending, really, our larger customers.
Kevin Hanigan: Larger middle-market clientele, but it’s – notionally, it’s a couple hundred million dollars.
H. E. Tim Timanus, Jr.: I think it’s actually lower than that now. Yes, I think it’s…
Kevin Hanigan: Oh, you’re right. One of them has recently paid off.
H. E. Tim Timanus, Jr.: Yes, I think it’s down below $100 million now.
Kevin Hanigan: Yes. It’s pretty novel.
