Kevin Hanigan: Yes, we saw that particularly in our C&I book, right? Just a ton of deposit decline with the money not going out of the bank. It was going to pay off loans.
David Zalman : And even we saw some real estate deals where they might have been at 5% or so, and the rate was going to go to 8% or 8.5%, and they just elected to pay off the whole loan. So certain smaller loans like that. Customers just had money and money in their accounts, and they paid those loans off, which is a good thing, too.
Brandon King: Great. Thanks for all the commentary. I’ll hop back in the queue.
Operator: Next question comes from Stephen Scouten with Piper Sandler.
Stephen Scouten: I’m just kind of wondering with the Lone Star deal, if that gives any kind of trepidation around future deals or changes maybe how you think about the time line of approval for future deals? Or is this more just still specific to Lone Star in particular?
David Zalman: I can’t say it’s specific to Lone Star because like I said, it’s out of the Justice Department. It’s really at the FDIC right now. I think all deals are going to take longer. But again, I think that — I still feel certain that we have a good bank, and it may take a little bit more work, but that if we make something happen and the regulators like it, they’re going to — it will get done. It’s just — but there’s no question, getting something done today as compared to a few years ago, it’s a whole different horse right now.
Stephen Scouten: Yes. Fair enough. Okay. And just kind of switching — I’m sorry.
David Zalman: This particular deal has some more issues than just the normal issues be sometimes. So hopefully, we won’t run into some of that stuff. And it wasn’t with their bank. Let me just say this. There was just — it was a number of different things that we had to go through.
Stephen Scouten: Got it. And then just hopping back to the idea of the net interest margin. I know you guys said you’re not assuming we’ll see as many rate cuts as maybe the forward curve would suggest, and I agree with you there. But I mean if we get — can you guys quantify maybe for each 25 basis point cut, maybe there’s 1 basis point or to a NIM downside? Or do you think even with those cuts, over that 24-month period of time that you stated that there really is de minimis kind of downside on a basis point perspective?
Asylbek Osmonov: Yes. I think if you just look at our balance sheet and kind of go through what the impact would be, I think the first impact would be on our funding borrowing side of it. We have $3.7 billion that we’re paying down. But if there would be a rate cut, you would see immediate impact over there. I think with a 25 basis point cut, I don’t think the loan rate would kind of change significantly. I think it’s just going to reprice at the 8% or whatever we’re getting right now. So if you look at the long term, I mean our balance sheet is very neutrally positioned, so we benefit in rate cut or increases in the situation in rate cut. And like I said, in 24 months, if we’re looking at our model, our margin, it’s — yes, it drops a little bit, but not significantly from what the guidance we gave you over 24 months because the power of our repricing of assets continues.
If you look at our loans, we have about principal paid down about $4.5 billion. Out of that, 60% is fixed loans, which we — on the average rate is around 5%. So you’re repricing that 5% at 8%, you’re picking up 300 basis points there. And if rates — I mean, if the rate goes down, you’re picking up and borrowing. So I mean we look good in either way. So…
David Zalman: I would say, so back again, I’m just looking at the model, it doesn’t go in 25 basis points increment that we go up 100 or down 100 — even down 100 in six months. Instead of 2.96 net interest margin, we’re showing 3.07. In 12 months, we were at 3.14 flat. If it goes down like 3.24 and so even in the 24 months, it goes up to 3. So I think down 100, we still even do better than over time, even with interest rates going down even 200 basis points.
Asylbek Osmonov: Yes. And because of borrowing, however.
Stephen Scouten: Okay. That’s extremely helpful. And then just lastly for me. I mean the loan loss reserve is still 163 alone. Do you think we could continue to see the zero provision for some time here in the future?
David Zalman: It’s pretty hard to see with $370 million in allowance for loan loss of $72 million non-performing that we would be putting a lot. I know you saw the charge-offs this time that almost its entirety was due to the FirstCapital Bank merger deal. And again, really some of those loans that I think with the new accounting, some of those loans, I liked it the old way, we would charge those things off as we collected them. Then we would take it in the recovery under the new CECL deal, if you think there’s a chance of recovery, you put them on the books. And I wish that we wouldn’t have put some of those on the books. But again, we had to kind of believe in what some of the guys have told us that they were collectible. But the truth of the matter is we have — they’re fully reserved anyway.
It’s just a different way of accounting for them. I think we reserve between the allowance for loan loss that we brought over our allowance that we put in, I mean it was like $80 million or something like that, $80 million or $90 million. So again, I think that we’re good. We do have some loans on the — that increase right now, the $72 million and nonperforming again, the majority of those were from the merger. Again, I don’t see full losses in those loans like we had in those first charge-offs. There may be a little bit of loss, but there shouldn’t be a whole lot. And I think in most of the deals we have deal is working on them right now, it’s just going to take us a little bit longer to work out of them. I’d say probably, it takes six months or a year to work out of those credits.
And then I think that our nonperforming should be back down to more historical levels.
Asylbek Osmonov: Yes. And to add to that, we’re on the model and based on the model, what we see, how much provision needed. But since we had a full reserve for those acquired loans, we didn’t need to put any provision based on the model. But we’ll be running the model with the economic variables there and see if it requires any provision or not.
