Jeff Rulis: Thanks, good morning. Pretty good color on the margin discussion and the slight liability-sensitive position. I guess safe to say, you’d be more confident in NII growth than margin expansion at this point. I don’t want to put words in your mouth, but it sounds as if kind of the way you’ve positioned it is the confidence might be bigger on growing NII than maybe margin. Is that fair?
Todd Gipple: Yes, Jeff, I think that is fair. We are trying to build a more efficient balance sheet and securitization helps us with that. We feel very confident that the mix change in terms of cost of funds and the mix of core deposits has really almost come to a halt. So now we’re looking forward to that loan growth guide providing expanded NII and treading water here on margin would actually be a pretty good result considering the backdrop. So we feel very good about that.
Jeff Rulis: Okay. And then back to credit. Can we get a sense for the net charge-offs picked up a little bit in the quarter? What was that? And maybe any broad comments from a credit perspective of what’s flowing through?
Larry Helling: Jeff, I’ll start with broad comments first, and then probably try and peel it down to the net charge-offs a bit. Certainly, if you look at the underlying credit metrics, almost all of our measurements were slightly improved if you look at criticized classified NPAs. And I think we continue to move toward a normalized environment, which is, as I’ve talked about more for a couple. Now, I think we’re moving toward normal. So we might have had a little bit of — there’s a natural tendency in the fourth quarter to do a little cleanup. So I don’t think there were any significant trends in movement. It was just our normal cleanup. Our net charge-offs for the year were 13 basis points. If you look over the last five years, our net charge-offs were 12 basis points.
So it’s really right on top of what we experienced over the last five years. Over the last ten years, our net charge-offs have been 17 basis points. So, gee, over time, I expect us to move back to kind of that normal. And I think the industry number that everybody’s talking about is 20 basis points of charge-off. Over time, I think we’ll move that way. There certainly aren’t any indications in our underlying credit quality metrics that point to that, but it seems prudent that that’s where we would kind of expect things to go over time.
Jeff Rulis: Okay, so on a net charge — the charge-offs this quarter, maybe some cleanup in Q4 it wasn’t necessarily segment-focused. It was chasing down a few things.
Larry Helling: Yes, nothing that’s — nothing significant that should impact the trends going forward.
Jeff Rulis: Okay, maybe last one, just on kind of the growth and expectations for the coming year pretty specific, but geography or segment, any thoughts on where you’re seeing maybe some momentum in the footprint or within a certain line of business?
Larry Helling: Yes, I’d start, Jeff, with the thing that surprised me about 2023 was our traditional lending business normal C&I and commercial real estate was actually fairly strong, up 5% to 6% for the year. And then we’ve got this unique LIHTC business that provided some outsized growth. So the thing that surprised me on the traditional business, I don’t think it’s because the activity was that strong, but because some of our competitors, because of capital constraints, because of liquidity constraints, decided to kind of slow down their activity. So it’s allowed us to grab market share in the markets we’re in. And so that’s a good thing because I know there are some names that we’ve worked on for a decade where we got business in 2023 because of the tone that was getting set with them by some other banks.
So I kind of expect that to continue about the way it was in 2024. But again, because of the securitization tool, we can do that without putting too much pressure on our funding. And we think we can certainly grow comfortably in that 4% to 6% range as we look for the next year.
Jeff Rulis: Okay. Thank you.
Todd Gipple: Thanks, Jeff.
Larry Helling: Thank you.
Operator: Excuse me. The next question is from Daniel Tamayo with Raymond James. Please go ahead.
Daniel Tamayo: Hey, good morning, guys.
Larry Helling: Good morning.
Todd Gipple: Good morning, Dan.
Daniel Tamayo: Just a couple of follow-up questions. First, just on the NII benefit that you think you’ll get from rate cuts that you talked about. Todd, just curious, the immediacy of that in your budgeting in terms of how many — how much lag you’re expecting in funding costs or whatever, the lag, if there is any built into when you get — when the rate cuts come through versus when that actually hits the bottom line. Thanks.
Todd Gipple: Yes, sure, Danny. Good clarifying question there. They would be fairly immediate in terms of the NII and NIM impacts. Part of the significant increase in cost of funds, of course, has been the mix shift coming out of non-interest bearing and lower beta deposits. And those have gone into higher beta deposits. We think that we would have the ability to claw back those costs of funds very quickly with a rate cut so nearly immediately. Don’t think there’d be much lag there if the Fed starts cutting.
Daniel Tamayo: Okay, great, thanks. And then secondly, just on the swap revenue, obviously. So I mean, kind of looking across the year, it was a strong year, a very strong year, 92 million in probably a difficult environment with rates going up, you obviously had the big result at the end of the quarter, but the annual guidance, 50 to 60 million for 2024 is still quite a bit below that. I’m just curious how you think, it — was there something about the end of the year’s lower rates that you don’t think would continue to applied it to the way that your clients react to lower rates in 2024? Or is there a possibility that if we do continue to get lower rates that that swap activity could be higher than your guidance?
Larry Helling: Yes. Daniel, I’d say it’s — what happened in the fourth quarter was a lot driven by the sharp drop in the long end of the yield curve and the lower rates. So that had a big factor in clients wanting to lock in rates as quickly as they could. And so there’s maybe a little bit of the activity in 2024, got committed a little bit earlier than normal because that drop in rates and the client’s sense of urgency. But bigger part of it was really 2022 deals that got stalled into 2023, waiting for lower rates and for inflation to normalize. So it’s hard to tell exactly how much of those is which, but if you look over the long term, our normalized is more in that $50 million to $60 million range, and we think we’ve got the capacity to do that kind of through thick and thin.
If you told me we’re going to have another 100 basis point drop in the long end of the yield curve, okay, we could get another flurry of activity because clients clamoring to lock in deals that doesn’t appear to be in the cards right now. But so given what we have from an interest rate prospect, which is kind of steady throughout the year here, and maybe a short end of the curve dropping a bit, we think this is a pretty reasonable guidance level.
