Brandon King: Hey. Good morning. So, I appreciate the guidance on expenses and expense control there. But I did have a question on just an update on the technology modernization project and kind of what you are baking in for expenses in 2024? And if part of that other expense savings is related to maybe delaying some of that project into further years.
David Turner: Yes. Brandon, so we have given you our overall expense guide to be essentially flat after you carve out operational losses from the past year. We continue to make investments in our business, we call it R2, which is our transformation project and cyber and risk management, consumer compliance, a lot of investment in areas of the bank that we are looking to offset elsewhere. R2 project has come along very well. We spent anywhere depending on the year, 9% to 11% of our revenue in terms of technology costs. We don’t expect that to change materially in the short-term. We continue to evaluate how we can better leverage technology. And I think we have a lot of upside potential to leverage that in our business to continue to improve and to continue to take out manual steps, manual processes and have a technology solution too.
So, we think our investment in technology is the right thing to do. And we are going to have a modern core deposit platform in the not-too-distant future, which we think will be a competitive advantage for us as well. So, anyway, that’s kind of a spending range, if you will, 9% to 11% for revenue.
Brandon King: Okay. And just no delays in the timing of that…?
John Turner: Yes. No. Yes. To answer your question specifically, that project is on time and on budget, no delays.
Brandon King: Okay. And then just had a follow-up on credit, and particularly in senior housing, just wanted to get more details as far as your exposure there? And what are you thinking as far as ultimate loss content in new constructions [ph] from a credit loss spec.
John Turner: Yes. We are seeing improvement in the senior housing space, notwithstanding the fact that we have a couple of credits we are carrying as non-performing. We – generally, occupancy rates are improving over time. Today, we have got about $63 million in – I am sorry, $57 million in – $118 million in non-performing loans and reserves against those credits of about 3.7%. So, I think we have maybe provided information on Slide 20 in your deck. But we are seeing improvement in senior housing as occupancy rates pick up and people become a little more comfortable with communal living again amongst that eighth group.
Brandon King: Okay. Thanks for all the color.
Operator: Our next question comes from the line of Erika Najarian with UBS. Please proceed with your question.
Erika Najarian: Hi. Good morning.
John Turner: How are you?
Erika Najarian: Good morning. I have one follow-up question, Dave. I think very notable what you said to Ryan’s line of questioning, the 3.6 exit rate for the net interest margin in the fourth quarter. A lot of investors are now focused on that exit rate. So, I am just wondering if I could ask you sort of what the component pieces is or are rather. So, unless you have changed anything on the – in terms of adding swaps, it seems like you do have $1.6 billion of notional rolling off in the fourth quarter. So, I guess it’s a good guy. You also mentioned a terminated block gain in your 10-Q, but you had like a forward look for four quarters. Wondering what that could be for 4Q ‘24 and then more notably, obviously, you guys have said unequivocally that it’s the deposit assumption that’s really going to make a difference.
I am wondering sort of what the speed is that you are assuming on that 35% down beta, especially if you think of the first rate cut, I think you said was in May.
David Turner: Yes. So, I think all-in, the big drivers there are controlling the deposit costs. We do have a headwind of the $3 billion notional four starting swap in the first quarter and then we are kind of in the run rate that the terminated swaps are in the amortization already. Those aren’t the huge drivers. I think after we get our headwind and if rates start to come down, then like I said, almost 60% of our beta is associated with index deposits on the commercial side, so they will start to come down. And you start then having the loan and security re-pricing, the fixed maturity re-pricing, adding 200 basis points, 250 basis points that overwhelms that headwind towards the back end of the year and you get a little bit of loan growth in the back end.
All that helps you propel you to a much stronger fourth quarter finish than you have at the beginning of the year. So, I think if you really looked at what is the one big thing that you have to get done and its controlling the deposit cost, and we do that through managing the beta as rates change, like I said, 55%, 60% of an index. The other is decisioning we have to make. And that gets to be a little herky-jerky because, as I have mentioned, some of that’s money market that we can change pretty quickly. The other CDs that were locked in today, it’s seven months. And as things renew this month, next month and going forward, we are looking to be shorter rather than longer so that we are prepared to take advantage to reduce our deposit costs as rates come down.
