Jay Brogdon: Yes. I don’t have a spot margin for you readily available here, Stephen. But I mean, it’s going to be a little bit lower than the full quarter’s margin. But again, I go back to the comment I made earlier. When you look at the trend in margin from Q4 to Q1, that trend, you can’t really extrapolate because of the back-end loaded nature of what we did in Q4. And a reminder of that commentary, there was some extension of some of the liabilities when we did that. And so I think we’ve absorbed a fair amount of that in terms of what that looks like. We’re — even if you look at our interest rate sensitivity that we included in the deck, we’re more rate neutral than anything right now, kind of either direction with 25-basis-point type moves in either direction. So I think that gives you — should give you some sense of how we think about sort of marginal rates at this point in time.
Stephen Scouten: Okay. Very helpful. And then just last thing for me, you guys lay out here on Slide 10 a pretty aggressive long-term ROA target, which is phenomenal. I guess I just — I guess I’m curious how you think you can get there? Again, it feels like a pretty aggressive jump from where returns have been. And then, I guess, within that, is your guys’ kind of long-term executive comp tied to achieving that 150-plus ROA in any way?
Robert Fehlman: Yes, Stephen, I’ll tell you, our long-term comp is tied to ROA. Our short term is tied to efficiency ratio and pretax preprovision. So we’re all in on these numbers. What we’re trying to do, as we’ve talked about at the end of last year and even today some is this better bank initiative focusing on people, processes and systems. We spent the last 10 years really building our company and diversifying our geography into six different states in Middle America into some really good MSAs and some really good rural areas. So we think we have a really good footprint. We have a really good franchise. But we focused the last 10 years on M&A and growing to be able to diversify our geography and also increase in size to be able to make the investments we need to.
Well, right now, we’re focused on becoming a better bank, and it’s part of the process we’re going through. We’re all in the middle of this rate environment we’re at with cost of funds going up on deposits and trying to go through that challenge. But what we’re focused on every day is these initiatives we’re working on. What we’re focused on is becoming better bank, and that’s going to be building up to a 150 ROA on a year-end — year-over-year basis, efficiency ratio in the low 50%. And as you can see, as our first numbers we gave out in this year is the $15 million annual cost saves, that’s like one of it. We’ve got several more 12, 18, 24 months of working on this project to get us to where we really want to be to set up a good foundation.
Jay Brogdon: The only other thing I’d add in there, Stephen, is just keep in mind the importance of just the optimization of the balance sheet that will take place naturally throughout that period of time. And so when I think about where assets are coming off of the books and where they’re repricing back into the books, there’s going to be a lot of natural lift in profitability. Our loan-to-deposit ratio last three quarters has gone from 70% to 72% to 74% as we continue to expand that. And as — whatever happens with the rate environment, we’re in this moment in time where things are level setting, but as all that level sets and we think about those fundamentals, I think it all points to that type of profitability.
Stephen Scouten: That’s perfect. Great answer guys and impressed to hear, like you said, you are putting your money on that. So appreciate that color.
Jay Brogdon: Thanks, Dave.
Operator: Our next question comes from Matt Olney with Stephens. Please go ahead.
Matt Olney: Hi. Thanks. Good morning, everybody.
Jay Brogdon: Good morning, Matt. I want to go back to the funding discussion, and like most of your peers, the overall level of borrowings were higher at March 31 compared to the average levels, not surprising given the turmoil we had late in the quarter. I’m curious if you still hold this high level of borrowing? And if so, what are the current thoughts on how long you want to keep this? Thanks.
Jay Brogdon: I mean, Matt, there’s just a small pickup in borrowings there in my mind. We have increase the amount of cash at the Fed. But it’s nothing that’s sort of a material driver in my mind to margin. We thought it was a prudent thing to do as we saw things transpire in March. But I don’t think there’s sort of any major strategy around that. When I look at our borrowings overall, I think they’re something like 6% of total liabilities, that’s really right where they were last quarter as well, I just don’t see a major shift there unless it becomes more advantageous from a rate perspective to do that relative to other opportunities, whether it’s brokered CDs or other types of deposits. I think we’ll be pretty capitalistic in how we think about that, but nothing beyond that mindset.
Matt Olney: Well, let me ask it this way. As far as just the need for incremental funding from here, because, I mean, it sounds like loan growth is going to slow a little bit from where it’s been. You’ve got some pretty good cash flows coming off the securities portfolio. Incremental funding costs are still pretty high. I’m just curious how much incremental deposit growth you need from current levels?
Jay Brogdon: Yes. I mean I don’t think it’s a lot. We’ve talked about timing of cash flows, I think, every quarter for the last couple of quarters, and that’s still where we are. We saw loan growth we were experiencing it late last year. We continue to expect good activity with our fund ups over the coming quarters. So is there a moment in time here in the next quarter or two where we have fund ups that exceed sort of self-generated cash flows? That could be to some more modern degree than what we’ve experienced in recent quarters. But again, as you look out, as we look at the pipeline, Matt commented on it a while ago, we were at $1 billion at quarter end, we’re closer to $800 million at today’s pipeline. The yield continues to do exactly what we wanted it do there.
And so, I think about prepayment speeds, our existing book, I think about fund-ups of unfunded commitments, those are all kind of what they are. We can measure those pretty accurately. And then we see what’s happening in the pipeline. I think all that leads to much lower need for incremental growth and more sort of optimization of the balance sheet like we mentioned a question or two ago.
Matt Olney: Okay. And then going back to the discussion around expenses and kind of targeting the $50 million of incremental savings over the next few quarters. If I just assume some normal annual merit increases, expense increase of, call it, 5% per year and then kind of layer this on. Is the goal just to keep the expense levels relatively flat from where they’re at now over the next few quarters from a forecasted standpoint? Is that the right way to think about this?
Jay Brogdon: No, Matt, I actually would say that you ought to look at the kind of our current run rate of expenses sort of Q4, Q1, look at our sort of adjusted noninterest expense level — and then we’re — the $15 million we’re saying would be $15 million in annualized run rate expenses off of that number. Again, we were specific in the slide. I want to be emphasize here, we’re not going to achieve 100% of that in the second quarter. We will achieve some of that in the second quarter, no doubt, and we’ll achieve a little more in the third. We expect we should have that fully in by the end of the year.
Robert Fehlman: Matt, just a little more color for your modeling is, in Q1 we had our payroll tax 401(k), the timing difference for payouts in the first quarter. That’s about $2.5-some million, $2.5 million to $3 million. Merit increases went in on April 1. And that’s pretty much a push for the — each quarter thereafter. So I think you have the baseline in the numbers in Q1 for the merit increase.
Jay Brogdon: Yes. Agreed.
Matt Olney: Got it. Okay. That’s helpful. Thank you guys.
Jay Brogdon: Thanks, Matt.
Operator: Our next question comes from Gary Tenner with D.A. Davidson. Please go ahead.
