Catherine Mealor: Kevin, you talked last quarter about a PPNR growth rate from fourth quarter 2023 to fourth quarter 2024 of being about 8% to 10%. And as we think about your revised guidance kind of at the lower end of the revenue range, feels like your NII is inflecting, but a little softer. Is there enough in what you’re seeing in fees and expenses to still get to that 8% to 10% PPNR rate or is the NIM and rate environment eating into that a little bit to where that high-single-digit growth rate is really going to be more of a 2025 event?
Kevin Blair: This decline in margin this quarter kind of delays that sort of high single-digit PPNR growth maybe into 2025 a little bit based on this forecast. But as Jamie said, we have a lot of levers we’re working on right now that would allow us to potentially increase our forecast on the revenue front. And we’re going to keep the expenses where they — where they were forecasted originally. So give us some more time as we work through this year, but to your point, based on this 7 basis point decline this quarter in margin, it would delay that sort of quarter-over-quarter increase in fourth-quarter. And to your point, maybe into 2025. But we’ll continue to update this forecast as we get to the conclusion of the risk-weighted asset optimization program.
Catherine Mealor: Yes, that’s helpful. It makes sense. And then as we think about weighing you in a higher for longer environment, you’ve given great disclosure and discussions, Jamie, about the difference in the margin. Once we start to see rate cuts, that 6 basis points to 12 basis points that you talk about, how do you think about what growth — how growth changes when we start to get cut? Your guide is 0% to 3% without cuts. But is it fair to say that when we start to get cuts, that growth could actually start to accelerate? And then if we’re kind of higher for longer, would we stay at the low end of that growth range? Just kind of curious about the dynamic between growth and margin in the rate environment. Thanks.
Jamie Gregory: We do believe that easing would be stimulative to growth on the loan book. We also believe — I mean, when we look at our client profiles, a marginal rate cut or a marginal rate hike does not have — it does not have a tremendous impact on the credit outlook of our clients. Like when we look at the credit impact of easing and tightening, we think that our kind of our FDM disclosures are a good indication of the rate impact there and only 30% of those have any sort of rate component to the modification. And so, we don’t think there is a big credit impact. But there’s also in an easing environment, there are positives that are to fee revenue. And so, we believe that it will be a net positive to your point on the loan side to loan production, but also to capital markets fees, to mortgage fees, core banking fees.
And so, there — when you look across the income statement, we think it will be positive to loan growth. We think it could ease deposit mix pressures and we think it will be positive to fee revenue.
Catherine Mealor: That makes sense. So, I think we focus so much on just the margin, right, in the higher for longer versus environment where we see rate cuts, but it feels like there is enough with all that you lay out. And that’s really why you’re kind of thinking about only a less than 1% change in NII if we start to get cuts in the back half of the year along the forward curve.
Jamie Gregory: That’s right.
Catherine Mealor: Yes. Makes sense. All right. Great. Very helpful. Thank you.
Operator: Thank you. The next question is from the line of Gary Tenner with D.A. Davidson.
Gary Tenner: Thanks. Good morning.
Kevin Blair: Good morning.
Gary Tenner: A couple of questions on credit, just that — good morning. Just that large C&I credit that you called out a few times. Can you be a little anymore specific in terms of kind of industry and maybe the issues surrounding that particular credit? Was this a longer-term struggling company or maybe just some color behind that?
Robert Derrick: Yes. Hey, Gary, it’s Bob. Thanks for the question. It’s an aviation credit to South Florida, it’s a bankruptcy working through. We were a senior lender with another lender involved in subordinated debt behind us, worked through the bankruptcy as a going concern sale that option didn’t materialize as well as we thought it would. We increased reserves on the credit. We actually had the credit fairly well reserved. And when we took the charge-off, it was pretty much equal to the reserve amount. So we think we managed it the right way. It was from our perspective, it had good equity in it, but for a number of specific factors that I really won’t get into in the bankruptcy, but nonetheless the best option was to get it refinanced and sold through an asset sale, that’s exactly what happened. And we ended up taking a charge and getting it resolved. So, does that help?
Gary Tenner: Yes, it does. Appreciate that. And then just in terms of the expectation, Jamie, for a flat NIM in the second quarter, given the commentary about the trends in the first quarter, I think the cost of total deposits in March was essentially flat to the quarter. And you flagged pricing on NAV accounts and money market has been pretty flat. So other than some additional mix potentially and a small amount of upward push on CD based on the kind of repricing of those, it feels like the flat NIM even is a little bit conservative. Am I missing something, as I’m interpreting your comments on the NIM?
Jamie Gregory: Your comments on the deposit side and the funding costs are spot on. And that’s what we see as we see a little bit of pressure due to NIB declines ongoing. Now — we haven’t seen anything in April that would turn us from that impact. April has been constructive to date. We would expect to see a little bit of pressure on time deposits. But as I mentioned, the maturities are at a similar rate as our new and renewed production rate. So those — that’s where we are on the deposit side, and we do expect to see stability, as I said, on the non-maturity interest-bearing deposits. And then when you look at the first-quarter margin, it was also impacted by loan fees being lower than typical is impacted by interest reversals.
And we think that those are more of a first-quarter event and will not be continued. And so there are tailwinds there to the margin. But for now, our guidance is for flat in the second quarter, but those are the individual components as we see them.
Gary Tenner: Thank you.
Operator: Thank you. The next question is from the line of Jared Shaw with Barclays.
Jared Shaw: Hey, good morning, everybody.
Kevin Blair: Good morning.
Jamie Gregory: Good morning.
Jared Shaw: Maybe just following up on the question, Steve was asking about the market. When you strip out some of the noise from portfolios that you’re exiting, would you say you’re being successful in attracting new to the bank customers right now? Or is most of that core growth coming from existing customers? And can you comment, I guess, a little bit on the competitive market with maybe some of the bigger peers? Are they — are they still losing customers overall? Or do you feel like they’re maybe doing a little better job more recently retaining those commercial customers?
Kevin Blair: Yes, absolutely. Not only winning customers, we start with winning talent. And so, you look at those areas that we highlighted strategic growth initiatives, middle-market over the last three years, we’ve increased our bankers by roughly 50% and those bankers are continuing to win new business, business from the institutions they’ve come from as well as just prospecting efforts. And so, the growth in middle-market, both on the loan and deposit side is coming from that new talent and from new clients. On the CIB front, we have 24 FTEs. We’re up to right around $725 million in loan outstandings, another $50 million of growth this quarter, six new clients we’ve onboarded this year. And so that’s coming from brand-new relationships and expanding existing relationships.
Our specialty lending area, both for our lender finance as well as our restaurant services, again, new clients, expanding existing relationships. So in every situation, not only are we winning talent, we are winning the competitive war of taking clients from other folks. So that’s the game. As I said earlier, we have a great marketplace, but if you think rising tides raise all boats, then you’re missing an opportunity. We want to get more than our fair share of growth and we’re doing that in those areas. Offsetting that are areas that we’re running down credit. And that doesn’t mean that we’re losing clients in many situations. We’re just deemphasizing growth in those areas and letting certain loans to pay off and pay down. So, we are super excited.
The competitive landscape with the big banks, to your point, there is always opportunities. Anytime there is a merger, there continue to be some personnel changes that occur, which allow us to go out and get more talent in these marketplaces. We’ve been adding it in all of our metro markets and really across all of our footprint. And look, you go back to the FDIC data last year to talk about this, we grew market share in the state of Georgia by 100 basis points. And the MSA of Atlanta 150 basis points. And so for me, that’s the real message is we’ve got to get talent, we’ve got to grow at a pace that meets our shareholders’ expectations. But most importantly, we’ve got to take share from our competitors.
Jared Shaw: Okay. That’s a great color. Thanks. And then maybe shifting just a little bit. I’m looking at Slides 22 and 23 and looking at the maturity schedules of office and multifamily over the next two years. What’s the expectation with those maturities? Is your appetite to try to retain those, if possible, or what’s the, I guess, health of those loans being able to be taken out somewhere else away from the bank?
Robert Derrick: Yes. Hey, Jared, it’s Bob. Just to start on that and Jamie can touch on it as well. But certainly, our first and foremost priority is to work with our clients. And again to Kevin’s point, if it is a relationship client, somebody that we’re doing business with and the loan matures and we’re going to work to retain that client and that’s our first priority. Now, if it’s a non-relationship transactional piece of business and we don’t have that much of that, but we do have some, as Kevin mentioned in his comments around remixing the balance sheet a little bit. We may choose to exit or get that refinance. But it really comes down to client selection. We think we’ve got good clients that can move through these maturities.
We’ve certainly done a lot of analysis on what does rate environment look like and what the capital markets look like relative to maturities, stress testing, cap rates, et cetera. So we feel okay about our ability to move through our maturity schedule, without what I would consider to be significant credit events. Now there’ll always be some stress there, but we feel good about it, particularly as it relates to multifamily office. Maybe to your point, will be a little more stressed relative to valuations because that’s kind of where we are in the cycle. But from our perspective, we have a little over 10% of our office book is currently rated and that book has been analyzed enormously. And we’re sitting at around 10% and that’s relatively stable to last quarter and six loans in there make up a majority of that number.
So assuming that we can kind of work through those six and we don’t backfill, we can kind of get through the office maturity wall as well. So we’re feeling pretty confident about our ability to manage through it.
Jamie Gregory: And Bob, the only thing I’d add to that is that, when you think about each asset class, they’re a little different, but almost 35% of our multifamily is in construction. So when those are completed, they’ll go on to permanent financing. We’re not generally a long-term permanent financer for those. And so there’ll be a kind of a natural churn. And what we’ve seen in the last two quarters is a fairly healthy level of payoff and paydown activities, both from sales as well as just refinancing through some of the agencies. And so, I think the important part is, to Bob’s point, we’re going to keep the clients we want to keep and those asset classes that we want to continue to lend into. Those that will go into more permanent financing, the markets are opening up and it’s going to be a much more constructive environment. And then we’ll be able to backfill those with new construction projects and new CRE developments behind that.
Jared Shaw: Great. Thanks a lot.
Operator: Thank you. The next question is from the line of Michael Rose with Raymond James.
Michael Rose: Hey, good morning, everyone. Thanks for taking my questions. Jamie, I was just hopeful that on Slide 16, you can give us some color around your beta assumptions on the way down and maybe how you arrived at some of those. That’d be helpful. Thanks.
Jamie Gregory: Yes, Michael. As we think about betas, it’s actually pretty similar to what we discussed a few months ago is when you look at our portfolio and this is why we included that slide, really gives some clarity at a high level of how do we think about repricing deposits in an easing environment. And so, you have — obviously, you have a portion of the portfolio that’s non-interest bearing. Then you have a portion of the portfolio that’s really high beta and it’s a little more systematic. And those are time and brokered and we do expect to see those — brokered deposits will reprice at a very high beta, same with time. Time will just be dependent on the maturities. But then you get into the half of the portfolio, half the deposit book that is either standard and low beta or high beta.
