Brad Milsaps: Great, thank you.
Operator: Thank you. Our next question comes from the line of Kevin Fitzsimmons of D.A. Davidson. Your line is now open. Please go ahead.
Kevin Fitzsimmons: Okay, good morning, guys.
Kevin Blair: Good morning.
Kevin Fitzsimmons: Just was hoping to touch on the revenues. I believe you mentioned in the outlook, while you don’t have a separate item in the outlook, I believe, and then the growth section that you expected to grow at a mid-single-digit pace. I just wanted to check that that’s correct. And what kind of baseline that’s off, and then it seems like I recognize that the valuation adjustments were probably not expected. But it seems like you’ve been adjusting to core fee revenue, and at the lower end of the range, as communicated just in early December. So, just wondering, was a mortgage or were there other items that were a surprise to how low they were?
Kevin Blair: So, Kevin, I’ll start with the fee income guidance. So, yes, mid-single-digits is embedded in the revenue forecasts off a base of roughly $413 million. And what that is, as you know, we expect to see core client fees continue to grow, whether that’s on the treasury and payment solutions side, whether it’s on the card side, whether it’s on private wealth, where we’ve continued to see growth, those are the areas that we’ve been investing. And that’s where we actually saw growth in 2022. The headwinds obviously, on mortgage, although we don’t see mortgage rebounding from a production standpoint, you won’t see the year-over-year drag that you saw in ’22. So, overall, we feel very comfortable in that mid-single-digit fee income growth level. And then, I’ll turn it over to Jamie for the second part of that.
Jamie Gregory: On the valuation, those are things that we analyze from time-to-time and run scenarios on these deals. And so, there’re two different deals that impacted us in the fourth quarter. The first was a new market tax credit deal. And basically what happened there is when we ran the math, that’s something that you basically reduced the valuation of the asset, as you take the tax credits, and the tax credits came through, and we reduced the value of the assets. So, that’s why you see a lower ATR in the fourth quarter, as well as an offset. The other was solar deal that as we looked at the Forward benefits of that deal, they were reduced, and there’s still a positive IRR, it still helps us achieve our ESG objectives. But it is reduced IRR. And so, that’s why there’s a valuation adjustment on that.
Kevin Fitzsimmons: Okay, great, very helpful. And just we talked about the balance sheet already, but I just want to make sure I understand. So, the loan-to-deposit ratios, just a little below 90% here. So, given that the intent is to not necessarily utilize wholesale bonds much, but to fund loan growth with deposit growth for the most part, would you — that ratio to migrate up only modestly over 2003 like what’s your comfort level with taking that ratio?
Jamie Gregory: That is our assumption for 2023 is for it to increase moderately. And again, I think the philosophy around liquidity management is similar to the answer that Kevin gave on loan growth. These all move in tandem. And we’ll be monitoring loan growth in the context of core deposit growth as we proceed through the year but we’re very comfortable with where we are. And there may be times where we choose to use broker deposits to fund growth. There may be times where we choose to use Home Loan Bank or other sources to fund loan growth but the loan-to-deposit ratio to us is more of an output, but yes, in our base case, we do expect it to increase moderately.
Kevin Fitzsimmons: Great, thanks very much.
Jamie Gregory: Thank you.
Operator: Thank you. Our next question comes from Christopher Marinac of Janney Montgomery Scott. Your line is now open. Please go ahead.
Christopher Marinac: Okay, thanks. Good morning. Just a quick question about — Bob, you mentioned about stress testing earlier. Does that lead to better pricing on new CRE loans that you have this year? And does that contribute turning to some of the revenue upside?
Robert Derrick: Yes, thanks Chris for the question. Yes, I would say answer is as Jamie mentioned in his remarks and we think we have got some pricing discipline in the market. We have got opportunity for spread enhancement when we do deploy capital in the loan account. So, I feel pretty good about that. On the stress test, that was more of a credit quality exercise versus a pricing exercise. But nonetheless as we do deploy capital, we — particularly in CRE we have got a little bit of – we have got the ability to increase spread slightly.
Kevin Blair: And Chris, I’ll put a explanation point on that — to Bob’s point. As we look at things like CRE construction, what we are doing as an organization is we are increasing the minimum requirements from a profitability standpoint to be able to do those. And it’s not so much to your point. It’s not a risk decision. But it’s more of a profitability discussion. And to put some evidence behind our ability to generate incremental spread when you look at the second-half of 2022 and compare it to first-half, we saw about 40 basis points of incremental yield over index for all of our commercial loans. And so, I think for a — when you look at risk rating for a better credit production level, we are getting much wider spreads. And that’s something that we will continue to do given the higher cost of funding going forward.
Christopher Marinac: Great. Thank you, Blair for that. That’s helpful. And just a quick follow-up about operating leverage and the guide has it positive. Beyond ’23, does some of the expense growth that you have this year create flexibility in forward years just to have less expense growth, and then maybe perhaps in easier time to get into ongoing positive operating leverage?
Kevin Blair: Yes, absolutely, Chris. And I’ll let — Jamie, I jumped in quick on this one. So, we will probably fight over who answers it. When you look at Jamie talked about the 40% to 50% of incremental expense increase this year for just new initiatives, over time those new initiatives are starting to put off revenue. You’ll see revenue growth in ’23 for things like MAS, CIB Analytics, new treasury and payment solution, the exponential growth in revenue will be much greater than what you’ll see in expense in out year. So, you will see that sort of S curve with many of these new initiatives. And you won’t see the same level of increase year-over-year from some of those new initiatives. So, we believe that ’24 and ’25 could be even better from an operating lever standpoint just based on those new initiatives.
Christopher Marinac: Great, Kevin. Thank you very much.
Operator: Thank you. This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Kevin Blair for any closing remarks. Thank you.
