Ben Gerlinger: Got you. That’s helpful. I’ll step back in queue. Thank you.
Operator: We now turn to Matt Olney with Stephens. Your line is open. Please go ahead.
Matt Olney: Hey, thanks. Good morning, everybody. There was some commentary in the outlook about modest balance sheet releveraging and as well as moving that CET1 capital ratio lower during the year. Any more color on how we achieved this, whether it’s stock repurchase activity, accelerated loan growth? Just any more details behind that? Thanks.
Matt Scurlock: Yeah, Matt, thanks for the question. We’ve been quite [Technical Difficulty] about how progressive we’ve been [Technical Difficulty] repositioning at capital base. And at the end of year three like that pace at the end of slow in 2024. So to Rob’s comment, we had a record year of new client acquisition in 2022. We beat that by 10% in 2023 and we’d expect to do the same in 2024. So sustaining that pace of client acquisition, coupled with now fewer identified opportunities for a need of capital recycling should ultimately result in some increased balance sheet growth. And part of having, part of the deliberate build to peer-leading levels of tangible common equity of tangible assets is to just ensure you’ve got balance sheet capacity that’s adequate to support any necessary growth from the client base. So you should see the benefits of your sustained client acquisition begin to show up and improve loan growth?
Rob Holmes: Yes. I would say that what Matt said is spot on, but I don’t know if one would appreciate how material that is the recycling. So think about taking a loan-only subpar return loan to a client that we don’t necessarily aspire to make anymore and replacing that with a new client, which is a sector-leading great company, great management team [Technical Difficulty] with a say longer [Technical Difficulty] balance sheet committee, where we are earning more than our cost of capital in total relationship because we’re doing more than the loan-only. As Matt said in his comments 95% of the things that are coming today are more than loan-only. So the other 5% of it is very, very reasonable for a longer-term strategic use. So recycle is a [Technical Difficulty].
If we do anything else [Technical Difficulty] years recycling the capital, you can see over time a much improved return of that capital as the products and services [Technical Difficulty] that’s proven with the clients.
Matt Scurlock: You know the other thing I just add, Matt, is that excess capital also gives you a bit more downside net interest income, the sensibility than, I think, what is currently appreciated are currently depicted in the static balance sheet, 100 basis point shock scenarios. So we carry that excess capital, so we can support clients through any cycle. And this is the historically worst point of a cycle for mortgage finance, but it’s not always going to be like that. So professional forecasters of which would be — we talked earlier — or we joked earlier in the room, it’d be a pretty tough time to be a professional forecaster. But professional forecasters suggest that one to four family mortgage originations this year is going to increase by about 15%.
So if we think about a down 100 basis point scenario, just anticipated mortgage finance growth and the associated revenue is sufficient to offset that $40 million shock that’s shown in the sensitivity modeling. And then, of course, because of the real focus on building fee income verticals over the last few years, you would be able to generate additional revenue in a down-rate environment on those offerings as well.
Matt Olney: Okay. That’s helpful. I think I heard most of that. There’s some feedback coming from the line, but I think I heard most of your commentary. And just as a follow-up, within that revenue guidance of the mid-single digits, any more color on how much of that will come from fees versus NII?
Matt Scurlock: As Rob mentioned, Matt, the pipeline associated with all the fee income businesses are as good as they’ve ever been. So we increased [Technical Difficulty] to be more than 10% over the last three years. We’ve got premium offerings in effect [Technical Difficulty] and merchant full year. The current pipeline in the treasury business is equivalent to the full year 2023 realized business. After fourth quarter for the investment bank, where you had all offerings other than sales and trading have their worst quarter of the year. The delta between the realized $11 million and in the mid-teens guide was solely related to client transactions we’re working on pushing into 2024. That investment banking pipeline has significantly improved year-over-year.
So we now have the right coverage, you’ve got direct connectivity and we’ve got real earned market momentum. So I’d expect that to all those fee income areas of focus to increase both in terms of revenue this year and in a percentage of total contribution.
Rob Holmes: I’ll just highlight one other thing. What Matt said about P times V growing in addition to 10% each year for the past three years, the market norm that I’m used to historically is like two. So to be growing that business at 11% is something that I have not seen before especially on a sustained basis in my career. So really, really good about that. That has to do with [Technical Difficulty] infrastructure. It has to do with an infrastructure that is as good as any money in our bank. It has to do with new client journeys, which is the digital onboarding able to ramp faster and bring revenues forward. So that’s going great. And by the way the ETR goes down, when the rates go down. So you have to realize more fees. So the contribution there is really, really good.
