Rob Holmes: It’s 100% execution now. That’s what’s so exciting about where we are in the transformation. The risk of the build is done. We have a core competency now of taking efficiencies, improving client journeys. We have data as a service. We feel really good about the tech platform to run the bank versus change the bank. Composition of the spend. We are very focused on. Well, let’s put this way. There’s no additions to the platform in terms of talent or client-facing people that we need to execute the strategy. Well, that’s just one component of it. I don’t think you see the efficiencies abate, as Matt said, and I think you quantified them.
Operator: [Operator Instructions] We now turn to Brody Preston with UBS. Your line is open. Please go ahead.
Brody Preston: Hey, good morning everyone.
Rob Holmes: Hey, Brody.
Brody Preston: I wanted just to clarify something, Matt, just what you said on the mortgage finance versus the static balance sheet NII sensitivity that you provide. Were you saying that the 15% pickup in mortgage activity that I think you guys typically use Moody’s is projecting would be enough to offset the 4% decline in the down 100 scenario?
Matt Scurlock: No, I’m saying in the down 100 scenario, which is a bit more aggressive than what Moody’s outlook would suggest you would have mortgage — you have ample capital to support a flex up in mortgage finance volumes from your existing client base, which would generate more than enough revenue to offset that $40 million decline. So I think often times and I [Technical Difficulty] that why. But oftentimes, Brody, I think folks, when they think about rates, solely think about front rates. And that, of course, does impact us in terms of deposit pricing as it relates to Fed funds and on commercial loan yields as it relates to SOFR. The part of how we manage rate risk and the associated balance sheet positioning is based on the impact of longer-term rates on volumes.
So it’s just an important — it’s an important thing to call out. It is a limitation of that static modeling which is obviously something that’s required by SEC and is presented for comparison to other banks. So we’ll make sure to give you guys much detail as we can on that moving forward.
Brody Preston: Got it. Could you help us maybe think through the impact of down 100 being more aggressive than what Moody’s has outlined, how that would impact the mortgage finance business, you always obviously do a lot of business in the IB there as well. So if you had a pick up above and beyond the 15% that Moody’s was forecasting, how would that impact your investment banking revenue?
Rob Holmes: Yes, I’ll start. I mean there’s a number of different dynamics to the answer to the question. One is, as rates go down, investment banking fees will go up more traction will take, more transactions will take place. The clients will be doing things with the balance sheet. There will be acquisition activity et cetera. And there’ll be capital solutions opportunities. There’ll be just a broad based. There will be volatility of the sales and trading floor. There’s a lot of things on the fee and also invest like I said in treasury management fees will come up because ETRs will go down. So I think we’re — we built the business to really succeed in any market or rate cycle. And as we go down, we’ll see an increase in an ability to take advantage of that scenario.
Matt Scurlock: I mean the 146% year-over-year growth, Brody, it’s not like we are building the investment bank with a lot of economic or structural tailwinds. So I mean, in fact, there’s likely headwinds against all businesses except to Rob’s point, the rate business where you had an inverted curve and enable people to swap. So we’re confident in our ability to drive revenue growth three agnostic to the economic environment. But if you actually do see rates decline and get a bit of a tailwind, it would be nothing but beneficial.
Brody Preston: Got it. And then I just had a couple of last ones on the mortgage finance business. Would you — do you happen to have — of the $5.6 billion of the average deposits you had this quarter, what portion of that is compensated via the relationship pricing?
Matt Scurlock: I think the technical term would be significant. Yes, a significant portion and that’s disclosed in the deck. And as I alluded to, Brody, the portion who are compensated has increased significantly. Let me take a step back. Our ability to effectively win deposit relationships with clients to use our balance sheet for other services in the mortgage space has been really strong. And then the portion that have moved to compensated has also increased and then the associated beta has also increased as they faced a just hopefully like once in a century type decline in their volumes and ability to generate sufficient cash flow. So you’ve got all those — all three of those things really pressure deposit costs. And again different than on the commercial side, we would expect a similar beta on the way down there. We don’t anticipate a material lag, if any.
Brody Preston: Got it. And then just last one. Beyond the first quarter, Matt, would you kind of remind us how you think the average balances is for the — for the mortgage finance loans should track? And then how the deposit to loan ratio for that business should track maybe in the second, third and fourth quarter? I’m just trying to make sure we nail down the seasonality.
Matt Scurlock: Yes. I would use the same self-funding ratio that we experienced last year, but the volume, the full year volumes, again, based on a forward curve that can change by the minute, but the anticipated volumes are 4.7% average for the full year, and you’d start to see that, Brody, pick up to Q2 and Q3. And then the implied forward curve would suggest that you see rates come down enough in the fourth quarter, where there wouldn’t be as large of a third to fourth quarter decline as we’ve historically experienced. You have that buffered a bit by declining rate environment and increased volumes.
