Chris McGratty: Oh, great. Hi, good morning everybody. Just going back to credit, obviously this earning season has been a lot about office real estate. Mariner or team, is this where we need to focus for your company the most? Is there are other portfolios that perhaps are getting more attention?
Mariner Kemper: Just a moment ago I tried to reference we don’t worry about our office at all here. Again, it’s a very, very small part of our portfolio that we don’t worry about office here. And I don’t – if you go to our provision expense, $9 million as we’ve mentioned in our comments, $9 million at tied to the CECL process that we now use with the economic factors, $7 million of it was based on loan growth. We have zero expectation that we fall outside of our historic charge-off metrics regardless of what the environment is. We’ve been at this a long time. You got in this room with me I’ve got Jim Rine and Tom Terry. The three of us have been doing this together through the last three cycles and we’ve had outstanding credit metrics. We’re really proud of and we don’t expect anything different.
Chris McGratty: Thank you for that. In terms of maybe a question on the ratings boundary, which has gotten a lot of attention for the group, does this change your business at all other deposits that either are tied or correlated to your rating? Obviously, we could argue if it’s backwards looking or even right to begin with. But is there any effect on your deposits from what happened?
Mariner Kemper: Not, no, not long-term. We had – there was a little disruption at the very beginning that Monday after SVB failed where it cost us a little bit to with a few clients, but since then that’s all recovered. I would point you to something pretty important, which is when the interest rates go up 9x in a year, and the expectation of the Fed is that we slowed the economy, guess what happens, we slowed the economy. Thanks for a big part of that. There’s going to be a contraction of loan growth for the industry. All of this is anticipated. All of it is expected. It’s a cyclical outcome of what the federal government is doing intended to slow the economy. Was it exacerbated slightly by what’s happened to SVB? Sure. But we have way, way overblown the impact of two failed banks in expecting that that has something to do with the rest of us.
You guys on this phone are way smarter than some of these market participants. You ask way better questions that are researched. And I would just suggest that we move on and stop talking about the rating agencies, which had no value.
Chris McGratty: Yes, thank you for that. That’s good context. And then maybe one for Ram, if I could. I think you said I want to make sure I got my notes, mid single digit growth and net interest income, that’s on a full year 2023 over 2022.
Ram Shankar: Correct.
Chris McGratty: In terms of like to get to that number you mentioned $1.6 billion coming off the bond portfolio. I assume that’ll get redirected into the loan book. Is the assumption still there even with your slowing economy comments? I mean, the last quarter you talked about double-digit grower regardless. Is that still kind of baked into that or did you tempered that at all?
Ram Shankar: I might just re-ask, make sure I got your question right. Do we expect the same kind of loan growth? Is that the question?
Chris McGratty: Yes, yes. Like what are the assumptions to get into that mid single digit growth in NII? Is it – I assume it’s remixing of the balance sheet a little bit.
Ram Shankar: Yes, yes.
Chris McGratty: Yes.
Ram Shankar: Everything that you said. Yes, in terms of, we talked in a little bit in our prepared comments about how we’re going to be really visible in on our asset pricing, making sure that our asset betas are exceeding what we do on the deposit side, so whatever that means from market. Mariner also talked in his prepared comments about the expected contraction in just availability of credit.
Mariner Kemper: Yes.
Ram Shankar: But that said, one of our tenants of our investment thesis has always been outperformance in terms of loan growth.
Mariner Kemper: Yes.
Ram Shankar: So we still see opportunities. We still see expansion opportunities in our verticals out of pipeline looks pretty good. So it’s just no real softening of demand from our – from what we see.
Mariner Kemper: Yes. I mean, it – I think naturally loan growth will slow. That doesn’t mean we stop growing. I just think that naturally system-wide loan growth will slow a little bit. But that’s off a pretty decent growth base anyway. And you include that – solid asset pricing, our ability, we believe we can continue to have strong loan beta and strong pricing discipline, which coupled with a – what we believe will be a flattening of expansion on the deposit side will allow that that mid single-digit expansion that Ram is talking about.
Ram Shankar: Yes. And you mentioned the $1.6 billion of securities books are rolling off at slightly north of two handles and being reinvested into new loans. That will be a big part of net interest income driving as well.
Chris McGratty: Got it. That’s great. Thank you.
Operator: Thank you, Chris. We have our next question comes from Nathan Race from Piper Sandler. Nathan, your line is now open.
Nathan Race: Yes. Hi, good morning everyone and I appreciate taking the questions. Nice quarter.
Mariner Kemper: Good morning, Nathan.
Nathan Race: Going back to the NII growth assumptions, your guidance for 2023, does that just contemplating one more fed rate hike in May and then kind of the Fed on pause from there in the back half of the year?
Mariner Kemper: That’s right. Yes.
Ram Shankar: That’s correct, Nate.
Nathan Race: Okay, great. And then just in terms of some of the balance sheet dynamics of the quarter, it looks like you had about $2.8 billion in short-term debt. I guess curious what the impetus behind that was and kind of what the near-term or intermediate term plans are for that debt that was added in the quarter?
Ram Shankar: Yes, I’ll take that. So if you look at our balance sheet, if you look at on the asset side, our interest bearing deposit, the banks was also elevated at close to $3 billion, which is up $2 billion on a quarter-over-quarter basis. So it’s just out of abundance of caution that we have both sides of our balance sheet. We did have some, some excess borrowings and they were at – parked at the Fed accounts. So we’re going to evaluate that periodically based on the current climate and environment, but it’s not a long-term obviously strategy for us to be dependent on a whole lot of wholesale without funding.
Mariner Kemper: We’re watching closely. Our expectation is that things continue to improve and normalize, and we reduce those levels.
Nathan Race: Okay, great. So I guess, under those kind of assumptions, is the expectation that you got to eternally fund loan growth, which just sounds like, the pipeline is still pretty strong and the second quarter with both cash flow coming off securities book and deposit growth as well going forward?
