Terry Earley: And I think ’25 is also going to be, once we get the balance sheet where we want it, ’25 is going to be a year about optimizing deposit pricing. Because we’re not going to need the excess growth to get the balance sheet where we want it
Malcolm Holland: Correct.
Stephen Scouten: Yes, that all makes sense. Okay. And I know you mentioned maybe not hedging to kind of bring down your overall rate sensitivity in the future, I mean, do you think you can move that four basis points for every ’25 basis point cut? I mean is that a number you’re trying to cut in half? I mean, do you think you can work that number down or is it more just around the edges?
Terry Earley: No, I think we can work that number down with a combination of things. One is how aggressively we price on the way down. We exceeded expectations during the pandemic. And so, we just got to replicate what we did before, coupled with the way we’re making more fixed rate loans today, that when there’s a lot more discussion on that. Veritex has never been a big fixed rate lender. I certainly have a much greater appetite for that. And there’s a lot more discussions going on there, and then hedging as well. The problem with hedging right down rate risk right now with the shape of the forward curve, it’s just so expensive to hedge it. And I would rather, I think I would rather not do it in the derivative space, but do it in the cash space with fixed rate loans and securities.
Stephen Scouten: Yes, it makes sense. Okay. And then, just the last thing for me is moving back to credit from the earlier conversations. It sounds like the spike in past dues maybe resolved itself to a large degree since quarter end. But as you think about charge-offs for next year, what’s kind of a reasonable pace off the elevation we saw in ’23, largely related to that one-offs credit, I know.
Terry Earley: Sure, sure. Thanks for the question. Yes, I think if I’m sitting here today looking forward into 2023, I couldn’t identify more than $15 million in potential charge-offs today, but we’re not budgeting for that. We’re budgeting for higher downside than that.
Malcolm Holland: Yes, I mean, I think you had a slide in there, Clay, that said we did an average of 27 bps over the last five years. I’m sitting in your all shoes. It sounds like a great place to start. We think we’ll do better, but 27 bps has been our historical number. And your answer on question on past dues is, yes, we got 20 something plus million that is already current on two deals.
Terry Earley: Stephen Scouten, I was just going to say, I would rather you guys, I think the consensus charge-off number for the year is 2930 bps. I’d rather outperform on that. I wouldn’t want to see anybody drop the estimate, to be honest with you.
Malcolm Holland: Yes.
Stephen Scouten: No, understood. And I guess, I mean, from a provision standpoint, obviously, even with some of the migrations, there wasn’t a need for a provision build. So, it’s not as if you see any large-scale degradation that makes you see the need to build that, correct?
Malcolm Holland: Correct.
Terry Earley: Correct.
Stephen Scouten: I would not expect the risk to grow anywhere close to what the amount of growth is here.
Malcolm Holland: No.
Stephen Scouten: Perfect. Thanks for all the color, guys. I appreciate the time.
Malcolm Holland: Thanks, Stephen.
Operator: Thank you. And one moment for our next question. And our next question will come from Ahmad Hasan of D.A. Davidson. Your line is open.
Ahmad Hasan: Hey, guys. This is Ahmad Hasan on for Gary Tenner. Good morning.
Malcolm Holland: How you doing?
Ahmad Hasan: Pretty good. So, firstly, I might have missed this, but any color on the credit that meant non-approval and generated the $1.9 million in interest reversal?
Terry Earley: We didn’t have $1.9 million in interest reversals, I don’t think. I think it was $600,000, $700,000, and about 6 bps or 7 bps, I think, somewhere in that range. So, I agree with that part. The rest was that was the move in the non-accruals that affected the NIM.
Ahmad Hasan: All right. Thanks. Looking through 2024 and the wholesale funding, reliance is a takeover 20% at the year-end. Where would you like this target ratio to be?
Terry Earley: Yes, it’s already down meaningfully in the first quarter. It’s been as low as 17% so far this year. Probably like for it to end somewhere between 15% and 17%, 18%, somewhere in that range. If it’s lower, I’m going to be happy because we’ve done, we’ve outperformed on the deposit growth, core deposit growth side, but I would expect somewhere in the 15% to 18%.
Ahmad Hasan: All right. And lastly, I know you talked a bit about this, but thinking about the loan growth outlook for 2024, particularly given that CET1 is over 10%, how are we thinking about growing risk weighted assets for the next year?
Malcolm Holland: I mean, we’re going to be more measured in our growth on the risk weighted assets side, as we’ve mentioned many calls ago that we got that a little bit over our skis on our unfunded and what have you. But I think the goal now is to always keep that number inside our capital number, and that’s what you should expect. So, I don’t see that growing. I’d say it’s definitely going to stay inside. I think as we as our Commercial Real Estate and ADC ratios get below 300 and 100, I do think you will see production of ADC in 2024 higher than it’s been in ’23. That will add some to the unfunded, some to the risk weighted assets. But net-net, I still and so instead of unfunded shrinking, they’re probably going to grow a little, but not a lot.
