Dale Gibbons: Yeah. We’re looking at really kind of stability across the board, both on asset repricing and on kind of liabilities here. There hasn’t been since it’s obviously been since last September kind of the last kind of rate changes we were talking about in July. It’s really kind of tapered off and the volatility is very stable. As I mentioned earlier, I think you see that net interest income going up for approximately the same amount as earnings credit costs rose. So there’s no great disparities between spot rates and kind of average rates presently.
Kenneth Vecchione: Well, what I’d add is that while deposit costs went up, we got rid of $1 billion in borrowings, and our overall cost of funds stays flat quarter-to-quarter. So when you think about what happened for the quarter relative to net interest margin, our loan yields went up 12 basis points. Our deposit costs went up 11. We paid down debt. And really the bottom line here is the margin dropped a little bit because of the excess liquidity we brought in that we’re keeping on the balance sheet in cash and in investment securities.
Matthew Clark: Yeah. Got it. Okay. And then just last one for me. The uptick in classified assets and non-performers. Can you just speak to what drove those increases and kind of the plan for resolution there?
Timothy Bruckner: Yeah. Sure. Tim Bruckner, I’ll take that. So first, I’ll just say the majority is related to secured investor real estate loans. This really results as a function of how we manage our portfolio. So we — as we’ve taken every opportunity to tell all of our constituents, we press hard for re-margining and have since early in the rate increase cycle, that drives the resolution. So the classified loans will move up as we reach the endpoint of the negotiation that doesn’t result in an effective re-margin. We then take those loans and we ledger the balance appropriately based on the value of the asset. We apply all principal and interest payments received to reduce that loan balance. I think it’s important to note on our books that two-thirds of these are current in terms of payments being made. So we’re not waiting for a delinquency to take our action here.
Kenneth Vecchione: And all the ones we moved in this quarter were all paying.
Timothy Bruckner: Correct, Ken. Thank you.
Operator: Thank you. The next question comes from the line of Timur Braziler with Wells Fargo. Your line is now open.
Timur Braziler: Hi. Thanks. Maybe just following up on that last line of questioning. Could you just talk us through the interplay between non-performing loan migration and the allowance. I guess I was a little surprised to see NPLs move higher, while overall allowance level is pretty much flat quarter-on-quarter?
Timothy Bruckner: Sure. Tim, again. I think it’s important to note in this context that the majority, we have a very small charge-off every quarter, the majority of the charge that we took this quarter was really associated with adjusting the balances of those loans as they migrate, so that we have plenty of coverage based on current appraised value of the asset less the cost of liquidity. So we move fairly aggressively into non-performing. We adjust our balance as opposed to placing just reserves on that.
Timur Braziler: Migration itself doesn’t necessarily…
Timothy Bruckner: Absolutely, right. And so when we talk about our philosophy here, we’re a low loan-to-cost lender. When you look at office, underwritten office 58%, 59% is where we’re at. So we look at this in the economy of credit underwriting collateral, our collateral position creates character increase support from sponsorship and that’s what we see demonstrated. So it carries through that we typically have very low loan to carrying values throughout the entire — throughout the process. Where we get close, we make an adjustment, take a charge and stay in balance.
Dale Gibbons: Our charge-off rate for the quarter annualized was 8 basis points, which is only about maybe a fifth or a fourth (ph) of what the industry is. On a reserve level at 74 basis points in the appendix of the earnings release, we walk that up to the 130 level considering the things that we have that we do that others don’t do, like a higher levels of residential real estate as well as CLNs we talked about a little bit. And so we think that’s actually a pretty strong level at 74 basis points. So if you take 8 basis points into 74, you’ve got nine years of loss coverage within there, while our duration of our loan book is under four.
Timothy Bruckner: Yeah. I’d add more than anything. When we look at this category, it’s performing as expected and moving to resolution as expected.
Timur Braziler: Okay. And then maybe as my follow-up, just looking at the securities purchases this quarter, can you give us the bridge just to get a sense of what that blended effect will look like in 2Q?
Kenneth Vecchione: We didn’t hear that clearly enough.
Timur Braziler: For the securities purchases made during the quarter, just trying to get a sense of what the rate was on those purchases to get an idea of what the blended rate in the second quarter will look like?
Dale Gibbons: Yeah. So the rate that we have on average for the quarter, which you saw that down 33 basis points from the 460, that should be fairly consistent with what’s been done. The purchases that were done were fairly short term. We expect to maybe roll out of some of that and keep maybe more at the Federal reserve as well. So that’s probably a little bit of a stronger profile.
Operator: Thank you. The next question comes from the line of David Smith with Autonomous Research. Your line is now open.
David Smith: Could you just confirm what you think your true asset sensitivity is today? The 10-K said that a 100 basis point higher shock would boost NII by 3%. And I thought I heard you saying earlier that the NII guide is towards the high end, but the better loan growth is being offset by there being two fewer cuts in the model, which would imply liability sensitivity. So if you just expand on that? I know that NII is just one piece for you with the deposit costs and the mortgage income benefiting from lower rates. But just strictly for the NII, like how you view the impact of a higher or lower Fed today?
