Dale Gibbons: Yeah. Correct. I mean NII is going to be increasing in a higher rate environment. And you saw that a little bit here, even though it’s a stable environment. We did have a bit of a slope upward in yields as net interest income was up $7 million. What’s changed, though, is that we’re really looking more at what we call earnings at risk, so it considers the NII, it considers the ECR and then also considers what might happen in the AmeriHome context. And if I put all those together, we would prefer a lower rate environment rather than higher because it’s kind of the additional leverage pickup we would get in AmeriHome in particular. But yes, NII solely would still increase in the rising rate environment and declining in the lower one.
David Smith: Okay. And then just in terms of the NII guide staying the same, although maybe you think the higher end of the range, how that works with there being fewer cuts and the better outlook for loan growth?
Dale Gibbons: Yeah, it’s up. Yeah. I mean, as — fewer rate cuts, that results in a higher number. Because we’re not going to get the compression on the way down and then kind of the volume will then — we kind of talked about, as we deploy the $7 billion in deposits that we got in Q1 and what were the addition of these $4 million that we’re looking for, for the rest of the year into at least on a prospective basis, into higher yielding assets rather than into kind of short-term securities to satisfy high quality liquid asset requirements.
Kenneth Vecchione: It will build quarter-over-quarter with a slight improvement in Q2 as we put loans out and then it begins to grow stronger in Q3 and Q4.
Operator: Thank you. The next question comes from the line of Brandon King with Truist Securities. Brandon, please go ahead.
Brandon King: Hey. So I understand NIM is close to trough in the second quarter just given the HOA build at the end of the first quarter. But could you quantify particularly how much NIM compression you’re expecting for the second quarter?
Dale Gibbons: Yeah. So we dipped down five in Q1 from Q4, you saw that. I think that we can give down another 10 million on higher volumes.
Brandon King: Okay. And then the expectation is that as you — throughout the second half of the year, you’re rate stay, I guess, stable from here that mid-single digit expansion quarter-over-quarter. That’s correct, right?
Dale Gibbons: Yeah. We look for it to increase because the marginal spread that we’re going to pick up between deposits and loans say, we’re lending out at 80% of the increase in deposits, that’s going to be accretive to the margin overall.
Operator: Thank you. The next question comes from the line of Gary Tenner with D.A. Davidson. Your line is now open.
Gary Tenner: Thanks. Good morning. I had another follow-up on the credit side of things. If I look at the total classified increase a little over $100 million in the quarter, the investor CRE side, inclusive of lower hotel and an increase in office was basically flat, but the delta was a little more on the C&I side. So I just wonder if you could comment about within the C&I book, what you’re experiencing there, were any particular business lines that were weaker and got more movement this quarter?
Timothy Bruckner: Sure. Thanks. Tim, again. Okay. Our portfolio remains stable. We remain vigilant in this elevated interest rate environment, but we’re really seeing stable performance across all the segments. Outside of the more pronounced movements that we’ve talked about in office, really any other movements that we see are idiosyncratic and related to a specific business, not a trend in a portfolio.
Gary Tenner: Okay. Thanks, Tim. And then just one question on the income statement. The service charge line down to about half versus the fourth quarter and kind of where you run previous to that. Can you remind us what happened there and thoughts going forward?
Dale Gibbons: Yeah. We’ve had elevated service charges here for a little bit. They came down in Q1. I think they’re going to remain lower until we have more follow-on execution of some things we’re doing in service charges in basically the regions.
Operator: Thank you. The next question comes from the line of Jon Arfstrom with RBC. Jon, please go ahead.
Jon Arfstrom: Thanks. Good morning. A couple of quick ones here. Dale, you used the term on the mortgage-related deposits that you reacquired $3.5 billion, that was a big chunk of the growth. What do you mean by that and are you kind of signaling the deposits flatten out or maybe decline a bit in Q2, just so we understand that?
Dale Gibbons: Well, what I mean is that — so the mortgage warehouse deposits primarily come from two sources. One is principal and interest, and those are on a monthly cycle as we get fixed funds in from mortgage payments and then we remit them to the GSEs some three weeks later. And so you get this kind of intra-month kind of sign way. Regarding the taxes and insurance, though, that’s a longer cycle. And particularly, I think taxes are usually semiannual, some are annual. And so we have a dip from tax payments, property taxes in both deposits and it’s very pronounced in the fourth quarter. That’s what really drove that number lower from where we were at September 30. And so we say reacquired in terms of those funds have been depleted as they’re paid to the taxing agencies and then they start building up again and they built up quickly.
And frankly, we brought in some other clients there, too, which kind of helped to boost it up because really it wouldn’t have recovered quite that quickly, you have to be in the second quarter to do it, but that didn’t happen.
Kenneth Vecchione: What we announced in Q4 came back in Q1, Jon, a little stronger than we thought because we had some market share wins at the end of last year that began to finance fund up in Q1 and that’s what Dale means.
