Ken Vecchione: I’ll give you another story to that, too. So our loan yields are holding in from that last conversation we had when we did our Q3 earnings. Dale mentioned, spreads are up about, on average, 50 basis points. And we’re not getting a lot of pushback on pricing. I don’t have any numbers for you, but I can tell you when we say no to a loan that has good asset quality and good pricing, we usually are saying no because it’s not generating the deposits that we want to accompany that loan. And what we’re seeing is that when we turn down those loans, those loans have been returning to the senior loan committee now with greater deposits. So what we’re encouraged about is that the pricing is holding and our determination to see more deposits to accompany the loans has been following through from our credit committee.
Brandon King: Okay. That’s helpful. And then as far as the risk-weighted asset optimization, is that process complete? Or is there still some work to do going into this year?
Ken Vecchione: Tim, love to take a shot at that one. You’ve been running the process.
Tim Bruckner: Yes. Thanks, Ken. That is ongoing, and it’s definitely a part of our culture. So something that we’ll continue to do. There’s definitely remaining benefit to be achieved through optimization. Some of that’s in, in the targeted growth portfolio mix, and some of it is just structural with our clients. But ongoing improvements are still expected. Thanks.
Brandon King: Got it. Got it. And then just lastly, on the mortgage warehouse deposits, I understand the seasonality in the fourth quarter came back in this quarter to date. But should we expect a similar kind of magnitude as far as seasonality in the fourth quarter of this year and going forward?
Dale Gibbons: It was more pronounced in the fourth quarter of ’22 than we’ve ever seen before, and I think some of the reasons for that are — so we have some of our accounts related to taxes and insurance and others are principal related. So the access in insurance, we expected a decline largely because of California property taxes are due in 4Q. The P&I payments tend to have much more intra-month ebb and flow, but not so much kind of seasonal elements, and that changed a bit this time. So from our view, I think there were very few refinancing and almost very few sales of residential real estate that took place in December. And so as a result of that, when somebody pays off and say somebody pays off the loan or REIT has refinanced, I’ll say, the 5th of December, what will show up for us is we’ll get a deposit, including that principle of that of that loan.
And that is remitted to one of the GSEs two weeks later. Well, that didn’t happen, and so I do think that you can make your own projection about what December of ’23 is going to look like. But the dearth of activity in the month of December, which I don’t see a seasonal trough anyway, but it was more — it was certainly more significant than usual, and that contributed to this. And that seems to be turning even now, maybe an early turn in terms of kind of the spring buying and selling season, I’m not sure.
Brandon King: Okay. Thanks for taking my question.
Operator: The next question comes from the line of Andrew Terrell with Stephens. Please proceed.
Andrew Terrell: Good morning. Looking at the capital call loans down around $1.2 billion this quarter. Is that the pace of runoff we should expect out of the book over the next couple of quarters? And I know there are some associated CLNs against the portfolio. I guess, do those securities remain in place as the capital call portfolio comes down? Or would the CLNs fall commensurate with the reference pool?
Tim Bruckner: Tim Bruckner again. I’ll take the first part of your question on the portfolio runoff. Answer is no. It’s not to be expected. That was driven by a handful of large transactions. We elected to exit for return reasons. As we move into the coming quarters, we won’t see similar dollar amounts of runoff at all.
Dale Gibbons: So we do have a CLN on the — I appreciate you remembering that, on the capital call and subscription lines. That CLN as opposed to the residential ones, which are closed. So it’s a specific pool of loans. And as those loans pay off or whatever, that’s done and the CLN runs down. This one is a — has substitution ability, so it lasts for three years. So we have the ability to — if something comes out of that, we could put something else in it. That CLN is a fraction of our total capital call and subscription lines, so it doesn’t really have much of an effect there. It was really done for, as Tim indicated, for return purposes, not so much for capital management because we’ve already taken a portion of those down to 20% through that process.
Andrew Terrell: Okay. Got it. And then, Dale, do you have what the MSR valuation change was this quarter? And then any thoughts on just run rate for mortgage servicing and then gain on sale income?
Dale Gibbons: Yes. We had no change in the valuation of the MSR in Q4, and so what that means is that the hedging basically very materially complete asset what was taking place in terms of market rates. So there wasn’t any valuation adjustment that was — that had happened. Kind of going forward, I think there maybe is going to be some MSR dispositions that take place, and so it’s not going to have an effect on the market. But at the same time, I think there’s a little more stability in terms of what people expect around refinance behavior, and so that could kind of extend the lives and the confidence in terms of what those servicing rights are worth.
Ken Vecchione: I would add that, as you look quarter-to-quarter, I would think about the total mortgage income being relatively flat to Q4. I think that was your specific question. And while too early to call a trend, I would say that the first 20 or so days into January, we are encouraged by margins rising in the business as that large money center bank as the correspondent lending market. And so we’ve got our fingers crossed that, that continues to move forward. But at this point, that’s a positive. That’s an emerging opportunity, we think. But right now, I would keep Q1’s mortgage income relatively flat to Q4.
Andrew Terrell: Okay. Got it. And then if I could just sneak one in on the last point, just the competitive dynamics in the correspondent business, perhaps that does create some tailwind to the gallon sale margin. But does the exit of a large competitor give you kind of greater opportunities to grow the balance sheet at all?
Ken Vecchione: We’re going to still have the balance sheet relative to our capital CET1 goals of getting towards 9.75% to 10%. As you know, MSRs, if they grow in an outsized way versus our internal capital generation, become punitive. So we will be sellers of MSRs throughout the year. And with that, we also hope if we sell to non-banks that we keep deposits that are accompanied with these MSRs as well as possibly even providing MSR financing to the buyers, and that was always our premise as — when we bought AmeriHome.
Andrew Terrell: Understood. Okay, thanks for the question.
Operator: The next question comes from the line of Chris McGratty with KBW. Please proceed.
