Dale Gibbons: Thanks. Operator Thank you. Our next question comes from Chris McGratty of KBW. Your line is now open. Please go ahead.
Chris McGratty: Great, good afternoon. Ken, maybe a question on the balance sheet and capital. You talked about not wanting to be in the 98th percentile or so in terms of growth perspective because you weren’t getting paid for it. But you’re going to be at 11% pretty soon. Can you open the door a little bit on comments about appetite for buyback maybe in the back half of the year?
Ken Vecchione: Yes. Right now, we have no plans to do a buyback. And 11% is a little more of a floor for us. I know we call it a target, but it’s more of a floor. So we want to build above that. And then we’ll have growth capital. And as we enter ’25, well, we’re going to have a lot of decisions to make. If we see a lot of internal growth in front of us, that’s where I like to deploy the money. First, you got to tell me what the economic environment is and I’ll tell you if we’re going to do a buyback. But really, the buyback conversation has not been on the table in this company. And again, the 11% is a floor for us.
Chris McGratty: Okay. So nothing for ‘24, but perhaps you’ll weigh the alternatives between accelerating the growth and using the capital. Is that a fair for 2025 conversation?
Ken Vecchione: We spend a lot of time talking about ‘25 year. I want to get through ‘24 and make everything we just told you. But for ’24, I could definitely tell you, there’s no buyback on the table.
Chris McGratty: Okay. Thank you. In terms of, Dale, in terms of the balance sheet. You mentioned the HQLA, Dale. How — are you targeting a percent of your balance sheet in securities? How do we think of the odds this quarter? How do we think about just the absolute, kind of bridging the $8 billion, the $2 billion, how much will go to buying incremental bonds?
Dale Gibbons: Yes. So I mean you can impute this from kind of our guidance, whereby we’re showing $1.5 billion, if you just did it ratably, of growth in deposits in excess of loans. And the preponderance of that is certainly going to go to HQLA. As we talked about earlier, the first half of the year, kind of getting over that hurdle that we think will be added by — in the summer, is going to do that. So if you just did, that would be $3 billion more in terms of HQLA that would take us to there. And then at that point in time, maybe there is a more proportional growth rate between loans and deposits. But that’s kind of the range of numbers we’re talking about.
Chris McGratty: Okay, great,. Thank you.
Operator: Thank you. Our next question comes from Bernard von-Gizycki of Deutsche Bank. Your line is now open. Please go ahead.
Bernard von-Gizycki: Hi, guys. Just a question on ECR pricing dynamics. I know you noted the ECR-related deposit costs are expected to decline with rates and volume. Just on rates, I believe you have some deposits that pay in Fed funds and others that are in the lower 2% range. So you get a 25 basis point cut with 100% beta, does that flow through all customers or just the higher cost ECR deposits? And then you need additional rate cuts to get to the lower 3s before cutting them? Or will ECR rates decline for all ECR deposits for balance relationship?
Dale Gibbons: The preponderance of our ECR price deposits are of the type that you initially talked about, i.e., those that are really tied to effective Fed funds. And we think the beta with those is going to be very near 100%. The second piece where rates are significantly lower, we probably have maybe a stutter step with the first rate increase. We’re not necessarily going to be able to kind of fully kind of pass through. But after that, I think we can put them on a trajectory as well. But those betas will be significantly lower, maybe we can get to 50% on that piece of it. But the larger piece, I think it’s going to be at or near 100%.
Bernard von-Gizycki: And if we think about the volumes between those two or the balances, are they much higher for the 3%, like the lower ones? So once we start getting the cuts, even though you have the 100% beta for the ones paying Fed funds, is it just a smaller balance? I’m not sure if you could size it or give a magnitude between the two.
Dale Gibbons: Yes. So between what you’re going to see in terms of warehouse lending, some of the things that are settlement services, some of our HOA deposits, you’re probably approximately two-third of the number is going to have an elevated beta.
Bernard von-Gizycki: Okay. And then if I could just ask one more. Just on your outlook guidance. Just as we think about net interest income, you have the up 5% and up 10%. Could you just give us the underlying assumptions just the difference between the two? Like what gets you to the 10%?
Ken Vecchione: The 10% on management income is a combination of really the loan growth as we move forward, that’s what’s going to move us in that direction. And the additional liquidity we’re bringing in, and placing that into investments.
Dale Gibbons: Yes, what does the yield curve look like? I mean if the yield curve tends to be flat or it remains inverted, that’s going to probably look a little bit better on some of these commercial loans. What does that mix look like? And how is competitive pricing changing for all those items? We don’t have a lot of insight into what that might be, hence, the parameters around a number that might be more median.
Bernard von-Gizycki: Okay, got it. Thanks for taking my questions.
Operator: Thank you. Our next question comes from Ben Gerlinger of Citi. Your line is now open. Please go ahead.
Ben Gerlinger: Hey, good morning, everyone.
Dale Gibbons: Good morning.
Ben Gerlinger: Just had a question. It seems obviously a bit more technical in nature, but it seems like loan yields were down linked-quarter on almost every lending category. I was curious if you can just kind of touch base on maybe the nuance of why? Might be just a technicality, like I said.
Dale Gibbons: Yes. So I did talk about a little bit on what happened on the loans held for sale versus investment, whereby we did a transfer from held for sale to investments. It really was done in the last day or just before that, of the third quarter. So that will affect their dropped loan yields back to some degree. There’s also kind of been some mix revisions in there going forward. We’re still seeing pricing opportunity on the repricing elements. We talked about the $2.9 billion that on average we have are rolling or — this year. And while the piece of that, that is fixed rate, that’s probably in about 20% of that number, those have a more ratable increase. But even on the variable side, we’re still looking at elevated spreads relative to when those loans were originated two or three years ago.
