Terry McEvoy: Hi. Good morning. Dave and I’m pretty sure it’s in the appendix, but what are the hedges costing you each quarter, like $24 million comes to mind. But do you have that number handy. And what is that — what would that be, if we get three rate cuts. And when does that turn from a headwind to a tailwind?
David Dykstra: Yeah. Well, so, I think it was about 19 basis points of impact to the margin, and it’s about $8 million a month. So $24 million a quarter. Right now, if SOFR moves one way or the other, that would change that. But we put a slide in our presentation deck that gives all the details of what the particular strike rates are. But we’re receiving fixed and paying variables. So if SOFR goes down at all, even though we may not hit the strike rate, we’ll get benefit because we’ll pay less. So that $24 million a quarter, if SOFR comes down, will decline by what we pay by 25 basis points. So it’s effectively locking in $6 billion worth of our variable rate portfolio into more of a fixed rate scenario that are SOFR based.
Terry McEvoy: Thanks for that. And then. Are you or how are you using loan modifications within commercial real estate, and how are you defining a market rate. If you are using modifications?
Tim Crane: Yeah. I mean, modifications are part of the business, so — but we don’t — if a loan is seriously affected by lease rates or vacancy or rising rates, and you can’t just hide a problem with a loan modification. So similar to the one that we just identified, that loan is current. But at some point, you have to look at that and say, is there really going to be the opportunity to change the income stream or change the cash flow with a modification? Generally speaking, you really have to be honest, and the borrower and the bank have to be honest about whether that’s going to solve the problem. In a case like that, it’s so challenged that it’s not. So we do use modifications, but it’s really got to be a situation where the difference between the targeted policy driven cash flow coverage and the actual cash flow coverage are relatively close and you’re just working with them to maybe extend amortization a little bit or something like that to give them a little bit of relief to bridge the gap.
But generally speaking, I mean we don’t use modifications all that often and when we do. We’re pretty much — the interest rate is pretty much at market rate.
Terry McEvoy: Great. Thanks for the color there. And thanks for taking my questions.
Tim Crane: Thanks, Terry.
Operator: Thank you. Please standby for our next question. Our next question comes from the line of Brody Preston of UBS.
Tim Crane: Good morning.
Brody Preston: Hey. Good morning, everyone. I just wanted to get a little bit more granular Dave, on the loan yields. I understand the margin commentary that you gave, but wanted to kind of ask you, just given the premium finance books. How you expect the loan yields to trend in the middle part of the year just given the moves in the one year CMT that have already occurred?
David Dykstra: Yeah. Well, the book that’s tied to the one year CMT is the life insurance premium finance book. And so, as you’re alluding to the rate now is very similar to the rate a year ago. So the benefit from that book is pretty baked in right now. So the repricing on those should stay relatively the same. The commercial premium finance book, however, is still is repricing over time. And although, those are not indexed to the Prime rate, they have pretty good correlation to the Prime rate, because we generally are adjusting our rates when the Fed is adjusting, and therefore most people are adjusting Prime. And if you go back a year, Prime was 7.5% at the end of 2022 and 8.5% at the end of this year. So there’s another 100 basis points of repricing on that portion of the book. And then we have the fixed rate commercial real estate loan book that we have out there, some of that will reprice too.
Brody Preston: Got it. And the stuff that is — the stuff that’s fixed rate. That’s not the like premium finance related at all. How much of that do you expect to reprice on a quarterly basis over the next year?
David Dykstra: Well, we’ve got $8 billion in total, but if you look at that. The big portion of that is our premium finance portfolio, it’s $6.8 million. So, we had another $1.2 billion of commercial and commercial real estate type of loans that will reprice over the course of the year. And I probably just say, it’s ratable. I don’t think we have any seasonality per se to that portfolio.
Brody Preston: And that, these levels generally slightly helpful as they reprice?
David Dykstra: Yeah.
Brody Preston: Yeah. Understood. Is there — Is it fair to assume, when. I look at that kind of one to five year bucket as well that it’s too similarly ratable repricing there, I’m just trying to make sure I get there cadence correct through 2025.
David Dykstra: Yeah. We sort of looked at this, we don’t have any maturity walls coming from — that you can say, oh my gosh, when we get out 18 months we’re going to have just boatload repricing or we don’t get any repricing for three or four years, it’s fairly ratable.
