Operator: Thank you. Our next question has come from the line of Ken Usdin with Jefferies. Please proceed with your questions.
Ken Usdin: Hey guys, how you doing? Can I just ask you a little bit more about the mix of earning assets? You mentioned that cash and securities would keep coming down. What are you going to be looking to do within that in terms of securities portfolio rollovers versus the overall mix of the cash and securities? Thanks.
Ryan Richards: Yeah, thanks for that, Ken. You’ve noticed the trend that we’ve allowed our investment securities portfolio to have some attrition. We can see that continuing for a time longer, and that’s helping us in terms of that deal coming off and the reinvestments we’ve been seeing in loans and the remix of the balance sheet has been a nice trend through the course of the past year, and we certainly saw that this past quarter. So I don’t know that we have a specific number in line. It kind of goes back to what Matt said, let’s see where loan growth shows up and how our deposit base behaves, but that’s what we’ve been seeing.
Ken Usdin: Okay, and then separately, just — I know you’re at $87 billion, far away from that next 100 threshold, I’m just wondering if you could talk us through how not having the holding company structure changes how you guys think about approaching that and think about getting the company ready, especially given your history where you were a category 5 bank originally and have some of that infrastructure? Can you just kind of help us think about what needs to happen as you move forward and what we would be realizing along the way there? Thanks.
Harris Simmons: I’ll take a stab at that, Ken. It’s Harris. The first thing I’d note is, just picking up on something that Ryan said about continued run down in the securities portfolio, we have enough liquidity inherently here that — it probably gives us, I don’t know if it’s another year or just kind of what, but it is going to help us kind of push that data out, which helps with the AOCI runoff and kind of normalizing that — getting that dragged down in advance, crossing 100. In terms of the kind of requirements, I think we’re — I think we believe in pretty good shape because we continue — we’re still doing stress testing. We think we’ll probably have to be a little more rigorous in terms of kind of the documentation that we would supply to regulators, et cetera.
But all the mechanics, we continue to refresh models. We will need to get back into the resolution plan business. But our structure, I think, makes that actually much easier. I mean, it’s a pretty bare bones structure that we have that I think makes resolution planning all the much easier. And the lack of a holding company, probably the main impact is there’s no supervisory stress test. It’s really only internal. And so, until we get to, I think, 250. So fundamentally, I don’t think that we’re going to see kind of a major event when we get there. Probably the major event really is depending on how Basel III endgame gets revised, as we would expect, and what if anything happens with a long-term debt rule? I mean, I think that if I have a concern it’s by more around the long-term debt rule.
I think that needs to get revisited. It’s sort of anti-tailored for a $100 billion regional bank. And so, my hope is that we’ll see some attention paid to that as well. But beyond that, I think we’re going to be in pretty good shape.
Ken Usdin: Great. Thank you, Harris.
Operator: Thank you. Our next questions come from the line of Brandon King with Truist Securities. Please proceed with your questions.
Brandon King: Hey, good morning. Thanks for taking my questions.
Harris Simmons: Thanks, Brandon.
Brandon King: So, I wanted to talk about earning asset yields. I saw a nice increase in the quarter. Could you just lay out what your expectations are for that pace of increase over the next several quarters?
Harris Simmons: Thank you for that. As we’ve sort of been talking along the way, we did have a nice pick up this quarter in earning asset yields, we’ve sort of been guiding to 0 basis points to 5 basis points. And I think if you look over a couple quarters, we’ve been able to chin that bar. So some good repricing activity, which was really borne out in that latent sensitivity that we showed in the slide that, if nothing else happens with the rate curve, we stand to gain here.
Brandon King: Okay. And do you think you can still go above that, I guess, zero to five? Is that a fair assumption or is that still the kind of the range?
Harris Simmons: I wouldn’t rule it out, but that’s kind of where we’ve been talking for the market and not wanting to get ahead of ourselves.
Brandon King: Okay. And then lastly, in Office CRE, there was a meaningful step down in that portfolio. Also then, criticized, classified and non-accruals. So could you talk about how you’re managing that portfolio? What you’re seeing? And how you’re actively managing?
Derek Steward: Yes. Thanks, Brandon. This is Derek. The decline in office criticizing class sites was actually one positive resolution that we had. We were paid in full on a non-accrual loan where we’d actually previously had a charge off last year. So that — we just continue to work through the office portfolio. You’ll see that we’ve actually reduced that portfolio over time. And we’ll still have some office challenges, I’m sure, for the next little while. But so far, we’ve actually had positive resolutions there.
Brandon King: Thanks for taking my questions.
Operator: Thank you. Our next question comes from the line of Peter Winter with D.A. Davidson. Please proceed with your questions.
Peter Winter: Thanks. Good morning. Can you provide some color on the increase in the C&I classified loans?
Derek Steward: Yes. Thank you. This is Derek again. The increase in the classifieds this quarter, there was actually one assisted living facility [indiscernible] CRE related, that just was experiencing slower lease up and some higher expenses that migrated to classifieds. And then there were a number of other C&I credits that just nothing large friends to point out or specific industries, but just they were C&I credits that migrated into classifieds.
Peter Winter: Okay. And then separately, just when I look at the interest-bearing deposit cost, it’s pretty impressive that it decreased 3 basis points. Because you’re seeing most peers have an increase of roughly 8 basis points to 15 basis points this quarter. What’s the outlook for deposit costs going forward if there’s no Fed cuts this year?
Ryan Richards: Yes, listen, I’m happy to say a few words there. Listen, as we look at our trending, we still really like our overall total cost of deposits, and we stack up pretty favorably on that basis. It’s fair to say if we played this game of catch-up where we got a little bit behind pricing that we ran up on the interest-bearing yields appropriately for the time, but we’ve kind of now gotten out of the pattern of where we’ve really been historically relative to peers. And so, we deserve that and we’ve been looking for ways to manage appropriately, working with our clients to meet their needs, but also relative to other funding sources, making sure that we’re not extending ourselves too much on the rate paid. And so we did see some success of that and we plan to continue working on that. I don’t know, Harris, if there’s anything you’d like to add.
Harris Simmons: Nothing to add. You captured it really well.
Peter Winter: Got it. Thank you.
Operator: Thank you. Our next question comes from the line of Chris McGratty with KBW. Please proceed with your questions.
Chris McGratty: Great, thanks. Harris, any big picture changes in use of capital for the next maybe year or two? You’re rebuilding capital with OCI, but just more broadly, uses of capital?
Harris Simmons: No, I mean — look, I think as we think about capital over the next couple of years, we’re clearly going to be focused on the $100 billion kind of threshold and what that means. And thinking about what our ratios are going to look like crossing that mark. And beyond that, we’re very focused internally on trying to invest in things that generate higher returns. So fee income businesses like capital markets, wealth. We are — we’re highly focused on small business lending. Sentiment there has been kind of tough in that market over the last three or four years, I think, with the pandemic. But I — I think that’s probably — we’re seeing maybe some change there. Noted that kind of SBA lending is turning into a bright spot for us.
And we really like that business not only because you get a little better spread, but it really brings the kinds of deposits that I think really build a sustainable franchise, create a lot of franchise value. They’re smaller operating, they’re operating accounts, they’re insured, they’re sticky. And so, there are a lot of things we can do for small and middle market kinds of customers that add value. And so that’s just a real primary focus. We’re trying to do more incrementally on the consumer front. That’s not been a major kind of driver for us in recent years, but we think there’s some opportunity there. Again, largely with a view to creating a more fully insured deposit base. I mean, I think that’s just an editorial comment. I mean, I think the — if there’s a crying need out there, it’s for a look at the deposit insurance system.
I think it’s fundamentally broken and it should be a source of concern about it for anybody who’s trying to think about the longer-term sustainability of a diversified banking system. And in the absence of that, we need to be really focused on building a more granular deposit base. And so that’s a real focus of ours, will be, I think, in years to come. So anyway, those are — it’s not all about capital, but it’s — but those are kind of some of the activities we’re focused on.
Chris McGratty: That’s great. Thank you for that. And just my follow-up in terms of the tax rate, is the first quarter a good run rate for the rest of the year?
Ryan Richards: I don’t have any different guidance to give you at this point in time.
Chris McGratty: Okay. Thank you.
Operator: Thank you. Our next questions come from the line of Ben Gerlinger with Citi. Please proceed with your questions.
Ben Gerlinger: Good morning, everyone.
Harris Simmons: Good morning.
Ben Gerlinger: I just had a quick question on the multifamily uptick. You guys lay out the geographic presence by state in terms of just percentages. Is that a fair assumption to think that the uptick is kind of uniform across that, or is there a certain state or area in the United States where you’re starting to see a little bit more kind of indigestion amongst multifamily?
Derek Steward: Thanks for the question. This is Derek again. It’s a good question. It’s actually — we’re not seeing it in a specific market. I mean, real estate is very local. It depends on what street corner you’re on. And so, it depends on the markets. And what we’re seeing on the multifamily side is really three primary issues. One is, in some cases there’s a higher cost to complete the projects and so — and delays on the projects. And so we see some issues there on the construction side, maybe a smaller percentage. And then the larger issues are really just slower lease up, maybe some rent concessions early on during the lease up period combined with interest rates increase. And what we’re seeing is, it’s taking longer to get to stabilization than what we originally projected for a number of these projects. But they continue to — the sponsors continue to support them. They’re bringing equity in to continue to support them as they get to stabilization.
