Brandon King: Okay. And then I recognize the headwind to CD repricing, but just how are you thinking about the total cost of deposits? Looks like you’re on pace to potentially hold that stable in the second quarter. But if we are in kind of this stable rate environment, do you think you continue to keep that pretty stable in the back half of the year?
Mike Achary: Yeah, absolutely. So again, if you look at the first quarter, we came in at 2.01%, but the month of March came in at an even 2%. And again, as we think about the second quarter, we’re looking at somewhere near that same 2% for the second quarter’s total cost of deposits. And then from there, it really kind of depends on whether we get rate cuts or not. So in an environment where we do get rate cuts similar to the impact on the NIM, you’ll see that cost of deposits continue to fall in the third and fourth quarter. If we don’t get rate cuts, then it’s going to probably be flattish to maybe down just a bit as we go through the rest of the year. So again, very similar to kind of the trajectory that we described earlier around the NIM.
Brandon King: Okay, very helpful. That answers my questions.
Mike Achary: Okay.
John Hairston: Thank you.
Operator: Your next question comes from the line of Brett Rabatin from Hovde Group. Please go ahead.
Brett Rabatin: Hey, good afternoon. Wanted to ask, we’ve seen a few office towers reprice or change hands at lower levels than where they were last transacted. And on Slide 10, you show that you’ve got 88% of the portfolio in office with $5 million or less of exposure and that the office buildings tend to be more mid-rise. I was curious how much of the office book would be bigger than $20 million or $25 million from a loan count perspective?
Chris Ziluca: Yeah, thanks for the question. Brett. This is Chris Ziluca. We only have 14 credits that are over $10 million, and none of them are over $25 million in exposure. So I think that pretty much answers the question around, are we participating in or doing larger office tower transactions.
Brett Rabatin: Okay, that’s helpful. And then the other question I wanted to ask was, just one of the pushbacks I get is, if we did have a recession — it doesn’t seem like a lot of folks are thinking maybe no recession now, but if we did have one, that maybe some of the core south economies might underperform relative to the Texas and Florida pieces of your franchise. Any thoughts on what you guys are seeing in the core Louisiana, Mississippi markets? And just how you think that those markets might react if the economy gets softened.
John Hairston: Yeah, I’ll start. And admittedly it’s a crystal ball look. But typically Mississippi and Louisiana are not high growth markets, which means valuations don’t just spike up when they may spike up elsewhere. So for — the handicap there is, they don’t grow as quickly as some of our other markets. On the other side, they typically don’t bounce down very harshly in periods of recession. So we can just use the last financial recession as an example. We had very, very little loss in Mississippi, Louisiana, or Alabama during that period of time. And, in fact, were it not for energy, our losses would have been better than peer by good measure. So with — energy certainly very deemphasized in our book, and now I think we’re well below 1% of loans in that sector. I would expect those markets to perform very well in a recessive period.
Brett Rabatin: Okay, that’s helpful. And then just — I’m sorry, just one last one back on the SNC question. It sounds like a lot of that portfolio is actually very customer oriented. How much of that portfolio would you have a primary deposit relationship or you’re one of the leads on the credit?
Chris Ziluca: A goodly portion of it. The primary purpose of syndications for us is to lay off credit with organizations we’ve had for a while, that the total amount of hold is just bigger than we want to hold by ourselves. We do lead a chunk of syndications, but, I mean, the core book is still pretty granular in terms of what we have that is credit only. And I’m going to take out specialties like commercial real estate because there are some credits that are syndications there that typically don’t live on the books very long before the project’s completed and then go off to the perm market somewhere else. But we do have a healthcare group that participates a little more heavily in syndications and those balances and exposure have been declining as we didn’t need to deploy the liquidity.
But I want to be clear, saying our concern about syndications are not as much about fear of credit as it is that the liquidity could be repurposed to other things that we’re particularly good at. Internally, we talk about our corporate strategic objectives or CSOs, and we publicly share those. But we don’t talk about some of the other types of things that we seek and aspire to get to. And one of those things is I’d like us, and I think our team is dedicated to being the best bank in the Southeast for privately owned businesses. And to do that, we need to have liquidity available to very competitively bring those types of organizations on. And we’re having that kind of result in some of the bookend markets I spoke about earlier. So the rebalancing away from SNCs is not because they’re SNCs. The only rebalancing is we’re trying to get away from credit only relationships to more core, because ultimately we’re really good at the fee business, but we can’t get the fees if we aren’t — if we don’t have a core relationship.
And so that’s the driver for that change in thoughts moving forward. Did that help you or do you want to repeat?
Brett Rabatin: Yeah, yeah. That’s really helpful. Thanks so much, guys.
John Hairston: Okay. You bet.
Operator: Your next question comes from the line of Matt Olney from Stephens Incorporated. Please, go ahead.
Matt Olney: Hey, thanks. Mike, you went through some of your promotional rates on time deposits earlier on the call, and I appreciate you disclosing that. Can you help us appreciate any changes that you’ve made to these promotional rates more recently? Are those rates you gave us from a few months ago, or were those after some recent changes you’ve made?
Mike Achary: No, those are the current rates, Matt. And just to give you some context of kind of where we’ve come from. If you go back to the end of last year, our best CD rate was 5.4% for nine months. So we had actually shortened that in the first quarter to 5% for three months and then recently introduced the 5% at five months. So we’ve kind of obviously, lowered the overall rate and shortened the maturity and then lengthened it a little bit. And those variations are really related to what we’re seeing in the market in terms of what customers and consumers kind of prefer. But it’s obviously, also an effort on our part to try to choreograph these maturities such that they occur in an environment where hopefully rates are a little bit lower.
And even without rate cuts, I mean, we’re seeing that contraction in rates overall in the market. So certainly, rate cuts will help in the second half of the year when these maturities occur. But if they don’t — we don’t have rate cuts, it’s not necessarily the end of the world. I mean, we’ll still benefit somewhat from CD repricing. It’s just not at the same level as if we had rate cuts.
Matt Olney: So it sounds like you moved your deposit or your promotional pricing down a little bit, shorten the maturities. Would you consider moving down the promotional pricing down again before the Fed were to cut? Or do you think we — it’s now moved down to a point to where it’s comfortable, and we have to see that the Fed start to cut before you would move again?
Mike Achary: Well, my opinion is there’s a little bit of a line of demarcation it seems like at 5% for short CDs. But we’ll pay close attention as we always do to the market and the things that are going on, both the headwinds and tailwinds. Personally, I could certainly see a scenario where we would probably want to breach that 5% at some point.
John Hairston: Matt, this is John. Just to add a little more color that may be helpful. Mike described before that we managed to cover more than 100% of the brokered CD departure in Q1 with client deposits at the rates that we mentioned. We have another slug, and a final slug of brokerage CDs coming up in May. And so part of maintaining the current posture is to try to eliminate as much of those as we can. We’re not really ready to say that will definitely happen, but that’s our desire because getting rid of that takes us to 100% core money, if that makes sense. And so it’s a little early to try to get too aggressive on taking them down until we get past Q2. Hopefully, that’s helpful.
Matt Olney: Yes, that is helpful. Thanks for clarifying that. And then I guess, switching gears. Chris, on credit, I think you answered all my questions around the criticized loan bucket, and I think, you know that the charge-offs were mostly from a single credit. But I was surprised to see that the recoveries were quite a bit higher in the first quarter. I think it was around $14 million. It had been trending well below that in recent quarters. Just any color on the more sizable recovery you got this quarter.
Chris Ziluca: Yeah. I mean, we have a certain amount of flow recoveries, but we did have an opportunity this quarter to kind of relook at an existingly previously charged off account and kind of resolve that matter, maybe more permanently. And so that helped us to get probably what is going to be somewhat of an abnormal level of recovery, but certainly fortuitous for the quarter.
Matt Olney: Okay. Thank you.
John Hairston: Thanks, Matt.
Operator: Your next question comes from the line of Christopher Marinac from Janney Montgomery Scott. Please go ahead.
Christopher Marinac: Hey, thanks. Good afternoon. Chris, I wanted to ask you one more credit question. When we go back to the quarterly and annual disclosures, you’ve mentioned a pass watch category. Would that have gone down at the end of March, which therefore would compensate for the increase in the criticized?
Chris Ziluca: Not necessarily. I mean, we certainly have things that flow through the pass watch category, but some skip over that because of just the credit metrics that drive our risk rating models. So not necessarily all just from that category, although certainly a substantial portion in count wise came from that category.
Christopher Marinac: Okay. And does the pass watch strive at all provision levels, or rather the reserve as you go forward?
Chris Ziluca: It has a component to it. I mean, we — our models don’t specifically tie at this juncture to risk ratings, but we factor in migration in a lot of the qualitative component to our reserving methodology.
