Michael Rose: Okay, great. Maybe 1 last 1 for me. I’m going to try. I don’t think you’re going to answer it but I know you guys are involved in the Stanford Group litigation which another bank in the Southeast just settled. Just wanted to get any comments from you see if there’s any update. I know a trial is for 1 of the classes is set for February 27. Again, I don’t think your comment but I thought I’d try.
David Brooks: Thanks for the question, Michael. Correct, we don’t comment on pending litigation, as you know. But we always assess what’s in the best interest of our company and our shareholders, as I said a moment ago. There are details in specific — on this specific case that you asked about in our normal public disclosures and filings and you can read up on that as well and we’ll continue to update that accordingly.
Operator: Our next question comes from the line of Brett Rabatin with Hovde Group.
Brett Rabatin: I wanted to first circle back to fee income. And you mentioned that you think mortgage banking will be flat in the first quarter. I wanted to see; one, if you think — obviously, the market is helping for a pivot, we’ll see. But wanted to see if pass that, you felt like there could be some optimism for that to maybe pick up a little bit. And then also the decline in the other bucket due to the correspondent fee, if that has fully run its course or if there could be any additional atrophy related to that? And then if you just basically saw any other opportunities to maybe have growth in fee income lines of business.
David Brooks: Let me say from a high level, I’ll let Paul comment on some specifics, Brett, of your question. But at a high level, our view of the mortgage business right now is that it’s hitting its lows and will linger there for a prolonged period of time. So in our numbers and assumptions, we don’t have any increase or acceleration in. Obviously, that would be great for everyone if it happened. But in our decision-making in the fourth quarter of last year about around our cost base, included our view that it was going to be a very difficult year in mortgage. We’ve got great teams running both of those businesses and we feel good about it long term. But we think it’s going to be very hard in ’23 and maybe longer. And until we see real evidence that there’s some environment that will allow a return to normal kind of volumes, we don’t bake that in any of our forecasts. In terms of the correspondent and specific things you asked about, I’ll let Paul comment.
Paul Langdale: Yes, Brett, that was just a onetime charge related to the severance of a correspondent banking relationship that won’t recur in future quarters. And as far as the other fee income items, we expect them to remain relatively stable over the coming quarters.
Brett Rabatin: Okay. That’s helpful. And then I wanted to make sure I understood kind of the flavor, so to speak, of the commentary around the cost of funds from here. And it sounds if I’m getting it right, it sounds like you feel like you’ve maybe taken some — big chunk of the pain, so to speak and what it took to keep deposits to keep relationships on balance sheet and maybe the deposit beta, so to speak, might slow on a relative basis going forward. Is that a fair assessment that you feel like you’ve taken some of the lion’s share of the pain in terms of the cost of funds increase and maybe any thoughts on how we should think about the deposit beta from here?
Paul Langdale: Sure, Brett. We’ve been very deliberate in making sure that we play defense in our core customer base. And consistent with our history as a relationship bank, that’s been a focus of ours. I think there’s still going to be continued pressure on deposit costs near term until the Fed hits the terminal rate. Our expectation, though, is that once the Fed hits the terminal rate, we should see some significant abatement of pressure on deposit costs that help us in the back half of the year.
Brett Rabatin: Okay, fair enough. And then maybe a question for Dan. You guys mentioned you look at the commercial real estate loan portfolio and I think a lot of investors are worried about commercial real estate. And maybe there’s a couple of credits to think about from a loan repricing perspective that you’ll get in front of. I wanted just to hear if you look at Slide, I think it’s 17%, your credit has historically been much better than peers. Wanted to hear maybe what you might worry about in terms of the environment, maybe not even your own loan portfolio but just the environment around commercial real estate, if it’s rents, if it’s something else, if it’s the change in rates, what’s the big factor you’re kind of concerned about for the environment?
Daniel Brooks: Yes, Brett, great question. I think, in general, let me say it this way, it might help you as you think about certain asset classes that we think are under pressure and will continue to be under pressure this year. Spec industrial, spec office, those may seem a bit obvious to you but I would say there’s been a lot of that activity in the last couple of years. And as a rule, we’ve just stayed away from that type of lending and keeping with our core principles here. I would say, in general, people are watching certainly occupancies in the office space. I think rents certainly continue to be pretty solid. It seems on the multifamily side. So I don’t think there are any primary concerns there that we’re seeing. But, in general, I think we’re just continuing to be very vigilant about stressing our portfolios for the rate increases and then mindful about what could happen in a downturn.
And I think in general, again, our structure with granular book which is limits exposure on any individual credit and the way we’ve underwritten those with the same standards we have over the last 3 decades, I think positions us as good as we can be. And while we’re watching that, I think we feel very good about our portfolio at the present and continuing to monitor what that would look like. I guess that’s why I would ask that for you.
David Brooks: Yes. And I would say to Brett — this is David. At a high level, Brett, one of the things as we thought about these loans rolling 5 years in that were underwritten at 4% interest rates. One of the things that has really helped in our markets, if you’re thinking about the markets that we’re in and the in-migration of people, whether it’s office or multifamily or professional office buildings, the demand and the rents have increased materially in the last 5 years. So the cash flow that we underwrote 5 years ago are much higher today in almost every property and that goes through our philosophy to a high-quality property in great locations and great markets. It just has risen, if you will, with the tide of the economic activity in our market.
So that’s making it actually much better than we had feared maybe 6 months ago as we began the process re-underwriting these credits. So the great markets we’re in. And also Dan and his team have done a great job of avoiding kind of the hot idea. And so spec industrial, office warehouse, that kind of space has been across the country around every airport and everything, given what’s going on with Amazon and delivery and all that has been just built by the tens of millions of square feet. And look, we’re a little cautious around that as an example. We think there could be some pain in that if we have a significant economic slowdown. So we just have not bet the farm, so to speak, on any 1 asset class. Multifamily is great. It’s strong here. But even then, you have to be cautious not to overbuild submarkets within these good markets.
So those are the kinds of things we think about and talk about.
