Daniel Tamayo: Hey, good morning. Just quickly on the expenses. I know you’ve talked about being self funding majority of the C&I lender hiring plan, and then talked about that mid 90s expense, a run rate here in the near term, but I’m just curious kind of how far out that extends. And if there’s kind of any cadence to the increase in expenses, incremental on top of, if there’s any kind of additional expenses from that hiring program that may not be fully funded. Thanks.
Todd Clossin: I think with a 7% increase in salaries, part of that was additional people coming on board, even though we self funded some of that, that merit increases and whatnot, and we saw, obviously, the inflationary impact that occurred as well, too. Not so sure, we’re going to see that kind of inflationary impact each year going forward, because it seems to be moderating to some degree. So I think that’ll help pretty significantly, but I do think as the franchise grows, and we do want to grow the franchise mid to upper single digits, that expense base would grow commensurate with that. So I’m much more focused on the efficiency ratio than just the expense number. We do watch it and try to plan to it. And we do think the mid 90s is kind of where we’re at right now, as we said, last quarter, and I think we proved out in the most recent quarter.
But the efficiency ratio, as we get bigger, I think would be really, really important to be able to manage to that we that we’re in the mid to upper 50s. And if we’re touching 60, we don’t want to be touching it for terribly, terribly long. And I think our ability to generate revenue, through some of the new products through some of the new hires, I think that’s going to help us a lot, as we continue to grow as an organization, but we’re also making investments. So as we continue to make investments in the company, that are going to be new product oriented, and we bring on additional people, that is going to take the number up over time, but I can’t imagine it would be much greater than just the normal inflationary environment that you would see.
And mid upper single digits, kind of be my expectations for future out years versus anything dramatic up and if we’re going to be 5%, 6%, 7% bigger each year, going forward $95 million or $94 million quarterly run rate, if some point is going to cause us to under invest in the franchise, and we don’t want to do that. And so that’s probably the best answer I can give you is focus on efficiency. We’re going to focus on the efficiency ratio. And the total expense base will probably drift according to what just the normal expense growth rate is for the bank based upon the mid 5% to 7% range.
Daniel Tamayo: That’s very helpful. I appreciate that. And then, I know you touched on this, but just curious your assumptions in terms of the rate environment stable through the year but in the forward curve, there are some expectations for cuts. Curious how that how you think that would impact the earnings power of the bank.
Todd Clossin: With our deposit beta it was interesting to see that really benefits us on the way up when rates go up. But we also saw when rates started going back down again a few years ago, that deposit beta held up there too. So we’re able to reduce our deposit costs faster than our peer group. And even though we can lag it on the way up, we can kind of beat it on the way down. So I would expect that, hopefully, some of the discipline around pricing and spread and whatnot, stays even on a low rate environment. We’re getting better at pricing loans, we’re getting better at managing that that spread, that as deposit costs were to put a drop that should really benefit us. So I think in an environment where you got rates coming down, I think that could be bonus for a number of banks.
I think we could be one of the banks that might be included in that. But there’s a lot of other variables that are going to be associated with that in terms of what’s driving the rates to go down. If it’s because and you got something else going on in the economy that could impact your growth rates, and that would have to be taken into account.
Daniel Tamayo: Okay, I appreciate the answers. Thanks, guys.
Todd Clossin: Sure.
Operator: Our next question comes from David Bishop from Hovde Group. Please go ahead.
Todd Clossin: Good morning Dave.
David Bishop: Yes. Good morning, gentlemen. Most of my questions have been asked and answered. But in terms of opportunities within the market, on the lending side there are you seeing any loan segments or pockets where maybe you’re seeing some of your peers pull back from that you think might present an opportunity, especially as you noted, some of the tier two markets may not be as boom and bust as DC and some of the other bigger metro markets across your footprint.
Todd Clossin: Yes I think some of the markets where we’re funding is more of a challenge where the banks are 100%, 104%, 105% loan to deposit ratio, where they really kind of slowed down lending across all fronts because they’re having a hard time just funding it. We’re seeing lenders from markets, like that, from banks like that, but we’re also have been seen, and I think we’re going to continue to see loan opportunities we’re not focused on office, we’re not focused on hospitality. Those aren’t focus areas of ours right now. And we like real estate. But we really want to lean into C&I in a fairly big way. So a lot of the opportunities that I think we’re seeing, and that we should be able to see over the next year. Hopefully, you’re going to be in the C&I space.
Because if they get clipped a little bit from their current bank, that hopefully we get a look at those type of things, because we have capacity to lend significantly to good quality C&I customers. So I think that can help us quite a bit, particularly in markets in the southeast, part markets in the middle Atlantic, where maybe the banks just aren’t going to be able to lend to the extent that they want to even for their good C&I customer. So the answer would be yes, I would expect us to see opportunities from that.
David Bishop: Great, appreciate the color.
Todd Clossin: Sure.
Operator: And our next question comes from Manuel Navas from D.A. Davidson. Please go ahead.
Todd Clossin: Good morning.
Manuel Navas: Hey, good morning. A lot of my questions have been answered. But I just wanted to check on your pipelines kind of point to load growth accelerating here in the second quarter. But you also talked a little bit about higher pricing. Do you think pricing selectivity kind of dim some of that acceleration? Or is the right way to think about it is you’re growing faster right now?
Todd Clossin: It’s a great question, because I think as we saw in the first quarter, with the pipeline being so robust, but loan growth kind of being in that we did 1.7% loan growth in the quarter, like, wouldn’t you expect to see bigger loan growth, but we didn’t as a result of that. I think, and we’ve seen the pipeline while it’s still good, it’s just under a billion, as you kind of look at it at this point, but I would say that it is just my own personal view. I think, as we increase rates, and we increase the expectation on rates, so we’ve done this a couple of times in the last two months as recently as yesterday, we went out to the lenders and said okay we want x spread on all new loans. Now, I think that’ll have an impact on the pipeline.
Because I think there are probably deals in the pipeline that probably don’t make sense at higher rates or the customer is going to want to pull back or maybe they go somewhere else, I don’t know. But I think the pull through rate on the pipeline could be impacted a little bit based upon the raising of rates, because again, we’re going to be judicious with our funding and make sure that we get paid, if we’re going to put that out the door. And I just don’t know the impact that has on the pipeline, because we have all these new lenders and others that are out there generating opportunities. So that’s a real plus, that’s a real positive. But I just also personally believe that at the higher rates that’ll have a bit of an impact on the pipeline, the pull through rate on the pipeline, as projects get put on hold or pulled back.
Manuel Navas: Do you feel more comfortable or is your view that loan growth this year is going to be more first half of the year loaded? Or is that too soon to say?
