Derek Meyer: So, the way things look right now, Scott, this is Derek, the rate of non-interest-bearing DDA runoff and the impact that had on our margin abated considerably. That was really a bigger story, Q1 and Q2. And so you still had a fair amount of low-cost deposits moving into higher-cost deposit products. It was probably a little stronger than we thought. For things to bottom out, you really need to get to a spot, and this is where most of the longer-range scenarios start to look like for us, even with a few rate cuts next year. Where loans continue to reprice, we’ve got a big fixed rate book and those, as the old ones reprice into paydown and new ones get booked in at much higher rates, particularly in auto and then the deposits finally stabilize.
And so you see these scenarios where you get 2 or 3 or 4 basis points of asset rate increases and because of both mix change and a little bit of rate curve, and then you just see the deposits stop increasing and that abating. That’s very — we think there’s a big psychological lever there if the Fed stops raising rates because consumers don’t look at the back of the yield curve and think about should they be doing something else with their money as much as they do the headlines of continuing rising rates. When that happens, you start to model out slower increases in deposit rates than the repricing of the fixed rate loans. It’s very subtle. That’s why it’s hard to call. You can be off by a couple basis points and it goes the other way at you.
Scott Siefers: Yeah. Okay. Perfect. Thank you for that color. And then, Andy, just to add, I guess maybe the answer is stay tuned to December, but, I know in the past you’ve alluded quite a few times to the importance of positive operating leverage creation. Are you thinking that that’s something that’s kind of important and doable in 2024? Or should we sort of think about it? Or like the way you think about it, is that sort of broader, is important over the long term as opposed to in each individual year?
Andy Harmening: Well, it’ll take a lot for me to give up on that in 2024. So for any of my own colleagues listening, I’ll tell you, that’s our goal for 2024. And so we’re looking at both sides. We’re looking at what the expense side is, and we’re looking at our investment — strategic investment. When we start to look at the shift in our balance sheet and my question to the team will be is how fast can we do it and part of that’s market driven and part of it is execution. On the execution front, I’m gaining a lot of confidence in our leadership team. They’ve shown their ability to execute over the period since we’ve launched that initial plan in September of 2021, albeit we had an interesting four or five months this year, but you can see the fundamentals still coming through.
So as we put that plan together, the challenge put out to the team is to try to drive towards positive operating leverage in 2024. We’ll see what the market looks like and what that allows, but that is the message of what we’re trying to work for. We don’t have the final numbers in place yet for 2024, but that’s still the direction.
Scott Siefers: Okay, perfect. All right, thank you all very much.
Andy Harmening: Thank you.
Operator: Thank you. Our next question comes from Terry McEvoy with Stephens. Please proceed with your question.
Andy Harmening: We still know you are McEvoy.
Terry McEvoy: Thank you. Thanks, Andy. Going back to the increase in commercial non-accruals, and I saw at the end of the release the potential problem loans, I think they were investor CRE. How much of that increase would fall in the legacy bucket versus new lending relationships since the end of 2021, and maybe give you a platform to push back on some of the fears out there that associated with a late cycle grower in commercial and as such may see a — call it a faster normalization of credit trends.
