Tim Myers: Yes.
Jeff Rulis: Okay all right, thank you.
Tim Myers: Thank you.
Operator: Thank you very much. We’ll get to our next question on the line – from the line of David Feaster with Raymond James. Go right ahead.
David Feaster: Hi good morning, everybody.
Tim Myers: Good morning, David.
Tani Girton: Good morning.
David Feaster: I just wanted to go back to the deposit side. We touched on a bit when you talked about the betas, but I’m just curious, as we think about the surge deposits or maybe some more of the rate-sensitive money, have we gotten most of that out at this point or are you still seeing more flows on that side. And you talked about excess liquidity being used to pay down debt. And so, are you looking for more outflows to continue, is the first question? And then how do you think about funding that? I mean Tani, you talked about having some other sources of liquidity. It kind of sounds like maybe additional borrowings would be the primary source to fund outflows versus selling some securities here? And then maybe just touch on the securities cash flows as well?
Tani Girton: Yes okay, so going back to your first question.
David Feaster: Sorry, that was a big question.
Tani Girton: Yes, so if you look at what our deposits have done since just before the pandemic, deposits went up from trough to peak by about $800 million. And since the beginning of – 2022, we’ve lost about $400 million. So you could say, well, there’s $400 million in question. However, the last time we had a situation like this, when we had a deposit surge in reaction to the financial crisis and the Great Recession, we did not lose all of the deposits. And so as I said before, the beauty of – having all the contingent liquidity that we have enables us to really make choices about where we’re willing to pay capital markets rates versus where we want to raise deposit rates. And that gives us a lot of flexibility. As you said, we do have some unrealized losses in the securities portfolio.
The duration on those securities is multiyear. So we’re not inclined to sell at significant losses to finance a cash need for several months. So it’s better for us to go out into the capital markets or to increase rates selectively on the deposit side. Cash flows off the securities portfolio generally average about $100 million per year. I think I got all your questions there, but let me know if I didn’t.
David Feaster: Yes. No, that was terrific. And then may be touching on the credit side. You guys have such a conservative approach and good insights. But I’d just be curious, maybe as you look at your portfolio and you stress some of the floating rate borrowers where there – we’ve seen borrowing costs go up materially. Are you seeing a material change in debt service coverage ratios and as we look at the prospects of another 50 basis points of hikes? How do you think about the cash flows and the collateral values for some of these loans as they come up for renewal? And ultimately, how do you think that, that impacts credit quality? I mean, would you expect to see more TDRs or just – I was just curious how you think about approaching that and what your thoughts are at a high level?
Tim Myers: So, one of the things you mentioned, David, is our disciplined approach. We’ve long stressed especially commercial real estate for rate sensitivity for higher rates. And we are constantly doing that on both floating and fixed rates and so far within our portfolio, that’s holding up well. I can’t really predict where overall office rent trends are going to be that will affect the cash flow vacancy rates. But right now, we feel good about the position we’re in. We’ve talked about some of the problem credits that we’ve had that we’ve moved the substandard in the past. Those have now worsened. And in the meantime, we’re cleaning out the portfolio, things we can control in a mutually agreeable way with our customers to create a runway for dealing with potential future problems. But right now, we feel good. But certainly, everything you said in that question is a risk, but I don’t know how to quantify or even fully qualify that for you at this time.
David Feaster: Yes, okay. And then one thing you said in your prepared remarks, Tim, just you – talking about optimizing delivery channels. I was hoping maybe you could expound on that a bit. Talk about some of the things you’re working on. I know you’ve hired a lot of talent. You’ve invested in technology. Just curious what you guys are working on and some of ?
Tim Myers: Retail network and it’s an extremely important part of our customer service model. But at some point, when you get into cycles like this, it’s begs a question of how many do you need covering what service area. So what we’re closing, certainly two of those were redundant with American River Bank. We had – we both had branches in Healdsburg and Santa Rosa, and we had put off doing that. The other two are in markets where there’s service nearby. So our customer we can continue to service our customers, but – that includes looking at commercial banking. We’ve always had a model of having regionally centric commercial banking office serving relatively narrowly defined markets, and we just need to always look and say okay, is this, the right way to deliver our relation banking model.
There’s no promise in there that we’re going to do anything else or guarantee, but I think we always have to look at – are we most efficiently delivering on loan growth and C&I deposit growth, core deposit growth in a way that builds our operating leverage into our model. So as we’ve talked about before, we’re going to continue to look for ways to drive that.
David Feaster: Make sense, thank you.
Tim Myers: You’re welcome.
Operator: And we’ll proceed to our next question on the line is from Andrew Terrell with Stephens. Please go right ahead.
Andrew Terrell: Hi, good morning Tim, good morning Tani.
Tim Myers: Good morning, Andrew.
