James Rollins: Yes, that’s a great question. And we’re certainly seeing the demand pullback. You heard the comments that our pipelines are declining a little bit. We do have some tailwinds. So we continue to feel the tailwinds of construction and CRE loans that were booked in prior quarters that will fund up in 2023, but we’re definitely seeing a slowing pipeline and a slowing demand coming through. We like I think most of our peers, Hank and Chris can jump in here, are certainly taking tighter looks at what we’re seeing. So I think we would expect to see the loan production – while we’ve got a good tailwind with the loans that we’ll fund up throughout the year, the current production continues to decline guys?
Chris Bagley: Yes, I think both the bank and our clients are taking a more conservative approach. Interest rates are impacting the uncertainty around economic forecasts and just slowed down some of the pipelines that we’re seeing. So Dan covered the tailwinds we have from a color perspective. Hank, do you have anything to add there?
Hank Holmes: I’m in full agreement. And I would say the RMs that are out there from a deposit perspective, a lot of emphasis there, continue to grow those. But yes, we are seeing an overall kind of wait and see attitude within the markets from a loan perspective.
James Rollins: This question was also – what are we seeing in the way of credit tightening? Are we seeing any experience with other banks? What are we – are we getting better terms? Are we getting better conditions?
Chris Bagley: I think in general, there’s more equity going into projects that are speculative in nature if they’re being done at all, and just maybe more loan agreement covenants tightening there and definitely a requirement for deposits to play.
Hank Holmes: Yes. The ancillary is definitely in play at this point and very important to the relationship.
Manan Gosalia: Great. Appreciate the fulsome answer. Thank you.
James Rollins: Appreciate it. Thank you.
Operator: And our next question will come from Kevin Fitzsimmons with D.A. Davidson. Please go ahead with your question.
James Rollins: Good morning, Kevin.
Kevin Fitzsimmons: Hi, good morning Dan, hope everyone is doing well. So as I look out, when we think about the pace of loan growth and deposits going forward, is it more – is it reasonable to assume those are going to be more – those are going to be relatively aligned? So if in terms of – there’s an ongoing mix shift within deposits, but to the extent that you’re going to go out and pay for higher cost CDs and money markets, you’re going to peg that off of loan growth, which is slowing. So I mean that’s all a long-winded way of asking should the loan to deposit ratio stay relatively stable, or do you think that will creep higher? Thanks.
James Rollins: Yes, we would certainly like to be able to grow deposits to hold with loan growth. We certainly got capacity to not do that. So we came into the year, we were talking about the fact that we could grow loans this year and see the loan to deposit ratio climb higher. We certainly saw that in this quarter. I think we would like to see deposits grow but as you heard Chris what’s changed has been today to make a loan today, you need some deposits and that wasn’t always the case for all bank. So, certainly we have been leading with deposits for a long time, but many of our peers and others are now requiring that. Some of our peers are completely loaned up and so they’ve got a little bit different position than we are in today, but we want to make sure that we are making good strong decisions and we are certainly asking our team, Hank mentioned it, just a second ago we are certainly asking our team to lead with deposits on a regular basis.
Hank, you want to add on to that?
Hank Holmes: Absolutely. I would just say that from — over the last 30, 35 years, I think we’ve had two years where deposit wasn’t a focus. So the DNA is there and understanding of the liability side of the balance sheet from the ARMs is a real focus, obviously our friends at legacy BXS had a strong granular deposit base and we are going to continue to build on that as well.
James Rollins: So when you saw deposits in the quarter, I think you heard that in the comments the Community Bank actually grew deposits in the quarter and we would want to continue to be pushing that out there.
Valerie Toalson: The other thing, I would add is that securities portfolio has room to decline a little more. We are comfortable in the 15% to 20% of asset range and just this year there’s anticipated $1.5 billion of cash flow off of that securities portfolio as well that can also fund loan growth.
Kevin Fitzsimmons: Got it. Thank you. One question — kind of bigger picture question on just the deterioration or that linked movement we saw in non-performers. And I know Brad mentioned before that it’s coming off a low numbers, but we also saw a pickup in Special Mention. So is this just really the pace you all saw it occur or would there any kind of more, I don’t know how to maybe call it a more proactive or aggressive scrub given that we are looking ahead to a slowdown in the economy that might have accelerated some of that migrations on credit?
James Rollins: I think, we have a pretty aggressive process in place all the time, but Chris talk about where we are today.
Chris Bagley: Yes, I’ll take non-performing first. So we mentioned the two C&I credits that drove that. In addition to that you see — you saw that $12 million that I would call government guaranteed type increase. Yes, I think it’s important to note that those things have a long collection cycle. So when you look at that $43 million or so it will take us several months to move through those. We would expect to see more of that come through, I think as — we are just — we are a big player in the mortgage and SBA loan origination. So I think we’ll see some of that. From a credit size perspective, I would call that a normal. We look at those on a pretty much a quarterly basis. So as financial statements come in, we get updated.
We get the models updated. That’s a normal ongoing process for those, and I think you’ve heard us say in previous calls, we expecting interest rates to have some impact. And I think we are seeing that. So you take the inflation on wage inflation. You take the inflation on interest rates and that drives some to EBITDA and debt service coverage, that’s what’s driving some of those model changes. So where we look forward — going forward, we’ll continue to pull those numbers in and adjust accordingly. We are not seeing any general trends. Most of it’s in the C&I book that we are seeing in the migration. Some of the CRE book is holding up really well right now. There’s been a lot of talk about office. We don’t have a lot of that. It’s very granular, very small average loan balance that’s very — performing very well in our books.
I’ll turn it over — Hank, anything you want to add?
Hank Holmes: Well said.
James Rollins: Does that help you, Kevin?
Kevin Fitzsimmons: Thank you, guys.
Operator: And our next question will come from Brett Rabatin with Hovde Group. Please go ahead with your question.
Brett Rabatin: Hi, good morning, everyone.
James Rollins: Hi, good morning. Brett.
Brett Rabatin: I wanted to start with just the retail deposits, and I know 76% of the deposits are defined in the Community Bank, but just given the low deposit number in terms of average size for the retail. Can you guys — do you have a number for how much would be retail versus commercial from a dollar basis?
James Rollins: Is that in our deck? There’s a whole lot of new disclosure in the deck, I got to flip through there to find that for you. I don’t know if you went through that too. Break it up deposits, I got to get to the right page. Six, is what was telling me?
Valerie Toalson: Yes.
Brett Rabatin: Community Bank segment, but I don’t know if that actually means that you would call those retail or if you would have some commercial in there as well?
James Rollins: No, there’s absolutely commercial in there too. Yes, so that’s talking about where the customer is talking to us. So the Community Bank is 350 plus branches that we’ve got out there and all of the customers that they talk to from smaller businesses to some larger businesses. The corporate group and the corporate deposits are all in the Corporate Bank, which is our larger corporate relationships. So you’ve got delivery channels is how we broke that down. So 76% is in the Community Bank. So that’s again mostly the rural South that includes Houston, Dallas, Austin, Atlanta, Tampa, Nashville, et cetera. And so you are going to have corporate deposits in those markets and you’ve got corporate deposits in smaller communities also. It’s just, it’s more heavily weighted towards the consumer and small business.
Brett Rabatin: Okay.
Valerie Toalson: So to keep it on Slide 6, the mix of the total deposits is about 44% consumer account or consumer balances and about 36% commercial balance. Is that helps?
Brett Rabatin: Okay. Perfect. And then wanted to ask about the loan growth. Obviously a lot of the loan growth was Texas and other, which I assume means kind of lines of business, health care and the other businesses. Can you talk maybe a bit just about that growth, those pipelines and then if the lines of business from Cadence Classic, if those might be the drivers going forward? If there’s opportunities more in those types silos?
James Rollins: I like that, Cadence Classic. I like that Hank. What’s going on in the Cadence Classic.
Hank Holmes: Cadence Classic, that’s a good one. I like that. So as we’ve indicated that our pipelines have moderated to some degree. We are still seeing activity just not as much as we’ve seen historically. The CRE book as been previously mentioned has kind of a built-in growth engine in there currently. Obviously, we feel like we’ve been very disciplined in underwriting there and like that portfolio. We’ll continue to be active in all the specialty lending groups that we had at Cadence Classic, said that right, that’s legacy CADE is going to be a focus on —
James Rollins: Chris?
