So, I feel really good that we have a bank in markets that we can grow loans 10% to 12% long term. I don’t think this is a market that any bank thinks they can grow their funding 10% to 12%. So for me, if I was modeling this year in 2024, I probably would do at that 5% or lower.
Brett Rabatin: Okay, great. Thanks for the color.
Tim Schools: Sure. Thank you.
Operator: Thank you. Our next question comes from the line of Kevin Fitzsimmons with D.A. Davidson. Your line is now open.
Kevin Fitzsimmons: Hey, good morning, everyone.
Tim Schools: Hi, Kevin.
Kevin Fitzsimmons: I appreciate all that color talking about the drivers of the margin, but just maybe kind of going from a very top level, you did say you expect further pressure. But would you — is it fair to say you would expect further pressure over the next few quarters, but perhaps at a diminishing pace relative to what you saw in second quarter? Is that a fair or reasonable outlook that you would model?
Tim Schools: Let me say something, I’ll let Mike dig into the true mechanics, because to me, I can say the 30,000-foot. Some of it is out of our control. I mean, I can tell you, First Horizon caused a lot of Tennessee bank margin compression this quarter. I mean, I don’t — they went probably 0.25% above wholesale rates. None of us expected to do that. There were people offering CDs at 5% and 5.05% and then they came out at 5.50%. So, it’s hard to give you an exact answer. This environment is so unusual. I think theoretically, what you say makes sense. You would hope your most elastic depositors were early movers or early people asking for rates. Number two, you would hope the pace of increase in rates from the Fed is slowing down.
So, I think everything you’re thinking about sounds right, but there are irrational and other competitors out there you don’t control, and it’s a very transparent market. People have the Internet, they have newspaper, there’s word of mouth. So, Mike, I don’t know what you want to add in addition to that.
Mike Fowler: Sure. [Technical Difficulty]
Kevin Fitzsimmons: Okay. Great. Thank you. And perhaps one, you mentioned about having a small securities portfolio, Tim, and — but also mentioned the impact of AOCI. So, would you look at any small targeted type transactions of the bond portfolio to put some of that — some proceeds to work at higher rates, or is that maybe not a smart move long term, you’d rather just let those securities cash flow?
Mike Fowler: Sure, Kevin. This is Mike. I would say near term, I mean, that’s always something that we could consider. I would say near term, we’re letting — we’re continuing to let the portfolio run down modestly. We’re continuing to prefer to put any asset originations in terms of appropriately priced loans in market loans. So, no, we’re not expecting near term to be increasing the size of the investment portfolio at this time.
Kevin Fitzsimmons: Okay. That’s great. Maybe if we can talk to DDA shift that the whole industry is seeing, like on one hand, Tim, you mentioned about the long-term challenge with funding. So on one hand, CapStar started out from a lower point, right, in DDA contribution in terms of this mix shift. But it looks like it’s fallen below even like the year-end — the pre-pandemic year-end ’19 level in terms of percentage, if I’m looking at it right. And I’m just wondering if that — if you’re seeing that slow? And it’s a tough environment to change that dramatically, but when you look, is it really going to come down to longer term when there’s opportunities to maybe buy small banks that, that’s when you can really make big progress on that front in terms of buying small, really deposit-heavy type banks? Or — I’m just trying to connect the near term and the long-term aspirations on that front. Thanks.
