Melinda Chausse: Yeah, I think the market where we’ve seen the most challenge and the most migration, again, reminder though that the migration has been very manageable and criticized loans in the commercial real estate book are still relatively low. But the migration is really concentrated in the California sub — some of the sub-markets, Northern California being the most impacted at this point and then Southern California. So, we’re watching those really, really closely. And again, the customer base there and sponsor base, I would consider, exceptionally strong. And we have tenured colleagues that know how to manage through this. So, we feel really good about our strategy there. We feel really good about the product set. But multi-family has had a tremendous amount of supply come to market and there’s more to come. So I expect that we’ll continue to see some modest level of migration in that portfolio.
Brody Preston: Got it. Okay. And I know it’s a very small portfolio for you guys, but do you happen to have what the reserve is on the office portfolio at this point?
Melinda Chausse: We don’t have a reserve specifically on the asset classes, but we do have coverage ratio for the commercial real estate book as a whole, and it’s 1.58.
Brody Preston: Okay, got it. And Jim, I just wanted to follow up on the swap question, the swap that you said you got forward starting coming on that’ll outpace anything that’s maturing that, that’s all reflected in the ’24 kind of walk up on the swaps book that…
Jim Herzog: Absolutely, it is…
Brody Preston: Okay. Great. I just wanted to make sure. Then just last one for you. I know it’s a smaller portion of the book, but for the true fixed portion, not the swapped floating portion, can you walk us through what the maturity schedule looks like over the next 12 months? And kind of what the yields are that are rolling off versus what current origination yields are right now?
Jim Herzog: Yeah, it’s really a relatively small part of our book, and I don’t see it having a big impact on yields next year. I think somewhere in the appendix, you’d surmise fixed rate loans organically speaking are about 8% of our book. And they have pretty long maturities, up to 12 years on average. So, you don’t see a lot come up for repricing every year. We might see $300 million come up in ’24 to use a kind of an average. And they are priced below our current loan yields. So, there is some opportunity there, but I wouldn’t see fixed rate for pricing having more than a couple of bps of impact on our loan yields next year. But there is a little bit of — there is a favorable impact.
Brody Preston: Do you have any security maturities that are lumpy and lower yielding at any point in the next 12 months?
Jim Herzog: We have our normal, what I’ll consider to be smooth, roll-off of MBSs, and we do have some treasuries maturing over the next 15 months, but I would say those aren’t necessarily lumpy, we see a little bit in most quarters. So, we obviously are going to benefit in 2024 from securities maturing as we redeploy that either in the cash, earning much higher yields, or avoid purchase funds. So, net-net, we will see a benefit from fixed asset repricing next year, a tiny bit from loans. You’ll certainly get a nice lift up from securities. Fixed rate swaps actually go the other direction, but the net benefit will be favorable in 2024.
Brody Preston: Got it. Thank you very much for taking my questions, everyone.
Jim Herzog: Thanks, Brody.
Operator: Thank you. Next question is coming from Ken Usdin from Jefferies. Your line is now live.
Curt Farmer: Good morning, Ken.
Ken Usdin: Hi. Thanks. Good morning. I wanted to ask a question on the loan book, on the business line basis. You’re not under any kind of like dieting, so to speak. But after you got out of Mortgage Banker this year, there’s a couple of these lines that are getting a little smaller over time like tech and life sciences and equity fund. Just wanted to ask like how much of that is environmental? And do you envision taking a harder look at any of the loan categories that you have in terms of what you’re thinking about in terms of future growth opportunities?
Peter Sefzik: Hey, Ken, this is Peter. Yeah, we’ve got some of our businesses that have kind of continued to drift down this quarter and quite candidly probably will into the fourth quarter and maybe even the first quarter. But we don’t really see any additional changes to the lines of business that we’re in. We do feel really good about the portfolio on a go-forward basis. I do think that in the environment with increased expectations around profitability and pricing and just sort of managing our balance sheet, some businesses are impacted more than others. But as we get into next year, we’ll try to get a little more guidance on what we think loan output looks like for 24. But I suspect a few of these businesses that you’ve kind of seen creep down here as of late, probably be another quarter or two before we start to go the other direction.
Overall, with our general portfolio, middle market, business banking, small business, our pipelines there are still pretty good, relatively. It depends on the geography a little bit. And we’re trying to add customers and add new business in that space as we get into the end of the year and into next.
Ken Usdin: Got it. Great, thanks. And my follow-up is just on the expenses. Can you just explain like the kind of the write-back on the modernization this quarter? How does that mechanically work? And then just making sure that we understand that the fourth quarter guide is built on the all-in 3Q number? Thank you.
Jim Herzog: Yeah, Ken, the modernization expenses were actually a net credit because of the real estate gain that you saw in the third quarter that we noted on the expense slide. That was offset by some expenses, but modernization expenses were a net negative $14 million or $14 million credit for the quarter. We would expect that to be a little closer to zero for the fourth quarter. We may have an additional real estate sale that could give us something in the low single digits of millions, but overall I don’t expect modernization to be a big driver of fourth quarter expenses.
Ken Usdin: Okay. Got it. Right. So that — okay. And then the fourth quarter guide is built on the — aside from the deferred comp that you don’t expect to repeat, the fourth quarter expense guide is built off of the [$555 million] (ph)?
