Keene Turner: Yes. It’s roughly $450 million to $500 million kind of sitting here today. So pretty diversified in terms of industry as well. So relatively small in terms of the whole.
Scott Goodman: Maybe I’ll just add too. We had done a targeted review on that portfolio not too long ago. And we’re talking about LTVs averaging in 50% range. Debt service coverage is above 150%, so also performing pretty well.
Operator: Your next question comes from the line of Brian Martin from Janney Montgomery.
Brian Martin: I just wanted to find out, just get a little bit more insight on just you talked a little bit, Keene, about the tax credit business and kind of the rebound and the seasonality at one point and maybe there’s some seasonality going away and then last quarter, the issue. But just in general, that kind of tax credit or fee income, just kind of some guidelines as far as how to think about how you guys are thinking about that this quarter. Obviously, the CDE this quarter was a little bit of inflator but just any input or thoughts you have on the fee income would be helpful.
Keene Turner: Yes. I mean I think year-to-date, Brian, I think for this year, we’re at, call it, $2.5 million for tax credit income in total. And I think that without any material movement in what we’ll say, are longer-term rates, I think we look at — that as probably a similar level for the upcoming year. If 10-year SOFR moves further down, I think there’s opportunity for more fair value and vice versa. So we’re kind of teetering at that point. And I think there are some cash sales that we do expect will offset some of the start-up and operating costs of that business for us. And then you asked about the kind of other income CDE private equity. I think we generally think about that annually as, call it, $2 million to $3 million that we feel comfortable.
And then there’s upside in some of those depending on how some of those projects ultimately work out and are exited. So that — both of those businesses, I think, are seasonal. And we probably think that their second half weighted with obviously the tax credit business is fourth quarter weighted for us. So Hopefully, that gives you some perspective on where we think it is and what those, we’ll call variable line items look like in ’23.
Brian Martin: Yes. And just if you take out the tax credit line, Keene, of volatility, this fee income kind of in that when you look at all the line items, maybe kind of a mid-single-digit type of grower. Is that how you’re thinking about it if you strip out the — at least one item which had a lot — had more noise in it last year. Or is that a — on the low end where it was reasonable?
Keene Turner: Yes, if you’re looking at third and fourth quarter, call it, recurring fee income, I think we think of those as kind of mid-single-digit businesses together overall. And I think there’s maybe a little bit of pressure in competition in their traditional earnings credit space in some of our cash management and treasury management products but we’re working to mitigate that. So we sort of think between card wealth deposit service charges that 5% from where we’re operating in the second half of the year gets you in the ballpark.
Brian Martin: Yes. Okay. That’s perfect. That’s what I thought. And then just on the capital, kind of getting back here. As far as the buyback and potential M&A, I guess, the organic growth sounds like it’s there. I guess when you look at the other options, how are you guys thinking about the buyback today in the M&A.? I mean you talked about the dividend already. So just any feedback on how to think about those or how you’re thinking about those going into ’23?
Jim Lally: Can you want to handle the buyback and I’ll handle M&A?
Keene Turner: Yes, sounds good, Jim. I would say, Brian, that we’re trying to be thoughtful here about all the volatility that we’ve been through that investors have been through. And I think the idea is to create a really, really strong balance sheet. We already have it. The earnings power and the dividend profile give us the ability to do that. I think the allowance is maybe a little bit lighter than we would want it to be if there is a recession coming but asset quality is so good that, that’s a struggle. So I think the next line of defense is, besides earnings and the allowance of capital — and I think our goal would be in the near term to just to let that build and be a little bit conservative. And if we’re operating with a little bit too much capital, I think that as we’ll say, the environment improves and valuations improve.
We are clearly a strong acquirer and we can deal with excess capital in a deal structure or something like that? And then, Jim, if you want to talk about our appetite for M&A, that’s now probably the perfect time.
Jim Lally: Brian, it’s one of those things we’ve got such great momentum in the business. And M&A is on the list — it’s further down the list in 2023 than say it was in ’19 and ’20. We still do our normal calling and meetings and things of that nature but it’s going to be pretty dynamic and pretty special to stop what we’re doing now to put something on top. But we’ve talked about this in the past, M&A also includes lift-outs. M&A also includes teams and new businesses and that’s always an ongoing opportunity for us.
Brian Martin: Got you. Okay. That’s helpful. And maybe just on the deposit beta, I guess any change as far as where you think the cumulative beta kind of shakes out here given — and I think it sounds like your outlook is for a couple more rate hikes here in February and March but I’m not sure if that’s — if those play out, how are you guys thinking about that deposit beta cumulatively?
Keene Turner: Yes. So I’ve got. I’m looking at it here in front of me and honestly, the cumulative beta has obviously been increasing but it’s not dramatic. Deposit pricing, particularly in interest-bearing accounts have behaved extremely well. And even in December, the beta is cumulatively under 25%. And even, we made some pricing adjustments late in the year and even the monthly beta is 50% and under. And if you look at it for the quarter, it’s kind of 30% and under. So I think we feel good about the stability of the deposit base and where the current rates are and what we’ve done to be responsive to it. And I think we generally feel good about how we can generate enough funding to fund high single digit, call it, 8% organic loan growth in 2023 with contribution from commercial specialty and then business and consumer banking.
So we’re cautious about it from a lag perspective. I think all the guidance we give has some caution above where it’s currently performing. So if we’re at high 20s cumulatively or mid-20s cumulatively, we think of marginal beta moving forward is 40%. But the reality is we haven’t — we’ve had that view since the third quarter and we haven’t seen it. So, I think we feel like we’ve got a really good sense of what the account types are used for where we need to be responsive and where we just have good, stable core funding that really doesn’t have to move from a rate perspective.
