And if you look at the makeup of our DDA base, really about two-thirds, a little bit less than two-thirds of that is commercial customers. And we saw an even more significant slowing in those balances. So about 7% in the previous quarter, and then that slowed to a little bit under 4% in the fourth quarter. So it absolutely is happening, I think, across our customer base, but obviously more so on the commercial side. So John, anything you want to add to that?
John Hairston: No, that was a good answer. And Brett, this is John. The only thing I would add is — we still point towards a trajectory that shows we reached the pre-pandemic average account balances sometime around in the second quarter or third quarter next year. So where that lands — and it’s not really possible to say that’s when it totally ends, but at least we’ll be at a marker that was pretty steady for several years prior to the pandemics beginning. So when Mike mentioned the end of the year looking like we should be close to 36%, that’s actually a little better than the low end of the range that we gave just a few months ago. So the updated target for the end of the year is maybe a little more attractive than where we were recently.
So that’s really the diminishment of the mix change that we’ve encountered so far. So in terms of where it settles, it’s really tough to see clearly through the crystal ball, but if we presume that the target is reached when we get to the pre-pandemic average balances, that would suggest a continued slowing maybe not every quarter, but a slowing to get you to somewhere around a target in the second quarter and third quarter of next year. If that’s helpful.
Brett Rabatin: Okay. Yes, that’s helpful. And then the other question I wanted to ask was just around — you guys referenced, Mike, the slide on loan repricing on slide 24, you have that four to 12-month bucket and the composition is different than the three months or less, obviously, without having more consumer in it? So I’m just curious thinking about as we’re trying to model your loan portfolio increases over the next year in terms of the existing book, does that weighted average rate — I assume the weighted average rate for that four to 12-month bucket is going to be somewhat less than the 805 given partly a consumer benefits in the three months or less piece.
Mike Achary: Yes, I think that’s right. And certainly, in the three months or less is where the — really the lion’s share of our variable rate loans are. So that’s obviously dependent upon the direction of rates. But I think you have that right.
Brett Rabatin: So would a number closer to seven or closer to eight, do you think would be the right number for that four to 12-month bucket as it reprices?
Mike Achary: Well, the way we look at it on a quarterly basis, if you go back to this quarter, the new loan rate was just north of 8%, and then we have that broken out in the previous slide between fixed and variable. So what we have here on ‘24 is just a little bit longer look of how we view the loan portfolio and how it could reprice over the next couple of years, obviously.
John Hairston: And Brett, this is John, but we — just on one point that may be helpful or at least interesting is we’re seeing really better-than-expected performance in terms of our bankers having success with clients explaining the linkage between the renewal rate and the new loan rate and the volume of compensating balances and what those rates are. So we’re glad to give up a few bps on loan yield to get substantial compensating deposits and operating accounts, particularly on the business side and even more so when you get into the middle market size, when you get cooperative accounts. So either one of those is net positive to NIM and to profitability. So I think the maturity of the banker core has been impressive so far. And I think that’s what led maybe to the NIM compression not being quite as bad this quarter as we initially feared a quarter ago.
Brett Rabatin: Okay, great. Appreciate the color.
John Hairston: You bet.
Operator: Your next question comes from the line of Casey Haire of Jefferies. Your line is open.
Casey Haire: Thanks. Good afternoon, everyone. I guess, touching on expenses. So last quarter, you guys talked about the efficiency ratio about 55% kicks off. It puts you guys at a different debt time level. We’re now at 56% and obviously, some more NIM pressure on the way. Just — any more updated thoughts about addressing operating leverage on the expense side of things?
Mike Achary: Well, sure. As we go into 2024, I think that will become something that we look at has intently if not more intently, going forward. But in terms of the fourth quarter, and our expense increase for the second half of the year. Obviously, there’s no change in our guidance. We’re looking at coming in at about an 8% increase year-over-year. And certainly, as we look into 2024, we would think that, that level would come down meaningfully in terms of expense increases year-over-year. So that 8% is not where we want to be. The 56%-plus efficiency ratio is not where we want to be. So those are certainly things that we think about and we’ll address going forward.
Casey Haire: Okay. Very good. And then just circling back on the bond book repositioning. You’re not the only ones talking about this, obviously, but — just wondering, it’s very difficult to gauge what you guys could potentially do from the outside. You obviously have a very strong CET1 ratio, your TCE is, with the unrealized losses up is below that 8% level that you guys want. I’m just wondering, do you have the potential — is there enough low-hanging fruit to restructure the bond book and get that — lean into that CET1 ratio and get that TCE above 8%, with like a reasonable sort of earn back?
Mike Achary: Yes, I think so, Casey, certainly. And again, like we said, I mean, that’s a transaction that we’ve been thinking about and considering, and that’s certainly not off the table. It’s something we’re going to continue to look at intently in the fourth quarter and potentially into the first quarter. So as soon as we get to the point of executing on a transaction like that, we’ll be sure to let everyone know. But right now, I think it’s premature to talk about too much in the way of details. I know that you guys would like us to be more explicit in terms of exactly how we’re thinking about it. But we have to be cognizant of providing too much detail in crossing any FD lines. So again, I think we’ll leave it at — this is something that continues to be under consideration, and we will go from there.
Casey Haire: Okay. Very good. Yes. No, just curious. And then just circling back on the — I guess, actually, on credit quality. On one of the slides you mentioned the focus has switched from traditional office to medical office. Just wondering what — it reads almost as if you’re a little bit concerned about what you’re seeing in medical office, which I understood to be a pretty strong asset class. Just some color on what’s driving that.
Chris Ziluca: Yes, [Casey] (ph). This is Chris Ziluca. It’s probably a misunderstanding in the wording of the language. As an asset class for many years now, we’ve been a little bit more cautious about general purpose office and typically more focused on medical office as an asset class. And clearly, as you indicate, medical office, especially depending on the type of medical work that’s done in the office environment is much stronger than any general purpose office. But as an asset class overall, we’re definitely cautious in general on that. We actually saw a little bit of a decline in our overall office exposure, not a huge amount, but about a couple of 4%-type levels quarter-over-quarter as we really shift our focus away from that as an asset class within commercial real estate.
