So it will give some net growth over time in the mortgage category, and there’s still enough projects on the multifamily construction side that we’ll be drawing down and covering the outflow from mortgage. So I would expect to see the construction of the C&D category continue to grow a bit. And then as we get into next year, that too somewhat becomes a contra. Now the drivers for those two things are totally different. So I’ll then go to multifamily. We get a lot of questions on the road about market-by-market absorption rates, rental rates and the difference in us versus book or people doing specials in most of the markets that show any degradation whatsoever absorption or in pricing is primarily in the one, two and in some markets, three-star category projects.
We’re about 95%, one and two star. So across our whole footprint in the markets where we have any meaningful concentration, we are still seeing absorption both in absolute absorption. And then when we — and the market would support absorption of additional projects coming online. So if we were down in the one and two star business, then we’d be maybe a little more concerned. So our appetite for multifamily really hasn’t waned that much. The problem is, the number of investors and developers who are interested in doing additional projects given the cost of money and the cost of property insurance, that is somewhat weighed. So it’s not really our appetite as much as the opportunity has come down and the type of projects that we do see really just don’t screen within our current risk appetite.
So we’re expecting equity in the deals. We’re expecting commitments in terms of construction costs and insurability and then really only from proven developers. So those folks are a little bit on the sideline waiting for a little better environment, I think, to come in a year or two. So once you move outside that, it’s curious, but at this point in time, our consumer — our home equity line products, which is all consumer is at the lowest utilization I have remembered it to be. And you would think with the average deposit account balances beginning to plan towards pre-pandemic levels, you would see that utilization begin to come up. But the bottom line is people aren’t doing as many big ticket purchases today as they were a year and certainly two or three years ago, and they primarily use from equity lines for those purchases at least in our book because they got the tax benefit of doing that.
And right now, they’ve just slowed down. They’re slowing down — they have slowed down on big ticket purchases. So we’re seeing that utilization trade down a little lower. At some point in time, that’s going to flip back. And it probably flips back when there’s this notion that rates are either not going to go up anymore or they begin to come down slightly. And so, as long as the Fed can negotiate into a safe land. I didn’t say soft landing, I said safe landing. I don’t know such thing as a soft landing. But as long as they can get to a safe landing, then I think we’ll begin to see loan growth opportunities pick up a bit a sentiment, I think, reaches that conclusion. Was that helpful color? Or did you want to hear maybe a little something?
Catherine Mealor: It was. That was all really helpful. I like the safe landing commentary.
John Hairston: That’s the target. [Multiple Speakers] apologize first.
Catherine Mealor: The soft landing phrase has been overused. That’s really helpful. Thank you, John.
John Hairston: You bet.
Operator: Your next question comes from the line of Kevin Fitzsimmons with D.A. Davidson. Your line is open.
Kevin Fitzsimmons: Hey, good afternoon, everyone. Most of my questions have been asked and answered. I — just as a follow-up on the bond restructuring topic. And I understand the sensitivity without — with not giving specifics. But maybe, Mike, you can help us understand just the different variables that are at play or in your guys’ heads in determining when to pull the trigger, whether to pull the trigger. I mean, I imagine it’s rates, it’s your capital levels and comfort there, the curve? I know months ago, there was more of a sensitivity about — in the wake of the bank failures that banks probably were hesitant to go out and sell securities because it might create some misperception, But we’re — that’s far enough in the rearview now.
So just without getting into specifics, just curious how those variables play? Or maybe it’s just — it’s more — is it an internal discussion or debate about whether it’s the right thing to do because I guess there would be different opinions about that. So just wanted to see your thoughts on that. Thanks.
Mike Achary: Sure, be glad to, Kevin. So I think as a company, we think and believe that, from a philosophical point of view, it’s the right thing to do in terms of potentially selling some bonds and reinvesting the proceeds. The consideration becomes this notion of whether you pay down debt, whether it’s brokered CDs or home loan borrowings or you reinvest all the proceeds back into the bond portfolio or some combination of those two. So those are the things that we kind of think about and talk about certainly the charge that you might consider taking is something that’s out there for discussion and analysis, the impact that, that has on our earnings, the impact that has on our capital really doesn’t have much of an impact on TCE immediately because you’re selling AFS bonds, but certainly on a regulatory ratio basis, it is something that can be impactful going forward.
So those I think are the things we think about. I mean, certainly, if you look at the volume of bonds that you could sell for any given charge, that’s less now than when it was before you had the significant increase in the treasury curve. So that’s something that’s a little bit of a part of the overall equation, just where those rates are going to go over the next couple of weeks, months, quarters, those kinds of things. So again, those are the things I think we think about and consider in terms of a transaction like that. And I’ll wrap up those comments by just stating again that it’s under consideration. And as we effect the transaction, we’ll let everyone know certainly.
Kevin Fitzsimmons: Okay, that’s all I had. Thanks very much.
John Hairston: You bet.
Mike Achary: Thank you, Kevin.
Operator: Your next question comes from the line of Christopher Marinac with JMS. Your line is open.
Christopher Marinac: Hey, thanks. Good afternoon. Had a question for Chris on credit quality and particularly from how you stress test C&I and CRE? And what’s the difference between today’s criticized level and sort of what they would be on the stress scenario? And how much of that would move the reserve level?
Chris Ziluca: Yes, it’s a good question. I mean, we constantly look at different slices of stress testing. On the commercial real estate side, some of the things that we’ll look to stress test is not only the impact of kind of rewriting of interest rates on some of the loans that would have to reprice under the current rate environment. But we also look and stress test net operating income and the impact that, that might have on the individual’s ability to debt service cover. And then we also, on the C&I basis, we tend to stress test more of the probability of default on those individual borrowers. And we use that information to really — kind of inform us as to how we view our reserving. There’s no direct linkage into the reserving but it is part of the evaluation process as we go through our quarterly assessment of reserve and reserve levels.
