Daryl Bible: Yes. So, if you look at our betas on a cumulative basis going up, we are now in the low-50% range, but that includes the broker piece of that. So, if you take that away, we are probably in the mid-40s. And on the downside, I would probably say early on, we will start probably in the 40s on the way down as well. And as it goes down, though, you won’t be able to sustain that because while we increased a lot of our rates higher in the commercial area and our wealth area and some of our institutional areas, so those will come down as they went up. The retail side really did not come down, didn’t go up as much, so it won’t come down as much. So, if you were down 100 basis points or 200 basis points, you are actually going to have a declining beta impact is probably what you are going to see play out depending on how much the Fed actually lowers rates.
But I think early on, you are going to see something similar to that on the way down in the 40s would be my best guess.
Erika Najarian: Got it. And a follow-up question on credit. How should we think about the progression of your ACL ratio from here? I know you mentioned in the prepared remarks, you had already built up your reserve pretty significantly. As we think about normalization and whatever maturity walls you have in the CRE, should we expect that your ACL ratios to continue to build from here? I mean this is sort of our first go at CECL with charge-offs actually going up.
Daryl Bible: Alright. I know, it is, we feel really good where our reserve is right now. I can’t promise it’s not going to go up. But we have been – done a very thorough review of all of our – what we think are higher risk type credits in the CRE space, in the commercial space as well. So, no promises that it can’t go up anymore, but we feel really good where we are today and where we are reserved.
Erika Najarian: Thanks Daryl.
Operator: And our next question comes from Bill Carcache with Wolfe Research.
Bill Carcache: Thank you. Good morning Daryl. Can you take us inside some of the discussions that you are having with your commercial clients? And how confident are you that the ingredients are in place for a reacceleration in loan growth, if indeed, the soft landing scenario plays out?
Daryl Bible: I – if you look at what our clients have been saying, for the most part, they have been more on the sidelines and really been leery of investing in their businesses. I think it’s actually, I get kind of excited. If the Fed just lowers rates just a little bit, I think their markets will get excited and you are going to have some things take off, and there will be a lot more investment, which will help the lending side. I actually will get more excited on the fee side as well. We saw a fair amount of activity just in December with the move that we had in the yield curve in treasuries, where there was a lot of pent-up demand and we were able to do some placements in our commercial mortgage area, and you saw that flow through with some fee income. So, I get kind of excited that if the Fed just lowers rates just a little bit, I think we are going to have more momentum come through than what you are actually seeing maybe in the guide that we have.
Bill Carcache: That’s really helpful. Thank you. And then following up on Erika’s question, on the reserve rate trajectory within CRE, some have indicated that in this environment, they would be more likely to maintain reserve rates in office CRE as charge-offs occur. Is it reasonable to expect that there would be a lag between when we see peak losses in CRE and when you actually start to release reserves?
Daryl Bible: We go through the analysis. I mean it’s a model, right. And it’s based on our variables. So, if you look at the variables we had this past quarter, the variables for like GDP and unemployment were basically unchanged. And they actually got a little bit better on creepy [ph] and on HPI. So, that actually helped in the reserve calculation. So, we are using the macro variables coupled with what – how we think that the credits are rated from a credit perspective and it all comes together. From a timing perspective, I think it’s hard to say exactly when reserves will get adjusted. Right now, we feel good with what we have given what our risk is that we know right now on the credit side. But over time, probably, there will be some reserves, but it releases by – you just don’t know when that’s going to happen. So, it’s all – more model-driven.
Bill Carcache: Very helpful. Thanks Daryl.
Daryl Bible: Okay.
Operator: And our next question comes from Brian Foran with Autonomous.
Brian Foran: Hi guys. So, one question going back to this beta on the way down that I sometimes get from investors and I never have a very good answer. And you guys historically been pretty good about thinking about normalized margins and drivers. So hopefully, you can do better than me. We all talk about deposit costs as the problem. But if I think about deposit margins over time and I know there is different ways to measure them, but relative to Fed funds, the spread between deposits and Fed funds is basically at an all-time high for you in the industry. It’s a little less extreme relative to 2-year and 5-year treasuries, but it’s still elevated or even just more simplistically, like your deposit costs today are still a little bit lower than they were.
I know, said in the last time the Fed was here. So, I know a lot has changed over time, but just have you thought about that? Does it make sense that deposit margins or liability margins more broadly or kind of higher than they have been historically and where on your worry list is the idea that because they are pretty high to start with, maybe as the Fed cuts. Betas aren’t 40% or 50% they are 20% or 30%?
Daryl Bible: Yes. I would say – I think it was Erika’s question for when I was saying as rates fall, as the beta will start to come down just because the consumer side did not go up as much. So, I think we will start off at a higher pace. But as that comes down, that will be less from that. If you look at it, I actually like the level of interest rates where we are today. I mean we are in the low-5s is where the Fed is. If we stay, let’s say, in the 4% range or maybe even as low as 3%. As long as we price our assets and deposits appropriately, to getting back to basic business and we get good spreads on that. There is no reason we can will have very healthy net interest margins for a very long period of time. It’s all about pricing your assets and deposits frankly making sure you are putting prepayment language in on your fixed loans and making sure you are pricing deposits appropriately.
