Bradley Adams: I mean what we got to sell is all the rage these days. So we’re doing pretty well.
Jeff Rulis: Okay. Thanks, guys. I’ll step back.
Operator: Thank you. Our next question is coming from Terry McEvoy with Stephens. Your line is live.
Terence McEvoy: Hi, good morning guys.
James Eccher: Good morning, Terry.
Terence McEvoy: Maybe first question. What are you going to do with all the capital you’re building? Brad, you mentioned stock repurchase program, but what are your thoughts on building it to take advantage of any future kind of in-market M&A opportunities?
Bradley Adams: It’s hard to say when something is going to present itself. But what I do know is in this environment, it takes a lot of capital to stomach the marks in order to earn a lot of accretion. I don’t know whether that’s going to show up or not, which is why we need to be ready with the buyback as well. It’s not lost on me that when you raise rates this fast and this far, 99 times out of 100, you enter some sort of form of recession. And I also know that the tangible book value per share effectively serves as some level of a floor in valuation. So I think our investors are well protected by us raising that floor. There’s very little cost to carry excess capital right now, given the alternative funding yields are [$5.5 million].
So on a relative basis, the cost of carrying excess capital is much lower today than it typically is. So all of that just in terms of prudence and protecting against tail risks. Minimizing potential shocks to the stock price, all of that argues to carry more capital than not right now, and that’s what we’re doing. I do recognize that some level is too much. And so we are prepared to step in and return some of it should that condition present itself. I can’t tell you we will be there in the near term, but I can tell you we will be ready to be there in the near term, at least that’s my hope that there is no objection, I can’t imagine there would be. So that’s kind of what my thinking is, Terry, if that makes sense.
Terence McEvoy: And what are your thoughts on the near-term margin outlook? Can new loan yields and some of the balance sheet flexibility you talked about earlier offset just deposit pricing pressure. I did – you called out CD specials and I looked, you’ve got a 4.5% 8-month CD. Tough to keep the margin if that’s your incremental funding cost.
Bradley Adams: Well, we’re doing okay. I mean we’re growing some. It’s just, I’m a bit mystified, right, is that you can’t fight the flows in this business. Money has only a few places to go to. And everybody decided they were a genius of growing deposits when money into the banking system was flowing in at 35% a year. The reality is that nothing to do with execution for almost everybody. And you can fight those flows if you want to, but it will cost you 5.5%. What we’ve tried to do is maintain the balance sheet flexibility to stomach the outflows just like we stomach the inflows, not do anything stupid. And we can make a lot of money just optimizing. So that’s kind of what we’re up to. As far as margin goes, I think last quarter, I said plus or minus 5 basis points.
Maybe I said it, but it was certain – maybe I didn’t. But it was my intention that the plus side of that was more likely. We do still have some benefit to come on the loan repricing side from the last rate hike. If there’s another one, our bias is for a higher margin. If there’s not another one, I would say that we’re probably more like minus 3 basis points. Given what we’re selling on the variable portion and given our current positioning. So stable, plus or minus a few basis points with minus more likely if there’s no further rate hikes, but everything should be pretty much like this.
Terence McEvoy: And maybe one last question, if I could. CRE loan maturities in the fourth quarter and early part of next year, have you gotten ahead of that in terms of what higher rates could do to those borrowers and was that incorporated?
Bradley Adams: We’ve been pulling our hair out, shocking stuff. And you know me, Terry, I don’t have much hair anyway, so…
Terence McEvoy: Understood. Thanks for taking my questions, guys.
James Eccher: Thanks, Terence.
Operator: Thank you. Our next question is coming from Chris McGratty with KBW. Your line is live.
Christopher McGratty: Hey, good morning, Jim and Brad. Some of your peers are restructuring balance sheets for mistakes they made with rates. You guys seemingly don’t have to do that, but you could if you had to prove them. I guess the question more open ended on that and also just max loan to deposit you’re willing to run with given the optimization you talked about.
Bradley Adams: So you’re talking about selling securities that are perfectly mark-to-market in order to buy different securities that are perfectly mark-to-market?
Christopher McGratty: Just – yes, within the bond, but then I know what you say. But – is there any piece of it that you would think about?
Bradley Adams: No. I see absolutely no scenario whereby we would do that. We – 2.7-year duration means we’re in darn good shape. I’m very happy with where we are. And what was the second part…
James Eccher: Yes, I think from a loan-to-deposit standpoint, Chris, I mean I think we could comfortably take this up to 90, 95. I would not expect a whole lot of growth, a whole lot of loan growth for the balance of this year based on kind of where our pipelines are, they’re about 1/3 of what they were a year ago. So we’re really focused on optimization, expense control and credit.
Christopher McGratty: Okay. You talked about margin. I mean, NII, I guess, putting the pieces together around these levels, Brad.
Bradley Adams: Yes. I think so. I think we’ve got a chance of growing it. I mean we’re making a lot of money right now, and that’s kind of what our focus is. I’m a little surprised that expectations for us as pessimistic as they are. But we’re just going to continue to make sure we’re positioned for any tails that are out there and doing the prudent thing on the balance sheet, which is reducing asset sensitivity, while still making a healthy amount of money.
Christopher McGratty: Maybe just the last 2. The BOLI looked a little high. So just comment on that. And then just going back to capital, you get the nonobjection, but what’s the binding – what’s the ratio that keeps you, I guess, prevent you or let you do the buyback? What’s the binding metric?
