Tim Switzer: I got you. Q4 over Q4. Okay. That’s helpful. And let’s say it’s a scenario where the Fed cuts rates sometime next year, what — if this is after deposit costs have settled out from the rate hikes, do you have an idea of kind of like the sensitivity of your balance sheet to that and what NII would look like in that scenario?
Kathryn Bailey: Yes, I would say we have positioned our balance sheet to be relatively neutral. We have taken much of the benefit from rising rates into our base case scenario and therefore have hedged on the lower side, predominantly through the investment securities portfolio and what we have put on over the last few quarters.
Tim Switzer: Okay. That’s helpful. And what are like the economic assumptions you have for your loan growth expectations next year? And which categories should be the leaders and maybe what are the risks of not achieving that, given the macro environment?
Charles Sulerzyski: Well, we will still see some growth in real estate as construction projects come to completion, but we will not see as much CRE volume of new business as we have been seeing. We do not see a slowdown in our C&I customers, so we expect to see good C&I growth. Auto will be — we’ll get a few percentage of growth out of it. The leasing businesses are seeing — as is typical one, you see leasing businesses do better in higher rate environments or slower economic environments and we expect that to continue. We are very optimistic in the ability of our premium financed folks to have good, strong 20-plus percent growth. So it’s really a lot of little actions across many different portfolios. We have some opportunities on things like a very large McDonald’s franchise lender in the State of Ohio.
We’ll be able to do that in Kentucky with the acquisition. So a lot of granularity to the portfolio, which we think is great for origination and great for risk management.
Operator: [Operator Instructions] Our next question will come from Manuel Navas with D.A. Davidson. You may now go ahead.
Manuel Navas: Hey, good morning. Just to get on the — with your NIM expectations next year, what do you kind of contemplate deposit costs going to, especially if the rate environment stays where they are? Just kind of what are your deposit beta assumptions with it?
Kathryn Bailey: Yes, I think historically we’ve set our deposit betas have run all inclusive, non-interest bearing and otherwise, about 25%. I don’t think we have in our projections getting quite to that high, but we definitely have us getting pretty upwards of 18% to 20%.
Manuel Navas: What are the CDs coming on at, the kind of the promotional CD rate? And I apologize if you said it during the prepared comments.
Kathryn Bailey: Nope, no need to apologize. We didn’t say it. Some of the tenors that we’ve put out there have a 5% handle.
Manuel Navas: Okay. Are you seeing — and you’re keeping it pretty short. Are you seeing most of the CD funding coming from current customers? Are you gaining some customers? How are you thinking about that just strategically?
Kathryn Bailey: Yes. We’re seeing a fair amount of the production in CD specials coming from new clients. Somewhere between 40% and 45% I would say is kind of new money, and maybe — I guess, maybe not always new clients, but new money to the institution.
Manuel Navas: And historically, you have pretty strong metrics that those turn into nice cross-sells and more permanent customers.
Kathryn Bailey: Yes, that is the strategy.
Manuel Navas: Can you walk me through the earn back on the securities transaction this quarter? It sounded like it was even a faster earn back than you kind of target usually? But it’s within a year, right? Or did I misread it a little bit?
Kathryn Bailey: So what we did in Q1, so we sold — I can’t remember the volume, $70 million maybe. We saw that equated to about a loss of about $2 million. What we’ve said — I guess it was closer to $97 million of balances we sold for about a $2 million loss in the first quarter, and what we stated at that time was that would pay back within the calendar year. So yes, it was less than a year payback on that strategy.
Manuel Navas: And you’re willing to kind of play around up to 2 years if you see opportunities and the balance sheet needs it?
Kathryn Bailey: Correct. And we’ll be confident that the securities would stick around for those 2 years to make that earn back hold true.
Manuel Navas: Leasing has been in really strong trends. Can you just focus in on that for a moment, just what are your expectations next year? You talked about with higher rates, more folks are interested in leasing. And also just kind of big picture, credit expectations there, just kind of a reset on expectations for that business?
Charles Sulerzyski: We have 2 leasing companies. One is a small ticket lease, where the average ticket is about $50,000. The average yield of originations for those leases at this point in time are north of 19%. We see growth in that business. And the second one, which I’ll talk about in the second, in the neighborhood of 20-plus percent. Obviously, at 19%, you are pricing in some room for charge-offs. For the last couple of years have been less than 1.5%. Those charge-offs may go as high as 3% to 4% over the next 24 months. But obviously, we’re getting well compensated for that. The second leasing business is our Vantage business in Minnesota, the average ticket size there is about $270,000. They have an emphasis or a focus on technology.
Many of their clients are publicly traded companies, well positioned school districts, some of the leading hospitals in the country. We expect — we have had very little charge-off expectation with that business. We expect to have very little charge-off activity in the next 24 months. Their yields are currently on originations in the neighborhood of 9%.
