And until the Fed moves, we really won’t see a huge dimission on that. Our commitment is to be very nimble when the change comes. We would not be inclined to be sitting around on a fat or a pricing margin or a yield thinking perhaps we’ll collect additional deposits on the way down. I think we — in some markets that will be the case, but for the most part, we will be hitching our wagon to the Fed move and moving as quickly as possible. Where we see things changing in the market and it’s true for us as well, on the CD front, duration. What was a 11 months or 12 months is now down to 8 months or 7 months and you’re starting to see 5s and 6s. A year ago, we would have said 5 months won’t get the client off the couch, they’ll go pick for longer duration.
I can see over the next couple of months, we’re all squeezing down to — those commitments are going to be more in the six-month category so that we don’t have so much lag time when the Fed does move on the repricing of that book. But there is still some pricing pressure in the markets we serve.
Paul Nungester: Yes. And same thing on the money markets. When we were running the promos especially, geez, we started in the fourth quarter of ’22 really, I mean similar, we had some price guarantees for a duration there, and those have been running off and we haven’t been extending those, it’s given us that flexibility for when the time comes, the cut, we can act, that we haven’t re-locked it in for another 8 months to 12 months or wherever the case is.
Gary Small: That’s important distinction that we have the majority of our dollars, flexible to us to move right?
Christopher Marinac: Great. Thanks very much for taking the questions and thanks for all the information this morning.
Gary Small: Thanks, Chris. Yes.
Operator: [Operator Instructions] We will now take our next question from David Long from Raymond James. David, your line is now open. Please go ahead.
David Long: Good morning, guys.
Gary Small: Good morning.
Paul Nungester: Good morning, David.
David Long: Just wanted to — just going to stick with the deposit side of things right now. The — you provided an outlook that included three cuts later this year. With that, what is your expectation for that deposit beta on the downside then?
Paul Nungester: Good question. We haven’t actually got around that. First I’ll run off the start. So, I’ll have to get back to you for sure on better specific, David. But what I will say is that, the way that the model is running in our ALM here is that, even while the Fed is frozen right now and the cuts begin, there will still be pressure, right. We were just talking about finding the opportunities and setting ourselves up to be able to reprice, in the pockets where we have that opportunity, but CDs will take a while to still roll. Our money markets will start moving on those, but we’ll be doing it in the broader context of competition and things like that. So, we actually expect that on a year-over-year basis, our deposit costs could — it will be flattish or even up some ticks, but it would be on the right trend in the back half of the year there, where we’re still going to be up for the early part of ’24 first quarter, even into the second quarter until these cuts start, right.
And then we’ll take actions and start to bring those down, but on a year-over-year basis, it will look like they are still potentially up. So, we’re going to be focused on the trends and to your point of resetting that beta point for the down cycle here to show how much we’re recapturing from that perspective.
Gary Small: I know, David, when we looked at ’24 versus ’23 on margin and then broke it down into the two components, it was like how can it be so similar? But to remember where we were this time last year, rates were running up and running up a lot more and that’s cooked into our base for ’23. We have some better margins. And so it is back to the trajectory that you would see as to where are we as we close out the year and then we climbed back at a much slower pace three turns versus gosh, how many did we see coming back in the first three months or four months of ’24. So, it does kind of neutralize but it’s on a year-over-year average basis, but certainly Q3 and Q4 you see material difference. On the betas themselves, the most illustratively I can say is that if there is a 25 bps movement, we won’t see a 25 bps movement say in every category, because I’ll take CDs for example, we still have posted, took a 12-month CD last year and it’s priced at 3% or something like that, they’ll be looking for — even though we’re bringing rates down, they’ve got room to move up a bit.
And so that will curve a little cream off the top relative to that move and all the more reason why you’ve got to be ready to move downward because there will still be upward pressure on from certain parts of your book.
Paul Nungester: Yes. And then I’ll add to that, David, when you’re looking at the total portfolio, we still have significant dollars at that low-end, our savings and checking, and non-interest obviously where we never moved up. We didn’t change our board rates, there were some mix migration. But those piles, they didn’t go up and they are unlikely to come down in the down cycle. So, really it’s focusing on the piles that we priced up and then re-capturing that on the way down, and the velocity will depend on partly the Fed and how quick they move, and then obviously the competitive environment, where we feel good about being in a position where the focus will be more so on retention versus acquisition, that we’ve done a good job, especially the second half of ’23 kind of building that war chest per se. We’ve got it and now we just — we need to retain that and then re-price the piles on the way down here.
Gary Small: And Dave, one of the things we learned that we probably knew instinctively, but the year sure showed us that there’s a large quantity, our dollar level quantity of clients that are inelastic on pricing and it’s one of the — and then of course, there are those that aren’t, and we’re using every tool at our disposal to manage the movement, but we’ll — we will work with that in-elasticity as to our advantage as we go through the year.
David Long: No, that’s some great color, so greatly appreciate that additional color. So, as a follow-up then, it doesn’t sound like if the Fed doesn’t move and we stay higher for longer, throughout the rest of the year, your NII guide, doesn’t sound like it changes that much from that 2% for the year or would it?
Gary Small: Think if the Fed didn’t do anything, I think we would have to come off of that number, Dave. It’s adding — it’s beginning with beyond just the normal repricing and so forth, that we’ll be doing here in the first four or five months. Once we cook in a turn, it’s going in in May — end of May, so it’ll start picking up in June. Another turn in the next quarter, another turn late in the fourth quarter kind of not much of an impact there, but it would be less than what we have in our expectation right now.
