Michael Young: Yes. Thanks for the question, Eric. So I think as we look into 2024, a lot will be determined by kind of the pace of the Fed movement within the year. Obviously, with more cuts could be favorable to deposit flows in general. But on a broad trend, we would expect to have our deposit growth maybe be slightly below loan growth and continue to remix positively from a loan-to-deposit ratio perspective in 2024. That’s probably the high-level thoughts there.
Unidentified Analyst: Got it. That’s helpful. And then just outside of the margin, just as we think about the impacts of just declining rates on the balance sheet and income statement, when you expect to see additional loan growth from that if we see cuts and at what level of segments would you expect to see it from first? And then just curious how you think about repricing deposits if we’d be in the Fed rate cuts and drive additional core deposit flows if rates begin coming down?
Chuck Shaffer: That’s a great question, Eric. It kind of depends on how things play out over the rest of the year. What I’m very encouraged by is we’re seeing the opportunity to step in where the market’s somewhat pulling away from lending and really get well structured, high-quality credits, a lot of equity in projects and we’re getting rate. So where as we’ve talked about on past calls, we kind of pulled back given some of the more, I would describe it kind of getting on the edge of where we are comfortable in terms of underwriting structure. We’re now seeing the opportunity to underwrite very conservatively, get the right pricing on deals and then move the relationships over. Our pipelines grew. We saw better production last quarter and then looking forward even into the first few weeks of 2024 here, we’re seeing the pipeline continue to grow.
So very encouraged by that. And so as that plays out, we’ll see how growth kind of comes along with that, and that will kind of determine exactly where are we and how we step into the deposit market as Michael said I think the biggest driver of where the deposit market goes is whether or not the Fed does cut rates and whether or not the Fed starts buying bonds and puts some liquidity back into the market. So I think that will be very interesting to see how the back half of 2024 plays out. But I like where we’re positioned. I like the fact that we went ahead and doubled down our effort to get our expense base rightsized. And so when you kind of step back and think about where we are, I think we’ve been proactive in getting the expense base sort of reset while going into the coming year where we’re seeing loan growth pull through and as that plays out into the coming year, if we do see some rate cuts in the back half really starts to set up a really nice ’25, ’26.
So we’re taking a more medium- to longer-term view of the situation. structuring the balance sheet and the expense base to prepare for that and looking forward to what things could look like in the coming years.
Unidentified Analyst: Got it. That’s really helpful. And then just one of the lastly, just touch on credit. And if you could just touch on what drove the increase in NPAs criticizing classified and just more broadly, if you could just provide some color on just how credit is trending? I think you kind of spoke to expectations of some normalization, where are you most concerned about credit going forward? And just talk about how your economic outlook has changed. And if you’re assuming any rate cuts in that outlook? And any color there would be helpful.
Chuck Shaffer: Yes. I think where we saw — it’s really the increase in NPLs is only a couple of credits both were C&I-driven credits, one of which is basically a restructure that potentially will move back to accrual once it sort of achieves stabilization, which we seem really confident it will. And in the other, we’ve got reserved in a specific generally. So when we think about that, that’s really what drove some of that I don’t know, James, if you have any color on that or anything you want to add to that. But I think as far as we think about where we continue to watch, I think the biggest sort of area that we continue to be thoughtful about is ’21 and ’22 were such strong years for the U.S. economy that a lot of inflation-driven revenue pushed through small businesses and operating companies.
And then along with that, came higher expenses. So now we’re kind of moving through that period and revenues are potentially going to come down a little bit, and it’s important to monitor our operating companies to make sure they properly manage margins and manage expenses into the coming years. That’s really be a summary. I don’t know, James, anything you’d add to that?
James Stallings: No. I think you said it well, Chuck. I think what we’re seeing is a normalization — as we talk about normalization of our credit metrics, it’s really a normalization of the operating environment for our C&I companies where they went through sort of a shock from COVID and then all of the PPP and the stimulus money driving inflationary pressure on the demand side. And so a number of companies just need to sort of readjust to a more normal operating environment. We’re seeing declining deposit balances, which is something that we are keeping an eye on. But it’s nothing that I would say is isolated to a particular industry or sector. It’s just sort of a general normalization of the ability to generate cash flow by our customers.
Chuck Shaffer: Yes. So we continue to keep an eye on that. I’d say if that was anywhere that we were going to be focused on. But what — again, just encouraged by the fact that our capital is as strong as it is. Our allowance is as strong as it is, that’s going to allow us to be proactive and get out ahead of anything and manage these things to the best economic outcome if the cycle does sort of merge here. But we feel very good where we’re at. I think what you’ve seen is normalization. We’re coming off a period where there was almost nothing for a good period of time that was heavily backed up by government stimulus. And so I think it’s important for all banks to keep that in mind as we move through time here.
Unidentified Analyst: Okay. Thanks for the very detailed answer. And then just lastly, just — what are you assuming in terms of rate cuts in your outlook? And then I’ll step back after that. Thanks for taking my question.
