A lot of these that, you know, are two years and three years out and I wish my Ouija board was good enough to know if rates are going to be higher or lower at that point in time. But, you know, what I can tell you is every six months we’re going to be looking at this based on current rates and stressing them to determine, you know, if there is, you know, some risk in the portfolio. So, long story short, we’re not seeing it, and – but the economic forecast is – you know, reflects concern in that arena and reflects concern around the commercial real estate market, you know, especially around office, and, you know, we’re just not seeing it in our portfolio. But there’s so much uncertainty out there in the overall market nationwide. We just didn’t feel comfortable adjusting the economic forecast to our specific portfolio.
Graham Dick: Okay.
Lee Gibson: Does that help answer your question?
Graham Dick: Yes, absolutely. And so I guess as you think about the reserve from here, it sounds like the adjustments in the CECL forecast were sort of driven by the higher for longer outlook. So if we don’t get any more rate hikes and really the rate outlook doesn’t change materially, do you think that provisioning maybe returns to a level of, you know, more normal level, I guess, going forward? Or is there a potential for more CECL-related reserve bill to take the, you know, the ACL over 1% of loans?
Lee Gibson: You know, one thing I think that it’s important to note is we have about 11% of our loans roughly are in municipal loans, and that mostly have Ad Valorem Tax pledges, and we virtually have no reserve against those under the CECL model simply because they have Ad Valorem Tax pledges. So if we normalized and took those out of the equation, we would be over 1% currently as opposed to 0.94. In answer to your question, as long as the economic forecast remains, you know, consistent where it is today, I don’t see – you know, I’m – I don’t see a huge build up in any one quarter like this. Now if the economic forecast changes, then, you know, all bets are off because that’s the big driver in the CECL model is what the economic forecast is.
Graham Dick: Yes. No –
Lee Gibson: And if I didn’t totally answer your question, feel free to dig in some more.
Graham Dick: Oh, no, it’s perfect. All right. And I guess on loan growth, sounds like you’re going to hit that target you guys set out at the beginning of the year, high-single-digit, but the pipelines are getting a bit smaller. What are your thoughts on growth in 2024? Are we talking about more of a mid-single-digit growth level or do you think you might be able to maintain the high-single-digit pace you’ll see, you know, that you saw this quarter and then also that you saw for the full year?
Lee Gibson: Right now, based on where rates are and the ability of loans to meet our credit guidelines, and it’s primarily the debt service coverage ratios with the current rates and how much equity needs to go into deals, I think the mid-single-digits is probably more likely for next year than what we’ve experienced this year. Now if things change and rates change, then, you know, our markets are strong. It’s just people aren’t, you know, when you go to them and tell them it’s going to take 50% equity in their deal or in some cases more than that, you know, their numbers don’t work on their end and, you know, for their equity folks. So that’s really what we’re seeing. It’s not a credit concern, it’s more of ability for them to cash flow at the amount of equity they want to put in the deal.
Graham Dick: Okay. Great. That makes sense. Then I guess just lastly on the funding side. I think you guys picked up some BTFP this quarter. I’m just wondering what you guys are thinking about that right now. Maybe the potential to do more of it going forward and replace some of the higher cost borrowings on balance sheet and maybe even some broker deposits that might cost a bit more. Do you guys have any appetite for that?
Lee Gibson: Okay. You mentioned – what did we pick up? You used an acronym.
Graham Dick: Bank Term Funding Program.
Lee Gibson: Oh. We have taken out all the Bank Term Funding Program dollars that we can. You know, we – obviously, when it gets closer to maturity, if we want to reprice that for another year, we can at that point in time. But at this point, you know, we – ours is locked in at a rate around 4.46%, and so, you know, we don’t have any additional collateral that meets the threshold to take out additional funding on that. But, you know, that will – those will mature sometime in March, April, and I think there may be a little bit that matures in May, but, you know, we’ll make that decision at that point in time based on what those rates are.
Graham Dick: Okay. All right. That’s helpful. And then I guess just the last question I’d have would be on the funding side. The deposit side seemed like the municipal deposits drove their growth this quarter. But just wondering if you think that, you know, you might be able to at least keep pace with loan growth on the deposit side, whether that be, you know, core deposit generation or maybe back to the brokerage side.
Lee Gibson: That is our major focus for the next quarter and for all of 2024 and maybe beyond, is, you know, mainly non-maturity deposit growth. And, you know, so that’s going to be the focus. That’s where incentives are going to be heavily skewed because that’s what we need. And it’s out there, we just have to go get it.
Graham Dick: Okay. Understood. All right. Appreciate it, guys. Thank you.
Julie Shamburger: Thank you.
Operator: [Operator Instructions] Our next question comes from the line of Matt Olney with Stephens. Your line is open.
Matt Olney: Thanks. Good morning. Going back to margin discussion. Good morning. Deposit costs, just any updated targets or thoughts on deposit betas for the cycle? Where – given the pressure you mentioned earlier, where do you think these betas could move towards over the next few quarters?
Lee Gibson: You know, I think if we look historically, the betas, you know, continue to move up, you know, more. Where betas right now are nowhere near the historical norms of where they get to in terms of the amount of Fed increases, and – but, you know, it’s different and different in each. But – so I’m not sure exactly how much that beta is going to move up, but, you know, we’re going to be looking at a lot of different things. We may look at some more swaps, and we’re just going – you know, we’re going to look at our highest cost deposits and make a decision whether or not it makes sense to retain those or if there’s a better way to go out and, you know, tie that money up some other way. So – but, you know, the beta is definitely going to go up. It’s just a matter of how much and, you know, how much we can offset it and mitigate it on the other side in terms of loans and a little bit on the security side.
