And so, the standard and lower beta is around 30% of the portfolio. Those are easier to reprice because they’re largely standard rates, but their rates didn’t go up as much in a tightening cycle. So we don’t expect them to go down as much in the easing cycle. That’s why we have the lower beta there. And then on the exception from the higher beta, 20% of the deposit book, those we do expect to see a decline at a higher beta, you can see our assumptions on this slide, but those will take — those take conversations in some part, that will likely be a little bit slower to reprice. Now, we have plans for all of this. So you know the timing is really up to us, it depends on the environment, it depends on the competitive landscape. There are a lot of different factors that will go into it, but that’s how we have it set up.
We’re ready to go, even though it looks like the timing of it continues to get delayed.
Michael Rose: Very helpful. And then maybe just as a follow-up from a kind of a regulatory aspect, I think there is some fear that some of the bigger bank rules after what happened with NYCB could get pushed down to bank sub $100 million. Can you just kind of talk about kind of what the CET1 ratio kind of looks like when including kind of the AOCI impact similar to what some of the larger banks are kind of contemplating at this point? Thanks.
Jamie Gregory: Yes. On the capital side, when we look at that, our CET1 inclusive of AOCI is 8.2%. And we feel fine about that. As we look at our capital ratios, including AOCI, we think that they’re manageable. We think the AOCI accretion will happen over time. We believe about 30% of the AOCI will accrete back in over — by the end of next year. And so that’s where we currently stand. And you know, on capital ratios, we mentioned this risk-weighted asset work, that is expected to improve capital ratios, but it’s interesting. We haven’t determined exactly what we would do when we get to the finish line on this, but it’s an interesting question when you take it in the context of CET1 inclusive of AOCI like the [CAT4] (ph) banks because securities repositioning would not necessarily impact that because it’s already in your capital ratios.
And so that’s one of the considerations we think about, when we get to the finish line, what does it look like, where are we within our target or above our target range and what do we do about it? That is one of the considerations.
Michael Rose: Thanks for taking my questions. I appreciate it.
Kevin Blair: Thanks, Michael.
Operator: Thank you. The next question is from the line of Stephen Scouten from Piper Sandler.
Stephen Scouten: Good morning, everyone. Thanks for the time. I guess, I was curious, Kevin, you mentioned deposits probably were pressured a little bit more than you had expected. Can you talk about was that certain segments, certain geographies, rural versus maybe wholesale or like kind of what the moving parts of that incremental pressure was? Or is it more about that mix away from non-interest bearing still? Thanks.
Kevin Blair: Well, it’s both. I mean, the mix away from non-interest bearing is the first thing. But then when you look at the primary reason that we’re seeing increased expenses or increased rates, it’s on the CD front. And so part of it has been just as more balances move into CDs, the actual remixing, the impact that rate on that portfolio has on the overall portfolio is the bigger issue. As Jamie mentioned, when we look at the individual categories like money market and now, those rates have actually peaked. And in some cases, ticked down 1 basis point or two. So it has really more to do with just the remixing in the CDs. And those rates, as the question earlier, have stayed very high in the competitive landscape. So we’ve had to keep our rates higher as well.
We have tried to shorten the duration there. Our odd terms rate is five months. So we’re going to have the opportunity if rates were to decline to reprice those deposits much more quickly than if they were 13 months, but it’s really more due to the remixing that’s happening there.
Jamie Gregory: And Stephen, let me give you one more data point. As you look kind of one layer deeper, a lot of the deposit outflows that we saw in the first quarter were with our larger clients. But when you look within the community bank, which you can think about those being our core clients, we saw significant growth in transactional deposits. And so on NAV [01:08:46] accounts and the community bank, they were up 11% quarter-on-quarter. If you look at money market accounts, they were up 3% quarter-on-quarter. So that’s strong growth with our core clients. And that’s — those are the type trends that we want to lean into and help feed as we go through 2024.
Stephen Scouten: Yeah. That’s an important distinction. Appreciate that. And then just one clarifying question on the, talked about like a $30 million move in the reserve from a qualitative basis. Is that kind of encapsulating what you show on Slide 18 with the change in your weightings towards the various economic scenarios?
Jamie Gregory: No, that’s separate. That would be in the portfolio component of that and that’s separate the economic outlook.
Stephen Scouten: Okay. Perfect. Very helpful. Thanks guys. Appreciate the time.
Kevin Blair: Thanks, Steve.
Operator: Thank you. The next question is from the line of Manan Gosalia with Morgan Stanley.
Brian Wilczynski: Hi, good morning. This is Brian Wilczynski showing in for Manan. I was wondering if you could talk about going back to credit, the breakdown of your non-performing loan balances with C&I aside from that one credit that you charged off this quarter. I ask because a few of your peers have cited weaker C&I this quarter. And I’m wondering if there are any broad themes you’re seeing from an industry perspective.
Robert Derrick: Yes. Hey, Brian, it’s Bob. I would say no broad themes. Certainly, if you look at our non-accrual ratio, and I’ll set the one credit aside just for this discussion. So it would drop us down to around $280 million give or take $1 million of non-accruals. About 70% of that is C&I. So, but no specific industries in there. Most of those C&I credits have either specific reserves on them or we’ve already marked those credits to where we think is appropriate in the exit, is in process. So yes, the non-accrual portfolio would be more heavily weighted to C&I today. But from our perspective, it’s a manageable number of credits. We have 13 credits above $5 million and we can put a pretty good [indiscernible] on a number of those as it relates to resolution plan.
So when you start willing it down, it is C&I heavy, but we think we’ve got a very quantifiable number. And more importantly, what we see in terms of new inflows is very light. So we think the C&I piece is going to be continued to be a little more idiosyncratic. There’s going to be some, but that’s the way we think about the corporate space. And then when you look at sort of the other components of our overall rated portfolio, we’ve got a senior housing component in there because it’s been through the pandemic and the labor cost increases, it’s beginning to stabilize. So that would be more of a positive. And then finally, it would be CRE would be the third piece. And that’s specifically related to office. And as I mentioned earlier, I think we’re around 10% of our office portfolio is rated.
And when we drill into those numbers, as Kevin mentioned, the deep dives there that we’ve done on office and multifamily don’t give us any significant concern about just a backlog of new potential problems. So as we work through those office loans, that will take time and that framework of those kind of categories is what’s kind of guiding our charge-off guide as Kevin mentioned earlier. That we think we can begin to see improved charge-off numbers toward the back half of the year, certainly into 2025, assuming that we kind of remain in a rate environment and economic environment that we’re in and that we don’t see really any surprises, but our analysis doesn’t reveal that today.
Brian Wilczynski: I appreciate the color. Thank you. And then just as a follow-up, I was wondering if you could unpack your rate sensitivity to the long end of the curve. Do you get a material benefit from the increase in the 10-year yield that we’ve seen over the past few weeks? And if so, how do you see that playing out through the end of 2024? Thanks.
Kevin Blair: We continue to be asset-sensitive to the long end of the curve. So the increase in rates is beneficial to us. It’s a similar conversation we’ve had before where when you rolled forward from the December conference to the January earnings announcement, we spoke to a 5 basis point difference in the margin expectation in the fourth quarter due to the change in rates. That’s a good indication of that asset sensitivity to the long end of the curve, and it’s approximately 2%.
Brian Wilczynski: Okay. And is that primarily from — I would imagine that’s primarily from fixed-rate repricing? Do you have any color on how much is coming due over the next three quarters?
Jamie Gregory: So on the securities portfolio, we have about $60 million a month in paydowns. And so, that’s just steady flow, steady repricing. You see our book yield on the securities portfolio. It’s — that’s part of that accretion. And then we have about a $5 billion mortgage portfolio that is paying down at about 10% a year.
Brian Wilczynski: Great. Thank you for taking my questions.
Kevin Blair: Thank you, Brian.
Operator: Thank you. We have the next question from the line of Timur Braziler from Wells Fargo.
Timur Braziler: Hi, good morning.
Kevin Blair: Good morning.
Timur Braziler: Maybe, can we get an update on what you expect the cadence of broker deposits declines to look like throughout the course of the year. And then as we look at broader time deposit growth, just your appetite there, it seems like there is some ability for the balance sheet maybe to use some balance sheet liquidity and maybe not grow time deposits as fast as they’ve been growing. Maybe just give us your thoughts about just the 85% loan-to-deposit or the cadence of broker deposit paydowns and then your appetite for time deposits?
Kevin Blair: Yes. Timur, great questions. On broker, we do expect to see those continue to decline as we go through the year. It’s safe to use $250 million to $500 million per quarter for that. On-time deposits, you’re exactly right. First, if you look at wholesale funding, we’re down over 30% in wholesale funding year-over-year. And so that gives a lot of flexibility on the liquidity side to choose the most economical way to fund the bank. Now with regards to time deposits, part of that is client demand. And so we have to react to where clients are on what they’re looking for on their deposits. And there is a lot of attraction to time deposits. And so we need to be there for them with a competitive rate. But you’re right, the pressure to get incremental liquidity is simply not there given all the avenues we have for liquidity.
And we can — we could slow down the decline in brokered, we could use home loan bank or we could grow time deposits. We do expect core deposits to be relatively stable in the first half of the year and then we expect to see growth in the second half of the year. And so we will continue to analyze and be balanced on the profitability and the client demand piece of that. But that’s how we’re looking at it today.
Timur Braziler: Okay. And then within the loan book, just in the C&I portfolio, 8% of C&I loans that are the finance and insurance companies. Can you give us an update as to what that entails? And then more specifically, what component of those loans are to borrowers that are using that as leverage to make other commercial loans?
Kevin Blair: Look, that’s — the portfolio is our lender finance business. And as Jamie talked about earlier, maybe to give you some comfort around the asset quality, those are the portfolios we’re looking at to get the reduced risk-weighted asset treatment. So as Jamie mentioned, 100% risk-weighting down to potentially a 20% risk-weighted treatment, which means that there is good sponsorship, there is good coverage on the assets. And to your point, these are not levered assets. These are asset based structures that provide repayment within the ability to liquidate those assets. So it’s not a levered portfolio per se. It’s well-structured, it’s asset-based and ultimately may qualify for an actual lower risk-weighted asset treatment.
