Jamie Gregory: And Brody, one thing about that portfolio is, as Bob mentioned, we’ve seen no new net negative migration in the office portfolio in the third quarter. It continues to perform, and the watch list remains the same as we discussed in July and before. That portfolio continues to kind of perform as we expected. When you think about the allowance and the categories, any sort of migration obviously impacts the life of loan loss estimate for the portfolio, but what we saw in the third quarter when we ran the allowance was the allowance to loan ratio within CRE was relatively stable for the quarter. Where we saw the increases was in C&I and small business, and so we feel good about what we can see in front of us. We believe it aligns with that 30 to 40 basis point charge-off guide for the fourth quarter, and we’ll continue to give updates as we see a more clear outlook.
Brody Preston: Got it, and then just one last one, Bob, just on the senior housing portfolio. You guys have built that into a pretty good business line for yourselves, and I think if I’m remembering correctly, it’s performed extremely well for you from a credit perspective versus some other banks that have maybe struggled a little bit, just with that generic kind of category of senior housing. Could you maybe help us better understand the puts and takes around that portfolio and why yours kind of outperforms relative to some other banks that also have senior housing exposure?
Bob Derrick: Yes, sure Brody, thanks for the question. Just a couple of comments on it. We’ve been in this business a long time. We have a very experienced team that manages this book. You’re right – it’s around $4 billion. We think about it today, it is certainly feeling some stress, and there’s no question about that, as it relates to increased labor costs, certainly the interest rates staying higher here in the last six months or so continue to put some stress on it. But the positives here are, as an industry, this industry’s continuing to see increased occupancy rates, most of our operators have implemented increased rental rates, so the revenue top line improvement is there, it’s just not–it’s going to take some time for it to overcome the rapid increase in cost.
As it specifically relates to our credit performance in this portfolio, we’re sitting today at a criticized classified ratio around 10%, 10% to 15%. That number could drift a little higher, but overall we put a couple loans on non-accrual this quarter, that was the increase in our non-accrual rate to 64 BPs from 59, but again that was within our expectations. We think the loss content here in those few credits is very manageable, very low, and is certainly within our guidance. Overall, I think it’s just client selection long term in this business, Brody, and the way the portfolio is performing, the way we underwrite, again there’s some stress but overall, it’s performing within our expectations.
Kevin Blair: And Brody, I’d just add that when you look at this asset class, everybody assumes all senior housing looks the same, some more in memory care, skilled nursing, some are more private pay. I think to Bob’s point, client selection here, dealing with long term operators, more private pay, less skilled nursing has resulted in better overall performance, so I think that’s a big driver of that.
Brody Preston: Awesome, I appreciate the color, guys. Thanks, have a good day.
Kevin Blair: Thank you.
Operator: We now have Stephen Scouten of Piper Sandler. You may proceed with your question.
Stephen Scouten: Hey guys, thanks for the time. I guess I wanted to think about maybe loss given default rates around credit and kind of how you think about the different buckets. I think with that SNIC credit, a lot of people were surprised just at the ability for that to have such severity, so I’m just kind of wondering how you think about that within the SNIC book and maybe within other categories as you look at credit overall.
Jamie Gregory: Yes Stephen, I’ll make a couple of comments there. Obviously loss given default in that particular case was way outside of the norm. We do consider that to be an idiosyncratic event. Obviously we spend a lot of time and have spent a lot of time dissecting that specific credit and going back and looking at our processes and procedures, etc. Our conclusion from all of that work is that we still have good processes, our underwriting was sound, just a number of events that took place in that credit that, quite frankly, all went the wrong way and all happened over a period of time that just led to a very outsized and loss given default that would certainly not be normal for us. From my perspective generally speaking, though, we look at leveraged loans, we look at enterprise value-based loans, we underwrite those generally speaking to get inside of the assets, the hard assets within a couple of years.
Those are the kind of–you know, when you think about loss given default on those loans, that’s where your risk is. Our general underwriting guideline is to get the cash into pay the loan as quickly as we can, not rely on that enterprise value for any period of time. Generally, we have third party valuations, etc., but to stay short with exposure to enterprise value. Leveraged loans for us around $2 billion, we certainly manage it very closely and stay spot on with our reporting, so. That’s a little bit of rambling, Stephen, but does that help on how we look at those types of credits?
Stephen Scouten: Yes, I think that helps, but I guess generally, you don’t really view that segment, or maybe C&I more broadly as having any terrible risk from a severity perspective at this point, relative to CRE? Is that fair to say?
Jamie Gregory: I think that’s fair to say, yes. We certainly could ignore that business and not do it, but we’ve chosen to do it over time, we think selectively. We can make good returns there and manage the credit risk appropriately.
Kevin Blair: And I’d just add to Bob’s comments, Steve, when you think about where there’s a higher loss given default in C&I, it’s generally if you’re doing small business unsecured, where we don’t have a lot of exposure there. Then when we think about our C&I, we’re doing investment grade credits, and to Bob’s point, this credit that we’re referencing here is an anomaly. We generally have primary sources of repayment, secondary sources of repayment. Many of these loans are recourse, and so when you think about loss given default in the C&I business, they’re generally low just based on the way that we underwrite those. When we talk about CRE and we’re talking about having 50% LTVs or LTCs, similar scenario there where you feel like you have enough equity and cushions of protection that would keep the loss given defaults lower over there, so I think it would be erroneous to assume that all SNICs have much higher loss given defaults based on this one credit.
Stephen Scouten: Great, very helpful. Then just my other question is, you know, you guys have talked about seeking out higher risk-adjusted returns, you’ve talked a bit about these spreads widening on floating rate credit. As you pursue those endeavors, where do you think that leads you from a segment perspective to be more active as we move into ’24?
Kevin Blair: I missed that again, Steve, what was that?
Stephen Scouten: Yes, just kind of as you seek out higher risk-adjusted returns, where does that lead you segment-wise? Where do you think much of your growth will come from as a result? I guess where are those returns hiding, if you will?
Kevin Blair: It’s a great question, and it starts with if you’re doing a loan-only relationship, I would argue that it’s hard to say that you’re getting great returns unless you’re taking a lot of risk, so we’re not suggesting that. We’re suggesting that where we’re focused is on the businesses where we have the opportunity and the right to win by providing a full set of solutions, not just the lending piece, so we’re getting cross-sell on the depository, treasury side, we’re getting personal relationships from the business owners, and so where you see that, our middle market commercial today, we’re doing very, very well with that. Our core commercial, kind of our community commercial, our small business areas, and even in our corporate and investment banking unit, where we’re going to market in industry verticals, we’re able to bring capital markets and additional fee income and treasury and deposits, where it makes those returns much higher.
