Michael Rose: All right. And then, just as a separate follow-up question, I think there is going a lot in the news about commercial real estate and resets as properties come up for renewal. There is an article in the journal about it today. I often hear from some investors that there is some concerns. You have got some third-party loans. You have got decent amount of commercial real estate. Obviously, there are issues pretty — and going through the GFC, can you just provide some kind of overall context around your philosophy around the credit portfolio? Maybe where you are pulling back? And how investors can get more comfort just giving all the changes that you made over the years as we potentially got through another credit cycle? Thanks.
Robert Derrick: Hey, Michael, it’s Bob. I’ll start with that and Jamie or Kevin can certainly follow, but just — let me maybe just quickly go back to what we said at Investor Day as it relates to sort of credit risk management. Obviously, our intent was to spread the balance sheet out. Building out corporate specialty lines of business I think that was our key focus for us. Secondly was to stay diversified within our concentration limits and to build those out. I think that’s been accomplished. And then finally and probably most importantly was to make sure we’ve built a robust credit shops within our lines of business in the first line of defense with our OEMs et cetera. So, we’ve got credit resources deeply allocated in our business units.
So, from a Bob context that framework is what we are operating under. As it relates specifically to CRE, those same sort of overarching frameworks apply. We stay balanced. We’re not outsized necessarily. We do have $3 billion in office. That gets a lot of attention. But if you back out the medical component, that’s about half. Within that category, a large percentage is at or near hospitals, universities. So, we like our office. We are not immune to what is going in our office, but we certainly are either comfortable with where we are. Other asset classes are relatively balanced. And on the C&I front, that balance continues. So, that’s our guidance from credit as it relates to policy exceptions and managing within our policy. We certainly are vigilant about that.
And will continue to be so. So, I think it’s just more of the same, but building it out at the frontline, Michael, and continuing to execute on what we laid out in February as we go forward.
Kevin Blair: And Mike, I’ll jump in a little bit here. I mean we have a very long history in CRE. And that’s what is getting a lot of attention today. And as you can see in the appendix of our deck on slide 19, we are trying to give investors the details they need to make their own assessment on the quality of the book because we feel very comfortable with where we are in an uncertain environment. And that’s why you see us looking at the average LTVs but also the higher LTVs. Anything — and we are using 70% which is fairly conservative as a tranche just to give a look into our portfolio. So, investors and analysts can come to their conclusions, but we feel comfortable with our strategy. It’s one we have a lot of history in. And it’s going to be as part of who we were in the past. And it’s going to be a part of who we are in the future. And we feel good about that, but we try to get all the insights we can into that portfolio given the headlines.
Jamie Gregory: And Michael, as a quick follow-up to that we are running internal stress test constantly on our CRE book under severe adverse conditions et cetera. And we like the way that way — the results of those stress test. We do it by asset category. We stress a whole host of variables, but suffice to say that that work is being done. And we feel comfortable that the portfolio can absorb some stress. Again, we are not immune to credit challenges, but we feel really good about the results of that.
Michael Rose: I appreciate all the color. Thanks for taking my questions.
Operator: Thank you. Our next question comes from the line of Jared Shaw of Wells Fargo Securities. Your line is now open. Please go ahead.
Jared Shaw: Hey, good morning, everybody.
Jamie Gregory: Good morning.
Kevin Blair: Good morning.
Jared Shaw: I guess circling back on the deposits. The beta performance has been pretty good so far. As we look at that loan growth expectation, should we assume that deposit growth will match that? And maybe that’s where we’re seeing the accelerated beta, just bring those in and how should we be thinking about the level of DDA under that environment as well?
Jamie Gregory: Yes, it’s a very important question as we look forward to 2023, and just want to be really clear that as we think about our balance sheet growth in 2023, achieving the high end of our loan growth range requires stronger core deposit growth. And so, those do go hand in hand, but the environment is pretty uncertain, and it’s too uncertain to precisely estimate, full-year deposit, core deposit growth, but we do expect to continue to see the strong production, we’ve seen the past couple of quarters. And our teams are focused, we’ve increased the focus on the teams, we’ve changed incentive plans, we have deposit initiatives in flight. And so, we think that organic client deposit growth will materialize in 2023. On the environment side, we do believe that diminishment will reduce as we go through 2023, similar to the trend of reduced diminishment, we’ve seen in third quarter and the fourth quarter, we believe this stability and Fed policy, both on rate and balance sheet will allow for a more stable deposit environment.
So, all in all, our current expectation again, which is uncertain that we expect core deposit growth to be in the low to mid-single-digits for 2023 and we expect the pressures that we experienced in last year and 2022 to continue albeit at a little smaller in the beginning of 2023. So, growth is likely going to be weighted to the back half of the year.
Kevin Blair: And so, Jared, on the business front there, so two sides of that equation, as Jamie mentioned, we’re ramping up production on the deposit side, diminishment is starting to abate a bit, it’s important to note when we look at the balances that we lose in a quarter, about 96% of the balances that we lose are with existing relationships. So, it’s not losing deposits. It’s not closure. It’s folks that are using their cash, or in many situations that we had a record quarter in the fourth quarter of moving money off balance sheet again into treasuries on the security side. So, there’s a lot of money movement that’s seeking yield. And we think that will continue to slow that combined with increases in production will help to drive the production and growth that Jamie talked about.
The other side of the equation is loan growth, and I want to be clear that, our job is, as we’ve said, is to go out and deploy capital for our clients. And so, we’re going to continue to be open to originate loans. And that’s why our 5% to 9% guidance. But the other thing we can do is we come up on renewals of existing loans or we look at certain asset classes, we may make the decision that given our cost of funding, we may not renew it alone, if we’re not getting the right level of profitability or particular asset classes, we may decide to downsize, similar to what we’ve done with third-party given the underlying profitability with wholesale funding. So, I think you have to look at both sides of it. But we obviously are focused on generating faster growth on the core deposit side and continuing to serve our clients.
But we have about $9 billion of contingent liquidity through securities and through FHLB. So, we really don’t have a funding problem, we have a challenge to make sure that that funding comes on as cheaply as we can get it.
