And so we still have more work to do Brady. And we’re not going to stop. And so I want to be real clear that we are — we do feel like we accomplished Phase 1 of that a year or more ahead of time. But now we’re into Phase 2, and that’s the real heavy lift and the hard work, but that’s what we intend to do.
Terry Earley: The progress of change will probably slow, you would not expect to see Q4.
Malcolm Holland: Yes.
Terry Earley: It look like Q3.
Malcolm Holland: Absolutely. Don’t — yes, don’t think I’m at 85% loan deposit ratio by the end of the year. You know, we could do that because as Terry always says, you misprice your deposits, you can get all you want. And we’re not doing that shown by a slower rate than September. So we feel like we’re in a comfortable place right now from a balance sheet strength standpoint, but we still have more to do.
Brady Gailey: Alright. And then on the expense side, you saw some expense growth quarter-on-quarter, I think a lot of it was in compensation. But you know compensation is kind of back at the level that you saw in Q1 of this year. So I’m just wondering, as we look forward, I think expenses were a little under $60 million in the third quarter. How should we think about that expense run rate in the fourth quarter and maybe more importantly into 2024?
Malcolm Holland: Thank you. And in Q4, you know, I would be — I think it’s going to be $16 million or might be a tad over, just, you know, but that’s up a little bit, but not tremendously, you know, up 1% to 2%, I would say. I think as we look into ‘24, you know, I think it’s — I don’t see the efficiency ratio for the year getting much better than where it is today because, I’ll take one thing — two, let me take two things. Benefit costs are going through the roof. Two FDIC insurance premiums. As I rebuilt the funds and those things, they’re largely outside our control. And so that’s, you know, in terms of, that’s where I expect to see the most expense pressure, generally speaking, going into next year.
Brady Gailey: Okay. All right. Great. Thanks for the color, guys.
Malcolm Holland: Thanks, Brady.
Operator: Thank you. One moment please. Our next question comes from the line of Gary Tenner of D.A. Davidson. Your line is open.
Gary Tenner: Thanks. Good morning. Hey, I was curious if you could talk a little about kind of the success on the deposit side. You know and — you know maybe plans to expand what you’ve already done in terms of the digital bank, you know, direct marketing channels or otherwise? Are you slowing the spend on the direct marketing at this point and kind of relying more on standing up digital banks and kind of local areas the way you did to a degree of digital bank can be local, of course. So just curious for any color on that.
Malcolm Holland: Yes. I think we’re always going to have the digital bank direct marketing lever. We’ll always play in that arena. We had to get digital banking government. So I mean that took a lift just to get into the areas we want. We could always go into new areas, you know, most of — all of our digital banking went outside of our current markets and we identified certain spots in Texas only that we wanted to be. There are many more markets that we can tap into that area. You know, direct marketing, that’s going to be something that we do, but we probably won’t do as hard as we did in the third quarter, but it’s always going to be there. Again, I think this is not — it’s not a once — one event is going to cure this thing.
It continues to be a lever of six, seven or eight different places, where people have to pull from. Now the reason I think it gets a little slower and a little bit harder going forward is now we’re moving into, you know, more of the commercial bank space, the community bank space, the business banking space, the private banking space, where those become much more granular things that have some lead times in order to get them closed and get them moved over. But those are the ones that are harder but are much more valuable from a treasury management standpoint, from a granularity standpoint. So I think, we continue all efforts. We may put more emphasis on different areas depending on what the balance sheet needs.
Terry Earley: Yes, let me, let me add two things. One, on direct marketing. Gary, I think you’ll see us move from more product-specific direct marketing to more small business-focused direct marketing to help drive more — new client acquisitions, specifically in that space. And I have another. That’s what happens when you get all of your free things.
Gary Tenner: Yes. I appreciate that. Maybe just a question for Dominic to a degree, but is there — you know, the customers that you’re acquiring through the digital bank. Are these, you know, they’re in state — are they customers that you think you would have an opportunity to do more business with other than just the depository side?
Malcolm Holland: Absolutely. I mean, that’s the whole goal. It was just a one CD client or one money market client that doesn’t really do much for us. And I think the metric that Terry mentioned and I gave you in the very end was, our new client acquisition was just shy of 2,700 in the third quarter. That’s double the first quarter and second quarter — and so combined. And so what that does is, I now I — my folks in the branches and my folks have the opportunity to cross-sell. And today, I believe, we have 68% retention ratio of those clients. And so, if you can — all you got to do is get them in our company and mainly our service levels at the branches are incredibly high as you look at our ratings and all that, they are just incredibly high. So we can get them in. They’re not going to leave and we can sell of other stuff.
Gary Tenner: Appreciate that. And then just really quickly, in terms of that credit — national credit that was downgraded and restructured. Was there any accrued interest be reversed related to that credit?
Terry Earley: There was $1.2 million.
Gary Tenner: Great. Thank you.
Malcolm Holland: Thank you.
Operator: Thank you. One moment, please. Our next question comes from the line of Michael Rose of Raymond James. Your line is open.
Michael Rose: Hey, good morning guys. Just a couple of follow-ups here. So, obviously, a lot of progress on the deposit front, a lot of that’s been discussed the mix of non-interest-bearing down to about 23%. Terry, you had kind of sequentially in your eyes between kind of what happens with rates here. But where do you think that could fall through? And if you can give us any sort of updated beta expectations there would be appreciated. Thanks.
Terry Earley: Yes, I mean, I think, I mean, look, we grew DDA. You know, so even though the mix went down, it’s a function of the overall growth in total deposits. You know, so I think it’s — you know, I think the mix, look, for two quarters, we fell down. My belief is DDA is going to continue, you know, internally I say we view it is more likely than not to continue to hold in this range. It may be depending on how successful we are over time I would expect it to grow as we — with all the work we’re doing in the small business and low to middle market et cetera. But in the short run, I expect it to stay stable through Q4 and as far as I can see into 2024. One thing I would note, you know, the rate of migration and then — as we — as we analyze pretty granularly our deposit base, the level of migration for the last 250 basis points of move has really slowed down, meaning take out new customers.
