Andrew Terrell: Okay. Thanks for taking the question.
Operator: Thank you. Our next question comes from Timur Braziler of Wells Fargo. Timur, your line is open. Please go ahead.
Timur Braziler: Hi. Good morning. One more on ECR for me. I guess as you look at fourth quarter specifically, how much of that DDA growth is expected to stick around? And then should we see a commensurate reduction in ECR during the fourth quarter if DDA balances do go down?
Dale Gibbons: Yes, you should — I mean, the volatility in deposits in Q4 is around the mortgage warehouse business, which carries most of the ECR credits. And as that volume drops, you should see a corresponding decline in the ECRs in the operating expense line.
Timur Braziler: Okay. And I guess, just given the seasonality in the warehouse business, how likely is it that, that $1.3 billion of DDA growth that’s on third quarter, how much of that actually rolls off with that seasonality next quarter?
Dale Gibbons: I think there are two things going on. So the growth that we had in the third quarter was a baseline improvement, which I think that has life, the same power. The decline we’re going to see in the fourth quarter is from taxes and insurance, escrow funds explicitly. So while that will come down in the fourth quarter, we expect to retain the higher deposit levels kind of moving forward into 2024. So we should see a more pronounced rebound coming into Q1 than the decline that we see in Q4.
Timur Braziler: Okay. Got it. And then last quarter — okay. That’s understood. And then last quarter, you had made a point to mention that the borrowings are being paid down are quite expensive. I think the number was SOFR plus 200. I’m just wondering with the remaining borrowings left, what’s some of the higher cost borrowings that we should continue to see coming down over the next couple of quarters? How much of that expense of borrowings are still left on balance sheet?
Dale Gibbons: Yes. As of quarter end, we still had $0.5 billion that is an [S+ 2] (ph). I expect that will be paid off this quarter. And there’s also a little bit of an average balance benefit because not all of the payoffs that were done in the third quarter that were, I’ll call it ratably, over the quarter. And so some of that benefit is not recognized in the third quarter.
Timur Braziler: Okay. And then lastly for me, just on the mention of HQLA and tying that back into the $100 billion threshold. I know you’ve been growing HQLA now for a couple of quarters. But is any of that build in relation to that $100 billion threshold? And I guess, what’s the remixing of the bond book look like with additional HQLA purchases and how punitive might that be in this rate environment?
Dale Gibbons: Well, I think it is all a bit related, and there is maybe a gentle slope in terms of HQLA looking for kind of the $100 billion number over time, which obviously we’re not closed to. But I think that’s part of it. I think part of it is as well, as we pull down the loan-to-deposit ratio, those funds are going to be invested in something with higher levels of liquidity like we’ve talked about. So it is — I don’t want it to appear — that’s not a big step variable here. It’s going to be a gentle climb into higher levels of high-quality liquid assets over the next couple of years.
Timur Braziler: Great. Thank you for the questions.
Operator: Our next question comes from David Chiaverini of Wedbush Securities. David, your line is open. Please go ahead.
David Chiaverini: Hi. Thanks. I had a follow-up on the rate sensitivity. So in an environment where the Fed does pivot and we see 100 basis points of rate cuts, I see NII down 4%. But clearly, on the ECR side, we should see some cuts there as well or declines there. How should we think about the PPNR impact of 100 basis point cut in rates?
Dale Gibbons: Well, if you go to PPNR, that’s really going to be your earnings at risk. So you’re going to see with lower levels of expenses like you’d identify, but you’re also going to see higher levels of revenue from AmeriHome mortgage operation. And so on an EAR basis, this really is worth really talking about a kind of a PPNR kind of framework, and that would pick up.
David Chiaverini: Got it. And then shifting over to a follow-up on credit quality. You mentioned about the roughly $2.5 billion of quarterly CRE maturities next year. How — can you talk about the health of your borrowers and their ability to withstand higher rates as these loans mature and reprice higher?
Timothy Bruckner: All right, sure. So first, I think that discussion was in the context of the investment.
Dale Gibbons: Well, it was $2.4 billion, but it was total loans.
Timothy Bruckner: Yes, total loans, not just CRE. So our CRE is entirely floating rate, one, I think that’s important. And is entirely for the not central business district. So when we underwrite an office, we underwrite suburban office. And so we’ve already dealt with the role, so to speak, because the interest rates have already come up, and we’ve already made the grading decisions, and then we’ve already executed our strategy. And at this point, over 75% of that portfolio, we’ve either affirmed the structure that exists or we restructured and remargin in the present environment.
David Chiaverini: Great. Thanks very much.
Operator: Our next question comes from David Smith of Autonomous. David, your line is open. Please proceed.
