John Asbury: Yeah, we were under-resourced there.
David Ring: We’re under-resourced there. So, on the C&I side, we’re seeing the C&I pipelines grow faster than the real estate pipelines, we’re seeing it growing in every region. Then when we look at our specialty businesses, they’re really adding to the equation because government contractor, asset-based lending, those are C&I growth engines for us and they’re doing quite well.
John Asbury: So it’s pretty well diversified.
Steve Moss: Okay. That’s helpful. And then just on the NPLs that occurred this quarter, two of them were commercial real estate. Just curious, did they hit maturity walls, what type of properties they are, any incremental color you guys can give?
John Asbury: Yeah, one was commercial real estate. One was commercial industrial. Doug Woolley is here. Doug, I know we have some unique circumstances, do you want to speak to that?
Douglas Woolley: Yeah. Steve, thanks for the question. One of them was, I’ll call it fascinating situation, partner dispute, it is non-owner occupied, but it does have owner occupied tenants, owned by the partners. And they got the dispute, they put the borrower in bankruptcy. One of the two declared bankruptcy and we’re just kind of working through that mess. So we took a specific reserve to buy time. We had an appraisal, we’re trying to assess the actual value of it and whatnot. The other one was a distributor to retailers, seasonal, and I guess it’s safe to say they had difficulty adjusting to the post-COVID world where their business accelerated because of everyone being at home. And now sales and whatnot have dropped, expenses up. So anyway, we’re working through that with them.
John Asbury: I think that, if you’re looking to define what does an idiosyncratic credit issue look like. These are two good examples. They’re not reflective of anything else that we’re seeing.
Steve Moss: Okay. That’s helpful. And then in terms of just American National here. John, you’re waiting on the Fed. Just curious, you know, it seems like with the state approval should be more a formality, but how are you thinking about a timeline to close here? And are you having to have more active discussions with the Fed or just kind of any color you can give there?
John Asbury: Yeah, I would say, as I indicated in my comments, when we announced the merger on July 25th, we said we expected to close in Q1 ’24, that remains our expectation. Everything is proceeding normally. And I have no reason to think we will not hit the expected timeline. It just simply takes longer. We’ve been looking at lots of data and it’s frankly averaging five and sometimes six months. This is about as clean and straight up a deal as you can imagine. So it is a — it’s a straight up combination. We respect that the Fed needs to do their work, they’re going through their process, everything is functioning normally. It just takes longer than it used to, and that’s where we are.
Steve Moss: Okay, great. I appreciate all the color. Thank you very much.
John Asbury: Thank you, Steve.
Bill Cimino: And Victor, we’re ready for our next caller, please.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Russell Gunther from Stephens. Your line is open.
John Asbury: Hi, Russell.
Robert Gorman: Good morning.
Russell Gunther: Hey, John. Good morning, everybody. Just a couple of follow-ups on the margin to start, please. First being you guys gave us the deposit beta peaks on the way up, just hoping to get some guidance around what you think the peak cumulative beta will be on the way down. What’s embedded in those three cuts that you guys are guiding to?
John Asbury: Yeah, Russell on that front, looking at the three cuts, we’re looking at it by year end with these cuts come in about a 20% beta on the downside for this year, because that would continue into the next year assuming rates continue to go down. But that’s our working assumption right now, 20%.
Russell Gunther: Okay. That’s great. And then the range of 330 to 340. Could you just talk through what would get you towards the high end?
John Asbury: Yeah, from that, to answer that question is basically going to be how quickly can we bring down deposit rates. We think there will be — the Fed will cut, it will be a bit of a lag in terms of the ability to reduce deposit rates. So more of let’s see the second cut and the third cut is primarily when we think we can really start reducing those towards the second half of the year, but it’s all going to be dependent on the competition for deposits and client response, if you will. And we’ll ratchet — we’ll ratchet them down, we won’t go from here to the endpoint very quickly. So that’s probably the biggest driver there.
Russell Gunther: Okay. Yeah, it makes sense. And then just switching gears for a second. On the expense side of things, so, appreciate the full year core guide, how does the fourth quarter shape up from a run rate perspective, is there anything in there, plus or minus that stands out that normalizes or is this a decent run rate to think about?
John Asbury: Are you talking about this, the current, fourth quarter ’23.
Douglas Woolley: Yeah, there were a couple of items, but I probably would — probably say it might be in, call it the $1 million range in the fourth quarter that we kind of let’s say unlikely to continue to recur. So that’s what the number that I’ve been up to.
John Asbury: That’s out of, Doug, you’re referencing operating expenses.
Douglas Woolley: Yeah. Yeah, operating. Yeah, you know, just taken out of these, I see in the other items.
