Vince Calabrese: Jared, just to go back on the interest rate risk. On Slide 11, we did add a chart there that shows the interest rate risk sensitivity over time and you can see kind of how it’s moved down. We have plus 200, plus 100 shot. You can see how it organically has come down close to neutral by the end of the year, point that out to.
Operator: And our next question comes from Casey Haire from Jefferies. Please go ahead with your question.
Casey Haire: Yeah. Thanks. Good morning, everyone. Question on the funding strategy. So the guide outlines about $1.5 billion of loan growth with deposits flat. Just wanted to understand what’s the outlook for funding that loan growth, be it bond book or borrowings?
Vince Calabrese: Yeah. I would say we still have some excess cash, Casey, to put to work. So we’ll deploy that as we go through the year. I think if you look at the loan-to-deposit ratio, what’s in our guidance and kind of in our plan, we get down to maybe 90% — or up to 90%, 91% by the end of the year, which is still a very comfortable level for us. So a combination of deploying the cash, and we might have some small level of borrowings as we get towards the end of the year. But overall loan-to-deposit ratio, very comfortable with those levels.
Casey Haire: Okay. Very good. And just I guess as a follow-up to that is, what is a comfortable mid-cash position for you guys as well as what is too high a loan-to-deposit ratio?
Vince Calabrese: Well, I mean in the past, I remember when we got up to about 97%, we started to get uncomfortable. And we took some actions at that point, some promotional CDs open and those types of things to kind of bring it down. So I’m not saying that’s the level, but our prior history, that was when we decided to start doing things. So I think if you got up to 95-ish 97, and we would you look at other options or strategies we should deploy at that point.
Vince Delie: We have many tools at our disposal to drive deposit. The question is, how much margin you want to give up in this environment.
Casey Haire: Okay. Very good.
Vince Calabrese: Casey, just to clarify, Casey, I don’t have a figure in front of me. So there’s $1.2 billion if you look at our balance sheet at the end of the year of interest-bearing deposits. So that cash being deployed to support the loan growth would be the would go.
Casey Haire: Yeah. Understood. Okay. And then apologies if I missed it. Any updated Cume beta is coming in very nice surprise positively versus what you were expecting this year. Any updated thoughts on where Cume beta ends up?
Vince Calabrese: Yeah. In my prepared remarks, Casey, I mentioned kind of low 20s at the end of the third quarter. And if we look at kind of overall, I would say, well, a few comments on betas, right? I think our team has done an admiral job in the field strategically managing interest-bearing deposit costs. While we’re building non-interest bearing. It’s a lot of effort, as you would expect. It’s daily effort talking to customers, managing the relationships, being smart about rating rates for customers that have kind of full relationships. So it’s been a very active process. It will continue to be an active process for us. We ended the year, as you saw on the slide, 16.3 getting down into the low 20s by the end of the first quarter. And then if you look at kind of the midpoint of our guidance by the end of the year, kind of cumulative total beta will be in the high 20s is what we’re kind of projecting as we sit here today versus about 24% in the last hiking cycle.
Casey Haire: Okay. Got you. So apologies if I missed that. So high 20s through the cycle is what you’re thinking?
Vince Calabrese: At the end of the year, yes, it’s pretty kind of
Casey Haire: Okay. All right. Just last one for me, maybe one for Gary. So the provision guide of 65 to 85. You guys do mention a softer macroeconomic environment. We’re all kind of struggling with CECL modeling. Just wondering if any color on and you can provide on what — how softer that macro is, be it unemployment rates, GDP, et cetera.
Gary Guerrieri: Yeah. It’s pretty much across the board, Casey. And during the quarter, we also saw some softer economic forecasting in our CECL models, which impacted the provision to the tune of about $8 million. So we’ve got that built in through 2023. So that is a pretty good portion of where we’ve guided to across the year.
Vince Delie: The other naturally is — the other naturally is loan growth as far as the driver there. And loan growth we’ll move those numbers a little bit within that range, as we’ve talked in the past.
Casey Haire: Thank you.
Operator: And our next question comes from Daniel Tamayo from Raymond James. Please go ahead with your question.
Daniel Tamayo: Thank you. Good morning, everyone.
Vince Delie: Good morning.
Daniel Tamayo: Sorry, I just wanted to clarify that last comment, Gary. Did you say that $8 million reserve build is what was built into your assumptions for the 2023 provision?
Gary Guerrieri: No. I’m sorry. The $8 million was CECL macroeconomic forecast changes in Q4.
Daniel Tamayo: Okay. I apologize. All right. Terrific. Do you have a thought on kind of how much reserve build is in the guidance relative to what would be just loan growth or charge-off activity?
Gary Guerrieri: Yeah. CECL impact is about a third. Loan growth is about half of it.
Daniel Tamayo: Okay. All right. Thank you. And then maybe we could just talk a little bit more about the margin. I know we’ve talked a lot about deposit betas, but just interested in your thoughts on actually the pace of the margin. We can kind of back into what the rest of the — what the 2023 would look like based on your guidance, but just interested in terms of, if you do continue to get expansion in the first quarter and kind of how much — how accelerated the contraction you’re expecting after that point would be?
Vince Calabrese: Yeah. I can comment on that, Dan. The outlook just to restate again, includes an additional 50 basis points of hikes in February and March and then no additional Fed actions for the rest of the year. Our guidance would imply a slight increase in margin from the 3.53 level that we were at in the fourth quarter, peaking maybe the second quarter and they’re based on what’s in our plans, but we’re talking single digits of basis point movement there. So there’s still some upside to that level. And then similarly, on the other side, it comes down a little bit from that peak, but we’re tucking in the single basis point type level. So that’s what’s baked into that.
Daniel Tamayo: Okay. Great. I appreciate. Okay. Terrific. And then I just wanted to again clarify an earlier comment. I think you said the midpoint of your expense guidance would assume that you or would be under 50% efficiency ratio in 2023. I just want to make sure that, that’s what I heard. And if there was kind of a — I had an original question, like how likely you think it is that you do stay under 50%. So I guess assuming your expenses come in about where you expect — you would expect that to be under 50% is an accurate statement?
Vince Calabrese: Yeah. Using the midpoint of our guidance kind of across all the different categories, that’s you’re very right. That’s an accurate statement.
Daniel Tamayo: Okay. And is that kind of becoming a longer-term goal for the bank to stay under 50% efficiency ratio or if we get into a lower rate environment, do you think that might drift back over.
Gary Guerrieri: I would say our goal would be to continue to reinvest in the company. And with the changes in the margin based upon macroeconomic factors, it could swing back and forth over 50, under 50.
Vince Calabrese: Yeah, low 50s, I would say, would be a reasonable longer-term kind of.
