Dale Gibbons: Well, I think ECRs are going to have a very high beta. They have on the way up, and we expect them to have a high beta on the way down. And so if we get rate cuts, we’ll be able to — we’ll be — I think we’ll be able to push those down kind of almost in lockstep. In addition, some of these are — have ECRs that are effective Fed funds plus some number of basis points. And part of the reason why I think pressure really came on the industry overall on deposits is because of the competition from the bond market. So as people are comfortable that the FOMC is done with whatever rate increases they’re going to contemplate, I do think that that’s going to relax some of the pressure on deposit costs for the industry kind of at large. And I think that they give us an opportunity to tweak some of those adjustment figures that we might have on some of those ECRs.
Kenneth Vecchione: Dale gave you the rate side, and I’d also add. For us, we expect another 25 basis points in Q4 with several cuts towards the back end of next year. So deposit costs will rise and fall along with those rate cuts. But if you’re talking about total dollars, also keep in mind, if we exceed our guide, which we have in the last two quarters, you’ll see the volume aspect take hold, and you’ll see dollar-wise the ECRs rise. So it’s going to be a little bit of a rate volume mix as we go forward. In addition, what Dale was alluding to earlier in terms of the deposit initiatives we have. We think that we have some of these will grow more quickly than what our warehouse deposits, which is kind of heavy ECR dependent have done, and that would give us a broader distribution and more diversification on our funding structure.
Bernard von-Gizycki: Great. And I appreciate that color. Maybe just on office CRE. I know your credit has been really good, but if I look at the 3Q exposure, I believe it increased from $2.3 billion in 2Q to $2.6 billion. Just wondering any color you can provide on the increase and if there’s any loan sales.
Timothy Bruckner: Tim Bruckner here. I can take that. Any increase would have been in-flight balance increases, fund up of tenant improvements, it would be good news money with signed leases. We didn’t increase new exposure in office.
Kenneth Vecchione: Yes. I’ll just say as long as you brought that up, remember, 89% of our office portfolio sits in suburban locations. Only 3% sits in central business districts, about 7% sits in Midtown. And our office book represents new construction or new vintage Class A in core submarkets. So again, we go with experienced sponsors, proven track records in adding value and repositioning. Our LTV there is about 60%.
Bernard von-Gizycki: Great. Thanks for taking my questions.
Operator: Our next question comes from Brandon King of Truist Securities. Brandon, your line is open. Please go ahead.
Brandon King: Hi. Good morning. So I wanted to follow up on the topic of ECR deposits. And just to confirm, are you expecting that composition of the DDA-based ECR deposits, are you expecting that to march higher over the course of next year?
Dale Gibbons: Well, I think the acquisition of DDA funds in this elevated rate environment is quite challenging. So I mean, the DDA that we had increase in the third quarter was kind of overwhelmingly a mortgage warehouse. So — and I think that straight, flat out DDA, we have had success with in the regions during the quarter as well to some degree. But yes, I think most of the deposits we’re going to be in either interest-bearing checking or money market accounts.
Brandon King: Okay. Got it. Makes sense. And then I wanted to talk about the shift from the held-for-sale loans to held for investment, and particularly the lot banking loans. Could you walk us through the original thought process of designating those held for sale and then elaborate more on the decision of bringing those back as held for investment.
Timothy Bruckner: Yes. Let me take that. So this was a liquidity decision, right? So in Q2, we grew our total deposits by about $3.5 billion here. This quarter, we grew a little over $3.2 billion. I also want to emphasize, we paid down broker deposits by $441 million. So otherwise, we would have grown by $3.7 billion. And back from Q1, we put some loans into HFS in order to be ready to create additional pools of liquidity, which aren’t needed. And so we moved these loans from HFS back into HFI. And regarding your lot banking question that you alluded to there. Generally, our lot banking programs are all on schedule with the builders. And really, the builders cannot afford to lose any of this inventory and lose control of their for-sale demand. So again, this is a segment of loans category that we like a great deal and has a very good risk/reward attribute to it. And we’ve never, since we’ve been doing it here at the bank, suffered a loss on that.
Brandon King: Got it. That’s all I had. Thanks for taking mu questions.
Operator: Thank you. Our next question is from Ebrahim Poonawala of Bank of America. Ebrahim, your line is open. Please go ahead.
Ebrahim Poonawala: Hi, good morning. Just maybe, Dale, when you think about the $2 billion per quarter deposit outlook for next year per quarter, just talk to us the source of that deposit growth, where that’s coming at and what is your assumption around the rate at which these deposits are coming on? Is it meaningfully below so far? Just some color around how we should think about that and just how that’s probably going to impact your NII, NIM outlook until rates get cut. Thanks.
Kenneth Vecchione: So I’ll take the first half of that and toss it over to Dale for the second half. But regarding where is the sort of the deposit strength coming from. Next year, I think you’ll see — first of all, you see it from some of our traditional lines. HOA will have — is projected to have a good year next year. Warehouse lending/note financing, generally, is traditionally strong year-after-year. The critical item there is what happens in the mortgage industry that it could accelerate a little bit more, great pull back, and we’ll see a little bit more deposit growth there. But into next year, we are looking for a number of our newer business lines to contribute in greater sums than they previously have, namely our settlement service business, our business escrow services business and our Corporate Trust business.
Those three should have an above growth rate to prior year’s history here and should really contribute. But I’ll also say that the regions, this is the second quarter in a row the regions that have had very solid growth. And what we like most about the regions, it’s a little more granular, okay? It’s not big and chunky as some of the other parts of our business. And last but not least, we’ve had tremendous success with our consumer — digital consumer platform. And that has really exceeded any of our wildest imaginations in terms of the numbers we initially forecasted for it. And that too will continue throughout 2024.
Dale Gibbons: The large preponderance of the pricing that we’re getting for new business ranges from the 3s, and that’s really in the regions, to the 5s, and that includes some of the things we talked about, we’re a mortgage warehouse and in some of these other channels. I think we’re going to be kind of in the middle there. We weighted average something with — in the quarters. And I think that’s probably a good target for 2024.
