Q4 2022 Dime Community Bancshares Inc Earnings Call
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I think if you're a patient experience and gentlemen, todays call will begin shortly please stay on the launch.
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Good morning, good afternoon, and welcome to the <unk> Community Bancshares, Inc, fourth quarter earnings call.
My name is out there and I'll be your operator for today, if you'd like to ask a question on the Q&A portion of today's call. Please press star flipped by one telephone keypad.
Before we begin the company would like to remind you that discussions during this call contain forward looking statements made under the safe Harbor provisions of the U S. Private Securities Litigation Reform Act of <unk> five.
Such statements are subject to risks uncertainties and other factors that may cause actual results to differ materially from those contained in any such statements, including our set forth in today's press release and the company's filings with the U S Securities and Exchange Commission to which we refer to you.
Turning the screws references will be made to non-GAAP financial measures and supplemental measures to review and assess operating performance.
non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U S. GAAP.
Information about these non-GAAP measures and a reconciliation to GAAP. Please refer to today's earnings release, I will now hand over to Kevin I wanted to begin to Kevin. Please go ahead, when you're ready.
Good morning, Thank you Adam and thank you all for joining US. This morning with me today are still little our president and Chief operating officer, and I'll be ready our CFO .
We are pleased to report another strong quarter for di.
But before we get into the quarter results I want to take a moment to comment on our full year performance.
2022 was a very successful year for Dod and our strong and consistent performance throughout the year reflects the power of our commercially focused community bank model and our dominant market share on greater long Island.
Full year reported over $145 million and net income and EPS of $3 73 per share.
Our return on assets for the four quarters of 2020 to $1 1312716, and one 3% stable results. During this rapidly rising an unprecedented interest rate environment.
We were able to achieve strong returns by keeping our operating expenses controls and our NIM averaged $3 25 for 2022 compared to $3 14 for the fourth quarter consistent with our stated posture operating a moderately asset sensitive balance sheet.
We supported our customers and grew loans by approximately $1 3 billion and put in place the talent and infrastructure to grow our C&I business to the next level.
Must give full credit to each of our 800 plus employees on delivering record growth and profitability.
Yeah.
Turning to our results for the fourth quarter, we generated net income of $38 2 million or EPS of <unk> 99 cents a share a year over year increase of 19%.
We had another impressive quarter of net loan growth and again focused on prudent cost control.
Loan growth for this quarter was well balanced across various asset classes and <unk>.
Accordingly, and the key strategic priority for Us this quarter, we grew business loan balances by $215 million and continue to have a strong pipeline in this area.
So onshore will provide more color on our current pipeline and the mix in the Q&A.
Yes.
As you heard from our peers and consistent with the banking industry at large the environment for deposit gathering is extremely competitive not just competition from other banks, but also from market related products, such as U S treasuries and money market funds.
Despite these headwinds we were able to maintain average DDA at around 36% of deposits.
We continue to expect some level of migration from DDA to interest bearing accounts, but are laser focused on this and our incentive compensation plans from top to bottom our designs are prioritizing DDA.
We have a strong group of commercial bankers and they had the luxury over the past years of using excess liquidity on our balance sheet.
Obviously, the goals and objectives this year will be heavily weighted and refocused even more on deposit generation.
In addition to our commercial bankers with a specialized treasury management team with a robust product set.
Working in tandem with our commercial bankers and retail branches, we have all the right people and systems in place to deliver on 2023 goals.
Sure.
We were not very competitive our consumer deposit front over the past few years. However, starting in late 2022 and into 2023.
We like many others are being more competitive in this segment as well.
We think 2023 deposit growth will come from various sources some component will be DDA, but it will also include a mix of light less price sensitive interest bearing accounts and even some market sensitive accounts.
Our cycle to date deposit beta for this round of tightening has been approximately 19, 7%.
74 basis points versus the increase in cost.
74 basis point increase in cost of deposits versus 375 basis points of fed hikes up to mid December .
Performance on this front compares favorably to our Metro New York competitors again, a relatively lower betas have been driven by the significant level of DDA and our balance sheet.
This remains a clear differentiator for dime versus other competitor banks in our footprint.
As you know historically the Metro New York area has been a more competitive market for deposit gathering, while affording robust loan growth opportunities and more stable asset quality performance in other parts of the country.
Avi will get into our expectations of betas and NIM in his remarks.
Moving to asset quality, our npa's and loans 90 days past due were down 22% versus the linked quarter.
During the pandemic. We also took a fairly conservative stance on migrating loans the classified status and we've seen a significant decline in classified assets this year.
Our net charge offs in the fourth quarter were only one basis point.
Avi will again provide more detail on loan provisioning for this quarter.
Suffice to say, we feel comfortable with the level of reserves and the overall health of our balance sheet. Thus.
Thus far we have not seen any meaningful early warning indicators of credit deterioration.
As you know Don credit losses have been well below the bank index over multiple cycles.
Underpinning our strong historical credit credit performance has been our bulletproof multifamily portfolio that has an LTV of only 57%.
We continue to believe this portfolio will outperform any potential recessionary environment.
So as this has been a fairly topical question on other earnings calls a quick update on our fixed office exposure in Manhattan.
As mentioned previously we only have $229 million of loans with LTV of approximately 53%.
Finally, as the Aoc Aoc eye on the balance sheet stable. This quarter, we were able to grow tangible book value per share by <unk> 86 for the quarter or 15% 15, 4%.
We had a strong quarter and year end year, our balance sheet is positioned to produce strong returns in any economic environment as evidenced by our quarterly and year to date <unk>.
Over one 2%.
We remain focused on managing our margins and the difficult inverted yield curve environment, and we are focused on growing core deposit relationships, which have value in any rate environment.
We remain excited to deliver on the opportunities in front of us as a true community commercial bank and are highly focused on being responsive to market conditions and our customers' needs.
Our goals for 2023 remain consistent.
Managing our cost of funds and prioritizing NIM and an inverted yield curve yield curve environment.
Prudently managing expenses and as always maintaining solid asset quality.
At this point I'd like to turn the conference call over to Avi, who will provide some additional color on our quarterly results and thoughts around 2023.
Thank you Kevin for the fourth quarter, our reported net income to common was $38 2 million.
Our reported NIM for the quarter was $3 15.
Kevin mentioned, our full year 2022, NIM was higher than the 2021 fourth quarter base, reflecting a modestly asset sensitive position.
Over the course of the third and fourth quarters, we supported loan demand through the addition of approximately $1 billion of epic.
<unk> borrowings.
While we have the ability to borrow longer at a lower cost we intentionally kept the duration of these borrowings for one month on that so that we can benefit from a full replacing in the event that the forward interest rate curve materializes and the federal reserve does indeed lower rates starting in late 2023 into 2024.
Hello to how many companies kept excess cash during the pandemic and benefited from rising rates. We are following a similar strategy on the liability side, we are intentionally things shot and hope to benefit from a full repricing if and when rates do go down.
A couple of housekeeping items net accretable balance from purchase accounting currently stands at approximately one 5 million in purchase accounting accretion was fairly immaterial this quarter.
Included in the $3 15 margin with three basis points of prepayment related income.
Average total deposits for the quarter were down 2% and our cost of total deposits increased by 46 basis points.
We were again pleased with our deposit beta is lagging the level of fed funds increases in the fourth quarter.
That said given the rapid pace of rate increases in the absolute level of market rates, we do expect deposit betas to continue to increase from the level seen in the cycle.
We continue to have a significant repricing opportunity on our loan portfolio and we continue to proactively manage our loan pricing.
<unk> on our total pipeline is approximately 625.
This is significantly higher than our existing loan portfolio rate of approximately $4 75.
The clear medium to longer term opportunity for us is to replace our loan portfolio at new origination rates, which are approximately 150 to 175 basis points above the overall portfolio rate.
Core cash operating expenses, excluding intangible amortization and loss on extinguishment of debt for 2022 was $198 million, which was within our full year guidance. We remain highly focused on expense discipline, while making necessary investments in our franchise and have built this into our culture on a very granular level.
Core cash operating expense for the fourth quarter, excluding intangible amortization came in at approximately $50 million.
Our core efficiency ratio this quarter was 47% and for the full year 2022, we also operated at approximately 47%.
Noninterest income for the fourth quarter was approximately $9 $5 million or a 19% increase versus core noninterest income from the third quarter, excluding the branch sale gain in the third quarter.
As we had predicted revenue from a back to back customer loan swap program and our SBA business picked up in the fourth quarter compared to third quarter levels.
Moving on to credit quality provision for the quarter was $335000.
We did have approximately $450 million of loan growth in the fourth quarter. We also saw a reduction in reserves on various individually analysed loans that moved some substandard and doubtful categories into better risk ratings, driving a relief and resolved individually analyzed portfolios.
Needless to say, we're comfortable with the level of reserves on our balance sheet.
The allowance for credit losses of 79 basis points is still above the historical pre pandemic combined level of the legacy institutions.
During the fourth quarter, our capital levels remained relatively stable, despite supporting $450 million of loan growth.
As we've guided to previously supporting loan growth and our clients is the first and best use of our capital base. We will continue to manage our balance sheet efficiently and our tangible equity ratio of 776, including the full impact of <unk> and <unk>, excluding the impact of <unk> is within our comfort zone.
Next I'll provide some guidance for 2023.
We expect loan growth for the first half of 2023 to be in the mid single digits on an annualized basis.
We've clearly demonstrated strong loan originations with sequential growth every quarter in 2022.
Focus is ongoing solid business relationships, while keeping our multifamily portfolio relatively flat.
Given the economic environment and uncertainty around how customers will react to additional federal reserve rate hike, we will update you on our growth goals for the second half of the year on subsequent earnings calls.
As you know, we don't provide quarterly quantitative NIM guidance.
Operating in a significantly inverted yield curve with intense competition on the deposit side.
As Ken as Kevin Kevin mentioned, our deposit beta to date has been 19, 7% fairly creditable freight 375 basis point rate shock to the system.
Even with some future deposit cost lag if rate increase in its stock at these levels, we would have been within our previous cumulative cycle guidance for deposit betas of 20, 25%, which was based on around 300 to 325 basis points of rate hikes. However, given the fact that the federal reserve is going to the 5% error rate.
We're now expecting higher cumulative betas as the last 100 to 150 basis points as added more heightened impact on customer behavior versus the first 100 to 250 basis points.
Given the level of fed funds increases in the competitive environment in general there'll be a lingering impact of deposit cost catch up over the course of 2023.
Best estimate right now is that cumulative betas end up in the 30% area for total deposit cost and deposit cost peaked towards the back half of this year.
The loan to deposit ratio ended the year at 108% up from 97% in the prior quarter and slightly above our target range of 90% to 95% to 100%.
Going forward, we will exercise price discipline and pace of deposit growth to approximate the growth and well place lending opportunities with <unk>.
Only focused on deposit gathering to a seasoned relationship bankers and Treasury management teams and competitively priced consumer deposits.
Our goal is to operate over the course of 2023 with a loan to deposit ratio below one <unk>.
Should rates decline in future years, 2024, and beyond we do expect prepayments in our multifamily portfolio to pick up which will lead to a natural normalizing of the loan to deposit ratio overtime.
Yes.
As mentioned previously our core cash operating expense base, excluding intangible amortization was $50 million for the fourth quarter of $200 million annualized.
We expect core cash operating expenses for 2023 to be between two six and $2 9 million.
Included in this guidance is approximately $2 million of additional expenses related to the industry wide FDIC surcharge and also $2 million of additional expenses for our pension plans for 2023, which is related to the poor performance of the equity markets in 2022.
Obviously, both of these items are outside of our control absent. These items the expense diluted have been closer to one to 200 to 205.
Be that as it may we remain focused on controlling the things we can and we will do everything in our power to beat the guide for this deal and we continue to evaluate opportunities for expense reductions across the bank.
We expect noninterest income to be within a range of 35 million to $37 million. This guidance takes into account the full year impact of the Durbin Amendment on interchange.
We expect to manage our capital ratio as efficiently and are very comfortable operating the company at our current capital.
We are very active on the share repurchase plan in 2021, and 2022 and should our capital levels. Those for any reason, we will not be shy to enter the market. We are repurchasing repurchases given the value we see in our stock.
Finally, with respect to the tax rate for 2023, we expect it to be approximately 28%.
With that we can turn the call back to Adam for questions.
Thank you as a reminder, if you'd like to ask a question today. Please press star followed by one on your telephone keypad.
Parents ask a question. Please ensure your headsets fully put in an unusual locally.
Flip by one further question.
And our first question today comes from Mark Fitzgibbon from Piper Sandler. Please go ahead. Your line is open.
Hey, good morning, guys.
Wondering if I could just could you just go through your fee income guidance again, I didn't catch all of that.
Yes, so the guide for this year markets, 35% to $37 million on fee income.
This is the first year that we're going to have a full impact of build and if you remember starting July 1st we did have an impact for the second half of the season.
Seasonally Q4 is a little higher with certain fees that we recognized in the fourth quarter. So the guidance for next year is really 35% to 37 daily expecting good income on the on the loan swap program that we have and on the SBA side and our Treasury management business really kicking on all cylinders at this point so.
That's going to offset the full year the claim for the interchange income nearly 35% to 37 for next year.
Okay and I heard your comments on the margin Avi, but could you help us think at a high level. When you think that perhaps the margin kind of bottoms out does that.
Relative to when the fed is done raising rates or some other metric.
Yes, I think so what we said in the prepared remarks, Mark was we do think deposit costs are going to continually increase over the course of the year and probably stabilized by the back half of this year.
I would point out is when you look at our front book back book in terms of loan originations.
The front book, that's coming on in the low sixes and the stuff. That's amortizing is around <unk> 40 for this prior quarter, So it's going to.
That's going to benefit us going forward, obviously, but the one quarter that the fed does stop hiking youre going to see then the impact of repricing stop in deposit costs overpowered for a quarter or two so I would say towards the back half of this year, we're highly focused on stabilizing the NIM and obviously, we believe this company should have a name.
And the $3 20 to 330 area in the medium to longer term.
Again, it's on keeping those kept DDA at 36%, we're happy with that.
It's still growing our customer base.
This point in time.
So yes, I think I think really just a function of deposit cost catching up a little bit and a little bit of lagging.
The first half of this year.
Okay, and what would you say the spot deposit rates are today.
Yes, we were a little bit over 1% at the end of at the end of the year.
Okay great.
And then I guess, just strategically thinking about it given the funding challenges out there and the fact that you guys aren't wildly overcapitalized.
Would it make sense to kind of slow loan growth even more.
Slow down the growth in the balance sheet.
To protect margin if you will.
I think hi, Margaret Stu Lubow.
Thank you.
We're talking about.
Mid single digit growth this year.
Yes.
The 18 months have been significantly higher than that.
We are seeing a moderation in our.
In our pipeline, but a big part of our growth in the early part of this year was the multifamily portfolio and that portfolio. We're really just servicing our existing customers and doing swap deals on that portfolio not we don't expect to see any real growth in that portfolio at all for the year.
So just a national re remixing.
The portfolio and our focus on C&I and owner occupied CRE.
Is going to result in a moderation in terms of growth I mean today, we have about a one 5 billion pipeline at an average yield of.
The $6 28.
But only about $200 million of that is multifamily and even at that rate those rates are in the high fives.
We're really not in the market in terms of pricing in that portfolio.
And so we do believe we're going to have some nice growth with the C&I business in the owner occupied CRE Cubs deposit balances were really focused on that and so the funding on that is as it.
It is important and we think growing good solid business relationship DDA balances within the C&I and owner occupied.
Sectors of our product mix are very important so we want to continue to grow that part of the business.
But suffice to say, we don't expect to see this significant growth that we had over this year.
Mark I just wanted to reiterate one of the comments we made upfront.
Could you go back a year, we had significant payoffs in the multifamily portfolio right. So if you just follow the forward rate curve.
12 to 18 months from now you can again see significant payoffs in that portfolio, which is which is going to help with stabilization of the loan to deposit ratio over time, we're not seeing it right now because obviously rates are elevated but we.
We could see that portfolio pay off at a faster level in 2024.
Thank you Mark we're going to continue to do it from the standpoint of.
The value of this franchise is building relationships. So we're going to take this opportunity to continue to do that.
Thank you.
Okay.
The next question is from Steve Moss from Raymond James Steve. Your line is open. Please go ahead.
Good morning.
Maybe just starting with a quick.
Good morning, Avi, just maybe start with credit here.
Mentioned that there was an improvement in terms of criticized and classified assets quarter over quarter. Just wondering if you can quantify that.
Maybe just help us think about.
The reserve and a reserve ratio going forward.
Yes, so this quarter what happened with the result.
As part of the merger accounting we hit.
Set aside various results from various loans at that point.
And some of them were in the criticized classified category.
Upfront and over time, we've seen a steady improvement in that so that drove a part of the release this particular quarter.
The other thing that we saw was one of our biggest non accrual loans, which was on the C&I side actually move to us.
Screwing status this quarter, and it's probably $1 million of reserve release associated with that.
With us.
Substandard loans, we typically provide disclosures of that in our.
10, 10-K, which will come up in a month's time, but our preliminary numbers right now.
<unk> portfolio is indicating a continued improvement and improvement in those I mean, we're down significantly since the start of the year, what we did and you go back and look at our all 10, Ks and 10-Qs we were very conservative when over the course of the pandemic, where we moved a lot of loans that had deferrals in there and a lot of that is getting a lot better so.
Really back to the peer group median if not below the peer group median on criticized classified.
But really this quarter. It was a couple of specific loans that came out that had specific reserves associated with them. I think this is going forward on the resolve just general rule of thumb is on real estate loans, we probably have a resolve on investor Cree and owner occupied Cree of around 60 basis points, plus or minus on new loan growth and on the C&I side.
One in 125, basically so on a blended basis, it's probably around 80 basis points in terms of the reserve, which is pretty similar to our overall retail right now, which is 80 basis points, so absent any improvement or worsening economic conditions and absent any changes are not individually analyzed portfolios. The way you should think about it is if we have loan growth in the future.
The provisioning on that should be around 80 basis points given omics.
Okay, Great that's helpful and then.
Maybe just following up on on funding here just curious.
Obviously marginal funding costs are pretty high here just wondering along the curve has moved lower at what point, maybe would you consider.
Balance sheet restructuring with your securities portfolio.
If at all.
Yes, I mean, I think we look at all uses of capital at all times I think we're very comfortable with where we are.
Supporting customer growth right now is important for us, but we look at look at it all the time when you look at our securities portfolio. The yield on the securities portfolio is around 180, it's a fairly short duration portfolio is probably three to four years.
Over there.
Im not the head Steve is that if we reprice that whole portfolio to market rates, the 180 and the market rate for security right. Now is 425% to $4 50, that's a 35 basis point pick up on the NIM once that whole portfolio replaces so if something was something we think about in conjunction with the buyback in conjunction with loan growth and we feel pretty good.
About our capital levels at this point, so we do have the flexibility flexibility to do various things.
Okay, great. Thank you very much.
Okay.
The next question comes from Matthew Breese from Stephens, Inc. Matthew. Please go ahead. Your line is open.
Good morning.
Hi, Good morning, I, just wanted to stay on that point on the Securities portfolio, you mentioned the duration and.
At least in my model I'm expecting some some roll from securities into loans to help funding could you just give me a sense for kind of the.
The quarterly runoff of securities duration.
Implies just a little bit sharper than than what I had modeled.
Yes.
Yes. So we got we got around 120 $130 million of cash flows coming in in 2023, Matt.
But when we saw that PPP loans, a couple of years back, we really put that stuff into treasuries and those strategies, obviously bullet maturities two to three years out. So we got some big maturities in 2025, and 2026, probably around $300 million over there. So it is pretty shot on the FSA just because of the fact.
The strategies, we have so to answer definitely the cash flows aren't coming in because the treasuries, but theyre all going to mature two years out so theres not a lot left there.
This extension risk on that particular portfolio and obviously, we have a held to maturity bucket, which we move some securities into that late last year and Q1 to help protect tangible book and the portfolio is.
It's fairly well balanced 40% held to maturity, 60%, NFS, which gives us the ability to consider various things over time.
Okay.
Yes.
And then you had mentioned that demand deposits do you expect to kind of settle out and 30% range you are at 34% today. So obviously, there's some implied pressure there as we can.
Think about matching loan growth with deposits.
Matt we didn't say that we set out our total.
Deposit beta over the cycle would be 30% <unk>.
Average DDA was 36% for the fourth quarter. So we don't we don't really expect that we're not saying it's going to go down to 30%. So that's not what we said.
I am sorry, I misquoted you.
Could you give me some some idea of where you expect demand deposits to settle out what's your best guess with that 30% deposit beta.
Yes, I mean, I think Q4 is a little seasonal for us at the end of Q4 typically we have municipal deposits come in this time around it's a little bit of a delay in the municipal deposits come in we've seen a strong January in terms of some of the municipal checking accounts come in which I related tax receivable money. So.
Look we're going to have some pressure on that ratio, but at the same time, we've got.
Yes.
Opportunity that the bank big customers small customers and as Kevin said, our lending teams. This particularly are going to be highly focused on gathering deposits and treasury management teams are going to be focused on that so I think like.
Like everybody else in the industry, we had some excess.
Deposits the last couple of years and put that to work in growing the balance sheet was important but.
Yes, I mean, it's going to go down maybe a little bit it's really hard to predict where it's going to go down, but we do feel we have a pretty.
Granular customer base.
And everything is relationship based so that should help us stay well above the peer group in terms of this ratio going forward.
And then right now where you're most competitive in terms of higher rate offers money market Cds.
High percentage, David Gill Ranch.
So we got a CD product out there for new customers and new money, which is a four 5% rate itself.
18 month CD at that point that that is the highest rate that we have out there. So really on the consumer side, we're competitive on the business side, it's really customer by customer relationship by relationship and looking at profitability.
Okay.
And then I wanted to get a sense for whether or not look I know youre. All your non accruals. Your criticized classifieds are all solid but as you kind of step back are there any kind of underneath the hood credit cracks materializing across any of the portfolios just feels rather pollyanna ish for for us to go through this level of interest rates.
Heike.
And then mix shift in cap rates without really any material credit deterioration.
Yes, Matt I hear what Youre, saying.
We are laser focused than we've had this conversation I guess over the last three quarters.
Do we think there's going to be a crack in credit and were very watchful of it.
At this point, we're not seeing it.
I mean I think.
The positive side of our portfolio, we talked about the multifamily b, having a low LTV of 57%. The average debt service coverage on that portfolio is about 143 with the total CRE.
Investor Cree.
LTV is also 57% with an average debt service coverage of 178. So so I think from a credit standpoint, while we're we're always concern and.
And certainly as rates have gone up.
We're concerned about stress on.
Different parts of the portfolio.
I would say.
We're really not see any significant material.
Stress.
In any product line that I would say probably the.
The only area that.
Some of the customers would be the SBA.
Alright.
That's a small part of our book.
But those customers are.
Some of those customers will struggle with with floating.
Floating rates getting getting to the level they are today.
Okay.
Good morning.
One area I'd point out is that.
The companies together, we were able to really look at individual credits and I think the one difference with our resolve that we've always said versus the peer group is that a significant portion of it that the scribe to individually analysed loans. So within the 83 odd million that we have.
It's probably $31 million thats for individual credit. So we know what credits on the weaker side and we've got significant reserves associated with them and we're able to do that as part of the merger accounting. So I think we've as opposed to people who have everything in the pool result, I think the distance with them as if something goes bad then theyre going to have to start putting up results for those ideas.
We try to identify everything that may or could have an issue be conservative around it and already set those aside and thats. What you saw this quarter you saw some stuff improve and Thats why the reserve was closed the provision was close to zero, even though we had significant.
Something else to think about it.
The model and virtually everything that we do.
Yet we have charged off this year was previously identified as part of the merger and we took the mark so.
Sure.
The due diligence we did early on.
Prove to be correct and and so we really haven't seen any new credits.
Significant new credits come too.
Come to us as a problem.
Great understood. That's all I have thanks for taking my questions.
Yeah.
Yes.
As a reminder, if you'd like to ask a question today Thats star one on your telephone keypad.
The next question comes from Manuel in the past from D. A Davidson. Your line is open. Please go ahead.
Hey, good morning.
What's your outlook of trying to stay below.
108% loan to deposit ratio.
What kind of like that thinking.
Quickly you might approach that.
Would that be something that could happen.
Next quarter.
Just kind of any color there.
No.
What we're trying to stay with that as pipeline likes to set is really strong at this point right.
Built a lot of business over the course of 2022 and until we have a line of sight on the loan portfolio in the first half of beyond at any point in time again, when people think about our loan to deposit as of period end number a day. So we've got some seasonality in the deposits like escrow deposits for example that could stay.
For the whole quarter, but then go out at the end of the quarter. So I think we just wanted to ask on the guardrails around risk.
We operate.
Loan growth is probably going to be stronger than the first half of the yards in the second half of the year, but.
I think again, we're focused and then Ken Kevin said the store back in the consumer market for competitively priced deposits.
So it's not a full quarter per month thing, but we just wanted to stay under that threshold for this year.
And I also think it's important to understand that we're going to continue to remix the portfolio out of the multifamily business in it.
To the areas, where we've really grown capability in terms of the middle market C&I owner occupied CRE. So you should expect and could expect to see multifamily as a percentage of the total us significantly reduce over over the next several years obviously.
What that does is.
Improve our NIM because we again.
50 to 100 basis points better yield on the non multifamily part of portfolio and of course.
Deposits come along with the Eni in.
A relationship business.
I appreciate that I think that's going to be my next question about growth.
Mix and growth so it's going to be definitely more C&I.
Did you give what proportion of the pipeline of C&I at the moment.
Yes, so of that.
One 5 billion.
Approximately 40% is.
Is C&I and owner occupied Cree.
I appreciate that color.
Is there.
I know that you don't like to get kind of near term NIM.
Expectations, but.
Anything you can give on like the directionality and kind of success of your current offers in the marketplace and to help.
Stabilized funded.
Yes sure.
In terms of consumer deposit suites, we have some offers out there at the start of the CR and we've already raised $75 million of deposits on that so do you think following back to the loan to deposit ratio question I mean thats the market that we can access <unk> seen a lot of banks do it it's going to be a mix between CDN competitive savings.
<unk> products I think the one disclosure we always like planting the analysts do is if you. If you look at our prior 10, Ks and 10, Qs and annual on the economic value of equity and you go back to.
The start of the Youre looking at 10 Cade, our EV was around $1 two at that point in time and you look at what we had in our September disclosures. It was around $1 $7 billion to $1 billion and so what that's really telling you is that the present value of the cash flows of the assets and liabilities. Once they go through that full cycle, which is over a DCF.
Model over three to five years.
Our own models are saying the bank is worth $400 million to $500 million more.
That doesn't show up in our quarterly NIM number because of the NIM can go up and down in any particular quarter. So I think look.
Looking at those EV numbers provided some directional analysis of the franchise value in the company.
Our next 10-K Youll see the next TV numbers come out.
What do you assume.
Are the ranges for your.
Noninterest bearing deposit balance in that calculation because that could shift back.
Pretty widely correct yep.
No absolutely, but it's a projection over the course of five years right. So.
We see some attrition than when we model that based on recent history of what we're seeing but like Kevin said, our noninterest bearing our average noninterest bearing deposits for the fourth quarter was 36% I mean, we have that sort of deposits that we pay out at the end of the year. So the spot balances always kind of misleading, but I mean.
We went 37%.
When we went into the cycle and with 36% right now so we've done a really nice job keeping at that I think.
Kevin said, all our goals are really focused on deposits and growing deposits. So.
Some level of that we obviously modeled certain level of betas and then as I said.
We always do our IRR modeling was around 30% betas and that's kind of what's what's in there, but I think in the near term. We are sure you could see.
People move out of DDA into interest bearing deposits, but then over time once the fed starts cutting rates again, you could see a migration back into DDA that as well.
Yeah.
Okay that color is really help.
Thank you.
The next question is from Chris Combe from J P. W. Chris. Please go ahead your line is open.
Hey, good morning.
I appreciate the expense guide.
Was hoping to just get a little bit of color given.
First quarter seasonality.
Especially in the comp line with some of the things you mentioned.
Maybe where the starting point is for the year.
How that how that cadence kind of progresses.
From there.
Yes, Chris I think we typically shouldn't be too much seasonality with our numbers, we try to accrue pretty much true up towards the end of the site and other some banks that have a significant amount of seasonality, probably a little bit little bit less for us I would say in general we kind of met all the goals, we set out at the <unk>.
Out of the us so we should be okay on that I think we've tried to focus on the full year number because again, there could be movements up and down and you are right Q1, sometimes a little bit more but.
Not too much more for us.
Think within within the two six to $2 nine like I said, we got the FDIC and we got some items for the pension, which hopefully are not recurring for 2024, 8% to 23 is a little bit of a abdominal here.
There is also some investments that we're making in our digital platforms that are part of that and then in addition to that as you know employee costs.
Just the cost of cost of running our business. So nothing too much out of the ordinary for us, but we hope to come in in line or better than that $262 million for the full year like we did for the last two years.
Got it.
That tension comes in ads.
<unk>.
Perhaps with $5 million a good quarterly run rate starting in the first quarter.
Yes, I mean, the way the pension works is you get an estimate at the start of the year you accrue for the whole year.
Run rate and then you do a true up at the end of deals so that would kind of be straight line correct exactly.
Okay great.
And just given the updated outlook.
On the margin.
In the near term here.
The first part of the year.
How do you guys feel about the sub 50% efficiency ratio target.
Yes, I mean look what we can control the things we can right. So when you focus on expense to assets. We earned $1 55, this past quarter, and I think being there being better than that as a goal of the company.
And we're highly focused on that I think when you think about the efficiency ratio you go back to.
When we put the two companies together and our goal is to be at sub 50% I think we'd be flat from the first quarter I think we've beaten that every single quarter. Some quarters. We operated 44. This past quarter was 47 rates. So look every quarter. It may go up or down, but I think in the medium to longer term, we definitely want to be sub 50% efficiency ratio bank, which we.
Definitely.
Concentrated over the course of the last 24 months.
Great.
<unk>.
And as far as just the loan growth you guys seem to have.
Robust pipeline still.
Especially our.
For the first half of the year.
What are you guys seeing the biggest opportunity for growth and are you getting any kick back from your customers.
On the higher rates.
The new originations.
Yes.
The real opportunity for us.
And what we've really focused on as I said is the C&I and the.
Owner occupied CRE, because those are relationship businesses.
And.
We really been able you saw significant growth in C&I I mean today the.
Weighted average rate on that.
Part of the portfolio and the pipeline is 744 so.
The fact is we're able to with our new teams bring on business.
These rates.
And.
We're still conservative underwriters.
On the on the on.
On the CRE and the Investor Cree.
We're maintaining our desk debt service coverage ratios, even at these interest rates, which are basically our rack rates.
Investor Cree is about $6 $5 today.
So again, we're we're.
We're very comfortable with where we are.
<unk> able to develop new relationships new business.
Even within this higher rate environment.
I think the fact that we are.
<unk>.
Our local community commercial bank building relationships is the key and.
The banks that we're taking the business from our larger end.
Provides us an opportunity to provide personal service of your attention.
Customers desire.
And we can do it competitively with all of their products and services.
A larger commercial bank.
So that's our opportunity and to date, we've been able to.
To accomplish that I mean, just in the fourth quarter alone.
While we had $450 million.
Net growth, we had $680 million.
Total originations.
At.
The high fives in terms of yield so.
The fact is we've been able to to really improve our yields and grow the business, even though one of these.
Right.
<unk>.
Got it appreciate the color thanks for taking my questions.
Thanks, Chris.
We have a follow up from Steve Moss with Raymond James Steve. Please go ahead. Your line is open.
Yes, just two follow ups for me, maybe just going back to funding cost here I'm, just curious kind of what the maturity schedule is on the <unk> portfolio and kind of.
Think about how we think about that rate pricing up here going forward.
Yes.
He used to.
Some disclosure in our press release on the.
On the CD portfolio I mean, maybe it will maybe it would put that back but there is around $600 million that we have.
Say the biggest pieces in the month of May where we have around $100 million of Cds.
Right on that is around 3% so.
I'd say its $600 million of that is the seller and the rate on that is around $1 50 to $1 55. So.
The item that is generally on a CD portfolio, we see retention rates of around 65% to 70% based on current rack rates and then the remaining 35% of it youre going to have to go out in the market and fund at a higher rate. So in the near term you're going to see some.
Some deposit cost increase because of Cds are pricing up as stuff rolls off, but what we've done and I've mentioned this in the script was we are trying to keep everything fairly shot so that when the fed does drop rates, we're not stuck with 24 36 months maturities over there. So everything is generally fairly short on the CD portfolio.
Okay.
And then maybe just.
On M&A here, just kind of curious any updated thoughts you guys may have in terms of level of discussions and your appetite for transactions.
I think we've been talking about this for the last several quarters. We are focused on the organic opportunities in front of us.
This is certainly a challenging environment to think about that.
We have demonstrated that putting these two companies together we are in a position to do something if it was <unk>.
Available, but really the focus for us is continuing to grow in this marketplace, taking advantage of our position here.
And.
Stu as shown on here, we're showing you on the pipeline and that there is plenty of opportunities for us can you grow our franchise organically.
Great. Thank you very much.
As a final reminder, Thats star one to ask a question today.
As we have no further questions. So I'll hand, it back to the management team for any concluding remarks.
I just thought Atlas.
Router will be accomplished in 2022 on behalf of the board I want to thank the whole team for what they've done the efforts and the focus.
And I know Theres a lot of questions about margin, but we believe the value of the business model that we have seeking customers strong relationships.
Our conservative credit philosophy.
So it's a model that worked the legacy bridge. It worked with the team that you brought on from dine in.
And what we've done.
The near term challenges, we managed as the entire balance sheet adjust to the current rate environment organizations like ours, which superior funding basis will ultimately succeed so again I want to thank everybody for their interest and questions today and look forward to if you have any follow ups. Please give us a call.
This concludes today's call. Thank you very much for your attendance you may now disconnect your lines.
[music].
Yeah.