Q3 2023 OceanFirst Financial Corp Earnings Call

Speaker 1: Hello all and welcome to Ocean First Financial Corp's third quarter 2023 earnings call. My name is Lydia and I'll be your operator today.

Hello, and welcome to I should last financial Corp, third quarter 2023 earnings call. My name is <unk> and there'll be your operator today.

Speaker 1: If you'd like to ask a question, you can do so by pressing star followed by the number one on your telephone keypad.

If you'd like to ask a question you can do so by pressing star followed by the number one on your kind of think he thought.

Speaker 1: I'll now hand you over to your host, Alfred Goon, SVP of Corporate Development and Investor Relations to begin.

I'll now hand, you over to Bill Hi, Alfred gain SVP of corporate development and Investor relations to begin.

Thank you Lydia.

Speaker 2: Thank you, Lydia. Good morning and welcome to the Ocean First third quarter 2023 earnings call. I am Alfred Goon, ICP of Corporate Development and Investor Relations.

Good morning, and welcome to the Ocean <unk> third quarter 2023 earnings call I am Alfred <unk> SVP of corporate development and Investor Relations.

Speaker 2: Before we kick off the call, we'd like to remind everyone that our quarterly earnings release and related earnings supplement can be found on the company website OceanFirst.com.

Before we kick off the call, we'd like to remind everyone that our quarterly earnings release and related earnings supplement can be found on the company website Ocean first dot com.

Speaker 2: Our remarks today may contain forward-looking statements and may refer to non-GAAP financial measures.

Our remarks today may contain forward looking statements and may refer to non-GAAP financial measures all participants to refer to our SEC filings, including those found on forms 8-K 10-Q.

Speaker 2: All participants should refer to our SEC filings, including those found on forms 8K, 10Q, and 10K, for a complete discussion of forward-looking statements and any factors that could cause actual results to differ from those statements.

Q and 10-K for a complete discussion of forward looking statements and any factors that could cause actual results to differ from those statements.

Speaker 2: Thank you, and now I will turn the call over to Christopher Marr, Chairman and Chief Executive.

And now I will turn the call over to Christopher Maher, Chairman and Chief Executive Officer.

Speaker 2: Thank you, Alfred. Good morning and thank you to all who have been able to join our third quarter 2023 earnings conference.

Thank you Alfred good morning, and thank you to all who've been able to join our third quarter 2023 earnings Conference call.

Speaker 2: This morning I'm joined by our president, Joe LaBelle, and our Chief Financial Officer, Pat Barrett.

This morning, I'm joined by our President, Joe Labelle, Chief Financial Officer, Pat Barrett.

Speaker 2: We appreciate your interest in our performance and this opportunity to discuss our results with you.

We appreciate your interest in our performance in this opportunity to discuss our results with you.

Speaker 2: This morning will provide brief remarks about the financial and operating performance for the quarter and some color regarding the outlook for our.

Tony will provide brief remarks about the financial and operating performance for the quarter and some color regarding the outlook for our business. We may refer to the slides filed in connection with the earnings release throughout the call.

Speaker 2: We may refer to the slides filed in connection with the earrings release throughout the call.

After our discussion we look forward to taking your questions.

Speaker 2: Our financial results for the third quarter include a gap diluted earnings per share of 33 cents. Our earnings reflect net interest income of 91 million dollars, representing a modest decline compared to the prior length quarter of 92 million.

Our financial results for the third quarter included GAAP diluted earnings per share of 33 cents.

Our earnings reflect net interest income of $91 million representing.

Representing a modest decline compared to the prior linked quarter of $92 million.

Speaker 2: Our third quarter results were impacted by modest margin pressure linked to our efforts to improve the bank's liquidity position and the quality of our deposit funding.

Our third quarter results were impacted by modest margin pressure linked to our efforts to improve the bank's liquidity position and the quality of our deposit funding.

Speaker 2: These efforts resulted in meaningful deposit growth, a substantial decrease in brokered CDs, and a measurable reduction in the loan to deposit rates.

These efforts resulted in meaningful deposit growth.

Substantial decrease in brokerage Cds and a measurable reduction in the loan to deposit ratio.

Speaker 2: The resulting mix shift in our deposits plays some pressure on net interest margin.

The resulting mix shift in our deposits placed some pressure on net interest margins, but that pressures decreased significantly as compared to the past two quarters and appears to be reaching a point of equilibrium.

Speaker 2: But that pressure has decreased significantly as compared to the past two quarters and appears to be reaching a point of equilibrium.

Speaker 2: Our deposit betas increased to 35% from 29% in the prior linked quarter.

Our deposit betas increased to 35% from 29% in the prior linked quarter.

Speaker 2: Advancing a more competitive pricing strategy through various channels has protected our deposit base, which increased 4% to $10.5 billion, while reducing brokered time deposits by $426 million and bringing our loans deposit ratio to 96.

Advancing a more competitive pricing strategy through various channels has protected our deposit base, which increased 4% to $10 $5 billion.

Reducing brokered time deposits by $426 million and bringing our loan to deposit ratio to 96%.

Capital remained strong as we ended the period with a tangible book value per share of $17 93.

Speaker 2: capital remains strong as we ended the period with a tangible book value per share of $17.93 and a CET1 ratio of 10.36%, both measures improving modestly since last quarter.

And the CET one ratio of 10, 3%, 6% both measures improved modestly since last quarter.

Turning to capital management, the board approved a quarterly cash dividend of <unk> 20 per common share.

Speaker 2: During the capital management, the board approved the quarterly cash dividend of $0.20 per comment share.

Speaker 2: The company's 107th consecutive quarterly cash dividend and represents 61% of gap earnings. The company did not repurchase any

This is the company's 107th consecutive quarterly cash dividend and represents 61% of GAAP earnings.

The company did not repurchase any shares in the third quarter.

Operator: Hello all and welcome to Ocean First Financial Corp 3rd quarter 2023 earnings call. My name is Lydia and I'll be your operator today. If you'd like to ask a question you can do so by pressing staff followed by the number one on your telephone keypad.

Speaker 2: While we continue to see the frequency and magnitude of external economic, geopolitical and natural forces increase.

While we continue to see the frequency and magnitude of external economic geopolitical and natural forces increase I am reassured that over the past year. Our quarterly net interest income is only declines in the range of 5%.

Speaker 2: I am reassured that over the past year, our quarterly net interest income has only declined in the range of 5%.

Speaker 2: And we are highly confident that our quarterly expense run rates as we finish 2023 are reverting to mid 2022.

We are highly confident that our quarterly expense run rates as we finished 2023 are reverting to mid 2022 levels.

Speaker 2: Whether or not this becomes a new normal for the industry remains to be seen, but I'm convinced that we will remain very competitive in whatever environment may evolve.

Whether or not this becomes the new normal for the industry remains to be seen but I'm convinced that we will remain very competitive in whatever environment may evolve.

Operator: Before we kick up the call we'd like to remind everyone that our quarterly earnings release and related earnings supplement can be found on the company website oceanfirst.com. Our remarks today may contain forward-looking statements and may refer to non-gap financial measures. All participants should refer to our SEC filings including those found on forums, AK, TNQ and TNK for a complete discussion of forward-looking statements and any factors that could call the actual results to differ.

Speaker 2: At this point, I'll turn the call over to Joe to provide some more details regarding our progress during the quarter.

At this point I'll turn the call over to Joe to provide some more details regarding our progress during the quarter.

Thanks, Chris.

Speaker 2: Net deposit growth for the quarter of $375 million was concentrated in core growth of $343 million.

Deposit growth for the quarter of $375 million was concentrated in core growth of $343 million.

Speaker 2: For the month of September , a decrease of $305 million in non-core, primarily, brokered CDs resulted in a meaningful change in deposit composition for the first time this year.

For the month of September a decrease of $305 million in noncore, primarily brokerage Cds resulted in a meaningful change in deposit composition for the first time this year.

Christopher Maher: Thank you and now I will turn the call over to Christopher Maher, Chairman and Chief Executive Officer. Thank you Alfred. Good morning and thank you to all who have been able to join our 3rd quarter 2023 earnings conference call. This morning I'm joined by our president Joe Lebel and our Chief Financial Officer Pat Barrett. We appreciate your interest in our performance and this opportunity to discuss our results with you.

Year to date deposit growth of $859 million is a reflection of our thoughtful and concerted effort to win meaningful deposit relationships in today's competitive and higher cost deposit environment.

Speaker 3: Your to date deposit growth of 859 million is a reflection of our thoughtful and concerted effort to win meaningful deposit relationships in today's competitive and higher cost deposit environment.

Speaker 3: Continuing on to the deposit front, I wanted to mention our addition of a new branch opening in December in the town of New Brunswick, located in Middlesex County, New Jersey.

Continuing on the deposit front I wanted to mention our addition of a new branch opening in December in the town of New Brunswick, located in Middlesex County, New Jersey.

Christopher Maher: This morning we'll provide brief remarks about the financial and operating performance for the quarter and some color regarding the outlook for our business. We may refer to the slides filed in connection with the earnings release throughout the call. After our discussion we look forward to taking your questions.

Speaker 3: On the loan origination side, we continue to see tempered growth as a result of reduced demand from customers and our pricing expectations given the cost of funds.

On the loan origination side, we continue to see tempered growth as a result of reduced demand from customers and our pricing expectations given the cost of funding.

Speaker 3: Asset quality metrics remain strong with non-performing loans and criticized to classified assets.

Asset quality metrics remained strong with nonperforming loans and criticized to classified assets.

Christopher Maher: Our financial results for the 3rd quarter included gap deluded earnings per share of 33 cents. Our earnings reflect net interest income of 91 million dollars, representing a modest decline compared to the prior length quarter of 92 million. Our 3rd quarter results were impacted by modest margin and pressure, linked to our efforts to improve the bank's liquidity position and the quality of our deposit funding. These efforts resulted in meaningful deposit growth, a substantial decrease in brokerage CDs, and a measurable reduction in the loan deposit ratio.

Speaker 3: representing 1.3% and 0.2% of total loans.

Representing one 3% and 2% of total loans.

Respectively.

Speaker 3: quarter included an $8.4 million charge off.

The quarter included an $8 $4 million charge off.

Christopher Maher: The resulting mixed shift in our deposit plays some pressure on net interest margins, but that pressure is decreased significantly as compared to the past 2 quarters and appears to be reaching a point of equilibrium. Our deposit rate increased to 35% from 29% in the prior length quarter, advancing a more competitive pricing strategy through various channels has protected our deposit base, which increased 4% to 10.5 billion dollars while reducing brokerage time deposit by 426 million dollars and bringing our loan deposit ratio to 96%.

Speaker 3: on a single commercial role-state relationship as previously announced, which so far continues to be an outlier in our portfolio.

On a single commercial real estate relationship as previously announced which so far continues to be an outlier in our portfolio.

Additionally, this relationship was included in our nonperforming loans at September 30th.

Speaker 3: Additionally, this relationship was included in our not performing loans at September 30th.

Speaker 3: Absent this non-performing loans would have decreased $1.4 million.

Absent this nonperforming loans would have decreased $1 4 million.

Speaker 3: That charge, just for the year, are 8.3 million, representing only 11 base points of total average loans on an annualized base.

Net charge offs for the year are $8 3 million, representing only 11 basis points of total average loans on an annualized basis.

Speaker 3: that I'll turn the call over to Pat to review margin and expense out.

With that I'll turn the call over to Pat to review margin and expense outlook.

Speaker 4: Thanks Joe and good morning. Net interest income in margin were $91 million and 2.91% respectively, reflecting higher funding costs associated with deposit growth.

Thanks, Joe and good morning, net interest income and margin were $91 million and $2, 91% respectively.

<unk> higher funding costs associated with deposit growth as Chris noted funding costs reflect cycled to date.

Speaker 4: As Chris noted, funding costs reflect cycle-to-date deposit betas of 35%, and we clearly saw margin compression begin to stabilize throughout the quarter.

Posit betas at 35% and we clearly saw margin compression begin to stabilize throughout the quarter.

Christopher Maher: Capital remains strong as we ended the period with a tangible book value per share of 17 dollars in 93 cents and the CET-1 ratio of 10.36% both measures improving modest lease and to last quarter. During the capital management, the board approved the quarterly cash dividend of 20 cents per common share. This is the company's 107th consecutive quarterly cash dividend and represents 61% of gap earnings. The company did not repurchase any shares in the third quarter.

Speaker 4: While we believe our fourth quarter margin may see further modest compression, we're hopeful that such compression will be ending as we finish the fourth quarter of 2020.

While we believe our fourth quarter margin may see further modest compression, we're hopeful that such compression will be ending as we finish the fourth quarter of 2023.

We continued to maintain excess cash during the quarter, reflecting the stress liquidity environment and combined with continuing uncertainties around monetary policy and the risk of a government shutdown.

Speaker 4: continued to maintain excess cash during the quarter, reflecting the stress liquidity environment and combined with continuing uncertainties around monetary policy and the risk of a government shutdown.

Speaker 4: Those risks ease and the banking sector continues to stabilize. We expect normalized cash levels, which will have a modest but positive impact on net interest margins and capital rates.

Those risks ease in the banking sector continues to stabilize we expect normalized cash levels, which will have a modest but positive impact on net interest margins and capital ratios.

Christopher Maher: While we continue to see the frequency and magnitude of external economic, geopolitical and natural forces increase, I am reassured that over the past year our quarterly net interest income is only declined in the range of 5% and we are highly confident that our quarterly expense run rates, as we finish 2023, are reverting to mid-2022 levels. Whether or not this becomes a new normal for the industry remains to be seen but I'm convinced that we will remain very competitive in whatever environment may evolve.

Speaker 4: Non-interest expense increased $1.5 million to $64.5 million compared to the prior quarter. The increase in expenses includes $2.4 million of one-time charges related to severance and other compensation linked to the company-wide strategic initiatives and investments we introduced earlier this year.

Noninterest expense increased $1 5 million to $64 5 million compared to the prior quarter. The increase in expenses includes $2 4 million of one time charges.

Related to severance and other compensation linked to the company wide strategic initiatives and investments we introduced earlier this year.

Speaker 4: As a reminder, we've been investing in improving processes in longer term strategic growth throughout this year, focusing on expanding our C&I deposit gathering and residential businesses, as well as improving the revenue contribution of our branch network, increasing automation of internal processes and improving infrastructure support across all lines of business.

As a reminder, we've been investing improving processes and longer term strategic growth throughout this year, focusing on expanding our C&I deposit gathering and residential businesses.

Joe Lebel: At this point, I'll turn the call over to Joe to provide some more details regarding our progress during the quarter. Thanks, Chris. Net deposit growth for the quarter of $375 million was concentrated in core growth of $343 million.

Well as improving the revenue contribution of our branch network.

Creasing automation of internal processes, and improving infrastructure support across all lines of business.

Joe Lebel: For the month of September, a decrease of $305 million in non-core, primarily brokered CDs, resulted in a meaningful change in the deposit composition for the first time. Here to date deposit growth of $859 million is a reflection of our thoughtful and concerted effort to win meaningful deposit relationships in today's competitive and higher cost deposit environment.

Speaker 4: Progress on this project remains on track. We've made meaningful strides to improve both internal processes and the customer experience.

Progress on this project remains on track and we've made meaningful strides to improve.

Internal processes and the customer experience.

As a result of the work performed on this project, we believe quarterly operating expenses will decline to the 58% to $59 million range next quarter, representing an annualized reduction of between 20% and $25 million going forward compared to the current expense run rate.

Speaker 4: As a result of the work performed on this project, we believe quarterly operating expenses will decline to the $58 to $59 million range next quarter, representing an annualized reduction of between $20 and $25 million going forward compared to the current expense run rate. For that, we're tremendously pleased.

Joe Lebel: Continuing on the deposit front, I wanted to mention our edition of a new branch opening in December in the town of New Brunswick located in Middlesex County, New Jersey. On the loan origination side, we continue to see tempered growth as a result of reduced demand from customers and our pricing expectations given the cost of funding. As a quality metrics remain strong with non-performing loans and criticized to classified assets, representing 1.3% and 0.2% of total loans respectively.

So that were tremendously pleased.

Speaker 4: We continue exploring additional opportunities to further improve our operating leverage in 2024.

We continue exploring additional opportunities to further improve our operating leverage in 2024.

Our effective tax rate for the quarter, 24% remains in line with prior periods and guidance and we expect to remain in this range going forward.

Speaker 4: Effect attacks rate for the quarter, 24% remains in line with prior periods and guidance, and we expect to remain in this range going forward.

Turning to the balance sheet, which we don't usually talk about on earnings call, but just wanted to highlight one thing.

Speaker 4: Turning to the balance sheet, which we don't usually talk about on earnings call, we just want to highlight one thing. The company completed its annual Goodwill Empairment Test as of August 31st, and we concluded that our Goodwill is not impaired.

The company completed its annual goodwill impairment test as of August 31, and we concluded that our goodwill is not impaired.

Speaker 4: However, given the depressed stock prices that many banks are experiencing, combined with the volatility of those stock prices that we've seen over the last few months, will likely be reevaluating this conclusion that you're in.

Joe Lebel: The quarter included an $8.4 million charge-off on a single commercial role-state relationship as previously announced, which so far continues to be an outlier in our portfolio. Additionally, this relationship was included in our non-performing loans at September 30. Absent this, non-performing loans would have decreased $1.4 million. Net charge-off for the year are 8.3 million, representing only 11 base points of total average loans on an annualized basis.

However, given the depressed stock prices many banks are experiencing combined with the volatility of those stock prices that we've seen over the last few months will likely be reevaluating. This conclusion at year end.

Finally, we expect capital to remain strong through the remainder of the year with a CET ratio of about 10%.

Speaker 4: Finally, we expect capital to remain strong through the remainder of the year with a CET ratio of about 10%. At this point, we'll begin the Q&A.

At this point, we will begin the Q&A portion of the call.

Speaker 1: Thank you. If you'd like to ask a question, please press star followed by the number one on your telephone keypad. Please ensure your device is unmuted locally when it's your turn to speak.

Thank you if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.

So all your devices, Amit you'd likely when it short anticipate.

Patrick Barrett: With that, I'll turn the call over to Pat to review margin and expense outlook. Thanks, Joe, and good morning. Net interest income and margin were $91 million and 2.91% respectively, reflecting higher funding costs associated with deposit growth. As Chris noted, funding costs reflect cycle-to-date deposit betas of 35%, and we clearly saw margin compression begin to stabilize throughout the quarter. While we believe our fourth quarter margin may see further modest compression, we're hopeful that such compression will be ending as we finish the fourth quarter in 2023.

Our first question today comes from.

Dan <unk> of Raymond James Your line is open.

Speaker 1: Daniel Tuneo of Raymond James. Your line is open. Let's do two lines.

Thank you and good morning, everyone.

Speaker 5: Maybe we can start just on that.

Maybe we can start just on the.

Speaker 5: Morning. On the margin and you know, you talked a little bit about Pat and Chris, the...

Good morning.

On the margin and.

You talked a little bit about.

Patent Christie.

The.

Our forecast for the fourth quarter being similar compression to the third and then stable and deposit mix shift that's happening I'm. Just curious if you can go a little bit more detail about.

Speaker 5: forecast for the fourth quarter being similar compression to the third and then stable and and the deposit mix shift that's happening. I'm just curious if you can go in a little bit more detail about kind of what's driving the the remainder of the compression in the fourth quarter and why you think that you can get stable margin in 2024.

Patrick Barrett: We continue to maintain excess cash during the quarter, reflecting the stress liquidity environment, and combined with continuing uncertainties around monetary policy and the risk of a government shutdown. As those risks ease in the banking sector continues to stabilize, we expect normalized cash levels, which will have a modest but positive impact on net interest margins and capital ratio.

Kind of what's driving the the remainder of the compression in the fourth quarter and why you think that you can get stable margin in 2024.

Yes, I think I would start by just kind of gauging the pressure we've had in deposit cost throughout the course of the year and we've seen it steadily decline kind of step by step since April of this year.

Speaker 2: I think we would start by just engaging the pressure we've had on deposit costs throughout the course of the year and we've seen it steadily decline kind of step by step since April of this year. And it really appears to be flattening out. So is we kind of look through our models?

Patrick Barrett: Issues. Non-interest expense increased $1.5 million to $64.5 million compared to the prior quarter. The increase in expenses includes $2.4 million of one-time charges related to severance and other compensation linked to the company-wide strategic initiatives and investments we introduced earlier this year. As a reminder, we've been investing in improving processes in longer-term strategic growth throughout this year, focusing on expanding our C&I deposit gathering in residential businesses as well as improving the revenue contribution of our branch network, increasing automation of internal processes and improving infrastructure support across all lines of business.

And it really appears to be flattening out so as we kind of look through our models.

Speaker 2: which are always imperfect. And we kind of think about the outside rate environment, which is outside our control. It's challenging to come up with a forecast, but it does appear that NIM can trough in the fourth quarter. That's our best guess of this point. And then in terms of what happens in 2024, it's really dependent upon the outside rate environment. There is the possibility for a tailwind, and we're certainly working to improve the chances of that on our side. But we are going to be beholden to the market to a certain extent.

You're always imperfect.

And we kind of think about the outside rate environment, which is outside our control.

It's challenging to come up with a forecast, but it does appear that NIM could trough in the fourth quarter. That's our best guess at this point and then in terms of what happens in 2024, it's really dependent upon the outside rate environment. There is the possibility for a tailwind and we're certainly working to improve the chances of that on our side.

But we are going to be beholden to the market to a certain degree.

Okay.

Patrick Barrett: Progress on this project remains on track and we've made meaningful strides to improve both internal processes and the customer experience. As a result of the work performed on this project, we believe quarterly operating expenses will decline to the $58.59 million range next quarter, representing an annualized reduction of between $20 and $25 million going forward compared to the current expense run rate. For that, we're tremendously pleased. We continue exploring additional opportunities to further improve our operating leverage in 2024. Our effective tax rate for the quarter, 24% remains in line with prior periods and guidance and we expect to remain in this range going forward.

Speaker 5: But in terms of, I guess, the, the, the mix shift that you're anticipating, is it fair to say that you're, you're, you're gonna see or you, you expect the, the remainder of the broker deposit.

Okay, but in terms of.

I guess the mix shift that youre anticipating.

Is it fair to say that you are.

Youre going to see or you expect to.

The remainder of the broker deposit.

Speaker 5: to come off in the fourth quarter or the FHLB. I'm just curious kind of how you expect the the entire kind of funding side to work.

Balances to come off in the fourth quarter or the <unk>.

<unk> I'm, just curious kind of how you expect the the entire kind of funding.

[noise] side to work over the next few quarters.

Speaker 2: I think we had historically we've had a very low level program TVs.

Yes, I think we had historically we've had a very low level of brokerage Cds. So we took the opportunity when things got a little bit tight in the spring to build up excess liquidity and we use broker as a quick way to do that effectively.

Speaker 2: We took the opportunity when things got a little bit tight in the spring to build up access liquidity and we used broker as a quick way to do that effectively.

Speaker 2: I think over time, lower broker is always better, but we're gonna be, I think we're in a good place now, so we will take the opportunity, depending on kinda how rates market, rate markets work in the fourth quarter to maybe move that around a little bit, but I don't think you're gonna see big changes. We've also seen that our non-interest bearing accounts seem to be behaving very steadily. So, you know, when we take the...

I think over time lower brokerage is always better, but we're going to be I think we're in a good place now so we will take the opportunity depending on kind of how rates market rate markets work in the fourth quarter.

Patrick Barrett: Turning to the balance sheet, which we don't usually talk about on an earnings call, we just want to highlight one thing. The company completed its annual Goodwill Empairment Test as of August 31st and we concluded that our Goodwill is not impaired.

To maybe move that around a little bit, but I don't think youre going to see big changes. We've also seen that our noninterest bearing accounts seem to be behaving very steadily.

Patrick Barrett: However, given the depressed stock prices that many banks are experiencing combined with the volatility of those stock prices that we've seen over the last few months, will likely be re-evaluating this conclusion at year end. Finally, we expect capital to remain strong through the remainder of the year with a CET ratio of about 10%.

So when.

When we think about noninterest deposits.

Speaker 2: Compared to earlier this year, you're just not seeing customers behaving in the way they work back in April . So If deposits which may continue to increase in costs

Compared to earlier this year, you're just not seeing customers behaving in the way they were back in April so.

If deposits, which may continue to increase in cost hold little bit slower at the rate of increase we do have a lot of loans repricing, we have new loans. We make every day and then we have the opportunity to work on that side of the margin. So I think some additional deposit pressure not a big mix shift we think the mix is going to be largely similar to where you see it as of Sept.

Speaker 2: Hold a little bit slower at the rate of increase. We do have a lot of laundry pricing. We have new loans to make every day. And then we have the opportunity to work on that side of the margin. So I think some additional deposit pressure, not a big mixtures. We think the mix is going to be largely similar to where you see it as of September 30th. And.

Operator: This point will begin the Q&A portion of the call. Thank you. If you'd like to ask a question, please press star followed by the number one on your telephone keypad. Please ensure your device is unmuted locally when it's your turn to speak.

<unk>.

Daniel Tuneo: Our first question today comes from Daniel Tuneo of Raymond James. Your line is open. Thank you.

And we do have some opportunity on the loan side.

Speaker 4: If I could add just one thing that isn't in the material, this is that that might be helpful. We have repaid all of our short term liabilities that we can.

If I could add just one thing that isn't in the materials. This is pat that that might be helpful.

We have repaid all of our short term liabilities that we can.

Patrick Barrett: Good morning, everyone. Maybe we can start on the margin. You talked a little bit about Pat and Chris, the forecast for the fourth quarter being similar compression to the third and then stable and the deposit mix shift that's happening. I'm just curious if you can go in a little bit more detail about what's driving the remainder of the compression in the fourth quarter and why you think that you can get stable margin in 2024.

Speaker 4: So everything we have left on the balance sheet is term or FHLB funding about 600 million mature as 100 million every year starting next year or 200 million starting next year.

So everything we have left on the balance sheet as term FHL be funding about $600 million.

Matures $100 million every year, starting next year or $200 million starting next year.

Speaker 4: and then our brokerage CDs and our own house-issued promotional retail CDs have average remaining lives of about six months.

And then our brokered Cds and our own house issued promotional retail Cds.

<unk> average remaining lives of about six months.

Speaker 4: Right now, so we'd have to actually break and penalize ourselves if we were going to reduce things further. So that's kind of what's driving the near term.

Right now so we'd have to actually break and penalize ourselves.

If we were going to reduce things further so that's kind of what's driving the near term compression.

Speaker 4: and then everything that Chris said kind of means next year is going to be bound probably bouncing along plus minus range at fairly stable

And then everything that Chris said kind of means next year is going to be probably bouncing along.

Patrick Barrett: I think we would start by just engaging the pressure we've had in deposit cost throughout the course of the year and we've seen it steadily decline kind of step by step since April of this year and it really appears to be flattening out. So, is we kind of look through our models which are always imperfect and we kind of think about the outside rate environment which is outside our control. It's challenging to come up with a forecast but it does appear that nim could trough in the fourth quarter.

Minus range.

Stable.

Speaker 4: Unless there's higher levels of long growth, which we should hopefully coincide with.

Unless there is higher levels of loan growth, which we should hopefully coincide with expansion.

Speaker 5: Okay, all right, I appreciate all that color. I'm just lastly, maybe a little on the assets side. If you could provide any kind of color on what cash flows may look like in the next few quarters and on the cash side to the excess cash, just do thoughts on the pace of reinvestment of that.

Okay, Alright, I appreciate all that color and just lastly, maybe a little on the asset side.

If you could provide any any any kind of color on what cash flows may look like in the.

Patrick Barrett: That's our best guess those at this point. And then in terms of what happens in 2024, it's really dependent upon the outside rate environment. There is the possibility for a tailwind and we're certainly working to improve the chances of that on our side but we are going to be beholden to the market to a certain Degree. Okay, but in terms of I guess the the the mixed shift that you're anticipating is it fair to say that you're you're you're you're going to see or you you expect the remainder of the broker deposit that balances to to come off in the fourth quarter or the FHLB.

In the next few quarters.

On the on the cash side to the excess cash just your thoughts on the pace of the reinvestment of that.

Speaker 2: In 2024 we have a little bit more cash flow in terms of maturing loans than we had in 2023.

In 2024, we have a little bit more cash flow in terms of maturing loans that we had in 2023.

Maybe Joe if you could just talk to the market for that and then we can kind of swing back to give you a sense of the magnitude.

Speaker 2: Maybe Joe, if you could just talk to the market for that, and then we can kind of swing back to give you a sense of the mega.

Speaker 3: So Dan, I think I'd start by saying that

So Dan I think.

By saying that.

Speaker 3: I think we have opportunity to improve margin from...

I think we have.

<unk> to improve margin from.

Speaker 3: There are a new level of loan transactions. We're looking at this as you know, we've done a variety of things on the SQLity side, stress testing, all the kind of things you need to do. But we're hearing from clients that as loans renew, their expectations are very similar to ours. They understand the market that we're in, their relationship clients, they understand that they're going to be reprised at certain levels. Those that are in the CNI bucket are already at the floating rate levels, so they reprised the market for this.

The renewal of loan transactions.

We're looking at this as you know we've done a variety of things on the asset quality side stress testing all kinds of things you need to do.

We're hearing from we are hearing from clients.

Patrick Barrett: You're just curious kind of how you expect the the entire kind of funding side to to work over the next few quarters. Yeah, I think we had you know historically we've had a very low level of broker in CDs. So we took the opportunity when things got a little bit tight in the spring to build up access liquidity and we use broker as a quick way to do that effectively. I think over time you know lower broker is always better, but we're going to be I think we're in a good place now.

As loans renew their expectations are very similar to ours. They understand the market that we're in that relationship clients I understand that theyre going to be repriced at certain levels.

Those that are in the C&I bucket are already at floating rate levels, so they've repriced to market for the.

Speaker 6: most part and we don't have a significant amount of maturities in 24 you guys are aware from the AK supplement but the stuff that we do will price and provide us with a little bit of extra them as we go forward.

For the most part and we don't have a significant amount of maturities in 'twenty for you guys are aware from the 8-K supplement but of the stuff that we do with price and provide us with.

A little bit of.

Patrick Barrett: So we will take the opportunity depending on kind of how rates market rate markets work in the fourth quarter to maybe move that around a little bit, but I don't think you're going to see big changes. We've also seen that our non interest bearing accounts seem to be behaving very steadily. So you know when we think about non interest deposits compared to earlier this year you're just not seeing customers behaving in the way they work back in April.

Extra NIM as we go forward.

And maybe just to add on to that.

Speaker 4: On the the asset side we've got about 1.4 billion repricing, maturing, coming in next year. The loans are the bulk of that, so our securities cash flows remain relatively stable at about 40 million a quarter.

On the asset side, we've got about $1 4 billion repricing maturing coming in next year.

The loans are the bulk of that so our securities cash flows remain relatively stable at about $40 million a quarter.

Then we've got the liabilities that are repricing and I, just kind of outlined does does or actually a little bit more volatile with the remaining half a billion call it of brokered Cds.

Patrick Barrett: So if deposits which may continue to increase in cost hold you know a little bit slower at the rate of increase. We do have a lot of loans repricing we have new loans to make every day and then we have the opportunity to work on that side of the margin. So I think some additional deposit pressure not a big mix shift. We think the mix is going to be largely similar to where you see it as of September 30th.

Speaker 4: Then we've got the liabilities that are reprising and I just kind of outlined those are actually a little bit more volatile with the remaining half a billion college of record CDs, maturing.

Maturing fairly evenly.

Speaker 4: over the next three quarters and our retail CDs have buckets and some volatility. Q1, Q2 being the bigger quarters of maturity. So that's kind of the general range of cash flows.

Over the next three quarters and our retail Cds.

Buckets, and some volatility Q1, Q2 being the bigger quarters of maturity.

Patrick Barrett: And we do have some opportunities alongside if I could add just one thing that that isn't in the material this is that that that might be helpful. We have repaid all of our short term liabilities that we can. So everything we have left on the balance sheet is term or FHLB funding about 600 million. I'm sure there's 100 million every year starting next year or 200 million starting next year. And then our brokerage CDs and our own house issued promotional retail CDs have average remaining lives of about six months right now so we'd have to actually break and penalize ourselves.

So that's kind of the general range of cash flows.

Terrific I appreciate all the color that's awesome.

Alright, thank you.

Speaker 1: Thank you. And next question today comes from Justin Crowley of Piper Sandler. Your line is open.

Thank you. Our next question today comes from Justin Crowley of Piper Sandler Your line is open.

Speaker 7: Thank you, good morning guys. Morrie, stop the head on some of the expense measures.

Okay.

Hey, good morning, guys.

Good morning, I want to hit on some of the expense measures.

Speaker 7: morning that have taken place. You know, you felt that run from the base this porter and you know, I know you're maybe not necessarily in a position to get real specific about 24, but just wondering if you'd comment on perhaps any smaller initiatives that could be added to some of the efficiency gains that are already in the run rate.

Good morning.

Have taken place.

Patrick Barrett: If we were going to reduce things further so that's kind of what's driving the near term compression and then everything that Chris said kind of means next year is going to be bound probably bounce in the long plus minus range at fairly stable. Unless there's higher levels of loan growth which we should hopefully coincide with expansion. Okay, all right, I appreciate all that color. I'm just lastly, maybe a little on the assets side.

That 100 base this quarter and I know you maybe not necessarily in a position to get real specific about 'twenty four but.

But just wondering if you can comment on perhaps any smaller initiatives that could add to some of the efficiency gains that are already in the run rate.

Sure. So this is Pat I would I would first caveat anything we see say about opportunities in 2024.

Speaker 4: Sure, so this is Pat, I would first caveat anything we see say about opportunities in 2024.

Speaker 4: still facing the headwind of persistent inflation. So the bias for every cost is to go up, including people cost.

Facing the headwinds of the persistent inflation.

The bias for every cost is to go up including people costs.

Patrick Barrett: If you could provide any any kind of color on what cash flows may look like in the next few quarters and on the on the cash side to the excess cash just do thoughts on the pace of reinvestment of that. In 2024 we have a little bit more cash flow in terms of maturing loans and we had in 2023. Maybe Joe if you could just talk to the market for that and then we can kind of swing back to give you a sense of the mega.

Speaker 4: And so it's not an easy market without reducing vendors or reducing employees.

And so it's not an easy market without reducing vendors are reducing employees.

Speaker 4: to that but we continue to have some opportunity so we think we actually think our run rate of call it 58 59 million that we're expecting in the fourth quarter is a pretty good run rate quarterly

Do that but we continue to have some opportunities. So we think we actually think our run rate is call. It 50 $859 million that we're expecting in the fourth quarter is a pretty good run rate quarterly.

Speaker 4: for the following year. It will be a little tough because we're gonna have to manage through inflation and normal merit increases and all that. But we feel like we've got a decent...

For the following year it will be a little tough because we're going to have to manage through inflation and normal merit increases and all of that.

Patrick Barrett: Institute. So, Dan, I think I'd start by saying that I think we have opportunity to improve margin from the renewal of loan transactions. We're looking at this as you know we've done a variety of things on the equality side, stress testing, all the kind of things you need to do. But we're hearing from clients that as loans renew, their expectations are very similar to ours. They understand the market that we're in, their relationship clients, they understand that they're going to be repriced at certain levels.

But we feel like we've got a decent shot at that we still have initiatives that are in the early stages.

Speaker 4: We still have initiatives that are in the early stages.

Speaker 4: that are geared around some of our larger processes.

That are geared around some of our larger processes. We're looking at a couple of outsourcing opportunities.

Speaker 4: looking at a couple of outsourcing opportunities. And our vendor initiatives, we still have an unconscionably high number of vendors. And so the continuation of building out a procurement function, vendor consolidation that leads to better negotiating power, we think we'll also add a little bit of wind.

And our vendor initiatives, we still have an unconscionably high number of vendors and so the continuation of building out a procurement function vendor consolidation that leads to better negotiating power. We think will also add a little bit of wind, but I guess I'd caution you again thinking that our 58.

Patrick Barrett: Those that are in the scene, I bucket, are already at employee rate levels, so they repriced the market for the most part. And we don't have a significant amount of maturities in 24, you guys are aware from the AK supplement, but the stuff that we do will price and provide us with a little bit of extra them as we go forward. Yeah, maybe I'll just add on to that. On the asset side, we've got about 1.4 billion repricing, maturing coming in next year.

Speaker 4: But I guess I caution you again thinking that our 58 to 59 million

$59 million could be lower because of those initiatives that I just I think that's probably our best estimate of what to use would be relatively flat.

Speaker 4: could be lower because of those initiatives. So I think that's probably a vast estimate of what to use would be relatively flat.

And we think flat expenses this environment, Okay got it.

Speaker 2: Do we think flat expenses in this environment? Okay, got it.

Performance.

Okay I appreciate that and then just.

Speaker 7: Okay, I appreciate that. And then just quickly circling back just in the margin discussion. You know, in the past, you know, even holding to the side, you know, what the loan security still can make cash flow. You talked about just the excess liquidity that you're running with just more broadly. You know, curiously, you can just detail, you know, how you see that trending, if we think about, you know, we talked about some stabilization heading into the end of the year. And just curious how that filters through just to your broader thoughts on the margin dropping at the end of this year.

So quickly circling back just on the margin discussion.

In the past, even holding aside what the loan securities. Both my cash flow you've talked about just the excess liquidity that you are running with.

Patrick Barrett: The loans are the bulk of that, so our securities cash flows remain relatively stable at about 40 million a quarter. Then we've got the liabilities that are repricing, and I just kind of outlined those are actually a little bit more volatile with the remaining half a billion college of record CDs, maturing fairly evenly over the next three quarters, and our retail CDs have buckets and some volatility Q1, Q2 being the bigger quarters of maturity. That's kind of the general range of cash was terrific. I appreciate all the color. That's all from all right. Thank you.

More broadly.

Curious if you can just detail how you see that trending if we think about it we've talked about some stabilization heading into the end of the year and just curious how that filters through just your broader thoughts on margins dropping.

Yes.

Speaker 2: Think about two things that are structurally in our position at September 30th. The first is we have a little bit more cash than we would have been keeping around before events in the spring.

I would think about two things that are structurally in our position at September 30. The first is we have a little bit more cash than we would've been keeping around before events in the spring.

So you may have a couple of hundred million dollars. There that you could choose to put to use but at the same time overnight funding is pretty efficient so youre getting a yield on that its not hurting you to keep that much cash.

Speaker 2: So you may have a couple hundred million dollars there that you could choose to put to use, but at the same time, overnight funding is pretty efficient. So you're getting a yield on that. It's not hurting you to keep that much cash. The margin impact is more from shrinking the balance sheet a little bit. The other thing is our 96% loan deposit ratio. If you follow us over a long period of time, we have an ability to lend that back up when we think times are right. We're kind of watching the markets of OVR watching pricing in the market.

The margin impact is more from shrinking the balance sheet a little bit.

The other thing is our 96% loan to deposit ratio, if you've followed us over a long period of time, we have an ability to lend that back up when we think times youre right, we're kind of watching how the markets evolve we're watching pricing in the market.

Justin Crowley: Our next question today comes from Justin Crowley of Piper Sandler.

Speaker 2: We do see particularly 2024.

We do see particularly 2024 as an opportunity to be a lender where terms and pricing may be.

Patrick Barrett: Your line here's morning that has taken place. You know, you thought that run for the base this quarter, and you know, I know you're maybe not necessarily in a position to get real specific about 24, but just wondering if you comment on perhaps any smaller initiatives that could be added to some of the efficiency gains that are already in the run rate? Sure, so this is Pat. I would first caveat anything we see say about opportunities in 2024 or still facing the headwinds of persistent inflation.

Speaker 2: an opportunity to be a lender where terms in pricing may be on the side of the bank for

On the side of the bank.

Change so we're watching that market. So those are the two levers are not big levers either one of them, but they are an opportunity.

Speaker 2: So we're watching that market. So those are the two levers. They're not big levers either one of them, but they are an upper.

Speaker 7: Okay, I appreciate it. And then just following up on what you just mentioned with some of the progress on the loan to the positive ratio and perhaps some opportunity heading into next year, are you able to bifurcate perhaps maybe geographically and just on a loan category basis, where your focal point might be in the event that that incrementally more favorable environment plays out from a lending standpoint?

Okay I appreciate it and then just sort of following up following up on what you just mentioned.

With some of the progress on the loan to deposit ratio and perhaps some opportunity heading into next year.

Are you able to bifurcate, perhaps maybe geographically and just an add.

On a loan category basis.

Patrick Barrett: So the bias for every cost is to go up, including people costs, and so it's not an easy market without reducing vendors or reducing employees to do that. But we continue to have some opportunities. So we think, we actually think our run rate of 58, 59 million that we're expecting in the fourth quarter is a pretty good run rate quarterly for the following year. It'll be a little tough because we're going to have to manage through inflation and normal merit increases and all that.

Where your focal point might be in the event that that Inc.

Mentally and a more favorable environment plays out from a lending standpoint.

Speaker 2: But hey, our focus is going to be on margin and price. And that will lead us, and we're our credit culture and our credit standards will remain the same regardless of where or what kind of credits we put on. But we're going to be optimizing around those opportunities to get paid well for the use of our balance sheet. You know, the balance sheet availability is scarce in the industry. So we want to make sure we get paid for it.

I think our focus is going to be on margin and price.

That will lead us and we'll grow our credit.

Our culture and our credit standards will remain the same regardless of where or what kinds of credits, we put on but we're going to be optimizing around those opportunities to get paid well for the use of our balance sheet.

Balance sheet availability is scarce in the industry. So we wanted to make sure we get paid for it.

Patrick Barrett: But we feel like we've got a decent.., at that. We still have initiatives that are in the early stages that are geared around some of our larger processes. We're looking at a couple of outsourcing opportunities, and our vendor initiatives, we still have an unconscionably high number of vendors, and so the continuation of building out a procurement function, vendor consolidation that leads to better negotiating power. We think we'll also add a little bit of wind, but I guess I caution you against thinking that our 58 to 59 million could be lower because of those initiatives, so I think that's probably our best estimate of what to use will be relatively flat. Do we think flat expenses in this environment? Okay, I got it.

Speaker 2: At this point, you know, there's not a big price difference between our markets. It's relatively

At this point, there's not a big price.

Between our markets it's relatively.

Speaker 2: level between Boston, New York, New Jersey, Baltimore, and Philadelphia. There is a little bit more differentiation by it.

Level between Boston and New York.

New Jersey, Baltimore and Philadelphia.

A little bit more differentiation by asset class.

Speaker 2: So we're just kind of watching and seeing how those things settle out. Well, what we didn't want to do is to deploy all that cash in the short term before we have a good sense as to how well we get structured in a longer term base.

So, we're just kind of watching and seeing how those things settle out and we didn't want to do is to do.

Deploy all of that cash in the short term before we have a good sense as to how well we can structure it longer term basis.

Okay.

Speaker 7: Okay, I appreciate that. I'll leave it there, guys. I appreciate you taking my question.

Okay I appreciate that.

I'll leave it there guys I appreciate you taking my question.

Thanks Jos.

Speaker 1: And next question comes from Michael Burrito of KBW. Please go ahead.

Our next question comes from Michael Perito of <unk>. Please go ahead.

Hey, guys. Thanks for taking my questions.

Good morning.

Speaker 8: one. I wanted to drill that a little bit more on the margin. You know, a lot of focus obviously on the liability side, but I wonder number one, can you just repeat? I think you, I heard you correctly. I just want to make sure. I think you mentioned the amount of loans that you have, um, maturing in 2024. Um, if you could repeat that, that'd be great. But, but just on that, like, when we think about it.

Patrick Barrett: Okay, I appreciate that, and then just quickly circling back just in the margin discussion. In the past, even holding to the side, what the loan security is supposed to make hash, well, you talked about just the access liquidity that you're running with, just more broadly. Curiously, you can just detail how you see that trending, if we think about, we've talked about some stabilization heading into the end of the year, and just curious how that filters through, just to your broader thoughts on the March drop things in the end of this year.

I wanted to.

Drill down a little bit more on the margin a lot of focus obviously on the liability side, but.

Pat I Wonder number one can you just repeat I think I heard you correctly I just want to make sure I think you mentioned the amount of loans that you have.

Maturing in 2024, if you could repeat that that would be great, but just second point on that like when we think about.

Speaker 8: you know with funding cost stabilizing right i mean just a focus for you guys shift to the asset side of me your blended loan you'll say are like five thirty which is basically right on top of that plans i imagine incremental productions coming on higher than that if you get some context around where that is that would be great to but i guess what's the outlook for a kind of loan yields you know

Funding costs stabilizing right I mean, just a focus for you guys shift to the asset side I mean, your blended loan yield say or like $5 30, which was basically right on top of fed funds I imagine incremental production is coming on higher than that if you could give some context around where that is that would be great too, but I guess, what's the outlook for kind of loan yields.

Patrick Barrett: I think about two things that are structurally in our position at September 30th. The first is we have a little bit more cash than we would have been keeping around before events in the spring. So you may have a couple hundred million dollars there that you could choose to put to use, but at the same time overnight funding is pretty efficient, so you're getting a yield on that. It's not hurting you to keep that much cash.

Speaker 8: putting some proper distance to fund the incremental funding costs as we think about the nims ability to kind of

Putting some proper distance to fund the incremental funding costs as we think about the <unk> ability to kind of.

Speaker 8: approach 3% again and maybe exceed that longer term, which obviously is pretty critical for ROEs, etc.

Approached 3% again, and maybe exceed that longer term, which obviously is pretty critical for roe's et cetera.

Patrick Barrett: The margin impact is more from shrinking the balance sheet a little bit. The other thing is our 96 percent loan deposit ratio. If you've followed us over a long period of time, we have an ability to lend that back up when we think times are right. We're kind of watching the markets of all, we're watching pricing in the market. We do see, particularly 2024, as an opportunity to be a lender where terms in pricing may be on the side of the bank for a change. We're watching that market, so the two levers are not big levers, either one of them, but they are an opportunity. Okay, I appreciate it.

Sure.

Speaker 4: I'll repeat what I said, which is a little bit high level on loan maturities. It's a little over a billion dollars next year.

Ill repeat what I said, which is a little bit high level on loan maturities.

Little over $1 billion next year.

Speaker 4: Red relatively evenly over the year. There's some ups and downs, but I don't think make a huge difference.

Spread relatively evenly.

Over over the year, there are some ups and downs, but I don't think make a huge difference.

Speaker 4: and then our origination.

And then.

Our originations the.

Speaker 4: Pricing of our originations this quarter. We're in the seven and a half to eight range

Pricing of our originations this quarter were in the seven five to eight range.

Speaker 4: But I'd probably defer to Joe a little bit to talk about kind of opportunities and how we're thinking about loan price.

But I'd, probably defer to gel a little bit to talk about kind of opportunities and how we're thinking about loan pricing, yes, Mike I think Chris happily put it.

Speaker 6: mike i think chris happily put it uh... the right way earlier there's opportunities now for us you know that the price has been going up for a record or as you would expect for a variety reasons not only the fed increases but also availability of credit uh... and i think there's an opportunity for us to continue that and continue in a prudent basis right i think that

The right way earlier, there is opportunities now for us.

Patrick Barrett: And then just following up on what you just mentioned with some of the progress on the loan to the deposit ratio and perhaps some opportunity heading into next year. Are you able to bifurcate perhaps maybe geographically and just on a loan category basis where your focal point might be in the event that that incrementally a more favorable environment plays out from a lending standpoint? Hey, our focus is going to be on margin and price, and that will lead us in a credit culture and our credit standards will remain the same regardless of where or what kind of credits we put on.

Pricing has been going up quarter over quarter as you would expect for a variety of reasons not only to the fed increases, but also availability of credit.

And I think there is an opportunity for us to continue that and continuing on a prudent basis right I think that.

Speaker 6: It does matter a little bit based on asset class. So for example, in the Rezzy space, our focus has been to build, and you've seen it the last couple quarters, we're starting to build the gain-on-sville business, so that's not a balance sheet item. That's an opportunity for us to originate good assets. And then put the assets that we want to put on the balance sheet in C&I and CRE, it rates that make the most sense for us.

It does matter a little bit based on asset class. So for example in the resi space. Our focus has been to build and you've seen it. The last couple of quarters, we're starting to build the gain on sale business. So that's not a balance sheet item, that's an opportunity for us to originate good assets.

And then put the assets that we want to put on the balance sheet and in C&I and create rates that.

Patrick Barrett: But we're going to be optimizing around those opportunities to get paid well for the use of our balance sheet. You know, the balance sheet availability is scarce in the industry, so we want to make sure we get paid for it. And at this point, there's not a big price difference between our markets. It's relatively level between Boston, New York, New Jersey, Baltimore, and Philadelphia. There is a little bit more differentiation by asset class, so we're just kind of watching and seeing how those things settle out.

That makes the most sense for us.

Speaker 2: Mike, maybe to be in it, don't want to be very cautious about this, but the loans rolling off have a mid-fives handle, and the new lending coming in has a mid-sevenths handle.

Mike maybe to be in it.

How should we think about it.

No go ahead Mike.

The loans rolling off.

The five mid fives handle and the new lending coming in as a mid seven handle but before you get too excited we do have to cover there will be an increase in deposit costs.

Speaker 2: But before you get too excited, we do have to cover there will be an increase in deposit costs.

Speaker 2: We think there's a possibility for margin expansion, but you can see that there's two levers there, right? I don't do not take the billion dollars and you know play it forward without

So we think there is a possibility for margin expansion, but you can see there's two levers there right I don't do not take the $1 billion in.

Patrick Barrett: What we didn't want to do is to deploy all that cash in the short term before we have a good sense as to how well we get structured in a longer term base. Okay, I appreciate that. I'll leave it there, guys. I appreciate you taking my question.

Play it forward without increased deposit costs.

Speaker 8: Yeah, no, 100%. I guess what I'm trying to sort out is just, you know...

Yes, 100% I guess, what I'm trying to sort out is just you know.

Yeah.

Speaker 8: The last 12 months have been challenging, right, because of the assets aren't repricing as fast as the liabilities have gone up. But I think part of the challenge, too, has been that incremental margin on new assets hasn't been probably as good as it needs to be. And I'm just trying to get a better handle of, you know, and it sounds like it's getting closer, the incremental margin in some cases is maybe 3 percent, maybe a smidge better. But I'm just trying to get a better handle of what.

The last 12 months have been challenging right because the assets are repricing as fast as the liabilities have gone up but but I think part of the challenge to has been that incremental margin on new assets Hasnt been probably as good as it needs to be and I'm, just trying to get a better handle of it.

Michael Perito: And next question comes from Michael Perito of KBW. Please go ahead. Hey guys, thanks for taking my questions. I wanted to drill that a little bit more on the margin. You know, a lot of focus obviously on the liability side, but I wonder, number one. Can you just repeat? I think you, I heard you correctly. I just want to make sure. I think you mentioned the amount of loans that you have, um, maturing in 2024.

It sounds like it's getting closer to the incremental margin in some cases may be 3%, maybe a smidge better, but I'm just trying to get a better handle of what.

Speaker 8: You know, the dynamics are driving that because, you know, if that incremental margin doesn't, you know, kind of get back to that level, it's probably going to be very hard for kind of the consolidated margin to pick up off of the kind of 280 trough level that you guys are guiding to in the fourth quarter.

The dynamics are driving that because if that incremental margin doesn't kind of get back to that level. It's probably it would be very hard for kind of the consolidated margin to pick up off of the kind of $2 80 trough level that you guys are guiding to in the fourth quarter.

Speaker 2: We're not going to be interested in putting on net growth that doesn't carry at least a three-handle in margin. So if we're going to be growing alone, we can fund it appropriately or get above that. Because we do think that earning our way back to an over 3% margin is an important strategic objective of ours. I can't give you 10%.

We're not going to be interested in putting on net growth that doesn't carry at least a three handle in margin.

Michael Perito: If you could repeat that, that'd be great. But, but just second point on that, like when we think about, you know, with funding cost stabilizing, right? I mean, just the focus for you guys shift to the asset side. I mean, your blended loan you'll say are like 530, which is basically right on top of Fed funds. I imagine incremental productions coming on higher than that. If you can give some context around where that is, that would be great too.

So if we're going to be growing the loan book.

We funded appropriately or get above that because we do think that.

Earning our way back to an over 3% margins an important strategic objective of ours I can't give you a timeframe on it but thats the way we want the company to operate Mike I'll also say that we've been really thoughtful let me make that.

Speaker 3: That's the way we want the company to operate. Like I'll also say that, you know, we've been really thought about. I think that's a long growth of the last two quarters, largely because we wanted to make sure that we positioned our deposits out of the balance sheet the way we wanted. We wanted the kind of deposits that we're used to have. And in an environment like this, you want to make sure that's out of the balance sheet, provide you with a stable funding for the loan side.

Michael Perito: But I guess what's the outlook for a kind of loan yields. You know, putting some proper distance to fund the incremental funding costs as we think about the nims ability to kind of approach 3% and maybe exceed that longer term, which obviously is pretty critical for for our ease, etc. Sure. I'll repeat what I said, which is a little bit high level on loan maturities. It's a little over a billion dollars next year.

Loan growth the last two quarters, largely because we wanted to make sure that we positioned our.

Deposit side of the balance sheet. The way. We wanted we wanted the kind of deposits that we're used to having and in an environment. Like this you want to make sure that side of the balance sheet provide you with a stable funding for the loan side of the balance sheet.

Michael Perito: Spread relatively evenly over over the year. There's some ups and downs, but I don't think make a huge difference. And then our origination, the pricing of our origination of this quarter, we're in the 7.5 to 8 range. But I'd probably defer to Joe a little bit to talk about kind of opportunities and how we're thinking about loan pricing. Yeah, Mike, I think Chris aptly put it the right way earlier. There's opportunities now for us.

Speaker 8: Yeah, that makes sense. Yeah. And Chris, just think about the loan portfolio, I mean, with especially the game on sale business now, on the resorts from work at side, I mean, if you guys think about the bank two, three years from now, any thoughts on what you're kind of hoping the mix seems, you're about, I think, what, like, almost 30% in mortgages today, about 53% CRE, maybe a little higher than that if you do the order occupied as well, but just any updated thoughts there.

Yes that makes sense.

And Chris just as you think about the loan portfolio with the especially with the gain on sale business now on the residential mortgage side I mean, if you guys think about the bank two to three years from now.

So on what you are kind of hoping that mix seem to you about I think what like almost 30% in mortgages today about 53% CRE.

Maybe a little higher than that if you do the owner occupied as well, but just any updated thoughts there.

Michael Perito: You know, the price has been going up quarter of a quarter as you would expect for a variety of reasons, not only the Fed increases, but also availability of credit. And I think there's an opportunity for us to continue that and continuing on a prudent basis. I think that it does matter a little bit based on asset class. So, for example, in the resie space, our focus has been to build and you've seen it the last couple quarters.

Yes, I think youre going to continue to see the mix shift in favor of commercial.

Speaker 2: I think you're going to continue to see the mix shift in favor of commercial.

Speaker 2: I think about when I joined the company, we were inverted. So we were probably 70% resi at that time. We're going to keep chunking away at that. We still want to provide residential finance in our markets. We think we can do so, but more as a fee business.

I think about when I joined the company we were inverted so we were probably 70% <unk> at that time.

We're going to keep chunking away at that we still want to provide residential finance in our markets. We think we can do so but more as a fee business.

Speaker 2: We don't mind putting it on the balance sheet in certain cases. You know, if it's a 15 year self-liquidating and adjustable, you know, a relationship customer, you know, what will make the right choices there. But I think you're going to see residential grow very slowly.

We don't mind, putting onto the balance sheet in certain cases, if it's a 15 year self liquidating and adjustable.

Michael Perito: We're starting to build the gain on failed business, so that's not a balance sheet item. That's an opportunity for us to originate good assets. And then put the assets that we want to put on the balance sheet in C&I and Cree. It rates that make the most sense for us. Mike, maybe to be in it. Sorry, now go ahead. The loans rolling off have a mid five handle and the new lending coming in has a mid seventh handle.

<unk> chip customer will make the right choices there.

But I think youre going to see residential grow very slowly.

Speaker 2: and commercial kind of pick up growth rates over the course of the next year or so. So you'll see the mix shift just kind of continue quarter after quarter with higher percentages of commercial and lower percentages of consumer and residential.

In commercial kind of pick up growth rates over the course of next year. So you'll see the mix shift just kind of continue quarter after quarter with higher percentages of commercial and lower percentages of consumer and residential.

Helpful. And then just lastly for me.

Speaker 8: And then just lastly for me, we'd love kind of a growth and credit comment on kind of each of your markets. I mean, I think last time you guys spoke, it sounded like Boston and Baltimore had some decent trends. You know, there were some more concerning stuff going on in Philly, New York, but we'd love any updated thoughts you're willing to provide on kind of growth opportunities in those markets and then just credit out, look your term if there's kind of any deterioration or anything you're seeing that has you more cautious on one versus the other.

Michael Perito: But before you get to excited, you know, we do have to cover there will be an increase in deposit costs. So, we think there's a possibility from margin expansion, but you can see that there's two levers there, right? I do not take the billion dollars and play it forward without an increase deposit cost. Yeah, no, 100 percent. I guess what I'm trying to sort out is just, you know, The last 12 months have been challenging, right?

Kind of a gross add credit comment on kind of each of your markets. I mean, I think last time, you guys spoke it sounded like Boston and Baltimore had some some decent trends there were some more concerning stuff going on in Philly and New York, but would love any updated thoughts you're willing to provide on kind of growth opportunities in those markets and then.

Credit outlook near term, if there's kind of any deterioration or anything youre seeing that has you more cautious on one versus the other.

Yes, I'll ask Joe to chime in in a minute I'll give you a kind of the high level one of the most important things that try and stress with folks as well.

Michael Perito: Because the assets aren't repricing as fast as the liabilities have gone up. But I think part of the challenge, too, has been that incremental margin on new assets hasn't been probably as good as it needs to be. And I'm just trying to get a better handle of, you know, and it sounds like it's getting closer to the incremental margin in some cases is maybe 3% maybe a smidge better, but I'm just trying to get a better handle of what, you know, the dynamics are driving that because, you know, if that incremental margin doesn't, you know, kind of get back to that level.

Speaker 2: I'll ask Joe to chime in in a minute. I'll give you kind of the high level. One of the most important things I try and stress with folks is virtually the entirety of our franchise is located in the Northeast.

Virtually the entirety of our franchises located in the northeast, which is always slower growth, but as always remarkably stable as well when you get into weaker economic periods. So I mean, who knows whether we have a soft landing or not but if there is economic weakness usually the northeast performed outperforms and we've been careful to keep the franchise here.

Speaker 2: which is always slower growth, but is always remarkably stable as well when you get into weaker economic periods. So, I mean, who knows whether we have a soft landing or not, but if there is economic weakness, usually the Northeast outperforms, and we've been careful to keep the franchise here, there's not a lot of differentiation between markets. Boston has a significant life sciences market that's kept it more stable even through COVID.

Michael Perito: Well, it's probably going to be very hard for kind of the consolidated margin to pick up off of the kind of 280 trough level that you guys are adding to in the fourth quarter. Yeah, we're not going to be interested in putting on net growth that doesn't carry at least a three handle in margin. So if we're going to be growing the loan, yeah, we funded appropriately or get above that because we do think that.

Theres not a lot of differentiation between markets.

Boston has a significant life sciences market, it's kept it more stable even through Covid.

Speaker 2: New York had some of its early issues with public safety that they seem to have largely resolved. She's still the office sector there you're worried about, but we don't have any significant exposure there any longer. And then Philadelphia is still dealing with public safety issues, so we're a little more cautious there. And New Jersey has been doing remarkably well. I think there's kind of an after-go-the-came-after COVID.

New York had some of its.

Early issues with public safety that they seem to largely resolved. So you still have the office sector. There youre worried about but we don't have any significant exposure there any longer.

Michael Perito: Earning our way back to an over 3% margin to an important strategic objective of ours. I can't give you time frame on it, but that's, that's the way we want the company to operate. Like I'll also say that, you know, we've been really thought about long growth, the last two quarters largely because we wanted to make sure that we, you know, positioned our deposits on the balance sheet the way we want it.

And then Philadelphia is still dealing with the public safety issues that were a little more cautious there.

In New Jersey has been doing remarkably well I think there is kind of an afterglow that came after COVID-19.

Speaker 2: with folks that have decided they could spend more time outside the urban centers and

With folks that have decided they could spend more time outside the urban centers.

Speaker 3: New Jersey squarely position between two giant ones, but Joe any customer comments you're hearing or anything that You would share about geographies or industries? I'd summarize Chris's comments about geographies by saying that we Stress test the portfolio. We're doing almost every quarter. We're doing the kind of things you need to do to be proactive

New Jersey is squarely positioned between two giant ones, but Germany customer comments, youre hearing or anything that you would share about geographies or industries.

Michael Perito: We wanted the kind of deposits that were used to happen. And in an environment like this, you want to make sure that side of the balance sheet provide you with a stable funding for the loan side of the balance sheet. Yeah, that makes sense. And Chris, I should think about the loan portfolio, I mean, with especially to get on sale business now on the residents mortgage side. I mean, if you guys think about the bank two, three years from now, you know, any thoughts on what you're kind of hoping that the mix seems you're about, I think what, like, almost 30% in mortgages today about 53% CRE.

I'd summarize chris's comments about geographies by saying that we stress test the portfolio. We're doing it almost every quarter, we're doing the kind of things you need to do to be proactive.

Speaker 6: And we're not seeing any real bumps from anywhere in terms of the geographies and client bases and as a class.

And we're not seeing any real bumps from a N.

Anywhere in terms of the geographies and client basis.

And asset classes.

Speaker 6: On the other end of the spectrum, clients are basically telling us

The other end of the spectrum clients are basically telling us while many remain cautiously optimistic.

Speaker 3: while many remain cautiously optimistic.

Speaker 6: We're telling us they're delaying on major opportunities to do things, whether it's M&A, large equipment purchases, new lines of business, until they see more clarity on the national economic scale. So it's not something we're surprised by, it's not something that we've heard it over the last couple quarters. I think we'll continue to hear it. But on a positive front, I'll give an example. We've seen a couple of our largest CNI clients, and lines off to zero.

They're telling us they are delaying.

Major opportunities to do things, whether it's M&A large equipment purchases new lines of business until they see more clarity on the national economic scale. So it's not something we're surprised by it's not something new we've heard it over the last couple of quarters I think we'll continue to hear it but on a positive front I'll give an example, we've seen.

Michael Perito: Maybe a little higher than that if you do the order occupied as well, but just any updated thoughts there. Yeah, I think you're going to continue to see the mix shift in favor of commercial. You know, I think about, you know, when I joined the company, we were inverted. So we were probably 70% resi at that time. We're going to keep chunking away at that. We still want to provide residential finance in our markets.

Couple of our largest.

And our clients.

Hey lines off to zero.

Speaker 6: and have multi-millions in the bank i think they're they're much better position today than they were in prior crisis easily over two thousand eight nine so uh... that's up that's a real positive

And have multi millions in the bank I think there are much better positioned today than they were in prior crisis easily over 2008 nine so that's that's a real positive.

Michael Perito: We think we can do so, but more is a fee business. We don't mind putting on the balance sheet in certain cases, you know, if it's a 15 year self liquidating and adjustable, you know, a relationship customer, you know, what will make the right choices there. But I think you're going to see residential grow very slowly and commercial kind of pick up growth rates over the course of next year. So so you'll see the mix shift just kind of continue quarter after quarter with higher percentages of commercial and lower percentages of consumer residential.

Great well. Thank you guys I appreciate all the color on my questions. Thanks.

Speaker 8: Great. Well, thank you guys. I appreciate all the color on my questions. Thanks.

Thanks, Mike.

Our next question today comes from David Bishop.

Speaker 1: Our next question today comes from David Bishops of the Houth Group. Your line is open.

Your line is open.

Yes, good morning, gentlemen.

Michael Perito: Helpful. And then just just lastly for me would love kind of a growth and credit comment on on kind of each of your your markets. I mean, I think last time you guys spoke, it sounded like, you know, Boston and Baltimore had some some decent trends, you know, there were some more concerning stuff going on in for someone versus the other. I'll give you kind of the high level. One of the most important things I try and stress with folks is virtually the entirety of our franchise is located in the Northeast, which is always slower growth, but is always remarkably stable as well when you get into weaker economic periods.

Good morning, David.

Yeah.

Speaker 9: A, ahhh Christopheurner defined the question for everyone. I know theulations.

Hey, Chris.

Joe.

The question for everyone I know the slide deck.

Speaker 9: mention in terms of some of the deposit growth looks like about three.

And in terms of some of the deposit growth it looks like about 300.

Speaker 9: 28 million from a stock high yield saving account. Just curious, maybe what the duration looks like that and what that might be addictive. Sounds like that can come back in and restart the client.

One 8 billion from our high yield savings account just curious.

Maybe what the what the duration of it looks like that.

But the index to sounds like that could come back in a great starts up next.

Next year.

Speaker 2: So what we decided to do is as we built those deposit flows, we wanted to make sure that we didn't over concentrate on a duration issue in the deposit base should conditions change over time. And we're not predicting rates to do anything up or down or whatever, we don't, we try and stay out of that game. But we felt that it was better to have a slug of deposits that we had the ability to reduce the rates when we felt it was appropriate.

So what we decided to do is as we built those deposit flows we wanted to make sure that we didn't over concentrated.

Duration issue and the deposit base should conditions change over time, and we're not predicting rates do anything up or down or whatever we don't we try and stay out of that game, but we felt that it was better to have a slug of deposits that we hit the ability.

Michael Perito: So I mean who knows whether we have a soft landing or not, but if there is economic weakness usually the Northeast outperforms, and we've been careful to keep the franchise here. There's not a lot of different differentiation between markets. Boston has a significant life sciences market that's kept it more stable even through COVID. New York had some of its early issues with public safety that they seem to have largely resolved. Still, the office sector there you're worried about, but we don't have any significant exposure there any longer.

To reduce the rates when we felt it was appropriate.

Speaker 10: at some point in the future. So what we didn't want to do is put on fixed term funding. So all of those, there's no index to it. It's a rate that we maintain, and we have the ability to change that rate over time if we think appropriate. And then, um.

At some point in the future. So we didn't want to do is put on fixed term funding. So all of those there is no index to a rate that we maintain and we have the ability to change that rate over time, if we think appropriate.

Got it.

Then.

In terms of you I appreciate the continued guidance in terms of.

Michael Perito: And then Philadelphia is still dealing with public safety issues. So we're a little more cautious there. In New Jersey it's been doing remarkably well. I think there's kind of an after glow that came after COVID. And with folks that have decided they could spend more time outside the urban centers and New Jersey squarely position between two giant ones. But Joe any customer comments you're hearing or anything that you would share about geographies or industries?

The downdraft in expenses that are expected in the fourth quarter just curious.

Speaker 9: Where you see this coming out of, we have, we expect that to look as it coming out of salaries and benefits, occupancy data processing, other secures, what are sort of the main main.

Where do you see those coming out or how should we.

That to look is it coming out of salaries and benefits occupancy data processing to others. Just curious what are sort of the main main segments, where you'll see expenses reduced.

Speaker 2: It's coming at all the above, so we had a couple of significant contracts we were able to renegotiate. That was a big win. We've been able to fundamentally fix processes. And I don't want to, you know, the expense part of this has been terrific. There's a real customer experience improvement as well. We were able to significantly reduce the amount of time it takes to open an account. We're able to pull some processes out of the branches that could have been distracting to building new relationships.

It's coming out all of the above so we had a couple of significant contracts, we're able to renegotiate that was a big win we.

Michael Perito: So I'd summarize Chris's comments about geographies by saying that we stress test the portfolio. We're doing almost every quarter. We're doing the kind of things you need to do to be proactive. And we're not seeing any real bumps from anywhere in terms of the geographies and client basis and asset classes. On the other end of the spectrum, clients are basically telling us while many remain cautiously optimistic, they're telling us they're delaying on major opportunities to do things.

We've been able to fundamentally fixed processes and I don't want to.

The expense part of this has been terrific theres, a real customer experience improvement as well we were able to significantly reduce the amount of time. It takes to open an account we're able to pull some processes out of the branches that could have been distracting to building new relationships.

Speaker 2: and either modernize them, automate them, or do away with them. So it was kind of a comprehensive look at everything within the company. So there are equal parts. There are compensation impacts. There are IT impacts. There are vendor impacts.

And either modernize them automate them, where do away with them. So it was kind of a comprehensive look at everything within the company. So there are equal parts in there are compensation impacts there are.

Michael Perito: Whether it's M&A, large equipment purchases, new lines of business until they see more clarity on the national economic scale. So it's not something we're surprised by. It's not something that we've heard it over the last couple quarters. I think we'll continue to hear it. But on a positive front I'll give an example. We've seen a couple of our largest seen eye clients lines off to zero and have multi millions in the bank.

Impacts their vendor impacts.

Speaker 2: So it's a pretty full spectrum process and it's taken us about a year to get through to the bottom all these. And even as Pat said, we have some things we know will be able to accomplish, but it'll take another quarter.

So it's a pretty full spectrum process.

And it's taken us about a year to get through to the bottom all these and even as Pat said, we have some things we know will be able to accomplish but it will take another quarter or two.

Speaker 2: So I think if you think quarter over quarter, where we see the decrease coming about 50% of that decrease would be in compensation related lines, and 50% would be in professional fees.

So I think if you think quarter over quarter, where we see the decrease coming about 50% of that decrease would be in compensation related lines and 50% would be in professional fees.

Michael Perito: I think they're much better positioned today than they were in prior crisis, easily over 2008 and 9. So that's a real positive. Great. Well, thank you guys. I appreciate all the color on my question. Thanks. Thanks Mike.

Got it and then one last question in terms of the capital deployment outlook.

Speaker 11: Capital deployment- cap outlook: appetite for buyback.

Appetite for buybacks at this point thanks.

Speaker 2: Well, we have a strong capacity to buy back, but we have been favoring building capital and kind of watching the markets. Well, we'll just wanna make this point. That's not a comment about how we feel about us. It's about us watching the world. So external factors are holding us back as we watch what's going on in the markets and make sure we feel we've got a full understanding of.

Yes look we have a <unk>.

Our own capacity to buyback, but we have been favoring building capital and kind of watching the markets.

David Bishop: Next question today comes from David Bishop of the hoved group. Your line is open. Yeah, good morning gentlemen. Good morning, Dave. Chris, for Joe or Pat, the question for everyone, I know the spa deck mentioned in terms of some of the deposit growth looks like about 300, 20 million from a high yield saving account. Now, just curious, maybe what the duration looks like that. What that might be addictive, not like that can come back in of rate starts of the client next year.

I just want to make this point that is not.

A comment about how we feel about us it's about us watching the world. So external factors are holding us back as we watch what's going on in the markets and make sure. We feel we've got a full understanding.

Speaker 2: So that's kind of what the issue is about why we're not buying back today. We have the capacity to do so and certainly we think it could be a financially attractive thing to do. We just want to make sure we understand the environment best.

So that's kind of what the.

The issue is about why we're not buying back today, we have the capacity to do so and certainly we think it could be a financially attractive thing to do we just wanted to make sure we understand the environment.

Got it appreciate the color.

Thanks, Steve Thanks, Steve.

David Bishop: So what we decided to do is as we built those deposit flows, we wanted to make sure that we didn't over concentrate a duration issue in the deposit base should conditions change over time. And we're not predicting rates do anything up or down or whatever we don't we try and stay out of that game. But we felt that it was better to have a slug of deposits that we had the ability to reduce the rates when we felt it was appropriate, at some point in the future.

The next question today comes from Matthew Breese of Stephens, Inc. Please go ahead.

Speaker 1: The next question today comes from Matthew Breeze of Stephen's Inc. Please go ahead.

Hey, good morning, everybody.

Speaker 12: more men i want to uh... i want to go back to the office loan charge of and and good morning everybody um... going back to the office will charge up was there anything idiosyncratic about that loan charge off or was it what we would expect out of the new york office lower occupancy lower at

Good morning, I wanted to I wanted to go back to the office loan charge offs and good morning, everybody.

Going back to the office loan charge off was there anything idiosyncratic.

About that loan and charge offs or was it what we would expect that in New York office lower occupancy lower asking.

David Bishop: So what we didn't want to do is put on fixed term funding. So all of those there's no index to it. It's a rate that we maintain and we have the ability to change that rate over time if we think appropriate. And then in terms of you appreciate that the continued got it in terms of the the down drafts and expenses that are expected in the fourth quarter, just curious. Where do you see this coming out of we how should we expect that to look is it coming out of salaries and benefits occupancy data processing, other securities, what are sort of the main main segments where you'll be expenses reduced.

Speaker 12: asking rent per square foot. Just strikes me as a pretty dramatic change in in valuation there and I appreciate a little bit more color.

Asking rents per square foot just strikes me as a pretty dramatic change in valuation narrowing appreciate a little bit more color.

Speaker 2: I think there's a couple of factors there, but first I think it is exactly what you would expect from urban office in a place like New York. And it was referenced it was a block and a half off time square. So a pretty vibrant area of New York city. Three things happened here. The first thing that happened is you had some vacancy, but not...

I think there is a couple of factors there first I think it is exactly what you would expect from urban office in a place like New York.

As referenced it was a block and a handful of times square, so pretty vibrant area of New York City.

Three things happened here. The first thing that happened is you had some vacancy.

But not.

Well I don't want to be cautious about that I mean, the buildings more than half.

Speaker 2: I want to be cautious about that. I mean the building is more than half tenanted and with cash flowing.

Tenanted and it's cash flowing.

So, but the vacancy comes down the second thing you do is this was a b office.

Speaker 2: So but the vacancy comes down. The second thing you do is this was a B office.

David Bishop: It's coming out of all the above. So we had a couple of significant contracts were able to renegotiate that was a big win. We've been able to fundamentally fix processes and I don't want to, you know, the expense part of this has been terrific. There's a real customer experience improvement as well. We were able to significantly reduce the amount of time it takes to open an account. We're able to pull some processes out of the branches that could have been distracting to building new relationships.

Speaker 2: And I want to go back to when the loan was made in 2019. Beoffice would have been perceived as actually more stable than a lower rents and pretty much divided kind of occupant.

And I want to go back to when the loan was made in 2019 be office would have been perceived as actually more stable.

Lower rents and pretty much divided kind of Occupancies. So you have vacancy you have a reduction in <unk>.

Speaker 2: So you have vacancy, you have a reduction in

Speaker 2: in the asking price for any space you can rent.

In the asking price for any space you can rent.

Speaker 2: You have the cost of vacancy, which is kind of retentant thing. And then the last one is probably the biggest impact, which is you could express it as a cap rate, or you could just think of it as kind of catching a falling knife.

You have the cost of vacancy, which is kind of re tenant in and then the last one is probably the biggest impact which is you could express it as a cap rate, where you could just think of it as kind of catching a falling knife trying to figure out who is going to value New York City office of that nature right now so.

David Bishop: And either modernizing them automate them or do away with them. So it was kind of a comprehensive look of everything within the company. So there are equal parts in there are compensation impacts. There are IT impacts there vendor impacts. So it's a pretty full spectrum process and it's taken us about a year to get through to the bottom all these and even as Pat said, we have some things we know will be able to accomplish but it'll take another quarter or two.

Speaker 2: Trying to figure out who is going to value New York City office.

Speaker 2: of that nature right now. So that sponsor had been supporting this credit for the last couple of years. I actually made a principal paydown a little more than a year ago. They liked the asset. They just kind of got to that point and they had to make a different decision. And I think as we've covered before, there's nothing else in our portfolio that works.

The sponsor had been supporting this credit for the last couple of years actually made a principal pay down little more than a year ago. They liked the asset they just kind of got to that point.

Make a different decision and I think as we've covered before.

So there is nothing else in our portfolio that looks like this.

David Bishop: So I think if you think quarter over quarter where we see the decrease coming about 50% of that decrease would be in compensation related lines and 50% would be in professional fees. Got it. Then one last question in terms of the capital deployment capital look appetite for buybacks at this point. Thanks. Well, we have a strong capacity to buy back but we've been favoring building capital and kind of watching the markets.

So as we think about the spectrum of office and it's funny, we've kind of as an industry oscillated between what safest.

Speaker 12: So as we think about the spectrum of office, and it's funny, we've kind of as an industry oscillated between what's safe as to class A, park A or suburban.

As a park Av suburban.

Speaker 12: After going through this experience, how did you kind of rank order deriskiest portions of office versus the safest and maybe give us a flavor for what you have in the...

After gone through going through this experience how would you kind of rank order the riskiest portions of office versus the safest.

And maybe give us a flavor for what you have exposure to within that.

So I think I would start with it.

Speaker 2: So I think I would start with the end of the day, it's always location in real estate, many kind of real estate, and micro markets matter. So you really want to look at the specific market what the vacancy rates are, what the demand for space is. That's what drives.

The end of the day, it's always location and real estate many kinds of real estate.

And micro markets matter. So you really want to look at the specific market with the vacancy rates are what the demand for spaces. That's what drives it in terms of what we like the most there's a lot of office categories that require you to be in the office. So people would talk about medical.

David Bishop: Just want to make this point. That's not a comment about how we feel about us. It's about us watching the world. So external factors are holding us back as we watch what's going on in the markets and make sure we feel we've got a full understanding. So that's kind of what the issue is about why we're not buying back today. We have the capacity to do so and certainly we think it could be a financially attractive thing to do. We just want to make sure we understand the environment best. I appreciate the color. Thanks Dave.

Speaker 2: In terms of what we like the most, there's a lot of office categories that require you to be in the office. So people will talk about medical.

Speaker 2: That's because you have to actually go in, right? We've done a lot of medical lab work up in Boston. We like that a lot. You know, you can a classic case of the dentist can't work from home, right? So we like all that. Second thing we like is uses where we have an exceptionally strong tenant. Some cases that could be government tenants. It could be credit tenants. But there's a structure to the cash flows. It is highly reliable. And where we can underwrite those, we think that that's a good fact.

Because you have to actually go in right. We've done a lot of medical lab work up in Boston, we like that a lot.

You can have a classic case of the dentist can't work from home. So we like all of that second thing we like is.

Uses where we have an exceptionally strong tenant some cases that could be government tenants it could be credit tenants.

Matthew Breeze: The next question today comes from Matthew Breeze or Steven's Inc. Please go ahead. Hey, good morning everybody. I wanted to go back to the office loan charge and good morning everybody. Going back to the office loan charge up. Was there anything idiosyncratic about that loan and charge off or was it what we would expect out of New York office lower occupancy lower at, asking rent per square foot. Just strikes me as a pretty dramatic change in valuation there, and I appreciate a little bit more color.

But there is a structure to the cash flows that is highly reliable and where we can underwrite those we think that thats.

A good bet.

Speaker 2: And then one thing that happened in our market, I think it happened elsewhere, is that in the suburban markets that fall between New York and New Jersey, there had been very little office build out.

And then.

The one thing Thats happened in our market I think it's happened elsewhere is that in the suburban markets.

That fall between New York, and New Jersey.

Been very little office build out for the last decade.

Speaker 2: So even a very small portion of the office demands shifting from Central Business District, the Yorker Philly, and out to suburban office filled up whatever vacancy was there. So we've seen, we look across our office portfolio, we just finished stress testing the whole thing.

So even a very small portion of the office demand shifting from Central business District, New Yorker, Philly and out to suburban office buildup.

Buildup whatever vacancy was there so we've seen when we look across our office portfolio. We just finished stress testing the whole thing.

Matthew Breeze: I think you know there's a couple factors there, but first I think it is exactly what you would expect from urban office in a place like New York, and it was referenced it was a block and a half off time square, so a pretty vibrant area of New York City. Three things happened here. The first thing that happened is you had some vacancy, but not I want to be cautious about that.

Speaker 2: the occupancy rates in the office portfolio now are higher than they were on the day we originated that portfolio. So I think that like anything, it depends, you have to really kind of peel back the layers of the onion. This was a central business district, New York City, high rise, class B off.

<unk>.

Occupancy rates in the office portfolio now are higher than they were on the day, we originated that portfolio. So I think that yes.

But like anything this it depends where you have to really kind of peel back the layers of the onion.

This was the Central business District, New York City High rise class B office, and that's going to be a tough sell these days, but fortunately, we didn't make a business of that.

Matthew Breeze: I mean the building is more than half tentative and it's cash flowing, so but the vacancy comes down. The second thing you do is this was a B office, and I want to go back to when the loan was made in 2019. B office would have been perceived as actually more stable in lower rents and pretty much divided kind of occupancies, so you have vacancy, you have a reduction in the asking price for any space you can rent, you have the cost of vacancy which is kind of retentant thing, and then the last one is probably the biggest impact which is you could express it as a cap rate, or you could just think of it as kind of catching a falling knife trying to figure out who is going to value New York City office of that nature right now.

Speaker 2: And that's going to be a tough sell these days, but fortunately we can make a business.

Okay.

Speaker 12: God and then you know I know this was part of a it was like a syndicated loan. What is the overall size of your syndicated loan portfolio and how has credit in that portfolio?

Got it and then I know this was part of our.

It was like a syndicated loan what is the overall size of the year syndicated loan portfolio and how has credit in that portfolio performance.

And so the vast majority of what we do we originate so we have 93% of what we've learnt is is us.

Speaker 2: So the vast majority of what we do, we originate, so we have a 93% of what we've lent is also the lead, actually a little more. So less than 7% is this indicated book. Less than half of that is shared national credits. 97% of that book is pass rated or better, and we don't see any trends in the book that would be of any concern. So.

Actually a little more so less than 7% as the syndicated book less than half of that is.

As shared national credits.

97% of that book is past rated or better and we don't see any trends in the book that would be of any concern.

Matthew Breeze: So that sponsor had been supporting this credit for the last couple of years, actually made a principal paydown a little more than a year ago, they liked the asset, they just kind of got to that point where they had to make a different decision, and I think as we covered before, there's nothing else in our portfolio that looks like this.

Okay.

Speaker 12: I'm sorry, I might have missed that in your comments. But how much of that is out of market, meaning out of your boss and both more New York City, New Jersey footprint?

I'm, sorry, I might have missed that in your comments, but how much of that is out of market, meaning that as your Boston Baltimore, New York City, New Jersey.

Footprint.

Speaker 2: You know, I don't have the number in front of me, ma'am, but there's no particular trend. It's not concentrated in one area or nothing.

Christopher Maher: So as we think about the spectrum of office, and it's funny, we've kind of as an industry oscillated between what's safest to class A, park A, or suburban, after going through this experience, how would you kind of rank order the riskiest portions of office versus the safest, and maybe give us the flavor for what you have exposure to than that. So I think I would start with at the end of the day, it's always location in real estate, many kind of real estate, and micro markets matter, so you really want to look at the specific market, what the vacancy rates are, what the demand for space is, that's what drives it.

I don't have the number in front of me map Theres, no particular trend its not concentrated in one area or another.

Okay.

Speaker 12: Okay, I appreciate that. Last one for me, I noticed in your 10-2 that the C or A rating was downgraded to the needs improvement or needs to include. I was curious, you know, your thoughts around that and what does the remediation effort look like?

Okay I appreciate that last one for me.

I noticed in your 10-Q.

CRA rating.

Downgraded Sydney needs, improving our need to improve.

I was curious your thoughts around that and what does the remediation effort looked like in.

Speaker 12: which we expect in terms of impact to the P&L and balance you as you go through.

What should we expect in terms of impact to the P&L or balance sheet as we go through that.

Yes. So there was a single well defined issue that arose at our last CRA exam that we've been working on for quite some time with our regulator.

Speaker 2: So there was a single well-defined issue that arose in our last CRA exam that we've been working on for quite some time with our regulator. I would not classify it as something that's gonna have a meaningful change in our financial commitments to remediate and our CRA period that is under review will complete on December 31st of this year. So our next CRA exam would likely be sometime in early 2000 or at some point in 2024, I can't say.

Christopher Maher: In terms of what we like the most, there's a lot of office categories that require you to be in the office, so people will talk about medical, that's because you have to actually go in, right? We've done a lot of medical lab work up in Boston, we like that a lot, you know, you can class a case of the dentist, it can't work from home, right? So we like all that, second thing we like is use is where we have an exceptionally strong tenant, some cases that could be government tenants, it could be credit tenants, but there's a structure to the cash flows, it is highly reliable, and where we can underwrite those, we think that that's a good bet.

I would not classify it as something that's going to have a meaningful change in our financial commitments to remediate and our CRA period that is under review will complete on December 31 of this year. So our next CRA exam would likely be sometime in early 2000 and at some point in 2024, I cant say when.

Speaker 2: We don't think it's a big cost to remediate. It was a very narrow issue. We've been working on that remediation for some time with our regulator. We didn't do it properly. Because it was forced into the child due to a big problem, this is not a bad piece of?.

So we don't think its a big cost to remediate. It was a very narrow issue and we've been working on that remediation for some time with our regulator.

No.

Speaker 2: Great. Okay. I will leave it there. Thank you for taking my questions. Appreciate it.

Great. Okay, I will leave it there. Thank you for taking my questions appreciate it.

Thanks Pat.

Christopher Maher: And then one thing that happened in our market, I think it happened elsewhere, is that in the suburban markets that fall between New York and New Jersey, there had been very little office build out for the last decade. So even a very small portion of the office demand shifting from central business district to New York or Philly, and out to suburban office filled up whatever vacancy was there. So we've seen, we look across our office portfolio, we just finished stress testing the whole thing.

Our next question today comes from.

Speaker 1: And that's question today. It comes from Christopher Maronette, Bob, Jane and Montgomery Scott. Your line is open.

<unk> of Janney Montgomery Scott.

Your line is open.

Speaker 6: hey thanks for taking our questions uh... mine here is just goes back to the uh... the loan marks that we see in the in the ten qe quarter well those get lower and then better as next year plays out particularly as you have some this loan turnover that you referenced earlier in the call

Hey, Thanks for taking our questions mine here was just goes back to the <unk>.

Loan marks that we see in the 10-Q, each quarter will those get lower and better as next year plays out, particularly as you have from this loan turnover that you referenced earlier in the call.

Yes, they should over time, theres, just going to kind of bleed themselves out.

Speaker 2: They should over time, they're just going to kind of bleed themselves out. The only question I would have on that is that it depends on what the Fed does, right? We're actually dependent on what the Fed does, it depends on where the long end of the curve goes. So if we're in this rate environment higher for longer, you're going to see those kind of amortize themselves off as the loan book rolls through. If rates change meaningfully, that could be a different situation.

The only caution I would have on that is that it depends on what the fed does right actually it depends on what the fed does it depends on where the long end of the curve goes so.

Christopher Maher: The occupancy rates in the office portfolio now are higher than they were on the day we originated that portfolio. So I think that, like anything, it depends, you have to really kind of peel back the wares of the onion. This was a central business district, New York City, high rise, class B office, and that's going to be a tough sell these days, but fortunately we didn't make a business of that.

If we're in this rate environment higher for longer Youre going to see those kind of amortize themselves office the loan book Rolls through.

If rates change meaningfully that could be a different situation.

Got it thanks for that Chris.

Speaker 6: Got it. Thanks for that, Chris. And in the presentation, you mentioned about the long duration of your customer relationships.

Presentation, you mentioned about the long duration of your customer relationships.

Christopher Maher: God, and then, you know, I know this is part of a, it was like a syndicated loan. What is the overall size of your syndicated loan portfolio, and how has credit in that portfolio performed? So the vast majority of what we do, we originate, so we have 93% of what we've lent is also the lead, actually a little more. So less than 7% is the syndicated book, less than half of that is shared national credits. 97% of that book is pass rated or better, and we don't see any trends in the book that would be of any concern. Okay.

Do you see that advantage still playing out in terms of has you've repriced. The book I know everything has moved up as we've seen in the numbers but.

Speaker 13: do you see that advantage still playing out in terms of how you reprice the book I know everything is moved up as we've seen in the numbers but Just curious if you can kind of pinpoint How that relationship pricing is benefiting you overall in the book

Just curious if you can kind of pinpoint.

That relationship pricing is benefiting you overall in the book.

Speaker 2: I think there is a benefit. I think we've learned a lot this year about some of the backward looking deposit tests.

I think there is a benefit I think we've learned a lot this year about some of the backward looking deposit tests.

Speaker 2: Maybe some segments of our customers responded more predictably than other segments did. So we're kind of learning a little bit about that. But overall, we're very pleased with the level of retention among across our customer base. And we think we still have the opportunity to grow. We have a tremendously large deposit market. So in that way why do you want a problem like these?

Some some segments of our customers.

<unk>.

Responded more predictably than other segments did so we're kind of learning a little bit about that but overall.

We're very pleased with the level of retention among across our customer base and we think we still have the opportunity to grow we have.

A tremendously large deposit market so.

Matthew Breeze: I'm sorry, I might have missed that in your comments, but how much of that is out of market meaning out of your Boston, Baltimore, New York City, New Jersey footprint? You know, I don't have the number in front of me, ma'am, but there's no particular trend that's not okay.

Speaker 2: while it's a tough environment to grow in. We have a very small market share, so I think we can continue to grow those. Our customers do 43 million transactions a year with us. They largely, the best customers we have are those that have chosen to do things with us, to move money around, we're helping them with everything from ACH to wires, to ZEL, to, you know, that's why they're with us, and I think that's a pretty durable relationship.

Wow.

Tough environment to grow in we have a very small market share. So I think we can continue to grow those are customers too.

Matthew Breeze: I appreciate that.

43 million transactions a year with us.

Largely the best customers. We have are those that have chosen to do things with us to move money around we're helping them with everything from <unk> to wires to zelle.

Christopher Maher: Last one for me, I noticed in your 10Q that the CRA rating was down greater to the needs improvement or needs to include. I was curious, you know, your thoughts around that and what does the remediation effort look like and what should we expect in terms of impact to the P&L of balance you guys as you go through that? Yeah, so there was a single well-defined issue that arose in our last CRA exam that we've been working on for quite some time with our regulator.

That's why they are with us and I think thats, a pretty durable relationship.

Speaker 2: That said, you know, looking at a higher rate environment, we've had to make sure that we paid enough. Loyalty will carry you. It won't carry you all the way, it'll just carry you so far. You want to make sure you're providing both quality of service, access, transaction capability, but you also have to provide some rate yield as well. Thank you.

That said looking at a higher rate environment, we've had to make sure that we paid enough.

Loyalty will carry it won't carry all the way to <unk> carriers. So far so you want to make sure you are providing both quality of service access transaction capability, but you also have to provide some some rate yield as well.

We feel pretty good about.

Christopher Maher: I would not classify it as something that's going to have a meaningful change in our financial commitments to remediate, and our CRA period that is under review will complete on December 31st of this year. So our next CRA exam would likely be sometime in early 2000 or at some point in 2024, I can't say one. So we don't think it's a big cost to remediate. It was a very narrow issue, and we've been working on that remediation for some time with our regulator.

Got it thank you for that.

Got it and then just one quick question might be for Pat, but I may have missed it earlier, but the FDIC special assessment do you anticipate that being part of fourth quarter or would that possibly go with into first quarter.

Speaker 13: Got it and just one quick question might be for Pat but I may have missed it earlier But the FDSEA special assessment do you anticipate that being part of fourth quarter or were would that possibly go into first quarter?

Matthew Breeze: Great. Okay, I won't leave it there.

Wow.

Speaker 4: Wow, if I could predict that, then I probably wouldn't be doing this job. We don't know when that's going to hit and be effective. And frankly, we're not 100% sure what the impact will be, but best estimates based on what's out there now, which has been finalized.

If I could predict that.

And I, probably wouldn't be doing this job.

We don't know when that's going to hit and they effective.

And frankly, we're not 100% sure what the impact will be but best estimate based on whats out there got it now which hasnt been finalized.

Operator: Thank you for taking my questions. Appreciate it. Thank you, Pat.

Speaker 4: is that it'll be around $2 million, kind of a one-time thing.

Is that it will be around $2 million kind of a onetime thing and.

Manuel Navas: And that's question today. It comes from Christopher Mariner of Jamie Montgomery Scott. Your line is open. Hey, thanks for taking our questions. Mine here just goes back to the the loan marks that we see in the 10Q each quarter. Well, those get lower and then better as next year plays out, particularly as you have some this loan turnover that you referenced earlier in the call. Yeah, they should over time. They're just going to kind of bleed themselves out.

Speaker 12: and that's roughly a quarter's worth.

And that's that.

That's roughly a quarter's worth.

Speaker 12: of our $8 million run rate of our current assessment that's built into this year's P&L, so we'll see.

Of our $8 million run rate of our current assessment, that's built into this year's P&L.

So we'll see.

Speaker 12: don't see an outcome where we wouldn't be subject to it. Although everybody lobbied particularly those of us that are around the margin the lower end, but there's been no progress that we've seen in changing what was proposed out there or further details as to when, if and when that will come. Thank you.

I don't see an outcome, where we wouldn't be subject to it although everybody lobby, particularly those of us that are around the margin.

The lower end, but theres been no progress that we've seen in changing.

Those out there.

For further details as to when when if and when that will become effective.

Manuel Navas: The only question I would have on that is it depends on what the Fed does, right? We're actually depends less on what the Fed does. It depends on where the long end of the curve goes. So if we're in this rate environment higher for longer, you're going to see those kind of amortize themselves off as the loan book rolls through. If rates change meaningfully, that could be a Association. Got it. Thanks for that, Chris.

Speaker 12: So it's still to be determined, obviously, it may or may not happen in the near term. Okay, that's what I want to clarify. Thank you for that. I appreciate you taking charge of that. You should just take a day and count on it because I can't see an outcome. Would that not happen because it's already out there and it doesn't require somebody in Congress or Senate to propose something new? It's just like out there.

Okay. So its still to be determined obviously, it may or may not happen in the near term, okay. That's what I'm asking.

I appreciate it thanks I'll talk to that.

Should you should just pick a date and.

And count on it because I.

I can't see an outcome, where that would not happen because it's already out there and it doesn't require somebody in Congress or Senate to propose something new its just like out there.

Manuel Navas: And in the presentation you mentioned about the long duration of your customer relationships. Do you see that advantage still playing out in terms of how you reprice the book? I know everything has moved up as we've seen in the numbers, but just curious if you can kind of pinpoint how that relationship pricing is benefiting you overall in the book. I think there is a benefit. I think we've learned a lot this year about some of the backward looking deposit tests, maybe some segments of our customers responded more predictably than other segments did.

Speaker 12: So, you know, we're not, we're not forecasting it a specific time. It'll just be at some time during 2024.

No.

We're not we're not forecasting at this specific time, it'll just be it sometime during 2024.

Speaker 13: Got it. Okay. Great. Thanks very much for all the insight today.

Got it okay, great. Thanks, very much for all the insight today.

Thanks, Chris.

Our final question today comes from Manuel <unk> of D. A Davidson. Please go ahead.

Speaker 1: Our final question today comes from Manuel Novaz of the Adabison. Please go ahead.

Hey, good morning.

Good morning.

Manuel Navas: So we're kind of learning a little bit about that. But overall, we're very pleased with the level of retention among across our customer base. And we think we still have the opportunity to grow. We have a tremendously large deposit market. So while it's a tough environment to grow in, we have a very small market share. So I think we can continue to grow those. Our customers do 43 million transactions a year with us.

Speaker 14: I want to stay on the deposit growth. The high yield savings, what channels are coming from, is that coming from branches, from your commercial lenders, where are those funds being sourced?

I'd like to stay on the deposit growth.

High yield savings what channel is that coming from is that coming.

From branches from your commercial lenders.

Where are those funds being a source.

That's a direct marketing channel. So one of the things you have to do to optimize your pricing is managed pricing by each channel. So we have highly competitive offers that we have in the branch. We have highly competitive offers we bring direct out to customers and obviously, we negotiate individual deals with our commercial folks some.

Speaker 2: It's a direct marketing channel, so one of the things you have to do to optimize your pricing is managed pricing by each channel. So we have highly competitive offers that we have in the branch, we have highly competitive offers we bring direct out the customers, and obviously we negotiate individual deals with our commercial folks.

Manuel Navas: The largely the best customers we have are those that have chosen to do things with us to move money around. We're helping them with everything from ACH to wires to Zell. That's why they're with us. And I think that's a pretty durable relationship. That said, you know, look in a higher rate environment, we've had to make sure that we paid enough. Loyalty will carry you. It won't carry you all the way.

We're trying.

Speaker 2: We're trying to figure out what do you have to to move the needle on each of those channels.

Just kind of trying to figure out what do you have to pay to move the needle in each of those channels and it's a different yield in each one and you try and come up with the best mix again, but that is a direct marketing channel.

Speaker 2: It's a different yield in each one and you try and come up with the best mixture cam. But that is a direct marketing.

Manuel Navas: It'll just carry you so far. So you want to make sure you're providing both quality of service, access, transaction capability. But you also have to provide some some rate yield as well. We'll feel pretty good about it. Got it. Thank you for that. Got it. And then just one quick question might be for Pat, but I may have missed it earlier, but the FDIC is special assessment. Do you anticipate that being part of fourth quarter or would that possibly go into first quarter?

Is that is the branch opening kind of related.

Speaker 14: Is that is the branch of a body kind of related?

Speaker 14: to that is it a shift in how you want to.

To that.

Is it a shift in.

How you want to gather deposits.

Speaker 2: or that unrelated. Yes and no. It's not really a shift in the way we think about deposits, but there's a little bit of a shift in the recent years pruning our branch network. I think very effectively we closed 77 branches over a series of years.

Or is it unrelated yes and no.

It's not really a shift in the way, we think about deposits but.

There is a little bit of a shift in that we've spent years pruning our branch network and I think very effectively we closed 77 branches over series of years.

Manuel Navas: Wow. If I could predict that, then I probably wouldn't be doing this job. We don't know when that's going to hit and be effective. Frankly, we're not 100% sure what the impact will be, but best estimate based on what's out there. Got it now, which has been finalized is that it'll be around $2 million, kind of a one-time thing. And that's that's roughly a quarter's worth of our $8 million run rate of our current assessment that's built into this year's P&L.

Speaker 2: As we go forward now in the company grows, we're not going to grow through opening of pile of branches. We don't think that that makes sense. There's a little bit of a hole in our geography here. It's a county seat. There's about a billion seven deposits there. Lot of commercial activity.

So as we go forward now and the company grows we're not going to grow through opening a pilot branches. We don't think that that makes sense.

A little bit of a hole in our geography here, it's a county seat Theres about $1 seven in deposits there lot of commercial activity. So from time to time I think you may see us in one to twos over time opened a branch here or there because we think the branches relevance.

Speaker 2: So from time to time, I think you may see us in one through two's over time. Open a branch here and there because we think the branch has relevance.

Speaker 2: But I would not view this as a shift where you see we're going to open, you know, any number of branches next year. We have no plans to open any branches beyond this.

But I would not view this as a shift where you see we're going to open any number of branches next year. We have no plans to open any branches beyond this at current but as we work in markets and we think we're kind of resonating we may from time to time open branches that are.

Manuel Navas: So we'll see. I don't see an outcome where we wouldn't be subject to it, although everybody lobbied, particularly those of us that are around the margin, the lower end, but there's been no progress that that we've seen in changing what was proposed out there, or further details as to when, if and when that will come effective. Okay, so it's still TB determined, obviously, it may or may not happen in the near term.

Speaker 2: current but as we work in markets and we think we're kind of resonating we may from time to time open branches that are kind of geographically separated.

Kind of geographically separated from the rest of our group.

Okay.

I appreciate that.

Speaker 14: I appreciate that as he paid off most of the short term.

<unk> paid off most of the short term.

Speaker 14: kind of wholesalish, really barring or proper deposits. And you've brought in some more deposits with the high yield channel. Some other channels probably will pick up. Oh, where's the trigger?

Kind of wholesale ish borrowings.

Borrowings or broker deposits and you brought in some more deposits with the high yield channel. Some other channels probably will pick up.

Manuel Navas: Okay, that's what I want to talk about. You should just take a day and count on it because I can't see an outcome where that would not happen because it's already out there and it doesn't require somebody in Congress or Senate to propose something new. It's just like out there. So, you know, we're not we're not forecasting it is specific time. It'll just be at some time during 2024. Thank you, Christopher. Got it. Okay, great. Thanks very much for all the insight today. Please, Chris.

Whereas the triggers for kind of an increase to loan growth.

Speaker 2: So I think we're thinking about that hard right now in this quarter. And we just want to make sure that we've got the best informed view about how those throws come in, what the marginal cost of deposit gathering is, what the marginal yields we're going to get in each of the loan segments. So we're going through that plans now. I'll tell you this, there is demand in the market.

So I think we're thinking about that hard right now in this quarter and we just wanted to make sure that we've got the best informed.

View about how those flows come in what the marginal cost of deposit gathering is what the marginal yields we're going to get in each of the loan segments. So we're going through that plans now I'll tell you. This there is demand in the market.

Speaker 2: We just have to decide which products we wanted in and what yield and structures are going to be best for us. So we're working through that now. I don't think you're going to see meaningful long growth in Q4. It'll be around what you've seen in Q3 if that. But as we go into 2024, we're kind of gearing up to figure out what the right growth number is there and what the mix of growth.

We just have to decide which products we wanted in and what yields and structures are going to be best for us. So we're working through that now I don't think youre going to see meaningful loan growth in Q4, and it will be around what you've seen in Q3 of that.

Christopher Maher: I'll find a question today comes from Manuel Navas of DA Davidson. Please go ahead. Okay, good morning. Good morning. I want to stay on the deposit growth. The high yield savings, what channel is that coming from, is that coming from branches, from your commercial lenders, where are those funds being sourced? That's a direct marketing channel. So, you know, one of the things you have to do to optimize your pricing is managed pricing by each channel.

We go into 2024.

We're kind of gearing up to figure out what the right growth numbers, there and what the mix of growth will be.

With the operating leverage strategies, you've been putting into place.

Speaker 14: With the operating leverage strategies you've been putting into place.

Speaker 14: At the beginning of that, a lot of it was contemplating lower rates. Has that plan...

At the beginning of that a lot of it was contemplating lower rates.

Christopher Maher: So we have highly competitive offers that we have in the branch. We have highly competitive offers. We bring direct out the customers, and obviously we negotiate individual deals with our commercial folks. So we're trying to figure out what do you have to pay to move the needle on each of those channels. And it's a different yield in each one, and you try and come up with the best mixture can, but that is a direct marketing channel.

Has that planned shifted.

Speaker 14: across the year now that we're kind of the condensuces today, it could change pretty quickly. It's a higher for longer environment. And you kind of talk about how that operating leverage strategies have incorporated that shift.

Across the year now that we're kind of the consensus today it could change pretty quickly.

Higher for longer environment, and you kind of talk about how.

That operating leverage strategies have incorporated that shift.

Speaker 2: I think the main one would be not so much around operating leverage, but we have two different fee income lines that will be constrained as long as we're in this rate environment. The first is swaps and the second one is the gain on sale and residential. We're still focused on them because they're important businesses in the long run, but the outlook for them in the short run is going to be constrained in this rate environment. So I don't think the operating leverage initiatives would have changed much, but the gain on sale in particular and the work we've done around swaps are just going to be...

I think the main one would be not so much around the operating leverage but we have two different fee income lines.

That will be constrained as long as we're in this rate environment. The first the swaps and the second one is the gain on sale of residential.

We're still focused on them because they are important businesses in the long run, but the outlook for them in the short run is going to be constrained in this rate environment. So I don't think the operating leverage initiatives would have changed much but the gain on sale in particular and the work. We've done around swaps are just going to be kind of that.

Christopher Maher: Is that, is the branch opening kind of related to that? Is it a shift in how you want to gather deposit or is it unrelated? Yes and no, you know, it's not really a shift in the way we think about deposits, but there's a little bit of a shift in that we spend years pruning our branch network. And I think very effectively we closed 77 branches over a series of years. So as we go forward now in the company grows, we're not going to grow through opening a pile of branches. We don't think that that makes sense. There's a little bit of a hole in our geography here. It's a county seat. There's about a billion seven deposits there, a lot of commercial activity.

Speaker 2: quite unpause but they're going to be minimally contributing until we see some changes in the regular rate

Not quite on pause, but they're going to be minimally contributing until we see some change in the rate environment.

Speaker 14: So that was kind of like the, the fisside of the operating leverage. It's probably has a little bit longer channel just because of the rate environment.

So that was kind of like the fee side of the operating leverage.

It's probably has a little bit longer to handle just because of the rate environment.

Correct and we're still look we would still higher I. Appreciate this we'll hire them.

Speaker 2: and we're still, well, Blair and still highly appreciated so higher than me.

Speaker 2: I'm just going to say, Manuel, we will still hire good commercial bankers if we have the opportunity to, but our appetite is not what it was two years ago. So, you know, we're going to be pretty discriminating before we add a head count, and you won't see that head count change much.

I was just going to say man well, we will still hire good commercial bankers that we have the opportunity to buy.

Our appetite is not what it was two years ago. So.

Christopher Maher: So from time to time, I think you may see us in one through two over time, open a branch here and there because we think the branch has relevance, but I would not view this as a shift where you see we're going to open any number of branches next year. We have no plans to open any branches beyond this at current, but as we work in markets and we think we're kind of resonating, we may from time to time open branches that are kind of geographically separated from the rest of our group.

Be pretty discriminating before we add head count and you won't see that head count changed much.

Okay.

I appreciate it thank you.

Alright, thank you.

We have no further questions. So I'll turn the call back over to the CEO , Chris Metz for closing remarks.

Speaker 1: We have no further questions, so I'll turn the call back over to the CEO , Chris, Mark, or Closing remarks.

Alright. Thank you. We appreciate your time today and your support of Ocean <unk> Financial Corp. We offer our best wishes to all throughout the upcoming holiday season, we look forward to speaking with you. After our fourth quarter results are published in January . Thank you very much.

Speaker 2: Thank you. We appreciate your time today and your support of Ocean First Financial Court. We offer our best wishes to all throughout the upcoming holiday seasons. We look forward to speaking with you after our fourth quarter results are published in January . Thank you very much.

Christopher Maher: I appreciate that as, as you paid off most of the short term, kind of wholesalish, really barring or broker deposits, and you brought in some more deposits with the high yield channel, some other channels probably will pick up. Where is the triggers for kind of an increase to long growth? So I think we're thinking about that hard right now in this quarter, and we just want to make sure that we've got the best informed view about how those close come in, what the marginal cost of deposit gathering is, what the marginal yields we're going to get in each of the loan segments.

This concludes today's call. Thank you for joining you may now disconnect your lines.

Speaker 1: This concludes today's call. Thank you for joining. You may now disconnect your line.

[music].

Speaker 15: No.

Okay.

Okay.

Christopher Maher: So we're going through that plans now. I'll tell you this. There is demand in the market. We just have to decide which products we wanted in and what yield and structures are going to be best for us. So we're working through that now. I don't think you're going to see a meaningful long growth in Q4. It'll be around what you've seen in Q3 of that. But as we go into 2024, we're kind of gearing up to figure out what the right growth number is there, and what the mix of growth, with the operating leverage strategies you've been putting into place.

Christopher Maher: At the beginning of that, a lot of it was contemplating lower rates. Has that plan shifted across the year now that we're kind of, the consensus is today, it could change pretty quickly. It's a higher for longer environment. Can you kind of talk about how that operating leverage strategies have incorporated that shift? I think the main one would be not so much around operating leverage, but we have two different fee income lines that will be constrained as long as we're in this rate environment, the first is slops, and the second one is the gain on sale and residential.

Christopher Maher: We're still focused on them because they're important businesses in the long run, but the outlook for them in the short run is going to be constrained in this rate environment. I don't think the operating leverage initiatives would have changed much, but the gain on sale in particular and the work we've done around swaps are just going to be kind of quite unpause, but they're going to be minimally contributing until we see some change in the rate environment.

Christopher Maher: That was kind of like the fee side of the operating leverage. It's probably higher. I appreciate it. I'm just going to say, Manuel, we will still hire good commercial bankers if we have the opportunity to, but our appetite is not what it was two years ago, so we're going to be pretty discriminating before we add a headcount, and you won't see that headcount change much. I appreciate it. Thank you.

Manuel Navas: All right, thank you.

Christopher Maher: We have no further questions, so I'll turn the call back over to the CEO, Chris, Mark, or closing remarks. Thank you. We appreciate your time today and your supportive ocean first financial court.

Christopher Maher: We offer our best wishes to all throughout the upcoming holiday seasons. We look forward to speaking with you after our fourth quarter results are published in January. Thank you very much.

Operator: This concludes today's call. Thank you for joining.

Operator: You may now disconnect your line.