Q3 2023 S&T Bancorp Inc Earnings Call

Speaker 1: Welcome to the S&T Bancorp third quarter 2023 conference call. After management's remarks, there will be a question and answer session. Now I would like to turn the call over to Chief Financial Officer, Mark Kocvar, please go ahead.

Welcome to the <unk> Bancorp's third quarter 2023 conference call after.

After management's remarks, there will be a question and answer session now I would like to turn the call over to the Chief Financial Officer, Mark Kochi, Sir. Please go ahead.

Great. Thank you good afternoon, everyone and thank you for participating in todays earnings call.

Speaker 2: Great, thank you. Good afternoon everyone. Thank you for participating in today's earnings call.

Speaker 2: Before beginning the presentation, I want to take time to refer you to our statement about forward-looking statements and risk factors.

Before beginning the presentation I want to take time to refer you to our statement about forward looking statements and risk factors. This statement provides the cautionary language required by the Securities Exchange Commission for forward looking statements that may be included in this presentation a.

Speaker 2: This statement provides the cautionary language acquired by the Securities Exchange Commission for forward looking statements that may be included in this presentation.

Speaker 2: A copy of the third quarter 2023 earnings release, as well as this earning supplement slide deck, can be obtained by clicking on the materials button in the lower right section of your screen. This will open up a panel on the right where you can download these...

A copy of the third quarter of 2023 earnings release as well as this earnings supplement slide deck can be obtained by clicking on the materials button in la right section of your screen. This will open up the panel on the right where you can download. These items you can also obtain a copy of these materials by visiting our Investor Relations website at S. T Bancorp Dot com.

Speaker 2: You can also obtain a copy of these materials by visiting our investor relations website at stbankcorp.com.

Speaker 2: With me today are Chris McComish, S&T's CEO , and Dave Antulik, S&T's president. I'd now like to turn the call over to Chris.

With me today are Chris <unk>, <unk>, CEO , and Dave Antolik, St's, President I'd now like to turn the call over to Chris Marr.

Speaker 3: Mark, thank you and good afternoon everybody and welcome to our call. I certainly appreciate all the analysts being here with us this afternoon. We look forward to your questions.

Mark Thank you and good afternoon, everybody and welcome to our call I certainly appreciate all the analysts being here with US. This afternoon. We look forward to your questions. I also want to thank our shareholders and employees listening in on the call. It's our employee commitment and engagement that drives these results and we're all proud to share them with you.

Speaker 3: I also want to thank our shareholders and employees listening in on the call. It's our employee commitment and engagement that drives these results and we're all proud to share them with you.

Before I get into the numbers I want to further emphasize how good I feel about the progress we're making to move <unk> forward around what we have defined as our people forward purpose.

Speaker 3: Before I get into the numbers, I want to further emphasize how good I feel about the progress we're making to move S&T forward around what we have defined as our people forward purpose.

Speaker 3: This purpose is guided by our values that shape who we are as a company and is propelled by our key performance drivers. One, growth and health of our deposit franchise. Two, solid credit quality.

This purpose is guided by our values that shape, who we are as a company and is propelled by our key performance drivers one growth and health of our deposit franchise to solid credit quality.

Speaker 3: Three, best in class core profitability. And four, all of this is underpinned by our focus on enhancing employee engagement and talent. This work translates in delivering for both our customers and the communities that we serve in a differentiated way. And it's further evidenced by the efforts of all of our team and in the results that we'll discuss today.

<unk> best in class.

Core profitability in Florida, all of this is underpinned by our focus on enhancing.

Employee engagement and talent this work translates into delivering for both our customers and the communities that we serve and a differentiated differentiated way and it is further evidenced by the efforts of all of our team and in the results that we'll discuss today.

Speaker 3: You'll see on the page highlighted that for the third quarter, we delivered 87 cents a share or just over $33 million in net income. That's driven by our fourth straight quarter of net interest income in the high $80 million range.

You'll see on the page highlighted that for the quarter third quarter, we delivered 87, a share or just over $33 million in net income that's driven by our fourth straight quarter of net interest income in the high $80 million range.

Speaker 3: We're very happy with our continued top quartile net interest margin at 4.09%, though it did decline quarter to quarter to quarter. Our PPNR again is top quartile at just under 2% at 199. And our return metrics are also very strong and that combined with our capital levels certainly position as well for the future.

We're very happy with our continued top quartile net interest margin at $4 94, 9%, though it did decline quarter to quarter to quarter, our Pnp PNR again as top quartile at just under 2% at 199 and our return metrics are also very <unk>.

Operator: Welcome to the S&T Bancorp III quarter 2023 conference call. After management remarks, it will be a question and answer session.

Mark Kochvar: Now I would like to turn the call over to the Chief Financial Officer Mark Kochvar. Please go ahead. Great, thank you. Good afternoon, everyone. Thank you for participating in today's earnings call.

Strong and that combined with our capital levels, certainly position us well for the future.

Speaker 3: Net charge offs for 20 basis points in the quarter, and our efficiency ratio remained well within our range at 52.68. Little bit up over Q2, we'll talk further about that, but still where we expected it to be.

Net charge offs were 20 basis points in the quarter and our efficiency ratio remained.

Mark Kochvar: Before we begin the presentation, I want to take time to refer you to our statement about forward-looking statements and risk factors. The statement provides the caution and language required by the Securities and Exchange Commission for forward-looking statements that may be included in this presentation. A copy of the third quarter 2023 earnings release, as well as this earnings supplement slide deck, can be obtained by clicking on the materials button in the lower right section of your screen. This will open up a panel on the right where you can download these items. You can also obtain a copy of these materials by visiting our investor relations website at www.atbancorp.com.

Well within our range at 50 268 little bit.

Up over Q2 will talk further about that but still we're where we expected it to be.

Moving forward before I turn it over to Dave to talk about our the loan side of our balance sheet you can see.

Speaker 3: Moving forward before I turn it over to Dave to talk about the loan side of our balance sheet, you can see the deposit mix basically stabilized for the quarter.

The deposit mix.

Basically stabilized for the quarter.

Speaker 3: We showed about flat customer deposits with mixed shifting a little bit from our DDA balances and savings into CD's and $80 million of customer CD growth was split between about $30 million of deposits new to the company and $50 million of shifts within the balance.

We showed about.

Mark Kochvar: With me today, our Chris McCommish, S&T CEO and Dave Antilick, S&T President.

Flat customer deposits with mix shifting a little bit from from our DDA balances and savings into Cds at $80 million of customers CD growth.

Christopher McComish: I'd like to turn the call over to Chris. Mark, thank you.

Christopher McComish: And good afternoon, everybody, and welcome to our call. I certainly appreciate all the analysts being here with us this afternoon. We look forward to your questions. I also want to thank our shareholders and employees listening in on the call. It's our employee commitment and engagement that drives these results, and we're all proud to share them with you.

<unk> was split between about $30 million of deposits new to the company and $50 million of shifts within the balance sheet. We continue to proactively work hard on customer relationships expanding those deposit opportunities protecting what we have while balancing growth and margin.

Speaker 3: We continue to proactively work hard on customer relationships, expanding those deposit opportunities, protecting what we have while balancing growth and margin and costs, and focusing, as I said, on our relationship.

Christopher McComish: Before I get into the numbers, I want to further emphasize how good I feel about the progress we're making to move S&T forward or what we have defined as our people forward purpose. This purpose is guided by our values that shape who we are as a company and is propelled by our key performance drivers. One growth in health of our deposit franchise to solid credit quality. Three best in class core profitability and for all of this is underpinned by our focus on enhancing employee engagement and talent. This work translates and delivering for both our customers and the communities that we serve in a differentiated way.

And costs and focusing as I said on our relationships.

Speaker 4: I'll turn it over today to talk about the long side of our balance sheet. I look forward to your questions in a little bit. Well, thank you, Chris. And continuing this review of our balance sheet, we did see increased loan growth in Q3 of $196 million or almost 11% annualized. This growth was driven by increases in both our residential mortgage and commercial real estate categories.

I'll turn it over today to talk about the loan side of our balance sheet and I look forward to your questions in a little bit.

Well, Thank you, Chris and continuing this review of our balance sheet. We did see increased loan growth in Q3 of 100.

$96 million or almost 11% annualized.

This growth was driven by increases in both our residential mortgage and commercial real estate categories.

Speaker 4: Regarding our residential mortgage activities, we continue to see solid demand for construction and purchase related products and anticipate this demand to, and the pace of this growth to continue in the coming quarters. We are closely monitoring the pricing of these products and believe that keeping this activity on our balance, she provides for the most favorable economic benefit for residents.

Regarding our residential mortgage activities, we continue to see solid demand for construction and purchase related products and anticipate this demand to.

Christopher McComish: And it's further evidence by the efforts of all of our team and in the results that we'll discuss today. You'll see on the page highlighted that for the quarter third quarter we delivered 87 sets of share or just over 33 million dollars in net income. That's driven by our fourth straight quarter of net interest income in the high 80 million dollar range. We're very happy with our continued top core tile that interest margin at 4.094.09% though it did decline quarter to quarter to quarter.

And the pace of this growth to continue in the coming quarters. We are closely monitoring the pricing of these products and believe that keeping this activity on our balance sheet provides for the most favorable economic benefit for S&P, our commercial real estate balances grew during the quarter as <unk>, primarily as a result.

Speaker 4: Our commercial real estate balance is groomed during the quarter as a result of new production in our multi-family, storage, retail, and industrial segments. As a reminder, a few quarters back, we provided details on our office portfolio. We continue to remain comfortable with our exposure to the office segment. And as a reminder, that's 70% approximately 7% of our total loans.

New production in our multifamily storage retail and industrial segments.

As a reminder, a few quarters back we provided details on our office portfolio.

We continue to remain comfortable with our exposure to the office segment and as a reminder, that segment represents approximately 7% of our total loans.

Christopher McComish: Our PNPP at our again is top core tile at just under 2% at 199 and our return metrics are also very strong and that combined with our capital levels certainly position as well for the future. That charge off for 20 basis points in the quarter and our efficiency ratio remained well within our range at 52.68 little bit up over Q2 will talk further about that but still where we where we expected it to be.

Speaker 4: We have not seen changes in that segment since that disclosure and bounces remaining flat quarter over quarter. It's also worth mentioning that our healthcare related exposure remains flat quarter over quarter and we believe that we remain comfortable with that exposure as well. In our CNI book, we did not see significant changes in any of the core metrics that we measure including things like utilization and collateral advance rates.

We have not seen changes in that segment since that disclosure and balances remained flat quarter over quarter. It's also worth mentioning that our health care related exposure remains flat quarter over quarter, and we believe that we remain comfortable with that exposure as well.

In our C&I book, we did not see significant changes in any of the core metrics that we measure, including things like utilization and collateral advance rates.

Christopher McComish: Moving forward before I turn it over today to talk about our the low side of our balance sheet you can see. The deposit mix basically stabilized for the quarter we showed about a flat customer deposits with mixed shifting a little bit from from our DDA balances and savings into CDs and 80 million dollars a customer CD growth. Was was split between about 30 million dollars a deposit to new to the company and 50 million dollars of shifts within the balance sheet. We continue to proactively work hard on customer relationships expanding those deposit opportunities protecting what we have well balancing growth and margin and cost and focusing as I said on our relationship.

We have seen reduced payoff levels in both our resi mortgage and CRE books.

Speaker 4: We have seen reduced pay off levels in both our Rezzy Mortgage and CRE books, primarily related to increased interest rates. And based on our current pipeline and these reduced pay off levels, we anticipate total long growth in the mid-single digit range for the Common Core.

Primarily related to increased interest rates and based on our current pipeline and these reduced payoff levels. We anticipate total loan growth in the mid single digit range for the coming quarters.

Speaker 4: Turning to asset quality, non-performing assets declined by $1.6 million to $16.4 million when compared to Q2. Net char dresser of the quarter worked $3.7 million or 20 basis points of total loan.

Turning to asset quality nonperforming assets declined by $1 $6 million to $16 $4 million when compared to Q2 net charge offs for the quarter were $3 7 million or 20 basis points of total loans and primarily as a result of loan growth that I described earlier.

Speaker 4: And primarily as a result of a loan growth that I described earlier and the qualitative factors in our model are ACL grew by $2.4 million during the quarter and remained at 1.44% of total loan.

And the qualitative factors in our model, our ACL grew by $2 $4 million during the quarter and remained at 144% of total loans.

David Antolik: I'll turn it over today to talk about the low side of our balance sheet sheet I look forward to your questions in a little bit.

Speaker 2: I'll turn it over to Mark to dig in a little deeper. Great, thank you Dave. Before the right started moving higher, back in the fourth quarter of 21, our dent interest income was 68.4 million, and the dent interest margin was 3.12%. Well, there has been, and we'll continue to be some pressure on funding costs. Our asset-sensitive balance sheet has provided significant revenue improvements over the past seven quarters.

I will turn it over to mark to dig in a little deeper.

Great. Thanks, Dave.

For rates started moving higher back in the fourth quarter of 'twenty. One our net interest income was $68 4 million and the net interest margin was three 1%, 2%. Although it has been and will continue to be some pressure on funding costs. Our asset sensitive balance sheet has provided significant revenue improvements over the past seven quarters and the third quarter of 2023.

David Antolik: Well, thank you Chris and continuing this review of our balance sheet we did see increased loan growth in Q3 of a hundred ninety six million dollars or almost 11% annualized. This growth was driven by increases in both our residential mortgage and commercial real estate categories regarding our residential mortgage activities. We continue to see solid demand for construction and purchase related products and anticipate this demand to and the pace of this growth to continue in the coming quarters.

Speaker 2: In the third quarter of 2023, the NINAR margin is 97 basis points higher and we're generating almost 28% or $19 million additional revenue per quarter compared to the beginning of the site.

Margin is 97 basis points higher and we're generating almost 28% or $19 million of additional revenue per quarter compared to the beginning of the cycle.

The third quarter net interest margin rate of four 9% is down 30 basis points from the second quarter as earning asset yield improvement of 13 basis points not keep pace with the 35 basis points increase in costing liabilities the.

Speaker 2: The third quarter, and then there's a margin rate of 4.09%. It is down 13 basis points from the second quarter. As earning asset yield improvement of 13 basis points, not keep pace with the 35 basis points, increase in costing liability.

David Antolik: We are closely monitoring the pricing of these products and and believes that keeping this activity on our balance sheet provides for the most favorable economic benefit for for S&T. Our commercial real estate balances grew during the quarter as a real of primarily as a result of new production and our multi family. A storage retail and industrial segments as a reminder a few quarters back we provided details on our office portfolio. We continue to remain comfortable with our exposure to to the office segment and as a reminder that that segment represents approximately 7% of our total loans.

Speaker 2: across the total deposits, including DDA, increased by 24 basis points to 1.38% bringing the cycles to date, beta to 25%.

Cost of total deposits, including DDA increased by 24 basis points to 138%, bringing our cycle to date beta 225%.

Speaker 2: Our deposit mix remains much improved compared to the end of the last race up cycle in 2019 when we had just 24% of deposits in DDA Compared to almost 32% today

Our deposit mix remains much improved compared to the end of the last rates up cycle in 2019, when we had just 24% of deposits in DDA compared to almost 32% today.

Speaker 2: Customers continue to seek higher rates, but the pace has moderated. DDA declines were 54 million in third quarter. That's far less than the 138 million decline in the second quarter, and the lowest decline since this rate cycle.

Customers continue to seek higher rates, but the pace has moderated.

Declines were $54 million in third quarter, thus far less than the 138 million decline in the second quarter and the lowest decline since this rate cycle began we expect funding cost pressure to continue with the net interest margin compression of approximately 10 to 12 basis points in the fourth quarter and into the first quarter of 'twenty four.

David Antolik: We have not seen changes in that segment since that disclosure and balances remaining flat quarter of a quarter. It's also worth mentioning that our health care related exposure remains flat quarter over quarter and we believe that are we remain comfortable with that exposure as well. In our CNI book we did not see significant changes in any of the core metrics that we measure including things like utilization and collateral advance rates.

Speaker 2: We expect running costs pressure to continue with the numbers of smarts and compression of approximately 10 to 12 basis points in the fourth quarter and into the first quarter of 24. So we know Fed changes. We expect compression to moderate and then it's smart and to stabilize mid-year 20.

Assuming no fed changes, we expect compression to moderate and interest margin to stabilize mid.

Mid year 'twenty four.

Speaker 2: Nine interesting income decreased by two million in the third quarter compared to the second. Most of the variance is in the other category. This primary related to a $1.6 million of changes in valuation adjustments. A little over half of this is due to the transition from the live board to sofa and its impact on our back to back customer swap.

Noninterest income decreased by $2 million in the third quarter compared to the second most of the variance is in the other category. This primary related to a $1 $6 million of.

David Antolik: We have seen reduced pay-off levels in both our Rezzy Mortgage and CRE books, primarily related to increased interest rates, and based on our current pipeline and these reduced pay-off levels, we anticipate total long growth in the mid-single digit range for the common quarters. We do, net charge us for the quarter, we're $3.7 million or 20 basis points of total loans, and primarily as a result of a loan growth that I described earlier, and the qualitative factors in our model are ACL grew by $2.4 million during the quarter and remained at 1.44% of total loans.

Changes in valuation adjustments a little over half of this is due to the transition from LIBOR to sofa and its impact on our back to back customer swap program.

Speaker 2: While the remainder of the evaluation adjustment is related to changes in the value of a deferred benefit plan that is offset in expenses and is P&L News.

While the remainder of the valuation adjustment is related to changes in the value of a deferred benefit plan that is offset in expenses and is P&L neutral and.

Speaker 2: In addition to that, we had a gain on Oreo of 600,000 in the second quarter and no activity in the third

In addition to that we had a gain on Oreo of 600000 in the second quarter and no activity in the third quarter <unk>.

Speaker 2: Remaining feet category line-on for fairly consistent quarter-over-quarter.

Remaining fee category line items were fairly consistent quarter over quarter.

Our quarterly fee outlook is in the $13 million to $14 million range.

Expenses continue to be well controlled with an official rate efficiency ratio of $52 six 8%. The increase in expenses came primarily in salaries and benefits and was in line with our expectations in the second quarter, we lowered our incentive accruals as full year expectations have changed and this quarter, we're back on a more normal pace.

Speaker 2: Expenses continue to be well controlled with an efficiency ratio of 52.68%. Increasing expenses came primarily in salaries and benefits and was in line with our expectations. In the second quarter, we lowered our incentive accruals as full your expectations have changed, and this quarter we're back on a more normal pace.

Mark Kochvar: I'll turn it over to Mark to dig in a little deeper. Great, thanks Dave. You know, before the right started moving higher back in the fourth quarter of 21, our net interest income was $68.4 million, and the net interest margin was 3.12%. There has been, and we'll continue to be some pressure on funding costs, our asset-sensitive balance sheet has provided significant revenue improvements over the past seven quarters. In the third quarter of 2023, the net interest margin is 97 basis points higher, and we're generating almost 28% or $19 million of additional revenue per quarter compared to the beginning of the cycle.

Our quarterly expense expectations remain in the $52 million to $53 million per quarter range and as we look ahead to 2024, we expect that the pace of expense growth will reduce back to lower single digits.

Speaker 2: quarterly expense expectations remain in the 52 to 53 million per quarter range. And as we look ahead to 2024, we expect that the taste of expense grows that we reduce back to lower single.

The TCE ratio declined 11 basis points this quarter due to loan growth and hiring a OCI.

Speaker 2: The PCE ratio declined 11 boy's basis points to the 1-grose and higher AOCI.

Speaker 2: TCE remains quite strong and has been stable over the last year due to good earnings and relatively small security portfolio. To remind you all of our securities are classified as available for sale.

<unk> remains quite strong and has been stable over the last year due to good earnings and relatively small securities portfolio. As a reminder, all of our securities are classified as available for sale.

Mark Kochvar: The third quarter net interest margin rate of 4.09% is down 13 basis points from the second quarter, as earning asset yield improvement of 13 basis points does not keep pace with the 35 basis points increase in costing liabilities. The cost of total deposits, including DDA, increased by 24 basis points to 1.38% bringing in cycles to date data to 25%. Our deposit mix remains much improved compared to the end of the last rate of cycle in 2019 when we had just 24% of deposits in DDA compared to almost 32% today.

Speaker 2: capital positions as well for the environment and to take advantage of organic or organic growth.

Our capital positions us well for the environment and to take advantage of organic or inorganic growth opportunities.

Our remaining share repurchase authorization of just under $10 million we.

Speaker 2: a remaining share of purchase authorization of just under 10 million. We did not execute any buybacks in the third.

We did not execute any buybacks in the third quarter.

Speaker 2: We'll cautiously look for opportunities to deploy the remaining authorization depending on economic conditions, our financial performance, and outlook, along with the price.

We will cautiously look for opportunities to deploy the remaining authorization, depending on economic conditions, our financial performance and outlook along with the price of the stock.

Thanks, very much at this time I'd like to turn the call back over to the operator to provide instructions for asking questions.

Speaker 2: Thanks very much at this time and like to turn the call back over to the operator to provide instructions for F.

Mark Kochvar: Customers continue to seek higher rates, but the pace has moderated. DDA declines were 54 million in third quarter, that's far less than the 138 million decline in the second quarter, and the lowest decline since this rate cycle began.

Speaker 1: The floor is not open for questions. If you have any questions, please press star one on your phone and we ask it while asking your question, please pick up your phone and turn off the speaker phone for enhanced audio quality. Please hold while we pull for questions.

The floor is now open for questions. If you have any questions. Please press star one on your phone and move.

And we ask that while asking your question. Please pick up your phone and turn off the speaker phone for enhanced audio quality.

Mark Kochvar: We expect funding costs pressure to continue, with the net interest margin compression of approximately 10 to 12 basis points in the fourth quarter and into the first quarter of 24. Assuming no fed changes, we expect compression to moderate and the net interest margin to stabilize mid-year 24. Nine interest income decreased by 2 million in the third quarter compared to the second. Most of the variance is in the other category, this primary related to a $1.6 million of changes in valuation adjustments.

Please hold while we poll for questions.

Okay.

Speaker 1: Your first question comes from the line of Danielle to me, O of Rimmand James, your line is open. Your first question comes from the line of Danielle to me, O of Rimmand James, your line is open.

Your first question comes from the line of Danielle to meal.

Raymond James Your line is open.

Good afternoon guys.

Alright.

Okay.

Speaker 5: So you're just starting on the margin. I appreciate the guidance that you gave up. Just curious kind of where you entered the quarter. If you could talk about kind of margin or loan yields or deposit cost that you had kind of at the end of the third quarter.

Maybe just starting on.

On the margin I appreciate the.

Mark Kochvar: A little over half of this is due to the transition from LIBOR to SOFR, and its impact on our back-to-back customer swap program. While the remainder of the valuation adjustments is related to changes in the value of a deferred benefits plan that is offset in expenses and is P&L neutral. In addition to that, we had, again, on Oreo of 600,000 in the second quarter and no activity in the third quarter. Remaining to be category line-on for fairly consistent quarter over quarter.

The guidance that you gave just curious kind of where you entered the quarter. If you could talk about kind of <unk>.

Margin.

Loan yields or deposit costs.

That you had kind of at the end of the third quarter.

Speaker 6: Again, it's trending down slightly. So, you know, we exit the quarter, a couple of basis points below the full quarter number. Okay.

Again, it's trending.

Trending down slightly so we exited the quarter a couple of basis points below the full quarter number.

Okay.

Mark Kochvar: Our quarterly fee outlook is in the $13 to $14 million range. Expenses continue to be well-controlled with an efficiency ratio of 52.68%, the increase in expenses came primarily in salaries and benefits and was in line with our expectations. In the second quarter, we lowered our incentive accruals as full your expectations have changed, and this quarter we're back on a more normal pace. Our quarterly expense expectations remain in the 52 to 53 million per quarter range, and as we look ahead to 2024, we expect at the pace of expense growth to reduce back to lower single digits.

And then.

I guess just.

We could talk a little bit about credit here.

Yes.

Speaker 5: Curious your thoughts on how things are trending there and then if you have levels of shared national credit and or leveraged loans or participation that you have in the book.

Curious your thoughts on how things are trending there and then if you have.

Levels of.

Shared national credits or leverage loans are participations that you have on the books.

Okay.

Speaker 4: I mean, generally speaking, you saw the increase in the ACL and some of what's reflected in that is the qualitative factors that enter into that calculation. So we are anticipating that there may be some headwinds in terms of macroeconomic conditions that will...

Yes, I mean generally speaking.

You saw the increase in the ACL and some of what's reflected in that is the qualitative factors that enter into that calculation. So we are anticipating that there may be some.

Mark Kochvar: The TCE ratio declined 11 points basis points this quarter due to low growth and higher AOCI. TCE remains quite strong and has been stable over the last year due to good earnings and relatively small securities portfolio. To remind you all of our securities are classified as available for sale. Our capital positions as well for the environment and it's going to take advantage of organic or organic growth opportunities. Our remaining share repurchased authorization of just under 10 million, we did not execute any buybacks in the third quarter. We'll cautiously look for opportunities to deploy the remaining authorization depending on economic conditions, our financial performance, and outlook, along with the price of the stock.

Headwinds in terms of macroeconomic.

Mark Kochvar: Thanks very much.

Conditions that will impact our customers.

Okay.

As it relates to relates to shared national credit, we basically have very little exposure at all.

Speaker 5: And as a race that relates to sheer national credit, we basically have very little exposure at all. Okay.

Okay great.

And then lastly, just just a cleanup question.

Speaker 5: Do you have the actual MSR evaluation adjustment in the third quarter?

Do you have the actual MSR valuation adjustment in the third quarter.

Okay.

Speaker 7: Even the, we didn't have any impairment or anything like that. Is that what you're referring to?

ABB.

And we didn't have any impairment or anything like that.

Is that what you're referring to.

Operator: At this time, I'd like to turn the call back over to the operator to provide instructions for asking questions. The floor is not open for questions. If you have any questions, please press star one on your phone and we ask it while asking your question, please pick up your phone and turn off the speaker phone for enhanced audio quality. Please hold while we pull for questions.

We didn't.

Sorry, the VAT you had the valuation adjustments of $1 6 million.

Speaker 2: Sorry, you had the valuation adjustment, the 1.6 million change. I was just curious what the actual number was. Oh, that wasn't MSR related.

I was just curious what the actual number was.

That wasn't MSR related that was.

Speaker 2: related to the back-to-back swap program. We have like a different between the two rates between the customer rate and the rate with counter parties. So that adjustment was around 900,000 of that 1.6. The rest of that was defined benefit trust that's in the stock market so it has both an asset and liability component and those get offset between fees and expenses but it creates their answers when the stock market.

Related to the us back to back swaps program, we have Alex <unk>.

Alright.

Between the two rates between the customer rate and the rate with Counterparties to that adjustment was around 900000 of that one 6% the rest of that was.

Danielle Camille: Your first question comes from the line of Danielle Camille of Raymond James. Your line is open. Good afternoon, guys. We're just starting on the margin. I appreciate the guidance that you gave just curious kind of where you entered the quarter. If you could talk about kind of margin or loan yields or deposit cost that you had kind of at the end of the third quarter. Again, it's trending down slightly. We exit in the quarter a couple of basis points below the full quarter number.

Defined benefit trust that's in the stock market is that it has both an asset and liability component and does get offset between fees and expenses.

<unk> variances when the stock market value changes.

Speaker 5: Okay, so the amount that we should...

Okay.

<unk> that we should view.

View is.

Speaker 5: as kind of volatile or non-chorus is the point 9 million.

Kind of volatile or noncore as the <unk> 9 million.

Speaker 2: The 1.6 is just a change from the second quarter. Is that right? The 1.6, yeah, is the change quarter of a quarter. Depending on how you view this defined benefits plan, sometimes that goes in our favor, is a positive, sometimes a negative. So that one's harder to measure. The other piece on that, just quarter of a quarter, was the Oreo gain that was in the second quarter.

The $1 six is just the change from the second quarter Alright.

$1 60, as the change quarter over quarter, depending on how you view this as defined benefit plan, sometimes that goes in our favor is a positive sometimes negative so that one's harder to harder to measure against the other piece on that just quarter to quarter, what the Oreo gain that was in the second quarter.

Right right.

Speaker 5: No, no, yeah, I got the Oreo game that makes sense. All right, I appreciate that guys. Thank you. Thank you. Thank you.

No no.

I got the Oreo gains that makes sense.

Danielle Camille: We talk a little bit about credit here. Just curious your thoughts on how things are trending there and then if you have levels of shared national credit and or leverage loans or participation that you have in the books. Generally speaking, you saw the increase in the ACL and some of us reflected in that is the qualitative factors that enter into that calculation. We are anticipating that there may be some headwinds in terms of macroeconomics. Conditions that will impact our customers. And as a race that relates to shared national credit, we basically have very little exposure at all.

Alright, I appreciate that guys. Thank you. Thank you. Thank you.

Your next question comes from the line of Matthew Breese of Stephens. Your line is open.

Speaker 1: Your next question comes from a line of Matthew Breast of Stephen's, your line is a

Speaker 8: Hey, good afternoon. Hey, man. Yeah. I, first of all, one of the such undeposite. So, you know, one of the surprising in a, in a very good way, things about this interest rate cycle for, for you all is, is how non-existent bearing deposits kind of really held up a lot better than your peers. And it feels like at this point, there's probably pretty good line of sight of where the bottom is. Um, I did want to get a sense for where.

Good afternoon.

Matt.

First of all I wanted to touch on deposit so one of the surprising in a very good way things about this interest rate cycle for you all as our noninterest bearing deposits to kind of really held up a lot better than your peers and it feels like at this point is probably pretty good line of sight of where the bottom is.

I did want to get a sense for where.

Speaker 8: You all are projecting that quote unquote bottom and whether or not you think you can kind of hold non-interferring deposits north and 30 percent as we get into 2024.

You all are projecting that clinical bottom and whether or not you think you can kind of hold noninterest bearing deposits north of 30% as we get into 2024.

Speaker 7: I think you're right. I mean, we are very pleased with that. We've put a lot of work into our treasury management activities and have our developing programs, especially for the small business segment. We feel like there's some support that will come with that. So even though we might...

Yes, I think Youre right I mean, we are very pleased with that we've put a lot of work into the into our treasury management activities and have.

Danielle Camille: Okay, great. And then lastly, just a clean and question, the idea of the actual MSR evaluation adjustment, third quarter. We didn't have any impairment or anything like that. Is that what you're referring to? Sorry, you had the valuation adjustment to 1.6 million change. I was just curious what the actual number was. Oh, that wasn't MSR related. That was related to the back-to-back swap program. We have like a light difference between the two rates between the customer rate and the rate with counter parties.

Our developing programs, especially for the small business segment and we feel like there is some support that will come with that so even though we might.

Speaker 7: lose other deposits, we're doing, we're very active in trying to cultivate new relationships in additions otherwise. I mean, the internal modeling, we experiment with very multiple scenarios, but we do think that we will stay well above where we were last cycle, whether we can maintain above 30, we do expect to stay, at least in that general area, as is bottom.

Lose other deposits, we're doing that we're very active in trying to cultivate new relationships and additions.

Otherwise.

Internal modeling, we try we experiment with very multiple scenarios.

Danielle Camille: So that adjustment was around 900,000 of that 1.6. The rest of that was defined benefit trust that's in the stock market. So it has both an asset and liability component and those get offset between fees and expenses, but it creates variances when the stock market value changes. Okay, so the amount that we should view as kind of volatile or non-chorus is the 0.9 million. The 1.6 is just the change from the second quarter.

But we do think that we will stay well above where we were last cycle, whether we can maintain above 30, we do expect to stay at least in that general area as it's bottomed.

Yes, Matt it's Chris further.

Speaker 3: speak to some of what Mark touched on. We've got a number of programs and initiatives that we've been focused on all around. We define as the health of our deposit franchise, which actually started before some of this rates up cycle just because we know that is how you define a customer relationship. So, we've talked in previous quarters about more and more talented people focused within the treasury management space.

Speak to the Civil War Mark touched on we've got a number of programs and initiatives that we've been focused on at all around what we define as the health of our deposit franchise, which actually.

<unk>.

Before us over this rates those rates up cycle, just because we know that is how you define the customer relationship. So we've talked in previous quarters about.

More and more.

Mortality people focused within the Treasury management space. In addition to that we've enhanced our products.

Speaker 3: In addition to that, we've enhanced our product set for our customers, as well as our delivery mechanism.

For our customers as well as our delivery mechanisms, including some insight what we would define as inside customer relationship teams that are very focused on proactively.

Speaker 3: including some inside, what we would define as inside customer relationship teams that are very focused on proactively managing and growing these relationships. You know, we've got very strong customer loyalty and very high

Danielle Camille: Is that right? The 1.6 has the change quarter of a quarter. I think I think how do you view this defined benefits plan? Sometimes that goes in our favor, you know, is a positive, sometimes a negative. So that one's harder to hard to measure. The other piece on that just quarter of a quarter was the Oreo game that was in the second quarter. Sorry, that's right. No, no, yeah, I got the Oreo game that makes sense.

Managing and growing these relationships, we've got very strong customer loyalty and very high customer engagement. Those are not our words those are the words of those that measure these things and so that gives us the opportunity to be having these conversations and be proactive in a trusting way to build the <unk>.

Speaker 3: Customer engagement. Those are not our words. Those are the words of those that measure these things. And so that gives us the opportunity to be having these conversations and be proactive in a trusting way to build to build on the most important part of a customer relationships that day to day operating account and operating business.

Danielle Camille: All right, I appreciate that guys. Thank you.

Build on the most important part of our customer relationships.

Matthew Breese: Your next question comes from a line of Matthew Breese of Divin's. Your line is open. Hey, good afternoon.

Day to day operating account, an operating business and so there is a big part of our focus in <unk>.

Speaker 3: And so that's a big part of our focus and, you know, you can never provide a complete direct drive as to one versus the other, but we know it's critically important to us and that's where we're allocating resources.

Yes.

Matthew Breese: I first of all, one of the such undeposites. So, you know, one of the surprising in a very good way things about this interest rate cycle for you all is, is how non-chorus bearing deposits have kind of really held up a lot better than your peers. And it feels like at this point is probably pretty good line of sight of where the bottom is. I did want to get a sense for where you all are projecting that quote unquote bottom.

Whoever variety of complete direct drive as to one versus the other but we know it's critically important to us that's where we're allocating resources.

Speaker 8: Understood. Maybe along these lines, where do you expect for this interest rate cycle, the total cost of deposits to kind of peak out, or do you have a terminal deposit beta?

And maybe along these lines, where do you expect for this this interest rate cycle. The total cost of deposits to kind of peak out or do you have a terminal deposit beta estimate.

Speaker 2: Well, I mean, as guidance, you know, we look at how the last cycle panned out. We think we'll do a little bit better than that just because we have a much better mix. So last cycle, we were around 35 percent, we're at 25 now, so, you know, kind of my best guess is kind of about the middle there, so closer to 30 when it's all said and done.

Well, yes as guidance, we look at how the lap cycle panned out we think we think we'll do a little bit better than that just because we have a much better a much better mix. So last last cycle, we were around 35%. We're at 25 now so yes.

Matthew Breese: And whether or not you think you can kind of hold non-chorus bearing deposits north and 30% as we get into 2024. Yeah, I think you're right. I mean, we are very pleased with that. We put a lot of work into the into the our treasury management activities and have our developing programs, especially for the small business segment. We feel like there's some support that will come with that. So, even though we might lose other deposits, we're doing we're very active in trying to cultivate new relationships and additions.

My Best guess is about.

About the middle layer, so closer to 30, when it's all said and done.

Speaker 8: Okay and then I know you you'd mentioned a near-term outlook for the NIM. It sounds like down you know 10-12 basis points for the fourth quarter and the first quarter and then stabilization in the mid middle of 2024. Should that be kind of in the three you know 380?

Okay, and then I know you had mentioned.

Our near term outlook for the NIM It sounds like down 10, 12 basis points for the fourth quarter and the first quarter and then stabilization in the middle of 2024.

Matthew Breese: Otherwise, I mean, the internal modeling, you know, we try, we experiment with very multiple scenarios. But we do think that we will stay well above where we were at last cycle, whether we can maintain above 30. We do expect to stay at least in that general area as a spot. Matt, it's Chris. It's a further speak to some of what Mark touched on. We've got a number of programs in the initiatives that we've been focused on all around if we define as the health of our deposit franchise which actually started before some of this rates up cycles just because we know that is how you define a customer relationship.

Should that be kind of in the three $3 80.

$3 75 range is that a fair estimate of where the NIM should stabilize.

Speaker 6: 375 range, is that a fair estimate of where the nymphs should stay analyzed? Yes. OK.

Yes.

Okay.

Evan.

Sure.

Hello.

Youre still off.

Got that last question there.

Speaker 8: Balance sheets 9.5 billion. Obviously, there is the tembu thing that is threshold. I know we've discussed this in the past as being something that you can kind of, it's not as close as it looks. I just wanted to get a sense or a reminder of one, what the derivative impact is. And two, at what point do you feel like, you know, realistically be crossing that tembu thing that is threshold? So.

Balance sheets $9 5 billion. Obviously, there is the $10 billion threshold I know we've discussed this in the past as being something that you can kind of it's not as close as it looks I just wanted to get a sense of reminder of one what the Durbin impact is.

At what point do you feel like.

Matthew Breese: So, you know, we've talked in previous quarters about more and more talented people focused within the treasury management space. In addition to that, we've enhanced our products sets for our customers as well as our delivery mechanisms, including some inside what we would define as inside customer relationships teams that are very focused on proactively managing and growing these relationships. You know, we've got very strong customer loyalty and very high customer engagement. Those are not our words.

Realistically be crossing that $10 billion threshold.

So yes.

Two.

Speaker 3: You know, the way we look at it, the Durbin threshold itself is quantified in that kind of six, seven million dollar range. I mean, we made 30 some million dollars this quarter. That financial impact is things that we're planning for to move through.

When we look at it the Durbin threshold itself is quantified in that kind of $6 $7 million range. I mean, we made $37 million this quarter that financial impact as things that we are planning, Florida.

Move through we're going to we're working everyday to prepare for growth in the $10 billion threshold as a number and we know that.

Speaker 3: We're working every day to prepare for growth. And the $10 billion threshold is a number, and we know that it's there. We've enhanced significantly our compliance and risk management capabilities.

It's there.

Matthew Breese: Those are the words that measure these things. And, you know, so that gives us the opportunity to be having these conversations and be proactive in a trusting way to build on the most important part of a customer relationship that day-to-day operating account and operating business. And so, there's a big part of our focus, and you know, you can never provide a complete direct drive as to one versus the other, but we know it's critically important to us.

Enhanced significantly our compliance and risk management capabilities.

Speaker 3: and in our team, all under the guise of building a foundation for growth.

And our team all under the guise of building a foundation for growth. We believe organically. This is something that we're going to celebrate as we get there and we're looking at sometime in the next two calendar years, depending upon.

Speaker 3: We believe organically this is something that we're going to celebrate as we get there and we're looking at sometime in the next two calendar years depending upon growth.

Depending upon growth.

Got it okay great.

Speaker 9: Got it. Okay, great. I'll leave it there. Thank you. Thank you. Thanks, Matt.

I'll leave it there. Thank you. Thank you thanks, Matt.

Matthew Breese: That's where we're allocating resources. Understood. I mean, maybe along these lines, where do you expect for this interest rate cycle the total cost of the deposits to kind of peak out, or do you have a terminal deposit data estimate? Well, as guidance, you know, we look at how the last cycle panned out. We think we think we'll do a little bit down that just because we have a much better, a much better mix.

Okay.

Speaker 1: Your next question comes from the line of Manuel Navas of DA Davidson, your line is open.

Your next question comes from the line of Manuel <unk> of D. A Davidson your line is open.

Hey, good afternoon.

Well.

Hi, Yes, once you get to that kind of NIM.

Speaker 10: Once you get to that kind of NIMS stabilization point,

NIM stabilization point.

Speaker 10: Yeah, I just expect it to drift around a couple base points up, a couple base points down, or is there still maybe some residual pressure, or does it kind of turn up a little bit? What are kind of thoughts about that?

And just expect it to.

Then to drift around a couple of basis points off a couple of basis points down or is there still maybe some residual pressure or does it kind of.

Matthew Breese: So last cycle, we were around 35%. We're at 25 now. So, you know, kind of my best guess is kind of about the middle there. So closer to 30 when it's all sudden done. Okay. And then I know you had mentioned a near-term outlook for the NIM. It sounds like down, you know, 10, 12 basis points for the fourth quarter and the first quarter and then stabilization in the middle of 2024.

Turn up a little bit what are kind of thoughts about that.

Speaker 10: It's probably, you know, there's a lot of moving parts, but just kind of initial.

Stage right. It's probably there is a lot of moving parts, but just kind of initial thoughts.

Speaker 2: Yeah, so there, I mean, yeah, you're right. I mean, there's a ton of moving parts. Like, for example, you know, we, we're, we're historically been much more concerned about rates down than rates up, especially now that rates are higher. So we put on, you know, half, half a billion dollars worth of received fixed swaps.

Yes.

Thank you you're right I mean, there is a kind.

Kind of moving parts like for example, we were historically.

Matthew Breese: Should that be kind of in the three, you know, 380, 375 range? Is that a fair estimate of where the NIM should stabilize? Yes. Okay. Evan, last. Oh, you're good. You're still on. I got that last question there. Balance sheets 9.5 billion. Obviously, there is the 10 billion threshold. I know we've discussed this in the past as being something that you could kind of, it's not as close as it looks. I just wanted to get a sense or reminder of one, what the derivative impact is and two, at what point do you feel like, you know, will realistically be crossing that 10 billion threshold?

Historically been much more concerned about rates down in rates, especially now that rates are higher so we put on.

Half a billion dollars worth of receive fixed swaps and those come off over.

Speaker 2: And those come off over, we ladder them out and they come off over like a two-year period starting in 25. And so as those come off, those are going to provide some relief to the margin. We'll have to re-evaluate at that time whether renewing those positions and what the impact of that will be, because that will depend on.

We later than out they come off over like a two year period, starting in 'twenty five.

So as those come off those are going to provide some <unk>.

Some relief to the margin, we'll have to reevaluate at that time whether.

Renewing those positions and what the impact of that will be is that that will depend on the on a shape shape of the curve. So we have some more positive headwinds like that farther out beyond 'twenty four and into 2005.

Speaker 2: shape of the curve. So we have some more positive headwinds like that farther out, you know, beyond 24 and into 25 that should help us out as well. But you're right, it's very complicated. There's a lot of moving parts between now and a couple years.

It should help us out as well, but you're right. It's very it's very complicated there's a lot of moving parts between now and a couple of years from now.

Okay.

Speaker 10: I appreciate that. Is on the positive side, you talk about those initiatives and you've had a talent you've had it.

I appreciate that.

Matthew Breese: So, yes, to, in the way we look at it, the Durban threshold itself is quantified in that kind of $67 million range. I mean, we made 30 some million dollars this quarter. That financial impact is things that we're planning for to move through. We're going to, we're working every day to prepare for growth. And the 10 billion dollar threshold is a number and we know that it's there. We've enhanced significantly our compliance and risk management capabilities in our team all under the guise of building a foundation for growth. We believe organically this is something that we're going to celebrate as we get there. And we're looking at, you know, sometime in the next two calendar years depending upon, depending upon growth.

Hi.

On the deposit side.

You talk about those initiatives.

And you've added talent you've added.

Speaker 10: new technology, new products. Do you have a quantifiable deposit pipeline? And just kind of give me some way to frame the deposit.

New technology new products.

Matthew Breese: Okay, great. I'll leave it there. Thank you.

Do you have a quantifiable deposit pipeline.

Just kind of.

Give me some way to frame the deposit.

Speaker 10: grows opportunity to your end or possibly in your term in general.

Gross opportunity to year end or possibly near term in general.

Yeah from a.

Speaker 3: Yeah, from a pure dollar pipeline standpoint, it is a little harder to measure the pipeline simply because the change in the portfolio is so dependent upon things that we don't control and that balances.

Pure dollar pipeline standpoint, it is a little harder to measure the pipelines simply because of the change in the portfolio is sort of dependent upon things that we don't control and net balances and customers' accounts. So the way we're measuring things today from a pipeline perspective is really more about <unk>.

Speaker 3: and customers account. So the way we're measuring things today from a pipeline perspective is really more about numbers of activity.

<unk> of activities these numbers of times.

Speaker 3: The numbers of times in the depth of course, for example, Manuel, I give Treasury Management products. We know exactly the number of customers that we've enhanced the Treasury Management relationship around. We know the number of products. We know the revenue associated with that. It's really harder from a pipeline standpoint. Say, in that by itself, it's going to translate to a dollar or $2 of balance.

And the depth of growth for example, Manuel <unk> Treasury management products, we know exactly the number of customers that we've enhanced and Treasury management relationship around we note. The number of products. We know the revenue associated with that is really harder from a pipeline standpoint to say and that by itself is going to translate to a dollar or two.

Manuel Navas: Your next question comes from the line of Manuel Navas of DA Davidson. Hey, good afternoon. I'm in well.

Manuel Navas: What do you get to that kind of name stabilization point? Do you want to just expect that the name to drift around a couple of days point up, a couple of days point down, or is there still maybe some residual pressure, or does it kind of turn up a little bit? What are kind of thoughts about that stage? There's a lot of moving parts, but just kind of initial thoughts. Yeah, I mean, you're right.

Of balances. So at this point in time, we're very focused on activity levels numbers of opportunities, which gives us a proxy for.

Speaker 3: So at this point in time, we're very focused on activity levels, numbers of opportunities, which gets us a proxy for growth. The other thing that we have introduced are some tools that give us the capability to understand flow of deposits. So the...

For growth the other thing that we have introduced some tools that give us the capability to understand flow of deposits so that the.

Stat that I gave you earlier in that $80 million.

Speaker 3: That's what I gave you earlier in that $80 million.

Manuel Navas: I mean, there's a ton of moving parts. For example, we were historically been much more concerned about rates down than rates, especially now that we've rated our higher. So we put on half a billion dollars worth of received fixed swaps. And those come off over, we ladder them out and they come off over like a two-year period starting in 25. And so as those come off, those are going to provide some relief to the margin.

Speaker 3: CD grows that you saw come for CD grows we know that there was 30 million dollars that was a shift A mixed shift. I'm sorry a 50 million dollars from one bucket to the other within our balance sheet And then there was actually 30 million dollars of new deposits that came into the company So we're trying to look at three factors on the deposit portfolio what we would call you know, diminishment so

CD growth that you saw customer CD growth, we know that there was $30 million that was a shift.

The mix shift I'm, sorry of $50 million from one bucket to the other within our balance sheet and then it was actually $30 million of new deposits that came into the company. So we're trying to look at three factors on the deposits portfolio, what we would call diminishment, So Kurt full relationship.

Speaker 3: Curred full relationship, there's just fewer dollars to increases in existing relationships and then three new to company and that's how we're measuring all of it. Obviously it's tough to put a bogey on there from a balance sheet growth standpoint because as you know, you look year over year and the whole industry is down about 6%. So we've got to be realistic into how big the pie is that we're going after as well.

There's just fewer dollars too.

Manuel Navas: We'll have to reevaluate that time whether renewing those positions and what the impact of that will be, because that will depend on the shape of the curve. So we have some more positive headwinds like that farther out beyond 24 and into 25 that should help us out as well. But you're right, it's very complicated. There's a lot of moving parts between now and a couple years from now.

Increases in existing relationships and then three new new to company and that's how we're measuring all of it obviously its tough to put a bogey on there for balance sheet growth standpoint, because as you know you look year over year in the whole industry is down about 6%. So we've got to be realistic and to how big the pie.

Is that we're going after as well.

Speaker 4: And measuring that opportunity and shaping up that opportunity is a lot of what we're focused on. We know there is latent opportunity within our own customer base. And we talk a lot about developing primacy in terms of those deposit relationships. So we've developed tools and calling lists and products in order to achieve primacy with those customers who like us, they do business with us. We just don't have their primary account, and that's where we are focusing our effort.

In measuring that opportunity in shaping up that opportunity is a lot of what we're focused on we know there is latent opportunity within our own customer base and we talked a lot about developing primacy in terms of those deposit relationships.

Manuel Navas: I appreciate that. On the deposit side, you talk about those initiatives and you've added talent, you've added new technology, new products. Do you have a quantifiable deposit pipeline and just kind of give me some way to frame the deposit grows opportunity to your end or possibly in your term in general. Yeah, from a pure dollar pipeline standpoint, it is a little harder to measure the pipeline simply because the change in the portfolio is so dependent upon things that we don't control and that balances in customers accounts.

We have developed tools and calling list and products in order to achieve.

Achieve privacy with us.

Those customers, who like us they do business with US we just don't have their primary account and that's where we are focusing our efforts.

Okay.

Speaker 3: As I look across those initiatives, which ones do you feel are, without giving away internal numbers or anything like that, do you feel happy across all of them? Or do you feel some of them are outperforming others? You know, some of them, well, they didn't all start at the same time. Correct. So for example, an initiative we put in place earlier in this year was enhanced in a more efficient way or our...

As I look across those initiatives, which ones do you feel are without giving away internal numbers or anything like that you feel happy across all of them.

Do you feel some of them are outperforming others some of them well they didn't all start at the same time correct. Okay.

Manuel Navas: So the way we're measuring things today from a pipeline perspective is really more about numbers of activities. The numbers of times in the depth, those for example, men will give treasury management products. We know exactly the number of customers that we've enhanced, the treasury management relationship around. We know the number of products, we know the revenue associated with that. It's really harder from a pipeline standpoint, say in that by itself, it's going to translate to a dollar or two dollars of balances.

For example, an initiative we put in place earlier in this year was an enhanced in a more efficient way for our.

Speaker 3: bankers in our branches and our business bankers to build treasury management capabilities with what we would define as business banking and small business cost.

Bankers in our branches in our business bankers to to build Treasury management capabilities with what we would define as business banking and small business customers and that has resulted in significant numbers of new opportunities that whereas Martin.

Speaker 3: And that has resulted in significant numbers of new opportunities.

Speaker 3: that they talked about that were latent opportunities.

<unk> talked about that were latent opportunities our job was to make it easier for our teams to fulfill those opportunities and develop expertise. So we added talent we added.

Speaker 3: Our job was to make it easier for our teams to fulfill those opportunities and develop expertise. So we added talent, we added an ability for information to move between our teams more effectively and an ability to...

Manuel Navas: So at this point in time, we're very focused on activity levels, numbers of opportunities, which gives us a proxy for growth. The other thing that we have introduced are some tools that give us the capability to understand flow of deposits. So the stack that I gave you earlier in that $80 million of CD growth that you saw come for CD growth. We know that there was $30 million that was a shift, a mix shift, I'm sorry, a $50 million from one bucket to the other within our balance sheet.

And ability for information to move between our teams more effectively in a bit.

And ability to.

Speaker 3: and put the business on the books for the customer more efficiently. And these are, you know, we're seeing, we're very pleased with the progress there.

Put the business on the books for the customer more efficiently and these are.

We're seeing we're very pleased with the progress there.

Speaker 3: An announcement that we made just within the past 30 days is the introduction of an integrated tables product for our largest.

Announcement that we made just within the past 30 days is the introduction of an integrated payables product, where our largest commercial banking customers that puts us closer to par with the biggest banks that we compete against from a treasury management standpoint, and what we're doing today, there is having conversations with customers that will lead.

Speaker 3: commercial banking customers. That puts us closer to par with the biggest banks that we compete against from a treasury management standpoint. And what we're doing today there is having conversations with customers that will lead the business down the road. So it's some of these things are to face in.

Manuel Navas: And then there was actually $30 million of new deposits that came into the company. So we're trying to look at three factors on the deposit portfolio. What we would call, you know, diminishment. So current full relationship, there's just fewer dollars to increases in existing relationships. And then three new to new to company, and that's how we're measuring all of it. Obviously, it's tough to put a bogey on there from a balance sheet growth standpoint because as you know, you look year over year and the whole industry is down about 6%.

The business down the road.

If some of these things are phased in over time.

Yeah.

Okay.

Speaker 10: The colors it's great is their

That color is great is there.

Okay near term loan to deposit target.

Speaker 10: Like a new term, one to the positive target that this can kind of help move you towards.

Kind of help move you towards.

Speaker 10: Given they are 103% now, just kind of maybe that's a different way to approach.

Given they are at 103% now just just kind of maybe asked a different way to approach it.

Yes, I think we are looking to reduce that over time right now we don't have.

Speaker 2: Yeah, I think we are looking to reduce that over time. Right now we don't have...

Manuel Navas: So we've got to be realistic into how big the pie is that we're going after as well. And measuring that opportunity and shaping up that opportunity is a lot of what we're focused on. We know there is latent opportunity within our own customer base. And we talk a lot about developing primacy in terms of those deposit relationships that we've developed tools and calling lists and products in order to achieve primacy with those customers who like us. They do business with us. We just don't have their primary account.

Speaker 2: specific goals for certain dates. Because we want that to be quality improvements. But also embedded in there, as we're able to do that, is some opportunity back to the margin argument, as we're able to replace some of the borrowing and wholesale funding that we have with deposit growth.

Vic.

Goals for certain date, because we want that sure E quality.

But.

Also embedded in there is as we're able to do that is some opportunity back to the kind of the margin argument.

Able to replace some of the borrowings and wholesale funding that we have with deposit growth.

Speaker 2: There's an opportunity to improve margin by adding deposits, replacing some of those holes without borrowing. So I think there's a lot of value in being able to do that. We don't have.

There is an opportunity to improve margin.

By adding deposits, replacing some of those wholesale borrowings.

Manuel Navas: And that's where we are focusing our efforts, as I look across those initiatives, which ones do you feel are, you know, without giving away internal numbers or anything like that, do you feel happy across all of them, or do you feel some of them are outperforming others? You know, some of them, well, they didn't all start at the same time. Correct. So, for example, an initiative we put in place earlier in this year was enhanced in a more efficient way, or our bankers and our branches and our business bankers to build treasury management capabilities with what we would define as business banking and small business customers.

There's a lot of value and being able to do that we don't have spin.

Speaker 2: specific loan deposit goals by time, you know, by time frames at this point.

Specific loan deposit goals by time by timeframe at this point.

Okay.

Okay. Thank you for the color I appreciate it. Thank you. Thank you.

Speaker 1: Your next question comes from the line of Daniel Cardenas of Janie Montgomery Scott. Your line is open. Hey Dan, you good? Yeah.

Your next question comes from the line of Daniel Cardenas of Janney Montgomery Scott Your line is open.

Hey, Dan.

And then guys.

Okay.

Speaker 11: Disquietly, can you give me some color as to how much of your security portfolio is?

Just quickly can you can you give me some color as to how much of your securities portfolio is scheduled to mature or reprice in Q4, and our expectations too.

Speaker 11: to get a little to mature or reprice in Q4 and are your expectations to put that to work in the loan portfolio or are you going to reinvest it in security?

Could that put that to work in the loan portfolio or are you going to reinvest in securities.

Manuel Navas: And that has resulted in significant numbers of new opportunities that as they talk about that were latent opportunities, our job was to make it easier for our teams to fulfill those opportunities and develop expertise. So, we added talent, we added, you know, an ability for information to move between our teams more effectively and an ability to put the business on the books for the customer more efficiently, and these are, you know, we're seeing, we're very pleased with the progress there.

Speaker 2: We have a relatively small securities portfolio, so we're looking to maintain the size of that, just to maintain level on balance sheet liquidity that we're comfortable with. So we typically have anywhere from $25 to $35 million rolling off between cash flow and maturities in any given quarter. So we would look to reinvest that in securities, look to maintain the balance at approximately $35 million. And then we're looking to invest in any given quarter. So we're looking to maintain the size of that, just to maintain level on balance sheet liquidity

We're around the Securities book, but we have a relatively small securities portfolio. So we're looking to maintain the size of that is just to maintain level.

<unk> on balance sheet liquidity that we're comfortable with so we typically have anywhere from 25% to $35 million rolling off between cash flow and maturities in any given quarter. So we would look to reinvest that in the securities book.

We maintained the balance at approximately where it is now.

Alright, great. Thanks, and then maybe if you could give me some additional color on the credit quality side. How does your watch list look what were the trends this quarter.

Speaker 11: Great. Thanks. And then maybe you could give me some additional color on the credit quality side. How does your watch list look? What were the trends this quarter? And what do your level of classified assets look like compared to last quarter?

Manuel Navas: An announcement that we made just within the past 30 days is the introduction of an integrated payables product for our largest commercial banking customers. That puts us closer to par with the biggest banks that we compete against from a treasury management standpoint. And what we're doing today there is having conversations with customers that will lead to business down the road. So, some of these things are phased in over time. Back colors, it's great.

And one of your level of classified assets look like.

The last quarter.

Speaker 4: I mean, as you can see, starting with the MPLs, we saw a reduction. The level of C and C and watch rate credits is remain relatively stable. And that's what you see ultimately in the ACL, remaining stable as a percentage of loans over quarter of a quarter.

Yeah, I mean as you can see starting with the Npls, we saw reduction the level of C&C and watch rated credits has remained relatively stable and that's what you see ultimately in the ACL remaining stable as a percentage of loans over a quarter over quarter.

Manuel Navas: Is there, like, a new term, one to the positive target that this can kind of help move you towards? Given they are 103 percent now, just kind of, maybe that's a different way to approach it. Yeah, I think we are looking to reduce that over time. Right now, we don't have the specific, you know, goals for certain dates because we want that to be quality improvements. But also embedded in there, as we're able to do that, is some opportunity back to the kind of the margin argument, you know, as we're able to replace some of the borrowing and wholesale funding that we have with deposit growth, there's an opportunity to, you know, improve margin by adding deposits, replacing some of those wholesale borrowing. So, we think there's a lot of value in being able to that we don't have specific loan to positive goals by time, you know, by time frames at this point.

Speaker 4: Any changes in terms of the the risk rating stack would be reflected in the ultimately on the a

And any changes in terms of the risk rating stack would be reflected in the ultimately in the ACL.

Okay.

And then in terms of the.

Speaker 11: And then in terms of the 30 million of new deposits that were won this past quarter, what kind of rate did it take to get those on average did it take to get those new deposits?

$30 million of new deposits that were one this past quarter.

What kind of rate that would take to get those on average does it take to get those new deposits.

Okay.

Speaker 2: Well, that's 30, specifically for CDs. And so are those preranged between mid-FORs to low five.

Well that 30 was specifically for Cds, and so are those price range between mid fours to low fives.

To secure those.

Okay.

Speaker 11: And in order that puts you guys in terms of your competitors, kind of middle of a pack, higher end of the pack. the

Where does that put you guys in terms of your competitors kind of middle of the pack higher end of the pack.

Let's say, maybe probably just above middle.

Overall, I mean, we have a active exception pricing program. So we view that as a way to help build and enhance the relationship that we have with customers. So.

Speaker 7: Overall, I mean, we have an active exception pricing program. So, you know, we do that as a way to help build and enhance the relationship that we have with customers. So,

Manuel Navas: Okay. Thank you for the color. I appreciate it. Thank you.

Daniel Cardenas: Your next question comes from the line of Daniel Cardenas of Janie Montgomery Scott. Your line is open. Hey, Daniel. You're good at it. No, guys. Just quick, can you, can you give me some color as to how much of your securities portfolio is?

Speaker 2: The rate on the sheet may not be exactly the rate that the customer gets depending on what the relationship is, what the app.

The rate on the sheet may not be exactly the rate that the customer get depending on what the relationship is and what the opportunity is.

Got it.

Okay, and then what was your iOS Ci level at the end of the quarter.

Speaker 2: And then what was your AOCI level at the end of the quarter? It did pick up by about, I think about...

Daniel Cardenas: Let's get a little to mature a reprise in Q4 and expectations to put that to work in a loan portfolio. Are you going to reinvest and secure it? We have a relatively small security portfolio, so we're looking to maintain the size of that, just to maintain a level of balance sheet liquidity that we're comfortable with. So we typically have anywhere from 25 to 35 million rolling off between cash flow and maturities in any given quarter, so we would look to reinvest that in security, to maintain the balance that approximately where it is now.

It did tick up by about I think about $15 million.

Daniel Cardenas: All right, great. Thanks.

Which was around.

Over 100.

About $100 million.

All my other questions have been asked I will step back thanks, guys.

Speaker 11: My other questions of the dance got back thanks guys.

Thanks, Dan.

Yes.

Speaker 1: Your next question comes from line of Michael Perrito of KBW. Your line is

Your next question comes from the line of Michael Perito of <unk>. Your line is open.

Okay.

Hey, guys. Good afternoon, thanks for taking my questions sure.

Speaker 12: Hey guys, good afternoon. Thanks for taking my questions. Sure.

Speaker 12: A lot of it's been answered, but just a couple more things I wanted to clarify. Number one, just I'm sure you guys are starting.

A lot of it's been asked or answered, but just a couple more things I wanted to clarify a number one just.

Daniel Cardenas: And then maybe you could give me some additional color on the credit quality side. How does your watch list look? What the trends this quarter and what are your level of classified assets look like compared to last quarter? Yeah, I mean, as you can see, starting with the MPLs, we saw a reduction. The level of C&C and watch rate credits is remain relatively stable. And that's what you see ultimately in the ACL, remaining stables of percentage of loans over a quarter of a quarter. Any changes in terms of the risk rating stack would be reflected in the ultimately in the ACL.

I'm sure you guys are starting to think about next year in the budget for 'twenty four and just curious if.

Speaker 12: next year and the budget for 24 and just curious if you're probably not willing to get too specific, but just any high level commentary around expenses and rate of investment, you know, obviously it sounds like

You're probably not willing to get too specific but just any high level commentary around expenses that rate of investment obviously, it sounds like NIM pressure will persist into the early part of next year. So does that impact the timeline or or any of your kind of scheduling around investments you were planning on making interest as we think about kind of the rate of expense growth and 24.

Speaker 12: and then pressure will persist into the early part of next year. So does that impact the timeline or any of your kind of

Speaker 12: Scheduling around investments you were playing on making it in just as we think about kind of the rate of expense growth in 24 I'm curious if you guys have any kind of high level commentary that that would be helpful for up

Just curious if you guys have any kind of high level commentary about that would be helpful for us.

Speaker 2: Yes, I'll just a couple of those. I mean, on the expense side, we did have higher expense growth this year. A lot of that was labor market driven. It was very competitive, especially early in the year. We've seen that improve. And we've also added some people. So we have a higher staff level going in.

Yes, I'll just a couple of those I mean that.

On the expense side, we did have higher expense growth. This year a lot of that was labor market driven is very competitive, especially early in the year, we've seen that improve and we have also.

Daniel Cardenas: Okay. Good. And then in terms of the 30 million of you deposits that were won this past quarter, what kind of rate did it take to get those on average did it take to get those you deposits that? Well, that's that's 30 with specifically for CDs. And so are those prior range between mid fours to low five to secure those? Okay. And where does that put you guys in terms of your competitors, middle pack, higher end of the pack?

<unk> added some people so we have a higher staff levels level going in.

Speaker 2: So that is a big driver, moderating some of us, we're looking at expense growth, more in the 3% range versus 6 this year. So we would expect that to be down fly bit. I don't think it has had a big influence on the timing of things. We have imperatives and things that we wanna work on. And. And.

So that is the big driver monitoring somewhat.

We're looking at expense growth more in that.

3% range versus six this year, so we would expect that to.

B Downslide that I don't think it has had a big influence on the timing of things do we have imperatives and things that we want to work on and and and those things are going to move ahead, because we've decided they're very important.

Speaker 2: And those things are going to move ahead because you know, we decided they were very important.

Speaker 3: Yeah, I mean, we come into this, you know, the margins are contracting. We...

I mean, we come into this.

Daniel Cardenas: That's a maybe just above middle overall. I mean, we have an active exception pricing program. So, you know, we do that as a way to help build and enhance the relationship that we have with customers. So the rate on the sheet may not be exactly the rate that the customer gets depending on what the relationship is and what the opportunity is.

The margins are contracting we come into this situation with a very efficient company and a PPA NR, that's really strong and we believe this gives us that gives us an opportunity as we move forward. In addition to the capital levels and strength of our balance sheet on top of that there is significant disruption in the marketplace.

Speaker 3: We come into this situation with a very efficient company and a PPR that

Daniel Cardenas: Got it. Okay.

Speaker 3: really strong and we believe this gives us an opportunity as we move forward in addition to the capital levels to strengthen our balance sheet. On top of that, there is significant disruption in the marketplace.

Speaker 3: And we have the opportunity to have conversations with bankers and teams of bankers. And we're going to be opportunistic as we move into 24 and build for the future that we believe we've got an operating model and an ability to deliver into the marketplace.

We have the opportunity to have conversations with bankers and teams of bankers and we're going to be opportunistic as we.

Daniel Cardenas: And then what was your AOCI level at the end of the quarter? It did take up by about I think about 15 million. We just around a little over 100, around 100 million.

We move into 'twenty, four and build for the future that we believe we've got a operating model and an ability to deliver into the marketplace that is attractive to not only customers, but to employees and we're going to continue to look for opportunities strategically.

Daniel Cardenas: Okay.

Speaker 3: that is attractive to not only customers, but to employees and we're going to continue to look for opportunities strategically to.

Daniel Cardenas: No, my other questions have been asked. Got that. Thanks, guys.

Speaker 3: to build this thing out, build the business out, and that's gonna be dependent upon the right, and the right and number of people.

To build this thing out build the business out and that's going to be dependent upon.

Operator: Okay. Thank you. Thanks, Dan.

The rate and the rate and number of people.

Michael Perito: Your next question comes from line of Michael Perrito of KBW. Your line is open. Hey, guys. Good afternoon. Thanks for taking my questions. Sure. A lot of it's been answered, but just a couple more things I wanted to clarify.

Got it that's helpful and then just.

Maybe a question for Mark obviously, the uncertain not uncertain, but unusual rate cycle rises rapidly solve it in the short time period in which we saw the increases in obviously right now I think consensus is kind of honing in on this higher for longer environment, but thats. This week right. So yeah just <unk>.

Speaker 12: Maybe a question from Mark. Obviously, not uncertain, but an unusual rate cycle, right? Just to wrap into sub-it and the short time period in which we saw the increases. And obviously right now, I think consensus is kind of honing in on this higher, for longer environment, but that's this week, right? And so just curious if you guys have any initial thoughts around.

Michael Perito: Number one, just I'm sure you guys are starting to think about next year and the budget for 24 and just curious if you're probably not willing to get too specific, but just any high level commentary around expenses and rate of investment. You know, obviously it sounds like them pressure will persist into the early part of next year. So does that impact the timeline or any of your kind of scheduling around investments you were playing on making? And just as we think about kind of the rate of expense growth in 24, curious if you guys have any kind of high level commentary that that would be helpful for us.

Curious if you guys have any initial thoughts around.

Speaker 12: What a rate cut would do to margin. I mean, it feels like, you know, there's probably like the static analysis, but then there's like the realistic analysis of which, you know, the The environment's kind of bizarre relative to what we've seen historically in terms of how rapidly rates have gone up Just curious if you guys have thought about that at all and have any context you you're willing to offer

What a rate cut would do to margin I mean, it feels like there is probably like the static analysis, but then there's like the realistic analysis of which the.

The environment kind of bizarre relative to what we've seen historically in terms of how rapidly rates have gone up just curious if you guys could talk about that at all have any contacts you're willing to offer.

Speaker 2: Oh yeah, we think about that all the time. I guess that, I mean, just a few comments I'll make is that, you know, as I said, kind of our baseline, you know, just given where we're at is that, you know, we are gonna have some margin compression. That kind of uses the Fed doesn't do much from here, at least through 24, so kind of the higher for longer.

Yeah, we think about that.

All the time I guess that I mean, just a few comments I'll make is that.

Mark Kochvar: Yes, I'll just a couple of those. I mean, on the expense side, we did have higher expense growth this year. A lot of that was labor market driven. It was very competitive, especially early in the year. We had a big influence on the timing of things. We have imperatives and things that we want to work on and those things are going to move ahead because we decided they were very important. Yeah, I mean, we come into this, you know, the margins are contracting.

Kind of our baseline you just given where we're at is that we are going to have some.

Margin compression net that uses that the fed doesn't do much from here at least through 'twenty four so kind of the higher for longer.

Speaker 2: But with that, that is a better scenario for us than a breakdown on the front end scenario. Because even though we have a hedge doubt, some of our exposure to the front of the curve, because we are still our assets in sort of back, not all of that goes away. So we're still better off with a higher rate environment on the front end that we were if that would cut 100 or 200 basis points.

But with that that is a better scenario for us than a rates down on the front end scenario.

And even though we have hedged out some of our exposure on the to the front of the curve because we our star asset sensitive bank.

Not all of that goes away. So we're still better off with a higher rate environment. A front end that we were at the fed cut 100 or 200 basis points.

Speaker 2: we would have more difficulty on the margins by keeping pace with that. So, higher for longer, even though it represents compression or challenge for us on a baseline, it's still better than a fed down scenario.

Would have.

More difficulty on the margin side, keeping keeping pace with that so higher for longer even though it represents.

Mark Kochvar: We come into this situation with a very efficient company and a PPR that's really strong and we believe this gives us an opportunity as we move forward in addition to the capital levels, strength of our balance sheet. On top of that, there is significant disruption in the marketplace. And we have the opportunity to have conversations with bankers and teams of bankers. And we're going to be opportunistic as we move into 24 and build for the future that we believe we've got an operating model and an ability to deliver into the marketplace that is attractive to not only customers but to employees. And we're going to continue to look for opportunities strategically to build this thing out, build the business out and that's going to be dependent upon the right and number of people. Got it helpful.

Impression or are a challenge for us in our baseline is still better than.

Third down scenario.

Very helpful. Alright, guys. Thank you appreciate it.

Speaker 10: Pretty helpful. All right guys, thank you, appreciate it. Good luck, Mike.

Thanks, Mike.

Okay.

Speaker 1: I would like to turn the call over to Chief Executive Officer Chris McComish for closing remarks.

I would like to turn the call over to the Chief Executive Officer, Chris Mccormick for closing remarks.

Speaker 3: Okay, well thank you. We really appreciate the engagement of the analyst community and the questions. And again, there's lots of feel proud of in the corner. We look forward to finishing the year strong and moving on to a productive 2024. So thanks to everybody for joining us this afternoon. Have a good rest of the week. This concludes today.

Well. Thank you we really appreciate the engagement of the analyst community and the questions and again Theres lots of feel proud of in the quarter. We look forward to finishing the year strong and moving onto a productive 2024. So thanks to everybody for joining us this afternoon.

Have a good rest of the week.

This concludes today's conference call you may now disconnect.

Okay.

Mark Kochvar: And then just maybe a question for Mark, and obviously the uncertain, not uncertain, but unusual rate cycle, right? Just the rapidness of it and the short time period in which we saw the increases and, you know, obviously right now, I think consensus is kind of honing in on this higher, for longer environment, but that's this week, right? You know, and so just curious if you guys have any initial thoughts around what a rate cut would do to margin.

Mark Kochvar: I mean, it feels like, you know, there's probably like the static analysis, but then there's like the realistic analysis of which, you know, the environment is kind of bizarre relative to what we've seen historically in terms of how rapidly rates have gone up. Just curious if you guys have thought about that at all and have any context you will offer. Yeah, we think about that all the time. I guess that I mean, just a few comments I'll make is that, you know, as I said, kind of our baseline, you know, just given where we're at is that, you know, we are going to have some some margin compression that kind of uses the Fed doesn't do much from here, at least through 24, so kind of the higher for longer.

Mark Kochvar: But with that, you know, that is a better scenario for us than a rate down on the front end scenario. Because even though we have a hedge doubt, some of our exposure on the to the front of the curve, you know, because we are still our asset sensitive bank, you know, not all of that goes away. So we're still better off with a higher rate environment on the front end that we were if that would cut 100 or 200 basis points, we would have more difficulty on the margins by keeping, keeping pace with that. So higher for longer, even though it represented, you know, compression or challenge for us on a baseline is still better than, you know, a Fed down scenario.

Christopher McComish: I would like to turn a call over to Chief Executive Officer Chris McComish for close remarks. Thank you. We appreciate the engagement of the analyst community and the questions. Again, there's a lot to feel proud of in the corner. We look forward to finishing the year strong and moving on to a productive 2024. So thanks to everybody for joining us this afternoon. Have a good rest of the week.

Operator: This concludes today's conference call. You may now disconnect.