Q3 2023 Amalgamated Financial Corp Earnings Call

Ladies and gentlemen, thank you for standing by.

We will begin the program in just a few moments once again. Thank you for standing by we will begin the program in just a few moments.

Yeah.

[music].

Good morning, ladies and gentlemen, and welcome to the amalgamated Financial Corporation third quarter 2023 earnings conference call during.

During todays presentation, all parties will be in a listen only mode.

Following the presentation. The conference will be opened for questions with instructions to follow at that time.

As a reminder, this conference call is being recorded.

I would now like to turn the call over to Mr. Jason Darby Chief Financial Officer. Please.

Please go ahead Sir.

Thank you operator, and good morning, everyone. We appreciate your participation in our third quarter 2023 earnings call with me today is Chris all sins Brown, our president and Chief Executive Officer.

As a reminder, a telephonic replay of this call will be available on the investors section of our website for an extended period of time. Additionally.

Additionally, a slide deck to complement today's discussion is also available on the investors section of our website.

Before we begin let me remind everyone that this call may contain certain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

We caution investors that actual results may differ from the expectations indicated or implied by any such forward looking information or statements.

Investors should refer to slide two of our earnings deck as well as our 2022 10-K filed on March 9th 2023 for a list of risk factors that could cause actual results to differ materially from those indicated or implied by such statements.

Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe are useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U S. GAAP.

Reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release as well as on our website let.

Let me now turn the call over to Priscilla.

Thank you, Jason and good morning, everyone.

I'm excited to be here today to discuss our third quarter results as they clearly demonstrate the business. The social responsibility is a business that can do well financially while also doing good in the world.

While the banking events from earlier in the year are no longer dominating the headlines we are conscious of the economic environment, We're operating in.

With the fed continuing to maintain a hawkish stance and the reality of the higher for longer interest rate position slowly settling into the bond market. We believe we have a solid strategy to prepare our balance sheet for growth optionality by the second half of next year.

As a reminder, in mid March we quickly pivoted to a modified quote strategy centered on a neutral balance sheet building capital and increasing our tangible common equity ratio.

Now two full quarters in a neutral balance sheet strategy is playing out well and perhaps even better than we expected.

Since our March results, our leverage ratio has improved 39 basis points to 789% as we steadily marched towards an eight 5% leverage target.

And are trying to both common equity ratio has increased modestly by 29 basis points to 617% as we target seven 5%.

The TCE ratio is very important to us and we've been measuring ourselves against the minimum target of 6% since the second quarter of 2022.

Looking more closely at our balance sheet, we continue to fund loan growth predominantly from run off of our securities portfolio augmented by select security sale.

We changed the mix of that that's from securities to loans, the balance sheet health will benefit the portfolio amortization will naturally reduce unrealized loss position and replace those assets with loans at market rates.

During the quarter, we reduced our traditional securities portfolio by $196 million or nearly 5% and by $185 3 million or nearly 8% since March.

Tandem loans have continued to grow.

During the quarter net loans receivable increased $113 million or 2.7% to $4.4 billion.

Accordingly, the growth was mainly driven by our commercial and industrial asset class, which I will discuss more fully in just a bit.

Shifting to deposits.

Total deposits, excluding broker C D increased $172.8 million or two 7% to $6 $6 billion during the quarter.

Importantly, we experienced approximately 68 million new deposit inflows from our customer segments outside of the political segment, which includes sustainability and not for profit organization.

Highlights the diversity of our deposit franchise.

Our political deposit segment is important and that's a differentiator for the bank, particularly in the tight liquidity environment.

During the quarter political contributed $115 $4 million, if our deposit growth as the presidential campaign cycle kicks into high gear with the election now only a year away.

Looking forward, we expect our political inflow to continue well into next year, which provides important visibility to further deposit growth in the quarters ahead.

As our balance sheet continues to take shape the trajectory for growth of our profitability is becoming more clear and predictable. Our net interest income was $63 $7 million and our net interest margin was 322, 9% with each better than the guidance range we provided.

The second quarter.

It's important to note that we believe our margin is reaching an inflection point.

Yields increased 23 basis point to 4.56%, mostly offsetting the rise in our cost of funds.

As I discussed last quarter, we are in the midst of turning over an older balance sheet.

Lower yielding residential loans multifamily loans and securities roll off over the next 12 to 18 months and they are replaced with higher yielding loans and pace assets.

When paired with our deposit franchise I'm excited about our prospects for margin expansion in 'twenty 'twenty four.

Perhaps what is most important to highlight it.

We are achieving our results.

We are working directly with our mission aligned business model and we're having success.

I have often said that we want to use our voice to drive change that both our customers and our employees are passionate about.

And to do this in a way that also drives profitability and earnings growth.

Accordingly, we're just getting started and we have a long runway for continued growth.

We believe we're only in the early innings of the asset mix shift that I spoke of earlier, given the opportunities the parent and a sustainable lending franchise.

We have deeply experienced bankers and sustainable lending, but the sophistication to prudently underwrite sustainable loans.

Rapidly expanding asset classes in the renewable sector.

Sustainability is a huge opportunity for us.

She come about climate change are growing with an estimated three trillion dollars of investment needed over the next 10 years and order from the U S to achieve our goal of net zero emissions by 2050.

This is a significant market opportunity, which we believe will grow through economic cycle, given the important urgency and momentum to address the issue.

Additionally, the inflation reduction act finally money critical projects in the renewables infrastructure and water segments of the market, which will need additional capital we are well suited to participate and provide visibility into in the years ahead.

The importance of combating climate change was on full display during climate week, which took place in partnership with the U N General Assembly in New York City.

Remember.

Amalgamated bank was honored to be a part of the U N General secretaries client ambitions summit, which speaks to our industry leading position highlighted by the fact that we really wanted for a bank to be a part of the U N zero target banking alliance as well as having our own zero-base emission targets that have been validated by the science.

Targets initiative.

Wrapping up my comments, our quarterly results clearly demonstrate the clarity of our current balance sheet strategy the value of our franchise and the strength of our differentiated business model, which positions us to win even if the environment proves to be more challenging.

We are America's socially responsible bank and we delivered results for our shareholders our customers and the communities. We serve most importantly, we have a long runway ahead for continued earnings growth and value creation.

Let me now turn the call over to Jason to provide a few of our third quarter financial results.

Thank you Priscilla.

Net income for the third quarter of 2023 was $22 $3 million or <unk> 73 per diluted share compared to $21 6 million or 70 cents per diluted share for the second quarter of 2023.

The point $7 million increase for the third quarter of 2023 was primarily driven by a $1.9 million decrease in the provision for credit losses.

Operator: Ladies and gentlemen, thank you for standing by. We will begin the program in just a few moments. Once again, thank you for standing by. We will begin the program in just a few moments. Thank you.

$7 million increase in net interest income and a <unk>.

$2 million decrease in noninterest expense.

Offset by an increase in net losses on sales of available for sale Securities a point $8 million and a $1 million increase in income tax expense.

Beginning on slide five there were no exclusions related to solar tax equity investments for the third quarter of 2023.

Because of the income statement volatility associated with the accounting for these investments we believe metrics, excluding the timing impact of tax credits or accelerated depreciation is it helpful way to evaluate our current and historical performance.

Core net income excluding the impact of solar tax equity investments, our non-GAAP measure for the third quarter of 2023 was $23 $3 million or 76 cents per diluted share compared to $22 million or <unk> 72 cents per diluted share for the second quarter of 2023.

Turning to slide seven.

Pause at September 30 of 2023 or $7 billion, an increase of $96 $2 million from the second quarter of 2023 aspects.

It was peso touched on total deposits, excluding brokered Cds increased by $172 $7 million to $6 $6 billion.

Excluding brokerage Cds noninterest bearing deposits represent approximately 45% of average deposits and 43% of ending deposits for the quarter ended September 30 of 2023.

Contributing to an average cost of deposits of 111 basis points up 24 basis points from the previous quarter as we continue to competitively price our deposits to build and protect our customer base.

Operator: Good morning, ladies and gentlemen, and welcome to the Amalgamated Financial Corporation Third Quarter 2023 Earnings Conference Call. During today's presentation, all parties will be in a listen only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder, this conference call is being recorded.

Our total cost of deposits, including brokered Cds was 133 basis points in the third quarter of 2023 or 23 basis point increase from the previous quarter, we have been carrying brokerage Cds since early in the year to provide funding for our midterm election deposit outflows in late 2022.

Operator: I would now like to turn the poll over to Mr. Jason Darby, Chief Financial Officer. Please go ahead, sir.

As our political deposits continued to re accumulate we are now in the process of replacing this higher cost funding over the next few quarters, which should have a positive impact on our cost of funds we.

Jason Darby: Thank you, operator, and good morning, everyone. We appreciate your participation in our Third Quarter 2023 Earnings Call. With me today is Priscilla Sins Brown, our President and Chief Executive Officer.

We anticipate brokerage CD maturities of approximately $150 million during the fourth quarter.

Jason Darby: As a reminder, a telephonic replay of this call will be available on the investor section of our website for an extended period of time. Additionally, the slide deck to complement today's discussion is also available on the investor section of our website. Before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Security's Litigation Reform Act of 1995. We cautioned investors that actual results may differ from the expectations indicated or implied by any such forward-looking information or statements.

Moving to slide eight our high quality Super core deposit base totaled $3 $4 billion.

Our Super core deposit base uniquely displays important insight into our impact customer segments.

At quarter end total uninsured deposits were $3 $8 billion or 54% of total deposits an improvement from $3 $9 billion or 57% during the second quarter of 2023.

Excluding uninsured Super core deposits of approximately $2 $6 billion remaining uninsured deposits were approximately 17% to 20% of total deposits with immediate liquidity coverage improving to 224% from 183% in the prior quarter.

Jason Darby: Investors should refer to slide two of our earnings deck as well as our 2022-10K file on March 9, 2023 for a list of risk factors that could cause actual results to differ materially from those indicated or implied by such statements. Additionally, during today's call, we will discuss certain non-get measures which we believe are useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with US GAP. The reconciliation of these non-get measures to the most comparable gap measure can be found in our earnings release as well as on our website.

Consistent with prior quarters, we have maintained significant liquidity with cash and immediate borrowing capacity of $2 $6 billion and $576 million a two day capacity from Unpledged securities, resulting in $3 $2 billion of totaled two day liquidity.

Our liquidity covers 85% of our uninsured deposits consistent with our uninsured deposits in the prior quarter.

Priscilla Brown: Let me now turn the call over to Priscilla. Thank you, Jason, and good morning everyone. I'm excited to be here today to discuss our third quarter results as they clearly demonstrate the business of social responsibility is a business that can do well financially, we're also doing good in the world. While the banking events from earlier in the year are no longer dominating the news headlines, we are conscious of the economic environment we're operating in.

Taking a closer look on slide nine deposits held by politically active customers were $951.2 million as of September 30th 2023.

An increase of $115 $5 million on a linked quarter basis.

Through October 20th we'd had a further $17 $3 million of political deposit inflows.

Jumping ahead to slides 12, and 13 the book value of our traditional securities portfolio decreased $109 $6 million during the quarter, primarily as a result of $77 $1 million and strategic sales and $45 $8 million in traditional securities Paydowns, while net pace assessment credits was $48 3 million.

Priscilla Brown: With the Fed continuing to maintain a hawkish stance and the reality of this higher for longer industry position slowly settling into the bond markets, we believe we have a solid strategy to prepare our balance sheet for growth optionality by the second half of next year. As a reminder in mid March, the quickly pivoted to a modified growth strategy centered on a neutral balance sheet, building capital and increasing our tangible common equity ratio.

Yeah.

Floating rate securities represented 45% of traditional securities at the end of the quarter, a 1% decline from the prior quarter as we have consistently reduced that ratio over the past several quarters to protect our earnings stream.

Priscilla Brown: Now two full quarters in our neutral balance sheet strategy is playing out well, and perhaps even better than we expected. Since our large results, our leverage ratio has improved 39 basis points to 7.89%, as we steadily marched towards an 8.5% leverage target. And our tangible common equity ratio has increased modestly by 29 basis points to 6.72% as we target 7.5%. The TPE ratio is very important to us and we have been measuring ourselves against a minimum target of 6% since the second quarter of 2022.

Our unrealized loss position in our available for sale securities portfolio was $128 $7 million or seven 9% of the total portfolio balance importantly, our NFS portfolio effective duration. It was only 1.9 years, reflecting our conservative investment decisions.

Turning to slide 14.

Total loans receivable net of deferred fees and costs at September 30 of 2023 or $4.4 billion, an increase of $113 million or two 7% compared to June 30 of 2023.

This increase in loans was primarily driven by a $101 million increase in commercial and industrial loans and a $21 million increase in residential loans offset by a $9 $2 million decrease in the commercial real estate portfolio.

Priscilla Brown: Looking more closely at our balance sheet, we continue to fund loan growth predominantly for runoff of our securities portfolio, augmented by select security sales. As we change the mix of assets from securities to loans, the balance sheet helps to benefit as a portfolio amortization will naturally reduce unrealized loss positions and replace those assets with loans and market rates. During the quarter, we reduced our traditional securities portfolio by 109.6 million dollars or nearly 5%, and by 185.3 million or nearly 8% since March.

Point $8 million decrease in multifamily loans.

During the quarter, we had $37 $4 million of payoffs and upgrades of criticized or classified loans, including $29 million of commercial real estate loan upgrades $4 $7 million in multifamily loan upgrades and a full pay off of an $8 million multifamily loan as we continue to focus on improving the credit quality of our loan portfolio.

The yield on our total loans is 4.56% compared to $4 three 3% in the second quarter. The loan yield increase was mainly attributed to the improved loan yield of new loans generated during the quarter.

Priscilla Brown: In tandem, loans have continued to grow. During the quarter, net loans receivable increased $113 million or 2.7% to $4.4 billion. Importantly, the growth was mainly driven by our commercial and industrial asset class, which I will discuss more fully in just a bit. Chifting to deposits, total deposits, excluding broker CD, increased $172.8 million or 2.7% to $6.6 billion during the quarter. Importantly, we experienced approximately 68 million new deposits and flows from our customer segments outside of the political segment, which includes sustainability and not the profitability. That highlights the diversity of our deposit franchise. Our political deposit segment is important, and it's a differentiator for the bank, particularly in this tight liquidity environment.

As we discussed on prior calls our commercial real estate portfolio has been a portfolio that we have been derisking for quite a while.

At quarter end, we had $61 million in office only exposure across six credits with an average LTV of approximately 41%.

Of the six credits are now pass graded as one special mention credit returned to pass grade during the quarter.

On slide 15, net interest margin was 3.29% for the third quarter of 2023, a decrease of four basis points from 333% in the second quarter of 'twenty two I think.

The decrease is largely due to increased rates and average balances of interest bearing liabilities primarily for deposit costs.

Importantly, we are beginning to see an inflection point in our NIM as improving loan yields mitigates funding pressures combined with higher cost brokered Cds and term funding set to be replaced by lower cost deposit inflows in the quarters ahead.

On page 16 core noninterest income excluding the impact of solar tax equity investments, our non-GAAP measure was $7 $8 million for the third quarter of 2023 compared to $8 $2 million in the second quarter of 2023. The decrease of <unk> $4 million was primarily related to a decrease in trust department fees as we focus on.

Priscilla Brown: Act. During the quarter, political contributed $115.4 million of our deposit growth, as the presidential campaign cycle kicks in the high year with the election now only a year away. Looking forward, we expect our political inflows to continue well into next year, which provides important visibility to further deposit growth in the quarters ahead. As our balance sheet continues to take shape, the trajectory for growth of our profitability is becoming more clear and predictable.

Net revenue quality.

On page 17 core noninterest expense a non-GAAP measure for the third quarter of 2023 was $37 million a decrease of $1.2 million from the second quarter of 2023. This is in line with your expected noninterest expense range provided on last quarters call and was mainly due to a point $6 million decrease in professional fees offset by a 0.4.

$1 million increase in data processing expense.

Attributed to a sales tax credit recognized in the previous quarter.

Priscilla Brown: Our net interest income was $63.7 million and our net interest margin was 3.29%, with each better than the guidance range we provided in the second quarter. It's important to note that we believe our margin is reaching an inflection point, as our low yields increase 23 basis points to 4.56%, mostly offsetting the rise in our cost of funds. As I discussed last quarter, we are in the midst of turning over an older balance sheet as our lower yielding residential loans, multi-family loans, as securities roll off over the next 12 to 18 months and they are replaced with higher yielding loans and pace assets.

Moving to slide 18, nonperforming assets totaled $36 $5 million, a 0.46% of period end total assets at September 32023.

This was an increase of $1.2 million as compared to $35 3 million or four 5% on a linked quarter basis.

The increase in nonperforming assets was primarily driven by a $2.4 million construction loan and point $5 million in residential loans placed on non accrual status in the third quarter that was partially offset by a $1.2 million charge offs on a multifamily loans moved to held for sale and subsequently sold in October and the sale of $6 million of non accrual consumer loans.

Held for sale.

Our criticized assets decreased $16 million or 15% to $87 $9 million on a linked quarter basis.

Priscilla Brown: When paired with our deposit franchise, I'm excited about our prospects for margin expansion in 2024. Perhaps what is most important to highlight is how we are achieving our results. We are working directly with our mission-aligned business model and we're having success. I have often said that we want to use our voice to drive change, but both our customers and our employees are passionate about, and to do this in a way that also drives profitability and earnings growth.

During the quarter the allowance for credit losses on loans increased $24 million to $67 $8 million at September 30 of 2023 from $67.4 million at June 32023.

The ratio of allowance to total loans was 1.55% a decrease of four basis points from 1.59% in the second quarter of 2023.

Provision for credit losses totaled $2.8 million for the third quarter of 2023 compared to $3 $9 million in the second quarter of 2023.

Priscilla Brown: Importantly, we're just getting started and we have a long runway for continued growth. We believe we're only in the early innings of the asset-mix shift that I spoke of earlier, giving the opportunities apparent in our sustainable lending franchise. We have deeply experienced bankers in sustainable lending, but the sophistication to prudently underwrite sustainable loans and rapidly expanding asset classes in the renewable sector. The sustainability is a huge opportunity for us. Efforts to come about climate change are growing.

The decrease in the provision was largely due to $2 $1 million decrease in the provision for off balance sheet risk on loans related to a decrease in the unfunded exposure on consumer solar loans and commercial and industrial loans.

Continuing to slide 20, our core return on average equity and core return on average tangible common equity was 17, 2% and 17, 7% respectively for the third quarter of 2023.

We repurchased $2 $6 million of common stock during the third quarter and a $29 million of remaining capacity under our $40 million share repurchase program. Additionally, we declared a regular quarterly dividend of 10 cents per share.

Priscilla Brown: The estimated $3 trillion of investment needed over the next 10 years in order for the U.S, to achieve a goal of net zero emissions by 2050. This is a significant market opportunity, which we believe will grow through economic cycles, given the importance, urgency, and momentum to address the issue. Additionally, the inflation reduction act is finally money to critical projects in the renewable infrastructure and water segments of the market, which will need additional capital, but we are well-suited to participate and provide visibility into in the years ahead.

As previously noted we continue to build our capital position based on the state of the current economic environment and in the wake of the banking sector volatility as a result, and as shown on slide 21, our tier one leverage capital ratio improved 11 basis points to 789% as compared to the linked quarter, primarily driven by our strong quarterly earnings.

Slide 22 shows a reconciliation of the change in tangible common equity and related tangible book value.

Priscilla Brown: The importance of combating climate change was on solid display during climate week, which took place in partnership with the UN General Assembly in New York City in September. A automated bank was honored to be a part of the UN General Secretary's client ambition summit, which speaks to our industry-leading position highlighted by the fact that we are only one at four banks to be a part of the UN's zero-target banking alliance, as well as having our own zero-based emission targets that have been validated by the science-based targets initiative.

As expected the Federal Reserve board kept rates steady through the third quarter of 2023, and it is more likely than not for one more 25 basis point rate increase this year.

Looking forward, we expect interest rates to remain higher for longer with any potential interest rate reductions to occur during the second half of 'twenty 'twenty four.

Our tangible book value per share a non-GAAP measure improved to $17.43 as of September 30 of 2023 as compared to $16.78 in the prior quarter, representing an annual growth rate of 16%.

Priscilla Brown: Rapping up my comments, our quarterly results clearly demonstrate the clarity of our current balance sheet strategy, the value of our franchise, and the strengths of our differentiated business model, which positions us to win even if the environment proves to be more challenging. We are America's socially responsible bank and we deliver results for our shareholders, our customers, and the communities we serve. Most importantly, we have a long runway ahead for continued earnings growth and value creation.

The increase was driven by a $22.3 million of net income for the quarter offset by $3 $1 million and dividends paid at 10 cents per outstanding share.

$2 $6 million of common stock repurchases and a point $1 million increase in accumulated other comprehensive loss due to the tax affected mark to market on our available for sale securities portfolio.

Tangible book value per share as a key metric for us and we have targeted greater than $19 per share by the second quarter of 2024.

Jason Darby: Let me now turn the call over to Jason to provide a few of our third quarter financial results. Thank you, Priscilla. Net income for the third quarter of 2023 was $22.3 million or 73 cents per diluted share, compared to $21.6 million or 70 cents per diluted share for the second quarter of 2023.

Another key metric of focus for us as core revenue per share as we continue to grow our net interest income earnings profile and also our ability to drive more meaningful noninterest income our core revenue per diluted share was $2.34 for the third quarter.

Jason Darby: The $0.7 million increase for the third quarter of 2023 was primarily driven by a $1.9 million decrease in the provision for credit losses, a $0.7 million increase in net interest income, and a $0.2 million decrease in non-interest expense offset by an increase in net losses on sales of available for sale securities, a $0.8 million and a $1 million increase in income tax expense. Beginning on slide five, there were no exclusions related to solar tax equity investments for the third quarter of 2023.

We also remain pleased with our tangible common equity to tangible assets of $6 seven 2% for the quarter in comparison to $6 five 9% from the previous quarter, we remind investors that we publicly set a tangible common equity minimum target of 6% back in the second quarter of 2022, and we've never been below that target.

Turning to slide 23, we note that the high degree of economic and banking sector uncertainty makes projections difficult that said for our full year 2023 guidance, we have tightened our core pretax pre provision range at the higher end and modestly expanded our net interest income range as follows.

Jason Darby: Because of the income statement volatility associated with the accounting for these investments, we believe metrics excluding the timing impact of tax credits or accelerated depreciation is a helpful way to evaluate our current and historical performance. Coronet income excluding the impact of solar tax equity investments, a non-gap measure, for the third quarter of 2023 was $23.3 million or 76 cents per diluted share, compared to $22 million or 72 cents per diluted share for the second quarter of 2023.

Core pretax pre provision earnings excluding solar.

136 million to $139 million and net interest income of 256 million to $258 million, which considers the effect of migration of interest bearing accounts and the forward rate curve for the remainder of 2023.

Going forward, we estimate an approximate $5 million decrease in annual net interest income for parallel 25 basis point increase in interest rates.

Jason Darby: Starting to slide seven, the positive that September 30, 2023 was $7 billion and increase of $96.2 million in the second quarter of 2023. As Priscilla touched on, total deposits excluding brokerage CDs increased by $172.7 million to $6.6 billion. Excluding brokerage CDs, non-experient deposits represent approximately 45 percent of average deposits and 43 percent of ending deposits for the quarter ended September 30 at 2023, contributing to an average cost of deposits of 111 basis points, up 24 basis points from the previous quarter as we continue to competitively price our deposits to build and protect our customer base.

Yeah.

Our focus remains equally on growing our capital position limiting balance sheet leverage and managing expenses.

We think our net interest margin has reached an inflection point and we cautiously do not expect significant margin change in the fourth quarter correspondingly, we anticipate our net interest income to range between 62 and $64 million in the fourth quarter of 2023.

Wrapping up we are taking prudent steps to prepare our balance sheet for growth options next year by building capital changing the mix of our assets and we were pleased with our progress so far.

We're also happy to report that the bank's credit ratings remain unchanged with a stable outlook during the independent annual surveillance conducted during the third quarter.

Jason Darby: Our total cost of deposits including brokerage CDs was 133 basis points in the third quarter of 2023, a 23 basis point increase from the previous quarter. We have been carrying brokerage CDs since early in the year to provide funding for a midterm election deposit outflows in late 2022. As our political deposits continue to re-accumulate, we are now in the process of replacing this higher cost funding over the next few quarters, which should have a positive impact on our cost of funds.

Our ability to grow our deposit franchise in a competitive market combined with our distinct impact lending business model will help drive improved profitability over the next year and will have a significant positive impact on our key per share metrics.

And with that I'd like to ask the operator to open up the line for any questions operator.

Thank you.

Before opening the line for questions.

Jason Darby: We anticipate brokerage CD maturities of approximately $150 million during the fourth quarter. Moving to slide eight, our high-quality supercourt deposit base total of $3.4 billion. Our supercourt deposit base uniquely displays important insight into our impact cost from a segment, at quarter end total uninsured deposits were $3.8 billion or 54% of total deposits, an improvement from $3.9 billion or 57% during the second quarter of 2023. Excluding uninsured supercorded deposits of approximately $2.6 billion remaining uninsured deposits were approximately 17 to 20% of total deposits were immediate liquidity coverage improving to 224% from 183% in the prior quarter.

Amalgamated CEO, Mr. Allison's Brown I would like to make a few additional comments in light of last evening's events.

Thank you Camilla.

Like most of you I watched the news stories of the mass shootings in Maine last night.

I would be remiss, if I didn't acknowledge it.

Like many of you I had a sleepless night thinking about the victims and their loved ones and what we should do to end the epidemic of gun violence in this country I don't have all the answers, but this much I do now.

Cannot continue to leave the solution to those directly affected or to their children for whom this has become the number one cause of death in America.

We can't point fingers at others without also looking at ourselves every single American has a role to play in ending this.

Jason Darby: Consistent with prior quarters we have maintained significant liquidity with cash and immediate bond capacity of $2.6 billion and $576 million of two-day capacity from unpluged securities resulting in $3.2 billion of total two-day liquidity. Our liquidity coverage is 85% of our uninsured deposits consistent with our uninsured deposits in the prior quarter.

Amalgamated bank file for merchant Coke for gun retailers to support law enforcement efforts to detect illicit firearm purchases. This is not about attacking altering or diluting. The second amendment, we now have the code and it should be implemented worldwide.

This is just one small step of many many steps societies should take health care workers teachers legislators parents bystanders public servants lawyers advocates organisers ministers employers and yes, everyone in financial services, we all have a role to play.

Jason Darby: Taking a closer look on slide nine deposits held by politically active customers were $951.2 million as of September 30th, 2023, an increase of $115.5 million on a linked quarter basis. Through October 20th, we've had a further $17.3 million of political deposit inflows.

On offering our thoughts and even our prayers. This is a solvable American problem.

Jason Darby: Jumping ahead, this slide is 12 and 13. The book value of our traditional securities portfolio decreased $109.6 million during the quarter. Primarily as a result of $77.1 million in strategic sales and $45.8 million in traditional securities paydowns. While net pace assessment croats was $48.3 million. Floating rate securities represented 45% of traditional securities at the end of the quarter, a 1% decline from the prior quarter. As we have consistently reduced that ratio over the past several quarters to protect our earnings stream.

I'll now turn it back to the operator, and Jason and I are happy to take your questions.

Thank you.

If you would like to ask a question. Please press star one on your telephone keypad com.

A confirmation tone will indicate that your line is in the question queue.

You May press Star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment. Please I'll you poll for questions.

Jason Darby: Our unrealized loss position in our available for sale securities portfolio was $128.7 million or 7.9% of the total portfolio balance. Importantly, our AFS portfolio effect of duration was only 1.9 years reflecting our conservative investment decisions. Turning to slide 14, total loans receivable net of deferred fees and costs at September 30, 2023, or $4.4 billion, an increase of $113 million or 2.7% compared to June 30, 2023. This increase in loans is primarily driven by a $101 million increase in commercial and industrial loans and a $21 million increase in residential loans offset by a $9.2 million decrease in the commercial real estate portfolio and a $0.8 million decrease in multi-family loans.

Thank you. Our first question comes from the line of Theater Hiley with Piper Sandler. Please proceed with your question.

Hey, good morning, guys just filling in for Alex we're doing today.

Good morning, how are you good morning.

How are you.

Okay.

Give us some color on what new loan yields are coming on the books at I know you mentioned you know some some lower yielding loans are rolling off the loan book and you're adding a higher yielding loans. So any color on new loan yields and maybe the yields on the specific segments that'd be helpful.

Sure I'm happy to take that question.

You know yields bring on yields have been have been strong for the quarter.

Jason Darby: During the quarter, we had $37.4 million of payoffs and upgrades of criticized for classified loans, including $20.9 million of commercial real estate loan upgrades, $4.7 million in multi-family loan upgrades, and a full payoff of an $8 million multi-family loan as we continue to focus on improving the credit quality of our loan portfolio. The yield in our total loans was 4.56% compared to 4.33% in the second quarter, the loan yield increase was mainly attributed to the improved loan yield of new loans generated during the quarter.

I would say in the commercial portfolio blended.

Bring on rates for around seven 7.25%.

Obviously that has a lot of movement across the segments, we saw about 6.5% sort of on average between the multifamily in a regular real estate and then the C&I business was quite a bit higher probably more closer to the eight 9% range and in certain cases.

So some pretty strong yields there the pace assets where are in the mid sevens during the quarter and we're even seeing as you've probably noticed with rates pushing up you know subsequent to the close of the quarter were seeing.

Jason Darby: As we discussed on prior calls, our commercial real estate portfolio has been a portfolio that we have been de-risking for quite a while. At quarter end, we have $61 million in office only exposure across six credits with an average LPV of approximately 41%. Of the six credits, all are now pass-grade as one special mention credit returned to pass-grade during the quarter.

<unk> increased rates again, we're seeing a pace assets now being originated in the low 8% range or multifamily or probably right around 7%.

Jason Darby: On slide 15, Mench Smargin was 3.29% for the third quarter of 2023, a decrease of four basis points from 3.33% and the second quarter of 2023. The decreases largely due to increased rates and average balances of interesting liabilities primarily for deposit costs. Importantly, we are beginning to see an inflection point in our name as improving loan yields mitigate funding pressures combined with higher cost broker CDs and term funding set to be replaced by lower cost deposit inflows in the quarters ahead.

So we're really seeing a fairly decent lift and we're not really having any issues.

Issues at the moment, you know finding lendable opportunities that are also strong and credit metrics that are meeting market rates. So we think it ties really well into the point you raised about you know are lower yielding assets turning over and that's been something that we've been pointing to for a little while a in the you know the right opportunities are for.

Jason Darby: On page 16, core non-interesting come excluding the impact of solar tax equity investments and non-gap measure was $7.8 million for the third quarter of 2023 compared to $8.2 million in the second quarter of 2023. The decrease of $0.4 million was primarily related to a decrease in trust department fees as we focus on net revenue quality. On page 17, core non-trust expense and non-gap measure for the third quarter of 2023 was $37 million, a decrease of $0.2 million in the second quarter of 2023.

For the credit segments, we operate in are fairly substantial at this point.

Got it. Thanks, I just wanted to switch to expenses I know it seems like you guys sound some stability.

This quarter than last quarter and core expenses around the $37 million range.

Is there any reason to believe that that won't be repeatable or like how should we think about expenses, maybe going into <unk> in and entering 2024.

Yeah. So.

Jason Darby: This is in line with the expected non-interest expense range provided on last quarter's call and was mainly due to a $0.6 million decrease in professional fees offset by a $0.4 million increase in data processing expense attributed to a sales tax credit recognized in the previous quarter.

So for Q I think.

Can look very similar to <unk>, we've been fairly disciplined in our approach for the entire year. As you know we you know we moved into a a kind of capital constraining mood. After the events of the of mid March and it really focusing on building capital and being.

Jason Darby: Moving to slide 18, non-performing assets told $36.5 million or $0.46% a period end total assets at September 30, 2023. This was an increase of $1.2 million as compared to $35.3 million or 0.45% on a linked quarter basis. The increase in non-performing assets was primarily driven by a $2.4 million construction loan and $0.5 million in residential loans placed on non-accruals status in the third quarter. That was partially offset by a $1.2 million charge off on a multifamily loan move to help resale and subsequently sold in October and the sale of $0.6 million of non-accrual consumer loans help resale.

You know as prudent as possible with expense management. So the 37 37, and a half million dollar kind of baseline that we've said over the past couple of quarters. I think is reasonable to assume for Q4, now I'll caveat that by saying quarter for us.

Usually the quarter, where if there is going to be a surprise that's when it comes up.

So we're cautiously optimistic on and I think and I'm, not really aware of anything major or material otherwise that'd be letting you know today, but just kind of bear that in mind. When we think about 2024 I don't really have a number for you ordinarily we will.

Jason Darby: Our criticized assets decreased $16 million or 15% to $87.9 million on a linked quarter basis. During the quarter, the allowance for credit losses on loans increased $0.4 million to $67.8 million at September 30, 2023 from $67.4 million at June 30, 2023. The ratio of allowance to total loans was 1.55%, a decrease of four basis points from 1.59% in the second quarter of 2023.

Forecast that and a guidance perspective, when we do our Q4 earnings in every corner kind of roll forward, our entire model for the upcoming plan year, but I do think that we're gonna be making investments in our business I do think there'll be opportunities for us to to make various improvements and.

So I would not think that are that are 37, or 37 $5 million quarterly run rate would be what we go for in the 'twenty 'twenty four year that said, we will always kind of keep ourselves banded to a core efficiency ratio and even in this year. We said, 52% was really you know going to be our outer band.

Jason Darby: Provision of a credit losses told $2.0 million for the third quarter of 2023 compared to $3.9 million in the second quarter of 2023. The decrease in the provision is largely due to $2.1 million decrease in the provision for off-balance sheet risk on loans related to a decrease in the unfunded exposure on consumer solar loans and commercial and industrial loans.

We're really going to try to stay within that and not go past that we would be disappointed.

Jason Darby: Continuing to slide 20, our core return on average equity and core return on average tangible common equity were 17.2% and 17.7% respectively for the third quarter of 2023. We repurchased $2.6 million of common stock during the third quarter and have $20.9 million of remaining capacity under our $40 million share repurchase program. Additionally, we have declared our regular quarterly dividend of 10 cents per share. As previously noted, we continue to build our capital position based on the state of the current economic environment and in the wake of the banking sector volatility.

Disciplined similarly, and the 'twenty 'twenty four plan here and we'll have more to share about that at the next quarter.

Got it thanks.

That's all for now a step back in the queue. Thanks for answering my questions.

Thank you.

Thank you. Our next question comes from the line of Chris O'connell with K B W. Please proceed with your question.

Hey, good morning nice quarter.

Yeah.

Good.

So.

Jason Darby: As a result, and as shown on slide 21, our pure one-loverage capital ratio improved the 11 basis points to 7.89%, as compared to the link quarter, primarily driven by our strong quarterly earnings. Planings.

I was hoping to get some color obviously political deposits growth was great. This quarter and it seems to be you know it's.

Trucking along in early Q4.

I was wondering if you could provide any color as to where you think.

Jason Darby: Slide 22 shows a reconciliation of a change in tangible common equity and related tangible book value. As expected, the Federal Reserve Board kept rates steady through the third quarter of 2023, and it is more likely than not for one more 25 basis point rate increase this year. Looking forward, we expect interest rates to remain higher for longer with any potential interest rate reductions to occur during the second half of 2024. Our tangible book value per share, a non-gap measure, improved to $17.43 as of September 30, 2023, as compared to $16.78 in the prior quarter, representing an annual growth rate of 16%.

They could top out at the top of the election cycle.

Next year and then also.

If you'd be willing to provide.

Roughly where our blended range of the cost of a new political deposits coming on the balance sheet are.

Sure Chris happy to take that great to talk to you again, so the political deposits have trended nicely for.

For Us I think we've been very very pleased with him the results so far I think.

It's nice to see that the historical expertise that we built up in and being able to reasonably predict are the nature of these deposits has been playing out and if I look at my current quarter, you know it looks a lot like what a quarter three in 2021 looks like so I think there are some.

Jason Darby: The increase was driven by our $22.3 million of net income for the quarter, offset by $3.1 million in dividends paid at 10 cents per outstanding share. $2.6 million of common stock repurchases, and a $1.1 million increase in accumulated other comprehensive loss due to the tax effect that marked the market are available for sale securities portfolio.

Repeatable trends that you could look to when you think about the forward quarters as a as a good benchmark for where our deposit balances will will likely top out.

Jason Darby: The tangible book value per share is a key metric for us and we have targeted greater than $19 per share by the second quarter of 2024.

It's it's difficult to nail it down and say its going to do one particular thing because.

Jason Darby: Another key metric of focus for us is core revenue per share as we continue to grow our net interest income earnings profile and also our ability to drive more meaningful, non-interest income. Our core revenue per diluted share was $2.34 for the third quarter. We also remain pleased with our tangible common equity, tangible assets of 6.72% for the quarter in comparison to 6.59% from the previous quarter. We remind investors that we publicly set a tangible common equity minimum target of 6% back in the second quarter of 2022 and we have never been below that target.

The threat to the cycles are always different but we feel pretty good about how those historical trends look and I wouldn't expect us to be in excess of what those historical trends were at this time I think you know if we're if were neutral to that or even to that I think that'd be a pretty positive pretty good positive for us because of the environment.

There's certainly a lot different from a from a liquidity point of view than it was during the last during the last cycle Chris.

In terms of the rates, we have seen a a continuing trend towards interest bearing a while these deposits are an accumulation phase we talked last quarter that are two thirds of those deposits were in a DDA or noninterest bearing that trend has shifted.

Jason Darby: Turning to slide 23, we note that the high degree of economic and banking sector uncertainty makes projections difficult. That said, for our full year 2023 guidance, we have tightened our core pre-tax pre-provision range at the higher end and have modestly expanded our net interest income range as follows. Core pre-tax pre-provision earnings, excluding solar, of $136 million to $139 million, and net interest income of $256 million to $258 million, which considers the effect of migration of interest bearing accounts and the forward rate curve for the remainder of 2023.

Two very close to 50 50 at this point and we think that that you know that ratio will probably hold if not you know even continue to migrate downward you can see a 40 60 ratio on on the political deposit balances.

You know as we kind of move towards the early part of next year.

Jason Darby: Going forward, we estimate an approximate $0.5 million decrease in annual net interest income for a parallel 25 basis point increase in interest rates. Our focus remains equally on growing our capital position, limiting balance sheet leverage and managing expenses.

Later, we go into the cycle, probably the more transactional it'll be come in a little bit less rate dependent because those deposits will be staged for usage, but that's that's generally how we're seeing the numbers right now and what I could reasonably you know.

Jason Darby: We think our net interest margin has reached an inflection point and we cautiously do not expect significant margin change in the fourth quarter. Correspondingly, we anticipate our net interest income to range between $62 and $64 million in the fourth quarter of 2023.

Project for you and for the upcoming quarters.

Yeah.

Okay, great Yeah, that's super helpful.

And then just shifting to.

To the fee side.

Jason Darby: Wrapping up, we are taking prudent steps to prepare our balance sheet for growth options next year by building capital, changing the mix of our assets, and we're pleased with our progress so far. We're also happy to report that the bank's credit rating remain unchanged with a stable outlook during the independent annual surveillance conducted during the third quarter. Our ability to grow our deposit franchise in a competitive market, combined with our distinct impact lending business model will help drive improved profitability over the next year, and we'll have a significant positive impact on our key per share met.

Trust.

Down a little bit and I know.

That there's you know market factors on the E U.

AUM and AUC side.

Then you guys noted I think in the deck.

But they were down is striving for net revenue quality, just hoping you could kind of provide some color around you know what exactly that entails.

You know, it's it's one way to think about that is similar to way the way we looked at our lending and what you've seen going on in the lending book, where we've traded out of yeah customer activity that is a less favorable to the bank in the long term.

Operator: Actress.

Operator: And with that, I'd like to ask the operator to open up the line for any questions.

Operator: Operator? Thank you.

Priscilla Brown: Before opening the line for questions, Amalgamated CEO, Priscilla Sims Brown would like to make a few additional comments in light of last evening's events. Thank you, Camilla. Like most of you, I watched the news stories of the mass shootings in Maine last night. I would be remiss if I didn't acknowledge it. Like many of you, I had a sleepless night thinking about the victims and their loved ones and what we should do in the epidemic of gun violence in this country.

And and better quality relationships that are more favorable to the bank long term.

Certainly it's not a credit issue, obviously on the trust side, but but similar in the sense that we are looking for better quality long term relationships. So as there's a natural attrition going on in the trust business, we are allowing that to happen now none of this is new or or specific to the quarter.

This is the follow on to activity. We started earlier in the year, where youll recall, we talked about right sizing some of the fees passing on some of the costs that appropriately should be passed onto customers and then where that results in having a relationship.

Priscilla Brown: I don't have all the answers, but this much I do know. We cannot continue to leave the solution to those directly affected or to their children for whom this has become the number one cause of death in America. We can't point fingers at others without also looking at ourselves. Every single American has a role to play in ending this. Amalgamated Bank filed for a merchant code for gun retailers to support law enforcement efforts to detect illicit firearm purchases.

That is not good for the bank long term or.

Good overall than we've allowed the natural attrition to occur.

You saw that reflected in the quarter.

Yeah.

Priscilla Brown: This is not about attacking, altering, or deluding the Second Amendment. We now have the code and it should be implemented worldwide. This is just one small step of many, many steps society should take. Healthcare workers, teachers, legislators, parents, bystanders, public servants, lawyers, advocates, organizers, ministers, employers, and yes, everyone in financial services. We all have a role to play beyond offering our thoughts and even our prayers. This is a solvable American problem.

Oh, okay.

Got it.

And then as.

As far as you know the credit trends in the quarter ago.

Just you know any details you can provide I mean, there's a number of large upgrades it seems like on criticized and classified.

Loans that were fairly substantial.

And a couple of payoffs and then in particular, the multi family a one 2 million net charge offs and <unk> with debt without getting Soto parish, we expect.

Operator: I'll now turn it back to the operator and Jason and I are happy to take your questions. Thank you. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tool indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, all you pull for questions. Thank you.

You know a reversal of that in <unk>.

So I'll I'll I'll take the the multifamily a charge off part of that first Chris I think that was one credit that we had kept our eye on for quite some time.

And the resolution of that credit and not having it move into an Oreo position all things equal was a good outcome for the bank are really at the end of the day that.

Bader Hale: Our first question comes from the line of Bader Hale with Piper Sandler. Please proceed with your question. Hey, good morning, guys. Just filling in for Alex Wardle today. Good morning. How are you? Good. Did you get some color on what new loan yields are coming on the books that I know you mentioned, you know, some lower yielding loans are rolling off the loan book and you're adding higher yielding loans. So any color on new loan yields and maybe the yields on the specific segments that will be helpful. Sure.

There was an improvement related to that $1 2 million in our in our non accrual assets, but that really just got trade it out into a charge off metrics. So you know I don't view that as a as an over a ball overall favorable improvement for our non performing assets, but you know your to your question of could we see more of those types of things.

There's probably one credit where we're keeping a very close eye on where you can and that's already in our.

Our non accrual numbers, where we could see a similar instance, I don't think the numbers would be at the $1 $2 million range, it's something less than that but there is probably one more credit than were just keeping our eye on right now that are that could follow a similar path, albeit I don't have a good estimate as to when the timing will be on that.

Priscilla Brown: Happy to take that question. You know, yields bring on yields have been have been strong for the quarter. I would say an commercial portfolio blended the bring on rates for around seven seven and a quarter percent. Obviously that has a lot of movement across the segments. We saw about six and a half percent sort of on average between the multi family and our regular real estate. And then the CNI business was was quite a bit higher, probably more closer to the eight and nine percent range in certain cases.

And so.

Aside from those from those two loans that were speaking about you know on the credit quality side, though you know we've been able to see some substantial improvement.

That that occurred during the quarter, you know Ive talked a couple times about.

Sub standard loans, that's what I'm, saying or excuse me special mentioned loans that we.

We were waiting for some updated financial information and some other factors that would be triggers for improvement to the quality rating I think we were very prudent in waiting for those perhaps some of those could have been upgraded sooner than what you would've seen a a smoother trail on that on that.

Priscilla Brown: So so pretty strong yields there the pace assets were in the mid sevens during the quarter. And we're even seeing as you probably notice with the rates pushing up, you know, subsequent to the close of the quarter we're seeing increased rates again. We're seeing our pace assets now being originated in low eight percent range. Our multi families are probably right around seven percent. So we're really seeing a fairly decent lift and we're not really having any issues at the moment, you know, finding lendable opportunities that are also strong on credit metrics that are meeting market rates.

Criticized asset trend line.

But at the same time you know we're not really are the type of bank, that's going to just upgrade something because we think it's going to be in a past great situations and once we got empirical information on the metrics. You know we made the decision to do the upgrades, but they use to us are not substantial surprises we felt for quite a while that you know that these would be upgradable and <unk>.

We were able to reasonably communicate that in past quarters.

Priscilla Brown: So we think it ties really well into the point you raised about our lower yielding assets turning over and that's been something that we've been pointing to for a little while. And you know, the rate opportunities for the credit segments we operate in are fairly substantial, at this point. Got it, thanks.

Yeah absolutely.

And then I know you guys are are you.

Moving towards a.

Pace.

For your capital targets and still was able to eke out some repurchases along the way this quarter.

Bader Hale: I just want to switch to expenses. I know it seems like you guys found some stability. This quarter and last quarter and core expenses around this $37 million range. Is there any reason to believe that that won't be repeatable or like, how should we think about expenses maybe going into 4Q and entering 2024? So 4Q I think can look very similar to 3Q. We've been fairly disciplined in our approach for the entire year.

Do you think that is something that you can continue to do in.

In Q4, while moving towards those targets.

I I I reasonably do yes, you know I think everything that we put into our capital projections targets assumes a constant dividend Ah. It assumes a fair level of of capital allocation for buyback and it also assumes a.

Reasonable loss on.

Bader Hale: As you know, we moved into a kind of capital constraining mode after the events of mid-March and really focusing on building capital and being as prudent as possible with expense management. So the $37.37 and a half million kind of baseline that we've said over the past couple of quarters I think is reasonable to assume for Q4. Now I'll caveat that by saying, you know, quarter 4 is usually the quarter where if there is going to be a surprise that's when it comes up.

On undervalued assets like Securities and I'm sure you saw we took another 1.8 or so million in securities losses This quarter.

So the plan really kind of allows for some capital flexibility, we can probably accelerate the capital build if we pulled back on some of those other shareholder related metrics, but you know I'm not sure that that's really something we want to do.

It's always an arrow in the quiver, but we feel like the earnings stream that we've developed it really gets us and ability to quickly accumulate capital.

Bader Hale: So we're cautiously optimistic and I think I'm not really aware of anything major or material, otherwise I'll be letting you know today. But just kind of bear that in mind. When we think about 2024, I don't really have a number for you. Ordinarily we will forecast that in a guidance perspective when we do our Q4 earnings and we kind of roll forward our entire model for the upcoming plan year. But I do think that we're going to be making investments in our business.

You know I think this quarter, we slowed a little bit on the capital build because we carried a little bit of a larger balance sheet than we wanted.

But I do expect that to return to the levels of previous quarters, mainly because with.

With the with the deposit gathering we had we brought in a little bit of excess cash and.

And our borrowings or C. D brokerage CD maturities are really scheduled to start releasing this month and in the next month, so we'll be able to reduce that balance sheet size by about $150 million over the course of the quarter just because of the.

Bader Hale: I do think there'll be opportunities for us to make various improvements. And so I would not think that a $37 or $37.5 million quarterly run rate would be what we go for in the 2024 year. That said, we'll always kind of keep ourselves banded to a core efficiency ratio and even in this year we said 52% was really going to be our outer band and we were really going to try to stay within that and not go past that.

Of the brokered Cds that are going to be maturing and hopefully that will that will continue on our continue aiding our our capital building pace.

Great.

And so.

I'm, sorry did I hear you right a $100 million for the full balance sheet next quarter done.

It'll be it'll be $150 million for the brokerage CD maturities for the full quarter and we have about 100 million that'll be maturing before the end of this month of October.

Bader Hale: We would be disciplined similarly in the 2024 plan year and we'll have more to share about that at the next quarter. Got it. Thanks. That's all for now. We'll step back in the queue. Thanks for answering my questions. Thank you.

Got it.

And then just thinking about like the balance sheet as we move beyond Q4.

Chris O'connell: Our next question comes from the line of Chris O'Connell with KBW. Please proceed with your question. Okay. Hey, morning. It's quarter. Good. So I was hoping to get some color obviously political deposits. You know, the growth is great. This quarter and it seems to be, you know, talking along in early Q4. I was wondering if you could provide any color as to where you think, you know, they could top out at the top of the election cycle.

And into 2024.

You know how are you thinking about you know the amount of the pace of growth as we get beyond this quarter and loan growth.

Just the overall kind of net balance sheet growth as we get into next year, given there's still a fairly short duration securities portfolio and.

Chris O'connell: Next year and then also if you'd be willing to provide, you know, roughly where a blended range of the cost of the political deposits coming on the balance sheet are. Sure, Chris, happy to take a great talk to you again. So the political deposits have trended nicely for us. I think we've been very, very pleased with the results so far. I think it's nice to see that the historical expertise that we've built up and being able to reasonably predict the nature of these deposits has been playing out.

Obviously, there you have some still some ability to bring down our brokerage Cds or borrowings.

So.

Not really prepared yet Chris to talk much beyond the second quarter of next year.

We've targeted the second quarter.

As a sort of the the.

Potential end to a flat balance sheet structure now within that we will continue to add pace assets.

Do you think we were a little bit higher than we expected this quarter and that's fine because they were great volume opportunities for us, but I like the idea of somewhere between 35 and $40 million a quarter in net pace growth between now and the in the middle of the second quarter. We've we've got the.

Chris O'connell: And if I look at my current quarter, it looks a lot like what quarter three in 2021 looks like. So I think there's some repeatable trends that you could look to when you think about the forward quarters as a good benchmark for where deposit balances will likely top out. It's difficult to nail it down and say it's going to do one particular thing because the cycles are always different, but we feel pretty good about how those historical trends look.

<unk> coming through from our from our provider.

And we think it makes a lot of sense for us to be able to add assets in that space.

You know between the securities portfolio run off and AR and cash flow from you know from that we think that the you know the ability for us to generate loans that you know 2% to 3% sequential.

Sequential quarter loan growth is still very viable.

I do think we're going to keep moving our loans to secure I'm sorry of securities to loans ratio.

In a inverse direction. We're about 50 50, right now and you know I would expect that to be somewhere around 40% securities 60 per cent loans by the time, we get to the at the end of the second quarter. Next you know next year and then in terms of like absolute balance sheet growth and where we might go from there.

Chris O'connell: And I wouldn't expect us to be in excess of what those historical trends were at this time. I think if we're neutral to that or even to that, I think that would be a pretty good positive for us because the environment is certainly a lot different from a liquidity point of view than it was during the last cycle, Chris. In terms of the rates, we have seen a continuing trend towards interest bearing while these deposits are in an accumulation phase.

If you don't mind I'll reserve on that until we give you our full year projections. When we do our Q4 earnings release, but I do think you know well will be if we do things the way we expect we'll be in a spot where you know we will be able to to grow the balance sheet by some amount.

Chris O'connell: We talked last quarter that two-thirds of those deposits were in DDA or non-interest bearing. That trend has shifted to very close to 50-50 at this point. We think that that ratio will probably hold if not even continue to migrate downward. You could see a 40-60 ratio on the political deposit balances as we move towards the early part of next year. The later we go into the cycle, probably the more transactional it will become and a little bit less rate dependent because those deposits will be staged for usage.

Great. Yes, that's helpful and do you have.

Do you have how much.

Of the loan portfolio is set to mature over the next 12 months or so.

I do.

One major item for me, Yeah, I you know.

These are somewhat move around numbers, just because of prepayments and other types of events that might occur, but I would guess you're going to be somewhere in the range of over the next 12 months on the commercial portfolio 350 million to $370 million and I think it's gonna split.

Chris O'connell: That's generally how we're seeing the numbers right now and what I could reasonably project for you for the upcoming quarters. Great. That's super helpful. And then just shifting to the fees side, trust, we're down a little bit. I know that there's market factors on the AUM and AUC side. But you guys noted I think that the deck that they were down is striving for net revenue quality. Just hoping you could provide some color around what exactly that entails.

Somewhere around.

Two thirds for commercial real estate, including multifamily and about a third of that in CNI and.

And maybe to answer a follow on question I think the you know the yield on that particular in the real estate portfolio is going to be a nice opportunity for us to to replace him a blended yield on the real estate portfolio alone is about a just a little over 4%, maybe 4.05% somewhere in that range.

So you'll see quite a bit of the of the older assets are set to mature and you know, whether we reprice on those or or we choose to allow this refinance elsewhere. We think we have plenty of pipeline to be able to to keep our you know are repricing pace going in and not have any you know any balance sheet erosion.

Chris O'connell: One way to think about that is similar to the way we looked at lending and what you've seen going on in the lending book where we've traded out of customer activity that is less favorable to the bank in the long term and to better quality relationships that are more favorable to the bank long term. Certainly it's not a credit issue obviously on the trust side, but similar in the sense that we are looking for better quality and long term relationships.

Great.

Just last one for me we get an early look at our you know what the tax rate could be for next year.

Yeah, right now, we think it's going to be somewhere around 27.5%. It. It can change Chris I just wanted to be cautious on that but you know being at 27, and we're going to finish this year, we're targeting 27, 4%.

Chris O'connell: So as there's a natural attrition going on in the trust business, we are allowing that to happen. None of this is new or specific to the quarter. This is the follow on to activity we started earlier in the year where you'll recall we talked about. Rightsizing some of the fees, passing on some of the costs that appropriately should be passed on to customers. And then where that results in having a relationship that is not good for the bank long term or a good overall, then we've allowed the natural attrition to occur.

We had to go back and do a you know a an update to our annual effective tax rate. After we you know it became clear that we were going to have higher.

Pretax income I think we had a little bit of a lower assumption on some of the the original estimates when we when we were earlier in the year and some of the events were unfolding, but you know based on how we expect to end the year and based on what you know we think earnings might look like in the in the forward years, I think 27, 5% is probably a.

Reasonable estimate at this point, Chris and we'll tighten that up for you when we do our ATR calculation I'm you know early next year.

Chris O'connell: You saw that reflected in the quarter. Okay. Got it. And then as far as the credit trends in the quarter go, just any detail you could provide. I mean, there's a number of large upgrades that seemed like on the criticize and classified loans that were fairly substantial and a couple of pay-offs. And then in particular, the multi-family 1.2 million net charge off in 3Q. With that, with that getting sold at par, should we expect a reversal of that in 4Q?

Got it.

Thanks, Jason appreciate.

Appreciate you taking my questions.

Thanks, Chris Your question. Thank you.

Thank you.

There are no further questions at this time and I would like to turn the floor back over to management for closing comments.

Thank you Camilla and thank you for this very good questions.

And of course as Jason mentioned, we look forward to next quarter. When we can provide a little bit more color as to how the next year looks so with that we'd like to as usual invite you to continue to ask your questions. We're available over the.

Of course of the next days and are we like the bid you. Good day. Thank you.

Chris O'connell: So I'll take the multi-family charge off part of that first, Chris. I think that was one credit that we had kept our eye on for quite some time. And the resolution of that credit, not having it move into an Oreo position, all things equal, was a good outcome for the bank. Really at the end of the day that there was an improvement related to that 1.2 million in our non-accrual assets. But that really just got traded out into a charge off metric.

Thank you.

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Yeah.

Hmm.

Oh.

Uh huh.

Hum.

Hum.

[music].

Chris O'connell: So I don't view that as an overall favorable improvement for our non-performing assets. But your tier question of could we see more of those types of things? There's probably one credit where we're keeping a very close eye on, and that's already in our non-accrual numbers where we could see a similar instance. I don't think the numbers would be at the 1.2 million dollar range. It's something less than that. But there is probably one more credit that we're just keeping in our eye on right now that could follow a similar path, albeit, I don't have a good estimate as to when the timing will be on that.

Hum.

[music].

Hum.

Hum.

[music].

Yeah.

Uh huh.

[music].

Okay.

[music].

Chris O'connell: And so aside from those two loans that we're speaking about on the credit quality side though, we've been able to see some substantial improvement that occurred during the quarter. I've talked a couple of times about some standard loans, special mention loans that we were waiting for some updated financial information and some other factors that would be triggers for improvement to the quality rating. I think we were very prudent in waiting for those.

Chris O'connell: Perhaps some of those could have been upgraded sooner and what you would have seen a smoother trail on that criticized asset trend line. But at the same time, we're not really the type of bank that's going to just upgrade something because we think it's going to be in a past great situation. So once we got empirical information on the metrics, we made the decision to do the upgrades. But these two us are not substantial surprises.

Mhm.

[music].

Chris O'connell: We felt for quite a while that these would be upgradable and hopefully we were able to reasonably communicate that in the past court, members. The absolutely. And then I know, you guys are moving towards on pace for your capital targets and still was able to, you know, you have some repurchases along the way this quarter. Do you think that is something that you can continue to do in Q4 while moving towards those targets?

Chris O'connell: I reasonably do. Yes. You know, I think everything that we put into our capital projection targets assumes a constant dividend. It assumes a fair level of capital allocation for buyback. And it also assumes a reasonable loss on, on undervalued assets like securities. And I'm sure you saw we took another 1.8 or so million in securities losses this quarter. So the plan really kind of allows for some capital flexibility. We could probably accelerate the capital build if we pull back on some of those other shareholder related metrics.

Chris O'connell: But, you know, I'm not sure that that's really something we want to do. It's always an hour on the quiver. But we feel like the earning stream that we've developed, you know, really gets us an ability to quickly accumulate capital. You know, I think this quarter we slowed a little bit in the capital build because we carried a little bit of a larger balance sheet than we wanted. But I do expect that to return to the levels of previous quarters mainly because with the deposit gathering we had, we brought in a little bit of excess cash.

Chris O'connell: And our borrowings or our CD broker CD, maturities, we're really scheduled to start releasing this month and the next month. So we'll be able to reduce that balance sheet size by about $150 million over the course of the quarter just because of the, of the brokered CDs that are going to be maturing. And hopefully that will, you know, that will continue on our, continue aiding our capital building pace. Great. And so I'm sorry, did I hear you're at a hundred million dollars for the full balance sheet next quarter down?

Chris O'connell: It'll be, it'll be 150 million for the broker CD maturities for the full quarter. And we have about a hundred million that'll be maturing before the end of this month, October. Got it. And then just thinking about like the balance sheet as we move beyond Q4, you know, in into 2024. You know, how are you thinking about, you know, the amount of, you know, pace growth as you get beyond this quarter and loan growth.

Chris O'connell: And just, you know, the overall kind of net balance sheet growth as we get into next year, you know, given, you know, there's still fairly short duration securities portfolio. And, you know, obviously there, you know, you have some, still some ability to bring down, you know, broken CDs or borrowing.

Jason Darby: So, not really prepared yet, Chris, to talk much beyond the second quarter of next year. We've targeted the second quarter as sort of the potential end to a flat balance sheet structure. Now, within that, we will continue to add pace assets. You think we were a little bit higher than we expected this quarter, and that's fine, because there were great volume opportunities for us. But I like the idea of somewhere between $35 and $40 million a quarter in net pace growth between now and the middle of the second quarter.

Jason Darby: We've got the capacity coming through from our provider, and we think it makes a lot of sense for us to be able to add assets in that space. You know, between the security portfolio runoff, and cash flow from that, we think that the ability for us to generate loans, that, you know, two to three percent sequential quarter loan growth is still, you know, very viable. You know, I do think we're going to keep moving our loans to secure, I'm sorry, our securities to loans ratio in a inverse direction. We're about 50-50 right now, and I would expect that to be somewhere around 40 percent security, 60 percent loans, by the time we get to the end of the second quarter next year.

Jason Darby: And then in terms of like absolute balance sheet growth, and where we might go from there, if you don't mind, I'll reserve on that until we give you our full year projections when we do our Q4 earnings release. But I do think, you know, we'll be, if we do things the way we expect, we'll be in a spot where, you know, we'll be able to grow the balance sheet by some amount.

Jason Darby: Great, yeah, that's helpful. And do you have, you have how much of the loan portfolio is set to mature over like the next 12 months or so? I do. One minute here, I had that. Yeah, you know, and these are somewhat move around numbers just because of prepayments and other types of events that might occur. But I would guess you're going to be somewhere in the range of over the next 12 months on the commercial portfolio, $350 million to $370 million.

Jason Darby: And I think it's going to split somewhere around two thirds for commercial real estate, including multi-family and about a third of that in CNI. And maybe to answer a follow on question, I think the yield on that particular and the real estate portfolio is going to be a nice opportunity for us to replace a blended yield on the real estate portfolio loan is about just a little over 4%. And maybe 4.05% somewhere in that range.

Jason Darby: So you'll see quite a bit of the of the older assets set to mature and, you know, whether we reprise on those or, you know, we choose to allow those to refinance elsewhere. And we think we have plenty of pipeline to be able to keep our, you know, our repressing pace going and not have any, you know, any balance here. Group. Great. The interesting last one for me could get an early look at what the tax rate could be for next year.

Jason Darby: Right now, we think it's going to be somewhere around 27.5%. It can change, Chris. I just want to be the cost on that. But being at 27, and we're going to finish this year, we're targeting 27.4%. We had to go back and do an update to our annual effective tax rate after we became clear that we were going to have higher pre-tax income. I think we had a little bit of a lower assumption on some of the original estimates when we're earlier in the year and some of the events are unfolding.

Jason Darby: But based on how we expect to end the year and based on what we think earnings might look like in the forward years, I think 27.5%. There's probably a reasonable estimate at this point, Chris, and we'll tighten that up for you when we do our AETR calculation early next year. Got it. Thanks, Jason. Thanks, Cazella. Appreciate you taking my questions. Thanks, Chris. Good question. Thank you.

Priscilla Brown: There are no further questions at this time, and I would like to turn the floor back over to management for closing comments. Thank you, Camilla, and thank you for those very good questions, and of course, as Jason mentioned, we look forward to next quarter when we can provide a little bit more color as to how the next year looks. With that, we'd like to, as usual, invite you to continue to ask your questions. We're available over the course of the next days, and we'd like a video of good day. Thank you.

Operator: This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.